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THIRD DIVISION

R.R. PAREDES, W.S. TIFFANY, T.R. G.R. No. 156055


KOTZE, H. MUSSAIN, FRANCISCO A.
CRUZ, EDGARDO C. CATAGUIS, E.M. Present:
LAPUZ, ATTY. JOSELIA POBLADOR, JOSE
DE LUSONG, EDUARDO A. RICARDO, YNARES-SANTIAGO, J.,
ATTY. ARIEL F. ABONAL, and ADOLFO Chairperson,
GARCIA, AUSTRIA-MARTINEZ,
Petitioners, CALLEJO, SR.,*
CHICO-NAZARIO, and
NACHURA, JJ.
- versus-

TARCISIO S. CALILUNG,
Respondent. Promulgated:

March 5, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court seeking the
reversal and setting aside of the Decision, [2] dated 29 January 2001, and Resolution, [3] dated 14 November
2002, of the Court of Appeals in CA-G.R. SP No. 54862. In its assailed Decision, the Court of Appeals
reversed the Resolution,[4] dated 27 July 1998, of the Department of Justice (DOJ), which affirmed the
Resolution,[5] dated 7 October 1997, of the Makati City Prosecution Office, finding no probable cause and
dismissing the herein respondents complaint, docketed as I.S. No. 97-22188-191; and, instead, disposed as
follows

WHEREFORE, the resolution of the Department of Justice dated November 26, 1997,
is hereby set aside. The Prosecutor of Makati, is hereby Ordered to file an
information of Estafa against the respondents.

During the time material to the Petition at bar, petitioners Francisco A. Cruz
(Cruz), Edgardo C. Cataguis (Cataguis), Atty. Joselia J. Poblador (Atty. Poblador), Jose
De Lusong (De Lusong), Eduardo A. Ricardo (Ricardo), and Atty. Ariel F. Abonal (Atty. Abonal) were serving,
in various capacities, as officials of Caltex Philippines, Inc. (CPI).Petitioner Cruz was the Vice President for
Corporate Planning and a member of the Board of Directors of CPI; petitioner Cataguis was the General
Manager for Marketing and also a member of the Board of Directors of CPI; petitioner Atty. Poblador was
the Corporate Secretary and General Manager for Legal and Tax of CPI; petitioner De Lusong was the
General Manager for Marketing Retail of CPI; petitioner Ricardo was the General Manager for Marketing of
CPI for the years 1990-1996; and petitioner Atty. Abonal was the internal Legal Counsel of CPI.

On 3 May 1997, respondent Tarcisio S. Calilung (Atty. Calilung), a lawyer and a businessman,
instituted a Complaint, docketed as I.S. No. 97-22188-191, against the aforementioned petitioners and
several others. Respondent included in his complaint R.R. Paredes, W.S. Tiffany, T.R. Kotze, H. Mussain, and
E.M. Lapuz, who had likewise served as officials of CPI but are no longer connected with the company and
whose whereabouts as of present time are unknown. They did not participate in any
proceedings.Respondent also included in his complaint Adolfo B. Garcia (Garcia), the Deputy Sheriff of the
Manila Regional Trial Court (RTC), Branch 31, who participated in the proceedings before the Makati City
Prosecution Office and the DOJ, but no longer participated in the instant petition.

In his complaint before the Makati City Prosecution Office, respondent charged petitioners, et al.,
with several counts of estafa. Respondents Original Complaint was summarized in the Resolution,
[6]
dated 7 October 1997, of the Makati City Prosecution Office, to wit

[Herein respondent] Tarcisio S. Calilung alleged that [herein petitioner]


Atty. Joselia Poblador, Chief Legal Counsel of Caltex Philippines (Caltex for brevity)
negotiated to him the sale of several parcels of land consisting of 228.9 hectares, more or
less[,] situated at Barrio Alibagu, Ilagan, Isabela. Atty. Poblador represented to [respondent]
that Caltex is the absolute owner of all the parcels [of] land as it acquired the same at a
Sheriffs Auction Sale, a copy of a Sheriffs Certificate of Final Sale was shown to
[respondent]. Likewise, Atty. Poblador represented and assured complainant that subject
property is not covered by the Agrarian Reform Program and that the adverse occupants
thereof are mere squatters. Consequently, [respondent] paid the total amount of P3.5 Million
for all the said parcels of land in two payments. Thereupon, a Deed of Assignment with
Consolidation of Title dated June 22, 1995 was executed
between Caltex Philippines and Tarcisio S. Calilung. Later, [respondent] discovered that none
of the representations made to him by [petitioner] Atty. Poblador is true. Contrary to
Atty. Pobladors representation, Caltex Philippines is not the absolute owner of the several
parcels of land sold to him. Accordingly, the several parcels of land are owned by the heirs of
Antonia Medina (sic). Caltex Philippines is the owner of only one share of the co-heirs which
it acquired at the Sheriffs Auction. Further, [respondent] learned that on August 3,
1993, Caltex thru E.A. Ricardo, manager for Marketing, has already sold the subject parcels
of land to the Department of Agrarian Reform under Voluntary Offer To Sell program of the
Government. Also, complainant averred that the Sheriffs Certificate of Final Sale executed by
Deputy Sheriff Adolfo Garcia shown to him was falsified as it showed that Caltexs bid of P2.7
Million was successful and it is the absolute owner of all the parcels of land. The truth
however, is that Caltex is the owner of only one share of one of the co-
heirs. Lastly, Caltex through E.A. Ricardo misrepresented to the Department of Agrarian
Reform that the subject property is agricultural inorder (sic) that it will qualify and be sold
under the Agrarian Reform Program. The truth of the matter is the said parcels of land are
pasturelands thus, exempt from the coverage of the Agrarian Reform Program. Hence,
[respondent] filed this complaint for Estafa against R.H. Paredes, W.S. Tiffany, T.R. Kotze,
H. Mussain, F.A. Cruz, E.C. Cataguis, E.M. Lauz who are members of the Board
of Caltex Philippines, Atty. Joselia Poblador, Chief Legal Counsel, Jose De Lusong, signatory of
the Deed of Assignment and E.A. Ricardo, manager for Marketing and Atty. Ariel F. Abonal,
assistant Secretary to the Board of Caltex Philippines who according to him acted in concert
in perpetrating the crime charged. Likewise, a complaint for Falsification is instituted against
Adolfo Garcia who connived with the above-mentioned officers/members of the Board
of Caltex Philippines for falsification.

To answer the respondents accusations against them, petitioners Atty. Poblador, Cruz, Cataguis,
De Lusong, and Ricardo, submitted their Joint Counter-Affidavit, [7]averring that the respondents complaint
was without basis in fact and in law, and that they could not be held liable for estafa. The contents of their
Joint Counter-Affidavit were concisely recounted by the Makati City Prosecutor in her Resolution,[8] dated 7
October 1997

Jose de Lusong and Atty. Poblador claimed that they did not at any time represent
that Caltex Philippines is the absolute owner of the entire subject parcels of land.

[Herein petitioners] narrated that Caltexs rights and interests on subject parcels of
land arose from Civil Case No. 84-22434 entitled Caltex Philippines vs.
Antonia Vda.de Medina at Branch 31, RTC-Manila. Antonia Vda. de Medina
is Caltexs judgment debtor and is [respondents] mother-in-law. During the pendency of the
case, or on February 7, 1984, 5 Notices of Levy on Attachment were issued against the
rights, titles and interest of [respondents] mother-in-law. The undivided shares of the other
heirs, two (2) children of Antonia Vda. de Medina were never levied. On September 17, 1984,
a decision was rendered in favor of Caltex Philippines and the same became final
and executory.On July 24, 1989, a Writ of Execution was issued. On July 24, 1989, Deputy
Sheriff Adolfo B. Garcia issued a Notice of Levy Execution [sic] where only the shares, rights
and interests of [respondents] mother-in-law over subject parcels of land were levied
upon. Likewise, a notice of Sheriffs Sale was issued. On August 23, 1989, Caltex, through
Atty. Rafael Durian bidded P4.5 Million for the purchase of the rights, shares of [respondents]
mother-in-law in subject parcels of land. Consequently, the subject parcels of land (shares
and interests of Antonia Vda. de Medina which is 66.67% of the entire property) were sold
to Caltex Philippines in the amount of P2,785,620.00. After the execution of the sale,
[respondents] mother-in-law was given one (1) year within which to redeem her interest over
the subject land.

After the lapse of the one (1) year redemption period given to
Antonia Vda. de Medina, [respondent] went to Caltex office and propose [sic] to reacquire
the interest of Antonia Vda. de Medina and to pay the defficiency (sic) judgment obligation
of his mother-in-law. Caltex Philippines, through its office accepted the proposal of
[respondent] to buy the parcels of land. Complainant further requested that all cases against
his mother-in-law be withdrawn. Caltex Philippines agreed and the sale of the said subject
parcels of land to [respondent] in the amount of P3.5 Million materialized. On the first
payment made by the [respondent], Caltex Philippines executed a Deed of Waiver and
Quitclaim in all cases filed against [respondents] mother-in-law. Thereupon, a Deed of
Assignment with Consolidation of Title was executed by herein parties after the balance
[thereof] was tendered by [respondent].

On the alleged sale by Caltex Philippines of subject parcels of land to the Department
of Agrarian Reform, [petitioners] denied having sold the same to DAR. According to
[petitioners], it was Antonia Vda. de Medina through her attorney-in-fact Carlito Baluang who
transacted the voluntary Officer (sic) To Sell with the Department of Agrarian Reform
sometime in 1988 and 1989. Subsequently, by virtue of the Deed of Assignment (With
Special Power of Attorney Couple (sic) With Interest) executed by Antonia Vda.de Medina
ceded in favor of Caltex Philippines, wherein Antonia Vda. de Medina all her rights, interests,
claims and participation from the proceeds of land compensation for all the property that
she has voluntarily offered to sell to Caltex Philippines and constituted the latter as its (sic)
exclusive attorney-in-fact to follow-up with the Department of Agrarian Reform. Accordingly,
this matter is make (sic) known to [respondent]. It was on the strength of [respondents]
relation to Antonia Vda. de Medina and his assurance that he has connections with DAR that
CPI decided to sell subject property to [respondent].

[Petitioners] denied the allegation of [respondent] that Caltex officers and directors
conspire (sic) with Deputy Sheriff Adolfo B. Garcia and notary Public Atty. Ariel Abonal in the
falsification of the Sheriffs Certificate of Final Sale by representing that Caltex bidded for the
entirety of all the parcels of land subject of the sale and using the said falsified documents
to convince [respondent] of Caltexs absolute title over the subject parcels of land.

Lastly, the declaration [of] Mr. Eduardo A. Ricardo that subject parcels of land is (sic)
agricultural in nature in the Voluntary Officer (sic) To Sell to the DAR can hardly be
considered a crime moreso that there is no other proof presented than the mere self-serving
statement of Mr. Ricardo. Besides, in the Deed of Assignment with Consolidation of Title,
there is not (sic) warranty as to the properties[] classification or primary use given.

Deputy Sheriff Garcia submitted his own Counter-Affidavit with a Counter-Complaint for Perjury. [9] He
essentially affirmed the narration made in the petitioners Joint Counter-Affidavit, particularly, the events
arising from Civil Case No. 84-22434, instituted by CPI against respondents mother-in-law,
Antonia Vda. de Medina, before the Manila RTC.After the Decision, dated 17 September 1984, rendered by
the Manila RTC against Antonia Vda. de Medina, became final and executory, and upon failure of
Antonia Vda. deMedina to pay her judgment debt to CPI, Deputy Sheriff Garcia proceeded to implement
the Writ of Execution which levied upon Antonia Vda. de Medinas rights, interests, title and participation in
the subject real properties. At the execution sale held on 24 August 1989, CPI won the bidding. It bought
Antonia Vda. de Medinas limited interests over the subject real properties in the total amount of P4.5
Million. CPIs winning bid was broken down[10] as follows

P2,785,620.00 For the parcels of land covered by TCT Nos. T-


132694, T-133034, T-94234, T-124684, T-
139590, T-138153, T-138154, T-138155, T-
133033, T-133021, T-133022, T-133023, T-
133024, T-133025, T-133026, T-133027, T-
133028, T-133029, T-133030, T-133031, T-
133032, T-133033 and T-133034; and,

P1,714,380.00 For the parcels of land covered by Tax


Declaration Nos. 01-262, 01-265, 01-25080, 01-
29376 and 01-23470

P4,500,000.00 Total

When Antonia Vda. de Medina failed to redeem her interest in the subject real properties within a year
from the execution sale, ownership over the said interest was consolidated in CPI. Deputy Sheriff Garcia
explained that he prepared the Final Certification of Sale on 24 October 1990, although it was notarized
only on 1 February 1994. He denied that he ever conspired with CPI, through its officers and directors, to
make false representations to respondent that CPI was the absolute owner of the subject real properties; to
maliciously conceal from respondent that CPI already sold the subject real properties to the Department of
Agrarian Reform (DAR); or to falsify the Sheriffs Certificate of Final Sale so as to convince respondent that
CPI had absolute title over the subject real properties. He averred that he conducted the execution sale as
part of his official duties and in accordance with the Rules of Court and the judgment issued by the Manila
RTC in Civil Case No. 84-22434. He also maintained that only the rights and interests of
Antonia Vda. de Medina over the subject real properties were covered by the execution.

Respondent submitted a Reply-Affidavit in which he insisted that the concealment of a prior sale,
the falsification of the Sheriffs Certificate of Final Sale and the conspiracy among the petitioners, et al., and
the others can be readily seen. Once again, reference is herein made to the Resolution, dated 7 October
1997 of the Makati City Prosecution Office which related[11] thus

[Herein respondent] alleged that he married the daughter of Antonia Vda. de Medina
on November 22, 1994. In early November of 1994, Atty. Villacorta, [respondents] counsel,
inquired from Caltex about the redemption of subject parcels of land. Caltex refused their
offer to redeem the property because the period for redemptions (sic) has long
expired. However, Caltex proposed that if they are interested in the remaining subject
properties, they can purchase the same, Caltex demanded for P9 Million for the fourteen
(14) parcels of land consisting of 228.9 hectares. Caltex never informed [respondent] or his
counsel that the entire properties were sold to DAR for [P]1 Million. On November 1994,
[respondent] formally offered to buy the entire fourteen (14) parcels of land [pay for] P3.5
Million as earnest money which was accepted by Atty. Poblador. Even if the titles over the
subject parcels of land was (sic) still in the name of Antonia Medina (sic), he believed
Atty. Pobladors representation that Caltex is the absolute owner by virtue of the Sheriffs
Certificate of Final Sale handed to him. Nowhere in the Sheriffs Certificate of Final Sale that
only undivided share of Antonia Medina was auctioned.

The certificate of Final Sale was dated October 24, 1990 but notarized only
on November 15, 1994, which is more than a week before he paid the earnest money
on November 29, 1994. Lastly, the declared sale price of P2,785,620.00 does not correspond
to the written winning bid by Caltex for P4.5 Million.

To support his foregoing allegations, respondent also submitted the Affidavit [12] of his counsel, Atty.
Rolando A. Villacorta (Atty. Villacorta), who supposedly represented and assisted him during the
negotiations with CPI for the purchase of the subject real properties. Atty. Villacorta attested that he met
with both petitioners Attys. Poblador and Abonal of CPI regarding respondents offer to purchase the subject
real properties; that Atty. Poblador, in response to a direct query by respondent, expressly denied that the
subject real properties were covered by the Comprehensive Agrarian Reform Program (CARP) of the
Government; and that respondent was never informed that what he was purchasing was not the whole of
the subject real properties, consisting of 229 hectares, but only an undivided share therein.

In their Joint Rejoinder,[13] petitioners Cruz, Cataguis, De Lusong, Ricardo and


Attys. Poblador and Abonal denied meeting and talking to Atty. Villacorta. According to petitioners
Attys. Poblador and Abonal, at the beginning of their negotiations for the purchase by respondent of the
subject real properties from CPI, the latter was accompanied, not by Atty. Villacorta, but an Atty. Karl
Miranda from the Office of the Solicitor General (OSG), acting as a broker. During their meeting, they
discussed about the redemption of the rights, interests, and title of Antonia Vda. de Medina over the
subject real properties. In their succeeding meetings, petitioners stressed that respondent was informed
that CPI was selling and assigning only the limited rights, interests, and title of Antonia Vda. de Medina
over the subject real properties, and that the subject real properties were under the coverage of CARP and
were subject of a Voluntary Offer to Sell (VOS). Petitioners pointed out that respondent himself admitted
that he was purchasing only the limited interest of Antonia Vda. de Medina in the subject real properties
when he stated in his letter,[14] dated 29 November 1994, addressed to CPI, that, We are pleased to inform
you that we accept your offer to sell to us for P3.5 Million your interest in the foreclosed Medina properties.

Moreover, to belie the attestations of respondent and Atty. Villacorta in their affidavits, petitioners
presented the Affidavits of Attys. Rodrigo B. Libunao, Jr.[15] and Catherine T. Manahan, [16] Legal Counsel and
Tax Counsel, respectively, of CPI, who were also present during the meetings of petitioner
Atty. Poblador with respondent. They both alleged that they were called to join the meeting in October
1994 wherein respondent was accompanied, not by Atty. Villacorta, but Atty. Miranda of the OSG; that
respondent claimed to be married to Ma. Luisa Victoria Medina, the daughter of Antonia Vda. de Medina,
and he was interested in acquiring CPIs rights, interests, and title to the subject real properties in exchange
for CPIs execution of a waiver or quitclaim to secure the release of Antonia Vda. de Medina who was in
prison by reason of the criminal cases filed by CPI against her; and that Atty. Poblador made full disclosure
to respondent that CPI had, and was assigning to respondent, only the limited rights, interests, and title of
Antonia Vda. de Medina over the subject real properties, and that the subject real properties were under
the coverage of CARP and the subject of the VOS initiated by Antonia Vda. de Medina herself, through her
attorney-in-fact Carlito Balauag.

Atty. Libunao further claimed that on 1 December 1994, when respondent came unaccompanied to
the CPI Office to pay the P1 Million earnest money, Atty. Libunao again explained to him in detail the
following

a. That CPI was merely a co-owner of the said properties as there were other heirs to the
estate, one of whom was his wife, and that only the undivided share pertaining to
Antonia Vda. de Medina which we acquired in an execution sale in Civil Case No. 84-
22434 could be transferred to him.

b. That photocopies of the TCTs to the subject parcels of land were furnished, and
exhibited to, him and he carefully noted that the subject parcels of land were in the
name of Heirs of Antonio Medina.

c. That the subject parcels of land were covered by the Comprehensive Agrarian Reform
Program (CARP) by virtue of a Voluntary Offer to Sell signed by Antonia Vda. de Medina,
through her attoreney-in-fact, Mr. Carlito Balauag. A copy of this document was also
furnished Atty. Calilung.

d. That out of the sixteen (16) parcels of land under process by the DAR, two (2) lots are
ready for compensation and that the money has already been deposited by the DAR in a
trust account in the Landbank branch in Tuguegarao, Cagayan.
e. That the fourteen (14) subject parcels of land are still under process by the MARO
in Ilagan, Isabela and that the latter has started to identify the actual occupants and
proposed beneficiaries of the same.
f. That payment of compensation under the CARP was being delayed by the fact that the
heirs of Antonio Medina have not initiated any estate settlement proceeding and that
none of the heirs has ever participated in the DAR conferences, despite notice. [17]

When Atty. Libunao again asked him if he really understood the complexities of the CARP issues affecting
the subject real properties, respondent allegedly confidently replied that he had been successful in
preserving his and his familys landholdings in Pampanga and that he will do the same for the subject
parcels of land.[18]

On 7 October 1997, the Makati City Prosecution Office wrapped up its preliminary investigation and
issued its Resolution, in which it made the following findings and recommendations [19]

After a careful examination of the evidence obtaining in this case the undersigned
finds that: (1) there appears no conceivable fraudulent representations committed by
[herein petitioners, et al.] (Caltex Officers) in the negotiation and sale of subject parcels of
land, (2) there is no sufficient proof to show that the Sheriffs Certificate of Final Sale was
falsified by [Deputy Sheriff Garcia] in connivance with [petitioners, et al.] Caltex Officers;
and (3) that there is insufficient evidence to substantiate [respondents] claim that
[petitioners, et al.] (Caltex Officers) made false declaration that subject parcels of land are
productive agricultural land so these parcels of land may be covered and sold under the
Agrarian Reform Program of the Government.

xxxx

Seemingly, [respondent] would want to extricate himself from a bad bargain and
annul the effects of an unwise act. If the [respondent] failed to apprise himself of the
consequence of his purchase of subject parcels of land from Caltex[,] he was simply
unfortunate. As it would appear all documents and informations (sic) about the parcels of
land subject matter of the sale transactions entered by the parties are in [respondents]
hands for his scrutiny. [Respondent] is a lawyer and as such it can be presumed that he
knows the complexities/controversies attached to the interests and rights of his mother-in-
law (Antonia Vda. de Medina) over the parcels of land he wants to purchase from
[petitioners, et al.] Caltex Officers. Clearly, there was no misrepresentation and/or
concealment regarding the ownership of Caltex over subject parcels of land. Neither was
there falsification committed on the Sheriffs Certificate of Title.

xxxx

WHEREFORE, premises considered, it is respectfully recommended that complainant


(sic) against [petitioners, et al.] Caltex Officers and Adolfo Garcia be dismissed, as it is
hereby upon, approval, dismissed.

Likewise, it is recommended that the counter-charge of perjury against [respondent]


be dismissed.

Aggrieved, respondent filed with the DOJ a Petition for Review of the Resolution, dated 7 October 1997, of
the Makati City Prosecution Office. However, on 27 July 1998, the DOJ resolved [20] to dismiss his Petition for
Review, ratiocinating thus

The record clearly shows that the subject parcels of land were previously owned by
the late Antonio Medina. Upon the latters death, the said properties were inherited by
Antonia Vda. de Medina and her children through intestate succession. When Caltex filed a
civil case against Antonia Vda. de Medina, who is [herein respondents] mother-in-law, the
latters rights, title and interests over the subject properties were levied on attachment
during the pendency of the said case. Thereafter, upon judgment in favor of Caltexin the
said civil case; and, pursuant to the writ of execution issued therein, the rights, title and
interests of Antonia Vda. de Medina over the said parcels of land were levied on execution
and, consequently, sold at public auction with Caltex eventually winning the bid. Finally, a
certificate of sheriffs sale was issued and based thereon Caltex became the owner of the
undivided interest of Antonia Vda. de Medina over the subject parcels of land.

We find it incredible for [respondent] not to have known the foregoing


circumstances. It must be stressed that [respondent is] a member of the family of
Antonia Vda. de Medina. It taxes ones credulity that [respondent] would have had no
personal knowledge about the familys properties which were the subject of the sale
transaction [respondent] had with Caltex. Besides, [respondent is] a lawyer [himself]. As
such, not only [was respondent] expected to know the intricacies and complexities of the
sale transaction [he] entered with Caltex but also [respondent] had all the means and
resources to check and counter-check the veracity of [herein petitioners, et al.s]
representations. Indeed, it is hard to believe that [respondent] chose to just take the word of
[petitioners, et al.] that Caltex is the owner of all the subject properties rather than examine
the documents pertaining thereto before parting with a substantial amount of money. We
take with a grain of salt [respondents] allegation that during the sale negotiations
[respondent was] unaware of the extent of the ownership of Caltex over the properties in
question not only because of [respondents] stature as a lawyer-businessman but also
because of [his] personal knowledge thereon by reason of [his] being a member of the
family of Antonia Vda. de Medina from whom Caltex acquired the subject properties. Under
this milieu, no amount of fraudulent misrepresentations from [petitioners, et al.] could have
misled [him] into executing with Caltex the Deed of Assignment with Consolidation of Title
over the properties in question.

The foregoing circumstances not only create suspicion as to [respondents] actual


motive in filing the instant complaint but also strengthen [petitioners] claim that there is,
indeed, reasonable ground to believe that [respondent] entered into the transaction in
question knowing fully well that what was being sold by Caltex was only the undivided
interest of [his] mother-in-law who is one (1) of the co-heirs in (sic) the subject parcels of
land.

Besides, no clearer acknowledgment by [respondent] of [his] knowledge on (sic) the


circumstances surrounding the subject properties than as stated in par. 3, p. 5, of the Deed
of Assignment with Consolidation of Title can be made, which states thus

xxxx

4. ASSIGNEE [respondent] further acknowledges that he is fully aware


of the circumstances under which these Properties were acquired by
ASSIGNOR [CPI] and that he has examined the title and inspected the said
properties and has verified their location together with their boundaries. x x x

As regards the findings of the City Prosecutor on [respondents] other charges


for estafa under Article 315, par. (3) of the Revised Penal Code and falsification/use of
falsified documents, we can find no cogent reason to alter, modify much less reverse the
same.

WHEREFORE, [respondents] instant petition for review is hereby dismissed.

Respondents Motion for Reconsideration was denied by the DOJ in another Resolution dated 30 June
1999.

This prompted respondent to file with the Court of Appeals a Petition for Certiorari under Rule 65 of
the Rules of Court, contending that the DOJ and the Makati City Prosecution Office committed grave abuse
of discretion amounting to lack or excess of jurisdiction in dismissing respondents complaint in I.S. No. 97-
22188-191. The Court of Appeals, in its Decision, [21] dated 29 January 2001, reversed the findings of the
DOJ and the Makati City Prosecution Office, and ordered the filing of an information for estafaagainst the
petitioners, based on the following raison d'tre

The Court after a perusal over (sic) the ruling of the Department of Justice believes
that said resolution deserves scant consideration. This is so because the issue on double
sale was just taken in passing by the Department of Justice, when that issue is paramount in
the case.

It appears on record that E.A. Ricardo, General Manager Marketing commercial


of Caltex offered for sell (sic) to DAR the subject property.

xxxx

It should be noted that the sale to DAR is unlike the ordinary contract to sell
transactions wherein one could determine when a sale is consummated. But at this instance,
where voluntary offer to sell has been made, where process has been undergoing at that
time, We opine that there is already sale considering the unique circumstance of selling the
subject landholding to the DAR.

This is so because under Administrative Order No. 5 series of 1992, it provides that
landowners who entered into Voluntary Offer to sell can no longer back out, except under
the exceptional circumstances as earlier illustrated. The present case is one that is not of
the exception. Hence, if a landowner can no longer back out since he entered into that kind
of transaction and by entering into another sale such as in this case, fully knowing of the
circumstances but without divulging the same to the petitioner, would that not tantamount
to misrepresentation, fraud and deceit.

A careful perusal on (sic) the comments and arguments of the [herein petitioners]
that it (sic) did not refute in whatever manner that there was a sale that took place between
the Department of Agrarian Reform and the CPI. As a matter of fact, a reading of the
foregoing, in consonance with the VOS would connote that the sale has indeed been entered
into because Caltex knew that a process has been undertaken by the DAR (p. 175
[petitioners] Comment) x x x.

These are an admission (sic) so far, that there was indeed a previous transfer of the
subject parcels of land to the DAR as they never disputed that there was a sale between CPI
and DAR. The words of CALTEX are simple and explicit, there was an offer and transfer and
that there was already an ongoing process of the VOS. Hence, there was a sale by virtue of
the voluntary offer to sell under the Comprehensive Agrarian Reform Program. The only
thing is that, Caltex denies responsibility that it was the one who offered the sale to DAR, but
it claim (sic) instead that it was Antonia Vda. de Medina. But this argument bears no
weight. Regardless of whether or not Antonia Vda. de Medina was the one who offered to sell
the property to DAR, CALTEX cant absolve itself from any responsibility.

xxxx

So whether or not the first voluntary offer to sell to the Department of Agrarian
Reform was made by Antonia Vda. de Medina and the second offer was made by CALTEX to
DAR, to our mind is, of no moment. One thing is thus, clear, CALTEX who duly executed the
necessary documents. There is nothing on record which would reveal that [petitioners] was
(sic) able to prove that [herein respondent] was fully informed of the first sale made to DAR.

Further, [petitioners] claimed that being a son-in-law,it (sic) would be impossible for
[respondent] not to know it. This is not sufficient reason to conclude that [respondent] was
aware of the attending circumstances. And we cannot therefore, agree with the conclusion of
the DOJ.

Clearly then, the evidence points out that what appears to have been sold were the
properties described in the 14 TCTs without any qualification thereon. And that the existence
of a double sale cant be contested, there being an admission by the [petitioners] that there
was a sale made to DAR prior to herein [respondent].

xxxx

With the acts of CALTEX in the case at bar it can be gleaned therefrom that there was
no clear transactions [sic] that took place, thus, there was an evident misrepresentation to
the damage and prejudice of the [respondent]. As supported by the Deed of Assignment
itself, the assurances given by the assignor CALTEX to [respondent] is a grave
misrepresentation to the [respondent] who is the buyer of the properties in question. That
where there was no divulgement made by the CALTEX to petitioner of the sale to DAR, there
is no question that deceit is present. The presence of damage and deceit are (sic) apparent
in the present case, hence, the very elements of Estafa exist.

Even granting that the sale was only with respect to the individual share or interest of
CALTEX, it cant be denied that deceit was committed by [petitioners, et al.] in not being fair,
honest in not revealing the real status of the subject lot. x x x Had it not been of such
misrepresentation, the Court believes that [respondent] would not have parted substantial
amount of money.

From the foregoing premises, a prima facie case of ESTAFA was herein committed by
the [petitioners, et al.] on the ground of double sale. And the only way to determine whether
[petitioners, et al.] herein are guilty or not is in a full blown trial before a Court. However, we
do not find any participation of the Deputy Sheriff Adolfo Garcia on the issue of double sale,
it appearing that he has nothing to do with the transaction between CALTEX and Department
of Agrarian Reform. This Court is convinced that the Deputy Sheriff had just performed a
ministerial duty imposed upon him by law.

After their Motion for Reconsideration was denied by the Court of Appeals, in its Resolution,
[22]
dated 14 November 2002, petitioners come before this Court via a Petition for Review
on Certiorari under Rule 45 of the Rules of Court. Petitioners posit that the Court of Appeals erred in finding
that there exists a prima facie case against them considering that: (1) Petitioners never deceived
respondent with regard to the background circumstances of the subject real properties; (2) There was no
double sale made by CPI of its rights and interests in the subject real properties; and (3) There exists no
proof of specific overt acts or omission of each of the petitioners which would constitute conspiracy in
committing the alleged crime of estafa.

This Court finds the Petition at bar meritorious.

In his complaint, respondent charges petitioners, together with other persons no longer part of the
present Petition, of two counts of estafa by means of deceit: (1) estafa by means of false pretenses, under
Article 315(2)(a) of the Revised Penal Code; and (2) estafa by means of concealment, under Article 315(3)
(c) of the same Code. Relevant provisions of the Revised Penal Code expressly read thus
ART. 315. Swindling (estafa). Any person who shall defraud another by any of the
means mentioned hereinbelow shall be punished by:

xxxx

[P]rovided that in the four cases mentioned, the fraud be committed by any of the following
means:

xxxx

(2) By means of any of the following false pretenses or fraudulent acts executed prior
to or simultaneous with the commission of the fraud:

(a) By using a fictitious name, or falsely pretending to possess power, influence,


qualifications, property, credit, agency, business or imaginary transactions, or by means of
other similar deceits;

xxxx

(3) Through any of the following fraudulent means:

xxxx

(c) By removing, concealing or destroying, in whole or in part, any court record, office
files, document or any other paper.

The elements of estafa by means of deceit,[23] whether committed by false pretenses or


concealment, are the following

a. That there must be a false pretense, fraudulent act or fraudulent means.

b. That such false pretense, fraudulent act or fraudulent means must be made or
executed prior to or simultaneously with the commission of the fraud.

c. That the offended party must have relied on the false pretense, fraudulent act, or
fraudulent means, that is, he was induced to part with his money or property because of
the false pretense, fraudulent act, or fraudulent means.

d. That as a result thereof, the offended party suffered damage.

Now the question is whether there exists probable cause that petitioners committed the crime
of estafa by means of deceit which would warrant the filing of an information against them before the trial
court.

Probable cause has been defined as the existence of such facts and circumstances as would excite
the belief, in a reasonable mind, acting on the facts within the knowledge of the prosecutor, that the
person charged was guilty of the crime for which he was prosecuted. Probable cause is a reasonable
ground of presumption that a matter is, or may be, well-founded, such a state of facts in the mind of the
prosecutor as would lead a person of ordinary caution and prudence to believe, or entertain an honest or
strong suspicion, that a thing is so. The term does not mean "actual and positive cause" nor does it import
absolute certainty. It is merely based on opinion and reasonable belief. Thus, a finding of probable cause
does not require an inquiry into whether there is sufficient evidence to procure a conviction. It is enough
that it is believed that the act or omission complained of constitutes the offense charged. Precisely, there
is a trial for the reception of evidence of the prosecution in support of the charge. [24] While probable cause
demands more than "bare suspicion," it requires "less than evidence which would justify conviction." A
finding of probable cause merely binds over the suspect to stand trial. It is not a pronouncement of guilt.[25]

The conduct of preliminary investigation for the purpose of determining the existence of probable cause is
executive in nature.[26] The prosecution of crimes appertains to the executive department of the
government whose principal power and responsibility is to see that the laws of the land are faithfully
executed. A necessary component of this power to execute the laws is the right to prosecute their
violators. The right to prosecute vests the prosecutor with a wide range of discretion, the discretion of
whether, what and whom to charge, the exercise of which depends on a smorgasbord of factors which are
best appreciated by prosecutors.[27]

The main function of a government prosecutor during his conduct of preliminary investigation is to
determine the existence of probable cause and to file the corresponding information should he find it to be
so.[28] The purpose of a preliminary investigation is to secure the innocent against hasty, malicious and
oppressive prosecution, and to protect him from an open and public accusation of crime, from the trouble,
expense and anxiety of a public trial, and also to protect the state from useless and expensive trials. A
preliminary investigation serves not only the purposes of the State. More important, it is a part of the
guarantees of freedom and fair play which are birthrights of all who live in this country. It is, therefore,
imperative upon the fiscal to relieve the accused from the pain of going through a trial once it is
ascertained that no probable cause exists to form a sufficient belief as to the guilt of the accused. [29]
A prosecutor, by the nature of his office, is under no compulsion to file a particular criminal
information where he is not convinced that he has evidence to prop up the averments thereof, or that the
evidence at hand points to a different conclusion. This is not to discount the possibility of the commission
of abuses on the part of the prosecutor. But this Court must have to recognize that a prosecutor should not
be unduly compelled to work against his conviction. [30] Although the power and prerogative of the
prosecutor, to determine whether or not the evidence at hand is sufficient to form a reasonable belief that
a person committed an offense, is not absolute but subject to judicial review, it would be embarrassing for
him to be compelled to prosecute a case when he is in no position to do so, because in his opinion he does
not have the necessary evidence to secure a conviction, or he is not convinced of the merits of the case. [31]

Hence, this Court consistently adheres to its policy of non-interference in the conduct of preliminary
investigations, and to leave to the investigating prosecutor sufficient latitude of discretion in the
determination of what constitutes sufficient evidence as will establish probable cause for the filing of an
information against a supposed offender.[32]

In the present case, the Makati City Prosecution Office, as well as the DOJ, found no probable cause
that petitioners committed estafa by deceit to the damage of respondent. There was no factual or legal
basis for the Court of Appeals to reverse the findings of the prosecutor who conducted the preliminary
investigation in I.S. No. 97-22188-191.

It should do well for the Court of Appeals to remember that the DOJ Resolutions, dated 27 July
1998 and 30 June 1999, affirming the dismissal by the Makati City Prosecution Office of respondents
complaint against petitioners, were brought before it via a Petition on Certiorari under Rule 65 of the Rules
of Court. Its duty is confined to determining whether the executive determination of probable cause was
done without or in excess of jurisdiction or with grave abuse of discretion. Thus, although it is entirely
possible that the investigating prosecutor may erroneously exercise the discretion lodged in him by law,
this does not render his act amenable to correction and annulment by the extraordinary remedy
of certiorari, absent any showing of grave abuse of discretion amounting to excess of jurisdiction. [33]

For the courts to grant the extraordinary writ of certiorari, so as to justify the reversal of the
investigating prosecutors finding on the existence or absence of probable cause to file an information, the
one seeking the writ must be able to establish the following

For grave abuse of discretion to prosper as a ground for certiorari, it must first be
demonstrated that the lower court or tribunal has exercised its power in an arbitrary and
despotic manner, by reason of passion or personal hostility, and it must be patent and gross
as would amount to an evasion or to a unilateral refusal to perform the duty enjoined or to
act in contemplation of law. Grave abuse of discretion is not enough. Excess of jurisdiction
signifies that the court, board or office, has jurisdiction over the case but has transcended
the same or acted without authority. [34]

Try as we might, this Court cannot find grave abuse of discretion on the part of the DOJ, when it
affirmed the finding of the Makati City Prosecution Office, that there was no probable cause to file an
information for estafa by means of deceit against petitioners and resolved to dismiss respondents
complaint. There is absolutely no showing that the DOJ, in the exercise of its power to review on appeal the
findings of the Makati City Prosecution Office, acted in an arbitrary and despotic manner, so patent or
gross as to amount to an evasion or unilateral refusal to perform its legally-mandated duty. On the
contrary, this Court finds the Resolutions of the DOJ, as well as that of the Makati City Prosecution Office, to
be more in accordance with the evidence on record and relevant laws and jurisprudence than the assailed
Decision of the Court of Appeals.

Respondent charges petitioners with the crime of estafa because they allegedly employed deceit to
induce respondent to enter into a contract of sale with CPI by (1) falsely misrepresenting that CPI was the
owner of and, thus, could assign to respondent the entire subject real properties, when in truth, CPI only
acquired and could assign to respondent the limited interest of Antonia Vda. de Medina in the subject real
properties; and (2) fraudulently concealing the fact that the subject real properties were covered by CARP
and were actually the subject of a pending VOS with the DAR.

It is worth stressing that it was respondent who initiated the complaint before the Makati City
Prosecution Office. Thus, upon him rests the burden of supporting his charges with affidavits and any other
evidence, for it is upon these evidence thus adduced, that the investigating prosecutor determines the
existence, or in this case, the absence, of probable cause to hold the petitioners for trial for the crimes
charged. Respondent must have necessarily tendered evidence, independent of and in support of the
allegations in his affidavit-complaint, of such quality as to engender belief in an ordinarily prudent and
cautious man that the offense charged therein has been committed by the petitioners. Indeed, probable
cause need not be based on clear and convincing evidence of guilt, neither on evidence establishing guilt
beyond reasonable doubt and definitely, not on evidence establishing absolute certainty of guilt, but it
certainly demands more than bare suspicion and can never be left to presupposition, conjecture, or even
convincing logic.[35]

Respondent, however, miserably failed to present sufficient evidence to establish probable cause
for the filing of an information against petitioners for estafa by means of deceit. The only evidence
presented by respondent that would directly establish the deceit allegedly perpetrated by the petitioners
consists of his very own affidavits and that of his alleged counsel, Atty. Villacorta. These had been
sufficiently rebutted by the evidence of the petitioners. The affidavits of petitioners, Deputy Sheriff Garcia,
and witnesses Attys. Libunao and Manahan, all presented a consistent, coherent, and credible version of
events, adequately supported by other documentary evidence. Even respondents own documentary
evidence was satisfactorily explained or was even consistent with the version of events as presented by
petitioners and their witnesses. The sale of CPIs interest in the subject real properties to respondent was a
legitimate business transaction, done in the course of CPIs business, and petitioners did nothing more than
to carry out their respective functions as officers of CPI to perfect and execute the sale.

Moreover, as between the mere denial constituting self-serving negative assertions of respondent
that he did not fully know of the circumstances and the current status of the subject real properties he
acquired from CPI, and the positive and categorical declarations of petitioners and their witnesses that
respondent was duly informed thereof, the choice is not hard to make, for the jurisprudence on the matter
is that positive statement is stronger and attains greater evidentiary weight than negative evidence. [36]

Also, this Court seriously doubts that, given the particular circumstances of this case, respondent
was indeed clueless or ignorant of the true state of affairs of the subject real properties.

First, Antonia Vda. de Medina, from whom CPI acquired its interest in the subject real properties, is
the respondents mother-in-law. He is married to Ma. Luisa Victoria Medina, one of the co-heirs and co-
owners of the subject real properties. The Court of Appeals brushed aside the relations between
Antonia Vda. de Medina and respondent as insufficient to conclude that respondent knew of the
circumstances and status of the subject real properties. Although it may not constitute as conclusive
evidence, the relations between Antonia Vda. de Medina and respondent casts serious doubts on
respondents assertions. Given the close-knit relations among Filipino family members, it is almost
impossible that his mother-in-law Antonia Vda. de Medina, his wife Ma. Luisa Victoria Medina, and
respondent, never talked about the subject real properties; more so, if we consider that respondent is a
lawyer who can freely and readily give legal advice to his mother-in-law and his wife to protect their
remaining rights and interests in the subject real properties.

Neither can this Court give credence to respondents contention that his wife Ma. Luisa Victoria Medina,
born 30 January 1972, was only a minor when CPI instituted Civil Case No. 84-22434 against her mother
Antonia Vda. de Medina, before the Manila RTC on 18 February 1984; when judgment was rendered therein
against her mother on 17 September 1984; and when the subject real properties were sold in favor of CPI
at the execution sale on 24 August 1989. Respondent avers that his wife then still failed to grasp the
significance of the events taking place as regards CPI, her mother, and the subject real properties.
Respondent seems to ignore the fact that his wife grew up, and the likelihood that she eventually came to
understand the history and legal problems besetting the subject real properties. In fact, respondent does
not deny that on 26 September 1996, his wife Ma. Luisa Victoria Medina, together with the other heirs of
her deceased father Antonio Medina, filed a civil complaint with the RTC of Ilagan, Isabela, docketed as
Civil Case No. 948, in which they questioned and, thus, admitted knowledge of the VOS made by CPI in
favor of DAR.[37] And if Ma. Luisa Victoria Medina already knew that the subject real properties were
voluntarily offered for sale by CPI to the DAR, it is highly unlikely that she would have kept such
information from respondent, her husband.

It should also be recalled that it was respondent who approached CPI first and sought the purchase
of its interest in the subject real properties. Respondent never explained how he knew of CPIs interest in
the subject real properties. Neither did respondent allege nor prove that CPI actively offered for sale to the
public its interest in the subject real properties. The only logical deduction would be that respondent came
to know of CPIs interest in the subject real properties through his wife and/or mother-in-law. In fact, in
consideration of respondents purchase of the interest of CPI in the subject real properties for P3.5 Million,
respondent was able to secure the execution by CPI of the Deed of Waiver and Quitclaim, dated 22
December 1994, by virtue of which, CPI waived any further claim for sum of money and damages from
respondents mother-in-law Antonia Vda. de Medina, and discharged the latter from any and all pending
court case liabilities, whether civil or criminal, filed by CPI against her. That respondent sought the
execution by CPI of the said Deed of Waiver and Quitclaim, which obviously benefited his mother-in-law,
only supports the view that respondent not only knew of the current status of the subject real properties,
but also the history of the legal tussle between Antonia Vda. de Medina and CPI, which resulted in the
transfer of Antonia Vda. de Medinas interest in the subject real properties to CPI.

Respondents contention of his seeming disconnection and isolation from the affairs of his wifes
family is undoubtedly contrary to the common family life experience of Filipinos. Reference is made herein
to the quote of Vice-Chancellor Van Fleet, reproduced in Pacheco v. Hon Court of Appeals and People of the
Philippines[38]

Evidence to be believed must not only proceed from the mouth of a credible witness
but must be credible in itself - such as the common experience and observation of mankind
can approve as probable under the circumstances. We have no test of the truth of human
testimony, except its conformity to our knowledge, observation and experience. Whatever is
repugnant to these belongs to the miraculous, and is outside of judicial cognizance. [39]
Second, there is a clear paper trail by which respondent could have traced and uncovered the true
status of the subject real properties. CPI itself provided respondent with some of these documents, while
the others are part of public records to which respondent had access.

There is scant evidence on record that CPI or any of its officers, including herein petitioners, had
willfully and maliciously made false misrepresentations to respondent that CPI owned the subject real
properties in its entirety. Again, only the affidavits of respondent and Atty. Villacorta directly and positively
describe how the alleged false misrepresentations were made, and, even therein, they could only attribute
the same to petitioner Atty. Poblador, and no other. Thus, it behooves this Court how, from respondents
self-serving and unsubstantiated allegations, it can jump off to conclude that all the petitioners, in
conspiracy and with criminal intent, made false misrepresentations on behalf of CPI to the damage of
respondent.

Instead, the documentary evidence on record establishes that CPI laid claim on and actually
acquired only the limited interest of Antonia Vda. de Medina in the subject real properties and nothing
more.

The Notice of Levy on Attachment [40] issued on 7 February 1984 by Deputy Sheriff Garcia to the
Register of Deeds of Ilagan, Isabela, during the pendency of Civil Case No. 84-22434 before the Manila RTC,
clearly stated that what was being levied upon was limited to the rights, interest, title and participation
which Antonia Vda. de Medina may have in the real properties enumerated therein.

In its letter,[41] dated 23 August 1989, addressed to Deputy Sheriff Garcia, CPI presented its bid
of P4.5 Million at the auction sale of the properties of Antonia Vda. deMedina, held to satisfy the latters
judgment debt to CPI in Civil Case No. 84-22434. CPIs bid was conditioned on the following

[2] With respect to property under the exclusive name of


Antonia Caragayan Vda. de Medina, the Certificate of Sale shall indicate that the said
property together with improvements thereon, is sold to the successful bidder.

[3] With respect to property registered in the name of Heirs of


Antonio Medicna and/or Antonia Vda. de Medina representing or as Administration [sic] of
Estate of Antonio of Antonio Medina the Certificate of Sale shall refer only [to] the rights,
interests, claims and participation of Antonia Vda. de Medina in the covered property and
improvements since she has co-heirs, a son and a daughter. In the computation of
the undivided interest of Antonia Vda. de Medina and the two heirs, since the property
appear to be conjugal, two thirds [66.67%] of the property pertains to
Antonia Vda. de Medina while the remaining one-third [33.34%] pertains to the heirs, son
and daughter.(Emphasis supplied.)

Respondent himself, in his letter, [42] dated 29 November 1994, addressed to CPI, wrote in the first
paragraph that, We are pleased to inform you that we accept your offer to sell to us for P3.5 Million your
interest in the foreclosed Medina properties. CPIs interest in the subject real properties, as referred to in
respondents letter, could be nothing more than the same interest therein of Antonia Vda. de Medina.

Thus, although the Deed of Assignment with Consolidation of Title [43] executed between CPI and
respondent on 22 June 1995, provides that

1. For and in consideration of the sum of THREE MILLION FIVE HUNDRED THOUSAND
PERSOS (P3,500,000.00), Philippine Currency, receipt of which is acknowledged, [CPI] hereby
assigns, transfers and conveys unto and in favor of [respondent], his heirs, executors and
assigns, the Properties aforedescribed.

it should not be taken to mean that what CPI was assigning to respondent was the entirety of the subject
real properties, instead of merely the limited interest therein acquired by CPI from
Antonia Vda. de Medina. The reference in the said paragraph, as well as in any other part of the Deed, to
Properties without particularly limiting or qualifying the same to the undivided interest of CPI in the subject
real properties, could be more of a problem of imprecise use of terms rather than a criminal intent to
defraud and mislead respondent. Even so, the afore-quoted paragraph should be read in conjunction with
the rest of the Deed, especially the succeeding paragraphs, to wit

3. [Respondent] acknowledges that he is fully aware of the circumstances under


which these Properties were acquired by [CPI] and that he examined the title and inspected
the properties and verified their location together with their boundaries. [CPI] shall therefore
be no longer obliged to submit to [respondent] a location survey plan of the Properties nor
pinpoint the same to [respondent].

4. [Respondent] further acknowledges that the Properties are presently occupied by


squatters and other adverse occupants and that [CPI] makes no warranty that possession
can be immediately delivered to [respondent] free and clear of these squatters and other
adverse occupants. All the expenses for the eviction of these persons shall be borne by
[respondent].
5. [CPI] warrants the genuineness of its interest over said Properties and that it shall,
if necessary, execute any additional documents to complete the title of [respondent] to
above-described Properties. No warranty, however, as to the Properties classification or
primary use is hereby given.

Respondent, by virtue of paragraphs 3 and 4 of the Deed of Assignment with Consolidation of Title,
explicitly acknowledges that he is fully aware of the circumstances by which CPI acquired its interest in the
subject real properties; that he has examined the title; that he has inspected the properties; and that he
acknowledges that the subject real properties are occupied by squatters and other adverse occupants. The
said acknowledgments made by respondent dispute any claim on his part that he was misled to believe
that when he entered into the contract of sale with CPI, he was acquiring the entirety of the subject real
properties.

Respondent had every opportunity to verify what he was actually purchasing from CPI. He already
admits knowing the circumstances by which CPI acquired its interest in the subject real properties. If this is
truly so, respondent should have known that the subject real properties were inherited, intestate, by
Antonia Vda. de Medina and her co-heirs, from Antonias deceased husband, Antonio; that Antonia Vda. de
Medina is just one of the heirs of the late Antonio Medina, so she co-owns with the other heirs, in undivided
shares or interests, the subject real properties; that Antonia Vda. de Medinas undivided interest in the
subject real properties was sold at an auction sale held to satisfy her judgment debt to CPI in Civil Case No.
84-22434; that CPI gave the highest bid at the auction sale and was thus awarded
Antonia Vda. de Medinas limited interest in the subject real properties; that when Antonia Vda. de Medina
failed to redeem her interest in the subject real properties within a year, title was thereby consolidated in
CPI; and that even before CPI acquired Antonia Vda. de Medinas interest in the subject real properties, she,
together with all the other heirs of her late husband Antonio Medina, had already voluntarily offered to sell
the subject real properties to DAR. With respondents knowledge of the foregoing circumstances, coupled
with his extensive legal knowledge as a lawyer, then respondent should have realized that what he was
acquiring from CPI shall be nothing more than the same limited interest in the subject real properties
acquired by CPI from Antonia Vda. de Medina.

Even if the Deed of Assignment with Consolidation of Title was prepared entirely by CPI, respondent
cannot claim that the same was a contract of adhesion, in which he had no other participation but to
adhere to. There were several meetings between CPI and respondent precisely for the purpose of
negotiating the terms of their contract.Contrary to respondents contention that the Deed contained so
many ambiguities, subterfurge and clever craft to allow CPI a back-door retreat, if necessary, this Court
finds that it is actually couched in simple terms easily understandable, and capable of no other possible
and reasonable interpretation than what this Court had already discussed in the preceding
paragraphs. Respondent, as a lawyer, is very capable of reviewing the Deed himself. He must also know
that he had a legal right to revise certain terms or provisions thereof if he found these too
ambiguous. Respondent was actually given time to review and revise the Deed, and for some unexplained
reason, his only revision was to change his status from married to single.

Furthermore, assuming that respondent had absolutely no knowledge of the circumstances


surrounding CPIs acquisition of its interest in the subject real properties from Antonia Vda. de Medina, then
his examination of the transfer certificates of title (TCTs) should have revealed to him such circumstances
or, at the very least, led him to ask questions about the same. The court processes[44] issued by the Manila
RTC in Civil Case No. 84-22434, affecting the subject real properties, and duly served on the Register of
Deeds, were clearly annotated on the TCTs covering the subject real properties. What is more,
the TCTs were all still in the name of the Heirs of Antonio Medina, not CPI. Such a fact should have been a
caveat to respondent to proceed with the transaction with more prudence and to inquire into CPIs title to
or interest in the subject properties, as well as the circumstances attendant to its acquisition
thereof. According to a well-established rule in our jurisdiction
The law protects to a greater degree a purchaser who buys from the registered owner
himself. Corollarily, it requires a higher degree of prudence from one who buys from a person
who is not the registered owner, although the land object of the transaction is registered.
While one who buys from the registered owner does not need to look behind the certificate
of title, one who buys from one who is not the registered owner is expected to examine not
only the certificate of title but all factual circumstances necessary for him to determine if
there are any flaws in the title of the transferor, or in his capacity to transfer the land.
[45]
(Emphasis supplied.)

Respondent could be reasonably assumed to be familiar with the foregoing since he is a lawyer.

Third, respondent is a lawyer and, as such, he is presumed to know the law. [46] Though respondent
may not be actively practicing law as a profession, the legal rules and principles applicable to the present
Petition are so basic and fundamental, and which respondent must have learned even while he was still
studying law. Respondent is also a businessman who must possess some degree of shrewdness in his
dealings so as to protect his business interests. With respondents qualifications as a lawyer and a
businessman, while they may not protect him absolutely, make him less susceptible to deception as
compared to an ordinary layperson.
The Court of Appeals, in its Decision, dated 29 January 2001, found that CPI committed a double
sale of the subject real properties when it sold the same first to the DAR, then second to the respondent. It
declared that a VOS is already a consummated sale because landowners who made such an offer can no
longer back out. This declaration by the Court of Appeals has no basis in law or jurisprudence.

Respondents mother-in-law Antonia Vda. de Medina decided to avail of the VOS under Republic Act
No. 6657, otherwise known as the Comprehensive Agrarian Reform Law (CARL) of 1988. On 5 April 1988,
she executed a Special Power of Attorney (SPA) [47] designating a certain Carlito Balauag to represent her
and her children in any and all transactions with the DAR and the Landbank of the Philippines (Landbank)
and to place the subject real properties under the voluntary coverage of CARP. Worth noting is the fact that
the SPA covers not just Antonia Vda. de Medinas share but all of the subject real properties. Pursuant to his
SPA, Carlito Balauag submitted on 10 March 1989 the VOS Forms covering the subject real properties to
the DAR. He signed the said forms on behalf of the landowners, who he identified as the Heirs of Antonio
Medina.

However, just a few days earlier, on 22 February 1989, Antonia Vda. de Medina executed a Deed of
Assignment (with Special Power of Attorney Coupled with Interest), [48] in which, for and in consideration of
her unpaid obligations to CPI, she assigned all of her rights, interests, claims and participation from the
proceeds of land compensation for the property she voluntarily offered to sell and transfer under the
CARP. She claimed in the same Deed that the VOS was already under process for indorsement to
the Landbank. Hence, she was appointing CPI as her exclusive attorney-in-fact to follow-up the processing
of the VOS papers with the DAR and the Landbank. On 13 August 1993, CPI, pursuant to the authority
granted to it by Antonia Vda. de Medina under the same Deed, submitted new VOS Forms covering the
subject real properties.

By virtue of the foregoing, should the VOS covering the subject real properties already be deemed a
consummated sale? This Court rules in the negative.

The CARL of 1988 encourages landowners to voluntarily offer for sale their lands by giving an
additional five percent compensation to those who avail of this option. [49]To implement the VOS scheme
under the CARL of 1988, the DAR issued Administrative Order No. 3, series of 1989, subsequently revised
by Administrative Order No. 9, series of 1990, which provided for the rules and procedure governing the
acquisition by the government of land subject of a VOS. A cursory reading of these Administrative Orders
would reveal that a VOS undergoes a long process. It is initiated by the filing by the landowner of the VOS
Form and other required documents. The VOS is reviewed, among other personalities, by the Municipal
Agrarian Reform Officer (MARO), the Provincial Agrarian Reform Officer (PARO), the DAR Regional Director,
the Bureau of Land Acquisition and Development (BLAD), and the Landbank, for purposes of identifying the
land and the qualified tenants, the valuation of the land, and payment of just compensation to the
landowner.

In the case of Government Service Insurance Systems, Inc. v. Court of Appeals,[50] this Court already
ruled that

While it is true that under DAR Administrative Order No. 3, series of 1989, it is not
necessary that the voluntary offeror of the lot be the registered owner thereof, private
respondent failed to show that the DAR accepted and approved his offer to sell. Without said
approval and acceptance, private respondent cannot safely presume that his voluntary offer
to sell was accepted by the DAR. Notably, the word offer, is subject to acceptance. The
voluntary offer to sell is in fact reviewed and evaluated by the DAR before a corresponding
notice of acceptance is sent to the landowner. The applicable rules and procedure governing
voluntary offer to sell (VOS) at the time private respondent made his offer provides:
xxxx
Evidently, without the notice informing the landowner of the DARs conformity with
the offer to sell, private respondent cannot validly presume that his offer to sell has been
accepted by the DAR and that the latter will now assume the payment of the loan to the
GSIS. (Emphasis supplied.)

Hence, a VOS, as its name implies, is a voluntary offer to sell the land to the government so that the
latter can distribute the same to qualified tenants. While a landowner who voluntarily offered his land for
sale is precluded from withdrawing his offer except under specified circumstances, such a condition does
not make the mere offer a consummated sale. It bears to emphasize that the offer still needs to
be accepted by the DAR on behalf of the government, and just compensation for the land determined
and paid to the landowner. The sale is deemed consummated when the landowner has received payment
or deposit by the DAR of just compensation with an accessible bank, in cash or Landbank bonds, since only
then is ownership of the land finally transferred from the landowner to the government. [51]

In the present case, the VOS covering the subject real properties is still being processed by the
DAR. There has so far been no express acceptance by the DAR of the said VOS or payment of just
compensation to CPI. There being no consummated sale of the subject real properties to DAR, CPI could
not have committed a double sale of the same.It remained a co-owner of the subject real properties,
together with the other heirs of Antonio Medina, and, thus, it could still legally sell its share or interest
therein to another person, such as respondent. Should the DAR finally approve the VOS covering the
subject real properties, then respondent, after acquiring the interest of CPI, shall be entitled to just
compensation corresponding to his interest.

After finding that petitioners did not deceive respondent into purchasing CPIs limited interest in the
subject real properties, then it necessarily follows that there can be no conspiracy to commit such
deception. This Court would still want to point out that respondents accusation of conspiracy was so
stretched that he implicated in his complaint members of the CPI Board of Directors who did nothing more
than sign a resolution authorizing the sale of CPIs interest in the subject real properties to respondent. Yet
again, the existence of conspiracy among the CPI officers rests on no other evidence but respondents own
allegations in his affidavits. Conspiracy cannot be established by mere inferences or conjectures. [52] It is
incumbent upon respondent to prove that each of the petitioners performed an overt act in pursuance or
furtherance of the alleged complicity,so as to convince the investigating prosecutor that there is probable
cause that petitioners conspired with one another to commit the crime. [53] However, respondents general
accusations against petitioners and the other CPI officers do little to persuade.

WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The Decision, dated 29
January 2001, and Resolution, dated 14 November 2002, of the Court of Appeals in CA-G.R. SP No. 54862,
are hereby REVERSED and SET ASIDE. Respondents complaint in I.S. No. 97-22188-191 is hereby
ordered DISMISSED.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

FIRST DIVISION
ANTHONY ORDUA, DENNIS ORDUA, and G.R. No. 176841
ANTONITA ORDUA,

Petitioners,
Present:

- versus - CORONA, C.J., Chairperson,

VELASCO, JR.,

LEONARDO-DE CASTRO,

EDUARDO J. FUENTEBELLA, MARCOS S. CID, DEL CASTILLO, and


BENJAMIN F. CID, BERNARD G. BANTA, and
ARMANDO GABRIEL, JR., PEREZ, JJ.

Respondents.

Promulgated:

June 29, 2010

x-----------------------------------------------------------------------------------------x

DECISION

VELASCO, JR., J.:

In this Petition for Review[1] under Rule 45 of the Rules of Court, Anthony Ordua, Dennis Ordua and
Antonita Ordua assail and seek to set aside the Decision[2] of the Court of Appeals (CA) dated December 4,
2006 in CA-G.R. CV No. 79680, as reiterated in its Resolution of March 6, 2007, which affirmed the May 26,
2003 Decision[3] of the Regional Trial Court (RTC), Branch 3 in Baguio City, in Civil Case No. 4984-R, a suit
for annulment of title and reconveyance commenced by herein petitioners against herein respondents.

Central to the case is a residential lot with an area of 74 square meters located at Fairview
Subdivision, Baguio City, originally registered in the name of Armando Gabriel, Sr. (Gabriel Sr.) under
Transfer Certificate of Title (TCT) No. 67181 of the Registry of Deeds of Baguio City. [4]

As gathered from the petition, with its enclosures, and the comments thereon of four of the five
respondents,[5] the Court gathers the following relevant facts:

Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot to petitioner Antonita Ordua
(Antonita), but no formal deed was executed to document the sale. The contract price was apparently
payable in installments as Antonita remitted from time to time and Gabriel Sr. accepted partial payments.
One of the Orduas would later testify that Gabriel Sr. agreed to execute a final deed of sale upon full
payment of the purchase price.[6]

As early as 1979, however, Antonita and her sons, Dennis and Anthony Ordua, were already
occupying the subject lot on the basis of some arrangement undisclosed in the records and even
constructed their house thereon. They also paid real property taxes for the house and declared it for tax
purposes, as evidenced by Tax Declaration No. (TD) 96-04012-111087 [7] in which they place the assessed
value of the structure at PhP 20,090.

After the death of Gabriel Sr., his son and namesake, respondent Gabriel Jr., secured TCT No. T-
71499[8] over the subject lot and continued accepting payments from the petitioners. On December 12,
1996, Gabriel Jr. wrote Antonita authorizing her to fence off the said lot and to construct a road in the
adjacent lot.[9] On December 13, 1996, Gabriel Jr. acknowledged receipt of a PhP 40,000 payment from
petitioners.[10] Through a letter[11] dated May 1, 1997, Gabriel Jr. acknowledged that petitioner had so far
made an aggregate payment of PhP 65,000, leaving an outstanding balance of PhP 60,000. A receipt
Gabriel Jr. issued dated November 24, 1997 reflected a PhP 10,000 payment.

Despite all those payments made for the subject lot, Gabriel Jr. would later sell it to Bernard Banta
(Bernard) obviously without the knowledge of petitioners, as later developments would show.

As narrated by the RTC, the lot conveyance from Gabriel Jr. to Bernard was effected against the
following backdrop: Badly in need of money, Gabriel Jr. borrowed from Bernard the amount of PhP 50,000,
payable in two weeks at a fixed interest rate, with the further condition that the subject lot would answer
for the loan in case of default.Gabriel Jr. failed to pay the loan and this led to the execution of a Deed of
Sale[12] dated June 30, 1999 and the issuance later of TCT No. T-72782 [13] for subject lot in the name of
Bernard upon cancellation of TCT No. 71499 in the name of Gabriel, Jr. As the RTC decision indicated, the
reluctant Bernard agreed to acquire the lot, since he had by then ready buyers in respondents Marcos Cid
and Benjamin F. Cid (Marcos and Benjamin or the Cids).

Subsequently, Bernard sold to the Cids the subject lot for PhP 80,000. Armed with a Deed of
Absolute Sale of a Registered Land[14] dated January 19, 2000, the Cids were able to cancel TCT No. T-
72782 and secure TCT No. 72783 [15] covering the subject lot. Just like in the immediately preceding
transaction, the deed of sale between Bernard and the Cids had respondent Eduardo J. Fuentebella
(Eduardo) as one of the instrumental witnesses.

Marcos and Benjamin, in turn, ceded the subject lot to Eduardo through a Deed of Absolute
Sale[16] dated May 11, 2000. Thus, the consequent cancellation of TCT No. T-72782 and issuance on May
16, 2000 of TCT No. T-3276[17] over subject lot in the name of Eduardo.

As successive buyers of the subject lot, Bernard, then Marcos and Benjamin, and finally Eduardo,
checked, so each claimed, the title of their respective predecessors-in-interest with the Baguio Registry
and discovered said title to be free and unencumbered at the time each purchased the property.
Furthermore, respondent Eduardo, before buying the property, was said to have inspected the same and
found it unoccupied by the Orduas.[18]

Sometime in May 2000, or shortly after his purchase of the subject lot, Eduardo, through his lawyer,
sent a letter addressed to the residence of Gabriel Jr. demanding that all persons residing on or physically
occupying the subject lot vacate the premises or face the prospect of being ejected. [19]

Learning of Eduardos threat, petitioners went to the residence of Gabriel Jr. at No. 34 Dominican
Hill, Baguio City. There, they met Gabriel Jr.s estranged wife, Teresita, who informed them about her having
filed an affidavit-complaint against her husband and the Cids for falsification of public documents on March
30, 2000. According to Teresita, her signature on the June 30, 1999 Gabriel Jr.Bernard deed of sale was a
forgery. Teresita further informed the petitioners of her intent to honor the aforementioned 1996 verbal
agreement between Gabriel Sr. and Antonita and the partial payments they gave her father-in-law and her
husband for the subject lot.

On July 3, 2001, petitioners, joined by Teresita, filed a Complaint [20] for Annulment of Title,
Reconveyance with Damages against the respondents before the RTC, docketed as Civil Case No. 4984-R,
specifically praying that TCT No. T-3276 dated May 16, 2000 in the name of Eduardo be annulled. Corollary
to this prayer, petitioners pleaded that Gabriel Jr.s title to the lot be reinstated and that petitioners be
declared as entitled to acquire ownership of the same upon payment of the remaining balance of the
purchase price therefor agreed upon by Gabriel Sr. and Antonita.

While impleaded and served with summons, Gabriel Jr. opted not to submit an answer.

Ruling of the RTC

By Decision dated May 26, 2003, the RTC ruled for the respondents, as defendants a quo, and
against the petitioners, as plaintiffs therein, the dispositive portion of which reads:

WHEREFORE, the instant complaint is hereby DISMISSED for lack of merit. The four (4)
plaintiffs are hereby ordered by this Court to pay each defendant (except Armando Gabriel,
Jr., Benjamin F. Cid, and Eduardo J. Fuentebella who did not testify on these damages), Moral
Damages of Twenty Thousand (P20,000.00) Pesos, so that each defendant shall receive
Moral Damages of Eighty Thousand (P80,000.00) Pesos each. Plaintiffs shall also pay all
defendants (except Armando Gabriel, Jr., Benjamin F. Cid, and Eduardo J. Fuentebella who did
not testify on these damages), Exemplary Damages of Ten Thousand (P10,000.00) Pesos
each so that each defendant shall receive Forty Thousand (P40,000.00) Pesos as Exemplary
Damages. Also, plaintiffs are ordered to pay each defendant (except Armando Gabriel, Jr.,
Benjamin F. Cid, and Eduardo J. Fuentebella who did not testify on these damages), Fifty
Thousand (P50,000.00) Pesos as Attorneys Fees, jointly and solidarily.

Cost of suit against the plaintiffs.[21]

On the main, the RTC predicated its dismissal action on the basis of the following grounds and/or
premises:

1. Eduardo was a purchaser in good faith and, hence, may avail himself of the provision of Article
1544[22] of the Civil Code, which provides that in case of double sale, the party in good faith who is able to
register the property has better right over the property;

2. Under Arts. 1356[23] and 1358[24] of the Code, conveyance of real property must be in the proper
form, else it is unenforceable;

3. The verbal sale had no adequate consideration; and

4. Petitioners right of action to assail Eduardos title prescribes in one year from date of the issuance
of such title and the one-year period has already lapsed.
From the above decision, only petitioners appealed to the CA, their appeal docketed as CA-G.R. CV
No. 79680.

The CA Ruling

On December 4, 2006, the appellate court rendered the assailed Decision affirming the RTC
decision. The fallo reads:

WHEREFORE, premises considered, the instant appeal is hereby DISMISSED and the
26 May 2003 Decision of the Regional Trial Court, Branch 3 of Baguio City in Civil Case No.
4989-R is hereby AFFIRMED.

SO ORDERED.[25]

Hence, the instant petition on the submission that the appellate court committed reversible error of
law:

1. xxx WHEN IT HELD THAT THE SALE OF THE SUBJECT LOT BY ARMANDO
GABRIEL, SR. AND RESPONDENT ARMANDO GABRIEL, JR. TO THE PETITIONERS IS
UNENFORCEABLE.

2. xxx IN NOT FINDING THAT THE SALE OF THE SUBJECT LOT BY RESPONDENT
ARMANDO GABRIEL, JR. TO RESPONDENT BERNARD BANTA AND ITS
SUBSEQUENT SALE BY THE LATTER TO HIS CO-RESPONDENTS ARE NULL AND VOID.

3. xxx IN NOT FINDING THAT THE RESPONDENTS ARE BUYERS IN BAD FAITH

4. xxx IN FINDING THAT THE SALE OF THE SUBJECT LOT BETWEEN GABRIEL, SR.
AND RESPONDENT GABRIEL, JR. AND THE PETITIONERS HAS NO ADEQUATE
CONSIDERATION.

5. xxx IN RULING THAT THE INSTANT ACTION HAD ALREADY PRESCRIBED.

6. xxx IN FINDING THAT THE PLAINTIFFS-APPELLANTS ARE LIABLE FOR MORAL


AND EXEMPLARY DAMAGES AND ATTORNEYS FEES.[26]

The Courts Ruling

The core issues tendered in this appeal may be reduced to four and formulated as follows, to
wit: first, whether or not the sale of the subject lot by Gabriel Sr. to Antonita is unenforceable under the
Statute of Frauds; second, whether or not such sale has adequate consideration; third, whether the instant
action has already prescribed; and, fourth, whether or not respondents are purchasers in good faith.

The petition is meritorious.

Statute of Frauds Inapplicable


to Partially Executed Contracts

It is undisputed that Gabriel Sr., during his lifetime, sold the subject property to Antonita, the
purchase price payable on installment basis. Gabriel Sr. appeared to have been a recipient of some partial
payments. After his death, his son duly recognized the sale by accepting payments and issuing what may
be considered as receipts therefor. Gabriel Jr., in a gesture virtually acknowledging the petitioners dominion
of the property, authorized them to construct a fence around it. And no less than his wife, Teresita, testified
as to the fact of sale and of payments received.

Pursuant to such sale, Antonita and her two sons established their residence on the lot, occupying
the house they earlier constructed thereon. They later declared the property for tax purposes, as
evidenced by the issuance of TD 96-04012-111087 in their or Antonitas name, and paid the real estates
due thereon, obviously as sign that they are occupying the lot in the concept of owners.

Given the foregoing perspective, Eduardos assertion in his Answer that persons appeared in the
property[27] only after he initiated ejectment proceedings [28] is clearly baseless. If indeed petitioners entered
and took possession of the property after he (Eduardo) instituted the ejectment suit, how could they
explain the fact that he sent a demand letter to vacate sometime in May 2000?

With the foregoing factual antecedents, the question to be resolved is whether or not the Statute of
Frauds bars the enforcement of the verbal sale contract between Gabriel Sr. and Antonita.

The CA, just as the RTC, ruled that the contract is unenforceable for non-compliance with the
Statute of Frauds.

We disagree for several reasons. Foremost of these is that the Statute of Frauds expressed in Article
1403, par. (2),[29] of the Civil Code applies only to executory contracts, i.e., those where no performance
has yet been made. Stated a bit differently, the legal consequence of non-compliance with the Statute
does not come into play where the contract in question is completed, executed, or partially consummated.
[30]

The Statute of Frauds, in context, provides that a contract for the sale of real property or of an
interest therein shall be unenforceable unless the sale or some note or memorandum thereof is in writing
and subscribed by the party or his agent. However, where the verbal contract of sale has been partially
executed through the partial payments made by one party duly received by the vendor, as in the present
case, the contract is taken out of the scope of the Statute.

The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations
depending for their evidence on the unassisted memory of witnesses, by requiring certain enumerated
contracts and transactions to be evidenced by a writing signed by the party to be charged.
[31]
The Statute requires certain contracts to be evidenced by some note or memorandum in order to be
enforceable. The term Statute of Frauds is descriptive of statutes that require certain classes of contracts
to be in writing. The Statute does not deprive the parties of the right to contract with respect to the
matters therein involved, but merely regulates the formalities of the contract necessary to render it
enforceable.[32]

Since contracts are generally obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present, [33] the Statute simply provides the method
by which the contracts enumerated in Art. 1403 (2) may be proved but does not declare them
invalid because they are not reduced to writing. In fine, the form required under the Statute is for
convenience or evidentiary purposes only.
There can be no serious argument about the partial execution of the sale in question. The records
show that petitioners had, on separate occasions, given Gabriel Sr. and Gabriel Jr. sums of money as partial
payments of the purchase price. These payments were duly receipted by Gabriel Jr. To recall, in his letter of
May 1, 1997, Gabriel, Jr. acknowledged having received the aggregate payment of PhP 65,000 from
petitioners with the balance of PhP 60,000 still remaining unpaid. But on top of the partial payments thus
made, possession of the subject of the sale had been transferred to Antonita as buyer. Owing thus to its
partial execution, the subject sale is no longer within the purview of the Statute of Frauds.

Lest it be overlooked, a contract that infringes the Statute of Frauds is ratified by the acceptance of
benefits under the contract.[34] Evidently, Gabriel, Jr., as his father earlier, had benefited from the partial
payments made by the petitioners. Thus, neither Gabriel Jr. nor the other respondentssuccessive
purchasers of subject lotscould plausibly set up the Statute of Frauds to thwart petitioners efforts towards
establishing their lawful right over the subject lot and removing any cloud in their title. As it were,
petitioners need only to pay the outstanding balance of the purchase price and that would complete the
execution of the oral sale.

There was Adequate Consideration

Without directly saying so, the trial court held that the petitioners cannot sue upon the oral sale
since in its own words: x x x for more than a decade, [petitioners] have not paid in full Armando Gabriel, Sr.
or his estate, so that the sale transaction between Armando Gabriel Sr. and [petitioners] [has] no adequate
consideration.

The trial courts posture, with which the CA effectively concurred, is patently flawed. For starters,
they equated incomplete payment of the purchase price with inadequacy of price or what passes as lesion,
when both are different civil law concepts with differing legal consequences, the first being a ground to
rescind an otherwise valid and enforceable contract. Perceived inadequacy of price, on the other hand, is
not a sufficient ground for setting aside a sale freely entered into, save perhaps when the inadequacy is
shocking to the conscience.[35]

The Court to be sure takes stock of the fact that the contracting parties to the 1995 or 1996 sale
agreed to a purchase price of PhP 125,000 payable on installments. But the original lot owner, Gabriel Sr.,
died before full payment can be effected. Nevertheless, petitioners continued remitting payments to
Gabriel, Jr., who sold the subject lot to Bernard on June 30, 1999. Gabriel, Jr., as may be noted, parted with
the property only for PhP 50,000. On the other hand, Bernard sold it for PhP 80,000 to Marcos and
Benjamin. From the foregoing price figures, what is abundantly clear is that what Antonita agreed to pay
Gabriel, Sr., albeit in installment, was very much more than what his son, for the same lot, received from
his buyer and the latters buyer later. The Court, therefore, cannot see its way clear as to how the RTC
arrived at its simplistic conclusion about the transaction between Gabriel Sr. and Antonita being without
adequate consideration.

The Issues of Prescription and the Bona


Fides of the Respondents as Purchasers

Considering the interrelation of these two issues, we will discuss them jointly.

There can be no quibbling about the fraudulent nature of the conveyance of the subject lot effected
by Gabriel Jr. in favor of Bernard. It is understandable that after his fathers death, Gabriel Jr. inherited
subject lot and for which he was issued TCT No. No. T-71499. Since the Gabriel Sr. Antonita sales
transaction called for payment of the contract price in installments, it is also understandable why the title
to the property remained with the Gabriels. And after the demise of his father, Gabriel Jr. received
payments from the Orduas and even authorized them to enclose the subject lot with a fence. In sum,
Gabriel Jr. knew fully well about the sale and is bound by the contract as predecessor-in-interest of Gabriel
Sr. over the property thus sold.

Yet, the other respondents (purchasers of subject lot) still maintain that they are innocent
purchasers for value whose rights are protected by law and besides which prescription has set in against
petitioners action for annulment of title and reconveyance.

The RTC and necessarily the CA found the purchaser-respondents thesis on prescription correct
stating in this regard that Eduardos TCT No. T-3276 was issued on May 16, 2000 while petitioners filed their
complaint for annulment only on July 3, 2001. To the courts below, the one-year prescriptive period to
assail the issuance of a certificate of title had already elapsed.

We are not persuaded.

The basic complaint, as couched, ultimately seeks the reconveyance of a fraudulently registered
piece of residential land. Having possession of the subject lot, petitioners right to the reconveyance
thereof, and the annulment of the covering title, has not prescribed or is not time-barred. This is so for an
action for annulment of title or reconveyance based on fraud is imprescriptible where the suitor is in
possession of the property subject of the acts, [36] the action partaking as it does of a suit for quieting of
title which is imprescriptible.[37] Such is the case in this instance. Petitioners have possession of subject lots
as owners having purchased the same from Gabriel, Sr. subject only to the full payment of the agreed
price.

The prescriptive period for the reconveyance of fraudulently registered real property is 10 years,
reckoned from the date of the issuance of the certificate of title, if the plaintiff is not in possession, but
imprescriptible if he is in possession of the property. [38] Thus, one who is in actual possession of a piece of
land claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked
before taking steps to vindicate his right.[39] As it is, petitioners action for reconveyance is imprescriptible.

This brings us to the question of whether or not the respondent-purchasers, i.e., Bernard, Marcos
and Benjamin, and Eduardo, have the status of innocent purchasers for value, as was the thrust of the trial
courts disquisition and disposition.

We are unable to agree with the RTC.

It is the common defense of the respondent-purchasers that they each checked the title of the
subject lot when it was his turn to acquire the same and found it clean, meaning without annotation of any
encumbrance or adverse third party interest. And it is upon this postulate that each claims to be an
innocent purchaser for value, or one who buys the property of another without notice that some other
person has a right to or interest in it, and who pays therefor a full and fair price at the time of the purchase
or before receiving such notice.[40]

The general rule is that one dealing with a parcel of land registered under the Torrens System may
safely rely on the correctness of the certificate of title issued therefor and is not obliged to go beyond the
certificate.[41] Where, in other words, the certificate of title is in the name of the seller, the innocent
purchaser for value has the right to rely on what appears on the certificate, as he is charged with notice
only of burdens or claims on the res as noted in the certificate. Another formulation of the rule is that (a) in
the absence of anything to arouse suspicion or (b) except where the party has actual knowledge of facts
and circumstances that would impel a reasonably cautious man to make such inquiry or (c) when the
purchaser has knowledge of a defect of title in his vendor or of sufficient facts to induce a reasonably
prudent man to inquire into the status of the title of the property, [42] said purchaser is without obligation to
look beyond the certificate and investigate the title of the seller.

Eduardo and, for that matter, Bernard and Marcos and Benjamin, can hardly claim to be innocent
purchasers for value or purchasers in good faith. For each knew or was at least expected to know that
somebody else other than Gabriel, Jr. has a right or interest over the lot. This is borne by the fact that the
initial seller, Gabriel Jr., was not in possession of subject property. With respect to Marcos and Benjamin,
they knew as buyers that Bernard, the seller, was not also in possession of the same property. The same
goes with Eduardo, as buyer, with respect to Marcos and Benjamin.

Basic is the rule that a buyer of a piece of land which is in the actual possession of persons other
than the seller must be wary and should investigate the rights of those in possession. Otherwise, without
such inquiry, the buyer can hardly be regarded as a buyer in good faith. When a man proposes to buy or
deal with realty, his duty is to read the public manuscript, i.e., to look and see who is there upon it and
what his rights are. A want of caution and diligence which an honest man of ordinary prudence is
accustomed to exercise in making purchases is, in contemplation of law, a want of good faith. The buyer
who has failed to know or discover that the land sold to him is in adverse possession of another is a buyer
in bad faith.[43]

Where the land sold is in the possession of a person other than the vendor, the purchaser must go
beyond the certificates of title and make inquiries concerning the rights of the actual possessor. [44] And
where, as in the instant case, Gabriel Jr. and the subsequent vendors were not in possession of the
property, the prospective vendees are obliged to investigate the rights of the one in possession. Evidently,
Bernard, Marcos and Benjamin, and Eduardo did not investigate the rights over the subject lot of the
petitioners who, during the period material to this case, were in actual possession thereof. Bernard, et al.
are, thus, not purchasers in good faith and, as such, cannot be accorded the protection extended by the
law to such purchasers.[45] Moreover, not being purchasers in good faith, their having registered the sale,
will not, as against the petitioners, carry the day for any of them under Art. 1544 of the Civil Code
prescribing rules on preference in case of double sales of immovable property. Occea v. Esponilla[46] laid
down the following rules in the application of Art. 1544: (1) knowledge by the first buyer of the second sale
cannot defeat the first buyers rights except when the second buyer first register in good faith the second
sale; and (2) knowledge gained by the second buyer of the first sale defeats his rights even if he is first to
register, since such knowledge taints his registration with bad faith.

Upon the facts obtaining in this case, the act of registration by any of the three respondent-
purchasers was not coupled with good faith. At the minimum, each was aware or is at least presumed to be
aware of facts which should put him upon such inquiry and investigation as might be necessary to acquaint
him with the defects in the title of his vendor.

The award by the lower courts of damages and attorneys fees to some of the herein respondents
was predicated on the filing by the original plaintiffs of what the RTC characterized as an unwarranted suit.
The basis of the award, needless to stress, no longer obtains and, hence, the same is set aside.

WHEREFORE, the petition is hereby GRANTED. The appealed December 4, 2006 Decision and the
March 6, 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 79680 affirming the May 26, 2003
Decision of the Regional Trial Court, Branch 3 in Baguio City are hereby REVERSED and SET
ASIDE. Accordingly, petitioner Antonita Ordua is hereby recognized to have the right of ownership over
subject lot covered by TCT No. T-3276 of the Baguio Registry registered in the name of Eduardo J.
Fuentebella. The Register of Deeds of Baguio City is hereby ORDERED to cancel said TCT No. T-3276 and to
issue a new one in the name of Armando Gabriel, Jr. with the proper annotation of the conditional sale of
the lot covered by said title in favor of Antonita Ordua subject to the payment of the PhP 50,000
outstanding balance. Upon full payment of the purchase price by Antonita Ordua, Armando Gabriel, Jr.
is ORDERED to execute a Deed of Absolute Sale for the transfer of title of subject lot to the name of
Antonita Ordua, within three (3) days from receipt of said payment.

No pronouncement as to costs.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice
FIRST DIVISION

G.R. No. 158891


PABLO P. GARCIA,
Present:
Petitioner,
LEONARDO-DE CASTRO,*
Acting Chairperson,
BERSAMIN,
DEL CASTILLO,
VILLARAMA, JR., and
PERLAS-BERNABE,** JJ.
- versus -
Promulgated:

June 27, 2012

YOLANDA VALDEZ VILLAR,

Respondent.
x----------------------------------------------------x

DECISION

LEONARDO-DE CASTRO, J.:

This is a petition for review on certiorari[1] of the February 27, 2003 Decision[2] and July 2, 2003
Resolution[3] of the Court of Appeals in CA-G.R. SP No. 72714, which reversed the May 27, 2002
Decision[4] of the Regional Trial Court (RTC), Branch 92 of Quezon City in Civil Case No. Q-99-39139.

Lourdes V. Galas (Galas) was the original owner of a piece of property (subject property) located at
Malindang St., Quezon City, covered by Transfer Certificate of Title (TCT) No. RT-67970(253279). [5]

On July 6, 1993, Galas, with her daughter, Ophelia G. Pingol (Pingol), as co-maker, mortgaged the
subject property to Yolanda Valdez Villar (Villar) as security for a loan in the amount of Two Million Two
Hundred Thousand Pesos (P2,200,000.00).[6]

On October 10, 1994, Galas, again with Pingol as her co-maker, mortgaged the same subject
property to Pablo P. Garcia (Garcia) to secure her loan of One Million Eight Hundred Thousand Pesos
(P1,800,000.00).[7]

Both mortgages were annotated at the back of TCT No. RT-67970 (253279), to wit:

REAL ESTATE MORTGAGE

Entry No. 6537/T-RT-67970(253279) MORTGAGE In favor of Yolanda Valdez Villar m/to Jaime
Villar to guarantee a principal obligation in the sum of P2,200,000- mortgagees consent
necessary in case of subsequent encumbrance or alienation of the property; Other
conditions set forth in Doc. No. 97, Book No. VI, Page No. 20 of the Not. Pub. of Diana P.
Magpantay

Date of Instrument: 7-6-93

Date of Inscription: 7-7-93

SECOND REAL ESTATE MORTGAGE

Entry No. 821/T-RT-67970(253279) MORTGAGE In favor of Pablo Garcia m/to Isabela Garcia to
guarantee a principal obligation in the sum of P1,800,000.00 mortgagees consent necessary
in case of subsequent encumbrance or alienation of the property; Other conditions set forth
in Doc. No. 08, Book No. VII, Page No. 03 of the Not. Pub. of Azucena Espejo Lozada

Date of Instrument: 10/10/94

Date of Inscription: 10/11/94


LRC Consulta No. 169[8]

On November 21, 1996, Galas sold the subject property to Villar for One Million Five
Hundred Thousand Pesos (P1,500,000.00), and declared in the Deed of Sale [9] that such
property was free and clear of all liens and encumbrances of any kind whatsoever. [10]

On December 3, 1996, the Deed of Sale was registered and, consequently, TCT No. RT-
67970(253279) was cancelled and TCT No. N-168361 [11] was issued in the name of Villar. Both Villars and
Garcias mortgages were carried over and annotated at the back of Villars new TCT. [12]

On October 27, 1999, Garcia filed a Petition for Mandamus with Damages[13] against Villar before the
RTC, Branch 92 of Quezon City. Garcia subsequently amended his petition to a Complaint for Foreclosure of
Real Estate Mortgage with Damages.[14] Garcia alleged that when Villar purchased the subject property, she
acted in bad faith and with malice as she knowingly and willfully disregarded the provisions on laws on
judicial and extrajudicial foreclosure of mortgaged property. Garcia further claimed that when Villar
purchased the subject property, Galas was relieved of her contractual obligation and the characters of
creditor and debtor were merged in the person of Villar. Therefore, Garcia argued, he, as the second
mortgagee, was subrogated to Villars original status as first mortgagee, which is the creditor with the right
to foreclose. Garcia further asserted that he had demanded payment from Villar, [15] whose refusal
compelled him to incur expenses in filing an action in court. [16]

Villar, in her Answer,[17] claimed that the complaint stated no cause of action and that the second
mortgage was done in bad faith as it was without her consent and knowledge. Villar alleged that she only
discovered the second mortgage when she had the Deed of Sale registered. Villar blamed Garcia for the
controversy as he accepted the second mortgage without prior consent from her. She averred that there
could be no subrogation as the assignment of credit was done with neither her knowledge nor prior
consent. Villar added that Garcia should seek recourse against Galas and Pingol, with whom he had privity
insofar as the second mortgage of property is concerned.

On May 23, 2000, the RTC issued a Pre-Trial Order [18] wherein the parties agreed on the following
facts and issue:

STIPULATIONS OF FACTS/ADMISSIONS

The following are admitted:

1. the defendant admits the second mortgage annotated at the back of TCT No. RT-67970
of Lourdes V. Galas with the qualification that the existence of said mortgage was
discovered only in 1996 after the sale;

2. the defendant admits the existence of the annotation of the second mortgage at the
back of the title despite the transfer of the title in the name of the defendant;

3. the plaintiff admits that defendant Yolanda Valdez Villar is the first mortgagee;

4. the plaintiff admits that the first mortgage was annotated at the back of the title of the
mortgagor Lourdes V. Galas; and

5. the plaintiff admits that by virtue of the deed of sale the title of the property was
transferred from the previous owner in favor of defendant Yolanda Valdez Villar.

xxxx

ISSUE

Whether or not the plaintiff, at this point in time, could judicially foreclose the property in
question.

On June 8, 2000, upon Garcias manifestation, in open court, of his intention to file a Motion for
Summary Judgment,[19] the RTC issued an Order [20] directing the parties to simultaneously file their
respective memoranda within 20 days.
On June 26, 2000, Garcia filed a Motion for Summary Judgment with Affidavit of Merit [21] on the
grounds that there was no genuine issue as to any of the material facts of the case and that he was
entitled to a judgment as a matter of law.

On June 28, 2000, Garcia filed his Memorandum [22] in support of his Motion for Summary Judgment
and in compliance with the RTCs June 8, 2000 Order. Garcia alleged that his equity of redemption had not
yet been claimed since Villar did not foreclose the mortgaged property to satisfy her claim.

On August 13, 2000, Villar filed an Urgent Ex-Parte Motion for Extension of Time to File Her
Memorandum.[23] This, however, was denied[24] by the RTC in view of Garcias Opposition.[25]

On May 27, 2002, the RTC rendered its Decision, the dispositive portion of which reads:

WHEREFORE, the foregoing premises considered, judgment is hereby rendered in favor of


the plaintiff Pablo P. Garcia and against the defendant Yolanda V. Villar, who is ordered to pay
to the former within a period of not less than ninety (90) days nor more than one hundred
twenty (120) days from entry of judgment, the sum of P1,800,000.00 plus legal interest from
October 27, 1999 and upon failure of the defendant to pay the said amount within the
prescribed period, the property subject matter of the 2 nd Real Estate Mortgage dated
October 10, 1994 shall, upon motion of the plaintiff, be sold at public auction in the manner
and under the provisions of Rules 39 and 68 of the 1997 Revised Rules of Civil Procedure and
other regulations governing sale of real estate under execution in order to satisfy the
judgment in this case. The defendant is further ordered to pay costs.[26]

The RTC declared that the direct sale of the subject property to Villar, the first mortgagee, could not
operate to deprive Garcia of his right as a second mortgagee. The RTC said that upon Galass failure to pay
her obligation, Villar should have foreclosed the subject property pursuant to Act No. 3135 as amended, to
provide junior mortgagees like Garcia, the opportunity to satisfy their claims from the residue, if any, of the
foreclosure sale proceeds. This, the RTC added, would have resulted in the extinguishment of the
mortgages.[27]

The RTC held that the second mortgage constituted in Garcias favor had not been discharged, and
that Villar, as the new registered owner of the subject property with a subsisting mortgage, was liable for
it.[28]

Villar appealed[29] this Decision to the Court of Appeals based on the arguments that Garcia had no
valid cause of action against her; that he was in bad faith when he entered into a contract of mortgage
with Galas, in light of the restriction imposed by the first mortgage; and that Garcia, as the one who gave
the occasion for the commission of fraud, should suffer. Villar further asseverated that the second
mortgage is a void and inexistent contract considering that its cause or object is contrary to law, moral,
good customs, and public order or public policy, insofar as she was concerned. [30]

Garcia, in his Memorandum,[31] reiterated his position that his equity of redemption remained
unforeclosed since Villar did not institute foreclosure proceedings. Garcia added that the mortgage, until
discharged, follows the property to whomever it may be transferred no matter how many times over it
changes hands as long as the annotation is carried over.[32]

The Court of Appeals reversed the RTC in a Decision dated February 27, 2003, to wit:

WHEREFORE, the decision appealed from is REVERSED and another one entered DISMISSING the
complaint for judicial foreclosure of real estate mortgage with damages. [33]

The Court of Appeals declared that Galas was free to mortgage the subject property even without
Villars consent as the restriction that the mortgagees consent was necessary in case of a subsequent
encumbrance was absent in the Deed of Real Estate Mortgage. In the same vein, the Court of Appeals said
that the sale of the subject property to Villar was valid as it found nothing in the records that would show
that Galas violated the Deed of Real Estate Mortgage prior to the sale. [34]

In dismissing the complaint for judicial foreclosure of real estate mortgage with damages, the Court
of Appeals held that Garcia had no cause of action against Villar in the absence of evidence showing that
the second mortgage executed in his favor by Lourdes V. Galas [had] been violated and that he [had]
made a demand on the latter for the payment of the obligation secured by said mortgage prior to the
institution of his complaint against Villar.[35]

On March 20, 2003, Garcia filed a Motion for Reconsideration [36] on the ground that the Court of
Appeals failed to resolve the main issue of the case, which was whether or not Garcia, as the second
mortgagee, could still foreclose the mortgage after the subject property had been sold by Galas, the
mortgage debtor, to Villar, the mortgage creditor.

This motion was denied for lack of merit by the Court of Appeals in its July 2, 2003 Resolution.

Garcia is now before this Court, with the same arguments he posited before the lower courts. In his
Memorandum,[37] he added that the Deed of Real Estate Mortgage contained a stipulation, which is
violative of the prohibition on pactum commissorium.

Issues
The crux of the controversy before us boils down to the propriety of Garcias demand upon Villar to
either pay Galass debt of P1,800,000.00, or to judicially foreclose the subject property to satisfy the
aforesaid debt. This Court will, however, address the following issues in seriatim:

1. Whether or not the second mortgage to Garcia was valid;

2. Whether or not the sale of the subject property to Villar was valid;

3. Whether or not the sale of the subject property to Villar was in violation of the prohibition
on pactum commissorium;

4. Whether or not Garcias action for foreclosure of mortgage on the subject property can prosper.

Discussion

Validity of second mortgage to Garcia


and sale of subject property to Villar

At the onset, this Court would like to address the validity of the second mortgage to Garcia and the
sale of the subject property to Villar. We agree with the Court of Appeals that both are valid under the
terms and conditions of the Deed of Real Estate Mortgage executed by Galas and Villar.

While it is true that the annotation of the first mortgage to Villar on Galass TCT contained a
restriction on further encumbrances without the mortgagees prior consent, this restriction was nowhere to
be found in the Deed of Real Estate Mortgage. As this Deed became the basis for the annotation on Galass
title, its terms and conditions take precedence over the standard, stamped annotation placed on her
title. If it were the intention of the parties to impose such restriction, they would have and should have
stipulated such in the Deed of Real Estate Mortgage itself.

Neither did this Deed proscribe the sale or alienation of the subject property during the life of the
mortgages. Garcias insistence that Villar should have judicially or extrajudicially foreclosed the mortgage
to satisfy Galass debt is misplaced. The Deed of Real Estate Mortgage merely provided for the options
Villar may undertake in case Galas or Pingol fail to pay their loan. Nowhere was it stated in the Deed that
Galas could not opt to sell the subject property to Villar, or to any other person. Such stipulation would
have been void anyway, as it is not allowed under Article 2130 of the Civil Code, to wit:

Art. 2130. A stipulation forbidding the owner from alienating the immovable
mortgaged shall be void.

Prohibition on pactum commissorium

Garcia claims that the stipulation appointing Villar, the mortgagee, as the mortgagors attorney-in-
fact, to sell the property in case of default in the payment of the loan, is in violation of the prohibition
on pactum commissorium, as stated under Article 2088 of the Civil Code, viz:

Art. 2088. The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and void.

The power of attorney provision in the Deed of Real Estate Mortgage reads:

5. Power of Attorney of MORTGAGEE. Effective upon the breach of any condition of this
Mortgage, and in addition to the remedies herein stipulated, the MORTGAGEE is likewise
appointed attorney-in-fact of the MORTGAGOR with full power and authority to take actual
possession of the mortgaged properties, to sell, lease any of the mortgaged properties, to
collect rents, to execute deeds of sale, lease, or agreement that may be deemed convenient,
to make repairs or improvements on the mortgaged properties and to pay the same, and
perform any other act which the MORTGAGEE may deem convenient for the proper
administration of the mortgaged properties. The payment of any expenses advanced by the
MORTGAGEE in connection with the purpose indicated herein is also secured by this
Mortgage. Any amount received from the sale, disposal or administration abovementioned
maybe applied by assessments and other incidental expenses and obligations and to the
payment of original indebtedness including interest and penalties thereon. The power herein
granted shall not be revoked during the life of this Mortgage and all acts which may be
executed by the MORTGAGEE by virtue of said power are hereby ratified. [38]

The following are the elements of pactum commissorium:

(1) There should be a property mortgaged by way of security for the payment of the principal
obligation; and
(2) There should be a stipulation for automatic appropriation by the creditor of the thing mortgaged
in case of non-payment of the principal obligation within the stipulated period. [39]

Villars purchase of the subject property did not violate the prohibition on pactum
commissorium. The power of attorney provision above did not provide that the ownership over the subject
property would automatically pass to Villar upon Galass failure to pay the loan on time. What it granted
was the mere appointment of Villar as attorney-in-fact, with authority to sell or otherwise dispose of the
subject property, and to apply the proceeds to the payment of the loan. [40] This provision is customary in
mortgage contracts, and is in conformity with Article 2087 of the Civil Code, which reads:

Art. 2087. It is also of the essence of these contracts that when the principal
obligation becomes due, the things in which the pledge or mortgage consists may be
alienated for the payment to the creditor.

Galass decision to eventually sell the subject property to Villar for an additional P1,500,000.00 was
well within the scope of her rights as the owner of the subject property.The subject property was
transferred to Villar by virtue of another and separate contract, which is the Deed of Sale. Garcia never
alleged that the transfer of the subject property to Villar was automatic upon Galass failure to discharge
her debt, or that the sale was simulated to cover up such automatic transfer.

Propriety of Garcias action

for foreclosure of mortgage

The real nature of a mortgage is described in Article 2126 of the Civil Code, to wit:

Art. 2126. The mortgage directly and immediately subjects the property upon which
it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose
security it was constituted.

Simply put, a mortgage is a real right, which follows the property, even after subsequent transfers
by the mortgagor. A registered mortgage lien is considered inseparable from the property inasmuch as it is
a right in rem.[41]

The sale or transfer of the mortgaged property cannot affect or release the mortgage; thus the
purchaser or transferee is necessarily bound to acknowledge and respect the encumbrance. [42] In fact,
under Article 2129 of the Civil Code, the mortgage on the property may still be foreclosed despite the
transfer, viz:

Art. 2129. The creditor may claim from a third person in possession of the mortgaged
property, the payment of the part of the credit secured by the property which said third
person possesses, in terms and with the formalities which the law establishes.

While we agree with Garcia that since the second mortgage, of which he is the mortgagee, has not
yet been discharged, we find that said mortgage subsists and is still enforceable. However, Villar, in buying
the subject property with notice that it was mortgaged, only undertook to pay such mortgage or allow the
subject property to be sold upon failure of the mortgage creditor to obtain payment from the principal
debtor once the debt matures. Villar did not obligate herself to replace the debtor in the principal
obligation, and could not do so in law without the creditors consent. [43] Article 1293 of the Civil Code
provides:

Art. 1293. Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of the latter, but
not without the consent of the creditor. Payment by the new debtor gives him the rights
mentioned in articles 1236 and 1237.

Therefore, the obligation to pay the mortgage indebtedness remains with the original debtors Galas
and Pingol.[44] The case of E.C. McCullough & Co. v. Veloso and Serna[45] is square on this point:

The effects of a transfer of a mortgaged property to a third person are well determined by
the Civil Code. According to article 1879[46] of this Code, the creditor may demand of the
third person in possession of the property mortgaged payment of such part of the debt, as is
secured by the property in his possession, in the manner and form established by the
law. The Mortgage Law in force at the promulgation of the Civil Code and referred to in the
latter, provided, among other things, that the debtor should not pay the debt upon its
maturity after judicial or notarial demand, for payment has been made by the creditor upon
him. (Art. 135 of the Mortgage Law of the Philippines of 1889.) According to this, the
obligation of the new possessor to pay the debt originated only from the right of the creditor
to demand payment of him, it being necessary that a demand for payment should have
previously been made upon the debtor and the latter should have failed to pay. And even if
these requirements were complied with, still the third possessor might abandon the property
mortgaged, and in that case it is considered to be in the possession of the debtor. (Art. 136
of the same law.) This clearly shows that the spirit of the Civil Code is to let the obligation of
the debtor to pay the debt stand although the property mortgaged to secure the payment of
said debt may have been transferred to a third person. While the Mortgage Law of 1893
eliminated these provisions, it contained nothing indicating any change in the spirit of the
law in this respect. Article 129 of this law, which provides the substitution of the debtor by
the third person in possession of the property, for the purposes of the giving of notice, does
not show this change and has reference to a case where the action is directed only against
the property burdened with the mortgage. (Art. 168 of the Regulation.)[47]

This pronouncement was reiterated in Rodriguez v. Reyes[48] wherein this Court, even before quoting
the same above portion in E.C. McCullough & Co. v. Veloso and Serna, held:

We find the stand of petitioners-appellants to be unmeritorious and untenable. The


maxim caveat emptor applies only to execution sales, and this was not one such. The mere
fact that the purchaser of an immovable has notice that the acquired realty is encumbered
with a mortgage does not render him liable for the payment of the debt guaranteed by the
mortgage, in the absence of stipulation or condition that he is to assume payment of the
mortgage debt. The reason is plain: the mortgage is merely an encumbrance on the
property, entitling the mortgagee to have the property foreclosed, i.e., sold, in case the
principal obligor does not pay the mortgage debt, and apply the proceeds of the sale to the
satisfaction of his credit. Mortgage is merely an accessory undertaking for the convenience
and security of the mortgage creditor, and exists independently of the obligation to pay the
debt secured by it. The mortgagee, if he is so minded, can waive the mortgage security and
proceed to collect the principal debt by personal action against the original mortgagor. [49]

In view of the foregoing, Garcia has no cause of action against Villar in the absence of evidence to
show that the second mortgage executed in favor of Garcia has been violated by his debtors, Galas and
Pingol, i.e., specifically that Garcia has made a demand on said debtors for the payment of the obligation
secured by the second mortgage and they have failed to pay.

WHEREFORE, this Court hereby AFFIRMS the February 27, 2003 Decision and March 8, 2003
Resolution of the Court of Appeals in CA-G.R. SP No. 72714.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO


EN BANC

G.R. No. L-11907 February 27, 1919

FAUSTINO LICHAUCO, ET AL., plaintiffs-appellants,


vs.
JOSE BERENGUER, ET AL., defendants-appellees.

Sumulong & Estrada for appellants.


Ramon Salinas for appellees.

AVANCEA, J.:

On July 26, 1882, by a public instrument (Exhibit A-1) Macario Berenguer and to, Cristino Singian with right
of repurchase for an indefinite time the land in question which is described as parcel one in the complaint.

On October 7, 1889, by means of another public instrument, Macario Berenguer sold the same and to
Cornelia Lauchangco with right of repurchase for the term of two years. It was stipulated that Macario
Berenguer would take the land under a lease, paying an anual rent therefor, either in cash or in sugar at
the option of Cornelia Lauchangco. It was also stipulated that all the fruits of the land would be stored in
Cornelia Lauchangco's enfraderia (sugar packing house) in this city and the proceeds thereof would be
applied to the payment of the price of the repurchase (Exhibit A). This sale was registered in 1907.

It appears that on September 2, 1890, Macario Berenguer, by virtue of a public instrument, sold again the
land in question with pacto de retro to Cristiano Singian at a higher price but the amount paid on account
of the sale of 1882 was considered as a part of the price. In the document wherein appears this contract, it
is said that Cristiano Singian accepts the purchase in the name and representation of Anselmo Singian of
whom he was the tutor. The contract does not express the period for the redemption (Exhibit A-1.)

On February 20, 1904, Anselmo Singian sold in an absolute sale, also by as public instrument, the same
land to Macario Berenguer. Anselmo Singian states in this contract that the land was acquired by him form
Macario Berenguer himself by virtue of the above-mentioned contract of 1890 through his (Anselmo's)
tutor, Cristiano Singian. It was stipulated that the price of this sale should be paid within the period of eight
years and that, if it be not completely paid on the expiration of the term, the ownership of the land should
revert to Anselmo Singian (Exhibit X).

The parties to this action are: Faustino Lichauco and others, in their capacity as heirs of Cornelia
Lauchangco, as plaintiff; Jose Berenguer, administrator of the estate of Macario Berenguer, and Anselmo
Singian in his own behalf, as defendants.

The plaintiffs pray that the sale of the land executed by Macario Berenguer in favor of Cornelia Lauchangco
be declared absolute or that the defendant Jose Berenguer be obliged to pay to the plaintiffs the sum of
P3,000, the price of the repurchase, with legal interest thereon from October 7, 1891, and the amount of
P9,236.86, as rents due, as well as the amounts which would be due until the execution of the sentence
with the corresponding interests. The defendants Jose Berenguer prays that he be absolved from the
complaint and that the plaintiffs be obliged to execute in this favor the document of repurchase of the
land. The defendant Anselmo Singian prays that the sale of the land executed by Macario Berenguer in
favor of Cornelia Lauchangco be declared null and void and that he be declared absolute owner of the said
land.

The trial court absolved owner of the said land, finding as to costs and from this judgment the plaintiffs
appealed.

From what has been said, it appears that the land in question had been twice sold by Macario Berenguer:
the first sale was made in 1882 in favor of Cristino Singian and the second, in 1889, in favor of Cornelia
Lauchangco, predecessor in interest of the plaintiffs. The question to be decided is, which of these two
sales is to be preferred. Both were executed by means of public instruments. Considering the facts in
connection with the time prior to 1907, it follows that, since neither of these instruments was inscribed,
the preference should be in favor of the purchaser who first took possession of the land, inasmuch as this
possession, according to the law in force prior to the promulgation of the Civil Code, constituted the
consummation of the contract, and also inasmuch as the civil Code (article 1473) expressly provides that
possession in such cases transfers the ownership of the thing sold. The trial court accepted the fact that
the defendant Anselmo Singian, by himself and through a representative, took possession of the land since
its sale in 1882 and has been continuing in this possession up to the present time. There is evidence in the
record which establishes the conclusion, and there is no proof to the contrary.

It appears that after the sale in 1882 to Cristino Singian, the land was held, under a lease through payment
of an annul rent, by Macario Berenguer until his death, and even after his death the administrator of his
property continued the lease under the same conditions until two years before this action was filed. It does
not appear whether, after the sale, Cristiano Singian first took possession of the land and then leased it to
Macario Berenguer or the land was immediately leased after the sale without the lease having been
preceded by direct possession on the party of the purchaser, Cristino Singian. But, as regards the basis
upon which this decision rests, we accept the second alternative as true. It appears also that when the
same land was sold in 1889 by same Macario Berenguer to Cornelia Lauchangco, the latter did not also
take a direct possession of it but agreed to lease it to Macario Berenguer under certain conditions. It thus
appears that both Cristino Singian and Cornelia Lauchangco in like manner took possession of the land
through the same vendor, when the latter on ceasing to be the owner became the lessee of each of the
former respectively. this court has held that when a person buys a piece of land and, instead of taking
possession of it, give it under a lease to the vendor, possession therefore by the later after the sale is
possession by the vendee, and such possession, in case of a double sale, determine the preference in favor
of the one who first took possession of it, in the absence of inscription, in accordance with the provision of
article 1473 of the Civil Code and notwithstanding the material and personal possession by the second
vendee. (Bautista vs. Sioson, p. 615, ante.) This doctrine is with greater reason applicable to this cae in
that the possession by the second vendee, granting that he had it, was under the same conditions as that
of the first vendee. Therefore, in determining the preference between both sales by reason of the priority
of possession, supposing that both vendees had such possession in the same manner as we have
indicated, the decision must necessarily be in favor of the sale to Cristiano Singian who first enjoyed such
possession.

But we can still say that Cornelia Lauchangco never had in the manner indicated the possession of the
land. She had to derive this possession from Macario Berenguer. It is true that it was stipulated in the sale
to her that Berenguer would cease to be the owner and would be her lessee, but there is a lack of juridical
reality to suppose the this was equivalent to a delivery of possession, because on that date Berenguer had
no possession which he could transfer, inasmuch as he was then a mere lessee of the former vendee,
Cristino Singian, and therefore his possession was not for himself but in representation of the latter.

At all events, if it be interpreted that, in case of a double sale and in the absence of inscription, the
preference between both can not be determined, according to article 1473 of the Civil Code, by the
possession which the stipulation implies that vendor ceases to become owner and becomes the lessee of
the vendee, it follows that, for the purposes of this article, neither Cristino Singian nor Cornelia Lauchangco
took possession of the land. Under this supposition the preference between both sales shall also have to be
decided in favor of that made to Cristino Singian, because it is of a prior date. (Art. 1473, Civil Code.)

As has been stated, Macario Berenguer sold the land to Cristino Singian in 1882 and in 1890 he again sold
it to Cristino Singian in his capacity as tutor of Anselmo Singian. The plaintiffs contend that according to
this sale to defendant Anselmo Singian was effected only in 1890 and therefore was not anterior to that
made to Cornelia Lauchangco in 1889. We believe that this conclusion is erroneous. After the sale of 1882,
Macario Berenguer took from Cristino Singian some more money which amounted to P6,000 and this fact
impelled him to make the sale in 1890 in which it was stipulated that the amount paid in the sale of 1882
plus the P6,000 subsequent given by Cristino Singian to Macario Berenguer be considered as part of the
price received. it is true that in the sale of Cristino Singian in 1882 it was not stated that he acted in his
capacity as tutor of Anselmo Singian, but it appears that with the latter's money the former paid the price
in both sales. What really appears is that the second sale was made with the object of aggregating, as part
of the price, the amount of P6,000 received subsequently by Macario Berenguer for the purposes of the
purchase and not for the transmission of the ownership which was already affected. We accept as a fact
that both the sale of 1882 and that of 1890 were made in favor of Anselmo Singian.

The registry in 1907 of the sale to Lauchangco does not alter the aspect of the question involved. From the
time Singian took possession of the land up to that date twenty-five years had elapsed. Thus, on the date
in which the registry was made, Singian had acquired the ownership of the land by prescription. The
registry could have destroyed the efficacy of the sale to Singian but not the legal effects of his possession.
The effect which the law gives to the registry of a sale, in case of a double sale, against the efficacy of the
sale that was not registered does not extend to the other titles which the other vendee may have gained
independently, as the little of prescription in this case. And thus, even supposing that the sale to Singian,
for lack of registry, had lost all its efficacy, in itself, as a title transferring ownership as against the sale to
Lauchangco which was registered, still there remains for Singian the title of prescription which has not
been destroyed by another to the contrary.

The fact that in 1904 Anselmo Singian in turn sold the land in question to Macario Berenguer does not
affect the merits of the case. In the said sale it was agreed that Berenguer would pay the stipulated price
within the period of eight years and if, at the expiration of the eight years, the amount should not have
been completely paid, the ownership of the land would revert to the vendor. It does not appear that no
payment on account of this price has been made and inasmuch as this payment should be proved by him
who is obliged to do so, we accept as a fact that it was not so made. Under such circumstances, whatever
effect may be attributed to the sale during the said period of eight years, which was fixed for the payment
of the price, cannot be given such effect after the expiration of the said period, without the price having
been paid. At all events, the ownership of the land sold reverted to the vendor.

We have reached the conclusion that the sale to Anselmo Singian represented by his tutor Cristino Singian
was valid and produced the effect of transferring in his favor the ownership of the land in question. And,
even disregarding the proper effect of this sale, the defendant Anselmo Singian has also acquired the
ownership of the land by prescription.

Having reached the conclusion and as the action of the plaintiff against the defendant Berenguer is entirely
based upon the efficacy of the sale of the same land made in favor of Cornelia Lauchangco, we have to
hold also that the complaint against the latter is improper.

Therefore, we hereby affirm the judgment appealed form in so far as it absolves the defendants from the
complaint with the costs against the appellants. So ordered.

Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.

FIRST DIVISION

G.R. No. 165831 February 23, 2007


SPS. COL. PEDRO L. LUMBRES and REBECCA ROARING, Petitioners,
vs.
SPS. PEDRO B. TABLADA, JR. and ZENAIDA N. TABLADA, Respondents.

DECISION

GARCIA, J.:

Assailed and sought to be set aside in this petition for review under Rule 45 of the Rules of Court are the
following issuances of the Court of Appeals (CA) in CA-G.R. SP No. 82617, to wit:

1. Decision1 dated August 31, 2004 reversing and setting aside the appealed Order of the Regional
Trial Court (RTC) of Calamba City, Branch 37, and reinstating an earlier decision of the Municipal
Trial Court in Cities (MTCC), Calamba City, which dismissed the petitioners' complaint for ejectment
against the herein respondents; and

2. Resolution2 dated October 27, 2004 denying the petitioners' motion for reconsideration.

From the facts on record, it appears that this is a case of double sale of a lot covered by Transfer Certificate
of Title (TCT) No. 473055 with an area of 105 square meters, more particularly identified as Lot 8, Block 3
of the Spring Homes Subdivision, Brgy. Bucal, Calamba City. Both parties to the case present Deeds of
Absolute Sale for the same lot from the same seller, Spring Homes Subdivision Company, Inc. (Spring
Homes, hereafter).

Reviewed, the records disclose that on January 9, 1995, Spring Homes, former owner of the parcel of land
in dispute, entered into a pro forma Contract to Sell3 with the respondent spouses. The prepared
typewritten contract, with the blank spaces therein merely filled up, contains the designation of the parcel
sold, the price per square meter and the stipulation as to payment, to wit:

1. That the SELLER, for and in consideration of the payments and other terms and conditions
hereinafter to be designated, has offered to sell and the BUYER has agreed to buy certain parcel of
land more particularly described as follows:

Blk No. Lot No. Area Price Total Selling


P-111 Sq. Meter Per Sq. Meter Price
3 8 105 P 1,500
42 6,000
P 409,500

2. That in consideration of the foregoing agreement, the BUYER obligates himself to pay to the
SELLER the sum of FOUR HUNDRED NINE THOUSAND FIVE HUNDRED PESOS (P409,500), Philippine
Currency, payable as follows:

a) As downpayment, the amount of THIRTY NINE THOUSAND FOUR HUNDRED PESOS


(P39,400),

b) The amount of TWO HUNDRED THIRTY THOUSAND PESOS (P230,000). To be paid on or


before upon the release of Pag-Ibig Loan.

c) The SEVENTY THOUSAND ONE HUNDRED (P70,100) to be paid upon the signing of this
contract. Balance of SEVENTY THOUSAND (P70,000) by monthly installments of ELEVEN
THOUSAND SIX HUNDRED SIXTY SIX & 70 Cents PESOS (11,666.70) to start on the 30th day
of January, 1995 until said balance is fully paid subject to interest at the rate of ___ percent
( ) per annum on the balance outstanding or the prevailing bank interest rate whichever is
higher.

xxx xxx xxx

On January 16, 1996, after having been paid the sum total of P179,500.00, which the respondents claim to
be the full purchase price of the subject lot, Spring Homes executed a Deed of Absolute Sale 4 in favor of
the respondents. In the deed, Lot 8, Block 3 was already made to appear as covered by TCT No. T-284037.
Respondents accumulated payments totaling P179,500.00 consisted of the following: P39,400.00 by way
of downpayment; P70,100.00 paid on signing of the contract; and P70,000.00 paid in monthly installments
of P11,666.70 each. All such payments are evidenced by receipts of the corresponding transactions.
Because the anticipated Pag-Ibig loan failed to materialize, the P230,000.00, which, under the Contract to
Sell, was supposed to be paid upon release of the loan, was left unpaid.
Respondents later declared the subject lot for taxation purposes under Tax Declaration No. 019-1342 and
paid the corresponding real property taxes thereon. Using their own funds, they caused the construction
thereon of a residential house, which they presently occupy, the costs of which amounted to P356,516.50.
On June 9, 1996, a Certificate of Occupancy was issued to them by the Office of the Building Official and
the house was declared in their names.

With the execution of the aforesaid Deed of Absolute Sale, the respondent spouses sent a demand letter
dated May 4, 1996 to Spring Homes for the transfer and release to them of the original or owner's copy of
TCT No. T-284037. The acting president/chairperson of Spring Homes, Bertha L. Pasic, promised to deliver
the said title and even apologized for the delay. However, to their great dismay, the spouses subsequently
learned that TCT No. T-284037 was canceled and a new one issued to the petitioners. On account thereof,
the respondent spouses filed with the RTC of Calamba City a civil suit against the petitioners, Spring
Homes and the Register of Deeds of Calamba City for nullification of title, reconveyance and damages,
docketed as Civil Case No. 3117-2001-C.

It appears, however, that after the filing of Civil Case No. 3117-2001-C, the petitioners filed a civil case
before the RTC of Calamba City, Laguna, Branch 37, against Spring Homes, docketed as Civil Case No.
2194-95-C. On November 17, 1996, the petitioners filed with the Register of Deeds of Calamba City a
Notice of Lis Pendens over all the properties registered in the name of the said corporation, including Lot 8,
Block 3 covered by TCT No. T-284037. On September 3, 1997, the RTC issued an order attaching all of
Spring Homes properties, including Lot 8, Block 3. Premiere Development Bank subsequently intervened in
Civil Case No. 2194-95-C because all said properties had been mortgaged to it.

On September 21, 1999, the petitioner spouses entered into a Compromise Agreement in Civil Case No.
2194-95-C with Spring Homes and Premiere Development Bank, which was approved by the RTC, Branch
37, on October 28, 1999. In that Compromise Agreement, both Spring Homes and Premiere Development
Bank recognized the rights and interests of the petitioner spouses over the parcels of land covered by
twenty (20) titles and containing an aggregate area of 2,499 square meters. The subject property (Lot 8,
Block 3) was among the properties covered by the aforementioned compromise agreement that were
judicially assigned, transferred and conveyed to the petitioners.

Meanwhile, due to the respondents alleged failure to pay the P230,000.00 unpaid balance as per the
Contract to Sell earlier adverted to despite demands, the subject lot was sold by Spring Homes to the
petitioners, again by way of a Deed of Absolute Sale executed on December 22, 2000 for and in
consideration of the sum of P157,500.00. The mortgage on the lot was released by Premiere Development
Bank on January 20, 2001. Subsequently, on January 30, 2001, TCT No. T-473055 covering the subject lot
was issued in petitioners' favor.

The instant case cropped up when, asserting their ownership of the subject lot on the basis of TCT No. T-
473055, the petitioners demanded of the respondents to vacate said lot and to pay them the rentals due
thereon. Their demands having come to naught, the petitioner spouses then filed in the MTCC, Calamba
City, a complaint for ejectment on October 2, 2001 against respondent Tabladas and all persons claiming
rights under them. The complaint was docketed in the MTCC as Civil Case No. 4335-01.

In a decision5 dated May 28, 2002, the MTCC dismissed the petitioners' ejectment complaint, its basis
being the rule on double sale set out in Article 1544 of the Civil Code. Finding that the petitioners
registration of their title over the subject lot was done in bad faith, that court ruled for the respondents.

Aggrieved, the petitioners appealed to the RTC. In an Order6 dated October 16, 2003, the RTC reversed and
set aside the MTCC decision and ordered the respondent spouses to vacate Lot 8, Block 3, to surrender the
possession thereof to the petitioners and to pay the latter reasonable rentals from the time of judicial
demands until the premises is surrendered to them.

While conceding that there is a double sale in this case, the RTC, in its aforementioned Order, refused to
apply the provisions of Article 1544 of the Civil Code in settling the issue of possession. Instead, it went to
the extent of determining the validity and due execution of the separate Deeds of Absolute Sale executed
by Spring Homes in favor of the herein contending parties.

In holding that the petitioners have superior right on the subject lot over the respondents, the RTC
declared that there was no valid deed of absolute sale executed in favor of the respondents for the
following reasons:

1. Even if there was a perfected Contract to Sell between respondents and Spring Homes, the
former failed to pay the full purchase price in installments that gave Spring Homes the right to
cancel the contract; and

2. The execution of the Deed of Absolute Sale in favor of the respondents on January 16, 1996 is not
a transfer of ownership but merely to use it as a collateral for a loan of P230,000.00 from the Pag-
Ibig Fund which, incidentally, did not materialize.
Applying the provisions of Articles 1350, 1352 and 1409 of the Civil Code, the RTC deemed the Deed of
Absolute Sale in favor of the respondents void ab initio for want of valid consideration. With their motion
for reconsideration having been denied by the RTC in its subsequent Order of February 12, 2004, the
respondent spouses then went to the CA on a petition for review in CA-G.R. SP No. 82617.1awphi1.net

In the herein assailed decision7 dated August 31, 2004, the CA granted the respondents' petition, thereby
reversing the assailed Orders of the RTC and reinstating the earlier decision of the MTCC. Their motion for
reconsideration having been denied by the CA in its equally assailed Resolution 8 of October 27, 2004,
petitioners are now before us via the instant recourse raising the following issues:

1. Whether the CA committed reversible error or grave abuse of discretion when it found the
purchase price of the contested lot to be P157,500.00 instead of the stipulated price of P409,500.00
in the Contract to Sell dated January 9, 1995 despite the fact that the existence and validity of said
contract was never put in issue;

2. Whether the CA committed reversible error or grave abuse of discretion when it did not find that
the sale of the subject lot to the respondents was void due to lack of consideration since it was
merely used by the respondents to obtain a loan of P230,000.00 from the PAG-IBIG Fund and
despite the fact that said lot was already mortgaged by Spring Homes to the Premiere Development
Bank since January 21, 1993 for P4,800,000.00;

3. Whether the CA committed reversible error or grave abuse of discretion when it ruled that the
petitioners acquired the lot in question in bad faith despite the judicial assignment of rights and
interests to them over the lot in question in RTC Civil Case No. 2194-95-C, and their having had it
titled in their names with the Register of Deeds;

4. Whether the CA committed a reversible error or grave abuse of discretion when it did not find the
respondents to be bad faith builders and possessors of the property in question; and

5. Whether the CA committed reversible error or grave abuse of discretion when it manifestly
misapprehended the relevant facts.

We DENY.

Before proceeding with a discussion of the issues laid out above, it must be stressed that the present case
is one for ejectment. As such, our judgment hereon is effective only with respect to possession. It does not
bind the title or affect the ownership of the lot in question. Such judgment shall not bar an action between
the same parties respecting the title to said property. 9 The only issue for resolution is who, as between the
petitioners and the respondents, is entitled to the physical or material possession of the property involved,
independent of their respective claims of ownership thereof. 10

When acting as an ejectment court, the Metropolitan, Municipal and Circuit Trial Courts' jurisdiction is
limited to the determination of the issue on possession de facto and not possession de jure.11 By way of
exception, however, if the issue of possession depends on the resolution of the issue of ownership, which is
sufficiently alleged in the complaint, as here, the MTCC may resolve the issue of ownership although the
resulting judgment would be conclusive only with respect to possession but not to the ownership of the
property.12

In claiming their right of possession over the subject lot, petitioners made much of the judicially approved
Compromise Agreement in Civil Case No. 2194-95-C, wherein Spring Homes rights and interests over the
said lot under its Contract to Sell with the respondents were effectively assigned to them. Petitioners argue
that out of the whole P409,500.00 purchase price under the respondents Contract to Sell with Spring
Homes, the respondents were able to pay only P179,500.00, leaving a balance of P230,000.00.

Upon scrutiny, however, the CA astutely observed that despite there being no question that the total land
area of the subject lot is 105 square meters, the Contract to Sell executed and entered into by Spring
Homes and the respondent spouses states:

3. That the SELLER, for and in consideration of the payments and other terms and conditions
hereinafter to be designated, has offered to sell and the BUYER has agreed to buy certain parcel of
land more particularly described as follows:

Blk No. Lot No. Area Price Total Selling Price


P-111 Sq. Meter Per Sq. Meter
3 8 105 P 1,500
42 6,000
P 409,500
The two deeds of absolute sale as well as the respondents Tax Declaration No. 019-1342 uniformly show
that the land area of the property covered by TCT No. T-284037 is 105 square meters. The parties never
contested its actual land area.

However, while there is only one parcel of land being sold, which is Lot 8, Blk. 3, paragraph "1" above of
the Contract to Sell speaks of two (2) land areas, namely, "105" and "42," and two (2) prices per square
meter, to wit: "P1,500" and "P6,000." As correctly observed by the CA:

In does not require much imagination to understand why figures "3," "8," "105" and "P1,500" appear in the
paragraph "1" of the Contract to Sell. Certainly "3" stands for "Blk. No.," "8" stands for "Lot No.," "105"
stands for the land area and "P1,500" stands for the price per square meter. However, this Court is
perplexed as regards figures "42" and "6,000" as they are not accompanied by any "Blk. No." and/or "Lot
No." In other words, while there is only one parcel of land being sold, paragraph "1" of the Contract to Sell
contains two land areas and two prices per square meter. There is no reason for the inclusion of land area
in the computation when it was established beyond cavil that the total area being sold is only 105 square
meters. Likewise, there is no explanation why there is another rate for the additional 42 square meters,
which was pegged at P6,000 per square meter, while that of 105 square meters was only P1,500.00.

The CA could only think of one possible explanation: the Contract to Sell refers only to a single lot with a
total land area of 105 square meters. The 42 square meters mentioned in the same contract and therein
computed at the rate of P6,000 per square meter refer to the cost of the house which would be
constructed by the respondents on the subject lot through a Pag-Ibig loan. The land area of the house to be
constructed was pegged at 42 square meters because of the following restrictions in the Contract to Sell:

9. The lot(s) subject matter of this contract are subject to the following restrictions:

a) Any building which may be constructed at anytime in said lot(s) must be strong x x x. Said
building must not be constructed at a distance of less than (2) meters from any boundaries of the
lot(s).

b) The total area to be voted to buildings or structures shall not exceed eighty percent (80%) of the
total area of the lot(s).

Looking at the above-quoted portion of the Contract to Sell, the CA found merit in the respondents'
contention that the total selling price of P409,500 includes not only the price of the lot but also the cost of
the house that would be constructed thereon. We are inclined to agree. The CA went on to say:

It could be argued that the contract to sell never mentions the construction of any house or building on the
subject property. Had it been the intention of the parties that the total selling price would include the
amount of the house that would be taken from a loan to be obtained from Pag-Ibig, they could have
specified so. However, one should not lose sight of the fact that the contract to sell is an accomplished
form. [Respondents,] trusting Spring Homes, could not be expected to demand that another contract duly
reflective of their agreements be utilized instead of the accomplished form. The terms and conditions of
the contract may not contemplate the inclusion of the cost of the house in the total selling price, but the
entries typewritten thereon sufficiently reveal the intentions of the parties.

The position of the [respondents] finds support in the documents and subsequent actuations of Bertha
Pasic, the representative of Spring Homes. [Respondents] undeniably proved that they spent their own
hard-earned money to construct a house thereon after their Pag-Ibig loan did not materialize. It is highly
unjust for the [respondents] to pay for the amount of the house when the loan did not materialize due to
the failure of Spring Homes to deliver the owner's duplicate copy of TCT No. T-284037.xxx xxx xxx

If the total selling price was indeed P409,500.00, as [petitioners] would like to poster, said amount should
have appeared as the consideration in the deed of absolute sale dated January 15, 1996. However, only
P157,500.00 was stated. The amount stated in the Deed of Absolute Sale dated January 15, 1996 was not
only a portion of the selling price, because the Deed of Sale dated December 22, 2000 also reflected
P157,500.00 as consideration. It is not shown that [petitioners] likewise applied for a loan with Pag-
Ibig. The reasonable inference is that the consistent amount stated in the two Deeds of Absolute Sale was
the true selling price as it perfectly jibed with the computation in the Contract to Sell. [Emphasis supplied]
(Words in brackets ours).

We find the CA's reasoning to be sound. At any rate, the execution of the January 16, 1996 Deed of
Absolute Sale in favor of the respondents effectively rendered the previous Contract to Sell ineffective and
canceled. Furthermore, we find no merit in petitioners' contention that the first sale to the respondents
was void for want of consideration. As the CA pointed out in its assailed decision:

Other than the [petitioners'] self-serving assertion that the Deeds of Absolute Sale was executed solely for
the purpose of obtaining a Pag-Ibig loan, no other concrete evidence was tendered to justify the execution
of the deed of absolute sale. They failed to overcome the clear and convincing evidence of the
[respondents] that as early as July 5, 1995 the latter had already paid the total amount of P179,500.00,
much bigger than the actual purchase price for the subject land. (Words in brackets ours.)
Having stated that the Deed of Absolute Sale executed in favor of the respondent spouses is valid and with
sufficient consideration, the MTCC correctly applied the provisions of Article 1544 of the Civil Code. Article
1544 reads:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred
to the person who may have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the
possession, and, in the absence thereof, to the person who presents the oldest title, provided there is good
faith. [Emphasis provided]

Notwithstanding the fact that the petitioners, as the second buyer, registered their Deed of Absolute Sale,
in contrast to the Deed of Sale of the respondents which was not registered at all precisely because of
Spring Homes failure to deliver the owners copy of TCT No. T-284037, the respondents right could not be
deemed defeated as the petitioners are in bad faith. Petitioners cannot claim good faith since at the time
of the execution of the Compromise Agreement in Civil Case No. 2194-95-C, they were indisputably and
reasonably informed that the subject lot was previously sold to the respondents. In fact, they were already
aware that the respondents had constructed a house thereon and are presently in possession of the same.

Knowledge gained by the second buyer of the first sale defeats his rights even if he is the first to register
the second sale because such knowledge taints his prior registration with bad faith. For the second buyer
to displace the first, he must show that he acted in good faith throughout (i.e. in ignorance of the first sale
and of the first buyer's rights) from the time of acquisition until the title is transferred to him by
registration.13

Consequently, the respondents are the buyers entitled to the physical possession of the subject lot since
the prevailing doctrine is that as between the buyer who is in possession of a Torrens title but who has
acquired it in bad faith and the first buyer who failed to have his title recorded in the Registry of Property,
the first buyer must prevail.14

Hence, there was nothing to cede or transfer to the petitioners when the Compromise Agreement in Civil
Case No. 2194-95-C was entered into on October 28, 1999 insofar as the subject lot is concerned as it was
already sold to and fully paid for by the respondents as early as January 16, 1996 when the Absolute Deed
of Sale was executed in their favor by Spring Homes. More so that Spring Homes has no more to sell to the
petitioners when it executed in the latters favor the second deed of absolute sale on December 22, 2000.

One last note, regardless of the actual condition of the title to the property, the party in peaceful, quiet
possession thereof shall not be ejected therefrom. Thus, a party who can prove prior possession can
recover such possession even against the owner himself. Whatever may be the character of the
defendant's prior possession, whether it be legal or illegal, since he had in his favor priority in time, he has
the security that entitles him to remain on the property until he is lawfully ejected therefrom by a person
having a better right by accion publciana or accion reivindicatoria.15

The respondents are the current occupants of the subject lot. They had constructed their residential house
thereon and are living there at present. The action for ejectment was fashioned to provide a speedy, albeit
temporary, remedy to the dispossessed party while the issue of lawful possession or de jure possession is
pending or about to be filed. The remedy of ejectment ought to maintain the status quo and prevent the
party-litigants from further aggravating the situation and causing further damage.

WHEREFORE, the instant petition is DENIED and the assailed decision and resolution of the CA
are AFFIRMED.Costs against the petitioners.SO ORDERED.

CANCIO C. GARCIA
Associate Justice