On May 30, 1988, a release of the adverse claim of
Galupo was annotated on TCT No. T-41499 which covered the
[G.R. No. 128573. January 13, 2003]
NAAWAN COMMUNITY RURAL BANK
INC., petitioner, vs. THE COURT OF APPEALS
and SPOUSES ALFREDO AND ANNABELLE
LUMO, respondents.
DECISION
CORONA, J.:
Under the established principles of land registration, a
person dealing with registered land may generally rely on the
correctness of a certificate of title and the law will in no way
oblige him to go beyond it to determine the legal status of the
property.
Before us is a Petition for Review on Certiorari
challenging the February 7, 1997 Decision[1] of the Court of
Appeals in CA-G.R. CV No. 55149, which in turn affirmed the
decision[2] of the Regional Trial Court of Misamis Oriental,
Branch 18 as follows:
WHEREFORE, the plaintiffs-spouses are adjudged the
absolute owners and possessors of the properties in question
(Lot 18583, under TCT No. T-50134, and all improvements
thereon) and quieting title thereto as against any and all adverse
claims of the defendant. Further, the sheriffs certificate of sale,
Exhibit 4; 4-A; Sheriffs deed of final conveyance, Exhibit 5, 5-
A; Tax Declarations No. 71211, Exhibit 7, and any and all
instrument, record, claim, encumbrance or proceeding in favor
of the defendant, as against the plaintiffs, and their
predecessor-in-interest, which may be extant in the office of the
Register of Deeds of Province of Misamis Oriental, and of
Cagayan de Oro City, and in the City Assessors Office of
Cagayan de Oro City, are declared as invalid and ineffective as
against the plaintiffs title.
The counterclaim is dismissed for lack of merit.
SO ORDERED.[3]
The facts of the case, as culled from the records, are as
follows:
On April 30, 1988, a certain Guillermo Comayas offered
to sell to private respondent-spouses Alfredo and Annabelle
Lumo, a house and lot measuring 340 square meters located at
Pinikitan, Camaman-an, Cagayan de Oro City.
Wanting to buy said house and lot, private respondents
made inquiries at the Office of the Register of Deeds of
Cagayan de Oro City where the property is located and the
Bureau of Lands on the legal status of the vendors title. They
found out that the property was mortgaged for P8,000 to a
certain Mrs. Galupo and that the owners copy of the Certificate
of Title to said property was in her possession.
Private respondents directed Guillermo Comayas to
redeem the property from Galupo at their expense, giving the
amount of P10,000 to Comayas for that purpose.
subject property.
In the meantime, on May 17, 1988, even before the
release of Galupos adverse claim, private respondents and
Guillermo Comayas, executed a deed of absolute sale. The
subject property was allegedly sold for P125,000 but the deed
of sale reflected the amount of only P30,000 which was the
amount private respondents were ready to pay at the time of the
execution of said deed, the balance payable by installment.
On June 9, 1988, the deed of absolute sale was registered
and inscribed on TCT No. T-41499 and, on even date, TCT No.
T-50134 was issued in favor of private respondents.
After obtaining their TCT, private respondents requested
the issuance of a new tax declaration certificate in their
names. However, they were surprised to learn from the City
Assessors Office that the property was also declared for tax
purposes in the name of petitioner Naawan Community Rural
Bank Inc. Records in the City Assessors Office revealed that,
for the lot covered by TCT No. T-50134, Alfredo Lumos T/D #
83324 bore the note: This lot is also declared in the name of
Naawan Community Rural Bank Inc. under T/D # 71210.
Apparently, on February 7, 1983, Guillermo Comayas
obtained a P15,000 loan from petitioner Bank using the subject
property as security. At the time said contract of mortgage was
entered into, the subject property was then an unregistered
parcel of residential land, tax-declared in the name of a certain
Sergio A. Balibay while the residential one-storey house was
tax-declared in the name of Comayas.
Balibay executed a special power of attorney authorizing
Comayas to borrow money and use the subject lot as
security. But the Deed of Real Estate Mortgage and the Special
Power of Attorney were recorded in the registration book of the
Province of Misamis Oriental, not in the registration book of
Cagayan de Oro City. It appears that, when the registration was
made, there was only one Register of Deeds for the entire
province of Misamis Oriental, including Cagayan de Oro
City. It was only in 1985 when the Office of the Register of
Deeds for Cagayan de Oro City was established separately
from the Office of the Register of Deeds for the Province of
Misamis Oriental.
For failure of Comayas to pay, the real estate mortgage
was foreclosed and the subject property sold at a public auction
to the mortgagee Naawan Community Rural Bank as the
highest bidder in the amount of P16,031.35. Thereafter, the
sheriffs certificate of sale was issued and registered under Act
3344 in the Register of Deeds of the Province of Misamis
Oriental.
On April 17, 1984, the subject property was registered in
original proceedings under the Land Registration Act. Title
was entered in the registration book of the Register of Deeds of
Cagayan de Oro City as Original Certificate of Title No. 0-820,
pursuant to Decree No. N-189413.
On July 23, 1984, Transfer Certificate of Title No. T-
41499 in the name of Guillermo P. Comayas was entered in the
Register of Deeds of Cagayan de Oro City.
 Meanwhile, on September 5, 1986, the period for
redemption of the foreclosed subject property lapsed and the
MTCC Deputy Sheriff of Cagayan de Oro City issued and
delivered to petitioner bank the sheriffs deed of final
conveyance. This time, the deed was registered under Act 3344
and recorded in the registration book of the Register of Deeds
of Cagayan de Oro City.
By virtue of said deed, petitioner Bank obtained a tax
declaration for the subject house and lot.
Thereafter, petitioner Bank instituted an action for
ejectment against Comayas before the MTCC which decided in
its favor. On appeal, the Regional Trial Court affirmed the
decision of the MTCC in a decision dated April 13, 1988.
On January 27, 1989, the Regional Trial Court issued an
order for the issuance of a writ of execution of its
judgment. The MTCC, being the court of origin, promptly
issued said writ.
However, when the writ was served, the property was no
longer occupied by Comayas but herein private respondents,
the spouses Lumo who had, as earlier mentioned, bought it
from Comayas on May 17, 1988
Alarmed by the prospect of being ejected from their
home, private respondents filed an action for quieting of title
which was docketed as Civil Case No. 89-138. After trial, the
Regional Trial Court rendered a decision declaring private
respondents as purchasers for value and in good faith,
and consequently declaring them as the absolute owners and
possessors of the subject house and lot.
Petitioner appealed to the Court of Appeals which in turn
affirmed the trial courts decision.
Hence, this petition.
Petitioner raises the following issues:
I. WHETHER OR NOT THE SHERIFFS DEED OF
FINAL CONVEYANCE WAS DULY
EXECUTED AND REGISTERED IN THE
REGISTER OF DEEDS OF CAGAYAN DE
ORO CITY ON DECEMBER 2, 1986;
II. WHETHER OR NOT REGISTRATION OF
SHERIFFS DEED OF FINAL CONVEYANCE
IN THE PROPER REGISTRY OF DEEDS
COULD BE EFFECTIVE AS AGAINST
SPOUSES LUMO.
Both parties cite Article 1544 of the Civil Code which
governs the double sale of immovable property.
Article 1544 provides:
x x x. 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.
Petitioner bank contends that the earlier registration of the
sheriffs deed of final conveyance in the day book under Act
3344 should prevail over the later registration of private
respondents deed of absolute sale under Act 496, [4] as amended
by the Property Registration Decree, PD 1529.
This contention has no leg to stand on. It has been held
that, where a person claims to have superior proprietary rights
over another on the ground that he derived his title from a
sheriffs sale registered in the Registry of Property, Article 1473
(now Article 1544) of the Civil Code will apply only if said
execution sale of real estate is registered under Act 496.[5]
Unfortunately, the subject property was still untitled when
it was acquired by petitioner bank by virtue of a final deed of
conveyance. On the other hand, when private respondents
purchased the same property, it was already covered by the
Torrens System.
Petitioner also relies on the case of Bautista vs.
Fule[6] where the Court ruled that the registration of an
instrument involving unregistered land in the Registry of Deeds
creates constructive notice and binds third person who may
subsequently deal with the same property.
However, a close scrutiny of the records reveals that, at
the time of the execution and delivery of the sheriffs deed of
final conveyance on September 5, 1986, the disputed property
was already covered by the Land Registration Act and Original
Certificate of Title No. 0-820 pursuant to Decree No. N189413
was likewise already entered in the registration book of the
Register of Deeds of Cagayan De Oro City as of April 17,
1984.
Thus, from April 17, 1984, the subject property was
already under the operation of the Torrens System. Under the
said system, registration is the operative act that gives validity
to the transfer or creates a lien upon the land.
Moreover, the issuance of a certificate of title had the
effect of relieving the land of all claims except those noted
thereon. Accordingly, private respondents, in dealing with the
subject registered land, were not required by law to go beyond
the register to determine the legal condition of the
property. They were only charged with notice of such burdens
on the property as were noted on the register or the certificate
of title. To have required them to do more would have been to
defeat the primary object of the Torrens System which is to
make the Torrens Title indefeasible and valid against the whole
world.
Private respondents posit that, even assuming that the
sheriffs deed of final conveyance in favor of petitioner bank
was duly recorded in the day book of the Register of Deeds
under Act 3344, ownership of the subject real property would
still be theirs as purchasers in good faith because they
registered the sale first under the Property Registration Decree.
The rights created by the above-stated statute of course do
not and cannot accrue under an inscription in bad faith. Mere
registration of title in case of double sale is not enough; good
faith must concur with the registration.[7]
Petitioner contends that the due and proper registration of
the sheriffs deed of final conveyance on December 2, 1986
amounted to constructive notice to private respondents. Thus,
when private respondents bought the subject property on May
17, 1988, they were deemed to have purchased the said
property with the knowledge that it was already registered in
the name of petitioner bank.
 Thus, the only issue left to be resolved is whether or not
private respondents could be considered as buyers in good
faith.
The priority in time principle being invoked by petitioner
bank is misplaced because its registration referred to land not
within the Torrens System but under Act 3344. On the other
hand, when private respondents bought the subject property,
the same was already registered under the Torrens System. It is
a well-known rule in this jurisdiction that persons dealing with
registered land have the legal right to rely on the face of the
Torrens Certificate of Title and to dispense with the need to
inquire further, except when the party concerned has actual
knowledge of facts and circumstances that would impel a
reasonably cautious man to make such inquiry.[8]
Did private respondents exercise the required diligence in
ascertaining the legal condition of the title to the subject
property so as to be considered as innocent purchasers for value
and in good faith?
We answer in the affirmative.
Before private respondents bought the subject property
from Guillermo Comayas, inquiries were made with the
Registry of Deeds and the Bureau of Lands regarding the status
of the vendors title. No liens or encumbrances were found to
have been annotated on the certificate of title. Neither were
private respondents aware of any adverse claim or lien on the
property other than the adverse claim of a certain Geneva
Galupo to whom Guillermo Comayas had mortgaged the
subject property. But, as already mentioned, the claim of
Galupo was eventually settled and the adverse claim previously
annotated on the title cancelled. Thus, having made the
necessary inquiries, private respondents did not have to go
beyond the certificate of title.Otherwise, the efficacy and
conclusiveness of the Torrens Certificate of Title would be
rendered futile and nugatory.
Considering therefore that private respondents exercised
the diligence required by law in ascertaining the legal status of
the Torrens title of Guillermo Comayas over the subject
property and found no flaws therein, they should be considered
as innocent purchasers for value and in good faith.
Accordingly, the appealed judgment of the appellate court
upholding private respondents Alfredo and Annabelle Lumo as
the true and rightful owners of the disputed property is
affirmed.
WHEREFORE, petition is hereby DENIED.
SO ORDERED.
Puno, (Chairman), Panganiban, Sandoval-
Gutierrez, and Morales, JJ., concur.
G.R. No. 167412 February 22, 2006
JUANITA NAVAL, Petitioner,
vs.
COURT OF APPEALS, JUANITO CAMALLA, JAIME
NACION, CONRADO BALILA, ESTER MOYA and
PORFIRIA AGUIRRE, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the Decision1 of the Court of
Appeals dated December 14, 2004, in CA-G.R. SP No. 86736,
which reversed the Decision2 of the Regional Trial Court
(RTC) of Naga City, Branch 26, in Civil Case No. 2004-0054
affirming the Decision3 of the Municipal Circuit Trial Court
(MCTC) of Magarao-Canaman, Camarines Sur, as well as the
Resolution4 dated February 17, 2005 denying petitioners
motion for reconsideration.
The facts of the case are as follows:
On December 2, 1969, Ildefonso A. Naval sold a parcel of land
located in Sto. Tomas, Magarao, Camarines Sur, consisting of
858 sq. m. to Gregorio B. Galarosa. The sale was recorded in
the Registry of Property of the Registry of Deeds of Camarines
Sur on December 3, 1969 pursuant to Act No. 3344, the law
governing registrations of all instruments on unregistered
lands.5
Subsequently, Gregorio sold portions of the land to respondents
Conrado Rodrigo Balilla6 on November 4, 1976, Jaime
Nacion7 on January 10, 1977 and spouses Ireneo and Ester
Moya8 in July 1977, and Juanito Camalla9 on September 4,
1987. All buyers occupied the portion they bought, built
improvements thereon, and paid the taxes due thereto.10
The controversy arose when petitioner Juanita Naval, the great
granddaughter of Ildefonso, was issued on April 1, 1975 by the
Register of Deeds of Camarines Sur an Original Certificate of
Title (OCT) No. RP-5386 (29791), covering 733 sq. m. of the
subject land.11 She claimed that she bought the subject land
from Ildefonso in 1972.12
On November 10, 1977, petitioner filed a complaint for
recovery of possession against Bartolome Aguirre, Conrado
Balila,13 Ireneo Moya, Jaime Nacion and Domingo Nacion,
which was docketed as Civil Case No. 306.14 However, the
case was dismissed15 without prejudice16 for failure to
prosecute the action for an unreasonable length of time.
Almost 20 years later, or on April 21, 1997, petitioner re-filed
the complaint for recovery of possession with damages before
the MCTC of Magarao-Canaman, Camarines Sur, against
Juanita17 Camalla, Diosdado Balila, Conrado Balila,
Forferia18 Aguirre, Jaime Nacion and Ester Moya. The case
was docketed as Civil Case No. 994.
After trial, the MCTC rendered its decision, the dispositive
portion reads as follows:
WHEREFORE, for all the foregoing consideration, decision is
hereby rendered in favor of the plaintiff and against defendants:
1) Declaring the plaintiff to be the legal owner of the
land as described in paragraph 2 of the complaint;
2) Ordering defendants Juanito Camalla, Diosdado
Balila, Conrado Balila, Porferia Aguirre and Jaime
Nacion to vacate the property in question and to
deliver its possession to the plaintiff;
3) Ordering Ester Moya to vacate the fifty (50) square
meters occupied by her and to relinquish its
possession to the plaintiff;
4) Dismissing the respective claims for damages of the
parties.
Pronouncing no costs.
SO ORDERED.19
Aggrieved, respondents appealed the decision to the RTC of
Naga City, which affirmed in toto the assailed decision.20
Respondents thereafter elevated the case to the Court of
Appeals via Rule 42 of the Rules of Court. Finding the prior
registration of the deed of sale between Ildefonso and Gregorio
with the Register of Deeds as a constructive notice to
subsequent buyers, the appellate court reversed the decision of
the RTC. Thus,
WHEREFORE, premises considered, the present petition is
hereby GRANTED. The appealed decision of the court a quo is
hereby REVERSED and SET ASIDE and a new judgment is
hereby entered dismissing respondent's complaint for recovery
of possession with damages. Petitioners' counterclaim for
damages is likewise dismissed for lack of legal and factual
bases.
No pronouncement as to costs.
SO ORDERED.21
Hence, this petition assigning the following errors:
I
THE COURT OF APPEALS ERRED IN
DECLARING THAT GREGORIO GALAROSA
HAS RIGHTFULLY ACQUIRED OWNERSHIP
OVER THE LOT COVERED BY OCT RP #5386
(29791) AND DECLARING HIM TO HAVE
POSSESSED THE LOT BEFORE THE ALLEGED
SALES TO RESPONDENTS.
 II
THE COURT OF APPEALS ERRED IN HOLDING
THAT THE PAYMENT OF TAXES BY
RESPONDENTS WERE (sic) EVIDENCE OF
LAWFUL POSSESSION AND OWNERSHIP.
III
THE COURT OF APPEALS ERRED IN
DECLARING THAT THE LOTS CLAIMED BY
THE RESPONDENTS HAVE BEEN POSSESSED
BY THEM IN GOOD FAITH DESPITE THEIR
KNOWLEDGE OF THE EXISTENCE OF OCT RP
#5386(29791).22
Petitioner claims that she has superior rights over the subject
land because the sale between Ildefonso and Gregorio and the
subsequent registration thereof with the Register of Deeds had
no legal effect since the subject land was declared in the name
of Agrifina Avila while the tax declaration cancelled by
Gregorios was that of Gregorio Boaga. Petitioner thus assails
the right claimed by Gregorio over the subject land from which
the respondents derived their respective claims.23
On the other hand, respondents contend that the registered sale
by Ildefonso to Gregorio in 1969 of the subject land, from
whom they derive their claims, vests them with better right
than the petitioner; that registration under Act No. 3344 served
as constructive notice to the whole world, including the
petitioner, who claimed to have purchased the subject land
from Ildefonso in 1972, but failed to present evidence to prove
such acquisition.24
We deny the petition.
Prefatorily, a perusal of the records reveals that during the trial,
petitioner vigorously asserted that the subject land was the
exclusive property of Ildefonso who sold it to her in
1972.25 However, in this appeal, petitioner assails the
ownership not only of Gregorio but also of Ildefonso by
alleging that at the time the latter sold the land to Gregorio, the
same was declared in the name of Agrifina Avila. When a party
adopts a certain theory in the court below, he is not allowed to
change his theory on appeal, for to allow him to do so would
not only be unfair to the other party, but it would also be
offensive to the basic rules of fair play, justice and due
process.26
In this appeal, the issue for resolution is who has the superior
right to a parcel of land sold to different buyers at different
times by its former owner.
It is not disputed that the subject land belonged to Ildefonso
and that it was not registered under the Torrens System27 when
it was sold to Gregorio in 1969 and to the petitioner in 1972.
Further, the deed of sale between Ildefonso and Gregorio was
registered with the Register of Deeds of Camarines Sur
pursuant to Act No. 3344, as shown by Inscription No. 54609
dated December 3, 1969, Page 119, Volume 186, File No.
55409 at the back thereof.
In holding that respondents have a better right to possess the
subject land in view of the bona fide registration of the sale
with the Register of Deeds of Camarines Sur by Ildefonso and
Gregorio, the Court of Appeals applied Article 1544 of the
Civil Code, which provides:
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.
While we agree with the appellate court that respondents have
superior right over the petitioner on the subject property, we
find Article 1544 inapplicable to the case at bar since the
subject land was unregistered at the time of the first sale. The
registration contemplated under this provision has been held to
refer to registration under the Torrens System, which considers
the act of registration as the operative act that binds the
land.28 Thus, in Carumba v. Court of Appeals,29 we held that
Article 1544 of the Civil Code has no application to land not
registered under Torrens System.
The law applicable therefore is Act No. 3344, which provides
for the registration of all instruments on land neither covered
by the Spanish Mortgage Law nor the Torrens System. Under
this law, registration by the first buyer is constructive notice to
the second buyer that can defeat his right as such buyer in good
faith.
Applying the law, we held in Bautista v. Fule30 that the
registration of an instrument involving unregistered land in the
Registry of Deeds creates constructive notice and binds third
person who may subsequently deal with the same property. We
also held in Bayoca v. Nogales31 that:
Verily, there is absence of prior registration in good faith by
petitioners of the second sale in their favor. As stated in the
Santiago case, registration by the first buyer under Act No.
3344 can have the effect of constructive notice to the second
buyer that can defeat his right as such buyer. On account of the
undisputed fact of registration under Act No. 3344 by [the first
buyers], necessarily, there is absent good faith in the
registration of the sale by the [second buyers] for which they
had been issued certificates of title in their names. It follows
that their title to the land cannot be upheld. x x x.
Even if petitioner argues that she purchased and registered the
subject land in good faith and without knowledge of any
adverse claim thereto, respondents still have superior right over
the disputed property. We held in Rayos v. Reyes32 that:
"[T]he issue of good faith or bad faith of the buyer is relevant
only where the subject of the sale is registered land and the
purchaser is buying the same from the registered owner whose
title to the land is clean x x x in such case the purchaser who
relies on the clean title of the registered owner is protected if
he is a purchaser in good faith for value." Since the properties
in question are unregistered lands, petitioners as subsequent
buyers thereof did so at their peril. Their claim of having
bought the land in good faith, i.e., without notice that some
other person has a right to or interest in the property, would not
protect them if it turns out, as it actually did in this case, that
their seller did not own the property at the time of the sale.
It is an established principle that no one can give what one does
not have, nemo dat quod non habet. Accordingly, one can sell
only what one owns or is authorized to sell, and the buyer can
acquire no more than what the seller can transfer legally. 33 In
the case at bar, since Ildefonso no longer owned the subject
land at the time of the sale to the petitioner, he had nothing to
sell and the latter did not acquire any right to it.
Even if we apply Article 1544, the facts would nonetheless
show that respondents and their predecessors-in-interest
registered first the source of their ownership and
possession, i.e., the 1969 deed of sale, and possessed the
subject land at the earliest time. Applying the doctrine of
"priority in time, priority in rights" or "prius tempore, potior
jure," respondents are entitled to the ownership and possession
of the subject land.34
True, a certificate of title, once registered, should not thereafter
be impugned, altered, changed, modified, enlarged or
diminished except in a direct proceeding permitted by
law.35 Moreover, Section 32 of Presidential Decree No. 1529
provides that "[u]pon the expiration of said period of one year,
the decree of registration and the certificate of title shall
become incontrovertible."
However, it does not deprive an aggrieved party of a remedy in
law. What cannot be collaterally attacked is the certificate of
title and not the title or ownership which is represented by such
certificate. Ownership is different from a certificate of
title.36 The fact that petitioner was able to secure a title in her
name did not operate to vest ownership upon her of the subject
land. Registration of a piece of land under the Torrens System
does not create or vest title, because it is not a mode of
acquiring ownership. A certificate of title is merely an evidence
of ownership or title over the particular property described
therein.37 It cannot be used to protect a usurper from the true
owner; nor can it be used as a shield for the commission of
fraud; neither does it permit one to enrich himself at the
expense of others.38Its issuance in favor of a particular person
does not foreclose the possibility that the real property may be
co-owned with persons not named in the certificate, or that it
may be held in trust for another person by the registered
owner.39
As correctly held by the Court of Appeals, notwithstanding the
indefeasibility of the Torrens title, the registered owner may
still be compelled to reconvey the registered property to its true
owners. The rationale for the rule is that reconveyance does not
set aside or re-subject to review the findings of fact of the
Bureau of Lands. In an action for reconveyance, the decree of
registration is respected as incontrovertible. What is sought
instead is the transfer of the property or its title which has been
wrongfully or erroneously registered in another persons name,
to its rightful or legal owner, or to the one with a better right. 40
Finally, the Court of Appeals correctly held that an action for
reconveyance does not prescribe when the plaintiff is in
possession of the land to be reconveyed, as in this case. Thus,
in Leyson v. Bontuyan:41
x x x [T]his Court declared that an action for reconveyance
based on fraud is imprescriptible where the plaintiff is in
possession of the property subject of the acts. In Vda. de
Cabrera v. Court of Appeals, the Court held:
... [A]n action for reconveyance of a parcel of land based on
implied or constructive trust prescribes in ten years, the point
of reference being the date of registration of the deed or the
date of the issuance of the certificate of title over the property,
but this rule applies only when the plaintiff or the person
enforcing the trust is not in possession of the property, since if
a person claiming to be the owner thereof is in actual
possession of the property, as the defendants are in the instant
case, the right to seek reconveyance, which in effect seeks to
quiet title to the property, does not prescribe. The reason for
this is that 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, the reason for the rule being, that his
undisturbed possession gives him a continuing right to seek the
aid of a court of equity to ascertain and determine the nature of
the adverse claim of a third party and its effect on his own title,
which right can be claimed only by one who is in possession.
Similarly, in the case of David v. Malay, the same
pronouncement was reiterated by the Court:
... There is settled jurisprudence that one who is in actual
possession of a piece of land claiming to be owner thereof may
wait until his possession is disturbed or his title is attacked
before taking steps to vindicate his right, the reason for the rule
being, that his undisturbed possession gives him a continuing
right to seek the aid of the court of equity to ascertain and
determine the nature of the adverse claim of a third party and
its effect on his own title, which right can be claimed only by
one who is in possession. No better situation can be conceived
at the moment for Us to apply this rule on equity than that of
herein petitioners whose ... possession of the litigated property
for no less than 30 years and was suddenly confronted with a
claim that the land she had been occupying and cultivating all
these years, was titled in the name of a third person. We hold
that in such a situation the right to quiet title to the property, to
seek its reconveyance and annul any certificate of title covering
it, accrued only from the time the one in possession was made
aware of a claim adverse to his own, and it is only then that the
statutory period of prescription commences to run against such
possessor.

The paramount reason for this exception is based on the theory

that registration proceedings could not be used as a shield for
fraud. Moreover, to hold otherwise would be to put premium
on land-grabbing and transgressing the broader principle in
human relations that no person shall unjustly enrich himself at
the expense of another.

WHEREFORE, in view of the foregoing, the petition

is DENIED. The Decision of the Court of Appeals dated
December 14, 2004, in CA-G.R. SP No. 86736, dismissing
petitioners complaint for recovery of possession and
respondents counterclaim for damages for lack of legal and
factual bases, and the Resolution dated February 17, 2005
denying the motion for reconsideration, are AFFIRMED.

SO ORDERED.
HON. DOMINADOR F. G.R. No. 121165
purchase price of the lot with improvements, since Priscilla had
CARILLO, Presiding Judge,
R.T.C. XI-19 Digos, Davao del Present: a special power of attorney from her son, Aristotle, the owner
Sur, BONIFACIO J.
GUYOT, Clerk of Court and QUISUMBING, J., of the land. They also agreed that the balance would be paid
Provincial Sheriff of Davao Chairperson, within three months after the execution of the deed of sale. Yet,
del Sur, ALFREDO C. CARPIO,
SENOY, Deputy Prov. Sheriff CARPIO MORALES, after the lapse of the period and despite repeated demands,
assigned to R.T.C. XI-19 TINGA, and Priscilla did not execute the deed of sale. Thus, Gonzales filed
Digos, Davao del VELASCO, JR., JJ.
Sur, MARCOS D. RISONAR, an action for specific performance against the spouses Priscilla
JR., Registrar of Deeds of
and Jose Manio.
Davao del Sur, and MARIA
GONZALES, Petitioners,
For failure to file an Answer, the Manios were
- versus - declared in default and Gonzales was allowed to present
evidence ex parte.
HON. COURT OF Promulgated:
APPEALS, MARIA PAZ
DABON andROSALINA September 26, 2006 After trial, the court rendered judgment in favor of
DABON, Respondents.
Gonzales, which we quote verbatim:
x------------------------------------------
WHEREFORE, premises
- - - - - - - - -x
considered, it is hereby ordered that judgment
is rendered in favor of plaintiff and against
defendants, ordering defendants:
RESOLUTION
1) To execute the final deed of
QUISUMBING, J.: sale and transfer of the property
mentioned in paragraph 4 above
to plaintiff, or should the
defendant refuse to execute the
For review on certiorari is the Decision[1] dated deed of sale, the Clerk of Court
February 22, 1995 of the Court of Appeals in CA-G.R. SP No. be directed to execute the same
upon plaintiffs depositing of the
23687, which annulled and set aside the judgment and orders of sum of P390,000.00 with the
Clerk of Court as complete and
the Regional Trial Court (RTC) of Digos, Davao del Sur,
valid payment thereof to
Branch 19, in Civil Case No. 2647, Maria Gonzales v. Priscilla defendant Priscilla Manio;
Manio and Jose Manio. 2) To pay plaintiff the sum
of P100,000.00 for moral
damages and P50,000.00 for
The facts as culled from the records are as follows: exemplary damages;

3) To pay plaintiff the sum

On April 2, 1990, petitioner Maria Gonzales filed a complaint of P50,000.00 for attorneys fees
against the spouses Priscilla and Jose Manio with the RTC of plus P700.00 per appearances
of plaintiffs counsel before this
Digos, Davao del Sur, Branch 19. Gonzales sought the Honorable Court as appearance
fees;
execution of the deed of sale in her favor for the property she
bought from Priscilla Manio. She also asked for damages and 4) To pay plaintiff the sum
of P5,000.00 as litigation
attorneys fees. expenses.

SO ORDERED.[2]
Gonzales alleged that on April 26, 1988, she
paid P10,000 to Priscilla as downpayment on the P400,000
Gonzales deposited with the Clerk of
the P390,000 balance of the price and filed a motion for
execution.[3] She later withdrew the motion because the trial
courts decision was not properly served
defendants. After numerous delays, the sheriff
personally served a copy of the decision on Priscilla on August
4, 1990, at the ungodly hour of 12:00 midnight at Sitio
Wilderness, Barangay Mount Carmel, Bayugan, Agusan del
Sur.[4]
Since there was no appeal, the trial courts decision
became final and executory. But the writ of execution was not
served upon the defendants, since according to the Sheriffs
Return, the defendants could not be located. The sheriff,
likewise, informed the trial court that the money judgment
could be readily satisfied by the petitioners cash deposit should
the trial court grant the motion to release the cash deposit filed
by Gonzales.[5]
Subsequently, Gonzales filed a motion asking that the
Clerk of Court be directed to be the one to execute a deed of
conveyance. Gonzales also filed a motion to withdraw the cash
deposit for the balance of the price to offset the award of
damages. The trial court granted both motions but later
modified the amount to P207,800.
On October 29, 1990, Gonzales filed a petition for the
nullification of the Owners Duplicate Certificate of Title No.
16658 and asked that a new certificate be issued in her name to
give effect to the deed of conveyance since Priscilla refused to
relinquish the owners duplicate copy.
Consequently, the trial court declared the owners
duplicate copy of TCT No. 16658 void, and directed the City
Civil Registrar to issue a new certificate of title in favor of
Gonzales. The orders were reiterated in subsequent orders and
TCT No. T-23690 was issued under the name of Gonzales.
On December 14, 1990, herein respondents Maria Paz Dabon
and Rosalina Dabon, claiming to have bought
Court aforementioned lot from Aristotle Manio filed before the Court
of Appeals a petition for annulment of judgment and orders of
the RTC in Civil Case No. 2647. The case was docketed as CA
on the G.R. SP No. 23687, entitled Maria Paz Dabon and Rosalina
finally Dabon v. Hon. Dominador F. Carillo, Presiding Judge, RTC
Branch 19, Digos, Davao del Sur; Bonifacio J. Guyot, Clerk of
Court and Provincial Sheriff of Davao del Sur; Alfredo C.
Senoy, Deputy Prov. Sheriff assigned to RTC Br. 19, Digos,
Davao del Sur; Marcos D. Risonar, Jr., Registrar of Deeds of
Davao del Sur; and Maria Gonzales.The Dabons alleged
therein that the judgment of the trial court was void ab
initio because of lack of jurisdiction over their persons, as the
real parties in interest, and that they were fraudulently deprived
of their right to due process. They also prayed for a Temporary
Restraining Order and for Preliminary Prohibitory Injunction
against Gonzales. They gave the trial court a notice of their
action for the annulment of the judgment and subsequent orders
in Civil Case No. 2647.[6]
Meanwhile, Gonzales filed before the trial court a
motion for the issuance of a writ of possession. The Dabons
filed an opposition on the following grounds: (1) The writ of
possession cannot be enforced because the defendants named in
the writ, the Manios, were no longer in possession of the
property; (2) They had bought the lot with the improvements
therein and had taken possession, although they had not yet
registered their ownership with the Register of Deeds; and (3)
The court did not acquire jurisdiction over them as the real
parties in interest.
On December 17, 1990, the Court of Appeals, without giving
due course to the petition, issued a resolution restraining the
trial court from implementing its Decision dated June 19,
1990[7] and its subsequent orders thereto in Civil Case No.
2647 until further notice from the Court of Appeals. It also
required Gonzales to file her Comment.[8]
The Court of Appeals in a resolution denied the
application for preliminary injunction and appointed a
the commissioner to receive evidence of the parties.[9]
 THE HONORABLE COURT OF APPEALS
Following the Commissioners report, the Court of ERRED IN NOT APPLYING IN THE
Appeals found that (1) the contract of sale between Gonzales INSTANT CASE THE DOCTRINE IN
DOUBLE SALE UNDER ARTICLE 1544
and Priscilla was unenforceable because the sale was evidenced OF THE CIVIL CODE OF
by a handwritten note which was vague as to the amount and THE PHILIPPINES.

which was not notarized; (2) the trial court did not acquire IV
jurisdiction over the indispensable parties; and (3) the
THE HONORABLE COURT OF APPEALS
proceedings were attended with fraud. The Court of Appeals GRAVELY FAILED TO APPRECIATE
THE FACT THAT PRIVATE
nullified the judgment of the RTC in Civil Case No. 2647 and
RESPONDENTS [PETITIONERS
cancelled TCT No. T-23690. The dispositive portion of said BELOW] CLAIM IS HIGHLY
INCREDIBLE, IMPROBABLE, AND
judgment reads as follows: FRAUDULENT.

WHEREFORE, premises considered, the V

questioned decision, dated June 19, 1990 THE HONORABLE COURT OF APPEALS
(and all orders arising therefrom), of the ERRED IN NOT HOLDING THAT
Regional Trial Court (Branch 19) in Digos,
PRIVATE RESPONDENTS MARIA PAZ
Davao del Sur is hereby ANNULLED and
DABON AND ROSALINA DABON HAVE
SET ASIDEand the Transfer Certificate of
NO RIGHT TO BRING THE INSTANT
Title No. T-23690 which was issued
SUIT.
thereafter declared null and void and ordered
canceled. Costs against the private
VI
respondent.
COROLLARILY, THE HONORABLE
COURT OF APPEALS ERRED IN NOT
SO ORDERED.[10] SUSTAINING PETITIONER MARIA
GONZALES [PRIVATE RESPONDENT
BELOW] CLAIM FOR DAMAGES
On July 17, 1995, Gonzales Motion for AGAINST THE PRIVATE
RESPONDENTS [PETITIONERS
Reconsideration was denied. Hence, the instant petition, BELOW].[11]
assigning the following errors:

I Simply, the threshold issues in this petition are: (1)

THE HONORABLE COURT OF APPEALS whether the Court of Appeals erred in declaring the sale of the
ERRED IN NOT HOLDING THAT THE land to Gonzales by Priscilla invalid; (2) whether there was
PURCHASE OF THE DISPUTED
PROPERTY BY PETITIONER MARIA basis to annul the judgment of the RTC; and (3) whether the
GONZALES FROM ARISTOTLE MANIO
Dabons could file the action for annulment of judgment.
THRU THE LATTERS MOTHER AND
ATTORNEY-IN-FACT WAS A VALID
CONTRACT AS BETWEEN THE
CONTRACTING PARTIES. We shall discuss the issues jointly.

II
Prefatorily, we note that named as petitioners are
THE HONORABLE COURT OF APPEALS Presiding Judge Dominador Carillo; Bonifacio Guyot,
ERRED IN NOT HOLDING THAT
PETITIONER MARIA GONZALES WAS Alfredo Senoy, Clerk of Court and Deputy Sheriff of the
IN GOOD FAITH IN BUYING THE same court, respectively; Marcos D. Risonar, Registrar of
DISPUTED PROPERTY FROM
ARISTOTLE MANIO THRU THE Deeds of Davao del Sur; and Maria Gonzales. In our
LATTERS MOTHER AND ATTORNEY-
view, petitioner Gonzales apparently had impleaded Judge
IN-FACT.
Carillo, Guyot, Senoy and Risonar in this petition by merely
III
reversing the designation of said public officers among the
respondents below in the Court of Appeals, as now among
the petitioners herein. Since they are not interested parties
and would not benefit from any of the affirmative reliefs
sought, only Maria Gonzales remains as the genuine party-
petitioner in the instant case.
We now come to the main issues: (1) Was there
sufficient basis to annul the judgment in Civil Case No.
2647? (2) Are the Dabons proper parties to file the petition for
annulment of judgment?
Petitioner Gonzales contends that the respondents do
not have standing before the Court of Appeals to file a petition
for annulment of the judgment in Civil Case No. 2647 because
respondents were not parties therein. Petitioner maintains that
respondents have no right that could be adversely affected by
the judgment because they are not the owners of the
property. Petitioner claims that the Court of Appeals should
have applied the doctrine of double sale to settle the issue of
ownership and declare her the true owner of the
property. Petitioner concludes that respondents not being the
owners and are not real parties in interest in the complaint for
specific performance have no right to bring the action for
annulment of the judgment. According to petitioner
Gonzales, she did not implead Aristotle as defendant in Civil
Case No. 2647 since a decision against Priscilla, Aristotles
attorney-in-fact, would bind Aristotle also.
Respondents (Maria Paz and Rosalina Dabon) now
insist that they are parties in interest as buyers, owners and
possessors of the contested land and that they had been
fraudulently deprived of their day in court during the
proceedings in the trial court in Civil Case No. 2647. They
have no remedy in law other than to file a case for the
annulment of judgment of the trial court in said case.
Petitioner Gonzales should be reminded of Section 3
of Rule 3 of the Rules on Civil Procedure which explicitly
states that an action should be brought against the real party in
interest,[12] and in case the action is brought against the agent,
the action must be brought against an agent acting in his own
name and for the benefit of an undisclosed principal without
joining the principal, except when the contract involves things
belonging to the principal.[13] The real party in interest is the
party who would be benefited or injured by the judgment or is
the party entitled to the avails of the suit. We have held that in
such a situation, an attorney-in-fact is not a real party in interest
and that there is no law permitting an action to be brought by
and against an attorney-in-fact.[14]
Worth stressing, the action filed by Gonzales before
the RTC is for specific performance to compel Priscilla to
execute a deed of sale, involving real property which, however,
does not belong to Priscilla but to Aristotle Manio, the son of
Priscilla. The complaint only named as defendant Priscilla,
joined by her spouse, yet Priscilla had no interest on the lot and
can have no interest whatever in any judgment rendered. She
was not acting in her own name, nor was she acting for the
benefit of an undisclosed principal.The joinder of all
indispensable parties is a condition sine qua non of the exercise
of judicial powers, and the absence of indispensable party
renders all subsequent actions of the court null and void for
want of authority to act, not only as to the absent parties but
even as to those present.[15] Accordingly, the failure to implead
Aristotle Manio as defendant renders all proceedings in the
Civil Case No. 2647, including the order granting the
cancellation of TCT No. 16658 and issuance of a new title, null
and void.
It is settled that a person need not be a party to the
judgment sought to be annulled.[16] What is essential is that he
can prove his allegation that the judgment was obtained by
fraud or collusion and he would be adversely affected
thereby,[17] because if fully substantiated by preponderance of
evidence, those allegations could be the basis for annulment of
the assailed judgment.
In the present case, even if respondents were not
parties to the specific performance case, any finding that there
was extrinsic fraud in the institution of
complaint, i.e.exclusion of the real party in interest, and
collusion between petitioner and Sheriff Senoy, would
adversely affect the respondents ownership and thus, could be
their basis for annulment of the judgment.
Pertinently, Section 2 of Rule 47 of the Rules on Civil
Procedure explicitly provides the two grounds for annulment of
judgment, namely: extrinsic fraud and lack of jurisdiction.[18]
There is extrinsic fraud when a party has been
prevented by fraud or deception from presenting his
case. Fraud is extrinsic where it prevents a party from having a
trial or from presenting his entire case to the court, or where it
operates upon matters pertaining not to the judgment itself but
to the manner in which it is procured. The overriding
consideration when extrinsic fraud is alleged is that the
fraudulent scheme of the prevailing litigant prevented a party
from having his day in court.[19] It must be distinguished from
intrinsic fraud which refers to acts of a party at a trial which
prevented a fair and just determination of the case, and which
could have been litigated and determined at the trial or
adjudication of the case.[20]
In its Decision dated February 22, 1995, the Court of
Appeals found that indices of fraud attended the case before the
trial court: First, the plaintiff deliberately excluded the Dabons
as party to the case despite knowledge that the Dabons had
alleged that they had bought the land from
Aristotle. Second, the Sheriffs Return was suspiciously served
on a Saturday, at midnight, on August 4, 1990. Third, the trial
court ordered the plaintiff to deposit the full payment of
property, but subsequently ordered its withdrawal. Lastly,there
was no notice given to the person named in the certificate of
title which Gonzales wanted to be annulled.
Of the indices of fraud cited by the Court of Appeals,
the failure to comply with the notification requirement in the
petition for the cancellation of title amounts to extrinsic
fraud. Under the Property Registration Decree, all parties in
the interest shall be given notice.[21] There is nothing in the records
that show Gonzales notified the actual occupants or lessees of
the property. Further, the records show that Gonzales had
known of the sale of the land by Aristotle to the Dabons and
despite her knowledge, the former did not include the Dabons
in her petition for the annulment of title. Deliberately failing to
notify a party entitled to notice also constitutes extrinsic
fraud.[22] This fact is sufficient ground to annul the order
allowing the cancellation of title in the name of Gonzales.
Likewise, under Rule 47, a judgment is void for lack of
jurisdiction over the persons of the real parties in interest, i.e.,
Aristotle Manio and the Dabons.
Lastly, petitioner insists that the contract of sale
between her and Priscilla was valid and enforceable because
under the provision on double sale,[23] she owned the land
because she bought the lot on April 26, 1988, while the same
was allegedly sold to the Dabons on October 19, 1989. In our
view, the doctrine on double sale holds no relevance in this
case. The pertinent article of the Civil Code provides:
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 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 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 possession; and in the
absence thereof; to the person who presents
the oldest title, provided there is good faith.
Otherwise stated, where it is immovable property that
is the subject of a double sale, ownership shall be transferred
(1) to the person acquiring it who in good faith first recorded it
in the Registry of Property; (2) in default thereof, to the person
who in good faith was first in possession; and (3) in default
thereof, to the person who presents the oldest title, provided
there is good faith. The requirement of the law is two-fold:
SO ORDERED.
acquisition in good faith and registration in good faith. [24]

At this juncture, we must emphasize that the action for

annulment of judgment under Rule 47 of the Rules of Court does
not involve the merits of the final order of the trial court.[25] The
issue of whether before us is a case of double sale is outside the
scope of the present petition for review. The appellate court only
allowed the reception of extraneous evidence to determine
extrinsic fraud. To determine which sale was valid, review of
evidence is necessary. This we cannot do in this petition.
An action for annulment of judgment is independent of the case
where the judgment sought to be annulled is rendered[26] and is
not an appeal of the judgment therein.[27]

The extraneous evidence presented to the appellate

court cannot be used to supplant the evidence in the records of
the specific performance case because the extraneous evidence
was not part of the records on the merits of the case. Again, the
extraneous evidence was only allowed merely to prove the
allegations of extrinsic fraud. Accordingly, we hold that the
issue of ownership of the subject real property cannot be
addressed in this petition for review.

Annulment of judgment is not a relief to be granted

indiscriminately by the courts. It is a recourse equitable in
character and allowed only in exceptional cases as where there
is no available or other adequate remedy.[28] This case falls
under said exception. In this case, where it was found that the
trial court did not have jurisdiction over the real parties in
interest, and that notices were deliberately not given, amount to
extrinsic fraud. The Court of Appeals did not err in granting the
annulment of the judgment in Civil Case No. 2647 and the orders
subsequent thereto, for lack of jurisdiction and extrinsic fraud.

WHEREFORE, the petition is DENIED for lack of

merit. The assailed Decision dated February 22, 1995 of the
Court of Appeals in CA-G.R. SP No. 23687,
is AFFIRMED. Costs against petitioner Maria Gonzales.
G.R. No. L-29972 January 26, 1976
ROSARIO CARBONELL, petitioner,
vs.
HONORABLE COURT OF APPEALS, JOSE PONCIO,
EMMA INFANTE and RAMON INFANTE, respondents.
MAKASIAR, J.
Petitioner seeks a review of the resolution of the Court of
Appeals (Special Division of Five) dated October 30, 1968,
reversing its decision of November 2, 1967 (Fifth Division),
and its resolution of December 6, 1968 denying petitioner's
motion for reconsideration.
The dispositive part of the challenged resolution reads:
Wherefore, the motion for reconsideration
filed on behalf of appellee Emma Infante, is
hereby granted and the decision of November
2, 1967, is hereby annulled and set aside.
Another judgement shall be entered
affirming in toto that of the court a
quo, dated January 20, 1965, which dismisses
the plaintiff's complaint and defendant's
counterclaim.
Without costs.
The facts of the case as follows:
Prior to January 27, 1955, respondent Jose Poncio, a native of
the Batanes Islands, was the owner of the parcel of land herein
involve with improvements situated at 179 V. Agan St., San
Juan, Rizal, having an area of some one hundred ninety-five
(195) square meters, more or less, covered by TCT No. 5040
and subject to mortgage in favor of the Republic Savings Bank
for the sum of P1,500.00. Petitioner Rosario Carbonell, a
cousin and adjacent neighbor of respondent Poncio, and also
from the Batanes Islands, lived in the adjoining lot at 177 V.
Agan Street.
Both petitioners Rosario Carbonell and respondent Emma
Infante offered to buy the said lot from Poncio (Poncio's
Answer, p. 38, rec. on appeal).
Respondent Poncio, unable to keep up with the installments
due on the mortgage, approached petitioner one day and
offered to sell to the latter the said lot, excluding the house
wherein respondent lived. Petitioner accepted the offer and
proposed the price of P9.50 per square meter. Respondent
Poncio, after having secured the consent of his wife and
parents, accepted the price proposed by petitioner, on the
condition that from the purchase price would come the money
to be paid to the bank.
Petitioner and respondent Jose Poncio then went to the
Republic Savings Bank and secured the consent of the
President thereof for her to pay the arrears on the mortgage and
to continue the payment of the installments as they fall due.
The amount in arrears reached a total sum of P247.26. But
because respondent Poncio had previously told her that the
money, needed was only P200.00, only the latter amount was
brought by petitioner constraining respondent Jose Poncio to
withdraw the sum of P47.00 from his bank deposit with
Republic Savings Bank. But the next day, petitioner refunded
to Poncio the sum of P47.00.
On January 27, 1955, petitioner and respondent Poncio, in the
presence of a witness, made and executed a document in the
Batanes dialect, which, translated into English, reads:
CONTRACT FOR ONE HALF LOT
WHICH I BOUGHT FROM
JOSE PONCIO
Beginning today January 27, 1955, Jose
Poncio can start living on the lot sold by him
to me, Rosario Carbonell, until after one year
during which time he will not pa anything.
Then if after said one can he could not find
an place where to move his house, he could
still continue occupying the site but he should
pay a rent that man, be agreed. Sgd) JOSE
PONCIO
(Sgd.) ROSARIO CARBONELL
(Sgd) CONSTANCIO MEONADA
Witness
(Pp. 6-7 rec. on appeal).
Thereafter, petitioner asked Atty. Salvador Reyes, also from
the Batanes Islands, to prepare the formal deed of sale, which
she brought to respondent Poncio together with the amount of
some P400.00, the balance she still had to pay in addition to her
assuming the mortgaged obligation to Republic Savings Bank.
Upon arriving at respondent Jose Poncio's house, however, the
latter told petitioner that he could not proceed any more with
the sale, because he had already given the lot to respondent
Emma Infants; and that he could not withdraw from his deal
with respondent Mrs. Infante, even if he were to go to jail.
Petitioner then sought to contact respondent Mrs. Infante but
the latter refused to see her.
On February 5, 1955, petitioner saw Emma Infante erecting a
all around the lot with a gate.
Petitioner then consulted Atty. Jose Garcia, who advised her to
present an adverse claim over the land in question with the
Office of the Register of Deeds of Rizal. Atty. Garcia actually
sent a letter of inquiry to the Register of Deeds and demand
letters to private respondents Jose Poncio and Emma Infante.
In his answer to the complaint Poncio admitted "that on
January 30, 1955, Mrs. Infante improved her offer and he
agreed to sell the land and its improvements to her for
P3,535.00" (pp. 38-40, ROA).
In a private memorandum agreement dated January 31, 1955,
respondent Poncio indeed bound himself to sell to his
corespondent Emma Infante, the property for the sum of
P2,357.52, with respondent Emma Infante still assuming the
existing mortgage debt in favor of Republic Savings Bank in
the amount of P1,177.48. Emma Infante lives just behind the
houses of Poncio and Rosario Carbonell.
On February 2, 1955, respondent Jose Poncio executed the
formal deed of sale in favor of respondent Mrs. Infante in the
total sum of P3,554.00 and on the same date, the latter paid
Republic Savings Bank the mortgage indebtedness of
P1,500.00. The mortgage on the lot was eventually discharged.
Informed that the sale in favor of respondent Emma Infante had
not yet been registered, Atty. Garcia prepared an adverse claim
for petitioner, who signed and swore to an registered the same
on February 8, 1955.
The deed of sale in favor of respondent Mrs. Infante was
registered only on February 12, 1955. As a consequence
thereof, a Transfer Certificate of Title was issued to her but
with the annotation of the adverse claim of petitioner Rosario
Carbonell.
Respondent Emma Infante took immediate possession of the lot
involved, covered the same with 500 cubic meters of garden
soil and built therein a wall and gate, spending the sum of
P1,500.00. She further contracted the services of an architect to
build a house; but the construction of the same started only in
1959 years after the litigation actually began and during its
pendency. Respondent Mrs. Infante spent for the house the
total amount of P11,929.00.
On June 1, 1955, petitioner Rosario Carbonell, thru counsel,
filed a second amended complaint against private respondents,
praying that she be declared the lawful owner of the questioned
parcel of land; that the subsequent sale to respondents Ramon
R. Infante and Emma L. Infante be declared null and void, and
that respondent Jose Poncio be ordered to execute the
corresponding deed of conveyance of said land in her favor and
for damages and attorney's fees (pp. 1-7, rec. on appeal in the
C.A.).
Respondents first moved to dismiss the complaint on the
ground, among others, that petitioner's claim is unenforceable
under the Statute of Frauds, the alleged sale in her favor not
being evidenced by a written document (pp. 7-13, rec. on
appeal in the C.A.); and when said motion was denied without
prejudice to passing on the question raised therein when the
case would be tried on the merits (p. 17, ROA in the C.A.),
respondents filed separate answers, reiterating the grounds of
their motion to dismiss (pp. 18-23, ROA in the C.A.).
During the trial, when petitioner started presenting evidence of
the sale of the land in question to her by respondent Poncio,
part of which evidence was the agreement written in the
Batanes dialect aforementioned, respondent Infantes objected
to the presentation by petitioner of parole evidence to prove the
alleged sale between her and respondent Poncio. In its order of
April 26, 1966, the trial court sustained the objection and
dismissed the complaint on the ground that the memorandum
presented by petitioner to prove said sale does not satisfy the
requirements of the law (pp. 31-35, ROA in the C.A.).
From the above order of dismissal, petitioner appealed to the
Supreme Court (G.R. No. L-11231) which ruled in a decision
dated May 12, 1958, that the Statute of Frauds, being
applicable only to executory contracts, does not apply to the
alleged sale between petitioner and respondent Poncio, which
petitioner claimed to have been partially performed, so that
petitioner is entitled to establish by parole evidence "the truth
of this allegation, as well as the contract itself." The order
appealed from was thus reversed, and the case remanded to the
court a quo for further proceedings (pp. 26-49, ROA in the
C.A.).
After trial in the court a quo; a decision was, rendered on
December 5, 1962, declaring the second sale by respondent
Jose Poncio to his co-respondents Ramon Infante and Emma
Infante of the land in question null and void and ordering
respondent Poncio to execute the proper deed of conveyance of
said land in favor of petitioner after compliance by the latter of
her covenants under her agreement with respondent Poncio (pp.
5056, ROA in the C.A.).
On January 23, 1963, respondent Infantes, through another
counsel, filed a motion for re-trial to adduce evidence for the
proper implementation of the court's decision in case it would
be affirmed on appeal (pp. 56-60, ROA in the C.A.), which
motion was opposed by petitioner for being premature (pp. 61-
64, ROA in the C.A.). Before their motion for re-trial could be
resolved, respondent Infantes, this time through their former
counsel, filed another motion for new trial, claiming that the
decision of the trial court is contrary to the evidence and the
law (pp. 64-78, ROA in the C.A.), which motion was also
opposed by petitioner (pp. 78-89, ROA in the C.A.).
The trial court granted a new trial (pp. 89-90, ROA in the
C.A.), at which re-hearing only the respondents introduced
additional evidence consisting principally of the cost of
improvements they introduced on the land in question (p. 9,
ROA in the C.A.).
After the re-hearing, the trial court rendered a decision,
reversing its decision of December 5, 1962 on the ground that
the claim of the respondents was superior to the claim of
petitioner, and dismissing the complaint (pp. 91-95, ROA in the
C.A.), From this decision, petitioner Rosario Carbonell
appealed to the respondent Court of Appeals (p. 96, ROA in the
C.A.).
On November 2, 1967, the Court of Appeals (Fifth Division
composed of Justices Magno Gatmaitan, Salvador V. Esguerra
and Angle H. Mojica, speaking through Justice Magno
Gatmaitan), rendered judgment reversing the decision of the
trial court, declaring petitioner therein, to have a superior right
to the land in question, and condemning the defendant Infantes
to reconvey to petitioner after her reimbursement to them of the
sum of P3,000.00 plus legal interest, the land in question and
all its improvements (Appendix "A" of Petition).
Respondent Infantes sought reconsideration of said decision
and acting on the motion for reconsideration, the Appellate
Court, three Justices (Villamor, Esguerra and Nolasco) of
Special Division of Five, granted said motion, annulled and set
aside its decision of November 2, 1967, and entered another
judgment affirming in toto the decision of the court a quo, with
Justices Gatmaitan and Rodriguez dissenting (Appendix "B" of
Petition).
Petitioner Rosario Carbonell moved to reconsider the
Resolution of the Special Division of Five, which motion was
denied by Minute Resolution of December 6, 1968 (but with
Justices Rodriguez and Gatmaitan voting for reconsideration)
[Appendix "C" of Petition].
Hence, this appeal by certiorari.
Article 1544, New Civil Code, which is decisive of this case,
recites:
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 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 supplied).
It is essential that the buyer of realty must act in good faith in
registering his deed of sale to merit the protection of the second
paragraph of said Article 1544.
Unlike the first and third paragraphs of said Article 1544,
which accord preference to the one who first takes possession
in good faith of personal or real property, the second paragraph
directs that ownership of immovable property should be
recognized in favor of one "who in good faith first
recorded" his right. Under the first and third paragraph, good
faith must characterize the act of anterior registration (DBP vs.
Mangawang, et al., 11 SCRA 405; Soriano, et al. vs. Magale, et
al., 8 SCRA 489).
If there is no inscription, what is decisive is prior possession in
good faith. If there is inscription, as in the case at bar, prior
registration in good faith is a pre-condition to superior title.
When Carbonell bought the lot from Poncio on January 27,
1955, she was the only buyer thereof and the title of Poncio
was still in his name solely encumbered by bank mortgage duly
annotated thereon. Carbonell was not aware and she could
not have been aware of any sale of Infante as there was no
such sale to Infante then. Hence, Carbonell's prior purchase of
the land was made in good faith. Her good faith subsisted and
continued to exist when she recorded her adverse claim four (4)
days prior to the registration of Infantes's deed of sale.
Carbonell's good faith did not cease after Poncio told her on
January 31, 1955 of his second sale of the same lot to Infante.
Because of that information, Carbonell wanted an audience
with Infante, which desire underscores Carbonell's good faith.
With an aristocratic disdain unworthy of the good breeding of a
good Christian and good neighbor, Infante snubbed Carbonell
like a leper and refused to see her. So Carbonell did the next
best thing to protect her right she registered her adversed
claim on February 8, 1955. Under the circumstances, this
recording of her adverse claim should be deemed to have been
done in good faith and should emphasize Infante's bad faith
when she registered her deed of sale four (4) days later on
February 12, 1955.
Bad faith arising from previous knowledge by Infante of the
prior sale to Carbonell is shown by the following facts, the vital
significance and evidenciary effect of which the respondent
Court of Appeals either overlooked of failed to appreciate:
(1) Mrs. Infante refused to see Carbonell, who wanted to see
Infante after she was informed by Poncio that he sold the lot to
Infante but several days before Infante registered her deed of
sale. This indicates that Infante knew from Poncio and from
the bank of the prior sale of the lot by Poncio to Carbonell.
Ordinarily, one will not refuse to see a neighbor. Infante lives
just behind the house of Carbonell. Her refusal to talk to
Carbonell could only mean that she did not want to listen to
Carbonell's story that she (Carbonell) had previously bought
the lot from Poncio.
(2) Carbonell was already in possession of the mortgage
passbook [not Poncio's saving deposit passbook Exhibit "1"
Infantes] and Poncio's copy of the mortgage contract, when
Poncio sold the lot Carbonell who, after paying the arrearages
of Poncio, assumed the balance of his mortgaged indebtedness
to the bank, which in the normal course of business must have
necessarily informed Infante about the said assumption by
Carbonell of the mortgage indebtedness of Poncio. Before or
upon paying in full the mortgage indebtedness of Poncio to the
Bank. Infante naturally must have demanded from Poncio the
delivery to her of his mortgage passbook as well as Poncio's
mortgage contract so that the fact of full payment of his bank
mortgage will be entered therein; and Poncio, as well as the
bank, must have inevitably informed her that said mortgage
passbook could not be given to her because it was already
delivered to Carbonell.
If Poncio was still in possession of the mortgage passbook and
his copy of the mortgage contract at the time he executed a
deed of sale in favor of the Infantes and when the Infantes
redeemed his mortgage indebtedness from the bank, Poncio
would have surrendered his mortgage passbook and his copy of
the mortgage contract to the Infantes, who could have
presented the same as exhibits during the trial, in much the
same way that the Infantes were able to present as evidence
Exhibit "1" Infantes, Poncio's savings deposit passbook, of
which Poncio necessarily remained in possession as the said
deposit passbook was never involved in the contract of sale
with assumption of mortgage. Said savings deposit passbook
merely proves that Poncio had to withdraw P47.26, which
amount was tided to the sum of P200.00 paid by Carbonell for
Poncio's amortization arrearages in favor of the bank on
January 27, 1955; because Carbonell on that day brought with
her only P200.00, as Poncio told her that was the amount of his
arrearages to the bank. But the next day Carbonell refunded to
Poncio the sum of P47.26.
(3) The fact that Poncio was no longer in possession of his
mortgage passbook and that the said mortgage passbook was
already in possession of Carbonell, should have compelled
Infante to inquire from Poncio why he was no longer in
possession of the mortgage passbook and from Carbonell why
she was in possession of the same (Paglago, et. al vs. Jara et al
22 SCRA 1247, 1252-1253). The only plausible and logical
reason why Infante did not bother anymore to make such injury
, w because in the ordinary course of business the bank must
have told her that Poncio already sold the lot to Carbonell who
thereby assumed the mortgage indebtedness of Poncio and to
whom Poncio delivered his mortgage passbook. Hoping to give
a semblance of truth to her pretended good faith, Infante
snubbed Carbonell's request to talk to her about the prior sale to
her b Poncio of the lot. As aforestated, this is not the attitude
expected of a good neighbor imbued with Christian charity and
good will as well as a clear conscience.
(4) Carbonell registered on February 8, 1955 her adverse claim,
which was accordingly annotated on Poncio's title, four [4]
days before Infante registered on February 12, 1955 her deed of
sale executed on February 2, 1955. Here she was again on
notice of the prior sale to Carbonell. Such registration of
adverse claim is valid and effective (Jovellanos vs. Dimalanta,
L-11736-37, Jan. 30, 1959, 105 Phil. 1250-51).
(5) In his answer to the complaint filed by Poncio, as defendant
in the Court of First Instance, he alleged that both Mrs. Infante
and Mrs. Carbonell offered to buy the lot at P15.00 per square
meter, which offers he rejected as he believed that his lot is
worth at least P20.00 per square meter. It is therefore logical to
presume that Infante was told by Poncio and consequently
knew of the offer of Carbonell which fact likewise should have
put her on her guard and should have compelled her to inquire
from Poncio whether or not he had already sold the property to
Carbonell.
As recounted by Chief Justice Roberto Concepcion, then
Associate Justice, in the preceding case of Rosario Carbonell
vs. Jose Poncio, Ramon Infante and Emma Infante (1-11231,
May 12, 1958), Poncio alleged in his answer:
... that he had consistently turned down
several offers, made by plaintiff, to buy the
land in question, at P15 a square meter, for he
believes that it is worth not less than P20 a
square meter; that Mrs. Infante, likewise,
tried to buy the land at P15 a square meter;
that, on or about January 27, 1955, Poncio
was advised by plaintiff that should she
decide to buy the property at P20 a square
meter, she would allow him to remain in the
property for one year; that plaintiff then
induced Poncio to sign a document, copy of
which if probably the one appended to the
second amended complaint; that Poncio
signed it 'relying upon the statement of the
plaintiff that the document was a permit for
him to remain in the premises in the event
defendant decided to sell the property to the
plaintiff at P20.00 a square meter'; that on
January 30, 1955, Mrs. Infante improved her
offer and agreed to sell the land and its
improvement to her for P3,535.00; that
Poncio has not lost 'his mind,' to sell his
property, worth at least P4,000, for the paltry
sum P1,177.48, the amount of his obligation
to the Republic Saving s Bank; and that
plaintiff's action is barred by the Statute of
Frauds. ... (pp. 38-40, ROA, emphasis
supplied).
II
EXISTENCE OF THE PRIOR SALE TO CARBONELL
DULY ESTABLISHED
(1) In his order dated April 26, 1956 dismissing the complaint
on the ground that the private document Exhibit "A" executed
by Poncio and Carbonell and witnessed by Constancio
Meonada captioned "Contract for One-half Lot which I Bought
from Jose Poncio," was not such a memorandum in writing
within the purview of the Statute of Frauds, the trial judge
himself recognized the fact of the prior sale to Carbonell when
he stated that "the memorandum in question merely states that
Poncio is allowed to stay in the property which he had sold to
the plaintiff. There is no mention of the reconsideration, a
description of the property and such other essential elements of
the contract of sale. There is nothing in the memorandum
which would tend to show even in the slightest manner that it
was intended to be an evidence of contract sale. On the
contrary, from the terms of the memorandum, it tends to show
that the sale of the property in favor of the plaintiff is already
an accomplished act. By the very contents of the memorandum
itself, it cannot therefore, be considered to be the memorandum
which would show that a sale has been made by Poncio in
favor of the plaintiff" (p. 33, ROA, emphasis supplied). As
found by the trial court, to repeat the said memorandum states
"that Poncio is allowed to stay in the property which he had
sold to the plaintiff ..., it tends to show that the sale of the
property in favor of the plaintiff is already an accomplished
act..."
(2) When the said order was appealed to the Supreme Court by
Carbonell in the previous case of Rosario Carbonell vs. Jose
Poncio, Ramon Infante and Emma Infante
(L-11231, supra), Chief Justice Roberto Concepcion, then
Associate Justice, speaking for a unanimous Court, reversed the
aforesaid order of the trial court dismissing the complaint,
holding that because the complaint alleges and the plaintiff
claims that the contract of sale was partly performed, the same
is removed from the application of the Statute of Frauds and
Carbonell should be allowed to establish by parol evidence the
truth of her allegation of partial performance of the contract of
sale, and further stated:
Apart from the foregoing, there are in the
case at bar several circumstances indicating
that plaintiff's claim might not be entirely
devoid of factual basis. Thus, for
instance, Poncio admitted in his answer that
plaintiff had offered several times to
purchase his land.
Again, there is Exhibit A, a document signed
by the defendant. It is in the Batanes dialect,
which, according to plaintiff's uncontradicted
evidence, is the one spoken by Poncio, he
being a native of said region. Exhibit A states
that Poncio would stay in the land sold by
him to plaintiff for one year, from January 27,
1955, free of charge, and that, if he cannot
find a place where to transfer his house
thereon, he may remain upon. Incidentally,
the allegation in Poncio's answer to the effect
that he signed Exhibit A under the belief that
it "was a permit for him to remain in the
premises in the" that "he decided to sell the
property" to the plaintiff at P20 a sq. m." is,
on its face, somewhat difficult to believe.
Indeed, if he had not decided as yet to sell the
land to plaintiff, who had never increased her
offer of P15 a square meter, there was no
reason for Poncio to get said permit from
her. Upon the other hand, if plaintiff intended
to mislead Poncio, she would have caused
Exhibit A to be drafted, probably, in English ,
instead of taking the trouble of seeing to it
that it was written precisely in his native
dialect, the Batanes. Moreover, Poncio's
signature on Exhibit A suggests that he is
neither illiterate nor so ignorant as to sign
document without reading its contents, apart
from the fact that Meonada had read Exhibit
A to him and given him a copy thereof, before
he signed thereon, according to Meonada's
uncontradicted testimony.
Then, also, defendants say in their brief:
The only allegation in
plaintiff's complaint that
bears any relation to her
claim that there has been
partial performance of the
supposed contract of sale,
is the notation of the sum
of P247.26 in the bank
book of defendant Jose
Poncio. The noting or
jotting down of the sum of
P247.26 in the bank book
of Jose Poncio does not
prove the fact that the said
amount was the purchase
price of the property in
question. For all we knew,
the sum of P247.26 which
plaintiff claims to have
paid to the Republic
Savings Bank for the
account of the defendant,
assuming that the money
paid to the Republic
Savings Bank came from
the plaintiff, was the result
of some usurious loan or
accomodation, rather than
earnest money or part
payment of the land.
Neither is it competent or
satisfactory evidence to
prove the conveyance of
the land in question the fact
that the bank book account
of Jose Poncio happens to
be in the possession of the
plaintiff. (Defendants-
Appellees' brief, pp. 25-
26).
How shall We know why Poncio's bank
deposit book is in plaintiffs possession, or
whether there is any relation between the
P247.26 entry therein and the partial
payment of P247.26 allegedly made by
plaintiff to Poncio on account of the price of
his land, if we do not allow the plaintiff to
explain it on the witness stand? Without
expressing any opinion on the merits of
plaintiff's claim, it is clear, therefore, that she
is entitled , legally as well as from the
viewpoint of equity, to an opportunity to
introduce parol evidence in support of the
allegations of her second amended
complaint. (pp. 46-49, ROA, emphasis
supplied).
(3) In his first decision of December 5, 1962 declaring null and
void the sale in favor of the Infantes and ordering Poncio to
execute a deed of conveyance in favor of Carbonell, the trial
judge found:
... A careful consideration of the contents of
Exh. 'A' show to the satisfaction of the court
that the sale of the parcel of land in question
by the defendant Poncio in favor of the
plaintiff was covered therein and that the
said Exh. "a' was also executed to allow the
 defendant to continue staying in the premises
for the stated period. It will be noted that
Exh. 'A' refers to a lot 'sold by him to me' and
having been written originally in a dialect
well understood by the defendant Poncio, he
signed the said Exh. 'A' with a full knowledge
and consciousness of the terms and
consequences thereof. This therefore,
corroborates the testimony of the plaintiff
Carbonell that the sale of the land was made
by Poncio. It is further pointed out that there
was a partial performance of the verbal sale
executed by Poncio in favor of the plaintiff,
when the latter paid P247.26 to the Republic
Savings Bank on account of Poncio's
mortgage indebtedness. Finally, the
possession by the plaintiff of the defendant
Poncio's passbook of the Republic Savings
Bank also adds credibility to her
testimony. The defendant contends on the
other hand that the testimony of the plaintiff,
as well as her witnesses, regarding the sale of
the land made by Poncio in favor of the
plaintiff is inadmissible under the provision
of the Statute of Fraud based on the argument
that the note Exh. "A" is not the note or
memorandum referred to in the to in the
Statute of Fraud. The defendants argue that
Exh. "A" fails to comply with the
requirements of the Statute of Fraud to
qualify it as the note or memorandum
referred to therein and open the way for the
presentation of parole evidence to prove the
fact contained in the note or
memorandum. The defendant argues that
there is even no description of the lot
referred to in the note, especially when the
note refers to only one half lot. With respect
to the latter argument of the Exhibit 'A', the
court has arrived at the conclusion that there
is a sufficient description of the lot referred
to in Exh. 'A' as none other than the parcel of
land occupied by the defendant Poncio and
where he has his improvements erected. The
Identity of the parcel of land involved herein
is sufficiently established by the contents of
the note Exh. "A". For a while, this court had
that similar impression but after a more and
thorough consideration of the context in Exh.
'A' and for the reasons stated above, the
Court has arrived at the conclusion stated
earlier (pp. 52-54, ROA, emphasis supplied).
(4) After re-trial on motion of the Infantes, the trial Judge
rendered on January 20, 1965 another decision dismissing the
complaint, although he found
1. That on January 27, 1955, the plaintiff
purchased from the defendant Poncio a
parcel of land with an area of 195 square
meters, more or less, covered by TCT No.
5040 of the Province of Rizal, located at San
Juan del Monte, Rizal, for the price of P6.50
per square meter;
2. That the purchase made by the plaintiff
was not reduced to writing except for a short
note or memorandum Exh. A, which also
recited that the defendant Poncio would be
allowed to continue his stay in the premises,
among other things, ... (pp. 91-92, ROA,
emphasis supplied).
From such factual findings, the trial Judge confirms the due
execution of Exhibit "A", only that his legal conclusion is that
it is not sufficient to transfer ownership (pp. 93-94, ROA).
(5) In the first decision of November 2, 1967 of the Fifth
Division of the Court of Appeals composed of Justices
Esguerra (now Associate Justice of the Supreme Court),
Gatmaitan and Mojica, penned by Justice Gatmaitan, the Court
of Appeals found that:
... the testimony of Rosario Carbonell not
having at all been attempted to be disproved
by defendants, particularly Jose Poncio, and
corroborated as it is by the private document
in Batanes dialect, Exhibit A, the testimony
being to the effect that between herself and
Jose there had been celebrated a sale of the
property excluding the house for the price of
P9.50 per square meter, so much so that on
faith of that, Rosario had advanced the sum
of P247.26 and binding herself to pay unto
Jose the balance of the purchase price after
deducting the indebtedness to the Bank and
since the wording of Exhibit A, the private
document goes so far as to describe their
transaction as one of sale, already
consummated between them, note the part
tense used in the phrase, "the lot sold by him
to me" and going so far even as to state that
from that day onwards, vendor would
continue to live therein, for one year, 'during
which time he will not pay anything' this can
only mean that between Rosario and Jose,
there had been a true contract of sale,
consummated by delivery constitutum
possession, Art. 1500, New Civil
Code;vendor's possession having become
converted from then on, as a mere tenant of
vendee, with the special privilege of not
paying rental for one year, it is true that
the sale by Jose Poncio to Rosario Carbonell
corroborated documentarily only by Exhibit
A could not have been registered at all, but it
was a valid contract nonetheless, since under
our law, a contract sale is consensual,
perfected by mere consent, Couto v. Cortes, 8
Phil 459, so much so that under the New
Civil Code, while a sale of an immovable is
ordered to be reduced to a public document,
Art. 1358, that mandate does not render an
 oral sale of realty invalid, but merely
incapable of proof, where still executory and
action is brought and resisted for its
performance, 1403, par. 2, 3; but where
already wholly or partly executed or where
even if not yet, it is evidenced by a
memorandum, in any case where evidence to
further demonstrate is presented and admitted
as the case was here, then the oral sale
becomes perfectly good, and becomes a good
cause of action not only to reduce it to the
form of a public document, but even to
enforce the contract in its entirety, Art. 1357;
and thus it is that what we now have is a case
wherein on the one hand Rosario Carbonell
has proved that she had an anterior sale,
celebrated in her favor on 27 January,
1955, Exhibit A, annotated as an adverse
claim on 8 February, 1955, and on other, a
sale is due form in favor of Emma L. Infante
on 2 February, 1955, Exhibit 3-Infante, and
registered in due form with title unto her
issued on 12 February, 1955; the vital
question must now come on which of these
two sales should prevail; ... (pp. 74-76, rec.,
emphasis supplied).
(6) In the resolution dated October 30, 1968 penned by then
Court of Appeals Justice Esguerra (now a member of this
Court), concurred in by Justices Villamor and Nolasco,
constituting the majority of a Special Division of Five, the
Court of Appeals, upon motion of the Infantes, while reversing
the decision of November 2, 1967 and affirming the decision of
the trial court of January 20, 1965 dismissing plaintiff's
complaint, admitted the existence and genuineness of Exhibit
"A", the private memorandum dated January 27, 1955,
although it did not consider the same as satisfying "the
essential elements of a contract of sale," because it "neither
specifically describes the property and its boundaries, nor
mention its certificate of title number, nor states the price
certain to be paid, or contrary to the express mandate of
Articles 1458 and 1475 of the Civil Code.
(7) In his dissent concurred in by Justice Rodriguez, Justice
Gatmaitan maintains his decision of November 2, 1967 as well
as his findings of facts therein, and reiterated that the private
memorandum Exhibit "A", is a perfected sale, as a sale is
consensual and consummated by mere consent, and is binding
on and effective between the parties. This statement of the
principle is correct [pp. 89-92, rec.].
III
ADEQUATE CONSIDERATION OR PRICE FOR THE
SALE
IN FAVOR OF CARBONELL
It should be emphasized that the mortgage on the lot was about
to be foreclosed by the bank for failure on the part of Poncio to
pay the amortizations thereon. To forestall the foreclosure and
at the same time to realize some money from his mortgaged lot,
Poncio agreed to sell the same to Carbonell at P9.50 per square
meter, on condition that Carbonell [1] should pay (a) the
amount of P400.00 to Poncio and 9b) the arrears in the amount
of P247.26 to the bank; and [2] should assume his mortgage
indebtedness. The bank president agreed to the said sale with
assumption of mortgage in favor of Carbonell an Carbonell
accordingly paid the arrears of P247.26. On January 27, 1955,
she paid the amount of P200.00 to the bank because that was
the amount that Poncio told her as his arrearages and Poncio
advanced the sum of P47.26, which amount was refunded to
him by Carbonell the following day. This conveyance was
confirmed that same day, January 27, 1955, by the private
document, Exhibit "A", which was prepared in the Batanes
dialect by the witness Constancio Meonada, who is also from
Batanes like Poncio and Carbonell.
The sale did not include Poncio's house on the lot. And Poncio
was given the right to continue staying on the land without
paying any rental for one year, after which he should pay rent if
he could not still find a place to transfer his house. All these
terms are part of the consideration of the sale to Carbonell.
It is evident therefore that there was ample consideration, and
not merely the sum of P200.00, for the sale of Poncio to
Carbonell of the lot in question.
But Poncio, induced by the higher price offered to him by
Infante, reneged on his commitment to Carbonell and told
Carbonell, who confronted him about it, that he would not
withdraw from his deal with Infante even if he is sent to jail
The victim, therefore, "of injustice and outrage is the widow
Carbonell and not the Infantes, who without moral
compunction exploited the greed and treacherous nature of
Poncio, who, for love of money and without remorse of
conscience, dishonored his own plighted word to Carbonell, his
own cousin.
Inevitably evident therefore from the foregoing discussion, is
the bad faith of Emma Infante from the time she enticed Poncio
to dishonor his contract with Carbonell, and instead to sell the
lot to her (Infante) by offering Poncio a much higher price than
the price for which he sold the same to Carbonell. Being guilty
of bad faith, both in taking physical possession of the lot and in
recording their deed of sale, the Infantes cannot recover the
value of the improvements they introduced in the lot. And after
the filing by Carbonell of the complaint in June, 1955, the
Infantes had less justification to erect a building thereon since
their title to said lot is seriously disputed by Carbonell on the
basis of a prior sale to her.
With respect to the claim of Poncio that he signed the
document Exhibit "A" under the belief that it was a permit for
him to remain in the premises in ease he decides to sell the
property to Carbonell at P20.00 per square meter, the
observation of the Supreme Court through Mr. Chief Justice
Concepcion in G.R. No. L-11231, supra, bears repeating:
... Incidentally, the allegation in Poncio's
answer to the effect that he signed Exhibit A
under the belief that it 'was a permit for him
to remain in the premises in the event that 'he
 decided to sell the property' to the plaintiff at
P20.00 a sq. m is, on its face, somewhat
difficult to believe. Indeed, if he had not
decided as yet to sell that land to plaintiff,
who had never increased her offer of P15 a
square meter, there as no reason for Poncio to
get said permit from her. Upon the they if
plaintiff intended to mislead Poncio, she
would have Exhibit A to be drafted,
probably, in English, instead of taking the
trouble of seeing to it that it was written
precisely in his native dialect, the Batanes.
Moreover, Poncio's signature on Exhibit A
suggests that he is neither illiterate nor so
ignorant as to sign a document without
reading its contents, apart from the fact that
Meonada had read Exhibit A to him-and
given him a copy thereof, before he signed
thereon, according to Meonada's
uncontradicted testimony. (pp. 46-47, ROA).
As stressed by Justice Gatmaitan in his first decision of
November 2, 1965, which he reiterated in his dissent from the
resolution of the majority of the Special Division. of Five on
October 30, 1968, Exhibit A, the private document in the
Batanes dialect, is a valid contract of sale between the parties,
since sale is a consensual contract and is perfected by mere
consent (Couto vs. Cortes, 8 Phil. 459). Even an oral contract
of realty is all between the parties and accords to the vendee the
right to compel the vendor to execute the proper public
document As a matter of fact, Exhibit A, while merely a private
document, can be fully or partially performed, to it from the
operation of the statute of frauds. Being a all consensual
contract, Exhibit A effectively transferred the possession of the
lot to the vendee Carbonell by constitutum
possessorium (Article 1500, New Civil Code); because
thereunder the vendor Poncio continued to retain physical
possession of the lot as tenant of the vendee and no longer as
knew thereof. More than just the signing of Exhibit A by
Poncio and Carbonell with Constancio Meonada as witness to
fact the contract of sale, the transition was further confirmed
when Poncio agreed to the actual payment by at Carbonell of
his mortgage arrearages to the bank on January 27, 1955 and by
his consequent delivery of his own mortgage passbook to
Carbonell. If he remained owner and mortgagor, Poncio would
not have surrendered his mortgage passbook to' Carbonell.
IV
IDENTIFICATION AND DESCRIPTION OF THE
DISPUTED LOT IN THE MEMORANDUM EXHIBIT "A"
The claim that the memorandum Exhibit "A" does not
sufficiently describe the disputed lot as the subject matter of the
sale, was correctly disposed of in the first decision of the trial
court of December 5, 1962, thus: "The defendant argues that
there is even no description of the lot referred to in the note (or
memorandum), especially when the note refers to only one-half
lot. With respect to the latter argument of the defendant,
plaintiff points out that one- half lot was mentioned in Exhibit
'A' because the original description carried in the title states
that it was formerly part of a bigger lot and only segregated
later. The explanation is tenable, in (sic) considering the time
value of the contents of Exh. 'A', the court has arrived at the
conclusion that there is sufficient description of the lot referred
to in Exh. As none other than the parcel of lot occupied by the
defendant Poncio and where he has his improvements erected.
The Identity of the parcel of land involved herein is sufficiently
established by the contents of the note Exh. 'A'. For a while,
this court had that similar impression but after a more and
through consideration of the context in Exh. 'A' and for the
reasons stated above, the court has arrived to (sic) the
conclusion stated earlier" (pp. 53-54, ROA).
Moreover, it is not shown that Poncio owns another parcel with
the same area, adjacent to the lot of his cousin Carbonell and
likewise mortgaged by him to the Republic Savings Bank. The
transaction therefore between Poncio and Carbonell can only
refer and does refer to the lot involved herein. If Poncio had
another lot to remove his house, Exhibit A would not have
stipulated to allow him to stay in the sold lot without paying
any rent for one year and thereafter to pay rental in case he
cannot find another place to transfer his house.
While petitioner Carbonell has the superior title to the lot, she
must however refund to respondents Infantes the amount of
P1,500.00, which the Infantes paid to the Republic Savings
Bank to redeem the mortgage.
It appearing that the Infantes are possessors in bad faith, their
rights to the improvements they introduced op the disputed lot
are governed by Articles 546 and 547 of the New Civil Code.
Their expenses consisting of P1,500.00 for draining the
property, filling it with 500 cubic meters of garden soil,
building a wall around it and installing a gate and P11,929.00
for erecting a b ' bungalow thereon, are useful expenditures, for
they add to the value of the property (Aringo vs. Arenas, 14
Phil. 263; Alburo vs. Villanueva, 7 Phil. 277; Valencia vs.
Ayala de Roxas, 13 Phil. 45).
Under the second paragraph of Article 546, the possessor in
good faith can retain the useful improvements unless the person
who defeated him in his possession refunds him the amount of
such useful expenses or pay him the increased value the land
may have acquired by reason thereof. Under Article 547, the
possessor in good faith has also the right to remove the useful
improvements if such removal can be done without damage to
the land, unless the person with the superior right elects to pay
for the useful improvements or reimburse the expenses therefor
under paragraph 2 of Article 546. These provisions seem to
imply that the possessor in bad faith has neither the right of
retention of useful improvements nor the right to a refund for
useful expenses.
But, if the lawful possessor can retain the improvements
introduced by the possessor in bad faith for pure luxury or mere
pleasure only by paying the value thereof at the time he enters
into possession (Article 549 NCC), as a matter of equity, the
Infantes, although possessors in bad faith, should be allowed to
remove the aforesaid improvements, unless petitioner
Carbonell chooses to pay for their value at the time the Infantes
introduced said useful improvements in 1955 and 1959. The
Infantes cannot claim reimbursement for the current value of
the said useful improvements; because they have been enjoying
such improvements for about two decades without paying any
rent on the land and during which period herein petitioner
Carbonell was deprived of its possession and use.
WHEREFORE, THE DECISION OF THE SPECIAL
DIVISION OF FIVE OF THE COURT OF APPEALS OF
OCTOBER 30, 1968 IS HEREBY REVERSED; PETITIONER
ROSARIO CARBONELL IS HEREBY DECLARED TO
HAVE THE SUPERIOR RIGHT TO THE LAND IN
QUESTION AND IS HEREBY DIRECTED TO REIMBURSE
TO PRIVATE RESPONDENTS INFANTES THE SUM OF
ONE THOUSAND FIVE HUNDRED PESOS (P1,500.00)
WITHIN THREE (3) MONTHS FROM THE FINALITY OF
THIS DECISION; AND THE REGISTER OF DEEDS OF
RIZAL IS HEREBY DIRECTED TO CANCEL TRANSFER
CERTIFICATE OF TITLE NO. 37842 ISSUED IN FAVOR
OF PRIVATE RESPONDENTS INFANTES COVERING
THE DISPUTED LOT, WHICH CANCELLED TRANSFER
CERTIFICATE OF TITLE NO. 5040 IN THE NAME OF
JOSE PONCIO, AND TO ISSUE A NEW TRANSFER
CERTIFICATE OF TITLE IN FAVOR OF PETITIONER
ROSARIO CARBONELL UPON PRESENTATION OF
PROOF OF PAYMENT BY HER TO THE INFANTES OF
THE AFORESAID AMOUNT OF ONE THOUSAND FIVE
HUNDRED PESOS (P1,500.00).
PRIVATE RESPONDENTS INFANTES MAY REMOVE
THEIR AFOREMENTIONED USEFUL IMPROVEMENTS
FROM THE LOT WITHIN THREE (3) MONTHS FROM
THE FINALITY OF THIS DECISION, UNLESS THE
PETITIONER ROSARIO CARBONELL ELECTS TO
ACQUIRE THE SAME AND PAYS THE INFANTES THE
AMOUNT OF THIRTEEN THOUSAND FOUR HUNDRED
TWENTY-NINE PESOS (P13,429.00) WITHIN THREE (3)
MONTHS FROM THE FINALITY OF THIS DECISION.
SHOULD PETITIONER CARBONELL FAIL TO PAY THE
SAID AMOUNT WITHIN THE AFORESTATED PERIOD
OF THREE (3) MONTHS FROM THE FINALITY OF THIS
DECISION, THE PERIOD OF THREE (3) MONTHS
WITHIN WHICH THE RESPONDENTS INFANTES MAY
REMOVE THEIR AFOREMENTIONED USEFUL
IMPROVEMENTS SHALL COMMENCE FROM THE
EXPIRATION OF THE THREE (3) MONTHS GIVEN
PETITIONER CARBONELL TO PAY FOR THE SAID
USEFUL IMPROVEMENTS.
WITH COSTS AGAINST PRIVATE RESPONDENTS.
Castro, C.J, Aquino and Martin, JJ., concur.
Separate Opinions
TEEHANKEE, J., concurring:
I concur. My concurrence proceeds from the same premise as
the dissenting opinion of Justice Munoz Palma that both the
conflicting buyers of the real property in question, namely,
petitioner Rosario Carbonell as the first buyer may be deemed
purchasers in good faith at the respective dates of their
purchase.
The answer to the question of who between the two buyers in
good faith should prevail is provided in the second paragraph
of Article 1544 of the Civil Code 1 (formerly Article 1473 of
the old Civil Code) which ordains that "the ownership of the
immovable property shall belong to the person acquiring it who
in good faith first recorded it in the Registry of Property."
In the case at bar, the seller executed on January 27, 1955 the
private memorandum of sale of the property in favor of the first
buyer Carbonell, However, six days later on February 2, 1955,
the seller sold the property for a second time for an improved
price, this time executing a formal registrable deed of sale in
favor of the second buyer Infante.
So it was that when the first buyer Carbonell saw the seller a
few days afterwards bringing the formal deed of sale for the
seller's signature and the balance of the agreed cash payment,
the seller told her that he could not proceed anymore with
formalizing the first sale because he had already formalized the
second sale in favor of the second buyer Infante.
Since Carbonell (the first buyer) did not have a formal
registrable deed of sale, she did the next best thing to protect
her legal rights and registered on February 8, 1955 with the
Rizal Register of Deeds her adverse claim as first buyer entitled
to the property. The second buyer Infante registered the deed of
sale in her favor with the Rizal Register of Deeds only on
February 12, 1955 (notwithstanding its having been executed
ten days earlier on February 2, 1955), and therefore the transfer
certificate of title issued in her favor carried the duly annotated
adverse claim of Carbonell as the first buyer.
Both these registrations were in good faith and hence, as
provided by the cited code article, the first buyer Carbonell as
also the first registrant is legally entitled to the property.
The fact that Carbonell registered only an adverse claim as she
had no registrable deed of sale is of no moment. The facts of
record amply show that she had a written memorandum of sale,
which was partially executed with the advance payment made
by her for the seller's mortgage account with the bank, and
which was perfected and binding in law by their accord on the
subject matter and price. Carbonell could in law enforce in
court her rights as first buyer under the memorandum
agreement and compel the seller to execute in her favor a
formal registrable deed of sale which would relate back to the
date of the original memorandum agreement.
And under the cited code provision, Carbonell had to duly
register such adverse claim as first buyer, as otherwise the
subsequent registration of the second buyer's deed of sale
would have obliterated her legal rights and enable the seller to
achieve his fraudulent act of selling the property a second time
for a better price in derogation of her prior right thereto.
The fact that the seller refused to execute the formal deed of
sale in Carbonell's favor and (as was only to be expected)
informed her that he could not proceed anymore with the sale
because he had sold it for a second time for a better price did
not convert her prior registration of her adverse claim into one
of bad faith.
The fraudulent seller's act of informing the first buyer that he
has wrongfully sold his property for a second time cannot work
out to his own advantage and to the detriment of the innocent
first buyer (by being considered as an "automatic registration"
of the second sale) and defeat the first buyer's right of priority,
in time in right and in registration.
The governing principle here is prius tempore, portior
jure 2 (first in time, stronger in right). Knowledge gained by the
first buyer of the second sale cannot defeat the first buyer's
rights except only as provided by the Civil Code and that is
where the second buyer first registers in good faith the second
sale ahead of the first. Such knowledge of the first buyer does
not bar her from availing of her rights under the law, among
them, to register first her purchase as against the second buyer.
But in other so knowledge gained by the second buyer of the
first sale defeats his rights even if he is first to register the
second sale, since such knowledge taints his prior registration
with bad faith.
This is the price exacted by Article 1544 of the Civil Code for
the second buyer being able to displace the first buyer: that
before the second buyer can obtain priority over 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 or failing registration, by delivery of possession.
The second buyer must show continuing good faith and
innocence or lack of knowledge of the first sale until his
contract ripens into full ownership through prior registration as
provided by law.
The above principles were aptly restated in a 1948 Court of
Appeals decision in the case of Gallardo, vs. Gallardopenned
by Justice J.B.L. Reyes, then a member of the appellate
court. 3 The facts of that case and the case at bar are virtually
Identical, except that the earlier case was decided under the old
Civil Code (Article 1473 thereof now reproduced as Article
1544 of the present Civil Code), and the ratio
decidendi thereof, mutatis mutandis, is fully applicable, as
follows:
Analysis of article 1473 of the Civil Code
shows that before a second vendee can
obtain priority over the first, it is
indispensable that he should have acted
in good faith, (that is to say, in ignorance of
the rights of the first vendee's rights) until the
title is transferred to him by actual or
constructive delivery of the thing sold. This
is the price exacted by law for his being able
to displace the first vendee; and the mere fact
that the second contract of sale was perfected
in good faith is not sufficient if, before the
title passes, the second vendee acquires
knowledge of the first transaction. That the
second buyer innocently agreed to purchase
the land may protect him against
responsibility of conspiring with his vendor
to defraud the established rights of the first
purchaser; but to defeat the latter's priority in
time (based on the old principle "prius
tempore, potior jure," first in time, better in
right) the good faith or innocence of the
posterior vendee must needs
continue until his contract ripens into
ownership by tradition or recording (Palanca
vs. Director of lands, 43 Phil. 141, 154).
That the formal deed of conveyance to
Gabino Gallardo was executed after that of
Caoagas is of no moment, the contract of sale
being perfected and binding by mere accord
on the subject matter and the price, even if
neither is delivered (Article 1450, Civil
Code), the deed of conveyance will relate
back to the date of the original agreement. 4
Finally, in the present case, the first buyer's registration
(February 8, 1955) concededly preceded the second buyer's
registration (February 12, 1955) by four days, and therefore, as
provided by the Civil Code, the first buyer thereby duly
preserved her right of priority and is entitled to the property.
MUOZ PALMA, J., dissenting:
Strongly convinced as I am that the decision of the Court of
Appeals under review should be affirmed, this dissenting
opinion is being written.
We are here confronted with a double sale made by Jose
Poncio of his 195-square meter lot located at V. Again St., San
Juan, Rizal, covered by Transfer Certificate of Title No. 5040,
the solution to which is found in Art. 1544 of the Civil Code,
more particularly the second paragraph thereof which provides
that should the thing sold be immovable property, the
ownership shall belong to the person acquiring it who in good
with first recorded it in the Registry of property.
1. The two purchasers, namely, petitioner Rosario Carbonell
and respondent Emma Infante, are both purchasers in good
faith.
That Rosario Carbonell is a buyer in good faith cannot be
disputed for at the time negotiations for the purchase of the lot
were being made between her and the vendor, Jose Poncio, as
of January 27, 1955, there was no indication at all from the
latter that another sale was being contemplated.
That Emma Infante is likewise a buyer in good faith is
supported by: (a) an express finding of the trial court in its
decision of January 20, 1965, to the effect that when the vendor
and purchaser. Infante consummated the sale on or about
January 29, 1955, an examination of the original of T.C.T.
5040 on file with the Register of Deeds of Rizal as well as the
owner's duplicate revealed no annotation of any encumbrance
or lien other than the mortgage in favor of the Republic
Savings Bank (p. 92, Record on Appeal); (b) the findings of
fact of the Court of Appeals given in the decision penned by
then Justice Salvador V. Esguerra as well as in the first
decision written by Justice Magno Gatmaitan which
subsequently became the basis of the dissenting opinion to the
majority, and from which I quote:
2. CONSIDERING: That as basis for
discussion of this issue, it must have to be
remembered that the first vendee, Rosario
Carbonell, certainly was an innocent
purchaser ... but also must it be remembered
that Emma L. Infante, when she bought the
property on 2 February, 1955, under Exhibit
3-Infante, neither had she before then been,
preliminary informed of the first sate to
Rosario ...; indeed as Emma has testified on
this detail, it is easy to accept her declaration:
Q. When
Mr. Jose
Poncio
offered
you this
land in
question,
did he
tell you
that the
land was
sold or
otherwise
promised
to Mrs.
Carbonell
? the second or subsequent purchaser but to the first as well. 3
A. Of
course
not,
otherwise
will
never
buy.
(tsn. II:27)
in other words, at the respective dates of their purchase,
both vendees, Rosario and Emma, were innocent and had acted
in the best of good faith ... (pp. 9-10 of Justice Gatmaitan's
decision found on pp. 76-77, rollo; see also p. 7 of his
dissenting opinion found on p. 95, rollo).
Departing from a well-entrenched rule set down in a long array
of decisions of this Court that factual findings of the trial court
and of the Court -of Appeals are generally binding and
conclusive, 1 and that on appeal by certiorari, questions of fact
are not to be determined nor reviewed by Us 2 the Majority
Opinion of my colleagues however undertakes a fact-finding
process of its own, and draws the conclusion that Emma
Infante was a buyer in bad faith because, among other things:
(a) Emma allegedly refused to talk to Rosario Carbonell when
the latter went to see her about the sale of the lot, which "is not
the attitude expected of a good neighbor imbued with Christian
charity and goodwill as well as a clean conscience" (p. 10,
Majority Opinion); (b) "(B)efore or upon paying in full the
mortgage indebtedness of Poncio to the bank. Infante
naturally must have demanded from Poncio the delivery to her
of his mortgage passbook as well as Poncio's mortgage
contract. . and Poncio as well as the bank, must have inevitably
informed here that said mortgage passbook could not be given
to her because it was already delivered to Carbonell" (p. 9,
Ibid); and (c) "... (T)he victim, therefore, 'of injustice and
outrage is the widow Carbonell and not the
Infantes, who without moral compunction exploited the
greed and treacherous nature of Poncio, who, for love of
money and without remorse of conscience, dishonored his own
plighted word to Carbonell, his own cousin. ... Inevitably
evident therefore from the foregoing discussion, is the bad faith
of Emma Infante from the time she enticed Poncio to dishonor
his contract with Carbonell, and instead to sell the lot to
her (Infante) by offering Poncio a much higher price than the
price for which he sold the same to Carbonell ..." (p. 20,
Majority Opinion; all italicized portions supplied) all of
which are unsupported by the evidence and diametrically
contrary to the findings of the court a quo and the appellate
court sustaining the good faith of Emma Infante.
2. Inasmuch as the two purchasers are undoubtedly in good
faith, the next question to be resolved is who of the
two first registered her purchase or title in good faith.
In applying Art. 1544 of the Civil Code, it is not enough that
the buyer bought the property in good faith, but that the
registration of her title must also be accomplished in good
faith. This requirement of good faith is not only applicable to
Construing and applying the second paragraph of Art. 1473 of
the Spanish Civil Code which has been adoptedverbatim in Art.
1544 of the Civil Code of the Philippines, this Court in Leung
Lee vs. FL Strong Machinery Co., et al 37 Phil. 644, declared:
It has been suggested that since the
provisions of article 1473 of the Civil Code
require "good faith," in express terms, in
relation to "possession" and title but contain
no express requirement as to 'good faith' in
relation to the "inscription" of the property in
the registry, it must he presumed that good
faith is not an essential requisite of
registration in order that it may have the
effect contemplated in this article. We cannot
agree with this contention. It could not have
been the intention of the legislator to base the
preferential right secured under this article of
the code upon an inscription of title in bad
faith. Such an interpretation placed upon the
language of this section would open wide the
 door to fraud and collusion. The public
records cannot be converted into instruments
of fraud and oppression by one who secures
an inscription therein in bad faith. The force
and effect given by law to an inscription in a
public record presupposes the good faith of
him who enters such inscription; and rights
created by statute, which are predicated upon
an inscription in a public registry, do not and
cannot accrue under an inscription "in bad
faith," to the benefit of the person who thus
makes the inscription. (pp. 648-649, supra)
Good faith means "freedom from knowledge and circumstances
which ought to put a person on inquiry"; 3 * it consists of an
honest intention to abstain from taking any conscientious
advantage of another. 4
On this point it is my view that Rosario Carbonell cannot be
held to have a title superior to that of Emma Infante for even if
We were to concede that the notation of her adverse claim on
February 8, 1955, was in the nature of registration of title as
required in Art. 1544 of the Civil Code, 5 the same was not
accomplished in good faith. This is obvious from occurrences
narrated in the Majority Opinion, thus: that on January 27,
1955, Carbonell and Jose Poncio made and executed the
memorandum of sale, Exhibit A; that thereafter Carbonell
asked Atty. Salvador Reyes to prepare the formal deed of sale
which she brought to Poncio together with the amount of some
P400.00, the balance she had to pay in addition to her assuming
the mortgage obligation to Republic Savings Bank; that upon
arriving at Poncio's house the latter told Carbonell that he could
not proceed anymore with the sale because he had already
given the lot to Emma Infants; that on February 5, 1955,
Carbonell saw Emma Infante erecting a wall around the lot
with a gate; that Carbonell consulted Atty. Jose Garcia who
advised her to present an adverse claim with the office of the
Register of Deeds, and that being informed that the sale in
favor of Emma Infante had not yet been registered, Atty.
Garcia prepared the notice of adverse claim which was signed
and sworn to by Rosario Carbonell and registered on February
8, 1955. (see pp. 34, Decision)
At the time petitioner herein caused the annotation of her
adverse claim she was, therefore, cognizant of facts which
impaired her title to the property in question, and taking
advantage of the situation that the second purchaser had not as
yet registered her deed of sale, she went ahead of the second
buyer and annotated what was only in the nature of an adverse
claim inasmuch as she had no registrable document of sale at
the time. That annotation of Carbonell's adverse claim did not
produce any legal effects as to place her in a preferential
situation to that of Infante, the second purchaser, for the simple
reason that a registration made in bad faith is equivalent to no
registration at all. It is a settled rule that the inscription in the
registry, to be effective, must be made in good faith. (Pena,
supra, p. 164)
3. One last point to be considered is the theory advanced by the
dissenting opinion of Justice Gatmaitan that while Carbonell's
registration of her adverse claim may indeed be considered in
bad faith, nonetheless that of Infante was likewise in bad faith
because at the time of the registration of the latter's deed of sale
there was already inscribed on the original of the title on file
with the Register of Deeds the adverse claim of Rosario
Carbonell.
With due respect to the foregoing conclusion of highly
respected Colleague, I hold the view that the act of the
registration of Infante's deed of sale on February 12, 1955, was
but a formality in the sense that it simply formalized what had
already been accomplished earlier, that is, the registration of
Infantes purchase as against Carbonell when the latter
inquired knowledge of the second sale on or about January 27,
1955, when she brought the memorandum of sale, Exh. A, to
Jose Poncio and was informed by the latter that he could not go
through with the sale because he had already sold it to Emma
Infante, which information was bolstered by the fact that
Carbonell saw Infante erecting a wall around the lot
on February 5.
We have long accepted the rule that knowledge is equivalent to
registration. What would be the purpose of registration other
than to give notice to interested parties and to the whole world
of the existence of rights or liens against the property under
question?
What has been clearly and succinctly postulated in T. de
Winkleman and Winkleman vs. Veluz 1922, 43 Phil. 604, 609,
is applicable to the case before Us, and We quote therefrom:
. . . The purpose of registering an instrument
relating to land, annuities, mortgages, liens or
any other class of real rights is to give notice
to persons interested of the existence of these
various liens against the property. If the
parties interested have actual notice of the
existence of such liens then the necessity for
registration does not exist. Neither can one
who has actual notice of existing liens
acquire any rights in such property free from
such liens by the mere fact that such liens
have not been proven recorded. (citing Obras
Pias vs. Devera Ignacio, 17 Phil. 45, 47).
We cannot overlook the fact that while it may be true that the
vendor Poncio had signed the memorandum, Exh. A, from
which it may be implied that he sold a lot to Carbonell, there
were other things to be accomplished for purposes of binding
third parties, the lot in question being registered land, such as
the execution of a formal deed of sale. Such a document of sale
was never signed by Poncio for according to petitioner
Carbonell, when she presented to Poncio the corresponding
document together with the sum of P400.00 which according to
her was the balance of the purchase price after she had assumed
the mortgage with the Republic Bank, she was informed by the
vendor that the property had been sold to another. That sale
was confirmed when Carbonell saw Infante erecting a wall
around the lot on February 5, 1955. As of that moment when
Carbonell had notice or actual knowledge of the second sale in
favor of Emma Infante a valid registration of the latter's deed of
sale was constituted as against Carbonell. Accordingly, Infante
has a preferential right to the property, the registration of her It is indeed inequitable and re revolting to
sale having been effected in the foregoing manner, prior to the one's sense of justice and fairness that
annotation of Carbonell's adverse claim on February 8, 1955. Rosario Carbonell who paid out of her own
money the sum of only P200.00 to the
The circumstances of the present case are strikingly similar to Republic Savings Bank for the account of
the hypothetical problem posed in Commentator Edgardo Jose Poncio, which was the motivation for
Paras' Book on the Civil Code of the Philippines and I the execution of the private instrument,
wholeheartedly concur with his solution of the problem which Exhibit A, should have a superior right to the
is based on law. From him I quote:6 land involved. The property has been
improved at a great expense and a building of
strong materials has been constructed thereon
A sold a parcel of land with a torrens title to
Emma Infants ho spent for her lot and
B on January 5. A week later, A sold the
building the total sum of P13,429.00 made,
same land to C. Neither sale was registered.
As soon as B learned of the sale in favor of up of P11,929.00 for cost of land and
C, he (B) registered an adverse claim stating improvements and the building and
P1,500.00 to discharge the mortgage in favor
that he was making the claim because the
of the Republic Savings Bank. with the
second sale was in fraud of his rights as first
present purchasing power of the peso this aft
buyer. Later, C registered the deed of sale
i more than 13 years, would be not equivalent
that had been made in his favor. Who is now
the owner B or C? to about P40,000.00. Courts should not lend a
hand to the perpetration of such kind of
injustice and outrage (see page 88, rollo)
Ans. C is clearly the owner, although he was
the second buyer. This is so, not because of
I close paraphrasing the Supreme Court of Oklahoma in Phelps
the registration of the sale itself but because
of the AUTOMATIC registration in his favor vs. Theime, et al., 217 p. 376; 377, that "equity is a right
wiseneth that considerate all of the particular circumstances of
caused by Bs knowledge of the first sale
the case and is also tempered with the sweetness of mercy."
(actual knowledge being equivalent to
(quoting from St. Germain) In this case now before Us there is
registration). The purpose of registration is to
no need to invoke mercy, for all that is required is a wise
notify. This notification was done because of
Bs knowledge. It is wrong to assert that B consideration of the particular circumstances narrated above
was only trying to protect his right-for there which warrant a judgment in favor of respondents Infants.
was no more right to be protected. He should
have registered the sale BEFORE knowledge With all the foregoing, I vote for the affirmance of the decision
came to him. It is now too late. It is clear under review.
from this that with respect to the principle
"actual knowledge is equivalent to
registration of the sale about which
knowledge has been obtained' the
knowledge may be that-of either the FIRST
or the SECOND buyer. (pp. 142-143, Vol. V,
1972 Ed.)

Aside from the fact that the sale to Infante was considered
registered prior to the registration of Carbonell's notice of
adverse claim, Infante also took immediate physical possession
of the property by erecting a fence with a gate around the lot on
February 5, at least tree days prior to Carbonell Is registration
on February 8, 1955.

On top of all these, equity is on the side of Emma Infante.

Under the Majority Opinion, Emma Infante stands to lose the
lot she bought in good faith which was fully paid for plus the
building she erected thereon for which she spent the total sun
of a little less than P14,000.00, or equivalent to about
P40,000.00 at the time the case was decided by the Appellate
Court, considering that Rosario Carbonell is being given the
option either to order the removal of the house or to acquire it
at P13,429.00. On this point I agree with the following
statement of Justice Esguerra who penned the decision of the
Appellate Court, thus:
[G.R. No. 124242. January 21, 2005]
SAN LORENZO DEVELOPMENT
CORPORATION, petitioner, vs. COURT OF
APPEALS, PABLO S. BABASANTA, SPS.
MIGUEL LU and PACITA ZAVALLA
LU, respondents.
DECISION
TINGA, J.:
From a coaptation of the records of this case, it appears
that respondents Miguel Lu and Pacita Zavalla, (hereinafter, the
Spouses Lu) owned two (2) parcels of land situated in Sta.
Rosa, Laguna covered by TCT No. T-39022 and TCT No. T-
39023 both measuring 15,808 square meters or a total of
3.1616 hectares.
On 20 August 1986, the Spouses Lu purportedly sold the
two parcels of land to respondent Pablo Babasanta,
(hereinafter, Babasanta) for the price of fifteen pesos (P15.00)
per square meter. Babasanta made a downpayment of fifty
thousand pesos (P50,000.00) as evidenced by a memorandum
receipt issued by Pacita Lu of the same date. Several other
payments totaling two hundred thousand pesos (P200,000.00)
were made by Babasanta.
Sometime in May 1989, Babasanta wrote a letter to Pacita
Lu to demand the execution of a final deed of sale in his favor
so that he could effect full payment of the purchase price. In
the same letter, Babasanta notified the spouses about having
received information that the spouses sold the same property to
another without his knowledge and consent. He demanded that
the second sale be cancelled and that a final deed of sale be
issued in his favor.
In response, Pacita Lu wrote a letter to Babasanta wherein
she acknowledged having agreed to sell the property to him at
fifteen pesos (P15.00) per square meter. She, however,
reminded Babasanta that when the balance of the purchase
price became due, he requested for a reduction of the price and
when she refused, Babasanta backed out of the sale. Pacita
added that she returned the sum of fifty thousand pesos
(P50,000.00) to Babasanta through Eugenio Oya.
On 2 June 1989, respondent Babasanta, as plaintiff, filed
before the Regional Trial Court (RTC), Branch 31, of San
Pedro, Laguna, a Complaint for Specific Performance and
Damages[1] against his co-respondents herein, the Spouses Lu.
Babasanta alleged that the lands covered by TCT No. T- 39022
and T-39023 had been sold to him by the spouses at fifteen
pesos (P15.00) per square meter. Despite his repeated demands
for the execution of a final deed of sale in his favor,
respondents allegedly refused.
In their Answer,[2] the Spouses Lu alleged that Pacita Lu
obtained loans from Babasanta and when the total advances of
Pacita reached fifty thousand pesos (P50,000.00), the latter and
Babasanta, without the knowledge and consent of Miguel Lu,
had verbally agreed to transform the transaction into a contract
to sell the two parcels of land to Babasanta with the fifty
thousand pesos (P50,000.00) to be considered as the
downpayment for the property and the balance to be paid on or
before 31 December 1987. Respondents Lu added that as of
November 1987, total payments made by Babasanta amounted
to only two hundred thousand pesos (P200,000.00) and the
latter allegedly failed to pay the balance of two hundred sixty
thousand pesos (P260,000.00) despite repeated demands.
Babasanta had purportedly asked Pacita for a reduction of the
price from fifteen pesos (P15.00) to twelve pesos (P12.00) per
square meter and when the Spouses Lu refused to grant
Babasantas request, the latter rescinded the contract to sell and
declared that the original loan transaction just be carried out in
that the spouses would be indebted to him in the amount of two
hundred thousand pesos (P200,000.00). Accordingly, on 6 July
1989, they purchased Interbank Managers Check No.
05020269 in the amount of two hundred thousand pesos
(P200,000.00) in the name of Babasanta to show that she was
able and willing to pay the balance of her loan obligation.
Babasanta later filed an Amended Complaint dated 17
January 1990[3] wherein he prayed for the issuance of a writ of
preliminary injunction with temporary restraining order and the
inclusion of the Register of Deeds of Calamba, Laguna as party
defendant. He contended that the issuance of a preliminary
injunction was necessary to restrain the transfer or conveyance
by the Spouses Lu of the subject property to other persons.
The Spouses Lu filed their Opposition[4] to the amended
complaint contending that it raised new matters which seriously
affect their substantive rights under the original complaint.
However, the trial court in its Order dated 17 January
1990[5] admitted the amended complaint.
On 19 January 1990, herein petitioner San Lorenzo
Development Corporation (SLDC) filed a Motion for
Intervention[6] before the trial court. SLDC alleged that it had
legal interest in the subject matter under litigation because on 3
May 1989, the two parcels of land involved, namely Lot 1764-
A and 1764-B, had been sold to it in a Deed of Absolute Sale
with Mortgage.[7] It alleged that it was a buyer in good faith and
for value and therefore it had a better right over the property in
litigation.
In his Opposition to SLDCs motion for
intervention,[8] respondent Babasanta demurred and argued that
the latter had no legal interest in the case because the two
parcels of land involved herein had already been conveyed to
him by the Spouses Lu and hence, the vendors were without
legal capacity to transfer or dispose of the two parcels of land
to the intervenor.
Meanwhile, the trial court in its Order dated 21 March
1990 allowed SLDC to intervene. SLDC filed its Complaint-in-
Intervention on 19 April 1990.[9] Respondent Babasantas
motion for the issuance of a preliminary injunction was
likewise granted by the trial court in its Order dated 11 January
1991[10] conditioned upon his filing of a bond in the amount of
fifty thousand pesos (P50,000.00).
SLDC in its Complaint-in-Intervention alleged that on 11
February 1989, the Spouses Lu executed in its favor an Option
to Buy the lots subject of the complaint. Accordingly, it paid an
option money in the amount of three hundred sixteen thousand
one hundred sixty pesos (P316,160.00) out of the total
consideration for the purchase of the two lots of one million
two hundred sixty-four thousand six hundred forty pesos
(P1,264,640.00). After the Spouses Lu received a total amount
of six hundred thirty-two thousand three hundred twenty pesos
(P632,320.00) they executed on 3 May 1989
a Deed of Absolute Sale with Mortgage in its favor. SLDC
added that the certificates of title over the property were
delivered to it by the spouses clean and free from any adverse
claims and/or notice of lis pendens. SLDC further alleged that
it only learned of the filing of the complaint sometime in the
early part of January 1990 which prompted it to file the motion
to intervene without delay. Claiming that it was a buyer in good
faith, SLDC argued that it had no obligation to look beyond the
titles submitted to it by the Spouses Lu particularly because
Babasantas claims were not annotated on the certificates of title
at the time the lands were sold to it.
After a protracted trial, the RTC rendered its Decision on
30 July 1993 upholding the sale of the property to SLDC. It
ordered the Spouses Lu to pay Babasanta the sum of two
hundred thousand pesos (P200,000.00) with legal interest plus
the further sum of fifty thousand pesos (P50,000.00) as and for
attorneys fees. On the complaint-in-intervention, the trial court
ordered the Register of Deeds of Laguna, Calamba Branch to
cancel the notice of lis pendens annotated on the original of the
TCT No. T-39022 (T-7218) and No. T-39023 (T-7219).
Applying Article 1544 of the Civil Code, the trial court
ruled that since both Babasanta and SLDC did not register the
respective sales in their favor, ownership of the property should
pertain to the buyer who first acquired possession of the
property. The trial court equated the execution of a public
instrument in favor of SLDC as sufficient delivery of the
property to the latter. It concluded that symbolic possession
could be considered to have been first transferred to SLDC and
consequently ownership of the property pertained to SLDC
who purchased the property in good faith.
Respondent Babasanta appealed the trial courts decision
to the Court of Appeals alleging in the main that the trial court
erred in concluding that SLDC is a purchaser in good faith and
in upholding the validity of the sale made by the Spouses Lu in
favor of SLDC.
Respondent spouses likewise filed an appeal to the Court
of Appeals. They contended that the trial court erred in failing
to consider that the contract to sell between them and
Babasanta had been novated when the latter abandoned the
verbal contract of sale and declared that the original loan
transaction just be carried out. The Spouses Lu argued that
since the properties involved were conjugal, the trial court
should have declared the verbal contract to sell between Pacita
Lu and Pablo Babasanta null and void ab initio for lack of
knowledge and consent of Miguel Lu. They further averred that
the trial court erred in not dismissing the complaint filed by
Babasanta; in awarding damages in his favor and in refusing to
grant the reliefs prayed for in their answer.
On 4 October 1995, the Court of Appeals rendered
its Decision[11] which set aside the judgment of the trial court. It
declared that the sale between Babasanta and the Spouses Lu
was valid and subsisting and ordered the spouses to execute the
necessary deed of conveyance in favor of Babasanta, and the
latter to pay the balance of the purchase price in the amount of
two hundred sixty thousand pesos (P260,000.00). The appellate
court ruled that the Absolute Deed of Sale with Mortgage in
favor of SLDC was null and void on the ground that SLDC was
a purchaser in bad faith. The Spouses Lu were further ordered
to return all payments made by SLDC with legal interest and to
pay attorneys fees to Babasanta.
SLDC and the Spouses Lu filed separate motions for
reconsideration with the appellate court.[12] However, in
a Manifestation dated 20 December 1995,[13] the Spouses Lu
informed the appellate court that they are no longer contesting
the decision dated 4 October 1995.
In its Resolution dated 11 March 1996,[14] the appellate
court considered as withdrawn the motion for reconsideration
filed by the Spouses Lu in view of their manifestation of 20
December 1995. The appellate court denied SLDCs motion for
reconsideration on the ground that no new or substantial
arguments were raised therein which would warrant
modification or reversal of the courts decision dated 4 October
1995.
Hence, this petition.
SLDC assigns the following errors allegedly committed
by the appellate court:
THE COURT OF APPEALS ERRED IN HOLDING THAT
SAN LORENZO WAS NOT A BUYER IN GOOD FAITH
BECAUSE WHEN THE SELLER PACITA ZAVALLA LU
OBTAINED FROM IT THE CASH ADVANCE
OF P200,000.00, SAN LORENZO WAS PUT ON INQUIRY
OF A PRIOR TRANSACTION ON THE PROPERTY.
THE COURT OF APPEALS ERRED IN FAILING TO
APPRECIATE THE ESTABLISHED FACT THAT THE
ALLEGED FIRST BUYER, RESPONDENT BABASANTA,
WAS NOT IN POSSESSION OF THE DISPUTED
PROPERTY WHEN SAN LORENZO BOUGHT AND TOOK
POSSESSION OF THE PROPERTY AND NO ADVERSE
CLAIM, LIEN, ENCUMBRANCE OR LIS PENDENS WAS
ANNOTATED ON THE TITLES.
THE COURT OF APPEALS ERRED IN FAILING TO
APPRECIATE THE FACT THAT RESPONDENT
BABASANTA HAS SUBMITTED NO EVIDENCE
SHOWING THAT SAN LORENZO WAS AWARE OF HIS
RIGHTS OR INTERESTS IN THE DISPUTED PROPERTY.
THE COURT OF APPEALS ERRED IN HOLDING THAT
NOTWITHSTANDING ITS FULL CONCURRENCE ON
THE FINDINGS OF FACT OF THE TRIAL COURT, IT
REVERSED AND SET ASIDE THE DECISION OF THE
TRIAL COURT UPHOLDING THE TITLE OF SAN
LORENZO AS A BUYER AND FIRST POSSESSOR IN
GOOD FAITH. [15]
SLDC contended that the appellate court erred in
concluding that it had prior notice of Babasantas claim over the
property merely on the basis of its having advanced the amount
of two hundred thousand pesos (P200,000.00) to Pacita Lu
upon the latters representation that she needed the money to
pay her obligation to Babasanta. It argued that it had no reason
to suspect that Pacita was not telling the truth that the money
would be used to pay her indebtedness to Babasanta. At any
rate, SLDC averred that the amount of two hundred thousand
pesos (P200,000.00) which it advanced to Pacita Lu would be
deducted from the balance of the purchase price still due from
it and should not be construed as notice of the prior sale of the
land to Babasanta. It added that at no instance did Pacita Lu
inform it that the lands had been previously sold to Babasanta.
Moreover, SLDC stressed that after the execution of the
sale in its favor it immediately took possession of the property
and asserted its rights as new owner as opposed to Babasanta
who has never exercised acts of ownership. Since the titles bore
no adverse claim, encumbrance, or lien at the time it was sold
to it, SLDC argued that it had every reason to rely on the
correctness of the certificate of title and it was not obliged to go
beyond the certificate to determine the condition of the
property. Invoking the presumption of good faith, it added that
the burden rests on Babasanta to prove that it was aware of the
prior sale to him but the latter failed to do so. SLDC pointed
out that the notice of lis pendens was annotated only on 2 June
1989 long after the sale of the property to it was consummated
on 3 May 1989.
Meanwhile, in an Urgent Ex-Parte Manifestation dated 27
August 1999, the Spouses Lu informed the Court that due to
financial constraints they have no more interest to pursue their
rights in the instant case and submit themselves to the decision
of the Court of Appeals.[16]
On the other hand, respondent Babasanta argued that
SLDC could not have acquired ownership of the property
because it failed to comply with the requirement of registration
of the sale in good faith. He emphasized that at the time SLDC
registered the sale in its favor on 30 June 1990, there was
already a notice of lis pendens annotated on the titles of the
property made as early as 2 June 1989. Hence, petitioners
registration of the sale did not confer upon it any right.
Babasanta further asserted that petitioners bad faith in the
acquisition of the property is evident from the fact that it failed
to make necessary inquiry regarding the purpose of the
issuance of the two hundred thousand pesos (P200,000.00)
managers check in his favor.
The core issue presented for resolution in the instant
petition is who between SLDC and Babasanta has a better right
over the two parcels of land subject of the instant case in view
of the successive transactions executed by the Spouses Lu.
To prove the perfection of the contract of sale in his favor,
Babasanta presented a document signed by Pacita Lu
acknowledging receipt of the sum of fifty thousand pesos
(P50,000.00) as partial payment for 3.6 hectares of farm lot
situated at Barangay Pulong, Sta. Cruz, Sta. Rosa,
Laguna.[17] While the receipt signed by Pacita did not mention
the price for which the property was being sold, this deficiency
was supplied by Pacita Lus letter dated 29 May
1989[18] wherein she admitted that she agreed to sell the 3.6
hectares of land to Babasanta for fifteen pesos (P15.00) per
square meter.
An analysis of the facts obtaining in this case, as well as
the evidence presented by the parties, irresistibly leads to the
conclusion that the agreement between Babasanta and the
Spouses Lu is a contract to sell and not a contract of sale.
Contracts, in general, are perfected by mere
consent,[19] which is manifested by the meeting of the offer and
the acceptance upon the thing which are to constitute the
contract. The offer must be certain and the acceptance
absolute.[20] Moreover, contracts shall be obligatory in
whatever form they may have been entered into, provided all
the essential requisites for their validity are present.[21]
The receipt signed by Pacita Lu merely states that she
accepted the sum of fifty thousand pesos (P50,000.00) from
Babasanta as partial payment of 3.6 hectares of farm lot
situated in Sta. Rosa, Laguna. While there is no stipulation that
the seller reserves the ownership of the property until full
payment of the price which is a distinguishing feature of a
contract to sell, the subsequent acts of the parties convince us
that the Spouses Lu never intended to transfer ownership to
Babasanta except upon full payment of the purchase price.
Babasantas letter dated 22 May 1989 was quite telling. He
stated therein that despite his repeated requests for the
execution of the final deed of sale in his favor so that he could
effect full payment of the price, Pacita Lu allegedly refused to
do so. In effect, Babasanta himself recognized that ownership
of the property would not be transferred to him until such time
as he shall have effected full payment of the price. Moreover,
had the sellers intended to transfer title, they could have easily
executed the document of sale in its required form
simultaneously with their acceptance of the partial payment,
but they did not. Doubtlessly, the receipt signed by Pacita Lu
should legally be considered as a perfected contract to sell.
The distinction between a contract to sell and a contract of
sale is quite germane. In a contract of sale, title passes to the
vendee upon the delivery of the thing sold; whereas in a
contract to sell, by agreement the ownership is reserved in the
vendor and is not to pass until the full payment of the
price.[22] In a contract of sale, the vendor has lost and cannot
recover ownership until and unless the contract is resolved or
rescinded; whereas in a contract to sell, title is retained by the
vendor until the full payment of the price, such payment being
a positive suspensive condition and failure of which is not a
breach but an event that prevents the obligation of the vendor
to convey title from becoming effective.[23]
The perfected contract to sell imposed upon Babasanta the
obligation to pay the balance of the purchase price. There being
an obligation to pay the price, Babasanta should have made the
proper tender of payment and consignation of the price in court
as required by law. Mere sending of a letter by the vendee
expressing the intention to pay without the accompanying
payment is not considered a valid tender of
payment.[24] Consignation of the amounts due in court is
essential in order to extinguish Babasantas obligation to pay the
balance of the purchase price. Glaringly absent from the
records is any indication that Babasanta even attempted to
make the proper consignation of the amounts due, thus, the
obligation on the part of the sellers to convey title never
acquired obligatory force.
 On the assumption that the transaction between the parties
is a contract of sale and not a contract to sell, Babasantas claim
of ownership should nevertheless fail.
Sale, being a consensual contract, is perfected by mere
consent[25] and from that moment, the parties may reciprocally
demand performance.[26] The essential elements of a contract of
sale, to wit: (1) consent or meeting of the minds, that is, to
transfer ownership in exchange for the price; (2) object certain
which is the subject matter of the contract; (3) cause of the
obligation which is established.[27]
The perfection of a contract of sale should not, however,
be confused with its consummation. In relation to the
acquisition and transfer of ownership, it should be noted that
sale is not a mode, but merely a title. A mode is the legal means
by which dominion or ownership is created, transferred or
destroyed, but title is only the legal basis by which to affect
dominion or ownership.[28] Under Article 712 of the Civil
Code, ownership and other real rights over property are
acquired and transmitted by law, by donation, by testate and
intestate succession, and in consequence of certain contracts,
by tradition. Contracts only constitute titles or rights to the
transfer or acquisition of ownership, while delivery or tradition
is the mode of accomplishing the same.[29] Therefore, sale by
itself does not transfer or affect ownership; the most that sale
does is to create the obligation to transfer ownership. It is
tradition or delivery, as a consequence of sale, that actually
transfers ownership.
Explicitly, the law provides that the ownership of the
thing sold is acquired by the vendee from the moment it is
delivered to him in any of the ways specified in Article 1497 to
1501.[30]The word delivered should not be taken restrictively to
mean transfer of actual physical possession of the property. The
law recognizes two principal modes of delivery, to wit: (1)
actual delivery; and (2) legal or constructive delivery.
Actual delivery consists in placing the thing sold in the
control and possession of the vendee.[31] Legal or constructive
delivery, on the other hand, may be had through any of the
following ways: the execution of a public instrument
evidencing the sale;[32] symbolical tradition such as the delivery
of the keys of the place where the movable sold is being
kept;[33] traditio longa manu or by mere consent or agreement
if the movable sold cannot yet be transferred to the possession
of the buyer at the time of the sale;[34] traditio brevi manu if the
buyer already had possession of the object even before the
sale;[35] and traditio constitutum possessorium, where the seller
remains in possession of the property in a different capacity. [36]
Following the above disquisition, respondent Babasanta
did not acquire ownership by the mere execution of the receipt
by Pacita Lu acknowledging receipt of partial payment for the
property. For one, the agreement between Babasanta and the
Spouses Lu, though valid, was not embodied in a public
instrument. Hence, no constructive delivery of the lands could
have been effected. For another, Babasanta had not taken
possession of the property at any time after the perfection of
the sale in his favor or exercised acts of dominion over it
despite his assertions that he was the rightful owner of the
lands. Simply stated, there was no delivery to Babasanta,
whether actual or constructive, which is essential to transfer
ownership of the property. Thus, even on the assumption that
the perfected contract between the parties was a sale,
ownership could not have passed to Babasanta in the absence
of delivery, since in a contract of sale ownership is transferred
to the vendee only upon the delivery of the thing sold. [37]
However, it must be stressed that the juridical relationship
between the parties in a double sale is primarily governed by
Article 1544 which lays down the rules of preference between
the two purchasers of the same property. It provides:
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.
The principle of primus tempore, potior jure (first in time,
stronger in right) gains greater significance in case of double
sale of immovable property. When the thing sold twice is an
immovable, the one who acquires it and first records it in the
Registry of Property, both made in good faith, shall be deemed
the owner.[38] Verily, the act of registration must be coupled
with good faith that is, the registrant must have no knowledge
of the defect or lack of title of his vendor or must not have been
aware of facts which should have put him upon such inquiry
and investigation as might be necessary to acquaint him with
the defects in the title of his vendor.[39]
Admittedly, SLDC registered the sale with the Registry of
Deeds after it had acquired knowledge of Babasantas claim.
Babasanta, however, strongly argues that the registration of the
sale by SLDC was not sufficient to confer upon the latter any
title to the property since the registration was attended by bad
faith. Specifically, he points out that at the time SLDC
registered the sale on 30 June 1990, there was already a notice
of lis pendens on the file with the Register of Deeds, the same
having been filed one year before on 2 June 1989.
Did the registration of the sale after the annotation of the
notice of lis pendens obliterate the effects of delivery and
possession in good faith which admittedly had occurred prior to
SLDCs knowledge of the transaction in favor of Babasanta?
We do not hold so.
It must be stressed that as early as 11 February 1989, the
Spouses Lu executed the Option to Buy in favor of SLDC upon
receiving P316,160.00 as option money from SLDC. After
SLDC had paid more than one half of the agreed purchase price
of P1,264,640.00, the Spouses Lu subsequently executed on 3
May 1989 a Deed of Absolute Sale in favor or SLDC. At the
time both deeds were executed, SLDC had no knowledge of the
prior transaction of the Spouses Lu with Babasanta. Simply
stated, from the time of execution of the first deed up to the
moment of transfer and delivery of possession of the lands to
SLDC, it had acted in good faith and the subsequent annotation
of lis pendens has no effect at all on the consummated sale
between SLDC and the Spouses Lu.
A purchaser in good faith is one who buys property of
another without notice that some other person has a right to, or
interest in, such property and pays a full and fair price for the
same at the time of such purchase, or before he has notice of
the claim or interest of some other person in the
property.[40] Following the foregoing definition, we rule that
SLDC qualifies as a buyer in good faith since there is no
evidence extant in the records that it had knowledge of the
prior transaction in favor of Babasanta. At the time of the sale
of the property to SLDC, the vendors were still the registered
owners of the property and were in fact in possession of the
lands. Time and again, this Court has ruled that a person
dealing with the owner of registered land is not bound to go
beyond the certificate of title as he is charged with notice of
burdens on the property which are noted on the face of the
register or on the certificate of title.[41] In assailing knowledge
of the transaction between him and the Spouses Lu, Babasanta
apparently relies on the principle of constructive notice
incorporated in Section 52 of the Property Registration Decree
(P.D. No. 1529) which reads, thus:
Sec. 52. Constructive notice upon registration. Every
conveyance, mortgage, lease, lien, attachment, order, judgment,
instrument or entry affecting registered land shall, if registered,
filed, or entered in the office of the Register of Deeds for the
province or city where the land to which it relates lies, be
constructive notice to all persons from the time of such
registering, filing, or entering.
However, the constructive notice operates as suchby the
express wording of Section 52from the time of the registration
of the notice of lis pendens which in this case was effected only
on 2 June 1989, at which time the sale in favor of SLDC had
long been consummated insofar as the obligation of the
Spouses Lu to transfer ownership over the property to SLDC is
concerned.
More fundamentally, given the superiority of the right of
SLDC to the claim of Babasanta the annotation of the notice
of lis pendens cannot help Babasantas position a bit and it is
irrelevant to the good or bad faith characterization of SLDC as
a purchaser. A notice of lis pendens, as the Court held in Natao
v. Esteban,[42] serves as a warning to a prospective purchaser or
incumbrancer that the particular property is in litigation; and
that he should keep his hands off the same, unless he intends to
gamble on the results of the litigation. Precisely, in this case
SLDC has intervened in the pending litigation to protect its
rights. Obviously, SLDCs faith in the merit of its cause has
been vindicated with the Courts present decision which is the
ultimate denouement on the controversy.
The Court of Appeals has made capital[43] of SLDCs
averment in its Complaint-in-Intervention[44] that at the instance
of Pacita Lu it issued a check for P200,000.00 payable to
Babasanta and the confirmatory testimony of Pacita Lu herself
on cross-examination.[45] However, there is nothing in the said
pleading and the testimony which explicitly relates the amount
to the transaction between the Spouses Lu and Babasanta for
what they attest to is that the amount was supposed to pay off
the advances made by Babasanta to Pacita Lu. In any event, the
incident took place after the Spouses Lu had already executed
the Deed of Absolute Sale with Mortgage in favor of SLDC and
therefore, as previously explained, it has no effect on the legal
position of SLDC.
Assuming ex gratia argumenti that SLDCs registration of
the sale had been tainted by the prior notice of lis pendens and
assuming further for the same nonce that this is a case of
double sale, still Babasantas claim could not prevail over that
of SLDCs. In Abarquez v. Court of Appeals,[46] this Court had
the occasion to rule that if a vendee in a double sale registers
the sale after he has acquired knowledge of a previous sale, the
registration constitutes a registration in bad faith and does not
confer upon him any right. If the registration is done in bad
faith, it is as if there is no registration at all, and the buyer who
has taken possession first of the property in good faith shall be
preferred.
In Abarquez, the first sale to the spouses Israel was
notarized and registered only after the second vendee,
Abarquez, registered their deed of sale with the Registry of
Deeds, but the Israels were first in possession. This Court
awarded the property to the Israels because registration of the
property by Abarquez lacked the element of good faith. While
the facts in the instant case substantially differ from that
in Abarquez, we would not hesitate to rule in favor of SLDC on
the basis of its prior possession of the property in good faith.
Be it noted that delivery of the property to SLDC was
immediately effected after the execution of the deed in its
favor, at which time SLDC had no knowledge at all of the prior
transaction by the Spouses Lu in favor of Babasanta.
The law speaks not only of one criterion. The first
criterion is priority of entry in the registry of property; there
being no priority of such entry, the second is priority of
possession; and, in the absence of the two priorities, the third
priority is of the date of title, with good faith as the common
critical element. Since SLDC acquired possession of the
property in good faith in contrast to Babasanta, who neither
registered nor possessed the property at any time, SLDCs right
is definitely superior to that of Babasantas.
At any rate, the above discussion on the rules on double
sale would be purely academic for as earlier stated in this
decision, the contract between Babasanta and the Spouses Lu is
not a contract of sale but merely a contract to sell. In Dichoso
v. Roxas,[47] we had the occasion to rule that Article 1544 does
not apply to a case where there was a sale to one party of the
land itself while the other contract was a mere promise to sell
the land or at most an actual assignment of the right to
repurchase the same land. Accordingly, there was no double
sale of the same land in that case.
WHEREFORE, the instant petition is hereby
GRANTED. The decision of the Court of Appeals appealed
from is REVERSED and SET ASIDE and the decision of the
Regional Trial Court, Branch 31, of San Pedro, Laguna is
REINSTATED. No costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo,
Sr., and Chico-Nazario, JJ., concur.
Mendoza vs Kalaw
42 Phil. 236
JOHNSON, J.:
From the record it appears that on the 26th day of November,
1919, the petitioner presented a petition in the Court of First
Instance of the City of Manila for the registration, under the
Torrens system, of a piece or parcel of land, particularly
described in paragraph A of the petition. The said lot is alleged
to have an area of 371.6 square meters. The petitioner alleged
that he was the, owner in fee simple of said parcel of land for
the reason that he had purchased the same of Federico Canet on
the 8th day of November, 1919. Accompanying the petition,
there was united a plan (marked Exhibit A) containing a
technical description of the metes and bounds fo said parcel of
land.
To the registration of said parcel of land the oppositor,
Primitivo Kalaw, presented his opposition, alleging that he was
the owner of the same and that he had acquired it from the said
Federico Canet.
Upon the issue thus presented by the petition and opposition,
the Honorable James A. Ostrand, on the 23d day of January,
1920, in a carefully prepared opinion, reached the conclusion
that the petitioner was the owner in fee simple of said parcel of
land, and ordered it registered in his name in accordance with
the provisions of the Land Registration Act. From that decree
the oppositor appealed to this court.
From an examination of the record the following facts seem to
be proved by a large preponderance of the evidence :
(1) That on the 24th day of September, 1919, the said Federico
Canet sold, under a conditional sale, the parcel of land in
question to the appellant (Exhibit 1) ;
(2) That on the 8th day of November, 1919, the said Federico
Canet made an absolute sale of said parcel of land to the
petitioner Agripino Mendoza (Exhibit B);
(3) That on the 12th day of November, 1919, Agripino
Mendoza entered upon, and took actual possession of, said
parcel of land, enclosed it with a fence, and began to clean the
same;
(4) That after the petitioner had fenced and cleaned said lot, as
above indicated, a representative of the oppositor claimed and
attempted to obtain possession of said lot, but the petitioner,
who was then in possession, refused to deliver the possession,
upon the ground that he was the owner;
(5) That on the 17th day of November (18th day of November),
1919, the oppositor attempted to have his title registered in the
registry of deeds of the City of Manila, but such registration
was denied by the register of deeds for the reason that there
existed some defect in the description of the property, and for
the reason that the title of the vendor had not theretofore been
registered. The register of deeds, however, did make an
"anotacion preventiva."
It will be noted from the foregoing that Federico Canet made
two sales of the same property one to the oppositor and the
other to the petitioner. The first was but a conditional sale
while the latter was an absolute sale. It will also be noted that
while the absolute sale to the petitioner was subsequent to the
conditional sale to the oppositor, the former obtained the actual
possession of the property first. It will further be noted from a
reading of Exhibits 1 and B that the petitioner actually paid to
his vendor the purchase price of the property in question, while
the payment by the oppositor depended upon the performance
of certain conditions mentioned in the contract of sale.
While we have stated that there were two sales of the parcel of
land in question, that is hardly the fact, because, a conditional
sale, before the performance of the condition, il can hardly be
said to be a sale of property, especially where the condition has
not been performed or complied with. That being true, article
1473 of the Civil Code can hardly be said to be applicable.
Neither can the "anotacion preventiva" obtained by the
oppositor be said to have created any advantage in his favor,
for the reason that a preventative precautionary notice on the
records of the registry of deeds only protects the rights of the
person securing it for a period of thirty days. (Par. 2, art. 17,
Mortgage Law.) A preventative precautionary notice only
protects the interests and rights of the person who secures it
against those who acquire an interest in the property
subsequent thereto, and then, only for a period of thirty days. It
cannot affect the rights or interests of persons who acquired an
interest in the property theretofore. (Veguillas vs. Jaucian, 25
Phil., 315; Samson vs. Garcia and Ycalina, 34m Phil., 805.) In
the present case the petitioner had acquired an absolute deed to
the land in question, and had actually entered into the
possession of the same, before the preventative precautionary
notice was noted in the office of the registry of deeds.
Therefore, under the provisions of the Mortgage Law above
cited, it could in no way affect the rights or interests of persons,
acquired theretofore.
For all of the foregoing reasons, we are fully persuade that the
judgment ordering the registration of the parcel of land in
question in the name of the petitioner should be and is hereby
affirmed, with costs. So ordered.
Araullo, Street, Avancena, and Villamor, JJ., concur.
[G.R. No. 120191. October 10, 1997]
LORETO ADALIN, CARLOS CALINGASAN,
DEMETRIO ADAYA and MAGNO
ADALIN, petitioners, vs. THE HON. COURT OF
APPEALS, FAUSTINO L. YU, ANTONIO T.
LIM, ELENA K. PALANCA, JOSE PALANCA,
EDUARDA K. VARGAS, JOSE VARGAS,
MERCEDES K. CABALLERO, EBERHARDO
CABALLERO, ISABEL K. VILLAMOR,
FEDERICO VILLAMOR, JOSE KADO,
URSULA KADO, MARIA K. CALONZO,
BAYANI L. CALONZO, TEOFILA KADO,
NESTOR KADO and LILIA KADO, respondents.
DECISION
HERMOSISIMA, JR., J.:
Before us is a petition for review seeking the reversal of
the Decision[1] of the Court of Appeals[2] and in lieu thereof, the
reinstatement of the Decision[3] of the Regional Trial Court[4] in
an action for specific performance filed by private respondents
Faustino L. Yu and Antonio T. Lim against the Kado siblings,
namely, private respondents Elena K. Palanca, Eduarda K.
Vargas, Mercedes K. Caballero, Isabel K. Villamor, Jose Kado,
Maria K. Calonzo, Teofila Kado and Nestor Kado, and their
respective spouses.
In essence, the petition poses a challenge against the
respondent appellate courts legal conclusion that the
transaction entered into by private respondents Yu and Lim
with private respondents Kado siblings, is one of an absolute
sale and not merely a conditional sale as denominated in the
document signed by said parties. As such, there is no dispute as
to the following facts:
xxx [F]rom the welter of evidence and the record, it
has been established that Elena Kado Palanca, and
her brothers and sisters, namely, Eduarda K. Vargas,
Mercedes K. Caballero, Isabel K. Villamor, Jose
Kado, Maria K. Calonzo, Teofila Kado and Nestor
Kado, hereinafter referred to, for brevitys sake, as the
Appellees-Vendors, were the owners of a parcel of
land, with an area of 1,343 square meters, with a
five-door, one storey commercial building
constructed thereon, fronting the Imperial Hotel,
located along Magallanes Street, Cotabato City,
described in and covered by Transfer Certificate of
Title No. T-12963 of the Registry of Deeds of
Cotabato City x x x. One of the five (5) doors was
leased to Loreto Adalin, hereinafter referred to as the
Appellee Adalin, two (2) doors were leased to Carlos
Calingasan and Demetrio Adaya respectively, and
two (2) doors were leased to Magno Adalin, all of
whom are hereinafter referred to, for brevitys sake, as
the Appellees-Vendees. The Appellees-Vendees and
Appellee Adalin paid a monthly rental of P1,500.00
for each door. The Appellees-Vendors commissioned
Ester Bautista to look for and negotiate with
prospective buyers for the sale of their property for
the price of P3,000,000.00. Sometime in August,
1987, Ester Bautista offered the property, for sale, to
the Appellants and the latter agreed to buy the
property. A conference was held in the office of the
Appellant Faustino Yu, at the Imperial Hotel, where
he was the President-Manager, with both Appellants,
the Appellee Adalin, the Appellees-Vendors Elena
Palanca and Teofilo Kado, in their behalf and in
behalf of the Appellees-Vendors, in attendance, to
discuss the terms and conditions of the sale. The
Appellants and Appellee Adalin, the Appellees-
Vendors agreed that the Appellants will each buy two
(2) doors while Appellee Adalin will buy the fifth
door which he was leasing from the Appellees-
Vendors, all for the price of P2,600,000.00. During
the conference, the Appellants inquired from the
Appellee-Vendor Elena Palanca whether the
Appellees-Vendees were interested to buy the
property but the Appellee-Vendor Elena Palanca
replied that the property had been offered to the
Appellees-Vendees for sale but that the latter were
not interested to buy the same. The conferees then
agreed to meet, on September 2, 1987, in the house
of the Appellee-Vendor Palanca, with Atty. Bayani
Calonzo, her brother-in-law, in attendance, to finalize
the sale. However, unknown to the Appellants, the
Appellee-Vendor Elena Palanca, in her behalf and in
behalf of the other Appellees-Vendors, sent, on
September 2, 1987, separate letters to each of the
Appellees-Vendees informing them that someone
was interested to buy the property and requested
them to vacate the property within thirty (30) days
unless all of you could buy the property at the same
price x x x. During the conference in the house of the
Appellee-Vendor Elena Palanca, on September 2,
1987, the Appellants, the Appellee Adalin and the
Appellees-Vendors Elena Palanca and Teofilo Kado
in their behalf and in behalf of the other Appellees-
Vendors, Atty. Bayani Calonzo, the husband of the
Appellee Maria Kado, Atty. Eugenio Soyao, the
counsel of the appellants and the Appellee-Vendee
Magno Adalin who attended in his behalf and in
behalf of the Appellees-Vendees, were
present. When asked by the Appellants if the
Appellees-Vendees were interested to buy the
property, the Appellee-vendee Magno Adalin
forthrightly replied that the Appellees-Vendees were
not interested to buy the property because they
cannot afford the purchase price thereof. However,
he claimed that the Appellees Vendees were entitled
to P50,000.00 each as disturbance money, in
consideration for their vacating the property, to be
borne by the Appellees-Vendors. The Appellants, the
Appellee Adalin and the Appellees-Vendors
forthwith agreed that each Appellant will buy two (2)
doors while the fifth door leased by Appellee Adalin
will be purchased by him, all for the purchased price
of P2,600,000.00 and that the appellants and
Appellee Adalin will pay, P300,000.00 as
downpayment for the property, the balance to be
payable upon the eviction of the Appellees-Vendees
from the property and the execution of a 'Deed of
Absolute Sale'.Atty. Bayani Calonzo forthwith
assured the Appellants that he could secure the
eviction of the Appellees-Vendees from the property
within a month because the latter were his close
friends and compadres. Atty. Bayani Calonzo then
gave Atty. Eugenio Soyao, the counsel of the
Appellants, the go-signal to prepare the deed for the
signatures of the parties. On September 8, 1987, the
Appellants and Appellee Adalin, as buyers of the
property, and the Appellees-Vendors, met in the
office of the Appellant Faustino Yu at the Imperial
Hotel and executed the Deed of Conditional Sale
prepared by Atty. Eugenio Soyao x x x. The
Appellants and Appellee Adalin each
contributed P100,000.00 and gave the total amount
of P300,000.00 to the Appellee-Vendor Elena
Palanca as the downpayment for the property. The
Appellees-Vendors Elena Palanca and Eduarda
Vargas signed an Acknowledgment Receipt for the
downpayment x x x in their behalf and in behalf of
the other Appellees-vendors. In the meantime, the
Appellants deferred registration of the deed until
after the eviction of the Appellees-Vendees from the
property and the payment of the balance of the
purchase price of the property to the Appellees-
Vendors as agreed upon under the Deed of
Conditional Sale.
In the interim, on October 14, 1987, the Appellees-
Vendors, through the Appellee-Vendor Elena
Palanca, wrote, conformably with the terms of the
Deed of Conditional Sale x x x a letter complaint
against the Appellees-Vendees with the Barangay
Captain for unlawful detainer x x x. The case was
docketed as Barangay Case No. 7,052-87 x x x. On
October 16, 1987, the Appellee-Vendee Magno
Adalin wrote a letter to the Appellees-Vendors,
through the Appellee-Vendor Elena Palanca,
informing them that he had decided to purchase the
two doors he was leasing for the purchase price
of P600,000.00 per door and was ready to tender the
amount by the end of the month x x x. The Appellee-
Vendee Demetrio Adaya and the Appellee-Vendee
Carlos Calingasan likewise wrote separate letters to
the Appellees-vendors informing the latter of their
decision to purchase the premises occupied by them
respectively for the amount of P600,000.00 each x x
x. Inspite of the prior sale of the property to the
Appellants and Appellee Adalin, the Appellees-
Vendors decided to back out from said sale to
the Appellants and to sell the property to the
Appellees-vendees and to return the downpayments
of the Appellants for the property in the total amount
of P200,000.00 with interest thereon. The Appellees-
Vendees procured TCBT Check No. 195031 in the
amount of P101,416.66 payable to the Appellant
Faustino Yu and TCBT Check No. 195032 in the
amount of P101,416.66 payable to the Appellant
Antonio Lim and transmitted the same to the
Appellants with a covering letter x x x. The
Appellants were flabbergasted. Both the Appellants
refused to receive the said letter and checks and
insisted, instead, that the Appellees-Vendors comply
with the Deed of Conditional Sale x x x. On
November 16, 1987, the Appellants, through their
counsel, wrote a letter to the Appellees-Vendors,
copies of which were furnished the Appellees-
vendees, inquiring if the appropriate action has been
undertaken towards the eviction of the Appellees-
Vendees x x x. The Appellees-Vendors ignored the
said letter. Instead, the Appellees-Vendors signed, in
December, 1987, a Deed of Sale of Registered Land
under which they sold the said property to the
Appellees-Vendees, including the Appellee Adalin
for the price of only P1,000,000.00 x x x much lower
than the price of the Appellant under the Deed of
Conditional Sale x x x. Although it appears that the
deed was notarized by Atty. Bayani Calonzo,
however, the deed does not bear any number in the
notarial register of the lawyer. In the same month, the
Appellees-Vendors signed another Deed of Sale of
Registered Land under which they sold to the
Appellees-Vendees including Appellee Adalin the
aforesaid property for the considerably increased
price of P3,000,000.00 x x x. The deed was notarized
by Atty. Bayani Calonzo. Interestingly, both deeds
were not filed with the Register of Deeds of Cotabato
City. Not content with the two (2) Deeds of Sale of
registered Land x x x the Appellees-Vendors, signed
a third Deed of Sale of Registered land which
appears dated February 5, 1988 under which they
purportedly sold to the Appellees-Vendees, including
Appellee Adalin, the aforesaid property for the much
reduced price of only P860,000.00 x x x. However,
the aforesaid deed was not immediately filed with the
Register of Deeds of Cotabato City. On February 26,
1988, the Appellees-Vendors, through Atty. Bayani
Calonzo, filed a Petition against the Appellants for
the consignation of their downpayment
of P200,000.00, with the Regional Trial Court of
General Santos City entitled Maria K. Calonzo, et al.
versus Faustino Yu, Special Civil Case No. 259. x x
x
Undaunted, the Appellants filed a complaint with the
Barangay captain for Breach of Contract against the
Appellees-vendors entitled Faustino Yu, et al. Versus
Elena K. Palanca, et al., Barangay Case No. 9,014-
88. The Barangay Captain issued, on April 7, 1988,
summons to the Appellees-Vendors for them to
appear for a conference on April 22, 1988 at 9:00
oclock in the morning x x x.Invitations were also sent
to the Appellees-Vendees x x x. During the
conference attended by Appellee-Vendees, the
Appellants, if only to accommodate the Appellee-
Vendee Magno Adalin and settle the case amicably,
agreed to buy only one door each so that the
Appellee-Vendee Magno Adalin could purchase the
two doors he was occupying. However, the Appellee-
Vendee Magno Adalin adamantly refused, claiming
that he was already the owner of the two (2)
doors. When the Appellant Antonio Lim asked the
Appellee-Vendee Magno Adalin to show the Deed of
Sale for the two doors, the latter insouciantly walked
 out. Atty. Bayani Calonzo likewise stated that there
was no need to show the deed of sale. No settlement
was forged and, on May 16, 1988, the Barangay
Captain issued the Certification to File Action x x x.
On May 5, 1988, the Appellants filed their complaint
for Specific Performance against the Appellees-
Vendors and appellee Adalin in the Court a quo.
On June 14, 1988, the Appellants caused the
annotation of a Notice of Lis Pendens at the dorsal
portion of Transfer Certificate of Title No. 12963
under the names of the Appellees-Vendors x x x. On
October 25, 1988, the Appellees-Vendees filed a
Motion for Intervention as Plaintiffs-Intervenors
appending thereto a copy of the Deed of Sale of
Registered land signed by the Appellees-Vendors x x
x. On October 27, 1988, the Appellees-Vendees filed
the Deed of Sale of Registered Land x x x with the
Register of Deeds on the basis of which Transfer
certificate of Title No. 24791 over the property was
issued under their names x x x. On the same day, the
Appellees-Vendees filed in the Court a quo a Motion
To Admit Complaint-In-Intervention x x x. Attached
to the Complaint-In-Intervention was the 'Deed of
Sale of Registered land signed by the Appellees-
Vendees x x x. The Appellants were shocked to learn
that the Appellees-Vendors had signed the said
deed. As a counter-move, the Appellants filed a
motion for leave to amend Complaint and, on
November 11, 1988, filed their Amended Complaint
impleading the Appellees-Vendees as additional
defendants x x x.
xxx
The Appellees-Vendors suffered a rebuff when, on
January 10, 1989, the Regional Trial Court of
General Santos City issued an Order dismissing the
Petition of the Appellees-Vendors for consignation x
x x. In the meantime, on November 30, 1989,
Appellee Adalin died and was substituted, per order
of the Court a quo, on January 5, 1990, by his heirs,
namely, Anita, Anelita, Loreto, Jr., Teresita,
Wilfredo, Lilibeth, Nelson, Helen and Jocel, all
surnamed Adalin, as Appellees-Vendees x x x.
After trial, the Court a quo rendered judgment in favor of the
Appellees-Vendees x x x.[5]
In the opinion of the court a quo, petitioners became the
owners of the parcel of land in question with the five-door, one
storey commercial building standing thereon, when they
purchased the same following the offer and the 30-day option
extended to them by private respondent Elena Palanca, in
behalf of the other Kado siblings, in her letter to them dated
September 2, 1987. The trial court disregarded the fact that the
Kado siblings had already finished transacting with private
respondents Faustino Yu and Antonio Lim and had in fact
entered into a conditional sale with them respecting the same
property. The trial court brushed aside this fact as it reasoned
that:
x x x In conditional deed of sale, ownership is only
transferred after the purchase price is fully paid or
the fulfillment of the condition and the execution of a
definite or absolute deed of sale are made. x x x
In this case, it is clear from the provision of the Deed
of Conditional Sale x x x that the balance of the price
of P2,300,000.00 shall be paid only after all the
defendants-vendees shall have vacated and
surrendered the premises to the defendants-
vendors. However, the tenants did not leave the
premises. In fact they opted to buy the
property. Moreover, at that time, the property was
legally leased to the defendants-vendees. x x x
xxx
Clearly therefore, the condition set forth in the said
Deed of Conditional Sale between the plaintiffs and
the defendants-vendors was not fulfilled. Since the
condition was not fulfilled, there was no transfer of
ownership of the property from the defendants-
vendors to the plaintiffs. x x x
x x x [In] the letters of Elena Palanca to the
defendants-vendees dated September 2, 1987 x x x
[t]hey were given the option or preferential right to
purchase the property.
xxx
When the defendants-vendors accepted defendants-
vendees option to buy, the former returned the initial
payment of P200,000.00 to the plaintiffs x x x but
they refused to accept the same. This refusal however
did not diminish the effect of the acceptance of the
option to buy, which in fact led to the execution of
the said Deed of Sale of Registered Land x x x and
the subsequent issuance of the Transfer Certificate of
Title No. T-24791 of the Registry of Deeds for the
City of Cotabato in the names of the defendants-
vendees x x x. x x x
x x x [T]he defendants-vendors acted in bad faith when, while
during the effectivity of the period of the option to buy [that]
they gave to the defendants-vendees, they executed a Deed of
Conditional Sale x x x in favor of the plaintiffs. This was only
six (6) days from date of the option. x x x[6]
The trial court also ruled that the conditional sale of the
subject property to private respondents Faustino Yu and
Antonio Lim and the sale of the same property to petitioners,
did not involve a double sale as to warrant the application of
Article 1544 of the Civil Code. The court a quo ratiocinated in
this manner:
x x x [T]he plaintiffs assert that this case is one of double sale
and should be governed by Article 1544 of the Civil Code. The
first sale, plaintiffs claim, is that under the Deed of Conditional
Sale x x x in their favor and the second sale is that ultimately
covered by the Deed of sale of registered Land for P860,000.00
x x x in favor of the defendants-vendees. As already pointed
out by the court, the execution of the Deed of Conditional Sale
did not transfer ownership of the property to the plaintiffs,
hence, there can be no double sale. As held in the case of
Mendoza vs. Kalaw, 42 Phil. 236, Article 1544 does not apply
to situations where one sale was subject to a condition which
was not complied with. This is because a conditional sale,
before the performance of the condition, can hardly be said to
be a sale of property, specially where the condition has not
been performed or complied with.[7]
Pursuant to the above ruminations of the court a quo, it
ordered the following in the dispositive portion of its decision:
WHEREFORE, the court hereby orders the dismissal
of plaintiffs complaint against the defendants-
vendees for lack of merit, and hereby further sustains
the validity of Transfer Certificate of Title No. T-
24791 issued in their names (defendants-vendees) by
the Registry of Deeds for the City of Cotabato.
The defendants-vendors are hereby jointly and severally
ordered to pay moral damages of P500,000.00 to each of the
plaintiffs, P100,000.00 exemplary damages to each of the
plaintiffs and P50,000.00 as and for attorneys fees.
Defendants-vendors are hereby further ordered to
return the P200,000.00 initial payment received by
them with legal interest from date of receipt thereof
up to November 3, 1987.
Defendants-vendees counterclaim is hereby ordered
dismissed.
With cost against the defendants-vendors.
SO ORDERED.[8]
Private respondents Faustino Yu and Antonio Lim wasted
no time in appealing from the above decision of the court a
quo. They were vindicated when the respondent Court of
Appeals rendered its decision in their favor. The respondent
appellate court reversed the trial court as it ruled, thus:
x x x We find, and so declare, that the Deed of
Conditional Sale x x x executed by the Appellees-
Vendors in favor of the Appellants was an absolute
deed of sale and not a conditional sale.
xxx
In ascertaining the nature of a contract and the
intention of the parties thereto, it behooves the trier
of facts to look into the context of the contract in its
entirety and not merely specific words or phrases
therein, standing alone, as well as the
contemporaneous and subsequent acts of the
parties. It bears stressing that the title of the contract
is not conclusive of its nature. x x x
Although a contract may be denominated a Deed of
Conditional Sale, or Agreement to Sell, the same
may be, in reality a deed of absolute sale or a
contract of sale x x x.
Under Article 1458 of the New Civil Code, a sale
may be absolute or conditional. A contract may be
conditional when the ownership of the thing sold is
retained until the fulfillment of a positive suspensive
condition, generally the payment of the purchase
price, the breach of which condition will prevent the
onset of the obligation to deliver title x x x. A sale of
immovables is absolute where the contract does not
contain any provision that title to the property sold is
reversed to the Vendors or that the Vendor is entitled
to unilaterally rescind the same.
xxx
The Court a quo x x x resolutely subscribed to the
view that the x x x deed is conditional, its efficacy
dependent upon a suspensive condition--that of the
payment by the Appellants of the balance of the
purchase price of the property, after the Appellees-
Vendees shall have been evicted from the property or
shall have voluntarily vacated the same and the Deed
of Absolute Sale shall have been executed in favor of
the Appellants; and, since the condition was not
fulfilled, the sale never became effective x x x. x x x
Even a cursory reading of the deed will readily show
absence of any stipulation in said deed that the title to
the property was reserved to the Appellees-Vendors
until the balance of the purchase price was paid nor
giving them the right to unilaterally rescind the
contract if the Appellants failed to pay the said
amount upon the eviction of the Appellees-
Vendees. Inscrutably then, the deed is a perfected
deed of absolute sale, not a conditional one. x x x
xxx
There may not have been delivery of the property to
the Appellants either symbolically or physically and
more, the Appellees-Vendors may have deferred
their obligation of delivering physical possession of
the property to the Appellees only after the
Appellees-Vendees shall have vacated the property,
however, the right of retention of the Appellees-
Vendors of title to or ownership over the property
cannot thereby be inferred therefrom. x x x
In fine, the non-payment of the balance of the
purchase price of the property and the consequent
eviction of the Appellees-Vendees therefrom were
not conditions which suspended the efficacy of the
Deed of Conditional Sale. Rather, the same, if due to
the fault of the Appellants, merely accorded the
Appellees-Vendors the option to rescind the already
existing and effective sale.
The Appellants and the Appellees-Vendors, having
entered into, under the Deed of Conditional Sale x x
x an absolute sale, the Appellants thus had every
right to demand that the Appellees-Vendors
performed their prestation under the deed, to wit--the
eviction of the Appellees-Vendees from the property-
-so that the Appellants may then pay the balance of
the purchase price of the property.
xxx
The Court a quo and the Appellees, however, posit
that the Deed of Conditional sale x x x had not been
consummated and title to and ownership over the
property had not been transferred to the Appellants
because there had been neither constructive nor
actual delivery of the property to the Appellants x x
x.
We do not agree. The evidence in the record shows
that the Appellants and the Appellees-Vendors met in
the house of Appellee Elena Palanca on September 2,
1987. The Appellees-Vendees were represented by
the Appellee-Vendee, Retired Col. Magno
Adalin. The latter did not object to the sale of the
property to the Appellants but merely insisted that
each of the Appellees-Vendees be given P50,000.00
as disturbance fee by the Appellees-Vendors to
which the latter acquiesced because Atty. Bayani
Calonzo forthwith gave Atty. Eugenio Soyao, the go-
signal to prepare the Deed of Conditional Sale for the
signatures thereof by the parties on September 8,
1987. The Appellees-Vendors, on September 2,
1987, wrote letters to the Appellees-Vendees giving
them the option to match the price offered by the
Appellants. The Appellees-Vendees maintained a
resounding silence to the letter-offer of the
Appellees-Vendors. It was only, on October 16,
1987, that the Appellees-Vendees, after the execution
by the Appellants and the Appellees-Vendors of the
Deed of Conditional Sale, that the Appellees-
Vendees finally decided to, themselves, purchase the
property. The Appellees are estopped from claiming
that the property had not been delivered to the
appellants. The Appellants cannot use their gross bad
faith as a shield to frustrate the enforcement, by the
Appellants, of the Deed of Conditional Sale. x x x
xxx
The Appellees-Vendors cannot invoke the refusal of
the Appellees-Vendees to vacate the property and the
latters decision to themselves purchase the property
as a valid justification to renege on and turn their
backs against their obligation to deliver or cause the
eviction of the Appellees-vendees from and deliver
physical possession of the property to the
Appellants. For, if We gave our approbation to the
stance of the Appellees, then We would thereby be
sanctioning the performance by the Appellees-
Vendors of their obligations under the deed subject to
the will and caprices of the Appellees-Vendees,
which we cannot do x x x.
It would be the zenith of inequity for the Appellees-
Vendors to invoke the occupation by the Appellees-
Vendees, as of the property, as a justification to
ignore their obligation to have the Appellees-
Vendees evicted from the property and for them to
give P50,000.00 disturbance fee for each of the
Appellees-Vendees and a justification for the latter to
hold on to the possession of the property.
xxx
Assuming, gratia arguendi, for the nonce, that there
had been no consummation of the Deed of
Conditional sale x x x by reason of the non-delivery
to the appellants of the property, it does not thereby
mean that the Deed of Sale of Registered Land x x x
executed by the Appellees should be given
preference. Apropos to this, We give our approbation
to the plaint of the Appellants that the Court a
quo erred in not applying the second and third
paragraphs of Article 1544 x x x.
For, the evidence in the record shows that, although
the Appellees-Vendees managed to cause the
registration of the Deed of Sale of Registered Land x
x x on October 27, 1988 and procure Transfer
Certificate of Title No. 24791 under their names, on
said date, and that they were, as of said date, in
physical possession of the property, however, the
evidence in the record shows that the Appellees-
Vendees were in gross evident bad faith. At the time
the Appellees executed the Deed of Sale of
Registered Land in December 1987 x x x they were
aware that the Appellees-Vendors and the Appellants
had executed their Deed of Conditional Sale as early
as September 8, 1987. x x x In the light of the
foregoing, We arrive at the ineluctable conclusion
that preference must be accorded the Deed of
Conditional Sale executed by the appellants and the
Appellees-Vendors.[9]
Accordingly, the respondent Court of Appeals rendered
another judgment in the case and ordered the following:
1.The Deed of Conditional Sale, Exhibit A is hereby
declared valid;
2.The Deeds of Sale of Registered Land, Exhibits E,
F and G and Transfer Certificate of Title No. 24791
are hereby declared null and void;
3.The Appellees-Vendees except the heirs of Loreto
Adalin are hereby ordered to vacate the property
within thirty (30) days from the finality of this
Decision;
4.The Appellees-Vendors are hereby ordered to
execute, in favor of the Appellants, a Deed of
Absolute Sale covering four (4) doors of the property
(which includes the area of the property on which
said four doors are constructed) except the door
purchased by the Appellee-Vendee Loreto Adalin,
free of any liens or encumbrances;
5.The Appellants are hereby ordered to remit to the
Appellees-Vendors the balance of the purchase price
of the four (4) doors in the amount of P1,880,000.00;
6.The Appellees-Vendors are hereby ordered to
refund to the Appellees-Vendees the amount
of P840,000.00 which they paid for the property
under the Deed of Conditional Sale of Registered
Land, Exhibit G, without interest considering that
they also acted in bad faith;
7.The Appellee-Vendee Magno Adalin is hereby
ordered to pay the amount of P3,000.00 a month, and
each of the Appellees-Vendees, except the Appellee
 Adalin, the amount of P1,500.00 to the Appellants,
from November, 1987, up to the time the property is
vacated and delivered to the Appellants, as
reasonable compensation for the occupancy of the
property, with interest thereon at the rate of 6% per
annum;
8.The Appellees-Vendors are hereby ordered to pay,
jointly and severally, to each of the Appellants the
amount of P100,000.00 by way of moral
damages, P20,000.00 by way of exemplary damages
and P20,000.00 by way of attorneys fees;
9.The counterclaims of the Appellees are dismissed.
With costs against the Appellees.
SO ORDERED.[10]
Unable to agree with the above decision of the respondent
appellate court, petitioners seek reversal thereof on the basis on
the following grounds:
1.The Unconsummated conditional Contract of Sale
in favor of the herein respondent VENDEES is
Inferior to and Cannot Prevail Over the
Consummated Absolute Contracts of Sale in favor of
the herein petitioners.
2.The Deeds of sale in favor of the herein Petitioners
as well as Transfer Certificate of Title No. 24791 in
their names are Perfectly Valid Documents.
3.The herein Petitioners may not be legally and
rightfully Ordered to Vacate the Litigated Property or
Pay Reasonable Compensation for the Occupancy
Thereof.
4.The herein Petitioners may not be Held Liable to
Pay the Costs.[11]
5.The Court of Appeals erred in holding that the
Deed of Conditional Sale is in reality an absolute
deed of sale.
6.The Court of Appeals erred in relying totally and
exclusively on the evidence presented by respondents
and in disregarding the evidence for petitioners.
7.The Court of Appeals erred in holding that herein
petitioners are guilty of bad faith and that Article
1544 of the Civil Code is applicable.[12]
The petition lacks merit.
The grounds relied upon by petitioners are essentially a
splitting of the various aspects of the one pivotal issue that
holds the key to the resolution of this controversy: the true
nature of the sale transaction entered into by the Kado siblings
with private respondents Faustino Yu and Antonio Lim. Our
task put simply, amounts to a declaration of what kind of
contract had been entered into by said parties and of what their
respective rights and obligations are thereunder.
It is not disputed that in August, 1987, Elena K. Palanca,
in behalf of the Kado siblings, commissioned Ester Bautista to
look for buyers for their property fronting the Imperial Hotel in
Cotabato City. Bautista logically offered said property to the
owners of the Imperial Hotel which may be expected to grab
the offer and take advantage of the proximity of the property to
the hotel site. True enough, private respondent Faustino Yu, the
President-General manager of the Imperial Hotel, agreed to buy
said property.
Thus during that same month of August, 1987, a
conference was held in the office of private respondent Yu at
the Imperial Hotel. Present there were private respondent Yu,
Loreto Adalin who was one of the tenants of the five-door, one-
storey building standing on the subject property, and Elena
Palanca and Teofilo Kado in their own behalf as sellers and in
behalf of the other tenants of said building. During the
conference, private respondents Yu and Lim categorically
asked Palanca whether the other tenants were interested to buy
the property, but Palanca also categorically answered that the
other tenants were not interested to buy the
same. Consequently, they agreed to meet at the house of
Palanca on September 2, 1987 to finalize the sale.
On September 2, 1987, Loreto Adalin; Yu and Lim and
their legal counsel; Palanca and Kado and their legal counsel;
and one other tenant, Magno Adalin, met at Palancas
house.Magno Adalin was there in his own behalf as tenant of
two of the five doors of the one-storey building standing on the
subject property and in behalf of the tenants of the two other
doors, namely Carlos Calingasan and Demetrio Adaya. Again,
private respondents Yu and Lim asked Palanca and Magno
Adalin whether the other tenants were interested to buy the
subject property, and Magno Adalin unequivocally answered
that he and the other tenants were not so interested mainly
because they could not afford it. However, Magno Adalin
asserted that he and the other tenants were each entitled to a
disturbance fee of P50,000.00 as consideration for their
vacating the subject property.
During said meeting, Palanca and Kado, as sellers, and
Loreto Adalin and private respondents Yu and Lim, as buyers,
agreed that the latter will pay P300,000.00 as downpayment for
the property and that as soon as the former secures the eviction
of the tenants, they will be paid the balance of P2,300,000.00.
Pursuant to the above terms and conditions, a Deed of
Conditional Sale was drafted by the counsel of private
respondents Yu and Lim. On September 8, 1987, at the
Imperial Hotel office of private respondent Yu, Palanca and
Eduarda Vargas, representing the sellers, and Loreto Adalin
and private respondents Yu and Lim signed the Deed of
Conditional Sale. They also agreed to defer the registration of
the deed until after the sellers have secured the eviction of the
tenants from the subject property.
The tenants, however, refused to vacate the subject
property. Being under obligation to secure the eviction of the
tenants, in accordance with the terms and conditions of the
Deed of Conditional Sale, Elena Palanca filed with the
Barangay Captain a letter complaint for unlawful detainer
against the said tenants.
Undisputedly, Palanca, in behalf of the Kado siblings who
had already committed to sell the property to private
respondents Yu and Lim and Loreto Adalin, understood her
obligation to eject the tenants on the subject property. Having
gone to the extent of filing an ejectment case before the
Barangay Captain, Palanca clearly showed an intelligent
appreciation of the nature of the transaction that she had
entered into: that she, in behalf of the Kado siblings, had
already sold the subject property to private respondents Yu and
Lim and Loreto Adalin, and that only the payment of the
balance of the purchase price was subject to the condition that
she would successfully secure the eviction of their tenants. In
the sense that the payment of the balance of the purchase price
was subject to a condition, the sale transaction was not yet
completed, and both sellers and buyers have their respective
obligations yet to be fulfilled: the former, the ejectment of their
tenants; and the latter, the payment of the balance of the
purchase price. In this sense, the Deed of Conditional Sale may
be an accurate denomination of the transaction.But the sale was
conditional only inasmuch as there remained yet to be fulfilled,
the obligation of the sellers to eject their tenants and the
obligation of the buyers to pay the balance of the purchase
price. The choice of who to sell the property to, however, had
already been made by the sellers and is thus no longer subject
to any condition nor open to any change. In that sense,
therefore, the sale made by Palanca to private respondents was
definitive and absolute.
Nothing in the acts of the sellers and buyers before,
during or after the said transaction justifies the radical change
of posture of Palanca who, in order to provide a legal basis for
her later acceptance of the tenants offer to buy the same
property, in effect claimed that the sale, being conditional, was
dependent on the sellers not changing their minds about selling
the property to private respondents Yu and Lim. The tenants,
for their part, defended Palancas subsequent dealing with them
by asserting their option rights under Palancas letter of
September 2, 1987 and harking on the non-fulfillment of the
condition that their ejectment be secured first.
Two days after Palanca filed an ejectment case before the
Barangay Captain against the tenants of the subject property,
Magno Adalin, Demetrio Adaya and Carlos Calingasan wrote
letters to Palanca informing the Kado siblings that they have
decided to purchase the doors that they were leasing for the
purchase price of P600,000.00 per door. Almost instantly,
Palanca, in behalf of the Kado siblings, accepted the offer of
the said tenants and returned the downpayments of private
respondents Yu and Lim. Of course, the latter refused to accept
the reimbursements.
Certainly, we cannot countenance the double dealing
perpetrated by Palanca in behalf of the Kado siblings. No
amount of legal rationalizing can sanction the arbitrary breach
of contract that Palanca committed in accepting the offer of
Magno Adalin, Adaya and Calingasan to purchase a property
already earlier sold to private respondents Yu and Lim.
Petitioners claim that they were given a 30-day option to
purchase the subject property as contained in the September 2,
1987 letter of Palanca. In the first place, such option is not
valid for utter lack of consideration.[13] Secondly, private
respondents twice asked Palanca and the tenants concerned as
to whether or not the latter were interested to buy the subject
property, and twice, too, the answer given to private
respondents was that the said tenants were not interested to buy
the subject property because they could not afford it. Clearly,
said tenants and Palanca, who represented the former in the
initial negotiations with private respondents, are estopped from
denying their earlier statement to the effect that the said tenants
Magno Adalin, Adaya and Calingasan had no intention of
buying the four doors that they were leasing from the Kado
siblings. More significantly, the subsequent sale of the subject
property by Palanca to the said tenants, smacks of gross bad
faith, considering that Palanca and the said tenants were in full
awareness of the August and September negotiations between
Bautista and Palanca, on the one hand, and Loreto Adalin,
Faustino Yu and Antonio Lim, on the other, for the sale of the
one-storey building. It cannot be denied, thus, that Palanca and
the said tenants entered into the subsequent or second sale
notwithstanding their full knowledge of the subsistence of the
earlier sale over the same property to private respondents Yu
and Lim. It goes without saying, thus, that though the second
sale to the said tenants was registered, such prior registration
cannot erase the gross bad faith that characterized such second
sale, and consequently, there is no legal basis to rule that such
second sale prevails over the first sale of the said property to
private respondents Yu and Lim.
We agree, thus, with the ruminations of the respondent
Court of Appeals that:
The Appellees-Vendors cannot invoke the refusal of
the Appellees-Vendees to vacate the property and the
latters decision to themselves purchase the property
as a valid justification to renege on and turn their
backs against their obligation to deliver or cause the
eviction of the Appellees-Vendees from and deliver
physical possession of the property to the
Appellants. For, if We gave our approbation to the
stance of the Appellees, then We would thereby be
sanctioning the performance by the Appellees-
Vendors of their obligations under the deed subject to
the will and caprices of the Appellees-Vendees,
which we cannot do x x x.
It would be the zenith of inequity for the Appellees-
Vendors to invoke the occupation by the Appellees-
Vendees, as of the property, as a justification to
ignore their obligation to have the Appellees-
Vendees evicted from the property and for them to
give P50,000.00 disturbance fee for each of the
Appellees-Vendees and a justification for the latter to
hold on to the possession of the property.
xxx
Assuming, gratia arguendi for the nonce, that there
had been no consummation of the Deed of
Conditional Sale x x x by reason of the non-delivery
to the Appellants of the property, it does not thereby
mean that the Deed of Sale of Registered Land x x x
executed by the Appellees should be given
preference. Apropos to this, We give our approbation
to the plaint of the Appellants that the Court a
quo erred in not applying the second and third
paragraphs of Article 1544 x x x.
For, the evidence in the record shows that, although
the Appellees-Vendees managed to cause the
registration of the Deed of Sale of Registered Land x
x x on October 27, 1988 and procure Transfer
 Certificate of Title No. 24791 under their names, on
said date, and that they were, as of said date, in
physical possession of the property, however, the
evidence in the record shows that the Appellees-
Vendees were in gross evident bad faith. At the time
the Appellees executed the Deed of Sale of
Registered Land in December 1987 x x x they were
aware that the Appellees-Vendors and the Appellants
had executed their Deed of Conditional Sale as early
as September 8, 1987. x x x In the light of the
foregoing, We arrive at the ineluctable conclusion
that preference must be accorded the deed of
Conditional Sale executed by the Appellants and the
Appellees-Vendors.[14]
WHEREFORE, the instant petition is HEREBY
DISMISSED.
Costs against petitioners.
SO ORDERED.
Davide, Jr., (Chairman), Vitug, and Kapunan, JJ., concur.
Bellosillo, J., No part. Was not present during
deliberation.
[G.R. No. 129760. December 29, 1998]
RICARDO CHENG, petitioner, vs. RAMON B. GENATO
and ERNESTO R. DA JOSE & SOCORRO B. DA
JOSE, respondents.
DECISION
MARTINEZ, J.:
This petition for review on certiorari seeks to annul and
set aside the Decision of the Court of Appeals (CA)[1] dated
July 7, 1997 in CA-G.R. No. CV No. 44706 entitled Ricardo
Cheng, plaintiff-appellee vs. Ramon B. Genato, defendant-
appellant, Ernesto R. Da Jose & Socorro B. Da Jose,
Intervenors-Appellants which reversed the ruling of the
Regional Trial Court, Branch 96 of Quezon City dated January
18, 1994. The dispositive portion of the CA Decision reads:
WHEREFORE, based on the foregoing, appealed decision is
hereby REVERSED and SET ASIDE and judgment is rendered
ordering;
1. The dismissal of the complaint;
2. The cancellation of the annotations of the defendant-
appellants Affidavit to Annul Contract to Sell and plaintiff-
appellees Notice of Adverse Claim in the subject TCTs,
namely, TCT No. T-76.196 (M) and TCT No. T-76.197 (M);
3. Payment by the intervenors-appellants of the remaining
balance of the purchase price pursuant to their agreement with
the defendant-appellant to suspend encashment of the three
post-dated checks issued since 1989.
4. Ordering the execution by the defendant-appellant Genato of
the Deed of Absolute Sale over the subject two lots covered by
TCT No. T-76.196 (M) and TCT No. T-76.197 (M) in favor of
intervenors-appellants Spouses Da Jose;
5. The return by defendant-appellant Genato of P50,000.00
paid to him by the plaintiff-appellee Cheng, and
6. Payment by plaintiff-appellee Cheng of moral damages to
herein intervenors-appellants Da Jose of P100,000.00,
exemplary damages of P50,000.00, attorneys fees
of P50,000.00, and costs of suit; and to defendant-appellant,
of P100,000.00 in exemplary damages, P50,000.00 in attorneys
fees. The amounts payable to the defendant-appellant may be
compensated by plaintiff-appellee with the amount ordered
under the immediately foregoing paragraph which defendant-
appellant has to pay the plaintiff-appellee.
SO ORDERED.[2]
The antecedents of the case are as follows:
Respondent Ramon B. Genato(Genato) is the owner of
two parcels of land located at Paradise Farms, San Jose Del
Monte, Bulacan covered by TCT No. T-76.196 (M)[3] and TCT
No. T-76.197 (M)[4]with an aggregate area of 35,821 square
meters, more or less.
On September 6, 1989, respondent Genato entered into an
agreement with respondent-spouses Ernesto R. Da Jose and
Socorro B. Da Jose (Da Jose spouses) over the above-
mentioned two parcels of land.The agreement culminated in the
execution of a contract to sell for which the purchase price
was P80.00 per square meter. The contract was in a public
instrument and was duly annotated at the back of the two
certificates of title on the same day. Clauses 1 and 3 thereof
provide:
'1. That the purchase price shall be EIGHTY (P80.00) PESOS,
Philippine Currency per square meter, of which the amount of
FIFTY THOUSAND (P50,000.00) Pesos shall be paid by the
VENDEE to the VENDOR as partial down payment at the time
of execution of this Contract to Sell.
xxx xxx xxx
'3. That the VENDEE, thirty (30) DAYS after the execution of
this contract, and only after having satisfactorily verified and
confirmed the truth and authenticity of documents, and that no
restrictions, limitations, and developments imposed on and/or
affecting the property subject of this contract shall be
detrimental to his interest, the VENDEE shall pay to the
VENDOR, NINE HUNDRED FIFTY THOUSAND
(P950,000.00) PESOS, Philippine Currency, representing the
full payment of the agreed Down Payment, after which
complete possession of the property shall be given to the
VENDEE to enable him to prepare the premises and any
development therein.[5]
On October 4, 1989, the Da Jose spouses, not having
finished verifying the titles mentioned in clause 3 as
aforequoted, asked for and was granted by respondent Genato
an extension of another 30 days or until November 5,
1989. However, according to Genato, the extension was
granted on condition that a new set of documents is made seven
(7) days from October 4, 1989.[6] This was denied by the Da
Jose spouses.
Pending the effectivity of the aforesaid extension period,
and without due notice to the Da Jose spouses, Genato
executed an Affidavit to Annul the Contract to Sell,[7] on
October 13, 1989. Moreover, no annotation of the said affidavit
at the back of his titles was made right away. The affidavit
contained, inter alia, the following paragraphs;
xxx xxx xxx
That it was agreed between the parties that the agreed
downpayment of P950,000.00 shall be paid thirty (30) days
after the execution of the Contract, that is on or before October
6, 1989;
The supposed VENDEES failed to pay the said full
downpayment even up to this writing, a breach of contract.
That this affidavit is being executed to Annul the aforesaid
Contract to Sell for the vendee having committed a breach of
contract for not having complied with the obligation as
provided in the Contract to Sell;[8]
On October 24, 1989, herein petitioner Ricardo Cheng
(Cheng) went to Genatos residence and expressed interest in
buying the subject properties. On that occasion, Genato showed
to Ricardo Cheng copies of his transfer certificates of title and
the annotations at the back thereof of his contract to sell with
the Da Jose spouses. Genato also showed him the
aforementioned Affidavit to Annul the Contract to Sell which
has not been annotated at the back of the titles.
Despite these, Cheng went ahead and issued a check
for P50,000.00 upon the assurance by Genato that the previous
contract with the Da Jose spouses will be annulled for which
Genato issued a handwritten receipt (Exh. D), written in this
wise.
10/24/89
Received from Ricardo Cheng
the Sum of Fifty Thousand Only (P50,000 -)
as partial for T-76196 (M)
T-76197 (M) area 35,821 Sq.m.
Paradise Farm, Gaya-Gaya, San Jose Del Monte
P70/m2 Bulacan
Plus C.G.T. etc
(SGD) Ramon B. Genato
Check # 470393
10/24/89[9]
On October 25, 1989, Genato deposited Chengs check.
On the same day, Cheng called up Genato reminding him to
register the affidavit to annul the contract to sell.[10]
The following day, or on October 26, 1989, acting on
Chengs request, Genato caused the registration of the Affidavit
to Annul the Contract to Sell in the Registry of Deeds,
Meycauayan, Bulacan as primary entry No. 262702. [11]
While the Da Jose spouses were at the Office of the
Registry of Deeds of Meycauaya, Bulacan on October 27,
1989, they met Genato by coincidence. It was only then that the
Da Jose spouses discovered about the affidavit to annul their
contract. The latter were shocked at the disclosure and
protested against the rescission of their contract. After being
reminded that he (Genato) had given them (Da Jose spouses) an
additional 30-day period to finish their verification of his titles,
that the period was still in effect, and that they were willing and
able to pay the balance of the agreed down payment, later on in
the day, Genato decided to continue the Contract he had with
them. The agreement to continue with their contract was
formalized in a conforme letter dated October 27, 1989.
Thereafter, Ramon Genato advised Ricardo Cheng of his
decision to continue his contract with the Da Jose spouses and
the return of Chengs P50,000.00 check. Consequently, on
October 30, 1989, Chengs lawyer sent a letter[12] to Genato
demanding compliance with their agreement to sell the
property to him stating that the contract to sell between him
and Genato was already perfected and threatening legal action.
On November 2, 1989, Genato sent a letter[13] to Cheng
(Exh. 6) enclosing a BPI Cashiers Check for P50,000.00 and
expressed regret for his inability to consummate his transaction
with him. After having received the letter of Genato on
November 4, 1989, Cheng, however, returned the said check to
the former via RCPI telegram[14] dated November 6, 1989,
reiterating that our contract to sell your property had already
been perfected.
Meanwhile, also on November 2, 1989, Cheng executed
an affidavit of adverse claim[15] and had it annotated on the
subject TCTs.
On the same day, consistent with the decision of Genato
and the Da Jose spouses to continue with their Contract to Sell
of September 6, 1989, the Da Jose spouses paid Genato the
complete down payment of P950,000.00 and delivered to him
three (3) postdated checks (all dated May 6, 1990, the
stipulated due date) in the total amount of P1,865,680.00 to
cover full payment of the balance of the agreed purchase
price. However, due to the filing of the pendency of this case,
the three (3) postdated checks have not been encashed.
On December 8, 1989, Cheng instituted a complaint[16] for
specific performance to compel Genato to execute a deed of
sale to him of the subject properties plus damages and prayer
for preliminary attachment. In his complaint, Cheng averred
that the P50,000.00 check he gave was a partial payment to the
total agreed purchase price of the subject properties and
considered as an earnest money for which Genato
acceded. Thus, their contract was already perfected.
In Answer[17] thereto, Genato alleged that the agreement
was only a simple receipt of an option-bid deposit, and never
stated that it was a partial payment, nor is it an earnest money
and that it was subject to the condition that the prior contract
with the Da Jose spouses be first cancelled.
The Da Jose spouses, in their Answer in
Intervention,[18] asserted that they have a superior right to the
property as first buyers. They alleged that the unilateral
cancellation of the Contract to Sell was without effect and
void. They also cited Chengs bad faith as a buyer being duly
informed by Genato of the existing annotated Contract to Sell
on the titles.
After trial on the merits, the lower court ruled that the
receipt issued by Genato to Cheng unerringly meant a sale and
not just a priority or an option to buy. It cannot be true that the
transaction was subjected to some condition or reservation, like
the priority in favor of the Da Jose spouses as first buyer
because, if it were otherwise, the receipt would have provided
such material condition or reservation, especially as it was
Genato himself who had made the receipt in his own hand. It
also opined that there was a valid rescission of the Contract to
Sell by virtue of the Affidavit to Annul the Contract to
Sell.Time was of the essence in the execution of the agreement
between Genato and Cheng, under this circumstance demand,
extrajudicial or judicial, is not necessary. It falls under the
exception to the rule provided in Article 1169[19] of the Civil
Code. The right of Genato to unilaterally rescind the contract is
said to be under Article 1191[20] of the Civil
Code. Additionally, after reference was made to the substance
of the agreement between Genato and the Da Jose spouses, the
lower court also concluded that Cheng should be preferred over
the intervenors-Da Jose spouses in the purchase of the subject
properties. Thus, on January 18, 1994 the trial court rendered
its decision the decretal portion of which reads:
WHEREFORE, judgment is hereby rendered:
1. Declaring the contract to sell dated September 6, 1989
executed between defendant Ramon Genato, as vendor, and
intervenors Spouses Ernesto and Socorro Da Jose, as vendees,
resolved and rescinded in accordance with Art. 1191, Civil
Code, by virtue of defendants affidavit to annul contract to sell
dated October 13, 1989 and as the consequence of intervenors
failure to execute within seven (7) days from October 4, 1989
another contract to sell pursuant to their mutual agreement with
the defendant;
2. Ordering defendant to return to the intervenors the sum
of P1,000,000.00, plus interest at the legal rate from November
2, 1989 until full payment;
3. Directing defendant to return to the intervenors the three (3)
postdated checks immediately upon finality of this judgment;
4. Commanding defendant to execute with and in favor of the
plaintiff Ricardo Cheng, as vendee, a deed of conveyance and
sale of the real properties described and covered in Transfer
Certificates of Title No. T-76-196 (M) and T-76.197 (M) of the
Registry of Deeds of Bulacan, Meycauyan Branch, at the rate
of P70.00/sqaure meter, less the amount of P50,000.00 already
paid to defendant, which is considered as part of the purchase
price, with the plaintiff being liable for payment of the capital
gains taxes and other expenses of the transfer pursuant to the
agreement to sell dated October 24, 1989; and
5. Ordering defendant to pay the plaintiff and the intervenors as
follows:
a/ P50,000.00, as nominal damages, to plaintiff;
b/ P50,000.00, as nominal damages, to intervenors;
c/ P20,000.00, as and for attorneys fees, to plaintiff;
d/ P20,000.00, as and for attorneys fees, to intervenors; and
e/ Cost of the suit.
xxx xxx xxx
Not satisfied with the aforesaid decision, herein
respondents Ramon Genato and Da Jose spouses appealed to
the court a quo which reversed such judgment and ruled that
the prior contract to sell in favor of the Da Jose spouses was
not validly rescinded, that the subsequent contract to sell
between Genato and Cheng, embodied in the handwritten
receipt, was without force and effect due to the failure to
rescind the prior contract; and that Cheng should pay damages
to the respondents herein being found to be in bad faith.
Hence this petition.[21]
This petition for review, assails the Court of Appeals
Decision on the following grounds: (1) that the Da Jose spouses
Contract to Sell has been validly rescinded or resolved; (2) that
Ricardo Chengs own contract with Genato was not just a
contract to sell but one of conditional contract of sale which
gave him better rights, thus precluding the application of the
rule on double sales under Article 1544, Civil Code; and (3)
that, in any case, it was error to hold him liable for damages.
The petition must be denied for failure to show that the
Court of Appeals committed a reversible error which would
warrant a contrary ruling.
No reversible error can be ascribed to the ruling of the
Court of Appeals that there was no valid and effective
rescission of resolution of the Da Jose spouses Contract to Sell,
contrary to petitioners contentions and the trial courts
erroneous ruling.
In a Contract to Sell, the payment of the purchase price is
a positive suspensive condition, the failure of which is not a
breach, casual or serious, but a situation that prevents the
obligation of the vendor to convey title from acquiring an
obligatory force.[22] It is one where the happening of the event
gives rise to an obligation. Thus, for its non-fulfillment there
will be no contract to speak of, the obligor having failed to
perform the suspensive condition which enforces a juridical
relation. In fact with this circumstance, there can be no
rescission of an obligation that is still non-existent, the
suspensive condition not having occurred as yet.[23] Emphasis
should be made that the breach contemplated in Article 1191 of
the New Civil Code is the obligors failure to comply with an
obligation already extant, not a failure of a condition to render
binding that obligation.[24]
Obviously, the foregoing jurisprudence cannot be made to
apply to the situation in the instant case because no default can
be ascribed to the Da Jose spouses since the 30-day extension
period has not yet expired. The Da Jose spouses contention that
no further condition was agreed when they were granted the
30-days extension period from October 7, 1989 in connection
with clause 3 of their contract to sell dated September 6, 1989
should be upheld for the following reason, to wit; firstly, If this
were not true, Genato could not have been persuaded to
continue his contract with them and later on agree to accept the
full settlement of the purchase price knowing fully well that he
himself imposed such sine qua non condition in order for the
extension to be valid; secondly, Genato could have
immediately annotated his affidavit to annul the contract to sell
on his title when it was executed on October 13, 1989 and not
only on October 26, 1989 after Cheng reminded him of the
annotation; thirdly, Genato could have sent at least a notice of
such fact, there being no stipulation authorizing him for
automatic rescission, so as to finally clear the encumbrance of
his titles and make it available to other would be buyers. It
likewise settles the holding of the trial court that Genato needed
money urgently.
Even assuming in gratia argumenti that the Da Jose
spouses defaulted, as claimed by Genato, in their Contract to
Sell, the execution by Genato of the affidavit to annul the
contract is not even called for.For with or without the aforesaid
affidavit their non-payment to complete the full downpayment
of the purchase price ipso facto avoids their contract to sell, it
being subjected to a suspensive condition. When a contract is
subject to a suspensive condition, its birth or effectivity can
take place only if and when the event which constitutes the
condition happens or is fulfilled.[25] If the suspensive condition
does not take place, the parties would stand as if the conditional
obligation had never existed.[26]
Nevertheless, this being so Genato is not relieved from
the giving of a notice, verbal or written, to the Da Jose spouses
for decision to rescind their contract. In many cases,[27] even
though we upheld the validity of a stipulation in a contract to
sell authorizing automatic rescission for a violation of its terms
and conditions, at least a written notice must be sent to the
defaulter informing him of the same. The act of a party in
treating a contract as cancelled should be made known to the
other.[28] For such act is always provisional. It is always subject
to scrutiny and review by the courts in case the alleged
defaulter brings the matter to the proper courts. In University of
the Philippines vs. De Los Angeles,[29] this Court stressed and
we quote:
In other words, the party who deems the contract violated may
consider it resolved or rescinded, and act accordingly, without
previous court action, but it proceeds at its own risk. For it is
only the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or
was not correct in law. But the law definitely does not require
that the contracting party who believes itself injured must first
file suit and wait for a judgment before taking extajudicial steps
to protect its interest. Otherwise, the party injured by the others
breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the final
judgment of rescission is rendered when the law itself requires
that he should exercise due diligence to minimize its own
damages (Civil Code, Article 2203).
This rule validates, both in equity and justice, contracts
such as the one at bat, in order to avoid and prevent the
defaulting party from assuming the offer as still in effect due to
the obligees tolerance for such non-fulfillment. Resultantly,
litigations of this sort shall be prevented and the relations
among would-be parties may be preserved. Thus, Ricardo
Chengs contention that the Contract to Sell between Genato
and the Da Jose spouses was rescinded or resolved due to
Genatos unilateral rescission finds no support in this case.
Anent the issue on the nature of the agreement between
Cheng and Genato, the records of this case are replete with
admissions[30] that Cheng believed it to be one of a Contract to
Sell and not one of Conditionl Contract of Sale which he, in a
transparent turn-around, now pleads in this Petition. This
ambivalent stance of Cheng is even noted by the appellate
court, thus:
At the outset, this Court notes that plaintiff-appellee was
inconsistent in characterizing the contract he allegedly entered
into. In his complaint,[31] Cheng alleged that the P50,000.00
down payment was earnest money. And next, his
testimony[32] was offered to prove that the transaction between
him and Genato on October 24, 1989 was actually a perfected
contract to sell.[33]
Settled is the rule that an issue which was not raised
during the trial in the court below cannot be raised for the first
time on appeal.[34] Issues of fact and arguments not adequately
brought to the attention of the trial court need not be and
ordinarily will not be considered by a reviewing court as they
cannot be raised for the first time on appeal.[35] In fact, both
courts below correctly held that the receipt which was the result
of their agreement, is a contract to sell. This was, in fact
Chengs contention in his pleadings before said courts. This
patent twist only operates against Chengs posture which is
indicative of the weakness of his claim.
But even if we are to assume that the receipt, Exh. D, is to
be treated as a conditional contract of sale, it did not acquire
any obligatory force since it was subject to suspensive
condition that the earlier contract to sell between Genato and
the Da Jose spouses should first be cancelled or rescinded a
condition never met, as Genato, to his credit, upon realizing his
error, redeemed himself by respecting and maintaining his
earlier contract with the Da Jose spouses. In fact a careful
reading of the receipt, Exh. D, alone would not even show that
a conditional contract of sale has been entered by Genato and
Cheng.When the requisites of a valid contract of sale are
lacking in said receipt, therefore the sale is neither valid or
enforceable.[36]
To support his now new theory that the transaction was a
conditional contract of sale, petitioner invokes the case
of Coronel vs. Court of Appeals[37] as the law that should
govern their Petition. We do not agree. Apparently, the factual
milieu in Coronel is not on all fours with those in the case at
bar.
In Coronel, this Court found that the petitioners therein
clearly intended to transfer title to the buyer which petitioner
themselves admitted in their pleading. The agreement of the
parties therein was definitively outline in the Receipt of Down
Payment both as to property, the purchase price, the delivery of
the seller of the property and the manner of the transfer of title
subject to the specific condition that upon the transfer in their
names of the subject property the Coronels will execute the
deed of absolute sale.
Whereas, in the instant case, even by a careful perusal of
the receipt, Exh. D, alone such kind of circumstances cannot be
ascertained without however resorting to the exceptions of the
Rule on Parol Evidence.
To our mind, the trial court and the appellate court
correctly held that the agreement between Genato and Cheng is
a contract to sell, which was, in fact, petitioner connection in
his pleadings before the said courts. Consequently, both to
mind, which read:
Article 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 possession; and in the
absence thereof, to the person who presents the oldest title,
provided there is good faith
However, a meticulous reading of the aforequoted
provision shows that said law is not apropos to the instant
case. This provision connotes that the following circumstances
must concur:
(a) The two (or more) sales transactions in the issue must
pertain to exactly the same subject matter, and must be valid
sales transactions.
(b) The two (or more) buyers at odds over the rightful
ownership of the subject matter must each represent conflicting
interests; and
(c) The two (or more) buyers at odds over the rightful
ownership of the subject matter must each have bought from
the very same seller.
These situations obviously are lacking in a contract to sell
for neither a transfer of ownership nor a sales transaction has
been consummated. The contract to be binding upon the
obligee or the vendor depends upon the fulfillment or non-
fulfillment of an event.
Notwithstanding this contrary finding with the appellate
court, we are of the view that the governing principle of
Article 1544, Civil Code, should apply in this
situation. Jurisprudence[38] teaches us that the governing
principle is PRIMUS TEMPORE, PORTIOR JURE (first in
time, stronger in right). For not only was the contract between
herein respondents first in time; it was also registered long
before petitioners intrusion as a second buyer. This principle
only applies when the special rules provided in the aforcited
article of Civil Code do not apply or fit the specific
circumstances mandated under said law or by jurisprudence
interpreting the article.
The rule exacted by Article 1544 of the Civil Code for the
second buyer to be able to displace the first buyer are:
(1) that the second buyer must show that he acted in good
faith (i.e. in ignorance of the first sale and of the first buyers
rights) from the time of acquisition until title is transferred to
him by registration or failing registration, by delivery of
possession;[39]
(2) the second buyer must show continuing good faith and
innocence or lack of knowledge of the first sale until his
contract ripens into full ownership through prior registration as
provided by law.[40]
Thus, in the case at bar, the knowledge gained by the Da
Jose spouses, as first buyers, of the new agreement between
Cheng and Genato will not defeat their rights as first buyers
except where Cheng, as second buyer, registers or annotates his
transaction or agreement on the title of the subject properties in
good faith ahead of the Da Jose spouses. Moreover, although
the Da Jose spouses, as first buyers, knew of the second
transaction it will not bar them from availing of their rights
granted by law, among them, to register first their agreement as
against the second buyer.
In contrast, knowledge gained by Cheng of the first
transaction between the Da Jose spouses and Genato defeats his
rights even if he is first to register the second transaction, since
such knowledge taints his prior registration with bad faith.
Registration, as defined by Soler and Castillo, means any
entry made in the books of the registry, including both
registration in its ordinary and strict sense and
cancellation, annotation, and even marginal notes.[41] In its
strict acceptation, it is the entry made in the registry which
records solemnly and permanently the right of ownership and
other real rights.[42] We have ruled[43] before that when a Deed
of Sale is inscribed in the registry of property on the original
document itself, what was done with respect to said entries or
annotations and marginal notes amounted to a registration of
the sale. In this light, we see no reason why we should not give
priority in right the annotation made by the Da Jose spouses
with respect to their Contract to Sell dated September 6, 1989.
Moreover, registration alone in such cases without good
faith is not sufficient. Good faith must concur with registration
for such prior right to be enforceable. In the instant case, the
annotation made by the Da Jose spouses on the titles of Genato
of their Contract to Sell more than satisfies this
requirement. Whereas in the case of Genatos agreement with
Cheng such is unavailing. For even before the receipt, Exh. D,
was issued to Cheng information of such pre-existing
agreement has been brought to his knowledge which did not
deter him from pursuing his agreement with Genato. We give
credence to the factual finding of the appellate court that Cheng
himself admitted that it was he who sought Genato in order to
inquire about the property and offered to buy the same. [44] And
since Cheng was fully aware, or could have been if he had
chosen to inquire, of the rights of the Da Jose spouses under the
Contract to Sell duly annotated on the transfer certificates of
titles of Genato, it now becomes unnecessary to further
elaborate in detail the fact that he is indeed in bad faith in
entering into such agreement. As we have held in Leung Yee
vs. F.L. Strong Machinery Co.:[45]
One who purchases real estate with knowledge of a defect x x x
of title in his vendor cannot claim that he has acquired title
thereto in good faith as against x x x x an interest therein; and
the same rule must be applied to one who has knowledge of
facts which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with the
defects in the title of his vendor. A purchaser cannot close his
eyes to facts which should put a reasonable man upon his
guard, and then claim that he acted in good faith under the
belief that there was no defect in the title of the vendor. His
mere refusal to believe that such defect exists, or his willful
closing of his eyes to the possibility of the existence of a defect
in his vendors title, will not make him an innocent purchaser
for value, if it afterwards develops that the title was in fact
defective, and it appears that he had such notice of the defect as
would have led to its discovery had he acted with that measure
of precaution which may reasonably be required of a prudent
man in a like situation. Good faith, or lack of it, is in its last
analysis a question of intention; but in ascertaining the
intention by which one is actuated on a given occasion, we are
necessarily controlled by the evidence as to the conduct and
outward acts by which alone the inward motive may, with
safety, be determined. So it is that the honesty of intention, the
honest lawful intent, which constitutes good faith implies a
freedom from knowledge and circumstances which ought to put
a person on inquiry, and so it is that proof of such knowledge
overcomes the presumption of good faith in which the courts
always indulge in the absence of the proof to the
contrary. Good faith, or the want of it, is not a visible, tangible
fact that can be seen or touched, but rather a state or condition
of mind which can only be judge of by actual or fancied tokens
or signs. (Wilder vs. Gilman, 55 Vt. 504, 505; Cf. Cardenas vs.
Miller, 108 Cal., 250; Breaux-Renoudet, Cypress Lumber Co.
vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs.
Bromely, 119 Mich., 8, 10, 17.) Emphasis ours

Damages were awarded by the appellate court on the

basis of its finding that petitioner was in bad faith when he filed
the suit for specific performance knowing fully well that his
agreement with Genato did not push through.[46] Such bad faith,
coupled with his wrongful interference with the contractual
relations between Genato and the Da Jose spouses, which
culminated in his filing of the present suit and thereby creating
what the counsel for the respondents describes as a prolonged
and economically unhealthy gridlock[47] on both the land itself
and the respondents rights provides ample basis for the
damages awarded. Based on these overwhelming evidence of
bad faith on the part of herein petitioner Ricardo Cheng, we
find that the award of damages made by the appellate court is
in order.
WHEREFORE, premises considered, the instant petition
for review is DENIED and the assailed decision is hereby
AFFIRMED EN TOTO.
SO ORDERED.
Bellosillo (Chairman), Puno, and Mendoza, JJ., concur.
[G.R. No. 132161. January 17, 2005]
CONSOLIDATED RURAL BANK (CAGAYAN
VALLEY), INC., petitioner, vs. THE
HONORABLE COURT OF APPEALS and
HEIRS OF TEODORO DELA CRUZ, respondents.
DECISION
TINGA, J.:
Petitioner Consolidated Rural Bank, Inc. of Cagayan
Valley filed the instant Petition for Certiorari[1] under Rule 45
of the Revised Rules of Court, seeking the review of
the Decision[2] of the Court of Appeals Twelfth Division in
CA-G.R. CV No. 33662, promulgated on 27 May 1997, which
reversed the judgment[3] of the lower court in favor of
petitioner; and the Resolution[4]of the Court of Appeals,
promulgated on 5 January 1998, which reiterated its Decision
insofar as respondents Heirs of Teodoro dela Cruz (the Heirs)
are concerned.
From the record, the following are the established facts:
Rizal, Anselmo, Gregorio, Filomeno and Domingo, all
surnamed Madrid (hereafter the Madrid brothers), were the
registered owners of Lot No. 7036-A of plan Psd-10188,
Cadastral Survey 211, situated in San Mateo, Isabela per
Transfer Certificate of Title (TCT) No. T-8121 issued by the
Register of Deeds of Isabela in September 1956. [5]
On 23 and 24 October 1956, Lot No. 7036-A was
subdivided into several lots under subdivision plan Psd- 50390.
One of the resulting subdivision lots was Lot No. 7036-A-7
with an area of Five Thousand Nine Hundred Fifty-Eight
(5,958) square meters.[6]
On 15 August 1957, Rizal Madrid sold part of his share
identified as Lot No. 7036-A-7, to Aleja Gamiao (hereafter
Gamiao) and Felisa Dayag (hereafter, Dayag) by virtue of
a Deed of Sale,[7] to which his brothers Anselmo, Gregorio,
Filomeno and Domingo offered no objection as evidenced by
their Joint Affidavit dated 14 August 1957.[8] The deed of sale
was not registered with the Office of the Register of Deeds of
Isabela. However, Gamiao and Dayag declared the property for
taxation purposes in their names on March 1964 under Tax
Declaration No. 7981.[9]
On 28 May 1964, Gamiao and Dayag sold the southern
half of Lot No. 7036-A-7, denominated as Lot No. 7036-A-7-
B, to Teodoro dela Cruz,[10] and the northern half, identified as
Lot No. 7036-A-7-A,[11] to Restituto Hernandez.[12] Thereupon,
Teodoro dela Cruz and Restituto Hernandez took possession of
and cultivated the portions of the property respectively sold to
them.[13]
Later, on 28 December 1986, Restituto Hernandez
donated the northern half to his daughter, Evangeline
Hernandez-del Rosario.[14] The children of Teodoro dela Cruz
continued possession of the southern half after their fathers
death on 7 June 1970.
In a Deed of Sale[15] dated 15 June 1976, the Madrid
brothers conveyed all their rights and interests over Lot No.
7036-A-7 to Pacifico Marquez (hereafter, Marquez), which the
former confirmed[16] on 28 February 1983.[17] The deed of sale
was registered with the Office of the Register of Deeds of
Isabela on 2 March 1982.[18]
Subsequently, Marquez subdivided Lot No. 7036-A-7 into
eight (8) lots, namely: Lot Nos. 7036-A-7-A to 7036-A-7-H,
for which TCT Nos. T-149375 to T-149382 were issued to him
on 29 March 1984.[19] On the same date, Marquez and his
spouse, Mercedita Mariana, mortgaged Lots Nos. 7036-A-7-A
to 7036-A-7-D to the Consolidated Rural Bank, Inc. of
Cagayan Valley (hereafter, CRB) to secure a loan of One
Hundred Thousand Pesos (P100,000.00).[20] These deeds of real
estate mortgage were registered with the Office of the Register
of Deeds on 2 April 1984.
On 6 February 1985, Marquez mortgaged Lot No. 7036-
A-7-E likewise to the Rural Bank of Cauayan (RBC) to secure
a loan of Ten Thousand Pesos (P10,000.00).[21]
As Marquez defaulted in the payment of his loan, CRB
caused the foreclosure of the mortgages in its favor and the lots
were sold to it as the highest bidder on 25 April 1986. [22]
On 31 October 1985, Marquez sold Lot No. 7036-A-7-G
to Romeo Calixto (Calixto).[23]
Claiming to be null and void the issuance of TCT Nos. T-
149375 to T-149382; the foreclosure sale of Lot Nos. 7036-A-
7-A to 7036-A-7-D; the mortgage to RBC; and the sale to
Calixto, the Heirs-now respondents herein-represented by
Edronel dela Cruz, filed a case[24] for reconveyance and
damages the southern portion of Lot No. 7036-A (hereafter, the
subject property) against Marquez, Calixto, RBC and CRB in
December 1986.
Evangeline del Rosario, the successor-in-interest of
Restituto Hernandez, filed with leave of court a Complaint in
Intervention[25] wherein she claimed the northern portion of Lot
No. 7036-A-7.
In the Answer to the Amended Complaint,[26] Marquez, as
defendant, alleged that apart from being the first registrant, he
was a buyer in good faith and for value. He also argued that the
sale executed by Rizal Madrid to Gamiao and Dayag was not
binding upon him, it being unregistered. For his part, Calixto
manifested that he had no interest in the subject property as he
ceased to be the owner thereof, the same having been
reacquired by defendant Marquez.[27]
CRB, as defendant, and co-defendant RBC insisted that
they were mortgagees in good faith and that they had the right
to rely on the titles of Marquez which were free from any lien
or encumbrance.[28]
After trial, the Regional Trial Court, Branch 19 of
Cauayan, Isabela (hereafter, RTC) handed down a decision in
favor of the defendants, disposing as follows:
WHEREFORE, in view of the foregoing considerations,
judgment is hereby rendered:
1. Dismissing the amended complaint and the complaint in
intervention;
2. Declaring Pacifico V. Marquez the lawful owner of Lots
7036-A-7 now Lots 7036-A-7-A to 7036-A-7-H, inclusive,
covered by TCT Nos. T-149375 to T-149382, inclusive;
3. Declaring the mortgage of Lots 7036-A-7-A, 7036-A-7-B,
7036-A-7-C and 7036-A-7-D in favor of the defendant
Consolidated Rural Bank (Cagayan Valley) and of Lot 7036-A-
7-E in favor of defendant Rural Bank of Cauayan by Pacifico
V. Marquez valid;
4. Dismissing the counterclaim of Pacifico V. Marquez; and
5. Declaring the Heirs of Teodoro dela Cruz the lawful owners
of the lots covered by TCT Nos. T-33119, T-33220 and T-
7583.
No pronouncement as to costs.
SO ORDERED.[29]
In support of its decision, the RTC made the following
findings:
With respect to issues numbers 1-3, the Court therefore holds
that the sale of Lot 7036-A-7 made by Rizal Madrid to Aleja
Gamiao and Felisa Dayag and the subsequent conveyances to
the plaintiffs and intervenors are all valid and the Madrid
brothers are bound by said contracts by virtue of the
confirmation made by them on August 14, 1957 (Exh. B).
Are the defendants Pacifico V. Marquez and Romeo B. Calixto
buyers in good faith and for value of Lot 7036-A-7?
It must be borne in mind that good faith is always presumed
and he who imputes bad faith has the burden of proving the
same (Art. 527, Civil Code). The Court has carefully
scrutinized the evidence presented but finds nothing to show
that Marquez was aware of the plaintiffs and intervenors claim
of ownership over this lot. TCT No. T-8121 covering said
property, before the issuance of Marquez title, reveals nothing
about the plaintiffs and intervenors right thereto for it is an
admitted fact that the conveyances in their favor are not
registered.
The Court is therefore confronted with two sales over the same
property. Article 1544 of the Civil Code provides:
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. x x x (Underscoring supplied).
From the foregoing provisions and in the absence of proof that
Marquez has actual or constructive knowledge of plaintiffs and
intervenors claim, the Court has to rule that as the vendee who
first registered his sale, Marquez ownership over Lot 7036-A-7
must be upheld.[30]
The Heirs interposed an appeal with the Court of Appeals.
In their Appellants Brief,[31] they ascribed the following errors
to the RTC: (1) it erred in finding that Marquez was a buyer in
good faith; (2) it erred in validating the mortgage of the
properties to RBC and CRB; and (3) it erred in not reconveying
Lot No. 7036-A-7-B to them.[32]
Intervenor Evangeline del Rosario filed a separate appeal
with the Court of Appeals. It was, however, dismissed in
a Resolution dated 20 September 1993 for her failure to pay
docket fees. Thus, she lost her standing as an appellant.[33]
On 27 May 1997, the Court of Appeals rendered its
assailed Decision[34] reversing the RTCs judgment. The
dispositive portion reads:
WHEREFORE, the decision appealed from is hereby
REVERSED and SET ASIDE. Accordingly, judgment is
hereby rendered as follows:
1. Declaring the heirs of Teodoro dela Cruz the lawful owners
of the southern half portion and Evangeline Hernandez-del
Rosario the northern half portion of Lot No. 7036-A-7, now
covered by TCT Nos. T-149375 to T-149382, inclusive;
2. Declaring null and void the deed of sale dated June 15, 1976
between Pacifico V. Marquez and the Madrid brothers covering
said Lot 7036-A-7;
3. Declaring null and void the mortgage made by defendant
Pacifico V. Marquez of Lot Nos. 7036-A-7-A, 7036-A-7-B,
7036-A-7-C and 7036-A-7-D in favor of the defendant
Consolidated Rural Bank and of Lot 7036-A-7-E in favor of
defendant Rural Bank of Cauayan; and
4. Ordering Pacifico V. Marquez to reconvey Lot 7036-A-7 to
the heirs of Teodoro dela Cruz and Evangeline Hernandez-del
Rosario.
No pronouncement as to costs.
SO ORDERED.[35]
In upholding the claim of the Heirs, the Court of Appeals
held that Marquez failed to prove that he was a purchaser in
good faith and for value. It noted that while Marquez was the
first registrant, there was no showing that the registration of the
deed of sale in his favor was coupled with good faith. Marquez
admitted having knowledge that the subject property was being
taken by the Heirs at the time of the sale.[36] The Heirs were
also in possession of the land at the time. According to the
Decision, these circumstances along with the subject propertys
attractive locationit was situated along the National Highway
and was across a gasoline stationshould have put Marquez on
inquiry as to its status. Instead, Marquez closed his eyes to
these matters and failed to exercise the ordinary care expected
of a buyer of real estate.[37]
Anent the mortgagees RBC and CRB, the Court of
Appeals found that they merely relied on the certificates of title
of the mortgaged properties. They did not ascertain the status
and condition thereof according to standard banking practice.
For failure to observe the ordinary banking procedure, the
Court of Appeals considered them to have acted in bad faith
and on that basis declared null and void the mortgages made by
Marquez in their favor.[38]
Dissatisfied, CRB filed a Motion for
Reconsideration[39] pointing out, among others, that the
Decision promulgated on 27 May 1997 failed to establish good
faith on the part of the Heirs. Absent proof of possession in
good faith, CRB avers, the Heirs cannot claim ownership over
the subject property.
In a Resolution[40] dated 5 January 1998, the Court of
Appeals stressed its disbelief in CRBs allegation that it did not
merely rely on the certificates of title of the properties and that
it conducted credit investigation and standard ocular inspection.
But recalling that intervenor Evangeline del Rosario had lost
her standing as an appellant, the Court of Appeals accordingly
modified its previous Decision, as follows:
WHEREFORE, the decision dated May 27, 1997, is hereby
MODIFIED to read as follows:
WHEREFORE, the decision appealed from is hereby
REVERSED and SET ASIDE insofar as plaintiffs-appellants
are concerned. Accordingly, judgment is hereby rendered as
follows:
1. Declaring the Heirs of Teodoro dela Cruz the lawful owners
of the southern half portion of Lot No. 7036-A-7;
2. Declaring null and void the deed of sale dated June 15, 1976
between Pacifico V. Marquez and the Madrid brothers insofar
as the southern half portion of Lot NO. (sic) 7036-A-7 is
concerned;
3. Declaring the mortgage made by defendant Pacifico V.
Marquez in favor of defendant Consolidated Rural Bank
(Cagayan Valley) and defendant Rural Bank of Cauayan as null
and void insofar as the southern half portion of Lot No. 7036-
A-7 is concerned;
4. Ordering defendant Pacifico V. Marquez to reconvey the
southern portion of Lot No. 7036-A-7 to the Heirs of Teodoro
dela Cruz.
No pronouncement as to costs.
SO ORDERED.[41]
Hence, the instant CRB petition. However, both Marquez
and RBC elected not to challenge the Decision of the appellate
court.
Petitioner CRB, in essence, alleges that the Court of
Appeals committed serious error of law in upholding the Heirs
ownership claim over the subject property considering that
there was no finding that they acted in good faith in taking
possession thereof nor was there proof that the first buyers,
Gamiao and Dayag, ever took possession of the subject
property. CRB also makes issue of the fact that the sale to
Gamiao and Dayag was confirmed a day ahead of the actual
sale, clearly evincing bad faith, it adds. Further, CRB asserts
Marquezs right over the property being its registered owner.
The petition is devoid of merit. However, the dismissal of
the petition is justified by reasons different from those
employed by the Court of Appeals.
Like the lower court, the appellate court resolved the
present controversy by applying the rule on double sale
provided in Article 1544 of the Civil Code. They, however,
arrived at different conclusions. The RTC made CRB and the
other defendants win, while the Court of Appeals decided the
case in favor of the Heirs.
Article 1544 of the Civil Code reads, thus:
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 possession; and, in the
absence thereof, to the person who presents the oldest title,
provided there is good faith.
The provision is not applicable in the present case. It
contemplates a case of double or multiple sales by a single
vendor. More specifically, it covers a situation where a single
vendor sold one and the same immovable property to two or
more buyers.[42] According to a noted civil law author, it is
necessary that the conveyance must have been made by a party
who has an existing right in the thing and the power to dispose
of it.[43] It cannot be invoked where the two different contracts
of sale are made by two different persons, one of them not
being the owner of the property sold.[44] And even if the sale
was made by the same person, if the second sale was made
when such person was no longer the owner of the property,
because it had been acquired by the first purchaser in full
dominion, the second purchaser cannot acquire any right. [45]
In the case at bar, the subject property was not transferred
to several purchasers by a single vendor. In the first deed of
sale, the vendors were Gamiao and Dayag whose right to the
subject property originated from their acquisition thereof from
Rizal Madrid with the conformity of all the other Madrid
brothers in 1957, followed by their declaration of the property
in its entirety for taxation purposes in their names. On the other
hand, the vendors in the other or later deed were the Madrid
brothers but at that time they were no longer the owners since
they had long before disposed of the property in favor of
Gamiao and Dayag.
Citing Manresa, the Court of Appeals in 1936 had
occasion to explain the proper application of Article 1473 of
the Old Civil Code (now Article 1544 of the New Civil Code)
in the case of Carpio v. Exevea,[46] thus:
In order that tradition may be considered performed, it is
necessary that the requisites which it implies must have been
fulfilled, and one of the indispensable requisites, according to
the most exact Roman concept, is that the conveyor had the
right and the will to convey the thing. The intention to transfer
is not sufficient; it only constitutes the will. It is, furthermore,
necessary that the conveyor could juridically perform that act;
that he had the right to do so, since a right which he did not
possess could not be vested by him in the transferee.
This is what Article 1473 has failed to express: the necessity
for the preexistence of the right on the part of the conveyor.
But even if the article does not express it, it would be
understood, in our opinion, that that circumstance constitutes
one of the assumptions upon which the article is based.
This construction is not repugnant to the text of Article 1473,
and not only is it not contrary to it, but it explains and justifies
the same. (Vol. 10, 4th ed., p. 159)[47]
In that case, the property was transferred to the first
purchaser in 1908 by its original owner, Juan Millante.
Thereafter, it was sold to plaintiff Carpio in June 1929. Both
conveyances were unregistered. On the same date that the
property was sold to the plaintiff, Juan Millante sold the same
to defendant Exevea. This time, the sale was registered in the
Registry of Deeds. But despite the fact of registration in
defendants favor, the Court of Appeals found for the plaintiff
and refused to apply the provisions of Art. 1473 of the Old
Civil Code, reasoning that on the date of the execution of the
document, Exhibit 1, Juan Millante did not and could not have
any right whatsoever to the parcel of land in question. [48]
Citing a portion of a judgment dated 24 November 1894
of the Supreme Court of Spain, the Court of Appeals elucidated
further:
Article 1473 of the Civil Code presupposes the right of the
vendor to dispose of the thing sold, and does not limit or alter
in this respect the provisions of the Mortgage Law in force,
which upholds the principle that registration does not validate
acts or contracts which are void, and that although acts and
contracts executed by persons who, in the Registry, appear to
be entitled to do so are not invalidated once recorded, even if
afterwards the right of such vendor is annulled or resolved by
virtue of a previous unrecorded title, nevertheless this refers
only to third parties.[49]
In a situation where not all the requisites are present
which would warrant the application of Art. 1544, the principle
of prior tempore, potior jure or simply he who is first in time is
preferred in right,[50] should apply.[51] The only essential
requisite of this rule is priority in time; in other words, the only
one who can invoke this is the first vendee. Undisputedly, he is
a purchaser in good faith because at the time he bought the real
property, there was still no sale to a second vendee.[52] In the
instant case, the sale to the Heirs by Gamiao and Dayag, who
first bought it from Rizal Madrid, was anterior to the sale by
the Madrid brothers to Marquez. The Heirs also had possessed
the subject property first in time. Thus, applying the principle,
the Heirs, without a scintilla of doubt, have a superior right to
the subject property.
Moreover, it is an established principle that no one can
give what one does not havenemo dat quod non habet.
Accordingly, one can sell only what one owns or is authorized
to sell, and the buyer can acquire no more than what the seller
can transfer legally.[53] In this case, since the Madrid brothers
were no longer the owners of the subject property at the time of
the sale to Marquez, the latter did not acquire any right to it.
In any event, assuming arguendo that Article 1544
applies to the present case, the claim of Marquez still cannot
prevail over the right of the Heirs since according to the
evidence he was not a purchaser and registrant in good faith.
Following Article 1544, in the double sale of an
immovable, the rules of preference are:
(a) the first registrant in good faith;
(b) should there be no entry, the first in possession in
good faith; and
(c) in the absence thereof, the buyer who presents the
oldest title in good faith. [54]
Prior registration of the subject property does not by itself
confer ownership or a better right over the property. Article
1544 requires that before the second buyer can obtain priority
over the first, he must show that he acted in good faith
throughout (i.e., in ignorance of the first sale and of the first
buyers rights)from the time of acquisition until the title is
transferred to him by registration or failing registration, by
delivery of possession.[55]
In the instant case, the actions of Marquez have not
satisfied the requirement of good faith from the time of the
purchase of the subject property to the time of registration.
Found by the Court of Appeals, Marquez knew at the time of
the sale that the subject property was being claimed or taken by
the Heirs. This was a detail which could indicate a defect in the
vendors title which he failed to inquire into. Marquez also
admitted that he did not take possession of the property and at
the time he testified he did not even know who was in
possession. Thus, he testified on direct examination in the RTC
as follows:
ATTY. CALIXTO
Q Can you tell us the circumstances to your buying
the land in question?
A In 1976 the Madrid brothers confessed to me their
problems about their lots in San Mateo that
they were being taken by Teodoro dela Cruz
and Atty. Teofilo A. Leonin; that they have to
pay the lawyers fee of P10,000.00 otherwise
 Atty. Leonin will confiscate the land. So they
begged me to buy their properties, some of it.
So that on June 3, 1976, they came to
Cabagan where I was and gave
them P14,000.00, I think. We have talked
that they will execute the deed of sale.
Q Why is it, doctor, that you have already this deed
of sale, Exh. 14, why did you find it
necessary to have this Deed of Confirmation
of a Prior Sale, Exh. 15?
A Because as I said a while ago that the first deed of
sale was submitted to the Register of Deeds
by Romeo Badua so that I said that because
when I became a Municipal Health Officer in
San Mateo, Isabela, I heard so many rumors,
so many things about the land and so I
requested them to execute a deed of
confirmation.[56]
...
ATTY. CALIXTO-
Q At present, who is in possession on the Riceland
portion of the lot in question?
A I can not say because the people working on that
are changing from time to time.
Q Why, have you not taken over the cultivation of
the land in question?
A Well, the Dela Cruzes are prohibiting that we will
occupy the place.
Q So, you do not have any possession?
A None, sir.[57]
One who purchases real property which is in actual
possession of others should, at least, make some inquiry
concerning the rights of those in possession. The actual
possession by people other than the vendor should, at least, put
the purchaser upon inquiry. He can scarcely, in the absence of
such inquiry, be regarded as a bona fide purchaser as against
such possessions.[58] The rule of caveat emptor requires the
purchaser to be aware of the supposed title of the vendor and
one who buys without checking the vendors title takes all the
risks and losses consequent to such failure.[59]
It is further perplexing that Marquez did not fight for the
possession of the property if it were true that he had a better
right to it. In our opinion, there were circumstances at the time
of the sale, and even at the time of registration, which would
reasonably require a purchaser of real property to investigate to
determine whether defects existed in his vendors title. Instead,
Marquez willfully closed his eyes to the possibility of the
existence of these flaws. For failure to exercise the measure of
precaution which may be required of a prudent man in a like
situation, he cannot be called a purchaser in good faith.[60]
As this Court explained in the case of Spouses Mathay v.
Court of Appeals:[61]
Although it is a recognized principle that a person dealing on a
registered land need not go beyond its certificate of title, it is
also a firmly settled rule that where there are circumstances
which would put a party on guard and prompt him to
investigate or inspect the property being sold to him, such as
the presence of occupants/tenants thereon, it is, of course,
expected from the purchaser of a valued piece of land to
inquire first into the status or nature of possession of the
occupants, i.e., whether or not the occupants possess the land
en concepto de dueo, in concept of owner. As is the common
practice in the real estate industry, an ocular inspection of the
premises involved is a safeguard a cautious and prudent
purchaser usually takes. Should he find out that the land he
intends to buy is occupied by anybody else other than the seller
who, as in this case, is not in actual possession, it would then
be incumbent upon the purchaser to verify the extent of the
occupants possessory rights. The failure of a prospective buyer
to take such precautionary steps would mean negligence on his
part and would thereby preclude him from claiming or
invoking the rights of a purchaser in good faith. [62]
This rule equally applies to mortgagees of real property.
In the case of Crisostomo v. Court of Appeals,[63] the Court
held:
It is a well-settled rule that a purchaser or mortgagee cannot
close his eyes to facts which should put a reasonable man upon
his guard, and then claim that he acted in good faith under the
belief that there was no defect in the title of the vendor or
mortgagor. His mere refusal to believe that such defect exists,
or his willful closing of his eyes to the possibility of the
existence of a defect in the vendors or mortgagors title, will not
make him an innocent purchaser or mortgagee for value, if it
afterwards develops that the title was in fact defective, and it
appears that he had such notice of the defects as would have led
to its discovery had he acted with the measure of a prudent man
in a like situation.[64]
Banks, their business being impressed with public
interest, are expected to exercise more care and prudence than
private individuals in their dealings, even those involving
registered lands. Hence, for merely relying on the certificates
of title and for its failure to ascertain the status of the
mortgaged properties as is the standard procedure in its
operations, we agree with the Court of Appeals that CRB is a
mortgagee in bad faith.
In this connection, Marquezs obstention of title to the
property and the subsequent transfer thereof to CRB cannot
help the latters cause. In a situation where a party has actual
knowledge of the claimants actual, open and notorious
possession of the disputed property at the time of registration,
as in this case, the actual notice and knowledge are equivalent
to registration, because to hold otherwise would be to tolerate
fraud and the Torrens system cannot be used to shield fraud. [65]
 While certificates of title are indefeasible, unassailable
and binding against the whole world, they merely confirm or
record title already existing and vested. They cannot be used to
protect a usurper from the true owner, nor can they be used for
the perpetration of fraud; neither do they permit one to enrich
himself at the expense of others.[66]
We also find that the Court of Appeals did not err in
awarding the subject property to the Heirs absent proof of good
faith in their possession of the subject property and without any
showing of possession thereof by Gamiao and Dayag.
As correctly argued by the Heirs in their Comment,[67] the
requirement of good faith in the possession of the property
finds no application in cases where there is no second
sale.[68] In the case at bar, Teodoro dela Cruz took possession of
the property in 1964 long before the sale to Marquez transpired
in 1976 and a considerable length of timeeighteen (18) years in
factbefore the Heirs had knowledge of the registration of said
sale in 1982. As Article 526 of the Civil Code aptly provides,
(H)e is deemed a possessor in good faith who is not aware that
there exists in his title or mode of acquisition any flaw which
invalidates it. Thus, there was no need for the appellate court to
consider the issue of good faith or bad faith with regard to
Teodoro dela Cruzs possession of the subject property.
Likewise, we are of the opinion that it is not necessary
that there should be any finding of possession by Gamiao and
Dayag of the subject property. It should be recalled that the
regularity of the sale to Gamiao and Dayag was never contested
by Marquez.[69] In fact the RTC upheld the validity of this sale,
holding that the Madrid brothers are bound by the sale by
virtue of their confirmation thereof in the Joint Affidavit dated
14 August 1957. That this was executed a day ahead of the
actual sale on 15 August 1957 does not diminish its integrity as
it was made before there was even any shadow of controversy
regarding the ownership of the subject property.
Moreover, as this Court declared in the case of Heirs of
Simplicio Santiago v. Heirs of Mariano E. Santiago,[70] tax
declarations are good indicia of possession in the concept of an
owner, for no one in his right mind would be paying taxes for a
property that is not in his actual or constructive possession. [71]
WHEREFORE, the Petition is DENIED. The dispositive
portion of the Court of Appeals Decision, as modified by its
Resolution dated 5 January 1998, is AFFIRMED. Costs against
petitioner.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo,
Sr., and Chico-Nazario, JJ., concur.