Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

13203 September 18, 1918

1. SUBJECT MATTER AND CONSIDERATION. Facts. The contract provided for "80 drums Caustic Soda 76 per cent "Carabao" brand al precio de Dollar Gold Nine and 75/100 1-lbs." Resorting to the circumstances surrounding the agreement are we are permitted to do, in pursuance of this provision, the merchandise was shipped from New York on the steamship Chinese Prince. The steamship was detained by the British authorities at Penang, and part of the cargo, including seventy-one drums of caustic soda, was removed. Defendant refused to accept delivery of the remaining nine drums of soda on the ground that the goods were in bad order. Defendant also refused the optional offer of the plaintiff, of waiting for the remainder of the shipment until its arrival, or of accepting the substitution of seventy-one drums of caustic soda of similar grade from plaintiff's stock. The plaintiff thereupon sold, for the account of the defendant, eighty drums of caustic soda from which there was realized the sum of P6,352.89. Deducting this sum from the selling price of P10,063.86, we have the amount claimed as damages for alleged breach of the contract. Law. It is sufficient to note that the specific merchandise was never tendered. The soda which the plaintiff offered to defendant was not of the "Carabao" brand, and the offer of drums of soda of another kind was not made within the time that a March shipment, according to another provision the contract, would normally have been available. 2. PLACE OF DELIVERY. Facts. The contract provided for "c.i.f. Manila, pagadero against delivery of documents." Law. Determination of the place of delivery always resolves itself into a question of act. If the contract be silent as to the person or mode by which the goods are to be sent, delivery by the vendor to a common carrier, in the usual and ordinary course of business, transfers the property to the vendee. A specification in a contact relative to the payment of freight can be taken to indicate the intention of the parties in regard to the place of delivery. If the buyer is to pay the freight, it is reasonable to suppose that he does so because the goods become his at the point of shipment. On the other hand, if the seller is to pay the freight, the inference is equally so strong that the duty of the seller is to have the goods transported to their ultimate destination and that title to property does not pass until the goods have reached their destination. (See Williston on Sales, PP. 406-408.) The letters "c.i.f." found in British contracts stand for cost, insurance, and freight. They signify that the price fixed covers not only the cost of the goods, but the expense of freight and insurance to be paid by the seller. (Ireland vs. Livingston, L. R., 5 H. L., 395.) Our instant contract, in addition to the letters "c.i.f.," has the word following, "Manila." Under such a contract, an Australian case is authority for the

BEHN, MEYER & CO. (LTD.), plaintiff-appellant, vs. TEODORO R. YANCO, defendant-appellee. Crossfield & O'Brien for appellant. Charles C. Cohn for appellee. MALCOLM, J.: The first inquiry to be determined is what was the contract between the parties. The memorandum agreement executed by the duly authorized representatives of the parties to this action reads: Contract No. 37. MANILA, 7 de marzo, de 1916.

Confirmanos haber vendido a Bazar Siglo XX, 80 drums Caustic Soda 76 per cent "Carabao" brand al precio de Dollar Gold Nine and 75/100 per 100-lbs., c.i.f. Manila, pagadero against delivery of documents. Embarque March, 1916. Comprador Bazar Siglo XX de Teodoro R. Yangco J. Siquia Vendores BEHN, MEYER & CO. (Ltd.) O. LOMBECK. This contract of sale can be analyzed into three component parts.

proposition that no inference is permissible that a seller was bound to deliver at the point of destination. (Bowden vs. Little, 4 Comm. [Australia], 1364.) In mercantile contracts of American origin the letters "F.O.B." standing for the words "Free on Board," are frequently used. The meaning is that the seller shall bear all expenses until the goods are delivered where they are to be "F.O.B." According as to whether the goods are to be delivered "F.O.B." at the point of shipment or at the point of destination determines the time when property passes. Both the terms "c.i.f." and "F.O.B." merely make rules of presumption which yield to proof of contrary intention. As Benjamin, in his work on Sales, well says: "The question, at last, is one of intent, to be ascertained by a consideration of all the circumstances." For instance, in a case of Philippine origin, appealed to the United States Supreme Court, it was held that the sale was complete on shipment, though the contract was for goods, "F.O.B. Manila," the place of destination the other terms of the contract showing the intention to transfer the property. (United States vs. R. P. Andrews & Co. [1907], 207 U.S., 229.) With all due deference to the decision of the High Court of Australia, we believe that the word Manila in conjunction with the letters "c.i.f." must mean that the contract price, covering costs, insurance, and freight, signifies that delivery was to made at Manila. If the plaintiff company has seriously thought that the place of delivery was New York and Not Manila, it would not have gone to the trouble of making fruitless attempts to substitute goods for the merchandise named in the contract, but would have permitted the entire loss of the shipment to fall upon the defendant. Under plaintiffs hypothesis, the defendant would have been the absolute owner of the specific soda confiscated at Penang and would have been indebted for the contract price of the same. This view is corroborated by the facts. The goods were not shipped nor consigned from New York to plaintiff. The bill of lading was for goods received from Neuss Hesslein & Co. the documents evidencing said shipment and symbolizing the property were sent by Neuss Hesslein & Co. to the Bank of the Philippine Islands with a draft upon Behn, Meyer & Co. and with instructions to deliver the same, and thus transfer the property to Behn, Meyer & Co. when and if Behn, Meyer & Co. should pay the draft. The place of delivery was Manila and plaintiff has not legally excused default in delivery of the specified merchandise at that place. 3. TIME OF DELIVERY. Facts. The contract provided for: "Embarque: March 1916," the merchandise was in fact shipped from New York on the Steamship Chinese Prince on April 12, 1916.

Law. The previous discussion makes a resolution of this point unprofitable, although the decision of the United States Supreme Court in Norrington vs. Wright (([1885], 115 U.S., 188) can be read with profit. Appellant's second and third assignments of error could, if necessary, be admitted, and still could not recover. THE CONTRACT. To answer the inquiry with which we begun this decision, the contract between the parties was for 80 drums of caustic soda, 76 per cent "Carabao" brand, at the price of $9.75 per one hundred pounds, cost, insurance, and freight included, to be shipped during March, 1916, to be delivered to Manila and paid for on delivery of the documents. PERFORMANCE. In resume, we find that the plaintiff has not proved the performance on its part of the conditions precedent in the contract. The warranty the material promise of the seller to the buyer has not been complied with. The buyer may therefore rescind the contract of sale because of a breach in substantial particulars going to the essence of the contract. As contemplated by article 1451 of the Civil Code, the vendee can demand fulfillment of the contract, and this being shown to be impossible, is relieved of his obligation. There thus being sufficient ground for rescission, the defendant is not liable. The judgment of the trial court ordering that the plaintiff take nothing by its action, without special finding as to costs, is affirmed, with the costs of this instance. Against the appellant. So ordered. Arellano, C.J., Torres, Johnson, Street and Avancea, JJ., concur.

appearance of plaintiffs witnesses. With costs against the plaintiff. SECOND DIVISION SO ORDERED.[4] RUDOLF LIETZ, INC., Petitioner, - versusG.R. No. 122463 Present: PUNO, J., Chairman, AUSTRIA-MARTINEZ, CALLEJO, SR., THE COURT OF APPEALS, TINGA, and AGAPITO BURIOL, TIZIANA CHICO-NAZARIO, JJ. TURATELLO & PAOLA SANI, Respondents. Promulgated: December 19, 2005 x --------------------------------------------------------------------x DECISION TINGA, J.: This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court, praying for the annulment of the Decision[1] dated April 17, 1995 and the Resolution[2] dated October 25, 1995 of the Court of Appeals in CA-G.R. CV No. 38854. The Court of Appeals affirmed the Decision[3] in Civil Case No. 2164 of the Regional Trial Court (RTC), Branch 48, of Palawan and Puerto Princesa City with the modification that herein respondents Tiziana Turatello and Paola Sani are entitled to damages, attorneys fees, and litigation expenses. The dispositive portion of the RTC Decision reads: WHEREFORE, in view of the foregoing and as prayed for by the defendants, the instant complaint is hereby DISMISSED. Defendants counterclaim is likewise DISMISSED. Plaintiff, however, is ordered to pay defendant Turatello and Sanis counsel the sum of P3,010.38 from August 9, 1990 until fully paid representing the expenses incurred by said counsel when the trial was cancelled due to the nonPetitioner later discovered that respondent Buriol owned only four (4) hectares, and with one more hectare covered by lease, only three (3) hectares were actually delivered to petitioner. Thus, petitioner instituted on April 3, 1989 a complaint for Annulment of Lease with Recovery of Possession with Injunction and Damages against respondents and Flavia Turatello before the RTC. The complaint alleged that with evident bad faith and malice, respondent Buriol sold to petitioner five (5) A parcel of land, consisting of FIVE (5) hectares, more or less, a portion of that parcel of land declared in the name of Agapito Buriol, under Tax Declaration No. 0021, revised in the year 1985, together with all improvements thereon, situated at the Island of Capsalay, Barangay Port Barton, municipality of San Vicente, province of Palawan which segregated from the whole parcel described in said tax declaration, has the following superficial boundaries: NORTH, Sec. 01-017; and remaining property of the vendor; EAST, by Seashore; SOUTH, 01-020; and WEST, by 01-018 (now Elizabeth Lietz).[6] As culled from the records, the following antecedents appear: Respondent Agapito Buriol previously owned a parcel of unregistered land situated at Capsalay Island, Port Barton, San Vicente, Palawan. On August 15, 1986, respondent Buriol entered into a lease agreement with Flavia Turatello and respondents Turatello and Sani, all Italian citizens, involving one (1) hectare of respondent Buriols property. The lease agreement was for a period of 25 years, renewable for another 25 years. The lessees took possession of the land after paying respondent Buriol a down payment of P10,000.00.[5] The lease agreement, however, was reduced into writing only in January 1987. On November 17, 1986, respondent Buriol sold to petitioner Rudolf Lietz, Inc. the same parcel of land for the amount of P30,000.00. The Deed of Absolute Sale embodying the agreement described the land as follows:

hectares of land when respondent Buriol knew for a fact that he owned only four (4) hectares and managed to lease one more hectare to Flavia Turatello and respondents Tiziana Turatello and Paola Sani. The complaint sought the issuance of a restraining order and a writ of preliminary injunction to prevent Flavia Turatello and respondents Turatello and Sani from introducing improvements on the property, the annulment of the lease agreement between respondents, and the restoration of the amount paid by petitioner in excess of the value of the property sold to him. Except for Flavia Turatello, respondents filed separate answers raising similar defenses of lack of cause of action and lack of jurisdiction over the action for recovery of possession. Respondents Turatello and Sani also prayed for the award of damages and attorneys fees.[7] After trial on the merits, the trial court rendered judgment on May 27, 1992, dismissing both petitioners complaint and respondents counterclaim for damages. Petitioner and respondents Turatello and Sani separately appealed the RTC Decision to the Court of Appeals, which affirmed the dismissal of petitioners complaint and awarded respondents Turatello and Sani damages and attorneys fees. The dispositive portion of the Court of Appeals Decision reads: WHEREFORE, the decision appealed from is hereby AFFIRMED, with the following modification: Plaintiff-appellant Rudolf Lietz, Inc. is hereby (1) ordered to pay defendants-appellants Turatello and Sani, the sum of P100,000.00 as moral damages; (2) P100,000.00 as exemplary damages; (3) P135,728.73 as attorneys fees; and (4) P10,000.00 as litigation expenses. SO ORDERED.[8] Petitioner brought to this Court the instant petition after the denial of its motion for reconsideration of the Court of Appeal Decision. The instant petition imputes the following errors to the Court of Appeals. I. IN DEFENDING AGAPITO BURIOLS GOOD FAITH AND IN STATING THAT ASSUMING THAT HE (BURIOL) WAS IN BAD FAITH IV. III. II.

PETITIONER WAS SOLELY RESPONSIBLE FOR ITS INEXCUSABLE CREDULOUSNESS. IN ASSERTING THAT ARTICLES 1542 AND 1539 OF THE NEW CIVIL CODE ARE, RESPECTIVELY, APPLICABLE AND INAPPLICABLE IN THE CASE AT BAR. IN NOT GRANTING PETITIONERS CLAIM FOR ACTUAL AND EXEMPLARY DAMAGES. IN GRANTING RESPONDENTS TIZIANA TURATELLO AND PAOLA SANI EXHORBITANT [sic] AMOUNTS AS DAMAGES WHICH ARE EVEN BEREFT OF EVIDENTIARY BASIS.[9]

Essentially, only two main issues confront this Court, namely: (i) whether or not petitioner is entitled to the delivery of the entire five hectares or its equivalent, and (ii) whether or not damages may be awarded to either party. Petitioner contends that it is entitled to the corresponding reduction of the purchase price because the agreement was for the sale of five (5) hectares although respondent Buriol owned only four (4) hectares. As in its appeal to the Court of Appeals, petitioner anchors its argument on the second paragraph of Article 1539 of the Civil Code, which provides: Art. 1539. The obligation to deliver the thing sold includes that of placing in the control of the vendee all that is mentioned in the contract, in conformity with the following rules: If the sale of real estate should be made with a statement of its area, at the rate of a certain price for a unit of measure or number, the vendor shall be obliged to deliver to the vendee, if the latter should demand it, all that may have been stated in the contract; but, should this be not possible, the vendee may choose between a proportional reduction of the price and the rescission of the contract, provided that, in the latter case, the lack in the area be not less than one-tenth of that stated. . . . .

The Court of Appeals Decision, however, declared as inapplicable the abovequoted provision and instead ruled that petitioner is no longer entitled to a reduction in price based on the provisions of Article 1542 of the Civil Code, which read: Art. 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price, although there be a greater or lesser area or number than that stated in the contract. The same rule shall be applied when two or more immovables are sold for a single price; but if, besides mentioning the boundaries, which is indispensable in every conveyance of real estate, its area or number should be designated in the contract, the vendor shall be bound to deliver all that is included within said boundaries, even when it exceeds the area or number specified in the contract; and, should he not be able to do so, he shall suffer a reduction in the price, in proportion to what is lacking in the area or number, unless the contract is rescinded because the vendee does not accede to the failure to deliver what has been stipulated.

In the case where the area of the immovable is stated in the contract based on an estimate, the actual area delivered may not measure up exactly with the area stated in the contract. According to Article 1542[11] of the Civil Code, in the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price although there be a greater or lesser area or number than that stated in the contract. However, the discrepancy must not be substantial. A vendee of land, when sold in gross or with the description more or less with reference to its area, does not thereby ipso facto take all risk of quantity in the land. The use of more or less or similar words in designating quantity covers only a reasonable excess or deficiency.[12] Where both the area and the boundaries of the immovable are declared, the area covered within the boundaries of the immovable prevails over the stated area. In cases of conflict between areas and boundaries, it is the latter which should prevail. What really defines a piece of ground is not the area, calculated with more or less certainty, mentioned in its description, but the boundaries therein laid down, as enclosing the land and indicating its limits. In a contract of sale of land in a mass, it is well established that the specific boundaries stated in the contract must control over any statement with respect to the area contained within its boundaries. It is not of vital consequence that a deed or contract of sale of land should disclose the area with mathematical accuracy. It is sufficient if its extent is objectively indicated with sufficient precision to enable one to identify it. An error as to the superficial area is immaterial.[13] Thus, the obligation of the vendor is to deliver everything within the boundaries, inasmuch as it is the entirety thereof that distinguishes the determinate object.[14] As correctly noted by the trial court and the Court of Appeals, the sale between petitioner and respondent Buriol involving the latters property is one made for a lump sum. The Deed of Absolute Sale shows that the parties agreed on the purchase price on a predetermined area of five hectares within the specified boundaries and not based on a particular rate per area. In accordance with Article 1542, there shall be no reduction in the purchase price even if the area delivered to petitioner is less than that stated in the contract. In the instant case, the area within

Article 1539 governs a sale of immovable by the unit, that is, at a stated rate per unit area. In a unit price contract, the statement of area of immovable is not conclusive and the price may be reduced or increased depending on the area actually delivered. If the vendor delivers less than the area agreed upon, the vendee may oblige the vendor to deliver all that may be stated in the contract or demand for the proportionate reduction of the purchase price if delivery is not possible. If the vendor delivers more than the area stated in the contract, the vendee has the option to accept only the amount agreed upon or to accept the whole area, provided he pays for the additional area at the contract rate.[10] In some instances, a sale of an immovable may be made for a lump sum and not at a rate per unit. The parties agree on a stated purchase price for an immovable the area of which may be declared based on an estimate or where both the area and boundaries are stated.

the boundaries as stated in the contract shall control over the area agreed upon in the contract. The Court rejects petitioners contention that the propertys boundaries as stated in the Deed of Absolute Sale are superficial and unintelligible and, therefore, cannot prevail over the area stated in the contract. First, as pointed out by the Court of Appeals, at an ocular inspection prior to the perfection of the contract of sale, respondent Buriol pointed to petitioner the boundaries of the property. Hence, petitioner gained a fair estimate of the area of the property sold to him. Second, petitioner cannot now assail the contents of the Deed of Absolute Sale, particularly the description of the boundaries of the property, because petitioners subscription to the Deed of Absolute Sale indicates his assent to the correct description of the boundaries of the property. Petitioner also asserts that respondent Buriol is guilty of misleading petitioner into believing that the latter was buying five hectares when he knew prior to the sale that he owned only four hectares. The review of the circumstances of the alleged misrepresentation is factual and, therefore, beyond the province of the Court. Besides, this issue had already been raised before and passed upon by the trial court and the Court of Appeals. The factual finding of the courts below that no sufficient evidence supports petitioners allegation of misrepresentation is binding on the Court. The Court of Appeals reversed the trial courts dismissal of respondents Turatello and Sanis counterclaim for moral and exemplary damages, attorneys fees and litigation expenses. In awarding moral damages in the amount of P100,000 in favor of Turatello and Sani, the Court of Appeals justified the award to alleviate the suffering caused by petitioners unfounded civil action. The filing alone of a civil action should not be a ground for an award of moral damages in the same way that a clearly unfounded civil action is not among the grounds for moral damages.[15] Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or

compensatory damages.[16] With the deletion of the award for moral damages, there is no basis for the award of exemplary damages. WHEREFORE, the instant petition for review on certiorari is GRANTED in PART. The Court of Appeals Decision in CA-G.R. CV No. 38854 is AFFIRMED with the MODIFICATION that the award of moral and exemplary damages is DELETED. SO ORDERED. DANTE O. Associate Justice

TINGA

WE CONCUR:

REYNATO S. PUNO Associate Justice Chairman

REYNATO S. PUNO Associate Justice Chairman, Second Division

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 vendor's title. They found out that the property was mortgaged for P8,000 to a certain Mrs. Galupo and that the owner's 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. On May 30, 1988, a release of the adverse claim of Galupo was annotated on TCT No. T-41499 which covered the subject property. In the meantime, on May 17, 1988, even before the release of Galupo's 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 Assessor's Office that the property was also declared for tax purposes in the name of petitioner Naawan Community Rural Bank Inc. Records in the City Assessor's Office revealed that, for the lot covered by TCT No. T-50134, Alfredo Lumo's 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

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION 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. 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 Decision1 of the Court of Appeals in CA-G.R. CV No. 55149, which in turn affirmed the decision2 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. T50134, and all improvements thereon) and quieting title thereto as against any and all adverse claims of the defendant. Further, the sheriff's certificate of sale, Exhibit 4; 4-A; Sheriff's 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 Assessor's 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

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 sheriff's 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 sheriff's 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 court's decision. Hence, this petition. Petitioner raises the following issues: I. WHETHER OR NOT THE SHERIFF'S 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 SHERIFF'S 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: ". . . . 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 sheriff's 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 sheriff's 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 already 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 covered by the Torrens System.

Petitioner also relies on the case of Bautista vs. Fule6 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 sheriff's 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 sheriff's 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 sheriff's 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 vendor's 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, Panganiban, Sandoval-Gutierrez, and Carpio-Morales JJ ., concur.

10

the subject land.11 She claimed that she bought the subject land from Ildefonso in 1972.12 Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 167412 February 22, 2006 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 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 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,

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 MagaraoCanaman, 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

11

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

12

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.38 Its 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

13

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. CONSUELO YNARES-SANTIAGO Associate Justice

WE CONCUR: ARTEMIO V. PANGANIBAN Chief Justice Chairperson MA. ALICIA AUSTRIA-MARTINEZ Associate Justice ROMEO J. CALLEJO, SR. Asscociate Justice

MINITA V. CHICO-NAZARIO Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ARTEMIO V. PANGANIBAN Chief Justice

14

For review on certiorari is the Decision dated February 22, 1995 of the THIRD DIVISION Court of Appeals in CA-G.R. SP No. 23687, which annulled and set aside the judgment and orders of the Regional Trial Court (RTC) of Digos, Davao del Sur, Branch 19, in Civil Case No. 2647, Maria Gonzales v. Priscilla Manio and Jose Manio. HON. DOMINADOR F. CARILLO, Presiding Judge, R.T.C. XI-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 R.T.C. XI19 Digos, Davao del Sur, MARCOS D. RISONAR, JR., Registrar of Deeds of Davao del Sur, and MARIA GONZALES, Petitioners, G.R. No. 121165 The facts as culled from the records are as follows: Present:

On April 2, 1990, petitioner Maria Gonzales filed a complaint against the spouses Priscilla and Jose Manio with the RTC of Digos, Davao del Sur, Branch 19. Gonzales sought the execution of the deed of sale in her favor for the property she

QUISUMBING, Chairperson, CARPIO, CARPIO MORALES, TINGA, and VELASCO, JR., JJ.

J.,

bought from Priscilla Manio. She also asked for damages and attorneys fees.

Gonzales alleged that on April 26, 1988, she paid P10,000 to Priscilla as downpayment on the P400,000 purchase price of the lot with improvements, since Priscilla had a special power of attorney from her son, Aristotle, the owner of the land. They also agreed that the balance would be paid within three months after the execution of the deed of sale. Yet, after the lapse of the period and despite repeated demands, Priscilla did not execute the deed of sale. Thus, Gonzales filed an action for specific performance against the spouses Priscilla and Jose Manio.

- versus -

HON. COURT OF APPEALS, MARIA PAZ DABON and ROSALINA DABON, Respondents.

Promulgated: For failure to file an Answer, the Manios were declared in default and Gonzales was allowed to present evidence ex parte. September 26, 2006

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x RESOLUTION

After trial, the court rendered judgment in favor of Gonzales, which we quote verbatim: WHEREFORE, premises considered, it is hereby ordered that judgment is rendered in favor of plaintiff and against defendants, ordering defendants: 1) To execute the final deed of sale and transfer of the property mentioned in paragraph 4 above to

QUISUMBING, J.:

15

plaintiff, or should the defendant refuse to execute the deed of sale, the Clerk of Court be directed to execute the same upon plaintiffs depositing of the sum of P390,000.00 with the Clerk of Court as complete and valid payment thereof to defendant Priscilla Manio; 2) To pay plaintiff the sum of P100,000.00 for moral damages and P50,000.00 for exemplary damages; To pay plaintiff the sum of P50,000.00 for attorneys fees plus P700.00 per appearances of plaintiffs counsel before this Honorable Court as appearance fees; To pay plaintiff the sum of P5,000.00 as litigation expenses.

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.

3)

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.

4)

SO ORDERED.

On December 14, 1990, herein respondents Maria Paz Dabon and Rosalina Dabon, claiming to have bought the 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 G.R. SP No. 23687, entitled Maria Paz Dabon and Rosalina 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.

Gonzales deposited with the Clerk of Court the P390,000 balance of the price and filed a motion for execution. She later withdrew the motion because the trial courts decision was not properly served on the defendants. After numerous delays, the sheriff finally 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.

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.

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

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

16

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 July 17, 1995, Gonzales Motion for Reconsideration was denied. Hence, the instant petition, assigning the following errors: I THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE PURCHASE OF THE DISPUTED PROPERTY BY PETITIONER MARIA GONZALES FROM ARISTOTLE MANIO THRU THE LATTERS MOTHER AND ATTORNEY-IN-FACT WAS A VALID CONTRACT AS BETWEEN THE CONTRACTING PARTIES. II THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONER MARIA GONZALES WAS IN GOOD FAITH IN BUYING THE DISPUTED PROPERTY FROM ARISTOTLE MANIO THRU THE LATTERS MOTHER AND ATTORNEY-IN-FACT. III

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 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.

The Court of Appeals in a resolution denied the application for preliminary injunction and appointed a commissioner to receive evidence of the parties.

Following the Commissioners report, the Court of Appeals found that (1) the contract of sale between Gonzales and Priscilla was unenforceable because the sale was evidenced by a handwritten note which was vague as to the amount and which was not notarized; (2) the trial court did not acquire jurisdiction over the indispensable parties; and (3) the proceedings were attended with fraud. The Court of Appeals nullified the judgment of the RTC in Civil Case No. 2647 and cancelled TCT No. T-23690. The dispositive portion of said judgment reads as follows:

THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING IN THE INSTANT CASE THE DOCTRINE IN DOUBLE SALE UNDER ARTICLE 1544 OF THE CIVIL CODE OF THE PHILIPPINES. IV THE HONORABLE COURT OF APPEALS GRAVELY FAILED TO APPRECIATE THE FACT THAT PRIVATE RESPONDENTS [PETITIONERS BELOW] CLAIM IS HIGHLY INCREDIBLE, IMPROBABLE, AND FRAUDULENT. V THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE RESPONDENTS MARIA PAZ DABON AND ROSALINA DABON HAVE NO RIGHT TO BRING THE INSTANT SUIT. VI COROLLARILY, THE HONORABLE COURT OF APPEALS ERRED IN NOT SUSTAINING PETITIONER MARIA

WHEREFORE, premises considered, the questioned decision, dated June 19, 1990 (and all orders arising therefrom), of the Regional Trial Court (Branch 19) in Digos, Davao del Sur is hereby ANNULLED and SET ASIDEand the Transfer Certificate of Title No. T-23690 which was issued thereafter declared null and void and ordered canceled. Costs against the private respondent. SO ORDERED.

17

GONZALES [PRIVATE RESPONDENT BELOW] CLAIM FOR DAMAGES AGAINST THE PRIVATE RESPONDENTS [PETITIONERS BELOW].

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.

Simply, the threshold issues in this petition are: (1) whether the Court of Appeals erred in declaring the sale of the land to Gonzales by Priscilla invalid; (2) whether there was basis to annul the judgment of the RTC; and (3) whether the Dabons could file the action for annulment of judgment.

Respondents (Maria Paz and Rosalina Dabon) now insist that they are We shall discuss the issues jointly. 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.

Prefatorily, we note that named as petitioners are Presiding Judge Dominador Carillo; Bonifacio Guyot, Alfredo Senoy, Clerk of Court and Deputy Sheriff of the same court, respectively; Marcos D. Risonar, Registrar of Deeds of Davao del Sur; and Maria Gonzales. In our view, petitioner Gonzales apparently had impleaded Judge Carillo, Guyot, Senoy and Risonar in this petition by merely 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.

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, 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. 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.

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?

Worth stressing, the action filed by Gonzales before the RTC is for 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 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

18

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. 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.

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.

It is settled that a person need not be a party to the judgment sought to be annulled. 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, because if fully substantiated by preponderance of evidence, those allegations could be the basis for annulment of the assailed judgment.

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 interest shall be given notice. 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. This fact is sufficient ground to annul the order allowing the cancellation of title in the name of Gonzales.

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 the 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. 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.

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. 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.

Lastly, petitioner insists that the contract of sale between her and Priscilla was valid and enforceable because under the provision on double sale, 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.

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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.

cases as where there is no available or other adequate remedy. 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.

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: acquisition in good faith and registration in good faith.

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.

SO ORDERED.

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. 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 and is not an appeal of the judgment therein. Associate Justice LEONARDO A. QUISUMBING

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. WE CONCUR:

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

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backed out of the sale. Pacita added that she returned the sum of fifty thousand pesos (P50,000.00) to Babasanta through Eugenio Oya. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 124242 January 21, 2005 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 19903 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 Opposition4 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 19905 admitted the amended complaint. On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) filed a Motion for Intervention6 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 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 Damages1 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.

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

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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 199110 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 Decision11 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:

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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 1989.1awphi1.nt 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 198918 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

23

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 consent25 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:

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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.l^vvphi1.net 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 capital43 of SLDCs averment in its Complaint-inIntervention44 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 crossexamination.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

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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.1a\^/phi1.net 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.

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FIRST DIVISION [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 of the Court of Appeals and in lieu thereof, the reinstatement of the Decision of the Regional Trial Court 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 AppelleesVendees. 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 AppelleeVendor 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 AppelleesVendees 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

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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 AppelleeVendor 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 AppelleeVendees, 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.

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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 countermove, 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. 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 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

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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. 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. 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 xx 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

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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 AppelleesVendees 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 AppelleesVendees 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. 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 AppelleeVendee 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;

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6.The Appellees-Vendors are hereby ordered to refund to the AppelleesVendees 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. 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. 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. 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.

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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. 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 onestorey 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 AppelleesVendees 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.

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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 AppelleesVendees 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. 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.

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Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

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 the 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, attorney's fees of P50,000.00, and costs of suit; and to defendant-appellant, of P100,000.00 in exemplary damages, P50,000.00 in attorney's fees. The amounts payable to the defendant-appellant may be compensated by plaintiff appellee with the amount ordered under the immediately foregoing paragraph which defendantappellant has to pay the plaintiff-appellee. SO ORDERED. 2

G.R. No. 129760 December 29, 1998 RICARDO CHENG, petitioner, vs. RAMON B. GENATO and ERNESTO R. DA JOSE & SOCORRO DA JOSE, respondents.

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 defendantappellant's Affidavit to Annul Contract to Sell and plaintiffappellee's Notice of Adverse Claim in the subject TCT's, 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 postdated checks issued since 1989.

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 35,821square 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 1and 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

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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 (P950,00.00) 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. 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

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. Check # 470393 (SGD.) Ramon B. Genato

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 Genato's 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.

10/24/89 9 On October 25, 1989, Genato deposited Cheng's 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 Cheng's 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 Meycauayan, 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

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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 Cheng's P50,000.00 check. Consequently, on October 30, 1989, Cheng's 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 Cashier's 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 TCT's. 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 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 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 Cheng's bad faith as a buyer being duly informed by Genato of the existing annotated Contract to Sell on the titles.
17

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 defendant's 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 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, Meycauayan Branch, at the rate of P70.000/square meter, less the amount of P50,000.00 alreaddy paid to defendant, which is considered as part of the purchase price, with the plaintiff being liable for payment of the

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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 attorney's fees, to plaintiff; d/ P20,000.00, as and for attorney's 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 Cheng's 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 or resolution of the Da Jose spouses Contract to Sell, contrary to petitioner's contentions and the trial court's 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 nonexistent, 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 obligor's 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 on 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

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Nevertheless, this being so Genato is not relieved from the giving of a notice, verbal or written, to the Da Jose spouses for his 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 extrajudicial steps to protect its interest. Otherwise, the party injured by the other's 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 obligee's 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 Cheng's contention that the Contract to Sell between Genato and the Da Jose spouses was rescinded or resolved due to Genato's 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 Conditional 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 Cheng's contention in his pleadings before said courts. This patent twist only operates against Cheng's 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 enfoceable.
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 outlined 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: 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.

39

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 he 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 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 petitioner's intrusion as a second buyer. This principle only applies when the special rules provided in the aforcited article of the 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 buyer's 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 Genato's 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

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One who purchases real estate with knowledge of a defect . . . of title in his vendor cannot claim that he has acquired title thereto in good faith as against . . . . 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 vendor's 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. Belosillo, Puno and Mendoza, JJ., concur.

41

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 132161 January 17, 2005

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 Sale15 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 confirmed16 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 case24 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.

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 Certiorari1 under Rule 45 of the Revised Rules of Court, seeking the review of the Decision2 of the Court of Appeals Twelfth Division in CA-G.R. CV No. 33662, promulgated on 27 May 1997, which reversed the judgment3 of the lower court in favor of petitioner; and the Resolution4 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 Psd10188, 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. 7036A-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

42

Evangeline del Rosario, the successor-in-interest of Restituto Hernandez, filed with leave of court a Complaint in Intervention25 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. T149375 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 7036A-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 Decision34 reversing the RTCs judgment. The dispositive portion reads:

43

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-A7-D in favor of the defendant Consolidated Rural Bank and of Lot 7036A-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

part of the Heirs. Absent proof of possession in good faith, CRB avers, the Heirs cannot claim ownership over the subject property. In a Resolution40 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

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 location it was situated along the National Highway and was across a gasoline station should 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 Reconsideration39 pointing out, among others, that the Decision promulgated on 27 May 1997 failed to establish good faith on the

44

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

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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. CALIXTOQ 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

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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.

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As to [Respondent] Romana de Vera: Republic of the Philippines SUPREME COURT Manila FIRST DIVISION 3. P50,000.00 as exemplary damages; G.R. No. 154409 June 21, 2004 4. P30,000.00 as attorneys fees; and Spouses NOEL and JULIE ABRIGO, petitioners, vs. ROMANA DE VERA, respondent. DECISION PANGANIBAN, J.: Between two buyers of the same immovable property registered under the Torrens system, the law gives ownership priority to (1) the first registrant in good faith; (2) then, the first possessor in good faith; and (3) finally, the buyer who in good faith presents the oldest title. This provision, however, does not apply if the property is not registered under the Torrens system. The Case Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the March 21, 2002 Amended Decision2 and the July 22, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 62391. The Amended Decision disposed as follows: "WHEREFORE, the dispositive part of the original D E C I S I O N of this case, promulgated on November 19, 2001, is SET ASIDE and another one is entered AFFIRMING in part and REVERSING in part the judgment appealed from, as follows: "1. Declaring [Respondent] Romana de Vera the rightful owner and with better right to possess the property in question, being an innocent purchaser for value therefor; "2. Declaring Gloria Villafania [liable] to pay the following to [Respondent] Romana de Vera and to [Petitioner-]Spouses [Noel and Julie] Abrigo, to wit: 5. Cost of suit. As to [Petitioner-]Spouses [Noel and Julie] Abrigo: 1. P50,000.00 as moral damages; 2. P50,000.00 as exemplary damages; 3. P30,000.00 as attorneys fees; 4. Cost of suit."4 The assailed Resolution denied reconsideration. The Facts Quoting the trial court, the CA narrated the facts as follows: "As culled from the records, the following are the pertinent antecedents amply summarized by the trial court: On May 27, 1993, Gloria Villafania sold a house and lot located at Banaoang, Mangaldan, Pangasinan and covered by Tax Declaration No. 1406 to Rosenda Tigno-Salazar and Rosita Cave-Go. The said sale became a subject of a suit for annulment of documents between the vendor and the vendees. On December 7, 1993, the Regional Trial Court, Branch 40 of Dagupan City rendered judgment approving the Compromise Agreement submitted by the parties. In the said Decision, Gloria Villafania was given one year from the date of the Compromise Agreement to buy back the house and lot, and failure to do so would mean that the previous sale in favor of Rosenda Tigno-Salazar and Rosita Cave-Go 1. P300,000.00 plus 6% per annum as actual damages; 2. P50,000.00 as moral damages;

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shall remain valid and binding and the plaintiff shall voluntarily vacate the premises without need of any demand. Gloria Villafania failed to buy back the house and lot, so the [vendees] declared the lot in their name. Unknown, however to Rosenda Tigno-Salazar and Rosita Cave-Go, Gloria Villafania obtained a free patent over the parcel of land involved [on March 15, 1988 as evidenced by OCT No. P-30522]. The said free patent was later on cancelled by TCT No. 212598 on April 11, 1996. On October 16, 1997, Rosenda Tigno-Salazar and Rosita Cave-Go, sold the house and lot to the herein [Petitioner-Spouses Noel and Julie Abrigo]. On October 23, 1997, Gloria Villafania sold the same house and lot to Romana de Vera x x x. Romana de Vera registered the sale and as a consequence, TCT No. 22515 was issued in her name. On November 12, 1997, Romana de Vera filed an action for Forcible Entry and Damages against [Spouses Noel and Julie Abrigo] before the Municipal Trial Court of Mangaldan, Pangasinan docketed as Civil Case No. 1452. On February 25, 1998, the parties therein submitted a Motion for Dismissal in view of their agreement in the instant case that neither of them can physically take possession of the property in question until the instant case is terminated. Hence the ejectment case was dismissed.5 "Thus, on November 21, 1997, [petitioners] filed the instant case [with the Regional Trial Court of Dagupan City] for the annulment of documents, injunction, preliminary injunction, restraining order and damages [against respondent and Gloria Villafania]. "After the trial on the merits, the lower court rendered the assailed Decision dated January 4, 1999, awarding the properties to [petitioners] as well as damages. Moreover, x x x Gloria Villafania was ordered to pay [petitioners and private respondent] damages and attorneys fees. "Not contented with the assailed Decision, both parties [appealed to the CA]."6 Ruling of the Court of Appeals In its original Decision promulgated on November 19, 2001, the CA held that a void title could not give rise to a valid one and hence dismissed the appeal of Private Respondent Romana de Vera.7 Since Gloria Villafania had already transferred ownership to Rosenda Tigno-Salazar and Rosita Cave-Go, the subsequent sale to De Vera was deemed void.

The CA also dismissed the appeal of Petitioner-Spouses Abrigo and found no sufficient basis to award them moral and exemplary damages and attorneys fees. On reconsideration, the CA issued its March 21, 2002 Amended Decision, finding Respondent De Vera to be a purchaser in good faith and for value. The appellate court ruled that she had relied in good faith on the Torrens title of her vendor and must thus be protected.8 Hence, this Petition.9 Issues Petitioners raise for our consideration the issues below: "1. Whether or not the deed of sale executed by Gloria Villafania in favor of [R]espondent Romana de Vera is valid. "2. Whether or not the [R]espondent Romana de Vera is a purchaser for value in good faith. "3. Who between the petitioners and respondent has a better title over the property in question."10 In the main, the issues boil down to who between petitioner-spouses and respondent has a better right to the property. The Courts Ruling The Petition is bereft of merit. Main Issue: Better Right over the Property Petitioners contend that Gloria Villafania could not have transferred the property to Respondent De Vera because it no longer belonged to her.11 They further claim that the sale could not be validated, since respondent was not a purchaser in good faith and for value.12 Law on Double Sale The present case involves what in legal contemplation was a double sale. On May 27, 1993, Gloria Villafania first sold the disputed property to Rosenda Tigno-Salazar

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and Rosita Cave-Go, from whom petitioners, in turn, derived their right. Subsequently, on October 23, 1997, a second sale was executed by Villafania with Respondent Romana de Vera. Article 1544 of the Civil Code states the law on double sale 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 the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith." Otherwise stated, the law provides that a double sale of immovables transfers ownership to (1) the first registrant in good faith; (2) then, the first possessor in good faith; and (3) finally, the buyer who in good faith presents the oldest title.13 There is no ambiguity in the application of this law with respect to lands registered under the Torrens system. This principle is in full accord with Section 51 of PD 152914 which provides that no deed, mortgage, lease or other voluntary instrument -- except a will -- purporting to convey or affect registered land shall take effect as a conveyance or bind the land until its registration.15 Thus, if the sale is not registered, it is binding only between the seller and the buyer but it does not affect innocent third persons.16 In the instant case, both Petitioners Abrigo and respondent registered the sale of the property. Since neither petitioners nor their predecessors (Tigno-Salazar and CaveGo) knew that the property was covered by the Torrens system, they registered their respective sales under Act 3344.17 For her part, respondent registered the transaction under the Torrens system18 because, during the sale, Villafania had presented the transfer certificate of title (TCT) covering the property.19 Respondent De Vera contends that her registration under the Torrens system should prevail over that of petitioners who recorded theirs under Act 3344. De Vera relies on the following insight of Justice Edgardo L. Paras: "x x x If the land is registered under the Land Registration Act (and has therefore a Torrens Title), and it is sold but the subsequent sale is registered not under the Land Registration Act but under Act 3344, as

amended, such sale is not considered REGISTERED, as the term is used under Art. 1544 x x x."20 We agree with respondent. It is undisputed that Villafania had been issued a free patent registered as Original Certificate of Title (OCT) No. P-30522.21 The OCT was later cancelled by Transfer Certificate of Title (TCT) No. 212598, also in Villafanias name.22 As a consequence of the sale, TCT No. 212598 was subsequently cancelled and TCT No. 22515 thereafter issued to respondent. Soriano v. Heirs of Magali23 held that registration must be done in the proper registry in order to bind the land. Since the property in dispute in the present case was already registered under the Torrens system, petitioners registration of the sale under Act 3344 was not effective for purposes of Article 1544 of the Civil Code. More recently, in Naawan Community Rural Bank v. Court of Appeals,24 the Court upheld the right of a party who had registered the sale of land under the Property Registration Decree, as opposed to another who had registered a deed of final conveyance under Act 3344. In that case, the "priority in time" principle was not applied, because the land was already covered by the Torrens system at the time the conveyance was registered under Act 3344. For the same reason, inasmuch as the registration of the sale to Respondent De Vera under the Torrens system was done in good faith, this sale must be upheld over the sale registered under Act 3344 to Petitioner-Spouses Abrigo. Radiowealth Finance Co. v. Palileo25 explained the difference in the rules of registration under Act 3344 and those under the Torrens system in this wise: "Under Act No. 3344, registration of instruments affecting unregistered lands is without prejudice to a third party with a better right. The aforequoted phrase has been held by this Court to mean that the mere registration of a sale in ones favor does not give him any right over the land if the vendor was not anymore the owner of the land having previously sold the same to somebody else even if the earlier sale was unrecorded. "The case of Carumba vs. Court of Appeals26 is a case in point. It was held therein that Article 1544 of the Civil Code has no application to land not registered under Act No. 496. Like in the case at bar, Carumba dealt with a double sale of the same unregistered land. The first sale was made by the original owners and was unrecorded while the second was an execution sale that resulted from a complaint for a sum of money filed against the said original owners. Applying [Section 33], Rule 39 of the Revised Rules of Court,27 this Court held that Article 1544 of the Civil Code cannot be invoked to benefit the purchaser at the execution sale though the latter was a buyer in good faith and even if this second sale was registered. It was explained that this is because the purchaser of unregistered land at a

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sheriffs execution sale only steps into the shoes of the judgment debtor, and merely acquires the latters interest in the property sold as of the time the property was levied upon. "Applying this principle, x x x the execution sale of unregistered land in favor of petitioner is of no effect because the land no longer belonged to the judgment debtor as of the time of the said execution sale."28 Petitioners cannot validly argue that they were fraudulently misled into believing that the property was unregistered. A Torrens title, once registered, serves as a notice to the whole world.29 All persons must take notice, and no one can plead ignorance of the registration.30 Good-Faith Requirement We have consistently held that Article 1544 requires the second buyer to acquire the immovable in good faith and to register it in good faith.31 Mere registration of title is not enough; good faith must concur with the registration.32 We explained the rationale in Uraca v. Court of Appeals,33 which we quote: "Under the foregoing, the prior registration of the disputed property by the second buyer does not by itself confer ownership or a better right over the property. Article 1544 requires that such registration must be coupled with good faith. Jurisprudence teaches us that (t)he governing principle is primus tempore, potior jure (first in time, stronger in right). Knowledge gained by the first buyer of the second sale cannot defeat the first buyers rights except where the second buyer registers in good faith the second sale ahead of the first, as provided by the Civil Code. 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 converso, 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 buyers rights) ---- from the time of acquisition until the title is transferred to him by registration, or failing registration, by delivery of possession."34 (Italics supplied) Equally important, under Section 44 of PD 1529, every registered owner receiving a certificate of title pursuant to a decree of registration, and every subsequent purchaser of registered land taking such certificate for value and in good faith shall hold the same free from all encumbrances, except those noted and enumerated in the certificate.35 Thus, a person dealing with registered land is not required to go behind the registry to determine the condition of the property, since such condition is noted

on the face of the register or certificate of title.36 Following this principle, this Court has consistently held as regards registered land that a purchaser in good faith acquires a good title as against all the transferees thereof whose rights are not recorded in the Registry of Deeds at the time of the sale.37 Citing Santiago v. Court of Appeals,38 petitioners contend that their prior registration under Act 3344 is constructive notice to respondent and negates her good faith at the time she registered the sale. Santiago affirmed the following commentary of Justice Jose C. Vitug: "The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the first buyer of the second sale cannot defeat the first buyer's rights except when the second buyer first registers in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since such knowledge taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No 58530, 26 December 1984) In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984; 129 SCRA 656), it was held that it is essential, to merit the protection of Art. 1544, second paragraph, that the second realty buyer must act in good faith in registering his deed of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. 95843, 02 September 1992). xxx xxx xxx

"Registration of the second buyer under Act 3344, providing for the registration of all instruments on land neither covered by the Spanish Mortgage Law nor the Torrens System (Act 496), cannot improve his standing since Act 3344 itself expresses that registration thereunder would not prejudice prior rights in good faith (see Carumba vs. Court of Appeals, 31 SCRA 558). Registration, however, by the first buyer under Act 3344 can have the effect of constructive notice to the second buyer that can defeat his right as such buyer in good faith (see Arts. 708-709, Civil Code; see also Revilla vs. Galindez, 107 Phil. 480; Taguba vs. Peralta, 132 SCRA 700). Art. 1544 has been held to be inapplicable to execution sales of unregistered land, since the purchaser merely steps into the shoes of the debtor and acquires the latter's interest as of the time the property is sold (Carumba vs. Court of Appeals, 31 SCRA 558; see also Fabian vs. Smith, Bell & Co., 8 Phil. 496) or when there is only one sale (Remalante vs. Tibe, 158 SCRA 138)."39 (Emphasis supplied) Santiago was subsequently applied in Bayoca v. Nogales,40 which held: "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,

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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. x x x."41 Santiago and Bayoca are not in point. In Santiago, the first buyers registered the sale under the Torrens system, as can be inferred from the issuance of the TCT in their names.42 There was no registration under Act 3344. In Bayoca, when the first buyer registered the sale under Act 3344, the property was still unregistered land.43 Such registration was therefore considered effectual. Furthermore, Revilla and Taguba, which are cited in Santiago, are not on all fours with the present case. In Revilla, the first buyer did not register the sale.44 In Taguba, registration was not an issue.45 As can be gathered from the foregoing, constructive notice to the second buyer through registration under Act 3344 does not apply if the property is registered under the Torrens system, as in this case. We quote below the additional commentary of Justice Vitug, which was omitted in Santiago. This omission was evidently the reason why petitioner misunderstood the context of the citation therein: "The registration contemplated under Art. 1544 has been held to refer to registration under Act 496 Land Registration Act (now PD 1529) which considers the act of registration as the operative act that binds the land (see Mediante vs. Rosabal, 1 O.G. [12] 900, Garcia vs. Rosabal, 73 Phil 694). On lands covered by the Torrens System, the purchaser acquires such rights and interest as they appear in the certificate of title, unaffected by any prior lien or encumbrance not noted therein. The purchaser is not required to explore farther than what the Torrens title, upon its face, indicates. The only exception is where the purchaser has actual knowledge of a flaw or defect in the title of the seller or of such liens or encumbrances which, as to him, is equivalent to registration (see Sec. 39, Act 496; Bernales vs. IAC, G.R. 75336, 18 October 1988; Hernandez vs. Sales, 69 Phil 744; Tajonera vs. Court of Appeals, L-26677, 27 March 1981),"46 Respondent in Good Faith The Court of Appeals examined the facts to determine whether respondent was an innocent purchaser for value.47 After its factual findings revealed that Respondent De Vera was in good faith, it explained thus:

"x x x. Gloria Villafania, [Respondent] De Veras vendor, appears to be the registered owner. The subject land was, and still is, registered in the name of Gloria Villafania. There is nothing in her certificate of title and in the circumstances of the transaction or sale which warrant [Respondent] De Vera in supposing that she need[ed] to look beyond the title. She had no notice of the earlier sale of the land to [petitioners]. She ascertained and verified that her vendor was the sole owner and in possession of the subject property by examining her vendors title in the Registry of Deeds and actually going to the premises. There is no evidence in the record showing that when she bought the land on October 23, 1997, she knew or had the slightest notice that the same was under litigation in Civil Case No. D-10638 of the Regional Trial Court of Dagupan City, Branch 40, between Gloria Villafania and [Petitioners] Abrigo. She was not even a party to said case. In sum, she testified clearly and positively, without any contrary evidence presented by the [petitioners], that she did not know anything about the earlier sale and claim of the spouses Abrigo, until after she had bought the same, and only then when she bought the same, and only then when she brought an ejectment case with the x x x Municipal Court of Mangaldan, known as Civil Case No. 1452. To the [Respondent] De Vera, the only legal truth upon which she had to rely was that the land is registered in the name of Gloria Villafania, her vendor, and that her title under the law, is absolute and indefeasible. x x x."48 We find no reason to disturb these findings, which petitioners have not rebutted. Spouses Abrigo base their position only on the general averment that respondent should have been more vigilant prior to consummating the sale. They argue that had she inspected the property, she would have found petitioners to be in possession.49 This argument is contradicted, however, by the spouses own admission that the parents and the sister of Villafania were still the actual occupants in October 1997, when Respondent De Vera purchased the property.50 The family members may reasonably be assumed to be Villafanias agents, who had not been shown to have notified respondent of the first sale when she conducted an ocular inspection. Thus, good faith on respondents part stands. WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioners. SO ORDERED. Davide, Jr., Ynares-Santiago*, Carpio, and Azcuna, JJ., concur.

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Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-18497 May 31, 1965

In the year 1955, Sammy Maron and his seven brothers and sisters were pro-indiviso owners of a parcel of unregistered land located in barrio Parayao, Municipality of Binmaley, Pangasinan. While their application for registration of said land under Act No. 496 was pending, they executed, on June 19 and September 21, 1955, two deeds of sale conveying the property to appellee, who thereafter took possession thereof and proceeded to introduce substantial improvements therein. One month later, that is, on October 14, 1955, Original Certificate of Title No. 6942 covering the land was issued in the name of the Maron's, free from all liens and encumbrances. On August 4, 1956, by virtue of a final judgment rendered in Civil Case No. 42215 of the Municipal Court of Manila against Sammy Maron in favor of the Manila Trading and Supply Company, levy was made upon whatever interest he had in the aforementioned property, and thereafter said interest was sold at public auction to the judgment creditor. The corresponding notice of levy, certificate of sale and the Sheriff's certificate of final sale in favor of the Manila Trading and Supply Co. because nobody exercised the right of redemptions were duly registered. On March 1, 1958, the latter sold all its rights and title to the property to appellant. The question before Us now is: Who has the better right as between appellant Dagupan Trading Company, on the one hand, and appellee Rustico Macam, on the other, to the one-eighth share of Sammy Maron in the property mentioned heretofore? If the property covered by the conflicting sales were unregistered land, Macam would undoubtedly have the better right in view of the fact that his claim is based on a prior sale coupled with public, exclusive and continuous possession thereof as owner. On the other hand, were the land involved in the conflicting transactions duly registered land, We would be inclined to hold that appellant has the better right because, as We have consistently held, in case of conveyance of registered real estate, the registration of the deed of sale is the operative act that gives validity to the transfer. This would be fatal to appellee's claim, the deeds of sale executed in his favor by the Maron's not having been registered, while the levy in execution and the provisional certificate of sale as well as the final deed of sale in favor of appellant were registered. Consequently, this registered conveyance must prevail although posterior to the one executed in favor of appellee, and appellant must be deemed to have acquired such right, title and interest as appeared on the certificate of title issued in favor of Sammy Maron, subject to no lien, encumbrance or burden not noted thereon. (Anderson & Co. vs. Garcia, 64 Phil. 506; Reynes, et al. vs. Barrera, et al., 68 Phil. 656; Banco Nacional, etc. vs. Camus, 70 Phil. 289) The present case, however, does not fall within either, situation. Here the sale in favor of appellee was executed before the land subject-matter thereof was registered, while the conflicting sale in favor of appellant was executed after the same property had been registered. We cannot, therefore, decide the case in the light of whatever adjudicated cases there are covering the two situations mentioned in the preceding paragraph. It is our considered view that what should determine the issue are the

DAGUPAN TRADING COMPANY, petitioner, vs. RUSTICO MACAM, respondent. Angel Sanchez for petitioner. Manuel L. Fernandez for respondent. DIZON, J.: Appeal taken by the Dagupan Trading Company from the decision of the Court of Appeals affirming the one rendered by the Court of First Instance of Pangasinan in Civil Case No. 13772, dismissing its complaint. On September 4, 1958, appellant commenced the action mentioned above against appellee Rustico Macam, praying that it be declared owner of one-eighth portion of the land described in paragraph 2 of the complaint; that a partition of the whole property be made; that appellee be ordered to pay it the amount of P500.00 a year as damages from 1958 until said portion is delivered, plus attorney's fees and costs. Answering the complaint, appellee alleged, in the main, that Sammy Maron's share in the property described in the complaint, as well as that of all his co-heirs, had been acquired by purchase by appellee since June 19 and September 21, 1955, before the issuance of the original certificate of title in their name; that at the time the levy in execution was made on Sammy Maron's share therein, the latter had no longer any right or interest in said property; that appellant and its predecessor in interest were cognizant of the facts already mentioned; that since the sales made in his favor, he had enjoyed uninterrupted possession of the property and introduced considerable improvements thereon. Appellee likewise sought to recover damages by way of counterclaim. After trial upon the issue thus joined, the court rendered judgment dismissing the complaint, which, on appeal, was affirmed by the Court of Appeals. The facts of the case are not disputed.

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provisions of the last paragraph of Section 35, Rule 39 of the Rules of Court, to the effect that upon the execution and delivery of the final certificate of sale in favor of the purchaser of land sold in an execution sale, such purchaser "shall be substituted to and acquire all the right, title, interest and claim of the judgment debtor to the property as of the time of the levy." Now We ask: What was the interest and claim of Sammy Maron on the one-eighth portion of the property inherited by him and his co-heirs, at the time of the levy? The answer must necessarily be that he had none, because for a considerable time prior to the levy, his interest had already been conveyed to appellee, "fully and retrievably as the Court of Appeals held. Consequently, subsequent levy made on the property for the purpose of satisfying the judgment rendered against Sammy Maron in favor of the Manila Trading Company was void and of no effect (Buson vs. Licuaco, 13 Phil. 357-358; Landig vs. U.S. Commercial Company, G.R. No. L-3597, July 31, 1951). Needless to say, the unregistered sale and the consequent conveyance of title and ownership in favor of appellee could not have been cancelled and rendered of no effect upon the subsequent issuance of the Torrens title over the entire parcel of land. We cannot, therefore, but agree with the following statement contained in the appealed decision: ... . Separate and apart from this however, we believe that in the inevitable conflict between a right of ownership already fixed and established under the Civil Law and/or the Spanish Mortgage Law which cannot be affected by any subsequent levy or attachment or execution and a new law or system which would make possible the overthrowing of such ownership on admittedly artificial and technical grounds, the former must be upheld and applied.1wph1.t But to the above considerations must be added the important circumstance that, as already stated before, upon the execution of the deed of sale in his favor by Sammy Maron, appellee took possession of the land conveyed as owner thereof, and introduced considerable improvements thereon. To deprive him now of the same by sheer force of technicality would be against both justice and equity. IN VIEW OF ALL THE FOREGOING, the decision appealed from is affirmed, with costs. Bengzon, C.J., Bautista Angelo, Barrera, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur.

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Republic of the Philippines SUPREME COURT Manila EN BANC

Canuto is the older brother of the wife of the herein appellee, Amado Carumba. On January 21, 1957, a complaint (Exh. B) for a sum or money was filed by Santiago Balbuena against Amado Canuto and Nemesia Ibasco before the Justice of the Peace Court of Iriga, Camarines Sur, known as Civil Case No. 139 and on April 15, 1967, a decision (Exh. C) was rendered in favor of the plaintiff and against the defendants. On October 1, 1968, the ex-officio Sheriff, Justo V. Imperial, of Camarines Sur, issued a "Definite Deed of Sale (Exh. D) of the property now in question in favor of Santiago Balbuena, which instrument of sale was registered before the Office of the Register of Deeds of Camarines Sur, on October 3, 1958. The aforesaid property was declared for taxation purposes (Exh. 1) in the name of Santiago Balbuena in 1958. The Court of First instance, finding that after execution of the document Carumba had taken possession of the land, planting bananas, coffee and other vegetables thereon, declared him to be the owner of the property under a consummated sale; held void the execution levy made by the sheriff, pursuant to a judgment against Carumba's vendor, Amado Canuto; and nullified the sale in favor of the judgment creditor, Santiago Balbuena. The Court, therefore, declared Carumba the owner of the litigated property and ordered Balbuena to pay P30.00, as damages, plus the costs. The Court of Appeals, without altering the findings of fact made by the court of origin, declared that there having been a double sale of the land subject of the suit Balbuena's title was superior to that of his adversary under Article 1544 of the Civil Code of the Philippines, since the execution sale had been properly registered in good faith and the sale to Carumba was not recorded. We disagree. While under the invoked Article 1544 registration in good faith prevails over possession in the event of a double sale by the vendor of the same piece of land to different vendees, said article is of no application to the case at bar, even if Balbuena, the later vendee, was ignorant of the prior sale made by his judgment debtor in favor of petitioner Carumba. The reason is that the purchaser of unregistered land at a sheriff's execution sale only steps into the shoes of the judgment debtor, and merely acquires the latter's interest in the property sold as of the time the property was levied upon. This is specifically provided by section 35 of Rule 39 of the Revised Rules of Court, the second paragraph of said section specifically providing that: Upon the execution and delivery of said (final) deed the purchaser, redemptioner, or his assignee shall be substituted to and acquire all the right, title, interest, and claim of the

G.R. No. L-27587 February 18, 1970 AMADO CARUMBA, petitioner, vs. THE COURT OF APPEALS, SANTIAGO BALBUENA and ANGELES BOAQUIA as Deputy Provincial Sheriff, respondents. Luis N. de Leon for petitioner. Reno R. Gonzales for respondents.

REYES, J.B.L., J.: Amado Carumba petitions this Supreme Court for a certiorari to review a decision of the Court of Appeals, rendered in its Case No. 36094-R, that reversed the judgment in his favor rendered by the Court of First Instance of Camarines Sur (Civil Case 4646). The factual background and history of these proceedings is thus stated by the Court of Appeals (pages 1-2): On April 12, 1955, the spouses Amado Canuto and Nemesia Ibasco, by virtue of a "Deed of Sale of Unregistered Land with Covenants of Warranty" (Exh. A), sold a parcel of land, partly residential and partly coconut land with a periphery (area) of 359.09 square meters, more or less, located in the barrio of Santo Domingo, Iriga, Camarines Sur, to the spouses Amado Carumba and Benita Canuto, for the sum of P350.00. The referred deed of sale was never registered in the Office of the Register of Deeds of Camarines Sur, and the Notary, Mr. Vicente Malaya, was not then an authorized notary public in the place, as shown by Exh. 5. Besides, it has been expressly admitted by appellee that he is the brother-in-law of Amado Canuto, the alleged vendor of the property sold to him. Amado

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judgment debtor to the property as of the time of the levy, except as against the judgment debtor in possession, in which case the substitution shall be effective as of the time of the deed ... (Emphasis supplied) While the time of the levy does not clearly appear, it could not have been made prior to 15 April 1957, when the decision against the former owners of the land was rendered in favor of Balbuena. But the deed of sale in favor of Canuto had been executed two years before, on 12 April 1955, and while only embodied in a private document, the same, coupled with the fact that the buyer (petitioner Carumba) had taken possession of the unregistered land sold, sufficed to vest ownership on the said buyer. When the levy was made by the Sheriff, therefore, the judgment debtor no longer had dominical interest nor any real right over the land that could pass to the purchaser at the execution sale.1 Hence, the latter must yield the land to petitioner Carumba. The rule is different in case of lands covered by Torrens titles, where the prior sale is neither recorded nor known to the execution purchaser prior to the levy;2 but the land here in question is admittedly not registered under Act No. 496. WHEREFORE, the decision of the Court of Appeals is reversed and that of the Court of First Instance affirmed. Costs against respondent Santiago Balbuena. Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Teehankee, Barredo and Villamor, JJ., concur.

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leased for 3 years the property to Leonardo at P1,000.00 per hectare12 and which was witnessed by two women employees of one Judge Villegas of Bais City. Republic of the Philippines SUPREME COURT THIRD DIVISION G.R. No. 148376. March 31, 2005 LEONARDO ACABAL and RAMON NICOLAS, Petitioners, vs. VILLANER ACABAL, EDUARDO ACABAL, SOLOMON ACABAL, GRACE ACABAL, MELBA ACABAL, EVELYN ACABAL, ARMIN ACABAL, RAMIL ACABAL, and BYRON ACABAL, Respondents. DECISION CARPIO MORALES, J.: Before this Court is a Petition for Review on Certiorari of the February 15, 2001 Decision1 of the Court of Appeals reversing that of the Regional Trial Court (RTC) of Dumaguete City, Branch 35.2 In dispute is the exact nature of the document3 which respondent Villaner Acabal (Villaner) executed in favor of his godson-nephew-petitioner Leonardo Acabal (Leonardo) on April 19, 1990. Villaners parents, Alejandro Acabal and Felicidad Balasabas, owned a parcel of land situated in Barrio Tanglad, Manjuyod, Negros Oriental, containing an area of 18.15 hectares more or less, described in Tax Declaration No. 15856.4 By a Deed of Absolute Sale dated July 6, 1971,5 his parents transferred for P2,000.00 ownership of the said land to him, who was then married to Justiniana Lipajan.6 Sometime after the foregoing transfer, it appears that Villaner became a widower. A: Employees of Judge Villegas of Bais City. Subsequently, he executed on April 19, 1990 a deed conveying the same property in favor of Leonardo.
7 8

Villaner thus filed on October 11, 1993 a complaint13 before the Dumaguete RTC against Leonardo and Ramon Nicolas to whom Leonardo in turn conveyed the property, for annulment of the deeds of sale. At the witness stand, Villaner declared: Q: It appears, Mr. Acabal, that you have signed a document of sale with the defendant Leonardo Acabal on April 19, 1990, please tell the court whether you have really agreed to sell this property to the defendant on or before April 19, 1990? A: We had some agreement but not about the selling of this property. Q: What was your agreement with the defendant Leonardo Acabal? A: Our agreement [was] that he will just rent.14 xxx Q: Now, please tell the court how were you able to sign this document on April 19, 1990? A: I do not know why I signed that, that is why I am puzzled. Q: Why, did you not read the contents of this document? A: I have not read that. I only happened to read the title of the Lease Contract. Q: And do you recall who were the witnesses of the document which you signed in favor of Leonardo Acabal?

Q: Did you see them sign that document? A: Yes, sir. Q: These signatures appearing in this document marked as Exhibit "C" for the plaintiff and Exhibit "1" for the defendant, please examine over (sic) these

Villaner was later to claim that while the April 19, 1990 document he executed now appears to be a "Deed of Absolute Sale" purportedly witnessed by a Bais City trial court clerk Carmelo Cadalin and his wife Lacorte, what he signed was a document captioned "Lease Contract"9 (modeled after a July 1976 lease agreement10 he had previously executed with previous lessee, Maria Luisa Montenegro11) wherein he

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signatures if these were the signatures of these witnesses who signed this document? A: These are not the signatures of the two women. Q: And after signing this document on April 19, 1990, did you appear before a notary public to have this notarized? A: No, I went home to San Carlos.15 xxx Q: According to this document, you sell (sic) this property at P10,000.00, did you sell this property to Leonardo Acabal? A: No, sir. Q: How about after April 19, 1990, did you receive this amount from Leonardo Acabal? A: No, sir.16 xxx Q: Now you said that on May 25, 1990, Leonardo Acabal did not pay the amount that he promised to you, what did you do of (sic) his refusal to pay that amount? A: I went to Mr. [Carmelo] Mellie Cadalin because he was the one who prepared the papers and to ask Leonardo Acabal why he will not comply with our agreement. Q: By the way, who is this Mellie Cadalin? A: Mellie Cadalin is also working in the sala of Judge Villegas. Q: Who requested Mellie Cadalin to prepare this document? A: Maybe it was Leonardo Acabal. Q: By the way, when for the first time did you talk to Leonardo Acabal regarding your agreement to lease this property to him?

A: March 14, 1990, in San Carlos. Q: And what document did you give to him in order that that document will be prepared? A: I have given (sic) some papers and contract of lease that I have signed to (sic) Mrs. Montenegro.17 (Emphasis and underscoring supplied) xxx Q: Now, Carmelo Cadalin ["Mellie"] also testified before this court that in fact he identified the document marked as Exhibit "C" for the plaintiff that what you executed on April 19, 1990 was a deed of sale and not a contract of lease, what can you say to that statement? A: That is a lie. Q: And whats the truth then? A: What really (sic) I have signed was the document of lease contract. Q: Now, can you explain to the Honorable Court why it so happened that on April 19, you were able to sign a deed of sale? A: What I can see now is that perhaps those copies of the deed of sale were placed by Mr. Cadalin under the documents which I signed the lease contract. But why is it that it has already a deed of sale when what I have signed was only the lease of contract or the contract of lease. Q: Now, Mr. Cadalin also stated before this court that he handed over to you this Deed of Sale marked as Exhibit "C" and according to him you read this document, what can you say to this statement? A: Yes, there was a document that he gave me to read it (sic)but it was a contract of lease. Q: How sure are you that what you signed on April 19, 1990 was really a contract of lease and not a contract of sale? A: Because when I signed the contract of lease the witnesses that witnessed my signing the document were the employees of Judge Villegas and then I am now surprised why in the deed of sale which I purportedly signed are witnessed by Carmelo Cadalin and his wife Lacorte.18 (Emphasis and underscoring supplied)

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On the other hand, Leonardo asserts that what Villaner executed was a Deed of Absolute Sale for a consideration of P10,000.00 which he had already paid,19 and as he had become the absolute owner of the property, he validly transferred it to Ramon Nicolas on May 19, 1990.20 Carmelo Cadalin who admittedly prepared the deed of absolute sale and who appears as a witness, along with his wife, to the execution of the document corroborated Leonardos claim: Q: Mr. Cadalin, do you know the plaintiff Villaner Acabal? A: Yes, I know.21 xxx Q: And I would like to ask you Mr. witness why do you know Villaner Acabal? A: At the time that he went to our house together with Leonardo Acabal he requested me to prepare a deed of sale as regards to a sale of the property.22 xxx Q: And after they requested you to prepare a document of sale, what did you do? A: At first I refused to [do] it because I have so many works to do, but then they insisted so I prepared the deed. Q: After you prepared the document, what did you do? A: After I prepared it I gave it to him so that he could read the same. Q: When you say "him," whom do you refer to? A: Villaner Acabal. Q: And did Villaner Acabal read the document you prepared? A: Yes, he read it. Q: And after reading it what did Villaner Acabal do? A: He signed the document. Q: Showing to you a document which is marked Exhibit C for the plaintiff and Exhibit 1 for the defendants, please tell the Honorable Court what relation this document has to the document which you described earlier? COURT INTERPRETER: Witness is confronted with the said document earlier marked as Exhibit C for the prosecution and Exhibit 1 for the defense. A: Yes, this is the one.23 xxx Q: Also stated in the document is the phrase "Signed in the presence of" and there is a number and then two signatures, could you please examine the document and say whether these signatures are familiar to you? A: Yes, number one is my signature and number 2 is the signature of my wife as witness.24 xxx Q: After Villaner Acabal signed the document, what did Villaner Acabal do? A: He was given the payment by Leonardo Acabal.25 xxx Q: Aside from the document, deed of absolute sale, that you mentioned earlier that you prepared for Villaner Acabal and Leonardo Acabal, what other documents, if any, did you prepare for them?

A: Affidavit of non-tenancy and aggregate area.26 (Emphasis and underscoring supplied) The complaint was later amended27 to implead Villaners eight children as party plaintiffs, they being heirs of his deceased wife. By Decision of August 8, 1996, the trial court found for the therein defendantsherein petitioners Leonardo and Ramon Nicolas and accordingly dismissed the complaint. Villaner et al. thereupon brought the case on appeal to the Court of Appeals which reversed the trial court, it holding that the Deed of Absolute Sale executed by Villaner in favor of Leonardo was simulated and fictitious."28 Hence, Leonardo and Ramon Nicolas present petition for review on certiorari,29 anchored on the following assignments of error: I. THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT RESPONDENT VILLANER ACABAL WAS DECEIVED INTO SIGNING THE DEED OF ABSOLUTE SALE WHEN THE LATTER KNOWINGLY, FREELY AND VOLUNTARILY EXECUTED THE SAME IN FAVOR OF PETITIONER LEONARDO ACABAL. II. THE COURT OF APPEALS ERRED WHEN IT RULED THAT THE CONSIDERATION OF THE DEED OF ABSOLUTE SALE IN THE AMOUNT OF TEN THOUSAND PESOS (P10,0000.00) WAS "UNUSUALLY LOW AND INADEQUATE," ESPECIALLY TAKING INTO ACCOUNT THE LOCATION OF THE SUBJECT PROPERTY. III. THE COURT OF APPEALS ERRED WHEN IT FAILED TO CONSIDER WHY RESPONDENT VILLANER ACABAL ONLY QUESTIONED THE POSSESSION AND OWNERSHIP OF PETITIONER RAMON NICOLAS IN COURT AFTER THE LATTER WAS IN OPEN, CONTINUOUS AND PEACEFUL POSSESSION OF THE SUBJECT PROPERTY FOR ALMOST THREE (3) YEARS. IV. THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN LAW WHEN IT FAILED TO DECLARE PETITIONER RAMON NICOLAS AS A BUYER IN GOOD FAITH AS THE LATTER TOOK THE NECESSARY STEPS

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AN ORDINARY AND PRUDENT MAN WOULD HAVE TAKEN BEFORE BUYING THE QUESTIONED PROPERTY. V. THE COURT OF APPEALS ERRED IN RULING IN FAVOR OF RESPONDENT VILLANER ACABAL WHEN THE LATTER DID NOT PRESENT A SINGLE WITNESS TO TESTIFY ON THE ALLEGED CONTRACT OF LEASE WHICH HE ALLEGEDLY SIGNED AND WITNESSED BY THE EMPLOYEES OF JUDGE VILLEGAS. VI. THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN LAW WHEN IT RULED THAT RULE 8, SECTION 8 OF THE 1987 (sic) RULE (sic) OF CIVIL PROCEDURE IS NOT APPLICABLE IN THE CASE AT BAR, CONTRARY TO THE RULING OF THE LOWER COURT. VII. THE COURT OF APPEALS ERRED WHEN IT ORDERED PETITIONERS TO PAY RESPONDENTS "JOINTLY AND SEVERALLY BY WAY OF RENTAL THE SUM OF P10,000.00 PER YEAR FROM 1990 UP TO THE TIME THEY VACATE THE PREMISES."30 Procedurally, petitioners contend that the Court of Appeals erred when it failed to apply Section 8, Rule 8 of the Rules of Court, respondent Villaner having failed to deny under oath the genuineness and due execution of the April 19, 1990 Deed of Absolute Sale. Petitioners contention does not persuade. The failure to deny the genuineness and due execution of an actionable document does not preclude a party from arguing against it by evidence of fraud, mistake, compromise, payment, statute of limitations, estoppel, and want of consideration.31 On the merits, this Court rules in petitioners favor. It is a basic rule in evidence that the burden of proof lies on the party who makes the allegations32 ei incumbit probatio, qui dicit, non qui negat; cum per rerum naturam factum negantis probatio nulla sit.33 If he claims a right granted by law, he must prove it by competent evidence, relying on the strength of his own evidence and not upon the weakness of that of his opponent.

More specifically, allegations of a defect in or lack of valid consent to a contract by reason of fraud or undue influence are never presumed but must be established not by mere preponderance of evidence but by clear and convincing evidence.34 For the circumstances evidencing fraud and misrepresentation are as varied as the people who perpetrate it in each case, assuming different shapes and forms and may be committed in as many different ways.35 In the case at bar, it was incumbent on the plaintiff-herein respondent Villaner to prove that he was deceived into executing the Deed of Absolute Sale. Except for his bare allegation that the transaction was one of lease, he failed to adduce evidence in support thereof. His conjecture that "perhaps those copies of the deed of sale were placed by Mr. Cadalin under the documents which I signed the contract of lease,"36 must fail, for facts not conjectures decide cases. Attempting to seek corroboration of his account, Villaner presented Atty. Vicente Real who notarized the document. While on direct examination, Atty. Real virtually corroborated Villaners claim that he did not bring the document to him for notarization,37 on cross-examination, Atty. Real conceded that it was impossible to remember every person who would ask him to notarize documents: Q: And in the course of your notarization, can you remember each and every face that come (sic) to you for notarization? A: No, it is impossible. Q: In the case of Villaner Acabal which you have his document notarized (sic) in 1990, can you remember his face when he came to you? A: No. Q: And can you also say, if a person who came to you having a document to be notarized and if he will appear again after a month, can you remember whether he was the one who came to you? A: Not so much because everyday there are many people who appear with documents to be notarized, Q: So, it is safe to say that if Villaner Acabal came to you on April 25 or rather April 16, 1990 andhave (sic) his document notarized if he comes back in, say May 25, can you still remember if he was the one who came to you? A: I cannot be sure but at least, there are times I can remember persons because he seems to be close to me already.

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Q: Is this Villaner close to you? A: Because he has been frequenting the house/asking for a copy of the document. Q: So, he became close to you after you notarized the document? A: Yes.38 (Emphasis and underscoring supplied) On Villaners claim that two women employees of Judge Villegas signed as witnesses to the deed39 but that the signatures appearing thereon are not those of said witnesses,40 the same must be discredited in light of his unexplained failure to present such alleged women employee-witnesses. In another vein, Villaner zeroes in on the purchase price of the property P10,000.00 which to him was unusually low if the transaction were one of sale. To substantiate his claim, Villaner presented Tax Declarations covering the property for the years 1971,41 1974,42 1977,43 1980,44 1983,45 1985,46 as well as a Declaration of Real Property executed in 1994.47 It bears noting, however, that Villaner failed to present evidence on the fair market value of the property as of April 19, 1990, the date of execution of the disputed deed. Absent any evidence of the fair market value of a land as of the time of its sale, it cannot be concluded that the price at which it was sold was inadequate.48 Inadequacy of price must be proven because mere speculation or conjecture has no place in our judicial system.49 Victor Ragay, who was appointed by the trial court to conduct an ocular inspection of the property and to investigate matters relative to the case,51 gave an instructive report dated December 3, 1994,52 the pertinent portions of which are hereby reproduced verbatim:
50

e) some areas, eastward of and adjacent of the land in question (mistakenly to be owned by the defendant Nicolas) were planted to sugar cane by the owners Kadusales; f) the road going to the land in question (as claimed to be the road) is no longer passable because it has been abandoned and not maintained by anyone, thus it makes everything impossible for anybody to get and haul the sugar cane from the area; g) the Commissioner has discovered some stockpiles of abandoned harvested sugar canes left to rot, along the side of the road, undelivered to the milling site because of the difficulty in bringing up trucks to the scene of the harvest; h) the sugarcanes presently planted on the land in question at the time of the ocular inspection were three (3) feet in height and their structural built was thin or lean; i) Most of the part of the 18 hectares is not planted or cultivated because the same is too rocky and not suitable for planting to sugarcane.53 Additionally, Ragay reported that one Anatolio Cabusog recently purchased a 6hectare property adjoining that of the subject property for only P1,600.0054 or P266.67 per hectare. Given that, had the 18-hectare subject property been sold at about the same time, it would have fetched the amount of P4,800.00,55 hence, the P10,000.00 purchase price appearing in the questioned April 19, 1990 document is more than reasonable. Even, however, on the assumption that the price of P10,000.00 was below the fair market value of the property in 1990, mere inadequacy of the price per se will not rule out the transaction as one of sale. For the price must be grossly inadequate or shocking to the conscience such that the mind revolts at it and such that a reasonable man would neither directly nor indirectly be likely to consent to it.56 Still in another vein, Villaner submits that Leonardos transfer of the property to Nicolas in a span of one month for a profit of P30,000.00 conclusively reflects Leonardos fraudulent intent. This submission is a non sequitur. As for Villaners argument that the sale of the property to Leonardo and the subsequent sale thereof to Nicolas are void for being violative of the retention limits imposed by Republic Act No. 6657, otherwise known as the Comprehensive Agrarian Reform Law, the same fails. The pertinent provisions of said law read: SECTION 6. Retention Limits. Except as otherwise provided in this Act, no person may retain, directly or indirectly, any public or agricultural land, the size of which may vary according to factors governing a viable family-sized farm, such as commodity produced, terrain, infrastructure, and soil fertility as determined by the Presidential Agrarian Reform Council (PARC) created hereunder, but in no case

a) Only three (3) to four (4) hectares of the eighteen (18) were planted to sugar cane, the rest was never cultivated; b) the soil is reddish and somewhat sandy in composition; c) the soil contains so much limestones (rocks consisting mainly of calcium carbonate); d) no part of the land in question is plain or flat, contrary to claim of the plaintiff that almost 10 hectares of the land in question is plain or flat;

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shall retention by the landowner exceed five (5) hectares. Three (3) hectares may be awarded to each child of the landowner, subject to the following qualifications: (1) that he is at least fifteen (15) years of age; and (2) that he is tilling the land or directly managing the farm: Provided, That landowners whose lands have been covered by Presidential Decree No. 27 shall be allowed to keep the areas originally retained by them thereunder:57 Provided further, That original homestead grantees or direct compulsory heirs who still own the original homestead at the time of the approval of this Act shall retain the same areas as long as they continue to cultivate said homestead. xxx Upon the effectivity of this Act, any sale, disposition, lease, management, contract or transfer of possession of private lands executed by the original landowner in violation of this Act shall be null and void: Provided, however, that those executed prior to this Act shall be valid only when registered with the Register of Deeds within a period of three (3) months after the effectivity of this Act. Thereafter, all Registers of Deeds shall inform the DAR within thirty (30) days of any transaction involving agricultural lands in excess of five (5) hectares. xxx SECTION 70. Disposition of Private Agricultural Lands. The sale or disposition of agricultural lands retained by a land owner as a consequence of Section 6 hereof shall be valid as long as the total landholdings that shall be owned by the transferee thereof inclusive of the land to be acquired shall not exceed the landholding ceilings provided for in this Act. Any sale or disposition of agricultural lands after the effectivity of this Act found to be contrary to the provisions hereof shall be null and void. Transferees of agricultural lands shall furnish the appropriate Register of Deeds and the BARC an affidavit attesting that his total landholdings as a result of the said acquisition do not exceed the landholding ceiling. The Register of Deeds shall not register the transfer of any agricultural land without the submission of his sworn statement together with proof of service of a copy thereof to the BARC. (Emphasis and underscoring supplied) As the above-quoted provisions of the Comprehensive Agrarian Reform Law show, only those private lands devoted to or suitable for agriculture are covered by it.58 As priorly related, Victor Ragay, who was appointed by the trial court to conduct an ocular inspection of the property, observed in his report that only three (3) to four (4) hectares were planted with sugarcane while the rest of the property was not suitable for planting as the soil was full of limestone.59 He also remarked that the sugarcanes were only 3 feet in height and very lean,60 whereas sugarcanes usually

grow to a height of 3 to 6 meters (about 8 to 20 feet) and have stems 2 to 5 centimeters (1-2 inches) thick.61 It is thus gathered that the property was not suitable for agricultural purposes. In any event, since the area devoted to the planting of sugarcane, hence, suitable for agricultural purposes, comprises only 4 hectares at the most, it is less than the maximum retention limit prescribed by law. There was then no violation of the Comprehensive Agrarian Reform Law. Even assuming that the disposition of the property by Villaner was contrary to law, he would still have no remedy under the law as he and Leonardo were in pari delicto, hence, he is not entitled to afirmative relief one who seeks equity and justice must come to court with clean hands. In pari delicto potior est conditio defendentis.62 The proposition is universal that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation. The rule has sometimes been laid down as though it were equally universal, that where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other.63 (Emphasis and underscoring supplied) The principle of pari delicto is grounded on two premises: first, that courts should not lend their good offices to mediating disputes among wrongdoers;64 and second, that denying judicial relief to an admitted wrongdoer is an effective means of deterring illegality.65 This doctrine of ancient vintage is not a principle of justice but one of policy as articulated in 1775 by Lord Mansfield in Holman v. Johnson:66 The objection, that a contract is immoral or illegal as between the plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may so say. The principle of public policy is this; ex dolo malo non oritur actio.67 No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiffs own stating or otherwise, the cause of action appears to arise ex turpi causa,68 or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and the defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would then have the advantage of it; for where both are equally in fault potior est conditio defendentis.69 Thus, to serve as both a sanction and as a deterrent, the law will not aid either party to an illegal agreement and will leave them where it finds them.

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The principle of pari delicto, however, is not absolute, admitting an exception under Article 1416 of the Civil Code. ART. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered. Under this article, recovery for what has been paid or delivered pursuant to an inexistent contract is allowed only when the following requisites are met: (1) the contract is not illegal per se but merely prohibited; (2) the prohibition is for the protection of the plaintiffs; and (3) if public policy is enhanced thereby.70 The exception is unavailing in the instant case, however, since the prohibition is clearly not for the protection of the plaintiff-landowner but for the beneficiary farmers.71 In fine, Villaner is estopped from assailing and annulling his own deliberate acts.72 More. Villaner cannot feign ignorance of the law, nor claim that he acted in good faith, let alone assert that he is less guilty than Leonardo. Under Article 3 of the Civil Code, "ignorance of the law excuses no one from compliance therewith." And now, Villaners co-heirs claim that as co-owners of the property, the Deed of Absolute Sale executed by Villaner in favor of Leonardo does not bind them as they did not consent to such an undertaking. There is no question that the property is conjugal. Article 160 of the Civil Code73 provides: ART. 160. All property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife.74 The presumption, this Court has held, applies to all properties acquired during marriage. For the presumption to be invoked, therefore, the property must be shown to have been acquired during the marriage.75 In the case at bar, the property was acquired on July 6, 1971 during Villaners marriage with Justiniana Lipajan. It cannot be seriously contended that simply because the tax declarations covering the property was solely in the name of Villaner it is his personal and exclusive property. In Bucoy v. Paulino76 and Mendoza v. Reyes77 which both apply by analogy, this Court held that registration alone of the properties in the name of the husband does not destroy the conjugal nature of the properties.78 What is material is the time when the land was acquired by Villaner, and that was during the lawful existence of his marriage to Justiniana.

Since the property was acquired during the existence of the marriage of Villaner and Justiniana, the presumption under Article 160 of the Civil Code is that it is the couples conjugal property. The burden is on petitioners then to prove that it is not. This they failed to do. The property being conjugal, upon the death of Justiniana Lipajan, the conjugal partnership was terminated.79 With the dissolution of the conjugal partnership, Villaners interest in the conjugal partnership became actual and vested with respect to an undivided one-half portion.80 Justiniana's rights to the other half, in turn, vested upon her death to her heirs81 including Villaner who is entitled to the same share as that of each of their eight legitimate children.82 As a result then of the death of Justiniana, a regime of co-ownership arose between Villaner and his co-heirs in relation to the property.83 With respect to Justinianas one-half share in the conjugal partnership which her heirs inherited, applying the provisions on the law of succession, her eight children and Villaner each receives one-ninth (1/9) thereof. Having inherited one-ninth (1/9) of his wifes share in the conjugal partnership or one eighteenth (1/18)84 of the entire conjugal partnership and is himself already the owner of one half (1/2) or nineeighteenths (9/18), Villaners total interest amounts to ten-eighteenths (10/18) or five-ninths (5/9). While Villaner owns five-ninths (5/9) of the disputed property, he could not claim title to any definite portion of the community property until its actual partition by agreement or judicial decree. Prior to partition, all that he has is an ideal or abstract quota or proportionate share in the property.85 Villaner, however, as a co-owner of the property has the right to sell his undivided share thereof. The Civil Code provides so: ART. 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the coowners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership. Thus, every co-owner has absolute ownership of his undivided interest in the coowned property and is free to alienate, assign or mortgage his interest except as to purely personal rights. While a co-owner has the right to freely sell and dispose of his undivided interest, nevertheless, as a co-owner, he cannot alienate the shares of his other co-owners nemo dat qui non habet.86 Villaner, however, sold the entire property without obtaining the consent of the other co-owners. Following the well-established principle that the binding force of a contract must be recognized as far as it is legally possible to do so quando res non valet ut ago, valeat quantum valere potest87 the disposition affects only Villaners

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share pro indiviso, and the transferee gets only what corresponds to his grantors share in the partition of the property owned in common.88 As early as 1923, this Court has ruled that even if a co-owner sells the whole property as his, the sale will affect only his own share but not those of the other coowners who did not consent to the sale. This is because under the aforementioned codal provision, the sale or other disposition affects only his undivided share and the transferee gets only what would correspond to this grantor in the partition of the thing owned in common. Consequently, by virtue of the sales made by Rosalia and Gaudencio Bailon which are valid with respect to their proportionate shares, and the subsequent transfers which culminated in the sale to private respondent Celestino Afable, the said Afable thereby became a co-owner of the disputed parcel of land as correctly held by the lower court since the sales produced the effect of substituting the buyers in the enjoyment thereof. From the foregoing, it may be deduced that since a co-owner is entitled to sell his undivided share, a sale of the entire property by one co-owner without the consent of the other co-owners is not null and void. However, only the rights of the co-ownerseller are transferred., thereby making the buyer a co-owner of the property. The proper action in cases like this is not for the nullification of the sale or the recovery of possession of the thing owned in common from the third person who substituted the co-owner or co-owners who alienated their shares, but the DIVISION of the common property as if it continued to remain in the possession of the co-owners who possessed and administered it.89 Thus, it is now settled that the appropriate recourse of co-owners in cases where their consent were not secured in a sale of the entire property as well as in a sale merely of the undivided shares of some of the co-owners is an action for PARTITION under Rule 69 of the Revised Rules of Court. Neither recovery of possession nor restitution can be granted since the defendant buyers are legitimate proprietors and possessors in joint ownership of the common property claimed.90 (Italics in the original; citations omitted; underscoring supplied) This Court is not unmindful of its ruling in Cruz v. Leis91 where it held: It is conceded that, as a rule, a co-owner such as Gertrudes could only dispose of her share in the property owned in common. Article 493 of the Civil Code provides: xxx Unfortunately for private respondents, however, the property was registered in TCT No. 43100 solely in the name of "Gertrudes Isidro, widow." Where a parcel of land, forming part of the undistributed properties of the dissolved conjugal partnership of gains, is sold by a widow to a purchaser who merely relied on the face of the

certificate of title thereto, issued solely in the name of the widow, the purchaser acquires a valid title to the land even as against the heirs of the deceased spouse. The rationale for this rule is that "a person dealing with registered land is not required to go behind the register to determine the condition of the property. He is only charged with notice of the burdens on the property which are noted on the face of the register or the certificate of title. To require him to do more is to defeat one of the primary objects of the Torrens system."92 (Citation omitted) Cruz, however, is not applicable for the simple reason that in the case at bar the property in dispute is unregistered. The issue of good faith or bad faith of a buyer is relevant only where the subject of the sale is a registered land but not where the property is an unregistered land.93 One who purchases an unregistered land does so at his peril.94 Nicolas claim of having bought the land in good faith is thus irrelevant.95 WHEREFORE, the petition is GRANTED. The Court of Appeals February 15, 2001 Decision in CA-G.R. CV No. 56148 is REVERSED and SET ASIDE and another is rendered declaring the sale in favor of petitioner Leonardo Acabal and the subsequent sale in favor of petitioner Ramon Nicolas valid but only insofar as fiveninths (5/9) of the subject property is concerned. No pronouncement as to costs. SO ORDERED. Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Garcia, JJ., concur.

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