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.
D E C I S I O N
CORONA, J .:
Under the established principles of land registration, a person dealing with registered
land may generally rely on the correctness of a certificate of title and the law will in no way oblige
him to go beyond it to determine the legal status of the property.
Before us is a Petition for Review on Certiorari challenging the February 7, 1997
Decision[1] of the Court of Appeals in CA-G.R. CV No. 55149, which in turn affirmed the
decision[2] of the Regional Trial Court of Misamis Oriental, Branch 18 as follows:
WHEREFORE, the plaintiffs-spouses are adjudged the absolute owners and possessors of the
properties in question (Lot 18583, under TCT No. T-50134, and all improvements thereon) and
quieting title thereto as against any and all adverse claims of the defendant. Further, the
sheriffs certificate of sale, Exhibit 4; 4-A; Sheriffs deed of final conveyance, Exhibit 5, 5-A; Tax
Declarations No. 71211, Exhibit 7, and any and all instrument, record, claim, encumbrance or
proceeding in favor of the defendant, as against the plaintiffs, and their predecessor-in-interest,
which may be extant in the office of the Register of Deeds of Province of Misamis Oriental, and
of Cagayan de Oro City, and in the City Assessors Office of Cagayan de Oro City, are declared
as invalid and ineffective as against the plaintiffs title.
The counterclaim is dismissed for lack of merit.
SO ORDERED.[3]
The facts of the case, as culled from the records, are as follows:
On April 30, 1988, a certain Guillermo Comayas offered to sell to private respondent-
spouses Alfredo and Annabelle Lumo, a house and lot measuring 340 square meters located at
Pinikitan, Camaman-an, Cagayan de Oro City.
Wanting to buy said house and lot, private respondents made inquiries at the Office of
the Register of Deeds of Cagayan de Oro City where the property is located and the Bureau of
Lands on the legal status of the vendors title. They found out that the property was mortgaged
for P8,000 to a certain Mrs. Galupo and that the owners copy of the Certificate of Title to said
property was in her possession.
Private respondents directed Guillermo Comayas to redeem the property from Galupo at
their expense, giving the amount of P10,000 to Comayas for that purpose.
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 Galupos adverse claim,
private respondents and Guillermo Comayas, executed a deed of absolute sale. The subject
property was allegedly sold for P125,000 but the deed of sale reflected the amount of only
P30,000 which was the amount private respondents were ready to pay at the time of the
execution of said deed, the balance payable by installment.
On June 9, 1988, the deed of absolute sale was registered and inscribed on TCT No. T-
41499 and, on even date, TCT No. T-50134 was issued in favor of private respondents.
After obtaining their TCT, private respondents requested the issuance of a new tax
declaration certificate in their names. However, they were surprised to learn from the City
Assessors Office that the property was also declared for tax purposes in the name of petitioner
Naawan Community Rural Bank Inc. Records in the City Assessors Office revealed that, for the
lot covered by TCT No. T-50134, Alfredo Lumos T/D # 83324 bore the note: This lot is also
declared in the name of Naawan Community Rural Bank Inc. under T/D # 71210.
Apparently, on February 7, 1983, Guillermo Comayas obtained a P15,000 loan from
petitioner Bank using the subject property as security. At the time said contract of mortgage was
entered into, the subject property was then an unregistered parcel of residential land, tax-
declared in the name of a certain Sergio A. Balibay while the residential one-storey house was
tax-declared in the name of Comayas.
Balibay executed a special power of attorney authorizing Comayas to borrow money
and use the subject lot as security. But the Deed of Real Estate Mortgage and the Special
Power of Attorney were recorded in the registration book of the Province of Misamis Oriental, not
in the registration book of Cagayan de Oro City. It appears that, when the registration was
made, there was only one Register of Deeds for the entire province of Misamis Oriental,
including Cagayan de Oro City. It was only in 1985 when the Office of the Register of Deeds for
Cagayan de Oro City was established separately from the Office of the Register of Deeds for the
Province of Misamis Oriental.
For failure of Comayas to pay, the real estate mortgage was foreclosed and the subject
property sold at a public auction to the mortgagee Naawan Community Rural Bank as the
highest bidder in the amount of P16,031.35. Thereafter, the sheriffs certificate of sale was
issued and registered under Act 3344 in the Register of Deeds of the Province of Misamis
Oriental.
On April 17, 1984, the subject property was registered in original proceedings under the
Land Registration Act. Title was entered in the registration book of the Register of Deeds of
Cagayan de Oro City as Original Certificate of Title No. 0-820, pursuant to Decree No. N-
189413.
On July 23, 1984, Transfer Certificate of Title No. T-41499 in the name of Guillermo P.
Comayas was entered in the Register of Deeds of Cagayan de Oro City.
Meanwhile, on September 5, 1986, the period for redemption of the foreclosed subject
property lapsed and the MTCC Deputy Sheriff of Cagayan de Oro City issued and delivered to
petitioner bank the sheriffs deed of final conveyance. This time, the deed was registered under
Act 3344 and recorded in the registration book of the Register of Deeds of Cagayan de Oro City.
By virtue of said deed, petitioner Bank obtained a tax declaration for the subject house
and lot.
Thereafter, petitioner Bank instituted an action for ejectment against Comayas before
the MTCC which decided in its favor. On appeal, the Regional Trial Court affirmed the decision
of the MTCC in a decision dated April 13, 1988.
On January 27, 1989, the Regional Trial Court issued an order for the issuance of a writ
of execution of its judgment. The MTCC, being the court of origin, promptly issued said writ.
However, when the writ was served, the property was no longer occupied by Comayas
but herein private respondents, the spouses Lumo who had, as earlier mentioned, bought it from
Comayas on May 17, 1988
Alarmed by the prospect of being ejected from their home, private respondents filed an
action for quieting of title which was docketed as Civil Case No. 89-138. After trial, the Regional
Trial Court rendered a decision declaring private respondents as purchasers for value and in
good faith, and consequently declaring them as the absolute owners and possessors of the
subject house and lot.
Petitioner appealed to the Court of Appeals which in turn affirmed the trial courts
decision.
Hence, this petition.
Petitioner raises the following issues:
I. WHETHER OR NOT THE SHERIFFS DEED OF FINAL CONVEYANCE WAS
DULY EXECUTED AND REGISTERED IN THE REGISTER OF DEEDS
OF CAGAYAN DE ORO CITY ON DECEMBER 2, 1986;
II. WHETHER OR NOT REGISTRATION OF SHERIFFS DEED OF FINAL
CONVEYANCE IN THE PROPER REGISTRY OF DEEDS COULD BE
EFFECTIVE AS AGAINST SPOUSES LUMO.
Both parties cite Article 1544 of the Civil Code which governs the double sale of
immovable property.
Article 1544 provides:
x x x. Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property.
Petitioner bank contends that the earlier registration of the sheriffs deed of final
conveyance in the day book under Act 3344 should prevail over the later registration of private
respondents deed of absolute sale under Act 496,[4] as amended by the Property Registration
Decree, PD 1529.
This contention has no leg to stand on. It has been held that, where a person claims to
have superior proprietary rights over another on the ground that he derived his title from a
sheriffs sale registered in the Registry of Property, Article 1473 (now Article 1544) of the Civil
Code will apply only if said execution sale of real estate is registered under Act 496.[5]
Unfortunately, the subject property was still untitled when it was acquired by petitioner
bank by virtue of a final deed of conveyance. On the other hand, when private respondents
purchased the same property, it was already covered by the Torrens System.
Petitioner also relies on the case of Bautista vs. Fule[6] where the Court ruled that the
registration of an instrument involving unregistered land in the Registry of Deeds creates
constructive notice and binds third person who may subsequently deal with the same property.
However, a close scrutiny of the records reveals that, at the time of the execution and
delivery of the sheriffs deed of final conveyance on September 5, 1986, the disputed property
was already covered by the Land Registration Act and Original Certificate of Title No. 0-820
pursuant to Decree No. N189413 was likewise already entered in the registration book of the
Register of Deeds of Cagayan De Oro City as of April 17, 1984.
Thus, from April 17, 1984, the subject property was already under the operation of the
Torrens System. Under the said system, registration is the operative act that gives validity to the
transfer or creates a lien upon the land.
Moreover, the issuance of a certificate of title had the effect of relieving the land of all
claims except those noted thereon. Accordingly, private respondents, in dealing with the subject
registered land, were not required by law to go beyond the register to determine the legal
condition of the property. They were only charged with notice of such burdens on the property
as were noted on the register or the certificate of title. To have required them to do more would
have been to defeat the primary object of the Torrens System which is to make the Torrens Title
indefeasible and valid against the whole world.
Private respondents posit that, even assuming that the sheriffs deed of final
conveyance in favor of petitioner bank was duly recorded in the day book of the Register of
Deeds under Act 3344, ownership of the subject real property would still be theirs as purchasers
in good faith because they registered the sale first under the Property Registration Decree.
The rights created by the above-stated statute of course do not and cannot accrue
under an inscription in bad faith. Mere registration of title in case of double sale is not enough;
good faith must concur with the registration.[7]
Petitioner contends that the due and proper registration of the sheriffs deed of final
conveyance on December 2, 1986 amounted to constructive notice to private
respondents. Thus, when private respondents bought the subject property on May 17, 1988,
they were deemed to have purchased the said property with the knowledge that it was already
registered in the name of petitioner bank.
Thus, the only issue left to be resolved is whether or not private respondents could be
considered as buyers in good faith.
The priority in time principle being invoked by petitioner bank is misplaced because its
registration referred to land not within the Torrens System but under Act 3344. On the other
hand, when private respondents bought the subject property, the same was already registered
under the Torrens System. It is a well-known rule in this jurisdiction that persons dealing with
registered land have the legal right to rely on the face of the Torrens Certificate of Title and to
dispense with the need to inquire further, except when the party concerned has actual
knowledge of facts and circumstances that would impel a reasonably cautious man to make
such inquiry.[8]
Did private respondents exercise the required diligence in ascertaining the legal
condition of the title to the subject property so as to be considered as innocent purchasers for
value and in good faith?
We answer in the affirmative.
Before private respondents bought the subject property from Guillermo Comayas,
inquiries were made with the Registry of Deeds and the Bureau of Lands regarding the status of
the vendors title. No liens or encumbrances were found to have been annotated on the
certificate of title. Neither were private respondents aware of any adverse claim or lien on the
property other than the adverse claim of a certain Geneva Galupo to whom Guillermo Comayas
had mortgaged the subject property. But, as already mentioned, the claim of Galupo was
eventually settled and the adverse claim previously annotated on the title cancelled. Thus,
having made the necessary inquiries, private respondents did not have to go beyond the
certificate of title. Otherwise, the efficacy and conclusiveness of the Torrens Certificate of Title
would be rendered futile and nugatory.
Considering therefore that private respondents exercised the diligence required by law
in ascertaining the legal status of the Torrens title of Guillermo Comayas over the subject
property and found no flaws therein, they should be considered as innocent purchasers for value
and in good faith.
Accordingly, the appealed judgment of the appellate court upholding private
respondents Alfredo and Annabelle Lumo as the true and rightful owners of the disputed
property is affirmed.
WHEREFORE, petition is hereby DENIED.
SO ORDERED.
FIRST DIVISION


JUANITA NAVAL, G.R. No. 167412
Petitioner,
Present:


Panganiban, C.J.
(Chairperson),
- versus - Ynares-Santiago,
Austria-Martinez,
Callejo, Sr., and

Chico-Nazario,
JJ.
COURT OF APPEALS, JUANITO
CAMALLA, JAIME NACION, Promulgated:
CONRADO BALILA, ESTER MOYA
and PORFIRIA AGUIRRE,
Respondents. February 22, 2006

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

DECI SI ON


YNARES-SANTIAGO, J .:


This petition for review assails the Decision[1] of the Court of Appeals dated December 14,
2004, in CA-G.R. SP No. 86736, which reversed the Decision[2] of the Regional Trial Court (RTC) of
Naga City, Branch 26, in Civil Case No. 2004-0054 affirming the Decision[3] of the Municipal Circuit
Trial Court (MCTC) of Magarao-Canaman, Camarines Sur, as well as the Resolution[4] dated February
17, 2005 denying petitioners motion for reconsideration.

The facts of the case are as follows:

On December 2, 1969, Ildefonso A. Naval sold a parcel of land located in Sto. Tomas,
Magarao, Camarines Sur, consisting of 858 sq. m. to Gregorio B. Galarosa. The sale was recorded in the
Registry of Property of the Registry of Deeds of Camarines Sur on December 3, 1969 pursuant to Act No.
3344, the law governing registrations of all instruments on unregistered lands.[5]

Subsequently, Gregorio sold portions of the land to respondents Conrado Rodrigo
Balilla[6] on November 4, 1976, Jaime Nacion[7] on January 10, 1977 and spouses Ireneo and Ester
Moya[8] in July 1977, and Juanito Camalla[9] on September 4, 1987. All buyers occupied the portion they
bought, built improvements thereon, and paid the taxes due thereto.[10]

The controversy arose when petitioner Juanita Naval, the great granddaughter of Ildefonso,
was issued on April 1, 1975 by the Register of Deeds of Camarines Sur an Original Certificate of Title
(OCT) No. RP-5386 (29791), covering 733 sq. m. of the subject land.[11] She claimed that she bought
the subject land from Ildefonso in 1972.[12]

On November 10, 1977, petitioner filed a complaint for recovery of possession against
Bartolome Aguirre, Conrado Balila,[13] Ireneo Moya, Jaime Nacion and Domingo Nacion, which was
docketed as Civil Case No. 306.[14] However, the case was dismissed[15] without prejudice[16] 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 Juanita[17]
Camalla, Diosdado Balila, Conrado Balila, Forferia[18] Aguirre, Jaime Nacion and Ester Moya. The
case was docketed as Civil Case No. 994.

After trial, the MCTC rendered its decision, the dispositive portion reads as follows:

WHEREFORE, for all the foregoing consideration, decision
is hereby rendered in favor of the plaintiff and against defendants:

1) Declaring the plaintiff to be the legal owner of the
land as described in paragraph 2 of the complaint;

2) Ordering defendants Juanito Camalla, Diosdado
Balila, Conrado Balila, Porferia Aguirre and Jaime Nacion to vacate the
property in question and to deliver its possession to the plaintiff;

3) Ordering Ester Moya to vacate the fifty (50) square
meters occupied by her and to relinquish its possession to the plaintiff;

4) Dismissing the respective claims for damages of the
parties.

Pronouncing no costs.

SO ORDERED.[19]


Aggrieved, respondents appealed the decision to the RTC of Naga City, which affirmed in
toto the assailed decision.[20]



Respondents thereafter elevated the case to the Court of Appeals via Rule 42 of the Rules
of Court. Finding the prior registration of the deed of sale between Ildefonso and Gregorio with the
Register of Deeds as a constructive notice to subsequent buyers, the appellate court reversed the decision
of the RTC. Thus,

WHEREFORE, premises considered, the present petition is
hereby GRANTED. The appealed decision of the court a quo is hereby
REVERSED and SET ASIDE and a new judgment is hereby entered
dismissing respondent's complaint for recovery of possession with damages.
Petitioners' counterclaim for damages is likewise dismissed for lack of legal
and factual bases.

No pronouncement as to costs.

SO ORDERED.[21]


Hence, this petition assigning the following errors:

I
THE COURT OF APPEALS ERRED IN DECLARING THAT
GREGORIO GALAROSA HAS RIGHTFULLY ACQUIRED
OWNERSHIP OVER THE LOT COVERED BY OCT RP #5386 (29791)
AND DECLARING HIM TO HAVE POSSESSED THE LOT BEFORE
THE ALLEGED SALES TO RESPONDENTS.

II
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
PAYMENT OF TAXES BY RESPONDENTS WERE (sic) EVIDENCE OF
LAWFUL POSSESSION AND OWNERSHIP.

III
THE COURT OF APPEALS ERRED IN DECLARING THAT THE LOTS
CLAIMED BY THE RESPONDENTS HAVE BEEN POSSESSED BY
THEM IN GOOD FAITH DESPITE THEIR KNOWLEDGE OF THE
EXISTENCE OF OCT RP #5386(29791).[22]


Petitioner claims that she has superior rights over the subject land because the sale between
Ildefonso and Gregorio and the subsequent registration thereof with the Register of Deeds had no legal
effect since the subject land was declared in the name of Agrifina Avila while the tax declaration cancelled
by Gregorios was that of Gregorio Boaga. Petitioner thus assails the right claimed by Gregorio over the
subject land from which the respondents derived their respective claims.[23]

On the other hand, respondents contend that the registered sale by Ildefonso to Gregorio in
1969 of the subject land, from whom they derive their claims, vests them with better right than the
petitioner; that registration under Act No. 3344 served as constructive notice to the whole world, including
the petitioner, who claimed to have purchased the subject land from Ildefonso in 1972, but failed to
present evidence to prove such acquisition.[24]

We deny the petition.

Prefatorily, a perusal of the records reveals that during the trial, petitioner vigorously
asserted that the subject land was the exclusive property of Ildefonso who sold it to her in
1972.[25] However, in this appeal, petitioner assails the ownership not only of Gregorio but also of
Ildefonso by alleging that at the time the latter sold the land to Gregorio, the same was declared in the
name of Agrifina Avila. When a party adopts a certain theory in the court below, he is not allowed to
change his theory on appeal, for to allow him to do so would not only be unfair to the other party, but it
would also be offensive to the basic rules of fair play, justice and due process.[26]


In this appeal, the issue for resolution is who has the superior right to a parcel of land sold
to different buyers at different times by its former owner.

It is not disputed that the subject land belonged to Ildefonso and that it was not registered
under the Torrens System[27] when it was sold to Gregorio in 1969 and to the petitioner in 1972. Further,
the deed of sale between Ildefonso and Gregorio was registered with the Register of Deeds of Camarines
Sur pursuant to Act No. 3344, as shown by Inscription No. 54609 dated December 3, 1969, Page 119,
Volume 186, File No. 55409 at the back thereof.

In holding that respondents have a better right to possess the subject land in view of the
bona fide registration of the sale with the Register of Deeds of Camarines Sur by Ildefonso and Gregorio,
the Court of Appeals applied Article 1544 of the Civil Code, which provides:

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

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

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


While we agree with the appellate court that respondents have superior right over the petitioner on
the subject property, we find Article 1544 inapplicable to the case at bar since the subject land was
unregistered at the time of the first sale. The registration contemplated under this provision has been held
to refer to registration under the Torrens System, which considers the act of registration as the operative
act that binds the land.[28] Thus, in Carumba v. Court of Appeals,[29] we held that Article 1544 of the
Civil Code has no application to land not registered under Torrens System.

The law applicable therefore is Act No. 3344, which provides for the registration of all
instruments on land neither covered by the Spanish Mortgage Law nor the Torrens System. Under this
law, registration by the first buyer is constructive notice to the second buyer that can defeat his right as
such buyer in good faith.

Applying the law, we held in Bautista v. Fule[30] 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. Nogales[31] 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. Reyes[32] 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 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.
THIRD DIVISION

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. XI-19 Digos, Davao del Sur, MARCOS D. RISONAR, JR.,
Registrar of Deeds of Davao del Sur, and MARIA
GONZALES, Petitioners,


- versus -


G.R. No. 121165

Present:

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

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

Promulgated:

September 26, 2006
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
RESOLUTION
QUISUMBING, J .:
For review on certiorari is the Decision[1] dated February 22, 1995 of the 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.
The facts as culled from the records are as follows:
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 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.
For failure to file an Answer, the Manios were declared in default and Gonzales was
allowed to present evidence ex parte.
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 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;
3) 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;
4) To pay plaintiff the sum of P5,000.00 as litigation
expenses.
SO ORDERED.[2]
Gonzales deposited with the Clerk of Court the P390,000 balance of the price and filed a motion for
execution.[3] She later withdrew the motion because the trial courts decision was not properly served 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.[4]
Since there was no appeal, the trial courts decision became final and executory. But the
writ of execution was not served upon the defendants, since according to the Sheriffs Return, the
defendants could not be located. The sheriff, likewise, informed the trial court that the money judgment
could be readily satisfied by the petitioners cash deposit should the trial court grant the motion to release
the cash deposit filed by Gonzales.[5]
Subsequently, Gonzales filed a motion asking that the Clerk of Court be directed to be the
one to execute a deed of conveyance. Gonzales also filed a motion to withdraw the cash deposit for the
balance of the price to offset the award of damages. The trial court granted both motions but later
modified the amount to P207,800.
On October 29, 1990, Gonzales filed a petition for the nullification of the Owners Duplicate
Certificate of Title No. 16658 and asked that a new certificate be issued in her name to give effect to the
deed of conveyance since Priscilla refused to relinquish the owners duplicate copy.
Consequently, the trial court declared the owners duplicate copy of TCT No. 16658 void,
and directed the City Civil Registrar to issue a new certificate of title in favor of Gonzales. The orders
were reiterated in subsequent orders and TCT No. T-23690 was issued under the name of Gonzales.
On December 14, 1990, herein respondents Maria Paz Dabon and Rosalina Dabon, claiming to have
bought 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.[6]
Meanwhile, Gonzales filed before the trial court a motion for the issuance of a writ of
possession. The Dabons filed an opposition on the following grounds: (1) The writ of possession cannot
be enforced because the defendants named in the writ, the Manios, were no longer in possession of the
property; (2) They had bought the lot with the improvements therein and had taken possession, although
they had not yet registered their ownership with the Register of Deeds; and (3) The court did not acquire
jurisdiction over them as the real parties in interest.
On December 17, 1990, the Court of Appeals, without giving due course to the petition, issued a
resolution restraining the trial court from implementing its Decision dated June 19, 1990[7] and its
subsequent orders thereto in Civil Case No. 2647 until further notice from the Court of Appeals. It also
required Gonzales to file her Comment.[8]
The Court of Appeals in a resolution denied the application for preliminary injunction and
appointed a commissioner to receive evidence of the parties.[9]
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:
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.[10]
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
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 GONZALES [PRIVATE
RESPONDENT BELOW] CLAIM FOR DAMAGES AGAINST THE
PRIVATE RESPONDENTS [PETITIONERS BELOW].[11]
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.
We shall discuss the issues jointly.
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.
We now come to the main issues: (1) Was there sufficient basis to annul the judgment in
Civil Case No. 2647? (2) Are the Dabons proper parties to file the petition for annulment of judgment?
Petitioner Gonzales contends that the respondents do not have standing before the Court of
Appeals to file a petition for annulment of the judgment in Civil Case No. 2647 because respondents were
not parties therein. Petitioner maintains that respondents have no right that could be adversely affected by
the judgment because they are not the owners of the property. Petitioner claims that the Court of Appeals
should have applied the doctrine of double sale to settle the issue of ownership and declare her the true
owner of the property. Petitioner concludes that respondents not being the owners and are not real
parties in interest in the complaint for specific performance have no right to bring the action for
annulment of the judgment. According to petitioner Gonzales, she did not implead Aristotle as defendant
in Civil Case No. 2647 since a decision against Priscilla, Aristotles attorney-in-fact, would bind Aristotle
also.
Respondents (Maria Paz and Rosalina Dabon) now insist that they are parties in
interest as buyers, owners and possessors of the contested land and that they had been fraudulently
deprived of their day in court during the proceedings in the trial court in Civil Case No.
2647. They have no remedy in law other than to file a case for the annulment of judgment of the
trial court in said case.
Petitioner Gonzales should be reminded of Section 3 of Rule 3 of the Rules on Civil
Procedure which explicitly states that an action should be brought against the real party in interest,[12]
and in case the action is brought against the agent, the action must be brought against an agent acting in
his own name and for the benefit of an undisclosed principal without joining the principal, except when
the contract involves things belonging to the principal.[13] The real party in interest is the party who
would be benefited or injured by the judgment or is the party entitled to the avails of the suit. We have
held that in such a situation, an attorney-in-fact is not a real party in interest and that there is no law
permitting an action to be brought by and against an attorney-in-fact.[14]
Worth stressing, the action filed by Gonzales before the RTC is for specific performance to
compel Priscilla to execute a deed of sale, involving real property which, however, does not belong to
Priscilla but to Aristotle Manio, the son of Priscilla. The complaint only named as defendant Priscilla,
joined by her spouse, yet Priscilla had no interest on the lot and can have no interest whatever in any
judgment rendered. She was not acting in her own name, nor was she acting for the benefit of an
undisclosed principal. The joinder of all indispensable parties is a condition sine qua non of the exercise
of judicial powers, and the absence of indispensable party renders all subsequent actions of the court null
and void for want of authority to act, not only as to the absent parties but even as to those
present.[15] Accordingly, the failure to implead Aristotle Manio as defendant renders all proceedings in
the Civil Case No. 2647, including the order granting the cancellation of TCT No. 16658 and issuance of a
new title, null and void.
It is settled that a person need not be a party to the judgment sought to be
annulled.[16] What is essential is that he can prove his allegation that the judgment was obtained by fraud
or collusion and he would be adversely affected thereby,[17] because if fully substantiated by
preponderance of evidence, those allegations could be the basis for annulment of the assailed judgment.
In the present case, even if respondents were not parties to the specific performance case,
any finding that there was extrinsic fraud in the institution of 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.[18]
There is extrinsic fraud when a party has been prevented by fraud or deception from
presenting his case. Fraud is extrinsic where it prevents a party from having a trial or from presenting his
entire case to the court, or where it operates upon matters pertaining not to the judgment itself but to the
manner in which it is procured. The overriding consideration when extrinsic fraud is alleged is that the
fraudulent scheme of the prevailing litigant prevented a party from having his day in court.[19] It must be
distinguished from intrinsic fraud which refers to acts of a party at a trial which prevented a fair and just
determination of the case, and which could have been litigated and determined at the trial or adjudication
of the case.[20]
In its Decision dated February 22, 1995, the Court of Appeals found that indices of fraud
attended the case before the trial court: First, the plaintiff deliberately excluded the Dabons as party to the
case despite knowledge that the Dabons had alleged that they had bought the land from Aristotle. Second,
the Sheriffs Return was suspiciously served on a Saturday, at midnight, on August 4, 1990. Third, the
trial court ordered the plaintiff to deposit the full payment of property, but subsequently ordered its
withdrawal. Lastly, there was no notice given to the person named in the certificate of title which
Gonzales wanted to be annulled.
Of the indices of fraud cited by the Court of Appeals, the failure to comply with the
notification requirement in the petition for the cancellation of title amounts to extrinsic fraud. Under the
Property Registration Decree, all parties in interest shall be given notice.[21] There is nothing in the
records that show Gonzales notified the actual occupants or lessees of the property. Further, the records
show that Gonzales had known of the sale of the land by Aristotle to the Dabons and despite her
knowledge, the former did not include the Dabons in her petition for the annulment of title. Deliberately
failing to notify a party entitled to notice also constitutes extrinsic fraud.[22] This fact is sufficient ground
to annul the order allowing the cancellation of title in the name of Gonzales.
Likewise, under Rule 47, a judgment is void for lack of jurisdiction over the persons of the real
parties in interest, i.e., Aristotle Manio and the Dabons.
Lastly, petitioner insists that the contract of sale between her and Priscilla was valid and
enforceable because under the provision on double sale,[23] she owned the land because she bought the
lot on April 26, 1988, while the same was allegedly sold to the Dabons on October 19, 1989. In our view,
the doctrine on double sale holds no relevance in this case. The pertinent article of the Civil Code
provides:
ART. 1544. If the same thing should have been sold to
different vendees, the ownership shall be transferred to the person who may
have first possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong
to the person acquiring it who in good faith recorded it in the Registry of
Property.
Should there be no inscription, the ownership shall pertain to
the person who in good faith was first in possession; and in the absence
thereof; to the person who presents the oldest title, provided there is good
faith.
Otherwise stated, where it is immovable property that is the subject of a double sale,
ownership shall be transferred (1) to the person acquiring it who in good faith first recorded it in the
Registry of Property; (2) in default thereof, to the person who in good faith was first in possession; and (3)
in default thereof, to the person who presents the oldest title, provided there is good faith. The
requirement of the law is two-fold: acquisition in good faith and registration in good faith.[24]
At this juncture, we must emphasize that the action for annulment of judgment under Rule 47 of
the Rules of Court does not involve the merits of the final order of the trial court.[25] The issue of whether
before us is a case of double sale is outside the scope of the present petition for review. The appellate court
only allowed the reception of extraneous evidence to determine extrinsic fraud. To determine which sale was
valid, review of evidence is necessary. This we cannot do in this petition. An action for annulment of judgment
is independent of the case where the judgment sought to be annulled is rendered[26] and is not an appeal of the
judgment therein.[27]
The extraneous evidence presented to the appellate court cannot be used to supplant the
evidence in the records of the specific performance case because the extraneous evidence was not part of
the records on the merits of the case. Again, the extraneous evidence was only allowed merely to prove
the allegations of extrinsic fraud. Accordingly, we hold that the issue of ownership of the subject real
property cannot be addressed in this petition for review.
Annulment of judgment is not a relief to be granted indiscriminately by the courts. It is a
recourse equitable in character and allowed only in exceptional cases as where there is no available or
other adequate remedy.[28] This case falls under said exception. In this case, where it was found that the
trial court did not have jurisdiction over the real parties in interest, and that notices were deliberately not
given, amount to extrinsic fraud. The Court of Appeals did not err in granting the annulment of the judgment in Civil
Case No. 2647 and the orders subsequent thereto, for lack of jurisdiction and extrinsic fraud.
WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision dated
February 22, 1995 of the Court of Appeals in CA-G.R. SP No. 23687, is AFFIRMED. Costs against
petitioner Maria Gonzales.
SO ORDERED.
Republic of the Philippines SUPREME COURT Manila
FIRST DIVISION
G.R. No. L-29972 January 26, 1976
ROSARIO CARBONELL, petitioner, vs. HONORABLE COURT OF APPEALS, JOSE
PONCIO, EMMA INFANTE and RAMON INFANTE, respondents.

MAKASIAR, J .
Petitioner seeks a review of the resolution of the Court of Appeals (Special Division of Five)
dated October 30, 1968, reversing its decision of November 2, 1967 (Fifth Division), and its
resolution of December 6, 1968 denying petitioner's motion for reconsideration.
The dispositive part of the challenged resolution reads:
Wherefore, the motion for reconsideration filed on behalf of appellee Emma Infante, is hereby
granted and the decision of November 2, 1967, is hereby annulled and set aside. Another
judgement shall be entered affirming in toto that of the court a quo, dated January 20, 1965,
which dismisses the plaintiff's complaint and defendant's counterclaim.
Without costs.
The facts of the case as follows:
Prior to January 27, 1955, respondent Jose Poncio, a native of the Batanes Islands, was the
owner of the parcel of land herein involve with improvements situated at 179 V. Agan St., San
Juan, Rizal, having an area of some one hundred ninety-five (195) square meters, more or less,
covered by TCT No. 5040 and subject to mortgage in favor of the Republic Savings Bank for the
sum of P1,500.00. Petitioner Rosario Carbonell, a cousin and adjacent neighbor of respondent
Poncio, and also from the Batanes Islands, lived in the adjoining lot at 177 V. Agan Street.
Both petitioners Rosario Carbonell and respondent Emma Infante offered to buy the said lot from
Poncio (Poncio's Answer, p. 38, rec. on appeal).
Respondent Poncio, unable to keep up with the installments due on the mortgage, approached
petitioner one day and offered to sell to the latter the said lot, excluding the house wherein
respondent lived. Petitioner accepted the offer and proposed the price of P9.50 per square
meter. Respondent Poncio, after having secured the consent of his wife and parents, accepted
the price proposed by petitioner, on the condition that from the purchase price would come the
money to be paid to the bank.
Petitioner and respondent Jose Poncio then went to the Republic Savings Bank and secured the
consent of the President thereof for her to pay the arrears on the mortgage and to continue the
payment of the installments as they fall due. The amount in arrears reached a total sum of
P247.26. But because respondent Poncio had previously told her that the money, needed was
only P200.00, only the latter amount was brought by petitioner constraining respondent Jose
Poncio to withdraw the sum of P47.00 from his bank deposit with Republic Savings Bank. But
the next day, petitioner refunded to Poncio the sum of P47.00.
On January 27, 1955, petitioner and respondent Poncio, in the presence of a witness, made and
executed a document in the Batanes dialect, which, translated into English, reads:
CONTRACT FOR ONE HALF LOT WHICH I BOUGHT FROM
JOSE PONCIO
Beginning today January 27, 1955, Jose Poncio can start living on the lot sold by him to me,
Rosario Carbonell, until after one year during which time he will not pa anything. Then if after
said one can he could not find an place where to move his house, he could still continue
occupying the site but he should pay a rent that man, be agreed.
(Sgd) JOSE PONCIO (Sgd.) ROSARIO CARBONELL (Sgd) CONSTANCIO MEONADA
Witness
(Pp. 6-7 rec. on appeal).
Thereafter, petitioner asked Atty. Salvador Reyes, also from the Batanes Islands, to prepare the
formal deed of sale, which she brought to respondent Poncio together with the amount of some
P400.00, the balance she still had to pay in addition to her assuming the mortgaged obligation to
Republic Savings Bank.
Upon arriving at respondent Jose Poncio's house, however, the latter told petitioner that he
could not proceed any more with the sale, because he had already given the lot to respondent
Emma Infants; and that he could not withdraw from his deal with respondent Mrs. Infante, even if
he were to go to jail. Petitioner then sought to contact respondent Mrs. Infante but the latter
refused to see her.
On February 5, 1955, petitioner saw Emma Infante erecting a all around the lot with a gate.
Petitioner then consulted Atty. Jose Garcia, who advised her to present an adverse claim over
the land in question with the Office of the Register of Deeds of Rizal. Atty. Garcia actually sent a
letter of inquiry to the Register of Deeds and demand letters to private respondents Jose Poncio
and Emma Infante.
In his answer to the complaint Poncio admitted "that on January 30, 1955, Mrs. Infante improved
her offer and he agreed to sell the land and its improvements to her for P3,535.00" (pp. 38-40,
ROA).
In a private memorandum agreement dated January 31, 1955, respondent Poncio indeed bound
himself to sell to his corespondent Emma Infante, the property for the sum of P2,357.52, with
respondent Emma Infante still assuming the existing mortgage debt in favor of Republic Savings
Bank in the amount of P1,177.48. Emma Infante lives just behind the houses of Poncio and
Rosario Carbonell.
On February 2, 1955, respondent Jose Poncio executed the formal deed of sale in favor of
respondent Mrs. Infante in the total sum of P3,554.00 and on the same date, the latter paid
Republic Savings Bank the mortgage indebtedness of P1,500.00. The mortgage on the lot was
eventually discharged.
Informed that the sale in favor of respondent Emma Infante had not yet been registered, Atty.
Garcia prepared an adverse claim for petitioner, who signed and swore to an registered the
same on February 8, 1955.
The deed of sale in favor of respondent Mrs. Infante was registered only on February 12, 1955.
As a consequence thereof, a Transfer Certificate of Title was issued to her but with the
annotation of the adverse claim of petitioner Rosario Carbonell.
Respondent Emma Infante took immediate possession of the lot involved, covered the same
with 500 cubic meters of garden soil and built therein a wall and gate, spending the sum of
P1,500.00. She further contracted the services of an architect to build a house; but the
construction of the same started only in 1959 years after the litigation actually began and
during its pendency. Respondent Mrs. Infante spent for the house the total amount of
P11,929.00.
On June 1, 1955, petitioner Rosario Carbonell, thru counsel, filed a second amended complaint
against private respondents, praying that she be declared the lawful owner of the questioned
parcel of land; that the subsequent sale to respondents Ramon R. Infante and Emma L. Infante
be declared null and void, and that respondent Jose Poncio be ordered to execute the
corresponding deed of conveyance of said land in her favor and for damages and attorney's fees
(pp. 1-7, rec. on appeal in the C.A.).
Respondents first moved to dismiss the complaint on the ground, among others, that petitioner's
claim is unenforceable under the Statute of Frauds, the alleged sale in her favor not being
evidenced by a written document (pp. 7-13, rec. on appeal in the C.A.); and when said motion
was denied without prejudice to passing on the question raised therein when the case would be
tried on the merits (p. 17, ROA in the C.A.), respondents filed separate answers, reiterating the
grounds of their motion to dismiss (pp. 18-23, ROA in the C.A.).
During the trial, when petitioner started presenting evidence of the sale of the land in question to
her by respondent Poncio, part of which evidence was the agreement written in the Batanes
dialect aforementioned, respondent Infantes objected to the presentation by petitioner of parole
evidence to prove the alleged sale between her and respondent Poncio. In its order of April 26,
1966, the trial court sustained the objection and dismissed the complaint on the ground that the
memorandum presented by petitioner to prove said sale does not satisfy the requirements of the
law (pp. 31-35, ROA in the C.A.).
From the above order of dismissal, petitioner appealed to the Supreme Court (G.R. No. L-
11231) which ruled in a decision dated May 12, 1958, that the Statute of Frauds, being
applicable only to executory contracts, does not apply to the alleged sale between petitioner and
respondent Poncio, which petitioner claimed to have been partially performed, so that petitioner
is entitled to establish by parole evidence "the truth of this allegation, as well as the contract
itself." The order appealed from was thus reversed, and the case remanded to the court a quo
for further proceedings (pp. 26-49, ROA in the C.A.).
After trial in the court a quo; a decision was, rendered on December 5, 1962, declaring the
second sale by respondent Jose Poncio to his co-respondents Ramon Infante and Emma
Infante of the land in question null and void and ordering respondent Poncio to execute the
proper deed of conveyance of said land in favor of petitioner after compliance by the latter of her
covenants under her agreement with respondent Poncio (pp. 5056, ROA in the C.A.).
On January 23, 1963, respondent Infantes, through another counsel, filed a motion for re-trial to
adduce evidence for the proper implementation of the court's decision in case it would be
affirmed on appeal (pp. 56-60, ROA in the C.A.), which motion was opposed by petitioner for
being premature (pp. 61-64, ROA in the C.A.). Before their motion for re-trial could be resolved,
respondent Infantes, this time through their former counsel, filed another motion for new trial,
claiming that the decision of the trial court is contrary to the evidence and the law (pp. 64-78,
ROA in the C.A.), which motion was also opposed by petitioner (pp. 78-89, ROA in the C.A.).
The trial court granted a new trial (pp. 89-90, ROA in the C.A.), at which re-hearing only the
respondents introduced additional evidence consisting principally of the cost of improvements
they introduced on the land in question (p. 9, ROA in the C.A.).
After the re-hearing, the trial court rendered a decision, reversing its decision of December 5,
1962 on the ground that the claim of the respondents was superior to the claim of petitioner, and
dismissing the complaint (pp. 91-95, ROA in the C.A.), From this decision, petitioner Rosario
Carbonell appealed to the respondent Court of Appeals (p. 96, ROA in the C.A.).
On November 2, 1967, the Court of Appeals (Fifth Division composed of Justices Magno
Gatmaitan, Salvador V. Esguerra and Angle H. Mojica, speaking through Justice Magno
Gatmaitan), rendered judgment reversing the decision of the trial court, declaring petitioner
therein, to have a superior right to the land in question, and condemning the defendant Infantes
to reconvey to petitioner after her reimbursement to them of the sum of P3,000.00 plus legal
interest, the land in question and all its improvements (Appendix "A" of Petition).
Respondent Infantes sought reconsideration of said decision and acting on the motion for
reconsideration, the Appellate Court, three Justices (Villamor, Esguerra and Nolasco) of Special
Division of Five, granted said motion, annulled and set aside its decision of November 2, 1967,
and entered another judgment affirming in toto the decision of the court a quo, with Justices
Gatmaitan and Rodriguez dissenting (Appendix "B" of Petition).
Petitioner Rosario Carbonell moved to reconsider the Resolution of the Special Division of Five,
which motion was denied by Minute Resolution of December 6, 1968 (but with Justices
Rodriguez and Gatmaitan voting for reconsideration) [Appendix "C" of Petition].
Hence, this appeal by certiorari.
Article 1544, New Civil Code, which is decisive of this case, recites:
If the same thing should have been sold to different vendees, the ownership shall be transferred
to the person who may have first taken possession thereof in good faith, if it should movable
property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in the possession; and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith (emphasis supplied).
It is essential that the buyer of realty must act in good faith in registering his deed of sale to merit
the protection of the second paragraph of said Article 1544.
Unlike the first and third paragraphs of said Article 1544, which accord preference to the one
who first takes possession in good faith of personal or real property, the second paragraph
directs that ownership of immovable property should be recognized in favor of one "who in good
faith first recorded" his right. Under the first and third paragraph, good faith must characterize the
act of anterior registration (DBP vs. Mangawang, et al., 11 SCRA 405; Soriano, et al. vs.
Magale, et al., 8 SCRA 489).
If there is no inscription, what is decisive is prior possession in good faith. If there is inscription,
as in the case at bar, prior registration in good faith is a pre-condition to superior title.
When Carbonell bought the lot from Poncio on January 27, 1955, she was the only buyer thereof
and the title of Poncio was still in his name solely encumbered by bank mortgage duly annotated
thereon. Carbonell was not aware and she could not have been aware of any sale of
Infante as there was no such sale to Infante then. Hence, Carbonell's prior purchase of the land
was made in good faith. Her good faith subsisted and continued to exist when she recorded her
adverse claim four (4) days prior to the registration of Infantes's deed of sale. Carbonell's good
faith did not cease after Poncio told her on January 31, 1955 of his second sale of the same lot
to Infante. Because of that information, Carbonell wanted an audience with Infante, which desire
underscores Carbonell's good faith. With an aristocratic disdain unworthy of the good breeding
of a good Christian and good neighbor, Infante snubbed Carbonell like a leper and refused to
see her. So Carbonell did the next best thing to protect her right she registered her adversed
claim on February 8, 1955. Under the circumstances, this recording of her adverse claim should
be deemed to have been done in good faith and should emphasize Infante's bad faith when she
registered her deed of sale four (4) days later on February 12, 1955.
Bad faith arising from previous knowledge by Infante of the prior sale to Carbonell is shown by
the following facts, the vital significance and evidenciary effect of which the respondent Court of
Appeals either overlooked of failed to appreciate:
(1) Mrs. Infante refused to see Carbonell, who wanted to see Infante after she was informed by
Poncio that he sold the lot to Infante but several days before Infante registered her deed of sale.
This indicates that Infante knew from Poncio and from the bank of the prior sale of the lot
by Poncio to Carbonell. Ordinarily, one will not refuse to see a neighbor. Infante lives just behind
the house of Carbonell. Her refusal to talk to Carbonell could only mean that she did not want to
listen to Carbonell's story that she (Carbonell) had previously bought the lot from Poncio.
(2) Carbonell was already in possession of the mortgage passbook [not Poncio's saving deposit
passbook Exhibit "1" Infantes] and Poncio's copy of the mortgage contract, when Poncio
sold the lot Carbonell who, after paying the arrearages of Poncio, assumed the balance of his
mortgaged indebtedness to the bank, which in the normal course of business must have
necessarily informed Infante about the said assumption by Carbonell of the mortgage
indebtedness of Poncio. Before or upon paying in full the mortgage indebtedness of Poncio to
the Bank. Infante naturally must have demanded from Poncio the delivery to her of his mortgage
passbook as well as Poncio's mortgage contract so that the fact of full payment of his bank
mortgage will be entered therein; and Poncio, as well as the bank, must have inevitably informed
her that said mortgage passbook could not be given to her because it was already delivered to
Carbonell.
If Poncio was still in possession of the mortgage passbook and his copy of the mortgage
contract at the time he executed a deed of sale in favor of the Infantes and when the Infantes
redeemed his mortgage indebtedness from the bank, Poncio would have surrendered his
mortgage passbook and his copy of the mortgage contract to the Infantes, who could have
presented the same as exhibits during the trial, in much the same way that the Infantes were
able to present as evidence Exhibit "1" Infantes, Poncio's savings deposit passbook, of which
Poncio necessarily remained in possession as the said deposit passbook was never involved in
the contract of sale with assumption of mortgage. Said savings deposit passbook merely proves
that Poncio had to withdraw P47.26, which amount was tided to the sum of P200.00 paid by
Carbonell for Poncio's amortization arrearages in favor of the bank on January 27, 1955;
because Carbonell on that day brought with her only P200.00, as Poncio told her that was the
amount of his arrearages to the bank. But the next day Carbonell refunded to Poncio the sum of
P47.26.
(3) The fact that Poncio was no longer in possession of his mortgage passbook and that the said
mortgage passbook was already in possession of Carbonell, should have compelled Infante to
inquire from Poncio why he was no longer in possession of the mortgage passbook and from
Carbonell why she was in possession of the same (Paglago, et. al vs. Jara et al 22 SCRA 1247,
1252-1253). The only plausible and logical reason why Infante did not bother anymore to make
such injury , w because in the ordinary course of business the bank must have told her that
Poncio already sold the lot to Carbonell who thereby assumed the mortgage indebtedness of
Poncio and to whom Poncio delivered his mortgage passbook. Hoping to give a semblance of
truth to her pretended good faith, Infante snubbed Carbonell's request to talk to her about the
prior sale to her b Poncio of the lot. As aforestated, this is not the attitude expected of a good
neighbor imbued with Christian charity and good will as well as a clear conscience.
(4) Carbonell registered on February 8, 1955 her adverse claim, which was accordingly
annotated on Poncio's title, four [4] days before Infante registered on February 12, 1955 her
deed of sale executed on February 2, 1955. Here she was again on notice of the prior sale to
Carbonell. Such registration of adverse claim is valid and effective (Jovellanos vs. Dimalanta, L-
11736-37, Jan. 30, 1959, 105 Phil. 1250-51).
(5) In his answer to the complaint filed by Poncio, as defendant in the Court of First Instance, he
alleged that both Mrs. Infante and Mrs. Carbonell offered to buy the lot at P15.00 per square
meter, which offers he rejected as he believed that his lot is worth at least P20.00 per square
meter. It is therefore logical to presume that Infante was told by Poncio and consequently knew
of the offer of Carbonell which fact likewise should have put her on her guard and should have
compelled her to inquire from Poncio whether or not he had already sold the property to
Carbonell.
As recounted by Chief Justice Roberto Concepcion, then Associate Justice, in the preceding
case of Rosario Carbonell vs. Jose Poncio, Ramon Infante and Emma Infante (1-11231, May 12,
1958), Poncio alleged in his answer:
... that he had consistently turned down several offers, made by plaintiff, to buy the land in
question, at P15 a square meter, for he believes that it is worth not less than P20 a square
meter; that Mrs. Infante, likewise, tried to buy the land at P15 a square meter; that, on or about
January 27, 1955, Poncio was advised by plaintiff that should she decide to buy the property at
P20 a square meter, she would allow him to remain in the property for one year; that plaintiff
then induced Poncio to sign a document, copy of which if probably the one appended to the
second amended complaint; that Poncio signed it 'relying upon the statement of the plaintiff that
the document was a permit for him to remain in the premises in the event defendant decided to
sell the property to the plaintiff at P20.00 a square meter'; that on January 30, 1955, Mrs. Infante
improved her offer and agreed to sell the land and its improvement to her for P3,535.00; that
Poncio has not lost 'his mind,' to sell his property, worth at least P4,000, for the paltry sum
P1,177.48, the amount of his obligation to the Republic Saving s Bank; and that plaintiff's action
is barred by the Statute of Frauds. ... (pp. 38-40, ROA, emphasis supplied).
II
EXISTENCE OF THE PRIOR SALE TO CARBONELL DULY ESTABLISHED
(1) In his order dated April 26, 1956 dismissing the complaint on the ground that the private
document Exhibit "A" executed by Poncio and Carbonell and witnessed by Constancio Meonada
captioned "Contract for One-half Lot which I Bought from Jose Poncio," was not such a
memorandum in writing within the purview of the Statute of Frauds, the trial judge himself
recognized the fact of the prior sale to Carbonell when he stated that "the memorandum in
question merely states that Poncio is allowed to stay in the property which he had sold to the
plaintiff. There is no mention of the reconsideration, a description of the property and such other
essential elements of the contract of sale. There is nothing in the memorandum which would
tend to show even in the slightest manner that it was intended to be an evidence of contract
sale. On the contrary, from the terms of the memorandum, it tends to show that the sale of the
property in favor of the plaintiff is already an accomplished act. By the very contents of the
memorandum itself, it cannot therefore, be considered to be the memorandum which would
show that a sale has been made by Poncio in favor of the plaintiff" (p. 33, ROA, emphasis
supplied). As found by the trial court, to repeat the said memorandum states "that Poncio is
allowed to stay in the property which he had sold to the plaintiff ..., it tends to show that the sale
of the property in favor of the plaintiff is already an accomplished act..."
(2) When the said order was appealed to the Supreme Court by Carbonell in the previous case
of Rosario Carbonell vs. Jose Poncio, Ramon Infante and Emma Infante (L-11231, supra),
Chief Justice Roberto Concepcion, then Associate Justice, speaking for a unanimous Court,
reversed the aforesaid order of the trial court dismissing the complaint, holding that because the
complaint alleges and the plaintiff claims that the contract of sale was partly performed, the
same is removed from the application of the Statute of Frauds and Carbonell should be allowed
to establish by parol evidence the truth of her allegation of partial performance of the contract of
sale, and further stated:
Apart from the foregoing, there are in the case at bar several circumstances indicating that
plaintiff's claim might not be entirely devoid of factual basis. Thus, for instance, Poncio admitted
in his answer that plaintiff had offered several times to purchase his land.
Again, there is Exhibit A, a document signed by the defendant. It is in the Batanes dialect, which,
according to plaintiff's uncontradicted evidence, is the one spoken by Poncio, he being a native
of said region. Exhibit A states that Poncio would stay in the land sold by him to plaintiff for one
year, from January 27, 1955, free of charge, and that, if he cannot find a place where to transfer
his house thereon, he may remain upon. Incidentally, the allegation in Poncio's answer to the
effect that he signed Exhibit A under the belief that it "was a permit for him to remain in the
premises in the" that "he decided to sell the property" to the plaintiff at P20 a sq. m." is, on its
face, somewhat difficult to believe. Indeed, if he had not decided as yet to sell the land to
plaintiff, who had never increased her offer of P15 a square meter, there was no reason for
Poncio to get said permit from her. Upon the other hand, if plaintiff intended to mislead Poncio,
she would have caused Exhibit A to be drafted, probably, in English , instead of taking the
trouble of seeing to it that it was written precisely in his native dialect, the Batanes. Moreover,
Poncio's signature on Exhibit A suggests that he is neither illiterate nor so ignorant as to sign
document without reading its contents, apart from the fact that Meonada had read Exhibit A to
him and given him a copy thereof, before he signed thereon, according to Meonada's
uncontradicted testimony.
Then, also, defendants say in their brief:
The only allegation in plaintiff's complaint that bears any relation to her claim that there has been
partial performance of the supposed contract of sale, is the notation of the sum of P247.26 in the
bank book of defendant Jose Poncio. The noting or jotting down of the sum of P247.26 in the
bank book of Jose Poncio does not prove the fact that the said amount was the purchase price
of the property in question. For all we knew, the sum of P247.26 which plaintiff claims to have
paid to the Republic Savings Bank for the account of the defendant, assuming that the money
paid to the Republic Savings Bank came from the plaintiff, was the result of some usurious loan
or accomodation, rather than earnest money or part payment of the land. Neither is it competent
or satisfactory evidence to prove the conveyance of the land in question the fact that the bank
book account of Jose Poncio happens to be in the possession of the plaintiff. (Defendants-
Appellees' brief, pp. 25-26).
How shall We know why Poncio's bank deposit book is in plaintiffs possession, or whether there
is any relation between the P247.26 entry therein and the partial payment of P247.26 allegedly
made by plaintiff to Poncio on account of the price of his land, if we do not allow the plaintiff to
explain it on the witness stand? Without expressing any opinion on the merits of plaintiff's claim,
it is clear, therefore, that she is entitled , legally as well as from the viewpoint of equity, to an
opportunity to introduce parol evidence in support of the allegations of her second amended
complaint. (pp. 46-49, ROA, emphasis supplied).
(3) In his first decision of December 5, 1962 declaring null and void the sale in favor of the
Infantes and ordering Poncio to execute a deed of conveyance in favor of Carbonell, the trial
judge found:
... A careful consideration of the contents of Exh. 'A' show to the satisfaction of the court that the
sale of the parcel of land in question by the defendant Poncio in favor of the plaintiff was covered
therein and that the said Exh. "a' was also executed to allow the defendant to continue staying in
the premises for the stated period. It will be noted that Exh. 'A' refers to a lot 'sold by him to me'
and having been written originally in a dialect well understood by the defendant Poncio, he
signed the said Exh. 'A' with a full knowledge and consciousness of the terms and
consequences thereof. This therefore, corroborates the testimony of the plaintiff Carbonell that
the sale of the land was made by Poncio. It is further pointed out that there was a partial
performance of the verbal sale executed by Poncio in favor of the plaintiff, when the latter paid
P247.26 to the Republic Savings Bank on account of Poncio's mortgage indebtedness. Finally,
the possession by the plaintiff of the defendant Poncio's passbook of the Republic Savings Bank
also adds credibility to her testimony. The defendant contends on the other hand that the
testimony of the plaintiff, as well as her witnesses, regarding the sale of the land made by
Poncio in favor of the plaintiff is inadmissible under the provision of the Statute of Fraud based
on the argument that the note Exh. "A" is not the note or memorandum referred to in the to in the
Statute of Fraud. The defendants argue that Exh. "A" fails to comply with the requirements of the
Statute of Fraud to qualify it as the note or memorandum referred to therein and open the way
for the presentation of parole evidence to prove the fact contained in the note or memorandum.
The defendant argues that there is even no description of the lot referred to in the note,
especially when the note refers to only one half lot. With respect to the latter argument of the
Exhibit 'A', the court has arrived at the conclusion that there is a sufficient description of the lot
referred to in Exh. 'A' as none other than the parcel of land occupied by the defendant Poncio
and where he has his improvements erected. The Identity of the parcel of land involved herein is
sufficiently established by the contents of the note Exh. "A". For a while, this court had that
similar impression but after a more and thorough consideration of the context in Exh. 'A' and for
the reasons stated above, the Court has arrived at the conclusion stated earlier (pp. 52-54,
ROA, emphasis supplied).
(4) After re-trial on motion of the Infantes, the trial Judge rendered on January 20, 1965 another
decision dismissing the complaint, although he found
1. That on January 27, 1955, the plaintiff purchased from the defendant Poncio a parcel of land
with an area of 195 square meters, more or less, covered by TCT No. 5040 of the Province of
Rizal, located at San Juan del Monte, Rizal, for the price of P6.50 per square meter;
2. That the purchase made by the plaintiff was not reduced to writing except for a short note or
memorandum Exh. A, which also recited that the defendant Poncio would be allowed to continue
his stay in the premises, among other things, ... (pp. 91-92, ROA, emphasis supplied).
From such factual findings, the trial Judge confirms the due execution of Exhibit "A", only that his
legal conclusion is that it is not sufficient to transfer ownership (pp. 93-94, ROA).
(5) In the first decision of November 2, 1967 of the Fifth Division of the Court of Appeals
composed of Justices Esguerra (now Associate Justice of the Supreme Court), Gatmaitan and
Mojica, penned by Justice Gatmaitan, the Court of Appeals found that:
... the testimony of Rosario Carbonell not having at all been attempted to be disproved by
defendants, particularly Jose Poncio, and corroborated as it is by the private document in
Batanes dialect, Exhibit A, the testimony being to the effect that between herself and Jose there
had been celebrated a sale of the property excluding the house for the price of P9.50 per square
meter, so much so that on faith of that, Rosario had advanced the sum of P247.26 and binding
herself to pay unto Jose the balance of the purchase price after deducting the indebtedness to
the Bank and since the wording of Exhibit A, the private document goes so far as to describe
their transaction as one of sale, already consummated between them, note the part tense used
in the phrase, "the lot sold by him to me" and going so far even as to state that from that day
onwards, vendor would continue to live therein, for one year, 'during which time he will not pay
anything' this can only mean that between Rosario and Jose, there had been a true contract of
sale, consummated by delivery constitutum possession, Art. 1500, New Civil Code; vendor's
possession having become converted from then on, as a mere tenant of vendee, with the special
privilege of not paying rental for one year, it is true that the sale by Jose Poncio to Rosario
Carbonell corroborated documentarily only by Exhibit A could not have been registered at all, but
it was a valid contract nonetheless, since under our law, a contract sale is consensual, perfected
by mere consent, Couto v. Cortes, 8 Phil 459, so much so that under the New Civil Code, while
a sale of an immovable is ordered to be reduced to a public document, Art. 1358, that mandate
does not render an oral sale of realty invalid, but merely incapable of proof, where still executory
and action is brought and resisted for its performance, 1403, par. 2, 3; but where already wholly
or partly executed or where even if not yet, it is evidenced by a memorandum, in any case where
evidence to further demonstrate is presented and admitted as the case was here, then the oral
sale becomes perfectly good, and becomes a good cause of action not only to reduce it to the
form of a public document, but even to enforce the contract in its entirety, Art. 1357; and thus it
is that what we now have is a case wherein on the one hand Rosario Carbonell has proved that
she had an anterior sale, celebrated in her favor on 27 January, 1955, Exhibit A, annotated as
an adverse claim on 8 February, 1955, and on other, a sale is due form in favor of Emma L.
Infante on 2 February, 1955, Exhibit 3-Infante, and registered in due form with title unto her
issued on 12 February, 1955; the vital question must now come on which of these two sales
should prevail; ... (pp. 74-76, rec., emphasis supplied).
(6) In the resolution dated October 30, 1968 penned by then Court of Appeals Justice Esguerra
(now a member of this Court), concurred in by Justices Villamor and Nolasco, constituting the
majority of a Special Division of Five, the Court of Appeals, upon motion of the Infantes, while
reversing the decision of November 2, 1967 and affirming the decision of the trial court of
January 20, 1965 dismissing plaintiff's complaint, admitted the existence and genuineness of
Exhibit "A", the private memorandum dated January 27, 1955, although it did not consider the
same as satisfying "the essential elements of a contract of sale," because it "neither specifically
describes the property and its boundaries, nor mention its certificate of title number, nor states
the price certain to be paid, or contrary to the express mandate of Articles 1458 and 1475 of the
Civil Code.
(7) In his dissent concurred in by Justice Rodriguez, Justice Gatmaitan maintains his decision of
November 2, 1967 as well as his findings of facts therein, and reiterated that the private
memorandum Exhibit "A", is a perfected sale, as a sale is consensual and consummated by
mere consent, and is binding on and effective between the parties. This statement of the
principle is correct [pp. 89-92, rec.].
III
ADEQUATE CONSIDERATION OR PRICE FOR THE SALE IN FAVOR OF CARBONELL
It should be emphasized that the mortgage on the lot was about to be foreclosed by the bank for
failure on the part of Poncio to pay the amortizations thereon. To forestall the foreclosure and at
the same time to realize some money from his mortgaged lot, Poncio agreed to sell the same to
Carbonell at P9.50 per square meter, on condition that Carbonell [1] should pay (a) the amount
of P400.00 to Poncio and 9b) the arrears in the amount of P247.26 to the bank; and [2] should
assume his mortgage indebtedness. The bank president agreed to the said sale with assumption
of mortgage in favor of Carbonell an Carbonell accordingly paid the arrears of P247.26. On
January 27, 1955, she paid the amount of P200.00 to the bank because that was the amount
that Poncio told her as his arrearages and Poncio advanced the sum of P47.26, which amount
was refunded to him by Carbonell the following day. This conveyance was confirmed that same
day, January 27, 1955, by the private document, Exhibit "A", which was prepared in the Batanes
dialect by the witness Constancio Meonada, who is also from Batanes like Poncio and
Carbonell.
The sale did not include Poncio's house on the lot. And Poncio was given the right to continue
staying on the land without paying any rental for one year, after which he should pay rent if he
could not still find a place to transfer his house. All these terms are part of the consideration of
the sale to Carbonell.
It is evident therefore that there was ample consideration, and not merely the sum of P200.00,
for the sale of Poncio to Carbonell of the lot in question.
But Poncio, induced by the higher price offered to him by Infante, reneged on his commitment to
Carbonell and told Carbonell, who confronted him about it, that he would not withdraw from his
deal with Infante even if he is sent to jail The victim, therefore, "of injustice and outrage is the
widow Carbonell and not the Infantes, who without moral compunction exploited the greed and
treacherous nature of Poncio, who, for love of money and without remorse of conscience,
dishonored his own plighted word to Carbonell, his own cousin.
Inevitably evident therefore from the foregoing discussion, is the bad faith of Emma Infante from
the time she enticed Poncio to dishonor his contract with Carbonell, and instead to sell the lot to
her (Infante) by offering Poncio a much higher price than the price for which he sold the same to
Carbonell. Being guilty of bad faith, both in taking physical possession of the lot and in recording
their deed of sale, the Infantes cannot recover the value of the improvements they introduced in
the lot. And after the filing by Carbonell of the complaint in June, 1955, the Infantes had less
justification to erect a building thereon since their title to said lot is seriously disputed by
Carbonell on the basis of a prior sale to her.
With respect to the claim of Poncio that he signed the document Exhibit "A" under the belief that
it was a permit for him to remain in the premises in ease he decides to sell the property to
Carbonell at P20.00 per square meter, the observation of the Supreme Court through Mr. Chief
Justice Concepcion in G.R. No. L-11231, supra, bears repeating:
... Incidentally, the allegation in Poncio's answer to the effect that he signed Exhibit A under the
belief that it 'was a permit for him to remain in the premises in the event that 'he decided to sell
the property' to the plaintiff at P20.00 a sq. m is, on its face, somewhat difficult to believe.
Indeed, if he had not decided as yet to sell that land to plaintiff, who had never increased her
offer of P15 a square meter, there as no reason for Poncio to get said permit from her. Upon the
they if plaintiff intended to mislead Poncio, she would have Exhibit A to be drafted, probably, in
English, instead of taking the trouble of seeing to it that it was written precisely in his native
dialect, the Batanes. Moreover, Poncio's signature on Exhibit A suggests that he is neither
illiterate nor so ignorant as to sign a document without reading its contents, apart from the fact
that Meonada had read Exhibit A to him-and given him a copy thereof, before he signed thereon,
according to Meonada's uncontradicted testimony. (pp. 46-47, ROA).
As stressed by Justice Gatmaitan in his first decision of November 2, 1965, which he reiterated
in his dissent from the resolution of the majority of the Special Division. of Five on October 30,
1968, Exhibit A, the private document in the Batanes dialect, is a valid contract of sale between
the parties, since sale is a consensual contract and is perfected by mere consent (Couto vs.
Cortes, 8 Phil. 459). Even an oral contract of realty is all between the parties and accords to the
vendee the right to compel the vendor to execute the proper public document As a matter of fact,
Exhibit A, while merely a private document, can be fully or partially performed, to it from the
operation of the statute of frauds. Being a all consensual contract, Exhibit A effectively
transferred the possession of the lot to the vendee Carbonell by constitutum possessorium
(Article 1500, New Civil Code); because thereunder the vendor Poncio continued to retain
physical possession of the lot as tenant of the vendee and no longer as knew thereof. More than
just the signing of Exhibit A by Poncio and Carbonell with Constancio Meonada as witness to
fact the contract of sale, the transition was further confirmed when Poncio agreed to the actual
payment by at Carbonell of his mortgage arrearages to the bank on January 27, 1955 and by his
consequent delivery of his own mortgage passbook to Carbonell. If he remained owner and
mortgagor, Poncio would not have surrendered his mortgage passbook to' Carbonell.
IV
IDENTIFICATION AND DESCRIPTION OF THE DISPUTED LOT IN THE MEMORANDUM
EXHIBIT "A"
The claim that the memorandum Exhibit "A" does not sufficiently describe the disputed lot as the
subject matter of the sale, was correctly disposed of in the first decision of the trial court of
December 5, 1962, thus: "The defendant argues that there is even no description of the lot
referred to in the note (or memorandum), especially when the note refers to only one-half lot.
With respect to the latter argument of the defendant, plaintiff points out that one- half lot was
mentioned in Exhibit 'A' because the original description carried in the title states that it was
formerly part of a bigger lot and only segregated later. The explanation is tenable, in (sic)
considering the time value of the contents of Exh. 'A', the court has arrived at the conclusion that
there is sufficient description of the lot referred to in Exh. As none other than the parcel of lot
occupied by the defendant Poncio and where he has his improvements erected. The Identity of
the parcel of land involved herein is sufficiently established by the contents of the note Exh. 'A'.
For a while, this court had that similar impression but after a more and through consideration of
the context in Exh. 'A' and for the reasons stated above, the court has arrived to (sic) the
conclusion stated earlier" (pp. 53-54, ROA).
Moreover, it is not shown that Poncio owns another parcel with the same area, adjacent to the
lot of his cousin Carbonell and likewise mortgaged by him to the Republic Savings Bank. The
transaction therefore between Poncio and Carbonell can only refer and does refer to the lot
involved herein. If Poncio had another lot to remove his house, Exhibit A would not have
stipulated to allow him to stay in the sold lot without paying any rent for one year and thereafter
to pay rental in case he cannot find another place to transfer his house.
While petitioner Carbonell has the superior title to the lot, she must however refund to
respondents Infantes the amount of P1,500.00, which the Infantes paid to the Republic Savings
Bank to redeem the mortgage.
It appearing that the Infantes are possessors in bad faith, their rights to the improvements they
introduced op the disputed lot are governed by Articles 546 and 547 of the New Civil Code. Their
expenses consisting of P1,500.00 for draining the property, filling it with 500 cubic meters of
garden soil, building a wall around it and installing a gate and P11,929.00 for erecting a b '
bungalow thereon, are useful expenditures, for they add to the value of the property (Aringo vs.
Arenas, 14 Phil. 263; Alburo vs. Villanueva, 7 Phil. 277; Valencia vs. Ayala de Roxas, 13 Phil.
45).
Under the second paragraph of Article 546, the possessor in good faith can retain the useful
improvements unless the person who defeated him in his possession refunds him the amount of
such useful expenses or pay him the increased value the land may have acquired by reason
thereof. Under Article 547, the possessor in good faith has also the right to remove the useful
improvements if such removal can be done without damage to the land, unless the person with
the superior right elects to pay for the useful improvements or reimburse the expenses therefor
under paragraph 2 of Article 546. These provisions seem to imply that the possessor in bad faith
has neither the right of retention of useful improvements nor the right to a refund for useful
expenses.
But, if the lawful possessor can retain the improvements introduced by the possessor in bad faith
for pure luxury or mere pleasure only by paying the value thereof at the time he enters into
possession (Article 549 NCC), as a matter of equity, the Infantes, although possessors in bad
faith, should be allowed to remove the aforesaid improvements, unless petitioner Carbonell
chooses to pay for their value at the time the Infantes introduced said useful improvements in
1955 and 1959. The Infantes cannot claim reimbursement for the current value of the said useful
improvements; because they have been enjoying such improvements for about two decades
without paying any rent on the land and during which period herein petitioner Carbonell was
deprived of its possession and use.
WHEREFORE, THE DECISION OF THE SPECIAL DIVISION OF FIVE OF THE COURT OF
APPEALS OF OCTOBER 30, 1968 IS HEREBY REVERSED; PETITIONER ROSARIO
CARBONELL IS HEREBY DECLARED TO HAVE THE SUPERIOR RIGHT TO THE LAND IN
QUESTION AND IS HEREBY DIRECTED TO REIMBURSE TO PRIVATE RESPONDENTS
INFANTES THE SUM OF ONE THOUSAND FIVE HUNDRED PESOS (P1,500.00) WITHIN
THREE (3) MONTHS FROM THE FINALITY OF THIS DECISION; AND THE REGISTER OF
DEEDS OF RIZAL IS HEREBY DIRECTED TO CANCEL TRANSFER CERTIFICATE OF TITLE
NO. 37842 ISSUED IN FAVOR OF PRIVATE RESPONDENTS INFANTES COVERING THE
DISPUTED LOT, WHICH CANCELLED TRANSFER CERTIFICATE OF TITLE NO. 5040 IN THE
NAME OF JOSE PONCIO, AND TO ISSUE A NEW TRANSFER CERTIFICATE OF TITLE IN
FAVOR OF PETITIONER ROSARIO CARBONELL UPON PRESENTATION OF PROOF OF
PAYMENT BY HER TO THE INFANTES OF THE AFORESAID AMOUNT OF ONE THOUSAND
FIVE HUNDRED PESOS (P1,500.00).
PRIVATE RESPONDENTS INFANTES MAY REMOVE THEIR AFOREMENTIONED USEFUL
IMPROVEMENTS FROM THE LOT WITHIN THREE (3) MONTHS FROM THE FINALITY OF
THIS DECISION, UNLESS THE PETITIONER ROSARIO CARBONELL ELECTS TO ACQUIRE
THE SAME AND PAYS THE INFANTES THE AMOUNT OF THIRTEEN THOUSAND FOUR
HUNDRED TWENTY-NINE PESOS (P13,429.00) WITHIN THREE (3) MONTHS FROM THE
FINALITY OF THIS DECISION. SHOULD PETITIONER CARBONELL FAIL TO PAY THE SAID
AMOUNT WITHIN THE AFORESTATED PERIOD OF THREE (3) MONTHS FROM THE
FINALITY OF THIS DECISION, THE PERIOD OF THREE (3) MONTHS WITHIN WHICH THE
RESPONDENTS INFANTES MAY REMOVE THEIR AFOREMENTIONED USEFUL
IMPROVEMENTS SHALL COMMENCE FROM THE EXPIRATION OF THE THREE (3)
MONTHS GIVEN PETITIONER CARBONELL TO PAY FOR THE SAID USEFUL
IMPROVEMENTS.
WITH COSTS AGAINST PRIVATE RESPONDENTS.
SECOND DIVISION
[G.R. No. 124242. January 21, 2005]
SAN LORENZO DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS,
PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA ZAVALLA LU,
respondents.
D E C I S I O N
TINGA, J .:
From a coaptation of the records of this case, it appears that respondents Miguel Lu and
Pacita Zavalla, (hereinafter, the Spouses Lu) owned two (2) parcels of land situated in Sta.
Rosa, Laguna covered by TCT No. T-39022 and TCT No. T-39023 both measuring 15,808
square meters or a total of 3.1616 hectares.
On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to
respondent Pablo Babasanta, (hereinafter, Babasanta) for the price of fifteen pesos (P15.00) per
square meter. Babasanta made a downpayment of fifty thousand pesos (P50,000.00) as
evidenced by a memorandum receipt issued by Pacita Lu of the same date. Several other
payments totaling two hundred thousand pesos (P200,000.00) were made by Babasanta.
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution
of a final deed of sale in his favor so that he could effect full payment of the purchase price. In
the same letter, Babasanta notified the spouses about having received information that the
spouses sold the same property to another without his knowledge and consent. He demanded
that the second sale be cancelled and that a final deed of sale be issued in his favor.
In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having
agreed to sell the property to him at fifteen pesos (P15.00) per square meter. She, however,
reminded Babasanta that when the balance of the purchase price became due, he requested for
a reduction of the price and when she refused, Babasanta backed out of the sale. Pacita added
that she returned the sum of fifty thousand pesos (P50,000.00) to Babasanta through Eugenio
Oya.
On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court
(RTC), Branch 31, of San Pedro, Laguna, a Complaint for Specific Performance and
Damages[1] against his co-respondents herein, the Spouses Lu. Babasanta alleged that the
lands covered by TCT No. T- 39022 and T-39023 had been sold to him by the spouses at fifteen
pesos (P15.00) per square meter. Despite his repeated demands for the execution of a final
deed of sale in his favor, respondents allegedly refused.
In their Answer,[2] the Spouses Lu alleged that Pacita Lu obtained loans from
Babasanta and when the total advances of Pacita reached fifty thousand pesos (P50,000.00),
the latter and Babasanta, without the knowledge and consent of Miguel Lu, had verbally
agreed to transform the transaction into a contract to sell the two parcels of land to Babasanta
with the fifty thousand pesos (P50,000.00) to be considered as the downpayment for the
property and the balance to be paid on or before 31 December 1987. Respondents Lu added
that as of November 1987, total payments made by Babasanta amounted to only two hundred
thousand pesos (P200,000.00) and the latter allegedly failed to pay the balance of two hundred
sixty thousand pesos (P260,000.00) despite repeated demands. Babasanta had purportedly
asked Pacita for a reduction of the price from fifteen pesos (P15.00) to twelve pesos (P12.00)
per square meter and when the Spouses Lu refused to grant Babasantas request, the latter
rescinded the contract to sell and declared that the original loan transaction just be carried out in
that the spouses would be indebted to him in the amount of two hundred thousand pesos
(P200,000.00). Accordingly, on 6 July 1989, they purchased Interbank Managers Check No.
05020269 in the amount of two hundred thousand pesos (P200,000.00) in the name of
Babasanta to show that she was able and willing to pay the balance of her loan obligation.
Babasanta later filed an Amended Complaint dated 17 January 1990[3] wherein he
prayed for the issuance of a writ of preliminary injunction with temporary restraining order and
the inclusion of the Register of Deeds of Calamba, Laguna as party defendant. He contended
that the issuance of a preliminary injunction was necessary to restrain the transfer or
conveyance by the Spouses Lu of the subject property to other persons.
The Spouses Lu filed their Opposition[4] to the amended complaint contending that it
raised new matters which seriously affect their substantive rights under the original complaint.
However, the trial court in its Order dated 17 January 1990[5] admitted the amended complaint.
On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC)
filed a Motion for Intervention[6] before the trial court. SLDC alleged that it had legal interest in
the subject matter under litigation because on 3 May 1989, the two parcels of land involved,
namely Lot 1764-A and 1764-B, had been sold to it in a Deed of Absolute Sale with Mortgage.[7]
It alleged that it was a buyer in good faith and for value and therefore it had a better right over
the property in litigation.
In his Opposition to SLDCs motion for intervention,[8] respondent Babasanta demurred
and argued that the latter had no legal interest in the case because the two parcels of land
involved herein had already been conveyed to him by the Spouses Lu and hence, the vendors
were without legal capacity to transfer or dispose of the two parcels of land to the intervenor.
Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to
intervene. SLDC filed its Complaint-in-Intervention on 19 April 1990.[9] Respondent
Babasantas motion for the issuance of a preliminary injunction was likewise granted by the trial
court in its Order dated 11 January 1991[10] conditioned upon his filing of a bond in the amount
of fifty thousand pesos (P50,000.00).
SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu
executed in its favor an Option to Buy the lots subject of the complaint. Accordingly, it paid an
option money in the amount of three hundred sixteen thousand one hundred sixty pesos
(P316,160.00) out of the total consideration for the purchase of the two lots of one million two
hundred sixty-four thousand six hundred forty pesos (P1,264,640.00). After the Spouses Lu
received a total amount of six hundred thirty-two thousand three hundred twenty pesos
(P632,320.00) they executed on 3 May 1989 a Deed of Absolute Sale with Mortgage in its
favor. SLDC added that the certificates of title over the property were delivered to it by the
spouses clean and free from any adverse claims and/or notice of lis pendens. SLDC further
alleged that it only learned of the filing of the complaint sometime in the early part of January
1990 which prompted it to file the motion to intervene without delay. Claiming that it was a buyer
in good faith, SLDC argued that it had no obligation to look beyond the titles submitted to it by
the Spouses Lu particularly because Babasantas claims were not annotated on the certificates
of title at the time the lands were sold to it.
After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the
sale of the property to SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two
hundred thousand pesos (P200,000.00) with legal interest plus the further sum of fifty thousand
pesos (P50,000.00) as and for attorneys fees. On the complaint-in-intervention, the trial court
ordered the Register of Deeds of Laguna, Calamba Branch to cancel the notice of lis pendens
annotated on the original of the TCT No. T-39022 (T-7218) and No. T-39023 (T-7219).
Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta
and SLDC did not register the respective sales in their favor, ownership of the property should
pertain to the buyer who first acquired possession of the property. The trial court equated the
execution of a public instrument in favor of SLDC as sufficient delivery of the property to the
latter. It concluded that symbolic possession could be considered to have been first transferred
to SLDC and consequently ownership of the property pertained to SLDC who purchased the
property in good faith.
Respondent Babasanta appealed the trial courts decision to the Court of Appeals
alleging in the main that the trial court erred in concluding that SLDC is a purchaser in good faith
and in upholding the validity of the sale made by the Spouses Lu in favor of SLDC.
Respondent spouses likewise filed an appeal to the Court of Appeals. They contended
that the trial court erred in failing to consider that the contract to sell between them and
Babasanta had been novated when the latter abandoned the verbal contract of sale and
declared that the original loan transaction just be carried out. The Spouses Lu argued that since
the properties involved were conjugal, the trial court should have declared the verbal contract to
sell between Pacita Lu and Pablo Babasanta null and void ab initio for lack of knowledge and
consent of Miguel Lu. They further averred that the trial court erred in not dismissing the
complaint filed by Babasanta; in awarding damages in his favor and in refusing to grant the
reliefs prayed for in their answer.
On 4 October 1995, the Court of Appeals rendered its Decision[11] which set aside the
judgment of the trial court. It declared that the sale between Babasanta and the Spouses Lu
was valid and subsisting and ordered the spouses to execute the necessary deed of conveyance
in favor of Babasanta, and the latter to pay the balance of the purchase price in the amount of
two hundred sixty thousand pesos (P260,000.00). The appellate court ruled that the Absolute
Deed of Sale with Mortgage in favor of SLDC was null and void on the ground that SLDC was a
purchaser in bad faith. The Spouses Lu were further ordered to return all payments made by
SLDC with legal interest and to pay attorneys fees to Babasanta.
SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate
court.[12] However, in a Manifestation dated 20 December 1995,[13] the Spouses Lu informed
the appellate court that they are no longer contesting the decision dated 4 October 1995.
In its Resolution dated 11 March 1996,[14] the appellate court considered as withdrawn
the motion for reconsideration filed by the Spouses Lu in view of their manifestation of 20
December 1995. The appellate court denied SLDCs motion for reconsideration on the ground
that no new or substantial arguments were raised therein which would warrant modification or
reversal of the courts decision dated 4 October 1995.
Hence, this petition.
SLDC assigns the following errors allegedly committed by the appellate court:
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A BUYER IN
GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU OBTAINED FROM IT THE
CASH ADVANCE OF P200,000.00, SAN LORENZO WAS PUT ON INQUIRY OF A PRIOR
TRANSACTION ON THE PROPERTY.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED FACT
THAT THE ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT IN POSSESSION
OF THE DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT AND TOOK POSSESSION OF
THE PROPERTY AND NO ADVERSE CLAIM, LIEN, ENCUMBRANCE OR LIS PENDENS WAS
ANNOTATED ON THE TITLES.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT
RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN
LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED PROPERTY.
THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS FULL
CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED AND SET
ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING THE TITLE OF SAN LORENZO AS
A BUYER AND FIRST POSSESSOR IN GOOD FAITH. [15]
SLDC contended that the appellate court erred in concluding that it had prior notice of
Babasantas claim over the property merely on the basis of its having advanced the amount of
two hundred thousand pesos (P200,000.00) to Pacita Lu upon the latters representation that
she needed the money to pay her obligation to Babasanta. It argued that it had no reason to
suspect that Pacita was not telling the truth that the money would be used to pay her
indebtedness to Babasanta. At any rate, SLDC averred that the amount of two hundred
thousand pesos (P200,000.00) which it advanced to Pacita Lu would be deducted from the
balance of the purchase price still due from it and should not be construed as notice of the prior
sale of the land to Babasanta. It added that at no instance did Pacita Lu inform it that the lands
had been previously sold to Babasanta.
Moreover, SLDC stressed that after the execution of the sale in its favor it immediately
took possession of the property and asserted its rights as new owner as opposed to Babasanta
who has never exercised acts of ownership. Since the titles bore no adverse claim,
encumbrance, or lien at the time it was sold to it, SLDC argued that it had every reason to rely
on the correctness of the certificate of title and it was not obliged to go beyond the certificate to
determine the condition of the property. Invoking the presumption of good faith, it added that the
burden rests on Babasanta to prove that it was aware of the prior sale to him but the latter failed
to do so. SLDC pointed out that the notice of lis pendens was annotated only on 2 June 1989
long after the sale of the property to it was consummated on 3 May 1989.
Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu
informed the Court that due to financial constraints they have no more interest to pursue their
rights in the instant case and submit themselves to the decision of the Court of Appeals.[16]
On the other hand, respondent Babasanta argued that SLDC could not have acquired
ownership of the property because it failed to comply with the requirement of registration of the
sale in good faith. He emphasized that at the time SLDC registered the sale in its favor on 30
June 1990, there was already a notice of lis pendens annotated on the titles of the property
made as early as 2 June 1989. Hence, petitioners registration of the sale did not confer upon it
any right. Babasanta further asserted that petitioners bad faith in the acquisition of the property
is evident from the fact that it failed to make necessary inquiry regarding the purpose of the
issuance of the two hundred thousand pesos (P200,000.00) managers check in his favor.
The core issue presented for resolution in the instant petition is who between SLDC and
Babasanta has a better right over the two parcels of land subject of the instant case in view of
the successive transactions executed by the Spouses Lu.
To prove the perfection of the contract of sale in his favor, Babasanta presented a
document signed by Pacita Lu acknowledging receipt of the sum of fifty thousand pesos
(P50,000.00) as partial payment for 3.6 hectares of farm lot situated at Barangay Pulong, Sta.
Cruz, Sta. Rosa, Laguna.[17] While the receipt signed by Pacita did not mention the price for
which the property was being sold, this deficiency was supplied by Pacita Lus letter dated 29
May 1989[18] wherein she admitted that she agreed to sell the 3.6 hectares of land to
Babasanta for fifteen pesos (P15.00) per square meter.
An analysis of the facts obtaining in this case, as well as the evidence presented by the
parties, irresistibly leads to the conclusion that the agreement between Babasanta and the
Spouses Lu is a contract to sell and not a contract of sale.
Contracts, in general, are perfected by mere consent,[19] which is manifested by the
meeting of the offer and the acceptance upon the thing which are to constitute the contract. The
offer must be certain and the acceptance absolute.[20] Moreover, contracts shall be obligatory in
whatever form they may have been entered into, provided all the essential requisites for their
validity are present.[21]
The receipt signed by Pacita Lu merely states that she accepted the sum of fifty
thousand pesos (P50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot
situated in Sta. Rosa, Laguna. While there is no stipulation that the seller reserves the
ownership of the property until full payment of the price which is a distinguishing feature of a
contract to sell, the subsequent acts of the parties convince us that the Spouses Lu never
intended to transfer ownership to Babasanta except upon full payment of the purchase price.
Babasantas letter dated 22 May 1989 was quite telling. He stated therein that despite
his repeated requests for the execution of the final deed of sale in his favor so that he could
effect full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta
himself recognized that ownership of the property would not be transferred to him until such time
as he shall have effected full payment of the price. Moreover, had the sellers intended to transfer
title, they could have easily executed the document of sale in its required form simultaneously
with their acceptance of the partial payment, but they did not. Doubtlessly, the receipt signed by
Pacita Lu should legally be considered as a perfected contract to sell.
The distinction between a contract to sell and a contract of sale is quite germane. In a
contract of sale, title passes to the vendee upon the delivery of the thing sold; whereas in a
contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the
full payment of the price.[22] In a contract of sale, the vendor has lost and cannot recover
ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell,
title is retained by the vendor until the full payment of the price, such payment being a positive
suspensive condition and failure of which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming effective.[23]
The perfected contract to sell imposed upon Babasanta the obligation to pay the
balance of the purchase price. There being an obligation to pay the price, Babasanta should
have made the proper tender of payment and consignation of the price in court as required by
law. Mere sending of a letter by the vendee expressing the intention to pay without the
accompanying payment is not considered a valid tender of payment.[24] Consignation of the
amounts due in court is essential in order to extinguish Babasantas obligation to pay the
balance of the purchase price. Glaringly absent from the records is any indication that
Babasanta even attempted to make the proper consignation of the amounts due, thus, the
obligation on the part of the sellers to convey title never acquired obligatory force.
On the assumption that the transaction between the parties is a contract of sale and not
a contract to sell, Babasantas claim of ownership should nevertheless fail.
Sale, being a consensual contract, is perfected by mere consent[25] and from that
moment, the parties may reciprocally demand performance.[26] The essential elements of a
contract of sale, to wit: (1) consent or meeting of the minds, that is, to transfer ownership in
exchange for the price; (2) object certain which is the subject matter of the contract; (3) cause of
the obligation which is established.[27]
The perfection of a contract of sale should not, however, be confused with its
consummation. In relation to the acquisition and transfer of ownership, it should be noted that
sale is not a mode, but merely a title. A mode is the legal means by which dominion or
ownership is created, transferred or destroyed, but title is only the legal basis by which to affect
dominion or ownership.[28] Under Article 712 of the Civil Code, ownership and other real rights
over property are acquired and transmitted by law, by donation, by testate and intestate
succession, and in consequence of certain contracts, by tradition. Contracts only constitute
titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the mode of
accomplishing the same.[29] Therefore, sale by itself does not transfer or affect ownership; the
most that sale does is to create the obligation to transfer ownership. It is tradition or delivery, as
a consequence of sale, that actually transfers ownership.
Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee
from the moment it is delivered to him in any of the ways specified in Article 1497 to 1501.[30]
The word delivered should not be taken restrictively to mean transfer of actual physical
possession of the property. The law recognizes two principal modes of delivery, to wit: (1) actual
delivery; and (2) legal or constructive delivery.
Actual delivery consists in placing the thing sold in the control and possession of the
vendee.[31] Legal or constructive delivery, on the other hand, may be had through any of the
following ways: the execution of a public instrument evidencing the sale;[32] symbolical tradition
such as the delivery of the keys of the place where the movable sold is being kept;[33] traditio
longa manu or by mere consent or agreement if the movable sold cannot yet be transferred to
the possession of the buyer at the time of the sale;[34] traditio brevi manu if the buyer already
had possession of the object even before the sale;[35] and traditio constitutum possessorium,
where the seller remains in possession of the property in a different capacity.[36]
Following the above disquisition, respondent Babasanta did not acquire ownership by
the mere execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the
property. For one, the agreement between Babasanta and the Spouses Lu, though valid, was
not embodied in a public instrument. Hence, no constructive delivery of the lands could have
been effected. For another, Babasanta had not taken possession of the property at any time
after the perfection of the sale in his favor or exercised acts of dominion over it despite his
assertions that he was the rightful owner of the lands. Simply stated, there was no delivery to
Babasanta, whether actual or constructive, which is essential to transfer ownership of the
property. Thus, even on the assumption that the perfected contract between the parties was a
sale, ownership could not have passed to Babasanta in the absence of delivery, since in a
contract of sale ownership is transferred to the vendee only upon the delivery of the thing
sold.[37]
However, it must be stressed that the juridical relationship between the parties in a
double sale is primarily governed by Article 1544 which lays down the rules of preference
between the two purchasers of the same property. It provides:
Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred
to the person who may have first taken possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith
first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good
faith.
The principle of primus tempore, potior jure (first in time, stronger in right) gains greater
significance in case of double sale of immovable property. When the thing sold twice is an
immovable, the one who acquires it and first records it in the Registry of Property, both made in
good faith, shall be deemed the owner.[38] Verily, the act of registration must be coupled with
good faith that is, the registrant must have no knowledge of the defect or lack of title of his
vendor or must not have been aware of facts which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with the defects in the title of his vendor.[39]
Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired
knowledge of Babasantas claim. Babasanta, however, strongly argues that the registration of
the sale by SLDC was not sufficient to confer upon the latter any title to the property since the
registration was attended by bad faith. Specifically, he points out that at the time SLDC
registered the sale on 30 June 1990, there was already a notice of lis pendens on the file with
the Register of Deeds, the same having been filed one year before on 2 June 1989.
Did the registration of the sale after the annotation of the notice of lis pendens obliterate
the effects of delivery and possession in good faith which admittedly had occurred prior to
SLDCs knowledge of the transaction in favor of Babasanta?
We do not hold so.
It must be stressed that as early as 11 February 1989, the Spouses Lu executed the
Option to Buy in favor of SLDC upon receiving P316,160.00 as option money from SLDC. After
SLDC had paid more than one half of the agreed purchase price of P1,264,640.00, the Spouses
Lu subsequently executed on 3 May 1989 a Deed of Absolute Sale in favor or SLDC. At the time
both deeds were executed, SLDC had no knowledge of the prior transaction of the Spouses Lu
with Babasanta. Simply stated, from the time of execution of the first deed up to the moment of
transfer and delivery of possession of the lands to SLDC, it had acted in good faith and the
subsequent annotation of lis pendens has no effect at all on the consummated sale between
SLDC and the Spouses Lu.
A purchaser in good faith is one who buys property of another without notice that some
other person has a right to, or interest in, such property and pays a full and fair price for the
same at the time of such purchase, or before he has notice of the claim or interest of some other
person in the property.[40] Following the foregoing definition, we rule that SLDC qualifies as a
buyer in good faith since there is no evidence extant in the records that it had knowledge of the
prior transaction in favor of Babasanta. At the time of the sale of the property to SLDC, the
vendors were still the registered owners of the property and were in fact in possession of the
lands. Time and again, this Court has ruled that a person dealing with the owner of registered
land is not bound to go beyond the certificate of title as he is charged with notice of burdens on
the property which are noted on the face of the register or on the certificate of title.[41] In
assailing knowledge of the transaction between him and the Spouses Lu, Babasanta apparently
relies on the principle of constructive notice incorporated in Section 52 of the Property
Registration Decree (P.D. No. 1529) which reads, thus:
Sec. 52. Constructive notice upon registration. Every conveyance, mortgage, lease, lien, attachment,
order, judgment, instrument or entry affecting registered land shall, if registered, filed, or entered in the
office of the Register of Deeds for the province or city where the land to which it relates lies, be
constructive notice to all persons from the time of such registering, filing, or entering.
However, the constructive notice operates as suchby the express wording of Section 52from
the time of the registration of the notice of lis pendens which in this case was effected only on 2
June 1989, at which time the sale in favor of SLDC had long been consummated insofar as the
obligation of the Spouses Lu to transfer ownership over the property to SLDC is concerned.
More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta
the annotation of the notice of lis pendens cannot help Babasantas position a bit and it is
irrelevant to the good or bad faith characterization of SLDC as a purchaser. A notice of lis
pendens, as the Court held in Natao v. Esteban,[42] serves as a warning to a prospective
purchaser or incumbrancer that the particular property is in litigation; and that he should keep his
hands off the same, unless he intends to gamble on the results of the litigation. Precisely, in this
case SLDC has intervened in the pending litigation to protect its rights. Obviously, SLDCs faith
in the merit of its cause has been vindicated with the Courts present decision which is the
ultimate denouement on the controversy.
The Court of Appeals has made capital[43] of SLDCs averment in its Complaint-in-
Intervention[44] that at the instance of Pacita Lu it issued a check for P200,000.00 payable to
Babasanta and the confirmatory testimony of Pacita Lu herself on cross-examination.[45]
However, there is nothing in the said pleading and the testimony which explicitly relates the
amount to the transaction between the Spouses Lu and Babasanta for what they attest to is that
the amount was supposed to pay off the advances made by Babasanta to Pacita Lu. In any
event, the incident took place after the Spouses Lu had already executed the Deed of Absolute
Sale with Mortgage in favor of SLDC and therefore, as previously explained, it has no effect on
the legal position of SLDC.
Assuming ex gratia argumenti that SLDCs registration of the sale had been tainted by
the prior notice of lis pendens and assuming further for the same nonce that this is a case of
double sale, still Babasantas claim could not prevail over that of SLDCs. In Abarquez v. Court
of Appeals,[46] this Court had the occasion to rule that if a vendee in a double sale registers the
sale after he has acquired knowledge of a previous sale, the registration constitutes a
registration in bad faith and does not confer upon him any right. If the registration is done in bad
faith, it is as if there is no registration at all, and the buyer who has taken possession first of the
property in good faith shall be preferred.
In Abarquez, the first sale to the spouses Israel was notarized and registered only after
the second vendee, Abarquez, registered their deed of sale with the Registry of Deeds, but the
Israels were first in possession. This Court awarded the property to the Israels because
registration of the property by Abarquez lacked the element of good faith. While the facts in the
instant case substantially differ from that in Abarquez, we would not hesitate to rule in favor of
SLDC on the basis of its prior possession of the property in good faith. Be it noted that delivery
of the property to SLDC was immediately effected after the execution of the deed in its favor, at
which time SLDC had no knowledge at all of the prior transaction by the Spouses Lu in favor of
Babasanta.
The law speaks not only of one criterion. The first criterion is priority of entry in the
registry of property; there being no priority of such entry, the second is priority of possession;
and, in the absence of the two priorities, the third priority is of the date of title, with good faith as
the common critical element. Since SLDC acquired possession of the property in good faith in
contrast to Babasanta, who neither registered nor possessed the property at any time, SLDCs
right is definitely superior to that of Babasantas.
At any rate, the above discussion on the rules on double sale would be purely academic
for as earlier stated in this decision, the contract between Babasanta and the Spouses Lu is not
a contract of sale but merely a contract to sell. In Dichoso v. Roxas,[47] we had the occasion to
rule that Article 1544 does not apply to a case where there was a sale to one party of the land
itself while the other contract was a mere promise to sell the land or at most an actual
assignment of the right to repurchase the same land. Accordingly, there was no double sale of
the same land in that case.
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of
Appeals appealed from is REVERSED and SET ASIDE and the decision of the Regional Trial
Court, Branch 31, of San Pedro, Laguna is REINSTATED. No costs.
SO ORDERED.
Republic of the Philippines SUPREME COURT Manila
EN BANC
G.R. No. L-16420 October 12, 1921
AGRIPINO MENDOZA, petitioner-appellee, vs. PRIMITIVO KALAW, objector-appellant.
Guillermo M. Katigbak for appellant. Felipe A. Jose for appellee.

JOHNSON, J .:
From the record it appears that on the 26th day of November, 1919, the petitioner presented a
petition in the Court of First instance of the City of Manila for the registration, under the Torrens
system, of a piece or parcel of land, particularly described in paragraph A of the petition. The
said lot is alleged to have an area of 371.6 square meters. The petitioner alleged that he was the
owner in fee simple of said parcel of land for the reason that he had purchased the same of
Federico Caet on the 8th day of November, 1919. Accompanying the petition, there was united
a plan (marked Exhibit A) containing a technical description of the metes and bounds of said
parcel of land.
To the registration of said parcel of land the oppositor, Primitivo Kalaw, presented his opposition,
alleging that he was the owner of the same and that he had acquired it from the said Federico
Caet.
Upon the issue thus presented by the petitioner and opposition, the Honorable James A.
Ostrand, on the 23d day of January, 1920, in a carefully prepared opinion, reached the
conclusion that the petitioner was the owner in fee simple of said parcel of land, and ordered it
registered in his name in accordance with the provisions of the Land registration Act. From that
decree the oppositor appealed to this court.
From an examination of the record the following facts seem to be proved by a large
preponderance of the evidence:
(1) That on the 24th day of September, 1919, the said Federico Caet sold, under a conditional
sale, the parcel of land in question to the appellant (Exhibit 1);
(2) That on the 8th day of November, 1919, the said Federico Caet made an absolute sale of
said parcel of land to the petitioner Agripino Mendoza (Exhibit B);
(3) That on the 12th day of November, 1919, Agripino Mendoza entered upon, and took actual
possession of, said parcel of land, enclosed it with a fence, and began to clean the same;
(4) That after the petitioner had fenced and cleaned said lot, as above indicated, a
representative of the oppositor claimed and attempted to obtain possession of said lot, but the
petitioner, who was then in possession, refused to deliver the possession, upon the ground that
the was the owner;
(5) That on the 17th day of November (18th day of November), 1919, the oppositor attempted to
have his title registered in the registry of deeds of the City of Manila, but such registration was
denied by the register of deeds for the reason that there existed some defect in the description
of the property, and for the reason that the title of the vendor had not therefore been registered.
The register of deeds, however, did make an "anotacion preventiva."
It will be noted from the foregoing that Federico Caet made two sales of the same property
one of the oppositor and the other to the petitioner. The first was but a conditional sale while the
latter was an absolute sale. It will also be noted that while the absolute sale to the petitioner was
subsequent to the conditional sale to the oppositor, the former obtained the actual possession of
the property first. It will further be noted from a reading of Exhibits 1 and B that the petitioner
actually paid to his vendor the purchase price of the property in question, while the payment by
the oppositor depended upon the performance of certain conditions mentioned in the contract of
sale. 1awph!l.net
While was have stated that there were two sales of the parcel of land in question, that is hardly
the fact, because a conditional sale, before the performance of the condition, can hardly be said
to be a sale of property, especially where the condition has not been performed or complied
with. That being true, article 1473 of the Civil Code can hardly be said to be applicable.
Neither can the "anotacion preventiva" obtained by the oppositor be said to have created any
advance in his favor, for the reason that a preventative precautionary notice on the records of
the registry of deeds only protects the rights of the person securing it for a period of thirty days.
(Par. 2, art. 17, Mortgage Law.) A preventative precautionary notice only protects the interests
and rights of the person who secures it against those who acquire an interest in the property
subsequent thereto, and then, only for a period of thirty days. It cannot affect the rights or
interests of persons who acquired an interest in the property theretofore. (Veguillas vs. Jaucian,
25 Phil., 315; Samson vs. Garcia and Ycalina, 34 Phil., 805.) In the present case the petitioner
had acquired an absolute deed to the land in question, and had actually entered into the
possession of the same, before the preventative precautionary notice was noted in the office of
the registry of deeds. Therefore, under the provisions of the Mortgage Law above cited, it could
in no way affect the rights or interests of persons, acquired theretofore.
For all of the foregoing reasons, we are fully persuaded that the judgment ordering the
registration of the parcel of land in question in the name of the petitioner should be and is hereby
affirmed, with costs. So ordered.
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.
D E C I S I O N
HERMOSISIMA, JR., J .:
Before us is a petition for review seeking the reversal of the Decision[1] of the Court of
Appeals[2] and in lieu thereof, the reinstatement of the Decision[3] of the Regional Trial Court[4]
in an action for specific performance filed by private respondents Faustino L. Yu and Antonio T.
Lim against the Kado siblings, namely, private respondents Elena K. Palanca, Eduarda K.
Vargas, Mercedes K. Caballero, Isabel K. Villamor, Jose Kado, Maria K. Calonzo, Teofila Kado
and Nestor Kado, and their respective spouses.
In essence, the petition poses a challenge against the respondent appellate courts legal
conclusion that the transaction entered into by private respondents Yu and Lim with private
respondents Kado siblings, is one of an absolute sale and not merely a conditional sale as
denominated in the document signed by said parties. As such, there is no dispute as to the
following facts:
xxx [F]rom the welter of evidence and the record, it has been established that Elena
Kado Palanca, and her brothers and sisters, namely, Eduarda K. Vargas, Mercedes K.
Caballero, Isabel K. Villamor, Jose Kado, Maria K. Calonzo, Teofila Kado and Nestor
Kado, hereinafter referred to, for brevitys sake, as the Appellees-Vendors, were the
owners of a parcel of land, with an area of 1,343 square meters, with a five-door, one
storey commercial building constructed thereon, fronting the Imperial Hotel, located
along Magallanes Street, Cotabato City, described in and covered by Transfer Certificate
of Title No. T-12963 of the Registry of Deeds of Cotabato City x x x. One of the five (5)
doors was leased to Loreto Adalin, hereinafter referred to as the Appellee Adalin, two (2)
doors were leased to Carlos Calingasan and Demetrio Adaya respectively, and two (2)
doors were leased to Magno Adalin, all of whom are hereinafter referred to, for brevitys
sake, as the Appellees-Vendees. The Appellees-Vendees and Appellee Adalin paid a
monthly rental of P1,500.00 for each door. The Appellees-Vendors commissioned Ester
Bautista to look for and negotiate with prospective buyers for the sale of their property
for the price of P3,000,000.00. Sometime in August, 1987, Ester Bautista offered the
property, for sale, to the Appellants and the latter agreed to buy the property. A
conference was held in the office of the Appellant Faustino Yu, at the Imperial Hotel,
where he was the President-Manager, with both Appellants, the Appellee Adalin, the
Appellees-Vendors Elena Palanca and Teofilo Kado, in their behalf and in behalf of the
Appellees-Vendors, in attendance, to discuss the terms and conditions of the sale. The
Appellants and Appellee Adalin, the Appellees-Vendors agreed that the Appellants will
each buy two (2) doors while Appellee Adalin will buy the fifth door which he was
leasing from the Appellees-Vendors, all for the price of P2,600,000.00. During the
conference, the Appellants inquired from the Appellee-Vendor Elena Palanca whether the
Appellees-Vendees were interested to buy the property but the Appellee-Vendor Elena
Palanca replied that the property had been offered to the Appellees-Vendees for sale but
that the latter were not interested to buy the same. The conferees then agreed to meet, on
September 2, 1987, in the house of the Appellee-Vendor Palanca, with Atty. Bayani
Calonzo, her brother-in-law, in attendance, to finalize the sale. However, unknown to the
Appellants, the Appellee-Vendor Elena Palanca, in her behalf and in behalf of the other
Appellees-Vendors, sent, on September 2, 1987, separate letters to each of the Appellees-
Vendees informing them that someone was interested to buy the property and requested
them to vacate the property within thirty (30) days unless all of you could buy the
property at the same price x x x. During the conference in the house of the Appellee-
Vendor Elena Palanca, on September 2, 1987, the Appellants, the Appellee Adalin and
the Appellees-Vendors Elena Palanca and Teofilo Kado in their behalf and in behalf of
the other Appellees-Vendors, Atty. Bayani Calonzo, the husband of the Appellee Maria
Kado, Atty. Eugenio Soyao, the counsel of the appellants and the Appellee-Vendee
Magno Adalin who attended in his behalf and in behalf of the Appellees-Vendees, were
present. When asked by the Appellants if the Appellees-Vendees were interested to buy
the property, the Appellee-vendee Magno Adalin forthrightly replied that the Appellees-
Vendees were not interested to buy the property because they cannot afford the purchase
price thereof. However, he claimed that the Appellees Vendees were entitled to
P50,000.00 each as disturbance money, in consideration for their vacating the property, to
be borne by the Appellees-Vendors. The Appellants, the Appellee Adalin and the
Appellees-Vendors forthwith agreed that each Appellant will buy two (2) doors while the
fifth door leased by Appellee Adalin will be purchased by him, all for the purchased price
of P2,600,000.00 and that the appellants and Appellee Adalin will pay, P300,000.00 as
downpayment for the property, the balance to be payable upon the eviction of the
Appellees-Vendees from the property and the execution of a 'Deed of Absolute
Sale'. Atty. Bayani Calonzo forthwith assured the Appellants that he could secure the
eviction of the Appellees-Vendees from the property within a month because the latter
were his close friends and compadres. Atty. Bayani Calonzo then gave Atty. Eugenio
Soyao, the counsel of the Appellants, the go-signal to prepare the deed for the signatures
of the parties. On September 8, 1987, the Appellants and Appellee Adalin, as buyers of
the property, and the Appellees-Vendors, met in the office of the Appellant Faustino Yu
at the Imperial Hotel and executed the Deed of Conditional Sale prepared by Atty.
Eugenio Soyao x x x. The Appellants and Appellee Adalin each contributed P100,000.00
and gave the total amount of P300,000.00 to the Appellee-Vendor Elena Palanca as the
downpayment for the property. The Appellees-Vendors Elena Palanca and Eduarda
Vargas signed an Acknowledgment Receipt for the downpayment x x x in their behalf
and in behalf of the other Appellees-vendors. In the meantime, the Appellants deferred
registration of the deed until after the eviction of the Appellees-Vendees from the
property and the payment of the balance of the purchase price of the property to the
Appellees-Vendors as agreed upon under the Deed of Conditional Sale.
In the interim, on October 14, 1987, the Appellees-Vendors, through the Appellee-
Vendor Elena Palanca, wrote, conformably with the terms of the Deed of Conditional
Sale x x x a letter complaint against the Appellees-Vendees with the Barangay Captain
for unlawful detainer x x x. The case was docketed as Barangay Case No. 7,052-87 x x
x. On October 16, 1987, the Appellee-Vendee Magno Adalin wrote a letter to the
Appellees-Vendors, through the Appellee-Vendor Elena Palanca, informing them that he
had decided to purchase the two doors he was leasing for the purchase price of
P600,000.00 per door and was ready to tender the amount by the end of the month x x
x. The Appellee-Vendee Demetrio Adaya and the Appellee-Vendee Carlos Calingasan
likewise wrote separate letters to the Appellees-vendors informing the latter of their
decision to purchase the premises occupied by them respectively for the amount of
P600,000.00 each x x x. Inspite of the prior sale of the property to the Appellants and
Appellee Adalin, the Appellees-Vendors decided to back out from said sale to
the Appellants and to sell the property to the Appellees-vendees and to return the
downpayments of the Appellants for the property in the total amount of P200,000.00 with
interest thereon. The Appellees-Vendees procured TCBT Check No. 195031 in the
amount of P101,416.66 payable to the Appellant Faustino Yu and TCBT Check No.
195032 in the amount of P101,416.66 payable to the Appellant Antonio Lim and
transmitted the same to the Appellants with a covering letter x x x. The Appellants were
flabbergasted. Both the Appellants refused to receive the said letter and checks and
insisted, instead, that the Appellees-Vendors comply with the Deed of Conditional Sale
x x x. On November 16, 1987, the Appellants, through their counsel, wrote a letter to the
Appellees-Vendors, copies of which were furnished the Appellees-vendees, inquiring if
the appropriate action has been undertaken towards the eviction of the Appellees-
Vendees x x x. The Appellees-Vendors ignored the said letter. Instead, the Appellees-
Vendors signed, in December, 1987, a Deed of Sale of Registered Land under which
they sold the said property to the Appellees-Vendees, including the Appellee Adalin for
the price of only P1,000,000.00 x x x much lower than the price of the Appellant under
the Deed of Conditional Sale x x x. Although it appears that the deed was notarized by
Atty. Bayani Calonzo, however, the deed does not bear any number in the notarial
register of the lawyer. In the same month, the Appellees-Vendors signed another Deed
of Sale of Registered Land under which they sold to the Appellees-Vendees including
Appellee Adalin the aforesaid property for the considerably increased price of
P3,000,000.00 x x x. The deed was notarized by Atty. Bayani Calonzo. Interestingly,
both deeds were not filed with the Register of Deeds of Cotabato City. Not content with
the two (2) Deeds of Sale of registered Land x x x the Appellees-Vendors, signed a third
Deed of Sale of Registered land which appears dated February 5, 1988 under which
they purportedly sold to the Appellees-Vendees, including Appellee Adalin, the aforesaid
property for the much reduced price of only P860,000.00 x x x. However, the aforesaid
deed was not immediately filed with the Register of Deeds of Cotabato City. On
February 26, 1988, the Appellees-Vendors, through Atty. Bayani Calonzo, filed a Petition
against the Appellants for the consignation of their downpayment of P200,000.00, with
the Regional Trial Court of General Santos City entitled Maria K. Calonzo, et al. versus
Faustino Yu, Special Civil Case No. 259. x x x
Undaunted, the Appellants filed a complaint with the Barangay captain for Breach of
Contract against the Appellees-vendors entitled Faustino Yu, et al. Versus Elena K.
Palanca, et al., Barangay Case No. 9,014-88. The Barangay Captain issued, on April 7,
1988, summons to the Appellees-Vendors for them to appear for a conference on April
22, 1988 at 9:00 oclock in the morning x x x. Invitations were also sent to the
Appellees-Vendees x x x. During the conference attended by Appellee-Vendees, the
Appellants, if only to accommodate the Appellee-Vendee Magno Adalin and settle the
case amicably, agreed to buy only one door each so that the Appellee-Vendee Magno
Adalin could purchase the two doors he was occupying. However, the Appellee-Vendee
Magno Adalin adamantly refused, claiming that he was already the owner of the two (2)
doors. When the Appellant Antonio Lim asked the Appellee-Vendee Magno Adalin to
show the Deed of Sale for the two doors, the latter insouciantly walked out. Atty.
Bayani Calonzo likewise stated that there was no need to show the deed of sale. No
settlement was forged and, on May 16, 1988, the Barangay Captain issued the
Certification to File Action x x x.
On May 5, 1988, the Appellants filed their complaint for Specific Performance against
the Appellees-Vendors and appellee Adalin in the Court a quo.
On June 14, 1988, the Appellants caused the annotation of a Notice of Lis Pendens at
the dorsal portion of Transfer Certificate of Title No. 12963 under the names of the
Appellees-Vendors x x x. On October 25, 1988, the Appellees-Vendees filed a Motion
for Intervention as Plaintiffs-Intervenors appending thereto a copy of the Deed of Sale
of Registered land signed by the Appellees-Vendors x x x. On October 27, 1988, the
Appellees-Vendees filed the Deed of Sale of Registered Land x x x with the Register of
Deeds on the basis of which Transfer certificate of Title No. 24791 over the property was
issued under their names x x x. On the same day, the Appellees-Vendees filed in the
Court a quo a Motion To Admit Complaint-In-Intervention x x x. Attached to the
Complaint-In-Intervention was the 'Deed of Sale of Registered land signed by the
Appellees-Vendees x x x. The Appellants were shocked to learn that the Appellees-
Vendors had signed the said deed. As a counter-move, the Appellants filed a motion for
leave to amend Complaint and, on November 11, 1988, filed their Amended Complaint
impleading the Appellees-Vendees as additional defendants x x x.
x x x
The Appellees-Vendors suffered a rebuff when, on January 10, 1989, the Regional Trial
Court of General Santos City issued an Order dismissing the Petition of the Appellees-
Vendors for consignation x x x. In the meantime, on November 30, 1989, Appellee
Adalin died and was substituted, per order of the Court a quo, on January 5, 1990, by his
heirs, namely, Anita, Anelita, Loreto, Jr., Teresita, Wilfredo, Lilibeth, Nelson, Helen and
Jocel, all surnamed Adalin, as Appellees-Vendees x x x.
After trial, the Court a quo rendered judgment in favor of the Appellees-Vendees x x x.[5]
In the opinion of the court a quo, petitioners became the owners of the parcel of land in
question with the five-door, one storey commercial building standing thereon, when they
purchased the same following the offer and the 30-day option extended to them by private
respondent Elena Palanca, in behalf of the other Kado siblings, in her letter to them dated
September 2, 1987. The trial court disregarded the fact that the Kado siblings had already
finished transacting with private respondents Faustino Yu and Antonio Lim and had in fact
entered into a conditional sale with them respecting the same property. The trial court brushed
aside this fact as it reasoned that:
x x x In conditional deed of sale, ownership is only transferred after the purchase price is
fully paid or the fulfillment of the condition and the execution of a definite or absolute
deed of sale are made. x x x
In this case, it is clear from the provision of the Deed of Conditional Sale x x x that the
balance of the price of P2,300,000.00 shall be paid only after all the defendants-vendees
shall have vacated and surrendered the premises to the defendants-vendors. However, the
tenants did not leave the premises. In fact they opted to buy the property. Moreover, at
that time, the property was legally leased to the defendants-vendees. x x x
x x x
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.
x x x
When the defendants-vendors accepted defendants-vendees option to buy, the former
returned the initial payment of P200,000.00 to the plaintiffs x x x but they refused to
accept the same. This refusal however did not diminish the effect of the acceptance of
the option to buy, which in fact led to the execution of the said Deed of Sale of
Registered Land x x x and the subsequent issuance of the Transfer Certificate of Title No.
T-24791 of the Registry of Deeds for the City of Cotabato in the names of the defendants-
vendees x x x. x x x
x x x [T]he defendants-vendors acted in bad faith when, while during the effectivity of the period of the
option to buy [that] they gave to the defendants-vendees, they executed a Deed of Conditional Sale x x x
in favor of the plaintiffs. This was only six (6) days from date of the option. x x x[6]
The trial court also ruled that the conditional sale of the subject property to private
respondents Faustino Yu and Antonio Lim and the sale of the same property to petitioners, did
not involve a double sale as to warrant the application of Article 1544 of the Civil Code. The
court a quo ratiocinated in this manner:
x x x [T]he plaintiffs assert that this case is one of double sale and should be governed by Article 1544 of
the Civil Code. The first sale, plaintiffs claim, is that under the Deed of Conditional Sale x x x in their
favor and the second sale is that ultimately covered by the Deed of sale of registered Land for P860,000.00
x x x in favor of the defendants-vendees. As already pointed out by the court, the execution of the Deed
of Conditional Sale did not transfer ownership of the property to the plaintiffs, hence, there can be no
double sale. As held in the case of Mendoza vs. Kalaw, 42 Phil. 236, Article 1544 does not apply to
situations where one sale was subject to a condition which was not complied with. This is because a
conditional sale, before the performance of the condition, can hardly be said to be a sale of property,
specially where the condition has not been performed or complied with.[7]
Pursuant to the above ruminations of the court a quo, it ordered the following in the
dispositive portion of its decision:
WHEREFORE, the court hereby orders the dismissal of plaintiffs complaint against the
defendants-vendees for lack of merit, and hereby further sustains the validity of Transfer
Certificate of Title No. T-24791 issued in their names (defendants-vendees) by the
Registry of Deeds for the City of Cotabato.
The defendants-vendors are hereby jointly and severally ordered to pay moral damages of P500,000.00 to
each of the plaintiffs, P100,000.00 exemplary damages to each of the plaintiffs and P50,000.00 as and for
attorneys fees.
Defendants-vendors are hereby further ordered to return the P200,000.00 initial payment
received by them with legal interest from date of receipt thereof up to November 3, 1987.
Defendants-vendees counterclaim is hereby ordered dismissed.
With cost against the defendants-vendors.
SO ORDERED.[8]
Private respondents Faustino Yu and Antonio Lim wasted no time in appealing from the
above decision of the court a quo. They were vindicated when the respondent Court of Appeals
rendered its decision in their favor. The respondent appellate court reversed the trial court as it
ruled, thus:
x x x We find, and so declare, that the Deed of Conditional Sale x x x executed by the
Appellees-Vendors in favor of the Appellants was an absolute deed of sale and not a
conditional sale.
x x x
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.
x x x
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
x x x
There may not have been delivery of the property to the Appellants either symbolically or
physically and more, the Appellees-Vendors may have deferred their obligation of
delivering physical possession of the property to the Appellees only after the Appellees-
Vendees shall have vacated the property, however, the right of retention of the Appellees-
Vendors of title to or ownership over the property cannot thereby be inferred therefrom. x
x x
In fine, the non-payment of the balance of the purchase price of the property and the
consequent eviction of the Appellees-Vendees therefrom were not conditions which
suspended the efficacy of the Deed of Conditional Sale. Rather, the same, if due to the
fault of the Appellants, merely accorded the Appellees-Vendors the option to rescind the
already existing and effective sale.
The Appellants and the Appellees-Vendors, having entered into, under the Deed of
Conditional Sale x x x an absolute sale, the Appellants thus had every right to demand
that the Appellees-Vendors performed their prestation under the deed, to wit--the eviction
of the Appellees-Vendees from the property--so that the Appellants may then pay the
balance of the purchase price of the property.
x x x
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
x x x
The Appellees-Vendors cannot invoke the refusal of the Appellees-Vendees to vacate the
property and the latters decision to themselves purchase the property as a valid
justification to renege on and turn their backs against their obligation to deliver or cause
the eviction of the Appellees-vendees from and deliver physical possession of the
property to the Appellants. For, if We gave our approbation to the stance of the
Appellees, then We would thereby be sanctioning the performance by the Appellees-
Vendors of their obligations under the deed subject to the will and caprices of the
Appellees-Vendees, which we cannot do x x x.
It would be the zenith of inequity for the Appellees-Vendors to invoke the occupation by
the Appellees-Vendees, as of the property, as a justification to ignore their obligation to
have the Appellees-Vendees evicted from the property and for them to give P50,000.00
disturbance fee for each of the Appellees-Vendees and a justification for the latter to hold
on to the possession of the property.
x x x
Assuming, gratia arguendi, for the nonce, that there had been no consummation of the
Deed of Conditional sale x x x by reason of the non-delivery to the appellants of the
property, it does not thereby mean that the Deed of Sale of Registered Land x x x
executed by the Appellees should be given preference. Apropos to this, We give our
approbation to the plaint of the Appellants that the Court a quo erred in not applying the
second and third paragraphs of Article 1544 x x x.
For, the evidence in the record shows that, although the Appellees-Vendees managed to
cause the registration of the Deed of Sale of Registered Land x x x on October 27, 1988
and procure Transfer Certificate of Title No. 24791 under their names, on said date, and
that they were, as of said date, in physical possession of the property, however, the
evidence in the record shows that the Appellees-Vendees were in gross evident bad
faith. At the time the Appellees executed the Deed of Sale of Registered Land in
December 1987 x x x they were aware that the Appellees-Vendors and the Appellants had
executed their Deed of Conditional Sale as early as September 8, 1987. x x x In the
light of the foregoing, We arrive at the ineluctable conclusion that preference must be
accorded the Deed of Conditional Sale executed by the appellants and the Appellees-
Vendors.[9]
Accordingly, the respondent Court of Appeals rendered another judgment in the case
and ordered the following:
1.The Deed of Conditional Sale, Exhibit A is hereby declared valid;
2.The Deeds of Sale of Registered Land, Exhibits E, F and G and Transfer
Certificate of Title No. 24791 are hereby declared null and void;
3.The Appellees-Vendees except the heirs of Loreto Adalin are hereby ordered to vacate
the property within thirty (30) days from the finality of this Decision;
4.The Appellees-Vendors are hereby ordered to execute, in favor of the Appellants, a
Deed of Absolute Sale covering four (4) doors of the property (which includes the area
of the property on which said four doors are constructed) except the door purchased by
the Appellee-Vendee Loreto Adalin, free of any liens or encumbrances;
5.The Appellants are hereby ordered to remit to the Appellees-Vendors the balance of the
purchase price of the four (4) doors in the amount of P1,880,000.00;
6.The Appellees-Vendors are hereby ordered to refund to the Appellees-Vendees the
amount of P840,000.00 which they paid for the property under the Deed of Conditional
Sale of Registered Land, Exhibit G, without interest considering that they also acted in
bad faith;
7.The Appellee-Vendee Magno Adalin is hereby ordered to pay the amount of P3,000.00
a month, and each of the Appellees-Vendees, except the Appellee Adalin, the amount of
P1,500.00 to the Appellants, from November, 1987, up to the time the property is vacated
and delivered to the Appellants, as reasonable compensation for the occupancy of the
property, with interest thereon at the rate of 6% per annum;
8.The Appellees-Vendors are hereby ordered to pay, jointly and severally, to each of the
Appellants the amount of P100,000.00 by way of moral damages, P20,000.00 by way of
exemplary damages and P20,000.00 by way of attorneys fees;
9.The counterclaims of the Appellees are dismissed.
With costs against the Appellees.
SO ORDERED.[10]
Unable to agree with the above decision of the respondent appellate court, petitioners
seek reversal thereof on the basis on the following grounds:
1.The Unconsummated conditional Contract of Sale in favor of the herein respondent
VENDEES is Inferior to and Cannot Prevail Over the Consummated Absolute Contracts
of Sale in favor of the herein petitioners.
2.The Deeds of sale in favor of the herein Petitioners as well as Transfer Certificate of
Title No. 24791 in their names are Perfectly Valid Documents.
3.The herein Petitioners may not be legally and rightfully Ordered to Vacate the Litigated
Property or Pay Reasonable Compensation for the Occupancy Thereof.
4.The herein Petitioners may not be Held Liable to Pay the Costs.[11]
5.The Court of Appeals erred in holding that the Deed of Conditional Sale is in reality
an absolute deed of sale.
6.The Court of Appeals erred in relying totally and exclusively on the evidence presented
by respondents and in disregarding the evidence for petitioners.
7.The Court of Appeals erred in holding that herein petitioners are guilty of bad faith and
that Article 1544 of the Civil Code is applicable.[12]
The petition lacks merit.
The grounds relied upon by petitioners are essentially a splitting of the various aspects
of the one pivotal issue that holds the key to the resolution of this controversy: the true nature of
the sale transaction entered into by the Kado siblings with private respondents Faustino Yu and
Antonio Lim. Our task put simply, amounts to a declaration of what kind of contract had been
entered into by said parties and of what their respective rights and obligations are thereunder.
It is not disputed that in August, 1987, Elena K. Palanca, in behalf of the Kado siblings,
commissioned Ester Bautista to look for buyers for their property fronting the Imperial Hotel in
Cotabato City. Bautista logically offered said property to the owners of the Imperial Hotel which
may be expected to grab the offer and take advantage of the proximity of the property to the
hotel site. True enough, private respondent Faustino Yu, the President-General manager of the
Imperial Hotel, agreed to buy said property.
Thus during that same month of August, 1987, a conference was held in the office of
private respondent Yu at the Imperial Hotel. Present there were private respondent Yu, Loreto
Adalin who was one of the tenants of the five-door, one-storey building standing on the subject
property, and Elena Palanca and Teofilo Kado in their own behalf as sellers and in behalf of the
other tenants of said building. During the conference, private respondents Yu and Lim
categorically asked Palanca whether the other tenants were interested to buy the property, but
Palanca also categorically answered that the other tenants were not interested to buy the
same. Consequently, they agreed to meet at the house of Palanca on September 2, 1987 to
finalize the sale.
On September 2, 1987, Loreto Adalin; Yu and Lim and their legal counsel; Palanca and
Kado and their legal counsel; and one other tenant, Magno Adalin, met at Palancas
house. Magno Adalin was there in his own behalf as tenant of two of the five doors of the one-
storey building standing on the subject property and in behalf of the tenants of the two other
doors, namely Carlos Calingasan and Demetrio Adaya. Again, private respondents Yu and Lim
asked Palanca and Magno Adalin whether the other tenants were interested to buy the subject
property, and Magno Adalin unequivocally answered that he and the other tenants were not so
interested mainly because they could not afford it. However, Magno Adalin asserted that he and
the other tenants were each entitled to a disturbance fee of P50,000.00 as consideration for their
vacating the subject property.
During said meeting, Palanca and Kado, as sellers, and Loreto Adalin and private
respondents Yu and Lim, as buyers, agreed that the latter will pay P300,000.00 as
downpayment for the property and that as soon as the former secures the eviction of the
tenants, they will be paid the balance of P2,300,000.00.
Pursuant to the above terms and conditions, a Deed of Conditional Sale was drafted by
the counsel of private respondents Yu and Lim. On September 8, 1987, at the Imperial Hotel
office of private respondent Yu, Palanca and Eduarda Vargas, representing the sellers, and
Loreto Adalin and private respondents Yu and Lim signed the Deed of Conditional Sale. They
also agreed to defer the registration of the deed until after the sellers have secured the eviction
of the tenants from the subject property.
The tenants, however, refused to vacate the subject property. Being under obligation to
secure the eviction of the tenants, in accordance with the terms and conditions of the Deed of
Conditional Sale, Elena Palanca filed with the Barangay Captain a letter complaint for unlawful
detainer against the said tenants.
Undisputedly, Palanca, in behalf of the Kado siblings who had already committed to sell
the property to private respondents Yu and Lim and Loreto Adalin, understood her obligation to
eject the tenants on the subject property. Having gone to the extent of filing an ejectment case
before the Barangay Captain, Palanca clearly showed an intelligent appreciation of the nature of
the transaction that she had entered into: that she, in behalf of the Kado siblings, had already
sold the subject property to private respondents Yu and Lim and Loreto Adalin, and that only the
payment of the balance of the purchase price was subject to the condition that she would
successfully secure the eviction of their tenants. In the sense that the payment of the balance of
the purchase price was subject to a condition, the sale transaction was not yet completed, and
both sellers and buyers have their respective obligations yet to be fulfilled: the former, the
ejectment of their tenants; and the latter, the payment of the balance of the purchase price. In
this sense, the Deed of Conditional Sale may be an accurate denomination of the
transaction. But the sale was conditional only inasmuch as there remained yet to be fulfilled, the
obligation of the sellers to eject their tenants and the obligation of the buyers to pay the balance
of the purchase price. The choice of who to sell the property to, however, had already been
made by the sellers and is thus no longer subject to any condition nor open to any change. In
that sense, therefore, the sale made by Palanca to private respondents was definitive and
absolute.
Nothing in the acts of the sellers and buyers before, during or after the said transaction
justifies the radical change of posture of Palanca who, in order to provide a legal basis for her
later acceptance of the tenants offer to buy the same property, in effect claimed that the sale,
being conditional, was dependent on the sellers not changing their minds about selling the
property to private respondents Yu and Lim. The tenants, for their part, defended Palancas
subsequent dealing with them by asserting their option rights under Palancas letter of
September 2, 1987 and harking on the non-fulfillment of the condition that their ejectment be
secured first.
Two days after Palanca filed an ejectment case before the Barangay Captain against
the tenants of the subject property, Magno Adalin, Demetrio Adaya and Carlos Calingasan wrote
letters to Palanca informing the Kado siblings that they have decided to purchase the doors that
they were leasing for the purchase price of P600,000.00 per door. Almost instantly, Palanca, in
behalf of the Kado siblings, accepted the offer of the said tenants and returned the
downpayments of private respondents Yu and Lim. Of course, the latter refused to accept the
reimbursements.
Certainly, we cannot countenance the double dealing perpetrated by Palanca in behalf
of the Kado siblings. No amount of legal rationalizing can sanction the arbitrary breach of
contract that Palanca committed in accepting the offer of Magno Adalin, Adaya and Calingasan
to purchase a property already earlier sold to private respondents Yu and Lim.
Petitioners claim that they were given a 30-day option to purchase the subject property
as contained in the September 2, 1987 letter of Palanca. In the first place, such option is not
valid for utter lack of consideration.[13] Secondly, private respondents twice asked Palanca and
the tenants concerned as to whether or not the latter were interested to buy the subject property,
and twice, too, the answer given to private respondents was that the said tenants were not
interested to buy the subject property because they could not afford it. Clearly, said tenants and
Palanca, who represented the former in the initial negotiations with private respondents, are
estopped from denying their earlier statement to the effect that the said tenants Magno Adalin,
Adaya and Calingasan had no intention of buying the four doors that they were leasing from the
Kado siblings. More significantly, the subsequent sale of the subject property by Palanca to the
said tenants, smacks of gross bad faith, considering that Palanca and the said tenants were in
full awareness of the August and September negotiations between Bautista and Palanca, on the
one hand, and Loreto Adalin, Faustino Yu and Antonio Lim, on the other, for the sale of the one-
storey building. It cannot be denied, thus, that Palanca and the said tenants entered into
the subsequent or second sale notwithstanding their full knowledge of the subsistence of the
earlier sale over the same property to private respondents Yu and Lim. It goes without saying,
thus, that though the second sale to the said tenants was registered, such prior registration
cannot erase the gross bad faith that characterized such second sale, and consequently, there is
no legal basis to rule that such second sale prevails over the first sale of the said property to
private respondents Yu and Lim.
We agree, thus, with the ruminations of the respondent Court of Appeals that:
The Appellees-Vendors cannot invoke the refusal of the Appellees-Vendees to vacate
the property and the latters decision to themselves purchase the property as a valid
justification to renege on and turn their backs against their obligation to deliver or cause
the eviction of the Appellees-Vendees from and deliver physical possession of the
property to the Appellants. For, if We gave our approbation to the stance of the
Appellees, then We would thereby be sanctioning the performance by the Appellees-
Vendors of their obligations under the deed subject to the will and caprices of the
Appellees-Vendees, which we cannot do x x x.
It would be the zenith of inequity for the Appellees-Vendors to invoke the occupation by
the Appellees-Vendees, as of the property, as a justification to ignore their obligation to
have the Appellees-Vendees evicted from the property and for them to give P50,000.00
disturbance fee for each of the Appellees-Vendees and a justification for the latter to hold
on to the possession of the property.
x x x
Assuming, gratia arguendi for the nonce, that there had been no consummation of the
Deed of Conditional Sale x x x by reason of the non-delivery to the Appellants of the
property, it does not thereby mean that the Deed of Sale of Registered Land x x x
executed by the Appellees should be given preference. Apropos to this, We give our
approbation to the plaint of the Appellants that the Court a quo erred in not applying the
second and third paragraphs of Article 1544 x x x.
For, the evidence in the record shows that, although the Appellees-Vendees managed to
cause the registration of the Deed of Sale of Registered Land x x x on October 27, 1988
and procure Transfer Certificate of Title No. 24791 under their names, on said date, and
that they were, as of said date, in physical possession of the property, however, the
evidence in the record shows that the Appellees-Vendees were in gross evident bad
faith. At the time the Appellees executed the Deed of Sale of Registered Land in
December 1987 x x x they were aware that the Appellees-Vendors and the Appellants had
executed their Deed of Conditional Sale as early as September 8, 1987. x x x In the
light of the foregoing, We arrive at the ineluctable conclusion that preference must be
accorded the deed of Conditional Sale executed by the Appellants and the Appellees-
Vendors.[14]
WHEREFORE, the instant petition is HEREBY DISMISSED.
Costs against petitioners.
SO ORDERED.
SECOND DIVISION
[G.R. No. 129760. December 29, 1998]
RICARDO CHENG, petitioner, vs. RAMON B. GENATO and ERNESTO R. DA JOSE &
SOCORRO B. DA JOSE, respondents.
D E C I S I O N
MARTINEZ, J .:
This petition for review on certiorari seeks to annul and set aside the Decision of the Court of
Appeals (CA)[1] dated July 7, 1997 in CA-G.R. No. CV No. 44706 entitled Ricardo Cheng, plaintiff-
appellee vs. Ramon B. Genato, defendant-appellant, Ernesto R. Da Jose & Socorro B. Da Jose,
Intervenors-Appellants which reversed the ruling of the Regional Trial Court, Branch 96 of Quezon City
dated January 18, 1994. The dispositive portion of the CA Decision reads:
WHEREFORE, based on the foregoing, appealed decision is hereby REVERSED and SET ASIDE and
judgment is rendered ordering;
1. The dismissal of the complaint;
2. The cancellation of the annotations of the defendant-appellants Affidavit to Annul Contract to Sell
and plaintiff-appellees Notice of Adverse Claim in the subject TCTs, namely, TCT No. T-76.196 (M)
and TCT No. T-76.197 (M);
3. Payment by the intervenors-appellants of the remaining balance of the purchase price pursuant to
their agreement with the defendant-appellant to suspend encashment of the three post-dated checks issued
since 1989.
4. Ordering the execution by the defendant-appellant Genato of the Deed of Absolute Sale over the
subject two lots covered by TCT No. T-76.196 (M) and TCT No. T-76.197 (M) in favor of intervenors-
appellants Spouses Da Jose;
5. The return by defendant-appellant Genato of P50,000.00 paid to him by the plaintiff-appellee
Cheng, and
6. Payment by plaintiff-appellee Cheng of moral damages to herein intervenors-appellants Da Jose of
P100,000.00, exemplary damages of P50,000.00, attorneys fees of P50,000.00, and costs of suit; and to
defendant-appellant, of P100,000.00 in exemplary damages, P50,000.00 in attorneys fees. The amounts
payable to the defendant-appellant may be compensated by plaintiff-appellee with the amount ordered
under the immediately foregoing paragraph which defendant-appellant has to pay the plaintiff-appellee.
SO ORDERED.[2]
The antecedents of the case are as follows:
Respondent Ramon B. Genato(Genato) is the owner of two parcels of land located at Paradise
Farms, San Jose Del Monte, Bulacan covered by TCT No. T-76.196 (M)[3] and TCT No. T-76.197 (M)[4]
with an aggregate area of 35,821 square meters, more or less.
On September 6, 1989, respondent Genato entered into an agreement with respondent-spouses
Ernesto R. Da Jose and Socorro B. Da Jose (Da Jose spouses) over the above-mentioned two parcels of
land. The agreement culminated in the execution of a contract to sell for which the purchase price was
P80.00 per square meter. The contract was in a public instrument and was duly annotated at the back of
the two certificates of title on the same day. Clauses 1 and 3 thereof provide:
'1. That the purchase price shall be EIGHTY (P80.00) PESOS, Philippine Currency per square meter, of
which the amount of FIFTY THOUSAND (P50,000.00) Pesos shall be paid by the VENDEE to the
VENDOR as partial down payment at the time of execution of this Contract to Sell.
xxx xxx xxx
'3. That the VENDEE, thirty (30) DAYS after the execution of this contract, and only after having
satisfactorily verified and confirmed the truth and authenticity of documents, and that no restrictions,
limitations, and developments imposed on and/or affecting the property subject of this contract shall be
detrimental to his interest, the VENDEE shall pay to the VENDOR, NINE HUNDRED FIFTY
THOUSAND (P950,000.00) PESOS, Philippine Currency, representing the full payment of the agreed
Down Payment, after which complete possession of the property shall be given to the VENDEE to enable
him to prepare the premises and any development therein.[5]
On October 4, 1989, the Da Jose spouses, not having finished verifying the titles mentioned in
clause 3 as aforequoted, asked for and was granted by respondent Genato an extension of another 30 days
or until November 5, 1989. However, according to Genato, the extension was granted on condition that
a new set of documents is made seven (7) days from October 4, 1989.[6] This was denied by the Da Jose
spouses.
Pending the effectivity of the aforesaid extension period, and without due notice to the Da Jose
spouses, Genato executed an Affidavit to Annul the Contract to Sell,[7] on October 13, 1989. Moreover,
no annotation of the said affidavit at the back of his titles was made right away. The affidavit contained,
inter alia, the following paragraphs;
xxx xxx xxx
That it was agreed between the parties that the agreed downpayment of P950,000.00 shall be paid thirty
(30) days after the execution of the Contract, that is on or before October 6, 1989;
The supposed VENDEES failed to pay the said full downpayment even up to this writing, a breach of
contract.
That this affidavit is being executed to Annul the aforesaid Contract to Sell for the vendee having
committed a breach of contract for not having complied with the obligation as provided in the Contract to
Sell;[8]
On October 24, 1989, herein petitioner Ricardo Cheng (Cheng) went to Genatos residence and
expressed interest in buying the subject properties. On that occasion, Genato showed to Ricardo Cheng
copies of his transfer certificates of title and the annotations at the back thereof of his contract to sell with
the Da Jose spouses. Genato also showed him the aforementioned Affidavit to Annul the Contract to Sell
which has not been annotated at the back of the titles.
Despite these, Cheng went ahead and issued a check for P50,000.00 upon the assurance by
Genato that the previous contract with the Da Jose spouses will be annulled for which Genato issued a
handwritten receipt (Exh. D), written in this wise.

10/24/89
Received from Ricardo Cheng
the Sum of Fifty Thousand Only (P50,000 -)
as partial for T-76196 (M)
T-76197 (M) area 35,821 Sq.m.
Paradise Farm, Gaya-Gaya, San Jose Del Monte
P70/m2 Bulacan
Plus C.G.T. etc
(SGD) Ramon B. Genato
Check # 470393 10/24/89[9]
On October 25, 1989, Genato deposited Chengs check. On the same day, Cheng called up
Genato reminding him to register the affidavit to annul the contract to sell.[10]
The following day, or on October 26, 1989, acting on Chengs request, Genato caused the
registration of the Affidavit to Annul the Contract to Sell in the Registry of Deeds, Meycauayan, Bulacan
as primary entry No. 262702.[11]
While the Da Jose spouses were at the Office of the Registry of Deeds of Meycauaya, Bulacan on
October 27, 1989, they met Genato by coincidence. It was only then that the Da Jose spouses discovered
about the affidavit to annul their contract. The latter were shocked at the disclosure and protested against
the rescission of their contract. After being reminded that he (Genato) had given them (Da Jose spouses)
an additional 30-day period to finish their verification of his titles, that the period was still in effect, and
that they were willing and able to pay the balance of the agreed down payment, later on in the day, Genato
decided to continue the Contract he had with them. The agreement to continue with their contract was
formalized in a conforme letter dated October 27, 1989.
Thereafter, Ramon Genato advised Ricardo Cheng of his decision to continue his contract with
the Da Jose spouses and the return of Chengs P50,000.00 check. Consequently, on October 30, 1989,
Chengs lawyer sent a letter[12] to Genato demanding compliance with their agreement to sell the
property to him stating that the contract to sell between him and Genato was already perfected and
threatening legal action.
On November 2, 1989, Genato sent a letter[13] to Cheng (Exh. 6) enclosing a BPI Cashiers
Check for P50,000.00 and expressed regret for his inability to consummate his transaction with
him. After having received the letter of Genato on November 4, 1989, Cheng, however, returned the said
check to the former via RCPI telegram[14] dated November 6, 1989, reiterating that our contract to sell
your property had already been perfected.
Meanwhile, also on November 2, 1989, Cheng executed an affidavit of adverse claim[15] and
had it annotated on the subject TCTs.
On the same day, consistent with the decision of Genato and the Da Jose spouses to continue with
their Contract to Sell of September 6, 1989, the Da Jose spouses paid Genato the complete down payment
of P950,000.00 and delivered to him three (3) postdated checks (all dated May 6, 1990, the stipulated due
date) in the total amount of P1,865,680.00 to cover full payment of the balance of the agreed purchase
price. However, due to the filing of the pendency of this case, the three (3) postdated checks have not
been encashed.
On December 8, 1989, Cheng instituted a complaint[16] for specific performance to compel
Genato to execute a deed of sale to him of the subject properties plus damages and prayer for preliminary
attachment. In his complaint, Cheng averred that the P50,000.00 check he gave was a partial payment to
the total agreed purchase price of the subject properties and considered as an earnest money for which
Genato acceded. Thus, their contract was already perfected.
In Answer[17] thereto, Genato alleged that the agreement was only a simple receipt of an option-
bid deposit, and never stated that it was a partial payment, nor is it an earnest money and that it was
subject to the condition that the prior contract with the Da Jose spouses be first cancelled.
The Da Jose spouses, in their Answer in Intervention,[18] asserted that they have a superior right
to the property as first buyers. They alleged that the unilateral cancellation of the Contract to Sell was
without effect and void. They also cited Chengs bad faith as a buyer being duly informed by Genato of
the existing annotated Contract to Sell on the titles.
After trial on the merits, the lower court ruled that the receipt issued by Genato to Cheng
unerringly meant a sale and not just a priority or an option to buy. It cannot be true that the transaction
was subjected to some condition or reservation, like the priority in favor of the Da Jose spouses as first
buyer because, if it were otherwise, the receipt would have provided such material condition or
reservation, especially as it was Genato himself who had made the receipt in his own hand. It also opined
that there was a valid rescission of the Contract to Sell by virtue of the Affidavit to Annul the Contract to
Sell. Time was of the essence in the execution of the agreement between Genato and Cheng, under this
circumstance demand, extrajudicial or judicial, is not necessary. It falls under the exception to the rule
provided in Article 1169[19] of the Civil Code. The right of Genato to unilaterally rescind the contract is
said to be under Article 1191[20] of the Civil Code. Additionally, after reference was made to the
substance of the agreement between Genato and the Da Jose spouses, the lower court also concluded that
Cheng should be preferred over the intervenors-Da Jose spouses in the purchase of the subject
properties. Thus, on January 18, 1994 the trial court rendered its decision the decretal portion of which
reads:
WHEREFORE, judgment is hereby rendered:
1. Declaring the contract to sell dated September 6, 1989 executed between defendant Ramon Genato, as
vendor, and intervenors Spouses Ernesto and Socorro Da Jose, as vendees, resolved and rescinded in
accordance with Art. 1191, Civil Code, by virtue of defendants affidavit to annul contract to sell dated
October 13, 1989 and as the consequence of intervenors failure to execute within seven (7) days from
October 4, 1989 another contract to sell pursuant to their mutual agreement with the defendant;
2. Ordering defendant to return to the intervenors the sum of P1,000,000.00, plus interest at the legal rate
from November 2, 1989 until full payment;
3. Directing defendant to return to the intervenors the three (3) postdated checks immediately upon
finality of this judgment;
4. Commanding defendant to execute with and in favor of the plaintiff Ricardo Cheng, as vendee, a deed
of conveyance and sale of the real properties described and covered in Transfer Certificates of Title No. T-
76-196 (M) and T-76.197 (M) of the Registry of Deeds of Bulacan, Meycauyan Branch, at the rate of
P70.00/sqaure meter, less the amount of P50,000.00 already paid to defendant, which is considered as part
of the purchase price, with the plaintiff being liable for payment of the capital gains taxes and other
expenses of the transfer pursuant to the agreement to sell dated October 24, 1989; and
5. Ordering defendant to pay the plaintiff and the intervenors as follows:
a/ P50,000.00, as nominal damages, to plaintiff;
b/ P50,000.00, as nominal damages, to intervenors;
c/ P20,000.00, as and for attorneys fees, to plaintiff;
d/ P20,000.00, as and for attorneys fees, to intervenors; and
e/ Cost of the suit.
xxx xxx xxx
Not satisfied with the aforesaid decision, herein respondents Ramon Genato and Da Jose spouses
appealed to the court a quo which reversed such judgment and ruled that the prior contract to sell in favor
of the Da Jose spouses was not validly rescinded, that the subsequent contract to sell between Genato and
Cheng, embodied in the handwritten receipt, was without force and effect due to the failure to rescind the
prior contract; and that Cheng should pay damages to the respondents herein being found to be in bad
faith.
Hence this petition.[21]
This petition for review, assails the Court of Appeals Decision on the following grounds: (1) that
the Da Jose spouses Contract to Sell has been validly rescinded or resolved; (2) that Ricardo Chengs
own contract with Genato was not just a contract to sell but one of conditional contract of sale which gave
him better rights, thus precluding the application of the rule on double sales under Article 1544, Civil
Code; and (3) that, in any case, it was error to hold him liable for damages.
The petition must be denied for failure to show that the Court of Appeals committed a reversible
error which would warrant a contrary ruling.
No reversible error can be ascribed to the ruling of the Court of Appeals that there was no valid
and effective rescission of resolution of the Da Jose spouses Contract to Sell, contrary to petitioners
contentions and the trial courts erroneous ruling.
In a Contract to Sell, the payment of the purchase price is a positive suspensive condition, the
failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor
to convey title from acquiring an obligatory force.[22] It is one where the happening of the event gives
rise to an obligation. Thus, for its non-fulfillment there will be no contract to speak of, the obligor having
failed to perform the suspensive condition which enforces a juridical relation. In fact with this
circumstance, there can be no rescission of an obligation that is still non-existent, the suspensive condition
not having occurred as yet.[23] Emphasis should be made that the breach contemplated in Article 1191 of
the New Civil Code is the obligors failure to comply with an obligation already extant, not a failure of a
condition to render binding that obligation.[24]
Obviously, the foregoing jurisprudence cannot be made to apply to the situation in the instant
case because no default can be ascribed to the Da Jose spouses since the 30-day extension period has not
yet expired. The Da Jose spouses contention that no further condition was agreed when they were
granted the 30-days extension period from October 7, 1989 in connection with clause 3 of their contract to
sell dated September 6, 1989 should be upheld for the following reason, to wit; firstly, If this were not
true, Genato could not have been persuaded to continue his contract with them and later on agree to accept
the full settlement of the purchase price knowing fully well that he himself imposed such sine qua non
condition in order for the extension to be valid; secondly, Genato could have immediately annotated his
affidavit to annul the contract to sell on his title when it was executed on October 13, 1989 and not only on
October 26, 1989 after Cheng reminded him of the annotation; thirdly, Genato could have sent at least a
notice of such fact, there being no stipulation authorizing him for automatic rescission, so as to finally
clear the encumbrance of his titles and make it available to other would be buyers. It likewise settles the
holding of the trial court that Genato needed money urgently.
Even assuming in gratia argumenti that the Da Jose spouses defaulted, as claimed by Genato, in
their Contract to Sell, the execution by Genato of the affidavit to annul the contract is not even called
for. For with or without the aforesaid affidavit their non-payment to complete the full downpayment of
the purchase price ipso facto avoids their contract to sell, it being subjected to a suspensive
condition. When a contract is subject to a suspensive condition, its birth or effectivity can take place only
if and when the event which constitutes the condition happens or is fulfilled.[25] If the suspensive
condition does not take place, the parties would stand as if the conditional obligation had never
existed.[26]
Nevertheless, this being so Genato is not relieved from the giving of a notice, verbal or written, to
the Da Jose spouses for decision to rescind their contract. In many cases,[27] even though we upheld the
validity of a stipulation in a contract to sell authorizing automatic rescission for a violation of its terms and
conditions, at least a written notice must be sent to the defaulter informing him of the same. The act of a
party in treating a contract as cancelled should be made known to the other.[28] For such act is always
provisional. It is always subject to scrutiny and review by the courts in case the alleged defaulter brings
the matter to the proper courts. In University of the Philippines vs. De Los Angeles,[29] this Court
stressed and we quote:
In other words, the party who deems the contract violated may consider it resolved or rescinded, and act
accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment
of the corresponding court that will conclusively and finally settle whether the action taken was or was not
correct in law. But the law definitely does not require that the contracting party who believes itself injured
must first file suit and wait for a judgment before taking extajudicial steps to protect its
interest. Otherwise, the party injured by the others breach will have to passively sit and watch its
damages accumulate during the pendency of the suit until the final judgment of rescission is rendered
when the law itself requires that he should exercise due diligence to minimize its own damages (Civil
Code, Article 2203).
This rule validates, both in equity and justice, contracts such as the one at bat, in order to avoid
and prevent the defaulting party from assuming the offer as still in effect due to the obligees tolerance for
such non-fulfillment. Resultantly, litigations of this sort shall be prevented and the relations among
would-be parties may be preserved. Thus, Ricardo Chengs contention that the Contract to Sell between
Genato and the Da Jose spouses was rescinded or resolved due to Genatos unilateral rescission finds no
support in this case.
Anent the issue on the nature of the agreement between Cheng and Genato, the records of this
case are replete with admissions[30] that Cheng believed it to be one of a Contract to Sell and not one of
Conditionl Contract of Sale which he, in a transparent turn-around, now pleads in this Petition. This
ambivalent stance of Cheng is even noted by the appellate court, thus:
At the outset, this Court notes that plaintiff-appellee was inconsistent in characterizing the contract he
allegedly entered into. In his complaint,[31] Cheng alleged that the P50,000.00 down payment was
earnest money. And next, his testimony[32] was offered to prove that the transaction between him and
Genato on October 24, 1989 was actually a perfected contract to sell.[33]
Settled is the rule that an issue which was not raised during the trial in the court below cannot be
raised for the first time on appeal.[34] Issues of fact and arguments not adequately brought to the attention
of the trial court need not be and ordinarily will not be considered by a reviewing court as they cannot be
raised for the first time on appeal.[35] In fact, both courts below correctly held that the receipt which was
the result of their agreement, is a contract to sell. This was, in fact Chengs contention in his pleadings
before said courts. This patent twist only operates against Chengs posture which is indicative of the
weakness of his claim.
But even if we are to assume that the receipt, Exh. D, is to be treated as a conditional contract
of sale, it did not acquire any obligatory force since it was subject to suspensive condition that the earlier
contract to sell between Genato and the Da Jose spouses should first be cancelled or rescinded a
condition never met, as Genato, to his credit, upon realizing his error, redeemed himself by respecting and
maintaining his earlier contract with the Da Jose spouses. In fact a careful reading of the receipt, Exh.
D, alone would not even show that a conditional contract of sale has been entered by Genato and
Cheng. When the requisites of a valid contract of sale are lacking in said receipt, therefore the sale is
neither valid or enforceable.[36]
To support his now new theory that the transaction was a conditional contract of sale, petitioner
invokes the case of Coronel vs. Court of Appeals[37] as the law that should govern their Petition. We do
not agree. Apparently, the factual milieu in Coronel is not on all fours with those in the case at bar.
In Coronel, this Court found that the petitioners therein clearly intended to transfer title to the
buyer which petitioner themselves admitted in their pleading. The agreement of the parties therein was
definitively outline in the Receipt of Down Payment both as to property, the purchase price, the delivery
of the seller of the property and the manner of the transfer of title subject to the specific condition that
upon the transfer in their names of the subject property the Coronels will execute the deed of absolute sale.
Whereas, in the instant case, even by a careful perusal of the receipt, Exh. D, alone such kind
of circumstances cannot be ascertained without however resorting to the exceptions of the Rule on Parol
Evidence.
To our mind, the trial court and the appellate court correctly held that the agreement between
Genato and Cheng is a contract to sell, which was, in fact, petitioner connection in his pleadings before
the said courts. Consequently, both to mind, which read:
Article 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith
first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in
possession; and in the absence thereof, to the person who presents the oldest title, provided there is good
faith
However, a meticulous reading of the aforequoted provision shows that said law is not apropos to
the instant case. This provision connotes that the following circumstances must concur:
(a) The two (or more) sales transactions in the issue must pertain to exactly the same subject matter, and
must be valid sales transactions.
(b) The two (or more) buyers at odds over the rightful ownership of the subject matter must each represent
conflicting interests; and
(c) The two (or more) buyers at odds over the rightful ownership of the subject matter must each have
bought from the very same seller.
These situations obviously are lacking in a contract to sell for neither a transfer of ownership nor
a sales transaction has been consummated. The contract to be binding upon the obligee or the vendor
depends upon the fulfillment or non-fulfillment of an event.
Notwithstanding this contrary finding with the appellate court, we are of the view that the
governing principle of Article 1544, Civil Code, should apply in this situation. Jurisprudence[38]
teaches us that the governing principle is PRIMUS TEMPORE, PORTIOR JURE (first in time, stronger in
right). For not only was the contract between herein respondents first in time; it was also registered long
before petitioners intrusion as a second buyer. This principle only applies when the special rules
provided in the aforcited article of Civil Code do not apply or fit the specific circumstances mandated
under said law or by jurisprudence interpreting the article.
The rule exacted by Article 1544 of the Civil Code for the second buyer to be able to displace the
first buyer are:
(1) that the second buyer must show that he acted in good faith (i.e. in ignorance of the first sale
and of the first buyers rights) from the time of acquisition until title is transferred to him by registration or
failing registration, by delivery of possession;[39]
(2) the second buyer must show continuing good faith and innocence or lack of knowledge of the
first sale until his contract ripens into full ownership through prior registration as provided by law.[40]
Thus, in the case at bar, the knowledge gained by the Da Jose spouses, as first buyers, of the new
agreement between Cheng and Genato will not defeat their rights as first buyers except where Cheng, as
second buyer, registers or annotates his transaction or agreement on the title of the subject properties in
good faith ahead of the Da Jose spouses. Moreover, although the Da Jose spouses, as first buyers, knew of
the second transaction it will not bar them from availing of their rights granted by law, among them, to
register first their agreement as against the second buyer.
In contrast, knowledge gained by Cheng of the first transaction between the Da Jose spouses and
Genato defeats his rights even if he is first to register the second transaction, since such knowledge taints
his prior registration with bad faith.
Registration, as defined by Soler and Castillo, means any entry made in the books of the
registry, including both registration in its ordinary and strict sense and cancellation, annotation, and even
marginal notes.[41] In its strict acceptation, it is the entry made in the registry which records solemnly
and permanently the right of ownership and other real rights.[42] We have ruled[43] before that when a
Deed of Sale is inscribed in the registry of property on the original document itself, what was done with
respect to said entries or annotations and marginal notes amounted to a registration of the sale. In this
light, we see no reason why we should not give priority in right the annotation made by the Da Jose
spouses with respect to their Contract to Sell dated September 6, 1989.
Moreover, registration alone in such cases without good faith is not sufficient. Good faith must
concur with registration for such prior right to be enforceable. In the instant case, the annotation made by
the Da Jose spouses on the titles of Genato of their Contract to Sell more than satisfies this
requirement. Whereas in the case of Genatos agreement with Cheng such is unavailing. For even before
the receipt, Exh. D, was issued to Cheng information of such pre-existing agreement has been brought
to his knowledge which did not deter him from pursuing his agreement with Genato. We give credence to
the factual finding of the appellate court that Cheng himself admitted that it was he who sought Genato in
order to inquire about the property and offered to buy the same.[44] And since Cheng was fully aware, or
could have been if he had chosen to inquire, of the rights of the Da Jose spouses under the Contract to Sell
duly annotated on the transfer certificates of titles of Genato, it now becomes unnecessary to further
elaborate in detail the fact that he is indeed in bad faith in entering into such agreement. As we have held
in Leung Yeevs. F.L. Strong Machinery Co.:[45]
One who purchases real estate with knowledge of a defect x x x of title in his vendor cannot claim that he
has acquired title thereto in good faith as against x x x x an interest therein; and the same rule must be
applied to one who has knowledge of facts which should have put him upon such inquiry and investigation
as might be necessary to acquaint him with the defects in the title of his vendor. A purchaser cannot close
his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good
faith under the belief that there was no defect in the title of the vendor. His mere refusal to believe that
such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in his
vendors title, will not make him an innocent purchaser for value, if it afterwards develops that the title
was in fact defective, and it appears that he had such notice of the defect as would have led to its discovery
had he acted with that measure of precaution which may reasonably be required of a prudent man in a like
situation. Good faith, or lack of it, is in its last analysis a question of intention; but in ascertaining the
intention by which one is actuated on a given occasion, we are necessarily controlled by the evidence as to
the conduct and outward acts by which alone the inward motive may, with safety, be determined. So it is
that the honesty of intention, the honest lawful intent, which constitutes good faith implies a freedom
from knowledge and circumstances which ought to put a person on inquiry, and so it is that proof of such
knowledge overcomes the presumption of good faith in which the courts always indulge in the absence of
the proof to the contrary. Good faith, or the want of it, is not a visible, tangible fact that can be seen or
touched, but rather a state or condition of mind which can only be judge of by actual or fancied tokens or
signs. (Wilder vs. Gilman, 55 Vt. 504, 505; Cf. Cardenas vs. Miller, 108 Cal., 250; Breaux-Renoudet,
Cypress Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromely, 119 Mich., 8,
10, 17.) Emphasis ours
Damages were awarded by the appellate court on the basis of its finding that petitioner was in
bad faith when he filed the suit for specific performance knowing fully well that his agreement with
Genato did not push through.[46] Such bad faith, coupled with his wrongful interference with the
contractual relations between Genato and the Da Jose spouses, which culminated in his filing of the
present suit and thereby creating what the counsel for the respondents describes as a prolonged and
economically unhealthy gridlock[47] on both the land itself and the respondents rights provides ample
basis for the damages awarded. Based on these overwhelming evidence of bad faith on the part of herein
petitioner Ricardo Cheng, we find that the award of damages made by the appellate court is in order.
WHEREFORE, premises considered, the instant petition for review is DENIED and the assailed
decision is hereby AFFIRMED EN TOTO.
SO ORDERED.
SECOND DIVISION
[G.R. No. 132161. January 17, 2005]
CONSOLIDATED RURAL BANK (CAGAYAN VALLEY), INC., petitioner, vs. THE
HONORABLE COURT OF APPEALS and HEIRS OF TEODORO DELA CRUZ,
respondents.
D E C I S I O N
TINGA, J .:
Petitioner Consolidated Rural Bank, Inc. of Cagayan Valley filed the instant Petition for
Certiorari[1] under Rule 45 of the Revised Rules of Court, seeking the review of the Decision[2]
of the Court of Appeals Twelfth Division in CA-G.R. CV No. 33662, promulgated on 27 May
1997, which reversed the judgment[3] of the lower court in favor of petitioner; and the
Resolution[4] of the Court of Appeals, promulgated on 5 January 1998, which reiterated its
Decision insofar as respondents Heirs of Teodoro dela Cruz (the Heirs) are concerned.
From the record, the following are the established facts:
Rizal, Anselmo, Gregorio, Filomeno and Domingo, all surnamed Madrid (hereafter the
Madrid brothers), were the registered owners of Lot No. 7036-A of plan Psd-10188, Cadastral
Survey 211, situated in San Mateo, Isabela per Transfer Certificate of Title (TCT) No. T-8121
issued by the Register of Deeds of Isabela in September 1956.[5]
On 23 and 24 October 1956, Lot No. 7036-A was subdivided into several lots under
subdivision plan Psd- 50390. One of the resulting subdivision lots was Lot No. 7036-A-7 with an
area of Five Thousand Nine Hundred Fifty-Eight (5,958) square meters.[6]
On 15 August 1957, Rizal Madrid sold part of his share identified as Lot No. 7036-A-7,
to Aleja Gamiao (hereafter Gamiao) and Felisa Dayag (hereafter, Dayag) by virtue of a Deed of
Sale,[7] to which his brothers Anselmo, Gregorio, Filomeno and Domingo offered no objection as
evidenced by their Joint Affidavit dated 14 August 1957.[8] The deed of sale was not registered
with the Office of the Register of Deeds of Isabela. However, Gamiao and Dayag declared the
property for taxation purposes in their names on March 1964 under Tax Declaration No. 7981.[9]
On 28 May 1964, Gamiao and Dayag sold the southern half of Lot No. 7036-A-7,
denominated as Lot No. 7036-A-7-B, to Teodoro dela Cruz,[10] and the northern half, identified
as Lot No. 7036-A-7-A,[11] to Restituto Hernandez.[12] Thereupon, Teodoro dela Cruz and
Restituto Hernandez took possession of and cultivated the portions of the property respectively
sold to them.[13]
Later, on 28 December 1986, Restituto Hernandez donated the northern half to his
daughter, Evangeline Hernandez-del Rosario.[14] The children of Teodoro dela Cruz continued
possession of the southern half after their fathers death on 7 June 1970.
In a Deed of Sale[15] dated 15 June 1976, the Madrid brothers conveyed all their rights
and interests over Lot No. 7036-A-7 to Pacifico Marquez (hereafter, Marquez), which the former
confirmed[16] on 28 February 1983.[17] The deed of sale was registered with the Office of the
Register of Deeds of Isabela on 2 March 1982.[18]
Subsequently, Marquez subdivided Lot No. 7036-A-7 into eight (8) lots, namely: Lot
Nos. 7036-A-7-A to 7036-A-7-H, for which TCT Nos. T-149375 to T-149382 were issued to him
on 29 March 1984.[19] On the same date, Marquez and his spouse, Mercedita Mariana,
mortgaged Lots Nos. 7036-A-7-A to 7036-A-7-D to the Consolidated Rural Bank, Inc. of
Cagayan Valley (hereafter, CRB) to secure a loan of One Hundred Thousand Pesos
(P100,000.00).[20] These deeds of real estate mortgage were registered with the Office of the
Register of Deeds on 2 April 1984.
On 6 February 1985, Marquez mortgaged Lot No. 7036-A-7-E likewise to the Rural Bank
of Cauayan (RBC) to secure a loan of Ten Thousand Pesos (P10,000.00).[21]
As Marquez defaulted in the payment of his loan, CRB caused the foreclosure of the
mortgages in its favor and the lots were sold to it as the highest bidder on 25 April 1986.[22]
On 31 October 1985, Marquez sold Lot No. 7036-A-7-G to Romeo Calixto (Calixto).[23]
Claiming to be null and void the issuance of TCT Nos. T-149375 to T-149382; the
foreclosure sale of Lot Nos. 7036-A-7-A to 7036-A-7-D; the mortgage to RBC; and the sale to
Calixto, the Heirsnow respondents hereinrepresented by Edronel dela Cruz, filed a case[24]
for reconveyance and damages the southern portion of Lot No. 7036-A (hereafter, the subject
property) against Marquez, Calixto, RBC and CRB in December 1986.
Evangeline del Rosario, the successor-in-interest of Restituto Hernandez, filed with
leave of court a Complaint in Intervention[25] wherein she claimed the northern portion of Lot
No. 7036-A-7.
In the Answer to the Amended Complaint,[26] Marquez, as defendant, alleged that apart
from being the first registrant, he was a buyer in good faith and for value. He also argued that
the sale executed by Rizal Madrid to Gamiao and Dayag was not binding upon him, it being
unregistered. For his part, Calixto manifested that he had no interest in the subject property as
he ceased to be the owner thereof, the same having been reacquired by defendant Marquez.[27]
CRB, as defendant, and co-defendant RBC insisted that they were mortgagees in good
faith and that they had the right to rely on the titles of Marquez which were free from any lien or
encumbrance.[28]
After trial, the Regional Trial Court, Branch 19 of Cauayan, Isabela (hereafter, RTC)
handed down a decision in favor of the defendants, disposing as follows:
WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered:
1. Dismissing the amended complaint and the complaint in intervention;
2. Declaring Pacifico V. Marquez the lawful owner of Lots 7036-A-7 now Lots 7036-A-7-A to 7036-
A-7-H, inclusive, covered by TCT Nos. T-149375 to T-149382, inclusive;
3. Declaring the mortgage of Lots 7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-D in favor of
the defendant Consolidated Rural Bank (Cagayan Valley) and of Lot 7036-A-7-E in favor of defendant
Rural Bank of Cauayan by Pacifico V. Marquez valid;
4. Dismissing the counterclaim of Pacifico V. Marquez; and
5. Declaring the Heirs of Teodoro dela Cruz the lawful owners of the lots covered by TCT Nos. T-
33119, T-33220 and T-7583.
No pronouncement as to costs.
SO ORDERED.[29]
In support of its decision, the RTC made the following findings:
With respect to issues numbers 1-3, the Court therefore holds that the sale of Lot 7036-A-7 made by Rizal
Madrid to Aleja Gamiao and Felisa Dayag and the subsequent conveyances to the plaintiffs and
intervenors are all valid and the Madrid brothers are bound by said contracts by virtue of the confirmation
made by them on August 14, 1957 (Exh. B).
Are the defendants Pacifico V. Marquez and Romeo B. Calixto buyers in good faith and for value of Lot
7036-A-7?
It must be borne in mind that good faith is always presumed and he who imputes bad faith has the burden
of proving the same (Art. 527, Civil Code). The Court has carefully scrutinized the evidence presented but
finds nothing to show that Marquez was aware of the plaintiffs and intervenors claim of ownership over
this lot. TCT No. T-8121 covering said property, before the issuance of Marquez title, reveals nothing
about the plaintiffs and intervenors right thereto for it is an admitted fact that the conveyances in their
favor are not registered.
The Court is therefore confronted with two sales over the same property. Article 1544 of the Civil Code
provides:
ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith
first recorded it in the Registry of Property. x x x (Underscoring supplied).
From the foregoing provisions and in the absence of proof that Marquez has actual or constructive
knowledge of plaintiffs and intervenors claim, the Court has to rule that as the vendee who first
registered his sale, Marquez ownership over Lot 7036-A-7 must be upheld.[30]
The Heirs interposed an appeal with the Court of Appeals. In their Appellants Brief,[31]
they ascribed the following errors to the RTC: (1) it erred in finding that Marquez was a buyer in
good faith; (2) it erred in validating the mortgage of the properties to RBC and CRB; and (3) it
erred in not reconveying Lot No. 7036-A-7-B to them.[32]
Intervenor Evangeline del Rosario filed a separate appeal with the Court of Appeals. It
was, however, dismissed in a Resolution dated 20 September 1993 for her failure to pay docket
fees. Thus, she lost her standing as an appellant.[33]
On 27 May 1997, the Court of Appeals rendered its assailed Decision[34] reversing the
RTCs judgment. The dispositive portion reads:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Accordingly,
judgment is hereby rendered as follows:
1. Declaring the heirs of Teodoro dela Cruz the lawful owners of the southern half portion and
Evangeline Hernandez-del Rosario the northern half portion of Lot No. 7036-A-7, now covered by TCT
Nos. T-149375 to T-149382, inclusive;
2. Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V. Marquez and the
Madrid brothers covering said Lot 7036-A-7;
3. Declaring null and void the mortgage made by defendant Pacifico V. Marquez of Lot Nos. 7036-A-
7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-D in favor of the defendant Consolidated Rural Bank and of
Lot 7036-A-7-E in favor of defendant Rural Bank of Cauayan; and
4. Ordering Pacifico V. Marquez to reconvey Lot 7036-A-7 to the heirs of Teodoro dela Cruz and
Evangeline Hernandez-del Rosario.
No pronouncement as to costs.
SO ORDERED.[35]
In upholding the claim of the Heirs, the Court of Appeals held that Marquez failed to
prove that he was a purchaser in good faith and for value. It noted that while Marquez was the
first registrant, there was no showing that the registration of the deed of sale in his favor was
coupled with good faith. Marquez admitted having knowledge that the subject property was
being taken by the Heirs at the time of the sale.[36] The Heirs were also in possession of the
land at the time. According to the Decision, these circumstances along with the subject
propertys attractive locationit was situated along the National Highway and was across a
gasoline stationshould have put Marquez on inquiry as to its status. Instead, Marquez closed
his eyes to these matters and failed to exercise the ordinary care expected of a buyer of real
estate.[37]
Anent the mortgagees RBC and CRB, the Court of Appeals found that they merely relied
on the certificates of title of the mortgaged properties. They did not ascertain the status and
condition thereof according to standard banking practice. For failure to observe the ordinary
banking procedure, the Court of Appeals considered them to have acted in bad faith and on that
basis declared null and void the mortgages made by Marquez in their favor.[38]
Dissatisfied, CRB filed a Motion for Reconsideration[39] pointing out, among others, that
the Decision promulgated on 27 May 1997 failed to establish good faith on the part of the Heirs.
Absent proof of possession in good faith, CRB avers, the Heirs cannot claim ownership over the
subject property.
In a Resolution[40] dated 5 January 1998, the Court of Appeals stressed its disbelief in
CRBs allegation that it did not merely rely on the certificates of title of the properties and that it
conducted credit investigation and standard ocular inspection. But recalling that intervenor
Evangeline del Rosario had lost her standing as an appellant, the Court of Appeals accordingly
modified its previous Decision, as follows:
WHEREFORE, the decision dated May 27, 1997, is hereby MODIFIED to read as follows:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE insofar as plaintiffs-
appellants are concerned. Accordingly, judgment is hereby rendered as follows:
1. Declaring the Heirs of Teodoro dela Cruz the lawful owners of the southern half portion of Lot No.
7036-A-7;
2. Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V. Marquez and the
Madrid brothers insofar as the southern half portion of Lot NO. (sic) 7036-A-7 is concerned;
3. Declaring the mortgage made by defendant Pacifico V. Marquez in favor of defendant Consolidated
Rural Bank (Cagayan Valley) and defendant Rural Bank of Cauayan as null and void insofar as the
southern half portion of Lot No. 7036-A-7 is concerned;
4. Ordering defendant Pacifico V. Marquez to reconvey the southern portion of Lot No. 7036-A-7 to
the Heirs of Teodoro dela Cruz.
No pronouncement as to costs.
SO ORDERED.[41]
Hence, the instant CRB petition. However, both Marquez and RBC elected not to
challenge the Decision of the appellate court.
Petitioner CRB, in essence, alleges that the Court of Appeals committed serious error of
law in upholding the Heirs ownership claim over the subject property considering that there was
no finding that they acted in good faith in taking possession thereof nor was there proof that the
first buyers, Gamiao and Dayag, ever took possession of the subject property. CRB also makes
issue of the fact that the sale to Gamiao and Dayag was confirmed a day ahead of the actual
sale, clearly evincing bad faith, it adds. Further, CRB asserts Marquezs right over the property
being its registered owner.
The petition is devoid of merit. However, the dismissal of the petition is justified by
reasons different from those employed by the Court of Appeals.
Like the lower court, the appellate court resolved the present controversy by applying
the rule on double sale provided in Article 1544 of the Civil Code. They, however, arrived at
different conclusions. The RTC made CRB and the other defendants win, while the Court of
Appeals decided the case in favor of the Heirs.
Article 1544 of the Civil Code reads, thus:
ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should
be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith
first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in
possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good
faith.
The provision is not applicable in the present case. It contemplates a case of double or
multiple sales by a single vendor. More specifically, it covers a situation where a single vendor
sold one and the same immovable property to two or more buyers.[42] According to a noted civil
law author, it is necessary that the conveyance must have been made by a party who has an
existing right in the thing and the power to dispose of it.[43] It cannot be invoked where the two
different contracts of sale are made by two different persons, one of them not being the owner of
the property sold.[44] And even if the sale was made by the same person, if the second sale was
made when such person was no longer the owner of the property, because it had been acquired
by the first purchaser in full dominion, the second purchaser cannot acquire any right.[45]
In the case at bar, the subject property was not transferred to several purchasers by a
single vendor. In the first deed of sale, the vendors were Gamiao and Dayag whose right to the
subject property originated from their acquisition thereof from Rizal Madrid with the conformity of
all the other Madrid brothers in 1957, followed by their declaration of the property in its entirety
for taxation purposes in their names. On the other hand, the vendors in the other or later deed
were the Madrid brothers but at that time they were no longer the owners since they had long
before disposed of the property in favor of Gamiao and Dayag.
Citing Manresa, the Court of Appeals in 1936 had occasion to explain the proper
application of Article 1473 of the Old Civil Code (now Article 1544 of the New Civil Code) in the
case of Carpio v. Exevea,[46] thus:
In order that tradition may be considered performed, it is necessary that the requisites which it implies
must have been fulfilled, and one of the indispensable requisites, according to the most exact Roman
concept, is that the conveyor had the right and the will to convey the thing. The intention to transfer is not
sufficient; it only constitutes the will. It is, furthermore, necessary that the conveyor could juridically
perform that act; that he had the right to do so, since a right which he did not possess could not be vested
by him in the transferee.
This is what Article 1473 has failed to express: the necessity for the preexistence of the right on the part of
the conveyor. But even if the article does not express it, it would be understood, in our opinion, that that
circumstance constitutes one of the assumptions upon which the article is based.
This construction is not repugnant to the text of Article 1473, and not only is it not contrary to it, but it
explains and justifies the same. (Vol. 10, 4
th
ed., p. 159)[47]
In that case, the property was transferred to the first purchaser in 1908 by its original
owner, Juan Millante. Thereafter, it was sold to plaintiff Carpio in June 1929. Both conveyances
were unregistered. On the same date that the property was sold to the plaintiff, Juan Millante
sold the same to defendant Exevea. This time, the sale was registered in the Registry of Deeds.
But despite the fact of registration in defendants favor, the Court of Appeals found for the
plaintiff and refused to apply the provisions of Art. 1473 of the Old Civil Code, reasoning that on
the date of the execution of the document, Exhibit 1, Juan Millante did not and could not have
any right whatsoever to the parcel of land in question.[48]
Citing a portion of a judgment dated 24 November 1894 of the Supreme Court of Spain,
the Court of Appeals elucidated further:
Article 1473 of the Civil Code presupposes the right of the vendor to dispose of the thing sold, and does
not limit or alter in this respect the provisions of the Mortgage Law in force, which upholds the principle
that registration does not validate acts or contracts which are void, and that although acts and contracts
executed by persons who, in the Registry, appear to be entitled to do so are not invalidated once recorded,
even if afterwards the right of such vendor is annulled or resolved by virtue of a previous unrecorded title,
nevertheless this refers only to third parties.[49]
In a situation where not all the requisites are present which would warrant the
application of Art. 1544, the principle of prior tempore, potior jure or simply he who is first in time
is preferred in right,[50] should apply.[51] The only essential requisite of this rule is priority in
time; in other words, the only one who can invoke this is the first vendee. Undisputedly, he is a
purchaser in good faith because at the time he bought the real property, there was still no sale to
a second vendee.[52] In the instant case, the sale to the Heirs by Gamiao and Dayag, who first
bought it from Rizal Madrid, was anterior to the sale by the Madrid brothers to Marquez. The
Heirs also had possessed the subject property first in time. Thus, applying the principle, the
Heirs, without a scintilla of doubt, have a superior right to the subject property.
Moreover, it is an established principle that no one can give what one does not
havenemo dat quod non habet. Accordingly, one can sell only what one owns or is authorized
to sell, and the buyer can acquire no more than what the seller can transfer legally.[53] In this
case, since the Madrid brothers were no longer the owners of the subject property at the time of
the sale to Marquez, the latter did not acquire any right to it.
In any event, assuming arguendo that Article 1544 applies to the present case, the claim
of Marquez still cannot prevail over the right of the Heirs since according to the evidence he was
not a purchaser and registrant in good faith.
Following Article 1544, in the double sale of an immovable, the rules of preference are:
(a) the first registrant in good faith;
(b) should there be no entry, the first in possession in good faith; and
(c) in the absence thereof, the buyer who presents the oldest title in good faith. [54]
Prior registration of the subject property does not by itself confer ownership or a better
right over the property. Article 1544 requires that before the second buyer can obtain priority
over the first, he must show that he acted in good faith throughout (i.e., in ignorance of the first
sale and of the first buyers rights)from the time of acquisition until the title is transferred to him
by registration or failing registration, by delivery of possession.[55]
In the instant case, the actions of Marquez have not satisfied the requirement of good
faith from the time of the purchase of the subject property to the time of registration. Found by
the Court of Appeals, Marquez knew at the time of the sale that the subject property was being
claimed or taken by the Heirs. This was a detail which could indicate a defect in the vendors
title which he failed to inquire into. Marquez also admitted that he did not take possession of the
property and at the time he testified he did not even know who was in possession. Thus, he
testified on direct examination in the RTC as follows:
ATTY. CALIXTO
Q Can you tell us the circumstances to your buying the land in question?
A In 1976 the Madrid brothers confessed to me their problems about their lots in San
Mateo that they were being taken by Teodoro dela Cruz and Atty. Teofilo A.
Leonin; that they have to pay the lawyers fee of P10,000.00 otherwise Atty.
Leonin will confiscate the land. So they begged me to buy their properties,
some of it. So that on June 3, 1976, they came to Cabagan where I was and
gave them P14,000.00, I think. We have talked that they will execute the
deed of sale.
Q Why is it, doctor, that you have already this deed of sale, Exh. 14, why did you
find it necessary to have this Deed of Confirmation of a Prior Sale, Exh. 15?
A Because as I said a while ago that the first deed of sale was submitted to the
Register of Deeds by Romeo Badua so that I said that because when I
became a Municipal Health Officer in San Mateo, Isabela, I heard so many
rumors, so many things about the land and so I requested them to execute a
deed of confirmation.[56]
. . .
ATTY. CALIXTO-
Q At present, who is in possession on the Riceland portion of the lot in question?
A I can not say because the people working on that are changing from time to time.
Q Why, have you not taken over the cultivation of the land in question?
A Well, the Dela Cruzes are prohibiting that we will occupy the place.
Q So, you do not have any possession?
A None, sir.[57]
One who purchases real property which is in actual possession of others should, at
least, make some inquiry concerning the rights of those in possession. The actual possession
by people other than the vendor should, at least, put the purchaser upon inquiry. He can
scarcely, in the absence of such inquiry, be regarded as a bona fide purchaser as against such
possessions.[58] The rule of caveat emptor requires the purchaser to be aware of the supposed
title of the vendor and one who buys without checking the vendors title takes all the risks and
losses consequent to such failure.[59]
It is further perplexing that Marquez did not fight for the possession of the property if it
were true that he had a better right to it. In our opinion, there were circumstances at the time of
the sale, and even at the time of registration, which would reasonably require a purchaser of real
property to investigate to determine whether defects existed in his vendors title. Instead,
Marquez willfully closed his eyes to the possibility of the existence of these flaws. For failure to
exercise the measure of precaution which may be required of a prudent man in a like situation,
he cannot be called a purchaser in good faith.[60]
As this Court explained in the case of Spouses Mathay v. Court of Appeals:[61]
Although it is a recognized principle that a person dealing on a registered land need not go beyond its
certificate of title, it is also a firmly settled rule that where there are circumstances which would put a
party on guard and prompt him to investigate or inspect the property being sold to him, such as the
presence of occupants/tenants thereon, it is, of course, expected from the purchaser of a valued piece of
land to inquire first into the status or nature of possession of the occupants, i.e., whether or not the
occupants possess the land en concepto de dueo, in concept of owner. As is the common practice in the
real estate industry, an ocular inspection of the premises involved is a safeguard a cautious and prudent
purchaser usually takes. Should he find out that the land he intends to buy is occupied by anybody else
other than the seller who, as in this case, is not in actual possession, it would then be incumbent upon the
purchaser to verify the extent of the occupants possessory rights. The failure of a prospective buyer to
take such precautionary steps would mean negligence on his part and would thereby preclude him from
claiming or invoking the rights of a purchaser in good faith.[62]
This rule equally applies to mortgagees of real property. In the case of Crisostomo v.
Court of Appeals,[63] the Court held:
It is a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should put a
reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was
no defect in the title of the vendor or mortgagor. His mere refusal to believe that such defect exists, or his
willful closing of his eyes to the possibility of the existence of a defect in the vendors or mortgagors title,
will not make him an innocent purchaser or mortgagee for value, if it afterwards develops that the title was
in fact defective, and it appears that he had such notice of the defects as would have led to its discovery
had he acted with the measure of a prudent man in a like situation.[64]
Banks, their business being impressed with public interest, are expected to exercise
more care and prudence than private individuals in their dealings, even those involving
registered lands. Hence, for merely relying on the certificates of title and for its failure to
ascertain the status of the mortgaged properties as is the standard procedure in its operations,
we agree with the Court of Appeals that CRB is a mortgagee in bad faith.
In this connection, Marquezs obstention of title to the property and the subsequent
transfer thereof to CRB cannot help the latters cause. In a situation where a party has actual
knowledge of the claimants actual, open and notorious possession of the disputed property at
the time of registration, as in this case, the actual notice and knowledge are equivalent to
registration, because to hold otherwise would be to tolerate fraud and the Torrens system cannot
be used to shield fraud. [65]
While certificates of title are indefeasible, unassailable and binding against the whole
world, they merely confirm or record title already existing and vested. They cannot be used to
protect a usurper from the true owner, nor can they be used for the perpetration of fraud; neither
do they permit one to enrich himself at the expense of others.[66]
We also find that the Court of Appeals did not err in awarding the subject property to the
Heirs absent proof of good faith in their possession of the subject property and without any
showing of possession thereof by Gamiao and Dayag.
As correctly argued by the Heirs in their Comment,[67] the requirement of good faith in
the possession of the property finds no application in cases where there is no second sale.[68]
In the case at bar, Teodoro dela Cruz took possession of the property in 1964 long before the
sale to Marquez transpired in 1976 and a considerable length of timeeighteen (18) years in
factbefore the Heirs had knowledge of the registration of said sale in 1982. As Article 526 of
the Civil Code aptly provides, (H)e is deemed a possessor in good faith who is not aware that
there exists in his title or mode of acquisition any flaw which invalidates it. Thus, there was no
need for the appellate court to consider the issue of good faith or bad faith with regard to
Teodoro dela Cruzs possession of the subject property.
Likewise, we are of the opinion that it is not necessary that there should be any finding
of possession by Gamiao and Dayag of the subject property. It should be recalled that the
regularity of the sale to Gamiao and Dayag was never contested by Marquez.[69] In fact the
RTC upheld the validity of this sale, holding that the Madrid brothers are bound by the sale by
virtue of their confirmation thereof in the Joint Affidavit dated 14 August 1957. That this was
executed a day ahead of the actual sale on 15 August 1957 does not diminish its integrity as it
was made before there was even any shadow of controversy regarding the ownership of the
subject property.
Moreover, as this Court declared in the case of Heirs of Simplicio Santiago v. Heirs of
Mariano E. Santiago,[70] tax declarations are good indicia of possession in the concept of an
owner, for no one in his right mind would be paying taxes for a property that is not in his actual
or constructive possession.[71]
WHEREFORE, the Petition is DENIED. The dispositive portion of the Court of Appeals
Decision, as modified by its Resolution dated 5 January 1998, is AFFIRMED. Costs against
petitioner.
SO ORDERED.
THIRD DIVISION


ESTATE OF LINO OLAGUER, Represented by
Linda O. Olaguer, and LINDA O. MONTAYRE,
Petitioners,



- versus -



EMILIANO M. ONGJOCO,
Respondent.
G.R. No. 173312

Present:

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

Promulgated:

August 26, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x


D E C I S I O N


CHICO-NAZARIO, J.:

Assailed in this Petition for Review on Certiorari[1] is the Decision[2] of the Court of
Appeals dated 27 February 2006 in CA-G.R. CV No. 71710. Said decision modified the Decision[3] and
the subsequent Order[4] of the Regional Trial Court (RTC) of Legazpi City, Branch 6, in Civil Case No.
6223, and upheld the validity of the sales of properties to respondent Emiliano M. Ongjoco.

The relevant factual antecedents of the case, as found by the trial court and adapted by the
Court of Appeals, are as follows:

The plaintiffs Sor Mary Edith Olaguer, Aurora O. de
Guzman, Clarissa O. Trinidad, Lina Olaguer and Ma. Linda O. Montayre
are the legitimate children of the spouses Lino Olaguer and defendant
Olivia P. Olaguer.

Lino Olaguer died on October 3, 1957 so Special
Proceedings No. 528 for probate of will was filed in the then Court of First
Instance of Albay. Defendant Olivia P. Olaguer was appointed as
administrator pursuant to the will. Later, defendant Eduardo Olaguer was
appointed as co-administrator. x x x

On October 15, 1959 defendant Olivia P. Olaguer got
married to defendant Jose A. Olaguer before the then Justice of the Peace
of Sto. Domingo (Libog) Albay. (Exhibit NNNN) On January 24, 1965
they were married in church. (Exhibit XX)

In the order of the probate court dated April 4, 1961, some
properties of the estate were authorized to be sold to pay obligations of the
estate. Pursuant to this authority, administrators Olivia P. Olaguer and
Eduardo Olaguer on December 12, 1962 sold to Pastor Bacani for
[P]25,000 Pesos, twelve (12) parcels of land, particularly, Lots 4518, 4526,
4359, 8750, 7514, 6608, 8582, 8157, 7999, 6167, 8266, and 76 with a total
area of 99 hectares. (Exhibit A Deed of Sale notarized by defendant
Jose A. Olaguer)

This sale of twelve (12) parcels of land to Pastor Bacani
was approved by the Probate Court on December 12, 1962. (Exhibit 15)

The following day, December 13, 1962, Pastor Bacani
sold back to Eduardo Olaguer and Olivia Olaguer for [P]12,000.00
Pesos, one of the twelve (12) lots he bought the day before,
particularly, Lot No. 76 in the proportion of 7/13 and 6/13 pro-indiviso
respectively. (Exhibit B Deed of Sale notarized by Felipe A.
Cevallos, Sr.)

Simultaneously, on the same day December 13, 1962,
Pastor Bacani sold back to Olivia Olaguer and Eduardo Olaguer the other
eleven (11) parcels he bought from them as follows:

To Olivia Olaguer Four (4)
parcels for 10,700 Pesos, particularly Lots
4518, 4526, 4359, 8750 with a total area of 84
hectares. (Exhibit E Deed of Sale
notarized by Felipe A. Cevallos, Sr.)

To Eduardo Olaguer Seven
(7) parcels of land for 2,500 Pesos, particularly
Lots 7514, 6608, 8582, 8157, 7999, 6167, and
8266 with a total area of 15 hectares. (Exhibit
C Deed of Sale notarized by defendant
Jose A. Olaguer)

Relying upon the same order of April 4, 1961 but without
prior notice or permission from the Probate Court, defendants Olivia P.
Olaguer and Eduardo Olaguer on November 1, 1965 sold to Estanislao
Olaguer for 7,000 Pesos, ten (10) parcels of land, particularly, (a) TCT No.
T-4011 Lot No. 578, (b) TCT No. T-1417 Lot No. 1557, (c) TCT No.
T-4031 Lot No. 1676, (d) TCT No. T-4034 Lot No. 4521, (e) TCT No.
T-4035 Lot No. 4522, (f) TCT No. 4013 Lot No. 8635, (g) TCT No. T-
4014 Lot 8638, (h) TCT No. T-4603 Lot No. 7589, (i) TCT No. 4604
Lot No. 7593, and (j) TCT No. T-4605 Lot No. 7396. (Exhibit D
Deed of Sale notarized by Rodrigo R. Reantaso)

This sale to Estanislao Olaguer was approved by the
Probate Court on November 12, 1965.

After the foregoing sale to Estanislao Olaguer, the
following transactions took place:

1) On July 7, 1966, defendant Olivia P. Olaguer
executed a Special Power of Attorney notarized by Rodrigo R.
Reantaso (Exhibit T) in favor of defendant Jose A. Olaguer,
authorizing the latter to sell, mortgage, assign, transfer, endorse and
deliver the properties covered by TCT No. 14654 for Lot 76 6/13
share only, T-13983, T-14658, T-14655, T-14656, and T-14657.

2) On July 7, 1966, Estanislao Olaguer executed a Special
Power of Attorney in favor of Jose A. Olaguer (Exhibit X) notarized by
Rodrigo R. Reantaso authorizing the latter to sell, mortgage, assign,
transfer, endorse and deliver the properties covered by TCT No. T-20221,
T-20222, T-20225 for Lot No. 8635, T-20226 for Lot No. 8638, T-20227,
T-20228, and T-20229.

By virtue of this Special Power of Attorney, on March 1,
1967, Jose A. Olaguer as Attorney-in-Fact of Estanislao Olaguer
mortgaged Lots 7589, 7593 and 7396 to defendant Philippine National
Bank (PNB) as security for a loan of 10,000 Pesos. The mortgage was
foreclosed by the PNB on June 13, 1973 and the properties mortgage were
sold at public auction to PNB. On December 10, 1990, the PNB
transferred the properties to the Republic of the Philippines pursuant to
Exec. Order No. 407 dated June 14, 1990 for agrarian reform purposes.
(records, vol. 1, page 66)

3) On October 29, 1966, Estanislao Olaguer executed a
General Power of Attorney notarized by Rodrigo R. Reantaso (Exhibit
Y) in favor of Jose A. Olaguer, authorizing the latter to exercise general
control and supervision over all of his business and properties, and among
others, to sell or mortgage any of his properties.

4) On December 29, 1966, Estanislao Olaguer sold to Jose
A. Olaguer for 15,000 Pesos, (Exhibit UU) the ten (10) parcels of land
(Lots 578, 4521, 4522, 1557, 1676, 8635, 8638, 7589, 7593 and 7396) he
bought from Olivia P. Olaguer and Eduardo Olaguer under Exhibit D.

5) On March 16, 1968, Estanislao Olaguer sold to Jose A.
Olaguer for 1 Peso and other valuable consideration Lot No. 4521 TCT
No. T-20223 and Lot 4522 TCT No. 20224 with a total area of 2.5
hectares. (records, vol. 1, page 33)

6) On June 5, 1968, Estanislao Olaguer sold Lot No. 8635
under TCT No. T-20225, and Lot No. 8638 under TCT No. 20226 to Jose
A. Olaguer for 1 Peso and other valuable consideration. (Exhibit F)
Deed of Sale was notarized by Rodrigo R. Reantaso.

7) On May 13, 1971, Jose A. Olaguer in his capacity as
Attorney in-Fact of Estanislao Olaguer sold to his son Virgilio Olaguer for
1 Peso and other valuable consideration Lot No. 1557 TCT No. 20221
and Lot No. 1676 TCT No. 20222. The deed of sale was notarized by
Otilio Sy Bongon.

8) On July 15, 1974, Jose A. Olaguer sold to his son
Virgilio Olaguer Lot No. 4521 and Lot No. 4522 for 1,000 Pesos. Deed of
Sale was notarized by Otilio Sy Bongon. (records, vol. 1, page 34)

9) On September 16, 1978 Virgilio Olaguer executed a
General Power of Attorney in favor of Jose A. Olaguer notarized by Otilio
Sy Bongon (Exhibit V) authorizing the latter to exercise general control
and supervision over all of his business and properties and among others,
to sell or mortgage the same.

Olivia P. Olaguer and Eduardo Olaguer were removed as
administrators of the estate and on February 12, 1980, plaintiff Ma. Linda
Olaguer Montayre was appointed administrator by the Probate Court.

Defendant Jose A. Olaguer died on January 24,
1985. (Exhibit NN) He was survived by his children, namely the
defendants Nimfa Olaguer Taguay, Corazon Olaguer Uy, Jose Olaguer, Jr.,
Virgilio Olaguer, Jacinto Olaguer, and Ramon Olaguer.

Defendant Olivia P. Olaguer died on August 21, 1997
(Exhibit OO) and was survived by all the plaintiffs as the only heirs.

The decedent Lino Olaguer have had three marriages. He
was first married to Margarita Ofemaria who died April 6, 1925. His
second wife was Gloria Buenaventura who died on July 2, 1937. The third
wife was the defendant Olivia P. Olaguer.

Lot No. 76 with an area of 2,363 square meters is in the
heart of the Poblacion of Guinobatan, Albay. The deceased Lino
Olaguer inherited this property from his parents. On it was erected
their ancestral home.

As already said above, Lot No. 76 was among the twelve
(12) lots sold for 25,000 Pesos, by administrators Olivia P. Olaguer
and Eduardo Olaguer to Pastor Bacani on December 12, 1962. The
sale was approved by the probate court on December 12, 1962.

But, the following day, December 13, 1962 Pastor Bacani
sold back the same 12 lots to Olivia P. Olaguer and Eduardo Olaguer for
25,200 Pesos, as follows:

a) Lot No. 76 was sold back
to Olivia P. Olaguer and Eduardo Olaguer
for 12,000 Pesos, in the proportion of [6/13]
and [7/13] respectively. (Exhibit B)

b) 4 of the 12 lots namely, Lots
4518, 4526, 4359, and 8750 were sold back to
Olivia Olaguer for 10,700 Pesos. (Exhibit
E)

c) 7 of the 12 lots namely, Lots
7514, 6608, 8582, 8157, 7999, 6167, and 8266
were sold back to Eduardo Olaguer for 2,500
Pesos. (Exhibit C)

d) Lot No. 76 was thus issued
TCT No. T-14654 on December 13, 1962 in
the names of Eduardo B. Olaguer married
to Daisy Pantig and Olivia P. Olaguer
married to Jose A. Olaguer to the extent of
7/13 and 6/13 pro-indiviso,
respectively. (Exhibit FF also 14-a)

e) It appears from Plan
(LRC) Psd-180629 (Exhibit 3) that
defendant Jose A. Olaguer caused the
subdivision survey of Lot 76 into eleven (11)
lots, namely, 76-A, 76-B, 76-C, 76-D, 76-E,
76-F, 76-G, 76-H, 76-I, 76-J, and 76-K,
sometime on April 3, 1972. The subdivision
survey was approved on October 5,
1973. After the approval of the subdivision
survey of Lot 76, a subdivision agreement
was entered into on November 17, 1973,
among Domingo Candelaria, Olivia P.
Olaguer, Domingo O. de la Torre and
Emiliano M. [Ongjoco]. (records, vol. 2,
page 109).

This subdivision agreement is annotated in TCT No.
14654 (Exhibit 14 14-d) as follows:

Owner Lot No.
Area in
sq. m.
TCT No. Vol. Page
Domingo Candelaria 76-A 300 T-36277 206 97
Olivia P. Olaguer 76-B 200 T-36278 98
- do - 76-C 171 T-36279 99
- do - 76-D 171 T-36280 100
- do - 76-E 171 T-36281 101
- do - 76-F 171 T-36282 102
- do - 76-G 202 T-36283 103
Domingo O. de la Torre 76-H 168 T-36284 104
- do - 76-I 168 T-36285 105
- do - 76-J 168 T-36286 106
Emiliano M. [Ongjoco] 76-K 473 T-36287 107


After Lot 76 was subdivided as aforesaid, Jose A.
Olaguer as attorney-in-fact of Olivia P. Olaguer, sold to his son
Virgilio Olaguer Lots 76-B, 76-C, 76-D, 76-E, 76-F, and 76-G on
January 9, 1974 for 3,000 Pesos. (Exhibit G) The deed of absolute
sale was notarized by Otilio Sy Bongon.

Lots 76-B and 76-C were consolidated and then
subdivided anew and designated as Lot No. 1 with an area of 186
square meters and Lot No. 2 with an area of 185 square meters of the
Consolidation Subdivision Plan (LRC) Pcs-20015. (Please sketch plan
marked as Exhibit 4, records, vol. 2, page 68)

On January 15, 1976, Jose A. Olaguer claiming to be the
attorney-in-fact of his son Virgilio Olaguer under a general power of
attorney Doc. No. 141, Page No. 100, Book No. 7, Series of 1972 of
Notary Public Otilio Sy Bongon, sold Lot No. 1 to defendant Emiliano
M. [Ongjoco] for 10,000 Pesos per the deed of absolute sale notarized
by Otilio Sy Bongon. (Exhibit H) The alleged general power of
attorney however was not presented or marked nor formally offered
in evidence.

On September 7, 1976, Jose A. Olaguer again claiming
to be the attorney-in-fact of Virgilio Olaguer under the same general
power of attorney referred to in the deed of absolute sale of Lot 1, sold
Lot No. 2 to Emiliano M. [Ongjoco] for 10,000 Pesos. (Exhibit I) The
deed of absolute sale was notarized by Otilio Sy Bongon.

On July 16, 1979, Jose A. Olaguer as attorney-in-fact of
Virgilio Olaguer under a general power of attorney Doc. No. 378, Page
No. 76, Book No. 14, Series of 1978 sold Lot No. 76-D to Emiliano M.
[Ongjoco] for 5,000 Pesos. The deed of absolute sale is Doc. No. 571,
Page No. 20, Book No. 16, Series of 1979 of Notary Public Otilio Sy
Bongon. (Exhibit K)

The same Lot No. 76-D was sold on October 22, 1979 by
Jose A. Olaguer as attorney-in-fact of Virgilio Olaguer under a
general power of attorney Doc. No. 378, Page No. 76, Book No. 14,
Series of 1978 of Notary Public Otilio Sy Bongon sold Lot No. 76-D to
Emiliano M. [Ongjoco] for 10,000 Pesos. The deed of absolute sale is
Doc. No. 478, Page No. 97, Book NO. XXII, Series of 1979 of Notary
Public Antonio A. Arcangel. (Exhibit J)

On July 3, 1979, Jose A. Olaguer as attorney-in-fact of
Virgilio Olaguer sold Lots 76-E and 76-F to Emiliano M. [Ongjoco]
for 15,000 Pesos. The deed of absolute sale is Doc. No. 526, Page No.
11, Book No. 16, Series of 1979 of Notary Public Otilio Sy
Bongon. (Exhibit M)

The same Lots 76-E and 76-F were sold on October 25,
1979, by Jose A. Olaguer as attorney-in-fact of Virgilio Olaguer under
the same general power of attorney of 1978 referred to above to
Emiliano M. [Ongjoco] for 30,000 Pesos. The deed of absolute sale is
Doc. No. 47, Page No. 11, Book No. XXIII, Series of 1972 of Notary
Public Antonio A. Arcangel. (Exhibit L)

On July 2, 1979 Jose A. Olaguer as attorney-in-fact of
Virgilio Olaguer sold Lot No. 76-G to Emiliano M. [Ongjoco] for
10,000 Pesos. The deed of sale is Doc. No. 516, Page No. 9, Book No.
16, Series of 1979 of Notary Public Otilio Sy Bongon. (Exhibit N)

The same Lot 76-G was sold on February 29, 1980 by
Jose A. Olaguer as attorney-in-fact of Virgilio Olaguer under the same
general power of attorney of 1978 referred to above to Emiliano M.
[Ongjoco] for 10,000 Pesos. The deed of absolute sale is Doc. No. l02,
Page No. 30, Book No. 17, Series of 1980 of Notary Public Otilio Sy
Bongon. (Exhibit O)[5] (Emphases ours.)


Thus, on 28 January 1980, the Estate of Lino Olaguer represented by the legitimate
children of the spouses Lino Olaguer and defendant Olivia P. Olaguer, namely, Sor Mary Edith Olaguer,
Aurora O. de Guzman, Clarissa O. Trinidad, Lina Olaguer and Ma. Linda O. Montayre, as attorney-in-fact
and in her own behalf, filed an action for the Annulment of Sales of Real Property and/or Cancellation of
Titles[6] in the then Court of First Instance of Albay.[7]

Docketed as Civil Case No. 6223, the action named as defendants the spouses Olivia P.
Olaguer and Jose A. Olaguer; Eduardo Olaguer; Virgilio Olaguer; Cipriano Duran; the Heirs of Estanislao
O. Olaguer, represented by Maria Juan Vda. de Olaguer; and the Philippine National Bank (PNB).

In the original complaint, the plaintiffs therein alleged that the sales of the following
properties belonging to the Estate of Lino Olaguer to Estanislao Olaguer were absolutely simulated or
fictitious, particularly: Lots Nos. 578, 1557, 1676, 4521, 4522, 8635, 8638, 7589, 7593, and 7396. In
praying that the sale be declared as null and void, the plaintiffs likewise prayed that the resulting Transfer
Certificates of Title issued to Jose Olaguer, Virgilio Olaguer, Cipriano Duran and the PNB be annulled.

Defendant PNB claimed in its Answer,[8] inter alia, that it was a mortgagee in good faith
and for value of Lots Nos. 7589, 7593 and 7396, which were mortgaged as security for a loan of
P10,000.00; the mortgage contract and other loan documents were signed by the spouses Estanislao and
Maria Olaguer as registered owners; the proceeds of the loan were received by the mortgagors themselves;
Linda Olaguer Montayre had no legal capacity to sue as attorney-in-fact; plaintiffs as well as Maria
Olaguer were in estoppel; and the action was already barred by prescription. PNB set up a compulsory
counterclaim for damages, costs of litigation and attorneys fees. It also filed a cross-claim against Maria
Olaguer for the payment of the value of the loan plus the agreed interests in the event that judgment would
be rendered against it.

Defendants Olivia P. Olaguer, Jose A. Olaguer and Virgilio Olaguer, in their Answer,[9]
denied the material allegations in the complaint. They maintained that the sales of the properties to Pastor
Bacani and Estanislao Olaguer were judicially approved; the complaint did not state a sufficient cause of
action; it was barred by laches and/or prescription; lis pendens existed; that the long possession of the
vendees have ripened into acquisitive prescription in their favor, and the properties no longer formed part
of the Estate of Lino Olaguer; until the liquidation of the conjugal properties of Lino Olaguer and his
former wives, the plaintiffs were not the proper parties in interest to sue in the action; and in order to
afford complete relief, the other conjugal properties of Lino Olaguer with his former wives, and his capital
property that had been conveyed without the approval of the testate court should also be included for
recovery in the instant case.

Defendant Maria Juan Vda. de Olaguer, representing the heirs of Estanislao Olaguer, in her
Answer,[10] likewise denied the material allegations of the complaint and insisted that the plaintiffs had
no valid cause of action against the heirs of the late Estanislao Olaguer, as the latter did not participate in
the alleged transfer of properties by Olivia P. Olaguer and Eduardo Olaguer in favor of the late Estanislao
Olaguer.

Defendant Cipriano Duran claimed, in his Answer,[11] that the complaint stated no cause
of action; he was merely instituted by his late sister-in-law Josefina Duran to take over the management of
Lots Nos. 8635 and 8638 in 1971; and the real party-in-interest in the case was the administrator of the
estate of Josefina Duran.

On 11 January 1995, an Amended Complaint[12] was filed in order to implead respondent
Emiliano M. Ongjoco as the transferee of Virgilio Olaguer with respect to portions of Lot No. 76, namely
Lots Nos. 1, 2, 76-D, 76-E, 76-F, and 76-G.

In his Answer with Counterclaim and Motion to Dismiss,[13] respondent Ongjoco denied
the material allegations of the amended complaint and interposed, as affirmative defenses the statute of
limitations, that he was a buyer in good faith, that plaintiffs had no cause of action against him, and that
the sale of property to Pastor Bacani, from whom Ongjoco derived his title, was judicially approved.

On 23 January 1996, plaintiffs filed a Re-Amended Complaint,[14] in which the heirs of
Estanislao Olaguer were identified, namely, Maria Juan Vda. de Olaguer, Peter Olaguer, Yolanda Olaguer
and Antonio Bong Olaguer.

In their Answer,[15] the heirs of Estanislao Olaguer reiterated their claim that Estanislao
Olaguer never had any transactions or dealings with the Estate of Lino Olaguer; nor did they mortgage any
property to the PNB.

On 5 August 1998, the heirs of Estanislao Olaguer and petitioner Ma. Linda Olaguer
Montayre submitted a compromise agreement,[16] which was approved by the trial court.

On 6 October 1999, Cipriano Duran filed a Manifestation[17] in which he waived any
claim on Lots Nos. 8635 and 8638. Upon motion, Duran was ordered dropped from the complaint by the
trial court in an order[18] dated 20 October 1999.

In a Decision[19] dated 13 July 2001, the RTC ruled in favor of the plaintiffs. The
pertinent portions of the decision provide:

The entirety of the evidence adduced clearly show that the
sale of the 12 lots to Pastor Bacani pursuant to Exhibit A and the sale of
the 10 lots to Estanislao Olaguer pursuant to Exhibit D were absolutely
simulated sales and thus void ab initio. The two deeds of sales Exhibits
A and D are even worse than fictitious, they are completely null and
void for lack of consideration and the parties therein never intended to be
bound by the terms thereof and the action or defense for the declaration of
their inexistence does not prescribe. (Art. 1410, Civil Code) Aside from
being simulated they were clearly and unequivocally intended to deprive
the compulsory heirs of their legitime x x x.

The deeds of sale, Exhibits A and D being void ab
initio, they are deemed as non-existent and the approval thereof by the
probate court becomes immaterial and of no consequence, because the
approval by the probate court did not change the character of the sale from
void to valid x x x.

x x x x

Defendant Jose A. Olaguer simulated the sales and had
them approved by the probate court so that these properties would appear
then to cease being a part of the estate and the vendee may then be at
liberty to dispose of the same in any manner he may want. They probably
believed that by making it appear that the properties were bought back
from Pastor Bacani under a simulated sale, they (Olivia Olaguer and
Eduardo Olaguer) would appear then as the owners of the properties
already in their personal capacities that disposals thereof will no longer
require court intervention. x x x.

x x x x

[Jose A. Olaguer] had Olivia P. Olaguer execute a
Special Power of Attorney (Exhibit T) authorizing him (Jose A.
Olaguer) to sell or encumber the properties allegedly bought back
from Pastor Bacani which Jose A. Olaguer did with respect to the 6/13
share of Olivia P. Olaguer on Lot No. 76 by selling it to his son Virgilio
for only 3,000 Pesos, then caused Virgilio to execute a power of
attorney authorizing him to sell or encumber the 6/13 share which he
did by selling the same to defendant Emiliano M. [Ongjoco].

Virgilio Olaguer however executed an affidavit (Exhibit
CC) wherein he denied having bought any property from the estate of
Lino Olaguer and that if there are documents showing that fact he does not
know how it came about. x x x.

The 1972 power of attorney referred to by Jose A.
Olaguer as his authority for the sale of Lots 1 and 2 (formerly lots 76-
B and 76-C) was not presented nor offered in evidence.

There are two deeds of sale over Lot 76-D, (Exhibits
K and J) in favor of defendant Emiliano M. [Ongjoco] with
different dates of execution, different amount of consideration,
different Notary Public.

There are two deeds of sale over Lots 76-E and 76-F
(Exhibits M and L) in favor of defendant Emiliano M. [Ongjoco]
with different dates of execution, different amount of consideration
and different Notary Public.

There are two deeds of sale over Lot 76-G (Exhibits N
and O) in favor of Emiliano M. [Ongjoco] with different dates of
execution with the same amount of consideration and the same Notary
Public.

While Lot 76-D was allegedly sold already to Emiliano
M. [Ongjoco] in 1979, yet it was still Jose A. Olaguer who filed a
petition for the issuance of a second owners copy as attorney in fact of
Virgilio Olaguer on August 8, 1980 (Exhibit SS) and no mention was
made about the sale.

Under these circumstances, the documents of defendant
Emiliano M. [Ongjoco] on lots 76 therefore, in so far as the portions he
allegedly bought from Jose A. Olaguer as attorney in fact of Virgilio
Olaguer suffers seriously from infirmities and appear dubious.

Defendant Emiliano M. [Ongjoco] cannot claim good
faith because according to him, when these lots 76-[B] to 76-G were
offered to him his condition was to transfer the title in his name and
then he pays. He did not bother to verify the title of his vendor. x x x.

So with respect to the sale of Lots 76-B to 76-G,
Emiliano M. [Ongjoco] has no protection as innocent purchaser for
good faith affords protection only to purchasers for value from the
registered owners. x x x. Knowing that he was dealing only with an
agent x x x, it behooves upon defendant Emiliano M. [Ongjoco] to find
out the extent of the authority of Jose A. Olaguer as well as the title of
the owner of the property, because as early as 1973 pursuant to the
subdivision agreement, (records, vol. 2, page 109 and Exhibit 14 and
14-d) he already knew fully well that Lots 76-B to 76-G he was
buying was owned by Olivia P. Olaguer and not by Virgilio Olaguer.

x x x x

With respect to the 10 lots sold to [Eduardo] Olaguer
(Exhibit D) Jose A. Olaguer had Estanislao Olaguer execute a power of
attorney (Exhibit X) authorizing him (Jose A. Olaguer) to sell or
encumber the 10 lots allegedly bought by Estanislao from the estate. With
this power of attorney, he mortgaged lots 7589, 7593 and 7398 to the
PNB. He sold lots 1557 and 1676 to his son Virgilio Olaguer. While
under Exhibit UU dated December 29, 1966, he bought the 10 parcels of
land, among which is lots 4521 and 4522 from Estanislao Olaguer, yet, on
March 16, 1968, he again bought lots 4521 and 4522 (records, vol. 1, page
38) from Estanislao Olaguer. While lots 8635 and 8638 were among those
sold to him under Exhibit UU, it appears that he again bought the same
on June 5, 1968 under Exhibit F.

The heirs of Estanislao Olaguer however denied having
bought any parcel of land from the estate of Lino Olaguer. Estanislao
Olaguers widow, Maria Juan vda. de Olaguer, executed an affidavit
(Exhibit BB) that they did not buy any property from the estate of Lino
Olaguer, they did not sell any property of the estate and that they did not
mortgage any property with the PNB. She repeated this in her
deposition. (records, vol. 2, page 51) This was corroborated by no less
than former co-administrator Eduardo Olaguer in his deposition too
(Exhibit RRRR) that the sale of the 10 parcels of land to Estanislao
Olaguer was but a simulated sale without any consideration. x x x.

x x x x

A partial decision was already rendered by this court in its
order of August 5, 1998 (records, vol. 2, page 64) approving the
compromise agreement with defendants Heirs of Estanislao Olaguer.
(records, vol. 2 page 57).

Defendant Cipriano Duran was dropped from the complaint
per the order of the court dated October 20, 1999 (records, vol. 2, page
155) because he waived any right or claim over lots 8635 and 8638.
(records, vol. 2, page 150). (Emphasis ours.)


The dispositive portion of the above decision was, however, amended by the trial court in
an Order[20] dated 23 July 2001 to read as follows:

WHEREFORE, premises considered, decision is hereby
rendered in favor of the plaintiffs as follows:

1) The deed of sale to Pastor Bacani (Exhibit A) and the
deed of sale to Estanislao Olaguer (Exhibit D) are hereby declared as null
and void and without force and effect and all the subsequent transfers and
certificates arising therefrom likewise declared null and void and cancelled
as without force and effect, except as herein provided for.

2) Lot Nos. 4518, 4526, 4359 and 8750 are hereby ordered
reverted back to the estate of Lino Olaguer and for this purpose, within
ten (10) days from the finality of this decision, the heirs of Olivia P.
Olaguer (the plaintiffs herein) [sic] are hereby ordered to execute the
necessary document of reconveyance, failure for which, the Clerk of
Court is hereby ordered to execute the said deed of reconveyance.

3) Lot Nos. 7514, 6608, 8582, 8157, 7999, 6167 and 8266
are hereby ordered reverted back to the estate of Lino Olaguer and for
this purpose, within ten (10) days from the finality of this decision,
defendant Eduardo Olaguer is hereby ordered to execute the necessary
document of reconveyance, failure for which, the Clerk of Court is
hereby ordered to execute the said deed of reconveyance.

4) Lots 1 and 2, Pcs-20015, and Lots 76-D, 76-E, 76-F and
76-G, Psd-180629 sold to Emiliano M. [Ongjoco] are hereby ordered
reverted back to the estate of Lino Olaguer. For this purpose, within ten
(10) days from the finality of this decision, defendant Emiliano M.
[Ongjoco] is hereby ordered to execute the necessary deed of reconveyance,
otherwise, the Clerk of Court shall be ordered to execute the said
reconveyance and have the same registered with the Register of Deeds so
that new titles shall be issued in the name of the estate of Lino Olaguer and
the titles of Emiliano [Ongjoco] cancelled.

5) The parties have acquiesced to the sale of the 7/13 portion
of Lot 76 to Eduardo Olaguer as well as to the latters disposition thereof
and are now in estoppel to question the same. The court will leave the
parties where they are with respect to the 7/13 share of Lot 76.

6) Lots 578, 1557, 1676, 4521, 4522, 8635, 8638, are hereby
reverted back to the estate of Lino Olaguer and for this purpose, the Clerk of
[Court] is hereby ordered to execute the necessary deed of reconveyance
within ten days from the finality of this decision and cause its registration
for the issuance of new titles in the name of the Estate of Lino Olaguer and
the cancellation of existing ones over the same.

7) While the mortgage with the defendant PNB is null and
void, Lots 7589, 7593 and 7396 shall remain with the Republic of the
Philippines as a transferee in good faith.


Both the petitioners and respondent filed their respective Notices of Appeal[21] from the
above decision. The case was docketed in the Court of Appeals as CA-G.R. CV No. 71710.

In their Plaintiff-Appellants Brief[22] filed before the Court of Appeals, petitioner Estate
argued that the trial court erred in not ordering the restitution and/or compensation to them of the value of
the parcels of land that were mortgaged to PNB, notwithstanding the fact that the mortgage was declared
null and void. Petitioners maintain that the PNB benefited from a void transaction and should thus be
made liable for the value of the land, minus the cost of the mortgage and the reasonable expenses for the
foreclosure, consolidation and transfer of the lots.

Ongjoco, on the other hand, argued in his Defendant-Appellants Brief[23] that the trial
court erred in: declaring as null and void the Deeds of Sale in favor of Pastor Bacani and Eduardo Olaguer
and the subsequent transfers and certificates arising therefrom; ordering the reconveyance of the lots sold
to him (Ongjoco); and failing to resolve the affirmative defenses of prescription, the authority of Olivia
and Eduardo to dispose of properties formerly belonging to the estate of Lino Olaguer, recourse in a court
of co-equal jurisdiction, and forum shopping.

Petitioner Linda O. Montayre was likewise allowed to file a Brief[24] on her own behalf, as
Plaintiff-Appellee and Plaintiff-Appellant.[25] She refuted therein the assignment of errors made by
Defendant-Appellant Ongjoco and assigned as error the ruling of the trial court that the lots mortgaged to
the PNB should remain with the Republic of the Philippines as a transferee in good faith.

On 27 February 2006, the Court of Appeals rendered the assailed Decision, the dispositive
portion of which reads:

WHEREFORE, premises considered, the appealed Decision
is hereby MODIFIED, in that Paragraph 4 of the amended decision is
hereby Ordered Deleted, and the questioned sales to defendant-appellant
Emiliano M. Ongjoco are UPHELD.[26]


In denying the appeal interposed by petitioners, the appellate court reasoned that the claim
for the value of the lots mortgaged with the PNB were not prayed for in the original Complaint, the
Amended Complaint or even in the Re-Amended Complaint. What was sought therein was merely the
declaration of the nullity of the mortgage contract with PNB. As the relief prayed for in the appeal was
not contained in the complaint, the same was thus barred.

The Court of Appeals also ruled that the evidence of petitioners failed to rebut the
presumption that PNB was a mortgagee in good faith. Contrarily, what was proven was the fact that
Olivia Olaguer and Jose A. Olaguer were the persons responsible for the fraudulent transactions involving
the questioned properties. Thus, the claim for restitution of the value of the mortgaged properties should
be made against them.

As regards the appeal of respondent Ongjoco, the appellate court found the same to be
meritorious. The said court ruled that when the sale of real property is made through an agent, the buyer
need not investigate the principals title. What the law merely requires for the validity of the sale is that
the agents authority be in writing.

Furthermore, the evidence adduced by petitioners was ruled to be inadequate to support the
conclusion that Ongjoco knew of facts indicative of the defect in the title of Olivia Olaguer or Virgilio
Olaguer.

Petitioners moved for a partial reconsideration[27] of the Court of Appeals decision in
order to question the ruling that respondent Ongjoco was a buyer in good faith. The motion was, however,
denied in a Resolution[28] dated 29 June 2006.

Aggrieved, petitioners filed the instant Petition for Review on Certiorari under Rule 45 of
the Revised Rules of Court, raising the following assignment of errors:

I.

THE COURT OF APPEALS COMMITTED AN ERROR IN LAW
WHEN IT RULED, ON SPECULATION, THAT RESPONDENT
EMILIANO M. ONGJOCO WAS A BUYER IN GOOD FAITH OF THE
PROPERTIES OF THE ESTATE OF LINO OLAGUER, DESPITE THE
EXISTENCE OF FACTS AND CIRCUMSTANCES FOUND BY THE
TRIAL COURT THAT OUGHT TO PUT EMILIANO M. ONGJOCO
ON NOTICE THAT THE PETITIONERS-APPELLANTS HAVE A
RIGHT OR INTEREST OVER THE SAID PROPERTIES, AND
CONTRARY TO PREVAILING JURISPRUDENCE.

II.

THE COURT OF APPEALS COMMITTED AN ERROR IN LAW
WHEN IT DISREGARDED THE CLEAR FINDINGS OF FACTS AND
CONCLUSIONS MADE BY THE TRIAL COURT, IN THE ABSENCE
OF ANY STRONG AND COGENT REASONS TO REVERSE THE
SAID FINDINGS, CONTRARY TO PREVAILING
JURISPRUDENCE.[29]


Essentially, the question that has been brought before us for consideration is whether or not, under
the facts and circumstances of this case, respondent Ongjoco can be considered an innocent purchaser for
value.

Petitioners agree with the pronouncement of the trial court that respondent Ongjoco could not have
been a buyer in good faith since he did not bother to verify the title and the capacity of his vendor to
convey the properties involved to him. Knowing that Olivia P. Olaguer owned the properties in 1973 and
that he merely dealt with Jose A. Olaguer as an agent in January 1976, Ongjoco should have ascertained
the extent of Joses authority, as well as the title of Virgilio as the principal and owner of the properties.

Petitioners likewise cite the following incidents that were considered by the trial court in
declaring that respondent was a buyer in bad faith, namely: (1) that Virgilio Olaguer executed an
affidavit,[30] wherein he denied having bought any property from the estate of Lino Olaguer, and that if
there are documents showing that fact, he does not know how they came about; (2) that the power of
attorney referred to by Jose A. Olaguer as his authority for the sale of Lots 1 and 2 (formerly Lots 76-B
and 76-C) was not presented or offered in evidence; (3) that there are two deeds of sale[31] over Lot 76-D
in favor of Ongjoco; (4) that there are two deeds of sale[32] over Lots 76-E and 76-F in favor of Ongjoco;
(5) that there are two deeds of sale[33] over Lot 76-G in favor of Ongjoco; and (6) that while Lot 76-D
was already sold to Ongjoco in 1979, it was still Jose A. Olaguer as attorney in fact of Virgilio Olaguer
who filed on 8 August 1980 a petition for the issuance of a second owners copy[34] of the title to the
property, and no mention was made about the sale to Ongjoco.

Respondent Ongjoco, on the other hand, invokes the ruling of the Court of Appeals that he was an
innocent purchaser for value. His adamant stance is that, when he acquired the subject properties, the
same were already owned by Virgilio Olaguer. Respondent insists that Jose A. Olaguer was duly
authorized by a written power of attorney when the properties were sold to him (Ongjoco). He posits that
this fact alone validated the sales of the properties and foreclosed the need for any inquiry beyond the title
to the principal. All the law requires, respondent concludes, is that the agents authority be in writing in
order for the agents transactions to be considered valid.

Respondent Ongjocos posture is only partly correct.

According to the provisions of Article 1874[35] of the Civil Code on Agency, when the sale of a
piece of land or any interest therein is made through an agent, the authority of the latter shall be in
writing. Absent this requirement, the sale shall be void. Also, under Article 1878,[36] a special power of
attorney is necessary in order for an agent to enter into a contract by which the ownership of an
immovable property is transmitted or acquired, either gratuitously or for a valuable consideration.

We note that the resolution of this case, therefore, hinges on the existence of the written power of
attorney upon which respondent Ongjoco bases his good faith.

When Lots Nos. 1 and 2 were sold to respondent Ongjoco through Jose A. Olaguer, the Transfer
Certificates of Title of said properties were in Virgilios name.[37] Unfortunately for respondent, the
power of attorney that was purportedly issued by Virgilio in favor of Jose Olaguer with respect to the sale
of Lots Nos. 1 and 2 was never presented to the trial court. Neither was respondent able to explain the
omission. Other than the self-serving statement of respondent, no evidence was offered at all to prove the
alleged written power of attorney. This of course was fatal to his case.

As it stands, there is no written power of attorney to speak of. The trial court was thus correct in
disregarding the claim of its existence. Accordingly, respondent Ongjocos claim of good faith in the sale
of Lots Nos. 1 and 2 has no leg to stand on.

As regards Lots Nos. 76-D, 76-E, 76-F and 76-G, Ongjoco was able to present a general power of
attorney that was executed by Virgilio Olaguer. While the law requires a special power of attorney, the
general power of attorney was sufficient in this case, as Jose A. Olaguer was expressly empowered to sell
any of Virgilios properties; and to sign, execute, acknowledge and deliver any agreement
therefor.[38] Even if a document is designated as a general power of attorney, the requirement of a special
power of attorney is met if there is a clear mandate from the principal specifically authorizing the
performance of the act.[39] The special power of attorney can be included in the general power when the
act or transaction for which the special power is required is specified therein.[40]

On its face, the written power of attorney contained the signature of Virgilio Olaguer and
was duly notarized. As such, the same is considered a public document and it has in its favor the
presumption of authenticity and due execution, which can only be contradicted by clear and convincing
evidence.[41]

No evidence was presented to overcome the presumption in favor of the duly notarized
power of attorney. Neither was there a showing of any circumstance involving the said document that
would arouse the suspicion of respondent and spur him to inquire beyond its four corners, in the exercise
of that reasonable degree of prudence required of a man in a similar situation. We therefore rule that
respondent Ongjoco had every right to rely on the power of attorney in entering into the contracts of sale
of Lots Nos. 76-D to 76-G with Jose A. Olaguer.

With respect to the affidavit of Virgilio Olaguer in which he allegedly disavowed any claim
or participation in the purchase of any of the properties of the deceased Lino Olaguer, we hold that the
same is rather irrelevant. The affidavit was executed only on 1 August 1986 or six years after the last sale
of the properties was entered into in 1980. In the determination of whether or not a buyer is in good faith,
the point in time to be considered is the moment when the parties actually entered into the contract of
sale.

Furthermore, the fact that Lots Nos. 76-D to 76-G were sold to respondent Ongjoco twice
does not warrant the conclusion that he was a buyer in bad faith. While the said incidents might point to
other obscured motives and arrangements of the parties, the same do not indicate that respondent knew of
any defect in the title of the owner of the property.

As to the petition filed by Jose A. Olaguer for the issuance of a second owners copy of the
title to Lot No. 76-D, after the property was already sold to respondent Ongjoco, the same does not
inevitably indicate that respondent was in bad faith. It is more likely that Jose A. Olaguer was merely
compiling the documents necessary for the transfer of the subject property. Indeed, it is to be expected
that if the title to the property is lost before the same is transferred to the name of the purchaser, it would
be the responsibility of the vendor to cause its reconstitution.

In sum, we hold that respondent Emiliano M. Ongjoco was in bad faith when he bought
Lots Nos. 1 and 2 from Jose A. Olaguer, as the latter was not proven to be duly authorized to sell the said
properties.

However, respondent Ongjoco was an innocent purchaser for value with regard to Lots
Nos. 76-D, 76-E, 76-F and 76-G since it was entirely proper for him to rely on the duly notarized written
power of attorney executed in favor of Jose A. Olaguer.

WHEREFORE, premises considered, the instant petition is hereby PARTIALLY
GRANTED. The assailed Decision of the Court of Appeals dated 27 February 2006 in CA-G.R. CV NO.
71710 is MODIFIED in that Paragraph 4 of the Decision dated 13 July 2001 of the Regional Trial Court
of Legazpi City, Branch 6, and the Order dated 23 July 2001 shall read as follows:

4) Lots 1 and 2, Pcs-20015 sold to Emiliano M. Ongjoco are
hereby ordered reverted back to the estate of Lino Olaguer. For this
purpose, within ten (10) days from the finality of this decision, defendant
Emiliano M. Ongjoco is hereby ordered to execute the necessary deed of
reconveyance, otherwise, the Clerk of Court shall be ordered to execute the
said reconveyance and have the same registered with the Register of Deeds
so that new titles shall be issued in the name of the estate of Lino Olaguer
and the titles of Emiliano Ongjoco cancelled.


No costs.

SO ORDERED.
FIRST DIVISION
[G.R. No. 154409. June 21, 2004]
Spouses NOEL and JULIE ABRIGO, petitioners, vs. ROMANA DE VERA, respondent.
D E C I S I O N
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 Review[1] under Rule 45 of the Rules of Court, seeking to set
aside the March 21, 2002 Amended Decision[2] and the July 22, 2002 Resolution[3] 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 DECISION 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:
As to [Respondent] Romana de Vera:
1. P300,000.00 plus 6% per annum as actual damages;
2. P50,000.00 as moral damages;
3. P50,000.00 as exemplary damages;
4. P30,000.00 as attorneys fees; and
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 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 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 1529[14] 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 Cave-Go) 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
system[18] 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 Magali[23] 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. Palileo[25] 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 Appeals[26] 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 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).
x x x x x x x x x
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, 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.
Republic of the Philippines SUPREME COURT Manila
EN BANC
G.R. No. L-18497 May 31, 1965
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.
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 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.
Republic of the Philippines SUPREME COURT Manila
EN BANC

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 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 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.
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.
D E C I S I O N
CARPIO MORALES, J .:
Before this Court is a Petition for Review on Certiorari of the February 15, 2001
Decision[1] 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 document[3] 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.
Subsequently, he executed on April 19, 1990 a deed[7] conveying the same property[8]
in favor of Leonardo.
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 agreement[10] he had previously executed with
previous lessee, Maria Luisa Montenegro[11]) wherein he leased for 3 years the property to
Leonardo at P1,000.00 per hectare[12] and which was witnessed by two women employees of
one Judge Villegas of Bais City.
Villaner thus filed on October 11, 1993 a complaint[13] 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]
x x x
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?
A: Employees of Judge Villegas of Bais City.
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 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]
x x x
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]
x x x
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)
x x x
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)
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]
x x x
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]
x x x
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]
x x x
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]
x x x
Q: After Villaner Acabal signed the document, what did Villaner Acabal do?
A: He was given the payment by Leonardo Acabal.[25]
x x x
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 amended[27] 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 defendants-herein
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 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
allegations[32] 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.
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 deed[39] 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[50] 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:
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;
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 6-hectare
property adjoining that of the subject property for only P1,600.00[54] 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 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.
x x x
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.
x x x
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.
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 Code[73] 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. Paulino[76] and Mendoza v. Reyes[77] 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
heirs[81] 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 nine-eighteenths (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 co-owners, 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 co-owned 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 potest[87] the disposition affects only Villaners 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 co-owners 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-owner-seller 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. Leis[91] 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:
x x x
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 five-ninths (5/9) of the subject property is
concerned.
No pronouncement as to costs.
SO ORDERED.