DOUBLE SALE CASES ( CC 1544 ) :

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.

DECISION

TINGA, J p:
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 father's death on 7 June 1970. ISCHET
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. T149375 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). 20These 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 T149382; the foreclosure sale of Lot Nos. 7036-A-7-A to 7036-A-7-D; the
mortgage to RBC; and the sale to Calixto, the Heirs-now respondents
herein-represented by Edronel dela Cruz, filed a case 24 for
reconveyance and damages of 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-7B, 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; SIcCTD
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-A7? jur2005cda
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. . . .
" (Emphasis 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 Appellant's 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 RTC's 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 T149382, inclusive; aTDcAH

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
property's attractive location it was situated along the National
Highway and was across a gasoline station should have put Marquez
on inquiry as to its status. Instead, Marquez closed his eyes to these
matters and failed to exercise the ordinary care expected of a buyer of
real estate. 37

Anent the mortgagees RBC and CRB, the Court of Appeals found that
they merely relied on the certificates of title of the mortgaged

properties. They did not ascertain the status and condition thereof
according to standard banking practice. For failure to observe the
ordinary banking procedure, the Court of Appeals considered them to
have acted in bad faith and on that basis declared null and void the
mortgages made by Marquez in their favor. 38
Dissatisfied, CRB filed a Motion for 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 CRB's 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. EHTIcD
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 Marquez's 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. cAaTED
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
theright 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 circumstance
constitutes one of the assumptions upon which the article
is based.
This construction is not repugnant to the text of Article
1473, and not only is it not contrary to it, but it explains
and justifies the same. (Vol. 10, 4th ed., p. 159) 47
In that case, the property was transferred to the first purchaser in 1908
by its original owner, Juan Millante. Thereafter, it was sold to plaintiff
Carpio in June 1929. Both conveyances were unregistered. On the

same date that the property was sold to the plaintiff, Juan Millante sold
the same to defendant Exevea. This time, the sale was registered in
the Registry of Deeds. But despite the fact of registration in
defendant's 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 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. 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 aDcHIS

(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 buyer's 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 vendor's 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 lawyer's
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
xxx xxx xxx
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 vendor's 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

vendor's 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 occupant's 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 vendor's or mortgagor's 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. CDTSEI
In this connection, Marquez's obstention of title to the property and the
subsequent transfer thereof to CRB cannot help the latter's cause. In a
situation where a party has actual knowledge of the claimant's 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 time
eighteen (18) years in fact before 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
Cruz's 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. CDTHSI
Moreover, as this Court declared in the case of Heirs of Simplicio
Santiago v. Heirs of Mariano E. Santiago, 70 tax declarations "are

good indicia of possession in the concept of an owner, for no one in his

right mind would be paying taxes for a property that is not in his actual
or constructive possession." 71
WHEREFORE, the Petition is DENIED. The dispositive portion of the
Court of Appeals' Decision, as modified by its Resolution dated 5
January 1998, is AFFIRMED. Costs against petitioner.
SO ORDERED.
Puno, Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.
||| (Consolidated Rural Bank (Cagayan Valley) Inc. v. Court of Appeals,
G.R. No. 132161, [January 17, 2005], 489 PHIL 320-339)

CRB vs. CA and HEIRS OF DELA CRUZ

NOVEMBER 11, 2010 ~ VBDIAZ
CRB vs. CA and HEIRS OF DELA CRUZ
G.R. No. 132161
January 17, 2005
FACTS: The Madrid brothers were the registered owners of Lot A
situated in Isabela.
Said lot was subdivided into several lots. Rizal Madrid sold part of his
share identified lot A-7 to Gamiao and Dayag by virtue of a Deed of
Sale, to which his brothers offered no objection as evidenced by
their Joint Affidavit .The deed of sale was not registered with the ORD
of Isabela. However, Gamiao and Dayag declared the property in their
names on a Tax Declaration.
Gamiao and Dayag sold the subject southern half of lot to Teodoro dela
Cruz, and the northern half to Hernandez. Thereupon, Teodoro dela
Cruz and Hernandez took possession of and cultivated the portions of

the property respectively sold to them (Later Restituto Hernandez

donated the northern half to his daughter. The children of Teodoro dela
Cruz continued possession of the southern half after their fathers
death.)
In a Deed of Sale the Madrid brothers conveyed all their rights and
interests over lot A-7 to Marquez which the former confirmed . The deed
of sale was registered with the ORD of Isabela.
Subsequently, Marquez subdivided lot A-7 into eight (8) lots. On the
same date, Marquez and his spouse, Mercedita Mariana, mortgaged 4
lots to the Consolidated Rural Bank, Inc. of Cagayan Valley (hereafter,
CRB) to secure a loan. These deeds of real estate mortgage were
registered with the ORD.
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.
The Heirs-now respondents filed a case for reconveyance and damages
for the southern portion of Lot No. 7036-A (hereafter, the subject
property) against Marquez and CRB.
The RTC handed down a decision in favor of Marquez. The Heirs
interposed an appeal with the CA, which upheld the claim of the Heirs.
Hence, the instant CRB petition.
ISSUE: WON Art. 1544 of the Civil Code (double sale) applicable in this
case

HELD: NO.

The petition is denied, and the decision as modified is affirmed. 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. 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. 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.

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. 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.
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,
should apply. 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. 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.
NOTES:

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.
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.
SECOND DIVISION
[G.R. No. 123547. May 21, 2001.]
REV. FR. DANTE MARTINEZ, petitioner, vs.
HONORABLE COURT OF APPEALS, HONORABLE
JUDGE JOHNSON BALLUTAY, PRESIDING JUDGE,
BRANCH 25, REGIONAL TRIAL COURT OF
CABANATUAN CITY, HONORABLE JUDGE ADRIANO
TUAZON, JR., PRESIDING JUDGE, BRANCH 28,
REGIONAL TRIAL COURT OF CABANATUAN CITY,
SPOUSES REYNALDO VENERACION and SUSAN
VENERACION, SPOUSES MAXIMO HIPOLITO and
MANUELA DE LA PAZ and GODOFREDO DE LA
PAZ, respondents.

DECISION

MENDOZA, J p:
This is a petition for review on certiorari of the decision, dated
September 7, 1995, and resolution, dated January 31, 1996, of the
Court of Appeals, which affirmed the decisions of the Regional Trial
Court, Branches 25 1 and 28, 2 Cabanatuan City, finding private
respondents spouses Reynaldo and Susan Veneracion owners of the
land in dispute, subject to petitioner's rights as a builder in good
faith. CHcESa
The facts are as follows:
Sometime in February 1981, private respondents Godofredo De la Paz
and his sister Manuela De la Paz, married to Maximo Hipolito, entered
into an oral contract with petitioner Rev. Fr. Dante Martinez, then
Assistant parish priest of Cabanatuan City, for the sale of Lot No. 1337A-3 at the Villa Fe Subdivision in Cabanatuan City for the sum of
P15,000.00. The lot is located along Maharlika Road near the Municipal
Hall of Cabanatuan City. At the time of the sale, the lot was still
registered in the name of Claudia De la Paz, mother of private
respondents, although the latter had already sold it to private
respondent Manuela de la Paz by virtue of a Deed of Absolute Sale
dated May 26, 1976 (Exh. N/Exh. 2-Veneracion). 3 Private respondent
Manuela subsequently registered the sale in her name on October 22,
1981 and was issued TCT No. T-40496 (Exh. 9). 4 When the land was
offered for sale to petitioner, private respondents De la Paz were
accompanied by their mother, since petitioner dealt with the De la
Pazes as a family and not individually. He was assured by them that the
lot belonged to Manuela De la Paz. It was agreed that petitioner would
give a downpayment of P3,000.00 to private respondents De la Paz and
that the balance would be payable by installment. After giving the
P3,000.00 downpayment, petitioner started the construction of a house
on the lot after securing a building permit from the City Engineer's
Office on April 23, 1981, with the written consent of the then registered

owner, Claudia de la Paz (Exh. B/Exh, 1). 5 Petitioner likewise began

paying the real estate taxes on said property (Exh. D, D-1, D2). 6 Construction on the house was completed on October 6, 1981
(Exh. V). 7 Since then, petitioner and his family have maintained their
residence there. 8
On January 31, 1983, petitioner completed payment of the lot for which
private respondents De la Paz executed two documents. The first
document (Exh. A) read:
1-31-83
Ang halaga ng Lupa sa Villa Fe Subdivision na ipinagbili
kay Fr. Dante Martinez ay P 15,000.00 na pinangangako
namin na ibibigay ang Deed of Sale sa ika-25 ng Febrero
1983.
[SGD.] METRING HIPOLITO
[SGD.] JOSE GODOFREDO DE LA
PAZ 9
The second writing (Exh. O) read:
Cabanatuan City
March 19, 1986
TO WHOM IT MAY CONCERN:
This is to certify that Freddie dela Paz has agreed to sign
tomorrow (March 20) the affidavit of sale of lot located at
Villa Fe Subdivision sold to Fr. Dante Martinez.
[Sgd.] Freddie dela
Paz

FREDDIE DELA
PAZ 10
However, private respondents De la Paz never delivered the Deed of
Sale they promised to petitioner.
In the meantime, in a Deed of Absolute Sale with Right to Repurchase
dated October 28, 1981 (Exh. 10), 11 private respondents De la Paz
sold three lots with right to repurchase the same within one year to
private respondents spouses Reynaldo and Susan Veneracion for the
sum of P150,000.00. One of the lots sold was the lot previously sold to
petitioner. 12
Reynaldo Veneracion had been a resident of Cabanatuan City since
birth. He used to pass along Maharlika Highway in going to the
Municipal Hall or in going to and from Manila. Two of the lots subject of
the sale were located along Maharlika Highway, one of which was the
lot sold earlier by the De la Pazes to petitioner. The third lot
(hereinafter referred to as the Melencio lot) was occupied by private
respondents De la Paz. Private respondents Veneracion never took
actual possession of any of these lots during the period of redemption,
but all titles to the lots were given to him. 13
Before the expiration of the one year period, private respondent
Godofredo De la Paz informed private respondent Reynaldo Veneracion
that he was selling the three lots to another person for P200,000.00.
Indeed, private respondent Veneracion received a call from a Mr.
Tecson verifying if he had the titles to the properties, as private
respondents De la Paz were offering to sell the two lots along Maharlika
Highway to him (Mr. Tecson) for P180,000.00 The offer included the lot
purchased by petitioner in February, 1981. Private respondent
Veneracion offered to purchase the same two lots from the De la Pazes
for the same amount. The offer was accepted by private respondents
De la Paz. Accordingly, on June 2, 1983, a Deed of Absolute Sale was

executed over the two lots (Exh. I/Exh. 5-Veneracion). 14 Sometime in

January, 1984, private respondent Reynaldo Veneracion asked a certain
Renato Reyes, petitioner's neighbor, who the owner of the building
erected on the subject lot was. Reyes told him that it was Feliza
Martinez, petitioner's mother, who was in possession of the property.
Reynaldo Veneracion told private respondent Godofredo about the
matter and was assured that Godofredo would talk to Feliza. Based on
that assurance, private respondents Veneracion registered the lots with
the Register of Deeds of Cabanatuan on March 5, 1984. The lot in
dispute was registered under TCT No. T-44612 (Exh. L/Exh. 4Veneracion). 15
Petitioner discovered that the lot he was occupying with his family had
been sold to the spouses Veneracion after receiving a letter (Exh.
P/Exh. 6-Veneracion) from private respondent Reynaldo Veneracion on
March 19, 1986, claiming ownership of the land and demanding that
they vacate the property and remove their improvements
thereon. 16 Petitioner, in turn, demanded through counsel the
execution of the deed of sale from private respondents De la Paz and
informed Reynaldo Veneracion that he was the owner of the property
as he had previously purchased the same from private respondents De
la Paz. 17
The matter was then referred to the Katarungang Pambarangay of San
Juan, Cabanatuan City for conciliation, but the parties failed to reach
an agreement (Exh. M/Exh. 13). 18 As a consequence, on May 12,
1986, private respondent Reynaldo Veneracion brought an action for
ejectment in the Municipal Trial Court, Branch III, Cabanatuan City
against petitioner and his mother (Exh. 14). 19
On the other hand, on June 10, 1986, petitioner caused a notice of lis
pendens to be recorded on TCT No. T-44612 with the Register of Deeds
of Cabanatuan City (Exh. U). 20

During the pre-trial conference, the parties agreed to have the case
decided under the Rules on Summary Procedure and defined the issues
as follows:
1. Whether or not defendant (now petitioner) may be
judicially ejected. AcSCaI
2. Whether or not the main issue in this case is
ownership.
3. Whether or not damages may be awarded. 21
On January 29, 1987, the trial court rendered its decision, pertinent
portions of which are quoted as follows:
With the foregoing findings of the Court, defendants
[petitioner Rev. Fr. Dante Martinez and his mother] are
the rightful possessors and in good faith and in concept of
owner, thus cannot be ejected from the land in question.
Since the main issue is ownership, the better remedy of
the plaintiff [herein private respondents Veneracion] is
Accion Publiciana in the Regional Trial Court, having
jurisdiction to adjudicate on ownership.
Defendants' counterclaim will not be acted upon it being
more than P20,000.00 is beyond this Court's power to
adjudge.
WHEREFORE, judgment is hereby rendered, dismissing
plaintiff's complaint and ordering plaintiff to pay
Attorney's fee of P5,000.00 and cost of suit.
SO ORDERED. 22
On March 3, 1987, private respondents Veneracion filed a notice of
appeal with the Regional Trial Court, but failed to pay the docket fee.
On June 6, 1989, or over two years after the filing of the notice of
appeal, petitioner filed a Motion for Execution of the Judgment, alleging

finality of judgment for failure of private respondents Veneracion to

perfect their appeal and failure to prosecute the appeal for an
unreasonable length of time.
Upon objection of private respondents Veneracion, the trial court
denied on June 28, 1989 the motion for execution and ordered the
records of the case to be forwarded to the appropriate Regional Trial
Court. On July 11, 1989, petitioner appealed from this order. The
appeal of private respondents Veneracion from the decision of the MTC
and the appeal of petitioner from the order denying petitioner's motion
for execution were forwarded to the Regional Trial Court, Branch 28,
Cabanatuan City. The cases were thereafter consolidated under Civil
Case No. 670-AF.
On February 20, 1991, the Regional Trial Court rendered its decision
finding private respondents Veneracion as the true owners of the lot in
dispute by virtue of their prior registration with the Register of Deeds,
subject to petitioner's rights as builder in good faith, and ordering
petitioner and his privies to vacate the lot after receipt of the cost of
the construction of the house, as well as to pay the sum of P5,000.00
as attorney's fees and the costs of the suit. It, however, failed to rule
on petitioner's appeal of the Municipal Trial Court's order denying their
Motion for Execution of Judgment.

Meanwhile, on May 30, 1986, while the ejectment case was pending
before the Municipal Trial Court, petitioner Martinez filed a complaint
for annulment of sale with damages against the Veneracions and De la
Pazes with the Regional Trial Court, Branch 25, Cabanatuan City. On
March 5, 1990, the trial court rendered its decision finding private
respondents Veneracion owners of the land in dispute, subject to the
rights of petitioner as a builder in good faith, and ordering private
respondents De la Paz to pay petitioner the sum of P50,000.00 as

moral damages and P10,000.00 as attorney's fees, and for private

respondents to pay the costs of the suit.
On March 20, 1991, petitioner then filed a petition for review with the
Court of Appeals of the RTC's decision in Civil Case No. 670-AF (for
ejectment). Likewise, on April 2, 1991, petitioner appealed the trial
court's decision in Civil Case No. 44-[AF]-8642-R (for annulment of sale
and damages) to the Court of Appeals. The cases were designated as
CA G.R. SP. No. 24477 and CA G.R. CV No. 27791, respectively, and
were subsequently consolidated. The Court of Appeals affirmed the
trial courts' decisions, without ruling on petitioner's appeal from the
Municipal Trial Court's order denying his Motion for Execution of
Judgment. It declared the Veneracions to be owners of the lot in
dispute as they were the first registrants in good faith, in accordance
with Art. 1544 of the Civil Code. Petitioner Martinez failed to overcome
the presumption of good faith for the following reasons:
1. when private respondent Veneracion discovered the
construction on the lot, he immediately informed
private respondent Godofredo about it and relied on
the latter's assurance that he will take care of the
matter.
2. the sale between petitioner Martinez and private
respondents De la Paz was not notarized, as
required by Arts. 1357 and 1358 of the Civil Code,
thus it cannot be said that the private respondents
Veneracion had knowledge of the first sale. 23
Petitioner's motion for reconsideration was likewise denied in a
resolution dated January 31, 1996. 24 Hence this petition for review.
Petitioner raises the following assignment of errors:
I THE PUBLIC RESPONDENTS HONORABLE COURT OF
APPEALS AND REGIONAL TRIAL COURT JUDGES

JOHNSON BALLUTAY AND ADRIANO TUAZON ERRED

IN HOLDING THAT PRIVATE RESPONDENTS
REYNALDO VENERACION AND WIFE ARE BUYERS
AND REGISTRANTS IN GOOD FAITH IN RESOLVING
THE ISSUE OF OWNERSHIP AND POSSESSION OF
THE LAND IN DISPUTE. DIETcC
II THAT PUBLIC RESPONDENTS ERRED IN NOT RESOLVING
AND DECIDING THE APPLICABILITY OF THE
DECISION OF THIS HONORABLE COURT IN THE
CASES OF SALVORO VS. TANEGA, ET AL., G.R. NO. L
32988 AND IN ARCENAS VS. DEL ROSARIO, 67 PHIL
238, BY TOTALLY IGNORING THE SAID DECISIONS
OF THIS HONORABLE COURT IN THE ASSAILED
DECISIONS OF THE PUBLIC RESPONDENTS.
III THAT THE HONORABLE COURT OF APPEALS ERRED IN
NOT GIVING DUE COURSE TO THE PETITION FOR
REVIEW IN CA G.R. SP. NO. 24477.
IV THAT THE HONORABLE COURT OF APPEALS IN DENYING
PETITIONER'S PETITION FOR REVIEW AFORECITED
INEVITABLY SANCTIONED AND/OR WOULD ALLOW A
VIOLATION OF LAW AND DEPARTURE FROM THE
USUAL COURSE OF JUDICIAL PROCEEDINGS BY
PUBLIC RESPONDENT HONORABLE JUDGE ADRIANO
TUAZON WHEN THE LATTER RENDERED A DECISION
IN CIVIL CASE NO. 670-AF [ANNEX "D"] REVERSING
THE DECISION OF THE MUNICIPAL TRIAL COURT
JUDGE SENDON DELIZO IN CIVIL CASE NO. 9523
[ANNEX "C"] AND IN NOT RESOLVING IN THE SAME
CASE THE APPEAL INTERPOSED BY DEFENDANTS
ON THE ORDER OF THE SAME COURT DENYING THE
MOTION FOR EXECUTION.

V THAT THE RESOLUTION [ANNEX "B"] (OF THE COURT OF

APPEALS) DENYING PETITIONER'S MOTION FOR
RECONSIDERATION [ANNEX "I"] WITHOUT STATING
CLEARLY THE FACTS AND THE LAW ON WHICH SAID
RESOLUTION WAS BASED, (IS ERRONEOUS).
These assignment of errors raise the following issues:
1. Whether or not private respondents Veneracion are
buyers in good faith of the lot in dispute as to make them
the absolute owners thereof in accordance with Art. 1544
of the Civil Code on double sale of immovable property.
2. Whether or not payment of the appellate docket fee
within the period to appeal is not necessary for the
perfection of the appeal after a notice of appeal has been
filed within such period.
3. Whether or not the resolution of the Court of Appeals
denying petitioner's motion for reconsideration is
contrary to the constitutional requirement that a denial of
a motion for reconsideration must state the legal reasons
on which it is based.
First. It is apparent from the first and second assignment of errors that
petitioner is assailing the findings of fact and the appreciation of the
evidence made by the trial courts and later affirmed by the respondent
court. While, as a general rule, only questions of law may be raised in a
petition for review under Rule 45 of the Rules of Court, review may
nevertheless be granted under certain exceptions, namely: (a) when
the conclusion is a finding grounded entirely on speculation, surmises,
or conjectures; (b) when the inference made is manifestly mistaken,
absurd, or impossible; (c) where there is a grave abuse of discretion;
(d) when the judgment is based on a misapprehension of facts; (e)
when the findings of fact are conflicting; (f) when the Court of Appeals,

in making its findings, went beyond the issue of the case and the same
is contrary to the admissions of both appellant and appellee; (g) when
the findings of the Court of Appeals are contrary to those of the trial
court; (h) when the findings of fact are conclusions without citation of
specific evidence on which they are based; (i) when the facts set forth
in the petition as well as in the petitioner's main and reply briefs are
not disputed by the respondents; (j) when the finding of fact of the
Court of Appeals is premised on the supposed absence of evidence but
is contradicted by the evidence on record; and (k) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by
the parties and which, if properly considered, would justify a different
conclusion. 25
In this case, the Court of Appeals based its ruling that private
respondents Veneracion are the owners of the disputed lot on their
reliance on private respondent Godofredo De la Paz's assurance that
he would take care of the matter concerning petitioner's occupancy of
the disputed lot as constituting good faith. This case, however,
involves double sale and, on this matter, Art. 1544 of the Civil Code
provides that where immovable property is the subject of a double
sale, ownership shall be transferred (1) to the person acquiring it who
in good faith first recorded it to 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. 26 The
requirement of the law, where title to the property is recorded in the
Register of Deeds, is two-fold: acquisition in good faith and recording in
good faith. To be entitled to priority, the second purchaser must not
only prove prior recording of his title but that he acted in good
faith, i.e., without knowledge or notice of a prior sale to another. The
presence of good faith should be ascertained from the circumstances
surrounding the purchase of the land. 27

1. With regard to the first sale to private respondents Veneracion,

private respondent Reynaldo Veneracion testified that on October 10,
1981, 18 days before the execution of the first Deed of Sale with Right
to Repurchase, he inspected the premises and found it
vacant. 28 However, this is belied by the testimony of Engr. Felix D.
Minor, then building inspector of the Department of Public Works and
Highways, that he conducted on October 6, 1981 an ocular inspection
of the lot in dispute in the performance of his duties as a building
inspector to monitor the progress of the construction of the building
subject of the building permit issued in favor of petitioner on April 23,
1981, and that he found it 100 % completed (Exh. V). 29 In the
absence of contrary evidence, he is to be presumed to have regularly
performed his official duty. 30 Thus, as early as October, 1981, private
respondents Veneracion already knew that there was construction
being made on the property they purchased.
2. The Court of Appeals failed to determine the nature of the first
contract of sale between the private respondents by considering their
contemporaneous and subsequent acts. 31 More specifically, it
overlooked the fact that the first contract of sale between the private
respondents shows that it is in fact an equitable mortgage. CaESTA
The requisites for considering a contract of sale with a right of
repurchase as an equitable mortgage are (1) that the parties entered
into a contract denominated as a contract of sale and (2) that their
intention was to secure an existing debt by way of mortgage. 32 A
contract of sale with right to repurchase gives rise to the presumption
that it is an equitable mortgage in any of the following cases: (1) when
the price of a sale with a right to repurchase is unusually inadequate;
(2) when the vendor remains in possession as lessee or otherwise; (3)
when, upon or after the expiration of the right to repurchase, another
instrument extending the period of redemption or granting a new
period is executed; (4) when the purchaser retains for himself a part of

the purchase price; (5) when the vendor binds himself to pay the taxes
on the thing sold; (6) in any other case where it may be fairly inferred
that the real intention of the parties is that the transaction shall secure
the payment of a debt or the performance of any other
obligation. 33 In case of doubt, a contract purporting to be a sale with
right to repurchase shall be construed as an equitable mortgage. 34
In this case, the following circumstances indicate that the private
respondents intended the transaction to be an equitable mortgage and
not a contract of sale: (1) Private respondents Veneracion never took
actual possession of the three lots; (2) Private respondents De la Paz
remained in possession of the Melencio lot which was co-owned by
them and where they resided; (3) During the period between the first
sale and the second sale to private respondents Veneracion, they
never made any effort to take possession of the properties; and (4)
when the period of redemption had expired and private respondents
Veneracion were informed by the De la Pazes that they are offering the
lots for sale to another person for P200,000.00, they never objected. To
the contrary, they offered to purchase the two lots for P180,000.00
when they found that a certain Mr. Tecson was prepared to purchase it
for the same amount. Thus, it is clear from these circumstances that
both private respondents never intended the first sale to be a contract
of sale, but merely that of mortgage to secure a debt of P150,000.00.

With regard to the second sale, which is the true contract of sale
between the parties, it should be noted that this Court in several
cases, 35 has ruled that a purchaser who is aware of facts which
should put a reasonable man upon his guard cannot turn a blind eye
and later claim that he acted in good faith. Private respondent
Reynaldo himself admitted during the pre-trial conference in the MTC in
Civil Case No. 9523 (for ejectment) that petitioner was already in
possession of the property in dispute at the time the second Deed of

Sale was executed on June 1, 1983 and registered on March 4, 1984.

He, therefore, knew that there were already occupants on the property
as early as 1981. The fact that there are persons, other than the
vendors, in actual possession of the disputed lot should have put
private respondents on inquiry as to the nature of petitioner's right
over the property. But he never talked to petitioner to verify the nature
of his right. He merely relied on the assurance of private respondent
Godofredo De la Paz, who was not even the owner of the lot in
question, that he would take care of the matter. This does not meet the
standard of good faith.
3. The appellate court's reliance on Arts. 1357 and 1358 of the Civil
Code to determine private respondents Veneracion's lack of knowledge
of petitioner's ownership of the disputed lot is erroneous.
Art. 1357 36 and Art. 1358, 37 in relation to Art. 1403(2) 38 of the
Civil Code, requires that the sale of real property must be in writing for
it to be enforceable. It need not be notarized. If the sale has not been
put in writing, either of the contracting parties can compel the other to
observe such requirement. 39 This is what petitioner did when he
repeatedly demanded that a Deed of Absolute Sale be executed in his
favor by private respondents De la Paz. There is nothing in the above
provisions which require that a contract of sale of realty must be
executed in a public document. In any event, it has been shown that
private respondents Veneracion had knowledge of facts which would
put them on inquiry as to the nature of petitioner's occupancy of the
disputed lot.
Second. Petitioner contends that the MTC in Civil Case No. 9523 (for
ejectment) erred in denying petitioner's Motion for Execution of the
Judgment, which the latter filed on June 6, 1989, two years after
private respondents Veneracion filed a notice of appeal with the MTC
on March 3, 1987 without paying the appellate docket fee. He avers
that the trial court's denial of his motion is contrary to this Court's

ruling in the cases of Republic v. Director of Lands, 40and Aranas

v. Endona 41 in which it was held that where the appellate docket fee
is not paid in full within the reglementary period, the decision of the
MTC becomes final and unappealable as the payment of docket fee is
not only a mandatory but also a jurisdictional requirement.
Petitioner's contention has no merit. The case of Republic v. Director of
Lands deals with the requirement for appeals from the Courts of First
Instance, the Social Security Commission, and the Court of Agrarian
Relations to the Court of Appeals. The case of Aranas v. Endona, on the
other hand, was decided under the 1964 Rules of Court and prior to the
enactment of the Judiciary Reorganization Act of 1981 (B.P. Blg. 129)
and the issuance of its Interim Rules and Guidelines by this Court on
January 11, 1983. Hence, these cases are not applicable to the matter
at issue.
On the other hand, in Santos v. Court of Appeals, 42 it was held that
although an appeal fee is required to be paid in case of an appeal
taken from the municipal trial court to the regional trial court, it is not a
prerequisite for the perfection of an appeal under 20 43 and 23 44 of
the Interim Rules and Guidelines issued by this Court on January 11,
1983 implementing the Judiciary Reorganization Act of 1981 (B.P. Blg.
129). Under these sections, there are only two requirements for the
perfection of an appeal, to wit: (a) the filing of a notice of appeal within
the reglementary period; and (b) the expiration of the last day to
appeal by any party. Even in the procedure for appeal to the regional
trial courts, 45 nothing is mentioned about the payment of appellate
docket fees.
Indeed, this Court has ruled that, in appealed cases, the failure to pay
the appellate docket fee does not automatically result in the dismissal
of the appeal, the dismissal being discretionary on the part of the
appellate court. 46 Thus, private respondents Veneracions' failure to
pay the appellate docket fee is not fatal to their appeal.

Third. Petitioner contends that the resolution of the Court of Appeals

denying his motion for reconsideration was rendered in violation of the
Constitution because it does not state the legal basis thereof. cIaHDA
This contention is likewise without merit.
Art. VIII, Sec. 14 of the Constitution provides that "No petition for
review or motion for reconsideration of a decision of the court shall be
refused due course or denied without stating the basis therefor." This
requirement was fully complied with when the Court of Appeals, in
denying reconsideration of its decision, stated in its resolution that it
found no reason to change its ruling because petitioner had not raised
anything new. 47 Thus, its resolution denying petitioner's motion for
reconsideration states:
For resolution is the Motion for Reconsideration of Our
Decision filed by the petitioners.
Evidently, the motion poses nothing new. The points and
arguments raised by the movants have been considered
and passed upon in the Decision sought to be
reconsidered. Thus, We find no reason to disturb the
same.
WHEREFORE, the motion is hereby DENIED.
SO ORDERED. 48
Attorney's fees should be awarded as petitioner was compelled to
litigate to protect his interest due to private respondents' act or
omission. 49
WHEREFORE, the decision of the Court of Appeals is REVERSED and a
new one is RENDERED:
(1) declaring as null and void the deed of sale executed by private
respondents Godofredo and Manuela De la Paz in favor of private
respondents spouses Reynaldo and Susan Veneracion;

(2) ordering private respondents Godofredo and Manuela De la Paz to

execute a deed of absolute sale in favor of petitioner Rev. Fr. Dante
Martinez;
(3) ordering private respondents Godofredo and Manuela De la Paz to
reimburse private respondents spouses Veneracion the amount the
latter may have paid to the former;
(4) ordering the Register of Deeds of Cabanatuan City to cancel TCT
No. T-44612 and issue a new one in the name of petitioner Rev. Fr.
Dante Martinez; and
(5) ordering private respondents to pay petitioner jointly and severally
the sum of P20,000.00 as attorney's fees and to pay the costs of the
suit.
SO ORDERED.
Bellosillo, Buena and De Leon, Jr., JJ., concur.
Quisumbing, J., is on leave.
Footnotes
||| (Martinez v. Court of Appeals, G.R. No. 123547, [May 21, 2001], 410
PHIL 241-263)

MARTINEZ vs CAFacts:
Private respondents Godofredo De la Paz and his sister Manuela De la Paz entered into an
oralcontract with petitioner Rev. Fr. Dante Martinez, then Assistant parish priest of Cabanatuan
City, for the sale of Lot No. 1337-A-3 at the Villa Fe Subdivision in Cabanatuan City for the
sum of P15,000.00. At the time of the sale, the lot was still registered in the name of Claudia
De la Paz,mother of private respondents, although the latter had already sold it to private
respondent Manuelade la Paz by virtue of a Deed of Absolute Sale dated. He was assured
by them that the lot belongedto Manuela De la Paz. It was agreed that petitioner would give a
downpayment of P3,000.00 toprivate respondents De la Paz and that the balance would be
payable by installment. After giving theP3,000.00

downpayment, petitioner started the construction of a house on the lot and began payingthe
real estate taxes on said property.In the meantime, in a Deed of. Absolute Sale with Right to
Repurchase, private respondents De laPaz sold three lots with right to repurchase the same
within one year to private respondents spousesReynaldo and Susan Veneracion for the sum
of P150,000.00. One of the lots sold was the lotpreviously sold to petitioner. Petitioner
discovered that the lot he was occupying with his family hadbeen sold to the spouses
Veneracion after receiving a letter from private respondent ReynaldoVeneracion claiming
ownership of the land and demanding that they vacate the property and removetheir
improvements thereon.
16
Petitioner, in turn, demanded through counsel the execution of thedeed of sale from private
respondents De la Paz and informed Reynaldo Veneracion that he was theowner of the
property as he had previously purchased the same from private respondents De la
Paz.ISSUE:Whether or not private respondents Veneracion are buyers in good faith of the lot
in dispute as tomake them the absolute owners thereof in accordance with Art. 1544 of the
Civil Code on doublesale of immovable property.HELD:No. The deed of sale executed by
private respondents Godofredo and Manuela De la Paz in favor of private respondents
spouses Reynaldo and Susan Veneracion is null and void.In this case, the Court of Appeals
based its ruling that private respondents Veneracion are theowners of the disputed lot on their
reliance on private respondent Godofredo De la Paz's assurancethat he would take care of
the matter concerning petitioner's occupancy of the disputed lot asconstituting good faith. This
case, however, involves double sale and, on this matter, Art. 1544 of theCivil Code provides
that where immovable property is the subject of a double sale, ownership shallbe transferred
(1) to the person acquiring it who in good faith first recorded it to the Registry of Property; (2) in
default thereof, to the person who in good faith was first in possession; and (3) indefault
thereof, to the person who presents the oldest title.
26
The requirement of the law, where titleto the property is recorded in the Register of Deeds, is
two-fold: acquisition in good faith andrecording in good faith. To be entitled to priority, the
second purchaser must not only prove prior

[G.R. No. 171008. September 13, 2007.]

CARMELITA FUDOT, petitioner, vs. CATTLEYA LAND,
INC., respondent.

DECISION

TINGA, J p:
For resolution is a petition that seeks to nullify the Decision 1 and
Resolution 2 of the Court of Appeals dated 28 April 2005 and 11
January 2006, respectively, in C.A.-G.R. CV No. 73025 which declared
respondent as having a better right over a parcel of land located in
Doljo, Panglao, Bohol.
The facts, as culled from the records, follow. aSIDCT
Sometime in July 1992, Cattleya Land, Inc. (hereinafter referred to as
respondent) asked someone to check, on its behalf, the titles of nine
(9) lots, the subject land included, which it intended to buy from the
spouses Troadio and Asuncion Tecson. Finding no defect on the titles,
respondent purchased the nine lots through a Deed of Conditional Sale
on 6 November 1992. Subsequently, on 30 August 1993, respondent
and the Tecsons executed a Deed of Absolute Sale over the same
properties. The Deed of Conditional Sale and the Deed of Absolute Sale
were registered with the Register of Deeds on 06 November 1992 and
04 October 1993, respectively. 3 The Register of Deeds, Atty. Narciso
dela Serna, refused to actually annotate the deed of sale on the titles
because of the existing notice of attachment in connection with Civil
Case No. 3399 pending before the Regional Trial Court of Bohol. 4 The
attachment was eventually cancelled by virtue of a compromise
agreement between the Tecsons and their attaching creditor which was
brokered by respondent. Titles to six (6) of the nine (9) lots were
issued, but the Register of Deeds refused to issue titles to the
remaining three (3) lots, because the titles covering the same were still
unaccounted for.
On 23 January 1995, petitioner presented for registration before the
Register of Deeds the owner's copy of the title of the subject property,

together with the deed of sale purportedly executed by the Tecsons in

favor of petitioner on 19 December 1986. On the following day,
respondent sent a letter of protest/opposition to petitioner's
application. Much to its surprise, respondent learned that the Register
of Deeds had already registered the deed of sale in favor of petitioner
and issued a new title in her name. 5
On 5 May 1995, respondent filed its Complaint 6 for Quieting Of Title
&/Or Recovery Of Ownership, Cancellation Of Title With Damages
before the Regional Trial Court of Tagbilaran City. 7 On 26 June 1995,
Asuncion filed a complaint-in-intervention, claiming that she never
signed any deed of sale covering any part of their conjugal property in
favor of petitioner. She averred that her signature in petitioner's deed
of sale was forged thus, said deed should be declared null and
void. 8 She also claimed that she has discovered only recently that
there was an amorous relationship between her husband and
petitioner. 9
Petitioner, for her part, alleged in her answer 10 that the spouses
Tecson had sold to her the subject property for P20,000.00 and
delivered to her the owner's copy of the title on 26 December 1986.
She claims that she subsequently presented the said title to the
Register of Deeds but the latter refused to register the same because
the property was still under attachment. EcHTCD
On 31 October 2001, the trial court rendered its decision: 11 (i)
quieting the title or ownership of the subject land in favor of
respondent; (ii) declaring the deed of sale between petitioner and
spouses Tecson invalid; (iii) ordering the registration of the
subject land in favor of respondent; (iv) dismissing respondent's claim
for damages against the Register of Deeds for insufficiency of
evidence; (v) dismissing Asuncion's claim for damages against
petitioner for lack of factual basis; and (vi) dismissing petitioner's
counterclaim for lack of the required preponderance of evidence. 12

According to the trial court, respondent had recorded in good faith the
deed of sale in its favor ahead of petitioner. Moreover, based on
Asuncion's convincing and unrebutted testimony, the trial court
concluded that the purported signature of Asuncion in the deed of sale
in favor of petitioner was forged, thereby rendering the sale void. 13
Petitioner sought recourse to the Court of Appeals, arguing in the main
that the rule on double sale was applicable to the case. The appellate
court, however, dismissed her appeal, holding that there was no
double sale because the alleged sale to petitioner was null and void in
view of the forgery of Asuncion's purported signature in the deed. The
appellate court noted that petitioner failed to rebut Asuncion's
testimony despite opportunities to do so.14 Moreover, even if there
was double sale, according to the appellate court, respondent's claim
would still prevail since it was able to register the second sale in its
favor in good faith, had made inquiries before it purchased the lots,
and was informed that the titles were free from encumbrance except
the attachment on the property due to Civil Case No. 3399. 15
Petitioner sought reconsideration of the decision but the Court of
Appeals denied her motion for reconsideration for lack of merit. 16
Petitioner thus presents before this Court the following issues for
resolution:
I.
BETWEEN 2 BUYERS OF REGISTERED LAND, WHO HAS
THE BETTER RIGHT-IS IT THE FIRST BUYER WHO WAS
GIVEN THE OWNER'S DUPLICATE TCT TOGETHER WITH A
DEED OF SALE IN 1986, OR THE SECOND BUYER IN 1992
WITH ONLY A DEED OF SALE. cEDIAa
II.

IS A BUYER OF REGISTERED LAND WHO DID NOT

DEMAND OR REQUIRE THE DELIVERY OF THE OWNER'S
DUPLICATE TCT A BUYER IN GOOD FAITH.
III.
II. IN SUBSEQUENT REGISTRATION OF REGISTERED
LANDS, AS BY SALE, WHICH LAW SHALL GOVERN,
ARTICLE 1455 * OF CIVIL CODE OR P.D. 1529 OR
TORRENS SYSTEM. 17
Petitioner avers that she was the first buyer in good faith and even had
in her possession the owner's copy of the title so much so that she was
able to register the deed of sale in her favor and caused the issuance
of a new title in her name. She argues that the presentation and
surrender of the deed of sale and the owner's copy carried with it the
"conclusive authority of Asuncion Tecson" which cannot be overturned
by the latter's oral deposition. 18
Petitioner claims that respondent did not demand nor require delivery
of the owner's duplicate title from the spouses Tecson, neither did it
investigate the circumstances surrounding the absence of the title.
These indicate respondent's knowledge of a defect in the title of the
spouses and, thus, petitioner concludes that respondent was not a
buyer in good faith. 19 DCaSHI
Finally, petitioner insists that the applicable law in this case is P.D. No.
1529, a special law dealing precisely with the registration of registered
lands or any subsequent sale thereof, and not Article 1544 of the Civil
Code which deals with immovable property not covered by the Torrens
System. 20
Respondent points out, on one hand, that petitioner's first two issues
which present an inquiry on who has a better right or which one is a
buyer in good faith, are questions of fact not proper in a petition for

review. The third issue, on the other hand, is ostensibly a question of

law which had been unsuccessfully raised below. 21 TcDIaA
Respondent maintains that there is no room to speak of petitioner as a
buyer in good faith since she was never a buyer in the first place, as
her claim is based on a null and void deed of sale, so the court a
quo found. Respondent also asserts that its status as a buyer in good
faith was established and confirmed in the proceedings before the two
courts below. 22
Lastly, respondent argues that P.D. No. 1529 finds no application in the
instant case. The "production of the owner's duplicate certificate . . .
being conclusive authority from the registered owner" is only true as
between the registration applicant and the register of deeds
concerned, but never to third parties. Such conclusive authority,
respondent adds, is "only for the Register of Deeds to enter a new
certificate or to make a memorandum of registration in accordance
with such instrument." It cannot cure the fatal defect that the
instrument from which such registration was effected is null and
void ab initio, respondent concludes. 23 IASTDE
The petition is bereft of merit.
Petitioner's arguments, which rest on the assumption that there was a
double sale, must fail. cdasia
In the first place, there is no double sale to speak of. Art. 1544 of the
Civil Code 24 which provides the rule on double sale, applies only to a
situation where the same property is validly sold to different vendees.
In this case, there is only one sale to advert to, that between the
spouses Tecson and respondent.
In Remalante v. Tibe, 25 this Court ruled that the Civil Law provision on
double sale is not applicable where there is only one valid sale, the
previous sale having been found to be fraudulent. Likewise, in Espiritu
and Apostol v. Valerio, 26 where the same parcel of land was

purportedly sold to two different parties, the Court held that despite
the fact that one deed of sale was registered ahead of the other, Art.
1544 of the Civil Code will not apply where said deed is found to be a
forgery, the result of this being that the right of the other vendee
should prevail. cHCSDa
The trial court declared that the sale between the spouses Tecson and
petitioner is invalid, as it bears the forged signature of Asuncion. Said
finding is based on the unrebutted testimony of Asuncion and the trial
court's visual analysis and comparison of the signatures in her
Complaint-in-Intervention and the purported deed of sale. This finding
was upheld by the Court of Appeals, as it ruled that the purported sale
in petitioner's favor is null and void, taking into account Asuncion's
unrefuted deposition. In particular, the Court of Appeals noted
petitioner's failure to attend the taking of the oral deposition and to
give written interrogatories. In short, she did not take the necessary
steps to rebut Asuncion's definitive assertion.

The congruence of the wills of the spouses is essential for the valid
disposition of conjugal property. 27 Thus, under Article 166 of the Civil
Code 28 which was still in effect on 19 December 1986 when the deed
of sale was purportedly executed, the husband cannot generally
alienate or encumber any real property of the conjugal partnership
without the wife's consent. DcCITS
In this case, following Article 173 29 of the Civil Code, on 26 June 1995,
or eight and a half years (8 1/2) after the purported sale to petitioner,
Asuncion filed her Complaint-in-Intervention seeking the nullification
thereof, and while her marriage with Troadio was still subsisting. Both
the Court of Appeals and the trial court found Asuncion's signature in
the deed of sale to have been forged, and consequently, the deed of
sale void for lack of marital consent. We find no reason to disturb the

findings of the trial court and the Court of Appeals. Findings of fact of
lower courts are deemed conclusive and binding upon the Supreme
Court subject to certain exceptions, 30 none of which are present in
this case. Besides, it has long been recognized in our jurisprudence
that a forged deed is a nullity and conveys no title. 31
Petitioner argues she has a better right over the property in question,
as the holder of and the first one to present, the owner's copy of the
title for the issuance of a new TCT. The Court is not persuaded. SDIaHE
The act of registration does not validate petitioner's otherwise void
contract. Registration is a mere ministerial act by which a deed,
contract, or instrument is sought to be inscribed in the records of the
Office of the Register of Deeds and annotated at the back of the
certificate of title covering theland subject of the deed, contract, or
instrument. While it operates as a notice of the deed, contract, or
instrument to others, it does not add to its validity nor converts an
invalid instrument into a valid one as between the parties, 32 nor
amounts to a declaration by the state that the instrument is a valid
and subsisting interest in the land. 33 The registration of petitioner's
void deed is not an impediment to a declaration by the courts of its
invalidity.
Even assuming that there was double sale in this case, petitioner
would still not prevail. The pertinent portion of Art. 1544
provides: ISCHET
Art. 1544. . . . .
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.
xxx xxx xxx

In interpreting this provision, the Court declared that the 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 buyer's rights, except where the second buyer registers in
good faith the second sale ahead of the first as provided by the
aforequoted provision of the Civil Code. Such knowledge of the first
buyer does not bar him from availing of his rights under the law,
among them to register first his purchase as against the second buyer.
However, 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. 34 It is thus
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. 35
We agree with the trial court and the Court of Appeals that respondent
was a buyer in good faith, having purchased the nine (9) lots, including
the subject lot, without any notice of a previous sale, but only a notice
of attachment relative to a pending civil case. In fact, in its desire to
finally have the title to the properties transferred in its name, it
persuaded the parties in the said case to settle the same so that the
notice of attachment could be cancelled. TaEIAS
Relevant to the discussion are the following provisions of P.D. No. 1529:
Sec. 51. Conveyance and other dealings by registered
owner. An owner of registered land may convey,
mortgage, lease, charge or otherwise deal with the same
in accordance with existing laws. He may use such forms
of deeds, mortgages, lease or other voluntary
instruments as are sufficient in law. But 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, but shall

operate only as a contract between the parties and as

evidence of authority to the Register of Deeds to make
Registration. DTAESI
The act of registration shall be the operative act to
convey or affect the land insofar as third persons
are concerned, and in all cases under this Decree, the
registration shall be made in the office of the Register of
Deeds for the province or city where the land lies.
(Emphasis supplied)
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. IaDTES
It has been held that between two transactions concerning the same
parcel of land, the registered transaction prevails over the earlier
unregistered right. The act of registration operates to convey and
affect the registered land so that a bona fide purchaser of
such land acquires good title as against a prior transferee, if such prior
transfer was unrecorded. 36 As found by the courts a quo, respondent
was able to register its purchase ahead of petitioner. It will be recalled
that respondent was able to register its Deed of Conditional Sale with
the Register of Deeds as early as 6 November 1992, and its Deed of
Absolute Sale on 14 October 1993. On the other hand, petitioner was
able to present for registration her deed of sale and owner's copy of
the title only on 23 January 1995, or almost nine years after the
purported sale. Why it took petitioner nine (9) years to present the
deed and the owner's copy, she had no credible explanation; but it is

clear that when she finally did, she already had constructive notice of
the deed of sale in respondent's favor. Without a doubt, respondent
had acquired a better title to the property.
Finally, anent petitioner's claim that P.D. No. 1529 applies to registered
lands or any subsequent sale thereof, while Art. 1544 of the Civil Code
applies only to immovable property not covered by the Torrens System,
suffice it to say that this quandary has already been answered by an
eminent former member of this Court, Justice Jose Vitug, who explained
that the registration contemplated under Art. 1544 has been held to
refer to registration under P.D. No. 1529, thus: EcHIAC
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 v. Rosabal, 1 O.G. [12]
900, Garcia v. 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 v. IAC, G.R. 75336, 18 October
1988; Hernandez vs. Sales, 69 Phil 744; Tajonera vs.
Court of Appeals, L-26677, 27 March 1981) (Emphasis
supplied) 37

WHEREFORE, the petition is DENIED. The assailed decision and

resolution of the Court of Appeals are affirmed. Costs against
petitioner.
SO ORDERED.
Quisumbing, Carpio, Carpio-Morales and Velasco, Jr., JJ., concur.
||| (Fudot v. Cattleya Land, Inc., G.R. No. 171008, [September 13,
2007], 559 PHIL 756-770)

CARMELITA FUDOT, Petitioner,

171008
vs.

G.R. No.
September 13, 2007

CATTLEYA LAND, INC., VELASCO, JR., JJ. Respondent.

Facts:
Sometime in July 1992, Cattleya Land, Inc. (hereinafter referred to as
respondent) asked someone to check, on its behalf, the titles of nine
(9) lots, the subject land included, which it intended to buy from the
spouses Troadio and Asuncion Tecson. Finding no defect on the titles,
respondent purchased the nine lots through a Deed of Conditional Sale
on 6 November 1992. Subsequently, on 30 August 1993, respondent
and the Tecsons executed a Deed of Absolute Sale over the same
properties. The Deed of Conditional Sale and the Deed of Absolute Sale
were registered with the Register of Deeds on 06 November 1992 and
04 October 1993, respectively. The Register of Deeds refused to
actually annotate the deed of sale on the titles because of the existing
notice of attachment pending before the Regional Trial Court of
Bohol. The attachment was eventually cancelled by virtue of a
compromise agreement between the Tecsons and their attaching
creditor which was brokered by respondent. Titles to six (6) of the nine
(9) lots were issued, but the Register of Deeds refused to issue titles to
the remaining three (3) lots , because the titles covering the same
were still unaccounted for.

Later, respondent learned that the Register of Deeds had already

registered the deed of sale in favor of petitioner and issued a new title
herein.
The respondent filed its Complaintfor Quieting Of Title &/Or Recovery
Of Ownership, Cancellation Of Title With Damages before the Regional
Trial Court of Tagbilaran City.
Issue:
Is the issuance of Deed of Sale valid?
Held:
On 31 October 2001, the trial court rendered its decision: (i) quieting
the title or ownership of the subject land in favor of respondent; (ii)
declaring the deed of sale between petitioner and spouses Tecson
invalid; (iii) ordering the registration of the subject land in favor of
respondent; (iv) dismissing respondents claim for damages against
the Register of Deeds for insufficiency of evidence; (v) dismissing
Asuncions claim for damages against petitioner for lack of factual
basis; and (vi) dismissing petitioners counterclaim for lack of the
required preponderance of evidence.

SECOND DIVISION
[G.R. No. 152627. September 16, 2005.]
SPOUSES AMANCIO and LUISA SARMIENTO and
PEDRO OGSINER, petitioners, vs. THE HON. COURT
OF

APPEALS

(Special

Former

Fifth

Division),

RODEANNA REALTY CORPORATION, THE HEIRS OF

CARLOS MORAN SISON, PROVINCIAL SHERIFF OF
PASIG, M.M., MUNICIPAL (CITY) TREASURER OF
MARIKINA,

JOSE

F.

PUZON,

THE

HON.

EFICIO

ACOSTA, REGIONAL TRIAL COURT OF PASIG CITY,

BRANCH

155

and

REGISTER

OF

DEEDS

OF

MARIKINA (CITY), RIZAL, respondents.

Jaime C. Opinion and Samuel L. Viernes for petitioner.
Benjamin P. Quitoriano for J. Puzon.
Romeo Gutierrez for Heirs of C.M. Sison.
Doroja Law Office for Rodeanna Realty Corp.
Saguisag & Associates for R. Sison.
SYLLABUS

1.CIVIL LAW; LAND REGISTRATION; DIRECT ATTACK ON A TITLE

DISTINGUISHED FROM COLLATERAL ATTACK. An action is deemed an
attack on a title when the object of the action or proceeding is to nullify
the title, and thus challenge the judgment pursuant to which the title
was decreed. The attack is direct when the object of the action is to
annul or set aside such judgment, or enjoin its enforcement. On the
other hand, the attack is indirect or collateral when, in an action to
obtain a different relief, an attack on the judgment is nevertheless
made as an incident thereof.
2.ID.; ID.; INNOCENT PURCHASER FOR VALUE; NOTWITHSTANDING THE
VOID TAX SALE, THE BUYER'S TITLE CANNOT BE ASSAILED IF IT IS A
PURCHASER IN GOOD FAITH AND FOR VALUE. A complaint for
recovery of possession based on ownership (accion reivindicatoria or
accion reivindicacion) is an action whereby the plaintiff alleges
ownership over a parcel of land and seeks recovery of its full
possession. As possession is sought based on ownership, we must
inquire into the title of RRC which it acquired from Mr. Puzon who, in
turn, derived his title from the void tax sale. The void tax sale

notwithstanding, RRC's title cannot be assailed if it is a purchaser in

good faith and for value.
3.ID.;

ID.;

ID.;

GENERAL

RULE;

EXCEPTION;

PERSON

WHO

DELIBERATELY IGNORES A SIGNIFICANT FACT WHICH WOULD CREATE

SUSPICION IN AN OTHERWISE REASONABLE MAN IS NOT AN INNOCENT
PURCHASER FOR VALUE; CASE AT BAR. Verily, every person dealing
with registered land may safely rely on the correctness of the
certificate of title issued therefor and the law will in no way oblige him
to go behind the certificate to determine the condition of the property.
Thus, the general rule is that a purchaser may be considered a
purchaser in good faith when he has examined the latest certificate of
title. An exception to this rule is when there exist important facts that
would create suspicion in an otherwise reasonable man to go beyond
the present title and to investigate those that preceded it. Thus, it has
been said that a person who deliberately ignores a significant fact
which would create suspicion in an otherwise reasonable man is not an
innocent purchaser for value. 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. As we have held: The failure of
appellees to take the ordinary precautions which a prudent man would
have taken under the circumstances, specially in buying a piece of land
in the actual, visible and public possession of another person, other
than the vendor, constitutes gross negligence amounting to bad faith.
In this connection, it has been held that where, as in this case, the land
sold is in the possession of a person other than the vendor, the
purchaser is required to go beyond the certificate of title to ma[k]e
inquiries concerning the rights of the actual possessor. Failure to do so
would make him a purchaser in bad faith. . . . One who purchases real
property which is in the actual possession of another should, at least
make some inquiry concerning the right of those in possession. The
actual possession by other than the vendor should, at least put the

purchaser upon inquiry. He can scarely, in the absence of such inquiry,

be regarded as a bona fide purchaser as against such possessors.
Prescinding from the foregoing, the fact that private respondent RRC
did not investigate the Sarmiento spouses' claim over the subject land
despite its knowledge that Pedro Ogsiner, as their overseer, was in
actual possession thereof means that it was not an innocent purchaser
for value upon said land. Article 524 of the Civil Code directs that
possession may be exercised in one's name or in that of another. In
herein case, Pedro Ogsiner had informed RRC that he was occupying
the subject land on behalf of the Sarmiento spouses. Being a
corporation engaged in the business of buying and selling real estate,
it was gross negligence on its part to merely rely on Mr. Puzon's
assurance that the occupants of the property were mere squatters
considering the invaluable information it acquired from Pedro Ogsiner
and considering further that it had the means and the opportunity to
investigate for itself the accuracy of such information.
4.REMEDIAL

LAW;

CIVIL

PROCEDURE;

PLEADINGS;

THIRD-PARTY

COMPLAINT; NATURE. A third-party complaint is in the nature of an

original complaint. This is so because it is "actually independent of and
separate and distinct from the plaintiff's complaint." In herein case,
after leave of court was secured to file a third-party complaint, the
third-party

complainants

(Sarmiento

spouses)

had

to

pay

the

necessary docket fees. Summonses were then issued on the third-party

defendants who answered in due time. In Firestone Tire and Rubber
Company of the Philippines v. Tempongko, we had occasion to expound
on the nature of a third-party complaint, thus: The third-party
complaint, is therefore, a procedural device whereby a "third party"
who is neither a party nor privy to the act or deed complained of by
the plaintiff, may be brought into the case with leave of court, by the
defendant, who acts as third-party plaintiff to enforce against such
third-party defendant a right for contribution, indemnity, subrogation
or any other relief, in respect of the plaintiff's claim. The third-party

complaint is actually independent of and separate and distinct from

the plaintiff's complaint. Were it not for this provision of the Rules of
Court, it would have to be filed independently and separately from the
original complaint by the defendant against the third-party. But the
Rules permit defendant to bring in a third-party defendant or so to
speak, to litigate his separate cause of action in respect of plaintiff's
claim against a third party in the original and principal case with the
object of avoiding circuity of action and unnecessary proliferation of
lawsuits and of disposing expeditiously in one litigation the entire
subject matter arising from one particular set of facts. . . . When leave
to file the third-party complaint is properly granted, the Court renders
in effect two judgments in the same case, one on the plaintiff's
complaint and the other on the third-party complaint. Prescinding from
the foregoing, the appellate court grievously erred in failing to
appreciate the legal ramifications of the third-party complaint vis- -vis
the original complaint for recovery of possession of property. The thirdparty complaint for cancellation of TCT being in the nature of an
original complaint for cancellation of TCT, it therefore constitutes a
direct attack of such TCT.
5.ID.; ID.; ID.; COUNTERCLAIM; CONSIDERED AN ORIGINAL COMPLAINT,
AS SUCH, THE ATTACK ON THE TITLE IN A CASE ORIGINALLY FOR
RECOVERY

OF

POSSESSION

CANNOT

BE

CONSIDERED

AS

COLLATERAL ATTACK. The situation at bar can be likened to a case

for recovery of possession wherein the defendant files a counterclaim
against the plaintiff attacking the validity of the latter's title. Like a
third-party complaint, a counterclaim is considered an original
complaint, as such, the attack on the title in a case originally for
recovery of possession cannot be considered as a collateral attack. We
thus held in Development Bank of the Philippines (DBP) v. Court of
Appeals: Nor is there any obstacle to the determination of the validity
of TCT No. 10101. It is true that the indefeasibility of torrens titles
cannot be collaterally attacked. In the instant case, the original

complaint is for recovery of possession filed by petitioner against

private respondent, not an original action filed by the latter to question
the validity of TCT No. 10101 on which the petitioner bases its right. To
rule on the issue of validity in a case for recovery of possession is
tantamount to a collateral attack. However, it should not be overlooked
that private respondent filed a counterclaim against petitioner,
claiming ownership over the land and seeking damages. Hence, we
could rule in the question of the validity of TCT No. 10101 for the
counterclaim can be considered a direct attack on the same. "A
counterclaim is considered a complaint, only this time, it is the original
defendant who becomes plaintiff . . . . It stands on the same footing
and is to be tested by the same rules as if it were an independent
action."

There

being

direct

attack

on

the

TCT

which

was

unfortunately ignored by the appellate court, it behooves this Court to

deal with and to dispose of the said issue more so because all the facts
and

evidence

necessary

for

complete

determination

of

the

controversy are already before us. Again, DBP instructs: . . . In an

analogous case, we ruled on the validity of a certificate of title despite
the fact that the original action instituted before the lower court was a
case for recovery of possession. The Court reasoned that since all the
facts of the case are before it, to direct the party to institute
cancellation proceedings would be needlessly circuitous and would
unnecessarily delay the termination of the controversy which has
already dragged on for 20 years.
6.TAXATION; REAL PROPERTY TAX CODE; REAL PROPERTY TAX; NOTICE
OF SALE TO THE DELINQUENT LAND OWNERS AND TO THE PUBLIC IN
GENERAL, AN ESSENTIAL AND INDISPENSABLE REQUIREMENT OF LAW,
THE NON-FULFILLMENT OF WHICH VITIATES THE SALE. We cannot
overemphasize that strict adherence to the statutes governing tax
sales is imperative not only for the protection of the taxpayers, but
also to allay any possible suspicion of collusion between the buyer and
the public officials called upon to enforce the laws. Notice of sale to the

delinquent land owners and to the public in general is an essential and

indispensable requirement of law, the non-fulfillment of which vitiates
the sale. Thus, the holding of a tax sale despite the absence of the
requisite notice is tantamount to a violation of delinquent taxpayer's
substantial right to due process. Administrative proceedings for the
sale of private lands for nonpayment of taxes being in personam, it is
essential that there be actual notice to the delinquent taxpayer,
otherwise the sale is null and void although preceded by proper
advertisement or publication.
7.ID.; ID.; ID.; ID.; NOTICE REQUIREMENT NOT COMPLIED WITH IN CASE
AT BAR. The Sarmiento spouses insist that they were not notified of
the tax sale. The trial court found otherwise, as it declared that a
notice was sent to the spouses' last known address. Such conclusion
constitutes the second fundamental error in the trial court's disposition
of the case as such conclusion is totally bereft of factual basis. When
findings of fact are conclusions without citation of specific evidence
upon which they are based, this Court is justified in reviewing such
finding. In herein case, the evidence does not support the conclusion
that notice of the tax sale was sent to the Sarmiento spouses' last
known address. What is clear from the evidence is that the Sarmiento
spouses were notified by mail after the subject property was already
sold, i.e., the notice that was sent to the last known address was the
"Notice of Sold Properties" and not the notice to hold a tax sale. This
was testified upon by third-party defendant Natividad M. Cabalquinto,
the Municipal Treasurer of Marikina, who swore that per her records,
neither notice of tax delinquency nor notice of tax sale was sent to the
Sarmiento spouses. Counsel for respondent RRC did not cross-examine
Ms. Cabalquinto on this on the theory that Ms. Cabalquinto had no
personal knowledge of the tax sale and the proceedings leading
thereto as she became Municipal Treasurer only in 1989.

8.ID.; ID.; ID.; ID.; ID.; NO PRESUMPTION OF THE REGULARITY OF ANY

ADMINISTRATIVE ACTION WHICH RESULTS IN DEPRIVING A TAXPAYER
OF HIS PROPERTY THROUGH A TAX SALE. Notwithstanding Ms.
Cabalquinto's lack of personal knowledge, her testimony that per
records in her possession no notice was actually sent to the Sarmiento
spouses is sufficient proof of the lack of such notice in the absence
of contrary proof coming from the purchaser in the tax sale, Mr. Puzon,
and from his eventual buyer, herein private respondent RRC. Be it
noted that under Section 73 of the Real PropertyTax Code,it is required
that a return of the proof of service to the registered owner be made
under oath and filed by the person making the service with the
provincial or city treasurer concerned. This implies that as far as tax
sales are concerned, there can be no presumption of the regularity of
any administrative action; hence the registered owner/delinquent
taxpayer does not have the burden of proof to show that, indeed, he
was not personally notified of the sale thru registered mail. There can
be no presumption of the regularity of any administrative action which
results in depriving a taxpayer of his property through a tax sale. This
is an exception to the rule that administrative proceedings are
presumed to be regular. This doctrine can be traced to the 1908 case
of Valencia v. Jimenez and Fuster where this Court held: The American
law does not create a presumption of the regularity of any
administrative action which results in depriving a citizen or taxpayer of
his property, but, on the contrary, the due process of law to be
followed in tax proceedings must be established by proof and the
general rule is that the purchaser of a tax title is bound to take upon
himself the burden of showing the regularity of all proceedings leading
up to the sale. The difficulty of supplying such proof has frequently
lead to efforts on the part of legislatures to avoid it by providing by
statute that a tax deed shall be deemed either conclusive or
presumptive proof of such regularity. Those statutes attributing to it a
conclusive effect have been held invalid as operating to deprive the

owner of his property without due process of law. But those creating a
presumption only have been sustained as affecting a rule of evidence,
changing nothing but the burden of proof. (Turpin v. Lemon, 187 U.S.,
51.) The tax law applicable to Manila does not attempt to give any
special probative effect to the deed of the assessor and collector, and
therefore leaves the purchaser to establish the regularity of all vital
steps in the assessment and sale.

DECISION

CHICO-NAZARIO, J p:
In a case for recovery of possession based on ownership (accion
reivindicatoria),

is

the

defendant's

third-party

complaint

for

cancellation of plaintiff's title a collateral attack on such title?

This is the primary issue that requires resolution in this petition for
review on certiorari of the Decision 1 of the Court of Appeals dated 27
November 2001 and its Resolution 2 dated 08 March 2002 affirming
the Decision of the Regional Trial Court (RTC) of Pasig, Branch 162, in
Civil Case No. 54151, finding for then plaintiff (private respondent
herein) Rodeanna Realty Corporation (RRC).
The relevant antecedents of this case have been summarized by the
Court of Appeals as follows:
The subject of the present controversy is a parcel of land
situated in Marikina covered by Transfer Certificate of
Title No. N-119631 and registered in the name of the
plaintiff-appellee RODEANNA REALTY CORPORATION.

The aforementioned land was previously owned by the

Sarmiento spouses by virtue of a deed of absolute sale
executed on July 17, 1972 and as evidenced by a Transfer
Certificate of Title No. 3700807. Upon acquisition of the
land, the Sarmiento spouses appointed PEDRO OGSINER
as their overseer.
On August 15, 1972, the subject land was mortgaged by
the Sarmiento spouses to Carlos Moran Sison (Mr. Sison)
as a security for a sixty-five thousand three hundred
seventy

pesos

and

25/100

loan

obtained

by

the

Sarmiento spouses from Mr. Sison.

Upon failure of the Sarmiento spouses to pay the loan, Mr.
Sison initiated the extra-judicial foreclosure sale of the
mortgaged property, and on October 20, 1977, the said
property was foreclosed through the Office of the Sheriff
of Rizal, which accordingly, issued a certificate of sale in
favor of Mr. Sison, and which Mr. Sison caused to be
annotated on the title of Sarmiento spouses on January
31, 1978.
On August 25, 1982, JOSE PUZON (Mr. Puzon) purchased
the same property in an auction sale conducted by the
Municipal Treasurer of Marikina for non-payment of taxes.
After paying P3,400.00, he was issued a certificate of sale
and caused it to be registered in the Registry of Deeds of
Marikina. No redemption having been made by the
Sarmiento spouses, a final bill of sale was issued in his
(Mr. Puzon) favor. Thereafter, Mr. Puzon filed a petition for
consolidation of ownership and issuance of new title over
the subject property before the Regional Trial Court of
Pasig, Branch 155. The said petition, which was docketed
as LRC Case No. T-3367, was granted by the court in its

Order dated August 03, 1984.

Thereafter, Transfer

Certificate of Title No. 102902 was issued in the name of

Jose Puzon.
On August 16, 1986, Mr. Puzon sold the property in
question to herein plaintiff-appellee. By virtue of such
sale, a transfer certificate of title over the subject
property was issued in favor of the plaintiff-appellee.
Records show that Mr. Puzon assured the plaintiffappellee that he (Jose Puzon) will take care of the
squatters in the subject property by filing an ejectment
case against them. However, Mr. Puzon failed to comply
with his promise.
On

December

19,

1986,

plaintiff-appellee

filed

complaint for recovery of possession with damages

against the Sarmiento spouses and Pedro Ogsiner, the
Sarmiento spouses' caretaker of the subject property who
refused to vacate the premises. In its complaint, plaintiffappellee alleged that the Sarmiento spouses lost all the
rights over the property in question when a certificate of
sale was executed in favor of Mr. Sison for their failure to
pay the mortgage loan.
On January 30, 1987, the Sarmiento spouses filed a
motion for leave to file a third-party complaint against Mr.
Sison, the Provincial Sheriff of Pasig, Mr. Puzon, the Judge
of Regional Trial Court of Branch 155 in LRC Case No. R3367 and the Register of Deeds of Marikina. On the same
date the Sarmiento spouses filed their answer to the
complaint. Expectedly, plaintiff-appellee opposed the
motion.

In its order dated June 16, 1987, the trial court denied the
motion of the Sarmiento spouses. Records show that the
said order of the trial court was set aside in a petition
for certiorari filed before this Court. Hence, the third-party
complaint was admitted. Consequently, Mr. Sison, the
Register of Deeds of Marikina filed their answer, while Mr.
Puzon filed a motion to dismiss the third-party complaint
on the grounds of misjoinder of causes of action and nonjurisdiction of the trial court over said third-party
complaint. In a motion to set for hearing its special and
affirmative defenses, the Register of Deeds of Marikina
moved for the dismissal of the third-party complaint
against them. The motion of Mr. Puzon was held in
abeyance by the trial court ratiocinating that the issues
raised in the motion still do not appear to be indubitable.
On October 20, 1988, Mr. Puzon filed his answer.
In its order dated February 22, 1989, the trial court
dismissed the third-party complaint against the Register
of Deeds of Marikina on the ground that the case may
proceed even without the Register of Deeds being
impleaded.
On April 29, 1991, the trial court issued its assailed
decision in favor of the plaintiff-appellee. A timely appeal
was filed by the Sarmiento spouses. In their manifestation
filed on July 17, 1989, the Heirs of Mr. Sison prayed for
substitution for their late father. Consequently, the Heirs
of Mr. Sison moved for new trial or reconsideration on the
ground that they were not properly represented in the
case after the death of Mr. Sison. In its order dated
November 28, 1991, the trial court granted the motion.

On February 4, 1993, the trial court dismissed the claim

of Mr. Sison as represented by his heirs, that he is the
beneficial owner of the subject property. In its order dated
May 18, 1993, the court a quo denied the motion for
reconsideration of the Heirs of Mr. Sison. 3
The dispositive portion of the trial court ruling dated 29 April 1991
reads as follows:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of plaintiff against all defendants:
1)ordering defendant Pedro Ogsiner and all persons
claiming rights under him to vacate the premises and
surrender peaceful possession to the plaintiff within
fifteen (15) days from receipt of this order;
2)ordering defendant spouses Sarmiento to pay the sum
of P20,000.00 as and for attorney's fees;
3)ordering the defendants jointly and severally to pay the
sum of P300.00 a month as reasonable compensation for
the use of the property in question starting June, 1986
until such time that they actually surrendered the
possession of the property to the plaintiff;
4)ordering defendant spouses Sarmiento to pay the cost
of this suit.
Defendant's third-party complaint against all third-party
defendants is hereby dismissed for lack of sufficient
merit. 4
On appeal by herein petitioners Amancio and Luisa Sarmiento
(Sarmiento spouses) and by the heirs of Carlos Moran Sison, the Court
of Appeals rendered the assailed Decision, dated 27 November 2001,
the dispositive portion of which reads:

WHEREFORE, for lack of merit, the instant appeal is

hereby DISMISSED. The assailed April 29, 1991 Decision
of the Regional Trial Court of Pasig, Metro Manila is hereby
AFFIRMED with the modification that the award of
P20,000.00 as attorney's fees is hereby DELETED. The
February 03, 1993 Resolution and the May 18, 1993 Order
of the trial court are also hereby AFFIRMED. 5
On 08 March 2002, the Court of Appeals rendered the assailed
Resolution denying petitioners' motion for reconsideration.
The Sarmiento spouses anchor their petition on the following legal
arguments:
1)The ruling of the Court of Appeals that private
respondent RRC's certificate of title cannot be
collaterally attacked and that their right to claim
ownership over the subject property is beyond the
province of the action for recovery of possession is
contrary to law and applicable decisions of the
Supreme Court;
2)The ruling of the Court of Appeals that private
respondent RRC is entitled to ownership of subject
property simply by virtue of its title as evidenced by
Transfer Certificate of Title (TCT) No. N-119631 is
contrary to law and jurisprudence and is not
supported by evidence; and
3)The affirmation by the Court of Appeals of the award of
rentals to private respondent RRC lacks factual and
legal basis.
First Issue:

The Court of Appeals, in holding that the third-party complaint of the

Sarmiento spouses amounted to a collateral attack on TCT No. N119631, ratiocinated as follows:
In resolving the errors/issues assigned by the herein
parties, We should be guided by the nature of action filed
by the plaintiff-appellee before the lower court, and as
previously shown it is an action for the recovery of
possession of the property in question with damages.
Thus, from the said nature of action, this Court believes
that the focal point of the case is whether or not the
plaintiff-appellee has a better right to possess the
contested real property. Corollary, it must also be
answered whether or not the Transfer Certificate of Title
No. N-119631 can be collaterally attacked in an action for
recovery of possession.
xxx xxx xxx
In their assigned errors, the Sarmiento spouses alleged
that the plaintiff-appellee is not a purchaser in good faith,
as

they

were

chargeable

with

the

knowledge

of

occupancy by Pedro Ogsiner in behalf of the Sarmiento

spouses, and that the auction sale of the property in favor
of Mr. Puzon is null and void for its failure to comply with
the requirement of notice provided by the law. The same
have been argued by the Heirs of Mr. Sison.

The above assertions, We rule, amounts to a collateral

attack on the certificate of title of the plaintiff-appellee. A
collateral attack is made when, in another action to
obtain a different relief, an attack on the judgment is
made as an incident in said action. This is proper only

when the judgment on its face is null and void, as where

it is patent that the court, which rendered said judgment
has no jurisdiction. On the other hand, a direct attack
against a judgment is made through an action or
proceeding the main object of which is to annul, set
aside, or enjoin the enforcement of such judgment, if not
carried into effect, or if the property has been disposed
of, the aggrieved party may sue for recovery.
In the present case, to rule for the nullity of the auction
sale in favor of Mr. Puzon will result in ruling for the nullity
of the order of Branch 155 of the Regional Trial Court of
Pasig City, granting the petition for consolidation of
ownership over the subject property filed by Mr. Puzon. It
will also result in the nullity of title issued in the name of
Mr. Puzon. Hence, the end objective in raising the
aforementioned arguments is to nullify the title in the
name of the plaintiff-appellee. In fact, a reading of the
answer of the Sarmiento spouses and the Heirs of Mr.
Sison reveals that they are asking the court to nullify all
documents and proceedings which led to the issuance of
title in favor of the plaintiff-appellee. This is obviously a
collateral attack which is not allowed under the principle
of indefeasibility of torrens title. The issue of validity of
plaintiff-appellee's title can only be raised in an action
expressly instituted for that purpose. A certificate of title
shall not be subject to collateral attack. It cannot be
altered,

modified,

or

canceled

except

in

direct

proceeding in accordance with law. Case law on the

matter shows that the said doctrine applies not only with
respect to the original certificate of title but also to
transfer certificate of title. Hence, whether or not the
plaintiff-appellee has a right to claim ownership over the

subject property is beyond the province of the present

action. It does not matter whether the plaintiffappellee's

title

is

questionable

because

this

is only a suit for recovery of possession. It should

be raised in a proper action for annulment of
questioned

documents

considering

that

it

will

and
not

proceedings,
be

procedurally

unsound for the affected parties to seek for such

remedy. In an action to recover possession of real
property, attacking a transfer certificate of title covering
the subject property is an improper procedure. The rule is
well-settled that a torrens title as a rule, is irrevocable
and indefeasible, and the duty of the court is to see to it
that this title is maintained and respected unless
challenged

in

direct

proceeding. 6 (Emphasis

and

underscoring supplied) DEcTCa

An action is deemed an attack on a title when the object of the action
or proceeding is to nullify the title, and thus challenge the judgment
pursuant to which the title was decreed. 7 The attack is direct when
the object of the action is to annul or set aside such judgment, or
enjoin its enforcement. 8 On the other hand, the attack is indirect or
collateral when, in an action to obtain a different relief, an attack on
the judgment is nevertheless made as an incident thereof. 9
In its analysis of the controversy, the Court of Appeals, alas, missed
one very crucial detail which would have turned the tide in favor of the
Sarmiento spouses. What the Court of Appeals failed to consider is that
Civil Case No. 54151 does not merely consist of the case for recovery
of possession of property (filed by RRC against the Sarmiento spouses)
but embraces as well the third-party complaint filed by the Sarmiento
spouses against Carlos Moran Sison, Jose F. Puzon (Mr. Puzon), the
Provincial Sheriff of Pasig, Metro Manila, the Municipal Treasurer of

Marikina, Rizal, the Judge of the RTC, Branch 155, in LRC Case No. R3367 and the Register of Deeds of the then Municipality of Marikina,
Province of Rizal.
The rule on third-party complaints is found in Section 22, Rule 6 of the
1997 Rules of Court, which reads:
Sec. 22.Third, (fourth, etc.)-party complaint. A third
(fourth, etc.)-party complaint is a claim that a defending
party may, with leave of court, file against a person not a
party to the action, called the third-party defendant, for
contribution, indemnity, subrogation or any other relief, in
respect of his opponent's claim.
A third-party complaint is in the nature of an original complaint. This is
so because it is "actually independent of and separate and distinct
from the plaintiff's complaint." 10 In herein case, after leave of court
was

secured 11 to

file

third-party

complaint,

the

third-party

complainants (Sarmiento spouses) had to pay the necessary docket

fees. 12 Summonses

were

then

issued

on

the

third-party

defendants 13 who answered in due time. 14

In Firestone

Tire

and

Rubber

Company

of

the

Philippines

v.

Tempongko, 15 we had occasion to expound on the nature of a thirdparty complaint, thus:

The third-party complaint, is therefore, a procedural
device whereby a "third party" who is neither a party nor
privy to the act or deed complained of by the plaintiff,
may be brought into the case with leave of court, by the
defendant, who acts as third-party plaintiff to enforce
against

such

third-party

defendant

right

for

contribution, indemnity, subrogation or any other relief, in

respect

of

the

plaintiff's

claim. The

third-party

complaint is actually independent of and separate

and distinct from the plaintiff's complaint. Were it

not for this provision of the Rules of Court, it would
have to be filed independently and separately from
the original complaint by the defendant against
the third-party. But the Rules permit defendant to bring
in a third-party defendant or so to speak, to litigate his
separate cause of action in respect of plaintiff's claim
against a third party in the original and principal case
with the object of avoiding circuity of action and
unnecessary proliferation of lawsuits and of disposing
expeditiously in one litigation the entire subject matter
arising from one particular set of facts. . . When leave to
file the third-party complaint is properly granted, the
Court renders in effect two judgments in the same case,
one on the plaintiff's complaint and the other on the
third-party complaint. (Emphasis supplied)
Prescinding from the foregoing, the appellate court grievously erred in
failing

to

appreciate

the

legal

ramifications

of

the

third-party

complaint vis--visthe original complaint for recovery of possession of

property. The third-party complaint for cancellation of TCT being in the
nature of an original complaint for cancellation of TCT, it therefore
constitutes a direct attack of such TCT.
The situation at bar can be likened to a case for recovery of possession
wherein the defendant files a counterclaim against the plaintiff
attacking the validity of the latter's title. Like a third-party complaint, a
counterclaim is considered an original complaint, as such, the attack
on the title in a case originally for recovery of possession cannot be
considered as a collateral attack. We thus held in Development Bank of
the Philippines (DBP) v. Court of Appeals: 16
Nor is there any obstacle to the determination of the
validity of TCT No. 10101. It is true that the indefeasibility

of torrens titles cannot be collaterally attacked. In the

instant case, the original complaint is for recovery of
possession filed by petitioner against private respondent,
not an original action filed by the latter to question the
validity of TCT No. 10101 on which the petitioner bases
its right. To rule on the issue of validity in a case for
recovery of possession is tantamount to a collateral
attack. However, it should not be overlooked that private
respondent

filed

counterclaim

against

petitioner,

claiming ownership over the land and seeking damages.

Hence, we could rule in the question of the validity of TCT
No. 10101 for the counterclaim can be considered a direct
attack on the same. "A counterclaim is considered a
complaint, only this time, it is the original defendant who
becomes plaintiff . . . It stands on the same footing and is
to be tested by the same rules as if it were an
independent action."
There being a direct attack on the TCT which was unfortunately ignored
by the appellate court, it behooves this Court to deal with and to
dispose of the said issue more so because all the facts and evidence
necessary for a complete determination of the controversy are already
before us. Again, DBP instructs:
. . . In an analogous case, we ruled on the validity of a
certificate of title despite the fact that the original action
instituted before the lower court was a case for recovery
of possession. The Court reasoned that since all the facts
of the case are before it, to direct the party to institute
cancellation proceedings would be needlessly circuitous
and would unnecessarily delay the termination of the
controversy which has already dragged on for 20
years. 17

Second Issue:
In their third-party complaint, as amended, the Sarmiento spouses
asserted six causes of action. The second 18 to sixth causes of action
referred to the proceedings leading to and resulting from the tax sale
held on 28 August 1982, summarized by the trial court as follows:
. . . Third Party Plaintiffs alleged that on August 28, 1982,
the Municipal Treasurer of Marikina sold at public auction,
the same property in favor of Jose F. Puzon for tax
deficiency at the price of Three Thousand Three Hundred
Eighty Four Pesos and 89/100 (P3,383.89) which is very
low considering that the area of the property is 1,060
square meters; that they were not notified of the public
auction sale and further, the requirements, such as
posting

of

notices

in

public

places,

among

other

requirements, were not complied with; that since the

property was sold at a very low price, the public auction
sale and the Certificate of Sale issued by Municipal
Treasurer of Marikina in favor of third party defendant
Jose F. Puzon are null and void; that in August 1984, the
third

party

defendant

in

order

to

consolidate

his

ownership and title to the property filed a Petition with

the Land Registration Commission in the Regional Trial
Court, Branch 155, Pasig, Metro Manila in LRC Case No. R3367, for consolidation of his ownership and title; that
third party plaintiffs were not notified thereof and did not
have their day in Court; hence, the order of the Judge of
the

Regional

trial

Court

in

LRC

Case

No.

R-3367

authorizing the consolidation of the ownership and title of

Jose F. Puzon is null and void, that Jose F. Puzon after
having been issued a new title in his name sold in June

1986, the property in favor of plaintiff RODEANNA REALTY

CORPORATION. 19

The Sarmiento spouses thus prayed that: (a) the certificate of sale
executed by the Municipal Treasurer of the then Municipality of
Marikina, Rizal, in favor of Mr. Puzon be declared null and void and all
subsequent transactions therefrom declared null and void as well; (b)
the Order of the RTC in LRC Case No. R-3367, authorizing the
consolidation of ownership of and issuance of new TCT No. 102909 in
favor of Mr. Puzon, be declared null and void; (c) the Register of Deeds
be directed to cancel the Certificate of Sale and TCT No. 102909 issued
in favor of Mr. Puzon as well as TCT No. N-119631 issued in the name of
RRC and that TCT No. 370807 in the name of the Sarmiento spouses be
restored; (d) all third-party defendants be made to pay, jointly and
severally, moral and exemplary damages such amount as to be fixed
by the court as well as attorney's fees in the amount of P10,000.00;
and (e) Mr. Puzon be made to pay P500,000.00 the actual value of
the property at the time of the tax sale in the remote event that the
title of RRC is not invalidated. TDcAIH
The trial court held that the Sarmiento spouses were not entitled to the
relief sought by them as there was nothing irregular in the way the tax
sale was effected, thus:
Defendants Sarmiento aver that they were not notified of
the auction sale of the property by the Municipal
Treasurer of Marikina. However, the Court would like to
point out that during the examination of Amancio
Sarmiento, he testified that in 1969 or 1970, he started
residing at No. 13 19th Avenue, Cubao, Quezon City; that
his property was titled in 1972; that he transferred his
residence from Cubao to No. 76 Malumanay Street,

Quezon City but he did not inform the Municipal Treasurer

of the said transfer. Hence, notice was directed to his last
known address.
xxx xxx xxx
The law requires posting of notice and publication.
Personal notice to

the delinquent taxpayer

is

not

required. In the case at bar, notice was sent to

defendants (sic) address at No. 12 13th Avenue, Cubao
Quezon City. If said notice did not reach the defendant, it
is because of defendants' fault in not notifying the
Municipal Treasurer of Marikina of their change of
address. 20
The above-quoted ratiocination does not sit well with this Court for two
fundamental reasons. First, the trial court erroneously declared that
personal notice to the delinquent taxpayer is not required. On the
contrary, personal notice to the delinquent taxpayer is required as a
prerequisite

to

valid

tax

sale

under

the

Real

Property Tax

Code, 21 the law then prevailing at the time of the tax sale on 28
August 1982. 22
Section 73 of the Real Property Tax Code provides:
Sec. 73.Advertisement of sale of real property at public
auction. After the expiration of the year for which the
tax is due, the provincial or city treasurer shall advertise
the sale at public auction of the entire delinquent real
property, except real property mentioned in subsection
(a) of Section forty hereof, to satisfy all the taxes and
penalties due and the costs of sale. Such advertisement
shall be made by posting a notice for three consecutive
weeks at the main entrance of the provincial building and
of all municipal buildings in the province, or at the main

entrance of the city or municipal hall in the case of cities,

and in a public and conspicuous place in barrio or district
wherein the property is situated, in English, Spanish and
the local dialect commonly used, and by announcement
at least three market days at the market by crier, and, in
the discretion of the provincial or city treasurer, by
publication once a week for three consecutive weeks in a
newspaper

of

general

circulation

published

in

the

province or city.
The notice, publication, and announcement by crier shall
state the amount of the taxes, penalties and costs of sale;
the date, hour, and place of sale, the name of the
taxpayer against whom the tax was assessed; and the
kind or nature of property and, if land, its approximate
areas, lot number, and location stating the street and
block number, district or barrio, municipality and the
province or city where the property to be sold is situated.
Copy of the notice shall forthwith be sent either by
registered mail or by messenger, or through the
barrio captain, to the delinquent taxpayer, at his
address as shown in the tax rolls or property tax
record cards of the municipality or city where the
property is located, or at his residence, if known to
said treasurer or barrio captain: Provided, however,
That a return of the proof of service under oath shall be
filed by the person making the service with the provincial
or city treasurer concerned. (Emphasis supplied)
We cannot overemphasize that strict adherence to the statutes
governing tax sales is imperative not only for the protection of the
taxpayers, but also to allay any possible suspicion of collusion between
the buyer and the public officials called upon to enforce the

laws. 23 Notice of sale to the delinquent land owners and to the public
in general is an essential and indispensable requirement of law, the
non-fulfillment of which vitiates the sale. 24 Thus, the holding of a tax
sale despite the absence of the requisite notice is tantamount to a
violation

of

delinquent

taxpayer's

substantial

right

to

due

process. 25Administrative proceedings for the sale of private lands for

nonpayment of taxes being in personam, it is essential that there be
actual notice to the delinquent taxpayer, otherwise the sale is null and
void although preceded by proper advertisement or publication. 26
The consequential issue in this case, therefore, is whether or not the
registered owners the Sarmiento spouses were personally notified
that a tax sale was to be conducted on 28 August 1982.
The Sarmiento spouses insist that they were not notified of the tax
sale. The trial court found otherwise, as it declared that a notice was
sent to the spouses' last known address. Such conclusion constitutes
the second fundamental error in the trial court's disposition of the case
as such conclusion is totally bereft of factual basis. When findings of
fact are conclusions without citation of specific evidence upon which
they are based, this Court is justified in reviewing such finding. 27
In herein case, the evidence does not support the conclusion that
notice of the tax sale was sent to the Sarmiento spouses' last known
address. What is clear from the evidence is that the Sarmiento spouses
were notified by mail after the subject property was already sold, i.e.,
the notice that was sent to the last known address was the "Notice of
Sold Properties" and not the notice to hold a tax sale. 28 This was
testified upon by third-party defendant Natividad M. Cabalquinto, the
Municipal Treasurer of Marikina, who swore that per her records,
neither notice of tax delinquency nor notice of tax sale was sent to the
Sarmiento spouses. 29 Counsel for respondent RRC did not crossexamine Ms. Cabalquinto on this on the theory that Ms. Cabalquinto

had no personal knowledge of the tax sale and the proceedings leading
thereto as she became Municipal Treasurer only in 1989. 30
Notwithstanding Ms. Cabalquinto's lack of personal knowledge, her
testimony that per records in her possession no notice was actually
sent to the Sarmiento spouses is sufficient proof of the lack of such
notice in the absence of contrary proof coming from the purchaser in
the tax sale, Mr. Puzon, and from his eventual buyer, herein private
respondent RRC. Be it noted that under Section 73 of the Real
Property Tax Code,it is required that a return of the proof of service to
the registered owner be made under oath and filed by the person
making the service with the provincial or city treasurer concerned. This
implies that as far as tax sales are concerned, there can be no
presumption of the regularity of any administrative action; hence the
registered owner/delinquent taxpayer does not have the burden of
proof to show that, indeed, he was not personally notified of the sale
thru registered mail. EcDTIH
There can be no presumption of the regularity of any administrative
action which results in depriving a taxpayer of his property through a
tax sale. 31 This is an exception to the rule that administrative
proceedings are presumed to be regular. 32 This doctrine can be
traced to the 1908 case of Valencia v. Jimenez and Fuster 33 where
this Court held:
The American law does not create a presumption of the
regularity of any administrative action which results in
depriving a citizen or taxpayer of his property, but, on the
contrary, the due process of law to be followed in tax
proceedings must be established by proof and the
general rule is that the purchaser of a tax title is bound to
take upon himself the burden of showing the regularity of
all proceedings leading up to the sale. The difficulty of
supplying such proof has frequently lead to efforts on the

part of legislatures to avoid it by providing by statute that

a tax deed shall be deemed either conclusive or
presumptive proof of such regularity.
Those statutes attributing to it a conclusive effect have
been held invalid as operating to deprive the owner of his
property without due process of law. But those creating a
presumption only have been sustained as affecting a rule
of evidence, changing nothing but the burden of proof.
(Turpin v. Lemon, 187 U.S., 51.)
The tax law applicable to Manila does not attempt to give
any special probative effect to the deed of the assessor
and collector, and therefore leaves the purchaser to
establish

the

regularity

of

all

vital

steps

in

the

assessment and sale.

In the fairly recent case of Requiron v. Sinaban, 34 we had occasion to
reiterate the doctrine laid down in Valencia with respect specifically to
tax sales conducted under Commonwealth Act No. 470 (Assessment
Law).

Nevertheless,

no

substantial

variance

exists

between

Commonwealth Act No. 470 and the Real Property Tax Code,which took
effect on 01 June 1974, concerning the required procedure in the
conduct of public auction sale involving real properties with tax
delinquencies. 35

In sum, for failure of the purchaser in the tax sale (third-party

defendant Mr. Puzon) to prove that notice of the tax sale was sent to
the Sarmiento spouses, such sale is null and void.
As the tax sale was null and void, the title of the buyer therein (Mr.
Puzon) was also null and void, which thus leads us to the question of
who between petitioners and private respondent RRC has the right to
possess the subject property.

In its complaint for recovery of possession with damages filed before

the trial court, RRC averred that it is the present registered owner of
the subject land which it bought from Mr. Puzon, who was then the
registered owner thereof, free from liens and encumbrances. It also
stated that therein defendant Pedro Ogsiner was an illegal occupant as
he was the overseer for the Sarmiento spouses who no longer had any
title to or rights over the property. It thus prayed that Pedro Ogsiner
vacate the property and that he and the Sarmiento spouses be ordered
to pay attorney's fees and rent in the amount of P500.00 monthly from
1984 until Pedro Ogsiner finally vacates the land. 36
In their Answer, 37 the Sarmiento spouses invoked certain affirmative
defenses, to wit:
(1)The certificate of sale issued by the Municipal Treasurer of
Marikina, Rizal, the order authorizing consolidation of ownership and
the issuance of a new title all in favor of Mr. Puzon were null and
void as the Sarmiento spouses and Pedro Ogsiner were not notified
of the tax sale;
(2)Mr. Puzon, knowing that the sale of the subject property by the
Municipal Treasurer of Marikina was null and void, still sold the same
to herein private respondent RRC; and
(3)RRC purchased the property in bad faith, thus the sale to it was
null and void.
A complaint for recovery of possession based on ownership (accion
reivindicatoria or accion reivindicacion) is an action whereby the
plaintiff alleges ownership over a parcel of land and seeks recovery of
its full possession. 38 As possession is sought based on ownership, we
must inquire into the title of RRC which it acquired from Mr. Puzon who,
in turn, derived his title from the void tax sale.
The void tax sale notwithstanding, RRC's title cannot be assailed if it is
a purchaser in good faith and for value. 39

In its narration of the facts, the trial court acknowledged that RRC
through its President, Roberto Siy, and through its representative,
Lorenzo Tabilog conducted an ocular inspection of the subject land
and found therein that its actual occupant, Pedro Ogsiner, had a house
erected thereon and that such occupant was the overseer for the
Sarmiento

spouses

who

claimed

ownership

over

the

subject

land. 40 Armed with this knowledge, RRC did only one thing: it offered
Pedro Ogsiner P2,000.00 to vacate the subject property. 41 Relying on
the fact that the TCT in Mr. Puzon's name was free of liens and
encumbrances and that Mr. Puzon would take care of the "squatters,"
RRC did not investigate whatever claim Pedro Ogsiner and the
Sarmiento spouses had over the subject land.
From the foregoing undisputed facts, the trial court held:
There is no doubt that when the plaintiff Rodeanna Realty
Corporation purchased the property, there was a title in
the name of Jose Puzon, thus, making them a purchaser
(sic) in good faith and for value. Said buyers relied on the
owners (sic) title which is free and clear of all liens and
encumbrances.
xxx xxx xxx
After a careful evaluation of the facts of this case, the
Court believes that plaintiff is entitled to the relief sought
for. As enunciated in the case ofCarmelita E. Reyes vs.
Intermediate

Appellate

Court,

Gregorio

Galang

and

Soledad Pangilinan (No. L-60941, February 28, 1985, 135

SCRA 214), a contract of sale between a buyer from
public auction of land sold for unpaid realty taxes and
subsequent innocent purchaser in good faith and for
value is valid whether or not the City Treasurer followed
the prescribed procedure.

In the case at bar, assuming that the Municipal Treasurer

of Marikina failed to comply with certain procedure, it
does not follow that the Rodeanna Realty Corporation has
no valid title. For as they have asserted, they are
purchaser in good faith and for value in the amount of
P190,000.00. There is nothing in the record which would
show that they were aware or they were party to the
alleged irregularities. Hence, title of Rodeanna Realty
Corporation cannot now be assailed (William vs. Barrera,
68 Phil. 656; PMHC vs. Mencias, August 16, 1967, 20
SCRA 1031; Pascua vs. Capuyos, 77 SCRA 78). 42
In affirming the trial court, the Court of Appeals ruled:
As proven by the plaintiff-appellee, they obtained the
property in question from Mr. Puzon, who in turn acquired
it in a public auction conducted by the Municipality of
Marikina. By virtue of the sale by Mr. Puzon to plaintiffappellee, TCT No. N-119631 was issued in its name. The
best proof of ownership of a piece of land is the
certificate of title. The certificate of title is considered the
evidence

of

plaintiff-appellee's

ownership

over

the

subject real property, and as its registered owner, it is

entitled to its possession. Hence, as compared to the
Sarmiento spouses whose previous title over the subject
property has been cancelled, and to the Heirs of Mr.
Sison, who had not shown any better proof of ownership,
the plaintiff-appellee, as evidenced by its certificate of
title, has superior right to possess the contested property.
. . . 43
Verily, every person dealing with registered land may safely rely on the
correctness of the certificate of title issued therefor and the law will in
no way oblige him to go behind the certificate to determine the

condition of the property. 44 Thus, the general rule is that a purchaser

may be considered a purchaser in good faith when he has examined
the latest certificate of title. 45 An exception to this rule is when there
exist important facts that would create suspicion in an otherwise
reasonable man to go beyond the present title and to investigate those
that preceded it. Thus, it has been said that a person who deliberately
ignores a significant fact which would create suspicion in an otherwise
reasonable man is not an innocent purchaser for value. 46A 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. 47 As we have held:
The failure of appellees to take the ordinary precautions
which a prudent man would have taken under the
circumstances, specially in buying a piece of land in the
actual,

visible

and

public possession

of

another

person, other than the vendor, constitutes gross

negligence amounting to bad faith.
In this connection, it has been held that where, as in this
case, the land sold is in the possession of a person
other than the vendor, the purchaser is required to go
beyond

the

certificate

of

title

to

ma[k]e

inquiries

concerning the rights of the actual possessor. Failure to

do so would make him a purchaser in bad faith. (Citations
omitted).
xxx xxx xxx
One who purchases real property which is in the actual
possession of another should, at least make some inquiry
concerning the right of those in possession. The actual
possession by other than the vendor should, at least put
the purchaser upon inquiry. He can scarely, in the

absence of such inquiry, be regarded as a bona fide

purchaser

as

against

such

possessors. 48 (Emphasis

supplied)
Prescinding from the foregoing, the fact that private respondent RRC
did not investigate the Sarmiento spouses' claim over the subject land
despite its knowledge that Pedro Ogsiner, as their overseer, was in
actual possession thereof means that it was not an innocent purchaser
for value upon said land.Article 524 of the Civil Code directs that
possession may be exercised in one's name or in that of another. In
herein case, Pedro Ogsiner had informed RRC that he was occupying
the subject land on behalf of the Sarmiento spouses. Being a
corporation engaged in the business of buying and selling real
estate,49 it was gross negligence on its part to merely rely on Mr.
Puzon's assurance that the occupants of the property were mere
squatters considering the invaluable information it acquired from Pedro
Ogsiner and considering further that it had the means and the
opportunity to investigate for itself the accuracy of such information.
Third Issue:
As it is the Sarmiento spouses, as exercised by their overseer Pedro
Ogsiner, who have the right of possession over the subject property,
they cannot be made to pay rent to private respondent RRC.
WHEREFORE, premises considered, the Decision of the Court of
Appeals dated 27 November 2001 and its Resolution dated 08 March
2002 are REVERSED and SET ASIDE. The public auction sale conducted
on 28 August 1982 is declared VOID for lack of notice to the registered
owners Amancio and Luisa Sarmiento. Transfer Certificate of Title No.
N-119631 of the Registry of Deeds of what was then the Municipality of
Marikina, Province of Rizal, in the name of Rodeanna Realty
Corporation is hereby ANNULLED. The Register of Deeds of Marikina
City, Metro Manila, is ordered to cancel TCT No. N-119631 and to issue,

in lieu thereof, a new title in the name of spouses Amancio and Luisa
Sarmiento. Costs against private respondent RRC.
SO ORDERED.
Puno, Austria-Martinez, Callejo, Sr. and Tinga, JJ., concur.

Footnotes

1.Penned by Associate Justice Perlita J. Tria Tirona with Associate

Justices Ramon A. Barcelona and Bernardo P. Abesamis
concurring, Rollo, pp. 38-48.
2.Penned by Associate Justice Perlita J. Tria Tirona with Associate
Justices Conchita Carpio-Morales (now a member of this Court)
and Bernardo P. Abesamis concurring, Rollo, pp. 49-50.
3.Rollo, pp. 39-42.

4.Rollo, pp. 68-69.

5.Rollo, p. 48
6.Rollo, pp. 45-47.
7.Malilin, Jr. v. Castillo, G.R. No. 136803, 16 June 2000, 333 SCRA 628,
640.
8.Ibid.
9.Ibid.
10.Firestone Tire and Rubber Company of the Philippines v.
Tempongko, No. L-24399, 28 March 1969, 27 SCRA 418, 423.
11.The Motion to file a third-party complaint was initially denied by
the trial court on 16 June 1987 while the motion for

reconsideration was denied on 22 July 1987 (Records, pp. 5455, 65). The Sarmiento spouses then elevated the denial to the
Court of Appeals via a Petition for Certiorari. The Fourteenth
Division of the appellate court, composed of Associate Justices
Fidel P. Purisima, Emeterio C. Cui and Jesus M. Elbinias, set
aside the trial court's orders and ordered, instead, the
admission of the Sarmiento spouses' third-party complaint
(Records, pp. 166-170).
12.See Order of the trial court dated 25 January 1988 (Records, p.
121).
13.Ibid.
14.Third-Party defendant Carlos Moran Sison answered on 24 March
1988 (Records, pp. 137-146). Third-Party Register of Deeds of
Marikina filed its Answer on 06 May 1988 (Records, pp. 157160). Defendant Puzon filed his "Answer with Counterclaim" on
20 October 1988 (Records, pp. 214-218) while he filed his
supplemental answer to the amended third-party complaint on
26 July 1989 (Rollo, pp. 146-147). RRC likewise filed its Answer
to the third-party complaint (Rollo, pp. 148-149).
15.Supra, note 10.
16.G.R. No. 129471, 28 April 2000, 331 SCRA 267, 286-287 (citing A.
Francisco Realty and Development Corp. v. Court of Appeals,
G.R. No. 125055, 30 October 1998, 298 SCRA 349, 358). See
also Heirs of Simplicio Santiago v. Heirs of Mariano Santiago,
G.R. No. 151440, 17 June 2003, 404 SCRA 193, 203-204.
17.Id. at 287 (citing Mendoza v. Court of Appeals, No. L-62089, 09
March 1988, 158 SCRA 508, 512-514). The instant controversy,
on the other hand, is approaching its 19th anniversary, the
complaint for recovery of possession having been filed before
the RTC on 19 December 1986.

18.The first cause of action does not have direct bearing on the
present petition as the same was made against Mr. Sison, the
mortgagee who was able to foreclose the subject property and
who had his right annotated on the title which was then still in
the name of the Sarmiento spouses. It will be recalled that Mr.
Sison failed to consolidate his title to the property despite nonredemption by the Sarmiento spouses. When the title to the
property was transferred to Mr. Puzon, the highest bidder in the
tax sale, the TCT no longer carried Mr. Sison's annotation. The
trial court ruled in favor of RRC, the plaintiff in the case for
recovery of possession and against the Sarmiento spouses and
Mr. Sison. The heirs of Sison, after having been substituted for
their late father, seasonably filed a motion for new trial which
motion was granted. After trial, however, the trial court
dismissed the claim of Mr. Sison, as represented by his heirs,
that he is the beneficial owner of the subject property. The trial
court denied the motion for reconsideration of the heirs of Sison
who then timely appealed to the Court of Appeals. The Court of
Appeals, however, affirmed the ruling of the trial court. It does
not appear from the records of the case that the heirs of
Sison appealed the Court of Appeals decision to this
Court. Before this Court, when required to comment to the
instant petition filed by the Sarmiento spouses, the heirs of
Sison, namely George (Rollo, p. 218), Luis (Rollo, p. 221) and
Margarita (Rollo, pp. 227, 230), manifested that they will not
file any comment and that they are willing to comply with the
petition. Ricardo Sison, another heir, manifested that he had no
objection to the instant petition (Rollo, p. 260).
19.Rollo, pp. 52-53.
20.Rollo, pp. 66-68.

21.Puzon v. Abellera, G.R. No. 75082, 31 January 1989, 169 SCRA

789, 795.
22.The Real Property Tax Code was the precursor of the Local
Government Code of 1991 (Republic Act No. 7160). At present,
the notice requirement in tax sales is set forth in Section 178
of Rep. Act No. 7160:
SECTION 178. Advertisement and Sale. Within thirty (30) days after
the levy, the local treasurer shall proceed to publicly advertise
for sale or auction the property or a usable portion thereof as
may be necessary to satisfy the claim and cost of sale; and
such advertisement shall cover a period of at least thirty (30)
days. It shall be effected by posting a notice at the main
entrance of the municipal building or city hall, and in a public
and conspicuous place in the barangay where the real property
is located, and by publication once a week for three (3) weeks
in a newspaper of general circulation in the province, city or
municipality where the property is located. The advertisement
shall contain the amount of taxes, fees, or charges are levied,
and a short description of the property to be sold. At any time
before the date fixed for the sale, the taxpayer may stay they
proceedings by paying the taxes, fees, charges, penalties and
interests. If he fails to do so, the sale shall proceed and shall be
held either at the main entrance of the provincial, city or
municipal building, or on the property to be sold, or at any
other place as determined by the local treasurer conducting the
sale and specified in the notice of sale.
Within thirty (30) days after the sale, the local treasurer or his deputy
shall make a report of the sale to the sanggunian concerned,
and which shall form part of his records. After consultation with
the sanggunian, the local treasurer shall make and deliver to
the purchaser a certificate of sale, showing the proceeding of

the sale, describing the property sold, stating the name of the
purchaser and setting out the exact amount of all taxes, fees,
charges,

and

related

surcharges,

interests,

or

penalties: Provided, however, That any excess in the proceeds

of the sale over the claim and cost of sales shall be turned over
to the owner of the property.
The local treasurer may, by ordinance duly approved, advance an
amount sufficient to defray the costs of collection by means of
the

remedies

provided

for

in

this

Title,

including

the

preservation or transportation in case of personal property, and

the advertisement and subsequent sale, in cases of personal
and real property including improvements thereon.
||| (Spouses Sarmiento v. Court of Appeals, G.R. No. 152627,
[September 16, 2005], 507 PHIL 101-129)

THIRD DIVISION
[G.R. No. 171460. July 27, 2007.]
LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and
JULIAN

MERCADO,

JR.,

represented

by

their

Attorney-In-Fact, ALFREDO M. PEREZ,petitioners, vs.

ALLIED BANKING CORPORATION, respondent.

DECISION

CHICO-NAZARIO, J p:
Before this Court is a Petition for Review on Certiorari under Rule 45 of
the Revised Rules of Court, filed by petitioners Lillian N. Mercado,
Cynthia M. Fekaris and Julian Mercado, Jr., represented by their
Attorney-In-Fact, Alfredo M. Perez, seeking to reverse and set aside the
Decision 1 of the Court of Appeals dated 12 October 2005, and its
Resolution 2 dated 15 February 2006 in CA-G.R. CV No. 82636. The
Court of Appeals, in its assailed Decision and Resolution, reversed the
Decision 3 of the Regional Trial Court (RTC) of Quezon City, Branch 220
dated 23 September 2003, declaring the deeds of real estate mortgage
constituted on TCT No. RT-18206 (106338) null and void. The
dispositive portion of the assailed Court of Appeals Decision thus
reads:
WHEREFORE, the appealed decision is REVERSED and
SET ASIDE, and a new judgment is hereby entered
dismissing the [petitioners] complaint. 4
Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her
lifetime, owned several pieces of real property situated in different
provinces of the Philippines.
Respondent, on the other hand, is a banking institution duly authorized
as such under the Philippine laws.
On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in
favor of her husband, Julian D. Mercado (Julian) over several pieces of
real property registered under her name, authorizing the latter to
perform the following acts:

1. To act in my behalf, to sell, alienate, mortgage, lease

and deal otherwise over the different parcels of
land described hereinafter, to wit:
a) Calapan, Oriental Mindoro Properties covered by
Transfer Certificates of Title Nos. T-53618
3,522
Square

Square
Meters,

Meters,

T-46810

T-53140

177

3,953
Square

Meters, T-21403 263 Square Meters, T46807 39 Square Meters of the Registry of
Deeds of Oriental Mindoro;
b) Susana Heights, Muntinlupa covered by Transfer
Certificates of Title Nos. T-108954 600
Square

Meters

and RT-106338

805

Square Meters of the Registry of Deeds

of Pasig (now Makati);
c) Personal property 1983 Car with Vehicle
Registration No. R-16381; Model 1983; Make
Toyota; Engine No. T-2464. IECcAT
2. To sign for and in my behalf any act of strict dominion
or ownership any sale, disposition, mortgage, lease
or any other transactions including quit-claims,
waiver and relinquishment of rights in and over the
parcels of land situated in General Trias, Cavite,
covered by Transfer Certificates of Title Nos. T112254 and T-112255 of the Registry of Deeds of
Cavite, in conjunction with his co-owner and in the
person ATTY. AUGUSTO F. DEL ROSARIO;
3. To exercise any or all acts of strict dominion or
ownership over the above-mentioned properties,
rights and interest therein. (Emphasis supplied.)

On the strength of the aforesaid SPA, Julian, on 12 December 1996,

obtained a loan from the respondent in the amount of P3,000,000.00,
secured by real estate mortgage constituted on TCT No. RT-18206
(106338) which covers a parcel of land with an area of 805 square
meters, registered with the Registry of Deeds of Quezon City (subject
property). 5
Still using the subject property as security, Julian obtained an
additional loan from the respondent in the sum of P5,000,000.00,
evidenced by a Promissory Note 6 he executed on 5 February 1997 as
another real estate mortgage (REM).
It appears, however, that there was no property identified in the SPA
as TCT No. RT-18206 (106338) and registered with the Registry of
Deeds of Quezon City. What was identified in the SPA instead was
the

property

covered

by TCT

No.

RT-106338 registered

with

the Registry of Deeds of Pasig.

Subsequently, Julian defaulted on the payment of his loan obligations.
Thus, respondent initiated extra-judicial foreclosure proceedings over
the subject property which was subsequently sold at public auction
wherein the respondent was declared as the highest bidder as shown
in the Sheriff's Certificate of Sale dated 15 January 1998. 7
On 23 March 1999, petitioners initiated with the RTC an action for the
annulment of REM constituted over the subject property on the ground
that the same was not covered by the SPA and that the said SPA, at the
time the loan obligations were contracted, no longer had force and
effect since it was previously revoked by Perla on 10 March 1993, as
evidenced by the Revocation of SPA signed by the latter. 8
Petitioners likewise alleged that together with the copy of the
Revocation of SPA, Perla, in a Letter dated 23 January 1996, notified
the Registry of Deeds of Quezon City that any attempt to mortgage or
sell the subject property must be with her full consent documented in

the form of an SPA duly authenticated before the Philippine Consulate

General in New York. 9
In the absence of authority to do so, the REM constituted by Julian over
the subject property was null and void; thus, petitioners likewise
prayed that the subsequent extra-judicial foreclosure proceedings and
the auction sale of the subject property be also nullified.
In its Answer with Compulsory Counterclaim, 10 respondent averred
that, contrary to petitioner's allegations, the SPA in favor of Julian
included the subject property, covered by one of the titles specified in
paragraph

(b)

thereof, TCT

No.

RT-106338 registered

with

the Registry of Deeds of Pasig (now Makati). The subject property

was purportedly registered previously under TCT No. T-106338, and
was only subsequently reconstituted as TCT RT-18206 (106338).
Moreover, TCT

No.

T-106338 was

actually

registered

with

the Registry of Deeds of Quezon City and not before the Registry
of Deeds of Pasig (now Makati). Respondent explained that the
discrepancy in the designation of the Registry of Deeds in the SPA was
merely an error that must not prevail over the clear intention of Perla
to include the subject property in the said SPA. In sum, the property
referred to in the SPA Perla executed in favor of Julian as covered
by TCT No. 106338 of the Registry of Deeds of Pasig (now
Makati) and the subject property in the case at bar, covered by RT18206 (106338) of the Registry of Deeds of Quezon City, are one
and the same. CaAIES
On 23 September 2003, the RTC rendered a Decision declaring the REM
constituted over the subject property null and void, for Julian was not
authorized by the terms of the SPA to mortgage the same. The court a
quo likewise ordered that the foreclosure proceedings and the auction
sale conducted pursuant to the void REM, be nullified. The dispositive
portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby

rendered in favor of the [herein petitioners] and against
the [herein respondent] Bank:
1. Declaring the Real Estate Mortgages constituted and
registered

under

Entry

Nos.

PE-4543/RT-18206

and

2012/RT-18206 annotated on TCT No. RT-18206 (106338)

of the Registry of Deeds of Quezon City as NULL and
VOID;
2. Declaring the Sheriff's Sale and Certificate of Sale
under FRE No. 2217 dated January 15, 1998 over the
property covered by TCT No. RT-18206 (106338) of the
Registry of Deeds of Quezon City as NULL and VOID;
3. Ordering the defendant Registry of Deeds of Quezon
City to cancel the annotation of Real Estate Mortgages
appearing on Entry Nos. PE-4543/RT-18206 and 2012/RT18206 on TCT No. RT-18206 (106338) of the Registry of
Deeds of Quezon City;
4. Ordering the [respondent] Bank to deliver/return to the
[petitioners] represented by their attorney-in-fact Alfredo
M. Perez, the original Owner's Duplicate Copy of TCT No.
RT-18206 (106338) free from the encumbrances referred
to above; and
5. Ordering the [respondent] Bank to pay the [petitioners]
the amount of P100,000.00 as for attorney's fees plus
cost of the suit.
The other claim for damages and counterclaim are hereby
DENIED for lack of merit. 11
Aggrieved, respondent appealed the adverse Decision before the Court
of Appeals.

In a Decision dated 12 October 2005, the Court of Appeals reversed

the RTC Decision and upheld the validity of the REM constituted over
the subject property on the strength of the SPA. The appellate court
declared that Perla intended the subject property to be included in the
SPA she executed in favor of Julian, and that her subsequent revocation
of the said SPA, not being contained in a public instrument, cannot bind
third persons.
The Motion for Reconsideration interposed by the petitioners was
denied by the Court of Appeals in its Resolution dated 15 February
2006.
Petitioners are now before us assailing the Decision and Resolution
rendered by the Court of Appeals raising several issues, which are
summarized as follows:
I WHETHER OR NOT THERE WAS A VALID MORTGAGE
CONSTITUTED OVER SUBJECT PROPERTY.
II WHETHER OR NOT THERE WAS A VALID REVOCATION OF
THE SPA.
III WHETHER

OR

NOT

THE

RESPONDENT

WAS

MORTGAGEE-IN-GOOD FAITH.
For a mortgage to be valid, Article 2085 of the Civil Code enumerates
the following essential requisites:
Art. 2085. The following requisites are essential to the
contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a
principal obligation; aIAEcD
(2) That the pledgor or mortgagor be the absolute owner
of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage

have the free disposal of their property, and in the
absence thereof, that they be legally authorized for the
purpose.
Third persons who are not parties to the principal
obligation

may

secure

the

latter

by

pledging

or

mortgaging their own property.

In the case at bar, it was Julian who obtained the loan obligations from
respondent which he secured with the mortgage of the subject
property. The property mortgaged was owned by his wife, Perla,
considered a third party to the loan obligations between Julian and
respondent. It was, thus, a situation recognized by the last paragraph
of Article 2085 of the Civil Code afore-quoted. However, since it was
not Perla who personally mortgaged her own property to secure Julian's
loan obligations with respondent, we proceed to determining if she
duly authorized Julian to do so on her behalf.

Under Article 1878 of the Civil Code, a special power of attorney is

necessary in cases where real rights over immovable property are
created or conveyed.12 In the SPA executed by Perla in favor of Julian
on 28 May 1992, the latter was conferred with the authority to "sell,
alienate, mortgage, lease and deal otherwise" the different pieces of
real and personal property registered in Perla's name. The SPA likewise
authorized Julian "[t]o exercise any or all acts of strict dominion or
ownership" over the identified properties, and rights and interest
therein. The existence and due execution of this SPA by Perla was not
denied or challenged by petitioners.
There is no question therefore that Julian was vested with the power to
mortgage the pieces of property identified in the SPA. However, as to
whether the subject property was among those identified in the SPA, so

as to render Julian's mortgage of the same valid, is a question we still

must resolve.
Petitioners insist that the subject property was not included in the SPA,
considering that it contained an exclusive enumeration of the pieces of
property over which Julian had authority, and these include only: (1)
TCT No. T-53618, with an area of 3,522 square meters, located at
Calapan, Oriental Mindoro, and registered with the Registry of Deeds of
Oriental Mindoro; (2) TCT No. T-46810, with an area of 3,953 square
meters, located at Calapan, Oriental Mindoro, and registered with the
Registry of Deeds of Oriental Mindoro; (3) TCT No. T-53140, with an
area of 177 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (4) TCT No.
T-21403, with an area of 263 square meters, located at Calapan,
Oriental Mindoro, and registered with the Registry of Deeds of Oriental
Mindoro; (5) TCT No. T-46807, with an area of 39 square meters,
located at Calapan, Oriental Mindoro, and registered with the Registry
of Deeds of Oriental Mindoro; (6) TCT No. T-108954, with an area of
690 square meters and located at Susana Heights, Muntinlupa; (7) RT106338 805 Square Meters registered with the Registry of Deeds
of Pasig (now Makati); and (8) Personal Property consisting of a
1983 Car with Vehicle Registration No. R-16381, Model 1983, Make
Toyota, and Engine No. T-2464. Nowhere is it stated in the SPA that
Julian's authority extends to the subject property covered by TCT No.
RT-18206 (106338) registered with the Registry of Deeds ofQuezon
City. Consequently, the act of Julian of constituting a mortgage over
the subject property is unenforceable for having been done without
authority.
Respondent, on the other hand, mainly hinges its argument on the
declarations made by the Court of Appeals that there was no property
covered by TCT No. 106338 registered with the Registry of Deeds
of Pasig (now Makati); but there exists a property, the subject

property herein, covered by TCT No. RT-18206 (106338) registered

with the Registry of Deeds of Quezon City. Further verification
would reveal that TCT No. RT-18206 is merely a reconstitution of TCT
No. 106338, and the property covered by both certificates of title is
actually situated in Quezon City and not Pasig. From the foregoing
circumstances, respondent argues that Perla intended to include the
subject property in the SPA, and the failure of the instrument to reflect
the recent TCT Number or the exact designation of the Registry of
Deeds, should not defeat Perla's clear intention. EcHTDI
After an examination of the literal terms of the SPA, we find that the
subject property was not among those enumerated therein. There is no
obvious reference to the subject property covered by TCT No. RT-18206
(106338) registered with the Registry of Deeds of Quezon City.
There was also nothing in the language of the SPA from which we could
deduce the intention of Perla to include the subject property therein.
We cannot attribute such alleged intention to Perla who executed the
SPA when the language of the instrument is bare of any indication
suggestive of such intention. Contrariwise, to adopt the intent theory
advanced by the respondent, in the absence of clear and convincing
evidence to that effect, would run afoul of the express tenor of the SPA
and thus defeat Perla's true intention.
In cases where the terms of the contract are clear as to leave no room
for interpretation, resort to circumstantial evidence to ascertain the
true intent of the parties, is not countenanced. As aptly stated in the
case of JMA House, Incorporated v. Sta. Monica Industrial and
Development Corporation, 13 thus:
[T]he law is that if the terms of a contract are clear and
leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulation shall control.
When the language of the contract is explicit, leaving no

doubt as to the intention of the drafters, the courts may

not read into it [in] any other intention that would
contradict its main import. The clear terms of the contract
should never be the subject matter of interpretation.
Neither

abstract

justice

nor

the

rule

on

liberal

interpretation justifies the creation of a contract for the

parties which they did not make themselves or the
imposition upon one party to a contract or obligation not
assumed simply or merely to avoid seeming hardships.
The true meaning must be enforced, as it is to be
presumed that the contracting parties know their scope
and effects. 14
Equally relevant is the rule that a power of attorney must be strictly
construed and pursued. The instrument will be held to grant only those
powers which are specified therein, and the agent may neither go
beyond nor deviate from the power of attorney. 15 Where powers and
duties are specified and defined in an instrument, all such powers and
duties are limited and are confined to those which are specified and
defined, and all other powers and duties are excluded. 16 This is but in
accord with the disinclination of courts to enlarge the authority granted
beyond the powers expressly given and those which incidentally flow
or derive therefrom as being usual and reasonably necessary and
proper for the performance of such express powers. 17
Even the commentaries of renowned Civilist Manresa 18 supports a
strict and limited construction of the terms of a power of attorney:
The law, which must look after the interests of all, cannot
permit a man to express himself in a vague and general
way with reference to the right he confers upon another
for the purpose of alienation or hypothecation, whereby
he might be despoiled of all he possessed and be brought
to ruin, such excessive authority must be set down in the

most formal and explicit terms, and when this is not

done, the law reasonably presumes that the principal did
not mean to confer it.
In this case, we are not convinced that the property covered by TCT
No. 106338 registered with the Registry of Deeds of Pasig (now
Makati) is the same as the subject property covered by TCT No. RT18206 (106338) registered with the Registry of Deeds of Quezon City.
The records of the case are stripped of supporting proofs to verify the
respondent's claim that the two titles cover the same property. It failed
to present any certification from the Registries of Deeds concerned to
support its assertion. Neither did respondent take the effort of
submitting and making part of the records of this case copies of TCTs
No. RT-106338 of the Registry of Deeds of Pasig (now Makati) and RT18206 (106338) of the Registry of Deeds of Quezon City, and closely
comparing the technical descriptions of the properties covered by the
said TCTs. The bare and sweeping statement of respondent that the
properties covered by the two certificates of title are one and the same
contains nothing but empty imputation of a fact that could hardly be
given any evidentiary weight by this Court.
Having arrived at the conclusion that Julian was not conferred by Perla
with the authority to mortgage the subject property under the terms of
the SPA, the real estate mortgages Julian executed over the said
property are therefore unenforceable. DIHETS
Assuming arguendo that the subject property was indeed included in
the SPA executed by Perla in favor of Julian, the said SPA was revoked
by virtue of a public instrument executed by Perla on 10 March 1993.
To address respondent's assertion that the said revocation was
unenforceable against it as a third party to the SPA and as one who
relied on the same in good faith, we quote with approval the following
ruling of the RTC on this matter:

Moreover, an agency is extinguished, among others, by

its revocation (Article 1999, New Civil Code of the
Philippines). The principal may revoke the agency at will,
and compel the agent to return the document evidencing
the agency. Such revocation may be express or implied
(Article 1920, supra).
In this case, the revocation of the agency or Special
Power of Attorney is expressed and by a public document
executed on March 10, 1993.
The Register of Deeds of Quezon City was even notified
that any attempt to mortgage or sell the property
covered by TCT No. [RT-18206] 106338 located at No. 21
Hillside Drive, Blue Ridge, Quezon City must have the full
consent documented in the form of a special power of
attorney duly authenticated at the Philippine Consulate
General, New York City, N.Y., U.S.A.
The non-annotation of the revocation of the Special Power
of Attorney on TCT No. RT-18206 is of no consequence as
far as the revocation's existence and legal effect is
concerned since actual notice is always superior to
constructive notice. The actual notice of the revocation
relayed to defendant Registry of Deeds of Quezon City is
not denied by either the Registry of Deeds of Quezon City
or the defendant Bank. In which case, there appears no
reason why Section 52 of the Property Registration
Decree (P.D. No. 1529) should not apply to the situation.
Said Section 52 of P.D. No. 1529 provides:

"Section 52. Constructive notice upon registration.

Every

conveyance,

mortgage,

lease,

lien,

attachment,

order,

entry affecting

judgment, instrument or

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. (Pres. Decree

No. 1529, Section 53) (emphasis ours)
It thus developed that at the time the first loan
transaction

with

defendant

Bank

was

effected

on

December 12, 1996, there was on record at the Office of

the Register of Deeds of Quezon City that the special
power of attorney granted Julian, Sr. by Perla had been
revoked. That notice, works as constructive notice to third
parties of its being filed, effectively rendering Julian, Sr.
without authority to act for and in behalf of Perla as of the
date the revocation letter was received by the Register of
Deeds of Quezon City on February 7, 1996. 19
Given that Perla revoked the SPA as early as 10 March 1993, and
that she informed the Registry of Deeds of Quezon City of such
revocation in a letter dated 23 January 1996 and received by the
latter on 7 February 1996, then third parties to the SPA are
constructively notified that the same had been revoked and Julian
no longer had any authority to mortgage the subject property.
Although the revocation may not be annotated on TCT No. RT-18206
(106338), as the RTC pointed out, neither the Registry of Deeds of
Quezon City nor respondent denied that Perla's 23 January 1996
letter was received by and filed with the Registry of Deeds of
Quezon City. Respondent would have undoubtedly come across said
letter if it indeed diligently investigated the subject property and the
circumstances surrounding its mortgage.

The final issue to be threshed out by this Court is whether the

respondent is a mortgagee-in-good faith. Respondent fervently asserts
that it exercised reasonable diligence required of a prudent man in
dealing with the subject property. SHaIDE
Elaborating, respondent claims to have carefully verified Julian's
authority over the subject property which was validly contained in the
SPA. It stresses that the SPA was annotated at the back of the TCT of
the subject property. Finally, after conducting an investigation, it found
that the property covered byTCT No. 106338, registered with the
Registry of Deeds of Pasig (now Makati) referred to in the SPA, and the
subject property, covered by TCT No. 18206 (106338) registered
with the Registry of Deeds of Quezon City, are one and the same
property. From the foregoing, respondent concluded that Julian was
indeed authorized to constitute a mortgage over the subject property.
We are unconvinced. The property listed in the real estate mortgages
Julian executed in favor of PNB is the one covered by "TCT#RT-18206
(106338)." On the other hand, the Special Power of Attorney referred to
TCT No. "RT-106338 805 Square Meters of the Registry of Deeds of
Pasig now Makati". The palpable difference between the TCT numbers
referred to in the real estate mortgages and Julian's SPA, coupled with
the fact that the said TCTs are registered in the Registries of Deeds of
different cities, should have put respondent on guard. Respondent's
claim of prudence is debunked by the fact that it had conveniently or
otherwise overlooked the inconsistent details appearing on the face of
the documents, which it was relying on for its rights as mortgagee, and
which significantly affected the identification of the property being
mortgaged. In Arrofo v. Quio, 20 we have elucidated that:
[Settled is the rule that] a person dealing with registered
lands [is not required] to inquire further than what the
Torrens title on its face indicates. This rule, however, is
not absolute but admits of exceptions. Thus, while it is

true, . . . that a person dealing with registered

lands need not go beyond the certificate of title, it
is likewise a well-settled rule that a purchaser or
mortgagee cannot close his eyes to facts which
should put a reasonable man on 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 face up the
fact that such defect exists, or his willful closing of his
eyes to the possibility of the existence of a defect in the
vendor's or mortgagor's title, will not make him an
innocent purchaser for value, if it afterwards develops
that the title was in fact defective, and it appears that he
had such notice of the defect as would have led to its
discovery had he acted with the measure of precaution
which may be required of a prudent man in a like
situation.
By putting blinders on its eyes, and by refusing to see the patent
defect in the scope of Julian's authority, easily discernable from the
plain terms of the SPA, respondent cannot now claim to be an innocent
mortgagee.
Further, in the case of Abad v. Guimba, 21 we laid down the principle
that where the mortgagee does not directly deal with the registered
owner of real property, the law requires that a higher degree of
prudence be exercised by the mortgagee, thus:
While [the] one who buys from the registered owner does
not need to look behind the certificate of title, one who
buys from [the] one who is not [the] registered owner is
expected to examine not only the certificate of title but
all

factual

circumstances

necessary

for

[one]

to

determine if there are any flaws in the title of the

transferor, or in [the] capacity to transfer the land.

Although the instant case does not involve a sale but only
a mortgage, the same rule applies inasmuch as the law
itself includes a mortgagee in the term "purchaser". 22
This principle is applied more strenuously when the mortgagee is a
bank or a banking institution. Thus, in the case of Cruz v. Bancom
Finance Corporation, 23 we ruled:
Respondent, however, is not an ordinary mortgagee; it is
a mortgagee-bank. As such, unlike private individuals, it
is expected to exercise greater care and prudence in its
dealings, including those involving registered lands. A
banking institution is expected to exercise due diligence
before

entering

into

mortgage

contract.

The

ascertainment of the status or condition of a property

offered to it as security for a loan must be a standard and
indispensable part of its operations. 24 SHTaID
Hence, considering that the property being mortgaged by Julian was
not his, and there are additional doubts or suspicions as to the real
identity of the same, the respondent bank should have proceeded with
its transactions with Julian only with utmost caution. As a bank,
respondent must subject all its transactions to the most rigid scrutiny,
since its business is impressed with public interest and its fiduciary
character

requires

high

standards

of

integrity

and

performance. 25 Where respondent acted in undue haste in granting

the mortgage loans in favor of Julian and disregarding the apparent
defects in the latter's authority as agent, it failed to discharge the
degree of diligence required of it as a banking corporation.
Thus, even granting for the sake of argument that the subject property
and the one identified in the SPA are one and the same, it would not
elevate respondent's status to that of an innocent mortgagee. As a

banking institution, jurisprudence stringently requires that respondent

should take more precautions than an ordinary prudent man should, to
ascertain the status and condition of the properties offered as
collateral and to verify the scope of the authority of the agents dealing
with these. Had respondent acted with the required degree of
diligence, it could have acquired knowledge of the letter dated 23
January 1996 sent by Perla to the Registry of Deeds of Quezon City
which recorded the same. The failure of the respondent to investigate
into the circumstances surrounding the mortgage of the subject
property belies its contention of good faith.
On a last note, we find that the real estate mortgages constituted over
the subject property are unenforceable and not null and void, as ruled
by the RTC. It is best to reiterate that the said mortgage was entered
into by Julian on behalf of Perla without the latter's authority and
consequently, unenforceable under Article 1403 (1) of the Civil Code.
Unenforceable contracts are those which cannot be enforced by a
proper action in court, unless they are ratified, because either they are
entered into without or in excess of authority or they do not comply
with the statute of frauds or both of the contracting parties do not
possess the required legal capacity. 26 An unenforceable contract may
be ratified, expressly or impliedly, by the person in whose behalf it has
been executed, before it is revoked by the other contracting
party. 27 Without Perla's ratification of the same, the real estate
mortgages constituted by Julian over the subject property cannot be
enforced by any action in court against Perla and/or her successors in
interest.
In sum, we rule that the contracts of real estate mortgage constituted
over

the

subject

property

covered

by TCT

No.

RT-18206

(106338) registered with the Registry of Deeds of Quezon City are

unenforceable. Consequently, the foreclosure proceedings and the
auction sale of the subject property conducted in pursuance of these

unenforceable contracts are null and void. This, however, is without

prejudice to the right of the respondent to proceed against Julian, in his
personal capacity, for the amount of the loans.
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is
GRANTED. The Decision dated 12 October 2005 and its Resolution
dated 15 February 2006 rendered by the Court of Appeals in CA-G.R.
CV No. 82636, are hereby REVERSED. The Decision dated 23
September 2003 of the Regional Trial Court of Quezon City, Branch
220, in Civil Case No. Q-99-37145, is hereby REINSTATED and
AFFIRMED with modification that the real estate mortgages constituted
over TCT

No.

RT-18206

(106338) are not

null

and

void

but

UNENFORCEABLE. No costs.

SO ORDERED.
||| (Mercado v. Allied Banking Corp., G.R. No. 171460, [July 27, 2007],
555 PHIL 411-430)

LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN MERCADO,

JR.,represented by their Attorney-In-Fact, ALFREDO M. PEREZ,
Petitioners, vs.
ALLIEDBANKING CORPORATION,
Respondent.

G.R. No. 171460 July 24, 2007Facts:

Perla executed a Special Power of Attorney (SPA) in favor of her
husband, JulianD. Mercado (Julian) over several pieces of real property
registered under her name, authorizingthe latter to perform the
following acts: 1. To act in my behalf, to sell, alienate, mortgage,
leaseand deal otherwise over the different parcels of land described
hereinafter x x x 2. To sign for and in my behalf any act of strict
dominion or ownership any sale, disposition, mortgage, leaseor any
other transactions including quit-claims, waiver and relinquishment of
rights x x x 3. Toexercise any or all acts of strict dominion or ownership

over the above-mentioned properties,rights and interest therein.On the

strength of the aforesaid SPA, Julian obtained a loan from the
respondent. Stillusing the subject property as security, Julian
obtained an additional loan from the respondent.It appears, however,
that there was no property identified in the SPA and registered with
theRegistry of Deeds. What was identified in the SPA instead was the
property different from theone used as security for loan.Julian
defaulted on the payment of his loan obligations. Thus, respondent
initiated extra- judicial foreclosure proceedings over the
subject property which was subsequently sold at publicauction wherein
the respondent was declared as the highest bidder. Petitioners initiated
an actionfor the annulment of REM constituted over the subject
property on the ground that the same wasnot covered by the SPA and
that the said SPA, at the time the loan obligations were contracted,no
longer had force and effect since it was previously revoked by Perla. In
the absence of authority to do so, the REM constituted by Julian over
the subject property was null and void;thus, petitioners likewise prayed
that the subsequent extra-judicial foreclosure proceedings andthe
auction sale of the subject property be also nullified.
Issues:
(1) Whether or not there was a valid mortgage constituted over subject
property.(2) Whether or not there was a valid revovation of SPA.(3)
Construction of powers of attorney.
Rulings:
(1) In the case at bar, it was Julian who obtained the loan obligations
fromrespondent which he secured with the mortgage of the subject
property. The property mortgagedwas owned by his wife, Perla,
considered a third party to the loan obligations between Julian
andrespondent. It was, thus, a situation recognized by the last
paragraph of Article 2085 of the CivilCode that third persons who are
not parties to the principal obligation may secure the latter by pledging
or mortgaging their own property. There is no question therefore that
Julian was vestedwith the power to mortgage the pieces of property
identified in the SPA, however, the
subject property was not among those enumerated therein. Julian was
not conferred by Perla with theauthority to mortgage the subject
property under the terms of the SPA, the real estate mortgagesJulian
executed over the said property are therefore unenforceable.