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 May 7, 1993 petitioners filed a action for quieting of title in the RTC against the respondents. The
complaint alleged that they are the absolute owners of a parcel of land located in Leyte and acquired
the property from the heirs of Brigido Tonacao on June 23, 1986 shown by a deed of absolute sale and
registered in the registry of deeds on Jul 1, 1986 in iloilo, when they asked the provincial assessor to
declare the land in their names for taxation purposes they found out that tax declaration for brigido
was already canceled and a new one was already issued in the name of respondents. The complaint
also alleged that they have been in possession of the property and house built therein before the
execution of the deed of sale.
 While in the answer of respondents they claim that they are the absolute owners of the property and
acquired the property from the father of brigido evidenced by a deed of absolute sale dated June 6,
1986 and was registered on Jun 10, 1986 and tax declaration was issued in their names. Prior thereto
they had a verbal contract of sale with catalino the father of brigido and paid him 1K as downpayment
and agreed that the balance of 4K shall be paid at the execution of deed of sale, since then they have
been exercising their rights of ownership over the property and buildings therein and allege that they
are buyers in good faith.
 The court ruled in favor of petitioners. On appeal the CA reversed the decision.




First, Article 1544 of the Civil Code contemplates a case of double sale 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. 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. In the instant case, the property
was sold by two different vendors to different purchasers. The first sale was between Catalino and herein
respondents, while the second was between Brigido’s heirs and herein petitioners.

Second, the plaintiffs-appellees had prior knowledge of the sale of the questioned property to the
defendants-appellants—and even recognized and respected the latter’s possession thereof—they acted with
gross and evident bad faith in perfecting a contract of sale in their favor. Accordingly, since it has been
proven that the defendants-appellants were the anterior possessors in good faith, ownership of the
questioned property vested in them by sheer force of law. Besides, the defendants-appellants subsequently
registered the deed of sale in their favor on June 10, 1986. For all intents and purposes, they were the first
to register the deed of conveyance. Since they were the first vendees, their registration enjoyed the
presumption of good faith.

Good faith is something internal. Actually, it is a question of intention. In ascertaining one’s intention, this
Court must rely on the evidence of one’s conduct and outward acts. Good faith, or want of it, is capable of
being ascertained only from the acts of one claiming its presence, for it is a condition of the mind which
can be judged by actual or fancied tokens or signs. Good faith consists in the possessor’s belief that the
person from whom he received the thing was the owner of the same and could convey his title. Good faith,
while it is always to be presumed in the absence of proof to the contrary, requires a well founded belief that
the person from whom title was received was himself the owner of the land, with the right to convey it.
There is good faith where there is an honest intention to abstain from taking any unconscientious advantage
of another.

Evidence submitted to the court, oral and documentary, established that respondents knew beforehand that
the property was declared in the name of Brigido Tonacao for taxation purposes.

As stated earlier, respondents knew, prior to the sale to them, that the lot was declared for taxation purposes
under the name of Brigido. Thus, respondents should have been wary in buying the property. Any lot buyer
is expected to be vigilant, exercising utmost care in determining whether the seller is the true owner of the
property and whether there are other claimants. There is no indication from the record that respondents first
determined the status of the lot.

While tax declarations are not conclusive proofs of ownership, however, they are good indicia of
possession in the concept of owner, for no one in his right mind would be paying taxes for a property that is
not in his actual or at least constructive possession. Hence, as between Brigido and Catalino, the former had
better right to the property. In other words, Catalino, not being the owner or possessor, could not validly sell
the lot to respondents.

The Court is convinced that respondents had knowledge that the disputed property was previously sold to
petitioners by Brigido’s heirs. Obviously, aware that the sale to petitioners was not registered, they
purchased the property and have the sale registered ahead of petitioners, who although in possession, failed
to have their contract of sale registered immediately in the Registry of Deeds.



 In Jul 1992 respondents asked someone to check on the titles of 9 lots which includes the subject land
which they intend to buy from spouses tecson. Finding no defect respondent purchase the lots through
a conditional sale and executed an absolute deed of sale in Aug 30, 1993 for the same lots. Both deeds
were registered on Nov 6, 1992 and Oct 4, 1993. The register of deeds however refused to annotate
the deed of sale on the titles because of a existing notice of attachment pending before a RTC in bohol.
The said attachment were canceled by virtue of compromise agreement between tecson and their
creditor. Thus, titles to 6 out of the 9 lots were issued and title to the 3 remaining lots were refused to
be issued.
 Jan 23, 1995 petitioner presented for registration before the register of deeds the owners copy of the
title to the subject property together with the deed of sale executed by the tecsons in favor of
petitioner. Respondent oppose the application. However, the register of deeds had already registered
the deed of sale in favor of petitioner and issued a new title in her name.
 May 5, 1995 respondent filed a complaint for quieting of title and/or recovery of ownership,
cancellation of title with damages before the RTC. The court ruled in favor of respondent. According
to the court the respondent had recorded in good faith the deed of sale in its favor ahead of petitioner.
Petitioner appealed. CA dismissed the appeal.




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.
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 courts 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 petitioners favor
is null and void, taking into account Asuncions unrefuted deposition. In particular, the
Court of Appeals noted petitioners 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
Asuncions definitive assertion.

Petitioner argues she has a better right over the property in question, as the holder of and
the first one to present, the owners copy of the title for the issuance of a new TCT. The
Court is not persuaded.

The act of registration does not validate petitioners 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 the land 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 petitioners 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.
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 buyers 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. 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 owners 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 owners 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 respondents favor. Without a doubt, respondent had acquired a better title to the



Defendants filed a complaint for annulment of contract before the RTC of Malabon.
Defendant alleged that PNB operates a subsidiary in the name PNB management and
development corp, which opted to sell or dispose all of its stockholding over PNB
macedor to Mega prime. On Sept 27, 1996 a deed of sale was executed between PNB and
Mega prime where PNB sold all of its stockholding in PNB macedor in the sum of
505.620M. The parties also entered into a loan agreement for 404.496M in which mega
prime executed in favor of PNB a promissory note of the said amount. Defendants also
alleged that one of the inducements made for it to purchase the stockholdings of
defendant PNB in PNB-Madecor was to acquire assets of PNB-Madecor. Specifically a
property referred to as Pantranco property. Mega Prime then entered into a joint venture
to develop the Pantranco property. However, Mega Prime's joint venture partner pulled
out of the agreement when it learned that the property was the subject matter of another
title registered in the name of the city government of QC.

Mega Prime sought the annulment of the deed of sale on ground that PNB misrepresented
that among the assets to be acquired by Mega Prime from the sale of shares of stock was
the Pantranco property. However, the subject property was outside the commerce of man,
the same being a road owned by the Quezon City Government. In its answer to the
amended complaint, PNB maintains that the subject matter of the deed of sale was PNB's
shares of stock in PNB-Madecor which is a separate juridical entity, and not the
properties owned by the latter as evidenced by the deed itself. The sale of PNB's shares of
stock in PNB-Madecor to Mega Prime did not dissolve PNB-Madecor. PNB only
transferred its control over PNB-Madecor to Mega Prime. The real properties of PNB-
Madecor did not change ownership, but remained owned by PNB-Madecor. Moreover,
PNB denied that it is liable for P150,000,000.00 allegedly incurred by Mega Prime for
the development of the Pantranco property since Mega Prime itself alleged in its amended
complaint that no such development could be undertaken. According to PNB, Mega
Prime's accusation that there was fraudulent misrepresentation on the former's part is
without basis. The best evidence of their transaction is the subject deed of sale which
clearly shows that what PNB sold to Mega Prime was PNB's stockholdings in PNB-
Madecor. On December 21, 1999, the RTC gave judgment in favor of Mega Prime and
against PNB. CA reversed the lower courts decision.




There is no basis for a finding of fraud against PNB to invalidate the sale. A perusal of the
deed of sale reveals that the sale principally involves the entire shareholdings of PNB in
PNB-Madecor, not the properties covered by the TCT. Any defect in any of the said titles
should not, therefore, affect the entire sale. Further, there is no evidence that PNB was
aware of the existence of another title on one of the properties covered by TCT No.
160740 in the name of the Quezon City government before and during the execution of
the deed of sale. Although it is expressly stated in the deed of sale that the transfer of the
entire stockholdings of PNB in PNB-Madecor will effectively result in the transfer of the
said properties, the discovery of the title under the name of the Quezon City government
does not substantially affect the integrity of the object of the sale. This is so because TCT
No. 160740 covers only 733.70 square meters of the entire Pantranco property which has
a total area of 19,080 square meters. Well-settled is the rule that the party alleging fraud
or mistake in a transaction bears the burden of proof. The circumstances evidencing fraud
are as varied as the people who perpetrate it in each case. It may assume different shapes
and forms; it may be committed in as many different ways. In this case, it cannot be said
that Mega Prime was able to adduce a preponderance of evidence before the trial court to
show that PNB fraudulently misrepresented that it had title or authority to sell the
property covered by TCT No. 160470.

First, PNB correctly argued that with Mega Prime as a corporation principally engaged
in real estate business it is presumed to be experienced in its business and it is assumed
that it made the proper appraisal and examination of the properties it would acquire from
the sale of shares of stock. In fact, Mega Prime was given copies of the titles to the
properties which were attached to the subject deed of sale. In other words, there was full
disclosure on the part of PNB of the status of the properties of PNB-Madecor to be
transferred to Mega Prime by reason of its purchase of all of PNB's shareholdings in

The general rule is that a person dealing with registered land has a right to rely on the
Torrens certificate of title and to dispense with the need of making further inquiries. This
rule, however, admits of exceptions: when the party has actual knowledge of facts and
circumstances that would impel a reasonably cautious man to make such inquiry or when
the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient
facts to induce a reasonably prudent man to inquire into the status of the title of the
property in litigation.

A perusal of TCT No. 160470 would show that the property is registered under the name
Marcris Realty Corporation and not under PNB or PNB-Madecor, the alleged owner of
the said property. Moreover, TCT No. 160470 explicitly shows on its face that it covers a
road lot.

Nevertheless, the Court holds that there was a breach in the warranties of the seller PNB.
Resultantly, a reduction in the sale price should be decreed.

One of the express conditions in the deed of sale is the transfer of the properties under
TCT Nos. 87881, 87882, 87883, 87884 and 160740 in the name of Mega Prime:

1. The Sale of the above stockholdings of the vendor is on a clean balance sheet, i.e., all
assets and liabilities are squared, and no deposits, furniture, fixtures and equipment,
including receivables shall be transferred to the vendee, except real properties and
improvements thereon of PNB-Madecor in Quezon City containing an area of 19,080 sq.
m., situated at the corner of Quezon Boulevard (presently Quezon Avenue) and Roosevelt
Avenue covered by five (5) titles namely: TCT Nos. 87881, 87882, 87883, 87884, and
160470 x x x.8

Verily, an important sense of the deed of sale is the transfer of ownership over the subject
properties to Mega Prime. Clearly, the failure of the seller PNB to effect a change in
ownership of the subject properties amounts to a hidden defect within the contemplation
of Articles 1547 and 1561 of the New Civil Code.

The said provisions of law read:

Art. 1547. In a contract of sale, unless a contrary intention appears, there is:

(1) An implied warranty on the part of the seller that he has a right to sell the thing at the
time when the ownership is to pass, and that the buyer shall from that time have and
enjoy the legal and peaceful possession of the thing;

(2) An implied warranty that the thing shall be free from any hidden faults or defects, or
any charge or encumbrance not declared or known to the buyer.

This article shall not, however, be held to render liable a sheriff, auctioneer, mortgagee,
pledgee, or other person professing to sell by virtue of authority in fact or law, for the
sale of a thing in which a third person has a legal or equitable interest.9


Art. 1561. The vendor shall be responsible for warranty against the hidden defects which
the thing sold may have, should they render it unfit for the use for which it is intended, or
should they diminish its fitness for such use to such an extent that, had the vendee been
aware thereof, he would not have acquired it or would have given a lower price for it;
but said vendor shall not be answerable for patent defects or those which may be visible,
or for those which are not visible if the vendee is an expert who, by reason of his trade or
profession, should have known them.10
Up to now, the title of the said property is still under the name of the former registered
owner Marcris Realty Corporation. Mega Prime's subsequent discovery that the property
covered by TCT No. 160740 is covered by a title pertaining to the City Government of
Quezon City coupled with PNB's inability up to the present to submit a title in the name
of PNB-Madecor constitutes a breach of warranty. Hence, a proportionate reduction in
the consideration of the sale is justified, applying the Civil Code principle that "no
person shall be enriched at the expense of another."11

The sale of shares of stock was undertaken to effect the transfer of the subject properties
with a total area of 19,080 square meters. When PNB failed to deliver the title to the
property covered by TCT No. 160740, with an area of 733.70 square meters, PNB
violated an express warranty under the deed of sale. Thus, the total consideration in the
Deed of Sale should be proportionately reduced equivalent to the value of the property
covered by TCT No. 160740.

Records bear out that the total consideration for the sale contract is P505,620,000.00.
The object is the 19,080-square-meter Pantranco property. Simple division or
mathematical computation yields that the property has a value of P26,500.00 per square
meter. Considering that the area covered by TCT No. 160740 is 733.70 square meters, the
purchase price should be proportionately reduced by P19,443,050.00, an amount arrived
at after multiplying P26,500.00 by 733.70 or vice versa.

Necessarily, Mega Prime cannot be considered in default with respect to its obligation to
petitioner bank in view of the modification of the stipulated consideration.