Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-56451 June 19, 1985

JUAN LAO and CANDELARIA C. LAO, petitioners,

vs. HON. MELECIO A. GENATO, as Presiding Judge, Court of First Instance, Branch 1, Misamis Occidental, SOTERO A. DIONISIO, JR., as Administrator of the Intestate Estate of ROSENDA ABUTON, SOTERO B. DIONISIO III, WILLIAM L. GO, ERLINDA DIAZ, represented by RESTITUTO N. ABUTON Attorney-In-Fact, ESTER AIDA D. BAS, Heirs of ROSALINDA D. BELLEZA, represented by FELICENDA D, BELLEZA, Attorney- In-Fact, LUZMINDA D. DAJAO ADELAIDA D. NUEZA, represented by Atty. MAURICIO O. BAS SR., Attorney-In-Fact, and FLORIDA A. NUQUI, respondents.

Felipe G. Tac-an for petitioners.

Alaric P. Acosta for private respondent as Administrator.

Eligio O. Dajao for respondent Ester Aida D. Bas.

Ramon C. Berenquel for respondent William L. Go.

CUVEAS J.:

Petition for certiorari with prayer for the declaration of nullity of the Order 1 1 dated February 18, 1981 of the then Court of First Instance of Misamis Occidental-Branch I which confirmed and approved the two Deeds of Sale, both dated August 15, 1980, involving a commercial property belonging to the estate of the deceased Rosenda Abuton.

Petitioner spouses were promisees in a Mutual Agreement of Promise to Sell executed between them and private respondent Sotero B. Dionisio III, son of respondent Sotero A. Dionisio, Jr., heir and administrator of the intestate estate of the deceased, whereby the promisor bound himself to sell the subject property to petitioners, Private respondents, except Sotero Dionisio III and William Go, are the children and only compulsory heirs of the deceased.

On June 25, 1980, respondent administrator Sotero Dionisio, Jr., with due notice to all his co-heirs, filed with the Probate Court in Special Proceedings No. 842 a Motion for

Authority to Sell certain properties of the deceased to settle the outstanding obligations of the estate.

On July 8, 1980, after hearing, there being no opposition, the lower court issued an Order 2 2 authorizing the administrator to sell the therein described properties of the estate and such other properties under his administration at the best price obtainable, and directing him to submit to the court for approval the transaction made by him

On August 15, 1980, respondent-administrator pursuant to said authorization, sold to his son, Sotero Dionisio III, the subject property for P75,000.00 per deed of sale 3 3

acknowledged before Notary Public Triumfo R. Velez. On the same date, Sotero Dionisio III executed a deed of sale 4 of the same property in favor of respondent

William Go for a consideration of P80.000.00. On August 18, 1980, title was transferred to respondent Go.

On August 27, 1980, respondent-heir Florida Nuqui, filed a Motion for Annulment/Revocation of the Deeds of Absolute Sale for the reasons that the sale and subsequent transfer of title of the property were made in violation of the court's order of July 8, 1980 and that the consideration of the two sales were grossly inadequate as in fact many are willing to buy the pr property for P400,000.00 since it is located along the corner of two main streets in the commercial center of Oroquieta City.

The respondent-administrator filed an opposition to said motion of co-heir Nuqui alleging that the actual consideration f the sale made by him is P200,000.00 and that it is the agreement of the heirs that if any of the heirs or close relatives is interested in buying the property, preference will be given to him or her in order to keep the property within the family of the deceased.

On September 9, 1980, respondent Nuqui filed a Reply to said Opposition, stating that the two sales were but a single transaction simultaneously hatched and consummated in one occasion as shown by the Notary Public's document Nos. 56 & 57 and with the same witnesses; that the sales were in reality a single deal between the administrator and William Go, because Sotero Dionisio III is without means or income and so has no capacity to buy the property; and that the transaction is an evidence of the administrator's intent to defraud the estate and his co-heirs, for had it not been for the Motion for Annulment, he would not have disclosed the true and actual consideration of the sale.

On September 10, 1980, all the co-heirs of respondent-administrator filed a Manifestation to Adopt the Motion for Annulment/Revocation of Deeds of Absolute Sale. They likewise filed a Manifestation on February 5, 1981 alleging that the Court order merely authorized the sale of the subject property but did not approve the same, Thus, their prayer for the cancellation of the registration of sale transaction between respondent- administrator and his son, and that between the latter and respondent William Go.

Respondent Go filed a Motion for Leave to Intervene to protect his rights, manifesting that he paid Sotero Dionisio III the actual consideration of P225,000.00 and being a purchaser in good faith and for value, his title to the property is indefeasible pursuant to law.

On February 6, 1981, petitioner spouses filed a "Manifestation In Intervention of Interest to Purchase Property Authorized by the Court to be Sold", wherein they alleged that respondent-administrator, without revealing that the property had already been sold to William Go, entered into a Mutual Agreement of Promise to Sell 5 5 to herein petitioners, for the amount of P270,000 which was reduced to P220,000.00; that immediately upon the execution of the agreement, petitioners paid the earnest money in the amount of P70,000.00 by IBAA Check No. OQT-40063026 drawn out in favor of Sotero Dionisio III, as requested by respondent-administrator; that it was agreed upon that the balance of P150,000.00 shall immediately be paid upon the production of the Transfer Certificate of Title and the execution of the final Deed of Sale; that although the agreement was executed in the name of Sotero Dionisio III the 'latter, was merely a nominal party, for technically according to the administrator, he executed a Deed of Absolute Sale in favor of his son, but the negotiation and transactions were directly and personally entered into between the administrator and petitioners; that the contract of sale has been perfected considering that the earnest money was already paid; that despite repeated demands the administrator refused to execute a final Deed of Sale in favor of petitioners, who later found out that the subject property was sold to William GO; that both contracts of sale were made to defraud the estate and the other heirs; that assuming the consideration of P200,000.00 supplied by William Go to Sotero Dionisio III who was not gainfully employed, then the contract of sale to Go would be without consideration, hence, it would become fictitious and simulated and there is no other recourse left to the court but to declare the sale null and void. Petitioners also manifested that in the event that the court should finally declare the sale null and void, they ares till interested to purchase the property for the same amount of P200,000.00 as previously agreed.

At th hearing of the said incident involving the questioned sales petitioners submitted a copy of the Contract of mortgage 66 dated July 18, 1980 executed by respondent-

administrator in favor of Juan Lao, one of the petitioners, whereby the former mortgaged "all his undivided interest in the estate of his deceased mother, Rosenda Abuton Vda. de Nuqui, subject matter of this intestate Estate No. 842, now pending before the Court of First Instance of Oroquieta City, Branch I."

Respondent heir Florida A. Nuqui filed an Opposition to William Go's Motion to Intervene averring therein that the deed of sale executed by Sotero Dionisio, Jr. in favor of Sotero Dionisio III created no legal force and effect, since the validity of the sale absolutely depended on its approval by the court; that it therefore follows that the succeeding sale to Go and consequent issuance of the title to him are also null and void from their inception and that the admission by William Go of the actual and true consideration of the sale at his stage, hardly bespeaks of "innocence" or "good faith".

After several ,days of hearing, respondent Judge allowed all the interested parties to bid for the property at the highest obtainable price pursuant to his Order of July 8, 1980.

On February 16, 1981, in open court, respondent Go offered to buy the property in the amount of P280,000.00. Petitioners counter-offered at P282,000.00, spot cash. On that same day, all the heirs, except the administrator, filed a Motion Ex Parte 77 stating

among other things, that the offer of William Go appears the highest obtainable price and that the offer of petitioners is not well taken as the same has not been made within a reasonable period of five (5) days from February 11, 1981.

On February 17, 1981, all the parties, with the exception. of the Lao spouses and Sotero Dionisio III, submitted for approval an Amicable Settlement 88 stating:

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That after the administrator, Sotero A. Dionisio, Jr., had accounted for the actual price received by him out of the transaction between him and Sotero B. Dionisio III in the amount of Two Hundred thousand (P200,000.00) Pesos and that in the interest of a peaceful settlement William L. Go has offered and is ready, able and to pay to the heirs an additional amount of Eighty Thousand (P80,000.00 ) Pesos an arrangement which is most advantageous to the heirs and which they willingly accept to their satisfaction. the heirs of Rosenda Abuton hereby declare that they have no objection to the confirmation and approval of the sales/transactions executed by Sotero A. Dionisio, Jr., in favor of Sotero B. Dionisio III and that executed by Sotero B. Dionisio III in favor of the intervenor, William L. Go, and they likewise have no more objection to the lifting and cancellation of the notice of lis pendens from TCT No. 8807.

WHEREFORE, it is most respectfully prayed that an order issued by this Hon. Court confirming and approving the transaction executed by Sotero A. Dionisio, Jr., in favor of Sotero B. Dionisio III and that between the latter and William L. Go, and to direct the Register of Deeds of the Province of Misamis Occidental at Oroquieta City, for the cancellation of the notice of lis pendens annotated on Transfer Certificate of Title No. 8807, and to finally consider the matter treated in the Motion of Florida A. Nuqui dated August 27, 1980 and adopted by all the other heirs forever closed and terminated.

Oroquieta City, February 17, 1981.

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On February 18, 1981, petitioners filed an opposition to the approval of the Amicable Settlement on the following grounds:

(a) They have an interest in the property as vendees in a promise to sell and as Mortgagee, of an undivided share of one of the heirs but they were not signatories to the amicable settlement, hence it is contrary to Article 2028 of the Civil Code providing that "A compromise is a contract whereby the parties, by making reciprocal concessions, avoid litigation or put an end to one already commenced";

(b) The Amicable Settlement seeks the confirmation and approval of the questioned transactions but as borne out by the pleadings and oral arguments, the Deed of Absolute Sale executed by the administrator in favor of his son is without consideration, therefore, it is fictitious and simulated hence it cannot be confirmed or ratified pursuant to Article 1409 of the New Civil Code;

(c) The Amicable Settlement is a device to defraud the Government of Capital Gains Tax, charges and other fees because the Deeds of Sales do not reflect the true consideration; and

(d) The Deeds of Sale sought to be confirmed included the undivided share of Sotero A. Dionisio, Jr. which is presently mortgaged to herein' spouses, which was executed prior to the sale, thus, if approved, the Court would abet the commission of the crime of estafa as the mortgage has not yet been paid and released.

Petitioners likewise pointed out in their opposition that respondent Judge had intimated in open court that somebody offered to buy the property for the price of P300,000.00 but since there was no formal offer in writing, they (petitioners) are ready and willing to buy the property at that amount, which definitely is the best price obtainable in the market and most beneficial to all the heirs.

Despite said opposition, respondent Judge issued an Order 99 on February 18, 1981 approving the Amicable Settlement, confirming and ratifying the two questioned Deeds of Sale. Petitioners' motion for reconsideration having been denied, they now come before Us through the instant petition raising the issue of whether or not respondent Judge is guilty of grave abuse of discretion in 1) approving the amicable settlement and confirming the two (2) Deeds of Sale in question; and 2) in not accepting the offer of the petitioners in the amount of P300,000.00 for the purchase of the lot in question.

Sotero Dionisio, Jr. is the Administrator of the estate of his deceased mother Rosenda Abuton. As such Administrator, he occupies a position of the highest trust and confidence, He is required to exercise reasonable diligence and act in entire good faith in the performance of that trust, Although he is not a guarantor or insurer of the safety of the estate nor is he expected to be infallible yet the same degree of prudence, care and judgment which a person of a fair average capacity and ability exercises in similar transactions of his own, serves as the standard by which his conduct is to be judged.

In the discharge of his functions, the administrator should act with utmost circumspection in order to preserve the estate and guard against its dissipation so as not to prejudice its editors and the heirs of the decedents who are entitled to the net

residue thereof. In the case at bar, the sale was made necessary "in order to settle other existing obligations of the estate. This purpose is clearly manifested in the Motion for to Sell 1010 filed by Dionisio, Jr. The subsisting obligation referred to, although not specified, must be those due and owing to the creditors of the estate and also the taxes due the government. In order to guarantee faithful compliance with the authority granted 1111 respondent Judge, through the aforesaid Order made it an emphatic duty on the

part of the administrator Dionisio." . . . to submit to this Court for approval the transactions made by him."

The sale was made. But of all people, to his very son Sotero Dionisio III and for the grossly low price of only P75,000,00, That sale was indubitably shown to be fictitious, it clearly appearing that Dionisio III has no income whatsoever. In fact, he is still a dependent of his father, administrator Dionisio, Jr. On top of that, not a single centavo, of the P75,000.00 stated consideration was ever accounted for nor reported by Dionisio, Jr. to the probate court. Neither did he submit said transaction as mandated by the order authorizing him to sell, to the probate court for its approval and just so its validity and fairness may be passed upon and resolved. It was only upon the filing by one of the heirs, Florida A. Nuqui, of the "Motion for Annulment/Revocation of Deeds of Absolute Sale" 12 12 questioning the genuineness aid validity of the transactions, that Dionisio, Jr. was compelled to admit that the actual consideration for the sale made by him was P200,000.00. 13 13 This sale is one of the illegal and irregular transactions that was confirmed and legalized by His HONOR's approval of the assailed Amicable Settlement. No doubt, respondent Judge's questioned approval violates Article 1409 of the New Civil Code and cannot work to confirm nor serve to ratify a fictitious contract which is non-existent and void from the very beginning. The fact that practically all the heirs are parties-signatories to the said Compromise Agreement is of no moment. Their assent to such an illegal scheme does not legalize the same nor does it impose any obligation upon respondent Judge to approve the same to the prejudice not only of the creditors of the estate, and the government by the non-payment of the correct amount of taxes legally due from the estate.

The offer by the petitioner of P300,000.00 for the purchase of the property in question does not appear seriously disputed on record. As against the price stated in the assailed Compromise Agreement the former amount is decidedly more beneficial and advantageous not only to the estate, the heirs of the descendants, but more importantly to its creditors, for whose account and benefit the sale was made. No satisfactory and convincing reason appeared given for the rejection and/or non-acceptance of said offer thus giving rise to a well-grounded suspicion that a collusion of some sort exists between the administrator and the heirs to defraud the creditors and the government.

IN VIEW OF THE FOREGOING CONSIDERATIONS, the assailed Order dated February 18, 1981 of the respondent Judge approving the questioned Amicable Settlement is declared NULL and VOID and hereby SET ASIDE. Consequently, the sale in favor of Sotero Dionisio III and by the latter to William Go is likewise declared NULL and VOID, The Transfer Certificate of Title issued to the latter is hereby CANCELLED.

The proper Regional trial Court of Misamis Occidental to whom this case is now assigned is hereby ordered to conduct new proceedings for the sale of the property involved in this case.

No pronouncement as to costs.

SO ORDERED.

Makasiar, Concepcion Jr., Abad Santos and Escolin JJ., Concur.

Aquino, J., concur in the result.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R.No. L-72306 January 24, 1989

DAVID P. FORNILDA, JUAN P. FORNILDA, EMILIA P. FORNILDA OLILI, LEOCADIA P. FORNILDA LABAYEN and ANGELA P. FORNILDA GUTIERREZ, petitioners,

vs. THE BRANCH 164, REGIONAL TRIAL COURT IVTH JUDICIAL REGION, PASIG, JOAQUIN C. ANTONIA Deputy Sheriff, RTC, 4JR Tanay, Rizal and ATTY. SERGIO AMONOY, respondents.

Irene C. Ishiwata for petitioner A. Gutierrez.

R E S O L U T I O N

MELENCIO-HERRERA, J.:

On 5 October 1988, this Court rendered a Decision, the dispositive portion of which reads:

WHEREFORE, certiorari is granted; the Order of respondent Trial Court, dated 25 July 1985, granting a Writ of Possession, as well as its orders, dated 25 April 1986 and 16 May 1986, directing and authorizing respondent Sheriff to demolish the houses of petitioners Angela and Leocadia Fornilda are hereby set aside, and the Temporary Restraining Order heretofore issued, is made permanent. The six (6) parcels of land herein controverted are hereby ordered returned to petitioner unless some of them have been conveyed to innocent third persons.

With respect to petitioners' prayer for disbarment by reason of malpractice of Respondent Amonoy embodied in their pleading entitled "Mahigpit na Musiyun para Papanagutin Kaugnay ng Paglalapastangan" and "Masasamang Gawain (Mal-Practices)" and "Paninindigan (Memorandum)" both filed on 16 June 1988, Respondent Sergio 1. Amonoy is hereby required, within fifteen (15) days from notice hereof, to submit an answer thereto. After receipt of the same, a new docket number will be assigned to the case.

Costs against respondent, Sergio I. Amonoy. (pp. 497-498, Rollo)

The case for disbarment is dealt with in a separate Resolution of even date in AC No. 3277.

On 25 October 1988 respondent Amonoy filed his Motion for Reconsideration, followed by his "Supplemental Arguments in Support of Motion for Reconsideration" dated 8 November 1988. In essence, he advances the following points:

1) The transaction involved herein being a mortgage, Article 1491[51 of the Civil Code does not apply. Consequently, the mortgage contract executed in favor of respondent Amonoy is valid;

2) Article 1491[5] does not apply to foreclosure sales in favor of judgment creditors;

3) The instant petition is barred by res judicata;

4) The jurisdiction of the foreclosing court does not depend on the alleged invalidity of the mortgage being foreclosed. Thus, the lower court had jurisdiction over the foreclosure case, the alleged invalidity of the contract merely serving as a ground for the dismissal of the petition due to lack of cause of action;

5) Under BP 129, only the Court of Appeals has original and exclusive jurisdiction over actions for annulment of judgment.

We find the foregoing submissions without merit.

Respondent Amonoy avers that at the time of the execution of the mortgage on 20 January 1965, subject properties were no longer "properties in litigation" since the Project of Partition (as signed by the intestate heirs) covering said properties was approved by the lower Court as early as 12 January 1965.

This argument must fail for the reason that while the Project of Partition was approved on 12 January 1965, it was only on 6 August 1969, and after all charges against the estate had been paid, that the estate was declared closed and terminated. In fact, by his own admission, he had acted as counsel from 1959 until 1968 (Comment, p. 145, Rollo). Thus, at the time of the execution of the mortgage contract, the Controverted Parcels were still in litigation and a fiduciary relationship of lawyer and client, which Article 1491[5] precisely seeks to protect, still existed between the parties. To state that mortgages are not included within the prohibition is to open the door to an indirect circumvention of that statutory injunction, acquisition of the property being merely postponed till eventual foreclosure.

Respondent asserts further that Article 1491[5] does not apply to judgment creditors of which, he claims, he was one. Under ordinary circumstances, the argument of respondent could be considered plausible. Unfortunately, however, as heretofore explained, the mortgage was executed in violation of Article 1491[5] so that this Article has a direct bearing on this case and respondent can not escape its provision. Having violated the same, he cannot be considered in the general run of a judgment creditor.

Respondent likewise stresses that res judicata should apply herein since it was a little more than four (4) years from the 22 July 1981 Decision of the Court of Appeals in the Annulment Case (CA-G.R. No. 63214-R) when this Petition was filed. Consequently, he contends that this Petition should be dismissed since it merely raises the same issues brought up and already resolved in the earlier case.

The question of res judicata and jurisdiction of the lower Court over the subject matter of the Foreclosure Case had been amply discussed in the Decision sought to be reconsidered, citing the case of Municipality of Antipolo vs. Zapanta (133 SCRA 822 [1984]), and we find no need to dwell on them again.

Neither of the cases cited by respondent to support his contention that the lower Court had jurisdiction over the Foreclosure Case notwithstanding the invalidity of the mortgage contract, viz., Florentino vs. Galera (5 SCRA 500 [1962] and Talosig vs. Vda. de Nieba (43 SCRA 472 [1972]), refers to a void subject matter over which the Courts involved could not acquire jurisdiction.

Finally, respondent movant submits that only the Court of Appeals has original and exclusive jurisdiction over actions for annulment of judgments of the lower Court under BP Blg. 129 so that the Supreme Court should not take cognizance of the instant case. The focal issue raised herein, however, i.e., whether or not the acquisition by respondent of the property in litigation is valid or not, is a pure question of law. As such, this Court is vested with jurisdiction to take cognizance of this case.

ACCORDINGLY, private respondent's Motion for Reconsideration is hereby DENIED and this denial is FINAL.

SO ORDERED.

Paras, Sarmiento and Regalado, JJ., concur.

Padilla, J., took no part.

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-26096 February 27, 1979

THE DIRECTOR OF LANDS, petitioner, vs. SILVERETRA ABABA, ET AL., claimants, JUAN LARRAZABAL, MARTA C. DE LARRAZABAL, MAXIMO ABAROQUEZ and ANASTACIA CABIGAS, petitioners-appellants, ALBERTO FERNANDEZ, adverse claimant-appellee.

Juanito Ll. Abao for petitioners-appellants.

Alberto R Fernandez in his own behalf.

MAKASIAR, J.:

This is an appeal from the order of the Court of First Instance of Cebu dated March 19, 1966 denying the petition for the cancellation of an adverse claim registered by the adverse claimant on the transfer certificate of title of the petitioners.

The adverse claimant, Atty. Alberto B. Fernandez was retained as counsel by petitioner, Maximo Abarquez, in Civil Case No. R-6573 of the Court of First Instance of Cebu, entitled "Maximo Abarquez vs. Agripina Abarquez", for the annulment of a contract of sale with right of repurchase and for the recovery of the land which was the subject matter thereof. The Court of First Instance of Cebu rendered a decision on May 29, 1961 adverse to the petitioner and so he appealed to the Court of Appeals.

Litigating as a pauper in the lower court and engaging the services of his lawyer on a contingent basis, petitioner, liable to compensate his lawyer whom he also retained for his appeal executed a document on June 10, 1961 in the Cebuano-Visayan dialect whereby he obliged himself to give to his lawyer one-half (1/2) of whatever he might recover from Lots 5600 and 5602 should the appeal prosper. The contents of the document as translated are as follows:

AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

That I, MAXIMO ABARQUEZ, Plaintiff in Case No. R-6573 of the Court of First Instance of Cebu, make known through this agreement that for the services rendered by Atty. Alberto B. Fernandez who is my lawyer in this case, if the appeal is won up to the Supreme Court, I Promise and will guarantee that I win give to said lawyer one-half (1/2) of what I may recover from the estate of my father in Lots No. 5600 and 5602 which are located at Bulacao Pardo, City of Cebu. That with respect to any money which may be adjudged to me from Agripina Abarquez, except 'Attorney's Fees', the same shall pertain to me and not to said lawyer.

IN WITNESS WHEREOF, I have caused my right thumb. mark to be affixed hereto this 10th of June, 1961, at the City of Cebu.

THUMBMARK MAXIMO ABARQUEZ

(p. 5, Petitioner-Appellant's Brief, p. 26, rec.)

The real Property sought to be recovered in Civil Case No. R6573 was actually the share of the petitioner in Lots 5600 and 5602, which were part of the estate of his deceased parents and which were partitioned the heirs which included petitioner

Maximo Abarquez and his elder sister Agripina Abarquez, the defendant in said civil case.

This partition was made pursuant to a project of partition approved by the Court which provided am other that Lots Nos. 5600 and 5602 were to be divided into three equal Parts, one third of which shall be given to Maximo Abarquez. However, Agripina Abarquez the share of her brother stating that the latter executed an instrument of pacto de retro prior to the partition conveying to her any or all rights in the estate of their parents. Petitioner discovered later that the claim of his sister over his share was based on an instrument he was believe all along to be a mere acknowledgment of the receipt of P700.00 which his sister gave to him as a consideration for g care of their father during the latter's illness and never an instrument of pacto de retro. Hence, he instituted an action to annul the alleged instrument of pacto de retro.

The Court of Appeals in a decision promulgated on August 27, 1963 reversed the decision of the lower court and annulled the dead of pacto de retro. Appellee Agripina Abarquez filed a motion for reconsideration but the same was denied in a resolution dated January 7, 1964 (p. 66, Record on Appeal; p. 13, Rec.) and the judgment became final and executory on January 22,1964.

Subsequently, Transfer Certificate of Title No. 31841 was issued on May 19,1965 in the name of Maximo Abarquez, married to Anastacia Cabigas, over his adjudged share in Lots Nos. 5600 and 5602 containing an area of 4,085 square meters (p. 110, ROA; p. 13, rec.). These parcels of land later by the subject matter of the adverse claim filed by the claimant.

The case having been resolved and title having been issued to petitioner, adverse claimant waited for petitioner to comply with ha obligation under the document executed by him on June 10, 1961 by delivering the one-half (½) portion of the said parcels of land.

Petitioner refused to comply with his obligation and instead offered to sell the whole parcels of land covered by TCT No. 31841 to petitioner-spouses Juan Larrazabal and Marta C. de Larrazabal. Upon being informed of the intention of the petitioner, adverse t claimant immediately took stops to protect his interest by filing with the trial court a motion to annotate Ins attorney's lien on TCT No. 31841 on June 10, 1965 and by notifying the prospective buyers of his claim over the one-half portion of the parcels of land.

Realizing later that the motion to annotate attorney's lien was a wrong remedy, as it was not within the purview of Section 37, rule 138 of the Revised Rule of Court, but before the same was by the trial court, adverse t by an affidavit of adverse claim on July 19, 1965 with the Register of Deeds of Cebu (p. 14, ROA; p. 13, rec.). By virtue of the petition of mid affidavit the adverse claim for one-half (½) of the lots covered by the June 10, 1961 document was annotated on TCT No. 31841.

Notwithstanding the annotation of the adverse claim, petitioner-spouse Maximo Abarquez and Anastacia Cabigas conveyed by deed of absolute sale on July 29, 1965 two-thirds (2/3) of the lands covered by TCT No. 31841 to petitioner-spouses Juan Larrazabal and Marta C. de Larrazabal. When the new transfer certificate of title No. 32996 was issued, the annotation of adverse claim on TCT No. 31841 necessarily had to appear on the new transfer certificate of title. This adverse claim on TCT No. 32996 became the subject of cancellation proceedings filed by herein petitioner-spouses on March 7, 1966 with the Court of First Instance of Cebu (p. 2 ROA; p. 13, rec.). The adverse claimant, Atty. Alberto B. Fernandez, filed his opposition to the petition for cancellation on March 18, 1966 (p. 20, ROA; p. 13 rec.). The trial court resolved the issue on March 19, 1966, when it declared that:

...the petition to cancel the adverse claim should be denied. The admission by the petitioners that the lawyers (Attys. Fernandez and Batiguin) are entitled to only one-third of the lot described in Transfer Certificate of Title No. 32966 is the best proof of the authority to maintain said adverse claim (p. 57, ROA; p. 13, rec.).

Petitioner-spouses decided to appeal the order of dismissal to this Court and correspondingly filed the notice of appeal on April 1, 1966 with the trial court. On April 2, 1966, petitioner-spouses filed the appeal bond and subsequently filed the record on appeal on April 6, 1966. The records of the case were forwarded to this Court through the Land Registration Commission of Manila and were received by this Court on May 5, 1966.

Counsel for the petitioner-spouses filed the printed record on appeal on July 12, 1966. Required to file the appellants' brief, counsel filed one on August 29, 1966 while that of the appellee was filed on October 1, 1966 after having been granted an extension to file his brief.

The case was submitted for decision on December 1, 1966. Counsel for the petitioners filed a motion to expunge appellees' brief on December 8, 1966 for having been filed beyond the reglementary period, but the same was denied by this Court in a resolution dated February 13, 1967.

The pivotal issue to be resolved in the instant case is the validity or nullity of the registration of the adverse claim of Atty. Fernandez, resolution of which in turn hinges on the question of whether or not the contract for a contingent fee, basis of the interest of Atty. Fernandez, is prohibited by the Article 1491 of the New Civil Code and Canon 13 of the Canons of Professional Ethics.

Petitioners contend that a contract for a contingent fee violates Article 1491 because it involves an assignment of a property subject of litigation. That article provides:

Article 1491. The following persons cannot acquire by purchase even at a public or judicial auction, either in person or through the petition of another.

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(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior and other o and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession (Emphasis supplied).

This contention is without merit. Article 1491 prohibits only the sale or assignment between the lawyer and his client, of property which is the subject of litigation. As WE have already stated. "The prohibition in said article a only to applies stated: " The prohibition in said article applies only to a sale or assignment to the lawyer by his client of the property which is the subject of litigation. In other words, for the prohibition to operate, the sale or t of the property must take place during the pendency of the litigation involving the property" (Rosario Vda. de Laig vs. Court of Appeals, et al., L-26882, November 21, 1978).

Likewise, under American Law, the prohibition does not apply to "cases where after completion of litigation the lawyer accepts on account of his fee, an interest the assets realized by the litigation" (Drinker, Henry S., Legal Ethics, p. 100 [1953], citing App. A, 280; N.Y. Ciu 714). "There is a clear distraction between such cases and one in which the lawyer speculates on the outcome of the matter in which he is employed" (Drinker, supra, p. 100 citing A.B.A. Op. 279).

A contract for a contingent fee is not covered by Article 1491 because the tranfer or assignment of the property in litigation takes effect only after the finality of a favorable judgment. In the instant case, the attorney's fees of Atty. Fernandez, consisting of one-half (1/2) of whatever Maximo Abarquez might recover from his share in the lots in question, is contingent upon the success of the appeal. Hence, the payment of the attorney's fees, that is, the transfer or assignment of one-half (1/2) of the property in litigation will take place only if the appeal prospers. Therefore, the tranfer actually takes effect after the finality of a favorable judgment rendered on appeal and not during the pendency of the litigation involving the property in question. Consequently, the contract for a contingent fee is not covered by Article 1491.

While Spanish civilists differ in their views on the above issue — whether or not a contingent fee contract (quota litis agreement) is covered by Article 1491 — with Manresa advancing that it is covered, thus:

Se ha discutido si en la incapacidad de Ion Procumdam y Abogados asta o el pecto de quota litis. Consiste este, como es sabido, en la estipulacion de que el Abogado o el Procurador ban de hacer suyos una parte alicuota de In cona que se li m la son es favorable. Con es te concepto a la vista, es para nosortros que el articulo que comentamos no menciona ese pacto; pero como la incapacidad de los Abogados y Procuradores se extinede al acto de adquirir por cesion; y la efectividad del pacto de quota litis implica necesariamente una cesion, estimamos que con solo el num. 5 del articulo 1459 podria con exito la nulidad de ese pacto tradicionalmente considerado como ilicito.

xxx xxx xxx

Debe tenerse tambien en cuenta, respecto del ultimo parrafo del articulo 1459, la sentencia del Tribunal Supreme de 25 Enero de 1902, que delcara que si bien el procurador no puede adquirir para si los bienes, en cuanto a los cuales tiene incapacidad, puede adquirirlos para otra persona en quien no concurra incapacidad alguna (Manresa, Comentarios al Codigo Civil Español, Tomo X, p. 110 [4a ed., 1931] emphasis supplied).

Castan, maintaining that it is not covered, opines thus;

C. Prohibiciones impuestas a las personas encargadas, mas o menos directamente, de la administracion de justicia.—El mismo art. 1,459 del Codigo civil prohibe a los Magistrados, Jueces, individuos del Minesterio fiscal, Secretarios de Tribunales y Juzgados y Oficiales de Justicia adquirir por compra (aunque sea en subasta publica o judicial, por si ni por persona alguna intermedia). 'Los bienes y derechos que estuviesen en litigio ante el Tribunal en cuya jurisdicion on teritorio ejercieran sus respectivas funciones, extendiendo se esta prohibicion al acto de adquirir por cesion', y siendo tambien extensiva ' Alos Abogados y Procuradores respecto a los bienes y derecho que fueran objeto del un litigio en que intervengan pos su profession y oficio.'

El fundamento de esta prohibicion es clarismo. No solo se trata—dice Manresa—de quitar la ocasion al fraude; persiguese, ademas, el proposito de rodear a las personas que intervienen en la administracion de justicia de todos los prestigios que necesitan para ejercer su ministerio, librando los de toda sospecha, que, aunque fuere infundada, redundaria en descredito de la institucion.

Por no dor lugar a recelos de ninguna clase, admite el Codigo (en el apartado penutimo del art. 1.459) algunos casos en que, por excepcion, no se aplica el pricipio prohibitivo de que venimos hablando. Tales son los de que se trate de acciones hereditarias entre coheredero, de cesion en

pago de creditos, o de garantia de los bienes que posean los funcionarios de justicia.

Algunos autores (Goyena, Manresa, Valverde) creen que en la prohibicion del art. 1.459 esta comprendido el pacto de quota litis (o sea el convenio por el cual se concede al Abogado o Procurador, para el caso de obtener sentencia favorable una parte alicuota de la cosa o cantidad que se litiga), porque dicho pacto supone la venta o cesion de una parte de la cosa o drecho que es objecto del litigio. Pero Mucius Scaevola oberva, conrazon, que en el repetido pacto no hay propiamente caso de compraventa ni de cesion de derechos, y bastan para estimario nulo otros preceptos del Codigo como los relativos a la ilicitud de la causa (Castan, Derecho Civil Espñol, Tomo 4, pp. 68-69, [9a ed., 1956], emphasis supplied).

The Supreme Court of Spain, in its sentencia of 12 November 1917, has ruled that Article 1459 of the Spanish Civil Code (Article 1491 of our Civil Code) does not apply to a contract for a contingent fee because it is not contrary to morals or to law, holding that:

... que no es susceptible de aplicarse el precepto contenido en el num. 5 del art. 1.459 a un contrato en el que se restrigen los honorarios de un Abogado a un tanto por ciento de lo que se obtuviera en el litigio, cosa no repudiada por la moral ni por la ley (Tolentino, Civil Code of the Philippines, p. 35, Vol. V [1959]; Castan, supra; Manresa, supra).

In the Philippines, among the Filipino commentators, only Justice Capistrano ventured to state his view on the said issue, thus:

The incapacity to purchase or acquire by assignment, which the law also extends to lawyers with t to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession, also covers contracts for professional services quota litis. Such contracts, however, have been declared valid by the Supreme Court" (Capistrano, Civil Code of the Philippines, p. 44, Vol. IV [1951]).

Dr. Tolentino merely restated the views of Castan and Manresa as well as the state of jurisprudence in Spain, as follows:

Attorneys-at-law—Some writers, like Goyena, Manresa and Valverde believe that this article covers quota litis agreements, under which a lawyer is to be given an aliquot part of the property or amount in litigation if he should win the case for his client. Scaevola and Castan, however, believe that such a contract does not involve a sale or assignment of right

but it may be void under other articles of the Code, such as those referring to illicit cause- On the other hand the Spanish Supreme Court has held that this article is not applicable to a contract which limits the fees of a lawyer to a certain percentage of what may be recovered in litigation, as this is not contrary to moral or to law. (Tolentino, Civil Code of the Philippines, p. 35, Vol. V [1959]; Castan, supra, Emphasis supplied).

Petitioners her contend that a contract for a contingent fee violates the Canons of Professional Ethics. this is likewise without merit This posture of petitioners overlooked Canon 13 of the Canons which expressly contingent fees by way of exception to Canon 10 upon which petitioners relied. For while Canon 10 prohibits a lawyer from purchasing ...any interest in the subject matter of the litigation which he is conducting", Canon 13, on the other hand, allowed a reasonable contingent fee contract, thus: "A contract for a con. tangent fee where sanctioned by law, should be reasonable under all the circumstances of the ca including the risk and uncertainty of the compensation, but should always be subject to the supervision of a court, as to its reasonableness." As pointed out by an authority on Legal Ethics:

Every lawyer is intensely interested in the successful outcome of his case, not only as affecting his reputation, but also his compensation. Canon 13 specifically permits the lawyer to contract for a con tangent fee which of itself, negatives the thought that the Canons preclude the lawyer's having a stake in his litigation. As pointed out by Professor Cheatham on page 170 n. of his Case Book, there is an inescapable conflict of interest between lawyer and client in the matter of fees. Nor despite some statements to the con in Committee opinions, is it believed that, particularly in view of Canon 13, Canon 10 precludes in every case an arrangement to make the lawyer's fee payable only out of the results of the litigation. The distinction is between buying an interest in the litigation as a speculation which Canon 10 condemns and agreeing, in a case which the lawyer undertakes primarily in his professional capacity, to accept his compensation contingent on the outcome (Drinker, Henry S Legal Ethics, p. 99, [1953], Emphasis supplied).

These Canons of Professional Ethics have already received "judicial recognition by being cited and applied by the Supreme Court of the Philippines in its opinion" Malcolm, Legal and Judicial Ethics, p. 9 [1949]). And they have likewise been considered sources of Legal Ethics. More importantly, the American Bar Association, through Chairman Howe of the Ethics Committee, opined that "The Canons of Professional Ethics are legislative expressions of professional opinion ABA Op. 37 [1912])" [See footnote 25, Drinker, Legal Ethics, p. 27]. Therefore, the Canons have some binding effect

Likewise, it must be noted that this Court has already recognized this type of a contract as early as the case of Ulanday vs. Manila Railroad Co. (45 PhiL 540 [1923]), where WE held that "contingent fees are not prohibited in the Philippines, and since impliedly sanctioned by law 'Should be under the supervision of the court in order that clients may

be protected from unjust charges' (Canons of Profession 1 Ethics)". The same doctrine was subsequently reiterated in Grey vs. Insular Lumber Co. (97 PhiL 833 [1955]) and Recto vs. Harden (100 PhiL 427 [1956]).

In the 1967 case of Albano vs. Ramos (20 SCRA 171 [19671), the attorney was allowed to recover in a separate action her attomey's fee of one-third (1/3) of the lands and damages recovered as stipulated in the contingent fee contract. And this Court in the recent case of Rosario Vda de Laig vs. Court of Appeals, et al. (supra), which involved a contingent fee of one-half (½) of the property in question, held than ,contingent fees are recognized in this i jurisdiction (Canon 13 of the Canons of Professional Ethics adopted by the Philippine Bar association in 1917 [Appendix B, Revised Rules of Court)), which contingent fees may be a portion of the property in litigation."

Contracts of this nature are permitted because they redound to the benefit of the poor client and the lawyer "especially in cases where the client has meritorious cause of action, but no means with which to pay for legal services unless he can, with the sanction of law, make a contract for a contingent fee to be paid out of the proceeds of the litigation" (Francisco, Legal Ethics, p. 294 [1949], citing Lipscomb vs. Adams 91 S.W. 1046, 1048 [1949]). Oftentimes, contingent fees are the only means by which the poor and helpless can redress for injuries sustained and have their rights vindicated. Thus:

The reason for allowing compensation for professional services based on contingent fees is that if a person could not secure counsel by a promise of large fees in case of success, to be derived from the subject matter of the suit, it would often place the poor in such a condition as to amount to a practical denial of justice. It not infrequently happens that person are injured through the negligence or willful misconduct of others, but by reason of poverty are unable to employ counsel to assert their rights. In such event their only means of redress lies in gratuitous service, which is rarely given, or in their ability to find some one who will conduct the case for a contingent fee. That relations of this king are often abused by speculative attorneys or that suits of this character are turned into a sort of commercial traffic by the lawyer, does not destroy the beneficial result to one who is so poor to employ counsel (id, at p. 293, citing Warvelle, Legal Ethics, p. 92, Emphasis supplied).

Justice George Malcolm, writing on contingent fees, also stated that:

... the system of contingent compensation has the merit of affording to certain classes of persons the opportunity to procure the prosecution of their claims which otherwise would be beyond their means. In many cases in the United States and the Philippines, the contingent fee is socially necessary (Malcolm, Legal and Judicial Ethics, p. 55 [1949], emphasis supplied).

Stressing further the importance of contingent fees, Professor Max Radin of the University of California, said that:

The contingent fee certainly increases the possibility that vexatious and unfounded suits will be brought. On the other hand, it makes possible the enforcement of legitimate claims which otherwise would be abandoned because of the poverty of the claimants. Of these two possibilities, the social advantage seems clearly on the side of the contingent fee. It may in fact be added by way of reply to the first objection that vexations and unfounded suits have been brought by men who could and did pay substantial attorney's fees for that purpose (Radin, Contingent Fees in California, 28 Cal. L. Rev. 587, 589 [1940], emphasis supplied).

Finally, a contingent fee contract is always subject to the supervision of the courts with respect to the stipulated amount and may be reduced or nullified. So that in the event that there is any undue influence or fraud in the execution of the contract or that the fee is excessive, the client is not without remedy because the court will amply protect him. As held in the case of Grey vs. Insular Lumber Co., supra, citing the case of Ulanday vs. Manila Railroad Co., supra:

Where it is shown that the contract for a contingent fee was obtained by any undue influence of the attorney over the client, or by any fraud or imposition, or that the compensation is so clearly excessive as to amount to extortion, the court win in a proper case protect the aggrieved party.

In the present case, there is no iota of proof to show that Atty. Fernandez had exerted any undue influence or had Perpetrated fraud on, or had in any manner taken advantage of his client, Maximo Abarquez. And, the compensation of one-half of the lots in question is not excessive nor unconscionable considering the contingent nature of the attorney's fees.

With these considerations, WE find that the contract for a contingent fee in question is not violative of the Canons of Professional Ethics. Consequently, both under the provisions of Article 1491 and Canons 10 and 13 of the Canons of Profession Ethics, a contract for a contingent fee is valid

In resolving now the issue of the validity or nullity for the registration of the adverse claim, Section 110 of the Land Registration Act (Act 496) should be considered. Under d section, an adverse claim may be registered only by..

Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the o registration ... if no other provision is made in this Act for registering the same ...

The contract for a contingent fee, being valid, vested in Atty Fernandez an interest or right over the lots in question to the extent of one-half thereof. Said interest became

vested in Atty. Fernandez after the case was won on appeal because only then did the assignment of the one-half (½) portion of the lots in question became effective and binding. So that when he filed his affidavit of adverse claim his interest was already an existing one. There was therefore a valid interest in the lots to be registered in favor of Atty. Fernandez adverse to Mo Abarquez.

Moreover, the interest or claim of Atty. Fernandez in the lots in question arose long after the original petition which took place many years ago. And, there is no other provision of the Land Registration Act under which the interest or claim may be registered except as an adverse claim under Section 110 thereof. The interest or claim cannot be registered as an attorney's charging lien. The lower court was correct in denying the motion to annotate the attomey's lien. A charging lien under Section 37, Rule 138 of the Revised Rules of Court is limited only to money judgments and not to judgments for the annulment of a contract or for delivery of real property as in the instant case. Said Section provides that:

Section 37. An attorney shall have a lien upon the funds, documents and papers of his client which have lawfully come into his oppossession and may retain the same until his lawful fees and disbursements have been paid, and may apply such funds to the satisfaction thereof. He shall also have a lien to the same extent upon all judgments, for the payment of money, and executions issued in pursuance of such judgments, which he has secured in a litigation of his client ... (emphasis supplied).

Therefore, as an interest in registered land, the only adequate remedy open to Atty. Fernandez is to register such interest as an adverse claim. Consequently, there being a substantial compliance with Section 110 of Act 496, the registration of the adverse claim is held to be valid. Being valid, its registration should not be cancelled because as WE have already stated, "it is only when such claim is found unmeritorious that the registration thereof may be cancelled" (Paz Ty Sin Tei vs. Jose Lee Dy Piao 103 Phil. 867 [1958]).

The one-half (½) interest of Atty. Fernandez in the lots in question should therefore be respected. Indeed, he has a better right than petitioner-spouses, Juan Larrazabal and Marta C. de Larrazabal. They purchased their two-thirds (2/3) interest in the lots in question with the knowledge of the adverse claim of Atty. Fernandez. The adverse claim was annotated on the old transfer certificate of title and was later annotated on the new transfer certificate of title issued to them. As held by this Court:

The annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property where the registration of such interest or right is not otherwise provided for by the Land Registration Act, and serves as a notice and warning to third parties dealing with said property that someone is claiming an interest on the same or a better right than the registered owner thereof (Sanchez, Jr. vs. Court of Appeals, 69 SCRA 332 [1976]; Paz Ty Sin Tei vs. Jose Le Dy Piao supra).

Having purchased the property with the knowledge of the adverse claim, they are therefore in bad faith. Consequently, they are estopped from questioning the validity of the adverse claim.

WHEREFORE, THE DECISION OF THE LOWER COURT DENYING THE PETITION FOR THE CANCELLATION OF THE ADVERSE CLAIM SHOULD BE, AS IT IS HEREBY AFFIRMED, WITH COSTS AGAINST PETITIONER-APPELLANTS JUAN LARRAZABAL AND MARTA C. DE LARRAZABAL.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-33048 April 16, 1982

EPIFANIA SARSOSA VDA. DE BARSOBIA and PACITA W. VALLAR, petitioners, vs. VICTORIANO T. CUENCO, respondent.

MELENCIO-HERRERA, J.:

Sought to be reviewed herein is the judgment dated August 18, 1970, of the Court of Appeals, 1 rendered in CA-G.R. No. 41318-R, entitled "Victoriano T. Cuenco, Plaintiff-appellant, vs. Epifania Sarsosa Vda. de Barsobia and Pacita W. Vallar, Defendants- appellees, " declaring Victoriano T. Cuenco (now the respondent) as the absolute owner of the coconut land in question.

The lot in controversy is a one-half portion (on the northern side) of two adjoining parcels of coconut land located at Barrio Mancapagao, Sagay, Camiguin, Misamis Oriental (now Camiguin province), with an area of 29,150 square meters, more or less. 2

The entire land was owned previously by a certain Leocadia Balisado, who had sold it to the spouses Patricio Barsobia (now deceased) and Epifania Sarsosa, one of the petitioners herein. They are Filipino citizens.

On September 5, 1936, Epifania Sarsosa then a widow, sold the land in controversy to a Chinese, Ong King Po, for the sum of P1,050.00 (Exhibit "B"). Ong King Po took actual possession and enjoyed the fruits thereof.

On August 5, 1961, Ong King Po sold the litigated property to Victoriano T. Cuenco (respondent herein), a naturalized Filipino, for the sum of P5,000.00 (Exhibit "A"). Respondent immediately took actual possession and harvested the fruits therefrom.

On March 6, 1962, Epifania "usurped" the controverted property, and on July 26, 1962, Epifania (through her only daughter and child, Emeteria Barsobia), sold a one-half (1/2) portion of the land in question to Pacita W. Vallar, the other petitioner herein (Exhibit "2"). Epifania claimed that it was not her intention to sell the land to Ong King Po and that she signed the document of sale merely to evidence her indebtedness to the latter

in the amount of P1,050.00. Epifania has been in possession ever since except for the portion sold to the other petitioner Pacita.

On September 19, 1962, respondent filed a Forcible Entry case against Epifania before the Municipal Court of Sagay, Camiguin. The case was dismissed for lack of jurisdiction since, as the laws then stood, the question of possession could not be properly determined without first settling that of ownership.

On December 27, 1966, respondent instituted before the Court of First Instance of Misamis Oriental a Complaint for recovery of possession and ownership of the litigated land, against Epifania and Pacita Vallar (hereinafter referred to simply as petitioners).

In their Answer below, petitioners insisted that they were the owners and possessors of the litigated land; that its sale to Ong King Po, a Chinese, was inexistent and/or void ab initio; and that the deed of sale between them was only an evidence of Epifania's indebtedness to Ong King Po.

The trial Court rendered judgment:

1. Dismissing the complaint with costs against plaintiff (respondent herein).

2. Declaring the two Deeds of Sale, Exhibits A and B, respectively, inexistent and void from the beginning; and

3. Declaring defendant Pacita W. Vallar as the lawful owner and possessor of the portion of land she bought from Emeteria Barsobia (pp. 57, 67, Record.) 3

On appeal, the Court of Appeals reversed the aforementioned Decision and decreed instead that respondent was the owner of the litigated property, thus:

xxx xxx xxx

In view of all the foregoing considerations, the judgment appealed from is hereby reversed. In lieu thereof, we render judgment:

(a) Declaring the plaintiff-appellant Victoriano T. Cuenco the absolute owner of the land in question, with the right of possession thereof;

(b) Ordering the defendants-appellees to restore the possession of said land to the plaintiff;

(c) Dismissing the defendants' counterclaim;

(d) Condemning the defendants to pay to the plaintiff the sum of P10,000.00 representing the latter's share from the sale of copra which he failed to receive since March, 1962 when he was deprived of his possession over the land, and which defendants illegally appropriated it to their own use and benefit, plus legal interest from the filing of the complaint until fully paid; plus P2,000.00 representing expenses and attorney's fees;

(e) Sentencing the defendants to pay the costs.

SO ORDERED. 4

Following the denial of their Motion for Reconsideration, petitioners filed the instant Petition for Review on certiorari with this Court on January 21, 1971. Petitioners claim that the Court of Appeals erred:

I. ... when it reversed the judgment of the trial court declaring petitioner Pacita W. Vallar as the lawful possessor and owner of the portion of land she purchased from Emeteria Barsobia, not a party to this case, there being no evidence against her.

II ... when it included petitioner Pacita W. Vallar to pay P10,000.00, with legal interest from the filing of the complaint, representing respondent's share in the harvest and to pay the costs, there being no evidence against her.

III. ... when it condemned petitioners to pay P2,000.00 representing expenses and attorney's fees, there being no factual, legal and equitable justification.

IV. ... in not applying the rule on pari delicto to the facts of the case or the doctrine enunciated ... in the case of Philippine Banking Corporation vs. Lui She, L-17587, September 12, 1967, to ... Petitioner Epifania Sarsosa Vda. de Barsobia.

V. ... in denying, for lack of sufficient merits, petitioners' motion for rehearing or reconsideration of its decision. 5

As the facts stand, a parcel of coconut land was sold by its Filipino owner, petitioner Epifania, to a Chinese, Ong King Po, and by the latter to a naturalized Filipino, respondent herein. In the meantime, the Filipino owner had unilaterally repudiated the sale she had made to the Chinese and had resold the property to another Filipino. The basic issue is: Who is the rightful owner of the property?

There should be no question that the sale of the land in question in 1936 by Epifania to Ong King Po was inexistent and void from the beginning (Art. 1409 [7], Civil Code) 6

because it was a contract executed against the mandatory provision of the 1935 Constitution, which is an expression of public policy to conserve lands for the Filipinos. Said provision reads:

Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to individuals, corporations, or associations, qualified to acquire or hold lands of the public domain. 7

Had this been a suit between Epifania and Ong King Po, she could have been declared entitled to the litigated land on the basis, as claimed, of the ruling in Philippine Banking Corporation vs. Lui She, 8 reading:

... For another thing, and this is not only cogent but also important. Article 1416 of the Civil Code provides as an exception to the rule on pari delicto that when the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has sold or delivered. ...

But the factual set-up has changed. The litigated property is now in the hands of a naturalized Filipino. It is no longer owned by a disqualified vendee. Respondent, as a naturalized citizen, was constitutionally qualified to own the subject property. There would be no more public policy to be served in allowing petitioner Epifania to recover the land as it is already in the hands of a qualified person. Applying by analogy the ruling of this Court in Vasquez vs. Giap and Li Seng Giap & Sons: 9

... if the ban on aliens from acquiring not only agricultural but also urban lands, as construed by this Court in the Krivenko case, is to preserve the nation's lands for future generations of Filipinos, that aim or purpose would not be thwarted but achieved by making lawful the acquisition of real estate by aliens who became Filipino citizens by naturalization.

While, strictly speaking, Ong King Po, private respondent's vendor, had no rights of ownership to transmit, it is likewise inescapable that petitioner Epifania had slept on her rights for 26 years from 1936 to 1962. By her long inaction or inexcusable neglect, she should be held barred from asserting her claim to the litigated property (Sotto vs. Teves, 86 SCRA 157 [1978]).

Laches has been defined as the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it. (Tijam, et al. vs. Sibonghanoy, et al., No. L-21450, April 15, 1968, 23 SCRA 29, 35). (cited in Sotto vs. Teves, 86 SCRA 154 [1978]).

Respondent, therefore, must be declared to be the rightful owner of the property.

The award of actual damages in respondent's favor of P10,000.00, as well as of attorney's fees and expenses of litigation of P2,000.00, is justified. Respondent was deprived of the possession of his land and the enjoyment of its fruits from March, 1962. The Court of Appeals fixed respondent's share of the sale of copra at P10,000.00 for eight years at four (4) harvests a year. The accuracy of this finding has not been disputed.

However, we find merit in the assigned error that petitioner, Pacita Vallar, should not be held also liable for actual damages to respondent. In the absence of contrary proof, she, too, must be considered as a vendee in good faith of petitioner Epifania.

The award of attorney's fees and litigation expenses in the sum of P2,000.00 in respondent's favor is in order considering that both petitioners compelled respondent to litigate for the protection of his interests. Moreover, the amount is reasonable. 10

WHEREFORE, except for that portion holding petitioner, Pacita W. Vallar, also liable for damages of P10,000.00, the appealed judgment is hereby affirmed.

Costs against petitioners.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-17043 January 31, 1961

NATIVIDAD HERRERA, assisted by her husband EMIGDIO SALAZAR, plaintiffs-

appellants,

vs.

LUY KIM GUAN and LINO BANGAYAN, defendants-appellees.

T. de los Santos for plaintiffs-appellants.

Rafael C. Climaco and Abelardo S. Fernandez for defendants-appellees.

BARRERA, J.:

This is an appeal from the decision of the Court of First Instance of Zamboanga City (a)

dismissing plaintiff-appellant's complaint for the recovery of three (3) parcels of land and their

produce in the sum of P320,000.00; and (b) instead, sentencing plaintiff to pay P2,000.00 for

attorney's fees and P1,000.00 for expenses of litigation, to defendant Lino Bangayan, and

P2,000.00 as attorney's fees and P500.00 as expenses of litigation, to the other defendant Luy

Kim Guan.

The pertinent facts as found by the trial court and upon which its decision was predicated are set

forth in the following portion of the decision appealed from:

The Plaintiff Natividad Herrera is the legitimate daughter of Luis Herrera, now deceased

and who died in China sometime after he went to that country in the last part of 1931 or

early part of 1932. The said Luis Herrera in his lifetime was the owner of three (3)

parcels of land and their improvements, known as Lots 1740, 4465 and 4467 of

Expediente No. 5, G.L.R.O. Record 477 and the area, nature, improvements and bound of

each and every of these three (3) lots are sufficiently described in the complaint filed by

the plaintiffs.

Before leaving for China, however, Luis Herrera executed on December 1, 1931, a deed

of General Power of Attorney, Exhibit 'B', which authorized and empowered the

defendant Kim Guan, among others to administer and sell the properties of said Luis

Herrera.

Lot 1740 was originally covered by Original Certificate Title 8601 registered in the name

of Luis Herrera, married to GO Bang. This lot was sold by the defendant Luy Kim in his

capacity as attorney-in-fact of the deceased Luis Her to Luy Chay on September 11,

1939, as shown in Exhibit "2", corresponding deed of sale. Transfer Certificate of Title

3162, Exhibit "3", was issued to Luy Chay by virtue of deed of sale. On August 28, 1941,

to secure a loan of P2,00 a deed of mortgage to the Zamboanga Mutual Building and

Association was executed by Luy Chay, Exhibit "4". On January 31, 1947, the said Luy

Chay executed a deed of sale, Exhibit "E", in favor of Lino Bangayan. By virtue of this

Transfer Certificate of Title T-2567 was issued to Lino Bangayan on June 24, 1949,

Exhibit "1":

Lots 4465 and 4467 were originally registered in the of Luis Herrera, married to Go

Bang, under Original Certificate of Title No. 0-14360, Exhibit "5". On December 1,

1931, Luis Herrera sold one-half (½) undivided share and to Herrera and Go Bang, the

other half (½), as shown by Exhibit "12" and Exhibit "12-A", the latter an annotation

made the Register of Deeds of the City of Zamboanga, in which stated as follows:

Cancelado el presente Certificado en virtud de una escritura de traspaso y en su lugar se

ha expedido el Certificado de T No. 494-(T-13045) del Tomo 2 del Libro de Certificado

de Transferencias.

(Fdo) R. D. MACROHON

Registrador de Titulos

Ciudad de Zamboanga

On July 23, 1937, Luis Herrera thru his attorney-in-fact Luy Kim Guan, one of the

defendants, sold to Nicomedes Salazar his one half (½) participation in these two (2) lots,

as shown in Exhibit "C", the corresponding deed of sale for P3,000.00 Transfer

Certificate of Title No. T-494-(T-13045) was is to Nicomedes Salazar and to the

defendant Luy Kim Guan, Exhibit '7'. On August 4, 1937, the defendant Luy Kim Guan

Nicomedes Salazar executed a deed of mortgage in favor of Bank of the Philippine

Islands to secure a loan of P3,500.00, Exhibit '6'. On August 17, 1937, the defendant Luy

Kim Guan and Nicomedes Salazar sold Lot 4465 to Carlos Eijansantos for the sum of

P100.00 as shown in Exhibit "9", the corresponding deed of sale, and Transfer Certificate

of Title No. T-2653 was issued on September 7, 1939 to Carlos Eijansantos, Exhibit "10".

Nicomedes Salazar sold his one half (½) interest on Lot 4467 to the defendant Lino

Bangayan for P3,000.00 on February 22, 1949, Exhibit 'B', and the corresponding

Transfer Certificate of Title T-2654 was issued to Lino Bangayan and to Luy Kim Guan,

both are co-owners in equal shares, Exhibit "8". Opinion of the City Attorney, Exhibit

"p", and an affidavit of Atty. Jose T. Atilano, Exhibit "O", state that Lino Bangayan is a

Filipino citizen.

As admitted by both parties (plaintiffs and defendants), Luis Herrera is now deceased, but

as to the specific and precise date of his death the evidence of both parties failed to show.

It is the contention of plaintiff-appellant that all the transactions mentioned in the preceding

quoted portion of the decision were fraudulent and were executed after the death of Luis Herrera

and, consequently, when the power of attorney was no longer operative. It is also claimed that

the defendants Lino Bangayan and Luy Kim Guan who now claim to be the owners of Lots Nos.

1740 and 4467 are Chinese by nationality and, therefore, are disqualified to acquire real

properties. Plaintiff-appellant, in addition, questions the supposed deed of sale allegedly

executed by Luis Herrera on December 1, 1931 in favor of defendant Luy Kim Guan, conveying

one-half interest on the two lots, Nos. 4465 and 4467, asserting that what was actually executed

on that date, jointly with the general power of attorney, was a lease contract over the same

properties for a period of 20 years for which Luy Kim Guan paid the sum of P2,000.00.

We find all the contentions of plaintiff-appellant untenable. Starting with her claim that the

second deed executed on December 1, 1931 by Luis Herrera was a lease contract instead of a

deed of sale as asserted by defendant Luy Kim Guan, we find that the only evidence in support

of her contention is her own testimony and that of her husband to the effect that the deceased

Luis Herrera showed the said document to them, and they remembered the same to be a lease

contract on the three properties for a period of 20 years in consideration of P2,000.00. Their

testimony was sought to be corroborated by the declaration of the clerk of Atty. Enrique A.

Fernandez, who allegedly notarized the document. Outside of this oral testimony, given more

than 23 years after the supposed instrument was read by them, no other evidence was adduced.

On the other hand, defendant Luy Kim Gua produced in evidence a certification1 signed by the

Register of Deeds of Dipolog, Zamboanga (Exh. 11) to the effect that a deed of sale, dated

December 1, 1931, was execute by Luis Herrera in favor of Luy Kim Guan and entered in the

Primary Book No. 4 as duly registered on September 30, 1936 under Original Certificate of Title

No. 14360. It is to be noted that the deed of sale was registered shortly after the issuance in the

name of Luis Herrera of Origin Certificate of Title No. 14360 pursuant to Decree No. 59093,

covering the two lots, Nos. 4465 and 4467 (Exh. 5) dated April 7, 1936. In virtue of said deed of

sale of December 1, 1931, Original Certificate of Title No. 1436 was cancelled and Transfer

Certificate of Title No. 1304 (Exh. 12) in the names of the conjugal partnership of the spouses

Luis Herrera and Go Bang, one-half share, an Luy Kim Guan, single, one-half share, was issued

on September 30, 1936. Later, or on July 23, 1937, Luy Kim Guan, in his capacity as attorney-

in-fact of Luis Herrera, sold the half interest of the latter in the two parcels o land, in favor of

Nicomedes Salazar, whereupon TCT No. 13045 was cancelled and TCT No. RT-657 (494-T-

13045 (Exh. 7) was issued in the names of Luy Kim Guan an Nicomedes Salazar in undivided

equal shares. On August 4, 1937, both Luy Kim Guan and Nicomedes Salazar mortgaged the two

parcels in favor of the Bank of the Philippine Islands for the sum of P3,500.00 (Exh. 6). On

August 17, 1937, Nicomedes Salazar and Luy Kim Gua sold their respective shares in Lot No.

4465 to Carlo Eijansantos (Exh. 9), subject to the mortgage, resulting in the issuance of TCT No.

2653 (Exh. 10) covering the entire lot No. 4465 in the name of said Carlos Eijansantos. On

February 23, 1949, Nicomedes Salazar sold his shall share in Lot No. 4467 to Lino Bangayan, as

a consequence of which, TCT No. 2654 (Exh. B) was issued covering said Lot No. 4467 in the

names of Luy Kim Guan and Lino Bangayan in undivided equal shares.

With respect to Lot No. 1740, the same was sold by Luy Kim Guan, in his capacity as attorney-

in-fact of Luis Herrera, on September 11, 1939 to Luy Chay (See Exh. 2) who, in August, 1941,

mortgaged the same (Exh. 4) to the Zamboanga Mutual Loan and Building Association (See

TCT No. 3162 [Exh. 3] issued in the name of Luy Chay). Later on, Luy Chay sold the entire lot

to defendant Lino Bangayan by virtue of the deed of sale dated January 31, 1947 (Exh. E), and as

a consequence thereof, TCT No. 2567 was issued in the name of said vendee. (See Exh. 1). As a

result of these various transactions, duly recorded in the corresponding office of the Register of

Deeds, and covered by appropriate transfer certificates of title, the properties are now registered

in the following manner: Lot No. 1740, in the name of Lino Bangayan; Lot No. 4465, in the

name of Carlos Eijansantos; and Lot No. 4467, in the names of Lino Bangayan and Luy Kim

Guan in undivided equal shares.

In the face of these documentary evidence presented by the defendants, the trial court correctly

upheld the contention of the defendants as against that of plaintiff-appellant who claims that the

second deed executed by Luis Herrera in 1931 was a lease contract. It is pertinent to note what

the lower court stated in this regard, that is, if the second deed executed by Luis Herrera was a

lease contract covering, the 3 lots in question for a period of twenty (20) years, there would have

been no purpose for him to constitute Luy Kim Guan as. his attorney-in-fact to administer and

take charge of the same properties already covered by the lease contract.

Coming now to the contention that these transactions are null and void and of no effect because

they were executed by the attorney-in-fact after the death of his Principal, suffice it to say that as

found by the lower court, the date of death of Luis Herrera has not been satisfactorily proven.

The only evidence presented by the Plaintiff-appellant in this respect is a supposed letter

received from a certain "Candi", dated at Amoy in November, 1936, purporting to give

information that Luis Herrera (without mentioning his name) had died in August of that year.

This piece of evidence was properly rejected by the lower court for lack of identification. the

other hand, we have the testimony of the witness Chung Lian to the effect that when he was in

Amoy the year 1940, Luis Herrera visited him and had a conversation with him, showing that the

latter was still alive at the time. Since the documents had been executed the attorney-in-fact one

in 1937 and the other in 1939, it is evident, if we are to believe this testimony, that the

documents were executed during the lifetime of the principal. Be that as it may, even granting

arguendo that Luis Herrera did die in 1936, plaintiffs presented no proof and there is no

indication in the record, that the age Luy Kim Guan was aware of the death of his prince at the

time he sold the property. The death of the principal does not render the act of an agent

unenforceable, where the latter had no knowledge of such extinguishment the agency.2

Appellants also raise the question of the legality of the titles acquired by Luy Chay and Lino

Bangayan, on ground that they are disqualified to acquire real properties in the Philippines. This

point is similarly without me because there is no evidence to support the claim. In fact, in the

deed of sale as well as in TCT No. 3162 issued to Luy Chay, the latter was referred to as a

citizen of the Philippines. Nevertheless, the lower court acknowledged the probability that Luy

Chay could have been actually a Chinese citizens.3 At any rate, the property was subsequently

purchased by Lino Bangayan, as a result which TCT No. 3162 in the name of Luy Chay was

cancelled and another certificate (TCT No. T-2567) was issued in favor of said vendee.

As to Bangayan's qualification, the lower court held that said defendant had sufficiently

established his Philippine citizenship through Exhibit P, concurred in by the Secretary of Justice.

We find no reason to disturb such ruling.

With respect to Luy Kim Guan, while it is true that he is a Chinese citizen, nevertheless,

inasmuch as he acquired his one-half share in Lot No. 4467 in 1931, long before the Constitution

was adopted, his ownership can not be attacked on account of his citizenship.

Appellants, in this appeal, contest the judgment of the court a quo awarding defendants Lino

Bangayan and Luy Kim Guan attorney's fees in the sum of P2,000.00 each, and expenses of

litigation in the amounts of P1,000.00 and P500.00, respectively. We agree with the appellant in

this regard.

This Court has laid down the rule that in the absence of stipulation, a winning party may be

awarded attorney's fees only in case plaintiff's action or defendant's stand is so untenable as to

amount to gross and evident bad faith.4 The same thing however, can not be said of the case at

bar. As a matter of fact, the trial court itself declared that the complaint was filed in good faith.

Attorney's fees, therefore, can not be awarded to defendants simply because the judgment was

favorable to them and adverse to plaintiff, for it may amount to imposing a premium on the right

to redress grievances in court. And so with expenses of litigation. A winning party may be

entitled to expenses of litigation only where he, by reason of plaintiff's clearly unjustifiable

claims or defendant's unreasonable refusal to his demands, was compelled to incur said

expenditures. Evidently, the facts of this case do not warrant the granting of such litigation

expenses to defendants. In the absence of proof that the action was intended for reasons other

than honest, we may agree with the trial court that the same must have been instituted by

plaintiffs in their belief that they have a valid cause against the defendants.

WHEREFORE, and with the above modification, the decision appealed from is hereby affirmed

in all other respects without prejudice to appellants' right to demand from the agent (Luy Kim

Guan) an accounting of proceeds of the agency, if such right is still available. No costs. So

ordered.

Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes

and Dizon, concur.

Footnotes

1 The corresponding deed in the office of the Register of Deeds was destroyed during the

war.

2 Art. 1738, old Civil Code; Buason, et al. v. Panuyas, 56 O.G. 6925.

3 At the date of the hearing, Luy Chay was believed to already dead, hence, he was not

presented in court.

4 Jimenez v. Bucoy, G.R. No. L-10221, February 28, 1958; Castillo V. Samonte, G.R.

No. L-13146, January 30, 1960.

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-36731 January 27, 1983

VICENTE GODINEZ, ET AL., plaintiffs-appellants, vs. FONG PAK LUEN ET AL., defendants, TRINIDAD S. NAVATA, defendant-appellee.

Dominador Sobrevinas for plaintiffs-appellants.

Muss S. Inquerto for defendant-appellee

GUTIERREZ, JR., J.:

The plaintiffs filed this case to recover a parcel of land sold by their father, now deceased, to Fong Pak Luen, an alien, on the ground that the sale was null and void ab initio since it violates applicable provisions of the Constitution and the Civil Code.

The order of the Court of First Instance of Sulu dismissing the complaint was appealed to the Court of Appeals but the latter court certified the appeal to us since only pure questions of law were raised by the appellants.

The facts of the case were summarized by the Court of Appeals as follows:

On September 30, 1966, the plaintiffs filed a complaint in the Court of First Instance of Sulu alleging among others that they are the heirs of Jose Godinez who was married to Martina Alvarez Godinez sometime in 1910; that during the marriage of their parents the said parents acquired a parcel of land lot No. 94 of Jolo townsite with an area of 3,665 square meters as evidenced by Original Certificate of Title No. 179 (D -155) in the name of Jose Godinez; that their mother died sometime in 1938 leaving the plaintiffs as their sole surviving heirs; that on November 27, 1941, without the knowledge of the plaintiffs, the said Jose Godinez, for valuable consideration, sold the aforesaid parcel of land to the defendant Fong Pak Luen, a Chinese citizen, which transaction is contrary to law and in violation of the Civil Code because the latter being an alien who is inhibited by law to purchase real property; that Transfer Certificate Title No. 884 was then issued by the Register of Deeds to the said defendant,

which is null and void ab initio since the transaction constituted a non-existent contract; that on January 11, 1963, said defendant Fong Pak Luen executed a power of attorney in favor of his co-defendant Kwan Pun Ming, also an alien, who conveyed and sold the above described parcel of land to co-defendant Trinidad S. Navata, who is aware of and with full knowledge that Fong Pak Luen is a Chinese citizen as well as Kwan Pun Ming, who under the law are prohibited and disqualified to acquire real property in this jurisdiction; that defendant Fong Pak Luen has not acquired any title or interest in said parcel of land as the purported contract of sale executed by Jose Godinez alone was contrary to law and considered non- existent, so much so that the alleged attorney-in-fact, defendant Kwan Pun Ming had not conveyed any title or interest over said property and defendant Navata had not acquired anything from said grantor and as a consequence Transfer Certificate of Title No. 1322, which was issued by the Register of Deeds in favor of the latter is null and void ab initio,- that since one-half of the said property is conjugal property inherited by the plaintiffs from their mother, Jose Godinez could -not have legally conveyed the entire property; that notwithstanding repeated demands on said defendant to surrender to plaintiffs the said property she refused and still refuses to do so to the great damage and prejudice of the plaintiffs; and that they were constrained to engage the services of counsel in the sum of P2,000.00.1äwphï1.ñët The plaintiffs thus pray that they be adjudged as the owners of the parcel of land in question and that Transfer Certificate of Title RT-90 (T-884) issued in the name of defendant Fong Pak Luen be declared null and void ab initio; and that the power of attorney issued in the name of Kwan Pun Ming, as well as Transfer Certificate of Title No. 'L322 issued in the name of defendant Navata be likewise declared null and void, with costs against defendants.

On August 18, 1966, the defendant Register of Deeds filed an answer claiming that he was not yet the register of deeds then; that it was only the ministerial duty of his office to issue the title in favor of the defendant Navata once he was determined the registerability of the documents presented to his office.

On October 20, 1966, the defendant Navata filed her answer with the affirmative defenses and counterclaim alleging among others that the complaint does not state a cause of action since it appears from the allegation that the property is registered in the name of Jose Godinez so that as his sole property he may dispose of the same; that the cause of action has been barred by the statute of limitations as the alleged document of sale executed by Jose Godinez on November 27, 1941, conveyed the property to defendant Fong Pak Luen as a result of which a title was issued to said defendant; that under Article 1144 (1) of the Civil Code, an action based upon a written contract must be brought within 10 years from the time the right of action accrues; that the right of action

accrued on November 27, 1941 but the complaint was filed only on September 30, 1966, beyond the 10 year period provided for by law; that the torrens title in the name of defendant Navata is indefeasible who acquired the property from defendant Fong Pak Luen who had been in possession of the property since 1941 and thereafter defendant Navata had possessed the same for the last 25 years including the possession of Fong Pak Luen; that the complaint is intended to harass the defendant as a civic leader and respectable member of the community as a result of which she suffered moral damages of P100,000.00, P2,500.00 for attorney's fees and P500.00 expenses of litigation, hence, said defendant prays that the complaint be dismissed and that her counterclaim be granted, with costs against the plaintiffs. On November 24, 1967, the plaintiffs filed an answer to the affirmative defenses and counter-claim. As the defendants Fong Pak Luen and Kwan Pun Ming are residing outside the Philippines, the trial court upon motion issued an order of April 17, 1967, for the service of summons on said defendants by publication. No answer has been filed by said defendants.

On December 2, 196 7, the court issued an order as follows:

Both parties having agreed to the suggestion of the Court that they submit their supplemental pleadings to support both motion and opposition and after submittal of the same the said motion to dismiss which is an affirmative defense alleged in the complaint is deemed submitted. Failure of both parties or either party to submit their supplemental pleadings on or about December 9, the Court will resolve the case.

On November 29, 1968, the trial court issued an order missing the complaint without pronouncement as to costs. (Record on Appeal, pp. 31- 37). A motion for reconsideration of this order was filed by the plaintiffs on December 12, 196F, which was denied by the trial court in an order of July 11, 1969, (Rec. on Appeal, pp. 38, 43, 45, 47). The plaintiffs now interpose this appeal with the following assignments of errors:

I. The trial court erred in dismissing plaintiffs-appellants' complaint on the ground of prescription of action, applying Art. 1144 (1) New Civil Code on the basis of defendant Trinidad S. Navata's affirmative defense of prescription in her answer treated as a motion to dismiss.

II. The trial court erred in denying plaintiffs-appellants' motion for reconsideration of the order of dismissal.

III. The trial court erred in not ordering this case to be tried on the merits."

The appellants contend that the lower court erred in dismissing the complaint on the ground that their cause of action has prescribed. While the issue raised appears to be only the applicability of the law governing prescription, the real question before us is whether or not the heirs of a person who sold a parcel of land to an alien in violation of a constitutional prohibition may recover the property if it had, in the meantime, been conveyed to a Filipino citizen qualified to own and possess it.

The question is not a novel one. Judicial precedents indicate fairly clearly how the question should be resolved.

There can be no dispute that the sale in 1941 by Jose Godinez of his residential lot acquired from the Bureau of Lands as part of the Jolo townsite to Fong Pak Luen, a Chinese citizen residing in Hongkong, was violative of Section 5, Article XIII of the 1935 Constitution which provided:

Sec. 5. Save in cases of hereditary succession, no private agricultural land will be transferred or assigned except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain in the Philippines.

The meaning of the above provision was fully discussed in Krivenko v. Register of Deeds of Manila (79 Phil. 461) which also detailed the evolution of the provision in the public land laws, Act No. 2874 and Commonwealth Act No. 141. The Krivenko ruling that "under the Constitution aliens may not acquire private or agricultural lands, including residential lands" is a declaration of an imperative constitutional policy. Consequently, prescription may never be invoked to defend that which the Constitution prohibits. However, we see no necessity from the facts of this case to pass upon the nature of the contract of sale executed by Jose Godinez and Fong Pak Luen whether void ab initio, illegal per se or merely pro-exhibited.** It is enough to stress that insofar

as the vendee is concerned, prescription is unavailing. But neither can the vendor or his heirs rely on an argument based on imprescriptibility because the land sold in 1941 is now in the hands of a Filipino citizen against whom the constitutional prescription was never intended to apply. The lower court erred in treating the case as one involving simply the application of the statute of limitations.

From the fact that prescription may not be used to defend a contract which the Constitution prohibits, it does not necessarily follow that the appellants may be allowed to recover the property sold to an alien. As earlier mentioned, Fong Pak Luen, the disqualified alien vendee later sold the same property to Trinidad S. Navata, a Filipino citizen qualified to acquire real property.

In Vasquez v. Li Seng Giap and Li Seng Giap & Sons (96 Phil. 447), where the alien vendee later sold the property to a Filipino corporation, this Court, in affirming a judgment dismissing the complaint to rescind the sale of real property to the defendant Li Seng Giap on January 22, 1940, on the ground that the vendee was an alien and under the Constitution incapable to own and hold title to lands, held:

In Caoile vs. Yu Chiao 49 Qff Gaz., 4321; Talento vs. Makiki 49 Off. Gaz., 4331; Bautista vs. Uy 49 Off. Gaz., 4336; Rellosa vs. Gaw Chee 49 Off. Gaz., 4345 and Mercado vs. Go Bio, 49 Off. Gaz., 5360, the majority of this Court has ruled that in sales of real estate to aliens incapable of holding title thereto by virtue of the provisions of the Constitution (Section 5, Article XIII Krivenko vs. Register of Deeds, 44 Off. Gaz., 471) both the vendor and the vendee are deemed to have committed the constitutional violation and being thus in pari delicto the courts will not afford protection to either party. (Article 1305, old Civil Code; Article 1411, new Civil Code) From this ruling three Justices dissented. (Mr. Justice Pablo, Mr. Justice Alex. Reyes and the writer. See Caoile vs. Yu Chiao Talento vs. Makiki Bautista us. Uy, Rellosa vs. Gaw Chee and Mercado vs. Go Bio). supra.

The action is not of rescission because it is not postulated upon any of the grounds provided for in Article 1291 of the old Civil Code and because the action of rescission involves lesion or damage and seeks to repair it. It is an action for annulment under Chapter VI, Title II, Book 11, on nullity of contracts, based on a defect in the contract which invalidates it independently of such lesion or damages. (Manresa, Commentarios al Codigo Civil Espanol Vol. VIII, p. 698, 4th ed.) It is very likely that the majority of this Court proceeded upon that theory when it applied the in pari delicto rule referred to above.

In the United States the rule is that in a sale of real estate to an alien disqualified to hold title thereto the vendor divests himself of the title to such real estate and has no recourse against the vendee despite the latter's disability on account of alienage to hold title to such real estate and the vendee may hold it against the whole world except as against the State. It is only the State that is entitled by proceedings in the nature of office found to have a forfeiture or escheat declared against the vendee who is incapable of holding title to the real estate sold and conveyed to him. Abrams vs. State, 88 Pac. 327; Craig vs. Leslie et al., 4 Law, Ed. 460; 3 Wheat, 563, 589590; Cross vs. Del Valle, 1 Wall, [U.S.] 513; 17 Law. Ed., 515; Governeur vs. Robertson, 11 Wheat, 332, 6 Law. Ed., 488.)

However, if the State does not commence such proceedings and in the meantime the alien becomes naturalized citizen, the State is deemed to have waived its right to escheat the real property and the title of the alien thereto becomes lawful and valid as of the date of its conveyance or transfer to him. (Osterman vs. Baldwin, 6 Wall, 116, 18 Law. ed. 730; Manuel vs. Wulff, 152 U.S. 505, 38 Law. ed. 532; Pembroke vs. Houston, 79, SW 470; Fioerella vs. Jones, 259 SW 782. The rule in the United States that in a sale of real estate to an alien disqualified to hold title thereto, the vendor divests himself of the title to such real estate and is not permitted to sue for the annulment Of his Contract, is also the rule under

the Civil Code. ... Article 1302 of the old Civil Code provides: ... Persons sui juris cannot, however, avail themselves of the incapacity of those with whom they contracted; ...

xxx xxx xxx

. . . (I)f the ban on aliens from acquiring not only agricultural but, also urban lands, as construed by this Court in the Krivenko case, is to preserve the nation's land for future generations of Filipinos, that aim or purpose would not be thwarted but achieved by making lawful the acquisition of real estate by aliens who became Filipino citizens by naturalization. The title to the parcel of land of the vendee, a naturalized Filipino citizen, being valid that of the domestic corporation to which the parcel of land has been transferred, must also be valid, 96.67 per cent of its capital stock being owned by Filipinos.

Herrera v. Luy Kim Guan (SCRA 406) reiterated the above ruling by declaring that where land is sold to a Chinese citizen, who later sold it to a Filipino, the sale to the latter cannot be impugned.

The appellants cannot find solace from Philippine Banking Corporation v. Lui She (21 SCRA 52) which relaxed the pari delicto doctrine to allow the heirs or successors-in-interest, in appropriate cases, to recover that which their predecessors sold to aliens.

Only recently, in Sarsosa vda. de Barsobia v. Cuenco (113 SCRA 547) we had occasion to pass upon a factual situation substantially similar to the one in the instant case. We ruled:

But the factual set-up has changed. The litigated property is now in the hands of a naturalized Filipino. It is no longer owned by a disqualified vendee. Respondent, as a naturalized citizen, was constitutionally qualified to own the subject property. There would be no more public policy to be served in allowing petitioner Epifania to recover the land as it is already in the hands of a qualified person. Applying by analogy the ruling of this Court in Vasquez vs. Giap & Sons: (.96 Phil. 447 [1955])

... if the ban on aliens from acquiring not only agricultural but also urban lands, as construed by this Court in the Krivenko case, is to preserve the nation's lands for future generations of Filipinos, that aim or purpose would not be thwarted but achieved by making lawful the acquisition of real estate by aliens who became Filipino citizens by naturalization.

While, strictly speaking, Ong King Po, private respondent's vendor, had no rights of ownership to transmit, it is likewise in escapable that petitioner Epifania had slept on her rights for 26 years from 1936 to 1962. By her long inaction or inexcusable neglect, she should be held barred from

asserting her claim to the litigated property (Sotto vs. Teves, 86 SCRA 157 [1978])

Laches has been defined as the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been done earlier; it is negligence or ommission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it. (Tijam, et al. vs. Sibonghanoy, et al., No. L-21450, April 15, 1968, 23 SCRA 29, 35).' (Cited in Sotto vs. Teves, 86 SCRA 154 [1978]).

Respondent, therefore, must be declared to be the rightful owner of the property.

In the light of the above considerations, we find the second and third assignments of errors without merit. Respondent Navata, the titled owner of the property is declared the rightful owner.

WHEREFORE, the instant appeal is hereby denied. The orders dismissing the complaint and denying the motion for reconsideration are affirmed.

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Plana, Vasquez and Relova, JJ., concur.

Footnotes

** Under the facts in Sarsosa vda. de Barsobia v. Cuenco (113 SCRA 547), this Court stated that "(t)here should be no question that the sale of the land in question in 1936 by Epifania Sarsosa to Ong King Po was non-existent and void from the beginning (Art. 1409 [71, Civil Code) because it was a contract executed against the mandatory provision of the 1935 Constitution, which is an expression of public policy to conserve lands for the Filipinos." In Philippine Banking Corporation v. Lui She (21 SCRA 52) the Court, however, applied Article 1416 of the Civil Code, which refers to agreements not illegal se but merely prohibited, to justify the exception to the rule on pari delicto.

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 156364 September 3, 2007

JACOBUS BERNHARD HULST, petitioner,

vs.

PR BUILDERS, INC., respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of

Court assailing the Decision1 dated October 30, 2002 of the Court of Appeals (CA) in CA-G.R.

SP No. 60981.

The facts:

Jacobus Bernhard Hulst (petitioner) and his spouse Ida Johanna Hulst-Van Ijzeren (Ida), Dutch

nationals, entered into a Contract to Sell with PR Builders, Inc. (respondent), for the purchase of

a 210-sq m residential unit in respondent's townhouse project in Barangay Niyugan, Laurel,

Batangas.

When respondent failed to comply with its verbal promise to complete the project by June 1995,

the spouses Hulst filed before the Housing and Land Use Regulatory Board (HLURB) a

complaint for rescission of contract with interest, damages and attorney's fees, docketed as

HLRB Case No. IV6-071196-0618.

On April 22, 1997, HLURB Arbiter Ma. Perpetua Y. Aquino (HLURB Arbiter) rendered a

Decision2 in favor of spouses Hulst, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the

complainant, rescinding the Contract to Sell and ordering respondent to:

1) Reimburse complainant the sum of P3,187,500.00, representing the purchase price

paid by the complainants to P.R. Builders, plus interest thereon at the rate of twelve

percent (12%) per annum from the time complaint was filed;

2) Pay complainant the sum of P297,000.00 as actual damages;

3) Pay complainant the sum of P100,000.00 by way of moral damages;

4) Pay complainant the sum of P150,000.00 as exemplary damages;

5) P50,000.00 as attorney's fees and for other litigation expenses; and

6) Cost of suit.

SO ORDERED.3

Meanwhile, spouses Hulst divorced. Ida assigned her rights over the purchased property to

petitioner.4 From then on, petitioner alone pursued the case.

On August 21, 1997, the HLURB Arbiter issued a Writ of Execution addressed to the Ex-Officio

Sheriff of the Regional Trial Court of Tanauan, Batangas directing the latter to execute its

judgment.5

On April 13, 1998, the Ex-Officio Sheriff proceeded to implement the Writ of Execution.

However, upon complaint of respondent with the CA on a Petition for Certiorari and

Prohibition, the levy made by the Sheriff was set aside, requiring the Sheriff to levy first on

respondent's personal properties.6 Sheriff Jaime B. Ozaeta (Sheriff) tried to implement the writ as

directed but the writ was returned unsatisfied.7

On January 26, 1999, upon petitioner's motion, the HLURB Arbiter issued an Alias Writ of

Execution.8

On March 23, 1999, the Sheriff levied on respondent's 15 parcels of land covered by 13 Transfer

Certificates of Title (TCT)9 in Barangay Niyugan, Laurel, Batangas.

10

In a Notice of Sale dated March 27, 2000, the Sheriff set the public auction of the levied

properties on April 28, 2000 at 10:00 a.m..11

Two days before the scheduled public auction or on April 26, 2000, respondent filed an Urgent

Motion to Quash Writ of Levy with the HLURB on the ground that the Sheriff made an overlevy

since the aggregate appraised value of the levied properties at P6,500.00 per sq m is

P83,616,000.00, based on the Appraisal Report12

of Henry Hunter Bayne Co., Inc. dated

December 11, 1996, which is over and above the judgment award.13

At 10:15 a.m. of the scheduled auction date of April 28, 2000, respondent's counsel objected to

the conduct of the public auction on the ground that respondent's Urgent Motion to Quash Writ

of Levy was pending resolution. Absent any restraining order from the HLURB, the Sheriff

proceeded to sell the 15 parcels of land. Holly Properties Realty Corporation was the winning

bidder for all 15 parcels of land for the total amount of P5,450,653.33. The sum of

P5,313,040.00 was turned over to the petitioner in satisfaction of the judgment award after

deducting the legal fees.14

At 4:15 p.m. of the same day, while the Sheriff was at the HLURB office to remit the legal fees

relative to the auction sale and to submit the Certificates of Sale15

for the signature of HLURB

Director Belen G. Ceniza (HLURB Director), he received the Order dated April 28, 2000 issued

by the HLURB Arbiter to suspend the proceedings on the matter.16

Four months later, or on August 28, 2000, the HLURB Arbiter and HLURB Director issued an

Order setting aside the sheriff's levy on respondent's real properties,17

reasoning as follows:

While we are not making a ruling that the fair market value of the levied properties is

PhP6,500.00 per square meter (or an aggregate value of PhP83,616,000.00) as indicated

in the Hunter Baynes Appraisal Report, we definitely cannot agree with the position of

the Complainants and the Sheriff that the aggregate value of the 12,864.00-square meter

levied properties is only around PhP6,000,000.00. The disparity between the two

valuations are [sic] so egregious that the Sheriff should have looked into the matter first

before proceeding with the execution sale of the said properties, especially when the

auction sale proceedings was seasonably objected by Respondent's counsel, Atty. Noel

Mingoa. However, instead of resolving first the objection timely posed by Atty. Mingoa,

Sheriff Ozaete totally disregarded the objection raised and, posthaste, issued the

corresponding Certificate of Sale even prior to the payment of the legal fees (pars. 7 & 8,

Sheriff's Return).

While we agree with the Complainants that what is material in an execution sale

proceeding is the amount for which the properties were bidded and sold during the public

auction and that, mere inadequacy of the price is not a sufficient ground to annul the sale,

the court is justified to intervene where the inadequacy of the price shocks the conscience

(Barrozo vs. Macaraeg, 83 Phil. 378). The difference between PhP83,616,000.00 and

Php6,000,000.00 is PhP77,616,000.00 and it definitely invites our attention to look into

the proceedings had especially so when there was only one bidder, the HOLLY

PROPERTIES REALTY CORPORATION represented by Ma, Chandra Cacho (par. 7,

Sheriff's Return) and the auction sale proceedings was timely objected by Respondent's

counsel (par. 6, Sheriff's Return) due to the pendency of the Urgent Motion to Quash the

Writ of Levy which was filed prior to the execution sale.

Besides, what is at issue is not the value of the subject properties as determined

during the auction sale, but the determination of the value of the properties levied

upon by the Sheriff taking into consideration Section 9(b) of the 1997 Rules of Civil

Procedure x x x.

x x x x

It is very clear from the foregoing that, even during levy, the Sheriff has to consider the

fair market value of the properties levied upon to determine whether they are sufficient to

satisfy the judgment, and any levy in excess of the judgment award is void (Buan v.

Court of Appeals, 235 SCRA 424).

x x x x18

(Emphasis supplied).

The dispositive portion of the Order reads:

WHEREFORE, the levy on the subject properties made by the Ex-Officio Sheriff of the

RTC of Tanauan, Batangas, is hereby SET ASIDE and the said Sheriff is hereby directed

to levy instead Respondent's real properties that are reasonably sufficient to enforce its

final and executory judgment, this time, taking into consideration not only the value of

the properties as indicated in their respective tax declarations, but also all the other

determinants at arriving at a fair market value, namely: the cost of acquisition, the current

value of like properties, its actual or potential uses, and in the particular case of lands,

their size, shape or location, and the tax declarations thereon.

SO ORDERED.19

A motion for reconsideration being a prohibited pleading under Section 1(h), Rule IV of the

1996 HLURB Rules and Procedure, petitioner filed a Petition for Certiorari and Prohibition with

the CA on September 27, 2000.

On October 30, 2002, the CA rendered herein assailed Decision20

dismissing the petition. The

CA held that petitioner's insistence that Barrozo v. Macaraeg21

does not apply since said case

stated that "when there is a right to redeem inadequacy of price should not be material" holds no

water as what is obtaining in this case is not "mere inadequacy," but an inadequacy that shocks

the senses; that Buan v. Court of Appeals22

properly applies since the questioned levy covered 15

parcels of land posited to have an aggregate value of P83,616,000.00 which shockingly exceeded

the judgment debt of only around P6,000,000.00.

Without filing a motion for reconsideration,23

petitioner took the present recourse on the sole

ground that:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE

ARBITER'S ORDER SETTING ASIDE THE LEVY MADE BY THE SHERIFF ON

THE SUBJECT PROPERTIES.24

Before resolving the question whether the CA erred in affirming the Order of the HLURB setting

aside the levy made by the sheriff, it behooves this Court to address a matter of public and

national importance which completely escaped the attention of the HLURB Arbiter and the CA:

petitioner and his wife are foreign nationals who are disqualified under the Constitution from

owning real property in their names.

Section 7 of Article XII of the 1987 Constitution provides:

Sec. 7. Save in cases of hereditary succession, no private lands shall be transferred or

conveyed except to individuals, corporations, or associations qualified to acquire or

hold lands of the public domain. (Emphasis supplied).

The capacity to acquire private land is made dependent upon the capacity to acquire or hold

lands of the public domain. Private land may be transferred or conveyed only to individuals or

entities "qualified to acquire lands of the public domain." The 1987 Constitution reserved the

right to participate in the disposition, exploitation, development and utilization of lands of the

public domain for Filipino citizens25

or corporations at least 60 percent of the capital of which is

owned by Filipinos.26

Aliens, whether individuals or corporations, have been disqualified from

acquiring public lands; hence, they have also been disqualified from acquiring private lands.27

Since petitioner and his wife, being Dutch nationals, are proscribed under the Constitution from

acquiring and owning real property, it is unequivocal that the Contract to Sell entered into by

petitioner together with his wife and respondent is void. Under Article 1409 (1) and (7) of the

Civil Code, all contracts whose cause, object or purpose is contrary to law or public policy and

those expressly prohibited or declared void by law are inexistent and void from the beginning.

Article 1410 of the same Code provides that the action or defense for the declaration of the

inexistence of a contract does not prescribe. A void contract is equivalent to nothing; it produces

no civil effect.28

It does not create, modify or extinguish a juridical relation.29

Generally, parties to a void agreement cannot expect the aid of the law; the courts leave them as

they are, because they are deemed in pari delicto or "in equal fault."30

In pari delicto is "a

universal doctrine which holds that no action arises, in equity or at law, from an illegal contract;

no suit can be maintained for its specific performance, or to recover the property agreed to be

sold or delivered, or the money agreed to be paid, or damages for its violation; and where the

parties are in pari delicto, no affirmative relief of any kind will be given to one against the

other."31

This rule, however, is subject to exceptions32

that permit the return of that which may have been

given under a void contract to: (a) the innocent party (Arts. 1411-1412, Civil Code);33

(b) the

debtor who pays usurious interest (Art. 1413, Civil Code);34

(c) the party repudiating the void

contract before the illegal purpose is accomplished or before damage is caused to a third

person and if public interest is subserved by allowing recovery (Art. 1414, Civil Code);35

(d)

the incapacitated party if the interest of justice so demands (Art. 1415, Civil Code);36

(e) the

party for whose protection the prohibition by law is intended if the agreement is not illegal per se

but merely prohibited and if public policy would be enhanced by permitting recovery (Art. 1416,

Civil Code);37

and (f) the party for whose benefit the law has been intended such as in price

ceiling laws (Art. 1417, Civil Code)38

and labor laws (Arts. 1418-1419, Civil Code).39

It is significant to note that the agreement executed by the parties in this case is a Contract to Sell

and not a contract of sale. A distinction between the two is material in the determination of when

ownership is deemed to have been transferred to the buyer or vendee and, ultimately, the

resolution of the question on whether the constitutional proscription has been breached.

In a contract of sale, the title passes to the buyer upon the delivery of the thing sold. The vendor

has lost and cannot recover the ownership of the property until and unless the contract of sale is

itself resolved and set aside.40

On the other hand, a contract to sell is akin to a conditional sale

where the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated

to the happening of a future and uncertain event, so that if the suspensive condition does not take

place, the parties would stand as if the conditional obligation had never existed.41

In other words,

in a contract to sell, the prospective seller agrees to transfer ownership of the property to the

buyer upon the happening of an event, which normally is the full payment of the purchase price.

But even upon the fulfillment of the suspensive condition, ownership does not automatically

transfer to the buyer. The prospective seller still has to convey title to the prospective buyer by

executing a contract of absolute sale.42

Since the contract involved here is a Contract to Sell, ownership has not yet transferred to the

petitioner when he filed the suit for rescission. While the intent to circumvent the constitutional

proscription on aliens owning real property was evident by virtue of the execution of the

Contract to Sell, such violation of the law did not materialize because petitioner caused the

rescission of the contract before the execution of the final deed transferring ownership.

Thus, exception (c) finds application in this case. Under Article 1414, one who repudiates the

agreement and demands his money before the illegal act has taken place is entitled to recover.

Petitioner is therefore entitled to recover what he has paid, although the basis of his claim for

rescission, which was granted by the HLURB, was not the fact that he is not allowed to acquire

private land under the Philippine Constitution. But petitioner is entitled to the recovery only of

the amount of P3,187,500.00, representing the purchase price paid to respondent. No damages

may be recovered on the basis of a void contract; being nonexistent, the agreement produces no

juridical tie between the parties involved.43

Further, petitioner is not entitled to actual as well as

interests thereon,44

moral and exemplary damages and attorney's fees.

The Court takes into consideration the fact that the HLURB Decision dated April 22, 1997 has

long been final and executory. Nothing is more settled in the law than that a decision that has

acquired finality becomes immutable and unalterable and may no longer be modified in any

respect even if the modification is meant to correct erroneous conclusions of fact or law and

whether it was made by the court that rendered it or by the highest court of the land.45

The only

recognized exceptions to the general rule are the correction of clerical errors, the so-called nunc

pro tunc entries which cause no prejudice to any party, void judgments, and whenever

circumstances transpire after the finality of the decision rendering its execution unjust and

inequitable.46

None of the exceptions is present in this case. The HLURB decision cannot be

considered a void judgment, as it was rendered by a tribunal with jurisdiction over the subject

matter of the complaint.47

Ineluctably, the HLURB Decision resulted in the unjust enrichment of petitioner at the expense

of respondent. Petitioner received more than what he is entitled to recover under the

circumstances.

Article 22 of the Civil Code which embodies the maxim, nemo ex alterius incommode debet

lecupletari (no man ought to be made rich out of another's injury), states:

Art. 22. Every person who through an act of performance by another, or any other means,

acquires or comes into possession of something at the expense of the latter without just or

legal ground, shall return the same to him.

The above-quoted article is part of the chapter of the Civil Code on Human Relations, the

provisions of which were formulated as basic principles to be observed for the rightful

relationship between human beings and for the stability of the social order; designed to indicate

certain norms that spring from the fountain of good conscience; guides for human conduct that

should run as golden threads through society to the end that law may approach its supreme ideal

which is the sway and dominance of justice.48

There is unjust enrichment when a person unjustly

retains a benefit at the loss of another, or when a person retains money or property of another

against the fundamental principles of justice, equity and good conscience.49

A sense of justice and fairness demands that petitioner should not be allowed to benefit from his

act of entering into a contract to sell that violates the constitutional proscription.

This is not a case of equity overruling or supplanting a positive provision of law or judicial rule.

Rather, equity is exercised in this case "as the complement of legal jurisdiction [that] seeks to

reach and to complete justice where courts of law, through the inflexibility of their rules and

want of power to adapt their judgments to the special circumstances of cases, are incompetent to

do so."50

The purpose of the exercise of equity jurisdiction in this case is to prevent unjust enrichment and

to ensure restitution. Equity jurisdiction aims to do complete justice in cases where a court of law

is unable to adapt its judgments to the special circumstances of a case because of the inflexibility

of its statutory or legal jurisdiction.51

The sheriff delivered to petitioner the amount of P5,313,040.00 representing the net proceeds

(bidded amount is P5,450,653.33) of the auction sale after deducting the legal fees in the amount

of P137,613.33.52

Petitioner is only entitled to P3,187,500.00, the amount of the purchase price

of the real property paid by petitioner to respondent under the Contract to Sell. Thus, the Court in

the exercise of its equity jurisdiction may validly order petitioner to return the excess amount of

P2,125,540.00.

The Court shall now proceed to resolve the single issue raised in the present petition: whether the

CA seriously erred in affirming the HLURB Order setting aside the levy made by the Sheriff on

the subject properties.

Petitioner avers that the HLURB Arbiter and Director had no factual basis for pegging the fair

market value of the levied properties at P6,500.00 per sq m or P83,616,000.00; that reliance on

the appraisal report was misplaced since the appraisal was based on the value of land in

neighboring developed subdivisions and on the assumption that the residential unit appraised had

already been built; that the Sheriff need not determine the fair market value of the subject

properties before levying on the same since what is material is the amount for which the

properties were bidded and sold during the public auction; that the pendency of any motion is not

a valid ground for the Sheriff to suspend the execution proceedings and, by itself, does not have

the effect of restraining the Sheriff from proceeding with the execution.

Respondent, on the other hand, contends that while it is true that the HLURB Arbiter and

Director did not categorically state the exact value of the levied properties, said properties cannot

just amount to P6,000,000.00; that the HLURB Arbiter and Director correctly held that the value

indicated in the tax declaration is not the sole determinant of the value of the property.

The petition is impressed with merit.

If the judgment is for money, the sheriff or other authorized officer must execute the same

pursuant to the provisions of Section 9, Rule 39 of the Revised Rules of Court, viz:

Sec. 9. Execution of judgments for money, how enforced. –

(a) Immediate payment on demand. - The officer shall enforce an execution of a judgment

for money by demanding from the judgment obligor the immediate payment of the full

amount stated in the writ of execution and all lawful fees. x x x

(b) Satisfaction by levy. - If the judgment obligor cannot pay all or part of the obligation

in cash, certified bank check or other mode of payment acceptable to the judgment

obligee, the officer shall levy upon the properties of the judgment obligor of every

kind and nature whatsoever which may be disposed of for value and not otherwise

exempt from execution, giving the latter the option to immediately choose which

property or part thereof may be levied upon, sufficient to satisfy the judgment. If the

judgment obligor does not exercise the option, the officer shall first levy on the personal

properties, if any, and then on the real properties if the personal properties are insufficient

to answer for the judgment.

The sheriff shall sell only a sufficient portion of the personal or real property of the

judgment obligor which has been levied upon.

When there is more property of the judgment obligor than is sufficient to satisfy the

judgment and lawful fees, he must sell only so much of the personal or real property

as is sufficient to satisfy the judgment and lawful fees.

Real property, stocks, shares, debts, credits, and other personal property, or any interest

in either real or personal property, may be levied upon in like manner and with like

effect as under a writ of attachment (Emphasis supplied).53

Thus, under Rule 39, in executing a money judgment against the property of the judgment

debtor, the sheriff shall levy on all property belonging to the judgment debtor as is amply

sufficient to satisfy the judgment and costs, and sell the same paying to the judgment creditor so

much of the proceeds as will satisfy the amount of the judgment debt and costs. Any excess in

the proceeds shall be delivered to the judgment debtor unless otherwise directed by the judgment

or order of the court.54

Clearly, there are two stages in the execution of money judgments. First, the levy and then the

execution sale.

Levy has been defined as the act or acts by which an officer sets apart or appropriates a part or

the whole of a judgment debtor's property for the purpose of satisfying the command of the writ

of execution.55

The object of a levy is to take property into the custody of the law, and thereby

render it liable to the lien of the execution, and put it out of the power of the judgment debtor to

divert it to any other use or purpose.56

On the other hand, an execution sale is a sale by a sheriff or other ministerial officer under the

authority of a writ of execution of the levied property of the debtor.57

In the present case, the HLURB Arbiter and Director gravely abused their discretion in setting

aside the levy conducted by the Sheriff for the reason that the auction sale conducted by the

sheriff rendered moot and academic the motion to quash the levy. The HLURB Arbiter lost

jurisdiction to act on the motion to quash the levy by virtue of the consummation of the auction

sale. Absent any order from the HLURB suspending the auction sale, the sheriff rightfully

proceeded with the auction sale. The winning bidder had already paid the winning bid. The legal

fees had already been remitted to the HLURB. The judgment award had already been turned over

to the judgment creditor. What was left to be done was only the issuance of the corresponding

certificates of sale to the winning bidder. In fact, only the signature of the HLURB Director for

that purpose was needed58

– a purely ministerial act.

A purely ministerial act or duty is one which an officer or tribunal performs in a given state of

facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard for

or the exercise of his own judgment upon the propriety or impropriety of the act done. If the law

imposes a duty upon a public officer and gives him the right to decide how or when the duty

shall be performed, such duty is discretionary and not ministerial. The duty is ministerial only

when the discharge of the same requires neither the exercise of official discretion nor

judgment.59

In the present case, all the requirements of auction sale under the Rules have been

fully complied with to warrant the issuance of the corresponding certificates of sale.

And even if the Court should go into the merits of the assailed Order, the petition is meritorious

on the following grounds:

Firstly, the reliance of the HLURB Arbiter and Director, as well as the CA, on Barrozo v.

Macaraeg60

and Buan v. Court of Appeals61

is misplaced.

The HLURB and the CA misconstrued the Court's pronouncements in Barrozo. Barrozo

involved a judgment debtor who wanted to repurchase properties sold at execution beyond the

one-year redemption period. The statement of the Court in Barrozo, that "only where such

inadequacy shocks the conscience the courts will intervene," is at best a mere obiter dictum. This

declaration should be taken in the context of the other declarations of the Court in Barrozo, to

wit:

Another point raised by appellant is that the price paid at the auction sale was so

inadequate as to shock the conscience of the court. Supposing that this issue is open even

after the one-year period has expired and after the properties have passed into the hands

of third persons who may have paid a price higher than the auction sale money, the first

thing to consider is that the stipulation contains no statement of the reasonable value of

the properties; and although defendant' answer avers that the assessed value was P3,960 it

also avers that their real market value was P2,000 only. Anyway, mere inadequacy of

price – which was the complaint' allegation – is not sufficient ground to annul the

sale. It is only where such inadequacy shocks the conscience that the courts will

intervene. x x x Another consideration is that the assessed value being P3,960 and the

purchase price being in effect P1,864 (P464 sale price plus P1,400 mortgage lien which

had to be discharged) the conscience is not shocked upon examining the prices paid in the

sales in National Bank v. Gonzales, 45 Phil., 693 and Guerrero v. Guerrero, 57 Phil.,

445, sales which were left undisturbed by this Court.

Furthermore, where there is the right to redeem – as in this case – inadequacy of price

should not be material because the judgment debtor may re-acquire the property or

else sell his right to redeem and thus recover any loss he claims to have suffered by

reason of the price obtained at the execution sale.

x x x x (Emphasis supplied).62

In other words, gross inadequacy of price does not nullify an execution sale. In an ordinary sale,

for reason of equity, a transaction may be invalidated on the ground of inadequacy of price, or

when such inadequacy shocks one's conscience as to justify the courts to interfere; such does not

follow when the law gives the owner the right to redeem as when a sale is made at public

auction,63

upon the theory that the lesser the price, the easier it is for the owner to effect

redemption.64

When there is a right to redeem, inadequacy of price should not be material

because the judgment debtor may re-acquire the property or else sell his right to redeem and thus

recover any loss he claims to have suffered by reason of the price obtained at the execution

sale.65

Thus, respondent stood to gain rather than be harmed by the low sale value of the

auctioned properties because it possesses the right of redemption. More importantly, the subject

matter in Barrozo is the auction sale, not the levy made by the Sheriff.

The Court does not sanction the piecemeal interpretation of a decision. To get the true intent and

meaning of a decision, no specific portion thereof should be isolated and resorted to, but the

decision must be considered in its entirety.66

As regards Buan, it is cast under an entirely different factual milieu. It involved the levy on two

parcels of land owned by the judgment debtor; and the sale at public auction of one was

sufficient to fully satisfy the judgment, such that the levy and attempted execution of the second

parcel of land was declared void for being in excess of and beyond the original judgment award

granted in favor of the judgment creditor.

In the present case, the Sheriff complied with the mandate of Section 9, Rule 39 of the Revised

Rules of Court, to "sell only a sufficient portion" of the levied properties "as is sufficient to

satisfy the judgment and the lawful fees." Each of the 15 levied properties was successively

bidded upon and sold, one after the other until the judgment debt and the lawful fees were fully

satisfied. Holly Properties Realty Corporation successively bidded upon and bought each of the

levied properties for the total amount of P5,450,653.33 in full satisfaction of the judgment award

and legal fees.67

Secondly, the Rules of Court do not require that the value of the property levied be exactly the

same as the judgment debt; it can be less or more than the amount of debt. This is the

contingency addressed by Section 9, Rule 39 of the Rules of Court. In the levy of property, the

Sheriff does not determine the exact valuation of the levied property. Under Section 9, Rule 39,

in conjunction with Section 7, Rule 57 of the Rules of Court, the sheriff is required to do only

two specific things to effect a levy upon a realty: (a) file with the register of deeds a copy of the

order of execution, together with the description of the levied property and notice of execution;

and (b) leave with the occupant of the property copy of the same order, description and notice.68

Records do not show that respondent alleged non-compliance by the Sheriff of said requisites.

Thirdly, in determining what amount of property is sufficient out of which to secure satisfaction

of the execution, the Sheriff is left to his own judgment. He may exercise a reasonable discretion,

and must exercise the care which a reasonably prudent person would exercise under like

conditions and circumstances, endeavoring on the one hand to obtain sufficient property to

satisfy the purposes of the writ, and on the other hand not to make an unreasonable and

unnecessary levy.69

Because it is impossible to know the precise quantity of land or other

property necessary to satisfy an execution, the Sheriff should be allowed a reasonable margin

between the value of the property levied upon and the amount of the execution; the fact that the

Sheriff levies upon a little more than is necessary to satisfy the execution does not render his

actions improper.70

Section 9, Rule 39, provides adequate safeguards against excessive levying.

The Sheriff is mandated to sell so much only of such real property as is sufficient to satisfy the

judgment and lawful fees.

In the absence of a restraining order, no error, much less abuse of discretion, can be imputed to

the Sheriff in proceeding with the auction sale despite the pending motion to quash the levy filed

by the respondents with the HLURB. It is elementary that sheriffs, as officers charged with the

delicate task of the enforcement and/or implementation of judgments, must, in the absence of a

restraining order, act with considerable dispatch so as not to unduly delay the administration of

justice; otherwise, the decisions, orders, or other processes of the courts of justice and the like

would be futile.71

It is not within the jurisdiction of the Sheriff to consider, much less resolve,

respondent's objection to the continuation of the conduct of the auction sale. The Sheriff has no

authority, on his own, to suspend the auction sale. His duty being ministerial, he has no

discretion to postpone the conduct of the auction sale.

Finally, one who attacks a levy on the ground of excessiveness carries the burden of sustaining

that contention.72

In the determination of whether a levy of execution is excessive, it is proper to

take into consideration encumbrances upon the property, as well as the fact that a forced sale

usually results in a sacrifice; that is, the price demanded for the property upon a private sale is

not the standard for determining the excessiveness of the levy.73

Here, the HLURB Arbiter and Director had no sufficient factual basis to determine the value of

the levied property. Respondent only submitted an Appraisal Report, based merely on surmises.

The Report was based on the projected value of the townhouse project after it shall have been

fully developed, that is, on the assumption that the residential units appraised had already been

built. The Appraiser in fact made this qualification in its Appraisal Report: "[t]he property

subject of this appraisal has not been constructed. The basis of the appraiser is on the existing

model units."74

Since it is undisputed that the townhouse project did not push through, the

projected value did not become a reality. Thus, the appraisal value cannot be equated with the

fair market value. The Appraisal Report is not the best proof to accurately show the value of the

levied properties as it is clearly self-serving.

Therefore, the Order dated August 28, 2000 of HLURB Arbiter Aquino and Director Ceniza in

HLRB Case No. IV6-071196-0618 which set aside the sheriff's levy on respondent's real

properties, was clearly issued with grave abuse of discretion. The CA erred in affirming said

Order.

WHEREFORE, the instant petition is GRANTED. The Decision dated October 30, 2002 of the

Court of Appeals in CA-G.R. SP No. 60981 is REVERSED and SET ASIDE. The Order dated

August 28, 2000 of HLURB Arbiter Ma. Perpetua Y. Aquino and Director Belen G. Ceniza in

HLRB Case No. IV6-071196-0618 is declared NULL and VOID. HLURB Arbiter Aquino and

Director Ceniza are directed to issue the corresponding certificates of sale in favor of the

winning bidder, Holly Properties Realty Corporation. Petitioner is ordered to return to

respondent the amount of P2,125,540.00, without interest, in excess of the proceeds of the

auction sale delivered to petitioner. After the finality of herein judgment, the amount of

P2,125,540.00 shall earn 6% interest until fully paid.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 149750 June 16, 2003

AURORA ALCANTARA-DAUS, Petitioner,

vs.

Spouses HERMOSO and SOCORRO DE LEON, Respondents.

D E C I S I O N

PANGANIBAN, J.:

While a contract of sale is perfected by mere consent, ownership of the thing sold is acquired

only upon its delivery to the buyer. Upon the perfection of the sale, the seller assumes the

obligation to transfer ownership and to deliver the thing sold, but the real right of ownership is

transferred only "by tradition" or delivery thereof to the buyer.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the

February 9, 2001 Decision and the August 31, 2001 Resolution of the Court of Appeals2(CA) in

CA-GR CV No. 47587. The dispositive portion of the assailed Decision reads as follows:

"WHEREFORE, premises considered, the decision of the trial court is hereby REVERSED, and

judgment rendered:

1. Declaring null and void and of no effect, the [D]eed of [A]bsolute [S]ale dated December 6,

1975, the [D]eed of [E]xtra-judicial [P]artition and [Q]uitclaim dated July 1, 1985, and T.C.T.

No. T-31262;

2. Declaring T.C.T. No. 42238 as valid and binding;

3. Eliminating the award of P5,000.00 each to be paid to defendants-appellees."3

The assailed Resolution4 denied petitioner’s Motion for Reconsideration.

The Facts

The antecedents of the case were summarized by the Regional Trial Court (RTC) and adopted by

the CA as follows:

"This is a [C]omplaint for annulment of documents and title, ownership, possession, injunction,

preliminary injunction, restraining order and damages.

"[Respondents] alleged in their [C]omplaint that they are the owners of a parcel of land

hereunder described as follows, to wit:

‘A parcel of land (Lot No. 4786 of the Cadastral Survey of San Manuel) situated in the

Municipality of San Manuel, Bounded on the NW., by Lot No. 4785; and on the SE., by Lot

Nos. 11094 & 11096; containing an area of Four Thousand Two Hundred Twelve (4,212) sq. m.,

more or less. Covered by Original Certificate of Title No. 22134 of the Land Records of

Pangasinan.’

which [Respondent] Hermoso de Leon inherited from his father Marcelino de Leon by virtue of a

[D]eed of [E]xtra-judicial [P]artition. Sometime in the early 1960s, [respondents] engaged the

services of the late Atty. Florencio Juan to take care of the documents of the properties of his

parents. Atty. Juan let them sign voluminous documents. After the death of Atty. Juan, some

documents surfaced and most revealed that their properties had been conveyed by sale or

quitclaim to [Respondent] Hermoso’s brothers and sisters, to Atty. Juan and his sisters, when in

truth and in fact, no such conveyances were ever intended by them. His signature in the [D]eed

of [E]xtra-judicial [P]artition with [Q]uitclaim made in favor of x x x Rodolfo de Leon was

forged. They discovered that the land in question was sold by x x x Rodolfo de Leon to

[Petitioner] Aurora Alcantara. They demanded annulment of the document and reconveyance but

defendants refused x x x.

x x x x x x x x x

"[Petitioner] Aurora Alcantara-Daus [averred] that she bought the land in question in good faith

and for value on December 6, 1975. [She] has been in continuous, public, peaceful, open

possession over the same and has been appropriating the produce thereof without objection from

anyone."5

On August 23, 1994, the RTC (Branch 48) of Urdaneta, Pangasinan6 rendered its Decision

7 in

favor of herein petitioner. It ruled that respondents’ claim was barred by laches, because more

than 18 years had passed since the land was sold. It further ruled that since it was a notarial

document, the Deed of Extrajudicial Partition in favor of Rodolfo de Leon was presumptively

authentic.

Ruling of the Court of Appeals

In reversing the RTC, the CA held that laches did not bar respondents from pursuing their

claim.1âwphi1 Notwithstanding the delay, laches is a doctrine in equity and may not be invoked

to resist the enforcement of a legal right.

The appellate court also held that since Rodolfo de Leon was not the owner of the land at the

time of the sale, he could not transfer any land rights to petitioner. It further declared that the

signature of Hermoso de Leon on the Deed of Extrajudicial Partition and Quitclaim -- upon

which petitioner bases her claim -- was a forgery. It added that under the above circumstances,

petitioner could not be said to be a buyer in good faith.1âwphi1

Hence, this Petition.8

The Issues

Petitioner raises the following issues for our consideration:

"1. Whether or not the Deed of Absolute Sale dated December 6, 1975 executed by

Rodolfo de Leon (deceased) over the land in question in favor of petitioner was perfected

and binding upon the parties therein?

"2. Whether or not the evidentiary weight of the Deed of Extrajudicial Partition with

Quitclaim, executed by [R]espondent Hermoso de Leon, Perlita de Leon and Carlota de

Leon in favor of Rodolfo de Leon was overcome by more than [a] preponderance of

evidence of respondents?

"3. Whether or not the possession of petitioner including her predecessor-in-interest

Rodolfo de Leon over the land in question was in good faith?

"4. And whether or not the instant case initiated and filed by respondents on February 24,

1993 before the trial court has prescribed and respondents are guilty of laches?"9

The Court’s Ruling

The Petition has no merit.

First Issue:

Validity of the Deed of Absolute Sale

Petitioner argues that, having been perfected, the Contract of Sale executed on December 6, 1975

was thus binding upon the parties thereto.

A contract of sale is consensual. It is perfected by mere consent,10

upon a meeting of the minds11

on the offer and the acceptance thereof based on subject matter, price and terms of payment.12

At

this stage, the seller’s ownership of the thing sold is not an element in the perfection of the

contract of sale.

The contract, however, creates an obligation on the part of the seller to transfer ownership and to

deliver the subject matter of the contract.13

It is during the delivery that the law requires the seller

to have the right to transfer ownership of the thing sold.14

In general, a perfected contract of sale

cannot be challenged on the ground of the seller’s non-ownership of the thing sold at the time of

the perfection of the contract.15

Further, even after the contract of sale has been perfected between the parties, its consummation

by delivery is yet another matter. It is through tradition or delivery that the buyer acquires the

real right of ownership over the thing sold.16

Undisputed is the fact that at the time of the sale, Rodolfo de Leon was not the owner of the land

he delivered to petitioner. Thus, the consummation of the contract and the consequent transfer of

ownership would depend on whether he subsequently acquired ownership of the land in

accordance with Article 1434 of the Civil Code.17

Therefore, we need to resolve the issue of the

authenticity and the due execution of the Extrajudicial Partition and Quitclaim in his favor.

Second Issue:

Authenticity of the Extrajudicial Partition

Petitioner contends that the Extrajudicial Partition and Quitclaim is authentic, because it was

notarized and executed in accordance with law. She claims that there is no clear and convincing

evidence to set aside the presumption of regularity in the issuance of such public document. We

disagree.

As a general rule, the due execution and authenticity of a document must be reasonably

established before it may be admitted in evidence.18

Notarial documents, however, may be

presented in evidence without further proof of their authenticity, since the certificate of

acknowledgment is prima facie evidence of the execution of the instrument or document

involved.19

To contradict facts in a notarial document and the presumption of regularity in its

favor, the evidence must be clear, convincing and more than merely preponderant.20

The CA ruled that the signature of Hermoso de Leon on the Extrajudicial Partition and Quitclaim

was forged. However, this factual finding is in conflict with that of the RTC. While normally this

Court does not review factual issues,21

this rule does not apply when there is a conflict between

the holdings of the CA and those of the trial court,22

as in the present case.

After poring over the records, we find no reason to reverse the factual finding of the appellate

court. A comparison of the genuine signatures of Hermoso de Leon23

with his purported

signature on the Deed of Extrajudicial Partition with Quitclaim24

will readily reveal that the latter

is a forgery. As aptly held by the CA, such variance cannot be attributed to the age or the

mechanical acts of the person signing.25

Without the corroborative testimony of the attesting witnesses, the lone account of the notary

regarding the due execution of the Deed is insufficient to sustain the authenticity of this

document. He can hardly be expected to dispute the authenticity of the very Deed he notarized.26

For this reason, his testimony was -- as it should be --minutely scrutinized by the appellate court,

and was found wanting.

Third Issue:

Possession in Good Faith

Petitioner claims that her possession of the land is in good faith and that, consequently, she has

acquired ownership thereof by virtue of prescription. We are not persuaded.

It is well-settled that no title to registered land in derogation of that of the registered owner shall

be acquired by prescription or adverse possession.27

Neither can prescription be allowed against

the hereditary successors of the registered owner, because they merely step into the shoes of the

decedent and are merely the continuation of the personality of their predecessor in interest.28

Consequently, since a certificate of registration29

covers it, the disputed land cannot be acquired

by prescription regardless of petitioner’s good faith.

Fourth Issue:

Prescription of Action and Laches

Petitioner also argues that the right to recover ownership has prescribed, and that respondents are

guilty of laches. Again, we disagree.

Article 1141 of the New Civil Code provides that real actions over immovable properties

prescribe after thirty years. This period for filing an action is interrupted when a complaint is

filed in court.30

Rodolfo de Leon alleged that the land had been allocated to him by his brother

Hermoso de Leon in March 1963,31

but that the Deed of Extrajudicial Partition assigning the

contested land to the latter was executed only on September 16, 1963.32

In any case, the

Complaint to recover the land from petitioner was filed on February 24, 1993,33

which was

within the 30-year prescriptive period.

On the claim of laches, we find no reason to reverse the ruling of the CA. Laches is based upon

equity and the public policy of discouraging stale claims.34

Since laches is an equitable doctrine,

its application is controlled by equitable considerations.35

It cannot be used to defeat justice or to

perpetuate fraud and injustice.36

Thus, the assertion of laches to thwart the claim of respondents

is foreclosed, because the Deed upon which petitioner bases her claim is a forgery.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against

petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-43059 October 11, 1979

SAMPAGUITA PICTURES, INC., plaintiff-appellant, vs. JALWINDOR MANUFACTURERS, INC., defendant-appellee.

DE CASTRO, J:

This case was certified to this Court by the Court of Appeals pursuant to the provisions of Section 17, paragraph (6) in relation to Section 31 of the Judiciary Act of 1948.

Plaintiff-appellant Sampaguita Pictures, Inc. (hereinafter referred to as Sampaguita) is the owner of the Sampaguita Pictures Building located at the corner of General Araneta and General Roxas Streets, Cubao, Quezon City. The roofdeck of the building and all existing improvements thereon were leased by Sampaguita to Capitol "300" Inc. (Capitol for short), and it was agreed, among other things, that the premises shall be used by said club for social purposes exclusively for its members and guests; that all permanent improvements made by the lessee on the leased premises shall belong to the lessor without any obligation on the part of the lessor to reimburse the lessee for the sum spent for said improvements; that the improvements made by lessee have been considered as part of the consideration of the monthly rental and said improvements belong to the lessor; that any remodelling, alterations and/or addition to the premises shall be at the expense of the lessee and such improvements belong to the lessor, without any obligation to reimburse the lessee of any sum spent for said improvements. (pp. 29-32, Record on Appeal).

Capitol "300" purchased on credit from defendant-appellee Jalwindor Manufacturers, Inc. (hereinafter referred to as Jalwindor) glass and wooden jalousies which were delivered and installed in the leased premises by Jalwindor replacing the existing windows. On June 1, 1964, Jalwindor filed with the Court of First Instance of Rizal, Quezon City, an action for collection of a sum of money with a petition for preliminary attachment against Capitol for its failure to pay its purchases. The parties submitted to the trial court a Compromise Agreement wherein Capitol acknowledged its indebtedness to Jalwindor in the amount of P9,531.09, exclusive of attorney's fees and interest, payable in monthly installments of at least P300.00 a month beginning December 15, 1964; and pending liquidation of the said obligation, all the materials purchased by Capitol will be considered as security for such undertaking. (p. 13, Record on Appeal).

In the meantime, Capitol "300" was not able to pay rentals to Sampaguita from March 1, 1964 to April 30, 1965, water, electric and telephone services. Sampaguita filed a complaint for ejectment and for collection of a sum of money against Capitol and on June 8, 1965, the City Court of Quezon City rendered judgment ordering Capitol to vacate the premises and to pay Sampaguita.

On the other hand, Capitol likewise failed to comply with the terms of the Compromise Agreement, and on July 31, 1965, the Sheriff of Quezon City made levy on the glass and wooden jalousies in question. Sampaguita filed a third party claim alleging that it is the owner of said materials and not Capitol, Jalwindor however, filed an indemnity bond in favor of the Sheriff and the items were sold et public auction on August 30, 1965 with Jalwindor as the highest bidder for P6,000.00.

Sampaguita filed with the Court of First Instance of Rizal, Branch IV of Quezon City, an action to nullify the Sheriff's Sale and for the issuance of a writ of preliminary injunction against Jalwindor from detaching the glass and wooden jalousies. Jalwindor was ordered to maintain the status quo pending final determination of the case. No actual hearing was held and the parties submitted the following stipulation of facts for the consideration of the court.

1. That plaintiff and defendant are both domestic corporations duly organized and existing by and under the laws of the Philippines:

2. That plaintiff leased to the CAPITOL "300", Inc. the roofdeck of the Sampaguita building and all the existing improvements thereon for a monthly, rental of P650.00; that the parties to the lease contract agreed that all permanent improvements made by the lessee on the leased premises shall belong to the lessor without any obligation on the part of the lessor to reimburse the lessee for the sum spent for said improvements; that it was agreed upon by the parties that the improvements made by the lessee have been considered as part of the consideration of the monthly rental;

3. That CAPITOL "300", Inc. made alterations on the leased premises; that it removed the then existing windows and replaced 'them with the following items bought on credit from the JALWINDOR MANUFACTURERS INC.. valued at P9,531.09, to wit:

J-21(lever-type) Solex Bluepane

Glass Jaluosies

11 Sets 15'-1 3/4" x 47-7/8" (5 units)

4 Sets 13'-5 3/4" x 47-7/8" (5 units)

3 Sets 10'-9 3/4" x 47-7/7" (4 units)

2 Sets 18'-1 3/3" x 56-3/8" (6 units)

1 Set 9'-1 3/4" x 65-3/8" (3 units)

115 Pcs. Roto Operators for J-21

MODEL J-21 (Roto-type) Glass

and Wood Jalousies

8 Sets 32-1/2" x 60" Solex Bluepane

19 Sets 31-1/4" x 48" Solex Bluepane

18 Sets 34" x 48" Wood

4. That after the CAPITOL "300", Inc. failed to pay the price of the items mentioned in the preceding paragraph, JALWINDOR MANUFACTURERS, Inc, filed a case for collection of a sum of money against CAPITOL "300", Inc. with the Court of First Instance of Rizal (Branch IV Quezon City), Civil Case No. Q-8040; that by virtue of a Compromise Agreement, CAPITOL "300", Inc. acknowledged indebtedness in favor of JALWINDOR in the amount of P9,531,09, with a stipulation in the said Compromise Agreement, that the items forming part of the improvements will form as security for such an undertaking;

5. That due to non-compliance by CAPITOL "300", Inc., JALWINDOR executed judgment that the Sheriff of Quezon City made levy on the items above-stated in paragraph 3 hereof and sold them at a public auction to JALWINDOR MANUFACTURERS, INC. as the highest bidder, on August 30, 1965, for the total amount of P 6,000.00:

6. That after CAPITOL "300", Inc. failed to pay the rentals in arrears from March 1, 1964 to April 30, 1965, water, electric and telephone services amounting to P 10,772.90, the plaintiff SAMPAGUITA PICTURES, INC. filed with the City Court of Quezon City, Civil Case No. 11-13161 for ejectment and collection of a sum of money against the CAPITOL "300", Inc,; that the City Court rendered judgment in favor of the Sampaguita Pictures, Inc., on June 8, 1965, ordering the CAPITOL "300", Inc. to vacate the premises located at the Sampaguita Building and to pay the Sampaguita Pictures, Inc.;

7. That after the Sheriff of Quezon City made levy on the items above-stated in paragraph 3 hereof situated on the roofdeck of the Sampaguita

Building, plaintiff filed a Third Party Claim stated in its affidavit on the ground of its right and title to the possession of the items and that CAPITOL "300", Inc. has no right or title whatsoever to the possession over said items; that defendant filed a bond to indemnify the Sheriff against the claim, and the Sheriff sold the items to the defendant; that the JALWINDOR MANUFACTURERS, Inc., being the highest bidder and the execution creditor, considered itself paid to the amount of P6,000.00;

8. That the parties herein agree that the matter of attorney's fees be left to the sound discretion of the Court, which shall not be less than P500.00. (Record on Appeal, pp. 11-14).

On October 20, 1967, based on said Stipulation of Facts, the lower court dismissed the complaint and ordered Sampaguita to pay Jalwindor the amount of P500.00 as attorney's fees. Sampaguita filed a motion for reconsideration which was likewise denied, hence, the instant appeal.

Petitioner-appellant raised the following assignment of errors:

I

The lower court erred in holding that Capitol "300" Inc. could not legally transfer or assign the glass and wooden jalousies in question to the plaintiff-appellant.

II

The lower court erred in not holding that plaintiff-appellant was the rightful owner of the glass and wooden jalousies when they were sold by the Sheriff at the public auction,

III

The lower court erred in not declaring as null and void the levy on execution and the Sheriff's sale at public auction of the glass and wooden jalousies.

IV

The lower court erred in holding that defendant-appellee became the rightful owner of the glass and wooden jalousies.

When the glass and wooden jalousies in question were delivered and installed in the leased premises, Capitol became the owner thereof. Ownership is not transferred by perfection of the contract but by delivery, either actual or constructive. This is true even if the purchase has been made on credit, as in the case at bar. Payment of the

purchase price is not essential to the transfer of ownership as long as the property sold has been delivered. Ownership is acquired from the moment the thing sold was delivered to vendee, as when it is placed in his control and possession. (Arts. 1477, 1496 and 1497, Civil Code of the Phil.)

Capitol entered into a lease Contract with Sampaguita in 1964, and the latter became the owner of the items in question by virtue of the agreement in said contract "that all permanent improvements made by lessee shall belong to the lessor and that said improvements have been considered as part of the monthly rentals." When levy or said items was made on July 31, 1965, Capitol, the judgment debtor, was no longer the owner thereof.

The action taken by Sampaguita to protect its interest is sanctioned by Section 17, Rule 39 of the Rules of Court, which reads:

Section 17, Proceedings where property claimed by third person.

... The officer is not liable for damages for the taking or keeping of the property to any third-party claimant unless a claim is made by the latter and unless an action for damages is brought by him against the officer within one hundred twenty (120) days from the date of the filing of the bond. But nothing herein contained shall prevent claimant from vindicating his claim to the property by any action.

It is, likewise, recignized in the case of Bayer Phil., Inc. vs. Agana, et al., 63 SCRA 358, wherein the Court declared, "that the rights of third party claimants over certain properties levied upon by the sheriff to satisfy the judgment, may not be taken up in the case where such claims are presented but in a separate and independent action instituted by claimants. ... and should a third-party appear to claim is denied, the remedy contemplated by the rules in the filing by said party of a reinvicatiry action against the execution creditor or the purchaser of the property after the sale is completed or that a complaint for damages to be charged against the bond filed by the creditor in favor of the sheriff. ... Thus, when a property levied upon by the sheriff pursuant to a writ of execution is claimed by a third person in a sworn statement of ownership thereof, as prescribed by the rules, an entirely different matter calling for a new adjudication arises."

The items in question were illegally levied upon since they do not belong to the judgemnt debtor. The power of the Court in execution of judgment extends only to properties unquestionably belonging to the judgment debtor. The fact that Capitol failed to pay Jalwindor the purchase price of the items levied upon did not prevent the transfer of ownership to Capitol. The complaint of Sampaguita to nullify the Sheriff's sale well-founded, and should prosper. Execution sales affect the rights of judgment debtor only, and the purchaser in the auction sale acquires only the right as the debtor has at the time of sale. Since the items already belong to Sampaguita and not to Capitol, the judgment debtor, the levy and auction sale are, accordingly, null and void. It is well-settled in this jurisdiction that the sheriff is not authorized to attach property not

belonging to the judgment debtor. (Arabay, Inc. vs. Salvador, et al., 3 PHILAJUR, 413 [1978], Herald Publishing vs. Ramos, 88 Phil. 94, 100).

WHEREFORE, the decision appealed from is hereby reversed, and plaintiff-appellant Sampaguita is declared the lawful owner of the disputed glass and wooden jalousies. Defendant-appellee Jalwindor is permanently enjoined from detaching said items from the roofdeck of the Sampaguita Pictures Building, and is also ordered to pay plaintiff-appellant the sum of P1,000.00 for and as attorney's fees, and costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-26937 October 5, 1927

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.

SEVERO EUGENIO LO, ET AL., defendants.

SEVERIO EUGENIO LO, NG KHEY LING and YEP SENG, appellants.

Jose Lopez Vito for appellants.

Roman Lacson for appellee.

VILLAMOR, J.:

On September 29, 1916, the appellants Severo Eugenio Lo and Ng Khey Ling, together with J.

A. Say Lian Ping, Ko Tiao Hun, On Yem Ke Lam and Co Sieng Peng formed a commercial

partnership under the name of "Tai Sing and Co.," with a capital of P40,000 contributed by said

partners. In the articles of copartnership, Exhibit A, it appears that the partnership was to last for

five years from after the date of its organization, and that its purpose was to do business in the

City of Iloilo, Province of Iloilo, or in any other part of the Philippine Islands the partners might

desire, under the name of "Tai Sing & Co.," for the purchase and sale of merchandise, goods, and

native, as well as Chinese and Japanese, products, and to carry on such business and speculations

as they might consider profitable. One of the partners, J. A. Say Lian Ping was appointed general

manager of the partnership, with the appointed general manager of the partnership, with the

powers specified in said articles of copartnership.

On June 4, 1917, general manager A. Say Lian Ping executed a power of attorney (Exhibit C-1)

in favor of A. Y. Kelam, authorizing him to act in his stead as manager and administrator of "Tai

Sing & Co.," on July 26, 1918, for, and obtained a loan of P8,000 in current account from the

plaintiff bank. (Exhibit C). As security for said loan, he mortgaged certain personal property of

"Tai Sing & Co., (Exhibit C.)

This credit was renew several times and on March 25, 1919, A. Y. Kelam, as attorney-in-fact of

"Tai Sing & Co., executed a chattel mortgage in favor of plaintiff bank as security for a loan of

P20,000 with interest (Exhibit D). This mortgage was again renewed on April 16, 1920 and A.

Y. Kelam, as attorney-in-fact of "Tai Sing & Co., executed another chattel mortgage for the said

sum of P20,000 in favor of plaintiff bank. (Exhibit E.) According to this mortgage contract, the

P20,000 loan was to earn 9 per cent interest per annum.

On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng Khey Ling, the latter

represented by M. Pineda Tayenko, executed a power of attorney in favor of Sy Tit by virtue of

which Sy Tit, representing "Tai Sing & Co., obtained a credit of P20,000 from plaintiff bank on

January 7, 1921, executing a chattel mortgage on certain personal property belonging to "Tai

Sing & Co.

Defendants had been using this commercial credit in a current account with the plaintiff bank,

from the year 1918, to May 22, 1921, and the debit balance of this account, with interest to

December 31, 1924, is as follows:

TAI SING & CO.

To your outstanding account (C. O. D.) with us on

June 30, 1922 P16,518.74

Interest on same from June 30, 1922 to December

31,1924, at 9 per cent per annum 3,720.86

Total

20, 239.00

=========

This total is the sum claimed in the complaint, together with interest on the P16,518.74 debt, at 9

per cent per annum from January 1, 1925 until fully paid, with the costs of the trial.

Defendant Eugenio Lo sets up, as a general defense, that "Tai Sing & Co. was not a general

partnership, and that the commercial credit in current account which "Tai Sing & Co. obtained

from the plaintiff bank had not been authorized by the board of directors of the company, nor

was the person who subscribed said contract authorized to make the same, under the article of

copartnership. The other defendants, Yap Sing and Ng Khey Ling, answered the complaint

denying each and every one of the allegations contained therein.

After the hearing, the court found:

(1) That defendants Eugenio Lo, Ng Khey Ling and Yap Seng Co., Sieng Peng indebted

to plaintiff Philippine National Bank in sum of P22,595.26 to July 29, 1926, with a daily

interest of P4.14 on the balance on account of the partnership "Tai Sing & Co. for the

sum of P16,518.74 until September 9, 1922;

(2) Said defendants are ordered jointly and severally to pay the Philippine National Bank

the sum of P22,727.74 up to August 31, 1926, and from the date, P4.14 daily interest on

the principal; and

(3) The defendants are furthermore ordered to pay the costs of the action.1awph!l.net

Defendants appealed, making the following assignments of error:

I. The trial court erred in finding that article 126 of the Code of Commerce at present in

force is not mandatory.

II. The trial court erred in finding that the partnership agreement of "Tai Sing & Co.,

(Exhibit A), is in accordance with the requirements of article 125 of the Code of

Commerce for the organization of a regular partnership.

III. The trial court erred in not admitting J. A. Sai Lian Ping's death in China in

November, 1917, as a proven fact.

IV. The trial court erred in finding that the death of J. A. Say Lian Ping cannot extinguish

the defendants' obligation to the plaintiff bank, because the last debt incurred by the

commercial partnership "Tai Sing & Co., was that evidence by Exhibit F, signed by Sy

Tit as attorney-in-fact of the members of "Tai Sing & Co., by virtue of Exhibit G.

V. The trial court erred in not finding that plaintiff bank was not able to collect its credit

from the goods of "Tai Sing & Co., given as security therefor through its own fault and

negligence; and that the action brought by plaintiff is a manifest violation of article 237

of the present Code of Commerce.

VI. The trial court erred in finding that the current account of "Tai Sing & Co. with

plaintiff bank shows a debit balance of P16,518.74, which in addition to interest at 9 per

cent per annum from July 29, 1926, amount to P16,595.26, with a daily interest of P4.14

on the sum of P16,518.74.

VII. The trial court erred in ordering the defendants appellants to pay jointly and

severally to the Philippine National Bank the sum of P22,727.74 up to August 31, 1926,

and interest on P16,518.74 from that date until fully paid, with the costs of the action.

VIII. The trial court erred in denying the motion for a new trial filed by defendants-

appellants.

Appellants admit, and it appears from the context of Exhibit A, that the defendant association

formed by the defendants is a general partnership, as defined in article 126 of the Code

Commerce. This partnership was registered in the mercantile register of the Province of Iloilo.

The only anomaly noted in its organization is that instead of adopting for their firm name the

names of all of the partners, of several of them, or only one of them, to be followed in the last

two cases, by the words "and to be followed in the last two cases, by the words "and company"

the partners agreed upon "Tai Sing & Co." as the firm name.

In the case of Hung-Man-Yoc, under the name of Kwong-Wo-Sing vs. Kieng-Chiong-Seng, cited

by appellants, this court held that, as the company formed by defendants had existed in fact,

though not in law due to the fact that it was not recorded in the register, and having operated and

contracted debts in favor of the plaintiff, the same must be paid by someone. This applies more

strongly to the obligations contracted by the defendants, for they formed a partnership which was

registered in the mercantile register, and carried on business contracting debts with the plaintiff

bank. The anomalous adoption of the firm name above noted does not affect the liability of the

general partners to third parties under article 127 of the Code of Commerce. And the Supreme

Court so held in the case of Jo Chung Cang vs. Pacific Commercial Co., (45 Phil., 142), in which

it said that the object of article 126 of the Code of Commerce in requiring a general partnership

to transact business under the name of all its members, of several of them, or of one only, is to

protect the public from imposition and fraud; and that the provision of said article 126 is for the

protection of the creditors rather than of the partners themselves. And consequently the doctrine

was enunciated that the law must be unlawful and unenforceable only as between the partners

and at the instance of the violating party, but not in the sense of depriving innocent parties of

their rights who may have dealt with the offenders in ignorance of the latter having violated the

law; and that contracts entered into by commercial associations defectively organized are valid

when voluntarily executed by the parties, and the only question is whether or not they complied

with the agreement. Therefore, the defendants cannot invoke in their defense the anomaly in the

firm name which they themselves adopted.

As to the alleged death of the manager of the company, Say Lian Ping, before the attorney-in-

fact Ou Yong Kelam executed Exhibits C, D and E, the trial court did not find this fact proven at

the hearing. But even supposing that the court had erred, such an error would not justify the

reversal of the judgment, for two reasons at least: (1) Because Ou Yong Kelam was a partner

who contracted in the name of the partnership, without any objection of the other partners; and

(2) because it appears in the record that the appellant-partners Severo Eugenio Lo, Ng Khey Ling

and Yap Seng, appointed Sy Tit as manager, and he obtained from the plaintiff bank the credit in

current account, the debit balance of which is sought to be recovered in this action.

Appellants allege that such of their property as is not included in the partnership assets cannot-be

seized for the payment of the debts contracted by the partnership until after the partnership

property has been exhausted. The court found that the partnership property described in the

mortgage Exhibit F no loner existed at the time of the filing of the herein complaint nor has its

existence been proven, nor was it offered to the plaintiff for sale. We find no just reason to

reverse this conclusion of the trial court, and this being so, it follows that article 237 of the Code

of Commerce, invoked by the appellant, can in no way have any application here.

Appellants also assign error to the action of the trial court in ordering them to pay plaintiff,

jointly and severally, the sums claimed with 9 per cent interest on P16,518.74, owing from them.

The judgment against the appellants is in accordance with article 127 of the Code of Commerce

which provides that all the members of a general partnership, be they managing partners thereof

or not, shall be personally and solidarily liable with all their property, for the results of the

transactions made in the name and for the account of the partnership, under the signature of the

latter, and by a person authorized to use it.

As to the amount of the interest suffice it to remember that the credit in current account sued on

in this case as been renewed by the parties in such a way that while it appears in the mortgage

Exhibit D executed on March 25, 1919 by the attorney-in-fact Ou Yong Kelam that the P20,000

credit would earn 8 per cent interest annually, yet from that executed on April 16, 1920, Exhibit

E, it appears that the P20,000 would earn 9 per cent interest per annum. The credit was renewed

in January, 1921, and in the deed of pledge, Exhibit F, executed by "Tai Sing & Co., represented

by the attorney-in-fact Sy Tit, it appears that this security is for the payment of the sums received

by the partnership, not to exceed P20,000 with interest and collection fees. There can be no

doubt that the parties agreed upon the rate of interest fixed in the document Exhibit E, namely 9

per cent per annum.

The judgment appealed from is in accordance with the law, and must therefore be, as it is hereby,

affirmed with costs against the appellants. So ordered.

Avanceña, C.J., Johnson, Street, Malcolm, Johns and Romualdez, JJ., concur.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 91029 February 7, 1991

NORKIS DISTRIBUTORS, INC., petitioner, vs. THE COURT OF APPEALS & ALBERTO NEPALES, respondents.

Jose D. Palma for petitioner.

Public Attorney's Office for private respondent.

GRIÑO-AQUINO, J.:p

Subject of this petition for review is the decision of the Court of Appeals (Seventeenth Division) in CA-G.R. No. 09149, affirming with modification the judgment of the Regional Trial Court, Sixth (6th) Judicial Region, Branch LVI. Himamaylan, Negros Occidental, in Civil Case No. 1272, which was private respondent Alberto Nepales' action for specific performance of a contract of sale with damages against petitioner Norkis Distributors, Inc.

The facts borne out by the record are as follows:

Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the distributor of Yamaha motorcycles in Negros Occidental with office in Bacolod City with Avelino Labajo as its Branch Manager. On September 20, 1979, private respondent Alberto Nepales bought from the Norkis-Bacolod branch a brand new Yamaha Wonderbike motorcycle Model YL2DX with Engine No. L2-329401K Frame No. NL2-0329401, Color Maroon, then displayed in the Norkis showroom. The price of P7,500.00 was payable by means of a Letter of Guaranty from the Development Bank of the Philippines (DBP), Kabankalan Branch, which Norkis' Branch Manager Labajo agreed to accept. Hence, credit was extended to Nepales for the price of the motorcycle payable by DBP upon release of his motorcycle loan. As security for the loan, Nepales would execute a chattel mortgage on the motorcycle in favor of DBP. Branch Manager Labajo issued Norkis Sales Invoice No. 0120 (Exh.1) showing that the contract of sale of the motorcycle had been perfected. Nepales signed

the sales invoice to signify his conformity with the terms of the sale. In the meantime, however, the motorcycle remained in Norkis' possession.

On November 6, 1979, the motorcycle was registered in the Land Transportation Commission in the name of Alberto Nepales. A registration certificate (Exh. 2) in his name was issued by the Land Transportation Commission on November 6, 1979 (Exh. 2-b). The registration fees were paid by him, evidenced by an official receipt, Exhibit 3.

On January 22, 1980, the motorcycle was delivered to a certain Julian Nepales who was allegedly the agent of Alberto Nepales but the latter denies it (p. 15, t.s.n., August 2, 1984). The record shows that Alberto and Julian Nepales presented the unit to DBP's Appraiser-Investigator Ernesto Arriesta at the DBP offices in Kabankalan, Negros Occidental Branch (p. 12, Rollo). The motorcycle met an accident on February 3, 1980 at Binalbagan, Negros Occidental. An investigation conducted by the DBP revealed that the unit was being driven by a certain Zacarias Payba at the time of the accident (p. 33, Rollo). The unit was a total wreck (p. 36, t.s.n., August 2,1984; p. 13, Rollo), was returned, and stored inside Norkis' warehouse.

On March 20, 1980, DBP released the proceeds of private respondent's motorcycle loan to Norkis in the total sum of P7,500. As the price of the motorcycle later increased to P7,828 in March, 1980, Nepales paid the difference of P328 (p. 13, Rollo) and demanded the delivery of the motorcycle. When Norkis could not deliver, he filed an action for specific performance with damages against Norkis in the Regional Trial Court of Himamaylan, Negros Occidental, Sixth (6th) Judicial Region, Branch LVI, where it was docketed as Civil Case No. 1272. He alleged that Norkis failed to deliver the motorcycle which he purchased, thereby causing him damages.

Norkis answered that the motorcycle had already been delivered to private respondent before the accident, hence, the risk of loss or damage had to be borne by him as owner of the unit.

After trial on the merits, the lower court rendered a decision dated August 27, 1985 ruling in favor of private respondent (p. 28, Rollo.) thus:

WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants. The defendants are ordered to pay solidarity to the plaintiff the present value of the motorcycle which was totally destroyed, plus interest equivalent to what the Kabankalan Sub-Branch of the Development Bank of the Philippines will have to charge the plaintiff on fits account, plus P50.00 per day from February 3, 1980 until full payment of the said present value of the motorcycle, plus P1,000.00 as exemplary damages, and costs of the litigation. In lieu of paying the present value of the motorcycle, the defendants can deliver to the plaintiff a brand-new motorcycle of the same brand, kind, and quality as the one which was totally destroyed in their possession last February 3, 1980. (pp. 28-29, Rollo.)

On appeal, the Court of appeals affirmed the appealed judgment on August 21, 1989, but deleted the award of damages "in the amount of Fifty (P50.00) Pesos a day from February 3, 1980 until payment of the present value of the damaged vehicle" (p35, Rollo). The Court of Appeals denied Norkis' motion for reconsideration. Hence, this Petition for Review.

The principal issue in this case is who should bear the loss of the motorcycle. The answer to this question would depend on whether there had already been a transfer of ownership of the motorcycle to private respondent at the time it was destroyed.

Norkis' theory is that:

. . . After the contract of sale has been perfected (Art. 1475) and even before delivery, that is, even before the ownership is transferred to the vendee, the risk of loss is shifted from the vendor to the vendee. Under Art. 1262, the obligation of the vendor to deliver a determinate thing becomes extinguished if the thing is lost by fortuitous event (Art. 1174), that is, without the fault or fraud of the vendor and before he has incurred in delay (Art. 11 65, par. 3). If the thing sold is generic, the loss or destruction does not extinguish the obligation (Art. 1263). A thing is determinate when it is particularly designated or physically segregated from all others of the same class (Art. 1460). Thus, the vendor becomes released from his obligation to deliver the determinate thing sold while the vendee's obligation to pay the price subsists. If the vendee had paid the price in advance the vendor may retain the same. The legal effect, therefore, is that the vendee assumes the risk of loss by fortuitous event (Art. 1262) after the perfection of the contract to the time of delivery. (Civil Code of the Philippines, Ambrosio Padilla, Vol. 5,1987 Ed., p. 87.)

Norkis concedes that there was no "actual" delivery of the vehicle. However, it insists that there was constructive delivery of the unit upon: (1) the issuance of the Sales Invoice No. 0120 (Exh. 1) in the name of the private respondent and the affixing of his signature thereon; (2) the registration of the vehicle on November 6, 1979 with the Land Transportation Commission in private respondent's name (Exh. 2); and (3) the issuance of official receipt (Exh. 3) for payment of registration fees (p. 33, Rollo).

That argument is not well taken. As pointed out by the private respondent, the issuance of a sales invoice does not prove transfer of ownership of the thing sold to the buyer. An invoice is nothing more than a detailed statement of the nature, quantity and cost of the thing sold and has been considered not a bill of sale (Am. Jur. 2nd Ed., Vol. 67, p. 378).

In all forms of delivery, it is necessary that the act of delivery whether constructive or actual, be coupled with the intention of delivering the thing. The act, without the intention, is insufficient (De Leon, Comments and Cases on Sales, 1978 Ed., citing Manresa, p. 94).

When the motorcycle was registered by Norkis in the name of private respondent, Norkis did not intend yet to transfer the title or ownership to Nepales, but only to facilitate the execution of a chattel mortgage in favor of the DBP for the release of the buyer's motorcycle loan. The Letter of Guarantee (Exh. 5) issued by the DBP, reveals that the execution in its favor of a chattel mortgage over the purchased vehicle is a pre-requisite for the approval of the buyer's loan. If Norkis would not accede to that arrangement, DBP would not approve private respondent's loan application and, consequently, there would be no sale.

In other words, the critical factor in the different modes of effecting delivery, which gives legal effect to the act, is the actual intention of the vendor to deliver, and its acceptance by the vendee. Without that intention, there is no tradition (Abuan vs. Garcia, 14 SCRA 759).

In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408), this Court held:

The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered when it is "placed in the hands and possession of the vendee." (Civil Code, Art. 1462). It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is the object of the contract, but, in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have had such control over the thing sold that, at the moment of the sale, its material delivery could have been made. It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to reality-the delivery has riot been effects .(Emphasis supplied.)

The Court of Appeals correctly ruled that the purpose of the execution of the sales invoice dated September 20, 1979 (Exh. B) and the registration of the vehicle in the name of plaintiff-appellee (private respondent) with the Land Registration Commission (Exhibit C) was not to transfer to Nepales the ownership and dominion over the motorcycle, but only to comply with the requirements of the Development Bank of the Philippines for processing private respondent's motorcycle loan. On March 20, 1980, before private respondent's loan was released and before he even paid Norkis, the motorcycle had already figured in an accident while driven by one Zacarias Payba. Payba was not shown by Norkis to be a representative or relative of private respondent. The latter's supposed relative, who allegedly took possession of the vehicle from Norkis did not explain how Payba got hold of the vehicle on February 3, 1980. Norkis' claim

that Julian Nepales was acting as Alberto's agent when he allegedly took delivery of the motorcycle (p. 20, Appellants' Brief), is controverted by the latter. Alberto denied having authorized Julian Nepales to get the motorcycle from Norkis Distributors or to enter into any transaction with Norkis relative to said motorcycle. (p. 5, t.s.n., February 6, 1985). This circumstances more than amply rebut the disputable presumption of delivery upon which Norkis anchors its defense to Nepales' action (pp. 33-34, Rollo).

Article 1496 of the Civil Code which provides that "in the absence of an express assumption of risk by the buyer, the things sold remain at seller's risk until the ownership thereof is transferred to the buyer," is applicable to this case, for there was neither an actual nor constructive delivery of the thing sold, hence, the risk of loss should be borne by the seller, Norkis, which was still the owner and possessor of the motorcycle when it was wrecked. This is in accordance with the well-known doctrine of res perit domino.

WHEREFORE, finding no reversible error in the decision of the Court of Appeals in CA-G.R. No. 09149, we deny the petition for review and hereby affirm the appealed decision, with costs against the petitioner.

SO ORDERED.

Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-19545 April 18, 1975

PHILIPPINE SUBURBAN DEVELOPMENT CORPORATION, petitioner, vs. THE AUDITOR GENERAL, PEDRO M. GIMENEZ, respondent.

Magno L. Dajao for petitioner.

First Assistant Solicitor General Esmeraldo Umali and Solicitor Sumilang V. Bernardo for respondent.

ANTONIO, J.:ñé+.£ªwph!1

Appeal by certiorari from the decision dated December 11, 1961, of then Auditor General Pedro M. Gimenez, disallowing the request of petitioner for the refund of real estate tax in the amount of P30,460.90 paid to the Provincial Treasurer of Bulacan.

The facts of the case are as follows:

On June 8, 1960, at a meeting with the Cabinet, the President of the Philippines, acting on the reports of the Committee created to survey suitable lots for relocating squatters in Manila and suburbs, and of the Social Welfare Administrator together with the recommendation of the Manager of the Government Service Insurance System, approved in principle the acquisition by the People's Homesite and Housing Corporation of the unoccupied portion of the Sapang Palay Estate in Sta. Maria, Bulacan for relocating the squatters who desire to settle north of Manila, and of another area either in Las Piñas or Parañaque, Rizal, or Bacoor, Cavite for those who desire to settle south of Manila. The project was to be financed through the flotation of bonds under the charter of the PHHC in the amount of P4.5 million, the same to be absorbed by the Government Service Insurance System. The President, through the Executive Secretary, informed the PHHC of such approval by letter bearing the same date (Annex "B").

On June 10, 1960, the Board of Directors of the PHHC passed Resolution No. 700 (Annex "C") authorizing the purchase of the unoccupied portion of the Sapang Palay Estate at P0.45 per square meter "subject to the following conditions precedent: têñ.£îhqwâ£

1. That the confirmation by the OEC and the President of the purchase price of P0.45 per sq. m. shall first be secured, pursuant to OEC Memorandum Circular No. 114, dated May 6, 1957.

2. That the portion of the estate to be acquired shall first be defined and delineated.

3. That the President of the Philippines shall first provide the PHHC with the necessary funds to effect the purchase and development of this property from the proposed P4.5 million bond issue to be absorbed by the GSIS.

4. That the contract of sale shall first be approved by the Auditor General pursuant to Executive Order dated February 3, 1959.

5. The vendor shall agree to the dismissal with prejudice of Civil Case No. Q-3332 C.F.I. Quezon City, entitled "Phil. Suburban Dev. Corp. V. Ortiz, et al."

On July 13, 1960, the President authorized the floating of bonds under Republic Act Nos. 1000 and 1322 in the amount of P7,500,000.00 to be absorbed by the GSIS, in order to finance the acquisition by the PHHC of the entire Sapang Palay Estate at a price not to exceed P0.45 per sq. meter.

On December 29,1960, after an exchange of communications, Petitioner Philippine Suburban Development Corporation, as owner of the unoccupied portion of the Sapang Palay Estate (specifically two parcels covered by TCT Nos. T-23807 and T-23808), and the People's Homesite and Housing Corporation, entered into a contract embodied in a public instrument entitled "Deed of Absolute Sale" (Annex "F") whereby the former conveyed unto the latter the two parcels of land abovementioned, under the following terms and conditions, among others: têñ.£îhqwâ£

1. That for and in consideration of the sum of THREE MILLION THREE HUNDRED EIGHTY-SIX THOUSAND TWO HUNDRED TWENTY THREE (P3,386,223.00) PESOS, Philippine currency, to be paid by the VENDEE to the herein VENDOR in the manner outlined hereinbelow, the VENDOR by these presents does hereby sell, transfer and convey by way of absolute sale unto the VENDEE, its successors, administrators or assigns, the above described two (2) parcels of land, together with all the improvements existing thereon;

2. That the payment of the consideration mentioned in paragraph 1 above shall be made as follows:

(a) The vendee is presently negotiating or securing from the GOVERNMENT SERVICE INSURANCE SYSTEM, by virtue of a directive of the President of the Philippines, a loan for the purchase of the above described two (2) parcels of land in anticipation of the purchase by the said GOVERNMENT SERVICE INSURANCE SYSTEM of the bonds to be floated by the National Government to enable the VENDEE to make this purchase, and from whatever amount may be granted as loan by the GOVERNMENT SERVICE INSURANCE SYSTEM to the VENDEE, ONE MILLION SEVEN HUNDRED TEN THOUSAND (P1,710,000.00) PESOS shall be retained by the said VENDEE for the purpose of paying and clearing the existing lien annotated at the back of the aforesaid Transfer Certificates of Title Nos. T-23807 and T-23808, said payment to be made directly to the MORTGAGEES and the difference shall be paid to the VENDOR, provided that this first payment shall not be less than ONE MILLION SEVEN HUNDRED TEN THOUSAND (P1,710,000.00) PESOS and the VENDOR is hereby constituted as Attorney-in-fact and authorized to receive from, and the GOVERNMENT SERVICE INSURANCE SYSTEM is directed to pay the balance of the loan direct to the herein VENDOR chargeable against VENDEE's loan from the GOVERNMENT SERVICE INSURANCE SYSTEM; provided, however, That should this amount be more than sufficient to cover the said mortgage lien, the VENDEE shall pay the difference to the VENDOR; and provided, further, That the VENDOR shall take charge of the preparation and registration of the documents necessary in clearing the above referred to mortgage lien, with the understanding that the expenses for preparation, notarization, registration, including documentary stamps, and other expenses for the cancellation of said mortgage lien shall be for the account of the VENDOR and shall be advanced by the VENDEE to the VENDOR;

(b) That out of the sum of P1,710,000.00 to be retained by the VENDEE mentioned in the immediately preceding paragraph 2(a) for the purpose of discharging the said mortgage lien, the VENDEE shall deduct and further retain or keep as a trust fund the amount of FORTY THOUSAND (P40,000) PESOS, Philippine Currency, to answer for the remaining Notice of Lis Pendens annotated at the back of Transfer Certificate of Title Nos. T-23807 and T-23808 until such lien shall have been discharged or cancelled, the VENDEE binding itself to deliver forthwith the said amount of P40,000.00 unto the successful party involved in said Notice of Lis Pendens;

(c) The remaining balance of the total consideration in the amount of ONE MILLION SIX HUNDRED SEVENTY-SIX THOUSAND TWO HUNDRED TWENTY-THREE PESOS (P1,676,223.00), Philippine Currency, or

whatever amount is not paid by virtue of the first payment mentioned in paragraph (a) above, shall be paid by the VENDEE unto the VENDOR immediately upon the VENDEE's obtaining sufficient funds from proceeds of bonds floated by the VENDEE or the Government for the purchase of the properties subject of this transaction; provided, however, That full and complete payment of the balance mentioned in this particular paragraph 2(c) shall be made or paid by the VENDEE within a period of sixty (60) days from date of delivery of title by the VENDOR in the name of the VENDEE; and provided, further, That this sixty (60) days period may be extended for another period of sixty (60) days upon written request by the VENDEE at least five (5) days prior to the expiration of the said sixty (60) days period. Should there be instituted any legal action, however, for the collection of any amounts due from the VENDEE in favor of the VENDOR, the VENDEE binds itself to pay unto the VENDOR a sum equivalent to twenty-five (25%) per centum of the total balance due from the, VENDEE in favor of the VENDOR as and by way of attorney's fees, and the costs of suit;

3. That the VENDOR hereby warrants to defend the title and ownership of the VENDEE to the two (2) parcels of land above described from any claim or claims of third parties whomsoever;

(4.) That all expenses for the preparation and notarization of this document shall be for the account of the VENDOR; provided, however, That registration and issuance of certificates of title in the name of the VENDEE shall be for the account of the VENDEE." (Annex "F")

The above document was not registered in the Office of the Register of Deeds until March 14, 1961, due to the fact, petitioner claims, that the PHHC could not at once advance the money needed for registration expenses. In the meantime, the Auditor General, to whom a copy of the contract had been submitted for approval in conformity with Executive Order No. 290, expressed objections thereto and requested a re-examination of the contract, in view of the fact that from 1948 to December 20, 1960, the entire hacienda was assessed at P131,590.00, and reassessed beginning December 21, 1960 in the greatly increased amount of P4,898,110.00. Said objections were embodied in a letter to the President, dated January 9, 1961, but this notwithstanding, the President, through the Executive Secretary, approved the Deed of Absolute Sale on February 1, 1961.

It appears that as early as the first week of June, 1960, prior to the signing of the deed by the parties, the PHHC acquired possession of the property, with the consent of petitioner, to enable the said PHHC to proceed immediately with the construction of roads in the new settlement and to resettle the squatters and flood victims in Manila who were rendered homeless by the floods or ejected from the lots which they were then occupying (Annexes "D" and "D-1").

On April 12, 1961, the Provincial Treasurer of Bulacan requested the PHHC to withhold the amount of P30,099.79 from the purchase price to be paid by it to the Philippine Suburban Development Corporation. Said amount represented the realty tax due on the property involved for the calendar year 1961 (Annex "G").

Petitioner, through the PHHC, paid under protest the abovementioned amount to the Provincial Treasurer of Bulacan and thereafter, or on June 13, 1961, by letter, requested then Secretary of Finance Dominador Aytona to order a refund of the amount so paid. Petitioner claimed that it ceased to be the owner of the land in question upon the execution of the Deed of Absolute Sale on December 29, 1960. Upon recommendation of the Provincial Treasurer of Bulacan, said request was denied by the Secretary of Finance in a letter-decision dated August 22, 1961. Pertinent portions of this decision are quoted hereunder: têñ.£îhqwâ£

.... the records show that the deed of sale executed on December 29, 1960 ... was approved by the President upon favorable recommendation of the Cabinet and the Committee created for the purpose of surveying suitable lots which may be acquired for relocating squatters in Manila on February 1, 1961 only and that said instrument of sale was registered with the Register of Deeds on March 14, 1961.

That Corporation, as vendor, maintains that in view of the execution of the deed of sale on December 29, 1960 it ceased to be the owner of the property involved and that consequently it was under no obligation to pay the real property tax thereon effective January 1, 1961. In support of its stand, that Corporation cites Article 1498 of the New Civil Code of the Philippines which provides that "when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred" and Article 1496 of the same Code which states that "the ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee." On the other hand, the Provincial Treasurer contends that, as under the Land Registration Act (Act No. 496) the Philippine Suburban Development Corporation is still the owner of the property until the deed of sale covering the same has been actually registered, the vendor is still liable to the payment of real property tax for the calendar year 1961.

It is now claimed in this appeal that the Auditor General erred in disallowing the refund of the real estate tax in the amount of P30,460.90 because aside from the presumptive delivery of the property by the execution of the deed of sale on December 29, 1960, the possession of the property was actually delivered to the vendee prior to the sale, and, therefore, by the transmission of ownership to the vendee, petitioner has ceased to be

the owner of the property involved, and, consequently, under no obligation to pay the real property tax for the year 1961.

Respondent, however, argues that the presumptive delivery of the property under Article 1498 of the Civil Code does not apply because of the requirement in the contract that the sale shall first be approved by the Auditor General, pursuant to the Executive Order dated February 3, 1959 and later by the President, and that the petitioner should register the deed and secure a new title in the name of the vendee before the government can be compelled to pay the balance of P1,676,223.00 of the purchase price. Respondent further contends that since the property involved is a land registered under the Land Registration Act (Act No. 496), until the deed of sale has been actually registered, the vendor remains as the owner of the said property, and, therefore, liable for the payment of real property tax.

We find the petition meritorious.

I .

It cannot be denied that the President of the Philippines, on June 8, 1960, at his Cabinet meeting, approved and authorized the purchase by the national government, through the PHHC, of the unoccupied portion of the property of petitioner; that on June 10, 1960, the PHHC, acting pursuant to the aforecited approval of the President, passed its Resolution No. 700 approving and authorizing the purchase of the unoccupied portion of said property; and that after the PHHC took possession of the aforementioned property on the first week of June, 1960 to use it as a resettlement area for squatters and flood victims from Manila and suburbs, the President of the Philippines at his Cabinet meeting on June 13, 1960, approved and authorized the purchase by the PHHC of the entire property consisting of 752.4940 hectares, instead of only the unoccupied portion thereof as was previously authorized.

Considering the aforementioned approval and authorization by the President of the Philippines of the specific transaction in question, and the fact that the contract here involved — which is for a special purpose to meet a special situation — was entered into precisely to implement the Presidential directive, the prior approval by the Auditor General envisioned by Administrative Order No. 290, dated February 3, 1959, would therefore, not be necessary.

As We held in Federation of the United NAMARCO Distributors v. National Marketing Corporation, 1 the approval by the Auditor General contemplated by Administrative Order No. 290 dated February 3, 1959, refers to contracts in general, ordinarily entered into by government offices and government-owned or controlled corporations, and not to a contract for a special purpose, to meet a special situation and entered into in implementation of a Presidential directive to solve and emergency. In other words, where the contract already bears the approval of the President, the action of the Auditor General would no longer be necessary because under the said Administrative Order, the President has, at any rate, the final say.

II

Under the civil law, delivery (tradition) as a mode of transmission of ownership maybe actual (real tradition) or constructive (constructive tradition). 2 When the sale of real

property is made in a public instrument, the execution thereof is equivalent to the delivery of the thing object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. 3

In other words, there is symbolic delivery of the property subject of the sale by the execution of the public instrument, unless from the express terms of the instrument, or by clear inference therefrom, this was not the intention of the parties. Such would be the case, for instance, when a certain date is fixed for the purchaser to take possession of the property subject of the conveyance, or where, in case of sale by installments, it is stipulated that until the last installment is made, the title to the property should remain with the vendor, or when the vendor reserves the right to use and enjoy the properties until the gathering of the pending crops, 4 or where the vendor has no control over the

thing sold at the moment of the sale, and, therefore, its material delivery could not have been made. 5

In the case at bar, there is no question that the vendor had actually placed the vendee in possession and control over the thing sold, even before the date of the sale. The condition that petitioner should first register the deed of sale and secure a new title in the name of the vendee before the latter shall pay the balance of the purchase price, did not preclude the transmission of ownership. In the absence of an express stipulation to the contrary, the payment of the purchase price of the good is not a condition, precedent to the transfer of title to the buyer, but title passes by the delivery of the goods. 6

III .

We fail to see the merit in respondent's insistence that, although possession was transferred to the vendee and the deed of sale was executed in a public instrument on December 29, l960, the vendor still remains as owner of the property until the deed of sale is actually registered with the Office of the Register of Deeds, because the land sold is registered under the Torrens System. In a long line of cases already decided by this Court, the constant doctrine has been that, as between the parties to a contract of sale, registration is not necessary to make it valid and effective, for actual notice is equivalent to registration. 7 Indeed, Section 50 of the Land Registration Act provides that, even without the act of registration, a deed purporting to convey or affect registered land shall operate as a contract between the parties. The registration is intended to protect the buyer against claims of third persons arising from subsequent alienations by the vendor, and is certainly not necessary to give effect to the deed of sale, as between the parties to the contract. 8

The case of Vargas v. Tancioco, 9 cited by respondent, refers to a case involving conflicting rights over registered property and those of innocent transferees who relied

on the clean titles of the properties in question. It is, therefore, not relevant to the case at bar.

In the case at bar, no rights of third persons are involved, much less is there any subsequent alienation of the same property. It is undisputed that the property is in the possession of the vendee, even as early as the first week of June, 1960, or six (6) months prior to the execution of the Deed of Absolute Sale on December 29, 1960. Since the delivery of possession, coupled with the execution of the Deed of Absolute Sale, had consummated the sale and transferred the title to the purchaser, 10 We, therefore, hold that the payment of the real estate tax after such transfer is the responsibility of the purchaser. However, in the case at bar, the purchaser PHHC is a government entity not subject to real property tax. 11

WHEREFORE, the appealed decision is hereby reversed, and the real property tax paid under protest to the Provincial Treasurer of Bulacan by petitioner Philippine Suburban Development Corporation, in the amount of P30,460,90, is hereby ordered refunded. Without any pronouncement as to costs.

Makalintal, C.J., Fernando, Barredo and Aquino, JJ., concur.1äwphï1.ñët

Republic of the Philippines

SUPREME COURT Manila

EN BANC

G.R. No. L-12342 August 3, 1918

A. A. ADDISON, plaintiff-appellant,

vs.

MARCIANA FELIX and BALBINO TIOCO, defendants-appellees.

Thos. D. Aitken for appellant.

Modesto Reyes and Eliseo Ymzon for appellees.

FISHER, J.:

By a public instrument dated June 11, 1914, the plaintiff sold to the defendant Marciana Felix,

with the consent of her husband, the defendant Balbino Tioco, four parcels of land, described in

the instrument. The defendant Felix paid, at the time of the execution of the deed, the sum of

P3,000 on account of the purchase price, and bound herself to pay the remainder in installments,

the first of P2,000 on July 15, 1914, and the second of P5,000 thirty days after the issuance to her

of a certificate of title under the Land Registration Act, and further, within ten years from the

date of such title P10, for each coconut tree in bearing and P5 for each such tree not in bearing,

that might be growing on said four parcels of land on the date of the issuance of title to her, with

the condition that the total price should not exceed P85,000. It was further stipulated that the

purchaser was to deliver to the vendor 25 per centum of the value of the products that she might

obtain from the four parcels "from the moment she takes possession of them until the Torrens

certificate of title be issued in her favor."

It was also covenanted that "within one year from the date of the certificate of title in favor of

Marciana Felix, this latter may rescind the present contract of purchase and sale, in which case

Marciana Felix shall be obliged to return to me, A. A. Addison, the net value of all the products

of the four parcels sold, and I shall obliged to return to her, Marciana Felix, all the sums that she

may have paid me, together with interest at the rate of 10 per cent per annum."

In January, 1915, the vendor, A. A. Addison, filed suit in Court of First Instance of Manila to

compel Marciana Felix to make payment of the first installment of P2,000, demandable in

accordance with the terms of the contract of sale aforementioned, on July 15, 1914, and of the

interest in arrears, at the stipulated rate of 8 per cent per annum. The defendant, jointly with her

husband, answered the complaint and alleged by way of special defense that the plaintiff had

absolutely failed to deliver to the defendant the lands that were the subject matter of the sale,

notwithstanding the demands made upon him for this purpose. She therefore asked that she be

absolved from the complaint, and that, after a declaration of the rescission of the contract of the

purchase and sale of said lands, the plaintiff be ordered to refund the P3,000 that had been paid

to him on account, together with the interest agreed upon, and to pay an indemnity for the losses

and damages which the defendant alleged she had suffered through the plaintiff's non-fulfillment

of the contract.

The evidence adduced shows that after the execution of the deed of the sale the plaintiff, at the

request of the purchaser, went to Lucena, accompanied by a representative of the latter, for the

purpose of designating and delivering the lands sold. He was able to designate only two of the

four parcels, and more than two-thirds of these two were found to be in the possession of one

Juan Villafuerte, who claimed to be the owner of the parts so occupied by him. The plaintiff

admitted that the purchaser would have to bring suit to obtain possession of the land (sten. notes,

record, p. 5). In August, 1914, the surveyor Santamaria went to Lucena, at the request of the

plaintiff and accompanied by him, in order to survey the land sold to the defendant; but he

surveyed only two parcels, which are those occupied mainly by the brothers Leon and Julio

Villafuerte. He did not survey the other parcels, as they were not designated to him by the

plaintiff. In order to make this survey it was necessary to obtain from the Land Court a writ of

injunction against the occupants, and for the purpose of the issuance of this writ the defendant, in

June, 1914, filed an application with the Land Court for the registration in her name of four

parcels of land described in the deed of sale executed in her favor by the plaintiff. The

proceedings in the matter of this application were subsequently dismissed, for failure to present

the required plans within the period of the time allowed for the purpose.

The trial court rendered judgment in behalf of the defendant, holding the contract of sale to be

rescinded and ordering the return to the plaintiff the P3,000 paid on account of the price, together

with interest thereon at the rate of 10 per cent per annum. From this judgment the plaintiff

appealed.

In decreeing the rescission of the contract, the trial judge rested his conclusion solely on the

indisputable fact that up to that time the lands sold had not been registered in accordance with

the Torrens system, and on the terms of the second paragraph of clause (h) of the contract,

whereby it is stipulated that ". . . within one year from the date of the certificate of title in favor

of Marciana Felix, this latter may rescind the present contract of purchase and sale . . . ."

The appellant objects, and rightly, that the cross-complaint is not founded on the hypothesis of

the conventional rescission relied upon by the court, but on the failure to deliver the land sold.

He argues that the right to rescind the contract by virtue of the special agreement not only did not

exist from the moment of the execution of the contract up to one year after the registration of the

land, but does not accrue until the land is registered. The wording of the clause, in fact,

substantiates the contention. The one year's deliberation granted to the purchaser was to be

counted "from the date of the certificate of title ... ." Therefore the right to elect to rescind the

contract was subject to a condition, namely, the issuance of the title. The record show that up to

the present time that condition has not been fulfilled; consequently the defendant cannot be heard

to invoke a right which depends on the existence of that condition. If in the cross-complaint it

had been alleged that the fulfillment of the condition was impossible for reasons imputable to the

plaintiff, and if this allegation had been proven, perhaps the condition would have been

considered as fulfilled (arts. 1117, 1118, and 1119, Civ. Code); but this issue was not presented

in the defendant's answer.

However, although we are not in agreement with the reasoning found in the decision appealed

from, we consider it to be correct in its result. The record shows that the plaintiff did not deliver

the thing sold. With respect to two of the parcels of land, he was not even able to show them to

the purchaser; and as regards the other two, more than two-thirds of their area was in the hostile

and adverse possession of a third person.

The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is

considered to be delivered when it is placed "in the hands and possession of the vendee." (Civ.

Code, art. 1462.) It is true that the same article declares that the execution of a public instruments

is equivalent to the delivery of the thing which is the object of the contract, but, in order that this

symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have

had such control over the thing sold that, at the moment of the sale, its material delivery could

have been made. It is not enough to confer upon the purchaser the ownership and the right of

possession. The thing sold must be placed in his control. When there is no impediment whatever

to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor,

symbolic delivery through the execution of a public instrument is sufficient. But if,

notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and

material tenancy of the thing and make use of it himself or through another in his name, because

such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields

to reality — the delivery has not been effected.

As Dalloz rightly says (Gen. Rep., vol. 43, p. 174) in his commentaries on article 1604 of the

French Civil code, "the word "delivery" expresses a complex idea . . . the abandonment of the

thing by the person who makes the delivery and the taking control of it by the person to whom

the delivery is made."

The execution of a public instrument is sufficient for the purposes of the abandonment made by

the vendor; but it is not always sufficient to permit of the apprehension of the thing by the

purchaser.

The supreme court of Spain, interpreting article 1462 of the Civil Code, held in its decision of

November 10, 1903, (Civ. Rep., vol. 96, p. 560) that this article "merely declares that when the

sale is made through the means of a public instrument, the execution of this latter is equivalent to

the delivery of the thing sold: which does not and cannot mean that this fictitious tradition

necessarily implies the real tradition of the thing sold, for it is incontrovertible that, while its

ownership still pertains to the vendor (and with greater reason if it does not), a third person may

be in possession of the same thing; wherefore, though, as a general rule, he who purchases by

means of a public instrument should be deemed . . . to be the possessor in fact, yet this

presumption gives way before proof to the contrary."

It is evident, then, in the case at bar, that the mere execution of the instrument was not a

fulfillment of the vendors' obligation to deliver the thing sold, and that from such non-fulfillment

arises the purchaser's right to demand, as she has demanded, the rescission of the sale and the

return of the price. (Civ. Code, arts. 1506 and 1124.)

Of course if the sale had been made under the express agreement of imposing upon the purchaser

the obligation to take the necessary steps to obtain the material possession of the thing sold, and

it were proven that she knew that the thing was in the possession of a third person claiming to

have property rights therein, such agreement would be perfectly valid. But there is nothing in the

instrument which would indicate, even implicitly, that such was the agreement. It is true, as the

appellant argues, that the obligation was incumbent upon the defendant Marciana Felix to apply

for and obtain the registration of the land in the new registry of property; but from this it cannot

be concluded that she had to await the final decision of the Court of Land Registration, in order

to be able to enjoy the property sold. On the contrary, it was expressly stipulated in the contract

that the purchaser should deliver to the vendor one-fourth "of the products ... of the aforesaid

four parcels from the moment when she takes possession of them until the Torrens certificate of

title be issued in her favor." This obviously shows that it was not forseen that the purchaser

might be deprived of her possession during the course of the registration proceedings, but that

the transaction rested on the assumption that she was to have, during said period, the material

possession and enjoyment of the four parcels of land.

Inasmuch as the rescission is made by virtue of the provisions of law and not by contractual

agreement, it is not the conventional but the legal interest that is demandable.

It is therefore held that the contract of purchase and sale entered into by and between the plaintiff

and the defendant on June 11, 1914, is rescinded, and the plaintiff is ordered to make restitution

of the sum of P3,000 received by him on account of the price of the sale, together with interest

thereon at the legal rate of 6 per annum from the date of the filing of the complaint until

payment, with the costs of both instances against the appellant. So ordered.

Torres, Johnson, Street, Malcolm and Avanceña, JJ., concur.

THIRD DIVISION

[G.R. No. 151212. September 10, 2003]

TEN FORTY REALTY AND DEVELOPMENT CORP., Represented by its President,

VERONICA G. LORENZANA, petitioner, vs. MARINA CRUZ, respondent.

D E C I S I O N

PANGANIBAN, J.:

In an ejectment suit, the question of ownership may be provisionally ruled upon for the sole

purpose of determining who is entitled to possession de facto. In the present case, both parties

base their alleged right to possess on their right to own. Hence, the Court of Appeals did not err

in passing upon the question of ownership to be able to decide who was entitled to physical

possession of the disputed land.

The Case

Before us is a Petition for Review1[1] under Rule 45 of the Rules of Court, seeking to nullify the

August 31, 2001 Decision2[2] and December 19, 2001 Resolution3[3] of the Court of Appeals

(CA) in CA- GR SP No. 64861. The dispositive portion of the assailed Decision is as follows:

“WHEREFORE, premises considered, the petition is hereby DISMISSED and the Decision

dated May 4, 2001 is hereby AFFIRMED.”4[4]

The assailed Resolution denied petitioner's Motion for Reconsideration.

The Facts

The facts of the case are narrated by the CA as follows:

“A complaint for ejectment was filed by [Petitioner Ten Forty Realty and Development

Corporation] against x x x [Respondent Marina Cruz] before the Municipal Trial Court in Cities

(MTCC) of Olongapo City, docketed as Civil Case 4269, which alleged that: petitioner is the

true and absolute owner of a parcel of lot and residential house situated in #71 18th Street,

E.B.B. Olongapo City, particularly described as:

‘A parcel of residential house and lot situated in the above-mentioned address containing an area

of 324 square meters more or less bounded on the Northeast by 041 (Lot 255, Ts-308); on the

Southeast by 044 (Lot 255, Ts-308); on the Southwest by 043 (Lot 226-A & 18th street) and on

the Northwest by 045 (Lot 227, Ts-308) and declared for taxation purposes in the name of

[petitioner] under T.D. No. 002-4595-R and 002-4596.’

having acquired the same on December 5, 1996 from Barbara Galino by virtue of a Deed of

Absolute Sale; the sale was acknowledged by said Barbara Galino through a 'Katunayan';

payment of the capital gains tax for the transfer of the property was evidenced by a Certification

Authorizing Registration issued by the Bureau of Internal Revenue; petitioner came to know that

Barbara Galino sold the same property on April 24, 1998 to Cruz, who immediately occupied the

property and which occupation was merely tolerated by petitioner; on October 16, 1998, a

complaint for ejectment was filed with the Barangay East Bajac-Bajac, Olongapo City but for

failure to arrive at an amicable settlement, a Certificate to File Action was issued; on April 12,

1999 a demand letter was sent to [respondent] to vacate and pay reasonable amount for the use

and occupation of the same, but was ignored by the latter; and due to the refusal of [respondent]

to vacate the premises, petitioner was constrained to secure the services of a counsel for an

agreed fee of P5,000.00 as attorney’s fee and P500.00 as appearance fee and incurred an expense

of P5,000.00 for litigation.

“In respondent’s Answer with Counterclaim, it was alleged that: petitioner is not qualified to

own the residential lot in dispute, being a public land; according to Barbara Galino, she did not

sell her house and lot to petitioner but merely obtained a loan from Veronica Lorenzana; the

payment of the capital gains tax does not necessarily show that the Deed of Absolute Sale was at

that time already in existence; the court has no jurisdiction over the subject matter because the

complaint was filed beyond the one (1) year period after the alleged unlawful deprivation of

possession; there is no allegation that petitioner had been in prior possession of the premises and

the same was lost thru force, stealth or violence; evidence will show that it was Barbara Galino

who was in possession at the time of the sale and vacated the property in favor of respondent;

never was there an occasion when petitioner occupied a portion of the premises, before

respondent occupied the lot in April 1998, she caused the cancellation of the tax declaration in

the name of Barbara Galino and a new one issued in respondent’s name; petitioner obtained its

tax declaration over the same property on November 3, 1998, seven (7) months [after] the

respondent [obtained hers]; at the time the house and lot [were] bought by respondent, the house

was not habitable, the power and water connections were disconnected; being a public land,

respondent filed a miscellaneous sales application with the Community Environment and Natural

Resources Office in Olongapo City; and the action for ejectment cannot succeed where it

appears that respondent had been in possession of the property prior to the petitioner.”5[5]

In a Decision6[6] dated October 30, 2000, the Municipal Trial Court in Cities (MTCC) ordered

respondent to vacate the property and surrender to petitioner possession thereof. It also directed

her to pay, as damages for its continued unlawful use, P500 a month from April 24, 1999 until

the property was vacated, P5,000 as attorney’s fees, and the costs of the suit.

On appeal, the Regional Trial Court7[7] (RTC) of Olongapo City (Branch 72) reversed the

MTCC. The RTC ruled as follows: 1) respondent’s entry into the property was not by mere

tolerance of petitioner, but by virtue of a Waiver and Transfer of Possessory Rights and Deed of

Sale in her favor; 2) the execution of the Deed of Sale without actual transfer of the physical

possession did not have the effect of making petitioner the owner of the property, because there

was no delivery of the object of the sale as provided for in Article 1428 of the Civil Code; and 3)

being a corporation, petitioner was disqualified from acquiring the property, which was public

land.

Ruling of the Court of Appeals

Sustaining the RTC, the CA held that petitioner had failed to make a case for unlawful detainer,

because no contract -- express or implied -- had been entered into by the parties with regard to

possession of the property. It ruled that the action should have been for forcible entry, in which

prior physical possession was indispensable -- a circumstance petitioner had not shown either.

The appellate court also held that petitioner had challenged the RTC’s ruling on the question of

ownership for the purpose of compensating for the latter’s failure to counter such ruling. The

RTC had held that, as a corporation, petitioner had no right to acquire the property which was

alienable public land.

Hence, this Petition.8[8]

Issues

Petitioner submits the following issues for our consideration:

“1. The Honorable Court of Appeals had clearly erred in not holding that

[r]espondent’s occupation or possession of the property in question was merely

through the tolerance or permission of the herein [p]etitioner;

“[2.] The Honorable Court of Appeals had likewise erred in holding that the ejectment

case should have been a forcible entry case where prior physical possession is

indispensable; and

“[3.] The Honorable Court of Appeals had also erred when it ruled that the herein

[r]espondent’s possession or occupation of the said property is in the nature of an

exercise of ownership which should put the herein [p]etitioner on guard.”9[9]

The Court’s Ruling

The Petition has no merit.

First Issue:

Alleged Occupation by Tolerance

Petitioner faults the CA for not holding that the former merely tolerated respondent’s occupation

of the subject property. By raising this issue, petitioner is in effect asking this Court to reassess

factual findings. As a general rule, this kind of reassessment cannot be done through a petition

for review on certiorari under Rule 45 of the Rules of Court, because this Court is not a trier of

facts; it reviews only questions of law.10[10] Petitioner has not given us ample reasons to depart

from the general rule.

On the basis of the facts found by the CA and the RTC, we find that petitioner failed to

substantiate its case for unlawful detainer. Admittedly, no express contract existed between the

parties. Not shown either was the corporation’s alleged tolerance of respondent’s possession.

While possession by tolerance may initially be lawful, it ceases to be so upon the owner’s

demand that the possessor by tolerance vacate the property.11[11] To justify an action for

unlawful detainer, the permission or tolerance must have been present at the beginning of the

possession.12[12] Otherwise, if the possession was unlawful from the start, an action for

unlawful detainer would be an improper remedy. Sarona v. Villegas13[13] elucidates thus:

“A close assessment of the law and the concept of the word ‘tolerance’ confirms our view

heretofore expressed that such tolerance must be present right from the start of possession sought

to be recovered, to categorize a cause of action as one of unlawful detainer not of forcible entry.

Indeed, to hold otherwise would espouse a dangerous doctrine. And for two reasons. First.

Forcible entry into the land is an open challenge to the right of the possessor. Violation of that

right authorizes the speedy redress – in the inferior court – provided for in the rules. If one year

from the forcible entry is allowed to lapse before suit is filed, then the remedy ceases to be

speedy; and the possessor is deemed to have waived his right to seek relief in the inferior court.

Second, if a forcible entry action in the inferior court is allowed after the lapse of a number of

years, then the result may well be that no action for forcible entry can really prescribe. No

matter how long such defendant is in physical possession, plaintiff will merely make a demand,

bring suit in the inferior court – upon a plea of tolerance to prevent prescription to set in – and

summarily throw him out of the land. Such a conclusion is unreasonable. Especially if we bear

in mind the postulates that proceedings of forcible entry and unlawful detainer are summary in

nature, and that the one year time bar to suit is but in pursuance of the summary nature of the

action.”14[14]

In this case, the Complaint and the other pleadings do not recite any averment of fact that would

substantiate the claim of petitioner that it permitted or tolerated the occupation of the property by

Respondent Cruz. The Complaint contains only bare allegations that 1) respondent immediately

occupied the subject property after its sale to her, an action merely tolerated by petitioner;15[15]

and 2) her allegedly illegal occupation of the premises was by mere tolerance.16[16]

These allegations contradict, rather than support, petitioner’s theory that its cause of action is for

unlawful detainer. First, these arguments advance the view that respondent’s occupation of the

property was unlawful at its inception. Second, they counter the essential requirement in

unlawful detainer cases that petitioner’s supposed act of sufferance or tolerance must be present

right from the start of a possession that is later sought to be recovered.17[17]

As the bare allegation of petitioner’s tolerance of respondent’s occupation of the premises has

not been proven, the possession should be deemed illegal from the beginning. Thus, the CA

correctly ruled that the ejectment case should have been for forcible entry -- an action that had

already prescribed, however, when the Complaint was filed on May 12, 1999. The prescriptive

period of one year for forcible entry cases is reckoned from the date of respondent’s actual entry

into the land, which in this case was on April 24, 1998.

Second Issue:

Nature of the Case

Much of the difficulty in the present controversy stems from the legal characterization of the

ejectment Complaint filed by petitioner. Specifically, was it for unlawful detainer or for forcible

entry?

The answer is given in Section 1 of Rule 70 of the Rules of Court, which we reproduce as

follows:

“SECTION 1. Who may institute proceedings, and when. - Subject to the provisions of the next

succeeding section, a person deprived of the possession of any land or building by force,

intimidation, threat, strategy, or stealth, or a lessor, vendor, vendee, or other person against

whom the possession of any land or building is unlawfully withheld after the expiration or

termination of the right to hold possession, by virtue of any contract, express or implied, or the

legal representatives or assigns of any such lessor, vendor, vendee, or other person, may, at any

time within one (1) year after such unlawful deprivation or withholding of possession, bring an

action in the proper Municipal Trial Court against the person or persons unlawfully withholding

or depriving of possession, or any person or persons claiming under them, for the restitution of

such possession, together with damages and costs.”

While both causes of action deal only with the sole issue of physical or de facto

possession,18[18] the two cases are really separate and distinct, as explained below:

“x x x. In forcible entry, one is deprived of physical possession of land or building by means of

force, intimidation, threat, strategy, or stealth. In unlawful detainer, one unlawfully withholds

possession thereof after the expiration or termination of his right to hold possession under any

contract, express or implied. In forcible entry, the possession is illegal from the beginning and

the basic inquiry centers on who has the prior possession de facto. In unlawful detainer, the

possession was originally lawful but became unlawful by the expiration or termination of the

right to possess, hence the issue of rightful possession is decisive for, in such action, the

defendant is in actual possession and the plaintiff’s cause of action is the termination of the

defendant’s right to continue in possession.

“What determines the cause of action is the nature of defendant’s entry into the land. If the entry

is illegal, then the action which may be filed against the intruder within one year therefrom is

forcible entry. If, on the other hand, the entry is legal but the possession thereafter became

illegal, the case is one of unlawful detainer which must be filed within one year from the date of

the last demand.”19[19]

It is axiomatic that what determines the nature of an action as well as which court has

jurisdiction over it are the allegations in the complaint20[20] and the character of the relief

sought.21[21]

In its Complaint, petitioner alleged that, having acquired the subject property from Barbara

Galino on December 5, 1996,22[22] it was the true and absolute owner23[23] thereof; that

Galino had sold the property to Respondent Cruz on April 24, 1998;24[24] that after the sale, the

latter immediately occupied the property, an action that was merely tolerated by petitioner;25[25]

and that, in a letter given to respondent on April 12, 1999,26[26] petitioner had demanded that

the former vacate the property, but that she refused to do so.27[27] Petitioner thereupon prayed

for judgment ordering her to vacate the property and to pay reasonable rentals for the use of the

premises, attorney’s fees and the costs of the suit.28[28]

The above allegations appeared to show the elements of unlawful detainer. They also conferred

initiatory jurisdiction on the MTCC, because the case was filed a month after the last demand to

vacate -- hence, within the one-year prescriptive period.

However, what was actually proven by petitioner was that possession by respondent had been

illegal from the beginning. While the Complaint was crafted to be an unlawful detainer suit,

petitioner’s real cause of action was for forcible entry, which had already prescribed.

Consequently, the MTCC had no more jurisdiction over the action.

The appellate court, therefore, did not err when it ruled that petitioner’s Complaint for unlawful

detainer was a mere subterfuge or a disguised substitute action for forcible entry, which had

already prescribed. To repeat, to maintain a viable action for forcible entry, plaintiff must have

been in prior physical possession of the property; this is an essential element of the suit.29[29]

Third Issue:

Alleged Acts of Ownership

Petitioner next questions the CA’s pronouncement that respondent’s occupation of the property

was an exercise of a right flowing from a claim of ownership. It submits that the appellate court

should not have passed upon the issue of ownership, because the only question for resolution in

an ejectment suit is that of possession de facto.

Clearly, each of the parties claimed the right to possess the disputed property because of alleged

ownership of it. Hence, no error could have been imputed to the appellate court when it passed

upon the issue of ownership only for the purpose of resolving the issue of possession de

facto.30[30] The CA’s holding is moreover in accord with jurisprudence and the law.

Execution of a Deed of Sale

Not Sufficient as Delivery

In a contract of sale, the buyer acquires the thing sold only upon its delivery “in any of the ways

specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the

possession is transferred from the vendor to the vendee.”31[31] With respect to incorporeal

property, Article 1498 lays down the general rule: the execution of a public instrument shall be

equivalent to the delivery of the thing that is the object of the contract if, from the deed, the

contrary does not appear or cannot be clearly inferred.

However, ownership is transferred not by contract but by tradition or delivery.32[32] Nowhere

in the Civil Code is it provided that the execution of a Deed of Sale is a conclusive presumption

of delivery of possession of a piece of real estate.33[33]

This Court has held that the execution of a public instrument gives rise only to a prima facie

presumption of delivery. Such presumption is destroyed when the delivery is not effected

because of a legal impediment.34[34] Pasagui v. Villablanca35[35] had earlier ruled that such

constructive or symbolic delivery, being merely presumptive, was deemed negated by the failure

of the vendee to take actual possession of the land sold.

It is undisputed that petitioner did not occupy the property from the time it was allegedly sold to

it on December 5, 1996 or at any time thereafter. Nonetheless, it maintains that Galino’s

continued stay in the premises from the time of the sale up to the time respondent’s occupation

of the same on April 24, 1998, was possession held on its behalf and had the effect of delivery

under the law.36[36]

Both the RTC and the CA disagreed. According to the RTC, petitioner did not gain control and

possession of the property, because Galino had continued to exercise ownership rights over the

realty. That is, she had remained in possession, continued to declare it as her property for tax

purposes and sold it to respondent in 1998.

For its part, the CA found it highly unbelievable that petitioner -- which claims to be the owner

of the disputed property -- would tolerate possession of the property by respondent from April

24, 1998 up to October 16, 1998. How could it have been so tolerant despite its knowledge that

the property had been sold to her, and that it was by virtue of that sale that she had undertaken

major repairs and improvements on it?

Petitioner should have likewise been put on guard by respondent’s declaration of the property for

tax purposes on April 23, 1998,37[37] as annotated in the tax certificate filed seven months

later.38[38] Verily, the tax declaration represented an adverse claim over the unregistered

property and was inimical to the right of petitioner.

Indeed, the above circumstances derogated its claim of control and possession of the property.

Order of Preference in Double

Sale of Immovable Property

The ownership of immovable property sold to two different buyers at different times is governed

by Article 1544 of the Civil Code, which reads as follows:

“Article 1544. x x x

“Should it be immovable property, the ownership shall belong to the person acquiring it who in

good faith first recorded it in the Registry of Property.

“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.”

Galino allegedly sold the property in question to petitioner on December 5, 1996 and,

subsequently, to respondent on April 24, 1998. Petitioner thus argues that being the first buyer,

it has a better right to own the realty. However, it has not been able to establish that its Deed of

Sale was recorded in the Registry of Deeds of Olongapo City.39[39] Its claim of an unattested

and unverified notation on its Deed of Absolute Sale40[40] is not equivalent to registration. It

admits that, indeed, the sale has not been recorded in the Registry of Deeds.41[41]

In the absence of the required inscription, the law gives preferential right to the buyer who in

good faith is first in possession. In determining the question of who is first in possession, certain

basic parameters have been established by jurisprudence.

First, the possession mentioned in Article 1544 includes not only material but also symbolic

possession.42[42] Second, possessors in good faith are those who are not aware of any flaw in

their title or mode of acquisition.43[43] Third, buyers of real property that is in the possession of

persons other than the seller must be wary -- they must investigate the rights of the

possessors.44[44] Fourth, good faith is always presumed; upon those who allege bad faith on the

part of the possessors rests the burden of proof.45[45]

Earlier, we ruled that the subject property had not been delivered to petitioner; hence, it did not

acquire possession either materially or symbolically. As between the two buyers, therefore,

respondent was first in actual possession of the property.

Petitioner has not proven that respondent was aware that her mode of acquiring the property was

defective at the time she acquired it from Galino. At the time, the property -- which was public

land -- had not been registered in the name of Galino; thus, respondent relied on the tax

declarations thereon. As shown, the former’s name appeared on the tax declarations for the

property until its sale to the latter in 1998. Galino was in fact occupying the realty when

respondent took over possession. Thus, there was no circumstance that could have placed the

latter upon inquiry or required her to further investigate petitioner’s right of ownership.

Disqualification from Ownership

of Alienable Public Land

Private corporations are disqualified from acquiring lands of the public domain, as provided

under Section 3 of Article XII of the Constitution, which we quote:

“Sec. 3. Lands of the public domain are classified into agricultural, forest or timber, mineral

lands, and national parks. Agricultural lands of the public domain may be further classified by

law according to the uses to which they may be devoted. Alienable lands of the public domain

shall be limited to agricultural lands. Private corporations or associations may not hold such

alienable lands of the public domain except by lease, for a period not exceeding twenty-five

years, and not to exceed one thousand hectares in area. Citizens of the Philippines may not

lease not more than five hundred hectares, or acquire not more than twelve hectares thereof by

purchase, homestead, or grant. x x x.” (Italics supplied)

While corporations cannot acquire land of the public domain, they can however acquire private

land.46[46] Hence, the next issue that needs to be resolved is the determination of whether the

disputed property is private land or of the public domain.

According to the certification by the City Planning and Development Office of Olongapo City,

the contested property in this case is alienable and disposable public land.47[47] It was for this

reason that respondent filed a miscellaneous sales application to acquire it.48[48]

On the other hand, petitioner has not presented proof that, at the time it purchased the property

from Galino, the property had ceased to be of the public domain and was already private land.

The established rule is that alienable and disposable land of the public domain held and occupied

by a possessor -- personally or through predecessors-in-interest, openly, continuously, and

exclusively for 30 years -- is ipso jure converted to private property by the mere lapse of

time.49[49]

In view of the foregoing, we affirm the appellate court’s ruling that respondent is entitled to

possession de facto. This determination, however, is only provisional in nature.50[50] Well-

settled is the rule that an award of possession de facto over a piece of property does not

constitute res judicata as to the issue of its ownership.51[51]

WHEREFORE, this Petition is DENIED and the assailed Decision AFFIRMED. Costs against

petitioner.

SO ORDERED

Republic of the Philippines

SUPREME COURT Manila

THIRD DIVISION

G.R. No. 176474 November 27, 2008

HEIRS OF ARTURO REYES, represented by Evelyn R. San Buenaventura, petitioners,

vs.

ELENA SOCCO-BELTRAN, respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the

Decision1 dated 31 January 2006 rendered by the Court of Appeals in CA-G.R. SP No. 87066,

which affirmed the Decision2 dated 30 June 2003 of the Office of the President, in O.P. Case No.

02-A-007, approving the application of respondent Elena Socco-Beltran to purchase the subject

property.

The subject property in this case is a parcel of land originally identified as Lot No. 6-B, situated

in Zamora Street, Dinalupihan, Bataan, with a total area of 360 square meters. It was originally

part of a larger parcel of land, measuring 1,022 square meters, allocated to the Spouses Marcelo

Laquian and Constancia Socco (Spouses Laquian), who paid for the same with Japanese money.

When Marcelo died, the property was left to his wife Constancia. Upon Constancia’s subsequent

death, she left the original parcel of land, along with her other property, with her heirs – her

siblings, namely: Filomena Eliza Socco, Isabel Socco de Hipolito, Miguel R. Socco, and Elena

Socco-Beltran.3 Pursuant to an unnotarized document entitled "Extrajudicial Settlement of the

Estate of the Deceased Constancia R. Socco," executed by Constancia’s heirs sometime in 1965,

the parcel of land was partitioned into three lots–Lot No. 6-A, Lot No. 6-B, and Lot No. 6-C.4

The subject property, Lot No. 6-B, was adjudicated to respondent, but no title had been issued in

her name.

On 25 June 1998, respondent Elena Socco-Beltran filed an application for the purchase of Lot

No. 6-B before the Department of Agrarian Reform (DAR), alleging that it was adjudicated in

her favor in the extra-judicial settlement of Constancia Socco’s estate.5

Petitioners herein, the heirs of the late Arturo Reyes, filed their protest to respondent’s petition

before the DAR on the ground that the subject property was sold by respondent’s brother, Miguel

R. Socco, in favor of their father, Arturo Reyes, as evidenced by the Contract to Sell, dated 5

September 1954, stipulating that:6

That I am one of the co-heirs of the Estate of the deceased Constancia Socco; and

that I am to inherit as such a portion of her lot consisting of Four Hundred

Square Meters (400) more or less located on the (sic) Zamora St., Municipality of

Dinalupihan, Province of Bataan, bounded as follows:

x x x x

That for or in consideration of the sum of FIVE PESOS (P5.00) per square meter,

hereby sell, convey and transfer by way of this conditional sale the said 400

sq.m. more or less unto Atty. Arturo C. Reyes, his heirs, administrator and assigns

x x x. (Emphasis supplied.)

Petitioners averred that they took physical possession of the subject property in 1954 and had

been uninterrupted in their possession of the said property since then.

Legal Officer Brigida Pinlac of the DAR Bataan Provincial Agrarian Reform Office conducted

an investigation, the results of which were contained in her Report/ Recommendation dated 15

April 1999. Other than recounting the afore-mentioned facts, Legal Officer Pinlac also made the

following findings in her Report/Recommendation:7

Further investigation was conducted by the undersigned and based on the

documentary evidence presented by both parties, the following facts were

gathered: that the house of [the] Reyes family is adjacent to the landholding in

question and portion of the subject property consisting of about 15 meters [were]

occupied by the heirs of Arturo Reyes were a kitchen and bathroom [were]

constructed therein; on the remaining portion a skeletal form made of hollow

block[s] is erected and according to the heirs of late Arturo Reyes, this was

constructed since the year (sic) 70’s at their expense; that construction of the said

skeletal building was not continued and left unfinished which according to the

affidavit of Patricia Hipolito the Reyes family where (sic) prevented by Elena

Socco in their attempt of occupancy of the subject landholding; (affidavit of

Patricia Hipolito is hereto attached as Annex "F"); that Elena Socco cannot

physically and personally occupy the subject property because of the skeletal

building made by the Reyes family who have been requesting that they be paid for

the cost of the construction and the same be demolished at the expense of Elena

Socco; that according to Elena Socco, [she] is willing to waive her right on the

portion where [the] kitchen and bathroom is (sic) constructed but not the whole of

Lot [No.] 6-B adjudicated to her; that the Reyes family included the subject

property to the sworn statement of value of real properties filed before the

municipality of Dinalupihan, Bataan, copies of the documents are hereto attached

as Annexes "G" and "H"; that likewise Elena Socco has been continuously and

religiously paying the realty tax due on the said property.

In the end, Legal Officer Pinlac recommended the approval of respondent’s petition for issuance

of title over the subject property, ruling that respondent was qualified to own the subject property

pursuant to Article 1091 of the New Civil Code.8 Provincial Agrarian Reform Officer (PARO)

Raynor Taroy concurred in the said recommendation in his Indorsement dated 22 April 1999.9

In an Order dated 15 September 1999, DAR Regional Director Nestor R. Acosta, however,

dismissed respondent’s petition for issuance of title over the subject property on the ground that

respondent was not an actual tiller and had abandoned the said property for 40 years; hence, she

had already renounced her right to recover the same.10

The dispositive part of the Order reads:

1. DISMISSING the claims of Elena Socco-Beltran, duly represented by Myrna

Socco for lack of merit;

2. ALLOCATING Lot No. 6-B under Psd-003-008565 with an area of 360 square

meters, more or less, situated Zamora Street, Dinalupihan, Bataan, in favor of the

heirs of Arturo Reyes.

3. ORDERING the complainant to refrain from any act tending to disturb the

peaceful possession of herein respondents.

4. DIRECTING the MARO of Dinalupihan, Bataan to process the pertinent

documents for the issuance of CLOA in favor of the heirs of Arturo Reyes.11

Respondent filed a Motion for Reconsideration of the foregoing Order, which was denied by

DAR Regional Director Acosta in another Order dated 15 September 1999.12

Respondent then appealed to the Office of the DAR Secretary. In an Order, dated 9 November

2001, the DAR Secretary reversed the Decision of DAR Regional Director Acosta after finding

that neither petitioners’ predecessor-in-interest, Arturo Reyes, nor respondent was an actual

occupant of the subject property. However, since it was respondent who applied to purchase the

subject property, she was better qualified to own said property as opposed to petitioners, who did

not at all apply to purchase the same. Petitioners were further disqualified from purchasing the

subject property because they were not landless. Finally, during the investigation of Legal

Officer Pinlac, petitioners requested that respondent pay them the cost of the construction of the

skeletal house they built on the subject property. This was construed by the DAR Secretary as a

waiver by petitioners of their right over the subject property.13

In the said Order, the DAR

Secretary ordered that:

WHEREFORE, premises considered, the September 15, 1999 Order is hereby

SET ASIDE and a new Order is hereby issued APPROVING the application to

purchase Lot [No.] 6-B of Elena Socco-Beltran.14

Petitioners sought remedy from the Office of the President by appealing the 9 November 2001

Decision of the DAR Secretary. Their appeal was docketed as O.P. Case No. 02-A-007. On 30

June 2003, the Office of the President rendered its Decision denying petitioners’ appeal and

affirming the DAR Secretary’s Decision.15

The fallo of the Decision reads:

WHEREFORE, premises considered, judgment appealed from is AFFIRMED

and the instant appeal DISMISSED.16

Petitioners’ Motion for Reconsideration was likewise denied by the Office of the President in a

Resolution dated 30 September 2004.17

In the said Resolution, the Office of the President noted

that petitioners failed to allege in their motion the date when they received the Decision dated 30

June 2003. Such date was material considering that the petitioners’ Motion for Reconsideration

was filed only on 14 April 2004, or almost nine months after the promulgation of the decision

sought to be reconsidered. Thus, it ruled that petitioners’ Motion for Reconsideration, filed

beyond fifteen days from receipt of the decision to be reconsidered, rendered the said decision

final and executory.

Consequently, petitioners filed an appeal before the Court of Appeals, docketed as CA-G.R. SP

No. 87066. Pending the resolution of this case, the DAR already issued on 8 July 2005 a

Certificate of Land Ownership Award (CLOA) over the subject property in favor of the

respondent’s niece and representative, Myrna Socco-Beltran.18

Respondent passed away on 21

March 2001,19

but the records do not ascertain the identity of her legal heirs and her legatees.

Acting on CA-G.R. SP No. 87066, the Court of Appeals subsequently promulgated its Decision,

dated 31 January 2006, affirming the Decision dated 30 June 2003 of the Office of the President.

It held that petitioners could not have been actual occupants of the subject property, since actual

occupancy requires the positive act of occupying and tilling the land, not just the introduction of

an unfinished skeletal structure thereon. The Contract to Sell on which petitioners based their

claim over the subject property was executed by Miguel Socco, who was not the owner of the

said property and, therefore, had no right to transfer the same. Accordingly, the Court of Appeals

affirmed respondent’s right over the subject property, which was derived form the original

allocatees thereof.20

The fallo of the said Decision reads:

WHEREFORE, premises considered, the instant PETITION FOR REVIEW is

DISMISSED. Accordingly, the Decision dated 30 June 2003 and the Resolution

dated 30 December 2004 both issued by the Office of the President are hereby

AFFIRMED in toto.21

The Court of Appeals denied petitioners’ Motion for Reconsideration of its Decision in a

Resolution dated 16 August 2006.22

Hence, the present Petition, wherein petitioners raise the following issues:

I

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN

AFFIRMING THE FINDINGS OF THE OFFICE OF THE PRESIDENT THAT

THE SUBJECT LOT IS VACANT AND THAT PETITIONERS ARE NOT

ACTUAL OCCUPANTS THEREOF BY DENYING THE LATTER’S CLAIM

THAT THEY HAVE BEEN IN OPEN, CONTINUOUS, EXCLUSIVE,

NOTORIOUS AND AVDERSE POSSESSION THEREOF SINCE 1954 OR

FOR MORE THAN THIRTY (30) YEARS.

II

WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT HELD

THAT PETITIONERS "CANNOT LEGALLY ACQUIRE THE SUBJECT

PROPERTY AS THEY ARE NOT CONSIDERED LANDLESS AS

EVIDENCED BY A TAX DECLARATION."

III

WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING

THAT "…WHATEVER RESERVATION WE HAVE OVER THE RIGHT OF

MYRNA SOCCO TO SUCCEED WAS ALREADY SETTLED WHEN NO

LESS THAN MIGUEL SOCCO (PREDECESSOR-IN INTEREST OF HEREIN

PETITIONERS) EXECUTED HIS WAIVER OF RIGHT DATED APRIL 19,

2005 OVER THE SUBJECT PROPERTY IN FAVOR OF MYRNA SOCCO.

IV

WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT DENIED

PETITIONERS MOTION FOR NEW TRIAL THEREBY BRUSHING ASIDE

THE FACT THAT MYRNA V. SOCCO-ARIZO GROSSLY

MISREPRESENTED IN HER INFORMATION SHEET OF BENEFICIARIES

AND APPLICATION TO PURCHASE LOT IN LANDED ESTATES THAT

SHE IS A FILIPINO CITIZEN, WHEN IN TRUTH AND IN FACT, SHE IS

ALREADY AN AMERICAN NATIONAL.23

The main issue in this case is whether or not petitioners have a better right to the subject property

over the respondent. Petitioner’s claim over the subject property is anchored on the Contract to

Sell executed between Miguel Socco and Arturo Reyes on 5 September 1954. Petitioners

additionally allege that they and their predecessor-in-interest, Arturo Reyes, have been in

possession of the subject lot since 1954 for an uninterrupted period of more than 40 years.

The Court is unconvinced.

Petitioners cannot derive title to the subject property by virtue of the Contract to Sell. It was

unmistakably stated in the Contract and made clear to both parties thereto that the vendor,

Miguel R. Socco, was not yet the owner of the subject property and was merely expecting to

inherit the same as his share as a co-heir of Constancia’s estate.24

It was also declared in the

Contract itself that Miguel R. Socco’s conveyance of the subject to the buyer, Arturo Reyes, was

a conditional sale. It is, therefore, apparent that the sale of the subject property in favor of Arturo

Reyes was conditioned upon the event that Miguel Socco would actually inherit and become the

owner of the said property. Absent such occurrence, Miguel R. Socco never acquired ownership

of the subject property which he could validly transfer to Arturo Reyes.

Under Article 1459 of the Civil Code on contracts of sale, "The thing must be licit and the

vendor must have a right to transfer ownership thereof at the time it is delivered." The law

specifically requires that the vendor must have ownership of the property at the time it is

delivered. Petitioners claim that the property was constructively delivered to them in 1954 by

virtue of the Contract to Sell. However, as already pointed out by this Court, it was explicit in the

Contract itself that, at the time it was executed, Miguel R. Socco was not yet the owner of the

property and was only expecting to inherit it. Hence, there was no valid sale from which

ownership of the subject property could have transferred from Miguel Socco to Arturo Reyes.

Without acquiring ownership of the subject property, Arturo Reyes also could not have conveyed

the same to his heirs, herein petitioners.

Petitioners, nevertheless, insist that they physically occupied the subject lot for more than 30

years and, thus, they gained ownership of the property through acquisitive prescription, citing

Sandoval v. Insular Government 25

and San Miguel Corporation v. Court of Appeals. 26

In Sandoval, petitioners therein sought the enforcement of Section 54, paragraph 6 of Act No.

926, otherwise known as the Land Registration Act, which required -- for the issuance of a

certificate of title to agricultural public lands -- the open, continuous, exclusive, and notorious

possession and occupation of the same in good faith and under claim of ownership for more than

ten years. After evaluating the evidence presented, consisting of the testimonies of several

witnesses and proof that fences were constructed around the property, the Court in the afore-

stated case denied the petition on the ground that petitioners failed to prove that they exercised

acts of ownership or were in open, continuous, and peaceful possession of the whole land, and

had caused it to be enclosed to the exclusion of other persons. It further decreed that whoever

claims such possession shall exercise acts of dominion and ownership which cannot be mistaken

for the momentary and accidental enjoyment of the property. 27

In San Miguel Corporation, the Court reiterated the rule that the open, exclusive, and undisputed

possession of alienable public land for the period prescribed by law creates the legal fiction

whereby land ceases to be public land and is, therefore, private property. It stressed, however,

that the occupation of the land for 30 years must be conclusively established. Thus, the evidence

offered by petitioner therein – tax declarations, receipts, and the sole testimony of the applicant

for registration, petitioner’s predecessor-in-interest who claimed to have occupied the land

before selling it to the petitioner – were considered insufficient to satisfy the quantum of proof

required to establish the claim of possession required for acquiring alienable public land.28

As in the two aforecited cases, petitioners herein were unable to prove actual possession of the

subject property for the period required by law. It was underscored in San Miguel Corporation

that the open, continuous, exclusive, and notorious occupation of property for more than 30 years

must be no less than conclusive, such quantum of proof being necessary to avoid the erroneous

validation of actual fictitious claims of possession over the property that is being claimed.29

In the present case, the evidence presented by the petitioners falls short of being conclusive.

Apart from their self-serving statement that they took possession of the subject property, the only

proof offered to support their claim was a general statement made in the letter30

dated 4 February

2002 of Barangay Captain Carlos Gapero, certifying that Arturo Reyes was the occupant of the

subject property "since peace time and at present." The statement is rendered doubtful by the fact

that as early as 1997, when respondent filed her petition for issuance of title before the DAR,

Arturo Reyes had already died and was already represented by his heirs, petitioners herein.

Moreover, the certification given by Barangay Captain Gapero that Arturo Reyes occupied the

premises for an unspecified period of time, i.e., since peace time until the present, cannot prevail

over Legal Officer Pinlac’s more particular findings in her Report/Recommendation. Legal

Officer Pinlac reported that petitioners admitted that it was only in the 1970s that they built the

skeletal structure found on the subject property. She also referred to the averments made by

Patricia Hipolito in an Affidavit,31

dated 26 February 1999, that the structure was left unfinished

because respondent prevented petitioners from occupying the subject property. Such findings

disprove petitioners’ claims that their predecessor-in-interest, Arturo Reyes, had been in open,

exclusive, and continuous possession of the property since 1954. The adverted findings were the

result of Legal Officer Pinlac’s investigation in the course of her official duties, of matters within

her expertise which were later affirmed by the DAR Secretary, the Office of the President, and

the Court of Appeals. The factual findings of such administrative officer, if supported by

evidence, are entitled to great respect.32

In contrast, respondent’s claim over the subject property is backed by sufficient evidence. Her

predecessors-in-interest, the spouses Laquian, have been identified as the original allocatees who

have fully paid for the subject property. The subject property was allocated to respondent in the

extrajudicial settlement by the heirs of Constancia’s estate. The document entitled "Extra-judicial

Settlement of the Estate of the Deceased Constancia Socco" was not notarized and, as a private

document, can only bind the parties thereto. However, its authenticity was never put into

question, nor was its legality impugned. Moreover, executed in 1965 by the heirs of Constancia

Socco, or more than 30 years ago, it is an ancient document which appears to be genuine on its

face and therefore its authenticity must be upheld.33

Respondent has continuously paid for the

realty tax due on the subject property, a fact which, though not conclusive, served to strengthen

her claim over the property.34

From the foregoing, it is only proper that respondent’s claim over the subject property be upheld.

This Court must, however, note that the Order of the DAR Secretary, dated 9 November 2001,

which granted the petitioner’s right to purchase the property, is flawed and may be assailed in the

proper proceedings. Records show that the DAR affirmed that respondent’s predecessors-in-

interest, Marcelo Laquian and Constancia Socco, having been identified as the original allocatee,

have fully paid for the subject property as provided under an agreement to sell. By the nature of a

contract or agreement to sell, the title over the subject property is transferred to the vendee upon

the full payment of the stipulated consideration. Upon the full payment of the purchase price, and

absent any showing that the allocatee violated the conditions of the agreement, ownership of the

subject land should be conferred upon the allocatee.35

Since the extrajudicial partition

transferring Constancia Socco’s interest in the subject land to the respondent is valid, there is

clearly no need for the respondent to purchase the subject property, despite the application for

the purchase of the property erroneously filed by respondent. The only act which remains to be

performed is the issuance of a title in the name of her legal heirs, now that she is deceased.

Moreover, the Court notes that the records have not clearly established the right of respondent’s

representative, Myrna Socco-Arizo, over the subject property. Thus, it is not clear to this Court

why the DAR issued on 8 July 2005 a CLOA36

over the subject property in favor of Myrna

Socco-Arizo. Respondent’s death does not automatically transmit her rights to the property to

Myrna Socco-Beltran. Respondent only authorized Myrna Socco-Arizo, through a Special Power

of Attorney37

dated 10 March 1999, to represent her in the present case and to administer the

subject property for her benefit. There is nothing in the Special Power of Attorney to the effect

that Myrna Socco-Arizo can take over the subject property as owner thereof upon respondent’s

death. That Miguel V. Socco, respondent’s only nephew, the son of the late Miguel R. Socco,

and Myrna Socco-Arizo’s brother, executed a waiver of his right to inherit from respondent, does

not automatically mean that the subject property will go to Myrna Socco-Arizo, absent any proof

that there is no other qualified heir to respondent’s estate. Thus, this Decision does not in any

way confirm the issuance of the CLOA in favor of Myrna Socco-Arizo, which may be assailed in

appropriate proceedings.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The assailed Decision of

the Court of Appeals in CA-G.R. SP No. 87066, promulgated on 31 January 2006, is

AFFIRMED with MODIFICATION. This Court withholds the confirmation of the validity of

title over the subject property in the name of Myrna Socco-Arizo pending determination of

respondent’s legal heirs in appropriate proceedings. No costs.

SO ORDERED.

SECOND DIVISION

RUDOLF LIETZ, INC., G.R. No. 122463

Petitioner,

Present:

- versus- PUNO, J.,

Chairman,

AUSTRIA-MARTINEZ,

CALLEJO, SR.,

THE COURT OF APPEALS, TINGA, and

AGAPITO BURIOL, TIZIANA CHICO-NAZARIO, JJ.

TURATELLO & PAOLA SANI,

Respondents. Promulgated:

December 19, 2005

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

D E C I S I O N

TINGA, J.:

This is a petition for review on certiorari under Rule 45 of the Revised

Rules of Court, praying for the annulment of the Decision[1] dated April 17,

1995 and the Resolution[2] dated October 25, 1995 of the Court of Appeals in

CA-G.R. CV No. 38854. The Court of Appeals affirmed the Decision[3] in Civil

Case No. 2164 of the Regional Trial Court (RTC), Branch 48, of Palawan and

Puerto Princesa City with the modification that herein respondents Tiziana

Turatello and Paola Sani are entitled to damages, attorney’s fees, and litigation

expenses.

The dispositive portion of the RTC Decision reads:

WHEREFORE, in view of the foregoing and as prayed for by

the defendants, the instant complaint is hereby DISMISSED. Defendant’s counterclaim is likewise DISMISSED. Plaintiff,

however, is ordered to pay defendant Turatello and Sani’s counsel

the sum of P3,010.38 from August 9, 1990 until fully paid representing the expenses incurred by said counsel when the trial

was cancelled due to the non-appearance of plaintiff’s witnesses.

With costs against the plaintiff.

SO ORDERED.[4]

As culled from the records, the following antecedents appear:

Respondent Agapito Buriol previously owned a parcel of unregistered land

situated at Capsalay Island, Port Barton, San Vicente, Palawan. On August 15,

1986, respondent Buriol entered into a lease agreement with Flavia Turatello

and respondents Turatello and Sani, all Italian citizens, involving one (1)

hectare of respondent Buriol’s property. The lease agreement was for a period

of 25 years, renewable for another 25 years. The lessees took possession of the

land after paying respondent Buriol a down payment of P10,000.00.[5] The

lease agreement, however, was reduced into writing only in January 1987.

On November 17, 1986, respondent Buriol sold to petitioner Rudolf Lietz,

Inc. the same parcel of land for the amount of P30,000.00. The Deed of

Absolute Sale embodying the agreement described the land as follows:

A parcel of land, consisting of FIVE (5) hectares, more or

less, a portion of that parcel of land declared in the name of

Agapito Buriol, under Tax Declaration No. 0021, revised in the year 1985, together with all improvements thereon, situated at the

Island of Capsalay, Barangay Port Barton, municipality of San

Vicente, province of Palawan which segregated from the whole

parcel described in said tax declaration, has the following superficial boundaries: NORTH, Sec. 01-017; and remaining

property of the vendor; EAST, by Seashore; SOUTH, 01-020; and

WEST, by 01-018 (now Elizabeth Lietz).[6]

Petitioner later discovered that respondent Buriol owned only four (4)

hectares, and with one more hectare covered by lease, only three (3) hectares

were actually delivered to petitioner. Thus, petitioner instituted on April 3,

1989 a complaint for Annulment of Lease with Recovery of Possession with

Injunction and Damages against respondents and Flavia Turatello before the

RTC. The complaint alleged that with evident bad faith and malice, respondent

Buriol sold to petitioner five (5) hectares of land when respondent Buriol knew

for a fact that he owned only four (4) hectares and managed to lease one more

hectare to Flavia Turatello and respondents Tiziana Turatello and Paola Sani.

The complaint sought the issuance of a restraining order and a writ of

preliminary injunction to prevent Flavia Turatello and respondents Turatello

and Sani from introducing improvements on the property, the annulment of

the lease agreement between respondents, and the restoration of the amount

paid by petitioner in excess of the value of the property sold to him. Except for

Flavia Turatello, respondents filed separate answers raising similar defenses of

lack of cause of action and lack of jurisdiction over the action for recovery of

possession. Respondents Turatello and Sani also prayed for the award of

damages and attorney’s fees.[7]

After trial on the merits, the trial court rendered judgment on May 27,

1992, dismissing both petitioner’s complaint and respondents’ counterclaim for

damages. Petitioner and respondents Turatello and Sani separately appealed

the RTC Decision to the Court of Appeals, which affirmed the dismissal of

petitioner’s complaint and awarded respondents Turatello and Sani damages

and attorney’s fees. The dispositive portion of the Court of Appeals Decision

reads:

WHEREFORE, the decision appealed from is hereby

AFFIRMED, with the following modification:

Plaintiff-appellant Rudolf Lietz, Inc. is hereby (1) ordered to

pay defendants-appellants Turatello and Sani, the sum of

P100,000.00 as moral damages; (2) P100,000.00 as exemplary

damages; (3) P135,728.73 as attorney’s fees; and (4) P10,000.00 as litigation expenses.

SO ORDERED.[8]

Petitioner brought to this Court the instant petition after the denial of its

motion for reconsideration of the Court of Appeal Decision. The instant petition

imputes the following errors to the Court of Appeals.

I. IN DEFENDING AGAPITO BURIOL’S GOOD FAITH AND

IN STATING THAT ASSUMING THAT HE (BURIOL) WAS IN BAD FAITH PETITIONER WAS SOLELY RESPONSIBLE FOR

ITS INEXCUSABLE CREDULOUSNESS.

II. IN ASSERTING THAT ARTICLES 1542 AND 1539 OF

THE NEW CIVIL CODE ARE, RESPECTIVELY, APPLICABLE

AND INAPPLICABLE IN THE CASE AT BAR.

III. IN NOT GRANTING PETITIONER’S CLAIM FOR ACTUAL AND EXEMPLARY DAMAGES.

IV. IN GRANTING RESPONDENTS TIZIANA TURATELLO

AND PAOLA SANI EXHORBITANT [sic] AMOUNTS AS

DAMAGES WHICH ARE EVEN BEREFT OF EVIDENTIARY

BASIS.[9]

Essentially, only two main issues confront this Court, namely: (i) whether

or not petitioner is entitled to the delivery of the entire five hectares or its

equivalent, and (ii) whether or not damages may be awarded to either party.

Petitioner contends that it is entitled to the corresponding reduction of the purchase price because

the agreement was for the sale of five (5) hectares although respondent Buriol owned only four

(4) hectares. As in its appeal to the Court of Appeals, petitioner anchors its argument on the

second paragraph of Article 1539 of the Civil Code, which provides:

Art. 1539. The obligation to deliver the thing sold includes

that of placing in the control of the vendee all that is mentioned in the contract, in conformity with the following rules:

If the sale of real estate should be made with a statement of its area, at the rate of a certain price for a unit of measure or

number, the vendor shall be obliged to deliver to the vendee, if the

latter should demand it, all that may have been stated in the

contract; but, should this be not possible, the vendee may choose between a proportional reduction of the price and the rescission of

the contract, provided that, in the latter case, the lack in the area

be not less than one-tenth of that stated.

. . . .

The Court of Appeals Decision, however, declared as inapplicable the

abovequoted provision and instead ruled that petitioner is no longer entitled to

a reduction in price based on the provisions of Article 1542 of the Civil Code,

which read:

Art. 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or

number, there shall be no increase or decrease of the price,

although there be a greater or lesser area or number than that stated in the contract.

The same rule shall be applied when two or more immovables are sold for a single price; but if, besides mentioning

the boundaries, which is indispensable in every conveyance of real

estate, its area or number should be designated in the contract,

the vendor shall be bound to deliver all that is included within said boundaries, even when it exceeds the area or number specified in

the contract; and, should he not be able to do so, he shall suffer a

reduction in the price, in proportion to what is lacking in the area or number, unless the contract is rescinded because the vendee

does not accede to the failure to deliver what has been stipulated.

Article 1539 governs a sale of immovable by the unit, that is, at a stated

rate per unit area. In a unit price contract, the statement of area of immovable

is not conclusive and the price may be reduced or increased depending on the

area actually delivered. If the vendor delivers less than the area agreed upon,

the vendee may oblige the vendor to deliver all that may be stated in the

contract or demand for the proportionate reduction of the purchase price if

delivery is not possible. If the vendor delivers more than the area stated in the

contract, the vendee has the option to accept only the amount agreed upon or

to accept the whole area, provided he pays for the additional area at the

contract rate.[10]

In some instances, a sale of an immovable may be made for a lump sum

and not at a rate per unit. The parties agree on a stated purchase price for an

immovable the area of which may be declared based on an estimate or where

both the area and boundaries are stated.

In the case where the area of the immovable is stated in the contract

based on an estimate, the actual area delivered may not measure up exactly

with the area stated in the contract. According to Article 1542[11] of the Civil

Code, in the sale of real estate, made for a lump sum and not at the rate of a

certain sum for a unit of measure or number, there shall be no increase or

decrease of the price although there be a greater or lesser area or number than

that stated in the contract. However, the discrepancy must not be substantial.

A vendee of land, when sold in gross or with the description “more or less” with

reference to its area, does not thereby ipso facto take all risk of quantity in the

land. The use of “more or less” or similar words in designating quantity covers

only a reasonable excess or deficiency.[12]

Where both the area and the boundaries of the immovable are declared,

the area covered within the boundaries of the immovable prevails over the

stated area. In cases of conflict between areas and boundaries, it is the latter

which should prevail. What really defines a piece of ground is not the area,

calculated with more or less certainty, mentioned in its description, but the

boundaries therein laid down, as enclosing the land and indicating its limits. In

a contract of sale of land in a mass, it is well established that the specific

boundaries stated in the contract must control over any statement with respect

to the area contained within its boundaries. It is not of vital consequence that a

deed or contract of sale of land should disclose the area with mathematical

accuracy. It is sufficient if its extent is objectively indicated with sufficient

precision to enable one to identify it. An error as to the superficial area is

immaterial.[13] Thus, the obligation of the vendor is to deliver everything

within the boundaries, inasmuch as it is the entirety thereof that distinguishes

the determinate object.[14]

As correctly noted by the trial court and the Court of Appeals, the sale

between petitioner and respondent Buriol involving the latter’s property is one

made for a lump sum. The Deed of Absolute Sale shows that the parties agreed

on the purchase price on a predetermined area of five hectares within the

specified boundaries and not based on a particular rate per area. In accordance

with Article 1542, there shall be no reduction in the purchase price even if the

area delivered to petitioner is less than that stated in the contract. In the

instant case, the area within the boundaries as stated in the contract shall

control over the area agreed upon in the contract.

The Court rejects petitioner’s contention that the property’s boundaries

as stated in the Deed of Absolute Sale are superficial and unintelligible and,

therefore, cannot prevail over the area stated in the contract. First, as pointed

out by the Court of Appeals, at an ocular inspection prior to the perfection of

the contract of sale, respondent Buriol pointed to petitioner the boundaries of

the property. Hence, petitioner gained a fair estimate of the area of the

property sold to him. Second, petitioner cannot now assail the contents of the

Deed of Absolute Sale, particularly the description of the boundaries of the

property, because petitioner’s subscription to the Deed of Absolute Sale

indicates his assent to the correct description of the boundaries of the

property.

Petitioner also asserts that respondent Buriol is guilty of misleading

petitioner into believing that the latter was buying five hectares when he knew

prior to the sale that he owned only four hectares. The review of the

circumstances of the alleged misrepresentation is factual and, therefore,

beyond the province of the Court. Besides, this issue had already been raised

before and passed upon by the trial court and the Court of Appeals. The factual

finding of the courts below that no sufficient evidence supports petitioner’s

allegation of misrepresentation is binding on the Court.

The Court of Appeals reversed the trial court’s dismissal of respondents

Turatello and Sani’s counterclaim for moral and exemplary damages, attorney’s

fees and litigation expenses. In awarding moral damages in the amount of

P100,000 in favor of Turatello and Sani, the Court of Appeals justified the

award to alleviate the suffering caused by petitioner’s unfounded civil action.

The filing alone of a civil action should not be a ground for an award of moral

damages in the same way that a clearly unfounded civil action is not among

the grounds for moral damages.[15]

Exemplary or corrective damages are imposed, by way of example or

correction for the public good, in addition to the moral, temperate, liquidated or

compensatory damages.[16] With the deletion of the award for moral damages,

there is no basis for the award of exemplary damages.

WHEREFORE, the instant petition for review on certiorari is GRANTED

in PART. The Court of Appeals Decision in CA-G.R. CV No. 38854 is AFFIRMED

with the MODIFICATION that the award of moral and exemplary damages is

DELETED.

SO ORDERED.

DANTE O. TINGA

Associate Justice

WE CONCUR:

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

DOLORES SALINAS, assisted by her

husband, JUAN CASTILLO,

Petitioner,

- versus -

SPS. BIENVENIDO S. FAUSTINO

and ILUMINADA G. FAUSTINO,

Respondents.

G.R. No. 153077

Present:

QUISUMBING, J., Chairperson,

CARPIO MORALES,

TINGA,

VELASCO, JR., and

BRION, JJ.

Promulgated:

September 19, 2008

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

D E C I S I O N

CARPIO MORALES, J.:

It appears that respondent Bienvenido S. Faustino (Faustino), by a Deed of Absolute Sale (Deed

of Sale)1 dated June 27, 1962, purchased from his several co-heirs, including his first cousins

Benjamin Salinas and herein petitioner Dolores Salinas, their respective shares to a parcel of land

covered by Tax Declaration No. 14687, in the name of their grandmother Carmen Labitan,

located in Subic, Zambales, with a "superficial area of 300.375 square meters [sq. m.] more or

less," and with boundaries "in the North: Carmen Labitan; in the South: Calle, in the East:

Callejon and in the West: Roque Demetrio."

On March 15, 1982, respondent Faustino, joined by his wife, filed before the then Court of First

Instance of Zambales a complaint for recovery of possession with damages against petitioner,

assisted by her husband, docketed as Civil Case No. 3382-0, alleging that the parcel of land he

bought via the June 27, 1962 Deed of Sale from his co-heirs consisted of 1,381 sq. m. and is

more particularly described as follows:

A residential land located at Barrio Matain, Subic, Zambales now know as Lot 3, Block 5-K,

Psd-8268 bounded on the NORTH by Road Lot 1, Block 5-1, PSD-8268; on the SOUTH by

Road Lot 2, Block 5-1, Psd-8268; on the EAST by Road Lot 2, Block 5-1, Psd-8286; and, on the

WEST by the property of Roque Demetrio Lot 2, Block 5-k, Psd 8268; containing an area of

ONE THOSUAND THREE HUNDRED EIGHTY-ONE (1,381) SQUARE METERS, more or

less. Declared for taxation purposes under Tax Declaration No. 1896 in the name of Spouses

Bienvenido S. Faustino and Iluminada G. Faustino.2 (Emphasis and underscoring supplied)

Respondent spouses further alleged that they allowed petitioner and co-heirs to occupy and build

a house on a 627 sq. m. portion of the land, particularly described as follows:

The northeastern portion of the land of the plaintiffs described in Paragraph 2 of this complaint;

bounded on the NORTH by Road Lot 1, Block 5-1, Psd-8268; on the East by Road Lot 2, Block

5-1, Psd-8268; and on the SOUTH and WEST by the remaining portion of Lot 5, Block 5-1,

PSD-8268 of herein plaintiffs which is the land described in Paragraph 2 of this complaint

owned by the plaintiffs and that this portion in question has an area of SIX HUNDRED

TWENTY-SEVEN (627) SQUARE METERS, more or less;3 (Emphasis and underscoring

supplied),

on the condition that they would voluntarily and immediately remove the house and vacate that

portion of the land should they (respondents) need the land; and that when they asked petitioner

and her co-heir-occupants to remove the house and restore the possession of the immediately-

described portion of the land, they refused, hence, the filing of the complaint.

In her Answer,4 petitioner claimed that she is the owner of a 628 sq. m. lot covered by Tax

Declaration No. 1017 in her name, particularly described as follows:

A residential lot, together with the two (2) storey house thereon constructed, and all existing

improvements thereon, situated at Matain, Subic, Zambales, containing an area of 628 square

meters, more or less. Bounded on the North, by Lot 12313 [sic]; on the East, by Lot 12413 (Road

Lot); on the South, by Lot 12005-Cecilia Salinas; and on the West, by Lot 12006, Loreto Febre.

Declared under Tax No. 1017, in the name of Dolores Salinas Castillo. (Emphasis and

underscoring supplied);

that if respondents refer to the immediately described lot, then they have no right or interest

thereon;5 and that her signature in the June 27, 1962 Deed of Sale is forged.

After trial, Branch 73 of the Regional Trial Court (RTC) of Olongapo City, by Decision of

August 31, 1993, found petitioner’s claim of forgery unsupported. It nevertheless dismissed the

complaint,6 it holding that, inter alia, the Deed of Sale indicated that only 300.375 sq. m. was

sold to petitioner.

. . . [I]n the . . . Deed of Sale [dated June 27, 1962] (Exhibit "B"), the area of the land sold was

only 300.375 square meters while the plaintiffs[-herein respondents] in their complaint claim

1,381 square meters or the whole of the lot shown by exhibit "A" (Lot 3, Block 5-A, Psd-8268).

Since the document is the best evidence, and the deed of sale indicates only 300.375 square

meters, so then, only the area as stated in the Deed of Sale should be owned by the plaintiffs. The

allegations [sic] that there might be a typographical error is again mere conjecture and not really

supported by evidence.

The boundaries of the land indicated in the Deed of Sale (Exhibit "B") [are] different from that of

Exhibit "A" claimed by the plaintiff[s-herein respondents] to be the plan of the lot which they

allegedly bought. The Deed of Sale states [that the boundary of the lot in the] North is the lot of

Carmen Labitan while Exhibit "A" indicated that North of the land is Lot 3, Block 5-A, Psd-8268

(Exhibit "A") is a Road Lot (Lot 1, Block 5-1, Psd-8268). This Court believes that after

examining the documents presented, that the land bought by the plaintiff is only a portion of the

land appearing in Exhibit "A" and not the whole lot. The land bought being situated at the

southern portion of Lot 3, Block 5-K, Psd-8268. This explains why the northern portion of the lot

sold indicated in the Deed of Sale is owned by Carmen Labitan, the original owner of the whole

Lot 3, Block 5-K, Psd-8268 (Exhibit "C-1").

Even the tax declaration submitted by the plaintiff indicates different boundaries with that of the

land indicated in the Deed of Sale. The law states in Art. 434 of the Civil Code:

"Art. 434. In an action to recover, the property must be identified, and the plaintiff must rely on

the weakness of the defendant’s claim."

x x x x

Herein plaintiffs[-respondents] only own the area of 300.375 square meters of the said lot and

not the whole area of 1,381 square meters as claimed by them. There is no evidence to

substantiate the plaintiffs’ claim for the area of 1,381 square meters.

x x x x7 (Emphasis and underscoring supplied)

On respondents’ appeal,8 the Court of Appeals, by Decision of December 20, 2001,

9 modified

the RTC decision. It held that since respondents are claiming the whole lot containing 1,381 sq.

m. but that petitioner is claiming 628 sq. m. thereof, then respondents are "entitled to the

remaining portion . . . of 753 square meters." The appellate court explained:

x x x [T]he Court agrees with the court a quo that only a portion of the whole lot was indeed sold

to the plaintiffs-appellants by the heirs of deceased Isidro Salinas and Carmen Labitan. What

remains to be determined is the particular portion of the area that was sold to the plaintiffs-

appellants.

x x x [W]hat really defines a piece of land is not the area calculated with more or less certainty

mentioned in the description but the boundaries therein laid down as enclosing the land and

indicating its limits. Where the land is sold for a lump sum and not so much per unit of measure

or number, the boundaries of the land stated in the contract determine the effects and scope of the

sale not the area thereof.

Based on these rules, plaintiffs-appellants are not strictly bound by the area stated in the Deed of

Sale which is merely 300.375 square meters, but by the metes and bounds stated therein. As

found by the court a quo, the land bought by the plaintiffs-appellants is a portion of the land

appearing in Exhibit "A", situated at the southern portion of Lot 3, Block 5-K, Psd 8268 where

the northern portion of the land sold as indicated in the Deed of Sale is owned by Carmen

Labitan, the original owner of the whole Lot 3, Block 5-K, Psd-8268 (Exhibit "C-1".) None of

the other heirs questioned the sale of the property as described in the Deed of Sale.

Considering the foregoing, this Court believes that plaintiffs-appellants[-herein respondents] own

more than 300.375 square meters of the land in question. However, said ownership does not

extend to the northern portion of the land being claimed by the defendants-appellees, consisting

of 628 (erroneously stated in the decision of the court a quo as 268) square meters and covered

by Tax Declaration No. 1017 in the name of defendant-appellee[-herein petitioner] Dolores

Salinas. Plaintiffs-appellants are[,] however, entitled to the remaining portion of the property

consisting of seven hundred fifty-three (753) square meters, more or less. (Emphasis and

underscoring supplied)

The appellate court thus disposed:

WHEREFORE, based on the foregoing premises, the judgment appealed from is hereby

MODIFIED, as follows:

1. Plaintiffs-appellants Bienvenido S. Faustino and Iluminada G. Faustin[o] are declared owners

of seven hundred fifty-three (753) square meters, more or less, of the parcel of land subject of

this case.

2. Plaintiffs-appellants and defendants-appellees are directed to cause the segregation of their

respective shares in the property as determined by this Court, with costs equally shared between

them.

x x x x10

(Underscoring supplied)

Petitioner’s motion for reconsideration having been denied,11

she filed the present petition12

faulting the Court of Appeals

a. x x x IN MODIFYING THE DECISION OF THE COURT A QUO DISMISSING THE

COMPLAINT FOR INSUFFICIENCY OF EVIDENCE;

b. x x x IN DECLARING THE PRIVATE RESPONDENTS OWNERS OF 753 SQUARE

METERS, MORE OR LESS, OF THE PARCEL OF LAND SUBJECT OF THE CASE[;]

c. x x x IN NOT AFFIRMING THE DECISION OF THE COURT A QUO AND XXX IN NOT

DECLARING THE PETITIONER AS OWNER OF HER PROPERTY WHICH, SINCE THEN

UP TO THE PRESENT, SHE HAD BEEN OCCUPYING AND DESPITE PREPONDERANCE

OF EVIDENCE OF HER OWNERSHIP THERETO.13

(Underscoring in the original)

The petition is meritorious.

Indeed, in a contract of sale of land in a mass, the specific boundaries stated in the contract must

control over any statement with respect to the area contained within its boundaries.14

Thus, it is

the boundaries indicated in a deed of absolute sale, and not the area in sq. m. mentioned therein –

300.375 sq. m. in the Deed of Sale in respondents’ favor – that control in the determination of

which portion of the land a vendee acquires.

In concluding that respondents acquired via the June 27, 1962 Deed of Sale the total land area of

753 sq. m., the Court of Appeals subtracted from the total land area of 1,381 sq. m. reflected in

Exh. "A," which is "Plan of Lot 3, Block 5-k, Psd-8268, as prepared for Benjamin R. Salinas"

containing an area of 1,381 sq. m. and which was prepared on February 10, 1960 by a private

land surveyor, the 628 sq. m. area of the lot claimed by petitioner as reflected in Tax Declaration

No. 1017 in her name. As will be shown shortly, however, the basis of the appellate court’s

conclusion is erroneous.

As the immediately preceding paragraph reflects, the "Plan of Lot 3, Bk 5-K, Psd-82" was

prepared for respondent Faustino’s and petitioner’s first cousin co-heir Benjamin Salinas on

February 10, 1960.

Why the appellate court, after excluding the 628 sq. m. lot covered by a Tax Declaration in the

name of petitioner from the 1,381 sq. m. lot surveyed for Benjamin P. Salinas in 1960, concluded

that what was sold via the 1962 Deed of Sale to respondent Faustino was the remaining 753 sq.

m., despite the clear provision of said Deed of Sale that what was conveyed was 300.375 sq. m.,

escapes comprehension. It defies logic, given that respondents base their claim of ownership of

the questioned 628 sq. m. occupied by petitioner on that June 27, 1962 Deed of Sale covering a

300.375 sq. m. lot.

The trial court in fact noted in its Pre-trial Order that "the parties cannot agree as to the identity

of the property sought to be recovered by the plaintiff."15

(Emphasis and underscoring supplied.)

Indeed, in her Answer to the Complaint, petitioner alleged "[t]hat if the plaintiffs refer to [the lot

covered by Tax Declaration No. 1017], then they have no right or interest or participation

whatsoever over the same x x x."16

(Emphasis and italics supplied.)

Even the boundaries of the 628 sq. m. area covered by Tax Declaration No. 1017 in petitioner’s

name and those alleged by respondents to be occupied by petitioner are different. Thus, the

boundaries of the lot covered by Tax Declaration No. 1017 are: Lot No. 12302 on the North; Lot

No. 12005 (Cecilia Salinas) on the South; Lot No. 12413 (road lot) on the East; and Lot No.

12006 (Loreto Febre) on the West.17

Whereas, following respondents’ claim, the 627 sq. m. area

occupied by petitioner has the following boundaries, viz:

The northeastern portion of the land of the plaintiffs described in Paragraph 2 of this complaint;

bounded on the NORTH by Road Lot 1, Block 5-1, Psd-8268; on the EAST by Road Lot 2,

Block 5-1, Psd-8268; and on the SOUTH and WEST by the remaining portion of Lot 5, Block

5-1, PSD-8268 of herein plaintiffs which is the land described in Paragraph 2 of this complaint

owned by the plaintiffs and that this portion in question has an area of SIX HUNDRED

TWENTY-SEVEN (627) SQUARE METERS, more or less.18

(Emphasis and underscoring

supplied)

The Court of Appeals thus doubly erred in concluding that 1) what was sold to respondents via

the June 27, 1962 Deed of Sale was the 1,381 sq. m. parcel of land reflected in the Plan-Exh. "A"

prepared in 1960 for Benjamin Salinas, and 2) petitioner occupied 628 sq. m. portion thereof,

hence, respondents own the remaining 753 sq. m.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated

December 20, 2001 is REVERSED and SET ASIDE, and the Decision of Branch 73 of the

Regional Trial Court of Olongapo City dated August 31, 1993 DISMISSING Civil Case No.

3382-0 is REINSTATED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 170405 February 2, 2010

RAYMUNDO S. DE LEON, Petitioner,

vs.

BENITA T. ONG.1 Respondent.

D E C I S I O N

CORONA, J.:

On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land2 with

improvements situated in Antipolo, Rizal to respondent Benita T. Ong. As these properties were

mortgaged to Real Savings and Loan Association, Incorporated (RSLAI), petitioner and

respondent executed a notarized deed of absolute sale with assumption of mortgage3 stating:

x x x x x x x x x

That for and in consideration of the sum of ONE MILLION ONE HUNDRED THOUSAND

PESOS (P1.1 million), Philippine currency, the receipt whereof is hereby acknowledged from

[RESPONDENT] to the entire satisfaction of [PETITIONER], said [PETITIONER] does

hereby sell, transfer and convey in a manner absolute and irrevocable, unto said

[RESPONDENT], his heirs and assigns that certain real estate together with the buildings and

other improvements existing thereon, situated in [Barrio] Mayamot, Antipolo, Rizal under the

following terms and conditions:

1. That upon full payment of [respondent] of the amount of FOUR HUNDRED FIFTEEN

THOUSAND FIVE HUNDRED (P415,000), [petitioner] shall execute and sign a deed of

assumption of mortgage in favor of [respondent] without any further cost whatsoever;

2. That [respondent] shall assume payment of the outstanding loan of SIX HUNDRED

EIGHTY FOUR THOUSAND FIVE HUNDRED PESOS (P684,500) with REAL

SAVINGS AND LOAN,4 Cainta, Rizal… (emphasis supplied)

x x x x x x x x x

Pursuant to this deed, respondent gave petitioner P415,500 as partial payment. Petitioner, on the

other hand, handed the keys to the properties and wrote a letter informing RSLAI of the sale and

authorizing it to accept payment from respondent and release the certificates of title.

Thereafter, respondent undertook repairs and made improvements on the properties.5 Respondent

likewise informed RSLAI of her agreement with petitioner for her to assume petitioner’s

outstanding loan. RSLAI required her to undergo credit investigation.

Subsequently, respondent learned that petitioner again sold the same properties to one Leona

Viloria after March 10, 1993 and changed the locks, rendering the keys he gave her useless.

Respondent thus proceeded to RSLAI to inquire about the credit investigation. However, she was

informed that petitioner had already paid the amount due and had taken back the certificates of

title.

Respondent persistently contacted petitioner but her efforts proved futile.

On June 18, 1993, respondent filed a complaint for specific performance, declaration of nullity

of the second sale and damages6 against petitioner and Viloria in the Regional Trial Court (RTC)

of Antipolo, Rizal, Branch 74. She claimed that since petitioner had previously sold the

properties to her on March 10, 1993, he no longer had the right to sell the same to Viloria. Thus,

petitioner fraudulently deprived her of the properties.

Petitioner, on the other hand, insisted that respondent did not have a cause of action against him

and consequently prayed for the dismissal of the complaint. He claimed that since the transaction

was subject to a condition (i.e., that RSLAI approve the assumption of mortgage), they only

entered into a contract to sell. Inasmuch as respondent did apply for a loan from RSLAI, the

condition did not arise. Consequently, the sale was not perfected and he could freely dispose of

the properties. Furthermore, he made a counter-claim for damages as respondent filed the

complaint allegedly with gross and evident bad faith.

Because respondent was a licensed real estate broker, the RTC concluded that she knew that the

validity of the sale was subject to a condition. The perfection of a contract of sale depended on

RSLAI’s approval of the assumption of mortgage. Since RSLAI did not allow respondent to

assume petitioner’s obligation, the RTC held that the sale was never perfected.

In a decision dated August 27, 1999,7 the RTC dismissed the complaint for lack of cause of

action and ordered respondent to pay petitioner P100,000 moral damages, P20,000 attorney’s

fees and the cost of suit.

Aggrieved, respondent appealed to the Court of Appeals (CA),8 asserting that the court a quo

erred in dismissing the complaint.

The CA found that the March 10, 2003 contract executed by the parties did not impose any

condition on the sale and held that the parties entered into a contract of sale. Consequently,

because petitioner no longer owned the properties when he sold them to Viloria, it declared the

second sale void. Moreover, it found petitioner liable for moral and exemplary damages for

fraudulently depriving respondent of the properties.

In a decision dated July 22, 2005,9 the CA upheld the sale to respondent and nullified the sale to

Viloria. It likewise ordered respondent to reimburse petitioner P715,250 (or the amount he paid

to RSLAI). Petitioner, on the other hand, was ordered to deliver the certificates of titles to

respondent and pay her P50,000 moral damages and P15,000 exemplary damages.

Petitioner moved for reconsideration but it was denied in a resolution dated November 11,

2005.10

Hence, this petition,11

with the sole issue being whether the parties entered into a contract

of sale or a contract to sell.

Petitioner insists that he entered into a contract to sell since the validity of the transaction was

subject to a suspensive condition, that is, the approval by RSLAI of respondent’s assumption of

mortgage. Because RSLAI did not allow respondent to assume his (petitioner’s) obligation, the

condition never materialized. Consequently, there was no sale.

Respondent, on the other hand, asserts that they entered into a contract of sale as petitioner

already conveyed full ownership of the subject properties upon the execution of the deed.

We modify the decision of the CA.

Contract of Sale or Contract to Sell?

The RTC and the CA had conflicting interpretations of the March 10, 1993 deed. The RTC ruled

that it was a contract to sell while the CA held that it was a contract of sale.

In a contract of sale, the seller conveys ownership of the property to the buyer upon the

perfection of the contract. Should the buyer default in the payment of the purchase price, the

seller may either sue for the collection thereof or have the contract judicially resolved and set

aside. The non-payment of the price is therefore a negative resolutory condition.12

On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does

not acquire ownership of the property until he fully pays the purchase price. For this reason, if

the buyer defaults in the payment thereof, the seller can only sue for damages.13

The deed executed by the parties (as previously quoted) stated that petitioner sold the properties

to respondent "in a manner absolute and irrevocable" for a sum of P1.1 million.14

With regard to

the manner of payment, it required respondent to pay P415,500 in cash to petitioner upon the

execution of the deed, with the balance15

payable directly to RSLAI (on behalf of petitioner)

within a reasonable time.16

Nothing in said instrument implied that petitioner reserved ownership

of the properties until the full payment of the purchase price.17

On the contrary, the terms and

conditions of the deed only affected the manner of payment, not the immediate transfer of

ownership (upon the execution of the notarized contract) from petitioner as seller to respondent

as buyer. Otherwise stated, the said terms and conditions pertained to the performance of the

contract, not the perfection thereof nor the transfer of ownership.

Settled is the rule that the seller is obliged to transfer title over the properties and deliver the

same to the buyer.18

In this regard, Article 1498 of the Civil Code19

provides that, as a rule, the

execution of a notarized deed of sale is equivalent to the delivery of a thing sold.

In this instance, petitioner executed a notarized deed of absolute sale in favor of respondent.

Moreover, not only did petitioner turn over the keys to the properties to respondent, he also

authorized RSLAI to receive payment from respondent and release his certificates of title to her.

The totality of petitioner’s acts clearly indicates that he had unqualifiedly delivered and

transferred ownership of the properties to respondent. Clearly, it was a contract of sale the parties

entered into.

Furthermore, even assuming arguendo that the agreement of the parties was subject to the

condition that RSLAI had to approve the assumption of mortgage, the said condition was

considered fulfilled as petitioner prevented its fulfillment by paying his outstanding obligation

and taking back the certificates of title without even notifying respondent. In this connection,

Article 1186 of the Civil Code provides:

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its

fulfillment.

Void Sale Or Double Sale?

Petitioner sold the same properties to two buyers, first to respondent and then to Viloria on two

separate occasions.20

However, the second sale was not void for the sole reason that petitioner

had previously sold the same properties to respondent. On this account, the CA erred.

This case involves a double sale as the disputed properties were sold validly on two separate

occasions by the same seller to the two different buyers in good faith.

Article 1544 of the Civil Code provides:

Article 1544. If the same thing should have been sold to different vendees, the ownership shall

be transferred to the person who may have first taken possession thereof in good faith, if it

should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it

who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith

was first in the possession; and, in the absence thereof, to the person who presents the

oldest title, provided there is good faith. (emphasis supplied)

This provision clearly states that the rules on double or multiple sales apply only to purchasers in

good faith. Needless to say, it disqualifies any purchaser in bad faith.

A purchaser in good faith is one who buys the property of another without notice that some other

person has a right to, or an interest in, such property and pays a full and fair price for the same at

the time of such purchase, or before he has notice of some other person’s claim or interest in the

property.21

The law requires, on the part of the buyer, lack of notice of a defect in the title of the

seller and payment in full of the fair price at the time of the sale or prior to having notice of any

defect in the seller’s title.

Was respondent a purchaser in good faith? Yes.

Respondent purchased the properties, knowing they were encumbered only by the mortgage to

RSLAI. According to her agreement with petitioner, respondent had the obligation to assume the

balance of petitioner’s outstanding obligation to RSLAI. Consequently, respondent informed

RSLAI of the sale and of her assumption of petitioner’s obligation. However, because petitioner

surreptitiously paid his outstanding obligation and took back her certificates of title, petitioner

himself rendered respondent’s obligation to assume petitioner’s indebtedness to RSLAI

impossible to perform.

Article 1266 of the Civil Code provides:

Article 1266. The debtor in obligations to do shall be released when the prestation become

legally or physically impossible without the fault of the obligor.

Since respondent’s obligation to assume petitioner’s outstanding balance with RSLAI became

impossible without her fault, she was released from the said obligation. Moreover, because

petitioner himself willfully prevented the condition vis-à-vis the payment of the remainder of the

purchase price, the said condition is considered fulfilled pursuant to Article 1186 of the Civil

Code. For purposes, therefore, of determining whether respondent was a purchaser in good faith,

she is deemed to have fully complied with the condition of the payment of the remainder of the

purchase price.

Respondent was not aware of any interest in or a claim on the properties other than the mortgage

to RSLAI which she undertook to assume. Moreover, Viloria bought the properties from

petitioner after the latter sold them to respondent. Respondent was therefore a purchaser in good

faith. Hence, the rules on double sale are applicable.

Article 1544 of the Civil Code provides that when neither buyer registered the sale of the

properties with the registrar of deeds, the one who took prior possession of the properties shall be

the lawful owner thereof.

In this instance, petitioner delivered the properties to respondent when he executed the notarized

deed22

and handed over to respondent the keys to the properties. For this reason, respondent took

actual possession and exercised control thereof by making repairs and improvements thereon.

Clearly, the sale was perfected and consummated on March 10, 1993. Thus, respondent became

the lawful owner of the properties.

Nonetheless, while the condition as to the payment of the balance of the purchase price was

deemed fulfilled, respondent’s obligation to pay it subsisted. Otherwise, she would be unjustly

enriched at the expense of petitioner.

Therefore, respondent must pay petitioner P684,500, the amount stated in the deed. This is

because the provisions, terms and conditions of the contract constitute the law between the

parties. Moreover, the deed itself provided that the assumption of mortgage "was without any

further cost whatsoever." Petitioner, on the other hand, must deliver the certificates of title to

respondent. We likewise affirm the award of damages.

WHEREFORE, the July 22, 2005 decision and November 11, 2005 resolution of the Court of

Appeals in CA-G.R. CV No. 59748 are hereby AFFIRMED with MODIFICATION insofar as

respondent Benita T. Ong is ordered to pay petitioner Raymundo de Leon P684,500 representing

the balance of the purchase price as provided in their March 10, 1993 agreement.

Costs against petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 167195 May 8, 2009

ASSET PRIVATIZATION TRUST, Petitioner,

vs.

T.J. ENTERPRISES, Respondent.

D E C I S I O N

TINGA, J.:

This is a Rule 45 petition1 which seeks the reversal of the Court of Appeals’ decision

2 and

resolution3 affirming the RTC’s decision

4 holding petitioner liable for actual damages for breach

of contract.

Petitioner Asset Privatization Trust5 (petitioner) was a government entity created for the purpose

to conserve, to provisionally manage and to dispose assets of government institutions.6 Petitioner

had acquired from the Development Bank of the Philippines (DBP) assets consisting of

machinery and refrigeration equipment which were then stored at Golden City compound, Pasay

City. The compound was then leased to and in the physical possession of Creative Lines, Inc.,

(Creative Lines). These assets were being sold on an as-is-where-is basis.

On 7 November 1990, petitioner and respondent entered into an absolute deed of sale over

certain machinery and refrigeration equipment identified as Lots Nos. 2, 3 and 5. Respondent

paid the full amount of P84,000.00 as evidenced by petitioner’s Receipt No. 12844. After two (2)

days, respondent demanded the delivery of the machinery it had purchased. Sometime in March

1991, petitioner issued Gate Pass No. 4955. Respondent was able to pull out from the compound

the properties designated as Lots Nos. 3 and 5. However, during the hauling of Lot No. 2

consisting of sixteen (16) items, only nine (9) items were pulled out by respondent. The seven (7)

items that were left behind consisted of the following: (1) one (1) Reefer Unit 1; (2) one (1)

Reefer Unit 2; (3) one (1) Reefer Unit 3; (4) one (1) unit blast freezer with all accessories; (5)

one (1) unit chest freezer; (6) one (1) unit room air-conditioner; and (7) one (1) unit air

compressor. Creative Lines’ employees prevented respondent from hauling the remaining

machinery and equipment.

Respondent filed a complaint for specific performance and damages against petitioner and

Creative Lines.7 During the pendency of the case, respondent was able to pull out the remaining

machinery and equipment. However, upon inspection it was discovered that the machinery and

equipment were damaged and had missing parts.

Petitioner argued that upon the execution of the deed of sale it had complied with its obligation

to deliver the object of the sale since there was no stipulation to the contrary. It further argued

that being a sale on an as-is-where-is basis, it was the duty of respondent to take possession of

the property. Petitioner claimed that there was already a constructive delivery of the machinery

and equipment.

The RTC ruled that the execution of the deed of absolute sale did not result in constructive

delivery of the machinery and equipment. It found that at the time of the sale, petitioner did not

have control over the machinery and equipment and, thus, could not have transferred ownership

by constructive delivery. The RTC ruled that petitioner is liable for breach of contract and should

pay for the actual damages suffered by respondent.

On petitioner’s appeal, the Court of Appeals affirmed in toto the decision of the RTC.

Hence this petition.

Before this Court, petitioner raises issues by attributing the following errors to the Court of

Appeals, to wit:

I.

The Court of Appeals erred in not finding that petitioner had complied with its obligation to

make delivery of the properties subject of the contract of sale.

II.

The Court of Appeals erred in not considering that the sale was on an "as-is-where-is" basis

wherein the properties were sold in the condition and in the place where they were located.

III.

The Court of Appeals erred in not considering that respondent’s acceptance of petitioner’s

disclaimer of warranty forecloses respondent’s legal basis to enforce any right arising from the

contract.

IV.

The reason for the failure to make actual delivery of the properties was not attributable to the

fault and was beyond the control of petitioner. The claim for damages against petitioner is

therefore bereft of legal basis.8

The first issue hinges on the determination of whether there was a constructive delivery of the

machinery and equipment upon the execution of the deed of absolute sale between petitioner and

respondent.

The ownership of a thing sold shall be transferred to the vendee upon the actual or constructive

delivery thereof.9 The thing sold shall be understood as delivered when it is placed in the control

and possession of the vendee.10

As a general rule, when the sale is made through a public instrument, the execution thereof shall

be equivalent to the delivery of the thing which is the object of the contract, if from the deed the

contrary does not appear or cannot clearly be inferred. And with regard to movable property, its

delivery may also be made by the delivery of the keys of the place or depository where it is

stored or kept.11

In order for the execution of a public instrument to effect tradition, the purchaser

must be placed in control of the thing sold.12

However, the execution of a public instrument only gives rise to a prima facie presumption of

delivery. Such presumption is destroyed when the delivery is not effected because of a legal

impediment.13

It is necessary that the vendor shall have control over the thing sold that, at the

moment of sale, its material delivery could have been made.14

Thus, a person who does not have

actual possession of the thing sold cannot transfer constructive possession by the execution and

delivery of a public instrument.15

In this case, there was no constructive delivery of the machinery and equipment upon the

execution of the deed of absolute sale or upon the issuance of the gate pass since it was not

petitioner but Creative Lines which had actual possession of the property. The presumption of

constructive delivery is not applicable as it has to yield to the reality that the purchaser was not

placed in possession and control of the property.

On the second issue, petitioner posits that the sale being in an as-is-where-is basis, respondent

agreed to take possession of the things sold in the condition where they are found and from the

place

where they are located. The phrase as-is where-is basis pertains solely to the physical condition

of the thing sold, not to its legal situation.16

It is merely descriptive of the state of the thing sold.

Thus, the as-is where-is basis merely describes the actual state and location of the machinery and

equipment sold by petitioner to respondent. The depiction does not alter petitioner’s

responsibility to deliver the property to respondent.1awphi1.zw+

Anent the third issue, petitioner maintains that the presence of the disclaimer of warranty in the

deed of absolute sale absolves it from all warranties, implied or otherwise. The position is

untenable.

The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which

is the object of the sale.17

Ownership of the thing sold is acquired by the vendee from the

moment it its delivered to him in any of the ways specified in articles 1497 to 1501, or in any

other manner signifying an agreement that the possession is transferred from the vendor to the

vendee.18

A perusal of the deed of absolute sale shows that both the vendor and the vendee

represented and warranted to each other that each had all the requisite power and authority to

enter into the deed of absolute sale and that they shall perform each of their respective

obligations under the deed of absolute in accordance with the terms thereof.19

As previously

shown, there was no actual or constructive delivery of the things sold. Thus, petitioner has not

performed its obligation to transfer ownership and possession of the things sold to respondent.

As to the last issue, petitioner claims that its failure to make actual delivery was beyond its

control. It posits that the refusal of Creative Lines to allow the hauling of the machinery and

equipment was unforeseen and constituted a fortuitous event.

The matter of fortuitous events is governed by Art. 1174 of the Civil Code which provides that

except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or

when the nature of the obligation requires assumption of risk, no person shall be responsible for

those events which could not be foreseen, or which though foreseen, were inevitable. The

elements of a fortuitous event are: (a) the cause of the unforeseen and unexpected occurrence,

must have been independent of human will; (b) the event that constituted the caso fortuito must

have been impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must

have been such as to render it impossible for the debtors to fulfill their obligation in a normal

manner, and; (d) the obligor must have been free from any participation in the aggravation of the

resulting injury to the creditor.20

A fortuitous event may either be an act of God, or natural occurrences such as floods or

typhoons, or an act of man such as riots, strikes or wars.21

However, when the loss is found to be

partly the result of a person’s participation–whether by active intervention, neglect or failure to

act—the whole occurrence is humanized and removed from the rules applicable to a fortuitous

event.22

We quote with approval the following findings of the Court of Appeals, to wit:

We find that Creative Lines’ refusal to surrender the property to the vendee does not constitute

force majeure which exculpates APT from the payment of damages. This event cannot be

considered unavoidable or unforeseen. APT knew for a fact that the properties to be sold were

housed in the premises leased by Creative Lines. It should have made arrangements with

Creative Lines beforehand for the smooth and orderly removal of the equipment. The principle

embodied in the act of God doctrine strictly requires that the act must be one occasioned

exclusively by the violence of nature and all human agencies are to be excluded from creating or

entering into the cause of the mischief. When the effect, the cause of which is to be considered,

is found to be in part the result of the participation of man, whether it be from active intervention

or neglect, or failure to act, the whole occurrence is thereby humanized, as it were, and removed

from the rules applicable to the acts of God.23

Moreover, Art. 1504 of the Civil Code provides that where actual delivery has been delayed

through the fault of either the buyer or seller the goods are at the risk of the party in fault. The

risk of loss or deterioration of the goods sold does not pass to the buyer until there is actual or

constructive delivery thereof. As previously discussed, there was no actual or constructive

delivery of the machinery and equipment. Thus, the risk of loss or deterioration of property is

borne by petitioner. Thus, it should be liable for the damages that may arise from the

delay.1avvphi1

Assuming arguendo that Creative Lines’ refusal to allow the hauling of the machinery and

equipment is a fortuitous event, petitioner will still be liable for damages. This Court agrees with

the appellate court’s findings on the matter of damages, thus:

Article 1170 of the Civil Code states: "Those who in the performance of their obligations are

guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof

are liable for damages." In contracts and quasi-contracts, the damages for which the obligor who

acted in good faith is liable shall be those that are the natural and probable consequences of the

breach of the obligation, and which the parties have foreseen or could have reasonably foreseen

at the time the obligation was constituted.24

The trial court correctly awarded actual damages as

pleaded and proven during trial.25

WHEREFORE, the Court AFFIRMS in toto the Decision of the Court of Appeals dated 31

August 2004. Cost against petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-15155 December 29, 1960

BOARD OF LIQUIDATORS, petitioner-appellant,

vs.

EXEQUIEL FLORO, ET AL., oppositors-appellees.

Godofredo Zandueta for appellant.

Isidero A. Vera for appellee.

REYES, J.B.L., J.:

From the order of the Court of First Instance of Manila, dated August 10, 1955, denying its

petition to exclude certain pieces of steel matting from the assets of the insolvent M. P.

Malabanan, the Board of Liquidators appealed to the Court of Appeals. The latter certified the

case to this Court on the ground that only questions of law are involved.

The Board of Liquidators (hereinafter referred to as the Board) is an agency of the Government

created under Executive Order No. 372 (November 24, 1950), and, pursuant to Executive Order

No. 377 (December 1, 1950), took over the functions of the defunct Surplus Property Liquidating

Committee.

On June 14, 1952 Melecio Malabanan entered into an agreement with the Board for the salvage

of surplus properties sunk in territorial waters off the provinces of Mindoro, La Union, and

Batangas (Exhibit "A"). By its terms, Malabanan was to commence operations within 30 days

from execution of said contract, which was to be effective for a period of one (1) year from the

start of operations, extendible for a total period of not more than six (6) months. On June 10,

1953, Malabanan requested for an extension of one (1) year for the salvage in waters of Mindoro

and Batangas; and the Board extended the contract up to November 30, 1953. On November 18,

1953, Malabanan requested a second extension of one more year for the waters of Occidental

Mindoro, and Board again extended the contract up to August 31, 1954. Malabanan submitted a

recovery report dated July 26, 1954, wherein it is stated that he had recovered a total of 13,107

pieces of steel mattings, as follows:

1. December, 1953-April 30, 1954 2,5552

2. May 1, 1954-June 30, 1954 10,552

13,107 (pieces)

Four months previously, Malabanan had entered into an agreement with Exequiel Floro, dated

March 31, 1954 (Exhibit 1, Floro), in which, among other things, it was agreed that Floro would

advance to Malabanan certain sums of money, not to exceed P25,000.00, repayment, thereof

being secured by quantities of steel mattings which Malabanan would consign to Floro; that said

advances were to paid within a certain period, and upon default at the expiration thereof, Floro

was, authorized to sell whatever steel mattings were in his possession under said contract, in

amount sufficient to satisfy the advances. Pursuant thereto, Floro claims to have made total

advances to the sum of P24,224.50.

It appears that as Malabanan was not able to repay Floro's advances, the latter, by a document

dated August 4, 1954, sold 11,047 pieces of steel mattings to Eulalio Legaspi for the sum of

P24,803.40.

Seventeen days later, on August 21, 1954, Malabanan filed in the Court of First Instance of

Manila a petition for voluntary insolvency, attaching thereto a Schedule of Accounts, in which

the Board was listed as one of the creditors for P10,874.46, and Exequiel Floro for P24,220.50,

the origin of the obligations being described as "Manila Royalty" and "Salvaging Operations",

respectively. Also attached was an Inventory of Properties, listing certain items of personal

property allegedly aggregating P33,707.00 in value. In this list were included 11,167 pieces of

steel mattings with an alleged estimated value of P33,501.00.

Soon after, the Board, claiming to be the owner of the listed steel matting, filed a petition to

exclude them from the inventory; and to make the insolvent account for a further 1,940 pieces of

steel matting, the difference between the number stated in the insolvent's recovery report of July

26, 1954 and that stated in the inventory. Exequiel Floro opposed the Board's petition and

claimed that the steel matting listed had become the property of Eulalio Legaspi by virtue of a

deed of sale in his favor, executed by Floro pursuant to the latter's contract with Malabanan on

March 31, 1954. The court below, after reception of evidence as to the genuineness and due

execution of the deed of sale to Legaspi, as well as of the contract between Malabanan and Floro,

denied the Board's petition, declaring that Malabanan had acquired ownership over the steel

mattings under his contract with the Board; that Exequiel Floro was properly authorized to

dispose of the steel mattings under Floro's contract with Malabanan; and that the sale to Eulalio

Legaspi was valid and not contrary to the Insolvency Law.

In this appeal, the Board contends that Malabanan did not acquire ownership over the steel

mattings due to his failure to comply with the terms of the contract, allegedly constituting

conditions precedent for the transfer of title, namely: payment of the price; audit and check as to

the nature, quantity and value of properties salvaged; weighing of the salvaged properties to be

conducted jointly by representatives of the Board and of Malabanan; determination of the site for

storage; audit and verification of the recovery reports by government auditors; and firing of

performance bond.

We are of the opinion, and so hold, that the contract (Exhibit "A") between Malabanan and the

Board had effect of vesting Malabanan with title to, or ownership of the steel mattings in

question as soon as they were brought up from the bottom of the sea. This is shown by pertinent

provisions of the contract as follows:

10. For and in consideration of the assignment by the BOARD OF LIQUIDATORS to

the CONTRACTOR (Malabanan) of all right, title and interest in and to all surplus

properties salvaged by the CONTRACTOR under this contract, the CONTRACTOR

shall pay to the Government Ninety Pesos (P90.00) per long ton(2,240 lbs.) of surplus

properties recovered.

11. Payment of the agreed price shall be made monthly during the first ten (10) days of

every month on the basis of recovery reports of sunken surplus properties salvaged

during the preceding month, duly verified and audited by the authorized representative of

the BOARD OF LIQUIDATORS.

That Malabanan was required under the contract to post a bond of P10,000.00 to guarantee

compliance with the terms and conditions of the contract; that the operation for salvage were

entirely at Malabanan's expense and risks; that gold, silver, copper, coins, currency, jewelry,

precious stones, etc. were excepted from the contract, and were instead required to be turned

over to the Board for disposition; that the expenses for storage, including guard service, were for

Malabanan's account — all these circumstances indicated that ownership of the goods passed to

Malabanan as soon as they were recovered or salvaged (i.e., as soon as the salvor had gained

effective possession of the goods), and not only after payment of the stipulated price. .

While there can be reservation of title in the seller until full payment of the price (Article 1478,

N.C.C.), or, until fulfillment of a condition (Article 1505, N.C.C.); and while execution of a

public instrument amounts to delivery only when from the deed the contrary does not appear or

cannot clearly be inferred (Article 1498, supra), there is nothing in the said contract which may

be deemed a reservation of title, or from which it may clearly be inferred that delivery was not

intended.

The contention that there was no delivery is incorrect. While there was no physical tradition,

there was one by agreement (traditio longa manu) in conformity with Article 1499 of the Civil

Code.lawphil.net

Art. 1499 — The delivery of movable property may likewise be made by the mere

consent or agreement of the contracting parties, if the thing sold cannot be transferred to

the possession of the vendee at the time of the sale. . . .

As observed earlier, there is nothing in the terms of the public instrument in question from which

an intent to withhold delivery or transfer of title may be inferred.

The Board also contends that as no renewal of the bond required was filed for the extension of

the contract, it ceased to have any force and effect; and, as the steel mattings were recovered

during the extended period of the contract, Malabanan did not acquire any rights thereto. The

pertinent portion of the contract provides:

12. Jointly with the execution of this contract, the CONTRACTOR shall file a bond in

the amount of TEN THOUSAND (P10,000.00) PESOS to guarantee his faithful

compliance with the terms and conditions herein; Provided, that this contract shall not be

considered to have been executed notwithstanding the signing hereof by the parties until

said bond shall have been properly filed.

Malabanan filed a bond dated June 10, 1952, effective for one (1) year, or up to June 10, 1953.

The principal contract, executed on June 14, 1952, was first extended to November 30, 1953, and

finally, to August 31, 1954. As can be seen, there was no longer any bond from June 11, 1953 to

August 31, 1954.

The lapse of the bond did not extinguish the contract between Malabanan and the Board. The

requirement that a bond be posted was already complied with when Malabanan filed the bond

dated June 10, 1952. A bond merely stands as guaranty for a principal obligation which exist

independently of said bond, the latter being an accessory contract (Valencia vs. RFC & C.A., 103

Phil., 444). Significantly, its purpose, as per the terms of the contract, was "to guarantee his

(Malabanan's) faithful compliance with the terms and conditions herein" and, for violation of the

contract, the Board may declare "the bond forfeited" (par. 13). Being for its benefit, the Board

could legally waive the bond requirement (Valencia vs. RFC, et al., supra.), and it did so when,

the bond already having expired, it extended the contract not only once, but twice. In none of the

resolutions extending contract (Annexes "C" & "E", pp. 108-112, Record on Appeal) was there a

requirement that the bond be renewed, in the face of the first indorsement by the Executive

Officer recommending that Malabanan's request for a second extension be granted "provided the

bond be originally posted should continue."

There is no merit to the suggestion that there being a novation, Article 1299 of the Civil Code

should govern. Novation is never presumed, it being required that the intent to novate be

expressed clearly and unequivocally, or that the terms of the new agreement be incompatible

with the old contract (Article 1292, N.C.C.; Martinez vs. Cavives, 25 Phil. 581; Tiu Siuce vs.

Habaña, 45 Phil. 707; Pablo vs. Sapungan, 71 Phil. 145; Young vs. Villa, 93 Phil., 21; 49 Off.

Gaz., [5] 1818.) Here there was neither express novation nor incompatibility from which it could

be implied. Moreover, a mere extension of the term (period) for payment or performance is not

novation (Inchausti vs. Yulo, 34 Phil. 978; Zapanta vs. De Rotaeche, 21 Phil. 154; Pablo vs.

Sapungan, Supra); and, while the extension covered only some of the areas originally agreed

upon, this change did not alter the essence of the contract (cf. Ramos vs. Gibbon, 67 Phil., 371;

Bank of P.I. vs. Herridge, 47 Phil., 57).

It is next contended that the sale by Floro to Legaspi on August 4, 1954 (within 30 days prior to

petition for insolvency) was void as a fraudulent transfer under Section 70 of the Insolvency

Law. The court below held that the sale to Legaspi was valid and not violative of Section 70; but

there having been no proceedings to determine whether the sale was fraudulent, we think it was

premature for the court below to decide this point, especially because under section 36, No. 8. of

the Insolvency Act, all proceedings to set aside fraudulent transfers should be brought and

prosecuted by the assignee, who can legally represent all the creditors of the insolvent (Maceda,

et al., vs. Hernandez, et al., 70 Phil., 261). To allow a single creditor to bring such a proceeding

would invite a multiplicity of suits, since the resolution of his case would not bind the other

creditors, who may refile the same claim independently, with diverse proofs, and possibly give

rise to contradictory rulings by the courts.

The order appealed from is hereby affirmed in so far as it declares the disputed goods to be the

property of the insolvent; but without prejudice to the right of the assignee in insolvency to take

whatever action may be proper to attack the alleged fraudulent transfer of the steel matting to

Eulalio Legaspi, and to make the proper parties account for the difference between the number of

pieces of steel matting stated in the insolvent's recovery report, Annex "B" (13,107), and that

stated in his inventory (11,167). Costs against appellant.

Paras, C.J., Bengzon, Bautista Angelo, Labrador, Barrera, Gutierrez David, Paredes and Dizon,

JJ., concur.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 124242 January 21, 2005

SAN LORENZO DEVELOPMENT CORPORATION, petitioner,

vs.

COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA

ZAVALLA LU, respondents.

D E C I S I O N

TINGA, J.:

From a coaptation of the records of this case, it appears that respondents Miguel Lu and Pacita

Zavalla, (hereinafter, the Spouses Lu) owned two (2) parcels of land situated in Sta. Rosa,

Laguna covered by TCT No. T-39022 and TCT No. T-39023 both measuring 15,808 square

meters or a total of 3.1616 hectares.

On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to respondent Pablo

Babasanta, (hereinafter, Babasanta) for the price of fifteen pesos (P15.00) per square meter.

Babasanta made a downpayment of fifty thousand pesos (P50,000.00) as evidenced by a

memorandum receipt issued by Pacita Lu of the same date. Several other payments totaling two

hundred thousand pesos (P200,000.00) were made by Babasanta.

Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution of a final

deed of sale in his favor so that he could effect full payment of the purchase price. In the same

letter, Babasanta notified the spouses about having received information that the spouses sold the

same property to another without his knowledge and consent. He demanded that the second sale

be cancelled and that a final deed of sale be issued in his favor.

In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having agreed to

sell the property to him at fifteen pesos (P15.00) per square meter. She, however, reminded

Babasanta that when the balance of the purchase price became due, he requested for a reduction

of the price and when she refused, Babasanta backed out of the sale. Pacita added that she

returned the sum of fifty thousand pesos (P50,000.00) to Babasanta through Eugenio Oya.

On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court (RTC),

Branch 31, of San Pedro, Laguna, a Complaint for Specific Performance and Damages1 against

his co-respondents herein, the Spouses Lu. Babasanta alleged that the lands covered by TCT No.

T- 39022 and T-39023 had been sold to him by the spouses at fifteen pesos (P15.00) per square

meter. Despite his repeated demands for the execution of a final deed of sale in his favor,

respondents allegedly refused.

In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta and when

the total advances of Pacita reached fifty thousand pesos (P50,000.00), the latter and Babasanta,

without the knowledge and consent of Miguel Lu, had verbally agreed to transform the

transaction into a contract to sell the two parcels of land to Babasanta with the fifty thousand

pesos (P50,000.00) to be considered as the downpayment for the property and the balance to be

paid on or before 31 December 1987. Respondents Lu added that as of November 1987, total

payments made by Babasanta amounted to only two hundred thousand pesos (P200,000.00) and

the latter allegedly failed to pay the balance of two hundred sixty thousand pesos (P260,000.00)

despite repeated demands. Babasanta had purportedly asked Pacita for a reduction of the price

from fifteen pesos (P15.00) to twelve pesos (P12.00) per square meter and when the Spouses Lu

refused to grant Babasanta’s request, the latter rescinded the contract to sell and declared that the

original loan transaction just be carried out in that the spouses would be indebted to him in the

amount of two hundred thousand pesos (P200,000.00). Accordingly, on 6 July 1989, they

purchased Interbank Manager’s Check No. 05020269 in the amount of two hundred thousand

pesos (P200,000.00) in the name of Babasanta to show that she was able and willing to pay the

balance of her loan obligation.

Babasanta later filed an Amended Complaint dated 17 January 19903 wherein he prayed for the

issuance of a writ of preliminary injunction with temporary restraining order and the inclusion of

the Register of Deeds of Calamba, Laguna as party defendant. He contended that the issuance of

a preliminary injunction was necessary to restrain the transfer or conveyance by the Spouses Lu

of the subject property to other persons.

The Spouses Lu filed their Opposition4 to the amended complaint contending that it raised new

matters which seriously affect their substantive rights under the original complaint. However, the

trial court in its Order dated 17 January 19905 admitted the amended complaint.

On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) filed a

Motion for Intervention6 before the trial court. SLDC alleged that it had legal interest in the

subject matter under litigation because on 3 May 1989, the two parcels of land involved, namely

Lot 1764-A and 1764-B, had been sold to it in a Deed of Absolute Sale with Mortgage.7 It

alleged that it was a buyer in good faith and for value and therefore it had a better right over the

property in litigation.

In his Opposition to SLDC’s motion for intervention,8 respondent Babasanta demurred and

argued that the latter had no legal interest in the case because the two parcels of land involved

herein had already been conveyed to him by the Spouses Lu and hence, the vendors were without

legal capacity to transfer or dispose of the two parcels of land to the intervenor.

Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene. SLDC

filed its Complaint-in-Intervention on 19 April 1990.9 Respondent Babasanta’s motion for the

issuance of a preliminary injunction was likewise granted by the trial court in its Order dated 11

January 199110

conditioned upon his filing of a bond in the amount of fifty thousand pesos

(P50,000.00).

SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu

executed in its favor an Option to Buy the lots subject of the complaint. Accordingly, it paid an

option money in the amount of three hundred sixteen thousand one hundred sixty pesos

(P316,160.00) out of the total consideration for the purchase of the two lots of one million two

hundred sixty-four thousand six hundred forty pesos (P1,264,640.00). After the Spouses Lu

received a total amount of six hundred thirty-two thousand three hundred twenty pesos

(P632,320.00) they executed on 3 May 1989 a Deed of Absolute Sale with Mortgage in its favor.

SLDC added that the certificates of title over the property were delivered to it by the spouses

clean and free from any adverse claims and/or notice of lis pendens. SLDC further alleged that it

only learned of the filing of the complaint sometime in the early part of January 1990 which

prompted it to file the motion to intervene without delay. Claiming that it was a buyer in good

faith, SLDC argued that it had no obligation to look beyond the titles submitted to it by the

Spouses Lu particularly because Babasanta’s claims were not annotated on the certificates of title

at the time the lands were sold to it.

After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale of the

property to SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two hundred thousand

pesos (P200,000.00) with legal interest plus the further sum of fifty thousand pesos (P50,000.00)

as and for attorney’s fees. On the complaint-in-intervention, the trial court ordered the Register

of Deeds of Laguna, Calamba Branch to cancel the notice of lis pendens annotated on the

original of the TCT No. T-39022 (T-7218) and No. T-39023 (T-7219).

Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta and

SLDC did not register the respective sales in their favor, ownership of the property should

pertain to the buyer who first acquired possession of the property. The trial court equated the

execution of a public instrument in favor of SLDC as sufficient delivery of the property to the

latter. It concluded that symbolic possession could be considered to have been first transferred to

SLDC and consequently ownership of the property pertained to SLDC who purchased the

property in good faith.

Respondent Babasanta appealed the trial court’s decision to the Court of Appeals alleging in the

main that the trial court erred in concluding that SLDC is a purchaser in good faith and in

upholding the validity of the sale made by the Spouses Lu in favor of SLDC.

Respondent spouses likewise filed an appeal to the Court of Appeals. They contended that the

trial court erred in failing to consider that the contract to sell between them and Babasanta had

been novated when the latter abandoned the verbal contract of sale and declared that the original

loan transaction just be carried out. The Spouses Lu argued that since the properties involved

were conjugal, the trial court should have declared the verbal contract to sell between Pacita Lu

and Pablo Babasanta null and void ab initio for lack of knowledge and consent of Miguel Lu.

They further averred that the trial court erred in not dismissing the complaint filed by Babasanta;

in awarding damages in his favor and in refusing to grant the reliefs prayed for in their answer.

On 4 October 1995, the Court of Appeals rendered its Decision11

which set aside the judgment of

the trial court. It declared that the sale between Babasanta and the Spouses Lu was valid and

subsisting and ordered the spouses to execute the necessary deed of conveyance in favor of

Babasanta, and the latter to pay the balance of the purchase price in the amount of two hundred

sixty thousand pesos (P260,000.00). The appellate court ruled that the Absolute Deed of Sale

with Mortgage in favor of SLDC was null and void on the ground that SLDC was a purchaser in

bad faith. The Spouses Lu were further ordered to return all payments made by SLDC with legal

interest and to pay attorney’s fees to Babasanta.

SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate court.12

However, in a Manifestation dated 20 December 1995,13

the Spouses Lu informed the appellate

court that they are no longer contesting the decision dated 4 October 1995.

In its Resolution dated 11 March 1996,14

the appellate court considered as withdrawn the motion

for reconsideration filed by the Spouses Lu in view of their manifestation of 20 December 1995.

The appellate court denied SLDC’s motion for reconsideration on the ground that no new or

substantial arguments were raised therein which would warrant modification or reversal of the

court’s decision dated 4 October 1995.

Hence, this petition.

SLDC assigns the following errors allegedly committed by the appellate court:

THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A

BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU

OBTAINED FROM IT THE CASH ADVANCE OF P200,000.00, SAN LORENZO WAS PUT

ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED

FACT THAT THE ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT IN

POSSESSION OF THE DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT AND

TOOK POSSESSION OF THE PROPERTY AND NO ADVERSE CLAIM, LIEN,

ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON THE TITLES.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT

RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN

LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED

PROPERTY.

THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS FULL

CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED

AND SET ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING THE TITLE OF

SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD FAITH. 15

SLDC contended that the appellate court erred in concluding that it had prior notice of

Babasanta’s claim over the property merely on the basis of its having advanced the amount of

two hundred thousand pesos (P200,000.00) to Pacita Lu upon the latter’s representation that she

needed the money to pay her obligation to Babasanta. It argued that it had no reason to suspect

that Pacita was not telling the truth that the money would be used to pay her indebtedness to

Babasanta. At any rate, SLDC averred that the amount of two hundred thousand pesos

(P200,000.00) which it advanced to Pacita Lu would be deducted from the balance of the

purchase price still due from it and should not be construed as notice of the prior sale of the land

to Babasanta. It added that at no instance did Pacita Lu inform it that the lands had been

previously sold to Babasanta.

Moreover, SLDC stressed that after the execution of the sale in its favor it immediately took

possession of the property and asserted its rights as new owner as opposed to Babasanta who has

never exercised acts of ownership. Since the titles bore no adverse claim, encumbrance, or lien at

the time it was sold to it, SLDC argued that it had every reason to rely on the correctness of the

certificate of title and it was not obliged to go beyond the certificate to determine the condition

of the property. Invoking the presumption of good faith, it added that the burden rests on

Babasanta to prove that it was aware of the prior sale to him but the latter failed to do so. SLDC

pointed out that the notice of lis pendens was annotated only on 2 June 1989 long after the sale

of the property to it was consummated on 3 May 1989.1awphi1.nét

Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu

informed the Court that due to financial constraints they have no more interest to pursue their

rights in the instant case and submit themselves to the decision of the Court of Appeals.16

On the other hand, respondent Babasanta argued that SLDC could not have acquired ownership

of the property because it failed to comply with the requirement of registration of the sale in

good faith. He emphasized that at the time SLDC registered the sale in its favor on 30 June 1990,

there was already a notice of lis pendens annotated on the titles of the property made as early as

2 June 1989. Hence, petitioner’s registration of the sale did not confer upon it any right.

Babasanta further asserted that petitioner’s bad faith in the acquisition of the property is evident

from the fact that it failed to make necessary inquiry regarding the purpose of the issuance of the

two hundred thousand pesos (P200,000.00) manager’s check in his favor.

The core issue presented for resolution in the instant petition is who between SLDC and

Babasanta has a better right over the two parcels of land subject of the instant case in view of the

successive transactions executed by the Spouses Lu.

To prove the perfection of the contract of sale in his favor, Babasanta presented a document

signed by Pacita Lu acknowledging receipt of the sum of fifty thousand pesos (P50,000.00) as

partial payment for 3.6 hectares of farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa,

Laguna.17

While the receipt signed by Pacita did not mention the price for which the property

was being sold, this deficiency was supplied by Pacita Lu’s letter dated 29 May 198918

wherein

she admitted that she agreed to sell the 3.6 hectares of land to Babasanta for fifteen pesos

(P15.00) per square meter.

An analysis of the facts obtaining in this case, as well as the evidence presented by the parties,

irresistibly leads to the conclusion that the agreement between Babasanta and the Spouses Lu is a

contract to sell and not a contract of sale.

Contracts, in general, are perfected by mere consent,19

which is manifested by the meeting of the

offer and the acceptance upon the thing which are to constitute the contract. The offer must be

certain and the acceptance absolute.20

Moreover, contracts shall be obligatory in whatever form

they may have been entered into, provided all the essential requisites for their validity are

present.21

The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos

(P50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. Rosa,

Laguna. While there is no stipulation that the seller reserves the ownership of the property until

full payment of the price which is a distinguishing feature of a contract to sell, the subsequent

acts of the parties convince us that the Spouses Lu never intended to transfer ownership to

Babasanta except upon full payment of the purchase price.

Babasanta’s letter dated 22 May 1989 was quite telling. He stated therein that despite his

repeated requests for the execution of the final deed of sale in his favor so that he could effect

full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta himself

recognized that ownership of the property would not be transferred to him until such time as he

shall have effected full payment of the price. Moreover, had the sellers intended to transfer title,

they could have easily executed the document of sale in its required form simultaneously with

their acceptance of the partial payment, but they did not. Doubtlessly, the receipt signed by

Pacita Lu should legally be considered as a perfected contract to sell.

The distinction between a contract to sell and a contract of sale is quite germane. In a contract of

sale, title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell,

by agreement the ownership is reserved in the vendor and is not to pass until the full payment of

the price.22

In a contract of sale, the vendor has lost and cannot recover ownership until and

unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the

vendor until the full payment of the price, such payment being a positive suspensive condition

and failure of which is not a breach but an event that prevents the obligation of the vendor to

convey title from becoming effective.23

The perfected contract to sell imposed upon Babasanta the obligation to pay the balance of the

purchase price. There being an obligation to pay the price, Babasanta should have made the

proper tender of payment and consignation of the price in court as required by law. Mere sending

of a letter by the vendee expressing the intention to pay without the accompanying payment is

not considered a valid tender of payment.24

Consignation of the amounts due in court is essential

in order to extinguish Babasanta’s obligation to pay the balance of the purchase price. Glaringly

absent from the records is any indication that Babasanta even attempted to make the proper

consignation of the amounts due, thus, the obligation on the part of the sellers to convey title

never acquired obligatory force.

On the assumption that the transaction between the parties is a contract of sale and not a contract

to sell, Babasanta’s claim of ownership should nevertheless fail.

Sale, being a consensual contract, is perfected by mere consent25

and from that moment, the

parties may reciprocally demand performance.26

The essential elements of a contract of sale, to

wit: (1) consent or meeting of the minds, that is, to transfer ownership in exchange for the price;

(2) object certain which is the subject matter of the contract; (3) cause of the obligation which is

established.27

The perfection of a contract of sale should not, however, be confused with its consummation. In

relation to the acquisition and transfer of ownership, it should be noted that sale is not a mode,

but merely a title. A mode is the legal means by which dominion or ownership is created,

transferred or destroyed, but title is only the legal basis by which to affect dominion or

ownership.28

Under Article 712 of the Civil Code, "ownership and other real rights over property

are acquired and transmitted by law, by donation, by testate and intestate succession, and in

consequence of certain contracts, by tradition." Contracts only constitute titles or rights to the

transfer or acquisition of ownership, while delivery or tradition is the mode of accomplishing the

same.29

Therefore, sale by itself does not transfer or affect ownership; the most that sale does is

to create the obligation to transfer ownership. It is tradition or delivery, as a consequence of sale,

that actually transfers ownership.

Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee from

the moment it is delivered to him in any of the ways specified in Article 1497 to 1501.30

The

word "delivered" should not be taken restrictively to mean transfer of actual physical possession

of the property. The law recognizes two principal modes of delivery, to wit: (1) actual delivery;

and (2) legal or constructive delivery.

Actual delivery consists in placing the thing sold in the control and possession of the vendee.31

Legal or constructive delivery, on the other hand, may be had through any of the following ways:

the execution of a public instrument evidencing the sale;32

symbolical tradition such as the

delivery of the keys of the place where the movable sold is being kept;33

traditio longa manu or

by mere consent or agreement if the movable sold cannot yet be transferred to the possession of

the buyer at the time of the sale;34

traditio brevi manu if the buyer already had possession of the

object even before the sale;35

and traditio constitutum possessorium, where the seller remains in

possession of the property in a different capacity.36

Following the above disquisition, respondent Babasanta did not acquire ownership by the mere

execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the property.

For one, the agreement between Babasanta and the Spouses Lu, though valid, was not embodied

in a public instrument. Hence, no constructive delivery of the lands could have been effected. For

another, Babasanta had not taken possession of the property at any time after the perfection of

the sale in his favor or exercised acts of dominion over it despite his assertions that he was the

rightful owner of the lands. Simply stated, there was no delivery to Babasanta, whether actual or

constructive, which is essential to transfer ownership of the property. Thus, even on the

assumption that the perfected contract between the parties was a sale, ownership could not have

passed to Babasanta in the absence of delivery, since in a contract of sale ownership is

transferred to the vendee only upon the delivery of the thing sold.37

However, it must be stressed that the juridical relationship between the parties in a double sale is

primarily governed by Article 1544 which lays down the rules of preference between the two

purchasers of the same property. It provides:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be

transferred to the person who may have first taken possession thereof in good faith, if it should

be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in

good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was

first in the possession; and, in the absence thereof, to the person who presents the oldest title,

provided there is good faith.

The principle of primus tempore, potior jure (first in time, stronger in right) gains greater

significance in case of double sale of immovable property. When the thing sold twice is an

immovable, the one who acquires it and first records it in the Registry of Property, both made in

good faith, shall be deemed the owner.38

Verily, the act of registration must be coupled with

good faith— that is, the registrant must have no knowledge of the defect or lack of title of his

vendor or must not have been aware of facts which should have put him upon such inquiry and

investigation as might be necessary to acquaint him with the defects in the title of his vendor.39

Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired knowledge

of Babasanta’s claim. Babasanta, however, strongly argues that the registration of the sale by

SLDC was not sufficient to confer upon the latter any title to the property since the registration

was attended by bad faith. Specifically, he points out that at the time SLDC registered the sale on

30 June 1990, there was already a notice of lis pendens on the file with the Register of Deeds, the

same having been filed one year before on 2 June 1989.

Did the registration of the sale after the annotation of the notice of lis pendens obliterate the

effects of delivery and possession in good faith which admittedly had occurred prior to SLDC’s

knowledge of the transaction in favor of Babasanta?

We do not hold so.

It must be stressed that as early as 11 February 1989, the Spouses Lu executed the Option to Buy

in favor of SLDC upon receiving P316,160.00 as option money from SLDC. After SLDC had

paid more than one half of the agreed purchase price of P1,264,640.00, the Spouses Lu

subsequently executed on 3 May 1989 a Deed of Absolute Sale in favor or SLDC. At the time

both deeds were executed, SLDC had no knowledge of the prior transaction of the Spouses Lu

with Babasanta. Simply stated, from the time of execution of the first deed up to the moment of

transfer and delivery of possession of the lands to SLDC, it had acted in good faith and the

subsequent annotation of lis pendens has no effect at all on the consummated sale between

SLDC and the Spouses Lu.

A purchaser in good faith is one who buys property of another without notice that some other

person has a right to, or interest in, such property and pays a full and fair price for the same at the

time of such purchase, or before he has notice of the claim or interest of some other person in the

property.40

Following the foregoing definition, we rule that SLDC qualifies as a buyer in good

faith since there is no evidence extant in the records that it had knowledge of the prior

transaction in favor of Babasanta. At the time of the sale of the property to SLDC, the vendors

were still the registered owners of the property and were in fact in possession of the

lands.l^vvphi1.net Time and again, this Court has ruled that a person dealing with the owner of

registered land is not bound to go beyond the certificate of title as he is charged with notice of

burdens on the property which are noted on the face of the register or on the certificate of title.41

In assailing knowledge of the transaction between him and the Spouses Lu, Babasanta apparently

relies on the principle of constructive notice incorporated in Section 52 of the Property

Registration Decree (P.D. No. 1529) which reads, thus:

Sec. 52. Constructive notice upon registration. – Every conveyance, mortgage, lease, lien,

attachment, order, judgment, instrument or entry affecting registered land shall, if registered,

filed, or entered in the office of the Register of Deeds for the province or city where the land to

which it relates lies, be constructive notice to all persons from the time of such registering, filing,

or entering.

However, the constructive notice operates as such¾by the express wording of Section 52¾from

the time of the registration of the notice of lis pendens which in this case was effected only on 2

June 1989, at which time the sale in favor of SLDC had long been consummated insofar as the

obligation of the Spouses Lu to transfer ownership over the property to SLDC is concerned.

More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta the

annotation of the notice of lis pendens cannot help Babasanta’s position a bit and it is irrelevant

to the good or bad faith characterization of SLDC as a purchaser. A notice of lis pendens, as the

Court held in Nataño v. Esteban,42

serves as a warning to a prospective purchaser or

incumbrancer that the particular property is in litigation; and that he should keep his hands off

the same, unless he intends to gamble on the results of the litigation." Precisely, in this case

SLDC has intervened in the pending litigation to protect its rights. Obviously, SLDC’s faith in

the merit of its cause has been vindicated with the Court’s present decision which is the ultimate

denouement on the controversy.

The Court of Appeals has made capital43

of SLDC’s averment in its Complaint-in-Intervention44

that at the instance of Pacita Lu it issued a check for P200,000.00 payable to Babasanta and the

confirmatory testimony of Pacita Lu herself on cross-examination.45

However, there is nothing in

the said pleading and the testimony which explicitly relates the amount to the transaction

between the Spouses Lu and Babasanta for what they attest to is that the amount was supposed to

pay off the advances made by Babasanta to Pacita Lu. In any event, the incident took place after

the Spouses Lu had already executed the Deed of Absolute Sale with Mortgage in favor of SLDC

and therefore, as previously explained, it has no effect on the legal position of SLDC.

Assuming ex gratia argumenti that SLDC’s registration of the sale had been tainted by the prior

notice of lis pendens and assuming further for the same nonce that this is a case of double sale,

still Babasanta’s claim could not prevail over that of SLDC’s. In Abarquez v. Court of Appeals,46

this Court had the occasion to rule that if a vendee in a double sale registers the sale after he has

acquired knowledge of a previous sale, the registration constitutes a registration in bad faith and

does not confer upon him any right. If the registration is done in bad faith, it is as if there is no

registration at all, and the buyer who has taken possession first of the property in good faith shall

be preferred.

In Abarquez, the first sale to the spouses Israel was notarized and registered only after the second

vendee, Abarquez, registered their deed of sale with the Registry of Deeds, but the Israels were

first in possession. This Court awarded the property to the Israels because registration of the

property by Abarquez lacked the element of good faith. While the facts in the instant case

substantially differ from that in Abarquez, we would not hesitate to rule in favor of SLDC on the

basis of its prior possession of the property in good faith. Be it noted that delivery of the property

to SLDC was immediately effected after the execution of the deed in its favor, at which time

SLDC had no knowledge at all of the prior transaction by the Spouses Lu in favor of

Babasanta.1a\^/phi1.net

The law speaks not only of one criterion. The first criterion is priority of entry in the registry of

property; there being no priority of such entry, the second is priority of possession; and, in the

absence of the two priorities, the third priority is of the date of title, with good faith as the

common critical element. Since SLDC acquired possession of the property in good faith in

contrast to Babasanta, who neither registered nor possessed the property at any time, SLDC’s

right is definitely superior to that of Babasanta’s.

At any rate, the above discussion on the rules on double sale would be purely academic for as

earlier stated in this decision, the contract between Babasanta and the Spouses Lu is not a

contract of sale but merely a contract to sell. In Dichoso v. Roxas,47

we had the occasion to rule

that Article 1544 does not apply to a case where there was a sale to one party of the land itself

while the other contract was a mere promise to sell the land or at most an actual assignment of

the right to repurchase the same land. Accordingly, there was no double sale of the same land in

that case.

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals

appealed from is REVERSED and SET ASIDE and the decision of the Regional Trial Court,

Branch 31, of San Pedro, Laguna is REINSTATED. No costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-20091 July 30, 1965

PERPETUA ABUAN, ET AL., plaintiffs-appellants,

vs.

EUSTAQUIO S. GARCIA, ET AL., defendants-appellees.

Emilio R. Gombio for plaintiffs-appellants.

Ruperto G. Martin and Associates for defendants-appellees.

BENGZON, C.J.:

This is an action for legal redemption under Section 119 of the Public Land Law 1 which

provides that:

Every conveyance of land acquired under the free patient or homestead provisions, when

proper, shall be subject to re-purchase by the applicant, his widow, or legal heirs, for a

period of five years from the date of conveyance.

Acquired by Laureano Abuan the homestead passed after his death to his legal heirs, the

plaintiffs herein. Consequently, the Original Certificate of Title in his name was cancelled, and

in lieu thereof, Transfer Certificate of Title No. T-5486 was issued in their names.

On August 7, 1953, plaintiffs sold the parcel of land to defendants, the sale being evidenced by a

public instrument entitled "Deed of Absolute Sale"; and by virtue thereof, Transfer Certificate of

Title No. T-5906 was issued to defendants.

Later, plaintiffs filed an action to recover the land, alleging that the deed of absolute sale had

been executed through fraud, without consideration. However, the case was subsequently settled

amicably, when the parties entered into an "Agreement" dated February 28, 1955, under the

terms of which defendants paid P500.00 on that day as partial payment of the purchase price of

the land, and promised to pay the balance of P1,500.00 on or before April 30, 1955, with a grace

period of thirty days. The parties also stipulated in said Agreement that it "shall supersede all

previous agreements or contracts heretofore entered into and executed by and between plaintiff

and defendants, involving the same parcel of riceland ... .

Claiming that full payment had been effected only sometime in May, 1955, plaintiffs instituted

the present action on March 4, 1960.

Defendants moved to dismiss, on the ground that plaintiffs' right of action was already barred,

because the five-year redemption period had already expired.

Sustaining the motion, the Nueva Vizcaya court dismissed the complaint.

Plaintiffs appealed to the Court of Appeals, which certified the case to this Court because only a

legal issue remains to be determined.

The sole question is: When did the five-year period (within which plaintiffs may exercise their

right of repurchase) begin to run? Should it be August 7, 1953, when the Deed of Absolute Sale

was executed, or February 28, 1955, when the compromise "Agreement" was entered into; or

should it be in May, 1955, upon full payment of the purchase price? It is obvious that counted

from either of the first two dates more than five years had elapsed when this action for

redemption was brought (March 1960); whereas the action would be well within the period, if

computed from the date of full payment of the purchase price.

The lower court, in dismissing plaintiffs' complaint, fixed the starting date as February 28, 1955,

when the Agreement (Annex "B") was entered into. It is plaintiffs' contention, on the other hand,

that the prescriptive period should be counted from the full payment of the purchase price, that is,

from May, 1955, since it was on this date that the contract was consummated.

Plaintiffs' contention is untenable. The law speaks of "five years from date of conveyance."

Conveyance means transfer of ownership; it means the date when the title to the land is

transferred from one person to another. 2 The five-year period should, therefore, be reckoned

with from the date that defendants acquired ownership of the land. Now, when did defendants

legally acquire ownership over the land?

Art. 1477 of the New Civil Code provides that ownership of the thing sold shall be transferred to

the vendee upon the actual or constructive delivery thereof; and Art. 1496 points out that

ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in

any of the ways specified in articles 1497 to 1501. Under Art. 1498, When the sale is made

through a public instrument — as in this case — the execution thereof shall be equivalent to the

delivery of the thing which is the object of the contract, if from the deed the contrary does not

appear or cannot be clearly inferred. 3 This manner of delivery of the thing through the execution

of a public document is common to personal as well as real property. 4

It is clear, therefore, that defendants acquired ownership to the land in question upon the

execution of the deed of sale. The deed of sale was executed on August 7, 1953, which was

"superseded" by the Agreement of February 28, 1955, as to the terms and conditions of payment

of the purchase price. The latter agreement did not operate to revest the ownership of the land in

the plaintiffs. 5

It is apparent that five years had elapsed since the execution of the deed of sale at the time

plaintiffs filed this action for redemption. Our view finds support in a long line of decisions

holding, that the five-year period starts from the date of the execution of the instrument of

conveyance. 6

But assuming arguendo that Annex "A" is null and void, as plaintiffs aver, and did not serve to

effectuate delivery of the property, we can consider the date of the Agreement (Annex "B"), at

the latest, as the time within which ownership is vested in the defendants. True, Annex "B" is a

private instrument the execution of which could not be construed as constructive delivery under

Art. 1498 of the New Civil Code. But Art. 1496 explicitly provides that ownership of the thing

sold is acquired by the vendee from the moment it is delivered to him "in any other manner

signifying an agreement that the possession is transferred from the vendor to the vendee." The

intention to give possession (and ownership) is manifest in the agreement (Annex "B") entered

into by the parties, specially considering the following circumstances: (1) the payment of part of

the purchase price, there being no stipulation in the agreement that ownership will not vest in the

vendees until full payment of the price; and (2) the fact that the agreement was entered into in

consideration of plaintiffs' desistance, as in fact they did desist, in prosecuting their

reivindicatory action, thereby leaving the property in the hands of the then and now defendants

— as owners thereof, necessarily. This was delivery brevi manu permissible under Articles 1499

and 1501 of the New Civil Code.

The circumstance that full payment was made only, as plaintiffs allege, in May, 1955, does not

alter the fact that ownership of the land passed to defendants upon the execution of the

agreement with the intention of letting them hold it as owners. In the absence of an express

stipulation to the contrary, the payment of the price is not a condition precedent to the transfer of

ownership, which passes by delivery of the thing to the buyer. 7

IN VIEW OF THE FOREGOING, the order of the court a quo dismissing the complaint is

hereby affirmed, with costs against plaintiffs-appellants.

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 92989 July 8, 1991

PERFECTO DY, JR. petitioner, vs. COURT OF APPEALS, GELAC TRADING INC., and ANTONIO V. GONZALES, respondents.

Zosa & Quijano Law Offices for petitioner.

Expedito P. Bugarin for respondent GELAC Trading, Inc.

GUTIERREZ, JR., J.:p

This is a petition for review on certiorari seeking the reversal of the March 23, 1990 decision of the Court of Appeals which ruled that the petitioner's purchase of a farm tractor was not validly consummated and ordered a complaint for its recovery dismissed.

The facts as established by the records are as follows:

The petitioner, Perfecto Dy and Wilfredo Dy are brothers. Sometime in 1979, Wilfredo Dy purchased a truck and a farm tractor through financing extended by Libra Finance and Investment Corporation (Libra). Both truck and tractor were mortgaged to Libra as security for the loan.

The petitioner wanted to buy the tractor from his brother so on August 20, 1979, he wrote a letter to Libra requesting that he be allowed to purchase from Wilfredo Dy the said tractor and assume the mortgage debt of the latter.

In a letter dated August 27, 1979, Libra thru its manager, Cipriano Ares approved the petitioner's request.

Thus, on September 4, 1979, Wilfredo Dy executed a deed of absolute sale in favor of the petitioner over the tractor in question.

At this time, the subject tractor was in the possession of Libra Finance due to Wilfredo Dy's failure to pay the amortizations.

Despite the offer of full payment by the petitioner to Libra for the tractor, the immediate release could not be effected because Wilfredo Dy had obtained financing not only for said tractor but also for a truck and Libra insisted on full payment for both.

The petitioner was able to convince his sister, Carol Dy-Seno, to purchase the truck so that full payment could be made for both. On November 22, 1979, a PNB check was issued in the amount of P22,000.00 in favor of Libra, thus settling in full the indebtedness of Wilfredo Dy with the financing firm. Payment having been effected through an out-of-town check, Libra insisted that it be cleared first before Libra could release the chattels in question.

Meanwhile, Civil Case No. R-16646 entitled "Gelac Trading, Inc. v. Wilfredo Dy", a collection case to recover the sum of P12,269.80 was pending in another court in Cebu.

On the strength of an alias writ of execution issued on December 27, 1979, the provincial sheriff was able to seize and levy on the tractor which was in the premises of Libra in Carmen, Cebu. The tractor was subsequently sold at public auction where Gelac Trading was the lone bidder. Later, Gelac sold the tractor to one of its stockholders, Antonio Gonzales.

It was only when the check was cleared on January 17, 1980 that the petitioner learned about GELAC having already taken custody of the subject tractor. Consequently, the petitioner filed an action to recover the subject tractor against GELAC Trading with the Regional Trial Court of Cebu City.

On April 8, 1988, the RTC rendered judgment in favor of the petitioner. The dispositive portion of the decision reads as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, pronouncing that the plaintiff is the owner of the tractor, subject matter of this case, and directing the defendants Gelac Trading Corporation and Antonio Gonzales to return the same to the plaintiff herein; directing the defendants jointly and severally to pay to the plaintiff the amount of P1,541.00 as expenses for hiring a tractor; P50,000 for moral damages; P50,000 for exemplary damages; and to pay the cost. (Rollo, pp. 35-36)

On appeal, the Court of Appeals reversed the decision of the RTC and dismissed the complaint with costs against the petitioner. The Court of Appeals held that the tractor in question still belonged to Wilfredo Dy when it was seized and levied by the sheriff by virtue of the alias writ of execution issued in Civil Case No. R-16646.

The petitioner now comes to the Court raising the following questions:

A.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS MISAPPREHENDED THE FACTS AND ERRED IN NOT AFFIRMING THE TRIAL COURT'S FINDING THAT OWNERSHIP OF THE FARM TRACTOR HAD ALREADY PASSED TO HEREIN PETITIONER WHEN SAID TRACTOR WAS LEVIED ON BY THE SHERIFF PURSUANT TO AN ALIAS WRIT OF EXECUTION ISSUED IN ANOTHER CASE IN FAVOR OF RESPONDENT GELAC TRADING INC.

B.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS EMBARKED ON MERE CONJECTURE AND SURMISE IN HOLDING THAT THE SALE OF THE AFORESAID TRACTOR TO PETITIONER WAS DONE IN FRAUD OF WILFREDO DY'S CREDITORS, THERE BEING NO EVIDENCE OF SUCH FRAUD AS FOUND BY THE TRIAL COURT.

C.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS MISAPPREHENDED THE FACTS AND ERRED IN NOT SUSTAINING THE FINDING OF THE TRIAL COURT THAT THE SALE OF THE TRACTOR BY RESPONDENT GELAC TRADING TO ITS CO-RESPONDENT ANTONIO V. GONZALES ON AUGUST 2, 1980 AT WHICH TIME BOTH RESPONDENTS ALREADY KNEW OF THE FILING OF THE INSTANT CASE WAS VIOLATIVE OF THE HUMAN RELATIONS PROVISIONS OF THE CIVIL CODE AND RENDERED THEM LIABLE FOR THE MORAL AND EXEMPLARY DAMAGES SLAPPED AGAINST THEM BY THE TRIAL COURT. (Rollo, p. 13)

The respondents claim that at the time of the execution of the deed of sale, no constructive delivery was effected since the consummation of the sale depended upon the clearance and encashment of the check which was issued in payment of the subject tractor.

In the case of Servicewide Specialists Inc. v. Intermediate Appellate Court. (174 SCRA 80 [1989]), we stated that:

xxx xxx xxx

The rule is settled that the chattel mortgagor continues to be the owner of the property, and therefore, has the power to alienate the same; however, he is obliged under pain of penal liability, to secure the written consent of the mortgagee. (Francisco, Vicente, Jr., Revised Rules of Court in the

Philippines, (1972), Volume IV-B Part 1, p. 525). Thus, the instruments of mortgage are binding, while they subsist, not only upon the parties executing them but also upon those who later, by purchase or otherwise, acquire the properties referred to therein.

The absence of the written consent of the mortgagee to the sale of the mortgaged property in favor of a third person, therefore, affects not the validity of the sale but only the penal liability of the mortgagor under the Revised Penal Code and the binding effect of such sale on the mortgagee under the Deed of Chattel Mortgage.

xxx xxx xxx

The mortgagor who gave the property as security under a chattel mortgage did not part with the ownership over the same. He had the right to sell it although he was under the obligation to secure the written consent of the mortgagee or he lays himself open to criminal prosecution under the provision of Article 319 par. 2 of the Revised Penal Code. And even if no consent was obtained from the mortgagee, the validity of the sale would still not be affected.

Thus, we see no reason why Wilfredo Dy, as the chattel mortgagor can not sell the subject tractor. There is no dispute that the consent of Libra Finance was obtained in the instant case. In a letter dated August 27, 1979, Libra allowed the petitioner to purchase the tractor and assume the mortgage debt of his brother. The sale between the brothers was therefore valid and binding as between them and to the mortgagee, as well.

Article 1496 of the Civil Code states that the ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501 or in any other manner signing an agreement that the possession is transferred from the vendor to the vendee. We agree with the petitioner that Articles 1498 and 1499 are applicable in the case at bar.

Article 1498 states:

Art. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.

xxx xxx xxx

Article 1499 provides:

Article 1499. The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties, if the thing sold

cannot be transferred to the possession of the vendee at the time of the sale, or if the latter already had it in his possession for any other reason. (1463a)

In the instant case, actual delivery of the subject tractor could not be made. However, there was constructive delivery already upon the execution of the public instrument pursuant to Article 1498 and upon the consent or agreement of the parties when the thing sold cannot be immediately transferred to the possession of the vendee. (Art. 1499)

The respondent court avers that the vendor must first have control and possession of the thing before he could transfer ownership by constructive delivery. Here, it was Libra Finance which was in possession of the subject tractor due to Wilfredo's failure to pay the amortization as a preliminary step to foreclosure. As mortgagee, he has the right of foreclosure upon default by the mortgagor in the performance of the conditions mentioned in the contract of mortgage. The law implies that the mortgagee is entitled to possess the mortgaged property because possession is necessary in order to enable him to have the property sold.

While it is true that Wilfredo Dy was not in actual possession and control of the subject tractor, his right of ownership was not divested from him upon his default. Neither could it be said that Libra was the owner of the subject tractor because the mortgagee can not become the owner of or convert and appropriate to himself the property mortgaged. (Article 2088, Civil Code) Said property continues to belong to the mortgagor. The only remedy given to the mortgagee is to have said property sold at public auction and the proceeds of the sale applied to the payment of the obligation secured by the mortgagee. (See Martinez v. PNB, 93 Phil. 765, 767 [1953]) There is no showing that Libra Finance has already foreclosed the mortgage and that it was the new owner of the subject tractor. Undeniably, Libra gave its consent to the sale of the subject tractor to the petitioner. It was aware of the transfer of rights to the petitioner.

Where a third person purchases the mortgaged property, he automatically steps into the shoes of the original mortgagor. (See Industrial Finance Corp. v. Apostol, 177 SCRA 521 [1989]). His right of ownership shall be subject to the mortgage of the thing sold to him. In the case at bar, the petitioner was fully aware of the existing mortgage of the subject tractor to Libra. In fact, when he was obtaining Libra's consent to the sale, he volunteered to assume the remaining balance of the mortgage debt of Wilfredo Dy which Libra undeniably agreed to.

The payment of the check was actually intended to extinguish the mortgage obligation so that the tractor could be released to the petitioner. It was never intended nor could it be considered as payment of the purchase price because the relationship between Libra and the petitioner is not one of sale but still a mortgage. The clearing or encashment of the check which produced the effect of payment determined the full payment of the money obligation and the release of the chattel mortgage. It was not determinative of the consummation of the sale. The transaction between the brothers is

distinct and apart from the transaction between Libra and the petitioner. The contention, therefore, that the consummation of the sale depended upon the encashment of the check is untenable.

The sale of the subject tractor was consummated upon the execution of the public instrument on September 4, 1979. At this time constructive delivery was already effected. Hence, the subject tractor was no longer owned by Wilfredo Dy when it was levied upon by the sheriff in December, 1979. Well settled is the rule that only properties unquestionably owned by the judgment debtor and which are not exempt by law from execution should be levied upon or sought to be levied upon. For the power of the court in the execution of its judgment extends only over properties belonging to the judgment debtor. (Consolidated Bank and Trust Corp. v. Court of Appeals, G.R. No. 78771, January 23, 1991).

The respondents further claim that at that time the sheriff levied on the tractor and took legal custody thereof no one ever protested or filed a third party claim.

It is inconsequential whether a third party claim has been filed or not by the petitioner during the time the sheriff levied on the subject tractor. A person other than the judgment debtor who claims ownership or right over levied properties is not precluded, however, from taking other legal remedies to prosecute his claim. (Consolidated Bank and Trust Corp. v. Court of Appeals, supra) This is precisely what the petitioner did when he filed the action for replevin with the RTC.

Anent the second and third issues raised, the Court accords great respect and weight to the findings of fact of the trial court. There is no sufficient evidence to show that the sale of the tractor was in fraud of Wilfredo and creditors. While it is true that Wilfredo and Perfecto are brothers, this fact alone does not give rise to the presumption that the sale was fraudulent. Relationship is not a badge of fraud (Goquiolay v. Sycip, 9 SCRA 663 [1963]). Moreover, fraud can not be presumed; it must be established by clear convincing evidence.

We agree with the trial court's findings that the actuations of GELAC Trading were indeed violative of the provisions on human relations. As found by the trial court, GELAC knew very well of the transfer of the property to the petitioners on July 14, 1980 when it received summons based on the complaint for replevin filed with the RTC by the petitioner. Notwithstanding said summons, it continued to sell the subject tractor to one of its stockholders on August 2, 1980.

WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals promulgated on March 23, 1990 is SET ASIDE and the decision of the Regional Trial Court dated April 8, 1988 is REINSTATED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 66140 January 21, 1993

INDUSTRIAL TEXTILE MANUFACTURING COMPANY OF THE PHILIPPINES, INC., petitioner, vs. LPJ ENTERPRISES, INC., respondent.

Bengzon, Zarraga, Narciso, Cudala, Pecson, Azcuna & Bengzon Law Office for petitioner.

MELO, J.:

Before Us is a petition for review on certiorari seeking the reversal of the November 9, 1983 decision of the then Intermediate Appellate Court in CA-G.R. CV No. 68281, penned by the Honorable Justice Eduardo P. Caguioa, with Justices Gaviola and Quetulio-Losa concurring, which dismissed petitioner's complaint and absolved herein respondent from any liability to the former.

It appears on record that respondent LPJ Enterprises, Inc. had a contract to supply 300,000 bags of cement per year to Atlas Consolidated Mining and Development Corporation (Atlas for short), a member of the Soriano Group of Companies. The cement was delivered packed in kraft paper bags, then as now, in common use.

Sometime in October, 1970, Cesar Campos, a Vice-President of petitioner Industrial Textile Manufacturing Company of the Philippines (or Itemcop, for brevity), asked Lauro Panganiban, Jr., President of respondent corporation, if he would like to cooperate in an experiment to develop plastic cement bags. Panganiban acquiesced, principally because Itemcop is a sister corporation of Atlas, respondent's major client. A few weeks later, Panganiban accompanied Paulino Ugarte, another Vice-President of Itemcop, to the factory of respondent's supplier, Luzon Cement Corporation in Norzagaray, Bulacan, to test fifty (50) pieces of plastic cement bags. The experiment, however, was unsuccessful. Cement dust oozed out under pressure through the small holes of the woven plastic bags and the loading platform was filled with dust. The second batch of plastic bags subjected to trial was likewise a failure. Although the weaving of the plastic

bags was already tightened, cement dust still spilled through the gaps. Finally, with three hundred (300) "improved bags", the seepage was substantially reduced. Ugarte then asked Panganiban to send 180 bags of cement to Atlas via commercial shipping. Campos, Ugarte, and two other officials of petitioner company followed the 180 bags to the plant of Atlas in Sangi, Toledo, Cebu where they professed satisfaction at the performance of their own plastic bags. On December 29, 1970, Campos sent Panganiban a letter proclaiming dramatic results in the experiment. Consequently, Panganiban agreed to use the plastic cement bags. Four purchase orders (P.O.s) were thereafter issued, to wit:

DATE NUMBER OF BAGS UNIT COST AMOUNT

5 January 1971 53,800 P .83 P44,654.00 24 February 1971 11,000 .90 9,900.00 March 1971 41,000 .92 37,720.00 6 April 1971 10,000 .92 9,200.00 ———— TOTAL: P101,474.00

Petitioner delivered the above orders consecutively on January 12, February 17, March 19, and April 17, 1971 (p. 74, Rollo). Respondent, on the other hand, remitted the amounts of P1,640.00, P2,480.00. and P13,230.00 on March 31, April 31, and May 3, 1971 respectively, thereby leaving a balance of P84,123.80 (p. 58, Ibid.). No other payments were made, thus prompting A. Soriano y Cia of petitioner's Legal Department to send demand letters to respondent corporation. Reiterations thereof were later sent by petitioner's counsel. A collection suit was filed on April 11, 1973 when the demands remained unheeded.

At the trial on the merits, respondent admitted its liability for the 53,800 polypropylene lime bags covered by the first purchase order. (TSN, January 5, 1971, p. 131). With respect to the second, third, and fourth purchase orders, respondent, however, denied full responsibility therefor. Respondent said that it will pay, as it did pay for, only the 15,000 plastic bags it actually used in packing cement. As for the remaining 47,000 bags, the workers of Luzon Cement strongly objected to the use thereof due to the serious health hazards posed by the continued seepage of cement dust. Notwithstanding the measures adopted by respondent such as the use of masks, gloves. and conveyor system, the workers still refused to utilize the plastic bags. Respondent was, therefore, constrained to revert to the use of kraft paper bags in packing cement. Thereafter, petitioner was asked to take back the unused plastic bags. Considering however, that the bags were in the cement factory of respondent's supplier, petitioner maintained that it was respondent's obligation to return the bags to them. Apparently, this was not done and so petitioner demanded payment for the said bags.

On May 25, 1981, the trial court rendered its decision, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered sentencing the defendant to pay the sum of P84,123.80 with l2% interest per annum from May, 1971 plus 15% of the total obligation as attorney's fees, and the costs.

SO ORDERED. (p. 80, Ibid.)

Respondent corporation's appeal was upheld by the appellate court when it reversed the trial court's decision and dismissed the case with costs against petitioner. (p. 28, Ibid.). Hence, the present recourse.

The first issue to be resolved is the propriety of this petition as it calls for a re-examination of the factual findings of the appellate court.

As asserted by herein respondent, it is well-entrenched in Our jurisprudence that this Court is not a trier of facts (Valdez v. CA, 194 SCRA 360 [1991]). As a rule, it is also settled that the factual findings of the appellate court are final and conclusive (Bustamante v. CA, 193 SCRA 603 [1991]; Radiowealth Finance Company v. Palileo, 197 SCRA 245 [1991]). However, in a long line of cases, We have pronounced certain exceptions, as when the inference made is manifestly mistaken or when the judgment is based on misapprehension of facts or when the appellate court overlooked relevant facts not disputed by the parties and which if properly considered, would justify a different conclusion (Aquino v. CA, 204 SCRA 247 [1991]; Manlapaz v. CA, 147 SCRA 236 [1987]; Sacay v. Sandiganbayan, 142 SCRA 593, [1986]; Moran v. CA, 133 SCRA 88 [1984]).

A review of the record instantly reveals that the case at bar falls under the last exception. As earlier adverted to, respondent has repeatedly admitted its liability for the 53,800 plastic lime bags amounting to P44,654.00 yet the appellate court disregarded this fact and totally cleared respondent from all responsibility. On this point alone, the decision of the appellate court may be overturned, or at least modified.

Let Us now turn to the crux of the controversy, which is whether or not respondent may be held liable for the 47,000 plastic bags which were not actually used for packing cement as originally intended.

It is beyond dispute that prior to respondent's transaction with petitioner, the bags were already tested and the results thereof, albeit initially unsuccessful, were nevertheless favorably considered after due alterations were made. Verily, it is on the basis of such experimental findings that respondent agreed to use the plastic cement bags and thereafter issued the purchase orders heretofore mentioned. Significantly, the quantity of bags ordered by respondent also negates its position that the bags were still under experimentation. Indeed, if it were so, the bags ordered should have been considerably lesser in number and would normally increase as the suitability of the plastic bags became more definite. Likewise, it is worthy to note that as of the date of petitioner's third delivery on March 19, 1971, respondent has received a total of 52,000 bags. By then, it was very probable that the problems alluded to by respondent could no longer

be resolved, thus, only 15,000 bags were actually used and 37,000 bags were already considered unfit for packing cement. Under such predicament, it was but logical for respondent to cancel then the fourth purchase order for another 10,000 bags. Surprisingly, respondent still accepted the same upon delivery on April 17, 1971 and remitted its payments until May 3, 1971. When petitioner sent letters demanding the full payment of the bags, respondent simply declared that it did not receive any because it transferred its offices to another place. In the meantime, the bags remained in the custody of Luzon Cement, respondent's supplier and virtually a stranger as far as petitioner is concerned. It is for this reason that petitioner may not be expected to just pull out its bags from Luzon Cement.

Not to be overlooked also is the fact that Panganiban, respondent corporation's president, also collected due commissions for the four purchase orders issued in favor of petitioner. (p. 79, Rollo).

Finally, the conditions which allegedly govern the transaction according to respondent may not be considered. The trial court correctly observed that such conditions should have been distinctly specified in the purchase orders and respondent's failure to do so is fatal to its cause. We find that Article 1502 of the Civil Code, invoked by both parties herein, has no application at all to this case. The provision in the Uniform Sales Act and the Uniform Commercial Code from which Article 1502 was taken, clearly requires an express written agreement to make a sales contract either a "sale or return" or a "sale on approval". Parol or extrinsic testimony could not be admitted for the purpose of showing that an invoice or bill of sale that was complete in every aspect and purporting to embody a sale without condition or restriction constituted a contract of sale or return. If the purchaser desired to incorporate a stipulation securing to him the right of return, he should have done so at the time the contract was made. On the other hand, the buyer cannot accept part and reject the rest of the goods since this falls outside the normal intent of the parties in the "on approval" situation. (67 Am Jur 2d, pp. 733, 748).

In the light of these principles, We hold that the transaction between respondent and petitioner constituted an absolute sale. Accordingly, respondent is liable for the plastic bags delivered to it by petitioner.

WHEREFORE, premises considered, the decision appealed from is hereby SET ASIDE and the decision of the trial court REINSTATED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-34697 March 26, 1932

JESUS TERAN, plaintiff-appellee,

vs.

FRANCISCA VILLANUEVA, VIUDA DE RIOSA, ET AL., defendants-appellants.

Domingo Imperial for appellants.

Bonto & Gutierrez Lora for appellee.

VILLAMOR, J.:

On October 6, 1928, the parties in this case executed the deed of sale Exhibit A, whereby the

defendants sold to the plaintiff for P4,000 the parcel of land therein described as containing an

area of 34 hectares, 52 ares, and 43 centares.

The plaintiff brought this action for rescission of the contract, with damages, upon discovering

that the parcel of land contained only about then hectares.

The trial court found no evidence of bad faith on the part of the defendants, and we agree with

this finding. This land, with the same area stated in the contract, was inherited by the defendants

from their late father, Mariano Villanueva; and the same area appears in the tax declaration given

to the plaintiff by an agent of the defendants, named Rafael Villanueva. The latter, accompanied

by the plaintiff, inspected the land. Villanueva pointed out some of the boundaries, as they did

not go over all of them. Without further investigating the area of the land, the plaintiff agreed to

purchase it for the sum of four thousand pesos, paying the amount and taking possession thereof.

The plaintiff alleges that after the 1928 harvest he discovered that the boundaries pointed out to

him by Rafael Villanueva were not the real ones, and, in order to ascertain the exact area of the

land, he went to the cadastral office in Malinao and got a sketch of the property (Exh. B), which

shows that the land in question contains only ten hectares, and not thirty-four, as appears in the

deed of sale.

In view of these facts, the plaintiff now seeks to rescind the contract on the ground that the

property contains a smaller area than that stated in the deed of sale. Evidently this is a sale of real

estate with area and boundaries given, for a lump sum and not so much per unit of measure,

provided for in article 1471 of the Civil Code.

The plaintiff's allegation that Rafael Villanueva did not point out to him the real boundaries, is

but a half-truth; for, as has been stated, when the property was inspected, Villanueva did not go

over all the boundaries of the land, as testified to by Leopoldo Teran. It is true that the owners of

the adjoining lands mentioned in Exhibit B are different from those mentioned in Exhibit A; but

there is nothing in the record to show that the property described in the deed Exhibit A was not

delivered to the plaintiff. The names of the adjoining landowners may of then change, for

obvious reasons; but the plaintiff's evidence does not establish that outside the boundaries

mentioned in the deed Exhibit A there are portions of the property not yet delivered to him, or

that all the land included within those boundaries have not been delivered to the vendee.

According to Manresa and Scaevola, illustration commentators of the Civil Code, whenever a

certain real estate is sold for a lump sum (case 1, article 1471) the rule in law is that there shall

be no increase or decreased in price even if the area or extent is found to be more or less than

that stated in the contract; but, if the vendor cannot deliver to the vendee all that is included

within the boundaries stated in the contract the latter has the option either to reduce the price in

proportion to the deficiency, or to set aside the contract. (See Comm. Civ. Code. Manresa, ed. of

1905, vol. 10, pp. 146-148; Scaevola, vol. 23, pp. 500-503.) In this case the Civil Code presumes

that the purchaser had in mind a determined piece of land, and that he ascertained its area and

quality before the contract was perfected. If he did not do so, or it, having done so, he made no

objection and consented to the transaction, he can blame no one but himself; and, because, as

Professor Antonio Gomez says, it is presumed that he intended to buy a determined object, any

proof of misrepresentation will not avail him, neither will it vitiate the transaction. (Scaevola,

supra.)

Manresa expresses himself in similar terms, saying that, "if the sale was made for a lump sum,

the cause of the contract is the thing sold, irrespective of area or quantity, the real estate as

defined by the stipulated boundaries, known in law as the cuerpo cierto. . . . If all that is included

within the stipulated boundaries is not delivered, then the object of the contract, its cause so far

as the vendee is concerned, is not delivered: hence, he is entitled to rescind it. He may however

think (and of this there can be no judge but himself), that although he did not receive the land

within the stipulated boundaries, he would like to have it: hence, his right to enforce the contract

with the corresponding decrease in price as provided in article 1471."

Furthermore, in Azarraga vs. Gay (52 Phil., 599), it was held:

When the purchaser proceeds to make investigations by himself, and the vendor does

nothing to prevent such investigation from being as complete as the former might made

false representations to him.

One who contracts for the purchase of real estate is reliance on the representations and

statements of the vendor as to its character and value, but after he has visited and

examined it for himself, and has had the means and opportunity of verifying such

statements, cannot avoid the contract on the ground that they were false or exaggerate.

In Songco vs. Sellner (37 Phil., 254), the court said:

The law allows considerable latitude to seller's statements, or dealer's talk; and

experience teaches that it is exceedingly risky to accept it at its face value. . . .

Assertions concerning the property which is the subject of a contract of sale, or in regard

to its qualities and characteristics, are the usual and ordinary means used by sellers to

obtain a high price and are always understood as affording to buyers no ground for

omitting to make inquiries. A man who relies upon such an affirmation made by a person

whose interest might so readily prompted him to exaggerate the value of his property

does so at his peril, and must take the consequences of his own imprudence.

The plaintiff had ample opportunity to investigate the conditions of the land he was purchasing,

without the defendant's doing anything to prevent him from making as many inquiries as he

deemed expedient, for which reason he cannot now allege that the vendors made false

representations. (National Cash Register Co. vs. Townsend, 137 N. C., 515.) The same doctrine

is upheld by the courts of the United States, in the following case among others:

"Misrepresentation by a vendor of real property with reference to its area are not actionable,

where a correct description of the property was given in the deed and recorded chain of title,

which the purchaser's agent undertook to investigate and report upon, and the vendor made no

effort to prevent a full investigation." (Shappirio vs. Goldberg, 48 Law. ed., 419.)

The Spanish cases decided the matter in the same way.

Doña Dolores Amoros Soler brought suit against Francisco Gisbert Richart to recover two

parcels of land which, she alleged, were lacking from the property her brother Francisco sold her.

The civil branch of the Valencia Audencia decided against the plaintiff, who appealed to the

Supreme Court. In dismissing the appeal, the Supreme Court held that, "since the vendee has all

the land included within the boundaries mentioned in the titles shown to the bidders at the

auction sale, the trial court must be held to have rightly applied article 1471 of the Civil Code in

its decision, if the stipulated price was fixed in relation to the area of the land or cuerpo cierto

which had to be, or was delivered to the vendee." (Decision of the Supreme Court of April 20th,

published June 2, 1913.)

Francisco Fernandez Parra filed a complaint against Pedro Joaquin del Portillo to recover some

parcels of land which formed part of those which he had sold to the latter. The civil branch of the

Albacete Audience decided against the plaintiff, and on appeal this judgment was affirmed by

the Supreme Court, which held that, "as the court found that the parcels of land which the

plaintiff sought to recover were within the boundaries of the property sold as a cuerpo cierto, and

that the sale was made for a lump sum, and not at a certain price for each unit of measure, it did

not violate article 1471 of the Civil Code in absolving the vendee from the complaint." (Decision

of the Supreme Court of July 2, 1914, published January 4, 1915.)

Martinez Ruiz (El Codigo Civil, 2d ed., vol. XV, pp. 298- 299) proposes the following question:

If real estate is sold for a lump sum and not at so much per unit of measure, may the vendee

allege error in giving consent, based upon its inferior quality or deficiency in area?

The Supreme Court decided this question negatively in its decision dated May 9, 1914.

By deed of August 21, 1901, Mariano de Cieza sold a piece of property 204 fanegas in area for

35,000 pesetas to Bernardino Rodriguez. Several years later Rodriguez brought suit against the

Cieza heirs to annul the contract on the ground of misrepresentation in the deed of sale, with

reference to the area, which was less than that stated, and not of the first-class quality, so that the

price fixed was exorbitant and unjust — according to the data obtained, it should have been less

than one-third of that shown in the contract. An answer was filed and the Audience of Valladolid

absolved the defendants, whereupon Rodriguez appealed, invoking articles 1265 and 1266 of the

Civil Code which, he contended, under the first assignment of error, had been violated, in that

the trial court had not held the contract of sale void due to error in the subject matter and

principal conditions of the transaction; for the vendee had believed, upon the strength of

statements made by the vendor and other persons connected with the sale, and of the deed of

sale, that he was getting a piece of land of good quality from which, by employing capital and

labor, he would reap a legitimate return, which however, he failed to realize. The Supreme Court

dismissed the appeal, "inasmuch as the error which invalidates contractual consent must, in order

to effect nullity, necessarily relate to the very substance or the essential qualities of the thing

agreed upon, according to a correct understanding of articles 1265 and 1266 of the Civil Code;

and this being granted, the first and second grounds are untenable, inasmuch as when the court a

quo held, from the evidence adduced, that there was no such error, against the contention of the

appellant, who had the burden of proof to show the contrary, it acted correctly because the

property appears to have been sold for a lump sum, thereby excluding every argument about

quality and area."

In Irureta Goyena vs. Tambunting (1 Phil., 490), the matter dealt with was the sale of a piece of

land and the building thereon, situated at No. 20 San Jose Street, Ermita, Manila. This land

contained 152.46 square meters. The vendee signed a private document stating that he had

purchased of Francisco Irureta Goyena a lot at No. 20 San Jose Street, Ermita, for the sum of

three thousand pesos, payable as soon as the deed of sale was signed. The proper notarial

document was drawn up, setting the price of the realty at P3,200. The vendee requested a

reduction because the land did not have the area that the plaintiff had, through a broker, told him

it contained. The vendor would not reduce the price, and hence the litigation between the parties,

decided by the trial court in favor of the plaintiff. Upon appeal, the Supreme court, applying

article 1471 of the Civil Code, affirmed the judgement appealed from on the ground that the sale

was made for a lump sum and not at so much per unit of measure.

In Azarraga vs. Gay (52 Phil., 599), Leodegario Azarraga sold two parcels of land to Maria Gay

for the lump sum of P47,000 to be paid as provided aid the contract. The contract recites that the

parties agreed upon the sale of two parcels of land, the first containing 102 hectares, 67 ares, and

32 centares, and the second, 98 hectares, more or less, for the lump sum of P47,000 payable,

partly in cash and partly in installments. Said two parcels are defined by means of the boundaries

given in the contract. The defendant refused to pay the full stipulated price, alleging that the

second parcel with an area of 98 hectares according to the deed of sale, had only 70 hectares, and

therefore asked for a reduction of the price. The plaintiff refused to grant the request, and

brought suit against the vendee to recover the whole price agreed upon. The court rendered

judgment in favor of the plaintiff. On appeal, the Supreme Court, applying article 1471 of the

Civil Code, affirmed the judgment appealed from, on the ground that the rule given in the second

paragraph of article 1471 was not applicable to the case, because all the land contained within

the given boundaries of the two parcels sold had been delivered to the vendee; the land contained

within the boundaries of the property sold had not been broken up and the cuerpo cierto which is

the object of the contract had all been delivered by the vendor, as he had undertaken to do.

Wherefore, the vendor cannot claim anything should the area turn out to be greater than that

stated in the deed; neither can the vendee, should the area of the second parcel prove to be much

smaller.

In the case of Asiain vs. Jalandoni (45 Phil., 296), when the parties agreed upon the sale of the

land there in question, they had in mind chiefly the area and quality of the land, the subject of the

contract, as will be seen from the letter of Asiain dated May 6, 1920, in which, among other

things, he said:

"DEAR BENJAMIN: I am in receipt of your letter and with regard to your statement that

that parcel does not contain 21 hectares I do not believe. I bet anything that that part only

which is planted with cane contains more than 20 hectares, I bet 2 against 1.

"If you agree, I would bet that you pay only one half, I am not a surveyor, but these days

I had the pleasure to survey the land and I know more or less its area.

"Here we are not to deceive each other. If you like that parcel and if you want to buy it I

will give you good propositions. I don't know where and how they learned that I was

selling the hacienda and they made me a good offer, but as we do not want to part but

with that parcel, hence my propositions are the following, in view of the time that has

elapsed and the progress of the cane.

"I assure (aseguro) that there are 2,000 piculs and sell on that basis, provided that the

case is milled in due time. In case the sugar does not amount to 2,000 piculs, I will pay in

sugar all such amount as will be necessary to complete the 2,000 but if after milling the

cane, as I say, there is an excess over 2,000 piculs, all the excess shall be mine. So that if

you like, I make the sale for the same price that we talked about and the same conditions,

not a dime more or less."

And also from the written memorandum signed by both contracting parties, containing among

other things the following:

"Purchase of land of Mr. Luis Asiain and his wife Maria Cadenas, by B. Jalandoni,

containing 25 hectares more or less of land bounded by property of the purchaser, with its

corresponding crop, estimated at 2,000 piculs, the total value of which is 55 thousand.

The price is to be paid by paying 30 thousand at the signing of the document, and 25

thousand within one year with interest at the rate of 10 per cent."

In accordance with the foregoing memorandum the deed of sale was executed in the City of

Iloilo, the parties stipulating among other things, the following:

"(1) That Luis Asiain does hereby promise and bind himself to sell to Benjamin Jalandoni

a parcel of land of the hacienda "Maria" of the aforesaid Luis Asiain, situated in the

municipality of La Carlota, Province of Occidental Negros, P.I.

"(2) That Benjamin Jalandoni does hereby promise and bind himself to purchase the

aforesaid parcel of land in the sum of P55,000 upon certain conditions specified in a

memorandum signed by the parties which is in the hands of Attorneys Padilla & Treñas."

Jalandoni then took possession of the land, milled the cane at La Carlota Central, from which he

realized 800 piculs and 23 cates of the centrifugal sugar. And after he had secured from Asiain

the certificate of title, he had a surveyor measure the land, which was found to contain only 18

hectares, 54 ares, and 22 centares. Jalandoni had paid P30,000 leaving an unpaid balance of

P25,000 of the purchase price of P55,000 stipulated in the contract. Asiain sued to recover the

balance from Jalandoni. The competent court declared the deed of sale void, absolved the

defendant from paying P25,000 and ordered the parties to return what they had received under

the contract.

Upon appeal to the Supreme Court, the judgment was affirmed on the ground that both parties

had acted by a mutual mistake.

Comparing the facts in that case of Asiain with those before us now, we note a fundamental

difference: In that case the vendor undertook to deliver to the vendee a parcel of land some 25

hectares in area and of such a quality as to be able to produce 2,000 piculs of centrifugal sugar.

The vendee, in turn, agreed to buy said parcel of land with the understanding that it contained

that area and was of the quality guaranteed by the vendor. Inasmuch as the land had neither the

area nor the quality the vendor had assured the vendee it had, it is clear the latter was entitled to

rescind the contract, upon the strength of the authorities cited in the opinion of the court. We

believe that Jalandoni was entitled to rescind that contract, inasmuch as the vendor did not

deliver a parcel of land of the area and quality stipulated in the contract.

In the present case the parties did not consider the area as an essential element of the contract.

There is no evidence of the negotiation leading up to the sale of the land, except that the parties

executed the deed Exhibit A. There is no evidence of record that the parties fixed the price at so

much per hectare. If the plaintiff wanted to but the land at so much per unit of measure, he

should have so stated in the contract. The plaintiff testified that one of the defendants, Francisca

Villanueva, signified her willingness to set aside the contract in case there was a considerable

difference in area. But in her letter Exhibit E-1, this defendant stated that she had to wait for the

decision of her sister or the latter's husband before acting upon the plaintiff's claim. We believe

that he most that can be inferred from such a statement is that she was disposed to settle the case

with a view to avoiding litigation; but this does not mean that the parties agreed to fix the price

of the land at so much per unit of measure.

For the foregoing considerations, the judgment appealed from is reversed, and it is held that the

contract Exhibit A between the parties is valid and binding upon them. Wherefore, the

defendants are absolved from the complaint without special pronouncement of costs. So ordered.

Avanceña, C.J., Johnson, Street, Malcolm, Ostrand, Romualdez and Villa-Real, JJ., concur.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 132161 January 17, 2005

CONSOLIDATED RURAL BANK (CAGAYAN VALLEY), INC., petitioner,

vs.

THE HONORABLE COURT OF APPEALS and HEIRS OF TEODORO DELA CRUZ, respondents.

D E C I S I O N

TINGA, J.:

Petitioner Consolidated Rural Bank, Inc. of Cagayan Valley filed the instant Petition for

Certiorari1 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 judgment3 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.

In a Deed of Sale15

dated 15 June 1976, the Madrid brothers conveyed all their rights and

interests over Lot No. 7036-A-7 to Pacifico Marquez (hereafter, Marquez), which the former

confirmed16

on 28 February 1983.17

The deed of sale was registered with the Office of the

Register of Deeds of Isabela on 2 March 1982.18

Subsequently, Marquez subdivided Lot No. 7036-A-7 into eight (8) lots, namely: Lot Nos. 7036-

A-7-A to 7036-A-7-H, for which TCT Nos. T-149375 to T-149382 were issued to him on 29

March 1984.19

On the same date, Marquez and his spouse, Mercedita Mariana, mortgaged Lots

Nos. 7036-A-7-A to 7036-A-7-D to the Consolidated Rural Bank, Inc. of Cagayan Valley

(hereafter, CRB) to secure a loan of One Hundred Thousand Pesos (P100,000.00).20

These deeds

of real estate mortgage were registered with the Office of the Register of Deeds on 2 April 1984.

On 6 February 1985, Marquez mortgaged Lot No. 7036-A-7-E likewise to the Rural Bank of

Cauayan (RBC) to secure a loan of Ten Thousand Pesos (P10,000.00).21

As Marquez defaulted in the payment of his loan, CRB caused the foreclosure of the mortgages

in its favor and the lots were sold to it as the highest bidder on 25 April 1986.22

On 31 October 1985, Marquez sold Lot No. 7036-A-7-G to Romeo Calixto (Calixto).23

Claiming to be null and void the issuance of TCT Nos. T-149375 to T-149382; the foreclosure

sale of Lot Nos. 7036-A-7-A to 7036-A-7-D; the mortgage to RBC; and the sale to Calixto, the

Heirs-now respondents herein-represented by Edronel dela Cruz, filed a case24

for reconveyance

and damages the southern portion of Lot No. 7036-A (hereafter, the subject property) against

Marquez, Calixto, RBC and CRB in December 1986.

Evangeline del Rosario, the successor-in-interest of Restituto Hernandez, filed with leave of

court a Complaint in Intervention25

wherein she claimed the northern portion of Lot No. 7036-A-

7.

In the Answer to the Amended Complaint,26

Marquez, as defendant, alleged that apart from being

the first registrant, he was a buyer in good faith and for value. He also argued that the sale

executed by Rizal Madrid to Gamiao and Dayag was not binding upon him, it being

unregistered. For his part, Calixto manifested that he had no interest in the subject property as he

ceased to be the owner thereof, the same having been reacquired by defendant Marquez.27

CRB, as defendant, and co-defendant RBC insisted that they were mortgagees in good faith and

that they had the right to rely on the titles of Marquez which were free from any lien or

encumbrance.28

After trial, the Regional Trial Court, Branch 19 of Cauayan, Isabela (hereafter, RTC) handed

down a decision in favor of the defendants, disposing as follows:

WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered:

1. Dismissing the amended complaint and the complaint in intervention;

2. Declaring Pacifico V. Marquez the lawful owner of Lots 7036-A-7 now Lots 7036-A-

7-A to 7036-A-7-H, inclusive, covered by TCT Nos. T-149375 to T-149382, inclusive;

3. Declaring the mortgage of Lots 7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-

D in favor of the defendant Consolidated Rural Bank (Cagayan Valley) and of Lot 7036-

A-7-E in favor of defendant Rural Bank of Cauayan by Pacifico V. Marquez valid;

4. Dismissing the counterclaim of Pacifico V. Marquez; and

5. Declaring the Heirs of Teodoro dela Cruz the lawful owners of the lots covered by

TCT Nos. T-33119, T-33220 and T-7583.

No pronouncement as to costs.

SO ORDERED.29

In support of its decision, the RTC made the following findings:

With respect to issues numbers 1-3, the Court therefore holds that the sale of Lot 7036-A-7 made

by Rizal Madrid to Aleja Gamiao and Felisa Dayag and the subsequent conveyances to the

plaintiffs and intervenors are all valid and the Madrid brothers are bound by said contracts by

virtue of the confirmation made by them on August 14, 1957 (Exh. B).

Are the defendants Pacifico V. Marquez and Romeo B. Calixto buyers in good faith and for

value of Lot 7036-A-7?

It must be borne in mind that good faith is always presumed and he who imputes bad faith has

the burden of proving the same (Art. 527, Civil Code). The Court has carefully scrutinized the

evidence presented but finds nothing to show that Marquez was aware of the plaintiffs’ and

intervenors’ claim of ownership over this lot. TCT No. T-8121 covering said property, before the

issuance of Marquez’ title, reveals nothing about the plaintiffs’ and intervenors’ right thereto for

it is an admitted fact that the conveyances in their favor are not registered.

The Court is therefore confronted with two sales over the same property. Article 1544 of the

Civil Code provides:

"ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be

transferred to the person who may have first taken possession thereof in good faith, if it should

be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in

good faith first recorded it in the Registry of Property. x x x " (Underscoring supplied).

From the foregoing provisions and in the absence of proof that Marquez has actual or

constructive knowledge of plaintiffs’ and intervenors’ claim, the Court has to rule that as the

vendee who first registered his sale, Marquez’ ownership over Lot 7036-A-7 must be upheld.30

The Heirs interposed an appeal with the Court of Appeals. In their 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 Decision34

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 T-149382, inclusive;

2. Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V.

Marquez and the Madrid brothers covering said Lot 7036-A-7;

3. Declaring null and void the mortgage made by defendant Pacifico V. Marquez of Lot

Nos. 7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-D in favor of the defendant

Consolidated Rural Bank and of Lot 7036-A-7-E in favor of defendant Rural Bank of

Cauayan; and

4. Ordering Pacifico V. Marquez to reconvey Lot 7036-A-7 to the heirs of Teodoro dela

Cruz and Evangeline Hernandez-del Rosario.

No pronouncement as to costs.

SO ORDERED.35

In upholding the claim of the Heirs, the Court of Appeals held that Marquez failed to prove that

he was a purchaser in good faith and for value. It noted that while Marquez was the first

registrant, there was no showing that the registration of the deed of sale in his favor was coupled

with good faith. Marquez admitted having knowledge that the subject property was "being taken"

by the Heirs at the time of the sale.36

The Heirs were also in possession of the land at the time.

According to the Decision, these circumstances along with the subject 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 Reconsideration39

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 Resolution40

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.

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.

Citing Manresa, the Court of Appeals in 1936 had occasion to explain the proper application of

Article 1473 of the Old Civil Code (now Article 1544 of the New Civil Code) in the case of

Carpio v. Exevea,46

thus:

In order that tradition may be considered performed, it is necessary that the requisites which it

implies must have been fulfilled, and one of the indispensable requisites, according to the most

exact Roman concept, is that the conveyor had the right and the will to convey the thing. The

intention to transfer is not sufficient; it only constitutes the will. It is, furthermore, necessary that

the conveyor could juridically perform that act; that he had the right to do so, since a right which

he did not possess could not be vested by him in the transferee.

This is what Article 1473 has failed to express: the necessity for the preexistence of the right on

the part of the conveyor. But even if the article does not express it, it would be understood, in our

opinion, that that circumstance constitutes one of the assumptions upon which the article is

based.

This construction is not repugnant to the text of Article 1473, and not only is it not contrary to it,

but it explains and justifies the same. (Vol. 10, 4th ed., p. 159)47

In that case, the property was transferred to the first purchaser in 1908 by its original owner, Juan

Millante. Thereafter, it was sold to plaintiff Carpio in June 1929. Both conveyances were

unregistered. On the same date that the property was sold to the plaintiff, Juan Millante sold the

same to defendant Exevea. This time, the sale was registered in the Registry of Deeds. But

despite the fact of registration in 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 have¾nemo dat

quod non habet. Accordingly, one can sell only what one owns or is authorized to sell, and the

buyer can acquire no more than what the seller can transfer legally.53

In this case, since the

Madrid brothers were no longer the owners of the subject property at the time of the sale to

Marquez, the latter did not acquire any right to it.

In any event, assuming arguendo that Article 1544 applies to the present case, the claim of

Marquez still cannot prevail over the right of the Heirs since according to the evidence he was

not a purchaser and registrant in good faith.

Following Article 1544, in the double sale of an immovable, the rules of preference are:

(a) the first registrant in good faith;

(b) should there be no entry, the first in possession in good faith; and

(c) in the absence thereof, the buyer who presents the oldest title in good faith. 54

Prior registration of the subject property does not by itself confer ownership or a better right over

the property. Article 1544 requires that before the second buyer can obtain priority over the first,

he must show that he acted in good faith throughout (i.e., in ignorance of the first sale and of the

first buyer’s rights)¾from 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

. . .

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 dueño, 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.

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

fact¾before 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.

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.

Republic of the Philippines

SUPREME COURT Manila

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 CABANA TUAN

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.

MENDOZA, J.:

This is a petition for review on certiorari of the decision, dated 7, 1995, and resolution, dated

January 31, 1996, of the Court of Appeals, which affirmed the decisions of the Regional Trial

Court, Branches 251 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.

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. 1337-A-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 Fazes 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-l, D-2).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 P15,000.00 na pinangangako namin na ibibigay ang Deed of Sale sa ika-25 ng

Febrero 1983.

[SGD.] METRING HIPOLITO

[SGD.] JOSE GODOFREDO DE

LA PAZ9

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 PAZ10

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 razes 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. 4-Veneracion).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 of not defendant (now petitioner) may be judicially ejected.

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. CY 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.

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

"1"] 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.

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. 135736

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,40

and

Aranas v. Endona41

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.1âwphi1.nêt

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 §2043

and §2344

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.

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.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 171008 September 13, 2007

CARMELITA FUDOT, Petitioner,

vs.

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

D E C I S I O N

TINGA, J.:

For resolution is a petition that seeks to nullify the Decision1 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.

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 Complaint6 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 answer10

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.

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.

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

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

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 x x x 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

The petition is bereft of merit.

Petitioner’s arguments, which rest on the assumption that there was a double sale, must fail.

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.

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 Code28

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.

In this case, following Article 17329

of the Civil Code, on 26 June 1995, or eight and a half years

(8 ½) 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.

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 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 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:

Art. 1544. x x x.

Should it be immovable property, the ownership shall belong to the person acquiring it who in

good faith first recorded it in the Registry of Property.

x x x x.

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.

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.

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.

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.1âwphi1

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:

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 s. 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.

Republic of the Philippines

SUPREME COURT

SECOND DIVISION

G.R. No. 152627 September 16, 2005

SPOUSES AMANCIO and LUISA SARMIENTO and PEDRO OGSINER, Petitioners,

vs.

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,

Respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

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 Decision1 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 plaintiff-appellee

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 a 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,

plaintiff-appellee 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. R-3367 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

non-jurisdiction 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 P 20,000.00 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. N-119631, 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.

. . .

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 a 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

plaintiff-appellee’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 and

proceedings, considering that it will not 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 a

direct proceeding.6 (Emphasis and underscoring supplied)

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 Sherriff of Pasig, Metro Manila,

the Municipal Treasurer of Marikina, Rizal, the Judge of the RTC, Branch 155, in LRC

Case No. R-3367 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 secured11

to file a 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 defendants13

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 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.

(Emphasis supplied)

Prescinding from the foregoing, the appellate court grievously erred in failing to appreciate

the legal ramifications of the third-party complaint vis-à-vis the 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 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 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 second18

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 (P

3,383.89) 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. R-3367, 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.

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.

. . .

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 a 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. 25

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.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 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 1989.30

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.

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 Fuster33

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.

. . .

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 of Carmelita 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 SRCA 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 plaintiff-appellee, 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. Xxx43

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.46

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.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).

. . .

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 Sarmieno 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.

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 142403 March 26, 2003

ALEJANDRO GABRIEL and ALFREDO GABRIEL, petitioners,

vs.

SPOUSES PABLO MABANTA and ESCOLASTICA COLOBONG, DEVELOPMENT

BANK OF THE PHILIPPINES (Isabela Branch) and ZENAIDA TAN-REYES,

respondents.

SANDOVAL-GUTIERREZ, J.:

Born of the need to protect our land registration system from being converted into an instrument

of fraud, this Court has consistently adhered to the principle that "a mere registration of title in

case of double sale is not enough, good faith must concur with the registration."

In this petition for review on certiorari, Alejandro Gabriel and Alfredo Gabriel assailed the

Decision1 dated March 30, 1999 of the Court of Appeals in CA-G.R. CV No. 33941 modifying

the Decision2 dated April 12, 1991 of the Regional Trial Court, Branch 21, Santiago, Isabela in

Civil Case No. 0399 for specific performance, reconveyance and damages with application for

preliminary injunction.

The facts are as follows:

Spouses Pablo and Escolastica Mabanta were the registered owners of two lots located in Patul

and Capaltitan, Santiago, Isabela, with an area of 512 and 15,000 square meters, covered by

Transfer Certificates of Title (TCT) Nos. 72705 and 72707, respectively. On October 25, 1975,

they mortgaged both lots with the Development Bank of the Philippines (DBP) as collateral for a

loan of P14,000.00.3

Five years thereafter or on September 1, 1980, spouses Mabanta sold the lots to Susana Soriano

by way of a "Deed of Sale of Parcels of Land With Assumption of Mortgage."4 Included in the

Deed is an agreement that they could repurchase the lots within a period of two (2) years.

Spouses Mabanta failed to repurchase the lots. But sometime in 1984, they were able to convince

Alejandro Gabriel to purchase the lots from Susana Soriano. As consideration, Alejandro

delivered to Susana a 500-square meter residential lot with an actual value of P40,000.00 and

paid spouses Mabanta the sum of P5,000.00. On May 15, 1984, spouses Mabanta executed a

"Deed of Sale with Assumption of Mortgage"5 in favor of Alejandro. For her part, Susana

executed a document entitled "Cancellation of Contract"6 whereby she transferred to Alejandro

all her rights over the two lots.

Alejandro and his son Alfredo cultivated the lots. They also caused the restructuring of spouses

Mabanta’s loan with the DBP.7 However, when they were ready to pay the entire loan, they

found that spouses Benito and Pura Tan had paid it and that the mortgage was already cancelled.8

On August 18, 1985, Benito Tan and Alejandro Tridanio, a barangay official, approached

Alejandro to refund to him the P5,000.00 he paid to spouses Mabanta. Alejandro refused because

Tan was unwilling to return the former’s 500-square meter lot delivered to Susana as purchase

price for the lots. Thereafter, spouses Tan tried to eject Alejandro from the lot covered by TCT

No. 72707.

On September 17, 1985, Alejandro and Alfredo filed with the Regional Trial Court, Branch 21,

Santiago, Isabela a complaint (involving the lot covered by TCT No. 72707) for specific

performance, reconveyance and damages with an application for a preliminary injunction against

spouses Mabanta, spouses Tan, the DBP and barangay officials Dominador Maylem and

Alejandro Tridanio. In due time, these defendants filed their respective answers.

During the proceedings, it turned out that it was spouses Tan’s daughter, Zenaida Tan-Reyes

who bought one of the lots (covered by TCT No. 72707) from spouses Mabanta on August 21,

1985. Not having been impleaded as a party-defendant, she filed an answer-in-intervention

alleging that she is the registered owner of the lot covered by TCT No. 72707; that she purchased

it from spouses Mabanta "in good faith and for value"; that she paid their loan with the DBP in

the amounts of P17,580.88 and P16,845.17 per Official Receipts Nos. 1749539 and 1749540,

respectively; that the mortgage with the DBP was cancelled and spouses Mabanta executed a

"Deed of Absolute Sale"9 in her favor; and that TCT No. T-72707 was cancelled and in lieu

thereof, TCT No. T-160391 was issued in her name.

On April 12, 1991, the trial court rendered its Decision sustaining the right of Alejandro and

Alfredo Gabriel over the lot covered by TCT No. 72707 (now TCT No. T-160391), thus:

"WHEREFORE, in the light of the foregoing considerations judgment is hereby

rendered:

1. DECLARING Exhibit "A", the deed of sale with assumption of mortgage

executed by the spouses Pablo Mabanta and Escolastica Colobong (in favor of

Alejandro and Alfredo Gabriel) valid and subsisting.

2. ORDERING the plaintiff Alejandro Gabriel to pay to the spouses Pablo

Mabanta and Escolastica Colobong the sums of P5,000.00 plus P34,426.05

(representing the loan with the DBP which plaintiff assumed) within 30 days from

receipt hereof.

3. DECLARING the deed of sale executed by the spouses Pablo Mabanta and

Escolastica Colobong in favor of Zenaida Tan Reyes as null and void.

4. ORDERING the intervenor Zenaida Tan-Reyes to reconvey the land covered

by T.C.T. No. T-160391 in favor of Alejandro Gabriel.

"SO ORDERED."

In declaring null and void the "Deed of Absolute Sale" (or second sale) of the lot covered

by TCT No. 72707 between spouses Mabanta and Zenaida Tan-Reyes, the trial court

ratiocinated as follows:

"But Zenaida (Tan) Reyes professes that she is a buyer in good faith and for value. In her

testimony she said that the spouses Mabanta offered to sell the land to her on August 19,

1985. She was informed that the land was mortgaged in the DBP. She readily agreed to

buy the land on that same day. She did not inquire further into the status of the land. She

did not go and see the land first. What she did was to immediately go to the DBP the

following day and paid the mortgage obligation in the amount of P16,845.17 and

P17,580.88 (Exhibits "1" and "2"). The following day August 21, a deed of sale in her

favor was prepared and on October 17, 1985 she secured a certificate of title (Exhibit

"5"). Under the above circumstances, it cannot be said that she is a purchaser in good

faith. She should have first made a thorough investigation of the status of the land. Had

she inquired, she should have been informed that the land was previously sold to at least

two persons Susana Soriano and Alejandro Gabriel. She should also have first visited the

land she was buying. Had she done so she should have discovered that the land was being

cultivated by the Gabriels who would have informed her that they already bought the land

from the Mabantas. The reason why she did not do this is because she already was

appraised of the status of the land by her father Benito Tan. For reasons known only to

her, she decided to buy the land just the same.

x x x x x x x x x

"Zenaida Tan therefore is not a purchaser in good faith and she cannot seek refuge

behind her certificate of title. True, Article 1544 of the Civil Code provides that should

immovable property be sold to different vendees, the ownership shall belong to the

person who in good faith first recorded it in the registry of property. Unfortunately, the

registration made by Zenaida (Tan) Reyes of her deed of sale was not in good faith. For

this reason in accordance with the same Article 1544, the land shall pertain to the person

who in good faith was first in possession. There is no question that it is the Gabriels who

are in possession of the land."

Unsatisfied, spouses Mabanta and Zenaida Tan-Reyes interposed an appeal to the Court of

Appeals.

On March 30, 1999, the Court of Appeals rendered a Decision modifying the trial court’s

Decision, declaring as valid the second sale of the lot covered by TCT No. 72707 between

spouses Mabanta and Zenaida Tan-Reyes on the ground that a person dealing with registered

land may simply rely on the correctness of the certificate of title and, in the absence of anything

to engender suspicion, he is under no obligation to look beyond it. The dispositive portion of the

Appellate Court’s Decision reads:

"Wherefore the appealed judgment is AFFIRMED with the following modification:

1. DECLARING Exhibit "A", the deed of sale with assumption of mortgage executed by

the defendants-appellants spouses Pablo Mabanta and Escolastica Colobong over lots

covered by TCT Nos. T-72705 and T-72707 valid and subsisting;

2. Ordering spouses Pablo Mabanta and Escolastica Colobong to surrender TCT No.

72705 to plaintiff-appellee Alejandro Gabriel;

3. Declaring the deed of sale executed over lot with TCT No. 72707 (now T-160391) by

spouses Pablo Mabanta and Escolastica Colobong in favor of intervenor-appellant

Zenaida Tan Reyes as valid;

4. Ordering plaintiffs-appellees and any all persons claiming rights under them to vacate

Lot 3651-A now covered by TCT No. T-160391 and to deliver to intervenor-appellant

Zenaida Tan-Reyes the possession thereof;

5. Dismissing the case against defendants-appellants Benito Tan and Purita Masa;

6. No pronouncement as to costs.

"SO ORDERED."

In the instant petition for review on certiorari, petitioners Alejandro and Alfredo Gabriel raise

this lone issue:

WHETHER OR NOT THE COURT OF APPEALS ERRED IN DECLARING THE SECOND

SALE OF THE DISPUTED LOT EXECUTED BY SPOUSES MABANTA IN FAVOR OF

ZENAIDA TAN-REYES VALID UNDER ARTICLE 1544 OF THE CIVIL CODE.

Petitioners contend that respondent Reyes is not a purchaser in good faith since she bought the

disputed lot with the knowledge that petitioner Alejandro is claiming it in a previous sale.

In her comment on the petition, respondent Reyes maintains that the Court of Appeals’ factual

finding that she is a purchaser in good faith and for value is final and conclusive. Meeting the

issue head on, she claims that there is no evidence that prior to August 21, 1985, when she

purchased the lot from respondent spouses Mabanta, she had knowledge of any previous lien or

encumbrance on the property.

For its part, respondent DBP avers that it acted in utmost good faith in releasing the mortgaged

lots to respondent spouses Mabanta who had the loan restructured and paid the same. Also, it did

not transact business with spouses Tan.

With respect to respondent spouses Mabanta, this Court’s Resolution dated June 14, 2000

requiring them to file comment on the present petition was returned unserved. Thus, in its

Resolution dated January 22, 2001, this Court resolved to consider the Resolution of June 14,

2000 "deemed served" upon them.10

The petition is impressed with merit.

The issue for our resolution is whether or not respondent Zenaida Tan-Reyes acted in good faith

when she purchased the subject lot and had the sale registered.

Settled is the principle that this Court is not a trier of facts. In the exercise of its power of review,

the findings of fact of the Court of Appeals are conclusive and binding and consequently, it is not

our function to analyze or weigh evidence all over again.11

This rule, however, is not an iron-clad

rule.12

In Floro vs. Llenado,13

we enumerated the various exceptions and one which finds

application to the present case is when the findings of the Court of Appeals are contrary to those

of the trial court.

We start first with the applicable law.

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 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."

Otherwise stated, where it is an immovable property that is the subject of a double sale,

ownership shall be transferred (1) to the person acquiring it who in good faith first

recorded it in the Registry of Property; (2) in default thereof, to the person who in good

faith was first in possession; and (3) in default thereof, to the person who presents the

oldest title, provided there is good faith.14

The requirement of the law then is two-fold:

acquisition in good faith and registration in good faith.15

The rationale behind this is

well-expounded in Uraca vs. Court of Appeals,16

where this Court held:

"Under the foregoing, the prior registration of the disputed property by the second buyer

does not by itself confer ownership or a better right over the property. Article 1544

requires that such registration must be coupled with good faith. Jurisprudence teaches us

that "(t)he governing principle is primus tempore, potior jure (first in time, stronger in

right). Knowledge gained by the first buyer of the second sale cannot defeat the first

buyer’s right except where the second buyer registers in good faith the second sale ahead

of the first, as provided by the Civil Code. Such knowledge of the first buyer does not bar

her from availing of her rights under the law, among them, to register first her purchase

as against the second buyer. But in converso, knowledge gained by the second buyer of

the first sale defeats his right even if he is first to register the second sale, since such

knowledge taints his prior registration with bad faith. This is the price exacted by Article

1544 of the Civil Code for the second buyer being able to displace the first buyer, that

before the second buyer can obtain priority over the first, he must show that he acted in

good faith throughout (i.e. in ignorance of the first sale and of the first buyer’s right) –

from the time of acquisition until the title is transferred to him by registration or failing

registration, by delivery of possession." (Emphasis supplied)

In the case at bar, certain pieces of evidence, put together, would prove that respondent Reyes is

not a buyer in good faith. The records show that on August 18, 1985, spouses Mabanta offered to

her for sale the disputed lot. They told her it was mortgaged with respondent DBP and that she

had to pay the loan if she wanted to buy it.17

She readily agreed to such a condition. The

following day, her father Benito Tan, accompanied by barangay official Tridanio, went to

petitioner Alejandro’s house offering to return to him the P5,000.00 he had paid to spouses

Mabanta. Tan did not suggest to return the 500-square meter lot petitioner delivered to Susana

Soriano.18

For this reason, petitioner refused Tan’s offer and even prohibited him from going to

respondent DBP. We quote the following testimony of petitioner who, despite his blindness as

shown by the records, testified to assert his right, thus:

"ATTY. CHANGALE:

Q What can you say to that statement?

A That is their mistake, sir.

Q Why do you say that is their mistake?

A Because her husband and Tridanio went at home offering to return the money but

I did not accept, sir.

Q Who is this Benito Tan you are referring to?

A The husband of Pura Masa, sir.

Q What is the relationship with the intervenor Zenaida Tan?

A The daughter, sir.

Q When did Benito Tan together with Councilman Tridanio came?

A Before they went to the Development Bank of the Philippines they came at home

and I prohibit them, sir.

Q How did you prohibit them?

A No, I said please I am just waiting for the Bank to inspect then I will pay my

obligation.

x x x x x x x x x

Q You stated earlier that you will just pay the payments. What are those payments

you are referring to?

A The payment I have given to Colobong and to the Bank, sir. They do not want to

return the payment I have given to Susana Soriano and that is the beginning of our

quarrel."19

We are thus convinced that respondent Reyes had knowledge that petitioner previously bought

the disputed lot from respondent spouses Mabanta. Why should her father approach petitioner

and offer to return to him the money he paid spouses Mabanta? Obviously, aware of the previous

sale to petitioner, respondent Reyes informed her father about it. At this juncture, it is reasonable

to conclude that what prompted him to go to petitioner’s house was his desire to facilitate his

daughter’s acquisition of the lot, i.e., to prevent petitioner Alejandro from contesting it. He did

not foresee then that petitioner would insist he has a prior right over the lot.

Now respondent Reyes claims that she is a purchaser in good faith. This is preposterous. 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. From her actuations as

specified above, respondent Reyes cannot be considered to be in good faith when she bought the

lot.

Moreover, it bears noting that on September 16, 1985, both petitioners filed with the trial court

their complaint involving the lot in question against respondents. After a month, or on October

17, 1985, respondent Reyes had the "Deed of Absolute Sale" registered with the Registry of

Property. Evidently, she wanted to be the first one to effect its registration to the prejudice of

petitioners who, although in possession, have not registered the same. This is another indicum of

bad faith.

We have consistently held that "in cases of double sale of immovables, what finds relevance and

materiality is not whether or not the second buyer was a buyer in good faith but whether or not

said second buyer registers such second sale in good faith, that is, without knowledge of any

defect in the title of the property sold."20

In Salvoro vs. Tanega,21

we had the occasion to rule

that:

"If a vendee in a double sale registers the sale after he has acquired knowledge that there

was a previous sale of the same property to a third party or that another person claims

said property in a previous sale, the registration will constitute a registration in bad faith

and will not confer upon him any right."

Mere registration of title is not enough, good faith must concur with the registration. To be

entitled to priority, the second purchaser must not only establish prior recording of his deed, but

must have acted in good faith, without knowledge of the existence of another alienation by the

vendor to the other.22

In the old case of Leung Yee vs. F. L. Strong Machinery, Co. and

Williamson, this Court ruled:

"One who purchases a real estate with knowledge of a defect of title in his vendor cannot

claim that he has acquired title thereto in good faith as against the true owner of the land

or of an interest therein; and the same rule must be applied to one who has knowledge of

facts which should have put him upon such inquiry and investigation as might be

necessary to acquaint him with the defects in the title of his vendor. A purchaser cannot

close his eyes to facts which should put a reasonable man upon his guard, and then claim

that he acted in good faith under the belief that there was no defect in the title of the

vendor. His mere refusal to believe that such a defect exists, or his willful closing of his

eyes to the possibility of the existence of a defect in his vendor’s title will not make him

an innocent purchaser for value, if it afterwards develops that the title was in fact

defective, and it appears that he had such notice of the defect as would have led to its

discovery had he acted with that measure of precaution which may reasonably be

required of a prudent man in a like situation. x x x "23

In fine, we hold that respondent Zenaida Tan-Reyes did not act in good faith when she bought

the lot and had the sale registered.

WHEREFORE, the assailed Decision of the Court of Appeals is REVERSED and SET ASIDE.

The Decision of the trial court is hereby reinstated.

SO ORDERED.

Republic of the Philippines

SUPREME COURT Manila

EN BANC

G.R. No. L-5933 August 25, 1911

CRISANTO LICHAUCO, ET AL., petitioners-appellants,

vs.

JOSE BERENGUER, testamentary executor of Macario Berenguer, opponent-appelle.

Felipe Agoncillo, for appellants.

Ramon Salinas, for appellee.

ARELLANO, C.J.:

Crisanto Lichauco, on his own behalf, and his brothers, Faustino, Zacarias, Galo, and his sister,

Timotea Lichauco, his co-heirs, applied for the registration, in the new property registry, of two

rural estates situated in the pueblo of Arayat, Province of Pampanga, one of which, in the barrio

of Batasan, has an area of 204 hectares, 33 ares, and 38.795 centares, and the other, in the sitio of

Panantaglay, barrio of Calumpang, 120 hectares, 69 ares, and 58 centares. The boundaries and

other particulars relating to these lands are specified in the application, which for the purpose of

this opinion, are taken to be true.

With respect to both the said properties, the applicants allege that they obtained them by

inheritance from their grandmother, Cornelia Laochangco, and that the latter, in turn, had

acquired them from Macario Berenguer, through purchase with an agreement that the vendor

should have the right to redeem them. Jose Berenguer, the son of Macario Berenguer and the

administrator of his estate, opposed the registration of the first of the aforementioned properties,

and acquiesced in that of the second. The trial was had with respect to the first tract of land

above referred to, documentary and oral evidence was adduced by the parties, and the Court of

Land Registration decided:.

The adverse claim presented, relative to the parcel of land situated in Batasan, is

allowed; consequently, the registration of the same land applied for by the

applicants, is denied. Upon entry of a general default the adjudication and

registration of the second parcel, situated in Panantaglay, of 120 hectares, 69 ares,

and 58 centares, is decreed (at 12.10 p.m.) in favor of the applicants.

When this decision shall have become final, let the decree issue, and the registrar

of deeds for Pampanga shall cancel the registration entries found in the name of

Cornelia Laochangco on pages 192 and 196 of volume 1 of the district of Arayat,

properties Nos. 23 and 24, respectively, second inscriptions.

The applicants appealed from this judgment in so far as it denied the registration of the first

parcel of land, and their bill of exception having been filed with this court, with right to a review

of the evidence, they allege against the said judgment the following assignments of error:

1. The finding that the contract executed between Cornelia Laochangco and Macario Berenguer

was not a sale with right of repurchase, as it appears to be in the instrument (Exhibit C of the

applicants), but a real loan.

2. The finding that the instrument (Exhibit C) did not convey to the applicants any right of

ownership whatever, and that it was of no value and effect, as well also as the registration of the

same in the old registry; and

3. The allowance of the adverse claim filed by Jose Berenguer, as to the parcel of land situated in

Batasan, and the denial of its registration in the new registry.

The evidence to be considered with respect to the three preceding assignments of error, are: First,

on the part of the applicants, the public instrument executed by Macario Berenguer in favor of

Cornelia Laochangco (Exhibit C); second, on the part of the opponent, the account current

between Cornelia Laochangco and Macario Berenguer (Exhibit 5); and, third, the oral testimony

produced concerning this documentary evidence.

The public instrument, Exhibit C, in part reads as follows:

Don Macario Berenguer declares and states that he is the proprietor in fee-simple

of two parcels of follow unapropriated crown land situated within the district of

his pueblo. The first has an area of 763 quinones, 8 balitas, and 8 loanes, located

in the sitio of Batasan, and its boudaries are, etc., etc. The second is in the sitio of

Panantaglay, barrio of Calumpang, has an area of 73 hectares, 22 ares, and 6

centares, and is bounded on the north, etc., etc.

In the executory part of the said instrument, it is stated:

That under condition of right to repurchase (pacto de retro) he sells the said

properties to the aforementioned Doña Cornelia Laochangco for P4,000 and upon

the following conditions: First, the ale stipulated shall be for the period of two

years, counting from this date, within which time the deponent shall be entitled to

repurchase the land sold upon payment of this price; second, the lands sold shall,

during the term of the present contract, be held in lease by the undersigned who

shall pay, as rental therefor, the sum of 400 pesos per annum, or the equivalent in

sugar at the option of the vendor; third, all the fruits of the said lands shall be

deposited in the sugar depository of the vendee, situated in the district of Quiapo

of this city, and the value of which shall be applied on account of the price of this

sale fourth, the deponent acknowledges that he has received from the vendor the

purchase price of P4,000 already paid, and in legal tender currency of this country

. . .; fifth, all the taxes which may be assessed against the lands surveyed by

competent authority, shall be payable by and constitute a charge against the

vendor; sixth, if, through any unusual event, such as flood, tempest, etc., the

properties hereinbefore enumerated should be destroyed, wholly or in part, it shall

be incumbent upon the vendor to repair the damage thereto at his own expense

and to put them into a good state of cultivation, and should he fail to do so he

binds himself to give to the vendee other lands of the same area, qualify and

value.

The account current (Exhibit 5), which the applicants' counsel acknowledged to be correct, as

taken from their books, although impugned by him as irrelevant on account of the relation of

facts therein made concerning Cornelia Laochangco and in the preceding instrument, contains

the following statements:

1. Prior to June 28, 1889, Berengeur owned Laochangco 2,656,024/8 pesos;

2. Subsequent to this date, June 28, 1889, and up to October 5 of the same year, the former from

time to time received from the latter other amounts which, on the date last mentioned, amounted

to the sum of 3,949.91 pesos, which sum, by a payment made by Berenguer on the same date,

October 5, 1889, of 229.68 pesos, was reduced to 3,720.23 pesos.

3. On the same day, October 5, 1889, Laochangco gave Berenguer 1,000 pesos more.

4. From October 9, 1889, to August 10, 1890 Berenguer received other amounts until his debt to

Laochangco, all told, aggregated 4,912.43 pesos; and as the former had paid to the latter

1,023.82 pesos, he still owed him, on August 10, 1890, 3,888.61 pesos.

5. The account current ran on until July 16, 1896, without Berenguer receiving any more money,

the only items of the said account current being the amounts of sugar which Berenguer turned in

and which were credited to him, to wit, 454.87 pesos worth, in 1893; 515 pesos worth, in 1894;

806.37 pesos worth, in 1896, and the interest thereon charged to him by his creditor at the rate of

12 per cent per annum.

The opponent maintained, and his theory was accepted by the trial court, that Berenguer's

contract with Laochangco was not one of sale with right of repurchase, but merely one of loan

secured by those properties, and, consequently, that the ownership of the lands in question could

not have been conveyed to Laochangco, inasmuch as it continued to be held by Berenguer, as

well as their possession, which he had not ceased to enjoy.

Such a theory is, as argued by the appellants, erroneous. The instrument executed by Macario

Berenguer, the text of which has been transcribed in this decision, is very clear. Berenguer's heirs

may not go counter to the literal tenor of the obligation, the exact expression of the consent of

the contradicting parties contained in the instrument, Exhibit C. Not because the lands may have

continued in possession of the vendor, not because the latter may have assumed the payment of

the taxes on such properties, nor yet because the same party may have bound himself to

substitute by another any one of the properties which he might be destroyed, does the contract

case to be what it is, as set forth in detail in the public instrument. The vendor continued in the

possession of the lands, not a the owner thereof as before this sale, but as the lessee which he

became after its consummation, by virtue of a contract executed in his favor by the vendee in the

deed itself, Exhibit C. Right to ownership is not implied by the circumstance of the lessee's

assuming the responsibility of the payment of the taxes on the property leased, for their payment

is not peculiarly incumbent upon the owner, nor is such right implied by the obligation under

lease, since that obligation came from him and he continues under another character in its

possession — a person why he guarantees its integrity and obligates himself to return the thing

even in a case of force majeure. Such liability, as general rule, is foreign t contracts of lease and,

if required, is exorbitant, but possible and lawful, if voluntarily agreed to, and such agreement

does not on this account involve any sign of ownership, nor other meaning than the will to

impose upon oneself scrupulous diligence in the care of a thing belonging to another.

The purchase and sale, once consummated, is a contract which by its nature transfers the

ownership and other rights in the thing sold. A pacto de retracto or sale with right to repurchase,

is nothing but a personal right stipulation between the vendee and vendor, to the end that the

latter may again acquire the ownership of the thing alienated.

It is true, very true indeed, that the sale with right of repurchase is employed as a

method of loan; it is likewise true that in practice many cases occur where the

consummation of pacto de retro sale means the financial ruin of a person; it is

also, unquestionable that in pacto de retro sales very important interests often

intervene, in the form of the price of the lease of the thing sold, which is

stipulated as an additional covenant. (Manresa, Civil Code, p. 274.)

But in the present case, unlike others heard by this court, there is no proof that the sale with right

of repurchase, made by Berenguer in favor of Laochangco is rather a mortgage to secure a loan.

The account current between Berenguer and Laochangco appears to be nothing but the beginning

of some business transaction in sugar, which gave rise to the contract of purchase and sale under

pacto de retracto, and the continuation of the same transactions which maintained the contract

beyond the period fixed for the redemption. When, on October 5 1889, Berenguer's debt

amounted to 3,720.23 pesos, Cornelia Laochangco gave him 1,000 pesos more; so that she

increased his debt to 4,720.23 pesos. The trial record offer no explanation of this conduct on the

part of his creditor other than that derived from the fact that two days afterwards, on the 7th of

the same month of October, 1889, Berenguer executed the instrument of sale under pacto de

retracto, of two parcels of land, one of 204 hectares and the other of 120, for the price of 4,000

pesos "which Berenguer acknowledges that he has received the vendee, already paid and in the

legal tender currency of this country."

Among other fundamental reason, the one just above mentioned is enough to establish the close

relation between the account current and the contract of purchase and sale, under pacto de

retracto, of the two parcels of land which are the subject of this case; and this explains how it

came to be covenanted in the said instrument of October 7, 1889, that "all the fruits of the said

lands shall be deposited in the sugar depository of the vendee, situated in the district of Quiapo

of this city, and the value of which shall be applied on account of the price of this sale."

The term of two years, stipulated in the instrument for the exercise of the right of redemption,

depended on such covenant, by the express will of the vendee, and, likewise by her express will,

the term fixed for the redemption was extended until at least the year 1896, during which time it

appears that Berenguer continued to deposit "the fruits of the said lands in the sugar depository

of the vendee," as payments on account of the price of the sale.

Until 1896, at least, there is no reason why the sale of the two parcels of land may be considered

to have been consummated; until then the vendee, on account of and as the price of the

repurchase, had continued to receive quantities of sugar, whereby it appears that the said vendee

admitted, as late as 1896, the exercise of the right of repurchase on the part of the vendor who

had been paying the price in sugar.

And up to the present time the right to exercise of the privilege of redemption still subsists, more

than one-half of the repurchase price having already been paid (excepting in such wise that is

owing as rentals on the lease); and in this state of affairs it is utterly impossible to consider the

right of repurchase as lapsed by considering the sale of the two said parcels of land as

consummated, at any intermediate time or until a settlement shall have been made with respect to

the value of the sugar turned in, in relation to the amount or price of the sale, and until the status

of the right of redemption, as already exercised by means of partial payments of the price of the

sale, shall have been determined.

Conventional redemption is the right which the vendor reserves to himself to recover the thing

sold, with the obligation to reimburse to the vendee the price of the sale, the expenses of the

contract, and any other legitimate payment made by reason of the sale, and the useful and

necessary expenses incurred for account of the thing sold. (Civil Code, articles 1507 and 1518.)

The right of redemption, in the present case, began to be exercised from the year following that

of the sale and continued, during seven years, until 1896, in such wise that already in August

1890 the price which the vendor must reimburse to the vendee had been reduced to 3,888.61

pesos, and the reduction was continued by the deposits of sugar intended to cancel the debt. This

was done by the express will of both parties, who believed that by so doing they best served their

interests, and in that manner they covenanted and acted one towards the other, without the least

contradiction or complaint. The exercise of the right of redemption having been commenced and

such advancement having already been made up to 1896 in the way of reimbursement of the

price of the repurchase, by the amount of sugar which the vendee had received from the vendor

for the purpose of reimbursing the price of the sale, it is in no manner permissible, at the will of

the heirs of the vendee, to consider had begun and continued by mutual agreement of both

contracting parties.

The terms of two years stipulated for the redemption expired; but in the contract itself there is the

additional covenant that the vendor shall deposit under the control of the vendeed all the fruits of

the lands leased for the purpose of repaying the price of the sale. After the expiration of that term

of two years, the vendee continued receiving in subsequent years fruits of the leased lands, under

that additional agreement that they all should be placed in his control in order to cancel the price

of the sale. These are facts absolutely incompatible with the term stipulated and with the idea of

the vendee becoming the owner of the lands merely by the expiration of the two years.

The vendee, who has been reimbursed by the vendor for a part of the repurchase price, is bound

to fulfill the obligation to sell back, derived from the sale with right to repurchase, or must show

reason why he may keep this part of the price and, notwithstanding his so doing, be considered

released from effecting the resale. He may be entitled to require the completion of the price, or

that he be paid other expenses before he returns the thing which he had purchased under such a

condition subsequent; but the exercise of the right of redemption having been begun and

admitted, the irrevocability of the ownership in such manner acquired is in all respects

incompatible with these acts so performed.

For this reason, this court does not consider it necessary to come to any conclusion relative to the

testimony of the opponent, Jose Berenguer, in so far as he testified that the agreement with right

to repurchase was already cancelled by the conveyance, in payment (which his father, during the

latter's lifetime, had made to one of the heirs of the vendee) of the 120 hectare tract of land in

Panantaglay, nor relative to the fact, an act at present consummated, of the applicants already

being the owners, both of a part of the repurchase price and of one of the parcels of land which

was the subject matter of the redemption.

It is sufficient for the purposes of the appeal to find, as we hereby do find, that the right of

redemption has not lapsed—lapse which was the ground for the application for registration that

was based on the consolidation of the ownership of the two parcels of land, in the vendee, from

whom the applicants derive their right. Nor had that right lapsed, with respect to the Panantaglay

land; but as this land was, with the assent of the opponent, adjudicated in the judgment appealed

from , the adjudication by such assent is effective.

But, with respect to the Batasan land, of more than 204 hectares in area, the trial court did not

commit the third of the errors alleged in the appeal, by denying its registration in the new registry

in the name of the applicants, as such denial is in accord with the law and the merits of the case,

not by virtue of the findings contained in the judgment, but of those of the present decision, by

reason of which latter the registration applied for is not permissible.

The judgment appealed from is affirmed, only in so far as it finds that "the adverse claim

presented, relative to the parcel of land situated in Batasan, is allowed; consequently, the

registration applied for by the applicants, in connection with the same land, is denied.

That part of the judgment appealed from whereby the cancellation is ordered "of the registration

entries found in the name of Cornelia Laochangco in the old registry of deeds of Pampanga,

Province, on pages 192 and 196 of volume 1 of the district of Arayat, properties, Nos. 23 and 24

respectively, second inscription," is reversed in so far as such entries concern the purchase and

sale, with right of redemption, of the property No. 24, which is that of Batasan, — an inscription

related to the more extensive one concerning the property No. 23, or that of Panantaglay.

No special finding is made as to the costs of this instance. So ordered.

Republic of the Philippines

SUPREME COURT

SECOND DIVISION

G.R. No. 168220. August 31, 2005

SPS. rudy Paragas and Corazon B. Paragas, Petitioners,

vs.

Hrs. of Dominador Balacano, namely: Dominic, Rodolfo, Nanette and Cyric, all surnamed

Balacano, represented by NANETTE BALACANO and ALFREDO BALACANO,

Respondent.

R E S O L U T I O N

CHICO-NAZARIO, J.:

This petition for review seeks to annul the Decision1 dated 15 February 2005 of the Court of

Appeals in CA-G.R. CV No. 64048, affirming with modification the 8 March 1999 Decision2 of

the Regional Trial Court (RTC), Branch 21, of Santiago City, Isabela, in Civil Case No. 21-2313.

The petition likewise seeks to annul the Resolution3 dated 17 May 2005 denying petitioners’

motion for reconsideration.

The factual antecedents were synthesized by the Court of Appeals in its decision.

Gregorio Balacano, married to Lorenza Sumigcay, was the registered owner of Lot 1175-E and

Lot 1175-F of the Subd. Plan Psd-38042 [located at Baluarte, Santiago City, Isabela] covered by

TCT No. T-103297 and TCT No. T-103298 of the Registry of Deeds of the Province of Isabela.

Gregorio and Lorenza had three children, namely: Domingo, Catalino and Alfredo, all surnamed

Balacano. Lorenza died on December 11, 1991. Gregorio, on the other hand, died on July 28,

1996.

Prior to his death, Gregorio was admitted at the Veterans General Hospital in Bayombong,

Nueva Vizcaya on June 28, 1996 and stayed there until July 19, 1996. He was transferred in the

afternoon of July 19, 1996 to the Veterans Memorial Hospital in Quezon City where he was

confined until his death.

Gregorio purportedly sold on July 22, 1996, or barely a week prior to his death, a portion of Lot

1175-E (specifically consisting of 15,925 square meters from its total area of 22,341 square

meters) and the whole Lot 1175-F to the Spouses Rudy ("Rudy") and Corazon Paragas

(collectively, "the Spouses Paragas") for the total consideration of P500,000.00. This sale

appeared in a deed of absolute sale notarized by Atty. Alexander V. de Guzman, Notary Public

for Santiago City, on the same date – July 22, 1996 – and witnessed by Antonio Agcaoili

("Antonio") and Julia Garabiles ("Julia"). Gregorio’s certificates of title over Lots 1175-E and

1175-F were consequently cancelled and new certificates of title were issued in favor of the

Spouses Paragas.

The Spouses Paragas then sold on October 17, 1996 a portion of Lot 1175-E consisting of 6,416

square meters to Catalino for the total consideration of P60,000.00.

Domingo’s children (Dominic, Rodolfo, Nanette and Cyric, all surnamed Balacano;…) filed on

October 22, 1996 a complaint for annulment of sale and partition against Catalino and the

Spouses Paragas. They essentially alleged – in asking for the nullification of the deed of sale –

that: (1) their grandfather Gregorio could not have appeared before the notary public on July 22,

1996 at Santiago City because he was then confined at the Veterans Memorial Hospital in

Quezon City; (2) at the time of the alleged execution of the deed of sale, Gregorio was seriously

ill, in fact dying at that time, which vitiated his consent to the disposal of the property; and (3)

Catalino manipulated the execution of the deed and prevailed upon the dying Gregorio to sign

his name on a paper the contents of which he never understood because of his serious condition.

Alternatively, they alleged that assuming Gregorio was of sound and disposing mind, he could

only transfer a half portion of Lots 1175-E and 1175-F as the other half belongs to their

grandmother Lorenza who predeceased Gregorio – they claimed that Lots 1175-E and 1175-F

form part of the conjugal partnership properties of Gregorio and Lorenza. Finally, they alleged

that the sale to the Spouses Paragas covers only a 5-hectare portion of Lots 1175-E and 1175-F

leaving a portion of 6,416 square meters that Catalino is threatening to dispose. They asked for

the nullification of the deed of sale executed by Gregorio and the partition of Lots 1175-E and

1175-F. They likewise asked for damages.

Instead of filing their Answer, the defendants Catalino and the Spouses Paragas moved to

dismiss the complaint on the following grounds: (1) the plaintiffs have no legal capacity - the

Domingo’s children cannot file the case because Domingo is still alive, although he has been

absent for a long time; (2) an indispensable party is not impleaded – that Gregorio’s other son,

Alfredo was not made a party to the suit; and (3) the complaint states no cause of action – that

Domingo’s children failed to allege a ground for the annulment of the deed of sale; they did not

cite any mistake, violence, intimidation, undue influence or fraud, but merely alleged that

Gregorio was seriously ill. Domingo’s children opposed this motion.

The lower court denied the motion to dismiss, but directed the plaintiffs-appellees to amend the

complaint to include Alfredo as a party. Alfredo was subsequently declared as in default for his

failure to file his Answer to the Complaint.

The defendants-appellees filed their Answer with Counterclaim on May 7, 1997, denying the

material allegations of the complaint. Additionally, they claimed that: (1) the deed of sale was

actually executed by Gregorio on July 19 (or 18), 1996 and not July 22, 1996; (2) the Notary

Public personally went to the Hospital in Bayombong, Nueva Vizcaya on July 18, 1996 to

notarize the deed of sale already subject of a previously concluded covenant between Gregorio

and the Spouses Paragas; (3) at the time Gregorio signed the deed, he was strong and of sound

and disposing mind; (4) Lots 1175-E and 1175-F were Gregorio’s separate capital and the

inscription of Lorenza’s name in the titles was just a description of Gregorio’s marital status; (5)

the entire area of Lots 1175-E and 1175-F were sold to the Spouses Paragas. They interposed a

counterclaim for damages.

At the trial, the parties proceeded to prove their respective contentions.

Plaintiff-appellant Nanette Balacano testified to prove the material allegations of their complaint.

On Gregorio’s medical condition, she declared that: (1) Gregorio, who was then 81 years old,

weak and sick, was brought to the hospital in Bayombong, Nueva Vizcaya on June 28, 1996 and

stayed there until the afternoon on July 19, 1996; (2) thereafter, Gregorio, who by then was weak

and could no longer talk and whose condition had worsened, was transferred in the afternoon of

July 19, 1996 to the Veterans Memorial Hospital in Quezon City where Gregorio died. She

claimed that Gregorio could not have signed a deed of sale on July 19, 1996 because she stayed

at the hospital the whole of that day and saw no visitors. She likewise testified on their

agreement for attorney’s fees with their counsel and the litigation expenses they incurred.

Additionally, the plaintiffs-appellees presented in evidence Gregorio’s medical records and his

death certificate.

Defendants-appellees, on the other hand, presented as witnesses Notary Public de Guzman and

instrumental witness Antonio to prove Gregorio’s execution of the sale and the circumstances

under the deed was executed. They uniformly declared that: (1) on July 18, 1996, they went to

the hospital in Bayombong, Nueva Vizcaya – where Gregorio was confined – with Rudy; (2)

Atty. De Guzman read and explained the contents of the deed to Gregorio; (3) Gregorio signed

the deed after receiving the money from Rudy; (4) Julia and Antonio signed the deed as

witnesses. Additionally, Atty. De Guzman explained that the execution of the deed was merely a

confirmation of a previous agreement between the Spouses Paragas and Gregorio that was

concluded at least a month prior to Gregorio’s death; that, in fact, Gregorio had previously asked

him to prepare a deed that Gregorio eventually signed on July 18, 1996. He also explained that

the deed, which appeared to have been executed on July 22, 1996, was actually executed on July

18, 1996; he notarized the deed and entered it in his register only on July 22, 1996. He claimed

that he did not find it necessary to state the precise date and place of execution (Bayombong,

Nueva Vizcaya, instead of Santiago City) of the deed of sale because the deed is merely a

confirmation of a previously agreed contract between Gregorio and the Spouses Paragas. He

likewise stated that of the stated P500,000.00 consideration in the deed, Rudy paid Gregorio

P450,000.00 in the hospital because Rudy had previously paid Gregorio P50,000.00. For his part,

Antonio added that he was asked by Rudy to take pictures of Gregorio signing the deed. He also

claimed that there was no entry on the date when he signed; nor did he remember reading

Santiago City as the place of execution of the deed. He described Gregorio as still strong but

sickly, who got up from the bed with Julia’s help.

Witness for defendants-appellants Luisa Agsalda testified to prove that Lot 1175-E was

Gregorio’s separate property. She claimed that Gregorio’s father (Leon) purchased a two-hectare

lot from them in 1972 while the other lot was purchased from her neighbor. She also declared

that Gregorio inherited these lands from his father Leon; she does not know, however,

Gregorio’s brothers’ share in the inheritance. Defendant-appellant Catalino also testified to

corroborate the testimony of witness Luisa Agsalda; he said that Gregorio told him that he

(Gregorio) inherited Lots 1175-E and 1175-F from his father Leon. He also stated that a portion

of Lot 1175-E consisting of 6,416 square meters was sold to him by the Spouses Paragas and that

he will pay the Spouses Paragas P50,000.00, not as consideration for the return of the land but

for the transfer of the title to his name.

Additionally, the defendants-appellants presented in evidence the pictures taken by Antonio

when Gregorio allegedly signed the deed.4

The lower court, after trial, rendered the decision declaring null and void the deed of sale

purportedly executed by Gregorio Balacano in favor of the spouses Rudy Paragas and Corazon

Paragas. In nullifying the deed of sale executed by Gregorio, the lower court initially noted that

at the time Gregorio executed the deed, Gregorio was ill. The lower court’s reasoning in

declaring the deed of sale null and void and this reasoning’s premises may be summarized as

follows: (1) the deed of sale was improperly notarized; thus it cannot be considered a public

document that is usually accorded the presumption of regularity; (2) as a private document, the

deed of sale’s due execution must be proved in accordance with Section 20, Rule 132 of the

Revised Rules on Evidence either: (a) by anyone who saw the document executed or written; or

(b) by evidence of the genuineness of the signature or handwriting of the maker; and (3) it was

incumbent upon the Spouses Paragas to prove the deed of sale’s due execution but failed to do so

– the lower court said that witness Antonio Agcaoili is not credible while Atty. Alexander De

Guzman is not reliable.5

The lower court found the explanations of Atty. De Guzman regarding the erroneous entries on

the actual place and date of execution of the deed of sale as justifications for a lie. The lower

court said –

The Court cannot imagine an attorney to undertake to travel to another province to notarize a

document when he must certainly know, being a lawyer and by all means, not stupid, that he has

no authority to notarize a document in that province. The only logical thing that happened was

that Rudy Paragas brought the deed of sale to him on July 22, 1996 already signed and requested

him to notarize the same which he did, not knowing that at that time the vendor was already in a

hospital and [sic] Quezon City. Of course had he known, Atty. De Guzman would not have

notarized the document. But he trusted Rudy Paragas and moreover, Gregorio Balacano already

informed him previously in June that he will sell his lands to Paragas. In addition [sic, (,) was

omitted] Rudy Paragas also told him that Balacano received an advance of P50,000.00.

The intention to sell is not actual selling. From the first week of June when, according to Atty.

De Guzman, Gregorio Balacano informed him that he will sell his land to Rudy Paragas, enough

time elapsed to the time he was brought to the hospital on June 28, 1996. Had there been a

meeting of the minds between Gregorio Balacano and Rudy Paragas regarding the sale, surely

Gregorio Balacano would have immediately returned to the office of Atty. De Guzman to

execute the deed of sale. He did not until he was brought to the hospital and diagnosed to have

liver cirrhosis. Because of the seriousness of his illness, it is not expected that Gregorio

Balacano would be negotiating a contract of sale. Thus, Rudy Paragas negotiated with

Catalino Balacano, the son of Gregorio Balacano with whom the latter was staying.6

The lower court also did not consider Antonio Agcaoili, petitioner Rudy Paragas’s driver, a

convincing witness, concluding that he was telling a rehearsed story. The lower court said –

The only portion of his testimony that is true is that he signed the document. How could the

Court believe that he brought a camera with him just to take pictures of the signing? If the

purpose was to record the proceeding for posterity, why did he not take the picture of Atty. De

Guzman when the latter was reading and explaining the document to Gregorio Balacano? Why

did he not take the picture of both Gregorio Balacano and Atty. de Guzman while the old man

was signing the document instead of taking a picture of Gregorio Balacano alone holding a ball

pen without even showing the document being signed? Verily there is a picture of a document

but only a hand with a ball pen is shown with it. Why? Clearly the driver Antonio Agcaoili must

have only been asked by Rudy Paragas to tell a concocted story which he himself would not dare

tell in Court under oath.7

The lower court likewise noted that petitioner Rudy Paragas did not testify about the signing of

the deed of sale. To the lower court, Rudy’s refusal or failure to testify raises a lot of questions,

such as: (1) was he (Rudy) afraid to divulge the circumstances of how he obtained the signature

of Gregorio Balacano, and (2) was he (Rudy) afraid to admit that he did not actually pay the

P500,000.00 indicated in the deed of sale as the price of the land?8

The lower court also ruled that Lots 1175-E and 1175-F were Gregorio’s and Lorenza’s conjugal

partnership properties. The lower court found that these lots were acquired during the marriage

because the certificates of title of these lots clearly stated that the lots are registered in the name

Gregorio, "married to Lorenza Sumigcay." Thus, the lower court concluded that the presumption

of law (under Article 160 of the Civil Code of the Philippines) that property acquired during the

marriage is presumed to belong to the conjugal partnership fully applies to Lots 1175-E and

1175-F.9

Thus, on 8 March 1999, the RTC, Branch 21, of Santiago City, Isabela, rendered a Decision10

in

Civil Case No. 21-2313, the dispositive portion of which reads as follows:

WHEREFORE in the light of the foregoing considerations judgment is hereby rendered:

1. DECLARING as NULL and VOID the deed of sale purportedly executed by Gregorio

Balacano in favor of the spouses Rudy Paragas and Corazon Paragas over lots 1175-E and 1175-

F covered by TCT Nos. T-103297 and T-103298, respectively;

2. ORDERING the cancellation of TCT Nos. T-258042 and T-258041 issued in the name of the

spouses Rudy and Corazon Paragas by virtue of the deed of sale; and

Declaring the parcel of lands, lots 1175-E and 1175-F as part of the estate of the deceased

spouses Gregorio Balacano and Lorenza Balacano.11

In the assailed Decision dated 15 February 2005, the Court of Appeals affirmed the Decision of

the trial court, with the modification that Lots 1175-E and 1175-F were adjudged as belonging to

the estate of Gregorio Balacano. The appellate court disposed as follows:

Wherefore, premises considered, the appeal is hereby dismissed. We AFFIRM the appealed

Decision for the reasons discussed above, with the MODIFICATION that Lots 1175-E and 1175-

F belong to the estate of Gregorio Balacano.

Let a copy of this Decision be furnished the Office of the Bar Confidant for whatever action her

Office may take against Atty. De Guzman.12

(Emphasis in the original.)

Herein petitioners’ motion for reconsideration was met with similar lack of success when it was

denied for lack of merit by the Court of Appeals in its Resolution13

dated 17 May 2005.

Hence, this appeal via a petition for review where petitioners assign the following errors to the

Court of Appeals, viz:

A. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION,

SERIOUSLY ERRED IN FINDING THAT THERE WAS NO PERFECTED AND

PARTIALLY EXECUTED CONTRACT OF SALE OVER LOTS 1175-E AND 1175-F PRIOR

TO THE SIGNING OF THE DEED OF SALE.

B. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION,

SERIOUSLY FAILED TO APPRECIATE THE SIGNIFICANCE OF THE JUDICIAL

ADMISSION ON THE AUTHENTICITY AND DUE EXECUTION OF THE DEED OF SALE

MADE BY THE RESPONDENTS DURING THE PRE-TRIAL CONFERENCE.

C. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION,

BASED ITS CONCLUSION THAT GREGORIO’S CONSENT TO THE SALE OF THE LOTS

WAS ABSENT MERELY ON SPECULATIONS AND SURMISES.

D. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION,

SERIOUSLY ERRED IN NOT RULING ON THE ISSUE OF RESPONDENTS’ LACK OF

LEGAL CAPACITY TO SUE FOR NOT BEING THE PROPER PARTIES IN INTEREST.

E. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION,

SERIOUSLY ERRED IN DISMISSING ATTY. ALEXANDER DE GUZMAN AND

ANTONIO AGCAOILI AS NOT CREDIBLE WITNESSES.14

At bottom is the issue of whether or not the Court of Appeals committed reversible error in

upholding the findings and conclusions of the trial court on the nullity of the Deed of Sale

purportedly executed between petitioners and the late Gregorio Balacano.

To start, we held in Blanco v. Quasha15

that this Court is not a trier of facts. As such, it is not its

function to examine and determine the weight of the evidence supporting the assailed decision.

Factual findings of the Court of Appeals, which are supported by substantial evidence, are

binding, final and conclusive upon the Supreme Court,16

and carry even more weight when the

said court affirms the factual findings of the trial court. Moreover, well- entrenched is the

prevailing jurisprudence that only errors of law and not of facts are reviewable by this Court in a

petition for review on certiorari under Rule 45 of the Revised Rules of Court.

The foregoing tenets in the case at bar apply with greater force to the petition under

consideration because the factual findings by the Court of Appeals are in full agreement with that

of the trial court.

Specifically, the Court of Appeals, in affirming the trial court, found that there was no prior and

perfected contract of sale that remained to be fully consummated. The appellate court explained -

In support of their position, the defendants-appellants argue that at least a month prior to

Gregorio’s signing of the deed, Gregorio and the Spouses Paragas already agreed on the sale of

Lots 1175-E and 1175-F; and that, in fact, this agreement was partially executed by Rudy’s

payment to Gregorio of P50,000.00 before Gregorio signed the deed at the hospital. In line with

this position, defendants-appellants posit that Gregorio’s consent to the sale should be

determined, not at the time Gregorio signed the deed of sale on July 18, 1996, but at the time

when he agreed to sell the property in June 1996 or a month prior to the deed’s signing; and in

June 1996, Gregorio was of sound and disposing mind and his consent to the sale was in no wise

vitiated at that time. The defendants-appellants further argue that the execution or signing of the

deed of sale, however, irregular it might have been, does not affect the validity of the previously

agreed sale of the lots, as the execution or signing of the deed is merely a formalization of a

previously agreed oral contract.

. . .

In the absence of any note, memorandum or any other written instrument evidencing the alleged

perfected contract of sale, we have to rely on oral testimonies, which in this case is that of Atty.

de Guzman whose testimony on the alleged oral agreement may be summarized as follows: (1)

that sometime in the first week of June 1996, Gregorio requested him (Atty. de Guzman) to

prepare a deed of sale of two lots; (2) Gregorio came to his firm’s office in the morning with a

certain Doming Balacano, then returned in the afternoon with Rudy; (3) he (Atty. de Guzman)

asked Gregorio whether he really intends to sell the lots; Gregorio confirmed his intention; (4)

Gregorio and Rudy left the law office at 5:00 p.m., leaving the certificates of title; (5) he

prepared the deed a day after Rudy and Gregorio came. With regard to the alleged partial

execution of this agreement, Atty. de Guzman said that he was told by Rudy that there was

already a partial payment of P50,000.00.

We do not consider Atty. de Guzman’s testimony sufficient evidence to establish the fact that

there was a prior agreement between Gregorio and the Spouses Paragas on the sale of Lots 1175-

E and 1175-F. This testimony does not conclusively establish the meeting of the minds between

Gregorio and the Spouses Paragas on the price or consideration for the sale of Lots 1175-E and

1175-F – Atty. de Guzman merely declared that he was asked by Gregorio to prepare a deed; he

did not clearly narrate the details of this agreement. We cannot assume that Gregorio and the

Spouses Paragas agreed to a P500,000.00 consideration based on Atty. de Guzman’s bare

assertion that Gregorio asked him to prepare a deed, as Atty. de Guzman was not personally

aware of the agreed consideration in the sale of the lots, not being privy to the parties’

agreement. To us, Rudy could have been a competent witness to testify on the perfection of this

prior contract; unfortunately, the defendants-appellants did not present Rudy as their witness.

We seriously doubt too the credibility of Atty. de Guzman as a witness. We cannot rely on his

testimony because of his tendency to commit falsity. He admitted in open court that while

Gregorio signed the deed on July 18, 1996 at Bayombong, Nueva Vizcaya, he nevertheless did

not reflect these matters when he notarized the deed; instead he entered Santiago City and July

22, 1996, as place and date of execution, respectively. To us, Atty. de Guzman’s propensity to

distort facts in the performance of his public functions as a notary public, in utter disregard of the

significance of the act of notarization, seriously affects his credibility as a witness in the present

case. In fact, Atty. de Guzman’s act in falsifying the entries in his acknowledgment of the deed

of sale could be the subject of administrative and disciplinary action, a matter that we however

do not here decide.

Similarly, there is no conclusive proof of the partial execution of the contract because the only

evidence the plaintiffs-appellants presented to prove this claim was Atty. de Guzman’s

testimony, which is hearsay and thus, has no probative value. Atty. de Guzman merely stated that

Rudy told him that Rudy already gave P50,000.00 to Gregorio as partial payment of the purchase

price; Atty. de Guzman did not personally see the payment being made.17

But, did Gregorio give an intelligent consent to the sale of Lots 1175-E and 1175-F when he

signed the deed of sale? The trial court as well as the appellate court found in the negative. In the

Court of Appeals’ rationale-

It is not disputed that when Gregorio signed the deed of sale, Gregorio was seriously ill, as he in

fact died a week after the deed’s signing. Gregorio died of complications caused by cirrhosis of

the liver. Gregorio’s death was neither sudden nor immediate; he fought at least a month-long

battle against the disease until he succumbed to death on July 22, 1996. Given that Gregorio

purportedly executed a deed during the last stages of his battle against his disease, we seriously

doubt whether Gregorio could have read, or fully understood, the contents of the documents he

signed or of the consequences of his act. We note in this regard that Gregorio was brought to the

Veteran’s Hospital at Quezon City because his condition had worsened on or about the time the

deed was allegedly signed. This transfer and fact of death not long after speak volumes about

Gregorio’s condition at that time. We likewise see no conclusive evidence that the contents of

the deed were sufficiently explained to Gregorio before he affixed his signature. The evidence

the defendants-appellants offered to prove Gregorio’s consent to the sale consists of the

testimonies of Atty. de Guzman and Antonio. As discussed above, we do not find Atty. de

Guzman a credible witness. Thus, we fully concur with the heretofore-quoted lower court’s

evaluation of the testimonies given by Atty. de Guzman and Antonio because this is an

evaluation that the lower court was in a better position to make.

Additionally, the irregular and invalid notarization of the deed is a falsity that raises doubts on

the regularity of the transaction itself. While the deed was indeed signed on July 18, 1996 at

Bayombong, Nueva Vizcaya, the deed states otherwise, as it shows that the deed was executed

on July 22, 1996 at Santiago City. Why such falsity was committed, and the circumstances under

which this falsity was committed, speaks volume about the regularity and the validity of the sale.

We cannot but consider the commission of this falsity, with the indispensable aid of Atty. de

Guzman, an orchestrated attempt to legitimize a transaction that Gregorio did not intend to be

binding upon him nor on his bounty.

Article 24 of the Civil Code tells us that in all contractual, property or other relations, when one

of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence,

mental weakness, tender age or other handicap, the courts must be vigilant for his protection.18

Based on the foregoing, the court of Appeals concluded that Gregorio’s consent to the sale of the

lots was absent, making the contract null and void. Consequently, the spouses Paragas could not

have made a subsequent transfer of the property to Catalino Balacano. Indeed, nemo dat quod

non habet. Nobody can dispose of that which does not belong to him.19

We likewise find to be in accord with the evidence on record the ruling of the Court of Appeals

declaring the properties in controversy as paraphernal properties of Gregorio in the absence of

competent evidence on the exact date of Gregorio’s acquisition of ownership of these lots.

On the credibility of witnesses, it is in rhyme with reason to believe the testimonies of the

witnesses for the complainants vis-à-vis those of the defendants. In the assessment of the

credibility of witnesses, we are guided by the following well-entrenched rules: (1) that evidence

to be believed must not only spring from the mouth of a credible witness but must itself be

credible, and (2) findings of facts and assessment of credibility of witness are matters best left to

the trial court who had the front-line opportunity to personally evaluate the witnesses’ demeanor,

conduct, and behavior while testifying.20

In the case at bar, we agree in the trial court’s conclusion that petitioners’ star witness, Atty. De

Guzman is far from being a credible witness. Unlike this Court, the trial court had the unique

opportunity of observing the demeanor of said witness. Thus, we affirm the trial court and the

Court of Appeals’ uniform decision based on the whole evidence in record holding the Deed of

Sale in question to be null and void.

In Domingo v. Court of Appeals,21

the Court declared as null and void the deed of sale therein

inasmuch as the seller, at the time of the execution of the alleged contract, was already of

advanced age and senile. We held –

. . . She died an octogenarian on March 20, 1966, barely over a year when the deed was allegedly

executed on January 28, 1965, but before copies of the deed were entered in the registry

allegedly on May 16 and June 10, 1966. The general rule is that a person is not incompetent to

contract merely because of advanced years or by reason of physical infirmities. However, when

such age or infirmities have impaired the mental faculties so as to prevent the person from

properly, intelligently, and firmly protecting her property rights then she is undeniably

incapacitated. The unrebutted testimony of Zosima Domingo shows that at the time of the

alleged execution of the deed, Paulina was already incapacitated physically and mentally. She

narrated that Paulina played with her waste and urinated in bed. Given these circumstances, there

is in our view sufficient reason to seriously doubt that she consented to the sale of and the price

for her parcels of land. Moreover, there is no receipt to show that said price was paid to and

received by her. Thus, we are in agreement with the trial court’s finding and conclusion on the

matter: . . .

In the case at bar, the Deed of Sale was allegedly signed by Gregorio on his death bed in the

hospital. Gregorio was an octogenarian at the time of the alleged execution of the contract and

suffering from liver cirrhosis at that – circumstances which raise grave doubts on his physical

and mental capacity to freely consent to the contract. Adding to the dubiety of the purported sale

and further bolstering respondents’ claim that their uncle Catalino, one of the children of the

decedent, had a hand in the execution of the deed is the fact that on 17 October 1996, petitioners

sold a portion of Lot 1175-E consisting of 6,416 square meters to Catalino for P60,000.00.22

One

need not stretch his imagination to surmise that Catalino was in cahoots with petitioners in

maneuvering the alleged sale.

On the whole, we find no reversible error on the part of the appellate court in CA-G.R. CV No.

64048 that would warrant the reversal thereof.

WHEREFORE, the present petition is hereby DENIED. Accordingly, the Decision23

and the

Resolution,24

dated 15 February 2005 and 17 May 2005, respectively, of the Court of Appeals in

CA-G.R. CV No. 64048 are hereby AFFIRMED. No costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 124242 January 21, 2005

SAN LORENZO DEVELOPMENT CORPORATION, petitioner,

vs.

COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA

ZAVALLA LU, respondents.

D E C I S I O N

TINGA, J.:

From a coaptation of the records of this case, it appears that respondents Miguel Lu and Pacita

Zavalla, (hereinafter, the Spouses Lu) owned two (2) parcels of land situated in Sta. Rosa,

Laguna covered by TCT No. T-39022 and TCT No. T-39023 both measuring 15,808 square

meters or a total of 3.1616 hectares.

On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to respondent Pablo

Babasanta, (hereinafter, Babasanta) for the price of fifteen pesos (P15.00) per square meter.

Babasanta made a downpayment of fifty thousand pesos (P50,000.00) as evidenced by a

memorandum receipt issued by Pacita Lu of the same date. Several other payments totaling two

hundred thousand pesos (P200,000.00) were made by Babasanta.

Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution of a final

deed of sale in his favor so that he could effect full payment of the purchase price. In the same

letter, Babasanta notified the spouses about having received information that the spouses sold the

same property to another without his knowledge and consent. He demanded that the second sale

be cancelled and that a final deed of sale be issued in his favor.

In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having agreed to

sell the property to him at fifteen pesos (P15.00) per square meter. She, however, reminded

Babasanta that when the balance of the purchase price became due, he requested for a reduction

of the price and when she refused, Babasanta backed out of the sale. Pacita added that she

returned the sum of fifty thousand pesos (P50,000.00) to Babasanta through Eugenio Oya.

On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court (RTC),

Branch 31, of San Pedro, Laguna, a Complaint for Specific Performance and Damages1 against

his co-respondents herein, the Spouses Lu. Babasanta alleged that the lands covered by TCT No.

T- 39022 and T-39023 had been sold to him by the spouses at fifteen pesos (P15.00) per square

meter. Despite his repeated demands for the execution of a final deed of sale in his favor,

respondents allegedly refused.

In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta and when

the total advances of Pacita reached fifty thousand pesos (P50,000.00), the latter and Babasanta,

without the knowledge and consent of Miguel Lu, had verbally agreed to transform the

transaction into a contract to sell the two parcels of land to Babasanta with the fifty thousand

pesos (P50,000.00) to be considered as the downpayment for the property and the balance to be

paid on or before 31 December 1987. Respondents Lu added that as of November 1987, total

payments made by Babasanta amounted to only two hundred thousand pesos (P200,000.00) and

the latter allegedly failed to pay the balance of two hundred sixty thousand pesos (P260,000.00)

despite repeated demands. Babasanta had purportedly asked Pacita for a reduction of the price

from fifteen pesos (P15.00) to twelve pesos (P12.00) per square meter and when the Spouses Lu

refused to grant Babasanta’s request, the latter rescinded the contract to sell and declared that the

original loan transaction just be carried out in that the spouses would be indebted to him in the

amount of two hundred thousand pesos (P200,000.00). Accordingly, on 6 July 1989, they

purchased Interbank Manager’s Check No. 05020269 in the amount of two hundred thousand

pesos (P200,000.00) in the name of Babasanta to show that she was able and willing to pay the

balance of her loan obligation.

Babasanta later filed an Amended Complaint dated 17 January 19903 wherein he prayed for the

issuance of a writ of preliminary injunction with temporary restraining order and the inclusion of

the Register of Deeds of Calamba, Laguna as party defendant. He contended that the issuance of

a preliminary injunction was necessary to restrain the transfer or conveyance by the Spouses Lu

of the subject property to other persons.

The Spouses Lu filed their Opposition4 to the amended complaint contending that it raised new

matters which seriously affect their substantive rights under the original complaint. However, the

trial court in its Order dated 17 January 19905 admitted the amended complaint.

On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) filed a

Motion for Intervention6 before the trial court. SLDC alleged that it had legal interest in the

subject matter under litigation because on 3 May 1989, the two parcels of land involved, namely

Lot 1764-A and 1764-B, had been sold to it in a Deed of Absolute Sale with Mortgage.7 It

alleged that it was a buyer in good faith and for value and therefore it had a better right over the

property in litigation.

In his Opposition to SLDC’s motion for intervention,8 respondent Babasanta demurred and

argued that the latter had no legal interest in the case because the two parcels of land involved

herein had already been conveyed to him by the Spouses Lu and hence, the vendors were without

legal capacity to transfer or dispose of the two parcels of land to the intervenor.

Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene. SLDC

filed its Complaint-in-Intervention on 19 April 1990.9 Respondent Babasanta’s motion for the

issuance of a preliminary injunction was likewise granted by the trial court in its Order dated 11

January 199110

conditioned upon his filing of a bond in the amount of fifty thousand pesos

(P50,000.00).

SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu

executed in its favor an Option to Buy the lots subject of the complaint. Accordingly, it paid an

option money in the amount of three hundred sixteen thousand one hundred sixty pesos

(P316,160.00) out of the total consideration for the purchase of the two lots of one million two

hundred sixty-four thousand six hundred forty pesos (P1,264,640.00). After the Spouses Lu

received a total amount of six hundred thirty-two thousand three hundred twenty pesos

(P632,320.00) they executed on 3 May 1989 a Deed of Absolute Sale with Mortgage in its favor.

SLDC added that the certificates of title over the property were delivered to it by the spouses

clean and free from any adverse claims and/or notice of lis pendens. SLDC further alleged that it

only learned of the filing of the complaint sometime in the early part of January 1990 which

prompted it to file the motion to intervene without delay. Claiming that it was a buyer in good

faith, SLDC argued that it had no obligation to look beyond the titles submitted to it by the

Spouses Lu particularly because Babasanta’s claims were not annotated on the certificates of title

at the time the lands were sold to it.

After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale of the

property to SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two hundred thousand

pesos (P200,000.00) with legal interest plus the further sum of fifty thousand pesos (P50,000.00)

as and for attorney’s fees. On the complaint-in-intervention, the trial court ordered the Register

of Deeds of Laguna, Calamba Branch to cancel the notice of lis pendens annotated on the

original of the TCT No. T-39022 (T-7218) and No. T-39023 (T-7219).

Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta and

SLDC did not register the respective sales in their favor, ownership of the property should

pertain to the buyer who first acquired possession of the property. The trial court equated the

execution of a public instrument in favor of SLDC as sufficient delivery of the property to the

latter. It concluded that symbolic possession could be considered to have been first transferred to

SLDC and consequently ownership of the property pertained to SLDC who purchased the

property in good faith.

Respondent Babasanta appealed the trial court’s decision to the Court of Appeals alleging in the

main that the trial court erred in concluding that SLDC is a purchaser in good faith and in

upholding the validity of the sale made by the Spouses Lu in favor of SLDC.

Respondent spouses likewise filed an appeal to the Court of Appeals. They contended that the

trial court erred in failing to consider that the contract to sell between them and Babasanta had

been novated when the latter abandoned the verbal contract of sale and declared that the original

loan transaction just be carried out. The Spouses Lu argued that since the properties involved

were conjugal, the trial court should have declared the verbal contract to sell between Pacita Lu

and Pablo Babasanta null and void ab initio for lack of knowledge and consent of Miguel Lu.

They further averred that the trial court erred in not dismissing the complaint filed by Babasanta;

in awarding damages in his favor and in refusing to grant the reliefs prayed for in their answer.

On 4 October 1995, the Court of Appeals rendered its Decision11

which set aside the judgment of

the trial court. It declared that the sale between Babasanta and the Spouses Lu was valid and

subsisting and ordered the spouses to execute the necessary deed of conveyance in favor of

Babasanta, and the latter to pay the balance of the purchase price in the amount of two hundred

sixty thousand pesos (P260,000.00). The appellate court ruled that the Absolute Deed of Sale

with Mortgage in favor of SLDC was null and void on the ground that SLDC was a purchaser in

bad faith. The Spouses Lu were further ordered to return all payments made by SLDC with legal

interest and to pay attorney’s fees to Babasanta.

SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate court.12

However, in a Manifestation dated 20 December 1995,13

the Spouses Lu informed the appellate

court that they are no longer contesting the decision dated 4 October 1995.

In its Resolution dated 11 March 1996,14

the appellate court considered as withdrawn the motion

for reconsideration filed by the Spouses Lu in view of their manifestation of 20 December 1995.

The appellate court denied SLDC’s motion for reconsideration on the ground that no new or

substantial arguments were raised therein which would warrant modification or reversal of the

court’s decision dated 4 October 1995.

Hence, this petition.

SLDC assigns the following errors allegedly committed by the appellate court:

THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A

BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU

OBTAINED FROM IT THE CASH ADVANCE OF P200,000.00, SAN LORENZO WAS PUT

ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED

FACT THAT THE ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT IN

POSSESSION OF THE DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT AND

TOOK POSSESSION OF THE PROPERTY AND NO ADVERSE CLAIM, LIEN,

ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON THE TITLES.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT

RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN

LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED

PROPERTY.

THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS FULL

CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED

AND SET ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING THE TITLE OF

SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD FAITH. 15

SLDC contended that the appellate court erred in concluding that it had prior notice of

Babasanta’s claim over the property merely on the basis of its having advanced the amount of

two hundred thousand pesos (P200,000.00) to Pacita Lu upon the latter’s representation that she

needed the money to pay her obligation to Babasanta. It argued that it had no reason to suspect

that Pacita was not telling the truth that the money would be used to pay her indebtedness to

Babasanta. At any rate, SLDC averred that the amount of two hundred thousand pesos

(P200,000.00) which it advanced to Pacita Lu would be deducted from the balance of the

purchase price still due from it and should not be construed as notice of the prior sale of the land

to Babasanta. It added that at no instance did Pacita Lu inform it that the lands had been

previously sold to Babasanta.

Moreover, SLDC stressed that after the execution of the sale in its favor it immediately took

possession of the property and asserted its rights as new owner as opposed to Babasanta who has

never exercised acts of ownership. Since the titles bore no adverse claim, encumbrance, or lien at

the time it was sold to it, SLDC argued that it had every reason to rely on the correctness of the

certificate of title and it was not obliged to go beyond the certificate to determine the condition

of the property. Invoking the presumption of good faith, it added that the burden rests on

Babasanta to prove that it was aware of the prior sale to him but the latter failed to do so. SLDC

pointed out that the notice of lis pendens was annotated only on 2 June 1989 long after the sale

of the property to it was consummated on 3 May 1989.1awphi1.nét

Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu

informed the Court that due to financial constraints they have no more interest to pursue their

rights in the instant case and submit themselves to the decision of the Court of Appeals.16

On the other hand, respondent Babasanta argued that SLDC could not have acquired ownership

of the property because it failed to comply with the requirement of registration of the sale in

good faith. He emphasized that at the time SLDC registered the sale in its favor on 30 June 1990,

there was already a notice of lis pendens annotated on the titles of the property made as early as

2 June 1989. Hence, petitioner’s registration of the sale did not confer upon it any right.

Babasanta further asserted that petitioner’s bad faith in the acquisition of the property is evident

from the fact that it failed to make necessary inquiry regarding the purpose of the issuance of the

two hundred thousand pesos (P200,000.00) manager’s check in his favor.

The core issue presented for resolution in the instant petition is who between SLDC and

Babasanta has a better right over the two parcels of land subject of the instant case in view of the

successive transactions executed by the Spouses Lu.

To prove the perfection of the contract of sale in his favor, Babasanta presented a document

signed by Pacita Lu acknowledging receipt of the sum of fifty thousand pesos (P50,000.00) as

partial payment for 3.6 hectares of farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa,

Laguna.17

While the receipt signed by Pacita did not mention the price for which the property

was being sold, this deficiency was supplied by Pacita Lu’s letter dated 29 May 198918

wherein

she admitted that she agreed to sell the 3.6 hectares of land to Babasanta for fifteen pesos

(P15.00) per square meter.

An analysis of the facts obtaining in this case, as well as the evidence presented by the parties,

irresistibly leads to the conclusion that the agreement between Babasanta and the Spouses Lu is a

contract to sell and not a contract of sale.

Contracts, in general, are perfected by mere consent,19

which is manifested by the meeting of the

offer and the acceptance upon the thing which are to constitute the contract. The offer must be

certain and the acceptance absolute.20

Moreover, contracts shall be obligatory in whatever form

they may have been entered into, provided all the essential requisites for their validity are

present.21

The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos

(P50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. Rosa,

Laguna. While there is no stipulation that the seller reserves the ownership of the property until

full payment of the price which is a distinguishing feature of a contract to sell, the subsequent

acts of the parties convince us that the Spouses Lu never intended to transfer ownership to

Babasanta except upon full payment of the purchase price.

Babasanta’s letter dated 22 May 1989 was quite telling. He stated therein that despite his

repeated requests for the execution of the final deed of sale in his favor so that he could effect

full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta himself

recognized that ownership of the property would not be transferred to him until such time as he

shall have effected full payment of the price. Moreover, had the sellers intended to transfer title,

they could have easily executed the document of sale in its required form simultaneously with

their acceptance of the partial payment, but they did not. Doubtlessly, the receipt signed by

Pacita Lu should legally be considered as a perfected contract to sell.

The distinction between a contract to sell and a contract of sale is quite germane. In a contract of

sale, title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell,

by agreement the ownership is reserved in the vendor and is not to pass until the full payment of

the price.22

In a contract of sale, the vendor has lost and cannot recover ownership until and

unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the

vendor until the full payment of the price, such payment being a positive suspensive condition

and failure of which is not a breach but an event that prevents the obligation of the vendor to

convey title from becoming effective.23

The perfected contract to sell imposed upon Babasanta the obligation to pay the balance of the

purchase price. There being an obligation to pay the price, Babasanta should have made the

proper tender of payment and consignation of the price in court as required by law. Mere sending

of a letter by the vendee expressing the intention to pay without the accompanying payment is

not considered a valid tender of payment.24

Consignation of the amounts due in court is essential

in order to extinguish Babasanta’s obligation to pay the balance of the purchase price. Glaringly

absent from the records is any indication that Babasanta even attempted to make the proper

consignation of the amounts due, thus, the obligation on the part of the sellers to convey title

never acquired obligatory force.

On the assumption that the transaction between the parties is a contract of sale and not a contract

to sell, Babasanta’s claim of ownership should nevertheless fail.

Sale, being a consensual contract, is perfected by mere consent25

and from that moment, the

parties may reciprocally demand performance.26

The essential elements of a contract of sale, to

wit: (1) consent or meeting of the minds, that is, to transfer ownership in exchange for the price;

(2) object certain which is the subject matter of the contract; (3) cause of the obligation which is

established.27

The perfection of a contract of sale should not, however, be confused with its consummation. In

relation to the acquisition and transfer of ownership, it should be noted that sale is not a mode,

but merely a title. A mode is the legal means by which dominion or ownership is created,

transferred or destroyed, but title is only the legal basis by which to affect dominion or

ownership.28

Under Article 712 of the Civil Code, "ownership and other real rights over property

are acquired and transmitted by law, by donation, by testate and intestate succession, and in

consequence of certain contracts, by tradition." Contracts only constitute titles or rights to the

transfer or acquisition of ownership, while delivery or tradition is the mode of accomplishing the

same.29

Therefore, sale by itself does not transfer or affect ownership; the most that sale does is

to create the obligation to transfer ownership. It is tradition or delivery, as a consequence of sale,

that actually transfers ownership.

Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee from

the moment it is delivered to him in any of the ways specified in Article 1497 to 1501.30

The

word "delivered" should not be taken restrictively to mean transfer of actual physical possession

of the property. The law recognizes two principal modes of delivery, to wit: (1) actual delivery;

and (2) legal or constructive delivery.

Actual delivery consists in placing the thing sold in the control and possession of the vendee.31

Legal or constructive delivery, on the other hand, may be had through any of the following ways:

the execution of a public instrument evidencing the sale;32

symbolical tradition such as the

delivery of the keys of the place where the movable sold is being kept;33

traditio longa manu or

by mere consent or agreement if the movable sold cannot yet be transferred to the possession of

the buyer at the time of the sale;34

traditio brevi manu if the buyer already had possession of the

object even before the sale;35

and traditio constitutum possessorium, where the seller remains in

possession of the property in a different capacity.36

Following the above disquisition, respondent Babasanta did not acquire ownership by the mere

execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the property.

For one, the agreement between Babasanta and the Spouses Lu, though valid, was not embodied

in a public instrument. Hence, no constructive delivery of the lands could have been effected. For

another, Babasanta had not taken possession of the property at any time after the perfection of

the sale in his favor or exercised acts of dominion over it despite his assertions that he was the

rightful owner of the lands. Simply stated, there was no delivery to Babasanta, whether actual or

constructive, which is essential to transfer ownership of the property. Thus, even on the

assumption that the perfected contract between the parties was a sale, ownership could not have

passed to Babasanta in the absence of delivery, since in a contract of sale ownership is

transferred to the vendee only upon the delivery of the thing sold.37

However, it must be stressed that the juridical relationship between the parties in a double sale is

primarily governed by Article 1544 which lays down the rules of preference between the two

purchasers of the same property. It provides:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be

transferred to the person who may have first taken possession thereof in good faith, if it should

be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in

good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was

first in the possession; and, in the absence thereof, to the person who presents the oldest title,

provided there is good faith.

The principle of primus tempore, potior jure (first in time, stronger in right) gains greater

significance in case of double sale of immovable property. When the thing sold twice is an

immovable, the one who acquires it and first records it in the Registry of Property, both made in

good faith, shall be deemed the owner.38

Verily, the act of registration must be coupled with

good faith— that is, the registrant must have no knowledge of the defect or lack of title of his

vendor or must not have been aware of facts which should have put him upon such inquiry and

investigation as might be necessary to acquaint him with the defects in the title of his vendor.39

Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired knowledge

of Babasanta’s claim. Babasanta, however, strongly argues that the registration of the sale by

SLDC was not sufficient to confer upon the latter any title to the property since the registration

was attended by bad faith. Specifically, he points out that at the time SLDC registered the sale on

30 June 1990, there was already a notice of lis pendens on the file with the Register of Deeds, the

same having been filed one year before on 2 June 1989.

Did the registration of the sale after the annotation of the notice of lis pendens obliterate the

effects of delivery and possession in good faith which admittedly had occurred prior to SLDC’s

knowledge of the transaction in favor of Babasanta?

We do not hold so.

It must be stressed that as early as 11 February 1989, the Spouses Lu executed the Option to Buy

in favor of SLDC upon receiving P316,160.00 as option money from SLDC. After SLDC had

paid more than one half of the agreed purchase price of P1,264,640.00, the Spouses Lu

subsequently executed on 3 May 1989 a Deed of Absolute Sale in favor or SLDC. At the time

both deeds were executed, SLDC had no knowledge of the prior transaction of the Spouses Lu

with Babasanta. Simply stated, from the time of execution of the first deed up to the moment of

transfer and delivery of possession of the lands to SLDC, it had acted in good faith and the

subsequent annotation of lis pendens has no effect at all on the consummated sale between

SLDC and the Spouses Lu.

A purchaser in good faith is one who buys property of another without notice that some other

person has a right to, or interest in, such property and pays a full and fair price for the same at the

time of such purchase, or before he has notice of the claim or interest of some other person in the

property.40

Following the foregoing definition, we rule that SLDC qualifies as a buyer in good

faith since there is no evidence extant in the records that it had knowledge of the prior

transaction in favor of Babasanta. At the time of the sale of the property to SLDC, the vendors

were still the registered owners of the property and were in fact in possession of the

lands.l^vvphi1.net Time and again, this Court has ruled that a person dealing with the owner of

registered land is not bound to go beyond the certificate of title as he is charged with notice of

burdens on the property which are noted on the face of the register or on the certificate of title.41

In assailing knowledge of the transaction between him and the Spouses Lu, Babasanta apparently

relies on the principle of constructive notice incorporated in Section 52 of the Property

Registration Decree (P.D. No. 1529) which reads, thus:

Sec. 52. Constructive notice upon registration. – Every conveyance, mortgage, lease, lien,

attachment, order, judgment, instrument or entry affecting registered land shall, if registered,

filed, or entered in the office of the Register of Deeds for the province or city where the land to

which it relates lies, be constructive notice to all persons from the time of such registering, filing,

or entering.

However, the constructive notice operates as such¾by the express wording of Section 52¾from

the time of the registration of the notice of lis pendens which in this case was effected only on 2

June 1989, at which time the sale in favor of SLDC had long been consummated insofar as the

obligation of the Spouses Lu to transfer ownership over the property to SLDC is concerned.

More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta the

annotation of the notice of lis pendens cannot help Babasanta’s position a bit and it is irrelevant

to the good or bad faith characterization of SLDC as a purchaser. A notice of lis pendens, as the

Court held in Nataño v. Esteban,42

serves as a warning to a prospective purchaser or

incumbrancer that the particular property is in litigation; and that he should keep his hands off

the same, unless he intends to gamble on the results of the litigation." Precisely, in this case

SLDC has intervened in the pending litigation to protect its rights. Obviously, SLDC’s faith in

the merit of its cause has been vindicated with the Court’s present decision which is the ultimate

denouement on the controversy.

The Court of Appeals has made capital43

of SLDC’s averment in its Complaint-in-Intervention44

that at the instance of Pacita Lu it issued a check for P200,000.00 payable to Babasanta and the

confirmatory testimony of Pacita Lu herself on cross-examination.45

However, there is nothing in

the said pleading and the testimony which explicitly relates the amount to the transaction

between the Spouses Lu and Babasanta for what they attest to is that the amount was supposed to

pay off the advances made by Babasanta to Pacita Lu. In any event, the incident took place after

the Spouses Lu had already executed the Deed of Absolute Sale with Mortgage in favor of SLDC

and therefore, as previously explained, it has no effect on the legal position of SLDC.

Assuming ex gratia argumenti that SLDC’s registration of the sale had been tainted by the prior

notice of lis pendens and assuming further for the same nonce that this is a case of double sale,

still Babasanta’s claim could not prevail over that of SLDC’s. In Abarquez v. Court of Appeals,46

this Court had the occasion to rule that if a vendee in a double sale registers the sale after he has

acquired knowledge of a previous sale, the registration constitutes a registration in bad faith and

does not confer upon him any right. If the registration is done in bad faith, it is as if there is no

registration at all, and the buyer who has taken possession first of the property in good faith shall

be preferred.

In Abarquez, the first sale to the spouses Israel was notarized and registered only after the second

vendee, Abarquez, registered their deed of sale with the Registry of Deeds, but the Israels were

first in possession. This Court awarded the property to the Israels because registration of the

property by Abarquez lacked the element of good faith. While the facts in the instant case

substantially differ from that in Abarquez, we would not hesitate to rule in favor of SLDC on the

basis of its prior possession of the property in good faith. Be it noted that delivery of the property

to SLDC was immediately effected after the execution of the deed in its favor, at which time

SLDC had no knowledge at all of the prior transaction by the Spouses Lu in favor of

Babasanta.1a\^/phi1.net

The law speaks not only of one criterion. The first criterion is priority of entry in the registry of

property; there being no priority of such entry, the second is priority of possession; and, in the

absence of the two priorities, the third priority is of the date of title, with good faith as the

common critical element. Since SLDC acquired possession of the property in good faith in

contrast to Babasanta, who neither registered nor possessed the property at any time, SLDC’s

right is definitely superior to that of Babasanta’s.

At any rate, the above discussion on the rules on double sale would be purely academic for as

earlier stated in this decision, the contract between Babasanta and the Spouses Lu is not a

contract of sale but merely a contract to sell. In Dichoso v. Roxas,47

we had the occasion to rule

that Article 1544 does not apply to a case where there was a sale to one party of the land itself

while the other contract was a mere promise to sell the land or at most an actual assignment of

the right to repurchase the same land. Accordingly, there was no double sale of the same land in

that case.

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals

appealed from is REVERSED and SET ASIDE and the decision of the Regional Trial Court,

Branch 31, of San Pedro, Laguna is REINSTATED. No costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 158682 January 31, 2005

SPOUSES BIENVENIDO R. MACADANGDANG and VIRGINIA C.

MACADANGDANG, petitioners

vs.

SPOUSES RAMON MARTINEZ and GLORIA F. MARTINEZ, respondents.

D E C I S I O N

CORONA, J.:

Petitioners, spouses Bienvenido and Virginia Macadangdang (Macadangdang spouses), assail the

October 25, 2001 decision1 of the Court of Appeals in CA-G.R. CV No. 32018, modifying the

November 13, 1990 decision2 of Branch 149 of the Makati Regional Trial Court in Civil Case

No. 88-796.

The present controversy involves a house and lot in Lot 6, Block 22-A, Phase 5-A, Parkhomes

Subdivision, Tunasan, Muntinlupa, Metro Manila, covered by TCT No. 146553 in the name of

Emma A. Omalin.

On December 20, 1986, the Macadangdang spouses offered to buy the subject property from

Omalin for P380,000 on installment basis.

On the same date, the Macadangdang spouses made a downpayment of P5,000 through the

broker, Sto. Nino Realty Services, Inc. On January 3, 1987, they paid another P175,000.

Thereafter, Omalin executed a deed of sale with mortgage dated January 5, 1987. The deed

provided for the payment of the balance of P200,000 in three installments.

The Macadangdang spouses took possession of the house and lot on January 18, 1987. On April

22, 1987, they paid P60,000 and on October 1, 1987, another P30,000. After the Macadangdangs

had paid a total of P270,000, the parties agreed that the balance of P110,000 was to be paid upon

delivery of the TCT.

On January 29, 1988, Omalin executed a deed of absolute sale in favor of the Macadangdang

spouses. However, the latter did not pay the P110,000 balance because Omalin failed to deliver

the TCT. It turned out that the property was mortgaged to private respondent spouses Ramon and

Gloria Martinez (Martinez spouses).

It appears that on March 5, 1987, a certain Atty. Paterno Santos, a broker, offered to mortgage

the subject property to the Martinez spouses for P200,000. Atty. Santos was in possession of a

"clean" TCT No. 146553 and a fire insurance policy covering said property. The spouses

Martinez accepted the mortgage with interest at 36% p.a. and duly recorded it at the Registry of

Deeds of Makati. The proper annotation was made at the back of the title.

From September 1987 to March 9, 1988, Omalin paid the monthly interest of P6,000 but failed

to pay the subsequent interest from April 1988 to October 1989 amounting to P114,000.

The Macadangdang spouses filed a criminal case for estafa against Omalin and a combined

action for specific performance, annulment of contract and damages against the spouses

Martinez and Omalin.

After trial, the Makati RTC rendered a decision in favor of the Macadangdang spouses:

WHEREFORE, in view of the foregoing, judgment is rendered as follows:

1. The defendants Emma A. Omalin, Ramon Martinez and Gloria Martinez are hereby

ordered to deliver to the plaintiffs the owner’s duplicate copy of TCT No. 146553, free

from the encumbrance under Entry No. 30110 of the Register of Deeds of Makati, upon

plaintiffs’ payment of the balance of P100.000.

2. The defendant Emma A. Omalin is hereby ordered to pay plaintiffs the amount of

P30,000 as moral damages and P20,000 as attorney’s fees and costs of suit.3

On appeal, however, the appellate court modified the decision of the Makati RTC:

Considering that defendant Omalin remains to be the owner of the property despite the existence

of a valid mortgage, she has the right to sell it. Hence, we rule that the sale in favor of plaintiffs-

appellee is likewise valid, subject to the right of defendants-appellants to foreclose the property

for failure of defendant Omalin to pay her indebtedness.

xxx xxx xxx

WHEREFORE, the appealed decision is MODIFIED. A new one is hereby entered:

1. Declaring defendants-appellants Ramon and Gloria Martinez as mortgagees in good

faith.

2. Declaring the deed of sale with mortgage in favor of plaintiffs-appellees Bienvenido

and Virginia Macadangdang as valid and ordering them to pay defendant Omalin the

balance of the price in the sum of P110,000.

3. Ordering defendants-appellants to deliver the owner’s duplicate copy of TCT No.

146553 to plaintiffs-appellees, subject to the existing encumbrance and the right of

defendants-appellants to foreclose the property should defendant Omalin fail to pay her

obligation.

4. Ordering defendant Emma A. Omalin to pay plaintiffs-appellees the amount of

P30,000 as moral damages and P20,000 as attorney’s fees and costs of suit.

The Macadangdang spouses are now before the Court with the following assignments of error:

FIRST ASSIGNED ERROR

THE COURT OF APPEALS’ "DECISION" OPENLY DISREGARDED AND OVERTURNED

EXISTING JURISPRUDENCE INVOLVING SIMILAR FACTS.

SECOND ASSIGNED ERROR

UNLESS REVERSED AND/OR MODIFIED, THE COURT OF APPEALS’ DECISION, IF

EVENTUALLY IMPLEMENTED, MIGHT GIVE RISE TO ABSURD RESULTS.

THIRD ASSIGNED ERROR

THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE TRIAL COURT’S

DECISION DATED NOVEMBER 13, 1990.4

The petition lacks merit.

The subject matter of the instant petition involves registered land. Unlike the case of unregistered

land, in which an earlier instrument, be it sale or mortgage, prevails over a latter one, and the

registration of any one of them is immaterial,5 with respect to registered land, the rule is

different. Between two transactions concerning the same parcel of land, the registered transaction

prevails over the earlier unregistered right.6 The act of registration operates to convey and affect

the registered land so that a bonafide purchaser of such land acquires good title as against a prior

transferee, if such prior transfer was unrecorded.7

Sections 51 and 52 of PD 1529, otherwise known as the Property Registration Decree, are

pertinent:

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.

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.

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.

It is clear from the foregoing that the registration of the deed is the effectual act which binds the

land insofar as third persons are concerned. Prior registration of a lien creates a preference as the

act of registration is the operative act that conveys and affects the land.8 Considering that the

prior sale of the subject property to the Macadangdang spouses was not registered, it was the

registered mortgage to the spouses Martinez that was valid and effective. For sure, it was binding

on Omalin and, for that matter, even on the Macadangdang spouses, the parties to the prior sale.

The rule on prior registration is subject only to one exception, that is, when a party has

knowledge of a prior existing interest which is unregistered at the time he acquires a right to the

same land, his knowledge of that prior unregistered interest has the effect of registration as to

him.9

The Martinez spouses claimed they had never met the Macadangdang spouses and were unaware

that Omalin had already sold the property to them. Hence, the appellate court declared the

Martinez spouses as mortgagees in good faith and innocent mortgagees for value.

An innocent mortgagee for value is akin to an innocent purchaser for value. The phrase

"innocent purchaser for value" is deemed to include an innocent lessee, mortgagee or other

(beneficiary of an) encumbrance for value.10

An innocent purchaser for value is one who buys

the property of another without notice that some other person has a right to or interest in such

property and pays a full and fair price for the same at the time of such purchase or before he has

notice of the claim of another person.11

As a general rule, where the certificate of title is in the

name of the vendor when the land is sold, the vendee for value has the right to rely on what

appears on the face of the title and is not obligated to look beyond what appears on the face of

the certificate of title of the vendor. As an exception, the vendee is required to make the

necessary inquiries if there is anything in the certificate of title which raises any cloud or vice in

the ownership of the property.12

Otherwise, his mere refusal to believe that such defect exists, or

his willful disregard of the possibility of the existence of a defect in his vendor’s title will not

make him an innocent purchaser for value if it afterwards develops that the title is in fact

defective, and it appears that he had such notice of the defect as would have led to its discovery

had he acted with that measure of precaution which may reasonably be required of a prudent man

in a like situation.13

Nothing on record shows that the title of Omalin, the mortgagor, was flawed when it was

presented to the spouses Martinez. Their reliance on the title was therefore reasonable and

correct. They were in no way obliged to go beyond the TCT to determine the legal condition of

the property since there was nothing that should have aroused their suspicion about any defect or

problem about the title.

Where innocent third persons rely on the lack of defect of a certificate of title and acquire rights

over the property, the Court cannot disregard such rights. Otherwise, public confidence in the

certificate of title and ultimately, in the entire Torrens system will be impaired, for every one

dealing with registered property will have to inquire at every instance whether the title has been

regularly or irregularly issued.14

On this note, being innocent registered mortgagees for value, the Martinez spouses acquired a

superior right over the property.

Accordingly, we find no reversible error by the appellate court in upholding the existing

encumbrance over the subject property acquired by the Macadangdang spouses, in declaring the

spouses Martinez as mortgagees in good faith and in recognizing their right to foreclose on the

mortgage should Omalin fail to pay her obligation.

The assailed decision of the appellate court is neither absurd nor unjust. The registered mortgage

contract of the Martinez spouses has given them the superior right, not as owners but only as

mortgagees. Consequently, they are entitled to be paid the amounts due them under the real

estate mortgage registered in their favor. In the event Omalin, as mortgagor, fails to pay the

mortgage obligation or, should any party, for that matter, who may have an interest in the

mortgaged property like the petitioners herein fail to redeem it from the mortgagees, the latter, as

declared by the Court of Appeals, may enforce their rights against the property by foreclosing on

the mortgage, regardless of who its owner may be, considering that the registered mortgage

attaches to the property.

WHEREFORE, the instant petition is hereby DENIED and the October 25, 2001 decision of the

Court of Appeals in CA-G.R. CV No. 32018 is AFFIRMED.

Costs against petitioners.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 128122 March 18, 2005

PREMIERE DEVELOPMENT BANK, Petitioner,

vs.

HON. COURT OF APPEALS, LIBERATO G. YAMBAO, JESUS B. RODRIGUEZ and

JESUS D. MORALES, Respondents.

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

G.R. No. 128184 March 18, 2005

LILIAN M. TOUNDJIS, Petitioner,

vs.

HON. COURT OF APPEALS, LIBERATO G.YAMBAO, et al., and JOSELITO

GARAYGAY, ET AL., Respondents.

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

G.R. No. 128229 March 18, 2005

JOSELITO P. GARAYGAY, CENTURY REALTY and DEVELOPMENT

CORPORATION, Petitioner,

vs.

HON. COURT OF APPEALS, LIBERATO G. YAMBAO, JESUS B. RODRIGUEZ and

JESUS D. MORALES, respondents.

D E C I S I O N

GARCIA, J.:

Before the Court are these three (3) separate petitions for review on certiorari under Rule 45 of

the Rules of Court to nullify and set aside the Decision1 dated November 29, 1995 and

Resolution2 dated February 6, 1997 of the Court of Appeals in CA-G.R. CV 42121.

The first assailed issuance affirmed an earlier decision3 dated January 28, 1993 of the Regional

Trial Court at Quezon City, Branch 88 in its Civil Case No. Q-92-8455, declaring, inter alia,

herein private respondents, as plaintiffs therein, Liberato G. Yambao, Jesus B. Rodriquez and

Jesus D. Morales ("Yambao", "Rodriquez" and "Morales", respectively), as rightful owners of

the land subject of this case. The second assailed issuance, on the other hand, denied

reconsideration of the first.

At the core of the controversy is a 2,660-square meter parcel of land, denominated as Lot 23 of

the subdivision plan Fls-2804-D of SWO-17514, registered under TCT No. 9780 of the Manila

Registry, located as it were in Matandang Balara, which used to be a part of the then district of

Caloocan, City of Manila. The creation of Quezon City which found Lot 23 within its borders

saw the transfer of the corresponding property records to the new political unit and the

generation of new certificates of title to reflect territorial changes. As thus transferred, TCT No.

9780 was assigned title number TCT No. 9780 (693).

The evidence on record disclose the following factual antecedents:

Two (2) different persons with exactly the same name, i.e., Vicente T. Garaygay, each claimed

exclusive ownership of Lot 23 by virtue of an owner’s duplicate certificate each had possession

of during the period material covering said lot. One held TCT No. 9780, supra, and the other,

TCT No. 9780 (693), supra. The technical description of the land appearing in one copy

corresponds exactly with that in the other. The date "June 14, 1944" appears on the face of both

copies as a common date of entry. One, however, contained certain features, markings, and/or

entries not found in the other and vice versa.

On April 17, 1979, one of the two Vicente T. Garaygays, a resident of Cebu City (hereinafter

referred to as Garaygay of Cebu), executed a deed of sale4 over the lot described in and covered

by his TCT No. 9780 (693) in favor of his nephew, Joselito P. Garaygay ("Joselito",

hereinafter). The sale notwithstanding, the owner’s duplicate certificate remained for some time

in the seller’s possession.

In another transaction, the other Vicente T. Garaygay, a resident of Rizal (hereinafter referred to

as Garaygay of Rizal), sold to Liberto G. Yambao and Jesus B. Rodriguez the same property

described in TCT 9780. "YCM Compound, Angono, Rizal" is set out in the February 11, 1986

conveying deed5 as the seller’s residence. Buyers Yambao and Rodriquez would later sell a

portion of their undivided interests on the land to Jesus D. Morales.6

Then came the June 11, 1988 fire that gutted a portion of the Quezon City hall and destroyed in

the process the original copy of TCT No. 9780 (693) on file with the Registry of Deeds of

Quezon City. Barely a month later, a certain Engr. Hobre filed an application, signed by

Garaygay of Cebu, for the reconstitution of the burned original on the basis of the latter’s

owner’s duplicate certificate. One Engr. Felino Cortez of the Land Registration Authority (LRA)

did the follow-up on the application. After due proceedings, the LRA issued an order of

reconstitution,7 by virtue of which Garaygay of Cebu acquired reconstituted TCT No. RT-1764

(9780) (693).8

Meanwhile, or on May 26, 1989, the deed of sale executed by Garaygay of Cebu in favor of his

nephew Joselito was registered, paving the issuance in the latter’s name of TCT No. 12183.9

Thereafter, thru the efforts of same Engr. Cortez,10

Lot 23 was subdivided into three (3) lots,

namely: Lot 23-A, Lot 23-B and Lot 23-C for which TCT Nos. 14414, 14415 and 14416,

respectively,11

were issued. Joselito posthaste sold Lot 23-A to Lilian Toundjis who, pursuant

to a Contract to Sell executed on March 23, 1990,12

undertook to pay Joselito the P.5 Million

balance of the P2.5 Million purchase price once she is placed in possession of a fenced-off

property. And, for shares of stock, Joselito assigned on February 26, 1991, the other two (2) lots,

i.e., Lot 23-B and Lot 23-C to Century Realty and Development Corporation ("Century

Realty") which, after securing TCT Nos. 34390 and 34391 therefor, mortgaged13

the same to

Premiere Development Bank, Inc. ("Premiere Bank") to secure a P2.5 Million loan.

Clashing claims of ownership first came to a head when, sometime in May 1990, Liberato G.

Yambao and his agents forcibly prevented Joselito’s hired hands from concrete-fencing the

subject property. The police and eventually the National Bureau of Investigation (NBI) entered

into the picture.

In the meantime, Yambao, Rodriquez and Morales as pro indiviso buyers of Lot No. 23,

caused the annotation on December 17, 1990, January 16, 1991 and February 15, 1991 of their

respective adverse claims on Joselito’s TCT Nos. 14414, 14415 and 14416. They then filed with

the Regional Trial Court at Quezon City suit against Joselito, Century Realty and Premiere

Bank for quieting of title and annulment of said defendants’ fake titles with prayer for damages.

In their amended complaint,14

docketed as Civil Case No. Q-92-8455 and raffled to Branch 88

of the court, Yambao, Rodriguez and Morales alleged, inter alia, the following:

1. That Joselito, taking advantage of the 1988 burning of the Quezon City Hall, and

"using an impostor, who pretended to be Vicente Garaygay, by means of fraud, deceit,

and unlawful manipulation succeeded in administratively reconstituting the aforesaid

property (sic) in 1990 on the basis of an alleged owner’s copy, which on its face is

patently fake and spurious and fake title bearing [TCT] No. 9780 (693)".

2. That a reconstituted title secured by means of fraud, deceit, or other machinations is

void ab initio under Section 11 of Republic Act (R.A.) 6732;

3. That after causing the reconstitution of the title, Joselito "acted fast to consummate his

scheme of depriving the plaintiffs of their ownership . . . of the [disputed] land by the

following successive acts", referring to Joselito’s act of securing title in his name,

subdividing Lot No. 23 and securing titles to and disposing of the subdivided lots;

4. That they (Yambao, Rodriguez and Morales) filed their separate adverse claims and

caused the same to be annotated at the back of Joselito’s TCT Nos. 14414, 14415 and

14416; that while the adverse claim of Rodriquez was still valid, Joselito executed on

February 26, 1991 a Deed of Assignment in favor of Century Realty, which thus made

the latter a "transferee in bad faith"; that on March 26, 1991, Century Realty executed a

mortgage contract in favor of Premiere Bank, "a mortgagee in bad faith"; and

5. That at the time the mortgage was executed, the houses of plaintiffs’ caretaker and a

chapel belonging to them were standing on the two lots in question.

Answering, principal defendants Joselito and Century Realty denied plaintiffs’ material

allegations and asserted, by way of affirmative defense, the validity of (a) the reconstitution of

TCT No. 9780 (693); (b) the assignment of real property in favor of Century Realty; and (c) the

mortgage made by Century Realty in favor of Premiere Bank.

In their separate answers, also with crossclaim and counterclaim, Lilian Toundjis, who was

allowed to intervene to oppose the action thus filed, and Premiere Bank virtually adopted

Joselito’s position and pleaded, in addition, their right as bona fide purchaser or mortgagee for

value, as the case may be, of the subject property.

Issues having been joined, trial ensued with plaintiffs Yambao, Rodriguez and Morales offering

in evidence several documents. Foremost of these was Exhibit "B"15

which is the owner’s

duplicate copy of TCT No. 9780 of the Registry of Manila once in the possession of Garaygay

of Rizal. On the other hand, the principal defendants presented no less than 38 pieces of marked

and sub-marked documentary evidence, among which was Exhibit. "1",16

identical to Exhibit

"D", which is the duplicate copy of TCT No. 9780 (693) that pertained to Garaygay of Cebu

and used in the reconstitution of the burned original thereof.

In his testimony, Yambao stated having noticed, when Garaygay of Rizal offered to sell Lot 23,

that the corners and the portion of Exhibit "B" containing the owner’s personal circumstances

were torn and related the owner’s explanation as to how these oddities came about. Yambao

related that owing to the physical appearance of Exhibit "B", the recording of the Garaygay of

Rizal - Yambao/Rodriguez deed of sale (Exh. "A") was refused since the more crucial

document, i.e., the torn owner’s copy was itself not registrable unless it is first reconstituted. He

also testified that, to assure himself of the genuineness of the seller’s owner’s duplicate

certificate, he and Garaygay of Rizal repaired to the Quezon City Registry to compare his

(Garaygay of Rizal’s) copy with the original copy on file with the registry, and discovered that

the only difference was that the owner’s duplicate bears the title number "9780", while the

original had "9780 (693)" typewritten on a straight line.17

As told by Yambao, Garaygay of

Rizal’s explanation for the figure difference is that "693" was not affixed on his (Garaygay of

Rizal’s) title because he never, in first place, presented the same to the Quezon City Registry for

correction or affixture.

Yambao also testified that Garaygay of Rizal, when asked to show proof of his identity,

presented a voter’s ID with his picture,18

a Commission of Elections (COMELEC) certification

attesting to his being a registered voter in Precinct No. 21 in Angono, Rizal19

and a certification

of residence issued by the barangay captain of the place.20

Yambao added that before concluding

the sale, he, together with the prospective seller, proceeded to the land site where the residents

and/or caretakers thereat assured him that his companion, Garaygay of Rizal, was actually the

landowner.

For their part, defendants presented Garaygay of Cebu who alleged, among other things, having

acquired Lot 23 from one Macaria Lim vda. Arambulo sometime in 1944, having paid taxes

thereon for the period 1949-199021

and mortgaging in 1949 the titled property with Meralco

Employees Savings & Loan Association, with the mortgage deed and later the discharge of

mortgage being annotated on his title.22

Joselito also took the witness stand in defense of his

ownership of Lot 23 and the transactions he entered into involving the lot.

Eventually, the trial court rendered judgment finding for the plaintiffs and against the defendants,

declaring Joselito’s TCT No. 9780 (693) and all subsequent titles traceable to it and transactions

involving its derivatives as null and void. To the trial court, plaintiffs’ evidence preponderated

over those of the defendants’ whose main witness, Garaygay of Cebu, gave inconsistent

testimony, while Joselito hedged on his answer regarding a cousin connected with LRA. Going

against the defendants’ cause, the trial court further observed dubious circumstances surrounding

the reconstitution of TCT 9780 (693), the more disturbing of which is the admitted participation

of LRA personnel in the reconstitution process.

Dated January 28, 1993, the trial court’s decision23

dispositively reads:

WHEREFORE, in view of the foregoing, the Court renders the following judgment to

wit:

1. Plaintiffs Liberato G.Yambao, Jesus B. Rodriguez and Jesus D. Morales are

hereby declared the rightful owners and possessors of the land described in TCT

No. 9780 marked as Exh. ‘B’;

2. Defendants’ title, TCT No. 9780 (693), marked as Exh. ‘1’ (p. 349, Rollo,

identical to Exh. ‘D’, p. 493 Rollo); the LRA Order of Reconstitution . . .;

defendants’ reconstituted title No. RT-1764 (9780) (693) marked as Exh. "4" . . .;

the cancelled title TCT No. 12183 and its derivative titles, TCT Nos. 14414,

14415, and 14416, all in the name of defendant Joselito P. Garaygay and

intervenor Lilian M. Toundjis involving TCT 14414; the Deed of Assignment and

Transfer between Joselito P. Garaygay and Century Realty involving TCT Nos.

14415 and 14416; [the derivative] titles of defendant Century Realty . . . namely

TCT Nos. 34390 . . . and 34391 . . .; and the Deed of Real Estate Mortgage

executed by Century Realty . . . in favor of defendant Premiere Bank, Inc. are all

declared null and void and without force and effect;

3. The Register of Deeds of Quezon City to strike out the reconstituted title [but

already cancelled] No. 1764 (9780) (693) and TCT No. 12183, . . . ; to cancel

TCT 14414 . . .; to cancel the Deed of Assignment and Transfer between Joselito

P. Garaygay and Century Realty . . . covered by TCT Nos. 14415 and 14416, and

necessarily cancel TCT Nos. 34390 and 34391 . . .; to cancel the Deed of Real

Estate Mortgage over TCT Nos. 34390 and 34390 . . .; and thereafter, to enter and

register the Deeds of Sale, dated February 11, 1986 (Exh. "A") and July 10, 1988

(Exh. "C") and forthwith issue corresponding new title/s in the names of the

plaintiffs, free from all encumbrances, except those entered into by them, upon

payment of all taxes and fees prescribed by law;

4. Defendant Joselito P. Garaygay is sentenced to pay each of the [three] plaintiffs

. . ., the sum of P100,000. 00 as moral damages;

5. Defendants Joselito P. Garaygay, Century Realty . . . and Premiere Bank, Inc.

are sentenced to pay jointly and severally each of the two plaintiffs, namely

Liberato Yambao and Jesus Morales, the sum of P25,000.00 as exemplary

damages and to plaintiff Jesus B. Rodriquez the sum of P25,000.00 as nominal

damages The defendants are also sentenced to pay jointly and severally the sum

of P20,000.00 as attorney’s fees and the cost of suit;

6. Defendant Joselito P. Garaygay is further sentenced to reimburse Lilian M.

Toundjis the sum of P2,000,000.00 with interest thereon at 6% per annum from

the date of judgment;

7. With the annulment of the [aforementioned] Deed of Assignment and Transfer

between defendant Joselito P. Garaygay and defendant Century Realty . . . and the

Deed of Real Estate Mortgage . . . between defendant Century Realty . . . and

defendant Premiere Bank, Inc., all aforementioned defendants who are respective

parties to the named deeds are hereby ordered to make a full return and restitution

to each other of all monies, things and objects they have received thereunder

without interest within fifteen days from finality of this judgment;

8. All other claims are dismissed.

SO ORDERED. [Words in bracket added]

In time, herein petitioners appealed to the Court of Appeals whereat their recourse was docketed

as CA- G.R. CV No. 42121.

In its Decision of November 29, 1995,24

the Court of Appeals affirmed in toto the appealed

decision of the trial court, the affirmance being predicated on the following main justifications:

All in all, the Court agrees with the trial court in giving low rating to both Vicente

Garaygay of Cebu and appellant JOSELITO as witnesses. The court notes that Vicente T.

Garaygay of Cebu has no explanation why the deed of sale between him and Arambulo

was not adduced in evidence x x x

In view of the foregoing questionable actuations of Vicente T. Garaygay of Cebu and his

nephew . . . and their cohorts, the trial court (sic) is constrained to declare that the

defendants’ mother title TCT No. 9780 (693) marked as Exhibit 1, which served as the

basis of the reconstitution is a fake and spurious title. x x x Thus, all titles in the name of

Vicente T. Garaygay of Cebu and Joselito Garaygay are null and void. x x x .

On the other hand, the claim of appellees that their certificate of title is a genuine title is

supported with credible and sufficient evidence. The contention of the appellants that the

appellees’ title should not be accepted as genuine because it is not authenticated lacks

merit. The owner’s copy of the title of appellees is a public document (Broce vs. Broce, 4

Phil. 611). Unlike a private document which must be authenticated before its admission .

. ., there is no need to authenticate a public document to make it admissible in evidence

(Rule 132, Sec 24). The rule that a document must be authenticated before it is

admissible in evidence does not apply to public documents which are admissible without

further proof of their due execution or genuineness x x x. Public documents are already

authenticated by the official signature and seal which they bear, of which this Court takes

judicial notice (Apostol, Essentials of Evidence, 1991, ed., p. 430) (Underscoring added).

Their motion for reconsideration having been denied by the appellate court in its Resolution of

February 6, 1997,25

petitioners have separately come to this Court. That of petitioner Premier

Bank was docketed as G.R. No. 128122; that of Toundjis as G.R. No. 128184; and that of

Joselito Garaygay and Century Realty as G.R. No. 128229.

Per this Court’s Resolution dated June 18, 1997,26

the three (3) separate petitions were, upon

private respondents’ motion, ordered consolidated.

The principal issue tendered in the separate petitions, albeit formulated a bit differently, comes

down to the following: whether or not the Court of Appeals erred in holding Garaygay of Rizal,

instead of Garaygay of Cebu, as the real owner of Lot 23. Behind this issue is the corollary

question of whether or not the same court erred in finding Garaygay of Rizal’s owner’s copy,

TCT No. 9780, instead of the Garaygay of Cebu’s copy, TCT No. 9780 (693), as the authentic

title covering Lot 23.

Petitioners urge reversal on the submission that, unlike Garaygay of Cebu who came forward

and took the witness stand, the identity of Garaygay of Rizal - who they stressed at every turn

had not been presented to testify - has not been established. Albeit they do not say so, the

inference of their posture is that an impostor has taken the identity of Vicente T. Garaygay.

Corollarily, they also contend that the authenticity of the impostor Garaygay’s adverted owner’s

copy of TCT No. 9780 has remained unproven.

The desired reversal cannot be granted.

Both defining documents, Exhibit "1" and Exhibit "B", appear to have been issued by the

appropriate Registry of Deeds and as such would ordinarily enjoy the guarantees flowing from

the legal presumption of regularity of issuance.27

But how and precisely when the legal

aberration occurred where two (2) owner’s duplicate certificates ended up in the hands of two (2)

distinct persons, complete strangers to each other, are questions which the records do not provide

clear answer. It may not be idle to speculate, though, that fraud or other improper manipulations

had been employed along the way, with likely the willing assistance of land registry official/s, to

secure what for the nonce may be tagged as the other title. Consistent with the presumption of

regularity of issuance, however, the authenticity of one copy has to be recognized. And

necessarily, one of the two (2) outstanding owner’s copies has to be struck down as wrongly

issued, if not plainly spurious, under the governing Torrens system of land registration. For, a

piece of land cannot plausibly be covered at the same time, under the same concept of

ownership, by two (2) outstanding certificates of title, each having the same validity, force and

effect. One has to be spurious, or at least one has to prevail over the other.28

Else, the ideal

sought to be achieved by the Torrens system would be illusory. As it were, the Torrens system of

land registration aims to obviate possible conflicts of title by giving the public the right to rely

upon the face of the Torrens certificate and to dispense, as a rule, with the necessity of inquiring

further;29

on the part of the registered owner, the system gives him complete peace of mind that

he would be secured in his ownership as long as he has not voluntarily disposed of any right over

the covered property.30

The categorical conclusion of the Court of Appeals – confirmatory of that of the trial court – is

that Exhibit "B" is genuine and that Garaygay of Rizal is a real person. On the other hand,

Exhibit "1" was adjudged spurious. These factual determinations as a matter of long and sound

appellate practice must be accorded great weight, and, as rule, should not be disturbed on

appeal,31

save for the most compelling and cogent reasons,32

like when such factual findings

were drawn from a vacuum, or, in fine, reached arbitrarily.33

To be sure, arbitrariness cannot contextually be imputed on the appellate court. Its finding that

Garaygay of Rizal is an authentic person, once residing in and a registered voter of Angono,

Rizal has adequate evidentiary support in his voter’s ID, the COMELEC and barangay

certifications aforementioned and the testimony of an occupant of Lot 23. And for whatever it is

worth, Garaygay of Cebu no less testified that there are three (3) Vicente T. Garaygay in the

Philippines.34

The reality that the private respondents failed to put Garaygay of Rizal on the

witness box to identify his copy of the title and defend his erstwhile ownership of Lot 23 may

perhaps support petitioners’ claim about his being fictitious if his whereabouts during the trial, if

still alive then, was known. But, as found by the appellate court, "Yambao never heard from or

about Garaygay of Rizal" after they have executed the Deed of Absolute Sale (Exh. "A", supra)

on February 11, 1986.

Petitioners’ attribution of error on the part of the appellate court’s declaring Garaygay of Rizal

as owner of the disputed parcel of land is untenable. It cannot be overemphasized that the

possessor-owner of the authentic copy of TCT No. 9780 was necessary the real owner of Lot 23.

That possessory distinction happened to belong to Garaygay of Rizal.

Moreover, facts and reasonable inferences drawn therefrom point to Exhibit "1" as being

spurious, necessarily leaving Exhibit "B" as the authentic duplicate copy. For starters, there is

the appearance and physical condition of the owner’s copies in question which, if properly

evaluated in the light of attendant circumstances, would help in determining which is genuine

and which is sham.35

For, the condition and physical appearance of a document would, to borrow

from Junquera, reveal, albeit silently, "the naked truth, hiding nothing, forgetting nothing and

exaggerating nothing." As aptly observed by the appellate court, rationalizing its conclusion

adverted to above, Exhibit "B" has no defect, except for its partly being torn. Respondents’

explanation for the defective state of Exhibit "B", as related to them by Garaygay of Rizal, i.e.,

it was due to exposure of the document to the elements, like rain, following his evacuation from

Manila to a small nipa hut in Angono, Rizal during the Japanese occupation,36

merited approval

from the trial court and the Court of Appeals. Both courts, being in a better position to pass upon

the credibility of petitioners’ witness and appreciate his testimony respecting the less than usual

appearance of Exhibit "B", their findings command the respect of this Court.

Lest it be overlooked, what might be considered as defects in Garaygay of Cebu’s copy are, at

bottom, the combined effects thereon of the passage of time and the elements. Standing alone,

these defects do not, in our view, undermine the integrity of the document.

However, unlike Exhibit "B", Exhibit "1" contained entries and other uncommon markings or

features which could not have existed without human intervention. Although any one of them

may perhaps not be appreciable in isolation, these features and/or markings, taken together,

indeed put the integrity of Exhibit "1" under heavy cloud and indeed cast doubt on its

genuineness.

The irregularities listed in the appealed decision may be summed up in the following wise:

1. Two (2) Victory stamps issued after liberation were strangely pasted on the seal of

Garaygay of Cebu’s title – Exhibit "1" - when such stamps were not yet in existence

when such title was entered in the Registry of Deeds of Manila on June 14, 1944;

2. Exhibit "1" was prepared on "Judicial Form No. 109-D Revised June 1945", which

came into circulation after June 14, 1944;

3. Exhibit "1" bears the handwritten figure "9780" in ink above the typewritten number

"693". There is no initial to suggest that the handwritten number "9780 over the

typewritten title number "693" was officially authorized;

4. The first letter "Y" in the surname "Garaygay" in Exhibit "1" was inserted in ink. In

contrast, there is no such insertion in Exhibit "B"; and

5. Exhibit "1" carries the annotation "subject to further disposition by the government

with respect to real estate transactions consummated during the Japanese regime, and

subject to the provisions of Sec. 4, Rule 74 of the New Rules of Court".37

Such

annotation is supposed to have been contemporaneously made on the date of the issuance

of the title in 1944. Yet, in what appears to be an anomalous instance, advertence is made

to "transactions consummated during the Japanese regime" and to "Rule 74 of the Rules

of Court", logically implying, as aptly observed by the Court of Appeals, that the

annotation was entered after liberation and also after 1964 when the New Rules of Court

came into effect.

Almost as if it were an afterthought, petitioners explained that the Victory stamps could have

been pasted, the 1945 revised judicial form utilized, and the annotations referred to in item # (5)

entered when the TCT of Garaygay of Cebu was reissued. Anent the number "9780" appearing

in ink, the proffered explanation was that the handwritten "9780" was a mere provisional

marking.

The foregoing explanations are, at best speculative, thus correctly struck down by the appellate

court. And unfortunately, Garaygay of Cebu, the best person to shed light on the foregoing

unusual situations and help the limping case of the petitioners, could not himself offer an

explanation.

Petitioners’ insistence that the inscription on Garaygay of Cebu’s copy of the deed of mortgage

and the discharge of mortgage he constituted over Lot 23 in favor of Meralco Employees

Savings and Loan Association proves the authenticity of the latter’s owner duplicate is valid to a

point. But, to suggest that such inscription could not have been possible were his title spurious is

altogether a different matter. We need not cite cases memorialized in books of jurisprudence

where land dealings are annotated on reconstituted certificates secured thru fraud or otherwise

issued irregularly. Stated a little differently, an annotation of what is otherwise a bona-fide land

transaction is not a peremptory argument against the spurious character, if that be the case, of the

document on which it is annotated.

In the same token, the payment by Garaygay of Cebu of land taxes on Lot 23 does not also

necessary detract from the spurious nature of his title, Exhibit "1". After all, any one can pay real

estate taxes on a given property without being quizzed by the local treasury whether or not the

payor owns the real property in question. This is not to say of course that tax receipts are

evidence of ownership, since they are not, albeit they are good indicia of possession in the

concept of owner, for no one would ordinarily be paying taxes for a property not in his actual or

at least constructive possession.38

Other than paying taxes from 1949 to 199039

(mistakenly stated by respondent court as from

1949 to 1960), however, Garaygay of Cebu – and this holds true for his nephew Joselito - did

not appear before the current stand-off to have exercised dominion over Lot 23. For one, it has

not been shown that Garaygay of Cebu was at any time in possession of the property in

question, unlike his namesake from Rizal who managed to place the property under the care of

certain individuals who built semi-permanent structure-dwelling houses thereon without so much

of a protest from Garaygay of Cebu or his nephew Joselito after the latter purportedly bought the

property. For another, neither Garaygay of Cebu nor his nephew Joselito ever instituted any

action to eject or recover possession from the occupants of Lot 23. This passivity bespeaks

strongly against their claim of ownership. It has been said that a party’s failure to raise a

restraining arm or a shout of dissent to another’s possession for an unreasonably long period is

simply contrary to his claim of ownership.40

Not lost on this Court are circumstances noted by

the trial court which negatively reflect on Garaygay of Cebu’s and his nephew’s claim of

ownership. Some excerpts of what the trial court wrote:

"On its face, Exh. "5" [the original copy of the deed of sale between Garaygay and his

nephew] was notarized by one Armando Pulgado. However, there are certifications by

both the Bureau of National Archives that ‘no Notarial records of Armando Pulgado exist

in Manila.’ (Exh. "KK") or ‘in Quezon City’ (Exh. "LL"), and by the Clerk of Court that

‘Atty. Armando Pulgado was not appointed as notary public for and in the City of Manila

for the year 1979’ (Exh. "MM")

Exh. "5" dated April 17, 1979 was registered only on May 26, 1989, over 10 years from

the sale. JOSELITO could not explain how thereafter his own title (TCT 12183) was

issued in his name since it was not he who registered the Deed of Sale, Exh. "5". In other

words, someone else registered it for him.

Neither JOSELITO nor his uncle . . .followed up the petition for reconstitution which was

prepared, filed and processed by interested persons in Manila, which scenario prompted

plaintiffs’ counsel to observe that the reconstitution was ‘among the first of all applicants

in Quezon City’ to be approved (p. 32, TSN August 17, 1992). Of these interested

persons, the most unthinkable was Engr. Felino Cortez of the LRA who did the follow-

ups on the application in Manila. It is remarkable why Cortez, who is neither a friend nor

relative, took special interest in not only following up the application for reconstitution

but in effecting the subdivision of TCT 12183 into [3 lots], for which three derivative

titles of TCT 12183 were issued . . . . Again JOSELITO had no knowledge of this fact of

subdivision until his uncle, . . . telephoned him with the information that the land was

already subdivided.

In short, it appears to the Court that without doing anything, Vicente T. Garaygay of

Cebu has his title (Exh. "1") reconstituted. On the other hand, without knowing anything,

JOSELITO obtained TCT 12183 in his name and had the land subdivided and sold.

These circumstances demonstrate that neither JOSELITO nor his uncle, Vicente T.

Garaygay of Cebu acted ante litem motam like the true owners they claim to be in their

respective times. xxx

Several questions confound the Court’s curiosity. Why were some LRA officials so

interested in the speedy reconstitution and in the subdivision of the land in excess of their

bureaucratic duties? Where did Vicente T. Garaygay of Cebu get his owner’s copy, Exh.

"1". Did some conniving LRA officers supply the judicial form and Victory stamps? Why

was JOSELITO so evasive about his cousin in the LRA as shown in his examination?

xxx xxx xxx

As the Court sees it, the Deed of Sale (Exh. "5" was a simulated transaction because both

JOSELITO and his uncle admit this was a ‘joint venture to sell the property in question.

However, the facts suggest that the ‘joint venture’ was not limited to the two of them.

The persons who prepared and filed the application for reconstitution, and those officers

in the LRA who followed it up and who thereafter subdivided the land into three lots for

easier sale, those at the NBI who tried to persuade Yambao and Morales to settle the

dispute . . . are apparently part of the ‘joint venture’ or stand to profit from it"

This brings us to the core of Toundjis’ and Premiere Bank’s petitions. The first asserts the

rights of a purchaser and the other, that of a mortgagee, in good faith and for value of Lot 23, a

status respectively denied them by the appellate court.

The rule that a subsequent declaration of a title as null and void is not a ground for nullifying the

contractual right of a purchaser, rmortgagee or other transferees in good faith, with the

exceptions thereto, is well-settled. Where the certificate of title is in the name of the seller or

mortgagor, the innocent purchaser or mortgagee for value has the right to rely on what appears

on the certificate without inquiring further.41

In the absence of anything to excite or arouse

suspicion, or except when the party concerned had actual knowledge of facts or circumstances

that should impel a reasonably cautious person to make such further inquiry, said purchaser or

mortgagee is without obligation to look beyond the certificate and investigate the title of the

seller or mortgagor. Thus, where innocent third persons, relying on the correctness of the

certificate, acquire rights over the property as buyer or mortgagee, the subsequent declaration of

nullity of title is not a ground for nullifying the right of such buyer or mortgagee.42

Tested by the above norm, may Toundjis be considered, as she has claimed, an innocent

purchaser for value, meaning one who buys or acquires, for valuable consideration, a piece of

land of another without notice that some other person has a right to, or interest in, such property

at the time of purchase, or before he has notice of the claim or interest of some other persons in

the property.43

The Court of Appeals rejected the claim of Toundjis, and rightly so.

A study of the record shows that TCT 14414 covering Lot. 23-A that Toundjis contracted to buy

from Joselito carried an annotation that it was administratively reconstituted. Records also

indicate that Toundjis knew at the time of the sale that Joselito did not have possession of the lot

inasmuch as she agreed to pay the balance of the purchase price as soon as the seller can fence

off the property and surrender physical possession thereof to her.

Even for these two (2) reasons alone, which should have placed Toundjis on guard respecting

Joselito’s title, her claim of being a bona fide purchaser for value must fail. The rejection,

therefore, by the Court of Appeals of such claim is correct. Likewise acceptable is the appellate

court’s holding, citing Republic vs. Court of Appeals,44

that a purchaser of a property cannot be

in good faith where the title thereof shows that it was reconstituted. Noted with approval, too, is

the appellate court’s observation that the "contract to sell (Exh. "44") which is unregistered and

not annotated at the back of the title of the property [cannot adversely affect appellees]" for the

reason that under "Sec. 51 of PD 1529 (Property Registration Act), ‘the act of registration shall

be the operative act to convey or affect the land in so far (sic) as third parties are concerned.’"45

Premiere Bank cannot also be accorded the status of an innocent mortgagee for value vis-à-vis

the mortgage of the lots covered by TCT Nos. 34390 and 34391 constituted in its favor by

Century Realty. Apart from the annotations that said titles are only administratively

reconstituted,46

the appellate court provided the ensuing compelling reasons:

"Premiere inspected the property to be mortgaged xxx on March 6, and 11, 1991 as can

be seen in its Real Estate Appraisal Report (Exhs. "EE", "EE-1"). The adverse claim of

Jesus Rodriguez was cancelled on March 26, 1991 xxx Hence, when Premiere inspected

the property xxx, it was aware of the existence of Rodriquez’ adverse claim. This is

admitted by Premiere’s witness xxx. The adverse claim of Rodriquez annotated at the

back of TCT No. 14415 and marked as Exhibit I-3 and also at the back of TCT No.

14416 (Exh. J) marked as Exhibit J-3 declares that ‘he is the vendee of the land

described.’

There are buildings of strong material on the land in dispute xxx.

Premiere is aware of the existence of these structures as can be seen in its real estate

report (Exh. EE). Said report states that there are ‘shanties erected in the property in

dispute.

But despite the existence of alleged ‘shanties’ which are in fact and in truth big

structures, two of them being concrete buildings (Exhs. 0 – to O-3), Premiere Bank

proceeded in the execution of the mortgage contract. xxx.

If the land mortgaged is in the possession of a person other than the mortgagor, the

mortgagee is required to go beyond the certificate of title and make inquiries as to the

rights of the actual possessors. Failure to do so would make him a mortgagee in bad faith

(Sunshine Finance vs. IAC, 203 SCRA 213; Conspecto vs. Fruto, 31 Phil 144)".

It cannot be overemphasized that Premiere Bank, being in the business of extending loans

secured by real estate mortgage, is familiar with rules on land registration. As such, it was, as

here, expected to exercise more care and prudence than private individuals in their dealing with

registered lands.47

Accordingly, given inter alia the suspicion-provoking presence of occupants

other than the owner on the land to be mortgaged, it behooved Premiere Bank to conduct a more

exhaustive investigation on the history of the mortgagor’s title. That Premiere Bank accepted in

mortgage the property in question notwithstanding the existence of structures on the property and

which were in actual, visible and public possession of a person other than the mortgagor,

constitutes gross negligence amounting to bad faith.48

Premier Bank is thus not entitled to have

its lien annotated on the genuine title.49

A final consideration: Petitioners maintain that the appellate court erred in annulling the LRA

order of reconstitution (Exh. "3"), even if such relief was not prayed for in private respondents’

amended complaint and notwithstanding the fact that the LRA was not impleaded as an

indispensable party in Civil Case No. Q-92-8455.

The contention is far from tenable. An action for quieting of title, as here, is equivalent to an

action for reconveyance of title wrongfully or erroneously registered in another’s name. The

successful outcome of such action would in most cases necessarily entail the cancellation of

existing title wrongly issued to another, which in turn requires the action of the LRA and/or the

proper Register of Deeds. As in the past, this Court, to obviate multiplicity of suits, had ordered

the LRA or the Register of Deeds, albeit not impleaded below, to cancel such erroneously issued

titles.

Before writing finis to this ponencia, two (2) peripheral matters raised need to be addressed.

First, petitioner Toundjis has, as an alternative prayer, asked that the appealed decision ordering

Joselito to reimburse her the sum of P2,000,000.00 be modified, such that the reimbursable

amount shall bear interest of nineteen (19%) percent (down from the 25% she sought in her

answer-in-intervention) instead of six (6%) per annum reckoned from March 23, 1990, instead of

from January 28, 1993, the date of judgment of the trial court. Absent an explanation with cogent

legal support why her plea for a modificatory ruling should be favorably considered, this Court

denies the same.

Second, petitioners have invited attention to and made much of this Court’s per curiam Decision

dated April 7, 199350

in A.M. P-91-593, entitled "Office of the Court Administrator vs. Atty.

Liberato Yambao et al."51

In it, the Court dismissed herein respondent Yambao from the service

as then Clerk of Court, RTC, Quezon City, Branch 80 for, among other things, having in his

possession a forged deed of sale executed by Vicente T. Garaygay. It should be stressed in this

regard, however, that this Court, in its Resolution of May 18, 1994,52

resolved to "SUSPEND the

implementation of the effects of the decision of April 7, 1993 pending the judicious review by the

Court of Appeals of the decision of the Regional Trial Court, Branch 80, Quezon City in Civil

Case No. Q-92-8455."

This Court need not belabor the effects on A.M. P-91-593 of the appealed decision of the Court

of Appeals, as hereby affirmed.

WHEREFORE, the instant petitions are DENIED and the impugned Decision of the Court of

Appeals AFFIRMED.

Costs against petitioners.

SO ORDERED

Republic of the Philippines

SUPREME COURT

SECOND DIVISION

G.R. No. 143254 August 18, 2005

JUSTINA COSIPE SIGAYA, ROMEO, FELY, TOMAS, BERNARDO, LEDA,

ANASTACIO, ERLINDA, Present: ROSA,TERESITA, EDWIN and HELEN, PUNO,

Chairman, AUSTRIA-MARTINEZ, Petitioners, CALLEJO, SR., TINGA, and all surnamed

SIGAYA,

vs.

CHICO-NAZARIO, JJ. DIOMER MAYUGA, JOSE VIVA and ROSELA VIVA,

HONORATO DE LOS SANTOS and RENATO DISTOR, Respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

The question of whether or not a person is a purchaser in good faith is a factual matter that will

generally be not delved into by this Court especially when the findings of the trial court on the

matter were affirmed by the Court of Appeals (CA). Settled as this rule may be, petitioners now

come before this Court seeking an exception to the general rule.

The facts are as follows:

Dionisia Alorsabes owned a three hectare land in Dao, Capiz, denominated as Lot 3603. In 1934,

she sold a portion of the lot to Juanito Fuentes while the remainder was inherited by her children

Paz Dela Cruz, Rosela Dela Cruz, and Consorcia Arroja (an adopted child), and a grandson,

Francisco Abas, in representation of his deceased mother Margarita Dela Cruz. These four heirs

executed an Extra-Judicial Settlement with Sale dated February 4, 1964 wherein Consorcia sold

her share with an area of 6,694 square meters to spouses Balleriano Mayuga. On April 1, 1977,

Paz also sold her share to Honorato de los Santos. Later, another document entitled Extra-

Judicial Partition with Deed of Sale dated November 2, 1972 was uncovered wherein the heirs of

Dionisia purportedly adjudicated Lot 3603 among themselves and sold their shares to Francisco.

On January 9, 1978, Francisco executed a Deed of Sale over Lot 3603 in favor of Teodulfo

Sigaya. Thus, the title over Lot 3603 was cancelled and a new one was issued in the name of

Teodulfo, predecessor-in-interest of the petitioners herein.1

On October 14, 1986, the petitioners, who are the widow and children of Teodulfo, filed Civil

Case Nos. V-5325, V-5326, V-5327 and V-5328 for recovery of possession and damages against

Diomer Mayuga, Honorato de los Santos, Sps. Jose Viva and Rosela Dela Cruz-Viva, and

Renato Distor,2 respectively, before the Regional Trial Court (RTC) of Roxas City, Branch 16,

praying that respondents be ordered to vacate Lot 3603, and turn over the same to petitioners;

that petitioners’ right of ownership and possession over the property be confirmed and that

respondents be ordered to pay damages in the form of unrealized income starting 1980, plus

attorney’s fees and costs.3

Respondents in their answers with counterclaim averred that: the Deed of Sale executed by

Francisco in favor of Teodulfo and the title thereon are null and void for being based on a

fictitious Extra-Judicial Settlement with Sale; Rosela Dela Cruz-Viva and Paz Dela Cruz, who

are illiterates, were fraudulently made to sign as vendees in the Extra-Judicial Settlement with

Sale dated 1972, when Francisco represented that they were merely signing as witnesses to the

sale of Francisco of his share to Teodulfo. As counterclaim, they asked for attorney’s fees and

damages. 4

Respondent Mayuga further asserted that he possesses his portion of the property by virtue of the

sale by Consorcia Arroja of her share to his parents, Sps. Balleriano Mayuga. Respondent de los

Santos meanwhile averred that Paz Dela Cruz sold her share to him in 1957. Respondents Rosela

Dela Cruz-Viva and her husband Jose Viva claimed that the portion of land occupied by them

pertains to Rosela’s share which she inherited from Dionisia, while respondent Renato Distor

claimed that his wife inherited said property from her father Juanito Fuentes, who in turn bought

the same from Dionisia during her lifetime.5

The four cases were consolidated and on February 14, 1992, the trial court rendered its decision,

the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered as follows:

1. Declaring the defendants Geomer (sic) Mayuga as the real and absolute owner of the portion

of land, containing an area of Six Thousand Six Hundred Ninety Four (6,694) square meters,

more [or] less, portion of Lot No. 3603, Dao Cadastre and subject matter in Civil Case No. 5325

indicated in the Commissioner’s Report (Exh."4") as Exh. "4-B";

2. Declaring the defendant Honorato de los Santos as the absolute owner of the portion of land

containing an area of Six Thousand Six Hundred Ninety Five (6,695) square meters more or less,

portion of lot No. 3603 Dao Cadastre, and subject matter in Civil Case No. 5326 indicated in the

Commissioner’s Report (Exh. "4") as Exh. "4-D";

3. Declaring the defendants spouses Jose Viva and Rosela dela Cruz as the absolute owners of

the portion of land containing an area of Six Thousand Six Hundred Ninety Four (6,694) square

meters, more or less, portion of Lot No. 3603, Dao Cadastre, and subject matter in Civil Case

No. 5327 indicated in the Commissioner’s Report (Exh. "4") as Exh. "4-C";

4. Declaring the defendant, Renato Distor, as the absolute owner of the portion of land

containing an area of Six Thousand Three Hundred Forty Four (6,344) square meters, more or

less, portion of Lot No. 3603, Dao Cadastre, and subject matter in Civil Case No. 5328 indicated

in the Commissioner’s Report (Exh. "4") as Exh. "4-E";

5. Declaring the plaintiffs as the absolute owners of the portion of land containing an area of

Seven Thousand Forty-Six (7,046) square meters, more or less, portion of Lot No. 3603, Dao

Cadastre, indicated in the Commissioner’s Report (Exh. "4") as Exh. "4-F";

6. Declaring Transfer Certificate of Title No. T-15630 of the Register of Deeds of Capiz as null

and void and should be cancelled;

7. Declaring that Deed of Sale, Exh. "C" as null and void except as affecting the portion with an

area of Seven Thousand Forty Six (7,046) square [meters] of Lot 3603 which portion had been

sold by Francisco Abas to the spouses Teodulfo Sigaya and Justina Cosipe;

8. Declaring that Extra-Judicial Partition with Deed of Sale as having been procured through

fraud and therefore not valid in so far as the sale of the shares of Paz de la Cruz and Priscilla de

la Cruz were concerned;

9. Condemning the plaintiffs to severally and jointly pay the following:

a) Unto Diomar Mayuga, defendant in Civil Case No. V-5325, P10,000.00 as attorney’s fees and

litigation expenses;

b) Unto Honorato de los [Santos], defendant, in Civil Case No. V-5326, P10,000.00 as

[attoney’s] fees and litigation expenses;

c) Unto the (sic) Jose Viva and Rosela de la Cruz, defendants in Civil Case No. V-5327,

P10,000.00 as [attorney’s] fees and litigation expenses; and

d) Unto Renato Distor, defendant in Civil Case No. V-5328, P10,000.00 as [attorney’s] fees and

litigation expenses; and

e) Dismissing Civil Case Nos. V-5325, V-5326, V-5327 and V-5328 with costs in each case

against the plaintiffs.

SO ORDERED.6

The trial court explained that:

There is no question that the deed of sale of the portion bought by Jacinto Fuentes from Dionisia

Alorsabes and now possessed by defendants Renato Distor was a public instrument executed in

1934; and the portion occupied by defendant Diomer Mayuga is the portion bought by spouses

Florentina Viva and Balleriano Mayuga from Consorcia Mayuga as her share in lot 3603;

defendant Honorato de los Santos is in possession of the portion which he bought from Paz de la

Cruz, in 1977, although he had been possessing this portion since May 15, 1957 by virtue of a

private document of mortgage. (citations omitted)

…

In these cases, the court believes and so holds that the evidence of actual occupation and

possession of the defendants of the portions of Lot 3603, to each of them appertaining had been

satisfactorily proven. The defendants were not able to file any opposition to the reconstitution of

title solely because they were not notified actually. They could not also be considered to have

constructive notice because there was no publication of the Notice of Hearing of the petition.

From the evidence taken together by its totality of evidence tilts more in favor of the defendants

and against the plaintiffs.7

Not satisfied with the decision, petitioners went to the CA which affirmed, in its Decision

promulgated on April 19, 2000, the ruling of the RTC except as to the award of attorney’s fees

and expenses of litigation.8 It then disposed of the appeal as follows:

WHEREFORE, premises considered, the decision of the court a quo is hereby AFFIRMED, with

the modification that the awards of attorney’s fees and expenses of litigation to the defendants-

appellants are hereby eliminated.

SO ORDERED.9

The CA found:

Looking at the evidence presented, the trial court considered the defendants-appellees as having

proven the actual possession and validity of the possession of the lots in question. Against that,

the plaintiffs- appellants put forward the TCT held by Teodulfo Sigaya, whose validity rests

upon the ability of Francisco Abas to sell Lot 3603, which the TCT now covers, and that the sale

to Teodulfo Sigaya was registered. Prior registration would protect an innocent purchaser in

good faith and for value. But the plaintiffs-appellants cannot now claim the (sic) Teodulfo

Sigaya was an innocent purchaser for value. The trial court gave more credence to the testimony

of defendants-appellees and their witnesses that they had been in possession for a longer period

of time, even before the sale to Teodulfo Sigaya in 1978. This issue of credibility requires a

determination that is concededly best left to the trial court with its unique position of having been

enabled to observe that elusive and incommunicable evidence of the deportment of witnesses on

the stand. Findings of the trial court, following that assessment, must be given the highest degree

of respect absent compelling reasons to conclude otherwise. Teodolfo (sic) Sigaya examined the

land in question, and did so as a reasonably prudent man buying real property should. As the

defendants-appellees were in possession before him, he should have questioned such and delved

deeper into the title and right of Francisco Abas to sell the lot. Not having done so, he is not an

innocent purchaser in good faith, and not entitled to protection under the Torrens system.

It is clear that the title of Francisco Abas was obtained through fraud, thus further damaging the

case of the plaintiffs-appellants, whose predecessor-in-interest should have probed beyond the

title after examining the lot to be sold him. As held by the Supreme Court:

"xxx Having bought the land registered under the Torrens system from their vendors who

procured title thereto by means of fraud, petitioners cannot invoke the indefeasibility of a

certificate of title against the private respondent to the extent of her interest. The Torrens system

of land registration should not be used as a means to perpetuate fraud against the rightful owner

of real property. Registration to be effective, must be made in good faith. (Palanca vs. Registry

of Lands, 43 Phil. 149 [1922]). Thus, it is a settled rule that the defense of indefeasibility of a

certificate of title does not extend to a transferee who takes it with notice of the flaws in his

transferor’s title. If at all, the petitioners only acquire the right which their vendors then had.

(Ramos et al. vs. Direno, et al., 50 Phil. 786 [1927]).

The plaintiffs-appellants’ contentions as to their ownership of the lot in question must then fail in

the face of the principles laid down in jurisprudence.10

Petitioners now come before this Court on a petition for review under Rule 45 of the Rules of

Court, raising the sole issue of: WHETHER A PERSON DEALING WITH A REGISTERED

LAND CAN SAFELY RELY ON THE CORRECTNESS OF THE CERTIFICATE OF TITLE

ISSUED THEREFOR.11

Petitioners argue that: Teodulfo, their predecessor-in-interest, purchased the subject property

from Francisco, who was in possession of the Original Certificate of Title (OCT) No. RO-5841

(17205), a reconstituted copy of the original, in the name of Dionisia and of the Extra-Judicial

Partition with Deed of Sale, dated November 2, 1972; relying on these instruments and after

inspecting the land and seeing that nobody occupied the same, Teodulfo bought the land and had

the title subsequently issued in his name; the fact that Teodulfo examined the lot does not give

rise to the conclusion that he is not an innocent purchaser in good faith as adverted to by the CA;

if indeed Abas committed fraud in acquiring said lot, Teodulfo is also a victim of

misrepresentation; there was no evidence that Teodulfo and Francisco connived to defraud

respondents; Teodulfo did not have actual knowledge of facts and circumstances that would

impel him to make further inquiry; and as purchaser in good faith, Teodulfo enjoys the protection

of the Torrens system.12

Respondents in their Comment meanwhile contend that: the petition failed to comply with the

requirements of Rule 45 of the Rules of Court as respondents were not served a copy of the

motion for extension of time; the issue in the present petition does not involve a question of law

but entails only a review of the facts which cannot be done by this Court; in any case, Teodulfo

relied on a title that is not in the name of his transferor, Francisco, but on its registered owner,

Dionisia, who was already deceased at the time of the supposed sale to Teodulfo; since the right

of the supposed transferor was not shown in the title but merely on a Deed of Extra-Judicial

Settlement with Sale, which turned out irregular, it was incumbent upon Teodulfo to examine

further the extent of the right of the supposed transferor and why there were a lot of occupants in

the land in dispute; his failure to do so operates against his favor and those of his successors-in-

interest.13

The parties filed their respective memoranda.

Petitioners, in their Memorandum, further aver that: Teodulfo is a purchaser in good faith having

relied on OCT No. RO-5841 (17205) in the name of Dionisia and the Extra-Judicial Partition

with Deed of Sale dated November 2, 1972 which shows that Francisco is the absolute owner of

the lot; four years had elapsed from the date that the OCT was reconstituted and the time

Teodulfo bought the property from Francisco and yet none of the respondents had registered

their right in the property; the Extra-Judicial Settlement of Lot 3603 of the Cadastral Survey of

Dao, Capiz with Sale dated February 4, 1964, on which respondents base their claims, was never

registered with the Registry of Deeds; not having been registered, this will not affect the right of

third persons who had no knowledge thereof; there was no circumstance that would put Teodulfo

on his guard and in cases of double sales of real property, the ownership shall be awarded to the

vendee who first registers the sale in good faith; Teodulfo is a resident of Zarraga, Capiz which

is more than 50 kilometers from Dao, Capiz, thus Teodulfo could not have actual knowledge of

facts and circumstances that would impel him to make further inquiry; the land was merely

pointed to him by Francisco and from what he had seen, there was nothing that would arouse his

suspicion.14

Meanwhile, respondents, in their Memorandum, contend that they were in possession of the

property before Teodulfo; that Teodulfo should have probed deeper into the right of Francisco to

sell said lot, and not having done so, he cannot be considered as a purchaser in good faith; and

that the issue of credibility requires a determination that is best left to the trial court with its

unique position of being able to observe the elusive and incommunicable evidence of the

deportment of witnesses on the stand.15

Petitioners claim that they are raising before this Court the legal issue of: Whether a person

dealing with a registered land can safely rely on the correctness of the Certificate of Title issued

therefor.16

Contrary to what petitioners would like this Court to believe, the resolution of the present

petition hinges principally on the determination of a question of fact and not one of law.

Both parties concede that a purchaser in good faith can safely rely on the four corners of a

Torrens Title. The disagreement lies, however, as to whether or not Teodulfo should be

considered as a purchaser in good faith and thus enjoy the protection of the Torrens system.

Indeed, this question is one of fact and not one of law. There is a question of fact when the doubt

or difference arises as to the truth or the falsity of the statement of facts while a question of law

exists when there is doubt or controversy as to what the law is on a certain state of facts.17

The determination of whether Teodulfo is a buyer in good faith is a factual issue which is

generally outside the province of this Court to determine in a petition for review.18

If for this

matter alone, the petition should be dismissed because the remedy of appeal by certiorari under

Rule 45 of the Rules of Court contemplates only questions of law.19

Indeed, this Court is not a

trier of facts,20

and the factual findings of the CA are binding and conclusive upon this Court,

unless:

(1) the conclusion is a finding grounded entirely on speculation, surmise and conjecture; (2) the

inference made is manifestly mistaken; (3) there is grave abuse of discretion; (4) the judgment is

based on a misapprehension of facts; (5) the findings of fact are conflicting; (6) the Court of

Appeals went beyond the issues of the case and its findings are contrary to the admissions of

both appellant and appellees; (7) the findings of fact of the Court of Appeals are contrary to

those of the trial court; (8) said findings of fact are conclusions without citation of specific

evidence on which they are based; (9) the facts set forth in the petition as well as in the

petitioner's main and reply briefs are not disputed by the respondents; and (10) the findings of

fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted

by the evidence on record.21

The binding effect of the CA’s factual findings on this Court applies with greater force when

both the trial court and the CA are in complete agreement on their factual findings.22

It is also

settled that absent any circumstance requiring the overturning of the factual conclusion made by

the trial court, particularly if affirmed by the CA, the Court necessarily upholds such findings of

fact.23

In this case, petitioners failed to show that they fall under any of the exceptional circumstances.

In reaching its conclusion, the trial court gave weight to the testimonies of Engineer Jesus

Pimentel, a geodetic engineer commissioned by the court to conduct a survey of the land, who

found that respondents acquired their respective lots through sale or inheritance;24

of Rolly

Daniel, a barangay official who lived 50 meters from said lot, who said that respondents had

been in possession of their respective lots even before 1960 and that Teodulfo and Francisco

asked him to accompany them sometime between 1976 to 1978 as they went to the different

houses of respondents because Teodulfo was going to buy Francisco’s share;25

of Ursula Abas,

wife of Francisco, who said that Francisco committed suicide after it was discovered that he

fraudulently sold the portion belonging to his aunts to Teodulfo by making them sign a prepared

document on the pretext that they were only signing as witnesses to the sale of his share, when in

fact said document also sold their aunts’ shares;26

as well as the testimonies of Prudencio

Fuentes, son of Jacinto and brother-in-law of respondent Renato Distor; Lourdes Distor, wife of

Renato; Florentina Mayuga, mother of Diomer; and respondents Renato Distor, Honorato de los

Santos, Rosela Dela Cruz-Viva who asserted that they have been in possession of said lots before

the purported sale to Teodulfo.27

Petitioners, meanwhile, could only present Fely Sigaya and Cesar de los Santos. Fely testified

that: the land was acquired by her father from Francisco by virtue of a Deed of Sale dated

January 9, 1978 and that Francisco became the owner of the property by virtue of an Extra-

Judicial Partition with Deed of Sale; when her father bought the property, he showed the

documents to a lawyer who said that the same were in order; when her father visited the

property, he found no occupants thereat; her father also filed a petition in 1974 for reconstitution

of title of Lot 3603 thus a reconstituted title was issued in the name of Dionisia Alorsabes.28

Cesar, petitioners’ caretaker meanwhile, merely corroborated Fely’s testimony.29

This Court has held that the burden of proving the status of a purchaser in good faith lies upon

one who asserts that status and this onus probandi cannot be discharged my mere invocation of

the legal presumption

of good faith.30

In this case, the Court finds that petitioners have failed to discharge such burden.

A purchaser in good faith is one who buys property without notice that some other person has a

right to or interest in such property and pays its fair price before he has notice of the adverse

claims and interest of another person in the same property. The honesty of intention which

constitutes good faith implies a freedom from knowledge of circumstances which ought to put a

person on inquiry.31

As enunciated in Lim vs. Chuatoco32

…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 from another. Otherwise stated, good faith is the opposite of fraud and it refers to the

state of mind which is manifested by the acts of the individual concerned.33

Indeed, it is a well-settled rule that 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 beyond the certificate to determine the condition of the property. Where there is nothing in

the certificate of title to indicate any cloud or vice in the ownership of the property, or any

encumbrance thereon, the purchaser is not required to explore further than what the Torrens Title

upon its face indicates in quest for any hidden defects or inchoate right that may subsequently

defeat his right thereto.34

However, this rule shall not apply 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.35

In this case, preponderance of evidence shows that respondents had been in actual possession of

their respective portions even prior to 1960. Rolly Daniel, which the trial court considered as a

credible witness, testified that not only were respondents in actual possession of their respective

portions prior to 1960, he even accompanied Francisco and Teodulfo to the different houses of

respondents sometime between 1976 to 1978 as Teodulfo was going to buy the portion of

Francisco.36

This Court cannot give credence therefore to the claim of petitioners that Teodulfo

found no occupants in the property.

There being occupants of the property, the Court cannot ascribe good faith to Teodulfo who has

not shown any diligence in protecting his rights.

As the Court has stated:

A purchaser cannot simply 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 his vendor. His mere refusal to believe that such defect exists or his willful closing of his

eyes to the possibility of the existence of a defect in his vendor’s title will not make him an

innocent purchaser for value if it later develops that the title was in fact defective, and it

appears that he would have notice of the defect had he acted with that measure of

precaution which may reasonably be required of a prudent man in a similar situation.37

(Emphasis supplied)

Petitioners also argue that the rule on double sale of real property should apply in this case, and

since they are the first to register the sale in good faith, they are entitled to be awarded ownership

thereof.

The Court disagrees. Apart from the fact that Teodulfo is not a purchaser in good faith, the law

on double sales as provided in Art. 1544 of the Civil Code38

contemplates a situation where a

single vendor sold one and the same immovable property to two or more buyers. For the rule to

apply, 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 it. The rule 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.39

In this case, respondents derive their right over their respective portions either

through inheritance or sale from Dionisia while petitioners’ invoke their right from the sale of

the land from Francisco. Clearly, the law on double sales does not apply here.

WHEREFORE, the petition is DENIED for lack of merit and the decision of the Court of

Appeals is AFFIRMED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

THIRD DIVISION

G.R. No. 125254 October 11, 2005

SPOUSES SAMUEL ULEP (Deceased) and SUSANA REPOGIA-ULEP; SAMUEL ULEP

is substituted by his surviving spouses SUSANA REPOGIA-ULEP and his children:

SALLY, RENATO, RODELIO and RICHARD, all surnamed ULEP, and VALENTINA

ULEP, Petitioners,

vs.

HONORABLE COURT OF APPEALS, former Eight Division, IGLESIA NI CRISTO,

MAXIMA RODICO and spouses WARLITO PARINGIT and ENCARNACION

PARINGIT-GANTE, Respondents.

D E C I S I O N

GARCIA, J.:

Under consideration is this petition for review under Rule 45 of the Rules of Court seeking the

reversal and setting aside of the Decision1 dated August 15, 1995 of the Court of Appeals (CA)

in CA-G.R. CV. No. 39333, and its Resolution2 dated April 25, 1996, denying petitioners’ motion

for reconsideration.

The assailed decision modified the June 17, 1991 decision3 of the Regional Trial Court at

Urdaneta, Pangasinan, Branch 48, in its Civil Case No. U-3929, an action for Quieting of Title,

Reconveyance and Declaration of Nullity of Titles and Subdivision Plan, with Damages, thereat

commenced by the petitioners against the herein private respondents.

The factual antecedents:

Principal petitioners SAMUEL ULEP, now deceased and substituted by his heirs, and

VALENTINA ULEP are brother-and-sister. Together with their siblings, namely, Atinedoro

Ulep and Rosita Ulep, they are children of the late Valentin Ulep.

During his lifetime, the father Valentin Ulep owned a parcel of land, identified as Lot 840 with

an area of 3,270 square meters, located at Asingan, Pangasinan.

Sometime in 1950, the older Ulep sold the one-half (1/2) eastern portion of Lot 840, comprising

an area of 1,635 square meters, to respondent Maxima Rodico, while the remaining one-half

(1/2) western portion with the same area, to his son Atinedoro Ulep married to Beatriz Ulep,

and to his other daughter Valentina Ulep.

On June 5, 1952, all the transferees of Lot 840, namely, Maxima Rodico (for the eastern portion)

and Atinedoro Ulep and Valentina Ulep (for the western portion), were jointly issued in their

names Transfer Certificate of Title No. 12525.

On June 18, 1971, Atinedoro Ulep, his wife Beatriz and sister Valentina Ulep sold the one-half

(1/2) portion of the area sold to them by their father to their brother Samuel Ulep and the latter’s

wife, Susana Repogia-Ulep. The portion sold to Samuel and Susana has an area of 817.5 square

meters. The document of sale was registered with the Office of the Registry of Deeds of

Pangasinan on February 20, 1973.

Later, an area of 507.5 square meters of the western portion of Lot 840 was sold by the spouses

Atinedoro Ulep and Beatriz Ulep to respondent Warlito Paringit and the latter’s spouse

Encarnacion Gante, who were then issued TCT No. 12688 on September 23, 1975.

Evidently, all the foregoing transactions were done and effected without an actual ground

partition or formal subdivision of Lot 840.

In June 1977, respondent Iglesia ni Cristo (INC) begun constructing its chapel on Lot 840. In

the process, INC encroached portions thereof allegedly pertaining to petitioners and blocked

their pathways.

This prompted Samuel Ulep and sister Rosita Ulep to make inquiries with the Office of the

Register of Deeds of Pangasinan. To their consternation, they discovered from the records of said

office that a deed of sale bearing date December 21, 1954, was

purportedly executed by their brother Atinedoro Ulep his, wife Beatriz and their sister Valentina

Ulep in favor of INC over a portion of 620 square meters, more or less, of Lot 840, and that on

the basis of said deed, INC was issued TCT No. 12689 on September 23, 19754 over the portion

allegedly sold to it by the three. Samuel was further shocked to find out that on July 9, 1975, an

affidavit of subdivision was executed by respondents INC, Maxima Rodico and the spouses

Warlito Paringit and Encarnation Gante, on the basis of which affidavit Lot 840 was

subdivided into four (4) lots, namely: (1) Lot 840-A, covered by TCT No. 16205 in his

(Samuel’s) name that of his wife, Susana Repogia-Ulep; (2) Lot 840-B, covered by TCT No.

12688 in the names of Warlito Paringit and the latter’s wife Encarnacion Gante; (3) Lot-C 840-

C, covered by TCT No. 12689 in the name of INC; and (4) Lot 840-D, covered by TCT No.

126905 in the name of Maxima Rodico.

Such was the state of things when, on March 29, 1983, in the Regional Trial Court at

Pangasinan, the spouses Samuel Ulep and Susana Repogia-Ulep, the spouses Atinedoro Ulep

and Beatriz Ulep and their sister Valentina Ulep, filed their complaint for Quieting of Title,

Reconveyance and Declaration of Nullity of Title and Subdivision Plan with Damages against

respondents INC, Maxima Rodico and the spouses Warlito Paringit and Encarnacion Gante.

In their complaint, docketed as Civil Case No. U-3929, the Uleps basically alleged that they and

respondents are co-owners of Lot 840 in the following proportions:

1,635 square meters to Maxima Rodico;

817.5 square meters to spouses Samuel Ulep and Susana Repogia-Ulep;

507.5 square meters to spouses Warlito Paringit and Encarnacion Gante;

210 square meters to spouses Atinedoro Ulep and Beatriz Ulep, and Valentina Ulep;

100 square meters to Iglesia Ni Cristo.6

In the same complaint, the spouses Atinedoro Ulep and Beatriz Ulep and their sister Valentina

Ulep denied having executed a deed of sale in favor of INC over a portion of 620 square meters

of Lot 840, claiming that their signatures appearing on the deed were forged. At the most, so they

claimed, what they sold to INC was only 100 square meters and not 620 square meters.

Petitioners Samuel Ulep and Valentina Ulep, along with the spouses Atinedoro Ulep and Beatriz

Ulep, likewise averred that the subject lot was subdivided without their knowledge and consent.

In their common "Answer," respondents Maxima Rodico and the spouses Warlito Paringit and

Encarnacion Gante maintained that the segregation of their shares was known to petit ioners and

that it was done with the consent of Samuel Ulep himself.

For its part, INC, in its separate "Answer", asserted that it purchased from the spouses Atinedoro

Ulep and Beatriz Ulep and their sister Valentina Ulep the portion containing 620 square meters

of Lot 840 on December 21, 1954, as evidenced by a deed of sale duly registered with the

Registry of Deeds of Pangasinan.

During the pendency of the proceedings in Civil Case No. U-3929, Atinedoro Ulep died. Less

than a month thereafter, or more specifically on November 16, 1987, Atinedoro’s widow Beatriz

Ulep and their children executed a deed of renunciation, thereunder waiving all their rights and

interests over Lot 840 and relinquishing the same in favor of the spouses Samuel Ulep and

Susana Repogia-Ulep.7

Eventually, in a decision dated June 17, 1991, the trial court rendered judgment, as follows:

There being no res adjudicata in this case as already decided by the Court of Appeals, this Court

renders judgment as borne out by the evidence presented in favor of the [petitioners] and against

the [respondents], ordering the latter and all persons claiming title under them to vacate and

surrender a portion of 520 sq. m. of the land in question in favor of the [petitioners] in such a

way that [respondent] INC owns only 100 sq. m.; declaring and annulling the following

documents;

1. Deed of sale dated December 21, 1954 allegedly executed by plaintiffs-spouses Atinedoro

Ulep and Beatriz Aguilar and Valentina Ulep in favor of [respondent] INC, (Exh. A);

2. TCT No. 12689 issued to Iglesia Ni Cristo (Exh. K-1);

3. The affidavit of confirmation of subdivision, (Exh. K and Exh. 2); and

4. TCT No. 12605 (Exh. K-4) and a new TCT No. be issued to include the original 817.5 sq. m.

in favor of Samuel Ulep and Susan Repogia;

Declaring Lot No. 840 to be owned by the following parties in the following proportions:

(a) 1,635 sq. m. eastern portion to [respondent] Maxima Rodico already covered by TCT No.

12690 (Exh. K-3);

(b) 817.5 sq. m. to [petitioners] Samuel Ulep and Susana Repogia and a new TCT to be issued;

(c) ½ of 210 sq. m. to [petitioners] Samuel Ulep and Susana Repogia; and the other one-half or

105 sq. m. to [petitioner] Valentina Ulep in accordance with Exh. "C," a deed of renunciation

executed by the heirs of Atinedoro Ulep who died in 1987 and his surviving spouse Beatriz

Aguilar and a new Transfer Certificate of Title be issued;

(d) 507.5 sq. m. to [respondents] Warlito Paringit and Encarnacion Gante, already covered by

TCT No. 12688 (Exh. K-2);

(e) 100 sq. m. to [respondent] Iglesia Ni Cristo; and a new title to be issued;

and ordering the Register of Deeds of Pangasinan, to issue new Transfer Certificate of Title in

favor of [petitioners] Samuel Ulep and Susana Repogia covering 817.5 sq. m.; and another new

Transfer Certificate of Title covering 105 sq. m. in favor of Valentina Ulep and the other ½ of

210 sq. m. or 105 sq. m. in favor of Samuel Ulep and Susana Repogia pursuant to Exh. "C"; and

still another new Transfer Certificate of Title covering 100 sq. m. in favor of Iglesia Ni Cristo

and for the latter to pay the costs.

SO ORDERED.8 (Words in bracket ours).

Dissatisfied, respondent INC interposed an appeal to the Court of Appeals (CA), which appellate

recourse was thereat docketed as CA-G.R. CV No. 39333. For their part, respondents Maxima

Rodico and the spouses Warlito Paringit and Encarnacion Gante opted not to appeal.

As stated at the threshold hereof, the appellate court, in its Decision dated August 15, 1995,

modified that of the trial court, thus:

WHEREFORE, premises considered, the appealed judgment is MODIFIED as above indicated.

Accordingly, the decretal portion of said judgment should read as follows:

"1. The Deed of Absolute Sale dated December 21, 1954 executed by plaintiffs-spouses

Atinedoro Ulep and Beatriz Aguilar and Valentina Ulep in favor of [respondent] INC is declared

valid (Exh. K-1).

"2. Lot No. 840 is declared as owned by the following parties in the following proportions:

(f) 1,635 sq. m. eastern portion to [respondent] Maxima Rodico already covered by TCT No.

12690 (Exh. K-3);

(g) 297.5 sq. m. to [petitioner]-spouses Samuel Ulep and Susana Repogia;

(h) ½ of 210 sq. m. to [petitioner]-spouses Samuel Ulep and Susana Repogia; and the other one-

half or 105 sq. m. to Valentina Ulep in accordance with Exh. "C," a deed of renunciation

executed by the heirs of Atinedoro Ulep who died in 1987 and his surviving spouse Beatriz

Aguilar;

(i) 507.5 sq. m. to [respondents] Warlito Paringit and Encarnacion Gante, already covered by

TCT No. 12688 (Exh. K-2);

(j) 620 sq. m. to [respondent] INC, already covered by TCT No. 12689 (Exh. K-1).

"3. TCT No. 16205 registered in the names of [petitioner-spouses] Samuel and Susan Ulep (Exh.

K-4) is annulled.

"The Register of Deeds of Pangasinan is ordered to issue a new TCT in favor of [petitioner-

spouses] Samuel Ulep and Susana Repogia covering only 297.5 sq. m.; and another new TCT

covering 105 sq. m. in favor of Valentina Ulep and the other ½ of 210 sq. m. or 105 sq. m. in

favor of [petitioner-spouses] Samuel Ulep and Susana Repogia pursuant to Exh. "C". No Costs."

SO ORDERED.9 (Words in brackets ours).

In so ruling, the Court of Appeals explained:

There is no adequate evidentiary demonstration in the record that the deed of sale (dated

December 21, 1954 executed by Atinedoro Ulep, his wife Beatriz and sister Valentina Ulep in

favor of INC over the 620 square-meter area of the western portion of Lot 840) is void and

inefficacious on account of forgery.

As a public instrument which enjoys the presumption of regularity, clear and convincing

evidence is necessary to contradict the terms thereof.

xxx xxx xxx

In the present case, the biased, interested testimony of [petitioners] cannot overcome the

evidentiary force of the deed of sale which was acknowledged before a notary public, and hence,

a public document.

xxx xxx xxx

The sale of 620 sq. m. in favor of [respondent] INC executed by vendors Atinedoro and

Valentina Ulep is dated December 21, 1954, while the sale of 817.50 sq. meters by the same

vendors to [petitioners] Samuel and Susana Ulep was made on June 18, 1971. [Respondent] INC

registered its 620 sq. meters on December 21, 1954 by reason of which TCT No. 12689 was

issued in its name. [Petitioner-spouses] Samuel and Susana Ulep registered the land sold to them

on February 9, 1977 and TCT No. 16205 was issued in their names. Evidently, applying Article

1544, [petitioner] INC’s ownership and title over the 620 sq. meters prevail. The land consisting

of 620 sq. meters was first sold to INC and its title was registered first. Thus, the same vendors

could have sold only the remaining 297.50 sq. meters of Lot 840 to [petitioner-spouses] Samuel

and Susana Ulep and TCT No. 16205 issued in the latter’s name for 817.50 sq. meters is null and

void. There is no evidence that [respondent] INC is guilty of bad faith in acquiring the 620 sq.

meters portion of Lot 840. (Words in bracket ours).

Their motion for reconsideration having been denied by the same court in its equally challenged

Resolution of April 25, 1996, petitioners are now with us via the present recourse, faulting the

appellate court as follows:

I.

THE HONORABLE COURT OF APPEALS ERRED IN NOT AFFIRMING THE DECISION

DATED JUNE 17, 1991 (ANNEX A) OF THE TRIAL COURT, REGIONAL TRIAL COURT,

FIRST JUDICIAL REGION, BRANCH 48, URDANETA PANGASINAN IN CIVIL CASE

NO. 3929.

II.

AND IN THE ALTERNATIVE, THE HONORABLE COURT OF APPEALS ERRED IN NOT

AWARDING PETITIONERS SAMUEL ULEP AND SUSANA REPOGIA THE AREA OF

817.5 SQUARE METERS AND IN NOT REDUCING THE SHARE OF PRIVATE

RESPONDENTS, SPOUSES WARLITO PARINGIT AND ENCARNACION GANTE FROM

507.5 SQUARE METERS TO 197 SQUARE METERS.10

Petitioners initially submit that the factual findings of the trial court should not have been

disturbed by the appellate court, the same being entitled to great weight and respect.

We have consistently held that factual findings of the Court of Appeals and other lower courts

are, as a rule, final and conclusive upon this Court, except, inter alia, where their findings are at

odd with each other,11

as here.

Simply put, the issue before us is whether or not the Court of Appeals committed reversible error

in modifying the decision of the trial court.

Evidently, the issue necessitates an inquiry into the facts. While, as a rule, factual issues are not

within the province of this Court, nonetheless, in light of the conflicting factual findings of the

two (2) courts below, an examination of the facts obtaining in this case is in order.

Petitioners contend that respondent INC is entitled to only 100 square meters and not 620 square

meters of the western portion of Lot 840. To them, the deed of sale conveying 620 square meters

thereof to INC was void as the signatures of the vendors therein, namely, the spouses Atinedoro

Ulep and Beatriz Ulep and Valentina Ulep, were forged. They submit that what should instead be

upheld was the sale of 817.5 square meters in their favor by the same vendors.

As the Court sees it, the present controversy is a classic case of double sale. On December 21,

1954, Atinedoro Ulep, his wife Beatriz Ulep and sister Valentina Ulep sold the disputed area

(620 square-meter) of Lot 840 to INC. Subsequently, on January 18, 1971, a second sale was

executed by the same vendors in favor of spouses Samuel Ulep and Susana Ulep. The Court is,

therefore, called upon to determine which of the two groups of buyers has a better right to the

area in question.

Article 1544 of the Civil Code provides the statutory solution:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be

transferred to the person who may have first taken possession thereof in good faith, if it should

be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in

good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was

first in the possession; and, in the absence thereof, to the person who presents the oldest title,

provided there is good faith.

Otherwise stated, the law provides that a double sale of immovable transfers ownership to (1) the

first registrant in good faith; (2) then, the first possessor in good faith; and (3) finally, the buyer

who in good faith presents the oldest title.12

Jurisprudence teaches 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. In converso, knowledge gained by the second buyer of the

first sale defeats his rights even if he is first to register the second sale, since such knowledge

taints his prior registration with bad faith. This is the price exacted by the same provision of the

Civil Code for the second buyer to be able to displace the first buyer; before the second buyer

can obtain priority over the first, he must show that he acted in good faith throughout (i.e.

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.13

Per records, the sale of the disputed 620 square-meter portion of Lot 840 to respondent INC was

made on December 21, 1954 and registered with the Registry of Deeds of Pangasinan on

January 5, 1955. In fact, INC was issued a title over the same portion on September 23, 1975.

On the other hand, the conveyance to the spouses Samuel Ulep and Susana Repogia-Ulep

happened on January 18, 1971 and the spouses registered their document of conveyance only on

February 22, 1973.14

Clearly, not only was respondent INC the first buyer of the disputed area. It was also the first to

register the sale in its favor long before petitioners Samuel’s and Susana’s intrusion as second

buyers. Although Samuel and Susana thereafter registered the sale made to them, they did so

only after 18 years from the time INC caused the registration of its own document of sale.

"Registration" means any entry made in the books of the Registry which records solemnly and

permanently the right of ownership and other real rights.15

However, mere registration is not

sufficient. Good faith must concur with registration, else registration becomes an exercise in

futility.16

In the instant case, the registration made by respondent INC of its deed of sale more

than satisfies this requirement. The same thing cannot be said of petitioners Samuel Ulep and

Susana Ulep. Said petitioners, by their own admission, were aware that there existed an

agreement between INC and vendors Atinedoro Ulep, his wife Beatriz and sister Valentina Ulep

involving a portion of 100 square meters of Lot 840. Knowledge of such transaction should have

put the spouses Samuel Ulep and Susana Ulep upon such inquiry or investigation as might be

necessary to acquaint them with the possible defects in the title of their vendors. They should

have acted with that measure of precaution which may reasonably be required of a prudent man

in a similar situation. After all, good faith, or the lack of it, is, in the last analysis, a question of

intention. But in ascertaining the intention by which one is actuated on a given occasion, courts

are necessarily controlled by the evidence as to the conduct and outward acts by which the

inward motive may, with safety, be determined. So it is that ‘the honesty of intention,’ ‘the

honest lawful intent,’ which constitutes good faith implies a ‘freedom from knowledge and

circumstances which ought to put a person on inquiry.’ 17

Hence, proof of such knowledge

overcomes the presumption of good faith.

Here, the spouses Samuel Ulep and Susana Ulep were fully aware, or could have been, if they

had chosen to inquire, of the rights of INC under the deed of sale duly annotated on the common

title of the spouses Atinedoro Ulep and Beatriz Ulep and Valentina Ulep. Verily, the sale to INC

should prevail over the sale made to spouses Samuel and Susana because INC was the first

registrant in good faith.

Petitioners’ allegation of forgery relative to the deed of sale executed on December 21, 1954 by

the spouses Atinedoro Ulep, his wife Beatriz and sister Valentina Ulep over the 620 square-

meter portion of Lot 840 cannot be sustained. As a rule, forgery cannot be presumed and must be

proved by clear, positive and convincing evidence, the burden for which lies on the party

alleging it. The fact of forgery can only be established by a comparison between the alleged

forged signature and the authentic and genuine signature of the person whose signature is

theorized to have been forged.18

Here, petitioners’ claim of forgery is unsupported by any substantial evidence other than their

own self-serving testimonies. As it were, they failed to present handwriting experts and other

persons familiar with the handwriting of the spouses Atinedoro Ulep, his wife Beatriz and sister

Valentina Ulep that would show that their signatures appearing in the questioned deed of sale in

favor of respondent INC were forged. Due to the technicality of the procedure involved in the

examination of forged documents, the expertise of questioned document examiners is usually

helpful. These handwriting experts can help determine fundamental, significant differences in

writing characteristics between the questioned and the standard or sample specimen signatures,

as well as the movement and manner of execution strokes.

Petitioners insist that the conveyance of only 100 square meters to INC was in fact evidenced by

a deed of sale notarized by a certain Atty. Benjamin Fernandez.19

However, they sorely failed to

produce in court the said alleged deed of sale. They could have, at the very least, presented Atty.

Fernandez to prove the existence of that deed, but they did not. The only plausible conclusion is

that no such deed exists.

On the other hand, to bolster its claim of ownership, respondent INC presented the December 21,

1954 deed of sale executed in its favor by the spouses Atinedoro and Beatriz Ulep and Valentina

Ulep over a portion of 620 square meters of Lot 840. To be sure, INC’s deed of sale was duly

notarized by Atty. Bernabe Salcedo Calimlim.20

Generally, a notarized document carries the

evidentiary weight conferred upon it with respect to its due execution, and documents

acknowledged before a notary public have in their favor the presumption of regularity.21

Thus,

the notarized deed of sale executed on December 21, 1954 by Atinedoro Ulep, his wife Beatriz

and sister Valentina Ulep over the contested area in favor of respondent INC deserves full

credence and is valid and enforceable in the absence, as here, of overwhelming evidence to the

contrary.

In a last-ditch but futile attempt to persuade the Court, petitioners alternatively pray that INC’s

portion of 620 square meters of Lot 840, assuming that INC is entitled to it, should be taken from

the western portion of the same lot sold to respondent spouses Warlito Paringit and Encarnacion

Gante, and not from them. To petitioners, the share of the spouses Warlito and Encarnacion

should accordingly be reduced from 507.5 square meters to only 197 square meters.

We note, however, that petitioners never raised before the trial court nor before the appellate

court the issue of Warlito’s and Encarnacion’s entitlement to 507.5 square meters. Quite the

contrary, petitioners even alleged in their complaint that the spouses Warlito Paringit and

Encarnacion Gante are owners of 507.5 square meters of Lot 840. They never questioned the

spouses’ ownership of said portion. This issue was only posed by petitioners in the instant

petition before this Court. It is certainly too late for them to raise said issue for the first time at

this late stage of the proceedings.

Points of law, theories, issues and arguments not brought to the attention of the lower court need

not be, and ordinarily will not be, considered by a reviewing court, as these cannot be raised for

the first time on appeal. Basic considerations of fair play, justice and due process underlie the

rule. It would be unfair to the adverse party who would have no opportunity to present evidence

in contra to the new theory, which it could have done had it been aware of it at the time of the

hearing before the trial court.22

Of course, this rule admits of certain exceptions. For one, issues of lack of jurisdiction, though

not raised below, may be considered by the reviewing court as they may be raised at any stage.

For another, the reviewing court may also consider an issue not properly raised during trial when

there is plain error. Likewise, it may entertain such arguments when there are jurisprudential

developments affecting the issues, or when the issues raised present a matter of public policy.23

Unfortunately for petitioners, however, none of these exceptions exists in this case. It is thus too

late in the day for petitioners to raise in this recourse the sale made by the spouses Atinedoro

Ulep and Beatriz Ulep of the 507.5 square-meter area of Lot 840 to the spouses Warlito Paringit

and Encarnacion Gante. To allow petitioners to do so would be utterly unfair to the latter.

WHEREFORE, the petition is DENIED and the assailed decision and resolution of the Court of

Appeals AFFIRMED in toto.

Costs against petitioners.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 123935 December 14, 2001

LEONCIO and ENRIQUETA, both surnamed BARRERA, petitioners,

vs.

COURT OF APPEALS and ROSENDO C. PALABASAN, respondents.

PARDO, J.:

The Case

In this petition for certiorari,1 petitioners seek to annul the decision of the Court of Appeals

2

affirming the decision of the Regional Trial Court,3 Makati, Branch 66, as well as its resolution

4

denying reconsideration thereof.

The Facts

Azalia Salome (Salome) owned a house and lot located at No. 2641 Bonifacio St., Bangkal,

Makati City, covered by Transfer Certificate of Title No. 61772. Salome mortgaged the property

to Country Bankers Insurance and Surety Company to secure a P10,000.00 loan.

On July 1, 1966, Salome sold the property to Rosendo C. Palabasan.5 Transfer Certificate of

Title No. 61772 was cancelled and a new one, Transfer Certificate of Title No. 167387,6 was

issued in the name of Rosendo C. Palabasan and Bella S. Palabasan.

On April 19, 1989, Leoncio and Enriqueta Barrera (spouses Barrera) filed with the Regional

Trial Court, Makati City, Branch 138, a complaint7 against Palabasan for reconveyance with

damages. They alleged that they had been in possession of the property since 1962 by virtue of a

Deed of Sale with Assumption of Mortgage which was not notarized; that Salome executed a

notarized Deed of Sale with Assumption of Mortgage in their favor on March 31, 1966; that,

pursuant to this notarized deed, they settled Salome's obligations with the Country Bankers

Insurance and Surety Company; that they tried to redeem the property but were not able to do so

because Palabasan had done so and the title to the property was released to Palabasan; that in

1970, they signed a blank document which was supposed to become Palabasan's authority to sell

the land for them; that in 1975, they were surprised to learn that the blank document which they

had signed turned out to be a contract of lease wherein they were the lessees and Palabasan was

the lessor of the property; and that Palabasan registered the property in his name and was able to

secure Transfer Certificate of Title No. 167387.

In his answer to the complaint, Palabasan asserted that he bought the property from Salome on

June 30, 1966, after he had paid the obligation of Salome with Country Bankers Insurance and

Surety Company; that he had been issued Transfer Certificate of Title No. 167387 in his name

after he had the deed of sale registered; that the spouses Barrera were in possession of the

property as lessees of Salome; and that a contract of lease was executed by and between the

spouses Barrera and Palabasan in 1970. Consequently, he claimed that the spouses Barrera had

no legal right to claim reconveyance of the property in question.1âwphi1.nêt

On February 23, 1993, after trial, the lower court rendered a decision8 declaring Palabasan to

have validly acquired title to the property in question. The trial court, ruling that the case is one

of double sale of an immovable, applied the second paragraph of Article 15449 of the Civil Code.

In time, the spouses Barrera appealed10

the decision to the Court of Appeals.11

On October 25, 1995, the Court of Appeals promulgated a decision affirming in toto the decision

of the trial court. The appellate court, however, found Article 1544 of the Civil Code

inapplicable to the case as there was no sale between the spouses Barrera and Salome because

Salome's testimony given in a previous case12

to this effect was stricken off the record since she

died prior to cross-examination; the testimony of Cenon Mateo, the common-law husband of

Salome showed that he was not aware of the transaction entered into on March 31, 1966; and

counsel for spouses Barrera admitted that the sale transaction in 1962 did not materialize as the

property was mortgaged to Country Bankers Insurance and Surety Company.

On December 4, 1995, the spouses Barrera filed a motion for reconsideration13

of the decision;

however, on February 21, 1996, the Court of Appeals denied the same.14

Hence, this petition.15

The Issues

The issues raised are: whether respondent Palabasan is the owner of the property in question; and

whether there was double sale of an immovable property covered by Article 1544 of the Civil

Code.

The Court's Ruling

The petition is without merit.

An action for reconveyance of a property is the sole remedy of a landowner whose property has

been wrongfully or erroneously registered in another's name after one year from the date of the

decree so long as the property has not passed to an innocent purchaser for value.16

The action

does not seek to reopen the registration proceedings and set aside the decree of registration but

only purports to show that the person who secured the registration of the property in controversy

is not the real owner thereof.17

Fraud may be a ground for reconveyance. For an action for

reconveyance based on fraud to prosper, the party seeking reconveyance must prove by clear and

convincing evidence his title to the property and the fact of fraud.18

It must be stressed that mere allegations of fraud are not enough. Intentional acts to deceive and

deprive another of his right, or in some manner, injure him, must be specifically alleged and

proved.19

The burden of proof rests on petitioners; this, the petitioners failed to do.

Petitioners offered no proof that there was misrepresentation or concealment in the registration

of the deed that led to the issuance of Transfer Certificate of Title No. 167387. With the

presumption of regularity in the performance of official functions, the claim of petitioners that

the issuance of Transfer Certificate of Title No. 167387 was tainted with fraud must fail.

As to proof of title to the property, respondent Palabasan offered the following: Transfer

Certificate of Title No. 167387,20

Tax Declaration No. 03251,21

the Deed of Absolute Sale22

dated June 30, 1966, executed by Salome in favor of respondent Palabasan, the Contract of

Lease,23

with respondent Palabasan as the lessor and petitioner Leoncio Barrera as the lessee, and

the decision for the court of First Instance, Pasig, Branch XIX in Civil Case No. 38608,24

finding

respondent Palabasan to be the lawful owner of the property covered by Transfer Certificate of

Title No. 167387.

On the other hand, petitioner spouses Barrera only have the Deed of Absolute Sale with

Assumption of Real Estate Mortgage25

evidencing a transaction which occurred in 1962, a Deed

of Sale with Assumption of Mortgage26

dated March 31, 1966 and the testimonies of Cenon

Mateo27

and petitioner Leoncio Barrera.28

The spouses Barrera attempted to offer in evidence the

transcript of stenographic notes taken of the testimony of Salome in Civil Case No. 14009.29

Respondent objected to the offer which opposition the trial court sustained.30

We find respondent Palabasan to be the owner of the property.

The decision of the then Court of First Instance, Pasig, Branch XIX in Civil Case No. 38608,

promulgated on September 4, 198131

and reinstated on August 10, 1990,32

finding respondent

Palabasan to be the lawful owner of the property covered by Transfer Certificate of Title No.

167387 may not be invoked in this case since said decision had become stale.33

Article 1144 (3) of the Civil Code provides that an action upon a judgment must be brought

within ten years from the time the right of action accrues.

On the other hand, Section 6, Rule 39, Revised Rules of Court, states:

"A final and executory judgment or order may be executed on motion within five (5)

years from the date of its entry. After the lapse of such time, and before it is barred by the

statute of limitations, a judgment may be enforced by motion within five (5) years from

the date of its entry and thereafter by action before it is barred by the statute of

limitations."

The rule is that the court could issue a writ of execution by motion within five (5) years from

finality of the decision.34

A writ of execution issued after the expiration of that period is null and

void.35

There is a need for the interested party to file an independent action for revival of

judgment. The judgment may be enforced after the lapse of this period and before the same is

barred by the statute of limitations, by instituting an ordinary civil actions.36

"The reason is that

after the lapse of the five-year period, the judgment is reduced to a mere right of action, which

judgment must be enforced, as all other ordinary actions, by the institution of a complaint in the

regular form. Such action must be filed within ten (10) years from the date the judgment became

final."37

The decision having become stale, "any action to enforce or revive it has prescribed."38

This notwithstanding, the greater weight of evidence lies in favor of respondent Palabasan's

claim of ownership over the land. Surely, Transfer Certificate of Title No. 167387 and Tax

Declaration No. 03251 which respondent Palabasan offered in evidence is more convincing than

petitioners' evidence.

The certificate of title issued is an absolute and indefeasible evidence of ownership of the

property in favor of the person whose name appears therein. It is binding and conclusive upon

the whole world.39

Anent the question of whether this case is one of double sale, suffice it to say that there is no

sufficient proof on the sale between Salome and petitioners. There is no double sale that would

warrant the application of Article 1544 of the Civil Code.

As mentioned at the outset, the evidence petitioners adduced to prove the sale was the notarized

deed executed on March 31, 1966. However, a perusal of the deed would show that the sale is

conditioned on the payment by the petitioners of Salome's obligation with the Country Bankers

Insurance and Surety Company under the contract of mortgage.

Petitioners submitted no evidence to show that they complied with the condition given. Hence,

there was no consummation of the contract which would transfer ownership of the property to

the petitioners. All that they presented was the self-serving testimony of petitioner Leoncio

Barrera40

to the effect that the obligations were paid by them. Notable is Cenon Mateo's

testimony that he has no knowledge of any transaction entered into by Salome on March 31,

1966.41

Likewise, there is no sufficient evidence to show that the earlier transaction in 1962 ever

materialized. The testimony of Salome in Civil Case No. 14009 confirming the existence of this

transaction is inadmissible for lack of cross-examination. Likewise, the Deed of Absolute Sale

with Assumption of Real Estate Mortgage42

not having been notarized, its genuineness and due

execution will have to be proven. In this case, the petitioners only presented the testimony of

petitioner Leoncio Barrera and Cenon Mateo, which are, again, self-serving assertions if not

corroborated by any other evidence. Notable is the counsel of petitioners own admission that "the

said transaction however did not in any way materialize for the reason that the property, subject

of the transaction was mortgaged to Country Bankers and Surety Company."43

The only sale that materialized in this case was the sale by Salome to respondent Palabasan that

was evidenced by a deed of absolute sale that enabled respondent Palabasan to redeem the

property from Country Bankers Insurance and Surety Company and consequently to secure

Transfer Certificate of Title No. 167387 in his favor over the same property.1âwphi1.nêt

The Fallo

WHEREFORE, the Court DENIES the petition and AFFIRMS the decision of the Court of

Appeals in CA-G.R. CV No. 40909 and its resolution denying reconsideration.

No Costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-11198 March 20, 1917

THOS, D. AITKEN, plaintiff-appellant,

vs.

JULIAN LA O, as administrator of the estate of Apolonia Remigio, deceased, defendant-

appellee.

Aitken and DeSelms for appellant.

Gabriel La O for appellee.

CARSON, J.:

It appears from the record in this case that a Chinaman named To Jan Co erected a store building

on a parcel of land belonging to Apolonia Remigio, under an agreement whereby one-half of the

rents were to go to her and one-half to To Jan Co; that the owner of the land, nor having received

the rents agreed upon, instituted an action on September 21, 1908, against To Jan Co and one of

the occupants of the building to recover these rents; that judgment having been rendered in her

favor in the sum of P3,425, execution issued and thereafter the house was purchased by the

judgment creditor, Apolonia Remigio, at the sheriff's sale on February 11, 1910, had under

authority of the execution; that she took possession forthwith; that the defendant in this action is

the administrator of the estate of Apolonia Remigio deceased, and as such is now in possession

of the house and the land upon which it stands; that on October 6, 1908, not long after the filing

of the complaint in the above-mentioned action, which was dated September 21, 1908, To Jan Co

executed an unregistered deed of sale of the house in question to another Chinaman named To

Cun, reserving therein the right to repurchase within ninety days; that this right was never

exercised; that To Cun (the second Chinaman) never took possession under this deed; that

thereafter, On October 22, 1912, To Cun (the second Chinaman) executed an unregistered deed

of sale of the house to the plaintiff in this action, who, on June 9, 1915, instituted these

proceedings wherein he prays a judgment for possession of the house, and for an accounting of

the rentals collected thereon since the first days of September, 1908, alleging that his one-half

share of these rentals amounts to P2,485.

The opinion of the trial judge filed together with his judgment is as follows:

The plaintiff herein seeks to recover the possession of a certain house that was erected on

lands belonging to a third person. The said land belonged to Apolonia Remigio during

her lifetime but since her demise it forms part of her estate. The estate is administered by

Julian La O. Plaintiff further claims the sum of P2,485, as being one half of the rentals

obtained from the building since September 1, 1908.

Plaintiff alleges that he is the owner of the said building designated as numbers 15, 17, 19

and 21 Calle Salazar, district of Binondo, and that he is entitled to collect rentals

therefrom.

The defendant not only denies the plaintiff's claim to the building and its rentals, but

maintains that the building belongs to said party defendant.

From the evidence introduced by the plaintiff, it appears that the building in question is

not properly a house, but a camarin of four doors or apartments; that it was erected by the

Chinaman To Jan Co on the lot that now belongs to the estate of Apolonia Remigio

(Exhibit C); that on October 6, 1908 (Exhibit A), to Jan Co sold it under pacto de retro

for the term of three months, which might be extended to nine, to a Chinaman named To

Cun, for P1,800, a sum in which, by reason of three due and unpaid notes, the vendor To

Jan Co was indebted to the vendee To Cun.

The latter, in turn, by a deed certified on October 22, 1912 (Exhibit B), sold the building

or camarin to the plaintiff, Aitken, for the same amount of P1,800.

But it has been proven by the evidence introduced by the defendant that when the

Chinaman To Jan Co conveyed the building to To Cun on October 6, 1908 (Exhibit A),

he had already (on September 24, 1908) been personally notified of the proceedings filed

against him and the Chinaman To Ky in the justice of the peace court of Manila by the

representative of Apolonia Remigio to eject them from the lot on which the building

stands and to recover the sum of P3,425 as rent due for the said house. After the trial was

had (the order defendant, To Ky, who was absent, first having been summoned by public

notice), judgment was rendered against both of them. On August 26, 1909, a writ of

execution was issued by virtue of which the lot was restored to the plaintiff and on

February 11, 1910, after publication of notice, the building or camarin erected thereon

was sold at public auction for one peso and adjudicated to the plaintiff, as attested by the

certificate issued on the said date by the clerk of this court. To Jan Co failed to exercise

his right of redemption within the year granted him that right expired on the 10th of the

same month of the following year, 1911. To Cun, notwitshanding that he had purchased

the building in question under pacto de retro on October 6, 1908, did not redeem it either.

Nowhere in the record does it appear that the ownership which To Cun pretends to have

acquired in the building by the expiration of the period granted for the exercise of the

right of redemption that was not utilized by To Jan Co, was consolidated, nor that either

the latter, or To Cun, paid any taxes, unless it was for the years 1914 and 1915, long after

the sale referred to in Exhibit B, the deed of October 22, 1912, executed by To Cun in

behalf of the herein plaintiff. But here it is to be noted that the two tax receipts (Exhibits

F and G), dated June 26, 1914, and June 30, 1915, appear to have been made out to To

Cun, notwithstanding that he had disposed of the building as far back as October 22,

1912. Neither does the evidence show that To Jan Co (notwithstanding that on October 6,

1908, he sold the building under pacto de retro to To Cun) made any record in the

ejectment proceedings with regard to the lot occupied by the building, of the fact that he

was not the owner of the building or that he had conveyed his ownership therein to To

Cun; much less does it show that the latter filed any third-party claim.

If the camarin was levied upon in execution of the judgment rendered in the proceedings

for ejectment and recovery of rentals, prosecuted against To Jan Co; if the latter did

nothing to pay the said rentals; if the alleged purchaser To Cun made no effort to recover

possession of the building; if the sale at public auction, after proper advertisement and

legal steps, was accomplished, the property awarded to the highest bidder and no third-

party claim was filed by the person who considered himself to be the owner

notwithstanding that he had knowledge of the course of the proceedings; if the building

was sold at auction for the express purpose of applying the proceeds of the sale to the

payment of the rent owning for the lot on which it was erected; and if neither To Jan Co,

nor the alleged purchaser To Cun, exercised the right of redemption within the year

granted by law and specified in the certificate issued by the sheriff of this city, the

conveyance of the ownership of the building by this official, in the name of the plaintiff

and debtor To Jan Co, to the highest bidder, who was the defendant herself, Apolonia

Remigio, is perfectly legal and valid.

To Cun must so have understood the matter, as must also the plaintiff himself, Aitken,

who, notwithstanding his being a practicing attorney of this city, has done nothing since

October 22, 1912, in regard to the building which, according to the deed Exhibit B, he

acquired, either with regard to paying the taxes or to collecting the rentals to which he

claimed he was entitled and which he is now trying to collect in the sum of P2,485,

embracing the period which has elapsed since September 1, 1908. If Aitken had had the

least idea that he had acquired a right in the building, it is not probable that he would

have allowed nearly three years to elapse from October 21, 1912, without having exerted

every possible effort to collect from the vendor and alleged owner To Cun, not only the

rentals unpaid from September 1, 1908, but also those due from October 22, 1912, to

April 7 of the present year, the date on which the idea occurred to him to seek redress in

the courts.

The sale of the building to To Cun and the latter sale of same by To Cun to the plaintiff

cannot be upheld because To Jan Co, the original vendor, had no right to sell it to To Cun

after having lost the right to do so, and the latter had no right to make the sale to Aitken.

To Cun acquired no right in the building; consequently he could convey nothing to the

purchaser.

As the plaintiff acquired no right whatever in the building, still less in the rentals

produced by it, this action will not lie.

Julian La O, in his capacity of administrator of the estate of Apolonia Remigio, is

absolved from the complaint, with the costs against the plaintff.

While we are inclined to agree with the trial judge that the evidence of record tends strongly to

disclose that the transaction evidenced by the deed of sale with reserved right of repurchase from

To Jan Co to To Cun was not a bona fide conveyance of the house; and that whatever rights in or

to the house which To Cun may have acquired by virtue of that transaction were abandoned and

surendered by him long prior to the date of the execution of the deed of conveyance to the

plaintiff in this action; we prefer to rest our judgment affirming the dismissal of the complaint

upon the express provisions of article 1473 of the Civil Code.

The article is as follows:

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 personal property.

Should it be real property, it shall belong to the person acquiring it who first recorded it

in the registry.

Should there be no entry, the property shall belong to the person who first took

possession of it in good faith, and, in the absence thereof, to the person who presents the

oldest title, provided there is good faith.

Granting, for the sake of argument, that the sale from To Jan Co to To Cun was a valid and

binding transaction, it is evident that the house has been sold as his property to two different

vendees, and the sale To Cun not having been recorded in the registry, the property belongs to

the estate of Apolonia Remigio, the purchaser who first took possession in good faith.

It has been suggested that since To Jan Co, the judgment debtor, had conveyed all his right, title

and interest in the house to To Cun prior to the date of the sheriff's sale to Apolonia Remigio, she

took nothing thereunder, because, as it is said, she could acquire merely such interest in the

property as remained in the judgment debtor at the date of the sale. It will readily be seen,

however, that analogous reasoning would defeat a claim of title by the second purchaser of real

estate in each and all of the cases wherein such right is secured to him under the provisions of the

above cited article of the Code.

Were it not for that article, it cannot be doubted, on general principles, that should an owner of

real estate execute an unregistered deed of sale of all right, title and interest therein to two

different persons, the second purchaser would take nothing under the deed, because the vendor,

at the date of the second sale, has no right, title or interest in the property which he can lawfully

convey to such purchaser. But the provisions of this article except from the general doctrine the

cases therein mentioned, to this extent at least, that an unregistered deed to the first purchaser,

cannot be held to have had the effect of conveying title; good as against a second purchaser,

when it appears that the second purchaser was the first to secure possession.

The rule thus announced is in substantial conformity with the doctrine quite uniformly upheld by

the courts in the United States, which is set forth as follows in freeman on Executions (3d Ed.

Sec. 336), supported by numerous citations of authority:

We have elsewhere had occasion to treat of the rights of purchasers at execution sales,

when brought in conflict with claims derived from unrecorded instruments made by the

defendant, or based upon some other secret transaction not known to the purchaser. We

then said: Wherever, under the law, a deed or mortgage is valid without being recorded, a

subsequently attaching judgment lien against the grantor or mortgagor will not be of any

benefit to the lienholder as against the deed or mortgage. But a purchaser at a sale under a

judgment is, to the same extent as if he were purchaser at a private or voluntary sale,

protected from claims previously acquired by third persons from the judgment debtor, of

which he has no actual nor constructive notice. But if, at the time of the sale, the

purchaser has actual notice of any legal or equitable right in a third person, or if, in the

absence of such notice, the instrument evidencing such right is properly of record, or if

possession is held under it, then the title acquired by the purchaser cannot prejudice the

interest of such third person.

In a footnote (No. 45) to the paragraph from which the foregoing extract is taken, we find the

following concise statement of the precise proposition upon which our ruling is based:

Purchasers at execution sales are, to the sale extent as other purchasers, entitled to the

benefit of the statutes requiring instruments affecting the title to real estate to be

recorded. (Stewart vs. Freeman, 22 Pa. St., 120; Heister vs. Fortner, 2 Binn., 40; 4 Am.

Dec., 417; Mann's Appeal, 1 Pa. St., 24; Scribner vs. Lockwood, 9 Ohio, 184; Waldo vs.

Russel, 5 Mo., 387; Goepp vs. Gartiser, 35 Pa. St., 130; Duke vs. Clark, 58 Miss., 465;

Lee vs. Beringham, 30 Kan., 312; Draper vs. Bryon, 26 Mo., 108; 69 Am. Dec., 483;

Grace vs. Wade, 45 Tex. 529; Milner vs. Hyland, 77 Ind., 458; Miles vs. King, 5 S. C.,

146.)

We conclude that the judgment entered in the court below should be affirmed, with the costs of

this instance against the appellant. So ordered.

Torres, Trent and Araullo, JJ., concur.

Moreland, J., did not sign.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-3667 September 5, 1907

NATALIA FABIAN ET AL., plaintiffs-appellants,

vs.

SMITH, BELL & CO., defendants-appellees.

Rafael Palma for appellants.

Kinney, Odlin & Lawrence for appellees.

WILLARD, J.:

On the 28th of January 1901 Emiliano Boncan was the owner of the real estate in question in this

case his title thereto being recorded in the registry of property. On that they he sold and

conveyed the same by a public documents to the plaintiffs. This deed was never recorded in the

registry of property. The appellees, Smith, Bell & Co., having some years thereafter obtained a

judgment against Emiliano Boncan, levied an execution issued on said judgment upon the real

estate in question, which then stood upon the said record in the name of said Boncan. The

plaintiffs thereupon brought this action to restrain the judgment creditors from selling property

under this execution. Judgment was entered in the court below in favor of the defendants, and the

plaintiffs have appealed.

The question in the case is whether the levy of an execution against a judgment debtor upon real

estate which stands in his name in the registry of property takes precedence or not of an

unrecorded deed of the same property made by the judgment debtor prior to the levy in question.

This question, so far as the Spanish law in force prior to the present Code of Civil Procedure is

concerned, has been considered by this court in a case relating to an attachment made under the

same circumstances. By the provisions of that law an execution, such as was levied in the case at

bar, stands upon the same footing as an attachment. Both are provisional records, one mentioned

in article 42, paragraph 2, of the Mortgage Law, and the other in paragraph 3 of the same article.

They are placed upon the same footing also by article 44, which is as follows:

The creditor who obtains an entry in his favor in cases Nos. 2, 3, and 4 of article 42 shall

have preference, only with regard to the property entered, over those who have another

claim against the same debtor, contracted subsequently to said entry.

The case above referred to is the case of Martinez vs. Holliday, Wise & Co. (1 Phil. Rep., 194).

In that case it was said (p. 197):

From the time when the Mortgage Law of 1861 was in consideration up to the present

time there has been only one opinion concerning the effects of provisional record of this

class. It has always been said that it did not change the character of the debt; that it did

not convert into a right to the thing itself the claim of the creditor; that it did not give him

any preference over existing claims which were not s provisionally recorded.

This case was followed in that of Olivares vs. Hoskyn & Co. (2 Phil. Rep., 689), where the

creditor had obtained judgment and levied an execution, the case, therefore, being similar to this

case. It was also followed in the case of Peterson vs. Newberry (6 Phil. Rep., 260).

In accordance with the provisions of Mortgage Law and the Civil Code, as they have thus

construed by this court, there can be no doubt that the claim of the appellants is superior to the

claim of the appellees.

These provisions of the Spanish law had not been modified or repealed in the respect by the

Code of Civil Procedure. The section of that code relating to attachment provide that when real

estate stands upon the records in name of the defendant the attachment shall be made in a certain

way, and when it stands in the name of the third person the attachment shall be made in a certain

way; but nothing is said in any of these sections as to any priority secured by the attachment. The

provision which is found in the statute law of a great many of the States of America, to the effect

that an unrecorded deed shall be void as to subsequent attaching or judgment creditors, nowhere

appears in this code. Article 1473 of the Civil Code, which gives preference to that one of two

deeds which is first recorded, does not extend to attachments or executions.

The same is true of the sections of the code (Civil Procedure) relating to executions; it appearing,

moreover, in section 463, that a purchaser under an execution sale "shall be substituted to and

acquire all the right, interest, title, and claim of the judgment debtor thereto," which in this case

would be nothing. The case of Peterson vs. Newberry, above cited, arose after the publication of

the present Code of Civil Procedure.

Article 389 of the Mortgage Law is in part as follows:

From the time this law goes into operation, no document or instrument which has not

been recorded in the registry shall be admitted in the ordinary of special courts or

tribunals. in the councils and offices of the Government, by which interest subject to

record are created, conveyed, acknowledged, modified or extinguished, according to the

same law, if the object of the presentation be to enforce, to the prejudice of the third

persons, the interest which should have been recorded.

This article does not aid the appellees for they do not come within the meaning of the phrase

"third persons" found therein. In the Commentaries of Galindo y Escolsura upon the Mortgage

Law, volume 2 (2d ed.), page 635, it is said:

Therefore it is the general opinion that when a person, by virtue of a judgment for the

recovery of the debt not supported by a mortgage , secures an attachment against property

which turns out to have been previously sold, although the purchaser did not have the

property registered in his name, the latter has a superior right, as the attachment does not

confer a real right.

See also page 641 of the same volume.

The judgment of the court below is reversed, and the cause remanded with directions to enter

judgment for the plaintiffs as prayed in the complaint. No costs will be allowed to either party in

this court. So ordered.

Arellano, C.J., Torres, Johnson, and Tracey, JJ., concur.

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-28740 February 24, 1981

FERMIN Z. CARAM, JR., petitioner, vs. CLARO L. LAURETA, respondent.

FERNANDEZ, J.:

This is a petition for certiorari to review the decision of the Court of Appeals promulgated on January 29, 1968 in CA-G. R. NO. 35721-R entitled "Claro L. Laureta, plaintiff-appellee versus Marcos Mata, Codidi Mata and Fermin Caram, Jr., defendants- appellants; Tampino (Mansaca), et al. Intervenors-appellants," affirming the decision of the Court of First Instance of Davao in Civil Case No. 3083. 1

On June 25, 1959, Claro L. Laureta filed in the Court of First Instance of Davao an action for nullity, recovery of ownership and/or reconveyance with damages and attorney's fees against Marcos Mata, Codidi Mata, Fermin Z. Caram, Jr. and the Register of Deeds of Davao City. 2

On June 10, 1945, Marcos Mata conveyed a large tract of agricultural land covered by Original Certificate of Title No. 3019 in favor of Claro Laureta, plaintiff, the respondent herein. The deed of absolute sale in favor of the plaintiff was not registered because it was not acknowledged before a notary public or any other authorized officer. At the time the sale was executed, there was no authorized officer before whom the sale could be acknowledged inasmuch as the civil government in Tagum, Davao was not as yet organized. However, the defendant Marcos Mata delivered to Laureta the peaceful and lawful possession of the premises of the land together with the pertinent papers thereof such as the Owner's Duplicate Original Certificate of Title No. 3019, sketch plan, tax declaration, tax receipts and other papers related thereto. 3 Since June 10, 1945, the

plaintiff Laureta had been and is stin in continuous, adverse and notorious occupation of said land, without being molested, disturbed or stopped by any of the defendants or their representatives. In fact, Laureta had been paying realty taxes due thereon and had introduced improvements worth not less than P20,000.00 at the time of the filing of the complaint. 4

On May 5, 1947, the same land covered by Original Certificate of Title No. 3019 was sold by Marcos Mata to defendant Fermin Z. Caram, Jr., petitioner herein. The deed of sale in favor of Caram was acknowledged before Atty. Abelardo Aportadera. On May

22, 1947, Marcos Mata, through Attys. Abelardo Aportadera and Gumercindo Arcilla, filed with the Court of First Instance of Davao a petition for the issuance of a new Owner's Duplicate of Original Certificate of Title No. 3019, alleging as ground therefor the loss of said title in the evacuation place of defendant Marcos Mata in Magugpo, Tagum, Davao. On June 5, 1947, the Court of First Instance of Davao issued an order directing the Register of Deeds of Davao to issue a new Owner's Duplicate Certificate of Title No. 3019 in favor of Marcos Mata and declaring the lost title as null and void. On December 9, 1947, the second sale between Marcos Mata and Fermin Caram, Jr. was registered with the Register of Deeds. On the same date, Transfer Certificate of Title No. 140 was issued in favor of Fermin Caram Jr. 5

On August 29, 1959, the defendants Marcos Mata and Codidi Mata filed their answer with counterclaim admitting the existence of a private absolute deed of sale of his only property in favor of Claro L. Laureta but alleging that he signed the same as he was subjected to duress, threat and intimidation for the plaintiff was the commanding officer of the 10th division USFIP operating in the unoccupied areas of Northern Davao with its headquarters at Project No. 7 (Km. 60, Davao Agusan Highways), in the Municipality of Tagum, Province of Davao; that Laureta's words and requests were laws; that although the defendant Mata did not like to sell his property or sign the document without even understanding the same, he was ordered to accept P650.00 Mindanao Emergency notes; and that due to his fear of harm or danger that will happen to him or to his family, if he refused he had no other alternative but to sign the document. 6

The defendants Marcos Mata and Codidi Mata also admit the existence of a record in the Registry of Deeds regarding a document allegedly signed by him in favor of his co-defendant Fermin Caram, Jr. but denies that he ever signed the document for he knew before hand that he had signed a deed of sale in favor of the plaintiff and that the plaintiff was in possession of the certificate of title; that if ever his thumb mark appeared in the document purportedly alienating the property to Fermin Caram, did his consent was obtained through fraud and misrepresentation for the defendant Mata is illiterate and ignorant and did not know what he was signing; and that he did not receive a consideration for the said sale. 7

The defendant Fermin Caram Jr. filed his answer on October 23, 1959 alleging that he has no knowledge or information about the previous encumbrances, transactions, and alienations in favor of plaintiff until the filing of the complaints. 8

The trial court rendered a decision dated February 29, 1964, the dispositive portion of which reads: 9

1. Declaring that the deed of sale, Exhibit A, executed by Marcos Mata in favor of Claro L. Laureta stands and prevails over the deed of sale, Exhibit F, in favor of Fermin Caram, Jr.;

2. Declaring as null and void the deed of sale Exhibit F, in favor of Fermin Caram, Jr.;

3. Directing Marcos Mata to acknowledge the deed of sale, Exhibit A, in favor of Claro L. Laureta;

4. Directing Claro L. Laureta to secure the approval of the Secretary of Agriculture and Natural Resources on the deed, Exhibit A, after Marcos Mata shall have acknowledged the same before a notary public;

5. Directing Claro L. Laureta to surrender to the Register of Deeds for the City and Province of Davao the Owner's Duplicate of Original Certificate of Title No. 3019 and the latter to cancel the same;

6. Ordering the Register of Deeds for the City and Province of Davao to cancel Transfer Certificate of Title No. T-140 in the name of Fermin Caram, Jr.;

7. Directing the Register of Deeds for the City and Province of Davao to issue a title in favor of Claro L. Laureta, Filipino, resident of Quezon City, upon presentation of the deed executed by Marcos Mata in his favor, Exhibit A, duly acknowledged by him and approved by the Secretary of Agriculture and Natural Resources, and

8. Dismissing the counterclaim and cross claim of Marcos Mata and Codidi Mata, the counterclaim of Caram, Jr., the answer in intervention, counterclaim and cross-claim of the Mansacas.

The Court makes no pronouncement as to costs.

SO ORDERED.

The defendants appealed from the judgment to the Court of Appeals. 10 The appeal was

docketed as CA-G.R. NO. 35721- R.

The Court of Appeals promulgated its decision on January 29, 1968 affirming the judgment of the trial court.

In his brief, the petitioner assigns the following errors: 11

I

THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT IRESPE AND APORTADERA WERE ATTORNEYS-IN-FACT OF PETITIONER CARAM FOR THE PURPOSE OF BUYING THE PROPERTY IN QUESTION.

II

THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE EVIDENCE ADDUCED IN THE TRIAL COURT CONSTITUTE LEGAL EVIDENCE OF FRAUD ON THE PART OF IRESPE AND APORTADERA AT TRIBUTABLE TO PETITIONER.

III

THE RESPONDENT COURT OF APPEALS COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT KNOWLEDGE OF IRESPE AND APORTADERA OF A PRIOR UNREGISTERED SALE OF A TITLED PROPERTY ATTRIBUTABLE TO PETITIONER AND EQUIVALENT IN LAW OF REGISTRATION OF SAID SALE.

IV

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT AN ACTION FOR RECONVEYANCE ON THE GROUND OF FRAUD PRESCRIBES WITHIN FOUR (4) YEARS.

The petitioner assails the finding of the trial court that the second sale of the property was made through his representatives, Pedro Irespe and Atty. Abelardo Aportadera. He argues that Pedro Irespe was acting merely as a broker or intermediary with the specific task and duty to pay Marcos Mata the sum of P1,000.00 for the latter's property and to see to it that the requisite deed of sale covering the purchase was properly executed by Marcos Mata; that the Identity of the property to be bought and the price of the purchase had already been agreed upon by the parties; and that the other alleged representative, Atty. Aportadera, merely acted as a notary public in the execution of the deed of sale.

The contention of the petitioner has no merit. The facts of record show that Mata, the vendor, and Caram, the second vendee had never met. During the trial, Marcos Mata testified that he knows Atty. Aportadera but did not know Caram. 12 Thus, the sale of the property could have only been through Caram's representatives, Irespe and Aportadera. The petitioner, in his answer, admitted that Atty. Aportadera acted as his notary public and attorney-in-fact at the same time in the purchase of the property. 13

The petitioner contends that he cannot be considered to have acted in bad faith because there is no direct proof showing that Irespe and Aportadera, his alleged agents, had knowledge of the first sale to Laureta. This contention is also without merit.

The Court of Appeals, in affirming the decision of the trial court, said: 14

The trial court, in holding that appellant Caram. Jr. was not a purchaser in good faith, at the time he bought the same property from appellant Mata, on May 5, 1947, entirely discredited the testimony of Aportadera. Thus it stated in its decision:

The testimony of Atty. Aportadera quoted elsewhere in this decision is hollow. There is every reason to believe that Irespe and he had known of the sale of the property in question to Laureta on the day Mata and Irespe, accompanied by Leaning Mansaca, went to the office of Atty. Aportadera for the sale of the same property to Caram, Jr., represented by Irespe as attorney-in-fact. Ining Mansaca was with the two — Irespe and Mata — to engage the services 6f Atty. Aportadera in the annulment of the sale of his land to Laureta. When Leaning Mansaca narrated to Atty. Aportadera the circumstances under which his property had been sold to Laureta, he must have included in the narration the sale of the land of Mata, for the two properties had been sold on the same occassion and under the same circumstances. Even as early as immediately after liberation, Irespe, who was the witness in most of the cases filed by Atty. Aportadera in his capacity as Provincial Fiscal of Davao against Laureta, must have known of the purchases of lands made by Laureta when he was regimental commander, one of which was the sale made by Mata. It was not a mere coincidence that Irespe was made guardian ad litem of Leaning Mansaca, at the suggestion of Atty. Aportadera and attorney-in-fact of Caram, Jr.

The Court cannot help being convinced that Irespe, attorney-in-fact of Caram, Jr. had knowledge of the prior existing transaction, Exhibit A, between Mata and Laureta over the land, subject matter of this litigation, when the deed, Exhibit F, was executed by Mata in favor of Caram, Jr. And this knowledge has the effect of registration as to Caram, Jr. RA pp. 123-124)

We agree with His Honor's conclusion on this particular point, on two grounds — the first, the same concerns matters affecting the credibility of a witness of which the findings of the trial court command great weight, and second, the same is borne out by the testimony of Atty. Aportadera himself. (t.s.n., pp. 187-190, 213-215, Restauro).

Even if Irespe and Aportadera did not have actual knowledge of the first sale, still their actions have not satisfied the requirement of good faith. Bad faith is not based solely on the fact that a vendee had knowledge of the defect or lack of title of his vendor. In the case of Leung Yee vs. F. L. Strong Machinery Co. and Williamson, this Court held: 15

One who purchases real estate with knowledge of a defect or lack of title in his vendor can not claim that he has acquired title thereto in good faith, as against the true owner of the land or of an interest therein, and the same rule must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor.

In the instant case, Irespe and Aportadera had knowledge of circumstances which ought to have put them an inquiry. Both of them knew that Mata's certificate of title

together with other papers pertaining to the land was taken by soldiers under the command of Col. Claro L. Laureta. 16 Added to this is the fact that at the time of the

second sale Laureta was already in possession of the land. Irespe and Aportadera should have investigated the nature of Laureta's possession. If they failed to exercise the ordinary care expected of a buyer of real estate they must suffer the consequences. 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. 17

The principle that a person dealing with the owner of the registered land is not bound to go behind the certificate and inquire into transactions the existence of which is not there intimated 18 should not apply in this case. It was of common knowledge that at the time

the soldiers of Laureta took the documents from Mata, the civil government of Tagum was not yet established and that there were no officials to ratify contracts of sale and make them registerable. Obviously, Aportadera and Irespe knew that even if Mata previously had sold t he Disputed such sale could not have been registered.

There is no doubt then that Irespe and Aportadera, acting as agents of Caram, purchased the property of Mata in bad faith. Applying the principle of agency, Caram as principal, should also be deemed to have acted in bad faith.

Article 1544 of the New Civil Code provides that:

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 recordered it in the Registry of Property.

Should there be no inscription, the ownership shag pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (1473)

Since Caram was a registrant in bad faith, the situation is as if there was no registration at all. 19

The question to be determined now is, who was first in possession in good faith? A possessor in good faith is one who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it. 20 Laureta was first in possession of the property. He is also a possessor in good faith. It is true that Mata had alleged that the deed of sale in favor of Laureta was procured by force. 21 Such defect, however, was cured when, after the lapse of four years from the time the intimidation ceased, Marcos Mata lost both his rights to file an action for annulment or to set up nullity of the contract as a defense in an action to enforce the same.

Anent the fourth error assigned, the petitioner contends that the second deed of sale, Exhibit "F", is a voidable contract. Being a voidable contract, the action for annulment of the same on the ground of fraud must be brought within four (4) years from the discovery of the fraud. In the case at bar, Laureta is deemed to have discovered that the land in question has been sold to Caram to his prejudice on December 9, 1947, when the Deed of Sale, Exhibit "F" was recorded and entered in the Original Certificate of Title by the Register of Deeds and a new Certificate of Title No. 140 was issued in the name of Caram. Therefore, when the present case was filed on June 29, 1959, plaintiff's cause of action had long prescribed.

The petitioner's conclusion that the second deed of sale, "Exhibit F", is a voidable contract is not correct. I n order that fraud can be a ground for the annulment of a contract, it must be employed prior to or simultaneous to the, consent or creation of the contract. The fraud or dolo causante must be that which determines or is the essential cause of the contract. Dolo causante as a ground for the annulment of contract is specifically described in Article 1338 of the New Civil Code of the Philippines as "insidious words or machinations of one of the contracting parties" which induced the other to enter into a contract, and "without them, he would not have agreed to".

The second deed of sale in favor of Caram is not a voidable contract. No evidence whatsoever was shown that through insidious words or machinations, the representatives of Caram, Irespe and Aportadera had induced Mata to enter into the contract.

Since the second deed of sale is not a voidable contract, Article 1391, Civil Code of the Philippines which provides that the action for annulment shall be brought within four (4) years from the time of the discovery of fraud does not apply. Moreover, Laureta has been in continuous possession of the land since he bought it in June 1945.

A more important reason why Laureta's action could not have prescribed is that the second contract of sale, having been registered in bad faith, is null and void. Article 1410 of the Civil Code of the Philippines provides that any action or defense for the declaration of the inexistence of a contract does not prescribe.

In a Memorandum of Authorities 22 submitted to this Court on March 13, 1978, the

petitioner insists that the action of Laureta against Caram has prescribed because the second contract of sale is not void under Article 1409 23 of the Civil Code of the

Philippines which enumerates the kinds of contracts which are considered void. Moreover, Article 1544 of the New Civil Code of the Philippines does not declare void a second sale of immovable registered in bad faith.

The fact that the second contract is not considered void under Article 1409 and that Article 1544 does not declare void a deed of sale registered in bad faith does not mean that said contract is not void. Article 1544 specifically provides who shall be the owner in case of a double sale of an immovable property. To give full effect to this provision, the status of the two contracts must be declared valid so that one vendee may contract

must be declared void to cut off all rights which may arise from said contract. Otherwise, Article 1544 win be meaningless.

The first sale in favor of Laureta prevails over the sale in favor of Caram.

WHEREFORE, the petition is hereby denied and the decision of the Court of Appeals sought to be reviewed is affirmed, without pronouncement as to costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 170405 February 2, 2010

RAYMUNDO S. DE LEON, Petitioner,

vs.

BENITA T. ONG.1 Respondent.

D E C I S I O N

CORONA, J.:

On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land2 with

improvements situated in Antipolo, Rizal to respondent Benita T. Ong. As these properties were

mortgaged to Real Savings and Loan Association, Incorporated (RSLAI), petitioner and

respondent executed a notarized deed of absolute sale with assumption of mortgage3 stating:

x x x x x x x x x

That for and in consideration of the sum of ONE MILLION ONE HUNDRED THOUSAND

PESOS (P1.1 million), Philippine currency, the receipt whereof is hereby acknowledged from

[RESPONDENT] to the entire satisfaction of [PETITIONER], said [PETITIONER] does

hereby sell, transfer and convey in a manner absolute and irrevocable, unto said

[RESPONDENT], his heirs and assigns that certain real estate together with the buildings and

other improvements existing thereon, situated in [Barrio] Mayamot, Antipolo, Rizal under the

following terms and conditions:

1. That upon full payment of [respondent] of the amount of FOUR HUNDRED FIFTEEN

THOUSAND FIVE HUNDRED (P415,000), [petitioner] shall execute and sign a deed of

assumption of mortgage in favor of [respondent] without any further cost whatsoever;

2. That [respondent] shall assume payment of the outstanding loan of SIX HUNDRED

EIGHTY FOUR THOUSAND FIVE HUNDRED PESOS (P684,500) with REAL

SAVINGS AND LOAN,4 Cainta, Rizal… (emphasis supplied)

x x x x x x x x x

Pursuant to this deed, respondent gave petitioner P415,500 as partial payment. Petitioner, on the

other hand, handed the keys to the properties and wrote a letter informing RSLAI of the sale and

authorizing it to accept payment from respondent and release the certificates of title.

Thereafter, respondent undertook repairs and made improvements on the properties.5 Respondent

likewise informed RSLAI of her agreement with petitioner for her to assume petitioner’s

outstanding loan. RSLAI required her to undergo credit investigation.

Subsequently, respondent learned that petitioner again sold the same properties to one Leona

Viloria after March 10, 1993 and changed the locks, rendering the keys he gave her useless.

Respondent thus proceeded to RSLAI to inquire about the credit investigation. However, she was

informed that petitioner had already paid the amount due and had taken back the certificates of

title.

Respondent persistently contacted petitioner but her efforts proved futile.

On June 18, 1993, respondent filed a complaint for specific performance, declaration of nullity

of the second sale and damages6 against petitioner and Viloria in the Regional Trial Court (RTC)

of Antipolo, Rizal, Branch 74. She claimed that since petitioner had previously sold the

properties to her on March 10, 1993, he no longer had the right to sell the same to Viloria. Thus,

petitioner fraudulently deprived her of the properties.

Petitioner, on the other hand, insisted that respondent did not have a cause of action against him

and consequently prayed for the dismissal of the complaint. He claimed that since the transaction

was subject to a condition (i.e., that RSLAI approve the assumption of mortgage), they only

entered into a contract to sell. Inasmuch as respondent did apply for a loan from RSLAI, the

condition did not arise. Consequently, the sale was not perfected and he could freely dispose of

the properties. Furthermore, he made a counter-claim for damages as respondent filed the

complaint allegedly with gross and evident bad faith.

Because respondent was a licensed real estate broker, the RTC concluded that she knew that the

validity of the sale was subject to a condition. The perfection of a contract of sale depended on

RSLAI’s approval of the assumption of mortgage. Since RSLAI did not allow respondent to

assume petitioner’s obligation, the RTC held that the sale was never perfected.

In a decision dated August 27, 1999,7 the RTC dismissed the complaint for lack of cause of

action and ordered respondent to pay petitioner P100,000 moral damages, P20,000 attorney’s

fees and the cost of suit.

Aggrieved, respondent appealed to the Court of Appeals (CA),8 asserting that the court a quo

erred in dismissing the complaint.

The CA found that the March 10, 2003 contract executed by the parties did not impose any

condition on the sale and held that the parties entered into a contract of sale. Consequently,

because petitioner no longer owned the properties when he sold them to Viloria, it declared the

second sale void. Moreover, it found petitioner liable for moral and exemplary damages for

fraudulently depriving respondent of the properties.

In a decision dated July 22, 2005,9 the CA upheld the sale to respondent and nullified the sale to

Viloria. It likewise ordered respondent to reimburse petitioner P715,250 (or the amount he paid

to RSLAI). Petitioner, on the other hand, was ordered to deliver the certificates of titles to

respondent and pay her P50,000 moral damages and P15,000 exemplary damages.

Petitioner moved for reconsideration but it was denied in a resolution dated November 11,

2005.10

Hence, this petition,11

with the sole issue being whether the parties entered into a contract

of sale or a contract to sell.

Petitioner insists that he entered into a contract to sell since the validity of the transaction was

subject to a suspensive condition, that is, the approval by RSLAI of respondent’s assumption of

mortgage. Because RSLAI did not allow respondent to assume his (petitioner’s) obligation, the

condition never materialized. Consequently, there was no sale.

Respondent, on the other hand, asserts that they entered into a contract of sale as petitioner

already conveyed full ownership of the subject properties upon the execution of the deed.

We modify the decision of the CA.

Contract of Sale or Contract to Sell?

The RTC and the CA had conflicting interpretations of the March 10, 1993 deed. The RTC ruled

that it was a contract to sell while the CA held that it was a contract of sale.

In a contract of sale, the seller conveys ownership of the property to the buyer upon the

perfection of the contract. Should the buyer default in the payment of the purchase price, the

seller may either sue for the collection thereof or have the contract judicially resolved and set

aside. The non-payment of the price is therefore a negative resolutory condition.12

On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does

not acquire ownership of the property until he fully pays the purchase price. For this reason, if

the buyer defaults in the payment thereof, the seller can only sue for damages.13

The deed executed by the parties (as previously quoted) stated that petitioner sold the properties

to respondent "in a manner absolute and irrevocable" for a sum of P1.1 million.14

With regard to

the manner of payment, it required respondent to pay P415,500 in cash to petitioner upon the

execution of the deed, with the balance15

payable directly to RSLAI (on behalf of petitioner)

within a reasonable time.16

Nothing in said instrument implied that petitioner reserved ownership

of the properties until the full payment of the purchase price.17

On the contrary, the terms and

conditions of the deed only affected the manner of payment, not the immediate transfer of

ownership (upon the execution of the notarized contract) from petitioner as seller to respondent

as buyer. Otherwise stated, the said terms and conditions pertained to the performance of the

contract, not the perfection thereof nor the transfer of ownership.

Settled is the rule that the seller is obliged to transfer title over the properties and deliver the

same to the buyer.18

In this regard, Article 1498 of the Civil Code19

provides that, as a rule, the

execution of a notarized deed of sale is equivalent to the delivery of a thing sold.

In this instance, petitioner executed a notarized deed of absolute sale in favor of respondent.

Moreover, not only did petitioner turn over the keys to the properties to respondent, he also

authorized RSLAI to receive payment from respondent and release his certificates of title to her.

The totality of petitioner’s acts clearly indicates that he had unqualifiedly delivered and

transferred ownership of the properties to respondent. Clearly, it was a contract of sale the parties

entered into.

Furthermore, even assuming arguendo that the agreement of the parties was subject to the

condition that RSLAI had to approve the assumption of mortgage, the said condition was

considered fulfilled as petitioner prevented its fulfillment by paying his outstanding obligation

and taking back the certificates of title without even notifying respondent. In this connection,

Article 1186 of the Civil Code provides:

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its

fulfillment.

Void Sale Or Double Sale?

Petitioner sold the same properties to two buyers, first to respondent and then to Viloria on two

separate occasions.20

However, the second sale was not void for the sole reason that petitioner

had previously sold the same properties to respondent. On this account, the CA erred.

This case involves a double sale as the disputed properties were sold validly on two separate

occasions by the same seller to the two different buyers in good faith.

Article 1544 of the Civil Code provides:

Article 1544. If the same thing should have been sold to different vendees, the ownership shall

be transferred to the person who may have first taken possession thereof in good faith, if it

should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it

who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith

was first in the possession; and, in the absence thereof, to the person who presents the

oldest title, provided there is good faith. (emphasis supplied)

This provision clearly states that the rules on double or multiple sales apply only to purchasers in

good faith. Needless to say, it disqualifies any purchaser in bad faith.

A purchaser in good faith is one who buys the property of another without notice that some other

person has a right to, or an interest in, such property and pays a full and fair price for the same at

the time of such purchase, or before he has notice of some other person’s claim or interest in the

property.21

The law requires, on the part of the buyer, lack of notice of a defect in the title of the

seller and payment in full of the fair price at the time of the sale or prior to having notice of any

defect in the seller’s title.

Was respondent a purchaser in good faith? Yes.

Respondent purchased the properties, knowing they were encumbered only by the mortgage to

RSLAI. According to her agreement with petitioner, respondent had the obligation to assume the

balance of petitioner’s outstanding obligation to RSLAI. Consequently, respondent informed

RSLAI of the sale and of her assumption of petitioner’s obligation. However, because petitioner

surreptitiously paid his outstanding obligation and took back her certificates of title, petitioner

himself rendered respondent’s obligation to assume petitioner’s indebtedness to RSLAI

impossible to perform.

Article 1266 of the Civil Code provides:

Article 1266. The debtor in obligations to do shall be released when the prestation become

legally or physically impossible without the fault of the obligor.

Since respondent’s obligation to assume petitioner’s outstanding balance with RSLAI became

impossible without her fault, she was released from the said obligation. Moreover, because

petitioner himself willfully prevented the condition vis-à-vis the payment of the remainder of the

purchase price, the said condition is considered fulfilled pursuant to Article 1186 of the Civil

Code. For purposes, therefore, of determining whether respondent was a purchaser in good faith,

she is deemed to have fully complied with the condition of the payment of the remainder of the

purchase price.

Respondent was not aware of any interest in or a claim on the properties other than the mortgage

to RSLAI which she undertook to assume. Moreover, Viloria bought the properties from

petitioner after the latter sold them to respondent. Respondent was therefore a purchaser in good

faith. Hence, the rules on double sale are applicable.

Article 1544 of the Civil Code provides that when neither buyer registered the sale of the

properties with the registrar of deeds, the one who took prior possession of the properties shall be

the lawful owner thereof.

In this instance, petitioner delivered the properties to respondent when he executed the notarized

deed22

and handed over to respondent the keys to the properties. For this reason, respondent took

actual possession and exercised control thereof by making repairs and improvements thereon.

Clearly, the sale was perfected and consummated on March 10, 1993. Thus, respondent became

the lawful owner of the properties.

Nonetheless, while the condition as to the payment of the balance of the purchase price was

deemed fulfilled, respondent’s obligation to pay it subsisted. Otherwise, she would be unjustly

enriched at the expense of petitioner.

Therefore, respondent must pay petitioner P684,500, the amount stated in the deed. This is

because the provisions, terms and conditions of the contract constitute the law between the

parties. Moreover, the deed itself provided that the assumption of mortgage "was without any

further cost whatsoever." Petitioner, on the other hand, must deliver the certificates of title to

respondent. We likewise affirm the award of damages.

WHEREFORE, the July 22, 2005 decision and November 11, 2005 resolution of the Court of

Appeals in CA-G.R. CV No. 59748 are hereby AFFIRMED with MODIFICATION insofar as

respondent Benita T. Ong is ordered to pay petitioner Raymundo de Leon P684,500 representing

the balance of the purchase price as provided in their March 10, 1993 agreement.

Costs against petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 124242 January 21, 2005

SAN LORENZO DEVELOPMENT CORPORATION, petitioner,

vs.

COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA

ZAVALLA LU, respondents.

D E C I S I O N

TINGA, J.:

From a coaptation of the records of this case, it appears that respondents Miguel Lu and Pacita

Zavalla, (hereinafter, the Spouses Lu) owned two (2) parcels of land situated in Sta. Rosa,

Laguna covered by TCT No. T-39022 and TCT No. T-39023 both measuring 15,808 square

meters or a total of 3.1616 hectares.

On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to respondent Pablo

Babasanta, (hereinafter, Babasanta) for the price of fifteen pesos (P15.00) per square meter.

Babasanta made a downpayment of fifty thousand pesos (P50,000.00) as evidenced by a

memorandum receipt issued by Pacita Lu of the same date. Several other payments totaling two

hundred thousand pesos (P200,000.00) were made by Babasanta.

Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution of a final

deed of sale in his favor so that he could effect full payment of the purchase price. In the same

letter, Babasanta notified the spouses about having received information that the spouses sold the

same property to another without his knowledge and consent. He demanded that the second sale

be cancelled and that a final deed of sale be issued in his favor.

In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having agreed to

sell the property to him at fifteen pesos (P15.00) per square meter. She, however, reminded

Babasanta that when the balance of the purchase price became due, he requested for a reduction

of the price and when she refused, Babasanta backed out of the sale. Pacita added that she

returned the sum of fifty thousand pesos (P50,000.00) to Babasanta through Eugenio Oya.

On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court (RTC),

Branch 31, of San Pedro, Laguna, a Complaint for Specific Performance and Damages1 against

his co-respondents herein, the Spouses Lu. Babasanta alleged that the lands covered by TCT No.

T- 39022 and T-39023 had been sold to him by the spouses at fifteen pesos (P15.00) per square

meter. Despite his repeated demands for the execution of a final deed of sale in his favor,

respondents allegedly refused.

In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta and when

the total advances of Pacita reached fifty thousand pesos (P50,000.00), the latter and Babasanta,

without the knowledge and consent of Miguel Lu, had verbally agreed to transform the

transaction into a contract to sell the two parcels of land to Babasanta with the fifty thousand

pesos (P50,000.00) to be considered as the downpayment for the property and the balance to be

paid on or before 31 December 1987. Respondents Lu added that as of November 1987, total

payments made by Babasanta amounted to only two hundred thousand pesos (P200,000.00) and

the latter allegedly failed to pay the balance of two hundred sixty thousand pesos (P260,000.00)

despite repeated demands. Babasanta had purportedly asked Pacita for a reduction of the price

from fifteen pesos (P15.00) to twelve pesos (P12.00) per square meter and when the Spouses Lu

refused to grant Babasanta’s request, the latter rescinded the contract to sell and declared that the

original loan transaction just be carried out in that the spouses would be indebted to him in the

amount of two hundred thousand pesos (P200,000.00). Accordingly, on 6 July 1989, they

purchased Interbank Manager’s Check No. 05020269 in the amount of two hundred thousand

pesos (P200,000.00) in the name of Babasanta to show that she was able and willing to pay the

balance of her loan obligation.

Babasanta later filed an Amended Complaint dated 17 January 19903 wherein he prayed for the

issuance of a writ of preliminary injunction with temporary restraining order and the inclusion of

the Register of Deeds of Calamba, Laguna as party defendant. He contended that the issuance of

a preliminary injunction was necessary to restrain the transfer or conveyance by the Spouses Lu

of the subject property to other persons.

The Spouses Lu filed their Opposition4 to the amended complaint contending that it raised new

matters which seriously affect their substantive rights under the original complaint. However, the

trial court in its Order dated 17 January 19905 admitted the amended complaint.

On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) filed a

Motion for Intervention6 before the trial court. SLDC alleged that it had legal interest in the

subject matter under litigation because on 3 May 1989, the two parcels of land involved, namely

Lot 1764-A and 1764-B, had been sold to it in a Deed of Absolute Sale with Mortgage.7 It

alleged that it was a buyer in good faith and for value and therefore it had a better right over the

property in litigation.

In his Opposition to SLDC’s motion for intervention,8 respondent Babasanta demurred and

argued that the latter had no legal interest in the case because the two parcels of land involved

herein had already been conveyed to him by the Spouses Lu and hence, the vendors were without

legal capacity to transfer or dispose of the two parcels of land to the intervenor.

Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene. SLDC

filed its Complaint-in-Intervention on 19 April 1990.9 Respondent Babasanta’s motion for the

issuance of a preliminary injunction was likewise granted by the trial court in its Order dated 11

January 199110

conditioned upon his filing of a bond in the amount of fifty thousand pesos

(P50,000.00).

SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu

executed in its favor an Option to Buy the lots subject of the complaint. Accordingly, it paid an

option money in the amount of three hundred sixteen thousand one hundred sixty pesos

(P316,160.00) out of the total consideration for the purchase of the two lots of one million two

hundred sixty-four thousand six hundred forty pesos (P1,264,640.00). After the Spouses Lu

received a total amount of six hundred thirty-two thousand three hundred twenty pesos

(P632,320.00) they executed on 3 May 1989 a Deed of Absolute Sale with Mortgage in its favor.

SLDC added that the certificates of title over the property were delivered to it by the spouses

clean and free from any adverse claims and/or notice of lis pendens. SLDC further alleged that it

only learned of the filing of the complaint sometime in the early part of January 1990 which

prompted it to file the motion to intervene without delay. Claiming that it was a buyer in good

faith, SLDC argued that it had no obligation to look beyond the titles submitted to it by the

Spouses Lu particularly because Babasanta’s claims were not annotated on the certificates of title

at the time the lands were sold to it.

After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale of the

property to SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two hundred thousand

pesos (P200,000.00) with legal interest plus the further sum of fifty thousand pesos (P50,000.00)

as and for attorney’s fees. On the complaint-in-intervention, the trial court ordered the Register

of Deeds of Laguna, Calamba Branch to cancel the notice of lis pendens annotated on the

original of the TCT No. T-39022 (T-7218) and No. T-39023 (T-7219).

Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta and

SLDC did not register the respective sales in their favor, ownership of the property should

pertain to the buyer who first acquired possession of the property. The trial court equated the

execution of a public instrument in favor of SLDC as sufficient delivery of the property to the

latter. It concluded that symbolic possession could be considered to have been first transferred to

SLDC and consequently ownership of the property pertained to SLDC who purchased the

property in good faith.

Respondent Babasanta appealed the trial court’s decision to the Court of Appeals alleging in the

main that the trial court erred in concluding that SLDC is a purchaser in good faith and in

upholding the validity of the sale made by the Spouses Lu in favor of SLDC.

Respondent spouses likewise filed an appeal to the Court of Appeals. They contended that the

trial court erred in failing to consider that the contract to sell between them and Babasanta had

been novated when the latter abandoned the verbal contract of sale and declared that the original

loan transaction just be carried out. The Spouses Lu argued that since the properties involved

were conjugal, the trial court should have declared the verbal contract to sell between Pacita Lu

and Pablo Babasanta null and void ab initio for lack of knowledge and consent of Miguel Lu.

They further averred that the trial court erred in not dismissing the complaint filed by Babasanta;

in awarding damages in his favor and in refusing to grant the reliefs prayed for in their answer.

On 4 October 1995, the Court of Appeals rendered its Decision11

which set aside the judgment of

the trial court. It declared that the sale between Babasanta and the Spouses Lu was valid and

subsisting and ordered the spouses to execute the necessary deed of conveyance in favor of

Babasanta, and the latter to pay the balance of the purchase price in the amount of two hundred

sixty thousand pesos (P260,000.00). The appellate court ruled that the Absolute Deed of Sale

with Mortgage in favor of SLDC was null and void on the ground that SLDC was a purchaser in

bad faith. The Spouses Lu were further ordered to return all payments made by SLDC with legal

interest and to pay attorney’s fees to Babasanta.

SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate court.12

However, in a Manifestation dated 20 December 1995,13

the Spouses Lu informed the appellate

court that they are no longer contesting the decision dated 4 October 1995.

In its Resolution dated 11 March 1996,14

the appellate court considered as withdrawn the motion

for reconsideration filed by the Spouses Lu in view of their manifestation of 20 December 1995.

The appellate court denied SLDC’s motion for reconsideration on the ground that no new or

substantial arguments were raised therein which would warrant modification or reversal of the

court’s decision dated 4 October 1995.

Hence, this petition.

SLDC assigns the following errors allegedly committed by the appellate court:

THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A

BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU

OBTAINED FROM IT THE CASH ADVANCE OF P200,000.00, SAN LORENZO WAS PUT

ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED

FACT THAT THE ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT IN

POSSESSION OF THE DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT AND

TOOK POSSESSION OF THE PROPERTY AND NO ADVERSE CLAIM, LIEN,

ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON THE TITLES.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT

RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN

LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED

PROPERTY.

THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS FULL

CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED

AND SET ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING THE TITLE OF

SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD FAITH. 15

SLDC contended that the appellate court erred in concluding that it had prior notice of

Babasanta’s claim over the property merely on the basis of its having advanced the amount of

two hundred thousand pesos (P200,000.00) to Pacita Lu upon the latter’s representation that she

needed the money to pay her obligation to Babasanta. It argued that it had no reason to suspect

that Pacita was not telling the truth that the money would be used to pay her indebtedness to

Babasanta. At any rate, SLDC averred that the amount of two hundred thousand pesos

(P200,000.00) which it advanced to Pacita Lu would be deducted from the balance of the

purchase price still due from it and should not be construed as notice of the prior sale of the land

to Babasanta. It added that at no instance did Pacita Lu inform it that the lands had been

previously sold to Babasanta.

Moreover, SLDC stressed that after the execution of the sale in its favor it immediately took

possession of the property and asserted its rights as new owner as opposed to Babasanta who has

never exercised acts of ownership. Since the titles bore no adverse claim, encumbrance, or lien at

the time it was sold to it, SLDC argued that it had every reason to rely on the correctness of the

certificate of title and it was not obliged to go beyond the certificate to determine the condition

of the property. Invoking the presumption of good faith, it added that the burden rests on

Babasanta to prove that it was aware of the prior sale to him but the latter failed to do so. SLDC

pointed out that the notice of lis pendens was annotated only on 2 June 1989 long after the sale

of the property to it was consummated on 3 May 1989.1awphi1.nét

Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu

informed the Court that due to financial constraints they have no more interest to pursue their

rights in the instant case and submit themselves to the decision of the Court of Appeals.16

On the other hand, respondent Babasanta argued that SLDC could not have acquired ownership

of the property because it failed to comply with the requirement of registration of the sale in

good faith. He emphasized that at the time SLDC registered the sale in its favor on 30 June 1990,

there was already a notice of lis pendens annotated on the titles of the property made as early as

2 June 1989. Hence, petitioner’s registration of the sale did not confer upon it any right.

Babasanta further asserted that petitioner’s bad faith in the acquisition of the property is evident

from the fact that it failed to make necessary inquiry regarding the purpose of the issuance of the

two hundred thousand pesos (P200,000.00) manager’s check in his favor.

The core issue presented for resolution in the instant petition is who between SLDC and

Babasanta has a better right over the two parcels of land subject of the instant case in view of the

successive transactions executed by the Spouses Lu.

To prove the perfection of the contract of sale in his favor, Babasanta presented a document

signed by Pacita Lu acknowledging receipt of the sum of fifty thousand pesos (P50,000.00) as

partial payment for 3.6 hectares of farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa,

Laguna.17

While the receipt signed by Pacita did not mention the price for which the property

was being sold, this deficiency was supplied by Pacita Lu’s letter dated 29 May 198918

wherein

she admitted that she agreed to sell the 3.6 hectares of land to Babasanta for fifteen pesos

(P15.00) per square meter.

An analysis of the facts obtaining in this case, as well as the evidence presented by the parties,

irresistibly leads to the conclusion that the agreement between Babasanta and the Spouses Lu is a

contract to sell and not a contract of sale.

Contracts, in general, are perfected by mere consent,19

which is manifested by the meeting of the

offer and the acceptance upon the thing which are to constitute the contract. The offer must be

certain and the acceptance absolute.20

Moreover, contracts shall be obligatory in whatever form

they may have been entered into, provided all the essential requisites for their validity are

present.21

The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos

(P50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. Rosa,

Laguna. While there is no stipulation that the seller reserves the ownership of the property until

full payment of the price which is a distinguishing feature of a contract to sell, the subsequent

acts of the parties convince us that the Spouses Lu never intended to transfer ownership to

Babasanta except upon full payment of the purchase price.

Babasanta’s letter dated 22 May 1989 was quite telling. He stated therein that despite his

repeated requests for the execution of the final deed of sale in his favor so that he could effect

full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta himself

recognized that ownership of the property would not be transferred to him until such time as he

shall have effected full payment of the price. Moreover, had the sellers intended to transfer title,

they could have easily executed the document of sale in its required form simultaneously with

their acceptance of the partial payment, but they did not. Doubtlessly, the receipt signed by

Pacita Lu should legally be considered as a perfected contract to sell.

The distinction between a contract to sell and a contract of sale is quite germane. In a contract of

sale, title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell,

by agreement the ownership is reserved in the vendor and is not to pass until the full payment of

the price.22

In a contract of sale, the vendor has lost and cannot recover ownership until and

unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the

vendor until the full payment of the price, such payment being a positive suspensive condition

and failure of which is not a breach but an event that prevents the obligation of the vendor to

convey title from becoming effective.23

The perfected contract to sell imposed upon Babasanta the obligation to pay the balance of the

purchase price. There being an obligation to pay the price, Babasanta should have made the

proper tender of payment and consignation of the price in court as required by law. Mere sending

of a letter by the vendee expressing the intention to pay without the accompanying payment is

not considered a valid tender of payment.24

Consignation of the amounts due in court is essential

in order to extinguish Babasanta’s obligation to pay the balance of the purchase price. Glaringly

absent from the records is any indication that Babasanta even attempted to make the proper

consignation of the amounts due, thus, the obligation on the part of the sellers to convey title

never acquired obligatory force.

On the assumption that the transaction between the parties is a contract of sale and not a contract

to sell, Babasanta’s claim of ownership should nevertheless fail.

Sale, being a consensual contract, is perfected by mere consent25

and from that moment, the

parties may reciprocally demand performance.26

The essential elements of a contract of sale, to

wit: (1) consent or meeting of the minds, that is, to transfer ownership in exchange for the price;

(2) object certain which is the subject matter of the contract; (3) cause of the obligation which is

established.27

The perfection of a contract of sale should not, however, be confused with its consummation. In

relation to the acquisition and transfer of ownership, it should be noted that sale is not a mode,

but merely a title. A mode is the legal means by which dominion or ownership is created,

transferred or destroyed, but title is only the legal basis by which to affect dominion or

ownership.28

Under Article 712 of the Civil Code, "ownership and other real rights over property

are acquired and transmitted by law, by donation, by testate and intestate succession, and in

consequence of certain contracts, by tradition." Contracts only constitute titles or rights to the

transfer or acquisition of ownership, while delivery or tradition is the mode of accomplishing the

same.29

Therefore, sale by itself does not transfer or affect ownership; the most that sale does is

to create the obligation to transfer ownership. It is tradition or delivery, as a consequence of sale,

that actually transfers ownership.

Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee from

the moment it is delivered to him in any of the ways specified in Article 1497 to 1501.30

The

word "delivered" should not be taken restrictively to mean transfer of actual physical possession

of the property. The law recognizes two principal modes of delivery, to wit: (1) actual delivery;

and (2) legal or constructive delivery.

Actual delivery consists in placing the thing sold in the control and possession of the vendee.31

Legal or constructive delivery, on the other hand, may be had through any of the following ways:

the execution of a public instrument evidencing the sale;32

symbolical tradition such as the

delivery of the keys of the place where the movable sold is being kept;33

traditio longa manu or

by mere consent or agreement if the movable sold cannot yet be transferred to the possession of

the buyer at the time of the sale;34

traditio brevi manu if the buyer already had possession of the

object even before the sale;35

and traditio constitutum possessorium, where the seller remains in

possession of the property in a different capacity.36

Following the above disquisition, respondent Babasanta did not acquire ownership by the mere

execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the property.

For one, the agreement between Babasanta and the Spouses Lu, though valid, was not embodied

in a public instrument. Hence, no constructive delivery of the lands could have been effected. For

another, Babasanta had not taken possession of the property at any time after the perfection of

the sale in his favor or exercised acts of dominion over it despite his assertions that he was the

rightful owner of the lands. Simply stated, there was no delivery to Babasanta, whether actual or

constructive, which is essential to transfer ownership of the property. Thus, even on the

assumption that the perfected contract between the parties was a sale, ownership could not have

passed to Babasanta in the absence of delivery, since in a contract of sale ownership is

transferred to the vendee only upon the delivery of the thing sold.37

However, it must be stressed that the juridical relationship between the parties in a double sale is

primarily governed by Article 1544 which lays down the rules of preference between the two

purchasers of the same property. It provides:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be

transferred to the person who may have first taken possession thereof in good faith, if it should

be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in

good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was

first in the possession; and, in the absence thereof, to the person who presents the oldest title,

provided there is good faith.

The principle of primus tempore, potior jure (first in time, stronger in right) gains greater

significance in case of double sale of immovable property. When the thing sold twice is an

immovable, the one who acquires it and first records it in the Registry of Property, both made in

good faith, shall be deemed the owner.38

Verily, the act of registration must be coupled with

good faith— that is, the registrant must have no knowledge of the defect or lack of title of his

vendor or must not have been aware of facts which should have put him upon such inquiry and

investigation as might be necessary to acquaint him with the defects in the title of his vendor.39

Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired knowledge

of Babasanta’s claim. Babasanta, however, strongly argues that the registration of the sale by

SLDC was not sufficient to confer upon the latter any title to the property since the registration

was attended by bad faith. Specifically, he points out that at the time SLDC registered the sale on

30 June 1990, there was already a notice of lis pendens on the file with the Register of Deeds, the

same having been filed one year before on 2 June 1989.

Did the registration of the sale after the annotation of the notice of lis pendens obliterate the

effects of delivery and possession in good faith which admittedly had occurred prior to SLDC’s

knowledge of the transaction in favor of Babasanta?

We do not hold so.

It must be stressed that as early as 11 February 1989, the Spouses Lu executed the Option to Buy

in favor of SLDC upon receiving P316,160.00 as option money from SLDC. After SLDC had

paid more than one half of the agreed purchase price of P1,264,640.00, the Spouses Lu

subsequently executed on 3 May 1989 a Deed of Absolute Sale in favor or SLDC. At the time

both deeds were executed, SLDC had no knowledge of the prior transaction of the Spouses Lu

with Babasanta. Simply stated, from the time of execution of the first deed up to the moment of

transfer and delivery of possession of the lands to SLDC, it had acted in good faith and the

subsequent annotation of lis pendens has no effect at all on the consummated sale between

SLDC and the Spouses Lu.

A purchaser in good faith is one who buys property of another without notice that some other

person has a right to, or interest in, such property and pays a full and fair price for the same at the

time of such purchase, or before he has notice of the claim or interest of some other person in the

property.40

Following the foregoing definition, we rule that SLDC qualifies as a buyer in good

faith since there is no evidence extant in the records that it had knowledge of the prior

transaction in favor of Babasanta. At the time of the sale of the property to SLDC, the vendors

were still the registered owners of the property and were in fact in possession of the

lands.l^vvphi1.net Time and again, this Court has ruled that a person dealing with the owner of

registered land is not bound to go beyond the certificate of title as he is charged with notice of

burdens on the property which are noted on the face of the register or on the certificate of title.41

In assailing knowledge of the transaction between him and the Spouses Lu, Babasanta apparently

relies on the principle of constructive notice incorporated in Section 52 of the Property

Registration Decree (P.D. No. 1529) which reads, thus:

Sec. 52. Constructive notice upon registration. – Every conveyance, mortgage, lease, lien,

attachment, order, judgment, instrument or entry affecting registered land shall, if registered,

filed, or entered in the office of the Register of Deeds for the province or city where the land to

which it relates lies, be constructive notice to all persons from the time of such registering, filing,

or entering.

However, the constructive notice operates as such¾by the express wording of Section 52¾from

the time of the registration of the notice of lis pendens which in this case was effected only on 2

June 1989, at which time the sale in favor of SLDC had long been consummated insofar as the

obligation of the Spouses Lu to transfer ownership over the property to SLDC is concerned.

More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta the

annotation of the notice of lis pendens cannot help Babasanta’s position a bit and it is irrelevant

to the good or bad faith characterization of SLDC as a purchaser. A notice of lis pendens, as the

Court held in Nataño v. Esteban,42

serves as a warning to a prospective purchaser or

incumbrancer that the particular property is in litigation; and that he should keep his hands off

the same, unless he intends to gamble on the results of the litigation." Precisely, in this case

SLDC has intervened in the pending litigation to protect its rights. Obviously, SLDC’s faith in

the merit of its cause has been vindicated with the Court’s present decision which is the ultimate

denouement on the controversy.

The Court of Appeals has made capital43

of SLDC’s averment in its Complaint-in-Intervention44

that at the instance of Pacita Lu it issued a check for P200,000.00 payable to Babasanta and the

confirmatory testimony of Pacita Lu herself on cross-examination.45

However, there is nothing in

the said pleading and the testimony which explicitly relates the amount to the transaction

between the Spouses Lu and Babasanta for what they attest to is that the amount was supposed to

pay off the advances made by Babasanta to Pacita Lu. In any event, the incident took place after

the Spouses Lu had already executed the Deed of Absolute Sale with Mortgage in favor of SLDC

and therefore, as previously explained, it has no effect on the legal position of SLDC.

Assuming ex gratia argumenti that SLDC’s registration of the sale had been tainted by the prior

notice of lis pendens and assuming further for the same nonce that this is a case of double sale,

still Babasanta’s claim could not prevail over that of SLDC’s. In Abarquez v. Court of Appeals,46

this Court had the occasion to rule that if a vendee in a double sale registers the sale after he has

acquired knowledge of a previous sale, the registration constitutes a registration in bad faith and

does not confer upon him any right. If the registration is done in bad faith, it is as if there is no

registration at all, and the buyer who has taken possession first of the property in good faith shall

be preferred.

In Abarquez, the first sale to the spouses Israel was notarized and registered only after the second

vendee, Abarquez, registered their deed of sale with the Registry of Deeds, but the Israels were

first in possession. This Court awarded the property to the Israels because registration of the

property by Abarquez lacked the element of good faith. While the facts in the instant case

substantially differ from that in Abarquez, we would not hesitate to rule in favor of SLDC on the

basis of its prior possession of the property in good faith. Be it noted that delivery of the property

to SLDC was immediately effected after the execution of the deed in its favor, at which time

SLDC had no knowledge at all of the prior transaction by the Spouses Lu in favor of

Babasanta.1a\^/phi1.net

The law speaks not only of one criterion. The first criterion is priority of entry in the registry of

property; there being no priority of such entry, the second is priority of possession; and, in the

absence of the two priorities, the third priority is of the date of title, with good faith as the

common critical element. Since SLDC acquired possession of the property in good faith in

contrast to Babasanta, who neither registered nor possessed the property at any time, SLDC’s

right is definitely superior to that of Babasanta’s.

At any rate, the above discussion on the rules on double sale would be purely academic for as

earlier stated in this decision, the contract between Babasanta and the Spouses Lu is not a

contract of sale but merely a contract to sell. In Dichoso v. Roxas,47

we had the occasion to rule

that Article 1544 does not apply to a case where there was a sale to one party of the land itself

while the other contract was a mere promise to sell the land or at most an actual assignment of

the right to repurchase the same land. Accordingly, there was no double sale of the same land in

that case.

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals

appealed from is REVERSED and SET ASIDE and the decision of the Regional Trial Court,

Branch 31, of San Pedro, Laguna is REINSTATED. No costs.

SO ORDERED.