FIRST DIVISION
 
 
CORAZON L. ESCUETA, assisted by   G.R. No. 137162
her husband EDGAR ESCUETA,  
IGNACIO E. RUBIO, THE HEIRS OF  
LUZ R. BALOLOY, namely,  
ALEJANDRINO R. BALOLOY and Present:
BAYANI R. BALOLOY,  
Petitioners, PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
- versus -   GARCIA, JJ.
     
  Promulgated:
   
  January 24, 2007
RUFINA LIM,    
Respondent.    
x --------------------------------------------------------------------------------------- x
 
 
DECISION
 
AZCUNA, J.:
 
This is an appeal by certiorari[1] to annul and set aside the Decision and Resolution of the Court
of Appeals (CA) dated October 26, 1998 and January 11, 1999, respectively, in CA-G.R.
CV No. 48282, entitled Rufina Lim v. Corazon L. Escueta, etc., et. al.
 
The facts[2] appear as follows:
Respondent Rufina Lim filed an action to remove cloud on, or quiet title to, real
property, with preliminary injunction and issuance of [a hold-departure order] from
the Philippines against Ignacio E. Rubio. Respondent amended her complaint to
include specific performance and damages.
 
In her amended complaint, respondent averred inter alia that she bought the
hereditary shares (consisting of 10 lots) of Ignacio Rubio [and] the heirs of Luz
Baloloy, namely: Alejandrino, Bayani, and other co-heirs; that said vendors executed
a contract of sale dated April 10, 1990 in her favor; that Ignacio Rubio and the heirs of
Luz Baloloy received [a down payment] or earnest money in the amount
of P102,169.86 and P450,000, respectively; that it was agreed in the contract of sale
that the vendors would secure certificates of title covering their respective hereditary
shares; that the balance of the purchase price would be paid to each heir upon
presentation of their individual certificate[s] of [title]; that Ignacio Rubio refused to
receive the other half of the down payment which is P[100,000]; that Ignacio Rubio
refused and still refuses to deliver to [respondent] the certificates of title covering his
share on the two lots; that with respect to the heirs of Luz Baloloy, they also refused
and still refuse to perform the delivery of the two certificates of title covering their
share in the disputed lots; that respondent was and is ready and willing to pay Ignacio
Rubio and the heirs of Luz Baloloy upon presentation of their individual certificates
of title, free from whatever lien and encumbrance;
 
As to petitioner Corazon Escueta, in spite of her knowledge that the disputed lots have
already been sold by Ignacio Rubio to respondent, it is alleged that a simulated deed
of sale involving said lots was effected by Ignacio Rubio in her favor; and that the
simulated deed of sale by Rubio to Escueta has raised doubts and clouds over
respondents title.
 
In their separate amended answers, petitioners denied the material allegations of the
complaint and alleged inter alia the following:
 
For the heirs of Luz Baloloy (Baloloys for brevity):
 
Respondent has no cause of action, because the subject contract of sale has no more
force and effect as far as the Baloloys are concerned, since they have withdrawn their
offer to sell for the reason that respondent failed to pay the balance of the purchase
price as orally promised on or before May 1, 1990.
 
For petitioners Ignacio Rubio (Rubio for brevity) and Corazon Escueta (Escueta for
brevity):
 
Respondent has no cause of action, because Rubio has not entered into a contract of
sale with her; that he has appointed his daughter Patricia Llamas to be his attorney-in-
fact and not in favor of Virginia Rubio Laygo Lim (Lim for brevity) who was the one
who represented him in the sale of the disputed lots in favor of respondent; that
the P100,000 respondent claimed he received as down payment for the lots is a simple
transaction by way of a loan with Lim.
 
The Baloloys failed to appear at the pre-trial. Upon motion of respondent, the trial
court declared the Baloloys in default. They then filed a motion to lift the order
declaring them in default, which was denied by the trial court in an order
dated November 27, 1991. Consequently, respondent was allowed to adduce
evidence ex parte. Thereafter, the trial court rendered a partial decision dated July 23,
1993 against the Baloloys, the dispositive portion of which reads as follows:
 
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor
of [respondent] and against [petitioners, heirs] of Luz R. Balolo[y],
namely: Alejandrino Baloloy and Bayani Baloloy. The [petitioners]
Alejandrino Baloloy and Bayani Baloloy are ordered to immediately
execute an [Absolute] Deed of Sale over their hereditary share in the
properties covered by TCT No. 74392 and TCT No. 74394, after
payment to them by [respondent] the amount of P[1,050,000] or
consignation of said amount in Court. [For] failure of [petitioners]
Alejandrino Baloloy and Bayani Baloloy to execute the Absolute Deed
of Sale over their hereditary share in the property covered by TCT No.
T-74392 and TCT No. T-74394 in favor of [respondent], the Clerk of
Court is ordered to execute the necessary Absolute Deed of Sale in
behalf of the Baloloys in favor of [respondent,] with a consideration
of P[1,500,000]. Further[,] [petitioners] Alejandrino Baloloy and Bayani
Baloloy are ordered to jointly and severally pay [respondent] moral
damages in the amount of P[50,000] and P[20,000] for attorneys
fees. The adverse claim annotated at the back of TCT No. T-74392 and
 TCT No. T-74394[,] insofar as the shares of Alejandrino Baloloy and
Bayani Baloloy are concerned[,] [is] ordered cancelled.
 
With costs against [petitioners] Alejandrino Baloloy and Bayani
Baloloy.
 
SO ORDERED.[3]
 
The Baloloys filed a petition for relief from judgment and order dated July 4,
1994 and supplemental petition dated July 7, 1994. This was denied by the trial court
in an order dated September 16, 1994. Hence, appeal to the Court of Appeals was
taken challenging the order denying the petition for relief.
 
Trial on the merits ensued between respondent and Rubio and Escueta. After trial, the
trial court rendered its assailed Decision, as follows:

 
IN VIEW OF THE FOREGOING, the complaint [and] amended
complaint are dismissed against [petitioners] Corazon L.
Escueta, Ignacio E. Rubio[,] and the Register of Deeds. The
counterclaim of [petitioners] [is] also
dismissed. However, [petitioner] Ignacio E. Rubio is ordered to return to
the [respondent], Rufina Lim[,] the amount of P102,169.80[,] with
interest at the rate of six percent (6%) per annum from April
10, [1990] until the same is fully paid. Without pronouncement as to
costs.
 
SO ORDERED.[4]
 
 
On appeal, the CA affirmed the trial courts order and partial decision, but reversed the later
decision. The dispositive portion of its assailed Decision reads:
 
WHEREFORE, upon all the foregoing premises considered, this Court rules:
 
1. the appeal of the Baloloys from the Order denying the Petition for Relief from
Judgment and Orders dated July 4, 1994 and Supplemental Petition dated July 7,
1994 is DISMISSED. The Order appealed from is AFFIRMED.
 
2. the Decision dismissing [respondents] complaint is REVERSED and SET
ASIDE and a new one is entered. Accordingly,
 
a. the validity of the subject contract of sale in favor of [respondent] is upheld.
 
b. Rubio is directed to execute a Deed of Absolute Sale conditioned upon the payment
of the balance of the purchase price by [respondent] within 30 days from the receipt of
the entry of judgment of this Decision.
 
c. the contracts of sale between Rubio and Escueta involving Rubios share in the
disputed properties is declared NULL and VOID.
 
d. Rubio and Escueta are ordered to pay jointly and severally the [respondent] the
amount of P[20,000] as moral damages and P[20,000] as attorneys fees.
 
 3. the appeal of Rubio and Escueta on the denial of their counterclaim
is DISMISSED.

 
SO ORDERED.[5]
 
 
Petitioners Motion for Reconsideration of the CA Decision was denied. Hence, this petition.
 
The issues are:
 
I
THE HONORABLE COURT OF APPEALS ERRED IN DENYING THE
PETITION FOR RELIEF FROM JUDGMENT FILED BY THE BALOLOYS.
 
II
THE HONORABLE COURT OF APPEALS ERRED IN REINSTATING THE
COMPLAINT AND IN AWARDING MORAL DAMAGES AND ATTORNEYS
FEES IN FAVOR OF RESPONDENT RUFINA L. LIM CONSIDERING THAT:
 
A. IGNACIO E. RUBIO IS NOT BOUND BY THE CONTRACT
OF SALE BETWEEN VIRGINIA LAYGO-LIM AND RUFINA LIM.
 
B. THE CONTRACT ENTERED INTO BETWEEN RUFINA LIM AND VIRGINIA
LAYGO-LIM IS A CONTRACT TO SELL AND NOT A CONTRACT
OF SALE.
 
C. RUFINA LIM FAILED TO FAITHFULLY COMPLY WITH HER
OBLIGATIONS UNDER THE CONTRACT TO SELL THEREBY
WARRANTING THE CANCELLATION THEREOF.
 
D. CORAZON L. ESCUETA ACTED IN UTMOST GOOD FAITH IN ENTERING
INTO THE CONTRACT OF SALE WITH IGNACIO E. RUBIO.
 
III
THE CONTRACT OF SALE EXECUTED BETWEEN IGNACIO E. RUBIO AND
CORAZON L. ESCUETA IS VALID.
 
IV
THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING
PETITIONERS COUNTERCLAIMS.

Briefly, the issue is whether the contract of sale between petitioners and respondent is valid.
 
Petitioners argue, as follows:
 
First, the CA did not consider the circumstances surrounding petitioners failure to appear at the
pre-trial and to file the petition for relief on time.
 
As to the failure to appear at the pre-trial, there was fraud, accident and/or excusable neglect,
because petitioner Bayani was in the United States. There was no service of the notice of pre-
trial or order. Neither did the former counsel of record inform him. Consequently, the order
declaring him in default is void, and all subsequent proceedings, orders, or decision are void.
 
Furthermore, petitioner Alejandrino was not clothed with a power of attorney to appear on
behalf of Bayani at the pre-trial conference.
 
Second, the sale by Virginia to respondent is not binding. Petitioner Rubio did not
authorize Virginia to transact business in his behalf pertaining to the property. The Special
Power of Attorney was constituted in favor of Llamas, and the latter was not empowered to
designate a substitute attorney-in-fact. Llamas even disowned her signature appearing on the
Joint Special Power of Attorney, which constituted Virginia as her true and lawful attorney-in-
fact in selling Rubios properties.
 
Dealing with an assumed agent, respondent should ascertain not only the fact of agency, but
also the nature and extent of the formers authority. Besides, Virginia exceeded the authority for
failing to comply with her obligations under the Joint Special Power of Attorney.
 
The amount encashed by Rubio represented not the down payment, but the payment of
respondents debt. His acceptance and encashment of the check was not a ratification of the
contract of sale.
 
Third, the contract between respondent and Virginia is a contract to sell, not a contract of
sale. The real character of the contract is not the title given, but the intention of the
parties. They intended to reserve ownership of the property to petitioners pending full payment
of the purchase price. Together with taxes and other fees due on the properties, these are
conditions precedent for the perfection of the sale. Even assuming that the contract is
ambiguous, the same must be resolved against respondent, the party who caused the same.
 
Fourth, Respondent failed to faithfully fulfill her part of the obligation. Thus, Rubio had the
right to sell his properties to Escueta who exercised due diligence in ascertaining ownership of
the properties sold to her. Besides, a purchaser need not inquire beyond what appears in
a Torrens title.
 
The petition lacks merit. The contract of sale between petitioners and respondent is valid.
 
Bayani Baloloy was represented by his attorney-in-fact, Alejandrino Baloloy. In the Baloloys
answer to the original complaint and amended complaint, the allegations relating to the personal
circumstances of the Baloloys are clearly admitted.
 
An admission, verbal or written, made by a party in the course of the proceedings in the same
case, does not require proof.[6] The factual admission in the pleadings on record [dispenses] with
the need x x x to present evidence to prove the admitted fact.[7] It cannot, therefore, be
controverted by the party making such admission, and [is] conclusive[8] as to them. All proofs
submitted by them contrary thereto or inconsistent therewith should be ignored whether
objection is interposed by a party or not.[9] Besides, there is no showing that a palpable mistake
has been committed in their admission or that no admission has been made by them.
 
Pre-trial is mandatory.[10] The notices of pre-trial had been sent to both the Baloloys and
their former counsel of record. Being served with notice, he is charged with the duty of
notifying the party represented by him.[11]He must see to it that his client receives such notice
and attends the pre-trial.[12] What the Baloloys and their former counsel have alleged instead in
their Motion to Lift Order of As In Default dated December 11, 1991 is the belated receipt of
Bayani Baloloys special power of attorney in favor of their former counsel, not that they have
not received the notice or been informed of the scheduled pre-
trial. Not having raised the ground of lack ofa special power of attorney in their motion, they
are now deemed to have waived it. Certainly, they cannot raise it at this late stage of the
proceedings. For lack of representation, Bayani Baloloy was properly declared in default.
 
Section 3 of Rule 38 of the Rules of Court states:
 
SEC. 3. Time for filing petition; contents and verification. A petition provided for in
either of the preceding sections of this Rule must be verified, filed within sixty (60)
days after the petitioner learns of the judgment, final order, or other proceeding to be
set aside, and not more than six (6) months after such judgment or final order was
entered, or such proceeding was taken; and must be accompanied with affidavits
showing the fraud, accident, mistake, or excusable negligence relied upon, and the
facts constituting the petitioners good and substantial cause of action or defense, as
the case may be.
There is no reason for the Baloloys to ignore the effects of the above-cited rule. The 60-day
period is reckoned from the time the party acquired knowledge of the order, judgment or
proceedings and not from the date he actually read the same.[13] As aptly put by the
appellate court:
 
The evidence on record as far as this issue is concerned shows that Atty. Arsenio
Villalon, Jr., the former counsel of record of the Baloloys received a copy of the
partial decision dated June 23, 1993 on April 5, 1994. At that time, said former
counsel is still their counsel of record. The reckoning of the 60 day period therefore is
the date when the said counsel of record received a copy of the partial decision which
was on April 5, 1994. The petition for relief was filed by the new counsel on July 4,
1994 which means that 90 days have already lapsed or 30 days beyond the 60 day
period. Moreover, the records further show that the Baloloys received the partial
decision on September 13, 1993 as evidenced by Registry return cards which bear the
numbers 02597 and 02598 signed by Mr. Alejandrino Baloloy.
 
The Baloloys[,] apparently in an attempt to cure the lapse of the aforesaid
reglementary period to file a petition for relief from judgment[,] included in its
petition the two Orders dated May 6, 1994 and June 29, 1994. The first Order denied
Baloloys motion to fix the period within which plaintiffs-appellants pay the balance of
the purchase price. The second Order refers to the grant of partial execution, i.e. on
the aspect of damages. These Orders are only consequences of the partial decision
subject of the petition for relief, and thus, cannot be considered in the determination of
the reglementary period within which to file the said petition for relief.
 
 
Furthermore, no fraud, accident, mistake, or excusable negligence exists in order that
the petition for relief may be granted.[14] There is no proof of extrinsic fraud that prevents a
party from having a trial x x x or from presenting all of his case to the court[15] or an accident x x
x which ordinary prudence could not have guarded against, and by reason of which the party
applying has probably been impaired in his rights.[16] There is also no proof of either a mistake x
x x of law[17] or an excusable negligence caused by failure to receive notice of x x x the trial x x
x that it would not be necessary for him to take an active part in the case x x x by relying on
another person to attend to the case for him, when such other person x x x was chargeable with
that duty x x x, or by other circumstances not involving fault of the moving party.[18]
 
Article 1892 of the Civil Code provides:
 
Art. 1892. The agent may appoint a substitute if the principal has not prohibited him
from doing so; but he shall be responsible for the acts of the substitute:
 
(1) When he was not given the power to appoint one x x x.
 
 
Applying the above-quoted provision to the special power of attorney executed by Ignacio
Rubio in favor of his daughter Patricia Llamas, it is clear that she is not prohibited from
appointing a substitute. By authorizingVirginia Lim to sell the subject
properties, Patricia merely acted within the limits of the authority given by her father,
but she will have to be responsible for the acts of the sub-agent,[19] among which is precisely the
sale of the subject properties in favor of respondent.
 
Even assuming that Virginia Lim has no authority to sell the subject properties, the contract she
executed in favor of respondent is not void, but simply unenforceable, under the second
paragraph of Article 1317 of the Civil Code which reads:
 
Art. 1317. x x x
 
A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it
is ratified, expressly or impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party.
 
 
Ignacio Rubio merely denies the contract of sale. He claims, without substantiation, that what
he received was a loan, not the down payment for the sale of the subject properties. His
acceptance and encashment of the check, however, constitute ratification of the contract of sale
and produce the effects of an express power of agency.[20] [H]is action necessarily implies that
he waived his right of action to avoid the contract, and, consequently, it also implies the tacit, if
not express, confirmation of the said sale effected by Virginia Lim in favor of respondent.
 
Similarly, the Baloloys have ratified the contract of sale when they accepted and enjoyed its
benefits. The doctrine of estoppel applicable to petitioners here is not only that which prohibits
a party from assuming inconsistent positions, based on the principle of election, but that which
precludes him from repudiating an obligation voluntarily assumed after having accepted
benefits therefrom. To countenance such repudiation would be contrary to equity, and would
put a premium on fraud or misrepresentation.[21]
 
Indeed, Virginia Lim and respondent have entered into a contract of sale. Not only has the title
to the subject properties passed to the latter upon delivery of the thing sold, but there is also no
stipulation in the contract thatstates the ownership is to be reserved in or retained by the
vendor until full payment of the price.[22]
 
Applying Article 1544 of the Civil Code, a second buyer of the property who may have had
actual or constructive knowledge of such defect in the sellers title, or at least was charged with
the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer
cannot defeat the first buyers title. In case a title is issued to the second buyer, the first buyer
may seek reconveyance of the property subject of the sale.[23]Even the argument that a purchaser
need not inquire beyond what appears in a Torrens title does not hold water. A perusal of the
certificates of title alone will reveal that the subject properties are registered in common, not in
the individual names of the heirs.
 
Nothing in the contract prevents the obligation of the vendor to convey title from becoming
effective[24] or gives the vendor the right to unilaterally resolve the contract the moment the
buyer fails to pay within a fixed period.[25] Petitioners themselves have failed to deliver their
individual certificates of title, for which reason it is obvious that respondent cannot be expected
to pay the stipulated taxes, fees, and expenses.
 
[A]ll the elements of a valid contract of sale under Article 1458 of the Civil Code are present,
such as: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price
certain in money or its equivalent.[26]Ignacio Rubio, the Baloloys, and their co-heirs sold their
hereditary shares for a price certain to which respondent agreed to buy and pay for the subject
properties. The offer and the acceptance are concurrent, since the minds of the contracting
parties meet in the terms of the agreement.[27]
 
In fact, earnest money has been given by respondent. [I]t shall be considered as part of the price
and as proof of the perfection of the contract.[28] It constitutes an advance payment to be
deducted from the total price.[29]
 
Article 1477 of the same Code also states that [t]he ownership of the thing sold shall be
transferred to the vendee upon actual or constructive delivery thereof.[30] In
the present case, there is actual delivery as manifested by acts simultaneous with and
subsequent to the contract of sale when respondent not only took possession of the subject
properties but also allowed their use as parking terminal for jeepneys and buses. Moreover, the
execution itself of the contract of sale is constructive delivery.
 
Consequently, Ignacio Rubio could no longer sell the subject properties to Corazon Escueta,
after having sold them to respondent. [I]n a contract of sale, the vendor loses ownership over
the property and cannot recover it until and unless the contract is resolved or rescinded x x x.
[31]
 The records do not show that Ignacio Rubio asked for a rescission of the contract. What he
adduced was a belated revocation of the special power of attorney he executed in favor of
Patricia Llamas. In the sale of immovable property, even though it may have been stipulated
that upon failure to pay the price at the time agreed upon the rescission of the contract shall of
right take place, the vendee may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially or by a notarial
act.[32]
 
WHEREFORE, the petition is DENIED. The Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 48282, dated
October 26, 1998 and January 11, 1999, respectively, are hereby AFFIRMED. Costs against
petitioners.
 
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 13203           September 18, 1918

BEHN, MEYER & CO. (LTD.), plaintiff-appellant, 

vs.
TEODORO R. YANCO, defendant-appellee.

Crossfield & O'Brien for appellant.

Charles C. Cohn for appellee.

MALCOLM, J.:

The first inquiry to be determined is what was the contract between the parties.

The memorandum agreement executed by the duly authorized representatives of the parties to this action reads:

Contract No. 37.

MANILA,     7 de marzo, de 1916.

Confirmanos haber vendido a Bazar Siglo XX, 80 drums Caustic Soda 76 per cent "Carabao" brand al
precio de Dollar Gold Nine and 75/100 per 100-lbs., c.i.f. Manila, pagadero against delivery of documents.
Embarque March, 1916.

Comprador Bazar Siglo XX

de Teodoro R. Yangco
J. Siquia

                Vendores
BEHN, MEYER & CO. (Ltd.)
            O. LOMBECK.

This contract of sale can be analyzed into three component parts.

1. SUBJECT MATTER AND CONSIDERATION.

Facts. — The contract provided for "80 drums Caustic Soda 76 per cent "Carabao" brand al precio de Dollar Gold
Nine and 75/100 1-lbs."

Resorting to the circumstances surrounding the agreement are we are permitted to do, in pursuance of this
provision, the merchandise was shipped from New York on the steamship Chinese Prince. The steamship was
detained by the British authorities at Penang, and part of the cargo, including seventy-one drums of caustic soda,
was removed. Defendant refused to accept delivery of the remaining nine drums of soda on the ground that the
goods were in bad order. Defendant also refused the optional offer of the plaintiff, of waiting for the remainder of the
shipment until its arrival, or of accepting the substitution of seventy-one drums of caustic soda of similar grade from
plaintiff's stock. The plaintiff thereupon sold, for the account of the defendant, eighty drums of caustic soda from
which there was realized the sum of P6,352.89. Deducting this sum from the selling price of P10,063.86, we have
the amount claimed as damages for alleged breach of the contract.

Law. — It is sufficient to note that the specific merchandise was never tendered. The soda which the plaintiff offered
to defendant was not of the "Carabao" brand, and the offer of drums of soda of another kind was not made within
the time that a March shipment, according to another provision the contract, would normally have been available.
 2. PLACE OF DELIVERY.

Facts. — The contract provided for "c.i.f. Manila, pagadero against delivery of documents."

Law. — Determination of the place of delivery always resolves itself into a question of act. If the contract be silent as
to the person or mode by which the goods are to be sent, delivery by the vendor to a common carrier, in the usual
and ordinary course of business, transfers the property to the vendee. A specification in a contact relative to the
payment of freight can be taken to indicate the intention of the parties in regard to the place of delivery. If the buyer
is to pay the freight, it is reasonable to suppose that he does so because the goods become his at the point of
shipment. On the other hand, if the seller is to pay the freight, the inference is equally so strong that the duty of the
seller is to have the goods transported to their ultimate destination and that title to property does not pass until the
goods have reached their destination. (See Williston on Sales, PP. 406-408.)

The letters "c.i.f." found in British contracts stand for cost, insurance, and freight. They signify that the price fixed
covers not only the cost of the goods, but the expense of freight and insurance to be paid by the seller.
(Ireland vs.Livingston, L. R., 5 H. L., 395.) Our instant contract, in addition to the letters "c.i.f.," has the word
following, "Manila." Under such a contract, an Australian case is authority for the proposition that no inference is
permissible that a seller was bound to deliver at the point of destination. (Bowden vs. Little, 4 Comm. [Australia],
1364.)

In mercantile contracts of American origin the letters "F.O.B." standing for the words "Free on Board," are frequently
used. The meaning is that the seller shall bear all expenses until the goods are delivered where they are to be
"F.O.B." According as to whether the goods are to be delivered "F.O.B." at the point of shipment or at the point of
destination determines the time when property passes.

Both the terms "c.i.f." and "F.O.B." merely make rules of presumption which yield to proof of contrary intention. As
Benjamin, in his work on Sales, well says: "The question, at last, is one of intent, to be ascertained by a
consideration of all the circumstances." For instance, in a case of Philippine origin, appealed to the United States
Supreme Court, it was held that the sale was complete on shipment, though the contract was for goods, "F.O.B.
Manila," the place of destination the other terms of the contract showing the intention to transfer the property.
(United States vs. R. P. Andrews & Co. [1907], 207 U.S., 229.)

With all due deference to the decision of the High Court of Australia, we believe that the word Manila in conjunction
with the letters "c.i.f." must mean that the contract price, covering costs, insurance, and freight, signifies that delivery
was to made at Manila. If the plaintiff company has seriously thought that the place of delivery was New York and
Not Manila, it would not have gone to the trouble of making fruitless attempts to substitute goods for the
merchandise named in the contract, but would have permitted the entire loss of the shipment to fall upon the
defendant. Under plaintiffs hypothesis, the defendant would have been the absolute owner of the specific soda
confiscated at Penang and would have been indebted for the contract price of the same.

This view is corroborated by the facts. The goods were not shipped nor consigned from New York to plaintiff. The
bill of lading was for goods received from Neuss Hesslein & Co. the documents evidencing said shipment and
symbolizing the property were sent by Neuss Hesslein & Co. to the Bank of the Philippine Islands with a draft upon
Behn, Meyer & Co. and with instructions to deliver the same, and thus transfer the property to Behn, Meyer & Co.
when and if Behn, Meyer & Co. should pay the draft.

The place of delivery was Manila and plaintiff has not legally excused default in delivery of the specified
merchandise at that place.

3. TIME OF DELIVERY.

Facts. — The contract provided for: "Embarque: March 1916," the merchandise was in fact shipped from New York
on the Steamship Chinese Prince on April 12, 1916.

Law. — The previous discussion makes a resolution of this point unprofitable, although the decision of the United
States Supreme Court in Norrington vs. Wright (([1885], 115 U.S., 188) can be read with profit. Appellant's second
and third assignments of error could, if necessary, be admitted, and still could not recover.

THE CONTRACT.

To answer the inquiry with which we begun this decision, the contract between the parties was for 80 drums of
caustic soda, 76 per cent "Carabao" brand, at the price of $9.75 per one hundred pounds, cost, insurance, and
freight included, to be shipped during March, 1916, to be delivered to Manila and paid for on delivery of the
documents. PERFORMANCE.

In resume, we find that the plaintiff has not proved the performance on its part of the conditions precedent in the
contract. The warranty — the material promise — of the seller to the buyer has not been complied with. The buyer
may therefore rescind the contract of sale because of a breach in substantial particulars going to the essence of the
contract. As contemplated by article 1451 of the Civil Code, the vendee can demand fulfillment of the contract, and
this being shown to be impossible, is relieved of his obligation. There thus being sufficient ground for rescission, the
defendant is not liable.

The judgment of the trial court ordering that the plaintiff take nothing by its action, without special finding as to costs,
is affirmed, with the costs of this instance. Against the appellant. So ordered.

Arellano, C.J., Torres, Johnson, Street and Avanceña, JJ., concur.

SECOND DIVISION

[G.R. No. 125602. April 29, 1999]

ASSOCIATED ANGLO-AMERICAN TOBACCO CORPORATION, petitioner,

vs. NATIONAL LABOR RELATIONS COMMISSION, THIRD DIVISION, LABOR
ARBITER RICARDO N. OLAIREZ, RUBEN DE LA CRUZ ROMANO and
LUCIO L. MAGGAY, respondents.

DECISION
BELLOSILLO, J.:

The crux of the present controversy is whether the appeal from the decision of the Labor Arbiter
to the National Labor Relations Commission was perfected within the reglementary period.
On 6 October 1995 private respondent Ruben de la Cruz Romano filed before the Regional
Arbitration Branch No. II of Tuguegarao, Cagayan, a complaint against petitioner Associated Anglo-
American Tobacco Corporation, a corporation duly organized under the laws of the Philippines
manufacturing and selling cigarette products, claiming that he was employed as truck driver by
petitioner from 1 October 1973 to 14 December 1994; after twenty-one (21) years of employment he
retired due to failing eyesight; in those twenty-one (21) years, he was underpaid and deprived of his
13  month pay, service incentive leave pay and overtime pay. Upon his retirement, he requested
th

financial assistance from petitioner but was denied.

On 6 November 1995 another complaint was filed against petitioner this time by private
respondent Lucio L. Maggay before the same Regional Arbitration Branch No. II claiming that he was
also hired in April 1972 as delivery truck helper and since then was underpaid and deprived of his
13  month pay and service incentive leave pay.
th

Summons was served on Elpidio Ching, named in the complaint of private respondent Romano
as petitioners owner/Manager/President. On 19 October 1995 Atty. Jesus John B. Garma appeared
for Ching and manifested that his client was a mere salesman, not an owner nor President of
petitioner corporation, and asked that Ching be dropped as party respondent. Before acting on the
request, the Labor Arbiter ordered another summons to be served on petitioner. [1]
On 23 November 1995 Atty. Garma filed a motion reiterating his prayer for Ching to be dropped
from the complaint. It was granted.[2]
For the three (3) scheduled mandatory conferences petitioner failed to appear. No reason was
given thus leaving the Labor Arbiter with no other option but to consider petitioner to have waived its
right to be heard and to present evidence.
On 21 February 1996 the Labor Arbiter granted the money claims of private respondent, except
those covered by the period before September 1992 in the case of Romano, and before November
1992 in the case of Maggay, on account of prescription. In addition, the Labor Arbiter granted
attorneys fees of ten per cent (10%) of the total monetary awards plus interest of one per cent (1%)
per month until full payment.[3]
Petitioner appealed on the grounds inter alia that it did not receive a copy of the complaint nor of
the notice of hearing and that Ching was its exclusive distributor/dealer of cigarette products in
Cagayan Valley and who directly hired both private respondents. However, on 27 May 1996 public
respondent National Labor Relations Commission dismissed the appeal for having been filed beyond
the 10-day prescriptive period from receipt of the questioned decision. [4]According to the NLRC,
inasmuch as the decision was received by petitioner on 23 February 1996, it had up to  March
1996[5] to file its appeal, but did so only on 14 March 1996. [6]
Petitioner sought reconsideration alleging that the letter of transmittal of the records by Labor
Arbitration Associate Ofelia Q. Cagurangan addressed to the Executive Clerk of Court of the NLRC
showed that it received the Labor Arbiters decision on 28 February 1996. [7] On 25 June 1996 the
NLRC denied reconsideration[8] holding that on the basis of the Bailiffs Return which is the best proof
of service the Labor Arbiters decision was duly served on petitioner on 23 February 1996 through one
Ernesto Garma of the law office of Atty. Jesus John B. Garma. [9]
Petitioner insists on the timeliness of its appeal since the letter of transmittal of the records and
the registry return receipt disclose that it received the decision of the Labor Arbiter on 28 February
1996 so the last day to file its appeal fell on 9 March 1996; on the other hand, the date it sent through
registered mail its notice of appeal with memorandum together with the requisite bond is indicated on
the mailing envelope as 8 March 1996. Petitioner disputes the authority of Ernesto Garma or Atty.
Jesus John B. Garma to receive the Labor Arbiters decision on its behalf since Atty. Garma is the
lawyer for Elpidio Ching who was responsible for the latters exclusion as respondent before the Labor
Arbiter.
The Solicitor General supports the stand of petitioner, for which reason, the NLRC filed its own
comment that Ching was an agent/representative of petitioner whose lawyer was Atty. Garma based
on petitioners admission in the present petition that it learned about the instant case through Ching,
who assured (it) of taking whatever actions necessary to protect the interest of the  company.[10] The
NLRC thus maintains that the notice of the decision of the Labor Arbiter to Atty. Garma received
through Ernesto Garma is notice to petitioner through Ching represented by Atty. Garma.
No abuse of discretion was committed by the NLRC. Section 4, Rule III, of its New Rules of
Procedure states

Sec. 4. Service of Notices and Resolutions. (a) Notices or summons and copies of orders,
resolutions or decision shall be served on the parties to the case personally by the bailiff
or duly authorized public officer within three (3) days from receipt thereof by registered
mail; Provided that where a party is represented by counsel or authorized representative,
service shall be made on such counsel or authorized representative x x x x

We agree with the comment of respondent NLRC that petitioners allegation in the present petition
that it learned about the instant case through Ching who assured (it) of taking whatever actions
necessary to protect the interest of the company in a virtual admission that Elpidio Ching was its
authorized representative in the proceedings before the Labor Arbiter. Precisely, that assurance by
Ching coupled with the apparent acceptance thereof by petitioner was enough consideration to clothe
him with authority to act as such. Petitioner even reiterated this allegation in its memorandum
herein[11] and did not bother to refute the deduction therefrom by respondent NLRC.  Rather, what
petitioner impugns is the authority of Ernesto Garma or of Atty. Jesus John B. Garma to receive the
Labor Arbiters decision on its behalf since Atty. Garma is the lawyer for Ching who was responsible
for the latters exclusion as respondent before the Labor Arbiter. But petitioner sorely misses the
point. It authorized Ching to act as its representative in the proceedings before the Labor Arbiter. This
circumstance is settled on account of petitioners admission in its petition as well as its memorandum
before us. We consider the appearance of Atty. Garma for Ching, as an authorized representative of
petitioner, to be an appearance also on petitioners behalf. Moreover, petitioner failed to show that
Ching availed of the services of Atty. Garma solely for his personal benefit. We gather from the
records instead that Atty. Garma was hired by Ching pursuant to his role as authorized representative
of petitioner. The rejection by petitioner in the instant petition of Atty. Garmas authority to act on its
behalf, including that of Ernesto Garma, appears to be an expedient scheme and a mere subterfuge
in order to pave the way for its appeal before respondent NLRC to be given due course, with the
ultimate objective of avoiding payment of its financial liabilities to respondents.  This Court simply will
not allow itself to be an instrument in what is perceived to be a vain effort to deprive workingmen of
the benefits of labor legislations.
The preceding discussion leads to the conclusion that service of the Labor Arbiters decision on
23 February 1996 on Ernesto Garma of the law office of Atty. Garma effectively bound
petitioner. Counting ten (10) days from 23 February 1996, petitioners appeal should have been filed
not later than 4 March 1996. Considering however, that its Notice with Memorandum on Appeal was
sent by registered mail only on 8 March 1996, the reglementary period within which to appeal had
clearly lapsed.
 Incidentally, the finding of the NLRC that petitioners appeal was filed only on 14 March 1996
appears erroneous; it is not supported by the evidence. Rule VI of the New Rules of Procedure of the
NLRC sets forth the rules concerning appeals from the decisions, awards or orders of the Labor
Arbiter, POEA Administrator and Regional Director. Section 4 thereof says

Sec. 4. Where Filed. The appeal x x x shall be filed with the respective Regional
Arbitration Branch x x x where the case was heard and decided.

However, the Sec. 4 fails to define the term filing. In this regard, Sec. 3, Rule I, of
the Rules provides

Sec. 3. Suppletory application of Rules of Court and jurisprudence. In the absence of any
applicable provision in these Rules, and in order to effectuate the objectives of the Labor
Code, the pertinent provisions of the Revised Rules of Court of the Philippines and
prevailing jurisprudence may, in the interest of expeditious labor justice and whenever
practicable and convenient, be applied by analogy or in a suppletory character and effect.

The pertinent provision of the Rules of Court is Sec. 1, Rule 13, which reads

Sec. 1. Filing with the court defined. The filing of pleadings, appearances, motions,
notices, orders and other papers with the court as required by these rules shall be made
by filing them personally with the clerk of the court or by sending them by registered mail x
x x x In the second case, the date of mailing of motions, pleadings, or any other papers of
payments or deposits, as shown by the post office stamp on the envelope or the registry
receipt, shall be considered as the date of the filing, payment, or deposit in court. The
envelope shall be attached to the record of the case. (underscoring supplied).

Petitioners Notice with Memorandum on Appeal was sent by registered mail to the Regional

Arbitration Branch No. II on 8 March 1996. The front and back portions of the envelope [12] thereof and
the corresponding registry receipt [13]show the post office stamp that it was mailed on said date. The
Regional Arbitration Branch No. II received it on 14 March 1996. It was the latter date which the
NLRC seemed to have regarded as the date of filing. This is error. Under Sec. 1, Rule 13 of the Rules
of Court, the date of mailing, as shown by the post office stamp on the envelope or the registry
receipt, is considered the date of filing in court, which in the present case was 8 March 1996.
WHEREFORE, the petition is DISMISSED. The resolution of public respondent National Labor
Relations Commission of 27 May 1996 dismissing the appeal of petitioner Associated Anglo-
American Tobacco Corporation for having been filed beyond the prescriptive period, as well as its
resolution of 25 June 1996 denying reconsideration, is AFFIRMED.
SO ORDERED.
Puno, Mendoza, Quisumbing, and Buena, JJ., concur.
 THIRD DIVISION

[G.R. No. 119178. June 20, 1997]

LINA LIM LAO, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE

PHILIPPINES, respondents.

DECISION
PANGANIBAN, J.:

May an employee who, as part of her regular duties, signs blank corporate checks -- with the
name of the payee and the amount drawn to be filled later by another signatory -- and, therefore,
does so without actual knowledge of whether such checks are funded, be held criminally liable for
violation of Batas Pambansa Bilang 22 (B.P. 22), when checks so signed are dishonored due to
insufficiency of funds? Does a notice of dishonor sent to the main office of the corporation constitute a
valid notice to the said employee who holds office in a separate branch and who had no actual
knowledge thereof? In other words, is constructive knowledge of the corporation, but not of the
signatory-employee, sufficient?
These are the questions raised in the petition filed on March 21, 1995 assailing the Decision  of[1]

Respondent Court of Appeals  promulgated on December 9, 1994 in CA-G.R. CR No. 14240

[2]

dismissing the appeal of petitioner and affirming the decision dated September 26, 1990 in Criminal
Case Nos. 84-26967 to 84-26969 of the Regional Trial Court of Manila, Branch 33. The dispositive
portion of the said RTC decision affirmed by the respondent appellate court reads: [3]

WHEREFORE, after a careful consideration of the evidence presented by the prosecution and that
of the defense, the Court renders judgment as follows:

In Criminal Case No. 84-26969 where no evidence was presented by the prosecution
notwithstanding the fact that there was an agreement that the cases be tried jointly and also the fact
that the accused Lina Lim Lao was already arraigned, for failure of the prosecution to adduce
evidence against the accused, the Court hereby declares her innocent of the crime charged and she
is hereby acquitted with cost de oficio.

For Criminal Case No. 84-26967, the Court finds the accused Lina Lim Lao guilty beyond
reasonable doubt of the crime charged and is hereby sentenced to suffer the penalty of ONE (1)
YEAR imprisonment and to pay a fine of P150,000.00 without subsidiary imprisonment in case of
insolvency.

For Criminal Case No. 84-26968, the Court finds the accused Lina Lim Lao guilty beyond
reasonable doubt of the crime charged and is hereby sentenced to suffer the penalty of ONE (1)
YEAR imprisonment and to pay a fine of P150,000.00 without subsidiary imprisonment in case of
of (sic) insolvency.

For the two cases the accused is ordered to pay the cost of suit.
The cash bond put up by the accused for her provisional liberty in Criminal Case No. 84-26969
where she is declared acquitted is hereby ordered cancelled (sic).

With reference to the accused Teodulo Asprec who has remained at large, in order that the cases as
against him may not remain pending in the docket for an indefinite period, let the same be archived
without prejudice to its subsequent prosecution as soon as said accused is finally apprehended.

Let a warrant issue for the arrest of the accused Teodulo Asprec which warrant need not be
returned to this Court until the accused is finally arrested.

SO ORDERED.

The Facts

Version of the Prosecution

The facts are not disputed. We thus lift them from the assailed Decision, as follows:

Appellant (and now Petitioner Lina Lim Lao) was a junior officer of Premiere Investment House
(Premiere) in its Binondo Branch. As such officer, she was authorized to sign checks for and in
behalf of the corporation (TSN, August 16, 1990, p. 6). In the course of the business, she met
complainant Father Artelijo Pelijo, the provincial treasurer of the Society of the Divine Word
through Mrs. Rosemarie Lachenal, a trader for Premiere. Father Palijo was authorized to invest
donations to the society and had been investing the societys money with Premiere (TSN, June 23,
1987, pp. 5, 9-10). Father Palijo had invested a total of P514,484.04, as evidenced by the
Confirmation of Sale No. 82-6994 (Exh A) dated July 8, 1993. Father Palijo was also issued
Traders Royal Bank (TRB) checks in payment of interest, as follows:

Check Date Amount

299961 Oct. 7, 1993 (sic) P150,000.00 (Exh. B)

299962 Oct. 7, 1983 P150,000.00 (Exh. C)

323835 Oct. 7, 1983 P 26,010.73

All the checks were issued in favor of Artelijo A. Palijo and signed by appellant (herein petitioner)
and Teodulo Asprec, who was the head of operations. Further evidence of the transaction was the
acknowledgment of postdated checks dated July 8, 1983 (Exh . D) and the cash disbursement
voucher (Exh. F, TSN, supra, at pp. 11-16).

When Father Palijo presented the checks for encashment, the same were dishonored for the reason Drawn
Against Insufficient Funds (DAIF). Father Palijo immediately made demands on premiere to pay him the
necessary amounts. He first went to the Binondo Branch but was referred to the Cubao Main Branch where he
was able to talk with the President, Mr. Cario. For his efforts, he was paid P5,000.00. Since no other payments
followed, Father Palijo wrote Premiere a formal letter of demand. Subsequently, Premiere was placed under
receivership (TSN, supra, at pp. 16-19). [4]

Thereafter, on January 24, 1984, Private Complainant Palijo filed an affidavit-complaint against
Petitioner Lina Lim Lao and Teodulo Asprec for violation of B.P. 22. After preliminary investigation,
 three Informations charging Lao and Asprec with the offense defined in the first paragraph of
[5]

Section 1, B.P. 22 were filed by Assistant Fiscal Felix S. Caballes before the trial court on May 11,
1984,  worded as follows:
[6]

1. In Criminal Case No. 84-26967:

That on or about October 7, 1983 in the City of Manila, Philippines, the said accused did then and
there wilfully and unlawfully draw and issue to Artelijo A. Palijo to apply on account or for value a
Traders Royal Bank Check No. 299962 for P150,000.00 payable to Fr. Artelijo A. Palijo dated
October 7, 1983 well knowing that at the time of issue he/she did not have sufficient funds in or
credit with the drawee bank for full payment of the said check upon its presentment as in fact the
said check, when presented within ninety (90) days from the date thereof, was dishonored by the
drawee bank for the reason: Insufficient Funds; that despite notice of such dishonor, said accused
failed to pay said Artelijo A. Palijo the amount of the said check or to make arrangement for full
payment of the same within five (5) banking days from receipt of said notice.

CONTRARY TO LAW.

2. In Criminal Case No. 84-26968:

That on or about October 7, 1983 in the City of Manila, Philippines, the said accused did then and
there wilfully and unlawfully draw and issue to Artelijo A. Palijo to apply on account or for value a
Traders Royal Bank Check No. 299961 for P150,000.00 payable to Fr. Artelijo A. Palijo dated
October 7, 83 well knowing that at the time of issue he/she did not have sufficient funds in or credit
with the drawee bank for full payment of the said check upon its presentment as in fact the said
check, when presented within ninety (90) days from the date thereof, was dishonored by the drawee
bank for the reason: Insuficient Funds; that despite notice of such dishonor, said accused failed to
pay said Artelijo A. Palijo the amount of the said check or to make arrangement for full payment of
the same within five (5) banking days from receipt of said notice.

CONTRARY TO LAW.

3. And finally in Criminal Case No. 84-26969:

That on or about July 8, 1983 in the City of Manila, Philippines, the said accused did then and there
wilfully and unlawfully draw and issue to Artelijo A. Palijo to apply on account for value a Traders
Royal Bank Check No. 323835 for P26,010.03 payable to Fr. Artelijo A. Palijo dated October 7,
1983 well knowing that at the time of issue he/she did not have sufficient funds in or credit with the
drawee bank for full payment of the said check upon its presentment as in fact the said check, when
presented within ninety (90) days from the date thereof, was dishonored by the drawee bank for the
reason: Insufficient Funds; that despite notice of such dishonor, said accused failed to pay said
Artelijo A. Palijo the amount of the said check or to make arrangement for full payment of the
same within five (5) banking days from receipt of said notice.

CONTRARY TO LAW.

Upon being arraigned, petitioner assisted by counsel pleaded not guilty. Asprec was not arrested;
he has remained at large since the trial, and even now on appeal.
After due trial, the Regional Trial Court convicted Petitioner Lina Lim Lao in Criminal Case Nos.
84-26967 and 84-26968 but acquitted her in Criminal Case No. 84-26969.  On appeal, the Court of
[7]

Appeals affirmed the decision of the trial court.

Version of the Defense

Petitioner aptly summarized her version of the facts of the case thus:

Petitioner Lina Lim Lao was, in 1983, an employee of Premiere Financing Corporation (hereinafter
referred to as the Corporation), a corporation engaged in investment management, with principal
business office at Miami, Cubao, Quezon City. She was a junior officer at the corporation who was,
however, assigned not at its main branch but at the corporations extension office in (Binondo)
Manila. (Ocampo, T.S.N., 16 August 1990, p. 14)
In the regular course of her duties as a junior officer, she was required to co-sign checks drawn
against the account of the corporation. The other co-signor was her head of office, Mr. Teodulo
Asprec. Since part of her duties required her to be mostly in the field and out of the office, it was
normal procedure for her to sign the checks in blank, that is, without the names of the payees, the
amounts and the dates of maturity. It was likewise Mr. Asprec, as head of office, who alone
decided to whom the checks were to be ultimately issued and delivered. (Lao, T.S.N., 28
September 1989, pp. 9-11, 17, 19.)

In signing the checks as part of her duties as junior officer of the corporation, petitioner had no
knowledge of the actual funds available in the corporate account. (Lao, T.S.N., 28 September
1989, p. 21) The power, duty and responsibility of monitoring and assessing the balances against
the checks issued, and funding the checks thus issued, devolved on the corporations Treasury
Department in its main office in Cubao, Quezon City, headed then by the Treasurer, Ms. Veronilyn
Ocampo. (Ocampo, T.S.N., 19 July 1990, p. 4; Lao, T.S.N., 28 September 1989, pp. 21-23) All
bank statements regarding the corporate checking account were likewise sent to the main branch in
Cubao, Quezon City, and not in Binondo, Manila, where petitioner was holding office. (Ocampo,
T.S.N., 19 July 1990, p. 24; Marqueses, T.S.N., 22 November 1988, p. 8)

The foregoing circumstances attended the issuance of the checks subject of the instant prosecution.

The checks were issued to guarantee payment of investments placed by private complainant Palijo
with Premiere Financing Corporation. In his transactions with the corporation, private complainant
dealt exclusively with one Rosemarie Lachenal, a trader connected with the corporation, and he
never knew nor in any way dealt with petitioner Lina Lim Lao at any time before or during the
issuance of the delivery of the checks. (Palijo, T.S.N., 23 June 1987, pp. 28-29, 32-34; Lao,
T.S.N., 15 May 1990, p. 6; Ocampo, T.S.N., p. 5) Petitioner Lina Lim Lao was not in any way
involved in the transaction which led to the issuance of the checks.

When the checks were co-signed by petitioner, they were signed in advance and in blank, delivered
to the Head of Operations, Mr. Teodulo Asprec, who subsequently filled in the names of the payee,
the amounts and the corresponding dates of maturity. After Mr. Asprec signed the checks, they
were delivered to private complainant Palijo. (Lao, T.S.N., 28 September 1989, pp. 8-11, 17, 19;
note also that the trial court in its decision fully accepted the testimony of petitioner [Decision of
the Regional Trial Court, p. 12], and that the Court of Appeals affirmed said decision in toto)

Petitioner Lina Lim Lao was not in any way involved in the completion, and the subsequent
delivery of the check to private complainant Palijo.

At the time petitioner signed the checks, she had no knowledge of the sufficiency or insufficiency
of the funds of the corporate account. (Lao, T.S.N., 28 September 1989, p. 21) It was not within her
powers, duties or responsibilities to monitor and assess the balances against the issuance; much less
was it within her (duties and responsibilities) to make sure that the checks were funded. Premiere
Financing Corporation had a Treasury Department headed by a Treasurer, Ms. Veronilyn Ocampo,
which alone had access to information as to account balances and which alone was responsible for
funding the issued checks. (Ocampo, T.S.N., 19 July 1990, p. 4; Lao, T.S.N., 28 September 1990,
p. 23) All statements of account were sent to the Treasury Department located at the main office in
Cubao, Quezon City. Petitioner was holding office at the extension in Binondo Manila. (Lao,
T.S.N., 28 September 1989, p. 24-25) Petitioner Lina Lim Lao did not have knowledge of the
insufficiency of the funds in the corporate account against which the checks were drawn.

When the checks were subsequently dishonored, private complainant sent a notice of said dishonor
to Premier Financing Corporation at its head office in Cubao, Quezon City. (Please refer to Exh.
E; Palijo, T.S.N., 23 June 1987, p. 51) Private complainant did not send notice of dishonor to
petitioner. (Palijo, T.S.N., 24 July 1987, p. 10) He did not follow up his investment with
petitioner. (Id.) Private complainant never contacted, never informed, and never talked with,
petitioner after the checks had bounced. (Id., at p. 29) Petitioner never had notice of the dishonor of
the checks subject of the instant prosecution.

The Treasurer of Premiere Financing Corporation, Ms. Veronilyn Ocampo testified that it was the
head office in Cubao, Quezon City, which received notice of dishonor of the bounced
checks. (Ocampo, T.S.N., 19 July 1990, pp. 7-8) The dishonor of the check came in the wake of
the assassination of the late Sen. Benigno Aquino, as a consequence of which event a majority of
the corporations clients pre-terminated their investments. A period of extreme illiquidity and
financial distress followed, which ultimately led to the corporations being placed under
receivership by the Securities and Exchange Commission. (Ocampo, T.S.N., 16 August 1990, p. 8,
19; Lao, T.S.N., 28 September 1989, pp. 25-26; Please refer also to Exhibit 1, the order of
receivership issued by the Securities and Exchange Commission) Despite the Treasury
Departments and (Ms. Ocampos) knowledge of the dishonor of the checks, however, the main
office in Cubao, Quezon City never informed petitioner Lina Lim Lao or anybody in the Binondo
office for that matter. (Ocampo, T.S.N., 16 August 1990, pp. 9-10) In her testimony, she justified
her omission by saying that the checks were actually the responsibility of the main office (Ocampo,
T.S.N., 19 July 1990, p. 6) and that, at that time of panic withdrawals and massive pre-termination
of clients investments, it was futile to inform the Binondo office since the main office was strapped
for cash and in deep financial distress. (Id., at pp. 7-9) Moreover, the confusion which came in the
wake of the Aquino assassination and the consequent panic withdrawals caused them to lose direct
communication with the Binondo office. (Ocampo, T.S.N., 16 August 1990, p. 9-10)

As a result of the financial crisis and distress, the Securities and Exchange Commission placed
Premier Financing Corporation under receivership, appointing a rehabilitation receiver for the
purpose of settling claims against the corporation. (Exh. 1) As he himself admits, private
complainant filed a claim for the payment of the bounced check before and even after the
corporation had been placed under receivership. (Palijo, T.S.N., 24 July 1987, p. 10-17) A check
was prepared by the receiver in favor of the private complainant but the same was not claimed by
him. (Lao, T.S.N., 15 May 1990, p. 18)

Private complainant then filed the instant criminal action. On 26 September 1990, the Regional
Trial Court of Manila, Branch 33, rendered a decision convicting petitioner, and sentencing the
latter to suffer the aggregate penalty of two (2) years and to pay a fine in the total amount
of P300,000.00. On appeal, the Court of Appeals affirmed said decision. Hence, this petition for
review. [8]

The Issue

In the main, petitioner contends that the public respondent committed a reversible error in
concluding that lack of actual knowledge of insufficiency of funds was not a defense in a prosecution
for violation of B.P. 22. Additionally, the petitioner argues that the notice of dishonor sent to the main
office of the corporation, and not to petitioner herself who holds office in that corporations branch
office, does not constitute the notice mandated in Section 2 of BP 22; thus, there can be no  prima
facie presumption that she had knowledge of the insufficiency of funds.

The Courts Ruling

The petition is meritorious.

Strict Interpretation of Penal Statutes

It is well-settled in this jurisdiction that penal statutes are strictly construed against the state and
liberally for the accused, so much so that the scope of a penal statute cannot be extended by good
intention, implication, or even equity consideration. Thus, for Petitioner Lina Lim Laos acts to be
penalized under the Bouncing Checks Law or B.P. 22, they must come clearly within both the spirit
and the letter of the statute.
[9]

The salient portions of B.P. 22 read:

SECTION 1. Checks without sufficient funds. -- Any person who makes or draws and issues any
check to apply on account or for value, knowing at the time of issue that he does not have sufficient
funds in or credit with the drawee bank for the payment of such check in full upon its presentment,
which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or
would have been dishonored for the same reason had not the drawer, without any valid reason,
ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days
but not more than one (1) year or by a fine of not less than but not more than double the amount of
the check which fine shall in no case exceed Two hundred thousand pesos, or both such fine and
imprisonment at the discretion of the court.

The same penalty shall be imposed upon any person who having sufficient funds in or credit with
the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or
to maintain a credit or to cover the full amount of the check if presented within a period of ninety
(90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank.

Where the check is drawn by a corporation, company or entity, the person or persons who actually
signed the check in behalf of such drawer shall be liable under this Act.

SECTION 2. Evidence of knowledge of insufficient funds. -- The making, drawing and issuance of a
check payment of which is refused by the drawee because of insufficient funds in or credit with
such bank, when presented within ninety (90) days from the date of the check, shall be prima
facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer
pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the
drawee of such check within five (5) banking days after receiving notice that such check has not
been paid by the drawee.

This Court listed the elements of the offense penalized under B.P. 22, as follows: (1) the making,
drawing and issuance of any check to apply to account or for value; (2) the knowledge of the maker,
drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee
bank for the payment of such check in full upon its presentment; and (3) subsequent dishonor of the
check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not
the drawer, without any valid cause, ordered the bank to stop payment. [10]

Justice Luis B. Reyes, an eminent authority in criminal law, also enumerated the elements of the
offense defined in the first paragraph of Section 1 of B.P. 22, thus:
1. That a person makes or draws and issues any check.
2. That the check is made or drawn and issued to apply on account or for value.
3. That the person who makes or draws and issues the check knows at the time of issue that he does
not have sufficient funds in or credit with the drawee bank for the payment of such check in
full upon its presentment.
4. That the check is subsequently dishonored by the drawee bank for insufficiency of funds or credit,
or would have been dishonored for the same reason had not the drawer, without any valid reason,
ordered the bank to stop payment.[11]

Crux of the Petition

Petitioner raised as defense before the Court of Appeals her lack of actual knowledge of the
insufficiency of funds at the time of the issuance of the checks, and lack of personal notice of
dishonor to her. The respondent appellate court, however, affirmed the RTC decision, reasoning that
the makers knowledge of the insufficiency of funds is legally presumed from the dishonor of his
checks for insufficiency of funds. (People vs. Laggui, 171 SCRA 305; Nieras vs. Hon. Auxencio C.
Dacuycuy, 181 SCRA 1)  The Court of Appeals also stated that her alleged lack of knowledge or
[12]

intent to issue a bum check would not exculpate her from any responsibility under B.P. Blg. 22, since
the act of making and issuing a worthless check is a malum prohibitum.  In the words of the Solicitor
[13]

General, (s)uch alleged lack of knowledge is not material for petitioners liability under B.P.Blg. 22. [14]

Lack of Actual Knowledge of Insufficiency of Funds

Knowledge of insufficiency of funds or credit in the drawee bank for the payment of a check upon
its presentment is an essential element of the offense.  There is a prima facie presumption of the
[15]

existence of this element from the fact of drawing, issuing or making a check, the payment of which
was subsequently refused for insufficiency of funds. It is important to stress, however, that this is not
a conclusive presumption that forecloses or precludes the presentation of evidence to the contrary.
In the present case, the fact alone that petitioner was a signatory to the checks that were
subsequently dishonored merely engenders the prima facie presumption that she knew of the
insufficiency of funds, but it does not render her automatically guilty under B.P. 22. The prosecution
has a duty to prove all the elements of the crime, including the acts that give rise to the prima
facie presumption; petitioner, on the other hand, has a right to rebut the prima facie presumption.
 Therefore, if such knowledge of insufficiency of funds is proven to be actually absent or non-
[16]

existent, the accused should not be held liable for the offense defined under the first paragraph of
Section 1 of B.P. 22. Although the offense charged is a malum prohibitum, the prosecution is not
thereby excused from its responsibility of proving beyond reasonable doubt all the elements of the
offense, one of which is knowledge of the insufficiency of funds.
After a thorough review of the case at bar, the Court finds that Petitioner Lina Lim Lao did not
have actual knowledge of the insufficiency of funds in the corporate accounts at the time she affixed
her signature to the checks involved in this case, at the time the same were issued, and even at the
time the checks were subsequently dishonored by the drawee bank.
The scope of petitioners duties and responsibilities did not encompass the funding of the
corporations checks; her duties were limited to the marketing department of the Binondo branch.
 Under the organizational structure of Premiere Financing Corporation, funding of checks was the
[17]

sole responsibility of the Treasury Department. Veronilyn Ocampo, former Treasurer of

Premiere, testified thus:
Q Will you please tell us whose (sic) responsible for the funding of checks in Premiere?
A The one in charge is the Treasury Division up to the Treasury Disbursement and then they give it
directly to Jose Cabacan, President of Premiere.[18]
Furthermore, the Regional Trial Court itself found that, since Petitioner Lina Lim Lao was often
out in the field taking charge of the marketing department of the Binondo branch, she signed the
checks in blank as to name of the payee and the amount to be drawn, and  without knowledge of the
transaction for which they were issued.  As a matter of company practice, her signature was required
[19]

in addition to that of Teodulo Asprec, who alone placed the name of the payee and the amount to be
drawn thereon. This is clear from her testimony:
q x x x Will you please or will you be able to tell us the condition of this check when you signed this or
when you first saw this check?
Witness
a I signed the check in blank. There were no payee. No amount, no date, sir.
q Why did you sign this check in blank when there was no payee, no amount and no date?
a It is in order to facilitate the transaction, sir.
x x x x x x x x x
COURT
(to witness)
q Is that your practice?
Witness
a Procedure, Your Honor.
COURT
That is quiet (sic) unusual. That is why I am asking that last question if that is a practice of your
office.
a As a co-signer, I sign first, sir.
q So the check cannot be encashed without your signature, co-signature?
a Yes, sir.
Atty. Gonzales
(to witness)
q Now, you said that you sign first, after you sign, who signs the check?
a Mr. Teodoro Asprec, sir.
q Is this Teodoro Asprec the same Teodoro Asprec, one of the accused in all these cases?
a Yes, sir.
q Now, in the distribution or issuance of checks which according to you, as a co-signee, you
sign. Who determines to whom to issue or to whom to pay the check after Teodoro Asprec signs
the check?
Witness
a He is the one.
Atty. Gonzales
q Mr. Asprec is the one in-charge in . . . are you telling the Honorable Court that it was Teodoro
Asprec who determines to whom to issue the check? Does he do that all the time?
Court
q Does he all the time?
(to witness)
a Yes, Your Honor.
q So the check can be negotiated? So, the check can be good only upon his signing? Without his
signing or signature the check cannot be good?
a Yes, Your Honor.
Atty. Gonzales
(to witness)
q You made reference to a transaction which according to you, you signed this check in order to
facilitate the transaction . . . I withdraw that question. I will reform.
COURT
(for clarification to witness)
Witness may answer.
q Only to facilitate your business transaction, so you signed the other checks?
Witness
a Yes, Your Honor.
q So that when ever there is a transaction all is needed . . . all that is needed is for the other co-signee
to sign?
a Yes, Your Honor.
COURT
(To counsel)
Proceed.
Atty. Gonzales
(to witness)
q Why is it necessary for you to sign?
 a Because most of the time I am out in the field in the afternoon, so, in order to facilitate the
transaction I sign so if I am not around they can issue the check.[20]
Petitioner did not have any knowledge either of the identity of the payee or the transaction which
gave rise to the issuance of the checks. It was her co-signatory, Teodulo Asprec, who alone filled in
the blanks, completed and issued the checks. That Petitioner Lina Lim Lao did not have any
knowledge or connection with the checks payee, Artelijo Palijo, is clearly evident even from the latters
testimony, viz.:
ATTY. GONZALES:
Q When did you come to know the accused Lina Lim Lao?
A I cannot remember the exact date because in their office Binondo, --
COURT: (before witness could finish)
Q More or less?
A It must have been late 1983.
ATTY. GONZALES:
Q And that must or that was after the transactions involving alleged checks marked in evidence as
Exhibits B and C?
A After the transactions.
Q And that was also before the transaction involving that confirmation of sale marked in evidence as
Exhibit A?
A It was also.
Q And so you came to know the accused Lina Lim Lao when all those transactions were already
consummated?
A Yes, sir.
Q And there has never been any occasion where you transacted with accused Lina Lim Lao, is that
correct?
A None, sir, there was no occasion.
Q And your coming to know Lina Lim Lao the accused in these cases was by chance when you
happened to drop by in the office at Binondo of the Premier Finance Corporation, is that what you
mean?
A Yes, sir.
Q You indicated to the Court that you were introduced to the accused Lina Lim Lao, is that correct?
A I was introduced.
x x x x x x x x x
Q After that plain introduction there was nothing which transpired between you and the accused Lina
Lim Lao?
A There was none.[21]
Since Petitioner Lina Lim Lao signed the checks without knowledge of the insufficiency of funds,
knowledge she was not expected or obliged to possess under the organizational structure of the
corporation, she may not be held liable under B.P. 22. For in the final analysis, penal statutes such as
B.P. 22 must be construed with such strictness as to carefully safeguard the rights of the defendant x
x x.  The element of knowledge of insufficiency of funds having been proven to be absent, petitioner
[22]

is therefore entitled to an acquittal.

This position finds support in Dingle vs. Intermediate Appellate Court  where we stressed that
[23]

knowledge of insufficiency of funds at the time of the issuance of the check was an essential requisite
for the offense penalized under B.P. 22. In that case, the spouses Paz and Nestor Dingle owned a
family business known as PMD Enterprises. Nestor transacted the sale of 400 tons of silica sand to
the buyer Ernesto Ang who paid for the same. Nestor failed to deliver.Thus, he issued to Ernesto two
checks, signed by him and his wife as authorized signatories for PMD Enterprises, to represent the
value of the undelivered silica sand. These checks were dishonored for having been drawn against
insufficient funds. Nestor thereafter issued to Ernesto another check, signed by him and his wife Paz,
which was likewise subsequently dishonored. No payment was ever made; hence, the spouses were
charged with a violation of B.P. 22 before the trial court which found them both guilty. Paz appealed
the judgment to the then Intermediate Appellate Court which modified the same by reducing the
penalty of imprisonment to thirty days. Not satisfied, Paz filed an appeal to this Court insisting on her
innocence and contending that she did not incur any criminal liability under B.P. 22 because she had
no knowledge of the dishonor of the checks issued by her husband and, for that matter, even the
transaction of her husband with Ang. The Court ruled in Dingle as follows:

The Solicitor General in his Memorandum recommended that petitioner be acquitted of the instant
charge because from the testimony of the sole prosecution witness Ernesto Ang, it was established
that he dealt exclusively with Nestor Dingle. Nowhere in his testimony is the name of Paz Dingle
ever mentioned in connection with the transaction and with the issuance of the check. In fact, Ang
categorically stated that it was Nestor Dingle who received his two (2) letters of demand. This
lends credence to the testimony of Paz Dingle that she signed the questioned checks in blank
together with her husband without any knowledge of its issuance, much less of the transaction and
the fact of dishonor.

In the case of Florentino Lozano vs. Hon. Martinez, promulgated December 18, 1986, it was held
that an essential element of the offense is knowledge on the part of the maker or drawer of the
check of the insufficiency of his funds.

WHEREFORE, on reasonable doubt, the assailed decision of the Intermediate Appellate Court
(now the Court of Appeals) is hereby SET ASIDE and a new one is hereby rendered
ACQUITTING petitioner on reasonable doubt." [24]

In rejecting the defense of herein petitioner and ruling that knowledge of the insufficiency of funds
is legally presumed from the dishonor of the checks for insufficiency of funds, Respondent Court of
Appeals cited People vs. Laggui and Nierras vs. Dacuycuy.  These, however, are inapplicable
[25] [26]

here. The accused in both cases issued personal -- not corporate -- checks and did not aver lack of
knowledge of insufficiency of funds or absence of personal notice of the checks
dishonor. Furthermore, in People vs. Laggui  the Court ruled mainly on the adequacy of an
[27]

information which alleged lack of knowledge of insufficiency of funds at the time the check was issued
and not at the time of its presentment. On the other hand, the Court in Nierras vs. Dacuycuy  held [28]

mainly that an accused may be charged under B.P. 22 and Article 315 of the Revised Penal Code for
the same act of issuing a bouncing check.
The statement in the two cases -- that mere issuance of a dishonored check gives rise to the
presumption of knowledge on the part of the drawer that he issued the same without funds -- does not
support the CA Decision. As observed earlier, there is here only a prima facie presumption which
does not preclude the presentation of contrary evidence. On the contrary, People vs. Laggui clearly
spells out as an element of the offense the fact that the drawer must have knowledge of the
insufficiency of funds in, or of credit with, the drawee bank for the payment of the same in full on
presentment; hence, it even supports the petitioners position.

Lack of Adequate Notice of Dishonor

There is another equally cogent reason for the acquittal of the accused. There can be no prima
facie evidence of knowledge of insufficiency of funds in the instant case because no notice of
dishonor was actually sent to or received by the petitioner.
The notice of dishonor may be sent by the offended party or the drawee bank. The trial court itself
found absent a personal notice of dishonor to Petitioner Lina Lim Lao by the drawee bank based on
the unrebutted testimony of Ocampo (t)hat the checks bounced when presented with the drawee
bank but she did not inform anymore the Binondo branch and Lina Lim Lao as there was no need to
inform them as the corporation was in distress.  The Court of Appeals affirmed this factual
[29]

finding. Pursuant to prevailing jurisprudence, this finding is binding on this Court.

[30]

Indeed, this factual matter is borne by the records. The records show that the notice of dishonor
was addressed to Premiere Financing Corporation and sent to its main office in Cubao, Quezon
City. Furthermore, the same had not been transmitted to Premieres Binondo Office where petitioner
had been holding office.
 Likewise no notice of dishonor from the offended party was actually sent to or received by
Petitioner Lao. Her testimony on this point is as follows:
Atty. Gonzales
q Will you please tell us if Father Artelejo Palejo (sic) ever notified you of the bouncing of the check or
the two (2) checks marked as Exhibit B or C for the prosecution?
Witness
a No, sir.
q What do you mean no, sir?
a I was never given a notice. I was never given notice from Father Palejo (sic).
COURT
(to witness)
q Notice of what?
a Of the bouncing check, Your Honor.[31]
Because no notice of dishonor was actually sent to and received by the petitioner, the prima
facie presumption that she knew about the insufficiency of funds cannot apply. Section 2 of B.P. 22
clearly provides that this presumption arises not from the mere fact of drawing, making and issuing a
bum check; there must also be a showing that, within five banking days from receipt of the notice of
dishonor, such maker or drawer failed to pay the holder of the check the amount due thereon or  to
make arrangement for its payment in full by the drawee of such check.
It has been observed that the State, under this statute, actually offers the violator a compromise
by allowing him to perform some act which operates to preempt the criminal action, and if he opts to
perform it the action is abated. This was also compared to certain laws  allowing illegal possessors
[32]

of firearms a certain period of time to surrender the illegally possessed firearms to the Government,
without incurring any criminal liability.  In this light, the full payment of the amount appearing in the
[33]

check within five banking days from notice of dishonor is a complete defense.  The absence of a
[34]

notice of dishonor necessarily deprives an accused an opportunity to preclude a criminal

prosecution.Accordingly, procedural due process clearly enjoins that a notice of dishonor be actually
served on petitioner. Petitioner has a right to demand -- and the basic postulates of fairness require --
that the notice of dishonor be actually sent to and received by her to afford her the opportunity to
avert prosecution under B.P. 22.
In this light, the postulate of Respondent Court of Appeals that (d)emand on the Corporation
constitutes demand on appellant (herein petitioner),  is erroneous. Premiere has no obligation to
[35]

forward the notice addressed to it to the employee concerned, especially because the corporation
itself incurs no criminal liability under B.P. 22 for the issuance of a bouncing check.  Responsibility
under B.P. 22 is personal to the accused; hence, personal knowledge of the notice of dishonor is
necessary. Consequently, constructive notice to the corporation is not enough to satisfy due
process. Moreover, it is petitioner, as an officer of the corporation, who is the latters agent for
purposes of receiving notices and other documents, and not the other way around. It is but axiomatic
that notice to the corporation, which has a personality distinct and separate from the petitioner, does
not constitute notice to the latter.

Epilogue

In granting this appeal, the Court is not unaware of B.P. 22s intent to inculcate public respect for
and trust in checks which, although not legal tender, are deemed convenient substitutes for
currency. B.P. 22 was intended by the legislature to enhance commercial and financial transactions in
the Philippines by penalizing makers and issuers of worthless checks. The public interest behind B.P.
22 is thus clearly palpable from its intended purpose. [36]

At the same time, this Court deeply cherishes and is in fact bound by duty to protect our peoples
constitutional rights to due process and to be presumed innocent until the contrary is proven.  These [37]

rights must be read into any interpretation and application of B.P. 22. Verily, the public policy to
uphold civil liberties embodied in the Bill of Rights necessarily outweighs the public policy to build
confidence in the issuance of checks. The first is a basic human right while the second is only
proprietary in nature.  Important to remember also is B.P. 22s requirements that the check issuer
[38]
must know at the time of issue that he does not have sufficient funds in or credit with the drawee bank
and that he must receive notice that such check has not been paid by the drawee. Hence, B.P. 22
must not be applied in a manner which contravenes an accuseds constitutional and statutory rights.
There is also a social justice dimension in this case. Lina Lim Lao is only a minor employee who
had nothing to do with the issuance, funding and delivery of checks. Why she was required by her
employer to countersign checks escapes us. Her signature is completely unnecessary for it serves no
fathomable purpose at all in protecting the employer from unauthorized disbursements. Because of
the pendency of this case, Lina Lim Lao stood in jeopardy -- for over a decade -- of losing her liberty
and suffering the wrenching pain and loneliness of imprisonment, not to mention the stigma of
prosecution on her career and family life as a young mother, as well as the expenses, effort and
aches in defending her innocence. Upon the other hand, the senior official -- Teodulo Asprec -- who
appears responsible for the issuance, funding and delivery of the worthless checks has escaped
criminal prosecution simply because he could not be located by the authorities. The case against him
has been archived while the awesome prosecutory might of the government and the knuckled ire of
the private complainant were all focused on poor petitioner. Thus, this Court exhorts the prosecutors
and the police authorities concerned to exert their best to arrest and prosecute Asprec so that justice
in its pristine essence can be achieved in all fairness to the complainant, Fr. Artelijo Palijo, and the
People of the Philippines. By this Decision, the Court enjoins the Secretary of Justice and the
Secretary of Interior and Local Government to see that essential justice is done and the real culprit(s)
duly-prosecuted and punished.
WHEREFORE, the questioned Decision of the Court of Appeals affirming that of the Regional
Trial Court, is hereby REVERSED and SET ASIDE. Petitioner Lina Lim Lao is ACQUITTED. The
Clerk of Court is hereby ORDERED to furnish the Secretary of Justice and the Secretary of Interior
and Local Government with copies of this Decision. No costs.
SO ORDERED.
Narvasa, C.J., (Chairman), Davide, Jr., and Melo, JJ., concur.
Francisco, J., on leave.
 [G.R. No. 137909. December 11, 2003]

FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner, vs. Spouses BERNARDINO

NAGUIAT and MARIA PAULINA GERONA-NAGUIAT, respondents.

DECISION
PANGANIBAN, J.:

The failure to pay in full the purchase price stipulated in a deed of sale does not ipso facto grant
the seller the right to rescind the agreement. Unless otherwise stipulated by the parties, rescission is
allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the
obligation.

The Case

Before us is a Petition for Review [1] under Rule 45 of the Rules of Court, seeking to nullify
the October 31, 1997 Decision[2] and the February 23, 1999 Resolution[3] of the Court of Appeals (CA)
in CA-GR CV No. 51067. The assailed Decision disposed as follows:

WHEREFORE, modified as indicated above, the decision of the Regional Trial Court is hereby
AFFIRMED.[4]

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts

The facts of the case are summarized by the CA as follows:

Eulalio Mistica, predecessor-in-interest of herein [petitioner], is the owner of a parcel of land

located at Malhacan, Meycauayan, Bulacan. A portion thereof was leased to [Respondent
Bernardino Naguiat] sometime in 1970.

On 5 April 1979, Eulalio Mistica entered into a contract to sell with [Respondent Bernardino
Naguiat] over a portion of the aforementioned lot containing an area of 200 square meters. This
agreement was reduced to writing in a document entitled Kasulatan sa Pagbibilihan which reads as
follows:

NAGSASALAYSAY:

Na ang NAGBIBILI ay nagmamay-aring tunay at naghahawak ng isang lagay na lupa na nasa

Nayon ng Malhacan, Bayan ng Meycauayan, Lalawigan ng Bulacan, na ang kabuuan sukat at mga
kahangga nito gaya ng sumusunod:

x x x x x x x x x

Na alang-alang sa halagang DALAWANG PUNG LIBONG PISO (P20,000.00) Kualtang Pilipino,

ang NAGBIBILI ay nakipagkasundo ng kanyang ipagbibili ang isang bahagi o sukat na
DALAWANG DAAN (200) METROS PARISUKAT, sa lupang nabanggit sa itaas, na ang mga
kahangga nito ay gaya ng sumusunod:

x x x x x x x x x

Na magbibigay ng paunang bayad ang BUMIBILI SA NAGBIBILI na halagang DALAWANG

LIBONG PISO (P2,000.00) Kualtang Pilipino, sa sandaling lagdaan ang kasulatang ito.

Na ang natitirang halagang LABING WALONG LIBONG PISO (P18,000.00) Kualtang Pilipino,
ay babayaran ng BUM[I]BILI sa loob ng Sampung (10) taon, na magsisimula sa araw din ng
lagdaan ang kasulatang ito.

Sakaling hindi makakabayad ang Bumibili sa loob ng panahon pinagkasunduan, an[g] BUMIBILI
ay magbabayad ng pakinabang o interes ng 12% isang taon, sa taon nilakaran hanggang sa itoy
mabayaran tuluyan ng Bumibili:

Sa katunayan ng lahat ay nilagdaan ng Magkabilang Panig ang kasulatang ito, ngayon ika 5 ng
Abril, 1979, sa Bayan ng Meycauayan. Lalawigan ng Bulacan, Pilipinas.

(signed) (signed)
BERNARDINO NAGUIAT EULALIO MISTICA
Bumibili Nagbibili

Pursuant to said agreement, [Respondent Bernardino Naguiat] gave a downpayment

of P2,000.00. He made another partial payment of P1,000.00 on 7 February 1980. He failed to
make any payments thereafter. Eulalio Mistica died sometime in October 1986.

On 4 December 1991, [petitioner] filed a complaint for rescission alleging inter alia: that the failure
and refusal of [respondents] to pay the balance of the purchase price constitutes a violation of the
contract which entitles her to rescind the same; that [respondents] have been in possession of the
subject portion and they should be ordered to vacate and surrender possession of the same to
[petitioner] ; that the reasonable amount of rental for the subject land is P200.00 a month; that on
account of the unjustified actuations of [respondents], [petitioner] has been constrained to litigate
where she incurred expenses for attorneys fees and litigation expenses in the sum of P20,000.00.

In their answer and amended answer, [respondents] contended that the contract cannot be rescinded
on the ground that it clearly stipulates that in case of failure to pay the balance as stipulated, a
yearly interest of 12% is to be paid. [Respondent Bernardino Naguiat] likewise alleged that
sometime in October 1986, during the wake of the late Eulalio Mistica, he offered to pay the
remaining balance to [petitioner] but the latter refused and hence, there is no breach or violation
committed by them and no damages could yet be incurred by the late Eulalio Mistica, his heirs or
assigns pursuant to the said document; that he is presently the owner in fee simple of the subject lot
having acquired the same by virtue of a Free Patent Title duly awarded to him by the Bureau of
Lands; and that his title and ownership had already become indefeasible and incontrovertible. As
counterclaim, [respondents] pray for moral damages in the amount of P50,000.00; exemplary
damages in the amount of P30,000.00; attorneys fees in the amount of P10,000.00 and other
litigation expenses.

On 8 July 1992, [respondents] also filed a motion to dismiss which was denied by the court on 29
July 1992. The motion for reconsideration was likewise denied per its Order of 17 March 1993.

After the presentation of evidence, the court on 27 January 1995 rendered the now assailed
judgment, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered:

1. Dismissing the complaint and ordering the [petitioner] to pay the [respondents] attorneys fee in
the amount of P10,000.00 and costs of the suit;

2. Ordering the [respondents]:

a. To pay [petitioner] and the heirs of Eulalio Mistica the balance of the purchase
price in the amount of P17,000.00, with interest thereon at the rate of 12% per
annum computed from April 5, 1989 until full payment is made, subject to the
application of the consigned amount to such payment;

b. To return to [petitioner] and the heirs of Eulalio Mistica the extra area of 58
square meters from the land covered by OCT No. 4917 (M), the corresponding
price therefor based on the prevailing market price thereof.[5] (Citations
omitted)

CAs Decision

Disallowing rescission, the CA held that respondents did not breach the Contract of Sale. It
explained that the conclusion of the ten-year period was not a resolutory term, because the Contract
had stipulated that payment -- with interest of 12 percent -- could still be made if respondents failed to
pay within the period. According to the appellate court, petitioner did not disprove the allegation of
respondents that they had tendered payment of the balance of the purchase price during her
husbands funeral, which was well within the ten-year period.
Moreover, rescission would be unjust to respondents, because they had already transferred the
land title to their names. The proper recourse, the CA held, was to order them to pay the balance of
the purchase price, with 12 percent interest.
As to the matter of the extra 58 square meters, the CA held that its reconveyance was no longer
feasible, because it had been included in the title issued to them. The appellate court ruled that the
only remedy available was to order them to pay petitioner the fair market value of the usurped portion.
Hence, this Petition.[6]

Issues

In her Memorandum,[7] petitioner raises the following issues:

1. Whether or not the Honorable Court of Appeals erred in the application of Art. 1191 of
the New Civil Code, as it ruled that there is no breach of obligation inspite of the lapse
of the stipulated period and the failure of the private respondents to pay.
 2. Whether or not the Honorable Court of Appeals [e]rred in ruling that rescission of the
contract is no longer feasible considering that a certificate of title had been issued in
favor of the private respondents.

3. Whether or not the Honorable Court of Appeals erred in ruling that since the 58 sq. m.
portion in question is covered by a certificate of title in the names of private
respondents reconveyance is no longer feasible and proper.[8]

The Courts Ruling

The Petition is without merit.

First Issue:
Rescission in Article 1191

Petitioner claims that she is entitled to rescind the Contract under Article 1191 of the Civil Code,
because respondents committed a substantial breach when they did not pay the balance of the
purchase price within the ten-year period. She further avers that the proviso on the payment of
interest did not extend the period to pay. To interpret it in that way would make the obligation purely
potestative and, thus, void under Article 1182 of the Civil Code.
We disagree. The transaction between Eulalio Mistica and respondents, as evidenced by
the Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute in nature when
there is neither a stipulation in the deed that title to the property sold is reserved to the seller until the
full payment of the price; nor a stipulation giving the vendor the right to unilaterally resolve the
contract the moment the buyer fails to pay within a fixed period. [9]
In a contract of sale, the remedy of an unpaid seller is either specific performance or rescission.
[10]
 Under Article 1191 of the Civil Code, the right to rescind an obligation is predicated on the violation
of the reciprocity between parties, brought about by a breach of faith by one of them. [11] Rescission,
however, is allowed only where the breach is substantial and fundamental to the fulfillment of the
obligation.[12]
In the present case, the failure of respondents to pay the balance of the purchase price within ten
years from the execution of the Deed did not amount to a substantial breach. In the Kasulatan, it was
stipulated that payment could be made even after ten years from the execution of the Contract,
provided the vendee paid 12 percent interest. The stipulations of the contract constitute the law
between the parties; thus, courts have no alternative but to enforce them as agreed upon and written.
[13]

Moreover, it is undisputed that during the ten-year period, petitioner and her deceased husband
never made any demand for the balance of the purchase price. Petitioner even refused the payment
tendered by respondents during her husbands funeral, thus showing that she was not exactly
blameless for the lapse of the ten-year period. Had she accepted the tender, payment would have
been made well within the agreed period.
If petitioner would like to impress upon this Court that the parties intended otherwise, she has to
show competent proof to support her contention. Instead, she argues that the period cannot be
extended beyond ten years, because to do so would convert the buyers obligation to a purely
potestative obligation that would annul the contract under Article 1182 of the Civil Code.
This contention is likewise untenable. The Code prohibits purely potestative, suspensive,
conditional obligations that depend on the whims of the debtor, because such obligations are usually
not meant to be fulfilled.[14] Indeed, to allow the fulfillment of conditions to depend exclusively on
the debtors will would be to sanction illusory obligations. [15]  The Kasulatan does not allow such
thing. First, nowhere is it stated in the Deed that payment of the purchase price is dependent upon
whether respondents want to pay it or not. Second, the fact that they already made partial payment
thereof only shows that the parties intended to be bound by the Kasulatan.
Both the trial and the appellate courts arrived at this finding. Well-settled is the rule that findings
of fact by the CA are generally binding upon this Court and will not be disturbed on appeal, especially
when they are the same as those of the trial court. [16] Petitioner has not given us sufficient reasons to
depart from this rule.

Second Issue:
Rescission Unrelated to Registration

The CA further ruled that rescission in this case would be unjust to respondents, because a
certificate of title had already been issued in their names. Petitioner nonetheless argues that the
Court is still empowered to order rescission.
We clarify. The issuance of a certificate of title in favor of respondents does not determine
whether petitioner is entitled to rescission. It is a fundamental principle in land registration that such
title serves merely as an evidence of an indefeasible and incontrovertible title to the property in favor
of the person whose name appears therein.[17]
While a review of the decree of registration is no longer possible after the expiration of the one-
year period from entry, an equitable remedy is still available to those wrongfully deprived of their
property.[18] A certificate of title cannot be subject to collateral attack and can only be altered, modified
or canceled in direct proceedings in accordance with law. [19] Hence, the CA correctly held that the
propriety of the issuance of title in the name of respondents was an issue that was not determinable
in these proceedings.

Third Issue:
Reconveyance of the Portion Importunately Included

Petitioner argues that it would be reasonable for respondents to pay her the value of the lot,
because the CA erred in ruling that the reconveyance of the extra 58-square meter lot, which had
been included in the certificate of title issued to them, was no longer feasible.
In principle, we agree with petitioner. Registration has never been a mode of acquiring ownership
over immovable property, because it does not create or vest title, but merely confirms one already
created or vested.[20] Registration does not give holders any better title than what they actually have.
[21]
 Land erroneously included in the certificate of title of another must be reconveyed in favor of its
true and actual owner.[22]
Section 48 of Presidential Decree 1529, however, provides that the certificate of title shall not be
subject to collateral attack, alteration, modification, or cancellation except in a direct proceeding.
[23]
 The cancellation or removal of the extra portion from the title of respondents is not permissible in
an action for rescission of the contract of sale between them and petitioners late husband, because
such action is tantamount to allowing a collateral attack on the title.
It appears that an action for cancellation/annulment of patent and title and for reversion was
already filed by the State in favor of petitioner and the heirs of her husband. [24] Hence, there is no
need in this case to pass upon the right of respondents to the registration of the subject land under
their names. For the same reason, there is no necessity to order them to pay petitioner the fair market
value of the extra 58-square meter lot importunately included in the title.
WHEREFORE, the assailed Decision and Resolution are AFFIRMED with
the MODIFICATION that the payment for the extra 58-square meter lot included in respondents title
is DELETED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.
 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
DECISION
 
TINGA, J.:
 
This is a petition for review on certiorari under Rule 45 of the Revised Rules of
Court, praying for the annulment of the Decision[1] dated April 17, 1995 and
the Resolution[2] dated October 25, 1995 of the Court of Appeals in CA-G.R. CV
No. 38854. The Court of Appeals affirmed the Decision[3] in Civil Case No. 2164
of the Regional Trial Court (RTC), Branch 48, of Palawan and Puerto Princesa
City with the modification that herein respondents Tiziana Turatello and Paola
Sani are entitled to damages, attorneys fees, and litigation expenses.
 
The dispositive portion of the RTC Decision  reads:
 
WHEREFORE, in view of the foregoing and as prayed for by the
defendants, the instant complaint is hereby DISMISSED. Defendants
counterclaim is likewise DISMISSED. Plaintiff, however, is ordered to pay
defendant Turatello and Sanis counsel the sum of P3,010.38 from August 9,
1990 until fully paid representing the expenses incurred by said counsel when
the trial was cancelled due to the non-appearance of plaintiffs 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 Buriols property. The lease agreement was for a
period of 25 years, renewable for another 25 years. The lessees took
possession of the land after paying respondent Buriol a down payment
of P10,000.00.[5] The lease agreement, however, was reduced into writing only
in January 1987.
 
On November 17, 1986, respondent Buriol sold to petitioner Rudolf Lietz, Inc.
the same parcel of land for the amount of P30,000.00. The Deed of Absolute
Sale  embodying the agreement described the land as follows:
 
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 attorneys fees. [7]
 
After trial on the merits, the trial court rendered judgment on May 27, 1992,
dismissing both petitioners complaint and respondents counterclaim for
damages. Petitioner and respondents Turatello and Sani separately appealed
the RTC Decision to the Court of Appeals, which affirmed the dismissal of
petitioners complaint and awarded respondents Turatello and Sani damages
and attorneys fees. The dispositive portion of the Court of
Appeals Decision reads:
 
WHEREFORE, the decision appealed from is hereby AFFIRMED, with the
following modification:
Plaintiff-appellant Rudolf Lietz, Inc. is hereby (1) ordered to pay
defendants-appellants Turatello and Sani, the sum of P100,000.00 as moral
damages; (2) P100,000.00 as exemplary damages; (3) P135,728.73 as attorneys
fees; and (4) P10,000.00 as litigation expenses.
 
SO ORDERED.[8]
 
Petitioner brought to this Court the instant petition after the denial of its
motion for reconsideration of the Court of Appeal Decision. The instant
petition imputes the following errors to the Court of Appeals.
I.                   IN DEFENDING AGAPITO BURIOLS GOOD FAITH AND IN STATING
THAT ASSUMING THAT HE (BURIOL) WAS IN BAD FAITH 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 PETITIONERS 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 latters property is one
made for a lump sum. The Deed of Absolute Sale shows that the parties
agreed on the purchase price on a predetermined area of five hectares within
the specified boundaries and not based on a particular rate per area. In
accordance with Article 1542, there shall be no reduction in the purchase
price even if the area delivered to petitioner is less than that stated in the
contract. In the instant case, the area within the boundaries as stated in the
contract shall control over the area agreed upon in the contract.
 
The Court rejects petitioners contention that the propertys boundaries as
stated in the Deed of Absolute Sale are superficial and unintelligible and,
therefore, cannot prevail over the area stated in the contract. First, as pointed
out by the Court of Appeals, at an ocular inspection prior to the perfection of
the contract of sale, respondent Buriol pointed to petitioner the boundaries of
the property. Hence, petitioner gained a fair estimate of the area of the
property sold to him. Second, petitioner cannot now assail the contents of
the Deed of Absolute Sale, particularly the description of the boundaries of the
property, because petitioners subscription to the Deed of Absolute
Sale indicates his assent to the correct description of the boundaries of the
property.
 
Petitioner also asserts that respondent Buriol is guilty of misleading
petitioner into believing that the latter was buying five hectares when he knew
prior to the sale that he owned only four hectares. The review of the
circumstances of the alleged misrepresentation is factual and, therefore,
beyond the province of the Court. Besides, this issue had already been raised
before and passed upon by the trial court and the Court of Appeals. The
factual finding of the courts below that no sufficient evidence supports
petitioners allegation of misrepresentation is binding on the Court.
 
The Court of Appeals reversed the trial courts dismissal of respondents
Turatello and Sanis counterclaim for moral and exemplary damages, attorneys
fees and litigation expenses. In awarding moral damages in the amount
of P100,000 in favor of Turatello and Sani, the Court of Appeals justified the
award to alleviate the suffering caused by petitioners unfounded civil action.
The filing alone of a civil action should not be a ground for an award of moral
damages in the same way that a clearly unfounded civil action is not among
the grounds for moral damages.[15]
 
Exemplary or corrective damages are imposed, by way of example or
correction for the public good, in addition to the moral, temperate, liquidated
or compensatory damages.[16]With the deletion of the award for moral
damages, there is no basis for the award of exemplary damages.
 
WHEREFORE, the instant petition for review on certiorari is GRANTED
in PART. The Court of Appeals Decision in CA-G.R. CV No. 38854 is
AFFIRMED with the MODIFICATION that the award of moral and exemplary
damages is DELETED.
 
SO ORDERED.
G.R. No. 108515 October 16, 1995

LUIS BALANTAKBO, AMADEO BALANTAKBO and HEIRS OF SANCHO BALANTAKBO, petitioners, 

vs.
COURT OF APPEALS and LAGUNA AGRO-INDUSTRIAL, COCONUT COOPERATIVE, INC., respondents.

NARVASA, C.J.:

Private respondent Laguna Agro-Industrial Coconut Cooperative, Inc. (hereafter simply LAGUNA), a family
corporation organized by the heirs of the deceased spouses Honorio Sumaya and Crispina Orlanda, was the
plaintiff in an action to quiet title over a parcel of unregistered coconut land in Bo. Dita. Liliw, Laguna, filed in the
Regional Trial Court, Br. XXVII, Laguna against herein private respondents and docketed as Civil Case No. SC-
1367

The complaint in said action alleged basically that the land in question had been purchased by the Sumaya spouses
(LAGUNA's predecessors) for P800.00 from Consuelo Vda. de Balantakbo (mother of petitioner Luis Balantakbo
and Sancho Balantakbo), the sale being evidenced by a deed  executed by Consuelo on December 13, 1955; and
1

that some twenty (20) years later, or on March 8, 1975, the seller's heirs, intruded into the land and harvested the
coconuts found therein.

In their answer the Balantakbos denied knowledge of the sale and alleged that the land claimed sued for was
different from that owned and held by them.

In the course of the trial the parties, stipulated upon the following facts and circumstances, to wit:

1) on October 8, 1975: — the genuineness and due execution of (a) the Deed of Extrajudicial Partition executed on
December 10, 1945 by the heirs of the deceased Jose Balantakbo, Sr., and of (b) the affidavit of Consuelo J. Vda.
de Balantakbo executed November 3, 1952, adjudicating to herself ownership of the property left by the deceased
Raul Balantakbo;
2) on July 21, 1981: — (a) the description of the land subject of the suit, i.e., as having an area of 2,000 square
meters, and as being bounded by the property of named individuals, and (b) the substance of their respective
contentions, viz:

1) LAGUNA's theory that what had been sold to its predecessors, the Sumaya Spouses, was the
land within the identified boundaries, regardless of the area; and

2) the Balantakbos' countervailing theory that the land within said boundaries had an area of 6,870
square meters, more or less, only a portion thereof measuring 2,000 square meters, having been
sold by their mother to the Sumayas: and they are therefore the owners of the remaining area of
4,870 square meters which they had in fact long possessed.

The Regional Trial Court rendered judgment (per Judge Francisco C. Manabat, Branch 27, Sta. Cruz, Laguna) in
favor of the Balantakbos, dismissing LAGUNA's complaint, upholding the former's theory of the case and ruling that
what was contemplated in the descriptive words "more or less" immediately following the stated area of 2,000
square meters in the description of the land was construable as referring only to a "slight difference" in said area, not
2

to a difference as large as 4,870 square meters, or more than double the 2,000 square meters actually stated and
intended to be sold.

The judgment was appealed to the Court of Appeals which after due proceedings reversed it by decision
promulgated on July 9, 1992. The Appellate Court declared LAGUNA the owner of the entire land, not only of a
2,000-square meter portion thereof, ruling that the area embraced within the stated boundaries prevails over the
area set forth in the descriptions which must have been based on mere estimates, and that the buyer was entitled to
receive all that was included within the boundaries thus stated in the deed of sale. 3

The Court finds no reversible error in said judgment now on appeal by certiorari by the Balantakbos.

The issue here may be stated simply, thus: In case of conflict between the area described and the actual
boundaries of the land, which should prevail?

And it is by no means a novel question. On the contrary, the rule is quite well-settled that what 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.4

In Dichoso, supra, this Court held:

. . . In a contract of sale of land in 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 that its extent is objectively indicated with sufficient
precision to enable one to identify it. An error as to the superficial area is immaterial. 
5

The case at bar is on all fours with this Court's ruling in the recent case of Miguel Semira vs. Court of Appeals and
Buenaventura An, G.R. No. 76031, promulgated on March 2, 1994  There, private respondent purchased a parcel of
6

land designated as Lot 4221 in Sto. Niño, Taysan, Batangas for P850.00 from one Juana Rodriguez. The sale was
evidenced by a "Kasulatan ng Bilihan ng Lupa" executed on January 4, 1961 on which appeared the estimated area
of the property as 822.5 square meters with its boundaries defined. On October 18, 1972, the private respondent
sold the lot to his nephew, Cipriano Ramirez, with the same area and boundaries, the eastern side of which had
now reflected private respondent's subsequent acquisition of an adjoining property from Pascual Hornilla. On March
12, 1979, Ramirez in turn sold the lot to the petitioner for P20,000,00 but this time, the area stated in the document
of sale was 2,200 sq. m. as actually delimited by its boundaries and confirmed by the cadastral survey conducted in
1974. When the petitioner occupied the premises and began construction of a rice-mill thereon, private respondent
filed a complaint for forcible entry in the MCTC, claiming that Lot 4221 belonging to petitioner should only be 822.5
sq. m. and that the excess of 1,377 sq. m. allegedly forcibly occupied formed part of his Lot 4215 acquired in 1964
from P. Hornilla over which was subsequently issued OCT No. P-12694 in his name covering said lot and another
lot which he (respondent) had also acquired, both having a combined area of 19,606 sq. m. The MCTC adjudged
petitioner the rightful and lawful owner and possessor of the area in question and threw out the ejectment suit. On
appeal, the RTC reversed and was thereafter sustained by the Court of Appeals. This Court in turn reversed the CA
judgment and reinstated the MCTC decision, holding:

We have repeatedly ruled that where 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.   Hence, the vendors are obligated to deliver all the land
7

included within the boundaries, regardless of whether the real area should be greater or smaller than
that recited in the deed. This is particularly true where the area is described as "humigit kumulang,"
that is, more or less.  These conclusions are drawn from Art. 1542 of the Civil Code which states
8
 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 less 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.  9

In the present case, it is clear that the disputed parcel of unregistered land was sufficiently identified and described.
The Second Partial Stipulation of Facts submitted by the Parties sufficiently demonstrates that the parties lay claim
to one and the same parcel of land, that descended to Raul Balantakbo from his father Jose Balantakbo, Sr.   later10

inherited by Consuelo Joaquin Vda. de Balantakbo from the same Raul, her son   and then sold by Consuelo to the
11

Spouses Honorio Sumaya and Crispina Orlanda. Uniform descriptions of the subject lot were made in the Deed of
Sale executed by Consuelo Joaquin Vda. de Balantakbo in favor of herein private respondent in 1955, in the
Affidavit of Self-Adjudication executed by Consuelo on November 3, 1952, and in the Extrajudicial Partition of
December 10, 1945, to wit:

A parcel of land with the improvements thereon, with fence of madre-cacao trees, situated in Barrio
Dita, Municipality of Lilio. Bounded on the N., by Jose Balantakbo; on the E., by Jose Balantakbo; on
the S., by Venancio Villarica; and on the W., by Cornelio Napil and Prudencio Ardeza. Containing an
area of 2,000 square meters, more or less.

It appears, too, that after the 1970 survey of the property when the true area of the lot was determined to be 6,870
square meters, more or less, Luis Balantakbo was able to secure in 1975 a new Tax Declaration No. 9397 in the
name of the Heirs of Jose Balantakbo, Sr., covering a 4,873 square-meter parcel of land located at Dita, Liliw,
Laguna. Tax Declaration No. 9397 was supposedly a revival of Tax Declaration No. 42, which, as mentioned in the
first paragraph of the Second Partial Stipulation of Facts, covered the property then described as containing an area
of 2,000 square meters, more or less. This shows that the Tax Declaration No. 9397, obtained by Luis Balantakbo,
covers the same lot, which contains an area equivalent to the difference between the actual area of the subject land
and the area mentioned in the deed of sale, sold to the Sumayas and not another separate parcel of land.

Moreover, in his testimony, petitioner Luis Balantakbo admitted that the supposed separate parcel of land for which
he obtained a tax declaration is part and parcel of the land inherited by his brother Raul, then by his mother
Consuelo, and thereafter sold by the latter to the Sumayas, Thus:

COURT:

So when your mother sold the land even under Exhibit A, Deed of Sale in 1955, she
sold unsurveyed land of 2,000 square meters which when surveyed in 1970 it turns
out to be 6,000 plus square meters?

WITNESS:

Yes, your Honor.  12

Since it was only in 1970 that the true area of the disputed property was determined after a survey, Consuelo
Joaquin Vda. de Balantakbo could not have sold in 1955 only a portion of the lot which then was known (or
believed) to have an area of only 2,000 square meters, more or less, as mentioned in all the documents covering
the land.

And apart from the Tax Declaration secured by Luis Balantakbo after the survey of the subject property, petitioners
failed to present other proof in support of their argument that the land claimed by them is different from that sold by
their mother Consuelo Joaquin Vda. de Balantakbo to the Sumayas.

Clearly, therefore, the position taken by petitioners that there are two different parcels of land involved is untenable.
Only one parcel of land is involved and the respondent Appellate Court correctly formulated and resolved
affirmatively in favor of private respondent the issue of whether the actual boundaries should prevail over the area
described.

Petitioners' reliance on the Asiain case   is misplaced. Following the arguments advanced by the trial court,
13

petitioners contend that the descriptive words "more or less" after the area which is 2,000 square meters refer only
to a slight or inconsiderable difference or a reasonable excess or deficiency, hence could not have included the
4,870 square meters claimed by petitioners, which is more than double the area of the lot sold by petitioners' mother
to the Sumayas in 1955. In Asiain, the main consideration of the transaction between the seller Asiain and the buyer
Jalandoni was the size or the area of the land. To convince Jalandoni to buy the land, Asiain even guaranteed that
the land would produce so much sugar in piculs, hence the relevance of the phrase "more or less" which followed
the statement if area in hectares which Asiain assured his land contains. It developed, however that the area was
much less than what was thus represented by the seller. The Court therein ruled that the mistake with reference to
the subject matter of the contract was such as to render it rescindable, at the buyer's option.

The case at bar is clearly quite different, the stated area being only an additional description of the land already
sufficiently identified and described as being fenced by madre cacao trees and bounded on all sides by properties
with identified owners or holders.

As correctly held by the respondent Appellate Court, this is a case where the land was sold a cuerpo cierto for a
lump sum of P800.00 and not at the rate of a certain sum per unit of measure or number, with boundaries clearly
delimited, hence the area embraced within said boundaries must be held to prevail over the area indicated in the
documents.

WHEREFORE, the petition is DENIED for lack of merit. The appealed decision of the respondent Court of Appeals
is AFFIRMED in toto.

SO ORDERED.

G.R. No. 169890             March 12, 2007

FELICIANO ESGUERRA, CANUTO ESGUERRA, JUSTA ESGUERRA, ANGEL ESGUERRA, FIDELA

ESGUERRA, CLARA ESGUERRA, and PEDRO ESGUERRA, Petitioners, 
vs.
VIRGINIA TRINIDAD, PRIMITIVA TRINIDAD, and THE REGISTER OF DEEDS OF MEYCAUAYAN,
BULACAN, Respondents.

DECISION

CARPIO MORALES, J.:

Involved in the present controversy are two parcels of land located in Camalig, Meycauayan, Bulacan.

Felipe Esguerra and Praxedes de Vera (Esguerra spouses) were the owners of several parcels of land in Camalig,
Meycauayan, Bulacan – among them a 35,284-square meter parcel of land covered by Tax Declaration No. 10374,
half of which (17,642 square meters) they sold to their grandchildren, herein petitioners Feliciano, Canuto, Justa,
Angel, Fidela, Clara and Pedro, all surnamed Esguerra; and a 23,989-square meter

parcel of land covered by Tax Declaration No. 12080, 23,489 square meters of which they also sold to petitioners,
and the remaining 500 square meters they sold to their other grandchildren, the brothers Eulalio and Julian Trinidad
(Trinidad brothers).

Also sold to the Trinidad brothers were a 7,048-square meter parcel of land covered by Tax Declaration No. 9059, a
4,618-square meter parcel of land covered by Tax Declaration No. 12081, and a 768-square meter parcel of land
covered by Tax Declaration No. 13989.
The Esguerra spouses executed the necessary Deed of Sale in favor of petitioners on August 11, 1937, 1 and that in
favor of the Trinidad brothers on August 17, 1937. 2 Both documents were executed before notary public Maximo
Abaño.

Eulalio Trinidad later sold his share of the land to his daughters-respondents herein, via a notarized Kasulatan ng
Bilihang Tuluyan ng Lupa3 dated October 13, 1965. A portion of the land consisting of 1,693 square meters was
later assigned Lot No. 3593 during a cadastral survey conducted in the late 1960s.

On respondents’ application for registration of title, the then Court of First Instance (CFI) of Bulacan, by Decision 4 of
February 20, 1967, awarded Lot No. 3593 in their favor in Land Registration Case No. N-323-V. Pursuant to the
Decision, the Land Registration Commission (LRC, now the Land Registration Authority [LRA]) issued Decree No.
N-114039 by virtue of which the Register of Deeds of Bulacan issued OCT No. 0-3631 5 in the name of respondents.

Meanwhile, under a notarized Bilihan ng Lupa6 dated November 10, 1958, petitioners sold to respondents’ parents
Eulalio Trinidad and Damiana Rodeadilla (Trinidad spouses) a portion of about 5,000 square meters of the 23,489-
square meter of land which they previously acquired from the Esguerra spouses. 7

During the same cadastral survey conducted in the late 1960s, it was discovered that the about 5,000-square meter
portion of petitioners’ parcel of land sold to the Trinidad spouses which was assigned Lot No. 3591 actually
measured 6,268 square meters.

In a subsequent application for registration of title over Lot No. 3591, docketed as Land Registration Case No. N-
335-V, the CFI, by Decision8 of August 21, 1972, awarded Lot No. 3591 in favor of Eulalio Trinidad. Pursuant to the
Decision, the LRC issued Decree No. N-149491 by virtue of which the Register of Deeds of Bulacan issued OCT
No. 0-64989 in the name of Trinidad.

Upon the death of the Trinidad spouses, Lot No. 3591 covered by OCT No. 0-6498 was transmitted to respondents
by succession.

Petitioners, alleging that upon verification with the LRA they discovered the issuance of the above-stated two OCTs,
filed on August 29, 1994 before the Regional Trial Court (RTC) of Malolos, Bulacan two separate complaints for
their nullification on the ground that they were procured through fraud or misrepresentation.

In the first complaint, docketed as Civil Case No. 737-M-94, petitioners sought the cancellation of OCT No. 0-3631.

In the other complaint, docketed as Civil Case No. 738-M-94, petitioners sought the cancellation of OCT No. 0-6498.

Both cases were consolidated and tried before Branch 79 of the RTC which, after trial, dismissed the cases by Joint
Decision10 of May 15, 1997.

Their appeal with the Court of Appeals having been dismissed by Decision of February 28, 2005, a reconsideration
of which was, by Resolution of October 3, 2005,11 denied, petitioners filed the instant petition.

Petitioners fault the appellate court

1. . . . in misappreciating the fact that the act of the respondent Eulalio Trinidad in acquiring the property
from Felipe Esguerra constituted fraud.

2. . . . in the [i]nterpretation and application of the provisions of Article 1542 of the New Civil Code.

3. . . . in ruling that there is prescription, res judicata, and violation of the non-[forum] shopping. 12

In their Comment, respondents assailed the petition as lacking verification and certification against forum shopping
and failing to attach to it an affidavit of service and material portions of the record in support thereof. Petitioners
counter that the procedural deficiencies have been mooted by the filing of a Compliance.

A check of the rollo shows that attached to the petition are an Affidavit of Service dated November 21, 2005 and the
appellate court’s Decision of February 28, 2005 and Resolution of October 3, 2005; and that on January 16, 2006 or
almost three months following the last day to file the petition, petitioners submitted, not at their own instance, 13 a
Verification and Sworn Certification on Non-Forum Shopping signed by petitioner Pedro Esguerra who cited honest
and excusable mistake behind the omission to submit the same.

This Court has strictly enforced the requirement of verification and certification, obedience to which and to other
procedural rules is needed if fair results are to be expected therefrom. 14 While exceptional cases have been
considered to correct patent injustice concomitant to a liberal application of the rules of procedure, there should be
an effort on the part of the party invoking liberality to advance a reasonable or meritorious explanation for his failure
to comply with the rules.15 In petitioners’ case, no such explanation has been advanced.
With regard to petitioners’ failure to attach material portions of the record in support of the petition, this requirement
is not a mere technicality but an essential requisite for the determination of prima facie basis for giving due course to
the petition.16 As a rule, a petition which lacks copies of essential pleadings and portions of the case record may be
dismissed. Much discretion is left to the reviewing court, however, to determine the necessity for such copies as the
exact nature of the pleadings and portions of the case record which must accompany a petition is not specified. 17

At all events, technicality aside, the petition must be denied.

It is settled that fraud is a question of fact and the circumstances constituting the same must be alleged and proved
in the court below.18

In the present cases, as did the trial court, the appellate court found no fraud in respondents’ acquisition and
registration of the land, viz:

. . . Appellant Pedro Esguerra even testified that he does not know how appellees were able to secure a title over
the lot in question and that they never sold Lot No. 3593 to Virginia Trinidad since it is part of the whole lot of 23,489
square meters. The said testimony is a mere conclusion on the part of appellants. On the other hand, the evidence
shows that appellees acquired title over the subject property by virtue of a deed of sale executed by their father
Eulalio Trinidad in their favor.

xxxx

[T]hey failed to establish that appellees’ acquisition of the certificate of title is fraudulent. In fact, in their two
complaints, appellants acknowledged that appellees observed and took the initial procedural steps in the
registration of the land, thus ruling out fraud in the acquisition of the certificate of title. . . . 19

Factual findings of the trial court, when affirmed by the Court of Appeals, are final, conclusive and binding on this
Court,20 which is not a trier of facts,21 hence, bereft of function under Rule 45 to examine and weigh the probative
value of the evidence presented,22 its jurisdiction being limited only to the review and revision of errors of law. 23Albeit
there are exceptions24 to this rule, the cases at bar do not fall thereunder, there being no showing that the trial and
appellate courts overlooked matters which, if considered, would alter their outcome.

Under the Torrens System, an OCT enjoys a presumption of validity, which correlatively carries a strong
presumption that the provisions of the law governing the registration of land which led to its issuance have been
duly followed.25 Fraud being a serious charge, it must be supported by clear and convincing proof. 26 Petitioners failed
to discharge the burden of proof, however.

On the questioned interpretation and application by the appellate court of Article 1542 of the Civil Code reading:

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 less areas 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. (Emphasis and underscoring supplied),

while petitioners admittedly sold Lot No. 3591 to the Trinidad spouses, they contend that what they sold were only
5,000 square meters and not 6,268 square meters, and thus claim the excess of 1,268 square meters.

In sales involving real estate, the parties may choose between two types of pricing agreement: a unit price
contract wherein the purchase price is determined by way of reference to a stated rate per unit area (e.g., ₱1,000
per square meter), or a lump sum contract which states a full 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 (e.g., ₱1 million for 1,000
square meters, etc.). In Rudolf Lietz, Inc. v. Court of Appeals,27 the Court discussed the distinction:

. . . 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.

xxxx
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 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 less areas or number
than that stated in the contract. . . .

xxxx

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. 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. 28 (Emphasis and underscoring supplied)

The courts below correctly characterized the sale of Lot No. 3591 as one involving a lump sum contract. The Bilihan
ng Lupa shows that the parties agreed on the purchase price of ₱1,000.00 on a predetermined, albeit unsurveyed,
area of 5,000 square meters and not on a particular rate per unit area. As noted by the Court of Appeals, the identity
of the realty was sufficiently described as riceland:

It is clear from the afore-quoted Bilihan ng Lupa that what appellants sold to Eulalio was the "bahaging palayan."
Though measured as 5,000 square meters, more or less, such measurement is only an approximation, and not an
exact measurement. Moreover, we take note of the fact that the said deed of sale mentioned the boundaries
covering the whole area of 33,489 square meters, including the "bahaging palayan." Had appellants intended to sell
only a portion of the "bahaging palayan," they could have stated the specific area in the deed of sale and not the
entire "bahaging palayan" . . . .29

In fine, under Article 1542, what is controlling is the entire land included within the boundaries, regardless of
whether the real area should be greater or smaller than that recited in the deed. This is particularly true since the
area of the land in OCT No. 0-6498 was described in the deed as "humigit kumulang," that is, more or less.30

A caveat is in order, however. The use of "more or less" or similar words in designating quantity covers only a
reasonable excess or deficiency. A vendee of land 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. 31

Numerical data are not of course the sole gauge of unreasonableness of the excess or deficiency in area. Courts
must consider a host of other factors. In one case,32 the Court found substantial discrepancy in area due to
contemporaneous circumstances. Citing change in the physical nature of the property, it was therein established
that the excess area at the southern portion was a product of reclamation, which explained why the land’s technical
description in the deed of sale indicated the seashore as its southern boundary, hence, the inclusion of the
reclaimed area was declared unreasonable.

In OCT No. 0-6498, the increase by a fourth of a fraction of the area indicated in the deed of sale cannot be
considered as an unreasonable excess. Most importantly, the circumstances attendant to the inclusion of the excess
area bare nothing atypical or significant to hint at unreasonableness. It must be noted that the land was not yet
technically surveyed at the time of the sale. As vendors who themselves executed the Bilihan ng Lupa, petitioners
may rightly be presumed to have acquired a good estimate of the value and area of the bahaging palayan.

As for the last assigned error, the appellate court, in finding that the complaints were time-barred, noted that when
the complaints were filed in 1994, more than 27 years had elapsed from the issuance of OCT No. 0-3631 and more
than 20 years from the issuance of OCT No. 0-6498. The prescriptive period of one (1) year had thus set in. 1awphi1.nét

Petitioners’ reliance on Agne v. Director of Lands33 is misplaced since the cancellation of title was predicated not on
the ground of fraud but on want of jurisdiction. Even assuming that petitioners’ actions are in the nature of a suit for
quieting of title, which is imprescriptible, the actions still necessarily fail since petitioners failed to establish the
existence of fraud.

A word on Republic Act No. 716034 which was raised by petitioners in their petition. It expressly requires the parties
to undergo a conciliation process under the Katarungang Pambarangay, as a precondition to filing a complaint in
court,35 non-compliance with this condition precedent does not prevent a court of competent jurisdiction from
exercising its power of adjudication over a case unless the defendants object thereto. The objection should be
seasonably made before the court first taking cognizance of the complaint, and must be raised in the Answer or in
such other pleading allowed under the Rules of Court. 36
While petitioners admittedly failed to comply with the requirement of barangay conciliation, they assert that
respondents waived such objection when they failed to raise it in their Answer. Contrary to petitioners’ claim,
however, the records reveal that respondents raised their objection in their Amended Answers 37 filed in both cases.

IN FINE, it is a fundamental principle in land registration that a certificate of title serves as evidence of an
indefeasible and incontrovertible title to the property in favor of the person whose name appears therein. Such
indefeasibility commences after the lapse or expiration of one year from the date of entry of the decree of
registration when all persons are considered to have a constructive notice of the title to the property. After the lapse
of one year, therefore, title to the property can no longer be contested. This system was so effected in order to quiet
title to land.38

WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals are
AFFIRMED.

Costs against petitioners.

SO ORDERED.

G.R. No. 148225               March 3, 2010

CARMEN DEL PRADO, Petitioner, 

vs.
SPOUSES ANTONIO L. CABALLERO and LEONARDA CABALLERO, Respondents.

DECISION

NACHURA, J.:

This is a petition for review on certiorari of the decision 1 of the Court of Appeals (CA) dated September 26, 2000 and
its resolution denying the motion for reconsideration thereof.

The facts are as follows:

In a judgment rendered on February 1, 1985 in Cadastral Case No. N-6 (LRC Rec. No. N-611), Judge Juan Y.
Reyes of the Regional Trial Court (RTC) of Cebu City, Branch 14, adjudicated in favor of Spouses Antonio L.
Caballero and Leonarda B. Caballero several parcels of land situated in Guba, Cebu City, one of which was
Cadastral Lot No. 11909, the subject of this controversy. 2 On May 21, 1987, Antonio Caballero moved for the
issuance of the final decree of registration for their lots.3 Consequently, on May 25, 1987, the same court, through
then Presiding Judge Renato C. Dacudao, ordered the National Land Titles and Deeds Registration Administration
to issue the decree of registration and the corresponding titles of the lots in favor of the Caballeros. 4

On June 11, 1990, respondents sold to petitioner, Carmen del Prado, Lot No. 11909 on the basis of the tax
declaration covering the property. The pertinent portion of the deed of sale reads as follows:

That we, Spouses ANTONIO L. CABALLERO and LEONARDA B. CABALLERO, Filipinos, both of legal age and
residents of Talamban, Cebu City, Philippines, for and in consideration of the sum of FORTY THOUSAND PESOS
(₱40,000.00), Philippine Currency, paid by CARMEN DEL PRADO, Filipino, of legal age, single and a resident of
Sikatuna St., Cebu City, Philippines, the receipt of which is full is hereby acknowledged, do by these presents SELL,
CEDE, TRANSFER, ASSIGN & CONVEY unto the said CARMEN DEL PRADO, her heirs, assigns and/or
successors-in-interest, one (1) unregistered parcel of land, situated at Guba, Cebu City, Philippines, and more
particularly described and bounded, as follows:

"A parcel of land known as Cad. Lot No. 11909, bounded as follows:

North : Lot 11903

East : Lot 11908

West : Lot 11910

South : Lot 11858 & 11912

containing an area of 4,000 square meters, more or less, covered by Tax Dec. No. 00787 of the Cebu City
Assessor’s Office, Cebu City." of which parcel of land we are the absolute and lawful owners.

Original Certificate of Title (OCT) No. 1305, covering Lot No. 11909, was issued only on November 15, 1990, and
entered in the "Registration Book" of the City of Cebu on December 19, 1990. 5 Therein, the technical description of
Lot No. 11909 states that said lot measures about 14,457 square meters, more or less. 6

On March 20, 1991, petitioner filed in the same cadastral proceedings a "Petition for Registration of Document
Under Presidential Decree (P.D.) 1529"7 in order that a certificate of title be issued in her name, covering the whole
Lot No. 11909. In the petition, petitioner alleged that the tenor of the instrument of sale indicated that the sale was
for a lump sum or cuerpo cierto, in which case, the vendor was bound to deliver all that was included within said
boundaries even when it exceeded the area specified in the contract. Respondents opposed, on the main ground
that only 4,000 sq m of Lot No. 11909 was sold to petitioner. They claimed that the sale was not for a cuerpo cierto.
They moved for the outright dismissal of the petition on grounds of prescription and lack of jurisdiction.

After trial on the merits, the court found that petitioner had established a clear and positive right to Lot No. 11909.
The intended sale between the parties was for a lump sum, since there was no evidence presented that the property
was sold for a price per unit. It was apparent that the subject matter of the sale was the parcel of land, known as
Cadastral Lot No. 11909, and not only a portion thereof. 8

Thus, on August 2, 1993, the court a quo rendered its decision with the following dispositive portion:

WHEREFORE, premises considered, the petition is hereby granted and judgment is hereby rendered in favor of
herein petitioner. The Register of Deeds of the City of Cebu is hereby ordered and directed to effect the registration
in his office of the Deed of Absolute Sale between Spouses Antonio Caballero and Leonarda Caballero and
Petitioner, Carmen del Prado dated June 11, 1990 covering Lot No. 11909 after payment of all fees prescribed by
law. Additionally, the Register of Deeds of the City of Cebu is hereby ordered to cancel Original Certificate No. 1305
in the name of Antonio Caballero and Leonarda Caballero and the Transfer Certificate of Title be issued in the name
of Petitioner Carmen del Prado covering the entire parcel of land known as Cadastral Lot No. 11909. 9

An appeal was duly filed. On September 26, 2000, the CA promulgated the assailed decision, reversing and setting
aside the decision of the RTC.

The CA no longer touched on the character of the sale, because it found that petitioner availed herself of an
improper remedy. The "petition for registration of document" is not one of the remedies provided under P.D. No.
1529, after the original registration has been effected. Thus, the CA ruled that the lower court committed an error
when it assumed jurisdiction over the petition, which prayed for a remedy not sanctioned under the Property
Registration Decree. Accordingly, the CA disposed, as follows:

IN VIEW OF ALL THE FOREGOING, the appealed decision is REVERSED and SET ASIDE and a new one entered
dismissing the petition for lack of jurisdiction. No pronouncement as to costs. 10

Aggrieved, petitioner filed the instant petition, raising the following issues:

I. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE ERROR IN MAKING FINDINGS OF
FACT CONTRARY TO THAT OF THE TRIAL COURT[;]

II. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE ERROR IN FAILING TO RULE THAT
THE SALE OF THE LOT IS FOR A LUMP SUM OR CUERPO CIERTO[;]
III. WHETHER OR NOT THE COURT A QUO HAS JURISDICTION OVER THE PETITION FOR REGISTRATION
OF THE DEED OF ABSOLUTE SALE DATED 11 JUNE 1990 EXECUTED BETWEEN HEREIN PETITIONER AND
RESPONDENTS[.]11

The core issue in this case is whether or not the sale of the land was for a lump sum or not.

Petitioner asserts that the plain language of the Deed of Sale shows that it is a sale of a real estate for a lump sum,
governed under Article 1542 of the Civil Code. 12 In the contract, it was stated that the land contains an area of 4,000
sq m more or less, bounded on the North by Lot No. 11903, on the East by Lot No. 11908, on the South by Lot Nos.
11858 & 11912, and on the West by Lot No. 11910. When the OCT was issued, the area of Lot No. 11909 was
declared to be 14,475 sq m, with an excess of 10,475 sq m. In accordance with Article 1542, respondents are,
therefore, duty-bound to deliver the whole area within the boundaries stated, without any corresponding increase in
the price. Thus, petitioner concludes that she is entitled to have the certificate of title, covering the whole Lot No.
11909, which was originally issued in the names of respondents, transferred to her name.

We do not agree.

In Esguerra v. Trinidad,13 the Court had occasion to discuss the matter of sales involving real estates. The Court’s
pronouncement is quite instructive:

In sales involving real estate, the parties may choose between two types of pricing agreement: a unit price contract
wherein the purchase price is determined by way of reference to a stated rate per unit area (e.g., ₱1,000 per square
meter), or a lump sum contract which states a full purchase price for an immovable the area of which may be
declared based on the estimate or where both the area and boundaries are stated (e.g., ₱1 million for 1,000 square
meters, etc.). In Rudolf Lietz, Inc. v. Court of Appeals (478 SCRA 451), the Court discussed the distinction:

"…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.

xxxx

In the case where the area of an 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 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 less areas or number than that stated in
the contract. . . .

xxxx

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. 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

The Court, however, clarified that the rule laid down in Article 1542 is not hard and fast and admits of an exception.
It held:

A caveat is in order, however. The use of "more or less" or similar words in designating quantity covers only a
reasonable excess or deficiency. A vendee of land 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..

Numerical data are not of course the sole gauge of unreasonableness of the excess or deficiency in area. Courts
must consider a host of other factors. In one case (see Roble v. Arbasa, 414 Phil. 343 [2001]), the Court found
substantial discrepancy in area due to contemporaneous circumstances. Citing change in the physical nature of the
property, it was therein established that the excess area at the southern portion was a product of reclamation, which
explained why the land’s technical description in the deed of sale indicated the seashore as its southern boundary,
hence, the inclusion of the reclaimed area was declared unreasonable. 15
In the instant case, the deed of sale is not one of a unit price contract. The parties agreed on the purchase price of
₱40,000.00 for a predetermined area of 4,000 sq m, more or less, bounded on the North by Lot No. 11903, on the
East by Lot No. 11908, on the South by Lot Nos. 11858 & 11912, and on the West by Lot No. 11910. In a contract
of sale of land in a mass, the specific boundaries stated in the contract must control over any other statement, with
respect to the area contained within its boundaries. 161avvphi1

Black’s Law Dictionary17 defines the phrase "more or less" to mean:

About; substantially; or approximately; implying that both parties assume the risk of any ordinary discrepancy. The
words are intended to cover slight or unimportant inaccuracies in quantity, Carter v. Finch, 186 Ark. 954, 57 S.W.2d
408; and are ordinarily to be interpreted as taking care of unsubstantial differences or differences of small
importance compared to the whole number of items transferred.

Clearly, the discrepancy of 10,475 sq m cannot be considered a slight difference in quantity. The difference in the
area is obviously sizeable and too substantial to be overlooked. It is not a reasonable excess or deficiency that
should be deemed included in the deed of sale.

We take exception to the avowed rule that this Court is not a trier of facts. After an assiduous scrutiny of the records,
we lend credence to respondents’ claim that they intended to sell only 4,000 sq m of the whole Lot No. 11909,
contrary to the findings of the lower court. The records reveal that when the parties made an ocular inspection,
petitioner specifically pointed to that portion of the lot, which she preferred to purchase, since there were mango
trees planted and a deep well thereon. After the sale, respondents delivered and segregated the area of 4,000 sq m
in favor of petitioner by fencing off the area of 10,475 sq m belonging to them. 18

Contracts are the law between the contracting parties. Sale, by its very nature, is a consensual contract, because it
is perfected by mere consent. The essential elements of a contract of sale are the following: (a) consent or meeting
of the minds, that is, consent to transfer ownership in exchange for the price; (b) determinate subject matter; and (c)
price certain in money or its equivalent. All these elements are present in the instant case. 19

More importantly, we find no reversible error in the decision of the CA. Petitioner’s recourse, by filing the petition for
registration in the same cadastral case, was improper. It is a fundamental principle in land registration that a
certificate of title serves as evidence of an indefeasible and incontrovertible title to the property in favor of the
person whose name appears therein. Such indefeasibility commences after one year from the date of entry of the
decree of registration.20 Inasmuch as the petition for registration of document did not interrupt the running of the
period to file the appropriate petition for review and considering that the prescribed one-year period had long since
expired, the decree of registration, as well as the certificate of title issued in favor of respondents, had become
incontrovertible.21

WHEREFORE, the petition is DENIED.

SO ORDERED.

[G.R. No. 132161. January 17, 2005]

CONSOLIDATED RURAL BANK (CAGAYAN VALLEY), INC., petitioner, vs. THE

HONORABLE COURT OF APPEALS and HEIRS OF TEODORO DELA
CRUZ, respondents.

DECISION
TINGA, J.:

Petitioner Consolidated Rural Bank, Inc. of Cagayan Valley filed the instant Petition for
Certiorari  under Rule 45 of the Revised Rules of Court, seeking the review of the Decision  of the
[1] [2]

Court of Appeals Twelfth Division in CA-G.R. CV No. 33662, promulgated on 27 May 1997, which
reversed the judgment  of the lower court in favor of petitioner; and the Resolution  of the Court of
[3] [4]
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,  to [7]

which his brothers Anselmo, Gregorio, Filomeno and Domingo offered no objection as evidenced by
their Joint Affidavit dated 14 August 1957.  The deed of sale was not registered with the Office of the
[8]

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,  and the northern half, identified as Lot No. 7036-A-7-A,
[10]

 to Restituto Hernandez. Thereupon, Teodoro dela Cruz and Restituto Hernandez took possession
[11] [12]

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.  The children of Teodoro dela Cruz continued possession of the
[14]

southern half after their fathers death on 7 June 1970.

In a Deed of Sale  dated 15 June 1976, the Madrid brothers conveyed all their rights and
[15]

interests over Lot No. 7036-A-7 to Pacifico Marquez (hereafter, Marquez), which the former
confirmed  on 28 February 1983.  The deed of sale was registered with the Office of the Register of
[16] [17]

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.
 On the same date, Marquez and his spouse, Mercedita Mariana, mortgaged Lots Nos. 7036-A-7-A
[19]

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).  These deeds of real estate mortgage were
[20]

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 case  for reconveyance [24]

and damages the southern portion of Lot No. 7036-A (hereafter, the subject property) against
Marquez, Calixto, RBC and CRB in December 1986.
Evangeline del Rosario, the successor-in-interest of Restituto Hernandez, filed with leave of court
a Complaint in Intervention  wherein she claimed the northern portion of Lot No. 7036-A-7.
[25]

In the Answer to the Amended Complaint,  Marquez, as defendant, alleged that apart from being
[26]

the first registrant, he was a buyer in good faith and for value. He also argued that the sale executed
by Rizal Madrid to Gamiao and Dayag was not binding upon him, it being unregistered. For his part,
Calixto manifested that he had no interest in the subject property as he ceased to be the owner
thereof, the same having been reacquired by defendant Marquez. [27]

CRB, as defendant, and co-defendant RBC insisted that they were mortgagees in good faith and
that they had the right to rely on the titles of Marquez which were free from any lien or encumbrance.
[28]
 After trial, the Regional Trial Court, Branch 19 of Cauayan, Isabela (hereafter, RTC) handed
down a decision in favor of the defendants, disposing as follows:

WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered:

1. Dismissing the amended complaint and the complaint in intervention;

2. Declaring Pacifico V. Marquez the lawful owner of Lots 7036-A-7 now Lots 7036-A-7-A to
7036-A-7-H, inclusive, covered by TCT Nos. T-149375 to T-149382, inclusive;

3. Declaring the mortgage of Lots 7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-D in favor
of the defendant Consolidated Rural Bank (Cagayan Valley) and of Lot 7036-A-7-E in favor of
defendant Rural Bank of Cauayan by Pacifico V. Marquez valid;

4. Dismissing the counterclaim of Pacifico V. Marquez; and

5. Declaring the Heirs of Teodoro dela Cruz the lawful owners of the lots covered by TCT Nos. T-
33119, T-33220 and T-7583.

No pronouncement as to costs.

SO ORDERED. [29]

In support of its decision, the RTC made the following findings:

With respect to issues numbers 1-3, the Court therefore holds that the sale of Lot 7036-A-7 made
by Rizal Madrid to Aleja Gamiao and Felisa Dayag and the subsequent conveyances to the
plaintiffs and intervenors are all valid and the Madrid brothers are bound by said contracts by virtue
of the confirmation made by them on August 14, 1957 (Exh. B).

Are the defendants Pacifico V. Marquez and Romeo B. Calixto buyers in good faith and for value
of Lot 7036-A-7?

It must be borne in mind that good faith is always presumed and he who imputes bad faith has the
burden of proving the same (Art. 527, Civil Code). The Court has carefully scrutinized the evidence
presented but finds nothing to show that Marquez was aware of the plaintiffs and intervenors claim
of ownership over this lot. TCT No. T-8121 covering said property, before the issuance of Marquez
title, reveals nothing about the plaintiffs and intervenors right thereto for it is an admitted fact that
the conveyances in their favor are not registered.

The Court is therefore confronted with two sales over the same property. Article 1544 of the Civil
Code provides:

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

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

From the foregoing provisions and in the absence of proof that Marquez has actual or constructive
knowledge of plaintiffs and intervenors claim, the Court has to rule that as the vendee who first
registered his sale, Marquez ownership over Lot 7036-A-7 must be upheld. [30]

The Heirs interposed an appeal with the Court of Appeals. In their Appellants Brief,  they [31]

ascribed the following errors to the RTC: (1) it erred in finding that Marquez was a buyer in good faith;
(2) it erred in validating the mortgage of the properties to RBC and CRB; and (3) it erred in not
reconveying Lot No. 7036-A-7-B to them. [32]
 Intervenor Evangeline del Rosario filed a separate appeal with the Court of Appeals. It was,
however, dismissed in a Resolution dated 20 September 1993 for her failure to pay docket fees.
Thus, she lost her standing as an appellant. [33]

On 27 May 1997, the Court of Appeals rendered its assailed Decision  reversing the RTCs
[34]

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.  The Heirs were also in possession of the land at the time. According to the
[36]

Decision, these circumstances along with the subject propertys attractive locationit was situated along
the National Highway and was across a gasoline stationshould have put Marquez on inquiry as to its
status. Instead, Marquez closed his eyes to these matters and failed to exercise the ordinary care
expected of a buyer of real estate. [37]

Anent the mortgagees RBC and CRB, the Court of Appeals found that they merely relied on the
certificates of title of the mortgaged properties. They did not ascertain the status and condition thereof
according to standard banking practice. For failure to observe the ordinary banking procedure, the
Court of Appeals considered them to have acted in bad faith and on that basis declared null and void
the mortgages made by Marquez in their favor. [38]

Dissatisfied, CRB filed a Motion for Reconsideration  pointing out, among others, that the
[39]

Decision promulgated on 27 May 1997 failed to establish good faith on the part of the Heirs. Absent
proof of possession in good faith, CRB avers, the Heirs cannot claim ownership over the subject
property.
In a Resolution  dated 5 January 1998, the Court of Appeals stressed its disbelief in CRBs
[40]

allegation that it did not merely rely on the certificates of title of the properties and that it conducted
credit investigation and standard ocular inspection. But recalling that intervenor Evangeline del
Rosario had lost her standing as an appellant, the Court of Appeals accordingly modified its
previous Decision, as follows:

WHEREFORE, the decision dated May 27, 1997, is hereby MODIFIED to read as follows:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE insofar as
plaintiffs-appellants are concerned. Accordingly, judgment is hereby rendered as follows:
1. Declaring the Heirs of Teodoro dela Cruz the lawful owners of the southern half portion of Lot
No. 7036-A-7;

2. Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V. Marquez and
the Madrid brothers insofar as the southern half portion of Lot NO. (sic) 7036-A-7 is concerned;

3. Declaring the mortgage made by defendant Pacifico V. Marquez in favor of defendant

Consolidated Rural Bank (Cagayan Valley) and defendant Rural Bank of Cauayan as null and void
insofar as the southern half portion of Lot No. 7036-A-7 is concerned;

4. Ordering defendant Pacifico V. Marquez to reconvey the southern portion of Lot No. 7036-A-7
to the Heirs of Teodoro dela Cruz.

No pronouncement as to costs.

SO ORDERED. [41]

Hence, the instant CRB petition. However, both Marquez and RBC elected not to challenge the
Decision of the appellate court.
Petitioner CRB, in essence, alleges that the Court of Appeals committed serious error of law in
upholding the Heirs ownership claim over the subject property considering that there was no finding
that they acted in good faith in taking possession thereof nor was there proof that the first buyers,
Gamiao and Dayag, ever took possession of the subject property. CRB also makes issue of the fact
that the sale to Gamiao and Dayag was confirmed a day ahead of the actual sale, clearly evincing
bad faith, it adds. Further, CRB asserts Marquezs right over the property being its registered owner.
The petition is devoid of merit. However, the dismissal of the petition is justified by reasons
different from those employed by the Court of Appeals.
Like the lower court, the appellate court resolved the present controversy by applying the rule on
double sale provided in Article 1544 of the Civil Code. They, however, arrived at different conclusions.
The RTC made CRB and the other defendants win, while the Court of Appeals decided the case in
favor of the Heirs.
Article 1544 of the Civil Code reads, thus:

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

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

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

The provision is not applicable in the present case. It contemplates a case of double or multiple
sales by a single vendor. More specifically, it covers a situation where a single vendor sold one and
the same immovable property to two or more buyers.  According to a noted civil law author, it is
[42]

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.  It cannot be invoked where the two different contracts of sale
[43]

are made by two different persons, one of them not being the owner of the property sold.  And even
[44]

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,  thus:
[46]

In order that tradition may be considered performed, it is necessary that the requisites which it
implies must have been fulfilled, and one of the indispensable requisites, according to the most
exact Roman concept, is that the conveyor had the right and the will to convey the thing. The
intention to transfer is not sufficient; it only constitutes the will. It is, furthermore, necessary that
the conveyor could juridically perform that act; that he had the right to do so, since a right which he
did not possess could not be vested by him in the transferee.

This is what Article 1473 has failed to express: the necessity for the preexistence of the right on the
part of the conveyor. But even if the article does not express it, it would be understood, in our
opinion, that that circumstance constitutes one of the assumptions upon which the article is based.

This construction is not repugnant to the text of Article 1473, and not only is it not contrary to it,
but it explains and justifies the same. (Vol. 10, 4th ed., p. 159) [47]

In that case, the property was transferred to the first purchaser in 1908 by its original owner, Juan
Millante. Thereafter, it was sold to plaintiff Carpio in June 1929. Both conveyances were unregistered.
On the same date that the property was sold to the plaintiff, Juan Millante sold the same to defendant
Exevea. This time, the sale was registered in the Registry of Deeds. But despite the fact of
registration in defendants favor, the Court of Appeals found for the plaintiff and refused to apply the
provisions of Art. 1473 of the Old Civil Code, reasoning that on the date of the execution of the
document, Exhibit 1, Juan Millante did not and could not have any right whatsoever to the parcel of
land in question. [48]

Citing a portion of a judgment dated 24 November 1894 of the Supreme Court of Spain, the Court
of Appeals elucidated further:

Article 1473 of the Civil Code presupposes the right of the vendor to dispose of the thing sold, and
does not limit or alter in this respect the provisions of the Mortgage Law in force, which upholds
the principle that registration does not validate acts or contracts which are void, and that although
acts and contracts executed by persons who, in the Registry, appear to be entitled to do so are not
invalidated once recorded, even if afterwards the right of such vendor is annulled or resolved by
virtue of a previous unrecorded title, nevertheless this refers only to third parties. [49]

In a situation where not all the requisites are present which would warrant the application of Art.
1544, the principle of prior tempore, potior jure or simply he who is first in time is preferred in right,
 should apply.  The only essential requisite of this rule is priority in time; in other words, the only
[50] [51]

one who can invoke this is the first vendee. Undisputedly, he is a purchaser in good faith because at
the time he bought the real property, there was still no sale to a second vendee.  In the instant case,
[52]

the sale to the Heirs by Gamiao and Dayag, who first bought it from Rizal Madrid, was anterior to the
sale by the Madrid brothers to Marquez. The Heirs also had possessed the subject property first in
time. Thus, applying the principle, the Heirs, without a scintilla of doubt, have a superior right to the
subject property.
Moreover, it is an established principle that no one can give what one does not havenemo dat
quod non habet. Accordingly, one can sell only what one owns or is authorized to sell, and the buyer
can acquire no more than what the seller can transfer legally.  In this case, since the Madrid brothers
[53]

were no longer the owners of the subject property at the time of the sale to Marquez, the latter did not
acquire any right to it.
In any event, assuming arguendo that Article 1544 applies to the present case, the claim of
Marquez still cannot prevail over the right of the Heirs since according to the evidence he was not a
purchaser and registrant in good faith.
Following Article 1544, in the double sale of an immovable, the rules of preference are:
 (a) the first registrant in good faith;
(b) should there be no entry, the first in possession in good faith; and
(c) in the absence thereof, the buyer who presents the oldest title in good faith.  [54]

Prior registration of the subject property does not by itself confer ownership or a better right over
the property. Article 1544 requires that before the second buyer can obtain priority over the first, he
must show that he acted in good faith throughout (i.e., in ignorance of the first sale and of the first
buyers rights)from the time of acquisition until the title is transferred to him by registration or failing
registration, by delivery of possession. [55]

In the instant case, the actions of Marquez have not satisfied the requirement of good faith from
the time of the purchase of the subject property to the time of registration. Found by the Court of
Appeals, Marquez knew at the time of the sale that the subject property was being claimed or taken
by the Heirs. This was a detail which could indicate a defect in the vendors title which he failed to
inquire into. Marquez also admitted that he did not take possession of the property and at the time he
testified he did not even know who was in possession. Thus, he testified on direct examination in the
RTC as follows:

ATTY. CALIXTO

Q Can you tell us the circumstances to your buying the land in question?

A In 1976 the Madrid brothers confessed to me their problems about their lots in San
Mateo that they were being taken by Teodoro dela Cruz and Atty. Teofilo A. Leonin;
that they have to pay the lawyers fee of P10,000.00 otherwise Atty. Leonin will
confiscate the land. So they begged me to buy their properties, some of it. So that on
June 3, 1976, they came to Cabagan where I was and gave them P14,000.00, I think.
We have talked that they will execute the deed of sale.

Q Why is it, doctor, that you have already this deed of sale, Exh. 14, why did you find it
necessary to have this Deed of Confirmation of a Prior Sale, Exh. 15?

A Because as I said a while ago that the first deed of sale was submitted to the Register of
Deeds by Romeo Badua so that I said that because when I became a Municipal Health
Officer in San Mateo, Isabela, I heard so many rumors, so many things about the land
and so I requested them to execute a deed of confirmation. [56]

...

ATTY. CALIXTO-

Q At present, who is in possession on the Riceland portion of the lot in question?

A I can not say because the people working on that are changing from time to time.

Q Why, have you not taken over the cultivation of the land in question?

A Well, the Dela Cruzes are prohibiting that we will occupy the place.

Q So, you do not have any possession?

A None, sir. [57]

One who purchases real property which is in actual possession of others should, at least, make
some inquiry concerning the rights of those in possession. The actual possession by people other
than the vendor should, at least, put the purchaser upon inquiry. He can scarcely, in the absence of
such inquiry, be regarded as a bona fide purchaser as against such possessions.  The rule of caveat
[58]

emptor requires the purchaser to be aware of the supposed title of the vendor and one who buys
without checking the vendors title takes all the risks and losses consequent to such failure. [59]
 It is further perplexing that Marquez did not fight for the possession of the property if it were true
that he had a better right to it. In our opinion, there were circumstances at the time of the sale, and
even at the time of registration, which would reasonably require a purchaser of real property to
investigate to determine whether defects existed in his vendors title. Instead, Marquez willfully closed
his eyes to the possibility of the existence of these flaws. For failure to exercise the measure of
precaution which may be required of a prudent man in a like situation, he cannot be called a
purchaser in good faith. [60]

As this Court explained in the case of Spouses Mathay v. Court of Appeals: [61]

Although it is a recognized principle that a person dealing on a registered land need not go beyond
its certificate of title, it is also a firmly settled rule that where there are circumstances which would
put a party on guard and prompt him to investigate or inspect the property being sold to him, such
as the presence of occupants/tenants thereon, it is, of course, expected from the purchaser of a
valued piece of land to inquire first into the status or nature of possession of the occupants, i.e.,
whether or not the occupants possess the land en concepto de dueo, in concept of owner. As is the
common practice in the real estate industry, an ocular inspection of the premises involved is a
safeguard a cautious and prudent purchaser usually takes. Should he find out that the land he
intends to buy is occupied by anybody else other than the seller who, as in this case, is not in actual
possession, it would then be incumbent upon the purchaser to verify the extent of the occupants
possessory rights. The failure of a prospective buyer to take such precautionary steps would mean
negligence on his part and would thereby preclude him from claiming or invoking the rights of a
purchaser in good faith. [62]

This rule equally applies to mortgagees of real property. In the case of Crisostomo v. Court of
Appeals,  the Court held:
[63]

It is a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should
put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that
there was no defect in the title of the vendor or mortgagor. His mere refusal to believe that such
defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in the
vendors or mortgagors title, will not make him an innocent purchaser or mortgagee for value, if it
afterwards develops that the title was in fact defective, and it appears that he had such notice of the
defects as would have led to its discovery had he acted with the measure of a prudent man in a like
situation.[64]

Banks, their business being impressed with public interest, are expected to exercise more care
and prudence than private individuals in their dealings, even those involving registered lands. Hence,
for merely relying on the certificates of title and for its failure to ascertain the status of the mortgaged
properties as is the standard procedure in its operations, we agree with the Court of Appeals that
CRB is a mortgagee in bad faith.
In this connection, Marquezs obstention of title to the property and the subsequent transfer
thereof to CRB cannot help the latters cause. In a situation where a party has actual knowledge of the
claimants actual, open and notorious possession of the disputed property at the time of registration,
as in this case, the actual notice and knowledge are equivalent to registration, because to hold
otherwise would be to tolerate fraud and the Torrens system cannot be used to shield fraud.  [65]

While certificates of title are indefeasible, unassailable and binding against the whole world, they
merely confirm or record title already existing and vested. They cannot be used to protect a usurper
from the true owner, nor can they be used for the perpetration of fraud; neither do they permit one to
enrich himself at the expense of others. [66]

We also find that the Court of Appeals did not err in awarding the subject property to the Heirs
absent proof of good faith in their possession of the subject property and without any showing of
possession thereof by Gamiao and Dayag.
As correctly argued by the Heirs in their Comment,  the requirement of good faith in the
[67]

possession of the property finds no application in cases where there is no second sale.  In the case
[68]

at bar, Teodoro dela Cruz took possession of the property in 1964 long before the sale to Marquez
transpired in 1976 and a considerable length of timeeighteen (18) years in factbefore the Heirs had
knowledge of the registration of said sale in 1982. As Article 526 of the Civil Code aptly provides, (H)e
is deemed a possessor in good faith who is not aware that there exists in his title or mode of
acquisition any flaw which invalidates it. Thus, there was no need for the appellate court to consider
the issue of good faith or bad faith with regard to Teodoro dela Cruzs possession of the subject
property.
Likewise, we are of the opinion that it is not necessary that there should be any finding of
possession by Gamiao and Dayag of the subject property. It should be recalled that the regularity of
the sale to Gamiao and Dayag was never contested by Marquez.  In fact the RTC upheld the validity
[69]

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,  tax declarations are good indicia of possession in the concept of an owner, for no one in
[70]

his right mind would be paying taxes for a property that is not in his actual or constructive possession.
[71]

WHEREFORE, the Petition is DENIED. The dispositive portion of the Court of Appeals Decision,
as modified by its Resolution dated 5 January 1998, is AFFIRMED. Costs against petitioner.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

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.   Since June 10, 1945, the plaintiff Laureta had been and is stin in
3

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.   The appeal was docketed as CA-G.R. NO.
10

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

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.   Thus, the sale of the property could have only been through Caram's representatives, Irespe and
12

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.   Added to this is the fact that at the time of the second
16

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   should not apply in this case. It was of
18

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.   Laureta was first
20

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.   Such defect, however, was cured when, after the lapse of four
21

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   submitted to this Court on March 13, 1978, the petitioner insists that the action of
22

Laureta against Caram has prescribed because the second contract of sale is not void under Article 1409   of the
23

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.

Makasiar Guerrero, De Castro* and Melencio-Herrera concur.

FERNANDO CARRASCOSO, JR.,

Petitioner,
 
 
-versus-
 
 
THE HONORABLE COURT OF APPEALS, LAURO LEVISTE, as Director and
Minority Stockholder and On Behalf of Other Stockholders of El Dorado Plantation,
Inc. and EL DORADO PLANTATION, INC., represented by one of its minority
stockholders, Lauro P. Leviste,
Respondents.
x---------------------------------------x
 
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,
 Petitioner,
 
-versus-
 
LAURO LEVISTE, as Director and Minority Stockholder and On Behalf of Other
Stockholders of El Dorado Plantation, Inc., EL DORADO PLANTATION, INC.,
represented by Minority Stockholder, Lauro P. Leviste, and FERNANDO
CARRASCOSO, JR.
Respondents.
 
G.R. No. 123672
 
Present:
 
PANGANIBAN, J., Chairman,
SANDOVAL-GUTIERREZ,
CORONA,
CARPIO MORALES, and GARCIA, JJ.
 
 
 
 
 
 
 
 
 
G. R. No. 164489
 
 
 
 
 
 
 
 
 
 
 
Promulgated:
 
 
December 14, 2005
 
 
 

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

DECISION
 
CARPIO MORALES, J.:
 
El Dorado Plantation, Inc. (El Dorado) was the registered owner of a parcel of land (the
property) with an area of approximately 1,825 hectares covered by Transfer Certificate of Title
(TCT) No. T-93[1] situated in Sablayan, Occidental Mindoro.
 
On February 15, 1972, at a special meeting of El Dorados Board of Directors, a
Resolution[2] was passed authorizing Feliciano Leviste, then President of El Dorado, to negotiate
the sale of the property and sign all documents and contracts bearing thereon.
 
On March 23, 1972, by a Deed of Sale of Real Property,[3] El Dorado, through Feliciano
Leviste, sold the property to Fernando O. Carrascoso, Jr. (Carrascoso).
 
The pertinent provisions of the Deed of Sale read:
 
NOW, THEREFORE, for and in consideration of the sum of ONE MILLION EIGHT
HUNDRED THOUSAND (1,800,000.00) PESOS, Philippine Currency, the Vendor hereby sells,
cedes, and transfer (sic) unto the herein VENDEE, his heirs, successors and assigns, the above-
described property subject to the following terms and consitions (sic):
 
1. Of the said sum of P1,800,000.00 which constitutes the full consideration of this
sale, P290,000.00 shall be paid, as it is hereby paid, to the Philippines (sic) National Bank,
thereby effecting the release and cancellation fo (sic) the present mortgage  over the above-
described property.
 
2. That the sum of P210,000.00 shall be paid, as it is hereby paid by the VENDEE to the
VENDOR, receipt of which amount is hereby acknowledged by the VENDOR.
 
3. The remaining balance of P1,300,000.00 plus interest thereon at the rate of 10% per
annum shall be paid by the VENDEE to the VENDOR within a period of three (3) years, as
follows:
 
(a) One (1) year from the date of the signing of this agreement, the VENDEE shall pay to
the VENDOR the sum of FIVE HUNDRED NINETEEN THOUSAND EIGHT HUNDRED
THIRTY THREE & 33/100 (P519,833.33) PESOS.
 
(b) Two (2) years from the date of signing of this agreement, the VENDEE shall pay to
the VENDOR the sum of FIVE HUNDRED NINETTEN (sic) THOUSAND EIGHT
HUNDRED AND THIRTY-THREE & 33/100 (P519,833.33) PESOS.
 
(c) Three (3) years from the date of signing of this agreement, the VENDEE shall pay to
the VENDOR the sum of FIVE Hundred NINETEEN THOUSAND EIGHT HUNDRED AND
THIRTY-THREE & 33/100 (P519,833.33) PESOS.
 
4. The title of the property, subject of this agreement, shall pass and be transferred to the
VENDEE who shall have full authority to register the same and obtain the corresponding
transfer certificate of title in his name.
 
xxx
 
6. THE VENDOR certifies and warrants that the property above-described is not being
cultivated by any tenant and is therefore not covered by the provisions of the Land Reform
Code. If, therefore, the VENDEE becomes liable under the said law, the VENDOR shall
reimburse the VENDEE for all expenses and damages he may incur thereon.[4] (Underscoring
supplied)
 
 From the above-quoted provisions of the Deed of Sale, Carrascoso was to pay the full
amount of the purchase price on March 23, 1975.
 
On even date, the Board of Directors of El Dorado passed a Resolution reading:
RESOLVED that by reason of the sale of that parcel of land covered by TCT No. T-93 to
Dr. FERNANDO O. CARRASCOSO, JR., the corporation interposes no objection to the
property being mortgage (sic) by Dr. FERNANDO O. CARRASCOSO, JR. to any bank of
his choice as long as the balance on the Deed of Sale shall be recognized by Dr.
FERNANDO O. CARRASCOSO, JR.;
 
RESOLVED, FURTHER, that the corporation authorizes the prefered (sic) claim on the
property to be subordinated to any mortgage that may be constituted by Dr. FERNANDO O.
CARRASCOSO, JR.;
 
RESOLVED, FINALLY, that in case of any mortgage on the property, the corporation
waives the preference of any vendors lien on the property.[5] (Emphasis and underscoring
supplied)
 
 
Feliciano Leviste also executed the following affidavit on the same day:
 
1. That by reason of the sale of that parcel of land covered by Transfer Certificate of Title
T-93 as evidenced by the Deed of Sale attached hereto as Annex A and made an integral part
hereof, the El Dorado Plantation, Inc. has no objection to the aforementioned property being
mortgaged by Dr. Fernando O. Carrascoso, Jr. to any bank of his choice, as long as the
payment of the balance due the El Dorado Plantation, Inc. under the Deed of Sale, Annex
A hereof, shall be recognized by the vendee therein, Dr. Fernando O. Carrascoso,
Jr. though subordinated to the preferred claim of the mortgagee bank.
 
2. That in case of any mortgage on the property, the vendor hereby waives the preference
of any vendors lien on the property, subject matter of the deed of sale.
 
3. That this affidavit is being executed to avoid any question on the authority of Dr.
Fernando O. Carrascoso, Jr. to mortgage the property subject of the Deed of Sale, Annex A
hereof, where the purchase price provided therein has not been fully paid.
 
4. That this affidavit has been executed pursuant to a board resolution of El Dorado
Plantation, Inc.[6] (Emphasis and underscoring supplied)
On the following day, March 24, 1972, Carrascoso and his wife Marlene executed a Real
Estate Mortgage[7] over the property in favor of Home Savings Bank (HSB) to secure a loan in
the amount of P1,000,000.00. Of this amount, P290,000.00 was paid to Philippine National
Bank to release the mortgage priorly constituted on the property and P210,000.00 was paid to
El Dorado pursuant to above-quoted paragraph Nos. 1 and 2 of the terms and conditions of the
Deed of Sale.[8]
 
The March 23, 1972 Deed of Sale of Real Property was registered and annotated on El
Dorados TCT No. T-93 as Entry No. 15240[9] on April 5, 1972. On even date, TCT No. T-93
covering the property was cancelled and TCT No. T-6055[10] was in its stead issued by the
Registry of Deeds of Occidental Mindoro in the name of Carrascoso on which the real estate
mortgage in favor of HSB was annotated as Entry No. 15242.[11]
 
On May 18, 1972, the real estate mortgage in favor of HSB was amended to include an
additional three year loan of P70,000.00 as requested by the spouses Carrascoso.[12] The
Amendment of Real Estate Mortgage was also annotated on TCT No. T-6055 as Entry No.
15486 on May 24, 1972.[13]
  
The 3-year period for Carrascoso to fully pay for the property on March 23, 1975 passed
without him having complied therewith.
 
In the meantime, on July 11, 1975, Carrascoso and the Philippine Long Distance
Telephone Company (PLDT), through its President Ramon Cojuangco, executed an Agreement
to Buy and Sell[14] whereby the former agreed to sell 1,000 hectares of the property to the latter
at a consideration of P3,000.00 per hectare or a total of P3,000,000.00.
 
The July 11, 1975 Agreement to Buy and Sell was not registered and annotated on
Carrascosos TCT No. T-6055.
 
Lauro Leviste (Lauro), a stockholder and member of the Board of Directors of El
Dorado, through his counsel, Atty. Benjamin Aquino, by letter[15] dated December 27, 1976,
called the attention of the Board to Carrascosos failure to pay the balance of the purchase price
of the property amounting to P1,300,000.00. And Lauros lawyer manifested that:
 
Because of the default for a long time of Mr. Carrascoso to pay the balance of the
consideration of the sale, Don Lauro Leviste, in his behalf and in behalf of the other shareholders
similarly situated like him, want a rescission of the salemade by the El Dorado Plantation, Inc. to
Mr. Carrascoso. He desires that the Board of Directors take the corresponding action for
rescission.[16]
 
 
Lauros desire to rescind the sale was reiterated in two other letters[17] addressed to the
Board dated January 20, 1977 and March 3, 1977.
 
Jose P. Leviste, as President of El Dorado, later sent a letter of February 21, 1977 [18] to
Carrascoso informing him that in view of his failure to pay the balance of the purchase price of
the property, El Dorado was seeking the rescission of the March 23, 1972 Deed of Sale of Real
Property.
 
The pertinent portions of the letter read:
 
xxx
 
I regret to inform you that the balance of P1,300,000.00 and the interest thereon have long been
due and payable, although you have mortgaged said property with the Home Savings Bank for
P1,000,000.00 on March 24, 1972, which was subsequently increased to P1,070,000.00 on May
18, 1972.
 
You very well know that the El Dorado Plantation, Inc., is a close family corporation, owned
exclusively by the members of the Leviste family and I am one of the co-owners of the land. As
nothing appears to have been done on your part after our numerous requests for payment of the
said amount of P1,300,000.00 and the interest of 10% per annum due thereon, please be advised
that we would like to rescind the contract of sale of the land.[19] (Underscoring supplied)
 
 
Jose Leviste, by letter[20] dated March 10, 1977, informed Lauros counsel Atty. Aquino of
his (Joses) February 21, 1977 letter to Carrascoso, he lamenting that Carrascoso has not deemed
it fit to give [his] letter the courtesy of a reply and advis[ing] that some of the Directors of [El
Dorado] could not see their way clear in complying with the demands of your client [Lauro] and
have failed to reach a consensus to bring the corresponding action for rescission of the contract
against . . . Carrascoso.[21]

Lauro and El Dorado finally filed on March 15, 1977 a complaint[22] for rescission of the
March 23, 1972 Deed of Sale of Real Property between El Dorado and Carrascoso with
damages before the Court of First Instance (CFI) of Occidental Mindoro, docketed as Civil
Case No. R-226.

Lauro and El Dorado also sought the cancellation of TCT No. T-6055 in the name of
Carrascoso and the revival of TCT No. T-93 in the name of El Dorado, free from any liens and
encumbrances. Furthermore, the two prayed for the issuance of an order for Carrascoso to: (1)
reconvey the property to El Dorado upon return to him of P500,000.00, (2) secure a discharge
of the real estate mortgage constituted on the property from HSB, (3) submit an accounting of
the fruits of the property from March 23, 1972 up to the return of possession of the land to El
Dorado, (4) turn over said fruits or the equivalent value thereof to El Dorado and (5) pay the
amount of P100,000.00 for attorneys fees and other damages.[23]

 
Also on March 15, 1977, Lauro and El Dorado caused to be annotated on TCT No. T-
6055 a Notice of Lis Pendens, inscribed as Entry No. 39737.[24]
 
In the meantime, Carrascoso, as vendor and PLDT, as vendee forged on April 6, 1977 a
Deed of Absolute Sale[25] over the 1,000 hectare portion of the property subject of their July 11,
1975 Agreement to Buy and Sell. The pertinent portions of the Deed are as follows:
 
WHEREAS, the VENDOR and the VENDEE entered into an agreement To Buy and Sell
on July 11, 1975, which is made a part hereof by reference;
 
WHEREAS, the VENDOR and the VENDEE are now decided to execute the Deed of
Absolute Sale referred to in the aforementioned agreement to Buy and Sell;
 
WHEREFORE, for and in consideration of the foregoing premises and the terms hereunder
stated, the VENDOR and the VENDEE have agreed as follows:
 
1. For and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00),
Philippine currency, of which ONE HUNDRED TWENTY THOUSAND PESOS P120,000.00
have (sic) already been received by the VENDOR, the VENDOR hereby sells, transfers and
conveys unto the VENDEE one thousand hectares (1,000 has.) of his parcel of land covered by
T.C.T. No. T-6055 of the Registry of Deeds of Mindoro, delineated as Lot No. 3-B-1 in the
subdivision survey plan xxx
 
2. The VENDEE shall pay to the VENDOR upon the signing of this agreement, the sum of
TWO MILLION FIVE HUNDRED THOUSAND PESOS (P2,500,000.00) in the following
manner:
 
a) The sum of TWO MILLION THREE HUNDRED THOUSAND PESOS
(P2,300,000.00) to Home Savings Bank in full payment of the VENDORs mortgaged obligation
therewith;
 
b) The sum of TWO HUNDRED THOUSAND PESOS (P200,000.00) to VENDOR;
 
The remaining balance of the purchase price in the sum of THREE HUNDRED EIGHTY
THOUSAND PESOS (P380,000.00), less such expenses which may be advanced by the
VENDEE but which are for the account of the VENDOR under Paragraph 6 of the Agreement to
 Buy and Sell, shall be paid by the VENDEE to the VENDOR upon issuance of title to the
VENDEE.[26] (Underscoring supplied)
 
 
In turn, PLDT, by Deed of Absolute Sale[27] dated May 30, 1977, conveyed the aforesaid
1,000 hectare portion of the property to its subsidiary, PLDT Agricultural Corporation
(PLDTAC), for a consideration of P3,000,000.00, the amount of P2,620,000.00 of which was
payable to PLDT upon signing of said Deed, and P380,000.00 to Carrascoso upon issuance of
title to PLDTAC.
 
In the meantime, on October 19, 1977, the El Dorado Board of Directors, by a special
meeting,[28] adopted and approved a Resolution ratifying and conferring the prosecution of Civil
Case No. R-226 of the Court of First Instance of Occidental Mindoro, entitled Lauro P. Leviste
vs. Fernando Carascoso (sic), etc. initiated by stockholder Mr. Lauro P. Leviste.[29]
 
In his Answer with Compulsory Counterclaim,[30] Carrascoso alleged that: (1) he had not
paid his remaining P1,300,000.00 obligation under the March 23, 1972 Deed of Sale of Real
Property in view of the extensions of time to comply therewith granted him by El Dorado; (2)
the complaint suffered from fatal defects, there being no showing of compliance with the
condition precedent of exhaustion of intra-corporate remedies and the requirement that a
derivative suit instituted by a complaining stockholder be verified under oath; (3) El Dorado
committed a gross misrepresentation when it warranted that the property was not being
cultivated by any tenant to take it out of the coverage of the Land Reform Code; and (4) he
suffered damages due to the premature filing of the complaint for which Lauro and El Dorado
must be held liable.
On February 21, 1978, the April 6, 1977 and May 30, 1977 Deeds of Absolute Sale and
the respective Articles of Incorporation of PLDT and PLDTAC were annotated on TCT No. T-
6055 as Entry Nos. 24770,[31]42774,[32] 42769[33] and 24772,[34] respectively. On even date,
Carrascosos TCT No. T-6055 was cancelled and TCT No. T-12480[35] covering the 1,000
hectare portion of the property was issued in the name of PLDTAC. The March 15, 1977 Notice
of Lis Pendens was carried over to TCT No. T-12480.
 
On July 31, 1978, PLDT and PLDTAC filed an Urgent Motion for Intervention[36] which
was granted by the trial court by Order[37] of September 7, 1978.
 
PLDT and PLDTAC thereupon filed their Answer In Intervention with Compulsory
Counterclaim and Crossclaim[38] against Carrascoso on November 13, 1978, alleging that: (1)
when Carrascoso executed the April 6, 1977 Deed of Absolute Sale in favor of PLDT, PLDT
was not aware of any litigation involving the 1,000 hectare portion of the property or of any
flaw in his title, (2) PLDT is a purchaser in good faith and for value; (3) when PLDT executed
the May 30, 1977 Deed of Absolute Sale in favor of PLDTAC, they had no knowledge of any
pending litigation over the property and neither were they aware that a notice of lis pendens had
been annotated on Carrascosos title; and (4) Lauro and El Dorado knew of the sale by
Carrascoso to PLDT and PLDTs actual possession of the 1,000 hectare portion of the property
since June 30, 1975 and of its exercise of exclusive rights of ownership thereon through
agricultural development.[39]
 
 By Decision[40] of January 28, 1991, Branch 45 of the San Jose Occidental Mindoro
Regional Trial Court to which the CFI has been renamed, dismissed the complaint on the
ground of prematurity, disposing as follows, quoted verbatim:
 
WHEREFORE, in view of all the foregoing considerations, judgment is hereby rendered:
 
1. Dismissing the plaintiffs complaint against the defendant on the ground of prematurity;
2. Ordering the plaintiffs to pay to the defendant the sum of P2,980,000.00 as actual and
compensatory damages, as well as the sum of P100,000.00 as and for attorneys fees; provided,
however, that the aforesaid amounts must first be set off from the latters unpaid balance to the
former;
 
3. Dismissing the defendants-intervenors counterclaim and cross-claim; and
 
4. Ordering the plaintiffs to pay to (sic) the costs of suit.
 
SO ORDERED.[41] (Underscoring supplied)
 
 
Carrascoso, PLDT and PLDTAC filed their respective appeals to the Court of Appeals.
 
By Decision[42] of January 31, 1996, the appellate court reversed the decision of the trial
court, disposing as follows, quoted verbatim:
 
WHEREFORE, not being meritorious, PLDTs/PLDTACs appeal is hereby
DISMISSED and finding El Dorados appeal to be impressed with merit, We REVERSE the
appealed Decision and render the following judgment:
 
1. The Deed of Sale of Real Property (Exhibit C) is hereby rescinded and TCT No. T-
12480 (Exhibit Q) is cancelled while TCT No. T-93 (Exhibit A), is reactivated.
 
2. Fernando Carrascoso, Jr. is commanded to:
 
2.1. return the possession of the 825 [hectare-] remaining portion of the land to El
Dorado Plantation, Inc. without prejudice to the landholdings of legitimate
tenants thereon;
 
2.2. return the net fruits of the land to El Dorado Plantation, Inc. from March 23,
1972 to July 11, 1975, and of the 825-hectare-remaining portion minus the
tenants landholdings, from July 11, 1975 up to its delivery to El Dorado
Plantation, Inc. including whatever he may have received from the tenants if any
by way of compensation under the Operation Land Transfer or under any other
pertinent agrarian law;
 
2.3 Pay El Dorado Plantation, Inc. an attorneys fee of P20,000.00 and litigation
expenses of P30,000.00;
 
2.4 Return to Philippine Long Distance Telephone Company/PLDT Agricultural
Corporation P3,000,000.00 plus legal interest from April 6, 1977 until fully paid;
 
3. PLDT Agricultural Corporation is ordered to surrender the possession of the 1000-
hectare Farm to El Dorado Plantation, Inc.;
 
4. El Dorado Plantation, Inc. is directed to return the P500,000.00 to Fernando
Carrascoso, Jr. plus legal interest from March 23, 1972 until fully paid. The performance of this
obligation will however await the full compliance by Fernando Carrascoso, Jr. of his obligation
to account for and deliver the net fruits of the land mentioned above to El Dorado Plantation,
Inc.
 
 5. To comply with paragraph 2.2 herein, Carrascoso is directed to submit in (sic) the
court a quo a full accounting of the fruits of the land during the period mentioned above for the
latters approval, after which the net fruits shall be delivered to El Dorado, Plantation, Inc.
6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and
PLDT Agricultural Corporation in writing within ten (10) days after finality of this decision
regarding the exercise of its option under Art. 448 of the Civil Code.
 
SO ORDERED.[43] (Underscoring supplied)
 
 
PLDT and PLDTAC filed on February 22, 1996, a Motion for Reconsideration [44] of the
January 31, 1996 CA Decision, while Carrascoso went up this Court by filing on March 25,
1996 a petition for review,[45]docketed as G.R. No. 123672, assailing the January 31, 1996 CA
Decision and seeking the reinstatement of the January 28, 1991 Decision of the trial court except
with respect to its finding that the acquisition of PLDT and PLDTAC of the 1,000 hectare
portion of the property was subject to the notice of lis pendens.
 
Lauro, in the meantime, died, hence, on April 16, 1996, a Motion for Substitution of
[46]
Party  was filed praying that his heirs, represented by Conrad C. Leviste, be substituted as
respondents. The Motion was granted by Resolution[47] of July 10, 1996.
 
PLDT and PLDTAC filed their Comment[48] to Carrascosos petition and prayed that
judgment be rendered finding them to be purchasers in good faith to thus entitle them to
possession and ownership of the 1,000 hectare portion of the property, together with all the
improvements they built thereon. Reiterating that they were not purchasers pendente lite, they
averred that El Dorado and Lauro had actual knowledge of their interests in the said portion of
the property prior to the annotation of the notice of lis pendens to thereby render said notice
ineffective.
 
El Dorado and the heirs of Lauro, both represented by Conrad C. Leviste, also filed their
Comment[49] to Carrascosos petition, praying that it be dismissed for lack of merit and that
paragraph 6 of the dispositive portion of the January 31, 1996 CA Decision be modified to read
as follows:
 
6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and
PLDT Agricultural Corporation in writing within ten (10) days after finality of this decision
regarding the exercise of its option under Arts. 449 and 450 of the Civil Code, without right to
indemnity on the part of the latter should the former decide to keep the improvements under
Article 449.[50] (Underscoring supplied)
 
 
Carrascoso filed on November 13, 1996 his Reply[51] to the Comment of El Dorado and
the heirs of Lauro.
 
In the meantime, as the February 22, 1996 Motion for Reconsideration filed by PLDT and
PLDTAC of the CA decision had remained unresolved, this Court, by Resolution [52] of June 30,
2003, directed the appellate court to resolve the same.
 
By Resolution[53] of July 8, 2004, the CA denied PLDT and PLDTACs Motion for
Reconsideration for lack of merit.
 
 PLDT[54] thereupon filed on September 2, 2004 a petition for review[55] before this Court,
docketed as G.R. No. 164489, seeking to reverse and set aside the January 31, 1996 Decision
and the July 8, 2004 Resolution of the appellate court. It prayed that judgment be rendered
upholding its right, interest and title to the 1,000 hectare portion of the property and that it and
its successors-in-interest be declared owners and legal possessors thereof, together with all
improvements built, sown and planted thereon.
 
By Resolution[56] of August 25, 2004, G.R. No. 164489 was consolidated with G.R. No.
123672.
 
In his petition, Carrascoso faults the CA as follows:
 
I
 
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND
COMMITTED A MISTAKE OF LAW IN NOT DECLARING THAT THE ACTION FOR
RESCISSION WAS PREMATURELY FILED.
 
II
 
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND
COMMITTED A MISTAKE OF LAW IN DISREGARDING THE CRUCIAL SIGNIFICANCE
OF THE WARRANTY OF NON-TENANCYEXPRESSLY STIPULATED IN THE
CONTRACT OF SALE.
 
III
 
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN
REVERSING THE DECISION OF THE TRIAL COURT.[57] (Underscoring supplied)
 
 
PLDT, on the other hand, faults the CA as follows:
 
I
 
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT
PETITIONER AND PLTAC (sic) TOOK THEIR RIGHT, INTEREST AND TITLE TO THE
FARM SUBJECT TO THE NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF
THE PROTECTION ACCORDED THEM UNDER ARTICLES 1181 AND 1187 OF THE
NEW CIVIL CODE.
 
II
 
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT
PETITIONER AND PLDTAC TOOK THEIR RIGHT, INTEREST AND TITLE TO THE
FARM SUBJECT TO THE NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF
THE LEGAL PRINCIPLE THAT RESPONDENTS EL DORADO ET AL.s PRIOR, ACTUAL
KNOWLEDGE OF PETITIONER PLDTS AGREEMENT TO BUY AND SELL WITH
RESPONDENT CARRASCOSO RESULTING IN THE DELIVERY TO, AND POSSESSION,
OCCUPATION AND DEVELOPMENT BY, SAID PETITIONER OF THE FARM, IS
EQUIVALENT TO REGISTRATION OF SUCH RIGHT, INTEREST AND TITLE AND,
THEREFORE, A PRIOR REGISTRATION NOT AFFECTED BY THE LATER NOTICE
OF LIS PENDENS.[58] (Underscoring supplied)
 
 
Carrascoso posits that in the El Dorado Board Resolution and the Affidavit of Feliciano
Leviste, both dated March 23, 1972, no objection was interposed to his mortgaging of the
property to any bank provided that the balance of the purchase price of the property under the
March 23, 1972 Deed of Sale of Real Property is recognized, hence, El Dorado could collect the
unpaid balance of P1,300,000.00 only after the mortgage in favor of HSB is paid in full; and the
filing of the complaint for rescission with damages on March 15, 1977 was premature as he fully
paid his obligation to HSB only on April 5, 1977 as evidenced by the Cancellation of
Mortgage[59] signed by HSB President Gregorio B. Licaros.
 
Carrascoso further posits that extensions of the period to pay El Dorado were verbally
accorded him by El Dorados directors and officers, particularly Jose and Angel Leviste.
 
Article 1191 of the Civil Code provides:
 
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
 
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission, even after
he has chosen fulfillment, if the latter should become impossible.
 
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
 
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
 
 
Reciprocal obligations are those which arise from the same cause, and in which each
party is a debtor and a creditor of the other, such that the obligation of one is dependent upon
the obligation of the other.[60] They are to be performed simultaneously such that the
performance of one is conditioned upon the simultaneous fulfillment of the other.[61]
 
The right of rescission of a party to an obligation under Article 1191 is predicated on a
breach of faith by the other party who violates the reciprocity between them.[62]
 
A contract of sale is a reciprocal obligation. The seller obligates itself to transfer the
ownership of and deliver a determinate thing, and the buyer obligates itself to pay therefor a
price certain in money or its equivalent.[63] The non-payment of the price by the buyer is a
resolutory condition which extinguishes the transaction that for a time existed, and discharges
the obligations created thereunder.[64] Such failure to pay the price in the manner prescribed by
the contract of sale entitles the unpaid seller to sue for collection or to rescind the contract.[65]
 
In the case at bar, El Dorado already performed its obligation through the execution of
the March 23, 1972 Deed of Sale of Real Property which effectively transferred ownership of
the property to Carrascoso. The latter, on the other hand, failed to perform his correlative
obligation of paying in full the contract price in the manner and within the period agreed upon.
 
The terms of the Deed are clear and unequivocal: Carrascoso was to pay the balance of
the purchase price of the property amounting to P1,300,000.00 plus interest thereon at the rate
of 10% per annum within a period of three (3) years from the signing of the contract on March
23, 1972. When Jose Leviste informed him that El Dorado was seeking rescission of the
contract by letter of February 21, 1977, the period given to him within which to fully satisfy his
obligation had long lapsed.
 
The El Dorado Board Resolution and the Affidavit of Jose Leviste interposing no
objection to Carrascosos mortgaging of the property to any bank did not have the effect of
suspending the period to fully pay the purchase price, as expressly stipulated in the Deed,
pending full payment of any mortgage obligation of Carrascoso.
 
As the CA correctly found:
 
The adverted resolution (Exhibit 2) does not say that the obligation of Carrascoso to pay
the balance was extended. Neither can We see in it anything that can logically infer said
accommodation.
 
A partially unpaid seller can agree to the buyers mortgaging the subject of the sale without
changing the time fixed for the payment of the balance of the price. The two agreements are not
incompatible with each other such that when one is to be implemented, the other has to be
suspended. In the case at bench, there was no impediment for Carrascoso to pay the balance of the
price after mortgaging the land.
 
Also, El Dorados subordinating its preferred claim or waiving its superior vendors lien
over the land in favor of the mortgagee of said property only means that in a situation where the
unpaid price of the Land and loan secured by the mortgage over the Land both become due and
demandable, the mortgagee shall have precedence in going after the Land for the satisfaction of
the loan. Such accommodations do not necessarily imply the modification of the period fixed in
the contract of sale for the payment by Carrascoso of the balance.
 
The palpable purpose of El Dorado in not raising any objection to Carrascosos mortgaging
the land was to eliminate any legal impediment to such a contract. That was so succinctly
expressed in the Affidavit (Exhibit 2-A) of President Feleciano (sic) Leviste. El Dorados yielding
its superior lien over the land in favor of the mortgagee was plainly intended to overcome the
natural reluctance of lending institutions to accept a land whose price has not yet been fully paid
as collateral of a loan.[66] (Underscoring supplied)
 
 
Respecting Carrascosos insistence that he was granted verbal extensions within which to
pay the balance of the purchase price of the property by El Dorados directors and officers Jose
and Angel Leviste, this Court finds the same unsubstantiated by the evidence on record.
 
It bears recalling that Jose Leviste wrote Carrascoso, by letter of February 21, 1977,
calling his attention to his failure to comply, despite numerous requests, with his obligation to
pay the amount of P1,300,000.00 and 10% annual interest thereon, and advising him that we
would like to rescind the contract of sale. This letter reiterated the term of payment agreed
upon in the March 23, 1972 Deed of Sale of Real Property and Carrascososs non-compliance
therewith.
 
Carrascoso, harping on Jose Levistes March 10, 1977 letter to Lauros counsel wherein he
(Jose Leviste) stated that some of the Directors of the corporation could not see their way clear
in complying with the demands of [Lauro] and have failed to reach a consensus to bring the
corresponding action for rescission of the contract against Dr. Fernando Carrascoso, argues that
the extensions priorly given to him no doubt lead to the logical conclusion on some of the
directors inability to file suit against him.[67]
 
 The argument is specious. As the CA found, even if some officers of El Dorado were
initially reluctant to file suit against him, the same should not be interpreted to mean that this
was brought about by a prior extension of the period to pay the balance of the purchase price of
the property as such reluctance could have been due to a myriad of reasons totally unrelated to
the period of payment of the balance.
 
The bottomline however is, if El Dorado really intended to extend the period of payment
of the balance there was absolutely no reason why it did not do it in writing in clear and
unmistakable terms. That there is no such writing negates all the speculations of the court a quo
and pretensions of Carrascoso.
 
xxx
 
The unalterable fact here remains that on March 23, 1973, with or without demand, the
obligation of Carrascoso to pay P519,933.33 became due. The same was true on March 23, 1974
and on March 23, 1975 for equal amounts. Since he did not perform his obligation under the
contract of sale, he, therefore, breached it. Having breached the contract, El Dorados cause of
action for rescission of that contract arose.[68] (Underscoring supplied)
 
 
Carrascoso goes on to argue that the appellate court erred in ignoring the import of the
warranty of non-tenancy expressly stipulated in the March 23, 1972 Deed of Sale of Real
Property. He alleges that on March 8, 1972 or two weeks prior to the execution of the Deed of
Sale, he discovered, while inspecting the property on board a helicopter, that there were people
and cattle in the area; when he confronted El Dorado about it, he was told that the occupants
were caretakers of cattle who would soon leave;[69] four months after the execution of the Deed
of Sale, upon inquiry with the Bureau of Lands and the Bureau of Soils, he was informed that
there were people claiming to be tenants in certain portions of the property; [70] and he thus
brought the matter again to El Dorado which informed him that the occupants were not tenants
but squatters.[71]
 
Carrascoso now alleges that as a result of what he concludes to be a breach of the
warranty of non-tenancy committed by El Dorado, he incurred expenses in the amount
of P2,890,000.00 for which he should be reimbursed, his unpaid obligation to El Dorado
amounting to P1,300,000.00 to be deducted therefrom.[72]
 
The breach of an express warranty makes the seller liable for damages. [73] The following
requisites must be established in order that there be an express warranty in a contract of sale:
(1) the express warranty must be an affirmation of fact or any promise by the seller relating to
the subject matter of the sale; (2) the natural tendency of such affirmation or promise is to
induce the buyer to purchase the thing; and (3) the buyer purchases the thing relying on such
affirmation or promise thereon.[74]
 
Under the March 23, 1972 Deed of Sale of Real Property, El Dorado warranted that the
property was not being cultivated by any tenant and was, and therefore, not covered by the
provisions of the Land Reform Code. If Carrascoso would become liable under the said law, he
would be reimbursed for all expenses and damages incurred thereon.
 
Carrascoso claims to have incurred expenses in relocating persons found on the property
four months after the execution of the Deed of Sale. Apart from such bare claim, the records
are bereft of any proof that those persons were indeed tenants.[75] The fact of tenancy[76] not
having been priorly established,[77] El Dorado may not be held liable for actual damages.
 
Carrascoso further argues that both the trial and appellate courts erred in holding that the
sale of the 1,000 hectare portion of the property to PLDT, as well as its subsequent sale to
PLDTAC, is subject to the March 15, 1977 Notice of Lis Pendens.
 
PLDT additionally argues that the CA incorrectly ignored the Agreement to Buy and Sell
which it entered into with Carrascoso on July 11, 1975, positing that the efficacy of its
purchase from Carrascoso, upon his fulfillment of the condition it imposed resulting in its
decision to formalize their transaction and execute the April 6, 1977 Deed of Sale, retroacted to
July 11, 1975 or before the annotation of the Notice of Lis Pendens.[78]
The pertinent portions of the July 11, 1975 Agreement to Buy and Sell between PLDT
and Carrascoso read:
 
2. That the VENDOR hereby agrees to sell to the VENDEE and the latter hereby agrees
to purchase from the former, 1,000 hectares of the above-described parcel of land as shown in
the map hereto attached as Annex A and made an integral part hereof and as hereafter to be more
particularly determined by the survey to be conducted by Certeza & Co., at the purchase price of
P3,000.00 per hectare or for a total consideration of Three Million Pesos (P3,000,000.00)
payable in cash.
 
3. That this contract shall be considered rescinded and cancelled and of no further force
and effect, upon failure of the VENDOR to clear the aforementioned 1,000 hectares of land of
all the occupants therein located, within a period of one (1) year from the date of execution of
this Agreement. However, the VENDEE shall have the option to extend the life of this
Agreement by another six months, during which period the VENDEE shall definitely inform the
VENDOR of its decision on whether or not to finalize the deed of absolute sale for the
aforementioned 1,000 hectares of land.
 
The VENDOR agrees that the amount of P500.00 per family within the aforementioned
1,000 hectares of land shall be spent by him for relocation purposes, which amount however
shall be advanced by the VENDEE and which shall not exceed the total amount of P120,000.00,
the same to be thereafter deducted by the VENDEE from the aforementioned purchase price of
P3,000,000.00.
 
The aforementioned advance of P120,000.00 shall be remitted by the VENDEE to the
VENDOR upon the signing of this Agreement.
 
xxx
 
It is likewise further agreed that the VENDEE shall have the right to enter into any part
of the aforementioned 1,000 hectares at any time within the period of this Agreement for
purposes of commencing the development of the same.
 
xxx
 
5. Title to the aforementioned land shall also be cleared of all liens or encumbrances and
if there are any unpaid taxes, existing mortgages, liens and encumbrances on the land, the
payments to be made by the VENDEE to the VENDOR of the purchase price shall first be
applied to liquidate said mortgages, liens and/or encumbrances, such that said payments shall be
made directly to the corresponding creditors. Thus, the balance of the purchase price will be paid
to the VENDOR after the title to the land is cleared of all such liens and encumbrances.
 
xxx
 
 7. The VENDOR agrees that, during the existence of this Agreement and without the
previous written permission from the VENDEE, he shall not sell, cede, assign and/or transfer the
parcel of land subject of this Agreement.[79]
 
 
A notice of lis pendens is an announcement to the whole world that a particular real
property is in litigation, and serves as a warning that one who acquires an interest over said
property does so at his own risk, or that he gambles on the result of the litigation over said
property.[80]
 
Once a notice of lis pendens has been duly registered, any cancellation or issuance of title
over the land involved as well as any subsequent transaction affecting the same would have to be
subject to the outcome of the suit. In other words, a purchaser who buys registered land with full
notice of the fact that it is in litigation between the vendor and a third party stands in the shoes
of his vendor and his title is subject to the incidents and result of the pending litigation.[81]
 
x x x Notice of lis pendens has been conceived and, more often than not, availed of, to
protect the real rights of the registrant while the case involving such rights is pending resolution or
decision. With the notice of lis pendens duly recorded, and while it remains uncancelled, the
registrant could rest secure that he would not lose the property or any part of it during the
litigation.
 
The filing of a notice of lis pendens in effect (1) keeps the subject matter of
litigation within the power of the court until the entry of the final judgment so as to prevent the
defeat of the latter by successive alienations; and (2) binds a purchaser of the land subject of the
litigation to the judgment or decree that will be promulgated thereon whether such a purchaser is
a bona fide purchaser or not; but (3) does not create a non-existent right or lien.
 
The doctrine of lis pendens is founded upon reason of public policy and necessity, the
purpose of which is to keep the subject matter of the litigation within the power of the court until
the judgment or decree shall have been entered; otherwise by successive alienations pending the
litigation, its judgment or decree shall be rendered abortive and impossible of execution. The
doctrine of lis pendens is based on considerations of public policy and convenience, which forbid
a litigant to give rights to others, pending the litigation, so as to affect the proceedings of the court
then progressing to enforce those rights, the rule being necessary to the administration of justice in
order that decisions in pending suits may be binding and may be given full effect, by keeping the
subject matter in controversy within the power of the court until final adjudication, that there may
be an end to litigation, and to preserve the property that the purpose of the pending suit may not
be defeated by successive alienations and transfers of title.[82] (Italics in the original)
 
 
In ruling against PLDT and PLDTAC, the appellate court held:
 
PLDT and PLDTAC argue that in reality the Farm was bought by the former on July 11,
1975 when Carrascoso and it entered into the Agreement to Buy and Sell (Exhibit 15). How can
an agreement to buy and sell which is a preparatory contract be the same as a contract of sale
which is a principal contract? If PLDTs contention is correct that it bought the Farm on July 11,
1975, why did it buy the same property again on April 6, 1977? There is simply no way PLDT
and PLDTAC can extricate themselves from the effects of said Notice of Lis Pendens. It is
admitted that PLDT took possession of the Farm on July 11, 1975 after the execution of the
Agreement to Buy and Sell but it did so not as owner but as prospective buyer of the property. As
prospective buyer which had actual on (sic) constructive notice of the lis pendens, why did it
pursue and go through with the sale if it had not been willing to gamble with the result of this
case?[83] (Underscoring supplied)
 
 
Further, in its July 8, 2004 Resolution, the CA held:
  
PLDT cannot shield itself from the notice of lis pendens because all that it had at the time
of its inscription was an Agreement to Buy and Sell with CARRASCOSO, which in effect is
a mere contract to sell that did not pass to it the ownership of the property.
xxx
 
Ownership was retained by CARRASCOSO which EL DORADO may very well recover
through its action for rescission.
 
xxx
 
PLDTs possession at the time the notice of lis pendens was registered not being a legal
possession based on ownership but a mere possession in fact and the Agreement to Buy and Sell
under which it supposedly took possession not being registered, it is not protected from an
adverse judgment that may be rendered in the case subject of the notice of lis pendens.
[84]
 (Underscoring supplied)
 
 
In a contract of sale, the title passes to the vendee upon the delivery of the thing sold;
whereas in a contract to sell, ownership is not transferred upon delivery of the property but
upon full payment of the purchase price.[85] In the former, the vendor has lost and cannot
recover ownership until and unless the contract is resolved or rescinded; whereas in the latter,
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.[86]
 
PLDT argues that the July 11, 1975 Agreement to Buy and Sell is a conditional contract
of sale, thus calling for the application of Articles 1181[87] and 1187[88] of the Civil Code as held
in Coronel v. Court of Appeals.[89]
 
The Court is not persuaded.
 
For in a conditional contract of sale, if the suspensive condition is fulfilled, the contract
of sale is thereby perfected, such that if there had already been previous delivery of the
property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer
by operation of law without any further act having to be performed by the seller.[90] Whereas in
a contract to sell, upon fulfillment of the suspensive condition, ownership will not
automatically transfer to the buyer although the property may have been previously delivered
to him. The prospective seller still has to convey title to the prospective buyer by entering into
a contract of absolute sale.[91]
 
A perusal of the contract[92] adverted to in Coronel reveals marked differences from the
Agreement to Buy and Sell in the case at bar. In the Coronel contract, there was a clear intent
on the part of the therein petitioners-sellers to transfer title to the therein respondent-buyer. In
the July 11, 1975 Agreement to Buy and Sell, PLDT still had to definitely inform Carrascoso
of its decision on whether or not to finalize the deed of absolute sale for the 1,000 hectare
portion of the property, such that in the April 6, 1977 Deed of Absolute Sale subsequently
executed, the parties declared that they are now decided to execute such deed, indicating that
the Agreement to Buy and Sell was, as the appellate court held, merely a preparatory contract
in the nature of a contract to sell. In fact, the parties even had to stipulate in the said Agreement
to Buy and Sell that Carrascoso, during the existence of the Agreement, shall not sell, cede,
assign and/or transfer the parcel of land, which provision this Court has held to be a typical
characteristic of a contract to sell.[93]
 
Being a contract to sell, what was vested by the July 11, 1975 Agreement to Buy and
Sell to PLDT was merely the beneficial title to the 1,000 hectare portion of the property.
 
The right of Daniel Jovellanos to the property under the contract [to sell] with Philamlife
was merely an inchoate and expectant right which would ripen into a vested right only upon his
acquisition of ownership which, as aforestated, was contingent upon his full payment of the
rentals and compliance with all his contractual obligations thereunder. A vested right is an
immediate fixed right of present and future enjoyment. It is to be distinguished from a right that
is expectant or contingent. It is a right which is fixed, unalterable, absolute, complete and
unconditional to the exercise of which no obstacle exists, and which is perfect in itself and not
dependent upon a contingency. Thus, for a property right to be vested, there must be a transition
from the potential or contingent to the actual, and the proprietary interest must have attached to a
thing; it must have become fixed or established and is no longer open to doubt or controversy.
[94]
 (Underscoring supplied)
 
 
In the case at bar, the July 11, 1975 Agreement to Buy and Sell was not registered, which
act of registration is the operative act to convey and affect the land.
 
An agreement to sell is a voluntary instrument as it is a willful act of the registered owner.
As such voluntary instrument, Section 50 of Act No. 496 [now Section 51 of PD 1529] expressly
provides that the act of registration shall be the operative act to convey and affect the land. And
Section 55 of the same Act [now Section 53 of PD 1529] requires the presentation of the owners
duplicate certificate of title for the registration of any deed or voluntary instrument. As the
agreement to sell involves an interest less than an estate in fee simple, the same should have been
registered by filing it with the Register of Deeds who, in turn, makes a brief memorandum thereof
upon the original and owners duplicate certificate of title. The reason for requiring the production
of the owners duplicate certificate in the registration of a voluntary instrument is that, being a
willful act of the registered owner, it is to be presumed that he is interested in registering the
instrument and would willingly surrender, present or produce his duplicate certificate of title to
the Register of Deeds in order to accomplish such registration. However, where the owner refuses
to surrender the duplicate certificate for the annotation of the voluntary instrument, the grantee
may file with the Register of Deeds a statement setting forth his adverse claim, as provided for in
Section 110 of Act No. 496. xxx[95] (Underscoring supplied)
 
 
In Valley Golf Club, Inc. v. Salas,[96] where a Deed of Absolute Sale covering a parcel of
land was executed prior to the annotation of a notice of lis pendens by the original owner
thereof but which Deed was registered after such annotation, this Court held:
 
The advance payment of P15,000.00 by the CLUB on October 18, 1960 to ROMERO,
and the additional payment by the CLUB of P54,887.50 as full payment of the purchase price on
October 26, 1960, also to ROMERO, cannot be held to be the dates of sale such as to precede the
annotation of the adverse claim by the SISTERS on October 25, 1960 and the lis pendens on
October 27, 1960. It is basic that it is the act of registration of the sale that is the operative act to
convey and affect the land. That registration was not effected by the CLUB until December 4,
1963, or three (3) years after it had made full payment to ROMERO. xxx
 
xxx
 
As matters stand, therefore, in view of the prior annotations of the adverse claim and lis
pendens, the CLUB must be legally held to have been aware of the flaws in the title. By virtue of
the lis pendens, its acquisition of the property was subject to whatever judgment was to be
rendered in Civil Case No. 6365. xxx The CLUBs cause of action lies, not against the SISTERS,
to whom the property had been adjudged by final judgment in Civil Case No. 6365, but against
 ROMERO who was found to have had no right to dispose of the land. [97] (Underscoring
supplied)
 
 
PLDT further argues that El Dorados prior, actual knowledge of the July 11, 1975
Agreement to Buy and Sell is equivalent to prior registration not affected by the Notice of Lis
Pendens. As such, it concludes that it was not a purchaser pendente lite nor a purchaser in bad
faith.
 
PLDT anchors its argument on the testimony of Lauro and El Dorados counsel Atty.
Aquino from which it infers that Atty. Aquino filed the complaint for rescission and caused the
notice of lis pendens to be annotated on Carrascosos title only after reading newspaper reports
on the sale to PLDT of the 1,000 hectare portion of the property.
 
The pertinent portions of Atty. Aquinos testimony are reproduced hereunder:
 
Q: Do you know, Atty. Aquino, what you did after the filing of the complaint in the instant case of
Dr. Carrascoso?
 
A: Yes, I asked my associates to go to Mamburao and had the notice of Lis Pendens covering the
property as a result of the filing of the instant complaint.
 
Q: Do you know the notice of Lis Pendens?
 
A: Yes, it is evidenced by a [Transfer] Certificate Copy of Title of Dr. Carrascoso entitled Notice
of Lis Pendens.
 
Q: As a consequence of the filing of the complaint which was annotated, you have known that?
 
A: Yes.
 
xxx
 
Q: After the annotation of the notice of Lis Pendens, do you know, if any further transaction was
held on the property?
 
A: As we have read in the newspaper, that Dr. Carrascoso had sold the property in favor of the
PLDT, Co.
 
Q: And what did you do?
 
A: We verified the portion of the property having recorded under entry No. 24770 xxx and we
also discovered that the articles incorporated (sic) and other corporate matters had been
organized and established of the PLDT, Co., and had been annotated.
 
xxx
 
Q: Do you know what happened to the property?
 
A: It was sold by the PLDT to its sub-PLDT Agitating (sic) Co. when at that time there was
already notice of Lis Pendens.
 
xxx
 
Q: In your testimony, you mentioned that you had come cross- (sic) reading the sale of the subject
litigation (sic) between Dr. Fernando Carrascoso, the defendant herein and the PLDT, one
of defendants-intervenor, may I say when?
 
A: I cannot remember now, but it was in the newspaper where it was informed or mentioned of
the sold property to PLDT.
 
xxx
 
Q: Will you tell to the Honorable Court what newspaper was that?
 
A: Well, I cannot remember what is that newspaper. That is only a means of [confirming] the
transaction. What was [confirmed] to us is whether there was really transaction (sic) and
we found out that there was in the Register of Deeds and that was the reason why we
obtained the case.
 
Q: Well, may I say, is there any reason, the answer is immaterial. The question is as regard the
matter of time when counsel is being able (sic) to read the newspaper allegedly
(interrupted)
 
xxx
 
Q: The idea of the question, your Honor, is to establish and ask further the notice of [lis pendens]
with regards (sic) to the transfer of property to PLDT, would have been accorded prior to
the pendency of the case.
 
xxx
 
A: I cannot remember.[98]
 
 
PLDT also relies on the following testimony of Carrascoso:
 
Q: You mentioned Doctor a while ago that you mentioned to the late Governor Feliciano Leviste
regarding your transaction with the PLDT in relation to the subject property you
allegedly mention (sic) your intention to sell with the PLDT?
 
A: It was Dr. Jose Leviste and Dr. Angel Leviste that was constantly in touched (sic) with me
with respect to my transaction with the PLDT, sir.
 
Q: Any other officer of the corporation who knows with instruction aside from Dr. Angel
Leviste and Dr. Jose Leviste?
 
A: Yes, sir. It was Trinidad Andaya Leviste and Assemblyman Expedito Leviste.
 
xxx
Q: What is the position of Mrs. Trinidad Andaya Leviste with the plaintiff-corporation?
 
A: One of the stockholders and director of the plaintiff-corporation, sir.
 
Q: Will you please tell us the other officers?
 
A: Expedito Leviste, sir.
 
A: Will you tell the position of Expedito Leviste?
 
A: He was the corporate secretary, sir.
 
Q: If you know, was Dr. Jose Leviste also a director at that time?
 
A: Yes, sir.[99]
 
 
 On the other hand, El Dorado asserts that it had no knowledge of the July 11, 1975
Agreement to Buy and Sell prior to the filing of the complaint for rescission against Carrascoso
and the annotation of the notice of lis pendens on his title. It further asserts that it always acted
in good faith:
 
xxx The contract to sell between the Petitioner [Carrascoso] and PLDT was executed in
July 11, 1975. There is no evidence that El Dorado was notified of this contract. The property is
located in Mindoro, El Dorado is based in Manila. The land was planted to rice. This was not an
unusual activity on the land, thus it could have been the Petitioner who was using the land. Not
having been notified of this sale, El Dorado could not have stopped PLDT from developing the
land.
 
The absolute sale of the land to PLDT took place on April 6, 1977, or AFTER the filing of
this case on March 15, 1977 and the annotation of a notice of lis pendens on March 16, 1977.
Inspite of the notice of lis pendens, PLDT then PLDTAC persisted not only in buying the land but
also in putting up improvements on the property such as buildings, roads, irrigation systems and
drainage. This was done during the pendency of this case, where PLDT and PLDTAC actively
participated as intervenors. They were not innocent bystanders. xxx[100]
This Court finds the above-quoted testimony of Atty. Aquino to be susceptible of
conflicting interpretations. As such, it cannot be the basis for inferring that El Dorado knew of
the July 11, 1975 Agreement to Buy and Sell prior to the annotation of the notice of lis
pendens on Carrascosos title.
 
Respecting Carrascosos allegation that some of the directors and officers of El Dorado
had knowledge of his dealings with PLDT, it is true that knowledge of facts acquired or
possessed by an officer or agent of a corporation in the course of his employment, and in
relation to matters within the scope of his authority, is notice to the corporation, whether he
communicates such knowledge or not.[101] In the case at bar, however, apart from Carrascosos
claim that he in fact notified several of the directors about his intention to sell the 1,000 hectare
portion of the property to PLDT, no evidence was presented to substantiate his claim. Such
self-serving, uncorroborated assertion is indubitably inadequate to prove that El Dorado had
notice of the July 11, 1975 Agreement to Buy and Sell before the annotation of the notice of lis
pendens on his title.
 
PLDT is, of course, not without recourse. As held by the CA:
 
Between Carrascoso and PLDT/PLDTAC, the former acted in bad faith while the latter
acted in good faith. This is so because it was Carrascosos refusal to pay his just debt to El Dorado
that caused PLDT/PLDTAC to suffer pecuniary losses. Therefore, Carrascoso should return to
PLDT/PLDTAC the P3,000,000.00 price of the farm plus legal interest from receipt thereof until
paid.[102] (Underscoring supplied)
 
The appellate courts decision ordering the rescission of the March 23, 1972 Deed of Sale
of Real Property between El Dorado and Carrascoso being in order, mutual restitution follows to
put back the parties to their original situation prior to the consummation of the contract.
 
The exercise of the power to rescind extinguishes the obligatory relation as if it had never
been created, the extinction having a retroactive effect. The rescission is equivalent to invalidating
and unmaking the juridical tie, leaving things in their status before the celebration of the contract.
 
Where a contract is rescinded, it is the duty of the court to require both parties to surrender
that which they have respectively received and to place each other as far as practicable in his
original situation, the rescission has the effect of abrogating the contract in all parts.
[103]
 (Underscoring supplied)
  
 
The April 6, 1977 and May 30, 1977 Deeds of Absolute Sale being subject to the notice
of lis pendens, and as the Court affirms the declaration by the appellate court of the rescission
of the Deed of Sale executed by El Dorado in favor of Carrascoso, possession of the 1,000
hectare portion of the property should be turned over by PLDT to El Dorado.
 
As regards the improvements introduced by PLDT on the 1,000 hectare portion of the
property, a distinction should be made between those which it built prior to the annotation of the
notice of lis pendens and those which it introduced subsequent thereto.
 
When a person builds in good faith on the land of another, Article 448 of the Civil Code
governs:
Art. 448. The owner of the land on which anything has been built, sown or planted in
good faith, shall have the right to appropriate as his own the works, sowing or planting, after
payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or
planted to pay the price of the land, and the one who sowed, the proper rent. However, the
builder or planter cannot be obliged to buy the land if its value is considerably more than that of
the building or trees. In such a case, he shall pay reasonable rent, if the owner of the land does
not choose to appropriate the building or trees after the proper indemnity. The parties shall agree
upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.
 
 
The above provision covers cases in which the builders, sowers or planters believe
themselves to be owners of the land or, at least, to have a claim of title thereto.[104] Good faith is
thus identified by the belief that the land is owned; or that by some title one has the right to
build, plant, or sow thereon.[105]
 
The owner of the land on which anything has been built, sown or planted in good faith
shall have the right to appropriate as his own the building, planting or sowing, after payment to
the builder, planter or sower of the necessary and useful expenses,[106] and in the proper case,
expenses for pure luxury or mere pleasure.[107]
 
The owner of the land may also oblige the builder, planter or sower to purchase and pay
the price of the land.
 
If the owner chooses to sell his land, the builder, planter or sower must purchase the
land, otherwise the owner may remove the improvements thereon. The builder, planter or
sower, however, is not obliged to purchase the land if its value is considerably more than the
building, planting or sowing. In such case, the builder, planter or sower must pay rent to the
owner of the land.
 
If the parties cannot come to terms over the conditions of the lease, the court must fix the
terms thereof.
 
The right to choose between appropriating the improvement or selling the land on which
the improvement of the builder, planter or sower stands, is given to the owner of the land.[108]
 
On the other hand, when a person builds in bad faith on the land of another, Articles 449
and 450 govern:
  
Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is
built, planted or sown without right to indemnity.
 
Art. 450. The owner of the land on which anything has been built, planted or sown in bad
faith may demand the demolition of the work, or that the planting or sowing be removed, in order
to replace things in their former condition at the expense of the person who built, planted or
sowed; or he may compel the builder or planter to pay the price of the land, and the sower the
proper rent.
 
 
In the case at bar, it is undisputed that PLDT commenced construction of improvements
on the 1,000 hectare portion of the property immediately after the execution of the July 11,
1975 Agreement to Buy and Sell with the full consent of Carrascoso.[109] Thus, until March 15,
1977 when the Notice of Lis Pendens was annotated on Carrascosos TCT No. T-6055, PLDT is
deemed to have been in good faith in introducing improvements on the 1,000 hectare portion of
the property.
 
After March 15, 1977, however, PLDT could no longer invoke the rights of a builder in
good faith.
 
Should El Dorado then opt to appropriate the improvements made by PLDT on the 1,000
hectare portion of the property, it should only be made to pay for those improvements at the
time good faith existed on the part of PLDT or until March 15, 1977,[110] to be pegged at its
current fair market value.[111]
 
The commencement of PLDTs payment of reasonable rent should start on March 15,
1977 as well, to be paid until such time that the possession of the 1,000 hectare portion is
delivered to El Dorado, subject to the reimbursement of expenses as aforestated, that is, if El
Dorado opts to appropriate the improvements.[112]
 
If El Dorado opts for compulsory sale, however, the payment of rent should continue up
to the actual transfer of ownership.[113]
 
WHEREFORE, the petitions are DENIED. The Decision dated January 13, 1996 and
Resolution dated July 8, 2004 of the Court of Appeals
are AFFIRMED with MODIFICATION in that
 
1) the Regional Trial Court of San Jose, Occidental Mindoro, Branch 45 is further
directed to:
a. determine the present fair price of the 1,000 hectare portion of the property and the
amount of the expenses actually spent by PLDT for the improvements thereon as of March 15,
1977;
 
b. include for determination the increase in value (plus value) which the 1,000 hectare
portion may have acquired by reason of the existence of the improvements built by PLDT
before March 15, 1977 and the current fair market value of said improvements;
 
2. El Dorado is ordered to exercise its option under the law, whether to appropriate the
improvements, or to oblige PLDT to pay the price of the land, and
  
3) PLDT shall pay El Dorado the amount of Two Thousand Pesos (P2,000.00) per month
as reasonable compensation for its occupancy of the 1,000 hectare portion of the property from
the time that its good faith ceased to exist until such time that possession of the same is
delivered to El Dorado, subject to the reimbursement of the aforesaid expenses in favor of
PLDT or until such time that the payment of the purchase price of the 1,000 hectare portion is
made by PLDT in favor of El Dorado in case the latter opts for its compulsory sale.
 
Costs against petitioners.
 
SO ORDERED.
G.R. No. L-27587 February 18, 1970

AMADO CARUMBA, petitioner, 
vs.
THE COURT OF APPEALS, SANTIAGO BALBUENA and ANGELES BOAQUIÑA as Deputy Provincial
Sheriff, respondents.

Luis N. de Leon for petitioner.

Reno R. Gonzales for respondents.

REYES, J.B.L., J.:

Amado Carumba petitions this Supreme Court for a certiorari to review a decision of the Court of Appeals, rendered
in its Case No. 36094-R, that reversed the judgment in his favor rendered by the Court of First Instance of
Camarines Sur (Civil Case 4646).

The factual background and history of these proceedings is thus stated by the Court of Appeals (pages 1-2):

On April 12, 1955, the spouses Amado Canuto and Nemesia Ibasco, by virtue of a "Deed of Sale of
Unregistered Land with Covenants of Warranty" (Exh. A), sold a parcel of land, partly residential and
partly coconut land with a periphery (area) of 359.09 square meters, more or less, located in the
barrio of Santo Domingo, Iriga, Camarines Sur, to the spouses Amado Carumba and Benita Canuto,
for the sum of P350.00. The referred deed of sale was never registered in the Office of the Register
of Deeds of Camarines Sur, and the Notary, Mr. Vicente Malaya, was not then an authorized notary
public in the place, as shown by Exh. 5. Besides, it has been expressly admitted by appellee that he
is the brother-in-law of Amado Canuto, the alleged vendor of the property sold to him. Amado
Canuto is the older brother of the wife of the herein appellee, Amado Carumba.

On January 21, 1957, a complaint (Exh. B) for a sum or money was filed by Santiago Balbuena
against Amado Canuto and Nemesia Ibasco before the Justice of the Peace Court of Iriga,
Camarines Sur, known as Civil Case No. 139 and on April 15, 1967, a decision (Exh. C) was
rendered in favor of the plaintiff and against the defendants. On October 1, 1968, the ex-
officio Sheriff, Justo V. Imperial, of Camarines Sur, issued a "Definite Deed of Sale (Exh. D) of the
property now in question in favor of Santiago Balbuena, which instrument of sale was registered
before the Office of the Register of Deeds of Camarines Sur, on October 3, 1958. The aforesaid
property was declared for taxation purposes (Exh. 1) in the name of Santiago Balbuena in 1958.

The Court of First instance, finding that after execution of the document Carumba had taken possession of the land,
planting bananas, coffee and other vegetables thereon, declared him to be the owner of the property under a
consummated sale; held void the execution levy made by the sheriff, pursuant to a judgment against Carumba's
vendor, Amado Canuto; and nullified the sale in favor of the judgment creditor, Santiago Balbuena. The Court,
therefore, declared Carumba the owner of the litigated property and ordered Balbuena to pay P30.00, as damages,
plus the costs.

The Court of Appeals, without altering the findings of fact made by the court of origin, declared that there having
been a double sale of the land subject of the suit Balbuena's title was superior to that of his adversary under Article
1544 of the Civil Code of the Philippines, since the execution sale had been properly registered in good faith and the
sale to Carumba was not recorded.

We disagree. While under the invoked Article 1544 registration in good faith prevails over possession in the event of
a double sale by the vendor of the same piece of land to different vendees, said article is of no application to the
case at bar, even if Balbuena, the later vendee, was ignorant of the prior sale made by his judgment debtor in favor
of petitioner Carumba. The reason is that the purchaser of unregistered land at a sheriff's execution sale only steps
into the shoes of the judgment debtor, and merely acquires the latter's interest in the property sold as of the time the
property was levied upon. This is specifically provided by section 35 of Rule 39 of the Revised Rules of Court, the
second paragraph of said section specifically providing that:

Upon the execution and delivery of said (final) deed the purchaser, redemptioner, or his assignee
shall be substituted to and acquire all the right, title, interest, and claim of the judgment debtor to the
property as of the time of the levy, except as against the judgment debtor in possession, in which
case the substitution shall be effective as of the time of the deed ... (Emphasis supplied)
While the time of the levy does not clearly appear, it could not have been made prior to 15 April 1957, when the
decision against the former owners of the land was rendered in favor of Balbuena. But the deed of sale in favor of
Canuto had been executed two years before, on 12 April 1955, and while only embodied in a private document, the
same, coupled with the fact that the buyer (petitioner Carumba) had taken possession of the unregistered land sold,
sufficed to vest ownership on the said buyer. When the levy was made by the Sheriff, therefore, the judgment debtor
no longer had dominical interest nor any real right over the land that could pass to the purchaser at the execution
sale.1 Hence, the latter must yield the land to petitioner Carumba. The rule is different in case of lands covered by Torrens
titles, where the prior sale is neither recorded nor known to the execution purchaser prior to the levy; 2 but the land here in
question is admittedly not registered under Act No. 496.

WHEREFORE, the decision of the Court of Appeals is reversed and that of the Court of First Instance affirmed.
Costs against respondent Santiago Balbuena.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Teehankee, Barredo and Villamor, JJ.,
concur.

 
G.R. No. 76500               August 2, 1991

SPOUSES AQUILINO GATMAITAN & LILIA AYTON and SPOUSES EMILIANO DEALING and TEODORA
GATMAITAN, petitioners, 
vs.
THE COURT OF APPEALS, (FORMERLY IAC) and SPS. DONATO PASCUAL and ROSITA
CRISTOBAL,respondents.

Leopoldo O. Sta. Maria for petitioners.

Elison Natividad for private respondent.

FELICIANO, J.:

This is a Petition for Review of the Decision of the Court of Appeals in A.C. G.R. CV No. 05688 which affirmed the
decision of the trial court directing petitioner spouses Aquilino Gatmaitan and Lilia Ayton Gatmaitan to reconvey to
private respondent spouses Donato Pascual and Rosita Cristobal one-half (1/2) of Lot No. 758 embraced in
Transfer Certificate of Title ("TCT") No. 175077 and ordering the cancellation of the mortgage annotation on said
title.

Lot No. 758 located at Baliuag, Bulacan with an area of 623 square meters was originally registered (Original
Certificate of Title No. 12765) in the name of the deceased spouses Lorenzo Gatmaitan and Filomena Dela Cruz,
parents of petitioner Aquilino Gatmaitan and his sister, Emeteria Gatmaitan. On 2 December 1952, Aquilino and
Emeteria, for and in consideration of the sum of P300.00, executed in favor of respondents spouses Donato
Pascual and Rosita Cristobal Pascual (Pascual spouses) an extrajudicial partition and sale with a right to
repurchase covering Lot No. 758.  Thereafter, the Pascual spouses took possession of the property and introduced
1

improvements thereon.

On 4 August 1956, Aquilino and Emeteria again executed an extrajudicial partition adjudicating this time to Aquilino
and his wife petitioner Lilia Ayton the whole of Lot No. 758.  Consequently, Original Certificate of Title No. 12765
2

was cancelled and in lieu thereof, TCT No. 155759 was issued in the name of the spouses Aquilino and Lilia
Gatmaitan. 3

Sometime in January 1970, the Gatmaitan spouses executed in favor of the Pascual spouses an instrument entitled
"Bilihan Tuluyan Ng Lupa"  by which they absolutely conveyed to the latter spouses for a stated consideration of
4

P500.00, a one-half portion of Lot No. 758 consisting of about 331.5 square meters. While this instrument was
neither notarized nor registered, the Pascual spouses, in accordance with the contract, continued in possession of
the subject half of Lot No. 758.

Subsequently, on 17 January 1972, the Gatmaitan spouses by an instrument entitled "Kasulatan ng Bilihan"  sold to
5

petitioner spouses Emiliano Dealino and Teodora Gatmaitan ( Dealino spouses), who were neighbors of the
Pascual spouses in Sto. Cristo, Baliuag, Bulacan, the whole of Lot No. 758.  As a consequence of this sale, TCT
6

No. 155759 was cancelled and TCT No. 157176  was issued in the name of the Dealino spouses. This second sale
7

came to the knowledge of the Pascual spouses sometime in November 1972. Thus, on 8 November 1972, Donato
Pascual executed an Affidavit of Adverse Claim with respect to the one-half (1/2) portion of Lot No. 758 which had
earlier been sold by the spouses Gatmaitan to him and his wife.

On 23 November 1972, the Dealino spouses in an instrument entitled "Kasulatan ng Bilihang Patuluyan,"  conveyed
8

back to the Gatmaitan spouses the one-half (1/2) portion of Lot No. 758 which the Gatmaitan spouses had originally
sold to the Pascual spouses. The following day, the Gatmaitan spouses executed a Deed of Real Estate Mortgage
covering this same one- half (1/2) portion in favor of the Dealino spouses allegedly to secure an indebtedness of'
P1,000.00.

Hence, on 30 April 1973, the Pascual spouses filed a complaint for reconveyance of the one-half (1/2) portion of Lot
No. 758 against the spouses Aquilino and Lilia Gatmaitan and the spouses Emiliano and Teodora Dealino.

The trial court in its decision  dated 13 June 1982 held that the earlier sale of the one-half (1/2) portion of Lot No.
9

758 to the Pascual spouses prevailed over the later sale of the whole lot to the Dealino spouses as the latter should
be deemed to have had constructive notice of that earlier sale of the property, being neighbors of the Pascual
spouses, the actual possessors of one-half (1/2) of the subject Lot No. 758. Thus, registration of the sale in their
favor by the Dealino spouses had not effectively transferred to them the ownership of that one-half (1/2) portion of
said lot.

On appeal, the then Intermediate Appellate Court IAC on 17 April 1986  affirmed the decision of the trial court.
10

In the instant Petition for Review, petitioners (the Gatmaitan spouses and the Dealino spouses) allege that the IAC
should not have affirmed the trial court's decision ordering reconveyance of one-half (1/2) of Lot No. 758 to the
Pascual spouses since the whole property had not only been repurchased by the Gatmaitan spouses for P300.00
from the Pascual spouses, but had already been validly sold to the Dealino spouses who had registered the sale to
them in the Registry of Property. Petitioners also urge that the sale of the one-half (1/2) portion of that lot to the
Pascual spouses was not valid for lack of consideration.

Private respondents, upon the other hand, counter that although the deed of absolute sale executed in their favor by
the Gatmaitan spouses covering one-half (1/2) portion of Lot No. 758 was not registered, their actual possession of
the property was constructive notice to the Dealino spouses of that sale. Thus, the registration by the Dealino
spouses of the sale of the whole Lot No. 758 in their favor, being registrants in bad faith, was legally ineffective to
transfer ownership.

The issue to be resolved in this case is whether or not the registration of the sale of the whole property to the
second vendees Dealino spouses had the effect of transferring to them the ownership of the whole of Lot No. 758,
including the one-half (1/2) portion which had earlier been the subject of an absolute deed of sale executed by the
Gatmaitan spouses in favor of the Pascual spouses.

It is well settled, that if immovable property is sold to two (2) different parties, the ownership shall pertain to the
person acquiring it who, in good faith, first registered it in the Registry of Property. This rule however, admits of an
exception, and that is where the second purchaser had knowledge of the other sale, prior to or at the time of the
sale. In such case, his knowledge is equivalent to registration and maintains his purchase with bad faith.  The
11

applicable rule in this case would be that the ownership shall pertain to the person who, in good faith, first entered
into possession of the property or, in the absence of possession, to the person who presents the oldest title,
provided there is god faith. 12

It appears that in 1952, the whole of Lot No. 758 was sold by the heirs of the deceased spouses Lorenzo Gatmaitan
and Filomena De la Cruz to the Pascual spouses with the right to repurchase within two (2) years. The petitioner
Gatmaitan spouses to whom Lot No. 758 was finally adjudicated in 1956, however, were only able to pay to the
Pascual spouses an amount of P300.00 out of the repurchase price of P600.00.  Notwithstanding the failure to
13

redeem the property, the Pascual spouses did not consolidate formally the title of the property under their names.
Instead, the Gatmaitan spouses executed in favor of the Pascual spouses a Deed of Absolute Sale conveying to
them the one-half (1/2) portion of the subject lot.  This sale was not registered by the Pascual spouses; however,
14

they remained in possession of the one-half (1/2) portion of the lot.

In the meantime, on January 1970, the Gatmaitan spouses sold the whole of Lot No. 758 to the Dealino spouses,
neighbors of the Pascual spouses in Santo Cristo, Baliuag, Bulacan.  The Dealino spouses registered the property
15

in their names and were issued TCT No. 157176. Thus, there resulted two (2) sales with respect to the one-half
(1/2) portion which the Pascual spouses continued to possess.

As earlier noted, the trial court found that the Dealino spouses were buyers in bad faith in respect of the one-half
(1/2) portion of Lot No. 758 earlier sold by the Gatmaitan spouses to the Pascual spouses. It held that the Dealino
spouses should be considered to have had constructive notice of that earlier sale of the one-half (1/2) portion to the
Pascual spouses, since the latter were in actual possession of the property and as they were neighbors in Sto.
Cristo. The fundamental rule is that the factual conclusions and findings of the trial court are entitled to great weight
on appeal and should not be disturbed except for cogent and strong reasons.  Petitioners have failed to adduce any
16

sufficient ground to set aside the conclusions and findings of fact of the trial court which were affirmed by the
Intermediate Appellate Court.

The fact that the Pascual spouses were in possession of the subject property, ought to have put the Dealino
spouses on inquiry.  Before consenting to the sale themselves, they should have investigated the basis of the
1âwphi1

possession of the Pascual spouses. Since the Dealino spouses failed to exercise the ordinary care expected from a
buyer of real property, they must suffer the consequence of their negligence.  The decision of the IAC should be
17

upheld.

It is the contention of the Gatmaitan spouses that the second sale should prevail over the earlier one considering
that they had repurchased the property for P300.00 from the Pascual spouses before selling the same to the
Dealino spouses.

It appears that the receipt  issued by the Pascual spouses which the Gatmaitan spouses presented in evidence,
18

stated that the repurchase price was not P300.00 as alleged by the Gatmaitan spouses, but P600.00 since the
consideration was P500.00 plus the expenses for the preparation of the document amounting to P100.00. Thus, the
P300.00 paid by the Gatmaitan spouses to the Pascual spouses was only a partial payment of the whole
repurchase price. Having only repaid the amount of P300.00 instead of P600.00, as agreed upon, the Gatmaitan
spouses were without any right to repossess the whole of Lot No. 758. This being the case, the sale to the Dealino
spouses was valid only insofar as the other half portion is concerned.

The subsequent document executed by the Gatmaitan spouses in favor of the Pascual spouses sometime in
January 1970, confirms beyond doubt the intention of the former to repurchase not the whole lot but only half of it.
The "Bilihang Tuluyan ng Lupa," by which the Gatmaitan spouses conveyed in absolute sale a one-half (1/2) portion
of the lot to the Pascual spouses, in effect confirmed and "consolidated," as it were, the title of the Pascual spouses
over the other one-half (1/2) portion.

It is the position of the Gatmaitan spouses that the aforementioned "Bilihang Tuluyan ng Lupa" is not valid for lack of
consideration. There is, however, the presumption that an instrument sets out the true agreement of the parties
thereto and that it was executed for valuable consideration.  The Gatmaitan spouses failed to present any evidence
19

showing that this instrument was later on disregarded by both parties. Mere allegation is not evidence; the
presumption of the validity of the "Bilihang Tuluyan ng Lupa" was not overturned.

WHEREFORE, premises considered, the Petition for Review is hereby DENIED for lack of merit and the Decision of
the Intermediate Appellate Court dated 17 April 1986 is hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.
G.R. No. L-29972 January 26, 1976

ROSARIO CARBONELL, petitioner, 
vs.
HONORABLE COURT OF APPEALS, JOSE PONCIO, EMMA INFANTE and RAMON INFANTE, respondents.

MAKASIAR, J.

Petitioner seeks a review of the resolution of the Court of Appeals (Special Division of Five) dated October 30, 1968,
reversing its decision of November 2, 1967 (Fifth Division), and its resolution of December 6, 1968 denying
petitioner's motion for reconsideration.

The dispositive part of the challenged resolution reads:

Wherefore, the motion for reconsideration filed on behalf of appellee Emma Infante, is hereby
granted and the decision of November 2, 1967, is hereby annulled and set aside. Another judgement
shall be entered affirming in toto that of the court a quo, dated January 20, 1965, which dismisses
the plaintiff's complaint and defendant's counterclaim.

Without costs.

The facts of the case as follows:

Prior to January 27, 1955, respondent Jose Poncio, a native of the Batanes Islands, was the owner of the parcel of
land herein involve with improvements situated at 179 V. Agan St., San Juan, Rizal, having an area of some one
hundred ninety-five (195) square meters, more or less, covered by TCT No. 5040 and subject to mortgage in favor
of the Republic Savings Bank for the sum of P1,500.00. Petitioner Rosario Carbonell, a cousin and adjacent
neighbor of respondent Poncio, and also from the Batanes Islands, lived in the adjoining lot at 177 V. Agan Street.

Both petitioners Rosario Carbonell and respondent Emma Infante offered to buy the said lot from Poncio (Poncio's
Answer, p. 38, rec. on appeal).

Respondent Poncio, unable to keep up with the installments due on the mortgage, approached petitioner one day
and offered to sell to the latter the said lot, excluding the house wherein respondent lived. Petitioner accepted the
offer and proposed the price of P9.50 per square meter. Respondent Poncio, after having secured the consent of
his wife and parents, accepted the price proposed by petitioner, on the condition that from the purchase price would
come the money to be paid to the bank.

Petitioner and respondent Jose Poncio then went to the Republic Savings Bank and secured the consent of the
President thereof for her to pay the arrears on the mortgage and to continue the payment of the installments as they
fall due. The amount in arrears reached a total sum of P247.26. But because respondent Poncio had previously told
her that the money, needed was only P200.00, only the latter amount was brought by petitioner constraining
respondent Jose Poncio to withdraw the sum of P47.00 from his bank deposit with Republic Savings Bank. But the
next day, petitioner refunded to Poncio the sum of P47.00.

On January 27, 1955, petitioner and respondent Poncio, in the presence of a witness, made and executed a
document in the Batanes dialect, which, translated into English, reads:

CONTRACT FOR ONE HALF LOT WHICH I BOUGHT FROM

JOSE PONCIO

Beginning today January 27, 1955, Jose Poncio can start living on the lot sold by him to me, Rosario
Carbonell, until after one year during which time he will not pa anything. Then if after said one can
he could not find an place where to move his house, he could still continue occupying the site but he
should pay a rent that man, be agreed.

(Sgd) JOSE PONCIO 

(Sgd.) ROSARIO
 CARBONELL 
(Sgd) CONSTANCIO
MEONADA 
Witness

(Pp. 6-7 rec. on appeal).

Thereafter, petitioner asked Atty. Salvador Reyes, also from the Batanes Islands, to prepare the formal deed of sale,
which she brought to respondent Poncio together with the amount of some P400.00, the balance she still had to pay
in addition to her assuming the mortgaged obligation to Republic Savings Bank.

Upon arriving at respondent Jose Poncio's house, however, the latter told petitioner that he could not proceed any
more with the sale, because he had already given the lot to respondent Emma Infants; and that he could not
withdraw from his deal with respondent Mrs. Infante, even if he were to go to jail. Petitioner then sought to contact
respondent Mrs. Infante but the latter refused to see her.

On February 5, 1955, petitioner saw Emma Infante erecting a all around the lot with a gate.

Petitioner then consulted Atty. Jose Garcia, who advised her to present an adverse claim over the land in question
with the Office of the Register of Deeds of Rizal. Atty. Garcia actually sent a letter of inquiry to the Register of Deeds
and demand letters to private respondents Jose Poncio and Emma Infante.

In his answer to the complaint Poncio admitted "that on January 30, 1955, Mrs. Infante improved her offer and he
agreed to sell the land and its improvements to her for P3,535.00" (pp. 38-40, ROA).

In a private memorandum agreement dated January 31, 1955, respondent Poncio indeed bound himself to sell to
his corespondent Emma Infante, the property for the sum of P2,357.52, with respondent Emma Infante still
assuming the existing mortgage debt in favor of Republic Savings Bank in the amount of P1,177.48. Emma Infante
lives just behind the houses of Poncio and Rosario Carbonell.

On February 2, 1955, respondent Jose Poncio executed the formal deed of sale in favor of respondent Mrs. Infante
in the total sum of P3,554.00 and on the same date, the latter paid Republic Savings Bank the mortgage
indebtedness of P1,500.00. The mortgage on the lot was eventually discharged.

Informed that the sale in favor of respondent Emma Infante had not yet been registered, Atty. Garcia prepared an
adverse claim for petitioner, who signed and swore to an registered the same on February 8, 1955.

The deed of sale in favor of respondent Mrs. Infante was registered only on February 12, 1955. As a consequence
thereof, a Transfer Certificate of Title was issued to her but with the annotation of the adverse claim of petitioner
Rosario Carbonell.

Respondent Emma Infante took immediate possession of the lot involved, covered the same with 500 cubic meters
of garden soil and built therein a wall and gate, spending the sum of P1,500.00. She further contracted the services
of an architect to build a house; but the construction of the same started only in 1959 — years after the litigation
actually began and during its pendency. Respondent Mrs. Infante spent for the house the total amount of
P11,929.00.

On June 1, 1955, petitioner Rosario Carbonell, thru counsel, filed a second amended complaint against private
respondents, praying that she be declared the lawful owner of the questioned parcel of land; that the subsequent
sale to respondents Ramon R. Infante and Emma L. Infante be declared null and void, and that respondent Jose
Poncio be ordered to execute the corresponding deed of conveyance of said land in her favor and for damages and
attorney's fees (pp. 1-7, rec. on appeal in the C.A.).

Respondents first moved to dismiss the complaint on the ground, among others, that petitioner's claim is
unenforceable under the Statute of Frauds, the alleged sale in her favor not being evidenced by a written document
(pp. 7-13, rec. on appeal in the C.A.); and when said motion was denied without prejudice to passing on the
question raised therein when the case would be tried on the merits (p. 17, ROA in the C.A.), respondents filed
separate answers, reiterating the grounds of their motion to dismiss (pp. 18-23, ROA in the C.A.).

During the trial, when petitioner started presenting evidence of the sale of the land in question to her by respondent
Poncio, part of which evidence was the agreement written in the Batanes dialect aforementioned, respondent
Infantes objected to the presentation by petitioner of parole evidence to prove the alleged sale between her and
respondent Poncio. In its order of April 26, 1966, the trial court sustained the objection and dismissed the complaint
on the ground that the memorandum presented by petitioner to prove said sale does not satisfy the requirements of
the law (pp. 31-35, ROA in the C.A.).

From the above order of dismissal, petitioner appealed to the Supreme Court (G.R. No. L-11231) which ruled in a
decision dated May 12, 1958, that the Statute of Frauds, being applicable only to executory contracts, does not
apply to the alleged sale between petitioner and respondent Poncio, which petitioner claimed to have been partially
performed, so that petitioner is entitled to establish by parole evidence "the truth of this allegation, as well as the
contract itself." The order appealed from was thus reversed, and the case remanded to the court a quo for further
proceedings (pp. 26-49, ROA in the C.A.).

After trial in the court a quo; a decision was, rendered on December 5, 1962, declaring the second sale by
respondent Jose Poncio to his co-respondents Ramon Infante and Emma Infante of the land in question null and
void and ordering respondent Poncio to execute the proper deed of conveyance of said land in favor of petitioner
after compliance by the latter of her covenants under her agreement with respondent Poncio (pp. 5056, ROA in the
C.A.).

On January 23, 1963, respondent Infantes, through another counsel, filed a motion for re-trial to adduce evidence
for the proper implementation of the court's decision in case it would be affirmed on appeal (pp. 56-60, ROA in the
C.A.), which motion was opposed by petitioner for being premature (pp. 61-64, ROA in the C.A.). Before their motion
for re-trial could be resolved, respondent Infantes, this time through their former counsel, filed another motion for
new trial, claiming that the decision of the trial court is contrary to the evidence and the law (pp. 64-78, ROA in the
C.A.), which motion was also opposed by petitioner (pp. 78-89, ROA in the C.A.).

The trial court granted a new trial (pp. 89-90, ROA in the C.A.), at which re-hearing only the respondents introduced
additional evidence consisting principally of the cost of improvements they introduced on the land in question (p. 9,
ROA in the C.A.).

After the re-hearing, the trial court rendered a decision, reversing its decision of December 5, 1962 on the ground
that the claim of the respondents was superior to the claim of petitioner, and dismissing the complaint (pp. 91-95,
ROA in the C.A.), From this decision, petitioner Rosario Carbonell appealed to the respondent Court of Appeals (p.
96, ROA in the C.A.).

On November 2, 1967, the Court of Appeals (Fifth Division composed of Justices Magno Gatmaitan, Salvador V.
Esguerra and Angle H. Mojica, speaking through Justice Magno Gatmaitan), rendered judgment reversing the
decision of the trial court, declaring petitioner therein, to have a superior right to the land in question, and
condemning the defendant Infantes to reconvey to petitioner after her reimbursement to them of the sum of
P3,000.00 plus legal interest, the land in question and all its improvements (Appendix "A" of Petition).

Respondent Infantes sought reconsideration of said decision and acting on the motion for reconsideration, the
Appellate Court, three Justices (Villamor, Esguerra and Nolasco) of Special Division of Five, granted said motion,
annulled and set aside its decision of November 2, 1967, and entered another judgment affirming in toto the
decision of the court a quo, with Justices Gatmaitan and Rodriguez dissenting (Appendix "B" of Petition).

Petitioner Rosario Carbonell moved to reconsider the Resolution of the Special Division of Five, which motion was
denied by Minute Resolution of December 6, 1968 (but with Justices Rodriguez and Gatmaitan voting for
reconsideration) [Appendix "C" of Petition].

Hence, this appeal by certiorari.

Article 1544, New Civil Code, which is decisive of this case, recites:

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

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

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

It is essential that the buyer of realty must act in good faith in registering his deed of sale to merit the protection of
the second paragraph of said Article 1544.

Unlike the first and third paragraphs of said Article 1544, which accord preference to the one who first takes
possession in good faith of personal or real property, the second paragraph directs that ownership of immovable
property should be recognized in favor of one "who in good faith first recorded" his right. Under the first and third
paragraph, good faith must characterize the act of anterior registration (DBP vs. Mangawang, et al., 11 SCRA 405;
Soriano, et al. vs. Magale, et al., 8 SCRA 489).

If there is no inscription, what is decisive is prior possession in good faith. If there is inscription, as in the case at bar,
prior registration in good faith is a pre-condition to superior title.
When Carbonell bought the lot from Poncio on January 27, 1955, she was the only buyer thereof and the title of
Poncio was still in his name solely encumbered by bank mortgage duly annotated thereon. Carbonell was not aware
— and she could not have been aware — of any sale of Infante as there was no such sale to Infante then. Hence,
Carbonell's prior purchase of the land was made in good faith. Her good faith subsisted and continued to exist when
she recorded her adverse claim four (4) days prior to the registration of Infantes's deed of sale. Carbonell's good
faith did not cease after Poncio told her on January 31, 1955 of his second sale of the same lot to Infante. Because
of that information, Carbonell wanted an audience with Infante, which desire underscores Carbonell's good faith.
With an aristocratic disdain unworthy of the good breeding of a good Christian and good neighbor, Infante snubbed
Carbonell like a leper and refused to see her. So Carbonell did the next best thing to protect her right — she
registered her adversed claim on February 8, 1955. Under the circumstances, this recording of her adverse claim
should be deemed to have been done in good faith and should emphasize Infante's bad faith when she registered
her deed of sale four (4) days later on February 12, 1955.

Bad faith arising from previous knowledge by Infante of the prior sale to Carbonell is shown by the following facts,
the vital significance and evidenciary effect of which the respondent Court of Appeals either overlooked of failed to
appreciate:

(1) Mrs. Infante refused to see Carbonell, who wanted to see Infante after she was informed by Poncio that he sold
the lot to Infante but several days before Infante registered her deed of sale. This indicates that Infante knew —
from Poncio and from the bank — of the prior sale of the lot by Poncio to Carbonell. Ordinarily, one will not refuse to
see a neighbor. Infante lives just behind the house of Carbonell. Her refusal to talk to Carbonell could only mean
that she did not want to listen to Carbonell's story that she (Carbonell) had previously bought the lot from Poncio.

(2) Carbonell was already in possession of the mortgage passbook [not Poncio's saving deposit passbook — Exhibit
"1" — Infantes] and Poncio's copy of the mortgage contract, when Poncio sold the lot Carbonell who, after paying
the arrearages of Poncio, assumed the balance of his mortgaged indebtedness to the bank, which in the normal
course of business must have necessarily informed Infante about the said assumption by Carbonell of the mortgage
indebtedness of Poncio. Before or upon paying in full the mortgage indebtedness of Poncio to the Bank. Infante
naturally must have demanded from Poncio the delivery to her of his mortgage passbook as well as Poncio's
mortgage contract so that the fact of full payment of his bank mortgage will be entered therein; and Poncio, as well
as the bank, must have inevitably informed her that said mortgage passbook could not be given to her because it
was already delivered to Carbonell.

If Poncio was still in possession of the mortgage passbook and his copy of the mortgage contract at the time he
executed a deed of sale in favor of the Infantes and when the Infantes redeemed his mortgage indebtedness from
the bank, Poncio would have surrendered his mortgage passbook and his copy of the mortgage contract to the
Infantes, who could have presented the same as exhibits during the trial, in much the same way that the Infantes
were able to present as evidence Exhibit "1" — Infantes, Poncio's savings deposit passbook, of which Poncio
necessarily remained in possession as the said deposit passbook was never involved in the contract of sale with
assumption of mortgage. Said savings deposit passbook merely proves that Poncio had to withdraw P47.26, which
amount was tided to the sum of P200.00 paid by Carbonell for Poncio's amortization arrearages in favor of the bank
on January 27, 1955; because Carbonell on that day brought with her only P200.00, as Poncio told her that was the
amount of his arrearages to the bank. But the next day Carbonell refunded to Poncio the sum of P47.26.

(3) The fact that Poncio was no longer in possession of his mortgage passbook and that the said mortgage
passbook was already in possession of Carbonell, should have compelled Infante to inquire from Poncio why he
was no longer in possession of the mortgage passbook and from Carbonell why she was in possession of the same
(Paglago, et. al vs. Jara et al 22 SCRA 1247, 1252-1253). The only plausible and logical reason why Infante did not
bother anymore to make such injury , w because in the ordinary course of business the bank must have told her that
Poncio already sold the lot to Carbonell who thereby assumed the mortgage indebtedness of Poncio and to whom
Poncio delivered his mortgage passbook. Hoping to give a semblance of truth to her pretended good faith, Infante
snubbed Carbonell's request to talk to her about the prior sale to her b Poncio of the lot. As aforestated, this is not
the attitude expected of a good neighbor imbued with Christian charity and good will as well as a clear conscience.

(4) Carbonell registered on February 8, 1955 her adverse claim, which was accordingly annotated on Poncio's title,
four [4] days before Infante registered on February 12, 1955 her deed of sale executed on February 2, 1955. Here
she was again on notice of the prior sale to Carbonell. Such registration of adverse claim is valid and effective
(Jovellanos vs. Dimalanta, L-11736-37, Jan. 30, 1959, 105 Phil. 1250-51).

(5) In his answer to the complaint filed by Poncio, as defendant in the Court of First Instance, he alleged that both
Mrs. Infante and Mrs. Carbonell offered to buy the lot at P15.00 per square meter, which offers he rejected as he
believed that his lot is worth at least P20.00 per square meter. It is therefore logical to presume that Infante was told
by Poncio and consequently knew of the offer of Carbonell which fact likewise should have put her on her guard and
should have compelled her to inquire from Poncio whether or not he had already sold the property to Carbonell.

As recounted by Chief Justice Roberto Concepcion, then Associate Justice, in the preceding case of Rosario
Carbonell vs. Jose Poncio, Ramon Infante and Emma Infante (1-11231, May 12, 1958), Poncio alleged in his
answer:
 ... that he had consistently turned down several offers, made by plaintiff, to buy the land in question,
at P15 a square meter, for he believes that it is worth not less than P20 a square meter; that Mrs.
Infante, likewise, tried to buy the land at P15 a square meter; that, on or about January 27, 1955,
Poncio was advised by plaintiff that should she decide to buy the property at P20 a square meter,
she would allow him to remain in the property for one year; that plaintiff then induced Poncio to sign
a document, copy of which if probably the one appended to the second amended complaint; that
Poncio signed it 'relying upon the statement of the plaintiff that the document was a permit for him to
remain in the premises in the event defendant decided to sell the property to the plaintiff at P20.00 a
square meter'; that on January 30, 1955, Mrs. Infante improved her offer and agreed to sell the land
and its improvement to her for P3,535.00; that Poncio has not lost 'his mind,' to sell his property,
worth at least P4,000, for the paltry sum P1,177.48, the amount of his obligation to the Republic
Saving s Bank; and that plaintiff's action is barred by the Statute of Frauds. ... (pp. 38-40, ROA,
emphasis supplied).

II

EXISTENCE OF THE PRIOR SALE TO CARBONELL

DULY ESTABLISHED

(1) In his order dated April 26, 1956 dismissing the complaint on the ground that the private document Exhibit "A"
executed by Poncio and Carbonell and witnessed by Constancio Meonada captioned "Contract for One-half Lot
which I Bought from Jose Poncio," was not such a memorandum in writing within the purview of the Statute of
Frauds, the trial judge himself recognized the fact of the prior sale to Carbonell when he stated that "the
memorandum in question merely states that Poncio is allowed to stay in the property which he had sold to the
plaintiff. There is no mention of the reconsideration, a description of the property and such other essential elements
of the contract of sale. There is nothing in the memorandum which would tend to show even in the slightest manner
that it was intended to be an evidence of contract sale. On the contrary, from the terms of the memorandum, it tends
to show that the sale of the property in favor of the plaintiff is already an accomplished act. By the very contents of
the memorandum itself, it cannot therefore, be considered to be the memorandum which would show that a sale has
been made by Poncio in favor of the plaintiff" (p. 33, ROA, emphasis supplied). As found by the trial court, to repeat
the said memorandum states "that Poncio is allowed to stay in the property which he had sold to the plaintiff ..., it
tends to show that the sale of the property in favor of the plaintiff is already an accomplished act..."

(2) When the said order was appealed to the Supreme Court by Carbonell in the previous case of Rosario Carbonell
vs. Jose Poncio, Ramon Infante and Emma Infante 
(L-11231, supra), Chief Justice Roberto Concepcion, then Associate Justice, speaking for a unanimous Court,
reversed the aforesaid order of the trial court dismissing the complaint, holding that because the complaint alleges
and the plaintiff claims that the contract of sale was partly performed, the same is removed from the application of
the Statute of Frauds and Carbonell should be allowed to establish by parol evidence the truth of her allegation of
partial performance of the contract of sale, and further stated:

Apart from the foregoing, there are in the case at bar several circumstances indicating that plaintiff's
claim might not be entirely devoid of factual basis. Thus, for instance, Poncio admitted in his answer
that plaintiff had offered several times to purchase his land.

Again, there is Exhibit A, a document signed by the defendant. It is in the Batanes dialect, which,
according to plaintiff's uncontradicted evidence, is the one spoken by Poncio, he being a native of
said region. Exhibit A states that Poncio would stay in the land sold by him to plaintiff for one year,
from January 27, 1955, free of charge, and that, if he cannot find a place where to transfer his house
thereon, he may remain upon. Incidentally, the allegation in Poncio's answer to the effect that he
signed Exhibit A under the belief that it "was a permit for him to remain in the premises in the" that
"he decided to sell the property" to the plaintiff at P20 a sq. m." is, on its face, somewhat difficult to
believe. Indeed, if he had not decided as yet to sell the land to plaintiff, who had never increased her
offer of P15 a square meter, there was no reason for Poncio to get said permit from her. Upon the
other hand, if plaintiff intended to mislead Poncio, she would have caused Exhibit A to be drafted,
probably, in English , instead of taking the trouble of seeing to it that it was written precisely in his
native dialect, the Batanes. Moreover, Poncio's signature on Exhibit A suggests that he is neither
illiterate nor so ignorant as to sign document without reading its contents, apart from the fact that
Meonada had read Exhibit A to him and given him a copy thereof, before he signed thereon,
according to Meonada's uncontradicted testimony.

Then, also, defendants say in their brief:

The only allegation in plaintiff's complaint that bears any relation to her claim that
there has been partial performance of the supposed contract of sale, is the notation
of the sum of P247.26 in the bank book of defendant Jose Poncio. The noting or
jotting down of the sum of P247.26 in the bank book of Jose Poncio does not prove
the fact that the said amount was the purchase price of the property in question. For
all we knew, the sum of P247.26 which plaintiff claims to have paid to the Republic
Savings Bank for the account of the defendant, assuming that the money paid to the
 Republic Savings Bank came from the plaintiff, was the result of some usurious loan
or accomodation, rather than earnest money or part payment of the land. Neither is it
competent or satisfactory evidence to prove the conveyance of the land in question
the fact that the bank book account of Jose Poncio happens to be in the possession
of the plaintiff. (Defendants-Appellees' brief, pp. 25-26).

How shall We know why Poncio's bank deposit book is in plaintiffs possession, or whether there is
any relation between the P247.26 entry therein and the partial payment of P247.26 allegedly made
by plaintiff to Poncio on account of the price of his land, if we do not allow the plaintiff to explain it on
the witness stand? Without expressing any opinion on the merits of plaintiff's claim, it is clear,
therefore, that she is entitled , legally as well as from the viewpoint of equity, to an opportunity to
introduce parol evidence in support of the allegations of her second amended complaint. (pp. 46-49,
ROA, emphasis supplied).

(3) In his first decision of December 5, 1962 declaring null and void the sale in favor of the Infantes and ordering
Poncio to execute a deed of conveyance in favor of Carbonell, the trial judge found:

... A careful consideration of the contents of Exh. 'A' show to the satisfaction of the court that the
sale of the parcel of land in question by the defendant Poncio in favor of the plaintiff was covered
therein and that the said Exh. "a' was also executed to allow the defendant to continue staying in the
premises for the stated period. It will be noted that Exh. 'A' refers to a lot 'sold by him to me' and
having been written originally in a dialect well understood by the defendant Poncio, he signed the
said Exh. 'A' with a full knowledge and consciousness of the terms and consequences thereof. This
therefore, corroborates the testimony of the plaintiff Carbonell that the sale of the land was made by
Poncio. It is further pointed out that there was a partial performance of the verbal sale executed by
Poncio in favor of the plaintiff, when the latter paid P247.26 to the Republic Savings Bank on
account of Poncio's mortgage indebtedness. Finally, the possession by the plaintiff of the defendant
Poncio's passbook of the Republic Savings Bank also adds credibility to her testimony. The
defendant contends on the other hand that the testimony of the plaintiff, as well as her witnesses,
regarding the sale of the land made by Poncio in favor of the plaintiff is inadmissible under the
provision of the Statute of Fraud based on the argument that the note Exh. "A" is not the note or
memorandum referred to in the to in the Statute of Fraud. The defendants argue that Exh. "A" fails to
comply with the requirements of the Statute of Fraud to qualify it as the note or memorandum
referred to therein and open the way for the presentation of parole evidence to prove the fact
contained in the note or memorandum. The defendant argues that there is even no description of
the lot referred to in the note, especially when the note refers to only one half lot. With respect to the
latter argument of the Exhibit 'A', the court has arrived at the conclusion that there is a sufficient
description of the lot referred to in Exh. 'A' as none other than the parcel of land occupied by the
defendant Poncio and where he has his improvements erected. The Identity of the parcel of land
involved herein is sufficiently established by the contents of the note Exh. "A". For a while, this court
had that similar impression but after a more and thorough consideration of the context in Exh. 'A' and
for the reasons stated above, the Court has arrived at the conclusion stated earlier (pp. 52-54, ROA,
emphasis supplied).

(4) After re-trial on motion of the Infantes, the trial Judge rendered on January 20, 1965 another decision dismissing
the complaint, although he found

1. That on January 27, 1955, the plaintiff purchased from the defendant Poncio a parcel of land with
an area of 195 square meters, more or less, covered by TCT No. 5040 of the Province of Rizal,
located at San Juan del Monte, Rizal, for the price of P6.50 per square meter;

2. That the purchase made by the plaintiff was not reduced to writing except for a short note or
memorandum Exh. A, which also recited that the defendant Poncio would be allowed to continue his
stay in the premises, among other things, ... (pp. 91-92, ROA, emphasis supplied).

From such factual findings, the trial Judge confirms the due execution of Exhibit "A", only that his legal conclusion is
that it is not sufficient to transfer ownership (pp. 93-94, ROA).

(5) In the first decision of November 2, 1967 of the Fifth Division of the Court of Appeals composed of Justices
Esguerra (now Associate Justice of the Supreme Court), Gatmaitan and Mojica, penned by Justice Gatmaitan, the
Court of Appeals found that:

... the testimony of Rosario Carbonell not having at all been attempted to be disproved by
defendants, particularly Jose Poncio, and corroborated as it is by the private document in Batanes
dialect, Exhibit A, the testimony being to the effect that between herself and Jose there had been
celebrated a sale of the property excluding the house for the price of P9.50 per square meter, so
much so that on faith of that, Rosario had advanced the sum of P247.26 and binding herself to pay
unto Jose the balance of the purchase price after deducting the indebtedness to the Bank and since
the wording of Exhibit A, the private document goes so far as to describe their transaction as one of
 sale, already consummated between them, note the part tense used in the phrase, "the lot sold by
him to me" and going so far even as to state that from that day onwards, vendor would continue to
live therein, for one year, 'during which time he will not pay anything' this can only mean that
between Rosario and Jose, there had been a true contract of sale, consummated by delivery
constitutum possession, Art. 1500, New Civil Code;vendor's possession having become converted
from then on, as a mere tenant of vendee, with the special privilege of not paying rental for one year,
— it is true that the sale by Jose Poncio to Rosario Carbonell corroborated documentarily only by
Exhibit A could not have been registered at all, but it was a valid contract nonetheless, since under
our law, a contract sale is consensual, perfected by mere consent, Couto v. Cortes, 8 Phil 459, so
much so that under the New Civil Code, while a sale of an immovable is ordered to be reduced to a
public document, Art. 1358, that mandate does not render an oral sale of realty invalid, but merely
incapable of proof, where still executory and action is brought and resisted for its performance, 1403,
par. 2, 3; but where already wholly or partly executed or where even if not yet, it is evidenced by a
memorandum, in any case where evidence to further demonstrate is presented and admitted as the
case was here, then the oral sale becomes perfectly good, and becomes a good cause of action not
only to reduce it to the form of a public document, but even to enforce the contract in its entirety, Art.
1357; and thus it is that what we now have is a case wherein on the one hand Rosario Carbonell
has proved that she had an anterior sale, celebrated in her favor on 27 January, 1955, Exhibit
A, annotated as an adverse claim on 8 February, 1955, and on other, a sale is due form in favor of
Emma L. Infante on 2 February, 1955, Exhibit 3-Infante, and registered in due form with title unto her
issued on 12 February, 1955; the vital question must now come on which of these two sales should
prevail; ... (pp. 74-76, rec., emphasis supplied).

(6) In the resolution dated October 30, 1968 penned by then Court of Appeals Justice Esguerra (now a member of
this Court), concurred in by Justices Villamor and Nolasco, constituting the majority of a Special Division of Five, the
Court of Appeals, upon motion of the Infantes, while reversing the decision of November 2, 1967 and affirming the
decision of the trial court of January 20, 1965 dismissing plaintiff's complaint, admitted the existence and
genuineness of Exhibit "A", the private memorandum dated January 27, 1955, although it did not consider the same
as satisfying "the essential elements of a contract of sale," because it "neither specifically describes the property
and its boundaries, nor mention its certificate of title number, nor states the price certain to be paid, or contrary to
the express mandate of Articles 1458 and 1475 of the Civil Code.

(7) In his dissent concurred in by Justice Rodriguez, Justice Gatmaitan maintains his decision of November 2, 1967
as well as his findings of facts therein, and reiterated that the private memorandum Exhibit "A", is a perfected sale,
as a sale is consensual and consummated by mere consent, and is binding on and effective between the parties.
This statement of the principle is correct [pp. 89-92, rec.].

III

ADEQUATE CONSIDERATION OR PRICE FOR THE SALE 

IN FAVOR OF CARBONELL

It should be emphasized that the mortgage on the lot was about to be foreclosed by the bank for failure on the part
of Poncio to pay the amortizations thereon. To forestall the foreclosure and at the same time to realize some money
from his mortgaged lot, Poncio agreed to sell the same to Carbonell at P9.50 per square meter, on condition that
Carbonell [1] should pay (a) the amount of P400.00 to Poncio and 9b) the arrears in the amount of P247.26 to the
bank; and [2] should assume his mortgage indebtedness. The bank president agreed to the said sale with
assumption of mortgage in favor of Carbonell an Carbonell accordingly paid the arrears of P247.26. On January 27,
1955, she paid the amount of P200.00 to the bank because that was the amount that Poncio told her as his
arrearages and Poncio advanced the sum of P47.26, which amount was refunded to him by Carbonell the following
day. This conveyance was confirmed that same day, January 27, 1955, by the private document, Exhibit "A", which
was prepared in the Batanes dialect by the witness Constancio Meonada, who is also from Batanes like Poncio and
Carbonell.

The sale did not include Poncio's house on the lot. And Poncio was given the right to continue staying on the land
without paying any rental for one year, after which he should pay rent if he could not still find a place to transfer his
house. All these terms are part of the consideration of the sale to Carbonell.

It is evident therefore that there was ample consideration, and not merely the sum of P200.00, for the sale of Poncio
to Carbonell of the lot in question.

But Poncio, induced by the higher price offered to him by Infante, reneged on his commitment to Carbonell and told
Carbonell, who confronted him about it, that he would not withdraw from his deal with Infante even if he is sent to jail
The victim, therefore, "of injustice and outrage is the widow Carbonell and not the Infantes, who without moral
compunction exploited the greed and treacherous nature of Poncio, who, for love of money and without remorse of
conscience, dishonored his own plighted word to Carbonell, his own cousin.

Inevitably evident therefore from the foregoing discussion, is the bad faith of Emma Infante from the time she
enticed Poncio to dishonor his contract with Carbonell, and instead to sell the lot to her (Infante) by offering Poncio a
much higher price than the price for which he sold the same to Carbonell. Being guilty of bad faith, both in taking
physical possession of the lot and in recording their deed of sale, the Infantes cannot recover the value of the
improvements they introduced in the lot. And after the filing by Carbonell of the complaint in June, 1955, the Infantes
had less justification to erect a building thereon since their title to said lot is seriously disputed by Carbonell on the
basis of a prior sale to her.

With respect to the claim of Poncio that he signed the document Exhibit "A" under the belief that it was a permit for
him to remain in the premises in ease he decides to sell the property to Carbonell at P20.00 per square meter, the
observation of the Supreme Court through Mr. Chief Justice Concepcion in G.R. No. L-11231, supra, bears
repeating:

... Incidentally, the allegation in Poncio's answer to the effect that he signed Exhibit A under the
belief that it 'was a permit for him to remain in the premises in the event that 'he decided to sell the
property' to the plaintiff at P20.00 a sq. m is, on its face, somewhat difficult to believe. Indeed, if he
had not decided as yet to sell that land to plaintiff, who had never increased her offer of P15 a
square meter, there as no reason for Poncio to get said permit from her. Upon the they if plaintiff
intended to mislead Poncio, she would have Exhibit A to be drafted, probably, in English, instead of
taking the trouble of seeing to it that it was written precisely in his native dialect, the Batanes.
Moreover, Poncio's signature on Exhibit A suggests that he is neither illiterate nor so ignorant as to
sign a document without reading its contents, apart from the fact that Meonada had read Exhibit A to
him-and given him a copy thereof, before he signed thereon, according to Meonada's uncontradicted
testimony. (pp. 46-47, ROA).

As stressed by Justice Gatmaitan in his first decision of November 2, 1965, which he reiterated in his dissent from
the resolution of the majority of the Special Division. of Five on October 30, 1968, Exhibit A, the private document in
the Batanes dialect, is a valid contract of sale between the parties, since sale is a consensual contract and is
perfected by mere consent (Couto vs. Cortes, 8 Phil. 459). Even an oral contract of realty is all between the parties
and accords to the vendee the right to compel the vendor to execute the proper public document As a matter of fact,
Exhibit A, while merely a private document, can be fully or partially performed, to it from the operation of the statute
of frauds. Being a all consensual contract, Exhibit A effectively transferred the possession of the lot to the vendee
Carbonell by constitutum possessorium (Article 1500, New Civil Code); because thereunder the vendor Poncio
continued to retain physical possession of the lot as tenant of the vendee and no longer as knew thereof. More than
just the signing of Exhibit A by Poncio and Carbonell with Constancio Meonada as witness to fact the contract of
sale, the transition was further confirmed when Poncio agreed to the actual payment by at Carbonell of his
mortgage arrearages to the bank on January 27, 1955 and by his consequent delivery of his own mortgage
passbook to Carbonell. If he remained owner and mortgagor, Poncio would not have surrendered his mortgage
passbook to' Carbonell.

IV

IDENTIFICATION AND DESCRIPTION OF THE DISPUTED LOT IN THE MEMORANDUM EXHIBIT "A"

The claim that the memorandum Exhibit "A" does not sufficiently describe the disputed lot as the subject matter of
the sale, was correctly disposed of in the first decision of the trial court of December 5, 1962, thus: "The defendant
argues that there is even no description of the lot referred to in the note (or memorandum), especially when the note
refers to only one-half lot. With respect to the latter argument of the defendant, plaintiff points out that one- half lot
was mentioned in Exhibit 'A' because the original description carried in the title states that it was formerly part of a
bigger lot and only segregated later. The explanation is tenable, in (sic) considering the time value of the contents of
Exh. 'A', the court has arrived at the conclusion that there is sufficient description of the lot referred to in Exh. As
none other than the parcel of lot occupied by the defendant Poncio and where he has his improvements erected.
The Identity of the parcel of land involved herein is sufficiently established by the contents of the note Exh. 'A'. For a
while, this court had that similar impression but after a more and through consideration of the context in Exh. 'A' and
for the reasons stated above, the court has arrived to (sic) the conclusion stated earlier" (pp. 53-54, ROA).

Moreover, it is not shown that Poncio owns another parcel with the same area, adjacent to the lot of his cousin
Carbonell and likewise mortgaged by him to the Republic Savings Bank. The transaction therefore between Poncio
and Carbonell can only refer and does refer to the lot involved herein. If Poncio had another lot to remove his house,
Exhibit A would not have stipulated to allow him to stay in the sold lot without paying any rent for one year and
thereafter to pay rental in case he cannot find another place to transfer his house.

While petitioner Carbonell has the superior title to the lot, she must however refund to respondents Infantes the
amount of P1,500.00, which the Infantes paid to the Republic Savings Bank to redeem the mortgage.

It appearing that the Infantes are possessors in bad faith, their rights to the improvements they introduced op the
disputed lot are governed by Articles 546 and 547 of the New Civil Code. Their expenses consisting of P1,500.00
for draining the property, filling it with 500 cubic meters of garden soil, building a wall around it and installing a gate
and P11,929.00 for erecting a b ' bungalow thereon, are useful expenditures, for they add to the value of the
property (Aringo vs. Arenas, 14 Phil. 263; Alburo vs. Villanueva, 7 Phil. 277; Valencia vs. Ayala de Roxas, 13 Phil.
45).
Under the second paragraph of Article 546, the possessor in good faith can retain the useful improvements unless
the person who defeated him in his possession refunds him the amount of such useful expenses or pay him the
increased value the land may have acquired by reason thereof. Under Article 547, the possessor in good faith has
also the right to remove the useful improvements if such removal can be done without damage to the land, unless
the person with the superior right elects to pay for the useful improvements or reimburse the expenses therefor
under paragraph 2 of Article 546. These provisions seem to imply that the possessor in bad faith has neither the
right of retention of useful improvements nor the right to a refund for useful expenses.

But, if the lawful possessor can retain the improvements introduced by the possessor in bad faith for pure luxury or
mere pleasure only by paying the value thereof at the time he enters into possession (Article 549 NCC), as a matter
of equity, the Infantes, although possessors in bad faith, should be allowed to remove the aforesaid improvements,
unless petitioner Carbonell chooses to pay for their value at the time the Infantes introduced said useful
improvements in 1955 and 1959. The Infantes cannot claim reimbursement for the current value of the said useful
improvements; because they have been enjoying such improvements for about two decades without paying any rent
on the land and during which period herein petitioner Carbonell was deprived of its possession and use.

WHEREFORE, THE DECISION OF THE SPECIAL DIVISION OF FIVE OF THE COURT OF APPEALS OF
OCTOBER 30, 1968 IS HEREBY REVERSED; PETITIONER ROSARIO CARBONELL IS HEREBY DECLARED TO
HAVE THE SUPERIOR RIGHT TO THE LAND IN QUESTION AND IS HEREBY DIRECTED TO REIMBURSE TO
PRIVATE RESPONDENTS INFANTES THE SUM OF ONE THOUSAND FIVE HUNDRED PESOS (P1,500.00)
WITHIN THREE (3) MONTHS FROM THE FINALITY OF THIS DECISION; AND THE REGISTER OF DEEDS OF
RIZAL IS HEREBY DIRECTED TO CANCEL TRANSFER CERTIFICATE OF TITLE NO. 37842 ISSUED IN FAVOR
OF PRIVATE RESPONDENTS INFANTES COVERING THE DISPUTED LOT, WHICH CANCELLED TRANSFER
CERTIFICATE OF TITLE NO. 5040 IN THE NAME OF JOSE PONCIO, AND TO ISSUE A NEW TRANSFER
CERTIFICATE OF TITLE IN FAVOR OF PETITIONER ROSARIO CARBONELL UPON PRESENTATION OF
PROOF OF PAYMENT BY HER TO THE INFANTES OF THE AFORESAID AMOUNT OF ONE THOUSAND FIVE
HUNDRED PESOS (P1,500.00).

PRIVATE RESPONDENTS INFANTES MAY REMOVE THEIR AFOREMENTIONED USEFUL IMPROVEMENTS

FROM THE LOT WITHIN THREE (3) MONTHS FROM THE FINALITY OF THIS DECISION, UNLESS THE
PETITIONER ROSARIO CARBONELL ELECTS TO ACQUIRE THE SAME AND PAYS THE INFANTES THE
AMOUNT OF THIRTEEN THOUSAND FOUR HUNDRED TWENTY-NINE PESOS (P13,429.00) WITHIN THREE
(3) MONTHS FROM THE FINALITY OF THIS DECISION. SHOULD PETITIONER CARBONELL FAIL TO PAY THE
SAID AMOUNT WITHIN THE AFORESTATED PERIOD OF THREE (3) MONTHS FROM THE FINALITY OF THIS
DECISION, THE PERIOD OF THREE (3) MONTHS WITHIN WHICH THE RESPONDENTS INFANTES MAY
REMOVE THEIR AFOREMENTIONED USEFUL IMPROVEMENTS SHALL COMMENCE FROM THE
EXPIRATION OF THE THREE (3) MONTHS GIVEN PETITIONER CARBONELL TO PAY FOR THE SAID USEFUL
IMPROVEMENTS.

WITH COSTS AGAINST PRIVATE RESPONDENTS.

Castro, C.J, Aquino and Martin, JJ., concur.

Separate Opinions

TEEHANKEE, J., concurring:

I concur. My concurrence proceeds from the same premise as the dissenting opinion of Justice Munoz Palma that
both the conflicting buyers of the real property in question, namely, petitioner Rosario Carbonell as the first buyer
may be deemed purchasers in good faith at the respective dates of their purchase.

The answer to the question of who between the two buyers in good faith should prevail is provided in the second
paragraph of Article 1544 of the Civil Code   (formerly Article 1473 of the old Civil Code) which ordains that "the
1

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

In the case at bar, the seller executed on January 27, 1955 the private memorandum of sale of the property in favor
of the first buyer Carbonell, However, six days later on February 2, 1955, the seller sold the property for a second
time for an improved price, this time executing a formal registrable deed of sale in favor of the second buyer Infante.

So it was that when the first buyer Carbonell saw the seller a few days afterwards bringing the formal deed of sale
for the seller's signature and the balance of the agreed cash payment, the seller told her that he could not proceed
anymore with formalizing the first sale because he had already formalized the second sale in favor of the second
buyer Infante.

Since Carbonell (the first buyer) did not have a formal registrable deed of sale, she did the next best thing to protect
her legal rights and registered on February 8, 1955 with the Rizal Register of Deeds her adverse claim as first buyer
entitled to the property. The second buyer Infante registered the deed of sale in her favor with the Rizal Register of
Deeds only on February 12, 1955 (notwithstanding its having been executed ten days earlier on February 2, 1955),
and therefore the transfer certificate of title issued in her favor carried the duly annotated adverse claim of Carbonell
as the first buyer.

Both these registrations were in good faith and hence, as provided by the cited code article, the first buyer Carbonell
as also the first registrant is legally entitled to the property.

The fact that Carbonell registered only an adverse claim as she had no registrable deed of sale is of no moment.
The facts of record amply show that she had a written memorandum of sale, which was partially executed with the
advance payment made by her for the seller's mortgage account with the bank, and which was perfected and
binding in law by their accord on the subject matter and price. Carbonell could in law enforce in court her rights as
first buyer under the memorandum agreement and compel the seller to execute in her favor a formal registrable
deed of sale which would relate back to the date of the original memorandum agreement.

And under the cited code provision, Carbonell had to duly register such adverse claim as first buyer, as otherwise
the subsequent registration of the second buyer's deed of sale would have obliterated her legal rights and enable
the seller to achieve his fraudulent act of selling the property a second time for a better price in derogation of her
prior right thereto.

The fact that the seller refused to execute the formal deed of sale in Carbonell's favor and (as was only to be
expected) informed her that he could not proceed anymore with the sale because he had sold it for a second time
for a better price did not convert her prior registration of her adverse claim into one of bad faith.

The fraudulent seller's act of informing the first buyer that he has wrongfully sold his property for a second time
cannot work out to his own advantage and to the detriment of the innocent first buyer (by being considered as an
"automatic registration" of the second sale) and defeat the first buyer's right of priority, in time in right and in
registration.

The governing principle here is prius tempore, portior jure   (first in time, stronger in right). Knowledge gained by the
2

first buyer of the second sale cannot defeat the first buyer's rights except only as provided by the Civil Code and that
is where the second buyer first registers in good faith the second sale ahead of the first. 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 other so knowledge gained by the second buyer of the first sale defeats his rights
even if he is first to register the second sale, since such knowledge taints his prior registration with bad faith.

This is the price exacted by Article 1544 of the Civil Code for the second buyer being able to displace the first buyer:
that before the second buyer can obtain priority over the first, he must show that he acted in good faith
throughout(i.e. in ignorance of the first sale and of the first buyer's rights) — from the time of acquisition until the title
is transferred to him by registration or failing registration, by delivery of possession. The second buyer must
show continuing good faith and innocence or lack of knowledge of the first sale until his contract ripens into full
ownership through prior registration as provided by law.

The above principles were aptly restated in a 1948 Court of Appeals decision in the case of Gallardo, vs.
Gallardopenned by Justice J.B.L. Reyes, then a member of the appellate court.   The facts of that case and the case
3

at bar are virtually Identical, except that the earlier case was decided under the old Civil Code (Article 1473 thereof
now reproduced as Article 1544 of the present Civil Code), and the ratio decidendi thereof, mutatis mutandis, is fully
applicable, as follows:

Analysis of article 1473 of the Civil Code shows that before a second vendee can obtain priority over
the first, it is indispensable that he should have acted in good faith, (that is to say, in ignorance of the
rights of the first vendee's rights) until the title is transferred to him by actual or constructive delivery
of the thing sold. This is the price exacted by law for his being able to displace the first vendee; and
the mere fact that the second contract of sale was perfected in good faith is not sufficient if, before
the title passes, the second vendee acquires knowledge of the first transaction. That the second
buyer innocently agreed to purchase the land may protect him against responsibility of conspiring
with his vendor to defraud the established rights of the first purchaser; but to defeat the latter's
priority in time (based on the old principle "prius tempore, potior jure," first in time, better in right) the
good faith or innocence of the posterior vendee must needs continue until his contract ripens into
ownership by tradition or recording (Palanca vs. Director of lands, 43 Phil. 141, 154).

That the formal deed of conveyance to Gabino Gallardo was executed after that of Caoagas is of no
moment, the contract of sale being perfected and binding by mere accord on the subject matter and
 the price, even if neither is delivered (Article 1450, Civil Code), the deed of conveyance will relate
back to the date of the original agreement.  4

Finally, in the present case, the first buyer's registration (February 8, 1955) concededly preceded the second buyer's
registration (February 12, 1955) by four days, and therefore, as provided by the Civil Code, the first buyer thereby
duly preserved her right of priority and is entitled to the property.

MUÑOZ PALMA, J., dissenting:

Strongly convinced as I am that the decision of the Court of Appeals under review should be affirmed, this
dissenting opinion is being written.

We are here confronted with a double sale made by Jose Poncio of his 195-square meter lot located at V. Again St.,
San Juan, Rizal, covered by Transfer Certificate of Title No. 5040, the solution to which is found in Art. 1544 of the
Civil Code, more particularly the second paragraph thereof which provides that should the thing sold be immovable
property, the ownership shall belong to the person acquiring it who in good with first recorded it in the Registry of
property.

1. The two purchasers, namely, petitioner Rosario Carbonell and respondent Emma Infante, are both purchasers in
good faith.

That Rosario Carbonell is a buyer in good faith cannot be disputed for at the time negotiations for the purchase of
the lot were being made between her and the vendor, Jose Poncio, as of January 27, 1955, there was no indication
at all from the latter that another sale was being contemplated.

That Emma Infante is likewise a buyer in good faith is supported by: (a) an express finding of the trial court in its
decision of January 20, 1965, to the effect that when the vendor and purchaser. Infante consummated the sale on or
about January 29, 1955, an examination of the original of T.C.T. 5040 on file with the Register of Deeds of Rizal as
well as the owner's duplicate revealed no annotation of any encumbrance or lien other than the mortgage in favor of
the Republic Savings Bank (p. 92, Record on Appeal); (b) the findings of fact of the Court of Appeals given in the
decision penned by then Justice Salvador V. Esguerra as well as in the first decision written by Justice Magno
Gatmaitan which subsequently became the basis of the dissenting opinion to the majority, and from which I quote:

2. CONSIDERING: That as basis for discussion of this issue, it must have to be remembered that
the first vendee, Rosario Carbonell, certainly was an innocent purchaser ... but also must it be
remembered that Emma L. Infante, when she bought the property on 2 February, 1955, under
Exhibit 3-Infante, neither had she before then been, preliminary informed of the first sate to
Rosario ...; indeed as Emma has testified on this detail, it is easy to accept her declaration:

Q. When Mr. Jose Poncio offered you this land in question, did he tell
you that the land was sold or otherwise promised to Mrs. Carbonell?

A. Of course not, otherwise will never buy.

(tsn. II:27)

in other words, at the respective dates of their purchase, both vendees, Rosario and Emma, were innocent and had
acted in the best of good faith ... (pp. 9-10 of Justice Gatmaitan's decision found on pp. 76-77, rollo; see also p. 7 of
his dissenting opinion found on p. 95, rollo).

Departing from a well-entrenched rule set down in a long array of decisions of this Court that factual findings of the
trial court and of the Court -of Appeals are generally binding and conclusive,   and that on appeal by certiorari,
1

questions of fact are not to be determined nor reviewed by Us   the Majority Opinion of my colleagues however
2

undertakes a fact-finding process of its own, and draws the conclusion that Emma Infante was a buyer in bad faith
because, among other things: (a) Emma allegedly refused to talk to Rosario Carbonell when the latter went to see
her about the sale of the lot, which "is not the attitude expected of a good neighbor imbued with Christian charity
and goodwill as well as a clean conscience" (p. 10, Majority Opinion); (b) "(B)efore or upon paying in full the
mortgage indebtedness of Poncio to the bank. Infante naturally must have demanded from Poncio the delivery to
her of his mortgage passbook as well as Poncio's mortgage contract. . and Poncio as well as the bank, must have
inevitably informed here that said mortgage passbook could not be given to her because it was already delivered to
Carbonell" (p. 9, Ibid); and (c) "... (T)he victim, therefore, 'of injustice and outrage is the widow Carbonell and not the
Infantes, who without moral compunction exploited the greed and treacherous nature of Poncio, who, for love of
money and without remorse of conscience, dishonored his own plighted word to Carbonell, his own cousin. ...
Inevitably evident therefore from the foregoing discussion, is the bad faith of Emma Infante from the time
she enticed Poncio to dishonor his contract with Carbonell, and instead to sell the lot to her (Infante) by offering
Poncio a much higher price than the price for which he sold the same to Carbonell ..." (p. 20, Majority Opinion; all
italicized portions supplied) — all of which are unsupported by the evidence and diametrically contrary to the
findings of the court a quo and the appellate court sustaining the good faith of Emma Infante.
2. Inasmuch as the two purchasers are undoubtedly in good faith, the next question to be resolved is who of the
two first registered her purchase or title in good faith.

In applying Art. 1544 of the Civil Code, it is not enough that the buyer bought the property in good faith, but that the
registration of her title must also be accomplished in good faith. This requirement of good faith is not only applicable
to the second or subsequent purchaser but to the first as well.  3

Construing and applying the second paragraph of Art. 1473 of the Spanish Civil Code which has been
adoptedverbatim in Art. 1544 of the Civil Code of the Philippines, this Court in Leung Lee vs. FL Strong Machinery
Co., et al 37 Phil. 644, declared:

It has been suggested that since the provisions of article 1473 of the Civil Code require "good faith,"
in express terms, in relation to "possession" and title but contain no express requirement as to 'good
faith' in relation to the "inscription" of the property in the registry, it must he presumed that good faith
is not an essential requisite of registration in order that it may have the effect contemplated in this
article. We cannot agree with this contention. It could not have been the intention of the legislator to
base the preferential right secured under this article of the code upon an inscription of title in bad
faith. Such an interpretation placed upon the language of this section would open wide the door to
fraud and collusion. The public records cannot be converted into instruments of fraud and
oppression by one who secures an inscription therein in bad faith. The force and effect given by law
to an inscription in a public record presupposes the good faith of him who enters such inscription;
and rights created by statute, which are predicated upon an inscription in a public registry, do not
and cannot accrue under an inscription "in bad faith," to the benefit of the person who thus makes
the inscription. (pp. 648-649, supra)

Good faith means "freedom from knowledge and circumstances which ought to put a person on inquiry";   * it 3

consists of an honest intention to abstain from taking any conscientious advantage of another.  4

On this point it is my view that Rosario Carbonell cannot be held to have a title superior to that of Emma Infante for
even if We were to concede that the notation of her adverse claim on February 8, 1955, was in the nature of
registration of title as required in Art. 1544 of the Civil Code,   the same was not accomplished in good faith. This is
5

obvious from occurrences narrated in the Majority Opinion, thus: that on January 27, 1955, Carbonell and Jose
Poncio made and executed the memorandum of sale, Exhibit A; that thereafter Carbonell asked Atty. Salvador
Reyes to prepare the formal deed of sale which she brought to Poncio together with the amount of some P400.00,
the balance she had to pay in addition to her assuming the mortgage obligation to Republic Savings Bank; that upon
arriving at Poncio's house the latter told Carbonell that he could not proceed anymore with the sale because he had
already given the lot to Emma Infants; that on February 5, 1955, Carbonell saw Emma Infante erecting a wall
around the lot with a gate; that Carbonell consulted Atty. Jose Garcia who advised her to present an adverse claim
with the office of the Register of Deeds, and that being informed that the sale in favor of Emma Infante had not yet
been registered, Atty. Garcia prepared the notice of adverse claim which was signed and sworn to by Rosario
Carbonell and registered on February 8, 1955. (see pp. 34, Decision)

At the time petitioner herein caused the annotation of her adverse claim she was, therefore, cognizant of facts which
impaired her title to the property in question, and taking advantage of the situation that the second purchaser had
not as yet registered her deed of sale, she went ahead of the second buyer and annotated what was only in the
nature of an adverse claim inasmuch as she had no registrable document of sale at the time. That annotation of
Carbonell's adverse claim did not produce any legal effects as to place her in a preferential situation to that of
Infante, the second purchaser, for the simple reason that a registration made in bad faith is equivalent to no
registration at all. It is a settled rule that the inscription in the registry, to be effective, must be made in good faith.
(Pena, supra, p. 164)

3. One last point to be considered is the theory advanced by the dissenting opinion of Justice Gatmaitan that while
Carbonell's registration of her adverse claim may indeed be considered in bad faith, nonetheless that of Infante was
likewise in bad faith because at the time of the registration of the latter's deed of sale there was already inscribed on
the original of the title on file with the Register of Deeds the adverse claim of Rosario Carbonell.

With due respect to the foregoing conclusion of highly respected Colleague, I hold the view that the act of the
registration of Infante's deed of sale on February 12, 1955, was but a formality in the sense that it simply formalized
what had already been accomplished earlier, that is, the registration of Infantes purchase as against Carbonell
when the latter inquired knowledge of the second sale on or about January 27, 1955, when she brought the
memorandum of sale, Exh. A, to Jose Poncio and was informed by the latter that he could not go through with the
sale because he had already sold it to Emma Infante, which information was bolstered by the fact that Carbonell
saw Infante erecting a wall around the lot on February 5.

We have long accepted the rule that knowledge is equivalent to registration. What would be the purpose of
registration other than to give notice to interested parties and to the whole world of the existence of rights or liens
against the property under question?
What has been clearly and succinctly postulated in T. de Winkleman and Winkleman vs. Veluz 1922, 43 Phil. 604,
609, is applicable to the case before Us, and We quote therefrom:

. . . The purpose of registering an instrument relating to land, annuities, mortgages, liens or any
other class of real rights is to give notice to persons interested of the existence of these various liens
against the property. If the parties interested have actual notice of the existence of such liens then
the necessity for registration does not exist. Neither can one who has actual notice of existing liens
acquire any rights in such property free from such liens by the mere fact that such liens have not
been proven recorded. (citing Obras Pias vs. Devera Ignacio, 17 Phil. 45, 47).

We cannot overlook the fact that while it may be true that the vendor Poncio had signed the memorandum, Exh. A,
from which it may be implied that he sold a lot to Carbonell, there were other things to be accomplished for purposes
of binding third parties, the lot in question being registered land, such as the execution of a formal deed of sale.
Such a document of sale was never signed by Poncio for according to petitioner Carbonell, when she presented to
Poncio the corresponding document together with the sum of P400.00 which according to her was the balance of
the purchase price after she had assumed the mortgage with the Republic Bank, she was informed by the vendor
that the property had been sold to another. That sale was confirmed when Carbonell saw Infante erecting a wall
around the lot on February 5, 1955. As of that moment when Carbonell had notice or actual knowledge of the
second sale in favor of Emma Infante a valid registration of the latter's deed of sale was constituted as against
Carbonell. Accordingly, Infante has a preferential right to the property, the registration of her sale having been
effected in the foregoing manner, prior to the annotation of Carbonell's adverse claim on February 8, 1955.

The circumstances of the present case are strikingly similar to the hypothetical problem posed in Commentator
Edgardo Paras' Book on the Civil Code of the Philippines and I wholeheartedly concur with his solution of the
problem which is based on law. From him I quote: 6

A sold a parcel of land with a torrens title to B on January 5. A week later, A sold the same land to C.
Neither sale was registered. As soon as B learned of the sale in favor of C, he (B) registered an
adverse claim stating that he was making the claim because the second sale was in fraud of his
rights as first buyer. Later, C registered the deed of sale that had been made in his favor. Who is
now the owner B or C?

Ans. C is clearly the owner, although he was the second buyer. This is so, not because of the
registration of the sale itself but because of the AUTOMATIC registration in his favor caused by Bs
knowledge of the first sale (actual knowledge being equivalent to registration). The purpose of
registration is to notify. This notification was done because of Bs knowledge. It is wrong to assert
that B was only trying to protect his right-for there was no more right to be protected. He should have
registered the sale BEFORE knowledge came to him. It is now too late. It is clear from this that with
respect to the principle "actual knowledge is equivalent to registration of the sale about which
knowledge has been obtained' — the knowledge may be that-of either the FIRST or the SECOND
buyer. (pp. 142-143, Vol. V, 1972 Ed.)

Aside from the fact that the sale to Infante was considered registered prior to the registration of Carbonell's notice of
adverse claim, Infante also took immediate physical possession of the property by erecting a fence with a gate
around the lot on February 5, at least tree days prior to Carbonell Is registration on February 8, 1955.

On top of all these, equity is on the side of Emma Infante. Under the Majority Opinion, Emma Infante stands to lose
the lot she bought in good faith which was fully paid for plus the building she erected thereon for which she spent
the total sun of a little less than P14,000.00, or equivalent to about P40,000.00 at the time the case was decided by
the Appellate Court, considering that Rosario Carbonell is being given the option either to order the removal of the
house or to acquire it at P13,429.00. On this point I agree with the following statement of Justice Esguerra who
penned the decision of the Appellate Court, thus:

It is indeed inequitable and re revolting to one's sense of justice and fairness that Rosario Carbonell
who paid out of her own money the sum of only P200.00 to the Republic Savings Bank for the
account of Jose Poncio, which was the motivation for the execution of the private instrument, Exhibit
A, should have a superior right to the land involved. The property has been improved at a great
expense and a building of strong materials has been constructed thereon Emma Infants ho spent for
her lot and building the total sum of P13,429.00 made, up of P11,929.00 for cost of land and
improvements and the building and P1,500.00 to discharge the mortgage in favor of the Republic
Savings Bank. with the present purchasing power of the peso this aft i more than 13 years, would be
not equivalent to about P40,000.00. Courts should not lend a hand to the perpetration of such kind of
injustice and outrage (see page 88, rollo)

I close paraphrasing the Supreme Court of Oklahoma in Phelps vs. Theime, et al., 217 p. 376; 377, that "equity is a
right wiseneth that considerate all of the particular circumstances of the case and is also tempered with the
sweetness of mercy." (quoting from St. Germain) In this case now before Us there is no need to invoke mercy, for all
that is required is a wise consideration of the particular circumstances narrated above which warrant a judgment in
favor of respondents Infants.
With all the foregoing, I vote for the affirmance of the decision under review.

Separate Opinions

TEEHANKEE, J., concurring:

I concur. My concurrence proceeds from the same premise as the dissenting opinion of Justice Munoz Palma that
both the conflicting buyers of the real property in question, namely, petitioner Rosario Carbonell as the first buyer
may be deemed purchasers in good faith at the respective dates of their purchase.

The answer to the question of who between the two buyers in good faith should prevail is provided in the second
paragraph of Article 1544 of the Civil Code   (formerly Article 1473 of the old Civil Code) which ordains that "the
1

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

In the case at bar, the seller executed on January 27, 1955 the private memorandum of sale of the property in favor
of the first buyer Carbonell, However, six days later on February 2, 1955, the seller sold the property for a second
time for an improved price, this time executing a formal registrable deed of sale in favor of the second buyer Infante.

So it was that when the first buyer Carbonell saw the seller a few days afterwards bringing the formal deed of sale
for the seller's signature and the balance of the agreed cash payment, the seller told her that he could not proceed
anymore with formalizing the first sale because he had already formalized the second sale in favor of the second
buyer Infante.

Since Carbonell (the first buyer) did not have a formal registrable deed of sale, she did the next best thing to protect
her legal rights and registered on February 8, 1955 with the Rizal Register of Deeds her adverse claim as first buyer
entitled to the property. The second buyer Infante registered the deed of sale in her favor with the Rizal Register of
Deeds only on February 12, 1955 (notwithstanding its having been executed ten days earlier on February 2, 1955),
and therefore the transfer certificate of title issued in her favor carried the duly annotated adverse claim of Carbonell
as the first buyer.

Both these registrations were in good faith and hence, as provided by the cited code article, the first buyer Carbonell
as also the first registrant is legally entitled to the property.

The fact that Carbonell registered only an adverse claim as she had no registrable deed of sale is of no moment.
The facts of record amply show that she had a written memorandum of sale, which was partially executed with the
advance payment made by her for the seller's mortgage account with the bank, and which was perfected and
binding in law by their accord on the subject matter and price. Carbonell could in law enforce in court her rights as
first buyer under the memorandum agreement and compel the seller to execute in her favor a formal registrable
deed of sale which would relate back to the date of the original memorandum agreement.

And under the cited code provision, Carbonell had to duly register such adverse claim as first buyer, as otherwise
the subsequent registration of the second buyer's deed of sale would have obliterated her legal rights and enable
the seller to achieve his fraudulent act of selling the property a second time for a better price in derogation of her
prior right thereto.

The fact that the seller refused to execute the formal deed of sale in Carbonell's favor and (as was only to be
expected) informed her that he could not proceed anymore with the sale because he had sold it for a second time
for a better price did not convert her prior registration of her adverse claim into one of bad faith.

The fraudulent seller's act of informing the first buyer that he has wrongfully sold his property for a second time
cannot work out to his own advantage and to the detriment of the innocent first buyer (by being considered as an
"automatic registration" of the second sale) and defeat the first buyer's right of priority, in time in right and in
registration.

The governing principle here is prius tempore, portior jure   (first in time, stronger in right). Knowledge gained by the
2

first buyer of the second sale cannot defeat the first buyer's rights except only as provided by the Civil Code and that
is where the second buyer first registers in good faith the second sale ahead of the first. 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 other so knowledge gained by the second buyer of the first sale defeats his rights
even if he is first to register the second sale, since such knowledge taints his prior registration with bad faith.

This is the price exacted by Article 1544 of the Civil Code for the second buyer being able to displace the first buyer:
that before the second buyer can obtain priority over the first, he must show that he acted in good faith
throughout(i.e. in ignorance of the first sale and of the first buyer's rights) — from the time of acquisition until the title
is transferred to him by registration or failing registration, by delivery of possession. The second buyer must
show continuing good faith and innocence or lack of knowledge of the first sale until his contract ripens into full
ownership through prior registration as provided by law.
The above principles were aptly restated in a 1948 Court of Appeals decision in the case of Gallardo, vs.
Gallardopenned by Justice J.B.L. Reyes, then a member of the appellate court.   The facts of that case and the case
3

at bar are virtually Identical, except that the earlier case was decided under the old Civil Code (Article 1473 thereof
now reproduced as Article 1544 of the present Civil Code), and the ratio decidendi thereof, mutatis mutandis, is fully
applicable, as follows:

Analysis of article 1473 of the Civil Code shows that before a second vendee can obtain priority over
the first, it is indispensable that he should have acted in good faith, (that is to say, in ignorance of the
rights of the first vendee's rights) until the title is transferred to him by actual or constructive delivery
of the thing sold. This is the price exacted by law for his being able to displace the first vendee; and
the mere fact that the second contract of sale was perfected in good faith is not sufficient if, before
the title passes, the second vendee acquires knowledge of the first transaction. That the second
buyer innocently agreed to purchase the land may protect him against responsibility of conspiring
with his vendor to defraud the established rights of the first purchaser; but to defeat the latter's
priority in time (based on the old principle "prius tempore, potior jure," first in time, better in right) the
good faith or innocence of the posterior vendee must needs continue until his contract ripens into
ownership by tradition or recording (Palanca vs. Director of lands, 43 Phil. 141, 154).

That the formal deed of conveyance to Gabino Gallardo was executed after that of Caoagas is of no
moment, the contract of sale being perfected and binding by mere accord on the subject matter and
the price, even if neither is delivered (Article 1450, Civil Code), the deed of conveyance will relate
back to the date of the original agreement.  4

Finally, in the present case, the first buyer's registration (February 8, 1955) concededly preceded the second buyer's
registration (February 12, 1955) by four days, and therefore, as provided by the Civil Code, the first buyer thereby
duly preserved her right of priority and is entitled to the property.

MUÑOZ PALMA, J., dissenting:

Strongly convinced as I am that the decision of the Court of Appeals under review should be affirmed, this
dissenting opinion is being written.

We are here confronted with a double sale made by Jose Poncio of his 195-square meter lot located at V. Again St.,
San Juan, Rizal, covered by Transfer Certificate of Title No. 5040, the solution to which is found in Art. 1544 of the
Civil Code, more particularly the second paragraph thereof which provides that should the thing sold be immovable
property, the ownership shall belong to the person acquiring it who in good with first recorded it in the Registry of
property.

1. The two purchasers, namely, petitioner Rosario Carbonell and respondent Emma Infante, are both purchasers in
good faith.

That Rosario Carbonell is a buyer in good faith cannot be disputed for at the time negotiations for the purchase of
the lot were being made between her and the vendor, Jose Poncio, as of January 27, 1955, there was no indication
at all from the latter that another sale was being contemplated.

That Emma Infante is likewise a buyer in good faith is supported by: (a) an express finding of the trial court in its
decision of January 20, 1965, to the effect that when the vendor and purchaser. Infante consummated the sale on or
about January 29, 1955, an examination of the original of T.C.T. 5040 on file with the Register of Deeds of Rizal as
well as the owner's duplicate revealed no annotation of any encumbrance or lien other than the mortgage in favor of
the Republic Savings Bank (p. 92, Record on Appeal); (b) the findings of fact of the Court of Appeals given in the
decision penned by then Justice Salvador V. Esguerra as well as in the first decision written by Justice Magno
Gatmaitan which subsequently became the basis of the dissenting opinion to the majority, and from which I quote:

2. CONSIDERING: That as basis for discussion of this issue, it must have to be remembered that
the first vendee, Rosario Carbonell, certainly was an innocent purchaser ... but also must it be
remembered that Emma L. Infante, when she bought the property on 2 February, 1955, under
Exhibit 3-Infante, neither had she before then been, preliminary informed of the first sate to
Rosario ...; indeed as Emma has testified on this detail, it is easy to accept her declaration:

Q. When Mr. Jose Poncio offered you this land in question, did he tell
you that the land was sold or otherwise promised to Mrs. Carbonell?

A. Of course not, otherwise will never buy.

(tsn. II:27)

in other words, at the respective dates of their purchase, both vendees, Rosario and Emma, were innocent and had
acted in the best of good faith ... (pp. 9-10 of Justice Gatmaitan's decision found on pp. 76-77, rollo; see also p. 7 of
his dissenting opinion found on p. 95, rollo).
Departing from a well-entrenched rule set down in a long array of decisions of this Court that factual findings of the
trial court and of the Court of Appeals are generally binding and conclusive,   and that on appeal by certiorari,
1

questions of fact are not to be determined nor reviewed by Us   the Majority Opinion of my colleagues however
2

undertakes a fact-finding process of its own, and draws the conclusion that Emma Infante was a buyer in bad faith
because, among other things: (a) Emma allegedly refused to talk to Rosario Carbonell when the latter went to see
her about the sale of the lot, which "is not the attitude expected of a good neighbor imbued with Christian charity
and goodwill as well as a clean conscience" (p. 10, Majority Opinion); (b) "(B)efore or upon paying in full the
mortgage indebtedness of Poncio to the bank. Infante naturally must have demanded from Poncio the delivery to
her of his mortgage passbook as well as Poncio's mortgage contract. . and Poncio as well as the bank, must have
inevitably informed here that said mortgage passbook could not be given to her because it was already delivered to
Carbonell" (p. 9, Ibid); and (c) "... (T)he victim, therefore, 'of injustice and outrage is the widow Carbonell and not the
Infantes, who without moral compunction exploited the greed and treacherous nature of Poncio, who, for love of
money and without remorse of conscience, dishonored his own plighted word to Carbonell, his own cousin. ...
Inevitably evident therefore from the foregoing discussion, is the bad faith of Emma Infante from the time
she enticed Poncio to dishonor his contract with Carbonell, and instead to sell the lot to her (Infante) by offering
Poncio a much higher price than the price for which he sold the same to Carbonell ..." (p. 20, Majority Opinion; all
italicized portions supplied) — all of which are unsupported by the evidence and diametrically contrary to the
findings of the court a quo and the appellate court sustaining the good faith of Emma Infante.

2. Inasmuch as the two purchasers are undoubtedly in good faith, the next question to be resolved is who of the
two first registered her purchase or title in good faith.

In applying Art. 1544 of the Civil Code, it is not enough that the buyer bought the property in good faith, but that the
registration of her title must also be accomplished in good faith. This requirement of good faith is not only applicable
to the second or subsequent purchaser but to the first as well.  3

Construing and applying the second paragraph of Art. 1473 of the Spanish Civil Code which has been
adoptedverbatim in Art. 1544 of the Civil Code of the Philippines, this Court in Leung Lee vs. FL Strong Machinery
Co., et al 37 Phil. 644, declared:

It has been suggested that since the provisions of article 1473 of the Civil Code require "good faith,"
in express terms, in relation to "possession" and title but contain no express requirement as to 'good
faith' in relation to the "inscription" of the property in the registry, it must he presumed that good faith
is not an essential requisite of registration in order that it may have the effect contemplated in this
article. We cannot agree with this contention. It could not have been the intention of the legislator to
base the preferential right secured under this article of the code upon an inscription of title in bad
faith. Such an interpretation placed upon the language of this section would open wide the door to
fraud and collusion. The public records cannot be converted into instruments of fraud and
oppression by one who secures an inscription therein in bad faith. The force and effect given by law
to an inscription in a public record presupposes the good faith of him who enters such inscription;
and rights created by statute, which are predicated upon an inscription in a public registry, do not
and cannot accrue under an inscription "in bad faith," to the benefit of the person who thus makes
the inscription. (pp. 648-649, supra)

Good faith means "freedom from knowledge and circumstances which ought to put a person on inquiry";   * it 3

consists of an honest intention to abstain from taking any conscientious advantage of another.  4

On this point it is my view that Rosario Carbonell cannot be held to have a title superior to that of Emma Infante for
even if We were to concede that the notation of her adverse claim on February 8, 1955, was in the nature of
registration of title as required in Art. 1544 of the Civil Code,   the same was not accomplished in good faith. This is
5

obvious from occurrences narrated in the Majority Opinion, thus: that on January 27, 1955, Carbonell and Jose
Poncio made and executed the memorandum of sale, Exhibit A; that thereafter Carbonell asked Atty. Salvador
Reyes to prepare the formal deed of sale which she brought to Poncio together with the amount of some P400.00,
the balance she had to pay in addition to her assuming the mortgage obligation to Republic Savings Bank; that upon
arriving at Poncio's house the latter told Carbonell that he could not proceed anymore with the sale because he had
already given the lot to Emma Infants; that on February 5, 1955, Carbonell saw Emma Infante erecting a wall
around the lot with a gate; that Carbonell consulted Atty. Jose Garcia who advised her to present an adverse claim
with the office of the Register of Deeds, and that being informed that the sale in favor of Emma Infante had not yet
been registered, Atty. Garcia prepared the notice of adverse claim which was signed and sworn to by Rosario
Carbonell and registered on February 8, 1955. (see pp. 34, Decision)

At the time petitioner herein caused the annotation of her adverse claim she was, therefore, cognizant of facts which
impaired her title to the property in question, and taking advantage of the situation that the second purchaser had
not as yet registered her deed of sale, she went ahead of the second buyer and annotated what was only in the
nature of an adverse claim inasmuch as she had no registrable document of sale at the time. That annotation of
Carbonell's adverse claim did not produce any legal effects as to place her in a preferential situation to that of
Infante, the second purchaser, for the simple reason that a registration made in bad faith is equivalent to no
registration at all. It is a settled rule that the inscription in the registry, to be effective, must be made in good faith.
(Pena, supra, p. 164)
3. One last point to be considered is the theory advanced by the dissenting opinion of Justice Gatmaitan that while
Carbonell's registration of her adverse claim may indeed be considered in bad faith, nonetheless that of Infante was
likewise in bad faith because at the time of the registration of the latter's deed of sale there was already inscribed on
the original of the title on file with the Register of Deeds the adverse claim of Rosario Carbonell.

With due respect to the foregoing conclusion of highly respected Colleague, I hold the view that the act of the
registration of Infante's deed of sale on February 12, 1955, was but a formality in the sense that it simply formalized
what had already been accomplished earlier, that is, the registration of Infantes purchase as against Carbonell
when the latter inquired knowledge of the second sale on or about January 27, 1955, when she brought the
memorandum of sale, Exh. A, to Jose Poncio and was informed by the latter that he could not go through with the
sale because he had already sold it to Emma Infante, which information was bolstered by the fact that Carbonell
saw Infante erecting a wall around the lot on February 5.

We have long accepted the rule that knowledge is equivalent to registration. What would be the purpose of
registration other than to give notice to interested parties and to the whole world of the existence of rights or liens
against the property under question?

What has been clearly and succinctly postulated in T. de Winkleman and Winkleman vs. Veluz 1922, 43 Phil. 604,
609, is applicable to the case before Us, and We quote therefrom:

... The purpose of registering an instrument relating to land, annuities, mortgages, liens or any other
class of real rights is to give notice to persons interested of the existence of these various liens
against the property. If the parties interested have actual notice of the existence of such liens then
the necessity for registration does not exist. Neither can one who has actual notice of existing liens
acquire any rights in such property free from such liens by the mere fact that such liens have not
been proven recorded. (citing Obras Pias vs. Devera Ignacio, 17 Phil. 45, 47).

We cannot overlook the fact that while it may be true that the vendor Poncio had signed the memorandum, Exh. A,
from which it may be implied that he sold a lot to Carbonell, there were other things to be accomplished for purposes
of binding third parties, the lot in question being registered land, such as the execution of a formal deed of sale.
Such a document of sale was never signed by Poncio for according to petitioner Carbonell, when she presented to
Poncio the corresponding document together with the sum of P400.00 which according to her was the balance of
the purchase price after she had assumed the mortgage with the Republic Bank, she was informed by the vendor
that the property had been sold to another. That sale was confirmed when Carbonell saw Infante erecting a wall
around the lot on February 5, 1955. As of that moment when Carbonell had notice or actual knowledge of the
second sale in favor of Emma Infante a valid registration of the latter's deed of sale was constituted as against
Carbonell. Accordingly, Infante has a preferential right to the property, the registration of her sale having been
effected in the foregoing manner, prior to the annotation of Carbonell's adverse claim on February 8, 1955.

The circumstances of the present case are strikingly similar to the hypothetical problem posed in Commentator
Edgardo Paras' Book on the Civil Code of the Philippines and I wholeheartedly concur with his solution of the
problem which is based on law. From him I quote: 6

A sold a parcel of land with a torrens title to B on January 5. A week later, A sold the same land to C.
Neither sale was registered. As soon as B learned of the sale in favor of C, he (B) registered an
adverse claim stating that he was making the claim because the second sale was in fraud of his
rights as first buyer. Later, C registered the deed of sale that had been made in his favor. Who is
now the owner B or C?

Ans. C is clearly the owner, although he was the second buyer. This is so, not because of the
registration of the sale itself but because of the AUTOMATIC registration in his favor caused by Bs
knowledge of the first sale (actual knowledge being equivalent to registration). The purpose of
registration is to notify. This notification was done because of Bs knowledge. It is wrong to assert
that B was only trying to protect his right-for there was no more right to be protected. He should have
registered the sale BEFORE knowledge came to him. It is now too late. It is clear from this that with
respect to the principle "actual knowledge is equivalent to registration of the sale about which
knowledge has been obtained' — the knowledge may be that-of either the FIRST or the SECOND
buyer. (pp. 142-143, Vol. V, 1972 Ed.)

Aside from the fact that the sale to Infante was considered registered prior to the registration of Carbonell's notice of
adverse claim, Infante also took immediate physical possession of the property by erecting a fence with a gate
around the lot on February 5, at least tree days prior to Carbonell Is registration on February 8, 1955.

On top of all these, equity is on the side of Emma Infante. Under the Majority Opinion, Emma Infante stands to lose
the lot she bought in good faith which was fully paid for plus the building she erected thereon for which she spent
the total sun of a little less than P14,000.00, or equivalent to about P40,000.00 at the time the case was decided by
the Appellate Court, considering that Rosario Carbonell is being given the option either to order the removal of the
house or to acquire it at P13,429.00. On this point I agree with the following statement of Justice Esguerra who
penned the decision of the Appellate Court, thus:
 It is indeed inequitable and re revolting to one's sense of justice and fairness that Rosario Carbonell
who paid out of her own money the sum of only P200.00 to the Republic Savings Bank for the
account of Jose Poncio, which was the motivation for the execution of the private instrument, Exhibit
A, should have a superior right to the land involved. The property has been improved at a great
expense and a building of strong materials has been constructed thereon Emma Infants ho spent for
her lot and building the total sum of P13,429.00 made, up of P11,929.00 for cost of land and
improvements and the building and P1,500.00 to discharge the mortgage in favor of the Republic
Savings Bank. with the present purchasing power of the peso this aft i more than 13 years, would be
not equivalent to about P40,000.00. Courts should not lend a hand to the perpetration of such kind of
injustice and outrage (see page 88, rollo)

I close paraphrasing the Supreme Court of Oklahoma in Phelps vs. Theime, et al., 217 p. 376; 377, that "equity is a
right wiseneth that considerate all of the particular circumstances of the case and is also tempered with the
sweetness of mercy." (quoting from St. Germain) In this case now before Us there is no need to invoke mercy, for all
that is required is a wise consideration of the particular circumstances narrated above which warrant a judgment in
favor of respondents Infants.

With all the foregoing, I vote for the affirmance of the decision under review.
 [G.R. No. 141463. August 6, 2002]

VICTOR ORQUIOLA and HONORATA ORQUIOLA, petitioners, vs. HON. COURT

OF APPEALS, HON. VIVENCIO S. BACLIG, Presiding Judge, Regional Trial
Court, Branch 77, Quezon City, THE SHERIFF OF QUEZON CITY and
HIS/HER DEPUTIES and PURA KALAW LEDESMA, substituted by
TANDANG SORA DEVELOPMENT CORPORATION, respondents.

DECISION
QUISUMBING, J.:

This petition for review seeks the reversal of the decision  of the Court of Appeals
[1]

dated January 28, 1999 in CA-G.R. SP No. 47422, which dismissed the petition to prohibit
Judge Vivencio Baclig of the Regional Trial Court of Quezon City, Branch 77, from issuing
a writ of demolition against petitioners, and the sheriff and deputy sheriff of the same court
from implementing an alias writ of execution. Also assailed is the resolution  of the Court
[2]

of Appeals dated December 29, 1999 which denied petitioners motion for reconsideration.
The facts are as follows:
Pura Kalaw Ledesma was the registered owner of Lot 689, covered by TCT Nos.
111267 and 111266, in Tandang Sora, Quezon City. This parcel of land was adjacent to
certain portions of Lot 707 of the Piedad Estates, namely, Lot 707-A and 707-B, registered
in the name of Herminigilda Pedro under TCT Nos. 16951 and 16952, respectively. On
October 29, 1964, Herminigilda sold Lot 707-A and 707-B to Mariano Lising who then
registered both lots and Lot 707-C in the name of M.B. Lising Realty and subdivided them
into smaller lots.
Certain portions of the subdivided lots were sold to third persons including herein
petitioners, spouses Victor and Honorata Orquiola, who purchased a portion of Lot 707-A-
2, Lot 5, Block 1 of the subdivision plan (LRC), Psd-42965.The parcel is now #33 Doa
Regina St., Regina Village, Tandang Sora, Quezon City. The other portions were
registered in the name of the heirs of Pedro, heirs of Lising, and other third persons.
Sometime in 1969, Pura Kalaw Ledesma filed a complaint, docketed as Civil Case No.
Q-12918, with the Regional Trial Court of Quezon City against Herminigilda Pedro and
Mariano Lising for allegedly encroaching upon Lot 689.During the pendency of the action,
Tandang Sora Development Corporation replaced Pura Kalaw Ledesma as plaintiff by
virtue of an assignment of Lot 689 made by Ledesma in favor of said corporation. Trial
continued for three decades.
On August 21, 1991, the trial court finally adjudged defendants Pedro and Lising jointly
and severally liable for encroaching on plaintiffs land and ordered them:
(a) to solidarily pay the plaintiff Tandang Sora Dev. Corp. actual damages in the amount of
P20,000 with interest from date of filing of the complaint;

(b) to remove all construction, including barbed wires and fences, illegally constructed by
defendants on plaintiffs property at defendants expense;

(c) to replace the removed concrete monuments removed by defendants, at their own expense;

(d) to pay attorneys fees in the amount of FIVE THOUSAND PESOS (P5,000.00) with interest
computed from the date of filing of the complaint;

(e) to relocate the boundaries to conform with the Commissioners Report, particularly, Annexes A
and B thereof, at the expense of the defendants.[3]

As a result, in February 1998, the Deputy Sheriff of Quezon City directed petitioners,
through an alias writ of execution, to remove the house they constructed on the land they
were occupying.
On April 2, 1998, petitioners received a Special Order dated March 30, 1998, from the
trial court stating as follows:

Before the Court for resolution is the Ex-Parte Motion For The Issuance of A Writ of Demolition,
filed by plaintiff, through counsel, praying for the issuance of an Order directing the Deputy Sheriff
to cause the removal and/or demolition of the structures on the plaintiffs property constructed by
defendants and/or the present occupants. The defendants-heirs of Herminigilda Pedro filed their
comment on the said Motion.

Considering that the decision rendered in the instant case had become final and executory, the
Court, in its Order of November 14, 1997, directed the issuance of an alias writ of execution for the
enforcement of the said decision. However, despite the service of the said writ to all the defendants
and the present occupants of the subject property, they failed to comply therewith, as per the Partial
Sheriffs Return, dated February 9, 1998, issued by the Deputy Sheriff of this branch of the Court.
Thus, there is now a need to demolish the structures in order to implement the said decision.

WHEREFORE, the defendants are hereby directed to remove, at their expense, all constructions,
including barbed wires and fences, which defendants constructed on plaintiffs property, within
fifteen (15) days from notice of this Order; otherwise, this Court will issue a writ of demolition
against them.

SO ORDERED. [4]

To prohibit Judge Vivencio Baclig of the Regional Trial Court of Quezon City from
issuing a writ of demolition and the Quezon City sheriff from implementing the alias writ of
execution, petitioners filed with the Court of Appeals a petition for prohibition with prayer
for a restraining order and preliminary injunction on April 17, 1998.  Petitioners alleged
[5]

that they bought the subject parcel of land in good faith and for value, hence, they were
parties in interest. Since they were not impleaded in Civil Case No. Q-12918, the writ of
demolition issued in connection therewith cannot be enforced against them because to do
so would amount to deprivation of property without due process of law.
The Court of Appeals dismissed the petition on January 28, 1999. It held that as
buyers and successors-in-interest of Mariano Lising, petitioners were considered privies
who derived their rights from Lising by virtue of the sale and could be reached by the
execution order in Civil Case No. Q-12918. Thus, for lack of merit, the petition was
ordered dismissed. [6]

Petitioners motion for reconsideration was denied. Hence, this petition, where
petitioners aver that:
 I.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DECISION IN

CIVIL CASE NO. Q-12918 CAN ALSO BE ENFORCED AGAINST THE PETITIONERS EVEN
IF THEY WERE NOT IMPLEADED AS PARTIES THERETO.
II.

THE HONORABLE COURT OF APPEALS ERRED IN NOT UPHOLDING PETITIONERS

TITLE DESPITE THEIR BEING BUILDER IN GOOD FAITH AND INNOCENT PURCHASER
AND FOR VALUE.
III.

PETITIONERS ARE ENTITLED TO INJUNCTIVE RELIEF CONSIDERING THAT THEY

STAND TO SUFFER GRAVE AND IRREPARABLE INJURY IF ALIAS WRIT OF
EXECUTION AND THE SPECIAL ORDER ISSUED BY THE COURT A QUO IN CIVIL CASE
NO. Q-12918 FOR THE DEMOLITION OF ALL THE STRUCTURES ON THE DISPUTED
PROPERTY WERE ENFORCED AGAINST THE PETITIONERS WHO WERE NOT EVEN
GIVEN THEIR DAY IN COURT. [7]

For our resolution are the following issues: (1) whether the alias writ of execution may
be enforced against petitioners; and (2) whether petitioners were innocent purchasers for
value and builders in good faith.
On the first issue, petitioners claim that the alias writ of execution cannot be enforced
against them. They argue that the appellate court erred when it relied heavily on our ruling
in Vda. de Medina vs. Cruz  in holding that petitioners are successors-in-interest of
[8]

Mariano Lising, and as such, they can be reached by the order of execution in Civil Case
No. Q-12918 even though they were not impleaded as parties thereto. Petitioners submit
that Medina is not applicable in this case because the circumstances therein are different
from the circumstances in the present case.
In Medina, the property in dispute was registered under Land Registration Act No. 496
in 1916 and Original Certificate of Title No. 868 was issued in the name of Philippine
Realty Corporation (PRC). In 1949, Benedicta Mangahas and Francisco Ramos occupied
and built houses on the lot without the PRCs consent. In 1959, PRC sold the lot to
Remedios Magbanua. Mangahas and Ramos opposed and instituted Civil Case No. C-
120 to annul the sale and to compel PRC to execute a contract of sale in their favor. The
trial court dismissed the complaint and ordered Mangahas and Ramos to vacate the lot
and surrender possession thereof to Magbanua. The judgment became final and
executory. When Magbanua had paid for the land in full, PRC executed a deed of
absolute sale in her favor and a new title was consequently issued in her
name. Magbanua then sought the execution of the judgment in Civil Case No. C-120. This
was opposed by petitioner Medina who alleged that she owned the houses and lot subject
of the dispute. She said that she bought the houses from spouses Ricardo and Eufrocinia
de Guzman, while she purchased the lot from the heirs of the late Don Mariano San Pedro
y Esteban. The latter held the land by virtue of a Titulo de Composicion Con El Estado
Num. 4136, dated April 29, 1894. In opposing the execution, Medina argued that the trial
court did not acquire jurisdiction over her, claiming that she was not a party in Civil Case
No. C-120, thus, she could not be considered as a person claiming under Ramos and
Mangahas.
When Medina reached this Court, we held that the decision in Civil Case No. C-120,
which had long become final and executory, could be enforced against petitioner even
though she was not a party thereto. We found that the houses on the subject lot were
formerly owned by Mangahas and Ramos who sold them to spouses de Guzman, who in
turn sold them to Medina. Under the circumstances, petitioner was privy to the two
judgment debtors Mangahas and Ramos, and thus Medina could be reached by the order
of execution and writ of demolition issued against the two. As to the lot under dispute, we
sustained Magbanuas ownership over it, she being the holder of a Torrens title. We
declared that a Torrens title is generally conclusive evidence of ownership of the land
referred to therein, and a strong presumption exists that a Torrens title was regularly
issued and valid. A Torrens title is incontrovertible against any informacion possessoria, or
other title existing prior to the issuance thereof not annotated on the Torrens
title. Moreover, persons dealing with property covered by a Torrens certificate of title are
not required to go beyond what appears on its face.
Medina markedly differs from the present case on major points. First, the petitioner
in Medina acquired the right over the houses and lot subject of the dispute after the
original action was commenced and became final and executory. In the present case,
petitioners acquired the lot before the commencement of Civil Case No. Q-
12918. Second, the right over the disputed land of the predecessors-in-interest of the
petitioner in Medina was based on a title of doubtful authenticity, allegedly a Titulo de
Composicion Con El Estado issued by the Spanish Government in favor of one Don
Mariano San Pedro y Esteban, while the right over the land of the predecessors-in-interest
of herein petitioners is based on a fully recognized Torrens title. Third, petitioners in this
case acquired the registered title in their own names, while the petitioner
in Medina merely relied on the title of her predecessor-in-interest and tax declarations to
prove her alleged ownership of the land.
We must stress that where a case like the present one involves a sale of a parcel of
land under the Torrens system, the applicable rule is that a person dealing with the
registered property need not go beyond the certificate of title; he can rely solely on the title
and he is charged with notice only of such burdens and claims as are annotated on the
title.  It is our view here that the petitioners, spouses Victor and Honorata Orquiola, are
[9]

fully entitled to the legal protection of their lot by the Torrens system, unlike the petitioner
in the Medina case who merely relied on a mere Titulo de Composicion.
Coming now to the second issue, were petitioners purchasers in good faith and for
value? A buyer in good faith is one who buys the property of another without notice that
some other person has a right to or interest in such property.He is a buyer for value if he
pays a full and fair price at the time of the purchase or before he has notice of the claim or
interest of some other person in the property.  The determination of whether one is a
[10]

buyer in good faith is a factual issue which generally is outside the province of this Court
to determine in a petition for review. An exception is when the Court of Appeals failed to
take into account certain relevant facts which, if properly considered, would justify a
different conclusion.  The instant case is covered by this exception to the general rule. As
[11]

found by the Court of Appeals and not refuted by private respondent, petitioners
purchased the subject land in 1964 from Mariano Lising.  Civil Case No. Q-12918 was
[12]

commenced sometime in 1969. The Court of Appeals overlooked the fact that the
purchase of the land took place prior to the institution of Civil Case No. Q-12918. In other
words, the sale to petitioners was made before Pura Kalaw Ledesma claimed the
lot. Petitioners could reasonably rely on Mariano Lisings Certificate of Title which at the
time of purchase was still free from any third party claim. Hence, considering the
circumstances of this case, we conclude that petitioners acquired the land subject of this
dispute in good faith and for value.
The final question now is: could we consider petitioners builders in good faith? We
note that this is the first time that petitioners have raised this issue. As a general rule, this
could not be done. Fair play, justice, and due process dictate that parties should not raise
for the first time on appeal issues that they could have raised but never did during trial and
even during proceedings before the Court of Appeals.  Nevertheless, we deem it proper
[13]

that this issue be resolved now, to avoid circuitous litigation and further delay in the
disposition of this case. On this score, we find that petitioners are indeed builders in good
faith.
A builder in good faith is one who builds with the belief that the land he is building on is
his, and is ignorant of any defect or flaw in his title.  As earlier discussed, petitioner
[14]

spouses acquired the land in question without knowledge of any defect in the title of
Mariano Lising. Shortly afterwards, they built their conjugal home on said land. It was only
in 1998, when the sheriff of Quezon City tried to execute the judgment in Civil Case No.
Q-12918, that they had notice of private respondents adverse claim. The institution of Civil
Case No. Q-12918 cannot serve as notice of such adverse claim to petitioners since they
were not impleaded therein as parties.
As builders in good faith and innocent purchasers for value, petitioners have rights
over the subject property and hence they are proper parties in interest in any case
thereon.  Consequently, private respondents should have impleaded them in Civil Case
[15]

No. Q-12918. Since they failed to do so, petitioners cannot be reached by the decision in
said case. No man shall be affected by any proceeding to which he is a stranger, and
strangers to a case are not bound by any judgment rendered by the court. In the same
manner, a writ of execution can be issued only against a party and not against one who
did not have his day in court. Only real parties in interest in an action are bound by the
judgment therein and by writs of execution and demolition issued pursuant thereto.  In our
[16]

view, the spouses Victor and Honorata Orquiola have valid and meritorious cause to resist
the demolition of their house on their own titled lot, which is tantamount to a deprivation of
property without due process of law.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated
January 28, 1999, and its resolution dated December 29, 1999, in CA-G.R. SP No. 47422,
are REVERSED and SET ASIDE. Respondents are hereby enjoined from enforcing the
decision in Civil Case No. Q-12918 through a writ of execution and order of demolition
issued against petitioners. Costs against private respondent.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, and Corona, JJ., concur.
 [G.R. No. 147468. April 9, 2003]

SPOUSES EDUARDO ARENAS DOMINGO & JOSEFINA CHAVEZ

DOMINGO, petitioners, vs. LILIA MONTINOLA ROCES, CESAR ROBERTO
M. ROCES, ANA INES MAGDALENA ROCES TOLENTINO, LUIS MIGUEL M.
ROCES, JOSE ANTONIO M. ROCES and MARIA VIDA PRESENTACION
ROCES, respondents.

DECISION
YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals dated November
22, 2000 in CA-G.R. CV No. 62473,  as well as the resolution dated March 15, 2001, denying
[1]

petitioners Motion for Reconsideration. [2]

The facts are not in dispute.

The spouses Cesar and Lilia Roces were the owners of two contiguous parcels of land located on
Arayat Street, Mandaluyong, covered by Transfer Certificates of Title Nos. 57217 and 57218.  On [3]

November 13, 1962, the Government Service Insurance System (GSIS) caused the annotation of an
affidavit of adverse claim on the titles alleging that the spouses have mortgaged the same to it.
[4]

Subsequently, GSIS wrote a letter to Cesar Roces demanding the surrender of the owners
duplicates of titles. When Roces failed to comply, GSIS filed a petition with the then Court of First
Instance of Rizal, docketed as Civil Case No. R-1359, praying that the owners duplicates in Roces
possession be declared null and void and that the Register of Deeds of Pasig be directed to issue
new owners duplicates to GSIS.  On September 5, 1977, the Court of First Instance issued an order
[5]

granting the petition.  The order became final and executory, and TCT Nos. 57217 (11663) and
[6]

57218 (11664) were issued in the name of GSIS. [7]

Cesar Roces died intestate on January 26, 1980.  He was survived by his widow, Lilia Roces,
[8]

and their children: Cesar Roberto Roces, Ana Ines Magdalena Roces Tolentino, Luis Miguel M.
Roces, Jose Antonio Roces and Maria Vida Presentacion Roces, all of whom are the respondents in
this case.
On July 22, 1992, Reynaldo L. Montinola, a nephew of Lilia Roces, executed an affidavit of self-
adjudication over the Arayat properties. He alleged that the properties were owned by the spouses
Cesar and Lilia Roces, both of whom died intestate, on September 13, 1987 and June 27, 1989,
respectively; that the properties were acquired during the existence of their marriage; that the
spouses left no heirs except the brother of Lilia Roces, who was his father; that neither of the spouses
left any will nor any debts; and that he was the sole heir of the Roces spouses. [9]

On January 5, 1993, Montinola filed a petition against GSIS with the Regional Trial Court of
Pasig, docketed as Civil Case No. R-4743, praying for the cancellation of TCT Nos. 57217 (11663)
and 57218 (11664).  During the trial, GSIS failed to produce any document evidencing the alleged
[10]

real estate mortgage by Roces of the properties. Hence, the trial court rendered judgment in favor of
Montinola, declaring the owners duplicates of TCT No. 57217 (11663) and 57218 (11664) as null and
void and ordering the Registry of Deeds of Mandaluyong to issue new owners duplicates of the said
titles.
[11]

GSIS did not appeal the aforesaid judgment; thus, the same became final and
executory. Accordingly, the Registry of Deeds of Mandaluyong issued TCT No. 7299 in the name of
Montinola in lieu of TCT No. 57218 (11664). [12]

Sometime in July 1993, Montinola executed a deed of absolute sale of the property covered by
TCT No. 7299 in favor of petitioner spouses Eduardo and Josefina Domingo.  Thereafter, TCT No.
[13]

7673 was issued in the names of petitioners.

Both TCT Nos. 7299 and 7673 contained the following annotation:

Subject to the provision of Section 4, Rule 74 of the Rules of Court with respect to the inheritance
left by the deceased SPS. CESAR ROCES & LILIA MONTINOLA. [14]

When respondents learned of the sale of the property to petitioners, they filed a complaint against
Montinola and petitioners with the Regional Trial Court of Pasig. They argued that the affidavit of self-
adjudication was fraudulent because Montinola was not an heir of the Roces spouses and it was not
true that Lilia Roces was dead. Therefore, the affidavit of self-adjudication, as well as the deed of
absolute sale, TCT No. 7299, and TCT No. 7673, all covering the subject property, were null and
void.
[15]

In their answer, petitioners alleged that they were buyers in good faith and that their action was
barred by estoppel and laches. [16]

After trial, the court a quo rendered judgment in favor of respondents, the dispositive portion of
which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs against the defendant
Reynaldo L. Montinola who is hereby ordered to pay to the plaintiffs the following sums:

a) P1,200,000.00 as actual damages, with interest thereon at the legal rate of six (6) per
centum per annum until fully paid;

b) Moral damages in the sum of P100,000.00;

c) Exemplary damages in the sum of P50,000.00;

d) Attorneys fees in the reasonable amount of P30,000.00; and costs.

The counterclaim of defendant spouses Eduardo and Josefina Domingo is dismissed and the
complaint against the Register of Deeds is likewise dismissed without costs.

SO ORDERED. [17]

Respondents appealed to the Court of Appeals, reiterating the reliefs prayed for in their complaint
below.  On November 22, 2000, the Court of Appeals rendered the assailed Decision, the decretal
[18]

portion of which reads:

IN THE LIGHT OF ALL THE FOREGOING, the appeal is GRANTED. The Decision of the
Court a quo appealed from is SET ASIDE AND REVERSED. Another Decision is hereby rendered
in favor of the Appellants as follows:
1. The Affidavit of Self-Adjudication (Exhibit G), Transfer Certificate of Title No.
7299 (Exhibits N and 22, Domingo), the Deed of Absolute Sale (Exhibit 20) and Transfer
Certificate of Title No. 7673 (Exhibit 21) are hereby declared null and void.

2. Transfer Certificate of Title No. 57218 (11664), under the names of Cesar P. Roces and Lilia
Montinola, is hereby reinstated.

3. The Appellees are hereby ordered to pay, jointly and severally, to the Appellants the amount of
P50,000.00 as and by way of attorneys fees.

4. Appellants claims for actual, moral and exemplary damages are dismissed.

5. The Appellee Reynaldo Montinola is hereby ordered to pay to the Appellees Spouses Domingo
the amount of P1,800,000.00, with interest thereon at the rate of 12% per annum from the date of
the Decision of this Court until the said amount is paid in full by the said Appellee, the other cross-
claims of the Appellees, inter se, are dismissed.

SO ORDERED. [19]

Petitioners filed a Motion for Reconsideration,  which was denied in a Resolution dated March
[20]

15, 2000.  Hence this petition, raising the following errors:

[21]

1. THE COURT OF APPEALS ERRED IN HOLDING THAT THE ANNOTATION IN THE

TITLE REGARDING SEC. 4, RULE 74 IS AN ENCUMBRANCE WHICH DISQUALIFIES
PETITIONERS FROM BEING INNOCENT PURCHASERS FOR VALUE;

2. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT IT WAS RESPONDENTS

WHO MADE IT POSSIBLE FOR REYNALDO MONTINOLA TO PERPETUATE THE FRAUD
AND, THEREFORE, THEY SHOULD BE THE ONE TO BEAR RESULTING DAMAGE;

3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENTS HAVE NO

EXISTING INTEREST IN THE PROPERTY SINCE IT WAS PREVIOUSLY MORTGAGED
AND FORECLOSED BY THE G.S.I.S.; AND

4. THE COURT OF APPEALS ERRED IN HOLDING PETITIONERS LIABLE TO

RESPONDENTS FOR ATTORNEYS FEES, THEREBY ADDING MORE INJURY TO THEIR
MISFORTUNE. [22]

The petition lacks merit.

It is true that one who deals with property registered under the Torrens system need not go
beyond the same, but only has to rely on the title. He is charged with notice only of such burdens and
claims as are annotated on the title.However, this principle does 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. One who falls within the exception can neither be denominated an innocent purchaser for
value nor a purchaser in good faith. [23]

As stated above, the titles, namely, TCT Nos. 7299 and 7673, contained annotations which made
reference to the provisions of Rule 74, Section 4 of the Rules of Court, viz:

SEC. 4. Liability of distributees and estate. If it shall appear at any time within two (2) years after
the settlement and distribution of an estate in accordance with the provisions of either of the first
two sections of this rule, that an heir or other person has been unduly deprived of his lawful
participation in the estate, such heir or such other person may compel the settlement of the estate in
the courts in the manner hereinafter provided for the purpose of satisfying such lawful
participation. And if within the same time of two (2) years, it shall appear that there are debts
outstanding against the estate which have not been paid, or that an heir or other person has been
unduly deprived of his lawful participation payable in money, the court having jurisdiction of the
estate may, by order for that purpose, after hearing, settle the amount of such debts or lawful
participation and order how much and in what manner each distributee shall contribute in the
payment thereof, and may issue execution, if circumstances require, against the bond provided in
the preceding section or against the real estate belonging to the deceased, or both. Such bond and
such real estate shall remain charged with a liability to creditors, heirs, or other persons for the full
period of two (2) years after such distribution, notwithstanding any transfers of real estate that may
have been made. [24]

The foregoing rule clearly covers transfers of real property to any person, as long as the deprived
heir or creditor vindicates his rights within two years from the date of the settlement and distribution of
estate. Contrary to petitioners contention, the effects of this provision are not limited to the heirs or
original distributees of the estate properties, but shall affect any transferee of the properties.
In David v. Malay,  it was held that the buyer of real property the title of which contain an
[25]

annotation pursuant to Rule 74, Section 4 of the Rules of Court cannot be considered innocent
purchasers for value. In the same vein, the annotation at the back of TCT No. 7299 in this case
referring to Rule 74, Section 4 of the Rules of Court was sufficient notice to petitioners of the limitation
on Montinolas right to dispose of the property. The presence of an irregularity which excites or
arouses suspicion should prompt the vendee to look beyond the certificate and investigate the title of
the vendor appearing on the face thereof.  Purchasers of registered land are bound by the
[26]

annotations found at the back of the certificate of title.

[27]

Hence, petitioners cannot be considered buyers in good faith and cannot now avoid the
consequences brought about by the application of Rule 74, Section 4 of the Rules of Court.
Petitioners claim that respondents were guilty of laches and estoppel is likewise
untenable. Laches is 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. The essential
elements of laches are: (1) conduct on the part of defendant or one under whom he claims, giving rise
to the situation complained of; (2) delay in asserting complainants right after he had knowledge of the
defendants conduct and after he has an opportunity to sue; (3) lack of knowledge or notice on the
part of the defendant that the complainant would assert the right on which he bases his suit; and (4)
injury or prejudice to the defendant in the event relief is accorded to the complainant. [28]

On the other hand, estoppel by laches arises from the 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.[29]

In the case at bar, only four months elapsed from the time respondents discovered Montinolas
fraudulent acts, sometime in May 1993, to the time they filed their complaint on September 6,
1993. This relatively short span of time can hardly be called unreasonable, especially considering that
respondents used this period of time to investigate the transfers of the property.  Delay is an [30]

indispensable requisite for a finding of estoppel by laches, but to be barred from bringing suit on
grounds of estoppel and laches, the delay must be lengthy and unreasonable.  No unreasonable
[31]

delay can be attributed to respondents in this case.

WHEREFORE, in view of the foregoing, the instant petition for review is DENIED.  The decision
and resolution of the Court of Appeals in CA-G.R. No. CV No. 62473 are AFFIRMED in toto.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Carpio, and Azcuna, JJ., concur.
 THIRD DIVISION
 

SPOUSES SAMUEL ULEP   G.R. No. 125254

(Deceased) and SUSANA  

REPOGIA-ULEP; SAMUEL ULEP Present:

is substituted by his surviving
 
spouses SUSANA REPOGIA-
ULEP and his children: SALLY, PANGANIBAN, J., Chairman
RENATO, RODELIO and RICHARD, SANDOVAL-GUTIERREZ,
all surnamed ULEP, and
VALENTINA ULEP, CORONA,

Petitioners, CARPIO MORALES and

  GARCIA, JJ.

   

- versus -  

   

   

HONORABLE COURT OF  
APPEALS, former Eight  
Division, IGLESIA NI CRISTO,
MAXIMA RODICO and spouses Promulgated:
WARLITO PARINGIT and  
ENCARNACION PARINGIT-
 
GANTE,
October 11, 2005
 Respondents.
x----------------------------------------------------------------------------------x
 

DECISION
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 Decision [1] dated August 15, 1995 of the
Court of Appeals (CA) in CA-G.R. CV. No. 39333,  and its Resolution[2] dated April 25,
1996, denying petitioners motion for reconsideration.
 
The assailed decision modified the June 17, 1991 decision [3] 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 latters 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
latters 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, 1975[4] 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 (Samuels) 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 latters 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.
12690[5] 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
petitioners 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, Atinedoros
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)                                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 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)        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 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] INCs 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 latters 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 buyers rights except where the second buyer registers in good
faith the second sale ahead of the first, as provided by the aforequoted provision of
the Civil Code. Such knowledge of the first buyer does not bar him from availing of his
rights under the law, among them to register first  his purchase as against the second
buyer. 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 buyers 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 Samuels and
Susanas 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, INCs 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 INCs 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 Warlitos and Encarnacions 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
 
FIRST DIVISION
 
SPOUSES RAMY and ZENAIDA   G.R. No. 170073
PUDADERA,
Petitioners,    
    Present:
- versus -    
    CORONA, C. J., Chairperson,
IRENEO MAGALLANES and the   VELASCO, JR.,
late DAISY TERESA CORTEL LEONARDO-DE CASTRO,
MAGALLANES substituted by DEL CASTILLO, and
her children, NELLY M. PEREZ, JJ.
MARQUEZ, ELISEO  
MAGALLANES and ANGEL Promulgated:
MAGALLANES,
Respondents.   October 18, 2010
x-------------------------------------------------------------------x

 
DECISION
 
DEL CASTILLO, J.:
 
One is considered a buyer in bad faith not only when he purchases real estate with knowledge of
a defect or lack of title in his seller but also when he has knowledge of facts which should have alerted
him to conduct further inquiry or investigation.
 
This Petition for Review on Certiorari seeks to reverse and set aside the Court of Appeals
(CAs) June 6, 2005 Decision[1] in CA-G.R. CV No. 55850, which affirmed the September 3, 1996
Decision[2] of the Regional Trial Court (RTC) of Iloilo City, Branch 39 in Civil Case No.
22234. Likewise assailed is the September 20, 2005 Resolution[3] denying petitioners motion for
reconsideration.
Factual Antecedents
 
Belen Consing Lazaro (Lazaro) was the absolute owner of a parcel of land, Lot 11-E, with an
area of 5,333 square meters (sq. m.) located in the District of Arevalo, Iloilo City and covered by
Transfer Certificate of Title (TCT) No. T-51250. On March 13, 1979, Lazaro sold a 400 sq. m. portion
of Lot 11-E to Daisy Teresa Cortel Magallanes (Magallanes) for the sum of P22,000.00 under a
Contract To Sale[4] [sic] payable in two years. On July 21, 1980, upon full payment of the monthly
installments, Lazaro executed a Deed of Definite Sale[5] in favor of Magallanes. Thereafter, Magallanes
had the lot fenced and had a nipa hut constructed thereon.
 
The other portions of Lot 11-E were, likewise, sold by Lazaro to several buyers, namely,
Elizabeth Norada, Jose Macaluda, Jose Melocoton, Nonilon Esteya, Angeles Palma, Medina Anduyan,
Evangelina Anas and Mario Gonzales.[6] On July 14, 1980, Lazaro executed a Partition Agreement[7] in
favor of Magallanes and the aforesaid buyers delineating the portions to be owned by each
buyer. Under this agreement, Magallanes and Mario Gonzales were assigned an 800 sq. m. portion
of Lot 11-E, with each owning 400 sq. m. thereof, denominated as Lot No. 11-E-8 in a Subdivision
Plan[8] which was approved by the Director of Lands on August 25, 1980.
 
It appears that the Partition Agreement became the subject of legal disputes because Lazaro
refused to turn over the mother title, TCT No. T-51250, of Lot 11-E to the aforesaid buyers, thus,
preventing them from titling in their names the subdivided portions thereof. Consequently, Magallanes,
along with the other buyers, filed an adverse claim with the Register of Deeds of Ilolilo City which was
annotated at the back of TCT No. T-51250 on April 29, 1981.[9] Thereafter, Magallanes and Gonzales
filed a motion to surrender title in Cadastral Case No. 9741 with the then Court of First Instance
of Iloilo City, Branch 1 and caused the annotation of a notice of lis pendens at the back of TCT No. T-
51250 on October 22, 1981.[10]
 
On November 23, 1981, Lazaro sold Lot 11-E-8, i.e., the lot previously assigned to Magallanes
and Mario Gonzales under the aforesaid Partition Agreement, to her niece, Lynn Lazaro, and the latters
husband, Rogelio Natividad (Spouses Natividad), for the sum of P8,000.00.[11] As a result, a new title,
TCT No. T-58606,[12] was issued in the name of Spouses Natividad. Due to this development,
Magallanes pursued her claims against Spouses Natividad by filing a civil case for specific
performance, injunction and damages. On September 2, 1983, Magallanes caused the annotation of a
notice of lis pendens at the back of TCT No. T-58606.[13] Subsequently, Spouses Natividad subdivided
Lot 11-E-8 into two, Lot 11-E-8-A and Lot 11-E-8-B, each containing 400 sq. m.
The civil case filed by Magallanes was later dismissed by the trial court for lack of jurisdiction
as per an Order dated September 16, 1985 which was inscribed at the back of TCT No. T-58606 on
July 7, 1986.[14] Four days prior to this inscription or on July 3, 1986, Spouses Natividad sold Lot 11-E-
8-A (subject lot) to petitioner Ramy Pudadera (who later married petitioner Zenaida Pudadera on July
31, 1989) as evidenced by a Deed of Sale[15] for the sum of P25,000.00. As a consequence, a new title,
TCT No. 72734,[16] was issued in the name of the latter.
 
Sometime thereafter Magallanes caused the construction of two houses of strong materials on
the subject lot. On April 20, 1990, petitioners filed an action for forcible entry against Magallanes with
the Municipal Trial Court in Cities of Iloilo City, Branch 2. On July 17, 1991, the trial court dismissed
the action.[17] It held that Magallanes was first in possession of the subject lot by virtue of the Deed of
Definite Sale dated July 21, 1980 between Lazaro and Magallanes. After the aforesaid sale,
Magallanes filled the lot with soil; put up a fence; and built a small hut thereon. On the other hand, the
trial court found that when petitioner Ramy Pudadera bought the subject lot from Spouses Natividad on
July 3, 1986, the former had notice that someone else was already in possession of the subject lot.
Having failed to recover the possession of the subject lot through the aforesaid forcible entry case,
petitioners commenced the subject action for Recovery of Ownership, Quieting of Title and Damages
against Magallanes and her husband, Ireneo, in a Complaint[18] dated February 25, 1995. Petitioners
alleged that they are the absolute owners of Lot 11-E-8-A as evidenced by TCT No. T-72734; that
Magallanes is also claiming the said lot as per a Deed of Definite Sale dated July 21, 1980; that the lot
claimed by Magallanes is different from Lot 11-E-8-A; and that Magallanes constructed, without the
consent of petitioners, several houses on said lot. They prayed that they be declared the rightful owners
of Lot11-E-8-A and that Magallanes be ordered to pay damages.
 
In her Answer,[19] Magallanes countered that she is the absolute lawful owner of Lot 11-E-8-A;
that Lot 11-E-8-A belongs to her while Lot 11-E-8-B belongs to Mario Gonzales; that petitioners had
prior knowledge of the sale between her and Lazaro; that she enclosed Lot 11-E-8-A with a fence,
constructed a house and caused soil fillings on said lot which petitioners were aware of; and that she
has been in actual possession of the said lot from March 11, 1979 up to the present. She prayed that
TCT No. T-72734 in the name of petitioner Ramy Pudadera be cancelled and a new one be issued in
her name.
During the pendency of this case, Magallanes passed away and was substituted by her heirs,
herein respondents.
Ruling of the Regional Trial Court
 
On September 6, 1996, the trial court rendered judgment in favor of respondents, viz:
 
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
[respondents] and against the [petitioners]:
 
1.              Declaring the [respondent] Daisy Teresa Cortel Magallanes, substituted by
her heirs, Nelly M. Magallanes, Eliseo Magallanes and Angel Magallanes and Ireneo
Magallanes, as the rightful owners of Lot 11-E-8-A, Psd-06-002539, which is now
covered by Transfer Certificate of Title No. T-72734, still in the name of Ramy
Pudadera, situated in the District of Arevalo, Iloilo City, with an area of 400 square
meters more or less;
 
2.              The [petitioners] spouses Ramy Pudadera and Zenaida Pudadera are
hereby ordered to execute the necessary Deed of Reconveyance in favor of the above-
named parties, namely[,] Nelly M. Magallanes, Eliseo Magallanes, x x x Angel
Magallanes, and Ireneo Magallanes;
 
3.              Ordering the [petitioners] to pay jointly and severally the [respondents] the
amount of P10,000.00 as attorneys fees and the costs of the suit.
 
SO ORDERED. [20]

 
 
The trial court ruled that respondents are the rightful owners of the subject lot which was sold by
Lazaro to their predecessor-in-interest, Magallanes, on July 21, 1980. When Lazaro sold the subject lot
for a second time to Spouses Natividad on November 23, 1981, no rights were transmitted because, by
then, Magallanes was already the owner thereof. For the same reason, when Spouses Natividad
subsequently sold the subject lot to petitioners on July 3, 1986, nothing was transferred to the latter.
 
The trial court further held that petitioners cannot be considered buyers in good faith and for value
because after Magallanes bought the subject lot from Lazaro, Magallanes immediately took possession
of the lot, and constructed a fence with barbed wire around the property. The presence of these
structures should, thus, have alerted petitioners to the possible flaw in the title of the Spouses Natividad
considering that petitioners visited the subject lot several times before purchasing the same. Neither
can petitioners claim that the title of the subject lot was clean considering that a notice of lis
pendens was annotated thereon in connection with a civil case that Magallanes filed against Spouses
Natividad involving the subject lot. Although the notice of lis pendens was subsequently cancelled on
July 7, 1986, the deed of sale between petitioners and Spouses Natividad was executed on July 3, 1986
or four days before said cancellation. Thus, petitioners had notice that the subject property was under
litigation. Since respondents are the rightful owners of the subject lot, petitioners should execute a deed
of conveyance in favor of the former so that a new title may be issued in the name of the respondents.
 
Ruling of the Court of Appeals
 
On June 6, 2005, the CA rendered the assailed Decision:
WHEREFORE, with all the foregoing, the decision of the Regional Trial Court, Branch
39, Iloilo City dated September 3, 1996 in civil case no. 22234 for Quieting of Title,
Ownership and Damages is hereby AFFIRMED in toto.
 
All other claims and counterclaims are hereby dismissed for lack of factual and legal basis.
 
No pronouncement as to cost.
 
SO ORDERED. [21]

 
 
In affirming the ruling of the trial court, the appellate court reasoned that under the rule on double sale
what finds relevance is whether the second buyer registered the second sale in good faith, that is,
without knowledge of any defect in the title of the seller. Petitioners predecessor-in-interest, Spouses
Natividad, were not registrants in good faith. When Magallanes first bought the subject lot from Lazaro
on July 21, 1980, Magallanes took possession of the same and had it fenced and filled with soil. This
was made way ahead of the November 23, 1981 Deed of Sale between Lazaro and Spouses
Natividad. With so much movement and transactions involving the subject lot and given that Lyn
Lazaro-Natividad is the niece of Lazaro, the appellate court found it hard to believe that the Spouses
Natividad were completely unaware of any controversy over the subject lot.
 
The CA, likewise, agreed with the trial court that at the time petitioners acquired the subject lot from
Spouses Natividad on July 3, 1986, a notice of lis pendens was still annotated at the back of TCT No.
T-58606 due to a civil case filed by Magallanes against Spouses Natividad. Although the case was
subsequently dismissed by the trial court for lack of jurisdiction, the notice of lis pendens was still
subsisting at the time of the sale of the subject lot between Spouses Natividad and petitioners on July 3,
1986 because the lis pendens notice was cancelled only on July 7, 1986. Consequently, petitioners
cannot be considered buyers and registrants in good faith because they were aware of a flaw in the title
of the Spouses Natividad prior to their purchase thereof.
 
Issues
 
1.           The Court of Appeals erred in not considering the judicial admissions of Magallanes as well as
the documentary evidence showing that she was claiming a different lot, Lot No. 11-E-8-B, and not
Lot 11-E-8-A which is registered in the name of petitioners under TCT No. T-72734, consequently,
its findings that Magallanes is the rightful owner of Lot 11-E-8-A is contrary to the evidence on
record;
 
2.           The Court of Appeals erred in applying the principle of innocent purchasers for value and in good
faith to petitioners. Granting that the said principle may be applied, the Court of Appeals erred in
finding that petitioners are not innocent purchasers for value;
 
3.           The Court of Appeals erred in affirming the award of attorneys fees against the petitioners.[22]
 
Petitioners Arguments
 
Petitioners postulate that the subject lot is different from the lot which Magallanes bought from
Lazaro. As per Magallanes testimony in the ejectment case, she applied for the zoning permit for Lot
11-E-8-B and not Lot 11-E-8-A. Further, the tax declarations submitted in evidence therein showed
that Magallanes paid for the real estate taxes of Lot 11-E-8-B and not Lot 11-E-8-A. Hence, there is
no conflict of claims since petitioners are asserting their rights over Lot 11-E-8-A while
respondents claim ownership over Lot 11-E-8-B. Moreover, assuming that there was a double sale,
the same did not involve petitioners. The first sale was between Lazaro and Magallanes while the
second sale was between Lazaro and Spouses Natividad. It was erroneous for the appellate court to
conclude that Lyn Natividad was in bad faith simply because she is the niece of Lazaro. The
Spouses Natividad were not impleaded in this case and cannot be charged as buyers in bad faith
without giving them their day in court. Petitioners claim that respondents should first impugn the
validity of Spouses Natividads title by proving that the latter acted in bad faith when they bought
the subject lot from Lazaro. Petitioners aver that the evidence on record failed to overcome the
presumption of good faith. Considering that Spouses Natividad were buyers in good faith and
considering further that petitioners title was derived from Lazaro, petitioners should, likewise, be
considered buyers in good faith.
 
Petitioners further argue that the rule on notice of lis pendens was improperly applied in this
case. The trial courts order dismissing the civil case filed by Magallanes against Spouses Natividad
had long become final and executory before petitioners bought the subject lot from Spouses
Natividad. While it is true that the order of dismissal was annotated at the back of TCT No. T-
58606 only on July 7, 1986 or four days after the sale between Spouses Natividad and petitioners,
the cancellation of the notice of lis pendens was a mere formality. In legal contemplation, the notice
was, at the time of the sale on July 3, 1986, ineffective. Citing Spouses Po Lam v. Court of
Appeals,[23] petitioners contend that the then existing court order for the cancellation of the lis
pendens notice at the time of the sale made them buyers in good faith.
 
Finally, petitioners question the award of attorneys fees in favor of respondents for lack of
basis. Petitioners claim that they should be awarded damages because respondents unlawfully
prevented them from taking possession of the subject lot.
 
Respondents Arguments
 
Respondents counter that they are in possession of, and claiming ownership over the subject
lot, i.e., Lot 11-E-8-A, and not Lot 11-E-8-B. The claim of petitioners that the subject lot is
different from what respondents assert to be lawfully theirs is, thus, misleading. The subject lot was
acquired by respondents predecessor-in-interest, Magallanes, when Lazaro sold the same to
Magallanes through a contract to sell in 1979 and a deed of sale in 1980 after full payment of the
monthly installments.
After executing the contract to sell, Magallanes immediately took possession of the subject
lot; constructed a fence with barbed wire; and filled it up with soil in preparation for the
construction of concrete houses. She also built a nipa hut and stayed therein since 1979 up to her
demise. Respondents emphasize that upon payment of the full purchase price under the contract to
sell and the execution of the deed of sale, Magallanes undertook steps to protect her rights due to
the refusal of Lazaro to surrender the mother title of the subject lot. Magallanes recorded an
adverse claim at the back of the mother title of the subject lot and an initial notice of lis pendens
thereon. She then filed a civil case against Lazaro, and, later on, against Lazaros successors-in-
interest, Spouses Natividad, which resulted in the inscription of a notice of lis pendens on TCT No.
51250 and TCT No. T-58606. When petitioners bought the subject lot from Spouses Natividad on
July 3, 1986, the said notice of lis pendens was subsisting because the court dismissal of said case
was inscribed on the title only on July 7, 1986. Petitioners cannot, therefore, be considered buyers
in good faith. 
 
Our Ruling
 
 
We affirm the decision of the CA with modifications.
 
 
Petitioners and respondents are claiming ownership over the same lot.
 
 
 
Petitioners contend that they are claiming ownership over Lot 11-E-8-A while Magallanes claim is over Lot 11-
E-8-B. Thus, there is no conflict between their claims.
 
 
The argument is specious.
 
 
It is clear that Magallanes is claiming ownership over Lot 11-E-8-A and not Lot 11-E-8-B. In her Answer to the
Complaint, she alleged that she is the absolute lawful owner of Lot 11-E-8-A.[24] Her act of fencing Lot 11-E-
8-A and constructing two houses of strong materials thereon further evince her claim of ownership over the
subject lot. Thus, in the forcible entry case which petitioners previously filed against Magallanes involving the
subject lot, the trial court noted:
 
 
At the pre-trial conference held on June 13, 1990, both parties agreed to a relocation survey of the lot
whereupon the Court commissioned the Bureau of Lands to undertake a relocation survey of the lot in question.
 
 
On October 1, 1990, the Bureau of Lands thru Engr. Filomeno P. Daflo submitted the relocation survey report
with the following findings: x x x
 
 
xxxx
 
5. That it was ascertained in our investigation that the entire lot occupied by
[Magallanes] (lot 11-E-8-A) is the very same lot claimed by the [petitioners], as
pointed out by its representative.[25] (Emphasis supplied.)
 
 
After losing in the aforesaid forcible entry case, petitioners commenced the subject action for
quieting of title and recovery of ownership over Lot 11-E-8-A. Plainly, both parties are asserting
ownership over the same lot, i.e. Lot 11-E-8-A, notwithstanding the error in the entries made by
Magallanes in her zoning application and tax declaration forms.
 
The notice of lis pendens at the back of the mother title of
the subject lot was already ordered cancelled at the time of
the sale of the subject lot to petitioners, hence, said notice
cannot be made a basis for finding petitioners as buyers in
bad faith.
 
 
A notice of lis pendens at the back of the mother title (i.e., TCT No. T-58606) of Lot 11-E-8-
A was inscribed on September 2, 1983 in connection with the civil case for specific performance,
injunction and damages which Magallanes filed against Spouses Natividad. This case was
subsequently dismissed by the trial court for lack of jurisdiction in an Order dated September 16,
1985 which has already become final and executory as per the Certification dated June 16, 1986
issued by the Branch Clerk of Court of the RTC of Iloilo City, Branch 33. [26] The aforesaid court
dismissal was, however, inscribed only on July 7, 1986 or three days after the sale of the subject lot to
petitioners.[27]
 
Based on these established facts, petitioners correctly argue that the said notice of lis
pendens cannot be made the basis for holding that they are buyers in bad faith. Indeed, at the time of
the sale of the subject lot by Spouses Natividad to petitioners on July 7, 1986, the civil case filed by
Magallanes against Spouses Natividad had long been dismissed for lack of jurisdiction and the said
order of dismissal had become final and executory. In Spouses Po Lam v. Court of Appeals,[28] the
buyers similarly bought a property while a notice of lis pendens was subsisting on its
title. Nonetheless, we ruled that the buyers cannot be considered in bad faith because the alleged flaw,
the notice of lis pendens, was already being ordered cancelled at the time of the sale and the
cancellation of the notice terminated the effects of such notice.[29]
 
This notwithstanding, petitioners cannot be considered buyers in good faith because, as will be
discussed hereunder, they were aware of other circumstances pointing to a possible flaw in the title of
Spouses Natividad prior to the sale of the subject lot. Despite these circumstances, petitioners did not
take steps to ascertain the status of the subject lot but instead proceeded with the purchase of the same.
 
One who buys a property with knowledge of facts which
should put him upon inquiry or investigation as to a possible
defect in the title of the seller acts in bad faith.
 
 
Lot 11-E-8, of which the subject lot (i.e., Lot 11-E-8-A) forms part, was sold by Lazaro to two
different buyers. As narrated earlier, Lot 11-E-8 is a portion of Lot 11-E, a 5,333 sq. m. lot covered by
TCT No. T-51250. Lazaro subdivided the said lot and sold portions thereof to several buyers. One of
these buyers was Magallanes who purchased a 400 sq. m. portion on March 13, 1979. The metes and
bounds of this lot were later delineated in a Partition Agreement dated July 14, 1980 executed by
Lazaro in favor of the aforesaid buyers. As per this agreement, Magallanes and Mario Gonzales were
assigned Lot 11-E-8 comprising 800 sq. m with each owning a 400 sq. m. portion thereof. This was
the first sale involving Lot 11-E-8.
 
After the aforesaid sale, it appears Lazaro refused to turnover the mother title of Lot 11-E which
resulted in the filing of legal suits by Magallanes and the other buyers against her (Lazaro). While these
suits were pending, Lazaro sold Lot 11-E-8 to her niece Lynn and the latters husband Rogelio
Natividad on November 23, 1981. Consequently, a new title, TCT No. T-58606, was issued
covering Lot 11-E-8 in the name of Spouses Natividad. This was the second sale of Lot 11-E-8.
 
Subsequently, Spouses Natividad subdivided Lot 11-E-8 into two, i.e., Lot 11-E-8-A and Lot
11-E-8-B, with each containing 400 sq. m. On July 3, 1986, they sold Lot 11-E-8-A to petitioners. Lot
11-E-8-A is the 400 sq. m. portion of Lot 11-E-8 which Magallanes claims to be owned by her
pursuant to the aforesaid Partition Agreement while the other half, Lot 11-E-8-B, pertains to the lot of
Mario Gonzales.
 
The question before us, then, is who between petitioners and respondents have a better right
over Lot 11-E-8-A?
 
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.
 
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.
 
 
Thus, in case of a double sale of immovables, ownership shall belong 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.[30] However, mere registration is not enough to confer ownership. The law requires that the
second buyer must have acquired and registered the immovable property in good faith. In order for the
second buyer to displace the first buyer, the following must be shown: (1) the second buyer must show
that he acted in good faith (i.e., in ignorance of the first sale and of the first buyers rights) from the time
of acquisition until title is transferred to him by registration or failing registration, by delivery of
possession; and (2) the second buyer must show continuing good faith and innocence or lack of
knowledge of the first sale until his contract ripens into full ownership through prior registration as
provided by law.[31]
 
One is considered a purchaser in good faith if he buys the 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.[32]  Well-settled is the 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.[33] 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. [34]  His mere refusal to
believe that such defect exists, or his willful closing of his eyes to the possibility of the existence of a
defect in his vendors title will not make him an innocent purchaser for value if it later develops that the
title was in fact defective, and it appears that he had such notice of the defect had he acted with that
measure of precaution which may reasonably be required of a prudent man in a like situation.[35]
 
In the case at bar, both the trial court and CA found that petitioners were not buyers and registrants in
good faith owing to the fact that Magallanes constructed a fence and small hut on the subject lot and
has been in actual physical possession since 1979. Hence, petitioners were aware or should have been
aware of Magallanes prior physical possession and claim of ownership over the subject lot when they
visited the lot on several occasions prior to the sale thereof. Thus, the trial court held:
 
This Court believes the version of [Magallanes], that when she bought the property
from [Lazaro], she took immediate possession of the 400-square meter portion and
constructed a fence [with] barbed wire surrounding the said property. She also constructed a
house made of nipa, bamboo and concrete materials. This fact was even confirmed by
[petitioner] Zenaida Pudadera in her testimony.
 
This Court cannot believe the testimony of [petitioner] Zenaida Pudadera that they
were the ones who constructed the fence surrounding the 400-square meter portion, because
there was already an existing fence made of bamboos and barbed wire put up by
[Magallanes]. When the [petitioners] therefore, visited the land in question, several times
before the purchase, particularly [petitioner] Ramy Pudadera, he must have seen the fence
surrounding the property in question. He should have been curious why there was an existing
fence surrounding the property? [sic] He should have asked or verified as to the status of the
said property. A real estate buyer must exercise ordinary care in buying x x x real estate,
especially the existence of the fence in this case which must have [alerted him to inquire]
whether someone was already in possession of the property in question.[36]
 
 
We find no sufficient reason to disturb these findings. The factual findings of the trial court are
accorded great weight and respect and are even binding on this Court particularly where, as here, the
findings of the trial and appellate courts concur.[37] Although this rule is subject to certain exceptions,
we find none obtaining in this case.
 
Petitioners next argue that since the second sale involves Lazaro and their predecessor-in-
interest, Spouses Natividad, due process requires that Spouses Natividad should first be allowed to
establish that they (Spouses Natividad) are second buyers and first registrants in good faith before any
finding on petitioners own good faith can be made considering that they (petitioners) merely acquired
their title from Spouses Natividad. Petitioners lament that Spouses Natividad were not impleaded in
this case. Thus, the finding that petitioners acted in bad faith was improper.
 
The argument fails on two grounds.
 
First, as previously explained, the evidence duly established that petitioners were aware of facts
pointing to a possible flaw in the title of Spouses Natividad when they visited the subject lot on several
occasions prior to the sale. This, by itself, was sufficient basis to rule that they acted in bad faith. Stated
differently, the presence or absence of good faith on the part of Spouses Natividad during the second
sale involving the subject lot will not erase the bad faith of petitioners in purchasing the subject lot
from Spouses Natividad.
 
Second, petitioners miscomprehend the right to due process. The records indicate that at no
instance during the trial of this case were they prevented from presenting evidence, including the
testimonies of Spouses Natividad, to support their claims. Thus, they were not denied their day in
court. Petitioners seem to forget that they were the ones who filed this action to recover ownership and
quiet title against Magallanes. If petitioners intended to bolster their claim of good faith by impleading
the Spouses Natividad in this case, there was nothing to prevent them from doing so. Time and again,
we have ruled that the burden of proof to establish the status of a purchaser and registrant in good faith
lies upon the one who asserts it.[38] This onus probandi cannot be discharged by mere invocation of the
legal presumption of good faith.[39]
 
In sum, petitioners were negligent in not taking the necessary steps to determine the status of the
subject lot despite the presence of circumstances which would have impelled a reasonably cautious
man to do so. Thus, we affirm the findings of the lower courts that they cannot be considered buyers
and registrants in good faith. Magallanes, as the first buyer and actual possessor, was correctly
adjudged by the trial court as the rightful owner of the subject lot and the conveyance thereof in favor
of her heirs, herein respondents, is proper under the premises. In addition, the trial court should be
ordered to cause the cancellation of TCT No. T-72734 by the Register of Deeds of Iloilo City and the
issuance of a new certificate of title in the names of respondents. [40] This is without prejudice to any
remedy which petitioners may have against Spouses Natividad and/or Lazaro.
 
The award of attorneys fees is improper.
 
On the issue of the propriety of attorneys fees which the trial court awarded in favor of
respondents, we are inclined to agree with petitioners that the same should be deleted for lack of
basis. An award of attorneys fees is the exception rather than the rule.[41] The right to litigate is so
precious that a penalty should not be charged on those who may exercise it erroneously.[42] It is not
given merely because the defendant prevails and the action is later declared to be unfounded unless
there was a deliberate intent to cause prejudice to the other party.[43] We find the evidence of bad faith
on the part of petitioners in instituting the subject action to be wanting. Thus, we delete the award of
attorneys fees.
 
WHEREFORE, the petition is PARTIALLY GRANTED. The June 6, 2005 Decision and
September 20, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 55850
are AFFIRMED with the following MODIFICATIONS: (1) The Regional Trial Court of Iloilo City,
Branch 39 is ORDERED to cause the cancellation by the Register of Deeds of Iloilo City of TCT No.
T-72734 and the issuance, in lieu thereof, of the corresponding certificate of title in the names of
respondents, heirs of Daisy Teresa Cortel Magallanes, and (2) The award of attorneys fees in favor of
respondents is DELETED.
 
No pronouncement as to costs.
 
SO ORDERED.

G.R. No. L-41233 November 21, 1979

J.M. TUASON & CO., INC., petitioner, 

vs.
HON. COURT OF APPEALS, ALFONSO DE LEON and ROSARIO G. DE LEON, respondents.

Araneta, Mendoza & Papa for petitioner.

Martin B. Laurea for private respondents.

DE CASTRO, J.:

Appeal by certiorari from the decision of respondent Court of Appeals (CA-G.R. No. 54695-R) affirming with
modification the decision of the Court of First Instance of Manila in Civil Case No. 89119, which is an action based
on warranty against eviction, and to recover the value of a subdivision lot at the time of eviction, plus damages.

The following facts may be regarded as without any dispute:

On January 31, 1952, petitioner J.M. Tuason & Co., Inc. executed, in favor of Ricardo de Leon, a contract to sell Lot
No. 15, Block 460 of the Sta. Mesa Heights Subdivision containing an area of 1,703.6 square meters with the
agreed price of P24.60 per square meter or a total of P41,908.56. At the execution of the contract, Ricardo de Leon
paid the down-payment of P4,190.86 and agreed to pay the balance in the monthly installment of P498.63 including
the agreed annual interest of 10% (Exhibit A).

Meanwhile, on April 10, 1953, petitioner signed a compromise agreement with the Deudors (in another Civil Case
No. Q-135, captioned Florencio Deudor, et al. vs. J.M. Tuason, et al.).

On July 19, 1965 with the consent of the petitioner, Ricardo de Leon transferred all his rights to the lot in favor of his
parents, herein private respondents Alfonso and Rosario de Leon (exhibit B). On the same date, private
respondents paid the outstanding balance of the purchase price (Exhibit 1-B). On August 5, 1965 petitioner
executed in favor of private respondents the deed of sale over the lot (Exhibit C) and upon its registration, the
Register of Deeds issued to the respondents the Transfer Certificate of Title No. 96143 (Exhibit 3; Annex B, Rollo,
39-40).
At the time of the execution of the contract to sell, the contracting parties knew that a portion of the lot in question
was actually occupied by Ramon Rivera. However, it was their understanding that the latter will be ejected by the
petitioner from the premises (Annex B, Id).

On May 13, 1958, herein petitioner filed a complaint of ejectment against Ramon Rivera before the Court of First
Instance of Rizal (Civil Case No. Q-2989) and later petitioner petitioner Ricardo de Leon and respondents Alfonso
and Rosario de Leon as necessary parties. In this Civil Case No. Q-2989, the decision of the lower court, principally
based on the compromise agreement executed in another Civil Case No. Q-135 entitled Florencio Deudor, et al. vs.
J.M. Tuason, et al. has the following dispositive portion:

WHEREFORE, the complaint against the defendant Ramon Rivera is hereby DISMISSSED ordering
the plaintiff to enter into an agreement with Ramon Rivera allowing said defendant to purchase
1,050 square meters to land now covered by Lot 15, Block 460 of the Sta. Mesa Heights
Subdivision to be priced at the prevailing cost in the year 1958 which is placed by this Court to be
P60.00 per square meters; to pay attorney's fees of P3,000.00 to defendant Ramon Rivera, with
costs against the plaintiff ... (Emphasis supplied)

The Court of Appeals wholly affirmed this decision with costs against plaintiff-appellant J.M. Tuason & Co., Inc. (CA-
G.R. No. 38212-R), and denied the motion for reconsideration filed by the other plaintiffs-appellants Alfonso and
Rosario de Leon, stating among others: ... We believe, however, that these questions should be properly ventilated
in the proper action which the plaintiffs- appellants, the De Leons, may file against the plaintiff-appellant (J.M.
Tuason & Co., Inc.) for failure of the latter to deliver to them the possession of the whole of Lot 15, Block 460 of the
Sta. Mesa Heights Subdivision ... (Annex E, 4-5).

This decision of the Court of Appeals became final and executory in September, 1971 when the De Leons were
evicted from the premises in question (Annex E, 6).

Pursuing the step as suggested by the Court of Appeals advising herein private respondents to file the proper action
the latter instituted on December 5,1972 before the Court of First Instance of Manila, Branch XXIX, Civil Case No.
89119, an action against J.M. Tuason & Co., Inc. to enforce the vendor's warranty against eviction or to recover the
value of the land amounting to P315,000.00, plus damages.

The lower court decided the case against herein petitioner J.M. & Co., Inc. (defendant below) disposing as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant:

(1) Ordering defendant to pay plaintiffs the sum of TWO HUNDRED TEN THOUSAND
(P210,000.00) PESOS representing the value of the 1,050 square meters at P200.00 per square
meter, from which the latter were evicted, with legal interest from December 5, 1972, the date of
filing of the complaint;

(2) Ordering defendant to pay plaintiffs the sum of TWENTY FIVE THOUSAND (P25,000.00)
PESOS, by lay of moral damages, TEN THOUSAND (P10,000.00) PESOS, by way of exemplary
damages, and FIFTEEN THOUSAND (P15,000.00) PESOS, for and as attorney's fees; and

(3) For costs of this suit.

This decision of the lower court was appealed to herein respondent Court of Appeals (CA-G.R. No. 54695-R), which
on July 2, 1975 affirmed it with the sole modification on the reduction of the awarded moral damages from
P25,000.00 to P5,000.00 (Annex B, Rollo, p. 52).

Hence, this petition before Us with the prayer that the decision of respondent court be reversed and another
rendered, 'dismissing the complaint and ordering respondents De Leons to accept from petitioner J.M. Tuason &
Co., Inc. the sum of P60.00 per square meter for the 1,050 square meters which the petitioner was ordered to sell to
Ramon Rivera, and to pay petitioner P30,000.00 as attorney's fees plus costs.

Petitioner J. M. Tuason & Co., Inc. alleges that dent court erred: (1) in holding that the compromise agreement was
the proximate cause of its failure to comply with its contract to self in favor of Ricardo de Leon; (2) in holding that it
entered into the compromise agreement without the knowledge and behind the back of Ricardo de Leon and
thereafter continued the collection of the installments until the purchase price was fully paid and thus it wilfully
committed fraud against him; (3) in not considering that Ricardo de Leon was guilty of bad faith in entering into the
contract to sell and therefore he is not entitled to the warranty against eviction; and (4) in granting moral and
exemplary damages.

The real point in issue is whether respondents De Leon are entitled to the vendor's warranty against eviction and
damages.

The appellate court, in this action of warranty against eviction, found that petitioner J.M. Tuason & Co., Inc. failed to
comply with its obligation to transfer ownership over the lot to the De Leons due to the compromise agreement it
entered with the Deudors, and that petitioner is guilty of "wilful deception, intentional forsaking of one to whom
defendant was bound in a contract to convey, and worse yet, even at that, after the compromise, defendant still
continued to collect installments from buyer ...

Contrary to these findings, this Court holds that it was not petitioner's own making that it executed the compromise
agreement with the Deudors. This agreement was sanctioned by the court after the Deudors filed an action against
petitioner in Civil Case No. Q-135 entitled "Florencio Deudor, et al. vs. J.M. Tuason et al." The prior right of Ramon
Rivera to purchase the lot in litigation was based more on his prior occupancy to the same since 1949, about which
fact respondents De Leon were informed by petitioner at the time of the execution of the contract to sell. The
execution of the compromise agreement merely recognized this prior right, under the condition as stipulated in said
agreement, that it was possible to do so.

Petitioner claims, without having been contradicted, that it executed the compromise agreement with the Deudors in
the honest belief that the lots it already sold. like the lot in question, were excluded from the coverage of the
agreement. This claim finds support in paragraph "SEVENTH" of the compromise agreement which reads ... It shall
be the joint and solidary obligation of the Deudors to make the buyers of the lots purportedly sold by them recognize
the title of the OWNERS over the property purportedly bought by them, and to make them sign, whenever possible,
new contracts of purchase for the said property at the current prices and terms specified by the OWNERS in their
sales of lots in their subdivision known as Sta. Mesa Heights Subdivision ... " (Annex C, Rollo, p. 55). In fact, in their
brief as appellants in CA-G.R. No. 38212-R, private respondents stated that "as correctly pointed out in the brief for
plaintiff-appellant, it was not the intention of the signatories of the Compromise Agreement to include within its
coverage those parcels of land already sold by plaintiff-appellant (petitioner herein) to third parties," and "We
reproduce herein by way of reference the arguments in pp. 1-2 to 39 of plaintiffs- appellants' brief." (See Annex C,
Petition, pp. 3-4). Private respondents should not be allowed to turn back from what they stated in their brief in CA-
G.R. No. 38212-R, to impute "wilful deception" as the respondent court said in its decision under review.

This particular stipulation in the compromise agreement discloses an understanding between the petitioner and the
Deudors that the buyers of lots from the Deudors, like Ramon Rivera, may, acquire lots from the subdivision being
sold by petitioner and sign new contracts of purchase with the latter 6 whenever possible", or only when said lots
have not already been sold to third 'parties. Relying on the above-quoted provision, petitioner believed in good faith
that said lot sold to the De Leons would not be adversely affected. Nonetheless, with the inevitable and admitted
fact that Ramon Rivera was a prior occupant thereof, petitioner was compelled by judicial fiat in Civil Case No. 2989
of the Court of First Instance of Rizal, to recognize the preferential right of Rivera to rightfully purchase the lot. This
fact is not of itself a proof under the circumstance just cited, of bad faith on the part of the petitioner or that it is guilty
of committing fraud and deception upon the respondents as the respondent court found. Its good faith in with
Ricardo de Leon who was the one branded as a "buyer in bad faith" by the Court of Appeals in its decision affirming
of the Court of First Instance of Rizal in CA-G.R. No. No. 38212-R seems beyond question.

If petitioner continued the collection of the outstanding monthly after the execution of the compromise agreement on
April 10,1953 pursuant to the agreements embodied in the contract to sell (Exhibit A), its act only proved its honest
belief that it found no barrier against the enforceability of the contract to sell, the terms of which have the force of
law between the parties and must be complied with in good faith (Lazo vs. Republic Surety & Insurance Co., Inc.,
311 SCRA 329; Ramos vs. Central Bank of the Philippines, 41 SCRA 565; Enriquez vs. Ramos, 73 SCRA 116; De
Cortes vs, Venturanza, 79 SCRA 709). The collection of the monthly installment payments terminated upon the fun
payment of the purchase price on July 19, 1965, long before the ejectment case against Ramon Rivera was finally
resolved by the appellate court in September, 1971 (Civil Case No. Q-2989; CA-G.R. No. 38212-R). As properly
claimed by the petitioner, it had the right to hopefully expect to win the ejectment case. It was not exactly its fault
that it lost the case. Private respondents joined in a common cause with it.

The subsequent execution of a deed of sale upon the total payment of the purchase price in favor of herein
respondents on August 5, 1965 in lieu of the previous contract to sell made in favor of Ricardo de Leon, through
which deed of sale the respondents acquired a transfer certificate of title over the questioned lot, is further evidence
of the honesty and good faith of petitioner in dealing with private respondents. Petitioner owns vast tracts of land,
with the lot in question possibly put an insignificant part in terms of value, and it would be much too difficult to make
the serious imputations made to petitioner.

In fulfillment of the assurance made to eject the occupant from the lot, petitioner, on May 13, 1958, later joined by
Ricardo de Leon and respondents Alfonso and Rosario de Leon, instituted a complaint of ejectment against Ramon
Rivera in Civil Case No. Q- 2989. Unfortunately, however, the decision of the lower court dismissing the complaint of
ejectment was affirmed by the appellate court in CA-G.R. No. 38212-R, which decision, of the latter upon its finality
in September, 1971 resulted in the eviction of herein respondents from the lot. It is meet, at this juncture, to repeat
that in its decision, the Court of Appeals branded Ricardo de Leon as a buyer in bad faith.

In manifesting its desire to compensate respondents, as disclosed by prayer in the instant petition in the sum of
P60.00 per square meter for the 1,050 meters which it was ordered by the courts, in Civil Case No. Q-2989 and CA-
G.R. No. 38212-R, to sell to Ramon Rivera, again reveals how fair petitioner would want to be to private
respondents, not to defraud them as the respondent court would ascribe such base intent to petitioner, which is by
no means not a disreputable but a respectable, corporation.
For all the foregoing circumstances, We have no hesitation to give to petitioner the benefit of the doubt of its having
acted in good faith, which is always presumed,, without any intention of taking advantage of the other party dealing
with it. "Good faith consists in an honest intention to abstain from taking any unconscientious advantage of another.
Good faith is an opposite of fraud and of bad faith and its non-existence must be established by competent proof."
(Leung Yee vs. Strong Machinery Company, 37 PhiL 645; Cui vs. Henson, 51 Phil. 606, 612; Fule vs. De Legare, 7
SCRA 351).

Moreover, at the time of the execution of the contract to sell it is an admitted fact that Ricardo de Leon knew that a
third party was occupying a part of the lot subject of the sale. Ricardo de Leon ought to have known that he was
buying a property with the distinct possibility of not being able to possess and own the land due to the occupancy of
another person on the same. So there had to be an understanding between him and the petitioner for the latter to
eject the occupant, something which, by the facts then obtaining and the law relevant thereto, would make the
ejectment more speculative than certain. Nonetheless, Ricardo de Leon knowingly assumed the risk when he
bought the, land, and was even called a vendee in bad faith by the Court of Appeals in doing so, clearly not an
innocent purchaser in good faith. If petitioner that it would eject Ramon Rivera, he did so, not knowing that the
compromise agreement would stand on the way, as it had thought, in all good faith, that paragraph 7 of the
compromise agreement excluded the lot in question, having been already sold to Ricardo de Leon before the
agreement was executed in court.

This Court is impelled to declare that private respondents were lacking in good faith for knowing beforehand, at the
time of the sale, the presence of an obstacle to their taking over the possession of the land, which, in effect, would
amount to eviction from said land, and still they bought the land without first removing that obstacle. (Angelo vs.
Pacheco, 56 Phil. 70; Andaya vs. Manansala, 107 Phil 1151).

One who purchases real estate with knowledge of a defect or lack 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 (Leung Yee vs. Strong Machinery Company, supra;
Manancop Jr. vs. Cansino, 1 SCRA 572; Paylago vs. Jarabe, 22-SCRA 1247; Barrios vs. Court of Appeals, 78
SCRA 427; Emphasis supplied).

Without being shown to be vendees in good faith, herein respondents are not entitled to the warranty against
eviction nor are they On titled to recover damages (Article 1555 of the Civil Code). However, for justice and equity
sake, and in consonance with the salutary principle of non-enrichment at another's expense, herein petitioner J.M.
Tuason & Co., Inc. should compensate respondents De Leons in the total sum of ONE HUNDRED TWENTY SIX
THOUSAND (P126,000.00) PESOS, representing the aggregate value of the 1,050 square meters (which petitioner
was judicially ordered to sell to Ramon Rivera at the year 1958 prevailing rate of P60.00 per square meter) at the
value of P120.00 per square meter, doubling the price of P60.00 per square meter which amount petitioner
voluntarily offered to pay herein respondents following how indemnity for death had been raised from P6,000.00 to
P12,060.00 (People vs. Pantoja, 25 SCRA 468, 474 [1968]) based on grounds of equity, due to the reduced
purchasing power of the peso, with the legal rate of interest from December 5, 1972, the date respondents filed their
complaint, until the said total sum is fully paid.

WHEREFORE, the judgment of respondent court is hereby modified by ordering petitioner J.M. Tuason & Co., Inc.
to pay the respondents the amount of ONE HUNDRED TWENTY-SIX THOUSAND (Pl26,000.00) PESOS plus the
legal rate of interest from December 5, 1972, the date of filing the complaint until the s aid total sum is fully paid. No
costs.

SO ORDERED.

Teehankee, Fernandez and Guerrero, JJ., concur.

Makasiar, J, concur in the result.

Melencio-Herrera, J., took no part.

 THIRD DIVISION

[G.R. No. 119745. June 20, 1997]

POWER COMMERCIAL AND INDUSTRIAL CORPORATION, petitioner, vs. COURT

OF APPEALS, SPOUSES REYNALDO and ANGELITA R. QUIAMBAO and
PHILIPPINE NATIONAL BANK, respondents.

DECISION
PANGANIBAN, J.:

Is the sellers failure to eject the lessees from a lot that is the subject of a contract of
sale with assumption of mortgage a ground (1) for rescission of such contract and (2) for a
return by the mortgagee of the amortization payments made by the buyer who assumed
such mortgage?
Petitioner posits an affirmative answer to such question in this petition for review
on certiorari of the March 27, 1995 Decision  of the Court of Appeals, Eighth Division, in
[1]

CA-G.R. CV Case No. 32298 upholding the validity of the contract of sale with assumption
of mortgage and absolving the mortgagee from the liability of returning the mortgage
payments already made. [2]

The Facts
 Petitioner Power Commercial & Industrial Development Corporation, an industrial
asbestos manufacturer, needed a bigger office space and warehouse for its products. For
this purpose, on January 31, 1979, it entered into a contract of sale with the spouses
Reynaldo and Angelita R. Quiambao, herein private respondents. The contract involved a
612-sq. m. parcel of land covered by Transfer Certificate of Title No. S-6686 located at the
corner of Bagtican and St. Paul Streets, San Antonio Village, Makati City. The parties
agreed that petitioner would pay private respondents P108,000.00 as down payment, and
the balance of P295,000.00 upon the execution of the deed of transfer of the title over the
property. Further, petitioner assumed, as part of the purchase price, the existing mortgage
on the land. In full satisfaction thereof, he paid P79,145.77 to Respondent Philippine
National Bank (PNB for brevity).
On June 1, 1979, respondent spouses mortgaged again said land to PNB to guarantee
a loan of P145,000.00, P80,000.00 of which was paid to respondent spouses. Petitioner
agreed to assume payment of the loan.
On June 26, 1979, the parties executed a Deed of Absolute Sale With Assumption of
Mortgage which contained the following terms and conditions: [3]

That for and in consideration of the sum of Two Hundred Ninety-Five Thousand Pesos
(P295,000.00) Philippine Currency, to us in hand paid in cash, and which we hereby acknowledge
to be payment in full and received to our entire satisfaction, by POWER COMMERCIAL AND
INDUSTRIAL DEVELOPMENT CORPORATION, a 100% Filipino Corporation, organized and
existing under and by virtue of Philippine Laws with offices located at 252-C Vito Cruz Extension,
we hereby by these presents SELL, TRANSFER and CONVEY by way of absolute sale the above
described property with all the improvements existing thereon unto the said Power Commercial and
Industrial Development Corporation, its successors and assigns, free from all liens and
encumbrances.

We hereby certify that the aforesaid property is not subject to nor covered by the provisions of the
Land Reform Code -- the same having no agricultural lessee and/or tenant.

We hereby also warrant that we are the lawful and absolute owners of the above described
property, free from any lien and/or encumbrance, and we hereby agree and warrant to defend its
title and peaceful possession thereof in favor of the said Power Commercial and Industrial
Development Corporation, its successors and assigns, against any claims whatsoever of any and all
third persons; subject, however, to the provisions hereunder provided to wit:

That the above described property is mortgaged to the Philippine National Bank, Cubao, Branch,
Quezon City for the amount of one hundred forty-five thousand pesos, Philippine, evidenced by
document No. 163, found on page No. 34 of Book No. XV, Series of 1979 of Notary Public Herita
L. Altamirano registered with the Register of Deeds of Pasig (Makati), Rizal xxx;

That the said Power Commercial and Industrial Development Corporation assumes to pay in full
the entire amount of the said mortgage above described plus interest and bank charges, to the said
mortgagee bank, thus holding the herein vendor free from all claims by the said bank;

That both parties herein agree to seek and secure the agreement and approval of the said Philippine
National Bank to the herein sale of this property, hereby agreeing to abide by any and all
requirements of the said bank, agreeing that failure to do so shall give to the bank first lieu (sic)
over the herein described property.

On the same date, Mrs. C.D. Constantino, then General Manager of petitioner-
corporation, submitted to PNB said deed with a formal application for assumption of
mortgage. [4]
 On February 15, 1980, PNB informed respondent spouses that, for petitioners failure
to submit the papers necessary for approval pursuant to the formers letter dated January
15, 1980, the application for assumption of mortgage was considered withdrawn; that the
outstanding balance of P145,000.00 was deemed fully due and demandable; and that said
loan was to be paid in full within fifteen (15) days from notice. [5]

Petitioner paid PNB P41,880.45 on June 24, 1980 and P20,283.14 on December 23,

1980, payments which were to be applied to the outstanding loan. On December 23,
1980, PNB received a letter from petitioner which reads: [6]

With regard to the presence of the people who are currently in physical occupancy of the (l)ot xxx
it is our desire as buyers and new owners of this lot to make use of this lot for our own purpose,
which is why it is our desire and intention that all the people who are currently physically present
and in occupation of said lot should be removed immediately.

For this purpose we respectfully request that xxx our assumption of mortgage be given favorable
consideration, and that the mortgage and title be transferred to our name so that we may undertake
the necessary procedures to make use of this lot ourselves.

It was our understanding that this lot was free and clear of problems of this nature, and that the
previous owner would be responsible for the removal of the people who were there. Inasmuch as
the previous owner has not been able to keep his commitment, it will be necessary for us to take
legal possession of this lot inorder (sic) to take physical possession.

On February 19, 1982, PNB sent petitioner a letter as follows: [7]

(T)his refers to the loan granted to Mr. Reynaldo Quiambao which was assumed by you on June 4,
1979 for P101,500.00. It was last renewed on December 24, 1980 to mature on June 4, 1981.

A review of our records show that it has been past due from last maturity with interest arrearages
amounting to P25,826.08 as of February 19, 1982. The last payment received by us was on
December 24, 1980 for P20,283.14. In order to place your account in current form, we request you
to remit payments to cover interest, charges, and at least part of the principal.

On March 17, 1982, petitioner filed Civil Case No. 45217 against respondent spouses
for rescission and damages before the Regional Trial Court of Pasig, Branch 159. Then, in
its reply to PNBs letter of February 19, 1982, petitioner demanded the return of the
payments it made on the ground that its assumption of mortgage was never approved. On
May 31, 1983,  while this case was pending, the mortgage was foreclosed. The property
[8]

was subsequently bought by PNB during the public auction. Thus, an amended complaint
was filed impleading PNB as party defendant.
On July 12, 1990, the trial court  ruled that the failure of respondent spouses to deliver
[9]

actual possession to petitioner entitled the latter to rescind the sale, and in view of such
failure and of the denial of the latters assumption of mortgage, PNB was obliged to return
the payments made by the latter. The dispositive portion of said decision states: [10]

IN VIEW OF ALL THE FOREGOING, the Court hereby renders judgment in favor of plaintiff and
against defendants:

(1) Declaring the rescission of the Deed of Sale with Assumption of Mortgage executed between
plaintiff and defendants Spouses Quiambao, dated June 26, 1979;

(2) Ordering defendants Spouses Quiambao to return to plaintiff the amount of P187,144.77

(P108,000.00 plus P79,145.77) with legal interest of 12% per annum from date of filing of herein
complaint, that is, March 17, 1982 until the same is fully paid;
(3) Ordering defendant PNB to return to plaintiff the amount of P62,163.59 (P41,880.45
and P20,283.14) with 12% interest thereon from date of herein judgment until the same is fully
paid.

No award of other damages and attorneys fees, the same not being warranted under the facts and
circumstances of the case.

The counterclaim of both defendants spouses Quiambao and PNB are dismissed for lack of merit.

No pronouncement as to costs.

SO ORDERED.

On appeal by respondent-spouses and PNB, Respondent Court of Appeals reversed

the trial court. In the assailed Decision, it held that the deed of sale between respondent
spouses and petitioner did not obligate the former to eject the lessees from the land in
question as a condition of the sale, nor was the occupation thereof by said lessees a
violation of the warranty against eviction. Hence, there was no substantial breach to justify
the rescission of said contract or the return of the payments made. The dispositive portion
of said Decision reads: [11]

WHEREFORE, the Decision appealed from is hereby REVERSED and the complaint filed by
Power Commercial and Industrial Development Corporation against the spouses Reynaldo and
Angelita Quiambao and the Philippine National Bank is DISMISSED.No costs.

Hence, the recourse to this Court .

Issues

Petitioner contends that: (1) there was a substantial breach of the contract between
the parties warranting rescission; and (2) there was a mistake in payment made by
petitioner, obligating PNB to return such payments. In its Memorandum, it specifically
assigns the following errors of law on the part of Respondent Court: [12]

A. Respondent Court of Appeals gravely erred in failing to consider in its decision that a breach
of implied warranty under Article 1547 in relation to Article 1545 of the Civil Code
applies in the case-at-bar.

B. Respondent Court of Appeals gravely erred in failing to consider in its decision that a
mistake in payment giving rise to a situation where the principle
of solutio indebiti applies is obtaining in the case-at-bar.

The Courts Ruling

The petition is devoid of merit. It fails to appreciate the difference between a condition
and a warranty and the consequences of such distinction.

Conspicuous Absence of an Imposed Condition

The alleged failure of respondent spouses to eject the lessees from the lot in question
and to deliver actual and physical possession thereof cannot be considered a substantial
breach of a condition for two reasons: first, such failure was not stipulated as a condition --
whether resolutory or suspensive -- in the contract; and second, its effects and
consequences were not specified either. [13]

The provision adverted to by petitioner does not impose a condition or an obligation to

eject the lessees from the lot. The deed of sale provides in part: [14]

We hereby also warrant that we are the lawful and absolute owners of the above described
property, free from any lien and/or encumbrance, and we hereby agree and warrant to defend its
title and peaceful possession thereof in favor of the said Power Commercial and Industrial
Development Corporation, its successors and assigns, against any claims whatsoever of any and all
third persons; subject, however, to the provisions hereunder provided to wit:

By his own admission, Anthony Powers, General Manager of petitioner-corporation,

did not ask the corporations lawyers to stipulate in the contract that Respondent Reynaldo
was guaranteeing the ejectment of the occupants, because there was already a proviso in
said deed of sale that the sellers were guaranteeing the peaceful possession by the buyer
of the land in question.  Any obscurity in a contract, if the above-quoted provision can be
[15]

so described, must be construed against the party who caused it.  Petitioner itself caused
[16]

the obscurity because it omitted this alleged condition when its lawyer drafted said
contract.
If the parties intended to impose on respondent spouses the obligation to eject the
tenants from the lot sold, it should have included in the contract a provision similar to that
referred to in Romero vs. Court of Appeals,  where the ejectment of the occupants of the
[17]

lot sold by private respondent was the operative act which set into motion the period of
petitioners compliance with his own obligation, i.e., to pay the balance of the purchase
price. Failure to remove the squatters within the stipulated period gave the other party the
right to either refuse to proceed with the agreement or to waive that condition of ejectment
in consonance with Article 1545 of the Civil Code. In the case cited, the contract
specifically stipulated that the ejectment was a condition to be fulfilled; otherwise, the
obligation to pay the balance would not arise. This is not so in the case at bar.
Absent a stipulation therefor, we cannot say that the parties intended to make its
nonfulfillment a ground for rescission. If they did intend this, their contract should have
expressly stipulated so. In Ang vs. C.A.,  rescission was sought on the ground that the
[18]

petitioners had failed to fulfill their obligation to remove and clear the lot sold, the
performance of which would have given rise to the payment of the consideration by private
respondent. Rescission was not allowed, however, because the breach was not
substantial and fundamental to the fulfillment by the petitioners of the obligation to sell.
As stated, the provision adverted to in the contract pertains to the usual warranty
against eviction, and not to a condition that was not met. The terms of the contract are so
clear as to leave no room for any other interpretation. [19]

Futhermore, petitioner was well aware of the presence of the tenants at the time it
entered into the sales transaction. As testified to by Reynaldo,  petitioners counsel during
[20]

the sales negotiation even undertook the job of ejecting the squatters. In fact, petitioner
actually filed suit to eject the occupants. Finally, petitioner in its letter to PNB of December
23, 1980 admitted that it was the buyer(s) and new owner(s) of this lot.

Effective Symbolic Delivery

The Court disagrees with petitioners allegation that the respondent spouses failed to
deliver the lot sold. Petitioner asserts that the legal fiction of symbolic delivery yielded to
the truth that, at the execution of the deed of sale, transfer of possession of said lot was
impossible due to the presence of occupants on the lot sold. We find this misleading.
 Although most authorities consider transfer of ownership as the primary purpose of
sale, delivery remains an indispensable requisite as our law does not admit the doctrine of
transfer of property by mere consent.  The Civil Code provides that delivery can either be
[21]

(1) actual (Article 1497) or (2) constructive (Articles 1498-1501). Symbolic delivery (Article
1498), as a species of constructive delivery, effects the transfer of ownership through the
execution of a public document. Its efficacy can, however, be prevented if the vendor does
not possess control over the thing sold,  in which case this legal fiction must yield to
[22]

reality.
The key word is control, not possession, of the land as petitioner would like us to
believe. The Court has consistently held that: [23]

x x x (I)n 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 xxx 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.

Considering that the deed of sale between the parties did not stipulate or infer
otherwise, delivery was effected through the execution of said deed. The lot sold had been
placed under the control of petitioner; thus, the filing of the ejectment suit was
subsequently done. It signified that its new owner intended to obtain for itself and to
terminate said occupants actual possession thereof. Prior physical delivery or possession
is not legally required and the execution of the deed of sale is deemed equivalent to
delivery.  This deed operates as a formal or symbolic delivery of the property sold and
[24]

authorizes the buyer to use the document as proof of ownership. Nothing more is

required.

Requisites of Breach of Warranty Against Eviction

Obvious to us in the ambivalent stance of petitioner is its failure to establish any

breach of the warranty against eviction. Despite its protestation that its acquisition of the
lot was to enable it to set up a warehouse for its asbestos products and that failure to
deliver actual possession thereof defeated this purpose, still no breach of warranty against
eviction can be appreciated because the facts of the case do not show that the requisites
for such breach have been satisfied. A breach of this warranty requires the concurrence of
the following circumstances:
(1) The purchaser has been deprived of the whole or part of the thing sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is by virtue of a right prior to the sale made by the vendor; and
(4) The vendor has been summoned and made co-defendant in the suit for eviction at the instance of
the vendee.[25]

In the absence of these requisites, a breach of the warranty against eviction under Article
1547 cannot be declared.
Petitioner argues in its memorandum that it has not yet ejected the occupants of said
lot, and not that it has been evicted therefrom. As correctly pointed out by Respondent
Court, the presence of lessees does not constitute an encumbrance of the land,  nor does [26]

it deprive petitioner of its control thereof.

 We note, however, that petitioners deprivation of ownership and control finally
occurred when it failed and/or discontinued paying the amortizations on the mortgage,
causing the lot to be foreclosed and sold at public auction. But this deprivation is due to
petitioners fault, and not to any act attributable to the vendor-spouses.
Because petitioner failed to impugn its integrity, the contract is presumed, under the
law, to be valid and subsisting.

Absence of Mistake In Payment

Contrary to the contention of petitioner that a return of the payments it made to PNB is
warranted under Article 2154 of the Code, solutio indebiti does not apply in this case. This
doctrine applies where: (1) a payment is made when there exists no binding relation
between the payor, who has no duty to pay, and the person who received the payment,
and (2) the payment is made through mistake, and not through liberality or some other
cause. [27]

In this case, petitioner was under obligation to pay the amortizations on the mortgage
under the contract of sale and the deed of real estate mortgage. Under the deed of sale
(Exh. 2),  both parties agreed to abide by any and all the requirements of PNB in
[28]

connection with the real estate mortgage. Petitioner was aware that the deed of mortgage
(Exh. C) made it solidarily and, therefore, primarily  liable for the mortgage obligation:
[29] [30]

(e) The Mortgagor shall neither lease the mortgaged property xxx nor sell or dispose of the same in
any manner, without the written consent of the Mortgagee. However, if not withstanding this
stipulation and during the existence of this mortgage, the property herein mortgaged, or any portion
thereof, is xxx sold, it shall be the obligation of the Mortgagor to impose as a condition of the sale,
alienation or encumbrance that the vendee, or the party in whose favor the alienation or
encumbrance is to be made, should take the property subject to the obligation of this mortgage in
the same terms and condition under which it is constituted, it being understood that the Mortgagor
is not in any manner relieved of his obligation to the Mortgagee under this mortgage by such sale,
alienation or encumbrance; on the contrary both the vendor and the vendee, or the party in whose
favor the alienation or encumbrance is made shall be jointly and severally liable for said mortgage
obligations. xxx.

Therefore, it cannot be said that it did not have a duty to pay to PNB the amortization on
the mortgage.
Also, petitioner insists that its payment of the amortization was a mistake because
PNB disapproved its assumption of mortgage after it failed to submit the necessary papers
for the approval of such assumption.
But even if petitioner was a third party in regard to the mortgage of the land
purchased, the payment of the loan by petitioner was a condition clearly imposed by the
contract of sale. This fact alone disproves petitioners insistence that there was a mistake
in payment. On the contrary, such payments were necessary to protect its interest as a
the buyer(s) and new owner(s) of the lot.
The quasi-contract of solutio indebiti is one of the concrete manifestations of the
ancient principle that no one shall enrich himself unjustly at the expense of another.  But [31]

as shown earlier, the payment of the mortgage was an obligation petitioner assumed
under the contract of sale. There is no unjust enrichment where the transaction, as in this
case, is quid pro quo, value for value.
All told, respondent Court did not commit any reversible error which would warrant the
reversal of the assailed Decision.
 WHEREFORE, the petition is hereby DENIED, and the assailed Decision
is AFFIRMED.
SO ORDERED.
Narvasa, C.J., (Chairman), Davide, Jr., and Melo, JJ., concur.
Francisco, J., on leave.

G.R. No. L-22488             February 2, 1925

ENRIQUE JOVELLANO and ISABEL JOYOSA, plaintiffs-appellees, 

vs.
ANTONIA LUALHATI, ET AL., defendants. 
LUCIO SOLMIRANO, appellant.

Aurelio Palileo for appellant.

No appearance for appellees.

MALCOLM, J.:

Defendant as appellant rest his case on this legal proposition: There is no cause of action against the vendor of real
property to make him responsible for warranty in case of eviction unless said vendor is given notice of the suit for
eviction. Although our local jurisdiction is silent on the subject, we think that counsel is right.

On November 6, 1911, Dionisia Solmirano, Lucio Solmirano, and Macario Solmirano sold to Enrique Jovellano a
parcel of land situated in the municipality of Nagcarlan, Laguna, for P150. The deed of sale contained the usual
covenant against eviction, namely: "That we, Dionisia, Lucio and Macario Solmirano, the vendors herein, agree, to
answer in case of eviction and to warrant the property hereby sold." In pursuance of this agreement, Jovellano
entered upon the land.

On March 4, 1913, one Maxima Dorado instituted action in the justice of the peace court of Nagcarlan against
Jovellano to recover the possession of the land. Maxima Dorado won her case against Jovellano. Instead of
appealing from the decision, Jovellano presented a new complaint in the Court of First Instance of Laguna against
the same Maxima Dorado to determine the ownership of the property. Jovellano was defeated again, and on
appeal, this judgment was affirmed by the Supreme Court. (Jovellano vs. Dorado, R.G. No. 11881.1)
The present action was initiated by Enrique Jovellano and his wife Isabel Joyosa against Lucio Solmirano, Macario
Solmirano, and Antonia Lualhati, the daughter of Dionisio Solmirano, to recover from the defendants the price paid
for the land, together with all the expenses incurred in improving it and in maintaining the suits. One of the grounds
of the demurrer and one of the allegations of the defense was that defendants had not been notified as provided by
law. The lower court decided the case in favor of the plaintiffs and against the defendant Lucio Solmirano who was
ordered to pay the plaintiffs the sum of P462.73, with legal interest.

As supplemental to the foregoing statement of the case and the facts, it is only necessary to add that in none of the
above cited cases were the Solmiranos cited to appear or made parties. However, Dionisia Solmirano was a witness
and Lucio Solmirano may have been present in the court at the time of the trial. The trial judge argued that this was
a substantial compliance with the law.

Section III of Chapter IV of Title IV of Book IV of the Civil Code, is given up to the subject of warranty. Article 1475 of
the Code provides that eviction exists when by final judgment based upon a right prior to the sale, the vendee is
deprived of the whole or any part of the thing purchased. The vendors shall be liable for the eviction even though
the contract is silent on the subject. Then with other articles intervening, come articles 1481 and 1482 here
applicable. They read:

ART. 1481. The vendor shall be bound to make good the warranty whenever it is proved that he was given
notice, at the instance of the vendee, of the suit for eviction. In the absence of such notice the vendor shall
not be bound to the warranty.

ART. 1482. The defendant vendee, within the time fixed by the Law of Civil Procedure for answering the
complaint, shall cause notice thereof to be served upon the vendor or vendors within the shortest period
possible.

This notification shall be made in the manner established in said law for the summoning of defendants.

The time to answer granted to the vendee shall be extended until the expiration of that granted the vendor or
vendors to appear and answer the complaint, which periods shall be the same as those granted all
defendants by the Law of Civil Procedure, counted from the notification prescribed by the first paragraph of
this article.

Should the persons summoned to defend against the eviction fail to appear at the proper time and in the
proper manner, the period in which to answer the complaint shall continue with regard to the vendee.

With all the silent facts and legal provisions before us, it is well to recall a few controlling points. The purchaser has
been forced to surrender possession of the land to a third person having a paramount title. The purchaser now
relies upon his covenant of warranty. The purchaser has given the vendor no formal notice of the suits for eviction.
Nevertheless, the purchaser expects to recover from the seller of the land the purchase price and an additional
amount sufficient to cover his losses.

Our researches disclose that the Spanish law on the subject of notice to the vendor in the case of covenants of
warranty is much more rigorous than the French and Roman law. By the Code Napoleon, as adapted in the State of
Louisiana, the warranty is lost in the absence of notification to the vendor, provided that the vendor can prove that
he had good grounds of defense which he had lost in consequence of the vendee's failure to call him. (Delacroix vs.
Cenas' Heirs [1829], 10 Martin [La.], 187; Kelly vs. Wiseman & Hinson [1859], 14 La Ann., 661; Bonvillain vs.
Bodenheimer [1906], 117 La., VI La. Digest Ann., pp. 617 et seq.) Not so by the Spanish law. That law speaks both
affirmatively and negatively. The buyer who fails to cite his vendor in warranty loses all recourse against him.

The commentator Manresa says:

No discussion, therefore, should be made here as to whether or not the vendor had means of defense. All of this
counts very little. There is only one condition to be complied with by the vendee, and that is to give notice of the
complaint. Once this is proven, his right to the warranty is perfect, and the vendor cannot set up anything against it.
This is the preparation for the exercise of the action for eviction spoken of by us the commentary on the preceding
article; the warranty, according to article 1480, cannot be enforced until a final judgment is rendered, but the action
for eviction is prepared, before that judgment, by causing a notice of the complaint to be given to the vendor.
(Comentarios al Codigo Civil Español, Tomo X, p. 212.)

The only doubtful point relates to that part of article 1482 of the Civil Code which refers to the Law of Civil
Procedure. But as the Spanish Ley de Enjuiciamiento Civil has disappeared, the article must be considered as
referring to the present Code of Civil Procedure. (Willard's Notes to the Spanish Civil Code, p. 85.) Section 114 of
the Code of Civil Procedure could easily be taken advantage of to join the vendor as codefendant. The purchaser
threatened with eviction, who wishes to preserve his right of warranty against his vendor, should call in the vendor to
defend the action which has been instituted against the purchaser.

We hold articles 1481 and 1482 of the Civil Code as in full force and effect, said articles to be supplemented by such
pertinent sections of Code of Civil Procedure as should be invoked in particular cases.
In accordance with the prayer of the appellant, the judgment is reversed and the complaint dismissed without
special pronouncement as to costs in either instance. So ordered.

Johnson, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.