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 her DEL CASTILLO, and
children, NELLY M. MARQUEZ, PEREZ, JJ.
ELISEO MAGALLANES and ANGEL
MAGALLANES, Promulgated:
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 Lot 11-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.

MARIANO C. DEL CASTILLO

Associate Justice
 THIRD DIVISION

RAYMUNDO S. DE LEON, G.R. No. 170405

Petitioner,Present:

CORONA, J., Chairperson,

CARPIO,*

- v e r s u s - VELASCO, JR.,

NACHURA and

PERALTA, JJ.

BENITA T. ONG.[1],

Respondent. Promulgated:

February 2, 2010

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

DECISION

CORONA, J.:

On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land [2] with
improvements situated in Antipolo, Rizal to respondent Benita T. Ong. As these properties were
mortgaged to Real Savings and Loan Association, Incorporated (RSLAI), petitioner and
respondent executed a notarized deed of absolute sale with assumption of mortgage [3] stating:

xxxxxxxxx

That for and in consideration of the sum of ONE MILLION ONE HUNDRED
THOUSAND PESOS (P1.1 million), Philippine currency, the receipt whereof is hereby
acknowledged from [RESPONDENT] to the entire satisfaction of
[PETITIONER], said [PETITIONER] does hereby sell, transfer and convey in a
manner absolute and irrevocable, unto said [RESPONDENT], his heirs and
assigns that certain real estate together with the buildings and other improvements
existing thereon, situated in [Barrio] Mayamot, Antipolo, Rizal under the following
terms and conditions:

1. That upon full payment of [respondent] of the amount of FOUR

HUNDRED FIFTEEN THOUSAND FIVE HUNDRED (P415,000), [petitioner]
shall execute and sign a deed of assumption of mortgage in favor of
[respondent] without any further cost whatsoever;

2. That [respondent] shall assume payment of the outstanding loan of SIX

HUNDRED EIGHTY FOUR THOUSAND FIVE HUNDRED PESOS (P684,500)
with REAL SAVINGS AND LOAN,[4] Cainta, Rizal (emphasis supplied)

xxxxxxxxx

Pursuant to this deed, respondent gave petitioner P415,500 as partial payment. Petitioner,
on the other hand, handed the keys to the properties and wrote a letter informing RSLAI of the
sale and authorizing it to accept payment from respondent and release the certificates of title.

Thereafter, respondent undertook repairs and made improvements on the properties.

[5]
Respondent likewise informed RSLAI of her agreement with petitioner for her to assume
petitioners outstanding loan. RSLAI required her to undergo credit investigation.

Subsequently, respondent learned that petitioner again sold the same properties to one
Leona Viloria after March 10, 1993 and changed the locks, rendering the keys he gave her
useless. Respondent thus proceeded to RSLAI to inquire about the credit investigation. However,
she was informed that petitioner had already paid the amount due and had taken back the
certificates of title.

Respondent persistently contacted petitioner but her efforts proved futile.

On June 18, 1993, respondent filed a complaint for specific performance, declaration of
nullity of the second sale and damages [6] against petitioner and Viloria in the Regional Trial Court
(RTC) of Antipolo, Rizal, Branch 74. She claimed that since petitioner had previously sold the
properties to her on March 10, 1993, he no longer had the right to sell the same to Viloria. Thus,
petitioner fraudulently deprived her of the properties.

Petitioner, on the other hand, insisted that respondent did not have a cause of action
against him and consequently prayed for the dismissal of the complaint. He claimed that since
the transaction was subject to a condition (i.e., that RSLAI approve the assumption of mortgage),
they only entered into a contract to sell. Inasmuch as respondent did apply for a loan from RSLAI,
the condition did not arise. Consequently, the sale was not perfected and he could freely dispose
of the properties. Furthermore, he made a counter-claim for damages as respondent filed the
complaint allegedly with gross and evident bad faith.

Because respondent was a licensed real estate broker, the RTC concluded that she knew
that the validity of the sale was subject to a condition. The perfection of a contract of sale
depended on RSLAIs approval of the assumption of mortgage. Since RSLAI did not allow
respondent to assume petitioners obligation, the RTC held that the sale was never perfected.
 In a decision dated August 27, 1999, [7] the RTC dismissed the complaint for lack of cause of
action and ordered respondent to pay petitioner P100,000 moral damages, P20,000 attorneys
fees and the cost of suit.

Aggrieved, respondent appealed to the Court of Appeals (CA), [8] asserting that the court a
quo erred in dismissing the complaint.

The CA found that the March 10, 2003 contract executed by the parties did not impose any
condition on the sale and held that the parties entered into a contract of sale. Consequently,
because petitioner no longer owned the properties when he sold them to Viloria, it declared the
second sale void. Moreover, it found petitioner liable for moral and exemplary damages for
fraudulently depriving respondent of the properties.

In a decision dated July 22, 2005, [9] the CA upheld the sale to respondent and nullified the
sale to Viloria. It likewise ordered respondent to reimburse petitioner P715,250 (or the amount he
paid to RSLAI). Petitioner, on the other hand, was ordered to deliver the certificates of titles to
respondent and pay her P50,000 moral damages and P15,000 exemplary damages.

Petitioner moved for reconsideration but it was denied in a resolution dated November 11, 2005.
[10]
Hence, this petition,[11] with the sole issue being whether the parties entered into a contract of
sale or a contract to sell.

Petitioner insists that he entered into a contract to sell since the validity of the transaction was
subject to a suspensive condition, that is, the approval by RSLAI of respondents assumption of
mortgage. Because RSLAI did not allow respondent to assume his (petitioners) obligation, the
condition never materialized. Consequently, there was no sale.

Respondent, on the other hand, asserts that they entered into a contract of sale as petitioner
already conveyed full ownership of the subject properties upon the execution of the deed.

We modify the decision of the CA.

CONTRACT OF SALE OR CONTRACT TO

SELL?

The RTC and the CA had conflicting interpretations of the March 10, 1993 deed. The RTC ruled
that it was a contract to sell while the CA held that it was a contract of sale.

In a contract of sale, the seller conveys ownership of the property to the buyer upon the
perfection of the contract. Should the buyer default in the payment of the purchase price, the
seller may either sue for the collection thereof or have the contract judicially resolved and set
aside. The non-payment of the price is therefore a negative resolutory condition. [12]

On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does
not acquire ownership of the property until he fully pays the purchase price. For this reason, if
the buyer defaults in the payment thereof, the seller can only sue for damages. [13]

The deed executed by the parties (as previously quoted) stated that petitioner sold the
properties to respondent in a manner absolute and irrevocable for a sum of P1.1 million.[14] With
regard to the manner of payment, it required respondent to pay P415,500 in cash to petitioner
upon the execution of the deed, with the balance [15] payable directly to RSLAI (on behalf of
petitioner) within a reasonable time. [16] Nothing in said instrument implied that petitioner
reserved ownership of the properties until the full payment of the purchase price. [17] On the
contrary, the terms and conditions of the deed only affected the manner of payment, not the
immediate transfer of ownership (upon the execution of the notarized contract) from petitioner
as seller to respondent as buyer. Otherwise stated, the said terms and conditions pertained to
the performance of the contract, not the perfection thereof nor the transfer of ownership.

Settled is the rule that the seller is obliged to transfer title over the properties and deliver the
same to the buyer.[18] In this regard, Article 1498 of the Civil Code [19] provides that, as a rule, the
execution of a notarized deed of sale is equivalent to the delivery of a thing sold.

In this instance, petitioner executed a notarized deed of absolute sale in favor of

respondent. Moreover, not only did petitioner turn over the keys to the properties to respondent,
he also authorized RSLAI to receive payment from respondent and release his certificates of title
to her. The totality of petitioners acts clearly indicates that he had unqualifiedly delivered and
transferred ownership of the properties to respondent. Clearly, it was a contract of sale the
parties entered into.
 Furthermore, even assuming arguendo that the agreement of the parties was subject to
the condition that RSLAI had to approve the assumption of mortgage, the said condition was
considered fulfilled as petitioner prevented its fulfillment by paying his outstanding obligation
and taking back the certificates of title without even notifying respondent. In this connection,
Article 1186 of the Civil Code provides:

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment.

VOID SALE OR DOUBLE SALE?

Petitioner sold the same properties to two buyers, first to respondent and then to Viloria
on two separate occasions.[20] However, the second sale was not void for the sole reason that
petitioner had previously sold the same properties to respondent. On this account, the CA erred.

This case involves a double sale as the disputed properties were sold validly on two
separate occasions by the same seller to the two different buyers in good faith.

Article 1544 of the Civil Code provides:

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

Should it be immovable property, the ownership shall belong to the person

acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person

who in good faith was first in the possession; and, in the absence thereof,
to the person who presents the oldest title, provided there is good
faith. (emphasis supplied)

This provision clearly states that the rules on double or multiple sales apply only to purchasers in
good faith. Needless to say, it disqualifies any purchaser in bad faith.

A purchaser in good faith is one who buys the property of another without notice that
some other person has a right to, or an interest in, such property and pays a full and fair price for
the same at the time of such purchase, or before he has notice of some other persons claim or
interest in the property.[21] The law requires, on the part of the buyer, lack of notice of a defect in
the title of the seller and payment in full of the fair price at the time of the sale or prior to having
notice of any defect in the sellers title.

Was respondent a purchaser in good faith? Yes.

Respondent purchased the properties, knowing they were encumbered only by the
mortgage to RSLAI. According to her agreement with petitioner, respondent had the obligation to
assume the balance of petitioners outstanding obligation to RSLAI. Consequently, respondent
informed RSLAI of the sale and of her assumption of petitioners obligation. However, because
petitioner surreptitiously paid his outstanding obligation and took back her certificates of title,
petitioner himself rendered respondents obligation to assume petitioners indebtedness to RSLAI
impossible to perform.

Article 1266 of the Civil Code provides:

Article 1266. The debtor in obligations to do shall be released when the

prestation become legally or physically impossible without the fault of the obligor.

Since respondents obligation to assume petitioners outstanding balance with RSLAI became
impossible without her fault, she was released from the said obligation. Moreover, because
petitioner himself willfully prevented the condition vis--vis the payment of the remainder of the
purchase price, the said condition is considered fulfilled pursuant to Article 1186 of the Civil
Code. For purposes, therefore, of determining whether respondent was a purchaser in good faith,
she is deemed to have fully complied with the condition of the payment of the remainder of the
purchase price.

Respondent was not aware of any interest in or a claim on the properties other than the
mortgage to RSLAI which she undertook to assume. Moreover, Viloria bought the properties from
petitioner after the latter sold them to respondent. Respondent was therefore a purchaser in
good faith. Hence, the rules on double sale are applicable.

Article 1544 of the Civil Code provides that when neither buyer registered the sale of the
properties with the registrar of deeds, the one who took prior possession of the properties shall
be the lawful owner thereof.

In this instance, petitioner delivered the properties to respondent when he executed the
notarized deed[22] and handed over to respondent the keys to the properties. For this reason,
respondent took actual possession and exercised control thereof by making repairs and
improvements thereon. Clearly, the sale was perfected and consummated on March 10, 1993.
Thus, respondent became the lawful owner of the properties.

Nonetheless, while the condition as to the payment of the balance of the purchase price
was deemed fulfilled, respondents obligation to pay it subsisted. Otherwise, she would be
unjustly enriched at the expense of petitioner.

Therefore, respondent must pay petitioner P684,500, the amount stated in the deed. This
is because the provisions, terms and conditions of the contract constitute the law between the
parties. Moreover, the deed itself provided that the assumption of mortgage was without any
further cost whatsoever. Petitioner, on the other hand, must deliver the certificates of title to
respondent. We likewise affirm the award of damages.

WHEREFORE, the July 22, 2005 decision and November 11, 2005 resolution of the Court
of Appeals in CA-G.R. CV No. 59748 are hereby AFFIRMED with MODIFICATION insofar as
respondent Benita T. Ong is ordered to pay petitioner Raymundo de Leon P684,500 representing
the balance of the purchase price as provided in their March 10, 1993 agreement.

Costs against petitioner.

SO ORDERED.

RENATO C. CORONA

Associate Justice

Chairperson
 SECOND DIVISION

KINGS PROPERTIES G.R. No. 170023

CORPORATION,

Petitioner, Present:

CARPIO, J., Chairperson,

LEONARDO-DE CASTRO,*

BRION,

- versus - DEL CASTILLO, and

ABAD, JJ.

CANUTO A. GALIDO,
 Respondent. Promulgated:

November 27, 2009

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

DECISION

CARPIO, J.:

The Case

Kings Properties Corporation (petitioner) filed this Petition for Review on Certiorari [1]assailing the
Court of Appeals Decision[2]dated 20 December 2004 in CA-G.R. CV No. 68828 as well as the
Resolution[3]dated 10 October 2005 denying the Motion for Reconsideration. In the assailed
decision, the Court of Appeals reversed the Regional Trial Courts Decision [4]dated 4 July 2000.
This case involves an action for cancellation of certificates of title, registration of deed
of sale and issuance of certificates of title filed by Canuto A. Galido (respondent) before Branch
71 of the Regional Trial Court of Antipolo City (trial court).

The Facts

On 18 April 1966, the heirs of Domingo Eniceo, namely Rufina Eniceo and Maria Eniceo, were
awarded with Homestead Patent No. 112947 consisting of four parcels of land located in San
Isidro, Antipolo, Rizal (Antipolo property) and particularly described as follows:

1. Lot No. 1 containing an area of 96,297 square meters;

Lot No. 3 containing an area of 25,170 square meters;

Lot No. 4 containing an area of 26,812 square meters; and

Lot No. 5 containing an area of 603 square meters.

The Antipolo property with a total area of 14.8882 hectares was registered under Original
Certificate of Title (OCT) No. 535.[5]The issuance of the homestead patent was subject to the
following conditions:

To have and to hold the said tract of land, with the appurtenances thereunto of right belonging
unto the said Heirs of Domingo Eniceo and to his heir or heirs and assigns forever, subject to the
provisions of sections 118, 121, 122 and 124 of Commonwealth Act No. 141, as amended,
which provide that except in favor of the Government or any of its branches, units or institutions,
the land hereby acquired shall be inalienable and shall not be subject to incumbrance for a
period of five (5) years next following the date of this patent, and shall not be liable for the
satisfaction of any debt contracted prior to the expiration of that period; that it shall not be
alienated, transferred or conveyed after five (5) years and before twenty-five (25) years next
following the issuance of title, without the approval of the Secretary of Agriculture and Natural
Resources; that it shall not be incumbered, alienated, or transferred to any person, corporation,
association, or partnership not qualified to acquire public lands under the said Act and its
amendments; x x x [6]

On 10 September 1973, a deed of sale covering the Antipolo property was executed between
Rufina Eniceo and Maria Eniceo as vendors and respondent as vendee. Rufina Eniceo and Maria
Eniceo sold the Antipolo property to respondent for P250,000.[7] A certain Carmen Aldana
delivered the owners duplicate copy of OCT No. 535 to respondent. [8]
Petitioner alleges that when Maria Eniceo died in June 1975, Rufina Eniceo and the heirs of Maria
Eniceo (Eniceo heirs),[9]who continued to occupy the Antipolo property as owners, thought that
the owners duplicate copy of OCT No. 535 was lost. [10]

On 5 April 1988, the Eniceo heirs registered with the Registry of Deeds of Marikina City (Registry
of Deeds) a Notice of Loss dated 2 April 1988 of the owners copy of OCT No. 535. The Eniceo
heirs also filed a petition for the issuance of a new owners duplicate copy of OCT No. 535 with
Branch 72 of the Regional Trial Court (RTC) of Antipolo, Rizal. The case was docketed as LRC Case
No. 584-A.[11]

On 31 January 1989, the RTC rendered a decision finding that the certified true copy of OCT No.
535 contained no annotation in favor of any person, corporation or entity. The RTC ordered the
Registry of Deeds to issue a second owners copy of OCT No. 535 in favor of the Eniceo heirs and
declared the original owners copy of OCT NO. 535 cancelled and considered of no further value.
[12]

On 6 April 1989, the Registry of Deeds issued a second owners copy of OCT No. 535 in favor of
the Eniceo heirs.[13]

Petitioner states that as early as 1991, respondent knew of the RTC decision in LRC Case No. 584-
A because respondent filed a criminal case against Rufina Eniceo and Leonila Bolinas (Bolinas)
for giving false testimony upon a material fact during the trial of LRC Case No. 584-A. [14]

Petitioner alleges that sometime in February 1995, Bolinas came to the office of Alberto Tronio Jr.
(Tronio), petitioners general manager, and offered to sell the Antipolo property. During an on-site
inspection, Tronio saw a house and ascertained that the occupants were Bolinas relatives. Tronio
also went to the Registry of Deeds to verify the records on file. Tronio ascertained that OCT No.
535 was clean and had no lien and encumbrances. After the necessary verification, petitioner
decided to buy the Antipolo property.[15]

On 14 March 1995, respondent caused the annotation of his adverse claim in OCT No. 535. [16]

On 20 March 1995, the Eniceo heirs executed a deed of absolute sale in favor of petitioner
covering lots 3 and 4 of the Antipolo property for P500,000.[17]

On the same date, Transfer Certificate of Title (TCT) Nos. 277747 and 277120 were issued. TCT
No. 277747 covering lots 1 and 5 of the Antipolo property was registered in the names of Rufina
Eniceo, Ambrosio Eniceo, Rodolfo Calove, Fernando Calove and Leonila Calove Bolinas. [18]TCT No.
277120 covering lots 3 and 4 of the Antipolo property was registered in the name of petitioner.
[19]

On 5 April 1995, the Eniceo heirs executed another deed of sale in favor of petitioner covering
lots 1 and 5 of the Antipolo property for P1,000,000. TCT No. 278588 was issued in the name of
petitioner and TCT No. 277120 was cancelled. [20]

On 17 August 1995, the Secretary of the Department of Environment and Natural Resources
(DENR Secretary) approved the deed of sale between the Eniceo heirs and respondent. [21]

On 16 January 1996, respondent filed a civil complaint with the trial court against the Eniceo
heirs and petitioner. Respondent prayed for the cancellation of the certificates of title issued in
favor of petitioner, and the registration of the deed of sale and issuance of a new transfer
certificate of title in favor of respondent.[22]

On 4 July 2000, the trial court rendered its decision dismissing the case for lack of legal and
factual basis.[23]

Respondent appealed to the Court of Appeals (CA). On 20 December 2004, the CA rendered a
decision reversing the trial courts decision. [24] Respondent filed a motion for reconsideration,
which the CA denied in its Resolution dated 10 October 2005.

Aggrieved by the CAs decision and resolution, petitioner elevated the case before this Court.

The Ruling of the Trial Court

The trial court stated that although respondent claims that the Eniceo heirs sold to him the
Antipolo property, respondent did not testify in court as to the existence, validity and
genuineness of the purported deed of sale and his possession of the duplicate owners copy of
OCT No. 535. The trial court stated that as owner of a property consisting of hectares of land,
respondent should have come to court to substantiate his claim and show that the allegations of
the Eniceo heirs and petitioner are mere fabrications. [25]

The trial court noticed that respondent did not register the deed of sale with the Register of
Deeds immediately after its alleged execution on 10 September 1973. Further, respondent
waited for 22 long years before he had the sale approved by the DENR Secretary. The trial court
declared that respondent slept on his rights. The trial court concluded that respondents failure to
register the sale and secure the cancellation of OCT No. 535 militates against his claim of
ownership. The trial court believed that respondent has not established the preponderance of
evidence necessary to justify the relief prayed for in his complaint. [26]

The trial court stated that Bolinas was able to prove that the Eniceo heirs have remained in
actual possession of the land. The filing of a petition for the issuance of a new owners duplicate
copy requires the posting of the petition in three different places which serves as a notice to the
whole world. Respondents failure to oppose this petition can be deemed as a waiver of his right,
which is fatal to his cause.[27]

The trial court noted that petitioner is a buyer in good faith and for value because petitioner has
exercised due diligence in inspecting the property and verifying the title with the Register of
Deeds.[28]

The trial court held that even if the court were to believe that the deed of sale in favor of
respondent were genuine, still it could not be considered a legitimate disposition of property, but
merely an equitable mortgage. The trial court stated that respondent never obtained possession
of the Antipolo property at any given time and a buyer who does not take possession of a
property sold to him is presumed to be a mortgagee only and not a vendee. [29]

The Ruling of the Court of Appeals

The CA ruled that the deed of sale in favor of respondent, being a notarized document, has in its
favor the presumption of regularity and carries the evidentiary weight conferred upon it with
respect to its due execution. The CA added that whoever asserts forgery has the burden of
proving it by clear, positive and convincing evidence because forgery can never be presumed.
The CA found that petitioner and the Eniceo heirs have not substantiated the allegation of
forgery.[30]

The CA pointed out that laches has not set in. One of the requisites of laches, which is injury or
prejudice to the defendant in the event relief is accorded to the complainant or the suit is not
held to be barred, is wanting in the instant case. The CA added that unrecorded sales of land
brought under the Torrens system are valid between parties because registration of the
instrument is merely intended to bind third persons. [31]

The CA declared that petitioners contention regarding the validity of the questioned deed on the
ground that it was executed without the approval of the DENR Secretary is untenable. The DENR
Secretary approved the deed of sale on 17 August 1995. However, even supposing that the sale
was not approved, the requirement for the DENR Secretarys approval is merely directory and its
absence does not invalidate any alienation, transfer or conveyance of the homestead after 5
years and before 25 years from the issuance of the title which can be complied with at any time
in the future.[32]

The CA ruled that petitioner is a buyer in bad faith because it purchased the disputed properties
from the Eniceo heirs after respondent had caused the inscription on OCT No. 535 of an adverse
claim. Registration of the adverse claim serves as a constructive notice to the whole world.
Petitioner cannot feign ignorance of facts which should have put it on guard and then claim that
it acted under the honest belief that there was no defect in the title of the vendors. Knowing that
an adverse claim was annotated in the certificates of title of the Eniceo heirs, petitioner was
forewarned that someone is claiming an interest in the disputed properties. [33]

The CA found no merit in petitioners contention that the questioned deed of sale is an equitable
mortgage. The CA stated that for the presumption of an equitable mortgage to arise, one must
first satisfy the requirement that the parties entered into a contract denominated as a contract of
sale and that their intention was to secure an existing debt by way of mortgage. [34]

The CA stated that the execution of the notarized deed of sale, even without actual delivery of
the disputed properties, transferred ownership from the Eniceo heirs to respondent. The CA held
that respondents possession of the owners duplicate copy of OCT No. 535 bolsters the contention
that the Eniceo heirs sold the disputed properties to him by virtue of the questioned deed. [35]

The CA reversed the trial courts decision. The dispositive portion of the CA decision reads:
 WHEREFORE, the appealed decision of the Regional Trial Court of Rizal (Antipolo,
Branch 71) is REVERSED and SET ASIDE and another rendered as follows:

1. DECLARING NULL AND VOID TRANSFER CERTIFICATES OF TITLES

NOS. 277747, 277120 AND 278588 OF THE REGISTRY OF DEEDS OF
MARIKINA CITY (THE LAST TWO IN THE NAME OF DEFENDANT-APPELLEE
KINGS PROPERTIES CORPORATION), THE DERIVATIVE TITLES THEREOF AND
THE INSTRUMENTS WHICH WERE THE BASES OF THE ISSUANCE OF SAID
CERTIFICATES OF TITLE; AND

2. DECLARING PLAINTIFF-APPELLANT CANUTO A. GALIDO THE OWNER

OF FEE SIMPLE OF LOT NOS. 1, 3, 4, 5 FORMERLY REGISTERED UNDER
ORIGINAL CERTIFICATE OF TITLE NO. 535 IN THE NAME OF THE HEIRS OF
DOMINGO ENICEO, REPRESENTED BY RUFINA ENICEO, AND ORDERING THE
REGISTER OF DEEDS OF MARIKINA CITY TO ISSUE NEW TRANSFER
CERTIFICATES OF TITLE FOR SAID PARCELS OF LAND IN THE NAME OF
PLAINTIFF-APPELLANT CANUTO A. GALIDO, UPON PAYMENT OF THE PROPER
FEES AND PRESENTATION OF THE DEED OF SALE DATED SEPTEMBER 10,
1973 EXECUTED BY RUFINA ENICEO AND MARIA ENICEO, AS SOLE HEIRS
OF THE LATE DOMINGO ENICEO, IN FAVOR OF THE LATTER. [36]

The Issues

Petitioner raises two issues in this petition:

1. Whether the adverse claim of respondent over the Antipolo property should be barred
by laches;[37]and

2. Whether the deed of sale delivered to respondent should be presumed an equitable

mortgage pursuant to Article 1602(2) and 1604 of the Civil Code. [38]

The Ruling of the Court

Validity of the deed of sale to respondent

The contract between the Eniceo heirs and respondent executed on 10 September 1973 was a
perfected contract of sale. A contract is perfected once there is consent of the contracting
parties on the object certain and on the cause of the obligation. [39]In the present case, the object
of the sale is the Antipolo property and the price certain is P250,000.

The contract of sale has also been consummated because the vendors and vendee have
performed their respective obligations under the contract. In a contract of sale, the seller
obligates himself to transfer the ownership of the determinate thing sold, and to deliver the
same to the buyer, who obligates himself to pay a price certain to the seller. [40]The execution of
the notarized deed of sale and the delivery of the owners duplicate copy of OCT No. 535 to
respondent is tantamount to a constructive delivery of the object of the sale. In Navera v. Court
of Appeals, the Court ruled that since the sale was made in a public instrument, it was clearly
tantamount to a delivery of the land resulting in the symbolic possession thereof being
transferred to the buyer.[41]

Petitioner alleges that the deed of sale is a forgery. The Eniceo heirs also claimed in their answer
that the deed of sale is fake and spurious. [42]However, as correctly held by the CA, forgery can
never be presumed. The party alleging forgery is mandated to prove it with clear and convincing
evidence.[43]Whoever alleges forgery has the burden of proving it. In this case, petitioner and the
Eniceo heirs failed to discharge this burden.

Petitioner invokes the belated approval by the DENR Secretary, made within 25 years from the
issuance of the homestead, to nullify the sale of the Antipolo property. The sale of the Antipolo
property cannot be annulled on the ground that the DENR Secretary gave his approval after 21
years from the date the deed of sale in favor of respondent was executed. Section 118 of
Commonwealth Act No. 141 or the Public Land Act (CA 141), as amended by Commonwealth Act
No. 456,[44]reads:

SEC. 118. EXCEPT IN FAVOR OF THE GOVERNMENT OR ANY OF ITS

BRANCHES, UNITS, OR INSTITUTIONS, OR LEGALLY CONSTITUTED BANKING
CORPORATIONS, LANDS ACQUIRED UNDER FREE PATENT OR HOMESTEAD
PROVISIONS SHALL NOT BE SUBJECT TO ENCUMBRANCE OR ALIENATION
FROM THE DATE OF THE APPROVAL OF THE APPLICATION AND FOR A TERM
OF FIVE YEARS FROM AND AFTER THE DATE OF THE ISSUANCE OF THE
PATENT OR GRANT X X X

No alienation, transfer, or conveyance of any homestead after five years and before twenty-five
years after the issuance of title shall be valid without the approval of the Secretary of Agriculture
and Natural Resources,[45]which approval shall not be denied except on constitutional and legal
grounds.

In Spouses Alfredo v. Spouses Borras,[46]the Court explained the implications of Section 118 of CA
141. Thus:

A grantee or homesteader is prohibited from alienating to a private individual a land

grant within five years from the time that the patent or grant is issued. A violation
of this prohibition renders a sale void. This , however, expires on the fifth year. From
then on until the next 20 years, the land grant may be alienated provided the
Secretary of Agriculture and Natural Resources approves the alienation. The
Secretary is required to approve the alienation unless there are constitutional and
legal grounds to deny the approval. In this case, there are no apparent or legal
grounds for the Secretary to disapprove the sale of the Subject Land.

The failure to secure the approval of the Secretary does not ipso factomake a sale
void. The absence of approval by the Secretary does not a sale made after the
expiration of the 5-year period, for in such event the requirement of Section 118 of
the Public Land Act becomes merely directory or a formality. The approval may be
secured later, producing the effect of ratifying and adopting the transaction as if the
sale had been previously authorized. (Underscoring supplied)

Equitable Mortgage

Petitioner contends that the deed of sale in favor of respondent is an equitable mortgage
because the Eniceo heirs remained in possession of the Antipolo property despite the execution
of the deed of sale.

An equitable mortgage is one which although lacking in some formality, or form or words, or
other requisites demanded by a statute, nevertheless reveals the intention of the parties to
charge real property as security for a debt, and contains nothing impossible or contrary to law.
[47]
The essential requisites of an equitable mortgage are:

1. The parties entered into a contract denominated as a contract of sale; and

2. Their intention was to secure existing debt by way of a mortgage. [48]

In Lim v. Calaguas,[49]the Court held that in order for the presumption of equitable mortgage to
apply, there must be: (1) something in the language of the contract; or (2) in the conduct of the
parties which shows clearly and beyond doubt that they intended the contract to be a mortgage
and not a pacto de retro sale.[50]Proof by parol evidence should be presented in court. Parol
evidence is admissible to support the allegation that an instrument in writing, purporting on its
face to transfer the absolute title to property, was in truth and in fact given merely as security for
the payment of a loan. The presumption of equitable mortgage under Article 1602 of the Civil
Code is not conclusive. It may be rebutted by competent and satisfactory proof of the contrary.
[51]

Petitioner claims that an equitable mortgage can be presumed because the Eniceo heirs
remained in possession of the Antipolo property. Apart from the fact that the Eniceo heirs
remained in possession of the Antipolo property, petitioner has failed to substantiate its claim
that the contract of sale was intended to secure an existing debt by way of mortgage. In
fact, mere tolerated possession is not enough to prove that the transaction was an equitable
mortgage.[52]

Furthermore, petitioner has not shown any proof that the Eniceo heirs were indebted to
respondent. On the contrary, the deed of sale executed in favor of respondent was drafted
clearly to convey that the Eniceo heirs sold and transferred the Antipolo property to respondent.
The deed of sale even inserted a provision about defrayment of registration expenses to effect
the transfer of title to respondent.

In any event, as pointed out by respondent in his Memorandum, this defense of equitable
mortgage is available only to petitioners predecessors-in-interest who should have demanded,
but did not, for the reformation of the deed of sale. [53] A perusal of the records shows that the
Eniceo heirs never presented the defense of equitable mortgage before the trial court. In their
Answer[54]and Memorandum[55]filed before the trial court, the Eniceo heirs claimed that the
alleged deed of sale dated 10 September 1973 between Rufina Eniceo and Maria Eniceo was fake
and spurious. The Eniceo heirs contended that even assuming there was a contract, no
consideration was involved. It was only in the Appellees Brief [56]filed before the CA that the
Eniceo heirs claimed as an alternative defense that the deed should be presumed as an
equitable mortgage.

IN PHILIPPINE PORTS AUTHORITY V. CITY OF ILOILO,[57]WE RULED THAT A PARTY WHO ADOPTS A
CERTAIN THEORY UPON WHICH THE CASE IS TRIED AND DECIDED BY THE LOWER COURT WILL
NOT BE PERMITTED TO CHANGE THE THEORY ON APPEAL. A THEORY OF THE CASE NOT
BROUGHT TO THE ATTENTION OF THE LOWER COURT WILL NOT BE CONSIDERED BY A
REVIEWING COURT, AS A NEW THEORY CANNOT BE RAISED FOR THE FIRST TIME AT SUCH LATE
STAGE.

ALTHOUGH PETITIONER RAISED THE DEFENSE OF EQUITABLE MORTGAGE IN THE LOWER COURT,
HE CANNOT CLAIM THAT THE DEED WAS AN EQUITABLE MORTGAGE BECAUSE PETITIONER WAS
NOT A PRIVY TO THE DEED OF SALE DATED 10 SEPTEMBER 1973. PETITIONER MERELY STEPPED
INTO THE SHOES OF THE ENICEO HEIRS. PETITIONER, WHO MERELY ACQUIRED ALL THE RIGHTS
OF ITS PREDECESSORS, CANNOT ESPOUSE A THEORY THAT IS CONTRARY TO THE THEORY OF THE
CASE CLAIMED BY THE ENICEO HEIRS.

The Court notes that the Eniceo heirs have not appealed the CAs decision, hence, as to the
Eniceo heirs, the CAs decision that the contract was a sale and not an equitable mortgage is now
final. Since petitioner merely assumed the rights of the Eniceo heirs, petitioner is now estopped
from questioning the deed of sale dated 10 September 1973.

Petitioner is not a buyer in good faith

Petitioner maintains that the subsequent sale must be upheld because petitioner is a buyer in
good faith, having exercised due diligence by inspecting the property and the title sometime in
February 1995.

In Agricultural and Home Extension Development Group v. Court of Appeals,[58] a buyer in good
faith is defined as one who buys the property of another without notice that some other person
has a right to or interest in such property and pays a full and fair price for the same at the time
of such purchase or before he has notice of the claim or interest of some other person in the
property.

In Balatbat v. Court of Appeals,[59]the Court held that in the realm of double sales, the registration
of an adverse claim places any subsequent buyer of the registered land in bad faith because
such annotation was made in the title of the property before the Register of Deeds and he could
have discovered that the subject property was already sold. [60]The Court explained further, thus:

A purchaser of a valued piece of property cannot just close his eyes to facts which
should put a reasonable man upon his guard and then claim that he acted in good
faith and under the belief that there were no defect in the title of the vendor. 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 be necessary to acquaint him with the defects in the title of his
vendor.[61]

Petitioner does not dispute that respondent registered his adverse claim with the Registry of
Deeds on 14 March 1995. The registration of the adverse claim constituted, by operation of law,
notice to the whole world.[62]From that date onwards, subsequent buyers were deemed to have
constructive notice of respondents adverse claim.

PETITIONER PURCHASED THE ANTIPOLO PROPERTY ONLY ON 20 MARCH 1995 AND 5 APRIL 1995
AS SHOWN BY THE DATES IN THE DEEDS OF SALE. ON THE SAME DATES, THE REGISTRY OF
DEEDS ISSUED NEW TCTS IN FAVOR OF PETITIONER WITH THE ANNOTATED ADVERSE
CLAIM.CONSEQUENTLY, THE ADVERSE CLAIM REGISTERED PRIOR TO THE SECOND SALE
CHARGED PETITIONER WITH CONSTRUCTIVE NOTICE OF THE DEFECT IN THE TITLE OF ENICEO
HEIRS. THEREFORE, PETITIONER CANNOT BE DEEMED AS A PURCHASER IN GOOD FAITH WHEN
THEY BOUGHT AND REGISTERED THE ANTIPOLO PROPERTY.

IN CARBONELL V. COURT OF APPEALS,[63]THIS COURT RULED THAT IN DOUBLE SALES, THE FIRST
BUYER ALWAYS HAS PRIORITY RIGHTS OVER SUBSEQUENT BUYERS OF THE SAME PROPERTY.
BEING THE FIRST BUYER, HE IS NECESSARILY IN GOOD FAITH COMPARED TO SUBSEQUENT
BUYERS.THE GOOD FAITH OF THE FIRST BUYER REMAINS ALL THROUGHOUT DESPITE HIS
SUBSEQUENT ACQUISITION OF KNOWLEDGE OF THE SUBSEQUENT SALE. ON THE OTHER HAND,
THE SUBSEQUENT BUYER, WHO MAY HAVE ENTERED INTO A CONTRACT OF SALE IN GOOD FAITH,
WOULD BECOME A BUYER IN BAD FAITH BY HIS SUBSEQUENT ACQUISITION OF ACTUAL OR
CONSTRUCTIVE KNOWLEDGE OF THE FIRST SALE.[64]THE SEPARATE OPINION OF THEN JUSTICE
TEEHANKEE IS INSTRUCTIVE, THUS:

The governing principle here is prius 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 only as provided by the 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 bar her from availing of her rights under the law, among
them, to first her purchase as against the second buyer. But in converso knowledge
gained by the second buyer of the first sale defeats his rights even if he is first to
 register the second sale, since such knowledge taints his prior registration with bad
faith.

This is the price exacted by Article 1544 of the Civil Code for the second buyer
being able to displace the first buyer: that before the second buyer can obtain
priority over the first, he must show that he acted in good faith throughout (i.e., in
ignorance of the first sale and of the first buyers rights) from the time of acquisition
until the title is transferred to him by registration or failing registration, by delivery
of possession. 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. [65]

Laches

PETITIONER CONTENDS THAT RESPONDENT IS GUILTY OF LACHES BECAUSE HE SLEPT ON HIS

RIGHTS BY FAILING TO REGISTER THE SALE OF THE ANTIPOLO PROPERTY AT THE EARLIEST
POSSIBLE TIME. PETITIONER CLAIMS THAT DESPITE RESPONDENTS KNOWLEDGE OF THE
SUBSEQUENT SALE IN 1991, RESPONDENT STILL FAILED TO HAVE THE DEED OF SALE
REGISTERED WITH THE REGISTRY OF DEEDS.

The essence of laches is the failure or neglect, for an unreasonable and unexplained length of
time, to do that which, through due diligence, could have been done earlier, thus giving rise to a
presumption that the party entitled to assert it had either abandoned or declined to assert it. [66]

Respondent discovered in 1991 that a new owners copy of OCT No. 535 was issued to the Eniceo
heirs. Respondent filed a criminal case against the Eniceo heirs for false testimony. When
respondent learned that the Eniceo heirs were planning to sell the Antipolo property, respondent
caused the annotation of an adverse claim. On 16 January 1996, when respondent learned that
OCT No. 535 was cancelled and new TCTs were issued, respondent filed a civil complaint with the
trial court against the Eniceo heirs and petitioner. Respondents actions negate petitioners
argument that respondent is guilty of laches.

True, unrecorded sales of land brought under Presidential Decree No. 1529 or the Property
Registration Decree (PD 1529) are effective between and binding only upon the immediate
parties. The registration required in Section 51 of PD 1529 is intended to protect innocent third
persons, that is, persons who, without knowledge of the sale and in good faith, acquire rights to
the property.[67] Petitioner, however, is not an innocent purchaser for value.

WHEREFORE, we DENY the petition. We AFFIRM the 20 December 2004 Decision and 10
October 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 68828.

SO ORDERED.

ANTONIO T. CARPIO

ASSOCIATE JUSTICE
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 194846 June 19, 2013

*
HOSPICIO D. ROSAROSO, ANTONIO D. ROSAROSO, MANUEL D. ROSAROSO, ALGERICA
D. ROSAROSO, and CLEOFE R. LABINDAO, Petitioners,
vs.
LUCILA LABORTE SORIA, SPOUSES HAM SOLUTAN and **LAILA SOLUTAN, and MERIDIAN
REALTY CORPORATION, Respondents.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
December 4, 2009 Decision1 of the Court of Appeals (CA). in CA G.R. CV No. 00351, which
reversed and set aside the July 30, 2004 Decision 2 of the Regional Trial Court, Branch 8, 7th
Judicial Region, Cebu City (RTC), in Civil Case No. CEB-16957, an action for declaration of nullity
of documents.

The Facts

Spouses Luis Rosaroso (Luis) and Honorata Duazo (Honorata) acquired several real properties in
Daan Bantayan, Cebu City, including the subject properties. The couple had nine (9) children
namely: Hospicio, Arturo, Florita, Lucila, Eduardo, Manuel, Cleofe, Antonio, and Angelica. On April
25, 1952, Honorata died. Later on, Luis married Lourdes Pastor Rosaroso (Lourdes).

On January 16, 1995, a complaint for Declaration of Nullity of Documents with Damages was filed
by Luis, as one of the plaintiffs, against his daughter, Lucila R. Soria (Lucila); Lucilas daughter,
Laila S. Solutan (Laila); and Meridian Realty Corporation (Meridian). Due to Luis untimely death,
however, an amended complaint was filed on January 6, 1996, with the spouse of Laila, Ham
Solutan (Ham); and Luis second wife, Lourdes, included as defendants. 3

In the Amended Complaint, it was alleged by petitioners Hospicio D. Rosaroso, Antonio D.

Rosaroso (Antonio), Angelica D. Rosaroso (Angelica), and Cleofe R. Labindao (petitioners) that on
November 4, 1991, Luis, with the full knowledge and consent of his second wife, Lourdes,
executed the Deed of Absolute Sale4 (First Sale) covering the properties with Transfer Certificate
of Title (TCT) No. 31852 (Lot No. 8); TCT. No. 11155 (Lot 19); TCT No. 10885 (Lot No. 22); TCT No.
10886 (Lot No. 23); and Lot Nos. 5665 and 7967, all located at Daanbantayan, Cebu, in their
favor.5

They also alleged that, despite the fact that the said properties had already been sold to them,
respondent Laila, in conspiracy with her mother, Lucila, obtained the Special Power of Attorney
(SPA),6 dated April 3, 1993, from Luis (First SPA); that Luis was then sick, infirm, blind, and of
unsound mind; that Lucila and Laila accomplished this by affixing Luis thumb mark on the SPA
which purportedly authorized Laila to sell and convey, among others, Lot Nos. 8, 22 and 23,
which had already been sold to them; and that on the strength of another SPA 7 by Luis, dated July
21, 1993 (Second SPA), respondents Laila and Ham mortgaged Lot No. 19 to Vital Lending
Investors, Inc. for and in consideration of the amount of P150,000.00 with the concurrence of
Lourdes.8

Petitioners further averred that a second sale took place on August 23, 1994, when the
respondents made Luis sign the Deed of Absolute Sale 9 conveying to Meridian three (3) parcels of
residential land for P960,500.00 (Second Sale); that Meridian was in bad faith when it did not
make any inquiry as to who were the occupants and owners of said lots; and that if Meridian had
only investigated, it would have been informed as to the true status of the subject properties and
would have desisted in pursuing their acquisition.

Petitioners, thus, prayed that they be awarded moral damages, exemplary damages, attorneys
fees, actual damages, and litigation expenses and that the two SPAs and the deed of sale in
favor of Meridian be declared null and void ab initio. 10

On their part, respondents Lucila and Laila contested the First Sale in favor of petitioners. They
submitted that even assuming that it was valid, petitioners were estopped from questioning the
Second Sale in favor of Meridian because they failed not only in effecting the necessary transfer
of the title, but also in annotating their interests on the titles of the questioned properties. With
respect to the assailed SPAs and the deed of absolute sale executed by Luis, they claimed that
the documents were valid because he was conscious and of sound mind and body when he
executed them. In fact, it was Luis together with his wife who received the check payment issued
by Meridian where a big part of it was used to foot his hospital and medical expenses. 11

Respondent Meridian, in its Answer with Compulsory Counterclaim, averred that Luis was fully
aware of the conveyances he made. In fact, Sophia Sanchez (Sanchez), Vice-President of the
corporation, personally witnessed Luis affix his thumb mark on the deed of sale in its favor. As to
petitioners contention that Meridian acted in bad faith when it did not endeavor to make some
inquiries as to the status of the properties in question, it countered that before purchasing the
properties, it checked the titles of the said lots with the Register of Deeds of Cebu and
discovered therein that the First Sale purportedly executed in favor of the plaintiffs was not
registered with the said Register of Deeds. Finally, it argued that the suit against it was filed in
bad faith.12

On her part, Lourdes posited that her signature as well as that of Luis appearing on the deed of
sale in favor of petitioners, was obtained through fraud, deceit and trickery. She explained that
they signed the prepared deed out of pity because petitioners told them that it was necessary for
a loan application. In fact, there was no consideration involved in the First Sale. With respect to
the Second Sale, she never encouraged the same and neither did she participate in it. It was
purely her husbands own volition that the Second Sale materialized. She, however, affirmed that
she received Meridians payment on behalf of her husband who was then bedridden. 13

RTC Ruling

After the case was submitted for decision, the RTC ruled in favor of petitioners. It held that when
Luis executed the second deed of sale in favor of Meridian, he was no longer the owner of Lot
Nos. 19, 22 and 23 as he had already sold them to his children by his first marriage. In fact, the
subject properties had already been delivered to the vendees who had been living there since
birth and so had been in actual possession of the said properties. The trial court stated that
although the deed of sale was not registered, this fact was not prejudicial to their interest. It was
of the view that the actual registration of the deed of sale was not necessary to render a contract
valid and effective because where the vendor delivered the possession of the parcel of land to
the vendee and no superior rights of third persons had intervened, the efficacy of said deed was
not destroyed. In other words, Luis lost his right to dispose of the said properties to Meridian from
the time he executed the first deed of sale in favor of petitioners. The same held true with his
alleged sale of Lot 8 to Lucila Soria. 14 Specifically, the dispositive portion of the RTC decision
reads:

IN VIEW OF THE FOREGOING, the Court finds that a preponderance of evidence exists in favor of
the plaintiffs and against the defendants. Judgment is hereby rendered:

a. Declaring that the Special Power of Attorney, Exhibit "K," for the plaintiffs and Exhibit
"3" for the defendants null and void including all transactions subsequent thereto and all
proceedings arising therefrom;

b. Declaring the Deed of Sale marked as Exhibit "E" valid and binding;

c. Declaring the Deed of Absolute Sale of Three (3) Parcels of Residential Land marked as
Exhibit "F" null and void from the beginning;

d. Declaring the Deed of Sale, Exhibit "16" (Solutan) or Exhibit "FF," null and void from the
beginning;

e. Declaring the vendees named in the Deed of Sale marked as Exhibit "E" to be the
lawful, exclusive and absolute owners and possessors of Lots Nos. 8, 19, 22, and 23;

f. Ordering the defendants to pay jointly and severally each plaintiff P50,000.00 as moral
damages; and

g. Ordering the defendants to pay plaintiffs P50,000.00 as attorneys fees; and P20,000.00
as litigation expenses.

The crossclaim made by defendant Meridian Realty Corporation against defendants Soria and
Solutan is ordered dismissed for lack of sufficient evidentiary basis.

SO ORDERED."15

Ruling of the Court of Appeals

On appeal, the CA reversed and set aside the RTC decision. The CA ruled that the first deed of
sale in favor of petitioners was void because they failed to prove that they indeed tendered a
consideration for the four (4) parcels of land. It relied on the testimony of Lourdes that
petitioners did not pay her husband. The price or consideration for the sale was simulated to
make it appear that payment had been tendered when in fact no payment was made at all. 16

With respect to the validity of the Second Sale, the CA stated that it was valid because the
documents were notarized and, as such, they enjoyed the presumption of regularity. Although
petitioners alleged that Luis was manipulated into signing the SPAs, the CA opined that evidence
was wanting in this regard. Dr. Arlene Letigio Pesquira, the attending physician of Luis, testified
that while the latter was physically infirmed, he was of sound mind when he executed the first
SPA.17

With regard to petitioners assertion that the First SPA was revoked by Luis when he executed the
affidavit, dated November 24, 1994, the CA ruled that the Second Sale remained valid. The
Second Sale was transacted on August 23, 1994, before the First SPA was revoked. In other
words, when the Second Sale was consummated, the First SPA was still valid and subsisting.
Thus, "Meridian had all the reasons to rely on the said SPA during the time of its validity until the
time of its actual filing with the Register of Deeds considering that constructive notice of the
revocation of the SPA only came into effect upon the filing of the Adverse Claim and the
aforementioned Letters addressed to the Register of Deeds on 17 December 1994 and 25
November 1994, respectively, informing the Register of Deeds of the revocation of the first
SPA."18 Moreover, the CA observed that the affidavit revoking the first SPA was also revoked by
Luis on December 12, 1994.19

Furthermore, although Luis revoked the First SPA, he did not revoke the Second SPA which
authorized respondent Laila to sell, convey and mortgage, among others, the property covered
by TCT T-11155 (Lot No. 19). The CA opined that had it been the intention of Luis to discredit the

Second Sale, he should have revoked not only the First SPA but also the Second SPA. The latter
being valid, all transactions emanating from it, particularly the mortgage of Lot 19, its
subsequent redemption and its second sale, were valid. 20 Thus, the CA disposed in this wise:

WHEREFORE, the appeal is hereby GRANTED. The Decision dated 30 July 2004 is hereby
REVERSED AND SET ASIDE, and in its stead a new decision is hereby rendered:

1. DECLARING the Special Power of Attorney, dated 21 July 1993, as valid;

2. DECLARING the Special Power of Attorney, dated 03 April 1993, as valid up to the time
of its revocation on 24 November 1994;

3. DECLARING the Deed of Absolute sale, dated 04 November 1991, as ineffective and
without any force and effect;

4. DECLARING the Deed of Absolute Sale of Three (3) Parcels of Residential Land, dated 23
August 1994, valid and binding from the very beginning;

5. DECLARING the Deed of Absolute Sale, dated 27 September 1994, also valid and
binding from the very beginning;

6. ORDERING the substituted plaintiffs to pay jointly and severally the defendant-appellant
Meridian Realty Corporation the sum of Php100,000.00 as moral damages, Php100,000.00
as attorneys fee and Php100,000.00 as litigation expenses; and

7. ORDERING the substituted plaintiffs to pay jointly and severally the defendant-
appellants Leila Solutan et al., the sum of Php50,000.00 as moral damages.

SO ORDERED.21

Petitioners filed a motion for reconsideration, but it was denied in the CA Resolution, 22 dated
November 18, 2010. Consequently, they filed the present petition with the following
ASSIGNMENT OF ERRORS

I.

THE HONORABLE COURT OF APPEALS (19TH DIVISION) GRAVELY ERRED WHEN IT DECLARED AS
VOID THE FIRST SALE EXECUTED BY THE LATE LUIS ROSAROSO IN FAVOR OF HIS CHILDREN OF
HIS FIRST MARRIAGE.

II.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT SUSTAINING AND AFFIRMING THE
RULING OF THE TRIAL COURT DECLARING THE MERIDIAN REALTY CORPORATION A BUYER IN BAD
FAITH, DESPITE THE TRIAL COURTS FINDINGS THAT THE DEED OF SALE (First Sale), IS GENUINE
AND HAD FULLY COMPLIED WITH ALL THE LEGAL FORMALITIES.

III.
THE HONORABLE COURT OF APPEALS FURTHER ERRED IN NOT HOLDING THE SALE (DATED 27
SEPTEMBER 1994), NULL AND VOID FROM THE VERY BEGINNING SINCE LUIS ROSAROSO ON
NOVEMBER 4, 1991 WAS NO LONGER THE OWNER OF LOTS 8, 19, 22 AND 23 AS HE HAD EARLIER
DISPOSED SAID LOTS IN FAVOR OF THE CHILDREN OF HIS (LUIS ROSAROSO) FIRST MARRIAGE. 23

Petitioners argue that the second deed of sale was null and void because Luis could not have
validly transferred the ownership of the subject properties to Meridian, he being no longer the
owner after selling them to his children. No less than Atty. William Boco, the lawyer who
notarized the first deed of sale, appeared and testified in court that the said deed was the one he
notarized and that Luis and his second wife, Lourdes, signed the same before him. He also
identified the signatures of the subscribing witnesses. 24 Thus, they invoke the finding of the RTC
which wrote:

In the case of Heirs of Joaquin Teves, Ricardo Teves versus Court of Appeals, et al., G.R. No.
109963, October 13, 1999, the Supreme Court held that a public document executed [with] all
the legal formalities is entitled to a presumption of truth as to the recitals contained therein. In
order to overthrow a certificate of a notary public to the effect that a grantor executed a certain
document and acknowledged the fact of its execution before him, mere preponderance of
evidence will not suffice. Rather, the evidence must (be) so clear, strong and convincing as to
exclude all reasonable dispute as to the falsity of the certificate. When the evidence is
conflicting, the certificate will be upheld x x x .

A notarial document is by law entitled to full faith and credit upon its face. (Ramirez vs. Ner, 21
SCRA 207). As such it must be sustained in full force and effect so long as he who impugns it
shall not have presented strong, complete and conclusive proof of its falsity or nullity on account
of some flaw or defect provided against by law (Robinson vs. Villafuerte, 18 Phil. 171, 189-190). 25

Furthermore, petitioners aver that it was erroneous for the CA to say that the records of the case
were bereft of evidence that they paid the price of the lots sold to them. In fact, a perusal of the
records would reveal that during the cross-examination of Antonio Rosaroso, when asked if there
was a monetary consideration, he testified that they indeed paid their father and their payment
helped him sustain his daily needs.26

Petitioners also assert that Meridian was a buyer in bad faith because when its representative
visited the site, she did not make the necessary inquiries. The fact that there were already
houses on the said lots should have put Meridian on its guard and, for said reason, should have
made inquiries as to who owned those houses and what their rights were over the same. 27

Meridians assertion that the Second Sale was registered in the Register of Deeds was a falsity.
The subject titles, namely: TCT No. 11155 for Lot 19, TCT No. 10885 for Lot 22, and TCT No.
10886 for Lot 23 were free from any annotation of the alleged sale. 28

After an assiduous assessment of the records, the Court finds for the petitioners.

The First Deed Of Sale Was Valid

The fact that the first deed of sale was executed, conveying the subject properties in favor of
petitioners, was never contested by the respondents. What they vehemently insist, though, is
that the said sale was simulated because the purported sale was made without a valid
consideration.

Under Section 3, Rule 131 of the Rules of Court, the following are disputable presumptions: (1)
private transactions have been fair and regular; (2) the ordinary course of business has been
followed; and (3) there was sufficient consideration for a contract. 29 These presumptions operate
against an adversary who has not introduced proof to rebut them. They create the necessity of
presenting evidence to rebut the prima facie case they created, and which, if no proof to the
contrary is presented and offered, will prevail. The burden of proof remains where it is but, by the
presumption, the one who has that burden is relieved for the time being from introducing
evidence in support of the averment, because the presumption stands in the place of evidence
unless rebutted.30

In this case, the respondents failed to trounce the said presumption. Aside from their bare
allegation that the sale was made without a consideration, they failed to supply clear and
convincing evidence to back up this claim. It is elementary in procedural law that bare
allegations, unsubstantiated by evidence, are not equivalent to proof under the Rules of Court. 31

The CA decision ran counter to this established rule regarding disputable presumption. It relied
heavily on the account of Lourdes who testified that the children of Luis approached him and
convinced him to sign the deed of sale, explaining that it was necessary for a loan application,
but they did not pay the purchase price for the subject properties. 32 This testimony, however, is
self-serving and would not amount to a clear and convincing evidence required by law to dispute
the said presumption. As such, the presumption that there was sufficient consideration will not
be disturbed.

Granting that there was no delivery of the consideration, the seller would have no right to sell
again what he no longer owned. His remedy would be to rescind the sale for failure on the part of
the buyer to perform his part of their obligation pursuant to Article 1191 of the New Civil Code. In
the case of Clara M. Balatbat v. Court Of Appeals and Spouses Jose Repuyan and Aurora
Repuyan,33 it was written:

The failure of the buyer to make good the price does not, in law, cause the ownership to revest to
the seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Article
1191 of the New Civil Code. Non-payment only creates a right to demand the fulfillment of the
obligation or to rescind the contract. [Emphases supplied]

Meridian is Not a
Buyer in Good Faith

Respondents Meridian and Lucila argue that, granting that the First Sale was valid, the properties
belong to them as they acquired these in good faith and had them first recorded in the Registry
of Property, as they were unaware of the First Sale. 34

Again, the Court is not persuaded.

The fact that Meridian had them first registered will not help its cause. In case of double sale,
Article 1544 of the Civil Code provides:

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

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

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

Otherwise stated, ownership of an immovable property which is the subject of a double sale shall
be transferred: (1) to the person acquiring it who in good faith first recorded it in the Registry of
Property; (2) in default thereof, to the person who in good faith was first in possession; and (3) in
default thereof, to the person who presents the oldest title, provided there is good faith. The
requirement of the law then is two-fold: acquisition in good faith and registration in good faith.
Good faith must concur with the registration. If it would be shown that a buyer was in bad faith,
the alleged registration they have made amounted to no registration at all.
The principle of primus tempore, potior jure (first in time, stronger in right) gains greater
significance in case of a double sale of immovable property. When the thing sold twice is an
immovable, the one who acquires it and first records it in the Registry of Property, both made in
good faith, shall be deemed the owner. Verily, the act of registration must be coupled with good
faith that is, the registrant must have no knowledge of the defect or lack of title of his vendor
or must not have been aware of facts which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with the defects in the title of his
vendor.)35 [Emphases and underlining supplied]

When a piece of land is in the actual possession of persons other than the seller, the buyer must
be wary and should investigate the rights of those in possession. Without making such inquiry,
one cannot claim that he is a buyer in good faith. When a man proposes to buy or deal with
realty, his duty is to read the public manuscript, that is, to look and see who is there upon it and
what his rights are. A want of caution and diligence, which an honest man of ordinary prudence
is accustomed to exercise in making purchases, is in contemplation of law, a want of good faith.
The buyer who has failed to know or discover that the land sold to him is in adverse possession
of another is a buyer in bad faith.36 In the case of Spouses Sarmiento v. Court of Appeals, 37 it was
written:

Verily, every person dealing with registered land may safely rely on the correctness of the
certificate of title issued therefor and the law will in no way oblige him to go behind the
certificate to determine the condition of the property. Thus, the general rule is that a purchaser
may be considered a purchaser in good faith when he has examined the latest certificate of title.
An exception to this rule is when there exist important facts that would create suspicion in an
otherwise reasonable man to go beyond the present title and to investigate those that preceded
it. Thus, it has been said that a person who deliberately ignores a significant fact which would
create suspicion in an otherwise reasonable man is not an innocent purchaser for value. A
purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and
then claim that he acted in good faith under the belief that there was no defect in the title of the
vendor. As we have held:

The failure of appellees to take the ordinary precautions which a prudent man would have taken
under the circumstances, specially in buying a piece of land in the actual, visible and public
possession of another person, other than the vendor, constitutes gross negligence amounting to
bad faith.

In this connection, it has been held that where, as in this case, the land sold is in the possession
of a person other than the vendor, the purchaser is required to go beyond the certificate of title
to make inquiries concerning the rights of the actual possessor. Failure to do so would make him
a purchaser in bad faith. (Citations omitted).

One who purchases real property which is in the actual possession of another should, at least
make some inquiry concerning the right of those in possession. The actual possession by other
than the vendor should, at least put the purchaser upon inquiry. He can scarely, in the absence of
such inquiry, be regarded as a bona fide purchaser as against such possessors. (Emphases
supplied)

Prescinding from the foregoing, the fact that private respondent RRC did not investigate the
Sarmiento spouses' claim over the subject land despite its knowledge that Pedro Ogsiner, as
their overseer, was in actual possession thereof means that it was not an innocent purchaser for
value upon said land. Article 524 of the Civil Code directs that possession may be exercised in
one's name or in that of another. In herein case, Pedro Ogsiner had informed RRC that he was
occupying the subject land on behalf of the Sarmiento spouses. Being a corporation engaged in
the business of buying and selling real estate, it was gross negligence on its part to merely rely
on Mr. Puzon's assurance that the occupants of the property were mere squatters considering the
invaluable information it acquired from Pedro Ogsiner and considering further that it had the
means and the opportunity to investigate for itself the accuracy of such information. [Emphases
supplied]
In another case, it was held that if a vendee in a double sale registers the sale after he has
acquired knowledge of a previous sale, the registration constitutes a registration in bad faith and
does not confer upon him any right. If the registration is done in bad faith, it is as if there is no
registration at all, and the buyer who has first taken possession of the property in good faith shall
be preferred.38

In the case at bench, the fact that the subject properties were already in the possession of
persons other than Luis was never disputed. Sanchez, representative and witness for Meridian,
even testified as follows:

x x x; that she together with the two agents, defendant Laila Solutan and Corazon Lua, the
president of Meridian Realty Corporation, went immediately to site of the lots; that the agents
brought with them the three titles of the lots and Laila Solutan brought with her a special power
of attorney executed by Luis B. Rosaroso in her favor but she went instead directly to Luis
Rosaroso to be sure; that the lots were pointed to them and she saw that there were houses on it
but she did not have any interest of the houses because her interest was on the lots; that Luis
Rosaroso said that the houses belonged to him; that he owns the property and that he will sell
the same because he is very sickly and he wanted to buy medicines; that she requested
someone to check the records of the lots in the Register of Deeds; that one of the titles was
mortgaged and she told them to redeem the mortgage because the corporation will buy the
property; that the registered owner of the lots was Luis Rosaroso; that in more or less three
months, the encumbrance was cancelled and she told the prospective sellers to prepare the
deed of sale; that there were no encumbrances or liens in the title; that when the deed of
absolute sale was prepared it was signed by the vendor Luis Rosaroso in their house in Opra x x
x.39 (Underscoring supplied)

From the above testimony, it is clear that Meridian, through its agent, knew that the subject
properties were in possession of persons other than the seller. Instead of investigating the rights
and interests of the persons occupying the said lots, however, it chose to just believe that Luis
still owned them. Simply, Meridian Realty failed to exercise the due diligence required by law of
purchasers in acquiring a piece of land in the possession of person or persons other than the
seller.

In this regard, great weight is accorded to the findings of fact of the RTC. Basic is the rule that
the trial court is in a better position to examine real evidence as well as to observe the demeanor
of witnesses who testify in the case.40

WHEREFORE, the petition is GRANTED. The December 4, 2009 Decision and the November 18,
201 0 Resolution of the Court of Appeals, in CA-G.R. CV No. 00351, are REVERSED and SET
ASIDE. The July 30, 2004 Decision of the Regional Trial Court, Branch 8, 7th Judicial Region, Cebu
City, in Civil Case No. CEB-16957, is hereby REINSTATED.

SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 188931 July 28, 2014

JUANITO M. GOPIAO, Petitioner,

vs.
METROPOLITAN BANK & TRUST CO., Respondent.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking
to reverse and set aside the Decision1 and Resolution2 dated March 10, 2009 and May 29, 2009,
respectively, of the Court of Appeals (CA) in CA-G.R. SP No. 106705, which affirmed the
Orders3 dated September 18, 2008 and November 27, 2008 of the Regional Trial Court (RTC) of
San Fernando, Pampanga in LRC Case No. 666.

The antecedents are as follows:

This case stemmed from LRC Case No. 666, a Petition for the Issuance of Writ of Possession of
real properties, covered by Transfer Certificate of Title (TCT) Nos. 489198-R, 489199-R, and
489200-R of the Register of Deeds of San Fernando, Pampanga, filed by respondent Metropolitan
Bank & Trust Co.4 In said case, the RTC of San Fernando, Pampanga issued, on November 5,
2007, a writ of possession in favor of respondent Bank when it purchased the subject properties
at a public auction and registered the same in its name on October 1, 1998. Consequently, on
January 4, 2008, a Notice to Vacate was served on Green Asia Construction and Development
Corporation, represented by the spouses Renato and Delia Legaspi (the Spouses Legaspi). 5

Upon learning of the notice to vacate, petitioner filed anAffidavit of Third Party Claim 6 on January
8, 2008 and a Very Urgent Motion for Intervention and to Recall and/or Stop the
Enforcement/Implementation of the Writ of Possession January 9, 2008. 7 In said actions,
petitioner alleged to be in actual occupation of the subject properties and claimed ownership
thereof by virtue of a Deed of Sale dated May 20, 1995 executed by the Spouses Legaspi in his
favor.

On September 18, 2008, the trial court denied petitioners claims in its Order, 8 the pertinent
portions of which read:

Juanito M. Gopiaos motion for intervention is too late in the day to entertain. His resurfacing now
puts his action in doubt. It has been twenty-three (23) long years ago since the alleged Deed of
Absolute Sale was executed and yet he has not registered the properties in his name. His motion
tries to resurrect a dead horse. This is a ruse to disallow the taking over the properties by
Metropolitan Bank and Trust Company. This alone militates against this motion of intervention.
Juanito M. Gopiaos legal interest in these properties is, thus, beclouded.

WHEREFORE, the Motion for Intervention and to Recall and/or Stop the
Enforcement/Implementation of the Writ of Possession is DENIEDfor lack of merit. 9

When the RTC denied petitioners Motion for Reconsideration of the above-quoted decision,
petitioner elevated his claim to the CA via petition for certiorarialleging that the RTC committed
grave abuse of discretion amounting to lack and/or excess ofjurisdiction. On March 10, 2009,
however, the CA dismissed said petition in the following wise:

In this case, the trial court committed no grave abuse of discretion in denying petitioners
"Motion for Intervention and to Recall and/or Stop the Enforcement/Implementation ofthe Writ of
Possession." To substantiate his claim of ownership over the subject properties, petitioner offered
in evidence an un-notarized and unregistered deed of sale. As pointed out by the private
respondent bank in its Comment, petitioner even failed to prove the due execution and
authenticity of the said deed of absolute sale.

On the other hand, the respondent bank was a mortgagee in good faith. It has shown that prior
to the approval of the loan application of the borrowers, it checked the records of the properties
offered as collaterals at the Registry of Deeds and verified that the titles were clean. Moreover, it
inspected the premises and found no occupants. Thus, it approved the loan secured by the
mortgage over the subject properties which they caused to be registered. When the borrowers
defaulted, it foreclosed the mortgage, purchased the property at the public auction and
registered the Certificate of Sale on October 1, 1998. The real properties are now covered by TCT
No. 489198-R, TCT No. 489199-R and TCT No. 489200-R registered in its name. Thus, a writ of
possession was issued in its favor.10

Petitioners Motion for Reconsideration was likewise subsequently denied in a CA

Resolution11 dated May 29, 2009. Hence, this petition filed by petitioners raising the following
errors:

I.

THE CA ERRED IN RULING THAT THE RTC COMMITTED NO GRAVE ABUSE OF DISCRETION IN
DENYING PETITIONERS INTERVENTION EVEN IF THE RTC VIOLATED EXISTING JURISPRUDENCE.

II.

THE CA ERRED IN RULING ON A NON-ISSUE: THE ALLEGED GOOD FAITH OF RESPONDENT AS A

MORTGAGEE.

III.

THE CA ERRED IN RULING ON THE EXISTENCE OF DOUBLE SALE INSTEAD OF THE PREFERRED
RIGHT OF PETITIONER.
Petitioner posits that the RTC gravely abused its discretion when it failed to recognize his right as
a third party adverse possessor. He explains that while the issuance of a writ of possession after
a foreclosure sale is ministerial, it ceases to be a ministerial duty of the court if there is a third
party holding the property adversely to the judgment debtor. 12 He claims that since he has been
in possession ofthe subject properties by virtue of a Deed of Sale executed by the Spouses
Legaspi in his favor, the RTC exceeded its powers in denying its intervention. In support of his
claim, petitioner cited rulings of this Court wherein we prevented the enforcement of writs of
possession against adverse third-party possessors.

Petitioner further maintains that the CA erred in ruling that there exists a double sale in this case
and, thus, the good faith of respondent Bank is material. 13

The petition is bereft of merit.

We agree with the CA when it found that the RTC did not gravely abuse its discretion in
dismissing petitioners Affidavit of Third-Party Claim and Very Urgent Motion for Intervention and
to Recall and/or Stop the Enforcement/Implementation of the Writ of Possession.

A writ of possession is a writ of execution employed to enforce a judgment to recover the

possession of land.14 It commands the sheriff to enter the land and give its possessionto the
party entitled under the judgment. Under Sections 6 and 7 of Act 3135, 15 as amended by Act
4118,16 a writ of possession may be issued in favor of a purchaser in a foreclosure sale of a real
estate mortgage either (1) within the one-year redemption period, upon the filing of a bond; or
(2) after the lapse of the redemption period, without need of a bond. 17

It is a well-established rule that the issuance of a writ of possession to a purchaser in a public

auction is a ministerial function of the court, which cannot be enjoined or restrained, evenby the
filing of a civil case for the declaration of nullity of the foreclosure and consequent auction sale. 18

Once title to the property has been consolidated in the buyers name upon failure of the
mortgagor to redeem the property within the one-year redemption period, the writ of possession
becomes a matter of right belonging to the buyer. Its right to possession has then ripened into
the right of a confirmed absolute owner and the issuance of the writ becomes a ministerial
function that does not admit of the exercise of the courts discretion. 19

Moreover, a petition for a writ of possession is ex-parteand summary in nature. As one brought
for the benefit of one party only and without notice by the court to any person adverse of
interest, it is a judicial proceeding wherein relief is granted without giving the person against
whom the relief is sought an opportunity to beheard. Since the judge to whom the application for
writ of possession is filed need not look into the validity of the mortgage or the manner of its
foreclosure, it has been ruled that the ministerial duty of the trial court does not become
discretionary upon the filing of a complaint questioning the mortgage. 20 Corollarily, any question
regarding the validity of the extrajudicial foreclosure sale and the resulting cancellation of the
writ may, likewise,be determined in a subsequent proceeding as outlined in Section 8 of Act No.
3135.21

The foregoing rule, however, admitsof a few exceptions, one of which is when a third party in
possession of the property claims a right adverse to that of the debtor-mortgagor, as this Court
has time and again upheld in numerous cases, consistent with Section 33 22 of Rule 39 of the
Rules of Court. As such, petitioner claims that since the following rulings squarely apply to the
instant case, the writ of possession should not be enforced against him.

Petitioner first cites our ruling in Heirs of the Late Domingo N. Nicolas v. Metropolitan Bank &
Trust Company (Metrobank)23 wherein we applied the exception rather than the general rule. In
said case, when the surviving spouse of decedent Domingo mortgaged certain conjugal lots
wherein the family home was situated to Metrobank, which had successfully purchased the same
in a public auction, we ruled that the subsequent writ of possession may only be enforced
against the share of the surviving spouse and not against the share of the other heirs of
decedent Domingo. This is because the other heirs are strangers or third parties therein whose
rights cannot be determined as they were not impleaded by in the foreclosure proceeding. Thus,
we held that they should not be deprived of their legitime by the enforcement of the writ of
possession.

Petitioner next cites our ruling in Dayot v. Shell Chemical Company (Phils.), Inc. 24 wherein we held
that the trial court was without authority to grant the ex-partewrit of possession in favor of
petitioner Dayot since respondent Shell had been indisputablyin possession of the subject lots
since 1975 and that it had in its premises bulk plant and fuel storage facilities for the purpose of
conducting its business. It was proven therein that petitioner Dayot even had knowledge of
respondent Shell's prior possession of the disputed properties. Yet, instead of pursuing an
independent civil action where respondentShell will be given a chance to substantiate its claim of
ownership, petitioner insisted on obtaining a writ of possession pursuant to its alleged right as
purchaser of the properties which had been extrajudicially foreclosed. Such was a procedural
shortcut this Court could not sanction.

Finally, petitioner refers to our ruling in Philippine National Bank v. Court of Appeals 25 wherein we
opined that it was not a ministerial duty of the trial court under Act No. 3135 to issue a writ of
possession for the ouster of private respondents from the subject property since they were the
actual occupants thereof. There was no question on the actual possession of the private
respondents who were third parties adversely holding the subject property. In fact, petitioner
Banks representative actually testified to the knowledge thereof. According to petitioner Bank,
they even invited private respondents to a conference to discuss the ownership of the foreclosed
property. However, instead of bringingan action to court for the ejectment of private
respondents, it chose to simply file an ex-partepetition for a writ of possession pursuant to
itsalleged right as purchaser in the extrajudicial foreclosure sale. For this reason, we held that
the ex-partewrit could only be rightfully recognized against the judgment debtors but not against
private respondents who assert a right adverse to the judgment debtors.

Relying on the foregoing rulings, petitioner contends that since he is likewise a third party in
possession of the subject properties claiming a right adverse to that of the mortgagor-spouses
Legaspi, the writ of possession issued by the lower court should notbe implemented against him.
Petitioner is mistaken. The present case cannot be said to be identically analogous to any of the
exceptions discussed above. While the facts of the foregoing rulings are similar to that ofthe
instant case, there remains one crucial difference: the certainty of possession. In all three cases
cited by the petitioner, the fact that the subject property was actually in the possession of the
adverse third party is undisputed. In fact, it was proven that the mortgagee-banks therein even
had actual knowledge of the third parties adverse possession. But in spite of this, the
mortgagee-banks insisted on obtaining writs of possession instead of pursuing independent
actions to assert their claims.

In contrast, petitioners possession of the subject properties in this case is questionable. As

correctly observed by the courts below, petitioner failed to substantiate his possession with
sufficient evidence. On its face, the Deed of Absolute Sale 26 relied upon by petitioner is neither
complete nor in due form. Certain essential details are missing therein, such as the tax account
numbers of the interested parties and the names of the witnesses. 27 More importantly, the same
was not notarized. As pointed out by the CA, petitioner even failed to prove the dueexecution
and authenticity of the document.28 Apart from the unnotarized and unrecorded Deed of Absolute
Sale, petitioner did not present other convincing evidence to bolster his claim of ownership
and/or possession.

Equally telling is that the titles covering the subject properties depict no trace of petitioners
claim.1avvphi1 The findings of the trial court reveal that the unnotarized Deed of Sale is nowhere
tobe found on the dorsal side of the titles. 29There is likewise no notice or adverse claim
annotated or inscribed at the back of the same. 30 Upon verification at the Office of the Register of
Deeds for the Province of Pampanga, Municipal Assessor and Treasurers Office, respondent bank
found out that the subject titles and latest tax declarations covering the disputed properties were
still registered under the names of the Spouses Legaspi without any annotation on the same as
to the existence of a sale between said spouses and petitioner. 31
If petitioner had really purchased the subject properties from the Spouses Legaspi back in 1995,
why is it that he has not, up until now, taken any steps in obtaining the titles thereto? If
petitioner really believed himself to be the true owner of the disputedproperties, he should have
at least registered the document that evidences his ownership thereof and paid real estate taxes
thereon under his name. Petitioner, however, failed to provide evidence of any attempt in
registering his ownership much less any reason for his failure to do so.

To cast more doubt on petitioners claim of possession, the RTC and CA are in agreement as to
the fact that respondent Bank found no occupants in the subject properties when it inspected the
same before approving the loan applied for by the Spouses Legaspi. 32

All told, we observe that there is nothing that would indicate that the lower court acted without
or in excess ofjurisdiction or with grave abuse of discretion in denying petitioners intervention.
Had petitioner properly substantiated his claim of possession with sufficient evidence, the lower
court could have applied the exception instead of the general rule, permitted his intervention,
and prevented the implementation of the subject writ of possession. Yet, as previously
mentioned, not only did petitioner present an un-notarized and unregistered Deed of Absolute
Sale but there exists no trace of petitioners claim of ownership on the titles of the subject
properties. Verily, the exception cannot be madeto apply in the instant case as petitioner failed
to establish his actual possession of the same. Measured against established parameters, the
rejection by the lower court of petitioners intervention was not without basis and, hence, could
not have been arrived at capriciously, whimsically, arbitrarily or despotically.

Going now to the contention of the petitioner that the CA erred in ruling that there exists a
double sale in this case and thus, the good faith of respondent Bank is material. According to the
petitioner, the rule on double sales under Article 1544 33 of the Civil Code is inapplicable herein
since there is no double sale to speak of; the first transaction, a sale and the second, a
mortgage.34 As such, the CA erred in giving credence to the good faith of respondent Bank, which
is really a non-issue herein.

We disagree. On the contrary, jurisprudence is replete with rulings that apply the double sales
rule to cases where one of the two sales was conducted in a public auction. 35

In fact, in Express credit Financing Corporation v. Spouses Velasco, 36 the facts of which are
strikingly similar to the case at hand, we applied the rule on double sales in determining the
party who has preferential right over the disputed property in question. In said case, the subject
property was sold first, to respondent spouses by virtue of a Deed of Absolute Sale and, second,
to petitioner corporation in a foreclosure sale of a real estate mortgage. We ruled, however, in
favor of respondent spouses due to the bad faith of petitioner corporation as records reveal that
they were well aware of the earlier sale to respondent spouses.

In contrast, the CA aptly noted the good faith of respondent Bank in this case.1wphi1 In its
decision, it ruled that respondent Bank has sufficiently shown that prior to the approval of the
loan application of the Spouses Legaspi, it checked the records of the properties offered as
collaterals at the Register of Deeds and verified that the titles were clean. 37 Moreover, it
inspected the premises and found no occupants. 38 Thus, respondent Bank cannot be said to have
acquired the subject properties in bad faith as to negate its right of possession thereof.

Nevertheless, it must be noted that the CAs discussion on double sale and good faith was based
on anassumption, for the sake of argument, that the Spouses Legaspi actually sold the subject
properties to both petitioner and respondent Bank. The same is on the supposition that the first
sale to the petitioner had indeed taken place. However, as mentioned above, there is doubt as to
whether petitioner had truly purchased the properties subject of this case. What can be derived
from the CAs discussion is that even if petitioner is able to establish his possession, he would
still have to overcome the rule on double sale wherein the good faith of respondent Bank is
material.

To be sure, considering the ex-partenature of the proceedings involved in the issuance of the writ
ofpossession, and should petitioner still choose to further vindicate his claim of ownership over
the subject properties despite the findings of the courts below, an independent civil action is an
available remedy.39

In view of the foregoing, we find no compelling reason to disturb the findings of the RTC and the
CA. The RTC did not gravely abuse its discretion in denyingpetitioners Affidavit of Third-Party
Claim and Very Urgent Motion for Intervention and to Recall and/or Stop the
Enforcement/Implementation of the Writ of Possession, since petitioners alleged possession of
the subject real properties has not been adequately proved. Thus, the general rule, and not the
exception, applies to the instant petition. Likewise, the CA did not err in invoking the rule on
double sale and appreciating the good faith of respondent Bank, the same being material herein.
WHEREFORE, premises considered, the instant petition is DENIED. The Orders dated September
18, 2008 and November 27, 2008 of the Regional Trial Court of San Fernando, Pampanga in LRC
Case No. 666, and the Decision and Resolution, dated March 10, 2009 and May 29, 2009,
respectively, of the Court of Appeals in CA-G.R. SP No. 106705, are hereby AFFIRMED.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 132161 January 17, 2005

CONSOLIDATED RURAL BANK (CAGAYAN VALLEY), INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS and HEIRS OF TEODORO DELA CRUZ, respondents.

DECISION

TINGA, J.:

Petitioner Consolidated Rural Bank, Inc. of Cagayan Valley filed the instant Petition for
Certiorari1 under Rule 45 of the Revised Rules of Court, seeking the review of the Decision2 of the
Court of Appeals Twelfth Division in CA-G.R. CV No. 33662, promulgated on 27 May 1997, which
reversed the judgment3 of the lower court in favor of petitioner; and the Resolution4 of the Court
of Appeals, promulgated on 5 January 1998, which reiterated its Decision insofar as respondents
Heirs of Teodoro dela Cruz (the Heirs) are concerned.

From the record, the following are the established facts:

Rizal, Anselmo, Gregorio, Filomeno and Domingo, all surnamed Madrid (hereafter the Madrid
brothers), were the registered owners of Lot No. 7036-A of plan Psd-10188, Cadastral Survey
211, situated in San Mateo, Isabela per Transfer Certificate of Title (TCT) No. T-8121 issued by the
Register of Deeds of Isabela in September 1956. 5

On 23 and 24 October 1956, Lot No. 7036-A was subdivided into several lots under subdivision
plan Psd- 50390. One of the resulting subdivision lots was Lot No. 7036-A-7 with an area of Five
Thousand Nine Hundred Fifty-Eight (5,958) square meters. 6

On 15 August 1957, Rizal Madrid sold part of his share identified as Lot No. 7036-A-7, to Aleja
Gamiao (hereafter Gamiao) and Felisa Dayag (hereafter, Dayag) by virtue of a Deed of Sale,7 to
which his brothers Anselmo, Gregorio, Filomeno and Domingo offered no objection as evidenced
by their Joint Affidavit dated 14 August 1957.8 The deed of sale was not registered with the Office
of the Register of Deeds of Isabela. However, Gamiao and Dayag declared the property for
taxation purposes in their names on March 1964 under Tax Declaration No. 7981. 9

On 28 May 1964, Gamiao and Dayag sold the southern half of Lot No. 7036-A-7, denominated as
Lot No. 7036-A-7-B, to Teodoro dela Cruz,10 and the northern half, identified as Lot No. 7036-A-7-
A,11 to Restituto Hernandez.12 Thereupon, Teodoro dela Cruz and Restituto Hernandez took
possession of and cultivated the portions of the property respectively sold to them. 13

Later, on 28 December 1986, Restituto Hernandez donated the northern half to his daughter,
Evangeline Hernandez-del Rosario.14 The children of Teodoro dela Cruz continued possession of
the southern half after their fathers death on 7 June 1970.

In a Deed of Sale15 dated 15 June 1976, the Madrid brothers conveyed all their rights and
interests over Lot No. 7036-A-7 to Pacifico Marquez (hereafter, Marquez), which the former
confirmed16 on 28 February 1983.17 The deed of sale was registered with the Office of the
Register of Deeds of Isabela on 2 March 1982. 18

Subsequently, Marquez subdivided Lot No. 7036-A-7 into eight (8) lots, namely: Lot Nos. 7036-A-
7-A to 7036-A-7-H, for which TCT Nos. T-149375 to T-149382 were issued to him on 29 March
1984.19 On the same date, Marquez and his spouse, Mercedita Mariana, mortgaged Lots Nos.
7036-A-7-A to 7036-A-7-D to the Consolidated Rural Bank, Inc. of Cagayan Valley (hereafter, CRB)
to secure a loan of One Hundred Thousand Pesos (P100,000.00).20 These deeds of real estate
mortgage were registered with the Office of the Register of Deeds on 2 April 1984.

On 6 February 1985, Marquez mortgaged Lot No. 7036-A-7-E likewise to the Rural Bank of
Cauayan (RBC) to secure a loan of Ten Thousand Pesos (P10,000.00).21

As Marquez defaulted in the payment of his loan, CRB caused the foreclosure of the mortgages in
its favor and the lots were sold to it as the highest bidder on 25 April 1986. 22
On 31 October 1985, Marquez sold Lot No. 7036-A-7-G to Romeo Calixto (Calixto). 23

Claiming to be null and void the issuance of TCT Nos. T-149375 to T-149382; the foreclosure sale
of Lot Nos. 7036-A-7-A to 7036-A-7-D; the mortgage to RBC; and the sale to Calixto, the Heirs-
now respondents herein-represented by Edronel dela Cruz, filed a case 24 for reconveyance and
damages the southern portion of Lot No. 7036-A (hereafter, the subject property) against
Marquez, Calixto, RBC and CRB in December 1986.

Evangeline del Rosario, the successor-in-interest of Restituto Hernandez, filed with leave of court
a Complaint in Intervention25 wherein she claimed the northern portion of Lot No. 7036-A-7.

In the Answer to the Amended Complaint,26 Marquez, as defendant, alleged that apart from being
the first registrant, he was a buyer in good faith and for value. He also argued that the sale
executed by Rizal Madrid to Gamiao and Dayag was not binding upon him, it being unregistered.
For his part, Calixto manifested that he had no interest in the subject property as he ceased to be
the owner thereof, the same having been reacquired by defendant Marquez. 27

CRB, as defendant, and co-defendant RBC insisted that they were mortgagees in good faith and
that they had the right to rely on the titles of Marquez which were free from any lien or
encumbrance.28

After trial, the Regional Trial Court, Branch 19 of Cauayan, Isabela (hereafter, RTC) handed down
a decision in favor of the defendants, disposing as follows:

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

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

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

3. Declaring the mortgage of Lots 7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-D in

favor of the defendant Consolidated Rural Bank (Cagayan Valley) and of Lot 7036-A-7-E in
favor of defendant Rural Bank of Cauayan by Pacifico V. Marquez valid;

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

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

No pronouncement as to costs.

SO ORDERED.29

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

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

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

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

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

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

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

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

The Heirs interposed an appeal with the Court of Appeals. In their Appellants Brief,31 they
ascribed the following errors to the RTC: (1) it erred in finding that Marquez was a buyer in good
faith; (2) it erred in validating the mortgage of the properties to RBC and CRB; and (3) it erred in
not reconveying Lot No. 7036-A-7-B to them.32

Intervenor Evangeline del Rosario filed a separate appeal with the Court of Appeals. It was,
however, dismissed in a Resolution dated 20 September 1993 for her failure to pay docket fees.
Thus, she lost her standing as an appellant. 33

On 27 May 1997, the Court of Appeals rendered its assailed Decision 34 reversing the RTCs
judgment. The dispositive portion reads:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Accordingly,
judgment is hereby rendered as follows:

1. Declaring the heirs of Teodoro dela Cruz the lawful owners of the southern half portion
and Evangeline Hernandez-del Rosario the northern half portion of Lot No. 7036-A-7, now
covered by TCT Nos. T-149375 to T-149382, inclusive;

2. Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V.
Marquez and the Madrid brothers covering said Lot 7036-A-7;

3. Declaring null and void the mortgage made by defendant Pacifico V. Marquez of Lot Nos.
7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-D in favor of the defendant
Consolidated Rural Bank and of Lot 7036-A-7-E in favor of defendant Rural Bank of
Cauayan; and

4. Ordering Pacifico V. Marquez to reconvey Lot 7036-A-7 to the heirs of Teodoro dela Cruz
and Evangeline Hernandez-del Rosario.

No pronouncement as to costs.

SO ORDERED.35

In upholding the claim of the Heirs, the Court of Appeals held that Marquez failed to prove that
he was a purchaser in good faith and for value. It noted that while Marquez was the first
registrant, there was no showing that the registration of the deed of sale in his favor was coupled
with good faith. Marquez admitted having knowledge that the subject property was "being taken"
by the Heirs at the time of the sale.36 The Heirs were also in possession of the land at the time.
According to the Decision, these circumstances along with the subject propertys attractive
locationit was situated along the National Highway and was across a gasoline stationshould
have put Marquez on inquiry as to its status. Instead, Marquez closed his eyes to these matters
and failed to exercise the ordinary care expected of a buyer of real estate. 37

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

Dissatisfied, CRB filed a Motion for Reconsideration39 pointing out, among others, that the
Decision promulgated on 27 May 1997 failed to establish good faith on the part of the Heirs.
Absent proof of possession in good faith, CRB avers, the Heirs cannot claim ownership over the
subject property.

In a Resolution40 dated 5 January 1998, the Court of Appeals stressed its disbelief in CRBs
allegation that it did not merely rely on the certificates of title of the properties and that it
conducted credit investigation and standard ocular inspection. But recalling that intervenor
Evangeline del Rosario had lost her standing as an appellant, the Court of Appeals accordingly
modified its previous Decision, as follows:

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

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE insofar as
plaintiffs-appellants are concerned. Accordingly, judgment is hereby rendered as follows:

1. Declaring the Heirs of Teodoro dela Cruz the lawful owners of the southern half portion
of Lot No. 7036-A-7;

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

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

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

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

No pronouncement as to costs.

SO ORDERED.41

Hence, the instant CRB petition. However, both Marquez and RBC elected not to challenge the
Decision of the appellate court.

Petitioner CRB, in essence, alleges that the Court of Appeals committed serious error of law in
upholding the Heirs ownership claim over the subject property considering that there was no
finding that they acted in good faith in taking possession thereof nor was there proof that the
first buyers, Gamiao and Dayag, ever took possession of the subject property. CRB also makes
issue of the fact that the sale to Gamiao and Dayag was confirmed a day ahead of the actual
sale, clearly evincing bad faith, it adds. Further, CRB asserts Marquezs right over the property
being its registered owner.

The petition is devoid of merit. However, the dismissal of the petition is justified by reasons
different from those employed by the Court of Appeals.

Like the lower court, the appellate court resolved the present controversy by applying the rule on
double sale provided in Article 1544 of the Civil Code. They, however, arrived at different
conclusions. The RTC made CRB and the other defendants win, while the Court of Appeals
decided the case in favor of the Heirs.

Article 1544 of the Civil Code reads, thus:

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

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

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

The provision is not applicable in the present case. It contemplates a case of double or multiple
sales by a single vendor. More specifically, it covers a situation where a single vendor sold one
and the same immovable property to two or more buyers. 42 According to a noted civil law author,
it is necessary that the conveyance must have been made by a party who has an existing right in
the thing and the power to dispose of it. 43 It cannot be invoked where the two different contracts
of sale are made by two different persons, one of them not being the owner of the property
sold.44 And even if the sale was made by the same person, if the second sale was made when
such person was no longer the owner of the property, because it had been acquired by the first
purchaser in full dominion, the second purchaser cannot acquire any right. 45

In the case at bar, the subject property was not transferred to several purchasers by a single
vendor. In the first deed of sale, the vendors were Gamiao and Dayag whose right to the subject
property originated from their acquisition thereof from Rizal Madrid with the conformity of all the
other Madrid brothers in 1957, followed by their declaration of the property in its entirety for
taxation purposes in their names. On the other hand, the vendors in the other or later deed were
the Madrid brothers but at that time they were no longer the owners since they had long before
disposed of the property in favor of Gamiao and Dayag.

Citing Manresa, the Court of Appeals in 1936 had occasion to explain the proper application of
Article 1473 of the Old Civil Code (now Article 1544 of the New Civil Code) in the case of Carpio
v. Exevea,46 thus:

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

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

This construction is not repugnant to the text of Article 1473, and not only is it not contrary to it,
but it explains and justifies the same. (Vol. 10, 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,"50 should apply.51 The only essential requisite of this rule is priority in time; in other words,
the only one who can invoke this is the first vendee. Undisputedly, he is a purchaser in good faith
because at the time he bought the real property, there was still no sale to a second vendee. 52 In
the instant case, the sale to the Heirs by Gamiao and Dayag, who first bought it from Rizal
Madrid, was anterior to the sale by the Madrid brothers to Marquez. The Heirs also had
possessed the subject property first in time. Thus, applying the principle, the Heirs, without a
scintilla of doubt, have a superior right to the subject property.

Moreover, it is an established principle that no one can give what one does not havenemo dat
quod non habet. Accordingly, one can sell only what one owns or is authorized to sell, and the
buyer can acquire no more than what the seller can transfer legally. 53 In this case, since the
Madrid brothers were no longer the owners of the subject property at the time of the sale to
Marquez, the latter did not acquire any right to it.

In any event, assuming arguendo that Article 1544 applies to the present case, the claim of
Marquez still cannot prevail over the right of the Heirs since according to the evidence he was
not a purchaser and registrant in good faith.

Following Article 1544, in the double sale of an immovable, the rules of preference are:

(a) the first registrant in good faith;

(b) should there be no entry, the first in possession in good faith; and

54
(c) in the absence thereof, the buyer who presents the oldest title in good faith.

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

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

ATTY. CALIXTO

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

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

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

...

ATTY. CALIXTO-

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

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

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

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

Q So, you do not have any possession?

A None, sir.57

One who purchases real property which is in actual possession of others should, at least, make
some inquiry concerning the rights of those in possession. The actual possession by people other
than the vendor should, at least, put the purchaser upon inquiry. He can scarcely, in the absence
of such inquiry, be regarded as a bona fide purchaser as against such possessions. 58 The rule
of caveat emptor requires the purchaser to be aware of the supposed title of the vendor and one
who buys without checking the vendors title takes all the risks and losses consequent to such
failure.59

It is further perplexing that Marquez did not fight for the possession of the property if it were true
that he had a better right to it. In our opinion, there were circumstances at the time of the sale,
and even at the time of registration, which would reasonably require a purchaser of real property
to investigate to determine whether defects existed in his vendors title. Instead, Marquez
willfully closed his eyes to the possibility of the existence of these flaws. For failure to exercise
the measure of precaution which may be required of a prudent man in a like situation, he cannot
be called a purchaser in good faith.60

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

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

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

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

Banks, their business being impressed with public interest, are expected to exercise more care
and prudence than private individuals in their dealings, even those involving registered lands.
Hence, for merely relying on the certificates of title and for its failure to ascertain the status of
the mortgaged properties as is the standard procedure in its operations, we agree with the Court
of Appeals that CRB is a mortgagee in bad faith.

In this connection, Marquezs obstention of title to the property and the subsequent transfer
thereof to CRB cannot help the latters cause. In a situation where a party has actual knowledge
of the claimants actual, open and notorious possession of the disputed property at the time of
registration, as in this case, the actual notice and knowledge are equivalent to registration,
because to hold otherwise would be to tolerate fraud and the Torrens system cannot be used to
shield fraud. 65

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

We also find that the Court of Appeals did not err in awarding the subject property to the Heirs
absent proof of good faith in their possession of the subject property and without any showing of
possession thereof by Gamiao and Dayag.

As correctly argued by the Heirs in their Comment,67 the requirement of good faith in the
possession of the property finds no application in cases where there is no second sale. 68 In the
case at bar, Teodoro dela Cruz took possession of the property in 1964 long before the sale to
Marquez transpired in 1976 and a considerable length of timeeighteen (18) years in
factbefore the Heirs had knowledge of the registration of said sale in 1982. As Article 526 of
the Civil Code aptly provides, "(H)e is deemed a possessor in good faith who is not aware that
there exists in his title or mode of acquisition any flaw which invalidates it." Thus, there was no
need for the appellate court to consider the issue of good faith or bad faith with regard to
Teodoro dela Cruzs possession of the subject property.

Likewise, we are of the opinion that it is not necessary that there should be any finding of
possession by Gamiao and Dayag of the subject property. It should be recalled that the regularity
of the sale to Gamiao and Dayag was never contested by Marquez. 69 In fact the RTC upheld the
validity of this sale, holding that the Madrid brothers are bound by the sale by virtue of their
confirmation thereof in the Joint Affidavit dated 14 August 1957. That this was executed a day
ahead of the actual sale on 15 August 1957 does not diminish its integrity as it was made before
there was even any shadow of controversy regarding the ownership of the subject property.

Moreover, as this Court declared in the case of Heirs of Simplicio Santiago v. Heirs of Mariano E.
Santiago ,70 tax declarations "are good indicia of possession in the concept of an owner, for no
one in his right mind would be paying taxes for a property that is not in his actual or constructive
possession."71

WHEREFORE, the Petition is DENIED. The dispositive portion of the Court of Appeals Decision,
as modified by its Resolution dated 5 January 1998, is AFFIRMED. Costs against petitioner.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

 SECOND DIVISION

FELIPA GARBIN,
Petitioner,
G. R. No. 107653

February 5, 1996
-versus-

HON. COURT OF APPEALS [FORMER TENTH DIVISION]

and SPOUSES ANTONIO JULIAN and CASIMIRA GARBIN,
Respondents.

DECISION
ROMERO, J.:

This is a Petition for Review on Certiorari of the Decision of the Court of Appeals reversing the
Regional Trial Court of Tarlac, Tarlac which had earlier dismissed the complaint for annulment of
sale filed by private respondents.
The facts are the following:
Pablo Garbin and Leoncia Garbin are the parents of petitioner Felipa Garbin [Felipa] and private
respondent Casimira Garbin [Casimira] married to private respondent Antonio Julian. Pablo
Garbin is the original owner of Lot 12712, Camiling, Tarlac Cadastre with an area of 25,681
square meters, title thereto being evidenced by Original Certificate of Title No. 33251.cralaw
On October 31, 1955, Pablo Garbin and his wife Leoncia executed a "Deed of Absolute Sale of
Real Estate" purportedly conveying to private respondent Casimira Garbin the undivided
northern half of the said lot. Casimira then registered an adverse claim over the property.cralaw
On May 24, 1970, Pablo Garbin sold the entire Lot 12712, including the northern portion to
petitioner Felipa by virtue of a Deed of Sale. Consequently, Transfer Certificate of Title No. 88932
was issued in favor of Felipa. On July 29, 1974, Felipa and Pablo Garbin filed an ejectment case
against private respondent spouses. In that case, the Municipal Trial Court of Camiling, Tarlac
decided against private respondents. They appealed the case to the Regional Trial Court of Tarlac
which affirmed the questioned decision. Private respondents then filed a Petition for Review with
the Court of Appeals but said petition was dismissed. They questioned the dismissal in this Court
docketed as G. R. No. 59817 but the petition was denied due course.cralaw
On March 1, 1982, before judgment could become final in the ejectment case, private
respondents filed a complaint for annulment of sale, partition and damages with the Regional
Trial Court of Tarlac. The issue presented therein was whether or not private respondents, as the
alleged first vendees in a double sale [who annotated the same as an adverse claim on the
covering title], have a superior right over petitioner, the subsequent vendee [who received a
transfer certificate of title for the entire lot despite prior inscription of the adverse claim].cralaw
The RTC ruled in favor of petitioner and dismissed the complaint. Aggrieved, private respondents
went to the Court of Appeals which reversed and set aside the decision of the trial court. The
appellate court said:
It is Our view, and so We hold, that, at the very least, the inscription of the adverse claim of
plaintiffs-appellants on vendor Pablo Garbin's OCT No. 33251 did constitute a sufficient notice to
the whole world, defendant-appellee Felipa Garbin included, that the northern half of subject Lot
12712 was deeded out by the registered owner to plaintiffs-appellants. Therefore, defendant-
appellee is a buyer in bad faith, with full awareness of the prior sale of the northern half of Lot
12712 to her sister Casimira Garbin, and consequently, the registration of the sale in favor of
defendant-appellee did not cleanse her bad faith and the legal consequences thereof, and did
not vest in her [appellee] the ownership over the northern half of Lot 12712, as against the first
buyer thereof, plaintiff-appellant Casimira Garbin.
It is well-settled that in a double sale of real property, ownership thereof "shall belong to the
person acquiring it who in good faith first recorded it in the Registry of Property" [2nd paragraph,
Article 1544, New Civil Code of the Philippines]. Under this applicable provision of law, mere
registration of the sale of real or immovable property is not enough. The good faith of the buyer
registering the sale must concur. In the case of defendant-appellee, she cannot be considered in
good faith, within legal contemplation, and her profession of innocence or lack of knowledge of
the prior sale is incredible and unworthy of belief. To be sure, the annotation of plaintiffs-
appellants' adverse claim on the title of vendor Pablo Garbin made defendant-appellee fully
aware of such earlier sale.
As regards the defense of prescription or laches invoked by defendant-appellee to defeat the
claim of plaintiffs-appellants over the portion of land in question, We find the same equally
undeserving of serious consideration. Considering that before instituting this action on March 2,
1982, plaintiffs-appellants were pre-occupied with the ejectment proceedings commenced
against them by defendant-appellee on July 29, 1970; it cannot be said then, that plaintiffs-
appellants slumbered on their rights and had failed to assert their claim seasonably. As a matter
of fact, even during the pendency of the ejectment case, they did find time to initiate this case
under consideration. Plaintiffs-appellants having been busy defending themselves in said
ejectment case against them; their inability to file the present action sooner is understandable. It
should be borne in mind that the running of the period of prescription is capable of interruption.
And, to repeat; during the pendency of the ejectment case afore-mentioned; We believe that the
running of the period of prescription of plaintiffs-appellants' cause of action had been
interrupted.
As regards the equitable principle of laches, the attendant facts and circumstances come to the
fore. Whether or not laches set in depends on the surrounding facts and circumstances. Here, We
believe that plaintiffs-appellants have not faltered or failed for an unreasonable length of time to
assert their claim of ownership.
With respect to the southern half of Lot 12712; plaintiffs-appellants' stance is also meritorious.
When the wife of Pablo Garbin died, her estate was transmitted by operation of the law on
intestate succession to plaintiff-appellant Casimira Garbin, defendant-appellee Felipa Garbin, and
surviving spouse Pablo Garbin. So, when Pablo Garbin executed the deed of sale in favor of
defendant-appellee, he could only convey to the latter his undivided share therein, which was 4/6
of the southern portion of Lot 12712 because as herein-above pointed out, the northern half of
the said lot was effectively conveyed to plaintiffs-appellants, so that he could only dispose of 4/6
of the southern portion. Plaintiff-appellant Casimira Garbin inherited 1/6, and the remaining 1/6
of the southern portion went to defendant-appellee as her inheritance from their mother.
Therefore, plaintiffs-appellants own 7/12 of Lot 12712 while defendant-appellee owns 5/12; the
northern half being equivalent to 6/12, and out of the other 6/12, Pablo Garbin conveyed 4/12 to
appellee Felipa Garbin, who inherited 1/12 in her own right. Plaintiff-appellant Casimira Garbin
also inherited 1/12 which portion added to what appellants bought from Pablo Garbin, made
appellant's area 7/12 of Lot 12712.
WHEREFORE, the decision appealed from is hereby set aside; the sale by Pablo Garbin to
defendant-appellee Felipa Garbin of the entire Lot 12712, Camiling, Tarlac Cadastre [Exh. "B"] is
hereby declared null and void and without force and effect, and the resulting TCT No. T-88932 of
the latter [Exh. "C"] is ordered cancelled; plaintiffs-appellants are adjudged the owners pro
indiviso of seven-twelfth [7/12], including the northern half of the said lot, with defendant-
appellee as the owner of the remaining five-twelfth [5/12], southern portion thereof.
To avoid multiplicity of suits; the plaintiffs-appellants and defendant-appellee are hereby given
thirty [30] days from finality of this disposition, to submit to the trial court of origin a scheme of
partition for subject lot on the basis of their undivided co-ownership of seven-twelfth [7/12] and
five-twelfth [5/12], respectively; otherwise, pursuant to Rule 69, Revised Rules of Court, the lower
court shall by order appoint not more than three [3] competent and disinterested commissioners
to effect the partition in accordance herewith. Costs against defendant-appellee.
SO ORDERED.
Petitioner before this Court, now questions the appellate court's decision stating that:
1. No evidence has been presented by private respondents to prove the validity of the "Deed of
Absolute Sale of Real Estate" executed in their favor by Pablo Garbin.
2. The annotation on the title of the adverse claim is not sufficient to prove validity of the said
claim.
3. Pablo Garbin himself repudiated the alleged sale to private respondent spouses in testimony
before the trial court in the ejectment case, denying knowledge of the sale of subject property to
them.
4. Pablo Garbin solely owned the subject lot as shown by the Original Certificate of Title and,
thus, the property could not be considered conjugal.
5. Private respondents' cause of action had already prescribed.
We find the petition meritorious.
The central issue to be resolved here is: does the registration of the said adverse claim by
private respondents prevail over the title of petitioner which was registered subsequent to the
adverse claim?
Considering the circumstances peculiar to the present case, We must rule in the negative.cralaw
Sec. 110 of Act No. 496 [otherwise known as the Land Registration Act] states:
Whoever claims any right or interest in registered land adverse to the registered owner arising
subsequent to the date of the original registration may, if no other provision is made in the Land
Registration Act for registering the same, make a statement in writing setting forth fully his
alleged right or interest, and how or under whom acquired, and a reference to the volume and
page of the certificate of title of the registered owner, and a description of the land in which the
right or interest is claimed. The statement shall be signed and sworn to, and shall state the
adverse claimant's residence, and designate a place at which all notices may be served upon
him. This statement shall be entitled to registration as an adverse claim, and the court, upon a
petition of any party in interest, shall grant a speedy hearing upon the question of the validity of
such adverse claim and shall enter such decree therein as justice and equity may require. If the
claim is adjudged to be invalid, the registration shall be canceled. If in any case the court after
notice and hearing finds that a claim thus registered was frivolous or vexatious, it may tax the
adverse claimant double or treble costs in its discretion. [Emphasis supplied].

The purpose of the annotation of an adverse claim is to protect the interest of a person over a
piece of real property where the registration of such interest or right is not otherwise provided for
by the Land Registration Act, and serve as a notice and warning to third parties dealing with said
property that someone is claiming an interest on the same or a better right than the registered
owner. [1] It is undisputed that the adverse claim of private respondents was registered
pursuant to Sec. 110 of Act No. 496, the same having been accomplished by the filing of a sworn
statement with the Register of Deeds of the province where the property was located. However,
what was registered was merely the adverse claim and not the Deed of Sale which supposedly
conveyed the northern half portion of the subject property. Therefore, there is still need to
resolve the validity of the adverse claim in separate proceedings, as there is an absence of
registration of the actual conveyance of the portion of land herein claimed by private
respondents.
From the provisions of the law, it is clear that mere registration of an adverse claim does not
make such claim valid, nor is it permanent in character. More importantly, such registration does
not confer instant title of ownership since judicial determination on the issue of the ownership is
still necessary. [2]

Regarding the alleged Deed of Sale by Pablo Garbin in favor of private respondents, the trial
court correctly observed:
On the assumption that the deed in favor of the plaintiffs was presented for registration as
claimed, it should, however, be underscored that the entry in the day book is but a preliminary
step of registration, the actual annotation of the memorandum or the issuance of a new
certificate of title being the final step to accomplish registration.

In Pilapil v. CA, [3] We said:

To affect the land sold, the presentation of the Deed of Sale and its entry in the day book must be
done with the surrender of the Owner's Duplicate of the Certificate of Title.

Considering further that Pablo Garbin himself denied the sale of the subject property, it is evident
that the sale never transpired.
In view of the above, the entry in the day book automatically loses force and effect. Thus, it is
the Deed of Sale that petitioner registered in her favor and the Transfer Certificate of Title
subsequently obtained over the property, which has a superior right thereon.cralaw
As regards the issue of the ownership by Pablo Garbin of the property, the Original Certificate of
Title clearly states that he is the sole owner thereof. There is no basis, therefore, for the ruling of
the appellate court that said property is conjugal in character and also for its computation of the
shares that Pablo Garbin could dispose of when he executed the Deed of Sale on May 24, 1970 to
Felipa.cralaw
Lastly, on the issue of prescription, We agree with the trial court which found that the action for
annulment of sale had already prescribed.
The title of the defendant must be upheld for failure or the neglect of the plaintiffs for an
unreasonable and unexplained length of time of more than fifteen [15] years since they
registered their adverse claim, or for a period of more than three [3] decades since the execution
of the deed of sale in their favor upon which their adverse claim is based, to do that which, by
exercising diligence, could or should have been done earlier. For it is this negligence or omission
to assert a right within reasonable time that is construed that plaintiffs had abandoned their right
to claim ownership under the deed of sale, or declined to assert it. Thus, when a person slept in
his rights for 28 years from the time of the transaction, before filing the action amounts to laches
which cannot be excused even by ignorance resulting from inexcusable negligence (Vda. de Lima
vs. Tiu, 52 SCRA 516 [1970]).

Private respondents, having waited for 36 long years before filing an action to annul the sale to
Felipa in the trial court, We hold that this constitutes laches.
The unexplained interval of 29 years that the plaintiffs allowed to elapse before making any
claim or instituting action constitutes laches that places them in estoppel to question the validity
of the probate court's order and of the sale executed in pursuant thereof. [4]
WHEREFORE, the decision of the Court of Appeals is hereby set aside and that of the Regional
Trial Court reinstated. Private respondents' complaint for annulment of sale is hereby
dismissed.cralaw
SO ORDERED.cralaw
Regalado, Puno and Mendoza, JJ., concur.cralaw