SECOND DIVISION reconveyance was already barred by prescription and laches; and that the complaint state no
cause of action.
G.R. No. 133895 October 2, 2001
ZENAIDA M. SANTOS, petitioner,
vs.
CALIXTO SANTOS, ALBERTO SANTOS, ROSA SANTOS-CARREON and ANTONIO
SANTOS, respondents.
QUISUMBING, J.:
This petition for review1 seeks to annul and set aside the decision date March 10, 1998 of the
Court of Appeals that affirmed the decision of the Regional Trial Court of Manila, Branch 48, dated
March 17, 1993. Petitioner also seeks to annul the resolution that denied her motion for
reconsideration.
Petitioner Zenaida M. Santos is the widow of Salvador Santos, a brother of private respondents
Calixto, Alberto, Antonio, all surnamed Santos and Rosa Santos-Carreon.
The spouses Jesus and Rosalia Santos owned a parcel of land registered under TCT No. 27571
with an area of 154 square meters, located at Sta. Cruz Manila. On it was a four-door apartment
administered by Rosalia who rented them out. The spouses had five children, Salvador, Calixto,
Alberto, Antonio and Rosa.
On January 19, 1959, Jesus and Rosalia executed a deed of sale of the properties in favor of their
children Salvador and Rosa. TCT No. 27571 became TCT No. 60819. Rosa in turn sold her share
to Salvador on November 20, 1973 which resulted in the issuance of a new TCT No. 113221.
Despite the transfer of the property to Salvador, Rosalia continued to lease receive rentals form
the apartment units.1âwphi1.nêt
On November 1, 1979, Jesus died. Six years after or on January 9, 1985, Salvador died, followed
by Rosalia who died the following month. Shortly after, petitioner Zenaida, claiming to be
Salvador's heir, demanded the rent from Antonio Hombrebueno, 2 a tenant of Rosalia. When the
latter refused to pay, Zenaida filed and ejectment suit against him with the Metropolitan Trial Court
of Manila, Branch 24, which eventually decided in Zenaida's favor.
On January 5, 1989, private respondents instituted an action for reconveyance of property with
preliminary injunction against petitioner in the Regional Trial Court of Manila, where they alleged
that the two deeds of sale executed on January 19, 1959 and November 20, 1973 were simulated
for lack of consideration. They were executed to accommodate Salvador in generation funds for
his business and providing him with greater business flexibility.
In her Answer, Zenaida denied the material allegations in the complaint as special and affirmative
defenses, argued that Salvador was the registered owner of the property, which could only be
subjected to encumbrances or liens annotated on the title; that the respondents' right to
On March 17, 1993, the trial court decided in private respondents' favor, thus:
WHEREFORE, viewed from all the foregoing considerations, judgment is hereby made in
favor of the plaintiffs and against the defendants:
a) Declaring Exh. "B", the deed of sale executed by Rosalia Santos and Jesus Santos on
January 19, 1959, as entirely null and void for being fictitious or stimulated and inexistent
and without any legal force and effect:
b) Declaring Exh. "D", the deed of sale executed by Rosa Santos in favor of Salvador
Santos on November 20, 1973, also as entirely null and void for being likewise fictitious or
stimulated and inexistent and without any legal force and effect;
c) Directing the Register of Deeds of Manila to cancel Transfer Certificate of Title No. T-
113221 registered in the name of Salvador Santos, as well as, Transfer Certificate of Title
No. 60819 in the names of Salvador Santos, Rosa Santos, and consequently thereafter,
reinstating with the same legal force and effect as if the same was not cancelled, and
which shall in all respects be entitled to like faith and credit; Transfer Certificate of Title
No. T-27571 registered in the name of Rosalia A. Santos, married to Jesus Santos, the
same to be partitioned by the heirs of the said registered owners in accordance with law;
and
d) Making the injunction issued in this case permanent.
Without pronouncement as to costs.
SO OREDERED.3
The trial court reasoned that notwithstanding the deeds of sale transferring the property to
Salvador, the spouses Rosalia and Jesus continued to possess the property and to exercise rights
of ownership not only by receiving the monthly rentals, but also by paying the realty taxes. Also,
Rosalia kept the owner's duplicate copy of the title even after it was already in the name of
Salvador. Further, the spouses had no compelling reason in 1959 to sell the property and
Salvador was not financially capable to purchase it. The deeds of sale were therefore fictitious.
Hence, the action to assail the same does not prescribe.4
Upon appeal, the Court of Appeals affirmed the trial court's decision dated March 10, 1998. It held
that in order for the execution of a public instrument to effect tradition, as provided in Article 1498
of the Civil Code,5 the vendor shall have had control over the thing sold, at the moment of sale. It
was not enough to confer upon the purchaser the ownership and the right of possession. The
thing sold must be placed in his control. The subject deeds of sale did not confer upon Salvador
the ownership over the subject property, because even after the sale, the original vendors
remained in dominion, control, and possession thereof. The appellate court further said that if the
reason for Salvador's failure to control and possess the property was due to his acquiescence to
his mother, in deference to Filipino custom, petitioner, at least, should have shown evidence to
prove that her husband declared the property for tax purposes in his name or paid the land taxes,
acts which strongly indicate control and possession. The appellate court disposed:
WHEREFORE, finding no reversible error in the decision appealed from, the same is
hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.6
Hence, this petition where petitioner avers that the Court of Appeals erred in:
I.
… HOLDING THAT THE OWNERSHIP OVER THE LITIGATED PROPERTY BY THE
LATE HUSBAND OF DEFENDANT-APPELLANT WAS AFFECTED BY HIS FAILURE TO
EXERCISE CERTAIN ATTRIBUTES OF OWNERSHIP.
II.
…HOLDING THAT DUE EXECUTION OF A PUBLIC INSTRUMENT IS NOT
EQUIVALENT TO DELIVERY OF THE LAND IN DISPUTE.
III.
…NOT FINDING THAT THE CAUSE OF ACTION OF ROSALIA SANTOS HAD
PRESCRIBED AND/OR BARRED BY LACHES.
IV.
… IGNORING PETITIONER'S ALLEGATION TO THE EFFECT THAT PLAINTIFF DR.
ROSA [S.] CARREON IS NOT DISQUALIFIED TO TESTIFY AS TO THE QUESTIONED
DEEDS OF SALE CONSIDERING THAT SALVADOR SANTOS HAS LONG BEEN
DEAD.7
In this petition, we are asked to resolve the following:
1. Are payments of realty taxes and retention of possession indications of continued
ownership by the original owners?
2. Is a sale through a public instrument tantamount to delivery of the thing sold?
3. Did the cause of action of Rosalia Santos and her heirs prescribe?
4. Can petitioner invoke the "Dead Man's Statute?"8
On the first issue, petitioner contends that the Court of Appeals erred in holding that despite the
deeds of sale in Salvador's favor, Jesus and Rosalia still owned the property because the spouses
continued to pay the realty taxes and possess the property. She argues that tax declarations are
not conclusive evidence of ownership when not supported by evidence. She avers that Salvador
allowed his mother to possess the property out of respect to her in accordance with Filipino
values.
It is true that neither tax receipts nor declarations of ownership for taxation purposes constitute
sufficient proof of ownership. They must be supported by other effective proofs.9 These requisite
proofs we find present in this case. As admitted by petitioner, despite the sale, Jesus and Rosalia
continued to possess and administer the property and enjoy its fruits by leasing it to third
persons.10 Both Rosa and Salvador did not exercise any right of ownership over it.11 Before the
second deed of sale to transfer her ½ share over the property was executed by Rosa, Salvador
still sought she permission of his mother.12 Further, after Salvador registered the property in his
name, he surrendered the title to his mother.13 These are clear indications that ownership still
remained with the original owners. In Serrano vs. CA, 139 SCRA 179, 189 (1985), we held that
the continued collection of rentals from the tenants by the seller of realty after execution of alleged
deed of sale is contrary to the notion of ownership.
Petitioner argues that Salvador, in allowing her mother to use the property even after the sale, did
so out of respect for her and out of generosity, a factual matter beyond the province of this
Court.14 Significantly, in Alcos vs. IAC 162 SCRA 823, 837 (1988), we noted that the buyer's
immediate possession and occupation of the property corroborated the truthfulness and
authenticity of the deed of sale. Conversely, the vendor's continued possession of the property
makes dubious the contract of sale between the parties.
On the second issue, is a sale through a public instrument tantamount to delivery of the thing
sold? Petitioner in her memorandum invokes Article 147715 of the Civil Code which provides that
ownership of the thing sold is transferred to the vendee upon its actual or constructive delivery.
Article 1498, in turn, provides that when the sale is made through a public instrument, its
execution is equivalent to the delivery of the thing subject of the contract. Petitioner avers that
applying said provisions to the case, Salvador became the owner of the subject property by virtue
of the two deeds of sale executed in his favor.
Nowhere in the Civil Code, however, does it provide that execution of a deed of sale is a
conclusive presumption of delivery of possession. The Code merely said that the execution shall
be equivalent to delivery. The presumption can be rebutted by clear and convincing
evidence.16 Presumptive delivery can be negated by the failure of the vendee to take actual
possession of the land sold.17
In Danguilan vs. IAC, 168 SCRA 22, 32 (1988), we held that for the execution of a public
instrument to effect tradition, the purchaser must be placed in control of the thing sold. When there
is no impediment to prevent the thing sold from converting to tenancy of the purchaser by the sole
will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But
if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and
material tenancy nor make use of it himself or through another in his name, then delivery has not
been effected.
As found by both the trial and appellate courts and amply supported by the evidence on record,
Salvador was never placed in control of the property. The original sellers retained their control and
possession. Therefore, there was no real transfer of ownership.
Moreover, in Norkis Distributors, Inc. vs. CA, 193 SCRA 694, 698-699 (1991), citing the land case
of Abuan vs. Garcia, 14 SCRA 759 (1965), we held that the critical factor in the different modes of
effecting delivery, which gives legal effect to the act is the actual intention of the vendor to deliver,
and its acceptance by the vendee. Without that intention, there is no tradition. In the instant case,
although the spouses Jesus and Rosalia executed a deed of sale, they did not deliver the
possession and ownership of the property to Salvador and Rosa. They agreed to execute a deed
of sale merely to accommodate Salvador to enable him to generate funds for his business
venture.
On the third issue, petitioner argues that from the date of the sale from Rosa to Salvador on
November 20, 1973, up to his death on January 9, 1985, more or less twelve years had lapsed,
and from his death up to the filing of the case for reconveyance in the court a quo on January 5,
1989, four years had lapsed. In other words, it took respondents about sixteen years to file the
case below. Petitioner argues that an action to annul a contract for lack of consideration
prescribes in ten years and even assuming that the cause of action has not prescribed,
respondents are guilty of laches for their inaction for a long period of time.
did not claim ownership of it until December 1985. Petitioner stood to lose nothing. As we held in
the same case of Lacsamana vs. CA, cited above, the concept of laches is not concerned with the
lapse of time but only with the effect of unreasonble lapse. In this case, the alleged 16 years of
respondents' inaction has no adverse effect on the petitioner to make respondents guilty of laches.
Lastly, petitioner in her memorandum seeks to expunge the testimony of Rosa Santos-Carreon
before the trial court in view of Sec. 23, Rule 130 of the Revised Rules of Court, otherwise known
as the "Dead Man's Statute."19 It is too late for petitioner, however, to invoke said rule. The trial
court in its order dated February 5, 1990, denied petitioner's motion to disqualify respondent Rosa
as a witness. Petitioner did not appeal therefrom. Trial ensued and Rosa testified as a witness for
respondents and was cross-examined by petitioner's counsel. By her failure to appeal from the
order allowing Rosa to testify, she waived her right to invoke the dean man's statute. Further, her
counsel cross-examined Rosa on matters that occurred during Salvadors' lifetime. In Goñi vs. CA,
144 SCRA 222, 231 (1986) we held that protection under the dead man's statute is effectively
waived when a counsel for a petitioner cross-examines a private respondent on matters occurring
during the deceased's lifetime. The Court of appeals cannot be faulted in ignoring petitioner on
Rosa's disqualification.1âwphi1.nêt
WHEREFORE, the instant petition is DENIED. The assailed decision dated March 10, 1998 of the
Court of Appeals, which sustained the judgment of the Regional Trial Court dated March 17, 1993,
in favor of herein private respondents, is AFFIRMED. Costs against petitioner.
SO ORDERED.

Has respondents' cause of action prescribed? In Lacsamana vs. CA, 288 SCRA 287, 292 (1998), Bellosillo, Mendoza, Buena, De Leon, Jr., JJ., concur.
we held that the right to file an action for reconveyance on the ground that the certificate of title
was obtained by means of a fictitious deed of sale is virtually an action for the declaration of its
nullity, which does not prescribe. This applies squarely to the present case. The complaint filed by
respondent in the court a quo was for the reconveyance of the subject property to the estate of
Rosalia since the deeds of sale were simulated and fictitious. The complaint amounts to a
declaration of nullity of a void contract, which is imprescriptible. Hence, respondents' cause of
action has not prescribed.

Neither is their action barred by laches. The elements of laches are: 1) conduct on the part of the
defendant, or of one under whom he claims, giving rise to the situation of which the complaint
seeks a remedy; 2) delay in asserting the complainant's rights, the complainant having had
knowledge or notice of the defendant's conduct as having been afforded an opportunity to institute
a suit; 3) lack of knowledge or notice on the part of the defendant that the complainant would
assert the right in which he bases his suit; and 4) injury or prejudice to the defendant in the event
relief is accorded to the complainant, or the suit is not held barred.18 These elements must all be
proved positively. The conduct which caused the complaint in the court a quo was petitioner's
assertion of right of ownership as heir of Salvador. This started in December 1985 when petitioner
demanded payment of the lease rentals from Antonio Hombrebueno, the tenant of the apartment
units. From December 1985 up to the filing of the complaint for reconveyance on January 5, 1989,
only less than four years had lapsed which we do not think is unreasonable delay sufficient to bar
respondents' cause of action. We likewise find the fourth element lacking. Neither petitioner nor
her husband made considerable investments on the property from the time it was allegedly
transferred to the latter. They also did not enter into transactions involving the property since they
 Republic of the Philippines Despite the offer of full payment by the petitioner to Libra for the tractor, the immediate release
SUPREME COURT could not be effected because Wilfredo Dy had obtained financing not only for said tractor but also
Manila for a truck and Libra insisted on full payment for both.

THIRD DIVISION The petitioner was able to convince his sister, Carol Dy-Seno, to purchase the truck so that full
payment could be made for both. On November 22, 1979, a PNB check was issued in the amount
G.R. No. 92989 July 8, 1991 of P22,000.00 in favor of Libra, thus settling in full the indebtedness of Wilfredo Dy with the
financing firm. Payment having been effected through an out-of-town check, Libra insisted that it
be cleared first before Libra could release the chattels in question.
PERFECTO DY, JR. petitioner,
vs.
COURT OF APPEALS, GELAC TRADING INC., and ANTONIO V. GONZALES, respondents. Meanwhile, Civil Case No. R-16646 entitled "Gelac Trading, Inc. v. Wilfredo Dy", a collection case
to recover the sum of P12,269.80 was pending in another court in Cebu.
Zosa & Quijano Law Offices for petitioner.
Expedito P. Bugarin for respondent GELAC Trading, Inc. On the strength of an alias writ of execution issued on December 27, 1979, the provincial sheriff
was able to seize and levy on the tractor which was in the premises of Libra in Carmen, Cebu. The
tractor was subsequently sold at public auction where Gelac Trading was the lone bidder. Later,
Gelac sold the tractor to one of its stockholders, Antonio Gonzales.

GUTIERREZ, JR., J.:
This is a petition for review on certiorari seeking the reversal of the March 23, 1990 decision of the
Court of Appeals which ruled that the petitioner's purchase of a farm tractor was not validly
consummated and ordered a complaint for its recovery dismissed.
The facts as established by the records are as follows:
The petitioner, Perfecto Dy and Wilfredo Dy are brothers. Sometime in 1979, Wilfredo Dy
purchased a truck and a farm tractor through financing extended by Libra Finance and Investment
Corporation (Libra). Both truck and tractor were mortgaged to Libra as security for the loan.
The petitioner wanted to buy the tractor from his brother so on August 20, 1979, he wrote a letter
to Libra requesting that he be allowed to purchase from Wilfredo Dy the said tractor and assume
the mortgage debt of the latter.
In a letter dated August 27, 1979, Libra thru its manager, Cipriano Ares approved the petitioner's
request.
It was only when the check was cleared on January 17, 1980 that the petitioner learned about
GELAC having already taken custody of the subject tractor. Consequently, the petitioner filed an
action to recover the subject tractor against GELAC Trading with the Regional Trial Court of Cebu
City.
On April 8, 1988, the RTC rendered judgment in favor of the petitioner. The dispositive portion of
the decision reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant, pronouncing that the plaintiff is the owner of the tractor, subject matter of this
case, and directing the defendants Gelac Trading Corporation and Antonio Gonzales to
return the same to the plaintiff herein; directing the defendants jointly and severally to pay
to the plaintiff the amount of P1,541.00 as expenses for hiring a tractor; P50,000 for moral
damages; P50,000 for exemplary damages; and to pay the cost. (Rollo, pp. 35-36)
On appeal, the Court of Appeals reversed the decision of the RTC and dismissed the complaint
with costs against the petitioner. The Court of Appeals held that the tractor in question still
belonged to Wilfredo Dy when it was seized and levied by the sheriff by virtue of the alias writ of
execution issued in Civil Case No. R-16646.

Thus, on September 4, 1979, Wilfredo Dy executed a deed of absolute sale in favor of the
petitioner over the tractor in question.
At this time, the subject tractor was in the possession of Libra Finance due to Wilfredo Dy's failure
to pay the amortizations.
The petitioner now comes to the Court raising the following questions:
A.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS MISAPPREHENDED
THE FACTS AND ERRED IN NOT AFFIRMING THE TRIAL COURT'S FINDING THAT
OWNERSHIP OF THE FARM TRACTOR HAD ALREADY PASSED TO HEREIN
PETITIONER WHEN SAID TRACTOR WAS LEVIED ON BY THE SHERIFF PURSUANT
 TO AN ALIAS WRIT OF EXECUTION ISSUED IN ANOTHER CASE IN FAVOR OF
RESPONDENT GELAC TRADING INC.
B.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS EMBARKED ON MERE
CONJECTURE AND SURMISE IN HOLDING THAT THE SALE OF THE AFORESAID
TRACTOR TO PETITIONER WAS DONE IN FRAUD OF WILFREDO DY'S CREDITORS,
THERE BEING NO EVIDENCE OF SUCH FRAUD AS FOUND BY THE TRIAL COURT.
C.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS MISAPPREHENDED
THE FACTS AND ERRED IN NOT SUSTAINING THE FINDING OF THE TRIAL COURT
THAT THE SALE OF THE TRACTOR BY RESPONDENT GELAC TRADING TO ITS CO-
RESPONDENT ANTONIO V. GONZALES ON AUGUST 2, 1980 AT WHICH TIME BOTH
RESPONDENTS ALREADY KNEW OF THE FILING OF THE INSTANT CASE WAS
VIOLATIVE OF THE HUMAN RELATIONS PROVISIONS OF THE CIVIL CODE AND
RENDERED THEM LIABLE FOR THE MORAL AND EXEMPLARY DAMAGES
SLAPPED AGAINST THEM BY THE TRIAL COURT. (Rollo, p. 13)
The respondents claim that at the time of the execution of the deed of sale, no constructive
delivery was effected since the consummation of the sale depended upon the clearance and
encashment of the check which was issued in payment of the subject tractor.
In the case of Servicewide Specialists Inc. v. Intermediate Appellate Court. (174 SCRA 80 [1989]),
we stated that:
xxx xxx xxx
The rule is settled that the chattel mortgagor continues to be the owner of the property,
and therefore, has the power to alienate the same; however, he is obliged under pain of
penal liability, to secure the written consent of the mortgagee. (Francisco, Vicente, Jr.,
Revised Rules of Court in the Philippines, (1972), Volume IV-B Part 1, p. 525). Thus, the
instruments of mortgage are binding, while they subsist, not only upon the parties
executing them but also upon those who later, by purchase or otherwise, acquire the
properties referred to therein.
The absence of the written consent of the mortgagee to the sale of the mortgaged
property in favor of a third person, therefore, affects not the validity of the sale but only
the penal liability of the mortgagor under the Revised Penal Code and the binding effect
of such sale on the mortgagee under the Deed of Chattel Mortgage.
xxx xxx xxx
The mortgagor who gave the property as security under a chattel mortgage did not part with the
ownership over the same. He had the right to sell it although he was under the obligation to secure
the written consent of the mortgagee or he lays himself open to criminal prosecution under the
provision of Article 319 par. 2 of the Revised Penal Code. And even if no consent was obtained
from the mortgagee, the validity of the sale would still not be affected.
Thus, we see no reason why Wilfredo Dy, as the chattel mortgagor can not sell the subject tractor.
There is no dispute that the consent of Libra Finance was obtained in the instant case. In a letter
dated August 27, 1979, Libra allowed the petitioner to purchase the tractor and assume the
mortgage debt of his brother. The sale between the brothers was therefore valid and binding as
between them and to the mortgagee, as well.
Article 1496 of the Civil Code states that the ownership of the thing sold is acquired by the vendee
from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501 or in
any other manner signing an agreement that the possession is transferred from the vendor to the
vendee. We agree with the petitioner that Articles 1498 and 1499 are applicable in the case at bar.
Article 1498 states:
Art. 1498. When the sale is made through a public instrument, the execution thereof shall
be equivalent to the delivery of the thing which is the object of the contract, if from the
deed the contrary does not appear or cannot clearly be inferred.
xxx xxx xxx
Article 1499 provides:
Article 1499. The delivery of movable property may likewise be made by the mere
consent or agreement of the contracting parties, if the thing sold cannot be transferred to
the possession of the vendee at the time of the sale, or if the latter already had it in his
possession for any other reason. (1463a)
In the instant case, actual delivery of the subject tractor could not be made. However, there was
constructive delivery already upon the execution of the public instrument pursuant to Article 1498
and upon the consent or agreement of the parties when the thing sold cannot be immediately
transferred to the possession of the vendee. (Art. 1499)
The respondent court avers that the vendor must first have control and possession of the thing
before he could transfer ownership by constructive delivery. Here, it was Libra Finance which was
in possession of the subject tractor due to Wilfredo's failure to pay the amortization as a
preliminary step to foreclosure. As mortgagee, he has the right of foreclosure upon default by the
mortgagor in the performance of the conditions mentioned in the contract of mortgage. The law
implies that the mortgagee is entitled to possess the mortgaged property because possession is
necessary in order to enable him to have the property sold.
While it is true that Wilfredo Dy was not in actual possession and control of the subject tractor, his Anent the second and third issues raised, the Court accords great respect and weight to the
right of ownership was not divested from him upon his default. Neither could it be said that Libra findings of fact of the trial court.1âwphi1 There is no sufficient evidence to show that the sale of
was the owner of the subject tractor because the mortgagee can not become the owner of or the tractor was in fraud of Wilfredo and creditors. While it is true that Wilfredo and Perfecto are
convert and appropriate to himself the property mortgaged. (Article 2088, Civil Code) Said brothers, this fact alone does not give rise to the presumption that the sale was fraudulent.
property continues to belong to the mortgagor. The only remedy given to the mortgagee is to have Relationship is not a badge of fraud (Goquiolay v. Sycip, 9 SCRA 663 [1963]). Moreover, fraud
said property sold at public auction and the proceeds of the sale applied to the payment of the can not be presumed; it must be established by clear convincing evidence.
obligation secured by the mortgagee. (See Martinez v. PNB, 93 Phil. 765, 767 [1953]) There is no
showing that Libra Finance has already foreclosed the mortgage and that it was the new owner of We agree with the trial court's findings that the actuations of GELAC Trading were indeed violative
the subject tractor. Undeniably, Libra gave its consent to the sale of the subject tractor to the of the provisions on human relations. As found by the trial court, GELAC knew very well of the
petitioner. It was aware of the transfer of rights to the petitioner. transfer of the property to the petitioners on July 14, 1980 when it received summons based on
the complaint for replevin filed with the RTC by the petitioner. Notwithstanding said summons, it
Where a third person purchases the mortgaged property, he automatically steps into the shoes of continued to sell the subject tractor to one of its stockholders on August 2, 1980.
the original mortgagor. (See Industrial Finance Corp. v. Apostol, 177 SCRA 521 [1989]). His right
of ownership shall be subject to the mortgage of the thing sold to him. In the case at bar, the WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals
petitioner was fully aware of the existing mortgage of the subject tractor to Libra. In fact, when he promulgated on March 23, 1990 is SET ASIDE and the decision of the Regional Trial Court dated
was obtaining Libra's consent to the sale, he volunteered to assume the remaining balance of the April 8, 1988 is REINSTATED.
mortgage debt of Wilfredo Dy which Libra undeniably agreed to.
SO ORDERED.
The payment of the check was actually intended to extinguish the mortgage obligation so that the
tractor could be released to the petitioner. It was never intended nor could it be considered as
Fernan, C.J., Feliciano and Bidin, JJ., concur.
payment of the purchase price because the relationship between Libra and the petitioner is not
Davide, Jr., J., took no part.
one of sale but still a mortgage. The clearing or encashment of the check which produced the
effect of payment determined the full payment of the money obligation and the release of the
chattel mortgage. It was not determinative of the consummation of the sale. The transaction
between the brothers is distinct and apart from the transaction between Libra and the petitioner.
The contention, therefore, that the consummation of the sale depended upon the encashment of
the check is untenable.

The sale of the subject tractor was consummated upon the execution of the public instrument on
September 4, 1979. At this time constructive delivery was already effected. Hence, the subject
tractor was no longer owned by Wilfredo Dy when it was levied upon by the sheriff in December,
1979. Well settled is the rule that only properties unquestionably owned by the judgment debtor
and which are not exempt by law from execution should be levied upon or sought to be levied
upon. For the power of the court in the execution of its judgment extends only over properties
belonging to the judgment debtor. (Consolidated Bank and Trust Corp. v. Court of Appeals, G.R.
No. 78771, January 23, 1991).

The respondents further claim that at that time the sheriff levied on the tractor and took legal
custody thereof no one ever protested or filed a third party claim.

It is inconsequential whether a third party claim has been filed or not by the petitioner during the
time the sheriff levied on the subject tractor. A person other than the judgment debtor who claims
ownership or right over levied properties is not precluded, however, from taking other legal
remedies to prosecute his claim. (Consolidated Bank and Trust Corp. v. Court of Appeals, supra)
This is precisely what the petitioner did when he filed the action for replevin with the RTC.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-12342 August 3, 1918
A. A. ADDISON, plaintiff-appellant,
vs.
MARCIANA FELIX and BALBINO TIOCO, defendants-appellees.
Thos. D. Aitken for appellant.
Modesto Reyes and Eliseo Ymzon for appellees.
FISHER, J.:
By a public instrument dated June 11, 1914, the plaintiff sold to the defendant Marciana Felix, with
the consent of her husband, the defendant Balbino Tioco, four parcels of land, described in the
instrument. The defendant Felix paid, at the time of the execution of the deed, the sum of P3,000
on account of the purchase price, and bound herself to pay the remainder in installments, the first
of P2,000 on July 15, 1914, and the second of P5,000 thirty days after the issuance to her of a
certificate of title under the Land Registration Act, and further, within ten years from the date of
such title P10, for each coconut tree in bearing and P5 for each such tree not in bearing, that
might be growing on said four parcels of land on the date of the issuance of title to her, with the
condition that the total price should not exceed P85,000. It was further stipulated that the
purchaser was to deliver to the vendor 25 per centum of the value of the products that she might
obtain from the four parcels "from the moment she takes possession of them until the Torrens
certificate of title be issued in her favor."
It was also covenanted that "within one year from the date of the certificate of title in favor of
Marciana Felix, this latter may rescind the present contract of purchase and sale, in which case
Marciana Felix shall be obliged to return to me, A. A. Addison, the net value of all the products of
the four parcels sold, and I shall obliged to return to her, Marciana Felix, all the sums that she may
have paid me, together with interest at the rate of 10 per cent per annum."
In January, 1915, the vendor, A. A. Addison, filed suit in Court of First Instance of Manila to
compel Marciana Felix to make payment of the first installment of P2,000, demandable in
accordance with the terms of the contract of sale aforementioned, on July 15, 1914, and of the
interest in arrears, at the stipulated rate of 8 per cent per annum. The defendant, jointly with her
husband, answered the complaint and alleged by way of special defense that the plaintiff had
absolutely failed to deliver to the defendant the lands that were the subject matter of the sale,
notwithstanding the demands made upon him for this purpose. She therefore asked that she be
absolved from the complaint, and that, after a declaration of the rescission of the contract of the
purchase and sale of said lands, the plaintiff be ordered to refund the P3,000 that had been paid
to him on account, together with the interest agreed upon, and to pay an indemnity for the losses
and damages which the defendant alleged she had suffered through the plaintiff's non-fulfillment
of the contract.
The evidence adduced shows that after the execution of the deed of the sale the plaintiff, at the
request of the purchaser, went to Lucena, accompanied by a representative of the latter, for the
purpose of designating and delivering the lands sold. He was able to designate only two of the
four parcels, and more than two-thirds of these two were found to be in the possession of one
Juan Villafuerte, who claimed to be the owner of the parts so occupied by him. The plaintiff
admitted that the purchaser would have to bring suit to obtain possession of the land (sten. notes,
record, p. 5). In August, 1914, the surveyor Santamaria went to Lucena, at the request of the
plaintiff and accompanied by him, in order to survey the land sold to the defendant; but he
surveyed only two parcels, which are those occupied mainly by the brothers Leon and Julio
Villafuerte. He did not survey the other parcels, as they were not designated to him by the plaintiff.
In order to make this survey it was necessary to obtain from the Land Court a writ of injunction
against the occupants, and for the purpose of the issuance of this writ the defendant, in June,
1914, filed an application with the Land Court for the registration in her name of four parcels of
land described in the deed of sale executed in her favor by the plaintiff. The proceedings in the
matter of this application were subsequently dismissed, for failure to present the required plans
within the period of the time allowed for the purpose.
The trial court rendered judgment in behalf of the defendant, holding the contract of sale to be
rescinded and ordering the return to the plaintiff the P3,000 paid on account of the price, together
with interest thereon at the rate of 10 per cent per annum. From this judgment the plaintiff
appealed.
In decreeing the rescission of the contract, the trial judge rested his conclusion solely on the
indisputable fact that up to that time the lands sold had not been registered in accordance with the
Torrens system, and on the terms of the second paragraph of clause (h) of the contract, whereby it
is stipulated that ". . . within one year from the date of the certificate of title in favor of Marciana
Felix, this latter may rescind the present contract of purchase and sale . . . ."
The appellant objects, and rightly, that the cross-complaint is not founded on the hypothesis of the
conventional rescission relied upon by the court, but on the failure to deliver the land sold. He
argues that the right to rescind the contract by virtue of the special agreement not only did not
exist from the moment of the execution of the contract up to one year after the registration of the
land, but does not accrue until the land is registered. The wording of the clause, in fact,
substantiates the contention. The one year's deliberation granted to the purchaser was to be
counted "from the date of the certificate of title ... ." Therefore the right to elect to rescind the
contract was subject to a condition, namely, the issuance of the title. The record show that up to
the present time that condition has not been fulfilled; consequently the defendant cannot be heard
to invoke a right which depends on the existence of that condition. If in the cross-complaint it had
been alleged that the fulfillment of the condition was impossible for reasons imputable to the
plaintiff, and if this allegation had been proven, perhaps the condition would have been considered
as fulfilled (arts. 1117, 1118, and 1119, Civ. Code); but this issue was not presented in the
defendant's answer.
However, although we are not in agreement with the reasoning found in the decision appealed
from, we consider it to be correct in its result. The record shows that the plaintiff did not deliver the
thing sold. With respect to two of the parcels of land, he was not even able to show them to the
purchaser; and as regards the other two, more than two-thirds of their area was in the hostile and
adverse possession of a third person.
The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is
considered to be delivered when it is placed "in the hands and possession of the vendee." (Civ.
Code, art. 1462.) It is true that the same article declares that the execution of a public instruments
is equivalent to the delivery of the thing which is the object of the contract, but, in order that this
symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have had
such control over the thing sold that, at the moment of the sale, its material delivery could have
been made. It is not enough to confer upon the purchaser the ownership and the right of
possession. The thing sold must be placed in his control. When there is no impediment whatever
to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor,
symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding
the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of
the thing and make use of it himself or through another in his name, because such tenancy and
enjoyment are opposed by the interposition of another will, then fiction yields to reality — the
delivery has not been effected.
As Dalloz rightly says (Gen. Rep., vol. 43, p. 174) in his commentaries on article 1604 of the
French Civil code, "the word "delivery" expresses a complex idea . . . the abandonment of the
thing by the person who makes the delivery and the taking control of it by the person to whom the
delivery is made."
nothing in the instrument which would indicate, even implicitly, that such was the agreement. It is
true, as the appellant argues, that the obligation was incumbent upon the defendant Marciana
Felix to apply for and obtain the registration of the land in the new registry of property; but from
this it cannot be concluded that she had to await the final decision of the Court of Land
Registration, in order to be able to enjoy the property sold. On the contrary, it was expressly
stipulated in the contract that the purchaser should deliver to the vendor one-fourth "of the
products ... of the aforesaid four parcels from the moment when she takes possession of them
until the Torrens certificate of title be issued in her favor." This obviously shows that it was not
forseen that the purchaser might be deprived of her possession during the course of the
registration proceedings, but that the transaction rested on the assumption that she was to have,
during said period, the material possession and enjoyment of the four parcels of land.
Inasmuch as the rescission is made by virtue of the provisions of law and not by contractual
agreement, it is not the conventional but the legal interest that is demandable.
It is therefore held that the contract of purchase and sale entered into by and between the plaintiff
and the defendant on June 11, 1914, is rescinded, and the plaintiff is ordered to make restitution
of the sum of P3,000 received by him on account of the price of the sale, together with interest
thereon at the legal rate of 6 per annum from the date of the filing of the complaint until payment,
with the costs of both instances against the appellant. So ordered.
Torres, Johnson, Street, Malcolm and Avanceña, JJ., concur.

The execution of a public instrument is sufficient for the purposes of the abandonment made by
the vendor; but it is not always sufficient to permit of the apprehension of the thing by the
purchaser.

The supreme court of Spain, interpreting article 1462 of the Civil Code, held in its decision of
November 10, 1903, (Civ. Rep., vol. 96, p. 560) that this article "merely declares that when the
sale is made through the means of a public instrument, the execution of this latter is equivalent to
the delivery of the thing sold: which does not and cannot mean that this fictitious tradition
necessarily implies the real tradition of the thing sold, for it is incontrovertible that, while its
ownership still pertains to the vendor (and with greater reason if it does not), a third person may be
in possession of the same thing; wherefore, though, as a general rule, he who purchases by
means of a public instrument should be deemed . . . to be the possessor in fact, yet this
presumption gives way before proof to the contrary."

It is evident, then, in the case at bar, that the mere execution of the instrument was not a
fulfillment of the vendors' obligation to deliver the thing sold, and that from such non-fulfillment
arises the purchaser's right to demand, as she has demanded, the rescission of the sale and the
return of the price. (Civ. Code, arts. 1506 and 1124.)

Of course if the sale had been made under the express agreement of imposing upon the
purchaser the obligation to take the necessary steps to obtain the material possession of the thing
sold, and it were proven that she knew that the thing was in the possession of a third person
claiming to have property rights therein, such agreement would be perfectly valid. But there is
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-69970 November 28, 1988
FELIX DANGUILAN, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, APOLONIA MELAD, assisted by her husband, JOSE
TAGACAY, respondents.
Pedro R. Perez, Jr. for petitioner.
Teodoro B. Mallonga for private respondent.
CRUZ, J.:
The subject of this dispute is the two lots owned by Domingo Melad which is claimed by both the
petitioner and the respondent. The trial court believed the petitioner but the respondent court, on
appeal, upheld the respondent. The case is now before us for a resolution of the issues once and
for all.
On January 29, 1962, the respondent filed a complaint against the petitioner in the then Court of
First Instance of Cagayan for recovery of a farm lot and a residential lot which she claimed she
had purchased from Domingo Melad in 1943 and were now being unlawfully withheld by the
defendant. 1 In his answer, the petitioner denied the allegation and averred that he was the owner
of the said lots of which he had been in open, continuous and adverse possession, having
acquired them from Domingo Melad in 1941 and 1943. 2 The case was dismissed for failure to
prosecute but was refiled in 1967. 3
At the trial, the plaintiff presented a deed of sale dated December 4, 1943, purportedly signed by
Domingo Melad and duly notarized, which conveyed the said properties to her for the sum of
P80.00. 4 She said the amount was earned by her mother as a worker at the Tabacalera factory.
She claimed to be the illegitimate daughter of Domingo Melad, with whom she and her mother
were living when he died in 1945. She moved out of the farm only when in 1946 Felix Danguilan
approached her and asked permission to cultivate the land and to stay therein. She had agreed on
condition that he would deliver part of the harvest from the farm to her, which he did from that year
to 1958. The deliveries having stopped, she then consulted the municipal judge who advised her
to file the complaint against Danguilan. The plaintiff 's mother, her only other witness, corroborated
this testimony. 5
For his part, the defendant testified that he was the husband of Isidra Melad, Domingo's niece,
whom he and his wife Juana Malupang had taken into their home as their ward as they had no
children of their own. He and his wife lived with the couple in their house on the residential lot and
helped Domingo with the cultivation of the farm. Domingo Melad signed in 1941 a private
instrument in which he gave the defendant the farm and in 1943 another private instrument in
which he also gave him the residential lot, on the understanding that the latter would take care of
the grantor and would bury him upon his death. 6 Danguilan presented three other witnesses 7 to
corroborate his statements and to prove that he had been living in the land since his marriage to
Isidra and had remained in possession thereof after Domingo Melad's death in 1945. Two of said
witnesses declared that neither the plaintiff nor her mother lived in the land with Domingo Melad. 8
The decision of the trial court was based mainly on the issue of possession. Weighing the
evidence presented by the parties, the judge 9 held that the defendant was more believable and
that the plaintiff's evidence was "unpersuasive and unconvincing." It was held that the plaintiff's
own declaration that she moved out of the property in 1946 and left it in the possession of the
defendant was contradictory to her claim of ownership. She was also inconsistent when she
testified first that the defendant was her tenant and later in rebuttal that he was her administrator.
The decision concluded that where there was doubt as to the ownership of the property, the
presumption was in favor of the one actually occupying the same, which in this case was the
defendant. 10
The review by the respondent court 11 of this decision was manifestly less than thorough. For the
most part it merely affirmed the factual findings of the trial court except for an irrelevant
modification, and it was only toward the end that it went to and resolved what it considered the
lone decisive issue.
The respondent court held that Exhibits 2-b and 3-a, by virtue of which Domingo Melad had
conveyed the two parcels of land to the petitioner, were null and void. The reason was that they
were donations of real property and as such should have been effected through a public
instrument. It then set aside the appealed decision and declared the respondents the true and
lawful owners of the disputed property.
The said exhibits read as follows:
EXHIBIT 2-b is quoted as follows: 12
I, DOMINGO MELAD, of legal age, married, do hereby declare in this receipt the
truth of my giving to Felix Danguilan, my agricultural land located at Barrio Fugu-
Macusi, Penablanca, Province of Cagayan, Philippine Islands; that this land is
registered under my name; that I hereby declare and bind myself that there is no
one to whom I will deliver this land except to him as he will be the one
responsible for me in the event that I will die and also for all other things needed
and necessary for me, he will be responsible because of this land I am giving to
him; that it is true that I have nieces and nephews but they are not living with us
and there is no one to whom I will give my land except to Felix Danguilan for he
lives with me and this is the length—175 m. and the width is 150 m.
 IN WITNESS WHEREOF, I hereby sign my name below and also those present
in the execution of this receipt this 14th day of September 1941.
Penablanca Cagayan, September 14, 1941.
(SGD.) DOMINGO MELAD
WITNESSES:
1. (T.M.) ISIDRO MELAD
2. (SGD.) FELIX DANGUILAN
3. (T.M.) ILLEGIBLE
EXHIBIT 3-a is quoted as follows: 13
I, DOMINGO MELAD, a resident of Centro, Penablanca, Province of Cagayan,
do hereby swear and declare the truth that I have delivered my residential lot at
Centro, Penablanca, Cagayan, to Felix Danguilan, my son-in-law because I have
no child; that I have thought of giving him my land because he will be the one to
take care of SHELTERING me or bury me when I die and this is why I have
thought of executing this document; that the boundaries of this lot is—on the
east, Cresencio Danguilan; on the north, Arellano Street; on the south by Pastor
Lagundi and on the west, Pablo Pelagio and the area of this lot is 35 meters
going south; width and length beginning west to east is 40 meters.
IN WITNESS HEREOF, I hereby sign this receipt this 18th day of December
1943.
(SGD.) DOMINGO MELAD
WITNESSES:
(SGD.) ILLEGIBLE
(SGD.) DANIEL ARAO
It is our view, considering the language of the two instruments, that Domingo Melad did intend to
donate the properties to the petitioner, as the private respondent contends. We do not think,
however, that the donee was moved by pure liberality. While truly donations, the conveyances
were onerous donations as the properties were given to the petitioner in exchange for his
obligation to take care of the donee for the rest of his life and provide for his burial. Hence, it was
not covered by the rule in Article 749 of the Civil Code requiring donations of real properties to be
effected through a public instrument. The case at bar comes squarely under the doctrine laid down
in Manalo v. De Mesa, 14 where the Court held:
There can be no doubt that the donation in question was made for a valuable
consideration, since the donors made it conditional upon the donees' bearing the
expenses that might be occasioned by the death and burial of the donor Placida
Manalo, a condition and obligation which the donee Gregorio de Mesa carried
out in his own behalf and for his wife Leoncia Manalo; therefore, in order to
determine whether or not said donation is valid and effective it should be
sufficient to demonstrate that, as a contract, it embraces the conditions the law
requires and is valid and effective, although not recorded in a public instrument.
The private respondent argues that as there was no equivalence between the value of the lands
donated and the services for which they were being exchanged, the two transactions should be
considered pure or gratuitous donations of real rights, hence, they should have been effected
through a public instrument and not mere private writings. However, no evidence has been
adduced to support her contention that the values exchanged were disproportionate or unequal.
On the other hand, both the trial court and the respondent court have affirmed the factual
allegation that the petitioner did take care of Domingo Melad and later arranged for his burial in
accordance with the condition imposed by the donor. It is alleged and not denied that he died
when he was almost one hundred years old, 15 which would mean that the petitioner farmed the
land practically by himself and so provided for the donee (and his wife) during the latter part of
Domingo Melad's life. We may assume that there was a fair exchange between the donor and the
donee that made the transaction an onerous donation.
Regarding the private respondent's claim that she had purchased the properties by virtue of a
deed of sale, the respondent court had only the following to say: "Exhibit 'E' taken together with
the documentary and oral evidence shows that the preponderance of evidence is in favor of the
appellants." This was, we think, a rather superficial way of resolving such a basic and important
issue.
The deed of sale was allegedly executed when the respondent was only three years old and the
consideration was supposedly paid by her mother, Maria Yedan from her earnings as a wage
worker in a factory. 16 This was itself a suspicious circumstance, one may well wonder why the
transfer was not made to the mother herself, who was after all the one paying for the lands. The
sale was made out in favor of Apolonia Melad although she had been using the surname Yedan
her mother's surname, before that instrument was signed and in fact even after she got
married. 17The averment was also made that the contract was simulated and prepared after
Domingo Melad's death in 1945. 18It was also alleged that even after the supposed execution of
the said contract, the respondent considered Domingo Melad the owner of the properties and that
she had never occupied the same. 19
Considering these serious challenges, the appellate court could have devoted a little more time to
examining Exhibit "E" and the circumstances surrounding its execution before pronouncing its
validity in the manner described above. While it is true that the due execution of a public
instrument is presumed, the presumption is disputable and will yield to contradictory evidence,
which in this case was not refuted.
At any rate, even assuming the validity of the deed of sale, the record shows that the private
respondent did not take possession of the disputed properties and indeed waited until 1962 to file
this action for recovery of the lands from the petitioner. If she did have possession, she transferred
the same to the petitioner in 1946, by her own sworn admission, and moved out to another lot
belonging to her step-brother. 20 Her claim that the petitioner was her tenant (later changed to
administrator) was disbelieved by the trial court, and properly so, for its inconsistency. In short,
she failed to show that she consummated the contract of sale by actual delivery of the properties
to her and her actual possession thereof in concept of purchaser-owner.
As was held in Garchitorena v. Almeda: 21
Since in this jurisdiction it is a fundamental and elementary principle that
ownership does not pass by mere stipulation but only by delivery (Civil Code, Art.
1095; Fidelity and Surety Co. v. Wilson, 8 Phil. 51), and the execution of a public
document does not constitute sufficient delivery where the property involved is in
the actual and adverse possession of third persons (Addison vs. Felix, 38 Phil.
404; Masallo vs. Cesar, 39 Phil. 134), it becomes incontestable that even if
included in the contract, the ownership of the property in dispute did not pass
thereby to Mariano Garchitorena. Not having become the owner for lack of
delivery, Mariano Garchitorena cannot presume to recover the property from its
present possessors. His action, therefore, is not one of revindicacion, but one
against his vendor for specific performance of the sale to him.
In the aforecited case of Fidelity and Deposit Co. v. Wilson, 22 Justice Mapa declared for the Court:
Therefore, in our Civil Code it is a fundamental principle in all matters of
contracts and a well- known doctrine of law that "non mudis pactis sed traditione
dominia rerum transferuntur". In conformity with said doctrine as established in
paragraph 2 of article 609 of said code, that "the ownership and other property
rights are acquired and transmitted by law, by gift, by testate or intestate
succession, and, in consequence of certain contracts, by tradition". And as the
logical application of this disposition article 1095 prescribes the following: "A
creditor has the rights to the fruits of a thing from the time the obligation to deliver
it arises. However, he shall not acquire a real right" (and the ownership is surely
such) "until the property has been delivered to him."
the thing which is the object of the contract, but, in order that this symbolic
delivery may produce the effect of tradition, it is necessary that the vendor shall
have had such control over the thing sold that, at the moment of the sale, its
material delivery could have been made. It is not enough to confer upon the
purchaser the ownership and the right of possession. The thing sold must be
placed in his control.When there is no impediment whatever to prevent the thing
sold passing into the tenancy of the purchaser by the sole will of the vendor,
symbolic delivery through the execution of a public instrument is sufficient. But if,
notwithstanding the execution of the instrument, the purchaser cannot have the
enjoyment and material tenancy of the thing and make use of it himself or
through another in his name, because such tenancy and enjoyment are opposed
by the interposition of another will, then fiction yields to reality—the delivery has
not been effected. 23
There is no dispute that it is the petitioner and not the private respondent who is in actual
possession of the litigated properties. Even if the respective claims of the parties were both to be
discarded as being inherently weak, the decision should still incline in favor of the petitioner
pursuant to the doctrine announced in Santos & Espinosa v. Estejada 24 where the Court
announced:
If the claim of both the plaintiff and the defendant are weak, judgment must be for
the defendant, for the latter being in possession is presumed to be the owner,
and cannot be obliged to show or prove a better right.
WHEREFORE, the decision of the respondent court is SET ASIDE and that of the trial court
REINSTATED, with costs against the private respondent. It is so ordered.
Narvasa (Chairman), Gancayco, Griño-Aquino and Medialdea, JJ., concur.

In accordance with such disposition and provisions the delivery of a thing

constitutes a necessary and indispensable requisite for the purpose of acquiring
the ownership of the same by virtue of a contract. As Manresa states in his
Commentaries on the Civil Code, volume 10, pages 339 and 340: "Our law does
not admit the doctrine of the transfer of property by mere consent but limits the
effect of the agreement to the due execution of the contract. ... The ownership,
the property right, is only derived from the delivery of a thing ... "

As for the argument that symbolic delivery was effected through the deed of sale, which was a
public instrument, the Court has held:

The Code imposes upon the vendor the obligation to deliver the thing sold. The
thing is considered to be delivered when it is placed "in the hands and
possession of the vendee." (Civil Code, art. 1462). It is true that the same article
declares that the execution of a public instrument is equivalent to the delivery of
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-21998 November 10, 1975
CALIXTO PASAGUI and FAUSTA MOSAR, plaintiffs-appellants,
vs.
ESTER T. VILLABLANCA, ZOSIMO VILLABLANCA, EUSTAQUIA BOCAR and CATALINA
BOCAR defendants-appellees.
Julio Siayngco for plaintiffs-appellants.
Filomeno Arteche, Jr. for defendants-appellees. .
ANTONIO, J.:
The only issue posed by this appeal is whether or not, from the nature of the action pleaded as
appears in the allegations of the complaint, the aforesaid action is one of forcible entry, within the
exclusive jurisdiction of the municipal court. .
On February 4, 1963, appellants Calixto Pasagui and Fausta Mosar filed a complaint with the
Court of First Instance at Tacloban City, alleging that onNovember 15, 1962, for and in
consideration of Two Thousand Eight Hundred Pesos (P2,800.00), they bought from appellees
Eustaquia Bocar and Catalina Bocar a parcel of agricultural land with an area of 2.6814 hectares,
situated in Hamindangon, Pastrana, Leyte; that the corresponding document of sale was
executed, notarized on the same date, and recorded in the Registry of Deeds of Tacloban, Leyte
on November 16, 1962; that during the first week of February, 1963, defendant spouses Ester T.
Villablanca and Zosimo Villablanca, "illegally and without any right, whatsoever, took possession
of the above property harvesting coconuts from the coconut plantation thereon, thus depriving
plaintiffs" of its possession; that despite demands made by the plaintiffs upon the above-
mentioned defendants "to surrender to them the above-described property and its possession" the
latter failed or refused to return said parcel of land to the former, causing them damage; and that
Eustaquia and Catalina Bocar, vendors of the property, are included defendants in the complaint
by virtue of the warranty clause contained in the document of sale. Plaintiffs prayed for a decision
ordering defendants to surrender the possession of the parcel of land above-described to them
and to pay damages in the amounts specified. .
On February 21, 1963, appellees moved to dismiss the complaint on the ground that the Court of
First Instance had no jurisdiction over the subject matter, the action being one of forcible entry.
Appellants opposed the Motion to Dismiss asserting that the action is not one for forcible entry
inasmuch as in the complaint, there is no allegation that the deprivation of possession was
effected through "force, intimidation, threat, strategy or stealth." .
On May 13, 1963, the trial court issued an order dismissing the complaint for lack of jurisdiction, it
appearing from the allegations in the complaint that the case is one for forcible entry which
belongs to the exclusive jurisdiction of the Justice of the Peace (now Municipal Court) of Pastrana,
Leyte. The first Motion for Reconsideration was denied on May 27, 1963 and the second was
likewise denied on July 5, 1963. From the aforementioned orders, appeal on a pure question of
law was interposed to this Court. .
It is well-settled that what determines the jurisdiction of the municipal court in a forcible entry case
is the nature of the action pleaded as appears from the allegations in the complaint. In
ascertaining whether or not the action is one of forcible entry within the original exclusive
jurisdiction of the municipal court, the averments of the complaint and the character of the relief
sought are the ones to be consulted.. 1 .
In the case at bar, the complaint does not allege that the plaintiffs were in physical possession of
the land and have been deprived of that possession through force, intimidation, threat, strategy, or
stealth. It simply avers that plaintiffs-appellants bought on November 12, 1962 from defendants-
appellees Eustaquia Bocar and Catalina Bocar the parcel of land in question for the amount of
P2,800.00; that a deed of sale was executed, notarized and registered;that "during this first week
of February, 1963, defendants Ester T. Villablanca and her husband, Zosimo Villablanca, illegally
and without any right whatsoever, took possession of the above described property, harvesting
coconuts from the coconut plantation therein, thus depriving of its possession herein plaintiffs, and
causing them damages for the amount of EIGHT HUNDRED PESOS (P800.00)"; that for the
purpose of enforcing the vendors' warranty in case of eviction, Eustaquia Bocar and Catalina
Bocar were also included as defendants; and, therefore, plaintiffs-appellants pray that a decision
be rendered, ordering (a) defendants Ester T. Villablanca and her husband, Zosimo Villablanca,
"to surrender the possession of the above described property to said plaintiffs"; (b) defendants
Ester T. Villablanca and her husband, Zosimo Villablanca, "to pay to said plaintiffs the amount of
EIGHT HUNDRED PESOS (P800.00) as damages for the usurpation by them of said property";
and (c) defendants Eustaquia Bocar and Catalina Bocar "to pay the plaintiffs the amount of
P2,800.00, plus incidental expenses, as provided for by Art. 1555 of the Civil Code, in case of
eviction or loss of ownership to said above described property on the part of plaintiffs." .
It is true that the execution of the deed of absolute sale in a public instrument is equivalent to
delivery of the land subject of the sale.2 This presumptive delivery only holds true when there is no
impediment that may prevent the passing of the property from the hands of the vendor into those
of the vendee. It can be negated by the reality that the vendees actually failed to obtain material
possession of the land subject of the sale.. 3 It appears from the records of the case at bar that
plaintiffs-appellants had not acquired physical possession of the land since its purchase on
November 12, 1962. As a matter of fact, their purpose in filing the complaint in Civil Case No.
3285 is precisely to "get the possession of the property."4 In order that an action may be
considered as one for forcible entry, it is not only necessary that the plaintiff should allege his prior
physical possession of the property but also that he was deprived of his possession by any of the
means provided in section 1, Rule 70 of the Revised Rules of Court, namely: force, intimidation,
threats, strategy and stealth. For, if the dispossession did not take place by any of these means,
the courts of first instance, not the municipal courts, have jurisdictions.. 5 The bare allegation in
the complaint that the plaintiff has been "deprived" of the land of which he is and has been the
legal owner for a long period has been held to be insufficient.6 It is true that the mere act of a
trespasser in unlawfully entering the land, planting himself on the ground and excluding therefrom
the prior possessor would imply the use of force. In the case at bar, no such inference could be
made as plaintiffs-appellants had not claimed that they were in actual physical possession of the
property prior to the entry of the Villablancas. Moreover, it is evident that plaintiffs-appellants are
not only seeking to get the possession of the property, but as an alternative cause of action, they
seek the return of the price and payment of damages by the vendors "in case of eviction or loss of
ownership" of the said property. It is, therefore, not the summary action of forcible entry within the
context of the Rules. .

WHEREFORE, the order of dismissal is hereby set aside, and the case remanded to the court a
quo for further proceedings. Costs against defendants-appellees. .

Barredo, Actg. (Chairman), Aquino, Concepcion, Jr. and Martin. JJ., concur. .

Fernando (Chairman), J, is on leave.

 FIRST DIVISION
G.R. No. 119255 April 9, 2003
TOMAS K. CHUA, petitioner,
vs.
COURT OF APPEALS and ENCARNACION VALDES-CHOY, respondents.
CARPIO, J.:
The Case
This is a petition for review on certiorari seeking to reverse the decision1 of the Court of Appeals in
an action for specific performance2 filed in the Regional Trial Court3 by petitioner Tomas K. Chua
("Chua") against respondent Encarnacion Valdes-Choy ("Valdes-Choy"). Chua sought to compel
Valdes-Choy to consummate the sale of her paraphernal house and lot in Makati City. The Court
of Appeals reversed the decision4 rendered by the trial court in favor of Chua.
The Facts
Valdes-Choy advertised for sale her paraphernal house and lot ("Property") with an area of 718
square meters located at No. 40 Tampingco Street corner Hidalgo Street, San Lorenzo Village,
Makati City. The Property is covered by Transfer Certificate of Title No. 162955 ("TCT") issued by
the Register of Deeds of Makati City in the name of Valdes-Choy. Chua responded to the
advertisement. After several meetings, Chua and Valdes-Choy agreed on a purchase price of
P10,800,000.00 payable in cash.
On 30 June 1989, Valdes-Choy received from Chua a check for P100,000.00. The receipt
("Receipt") evidencing the transaction, signed by Valdes-Choy as seller, and Chua as buyer,
reads:
30 June 1989
RECEIPT
RECEIVED from MR. TOMAS K. CHUA PBCom Check No. 206011 in the amount of
ONE HUNDRED THOUSAND PESOS ONLY (P100,000.00) as EARNEST MONEY for
the sale of the property located at 40 Tampingco cor. Hidalgo, San Lorenzo Village,
Makati, Metro Manila (Area : 718 sq. meters).
The balance of TEN MILLION SEVEN HUNDRED THOUSAND (P10,700,000.00) is
payable on or before 155July 1989. Capital Gains Tax for the account of the seller. Failure
to pay balance on or before 15 July 1989 forfeits the earnest money. This provided that all
papers are in proper order.6
CONFORME:
ENCARNACION VALDES
Seller
TOMAS K. CHUA
Buyer
x x x.7
In the morning of 13 July 1989, Chua secured from Philippine Bank of Commerce ("PBCom") a
manager's check for P480,000.00. Strangely, after securing the manager's check, Chua
immediately gave PBCom a verbal stop payment order claiming that this manager's check for
P480,000.00 "was lost and/or misplaced."8 On the same day, after receipt of Chua's verbal order,
PBCom Assistant Vice–President Julie C. Pe notified in writing9 the PBCom Operations Group of
Chua's stop payment order.
In the afternoon of 13 July 1989, Chua and Valdes-Choy met with their respective counsels to
execute the necessary documents and arrange the payments.10 Valdes-Choy as vendor and Chua
as vendee signed two Deeds of Absolute Sale ("Deeds of Sale"). The first Deed of Sale covered
the house and lot for the purchase price of P8,000,000.00.11 The second Deed of Sale covered the
furnishings, fixtures and movable properties contained in the house for the purchase price of
P2,800,000.00.12 The parties also computed the capital gains tax to amount to P485,000.00.
On 14 July 1989, the parties met again at the office of Valdes-Choy's counsel. Chua handed to
Valdes-Choy the PBCom manager's check for P485,000.00 so Valdes-Choy could pay the capital
gains tax as she did not have sufficient funds to pay the tax. Valdes-Choy issued a receipt
showing that Chua had a remaining balance of P10,215,000.00 after deducting the advances
made by Chua. This receipt reads:
July 14, 1989
Received from MR. TOMAS K. CHUA PBCom. Check No. 325851 in the amount of
FOUR HUNDRED EIGHTY FIVE THOUSAND PESOS ONLY (P485,000.00) as Partial
Payment for the sale of the property located at 40 Tampingco Cor. Hidalgo St., San
Lorenzo Village, Makati, Metro Manila (Area 718 sq. meters), covered by TCT No.
162955 of the Registry of Deeds of Makati, Metro Manila.
The total purchase price of the above-mentioned property is TEN MILLION EIGHT
HUNDRED THOUSAND PESOS only, broken down as follows:
SELLING PRICE P10,800,000.00
EARNEST MONEY P100,000.00
PARTIAL PAYMENT 485,000.00
585,000.00
 BALANCE DUE TO
ENCARNACION VALDEZ-CHOY P10,215,000.00
PLUS P80,000.00 for documentary stamps paid
in advance by seller 80,000.00
P10,295,000.00
x x x.13
On the same day, 14 July 1989, Valdes-Choy, accompanied by Chua, deposited the P485,000.00
manager's check to her account with Traders Royal Bank. She then purchased a Traders Royal
Bank manager's check for P480,000.00 payable to the Commissioner of Internal Revenue for the
capital gains tax. Valdes-Choy and Chua returned to the office of Valdes-Choy's counsel and
handed the Traders Royal Bank check to the counsel who undertook to pay the capital gains tax.
It was then also that Chua showed to Valdes-Choy a PBCom manager's check for P10,215,000.00
representing the balance of the purchase price. Chua, however, did not give this PBCom
manager's check to Valdes-Choy because the TCT was still registered in the name of Valdes-
Choy. Chua required that the Property be registered first in his name before he would turn over
the check to Valdes-Choy. This angered Valdes-Choy who tore up the Deeds of Sale, claiming
that what Chua required was not part of their agreement.14
On the same day, 14 July 1989, Chua confirmed his stop payment order by submitting to PBCom
an affidavit of loss15 of the PBCom Manager's Check for P480,000.00. PBCom Assistant Vice-
President Pe, however, testified that the manager's check was nevertheless honored because
Chua subsequently verbally advised the bank that he was lifting the stop-payment order due to his
"special arrangement" with the bank.16
On 15 July 1989, the deadline for the payment of the balance of the purchase price, Valdes-Choy
suggested to her counsel that to break the impasse Chua should deposit in escrow the
P10,215,000.00 balance.17 Upon such deposit, Valdes-Choy was willing to cause the issuance of
a new TCT in the name of Chua even without receiving the balance of the purchase price. Valdes-
Choy believed this was the only way she could protect herself if the certificate of title is transferred
in the name of the buyer before she is fully paid. Valdes-Choy's counsel promised to relay her
suggestion to Chua and his counsel, but nothing came out of it.
On 17 July 1989, Chua filed a complaint for specific performance against Valdes-Choy which the
trial court dismissed on 22 November 1989. On 29 November 1989, Chua re-filed his complaint for
specific performance with damages. After trial in due course, the trial court rendered judgment in
favor of Chua, the dispositive portion of which reads:
Applying the provisions of Article 1191 of the new Civil Code, since this is an action for
specific performance where the plaintiff, as vendee, wants to pursue the sale, and in
order that the fears of the defendant may be allayed and still have the sale materialize,
judgment is hereby rendered:
I. 1. Ordering the defendant to deliver to the Court not later than five (5) days from finality
of this decision:
a. the owner's duplicate copy of TCT No. 162955 registered in her name;
b. the covering tax declaration and the latest tax receipt evidencing payment of
real estate taxes;
c. the two deeds of sale prepared by Atty. Mark Bocobo on July 13, 1989, duly
executed by defendant in favor of the plaintiff, whether notarized or not; and
2. Within five (5) days from compliance by the defendant of the above, ordering the
plaintiff to deliver to the Branch Clerk of Court of this Court the sum of P10,295,000.00
representing the balance of the consideration (with the sum of P80,000.00 for stamps
already included);
3. Ordering the Branch Clerk of this Court or her duly authorized representative:
a. to make representations with the BIR for the payment of capital gains tax for
the sale of the house and lot (not to include the fixtures) and to pay the same
from the funds deposited with her;
b. to present the deed of sale executed in favor of the plaintiff, together with the
owner's duplicate copy of TCT No. 162955, real estate tax receipt and proof of
payment of capital gains tax, to the Makati Register of Deeds;
c. to pay the required registration fees and stamps (if not yet advanced by the
defendant) and if needed update the real estate taxes all to be taken from the
funds deposited with her; and
d. surrender to the plaintiff the new Torrens title over the property;
4. Should the defendant fail or refuse to surrender the two deeds of sale over the property
and the fixtures that were prepared by Atty. Mark Bocobo and executed by the parties,
the Branch Clerk of Court of this Court is hereby authorized and empowered to prepare,
sign and execute the said deeds of sale for and in behalf of the defendant;
5. Ordering the defendant to pay to the plaintiff;
a. the sum of P100,000.00 representing moral and compensatory damages for
the plaintiff; and
b. the sum of P50,000.00 as reimbursement for plaintiff's attorney's fees and cost
of litigation.
6. Authorizing the Branch Clerk of Court of this Court to release to the plaintiff, to be taken
from the funds said plaintiff has deposited with the Court, the amounts covered at
paragraph 5 above;
 7. Ordering the release of the P10,295,000.00 to the defendant after deducting therefrom
the following amounts:
a. the capital gains tax paid to the BIR;
b. the expenses incurred in the registration of the sale, updating of real estate
taxes, and transfer of title; and
c. the amounts paid under this judgment to the plaintiff.
8. Ordering the defendant to surrender to the plaintiff or his representatives the premises
with the furnishings intact within seventy-two (72) hours from receipt of the proceeds of
the sale;
9. No interest is imposed on the payment to be made by the plaintiff because he had
always been ready to pay the balance and the premises had been used or occupied by
the defendant for the duration of this case.
II. In the event that specific performance cannot be done for reasons or causes not
attributable to the plaintiff, judgment is hereby rendered ordering the defendant:
1. To refund to the plaintiff the earnest money in the sum of P100,000.00, with interest at
the legal rate from June 30, 1989 until fully paid;
2. To refund to the plaintiff the sum of P485,000.00 with interest at the legal rate from July
14, 1989 until fully paid;
3. To pay to the plaintiff the sum of P700,000.00 in the concept of moral damages and the
additional sum of P300,000.00 in the concept of exemplary damages; and
4. To pay to the plaintiff the sum of P100,000.00 as reimbursement of attorney's fees and
cost of litigation.
SO ORDERED.18
Valdes-Choy appealed to the Court of Appeals which reversed the decision of the trial court. The
Court of Appeals handed down a new judgment, disposing as follows:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE, and
another one is rendered:
(1) Dismissing Civil Case No. 89-5772;
(2) Declaring the amount of P100,000.00, representing earnest money as
forfeited in favor of defendant-appellant;
(3) Ordering defendant-appellant to return/refund the amount of P485,000.00 to
plaintiff-appellee without interest;
(4) Dismissing defendant-appellant's compulsory counter-claim; and
(5) Ordering the plaintiff-appellee to pay the costs.19
Hence, the instant petition.
The Trial Court's Ruling
The trial court found that the transaction reached an impasse when Valdes-Choy wanted to be first
paid the full consideration before a new TCT covering the Property is issued in the name of Chua.
On the other hand, Chua did not want to pay the consideration in full unless a new TCT is first
issued in his name. The trial court faulted Valdes-Choy for this impasse.
The trial court held that the parties entered into a contract to sell on 30 June 1989, as evidenced
by the Receipt for the P100,000.00 earnest money. The trial court pointed out that the contract to
sell was subject to the following conditions: (1) the balance of P10,700,000.00 was payable not
later than 15 July 1989; (2) Valdes-Choy may stay in the Property until 13 August 1989; and (3) all
papers must be "in proper order" before full payment is made.
The trial court held that Chua complied with the terms of the contract to sell. Chua showed that he
was prepared to pay Valdes-Choy the consideration in full on 13 July 1989, two days before the
deadline of 15 July 1989. Chua even added P80,000.00 for the documentary stamp tax. He
purchased from PBCom two manager's checks both payable to Valdes-Choy. The first check for
P485,000.00 was to pay the capital gains tax. The second check for P10,215,000.00 was to pay
the balance of the purchase price. The trial court was convinced that Chua demonstrated his
capacity and readiness to pay the balance on 13 July 1989 with the production of the PBCom
manager's check for P10,215,000.00.
On the other hand, the trial court found that Valdes-Choy did not perform her correlative obligation
under the contract to sell to put all the papers in order. The trial court noted that as of 14 July
1989, the capital gains tax had not been paid because Valdes-Choy's counsel who was suppose
to pay the tax did not do so. The trial court declared that Valdes-Choy was in a position to deliver
only the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and
the latest realty tax receipt. The trial court concluded that these documents were all useless
without the Bureau of Internal Revenue receipt evidencing full payment of the capital gains tax
which is a pre-requisite to the issuance of a new certificate of title in Chua's name.
The trial court held that Chua's non-payment of the balance of P10,215,000.00 on the agreed date
was due to Valdes-Choy's fault.
The Court of Appeals' Ruling
In reversing the trial court, the Court of Appeals ruled that Chua's stance to pay the full
consideration only after the Property is registered in his name was not the agreement of the
parties. The Court of Appeals noted that there is a whale of difference between the phrases "all
papers are in proper order" as written on the Receipt, and "transfer of title" as demanded by Chua.
Contrary to the findings of the trial court, the Court of Appeals found that all the papers were in
order and that Chua had no valid reason not to pay on the agreed date. Valdes-Choy was in a
position to deliver the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax
declarations, and the latest realty tax receipt. The Property was also free from all liens and
encumbrances.
The Court of Appeals declared that the trial court erred in considering Chua's showing to Valdes-
Choy of the PBCom manager's check for P10,215,000.00 as compliance with Chua's obligation to
pay on or before 15 July 1989. The Court of Appeals pointed out that Chua did not want to give up
the check unless "the property was already in his name."20 Although Chua demonstrated his
capacity to pay, this could not be equated with actual payment which he refused to do.
The Court of Appeals did not consider the non-payment of the capital gains tax as failure by
Valdes-Choy to put the papers "in proper order." The Court of Appeals explained that the payment
of the capital gains tax has no bearing on the validity of the Deeds of Sale. It is only after the
deeds are signed and notarized can the final computation and payment of the capital gains tax be
made.
The Issues
In his Memorandum, Chua raises the following issues:
1. WHETHER THERE IS A PERFECTED CONTRACT OF SALE OF IMMOVABLE
PROPERTY;
2. WHETHER VALDES-CHOY MAY RESCIND THE CONTRACT IN CONTROVERSY
WITHOUT OBSERVING THE PROVISIONS OF ARTICLE 1592 OF THE NEW CIVIL
CODE;
3. WHETHER THE WITHHOLDING OF PAYMENT OF THE BALANCE OF THE
PURCHASE PRICE ON THE PART OF CHUA (AS VENDEE) WAS JUSTIFIED BY THE
CIRCUMSTANCES OBTAINING AND MAY NOT BE RAISED AS GROUND FOR THE
AUTOMATIC RESCISSION OF THE CONTRACT OF SALE;
4. WHETHER THERE IS LEGAL AND FACTUAL BASIS FOR THE COURT OF
APPEALS TO DECLARE THE "EARNEST MONEY" IN THE AMOUNT OF P100,000.00
AS FORFEITED IN FAVOR OF VALDES-CHOY;
5. WHETHER THE TRIAL COURT'S JUDGMENT IS IN ACCORD WITH LAW, REASON
AND EQUITY DESERVING OF BEING REINSTATED AND AFFIRMED.21
The issues for our resolution are: (a) whether the transaction between Chua and Valdes-Choy is a
perfected contract of sale or a mere contract to sell, and (b) whether Chua can compel Valdes-
Choy to cause the issuance of a new TCT in Chua's name even before payment of the full
purchase price.
The Court's Ruling
The petition is bereft of merit.
There is no dispute that Valdes-Choy is the absolute owner of the Property which is registered in
her name under TCT No.162955, free from all liens and encumbrances. She was ready, able and
willing to deliver to Chua the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax
declarations, and the latest realty tax receipt. There is also no dispute that on 13 July 1989,
Valdes-Choy received PBCom Check No. 206011 for P100,000.00 as earnest money from Chua.
Likewise, there is no controversy that the Receipt for the P100,000.00 earnest money embodied
the terms of the binding contract between Valdes-Choy and Chua.
Further, there is no controversy that as embodied in the Receipt, Valdes-Choy and Chua agreed
on the following terms: (1) the balance of P10,215,000.00 is payable on or before 15 July 1989;
(2) the capital gains tax is for the account of Valdes-Choy; and (3) if Chua fails to pay the balance
of P10,215,000.00 on or before 15 July 1989, Valdes-Choy has the right to forfeit the earnest
money, provided that "all papers are in proper order." On 13 July 1989, Chua gave Valdes-Choy
the PBCom manager's check for P485,000.00 to pay the capital gains tax.
Both the trial and appellate courts found that the balance of P10,215,000.00 was not actually
paid to Valdes-Choy on the agreed date. On 13 July 1989, Chua did show to Valdes-Choy the
PBCom manager's check for P10,215,000.00, with Valdes-Choy as payee. However,
Chua refused to give this check to Valdes-Choy until a new TCT covering the Property is
registered in Chua's name. Or, as the trial court put it, until there is proof of payment of the capital
gains tax which is a pre-requisite to the issuance of a new certificate of title.
First and Second Issues: Contract of Sale or Contract to Sell?
Chua has consistently characterized his agreement with Valdez-Choy, as evidenced by the
Receipt, as a contract to sell and not a contract of sale. This has been Chua's persistent
contention in his pleadings before the trial and appellate courts.
Chua now pleads for the first time that there is a perfected contract of sale rather than a contract
to sell. He contends that there was no reservation in the contract of sale that Valdes-Choy shall
retain title to the Property until after the sale. There was no agreement for an automatic rescission
of the contract in case of Chua's default. He argues for the first time that his payment of earnest
money and its acceptance by Valdes-Choy precludes the latter from rejecting the binding effect of
the contract of sale. Thus, Chua claims that Valdes-Choy may not validly rescind the contract of
sale without following Article 159222 of the Civil Code which requires demand, either judicially or by
notarial act, before rescission may take place.
Chua's new theory is not well taken in light of well-settled jurisprudence. An issue not raised in the
court below cannot be raised for the first time on appeal, as this is offensive to the basic rules of
fair play, justice and due process.23 In addition, when a party deliberately adopts a certain theory,
and the case is tried and decided on that theory in the court below, the party will not be permitted
to change his theory on appeal. To permit him to change his theory will be unfair to the adverse
party.24
Nevertheless, in order to put to rest all doubts on the matter, we hold that the agreement between
Chua and Valdes-Choy, as evidenced by the Receipt, is a contract to sell and not a contract of
sale. The distinction between a contract of sale and contract to sell is well-settled:
In a contract of sale, the title to the property passes to the vendee upon the delivery of the
thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is
not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a
contract of sale, the vendor loses ownership over the property and cannot recover it until
and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is
retained by the vendor until full payment of the price. In the latter contract, payment of the
price is a positive suspensive condition, failure of which is not a breach but an event that
prevents the obligation of the vendor to convey title from becoming effective.25
A perusal of the Receipt shows that the true agreement between the parties was a contract to sell.
Ownership over the Property was retained by Valdes-Choy and was not to pass to Chua until full
payment of the purchase price.
First, the Receipt provides that the earnest money shall be forfeited in case the buyer fails to pay
the balance of the purchase price on or before 15 July 1989. In such event, Valdes-Choy can sell
the Property to other interested parties. There is in effect a right reserved in favor of Valdes-Choy
not to push through with the sale upon Chua's failure to remit the balance of the purchase price
before the deadline. This is in the nature of a stipulation reserving ownership in the seller until full
payment of the purchase price. This is also similar to giving the seller the right to rescind
unilaterally the contract the moment the buyer fails to pay within a fixed period. 26
Second, the agreement between Chua and Valdes-Choy was embodied in a receipt rather than in
a deed of sale, ownership not having passed between them. The signing of the Deeds of Sale
came later when Valdes-Choy was under the impression that Chua was about to pay the balance
of the purchase price. The absence of a formal deed of conveyance is a strong indication that the
parties did not intend immediate transfer of ownership, but only a transfer after full payment of the
purchase price.27
Third, Valdes-Choy retained possession of the certificate of title and all other documents relative to
the sale. When Chua refused to pay Valdes-Choy the balance of the purchase price, Valdes-Choy
also refused to turn-over to Chua these documents.28 These are additional proof that the
agreement did not transfer to Chua, either by actual or constructive delivery, ownership of the
Property.29
It is true that Article 1482 of the Civil Code provides that "[W]henever earnest money is given in a
contract of sale, it shall be considered as part of the price and proof of the perfection of the
contract." However, this article speaks of earnest money given in a contract of sale. In this case,
the earnest money was given in a contract to sell. The Receipt evidencing the contract to sell
stipulates that the earnest money is a forfeitable deposit, to be forfeited if the sale is not
consummated should Chua fail to pay the balance of the purchase price. The earnest money
forms part of the consideration only if the sale is consummated upon full payment of the purchase
price. If there is a contract of sale, Valdes-Choy should have the right to compel Chua to pay the
balance of the purchase price. Chua, however, has the right to walk away from the transaction,
with no obligation to pay the balance, although he will forfeit the earnest money. Clearly, there is
no contract of sale. The earnest money was given in a contract to sell, and thus Article 1482,
which speaks of a contract of sale, is not applicable.
Since the agreement between Valdes-Choy and Chua is a mere contract to sell, the full payment
of the purchase price partakes of a suspensive condition. The non-fulfillment of the condition
prevents the obligation to sell from arising and ownership is retained by the seller without further
remedies by the buyer.30 Article 1592 of the Civil Code permits the buyer to pay, even after the
expiration of the period, as long as no demand for rescission of the contract has been made upon
him either judicially or by notarial act. However, Article 1592 does not apply to a contract to sell
where the seller reserves the ownership until full payment of the price.31
Third and Fourth Issues: Withholding of Payment of the
Balance of the Purchase Price and Forfeiture of the Earnest Money
Chua insists that he was ready to pay the balance of the purchase price but withheld payment
because Valdes-Choy did not fulfill her contractual obligation to put all the papers in "proper
order." Specifically, Chua claims that Valdes-Choy failed to show that the capital gains tax had
been paid after he had advanced the money for its payment. For the same reason, he contends
that Valdes-Choy may not forfeit the earnest money even if he did not pay on time.
There is a variance of interpretation on the phrase "all papers are in proper order" as written in the
Receipt. There is no dispute though, that as long as the papers are "in proper order," Valdes-Choy
has the right to forfeit the earnest money if Chua fails to pay the balance before the deadline.
The trial court interpreted the phrase to include payment of the capital gains tax, with the Bureau
of Internal Revenue receipt as proof of payment. The Court of Appeals held otherwise. We quote
verbatim the ruling of the Court of Appeals on this matter:
The trial court made much fuss in connection with the payment of the capital gains tax, of
which Section 33 of the National Internal Revenue Code of 1977, is the governing
provision insofar as its computation is concerned. The trial court failed to consider Section
34-(a) of the said Code, the last sentence of which provides, that "[t]he amount realized
from the sale or other disposition of property shall be the sum of money received plus the
fair market value of the property (other than money) received;" and that the computation
of the capital gains tax can only be finally assessed by the Commission on Internal
Revenue upon the presentation of the Deeds of Absolute Sale themselves, without which
any premature computation of the capital gains tax becomes of no moment. At any rate,
the computation and payment of the capital gains tax has no bearing insofar as the
validity and effectiveness of the deeds of sale in question are concerned, because it is
 only after the contracts of sale are finally executed in due form and have been duly
notarized that the final computation of the capital gains tax can follow as a matter of
course. Indeed, exhibit D, the PBC Check No. 325851, dated July 13, 1989, in the
amount of P485,000.00, which is considered as part of the consideration of the sale, was
deposited in the name of appellant, from which she in turn, purchased the corresponding
check in the amount representing the sum to be paid for capital gains tax and drawn in
the name of the Commissioner of Internal Revenue, which then allayed any fear or doubt
that that amount would not be paid to the Government after all.32
We see no reason to disturb the ruling of the Court of Appeals.
In a contract to sell, the obligation of the seller to sell becomes demandable only upon the
happening of the suspensive condition. In this case, the suspensive condition is the full payment
of the purchase price by Chua. Such full payment gives rise to Chua's right to demand the
execution of the contract of sale.
It is only upon the existence of the contract of sale that the seller becomes obligated to transfer
the ownership of the thing sold to the buyer. Article 1458 of the Civil Code defines a contract of
sale as follows:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay therefor
a price certain in money or its equivalent.
x x x. (Emphasis supplied)
Prior to the existence of the contract of sale, the seller is not obligated to transfer ownership to the
buyer, even if there is a contract to sell between them. It is also upon the existence of the contract
of sale that the buyer is obligated to pay the purchase price to the seller. Since the transfer of
ownership is in exchange for the purchase price, these obligations must be simultaneously fulfilled
at the time of the execution of the contract of sale, in the absence of a contrary stipulation.
In a contract of sale, the obligations of the seller are specified in Article 1495 of the Civil Code, as
follows:
Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well as
warrant the thing which is the object of the sale. (Emphasis supplied)
The obligation of the seller is to transfer to the buyer ownership of the thing sold. In the sale of real
property, the seller is not obligated to transfer in the name of the buyer a new certificate of title, but
rather to transfer ownership of the real property. There is a difference between transfer of the
certificate of title in the name of the buyer, and transfer of ownership to the buyer. The buyer may
become the owner of the real property even if the certificate of title is still registered in the name of
the seller. As between the seller and buyer, ownership is transferred not by the issuance of a new
certificate of title in the name of the buyer but by the execution of the instrument of sale in a public
document.
In a contract of sale, ownership is transferred upon delivery of the thing sold. As the noted civil law
commentator Arturo M. Tolentino explains it, -
Delivery is not only a necessary condition for the enjoyment of the thing, but is a mode of
acquiring dominion and determines the transmission of ownership, the birth of the real
right. The delivery, therefore, made in any of the forms provided in articles 1497 to 1505
signifies that the transmission of ownership from vendor to vendee has taken place. The
delivery of the thing constitutes an indispensable requisite for the purpose of acquiring
ownership. Our law does not admit the doctrine of transfer of property by mere consent;
the ownership, the property right, is derived only from delivery of the thing. x x
x.33 (Emphasis supplied)
In a contract of sale of real property, delivery is effected when the instrument of sale is executed in
a public document. When the deed of absolute sale is signed by the parties and notarized, then
delivery of the real property is deemed made by the seller to the buyer. Article 1498 of the Civil
Code provides that –
Art. 1498. When the sale is made through a public instrument, the execution thereof shall
be equivalent to the delivery of the thing which is the object of the contract, if from the
deed the contrary does not appear or cannot clearly be inferred.
x x x.
Similarly, in a contract to sell real property, once the seller is ready, able and willing to sign the
deed of absolute sale before a notary public, the seller is in a position to transfer ownership of the
real property to the buyer. At this point, the seller complies with his undertaking to sell the real
property in accordance with the contract to sell, and to assume all the obligations of a vendor
under a contract of sale pursuant to the relevant articles of the Civil Code. In a contract to sell, the
seller is not obligated to transfer ownership to the buyer. Neither is the seller obligated to cause
the issuance of a new certificate of title in the name of the buyer. However, the seller must put all
his papers in proper order to the point that he is in a position to transfer ownership of the real
property to the buyer upon the signing of the contract of sale.
In the instant case, Valdes-Choy was in a position to comply with all her obligations as a seller
under the contract to sell. First, she already signed the Deeds of Sale in the office of her counsel
in the presence of the buyer. Second, she was prepared to turn-over the owner's duplicate of the
TCT to the buyer, along with the tax declarations and latest realty tax receipt. Clearly, at this point
Valdes-Choy was ready, able and willing to transfer ownership of the Property to the buyer as
required by the contract to sell, and by Articles 1458 and 1495 of the Civil Code to consummate
the contract of sale.
Chua, however, refused to give to Valdes-Choy the PBCom manager's check for the balance of
the purchase price. Chua imposed the condition that a new TCT should first be issued in his
name, a condition that is found neither in the law nor in the contract to sell as evidenced by the
Receipt. Thus, at this point Chua was not ready, able and willing to pay the full purchase price
which is his obligation under the contract to sell. Chua was also not in a position to assume the
principal obligation of a vendee in a contract of sale, which is also to pay the full purchase price at
the agreed time. Article 1582 of the Civil Code provides that –
Art. 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at
the time and place stipulated in the contract.
x x x. (Emphasis supplied)
In this case, the contract to sell stipulated that Chua should pay the balance of the purchase price
"on or before 15 July 1989." The signed Deeds of Sale also stipulated that the buyer shall pay the
balance of the purchase price upon signing of the deeds. Thus, the Deeds of Sale, both signed by
Chua, state as follows:
Deed of Absolute Sale covering the lot:
xxx
For and in consideration of the sum of EIGHT MILLION PESOS (P8,000,000.00),
Philippine Currency, receipt of which in full is hereby acknowledged by the VENDOR from
the VENDEE, the VENDOR sells, transfers and conveys unto the VENDEE, his heirs,
successors and assigns, the said parcel of land, together with the improvements existing
thereon, free from all liens and encumbrances.34 (Emphasis supplied)
Deed of Absolute Sale covering the furnishings:
xxx
For and in consideration of the sum of TWO MILLION EIGHT HUNDRED THOUSAND
PESOS (P2,800,000.00), Philippine Currency, receipt of which in full is hereby
acknowledged by the VENDOR from the VENDEE, the VENDOR sells, transfers and
conveys unto the VENDEE, his heirs, successors and assigns, the said furnitures, fixtures
and other movable properties thereon, free from all liens and encumbrances.35 (Emphasis
supplied)
However, on the agreed date, Chua refused to pay the balance of the purchase price as required
by the contract to sell, the signed Deeds of Sale, and Article 1582 of the Civil Code. Chua was
therefore in default and has only himself to blame for the rescission by Valdes-Choy of the
contract to sell.
Even if measured under existing usage or custom, Valdes-Choy had all her papers "in proper
order." Article 1376 of the Civil Code provides that:
Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of
the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily
established.
Customarily, in the absence of a contrary agreement, the submission by an individual seller to the
buyer of the following papers would complete a sale of real estate: (1) owner's duplicate copy of
the Torrens title;36 (2) signed deed of absolute sale; (3) tax declaration; and (3) latest realty tax
receipt. The buyer can retain the amount for the capital gains tax and pay it upon authority of the
seller, or the seller can pay the tax, depending on the agreement of the parties.
The buyer has more interest in having the capital gains tax paid immediately since this is a pre-
requisite to the issuance of a new Torrens title in his name. Nevertheless, as far as the
government is concerned, the capital gains tax remains a liability of the seller since it is a tax on
the seller's gain from the sale of the real estate. Payment of the capital gains tax, however, is not a
pre-requisite to the transfer of ownership to the buyer. The transfer of ownership takes effect upon
the signing and notarization of the deed of absolute sale.
The recording of the sale with the proper Registry of Deeds37 and the transfer of the certificate of
title in the name of the buyer are necessary only to bind third parties to the transfer of
ownership.38 As between the seller and the buyer, the transfer of ownership takes effect upon the
execution of a public instrument conveying the real estate.39Registration of the sale with the
Registry of Deeds, or the issuance of a new certificate of title, does not confer ownership on the
buyer. Such registration or issuance of a new certificate of title is not one of the modes of
acquiring ownership.40
In this case, Valdes-Choy was ready, able and willing to submit to Chua all the papers that
customarily would complete the sale, and to pay as well the capital gains tax. On the other hand,
Chua's condition that a new TCT be first issued in his name before he pays the balance of
P10,215,000.00, representing 94.58% of the purchase price, is not customary in a sale of real
estate. Such a condition, not specified in the contract to sell as evidenced by the Receipt, cannot
be considered part of the "omissions of stipulations which are ordinarily established" by usage or
custom.41 What is increasingly becoming customary is to deposit in escrow the balance of the
purchase price pending the issuance of a new certificate of title in the name of the buyer. Valdes-
Choy suggested this solution but unfortunately, it drew no response from Chua.
Chua had no reason to fear being swindled. Valdes-Choy was prepared to turn-over to him the
owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest
realty tax receipt. There was no hindrance to paying the capital gains tax as Chua himself had
advanced the money to pay the same and Valdes-Choy had procured a manager's check payable
to the Bureau of Internal Revenue covering the amount. It was only a matter of time before the
capital gains tax would be paid. Chua acted precipitately in filing the action for specific
performance a mere two days after the deadline of 15 July 1989 when there was an impasse.
While this case was dismissed on 22 November 1989, he did not waste any time in re-filing the
same on 29 November 1989.
Accordingly, since Chua refused to pay the consideration in full on the agreed date, which is a
suspensive condition, Chua cannot compel Valdes-Choy to consummate the sale of the Property.
Article 1181 of the Civil Code provides that -
 ART. 1181. In conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired shall depend upon the happening of the
event which constitutes the condition.

Chua acquired no right to compel Valdes-Choy to transfer ownership of the Property to him
because the suspensive condition - the full payment of the purchase price - did not happen. There
is no correlative obligation on the part of Valdes-Choy to transfer ownership of the Property to
Chua. There is also no obligation on the part of Valdes-Choy to cause the issuance of a new TCT
in the name of Chua since unless expressly stipulated, this is not one of the obligations of a
vendor.

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 37652 dated 23 February
1995 is AFFIRMED in toto.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Azcuna, JJ., concur.
 SECOND DIVISION
G.R. No. 150308 November 26, 2004
VIVE EAGLE LAND, INC. and VIRGILIO O. CERVANTES, petitioners,
vs.
COURT OF APPEALS and GENUINO ICE CO., INC., respondents.
DECISION
CALLEJO, SR., J.:
This is a petition filed by Vive Eagle Land, Inc. (VELI) and Virgilio Cervantes for the review of the
July 19, 2001 Decision1 and October 4, 2001 Resolution of the Court of Appeals (CA) in CA-G.R.
CV No. 51933.
The Antecedents
The Spouses Raul and Rosalie Flores were the owners of two parcels of land situated along
Aurora Boulevard, Cubao, Quezon City, covered by
Transfer Certificates of Title (TCT) Nos. 241845 and 241846, with an area of 1,026 and 2,963
square meters, respectively. On October 10, 1987, the Spouses Flores and Tatic Square
International Corporation (TATIC) executed an Agreement to Sell in which the said spouses bound
and obliged themselves to sell the properties to TATIC. The latter then applied for a loan with the
Capital Rural Bank of Makati, Inc. (Bank) to finance its purchase of the said lots. The Bank agreed
to grant the application of TATIC in the amount of P5,757,827.63 provided that the torrens titles
over the subject properties would be registered under the name of the latter as the subject lots
would be used as collateral for the payment of the said loan.2
On April 13, 1988, the Spouses Flores, TATIC, Isidro S. Tobias (who acted as broker), and the
Bank executed a Memorandum of Agreement (MOA), wherein the Spouses Flores, as vendees-
owners, warranted that "the titles of the two properties were free and clear from any and all
obligations and claims, whether past or present, from any creditors or third persons." Tobias, as
broker, undertook to pay any and all the taxes and assessments imposed and/or charged over the
lots, including the payment of capital gains tax; and to secure tax clearances from the proper
government agencies within thirty days from April 12, 1988. Tobias also undertook to remove any
and all tenants/occupants on the lots within sixty days from April 12, 1988 with the assistance and
cooperation of the Spouses Flores. The parties agreed that the expenses to be incurred by Tobias
and TATIC would be deducted from the purchase price of the property, which was estimated at
P790,000.00:
6. The BROKER undertakes to clear the titles covering the two (2) parcels of land from
any and all liens and encumbrances, including future claims and/or liability from any
person or entity within thirty (30) days from April 12, 1988. Towards this end, the OWNER
shall endeavor to provide the BROKER the documents/papers, which are necessary and
proper to carry out this objective;
The OWNERS warrant that the titles of the two properties are free and clear from any and
all obligations and claims, whether past or present, from any bank or financial institution
or any other creditor, or third persons;
7. The BROKER shall undertake to pay any and all taxes and assessments imposed
and/or charged over the two (2) parcels of land including the payment of capital gains tax
and secure tax clearance from the proper government agency/ies within thirty (30) days
from April 12, 1988. Official receipts of payments thereof shall be presented and delivered
to CAPITAL BANK;
The payment of any taxes and assessments on the two parcels of land may be advanced
by CAPITAL BANK provided that TATIC SQUARE will execute a Promissory Note in favor
of CAPITAL BANK in the amount corresponding thereto. The amount covered by this
Promissory Note shall be deducted from the balance of the purchase price payable by
TATIC SQUARE to the OWNERS;
8. The BROKER and TATIC SQUARE shall undertake to remove any and all
occupants/tenants of the two (2) parcels of land whether legally or illegally residing
thereat within sixty (60) days from April 12, 1988 with the assistance and cooperation of
the OWNERS;
9. Any and all expenses to be incurred in complying with the undertakings mentioned in
paragraphs 6, 7 and 8 shall be deducted from the purchase price of the two parcels of
land, the expenses of which is estimated to be SEVEN HUNDRED NINETY THOUSAND
PESOS (P790,000.00). If the said amount of P790,000.00 would not be sufficient, the
other expenses connected therewith shall be taken and/or deducted from the amount due
the BROKER.3
On the same day, the Spouses Flores executed a deed of absolute sale over the two parcels of
land for the price of P5,700,000.00 in favor of TATIC.4 The Spouses Flores, thereafter, turned over
the custody of the owner's copy of their titles to the Bank.5
Although the torrens titles over the lots were still in the custody of the Bank, TATIC, as vendor,
and petitioner VELI, as vendee, executed a deed of absolute sale6 on April 14, 1988, in which
TATIC sold the properties to the petitioner for P6,295,224.88, receipt of which was acknowledged
in the said deed by TATIC. The latter warranted in the said deed that there were valid titles to the
property and that it would deliver possession thereof to the petitioner. The parties executed a deed
entitled "Addendum" in which they agreed on the following:
1. TATIC SQUARE represents and warrants that the titles covering the two (2) parcels of
land are free from any and all liens and encumbrances except the mortgage which may
be subsisting in favor of CAPITAL BANK. TATIC SQUARE shall cause the registration
and transfer of the titles covering the two (2) parcels of land in its name;
 TATIC SQUARE undertakes to remove all the occupants/tenants whether legally or
illegally residing thereat within sixty (60) days from April 12, 1988. Otherwise, VELI shall
have the right and authority to withhold payment of the remaining balance of the purchase
price of the sale of the entire project;
2. In consideration of the execution of the Deed of Sale over the two (2) parcels of land
(Annex "A" hereof), VELI hereby absorbs and assumes to pay the loan obligations of
TATIC SQUARE with CAPITAL BANK in the principal amount of FIVE MILLION SEVEN
HUNDRED FIFTY-SEVEN THOUSAND EIGHT HUNDRED TWENTY-SEVEN & 63/100
(P5,757,827.63) plus whatever interests and other charges that may be imposed thereon
by CAPITAL BANK including the release of the mortgage constituted over the property
upon full payment of the loan;
3. TATIC SQUARE, likewise, represents and warrants that it is the absolute owner of the
entire project known as TATIC WALK-UP CONDOMINIUM including its accessories and
appurtenance thereto;
4. In accordance with the Deed of Sale of the entire project (Annex "B" hereof), VELI shall
promptly pay on its due date TATIC SQUARE, the remaining balance of the purchase
price in the amount of P400,000.00 subject to adjustment set forth in the next preceding
paragraph.7
On November 11, 1988, VELI, as vendor, through its president, petitioner Virgilio Cervantes, and
respondent Genuino Ice Co., Inc., as vendee, executed a deed of absolute sale8 over the parcel of
land covered by TCT No. 241846 for the price of P4,000,000.00, receipt of which was
acknowledged by petitioner VELI. On the same day, the respondent and petitioner VELI executed
a deed of assignment of rights in which the latter assigned in favor of the respondent, for and in
consideration of P4,000,000.00, all its rights and interests under the Deed of Absolute Sale
executed on April 13, 1988 by the Spouses Flores and the deed of absolute sale executed by
TATIC in its favor, insofar as that lot covered by TCT No. 241846 only was concerned.9
In the meantime, the respondent, through counsel, wrote petitioner VELI and made the following
demands:
In view of the foregoing facts, demand is hereby made upon you to pay to the BIR the
capital gains tax amounting to P285,000.00 and deliver to us the receipt and/or clearance
thereof, plus the interests for all registration fees on account of delay in the payment of
the capital gains tax and the 1% documentary stamp tax for the sale of the property from
your company to our client or to give them a BIR clearance regarding payment of all said
taxes within five (5) days from receipt hereof; otherwise, much to our regret, we will be
constrained to file legal action for specific performance and damages against your
company in order to protect the interest of our client.10
In a letter to the respondent, petitioner VELI, through counsel, rejected the former's demand.11
On June 24, 1990, the respondent filed a Complaint against petitioner VELI and its president,
Virgilio Cervantes, for specific performance and damages in the Regional Trial Court (RTC) of
Quezon City. The respondent alleged, inter alia, that petitioner VELI failed (a) to transfer title to
and in the name of the respondent over the property covered by TCT No. 241846 despite the
lapse of a reasonable time; (b) to cause the eviction/removal of the squatters/occupants on the
property; and (c) to pay the capital gains tax and other assessments due to effectuate the transfer
of the titles of the property to and in its name. The respondent prayed that, after due proceedings,
judgment be rendered in its favor, thus:
WHEREFORE, premises considered, it is most respectfully prayed that, after trial,
judgment be rendered against defendants to, jointly and severally, indemnify plaintiff as
follows:
I. FIRST CAUSE OF ACTION
a) To effect or cause the transfer of title in favor of the plaintiff;
b) To pay the capital gains tax and other requirements or expenses necessary to
effect said transfer.
II. SECOND CAUSE OF ACTION
a) To direct defendants to cause the removal or eviction of the squatters or
unlawful occupants for (sic) the area;
b) In the alternative, if eviction is not accomplished to forfeit the amount of
P300,000 in favor of plaintiff.
III. THIRD CAUSE OF ACTION
a) To pay actual damages in the amount of no less than FIVE HUNDRED
THOUSAND PESOS;
b) To pay exemplary damages in the amount of FIVE HUNDRED THOUSAND
PESOS;
c) Attorney's fees in the amount of P250,000;
d) Costs of suits.
Plaintiff further prays for such relief or reliefs as may be just and equitable under the
premises.12
In their answer13 to the complaint, the petitioners alleged that the respondent had no cause of
action against them because (a) petitioner VELI was exempt from the payment of capital gains tax;
(b) the Spouses Flores and Tobias were liable for the payment of capital gains tax; and (c) the
Spouses Flores and Tobias were responsible for the eviction of the occupants/squatters from the
property.
The trial court rendered judgment, amended per its Order dated April 17, 1995, in favor of the
respondent. The fallo of the decision, as amended, reads:
WHEREFORE, foregoing considered, judgment is hereby rendered in favor of plaintiff
ordering defendants to cause the transfer of the title to the plaintiff. The payment of the
capital gains tax shall be paid by the defendants. Further, defendants are hereby ordered
to remove or evict or cause the removal or eviction of the squatters or unlawful occupants
of the area, otherwise, the amount of P300,000.00 shall be deemed forfeited in favor of
plaintiff; to pay attorney's fees of P20,000.00 and to pay the costs.
SO ORDERED.14
The trial court held that the petitioners were liable for the payment of the capital gains tax, and that
the respondent was not privy to the deeds of absolute sale executed by the Spouses Flores and
TATIC, and TATIC and petitioner VELI, and as such is not bound by the said deeds; neither could
the respondent enforce the same against the Spouses Flores, TATIC and petitioner VELI.
In due course, the petitioners appealed to the CA which rendered judgment, on July 19, 2001,
affirming, with modification, the appealed decision. The CA held that the petitioners were liable for
the expenses for the registration of the sale. It also ruled that the respondent was not bound by
the deed of absolute sale executed by TATIC and the petitioners because it was not a party
thereto, and that the latter were obliged to cause the eviction of the squatters from the property.15
The petitioners, in the instant petition for review, raise the following issues for resolution: (a)
whether or not petitioner VELI is obliged to pay for the expenses for transfer of the property and
the issuance of the titles to and under the name of the respondent; (b) whether or not the
petitioners are liable for the capital gains tax for the sale between petitioner VELI and the
respondent; and (c) whether or not the petitioners are obliged to evict the remaining squatters
from the land.
Petitioner VELI is Obliged to Cause the Registration of the November 11, 1988
Deed of Absolute Sale in Favor of Respondent, the Issuance of a Torrens Title
in the Name of Respondent and the Eviction of the Tenants/Occupants
from the Property at the Expense of the Petitioner.
The petitioners assail the ruling of the CA that, under Article 1487 of the New Civil Code, petitioner
VELI, as vendor, is liable for the expenses for the registration of the third deed of sale in favor of
the respondent, as vendee, and to secure a torrens title over the property to and under the name
of the latter. The petitioners contend that, under the MOA executed by the Spouses Flores, Tobias
(the broker), the Bank and TATIC, the April 14, 1988 agreement and the first deed of sale
executed by the Spouses Flores and Tobias, the latter obliged themselves to spend for the
registration of the said deed of absolute sale and for the issuance of torrens titles over the
properties in the name of the vendees; and further obliged themselves to cause the eviction of the
tenants/occupants from the property within sixty days from April 12, 1988. The petitioners,
likewise, emphasize that, under the April 14, 1988 agreement of the petitioners and TATIC, the
latter obliged itself to cause and spend for the registration of the second deed of sale between
petitioner VELI and TATIC, and the issuance of the titles over the property in favor of petitioner
VELI; and to cause the eviction of the tenants/occupants from the property within sixty days from
April 12, 1988. Also, under the deed of assignment of rights executed by petitioner VELI and the
respondent, the latter acquired the rights and interests of petitioner VELI under the deeds of sale
executed by the Spouses Flores in favor of TATIC, and by TATIC in favor of petitioner VELI.
The petitioners aver that, under the deed of sale they executed in favor of the respondent, as well
as the acts of the parties before, contemporaneous with and subsequent to the execution of the
said deed, they cannot be held liable for the expenses for the registration of the third deed of sale,
the transfer of titles to and under the name of the respondent, for payment of the capital gains tax
and the eviction of the tenants/occupants on the property. Such acts include the execution of the
following: the addendum to the said deed of sale; the deed of assignment of rights executed by
petitioner VELI in favor of the respondent; and the deeds executed by the Spouses Flores, TATIC
and Tobias.
The petitioners contend that the CA erred in ruling that the respondent is not bound by the deeds
executed by the Spouses Flores, TATIC and Tobias, and by TATIC and petitioner VELI simply
because the respondent was not a party to the said deeds. The petitioners insist that the
respondent acquired the rights and interests of its predecessors; and, being the vendee/owner of
the property covered by TCT No. 241846, the petitioners had the right to enforce the said
contracts against its predecessors.
We are not in full accord with the petitioners. It bears stressing that there are three separate deeds
of absolute sale on record, to wit: first, the April 13, 1988 deed of absolute sale executed by the
Spouses Flores and TATIC; second, the April 14, 1988 deed of absolute sale executed by TATIC
in favor of petitioner VELI; and third, the November 11, 1988 deed of absolute sale between
petitioner VELI, as vendor, and the respondent, as vendee, over the property covered by TCT No.
241846. Under the April 13, 1988 MOA executed by the Spouses Flores, Tobias, TATIC and the
Bank, the Spouses Flores and Tobias obliged themselves to spend for and cause the registration
of the first deed of absolute sale, to cause the issuance of the torrens titles over the property to
and under the name of TATIC, as vendee, and to pay the capital gains tax on the said sales.
Tobias and TATIC bound and obliged themselves to cause the eviction of the tenants/occupants
on the property within sixty days from April 12, 1988, with the assistance of the Spouses Flores.
On the other hand, under the April 14, 1988 agreement of TATIC and petitioner VELI, TATIC
obliged itself to spend for the registration of the second deed of absolute sale and the issuance of
the titles over the property to and under the name of petitioner VELI, and to cause the eviction of
the tenants/occupants from the property within sixty days from April 12, 1988. TATIC did not bind
itself to pay the capital gains tax for the said sale.
Indeed, under the third deed of absolute sale, petitioner VELI did not oblige itself to spend for the
registration of the said deed; to secure a torrens title over the property to and under the name of
the respondent; or to cause the eviction of the tenants/occupants on the property. Nevertheless,
petitioner VELI is liable for the said expenses because, under Article 1487 16 of the New Civil Code,
the expenses for the registration of the sale should be shouldered by the vendor unless there is a
stipulation to the contrary. In the absence of any stipulation of the parties relating to the expenses
for the registration of the sale and the transfer of the title to the vendee, Article 1487 shall be
applied in a supplementary manner.17
Under Article 149518 of the New Civil Code, petitioner VELI, as the vendor, is obliged to transfer
title over the property and deliver the same to the vendee. While Article 1498 19 of the New Civil
Code provides that the execution of a notarized deed of absolute sale shall be equivalent to the
delivery of the property subject of the contract, the same shall not apply if, from the deed, the
contrary does not appear or cannot clearly be inferred. In the present case, the respondent and
petitioner VELI agreed that the latter would cause the eviction of the tenants/occupants and
deliver possession of the property. It is clear that at the time the petitioner executed the deed of
sale in favor of the respondent, there were tenants/occupants in the property. It cannot, thus, be
concluded that, through the execution of the third deed of sale, the property was thereby delivered
to the respondent.
Petitioner VELI is obliged to cause the eviction of the tenants/occupants unless there is a contrary
agreement of the parties. Indeed, under the addendum executed by petitioner VELI and the
respondent, the latter was given the right to withhold P300,000.00 of the purchase price until after
petitioner VELI cleared the property of squatters.
While it is true that the respondent acquired the rights and interests of TATIC under the first deed
of sale and that of petitioner VELI under the second deed of sale by virtue of the deed of
assignment of rights executed by the petitioners and the respondent, the latter cannot enforce the
terms and conditions of the said deeds. It must be stressed that there is no showing in the records
that the Spouses Flores, Tobias and TATIC conformed to the said deed of assignment of rights or
that the same was registered in the office of the Register of Deeds in accordance with Article
162520 of the New Civil Code.
Moreover, the execution, by petitioner VELI and the respondent, of such deed of assignment of
rights did not relieve the said petitioner of its obligation to clear the property of tenants/occupants.
This is because the following agreement was embodied in their addendum:
NOW THEREFORE, for and in consideration of the foregoing premises, the Transferee
hereby retains and holds from the Transferor the amount of Three Hundred Thousand &
00/100 Pesos (P300,000.00), from the purchase price due the Transferor until after the
premises have been rid of and cleared from squatters occupying therein.
That after the said parcel of land has been cleared of squatters, the Transferee shall
immediately remit to the Transferor the aforesaid sum of Three Hundred Thousand &
00/100 Pesos (P300,000.00) without need of further act or deed.21
Petitioner VELI is Not Liable for
Payment of the Capital Gains Tax for the Third Sale
We agree with the petitioners' contention that petitioner VELI is not liable for the payment of
capital gains tax for the third deed of sale. A capital gains tax is a final tax assessed on the
presumed gain derived by citizens and resident aliens, as well as estates and trusts, from the sale
or exchange of real property.22 Under the first sale, per the agreement of the Spouses Flores,
TATIC, and Tobias, the said spouses were obliged to pay the capital gains tax. However, under
the deed of absolute sale for the second sale, TATIC was not obliged to pay the said tax. The
Court notes that in answer to the respondent's demand letter, petitioner VELI claimed that such
tax could not be assessed against it or against TATIC for the reason that they are corporations
and, therefore, exempt from the payment of capital gains tax for any sale or exchange or
disposition of property.
It is settled that only laws existing at the time of the execution of a contract are applicable thereto
and not later statutes, unless the latter are specifically intended to have retroactive effect.23 When
the first and second deeds of absolute sale took place in 1988, the 1977 National Internal
Revenue Code (NIRC), as amended by Batas Pambansa Blg. 37 and
Executive Order No. 237 was still in effect. Under Sections 21(e) 24 and 34(h)25 of the 1977 NIRC,
as amended, the Spouses Flores, as vendors, were liable for the payment of capital gains tax. In
the second sale, however, TATIC was not similarly liable because while Article 1487 of the Civil
Code provides that the seller is obliged to pay the capital gains tax based on its obligation to
transfer title over the property to the vendee under Sections 21(e) and 34(h) of the 1977 NIRC, the
payment of capital gains tax from the sale, exchange of disposition of real property devolved only
upon individual taxpayers. In fact, the Bureau of Internal Revenue (BIR), in response to the
queries of several corporations which had sold, exchanged or disposed of their real properties,
more particularly in BIR Ruling Nos. 159 (September
13, 1985), 127 (July 12, 1983), 191 (November 15, 1983), 195 (November 15, 1983), 60 (May 12,
1986), 177 (September 17, 1986), and 415-87 (December 23, 1987), definitely ruled that the
corporations were exempt from the payment of capital gains tax. Their income from the sale or
exchange or disposition of real property was treated as ordinary income, and was taxed as such.
One of the opinions of the BIR Commissioner reads:
Ruling No. 159
September 13, 1985
Gentlemen:
In reply to your letter dated September 11, 1985, I have the honor to inform you that
Revenue Regulations No. 8-79 implementing Section 34(h) of the Tax Code, as amended
by Batas Pambansa Blg. 37 is explicit that only natural persons or individuals are liable to
the final capital gains tax prescribed therein. Such being the case, the gains derived by
your client, the Religious of the Virgin Mary from the sale of its real property in Balanga,
Bataan, is not subject to the final capital gains tax prescribed by Section 34(h) of the Tax
Code, as amended by Batas Pambansa Blg. 37 but to the ordinary corporate income tax
prescribed under Section 24(a) of the same Code, as amended.
Very truly yours,

(Sgd.)
RUBEN B. ANCHETA
Acting Commissioner
This is the reason why, in the second sale, neither TATIC nor petitioner VELI paid any capital
gains tax. Similarly, in the third sale, i.e., between petitioner VELI and the respondent, petitioner
VELI, being a corporation, was not obliged to pay the capital gains tax. However, petitioner VELI,
as seller, should have included in its ordinary income tax return, whatever gain or loss it incurred
with respect to the sale of the property in dispute, pursuant to Section 24(a)26 of the 1977 NIRC, as
amended.
We do not agree with the ruling of the CA that, under Section 24(d) of the 1997 NIRC, previously
Section 34(h) of the 1977 NIRC, petitioner VELI is obliged to pay capital gains tax for its sale of
the property to the respondent. Section 34(h) of the 1977 NIRC, as amended by B.P. Blg. 37
reads as follows:
(h) The provision of paragraph (b) of this Section to the contrary notwithstanding, net
capital gains from the sale or other disposition of real property by citizens of the
Philippines or resident alien individuals shall be subject to the final income tax rates
prescribed as follows:
NET CAPITAL GAINS RATES
On the first P100,000 or less 10%
On any amount over P100,000 20%
Such tax shall be in lieu of the tax imposed under Section 21 of this Code; Provided,
however, That the tax liability, if any, on gains from sales or other dispositions of real
property to the government or any of its political subdivisions or agencies or to
government-owned and controlled corporations shall be determined either under Section
21 hereof or under this Section, at the option of the taxpayer; Provided, further, That if the
taxpayer elects to report such gains in accordance with the provisions of Section 43(b),
the amount of the tax which shall be paid on each installment shall be the proportion of
the tax herein imposed, which the installment payment received bears to the total selling
price; Provided, finally, That failure on the part of the seller to pay tax imposed herein on
any gains returnable under the installment method will automatically disqualify the seller-
taxpayer from paying the tax in installments and the unpaid portion of the tax shall
immediately be due and demandable. The tax herein imposed shall be returned and paid
in accordance with Sections 45(c)27 and 51(a)(4) of this Code.
No registration of any document transferring real property shall be effected by Register of
Deeds unless the Commissioner or his duly authorized representative has certified that
such transfer has been reported and the tax herein imposed, if any, has been paid; in
case of deferred-payment sales of real property where the vendor retains title to the
property, the vendee shall furnish the Commissioner with a copy of the instrument of sale
within the same period prescribed for payment of the tax herein imposed.
Section 24(D) of the 1997 NIRC, which refers to the capital gains from sale of real property, is
found in the Title "Chapter III Tax on Individuals," and is herein quoted:
(D) Capital Gains from Sale of Real Property. –
(1) In General. – The provisions of Section 39(B) notwithstanding, a final tax of six
percent (6%) based on the gross selling price or current fair market value as determined
in accordance with Section 6(E) of this Code, whichever is higher, is hereby imposed
upon capital gains presumed to have been realized from the sale, exchange, or other
disposition of real property located in the Philippines, classified as capital assets,
including pacto de retro sales and other forms of conditional sales, by individuals,
including estates and trusts: Provided, That the tax liability, if any, on gains from sales or
other disposition of real property to the government or any of its political subdivisions or
agencies or to government-owned or controlled corporations shall be determined either
under Section 24(A)or under this Subsection, at the option of the taxpayer.
As pointed out earlier, the sale between petitioner VELI and the respondent occurred in November
11, 1988. At that point in time, it was the 1977 NIRC as amended, which was in effect. Hence, the
applicable law is Section 34(h). Section 24(d) of the 1997 NIRC, which requires corporations to
pay capital gains tax at rates provided for in Chapter IV, Section 27 thereof, cannot be applied
retroactively.28 The latter provision reads:
CHAPTER IV – TAX ON CORPORATIONS
Section 27. Rates of Income Tax on Domestic Corporations. –
…
(D) Rates of Tax on Certain Passive Incomes. –
…
(5) Capital Gains Realized from the Sale, Exchange or Disposition of Lands and/or
Buildings. A final tax of six percent (6%) is hereby imposed on the gain presumed to
have been realized on the sale, exchange or disposition of lands and/or buildings which
are not actually used in the business of a corporation and are treated as capital assets,
based on the gross selling price or fair market value as determined in accordance with
Section 6(E) of this Code, whichever is higher, of such lands and/or buildings.
The gains that a corporation earned in the sale, exchange or disposition of the real properties it
made should be included in the Corporation's return, pursuant to Sections 24(a) and 45 of the
1977 NIRC, as amended.29
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The decision of the
Court of Appeals in CA-G.R. CV No. 51933 is hereby AFFIRMED WITH MODIFICATION. That
portion of the Decision of the Court of Appeals mandating petitioner Vive Eagle Land, Inc. to pay
capital gains tax for the November 11, 1988 sale of the property covered by TCT No. 241846 to
respondent Genuino Ice Co., Inc. is DELETED. No costs.

SO ORDERED.

Puno, J., Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.
 Republic of the Philippines Facts. — The contract provided for "80 drums Caustic Soda 76 per cent "Carabao" brand al precio
SUPREME COURT de Dollar Gold Nine and 75/100 1-lbs."
Manila
Resorting to the circumstances surrounding the agreement are we are permitted to do, in
EN BANC pursuance of this provision, the merchandise was shipped from New York on the
steamship Chinese Prince. The steamship was detained by the British authorities at Penang, and
G.R. No. 13203 September 18, 1918 part of the cargo, including seventy-one drums of caustic soda, was removed. Defendant refused
to accept delivery of the remaining nine drums of soda on the ground that the goods were in bad
order. Defendant also refused the optional offer of the plaintiff, of waiting for the remainder of the
BEHN, MEYER & CO. (LTD.), plaintiff-appellant,
shipment until its arrival, or of accepting the substitution of seventy-one drums of caustic soda of
vs.
similar grade from plaintiff's stock. The plaintiff thereupon sold, for the account of the defendant,
TEODORO R. YANCO, defendant-appellee.
eighty drums of caustic soda from which there was realized the sum of P6,352.89. Deducting this
sum from the selling price of P10,063.86, we have the amount claimed as damages for alleged
Crossfield & O'Brien for appellant. breach of the contract.
Charles C. Cohn for appellee.
Law. — It is sufficient to note that the specific merchandise was never tendered. The soda which
MALCOLM, J.: the plaintiff offered to defendant was not of the "Carabao" brand, and the offer of drums of soda of
another kind was not made within the time that a March shipment, according to another provision
The first inquiry to be determined is what was the contract between the parties. the contract, would normally have been available.

The memorandum agreement executed by the duly authorized representatives of the parties to 2. PLACE OF DELIVERY.
this action reads:
Facts. — The contract provided for "c.i.f. Manila, pagadero against delivery of documents."
Contract No. 37.
Law. — Determination of the place of delivery always resolves itself into a question of act. If the
contract be silent as to the person or mode by which the goods are to be sent, delivery by the
MANILA, 7 de marzo, de 1916. vendor to a common carrier, in the usual and ordinary course of business, transfers the property to
the vendee. A specification in a contact relative to the payment of freight can be taken to indicate
the intention of the parties in regard to the place of delivery. If the buyer is to pay the freight, it is
Confirmanos haber vendido a Bazar Siglo XX, 80 drums Caustic Soda 76 per cent reasonable to suppose that he does so because the goods become his at the point of shipment.
"Carabao" brand al precio de Dollar Gold Nine and 75/100 per 100-lbs., c.i.f. Manila, On the other hand, if the seller is to pay the freight, the inference is equally so strong that the duty
pagadero against delivery of documents. Embarque March, 1916. of the seller is to have the goods transported to their ultimate destination and that title to property
does not pass until the goods have reached their destination. (See Williston on Sales, PP. 406-
408.)
Comprador Bazar Siglo XX
de Teodoro R. Yangco
J. Siquia The letters "c.i.f." found in British contracts stand for cost, insurance, and freight. They signify that
the price fixed covers not only the cost of the goods, but the expense of freight and insurance to
Vendores be paid by the seller. (Ireland vs.Livingston, L. R., 5 H. L., 395.) Our instant contract, in addition to
BEHN, MEYER & CO. (Ltd.) the letters "c.i.f.," has the word following, "Manila." Under such a contract, an Australian case is
O. LOMBECK. authority for the proposition that no inference is permissible that a seller was bound to deliver at
the point of destination. (Bowden vs. Little, 4 Comm. [Australia], 1364.)

This contract of sale can be analyzed into three component parts.
1. SUBJECT MATTER AND CONSIDERATION.
In mercantile contracts of American origin the letters "F.O.B." standing for the words "Free on
Board," are frequently used. The meaning is that the seller shall bear all expenses until the goods
are delivered where they are to be "F.O.B." According as to whether the goods are to be delivered
"F.O.B." at the point of shipment or at the point of destination determines the time when property
passes.
Both the terms "c.i.f." and "F.O.B." merely make rules of presumption which yield to proof of
contrary intention. As Benjamin, in his work on Sales, well says: "The question, at last, is one of
intent, to be ascertained by a consideration of all the circumstances." For instance, in a case of
Philippine origin, appealed to the United States Supreme Court, it was held that the sale was
complete on shipment, though the contract was for goods, "F.O.B. Manila," the place of
destination the other terms of the contract showing the intention to transfer the property. (United
States vs. R. P. Andrews & Co. [1907], 207 U.S., 229.)
In resume, we find that the plaintiff has not proved the performance on its part of the conditions
precedent in the contract. The warranty — the material promise — of the seller to the buyer has
not been complied with. The buyer may therefore rescind the contract of sale because of a breach
in substantial particulars going to the essence of the contract. As contemplated by article 1451 of
the Civil Code, the vendee can demand fulfillment of the contract, and this being shown to be
impossible, is relieved of his obligation. There thus being sufficient ground for rescission, the
defendant is not liable.

With all due deference to the decision of the High Court of Australia, we believe that the word The judgment of the trial court ordering that the plaintiff take nothing by its action, without special
Manila in conjunction with the letters "c.i.f." must mean that the contract price, covering costs, finding as to costs, is affirmed, with the costs of this instance. Against the appellant. So ordered.
insurance, and freight, signifies that delivery was to made at Manila. If the plaintiff company has
seriously thought that the place of delivery was New York and Not Manila, it would not have gone Arellano, C.J., Torres, Johnson, Street and Avanceña, JJ., concur.
to the trouble of making fruitless attempts to substitute goods for the merchandise named in the
contract, but would have permitted the entire loss of the shipment to fall upon the defendant.
Under plaintiffs hypothesis, the defendant would have been the absolute owner of the specific
soda confiscated at Penang and would have been indebted for the contract price of the same.

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

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

3. TIME OF DELIVERY.

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

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

THE CONTRACT.

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

PERFORMANCE.
 EN BANC
[G.R. No. L-8717. November 20, 1956.]
GENERAL FOODS CORPORATION, Plaintiff-Appellant, vs. NATIONAL COCONUT
CORPORATION, Defendant-Appellee.
DECISION
REYES, J. B. L., J.:
Appellant General Foods Corporation is a foreign corporation organized under the laws of the
State of Delaware, U. S. A., and licensed to do business in the Philippines; chan
roblesvirtualawlibrarywhile Appellee National Coconut Corporation (otherwise called NACOCO),
was, on the date of the transaction in question, a corporation created by Commonwealth Act No.
518, but later abolished and place in liquidation by Executive Order No. 3727 dated November 24,
1950.
On September 23, 1947, Appellee sold to Appellant 1,500 (later reduced to 1,000) long tons of
copra, at $164 (later reduced to $163) per ton of 2,000 pounds, under the following terms and
conditions:chanroblesvirtuallawlibrary
―CONTRACT NO. RH-3551
FRANKLIN BAKER DIVISION OF GENERAL FOODS CORPORATION
15th & Bloomfield Streets
Hoboken, New Jersey
WE CONFIRM HAVING PURCHASED FOR YOU TODAY from Messrs. National Coconut
Corporation, Manila, Philippine Islands, through Mercantile, Inc., Manila, P. I.
COMMODITY:chanroblesvirtuallawlibrary COPRA — Fair Merchantable Quality, Basis
6% F. F. A.
QUALITY:chanroblesvirtuallawlibrary As per rule 100 of National Institute of
Oilseeds Products.
QUANTITY:chanroblesvirtuallawlibrary Fifteen Hundred (1500) tons of 2,240 pounds each.
Seller has the option of delivering 5 per cent more or less of the contracted quantity, such
surplus or deficiency to be settled as follows:chanroblesvirtuallawlibrary On the basis of the
delivered weight up to 3 per cent at the contract price and any excess or deficiency beyond this
3 per cent at the market price of the day of arrival at port of discharge, this market price to be
fixed by the Executive Committee of the National Institute of Oilseeds Products. Each shipment
to be treated as a separate contract.
PACKING:chanroblesvirtuallawlibrary In bulk. SHIPMENT:chanroblesvirtuallawlibrary November,
1947, earlier if possible, from Philippine Islands.
PRICE:chanroblesvirtuallawlibrary One hundred and sixty-four dollars ($164) per ton of 2,000
pounds, CIF New York.
PAYMENT:chanroblesvirtuallawlibrary Buyers to open immediately by cable in favor of Sellers
Irrevocable Letter of Credit through the Philippine National Bank for 95 per cent of invoice value
based on shipping weight in exchange for the following documents:chanroblesvirtuallawlibrary
1. Provisional Invoice.
2. Full set of negotiable ocean bills of lading, freight charges fully prepaid and showing the
material on board.
3. Weight Certificate confirming quantity shown on invoice and bill of lading.
4. Consular invoice or certificate of origin in duplicate.
5. Loading survey report and weight certificate of Superintendence Corporation.
6. Consular form No. 197 (Pure Food & Drug Certificate).
Balance due to be paid promptly upon ascertainment and based upon outturn weights and quality
at port of discharge.
WEIGHTS:chanroblesvirtuallawlibrary Net landed weights.
SAMPLING:chanroblesvirtuallawlibrary As per Rule 101 of National Institute of Oilseeds
Products.
INSURANCE:chanroblesvirtuallawlibrary Buyer to provide valid insurance for Marine and War
risks for 110 per cent of CIF contract value. Seller to allow buyer from the CIF price an amount
equivalent to the current rate of insurance prevailing on the date of shipment, in lieu of sellers
covering usual marine insurance themselves.
CLAUSE PARAMOUNT:chanroblesvirtuallawlibrary This contract is subject to published rules of
the National Institute of Oilseeds Products adopted and now in force, which are hereby made
a part hereof. Any dispute arising under this contract shall be settled by a Board of Arbitrators
selected by the Chairman of the Foreign Commerce Association of the San
Francisco Chamber of Commerce and to be judged according to the rules of the National
Institute of Oilseeds Products and the findings of said Board will be final and binding upon all
the signatories hereto, providing such rules are not in conflict with existing Government
regulations.
The above shipment to be made under Franklin Baker‘s license No. 26429. This contract covers
the sale made by the Nacoco thru the Mercantile, Inc. dated September 9, 1947 in the
Philippines.‖ (Exhibit ―A‖).
From November 14 to December 3, 1947, Appellee shipped 1054.6278 short tons of copra
to Appellant on board the S. S. ―Mindoro‖. The weighing of the cargo was done by the Luzon
Brokerage Co., in its capacity as agent of the General Superintendence Co., Ltd., of Geneva,
Switzerland, by taking the individual weight of each bag of copra and summing up the total gross
weight of the shipment, then weighing a certain number of empty bags to determine the average
tare of the empty bags, which was subtracted from the gross weight of the shipment to determine
the net weight of the cargo. On the strength of the net weigh thus found, Appellee prepared and
remitted to Appellant the corresponding bills of lading and other documents, and withdrew from
the latter‘s letter of credit 95 per cent of the invoice value of the shipment, or a total of
$136,686.95.
Upon arrival in New York, the net cargo was reweighed by Appellant and was found to weigh only
898.792 short tons. Deducting from the value of the shortage the sum of $8,092.02 received
by Appellant from the insurer for 58.25 long tons lost or destroyed even before the copra was
loaded on board the vessel, Appellant demanded from Appellee the refund of the amount of
$24,154.59. Sometime after the receipt of Appellant‘s demand, the Appellee, through its officers-
in-charge Jose Nieva, Sr., acknowledged in a letter liability for the deficiency in the outturn weights
of the copra and promised payment thereof as soon as funds were available (Exhibit ―B‖).
Then Appellee was, as already stated, abolished and went into liquidation. Appellant submitted its
claim to the Board of Liquidators, which refused to pay the same; chan
roblesvirtualawlibrarywherefore, it filed the present action in the Court of First Instance of Manila to
recover from Defendant-Appellee the amount of $24,154.49 and the 17 per cent exchange tax
thereon which, under the provisions of Republic Act 529, had to be paid in order to remit said
amount to the United States, plus attorney‘s fees and costs. The Court a quo found for
the Defendant and dismissed the complaint; chan roblesvirtualawlibraryhence, this appeal
by Plaintiff.
Plaintiff-Appellant‘s theory is that although the sale between the parties quoted a CIF New York
price, the agreement contemplated the payment of the price according to the weight and quality of
the cargo upon arrival in New York, the port of destination, and that therefore, the risk of the
shipment was upon the seller. Defendant-Appellee, on the other hand, insists that the contract in
question was an ordinary C. I. F. agreement wherein delivery to the carrier is delivery to the buyer,
and that the shipment having been delivered to the buyer and the latter having paid its price, the
sale was consummated.
There is no question that under an ordinary C.I.F. agreement, delivery to the buyer is complete
upon delivery of the goods to the carrier and tender of the shipping and other documents required
by the contract and the insurance policy taken in the buyer‘s behalf (77 C.J. S. 983; chan
roblesvirtualawlibrary46 Am. Jur. 313; chan roblesvirtualawlibraryII Williston on Sales, 103 —
107). There is equally no question that the parties may, by express stipulation or impliedly (by
making the buyer‘s obligation depend on arrival and inspection of the goods), modify a CIF
contract and throw the risk upon the seller until arrival in the port of destination (77 CJS 983-
984; chan roblesvirtualawlibraryWilliston, supra, 116; chan roblesvirtualawlibraryalso Willits vs.
Abekobei, 189 NYS 525; chan roblesvirtualawlibraryNational Wholesale Grocery Co. vs. Mann.
146 NE 791, Klipstein vs. Dilsizian, 273 F 473).
In the transaction now in question, despite the quoted price of CIF New York, and the right of the
seller to withdraw 95 per cent of the invoice price from the buyer‘s letter of credit upon tender of
the shipping and other documents required by the contract, the express agreement that the ―Net
Landed Weights‖ were to govern, and the provision that the balance of the price was to be
ascertained on the basis of outturn weights and quality of the cargo at the port of discharge,
indicate an intention that the precise amount to be paid by the buyer depended upon the
ascertainment of the exact net weight of the cargo at the port of destination. That is furthermore
shown by the provision that the seller could deliver 5 per cent more or less than the contracted
quantity, such surplus or deficiency to be paid ―on the basis of the delivered weight‖.
In our opinion, the governing rule may be found in the decision of the Supreme Court of New York
in the case of Warner, Barnes & Co. vs. Warner Sugar R. Co., 192 NYS 151, cited in Appellee‘s
brief (pp. 16-19.) In said case, the parties had expressly agreed that the payment of the price was
to be according to ―landed weights‖, and that delivery of the goods shipped from the Philippine
Islands to New York was to be in New York ex vessel at wharf; chan roblesvirtualawlibrarybut it
was also agreed that the seller had the right, upon presentation of full shipping documents,
including full insurance, to draw upon the Defendants for 90 per cent of the invoice price,
evidencing an intent to give the buyers dominion over the goods and to place the risk of loss upon
them. The reasonable construction given by the Court to this contract was
that:chanroblesvirtuallawlibrary
―though the seller was required to deliver the goods at a customary wharf in New York, and the
price could not be finally determined until the goods were landed, yet the property in the goods
and the risk of loss was intended to pass when the full shipping documents were presented,
including an insurance policy. If the goods were totally lost, then by the express terms of the
contract the buyers were to pay the full amount of invoice and if the goods were partially lost, then
it is fairly inferable that, while payment was to be made according to landed weights, the seller
should not be deprived of the right to show that these landed weights were diminished by loss or
damage due to the risk of the voyage. Any other construction of the contract would require the
seller to provide insurance for the buyer for a loss which falls not on the buyer, but on the seller.‖
(Emphasis supplied.)
The same could be said in the instant case. While the risk of loss was apparently placed on
the Appellant after delivery of the cargo to the carrier, it was nevertheless agreed that the payment
of the price was to be according to the ―net landed weight‖. The net landed or outturn weight of the
cargo, upon arrival in New York, was 898.692 short tons. Although the evidence shows that the
estimated weight of the shipment when it left Manila was 1,054.6278 tons, the Appellee had the
burden of proof to show that the shortage in weight upon arrival in New York was due to risks of
the voyage and not the natural drying up of the copra while in transit, or to reasonable allowances
for errors in the weighing of the gross cargo and the empty bags in Manila. In the absence of such
proof on the part of the shipper-Appellee, we are constrained to hold that the net landed weight of
the shipment in New York should control, as stipulated in the agreement, and that therefore,
the Appellee should be held liable for the amount of $24,154.59 which it had overdrawn
from Appellant‘s letter of credit.
Appellee contends that as it was only the ―balance due to be paid‖ that was to be ascertained and
based ―upon outturn weights and quality at port of discharge‖, as provided in the contract, there
was no more balance due to be ascertained at the port of discharge because it had already
received full payment of the copra it sent to the Appellant when it withdrew $136,686.95 from the
latter‘s letter of credit. The argument is untenable. The provision regarding the ascertainment of
the balance due based upon outturn weight and quality of the shipment at the port of discharge,
should not be construed separately from the stipulation that the ―net landed weight‖ was to control.
The manifest intention of the parties was for the total price to be finally ascertained only upon
determining the net weight and quality of the goods upon arrival in New York, most likely because
the cargo in question, being copra, by nature dries up and diminishes in weight during the
voyage; chan roblesvirtualawlibrarythat no bulk weigher was available in Manila so that the best
that could be done was to get the gross weight of the shipment and deduct the average tare of the
empty bags; chan roblesvirtualawlibraryand that the buyer in New York had no agent in Manila to
represent it and protect its interest during the weighing of the cargo. The intention of the parties to
be bound by the outturn or net landed weight in New York is clearly shown in the letter
of Appellee‘s then officer-in-charge Jose Nieva, Sr., acknowledging liability for the deficiency in the
outturn weight of the copra (Exhibit ―B‖). Although this letter may not be considered an admission
of liability on the part of Appellee in the absence of a showing that Nieva was authorized to admit
liability for the corporation, it is nevertheless competent evidence of the intention of the parties,
particularly the NACOCO, to be bound by the net landed weight or outturn weight of the copra at
the port of discharge.
With respect to Appellant‘s claim for damages equivalent to the 17 per cent excise tax which it has
to pay in order to remit the sum of $24,154.59 to the United States, such excise tax is no longer
imposed in view of the trade (Laurel-Langley) agreement, so that it need not be taken into
account.
Wherefore, the judgment appealed from is reversed and the Appellee National Coconut
Corporation is ordered to pay the Appellant General Foods Corporation the equivalent in
Philippine currency of the amount of $24,154.59, with legal interest from the time of the filing of the
complaint. No pronouncement as to costs. SO ORDERED.

Parás, C.J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion,

Endencia and Felix, JJ., concur.
Pacific Vegetable Oil Corporation v. Angel Singzon

GR. No. L-7917 (Unreported Case) Decision: No, it was transacted in the US.

Facts:
This is an action instituted by the plaintiff, a foreign corporation, against the defendant to recover
the sum of P157,760 as damages suffered by plaintiff as a consequence of the failure of the
defendant to deliver 300 tons of copra which he sold and bound himself to deliver to the plaintiff.
Singzon in August 1947, acting through a broker in San Francisco, sold to Pacific 500 tons of
copra for shipment in September and October 1947. The agreed price to be covered by an
irrevocable letter of credit for the contract price. Thus, pursuant to this, the Bank of California, on
behalf of Pacific, opened an irrevocable letter of credit with China Bank in the Philippines. Singzon
failed to ship the 500 tons of copra, but upon negotiation through the broker, a conditional
amicable settlement was arrived at under which Singzon promised to ship on February 1948, the
amount of 300 tons of copra with the understanding that if he effectually ship said 300 tons of
copra not later than February, the original contract would be considered cancelled. But that should
he fail to ship said 300 tons, Singzon shall pay Pacific $10,000 as damages and shall furthermore
be obliged to fulfill all his obligations under original contract.
Singzon failed to ship and deliver the 300 tons of copra to Pacific according to their agreement.
Thereafter, Pacific demanded from Singzon the payment of $10,000 but he failed and refused to
ship the 500 tons of copra. As a result of the default, Pacific was forced to purchase copra from
the world marker and thus incurred additional expenses.
It appears from the facts that the copra in question was actually sold by the defendant to the
plaintiff in the US. It also appears that the contract was entered into in the US by appellee‘s broker
and appellant‘s representatives. It further appears that the payment of the price was to be made at
San Francisco, California, through a letter of credit to be opened at the Bank of California. And
with respect to the delivery of copra, it likewise appears that the price agreed upon was $142 per
2,000 lbs., c.i.f. Pacific Coast. This means that the vendor was to pay not only the cost of the
goods, but also the freight and insurance expenses, and, it was judicially interpreted, this is taken
to indicate that the delivery is to be made at the port of destination. It is therefore cleat that the
contract covering the copra has not only entered into in the US but it was agreed to be
consummated there. It follows that Pacific has not transacted business in the Philippines in
contemplation of Sections 68 and 69 of the Corporation Law which require any foreign corporation
to obtain a license before it could transact business, or before it could have personality to file suit
in the Philippines.
It appearing that Pacific has not transacted business in the Philippines and as such it is not
required to obtain a license before acquiring personality to bring court action, it may be stated that
the appellant, even if a foreign corporation, can maintain the present action because, as aptly said
by this Court, ―it was never the purpose of the Legislature to exclude a foreign corporation which
happens to obtain an isolated order for business in the Philippines, from securing redress in the
Philippine courts, and thus, in effect, to permit persons to avoid their contracts made with such
foreign corporation.‖ Wherefore, the decision appealed from is reversed. Pacific is entitled to
prosecute its claim in the Philippine courts against Singzon.

Hence, this action is filed by Pacific. Singzon, in defense, filed a motion to dismiss on the ground
that Pacific Vegetable Oil Corp. (Pacific) failed to obtain license to transact business in the
Philippines and consequently, it had no personality to file the action. RTC denied the motion. It
also denied MR. However, the Court of Appeals reversed and dismissed the case holding that
Pacific had no personality to institute the present case even if it afterwards obtained a license to
transact business upon the theory that this belated act did not have the effect of curing the defect.

Issue: W/N appellant transacted business in the Philippines in contemplation of law?

 Republic of the Philippines
SUPREME COURT
SECOND DIVISION
G.R. No. 122463 December 19, 2005
RUDOLF LIETZ, INC., Petitioner,
vs.
THE COURT OF APPEALS, AGAPITO BURIOL, TIZIANA TURATELLO & PAOLA
SANI, Respondents.
DECISION
Tinga, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court, praying for
the annulment of the Decision1 dated April 17, 1995 and the Resolution2 dated October 25, 1995 of
the Court of Appeals in CA-G.R. CV No. 38854. The Court of Appeals affirmed the Decision3 in
Civil Case No. 2164 of the Regional Trial Court (RTC), Branch 48, of Palawan and Puerto
Princesa City with the modification that herein respondents Tiziana Turatello and Paola Sani are
entitled to damages, attorney‘s fees, and litigation expenses.
The dispositive portion of the RTC Decision reads:
WHEREFORE, in view of the foregoing and as prayed for by the defendants, the instant complaint
is hereby DISMISSED. Defendant‘s counterclaim is likewise DISMISSED. Plaintiff, however, is
ordered to pay defendant Turatello and Sani‘s counsel the sum of ₱3,010.38 from August 9, 1990
until fully paid representing the expenses incurred by said counsel when the trial was cancelled
due to the non-appearance of plaintiff‘s witnesses. With costs against the plaintiff.
SO ORDERED.4
As culled from the records, the following antecedents appear:
Respondent Agapito Buriol previously owned a parcel of unregistered land situated at Capsalay
Island, Port Barton, San Vicente, Palawan. On August 15, 1986, respondent Buriol entered into a
lease agreement with Flavia Turatello and respondents Turatello and Sani, all Italian citizens,
involving one (1) hectare of respondent Buriol‘s property. The lease agreement was for a period of
25 years, renewable for another 25 years. The lessees took possession of the land after paying
respondent Buriol a down payment of ₱10,000.00.5 The lease agreement, however, was reduced
into writing only in January 1987.
On November 17, 1986, respondent Buriol sold to petitioner Rudolf Lietz, Inc. the same parcel of
land for the amount of ₱30,000.00. The Deed of Absolute Sale embodying the agreement
described the land as follows:
A parcel of land, consisting of FIVE (5) hectares, more or less, a portion of that parcel of land
declared in the name of Agapito Buriol, under Tax Declaration No. 0021, revised in the year 1985,
together with all improvements thereon, situated at the Island of Capsalay, Barangay Port Barton,
municipality of San Vicente, province of Palawan which segregated from the whole parcel
described in said tax declaration, has the following superficial boundaries: NORTH, Sec. 01-017;
and remaining property of the vendor; EAST, by Seashore; SOUTH, 01-020; and WEST, by 01-
018 (now Elizabeth Lietz).6
Petitioner later discovered that respondent Buriol owned only four (4) hectares, and with one more
hectare covered by lease, only three (3) hectares were actually delivered to petitioner. Thus,
petitioner instituted on April 3, 1989 a complaint for Annulment of Lease with Recovery of
Possession with Injunction and Damages against respondents and Flavia Turatello before the
RTC. The complaint alleged that with evident bad faith and malice, respondent Buriol sold to
petitioner five (5) hectares of land when respondent Buriol knew for a fact that he owned only four
(4) hectares and managed to lease one more hectare to Flavia Turatello and respondents Tiziana
Turatello and Paola Sani. The complaint sought the issuance of a restraining order and a writ of
preliminary injunction to prevent Flavia Turatello and respondents Turatello and Sani from
introducing improvements on the property, the annulment of the lease agreement between
respondents, and the restoration of the amount paid by petitioner in excess of the value of the
property sold to him. Except for Flavia Turatello, respondents filed separate answers raising
similar defenses of lack of cause of action and lack of jurisdiction over the action for recovery of
possession. Respondents Turatello and Sani also prayed for the award of damages and attorney‘s
fees.7
After trial on the merits, the trial court rendered judgment on May 27, 1992, dismissing both
petitioner‘s complaint and respondents‘ counterclaim for damages. Petitioner and respondents
Turatello and Sani separately appealed the RTC Decision to the Court of Appeals, which affirmed
the dismissal of petitioner‘s complaint and awarded respondents Turatello and Sani damages and
attorney‘s fees. The dispositive portion of the Court of Appeals Decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, with the following modification:
Plaintiff-appellant Rudolf Lietz, Inc. is hereby (1) ordered to pay defendants-appellants Turatello
and Sani, the sum of ₱100,000.00 as moral damages; (2) ₱100,000.00 as exemplary damages;
(3) ₱135,728.73 as attorney‘s fees; and (4) ₱10,000.00 as litigation expenses.
SO ORDERED.8
Petitioner brought to this Court the instant petition after the denial of its motion for reconsideration
of the Court of Appeal Decision. The instant petition imputes the following errors to the Court of
Appeals.
I. IN DEFENDING AGAPITO BURIOL‘S GOOD FAITH AND IN STATING THAT ASSUMING
THAT HE (BURIOL) WAS IN BAD FAITH PETITIONER WAS SOLELY RESPONSIBLE FOR ITS
INEXCUSABLE CREDULOUSNESS.
II. IN ASSERTING THAT ARTICLES 1542 AND 1539 OF THE NEW CIVIL CODE ARE,
RESPECTIVELY, APPLICABLE AND INAPPLICABLE IN THE CASE AT BAR.
III. IN NOT GRANTING PETITIONER‘S CLAIM FOR ACTUAL AND EXEMPLARY DAMAGES.
IV. IN GRANTING RESPONDENTS TIZIANA TURATELLO AND PAOLA SANI EXHORBITANT
[sic] AMOUNTS AS DAMAGES WHICH ARE EVEN BEREFT OF EVIDENTIARY BASIS. 9
Essentially, only two main issues confront this Court, namely: (i) whether or not petitioner is
entitled to the delivery of the entire five hectares or its equivalent, and (ii) whether or not damages
may be awarded to either party.
Petitioner contends that it is entitled to the corresponding reduction of the purchase price because
the agreement was for the sale of five (5) hectares although respondent Buriol owned only four (4)
hectares. As in its appeal to the Court of Appeals, petitioner anchors its argument on the second
paragraph of Article 1539 of the Civil Code, which provides:
Art. 1539. The obligation to deliver the thing sold includes that of placing in the control of the
vendee all that is mentioned in the contract, in conformity with the following rules:
If the sale of real estate should be made with a statement of its area, at the rate of a certain price
for a unit of measure or number, the vendor shall be obliged to deliver to the vendee, if the latter
should demand it, all that may have been stated in the contract; but, should this be not possible,
the vendee may choose between a proportional reduction of the price and the rescission of the
contract, provided that, in the latter case, the lack in the area be not less than one-tenth of that
stated.
....
The Court of Appeals Decision, however, declared as inapplicable the abovequoted provision and
instead ruled that petitioner is no longer entitled to a reduction in price based on the provisions of
Article 1542 of the Civil Code, which read:
Art. 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a
unit of measure or number, there shall be no increase or decrease of the price, although there be
a greater or lesser area or number than that stated in the contract.
The same rule shall be applied when two or more immovables are sold for a single price; but if,
besides mentioning the boundaries, which is indispensable in every conveyance of real estate, its
area or number should be designated in the contract, the vendor shall be bound to deliver all that
is included within said boundaries, even when it exceeds the area or number specified in the
contract; and, should he not be able to do so, he shall suffer a reduction in the price, in proportion
to what is lacking in the area or number, unless the contract is rescinded because the vendee
does not accede to the failure to deliver what has been stipulated.
Article 1539 governs a sale of immovable by the unit, that is, at a stated rate per unit area. In a
unit price contract, the statement of area of immovable is not conclusive and the price may be
reduced or increased depending on the area actually delivered. If the vendor delivers less than the
area agreed upon, the vendee may oblige the vendor to deliver all that may be stated in the
contract or demand for the proportionate reduction of the purchase price if delivery is not possible.
If the vendor delivers more than the area stated in the contract, the vendee has the option to
accept only the amount agreed upon or to accept the whole area, provided he pays for the
additional area at the contract rate.10
In some instances, a sale of an immovable may be made for a lump sum and not at a rate per unit.
The parties agree on a stated purchase price for an immovable the area of which may be declared
based on an estimate or where both the area and boundaries are stated.
In the case where the area of the immovable is stated in the contract based on an estimate, the
actual area delivered may not measure up exactly with the area stated in the contract. According
to Article 154211 of the Civil Code, in the sale of real estate, made for a lump sum and not at the
rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of
the price although there be a greater or lesser area or number than that stated in the contract.
However, the discrepancy must not be substantial. A vendee of land, when sold in gross or with
the description "more or less" with reference to its area, does not thereby ipso facto take all risk of
quantity in the land. The use of "more or less" or similar words in designating quantity covers only
a reasonable excess or deficiency.12
Where both the area and the boundaries of the immovable are declared, the area covered within
the boundaries of the immovable prevails over the stated area. In cases of conflict between areas
and boundaries, it is the latter which should prevail. What really defines a piece of ground is not
the area, calculated with more or less certainty, mentioned in its description, but the boundaries
therein laid down, as enclosing the land and indicating its limits. In a contract of sale of land in a
mass, it is well established that the specific boundaries stated in the contract must control over
any statement with respect to the area contained within its boundaries. It is not of vital
consequence that a deed or contract of sale of land should disclose the area with mathematical
accuracy. It is sufficient if its extent is objectively indicated with sufficient precision to enable one
to identify it. An error as to the superficial area is immaterial. 13 Thus, the obligation of the vendor is
to deliver everything within the boundaries, inasmuch as it is the entirety thereof that distinguishes
the determinate object.14
As correctly noted by the trial court and the Court of Appeals, the sale between petitioner and
respondent Buriol involving the latter‘s property is one made for a lump sum. The Deed of
Absolute Sale shows that the parties agreed on the purchase price on a predetermined area of
five hectares within the specified boundaries and not based on a particular rate per area. In
accordance with Article 1542, there shall be no reduction in the purchase price even if the area
delivered to petitioner is less than that stated in the contract. In the instant case, the area within
the boundaries as stated in the contract shall control over the area agreed upon in the contract.
The Court rejects petitioner‘s contention that the property‘s boundaries as stated in the Deed of
Absolute Sale are superficial and unintelligible and, therefore, cannot prevail over the area stated
in the contract. First, as pointed out by the Court of Appeals, at an ocular inspection prior to the
perfection of the contract of sale, respondent Buriol pointed to petitioner the boundaries of the
property. Hence, petitioner gained a fair estimate of the area of the property sold to him. Second,
petitioner cannot now assail the contents of the Deed of Absolute Sale, particularly the description
of the boundaries of the property, because petitioner‘s subscription to the Deed of Absolute
Saleindicates his assent to the correct description of the boundaries of the property.

Petitioner also asserts that respondent Buriol is guilty of misleading petitioner into believing that
the latter was buying five hectares when he knew prior to the sale that he owned only four
hectares. The review of the circumstances of the alleged misrepresentation is factual and,
therefore, beyond the province of the Court. Besides, this issue had already been raised before
and passed upon by the trial court and the Court of Appeals. The factual finding of the courts
below that no sufficient evidence supports petitioner‘s allegation of misrepresentation is binding on
the Court.

The Court of Appeals reversed the trial court‘s dismissal of respondents Turatello and Sani‘s
counterclaim for moral and exemplary damages, attorney‘s fees and litigation expenses. In
awarding moral damages in the amount of ₱100,000 in favor of Turatello and Sani, the Court of
Appeals justified the award to alleviate the suffering caused by petitioner‘s unfounded civil action.
The filing alone of a civil action should not be a ground for an award of moral damages in the
same way that a clearly unfounded civil action is not among the grounds for moral damages.15

Exemplary or corrective damages are imposed, by way of example or correction for the public
good, in addition to the moral, temperate, liquidated or compensatory damages.16 With the deletion
of the award for moral damages, there is no basis for the award of exemplary damages.

WHEREFORE, the instant petition for review on certiorari is GRANTED in PART. The Court of
Appeals Decision in CA-G.R. CV No. 38854 is AFFIRMED with the MODIFICATION that the
award of moral and exemplary damages is DELETED.

SO ORDERED.
 THIRD DIVISION
G.R. No. 128573 January 13, 2003
NAAWAN COMMUNITY RURAL BANK INC., petitioner,
vs.
THE COURT OF APPEALS and SPOUSES ALFREDO AND ANNABELLE LUMO, respondents.
CORONA, J.:
Under the established principles of land registration, a person dealing with registered land may
generally rely on the correctness of a certificate of title and the law will in no way oblige him to go
beyond it to determine the legal status of the property.
Before us is a Petition for Review on Certiorari challenging the February 7, 1997 Decision 1 of the
Court of Appeals in CA-G.R. CV No. 55149, which in turn affirmed the decision2 of the Regional
Trial Court of Misamis Oriental, Branch 18 as follows:
"WHEREFORE, the plaintiffs-spouses are adjudged the absolute owners and possessors
of the properties in question (Lot 18583, under TCT No. T-50134, and all improvements
thereon) and quieting title thereto as against any and all adverse claims of the defendant.
Further, the sheriff's certificate of sale, Exhibit 4; 4-A; Sheriff's deed of final conveyance,
Exhibit 5, 5-A; Tax Declarations No. 71211, Exhibit 7, and any and all instrument, record,
claim, encumbrance or proceeding in favor of the defendant, as against the plaintiffs, and
their predecessor-in-interest, which may be extant in the office of the Register of Deeds of
Province of Misamis Oriental, and of Cagayan de Oro City, and in the City Assessor's
Office of Cagayan de Oro City, are declared as invalid and ineffective as against the
plaintiffs' title.
"The counterclaim is dismissed for lack of merit.
"SO ORDERED."3
The facts of the case, as culled from the records, are as follows:
On April 30, 1988, a certain Guillermo Comayas offered to sell to private respondent-spouses
Alfredo and Annabelle Lumo, a house and lot measuring 340 square meters located at Pinikitan,
Camaman-an, Cagayan de Oro City.
Wanting to buy said house and lot, private respondents made inquiries at the Office of the
Register of Deeds of Cagayan de Oro City where the property is located and the Bureau of Lands
on the legal status of the vendor's title. They found out that the property was mortgaged for P8,000
to a certain Mrs. Galupo and that the owner's copy of the Certificate of Title to said property was in
her possession.
Private respondents directed Guillermo Comayas to redeem the property from Galupo at their
expense, giving the amount of P10,000 to Comayas for that purpose.
On May 30, 1988, a release of the adverse claim of Galupo was annotated on TCT No. T-41499
which covered the subject property.
In the meantime, on May 17, 1988, even before the release of Galupo's adverse claim, private
respondents and Guillermo Comayas, executed a deed of absolute sale. The subject property was
allegedly sold for P125,000 but the deed of sale reflected the amount of only P30,000 which was
the amount private respondents were ready to pay at the time of the execution of said deed, the
balance payable by installment.
On June 9, 1988, the deed of absolute sale was registered and inscribed on TCT No. T-41499
and, on even date, TCT No. T-50134 was issued in favor of private respondents.
After obtaining their TCT, private respondents requested the issuance of a new tax declaration
certificate in their names. However, they were surprised to learn from the City Assessor's Office
that the property was also declared for tax purposes in the name of petitioner Naawan Community
Rural Bank Inc. Records in the City Assessor's Office revealed that, for the lot covered by TCT No.
T-50134, Alfredo Lumo's T/D # 83324 bore the note: "This lot is also declared in the name of
Naawan Community Rural Bank Inc. under T/D # 71210".
Apparently, on February 7, 1983, Guillermo Comayas obtained a P15,000 loan from petitioner
Bank using the subject property as security. At the time said contract of mortgage was entered
into, the subject property was then an unregistered parcel of residential land, tax-declared in the
name of a certain Sergio A. Balibay while the residential one-storey house was tax-declared in the
name of Comayas.
Balibay executed a special power of attorney authorizing Comayas to borrow money and use the
subject lot as security. But the Deed of Real Estate Mortgage and the Special Power of Attorney
were recorded in the registration book of the Province of Misamis Oriental, not in the registration
book of Cagayan de Oro City. It appears that, when the registration was made, there was only one
Register of Deeds for the entire province of Misamis Oriental, including Cagayan de Oro City. It
was only in 1985 when the Office of the Register of Deeds for Cagayan de Oro City was
established separately from the Office of the Register of Deeds for the Province of Misamis
Oriental.
For failure of Comayas to pay, the real estate mortgage was foreclosed and the subject property
sold at a public auction to the mortgagee Naawan Community Rural Bank as the highest bidder in
the amount of P16,031.35. Thereafter, the sheriff's certificate of sale was issued and registered
under Act 3344 in the Register of Deeds of the Province of Misamis Oriental.
On April 17, 1984, the subject property was registered in original proceedings under the Land
Registration Act. Title was entered in the registration book of the Register of Deeds of Cagayan de
Oro City as Original Certificate of Title No. 0-820, pursuant to Decree No. N-189413.
On July 23, 1984, Transfer Certificate of Title No. T-41499 in the name of Guillermo P. Comayas
was entered in the Register of Deeds of Cagayan de Oro City.
Meanwhile, on September 5, 1986, the period for redemption of the foreclosed subject property
lapsed and the MTCC Deputy Sheriff of Cagayan de Oro City issued and delivered to petitioner
bank the sheriff's deed of final conveyance. This time, the deed was registered under Act 3344
and recorded in the registration book of the Register of Deeds of Cagayan de Oro City.
By virtue of said deed, petitioner Bank obtained a tax declaration for the subject house and lot.
Thereafter, petitioner Bank instituted an action for ejectment against Comayas before the MTCC
which decided in its favor. On appeal, the Regional Trial Court affirmed the decision of the MTCC
in a decision dated April 13, 1988.
On January 27, 1989, the Regional Trial Court issued an order for the issuance of a writ of
execution of its judgment. The MTCC, being the court of origin, promptly issued said writ.
However, when the writ was served, the property was no longer occupied by Comayas but herein
private respondents, the spouses Lumo who had, as earlier mentioned, bought it from Comayas
on May 17, 1988.
Alarmed by the prospect of being ejected from their home, private respondents filed an action for
quieting of title which was docketed as Civil Case No. 89-138. After trial, the Regional Trial Court
rendered a decision declaring private respondents as purchasers for value and in good faith, and
consequently declaring them as the absolute owners and possessors of the subject house and lot.
Petitioner appealed to the Court of Appeals which in turn affirmed the trial court's decision.
Hence, this petition.
Petitioner raises the following issues:
I. WHETHER OR NOT THE SHERIFF'S DEED OF FINAL CONVEYANCE WAS DULY
EXECUTED AND REGISTERED IN THE REGISTER OF DEEDS OF CAGAYAN DE
ORO CITY ON DECEMBER 2, 1986;
II. WHETHER OR NOT REGISTRATION OF SHERIFF'S DEED OF FINAL
CONVEYANCE IN THE PROPER REGISTRY OF DEEDS COULD BE EFFECTIVE AS
AGAINST SPOUSES LUMO.
Both parties cite Article 1544 of the Civil Code which governs the double sale of immovable
property.
Article 1544 provides:
". . . . 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."
Petitioner bank contends that the earlier registration of the sheriff's deed of final conveyance in the
day book under Act 3344 should prevail over the later registration of private respondents' deed of
absolute sale under Act 496,4 as amended by the Property Registration Decree, PD 1529.
This contention has no leg to stand on. It has been held that, where a person claims to have
superior proprietary rights over another on the ground that he derived his title from a sheriff's sale
registered in the Registry of Property, Article 1473 (now Article 1544) of the Civil Code will apply
only if said execution sale of real estate is registered under Act 496.5
Unfortunately, the subject property was still untitled when it was already acquired by petitioner
bank by virtue of a final deed of conveyance. On the other hand, when private respondents
purchased the same property, it was covered by the Torrens System.
Petitioner also relies on the case of Bautista vs. Fule6 where the Court ruled that the registration of
an instrument involving unregistered land in the Registry of Deeds creates constructive notice and
binds third person who may subsequently deal with the same property.
However, a close scrutiny of the records reveals that, at the time of the execution and delivery of
the sheriff's deed of final conveyance on September 5, 1986, the disputed property was already
covered by the Land Registration Act and Original Certificate of Title No. 0-820 pursuant to Decree
No. N189413 was likewise already entered in the registration book of the Register of Deeds of
Cagayan De Oro City as of April 17, 1984.
Thus, from April 17, 1984, the subject property was already under the operation of the Torrens
System. Under the said system, registration is the operative act that gives validity to the transfer or
creates a lien upon the land.
Moreover, the issuance of a certificate of title had the effect of relieving the land of all claims
except those noted thereon. Accordingly, private respondents, in dealing with the subject
registered land, were not required by law to go beyond the register to determine the legal
condition of the property. They were only charged with notice of such burdens on the property as
were noted on the register or the certificate of title. To have required them to do more would have
been to defeat the primary object of the Torrens System which is to make the Torrens Title
indefeasible and valid against the whole world.
Private respondents posit that, even assuming that the sheriff's deed of final conveyance in favor
of petitioner bank was duly recorded in the day book of the Register of Deeds under Act 3344,
ownership of the subject real property would still be theirs as purchasers in good faith because
they registered the sale first under the Property Registration Decree.
The rights created by the above-stated statute of course do not and cannot accrue under an
inscription in bad faith. Mere registration of title in case of double sale is not enough; good faith
must concur with the registration.7
Petitioner contends that the due and proper registration of the sheriff's deed of final conveyance
on December 2, 1986 amounted to constructive notice to private respondents. Thus, when private
respondents bought the subject property on May 17, 1988, they were deemed to have purchased
the said property with the knowledge that it was already registered in the name of petitioner bank.

Thus, the only issue left to be resolved is whether or not private respondents could be considered
as buyers in good faith.

The "priority in time" principle being invoked by petitioner bank is misplaced because its
registration referred to land not within the Torrens System but under Act 3344. On the other hand,
when private respondents bought the subject property, the same was already registered under the
Torrens System. It is a well-known rule in this jurisdiction that persons dealing with registered land
have the legal right to rely on the face of the Torrens Certificate of Title and to dispense with the
need to inquire further, except when the party concerned has actual knowledge of facts and
circumstances that would impel a reasonably cautious man to make such inquiry.8

Did private respondents exercise the required diligence in ascertaining the legal condition of the
title to the subject property so as to be considered as innocent purchasers for value and in good
faith?

We answer in the affirmative.

Before private respondents bought the subject property from Guillermo Comayas, inquiries were
made with the Registry of Deeds and the Bureau of Lands regarding the status of the vendor's
title. No liens or encumbrances were found to have been annotated on the certificate of title.
Neither were private respondents aware of any adverse claim or lien on the property other than
the adverse claim of a certain Geneva Galupo to whom Guillermo Comayas had mortgaged the
subject property. But, as already mentioned, the claim of Galupo was eventually settled and the
adverse claim previously annotated on the title cancelled. Thus, having made the necessary
inquiries, private respondents did not have to go beyond the certificate of title. Otherwise, the
efficacy and conclusiveness of the Torrens Certificate of Title would be rendered futile and
nugatory.

Considering therefore that private respondents exercised the diligence required by law in
ascertaining the legal status of the Torrens title of Guillermo Comayas over the subject property
and found no flaws therein, they should be considered as innocent purchasers for value and in
good faith.

Accordingly, the appealed judgment of the appellate court upholding private respondents Alfredo
and Annabelle Lumo as the true and rightful owners of the disputed property is affirmed.

WHEREFORE, petition is hereby DENIED.

SO ORDERED.

Puno, Panganiban, Sandoval-Gutierrez, and Carpio-Morales JJ ., concur.

 FIRST DIVISION After trial, the MCTC rendered its decision, the dispositive portion reads as follows:

G.R. No. 167412 February 22, 2006 WHEREFORE, for all the foregoing consideration, decision is hereby rendered in favor of the
plaintiff and against defendants:
JUANITA NAVAL, Petitioner,
vs. 1) Declaring the plaintiff to be the legal owner of the land as described in paragraph 2 of
COURT OF APPEALS, JUANITO CAMALLA, JAIME NACION, CONRADO BALILA, ESTER the complaint;
MOYA and PORFIRIA AGUIRRE, Respondents.
2) Ordering defendants Juanito Camalla, Diosdado Balila, Conrado Balila, Porferia
DECISION Aguirre and Jaime Nacion to vacate the property in question and to deliver its possession
to the plaintiff;
YNARES-SANTIAGO, J.:
3) Ordering Ester Moya to vacate the fifty (50) square meters occupied by her and to
This petition for review assails the Decision1 of the Court of Appeals dated December 14, 2004, in relinquish its possession to the plaintiff;
CA-G.R. SP No. 86736, which reversed the Decision2 of the Regional Trial Court (RTC) of Naga
City, Branch 26, in Civil Case No. 2004-0054 affirming the Decision3 of the Municipal Circuit Trial 4) Dismissing the respective claims for damages of the parties.
Court (MCTC) of Magarao-Canaman, Camarines Sur, as well as the Resolution4 dated February
17, 2005 denying petitioner‘s motion for reconsideration. Pronouncing no costs.

The facts of the case are as follows: SO ORDERED.19

On December 2, 1969, Ildefonso A. Naval sold a parcel of land located in Sto. Tomas, Magarao, Aggrieved, respondents appealed the decision to the RTC of Naga City, which affirmed in toto the
Camarines Sur, consisting of 858 sq. m. to Gregorio B. Galarosa. The sale was recorded in the assailed decision.20
Registry of Property of the Registry of Deeds of Camarines Sur on December 3, 1969 pursuant to
Act No. 3344, the law governing registrations of all instruments on unregistered lands.5
Respondents thereafter elevated the case to the Court of Appeals via Rule 42 of the Rules of
Court. Finding the prior registration of the deed of sale between Ildefonso and Gregorio with the
Subsequently, Gregorio sold portions of the land to respondents Conrado Rodrigo Balilla 6 on Register of Deeds as a constructive notice to subsequent buyers, the appellate court reversed the
November 4, 1976, Jaime Nacion7 on January 10, 1977 and spouses Ireneo and Ester Moya8 in decision of the RTC. Thus,
July 1977, and Juanito Camalla9 on September 4, 1987. All buyers occupied the portion they
bought, built improvements thereon, and paid the taxes due thereto.10
WHEREFORE, premises considered, the present petition is hereby GRANTED. The appealed
decision of the court a quo is hereby REVERSED and SET ASIDE and a new judgment is hereby
The controversy arose when petitioner Juanita Naval, the great granddaughter of Ildefonso, was entered dismissing respondent's complaint for recovery of possession with damages. Petitioners'
issued on April 1, 1975 by the Register of Deeds of Camarines Sur an Original Certificate of Title counterclaim for damages is likewise dismissed for lack of legal and factual bases.
(OCT) No. RP-5386 (29791), covering 733 sq. m. of the subject land.11 She claimed that she
bought the subject land from Ildefonso in 1972.12
No pronouncement as to costs.
On November 10, 1977, petitioner filed a complaint for recovery of possession against Bartolome
SO ORDERED.21
Aguirre, Conrado Balila,13 Ireneo Moya, Jaime Nacion and Domingo Nacion, which was docketed
as Civil Case No. 306.14 However, the case was dismissed15 without prejudice16 for failure to
prosecute the action for an unreasonable length of time. Hence, this petition assigning the following errors:

Almost 20 years later, or on April 21, 1997, petitioner re-filed the complaint for recovery of I
possession with damages before the MCTC of Magarao-Canaman, Camarines Sur, against
Juanita17 Camalla, Diosdado Balila, Conrado Balila, Forferia18 Aguirre, Jaime Nacion and Ester THE COURT OF APPEALS ERRED IN DECLARING THAT GREGORIO GALAROSA
Moya. The case was docketed as Civil Case No. 994. HAS RIGHTFULLY ACQUIRED OWNERSHIP OVER THE LOT COVERED BY OCT RP
 #5386 (29791) AND DECLARING HIM TO HAVE POSSESSED THE LOT BEFORE THE
ALLEGED SALES TO RESPONDENTS.
II
THE COURT OF APPEALS ERRED IN HOLDING THAT THE PAYMENT OF TAXES BY
RESPONDENTS WERE (sic) EVIDENCE OF LAWFUL POSSESSION AND
OWNERSHIP.
III
THE COURT OF APPEALS ERRED IN DECLARING THAT THE LOTS CLAIMED BY
THE RESPONDENTS HAVE BEEN POSSESSED BY THEM IN GOOD FAITH DESPITE
THEIR KNOWLEDGE OF THE EXISTENCE OF OCT RP #5386(29791).22
Petitioner claims that she has superior rights over the subject land because the sale between
Ildefonso and Gregorio and the subsequent registration thereof with the Register of Deeds had no
legal effect since the subject land was declared in the name of Agrifina Avila while the tax
declaration cancelled by Gregorio‘s was that of Gregorio Boñaga. Petitioner thus assails the right
claimed by Gregorio over the subject land from which the respondents derived their respective
claims.23
On the other hand, respondents contend that the registered sale by Ildefonso to Gregorio in 1969
of the subject land, from whom they derive their claims, vests them with better right than the
petitioner; that registration under Act No. 3344 served as constructive notice to the whole world,
including the petitioner, who claimed to have purchased the subject land from Ildefonso in 1972,
but failed to present evidence to prove such acquisition.24
We deny the petition.
Prefatorily, a perusal of the records reveals that during the trial, petitioner vigorously asserted that
the subject land was the exclusive property of Ildefonso who sold it to her in 1972. 25 However, in
this appeal, petitioner assails the ownership not only of Gregorio but also of Ildefonso by alleging
that at the time the latter sold the land to Gregorio, the same was declared in the name of Agrifina
Avila. When a party adopts a certain theory in the court below, he is not allowed to change his
theory on appeal, for to allow him to do so would not only be unfair to the other party, but it would
also be offensive to the basic rules of fair play, justice and due process. 26
In this appeal, the issue for resolution is who has the superior right to a parcel of land sold to
different buyers at different times by its former owner.
It is not disputed that the subject land belonged to Ildefonso and that it was not registered under
the Torrens System27 when it was sold to Gregorio in 1969 and to the petitioner in 1972. Further,
the deed of sale between Ildefonso and Gregorio was registered with the Register of Deeds of
Camarines Sur pursuant to Act No. 3344, as shown by Inscription No. 54609 dated December 3,
1969, Page 119, Volume 186, File No. 55409 at the back thereof.
In holding that respondents have a better right to possess the subject land in view of the bona
fide registration of the sale with the Register of Deeds of Camarines Sur by Ildefonso and
Gregorio, the Court of Appeals applied Article 1544 of the Civil Code, which 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.
While we agree with the appellate court that respondents have superior right over the petitioner on
the subject property, we find Article 1544 inapplicable to the case at bar since the subject land
was unregistered at the time of the first sale. The registration contemplated under this provision
has been held to refer to registration under the Torrens System, which considers the act of
registration as the operative act that binds the land.28 Thus, in Carumba v. Court of Appeals,29 we
held that Article 1544 of the Civil Code has no application to land not registered under Torrens
System.
The law applicable therefore is Act No. 3344, which provides for the registration of all instruments
on land neither covered by the Spanish Mortgage Law nor the Torrens System. Under this law,
registration by the first buyer is constructive notice to the second buyer that can defeat his right as
such buyer in good faith.
Applying the law, we held in Bautista v. Fule30 that the registration of an instrument involving
unregistered land in the Registry of Deeds creates constructive notice and binds third person who
may subsequently deal with the same property. We also held in Bayoca v. Nogales31 that:
Verily, there is absence of prior registration in good faith by petitioners of the second sale in their
favor. As stated in the Santiago case, registration by the first buyer under Act No. 3344 can have
the effect of constructive notice to the second buyer that can defeat his right as such buyer. On
account of the undisputed fact of registration under Act No. 3344 by [the first buyers], necessarily,
there is absent good faith in the registration of the sale by the [second buyers] for which they had
been issued certificates of title in their names. It follows that their title to the land cannot be
upheld. x x x.
Even if petitioner argues that she purchased and registered the subject land in good faith and
without knowledge of any adverse claim thereto, respondents still have superior right over the
disputed property. We held in Rayos v. Reyes32 that:
"[T]he issue of good faith or bad faith of the buyer is relevant only where the subject of the sale is
registered land and the purchaser is buying the same from the registered owner whose title to the
land is clean x x x in such case the purchaser who relies on the clean title of the registered owner
is protected if he is a purchaser in good faith for value." Since the properties in question are
unregistered lands, petitioners as subsequent buyers thereof did so at their peril. Their claim of
having bought the land in good faith, i.e., without notice that some other person has a right to or
interest in the property, would not protect them if it turns out, as it actually did in this case, that
their seller did not own the property at the time of the sale.
It is an established principle that no one can give what one does not have, nemo dat quod non
habet. Accordingly, one can sell only what one owns or is authorized to sell, and the buyer can
acquire no more than what the seller can transfer legally.33 In the case at bar, since Ildefonso no
longer owned the subject land at the time of the sale to the petitioner, he had nothing to sell and
the latter did not acquire any right to it.
Even if we apply Article 1544, the facts would nonetheless show that respondents and their
predecessors-in-interest registered first the source of their ownership and possession, i.e., the
1969 deed of sale, and possessed the subject land at the earliest time. Applying the doctrine of
"priority in time, priority in rights" or "prius tempore, potior jure," respondents are entitled to the
ownership and possession of the subject land.34
True, a certificate of title, once registered, should not thereafter be impugned, altered, changed,
modified, enlarged or diminished except in a direct proceeding permitted by law.35 Moreover,
Section 32 of Presidential Decree No. 1529 provides that "[u]pon the expiration of said period of
one year, the decree of registration and the certificate of title shall become incontrovertible."
However, it does not deprive an aggrieved party of a remedy in law. What cannot be collaterally
attacked is the certificate of title and not the title or ownership which is represented by such
certificate. Ownership is different from a certificate of title.36 The fact that petitioner was able to
secure a title in her name did not operate to vest ownership upon her of the subject land.
Registration of a piece of land under the Torrens System does not create or vest title, because it is
not a mode of acquiring ownership. A certificate of title is merely an evidence of ownership or title
over the particular property described therein.37 It cannot be used to protect a usurper from the
true owner; nor can it be used as a shield for the commission of fraud; neither does it permit one to
enrich himself at the expense of others.38Its issuance in favor of a particular person does not
foreclose the possibility that the real property may be co-owned with persons not named in the
certificate, or that it may be held in trust for another person by the registered owner.39
As correctly held by the Court of Appeals, notwithstanding the indefeasibility of the Torrens title,
the registered owner may still be compelled to reconvey the registered property to its true owners.
The rationale for the rule is that reconveyance does not set aside or re-subject to review the
findings of fact of the Bureau of Lands. In an action for reconveyance, the decree of registration is
respected as incontrovertible. What is sought instead is the transfer of the property or its title
which has been wrongfully or erroneously registered in another person‘s name, to its rightful or
legal owner, or to the one with a better right.40
Finally, the Court of Appeals correctly held that an action for reconveyance does not prescribe
when the plaintiff is in possession of the land to be reconveyed, as in this case. Thus, in Leyson v.
Bontuyan:41
x x x [T]his Court declared that an action for reconveyance based on fraud is imprescriptible where
the plaintiff is in possession of the property subject of the acts. In Vda. de Cabrera v. Court of
Appeals, the Court held:
... [A]n action for reconveyance of a parcel of land based on implied or constructive trust
prescribes in ten years, the point of reference being the date of registration of the deed or the date
of the issuance of the certificate of title over the property, but this rule applies only when the
plaintiff or the person enforcing the trust is not in possession of the property, since if a person
claiming to be the owner thereof is in actual possession of the property, as the defendants are in
the instant case, the right to seek reconveyance, which in effect seeks to quiet title to the property,
does not prescribe. The reason for this is that one who is in actual possession of a piece of land
claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked
before taking steps to vindicate his right, the reason for the rule being, that his undisturbed
possession gives him a continuing right to seek the aid of a court of equity to ascertain and
determine the nature of the adverse claim of a third party and its effect on his own title, which right
can be claimed only by one who is in possession.
Similarly, in the case of David v. Malay, the same pronouncement was reiterated by the Court:
... There is settled jurisprudence that one who is in actual possession of a piece of land claiming to
be owner thereof may wait until his possession is disturbed or his title is attacked before taking
steps to vindicate his right, the reason for the rule being, that his undisturbed possession gives
him a continuing right to seek the aid of the court of equity to ascertain and determine the nature
of the adverse claim of a third party and its effect on his own title, which right can be claimed only
by one who is in possession. No better situation can be conceived at the moment for Us to apply
this rule on equity than that of herein petitioners whose ... possession of the litigated property for
no less than 30 years and was suddenly confronted with a claim that the land she had been
occupying and cultivating all these years, was titled in the name of a third person. We hold that in
such a situation the right to quiet title to the property, to seek its reconveyance and annul any
certificate of title covering it, accrued only from the time the one in possession was made aware of
a claim adverse to his own, and it is only then that the statutory period of prescription commences
to run against such possessor.
The paramount reason for this exception is based on the theory that registration proceedings
could not be used as a shield for fraud. Moreover, to hold otherwise would be to put premium on
land-grabbing and transgressing the broader principle in human relations that no person shall
unjustly enrich himself at the expense of another.
WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision of the Court of
Appeals dated December 14, 2004, in CA-G.R. SP No. 86736, dismissing petitioner‘s complaint
for recovery of possession and respondents‘ counterclaim for damages for lack of legal and
factual bases, and the Resolution dated February 17, 2005 denying the motion for
reconsideration, are AFFIRMED.
SO ORDERED.
 THIRD DIVISION
G.R. No. 121165 September 26, 2006
HON. DOMINADOR F. CARILO, Presiding Judge, R.T.C. XI-19 Digos, Davao del Sur,
BONIFACIO J. GUYOT, Clerk of Court and Provincial Sheriff of Davao del Sur, ALFREDO C.
SENOY, Deputy Prov. Sheriff assigned to R.T.C. XI-19 Digos, Davao del Sur, MARCOS D.
RISONAR, JR., ., Registrar of Deeds of Davao del Sur, and MARIA GONZALES, petitioners,
vs.
HON. COURT OF APPEALS, MARIA PAZ DABON and ROSALINDA DABON, respondents.
RESOLUTION
QUISUMBING, J.:
For review on certiorari is the Decision1 dated February 22, 1995 of the Court of Appeals in CA-
G.R. SP No. 23687, which annulled and set aside the judgment and orders of the Regional Trial
Court (RTC) of Digos, Davao del Sur, Branch 19, in Civil Case No. 2647, Maria Gonzales v.
Priscilla Manio and Jose Manio.
The facts as culled from the records are as follows:
On April 2, 1990, petitioner Maria Gonzales filed a complaint against the spouses Priscilla and
Jose Manio with the RTC of Digos, Davao del Sur, Branch 19. Gonzales sought the execution of
the deed of sale in her favor for the property she bought from Priscilla Manio. She also asked for
damages and attorney's fees.
Gonzales alleged that on April 26, 1988, she paid P10,000 to Priscilla as downpayment on
the P400,000 purchase price of the lot with improvements, since Priscilla had a special power of
attorney from her son, Aristotle, the owner of the land. They also agreed that the balance would be
paid within three months after the execution of the deed of sale. Yet, after the lapse of the period
and despite repeated demands, Priscilla did not execute the deed of sale. Thus, Gonzales filed an
action for specific performance against the spouses Priscilla and Jose Manio.
For failure to file an Answer, the Manios were declared in default and Gonzales was allowed to
present evidence ex parte.
After trial, the court rendered judgment in favor of Gonzales, which we quote verbatim:
WHEREFORE, premises considered, it is hereby ordered that judgment is rendered in
favor of plaintiff and against defendants, ordering defendants:
1) To execute the final deed of sale and transfer of the property mentioned in
paragraph 4 above to plaintiff, or should the defendant refuse to execute the
deed of sale, the Clerk of Court be directed to execute the same upon plaintiff's
depositing of the sum of P390,000.00 with the Clerk of Court as complete and
valid payment thereof to defendant Priscilla Manio;
2) To pay plaintiff the sum of P100,000.00 for moral damages and P50,000.00 for
exemplary damages;
3) To pay plaintiff the sum of P50,000.00 for attorney's fees plus P700.00 per
appearances of plaintiff's counsel before this Honorable Court as appearance
fees;
4) To pay plaintiff the sum of P5,000.00 as litigation expenses.
SO ORDERED.2
Gonzales deposited with the Clerk of Court the P390,000 balance of the price and filed a motion
for execution.3 She later withdrew the motion because the trial court's decision was not properly
served on the defendants. After numerous delays, the sheriff finally personally served a copy of
the decision on Priscilla on August 4, 1990, at the ungodly hour of 12:00 midnight at Sitio
Wilderness, Barangay Mount Carmel, Bayugan, Agusan del Sur.4
Since there was no appeal, the trial court's decision became final and executory. But the writ of
execution was not served upon the defendants, since according to the Sheriff's Return, the
defendants could not be located. The sheriff, likewise, informed the trial court that the money
judgment could be readily satisfied by the petitioner's cash deposit should the trial court grant the
motion to release the cash deposit filed by Gonzales.5
Subsequently, Gonzales filed a motion asking that the Clerk of Court be directed to be the one to
execute a deed of conveyance. Gonzales also filed a motion to withdraw the cash deposit for the
balance of the price to offset the award of damages. The trial court granted both motions but later
modified the amount to P207,800.
On October 29, 1990, Gonzales filed a petition for the nullification of the Owner's Duplicate
Certificate of Title No. 16658 and asked that a new certificate be issued in her name to give effect
to the deed of conveyance since Priscilla refused to relinquish the owner's duplicate copy.
Consequently, the trial court declared the owner's duplicate copy of TCT No. 16658 void, and
directed the City Civil Registrar to issue a new certificate of title in favor of Gonzales. The orders
were reiterated in subsequent orders and TCT No. T-23690 was issued under the name of
Gonzales.
On December 14, 1990, herein respondents Maria Paz Dabon and Rosalina Dabon, claiming to
have bought the aforementioned lot from Aristotle Manio filed before the Court of Appeals a
petition for annulment of judgment and orders of the RTC in Civil Case No. 2647. The case was
docketed as CA G.R. SP No. 23687, entitled "Maria Paz Dabon and Rosalina Dabon v. Hon.
Dominador F. Carillo, Presiding Judge, RTC Branch 19, Digos, Davao del Sur; Bonifacio J. Guyot,
Clerk of Court and Provincial Sheriff of Davao del Sur; Alfredo C. Senoy, Deputy Prov. Sheriff
assigned to RTC Br. 19, Digos, Davao del Sur; Marcos D. Risonar, Jr., Registrar of Deeds of
Davao del Sur; and Maria Gonzales." The Dabons alleged therein that the judgment of the trial
court was void ab initio because of lack of jurisdiction over their persons, as the real parties in
interest, and that they were fraudulently deprived of their right to due process. They also prayed
for a Temporary Restraining Order and for Preliminary Prohibitory Injunction against Gonzales.
They gave the trial court a notice of their action for the annulment of the judgment and subsequent
orders in Civil Case No. 2647.6
Meanwhile, Gonzales filed before the trial court a motion for the issuance of a writ of possession.
The Dabons filed an opposition on the following grounds: (1) The writ of possession cannot be
enforced because the defendants named in the writ, the Manios, were no longer in possession of
the property; (2) They had bought the lot with the improvements therein and had taken
possession, although they had not yet registered their ownership with the Register of Deeds; and
(3) The court did not acquire jurisdiction over them as the real parties in interest.
On December 17, 1990, the Court of Appeals, without giving due course to the petition, issued a
resolution restraining the trial court from implementing its Decision dated June 19, 19907 and its
subsequent orders thereto in Civil Case No. 2647 until further notice from the Court of Appeals. It
also required Gonzales to file her Comment.8
The Court of Appeals in a resolution denied the application for preliminary injunction and
appointed a commissioner to receive evidence of the parties.9
Following the Commissioner's report, the Court of Appeals found that (1) the contract of sale
between Gonzales and Priscilla was unenforceable because the sale was evidenced by a
handwritten note which was vague as to the amount and which was not notarized; (2) the trial
court did not acquire jurisdiction over the indispensable parties; and (3) the proceedings were
attended with fraud. The Court of Appeals nullified the judgment of the RTC in Civil Case No. 2647
and cancelled TCT No. T-23690. The dispositive portion of said judgment reads as follows:
WHEREFORE, premises considered, the questioned decision, dated June 19, 1990 (and
all orders arising therefrom), of the Regional Trial Court (Branch 19) in Digos, Davao del
Sur is hereby ANNULLED and SET ASIDE—and the Transfer Certificate of Title No. T-
23690 which was issued thereafter declared null and void and ordered canceled. Costs
against the private respondent.
SO ORDERED.10
On July 17, 1995, Gonzales' Motion for Reconsideration was denied. Hence, the instant petition,
assigning the following errors:
I D. Risonar, Registrar of Deeds of Davao del Sur; and Maria Gonzales. In our view, petitioner
The Honorable Court of Appeals erred in not holding that the purchase of the disputed
property by petitioner Maria Gonzales from Aristotle Manio thru the latter's mother and
attorney-in-fact was a valid contract as between the contracting parties.
II
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT
PETITIONER MARIA GONZALES WAS IN GOOD FAITH IN BUYING THE DISPUTED
PROPERTY FROM ARISTOTLE MANIO THRU THE LATTER'S MOTHER AND
ATTORNEY-IN-FACT.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING IN THE INSTANT
CASE THE DOCTRINE IN DOUBLE SALE UNDER ARTICLE 1544 OF THE CIVIL CODE
OF THE PHILIPPINES.
IV
THE HONORABLE COURT OF APPEALS GRAVELY FAILED TO APPRECIATE THE
FACT THAT PRIVATE RESPONDENTS' [PETITIONERS BELOW] CLAIM IS HIGHLY
INCREDIBLE, IMPROBABLE, AND FRAUDULENT.
V
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE
RESPONDENTS MARIA PAZ DABON AND ROSALINA DABON HAVE NO RIGHT TO
BRING THE INSTANT SUIT.
VI
COROLLARILY, THE HONORABLE COURT OF APPEALS ERRED IN NOT
SUSTAINING PETITIONER MARIA GONZALES' [PRIVATE RESPONDENT
BELOW] CLAIM FOR DAMAGES AGAINST THE PRIVATE RESPONDENTS
[PETITIONERS BELOW].11
Simply, the threshold issues in this petition are: (1) whether the Court of Appeals erred in declaring
the sale of the land to Gonzales by Priscilla invalid; (2) whether there was basis to annul the
judgment of the RTC; and (3) whether the Dabons could file the action for annulment of judgment.
We shall discuss the issues jointly.
Prefatorily, we note that named as petitioners are Presiding Judge Dominador Carillo; Bonifacio
Guyot, Alfredo Senoy, Clerk of Court and Deputy Sheriff of the same court, respectively; Marcos
Gonzales apparently had impleaded Judge Carillo, Guyot, Senoy and Risonar in this petition by
merely reversing the designation of said public officers among the respondents below in the Court
of Appeals, as now among the petitioners herein. Since they are not interested parties and would
not benefit from any of the affirmative reliefs sought, only Maria Gonzales remains as the genuine
party-petitioner in the instant case.
We now come to the main issues: (1) Was there sufficient basis to annul the judgment in Civil
Case No. 2647? (2) Are the Dabons proper parties to file the petition for annulment of judgment?
Petitioner Gonzales contends that the respondents do not have standing before the Court of
Appeals to file a petition for annulment of the judgment in Civil Case No. 2647 because
respondents were not parties therein. Petitioner maintains that respondents have no right that
could be adversely affected by the judgment because they are not the owners of the property.
Petitioner claims that the Court of Appeals should have applied the doctrine of double sale to
settle the issue of ownership and declare her the true owner of the property. Petitioner concludes
that respondents – not being the owners and are not real parties in interest in the complaint for
specific performance – have no right to bring the action for annulment of the judgment. According
to petitioner Gonzales, she did not implead Aristotle as defendant in Civil Case No. 2647 since a
decision against Priscilla, Aristotle's attorney-in-fact, would bind Aristotle also.
Respondents (Maria Paz and Rosalina Dabon) now insist that they are parties in interest as
buyers, owners and possessors of the contested land and that they had been fraudulently
deprived of their day in court during the proceedings in the trial court in Civil Case No. 2647. They
have no remedy in law other than to file a case for the annulment of judgment of the trial court in
said case.
Petitioner Gonzales should be reminded of Section 3 of Rule 3 of the Rules on Civil Procedure
which explicitly states that an action should be brought against the real party in interest, 12 and in
case the action is brought against the agent, the action must be brought against an agent acting in
his own name and for the benefit of an undisclosed principal without joining the
principal, except when the contract involves things belonging to the principal.13 The real party in
interest is the party who would be benefited or injured by the judgment or is the party entitled to
the avails of the suit. We have held that in such a situation, an attorney-in-fact is not a real party in
interest and that there is no law permitting an action to be brought by and against an attorney-in-
fact.14
Worth stressing, the action filed by Gonzales before the RTC is for specific performance to compel
Priscilla to execute a deed of sale, involving real property which, however, does not belong to
Priscilla but to Aristotle Manio, the son of Priscilla. The complaint only named as defendant
Priscilla, joined by her spouse, yet Priscilla had no interest on the lot and can have no interest
whatever in any judgment rendered. She was not acting in her own name, nor was she acting for
the benefit of an undisclosed principal. The joinder of all indispensable parties is a condition sine
qua non of the exercise of judicial powers, and the absence of indispensable party renders all
subsequent actions of the court null and void for want of authority to act, not only as to the absent
parties but even as to those present.15 Accordingly, the failure to implead Aristotle Manio as
defendant renders all proceedings in the Civil Case No. 2647, including the order granting the
cancellation of TCT No. 16658 and issuance of a new title, null and void.
It is settled that a person need not be a party to the judgment sought to be annulled. 16 What is
essential is that he can prove his allegation that the judgment was obtained by fraud or collusion
and he would be adversely affected thereby,17 because if fully substantiated by preponderance of
evidence, those allegations could be the basis for annulment of the assailed judgment.
In the present case, even if respondents were not parties to the specific performance case, any
finding that there was extrinsic fraud in the institution of the complaint, i.e. exclusion of the real
party in interest, and collusion between petitioner and Sheriff Senoy, would adversely affect the
respondents' ownership and thus, could be their basis for annulment of the judgment.
Pertinently, Section 2 of Rule 47 of the Rules on Civil Procedure explicitly provides the two
grounds for annulment of judgment, namely: extrinsic fraud and lack of jurisdiction.18
There is extrinsic fraud when a party has been prevented by fraud or deception from presenting
his case. Fraud is extrinsic where it prevents a party from having a trial or from presenting his
entire case to the court, or where it operates upon matters pertaining not to the judgment itself but
to the manner in which it is procured. The overriding consideration when extrinsic fraud is alleged
is that the fraudulent scheme of the prevailing litigant prevented a party from having his day in
court.19 It must be distinguished from intrinsic fraud which refers to acts of a party at a trial which
prevented a fair and just determination of the case, and which could have been litigated and
determined at the trial or adjudication of the case.20
In its Decision dated February 22, 1995, the Court of Appeals found that indices of fraud attended
the case before the trial court: First, the plaintiff deliberately excluded the Dabons as party to the
case despite knowledge that the Dabons had alleged that they had bought the land from
Aristotle. Second, the Sheriff's Return was suspiciously served on a Saturday, at midnight, on
August 4, 1990. Third, the trial court ordered the plaintiff to deposit the full payment of property,
but subsequently ordered its withdrawal. Lastly, there was no notice given to the person named in
the certificate of title which Gonzales wanted to be annulled.
Of the indices of fraud cited by the Court of Appeals, the failure to comply with the notification
requirement in the petition for the cancellation of title amounts to extrinsic fraud. Under the
Property Registration Decree, all parties in interest shall be given notice. 21 There is nothing in the
records that show Gonzales notified the actual occupants or lessees of the property. Further, the
records show that Gonzales had known of the sale of the land by Aristotle to the Dabons and
despite her knowledge, the former did not include the Dabons in her petition for the annulment of
title. Deliberately failing to notify a party entitled to notice also constitutes extrinsic fraud. 22 This
fact is sufficient ground to annul the order allowing the cancellation of title in the name of
Gonzales.
Likewise, under Rule 47, a judgment is void for lack of jurisdiction over the persons of the real
parties in interest, i.e., Aristotle Manio and the Dabons.
Lastly, petitioner insists that the contract of sale between her and Priscilla was valid and
enforceable because under the provision on double sale,23 she owned the land because she
bought the lot on April 26, 1988, while the same was allegedly sold to the Dabons on October 19,
1989. In our view, the doctrine on double sale holds no relevance in this case. The pertinent article
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 recorded it in the Registry of Property.

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

Otherwise stated, where it is immovable property that is the subject of a double sale, ownership
shall be transferred (1) to the person acquiring it who in good faith first recorded it in the Registry
of Property; (2) in default thereof, to the person who in good faith was first in possession; and (3)
in default thereof, to the person who presents the oldest title, provided there is good faith. The
requirement of the law is two-fold: acquisition in good faith and registration in good faith.24

At this juncture, we must emphasize that the action for annulment of judgment under Rule 47 of
the Rules of Court does not involve the merits of the final order of the trial court.25 The issue of
whether before us is a case of double sale is outside the scope of the present petition for review.
The appellate court only allowed the reception of extraneous evidence to determine extrinsic
fraud. To determine which sale was valid, review of evidence is necessary. This we cannot do in
this petition. An action for annulment of judgment is independent of the case where the judgment
sought to be annulled is rendered26 and is not an appeal of the judgment therein.27

The extraneous evidence presented to the appellate court cannot be used to supplant the
evidence in the records of the specific performance case because the extraneous evidence was
not part of the records on the merits of the case. Again, the extraneous evidence was only allowed
merely to prove the allegations of extrinsic fraud. Accordingly, we hold that the issue of ownership
of the subject real property cannot be addressed in this petition for review.

Annulment of judgment is not a relief to be granted indiscriminately by the courts. It is a recourse

equitable in character and allowed only in exceptional cases as where there is no available or
other adequate remedy.28 This case falls under said exception. In this case, where it was found
that the trial court did not have jurisdiction over the real parties in interest, and that notices were
deliberately not given, amount to extrinsic fraud. The Court of Appeals did not err in granting the
annulment of the judgment in Civil Case No. 2647 and the orders subsequent thereto, for lack of
jurisdiction and extrinsic fraud.

WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision dated February 22,
1995 of the Court of Appeals in CA-G.R. SP No. 23687, is AFFIRMED. Costs against petitioner
Maria Gonzales.

SO ORDERED.

Carpio, Carpio-Morales, Tinga, Velasco, Jr., J.J., concur.

Republic of the Philippines respondent lived. Petitioner accepted the offer and proposed the price of P9.50 per square meter.
SUPREME COURT Respondent Poncio, after having secured the consent of his wife and parents, accepted the price
Manila proposed by petitioner, on the condition that from the purchase price would come the money to be
paid to the bank.
FIRST DIVISION
Petitioner and respondent Jose Poncio then went to the Republic Savings Bank and secured the
G.R. No. L-29972 January 26, 1976 consent of the President thereof for her to pay the arrears on the mortgage and to continue the
payment of the installments as they fall due. The amount in arrears reached a total sum of
P247.26. But because respondent Poncio had previously told her that the money, needed was
ROSARIO CARBONELL, petitioner,
only P200.00, only the latter amount was brought by petitioner constraining respondent Jose
vs.
Poncio to withdraw the sum of P47.00 from his bank deposit with Republic Savings Bank. But the
HONORABLE COURT OF APPEALS, JOSE PONCIO, EMMA INFANTE and RAMON
next day, petitioner refunded to Poncio the sum of P47.00.
INFANTE, respondents.

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

MAKASIAR, J.
CONTRACT FOR ONE HALF LOT WHICH I BOUGHT FROM

Petitioner seeks a review of the resolution of the Court of Appeals (Special Division of Five) dated
JOSE PONCIO
October 30, 1968, reversing its decision of November 2, 1967 (Fifth Division), and its resolution of
December 6, 1968 denying petitioner's motion for reconsideration.
Beginning today January 27, 1955, Jose Poncio can start living on the lot sold by him to me,
Rosario Carbonell, until after one year during which time he will not pa anything. Then if after said
The dispositive part of the challenged resolution reads:
one can he could not find an place where to move his house, he could still continue occupying the
site but he should pay a rent that man, be agreed.
Wherefore, the motion for reconsideration filed on behalf of appellee Emma
Infante, is hereby granted and the decision of November 2, 1967, is hereby
(Sgd) JOSE PONCIO
annulled and set aside. Another judgement shall be entered affirming in toto that
of the court a quo, dated January 20, 1965, which dismisses the plaintiff's (Sgd.) ROSARIO CARBONELL
complaint and defendant's counterclaim. (Sgd) CONSTANCIO MEONADA
Witness
Without costs.
(Pp. 6-7 rec. on appeal).
The facts of the case as follows:
Thereafter, petitioner asked Atty. Salvador Reyes, also from the Batanes Islands, to prepare the
formal deed of sale, which she brought to respondent Poncio together with the amount of some
Prior to January 27, 1955, respondent Jose Poncio, a native of the Batanes Islands, was the
P400.00, the balance she still had to pay in addition to her assuming the mortgaged obligation to
owner of the parcel of land herein involve with improvements situated at 179 V. Agan St., San
Juan, Rizal, having an area of some one hundred ninety-five (195) square meters, more or less, Republic Savings Bank.
covered by TCT No. 5040 and subject to mortgage in favor of the Republic Savings Bank for the
sum of P1,500.00. Petitioner Rosario Carbonell, a cousin and adjacent neighbor of respondent Upon arriving at respondent Jose Poncio's house, however, the latter told petitioner that he could
Poncio, and also from the Batanes Islands, lived in the adjoining lot at 177 V. Agan Street. not proceed any more with the sale, because he had already given the lot to respondent Emma
Infants; and that he could not withdraw from his deal with respondent Mrs. Infante, even if he were
Both petitioners Rosario Carbonell and respondent Emma Infante offered to buy the said lot from to go to jail. Petitioner then sought to contact respondent Mrs. Infante but the latter refused to see
Poncio (Poncio's Answer, p. 38, rec. on appeal). her.

Respondent Poncio, unable to keep up with the installments due on the mortgage, approached On February 5, 1955, petitioner saw Emma Infante erecting a all around the lot with a gate.
petitioner one day and offered to sell to the latter the said lot, excluding the house wherein
Petitioner then consulted Atty. Jose Garcia, who advised her to present an adverse claim over the
land in question with the Office of the Register of Deeds of Rizal. Atty. Garcia actually sent a letter
of inquiry to the Register of Deeds and demand letters to private respondents Jose Poncio and
Emma Infante.
In his answer to the complaint Poncio admitted "that on January 30, 1955, Mrs. Infante improved
her offer and he agreed to sell the land and its improvements to her for P3,535.00" (pp. 38-40,
ROA).
In a private memorandum agreement dated January 31, 1955, respondent Poncio indeed bound
himself to sell to his corespondent Emma Infante, the property for the sum of P2,357.52, with
respondent Emma Infante still assuming the existing mortgage debt in favor of Republic Savings
Bank in the amount of P1,177.48. Emma Infante lives just behind the houses of Poncio and
Rosario Carbonell.
On February 2, 1955, respondent Jose Poncio executed the formal deed of sale in favor of
respondent Mrs. Infante in the total sum of P3,554.00 and on the same date, the latter paid
Republic Savings Bank the mortgage indebtedness of P1,500.00. The mortgage on the lot was
eventually discharged.
Informed that the sale in favor of respondent Emma Infante had not yet been registered, Atty.
Garcia prepared an adverse claim for petitioner, who signed and swore to an registered the same
on February 8, 1955.
The deed of sale in favor of respondent Mrs. Infante was registered only on February 12, 1955. As
a consequence thereof, a Transfer Certificate of Title was issued to her but with the annotation of
the adverse claim of petitioner Rosario Carbonell.
Respondent Emma Infante took immediate possession of the lot involved, covered the same with
500 cubic meters of garden soil and built therein a wall and gate, spending the sum of P1,500.00.
She further contracted the services of an architect to build a house; but the construction of the
same started only in 1959 — years after the litigation actually began and during its pendency.
Respondent Mrs. Infante spent for the house the total amount of P11,929.00.
On June 1, 1955, petitioner Rosario Carbonell, thru counsel, filed a second amended complaint
against private respondents, praying that she be declared the lawful owner of the questioned
parcel of land; that the subsequent sale to respondents Ramon R. Infante and Emma L. Infante be
declared null and void, and that respondent Jose Poncio be ordered to execute the corresponding
deed of conveyance of said land in her favor and for damages and attorney's fees (pp. 1-7, rec. on
appeal in the C.A.).
Respondents first moved to dismiss the complaint on the ground, among others, that petitioner's
claim is unenforceable under the Statute of Frauds, the alleged sale in her favor not being
evidenced by a written document (pp. 7-13, rec. on appeal in the C.A.); and when said motion was
denied without prejudice to passing on the question raised therein when the case would be tried
on the merits (p. 17, ROA in the C.A.), respondents filed separate answers, reiterating the grounds
of their motion to dismiss (pp. 18-23, ROA in the C.A.).
During the trial, when petitioner started presenting evidence of the sale of the land in question to
her by respondent Poncio, part of which evidence was the agreement written in the Batanes
dialect aforementioned, respondent Infantes objected to the presentation by petitioner of parole
evidence to prove the alleged sale between her and respondent Poncio. In its order of April 26,
1966, the trial court sustained the objection and dismissed the complaint on the ground that the
memorandum presented by petitioner to prove said sale does not satisfy the requirements of the
law (pp. 31-35, ROA in the C.A.).
From the above order of dismissal, petitioner appealed to the Supreme Court (G.R. No. L-11231)
which ruled in a decision dated May 12, 1958, that the Statute of Frauds, being applicable only to
executory contracts, does not apply to the alleged sale between petitioner and respondent Poncio,
which petitioner claimed to have been partially performed, so that petitioner is entitled to establish
by parole evidence "the truth of this allegation, as well as the contract itself." The order appealed
from was thus reversed, and the case remanded to the court a quo for further proceedings (pp.
26-49, ROA in the C.A.).
After trial in the court a quo; a decision was, rendered on December 5, 1962, declaring the second
sale by respondent Jose Poncio to his co-respondents Ramon Infante and Emma Infante of the
land in question null and void and ordering respondent Poncio to execute the proper deed of
conveyance of said land in favor of petitioner after compliance by the latter of her covenants under
her agreement with respondent Poncio (pp. 5056, ROA in the C.A.).
On January 23, 1963, respondent Infantes, through another counsel, filed a motion for re-trial to
adduce evidence for the proper implementation of the court's decision in case it would be affirmed
on appeal (pp. 56-60, ROA in the C.A.), which motion was opposed by petitioner for being
premature (pp. 61-64, ROA in the C.A.). Before their motion for re-trial could be resolved,
respondent Infantes, this time through their former counsel, filed another motion for new trial,
claiming that the decision of the trial court is contrary to the evidence and the law (pp. 64-78, ROA
in the C.A.), which motion was also opposed by petitioner (pp. 78-89, ROA in the C.A.).
The trial court granted a new trial (pp. 89-90, ROA in the C.A.), at which re-hearing only the
respondents introduced additional evidence consisting principally of the cost of improvements they
introduced on the land in question (p. 9, ROA in the C.A.).
After the re-hearing, the trial court rendered a decision, reversing its decision of December 5, 1962
on the ground that the claim of the respondents was superior to the claim of petitioner, and
dismissing the complaint (pp. 91-95, ROA in the C.A.), From this decision, petitioner Rosario
Carbonell appealed to the respondent Court of Appeals (p. 96, ROA in the C.A.).
On November 2, 1967, the Court of Appeals (Fifth Division composed of Justices Magno
Gatmaitan, Salvador V. Esguerra and Angle H. Mojica, speaking through Justice Magno
Gatmaitan), rendered judgment reversing the decision of the trial court, declaring petitioner
therein, to have a superior right to the land in question, and condemning the defendant Infantes to
reconvey to petitioner after her reimbursement to them of the sum of P3,000.00 plus legal interest,
the land in question and all its improvements (Appendix "A" of Petition).
Respondent Infantes sought reconsideration of said decision and acting on the motion for
reconsideration, the Appellate Court, three Justices (Villamor, Esguerra and Nolasco) of Special
Division of Five, granted said motion, annulled and set aside its decision of November 2, 1967,
and entered another judgment affirming in toto the decision of the court a quo, with Justices
Gatmaitan and Rodriguez dissenting (Appendix "B" of Petition).
Petitioner Rosario Carbonell moved to reconsider the Resolution of the Special Division of Five,
which motion was denied by Minute Resolution of December 6, 1968 (but with Justices Rodriguez
and Gatmaitan voting for reconsideration) [Appendix "C" of Petition].
Hence, this appeal by certiorari.
Article 1544, New Civil Code, which is decisive of this case, recites:
If the same thing should have been sold to different vendees, the ownership shall
be transferred to the person who may have first taken possession thereof in good
faith, if it should movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in the possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good faith (emphasis supplied).
It is essential that the buyer of realty must act in good faith in registering his deed of sale to merit
the protection of the second paragraph of said Article 1544.
Unlike the first and third paragraphs of said Article 1544, which accord preference to the one who
first takes possession in good faith of personal or real property, the second paragraph directs that
ownership of immovable property should be recognized in favor of one "who in good faith first
recorded" his right. Under the first and third paragraph, good faith must characterize the act of
anterior registration (DBP vs. Mangawang, et al., 11 SCRA 405; Soriano, et al. vs. Magale, et al.,
8 SCRA 489).
If there is no inscription, what is decisive is prior possession in good faith. If there is inscription, as
in the case at bar, prior registration in good faith is a pre-condition to superior title.
When Carbonell bought the lot from Poncio on January 27, 1955, she was the only buyer thereof
and the title of Poncio was still in his name solely encumbered by bank mortgage duly annotated
thereon. Carbonell was not aware — and she could not have been aware — of any sale of Infante
as there was no such sale to Infante then. Hence, Carbonell's prior purchase of the land was
made in good faith. Her good faith subsisted and continued to exist when she recorded her
adverse claim four (4) days prior to the registration of Infantes's deed of sale. Carbonell's good
faith did not cease after Poncio told her on January 31, 1955 of his second sale of the same lot to
Infante. Because of that information, Carbonell wanted an audience with Infante, which desire
underscores Carbonell's good faith. With an aristocratic disdain unworthy of the good breeding of
a good Christian and good neighbor, Infante snubbed Carbonell like a leper and refused to see
her. So Carbonell did the next best thing to protect her right — she registered her adversed claim
on February 8, 1955. Under the circumstances, this recording of her adverse claim should be
deemed to have been done in good faith and should emphasize Infante's bad faith when she
registered her deed of sale four (4) days later on February 12, 1955.
Bad faith arising from previous knowledge by Infante of the prior sale to Carbonell is shown by the
following facts, the vital significance and evidenciary effect of which the respondent Court of
Appeals either overlooked of failed to appreciate:
(1) Mrs. Infante refused to see Carbonell, who wanted to see Infante after she was informed by
Poncio that he sold the lot to Infante but several days before Infante registered her deed of sale.
This indicates that Infante knew — from Poncio and from the bank — of the prior sale of the lot by
Poncio to Carbonell. Ordinarily, one will not refuse to see a neighbor. Infante lives just behind the
house of Carbonell. Her refusal to talk to Carbonell could only mean that she did not want to listen
to Carbonell's story that she (Carbonell) had previously bought the lot from Poncio.
(2) Carbonell was already in possession of the mortgage passbook [not Poncio's saving deposit
passbook — Exhibit "1" — Infantes] and Poncio's copy of the mortgage contract, when Poncio
sold the lot Carbonell who, after paying the arrearages of Poncio, assumed the balance of his
mortgaged indebtedness to the bank, which in the normal course of business must have
necessarily informed Infante about the said assumption by Carbonell of the mortgage
indebtedness of Poncio. Before or upon paying in full the mortgage indebtedness of Poncio to the
Bank. Infante naturally must have demanded from Poncio the delivery to her of his mortgage
passbook as well as Poncio's mortgage contract so that the fact of full payment of his bank
mortgage will be entered therein; and Poncio, as well as the bank, must have inevitably informed
her that said mortgage passbook could not be given to her because it was already delivered to
Carbonell.
If Poncio was still in possession of the mortgage passbook and his copy of the mortgage contract
at the time he executed a deed of sale in favor of the Infantes and when the Infantes redeemed
his mortgage indebtedness from the bank, Poncio would have surrendered his mortgage
passbook and his copy of the mortgage contract to the Infantes, who could have presented the
same as exhibits during the trial, in much the same way that the Infantes were able to present as
evidence Exhibit "1" — Infantes, Poncio's savings deposit passbook, of which Poncio necessarily
remained in possession as the said deposit passbook was never involved in the contract of sale
with assumption of mortgage. Said savings deposit passbook merely proves that Poncio had to
withdraw P47.26, which amount was tided to the sum of P200.00 paid by Carbonell for Poncio's
amortization arrearages in favor of the bank on January 27, 1955; because Carbonell on that day
brought with her only P200.00, as Poncio told her that was the amount of his arrearages to the
bank. But the next day Carbonell refunded to Poncio the sum of P47.26.
(3) The fact that Poncio was no longer in possession of his mortgage passbook and that the said
mortgage passbook was already in possession of Carbonell, should have compelled Infante to
inquire from Poncio why he was no longer in possession of the mortgage passbook and from
Carbonell why she was in possession of the same (Paglago, et. al vs. Jara et al 22 SCRA 1247,
1252-1253). The only plausible and logical reason why Infante did not bother anymore to make
such injury , w because in the ordinary course of business the bank must have told her that Poncio
already sold the lot to Carbonell who thereby assumed the mortgage indebtedness of Poncio and
to whom Poncio delivered his mortgage passbook. Hoping to give a semblance of truth to her
pretended good faith, Infante snubbed Carbonell's request to talk to her about the prior sale to her
b Poncio of the lot. As aforestated, this is not the attitude expected of a good neighbor imbued
with Christian charity and good will as well as a clear conscience.
(4) Carbonell registered on February 8, 1955 her adverse claim, which was accordingly annotated
on Poncio's title, four [4] days before Infante registered on February 12, 1955 her deed of sale
executed on February 2, 1955. Here she was again on notice of the prior sale to Carbonell. Such
registration of adverse claim is valid and effective (Jovellanos vs. Dimalanta, L-11736-37, Jan. 30,
1959, 105 Phil. 1250-51).
(5) In his answer to the complaint filed by Poncio, as defendant in the Court of First Instance, he
alleged that both Mrs. Infante and Mrs. Carbonell offered to buy the lot at P15.00 per square
meter, which offers he rejected as he believed that his lot is worth at least P20.00 per square
meter. It is therefore logical to presume that Infante was told by Poncio and consequently knew of
the offer of Carbonell which fact likewise should have put her on her guard and should have
compelled her to inquire from Poncio whether or not he had already sold the property to Carbonell.
As recounted by Chief Justice Roberto Concepcion, then Associate Justice, in the preceding case
of Rosario Carbonell vs. Jose Poncio, Ramon Infante and Emma Infante (1-11231, May 12, 1958),
Poncio alleged in his answer:
... that he had consistently turned down several offers, made by plaintiff, to buy
the land in question, at P15 a square meter, for he believes that it is worth not
less than P20 a square meter; that Mrs. Infante, likewise, tried to buy the land at
P15 a square meter; that, on or about January 27, 1955, Poncio was advised by
plaintiff that should she decide to buy the property at P20 a square meter, she
would allow him to remain in the property for one year; that plaintiff then induced
Poncio to sign a document, copy of which if probably the one appended to the
second amended complaint; that Poncio signed it 'relying upon the statement of
the plaintiff that the document was a permit for him to remain in the premises in
the event defendant decided to sell the property to the plaintiff at P20.00 a
square meter'; that on January 30, 1955, Mrs. Infante improved her offer and
agreed to sell the land and its improvement to her for P3,535.00; that Poncio has
not lost 'his mind,' to sell his property, worth at least P4,000, for the paltry sum
P1,177.48, the amount of his obligation to the Republic Saving s Bank; and that
plaintiff's action is barred by the Statute of Frauds. ... (pp. 38-40, ROA, emphasis
supplied).
II
EXISTENCE OF THE PRIOR SALE TO CARBONELL
DULY ESTABLISHED
(1) In his order dated April 26, 1956 dismissing the complaint on the ground that the private
document Exhibit "A" executed by Poncio and Carbonell and witnessed by Constancio Meonada
captioned "Contract for One-half Lot which I Bought from Jose Poncio," was not such a
memorandum in writing within the purview of the Statute of Frauds, the trial judge himself
recognized the fact of the prior sale to Carbonell when he stated that "the memorandum in
question merely states that Poncio is allowed to stay in the property which he had sold to the
plaintiff. There is no mention of the reconsideration, a description of the property and such other
essential elements of the contract of sale. There is nothing in the memorandum which would tend
to show even in the slightest manner that it was intended to be an evidence of contract sale. On
the contrary, from the terms of the memorandum, it tends to show that the sale of the property in
favor of the plaintiff is already an accomplished act. By the very contents of the memorandum
itself, it cannot therefore, be considered to be the memorandum which would show that a sale has
been made by Poncio in favor of the plaintiff" (p. 33, ROA, emphasis supplied). As found by the
trial court, to repeat the said memorandum states "that Poncio is allowed to stay in the property
which he had sold to the plaintiff ..., it tends to show that the sale of the property in favor of the
plaintiff is already an accomplished act..."
(2) When the said order was appealed to the Supreme Court by Carbonell in the previous case of
Rosario Carbonell vs. Jose Poncio, Ramon Infante and Emma Infante
(L-11231, supra), Chief Justice Roberto Concepcion, then Associate Justice, speaking for a
unanimous Court, reversed the aforesaid order of the trial court dismissing the complaint, holding
that because the complaint alleges and the plaintiff claims that the contract of sale was partly
performed, the same is removed from the application of the Statute of Frauds and Carbonell
should be allowed to establish by parol evidence the truth of her allegation of partial performance
of the contract of sale, and further stated:
Apart from the foregoing, there are in the case at bar several circumstances
indicating that plaintiff's claim might not be entirely devoid of factual basis.
Thus, for instance, Poncio admitted in his answer that plaintiff had offered
several times to purchase his land.
Again, there is Exhibit A, a document signed by the defendant. It is in the
Batanes dialect, which, according to plaintiff's uncontradicted evidence, is the
one spoken by Poncio, he being a native of said region. Exhibit A states that
Poncio would stay in the land sold by him to plaintiff for one year, from January
27, 1955, free of charge, and that, if he cannot find a place where to transfer his
house thereon, he may remain upon. Incidentally, the allegation in Poncio's
answer to the effect that he signed Exhibit A under the belief that it "was a permit
for him to remain in the premises in the" that "he decided to sell the property" to
the plaintiff at P20 a sq. m." is, on its face, somewhat difficult to believe. Indeed,
if he had not decided as yet to sell the land to plaintiff, who had never increased
her offer of P15 a square meter, there was no reason for Poncio to get said
permit from her. Upon the other hand, if plaintiff intended to mislead Poncio, she
would have caused Exhibit A to be drafted, probably, in English , instead of
taking the trouble of seeing to it that it was written precisely in his native
 dialect, the Batanes. Moreover, Poncio's signature on Exhibit A suggests that he
is neither illiterate nor so ignorant as to sign document without reading its
contents, apart from the fact that Meonada had read Exhibit A to him and given
him a copy thereof, before he signed thereon, according to Meonada's
uncontradicted testimony.
Then, also, defendants say in their brief:
The only allegation in plaintiff's complaint that bears any relation
to her claim that there has been partial performance of the
supposed contract of sale, is the notation of the sum of P247.26
in the bank book of defendant Jose Poncio. The noting or jotting
down of the sum of P247.26 in the bank book of Jose Poncio
does not prove the fact that the said amount was the purchase
price of the property in question. For all we knew, the sum of
P247.26 which plaintiff claims to have paid to the Republic
Savings Bank for the account of the defendant, assuming that
the money paid to the Republic Savings Bank came from the
plaintiff, was the result of some usurious loan or accomodation,
rather than earnest money or part payment of the land. Neither
is it competent or satisfactory evidence to prove the conveyance
of the land in question the fact that the bank book account of
Jose Poncio happens to be in the possession of the plaintiff.
(Defendants-Appellees' brief, pp. 25-26).
How shall We know why Poncio's bank deposit book is in plaintiffs possession, or
whether there is any relation between the P247.26 entry therein and the partial
payment of P247.26 allegedly made by plaintiff to Poncio on account of the price
of his land, if we do not allow the plaintiff to explain it on the witness stand?
Without expressing any opinion on the merits of plaintiff's claim, it is clear,
therefore, that she is entitled , legally as well as from the viewpoint of equity, to
an opportunity to introduce parol evidence in support of the allegations of her
second amended complaint. (pp. 46-49, ROA, emphasis supplied).
(3) In his first decision of December 5, 1962 declaring null and void the sale in favor of the Infantes
and ordering Poncio to execute a deed of conveyance in favor of Carbonell, the trial judge found:
... A careful consideration of the contents of Exh. 'A' show to the satisfaction of
the court that the sale of the parcel of land in question by the defendant Poncio in
favor of the plaintiff was covered therein and that the said Exh. "a' was also
executed to allow the defendant to continue staying in the premises for the stated
period. It will be noted that Exh. 'A' refers to a lot 'sold by him to me' and having
been written originally in a dialect well understood by the defendant Poncio, he
signed the said Exh. 'A' with a full knowledge and consciousness of the terms
and consequences thereof. This therefore, corroborates the testimony of the
plaintiff Carbonell that the sale of the land was made by Poncio. It is further
pointed out that there was a partial performance of the verbal sale executed by
Poncio in favor of the plaintiff, when the latter paid P247.26 to the Republic
Savings Bank on account of Poncio's mortgage indebtedness. Finally, the
possession by the plaintiff of the defendant Poncio's passbook of the Republic
Savings Bank also adds credibility to her testimony. The defendant contends on
the other hand that the testimony of the plaintiff, as well as her witnesses,
regarding the sale of the land made by Poncio in favor of the plaintiff is
inadmissible under the provision of the Statute of Fraud based on the argument
that the note Exh. "A" is not the note or memorandum referred to in the to in the
Statute of Fraud. The defendants argue that Exh. "A" fails to comply with the
requirements of the Statute of Fraud to qualify it as the note or memorandum
referred to therein and open the way for the presentation of parole evidence to
prove the fact contained in the note or memorandum. The defendant argues that
there is even no description of the lot referred to in the note, especially when the
note refers to only one half lot. With respect to the latter argument of the Exhibit
'A', the court has arrived at the conclusion that there is a sufficient description of
the lot referred to in Exh. 'A' as none other than the parcel of land occupied by
the defendant Poncio and where he has his improvements erected. The Identity
of the parcel of land involved herein is sufficiently established by the contents of
the note Exh. "A". For a while, this court had that similar impression but after a
more and thorough consideration of the context in Exh. 'A' and for the reasons
stated above, the Court has arrived at the conclusion stated earlier (pp. 52-54,
ROA, emphasis supplied).
(4) After re-trial on motion of the Infantes, the trial Judge rendered on January 20, 1965 another
decision dismissing the complaint, although he found
1. That on January 27, 1955, the plaintiff purchased from the defendant Poncio a
parcel of land with an area of 195 square meters, more or less, covered by TCT
No. 5040 of the Province of Rizal, located at San Juan del Monte, Rizal, for the
price of P6.50 per square meter;
2. That the purchase made by the plaintiff was not reduced to writing except for a
short note or memorandum Exh. A, which also recited that the defendant Poncio
would be allowed to continue his stay in the premises, among other things, ...
(pp. 91-92, ROA, emphasis supplied).
From such factual findings, the trial Judge confirms the due execution of Exhibit "A", only that his
legal conclusion is that it is not sufficient to transfer ownership (pp. 93-94, ROA).
(5) In the first decision of November 2, 1967 of the Fifth Division of the Court of Appeals
composed of Justices Esguerra (now Associate Justice of the Supreme Court), Gatmaitan and
Mojica, penned by Justice Gatmaitan, the Court of Appeals found that:
... the testimony of Rosario Carbonell not having at all been attempted to be
disproved by defendants, particularly Jose Poncio, and corroborated as it is by
the private document in Batanes dialect, Exhibit A, the testimony being to the
effect that between herself and Jose there had been celebrated a sale of the
property excluding the house for the price of P9.50 per square meter, so much so
 that on faith of that, Rosario had advanced the sum of P247.26 and binding
herself to pay unto Jose the balance of the purchase price after deducting the
indebtedness to the Bank and since the wording of Exhibit A, the private
document goes so far as to describe their transaction as one of sale, already
consummated between them, note the part tense used in the phrase, "the lot sold
by him to me" and going so far even as to state that from that day
onwards, vendor would continue to live therein, for one year, 'during which time
he will not pay anything' this can only mean that between Rosario and Jose,
there had been a true contract of sale, consummated by delivery constitutum
possession, Art. 1500, New Civil Code;vendor's possession having become
converted from then on, as a mere tenant of vendee, with the special privilege of
not paying rental for one year, — it is true that the sale by Jose Poncio to Rosario
Carbonell corroborated documentarily only by Exhibit A could not have been
registered at all, but it was a valid contract nonetheless, since under our law, a
contract sale is consensual, perfected by mere consent, Couto v. Cortes, 8 Phil
459, so much so that under the New Civil Code, while a sale of an immovable is
ordered to be reduced to a public document, Art. 1358, that mandate does not
render an oral sale of realty invalid, but merely incapable of proof, where still
executory and action is brought and resisted for its performance, 1403, par. 2, 3;
but where already wholly or partly executed or where even if not yet, it is
evidenced by a memorandum, in any case where evidence to further
demonstrate is presented and admitted as the case was here, then the oral sale
becomes perfectly good, and becomes a good cause of action not only to reduce
it to the form of a public document, but even to enforce the contract in its
entirety, Art. 1357; and thus it is that what we now have is a case wherein on the
one hand Rosario Carbonell has proved that she had an anterior sale, celebrated
in her favor on 27 January, 1955, Exhibit A, annotated as an adverse claim on 8
February, 1955, and on other, a sale is due form in favor of Emma L. Infante on 2
February, 1955, Exhibit 3-Infante, and registered in due form with title unto her
issued on 12 February, 1955; the vital question must now come on which of
these two sales should prevail; ... (pp. 74-76, rec., emphasis supplied).
(6) In the resolution dated October 30, 1968 penned by then Court of Appeals Justice Esguerra
(now a member of this Court), concurred in by Justices Villamor and Nolasco, constituting the
majority of a Special Division of Five, the Court of Appeals, upon motion of the Infantes, while
reversing the decision of November 2, 1967 and affirming the decision of the trial court of January
20, 1965 dismissing plaintiff's complaint, admitted the existence and genuineness of Exhibit "A",
the private memorandum dated January 27, 1955, although it did not consider the same as
satisfying "the essential elements of a contract of sale," because it "neither specifically describes
the property and its boundaries, nor mention its certificate of title number, nor states the price
certain to be paid, or contrary to the express mandate of Articles 1458 and 1475 of the Civil Code.
(7) In his dissent concurred in by Justice Rodriguez, Justice Gatmaitan maintains his decision of
November 2, 1967 as well as his findings of facts therein, and reiterated that the private
memorandum Exhibit "A", is a perfected sale, as a sale is consensual and consummated by mere
consent, and is binding on and effective between the parties. This statement of the principle is
correct [pp. 89-92, rec.].
III
ADEQUATE CONSIDERATION OR PRICE FOR THE SALE
IN FAVOR OF CARBONELL
It should be emphasized that the mortgage on the lot was about to be foreclosed by the bank for
failure on the part of Poncio to pay the amortizations thereon. To forestall the foreclosure and at
the same time to realize some money from his mortgaged lot, Poncio agreed to sell the same to
Carbonell at P9.50 per square meter, on condition that Carbonell [1] should pay (a) the amount of
P400.00 to Poncio and 9b) the arrears in the amount of P247.26 to the bank; and [2] should
assume his mortgage indebtedness. The bank president agreed to the said sale with assumption
of mortgage in favor of Carbonell an Carbonell accordingly paid the arrears of P247.26. On
January 27, 1955, she paid the amount of P200.00 to the bank because that was the amount that
Poncio told her as his arrearages and Poncio advanced the sum of P47.26, which amount was
refunded to him by Carbonell the following day. This conveyance was confirmed that same day,
January 27, 1955, by the private document, Exhibit "A", which was prepared in the Batanes dialect
by the witness Constancio Meonada, who is also from Batanes like Poncio and Carbonell.
The sale did not include Poncio's house on the lot. And Poncio was given the right to continue
staying on the land without paying any rental for one year, after which he should pay rent if he
could not still find a place to transfer his house. All these terms are part of the consideration of the
sale to Carbonell.
It is evident therefore that there was ample consideration, and not merely the sum of P200.00, for
the sale of Poncio to Carbonell of the lot in question.
But Poncio, induced by the higher price offered to him by Infante, reneged on his commitment to
Carbonell and told Carbonell, who confronted him about it, that he would not withdraw from his
deal with Infante even if he is sent to jail The victim, therefore, "of injustice and outrage is the
widow Carbonell and not the Infantes, who without moral compunction exploited the greed and
treacherous nature of Poncio, who, for love of money and without remorse of conscience,
dishonored his own plighted word to Carbonell, his own cousin.
Inevitably evident therefore from the foregoing discussion, is the bad faith of Emma Infante from
the time she enticed Poncio to dishonor his contract with Carbonell, and instead to sell the lot to
her (Infante) by offering Poncio a much higher price than the price for which he sold the same to
Carbonell. Being guilty of bad faith, both in taking physical possession of the lot and in recording
their deed of sale, the Infantes cannot recover the value of the improvements they introduced in
the lot. And after the filing by Carbonell of the complaint in June, 1955, the Infantes had less
justification to erect a building thereon since their title to said lot is seriously disputed by Carbonell
on the basis of a prior sale to her.
With respect to the claim of Poncio that he signed the document Exhibit "A" under the belief that it
was a permit for him to remain in the premises in ease he decides to sell the property to Carbonell
at P20.00 per square meter, the observation of the Supreme Court through Mr. Chief Justice
Concepcion in G.R. No. L-11231, supra, bears repeating:
 ... Incidentally, the allegation in Poncio's answer to the effect that he signed
Exhibit A under the belief that it 'was a permit for him to remain in the premises in
the event that 'he decided to sell the property' to the plaintiff at P20.00 a sq. m is,
on its face, somewhat difficult to believe. Indeed, if he had not decided as yet to
sell that land to plaintiff, who had never increased her offer of P15 a square
meter, there as no reason for Poncio to get said permit from her. Upon the they if
plaintiff intended to mislead Poncio, she would have Exhibit A to be drafted,
probably, in English, instead of taking the trouble of seeing to it that it was written
precisely in his native dialect, the Batanes. Moreover, Poncio's signature on
Exhibit A suggests that he is neither illiterate nor so ignorant as to sign a
document without reading its contents, apart from the fact that Meonada had
read Exhibit A to him-and given him a copy thereof, before he signed thereon,
according to Meonada's uncontradicted testimony. (pp. 46-47, ROA).
As stressed by Justice Gatmaitan in his first decision of November 2, 1965, which he reiterated in
his dissent from the resolution of the majority of the Special Division. of Five on October 30, 1968,
Exhibit A, the private document in the Batanes dialect, is a valid contract of sale between the
parties, since sale is a consensual contract and is perfected by mere consent (Couto vs. Cortes, 8
Phil. 459). Even an oral contract of realty is all between the parties and accords to the vendee the
right to compel the vendor to execute the proper public document As a matter of fact, Exhibit A,
while merely a private document, can be fully or partially performed, to it from the operation of the
statute of frauds. Being a all consensual contract, Exhibit A effectively transferred the possession
of the lot to the vendee Carbonell by constitutum possessorium (Article 1500, New Civil Code);
because thereunder the vendor Poncio continued to retain physical possession of the lot as tenant
of the vendee and no longer as knew thereof. More than just the signing of Exhibit A by Poncio
and Carbonell with Constancio Meonada as witness to fact the contract of sale, the transition was
further confirmed when Poncio agreed to the actual payment by at Carbonell of his mortgage
arrearages to the bank on January 27, 1955 and by his consequent delivery of his own mortgage
passbook to Carbonell. If he remained owner and mortgagor, Poncio would not have surrendered
his mortgage passbook to' Carbonell.
IV
IDENTIFICATION AND DESCRIPTION OF THE DISPUTED LOT IN THE MEMORANDUM
EXHIBIT "A"
The claim that the memorandum Exhibit "A" does not sufficiently describe the disputed lot as the
subject matter of the sale, was correctly disposed of in the first decision of the trial court of
December 5, 1962, thus: "The defendant argues that there is even no description of the lot
referred to in the note (or memorandum), especially when the note refers to only one-half lot. With
respect to the latter argument of the defendant, plaintiff points out that one- half lot was mentioned
in Exhibit 'A' because the original description carried in the title states that it was formerly part of a
bigger lot and only segregated later. The explanation is tenable, in (sic) considering the time value
of the contents of Exh. 'A', the court has arrived at the conclusion that there is sufficient description
of the lot referred to in Exh. As none other than the parcel of lot occupied by the defendant Poncio
and where he has his improvements erected. The Identity of the parcel of land involved herein is
sufficiently established by the contents of the note Exh. 'A'. For a while, this court had that similar
impression but after a more and through consideration of the context in Exh. 'A' and for the
reasons stated above, the court has arrived to (sic) the conclusion stated earlier" (pp. 53-54,
ROA).
Moreover, it is not shown that Poncio owns another parcel with the same area, adjacent to the lot
of his cousin Carbonell and likewise mortgaged by him to the Republic Savings Bank. The
transaction therefore between Poncio and Carbonell can only refer and does refer to the lot
involved herein. If Poncio had another lot to remove his house, Exhibit A would not have stipulated
to allow him to stay in the sold lot without paying any rent for one year and thereafter to pay rental
in case he cannot find another place to transfer his house.
While petitioner Carbonell has the superior title to the lot, she must however refund to respondents
Infantes the amount of P1,500.00, which the Infantes paid to the Republic Savings Bank to
redeem the mortgage.
It appearing that the Infantes are possessors in bad faith, their rights to the improvements they
introduced op the disputed lot are governed by Articles 546 and 547 of the New Civil Code. Their
expenses consisting of P1,500.00 for draining the property, filling it with 500 cubic meters of
garden soil, building a wall around it and installing a gate and P11,929.00 for erecting a b '
bungalow thereon, are useful expenditures, for they add to the value of the property (Aringo vs.
Arenas, 14 Phil. 263; Alburo vs. Villanueva, 7 Phil. 277; Valencia vs. Ayala de Roxas, 13 Phil. 45).
Under the second paragraph of Article 546, the possessor in good faith can retain the useful
improvements unless the person who defeated him in his possession refunds him the amount of
such useful expenses or pay him the increased value the land may have acquired by reason
thereof. Under Article 547, the possessor in good faith has also the right to remove the useful
improvements if such removal can be done without damage to the land, unless the person with the
superior right elects to pay for the useful improvements or reimburse the expenses therefor under
paragraph 2 of Article 546. These provisions seem to imply that the possessor in bad faith has
neither the right of retention of useful improvements nor the right to a refund for useful expenses.
But, if the lawful possessor can retain the improvements introduced by the possessor in bad faith
for pure luxury or mere pleasure only by paying the value thereof at the time he enters into
possession (Article 549 NCC), as a matter of equity, the Infantes, although possessors in bad
faith, should be allowed to remove the aforesaid improvements, unless petitioner Carbonell
chooses to pay for their value at the time the Infantes introduced said useful improvements in
1955 and 1959. The Infantes cannot claim reimbursement for the current value of the said useful
improvements; because they have been enjoying such improvements for about two decades
without paying any rent on the land and during which period herein petitioner Carbonell was
deprived of its possession and use.
WHEREFORE, THE DECISION OF THE SPECIAL DIVISION OF FIVE OF THE COURT OF
APPEALS OF OCTOBER 30, 1968 IS HEREBY REVERSED; PETITIONER ROSARIO
CARBONELL IS HEREBY DECLARED TO HAVE THE SUPERIOR RIGHT TO THE LAND IN
QUESTION AND IS HEREBY DIRECTED TO REIMBURSE TO PRIVATE RESPONDENTS
INFANTES THE SUM OF ONE THOUSAND FIVE HUNDRED PESOS (P1,500.00) WITHIN
THREE (3) MONTHS FROM THE FINALITY OF THIS DECISION; AND THE REGISTER OF
DEEDS OF RIZAL IS HEREBY DIRECTED TO CANCEL TRANSFER CERTIFICATE OF TITLE
NO. 37842 ISSUED IN FAVOR OF PRIVATE RESPONDENTS INFANTES COVERING THE
DISPUTED LOT, WHICH CANCELLED TRANSFER CERTIFICATE OF TITLE NO. 5040 IN THE
NAME OF JOSE PONCIO, AND TO ISSUE A NEW TRANSFER CERTIFICATE OF TITLE IN
FAVOR OF PETITIONER ROSARIO CARBONELL UPON PRESENTATION OF PROOF OF
PAYMENT BY HER TO THE INFANTES OF THE AFORESAID AMOUNT OF ONE THOUSAND
FIVE HUNDRED PESOS (P1,500.00).

PRIVATE RESPONDENTS INFANTES MAY REMOVE THEIR AFOREMENTIONED USEFUL

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

WITH COSTS AGAINST PRIVATE RESPONDENTS.

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

 SECOND DIVISION
G.R. No. 124242 January 21, 2005
SAN LORENZO DEVELOPMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA ZAVALLA
LU, respondents.
DECISION
TINGA, J.:
From a coaptation of the records of this case, it appears that respondents Miguel Lu and Pacita
Zavalla, (hereinafter, the Spouses Lu) owned two (2) parcels of land situated in Sta. Rosa, Laguna
covered by TCT No. T-39022 and TCT No. T-39023 both measuring 15,808 square meters or a
total of 3.1616 hectares.
On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to respondent Pablo
Babasanta, (hereinafter, Babasanta) for the price of fifteen pesos (₱15.00) per square meter.
Babasanta made a downpayment of fifty thousand pesos (₱50,000.00) as evidenced by a
memorandum receipt issued by Pacita Lu of the same date. Several other payments totaling two
hundred thousand pesos (₱200,000.00) were made by Babasanta.
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution of a final
deed of sale in his favor so that he could effect full payment of the purchase price. In the same
letter, Babasanta notified the spouses about having received information that the spouses sold the
same property to another without his knowledge and consent. He demanded that the second sale
be cancelled and that a final deed of sale be issued in his favor.
In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having agreed to
sell the property to him at fifteen pesos (₱15.00) per square meter. She, however, reminded
Babasanta that when the balance of the purchase price became due, he requested for a reduction
of the price and when she refused, Babasanta backed out of the sale. Pacita added that she
returned the sum of fifty thousand pesos (₱50,000.00) to Babasanta through Eugenio Oya.
On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court (RTC),
Branch 31, of San Pedro, Laguna, a Complaint for Specific Performance and Damages1 against
his co-respondents herein, the Spouses Lu. Babasanta alleged that the lands covered by TCT No.
T- 39022 and T-39023 had been sold to him by the spouses at fifteen pesos (₱15.00) per square
meter. Despite his repeated demands for the execution of a final deed of sale in his favor,
respondents allegedly refused.
In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta and when
the total advances of Pacita reached fifty thousand pesos (₱50,000.00), the latter and Babasanta,
without the knowledge and consent of Miguel Lu, had verbally agreed to transform the transaction
into a contract to sell the two parcels of land to Babasanta with the fifty thousand pesos
(₱50,000.00) to be considered as the downpayment for the property and the balance to be paid on
or before 31 December 1987. Respondents Lu added that as of November 1987, total payments
made by Babasanta amounted to only two hundred thousand pesos (₱200,000.00) and the latter
allegedly failed to pay the balance of two hundred sixty thousand pesos (₱260,000.00) despite
repeated demands. Babasanta had purportedly asked Pacita for a reduction of the price from
fifteen pesos (₱15.00) to twelve pesos (₱12.00) per square meter and when the Spouses Lu
refused to grant Babasanta‘s request, the latter rescinded the contract to sell and declared that the
original loan transaction just be carried out in that the spouses would be indebted to him in the
amount of two hundred thousand pesos (₱200,000.00). Accordingly, on 6 July 1989, they
purchased Interbank Manager‘s Check No. 05020269 in the amount of two hundred thousand
pesos (₱200,000.00) in the name of Babasanta to show that she was able and willing to pay the
balance of her loan obligation.
Babasanta later filed an Amended Complaint dated 17 January 19903 wherein he prayed for the
issuance of a writ of preliminary injunction with temporary restraining order and the inclusion of the
Register of Deeds of Calamba, Laguna as party defendant. He contended that the issuance of a
preliminary injunction was necessary to restrain the transfer or conveyance by the Spouses Lu of
the subject property to other persons.
The Spouses Lu filed their Opposition4 to the amended complaint contending that it raised new
matters which seriously affect their substantive rights under the original complaint. However, the
trial court in its Order dated 17 January 19905 admitted the amended complaint.
On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) filed
a Motion for Intervention6 before the trial court. SLDC alleged that it had legal interest in the
subject matter under litigation because on 3 May 1989, the two parcels of land involved, namely
Lot 1764-A and 1764-B, had been sold to it in a Deed of Absolute Sale with Mortgage.7 It alleged
that it was a buyer in good faith and for value and therefore it had a better right over the property
in litigation.
In his Opposition to SLDC‘s motion for intervention,8 respondent Babasanta demurred and argued
that the latter had no legal interest in the case because the two parcels of land involved herein had
already been conveyed to him by the Spouses Lu and hence, the vendors were without legal
capacity to transfer or dispose of the two parcels of land to the intervenor.
Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene. SLDC filed
its Complaint-in-Intervention on 19 April 1990.9 Respondent Babasanta‘s motion for the issuance
of a preliminary injunction was likewise granted by the trial court in its Order dated 11 January
199110 conditioned upon his filing of a bond in the amount of fifty thousand pesos (₱50,000.00).
SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu executed
in its favor an Option to Buy the lots subject of the complaint. Accordingly, it paid an option money
in the amount of three hundred sixteen thousand one hundred sixty pesos (₱316,160.00) out of
the total consideration for the purchase of the two lots of one million two hundred sixty-four
thousand six hundred forty pesos (₱1,264,640.00). After the Spouses Lu received a total amount
of six hundred thirty-two thousand three hundred twenty pesos (₱632,320.00) they executed on 3
May 1989 a Deed of Absolute Sale with Mortgage in its favor. SLDC added that the certificates of
title over the property were delivered to it by the spouses clean and free from any adverse claims
and/or notice of lis pendens. SLDC further alleged that it only learned of the filing of the complaint
sometime in the early part of January 1990 which prompted it to file the motion to intervene
without delay. Claiming that it was a buyer in good faith, SLDC argued that it had no obligation to
look beyond the titles submitted to it by the Spouses Lu particularly because Babasanta‘s claims
were not annotated on the certificates of title at the time the lands were sold to it.
After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale of the
property to SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two hundred thousand
pesos (₱200,000.00) with legal interest plus the further sum of fifty thousand pesos (₱50,000.00)
as and for attorney‘s fees. On the complaint-in-intervention, the trial court ordered the Register of
Deeds of Laguna, Calamba Branch to cancel the notice of lis pendens annotated on the original of
the TCT No. T-39022 (T-7218) and No. T-39023 (T-7219).
Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta and SLDC
did not register the respective sales in their favor, ownership of the property should pertain to the
buyer who first acquired possession of the property. The trial court equated the execution of a
public instrument in favor of SLDC as sufficient delivery of the property to the latter. It concluded
that symbolic possession could be considered to have been first transferred to SLDC and
consequently ownership of the property pertained to SLDC who purchased the property in good
faith.
Respondent Babasanta appealed the trial court‘s decision to the Court of Appeals alleging in the
main that the trial court erred in concluding that SLDC is a purchaser in good faith and in
upholding the validity of the sale made by the Spouses Lu in favor of SLDC.
Respondent spouses likewise filed an appeal to the Court of Appeals. They contended that the
trial court erred in failing to consider that the contract to sell between them and Babasanta had
been novated when the latter abandoned the verbal contract of sale and declared that the original
loan transaction just be carried out. The Spouses Lu argued that since the properties involved
were conjugal, the trial court should have declared the verbal contract to sell between Pacita Lu
and Pablo Babasanta null and void ab initio for lack of knowledge and consent of Miguel Lu. They
further averred that the trial court erred in not dismissing the complaint filed by Babasanta; in
awarding damages in his favor and in refusing to grant the reliefs prayed for in their answer.
On 4 October 1995, the Court of Appeals rendered its Decision11 which set aside the judgment of
the trial court. It declared that the sale between Babasanta and the Spouses Lu was valid and
subsisting and ordered the spouses to execute the necessary deed of conveyance in favor of
Babasanta, and the latter to pay the balance of the purchase price in the amount of two hundred
sixty thousand pesos (₱260,000.00). The appellate court ruled that the Absolute Deed of Sale with
Mortgage in favor of SLDC was null and void on the ground that SLDC was a purchaser in bad
faith. The Spouses Lu were further ordered to return all payments made by SLDC with legal
interest and to pay attorney‘s fees to Babasanta.
SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate
court.12 However, in a Manifestation dated 20 December 1995,13 the Spouses Lu informed the
appellate court that they are no longer contesting the decision dated 4 October 1995.
In its Resolution dated 11 March 1996,14 the appellate court considered as withdrawn the motion
for reconsideration filed by the Spouses Lu in view of their manifestation of 20 December 1995.
The appellate court denied SLDC‘s motion for reconsideration on the ground that no new or
substantial arguments were raised therein which would warrant modification or reversal of the
court‘s decision dated 4 October 1995.
Hence, this petition.
SLDC assigns the following errors allegedly committed by the appellate court:
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A BUYER IN
GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU OBTAINED FROM IT THE
CASH ADVANCE OF ₱200,000.00, SAN LORENZO WAS PUT ON INQUIRY OF A PRIOR
TRANSACTION ON THE PROPERTY.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED FACT
THAT THE ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT IN
POSSESSION OF THE DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT AND TOOK
POSSESSION OF THE PROPERTY AND NO ADVERSE CLAIM, LIEN, ENCUMBRANCE OR LIS
PENDENS WAS ANNOTATED ON THE TITLES.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT
RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN
LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED PROPERTY.
THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS FULL
CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED AND
SET ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING THE TITLE OF SAN
LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD FAITH. 15
SLDC contended that the appellate court erred in concluding that it had prior notice of
Babasanta‘s claim over the property merely on the basis of its having advanced the amount of two
hundred thousand pesos (₱200,000.00) to Pacita Lu upon the latter‘s representation that she
needed the money to pay her obligation to Babasanta. It argued that it had no reason to suspect
that Pacita was not telling the truth that the money would be used to pay her indebtedness to
Babasanta. At any rate, SLDC averred that the amount of two hundred thousand pesos
(₱200,000.00) which it advanced to Pacita Lu would be deducted from the balance of the
purchase price still due from it and should not be construed as notice of the prior sale of the land
to Babasanta. It added that at no instance did Pacita Lu inform it that the lands had been
previously sold to Babasanta.
Moreover, SLDC stressed that after the execution of the sale in its favor it immediately took
possession of the property and asserted its rights as new owner as opposed to Babasanta who
has never exercised acts of ownership. Since the titles bore no adverse claim, encumbrance, or
lien at the time it was sold to it, SLDC argued that it had every reason to rely on the correctness of
the certificate of title and it was not obliged to go beyond the certificate to determine the condition
of the property. Invoking the presumption of good faith, it added that the burden rests on
Babasanta to prove that it was aware of the prior sale to him but the latter failed to do so. SLDC
pointed out that the notice of lis pendens was annotated only on 2 June 1989 long after the sale of
the property to it was consummated on 3 May 1989.1awphi1.nét
Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu informed
the Court that due to financial constraints they have no more interest to pursue their rights in the
instant case and submit themselves to the decision of the Court of Appeals.16
On the other hand, respondent Babasanta argued that SLDC could not have acquired ownership
of the property because it failed to comply with the requirement of registration of the sale in good
faith. He emphasized that at the time SLDC registered the sale in its favor on 30 June 1990, there
was already a notice of lis pendens annotated on the titles of the property made as early as 2
June 1989. Hence, petitioner‘s registration of the sale did not confer upon it any right. Babasanta
further asserted that petitioner‘s bad faith in the acquisition of the property is evident from the fact
that it failed to make necessary inquiry regarding the purpose of the issuance of the two hundred
thousand pesos (₱200,000.00) manager‘s check in his favor.
The core issue presented for resolution in the instant petition is who between SLDC and
Babasanta has a better right over the two parcels of land subject of the instant case in view of the
successive transactions executed by the Spouses Lu.
To prove the perfection of the contract of sale in his favor, Babasanta presented a document
signed by Pacita Lu acknowledging receipt of the sum of fifty thousand pesos (₱50,000.00) as
partial payment for 3.6 hectares of farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa,
Laguna.17 While the receipt signed by Pacita did not mention the price for which the property was
being sold, this deficiency was supplied by Pacita Lu‘s letter dated 29 May 1989 18 wherein she
admitted that she agreed to sell the 3.6 hectares of land to Babasanta for fifteen pesos (₱15.00)
per square meter.
An analysis of the facts obtaining in this case, as well as the evidence presented by the parties,
irresistibly leads to the conclusion that the agreement between Babasanta and the Spouses Lu is
a contract to sell and not a contract of sale.
Contracts, in general, are perfected by mere consent,19 which is manifested by the meeting of the
offer and the acceptance upon the thing which are to constitute the contract. The offer must be
certain and the acceptance absolute.20 Moreover, contracts shall be obligatory in whatever form
they may have been entered into, provided all the essential requisites for their validity are
present.21
The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos
(₱50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. Rosa,
Laguna. While there is no stipulation that the seller reserves the ownership of the property until full
payment of the price which is a distinguishing feature of a contract to sell, the subsequent acts of
the parties convince us that the Spouses Lu never intended to transfer ownership to Babasanta
except upon full payment of the purchase price.
Babasanta‘s letter dated 22 May 1989 was quite telling. He stated therein that despite his
repeated requests for the execution of the final deed of sale in his favor so that he could effect full
payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta himself recognized
that ownership of the property would not be transferred to him until such time as he shall have
effected full payment of the price. Moreover, had the sellers intended to transfer title, they could
have easily executed the document of sale in its required form simultaneously with their
acceptance of the partial payment, but they did not. Doubtlessly, the receipt signed by Pacita Lu
should legally be considered as a perfected contract to sell.
The distinction between a contract to sell and a contract of sale is quite germane. In a contract of
sale, title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by
agreement the ownership is reserved in the vendor and is not to pass until the full payment of the
price.22 In a contract of sale, the vendor has lost and cannot recover ownership until and unless
the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor
until the full payment of the price, such payment being a positive suspensive condition and failure
of which is not a breach but an event that prevents the obligation of the vendor to convey title from
becoming effective.23
The perfected contract to sell imposed upon Babasanta the obligation to pay the balance of the
purchase price. There being an obligation to pay the price, Babasanta should have made the
proper tender of payment and consignation of the price in court as required by law. Mere sending
of a letter by the vendee expressing the intention to pay without the accompanying payment is not
considered a valid tender of payment.24 Consignation of the amounts due in court is essential in
order to extinguish Babasanta‘s obligation to pay the balance of the purchase price. Glaringly
absent from the records is any indication that Babasanta even attempted to make the proper
consignation of the amounts due, thus, the obligation on the part of the sellers to convey title
never acquired obligatory force.
On the assumption that the transaction between the parties is a contract of sale and not a contract
to sell, Babasanta‘s claim of ownership should nevertheless fail.
Sale, being a consensual contract, is perfected by mere consent 25 and from that moment, the
parties may reciprocally demand performance.26 The essential elements of a contract of sale, to
wit: (1) consent or meeting of the minds, that is, to transfer ownership in exchange for the price;
(2) object certain which is the subject matter of the contract; (3) cause of the obligation which is
established.27
The perfection of a contract of sale should not, however, be confused with its consummation. In
relation to the acquisition and transfer of ownership, it should be noted that sale is not a mode, but
merely a title. A mode is the legal means by which dominion or ownership is created, transferred
or destroyed, but title is only the legal basis by which to affect dominion or ownership. 28 Under
Article 712 of the Civil Code, "ownership and other real rights over property are acquired and
transmitted by law, by donation, by testate and intestate succession, and in consequence of
certain contracts, by tradition." Contracts only constitute titles or rights to the transfer or acquisition
of ownership, while delivery or tradition is the mode of accomplishing the same. 29 Therefore, sale
by itself does not transfer or affect ownership; the most that sale does is to create the obligation to
transfer ownership. It is tradition or delivery, as a consequence of sale, that actually transfers
ownership.
Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee from the
moment it is delivered to him in any of the ways specified in Article 1497 to 1501.30 The word
"delivered" should not be taken restrictively to mean transfer of actual physical possession of the
property. The law recognizes two principal modes of delivery, to wit: (1) actual delivery; and (2)
legal or constructive delivery.
Actual delivery consists in placing the thing sold in the control and possession of the
vendee.31 Legal or constructive delivery, on the other hand, may be had through any of the
following ways: the execution of a public instrument evidencing the sale; 32 symbolical tradition
such as the delivery of the keys of the place where the movable sold is being kept;33 traditio longa
manu or by mere consent or agreement if the movable sold cannot yet be transferred to the
possession of the buyer at the time of the sale;34 traditio brevi manu if the buyer already had
possession of the object even before the sale;35 and traditio constitutum possessorium, where the
seller remains in possession of the property in a different capacity.36
Following the above disquisition, respondent Babasanta did not acquire ownership by the mere
execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the property.
For one, the agreement between Babasanta and the Spouses Lu, though valid, was not embodied
in a public instrument. Hence, no constructive delivery of the lands could have been effected. For
another, Babasanta had not taken possession of the property at any time after the perfection of
the sale in his favor or exercised acts of dominion over it despite his assertions that he was the
rightful owner of the lands. Simply stated, there was no delivery to Babasanta, whether actual or
constructive, which is essential to transfer ownership of the property. Thus, even on the
assumption that the perfected contract between the parties was a sale, ownership could not have
passed to Babasanta in the absence of delivery, since in a contract of sale ownership is
transferred to the vendee only upon the delivery of the thing sold.37
However, it must be stressed that the juridical relationship between the parties in a double sale is
primarily governed by Article 1544 which lays down the rules of preference between the two
purchasers of the same property. It provides:
Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in the possession; and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith.
The principle of primus tempore, potior jure (first in time, stronger in right) gains greater
significance in case of double sale of immovable property. When the thing sold twice is an
immovable, the one who acquires it and first records it in the Registry of Property, both made in
good faith, shall be deemed the owner.38 Verily, the act of registration must be coupled with good
faith— that is, the registrant must have no knowledge of the defect or lack of title of his vendor or
must not have been aware of facts which should have put him upon such inquiry and investigation
as might be necessary to acquaint him with the defects in the title of his vendor. 39
Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired knowledge
of Babasanta‘s claim. Babasanta, however, strongly argues that the registration of the sale by
SLDC was not sufficient to confer upon the latter any title to the property since the registration was
attended by bad faith. Specifically, he points out that at the time SLDC registered the sale on 30
June 1990, there was already a notice of lis pendens on the file with the Register of Deeds, the
same having been filed one year before on 2 June 1989.
Did the registration of the sale after the annotation of the notice of lis pendens obliterate the
effects of delivery and possession in good faith which admittedly had occurred prior to SLDC‘s
knowledge of the transaction in favor of Babasanta?
We do not hold so.
It must be stressed that as early as 11 February 1989, the Spouses Lu executed the Option to
Buy in favor of SLDC upon receiving ₱316,160.00 as option money from SLDC. After SLDC had
paid more than one half of the agreed purchase price of ₱1,264,640.00, the Spouses Lu
subsequently executed on 3 May 1989 a Deed of Absolute Salein favor or SLDC. At the time both
deeds were executed, SLDC had no knowledge of the prior transaction of the Spouses Lu with
Babasanta. Simply stated, from the time of execution of the first deed up to the moment of transfer
and delivery of possession of the lands to SLDC, it had acted in good faith and the subsequent
annotation of lis pendens has no effect at all on the consummated sale between SLDC and the
Spouses Lu.
A purchaser in good faith is one who buys property of another without notice that some other
person has a right to, or interest in, such property and pays a full and fair price for the same at the
time of such purchase, or before he has notice of the claim or interest of some other person in the
property.40 Following the foregoing definition, we rule that SLDC qualifies as a buyer in good faith
since there is no evidence extant in the records that it had knowledge of the prior transaction in
favor of Babasanta. At the time of the sale of the property to SLDC, the vendors were still the
registered owners of the property and were in fact in possession of the lands.l^vvphi1.net Time
and again, this Court has ruled that a person dealing with the owner of registered land is not
bound to go beyond the certificate of title as he is charged with notice of burdens on the property
which are noted on the face of the register or on the certificate of title. 41 In assailing knowledge of
the transaction between him and the Spouses Lu, Babasanta apparently relies on the principle of
constructive notice incorporated in Section 52 of the Property Registration Decree (P.D. No. 1529)
which reads, thus:
Sec. 52. Constructive notice upon registration. – Every conveyance, mortgage, lease, lien,
attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed,
or entered in the office of the Register of Deeds for the province or city where the land to which it
relates lies, be constructive notice to all persons from the time of such registering, filing, or
entering.
However, the constructive notice operates as such¾by the express wording of Section 52¾from
the time of the registration of the notice of lis pendens which in this case was effected only on 2
June 1989, at which time the sale in favor of SLDC had long been consummated insofar as the
obligation of the Spouses Lu to transfer ownership over the property to SLDC is concerned.
More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta the
annotation of the notice of lis pendens cannot help Babasanta‘s position a bit and it is irrelevant to
the good or bad faith characterization of SLDC as a purchaser. A notice of lis pendens, as the
Court held in Nataño v. Esteban,42 serves as a warning to a prospective purchaser or
incumbrancer that the particular property is in litigation; and that he should keep his hands off the
same, unless he intends to gamble on the results of the litigation." Precisely, in this case SLDC
has intervened in the pending litigation to protect its rights. Obviously, SLDC‘s faith in the merit of
its cause has been vindicated with the Court‘s present decision which is the ultimate denouement
on the controversy.
The Court of Appeals has made capital43 of SLDC‘s averment in its Complaint-in-
Intervention44 that at the instance of Pacita Lu it issued a check for ₱200,000.00 payable to
Babasanta and the confirmatory testimony of Pacita Lu herself on cross-examination.45 However,
there is nothing in the said pleading and the testimony which explicitly relates the amount to the
transaction between the Spouses Lu and Babasanta for what they attest to is that the amount was
supposed to pay off the advances made by Babasanta to Pacita Lu. In any event, the incident took
place after the Spouses Lu had already executed the Deed of Absolute Sale with Mortgage in
favor of SLDC and therefore, as previously explained, it has no effect on the legal position of
SLDC.
substantially differ from that in Abarquez, we would not hesitate to rule in favor of SLDC on the
basis of its prior possession of the property in good faith. Be it noted that delivery of the property
to SLDC was immediately effected after the execution of the deed in its favor, at which time SLDC
had no knowledge at all of the prior transaction by the Spouses Lu in favor of
Babasanta.1a\^/phi1.net
The law speaks not only of one criterion. The first criterion is priority of entry in the registry of
property; there being no priority of such entry, the second is priority of possession; and, in the
absence of the two priorities, the third priority is of the date of title, with good faith as the common
critical element. Since SLDC acquired possession of the property in good faith in contrast to
Babasanta, who neither registered nor possessed the property at any time, SLDC‘s right is
definitely superior to that of Babasanta‘s.
At any rate, the above discussion on the rules on double sale would be purely academic for as
earlier stated in this decision, the contract between Babasanta and the Spouses Lu is not a
contract of sale but merely a contract to sell. In Dichoso v. Roxas,47 we had the occasion to rule
that Article 1544 does not apply to a case where there was a sale to one party of the land itself
while the other contract was a mere promise to sell the land or at most an actual assignment of the
right to repurchase the same land. Accordingly, there was no double sale of the same land in that
case.
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals
appealed from is REVERSED and SET ASIDE and the decision of the Regional Trial Court,
Branch 31, of San Pedro, Laguna is REINSTATED. No costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

Assuming ex gratia argumenti that SLDC‘s registration of the sale had been tainted by the prior
notice of lis pendensand assuming further for the same nonce that this is a case of double sale,
still Babasanta‘s claim could not prevail over that of SLDC‘s. In Abarquez v. Court of
Appeals,46 this Court had the occasion to rule that if a vendee in a double sale registers the sale
after he has acquired knowledge of a previous sale, the registration constitutes a registration in
bad faith and does not confer upon him any right. If the registration is done in bad faith, it is as if
there is no registration at all, and the buyer who has taken possession first of the property in good
faith shall be preferred.

In Abarquez, the first sale to the spouses Israel was notarized and registered only after the second
vendee, Abarquez, registered their deed of sale with the Registry of Deeds, but the Israels were
first in possession. This Court awarded the property to the Israels because registration of the
property by Abarquez lacked the element of good faith. While the facts in the instant case
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-16420 October 12, 1921
AGRIPINO MENDOZA, petitioner-appellee,
vs.
PRIMITIVO KALAW, objector-appellant.
Guillermo M. Katigbak for appellant.
Felipe A. Jose for appellee.
JOHNSON, J.:
From the record it appears that on the 26th day of November, 1919, the petitioner presented a
petition in the Court of First instance of the City of Manila for the registration, under the Torrens
system, of a piece or parcel of land, particularly described in paragraph A of the petition. The said
lot is alleged to have an area of 371.6 square meters. The petitioner alleged that he was the
owner in fee simple of said parcel of land for the reason that he had purchased the same of
Federico Cañet on the 8th day of November, 1919. Accompanying the petition, there was united a
plan (marked Exhibit A) containing a technical description of the metes and bounds of said parcel
of land.
To the registration of said parcel of land the oppositor, Primitivo Kalaw, presented his opposition,
alleging that he was the owner of the same and that he had acquired it from the said Federico
Cañet.
Upon the issue thus presented by the petitioner and opposition, the Honorable James A. Ostrand,
on the 23d day of January, 1920, in a carefully prepared opinion, reached the conclusion that the
petitioner was the owner in fee simple of said parcel of land, and ordered it registered in his name
in accordance with the provisions of the Land registration Act. From that decree the oppositor
appealed to this court.
From an examination of the record the following facts seem to be proved by a large
preponderance of the evidence:
(1) That on the 24th day of September, 1919, the said Federico Cañet sold, under
a conditional sale, the parcel of land in question to the appellant (Exhibit 1);
(2) That on the 8th day of November, 1919, the said Federico Cañet made an absolute
sale of said parcel of land to the petitioner Agripino Mendoza (Exhibit B);
(3) That on the 12th day of November, 1919, Agripino Mendoza entered upon, and took
actual possession of, said parcel of land, enclosed it with a fence, and began to clean the
same;
(4) That after the petitioner had fenced and cleaned said lot, as above indicated, a
representative of the oppositor claimed and attempted to obtain possession of said lot,
but the petitioner, who was then in possession, refused to deliver the possession, upon
the ground that the was the owner;
(5) That on the 17th day of November (18th day of November), 1919, the oppositor
attempted to have his title registered in the registry of deeds of the City of Manila, but
such registration was denied by the register of deeds for the reason that there existed
some defect in the description of the property, and for the reason that the title of the
vendor had not therefore been registered. The register of deeds, however, did make an
"anotacion preventiva."
It will be noted from the foregoing that Federico Cañet made two sales of the same property —
one of the oppositor and the other to the petitioner. The first was but a conditional sale while the
latter was an absolute sale. It will also be noted that while the absolute sale to the petitioner was
subsequent to the conditional sale to the oppositor, the former obtained the actual possession of
the property first. It will further be noted from a reading of Exhibits 1 and B that the petitioner
actually paid to his vendor the purchase price of the property in question, while the payment by the
oppositor depended upon the performance of certain conditions mentioned in the contract of
sale. 1awph!l.net
While was have stated that there were two sales of the parcel of land in question, that is hardly the
fact, because a conditional sale, before the performance of the condition, can hardly be said to be
a sale of property, especially where the condition has not been performed or complied with. That
being true, article 1473 of the Civil Code can hardly be said to be applicable.
Neither can the "anotacion preventiva" obtained by the oppositor be said to have created any
advance in his favor, for the reason that a preventative precautionary notice on the records of the
registry of deeds only protects the rights of the person securing it for a period of thirty days. (Par.
2, art. 17, Mortgage Law.) A preventative precautionary notice only protects the interests and
rights of the person who secures it against those who acquire an interest in the property
subsequent thereto, and then, only for a period of thirty days. It cannot affect the rights or interests
of persons who acquired an interest in the property theretofore. (Veguillas vs. Jaucian, 25 Phil.,
315; Samson vs.Garcia and Ycalina, 34 Phil., 805.) In the present case the petitioner had acquired
an absolute deed to the land in question, and had actually entered into the possession of the
same, before the preventative precautionary notice was noted in the office of the registry of deeds.
Therefore, under the provisions of the Mortgage Law above cited, it could in no way affect the
rights or interests of persons, acquired theretofore.
For all of the foregoing reasons, we are fully persuaded that the judgment ordering the registration
of the parcel of land in question in the name of the petitioner should be and is hereby affirmed,
with costs. So ordered.

Araullo, Street, Avanceña and Villamor, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 120191 October 10, 1997
LORETO ADALIN, CARLOS CALINGASAN, DEMETRIO ADAYA and MAGNO
ADALIN, petitioners,
vs.
THE HON. COURT OF APPEALS, FAUSTINO L. YU, ANTONIO T. LIM, ELENA K. PALANCA,
JOSE PALANCA, EDUARDA K. VARGAS, JOSE VARGAS, MERCEDES K. CABALLERO,
EBERHARDO CABALLERO, ISABEL K. VILLAMOR, FEDERICO VILLAMOR, JOSE KADO,
URSULA KADO, MARIA K. CALONZO, BAYANI L. CALONZO, TEOFILA KADO, NESTOR
KADO and LILIA KADO, respondents.
HERMOSISIMA, JR., J.:
Before us is a petition for review seeking the reversal of the Decision1 of the Court of Appeals2 and
in lieu thereof, the reinstatement of the Decision3 of the Regional Trial Court4 in an action for
specific performance filed by private respondents Faustino L. Yu and Antonio T. Lim against the
Kado siblings, namely, private respondents Elena K. Palanca, Eduarda K. Vargas, Mercedes K.
Caballero, Isabel K. Villamor, Jose Kado, Maria K. Calonzo, Teofila Kado and Nestor Kado, and
their respective spouses.
In essence, the petition poses a challenge against the respondent appellate court's legal
conclusion that the transaction entered into by private respondents Yu and Lim with private
respondents Kado siblings, is one of an absolute sale and not merely a conditional sale as
denominated in the document signed by said parties. As such, there is no dispute as to the
following facts:
. . . [F]rom the welter of evidence and the record, it has been established that Elena Kado
Palanca, and her brothers and sisters, namely, Eduarda K. Vargas, Mercedes K.
Caballero, Isabel K. Villamor, Jose Kado, Maria K. Calonzo, Teofila Kado and Nestor
Kado, hereinafter referred to, for brevity's sake, as the Appellees-Vendors, were the
owners of a parcel of land, with an area of 1,343 square meters, with a five-door, one
storey commercial building constructed thereon, fronting the Imperial Hotel, located along
Magallanes Street, Cotabato City, described in and covered by Transfer Certificate of
Title No. T-12963 of the Registry of Deeds of Cotabato City . . . . One of the five (5) doors
was leased to Loreto Adalin, hereinafter referred to as the Appellee Adalin, two (2) doors
were leased to Carlos Calingasan and Demetrio Adaya respectively, and two (2) doors
were leased to Magno Adalin, all of whom are hereinafter referred to, for brevity's sake,
as the Appellees-Vendees. The Appellees-Vendees and Appellee Adalin paid a monthly
rental of P1,500.00 for each door. The Appellees-Vendors commissioned Ester Bautista
to look for and negotiate with prospective buyers for the sale of their property for the price
of P3,000,000.00. Sometime in August, 1987, Ester Bautista offered the property, for
sale, to the Appellants and the latter agreed to buy the property. A conference was held in
the office of the Appellant Faustino Yu, at the Imperial Hotel, where he was the President-
Manager, with both Appellants, the Appellee Adalin, the Appellees-Vendors Elena
Palanca and Teofilo Kado, in their behalf and in behalf of the Appellees-Vendors, in
attendance, to discuss the terms and conditions of the sale. The Appellants and Appellee
Adalin, the Appellees-Vendors agreed that the Appellants will each buy two (2) doors
while Appellee Adalin will buy the fifth door which he was leasing from the Appellees-
Vendors, all for the price of P2,600,000.00. During the conference, the Appellants
inquired from the Appellee-Vendor Elena Palanca whether the Appellees-Vendees were
interested to buy the property but the Appellee-Vendor Elena Palanca replied that the
property had been offered to the Appellees-Vendees for sale but that the latter were not
interested to buy the same. The conferees then agreed to meet, on September 2, 1987, in
the house of the Appellee-Vendor Palanca, with Atty. Bayani Calonzo, her brother-in-law,
in attendance, to finalize the sale. However, unknown to the Appellants, the Appellee-
Vendor Elena Palanca, in her behalf and in behalf of the other Appelles-Vendors, sent, on
September 2, 1987, separate letters to each of the Appellees-Vendees informing them
that someone was interested to buy the property and requested them to vacate the
property within thirty (30) days "unless all of you could buy the property at the same price"
. . . . During the conference in the house of the Appellee-Vendor Elena Palanca, on
September 2, 1987, the Appellants, the Appellee Adalin and the Appellees-Vendors Elena
Palanca and Teofilo Kado in their behalf and in behalf of the other Appellees-Vendors,
Atty. Bayani Calonzo, the husband of the Appellee Maria Kado, Atty. Eugenio Soyao, the
counsel of the Appellants and the Appellee-Vendee Magno Adalin who attended in his
behalf and in behalf of the Appellees-Vendees, were present. When asked by the
Appellants if the Appellees-Vendees were interested to buy the property, the Appellee-
Vendee Magno Adalin forthrightly replied that the Appellees-Vendees were not interested
to buy the property because they cannot afford the purchase price thereof. However, he
claimed that the Appellees' Vendees were entitled to P50,000.00 each as disturbance
money, in consideration for their vacating the property, to be borne by the Appellees-
Vendors. The Appellants, the Appellee Adalin and the Appelles-Vendors forthwith agreed
that each Appellant will buy two (2) doors while the fifth door leased by Appellee Adalin
will be purchased by him, all for the purchase price of P2,600,000.00 and that the
Appellants and Appellee Adalin will pay, P300,000.00 as downpayment for the property,
the balance to be payable upon the eviction of the Appellees-Vendees from the property
and the execution of a "Deed of Absolute Sale". Atty. Bayani Calonzo forthwith assured
the Appellants that he could secure the eviction of the Appellees-Vendees from the
property within a month because the latter were his close friends and compadres. Atty.
Bayani Calonzo then gave Atty. Eugenio Soyao, the counsel of the Appellants, the go-
signal to prepare the deed for the signatures of the parties. On September 8, 1987, the
Appellants and Appellee Adalin, as buyers of the property, and the Appellees-Vendors,
met in the office of the Appellant Faustino Yu at the Imperial Hotel and executed the
"Deed of Conditional Sale" prepared by Atty. Eugenio Soyao
. . . . The Appellants and Appellee Adalin each contributed P100,000.00 and gave the
total amount of P300,000.00 to the Appellee-Vendor Elena Palanca as the downpayment
for the property. The Appellees-Vendors Elena Palanca and Eduarda Vargas signed an
"Acknowledgment Receipt" for the downpayment . . . in their behalf and in behalf of the
other Appellees-Vendors. In the meantime, the Appellants deferred registration of the
deed until after the eviction of the Appellees-Vendees from the property and the payment
of the balance of the purchase price of the property to the Appellees-Vendors as agreed
upon under the "Deed of Conditional Sale".
In the interim, on October 14, 1987, the Appellees-Vendors, through the Appellee-Vendor
Elena Palanca, wrote, conformably with the terms of the "Deed of Conditional Sale" . . . a
letter complaint against the Appellees-Vendees with the Barangay Captain for unlawful
detainer . . . . The case was docketed as Barangay Case No. 7,052-87 . . . . On October
16, 1987, the Appellee-Vendee Magno Adalin wrote a letter to the Appellees-Vendors,
through the Appellee-Vendor Elena Palanca, informing them that he had decided to
purchase the two doors he was leasing for the purchase price of P600,000.00 per door
and was ready to tender the amount by the end of the month . . . . The Appellee-Vendee
Demetrio Adaya and the Appellee-Vendee Carlos Calingasan likewise wrote separate
letters to the Appellees-Vendors informing the latter of their decision to purchase the
premises occupied by them respectively for the amount of P600,000.00 each . . . . Inspite
of the prior sale of the property to the Appellants and Appellee Adalin, the Appellees-
Vendors decided to back out from said sale to the Appellants and to sell the property to
the Appellees-Vendees and to return the downpayments of the Appellants for the property
in the total amount of P200,000.00 with interests thereon. The Appellees-Vendees
procured TCBT Check No. 195031 in the amount of P101,416.66 payable to the
Appellant Faustino Yu and TCBT Check No. 195032 in the amount of P101,416.66
payable to the Appellant Antonio Lim and transmitted the same to the Appellants with a
covering letter . . . . The Appellants were flabbergasted. Both the Appellants refused to
receive the said letter and checks and insisted, instead, that the Appellees-Vendors
comply with the "Deed of Conditional Sale" . . . . On November 16, 1987, the Appellants,
through their counsel, wrote a letter to the Appellees-Vendors, copies of which were
furnished the Appellees-Vendees, inquiring if the appropriate action has been undertaken
towards the eviction of the Appellees-Vendees
. . . . The Appellees-Vendors ignored the said letter. Instead, the Appellees-Vendors
signed, in December, 1987, a "Deed of Sale of Registered Land" under which they sold
the said property to the Appellees-Vendees, including the Appellee Adalin for the price of
only P1,000,000.00 . . . much lower than the price of the Appellant under the "Deed of
Conditional Sale"
. . . . Although it appears that the deed was notarized by Atty. Bayani Calonzo, however,
the deed does not bear any number in the notarial register of the lawyer. In the same
month, the Appellees-Vendors signed another "Deed of Sale of Registered Land" under
which they sold to the Appellees-Vendees including Appellee Adalin the aforesaid
property for the considerably increased price of P3,000,000.00 . . . . The deed was
notarized by Atty. Bayani Calonzo. Interestingly, both deeds were not filed with the
Register of Deeds of Cotabato City. Not content with the two (2) Deeds of Sale of
Registered Land . . . the Appellees-Vendors, signed a third "Deed of Sale of Registered
Land" which appears dated February 5, 1988 under which they purportedly sold to the
Appellees-Vendees, including Appellee Adalin, the aforesaid property for the much
reduced price of only P860,000.00 . . . . However, the aforesaid deed was not
immediately filed with the Register of Deeds of Cotabato City. On February 26, 1988, the
Appellees-Vendors, through Atty. Bayani Calonzo, filed a Petition against the Appellants
for the consignation of their downpayment of P200,000.00, with the Regional Trial Court
of General Santos City entitled "Maria K. Calonzo, et al. versus Faustino Yu, Special Civil
Case No. 259". . . .
Undaunted, the Appellants filed a complaint with the Barangay Captain for Breach of
Contract against the Appellees-Vendors entitled "Faustino Yu, et al. versus Elena K.
Palanca, et al., Barangay Case No. 9,014-88". The Barangay Captain issued, on April 7,
1988, summons to the Appellees-Vendors for them to appear for a conference on April
22, 1988 at 9:00 o'clock in the morning . . . . Invitations were also sent to the Appellees-
Vendees . . . . During the conference attended by Appellee-Vendees, the Appellants, if
only to accommodate the Appellee-Vendee Magno Adalin and settle the case amicably,
agreed to buy only one door each so that the Appellee-Vendee Magno Adalin could
purchase the two doors he was occupying. However, the Appellee-Vendee Magno Adalin
adamantly refused, claiming that he was already the owner of the two (2) doors. When
the Appellant Antonio Lim asked the Appellee Vendee Magno Adalin to show the "Deed
of Sale" for the two doors, the latter insouciantly walked out. Atty. Bayani Calonzo
likewise stated that there was no need to show the deed of sale. No settlement was
forged and, on May 16, 1988, the Barangay Captain issued the Certification to File Action
....
On May 5, 1988, the Appellants filed their complaint for "Specific Performance" against
the Appellees-Vendors and Appellee Adalin in the Court a quo.
On June 14, 1988, the Appellants caused the annotation of a "Notice of Lis Pendens" at
the dorsal portion of Transfer Certificate of Title No. 12963 under the names of the
Appellees-Vendors . . . . On October 25, 1988, the Appellees-Vendees filed a "Motion for
Intervention as Plaintiffs-Intervenors" appending thereto a copy of the "Deed of Sale of
Registered Land" signed by the Appellees-Vendors . . . . On October 27, 1988, the
Appellees-Vendees filed the "Deed of Sale of Registered Land" . . . with the Register of
Deeds on the basis of which Transfer Certificate of Title No. 24791 over the property was
issued under their names . . . . On the same day, the Appellees-Vendees filed in the
Court a quo a "Motion To Admit Complaint-In-Intervention . . . . Attached to the
Complaint-In-Intervention was the "Deed of Sale of Registered Land" signed by the
Appellees-Vendees . . . . The Appellants were shocked to learn that the Appellees-
Vendors had signed the said deed. As a counter-move, the Appellants filed a motion for
leave to amend Complaint and, on November 11, 1988, filed their Amended Complaint
impleading the Appellees-Vendees as additional Defendants. . . .
xxx xxx xxx
The Appellees-Vendors suffered a rebuff when, on January 10, 1989, the Regional Trial
Court of General Santos City issued an Order dismissing the Petition of the Appellees-
Vendors for consignation . . . . In the meantime, on November 30, 1989, Appellee Adalin
died and was substituted, per order of the Court a quo, on January 5, 1990, by his heirs,
namely, Anita, Anelita, Loreto, Jr., Teresita, Wilfredo, Lilibeth, Nelson, Helen and Jocel,
all surnamed Adalin, as Appellees-Vendees . . . .
 After trial, the Court a quo rendered judgment in favor of the Appellees-Vendees . . . .5
In the opinion of the court a quo, petitioners became the owners of the parcel of land in question
with the five-door, one storey commercial building standing thereon, when they purchased the
same following the offer and the 30-day option extended to them by private respondent Elena
Palanca, in behalf of the other Kado siblings, in her letter to them dated September 2, 1987. The
trial court disregarded the fact that the Kado siblings had already finished transacting with private
respondents Faustino Yu and Antonio Lim and had in fact entered into a conditional sale with
them respecting the same property. The trial court brushed aside this fact as it reasoned that:
. . . In conditional deed of sale, ownership is only transferred after the purchase price is
fully paid or the fulfillment of the condition and the execution of a definite or absolute deed
of sale are made. . . .
In this case, it is clear from the provision of the Deed of Conditional Sale . . . that the
balance of the price of P2,300,000.00 shall be paid only after all the defendants-vendees
shall have vacated and surrendered the premises to the defendants-vendors. However,
the tenants did not leave the premises. In fact they opted to buy the property. Moreover,
at that time, the property was legally leased to the defendants-vendees. . . .
xxx xxx xxx
Clearly therefore, the condition set forth in the said Deed of Conditional Sale between the
plaintiffs and the defendants-vendors was not fulfilled. Since the condition was not
fulfilled, there was no transfer of ownership of the property from the defendants-vendors
to the plaintiffs. . . .
. . . [In] the letters of Elena Palanca to the defendants-vendees dated September 2, 1987
. . . [t]hey were given the option or preferential right to purchase the property.
xxx xxx xxx
When the defendants-vendors accepted defendants-vendees' option to buy, the former
returned the initial payment of P200,000.00 to the plaintiffs . . . but they refused to accept
the same. This refusal however did not diminish the effect of the acceptance of the option
to buy, which in fact led to the execution of the said Deed of Sale of Registered Land . . .
and the subsequent issuance of the Transfer Certificate of Title No. T-24791 of the
Registry of Deeds for the City of Cotabato in the names of the defendants-vendees . . . . .
. Private respondents Faustino Yu and Antonio Lim wasted no time in appealing from the above
. . . [T]he defendants-vendors acted in bad faith when, while during the effectivity of the
period of the option to buy [that] they gave to the defendants-vendees, they executed a
Deed of Conditional Sale . . . in favor of the plaintiffs. This was only six (6) days from date
of the option. . . .6
The trial court also ruled that the conditional sale of the subject property to private respondents
Faustino Yu and Antonio Lim and the sale of the same property to petitioners, did not involve a
double sale as to warrant the application of Article 1544 of the Civil Code. The court a
quo ratiocinated in this manner:
. . . [T]he plaintiffs assert that this case is one of double sale and should be governed by
Article 1544 of the Civil Code. The first sale, plaintiffs claim, is that under the Deed of
Conditional Sale . . . in their favor and the second sale is that ultimately covered by the
Deed of Sale of Registered Land for P860,000.00 . . . in favor of the defendants-vendee.
As already pointed out by the court, the execution of the Deed of Conditional Sale did not
transfer ownership of the property to the plaintiff, hence, there can be no double sale. As
held in the case of Mendoza vs. Kalaw, 42 Phil. 236, Article 1544 does not apply to
situations where one sale was subject to a condition which was not complied with. This is
because a conditional sale, before the performance of the condition, can hardly be said to
be a sale of property, specially where the condition has not been performed or complied
with.7
Pursuant to the above ruminations of the court a quo, it ordered the following in the dispositive
portion of its decision:
WHEREFORE, the court hereby orders the dismissal of plaintiffs' complaint against the
defendants-vendees for lack or merit, and hereby further sustains the validity of Transfer
Certificate of Title No. T-24791 issued in their names (defendants-vendees) by the
Registry of Deeds for the City of Cotabato.
The defendants-vendors are hereby jointly and severally ordered to pay moral damages
of P500,000.00 to each of the plaintiffs, P100,000.00 exemplary damages to each of the
plaintiffs and P50,000.00 as and for attorney's fees.
Defendants-vendors are hereby further ordered to return the P200,000.00 initial payment
received by them with legal interest from date of receipt thereof up to November 3, 1987.
Defendants-vendees' counterclaim is hereby ordered dismissed.
With cost against the defendants-vendors
SO ORDERED.8
decision of the court a quo. They were vindicated when the respondent Court of Appeals rendered
its decision in their favor. The respondent appellate court reversed the trial court as it ruled, thus:
. . . We find, and so declare. that the "Deed of Conditional Sale" . . . executed by the
Appellees-Vendors in favor of the Appellants was an absolute deed of sale and not a
conditional sale.
xxx xxx xxx
In ascertaining the nature of a contract and the intention of the parties thereto, it
behooves the trier of facts to look into the context of the contract in its entirety and not
merely specific words or phrases therein, standing alone, as well as the
contemporaneous and subsequent acts of the parties. It bears stressing that the title of
the contract is not conclusive of its nature. . . .
Although a contract may be denominated a "Deed of Conditional Sale", or "Agreement to
Sell", the same may be, in reality a deed of absolute sale or a contract of sale . . . .
Under Article 1458 of the New Civil Code, a sale may be absolute or conditional. A
contract may be conditional when the ownership of the thing sold is retained until the
fulfillment of a positive suspensive condition, generally the payment of the purchase price,
the breach of which condition will prevent the onset of the obligation to deliver title . . . . A
sale of immovables is absolute where the contract does not contain any provision that title
to the property sold is reserved to the Vendors or that the Vendor is entitled to unilaterally
rescind the same.
xxx xxx xxx
The Court a quo . . . resolutely subscribed to the view that the . . . deed is conditional, its
efficacy dependent upon a suspensive condition — that of the payment by the Appellants
of the balance of the purchase price of the properly, after the Appellees-Vendees shall
have been evicted from the property or shall have voluntarily vacated the same and the
Deed of Absolute Sale shall have been executed in favor of the Appellants; and, since the
condition was not fulfilled, the sale never became effective . . . . . . . Even a cursory
reading of the deed will readily show absence of any stipulation in said deed that the title
to the property was reserved to the Appellees-Vendors until the balance of the purchase
price was paid nor giving them the right to unilaterally rescind the contract if the
Appellants failed to pay the said amount upon the eviction of the Appellees-Vendees.
Inscrutably the, the deed is a perfected deed of absolute sale, not a conditional one. . . .
xxx xxx xxx
There may not have been delivery of the properly to the Appellants either symbolically or
physically and more, the Appellees-Vendors may have deferred their obligation of
delivering physical possession of the property to the Appellees only after the Appellees-
Vendees shall have vacated the property, however, the right of retention of the Appellees-
Vendors of title to or ownership over the property cannot thereby be inferred therefrom. . .
..
In fine, the non-payment of the balance of the purchase price of the property and the
consequent eviction of the Appellees-Vendees therefrom were not conditions which
suspended the efficacy of the "Deed of Conditional Sale". Rather, the same, if due to the
fault of the Appellants, merely accorded the Appellees-Vendors the option to rescind the
already existing and effective sale.
The Appellants and the Appellees-Vendors, having entered into, under the "Deed of
Conditional Sale" . . . an absolute sale, the Appellants thus had every right to demand that
the Appellees-Vendors performed their prestation under the deed, to wit — the eviction of
the Appellees-Vendees from the property — so that the Appellants may then pay the
balance of the purchase price of the property.
xxx xxx xxx
The Court a quo and the Appellees, however, posit that the "Deed of Conditional Sale" . .
. had not been consummated and title to and ownership over the property had not been
transferred to the Appellants because there had been neither constructive nor actual
delivery of the property to the Appellants . . . .
We do not agree. The evidence in the record shows that the Appellants and the
Appellees-Vendors met in the house of Appellee Elena Palanca on September 2, 1987.
The Appellees-Vendees were represented by the Appellee-Vendee, Retired Col. Magno
Adalin. The latter did not object to the sale of the property to the Appellants but merely
insisted that each of the Appellees-Vendees be give in P50,000.00 as disturbance fee by
the Appellees-Vendors to which the latter acquiesced because Atty. Bayani Calonzo
forthwith gave Atty. Eugenio Soyao, the go-signal to prepare the "Deed of Conditional
Sale" for the signatures thereof by the parties on September 8, 1987. The Appellees-
Vendors, on September 2, 1987, wrote letters to the Appellees-Vendees giving them the
option to match the price offered by the Appellants. The Appellees-Vendees maintained a
resounding silence to the letter-offer of the Appellees-Vendors. It was only, on October
16, 1987, that the Appellees-Vendees, after the execution by the Appellants and the
Appellees-Vendors of the "Deed of Conditional Sale", that the Appellees-Vendees finally
decided to themselves, purchase the property. The Appellees are estopped from claiming
that the property had not been delivered to the Appellants. The Appellants cannot use
their gross bad faith as a shield to frustrate the enforcement, by the Appellants, of the
"Deed of Conditional Sale". . . .
xxx xxx xxx
The Appellees-Vendors cannot invoke the refusal of the Appellees-Vendees to vacate the
property and the latter's decision to themselves purchase the property as a valid
justification to renege on and turn their backs against their obligation to deliver or cause
the eviction of the Appellees-Vendees from and deliver physical possession or the
property to the Appellants. For, if We gave our approbation to the stance of the Appellees,
then We would thereby be sanctioning the performance by the Appellees-Vendors of their
obligations under the deed subject to the will and caprices of the Appellees-Vendees,
which we cannot do . . . .
It would be the zenith of inequity for the Appellees-Vendors to invoke the occupation by
the Appellees-Vendees, as of the property, as a justification to ignore their obligation to
have the Appellees-Vendees evicted from the property and for them to give P50,000.00
disturbance fee for each of the Appellees-Vendees and a justification for the latter to hold
on to the possession of the property.
 xxx xxx xxx
Assuming, gratia arguendi, for the nonce, that there had been no consummation of the
"Deed of Conditional Sale" . . . by reason of the non-delivery to the Appellants of the
property, it does not thereby mean that the "Deed of Sale of Registered Land" . . .
executed by the Appellees should be given preference. Apropos to this, We give our
approbation to the plaint of the Appellants that the Court a quo erred in not applying the
second and third paragraphs of Article 1544 . . . . .
For, the evidence in the record shows that, although the Appellees-Vendees managed to
cause the registration of the Deed of Sale of Registered Land . . . on October 27, 1988
and procure Transfer Certificate of Title No. 24791 under their names, on said date, and
that they were, as of said date, in physical possession of the property, however, the
evidence in the record shows that the Appellees-Vendees were in gross evident bad faith.
At the time the Appellees executed the "Deed of Sale of Registered Land" in December
1987 . . . they were aware that the Appellees-Vendors and the Appellants had executed
their "Deed of Conditional Sale" as early as September 8, 1987. . . . In the light of the
foregoing, We arrive at the ineluctable conclusion that preference must be accorded the
"Deed of Conditional Sale" executed by the Appellants and the Appellees-Vendors.9
Accordingly, the respondent Court of Appeals rendered another judgment in the case and ordered
the following:
1. The "Deed of Conditional Sale", Exhibit "A" is hereby declared valid;
2. The "Deeds of Sale of Registered Land", Exhibits "E", "F" and "G" and Transfer
Certificate of Title No. 24791 are hereby declared null and void;
3. The Appellees-Vendees except the heirs of Loreto Adalin are hereby ordered to vacate
the property within thirty (30) days from the finality of this Decision;
4. The Appellees-Vendors are hereby ordered to execute, in favor of the Appellants, a
"Deed of Absolute Sale" covering four (4) doors of the property (which includes the area
of the property on which said four doors are constructed) except the door purchased by
the Appellee-Vendee Loreto Adalin, free of any liens or encumbrances;
5. The Appellants are hereby ordered to remit to the Appellees-Vendors the balance of
the purchase price of the four (4) doors in the amount of P1,880,000.00;
6. The Appellees-Vendors are hereby ordered to refund to the Appellees-Vendees the
amount of P840,000.00 which they paid for the properly under the "Deed of Conditional
Sale of Registered Land", Exhibit "G", without interest considering that they also acted in
bad faith;
7. The Appellee-Vendee Magno Adalin is hereby ordered to pay the amount of P3,000.00
a month, and each of the Appellees-Vendees, except the Appellee Adalin, the amount of
P1,500.00 to the Appellants, from November, 1987, up to the time the property is vacated
and delivered to the Appellants, as reasonable compensation for the occupancy of the
property, with interest thereon at the rate of 6% per annum;
8. The Appellees-Vendors are hereby ordered to pay, jointly and severally, to each of the
Appellants the amount of P100,000.00 by way of moral damages, P20,000.00 by way of
exemplary damages and P20,000.00 by way of attorney's fees;
9. The counterclaims of the Appellees are dismissed.
With costs against the Appellees.
SO ORDERED.10
Unable to agree with the above decision of the respondent appellate court, petitioners seek
reversal thereof on the basis on the following grounds:
1. The Unconsummated Conditional Contract of Sale in favor of the herein respondent
VENDEES is Inferior to and Cannot Prevail Over the Consummated Absolute
Contracts of Sale in favor of the herein petitioners.
2. The Deeds of Sale in favor of the herein Petitioners as well as Transfer Certificate of
Title No. 24791 in their names are Perfectly Valid Documents.
3. The herein Petitioners may not be Legally and Rightfully Ordered to Vacate the
Litigated Property or Pay Reasonable Compensation for the Occupancy Thereof .
4. The herein Petitioners may not be Held Liable to Pay the Costs.11
5. The Court of Appeals erred in holding that the Deed of Conditional Sale is in reality an
absolute deed of sale.
6. The Court of Appeals erred in relying totally and exclusively on the evidence presented
by respondents and in disregarding the evidence for petitioners.
7. The Court of Appeals erred in holding that herein petitioners are guilty of bad faith and
that Article 1544 of the Civil Code is
applicable.12
The petition lacks merit.
The grounds relied upon by petitioners are essentially a splitting of the various aspects of the one
pivotal issue that holds the key to the resolution of this controversy: the true nature of the sale
transaction entered into by the Kado siblings with private respondents Faustino Yu and Antonio
Lim. Our task put simply, amounts to a declaration of what kind contract had been entered into by
said parties and of what their respective rights and obligations are thereunder.
It is not disputed that in August, 1987, Elena K. Palanca, in behalf of the Kado siblings,
commissioned Ester Bautista to look for buyers for their property fronting the Imperial Hotel in
Cotabato City. Bautista logically offered said property to the owners of the Imperial Hotel which
may be expected to grab the offer and take advantage of the proximity of the property to the hotel
site. True enough, private respondent Faustino Yu, the President-General Manager of Imperial
Hotel, agreed to buy said property.
Thus during that same month of August, 1987, a conference was held in the office of private
respondent Yu at the Imperial Hotel. Present there were private respondent Yu, Loreto Adalin who
was one of the tenants of the five-door, one-storey building standing on the subject property, and
Elena Palanca and Teofilo Kado in their own behalf as sellers and in behalf of the other tenants of
said building. During the conference, private respondents Yu and Lim categorically asked Palanca
whether the other tenants were interested to buy the property, but Palanca also categorically
answered that the other tenants were not interested to buy the same. Consequently, they agreed
to meet at the house of Palanca on September 2, 1987 to finalize the sale.
On September 2, 1987, Loreto Adalin; Yu and Lim and their legal counsel; Palanca and Kado and
their legal counsel; and one other tenant, Magno Adalin, met at Palanca's house. Magno Adalin
was there in his own behalf as tenant of two of the five doors of the one-storey building standing
on the subject property and in behalf of the tenants of the two other doors, namely. Carlos
Calingasan and Demetrio Adaya. Again, private respondents Yu and Lim asked Palanca and
Magno Adalin whether the other tenants were interested to buy the subject property, and Magno
Adalin unequivocally answered that he and the other tenants were not so interested mainly
because they could not afford it. However, Magno Adalin asserted that he and the other tenants
were each entitled to a disturbance fee of P50,000.00 as consideration for their vacating the
subject property.
During said meeting, Palanca and Kado, as sellers, and Loreto Adalin and private respondents Yu
and Lim, as buyers, agreed that the latter will pay P300,000.00 as downpayment for the property
and that as soon as the former secures the eviction of the tenants, they will be paid the balance of
P2,300,000.00.
Pursuant to the above terms and conditions, a Deed of Conditional Sale was drafted by the
counsel of private respondents Yu and Lim. On September 8, 1987, at the Imperial Hotel office of
private respondent Yu, Palanca and Eduarda Vargas, representing the sellers, and Loreto Adalin
and private respondents Yu and Lim signed the Deed of Conditional Sale. They also agreed to
defer the registration of the deed until after the sellers have secured the eviction of the tenants
from the subject property.
The tenants, however, refused to vacate the subject property. Being under obligation to secure the
eviction of the tenants, in accordance with the terms and conditions of the Deed of Conditional
Sale, Elena Palanca filed with the Barangay Captain a letter complaint for unlawful detainer
against the said tenants.
Undisputedly, Palanca, in behalf of the Kado siblings who had already committed to sell the
property to private respondents Yu and Lim and Loreto Adalin, understood her obligation to eject
the tenants on the subject property. Having gone to the extent of filing an ejectment case before
the Barangay Captain, Palanca clearly showed an intelligent appreciation of the nature of the
transaction that she had entered into: that she, in behalf of the Kado siblings, had already sold the
subject property to private respondents Yu and Lim and Loreto Adalin, and that only the payment
of the balance of the purchase price was subject to the condition that she would successfully
secure the eviction of their tenants. In the sense that the payment of the balance of the purchase
price was subject to a condition, the sale transaction was not yet completed, and both sellers and
buyers have their respective obligations yet to be fulfilled: the former, the ejectment of their
tenants; and the latter, the payment of the balance of the purchase price. In this sense, the Deed
of Conditional Sale may be an accurate denomination of the transaction. But the sale was
conditional only inasmuch as there remained yet to be fulfilled, the obligation of the sellers to eject
their tenants and the obligation of the buyers to pay the balance of the purchase price. The choice
of who to sell the property to, however, had already been made by the sellers and is thus no
longer subject to any condition nor open to any change. In that sense, therefore, the sale made by
Palanca to private respondents was definitive and absolute.
Nothing in the acts of the sellers and buyers before, during or after the said transaction justifies
the radical change of posture of Palanca who, in order to provide a legal basis for her later
acceptance of the tenants' offer to buy the same property, in effect claimed that the sale, being
conditional, was dependent on the sellers not changing their minds about selling the property to
private respondents Yu and Lim. The tenants, for their part, defended Palanca's subsequent
dealing with them by asserting their option rights under Palanca's letter of September 2, 1987 and
harking on the non-fulfillment of the condition that their ejectment be secured first.
Two days after Palanca filed an ejectment case before the Barangay Captain against the tenants
of the subject property, Magno Adalin, Demetrio Adaya and Carlos Calingasan wrote letters to
Palanca informing the Kado siblings that they have decided to purchase the doors that they were
leasing for the purchase price of P600,000.00 per door. Almost instantly, Palanca, in behalf of the
Kado siblings, accepted the offer of the said tenants and returned the downpayments of private
respondents Yu and Lim. Of course, the latter refused to accept the reimbursements.
Certainly, we cannot countenance the double dealing perpetrated by Palanca in behalf of the
Kado siblings. No amount of legal rationalizing can sanction the arbitrary breach of contract that
Palanca committed in accepting the offer of Magno Adalin, Adaya and Calingasan to purchase a
property already earlier sold to private respondents Yu and Lim.
Petitioners claim that they were given a 30-day option to purchase the subject property as
contained in the September 2, 1987 letter of Palanca. In the first place, such option is not valid for
utter lack of consideration.13Secondly, private respondents twice asked Palanca and the tenants
concerned as to whether or not the latter were interested to buy the subject property, and twice,
too, the answer given to private respondents was that the said tenants were not interested to buy
the subject property because they could not afford it. Clearly, said tenants and Palanca, who
represented the former in the initial negotiations with private respondents, are estopped from
denying their earlier statement to the effect that the said tenants Magno Adalin, Adaya and
Calingasan had no intention of buying the four doors that they were leasing from the Kado
siblings. More significantly, the subsequent sale of the subject property by Palanca to the said
tenants, smacks of gross bad faith, considering that Palanca and the said tenants were in full "Deed
awareness of the August and September negotiations between Bautista and Palanca, on the one of Conditional Sale" executed by the Appellants and the Appellees-Vendors.14
hand, and Loreto Adalin, Faustino Yu and Antonio Lim, on the other, for the sale of the one-storey
building. It cannot be denied, thus, that Palanca and the said tenants entered into the subsequent WHEREFORE, the instant petition is HEREBY DISMISSED.
or second sale notwithstanding their full knowledge of the subsistence of the earlier sale over the
same property to private respondents Yu and Lim. It goes without saying, thus, that though the
Costs against petitioners.
second sale to the said tenants was registered, such prior registration cannot erase the gross bad
faith that characterized such second sale, and consequently, there is no legal basis to rule that
such second sale prevails over the first sale of the said property to private respondents Yu and SO ORDERED.
Lim.
Davide, Jr., Vitug and Kapunan, JJ., concur.
We agree, thus, with the ruminations of the respondent Court of Appeals that:
Bellosillo, J., took no part.
The Appellees-Vendors cannot invoke the refusal of the Appellees-Vendees to vacate the
property and the latter's decision to themselves purchase the property as a valid
justification to renege on and turn their backs against their obligation to deliver or cause
the eviction of the Appellees-Vendees from the deliver physical possession or the
property to the Appellants. For, if We gave our approbation to the stance of the Appellees,
then We would thereby be sanctioning the performance by the Appellees-Vendors of their
obligations under the deed subject to the will and caprices of the Appellees-Vendees,
which we cannot do . . . .

It would be the zenith of inequity for the Appellees-Vendors to invoke the occupation by
the Appellees-Vendees, as of the property, as a justification to ignore their obligation to
have the Appellees-Vendees evicted from the property and for them to give P50,000.00
disturbance fee for each of the Appellees-Vendees and a justification for the latter to hold
on to the possession of the property.

xxx xxx xxx

Assuming, gratia arguendi, for the nonce, that there had been no consummation of the
"Deed of Conditional Sale" . . . by reason of the non-delivery to the Appellants of the
property, it does not thereby mean that the "Deed of Sale of Registered Land" . . .
executed by the Appellees should be given preference. Apropos to this, We give our
approbation to the plaint of the Appellants that the Court a quo erred in not applying the
second and third paragraphs of Article 1544 . . . .

For, the evidence in the record shows that, although the Appellees-Vendees managed to
cause the registration of the Deed of Sale of Registered Land . . . on October 27, 1988
and procure Transfer Certificate of Title No. 24791 under their names, on said date, and
that they were, as of said date, in physical possession of the property, however, the
evidence in the record shows that the Appellees-Vendees were in gross evident bad faith.
At the time the Appellees executed the "Deed of Sale of Registered Land" in December
1987 . . . they were aware that the Appellees-Vendors and the Appellants had executed
their "Deed of Conditional Sale" as early as September 8, 1987. . . . In the light of the
foregoing, We arrive at the ineluctable conclusion that preference must be accorded the
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 129760 December 29, 1998
RICARDO CHENG, petitioner,
vs.
RAMON B. GENATO and ERNESTO R. DA JOSE & SOCORRO DA JOSE, respondents.
MARTINEZ, J.:
This petition for review on certiorari seeks to annul and set aside the Decision of the Court of
Appeals (CA) 1 dated July 7, 1997 in CA-G.R. No. CV No. 44706 entitled "Ricardo Cheng,
plaintiff-appellee vs. Ramon B. Genato, defendant-appellant, Ernesto R. Da Jose & Socorro
B. Da Jose, Intervenors-Appellants" which reversed the ruling of the Regional Trial Court,
Branch 96 of Quezon City dated January 18, 1994. The dispositive portion of the CA
Decision reads:
WHEREFORE, based on the foregoing, appealed decision is hereby
REVERSED and SET ASIDE and judgment is rendered ordering;
1. The dismissal of the complaint;
2. The cancellation of the annotations of the defendant-appellant's Affidavit
to Annul Contract to Sell and plaintiff-appellee's Notice of Adverse Claim in
the subject TCT's, namely, TCT No. T-76.196 (M) and TCT No. T-76.197 (M);
3. Payment by the intervenors-appellants of the remaining balance of the
purchase price pursuant to their agreement with the defendant-appellant to
suspend encashment of the three post-dated checks issued since 1989.
4. Ordering the execution by the defendant-appellant Genato of the Deed of
Absolute Sale over the subject two lots covered by TCT No. T-76.196 (M)
and TCT No. T-76.197 (M) in favor of intervenors-appellants Spouses Da
Jose;
5. The return by defendant-appellant Genato of the P50,000.00 paid to him
by the plaintiff-appellee Cheng, and
6. Payment by plaintiff-appellee Cheng of moral damages to herein
intervenors-appellants Da Jose of P100,000.00, exemplary damages of
P50,000.00, attorney's fees of P50,000.00, and costs of suit; and to
defendant-appellant, of P100,000.00 in exemplary damages, P50,000.00 in
attorney's fees. The amounts payable to the defendant-appellant may be
compensated by plaintiff appellee with the amount ordered under the
immediately foregoing paragraph which defendant-appellant has to pay the
plaintiff-appellee.
SO ORDERED. 2
The antecedents of the case are as follows:
Respondent Ramon B. Genato (Genato) is the owner of two parcels of land located at
Paradise Farms, San Jose del Monte, Bulacan covered by TCT No. T-76.196 (M) 3 and TCT
No. T-76.197 (M) 4 with an aggregate area of 35,821square meters, more or less.
On September 6, 1989, respondent Genato entered into an agreement with respondent-
spouses Ernesto R. Da Jose and Socorro B. Da Jose (Da Jose spouses) over the above-
mentioned two parcels of land. The agreement culminated in the execution of a contract to
sell for which the purchase price was P80.00 per square meter. The contract was in a public
instrument and was duly annotated at the back of the two certificates of title on the same
day. Clauses 1and 3 thereof provide:
1. That the purchase price shall be EIGHTY (P80.00) PESOS, Philippine
Currency per square meter, of which the amount of FIFTY THOUSAND
(P50,000.00) PESOS shall be paid by the VENDEE to the VENDOR as partial
down payment at the time of execution of this Contract to Sell.
xxx xxx xxx
3. That the VENDEE, Thirty (30) DAYS after the execution of this contract,
and only after having satisfactorily verified and confirmed the truth and
authenticity of documents, and that no restrictions, limitations, and
developments imposed on and/or affecting the property subject of this
contract shall be detrimental to his interest, the VENDEE shall pay to the
VENDOR, NINE HUNDRED FIFTY THOUSAND (P950,00.00) PESOS.
Philippine Currency, representing the full payment of the agreed Down
Payment, after which complete possession of the property shall be given to
the VENDEE to enable him to prepare the premises and any development
therein.
On October 4, 1989, the Da Jose spouses, not having finished verifying the titles mentioned
in clause 3 as aforequoted, asked for and was granted by respondent Genato an extension
of another 30 days — or until November 5, 1989. However, according to Genato, the
extension was granted on condition that a new set of documents is made seven (7) days
from October 4, 1989. 6 This was denied by the Da Jose spouses.
Pending the effectivity of the aforesaid extension period, and without due notice to the Da
Jose spouses, Genato executed an Affidavit to Annul the Contract to Sell, 7 on October 13,
1989. Moreover, no annotation of the said affidavit at the back of his titles was made right
away. The affidavit contained, inter alia, the following paragraphs;
xxx xxx xxx
That it was agreed between the parties that the agreed downpayment of
P950,000.00 shall be paid thirty (30) days after the execution of the
Contract, that is on or before October 6, 1989;
The supposed VENDEES failed to pay the said full downpayment even up
to this writing, a breach of contract;
That this affidavit is being executed to Annul the aforesaid Contract to Sell
for the vendee having committed a breach of contract for not having
complied with the obligation as provided in the Contract to Sell; 8
On October 24, 1989, herein petitioner Ricardo Cheng (Cheng) went to Genato's residence
and expressed interest in buying the subject properties. On that occasion, Genato showed
to Ricardo Cheng copies of his transfer certificates of title and the annotations at the back
thereof of his contract to sell with the Da Jose spouses. Genato also showed him the
aforementioned Affidavit to Annul the Contract to Sell which has not been annotated at the
back of the titles.
Despite these, Cheng went ahead and issued a check for P50,000.00 upon the assurance by
Genato that the previous contract with the Da Jose spouses will be annulled for which
Genato issued a handwritten receipt (Exh. "D"), written in this wise:
10/24/89
Received from Ricardo Cheng
the Sum of Fifty Thousand Only (P50.000-)
as partial for T-76196 (M)
T-76197 (M) area 35.821 Sq.m.
Paradise Farm, Gaya-Gaya, San Jose Del Monte
P70/m2 Bulacan
plus C. G. T. etc.
Check # 470393 (SGD.) Ramon B. Genato
10/24/89 9
On October 25, 1989, Genato deposited Cheng's check. On the same day, Cheng called up
Genato reminding him to register the affidavit to annul the contract to sell. 10
The following day, or on October 26, 1989, acting on Cheng's request, Genato caused the
registration of the Affidavit to Annul the Contract to Sell in the Registry of Deeds,
Meycauayan, Bulacan as primary entry No. 262702. 11
While the Da Jose spouses were at the Office of the Registry of Deeds of Meycauayan,
Bulacan on October 27, 1989, they met Genato by coincidence. It was only then that the Da
Jose spouses discovered about the affidavit to annul their contract. The latter were
shocked at the disclosure and protested against the rescission of their contract. After
being reminded that he (Genato) had given them (Da Jose spouses) an additional 30-day
period to finish their verification of his titles, that the period was still in effect, and that they
were willing and able to pay the balance of the agreed down payment, later on in the day,
Genato decided to continue the Contract he had with them. The agreement to continue with
their contract was formalized in a conforme letter dated October 27, 1989.
Thereafter, Ramon Genato advised Ricardo Cheng of his decision to continue his contract
with the Da Jose spouses and the return of Cheng's P50,000.00 check. Consequently, on
October 30, 1989, Cheng's lawyer sent a letter 12 to Genato demanding compliance with
their agreement to sell the property to him stating that the contract to sell between him and
Genato was already perfected and threatening legal action.
On November 2, 1989, Genato sent a letter 13 to Cheng (Exh. "6") enclosing a BPI Cashier's
Check for P50,000.00 and expressed regret for his inability to "consummate his
transaction" with him. After having received the letter of Genato on November 4, 1989,
Cheng, however, returned the said check to the former via RCPI telegram 14 dated
November 6, 1989, reiterating that "our contract to sell your property had already been
perfected."
15
Meanwhile, also on November 2, 1989, Cheng executed an affidavit of adverse claim and
had it annotated on the subject TCT's.
On the same day, consistent with the decision of Genato and the Da Jose spouses to
continue with their Contract to Sell of September 6, 1989, the Da Jose spouses paid Genato
the complete down payment of P950,000.00 and delivered to him three (3) postdated checks
(all dated May 6, 1990, the stipulated due date) in the total amount of P1,865,680.00 to cover
full payment of the balance of the agreed purchase price. However, due to the filing of the
pendency of this case, the three (3) postdated checks have not been encashed.
On December 8, 1989, Cheng instituted a complaint 16 for specific performance to compel
Genato to execute a deed of sale to him of the subject properties plus damages and prayer
for preliminary attachment. In his complaint, Cheng averred that the P50,000.00 check he
gave was a partial payment to the total agreed purchase price of the subject properties and
considered as an earnest money for which Genato acceded. Thus, their contract was
already perfected.
In Answer 17 thereto, Genato alleged that the agreement was only a simple receipt of an
option-bid deposit, and never stated that it was a partial payment, nor is it an earnest
money and that it was subject to condition that the prior contract with the Da Jose spouses
be first cancelled.
The Da Jose spouses, in their Answer in Intervention, 18 asserted that they have a superior
right to the property as first buyers. They alleged that the unilateral cancellation of the
Contract to Sell was without effect and void. They also cited Cheng's bad faith as a buyer
being duly informed by Genato of the existing annotated Contract to Sell on the titles.
After trial on the merits, the lower court ruled that the receipt issued by Genato to Cheng
unerringly meant a sale and not just a priority or an option to buy. It cannot be true that the
transaction was subjected to some condition or reservation, like the priority in favor of the
Da Jose spouses as first buyer because, if it were otherwise, the receipt would have
provided such material condition or reservation, especially as it was Genato himself who
had made the receipt in his own hand. It also opined that there was a valid rescission of the
Contract to Sell by virtue of the Affidavit to Annul the Contract to Sell. Time was of the
essence in the execution of the agreement between Genato and Cheng, under this
circumstance demand, extrajudicial or judicial, is not necessary. It falls under the exception
to the rule provided in Article 1169 19 of the Civil Code. The right of Genato to unilaterally
rescind the contract is said to be under Article 1191 20 of the Civil Code. Additionally, after
reference was made to the substance of the agreement between Genato and the Da Jose
spouses, the lower court also concluded that Cheng should be preferred over the
intervenors-Da Jose spouses in the purchase of the subject properties. Thus, on January
18, 1994 the trial court rendered its decision the decretal portion of which reads:
WHEREFORE, judgment is hereby rendered:
1. Declaring the contract to sell dated September 6, 1989 executed between
defendant Ramon Genato, as vendor, and intervenors Spouses Ernesto
and Socorro Da Jose, as vendees, resolved and rescinded in accordance
with Art. 1191, Civil Code, by virtue of defendant's affidavit to annul
contract to sell dated October 13, 1989 and as the consequence of
intervenors' failure to execute within seven (7) days from October 4, 1989
another contract to sell pursuant to their mutual agreement with defendant;
2. Ordering defendant to return to the intervenors the sum of P1,000,000.00,
plus interest at the legal rate from November 2, 1989 until full payment;
3. Directing defendant to return to the intervenors the three (3) postdated
checks immediately upon finality of this judgment;
4. Commanding defendant to execute with and in favor of the plaintiff
Ricardo Cheng, as vendee, a deed of conveyance and sale of the real
properties described and covered in Transfer Certificates of Title No. T-76-
196 (M) and T-76.197 (M) of the Registry of Deeds of Bulacan, Meycauayan
Branch, at the rate of P70.000/square meter, less the amount of P50,000.00
alreaddy paid to defendant, which is considered as part of the purchase
price, with the plaintiff being liable for payment of the capital gains taxes
and other expenses of the transfer pursuant to the agreement to sell dated
October 24, 1989; and
5 Ordering defendant to pay the plaintiff and the intervenors as follows:
a/ P50,000.00, as nominal damages, to
plaintiff;
b/ P50,000.00, as nominal damages, to
intervenors;
c/ P20,000.00, as and for attorney's fees, to
plaintiff;
d/ P20,000.00, as and for attorney's fees, to
intervenors; and
e/ Cost of the suit.
xxx xxx xxx
Not satisfied with the aforesaid decision, herein respondents Ramon Genato and Da Jose
spouses appealed to the court a quo which reversed such judgment and ruled that the prior
contract to sell in favor of the Da Jose spouses was not validly rescinded; that the
subsequent contract to sell between Genato and Cheng, embodied in the handwritten
receipt, was without force and effect due to the failure to rescind the prior contract; and
that Cheng should pay damages to the respondents herein being found to be in bad faith.
Hence this petition.21
This petition for review, assails the Court of Appeals' Decision on the following grounds:
(1) that the Da Jose spouses' Contract to Sell has been validly rescinded or resolved; (2)
that Ricardo Cheng's own contract with Genato was not just a contract to sell but one of
conditional contract of sale which gave him better rights, thus precluding the application of
the rule on double sales under Article 1544, Civil Code; and (3) that, in any case, it was
error to hold him liable for damages.
The petition must be denied for failure to show that the Court of Appeals committed a
reversible error which would warrant a contrary ruling.
No reversible error can be ascribed to the ruling of the Court of Appeals that there was no
valid and effective rescission or resolution of the Da Jose spouses Contract to Sell,
contrary to petitioner's contentions and the trial court's erroneous ruling.
In a Contract to Sell, the payment of the purchase price is a positive suspensive condition,
the failure of which is not a breach, casual or serious, but a situation that prevents the
obligation of the vendor to convey title from acquiring an obligatory force. 22 It is one where
the happening of the event gives rise to an obligation. Thus, for its non-fulfillment there will
be no contract to speak of, the obligor having failed to perform the suspensive condition
which enforces a juridical relation. In fact with this circumstance, there can be no
rescission of an obligation that is still non-existent, the suspensive condition not having
occurred as yet.23 Emphasis should be made that the breach contemplated in Article 1191
of the New Civil Code is the obligor's failure to comply with an obligation already extant,
not a failure of a condition to render binding that obligation.24
Obviously, the foregoing jurisprudence cannot be made to apply to the situation in the
instant case because no default can be ascribed to the Da Jose spouses since the 30-day
extension period has not yet expired. The Da Jose spouses' contention that no further
condition was agreed when they were granted the 30-days extension period from October
7, 1989 in connection with clause 3 of their contract to sell dated September 6, 1989 should
be upheld for the following reason, to wit; firstly, If this were not true, Genato could not
have been persuaded to continue his contract with them and later on agree to accept the
full settlement of the purchase price knowing fully well that he himself imposed such sine
qua non condition in order for the extension to be valid; secondly, Genato could have
immediately annotated his affidavit to annul the contract to sell on his title when it was
executed on October 13, 1989 and not only on October 26, 1989 after Cheng reminded him
of the annotation; thirdly, Genato could have sent at least a notice of such fact, there being
no stipulation authorizing him for automatic rescission, so as to finally clear the
encumbrance on his titles and make it available to other would be buyers. It likewise settles
the holding of the trial court that Genato "needed money urgently."
Even assuming in gratia argumenti that the Da Jose spouses defaulted, as claimed by
Genato, in their Contract to Sell, the execution by Genato of the affidavit to annul the
contract is not even called for. For with or without the aforesaid affidavit their non-payment
to complete the full downpayment of the purchase price ipso facto avoids their contract to
sell, it being subjected to a suspensive condition. When a contract is subject to a
suspensive condition, its birth or effectivity can take place only if and when the event
which constitutes the condition happens or is fulfilled.25 If the suspensive condition does
not take place, the parties would stand as if the conditional obligation had never
existed. 26
Nevertheless, this being so Genato is not relieved from the giving of a notice, verbal or
written, to the Da Jose spouses for his decision to rescind their contract. In many
cases,27 even though we upheld the validity of a stipulation in a contract to sell authorizing
automatic rescission for a violation of its terms and conditions, at least a written notice
must be sent to the defaulter informing him of the same. The act of a party in treating a
contract as cancelled should be made known to the other.28 For such act is always
provisional. It is always subject to scrutiny and review by the courts in case the alleged
defaulter brings the matter to the proper courts. In University of the Philippines vs. De Los
Angeles,29 this Court stressed and we quote:
In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action,
but it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law. But the law definitely does not
require that the contracting party who believes itself injured must first file
suit and wait for a judgment before taking extrajudicial steps to protect its
interest. Otherwise, the party injured by the other's breach will have to
passively sit and watch its damages accumulate during the pendency of
the suit until the final judgment of rescission is rendered when the law
itself requires that he should exercise due diligence to minimize its own
damages (Civil Code, Article 2203).
This rule validates, both in equity and justice, contracts such as the one at bat, in order to
avoid and prevent the defaulting party from assuming the offer as still in effect due to the
obligee's tolerance for such non-fulfillment. Resultantly, litigations of this sort shall be
prevented and the relations among would-be parties may be preserved. Thus, Ricardo
Cheng's contention that the Contract to Sell between Genato and the Da Jose spouses was
rescinded or resolved due to Genato's unilateral rescission finds no support in this case.
Anent the issue on the nature of the agreement between Cheng and Genato, the records of
this case are replete with admissions30 that Cheng believed it to be one of a Contract to Sell
and not one of Conditional Contract of Sale which he, in a transparent turn-around, now
pleads in this Petition. This ambivalent stance of Cheng is even noted by the appellate
court, thus:
At the outset, this Court notes that plaintiff-appellee was inconsistent in
characterizing the contract he allegedly entered into. In his
complaint.31 Cheng alleged that the P50,000.00 down payment was earnest
money. And next, his testimony32 was offered to prove that the transaction
between him and Genato on October 24, 1989 was actually a perfected
contract to sell.33
Settled is the rule that an issue which was not raised during the trial in the court below
cannot be raised for the first time on appeal.34 Issues of fact and arguments not adequately
brought to the attention of the trial court need not be and ordinarily will not be considered
by a reviewing court as they cannot be raised for the first time on appeal. 35 In fact, both
courts below correctly held that the receipt which was the result of their agreement, is a
contract to sell. This was, in fact Cheng's contention in his pleadings before said courts.
This patent twist only operates against Cheng's posture which is indicative of the
weakness of his claim.
But even if we are to assume that the receipt, Exh. "D," is to be treated as a conditional
contract of sale, it did not acquire any obligatory force since it was subject to suspensive
condition that the earlier contract to sell between Genato and the Da Jose spouses should
first be cancelled or rescinded — a condition never met, as Genato, to his credit, upon
realizing his error, redeemed himself by respecting and maintaining his earlier contract
with the Da Jose spouses. In fact, a careful reading of the receipt, Exh. "D," alone would
not even show that a conditional contract of sale has been entered by Genato and Cheng.
When the requisites of a valid contract of sale are lacking in said receipt, therefore the
"sale" is neither valid or enfoceable.36
To support his now new theory that the transaction was a conditional contract of sale,
petitioner invokes the case of Coronel vs. Court of Appeals 37 as the law that should govern
their Petition. We do not agree. Apparently, the factual milieu in Coronel is not on all fours
with those in the case at bar.
In Coronel, this Court found that the petitioners therein clearly intended to transfer title to
the buyer which petitioner themselves admitted in their pleading. The agreement of the
parties therein was definitively outlined in the "Receipt of Down Payment" both as to
property, the purchase price, the delivery of the seller of the property and the manner of the
transfer of title subject to the specific condition that upon the transfer in their names of the
subject property the Coronels will execute the deed of absolute sale.
Whereas, in the instant case, even by a careful perusal of the receipt, Exh. "D," alone such
kind of circumstances cannot be ascertained without however resorting to the exceptions
of the Rule on Parol Evidence.
To our mind, the trial court and the appellate court correctly held that the agreement
between Genato and Cheng is a contract to sell, which was, in fact, petitioner connection in
his pleadings before the said courts. Consequently, both to mind, which read:
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 he oldest title, provided there is good faith.
However, a meticulous reading of the aforequoted provision shows that said law is not
apropos to the instant case. This provision connotes that the following circumstances
must concur:
(a) The two (or more) sales transactions in issue must pertain to exactly the
same subject matter, and must be valid sales transactions.
(b) The two (or more) buyers at odds over the rightful ownership of the
subject matter must each represent conflicting interests; and
(c) The two (or more) buyers at odds over the rightful ownership of the
subject matter must each have bought from the very same seller.
These situations obviously are lacking in a contract to sell for neither a transfer of
ownership nor a sales transaction has been consummated. The contract to be binding
upon the obligee or the vendor depends upon the fulfillment or non-fulfillment of an event.
Notwithstanding this contrary finding with the appellate court, we are of the view that the
governing principle of Article 1544, Civil Code, should apply in this situation.
Jurisprudence38 teaches us that the governing principle is PRIMUS TEMPORE, PORTIOR
JURE (first in time, stronger in right). For not only was the contract between herein
respondents first in time; it was also registered long before petitioner's intrusion as a
second buyer. This principle only applies when the special rules provided in the aforcited
article of the Civil Code do not apply or fit the specific circumstances mandated under said
law or by jurisprudence interpreting the article.
The rule exacted by Article 1544 of the Civil Code for the second buyer to be able to
displace the first buyer are:
(1) that the second buyer must show that he acted in good faith (i.e. in ignorance of the first
sale and of the first buyer's rights) from the time of acquisition until title is transferred to
him by registration or failing registration, by delivery of possession;39
(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.40
Thus, in the case at bar, the knowledge gained by the Da Jose spouses, as first buyers, of
the new agreement between Cheng and Genato will not defeat their rights as first buyers
except where Cheng, as second buyer, registers or annotates his transaction or agreement
on the title of the subject properties in good faith ahead of the Da Jose spouses. Moreover,
although the Da Jose spouses, as first buyers, knew of the second transaction it will not
bar them from availing of their rights granted by law, among them, to register first their
agreement as against the second buyer.
In contrast, knowledge gained by Cheng of the first transaction between the Da Jose
spouses and Genato defeats his rights even if he is first to register the second transaction,
since such knowledge taints his prior registration with bad faith.
"Registration", as defined by Soler and Castillo, means any entry made in the books of the
registry, including both registration in its ordinary and strict sense, and cancellation,
annotation, and even marginal notes.41 In its strict acceptation, it is the entry made in the
registry which records solemnly and permanently the right of ownership and other real
rights.42 We have ruled43 before that when a Deed of Sale is inscribed in the registry of 250; Breaux-Renoudet, Cypress Lumber Co. vs. Shadel, 52 La. Ann., 2094-
property on the original document itself, what was done with respect to said entries or 2098; Pinkerton Bros. Co. vs. Bromely, 119 Mich., 8, 10, 17.) (Emphasis
annotations and marginal notes amounted to a registration of the sale. In this light, we see ours)
no reason why we should not give priority in right the annotation made by the Da Jose
spouses with respect to their Contract to Sell dated September 6, 1989. Damages were awarded by the appellate court on the basis of its finding that petitioner
"was in bad faith when he filed the suit for specific performance knowing fully well that his
Moreover, registration alone in such cases without good faith is not sufficient. Good faith agreement with Genato did not push through.46 Such bad faith, coupled with his wrongful
must concur with registration for such prior right to be enforceable. In the instant case, the interference with the contractual relations between Genato and the Da Jose spouses, which
annotation made by the Da Jose spouses on the titles of Genato of their "Contract To Sell" culminated in his filing of the present suit and thereby creating what the counsel for the
more than satisfies this requirement. Whereas in the case of Genato's agreement with respondents describes as "a prolonged and economically unhealthy gridlock47 on both the
Cheng such is unavailing. For even before the receipt, Exh. "D," was issued to Cheng land itself and the respondents' rights provides ample basis for the damages awarded.
information of such pre-existing agreement has been brought to his knowledge which did Based on these overwhelming evidence of bad faith on the part of herein petitioner Ricardo
not deter him from pursuing his agreement with Genato. We give credence to the factual Cheng, we find that the award of damages made by the appellate court is in order.
finding of the appellate court that "Cheng himself admitted that it was he who sought
Genato in order to inquire about the property and offered to buy the same. 44 And since WHEREFORE, premises considered, the instant petition for review is DENIED and the
Cheng was fully aware, or could have been if he had chosen to inquire, of the rights of the assailed decision is hereby AFFIRMED EN TOTO.
Da Jose spouses under the Contract to Sell duly annotated on the transfer certificates of
titles of Genato, it now becomes unnecessary to further elaborate in detail the fact that he
SO ORDERED.
is indeed in bad faith in entering into such agreement. As we have held in Leung Yee vs.
F.L. Strong Machinery Co.:45
Belosillo, Puno and Mendoza, JJ., concur.
One who purchases real estate with knowledge of a defect . . . of title in his
vendor cannot claim that he has acquired title thereto in good faith as
against . . . . an interest therein; and the same rule must be applied to one
who has knowledge of facts which should have put him upon such inquiry
and investigation as might be necessary to acquaint him with the defects in
the title of his vendor. A purchaser cannot close his eyes to facts which
should put a reasonable man upon his guard, and then claim that he acted
in good faith under the belief that there was no defect in the title of the
vendor. His mere refusal to believe that such defect exists, or his willful
closing of his eyes to the possibility of the existence of a defect in his
vendor's title, will not make him an innocent purchaser for value, if it
afterwards develops that the title was in fact defective, and it appears that
he had such notice of the defect as would have led to its discovery had he
acted with that measure of precaution which may reasonably be required of
a prudent man in a like situation. Good faith, or lack of it, is in its last
analysis a question of intention; but in ascertaining the intention by which
one is actuated on a given occasion, we are necessarily controlled by the
evidence as to the conduct and outward acts by which alone the inward
motive may with safety, be determined. So it is that "the honesty of
intention," "the honest lawful intent," which constitutes good faith implies
a "freedom from knowledge and circumstances which ought to put a
person on inquiry," and so it is that proof of such knowledge overcomes
the presumption of good faith in which the courts always indulge in the
absence of the proof to the contrary. "Good faith, or the want of it, is not a
visible, tangible fact that can be seen or touched, but rather a state or
condition of mind which can only be judge of by actual or fancied tokens or
signs." (Wilder vs. Gilman, 55 Vt. 504, 505; Cf. Cardenas vs. Miller, 108 Cal.,
 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.12Thereupon, Teodoro dela Cruz and Restituto Hernandez took
possession of and cultivated the portions of the property respectively sold to them. 13
Later, on 28 December 1986, Restituto Hernandez donated the northern half to his daughter,
Evangeline Hernandez-del Rosario.14 The children of Teodoro dela Cruz continued possession of
the southern half after their father‘s death on 7 June 1970.
In a Deed of Sale15 dated 15 June 1976, the Madrid brothers conveyed all their rights and interests
over Lot No. 7036-A-7 to Pacifico Marquez (hereafter, Marquez), which the former confirmed16 on
28 February 1983.17 The deed of sale was registered with the Office of the Register of Deeds of
Isabela on 2 March 1982.18
Subsequently, Marquez subdivided Lot No. 7036-A-7 into eight (8) lots, namely: Lot Nos. 7036-A-
7-A to 7036-A-7-H, for which TCT Nos. T-149375 to T-149382 were issued to him on 29 March
1984.19 On the same date, Marquez and his spouse, Mercedita Mariana, mortgaged Lots Nos.
7036-A-7-A to 7036-A-7-D to the Consolidated Rural Bank, Inc. of Cagayan Valley (hereafter,
CRB) to secure a loan of One Hundred Thousand Pesos (₱100,000.00).20These deeds of real
estate mortgage were registered with the Office of the Register of Deeds on 2 April 1984.
On 6 February 1985, Marquez mortgaged Lot No. 7036-A-7-E likewise to the Rural Bank of
Cauayan (RBC) to secure a loan of Ten Thousand Pesos (₱10,000.00).21
As Marquez defaulted in the payment of his loan, CRB caused the foreclosure of the mortgages in
its favor and the lots were sold to it as the highest bidder on 25 April 1986.22
On 31 October 1985, Marquez sold Lot No. 7036-A-7-G to Romeo Calixto (Calixto).23
Claiming to be null and void the issuance of TCT Nos. T-149375 to T-149382; the foreclosure sale
of Lot Nos. 7036-A-7-A to 7036-A-7-D; the mortgage to RBC; and the sale to Calixto, the Heirs-
now respondents herein-represented by Edronel dela Cruz, filed a case24 for reconveyance and
damages the southern portion of Lot No. 7036-A (hereafter, the subject property) against
Marquez, Calixto, RBC and CRB in December 1986.
Evangeline del Rosario, the successor-in-interest of Restituto Hernandez, filed with leave of court
a Complaint in Intervention25 wherein she claimed the northern portion of Lot No. 7036-A-7.
In the Answer to the Amended Complaint,26 Marquez, as defendant, alleged that apart from being
the first registrant, he was a buyer in good faith and for value. He also argued that the sale
executed by Rizal Madrid to Gamiao and Dayag was not binding upon him, it being unregistered.
For his part, Calixto manifested that he had no interest in the subject property as he ceased to be
the owner thereof, the same having been reacquired by defendant Marquez.27
CRB, as defendant, and co-defendant RBC insisted that they were mortgagees in good faith and
that they had the right to rely on the titles of Marquez which were free from any lien or
encumbrance.28
After trial, the Regional Trial Court, Branch 19 of Cauayan, Isabela (hereafter, RTC) handed down
a decision in favor of the defendants, disposing as follows:
WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered:
1. Dismissing the amended complaint and the complaint in intervention;
 2. Declaring Pacifico V. Marquez the lawful owner of Lots 7036-A-7 now Lots 7036-A-7-A
to 7036-A-7-H, inclusive, covered by TCT Nos. T-149375 to T-149382, inclusive;
3. Declaring the mortgage of Lots 7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-D
in favor of the defendant Consolidated Rural Bank (Cagayan Valley) and of Lot 7036-A-7-
E in favor of defendant Rural Bank of Cauayan by Pacifico V. Marquez valid;
4. Dismissing the counterclaim of Pacifico V. Marquez; and
5. Declaring the Heirs of Teodoro dela Cruz the lawful owners of the lots covered by TCT
Nos. T-33119, T-33220 and T-7583.
No pronouncement as to costs.
SO ORDERED.29
In support of its decision, the RTC made the following findings:
With respect to issues numbers 1-3, the Court therefore holds that the sale of Lot 7036-A-7 made
by Rizal Madrid to Aleja Gamiao and Felisa Dayag and the subsequent conveyances to the
plaintiffs and intervenors are all valid and the Madrid brothers are bound by said contracts by
virtue of the confirmation made by them on August 14, 1957 (Exh. B).
Are the defendants Pacifico V. Marquez and Romeo B. Calixto buyers in good faith and for value
of Lot 7036-A-7?
It must be borne in mind that good faith is always presumed and he who imputes bad faith has the
burden of proving the same (Art. 527, Civil Code). The Court has carefully scrutinized the
evidence presented but finds nothing to show that Marquez was aware of the plaintiffs‘ and
intervenors‘ claim of ownership over this lot. TCT No. T-8121 covering said property, before the
issuance of Marquez‘ title, reveals nothing about the plaintiffs‘ and intervenors‘ right thereto for it is
an admitted fact that the conveyances in their favor are not registered.
The Court is therefore confronted with two sales over the same property. Article 1544 of the Civil
Code provides:
"ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property. x x x " (Underscoring supplied).
From the foregoing provisions and in the absence of proof that Marquez has actual or constructive
knowledge of plaintiffs‘ and intervenors‘ claim, the Court has to rule that as the vendee who first
registered his sale, Marquez‘ ownership over Lot 7036-A-7 must be upheld.30
The Heirs interposed an appeal with the Court of Appeals. In their Appellant’s Brief,31 they
ascribed the following errors to the RTC: (1) it erred in finding that Marquez was a buyer in good
faith; (2) it erred in validating the mortgage of the properties to RBC and CRB; and (3) it erred in
not reconveying Lot No. 7036-A-7-B to them.32
Intervenor Evangeline del Rosario filed a separate appeal with the Court of Appeals. It was,
however, dismissed in a Resolution dated 20 September 1993 for her failure to pay docket fees.
Thus, she lost her standing as an appellant.33
On 27 May 1997, the Court of Appeals rendered its assailed Decision 34 reversing the RTC‘s
judgment. The dispositive portion reads:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Accordingly,
judgment is hereby rendered as follows:
1. Declaring the heirs of Teodoro dela Cruz the lawful owners of the southern half portion
and Evangeline Hernandez-del Rosario the northern half portion of Lot No. 7036-A-7, now
covered by TCT Nos. T-149375 to T-149382, inclusive;
2. Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V.
Marquez and the Madrid brothers covering said Lot 7036-A-7;
3. Declaring null and void the mortgage made by defendant Pacifico V. Marquez of Lot
Nos. 7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-D in favor of the defendant
Consolidated Rural Bank and of Lot 7036-A-7-E in favor of defendant Rural Bank of
Cauayan; and
4. Ordering Pacifico V. Marquez to reconvey Lot 7036-A-7 to the heirs of Teodoro dela
Cruz and Evangeline Hernandez-del Rosario.
No pronouncement as to costs.
SO ORDERED.35
In upholding the claim of the Heirs, the Court of Appeals held that Marquez failed to prove that he
was a purchaser in good faith and for value. It noted that while Marquez was the first registrant,
there was no showing that the registration of the deed of sale in his favor was coupled with good
faith. Marquez admitted having knowledge that the subject property was "being taken" by the Heirs
at the time of the sale.36 The Heirs were also in possession of the land at the time. According to
the Decision, these circumstances along with the subject property‘s attractive location—it was
situated along the National Highway and was across a gasoline station—should have put Marquez
on inquiry as to its status. Instead, Marquez closed his eyes to these matters and failed to exercise
the ordinary care expected of a buyer of real estate.37
Anent the mortgagees RBC and CRB, the Court of Appeals found that they merely relied on the
certificates of title of the mortgaged properties. They did not ascertain the status and condition
thereof according to standard banking practice. For failure to observe the ordinary banking
procedure, the Court of Appeals considered them to have acted in bad faith and on that basis
declared null and void the mortgages made by Marquez in their favor.38
39
Dissatisfied, CRB filed a Motion for Reconsideration pointing out, among others, that the
Decision promulgated on 27 May 1997 failed to establish good faith on the part of the Heirs.
Absent proof of possession in good faith, CRB avers, the Heirs cannot claim ownership over the
subject property.
In a Resolution40 dated 5 January 1998, the Court of Appeals stressed its disbelief in CRB‘s
allegation that it did not merely rely on the certificates of title of the properties and that it
conducted credit investigation and standard ocular inspection. But recalling that intervenor
Evangeline del Rosario had lost her standing as an appellant, the Court of Appeals accordingly
modified its previous Decision, as follows:
WHEREFORE, the decision dated May 27, 1997, is hereby MODIFIED to read as follows:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE insofar as
plaintiffs-appellants are concerned. Accordingly, judgment is hereby rendered as follows:
1. Declaring the Heirs of Teodoro dela Cruz the lawful owners of the southern half portion
of Lot No. 7036-A-7;
2. Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V.
Marquez and the Madrid brothers insofar as the southern half portion of Lot NO. (sic)
7036-A-7 is concerned;
3. Declaring the mortgage made by defendant Pacifico V. Marquez in favor of defendant
Consolidated Rural Bank (Cagayan Valley) and defendant Rural Bank of Cauayan as null
and void insofar as the southern half portion of Lot No. 7036-A-7 is concerned;
4. Ordering defendant Pacifico V. Marquez to reconvey the southern portion of Lot No.
7036-A-7 to the Heirs of Teodoro dela Cruz.
No pronouncement as to costs.
SO ORDERED.41
Hence, the instant CRB petition. However, both Marquez and RBC elected not to challenge the
Decision of the appellate court.
Petitioner CRB, in essence, alleges that the Court of Appeals committed serious error of law in
upholding the Heirs‘ ownership claim over the subject property considering that there was no
finding that they acted in good faith in taking possession thereof nor was there proof that the first
buyers, Gamiao and Dayag, ever took possession of the subject property. CRB also makes issue
of the fact that the sale to Gamiao and Dayag was confirmed a day ahead of the actual sale,
clearly evincing bad faith, it adds. Further, CRB asserts Marquez‘s right over the property being its
registered owner.
The petition is devoid of merit. However, the dismissal of the petition is justified by reasons
different from those employed by the Court of Appeals.
Like the lower court, the appellate court resolved the present controversy by applying the rule on
double sale provided in Article 1544 of the Civil Code. They, however, arrived at different
conclusions. The RTC made CRB and the other defendants win, while the Court of Appeals
decided the case in favor of the Heirs.
Article 1544 of the Civil Code reads, thus:
ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in possession; and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith.
The provision is not applicable in the present case. It contemplates a case of double or multiple
sales by a single vendor. More specifically, it covers a situation where a single vendor sold one
and the same immovable property to two or more buyers.42 According to a noted civil law author, it
is necessary that the conveyance must have been made by a party who has an existing right in
the thing and the power to dispose of it.43 It cannot be invoked where the two different contracts of
sale are made by two different persons, one of them not being the owner of the property
sold.44 And even if the sale was made by the same person, if the second sale was made when
such person was no longer the owner of the property, because it had been acquired by the first
purchaser in full dominion, the second purchaser cannot acquire any right. 45
In the case at bar, the subject property was not transferred to several purchasers by a single
vendor. In the first deed of sale, the vendors were Gamiao and Dayag whose right to the subject
property originated from their acquisition thereof from Rizal Madrid with the conformity of all the
other Madrid brothers in 1957, followed by their declaration of the property in its entirety for
taxation purposes in their names. On the other hand, the vendors in the other or later deed were
the Madrid brothers but at that time they were no longer the owners since they had long before
disposed of the property in favor of Gamiao and Dayag.
Citing Manresa, the Court of Appeals in 1936 had occasion to explain the proper application of
Article 1473 of the Old Civil Code (now Article 1544 of the New Civil Code) in the case of Carpio v.
Exevea,46 thus:
In order that tradition may be considered performed, it is necessary that the requisites which it
implies must have been fulfilled, and one of the indispensable requisites, according to the most
exact Roman concept, is that the conveyor had the right and the will to convey the thing. The
intention to transfer is not sufficient; it only constitutes the will. It is, furthermore, necessary that the
conveyor could juridically perform that act; that he had the right to do so, since a right which he did
not possess could not be vested by him in the transferee.
This is what Article 1473 has failed to express: the necessity for the preexistence of the right on
the part of the conveyor. But even if the article does not express it, it would be understood, in our
opinion, that that circumstance constitutes one of the assumptions upon which the article is based.
This construction is not repugnant to the text of Article 1473, and not only is it not contrary to it, but
it explains and justifies the same. (Vol. 10, 4th ed., p. 159)47
In that case, the property was transferred to the first purchaser in 1908 by its original owner, Juan
Millante. Thereafter, it was sold to plaintiff Carpio in June 1929. Both conveyances were
unregistered. On the same date that the property was sold to the plaintiff, Juan Millante sold the
same to defendant Exevea. This time, the sale was registered in the Registry of Deeds. But
despite the fact of registration in defendant‘s favor, the Court of Appeals found for the plaintiff and
refused to apply the provisions of Art. 1473 of the Old Civil Code, reasoning that "on the date of
the execution of the document, Exhibit 1, Juan Millante did not and could not have any right
whatsoever to the parcel of land in question."48
Citing a portion of a judgment dated 24 November 1894 of the Supreme Court of Spain, the Court
of Appeals elucidated further:
Article 1473 of the Civil Code presupposes the right of the vendor to dispose of the thing sold, and
does not limit or alter in this respect the provisions of the Mortgage Law in force, which upholds
the principle that registration does not validate acts or contracts which are void, and that although
acts and contracts executed by persons who, in the Registry, appear to be entitled to do so are
not invalidated once recorded, even if afterwards the right of such vendor is annulled or resolved
by virtue of a previous unrecorded title, nevertheless this refers only to third parties.49
In a situation where not all the requisites are present which would warrant the application of Art.
1544, the principle of prior tempore, potior jure or simply "he who is first in time is preferred in
right,"50 should apply.51 The only essential requisite of this rule is priority in time; in other words,
the only one who can invoke this is the first vendee. Undisputedly, he is a purchaser in good faith
because at the time he bought the real property, there was still no sale to a second vendee.52 In
the instant case, the sale to the Heirs by Gamiao and Dayag, who first bought it from Rizal Madrid,
was anterior to the sale by the Madrid brothers to Marquez. The Heirs also had possessed the
subject property first in time. Thus, applying the principle, the Heirs, without a scintilla of doubt,
have a superior right to the subject property.
Moreover, it is an established principle that no one can give what one does not have¾nemo dat
quod non habet. Accordingly, one can sell only what one owns or is authorized to sell, and the
buyer can acquire no more than what the seller can transfer legally.53 In this case, since the
Madrid brothers were no longer the owners of the subject property at the time of the sale to
Marquez, the latter did not acquire any right to it.
In any event, assuming arguendo that Article 1544 applies to the present case, the claim of
Marquez still cannot prevail over the right of the Heirs since according to the evidence he was not
a purchaser and registrant in good faith.
Following Article 1544, in the double sale of an immovable, the rules of preference are:
(a) the first registrant in good faith;
(b) should there be no entry, the first in possession in good faith; and
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 buyer‘s rights)¾from the time of acquisition until the title is transferred to him by registration or
failing registration, by delivery of possession.55
In the instant case, the actions of Marquez have not satisfied the requirement of good faith from
the time of the purchase of the subject property to the time of registration. Found by the Court of
Appeals, Marquez knew at the time of the sale that the subject property was being claimed or
"taken" by the Heirs. This was a detail which could indicate a defect in the vendor‘s title which he
failed to inquire into. Marquez also admitted that he did not take possession of the property and at
the time he testified he did not even know who was in possession. Thus, he testified on direct
examination in the RTC as follows:
ATTY. CALIXTO –
Q Can you tell us the circumstances to your buying the land in question?
A In 1976 the Madrid brothers confessed to me their problems about their lots in San
Mateo that they were being taken by Teodoro dela Cruz and Atty. Teofilo A. Leonin; that
they have to pay the lawyer‘s fee of ₱10,000.00 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 ₱14,000.00, 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 fidepurchaser as against such possessions.58 The rule
of caveat emptor requires the purchaser to be aware of the supposed title of the vendor and one
who buys without checking the vendor‘s title takes all the risks and losses consequent to such
failure.59
It is further perplexing that Marquez did not fight for the possession of the property if it were true
that he had a better right to it. In our opinion, there were circumstances at the time of the sale, and
even at the time of registration, which would reasonably require a purchaser of real property to
investigate to determine whether defects existed in his vendor‘s title. Instead, Marquez willfully
closed his eyes to the possibility of the existence of these flaws. For failure to exercise the
measure of precaution which may be required of a prudent man in a like situation, he cannot be
called a purchaser in good faith.60
As this Court explained in the case of Spouses Mathay v. Court of Appeals: 61
Although it is a recognized principle that a person dealing on a registered land need not go
beyond its certificate of title, it is also a firmly settled rule that where there are circumstances
which would put a party on guard and prompt him to investigate or inspect the property being sold
to him, such as the presence of occupants/tenants thereon, it is, of course, expected from the
purchaser of a valued piece of land to inquire first into the status or nature of possession of the
occupants, i.e., whether or not the occupants possess the land en concepto de dueño, in concept
of owner. As is the common practice in the real estate industry, an ocular inspection of the
premises involved is a safeguard a cautious and prudent purchaser usually takes. Should he find
out that the land he intends to buy is occupied by anybody else other than the seller who, as in
this case, is not in actual possession, it would then be incumbent upon the purchaser to verify the
extent of the occupant‘s possessory rights. The failure of a prospective buyer to take such
precautionary steps would mean negligence on his part and would thereby preclude him from
claiming or invoking the rights of a "purchaser in good faith."62
This rule equally applies to mortgagees of real property. In the case of Crisostomo v. Court of
Appeals,63 the Court held:
It is a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should
put a reasonable man upon his guard, and then claim that he acted in good faith under the belief
that there was no defect in the title of the vendor or mortgagor. His mere refusal to believe that
such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in
the vendor‘s or mortgagor‘s title, will not make him an innocent purchaser or mortgagee for value,
if it afterwards develops that the title was in fact defective, and it appears that he had such notice
of the defects as would have led to its discovery had he acted with the measure of a prudent man
in a like situation.64
Banks, their business being impressed with public interest, are expected to exercise more care
and prudence than private individuals in their dealings, even those involving registered lands.
Hence, for merely relying on the certificates of title and for its failure to ascertain the status of the
mortgaged properties as is the standard procedure in its operations, we agree with the Court of
Appeals that CRB is a mortgagee in bad faith.
In this connection, Marquez‘s obstention of title to the property and the subsequent transfer
thereof to CRB cannot help the latter‘s cause. In a situation where a party has actual knowledge of
the claimant‘s actual, open and notorious possession of the disputed property at the time of
registration, as in this case, the actual notice and knowledge are equivalent to registration,
because to hold otherwise would be to tolerate fraud and the Torrens system cannot be used to
shield fraud. 65
While certificates of title are indefeasible, unassailable and binding against the whole world, they
merely confirm or record title already existing and vested. They cannot be used to protect a
usurper from the true owner, nor can they be used for the perpetration of fraud; neither do they
permit one to enrich himself at the expense of others.66
We also find that the Court of Appeals did not err in awarding the subject property to the Heirs
absent proof of good faith in their possession of the subject property and without any showing of
possession thereof by Gamiao and Dayag.
As correctly argued by the Heirs in their Comment,67 the requirement of good faith in the
possession of the property finds no application in cases where there is no second sale. 68 In the
case at bar, Teodoro dela Cruz took possession of the property in 1964 long before the sale to
Marquez transpired in 1976 and a considerable length of time—eighteen (18) years in fact¾before
the Heirs had knowledge of the registration of said sale in 1982. As Article 526 of the Civil Code
aptly provides, "(H)e is deemed a possessor in good faith who is not aware that there exists in his
title or mode of acquisition any flaw which invalidates it." Thus, there was no need for the appellate
court to consider the issue of good faith or bad faith with regard to Teodoro dela Cruz‘s
possession of the subject property.

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

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

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

SO ORDERED.

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

 FIRST DIVISION
G.R. No. 154409 June 21, 2004
Spouses NOEL and JULIE ABRIGO, petitioners,
vs.
ROMANA DE VERA, respondent.
DECISION
PANGANIBAN, J.:
Between two buyers of the same immovable property registered under the Torrens system, the
law gives ownership priority 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. This provision,
however, does not apply if the property is not registered under the Torrens system.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the
March 21, 2002 Amended Decision2 and the July 22, 2002 Resolution3 of the Court of Appeals
(CA) in CA-GR CV No. 62391. The Amended Decision disposed as follows:
"WHEREFORE, the dispositive part of the original D E C I S I O N of this case,
promulgated on November 19, 2001, is SET ASIDE and another one is
entered AFFIRMING in part and REVERSING in part the judgment appealed from, as
follows:
"1. Declaring [Respondent] Romana de Vera the rightful owner and with better
right to possess the property in question, being an innocent purchaser for value
therefor;
"2. Declaring Gloria Villafania [liable] to pay the following to [Respondent]
Romana de Vera and to [Petitioner-]Spouses [Noel and Julie] Abrigo, to wit:
As to [Respondent] Romana de Vera:
1. ₱300,000.00 plus 6% per annum as actual damages;
2. ₱50,000.00 as moral damages;
3. ₱50,000.00 as exemplary damages;
4. ₱30,000.00 as attorney‘s fees; and
5. Cost of suit.
As to [Petitioner-]Spouses [Noel and Julie] Abrigo:
1. ₱50,000.00 as moral damages;
2. ₱50,000.00 as exemplary damages;
3. ₱30,000.00 as attorney‘s fees;
4. Cost of suit."4
The assailed Resolution denied reconsideration.
The Facts
Quoting the trial court, the CA narrated the facts as follows:
"As culled from the records, the following are the pertinent antecedents amply summarized by the
trial court:
‗On May 27, 1993, Gloria Villafania sold a house and lot located at Banaoang, Mangaldan,
Pangasinan and covered by Tax Declaration No. 1406 to Rosenda Tigno-Salazar and Rosita
Cave-Go. The said sale became a subject of a suit for annulment of documents between the
vendor and the vendees.
‗On December 7, 1993, the Regional Trial Court, Branch 40 of Dagupan City rendered judgment
approving the Compromise Agreement submitted by the parties. In the said Decision, Gloria
Villafania was given one year from the date of the Compromise Agreement to buy back the house
and lot, and failure to do so would mean that the previous sale in favor of Rosenda Tigno-Salazar
and Rosita Cave-Go shall remain valid and binding and the plaintiff shall voluntarily vacate the
premises without need of any demand. Gloria Villafania failed to buy back the house and lot, so
the [vendees] declared the lot in their name.
‗Unknown, however to Rosenda Tigno-Salazar and Rosita Cave-Go, Gloria Villafania obtained a
free patent over the parcel of land involved [on March 15, 1988 as evidenced by OCT No. P-
30522]. The said free patent was later on cancelled by TCT No. 212598 on April 11, 1996.
‗On October 16, 1997, Rosenda Tigno-Salazar and Rosita Cave-Go, sold the house and lot to the
herein [Petitioner-Spouses Noel and Julie Abrigo].
‗On October 23, 1997, Gloria Villafania sold the same house and lot to Romana de Vera x x x.
Romana de Vera registered the sale and as a consequence, TCT No. 22515 was issued in her
name.
‗On November 12, 1997, Romana de Vera filed an action for Forcible Entry and Damages against
[Spouses Noel and Julie Abrigo] before the Municipal Trial Court of Mangaldan, Pangasinan
docketed as Civil Case No. 1452. On February 25, 1998, the parties therein submitted a Motion
for Dismissal in view of their agreement in the instant case that neither of them can physically take
possession of the property in question until the instant case is terminated. Hence the ejectment
case was dismissed.‘5
"Thus, on November 21, 1997, [petitioners] filed the instant case [with the Regional Trial Court of
Dagupan City] for the annulment of documents, injunction, preliminary injunction, restraining order
and damages [against respondent and Gloria Villafania].
"After the trial on the merits, the lower court rendered the assailed Decision dated January 4,
1999, awarding the properties to [petitioners] as well as damages. Moreover, x x x Gloria Villafania
was ordered to pay [petitioners and private respondent] damages and attorney‘s fees.
"Not contented with the assailed Decision, both parties [appealed to the CA]."6
Ruling of the Court of Appeals
In its original Decision promulgated on November 19, 2001, the CA held that a void title could not
give rise to a valid one and hence dismissed the appeal of Private Respondent Romana de
Vera.7 Since Gloria Villafania had already transferred ownership to Rosenda Tigno-Salazar and
Rosita Cave-Go, the subsequent sale to De Vera was deemed void.
The CA also dismissed the appeal of Petitioner-Spouses Abrigo and found no sufficient basis to
award them moral and exemplary damages and attorney‘s fees.
On reconsideration, the CA issued its March 21, 2002 Amended Decision, finding Respondent De
Vera to be a purchaser in good faith and for value. The appellate court ruled that she had relied in
good faith on the Torrens title of her vendor and must thus be protected.8
Hence, this Petition.9
Issues
Petitioners raise for our consideration the issues below:
"1. Whether or not the deed of sale executed by Gloria Villafania in favor of [R]espondent
Romana de Vera is valid.
"2. Whether or not the [R]espondent Romana de Vera is a purchaser for value in good
faith.
"3. Who between the petitioners and respondent has a better title over the property in
question."10
In the main, the issues boil down to who between petitioner-spouses and respondent has a better
right to the property.
The Court’s Ruling
The Petition is bereft of merit.
Main Issue:
Better Right over the Property
Petitioners contend that Gloria Villafania could not have transferred the property to Respondent
De Vera because it no longer belonged to her.11 They further claim that the sale could not be
validated, since respondent was not a purchaser in good faith and for value.12
Law on Double Sale
The present case involves what in legal contemplation was a double sale. On May 27, 1993,
Gloria Villafania first sold the disputed property to Rosenda Tigno-Salazar and Rosita Cave-Go,
from whom petitioners, in turn, derived their right. Subsequently, on October 23, 1997, a second
sale was executed by Villafania with Respondent Romana de Vera.
Article 1544 of the Civil Code states the law on double sale 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 the possession; and, in the absence thereof, to the person who presents
the oldest title, provided there is good faith."
Otherwise stated, the law provides that a double sale of immovables transfers ownership to (1) the
first registrant in good faith; (2) then, the first possessor in good faith; and (3) finally, the buyer who
in good faith presents the oldest title.13 There is no ambiguity in the application of this law with
respect to lands registered under the Torrens system.
This principle is in full accord with Section 51 of PD 1529 14 which provides that no deed,
mortgage, lease or other voluntary instrument -- except a will -- purporting to convey or affect
registered land shall take effect as a conveyance or bind the land until its registration. 15 Thus, if
the sale is not registered, it is binding only between the seller and the buyer but it does not affect
innocent third persons.16
In the instant case, both Petitioners Abrigo and respondent registered the sale of the property.
Since neither petitioners nor their predecessors (Tigno-Salazar and Cave-Go) knew that the
property was covered by the Torrens system, they registered their respective sales under Act
3344.17 For her part, respondent registered the transaction under the Torrens system18 because,
during the sale, Villafania had presented the transfer certificate of title (TCT) covering the
property.19
Respondent De Vera contends that her registration under the Torrens system should prevail over
that of petitioners who recorded theirs under Act 3344. De Vera relies on the following insight of
Justice Edgardo L. Paras:
"x x x If the land is registered under the Land Registration Act (and has therefore a
Torrens Title), and it is sold but the subsequent sale is registered not under the Land
Registration Act but under Act 3344, as amended, such sale is not considered
REGISTERED, as the term is used under Art. 1544 x x x."20
We agree with respondent. It is undisputed that Villafania had been issued a free patent registered
as Original Certificate of Title (OCT) No. P-30522.21 The OCT was later cancelled by Transfer
Certificate of Title (TCT) No. 212598, also in Villafania‘s name.22 As a consequence of the sale,
TCT No. 212598 was subsequently cancelled and TCT No. 22515 thereafter issued to
respondent.
Soriano v. Heirs of Magali23 held that registration must be done in the proper registry in order to
bind the land. Since the property in dispute in the present case was already registered under the
Torrens system, petitioners‘ registration of the sale under Act 3344 was not effective for purposes
of Article 1544 of the Civil Code.
More recently, in Naawan Community Rural Bank v. Court of Appeals,24 the Court upheld the right
of a party who had registered the sale of land under the Property Registration Decree, as opposed
to another who had registered a deed of final conveyance under Act 3344. In that case, the
"priority in time" principle was not applied, because the land was already covered by the Torrens
system at the time the conveyance was registered under Act 3344. For the same reason,
inasmuch as the registration of the sale to Respondent De Vera under the Torrens system was
done in good faith, this sale must be upheld over the sale registered under Act 3344 to Petitioner-
Spouses Abrigo.
Radiowealth Finance Co. v. Palileo25 explained the difference in the rules of registration under Act
3344 and those under the Torrens system in this wise:
"Under Act No. 3344, registration of instruments affecting unregistered lands is ‗without
prejudice to a third party with a better right.‘ The aforequoted phrase has been held by
this Court to mean that the mere registration of a sale in one‘s favor does not give him
any right over the land if the vendor was not anymore the owner of the land having
previously sold the same to somebody else even if the earlier sale was unrecorded.
"The case of Carumba vs. Court of Appeals26 is a case in point. It was held therein that
Article 1544 of the Civil Code has no application to land not registered under Act No. 496.
Like in the case at bar, Carumba dealt with a double sale of the same unregistered land.
The first sale was made by the original owners and was unrecorded while the second was
an execution sale that resulted from a complaint for a sum of money filed against the said
original owners. Applying [Section 33], Rule 39 of the Revised Rules of Court, 27 this Court
held that Article 1544 of the Civil Code cannot be invoked to benefit the purchaser at the
execution sale though the latter was a buyer in good faith and even if this second sale
was registered. It was explained that this is because the purchaser of unregistered land at
a sheriff‘s execution sale only steps into the shoes of the judgment debtor, and merely
acquires the latter‘s interest in the property sold as of the time the property was levied
upon.
"Applying this principle, x x x the execution sale of unregistered land in favor of petitioner
is of no effect because the land no longer belonged to the judgment debtor as of the time
of the said execution sale."28
Petitioners cannot validly argue that they were fraudulently misled into believing that the property
was unregistered. A Torrens title, once registered, serves as a notice to the whole world. 29 All
persons must take notice, and no one can plead ignorance of the registration.30
Good-Faith Requirement
We have consistently held that Article 1544 requires the second buyer to acquire the immovable in
good faith and to register it in good faith.31 Mere registration of title is not enough; good faith must
concur with the registration.32 We explained the rationale in Uraca v. Court of Appeals,33 which we
quote:
"Under the foregoing, the prior registration of the disputed property by the second buyer
does not by itself confer ownership or a better right over the property. Article 1544
requires that such registration must be coupled with good faith. Jurisprudence teaches us
that ‗(t)he governing principle is primus tempore, potior jure (first in time, stronger in right).
Knowledge gained by the first buyer of the second sale cannot defeat the first buyer‘s
rights except where the second buyer registers in good faith the second sale ahead of the
first, as provided by the Civil Code. Such knowledge of the first buyer does not bar her
from availing of her rights under the law, among them, to register first her purchase as
against the second buyer. But in converso, knowledge gained by the second buyer of the
first sale defeats his rights even if he is first to register the second sale, since such
knowledge taints his prior registration with bad faith. This is the price exacted by Article
1544 of the Civil Code for the second buyer being able to displace the first buyer; that
before the second buyer can obtain priority over the first, he must show that he acted in
good faith throughout (i.e. in ignorance of the first sale and of the first buyer’s rights) ----
from the time of acquisition until the title is transferred to him by registration, or failing
registration, by delivery of possession.‘"34 (Italics supplied)
Equally important, under Section 44 of PD 1529, every registered owner receiving a certificate of
title pursuant to a decree of registration, and every subsequent purchaser of registered land taking
such certificate for value and in good faith shall hold the same free from all encumbrances, except
those noted and enumerated in the certificate.35Thus, a person dealing with registered land is not
required to go behind the registry to determine the condition of the property, since such condition
is noted on the face of the register or certificate of title.36 Following this principle, this Court has
consistently held as regards registered land that a purchaser in good faith acquires a good title as
against all the transferees thereof whose rights are not recorded in the Registry of Deeds at the
time of the sale.37
Citing Santiago v. Court of Appeals,38 petitioners contend that their prior registration under Act
3344 is constructive notice to respondent and negates her good faith at the time she registered
the sale. Santiago affirmed the following commentary of Justice Jose C. Vitug:
"The governing principle is prius tempore, potior jure (first in time, stronger in right).
Knowledge by the first buyer of the second sale cannot defeat the first buyer's rights
except when the second buyer first registers in good faith the second sale (Olivares vs.
Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second buyer of the first
sale defeats his rights even if he is first to register, since such knowledge taints his
registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No 58530, 26
December 1984) In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984; 129 SCRA 656), it
was held that it is essential, to merit the protection of Art. 1544, second paragraph, that
the second realty buyer must act in good faith in registering his deed of sale
(citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. 95843, 02
September 1992).
xxx xxx xxx
"Registration of the second buyer under Act 3344, providing for the registration of all
instruments on land neither covered by the Spanish Mortgage Law nor the Torrens
System (Act 496), cannot improve his standing since Act 3344 itself expresses that
registration thereunder would not prejudice prior rights in good faith (see Carumba vs.
Court of Appeals, 31 SCRA 558). Registration, however, by the first buyer under Act
3344 can have the effect of constructive notice to the second buyer that can defeat
his right as such buyer in good faith (see Arts. 708-709, Civil Code; see also Revilla
vs. Galindez, 107 Phil. 480; Taguba vs. Peralta, 132 SCRA 700). Art. 1544 has been held
to be inapplicable to execution sales of unregistered land, since the purchaser merely
steps into the shoes of the debtor and acquires the latter's interest as of the time the
property is sold (Carumba vs. Court of Appeals, 31 SCRA 558; see also Fabian vs. Smith,
Bell & Co., 8 Phil. 496) or when there is only one sale (Remalante vs. Tibe, 158 SCRA
138)."39 (Emphasis supplied)
Santiago was subsequently applied in Bayoca v. Nogales,40 which held:
"Verily, there is absence of prior registration in good faith by petitioners of the second sale
in their favor. As stated in the Santiago case, registration by the first buyer under Act No.
3344 can have the effect of constructive notice to the second buyer that can defeat his
right as such buyer. On account of the undisputed fact of registration under Act No. 3344
by [the first buyers], necessarily, there is absent good faith in the registration of the sale
by the [second buyers] for which they had been issued certificates of title in their names. x
x x."41
Santiago and Bayoca are not in point. In Santiago, the first buyers registered the sale under the
Torrens system, as can be inferred from the issuance of the TCT in their names. 42 There was no
registration under Act 3344. In Bayoca, when the first buyer registered the sale under Act 3344,
the property was still unregistered land.43 Such registration was therefore considered effectual.
Furthermore, Revilla and Taguba, which are cited in Santiago, are not on all fours with the present
case. In Revilla, the first buyer did not register the sale.44 In Taguba, registration was not an
issue.45
As can be gathered from the foregoing, constructive notice to the second buyer through
registration under Act 3344 does not apply if the property is registered under the Torrens system,
as in this case.
We quote below the additional commentary of Justice Vitug, which was omitted in Santiago. This
omission was evidently the reason why petitioner misunderstood the context of the citation therein:
"The registration contemplated under Art. 1544 has been held to refer to registration
under Act 496 Land Registration Act (now PD 1529) which considers the act of
registration as the operative act that binds the land (see Mediante vs. Rosabal, 1 O.G.
[12] 900, Garcia vs. Rosabal, 73 Phil 694). On lands covered by the Torrens System, the
purchaser acquires such rights and interest as they appear in the certificate of title,
unaffected by any prior lien or encumbrance not noted therein. The purchaser is not
required to explore farther than what the Torrens title, upon its face, indicates. The only
exception is where the purchaser has actual knowledge of a flaw or defect in the title of
the seller or of such liens or encumbrances which, as to him, is equivalent to registration
(see Sec. 39, Act 496; Bernales vs. IAC, G.R. 75336, 18 October 1988; Hernandez vs.
Sales, 69 Phil 744; Tajonera vs. Court of Appeals, L-26677, 27 March 1981),"46
Respondent in Good Faith
The Court of Appeals examined the facts to determine whether respondent was an innocent
purchaser for value.47After its factual findings revealed that Respondent De Vera was in good
faith, it explained thus:
"x x x. Gloria Villafania, [Respondent] De Vera‘s vendor, appears to be the registered owner. The
subject land was, and still is, registered in the name of Gloria Villafania. There is nothing in her
certificate of title and in the circumstances of the transaction or sale which warrant [Respondent]
De Vera in supposing that she need[ed] to look beyond the title. She had no notice of the earlier
sale of the land to [petitioners]. She ascertained and verified that her vendor was the sole owner
and in possession of the subject property by examining her vendor‘s title in the Registry of Deeds
and actually going to the premises. There is no evidence in the record showing that when she
bought the land on October 23, 1997, she knew or had the slightest notice that the same was
under litigation in Civil Case No. D-10638 of the Regional Trial Court of Dagupan City, Branch 40,
between Gloria Villafania and [Petitioners] Abrigo. She was not even a party to said case. In sum,
she testified clearly and positively, without any contrary evidence presented by the [petitioners],
that she did not know anything about the earlier sale and claim of the spouses Abrigo, until after
she had bought the same, and only then when she bought the same, and only then when she
brought an ejectment case with the x x x Municipal Court of Mangaldan, known as Civil Case No.
1452. To the [Respondent] De Vera, the only legal truth upon which she had to rely was that the
land is registered in the name of Gloria Villafania, her vendor, and that her title under the law, is
absolute and indefeasible. x x x."48

We find no reason to disturb these findings, which petitioners have not rebutted. Spouses Abrigo
base their position only on the general averment that respondent should have been more vigilant
prior to consummating the sale. They argue that had she inspected the property, she would have
found petitioners to be in possession.49

This argument is contradicted, however, by the spouses‘ own admission that the parents and the
sister of Villafania were still the actual occupants in October 1997, when Respondent De Vera
purchased the property.50 The family members may reasonably be assumed to be Villafania‘s
agents, who had not been shown to have notified respondent of the first sale when she conducted
an ocular inspection. Thus, good faith on respondent‘s part stands.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioners.

SO ORDERED.

Davide, Jr., Ynares-Santiago*, Carpio, and Azcuna, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18497 May 31, 1965
DAGUPAN TRADING COMPANY, petitioner,
vs.
RUSTICO MACAM, respondent.
Angel Sanchez for petitioner.
Manuel L. Fernandez for respondent.
DIZON, J.:
Appeal taken by the Dagupan Trading Company from the decision of the Court of Appeals
affirming the one rendered by the Court of First Instance of Pangasinan in Civil Case No. 13772,
dismissing its complaint.
On September 4, 1958, appellant commenced the action mentioned above against appellee
Rustico Macam, praying that it be declared owner of one-eighth portion of the land described in
paragraph 2 of the complaint; that a partition of the whole property be made; that appellee be
ordered to pay it the amount of P500.00 a year as damages from 1958 until said portion is
delivered, plus attorney's fees and costs.
Answering the complaint, appellee alleged, in the main, that Sammy Maron's share in the property
described in the complaint, as well as that of all his co-heirs, had been acquired by purchase by
appellee since June 19 and September 21, 1955, before the issuance of the original certificate of
title in their name; that at the time the levy in execution was made on Sammy Maron's share
therein, the latter had no longer any right or interest in said property; that appellant and its
predecessor in interest were cognizant of the facts already mentioned; that since the sales made
in his favor, he had enjoyed uninterrupted possession of the property and introduced considerable
improvements thereon. Appellee likewise sought to recover damages by way of counterclaim.
After trial upon the issue thus joined, the court rendered judgment dismissing the complaint,
which, on appeal, was affirmed by the Court of Appeals.
The facts of the case are not disputed.
In the year 1955, Sammy Maron and his seven brothers and sisters were pro-indiviso owners of a
parcel of unregistered land located in barrio Parayao, Municipality of Binmaley, Pangasinan. While
their application for registration of said land under Act No. 496 was pending, they executed, on
June 19 and September 21, 1955, two deeds of sale conveying the property to appellee, who
thereafter took possession thereof and proceeded to introduce substantial improvements therein.
One month later, that is, on October 14, 1955, Original Certificate of Title No. 6942 covering the
land was issued in the name of the Maron's, free from all liens and encumbrances.
On August 4, 1956, by virtue of a final judgment rendered in Civil Case No. 42215 of the Municipal
Court of Manila against Sammy Maron in favor of the Manila Trading and Supply Company, levy
was made upon whatever interest he had in the aforementioned property, and thereafter said
interest was sold at public auction to the judgment creditor. The corresponding notice of levy,
certificate of sale and the Sheriff's certificate of final sale in favor of the Manila Trading and Supply
Co. — because nobody exercised the right of redemptions — were duly registered. On March 1,
1958, the latter sold all its rights and title to the property to appellant.
The question before Us now is: Who has the better right as between appellant Dagupan Trading
Company, on the one hand, and appellee Rustico Macam, on the other, to the one-eighth share of
Sammy Maron in the property mentioned heretofore?
If the property covered by the conflicting sales were unregistered land, Macam would undoubtedly
have the better right in view of the fact that his claim is based on a prior sale coupled with public,
exclusive and continuous possession thereof as owner. On the other hand, were the land involved
in the conflicting transactions duly registered land, We would be inclined to hold that appellant has
the better right because, as We have consistently held, in case of conveyance of registered real
estate, the registration of the deed of sale is the operative act that gives validity to the transfer.
This would be fatal to appellee's claim, the deeds of sale executed in his favor by the Maron's not
having been registered, while the levy in execution and the provisional certificate of sale as well as
the final deed of sale in favor of appellant were registered. Consequently, this registered
conveyance must prevail although posterior to the one executed in favor of appellee, and
appellant must be deemed to have acquired such right, title and interest as appeared on the
certificate of title issued in favor of Sammy Maron, subject to no lien, encumbrance or burden not
noted thereon. (Anderson & Co. vs. Garcia, 64 Phil. 506; Reynes, et al. vs. Barrera, et al., 68 Phil.
656; Banco Nacional, etc. vs. Camus, 70 Phil. 289)
The present case, however, does not fall within either, situation. Here the sale in favor of appellee
was executed before the land subject-matter thereof was registered, while the conflicting sale in
favor of appellant was executed after the same property had been registered. We cannot,
therefore, decide the case in the light of whatever adjudicated cases there are covering the two
situations mentioned in the preceding paragraph. It is our considered view that what should
determine the issue are the provisions of the last paragraph of Section 35, Rule 39 of the Rules of
Court, to the effect that upon the execution and delivery of the final certificate of sale in favor of
the purchaser of land sold in an execution sale, such purchaser "shall be substituted to and
acquire all the right, title, interest and claim of the judgment debtor to the property as of the time of
the levy." Now We ask: What was the interest and claim of Sammy Maron on the one-eighth
portion of the property inherited by him and his co-heirs, at the time of the levy? The answer must
necessarily be that he had none, because for a considerable time prior to the levy, his interest had
already been conveyed to appellee, "fully and retrievably — as the Court of Appeals held.
Consequently, subsequent levy made on the property for the purpose of satisfying the judgment
rendered against Sammy Maron in favor of the Manila Trading Company was void and of no effect
(Buson vs. Licuaco, 13 Phil. 357-358; Landig vs. U.S. Commercial Company, G.R. No. L-3597,
July 31, 1951). Needless to say, the unregistered sale and the consequent conveyance of title and
ownership in favor of appellee could not have been cancelled and rendered of no effect upon the
subsequent issuance of the Torrens title over the entire parcel of land. We cannot, therefore, but
agree with the following statement contained in the appealed decision:

... . Separate and apart from this however, we believe that in the inevitable conflict
between a right of ownership already fixed and established under the Civil Law and/or the
Spanish Mortgage Law — which cannot be affected by any subsequent levy or
attachment or execution — and a new law or system which would make possible the
overthrowing of such ownership on admittedly artificial and technical grounds, the former
must be upheld and applied.1äwphï1.ñët

But to the above considerations must be added the important circumstance that, as already stated
before, upon the execution of the deed of sale in his favor by Sammy Maron, appellee took
possession of the land conveyed as owner thereof, and introduced considerable improvements
thereon. To deprive him now of the same by sheer force of technicality would be against both
justice and equity.

IN VIEW OF ALL THE FOREGOING, the decision appealed from is affirmed, with costs.

Bengzon, C.J., Bautista Angelo, Barrera, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ.,
concur.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-27587 February 18, 1970
AMADO CARUMBA, petitioner,
vs.
THE COURT OF APPEALS, SANTIAGO BALBUENA and ANGELES BOAQUIÑA as Deputy
Provincial Sheriff, respondents.
Luis N. de Leon for petitioner.
Reno R. Gonzales for respondents.
REYES, J.B.L., J.:
Amado Carumba petitions this Supreme Court for a certiorari to review a decision of the Court of
Appeals, rendered in its Case No. 36094-R, that reversed the judgment in his favor rendered by
the Court of First Instance of Camarines Sur (Civil Case 4646).
The factual background and history of these proceedings is thus stated by the Court of Appeals
(pages 1-2):
On April 12, 1955, the spouses Amado Canuto and Nemesia Ibasco, by virtue of
a "Deed of Sale of Unregistered Land with Covenants of Warranty" (Exh. A), sold
a parcel of land, partly residential and partly coconut land with a periphery (area)
of 359.09 square meters, more or less, located in the barrio of Santo Domingo,
Iriga, Camarines Sur, to the spouses Amado Carumba and Benita Canuto, for
the sum of P350.00. The referred deed of sale was never registered in the Office
of the Register of Deeds of Camarines Sur, and the Notary, Mr. Vicente Malaya,
was not then an authorized notary public in the place, as shown by Exh. 5.
Besides, it has been expressly admitted by appellee that he is the brother-in-law
of Amado Canuto, the alleged vendor of the property sold to him. Amado Canuto
is the older brother of the wife of the herein appellee, Amado Carumba.
On January 21, 1957, a complaint (Exh. B) for a sum or money was filed by
Santiago Balbuena against Amado Canuto and Nemesia Ibasco before the
Justice of the Peace Court of Iriga, Camarines Sur, known as Civil Case No. 139
and on April 15, 1967, a decision (Exh. C) was rendered in favor of the plaintiff
and against the defendants. On October 1, 1968, the ex-officio Sheriff, Justo V.
Imperial, of Camarines Sur, issued a "Definite Deed of Sale (Exh. D) of the
property now in question in favor of Santiago Balbuena, which instrument of sale
was registered before the Office of the Register of Deeds of Camarines Sur, on
October 3, 1958. The aforesaid property was declared for taxation purposes
(Exh. 1) in the name of Santiago Balbuena in 1958.
The Court of First instance, finding that after execution of the document Carumba had taken
possession of the land, planting bananas, coffee and other vegetables thereon, declared him to be
the owner of the property under a consummated sale; held void the execution levy made by the
sheriff, pursuant to a judgment against Carumba's vendor, Amado Canuto; and nullified the sale in
favor of the judgment creditor, Santiago Balbuena. The Court, therefore, declared Carumba the
owner of the litigated property and ordered Balbuena to pay P30.00, as damages, plus the costs.
The Court of Appeals, without altering the findings of fact made by the court of origin, declared
that there having been a double sale of the land subject of the suit Balbuena's title was superior to
that of his adversary under Article 1544 of the Civil Code of the Philippines, since the execution
sale had been properly registered in good faith and the sale to Carumba was not recorded.
We disagree. While under the invoked Article 1544 registration in good faith prevails over
possession in the event of a double sale by the vendor of the same piece of land to different
vendees, said article is of no application to the case at bar, even if Balbuena, the later vendee,
was ignorant of the prior sale made by his judgment debtor in favor of petitioner Carumba. The
reason is that the purchaser of unregistered land at a sheriff's execution sale only steps into the
shoes of the judgment debtor, and merely acquires the latter's interest in the property sold as of
the time the property was levied upon. This is specifically provided by section 35 of Rule 39 of the
Revised Rules of Court, the second paragraph of said section specifically providing that:
Upon the execution and delivery of said (final) deed the purchaser, redemptioner,
or his assignee shall be substituted to and acquire all the right, title, interest, and
claim of the judgment debtor to the property as of the time of the levy, except as
against the judgment debtor in possession, in which case the substitution shall
be effective as of the time of the deed ... (Emphasis supplied)
While the time of the levy does not clearly appear, it could not have been made prior to 15 April
1957, when the decision against the former owners of the land was rendered in favor of Balbuena.
But the deed of sale in favor of Canuto had been executed two years before, on 12 April 1955,
and while only embodied in a private document, the same, coupled with the fact that the buyer
(petitioner Carumba) had taken possession of the unregistered land sold, sufficed to vest
ownership on the said buyer. When the levy was made by the Sheriff, therefore, the judgment
debtor no longer had dominical interest nor any real right over the land that could pass to the
purchaser at the execution sale.1 Hence, the latter must yield the land to petitioner Carumba. The
rule is different in case of lands covered by Torrens titles, where the prior sale is neither recorded
nor known to the execution purchaser prior to the levy;2 but the land here in question is admittedly
not registered under Act No. 496.
WHEREFORE, the decision of the Court of Appeals is reversed and that of the Court of First
Instance affirmed. Costs against respondent Santiago Balbuena.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Teehankee, Barredo
and Villamor, JJ., concur.
 Republic of the Philippines At the witness stand, Villaner declared:
SUPREME COURT
Q: It appears, Mr. Acabal, that you have signed a document of sale with the defendant Leonardo
THIRD DIVISION Acabal on April 19, 1990, please tell the court whether you have really agreed to sell this property
to the defendant on or before April 19, 1990?
G.R. No. 148376. March 31, 2005
A: We had some agreement but not about the selling of this property.
LEONARDO ACABAL and RAMON NICOLAS, Petitioners,
vs. Q: What was your agreement with the defendant Leonardo Acabal?
VILLANER ACABAL, EDUARDO ACABAL, SOLOMON ACABAL, GRACE ACABAL, MELBA
ACABAL, EVELYN ACABAL, ARMIN ACABAL, RAMIL ACABAL, and BYRON A: Our agreement [was] that he will just rent.14
ACABAL, Respondents.
xxx
DECISION
Q: Now, please tell the court how were you able to sign this document on April 19, 1990?
CARPIO MORALES, J.:
A: I do not know why I signed that, that is why I am puzzled.
Before this Court is a Petition for Review on Certiorari of the February 15, 2001 Decision1 of the
Court of Appeals reversing that of the Regional Trial Court (RTC) of Dumaguete City, Branch 35.2
Q: Why, did you not read the contents of this document?
In dispute is the exact nature of the document3 which respondent Villaner Acabal (Villaner)
A: I have not read that. I only happened to read the title of the Lease Contract.
executed in favor of his godson-nephew-petitioner Leonardo Acabal (Leonardo) on April 19, 1990.

Q: And do you recall who were the witnesses of the document which you signed in favor of
Villaner‘s parents, Alejandro Acabal and Felicidad Balasabas, owned a parcel of land situated in
Leonardo Acabal?
Barrio Tanglad, Manjuyod, Negros Oriental, containing an area of 18.15 hectares more or less,
described in Tax Declaration No. 15856.4 By a Deed of Absolute Sale dated July 6, 1971,5 his
parents transferred for P2,000.00 ownership of the said land to him, who was then married to A: Employees of Judge Villegas of Bais City.
Justiniana Lipajan.6
Q: Did you see them sign that document?
Sometime after the foregoing transfer, it appears that Villaner became a widower.
A: Yes, sir.
Subsequently, he executed on April 19, 1990 a deed7 conveying the same property8 in favor of
Leonardo. Q: These signatures appearing in this document marked as Exhibit "C" for the plaintiff and
Exhibit "1" for the defendant, please examine over (sic) these signatures if these were the
Villaner was later to claim that while the April 19, 1990 document he executed now appears to be signatures of these witnesses who signed this document?
a "Deed of Absolute Sale" purportedly witnessed by a Bais City trial court clerk Carmelo Cadalin
and his wife Lacorte, what he signed was a document captioned "Lease Contract" 9 (modeled after A: These are not the signatures of the two women.
a July 1976 lease agreement10 he had previously executed with previous lessee, Maria Luisa
Montenegro11) wherein he leased for 3 years the property to Leonardo at ₱1,000.00 per Q: And after signing this document on April 19, 1990, did you appear before a notary public to
hectare12 and which was witnessed by two women employees of one Judge Villegas of Bais City. have this notarized?

Villaner thus filed on October 11, 1993 a complaint13 before the Dumaguete RTC against A: No, I went home to San Carlos.15
Leonardo and Ramon Nicolas to whom Leonardo in turn conveyed the property, for annulment of
the deeds of sale.
xxx
Q: According to this document, you sell (sic) this property at ₱10,000.00, did you sell this property
to Leonardo Acabal?
A: No, sir.
Q: How about after April 19, 1990, did you receive this amount from Leonardo Acabal?
A: No, sir.16
xxx
Q: Now you said that on May 25, 1990, Leonardo Acabal did not pay the amount that he promised
to you, what did you do of (sic) his refusal to pay that amount?
A: I went to Mr. [Carmelo] Mellie Cadalin because he was the one who prepared the
papers and to ask Leonardo Acabal why he will not comply with our agreement.
Q: By the way, who is this Mellie Cadalin?
A: Mellie Cadalin is also working in the sala of Judge Villegas.
Q: Who requested Mellie Cadalin to prepare this document?
A: Maybe it was Leonardo Acabal.
Q: By the way, when for the first time did you talk to Leonardo Acabal regarding your agreement to
lease this property to him?
A: March 14, 1990, in San Carlos.
Q: And what document did you give to him in order that that document will be prepared?
A: I have given (sic) some papers and contract of lease that I have signed to (sic) Mrs.
Montenegro.17(Emphasis and underscoring supplied)
xxx
Q: Now, Carmelo Cadalin ["Mellie"] also testified before this court that in fact he identified the
document marked as Exhibit "C" for the plaintiff that what you executed on April 19, 1990 was a
deed of sale and not a contract of lease, what can you say to that statement?
A: That is a lie.
Q: And what‘s the truth then?
A: What really (sic) I have signed was the document of lease contract.
Q: Now, can you explain to the Honorable Court why it so happened that on April 19, you
were able to sign a deed of sale?
A: What I can see now is that perhaps those copies of the deed of sale were placed by Mr.
Cadalin under the documents which I signed the lease contract. But why is it that it has
already a deed of sale when what I have signed was only the lease of contract or the contract of
lease.
Q: Now, Mr. Cadalin also stated before this court that he handed over to you this Deed of Sale
marked as Exhibit "C" and according to him you read this document, what can you say to this
statement?
A: Yes, there was a document that he gave me to read it (sic)but it was a contract of lease.
Q: How sure are you that what you signed on April 19, 1990 was really a contract of lease and not
a contract of sale?
A: Because when I signed the contract of lease the witnesses that witnessed my signing
the document were the employees of Judge Villegas and then I am now surprised why in
the deed of sale which I purportedly signed are witnessed by Carmelo Cadalin and his wife
Lacorte.18 (Emphasis and underscoring supplied)
On the other hand, Leonardo asserts that what Villaner executed was a Deed of Absolute Sale for
a consideration of ₱10,000.00 which he had already paid,19 and as he had become the absolute
owner of the property, he validly transferred it to Ramon Nicolas on May 19, 1990.20
Carmelo Cadalin who admittedly prepared the deed of absolute sale and who appears as a
witness, along with his wife, to the execution of the document corroborated Leonardo‘s claim:
Q: Mr. Cadalin, do you know the plaintiff Villaner Acabal?
A: Yes, I know.21
xxx
Q: And I would like to ask you Mr. witness why do you know Villaner Acabal?
A: At the time that he went to our house together with Leonardo Acabal he requested me to
prepare a deed of sale as regards to a sale of the property.22
xxx
Q: And after they requested you to prepare a document of sale, what did you do?
A: At first I refused to [do] it because I have so many works to do, but then they insisted so xxx
I prepared the deed.
Q: Aside from the document, deed of absolute sale, that you mentioned earlier that you prepared
Q: After you prepared the document, what did you do? for Villaner Acabal and Leonardo Acabal, what other documents, if any, did you prepare for them?

A: After I prepared it I gave it to him so that he could read the same. A: Affidavit of non-tenancy and aggregate area.26 (Emphasis and underscoring supplied)

Q: When you say "him," whom do you refer to? The complaint was later amended27 to implead Villaner‘s eight children as party plaintiffs, they
being heirs of his deceased wife.
A: Villaner Acabal.
By Decision of August 8, 1996, the trial court found for the therein defendants-herein petitioners
Q: And did Villaner Acabal read the document you prepared? Leonardo and Ramon Nicolas and accordingly dismissed the complaint.

A: Yes, he read it. Villaner et al. thereupon brought the case on appeal to the Court of Appeals which reversed the
trial court, it holding that the Deed of Absolute Sale executed by Villaner in favor of Leonardo was
simulated and fictitious."28
Q: And after reading it what did Villaner Acabal do?
Hence, Leonardo and Ramon Nicolas‘ present petition for review on certiorari,29 anchored on the
A: He signed the document.
following assignments of error:

Q: Showing to you a document which is marked Exhibit C for the plaintiff and Exhibit 1 for
I.
the defendants, please tell the Honorable Court what relation this document has to the
document which you described earlier?
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT
RESPONDENT VILLANER ACABAL WAS DECEIVED INTO SIGNING THE DEED OF
COURT INTERPRETER:
ABSOLUTE SALE WHEN THE LATTER KNOWINGLY, FREELY AND VOLUNTARILY
EXECUTED THE SAME IN FAVOR OF PETITIONER LEONARDO ACABAL.
Witness is confronted with the said document earlier marked as Exhibit C for the
prosecution and Exhibit 1 for the defense.
II.

A: Yes, this is the one.23

THE COURT OF APPEALS ERRED WHEN IT RULED THAT THE CONSIDERATION OF THE
DEED OF ABSOLUTE SALE IN THE AMOUNT OF TEN THOUSAND PESOS (P10,0000.00)
xxx WAS "UNUSUALLY LOW AND INADEQUATE," ESPECIALLY TAKING INTO ACCOUNT THE
LOCATION OF THE SUBJECT PROPERTY.
Q: Also stated in the document is the phrase "Signed in the presence of" and there is a
number and then two signatures, could you please examine the document and say whether III.
these signatures are familiar to you?
THE COURT OF APPEALS ERRED WHEN IT FAILED TO CONSIDER WHY RESPONDENT
A: Yes, number one is my signature and number 2 is the signature of my wife as witness.24 VILLANER ACABAL ONLY QUESTIONED THE POSSESSION AND OWNERSHIP OF
PETITIONER RAMON NICOLAS IN COURT AFTER THE LATTER WAS IN OPEN,
xxx CONTINUOUS AND PEACEFUL POSSESSION OF THE SUBJECT PROPERTY FOR ALMOST
THREE (3) YEARS.
Q: After Villaner Acabal signed the document, what did Villaner Acabal do?
IV.
25
A: He was given the payment by Leonardo Acabal.
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN LAW WHEN IT FAILED
TO DECLARE PETITIONER RAMON NICOLAS AS A BUYER IN GOOD FAITH AS THE LATTER
TOOK THE NECESSARY STEPS AN ORDINARY AND PRUDENT MAN WOULD HAVE TAKEN
BEFORE BUYING THE QUESTIONED PROPERTY.
V.
THE COURT OF APPEALS ERRED IN RULING IN FAVOR OF RESPONDENT VILLANER
ACABAL WHEN THE LATTER DID NOT PRESENT A SINGLE WITNESS TO TESTIFY ON THE
ALLEGED CONTRACT OF LEASE WHICH HE ALLEGEDLY SIGNED AND WITNESSED BY
THE EMPLOYEES OF JUDGE VILLEGAS.
VI.
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN LAW WHEN IT RULED
THAT RULE 8, SECTION 8 OF THE 1987 (sic) RULE (sic) OF CIVIL PROCEDURE IS NOT
APPLICABLE IN THE CASE AT BAR, CONTRARY TO THE RULING OF THE LOWER COURT.
VII.
THE COURT OF APPEALS ERRED WHEN IT ORDERED PETITIONERS TO PAY
RESPONDENTS "JOINTLY AND SEVERALLY BY WAY OF RENTAL THE SUM OF P10,000.00
PER YEAR FROM 1990 UP TO THE TIME THEY VACATE THE PREMISES."30
Procedurally, petitioners contend that the Court of Appeals erred when it failed to apply Section 8,
Rule 8 of the Rules of Court, respondent Villaner having failed to deny under oath the
genuineness and due execution of the April 19, 1990 Deed of Absolute Sale.
Petitioners‘ contention does not persuade. The failure to deny the genuineness and due execution
of an actionable document does not preclude a party from arguing against it by evidence of fraud,
mistake, compromise, payment, statute of limitations, estoppel, and want of consideration. 31
On the merits, this Court rules in petitioners‘ favor.
It is a basic rule in evidence that the burden of proof lies on the party who makes the
allegations32 – ei incumbit probatio, qui dicit, non qui negat; cum per rerum naturam factum
negantis probatio nulla sit.33 If he claims a right granted by law, he must prove it by competent
evidence, relying on the strength of his own evidence and not upon the weakness of that of his
opponent.
More specifically, allegations of a defect in or lack of valid consent to a contract by reason of fraud
or undue influence are never presumed but must be established not by mere preponderance of
evidence but by clear and convincing evidence.34 For the circumstances evidencing fraud and
misrepresentation are as varied as the people who perpetrate it in each case, assuming different
shapes and forms and may be committed in as many different ways.35
In the case at bar, it was incumbent on the plaintiff-herein respondent Villaner to prove that he was
deceived into executing the Deed of Absolute Sale. Except for his bare allegation that the
transaction was one of lease, he failed to adduce evidence in support thereof. His conjecture that
"perhaps those copies of the deed of sale were placed by Mr. Cadalin under the documents which
I signed the contract of lease,"36 must fail, for facts not conjectures decide cases.
Attempting to seek corroboration of his account, Villaner presented Atty. Vicente Real who
notarized the document. While on direct examination, Atty. Real virtually corroborated Villaner‘s
claim that he did not bring the document to him for notarization,37 on cross-examination, Atty. Real
conceded that it was impossible to remember every person who would ask him to notarize
documents:
Q: And in the course of your notarization, can you remember each and every face that
come (sic) to you for notarization?
A: No, it is impossible.
Q: In the case of Villaner Acabal which you have his document notarized (sic) in 1990, can
you remember his face when he came to you?
A: No.
Q: And can you also say, if a person who came to you having a document to be notarized
and if he will appear again after a month, can you remember whether he was the one who
came to you?
A: Not so much because everyday there are many people who appear with documents to be
notarized,
Q: So, it is safe to say that if Villaner Acabal came to you on April 25 or rather April 16, 1990
andhave (sic) his document notarized if he comes back in, say May 25, can you still
remember if he was the one who came to you?
A: I cannot be sure but at least, there are times I can remember persons because he seems
to be close to me already.
Q: Is this Villaner close to you?
A: Because he has been frequenting the house/asking for a copy of the document.
Q: So, he became close to you after you notarized the document?
A: Yes.38 (Emphasis and underscoring supplied)
On Villaner‘s claim that two women employees of Judge Villegas signed as witnesses to the
deed39 but that the signatures appearing thereon are not those of said witnesses, 40 the same must
be discredited in light of his unexplained failure to present such alleged women employee-
witnesses.
In another vein, Villaner zeroes in on the purchase price of the property — ₱10,000.00 — which to
him was unusually low if the transaction were one of sale. To substantiate his claim, Villaner
presented Tax Declarations covering the property for the years
1971,41 1974,42 1977,43 1980,44 1983,45 1985,46 as well as a Declaration of Real Property executed
in 1994.47
It bears noting, however, that Villaner failed to present evidence on the fair market value of the
property as of April 19, 1990, the date of execution of the disputed deed. Absent any evidence of
the fair market value of a land as of the time of its sale, it cannot be concluded that the price at
which it was sold was inadequate.48 Inadequacy of price must be proven because mere
speculation or conjecture has no place in our judicial system.49
Victor Ragay, who was appointed by the trial court to conduct an ocular inspection 50 of the
property and to investigate matters relative to the case,51 gave an instructive report dated
December 3, 1994,52 the pertinent portions of which are hereby reproduced verbatim:
a) Only three (3) to four (4) hectares of the eighteen (18) were planted to sugar cane, the rest was
never cultivated;
b) the soil is reddish and somewhat sandy in composition;
c) the soil contains so much limestones (rocks consisting mainly of calcium carbonate);
d) no part of the land in question is plain or flat, contrary to claim of the plaintiff that almost 10
hectares of the land in question is plain or flat;
e) some areas, eastward of and adjacent of the land in question (mistakenly to be owned by the
defendant Nicolas) were planted to sugar cane by the owners – Kadusales;
f) the road going to the land in question (as claimed to be the road) is no longer passable because
it has been abandoned and not maintained by anyone, thus it makes everything impossible for
anybody to get and haul the sugar cane from the area;
g) the Commissioner has discovered some stockpiles of abandoned harvested sugar canes left to
rot, along the side of the road, undelivered to the milling site because of the difficulty in bringing up
trucks to the scene of the harvest;
h) the sugarcanes presently planted on the land in question at the time of the ocular inspection
were three (3) feet in height and their structural built was thin or lean;
i) Most of the part of the 18 hectares is not planted or cultivated because the same is too rocky
and not suitable for planting to sugarcane.53
Additionally, Ragay reported that one Anatolio Cabusog recently purchased a 6-hectare property
adjoining that of the subject property for only ₱1,600.0054 or ₱266.67 per hectare. Given that, had
the 18-hectare subject property been sold at about the same time, it would have fetched the
amount of ₱4,800.00,55 hence, the ₱10,000.00 purchase price appearing in the questioned April
19, 1990 document is more than reasonable.
Even, however, on the assumption that the price of ₱10,000.00 was below the fair market value of
the property in 1990, mere inadequacy of the price per se will not rule out the transaction as one
of sale. For the price must be grossly inadequate or shocking to the conscience such that the
mind revolts at it and such that a reasonable man would neither directly nor indirectly be likely to
consent to it.56
Still in another vein, Villaner submits that Leonardo‘s transfer of the property to Nicolas in a span
of one month for a profit of ₱30,000.00 conclusively reflects Leonardo‘s fraudulent intent. This
submission is a non sequitur.
As for Villaner‘s argument that the sale of the property to Leonardo and the subsequent sale
thereof to Nicolas are void for being violative of the retention limits imposed by Republic Act No.
6657, otherwise known as the Comprehensive Agrarian Reform Law, the same fails. The pertinent
provisions of said law read:
SECTION 6. Retention Limits. – Except as otherwise provided in this Act, no person may retain,
directly or indirectly, any public or agricultural land, the size of which may vary according to factors
governing a viable family-sized farm, such as commodity produced, terrain, infrastructure, and soil
fertility as determined by the Presidential Agrarian Reform Council (PARC) created hereunder, but
in no case shall retention by the landowner exceed five (5) hectares. Three (3) hectares may
be awarded to each child of the landowner, subject to the following qualifications: (1) that he is at
least fifteen (15) years of age; and (2) that he is tilling the land or directly managing the
farm: Provided, That landowners whose lands have been covered by Presidential Decree No. 27
shall be allowed to keep the areas originally retained by them thereunder: 57 Provided further, That
original homestead grantees or direct compulsory heirs who still own the original homestead at the
time of the approval of this Act shall retain the same areas as long as they continue to cultivate
said homestead.
xxx
Upon the effectivity of this Act, any sale, disposition, lease, management, contract or
transfer of possession of private lands executed by the original landowner in violation of
this Act shall be null and void: Provided, however, that those executed prior to this Act shall be
valid only when registered with the Register of Deeds within a period of three (3) months after the
effectivity of this Act. Thereafter, all Registers of Deeds shall inform the DAR within thirty (30) days
of any transaction involving agricultural lands in excess of five (5) hectares.
xxx
SECTION 70. Disposition of Private Agricultural Lands. – The sale or disposition of agricultural
lands retained by a land owner as a consequence of Section 6 hereof shall be valid as long as the
total landholdings that shall be owned by the transferee thereof inclusive of the land to be acquired
shall not exceed the landholding ceilings provided for in this Act.
Any sale or disposition of agricultural lands after the effectivity of this Act found to be
contrary to the provisions hereof shall be null and void.
Transferees of agricultural lands shall furnish the appropriate Register of Deeds and the BARC an
affidavit attesting that his total landholdings as a result of the said acquisition do not exceed the
landholding ceiling. The Register of Deeds shall not register the transfer of any agricultural land
without the submission of his sworn statement together with proof of service of a copy thereof to
the BARC. (Emphasis and underscoring supplied)
As the above-quoted provisions of the Comprehensive Agrarian Reform Law show, only those
private lands devoted to or suitable for agriculture are covered by it. 58 As priorly related, Victor
Ragay, who was appointed by the trial court to conduct an ocular inspection of the property,
observed in his report that only three (3) to four (4) hectares were planted with sugarcane while
the rest of the property was not suitable for planting as the soil was full of limestone. 59 He also
remarked that the sugarcanes were only 3 feet in height and very lean, 60 whereas sugarcanes
usually grow to a height of 3 to 6 meters (about 8 to 20 feet) and have stems 2 to 5 centimeters (1-
2 inches) thick.61
It is thus gathered that the property was not suitable for agricultural purposes. In any event, since
the area devoted to the planting of sugarcane, hence, suitable for agricultural purposes, comprises
only 4 hectares at the most, it is less than the maximum retention limit prescribed by law. There
was then no violation of the Comprehensive Agrarian Reform Law.
Even assuming that the disposition of the property by Villaner was contrary to law, he would still
have no remedy under the law as he and Leonardo were in pari delicto, hence, he is not entitled to
afirmative relief – one who seeks equity and justice must come to court with clean hands. In pari
delicto potior est conditio defendentis.62
The proposition is universal that no action arises, in equity or at law, from an illegal
contract; no suit can be maintained for its specific performance, or to recover the property
agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation.
The rule has sometimes been laid down as though it were equally universal, that where the parties
are in pari delicto, no affirmative relief of any kind will be given to one against the
other.63 (Emphasis and underscoring supplied)
The principle of pari delicto is grounded on two premises: first, that courts should not lend their
good offices to mediating disputes among wrongdoers;64 and second, that denying judicial relief to
an admitted wrongdoer is an effective means of deterring illegality.65 This doctrine of ancient
vintage is not a principle of justice but one of policy as articulated in 1775 by Lord Mansfield
in Holman v. Johnson:66
The objection, that a contract is immoral or illegal as between the plaintiff and defendant, sounds
at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection
is ever allowed; but it is founded in general principles of policy, which the defendant has the
advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may so
say. The principle of public policy is this; ex dolo malo non oritur actio.67 No court will lend its aid to
a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff‘s own
stating or otherwise, the cause of action appears to arise ex turpi causa,68 or the transgression of
a positive law of this country, there the court says he has no right to be assisted. It is upon that
ground the court goes; not for the sake of the defendant, but because they will not lend their aid to
such a plaintiff. So if the plaintiff and the defendant were to change sides, and the defendant was
to bring his action against the plaintiff, the latter would then have the advantage of it; for where
both are equally in fault potior est conditio defendentis.69
Thus, to serve as both a sanction and as a deterrent, the law will not aid either party to an illegal
agreement and will leave them where it finds them.
The principle of pari delicto, however, is not absolute, admitting an exception under Article 1416 of
the Civil Code.
ART. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition
by the law is designed for the protection of the plaintiff, he may, if public policy is thereby
enhanced, recover what he has paid or delivered.
Under this article, recovery for what has been paid or delivered pursuant to an inexistent contract
is allowed only when the following requisites are met: (1) the contract is not illegal per se but
merely prohibited; (2) the prohibition is for the protection of the plaintiffs; and (3) if public policy is
enhanced thereby.70 The exception is unavailing in the instant case, however, since the prohibition
is clearly not for the protection of the plaintiff-landowner but for the beneficiary farmers.71
In fine, Villaner is estopped from assailing and annulling his own deliberate acts. 72
More. Villaner cannot feign ignorance of the law, nor claim that he acted in good faith, let alone
assert that he is less guilty than Leonardo. Under Article 3 of the Civil Code, "ignorance of the law
excuses no one from compliance therewith."
And now, Villaner‘s co-heirs‘ claim that as co-owners of the property, the Deed of Absolute Sale
executed by Villaner in favor of Leonardo does not bind them as they did not consent to such an
undertaking. There is no question that the property is conjugal. Article 160 of the Civil
Code73 provides:
ART. 160. All property of the marriage is presumed to belong to the conjugal partnership, unless it
be proved that it pertains exclusively to the husband or to the wife.74
The presumption, this Court has held, applies to all properties acquired during marriage. For the
presumption to be invoked, therefore, the property must be shown to have been acquired during
the marriage.75
In the case at bar, the property was acquired on July 6, 1971 during Villaner‘s marriage with
Justiniana Lipajan. It cannot be seriously contended that simply because the tax declarations
covering the property was solely in the name of Villaner it is his personal and exclusive property.
In Bucoy v. Paulino76 and Mendoza v. Reyes77 which both apply by analogy, this Court held that
registration alone of the properties in the name of the husband does not destroy the conjugal
nature of the properties.78 What is material is the time when the land was acquired by Villaner, and
that was during the lawful existence of his marriage to Justiniana.
Since the property was acquired during the existence of the marriage of Villaner and Justiniana,
the presumption under Article 160 of the Civil Code is that it is the couple‘s conjugal property. The
burden is on petitioners then to prove that it is not. This they failed to do.
The property being conjugal, upon the death of Justiniana Lipajan, the conjugal partnership was
terminated.79 With the dissolution of the conjugal partnership, Villaner‘s interest in the conjugal
partnership became actual and vested with respect to an undivided one-half portion.80 Justiniana's
rights to the other half, in turn, vested upon her death to her heirs 81 including Villaner who is
entitled to the same share as that of each of their eight legitimate children. 82 As a result then of the
death of Justiniana, a regime of co-ownership arose between Villaner and his co-heirs in relation
to the property.83
With respect to Justiniana‘s one-half share in the conjugal partnership which her heirs inherited,
applying the provisions on the law of succession, her eight children and Villaner each receives
one-ninth (1/9) thereof. Having inherited one-ninth (1/9) of his wife‘s share in the conjugal
partnership or one eighteenth (1/18)84 of the entire conjugal partnership and is himself already the
owner of one half (1/2) or nine-eighteenths (9/18), Villaner‘s total interest amounts to ten-
eighteenths (10/18) or five-ninths (5/9).
While Villaner owns five-ninths (5/9) of the disputed property, he could not claim title to any
definite portion of the community property until its actual partition by agreement or judicial decree.
Prior to partition, all that he has is an ideal or abstract quota or proportionate share in the
property.85 Villaner, however, as a co-owner of the property has the right to sell his undivided
share thereof. The Civil Code provides so:
ART. 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits
pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute
another person in its enjoyment, except when personal rights are involved. But the effect of the
alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may
be allotted to him in the division upon the termination of the co-ownership.
Thus, every co-owner has absolute ownership of his undivided interest in the co-owned property
and is free to alienate, assign or mortgage his interest except as to purely personal rights. While a
co-owner has the right to freely sell and dispose of his undivided interest, nevertheless, as a co-
owner, he cannot alienate the shares of his other co-owners – nemo dat qui non habet.86
Villaner, however, sold the entire property without obtaining the consent of the other co-owners.
Following the well-established principle that the binding force of a contract must be recognized as
far as it is legally possible to do so – quando res non valet ut ago, valeat quantum valere
potest87 – the disposition affects only Villaner‘s share pro indiviso, and the transferee gets only
what corresponds to his grantor‘s share in the partition of the property owned in common.88
As early as 1923, this Court has ruled that even if a co-owner sells the whole property as his, the
sale will affect only his own share but not those of the other co-owners who did not consent to the
sale. This is because under the aforementioned codal provision, the sale or other disposition
affects only his undivided share and the transferee gets only what would correspond to this
grantor in the partition of the thing owned in common. Consequently, by virtue of the sales made
by Rosalia and Gaudencio Bailon which are valid with respect to their proportionate shares, and
the subsequent transfers which culminated in the sale to private respondent Celestino Afable, the
said Afable thereby became a co-owner of the disputed parcel of land as correctly held by the
lower court since the sales produced the effect of substituting the buyers in the enjoyment thereof.
From the foregoing, it may be deduced that since a co-owner is entitled to sell his undivided share,
a sale of the entire property by one co-owner without the consent of the other co-owners is not null
and void. However, only the rights of the co-owner-seller are transferred., thereby making the
buyer a co-owner of the property.
The proper action in cases like this is not for the nullification of the sale or the recovery of
possession of the thing owned in common from the third person who substituted the co-owner or
co-owners who alienated their shares, but the DIVISION of the common property as if it continued
to remain in the possession of the co-owners who possessed and administered it.89
Thus, it is now settled that the appropriate recourse of co-owners in cases where their consent
were not secured in a sale of the entire property as well as in a sale merely of the undivided
shares of some of the co-owners is an action for PARTITION under Rule 69 of the Revised Rules
of Court. Neither recovery of possession nor restitution can be granted since the defendant buyers
are legitimate proprietors and possessors in joint ownership of the common property
claimed.90 (Italics in the original; citations omitted; underscoring supplied)
This Court is not unmindful of its ruling in Cruz v. Leis91 where it held:
It is conceded that, as a rule, a co-owner such as Gertrudes could only dispose of her share in the
property owned in common. Article 493 of the Civil Code provides:
xxx
Unfortunately for private respondents, however, the property was registered in TCT No. 43100
solely in the name of "Gertrudes Isidro, widow." Where a parcel of land, forming part of the
undistributed properties of the dissolved conjugal partnership of gains, is sold by a widow to a
purchaser who merely relied on the face of the certificate of title thereto, issued solely in the name
of the widow, the purchaser acquires a valid title to the land even as against the heirs of the
deceased spouse. The rationale for this rule is that "a person dealing with registered land is not
required to go behind the register to determine the condition of the property. He is only charged
with notice of the burdens on the property which are noted on the face of the register or the
certificate of title. To require him to do more is to defeat one of the primary objects of the Torrens
system."92 (Citation omitted)

Cruz, however, is not applicable for the simple reason that in the case at bar the property in
dispute is unregistered. The issue of good faith or bad faith of a buyer is relevant only where the
subject of the sale is a registered land but not where the property is an unregistered land. 93 One
who purchases an unregistered land does so at his peril.94Nicolas‘ claim of having bought the land
in good faith is thus irrelevant.95

WHEREFORE, the petition is GRANTED. The Court of Appeals February 15, 2001 Decision in
CA-G.R. CV No. 56148 is REVERSED and SET ASIDE and another is rendered declaring the sale
in favor of petitioner Leonardo Acabal and the subsequent sale in favor of petitioner Ramon
Nicolas valid but only insofar as five-ninths (5/9) of the subject property is concerned.

No pronouncement as to costs.

SO ORDERED.

Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Garcia, JJ., concur.