Republic of the Philippines On January 27, 1955, petitioner and respondent Poncio, in the presence of a witness, made and
n January 27, 1955, petitioner and respondent Poncio, in the presence of a witness, made and executed a
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-29972 January 26, 1976
ROSARIO CARBONELL, petitioner,
vs.
HONORABLE COURT OF APPEALS, JOSE PONCIO, EMMA INFANTE and RAMON INFANTE,
respondents.
MAKASIAR, J.
Petitioner seeks a review of the resolution of the Court of Appeals (Special Division of Five) dated October 30,
1968, reversing its decision of November 2, 1967 (Fifth Division), and its resolution of December 6, 1968
denying petitioner's motion for reconsideration.
The dispositive part of the challenged resolution reads:
Wherefore, the motion for reconsideration filed on behalf of appellee Emma Infante, is hereby granted and the
decision of November 2, 1967, is hereby annulled and set aside. Another judgement shall be entered affirming in
toto that of the court a quo, dated January 20, 1965, which dismisses the plaintiff's complaint and defendant's
counterclaim.
Without costs.
The facts of the case as follows:
Prior to January 27, 1955, respondent Jose Poncio, a native of the Batanes Islands, was the owner of the parcel of
land herein involve with improvements situated at 179 V. Agan St., San Juan, Rizal, having an area of some one
hundred ninety-five (195) square meters, more or less, covered by TCT No. 5040 and subject to mortgage in
favor of the Republic Savings Bank for the sum of P1,500.00. Petitioner Rosario Carbonell, a cousin and adjacent
neighbor of respondent Poncio, and also from the Batanes Islands, lived in the adjoining lot at 177 V. Agan
Street.
Both petitioners Rosario Carbonell and respondent Emma Infante offered to buy the said lot from Poncio
(Poncio's Answer, p. 38, rec. on appeal).
Respondent Poncio, unable to keep up with the installments due on the mortgage, approached petitioner one day
and offered to sell to the latter the said lot, excluding the house wherein respondent lived. Petitioner accepted the
offer and proposed the price of P9.50 per square meter. Respondent Poncio, after having secured the consent of
his wife and parents, accepted the price proposed by petitioner, on the condition that from the purchase price
would come the money to be paid to the bank.
Petitioner and respondent Jose Poncio then went to the Republic Savings Bank and secured the consent of the
President thereof for her to pay the arrears on the mortgage and to continue the payment of the installments as
they fall due. The amount in arrears reached a total sum of P247.26. But because respondent Poncio had
previously told her that the money, needed was only P200.00, only the latter amount was brought by petitioner
constraining respondent Jose Poncio to withdraw the sum of P47.00 from his bank deposit with Republic Savings
Bank. But the next day, petitioner refunded to Poncio the sum of P47.00.
document in the Batanes dialect, which, translated into English, reads:
CONTRACT FOR ONE HALF LOT WHICH I BOUGHT FROM
JOSE PONCIO
Beginning today January 27, 1955, Jose Poncio can start living on the lot sold by him to me, Rosario Carbonell,
until after one year during which time he will not pa anything. Then if after said one can he could not find an
place where to move his house, he could still continue occupying the site but he should pay a rent that man, be
agreed.
(Sgd) JOSE PONCIO
(Sgd.) ROSARIO CARBONELL
(Sgd) CONSTANCIO MEONADA
Witness
(Pp. 6-7 rec. on appeal).
Thereafter, petitioner asked Atty. Salvador Reyes, also from the Batanes Islands, to prepare the formal deed of
sale, which she brought to respondent Poncio together with the amount of some P400.00, the balance she still had
to pay in addition to her assuming the mortgaged obligation to Republic Savings Bank.
Upon arriving at respondent Jose Poncio's house, however, the latter told petitioner that he could not proceed any
more with the sale, because he had already given the lot to respondent Emma Infants; and that he could not
withdraw from his deal with respondent Mrs. Infante, even if he were to go to jail. Petitioner then sought to
contact respondent Mrs. Infante but the latter refused to see her.
On February 5, 1955, petitioner saw Emma Infante erecting a all around the lot with a gate.
Petitioner then consulted Atty. Jose Garcia, who advised her to present an adverse claim over the land in question
with the Office of the Register of Deeds of Rizal. Atty. Garcia actually sent a letter of inquiry to the Register of
Deeds and demand letters to private respondents Jose Poncio and Emma Infante.
In his answer to the complaint Poncio admitted "that on January 30, 1955, Mrs. Infante improved her offer and he
agreed to sell the land and its improvements to her for P3,535.00" (pp. 38-40, ROA).
In a private memorandum agreement dated January 31, 1955, respondent Poncio indeed bound himself to sell to
his corespondent Emma Infante, the property for the sum of P2,357.52, with respondent Emma Infante still
assuming the existing mortgage debt in favor of Republic Savings Bank in the amount of P1,177.48. Emma
Infante lives just behind the houses of Poncio and Rosario Carbonell.
On February 2, 1955, respondent Jose Poncio executed the formal deed of sale in favor of respondent Mrs.
Infante in the total sum of P3,554.00 and on the same date, the latter paid Republic Savings Bank the mortgage
indebtedness of P1,500.00. The mortgage on the lot was eventually discharged.
Informed that the sale in favor of respondent Emma Infante had not yet been registered, Atty. Garcia prepared an
adverse claim for petitioner, who signed and swore to an registered the same on February 8, 1955.
The deed of sale in favor of respondent Mrs. Infante was registered only on February 12, 1955. As a consequence
thereof, a Transfer Certificate of Title was issued to her but with the annotation of the adverse claim of petitioner
Rosario Carbonell.
Respondent Emma Infante took immediate possession of the lot involved, covered the same with 500 cubic
meters of garden soil and built therein a wall and gate, spending the sum of P1,500.00. She further contracted the
services of an architect to build a house; but the construction of the same started only in 1959 — years after the
1
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
2
— 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
3
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
4
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
5
the person with the superior right elects to pay for the useful improvements or reimburse the expenses therefor
under paragraph 2 of Article 546. These provisions seem to imply that the possessor in bad faith has neither the
right of retention of useful improvements nor the right to a refund for useful expenses.
But, if the lawful possessor can retain the improvements introduced by the possessor in bad faith for pure luxury
or mere pleasure only by paying the value thereof at the time he enters into possession (Article 549 NCC), as a
matter of equity, the Infantes, although possessors in bad faith, should be allowed to remove the aforesaid
improvements, unless petitioner Carbonell chooses to pay for their value at the time the Infantes introduced said
useful improvements in 1955 and 1959. The Infantes cannot claim reimbursement for the current value of the said
useful improvements; because they have been enjoying such improvements for about two decades without paying
any rent on the land and during which period herein petitioner Carbonell was deprived of its possession and use.
WHEREFORE, THE DECISION OF THE SPECIAL DIVISION OF FIVE OF THE COURT OF APPEALS OF
OCTOBER 30, 1968 IS HEREBY REVERSED; PETITIONER ROSARIO CARBONELL IS HEREBY
DECLARED TO HAVE THE SUPERIOR RIGHT TO THE LAND IN QUESTION AND IS HEREBY
DIRECTED TO REIMBURSE TO PRIVATE RESPONDENTS INFANTES THE SUM OF ONE THOUSAND
FIVE HUNDRED PESOS (P1,500.00) WITHIN THREE (3) MONTHS FROM THE FINALITY OF THIS
DECISION; AND THE REGISTER OF DEEDS OF RIZAL IS HEREBY DIRECTED TO CANCEL
TRANSFER CERTIFICATE OF TITLE NO. 37842 ISSUED IN FAVOR OF PRIVATE RESPONDENTS
INFANTES COVERING THE DISPUTED LOT, WHICH CANCELLED TRANSFER CERTIFICATE OF
TITLE NO. 5040 IN THE NAME OF JOSE PONCIO, AND TO ISSUE A NEW TRANSFER CERTIFICATE
OF TITLE IN FAVOR OF PETITIONER ROSARIO CARBONELL UPON PRESENTATION OF PROOF OF
PAYMENT BY HER TO THE INFANTES OF THE AFORESAID AMOUNT OF ONE THOUSAND FIVE
HUNDRED PESOS (P1,500.00).
PRIVATE RESPONDENTS INFANTES MAY REMOVE THEIR AFOREMENTIONED USEFUL
IMPROVEMENTS FROM THE LOT WITHIN THREE (3) MONTHS FROM THE FINALITY OF THIS
DECISION, UNLESS THE PETITIONER ROSARIO CARBONELL ELECTS TO ACQUIRE THE SAME
AND PAYS THE INFANTES THE AMOUNT OF THIRTEEN THOUSAND FOUR HUNDRED TWENTY-
NINE PESOS (P13,429.00) WITHIN THREE (3) MONTHS FROM THE FINALITY OF THIS DECISION.
SHOULD PETITIONER CARBONELL FAIL TO PAY THE SAID AMOUNT WITHIN THE AFORESTATED
PERIOD OF THREE (3) MONTHS FROM THE FINALITY OF THIS DECISION, THE PERIOD OF THREE
(3) MONTHS WITHIN WHICH THE RESPONDENTS INFANTES MAY REMOVE THEIR
AFOREMENTIONED USEFUL IMPROVEMENTS SHALL COMMENCE FROM THE EXPIRATION OF
THE THREE (3) MONTHS GIVEN PETITIONER CARBONELL TO PAY FOR THE SAID USEFUL
IMPROVEMENTS.
WITH COSTS AGAINST PRIVATE RESPONDENTS.
Castro, C.J, Aquino and Martin, JJ., concur.
Separate Opinions
TEEHANKEE, J., concurring:
I concur. My concurrence proceeds from the same premise as the dissenting opinion of Justice Munoz Palma that
both the conflicting buyers of the real property in question, namely, petitioner Rosario Carbonell as the first
buyer may be deemed purchasers in good faith at the respective dates of their purchase.
The answer to the question of who between the two buyers in good faith should prevail is provided in the second
paragraph of Article 1544 of the Civil Code 1 (formerly Article 1473 of the old Civil Code) which ordains that
"the ownership of the immovable property shall belong to the person acquiring it who in good faith first recorded
it in the Registry of Property."
In the case at bar, the seller executed on January 27, 1955 the private memorandum of sale of the property in
favor of the first buyer Carbonell, However, six days later on February 2, 1955, the seller sold the property for a
second time for an improved price, this time executing a formal registrable deed of sale in favor of the second
buyer Infante.
So it was that when the first buyer Carbonell saw the seller a few days afterwards bringing the formal deed of
sale for the seller's signature and the balance of the agreed cash payment, the seller told her that he could not
proceed anymore with formalizing the first sale because he had already formalized the second sale in favor of the
second buyer Infante.
Since Carbonell (the first buyer) did not have a formal registrable deed of sale, she did the next best thing to
protect her legal rights and registered on February 8, 1955 with the Rizal Register of Deeds her adverse claim as
first buyer entitled to the property. The second buyer Infante registered the deed of sale in her favor with the
Rizal Register of Deeds only on February 12, 1955 (notwithstanding its having been executed ten days earlier on
February 2, 1955), and therefore the transfer certificate of title issued in her favor carried the duly annotated
adverse claim of Carbonell as the first buyer.
Both these registrations were in good faith and hence, as provided by the cited code article, the first buyer
Carbonell as also the first registrant is legally entitled to the property.
The fact that Carbonell registered only an adverse claim as she had no registrable deed of sale is of no moment.
The facts of record amply show that she had a written memorandum of sale, which was partially executed with
the advance payment made by her for the seller's mortgage account with the bank, and which was perfected and
binding in law by their accord on the subject matter and price. Carbonell could in law enforce in court her rights
as first buyer under the memorandum agreement and compel the seller to execute in her favor a formal registrable
deed of sale which would relate back to the date of the original memorandum agreement.
And under the cited code provision, Carbonell had to duly register such adverse claim as first buyer, as otherwise
the subsequent registration of the second buyer's deed of sale would have obliterated her legal rights and enable
the seller to achieve his fraudulent act of selling the property a second time for a better price in derogation of her
prior right thereto.
The fact that the seller refused to execute the formal deed of sale in Carbonell's favor and (as was only to be
expected) informed her that he could not proceed anymore with the sale because he had sold it for a second time
for a better price did not convert her prior registration of her adverse claim into one of bad faith.
The fraudulent seller's act of informing the first buyer that he has wrongfully sold his property for a second time
cannot work out to his own advantage and to the detriment of the innocent first buyer (by being considered as an
"automatic registration" of the second sale) and defeat the first buyer's right of priority, in time in right and in
registration.
The governing principle here is prius tempore, portior jure 2 (first in time, stronger in right). Knowledge gained
by the first buyer of the second sale cannot defeat the first buyer's rights except only as provided by the Civil
Code and that is where the second buyer first registers in good faith the second sale ahead of the first. Such
knowledge of the first buyer does not bar her from availing of her rights under the law, among them, to register
first her purchase as against the second buyer. But in other so knowledge gained by the second buyer of the first
sale defeats his rights even if he is first to register the second sale, since such knowledge taints his prior
registration with bad faith.
This is the price exacted by Article 1544 of the Civil Code for the second buyer being able to displace the first
buyer: that before the second buyer can obtain priority over the first, he must show that he acted in good faith
throughout (i.e. in ignorance of the first sale and of the first buyer's rights) — from the time of acquisition until
the title is transferred to him by registration or failing registration, by delivery of possession. The second buyer
6
must show continuing good faith and innocence or lack of knowledge of the first sale until his contract ripens into
full ownership through prior registration as provided by law.
The above principles were aptly restated in a 1948 Court of Appeals decision in the case of Gallardo, vs.
Gallardo penned by Justice J.B.L. Reyes, then a member of the appellate court. 3 The facts of that case and the
case at bar are virtually Identical, except that the earlier case was decided under the old Civil Code (Article 1473
thereof now reproduced as Article 1544 of the present Civil Code), and the ratio decidendi thereof, mutatis
mutandis, is fully applicable, as follows:
Analysis of article 1473 of the Civil Code shows that before a second vendee can obtain priority over the first, it
is indispensable that he should have acted in good faith, (that is to say, in ignorance of the rights of the first
vendee's rights) until the title is transferred to him by actual or constructive delivery of the thing sold. This is the
price exacted by law for his being able to displace the first vendee; and the mere fact that the second contract of
sale was perfected in good faith is not sufficient if, before the title passes, the second vendee acquires knowledge
of the first transaction. That the second buyer innocently agreed to purchase the land may protect him against
responsibility of conspiring with his vendor to defraud the established rights of the first purchaser; but to defeat
the latter's priority in time (based on the old principle "prius tempore, potior jure," first in time, better in right)
the good faith or innocence of the posterior vendee must needs continue until his contract ripens into ownership
by tradition or recording (Palanca vs. Director of lands, 43 Phil. 141, 154).
That the formal deed of conveyance to Gabino Gallardo was executed after that of Caoagas is of no moment, the
contract of sale being perfected and binding by mere accord on the subject matter and the price, even if neither is
delivered (Article 1450, Civil Code), the deed of conveyance will relate back to the date of the original
agreement. 4
Finally, in the present case, the first buyer's registration (February 8, 1955) concededly preceded the second
buyer's registration (February 12, 1955) by four days, and therefore, as provided by the Civil Code, the first buyer
thereby duly preserved her right of priority and is entitled to the property.
MUÑOZ PALMA, J., dissenting:
Strongly convinced as I am that the decision of the Court of Appeals under review should be affirmed, this
dissenting opinion is being written.
We are here confronted with a double sale made by Jose Poncio of his 195-square meter lot located at V. Again
St., San Juan, Rizal, covered by Transfer Certificate of Title No. 5040, the solution to which is found in Art. 1544
of the Civil Code, more particularly the second paragraph thereof which provides that should the thing sold be
immovable property, the ownership shall belong to the person acquiring it who in good with first recorded it in
the Registry of property.
1. The two purchasers, namely, petitioner Rosario Carbonell and respondent Emma Infante, are both purchasers
in good faith.
That Rosario Carbonell is a buyer in good faith cannot be disputed for at the time negotiations for the purchase of
the lot were being made between her and the vendor, Jose Poncio, as of January 27, 1955, there was no indication
at all from the latter that another sale was being contemplated.
That Emma Infante is likewise a buyer in good faith is supported by: (a) an express finding of the trial court in its
decision of January 20, 1965, to the effect that when the vendor and purchaser. Infante consummated the sale on
or about January 29, 1955, an examination of the original of T.C.T. 5040 on file with the Register of Deeds of
Rizal as well as the owner's duplicate revealed no annotation of any encumbrance or lien other than the mortgage
in favor of the Republic Savings Bank (p. 92, Record on Appeal); (b) the findings of fact of the Court of Appeals
given in the decision penned by then Justice Salvador V. Esguerra as well as in the first decision written by
Justice Magno Gatmaitan which subsequently became the basis of the dissenting opinion to the majority, and
from which I quote:
2. CONSIDERING: That as basis for discussion of this issue, it must have to be remembered that the first
vendee, Rosario Carbonell, certainly was an innocent purchaser ... but also must it be remembered that Emma L.
Infante, when she bought the property on 2 February, 1955, under Exhibit 3-Infante, neither had she before then
been, preliminary informed of the first sate to Rosario ...; indeed as Emma has testified on this detail, it is easy to
accept her declaration:
Q. When Mr. Jose Poncio offered you this land in question, did he tell you that the land was sold or otherwise
promised to Mrs. Carbonell?
A. Of course not, otherwise will never buy.
(tsn. II:27)
in other words, at the respective dates of their purchase, both vendees, Rosario and Emma, were innocent and had
acted in the best of good faith ... (pp. 9-10 of Justice Gatmaitan's decision found on pp. 76-77, rollo; see also p. 7
of his dissenting opinion found on p. 95, rollo).
Departing from a well-entrenched rule set down in a long array of decisions of this Court that factual findings of
the trial court and of the Court -of Appeals are generally binding and conclusive, 1 and that on appeal by
certiorari, questions of fact are not to be determined nor reviewed by Us 2 the Majority Opinion of my colleagues
however undertakes a fact-finding process of its own, and draws the conclusion that Emma Infante was a buyer in
bad faith because, among other things: (a) Emma allegedly refused to talk to Rosario Carbonell when the latter
went to see her about the sale of the lot, which "is not the attitude expected of a good neighbor imbued with
Christian charity and goodwill as well as a clean conscience" (p. 10, Majority Opinion); (b) "(B)efore or upon
paying in full the mortgage indebtedness of Poncio to the bank. Infante naturally must have demanded from
Poncio the delivery to her of his mortgage passbook as well as Poncio's mortgage contract. . and Poncio as well
as the bank, must have inevitably informed here that said mortgage passbook could not be given to her because it
was already delivered to Carbonell" (p. 9, Ibid); and (c) "... (T)he victim, therefore, 'of injustice and outrage is the
widow Carbonell and not the Infantes, who without moral compunction exploited the greed and treacherous
nature of Poncio, who, for love of money and without remorse of conscience, dishonored his own plighted word
to Carbonell, his own cousin. ... Inevitably evident therefore from the foregoing discussion, is the bad faith of
Emma Infante from the time she enticed Poncio to dishonor his contract with Carbonell, and instead to sell the
lot to her (Infante) by offering Poncio a much higher price than the price for which he sold the same to Carbonell
..." (p. 20, Majority Opinion; all italicized portions supplied) — all of which are unsupported by the evidence and
diametrically contrary to the findings of the court a quo and the appellate court sustaining the good faith of
Emma Infante.
2. Inasmuch as the two purchasers are undoubtedly in good faith, the next question to be resolved is who of the
two first registered her purchase or title in good faith.
In applying Art. 1544 of the Civil Code, it is not enough that the buyer bought the property in good faith, but that
the registration of her title must also be accomplished in good faith. This requirement of good faith is not only
applicable to the second or subsequent purchaser but to the first as well. 3
Construing and applying the second paragraph of Art. 1473 of the Spanish Civil Code which has been adopted
verbatim in Art. 1544 of the Civil Code of the Philippines, this Court in Leung Lee vs. FL Strong Machinery Co.,
et al 37 Phil. 644, declared:
It has been suggested that since the provisions of article 1473 of the Civil Code require "good faith," in express
terms, in relation to "possession" and title but contain no express requirement as to 'good faith' in relation to the
"inscription" of the property in the registry, it must he presumed that good faith is not an essential requisite of
registration in order that it may have the effect contemplated in this article. We cannot agree with this contention.
It could not have been the intention of the legislator to base the preferential right secured under this article of the
code upon an inscription of title in bad faith. Such an interpretation placed upon the language of this section
would open wide the door to fraud and collusion. The public records cannot be converted into instruments of
7
fraud and oppression by one who secures an inscription therein in bad faith. The force and effect given by law to exist. Neither can one who has actual notice of existing liens acquire any rights in such property free from such
an inscription in a public record presupposes the good faith of him who enters such inscription; and rights created liens by the mere fact that such liens have not been proven recorded. (citing Obras Pias vs. Devera Ignacio, 17
by statute, which are predicated upon an inscription in a public registry, do not and cannot accrue under an Phil. 45, 47).
inscription "in bad faith," to the benefit of the person who thus makes the inscription. (pp. 648-649, supra)
We cannot overlook the fact that while it may be true that the vendor Poncio had signed the memorandum, Exh.
3
Good faith means "freedom from knowledge and circumstances which ought to put a person on inquiry"; * it A, from which it may be implied that he sold a lot to Carbonell, there were other things to be accomplished for
consists of an honest intention to abstain from taking any conscientious advantage of another. 4 purposes of binding third parties, the lot in question being registered land, such as the execution of a formal deed
of sale. Such a document of sale was never signed by Poncio for according to petitioner Carbonell, when she
On this point it is my view that Rosario Carbonell cannot be held to have a title superior to that of Emma Infante
presented to Poncio the corresponding document together with the sum of P400.00 which according to her was
for even if We were to concede that the notation of her adverse claim on February 8, 1955, was in the nature of
the balance of the purchase price after she had assumed the mortgage with the Republic Bank, she was informed
registration of title as required in Art. 1544 of the Civil Code, 5 the same was not accomplished in good faith.
by the vendor that the property had been sold to another. That sale was confirmed when Carbonell saw Infante
This is obvious from occurrences narrated in the Majority Opinion, thus: that on January 27, 1955, Carbonell and
erecting a wall around the lot on February 5, 1955. As of that moment when Carbonell had notice or actual
Jose Poncio made and executed the memorandum of sale, Exhibit A; that thereafter Carbonell asked Atty.
knowledge of the second sale in favor of Emma Infante a valid registration of the latter's deed of sale was
Salvador Reyes to prepare the formal deed of sale which she brought to Poncio together with the amount of some
constituted as against Carbonell. Accordingly, Infante has a preferential right to the property, the registration of
P400.00, the balance she had to pay in addition to her assuming the mortgage obligation to Republic Savings
her sale having been effected in the foregoing manner, prior to the annotation of Carbonell's adverse claim on
Bank; that upon arriving at Poncio's house the latter told Carbonell that he could not proceed anymore with the
February 8, 1955.
sale because he had already given the lot to Emma Infants; that on February 5, 1955, Carbonell saw Emma
Infante erecting a wall around the lot with a gate; that Carbonell consulted Atty. Jose Garcia who advised her to The circumstances of the present case are strikingly similar to the hypothetical problem posed in Commentator
present an adverse claim with the office of the Register of Deeds, and that being informed that the sale in favor of Edgardo Paras' Book on the Civil Code of the Philippines and I wholeheartedly concur with his solution of the
Emma Infante had not yet been registered, Atty. Garcia prepared the notice of adverse claim which was signed problem which is based on law. From him I quote:6
and sworn to by Rosario Carbonell and registered on February 8, 1955. (see pp. 34, Decision)
A sold a parcel of land with a torrens title to B on January 5. A week later, A sold the same land to C. Neither
At the time petitioner herein caused the annotation of her adverse claim she was, therefore, cognizant of facts sale was registered. As soon as B learned of the sale in favor of C, he (B) registered an adverse claim stating that
which impaired her title to the property in question, and taking advantage of the situation that the second he was making the claim because the second sale was in fraud of his rights as first buyer. Later, C registered the
purchaser had not as yet registered her deed of sale, she went ahead of the second buyer and annotated what was deed of sale that had been made in his favor. Who is now the owner B or C?
only in the nature of an adverse claim inasmuch as she had no registrable document of sale at the time. That
Ans. C is clearly the owner, although he was the second buyer. This is so, not because of the registration of the
annotation of Carbonell's adverse claim did not produce any legal effects as to place her in a preferential situation
sale itself but because of the AUTOMATIC registration in his favor caused by Bs knowledge of the first sale
to that of Infante, the second purchaser, for the simple reason that a registration made in bad faith is equivalent to
(actual knowledge being equivalent to registration). The purpose of registration is to notify. This notification was
no registration at all. It is a settled rule that the inscription in the registry, to be effective, must be made in good
done because of Bs knowledge. It is wrong to assert that B was only trying to protect his right-for there was no
faith. (Pena, supra, p. 164)
more right to be protected. He should have registered the sale BEFORE knowledge came to him. It is now too
3. One last point to be considered is the theory advanced by the dissenting opinion of Justice Gatmaitan that late. It is clear from this that with respect to the principle "actual knowledge is equivalent to registration of the
while Carbonell's registration of her adverse claim may indeed be considered in bad faith, nonetheless that of sale about which knowledge has been obtained' — the knowledge may be that-of either the FIRST or the
Infante was likewise in bad faith because at the time of the registration of the latter's deed of sale there was SECOND buyer. (pp. 142-143, Vol. V, 1972 Ed.)
already inscribed on the original of the title on file with the Register of Deeds the adverse claim of Rosario
Aside from the fact that the sale to Infante was considered registered prior to the registration of Carbonell's notice
Carbonell.
of adverse claim, Infante also took immediate physical possession of the property by erecting a fence with a gate
With due respect to the foregoing conclusion of highly respected Colleague, I hold the view that the act of the around the lot on February 5, at least tree days prior to Carbonell Is registration on February 8, 1955.
registration of Infante's deed of sale on February 12, 1955, was but a formality in the sense that it simply
On top of all these, equity is on the side of Emma Infante. Under the Majority Opinion, Emma Infante stands to
formalized what had already been accomplished earlier, that is, the registration of Infantes purchase as against
lose the lot she bought in good faith which was fully paid for plus the building she erected thereon for which she
Carbonell when the latter inquired knowledge of the second sale on or about January 27, 1955, when she
spent the total sun of a little less than P14,000.00, or equivalent to about P40,000.00 at the time the case was
brought the memorandum of sale, Exh. A, to Jose Poncio and was informed by the latter that he could not go
decided by the Appellate Court, considering that Rosario Carbonell is being given the option either to order the
through with the sale because he had already sold it to Emma Infante, which information was bolstered by the
removal of the house or to acquire it at P13,429.00. On this point I agree with the following statement of Justice
fact that Carbonell saw Infante erecting a wall around the lot on February 5.
Esguerra who penned the decision of the Appellate Court, thus:
We have long accepted the rule that knowledge is equivalent to registration. What would be the purpose of
It is indeed inequitable and re revolting to one's sense of justice and fairness that Rosario Carbonell who paid out
registration other than to give notice to interested parties and to the whole world of the existence of rights or liens
of her own money the sum of only P200.00 to the Republic Savings Bank for the account of Jose Poncio, which
against the property under question?
was the motivation for the execution of the private instrument, Exhibit A, should have a superior right to the land
What has been clearly and succinctly postulated in T. de Winkleman and Winkleman vs. Veluz 1922, 43 Phil. involved. The property has been improved at a great expense and a building of strong materials has been
604, 609, is applicable to the case before Us, and We quote therefrom: constructed thereon Emma Infants ho spent for her lot and building the total sum of P13,429.00 made, up of
P11,929.00 for cost of land and improvements and the building and P1,500.00 to discharge the mortgage in favor
. . . The purpose of registering an instrument relating to land, annuities, mortgages, liens or any other class of real
of the Republic Savings Bank. with the present purchasing power of the peso this aft i more than 13 years, would
rights is to give notice to persons interested of the existence of these various liens against the property. If the
parties interested have actual notice of the existence of such liens then the necessity for registration does not

8
be not equivalent to about P40,000.00. Courts should not lend a hand to the perpetration of such kind of injustice
and outrage (see page 88, rollo)
I close paraphrasing the Supreme Court of Oklahoma in Phelps vs. Theime, et al., 217 p. 376; 377, that "equity is
a right wiseneth that considerate all of the particular circumstances of the case and is also tempered with the
sweetness of mercy." (quoting from St. Germain) In this case now before Us there is no need to invoke mercy, for
all that is required is a wise consideration of the particular circumstances narrated above which warrant a
judgment in favor of respondents Infants.
With all the foregoing, I vote for the affirmance of the decision under review.

9
SECOND DIVISION
[G.R. No. 129760. December 29, 1998]
RICARDO CHENG, petitioner, vs. RAMON B. GENATO and ERNESTO R. DA JOSE & SOCORRO B.
DA JOSE, respondents.
DECISION
MARTINEZ, J.:
This petition for review on certiorari seeks to annul and set aside the Decision of the Court of Appeals
(CA)[if !supportFootnotes][1][endif] 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-appellants Affidavit to Annul Contract to Sell and
plaintiff-appellees Notice of Adverse Claim in the subject TCTs, 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 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, attorneys fees of P50,000.00, and costs of suit; and to
defendant-appellant, of P100,000.00 in exemplary damages, P50,000.00 in attorneys 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.[if !supportFootnotes][2][endif]
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)[if !supportFootnotes][3][endif] and TCT No. T-76.197 (M)[if
!supportFootnotes][4][endif] with an aggregate area of 35,821 square 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 1 and 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 (P950,000.00) 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.[if !supportFootnotes][5][endif]
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.[if !supportFootnotes][6][endif] 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,[if !supportFootnotes][7][endif] 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;[if
!supportFootnotes][8][endif]
On October 24, 1989, herein petitioner Ricardo Cheng (Cheng) went to Genatos 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
(SGD) Ramon B. Genato
Check # 470393
10/24/89[if !supportFootnotes][9][endif]
10
 On October 25, 1989, Genato deposited Chengs check. On the same day, Cheng called up Genato
reminding him to register the affidavit to annul the contract to sell.[if !supportFootnotes][10][endif]
The following day, or on October 26, 1989, acting on Chengs 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.[if !supportFootnotes][11][endif]
While the Da Jose spouses were at the Office of the Registry of Deeds of Meycauaya, 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 Chengs P50,000.00 check. Consequently, on October 30, 1989, Chengs lawyer
sent a letter[if !supportFootnotes][12][endif] 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[if !supportFootnotes][13][endif] to Cheng (Exh. 6) enclosing a BPI
Cashiers 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[if !supportFootnotes][14][endif] dated November 6, 1989, reiterating that our contract to sell your
property had already been perfected.
Meanwhile, also on November 2, 1989, Cheng executed an affidavit of adverse claim[if
!supportFootnotes][15][endif]
and had it annotated on the subject TCTs.
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[if !supportFootnotes][16][endif] 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[if !supportFootnotes][17][endif] 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 the condition that the prior contract with the Da Jose spouses be first cancelled.
The Da Jose spouses, in their Answer in Intervention,[if !supportFootnotes][18][endif] 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 Chengs 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[if !supportFootnotes][19][endif] of the Civil
Code. The right of Genato to unilaterally rescind the contract is said to be under Article 1191[if
!supportFootnotes][20][endif] 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 defendants 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 the 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, Meycauyan Branch, at the rate of P70.00/sqaure
meter, less the amount of P50,000.00 already 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 attorneys fees, to plaintiff;
d/ P20,000.00, as and for attorneys 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.[if !supportFootnotes][21][endif]
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 Chengs 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.
11
 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 of resolution of the Da Jose spouses Contract to Sell, contrary to petitioners contentions and
the trial courts 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.[if !supportFootnotes][22][endif] 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.[if
!supportFootnotes][23][endif] Emphasis should be made that the breach contemplated in Article 1191 of the New Civil
Code is the obligors failure to comply with an obligation already extant, not a failure of a condition to render
binding that obligation.[if !supportFootnotes][24][endif]
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 of 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.[if !supportFootnotes][25][endif] If the suspensive condition does not take place, the parties
would stand as if the conditional obligation had never existed.[if !supportFootnotes][26][endif]
Nevertheless, this being so Genato is not relieved from the giving of a notice, verbal or written, to the Da
Jose spouses for decision to rescind their contract. In many cases,[if !supportFootnotes][27][endif] 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.[if !supportFootnotes][28][endif] 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,[if !supportFootnotes][29][endif] 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 extajudicial steps to protect its interest. Otherwise, the party injured by
the others 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 obligees 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 Chengs contention that the Contract to Sell between Genato and the Da Jose spouses
was rescinded or resolved due to Genatos 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 admissions[if !supportFootnotes][30][endif] that Cheng believed it to be one of a Contract to Sell and not one of
Conditionl 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,[if !supportFootnotes][31][endif] Cheng alleged that the P50,000.00 down payment was
earnest money. And next, his testimony[if !supportFootnotes][32][endif] was offered to prove that the transaction between
him and Genato on October 24, 1989 was actually a perfected contract to sell.[if !supportFootnotes][33][endif]
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.[if !supportFootnotes][34][endif] 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.[if !supportFootnotes][35][endif] 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 Chengs contention in his
pleadings before said courts. This patent twist only operates against Chengs 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 enforceable.[if !supportFootnotes][36][endif]
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[if !supportFootnotes][37][endif] 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
outline 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:
Article 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to
the person who may have first taken possession thereof in good faith, if it should be movable property.
12
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
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 the 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. Jurisprudence[if !supportFootnotes][38][endif] 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 petitioners
intrusion as a second buyer. This principle only applies when the special rules provided in the aforcited article of
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 buyers rights) from the time of acquisition until title is transferred to him by registration or failing
registration, by delivery of possession;[if !supportFootnotes][39][endif]
(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.[if
!supportFootnotes][40][endif]
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.[if !supportFootnotes][41][endif] 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.[if !supportFootnotes][42][endif] We have ruled[if
!supportFootnotes][43][endif] before that when a Deed of Sale is inscribed in the registry of property on the original
document itself, what was done with respect to said entries or annotations and marginal notes amounted to a
registration of the sale. In this light, we see 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.
Moreover, registration alone in such cases without good faith is not sufficient. Good faith must concur
with registration for such prior right to be enforceable. In the instant case, the annotation made by the Da Jose
spouses on the titles of Genato of their Contract to Sell more than satisfies this requirement. Whereas in the case
of Genatos agreement with Cheng such is unavailing. For even before the receipt, Exh. D, was issued to Cheng
information of such pre-existing agreement has been brought to his knowledge which did not deter him from
pursuing his agreement with Genato. We give credence to the factual 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.[if !supportFootnotes][44][endif] And since Cheng was fully aware, or could have been if he had chosen to inquire, of
the rights of the 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 is indeed in bad faith in entering
into such agreement. As we have held in Leung Yee vs. F.L. Strong Machinery Co.:[if !supportFootnotes][45][endif]
One who purchases real estate with knowledge of a defect x x x of title in his vendor cannot claim that he has
acquired title thereto in good faith as against x x x x 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 vendors 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., 250; Breaux-Renoudet, Cypress
Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromely, 119 Mich., 8, 10, 17.)
Emphasis ours
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 agreement with Genato did not push
through.[if !supportFootnotes][46][endif] Such bad faith, coupled with his wrongful interference with the contractual
relations between Genato and the Da Jose spouses, which culminated in his filing of the present suit and thereby
creating what the counsel for the respondents describes as a prolonged and economically unhealthy gridlock[if
!supportFootnotes][47][endif] on both the land itself and the respondents rights provides ample basis for the damages
awarded. Based on these overwhelming evidence of bad faith on the part of herein petitioner Ricardo Cheng, we
find that the award of damages made by the appellate court is in order.
WHEREFORE, premises considered, the instant petition for review is DENIED and the assailed decision is
hereby AFFIRMED EN TOTO.
SO ORDERED.
Bellosillo (Chairman), Puno, and Mendoza, JJ., concur.
13
FIRST DIVISION
[G.R. No. 92310. September 3, 1992.]
AGRICULTURAL AND HOME EXTENSION DEVELOPMENT GROUP, represented by Nicasio D.
Sanchez, Sr., substituted by Milagros S. Bucu, Petitioner, v. COURT OF APPEALS, and LIBRADO
CABAUTAN, Respondents.
Gideon C. Bondoc for Petitioner.
Balgos & Perez for Private Respondent.
SYLLABUS
1. CIVIL LAW; SPECIAL CONTRACTS; SALE; RULE IN CASE OF DOUBLE SALE; APPLICATION IN
CASE AT BAR. — Under Article 1544 of the Civil Code of the Philippines: 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. It
is not disputed that the first sale to Gundran was not registered while the second sale to Cabautan was registered.
Following the above-quoted provision, the courts below were justified in according preferential rights to the
private respondent, who had registered the sale in his favor, as against the petitioner’s co-venturer whose right to
the same property had not been recorded.
2. ID.; ID.; ID.; PURCHASER IN GOOD FAITH; DEFINED. — A purchaser in good faith is defined as "one
who buys the property of another without notice that some other person has a right to or interest in such property
and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim or
interest of some other person in the property."cralaw virtua1aw library
3. ID.; ID.; ID.; ID.; SALE OF PROPERTY REGISTERED UNDER THE TORRENS SYSTEM; EFFECT OF
NOTICE OF LIS PENDENS ANNOTATED ON THE CERTIFICATE. — The petitioner claims, however, that
Cabautan was a purchaser in bad faith because he was fully aware of the notices of lis pendens at the back of
TCT No. 287416 and of the earlier sale of the land to Gundran. An examination of TCT No. 287416 discloses no
annotation of any sale, lien, encumbrance or adverse claim in favor of Gundran or the petitioner. Well-settled is
the rule that when the property sold is registered under the Torrens system, registration is the operative act to
convey or affect the land insofar as third persons are concerned. Thus, a person dealing with registered land is
only charged with notice of the burdens on the property which are noted on the register or certificate of title.
While it is true that notices of lis pendens in favor of other persons were earlier inscribed on the title, these did
not have the effect of establishing a lien or encumbrance on the property affected. Their only purpose was to give
notice to third persons and to the whole world that any interest they might acquire in the property pending
litigation would be subject to the result of the suit.
DECISION
CRUZ, J.:
We are asked again to determine who as between two successive purchasers of the same land should be
recognized as its owner. The answer is simple enough. But we must first, as usual, plow through some alleged
complications.
The pertinent background facts are as follows:chanrob1es virtual 1aw library
On March 29, 1972, the spouses Andres Diaz and Josefa Mia sold to Bruno Gundran a 19-hectare parcel of land
in Las Piñas, Rizal, covered by TCT No. 287416. The owner’s duplicate copy of the title was turned over to
Gundran. However, he did not register the Deed of Absolute Sale because he said he was advised in the Office of
the Register of Deeds of Pasig of the existence of notices of lis pendens on the title.chanrobles law library
On November 20, 1972, Gundran and the herein petitioner, Agricultural and Home Development Group, entered
into a Joint Venture Agreement for the improvement and subdivision of the land. This agreement was also not
annotated on the title.
On August 30, 1976, the spouses Andres Diaz and Josefa Mia again entered into another contract of sale of the
same property with Librado Cabautan, the herein private Respondent.
On September 3, 1976, by virtue of an order of the Court of First Instance of Rizal, a new owner’s copy of the
certificate of title was issued to the Diaz spouses, who had alleged the loss of their copy. On that same date, the
notices of lis pendens annotated on TCT No. 287416 were canceled and the Deed of Sale in favor of private
respondent Cabautan was recorded. A new TCT No. S-33850/T-172 was thereupon issued in his name in lieu of
the canceled TCT No. 287416.
On March 14, 1977, Gundran instituted an action for reconveyance before the Court of First Instance of Pasay
City * against Librado Cabautan and Josefa Mia seeking, among others, the cancellation of TCT No. 33850/T-
172 and the issuance of a new certificate of title in his name.
On August 31, 1977, the petitioner, represented by Nicasio D. Sanchez, Sr., filed a complaint in intervention with
substantially the same allegations and prayers as that in Gundran’s complaint.
In a decision dated January 12, 1987, 1 Gundran’s complaint and petitioner’s complaint in intervention were
dismissed for lack of merit. So was the private respondent’s counterclaims, for insufficiency of evidence.
Upon appeal, this decision was affirmed by the respondent Court of Appeals, with the modification that Josefa
Mia was ordered to pay Gundran the sum of P90,000.00, with legal interest from September 3, 1976, plus the
costs of suit. 2
14
Under Article 1544 of the Civil Code of the Philippines:chanrob1es virtual 1aw library
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.chanrobles
virtual lawlibrary
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.
It is not disputed that the first sale to Gundran was not registered while the second sale to Cabautan was
registered.
Following the above-quoted provision, the courts below were justified in according preferential rights to the
private respondent, who had registered the sale in his favor, as against the petitioner’s co-venturer whose right to
the same property had not been recorded.
The petitioner claims, however, that Cabautan was a purchaser in bad faith because he was fully aware of the
notices of lis pendens at the back of TCT No. 287416 and of the earlier sale of the land to Gundran.chanrobles
virtual lawlibrary
A purchaser in good faith is defined as "one who buys the property of another without notice that some other
person has a right to or interest in such property and pays a full and fair price for the same at the time of such
purchase or before he has notice of the claim or interest of some other person in the property." 3
An examination of TCT No. 287416 discloses no annotation of any sale, lien, encumbrance or adverse claim in
favor of Gundran or the petitioner. Well-settled is the rule that when the property sold is registered under the
Torrens system, registration is the operative act to convey or affect the land insofar as third persons are
concerned. 4 Thus, a person dealing with registered land is only charged with notice of the burdens on the
property which are noted on the register or certificate of title. 5
While it is true that notices of lis pendens in favor of other persons were earlier inscribed on the title, these did
not have the effect of establishing a lien or encumbrance on the property affected. Their only purpose was to give
notice to third persons and to the whole world that any interest they might acquire in the property pending
litigation would be subject to the result of the suit.
Cabautan took this risk. Significantly, three days after the execution of the deed of sale in his favor, the notices of
lis pendens were canceled by virtue of the orders of the Court of First Instance of Rizal, Branch 23, dated April 1,
1974, and April 4, 1974. Cabautan therefore acquired the land free of any liens or encumbrances and so could
claim to be a purchaser in good faith and for value.
The petitioner insists that it was already in possession of the disputed property when Cabautan purchased it and
that he could not have not known of that possession. Such knowledge should belie his claim that he was an
innocent purchaser for value. However, the courts below found no evidence of the alleged possession, which we
must also reject in deference to this factual finding.chanrobles virtual lawlibrary
The petitioner’s reliance on Casis v. Court of Appeals 6 is misplaced.
The issue at bar is whether private respondent Cabautan is an innocent purchaser for value and so entitled to the
priority granted under Article 1544 of the Civil Code. The Casis case, on the other hand, involved the issues of
whether or not: 1) certiorari was the proper remedy of the petitioner: 2) the previous petition for certiorari which
originated from the quieting of title case was similar to and, hence, a bar to the petition for certiorari arising from
the forcible entry case; and 3) the court a quo committed grave abuse of discretion amounting to lack or excess of
jurisdiction in issuing the order which dissolved the restraining order issued in connection with the ejectment
case. The Court was not called upon in that case to determine who as between the two purchasers of the subject
property should be preferred.
The petitioner invokes the ruling of the lower court in that case to the effect that the registration of the sale in
favor of the second purchaser and the issuance of a new certificate of title in his favor did not in any manner vest
in him any right of possession and ownership over the subject property because the seller, by reason of their prior
sale, had already lost whatever right or interest she might have had in the property at the time the second sale was
made.
This excerpt was included in the ponencia only as part of the narration of the background facts and was not
thereby adopted as a doctrine of the Court. It was considered only for the purpose of ascertaining if the court
below had determined the issue of the possession of the subject property pending resolution of the question of
ownership. Obviously, the Court could not have adopted that questionable ruling as it would clearly militate
against the provision of Article 1544.chanrobles.com:cralaw:red
Worthy of note at this juncture is the observation of Justice Edgardo L. Paras, to wit:chanrob1es virtual 1aw
library
True, no one can sell what he does not own, but this is merely the general rule. Is Art. 1544 then an exception to
the general rule? In a sense, yes, by reason of public convenience (See Aitken v. Lao, 36 Phil. 510); in still
another sense, it really reiterates the general rule in that insofar as innocent third persons are concerned, the
registered owner (in the case of real property) is still the owner, with power of disposition. 7
The language of Article 1544 is clear and unequivocal. In light of its mandate and of the facts established in this
case, we hold that ownership must be recognized in the private respondent, who bought the property in good faith
and, as an innocent purchaser for value, duly and promptly registered the sale in his favor.
15
WHEREFORE, the petition is DENIED and the questioned decision AFFIRMED in toto, with costs against the
petitioner.

SO ORDERED.

Griño-Aquino, Medialdea and Bellosillo, JJ., concur.

16
FIRST DIVISION
[G.R. No. 11176. December 21, 1917. ]
MARCIANO RIVERA, Plaintiff-Appellant, v. ONG CHE, Defendant-Appellee.
Ramon Salinas for Appellant.
J.C. Hixson for Appellee.
SYLLABUS
1. SALE; ACQUISITION OF TITLE BY SECOND PURCHASER. — the owner of certain mill machinery
exposed it for sale upon the premises of L, with authority in the latter to sell it. While the property remained at
this place the owner, acting through another agent, C, sold the property to the plaintiff R. Before it was removed
by the latter, L, by mistake, sold part of the same machinery to the defendant O, who purchased in good faith and
took possession. Held: In an action brought by the plaintiff to recover the disputed property, that the defendant
had acquired the title under article 1473 of the Civil Code.
2. PROCEDURE; CONTINUANCE. — An application for a continuance on the ground of the absence of
material witnesses is addressed to the discretion of the trial court, and its ruling thereon will not be disturbed
unless it clearly appears that such discretion was abused and that by the refusal of the continuance a party has
without his fault been deprived of an opportunity of presenting his case of defense.
DECISION
STREET, J. :
For some time prior the events which gave origin to this lawsuit, the house of Lichauco, or Lichauco Brother had
offered for sale a certain old machinery and boilers which were deposited and exposed for sale in a yard at
Tanduay, in the city of Manila. The plaintiff, Marciano Rivera, alleges that upon January 8, 1912, he purchased
some of this old material for the price of P5.500, and received a receipt from Cresanto Lichauco showing that he
had become such purchaser. These things consisted, according to said receipt, of two complete steam-boilers,
with chimneys; one steam motor (15 by 30 inches) complete; one pair of twin rice hullers complete, and a feeding
pump (donkey) for boilers.
The plaintiff, however, did not take possession of the property, which remained in the same place. It further
appears that upon February 9, 1912, the defendants, Ong Che, bought from Lichauco Brothers a lot of old iron,
machinery, and junk for the sum of P1,100. This purchaser took immediate possession of the materials purchased
by him. Later, when Marciano Rivera appeared to take possession of the things of which he supposed himself to
the purchaser, under the receipt given by Crisanto Lichauco, he found that many of the accessory and auxiliary
parts of the boilers, motor, and rice mill were wanting; and upon investigation it developed that these articles
were held by the defendant, Ong Che, and were claimed by him as owner by virtue of the purchase effected by
him upon February 9, as stated above. The plaintiff thereupon instituted the present action to recover the articles
in question alleging that he was the true owner thereof. At the hearing in the Court of First Instance of the city of
Manila judgment was given in favor of the defendant and the plaintiff has appealed.
We concur in the conclusion reached by the judge of the Court of First Instance that the defendant, Ong Che, was
a purchaser of these articles in good faith. It is furthermore uncontroverted that he acquired possession by virtue
of his purchase. He, therefore, undoubtedly has, under article 1473 of the Civil Code, a better title than the first
purchaser, who has never had possession at all. The only doubt as to the application of that article to the present
case arises from the fact that there is some conflict in the testimony upon the question as to who was the original
owner. It is to be inferred from the testimony that the house of Lichauco consists of Faustino Lichauco and Galo
Lichauco, and it would seem that Crisanto Lichauco, who effected the sale of Rivera, is not a member of that
establishment. Crisanto testified that the property sold by him to the plaintiff Rivera, including the articles which
are now in dispute, was the property of Galo Lichauco. There is grave doubt as to correctness of this statement,
however, as the same witness admits that the machinery sold by him to Rivera had been taken out of an old mill
owned by Lichauco Brothers in Dagupan; and it is not made clear that Galo Lichauco had ever become its
exclusive owner. Furthermore, the evidence submitted by the defendant tends to show that the things acquitted by
him, including the articles in dispute, were bought from Faustino Lichauco as property of the house. At any rate
we find that, under the circumstances disclosed in this case, and even conceding that property belong to Galo
Lichauco, the house of Lichauco had authority to sell it. In this view the case presented is that where two
different agents of the same owner successively negotiated sales to two different purchasers, and it is obvious
that, under the article of the Civil Code cited above, the second purchaser having acquired possession first must
be declared the true owner. In our view of the facts it was merely a case where a mistake was made by the house
of Lichauco in selling something that had already been sold.
Other aspects of the case are equally fatal to the contention of the plaintiff. It was incumbent upon the plaintiff to
prove title in himself, as against the defendant, by a preponderance of the evidence; and he could not recover
merely upon the weakness of the defendant’s title. (Belen v. Belen, 13 Phil. Rep., 202.) The court below held that
the plaintiff had failed to prove title in himself and we see the no reason for disturbing the judgment on this point.
The defendant had, in his favor, the fact that he was purchaser in good faith and had acquired lawful possession.
There is a presumption arising from such possession that he was the owner (sec. 334 [10], Code of Civel
Procedure); and the mere fact, if such it be, that the property originally belonged to Galo Lichauco was not
sufficient, without more, to defeat a title acquired by the defendant through the house of Lichauco.
It should be stated that at the hearing the plaintiff himself did not appear as a witness. Furthermore, no steps were
taken, prior to the trial to secure the attendance of either Galo Lichauco or Faustino Lichauco, both of whom
would have been most material witnesses for the plaintiff if his contention is correct.
At the close of the trial in the court below, plaintiff’s counsel asked for a continuance in order to call these
witnesses. The court refused to grant a continuance for such purpose. In this we think the court did not abuse its
discretion, and its action in this respect does not constitute reversible error. The plaintiff was appraised from the
17
nature of the issue raised that the question to be tried was that of ownership and he should have been ready with
the witnesses to prove it. He was not entitled to a continuance on the ground of the absence of those important
witnesses unless he showed that he had used reasonable diligence to secure their attendance. An application for a
continuance of cause is addressed to the sound legal discretion of the trial court, and its ruling thereon will not be
disturbed, unless it clearly appears that such discretion has been abused, and that by the refusal of the continuance
a party has been without his fault deprived of an opportunity of making his case or defense.

It results that the judgment of the lower court should be affirmed, with costs of this instance against the appellant.
So ordered.

Arellano, C.J., Johnson, Carson, Araullo, Malcolm, and Avanceña, JJ., concur.

18
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 166913 October 5, 2007
SPOUSES MARIANO S. TANGLAO and CORAZON M. TANGLAO, petitioners,
vs.
SPOUSES CORAZON S. PARUNGAO and LORENZO G. PARUNGAO (deceased), substituted by
LAWRENCE S. PARUNGAO, MARY CHRISTINE PARUNGAO-CURUTCHET, LORDBERT S.
PARUNGAO, LODELBERTO S. PARUNGAO and MA. CECILIA PARUNGAO-HERNANDEZ,
respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the instant Petition for Review on Certiorari seeking to reverse the Decision1 of the Court of
Appeals (Fifteenth Division) dated January 31, 2005 in CA-G.R. SP No. 78079.
The facts of the case are:
In 1992, spouses Lorenzo and Corazon Parungao, respondents, purchased from Spring Homes Subdivision
(Spring Homes) Lot Nos. 1, 2, 3, and 4 with a total area of 486 square meters (sq. m.) at P1,350.00 per sq. m. or a
total price of P656,100.00. In addition, they also bought Lot Nos. 7, 8, and 9 with a total area of 457 sq. m. at
P1,550.00 per sq. m. or a total price of P708,360.00. All these lots are located at Block VI, Phase II-C, Spring
Homes, Barangay Culiat, Calamba City, Laguna. Respondents made a down payment of P536,000.00, leaving a
balance of P828,450.00, exclusive of interest.
Sometime in November 1992, respondents introduced improvements on the lots consisting of a concrete
perimeter fence with cyclone wires on top, a heavy steel gate, and two fish breeding buildings, all at a cost of
P945,000.00. They also elevated the ground level of the lots by filling them with earth and "adobe."
Under the terms of the Contracts to Sell signed by respondents and Spring Homes, the balance of P828,450.00
was to be paid by them within one year from its execution; and that should they apply for a loan as payment for
the balance, they would continue to pay the monthly installment until their obligation is fully paid.
Respondents failed to pay the installments. They also failed to secure a loan because Spring Homes refused to
deliver to them the Transfer Certificates of Title (TCTs) covering the lots required in their application for a loan
secured by a real estate mortgage. Apparently, respondents had requested Spring Homes to furnish them copies of
the Contracts to Sell, the TCTs, receipts of real estate taxes paid, tax declarations, and the survey and vicinity
plans of the lots they purchased. However, Roy Madamba, salesman-representative of Spring Homes, gave
respondents only copies of the Contracts to Sell. But respondents returned these copies to Spring Homes for
correction of the lot numbers and the names of the vendees.
On April 11, 1997, Spring Homes executed two separate Deeds of Absolute Sale in favor of spouses Mariano and
Corazon Tanglao, petitioners, wherein the former sold to the latter two lots covered by TCT Nos. T-268566 and
T-268572. Hence, the said TCTs were cancelled and in lieu thereof, TCT Nos. T-393365 and T-3377723 were
issued in the names of petitioners. It turned out that the lots sold to them were among the lots previously sold to
respondents.
In a letter dated September 15, 1997, respondents demanded that Spring Homes deliver to them the corrected
Contracts to Sell, as well as the TCTs covering the lots they purchased.
Meanwhile, petitioners took possession of the two lots they bought. They forcibly opened the steel gate as well as
the doors of the buildings and entered the premises.
When informed of these events, respondents demanded an explanation from Spring Homes. Bertha Pasic, its
treasurer, apologized and promised she would settle the matter with petitioners. However, the controversy was
not settled.
On July 15, 1999, respondents filed with the Housing and Land Use Regulatory Board (HLURB), Regional
Office No. 1V a complaint for annulment of deed of sale and/or return of investment for the seven (7) lots and
costs of improvements, plus interest and damages, docketed as HLURB Case No. R-1V6-08199-1104. Impleaded
as respondents were Spring Homes, Berta Pasic, Felipa Messiah, and petitioners.
Despite notice, Spring Homes, Pasic, and Messiah did not file their respective answers to the complaint, nor did
they appear during the hearings.
On October 3, 2000, HLURB Arbiter Gregorio L. Dean rendered a Decision, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered:
1. Dismissing the complaint filed against respondents Felipa Messiah and Spouses Tanglao for lack of merit;
2. Ordering respondent Spring Homes to pay complainants:
a) Php536,000.00 by way of refund of payments with 12% interest per annum to commence from August 11,
1999;
b) Php935,000.00 as actual damages; and
c) Php20,000.00 as attorney’s fees..
3. Ordering respondents Spring Homes Subdivision Co., Inc., and Bertha Pasic, jointly and severally, to pay
complainant the sum of Php20,000.00 as moral damages and to pay this Board the sum of Php10,000.00 as
administrative fine.
IT IS SO ORDERED.
Dissatisfied with the ruling, respondents filed a petition for review with the HLURB Board of Commissioners,
docketed as HLURB Case No. REM-A-001211-0272.
On August 24, 2001, the HLURB Board of Commissioners rendered its Judgment reversing the Arbiter’s
Decision and granting the petition for review, thus:
WHEREFORE, premises considered, the petition for review is granted. The decision of the office below is set
aside and a new decision is rendered as follows:
1. Declaring as valid and subsisting the contract to sell between complainants and respondent Spring Homes;
2. Directing complainants to immediately update their account and directing respondent Spring Homes to accept
payment and to deliver title to complainants upon full payment of the purchases price;
3. Declaring as invalid the deed of absolute sale in favor of the spouses Tanglao over the subject lots and
directing the cancellation of respondent spouses TCTs Nos. T-268566 and T-268572 of the Registry of Deeds for
Calamba, Laguna and its reversion to respondent Spring Homes;
4. Directing respondent Spring Homes to refund to respondent spouses Tanglao all the amounts paid by the latter
in connection with the sale of the subject lots to the latter with 12% interest reckoned from the date of the sale;
5. Directing respondent Spring Homes to pay administrative fine of P10,000.00 for unsound business practice.
SO ORDERED.
19
The HLURB Board of Commissioners found that at the time of the sale of the two lots in question to petitioners, register, since such knowledge taints his registration with bad faith. Differently put, the act of registration by the
the contracts between respondents and Spring Homes were still subsisting. Moreover, the fence and existing second buyer must be coupled with good faith, meaning, the registrant must have no knowledge of the defect or
structures erected on the premises should have forewarned petitioners that there are adverse claimants of the two lack of title of his vendor or must not have been aware of facts which should put him upon such inquiry and
lots. investigation as might be necessary to acquaint him with the defects in the title of his vendor.6
Petitioners filed a motion for reconsideration, but this was denied by the HLURB Board of Commissioners in a Applying the foregoing doctrines, the pivotal question before us is whether petitioners, the second buyers, are
Resolution promulgated on February 22, 2002. purchasers in good faith.
Petitioners then filed an appeal with the Office of the President, docketed as O.P. Case No. 02-C-099. But in its A purchaser in good faith or innocent purchaser for value is one who buys property and pays a full and fair price
Decision dated March 12, 2003, the Office of the President dismissed their appeal and affirmed the Decision of for it at the time of the purchase or before any notice of some other person’s claim on or interest in it.7 The
the HLURB Board of Commissioners. burden of proving the status of a purchaser in good faith lies upon him who asserts that status and it is not
sufficient to invoke the ordinary presumption of good faith, that is, that everyone is presumed to have acted in
Petitioners’ motion for reconsideration was also denied by the said Office in its Order dated June 18, 2003.
good faith.8
Eventually, petitioners filed with the Court of Appeals a petition for review under Rule 43 of the 1997 Rules of
In the instant case, the HLURB Arbiter, the HLURB Commission, the Office of the President, and the Court of
Civil Procedure, as amended.
Appeals found that at the time of the second sale to petitioners by Spring Homes, there were already occupants
On January 31, 2004, the Court of Appeals rendered its Decision dismissing the petition, thus: and improvements on the two lots in question. These facts should have put petitioners on their guard. Settled is
WHEREFORE, premises considered, the petition for review is DENIED DUE COURSE and ordered the rule that a buyer of real property in possession of persons other than the seller must be wary and
DISMISSED. The Decision dated 12 March 2003 of the Office of the President which affirmed the Decision of should investigate the rights of those in possession, for without such inquiry the buyer can hardly be
regarded as a buyer in good faith and cannot have any right over the property.9
the HLURB Board of Commissioners (Third Division) dated 24 August 2001 reversing the 03 October 2000
Decision of Housing and Land Use Arbiter Gerardo L. Dean and the Order dated 18 June 2003 of the Office of As the petitioners cannot be considered buyers in good faith, they cannot rely upon the indefeasibility of their
the President denying the motion for reconsideration are hereby AFFIRMED. Costs against petitioners Sps. TCTs in view of the doctrine that the defense of indefeasibility of a torrens title does not extend to transferees
Mariano S. Tanglao and Corazon M. Tanglao. who take the certificate of title in bad faith.10
SO ORDERED. Considering that respondents who, in good faith, were first in possession of the subject lots, we rule that the
ownership thereof pertains to them.
The Court of Appeals held that there was a perfected contract to sell between respondents and Spring Homes as
early as 1992. As this contract was subsisting at the time of the second sale, respondents have a superior right WHEREFORE, we DENY the petition. The Decision of the Court of Appeals (Fifteenth Division) dated
over the lots in question. January 31, 2005 in CA-G.R. SP No. 78079 is AFFIRMED in toto. Costs against the petitioners.
The only issue for our resolution is who between the petitioners and respondents have the right of ownership over SO ORDERED.
the two lots in controversy.
Puno, C.J., Chairperson, Corona, Azcuna, Garcia, JJ., concur.
The ownership of immovable property sold to two different persons at different times is governed by Article
1544 of the Civil Code,2 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 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.
In double sales of immovable property, the governing principle is prius tempore, prius jure (first in time, stronger
in right). Thus, in Payongayong v. Court of Appeals,3 this Court held that under Article 1544, preferential rights
shall be accorded to: (1) 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. In all of these cases, good faith is essential, being the
basic premise of the preferential rights granted to the person claiming ownership of the immovable.4
In Occeña v. Esponilla,5 this Court, speaking through then Associate Justice (now Chief Justice) Reynato S.
Puno, laid down the following rules in the application of Article 1544: (1) 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; and (2) Knowledge gained by the second buyer of the first sale defeats his rights even if he is first to

20
Republic of the Philippines 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.
SUPREME COURT
We disagree. While under the invoked Article 1544 registration in good faith prevails over possession in the
Manila
event of a double sale by the vendor of the same piece of land to different vendees, said article is of no
EN BANC 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
G.R. No. L-27587 February 18, 1970 property sold as of the time the property was levied upon. This is specifically provided by section 35 of Rule 39
AMADO CARUMBA, petitioner, of the Revised Rules of Court, the second paragraph of said section specifically providing that:

vs. 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
THE COURT OF APPEALS, SANTIAGO BALBUENA and ANGELES BOAQUIÑA as Deputy time of the levy, except as against the judgment debtor in possession, in which case the substitution shall be
Provincial Sheriff, respondents. effective as of the time of the deed ... (Emphasis supplied)
Luis N. de Leon for petitioner. While the time of the levy does not clearly appear, it could not have been made prior to 15 April 1957, when the
Reno R. Gonzales for respondents. 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
REYES, J.B.L., J.: 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
Amado Carumba petitions this Supreme Court for a certiorari to review a decision of the Court of Appeals, at the execution sale.1 Hence, the latter must yield the land to petitioner Carumba. The rule is different in case of
rendered in its Case No. 36094-R, that reversed the judgment in his favor rendered by the Court of First Instance lands covered by Torrens titles, where the prior sale is neither recorded nor known to the execution purchaser
of Camarines Sur (Civil Case 4646). prior to the levy;2 but the land here in question is admittedly not registered under Act No. 496.
The factual background and history of these proceedings is thus stated by the Court of Appeals (pages 1-2): WHEREFORE, the decision of the Court of Appeals is reversed and that of the Court of First Instance affirmed.
On April 12, 1955, the spouses Amado Canuto and Nemesia Ibasco, by virtue of a "Deed of Sale of Unregistered Costs against respondent Santiago Balbuena.
Land with Covenants of Warranty" (Exh. A), sold a parcel of land, partly residential and partly coconut land with Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Teehankee, Barredo and Villamor,
a periphery (area) of 359.09 square meters, more or less, located in the barrio of Santo Domingo, Iriga, JJ., concur.
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

21
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-19248 February 28, 1963
ILUMINADO HANOPOL, plaintiff-appellant,
vs.
PERFECTO PILAPIL, defendant-appellee.
Jesus P. Narvios for plaintiff-appellant.
Estacion & Paltriquerra for defendant-appellee.
BARRERA, J.:
This is a case of double sale of the same parcel of unregistered land decided by the Court of First Instance of
Leyte (Civil Case No. 21) in favor of defendant-appellee Perfecto Pilapil, originally appealed by plaintiff-
appellant Iluminado Hanopol to the Court of Appeals, but later certified to this Court for proper adjudication, the
issues involved being exclusively of law.
Appellant Hanopol claims ownership of the land by virtue of a series of purchases effected in 1938 by means of
private instruments, executed by the former owners Teodora, Lucia, Generosa, Sinforosa and Isabelo, all
surnamed Siapo. Additionally, he invokes in his favor a decision rendered by the Court of First Instance of Leyte
(in Civil Case No. 412) on a complaint he filed on June 16, 1948, against the same vendors, who, according to his
own averments, took possession of the said property in December, 1945 through fraud, threat and intimidation,
pretending falsely to be the owners thereof and ejecting the tenants of Hanopol thereon, and since then had
continued to possess the land. Decision declaring him the exclusive owner of the land in question and ordering
therein defendants to deliver possession thereof was rendered on September 21, 1958.
On the other hand, appellee Pilapil asserts title to the property on the strength of a duly notarized deed of sale
executed in his favor by the same owners on December 3, 1945, which deed of sale was registered in the Registry
of Deeds of Leyte on August 20, 1948 under the provisions of Act No. 3344.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this
Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by this
stipulation of facts. 1äwphï1.ñët
The case was submitted for decision without any testimonial evidence, both parties relying exclusively on their
documentary evidence consisting, on the part of Hanopol, of the private instruments alluded to and a copy of the
decision in the reivindicatory case, and on the part of Pilapil, the notarized deed of sale in his favor bearing
annotation of its registration under Act No. 3344. As thus submitted, the trial court rendered the decision adverted
to at the beginning of this opinion, mainly upon the authority of the second paragraph of Article 15441 of the
New Civil Code, which is a reproduction of Article 1473 of the old Civil Code, the law in force at the time the
transaction in this case took place.
Appellant Hanopol in his appeal from the decision of the trial court presents two questions of law; firstly,
whether or not the judgment in the former case No. 412 against the vendors Siapos is binding upon the
defendant-appellee as their successor-in-interest; and secondly, whether or not the registration of the second deed
of sale in favor of appellee Pilapil affects his right as the first vendee.
Under the first assignment of error, the appellant contends that inasmuch as appellee claims to be the successor-
in-interest of the vendors, he is bound by the judgment rendered against the latter. This contention is without
merit, because it appears from the documentary evidence that appellee Pilapil derived his right to the land from
the sale to him of the said property on December 3, 1945, long before the filing of the complaint against the
vendors in 1948. He was not made a party in the case against the Siapos, and there was not even a claim that he
had knowledge of said litigation. He cannot, therefore, be bound by such judgment in view of the provision of
paragraph (b), Section 44 of Rule 39 of the Rules of Court which speaks of the effect of judgment as follows:
... the judgment so ordered is, in respect to the matter directly adjudged, conclusive between the parties and their
successors in interest by title subsequent to commencement of the action or special proceeding, litigating for the
same thing and under the same title and in the same capacity. (Emphasis supplied)
Since Pilapil was not a party to the action and is not a successor-in-interest by title subsequent to the
commencement of the action, having acquired his title in 1945 and the action filed in 1948, the decision in said
case cannot be binding on him.
Appellant argues under the second issue raised by him that the registration of Pilapil's notarized deed of sale in
1948 under Act No. 3344 "shall be understood to be without prejudice to a third party with a better right". He
contends that since at the time the Siapos sold the land in question in 1945 to Pilapil, the former were no longer
the owners as they had already sold the same to appellant since 1938, the first sale to him is a better right which
cannot be prejudiced by the registration of the second sale.
We do not think the quoted proviso in Act No. 3344 justifies appellant's contention. If his theory is correct, then
the second paragraph of Article 1544 of the New Civil Code (formerly Article 1473 of the old Code) would have
no application at all except to lands or real estate registered under the Spanish Mortgage Law or the Land
Registration Act. Such a theory would thus limit the scope of that codal provision. But even if we adopt this latter
view, that is, that Article 1544 (formerly Article 1473) only applies to registered land, still we cannot agree with
the appellant that by the mere fact of his having a previous title or deed of sale, he has acquired thereby what is
referred to in Act No. 3344 as the "better right" that would be unaffected by the registration of a second deed of
sale under the same law. Under such theory, there would never be a case of double sale of the same unregistered
property.
An example of what could be a better right that is protected against the inscription of a subsequent sale is given in
the case of Lichauco v. Berenguer (39 Phil. 643). The facts in that case are succinctly stated in the syllabus
thereof as follows:
....— In 1882 B sold to S a piece of land. After the sale B continued in the possession of the land in the capacity
of lessee of S through payment of rent, and continued as such until his death when he was substituted by the
administrator of his property. In 1889 B sold again the same piece of land to L who leased it to B himself under
certain conditions. Both sales were executed in a public instrument, the one executed in favor of L being
registered only in 1907. Thus, S and L acquired possession of the land through the same vendor upon the latter's
ceasing to be the owner and becoming the lessee of said S and L, respectively. HELD: (1) That, with reference to
the time prior to 1907, the preference should be in favor of the purchaser who first took possession of the land,
because this possession, according to the law in force prior to the promulgation of the Civil Code, constituted the
consummation of the contract, and also because afterwards the Civil Code expressly establishes that possession
in such cases transfers the ownership of the thing sold. (2) That, when a person buys a piece of land and, instead
of taking possession of it, leases it to the vendor, possession by the latter after the sale is possession by the
vendee, and such possession, in case of a double sale, determines the preference in favor of the one who first took
possession of it, in the absence of inscription, in accordance with the provision of article 1473 of the Civil Code,
notwithstanding the material and personal possession by the second vendee. (Bautista vs. Sioson, 39 Phil. Rep.,
615)
.... Because L had to receive his possession from B who was a mere lessee of S and as such had no possession to
give, inasmuch as his possession was not for himself but in representation of S, it follows that L never possessed
the land..
22
.... The effect which the law gives to the inscription of a sale against the efficacy of the sale which was not
registered is not extended to other titles which the other vendee was able to acquire independently as, in this case,
the title by prescription.
It thus appears that the "better right" referred to in Act No. 3344 is much more than the mere prior deed of sale in
favor of the first vendee. In the Lichauco case just mentioned, it was the prescriptive right that had supervened.
Or, as also suggested in that case, other facts and circumstances exist which, in addition to his deed of sale, the
first vendee can be said to have better right than the second purchaser.
In the case at bar, there appears to be no clear evidence of Hanopol's possession of the land in controversy. In
fact, in his complaint against the vendors, Hanopol alleged that the Siapos took possession of the same land under
claim of ownership in 1945 and continued and were in such possession at the time of the filing of the complaint
against them in 1948. Consequently, since the Siapos were in actual occupancy of the property under claim of
ownership, when they sold the said land to appellee Pilapil on December 3, 1945, such possession was
transmitted to the latter, at least constructively, with the execution of the notarial deed of sale, if not actually and
physically as claimed by Pilapil in his answer filed in the present case. Thus, even on this score, Hanopol cannot
have a better right than appellee Pilapil who, according to the trial court, "was not shown to be a purchaser in bad
faith".
WHEREFORE, finding no error in the decision appealed from, the same is hereby affirmed, with costs against
the appellant. So ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Paredes, Dizon, Regala and Makalintal, JJ.,
concur.
Separate Opinions
REYES, J.B.L., J., concurring:
I concur, but reserve my vote as to the effect of registration under Act 3344.

23
Republic of the Philippines 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
SUPREME COURT
continuous possession thereof as owner. On the other hand, were the land involved in the conflicting transactions
Manila 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
EN BANC
operative act that gives validity to the transfer. This would be fatal to appellee's claim, the deeds of sale executed
G.R. No. L-18497 May 31, 1965 in his favor by the Maron's not having been registered, while the levy in execution and the provisional certificate
DAGUPAN TRADING COMPANY, petitioner, 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
vs. deemed to have acquired such right, title and interest as appeared on the certificate of title issued in favor of
RUSTICO MACAM, respondent. 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)
Angel Sanchez for petitioner.
Manuel L. Fernandez for respondent. 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
DIZON, J.: executed after the same property had been registered. We cannot, therefore, decide the case in the light of
Appeal taken by the Dagupan Trading Company from the decision of the Court of Appeals affirming the one whatever adjudicated cases there are covering the two situations mentioned in the preceding paragraph. It is our
rendered by the Court of First Instance of Pangasinan in Civil Case No. 13772, dismissing its complaint. 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
On September 4, 1958, appellant commenced the action mentioned above against appellee Rustico Macam, of the purchaser of land sold in an execution sale, such purchaser "shall be substituted to and acquire all the right,
praying that it be declared owner of one-eighth portion of the land described in paragraph 2 of the complaint; that title, interest and claim of the judgment debtor to the property as of the time of the levy." Now We ask: What was
a partition of the whole property be made; that appellee be ordered to pay it the amount of P500.00 a year as the interest and claim of Sammy Maron on the one-eighth portion of the property inherited by him and his co-
damages from 1958 until said portion is delivered, plus attorney's fees and costs. heirs, at the time of the levy? The answer must necessarily be that he had none, because for a considerable time
Answering the complaint, appellee alleged, in the main, that Sammy Maron's share in the property described in prior to the levy, his interest had already been conveyed to appellee, "fully and retrievably — as the Court of
the complaint, as well as that of all his co-heirs, had been acquired by purchase by appellee since June 19 and Appeals held. Consequently, subsequent levy made on the property for the purpose of satisfying the judgment
September 21, 1955, before the issuance of the original certificate of title in their name; that at the time the levy rendered against Sammy Maron in favor of the Manila Trading Company was void and of no effect (Buson vs.
in execution was made on Sammy Maron's share therein, the latter had no longer any right or interest in said Licuaco, 13 Phil. 357-358; Landig vs. U.S. Commercial Company, G.R. No. L-3597, July 31, 1951). Needless to
property; that appellant and its predecessor in interest were cognizant of the facts already mentioned; that since say, the unregistered sale and the consequent conveyance of title and ownership in favor of appellee could not
the sales made in his favor, he had enjoyed uninterrupted possession of the property and introduced considerable have been cancelled and rendered of no effect upon the subsequent issuance of the Torrens title over the entire
improvements thereon. Appellee likewise sought to recover damages by way of counterclaim. parcel of land. We cannot, therefore, but agree with the following statement contained in the appealed decision:

After trial upon the issue thus joined, the court rendered judgment dismissing the complaint, which, on appeal, ... . Separate and apart from this however, we believe that in the inevitable conflict between a right of ownership
was affirmed by the Court of Appeals. 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
The facts of the case are not disputed. overthrowing of such ownership on admittedly artificial and technical grounds, the former must be upheld and
In the year 1955, Sammy Maron and his seven brothers and sisters were pro-indiviso owners of a parcel of applied.1äwphï1.ñët
unregistered land located in barrio Parayao, Municipality of Binmaley, Pangasinan. While their application for But to the above considerations must be added the important circumstance that, as already stated before, upon the
registration of said land under Act No. 496 was pending, they executed, on June 19 and September 21, 1955, two execution of the deed of sale in his favor by Sammy Maron, appellee took possession of the land conveyed as
deeds of sale conveying the property to appellee, who thereafter took possession thereof and proceeded to owner thereof, and introduced considerable improvements thereon. To deprive him now of the same by sheer
introduce substantial improvements therein. One month later, that is, on October 14, 1955, Original Certificate of force of technicality would be against both justice and equity.
Title No. 6942 covering the land was issued in the name of the Maron's, free from all liens and encumbrances.
IN VIEW OF ALL THE FOREGOING, the decision appealed from is affirmed, with costs.
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 Bengzon, C.J., Bautista Angelo, Barrera, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur.
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?

24
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18018 December 26, 1963
ESPERANZA ESPIRITU and ANTONIA APOSTOL, petitioners,
vs.
FRANCISCO VALERIO, respondent.
Agustin U. Cruz for petitioners.
C. Navi Busto for respondent.
DIZON, J.:
Appeal taken by Esperanza Espiritu and her daughter, Antonia Apostol, from the decision of the Court of
Appeals affirming the one rendered by the Court of First Instance of Pangasinan in Civil Case No. 13293
declaring appellee Francisco Valerio, to be the owner of the land described in his complaint and enjoining
defendants from molesting him in the peaceful possession thereof.
On September 15, 1955 Valerio filed an action to quiet title in the above mentioned Court against appellants,
alleging in his complaint that he was the owner of a parcel of unregistered land containing an area of
approximately 8,573 square meters situated in Barrio Olo, Municipality of Mangatarem, Pangasinan, and more
particularly described in paragraph two thereof, having acquired the same from the former owner, Pelagia
Vegilia, as evidenced by a deed of sale executed by the latter in his favor on January 31, 1955 (Exhibit A); that
appellants had been asserting adversary rights over said land and disturbing his possession thereof.
Appellants' answer denied the material allegations of the complaint and alleged, as affirmative defense, they were
the owners of the land in question, having acquired it by inheritance from the late Santiago Apostol, husband and
father of appellants Espiritu and Apostol respectively; that said deceased bought the property from Mariano
Vegilia on June 3, 1934, as evidenced by the deed of sale Exhibit 2, who, in turn, had acquired it from his niece,
Pelagia Vegilia, on May 26, 1932, by virtue of the deed of sale Exhibit 1.
The present appeal depends entirely upon the validity of the Deed of Sale Exhibit 1 allegedly executed by Pelagia
Vegilia in favor of Mariano Vegilia, and of the Deed of Sale Exhibit 2 allegedly executed by the latter in favor of
Santiago Apostol. If both are valid, appellant's contention that they have a better right than that the claimed by
appellee would seem to be meritorious in the light of the facts of the case and the provisions of Article 1544 of
the New Civil Code, it not being disputed that the Deed of Sale in favor of appellee was registered under the
provision of Act. 3344 on June 16, 1955, while Exhibits 1 and 2 were similarly registered eleven days before.
Regarding the genuiness of the questioned documents, however, the Court of Appeals found as
follows:lawphil.net
Upon motion of plaintiff, the Court ordered the defendants to produce, for examination and inspection by
plaintiff, the two documents referred to. The plaintiff, after examining and inspecting said documents, filed, on
June 22, 1956 a supplementary complaint alleging that the document dated May 26, 1932, "is fictitious and a
falsification", and that the private document of June 3, 1934, "is likewise null and void, being without the
necessary formal requisites, aside to its being fictitious and the fact that the alleged vendor acquired no rights
whatsoever in the land."
In view of this conflicting claims of the plaintiff and the defendants, the trial court correctly stated, "apparently,
this case concerns the sales of one parcel of land by the same vendor but in favor of two different vendees. If
these were the only issues in this case, there is no question that under Art. 1544 of the New Civil Code, Exhibit
"1" would be considered to be effective as against Exhibit "A", it having been registered prior to Exhibit "A". But
this is not the only question at issue. Over and the above the application of Art. 1544 of the New Civil Code is the
determination of whether or not Exhibits "1" and "2" have been falsified". Having arrived at the conclusion that
the two exhibits just mentioned had been falsified, the trial court rendered decision on July 23, 1956, "adjudging
ownership of the land described in the complaint in favor of the plaintiff and hereby permanently and definitely
enjoins the defendants to abstain and desist from disturbing and molesting the plaintiff from the peaceful
enjoyment and possession of the parcel of land described in the complaint or in any way to interfere personally or
by agents in the said peaceful possession by the plaintiff of the land in litigation; the defendants are hereby
further ordered to pay the costs of this suit."
It is principally contended by defendants-appellants that the trial court erred in deciding the case in favor of the
plaintiff-appellee and against the defendants-appellants, based upon the testimony of Pelagia Vegilia and Mariano
Vegilia; the first, emphatically denying that she sold the land in question to Mariano Vegilia, and that she
appeared before Notary Public Lino Abad Pine before whom the "Escritura de Compraventa Definita" Exhibit 1,
was allegedly ratified; and the second, denying that he bought the said land from Pelagia Vegilia, and that he sold
the same to Santiago Apostol as recited in "Recivo", Exhibit 2. In giving credence to the testimony of the
aforementioned two witnesses, the trial court said: "An examination of Exh. "1" reveals the glaring fact that it
cannot be determined whose thumbmark is the one appearing on said Exh. "1" for the simple reason that it
immediately precedes the name Anselmo Vegilia but it is under the name Pelagia Vegilia. Ordinarily, this
thumbmark would be considered as the thumbmark of Anselmo Vegilia and not of Pelagia Vegilia. While the
Judge presiding this Court does not claim any knowledge of finger print, it is, however, apparent that the
thumbmark appearing in Exh "1" different from the thumbmark appearing in Exh. "X". Furthermore, it is also
very clear that the one who wrote the name Anselmo Vegilia is the very one who wrote the name Pelagia Vegilia;
and from said Exh. "1", it is apparent also that Anselmo Vegilia could not have written the name Anselmo
Vegilia in Exh. "1" for the simple reason that it has been certified by the Notary Public that said Anselmo Vegilia
is physically incapable (inutil physicamente), and the other factor which leads this Court to believe that Exh. "1"
has been falsified is the apparent difference of the ink used in writing the names of Pelagia Vegilia and Anselmo
Vegilia from the ink used by the other persons who signed in Exh. "1", and the apparent fact that the names
Pelagia Vegilia and Anselmo Vegilia must have been written in a much later date than the other names appearing
in said Exh. "1". With respect to Exh. "2", the denial Mariano Vegilia as to his having purchased the land in
question from Pelagia Vegilia is enough for this Court to disregard "2". But this Court further takes into account
the fact the names Mariano Vegilia and Jose B. Aviles appearing in said Exh. "2" must have been written by only
one man.
Assuming that the above findings of the Court of Appeals are reviewable, we find nothing in the record sufficient
to justify their reversal.
WHEREFORE, the decision appealed from is hereby affirmed, with costs.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Regala and Makalintal,
JJ., concur.
Paredes, J., took no part.
25
EN BANC
[G.R. No. L-2397. August 9, 1950.]
TOMASA QUIMSON and MARCOS SANTOS, Petitioners, v. FRANCISCO ROSETE, Respondent.
Marcelino Lontok, for Petitioners.
Ignacio Mangosing, for Respondent.
SYLLABUS
1. PURCHASE AND SALE; PREFERENCE IN CASE OF DOUBLE SALE; MATERIAL AND SYMBOLIC
POSSESSION. — The possession in article 1473 (for determining who has better right when the same piece of
land has been sold several times by the same vendor) include not only the material but also the symbolic
possession, which is acquired by the execution of a public instrument. The doctrine laid down in Sanchez v.
Ramos (40 Phil., 614), reiterated.
DECISION
TUASON, J.:
This is an appeal by certiorari from a decision of the Court of Appeals reversing the judgment of the Court of
First Instance of Zambales. The case involves a dispute over a parcel of land sold to two different persons.
The facts as found by the Court of Appeals are these:jgc:chanrobles.com.ph
"Esta finca pertenecia originariamente al hoy difunto Dionisio Quimson, quien, en 7 de junio de 1932, otorgo la
escritura Exhibit A de traspaso de la misma a favor de su hija Tomasa Quimson, pero continuo en su posesion y
goce. La vendio a los esposos Magno Agustin y Paulina Manzano en 3 de meyo de 1935, con pacto de recomprar
dentro del plazo de seis años; y dos años escasos despues, en 5 de abril de 1937, la volvio a vender a Francisco
Rosete, tambien con pacto de retro por el termino de cinco años, despues de haber verificado su recompra de
Agustin y Manzano, con dinero que le habia facilitado Rosete, otorgandose a este efecto la escritura de venta
Exhibit 1. Desde entonces Rosete es el que esta en su posesion y disfrute, de una manera pacifica y quieta, aun
despues de la muerte de Dionisio Quimson, ocurrida en 6 de junio de 1939, hasta el enero de 1943, en que
Tomasa Quimson acudio al Juez de Paz de San Marcelino, Zambales, para que este interviniera en un arreglo con
Rosete sobre dicha finca, cuyo fracaso motivo una carrera hacia Iba, la capital de Zambales, para ganar la
prioridad del registro e inscripcion de las escrituras de venta Exhibits A y 1 que Dionisio Quimson otorgara a
favor de Tomasa Quimson y Francisco Rosete, respectivamente, carrera que aquella gano por haber llegado a la
meta una hora antes, a las 9:30 a. m. del 17 de febrero de 1943, en tanto que este la alcanzo a las 10:30 a. m. de
ese mismo dia."cralaw virtua1aw library
Two questions are raised: (1) What were the effects of the registration of plaintiff’s document? and (2) Who was
prior in possession? The Court of Appeals’ answer to the first question is, None, and to the second, the defendant
or second purchaser.
We do not deem it necessary to pass upon the first issue in the light of the view we take of the last, to which we
will address ourselves presently.
Articles 1462 and 1473 of the Civil Code provide:jgc:chanrobles.com.ph
"ART. 1462. The thing sold shall be deemed delivered, when it is placed in the control and possession of the
vendee.
"When the sale is made by means of 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 said instrument the contrary does not appear or may
not be clearly inferred.
"ART. 1473. 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 first recorded it in
the registry.
"Should there be no inscription, the ownership shall belong to the person who in good faith was first in the
possession; and, in the absence of this, to the person who presents the oldest title, provided there is good
faith."cralaw virtua1aw library
In the case of Buencamino v. Viceo (13 Phil., 97), Mr. Justice Willard, speaking for the court and citing article
1462 says: "Upon a sale of real estate the execution of a notarial document of sale is a sufficient delivery of the
property sold."cralaw virtua1aw library
In the case of Florendo v. Foz (20 Phil., 388), the court, through Mr. Chief Justice Arellano, rules that "When the
sale is made by means of a public instrument, the execution thereof is tantamount to conveyance of the subject
matter, unless the contrary clearly follows or be deduced from such instrument itself, and in the absence of this
condition such execution by the vendor is per se a formal or symbolical conveyance of the property sold, that is,
26
the vendor in the instrument itself authorizes the purchaser to use the title of ownership as proof that the latter is
thenceforth the owner of the property."cralaw virtua1aw library
The Supreme Court of Spain and Mr. Manresa are of the same opinion. On pp. 157, 158, Vol. X, of his treatise on
the Spanish Civil Code, Manresa comments:jgc:chanrobles.com.ph
More decisive of the case at bar, being almost on all fours with it, is the case of Sanchez v. Ramos (40 Phil., 614).
There, it appeared that one Fernandez sold a piece of land to Marcelino Gomez and Narcisa Sanchez under pacto
"II. Observacion comun a la venta de muebles y a la de inmuebles. — Hemos interpretado el precepto de articulo
de retro in a public instrument. The purchasers neither recorded their deed in the registry of property nor ever
1.473, en sus parrafos 1. ° y 3. °, en el sentido mas racional, aunque no tal vez en el mas adecuado a las palabras
took material possession of the land. Later, Fernandez sold the same property by means of a private document to
que se emplean. Las palabras tomar posesion, y primero en la posesion, las hemos considerado como
Ramos who immediately entered upon the possession of it. It was held that, according to article 1473 of the Civil
equivalentes a la de la tradicion real o fingida a que se refieren los articulos 1.462 al 1.464, porque si la posesion
Code, Gomez and Sanchez were the first in possession and, consequently, that the sale in their favor was
material del objeto puede otorgar preferencia en cuestiones de posesion, y asi lo reconoce el articulo 445, no debe
superior. Says the court, through Mr. Justice Avanceña, later chief justice:jgc:chanrobles.com.ph
darla nunca en cuestiones de propiedad, y de la propiedad habla expresamente el articulo 1.473. Asi, en nuestra
opinion, robustecida por la doctrina qne rectamente se deriva de la sentencia de 24 de Noviembre de 1894,
vendida una finca a A. en escritura publica, despues a B., aunque se incaute materialmente este del inmueble, la
"To what kind of possession does this article (1473) refer? Possession is acquired by the material occupancy of
propiedad pertenece a A., primero en la tradicion, con arreglo al articulo 1.462, puesto que a partir del
the thing or right possessed, or by the fact that the latter is subjected to the action of our will, or by the
otorgamiento de la escritura que envuelve la entrega de la cosa, al vendedor carecia ya de la facultad de disponer
appropriate acts and legal formalities established for acquiring possession (art. 438, Civil Code). By a simple
de ella."cralaw virtua1aw library
reasoning, it appears that, because the law does not mention to which of these kinds of possession the article
refers, it must be understood that it refers to all of these kinds. The proposition that this article, according to its
letter, refers to the material possession and excludes the symbolic does not seem to be founded upon a solid
The statement of Sr. Manresa which is said to sustain the theory of the Court of Appeals, expresses, as we
ground. It is said that the law, in the gradation of the causes of preference between several sales, fixes, first,
understand that statement, the literal meaning of article 1473, for the decision of November 24, 1894 reflects,
possession and then the date of the title and, as a public instrument is a title, it is claimed that the inference is that
according to the learned author, the intention of the lawmaker and is in conformity with the principles of justice.
the law has deliberately intended to place the symbolic possession, which the execution of the public document
Now, under both the Spanish and the Philippine rules of interpretation, the spirit, the intent, of the law prevails
implies, after the material possession. This argument, however, would only be forceful if the title, mentioned by
over its letter.
this article, includes public instruments, and this would only be true if public instruments are not included in the
idea of possession spoken of in said article. In other words, the strength of the argument rests in that this
possession is precisely the material and does not include the symbolic. Consequently, the argument is deficient
Counsel for defendant denies that the land was sold to plaintiff Tomasa Quimson or that the Court of Appeals so
for it is begging the same question, because if this possession includes the symbolic, which is acquired by the
found. All that the latter court declared, he says, was that a deed of sale of the land was executed by the original
execution of a public instrument, it should be understood that the title, mentioned by the law as the next cause of
owner on June 7, 1932.
preference, does not include public instruments.

"Furthermore, our interpretation of this article 1473 is more in consonance with the principles of justice. The
execution of a public instrument is equivalent to the delivery of the realty sold (art.1462, Civil Code) and its
possession by the vendee (art. 438). Under these conditions the sale is considered consummated and completely
transfers to the vendee all of the vendor’s rights of ownership including his real right over the thing. The vendee
by virtue of this sale has acquired everything and nothing, absolutely nothing, is left to the vendor. From this
moment the vendor is a stranger to the thing sold like any other who has never been its owner. As the thing is
considered delivered, the vendor has no longer the obligation of even delivering it. If he continues taking material
possession of it, is simply on account of vendee’s tolerance and, in this sense, his possession is vendor’s
possession. And if the latter should have to ask him for the delivery of this material possession, it would not be
by virtue of the sale, because this has been already consummated and has produced all its effects, but by virtue of
the vendee’s ownership, in the same way as said vendee could require of another person although same were not
the vendor. This means that after the sale of a realty by means of a public instrument, the vendor, who resells it to
another, does not transmit anything to the second vendee and if the latter, by virtue of this second sale, takes
material possession of the thing, he does it as mere detainer, and it would be unjust to protect this detention
against the rights to the thing lawfully acquired by the first vendee.
"We are of the opinion that the possession mentioned in article 1473 (for determining who has better right when
the same piece of land has been sold several times by the vendor) includes not only the material but also the
symbolic possession, which is acquired by the execution of a public instrument."cralaw virtua1aw library
The finding that a deed of conveyance was made by Dionisio Quimson in favor of his daughter could have no
other meaning, in the absence of any qualifying statement, than that the land was sold by the father to his
daughter. Furthermore this was the trial court’s explicit finding which was not reversed by the Court of Appeals
and stands as the fact of the case. Looking into the document itself, Exhibit A states categorically that the vendor
received from the vendee the consideration of sale, P250, and acknowledged before the notary public having
executed the instrument of his own free will.
The expression in this court’s decision in the case of Cruzado v. Escaler (34 Phil., 17), cited by the Court of
Appeals, apparently to the effect that physical possession by the purchaser is essential to the consummation of a
sale of real estate, is at best obiter dictum; for the court distinctly found that the sale to plaintiff Cruzado’s father
was a sham, executed with the sole purpose of enabling the senior Cruzado to mortgage the property and become
procurador. And with reference to the failure of the second vendee, Escaler, to register his purchase, the court
disregarded the omission as well as the entry of the first sale in the registry because that entry was made by the
plaintiff, son and heir of the first supposed vendee, more than a score years after the alleged transaction, when the
plaintiff "was no longer or had any right therein (in the land), because it already belonged to the defendant
Escaler, its lawful owner." When Escaler, the second purchaser was sued, he had become the owner of the land
by prescription. The defendant’s possession in the present case fell far short of having ripened into title by
prescription when the plaintiff commenced her action.

27
For the reasons above stated, we are constrained to set aside the decision of the Court of Appeals. Because the
Appellate Court found for the defendant, it made no findings on damages for the latter’s use of the property in
controversy. Not being authorized in this appeal to examine the evidence, we have to accept the trial court’s
appraisal of the damages. Judge Llanes assessed the damages of P180 for the occupation of the land for the
agricultural years 1943-44, 1944-45 and 1945-46, and P60 a year thereafter until the possession of the property
was restituted to the plaintiffs.

Let judgment be entered in accordance with the tenor of this decision, with costs against the defendant.

Moran, C.J., Ozaeta, Pablo, Bengzon and Montemayor, JJ., concur.

28
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 82508 September 29, 1989
FILINVEST CREDIT CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, JOSE SY BANG and ILUMINADA TAN SY BANG,*respondents.
Labaquis, Loyola, Angara and Associates for petitioner.
Alfredo 1. Raya for private respondents.
SARMIENTO, J.:
This is a petition for review on certiorari of the decision, 1 dated March 17, 1988, of the Court of Appeals which
affirmed with modification the decision 2 of the Regional Trial Court of Quezon, Branch LIX, Lucena City. The
controversy stemmed from the following facts: The private respondents, the spouses Jose Sy Bang and Iluminada
Tan, were engaged in the sale of gravel produced from crushed rocks and used for construction purposes. In order
to increase their production, they engaged the services of Mr. Ruben Mercurio, the proprietor of Gemini Motor
Sales in Lucena City, to look for a rock crusher which they could buy. Mr. Mercurio referred the private
respondents to the Rizal Consolidated Corporation which then had for sale one such machinery described as:
ONE UNIT LIPPMAN PORTABLE CRUSHING PLANT (RECONDITIONED) [sic]
JAW CRUSHER-10xl6 DOUBLE ROLL CRUSHER 16x16
3 UNITS PRODUCT CONVEYOR
75 HP ELECTRIC MOTOR
8 PCS. BRAND NEW TIRES CHASSIS NO. 19696 GOOD RUNNING CONDITION 3
Oscar Sy Bang, a brother of private respondent Jose Sy Bang, went to inspect the machine at the Rizal
Consolidated's plant site. Apparently satisfied with the machine, the private respondents signified their intent to
purchase the same. They were however confronted with a problem-the rock crusher carried a cash price tag of P
550,000.00. Bent on acquiring the machinery, the private respondents applied for financial assistance from the
petitioner, Filinvest Credit Corporation. The petitioner agreed to extend to the private respondents financial aid
on the following conditions: that the machinery be purchased in the petitioner's name; that it be leased (with
option to purchase upon the termination of the lease period) to the private respondents; and that the private
respondents execute a real estate mortgage in favor of the petitioner as security for the amount advanced by the
latter. Accordingly, on May 18,1981, a contract of lease of machinery (with option to purchase) was entered into
by the parties whereby the private respondents agreed to lease from the petitioner the rock crusher for two years
starting from July 5, 1 981 payable as follows:
P10,000.00 - first 3 months
23,000.00 - next 6 months
24,800.00 - next 15 months
The contract likewise stipulated that at the end of the two-year period, the machine would be owned by the
private respondents. Thus, the private respondents issued in favor of the petitioner a check for P150,550.00, as
initial rental (or guaranty deposit), and twenty-four (24) postdated checks corresponding to the 24 monthly
rentals. In addition, to guarantee their compliance with the lease contract, the private respondents executed a real
estate mortgage over two parcels of land in favor of the petitioner. The rock crusher was delivered to the private
respondents on June 9, 1981. Three months from the date of delivery, or on September 7, 1981, however, the
private respondents, claiming that they had only tested the machine that month, sent a letter-complaint to the
petitioner, alleging that contrary to the 20 to 40 tons per hour capacity of the machine as stated in the lease
contract, the machine could only process 5 tons of rocks and stones per hour. They then demanded that the
petitioner make good the stipulation in the lease contract. They followed that up with similar written complaints
to the petitioner, but the latter did not, however, act on them. Subsequently, the private respondents stopped
payment on the remaining checks they had issued to the petitioner. 5
As a consequence of the non-payment by the private respondents of the rentals on the rock crusher as they fell
due despite the repeated written demands, the petitioner extrajudicially foreclosed the real estate mortgage. 6 On
April 18, 1983, the private respondents received a Sheriff s Notice of Auction Sale informing them that their
mortgaged properties were going to be sold at a public auction on May 25, 1983 at 10:00 o'clock in the morning
at the Office of the Provincial Sheriff in Lucena City to satisfy their indebtedness to the petitioner. 7 To thwart the
impending auction of their properties, the private respondents filed before the Regional Trial Court of Quezon, on
May 4, 1983, 8 a complaint against the petitioner, for the rescission of the contract of lease, annullment of the real
estate mortgage, and for injunction and damages, with prayer for the issuance of a writ of preliminary injunction.9
On May 23, 1983, three days before the scheduled auction sale, the trial court issued a temporary restraining
order commanding the Provincial Sheriff of Quezon, and the petitioner, to refrain and desist from proceeding
with the public auction. 10 Two years later, on September 4, 1985, the trial court rendered a decision in favor of
the private respondents, the dispositive portion of which reads:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
1. making the injunction permanent;
2. rescinding the contract of lease of the machinery and equipment and ordering the plaintiffs to return to the
defendant corporation the machinery subject of the lease contract, and the defendant corporation to return to
plaintiffs the sum of P470,950.00 it received from the latter as guaranty deposit and rentals with legal interest
thereon until the amount is fully restituted;
3. annulling the real estate mortgage constituted over the properties of the plaintiffs covered by Transfer
Certificate of Title Nos. T32480 and T-5779 of the Registry of Deeds of Lucena City;
4. ordering the defendant corporation to pay plaintiffs P30,000.00 as attorney's fees and the costs of the suit.
SO ORDERED. 11
Dissatisfied with the trial court's decision, the petitioner elevated the case to the respondent Court of Appeals.
12
On March 17, 1988, the appellate court, finding no error in the appealed judgment, affirmed the same in toto.
Hence, this petition.
Before us, the petitioner reasserts that the private respondents' cause of action is not against it (the petitioner), but
against either the Rizal Consolidated Corporation, the original owner-seller of the subject rock crusher, or Gemini
Motors Sales which served as a conduit facilitator of the purchase of the said machine. The petitioner argues that
it is a financing institution engaged in quasi-banking activities, primarily the lending of money to entrepreneurs
such as the private respondents and the general public, but certainly not the leasing or selling of heavy
machineries like the subject rock crusher. The petitioner denies being the seller of the rock crusher and only
admits having financed its acquisition by the private respondents. Further, the petitioner absolves itself of any
liability arising out of the lease contract it signed with the private respondents due to the waiver of warranty made
by the latter. The petitioner likewise maintains that the private respondents being presumed to be knowledgeable
about machineries, should be held responsible for the detection of defects in the machine they had acquired, and
29
on account of that, they are estopped from claiming any breach of warranty. Finally, the petitioner interposed the
defense of prescription, invoking Article 1571 of the Civil Code, which provides:
Art. 1571. Actions arising from the provisions of the preceding ten articles shall be barred after six months, from
the delivery of the thing sold.
We find the petitioner's first contention untenable. While it is accepted that the petitioner is a financing
institution, it is not, however, immune from any recourse by the private respondents. Notwithstanding the
testimony of private respondent Jose Sy Bang that he did not purchase the rock crusher from the petitioner, the
fact that the rock crusher was purchased from Rizal Consolidated Corporation in the name and with the funds of
the petitioner proves beyond doubt that the ownership thereof was effectively transferred to it. It is precisely this
ownership which enabled the petitioner to enter into the "Contract of Lease of Machinery and Equipment" with
the private respondents.
Be that as it may, the real intention of the parties should prevail. The nomenclature of the agreement cannot
change its true essence, i.e., a sale on installments. It is basic that a contract is what the law defines it and the
parties intend it to be, not what it is called by the parties. 13 It is apparent here thatthe intent of the parties to the
subject contract is for the so-called rentals to be the installment payments. Upon the completion of the payments,
then the rock crusher, subject matter of the contract, would become the property of the private respondents. This
form of agreement has been criticized as a lease only in name. Thus in Vda. de Jose v. Barrueco 14 we stated:
Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in that
form, for one reason or another, have frequently resorted to the device of making contracts in the form of leases
either with options to the buyer to purchase for a small consideration at the end of term, provided the so-called
rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon vest
in the lessee. It is obvious that such transactions are leases only in name. The so-called rent must necessarily be
regarded as payment of the price in installments since the due payment of the agreed amount results, by the terms
of bargain, in the transfer of title to the lessee. 15
The importance of the criticism is heightened in the light of Article 1484 of the new Civil Code which provides
for the remedies of an unpaid seller of movables on installment basis.
Article 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor
may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage or the thing sold, if one has been constituted, should the vendee's failure to pay
cover two or more installments. In this case, he shall have no further action against the purchaser to recover any
unpaid balance of the price. Any agreement to the contrary shall be void.
Under the aforequoted provision, the seller of movables in installments, in case the buyer fails to pay two or more
installments may elect to pursue either of the following remedies: (1) exact fulfillment by the purchaser of the
obligation; (2) cancel the sale; or (3) foreclose the mortgage on the purchased property if one was constituted
thereon. It is now settled that the said remedies are alternative and not cumulative and therefore, the exercise of
one bars the exercise of the others.
Indubitably, the device contract of lease with option to buy is at times resorted to as a means to circumvent
Article 1484, particularly paragraph (3) thereof.Through the set-up, the vendor, by retaining ownership over the
property in the guise of being the lessor, retains, likewise, the right to repossess the same, without going through
the process of foreclosure, in the event the vendee-lessee defaults in the payment of the installments. There arises
therefore no need to constitute a chattel mortgage over the movable sold. More important, the vendor, after
repossessing the property and, in effect, canceling the contract of sale, gets to keep all the installments-cum-
rentals already paid. It is thus for these reasons that Article 1485 of the new Civil Code provides that:
Article 1485. The preceding article shall be applied to contracts purporting to be leases of personal property
with option to buy, when the lessor has deprived the lessee of possession or enjoyment of the thing. (Emphasis
ours.)
Unfortunately, even with the foregoing findings, we however fail to find any reason to hold the petitioner liable
for the rock crusher's failure to produce in accordance with its described capacity. According to the petitioner, it
was the private respondents who chose, inspected, and tested the subject machinery. It was only after they had
inspected and tested the machine, and found it to their satisfaction, that the private respondents sought financial
aid from the petitioner. These allegations of the petitioner had never been rebutted by the private respondents. In
fact, they were even admitted by the private respondents in the contract they signed. Thus:
LESSEE'S SELECTION, INSPECTION AND VERIFICATION.-The LESSEE hereby confirms and
acknowledges that he has independently inspected and verified the leased property and has selected and received
the same from the Dealer of his own choosing in good order and excellent running and operating condition and
on the basis of such verification, etc. the LESSEE has agreed to enter into this Contract." 16
Moreover, considering that between the parties, it is the private respondents, by reason of their business, who are
presumed to be more knowledgeable, if not experts, on the machinery subject of the contract, they should not
therefore be heard now to complain of any alleged deficiency of the said machinery. It is their failure or neglect
to exercise the caution and prudence of an expert, or, at least, of a prudent man, in the selection, testing, and
inspection of the rock crusher that gave rise to their difficulty and to this conflict. A well- established principle in
law is that between two parties, he, who by his negligence caused the loss, shall bear the same.
At any rate, even if the private respondents could not be adjudged as negligent, they still are precluded from
imputing any liability on the petitioner. One of the stipulations in the contract they entered into with the petitioner
is an express waiver of warranties in favor of the latter. By so signing the agreement, the private respondents
absolved the petitioner from any liability arising from any defect or deficiency of the machinery they bought. The
stipulation on the machine's production capacity being "typewritten" and that of the waiver being "printed" does
not militate against the latter's effectivity. As such, whether "a capacity of 20 to 40 tons per hour" is a condition
or a description is of no moment. What stands is that the private respondents had expressly exempted the
petitioner from any warranty whatsoever. Their Contract of Lease Of Machinery And Equipment states:
WARRANTY-LESSEE absolutely releases the lessor from any liability whatsoever as to any and all matters in
relation to warranty in accordance with the provisions hereinafter stipulated. 17
Taking into account that due to the nature of its business and its mode of providing financial assistance to clients,
the petitioner deals in goods over which it has no sufficient know-how or expertise, and the selection of a
particular item is left to the client concerned, the latter, therefore, shoulders the responsibility of protecting
himself against product defects. This is where the waiver of warranties is of paramount importance. Common
sense dictates that a buyer inspects a product before purchasing it (under the principle of caveat emptor or "buyer
beware") and does not return it for defects discovered later on, particularly if the return of the product is not
covered by or stipulated in a contract or warranty. In the case at bar, to declare the waiver as non-effective, as the
lower courts did, would impair the obligation of contracts. Certainly, the waiver in question could not be
considered a mere surplusage in the contract between the parties. Moreover, nowhere is it shown in the records of
the case that the private respondent has argued for its nullity or illegality. In any event, we find no ambiguity in
the language of the waiver or the release of warranty. There is therefore no room for any interpretation as to its
effect or applicability vis-a- vis the deficient output of the rock crusher. Suffice it to say that the private
respondents have validly excused the petitioner from any warranty on the rock crusher. Hence, they should bear
the loss for any defect found therein.
WHEREFORE, the Petition is GRANTED; the Decision of the Court of Appeals dated March 17, 1988 is hereby
REVERSED AND SET ASIDE, and another one rendered DISMISSING the complaint. Costs against the private
respondents.
SO ORDERED.
30
Melencio-Herrera (Chairperson), Paras and Regalado, ii., concur,
Padilla, J.,took no part

31
Republic of the Philippines
SUPREME COURT
THIRD DIVISION
G.R. No. 123672 December 14, 2005
FERNANDO CARRASCOSO, JR., Petitioner,
vs.
THE HONORABLE COURT OF APPEALS, LAURO LEVISTE, as Director and Minority Stockholder
and On Behalf of Other Stockholders of El Dorado Plantation, Inc. and EL DORADO PLANTATION,
INC., represented by one of its minority stockholders, Lauro P. Leviste, Respondents
x---------------------------------------x
G.R. No. 164489
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, Petitioner,
vs.
LAURO LEVISTE, as Director and Minority Stockholder and On Behalf of Other Stockholders of El
Dorado Plantation, Inc., EL DORADO PLANTATION, INC., represented by Minority Stockholder,
Lauro P. Leviste, and FERNANDO CARRASCOSO, JR., Respondents.
DECISION
CARPIO MORALES, J.:
El Dorado Plantation, Inc. (El Dorado) was the registered owner of a parcel of land (the property) with an area of
approximately 1,825 hectares covered by Transfer Certificate of Title (TCT) No. T-931 situated in Sablayan,
Occidental Mindoro.
On February 15, 1972, at a special meeting of El Dorado’s Board of Directors, a Resolution2 was passed
authorizing Feliciano Leviste, then President of El Dorado, to negotiate the sale of the property and sign all
documents and contracts bearing thereon.
On March 23, 1972, by a Deed of Sale of Real Property,3 El Dorado, through Feliciano Leviste, sold the property
to Fernando O. Carrascoso, Jr. (Carrascoso).
The pertinent provisions of the Deed of Sale read:
NOW, THEREFORE, for and in consideration of the sum of ONE MILLION EIGHT HUNDRED THOUSAND
(1,800,000.00) PESOS, Philippine Currency, the Vendor hereby sells, cedes, and transfer (sic) unto the herein
VENDEE, his heirs, successors and assigns, the above-described property subject to the following terms and
consitions (sic):
1. Of the said sum of P1,800,000.00 which constitutes the full consideration of this sale, P290,000.00 shall be
paid, as it is hereby paid, to the Philippines (sic) National Bank, thereby effecting the release and cancellation fo
(sic) the present mortgage over the above-described property.
2. That the sum of P210,000.00 shall be paid, as it is hereby paid by the VENDEE to the VENDOR, receipt of
which amount is hereby acknowledged by the VENDOR.
3. The remaining balance of P1,300,000.00 plus interest thereon at the rate of 10% per annum shall be paid by the
VENDEE to the VENDOR within a period of three (3) years, as follows:
(a) One (1) year from the date of the signing of this agreement, the VENDEE shall pay to the VENDOR the sum
of FIVE HUNDRED NINETEEN THOUSAND EIGHT HUNDRED THIRTY THREE & 33/100 (P519,833.33)
PESOS.
(b) Two (2) years from the date of signing of this agreement, the VENDEE shall pay to the VENDOR the sum of
FIVE HUNDRED NINETTEN (sic) THOUSAND EIGHT HUNDRED AND THIRTY-THREE & 33/100
(P519,833.33) PESOS.
(c) Three (3) years from the date of signing of this agreement, the VENDEE shall pay to the VENDOR the sum
of FIVE Hundred NINETEEN THOUSAND EIGHT HUNDRED AND THIRTY-THREE & 33/100
(P519,833.33) PESOS.
4. The title of the property, subject of this agreement, shall pass and be transferred to the VENDEE who shall
have full authority to register the same and obtain the corresponding transfer certificate of title in his name.
xxx
6. THE VENDOR certifies and warrants that the property above-described is not being cultivated by any tenant
and is therefore not covered by the provisions of the Land Reform Code. If, therefore, the VENDEE becomes
liable under the said law, the VENDOR shall reimburse the VENDEE for all expenses and damages he may incur
thereon.4 (Underscoring supplied)
From the above-quoted provisions of the Deed of Sale, Carrascoso was to pay the full amount of the purchase
price on March 23, 1975.
On even date, the Board of Directors of El Dorado passed a Resolution reading:
"RESOLVED that by reason of the sale of that parcel of land covered by TCT No. T-93 to Dr. FERNANDO O.
CARRASCOSO, JR., the corporation interposes no objection to the property being mortgage (sic) by Dr.
FERNANDO O. CARRASCOSO, JR. to any bank of his choice as long as the balance on the Deed of Sale
shall be recognized by Dr. FERNANDO O. CARRASCOSO, JR.;
"RESOLVED, FURTHER, that the corporation authorizes the prefered (sic) claim on the property to be
subordinated to any mortgage that may be constituted by Dr. FERNANDO O. CARRASCOSO, JR.;
"RESOLVED, FINALLY, that in case of any mortgage on the property, the corporation waives the preference of
any vendor’s lien on the property."5 (Emphasis and underscoring supplied)
Feliciano Leviste also executed the following affidavit on the same day:
1. That by reason of the sale of that parcel of land covered by Transfer Certificate of Title T-93 as evidenced by
the Deed of Sale attached hereto as Annex "A" and made an integral part hereof, the El Dorado Plantation, Inc.
has no objection to the aforementioned property being mortgaged by Dr. Fernando O. Carrascoso, Jr. to
any bank of his choice, as long as the payment of the balance due the El Dorado Plantation, Inc. under the
Deed of Sale, Annex "A" hereof, shall be recognized by the vendee therein, Dr. Fernando O. Carrascoso,
Jr. though subordinated to the preferred claim of the mortgagee bank.
2. That in case of any mortgage on the property, the vendor hereby waives the preference of any vendor’s lien on
the property, subject matter of the deed of sale.
3. That this affidavit is being executed to avoid any question on the authority of Dr. Fernando O. Carrascoso, Jr.
to mortgage the property subject of the Deed of Sale, Annex "A" hereof, where the purchase price provided
therein has not been fully paid.
4. That this affidavit has been executed pursuant to a board resolution of El Dorado Plantation, Inc.6 (Emphasis
and underscoring supplied)
On the following day, March 24, 1972, Carrascoso and his wife Marlene executed a Real Estate Mortgage7 over
the property in favor of Home Savings Bank (HSB) to secure a loan in the amount of ₱1,000,000.00. Of this
32
amount, ₱290,000.00 was paid to Philippine National Bank to release the mortgage priorly constituted on the
property and ₱210,000.00 was paid to El Dorado pursuant to above-quoted paragraph Nos. 1 and 2 of the terms
and conditions of the Deed of Sale.8
The March 23, 1972 Deed of Sale of Real Property was registered and annotated on El Dorado’s TCT No. T-93
as Entry No. 152409 on April 5, 1972. On even date, TCT No. T-93 covering the property was cancelled and TCT
No. T-605510 was in its stead issued by the Registry of Deeds of Occidental Mindoro in the name of Carrascoso
on which the real estate mortgage in favor of HSB was annotated as Entry No. 15242.11
On May 18, 1972, the real estate mortgage in favor of HSB was amended to include an additional three year loan
of ₱70,000.00 as requested by the spouses Carrascoso.12 The Amendment of Real Estate Mortgage was also
annotated on TCT No. T-6055 as Entry No. 15486 on May 24, 1972.13
The 3-year period for Carrascoso to fully pay for the property on March 23, 1975 passed without him having
complied therewith.
In the meantime, on July 11, 1975, Carrascoso and the Philippine Long Distance Telephone Company (PLDT),
through its President Ramon Cojuangco, executed an Agreement to Buy and Sell14 whereby the former agreed to
sell 1,000 hectares of the property to the latter at a consideration of ₱3,000.00 per hectare or a total of
₱3,000,000.00.
The July 11, 1975 Agreement to Buy and Sell was not registered and annotated on Carrascoso’s TCT No. T-
6055.
Lauro Leviste (Lauro), a stockholder and member of the Board of Directors of El Dorado, through his counsel,
Atty. Benjamin Aquino, by letter15 dated December 27, 1976, called the attention of the Board to Carrascoso’s
failure to pay the balance of the purchase price of the property amounting to ₱1,300,000.00. And Lauro’s lawyer
manifested that:
Because of the default for a long time of Mr. Carrascoso to pay the balance of the consideration of the sale, Don
Lauro Leviste, in his behalf and in behalf of the other shareholders similarly situated like him, want a rescission
of the sale made by the El Dorado Plantation, Inc. to Mr. Carrascoso. He desires that the Board of Directors take
the corresponding action for rescission.16
Lauro’s desire to rescind the sale was reiterated in two other letters17 addressed to the Board dated January 20,
1977 and March 3, 1977.
Jose P. Leviste, as President of El Dorado, later sent a letter of February 21, 197718 to Carrascoso informing him
that in view of his failure to pay the balance of the purchase price of the property, El Dorado was seeking the
rescission of the March 23, 1972 Deed of Sale of Real Property.
The pertinent portions of the letter read:
xxx
I regret to inform you that the balance of P1,300,000.00 and the interest thereon have long been due and payable,
although you have mortgaged said property with the Home Savings Bank for P1,000,000.00 on March 24, 1972,
which was subsequently increased to P1,070,000.00 on May 18, 1972.
You very well know that the El Dorado Plantation, Inc., is a close family corporation, owned exclusively by the
members of the Leviste family and I am one of the co-owners of the land. As nothing appears to have been done
on your part after our numerous requests for payment of the said amount of P1,300,000.00 and the interest of
10% per annum due thereon, please be advised that we would like to rescind the contract of sale of the land.19
(Underscoring supplied)
Jose Leviste, by letter20 dated March 10, 1977, informed Lauro’s counsel Atty. Aquino of his (Jose’s) February
21, 1977 letter to Carrascoso, he lamenting that "Carrascoso has not deemed it fit to give [his] letter the courtesy
of a reply" and advis[ing] that some of the Directors of [El Dorado] could not see their way clear in complying
with the demands of your client [Lauro] and have failed to reach a consensus to bring the corresponding action
for rescission of the contract against . . . Carrascoso."21
Lauro and El Dorado finally filed on March 15, 1977 a complaint22 for rescission of the March 23, 1972 Deed of
Sale of Real Property between El Dorado and Carrascoso with damages before the Court of First Instance (CFI)
of Occidental Mindoro, docketed as Civil Case No. R-226.
Lauro and El Dorado also sought the cancellation of TCT No. T-6055 in the name of Carrascoso and the revival
of TCT No. T-93 in the name of El Dorado, free from any liens and encumbrances. Furthermore, the two prayed
for the issuance of an order for Carrascoso to: (1) reconvey the property to El Dorado upon return to him of
₱500,000.00, (2) secure a discharge of the real estate mortgage constituted on the property from HSB, (3) submit
an accounting of the fruits of the property from March 23, 1972 up to the return of possession of the land to El
Dorado, (4) turn over said fruits or the equivalent value thereof to El Dorado and (5) pay the amount of
₱100,000.00 for attorney’s fees and other damages.23
Also on March 15, 1977, Lauro and El Dorado caused to be annotated on TCT No. T-6055 a Notice of Lis
Pendens, inscribed as Entry No. 39737.24
In the meantime, Carrascoso, as vendor and PLDT, as vendee forged on April 6, 1977 a Deed of Absolute Sale25
over the 1,000 hectare portion of the property subject of their July 11, 1975 Agreement to Buy and Sell. The
pertinent portions of the Deed are as follows:
WHEREAS, the VENDOR and the VENDEE entered into an agreement To Buy and Sell on July 11, 1975,
which is made a part hereof by reference;
WHEREAS, the VENDOR and the VENDEE are now decided to execute the Deed of Absolute Sale referred to
in the aforementioned agreement to Buy and Sell;
WHEREFORE, for and in consideration of the foregoing premises and the terms hereunder stated, the VENDOR
and the VENDEE have agreed as follows:
1. For and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00), Philippine currency, of
which ONE HUNDRED TWENTY THOUSAND PESOS P120,000.00 have (sic) already been received by the
VENDOR, the VENDOR hereby sells, transfers and conveys unto the VENDEE one thousand hectares (1,000
has.) of his parcel of land covered by T.C.T. No. T-6055 of the Registry of Deeds of Mindoro, delineated as Lot
No. 3-B-1 in the subdivision survey plan xxx
2. The VENDEE shall pay to the VENDOR upon the signing of this agreement, the sum of TWO MILLION
FIVE HUNDRED THOUSAND PESOS (P2,500,000.00) in the following manner:
a) The sum of TWO MILLION THREE HUNDRED THOUSAND PESOS (P2,300,000.00) to Home Savings
Bank in full payment of the VENDOR’s mortgaged obligation therewith;
b) The sum of TWO HUNDRED THOUSAND PESOS (P200,000.00) to VENDOR;
The remaining balance of the purchase price in the sum of THREE HUNDRED EIGHTY THOUSAND PESOS
(P380,000.00), less such expenses which may be advanced by the VENDEE but which are for the account of the
VENDOR under Paragraph 6 of the Agreement to Buy and Sell, shall be paid by the VENDEE to the VENDOR
upon issuance of title to the VENDEE.26 (Underscoring supplied)
In turn, PLDT, by Deed of Absolute Sale27 dated May 30, 1977, conveyed the aforesaid 1,000 hectare portion of
the property to its subsidiary, PLDT Agricultural Corporation (PLDTAC), for a consideration of ₱3,000,000.00,
the amount of ₱2,620,000.00 of which was payable to PLDT upon signing of said Deed, and ₱380,000.00 to
Carrascoso upon issuance of title to PLDTAC.
In the meantime, on October 19, 1977, the El Dorado Board of Directors, by a special meeting,28 adopted and
approved a Resolution ratifying and conferring "the prosecution of Civil Case No. R-226 of the Court of First
33
Instance of Occidental Mindoro, entitled ‘Lauro P. Leviste vs. Fernando Carascoso (sic), etc.’ initiated by
stockholder Mr. Lauro P. Leviste."29
In his Answer with Compulsory Counterclaim,30 Carrascoso alleged that: (1) he had not paid his remaining
₱1,300,000.00 obligation under the March 23, 1972 Deed of Sale of Real Property in view of the extensions of
time to comply therewith granted him by El Dorado; (2) the complaint suffered from fatal defects, there being no
showing of compliance with the condition precedent of exhaustion of intra-corporate remedies and the
requirement that a derivative suit instituted by a complaining stockholder be verified under oath; (3) El Dorado
committed a gross misrepresentation when it warranted that the property was not being cultivated by any tenant
to take it out of the coverage of the Land Reform Code; and (4) he suffered damages due to the premature filing
of the complaint for which Lauro and El Dorado must be held liable.
On February 21, 1978, the April 6, 1977 and May 30, 1977 Deeds of Absolute Sale and the respective Articles of
Incorporation of PLDT and PLDTAC were annotated on TCT No. T-6055 as Entry Nos. 24770,31 42774,32
4276933 and 24772,34 respectively. On even date, Carrascoso’s TCT No. T-6055 was cancelled and TCT No. T-
1248035 covering the 1,000 hectare portion of the property was issued in the name of PLDTAC. The March 15,
1977 Notice of Lis Pendens was carried over to TCT No. T-12480.
On July 31, 1978, PLDT and PLDTAC filed an Urgent Motion for Intervention36 which was granted by the trial
court by Order37 of September 7, 1978.
PLDT and PLDTAC thereupon filed their Answer In Intervention with Compulsory Counterclaim and
Crossclaim38 against Carrascoso on November 13, 1978, alleging that: (1) when Carrascoso executed the April 6,
1977 Deed of Absolute Sale in favor of PLDT, PLDT was not aware of any litigation involving the 1,000 hectare
portion of the property or of any flaw in his title, (2) PLDT is a purchaser in good faith and for value; (3) when
PLDT executed the May 30, 1977 Deed of Absolute Sale in favor of PLDTAC, they had no knowledge of any
pending litigation over the property and neither were they aware that a notice of lis pendens had been annotated
on Carrascoso’s title; and (4) Lauro and El Dorado knew of the sale by Carrascoso to PLDT and PLDT’s actual
possession of the 1,000 hectare portion of the property since June 30, 1975 and of its exercise of exclusive rights
of ownership thereon through agricultural development.39
By Decision40 of January 28, 1991, Branch 45 of the San Jose Occidental Mindoro Regional Trial Court to which
the CFI has been renamed, dismissed the complaint on the ground of prematurity, disposing as follows, quoted
verbatim:
WHEREFORE, in view of all the foregoing considerations, judgment is hereby rendered:
1. Dismissing the plaintiffs’ complaint against the defendant on the ground of prematurity;
2. Ordering the plaintiffs to pay to the defendant the sum of P2,980,000.00 as actual and compensatory damages,
as well as the sum of P100,000.00 as and for attorneys fees; provided, however, that the aforesaid amounts must
first be set off from the latter’s unpaid balance to the former;
3. Dismissing the defendants-intervenors’ counterclaim and cross-claim; and
4. Ordering the plaintiffs to pay to (sic) the costs of suit.
SO ORDERED.41 (Underscoring supplied)
Carrascoso, PLDT and PLDTAC filed their respective appeals to the Court of Appeals.
By Decision42 of January 31, 1996, the appellate court reversed the decision of the trial court, disposing as
follows, quoted verbatim:
WHEREFORE, not being meritorious, PLDT’s/PLDTAC’s appeal is hereby DISMISSED and finding El
Dorado’s appeal to be impressed with merit, We REVERSE the appealed Decision and render the following
judgment:
1. The Deed of Sale of Real Property (Exhibit C) is hereby rescinded and TCT No. T-12480 (Exhibit Q) is
cancelled while TCT No. T-93 (Exhibit A), is reactivated.
2. Fernando Carrascoso, Jr. is commanded to:
2.1. return the possession of the 825 [hectare-] remaining portion of the land to El Dorado Plantation, Inc.
without prejudice to the landholdings of legitimate tenants thereon;
2.2. return the net fruits of the land to El Dorado Plantation, Inc. from March 23, 1972 to July 11, 1975, and of
the 825-hectare-remaining portion minus the tenants’ landholdings, from July 11, 1975 up to its delivery to El
Dorado Plantation, Inc. including whatever he may have received from the tenants if any by way of compensation
under the Operation Land Transfer or under any other pertinent agrarian law;
2.3 Pay El Dorado Plantation, Inc. an attorney’s fee of P20,000.00 and litigation expenses of P30,000.00;
2.4 Return to Philippine Long Distance Telephone Company/PLDT Agricultural Corporation P3,000,000.00 plus
legal interest from April 6, 1977 until fully paid;
3. PLDT Agricultural Corporation is ordered to surrender the possession of the 1000-hectare Farm to El Dorado
Plantation, Inc.;
4. El Dorado Plantation, Inc. is directed to return the P500,000.00 to Fernando Carrascoso, Jr. plus legal interest
from March 23, 1972 until fully paid. The performance of this obligation will however await the full compliance
by Fernando Carrascoso, Jr. of his obligation to account for and deliver the net fruits of the land mentioned above
to El Dorado Plantation, Inc.
5. To comply with paragraph 2.2 herein, Carrascoso is directed to submit in (sic) the court a quo a full accounting
of the fruits of the land during the period mentioned above for the latter’s approval, after which the net fruits shall
be delivered to El Dorado, Plantation, Inc.
6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and PLDT Agricultural
Corporation in writing within ten (10) days after finality of this decision regarding the exercise of its option under
Art. 448 of the Civil Code.
SO ORDERED.43 (Underscoring supplied)
PLDT and PLDTAC filed on February 22, 1996, a Motion for Reconsideration44 of the January 31, 1996 CA
Decision, while Carrascoso went up this Court by filing on March 25, 1996 a petition for review,45 docketed as
G.R. No. 123672, assailing the January 31, 1996 CA Decision and seeking the reinstatement of the January 28,
1991 Decision of the trial court except with respect to its finding that the acquisition of PLDT and PLDTAC of
the 1,000 hectare portion of the property was subject to the notice of lis pendens.
Lauro, in the meantime, died, hence, on April 16, 1996, a Motion for Substitution of Party46 was filed praying
that his heirs, represented by Conrad C. Leviste, be substituted as respondents. The Motion was granted by
Resolution47 of July 10, 1996.
PLDT and PLDTAC filed their Comment48 to Carrascoso’s petition and prayed that judgment be rendered finding
them to be purchasers in good faith to thus entitle them to possession and ownership of the 1,000 hectare portion
of the property, together with all the improvements they built thereon. Reiterating that they were not purchasers
pendente lite, they averred that El Dorado and Lauro had actual knowledge of their interests in the said portion of
the property prior to the annotation of the notice of lis pendens to thereby render said notice ineffective.
El Dorado and the heirs of Lauro, both represented by Conrad C. Leviste, also filed their Comment49 to
Carrascoso’s petition, praying that it be dismissed for lack of merit and that paragraph 6 of the dispositive portion
of the January 31, 1996 CA Decision be modified to read as follows:
6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and PLDT Agricultural
Corporation in writing within ten (10) days after finality of this decision regarding the exercise of its option under
34
Arts. 449 and 450 of the Civil Code, without right to indemnity on the part of the latter should the former decide
to keep the improvements under Article 449.50 (Underscoring supplied)
Carrascoso filed on November 13, 1996 his Reply51 to the Comment of El Dorado and the heirs of Lauro.
In the meantime, as the February 22, 1996 Motion for Reconsideration filed by PLDT and PLDTAC of the CA
decision had remained unresolved, this Court, by Resolution52 of June 30, 2003, directed the appellate court to
resolve the same.
By Resolution53 of July 8, 2004, the CA denied PLDT and PLDTAC’s Motion for Reconsideration for lack of
merit.
PLDT54 thereupon filed on September 2, 2004 a petition for review55 before this Court, docketed as G.R. No.
164489, seeking to reverse and set aside the January 31, 1996 Decision and the July 8, 2004 Resolution of the
appellate court. It prayed that judgment be rendered upholding its right, interest and title to the 1,000 hectare
portion of the property and that it and its successors-in-interest be declared owners and legal possessors thereof,
together with all improvements built, sown and planted thereon.
By Resolution56 of August 25, 2004, G.R. No. 164489 was consolidated with G.R. No. 123672.
In his petition, Carrascoso faults the CA as follows:
I
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND COMMITTED A
MISTAKE OF LAW IN NOT DECLARING THAT THE ACTION FOR RESCISSION WAS PREMATURELY
FILED.
II
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND COMMITTED A
MISTAKE OF LAW IN DISREGARDING THE CRUCIAL SIGNIFICANCE OF THE WARRANTY OF
NON-TENANCY EXPRESSLY STIPULATED IN THE CONTRACT OF SALE.
III
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN REVERSING THE
DECISION OF THE TRIAL COURT.57 (Underscoring supplied)
PLDT, on the other hand, faults the CA as follows:
I In the case at bar, El Dorado already performed its obligation through the execution of the March 23, 1972 Deed
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT PETITIONER
AND PLTAC (sic) TOOK THEIR RIGHT, INTEREST AND TITLE TO THE FARM SUBJECT TO THE
NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF THE PROTECTION ACCORDED THEM
UNDER ARTICLES 1181 AND 1187 OF THE NEW CIVIL CODE.
II
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT PETITIONER
AND PLDTAC TOOK THEIR RIGHT, INTEREST AND TITLE TO THE FARM SUBJECT TO THE NOTICE
OF LIS PENDENS, THE SAME IN DISREGARD OF THE LEGAL PRINCIPLE THAT RESPONDENTS EL
DORADO ET AL.’s PRIOR, ACTUAL KNOWLEDGE OF PETITIONER PLDT’S AGREEMENT TO BUY
AND SELL WITH RESPONDENT CARRASCOSO RESULTING IN THE DELIVERY TO, AND
POSSESSION, OCCUPATION AND DEVELOPMENT BY, SAID PETITIONER OF THE FARM, IS
EQUIVALENT TO REGISTRATION OF SUCH RIGHT, INTEREST AND TITLE AND, THEREFORE, A
PRIOR REGISTRATION NOT AFFECTED BY THE LATER NOTICE OF LIS PENDENS.58 (Underscoring
supplied)
Carrascoso posits that in the El Dorado Board Resolution and the Affidavit of Feliciano Leviste, both dated
March 23, 1972, no objection was interposed to his mortgaging of the property to any bank provided that the
balance of the purchase price of the property under the March 23, 1972 Deed of Sale of Real Property is
recognized, hence, El Dorado could collect the unpaid balance of ₱1,300,000.00 only after the mortgage in favor
of HSB is paid in full; and the filing of the complaint for rescission with damages on March 15, 1977 was
premature as he fully paid his obligation to HSB only on April 5, 1977 as evidenced by the Cancellation of
Mortgage59 signed by HSB President Gregorio B. Licaros.
Carrascoso further posits that extensions of the period to pay El Dorado were verbally accorded him by El
Dorado’s directors and officers, particularly Jose and Angel Leviste.
Article 1191 of the Civil Code provides:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the Mortgage Law.
Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of one is dependent upon the obligation of the other.60 They are to be
performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of
the other.61
The right of rescission of a party to an obligation under Article 1191 is predicated on a breach of faith by the
other party who violates the reciprocity between them.62
A contract of sale is a reciprocal obligation. The seller obligates itself to transfer the ownership of and deliver a
determinate thing, and the buyer obligates itself to pay therefor a price certain in money or its equivalent.63 The
non-payment of the price by the buyer is a resolutory condition which extinguishes the transaction that for a time
existed, and discharges the obligations created thereunder.64 Such failure to pay the price in the manner
prescribed by the contract of sale entitles the unpaid seller to sue for collection or to rescind the contract.65
of Sale of Real Property which effectively transferred ownership of the property to Carrascoso. The latter, on the
other hand, failed to perform his correlative obligation of paying in full the contract price in the manner and
within the period agreed upon.
The terms of the Deed are clear and unequivocal: Carrascoso was to pay the balance of the purchase price of the
property amounting to ₱1,300,000.00 plus interest thereon at the rate of 10% per annum within a period of three
(3) years from the signing of the contract on March 23, 1972. When Jose Leviste informed him that El Dorado
was seeking rescission of the contract by letter of February 21, 1977, the period given to him within which to
fully satisfy his obligation had long lapsed.
The El Dorado Board Resolution and the Affidavit of Jose Leviste interposing no objection to Carrascoso’s
mortgaging of the property to any bank did not have the effect of suspending the period to fully pay the purchase
price, as expressly stipulated in the Deed, pending full payment of any mortgage obligation of Carrascoso.
As the CA correctly found:
The adverted resolution (Exhibit 2) does not say that the obligation of Carrascoso to pay the balance was
extended. Neither can We see in it anything that can logically infer said accommodation.
35
A partially unpaid seller can agree to the buyer’s mortgaging the subject of the sale without changing the time
fixed for the payment of the balance of the price. The two agreements are not incompatible with each other such
that when one is to be implemented, the other has to be suspended. In the case at bench, there was no impediment
for Carrascoso to pay the balance of the price after mortgaging the land.
Also, El Dorado’s subordinating its "preferred claim" or waiving its superior "vendor’s lien" over the land in
favor of the mortgagee of said property only means that in a situation where the unpaid price of the Land and
loan secured by the mortgage over the Land both become due and demandable, the mortgagee shall have
precedence in going after the Land for the satisfaction of the loan. Such accommodations do not necessarily
imply the modification of the period fixed in the contract of sale for the payment by Carrascoso of the balance.
The palpable purpose of El Dorado in not raising any objection to Carrascoso’s mortgaging the land was to
eliminate any legal impediment to such a contract. That was so succinctly expressed in the Affidavit (Exhibit 2-
A) of President Feleciano (sic) Leviste. El Dorado’s yielding its "superior lien" over the land in favor of the
mortgagee was plainly intended to overcome the natural reluctance of lending institutions to accept a land whose
price has not yet been fully paid as collateral of a loan.66 (Underscoring supplied)
Respecting Carrascoso’s insistence that he was granted verbal extensions within which to pay the balance of the
purchase price of the property by El Dorado’s directors and officers Jose and Angel Leviste, this Court finds the
same unsubstantiated by the evidence on record.
It bears recalling that Jose Leviste wrote Carrascoso, by letter of February 21, 1977, calling his attention to his
failure to comply, despite "numerous" requests, with his obligation to pay the amount of ₱1,300,000.00 and 10%
annual interest thereon, and advising him that "we would like to rescind the contract of sale." This letter reiterated
the term of payment agreed upon in the March 23, 1972 Deed of Sale of Real Property and Carrascosos’s non-
compliance therewith.
Carrascoso, harping on Jose Leviste’s March 10, 1977 letter to Lauro’s counsel wherein he (Jose Leviste) stated
that "some of the Directors of the corporation could not see their way clear in complying with the demands of
[Lauro] and have failed to reach a consensus to bring the corresponding action for rescission of the contract
against Dr. Fernando Carrascoso," argues that the extensions priorly given to him "no doubt lead to the logical
conclusion on some of the directors’ inability to file suit against him."67
The argument is specious. As the CA found, even if some officers of El Dorado were initially reluctant to file suit
against him, the same should not be interpreted to mean that this was brought about by a prior extension of the
period to pay the balance of the purchase price of the property as such reluctance could have been due to a
myriad of reasons totally unrelated to the period of payment of the balance.
The bottomline however is, if El Dorado really intended to extend the period of payment of the balance there was
absolutely no reason why it did not do it in writing in clear and unmistakable terms. That there is no such writing
negates all the speculations of the court a quo and pretensions of Carrascoso.
xxx
The unalterable fact here remains that on March 23, 1973, with or without demand, the obligation of Carrascoso
to pay P519,933.33 became due. The same was true on March 23, 1974 and on March 23, 1975 for equal
amounts. Since he did not perform his obligation under the contract of sale, he, therefore, breached it. Having
breached the contract, El Dorado’s cause of action for rescission of that contract arose.68 (Underscoring supplied)
Carrascoso goes on to argue that the appellate court erred in ignoring the import of the warranty of non-tenancy
expressly stipulated in the March 23, 1972 Deed of Sale of Real Property. He alleges that on March 8, 1972 or
two weeks prior to the execution of the Deed of Sale, he discovered, while inspecting the property on board a
helicopter, that there were people and cattle in the area; when he confronted El Dorado about it, he was told that
the occupants were caretakers of cattle who would soon leave;69 four months after the execution of the Deed of
Sale, upon inquiry with the Bureau of Lands and the Bureau of Soils, he was informed that there were people
claiming to be tenants in certain portions of the property;70 and he thus brought the matter again to El Dorado
which informed him that the occupants were not tenants but squatters.71
Carrascoso now alleges that as a result of what he concludes to be a breach of the warranty of non-tenancy
committed by El Dorado, he incurred expenses in the amount of ₱2,890,000.00 for which he should be
reimbursed, his unpaid obligation to El Dorado amounting to ₱1,300,000.00 to be deducted therefrom.72
The breach of an express warranty makes the seller liable for damages.73 The following requisites must be
established in order that there be an express warranty in a contract of sale: (1) the express warranty must be an
affirmation of fact or any promise by the seller relating to the subject matter of the sale; (2) the natural tendency
of such affirmation or promise is to induce the buyer to purchase the thing; and (3) the buyer purchases the thing
relying on such affirmation or promise thereon.74
Under the March 23, 1972 Deed of Sale of Real Property, El Dorado warranted that the property was not being
cultivated by any tenant and was, and therefore, not covered by the provisions of the Land Reform Code. If
Carrascoso would become liable under the said law, he would be reimbursed for all expenses and damages
incurred thereon.
Carrascoso claims to have incurred expenses in relocating persons found on the property four months after the
execution of the Deed of Sale. Apart from such bare claim, the records are bereft of any proof that those persons
were indeed tenants.75 The fact of tenancy76 not having been priorly established,77 El Dorado may not be held
liable for actual damages.
Carrascoso further argues that both the trial and appellate courts erred in holding that the sale of the 1,000 hectare
portion of the property to PLDT, as well as its subsequent sale to PLDTAC, is subject to the March 15, 1977
Notice of Lis Pendens.
PLDT additionally argues that the CA incorrectly ignored the Agreement to Buy and Sell which it entered into
with Carrascoso on July 11, 1975, positing that the efficacy of its purchase from Carrascoso, upon his fulfillment
of the condition it imposed resulting in its decision to formalize their transaction and execute the April 6, 1977
Deed of Sale, retroacted to July 11, 1975 or before the annotation of the Notice of Lis Pendens.78
The pertinent portions of the July 11, 1975 Agreement to Buy and Sell between PLDT and Carrascoso read:
2. That the VENDOR hereby agrees to sell to the VENDEE and the latter hereby agrees to purchase from the
former, 1,000 hectares of the above-described parcel of land as shown in the map hereto attached as Annex "A"
and made an integral part hereof and as hereafter to be more particularly determined by the survey to be
conducted by Certeza & Co., at the purchase price of P3,000.00 per hectare or for a total consideration of Three
Million Pesos (P3,000,000.00) payable in cash.
3. That this contract shall be considered rescinded and cancelled and of no further force and effect, upon failure
of the VENDOR to clear the aforementioned 1,000 hectares of land of all the occupants therein located, within a
period of one (1) year from the date of execution of this Agreement. However, the VENDEE shall have the
option to extend the life of this Agreement by another six months, during which period the VENDEE shall
definitely inform the VENDOR of its decision on whether or not to finalize the deed of absolute sale for the
aforementioned 1,000 hectares of land.
The VENDOR agrees that the amount of P500.00 per family within the aforementioned 1,000 hectares of land
shall be spent by him for relocation purposes, which amount however shall be advanced by the VENDEE and
which shall not exceed the total amount of P120,000.00, the same to be thereafter deducted by the VENDEE
from the aforementioned purchase price of P3,000,000.00.
The aforementioned advance of P120,000.00 shall be remitted by the VENDEE to the VENDOR upon the
signing of this Agreement.
xxx
36
It is likewise further agreed that the VENDEE shall have the right to enter into any part of the aforementioned
1,000 hectares at any time within the period of this Agreement for purposes of commencing the development of
the same.
xxx
5. Title to the aforementioned land shall also be cleared of all liens or encumbrances and if there are any unpaid
taxes, existing mortgages, liens and encumbrances on the land, the payments to be made by the VENDEE to the
VENDOR of the purchase price shall first be applied to liquidate said mortgages, liens and/or encumbrances,
such that said payments shall be made directly to the corresponding creditors. Thus, the balance of the purchase
price will be paid to the VENDOR after the title to the land is cleared of all such liens and encumbrances.
xxx
7. The VENDOR agrees that, during the existence of this Agreement and without the previous written permission
from the VENDEE, he shall not sell, cede, assign and/or transfer the parcel of land subject of this Agreement.79
A notice of lis pendens is an announcement to the whole world that a particular real property is in litigation, and
serves as a warning that one who acquires an interest over said property does so at his own risk, or that he
gambles on the result of the litigation over said property.80
Once a notice of lis pendens has been duly registered, any cancellation or issuance of title over the land involved
as well as any subsequent transaction affecting the same would have to be subject to the outcome of the suit. In
other words, a purchaser who buys registered land with full notice of the fact that it is in litigation between the
vendor and a third party stands in the shoes of his vendor and his title is subject to the incidents and result of the
pending litigation.81
x x x Notice of lis pendens has been conceived and, more often than not, availed of, to protect the real rights of
the registrant while the case involving such rights is pending resolution or decision. With the notice of lis
pendens duly recorded, and while it remains uncancelled, the registrant could rest secure that he would not lose
the property or any part of it during the litigation.
The filing of a notice of lis pendens in effect (1) keeps the subject matter of litigation within the power of the
court until the entry of the final judgment so as to prevent the defeat of the latter by successive alienations; and
(2) binds a purchaser of the land subject of the litigation to the judgment or decree that will be promulgated
thereon whether such a purchaser is a bona fide purchaser or not; but (3) does not create a non-existent right or
lien.
The doctrine of lis pendens is founded upon reason of public policy and necessity, the purpose of which is to
keep the subject matter of the litigation within the power of the court until the judgment or decree shall have been
entered; otherwise by successive alienations pending the litigation, its judgment or decree shall be rendered
abortive and impossible of execution. The doctrine of lis pendens is based on considerations of public policy and
convenience, which forbid a litigant to give rights to others, pending the litigation, so as to affect the proceedings
of the court then progressing to enforce those rights, the rule being necessary to the administration of justice in
order that decisions in pending suits may be binding and may be given full effect, by keeping the subject matter
in controversy within the power of the court until final adjudication, that there may be an end to litigation, and to
preserve the property that the purpose of the pending suit may not be defeated by successive alienations and
transfers of title.82 (Italics in the original)
In ruling against PLDT and PLDTAC, the appellate court held:
PLDT and PLDTAC argue that in reality the Farm was bought by the former on July 11, 1975 when Carrascoso
and it entered into the Agreement to Buy and Sell (Exhibit 15). How can an agreement to buy and sell which is a
preparatory contract be the same as a contract of sale which is a principal contract? If PLDT’s contention is
correct that it bought the Farm on July 11, 1975, why did it buy the same property again on April 6, 1977? There
is simply no way PLDT and PLDTAC can extricate themselves from the effects of said Notice of Lis Pendens. It
is admitted that PLDT took possession of the Farm on July 11, 1975 after the execution of the Agreement to Buy
and Sell but it did so not as owner but as prospective buyer of the property. As prospective buyer which had
actual on (sic) constructive notice of the lis pendens, why did it pursue and go through with the sale if it had not
been willing to gamble with the result of this case?83 (Underscoring supplied)
Further, in its July 8, 2004 Resolution, the CA held:
PLDT cannot shield itself from the notice of lis pendens because all that it had at the time of its inscription was
an Agreement to Buy and Sell with CARRASCOSO, which in effect is a mere contract to sell that did not pass to
it the ownership of the property.
xxx
Ownership was retained by CARRASCOSO which EL DORADO may very well recover through its action for
rescission.
xxx
PLDT’s possession at the time the notice of lis pendens was registered not being a legal possession based on
ownership but a mere possession in fact and the Agreement to Buy and Sell under which it supposedly took
possession not being registered, it is not protected from an adverse judgment that may be rendered in the case
subject of the notice of lis pendens.84 (Underscoring supplied)
In a contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to
sell, ownership is not transferred upon delivery of the property but upon full payment of the purchase price.85 In
the former, the vendor has lost and cannot recover ownership until and unless the contract is resolved or
rescinded; whereas in the latter, title is retained by the vendor until the full payment of the price, such payment
being a positive suspensive condition and failure of which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming effective.86
PLDT argues that the July 11, 1975 Agreement to Buy and Sell is a conditional contract of sale, thus calling for
the application of Articles 118187 and 118788 of the Civil Code as held in Coronel v. Court of Appeals.89
The Court is not persuaded.
For in a conditional contract of sale, if the suspensive condition is fulfilled, the contract of sale is thereby
perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer,
ownership thereto automatically transfers to the buyer by operation of law without any further act having to be
performed by the seller.90 Whereas in a contract to sell, upon fulfillment of the suspensive condition, ownership
will not automatically transfer to the buyer although the property may have been previously delivered to him. The
prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.91
A perusal of the contract92 adverted to in Coronel reveals marked differences from the Agreement to Buy and Sell
in the case at bar. In the Coronel contract, there was a clear intent on the part of the therein petitioners-sellers to
transfer title to the therein respondent-buyer. In the July 11, 1975 Agreement to Buy and Sell, PLDT still had to
"definitely inform Carrascoso of its decision on whether or not to finalize the deed of absolute sale for the 1,000
hectare portion of the property," such that in the April 6, 1977 Deed of Absolute Sale subsequently executed, the
parties declared that they "are now decided to execute" such deed, indicating that the Agreement to Buy and Sell
was, as the appellate court held, merely a preparatory contract in the nature of a contract to sell. In fact, the
parties even had to stipulate in the said Agreement to Buy and Sell that Carrascoso, "during the existence of the
Agreement, shall not sell, cede, assign and/or transfer the parcel of land," which provision this Court has held to
be a typical characteristic of a contract to sell.93
Being a contract to sell, what was vested by the July 11, 1975 Agreement to Buy and Sell to PLDT was merely
the beneficial title to the 1,000 hectare portion of the property.
37
The right of Daniel Jovellanos to the property under the contract [to sell] with Philamlife was merely an inchoate
and expectant right which would ripen into a vested right only upon his acquisition of ownership which, as
aforestated, was contingent upon his full payment of the rentals and compliance with all his contractual
obligations thereunder. A vested right is an immediate fixed right of present and future enjoyment. It is to be
distinguished from a right that is expectant or contingent. It is a right which is fixed, unalterable, absolute,
complete and unconditional to the exercise of which no obstacle exists, and which is perfect in itself and not
dependent upon a contingency. Thus, for a property right to be vested, there must be a transition from the
potential or contingent to the actual, and the proprietary interest must have attached to a thing; it must have
become fixed or established and is no longer open to doubt or controversy.94 (Underscoring supplied)
In the case at bar, the July 11, 1975 Agreement to Buy and Sell was not registered, which act of registration is the
operative act to convey and affect the land.
An agreement to sell is a voluntary instrument as it is a willful act of the registered owner. As such voluntary
instrument, Section 50 of Act No. 496 [now Section 51 of PD 1529] expressly provides that the act of registration
shall be the operative act to convey and affect the land. And Section 55 of the same Act [now Section 53 of PD
1529] requires the presentation of the owner’s duplicate certificate of title for the registration of any deed or
voluntary instrument. As the agreement to sell involves an interest less than an estate in fee simple, the same
should have been registered by filing it with the Register of Deeds who, in turn, makes a brief memorandum
thereof upon the original and owner’s duplicate certificate of title. The reason for requiring the production of the
owner’s duplicate certificate in the registration of a voluntary instrument is that, being a willful act of the
registered owner, it is to be presumed that he is interested in registering the instrument and would willingly
surrender, present or produce his duplicate certificate of title to the Register of Deeds in order to accomplish such
registration. However, where the owner refuses to surrender the duplicate certificate for the annotation of the
voluntary instrument, the grantee may file with the Register of Deeds a statement setting forth his adverse claim,
as provided for in Section 110 of Act No. 496. xxx95 (Underscoring supplied)
In Valley Golf Club, Inc. v. Salas,96 where a Deed of Absolute Sale covering a parcel of land was executed prior
to the annotation of a notice of lis pendens by the original owner thereof but which Deed was registered after
such annotation, this Court held:
The advance payment of P15,000.00 by the CLUB on October 18, 1960 to ROMERO, and the additional
payment by the CLUB of P54,887.50 as full payment of the purchase price on October 26, 1960, also to
ROMERO, cannot be held to be the dates of sale such as to precede the annotation of the adverse claim by the
SISTERS on October 25, 1960 and the lis pendens on October 27, 1960. It is basic that it is the act of registration
of the sale that is the operative act to convey and affect the land. That registration was not effected by the CLUB
until December 4, 1963, or three (3) years after it had made full payment to ROMERO. xxx
xxx
As matters stand, therefore, in view of the prior annotations of the adverse claim and lis pendens, the CLUB must
be legally held to have been aware of the flaws in the title. By virtue of the lis pendens, its acquisition of the
property was subject to whatever judgment was to be rendered in Civil Case No. 6365. xxx The CLUB’s cause of
action lies, not against the SISTERS, to whom the property had been adjudged by final judgment in Civil Case
No. 6365, but against ROMERO who was found to have had no right to dispose of the land.97 (Underscoring
supplied)
PLDT further argues that El Dorado’s prior, actual knowledge of the July 11, 1975 Agreement to Buy and Sell is
equivalent to prior registration not affected by the Notice of Lis Pendens. As such, it concludes that it was not a
purchaser pendente lite nor a purchaser in bad faith.
PLDT anchors its argument on the testimony of Lauro and El Dorado’s counsel Atty. Aquino from which it infers
that Atty. Aquino filed the complaint for rescission and caused the notice of lis pendens to be annotated on
Carrascoso’s title only after reading newspaper reports on the sale to PLDT of the 1,000 hectare portion of the
property.
The pertinent portions of Atty. Aquino’s testimony are reproduced hereunder:
Q: Do you know, Atty. Aquino, what you did after the filing of the complaint in the instant case of Dr.
Carrascoso?
A: Yes, I asked my associates to go to Mamburao and had the notice of Lis Pendens covering the property as a
result of the filing of the instant complaint.
Q: Do you know the notice of Lis Pendens?
A: Yes, it is evidenced by a [Transfer] Certificate Copy of Title of Dr. Carrascoso entitled "Notice of Lis
Pendens".
Q: As a consequence of the filing of the complaint which was annotated, you have known that?
A: Yes.
xxx
Q: After the annotation of the notice of Lis Pendens, do you know, if any further transaction was held on the
property?
A: As we have read in the newspaper, that Dr. Carrascoso had sold the property in favor of the PLDT, Co.
Q: And what did you do?
A: We verified the portion of the property having recorded under entry No. 24770 xxx and we also discovered
that the articles incorporated (sic) and other corporate matters had been organized and established of the PLDT,
Co., and had been annotated.
xxx
Q: Do you know what happened to the property?
A: It was sold by the PLDT to its sub-PLDT Agitating (sic) Co. when at that time there was already notice of Lis
Pendens.
xxx
Q: In your testimony, you mentioned that you had come cross- (sic) reading the sale of the subject litigation (sic)
between Dr. Fernando Carrascoso, the defendant herein and the PLDT, one of defendants-intervenor, may I say
when?
A: I cannot remember now, but it was in the newspaper where it was informed or mentioned of the sold property
to PLDT.
xxx
Q: Will you tell to the Honorable Court what newspaper was that?
A: Well, I cannot remember what is that newspaper. That is only a means of [confirming] the transaction. What
was [confirmed] to us is whether there was really transaction (sic) and we found out that there was in the Register
of Deeds and that was the reason why we obtained the case.
Q: Well, may I say, is there any reason, the answer is immaterial. The question is as regard the matter of time
when counsel is being able (sic) to read the newspaper allegedly (interrupted)
xxx
Q: The idea of the question, your Honor, is to establish and ask further the notice of [lis pendens] with regards
(sic) to the transfer of property to PLDT, would have been accorded prior to the pendency of the case.
xxx
38
A: I cannot remember.98
PLDT also relies on the following testimony of Carrascoso:
Q: You mentioned Doctor a while ago that you mentioned to the late Governor Feliciano Leviste regarding your
transaction with the PLDT in relation to the subject property you allegedly mention (sic) your intention to sell
with the PLDT?
A: It was Dr. Jose Leviste and Dr. Angel Leviste that was constantly in touched (sic) with me with respect to my
transaction with the PLDT, sir.
Q: Any other officer of the corporation who knows with instruction aside from Dr. Angel Leviste and Dr. Jose
Leviste?
A: Yes, sir. It was Trinidad Andaya Leviste and Assemblyman Expedito Leviste.
xxx
Q: What is the position of Mrs. Trinidad Andaya Leviste with the plaintiff-corporation?
A: One of the stockholders and director of the plaintiff-corporation, sir.
Q: Will you please tell us the other officers?
A: Expedito Leviste, sir.
A: Will you tell the position of Expedito Leviste?
A: He was the corporate secretary, sir.
Q: If you know, was Dr. Jose Leviste also a director at that time?
A: Yes, sir.99
On the other hand, El Dorado asserts that it had no knowledge of the July 11, 1975 Agreement to Buy and Sell
prior to the filing of the complaint for rescission against Carrascoso and the annotation of the notice of lis
pendens on his title. It further asserts that it always acted in good faith:
xxx The contract to sell between the Petitioner [Carrascoso] and PLDT was executed in July 11, 1975. There is
no evidence that El Dorado was notified of this contract. The property is located in Mindoro, El Dorado is based
in Manila. The land was planted to rice. This was not an unusual activity on the land, thus it could have been the
Petitioner who was using the land. Not having been notified of this sale, El Dorado could not have stopped PLDT
from developing the land.
The absolute sale of the land to PLDT took place on April 6, 1977, or AFTER the filing of this case on March 15,
1977 and the annotation of a notice of lis pendens on March 16, 1977. Inspite of the notice of lis pendens, PLDT
then PLDTAC persisted not only in buying the land but also in putting up improvements on the property such as
buildings, roads, irrigation systems and drainage. This was done during the pendency of this case, where PLDT
and PLDTAC actively participated as intervenors. They were not innocent bystanders. xxx100
This Court finds the above-quoted testimony of Atty. Aquino to be susceptible of conflicting interpretations. As
such, it cannot be the basis for inferring that El Dorado knew of the July 11, 1975 Agreement to Buy and Sell
prior to the annotation of the notice of lis pendens on Carrascoso’s title.
Respecting Carrascoso’s allegation that some of the directors and officers of El Dorado had knowledge of his
dealings with PLDT, it is true that knowledge of facts acquired or possessed by an officer or agent of a
corporation in the course of his employment, and in relation to matters within the scope of his authority, is notice
to the corporation, whether he communicates such knowledge or not.101 In the case at bar, however, apart from
Carrascoso’s claim that he in fact notified several of the directors about his intention to sell the 1,000 hectare
portion of the property to PLDT, no evidence was presented to substantiate his claim. Such self-serving,
uncorroborated assertion is indubitably inadequate to prove that El Dorado had notice of the July 11, 1975
Agreement to Buy and Sell before the annotation of the notice of lis pendens on his title.
PLDT is, of course, not without recourse. As held by the CA:
Between Carrascoso and PLDT/PLDTAC, the former acted in bad faith while the latter acted in good faith. This
is so because it was Carrascoso’s refusal to pay his just debt to El Dorado that caused PLDT/PLDTAC to suffer
pecuniary losses. Therefore, Carrascoso should return to PLDT/PLDTAC the P3,000,000.00 price of the farm
plus legal interest from receipt thereof until paid.102 (Underscoring supplied)
The appellate court’s decision ordering the rescission of the March 23, 1972 Deed of Sale of Real Property
between El Dorado and Carrascoso being in order, mutual restitution follows to put back the parties to their
original situation prior to the consummation of the contract.
The exercise of the power to rescind extinguishes the obligatory relation as if it had never been created, the
extinction having a retroactive effect. The rescission is equivalent to invalidating and unmaking the juridical tie,
leaving things in their status before the celebration of the contract.
Where a contract is rescinded, it is the duty of the court to require both parties to surrender that which they have
respectively received and to place each other as far as practicable in his original situation, the rescission has the
effect of abrogating the contract in all parts.103 (Underscoring supplied)
The April 6, 1977 and May 30, 1977 Deeds of Absolute Sale being subject to the notice of lis pendens, and as the
Court affirms the declaration by the appellate court of the rescission of the Deed of Sale executed by El Dorado
in favor of Carrascoso, possession of the 1,000 hectare portion of the property should be turned over by PLDT to
El Dorado.
As regards the improvements introduced by PLDT on the 1,000 hectare portion of the property, a distinction
should be made between those which it built prior to the annotation of the notice of lis pendens and those which it
introduced subsequent thereto.
When a person builds in good faith on the land of another, Article 448 of the Civil Code governs:
Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the
right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in
Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who
sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such a case, he shall pay reasonable rent, if the owner of
the land does not choose to appropriate the building or trees after the proper indemnity. The parties shall agree
upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.
The above provision covers cases in which the builders, sowers or planters believe themselves to be owners of
the land or, at least, to have a claim of title thereto.104 Good faith is thus identified by the belief that the land is
owned; or that by some title one has the right to build, plant, or sow thereon.105
The owner of the land on which anything has been built, sown or planted in good faith shall have the right to
appropriate as his own the building, planting or sowing, after payment to the builder, planter or sower of the
necessary and useful expenses,106 and in the proper case, expenses for pure luxury or mere pleasure.107
The owner of the land may also oblige the builder, planter or sower to purchase and pay the price of the land.
If the owner chooses to sell his land, the builder, planter or sower must purchase the land, otherwise the owner
may remove the improvements thereon. The builder, planter or sower, however, is not obliged to purchase the
land if its value is considerably more than the building, planting or sowing. In such case, the builder, planter or
sower must pay rent to the owner of the land.
If the parties cannot come to terms over the conditions of the lease, the court must fix the terms thereof.
39
The right to choose between appropriating the improvement or selling the land on which the improvement of the
builder, planter or sower stands, is given to the owner of the land.108
On the other hand, when a person builds in bad faith on the land of another, Articles 449 and 450 govern:
Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown
without right to indemnity.
Art. 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the
demolition of the work, or that the planting or sowing be removed, in order to replace things in their former
condition at the expense of the person who built, planted or sowed; or he may compel the builder or planter to
pay the price of the land, and the sower the proper rent.
In the case at bar, it is undisputed that PLDT commenced construction of improvements on the 1,000 hectare
portion of the property immediately after the execution of the July 11, 1975 Agreement to Buy and Sell with the
full consent of Carrascoso.109 Thus, until March 15, 1977 when the Notice of Lis Pendens was annotated on
Carrascoso’s TCT No. T-6055, PLDT is deemed to have been in good faith in introducing improvements on the
1,000 hectare portion of the property.
After March 15, 1977, however, PLDT could no longer invoke the rights of a builder in good faith.
Should El Dorado then opt to appropriate the improvements made by PLDT on the 1,000 hectare portion of the
property, it should only be made to pay for those improvements at the time good faith existed on the part of
PLDT or until March 15, 1977,110 to be pegged at its current fair market value.111
The commencement of PLDT’s payment of reasonable rent should start on March 15, 1977 as well, to be paid
until such time that the possession of the 1,000 hectare portion is delivered to El Dorado, subject to the
reimbursement of expenses as aforestated, that is, if El Dorado opts to appropriate the improvements.112
If El Dorado opts for compulsory sale, however, the payment of rent should continue up to the actual transfer of
ownership.113
WHEREFORE, the petitions are DENIED. The Decision dated January 13, 1996 and Resolution dated July 8,
2004 of the Court of Appeals are AFFIRMED with MODIFICATION in that
1) the Regional Trial Court of San Jose, Occidental Mindoro, Branch 45 is further directed to:
a. determine the present fair price of the 1,000 hectare portion of the property and the amount of the expenses
actually spent by PLDT for the improvements thereon as of March 15, 1977;
b. include for determination the increase in value ("plus value") which the 1,000 hectare portion may have
acquired by reason of the existence of the improvements built by PLDT before March 15, 1977 and the current
fair market value of said improvements;
2. El Dorado is ordered to exercise its option under the law, whether to appropriate the improvements, or to
oblige PLDT to pay the price of the land, and
3) PLDT shall pay El Dorado the amount of Two Thousand Pesos (₱2,000.00) per month as reasonable
compensation for its occupancy of the 1,000 hectare portion of the property from the time that its good faith
ceased to exist until such time that possession of the same is delivered to El Dorado, subject to the reimbursement
of the aforesaid expenses in favor of PLDT or until such time that the payment of the purchase price of the 1,000
hectare portion is made by PLDT in favor of El Dorado in case the latter opts for its compulsory sale.
Costs against petitioners.
SO ORDERED.

40
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11513 December 4, 1917
LAMBERTO SONGCO, plaintiff-appellee,
vs.
GEORGE C. SELLNER, defendant-appellant.
Thos. D. Aitken for appellant.
Perfecto Gabriel for appellee.
STREET, J.:
In December, 1915, the defendant, George C. Sellner, was the owner of a farm at Floridablanca, Pampanga,
which was contiguous to a farm owned by the plaintiff Lamberto Songco. Both properties had a considerable
quantity of the sugar cane ready to be cut. At Dinalupijan, a short distance away, was located a sugar central, and
Sellner desired to mill his cane at this central. One obstacle was that the owners of the central were not sure they
could mill his cane and would not promise to take it. Sellner, however, learning that the central was going to mill
Songco's cane, conceived the idea of buying the cane of the latter, expecting to run his own cane in that same
time the other should be milled. Another motive which evidently operated upon the mind of Sellner was the
desire to get a right of way over Songco's land for converting his own sugar to the central. Accordingly he bought
Songco's cane as it stood in the fields for the agreed sum of P12,000 and executed therefor three promissory notes
of P4,000 each. Two of these notes were paid; and the present action was instituted to recover upon the third.
From a judgement rendered in favor of the plaintiff, the defendant has appealed.
The note, upon which the action was brought, was exhibited with the complaint. The answer of the defendant was
made under oath, and contained a general denial of all the allegations of the complaint. The answer also
contained the allegation, asserted by way of special defense, that the promissory note in question was obtained
from the defendant by means of certain false and fraudulent representations therein specified. The note was
admitted in evidence by the court; and error is here assigned upon this action, on the ground that the genuineness
and due execution of the note was not proved. There is nothing in this contention for several reasons. In the first
place a general denial of a complaint does not raise a question as to the genuineness or due execution of a written
instrument. Under section 103 of the Code of Civil Procedure it is necessary that the genuineness and due
execution of the instrument shall be specifically denied before an issue is raised up on this point. This means that
the defendant must declare under oath that he did not sign the document or that it is otherwise false or fabricated.
Neither does the statement of the answer to the effect that the instrument was procured by fraudulent
representation raise any issue as to its genuineness or due execution. On the contrary such a plea is an admission
both of the genuineness and due execution thereof, since it seeks to avoid the instrument upon a ground not
affecting either. Furthermore, in this particular case the fourth paragraph of the answer expressly admits the
execution of the instrument by the defendant.
The principal defense here urged relates to a false representation which, it is claimed, was made by the plaintiff
Songco with respect to the quantity of uncut cane standing in the fields at the time the defendant Sellner became
the purchaser thereof. Upon this point it is proved that Songco estimated that this cane would produce 3,000
piculs of the sugar and that Sellner bought the crop believing this estimate to be substantially correct. As the crop
turned out it produced 2,017 piculs, gross, and after the toll for milling was deducted the net left to Sellner was
very much less. It appears that in the course of negotiations Sellner requested Songco to guarantee the quantity
which the latter claimed to be in fields but he would not do so. He, however, repeated that he was sure the fields
contained the quantity estimated by him. Some evidence was introduced tending to show that the disparity
between Songco's estimate and the quantity actually obtained would have been more expeditiously conducted.
We do not think there is much in this; and even making allowance for weight unnecessary lost, the harvest fell far
short of the amount estimated by Songco. We think it is fairly shown by the evidence that Songco knew at the
time he made the representation in question that he was greatly exaggerating the probable produce of his fields,
and it is impossible to believe that his estimate honestly reflected his true opinion. He knew what these same
fields had been producing over a long period of years; and he knew that, judging from the customary yield, the
harvest of this year should fall far below the amount stated.
Notwithstanding the fact that Songco's statement as to the probable output of his crop was disingenuous and
uncandid, we nevertheless think that Sellner was bound and that he must pay the price stipulated. The
representation in question can only be considered matter of opinion as the cane was still standing in the field, and
the quantity of the sugar it would produce could not be known with certainty until it should be harvested and
milled. Undoubtedly Songco had better experience and better information on which to form an opinion on this
question than Sellner. Nevertheless the latter could judge with his own eyes as to the character of the cane, and it
is shown that he measured the fields and ascertained that they contained 96 1/2 hectares.
It is of course elementary that a misinterpretation upon a mere matter of opinion is not an actionable deceit, nor is
it a sufficient ground for avoiding a contract as fraudulent. We are aware that statements may be found in the
books to the effect that there is a difference between giving an honest opinion and making a false representation
as to what one's real opinion is. We do not think, however, that this is a case where any such distinction should be
drawn.
The law allows considerable latitude to seller's statements, or dealer's talk; and experience teaches that it is
exceedingly risky to accept it at its face value. The refusal of the seller to warrant his estimate should have
admonished the purchaser that that estimate was put forth as a mere opinion; and we will not now hold the seller
to a liability equal to that which would have been created by a warranty, if one had been given.
Assertions concerning the property which is the subject of a contract of sale, or in regard to its qualities and
characteristics, are the usual and ordinary means used by sellers to obtain a high price and are always understood
as affording to buyers no ground for omitting to make inquiries. A man who relies upon such an affirmation
made by a person whose interest might so readily prompt him to exaggerate the value of his property does so at
his peril, and must take the consequences of his own imprudence. The principles enunciated above are fully
supported by the weight of the judicial authority. In a case where the owners of a certain logs represented to their
vendee that the logs would produce a greater per cent of superior lumber than was actually realized, but refused
to warrant their quality and required the vendee to examine for himself before making the contract, it was held
that the vendee could not avoid the contract. (Fauntleroy vs. Wilcox, 80 Ill., 477.) In Williamson vs. Holt (147 N.
C., 515; 17 L. R. A. [N. S.], 240), it appeared that the defendant had bought an ice plant with the knowledge that
its operation had been abandoned because the output did not equal its capacity. He had full opportunity to
investigate its condition. It was held that he could not avoid paying the purchase price because the vendor stated
that, with some repairs, it would turn out about a certain amount per day. In Poland vs. Brownell (131 Mass.,
138), where a man who bought a stock of goods had ample opportunity to examine and investigate, it was held
that he could not rely on the seller's misrepresentations as to the value of the goods or the extent of the business.
It would have been different if the seller had fraudulently induced him to forbear inquiries or examination which
he would otherwise have made.
It is not every false representation relating to the subject matter of a contract which will render it void. It must be
as to matters of fact substantially affecting the buyer's interest, not as to matters of opinion, judgment,
probability, or expectation. (Long vs. Woodman, 58 Me., 52; Hazard vs. Irwin, 18 Pick. [Mass.], 95; Gordon vs.
Parmelee, 2 Allen [Mass.],212; Williamson vs. McFadden, 23 Fla., 143, 11 Am. St. Rep., 345.) When the
purchaser undertakes to make an investigation of his own, and the seller does nothing to prevent this
investigation from being as full as he chooses to make it, the purchaser cannot afterwards allege that the seller
41
made misrepresentations. (National Cash Register Co. vs. Townsend, 137 N. C., 652, 70 L. R. A., 349;
Williamson vs. Holt, 147 N. C., 515.) 1awphi1.net
We are aware that where one party to a contract, having special or expert knowledge, takes advantage of the
ignorance of another to impose upon him, the false representation may afford ground for relief, though otherwise
the injured party would be bound. But we do not think that the fact that Songco was an experienced farmer, while
Sellner was, as he claims, a mere novice in the business, brings this case within that exception.
An incident of this action was that the plaintiffs sued out an attachment against the defendant, at the time of the
institution of the suit, upon the ground that he was disposing of his property in fraud of his creditors. This charge
was completely refuted by proof showing that the defendant is a man of large resources and had not attempted to
convey away his property as alleged. The court below therefore found that this attachment had been wrongfully
sued out, and awarded damages to the defendant equivalent to the amount actually paid out by him in procuring
the dissolution of the attachment. No appeal was taken from this action of the court by the plaintiff; but the
defendant assigns error to the action of the court in refusing to award to him further damages for the injury done
to his credit. In this connection he shows that one of his creditors, being appraised of the fact that the defendant
had been made the subject of an attachment, withheld further credit and forced him to sell a large quantity of
sugar at a price much lower than he would have received if he could have carried it a few weeks longer. We think
the court below committed no error in refusing to award damages upon this grounds, as such damages were
remote and speculative. It could hardly be foreseen as a probable consequence of the suing out of this attachment
that the hands of the creditors would come down upon their unfortunate client with such disastrous results; and
the plaintiff certainly cannot be held accountable for the complications of the defendant's affairs which made
possible the damage which in fact resulted. The court below also refused to award punitive damages claimed by
the plaintiff on the ground that the attachment was maliciously sued out. The action of the court in this respect
will not be here disturbed.
From what has been said it follows that the judgment of the court below must be affirmed, with costs against the
appellant. So ordered.
Arellano, C. J., Torres, Carson, Araullo, and Malcolm, JJ., concur.

42
Republic of the Philippines testimony is uncontradicted that on November 15, 1922, the defendant, in conformity with the terms of the
contract Exhibit A, endeavored to collect the price of the oil from the plaintiff, but was told by Mr. Mason that it
SUPREME COURT
would first be necessary to measure the contents of the tanks and to again examine the oil. On the same day,
Manila Mason went to the defendant's establishment and took new samples of the oil form the tanks or chemical analysis.
He thereupon ordered his men to close the tanks by placing padlocks on the valves, he retaining the keys. After
EN BANC
having done so, he advised the defendant that he would analyze the samples and that if the result was satisfactory,
G.R. No. L-24256 January 21, 1926 payment would be made at once, and later in the day the plaintiff gave the defendant its check for P137,500, the
PHILIPPINE MANUFACTURING CO., plaintiff-appellant, full amount of the contract purchase price.

vs. On November 17, 1922, the plaintiff sold the oil by contract in writing to the Portsmouth Cotton Oil Refining
Corporation at the price of $7.50, United States currency, per 100 pounds, C.I.F., Norfolk, Virginia, the contract
GO JOCCO, defendant-appellee. containing the following provision as to the quality of the oil:
Araneta and Zaragoza for appellant. Coconut Oil bases 5 per cent free fatty acid, Maximum 7 per cent free fatty acid shall be fair average of the
Camus, Delgado and recto for appellee. season of the country in which it is pressed, and shall be sold on basis 5 per cent free fatty acid, one per cent
OSTRAND, J.: moisture and impurities; provided, however, that any oil which exceed 5 per cent free fatty acid but does not
exceed 7 per cent free fatty acid, shall not be rejected but shall be reduced in price one half of one per cent for
On October 25, 1922, the plaintiff and the defendant entered into the following contract (Exhibit A): each one per cent excess acidity over 5 per cent, fractions in proportions.
CONTRACT In the morning of November 27, 1922, the oil was drawn from the tanks by the plaintiff and brought aboard the
MANILA, October 25, 1922 tank steamer Acme for shipment to the Portsmouth Cotton Oil Refining Corporation at Norfolk, Virginia, together
with other oil manufactured by the plaintiff and by the Philippine Vegetable Oil Company, the whole shipment
Messrs. GO JOCCO amounting to approximately 901 long tons. Mr. Mason was present when the oil was removed from the
Manila, P.I. defendant's tanks.

As brokers duly authorized, we have on this date sold by order and for the accounts of yourselves to Messrs. Mr. Ericksen of the firm of Morton & Ericksen, marine and cargo surveyors, surveyed the ship's tank No. 2 in
Philippine Manufacturing Co., Inc., Manila P.I., 500 tons of coconut oil for the price of twenty-seven and a half which the shipment in question was carried. In his certificate of survey, Exhibit B, he states among other things:
centavos per kilo ex tanque. Temperatures were taken and samples drawn of oil loaded into No. 2 tank, port and starboard sections Steamship
The delivery shall be made within 35 days, that is, between November 1st and December 5, 1922, inclusive. Acme from Philippine Manufacturing Co.'s storage tank A, Philippine National Oil's Storage Tanks Nos. 5 and 7,
and from tank lighter Quinan which were loaded form P.V.O. Storage Tank No. 21. All these samples were
The purchaser shall pay the vendor the total amount of this contract on the 15th of November, 1922. submitted to Bureau of Science, Manila, for determination of specific gravity and weight per cu. ft.
Should the purchaser take the oil a few days before November 15, 1922, the purchaser shall pay to the vendor all Samples of oil were also drawn from vessel's tank, both sections, after all oil was loaded on board and submitted
the amount of the aforesaid contract two days before delivery. to Bureau of Science for analysis. Samples of this oil drawn form vessel's tanks will be forwarded to Firemans's
Should the purchaser fail to take the oil until the 5th day of December, 1922, said purchaser shall pay the vendor Fund Insurance Co., San Francisco.
as storage the sum of P50 for each successive day. On the arrival of the Acme at Norfolk, the Portsmouth Cotton Oil Refining Corporation refused to accept the oil
The state or class of the oil: Not more than 5% F.F.A. on the ground that it was contaminated with cottonseed oil and, in accordance with the contract between the
parties, the matter was submitted to the New York Produce Exchange Arbitration Committee for arbitration.
Conformes: Samples alleged to have been taken from the shipment were tested by the Bureau of Chemistry of the New York
PHIL., MF'G. Co. (Sgd.) GO JOCCO Produce Exchange though the so-called Halpen test, and were found to be contaminated with cottonseed oil. As
to the proceedings before the Arbitration Committee, Mr. Berry, the plaintiff's vice-president and treasurer, who
Vendee at that time was in New York, makes the following statement in a letter to the defendant dated July 6, 1923:
(Sgd.) "S.W.MASONVendor The matter was discussed, each side given an opportunity to present its arguments and examine the other's
witnesses and statements. However, the purchaser produced a certificate of the Bureau of Science of Manila
showing that an examination made of the oil taken from your tanks showed the presence of Kapok Seed Oil. This
BERMUDEZ & BAUTISTA certificate, showing the condition of the oil before it was loaded into the deep tanks of the vessels, appeared to
By (Sgd.) BERMUDEZ convince the committee that the purchaser's claim was justified. The committee called us back again the next day
and asked whether we would be willing to agree with the purchaser to receive the rejection of the oil and replace
Brokers it with oil of good tender or what objections we could possibly have to granting the allowance asked for. There
The oil purchased was stored in the defendant's tanks Nos. 5 and 7 and, previously to the closing of the contract, was every indication shown by the committee that its decision would decidedly be in favor of the purchaser. The
the plaintiff's secretary and chemist, Mr. S.W. Mason, took samples of the oil from said tanks for analysis. The writer had been is close touch with the market and knew just what could be done with the oil if the decision was
against us. Realizing that the committee would not rendered a decision in our favor, the writer made a proposition

43
to the purchaser in the presence of the arbitration committee to buy back the oil from him on the basis of 8 7/8 ¢ Though the price at which the oil was sold to Proctor & Gamble Co. was considerably higher than the price
per pound c.i.f. The purchase was not enthusiastic about releasing the oil of this price as he figured he was agreed upon with the Portsmouth Cotton Oil Refining Corporation, the expenses for rend of cars, transportation,
practically certain of a decision of the committee which would grant him an allowance of 1 cent gold per pound, brokerage, etc., greatly exceeded the differences and the plaintiff maintains that it suffered a loss of P21,263.04.
but the committee insisted that the accept the proposition advanced, which was considered fair. However, the
The first intimation given the defendant of dissatisfaction with the quality of the oil purchased from him was the
committee decide that in addition to the purchase price of the oil the purchaser was entitled to all of the expenses
following letter from the plaintiff:
incurred up to that time. As soon as the matter was closed the oil was placed in the hands of Zimmermann
Alderson Carr Company for sale and sale was effected two days later to Messrs. Proctor & Gamble Company on February 3, 1923.
the basis of 9 1/4 ¢ tank cars Cincinnati, which was approximately the equivalent of $.0894 Norfolk. The sale
Mr. GO JOCCO
was closed and the oil disposed of in this manner.
212-214 Rosario
The contract of sale to Proctor & Gamble Co. reads as follows:
Manila, P.I.
New York, March 19, 1923.
DEAR SIR: We have received a cable from the United States stating that the oil delivered to us by you contained
PHILIPPINE MANUFACTURING COMPANY kapok or cottonseed oil. The buyers in the United States are claiming damages. We will call upon you to stand
any loss or damage due to this cause. Official samples taken from tanks at your plant show the presence of kapok
Manila, P.I. — Sellers
or cottonseed oil as analyzed by the Bureau of Science.
THE PROCTOR & GAMBLE COMPANY
Very truly yours,
Cincinnati, Ohio — Buyers
PHILIPPINE MANUFACTURING COMPANY
GENTLEMEN: Confirming telephone conversation, we confirm having sold to-day to:
By (Sgd.) S.W. MASON
Purchaser: The Proctor & Gamble Company.
Secretary
For account of: Philippine Manufacturing Company.
After some more fruitless correspondence, the present action was brought on December 27, 1923, the plaintiff
Article; Two million twenty-nine thousand four hundred (2,029,400) lbs. Manila Cocoanut Oil, as per sample alleging the principal facts hereinbefore set forth and asking damages in the sum of P21,263.04, Philippine
submitted and approximately equal to Stillwell & Glading's analysis of February 3d, 1923. currency. The defendant answered with a general denial and set up as special defenses that under the provisions
of paragraph 1 of article 336 of the Code of Commerce, the plaintiff had no right of action having examined the
Price: All at a price of nine and one-quarter (91/4) cents per lb., cost and freight Cincinnati, Ohio.
oil at the time of its delivery; that conceding without admitting that the oil was defective in quality, the plaintiff
Shipment: Immediate from Norfolk, Va. had lost its right of action by failing to make its claim within thirty days immediately following the delivery; that
Weights: actual weight of oil in tank cars as shown by Public Weighmaster's certificates. the loss plaintiff alleged to have suffered was due to its own fault; that the coconut oil sold and delivered to the
plaintiff by the defendant was of the quality called for in the contract of sale; and that the oil having been
Terms and conditions: Net cash in exchange for bill of lading, payable in New York City funds in United States delivered to, tested, accepted and paid for by the plaintiff, the respective obligations of the parties were then and
Gold, or its equivalent in currency. Sellers not responsible for contingencies beyond their control. there terminated and extinguished.
Brokerage: To be paid by sellers. The trial of the case consumed considerable time and the case was not decided until March 15, 1925. In its
ZIMMERMANN ALDERSON CARR CO. decision absolving the defendant from the complaint and from which the plaintiff appeals, the Court of First
Instance, after a fairly exhaustive discussion of the evidence, found in substance that it had not been sufficiently
(Sgd.) R.N.BALL established that the oil purchased from the defendant was contaminated at the time of its delivery to the plaintiff;
This confirmation is made in triplicate, one copy being sent to the sellers, one to the buyers, and one retained on that upon the evidence there was reason to believe that certain samples analyzed by the Bureau of Science and
file in this office. Kindly sign one copy of this confirmation and return to us for exchange with other party to the found positive for kapok oil were not taken from the oil sold by the defendant and that such contamination as
trade for completion of their files. there may have been of the oil shipped to the Portsmouth Cotton Oil Refining Corporation, was likely to have
been caused through the impurity of the oil manufactured by the plaintiff itself, in view of the fact that said
Accepted: PHILIPPINE MFG. COMPANY plaintiff was partly engaged in the manufacture of kapok oil while the defendant neither dealt in nor
manufactured such oil. The court further found that the plaintiff, before closing its contract with the defendant,
examined the oil to its satisfaction and that therefore the first paragraph of article 336 of the Code of Commerce
(Sgd.) BRYCE LE JENNE was applicable to the case and the plaintiff's cause of action extinguished.
Sellers Agt. The findings of the court below are vigorously assailed by counsel for the appellant, but after a careful
Accepted: THE PROCTOR & GAMBLE CO. examination of the record, we are not prepared to say that the court erred in its appreciation of the evidence to
such an extent as to justify a reversal of its decision. In addition to direct evidence adduced by the defendant,
(Sgd.) F.M. BARNEY there are also several circumstances which, in our opinion, have not been very satisfactorily explained by the
Buyers plaintiff and which tend to support the conclusion of the trial court and to cast doubt on the correctness of the
plaintiff's contention that the oil bought from the defendant was contaminated by an admixture of kapok oil.

44
But assuming that such contamination existed, we would still be of the opinion that the plaintiff has established presume that the defendant intended to mislead the plaintiff to his prejudice. It is not disputed that at the time the
no cause of action. The comparatively small quantity of kapok oil alleged to have been mixed with the coconut sale was made, kapok oil commanded a higher price in the market than did coconut oil and the defendant may
oil can only be regarded as an impurity and did not change the essential character of the merchandise; this is well have been under the impression that a slight admixture of kapok oil did not substantially impair the general
sufficiently shown by the fact that it after analysis was sold by the plaintiff to Proctor & Gamble Co. as "Manila market value of the oil purchased. Indeed, there is nothing in the evidence to show that for ordinary purposes, the
Coconut Oil" and at the current New York price for that article. In contradistinction to the contract between the coconut oil suffered any material impairment in value from the mixture and it is to be observed that the defendant
plaintiff and the Portsmouth Cotton Oil Refining Corporation, the contract of sale between the plaintiff and the was not advised of the fact that the oil was sold to the Portsmouth Cotton Oil Refining Corporation under an
defendant contains no express warranty against impurities aside from the stipulation that not more than 5 per cent express warranty against impurities and possibly for a special purpose. That it was still of good merchantable
of free fatty acid would be allowed. This is, therefore, not an action on an express warranty. quality clearly appears from the fact that it was bought by Proctor & Gamble Co. at current market prices. And
when it is further considered that the plaintiff, before purchasing, was given full opportunity to examine the oil
In the absence of an examination of the oil by the plaintiff, the latter might have had a right of action on an
and actually did so, it seems obvious that the evidence is not sufficient to overcome the presumption of good faith
implied warranty under article 336 of the Code of Commerce, which in part reads as follows:
and to establish fraud on the part of the vendor. In commercial sales, the fact that the vendor does not volunteer
A purchaser who, at the time of receiving the merchandise, fully examines the same, shall not have a right of detailed statements of all he knows, whether important or not, in regard to the goods sold by him, is not fraud per
action against the vendor, alleging a defect in the quantity or quality of the merchandise. se.
As it appears that the plaintiff examined the oil to his satisfaction, it is evident that he cannot now rely on this The judgment appealed from is affirmed with the costs against the appellant. So ordered.
article for his cause of action.
Avanceña, C.J., Street, Malcolm, Villamor, Romualdez, and Villa-Real, JJ., concur.
The result will be the same if we regard impurity complained of as a latent defect which could not be discovered Johnson and Johns, JJ., took no part.
by an ordinary examination. The case would then come under article 342 of the Code of Commerce, but the right
of action mentioned in that article was extinguished by the failure of the plaintiff to present his claim within thirty
days from the delivery of the merchandise (Kelly Springfield Road Roller Co. vs. Sideco, 16 Phil., 345;
Government of the Philippine Islands vs. Inchausti & Co., 24 Phil., 315).
There being no express warranty and the plaintiff having lost its right of action on the implied warranties as to the
quality of the merchandise, it must now necessarily base its cause of action on fraud under article 344 of the Code
which reads as follows:
Commercial sales shall not be rescinded by reason of lesion; but the contracting party who acted with malice or
fraud, in the contract or in its fulfillment, shall indemnify for loss and damage, without prejudice to the criminal
action which may be proper.
The law on the subject of frauds with reference to sales is practically the same in this jurisdiction as in the United
States and we may, therefore, freely refer to American authorities in that connection. Anson, in his work on
Contracts, 7th edition, at page 165, defines fraud as "a false representation of fact, made with a a knowledge of its
falsehood, or recklessly, without belief in its truth, with the intention that it should be acted upon b the
complaining party, and actually inducing him to act upon it." Concealment of the truth is sometimes equivalent to
false representations, and it is here argued that the defendant in not disclosing the existence of kapok oil in the oil
sold to the plaintiff, was guilty of fraud. In regard to such concealments or nondisclosures, Mechem, citing
authorities, says:
The concealment which shall amount to a false representation is that only which may properly be designated as
active. Mere passive non-disclosure which, as been seen, may suffice to vitiate a contract uberrimae fidei, will
not be sufficient here; 'there must be an active attempt to deceive, either by a statement which is false or which is
true so far as tit goes, but is accompanied with such a suppression of facts as to convey a misleading impression.
"There must be some active misstatement of fact, or, at all events, such a partial and fragmentary statement of
fact as that the withholding of that which is not stated makes that which is stated absolutely false." . . . (Mechem
on Sales, section 868.)
As will be seen, an intention to deceive or mislea the other party to his prejudice is an essential element of the
fraud here considered. It is true that such an intention may sometimes be imputed upon the principle that the party
must be presumed to intend the necessary consequences of his own acts or conduct, and need not necessarily be
proven by direct evidence, but in the present case we search that record in vain for anything from which that
intention may be definitely inferred. We may, perhaps, surmise that had there been any mixing of other oils with
the coconut oil in question, the defendant would have been aware thereof, but there is nothing from which we can

45
EN BANC
[G.R. No. 34655. March 5, 1932.]
SIY CONG BIENG & CO., INC., Plaintiff-Appellee, v. HONGKONG & SHANGHAI BANKING
CORPORATION, Defendant-Appellant.
DeWitt, Perkins & Brady, for Appellant.
Feria & La O, for Appellee.
SYLLABUS
1. NEGOTIABLE WAREHOUSE RECEIPTS; ENDORSED IN BLANK. — Plaintiff sold certain quantity of
hemp to one by the name of Otto Ranft by quedans and sent the quedans, together with the covering invoice, to
Ranft, without having been paid for, but plaintiff’s understanding was that the payment would be made against
the quedans. Ranft on the same day turned over the quedans to the defendant bank to secure payment of his
preexisting debts. Ranft died on the evening of the day the quedans wee delivered to the bank. Plaintiff brought
this action to recover the quedans or their values. Held: Taking into consideration that the quedans were
negotiable in form and duly endorsed in blank by the plaintiff and by Otto Ranft, it follows that on delivery of the
quedans to the bank, they were no longer the property of the indorser unless he liquidated his debts with the bank.
2. ID.; ID.; AUTHORITY TO NEGOTIATE. — The bank had a perfect right to accept the quedans in security of
preexisting debts without investigation of the authority of the person negotiating them. (Section 47, 38 and 40 of
the Warehouse Receipts Act No. 2137.)
3. ID.; ID.; ESTOPPEL TO DENY VALID TITLE. — Since plaintiff had voluntarily clothed the person who
negotiated the quedans with all the attributes of ownership and upon which the bank relied, it is estopped to deny
that the bank had a valid title to the quedans.
DECISION
OSTRAND, J.:
This action was brought in the Court of First Instance of Manila to recover the sum of P31,645, the value of 464
bales of hemp deposited in certain bonded warehouses as evidenced by the quedans (warehouse receipts)
described in the complaint, said quedans having been delivered as pledge by one Otto Ranft to the herein
defendant, the Hong Kong and Shanghai Banking Corporation, for the graduate of a preexisting debt of the
former to the latter. The record shows that both parties, through their respective counsel, subscribed and
submitted to the court below the following agreement of facts:jgc:chanrobles.com.ph
"STIPULATIONS OF FACTS
(Translated into English)
"Come now the parties, both the plaintiff and the defendant Hongkong & Shanghai Banking Corporation, through
their respective counsel in the above entitled case, and respectfully submit to the court the following agreed
statement of facts:jgc:chanrobles.com.ph
"1. That both the plaintiff and the defendant Hongkong & Shanghai Banking Corporation are corporations
domiciled in the City of Manila and duly authorized to transact business in accordance with the laws of the
Philippine Islands.
"2. That the plaintiff is a corporation engaged in business generally, and that the defendant Hongkong &
Shanghai Banking Corporation is a foreign bank authorized to engage in the banking business in the Philippines.
"3. That on June 25, 1926, certain negotiable warehouse receipts described below were pledged by Otto Ranft to
the defendant Hongkong & Shanghai Banking Corporation to secure the payment of his preexisting debts to the
latter:
No. Warehouseman Depositor Bales
1707 Public Warehouse Co Siy Cong Bieng & Co., Inc. 27
133 W.F. Stevenson Co do 67
1722 Public Warehouse Co do 60
1723 do do 4
1634 The Philippine Warehouse
46
Company do 99
1918 Public Warehouse Co O. Ranft 166
2 Siy Cong Bieng & Co., Inc do 2
1702 The Philippine Warehouse
Company Siy Cong Bieng & Co., Inc. 39
And that the baled hemp covered by these warehouse receipts was worth P31,635; receipts numbers 1707, 133,
1722, 1723, 1634, and 1702 being endorsed in blank by the plaintiff and Otto Ranft, and numbers 1918 and 2, by
Otto Ranft alone.
"4. That in the night of June 25, 1926, said Otto Ranft died suddenly at his home in the City of Manila.
"5. That both parties submit this agreed statement of facts, but reserve their right to have in evidence upon other
points not included herein, and upon which they cannot come to an agreement.
"Manila, August 7, 1929."cralaw virtua1aw library
The evidence shows that on June 25, 1926, Ranft called at the office of the herein plaintiff to purchase hemp
(abaca), and he was offered the bales of hemp as described in the quedans above mentioned. The parties agreed to
the aforesaid price, and on the same date the quedans, together with the covering invoice, were sent to Ranft by
the plaintiff, without having been paid for the hemp, but the plaintiff’s understanding was that the payment would
be made against the same quedans, and it appears that in previous transactions of the same kind between the bank
and the plaintiff, quedans were paid one or two days after their delivery to them.
In the evening of the day upon which the quedans in question were delivered to the herein defendant, Ranft died,
and when the plaintiff found that such was the case, it immediately demanded the return of the quedans, or the
payment of the value, but was told that the quedans had been sent to the herein defendant as soon as they were
received by Ranft.
Shortly thereafter the plaintiff filed a claim for the aforesaid sum of P31,645 in the intestate proceedings of the
estate of the deceased Otto Ranft, which on an appeal from the decision of the committee on claims, was allowed
by the Court of First Instance in case No. 31372 (City of Manila). In the meantime, demand had been made by
the plaintiff on the defendant bank for the return of the quedans, or their value, which demand was refused by the
bank on the ground that it was a holder of the quedans in due course. Thereupon the plaintiff filed its first
complaint against the defendant, wherein it alleged that it had "sold" the quedans in question to the deceased O.
Ranft for cash, but that the said O. Ranft had not fulfilled the conditions of the sale. Lateron, plaintiff filed an
amended complaint, wherein they changed the word "sold" referred to in the first complaint to the words
"attempted to sell."
Upon trial the judge of the court below rendered judgment in favor of the plaintiff principally on the ground that
in the opinion of the court the defendant bank "could not have acted in good faith for the reason that according to
the statement of its own witness, Thiele, the quedans were delivered to the bank in order to secure the debts of
Ranft for the payment of their value and from which it might be deduced that the said bank knew that the value of
the said quedans was not as yet paid when the same were endorsed to it, and its alleged belief that Ranft was the
owner of the said quedans was not in accordance with the facts proved at the time" ; and that, moreover, the
circumstances were such that "the bank knew, or should have known, that Ranft had not yet acquired the
ownership of the said, quedans and that it therefore could not invoke the presumption that it was acting in good
faith and without negligence on its part."
In our opinion the judgment of the court below is not tenable. It may be noted, first, that the quedans in question
were negotiable in form; second, that they were pledged by Otto Ranft to the defendant bank to secure the
payment of his preexisting debts to said bank (paragraph 3 of the Stipulation of Facts); third, that such of the
quedans as were issued in the name of the plaintiff were duly endorsed in blank by the plaintiff and by Otto
Ranft; and fourth, that the two remaining quedans which were issued directly in the name of Otto Ranft were also
duly endorsed in blank by him.
When these quedans were thus negotiated, Otto Ranft was indebted to the Hongkong & Shanghai Banking
Corporation in the sum of P622,753.22, which indebtedness was partly covered by quedans. He was also being
pressed to deposit additional payments as a further security to the bank, and there is no doubt that the quedans
here in question were received by the bank to secure the payment of Ranft’s preexisting debts; it is so stated in
paragraph 3 of the stipulation of facts agreed on by the parties and hereinbefore quoted.
It further appears that it has been the practice of the bank in its transactions with Ranft that the value of the
quedans has been entered in the current accounts between Ranft and the bank, but there is no evidence to the
effect that the bank was at any time bound to pay back to Ranft the amount of any of the quedans, and there is
nothing in the record to show that the bank has promised to pay the value of the quedans neither to Ranft nor to
the herein plaintiffs; on the contrary, as stated in the stipulation of facts, the "negotiable warehouse receipts —
were pledged by Otto Ranft to the defendant Hongkong & Shanghai Banking Corporation to secure the payment
of his preexisting debts to the latter", and taking into consideration that the quedans were negotiable in form and
duly endorsed in blank by the plaintiff and by Otto Ranft, it follows that on the delivery of the quedans to the
bank they were no longer the property of the indorser unless he liquidated his debt with the bank.
In his brief the plaintiff insists that the defendant, before the delivery of the quedans, should have ascertained
whether Ranft had any authority to negotiate the quedans.
We are unable to find anything in the record which in any manner would have compelled the bank to investigate
the indorser. The bank had a perfect right to act as it did, and its action is in accordance with sections 47, 38, and
40 of the Warehouse Receipts Act (Act No. 2137), which read as follows:jgc:chanrobles.com.ph
47
"SEC. 47. When negotiation not impaired by fraud, mistake, or duress. — The validity of the negotiation of a
receipt is not impaired by the fact that such negotiation was a breach of duty on the part of the person making the
negotiation, or by the fact that the owner of the receipt was induced by fraud, mistake, or duress to intrust the
possession or custody of the receipt to such person, if the person to whom the receipt was negotiated, or a person
to whom the receipt was subsequently negotiated, paid value therefor, without notice of the breach of duty, or
fraud, mistake, or duress."cralaw virtua1aw library
"SEC. 38. Negotiation of negotiable receipts by indorsement. — A negotiable receipt may be negotiated by the
indorsement of the person to whose order the goods are, by the terms of the receipt, deliverable. Such
indorsement may be in blank, to bearer or to a specified person. . . Subsequent negotiation may be made in like
manner."cralaw virtua1aw library
"SEC. 40. Who may negotiate a receipt. — A negotiable receipt may be negotiated:jgc:chanrobles.com.ph
"(a) By the owner thereof, or
"(b) By any person to whom the possession or custody of the receipt has been entrusted by the owner, if, by the
terms of the receipt, the warehouseman undertakes to deliver the goods to the order of the person to whom the
possession or custody of the receipt has been entrusted, or if at the time of such entrusting the receipt is in such
form that it may be negotiated by delivery."cralaw virtua1aw library
The question as to the rights the defendant bank acquired over the aforesaid quedans after indorsement and
delivery to it by Ranft, we find in section 41 of the Warehouse Receipts Act (Act No.
2137):jgc:chanrobles.com.ph
"SEC. 41. Rights of person to whom a receipt has been negotiated. — A person to whom a negotiable receipt has
been duly negotiated acquires thereby:jgc:chanrobles.com.ph
"(a) Such title to the goods as the person negotiating the receipt to him had or had ability to convey to a purchaser
in good faith for value, and also such title to the goods as the depositor of person to whose order the goods were
to be delivered by the terms of the receipt had or had ability to convey to a purchaser in good faith for value, and .
. ."cralaw virtua1aw library
In the case of the Commercial National Bank of New Orleans v. Canal-Louisiana Bank & Trust Co. (239 U. S.,
520), Chief Justice Hughes said in regard to negotiation of receipts:jgc:chanrobles.com.ph
"It will be observed that ’one who takes by trespass or a finder is not included within the description of those who
may negotiate.’ (Report of Commissioner on Uniform State Laws, January 1, 1910, p. 204.) Aside from this, the
intention is plain to facilitate the use of warehouse receipts as documents of title. Under sec. 40, the person who
may negotiate the receipt is either the ’owner thereof’, or a ’person to whom the possession’ or custody of the
receipt has been intrusted by the owner’ if the receipt is in the form described. The warehouse receipt represents
the goods, but the intrusting of the receipt, as stated, is more than the mere delivery of the goods; it is a
representation that the one to whom the possession of the receipt has been so intrusted has the title to the goods.
By sec. 47, the negotiation of the receipt to a purchaser for value without notice is not impaired by the fact that it
is a breach of duty, or that the owner of the receipt was induced ’by fraud, mistake, or duress’ to intrust the
receipt to the person who negotiated it. And, under sec. 41, one to whom the negotiable receipt has been duly
negotiated acquires such title to the goods as the person negotiating the receipt to him, or the depositor or person
to whose order the goods were deliverable by the terms of the receipt, either had or ’had ability to convey to a
purchaser in good faith for value.’ The clear import of these provisions is that if the owner of the goods permits
another to have the possession or custody of negotiable warehouse receipts running to the order of the latter, or to
bearer, it is a representation of title upon which bona fide purchasers for value are entitled to rely, despite
breaches of trust or violations of agreement on the part of the apparent owner."cralaw virtua1aw library
In its second assignment of error, the defendant-appellant maintains that the plaintiff-appellee is estopped to deny
that the bank had a valid title to the quedans for the reason that the plaintiff had voluntarily clothed Ranft with all
the attributes of ownership and upon which the defendant bank relied. In our opinion, the appellant’s view is
correct. In the National Safe Deposit v. Hibbs (229 U. S., 391), certain certificates of stock were pledged as
collateral by the defendant in error to the plaintiff bank, which certificates were converted by one of the trusted
employees of the bank to his own use and sold by him. The stock certificates were unqualifiedly endorsed in
blank by the defendant when delivered to the bank. The Supreme Court of the United States through Justice Day
applied the familiar rule of equitable estoppel that where one of two innocent persons must suffer a loss he who
by his conduct made the loss possible must bear it, using the following language:jgc:chanrobles.com.ph
"We think this case correctly states the principle, and, applied to the case in hand, is decisive of it. Here one of
two innocent persons must suffer and the question at last is, Where shall the loss fall? It is undeniable that the
broker obtained the stock certificates, containing all the indicia of ownership and possible of ready transfer, from
one who had possession with the bank’s consent, and who brought the certificates to him, apparently clothed with
the full ownership thereof by all the tests usually applied by business men to gain knowledge upon the subject
before making a purchase of such property. On the other hand, the bank, for a legitimate purpose, with
confidence in one of its own employees, instrusted the certificates to him, with every evidence of title and
transferability upon them. The bank’s trusted agent, in gross breach of his duty, whether with technical
criminality or not is unimportant, took such certificates, thus authenticated with evidence of title, to one who, in
the ordinary course of business, sold them to parties who paid full value for them. In such case we think the
principles which underlie equitable estoppel place the loss upon him whose misplaced confidence has made the
wrong possible. . . ."cralaw virtua1aw library
We regret that the plaintiff in this case has suffered the loss of the quedans, but as far as we can see, there is now
no remedy available to the plaintiff. The bank is not responsible for the loss; the negotiable quedans wee duly
negotiated to the bank and as far as the record shows, there has been no fraud on the part of the defendant.
The appealed judgment is reversed and the appellant is absolved from the plaintiff’s complaint. Without costs. So
ordered.
Johnson, Street, Malcolm, Villamor, Villa-Real and Imperial, JJ., concur.
Separate Opinions
48
ROMUALDEZ, J., dissenting:chanrob1es virtual 1aw library

With due respect for the majority opinion, I dissent and vote for the confirmation of the appealed judgment.

49
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-16480 January 31, 1962
ARTEMIO KATIGBAK, petitioner,
vs.
COURT OF APPEALS, DANIEL EVANGELISTA and V. K. LUNDBERG, respondents.
Benjamin J. Molina for petitioner.
Jesus B. Santos for respondent V. K. Lundberg.
Ledesma, Puno, Guytingco, Antonio and Associates for respondent Daniel Evangelista.
PAREDES, J.:
This case arose from an agreed purchase and sale of a Double Drum Carco Tractor Winch. Artemio Katigbak
upon reading an advertisement for the sale of the winch placed by V. K. Lundberg, owner and operator of the
International Tractor and Equipment Co., Ltd., went to see Lundberg and inspected the equipment. The price
quoted was P12,000.00. Desiring a reduction of the price, Katigbak was referred to Daniel Evangelista, the
owner. After the meeting, it was agreed that Katigbak was to purchase the winch for P12,000.00, payable at
P5,000.00 upon delivery and the balance of P7,000.00 within 60 days. The condition of the sale was that the
winch would be delivered in good condition. Katigbak was apprised that the winch needed some repairs, which
could be done in the shop of Lundberg. It was then stipulated that the amount necessary for the repairs will be
advanced by Katigbak but deductible from the initial payment of P5,000.00. The repairs were undertaken and the
total of P2,029.85 for spare parts was advanced by Katigbak for the purpose. For one reason or another, the sale
was not consummated and Katigbak sued Evangelista, Lundberg and the latter's company, for the refund of such
amount.
Lundberg and Evangelista filed separate Answers to the complaint, the former alleging non-liability for the
amount since the same (obligation for refund) was purely a personal account between defendant Evangelista and
plaintiff Katigbak. Lundberg asked P500.00 by way of actual and compensatory damages and P5,000.00 as moral
damages, claiming that the filing of the suit was malicious; that there is a misjoinder because he is a stranger in
the case, not being a party to the agreement between Evangelista and Katigbak.
Evangelista, on his part, claimed that while there was an agreement between him and Katigbak for the purchase
and sale of the winch and that Katigbak advanced the payment for the spare parts, he (Katigbak) refused to
comply with his contract to purchase the same; that as a result of such refusal he (Evangelista) was forced to sell
the same to a third person for only P10,000.00, thus incurring a loss of P2,000.00, which amount Katigbak should
be ordered to pay, plus moral damages of P5,000.00 and P700.00 for attorney's fees.
The lower court rendered judgment, the dispositive portion of which reads - .
WHEREFORE, judgment is hereby rendered ordering the defendants Daniel Evangelista and V. K. Lundberg to
pay plaintiff the sum of P2,029.85, with legal interest thereon from the filing of the complaint until fully paid,
plus the sum of P300.00 as attorney's fees, and the costs." .
The Court of Appeals, on September 5, 1959, reversed the judgment in the following manner: —
Notwithstanding the breach of contract committed by him, we may concede appellee's right to a refund of the
sum of P2,029.85, but equally undeniable is appellant Evangelista's right to recover from him his loss of
P2,000.00, which is the difference between the contract price for the sale of the winch between him and appellee
and the actual price for which it was sold after the latter had refused to carry out his agreement. As held in the
above-cited case of Hanlon, if the purchaser fails to take delivery and pay the purchase price of the subject matter
of the contract, the vendor, without the need of first rescinding the contract judicially, is entitled to resell the
same, and if he is obliged to sell it for less than the contract price, the buyer is liable for the difference. This loss,
which is the subject matter of Evangelista's main counterclaim, should therefore be set off against the sum
claimed by appellee, which would leave in favor of the latter a balance of P29.85.
Considering our finding that it was appellee who committed a breach of contract, it follows that the present action
was unjustified and he must be held liable to appellant Evangelista for attorney's fees in the sum of P700.00.
Lastly, inasmuch as, according to the evidence appellant Lundberg was merely an agent of his co-appellant, it is
obvious that he cannot be held liable to appellee in connection with the refund of the sum advanced by the
latter.1äwphï1.ñët
WHEREFORE, the appealed judgment is hereby modified by dismissing the complaint as to V. K. Lundberg; by
reducing the judgment in favor of appellee to the sum of P29.85, and by sentencing him, in turn, to pay appellant
Evangelista the sum of P700.00 as attorney's fees".
Plaintiff-appellee Katigbak brought the matter to this Court on appeal by certiorari. In his petition he claims that
the Court of Appeals erroneously applied the doctrine enunciated in the Hanlon v. Hausserman case (40 Phil.
796, 815-816), and failed to apply the law relative to rescission of contracts. Other issues raised are strictly
factual and will only be mentioned here for reference.
We quote from the Hanlon case:
.... In the present case the contract between Hanlon and the mining company was executory as to both parties, and
the obligation of the company to deliver the shares could not arise until Hanlon should pay or tender payment of
the money. The situation is similar to that which arises every day in business transactions in which the purchaser
of goods upon an executory contract fails to take delivery and pay the purchase price. The vendor in such case is
entitled to resell the goods. If he is obliged to sell for less than the contract price, he holds the buyer for the
difference; if he sells for as much as or more than the contract price, the breach of contract by the original buyer
is damnum absque injuria. But it has never been held that there is any need of an action of rescission to authorize
the vendor, who is still in possession, to dispose of the property where the buyer fails to pay the price and take
delivery... (40 Phil. 815) .
The facts of the case under consideration are identical to those of the Hanlon case. The herein petitioner failed to
take delivery of the winch, subject matter of the contract and such failure or breach was, according to the Court of
Appeals, attributable to him, a fact which We are bound to accept under existing jurisprudence. The right to resell
the equipment, therefore, cannot be disputed. It was also found by the Court of Appeals that in the subsequent
sale of the winch to a third party, the vendor thereof lost P2,000.00, the sale having been only for P10,000.00,
instead of P12,000.00 as agreed upon, said difference to be borne by the supposed vendee who failed to take
delivery and/or to pay the price.
Of course, petitioner tried to draw a distinction between the Hanlon case and his case. The slight differences in
the facts noted by petitioner are not, however, to our mode of thinking, sufficient to take away the case at bar
from the application of the doctrine enunciated in the Hanlon case.
WHEREFORE, the petition is dismissed, and the decision appealed from is affirmed in all respects, with cost
against petitioner.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera and De Leon, JJ., concur.
Padilla and Dizon, JJ., took no part.
50