G.R. No.

L-45295 April 10, 1939

RUFO ARCENAS, Plaintiff-Appellant, vs. INOCENCIO DEL ROSARIO, ET AL., defendants.

INOCENCIO DEL ROSARIO, cross-plaintiff-appellant,
ESPERANZA CORDOVA and MATIAS SEVERINO, cross-defendants-appellees.

FACTS:

Arcenas filed a complaint against the defendants, alleging that defendant del Rosario sold the property to the plaintiff with a right of repurchase and
by virtue of said sale, the plaintiff took possession of the land on the date of the deed of sale. Defendant del Rosario did not exercise his right of
repurchase within the stipulated five-year period. The plaintiff asked the registrar of deeds to issue to him the transfer certificate of title to said lot,
presenting the deed of sale and an affidavit to the effect that the defendant had not availed himself of his right of repurchase. The ROD refused to
issue the transfer certificate of title.

The complaint concludes with the plaintiff's prayer that he be declared the owner of the aforesaid lot and that the deed of sale executed by the
defendant in favor of the spouses Esperanza Cordova and Matias Severino be declared null and void with other pronouncements in favor of the
plaintiff. The defendants Esperanza Cordova and Matias Severino interposed a demurrer to the complaint on the ground that the facts alleged therein
do not constitute a cause of action because the sale executed by del Rosario in favor of said defendant Esperanza Cordova was duly registered, a
certificate of title having been issued her name, whereas, the deed of sale in favor of the plaintiff Rufo Arcenas has been never been registered in the
registry of deeds.

ISSUE: WON the registration of sale by the cross-complaint defendants in their favor was valid

RULING:

NO. While it is true that when real property is the subject matter of a double sale, the purchaser who first registers it in the registry becomes
the owner thereof under the provision of article 1473 of the Civil Code, this local provision should not be understood in an absolute sense, because
the rights conferred by said article upon one of the two purchasers of the same real property who has registered his title in the registry of deeds, do
not come into being if the registration is not made in good faith. And it is not only required that the purchaser of the real property who has it
registered should have done so in good faith, but also for a valuable consideration.

In the instant case, the defendants Cordova and Severino were not purchasers in good faith, inasmuch as they knew that the lot in question
had been sold by the defendant del Rosario to the plaintiff with the right of repurchase and the said spouses undertook to repurchase and the land by
paying the plaintiff and the defendant del Rosario. however, according to the allegations of the said complaint, said spouses did not pay to the
plaintiff the amount of P700, or that of P1,300 to the defendant del Rosario, and in bad faith registered their deed in the registry of deeds.

[G.R. No. 115158. September 5, 1997]

EMILIA M. URACA, CONCORDIA D. CHING and ONG SENG, represented by ENEDINO H. FERRER, Petitioners, v. COURT OF
APPEALS, JACINTO VELEZ, JR., CARMEN VELEZ TING, AVENUE MERCHANDISING, INC., FELIX TING AND ALFREDO
GO, Respondents.

DECISION

PANGANIBAN, J.:

Novation is never presumed; it must be sufficiently established that a valid new agreement or obligation has extinguished or changed an existing one.
The registration of a later sale must be done in good faith to entitle the registrant to priority in ownership over the vendee in an earlier sale.

Statement of the Case

These doctrines are stressed by this Court as it resolves the instant petition challenging the December 28, 1993 Decision1 of Respondent Court of
Appeals2 in CA-G.R. SP No. 33307, which reversed and set aside the judgment of the Regional Trial Court of Cebu City, Branch 19, and entered a
new one dismissing the petitioners complaint. The dispositive portion of the RTC decision reads:3chanroblesvirtuallawlibrary

WHEREFORE, judgment is hereby rendered:

1) declaring as null and void the three (3) deeds of sale executed by the Velezes to Felix C. Ting, Manuel Ting and Alfredo Go;

1
2) ordering Carmen Velez Ting and Jacinto M. Velez, Jr. to execute a deed of absolute sale in favor of Concordia D. Ching and Emilia M. Uraca for
the properties in question for P1,400,000.00, which sum must be delivered by the plaintiffs to the Velezes immediately after the execution of said
contract;

3) ordering Carmen Velez Ting and Jacinto M. Velez, Jr. to reimburse Felix C. Ting, Manuel C. Ting and Alfredo Go whatever amount the latter had
paid to the former;

4) ordering Felix C. Ting, Manuel C. Ting and Alfredo Go to deliver the properties in question to the plaintiffs within fifteen (15) days from receipt
of a copy of this decision;

5) ordering all the defendants to pay, jointly and severally, the plaintiffs the sum of P20,000.00 as attorneys fees.

SO ORDERED.

The Antecedent Facts

The facts narrated by the Court of Appeals are as follows:4chanroblesvirtuallawlibrary

The Velezes (herein private respondents) were the owners of the lot and commercial building in question located at Progreso and M.C. Briones
Streets in Cebu City.

Herein (petitioners) were the lessees of said commercial building.5chanroblesvirtuallawlibrary

On July 8, 1985, the Velezes through Carmen Velez Ting wrote a letter to herein (petitioners) offering to sell the subject property for P1,050,000.00
and at the same time requesting (herein petitioners) to reply in three days.

On July 10, 1985, (herein petitioners) through Atty. Escolastico Daitol sent a reply-letter to the Velezes accepting the aforesaid offer to sell.

On July 11, 1985, (herein petitioner) Emilia Uraca went to see Carmen Ting about the offer to sell but she was told by the latter that the price
was P1,400,000.00 in cash or managers check and not P1,050,000.00 as erroneously stated in their letter-offer after some haggling. Emilia Uraca
agreed to the price of P1,400,000.00 but counter-proposed that payment be paid in installments with a down payment of P1,000,000.00 and the
balance of P400,000 to be paid in 30 days. Carmen Velez Ting did not accept the said counter-offer of Emilia Uraca although this fact is disputed by
Uraca.

No payment was made by (herein petitioners) to the Velezes on July 12, 1985 and July 13, 1985.

On July 13, 1985, the Velezes sold the subject lot and commercial building to the Avenue Group (Private Respondent Avenue Merchandising Inc.)
for P1,050,000.00 net of taxes, registration fees, and expenses of the sale.

At the time the Avenue Group purchased the subject property on July 13, 1985 from the Velezes, the certificate of title of the said property was clean
and free of any annotation of adverse claims or lis pendens.

On July 31, 1985 as aforestated, herein (petitioners) filed the instant complaint against the Velezes.

On August 1, 1985, (herein petitioners) registered a notice of lis pendens over the property in question with the Office of the Register of
Deeds.6chanroblesvirtuallawlibrary

On October 30, 1985, the Avenue Group filed an ejectment case against (herein petitioners) ordering the latter to vacate the commercial building
standing on the lot in question.

Thereafter, herein (petitioners) filed an amended complaint impleading the Avenue Group as new defendants (after about 4 years after the filing of
the original complaint).

The trial court found two perfected contracts of sale between the Velezes and the petitioners, involving the real property in question. The first sale
was for P1,050,000.00 and the second was for P1,400,000.00. In respect to the first sale, the trial court held that [d]ue to the unqualified acceptance
by the plaintiffs within the period set by the Velezes, there consequently came about a meeting of the minds of the parties not only as to the object
certain but also as to the definite consideration or cause of the contract.7 And even assuming arguendo that the second sale was not perfected, the trial
court ruled that the same still constituted a mere modificatory novation which did not extinguish the first sale. Hence, the trial court held that the
Velezes were not free to sell the properties to the Avenue Group.8 It also found that the Avenue Group purchased the property in bad
faith.9chanroblesvirtuallawlibrary

2
Private respondents appealed to the Court of Appeals. As noted earlier, the CA found the appeal meritorious. Like the trial court, the public
respondent held that there was a perfected contract of sale of the property for P1,050,000.00 between the Velezes and herein petitioners. It added,
however, that such perfected contract of sale was subsequently novated. Thus, it ruled: Evidence shows that that was the original contract. However,
the same was mutually withdrawn, cancelled and rescinded by novation, and was therefore abandoned by the parties when Carmen Velez Ting raised
the consideration of the contract [by] P350,000.00, thus making the price P1,400,000.00 instead of the original price of P1,050,000.00. Since there
was no agreement as to the second price offered, there was likewise no meeting of minds between the parties, hence, no contract of sale was
perfected.10 The Court of Appeals added that, assuming there was agreement as to the price and a second contract was perfected, the later contract
would be unenforceable under the Statute of Frauds. It further held that such second agreement, if there was one, constituted a mere promise to sell
which was not binding for lack of acceptance or a separate consideration.11chanroblesvirtuallawlibrary

The Issues

Petitioners allege the following errors in the Decision of Respondent Court:

Since it ruled in its decision that there was no meeting of the minds on the second price offered (P1,400,000.00), hence no contract of sale was
perfected, the Court of Appeals erred in not holding that the original written contract to buy and sell for P1,050,000.00 the Velezes property
continued to be valid and enforceable pursuant to Art. 1279 in relation with Art. 1479, first paragraph, and Art. 1403, subparagraph 2 (e) of the Civil
Code.

II

The Court of Appeals erred in not ruling that petitioners have better rights to buy and own the Velezes property for registering their notice of lis
pendens ahead of the Avenue Groups registration of their deeds of sale taking into account Art. 1544, 2nd paragraph, of the Civil
Code.12chanroblesvirtuallawlibrary

The Courts Ruling

The petition is meritorious.

First Issue: No Extinctive Novation

The lynchpin of the assailed Decision is the public respondents conclusion that the sale of the real property in controversy, by the Velezes to
petitioners for P1,050,000.00, was extinguished by novation after the said parties negotiated to increase the price to P1,400,000.00. Since there was
no agreement on the sale at the increased price, then there was no perfected contract to enforce. We disagree.

The Court notes that the petitioners accepted in writing and without qualification the Velezes written offer to sell at P1,050,000.00 within the three-
day period stipulated therein. Hence, from the moment of acceptance on July 10, 1985, a contract of sale was perfected since undisputedly the
contractual elements of consent, object certain and cause concurred.13 Thus, this question is posed for our resolution: Was there a novation of this
perfected contract?

Article 1600 of the Civil Code provides that (s)ales are extinguished by the same causes as all other obligations, x x x. Article 1231 of the same Code
states that novation is one of the ways to wipe out an obligation. Extinctive novation requires: (1) the existence of a previous valid obligation; (2) the
agreement of all the parties to the new contract; (3) the extinguishment of the old obligation or contract; and (4) the validity of the new one.14 The
foregoing clearly show that novation is effected only when a new contract has extinguished an earlier contract between the same parties. In this light,
novation is never presumed; it must be proven as a fact either by express stipulation of the parties or by implication derived from an irreconcilable
incompatibility between old and new obligations or contracts.15 After a thorough review of the records, we find this element lacking in the case at bar.

As aptly found by the Court of Appeals, the petitioners and the Velezes did not reach an agreement on the new price of P1,400,000.00 demanded by
the latter. In this case, the petitioners and the Velezes clearly did not perfect a new contract because the essential requisite of consent was absent, the
parties having failed to agree on the terms of the payment. True, petitioners made a qualified acceptance of this offer by proposing that the payment
of this higher sale price be made by installment, with P1,000,000.00 as down payment and the balance of P400,000.00 payable thirty days thereafter.
Under Article 1319 of the Civil Code,16 such qualified acceptance constitutes a counter-offer and has the ineludible effect of rejecting the Velezes
offer.17 Indeed, petitioners counter-offer was not accepted by the Velezes. It is well-settled that (a)n offer must be clear and definite, while an
acceptance must be unconditional and unbounded, in order that their concurrence can give rise to a perfected contract.18 In line with this basic
postulate of contract law, a definite agreement on the manner of payment of the price is an essential element in the formation of a binding and
enforceable contract of sale.19 Since the parties failed to enter into a new contract that could have extinguished their previously perfected contract of
sale, there can be no novation of the latter. Consequently, the first sale of the property in controversy, by the Velezes to petitioners for P1,050,000.00,
remained valid and existing.

In view of the validity and subsistence of their original contract of sale as previously discussed, it is unnecessary to discuss public respondents theses
that the second agreement is unenforceable under the Statute of Frauds and that the agreement constitutes a mere promise to sell.
3
 Second Issue: Double Sale of an Immovable

The foregoing holding would have been simple and straightforward. But Respondent Velezes complicated the matter by selling the same property to
the other private respondents who were referred to in the assailed Decision as the Avenue Group.

Before us therefore is a classic case of a double sale -- first, to the petitioner; second, to the Avenue Group. Thus, the Court is now called upon to
determine which of the two groups of buyers has a better right to said property.

Article 1544 of the Civil Code provides the statutory solution:

xxx xxx xxx

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.

Under the foregoing, the prior registration of the disputed property by the second buyer does not by itself confer ownership or a better right over the
property. Article 1544 requires that such registration must be coupled with good faith. Jurisprudence teaches us that (t)he governing principle
is primus tempore, potior jure (first in time, stronger in right). Knowledge gained by the first buyer of the second sale cannot defeat the first buyers
rights except where the second buyer registers in good faith the second sale ahead of the first, as provided by the Civil Code. Such knowledge of the
first buyer does not bar her from availing of her rights under the law, among them, to register first her purchase as against the second buyer. But in
converso knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register the second sale, since such knowledge
taints his prior registration with bad faith This is the price exacted by Article 1544 of the Civil Code for the second buyer being able to displace the
first buyer; that before the second buyer can obtain priority over the first, he must show that he acted in good faith throughout (i.e. in ignorance of
the first sale and of the first buyers rights) ---- from the time of acquisition until the title is transferred to him by registration or failing registration,
by delivery of possession.20 (Emphasis supplied)

After a thorough scrutiny of the records of the instant case, the Court finds that bad faith tainted the Avenue Groups purchase on July 13, 1985 of the
Velezes real property subject of this case, and the subsequent registration thereof on August 1, 1995. The Avenue Group had actual knowledge of the
Velezes prior sale of the same property to the petitioners, a fact antithetical to good faith. For a second buyer like the Avenue Group to successfully
invoke the second paragraph, Article 1544 of the Civil Code, it must possess good faith from the time of the sale in its favor until the registration of
the same. This requirement of good faith the Avenue Group sorely failed to meet. That it had knowledge of the prior sale, a fact undisputed by the
Court of Appeals, is explained by the trial court thus:

The Avenue Group, whose store is close to the properties in question, had known the plaintiffs to be the lessee-occupants thereof for quite a time.
Felix Ting admitted to have a talk with Ong Seng in 1983 or 1984 about the properties. In the cross-examination, Manuel Ting also admitted that
about a month after Ester Borromeo allegedly offered the sale of the properties Felix Ting went to see Ong Seng again. If these were so, it can be
safely assumed that Ong Seng had consequently told Felix about plaintiffs offer on January 11, 1985 to buy the properties for P1,000,000.00 and of
their timely acceptance on July 10, 1985 to buy the same at P1,050,000.00.

The two aforesaid admissions by the Tings, considered together with Uracas positive assertion that Felix Ting met with her on July 11th and who was
told by her that the plaintiffs had transmitted already to the Velezes their decision to buy the properties at P1,050,000.00, clinches the proof that the
Avenue Group had prior knowledge of plaintiffs interest. Hence, the Avenue Group defendants, earlier forewarned of the plaintiffs prior contract
with the Velezes, were guilty of bad faith when they proceeded to buy the properties to the prejudice of the plaintiffs.21chanroblesvirtuallawlibrary

The testimony of Petitioner Emilia Uraca supports this finding of the trial court. The salient portions of her testimony follow:

BY ATTY. BORROMEO: (To witness)

Q According to Manuel Ting in his testimony, even if they know, referring to the Avenue Group, that you were tenants of the property in question
and they were neighbors to you, he did not inquire from you whether you were interested in buying the property, what can you say about that?

A It was Felix Ting who approached me and asked whether I will buy the property, both the house and the land and that was on July 10, 1985.

ATTY BORROMEO: (To witness)

Q What was your reply, if any?

A Yes, sir, I said we are going to buy this property because we have stayed for a long time there already and we have a letter from Carmen Ting
asking us whether we are going to buy the property and we have already given our answer that we are willing to buy.

4
COURT: (To witness)

Q What do you mean by that, you mean you told Felix Ting and you showed him that letter of Carmen Ting?

WITNESS:

A We have a letter of Carmen Ting where she offered to us for sale the house and lot and I told him that I have already agreed with Concordia Ching,
Ong Seng and my self that we buy the land. We want to buy the land and the building.22chanroblesvirtuallawlibrary

We see no reason to disturb the factual finding of the trial court that the Avenue Group, prior to the registration of the property in the Registry of
Property, already knew of the first sale to petitioners. It is hornbook doctrine that findings of facts of the trial court, particularly when affirmed by the
Court of Appeals, are binding upon this Court23 save for exceptional circumstances24 which we do not find in the factual milieu of the present case.
True, this doctrine does not apply where there is a variance in the factual findings of the trial court and the Court of Appeals. In the present case, the
Court of Appeals did not explicitly sustain this particular holding of the trial court, but neither did it controvert the same. Therefore, because the
registration by the Avenue Group was in bad faith, it amounted to no inscription at all. Hence, the third and not the second paragraph of Article 1544
should be applied to this case. Under this provision, petitioners are entitled to the ownership of the property because they were first in actual
possession, having been the propertys lessees and possessors for decades prior to the sale.

Having already ruled that petitioners actual knowledge of the first sale tainted their registration, we find no more reason to pass upon the issue of
whether the annotation of lis pendens automatically negated good faith in such registration.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is hereby SET ASIDE and the dispositive portion of the
trial courts decision dated October 19, 1990 is REVIVED with the following MODIFICATION -- the consideration to be paid under par. 2 of the
disposition is P1,050,000.00 and not P1,400,000.00. No Costs.

SO ORDERED.

Narvasa, C.J., (Chairman), and Melo, JJ., concur.

Davide Jr., J., (in the results).

[G.R. No. 4385. August 31, 1908. ]

WALTER E. OLSEN, Plaintiff-Appellant, v. BERT YEARSLEY, Defendant-Appellee.

Lionel D. Hargis for Appellant.

J. Courtney Hixson for Appellee.

SYLLABUS

1. SALE BY ONE NOT THE TRUE OWNER; INNOCENT PURCHASED FOR VALUE. — A cash register was sold for a fixed price and the
vendee made a part payment thereon, but it was orally agreed that title should not pass until final payment was made. Subsequently the purchaser
sold out his business, and, upon his certificate that the register still belonged to the original vendor, the latter sold it to the plaintiff, but the machine
was still allowed to remain in the hands of the vendee of the original purchaser. Thereafter the person who bought out the place of business resold the
register to another person, into whose possession the same passed, and who in turn transferred it to the defendant. The latter was a purchaser in good
faith, but as he acquired the register from one who was not the owner, and who had knowledge of the true ownership: Held, That the plaintiff is
unconditionally entitled to the possession of the machine.

DECISION

TRACEY, J. :

This is an appeal from a judgment of the Court of First Instance of the city of Manila, awarding to the plaintiff the possession of a National Cash
Register or payment of its value, P300, but providing further that the defendant might retain the register upon the payment of P195 and become its
owner.

One Myer Harris, the owner of a cash register, sold it for P330 to Louis Heymann, who paid down P140, leaving a balance of P190, it being orally
5
agreed that title to the’ property should not pass until the final payment of the purchase price. Thereafter, Harris being about to depart for Iloilo,
demanded the balance of the money and Heymann, being unable to pay it, made an offer to return the register, which was accepted, the machine,
however, being left in the place of business of Heymann, who was then selling out to one Mrs. Booth. Thereupon Harris sold the register for P195 to
Carl Hess, Heymann certifying in writing that Harris was the owner. Hess thereafter sold it to the plaintiff, Olsen.

In the meantime, the register remained in the place of business which Heymann had sold out to Mrs. Booth, who in turn sold the business to George
M. Lack, who transferred it to this defendant. Of the previous history of the cash register, and of the claims thereto of Harris, Hess, and Olsen, these
owners of the business all had knowledge, with the exception of Yearsley. He was a buyer in good faith, and, if he had bought from the true owner,
would have brought himself under the protection of article 1473 of the Civil Code, providing that, when a thing is sold to different buyers, the
property goes to him who first obtains possession. He bought it, however, from a person who was not the owner and who had knowledge of the true
ownership. Therefore his defense can not prevail. The plaintiff is entitled to judgment for the possession of this machine, without any qualification
obliging him to make further payment therefor, or to surrender the machine upon payment to be made by the defendant.

So much of the judgment of the Court of First Instance as declares the plaintiff the owner of the machine and awards it to him, is affirmed, and the
remainder of the judgment is reversed, without costs of either instance. So ordered.

Arellano, C.J., Torres, Mapa, Carson and Willard, JJ., concur.

G.R. No. L-11907            February 27, 1919

FAUSTINO LICHAUCO, ET AL., plaintiffs-appellants,

vs.
JOSE BERENGUER, ET AL., defendants-appellees.

Sumulong & Estrada for appellants.

Ramon Salinas for appellees.

AVANCEÑA, J.:

On July 26, 1882, by a public instrument (Exhibit A-1) Macario Berenguer and to, Cristino Singian with right of repurchase for an indefinite time the
land in question which is described as parcel one in the complaint.

On October 7, 1889, by means of another public instrument, Macario Berenguer sold the same and to Cornelia Lauchangco with right of repurchase
for the term of two years. It was stipulated that Macario Berenguer would take the land under a lease, paying an anual rent therefor, either in cash or
in sugar at the option of Cornelia Lauchangco. It was also stipulated that all the fruits of the land would be stored in Cornelia
Lauchangco's enfraderia (sugar packing house) in this city and the proceeds thereof would be applied to the payment of the price of the repurchase
(Exhibit A). This sale was registered in 1907.

It appears that on September 2, 1890, Macario Berenguer, by virtue of a public instrument, sold again the land in question with pacto de retro to
Cristiano Singian at a higher price but the amount paid on account of the sale of 1882 was considered as a part of the price. In the document wherein
appears this contract, it is said that Cristiano Singian accepts the purchase in the name and representation of Anselmo Singian of whom he was the
tutor. The contract does not express the period for the redemption (Exhibit A-1.)

On February 20, 1904, Anselmo Singian sold in an absolute sale, also by as public instrument, the same land to Macario Berenguer. Anselmo Singian
states in this contract that the land was acquired by him form Macario Berenguer himself by virtue of the above-mentioned contract of 1890 through
his (Anselmo's) tutor, Cristiano Singian. It was stipulated that the price of this sale should be paid within the period of eight years and that, if it be not
completely paid on the expiration of the term, the ownership of the land should revert to Anselmo Singian (Exhibit X).

The parties to this action are: Faustino Lichauco and others, in their capacity as heirs of Cornelia Lauchangco, as plaintiff; Jose Berenguer,
administrator of the estate of Macario Berenguer, and Anselmo Singian in his own behalf, as defendants.

The plaintiffs pray that the sale of the land executed by Macario Berenguer in favor of Cornelia Lauchangco be declared absolute or that the
defendant Jose Berenguer be obliged to pay to the plaintiffs the sum of P3,000, the price of the repurchase, with legal interest thereon from October
7, 1891, and the amount of P9,236.86, as rents due, as well as the amounts which would be due until the execution of the sentence with the
corresponding interests. The defendants Jose Berenguer prays that he be absolved from the complaint and that the plaintiffs be obliged to execute in
this favor the document of repurchase of the land. The defendant Anselmo Singian prays that the sale of the land executed by Macario Berenguer in
favor of Cornelia Lauchangco be declared null and void and that he be declared absolute owner of the said land.

The trial court absolved owner of the said land, finding as to costs and from this judgment the plaintiffs appealed.

6
From what has been said, it appears that the land in question had been twice sold by Macario Berenguer: the first sale was made in 1882 in favor of
Cristino Singian and the second, in 1889, in favor of Cornelia Lauchangco, predecessor in interest of the plaintiffs. The question to be decided is,
which of these two sales is to be preferred. Both were executed by means of public instruments. Considering the facts in connection with the time
prior to 1907, it follows that, since neither of these instruments was inscribed, the preference should be in favor of the purchaser who first took
possession of the land, inasmuch as this possession, according to the law in force prior to the promulgation of the Civil Code, constituted the
consummation of the contract, and also inasmuch as the civil Code (article 1473) expressly provides that possession in such cases transfers the
ownership of the thing sold. The trial court accepted the fact that the defendant Anselmo Singian, by himself and through a representative, took
possession of the land since its sale in 1882 and has been continuing in this possession up to the present time. There is evidence in the record which
establishes the conclusion, and there is no proof to the contrary.

It appears that after the sale in 1882 to Cristino Singian, the land was held, under a lease through payment of an annul rent, by Macario Berenguer
until his death, and even after his death the administrator of his property continued the lease under the same conditions until two years before this
action was filed. It does not appear whether, after the sale, Cristiano Singian first took possession of the land and then leased it to Macario Berenguer
or the land was immediately leased after the sale without the lease having been preceded by direct possession on the party of the purchaser, Cristino
Singian. But, as regards the basis upon which this decision rests, we accept the second alternative as true. It appears also that when the same land was
sold in 1889 by same Macario Berenguer to Cornelia Lauchangco, the latter did not also take a direct possession of it but agreed to lease it to Macario
Berenguer under certain conditions. It thus appears that both Cristino Singian and Cornelia Lauchangco in like manner took possession of the land
through the same vendor, when the latter on ceasing to be the owner became the lessee of each of the former respectively. this court has held that
when a person buys a piece of land and, instead of taking possession of it, give it under a lease to the vendor, possession therefore by the later after
the sale is possession by the vendee, and such possession, in case of a double sale, determine 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 and notwithstanding the material and
personal possession by the second vendee. (Bautista vs. Sioson, p. 615, ante.) This doctrine is with greater reason applicable to this cae in that the
possession by the second vendee, granting that he had it, was under the same conditions as that of the first vendee. Therefore, in determining the
preference between both sales by reason of the priority of possession, supposing that both vendees had such possession in the same manner as we
have indicated, the decision must necessarily be in favor of the sale to Cristiano Singian who first enjoyed such possession.

But we can still say that Cornelia Lauchangco never had in the manner indicated the possession of the land. She had to derive this possession from
Macario Berenguer. It is true that it was stipulated in the sale to her that Berenguer would cease to be the owner and would be her lessee, but there is
a lack of juridical reality to suppose the this was equivalent to a delivery of possession, because on that date Berenguer had no possession which he
could transfer, inasmuch as he was then a mere lessee of the former vendee, Cristino Singian, and therefore his possession was not for himself but in
representation of the latter.

At all events, if it be interpreted that, in case of a double sale and in the absence of inscription, the preference between both can not be determined,
according to article 1473 of the Civil Code, by the possession which the stipulation implies that vendor ceases to become owner and becomes the
lessee of the vendee, it follows that, for the purposes of this article, neither Cristino Singian nor Cornelia Lauchangco took possession of the land.
Under this supposition the preference between both sales shall also have to be decided in favor of that made to Cristino Singian, because it is of a
prior date. (Art. 1473, Civil Code.)

As has been stated, Macario Berenguer sold the land to Cristino Singian in 1882 and in 1890 he again sold it to Cristino Singian in his capacity as
tutor of Anselmo Singian. The plaintiffs contend that according to this sale to defendant Anselmo Singian was effected only in 1890 and therefore
was not anterior to that made to Cornelia Lauchangco in 1889. We believe that this conclusion is erroneous. After the sale of 1882, Macario
Berenguer took from Cristino Singian some more money which amounted to P6,000 and this fact impelled him to make the sale in 1890 in which it
was stipulated that the amount paid in the sale of 1882 plus the P6,000 subsequent given by Cristino Singian to Macario Berenguer be considered as
part of the price received. it is true that in the sale of Cristino Singian in 1882 it was not stated that he acted in his capacity as tutor of Anselmo
Singian, but it appears that with the latter's money the former paid the price in both sales. What really appears is that the second sale was made with
the object of aggregating, as part of the price, the amount of P6,000 received subsequently by Macario Berenguer for the purposes of the purchase
and not for the transmission of the ownership which was already affected. We accept as a fact that both the sale of 1882 and that of 1890 were made
in favor of Anselmo Singian.

The registry in 1907 of the sale to Lauchangco does not alter the aspect of the question involved. From the time Singian took possession of the land
up to that date twenty-five years had elapsed. Thus, on the date in which the registry was made, Singian had acquired the ownership of the land by
prescription. The registry could have destroyed the efficacy of the sale to Singian but not the legal effects of his possession. The effect which the law
gives to the registry of a sale, in case of a double sale, against the efficacy of the sale that was not registered does not extend to the other titles which
the other vendee may have gained independently, as the little of prescription in this case. And thus, even supposing that the sale to Singian, for lack
of registry, had lost all its efficacy, in itself, as a title transferring ownership as against the sale to Lauchangco which was registered, still there
remains for Singian the title of prescription which has not been destroyed by another to the contrary.

The fact that in 1904 Anselmo Singian in turn sold the land in question to Macario Berenguer does not affect the merits of the case. In the said sale it
was agreed that Berenguer would pay the stipulated price within the period of eight years and if, at the expiration of the eight years, the amount
should not have been completely paid, the ownership of the land would revert to the vendor. It does not appear that no payment on account of this
price has been made and inasmuch as this payment should be proved by him who is obliged to do so, we accept as a fact that it was not so made.
Under such circumstances, whatever effect may be attributed to the sale during the said period of eight years, which was fixed for the payment of the
price, cannot be given such effect after the expiration of the said period, without the price having been paid. At all events, the ownership of the land
sold reverted to the vendor.

7
We have reached the conclusion that the sale to Anselmo Singian represented by his tutor Cristino Singian was valid and produced the effect of
transferring in his favor the ownership of the land in question. And, even disregarding the proper effect of this sale, the defendant Anselmo Singian
has also acquired the ownership of the land by prescription.

Having reached the conclusion and as the action of the plaintiff against the defendant Berenguer is entirely based upon the efficacy of the sale of the
same land made in favor of Cornelia Lauchangco, we have to hold also that the complaint against the latter is improper.

Therefore, we hereby affirm the judgment appealed form in so far as it absolves the defendants from the complaint with the costs against the
appellants. So ordered.

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

[G.R. No. L-7805. December 24, 1957.]

PETRONILO CASTAÑEDA, Petitioner, v. CATALINA M. DE LEON, and THE COURT OF APPEALS, Respondents.

Jose W. Diokno for Petitioner.

Jesus Paredes for respondent Catalina de Leon.

SYLLABUS

PURCHASE AND SALE; WHEN PROPERTY WAS OLD TO TWO VENDEES; RIGHTS OF PARTIES TO BE DETERMINED IN AN
INDEPENDENT AND ORDINARY SUIT AND NOT IN PROCEEDING FOR EXECUTION. — A complaint for injunction was instituted by PC
against RL & FL to restrain the latter from fencing lot No. 11 and for damages, and judgment having been rendered for plaintiff, a writ of execution
was issued directing defendants to demolish a house and other improvements erected thereon which writ was also served upon CL who claims to be
the owner of the house and the other improvements on the land, but was not made a party to the case; that she acquired right over said lot from the
spouses RL and FL for P1,000 and the latter in turn acquired the whole parcel from PR and AB. CL introduced improvements thereon as well as the
erection of two houses of strong materials. After the first sale of the property to RL and FL, PR and her husband again sold the land to the PC without
first rescinding the previous sale. The problem is that the PR had sold the residential land to two vendees, first to RL and later to PC; Held: that the
issue as to whether or not CL may be considered as privy to the rights of the defendants RL and FL includes the determination of the correlative
rights of the parties to be decided in an independent suit. The rights of CL who was constructed two houses and a fence on one-half of the residential
lot involved complicated questions of fact and good faith which should be investigated and decided and certainly this can not be done in the
proceedings for execution. The question can be decided fairly and justly in an ordinary suit between the parties, as the correlative rights and
obligations of owner and builder were never at issue in Civil case No. Q-64 because CL was not allowed to be party thereto.

DECISION

LABRADOR, J.:

Certiorari against the decision of the Court of Appeals, 3rd Division, which reads as follows:jgc:chanrobles.com.ph

"WHEREFORE, premises considered, the order of August 30, 1952 of the respondent judge, the Hon. Hermogenes Caluag. (Appendix B) is hereby
set aside. The Court of First Instance of Quezon City is ordered to set for hearing petitioner’s claim that the decision in Civil Case No. Q-64 is not
enforceable against her alleged rights to one-half of the property involved in said case. Let evidence be presented to determine solely the question of
whether or not petitioner Catalina M. de Leon is a successor in interest by title subsequent to the commencement of the action in Civil Case No. Q-64
as contemplated by Rule 39, sec. 44 (b). Thereafter let the proper action be taken by the court a quo as its findings after the hearing herein ordered
may warrant.

IT IS SO ORDERED."cralaw virtua1aw library

In civil case No. Q-64, a complaint for injunction was instituted by Petronilo Castañeda against Rosario B. de Leon and her husband, Francisco de
Leon, to restrain the latter from fencing the lot known as Lot No. 11, Block K-19 of the Diliman Estate Subdivision and from making construction
thereon and to pay damages. Q-64 was filed on October 17, 1949, and judgment in favor of the plaintiff having been rendered a writ of execution was
issued on February 6, 1952, directing the defendants to demolish a house and other improvements erected on the land. This writ of execution was
8
served upon Catalina de Leon, who claims to be the owner of the house and the other improvements on the land. As Catalina de Leon refused to
remove the house and the other improvements, the judge issued an order requiring her to appear and explain why the building and the other
improvements should not be demolished. Complying with this order, Catalina de Leon filed a written explanation in which she claims that she was
not a party in civil case No. Q-64; that she acquired right to one-half of the land from the spouses Rosario de Leon and Francisco de Leon for P1,000,
and that the latter in turn acquired the whole parcel from Perfecta Roque and Aurelio Bautista on July 11, 1949; that Catalina de Leon caused the
portion sold to her to be fenced and order the erection of two houses of strong materials with the consent of her predecessors-in-interest, Rosario de
Leon and Perfecta Roque; that after the first sale of the property in July, 1949 to Rosario B. de Leon and Francisco de Leon, Perfecta Roque and her
husband again sold the land to Petronilo Castañeda, who offered to buy the same for a higher price, but that this second sale by Perfecta Roque was
executed without first rescinding the former sale to Rosario B. de Leon and Francisco de Leon; that previous to the sale by Perfecta Roque of the land
to Petronilo Castañeda, Rosario B. de Leon and Francisco de Leon brought an action in the Court of First Instance of Manila for specific performance
(No. 9366), and this case resulted in a decision of December 22, 1950, ordering Perfecta Roque to return P900 to plaintiff therein, Rosario B. de
Leon, but that the spouses Rosario de Leon and Francisco de Leon, having had some family trouble with Catalina de Leon, connived with Perfecta
Roque and Petronilo Castañeda to have the case dismissed to the prejudice of Catalina de Leon; and that before the final disposition of the action in
said civil case No. 9366 Perfecta Roque had sold the property to another buyer, Petronilo Castañeda, on October 3, 1949; that in the subsequent suit
that Castañeda brought against Rosario B. de Leon, No. Q-64, Catalina de Leon asked for permission to intervene but the court denied the same.

Upon the submission of the above explanation, Petronilo Castañeda filed an opposition alleging that it is not true that Catalina de Leon was not aware
of the proceedings between Rosario B. de Leon and Petronilo Castañeda. Upon the filing of this opposition, the Court of First Instance declared that
the claim of Catalina de Leon on the property was a contingent one based upon the ultimate consummation of the sale between Francisco and Rosario
de Leon on one hand, and Perfecta Roque and Aurelio Bautista on the other; that as the action that Rosario B. de Leon and her husband brought
against Perfecta Roque terminated in a dismissal, no right whatsoever has been acquired by the claimant Catalina de Leon. In consequence that court
found the explanation of Catalina de Leon without merit and ordered the removal of the house and the improvements that Catalina de Leon had
constructed on the property. It is against this order that the case was brought to the Court of Appeals, in which the court finally decided the
controversy in its order above quoted.

It will be seen from the order under consideration that the only issue directed to be determined upon the return of the case to the court below is
whether or not Catalina de Leon may be considered as a privy to the rights of the defendants Rosario B. de Leon and Francisco de Leon in civil case
No. Q-64, in which Petronilo Castañeda is plaintiff. Upon the resolution of that issue the question as to whether or not the improvements of Catalina
de Leon would be removed would be decided, according to the decision appealed from. It is true that Catalina de Leon would be bound by the
judgment in Q-64 if she is a privy to Rosario de Leon and Francisco de Leon, defendants in the action. But the facts and circumstances disclosed in
the explanation of Catalina de Leon show that she had purchased the one-half portion of the land in good faith and also constructed her two houses
and the fence surrounding the lot also in good faith. And we can not agree that the limited issue remanded to the trial court for determination would
and can finally determine fully and completely the correlative rights and obligations of Petronilo Castañeda, the apparent owner of the land, and
Catalina de Leon, the owner of the house and the other improvements thereon. The order of the Court of Appeals, while not containing any statement
to the effect that the correlative rights of the said parties have to be decided in an independent suit, may be interpreted to mean that the decision of the
issue as to whether Catalina de Leon is a privy would also determine said correlative rights. Catalina de Leon is not a party to the action instituted by
Petronilo Castañeda against Rosario de Leon and her husband, and her attempt to intervene was denied by the court. The explanation filed by
Catalina de Leon in the court below seems to show that she acquired her rights to the properties, consisting of one-half of the land and two houses
and other improvements built thereon, prior to the acquisition of the land by Petronilo Castañeda. Anyway, Catalina de Leon bought one-half of the
land on October 5, 1949 and the action that Castañeda against Rosario de Leon was subsequent thereto, i.e., on October 17, 1949. Furthermore, it
does not appear that any notice of lis pendens was ever noted on the title of the property before Catalina de Leon built the house and made the
improvements on the land.

The problem that has arisen proceeds from the fact that Perfecta Roque had sold the residential land to two vendees, first to Rosario B. de Leon and
later to Petronilo Castañeda. If justice is to be done to the rights of Rosario B. de Leon’s vendee, Catalina de Leon, who had constructed two houses
and a fence on one-half of the residential lot in question, complicated questions of fact and good faith will have to be investigated and decided and
certainly this can not be done in the proceedings for execution. The question can be decided fairly and justly only in an ordinary suit between the
parties, as the correlative rights and obligations of owner and builder were never at issue in civil case No. Q-64 because Catalina de Leon was not
allowed to be a party to the suit.

For the foregoing considerations, the decision of the Court of Appeals is hereby affirmed insofar as it sets aside the order of demolition issued by
respondent judge, Hon. Hermogenes Caluag, on August 30, 1952, but that portion thereof which directs the case to be remanded to the trial court for
determination if Catalina de Leon may be considered a privy to Rosario de Leon, is hereby set aside; and it is hereby declared and ordered that the
correlative rights of Petronilo Castañeda and Catalina de Leon to the land and the improvements thereon be decided in a separate action. No costs in
the appeal.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Concepcion, Reyes, J. B. L., Endencia and Felix, JJ., concur.

G.R. No. L-22331             June 6, 1967

IN RE: PETITION FOR CONSOLIDATION OF TITLE IN THE VENDEES OF A HOUSE AND THE RIGHTS TO A LOT.
MARIA BAUTISTA VDA. DE REYES, ET AL., vendees-petitioners-appellees.
RODOLFO LANUZA, vendor,
vs.
MARTIN DE LEON, intervenor-appellant.
9
Erasmo R. Cruz and C. R. Pascual for intervenor-appellant.
Augusto J. Salas for vendees-petitioners-appellees.

REGALA, J.:

Rodolfo Lanuza and his wife Belen were the owners of a two-story house built on a lot of the Maria Guizon Subdivision in Tondo, Manila, which the
spouses leased from the Consolidated Asiatic Co. On January 12, 1961, Lanuza executed a document entitled "Deed of Sale with Right to
Repurchase" whereby he conveyed to Maria Bautista Vda. de Reyes and Aurelia R. Navarro the house, together with the leasehold rights to the lot, a
television set and a refrigerator in consideration of the sum of P3,000. The deed reads:

DEED OF SALE WITH RIGHT TO REPURCHASE KNOW ALL MEN BY THESE PRESENTS:

That I, RODOLFO LANUZA, Filipino, of legal age, married to Belen Geronimo, and residing at 783-D Interior 14 Maria
Guizon, Gagalangin, Tondo, Manila, hereby declare that I am the true and absolute owner of a new two storey house of strong
materials, constructed on a rented lot — Lot No. 12 of the Maria Guizon Subdivision, owned by the Consolidated Asiatic Co. —
as evidenced by the attached Receipt No. 292, and the plan of the subdivision, owned by said company.

That for and in consideration of the sum of THREE THOUSAND PESOS (P3,000.00) which I have received this day from Mrs.
Maria Bautista Vda. de Reyes, Filipino, of legal age, widow; and Aurelia Reyes, married to Jose S. Navarro, Filipinos, of legal
ages, and residing at 1112 Antipolo St., Tondo, Manila, I hereby SELL, CEDE, TRANSFER, AND CONVEY unto said Maria
Bautista Vda. de Reyes, her heirs, succesors, administrators and assigns said house, including my right to the lot on which it was
constructed, and also my television, and frigidaire "Kelvinator" of nine cubic feet in size, under the following conditions:

I hereby reserve for myself, my heirs, successors, administrators, and assigns the right to repurchase the above mentioned
properties for the same amount of P3,000.00, without interest, within the stipulated period of three (3) months from the date
hereof. If I fail to pay said amount of P3,000.00, within the stipulated period of three months, my right to repurchase the said
properties shall be forfeited and the ownership thereto shall automatically pass to Mrs. Maria Bautista Vda. de Reyes, her heirs,
successors, administrators, and assigns, without any Court intervention, and they can take possession of the same.1äwphï1.ñët

IN WITNESS WHEREOF, we have signed this contract in the City of Manila, this 12th day of January, 1961.

s/t RODOLFO LANUZA s/t MARIA BAUTISTA VDA. DE REYES

Vendor Vendee

s/t AURELIA REYES WITH MY MARITAL CONSENT:

Vendee s/t JOSE S. NAVARRO

When the original period of redemption expired, the parties extended it to July 12, 1961 by an annotation to this effect on the left margin of the
instrument. Lanuza's wife, who did not sign the deed, this time signed her name below the annotation.

It appears that after the execution of this instrument, Lanuza and his wife mortgaged the same house in favor of Martin de Leon to secure the
payment of P2,720 within one year. This mortgage was executed on October 4, 1961 and recorded in the Office of the Register of Deeds of Manila
on November 8, 1961 under the provisions of Act No. 3344.

As the Lanuzas failed to pay their obligation, De Leon filed in the sheriff's office on October 5, 1962 a petition for the extra-judicial foreclosure of
the mortgage. On the other hand, Reyes and Navarro followed suit by filing in the Court of First Instance of Manila a petition for the consolidation of
ownership of the house on the ground that the period of redemption expired on July 12, 1961 without the vendees exercising their right of repurchase.
The petition for consolidation of ownership was filed on October 19. On October 23, the house was sold to De Leon as the only bidder at the sheriffs
sale. De Leon immediately took possession of the house, secured a discharge of the mortgage on the house in favor of a rural bank by paying P2,000
and, on October 29, intervened in court and asked for the dismissal of the petition filed by Reyes and Navarro on the ground that the
unrecorded pacto de retro sale could not affect his rights as a third party.

The parties1 thereafter entered into a stipulation of facts on which this opinion is mainly based and submitted the case for decision. In confirming the
ownership of Reyes and Navarro in the house and the leasehold right to the lot, the court said:

It is true that the original deed of sale with pacto de retro, dated January 12, 1961, was not signed by Belen Geronimo-Lanuza, wife of the
vendor a retro, Rodolfo Lanuza, at the time of its execution. It appears, however, that on the occasion of the extension of the period for
repurchase to July 12, 1961, Belen Geronimo-Lanuza signed giving her approval and conformity. This act, in effect, constitutes ratification
or confirmation of the contract (Annex "A" Stipulation) by Belen Geronimo-Lanuza, which ratification validated the act of Rodolfo Lanuza
from the moment of the execution of the said contract. In short, such ratification had the effect of purging the contract (Annex "A"
10
 Stipulation) of any defect which it might have had from the moment of its execution. (Article 1396, New Civil Code of the Philippines;
Tang Ah Chan and Kwong Koon vs. Gonzales, 52 Phil. 180)

Again, it is to be noted that while it is true that the original contract of sale with right to repurchase in favor of the petitioners (Annex "A"
Stipulation) was not signed by Belen Geronimo-Lanuza, such failure to sign, to the mind of the Court, made the contract merely voidable,
if at all, and, therefore, susceptible of ratification. Hence, the subsequent ratification of the said contract by Belen Geronimo-Lanuza
validated the said contract even before the property in question was mortgaged in favor of the intervenor.

It is also contended by the intervenor that the contract of sale with right to repurchase should be interpreted as a mere equitable mortgage.
Consequently, it is argued that the same cannot form the basis for a judicial petition for consolidation of title over the property in litigation.
This argument is based on the fact that the vendors a retro continued in possession of the property after the execution of the deed of sale
with pacto de retro. The mere fact, however, that the vendors a retro continued in the possession of the property in question cannot justify
an outright declaration that the sale should be construed as an equitable mortgage and not a sale with right to repurchase. The terms of the
deed of sale with right to repurchase (Annex "A" Stipulation) relied upon by the petitioners must be considered as merely an equitable
mortgage for the reason that after the expiration of the period of repurchase of three months from January 12, 1961.

Article 1602 of the New Civil Code provides:

"ART. 1602. The contract shall be presumed to be in equitable mortgage, in any of the following cases;

xxx     xxx     xxx

"(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new
period is executed.

xxx     xxx     xxx

In the present case, it appears, however, that no other instrument was executed between the parties extending the period of redemption.
What was done was simply to annotate on the deed of sale with right to repurchase (Annex "A" Stipulation) that "the period to repurchase,
extended as requested until July 12, 1961." Needless to say, the purchasers a retro, in the exercise of their freedom to make contracts, have
the power to extend the period of repurchase. Such extension is valid and effective as it is not contrary to any provision of law. (Umale vs.
Fernandez, 28 Phil. 89, 93)

The deed of sale with right to repurchase (Annex "A" Stipulation) is embodied in a public document. Consequently, the same is sufficient
for the purpose of transferring the rights of the vendors a retro over the property in question in favor of the petitioners. It is to be noted that
the deed of sale with right to repurchase (Annex "A" Stipulation) was executed on January 12, 1961, which was very much ahead in point
of time to the execution of the real estate mortgage on October 4, 1961, in favor of intervenor (Annex "B" Stipulation). It is obvious,
therefore, that when the mortgagors, Rodolfo Lanuza and Belen Geronimo Lanuza, executed the real estate mortgage in favor of the
intervenor, they were no longer the absolute owners of the property since the same had already been sold a retro to the petitioners. The
spouses Lanuza, therefore, could no longer constitute a valid mortgage over the property inasmuch as they did not have any free disposition
of the property mortgaged. (Article 2085, New Civil Code.) For a valid mortgage to exist, ownership of the property mortgaged is an
essential requisite. A mortgage executed by one who is not the owner of the property mortgaged is without legal existence and the
registration cannot validate. (Philippine National Bank vs. Rocha, 55 Phil. 497).

The intervenor invokes the provisions of article 1544 of the New Civil Code for the reason that while the real estate mortgage in his favor
(Annex "B" Stipulation) has been registered with the Register of Deeds of Manila under the provisions of Act No. 3344 on November 3,
1961, the deed of sale with right to repurchase (Annex "A" Stipulation) however, has not been duly registered. Article 1544 of the New
Civil Code, however, refers to the sale of the same property to two or more vendees. This provision of law, therefore, is not applicable to
the present case which does not involve sale of the same property to two or more vendees. Furthermore, the mere registration of the
property mortgaged in favor of the intervenor under Act No. 3344 does not prejudice the interests of the petitioners who have a better right
over the property in question under the old principle of first in time, better in right. (Gallardo vs. Gallardo, C.B., 46 O.G. 5568)

De Leon appealed directly to this Court, contending (1) that the sale in question is not only voidable but void ab initio for having been made by
Lanuza without the consent of his wife; (2) that the pacto de retro sale is in reality an equitable mortgage and therefore can not be the basis of a
petition for consolidation of ownership; and (3) that at any rate the sale, being unrecorded, cannot affect third parties.

We are in accord with the trial court's ruling that a conveyance of real property of the conjugal partnership made by the husband without the consent
of his wife is merely voidable. This is clear from article 173 of the Civil Code which gives the wife ten years within which to bring an action for
annulment. As such it can be ratified as Lanuza's wife in effect did in this case when she gave her conformity to the extension of the period of
redemption by signing the annotation on the margin of the deed. We may add that actions for the annulment of voidable contracts can be brought
only by those who are bound under it, either principally or subsidiarily (art. 1397), so that if there was anyone who could have questioned the sale on
this ground it was Lanuza's wife alone.

11
We also agree with the lower court that between an unrecorded sale of a prior date and a recorded mortgage of a later date the former is preferred to
the latter for the reason that if the original owner had parted with his ownership of the thing sold then he no longer had the ownership and free
disposal of that thing so as to be able to mortgage it again. Registration of the mortgage under Act No. 3344 would, in such case, be of no moment
since it is understood to be without prejudice to the better right of third parties.2 Nor would it avail the mortgagee any to assert that he is in actual
possession of the property for the execution of the conveyance in a public instrument earlier was equivalent to the delivery of the thing sold to the
vendee.3

But there is one aspect of this case which leads us to a different conclusion. It is a point which neither the parties nor the trial court appear to have
sufficiently considered. We refer to the nature of the so-called "Deed of Sale with Right to Repurchase" and the claim that it is in reality an equitable
mortgage. While De Leon raised the question below and again in this Court in his second assignment of error, he has not demonstrated his point;
neither has he pursued the logical implication of his argument beyond stating that a petition for consolidation of ownership is an inappropriate
remedy to enforce a mortgage.

De Leon based his claim that the pacto de retro sale is actually an equitable mortgage on the fact that, first, the supposed vendors (the Lanuzas)
remained in possession of the thing sold and, second, when the three-month period of redemption expired the parties extended it. These are
circumstances which indeed indicate an equitable mortgage.4 But their relevance emerges only when they are seen in the perspective of other
circumstances which indubitably show that what was intended was a mortgage and not a sale.These circumstances are:

1. The gross inadequacy of the price. In the discussion in the briefs of the parties as well as in the decision of the trial court, the fact has not been
mentioned that for the price of P3,000, the supposed vendors "sold" not only their house, which they described as new and as being made of strong
materials and which alone had an assessed value of P4,000, but also their leasehold right television set and refrigerator, "Kelvinator of nine cubic feet
in size." indeed, the petition for consolidation of ownership is limited to the house and the leasehold right, while the stipulation of facts of the parties
merely referred to the object of the sale as "the property in question." The failure to highlight this point, that is, the gross inadequacy of the price
paid, accounts for the error in determining the true agreement of the parties to the deed.

2. The non-transmission of ownership to the vendees. The Lanuzas, the supposed vendors did not really transfer their ownership of the properties in
question to Reyes and Navarro. What was agreed was that ownership of the things supposedly sold would vest in the vendees only if the vendors
failed to pay P3,000. In fact the emphasis is on the vendors payment of the amount rather than on the redemption of the things supposedly sold. Thus,
the deed recites that —

If I (Lanuza) fail to pay said amount of P3,000.00 within the stipulated period of three months, my right to repurchase the said properties
shall be forfeited and the ownership thereto automatically pass to Mrs. Maria Bautista Vda. de Reyes . . . without any Court intervention
and they can take possession of the same.

This stipulation is contrary to the nature of a true pacto de retro sale under which a vendee acquires ownership of the thing sold immediately upon
execution of the sale, subject only to the vendor's right of redemption.5 Indeed, what the parties established by this stipulation is an odious pactum
commissorium which enables the mortgages to acquire ownership of the mortgaged properties without need of foreclosure proceedings. Needless to
say, such a stipulation is a nullity, being contrary to the provisions of article 2088 of the Civil Code.6 Its insertion in the contract of the parties is an
avowal of an intention to mortgage rather than to sell.7

3. The delay in the filing of the petition for consolidation. Still another point obviously overlooked in the consideration of this case is the fact that the
period of redemption expired on July 12, 1961 and yet this action was not brought until October 19, 1962 and only after De Leon had asked on
October 5, 1962 for the extra-judicial for closure of his mortgage. All the while, the Lanuzas remained in possession of the properties they were
supposed to have sold and they remained in possession even long after they had lost their right of redemption.

Under these circumstances we cannot but conclude that the deed in question is in reality a mortgage. This conclusion is of far-reaching consequence
because it means not only that this action for consolidation of ownership is improper, as De Leon claims, but, what is more that between the
unrecorded deed of Reyes and Navarro which we hold to be an equitable mortgage, and the registered mortgage of De Leon, the latter must be
preferred. Preference of mortgage credits is determined by the priority of registration of the mortgages,8 following the maxim "Prior tempore potior
jure" (He who is first in time is preferred in right.)9 Under article 2125 of the Civil Code, the equitable mortgage, while valid between Reyes and
Navarro, on the one hand, and the Lanuzas, on the other, as the immediate parties thereto, cannot prevail over the registered mortgage of De Leon.

Wherefore, the decision appealed from is reversed, hence, the petition for consolidation is dismissed. Costs against Reyes and Navarro.

Concepcion, C.J., Dizon, Bengzon, J.P., Sanchez and Castro, JJ., concur.
Reyes, J.B.L., and Zaldivar, JJ., reserved their votes.
Makalintal, J., concurs in the result.

12