G.R. No.

132161 January 17, 2005

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

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

DECISION

TINGA, J.:

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

From the record, the following are the established facts:

Rizal, Anselmo, Gregorio, Filomeno and Domingo, all surnamed Madrid (hereafter the Madrid brothers), were the
registered owners of Lot No. 7036-A of plan Psd-10188, Cadastral Survey 211, situated in San Mateo, Isabela per
Transfer Certificate of Title (TCT) No. T-8121 issued by the Register of Deeds of Isabela in September 1956.5

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

On 15 August 1957, Rizal Madrid sold part of his share identified as Lot No. 7036-A-7, to Aleja Gamiao (hereafter
Gamiao) and Felisa Dayag (hereafter, Dayag) by virtue of a Deed of Sale,7 to which his brothers Anselmo, Gregorio,
Filomeno and Domingo offered no objection as evidenced by their Joint Affidavit dated 14 August 1957.8 The deed of
sale was not registered with the Office of the Register of Deeds of Isabela. However, Gamiao and Dayag declared the
property for taxation purposes in their names on March 1964 under Tax Declaration No. 7981.9

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

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

In a Deed of Sale15 dated 15 June 1976, the Madrid brothers conveyed all their rights and interests over Lot No. 7036-A-
7 to Pacifico Marquez (hereafter, Marquez), which the former confirmed16 on 28 February 1983.17 The deed of sale
was registered with the Office of the Register of Deeds of Isabela on 2 March 1982.18
Subsequently, Marquez subdivided Lot No. 7036-A-7 into eight (8) lots, namely: Lot Nos. 7036-A-7-A to 7036-A-7-H, for
which TCT Nos. T-149375 to T-149382 were issued to him on 29 March 1984.19 On the same date, Marquez and his
spouse, Mercedita Mariana, mortgaged Lots Nos. 7036-A-7-A to 7036-A-7-D to the Consolidated Rural Bank, Inc. of
Cagayan Valley (hereafter, CRB) to secure a loan of One Hundred Thousand Pesos (₱100,000.00).20 These deeds of real
estate mortgage were registered with the Office of the Register of Deeds on 2 April 1984.

On 6 February 1985, Marquez mortgaged Lot No. 7036-A-7-E likewise to the Rural Bank of Cauayan (RBC) to secure a
loan of Ten Thousand Pesos (₱10,000.00).21

As Marquez defaulted in the payment of his loan, CRB caused the foreclosure of the mortgages in its favor and the lots
were sold to it as the highest bidder on 25 April 1986.22

On 31 October 1985, Marquez sold Lot No. 7036-A-7-G to Romeo Calixto (Calixto).23

Claiming to be null and void the issuance of TCT Nos. T-149375 to T-149382; the foreclosure sale of Lot Nos. 7036-A-7-A
to 7036-A-7-D; the mortgage to RBC; and the sale to Calixto, the Heirs-now respondents herein-represented by Edronel
dela Cruz, filed a case24 for reconveyance and damages the southern portion of Lot No. 7036-A (hereafter, the subject
property) against Marquez, Calixto, RBC and CRB in December 1986.

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

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

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

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

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

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

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

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

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

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

No pronouncement as to costs.

SO ORDERED.29

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

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

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

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

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

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

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

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

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

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

On 27 May 1997, the Court of Appeals rendered its assailed Decision34 reversing the RTC’s judgment. The dispositive
portion reads:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Accordingly, judgment is hereby rendered
as follows:
1. Declaring the heirs of Teodoro dela Cruz the lawful owners of the southern half portion and Evangeline Hernandez-del
Rosario the northern half portion of Lot No. 7036-A-7, now covered by TCT Nos. T-149375 to T-149382, inclusive;

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

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

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

No pronouncement as to costs.

SO ORDERED.35

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

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

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

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

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

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

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

3. Declaring the mortgage made by defendant Pacifico V. Marquez in favor of defendant Consolidated Rural Bank
(Cagayan Valley) and defendant Rural Bank of Cauayan as null and void insofar as the southern half portion of Lot No.
7036-A-7 is concerned;

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

No pronouncement as to costs.

SO ORDERED.41

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

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

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

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

Article 1544 of the Civil Code reads, thus:

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

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

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

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

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

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

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

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

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

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

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

Article 1473 of the Civil Code presupposes the right of the vendor to dispose of the thing sold, and does not limit or alter
in this respect the provisions of the Mortgage Law in force, which upholds the principle that registration does not
validate acts or contracts which are void, and that although acts and contracts executed by persons who, in the Registry,
appear to be entitled to do so are not invalidated once recorded, even if afterwards the right of such vendor is annulled
or resolved by virtue of a previous unrecorded title, nevertheless this refers only to third parties.49
In a situation where not all the requisites are present which would warrant the application of Art. 1544, the principle of
prior tempore, potior jure or simply "he who is first in time is preferred in right,"50 should apply.51 The only essential
requisite of this rule is priority in time; in other words, the only one who can invoke this is the first vendee.
Undisputedly, he is a purchaser in good faith because at the time he bought the real property, there was still no sale to a
second vendee.52 In the instant case, the sale to the Heirs by Gamiao and Dayag, who first bought it from Rizal Madrid,
was anterior to the sale by the Madrid brothers to Marquez. The Heirs also had possessed the subject property first in
time. Thus, applying the principle, the Heirs, without a scintilla of doubt, have a superior right to the subject property.

Moreover, it is an established principle that no one can give what one does not have¾nemo dat quod non habet.
Accordingly, one can sell only what one owns or is authorized to sell, and the buyer can acquire no more than what the
seller can transfer legally.53 In this case, since the Madrid brothers were no longer the owners of the subject property at
the time of the sale to Marquez, the latter did not acquire any right to it.

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

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

(a) the first registrant in good faith;

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

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

Prior registration of the subject property does not by itself confer ownership or a better right over the property. Article
1544 requires that before the second buyer can obtain priority over the first, he must show that he acted in good faith
throughout (i.e., in ignorance of the first sale and of the first buyer’s rights)¾from the time of acquisition until the title is
transferred to him by registration or failing registration, by delivery of possession.55

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

ATTY. CALIXTO –

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

A In 1976 the Madrid brothers confessed to me their problems about their lots in San Mateo that they were being taken
by Teodoro dela Cruz and Atty. Teofilo A. Leonin; that they have to pay the lawyer’s fee of ₱10,000.00 otherwise Atty.
Leonin will confiscate the land. So they begged me to buy their properties, some of it. So that on June 3, 1976, they
came to Cabagan where I was and gave them ₱14,000.00, I think. We have talked that they will execute the deed of sale.
Q Why is it, doctor, that you have already this deed of sale, Exh. 14, why did you find it necessary to have this Deed of
Confirmation of a Prior Sale, Exh. 15?

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

...

ATTY. CALIXTO-

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

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

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

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

Q So, you do not have any possession?

A None, sir.57

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

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

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

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

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

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

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

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

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

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

As correctly argued by the Heirs in their Comment,67 the requirement of good faith in the possession of the property
finds no application in cases where there is no second sale.68 In the case at bar, Teodoro dela Cruz took possession of
the property in 1964 long before the sale to Marquez transpired in 1976 and a considerable length of time—eighteen
(18) years in fact¾before the Heirs had knowledge of the registration of said sale in 1982. As Article 526 of the Civil Code
aptly provides, "(H)e is deemed a possessor in good faith who is not aware that there exists in his title or mode of
acquisition any flaw which invalidates it." Thus, there was no need for the appellate court to consider the issue of good
faith or bad faith with regard to Teodoro dela Cruz’s possession of the subject property.

Likewise, we are of the opinion that it is not necessary that there should be any finding of possession by Gamiao and
Dayag of the subject property. It should be recalled that the regularity of the sale to Gamiao and Dayag was never
contested by Marquez.69 In fact the RTC upheld the validity of this sale, holding that the Madrid brothers are bound by
the sale by virtue of their confirmation thereof in the Joint Affidavit dated 14 August 1957. That this was executed a day
ahead of the actual sale on 15 August 1957 does not diminish its integrity as it was made before there was even any
shadow of controversy regarding the ownership of the subject property.
Moreover, as this Court declared in the case of Heirs of Simplicio Santiago v. Heirs of Mariano E. Santiago ,70 tax
declarations "are good indicia of possession in the concept of an owner, for no one in his right mind would be paying
taxes for a property that is not in his actual or constructive possession."71

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

SO ORDERED.
G.R. No. L-28740 February 24, 1981

FERMIN Z. CARAM, JR., petitioner,

vs.
CLARO L. LAURETA, respondent.

FERNANDEZ, J.:

This is a petition for certiorari to review the decision of the Court of Appeals promulgated on January 29, 1968 in CA-G.
R. NO. 35721-R entitled "Claro L. Laureta, plaintiff-appellee versus Marcos Mata, Codidi Mata and Fermin Caram, Jr.,
defendants- appellants; Tampino (Mansaca), et al. Intervenors-appellants," affirming the decision of the Court of First
Instance of Davao in Civil Case No. 3083. 1

On June 25, 1959, Claro L. Laureta filed in the Court of First Instance of Davao an action for nullity, recovery of
ownership and/or reconveyance with damages and attorney's fees against Marcos Mata, Codidi Mata, Fermin Z. Caram,
Jr. and the Register of Deeds of Davao City. 2

On June 10, 1945, Marcos Mata conveyed a large tract of agricultural land covered by Original Certificate of Title No.
3019 in favor of Claro Laureta, plaintiff, the respondent herein. The deed of absolute sale in favor of the plaintiff was not
registered because it was not acknowledged before a notary public or any other authorized officer. At the time the sale
was executed, there was no authorized officer before whom the sale could be acknowledged inasmuch as the civil
government in Tagum, Davao was not as yet organized. However, the defendant Marcos Mata delivered to Laureta the
peaceful and lawful possession of the premises of the land together with the pertinent papers thereof such as the
Owner's Duplicate Original Certificate of Title No. 3019, sketch plan, tax declaration, tax receipts and other papers
related thereto. 3 Since June 10, 1945, the plaintiff Laureta had been and is stin in continuous, adverse and notorious
occupation of said land, without being molested, disturbed or stopped by any of the defendants or their representatives.
In fact, Laureta had been paying realty taxes due thereon and had introduced improvements worth not less than
P20,000.00 at the time of the filing of the complaint. 4

On May 5, 1947, the same land covered by Original Certificate of Title No. 3019 was sold by Marcos Mata to defendant
Fermin Z. Caram, Jr., petitioner herein. The deed of sale in favor of Caram was acknowledged before Atty. Abelardo
Aportadera. On May 22, 1947, Marcos Mata, through Attys. Abelardo Aportadera and Gumercindo Arcilla, filed with the
Court of First Instance of Davao a petition for the issuance of a new Owner's Duplicate of Original Certificate of Title No.
3019, alleging as ground therefor the loss of said title in the evacuation place of defendant Marcos Mata in Magugpo,
Tagum, Davao. On June 5, 1947, the Court of First Instance of Davao issued an order directing the Register of Deeds of
Davao to issue a new Owner's Duplicate Certificate of Title No. 3019 in favor of Marcos Mata and declaring the lost title
as null and void. On December 9, 1947, the second sale between Marcos Mata and Fermin Caram, Jr. was registered
with the Register of Deeds. On the same date, Transfer Certificate of Title No. 140 was issued in favor of Fermin Caram
Jr. 5

On August 29, 1959, the defendants Marcos Mata and Codidi Mata filed their answer with counterclaim admitting the
existence of a private absolute deed of sale of his only property in favor of Claro L. Laureta but alleging that he signed
the same as he was subjected to duress, threat and intimidation for the plaintiff was the commanding officer of the 10th
division USFIP operating in the unoccupied areas of Northern Davao with its headquarters at Project No. 7 (Km. 60,
Davao Agusan Highways), in the Municipality of Tagum, Province of Davao; that Laureta's words and requests were laws;
that although the defendant Mata did not like to sell his property or sign the document without even understanding the
same, he was ordered to accept P650.00 Mindanao Emergency notes; and that due to his fear of harm or danger that
will happen to him or to his family, if he refused he had no other alternative but to sign the document. 6

The defendants Marcos Mata and Codidi Mata also admit the existence of a record in the Registry of Deeds regarding a
document allegedly signed by him in favor of his co-defendant Fermin Caram, Jr. but denies that he ever signed the
document for he knew before hand that he had signed a deed of sale in favor of the plaintiff and that the plaintiff was in
possession of the certificate of title; that if ever his thumb mark appeared in the document purportedly alienating the
property to Fermin Caram, did his consent was obtained through fraud and misrepresentation for the defendant Mata is
illiterate and ignorant and did not know what he was signing; and that he did not receive a consideration for the said
sale. 7

The defendant Fermin Caram Jr. filed his answer on October 23, 1959 alleging that he has no knowledge or information
about the previous encumbrances, transactions, and alienations in favor of plaintiff until the filing of the complaints. 8

The trial court rendered a decision dated February 29, 1964, the dispositive portion of which reads: 9

1. Declaring that the deed of sale, Exhibit A, executed by Marcos Mata in favor of Claro L. Laureta stands and
prevails over the deed of sale, Exhibit F, in favor of Fermin Caram, Jr.;

2. Declaring as null and void the deed of sale Exhibit F, in favor of Fermin Caram, Jr.;

3. Directing Marcos Mata to acknowledge the deed of sale, Exhibit A, in favor of Claro L. Laureta;

4. Directing Claro L. Laureta to secure the approval of the Secretary of Agriculture and Natural Resources on the
deed, Exhibit A, after Marcos Mata shall have acknowledged the same before a notary public;

5. Directing Claro L. Laureta to surrender to the Register of Deeds for the City and Province of Davao the Owner's
Duplicate of Original Certificate of Title No. 3019 and the latter to cancel the same;

6. Ordering the Register of Deeds for the City and Province of Davao to cancel Transfer Certificate of Title No. T-
140 in the name of Fermin Caram, Jr.;

7. Directing the Register of Deeds for the City and Province of Davao to issue a title in favor of Claro L. Laureta,
Filipino, resident of Quezon City, upon presentation of the deed executed by Marcos Mata in his favor, Exhibit A, duly
acknowledged by him and approved by the Secretary of Agriculture and Natural Resources, and

8. Dismissing the counterclaim and cross claim of Marcos Mata and Codidi Mata, the counterclaim of Caram, Jr.,
the answer in intervention, counterclaim and cross-claim of the Mansacas.

The Court makes no pronouncement as to costs.

SO ORDERED.

The defendants appealed from the judgment to the Court of Appeals. 10 The appeal was docketed as CA-G.R. NO.
35721- R.
The Court of Appeals promulgated its decision on January 29, 1968 affirming the judgment of the trial court.

In his brief, the petitioner assigns the following errors: 11

THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT IRESPE AND APORTADERA WERE ATTORNEYS-IN-
FACT OF PETITIONER CARAM FOR THE PURPOSE OF BUYING THE PROPERTY IN QUESTION.

II

THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE EVIDENCE ADDUCED IN THE TRIAL COURT
CONSTITUTE LEGAL EVIDENCE OF FRAUD ON THE PART OF IRESPE AND APORTADERA AT TRIBUTABLE TO PETITIONER.

III

THE RESPONDENT COURT OF APPEALS COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT KNOWLEDGE OF IRESPE
AND APORTADERA OF A PRIOR UNREGISTERED SALE OF A TITLED PROPERTY ATTRIBUTABLE TO PETITIONER AND
EQUIVALENT IN LAW OF REGISTRATION OF SAID SALE.

IV

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT AN ACTION FOR RECONVEYANCE ON THE GROUND
OF FRAUD PRESCRIBES WITHIN FOUR (4) YEARS.

The petitioner assails the finding of the trial court that the second sale of the property was made through his
representatives, Pedro Irespe and Atty. Abelardo Aportadera. He argues that Pedro Irespe was acting merely as a broker
or intermediary with the specific task and duty to pay Marcos Mata the sum of P1,000.00 for the latter's property and to
see to it that the requisite deed of sale covering the purchase was properly executed by Marcos Mata; that the Identity
of the property to be bought and the price of the purchase had already been agreed upon by the parties; and that the
other alleged representative, Atty. Aportadera, merely acted as a notary public in the execution of the deed of sale.

The contention of the petitioner has no merit. The facts of record show that Mata, the vendor, and Caram, the second
vendee had never met. During the trial, Marcos Mata testified that he knows Atty. Aportadera but did not know Caram.
12 Thus, the sale of the property could have only been through Caram's representatives, Irespe and Aportadera. The
petitioner, in his answer, admitted that Atty. Aportadera acted as his notary public and attorney-in-fact at the same time
in the purchase of the property. 13

The petitioner contends that he cannot be considered to have acted in bad faith because there is no direct proof
showing that Irespe and Aportadera, his alleged agents, had knowledge of the first sale to Laureta. This contention is
also without merit.

The Court of Appeals, in affirming the decision of the trial court, said: 14
The trial court, in holding that appellant Caram. Jr. was not a purchaser in good faith, at the time he bought the same
property from appellant Mata, on May 5, 1947, entirely discredited the testimony of Aportadera. Thus it stated in its
decision:

The testimony of Atty. Aportadera quoted elsewhere in this decision is hollow. There is every reason to believe that
Irespe and he had known of the sale of the property in question to Laureta on the day Mata and Irespe, accompanied by
Leaning Mansaca, went to the office of Atty. Aportadera for the sale of the same property to Caram, Jr., represented by
Irespe as attorney-in-fact. Ining Mansaca was with the two — Irespe and Mata — to engage the services 6f Atty.
Aportadera in the annulment of the sale of his land to Laureta. When Leaning Mansaca narrated to Atty. Aportadera the
circumstances under which his property had been sold to Laureta, he must have included in the narration the sale of the
land of Mata, for the two properties had been sold on the same occassion and under the same circumstances. Even as
early as immediately after liberation, Irespe, who was the witness in most of the cases filed by Atty. Aportadera in his
capacity as Provincial Fiscal of Davao against Laureta, must have known of the purchases of lands made by Laureta when
he was regimental commander, one of which was the sale made by Mata. It was not a mere coincidence that Irespe was
made guardian ad litem of Leaning Mansaca, at the suggestion of Atty. Aportadera and attorney-in-fact of Caram, Jr.

The Court cannot help being convinced that Irespe, attorney-in-fact of Caram, Jr. had knowledge of the prior existing
transaction, Exhibit A, between Mata and Laureta over the land, subject matter of this litigation, when the deed, Exhibit
F, was executed by Mata in favor of Caram, Jr. And this knowledge has the effect of registration as to Caram, Jr. RA pp.
123-124)

We agree with His Honor's conclusion on this particular point, on two grounds — the first, the same concerns matters
affecting the credibility of a witness of which the findings of the trial court command great weight, and second, the same
is borne out by the testimony of Atty. Aportadera himself. (t.s.n., pp. 187-190, 213-215, Restauro).

Even if Irespe and Aportadera did not have actual knowledge of the first sale, still their actions have not satisfied the
requirement of good faith. Bad faith is not based solely on the fact that a vendee had knowledge of the defect or lack of
title of his vendor. In the case of Leung Yee vs. F. L. Strong Machinery Co. and Williamson, this Court held: 15

One who purchases real estate with knowledge of a defect or lack of title in his vendor can not claim that he has
acquired title thereto in good faith, as against the true owner of the land or of an interest therein, and the same rule
must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as
might be necessary to acquaint him with the defects in the title of his vendor.

In the instant case, Irespe and Aportadera had knowledge of circumstances which ought to have put them an inquiry.
Both of them knew that Mata's certificate of title together with other papers pertaining to the land was taken by
soldiers under the command of Col. Claro L. Laureta. 16 Added to this is the fact that at the time of the second sale
Laureta was already in possession of the land. Irespe and Aportadera should have investigated the nature of Laureta's
possession. If they failed to exercise the ordinary care expected of a buyer of real estate they must suffer the
consequences. The rule of caveat emptor requires the purchaser to be aware of the supposed title of the vendor and
one who buys without checking the vendor's title takes all the risks and losses consequent to such failure. 17

The principle that a person dealing with the owner of the registered land is not bound to go behind the certificate and
inquire into transactions the existence of which is not there intimated 18 should not apply in this case. It was of common
knowledge that at the time the soldiers of Laureta took the documents from Mata, the civil government of Tagum was
not yet established and that there were no officials to ratify contracts of sale and make them registerable. Obviously,
Aportadera and Irespe knew that even if Mata previously had sold t he Disputed such sale could not have been
registered.

There is no doubt then that Irespe and Aportadera, acting as agents of Caram, purchased the property of Mata in bad
faith. Applying the principle of agency, Caram as principal, should also be deemed to have acted in bad faith.

Article 1544 of the New Civil Code provides that:

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

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

Should there be no inscription, the ownership shag pertain to the person who in good faith was first in the possession;
and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (1473)

Since Caram was a registrant in bad faith, the situation is as if there was no registration at all. 19

The question to be determined now is, who was first in possession in good faith? A possessor in good faith is one who is
not aware that there exists in his title or mode of acquisition any flaw which invalidates it. 20 Laureta was first in
possession of the property. He is also a possessor in good faith. It is true that Mata had alleged that the deed of sale in
favor of Laureta was procured by force. 21 Such defect, however, was cured when, after the lapse of four years from the
time the intimidation ceased, Marcos Mata lost both his rights to file an action for annulment or to set up nullity of the
contract as a defense in an action to enforce the same.

Anent the fourth error assigned, the petitioner contends that the second deed of sale, Exhibit "F", is a voidable contract.
Being a voidable contract, the action for annulment of the same on the ground of fraud must be brought within four (4)
years from the discovery of the fraud. In the case at bar, Laureta is deemed to have discovered that the land in question
has been sold to Caram to his prejudice on December 9, 1947, when the Deed of Sale, Exhibit "F" was recorded and
entered in the Original Certificate of Title by the Register of Deeds and a new Certificate of Title No. 140 was issued in
the name of Caram. Therefore, when the present case was filed on June 29, 1959, plaintiff's cause of action had long
prescribed.

The petitioner's conclusion that the second deed of sale, "Exhibit F", is a voidable contract is not correct. I n order that
fraud can be a ground for the annulment of a contract, it must be employed prior to or simultaneous to the, consent or
creation of the contract. The fraud or dolo causante must be that which determines or is the essential cause of the
contract. Dolo causante as a ground for the annulment of contract is specifically described in Article 1338 of the New
Civil Code of the Philippines as "insidious words or machinations of one of the contracting parties" which induced the
other to enter into a contract, and "without them, he would not have agreed to".

The second deed of sale in favor of Caram is not a voidable contract. No evidence whatsoever was shown that through
insidious words or machinations, the representatives of Caram, Irespe and Aportadera had induced Mata to enter into
the contract.
Since the second deed of sale is not a voidable contract, Article 1391, Civil Code of the Philippines which provides that
the action for annulment shall be brought within four (4) years from the time of the discovery of fraud does not apply.
Moreover, Laureta has been in continuous possession of the land since he bought it in June 1945.

A more important reason why Laureta's action could not have prescribed is that the second contract of sale, having been
registered in bad faith, is null and void. Article 1410 of the Civil Code of the Philippines provides that any action or
defense for the declaration of the inexistence of a contract does not prescribe.

In a Memorandum of Authorities 22 submitted to this Court on March 13, 1978, the petitioner insists that the action of
Laureta against Caram has prescribed because the second contract of sale is not void under Article 1409 23 of the Civil
Code of the Philippines which enumerates the kinds of contracts which are considered void. Moreover, Article 1544 of
the New Civil Code of the Philippines does not declare void a second sale of immovable registered in bad faith.

The fact that the second contract is not considered void under Article 1409 and that Article 1544 does not declare void a
deed of sale registered in bad faith does not mean that said contract is not void. Article 1544 specifically provides who
shall be the owner in case of a double sale of an immovable property. To give full effect to this provision, the status of
the two contracts must be declared valid so that one vendee may contract must be declared void to cut off all rights
which may arise from said contract. Otherwise, Article 1544 win be meaningless.

The first sale in favor of Laureta prevails over the sale in favor of Caram.

WHEREFORE, the petition is hereby denied and the decision of the Court of Appeals sought to be reviewed is affirmed,
without pronouncement as to costs.

SO ORDERED.
FERNANDO CARRASCOSO, JR.,
Petitioner,
-versus-
THE HONORABLE COURT OF APPEALS, LAURO LEVISTE, as Director and Minority Stockholder and On Behalf of Other
Stockholders of El Dorado Plantation, Inc. and EL DORADO PLANTATION, INC., represented by one of its minority
stockholders, Lauro P. Leviste,
Respondents.
x---------------------------------------x

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,

Petitioner,

-versus-

LAURO LEVISTE, as Director and Minority Stockholder and On Behalf of Other Stockholders of El Dorado Plantation, Inc.,
EL DORADO PLANTATION, INC., represented by Minority Stockholder, Lauro P. Leviste, and FERNANDO CARRASCOSO, JR.
Respondents.

G.R. No. 123672

Present:

PANGANIBAN, J., Chairman,

SANDOVAL-GUTIERREZ,
CORONA,
CARPIO MORALES, and GARCIA, JJ.

G. R. No. 164489
Promulgated:
December 14, 2005
x----------------------------------------------x

DECISION

CARPIO MORALES, J.:

El Dorado Plantation, Inc. (El Dorado) was the registered owner of a parcel of land (the property) with an area of
approximately 1,825 hectares covered by Transfer Certificate of Title (TCT) No. T-93[1] situated in Sablayan, Occidental
Mindoro.

On February 15, 1972, at a special meeting of El Dorados Board of Directors, a Resolution[2] was passed authorizing
Feliciano Leviste, then President of El Dorado, to negotiate the sale of the property and sign all documents and contracts
bearing thereon.

On March 23, 1972, by a Deed of Sale of Real Property,[3] El Dorado, through Feliciano Leviste, sold the property to
Fernando O. Carrascoso, Jr. (Carrascoso).

The pertinent provisions of the Deed of Sale read:

NOW, THEREFORE, for and in consideration of the sum of ONE MILLION EIGHT HUNDRED THOUSAND (1,800,000.00)
PESOS, Philippine Currency, the Vendor hereby sells, cedes, and transfer (sic) unto the herein VENDEE, his heirs,
successors and assigns, the above-described property subject to the following terms and consitions (sic):

1. Of the said sum of P1,800,000.00 which constitutes the full consideration of this sale, P290,000.00 shall be paid, as it
is hereby paid, to the Philippines (sic) National Bank, thereby effecting the release and cancellation fo (sic) the present
mortgage over the above-described property.

2. That the sum of P210,000.00 shall be paid, as it is hereby paid by the VENDEE to the VENDOR, receipt of which
amount is hereby acknowledged by the VENDOR.

3. The remaining balance of P1,300,000.00 plus interest thereon at the rate of 10% per annum shall be paid by the
VENDEE to the VENDOR within a period of three (3) years, as follows:

(a) One (1) year from the date of the signing of this agreement, the VENDEE shall pay to the VENDOR the sum of FIVE
HUNDRED NINETEEN THOUSAND EIGHT HUNDRED THIRTY THREE & 33/100 (P519,833.33) PESOS.

(b) Two (2) years from the date of signing of this agreement, the VENDEE shall pay to the VENDOR the sum of FIVE
HUNDRED NINETTEN (sic) THOUSAND EIGHT HUNDRED AND THIRTY-THREE & 33/100 (P519,833.33) PESOS.

(c) Three (3) years from the date of signing of this agreement, the VENDEE shall pay to the VENDOR the sum of FIVE
Hundred NINETEEN THOUSAND EIGHT HUNDRED AND THIRTY-THREE & 33/100 (P519,833.33) PESOS.
4. The title of the property, subject of this agreement, shall pass and be transferred to the VENDEE who shall have full
authority to register the same and obtain the corresponding transfer certificate of title in his name.

xxx

6. THE VENDOR certifies and warrants that the property above-described is not being cultivated by any tenant and is
therefore not covered by the provisions of the Land Reform Code. If, therefore, the VENDEE becomes liable under the
said law, the VENDOR shall reimburse the VENDEE for all expenses and damages he may incur thereon.[4] (Underscoring
supplied)

From the above-quoted provisions of the Deed of Sale, Carrascoso was to pay the full amount of the purchase price on
March 23, 1975.

On even date, the Board of Directors of El Dorado passed a Resolution reading:

RESOLVED that by reason of the sale of that parcel of land covered by TCT No. T-93 to Dr. FERNANDO O. CARRASCOSO,
JR., the corporation interposes no objection to the property being mortgage (sic) by Dr. FERNANDO O. CARRASCOSO, JR.
to any bank of his choice as long as the balance on the Deed of Sale shall be recognized by Dr. FERNANDO O.
CARRASCOSO, JR.;

RESOLVED, FURTHER, that the corporation authorizes the prefered (sic) claim on the property to be subordinated to any
mortgage that may be constituted by Dr. FERNANDO O. CARRASCOSO, JR.;

RESOLVED, FINALLY, that in case of any mortgage on the property, the corporation waives the preference of any vendors
lien on the property.[5] (Emphasis and underscoring supplied)

Feliciano Leviste also executed the following affidavit on the same day:

1. That by reason of the sale of that parcel of land covered by Transfer Certificate of Title T-93 as evidenced by the Deed
of Sale attached hereto as Annex A and made an integral part hereof, the El Dorado Plantation, Inc. has no objection to
the aforementioned property being mortgaged by Dr. Fernando O. Carrascoso, Jr. to any bank of his choice, as long as
the payment of the balance due the El Dorado Plantation, Inc. under the Deed of Sale, Annex A hereof, shall be
recognized by the vendee therein, Dr. Fernando O. Carrascoso, Jr. though subordinated to the preferred claim of the
mortgagee bank.

2. That in case of any mortgage on the property, the vendor hereby waives the preference of any vendors lien on the
property, subject matter of the deed of sale.

3. That this affidavit is being executed to avoid any question on the authority of Dr. Fernando O. Carrascoso, Jr. to
mortgage the property subject of the Deed of Sale, Annex A hereof, where the purchase price provided therein has not
been fully paid.

4. That this affidavit has been executed pursuant to a board resolution of El Dorado Plantation, Inc.[6] (Emphasis and
underscoring supplied)
On the following day, March 24, 1972, Carrascoso and his wife Marlene executed a Real Estate Mortgage[7] over the
property in favor of Home Savings Bank (HSB) to secure a loan in the amount of P1,000,000.00. Of this amount,
P290,000.00 was paid to Philippine National Bank to release the mortgage priorly constituted on the property and
P210,000.00 was paid to El Dorado pursuant to above-quoted paragraph Nos. 1 and 2 of the terms and conditions of the
Deed of Sale.[8]

The March 23, 1972 Deed of Sale of Real Property was registered and annotated on El Dorados TCT No. T-93 as Entry No.
15240[9] on April 5, 1972. On even date, TCT No. T-93 covering the property was cancelled and TCT No. T-6055[10] was
in its stead issued by the Registry of Deeds of Occidental Mindoro in the name of Carrascoso on which the real estate
mortgage in favor of HSB was annotated as Entry No. 15242.[11]

On May 18, 1972, the real estate mortgage in favor of HSB was amended to include an additional three year loan of
P70,000.00 as requested by the spouses Carrascoso.[12] The Amendment of Real Estate Mortgage was also annotated
on TCT No. T-6055 as Entry No. 15486 on May 24, 1972.[13]

The 3-year period for Carrascoso to fully pay for the property on March 23, 1975 passed without him having complied
therewith.

In the meantime, on July 11, 1975, Carrascoso and the Philippine Long Distance Telephone Company (PLDT), through its
President Ramon Cojuangco, executed an Agreement to Buy and Sell[14] whereby the former agreed to sell 1,000
hectares of the property to the latter at a consideration of P3,000.00 per hectare or a total of P3,000,000.00.

The July 11, 1975 Agreement to Buy and Sell was not registered and annotated on Carrascosos TCT No. T-6055.

Lauro Leviste (Lauro), a stockholder and member of the Board of Directors of El Dorado, through his counsel, Atty.
Benjamin Aquino, by letter[15] dated December 27, 1976, called the attention of the Board to Carrascosos failure to pay
the balance of the purchase price of the property amounting to P1,300,000.00. And Lauros lawyer manifested that:

Because of the default for a long time of Mr. Carrascoso to pay the balance of the consideration of the sale, Don Lauro
Leviste, in his behalf and in behalf of the other shareholders similarly situated like him, want a rescission of the 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]

Lauros desire to rescind the sale was reiterated in two other letters[17] addressed to the Board dated January 20, 1977
and March 3, 1977.

Jose P. Leviste, as President of El Dorado, later sent a letter of February 21, 1977[18] to Carrascoso informing him that in
view of his failure to pay the balance of the purchase price of the property, El Dorado was seeking the rescission of the
March 23, 1972 Deed of Sale of Real Property.

The pertinent portions of the letter read:

xxx

I regret to inform you that the balance of P1,300,000.00 and the interest thereon have long been due and payable,
although you have mortgaged said property with the Home Savings Bank for P1,000,000.00 on March 24, 1972, which
was subsequently increased to P1,070,000.00 on May 18, 1972.
You very well know that the El Dorado Plantation, Inc., is a close family corporation, owned exclusively by the members
of the Leviste family and I am one of the co-owners of the land. As nothing appears to have been done on your part after
our numerous requests for payment of the said amount of P1,300,000.00 and the interest of 10% per annum due
thereon, please be advised that we would like to rescind the contract of sale of the land.[19] (Underscoring supplied)

Jose Leviste, by letter[20] dated March 10, 1977, informed Lauros counsel Atty. Aquino of his (Joses) February 21, 1977
letter to Carrascoso, he lamenting that Carrascoso has not deemed it fit to give [his] letter the courtesy of a reply and
advis[ing] that some of the Directors of [El Dorado] could not see their way clear in complying with the demands of your
client [Lauro] and have failed to reach a consensus to bring the corresponding action for rescission of the contract
against . . . Carrascoso.[21]
Lauro and El Dorado finally filed on March 15, 1977 a complaint[22] for rescission of the March 23, 1972 Deed of Sale of
Real Property between El Dorado and Carrascoso with damages before the Court of First Instance (CFI) of Occidental
Mindoro, docketed as Civil Case No. R-226.

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

Also on March 15, 1977, Lauro and El Dorado caused to be annotated on TCT No. T-6055 a Notice of Lis Pendens,
inscribed as Entry No. 39737.[24]

In the meantime, Carrascoso, as vendor and PLDT, as vendee forged on April 6, 1977 a Deed of Absolute Sale[25] over
the 1,000 hectare portion of the property subject of their July 11, 1975 Agreement to Buy and Sell. The pertinent
portions of the Deed are as follows:

WHEREAS, the VENDOR and the VENDEE entered into an agreement To Buy and Sell on July 11, 1975, which is made a
part hereof by reference;

WHEREAS, the VENDOR and the VENDEE are now decided to execute the Deed of Absolute Sale referred to in the
aforementioned agreement to Buy and Sell;

WHEREFORE, for and in consideration of the foregoing premises and the terms hereunder stated, the VENDOR and the
VENDEE have agreed as follows:

1. For and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00), Philippine currency, of which ONE
HUNDRED TWENTY THOUSAND PESOS P120,000.00 have (sic) already been received by the VENDOR, the VENDOR
hereby sells, transfers and conveys unto the VENDEE one thousand hectares (1,000 has.) of his parcel of land covered by
T.C.T. No. T-6055 of the Registry of Deeds of Mindoro, delineated as Lot No. 3-B-1 in the subdivision survey plan xxx

2. The VENDEE shall pay to the VENDOR upon the signing of this agreement, the sum of TWO MILLION FIVE HUNDRED
THOUSAND PESOS (P2,500,000.00) in the following manner:
a) The sum of TWO MILLION THREE HUNDRED THOUSAND PESOS (P2,300,000.00) to Home Savings Bank in full payment
of the VENDORs mortgaged obligation therewith;

b) The sum of TWO HUNDRED THOUSAND PESOS (P200,000.00) to VENDOR;

The remaining balance of the purchase price in the sum of THREE HUNDRED EIGHTY THOUSAND PESOS (P380,000.00),
less such expenses which may be advanced by the VENDEE but which are for the account of the VENDOR under
Paragraph 6 of the Agreement to Buy and Sell, shall be paid by the VENDEE to the VENDOR upon issuance of title to the
VENDEE.[26] (Underscoring supplied)

In turn, PLDT, by Deed of Absolute Sale[27] dated May 30, 1977, conveyed the aforesaid 1,000 hectare portion of the
property to its subsidiary, PLDT Agricultural Corporation (PLDTAC), for a consideration of P3,000,000.00, the amount of
P2,620,000.00 of which was payable to PLDT upon signing of said Deed, and P380,000.00 to Carrascoso upon issuance of
title to PLDTAC.

In the meantime, on October 19, 1977, the El Dorado Board of Directors, by a special meeting,[28] adopted and
approved a Resolution ratifying and conferring the prosecution of Civil Case No. R-226 of the Court of First Instance of
Occidental Mindoro, entitled Lauro P. Leviste vs. Fernando Carascoso (sic), etc. initiated by stockholder Mr. Lauro P.
Leviste.[29]

In his Answer with Compulsory Counterclaim,[30] Carrascoso alleged that: (1) he had not paid his remaining
P1,300,000.00 obligation under the March 23, 1972 Deed of Sale of Real Property in view of the extensions of time to
comply therewith granted him by El Dorado; (2) the complaint suffered from fatal defects, there being no showing of
compliance with the condition precedent of exhaustion of intra-corporate remedies and the requirement that a
derivative suit instituted by a complaining stockholder be verified under oath; (3) El Dorado committed a gross
misrepresentation when it warranted that the property was not being cultivated by any tenant to take it out of the
coverage of the Land Reform Code; and (4) he suffered damages due to the premature filing of the complaint for which
Lauro and El Dorado must be held liable.
On February 21, 1978, the April 6, 1977 and May 30, 1977 Deeds of Absolute Sale and the respective Articles of
Incorporation of PLDT and PLDTAC were annotated on TCT No. T-6055 as Entry Nos. 24770,[31] 42774,[32] 42769[33]
and 24772,[34] respectively. On even date, Carrascosos TCT No. T-6055 was cancelled and TCT No. T-12480[35] covering
the 1,000 hectare portion of the property was issued in the name of PLDTAC. The March 15, 1977 Notice of Lis Pendens
was carried over to TCT No. T-12480.

On July 31, 1978, PLDT and PLDTAC filed an Urgent Motion for Intervention[36] which was granted by the trial court by
Order[37] of September 7, 1978.

PLDT and PLDTAC thereupon filed their Answer In Intervention with Compulsory Counterclaim and Crossclaim[38]
against Carrascoso on November 13, 1978, alleging that: (1) when Carrascoso executed the April 6, 1977 Deed of
Absolute Sale in favor of PLDT, PLDT was not aware of any litigation involving the 1,000 hectare portion of the property
or of any flaw in his title, (2) PLDT is a purchaser in good faith and for value; (3) when PLDT executed the May 30, 1977
Deed of Absolute Sale in favor of PLDTAC, they had no knowledge of any pending litigation over the property and
neither were they aware that a notice of lis pendens had been annotated on Carrascosos title; and (4) Lauro and El
Dorado knew of the sale by Carrascoso to PLDT and PLDTs actual possession of the 1,000 hectare portion of the property
since June 30, 1975 and of its exercise of exclusive rights of ownership thereon through agricultural development.[39]

By Decision[40] of January 28, 1991, Branch 45 of the San Jose Occidental Mindoro Regional Trial Court to which the CFI
has been renamed, dismissed the complaint on the ground of prematurity, disposing as follows, quoted verbatim:

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

1. Dismissing the plaintiffs complaint against the defendant on the ground of prematurity;
2. Ordering the plaintiffs to pay to the defendant the sum of P2,980,000.00 as actual and compensatory damages, as
well as the sum of P100,000.00 as and for attorneys fees; provided, however, that the aforesaid amounts must first be
set off from the latters unpaid balance to the former;

3. Dismissing the defendants-intervenors counterclaim and cross-claim; and

4. Ordering the plaintiffs to pay to (sic) the costs of suit.

SO ORDERED.[41] (Underscoring supplied)

Carrascoso, PLDT and PLDTAC filed their respective appeals to the Court of Appeals.

By Decision[42] of January 31, 1996, the appellate court reversed the decision of the trial court, disposing as follows,
quoted verbatim:

WHEREFORE, not being meritorious, PLDTs/PLDTACs appeal is hereby DISMISSED and finding El Dorados appeal to be
impressed with merit, We REVERSE the appealed Decision and render the following judgment:

1. The Deed of Sale of Real Property (Exhibit C) is hereby rescinded and TCT No. T-12480 (Exhibit Q) is cancelled while
TCT No. T-93 (Exhibit A), is reactivated.

2. Fernando Carrascoso, Jr. is commanded to:

2.1. return the possession of the 825 [hectare-] remaining portion of the land to El Dorado Plantation, Inc. without
prejudice to the landholdings of legitimate tenants thereon;

2.2. return the net fruits of the land to El Dorado Plantation, Inc. from March 23, 1972 to July 11, 1975, and of the 825-
hectare-remaining portion minus the tenants landholdings, from July 11, 1975 up to its delivery to El Dorado Plantation,
Inc. including whatever he may have received from the tenants if any by way of compensation under the Operation Land
Transfer or under any other pertinent agrarian law;

2.3 Pay El Dorado Plantation, Inc. an attorneys fee of P20,000.00 and litigation expenses of P30,000.00;

2.4 Return to Philippine Long Distance Telephone Company/PLDT Agricultural Corporation P3,000,000.00 plus legal
interest from April 6, 1977 until fully paid;
3. PLDT Agricultural Corporation is ordered to surrender the possession of the 1000-hectare Farm to El Dorado
Plantation, Inc.;

4. El Dorado Plantation, Inc. is directed to return the P500,000.00 to Fernando Carrascoso, Jr. plus legal interest from
March 23, 1972 until fully paid. The performance of this obligation will however await the full compliance by Fernando
Carrascoso, Jr. of his obligation to account for and deliver the net fruits of the land mentioned above to El Dorado
Plantation, Inc.

5. To comply with paragraph 2.2 herein, Carrascoso is directed to submit in (sic) the court a quo a full accounting of the
fruits of the land during the period mentioned above for the latters approval, after which the net fruits shall be delivered
to El Dorado, Plantation, Inc.
6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and PLDT Agricultural Corporation in
writing within ten (10) days after finality of this decision regarding the exercise of its option under Art. 448 of the Civil
Code.

SO ORDERED.[43] (Underscoring supplied)

PLDT and PLDTAC filed on February 22, 1996, a Motion for Reconsideration[44] of the January 31, 1996 CA Decision,
while Carrascoso went up this Court by filing on March 25, 1996 a petition for review,[45] docketed as G.R. No. 123672,
assailing the January 31, 1996 CA Decision and seeking the reinstatement of the January 28, 1991 Decision of the trial
court except with respect to its finding that the acquisition of PLDT and PLDTAC of the 1,000 hectare portion of the
property was subject to the notice of lis pendens.

Lauro, in the meantime, died, hence, on April 16, 1996, a Motion for Substitution of Party[46] was filed praying that his
heirs, represented by Conrad C. Leviste, be substituted as respondents. The Motion was granted by Resolution[47] of
July 10, 1996.

PLDT and PLDTAC filed their Comment[48] to Carrascosos petition and prayed that judgment be rendered finding them
to be purchasers in good faith to thus entitle them to possession and ownership of the 1,000 hectare portion of the
property, together with all the improvements they built thereon. Reiterating that they were not purchasers pendente
lite, they averred that El Dorado and Lauro had actual knowledge of their interests in the said portion of the property
prior to the annotation of the notice of lis pendens to thereby render said notice ineffective.

El Dorado and the heirs of Lauro, both represented by Conrad C. Leviste, also filed their Comment[49] to Carrascosos
petition, praying that it be dismissed for lack of merit and that paragraph 6 of the dispositive portion of the January 31,
1996 CA Decision be modified to read as follows:

6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and PLDT Agricultural Corporation in
writing within ten (10) days after finality of this decision regarding the exercise of its option under Arts. 449 and 450 of
the Civil Code, without right to indemnity on the part of the latter should the former decide to keep the improvements
under Article 449.[50] (Underscoring supplied)

Carrascoso filed on November 13, 1996 his Reply[51] to the Comment of El Dorado and the heirs of Lauro.
In the meantime, as the February 22, 1996 Motion for Reconsideration filed by PLDT and PLDTAC of the CA decision had
remained unresolved, this Court, by Resolution[52] of June 30, 2003, directed the appellate court to resolve the same.

By Resolution[53] of July 8, 2004, the CA denied PLDT and PLDTACs Motion for Reconsideration for lack of merit.

PLDT[54] thereupon filed on September 2, 2004 a petition for review[55] before this Court, docketed as G.R. No.
164489, seeking to reverse and set aside the January 31, 1996 Decision and the July 8, 2004 Resolution of the appellate
court. It prayed that judgment be rendered upholding its right, interest and title to the 1,000 hectare portion of the
property and that it and its successors-in-interest be declared owners and legal possessors thereof, together with all
improvements built, sown and planted thereon.

By Resolution[56] of August 25, 2004, G.R. No. 164489 was consolidated with G.R. No. 123672.

In his petition, Carrascoso faults the CA as follows:

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:

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT PETITIONER AND PLTAC (sic) TOOK THEIR
RIGHT, INTEREST AND TITLE TO THE FARM SUBJECT TO THE NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF THE
PROTECTION ACCORDED THEM UNDER ARTICLES 1181 AND 1187 OF THE NEW CIVIL CODE.

II

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT PETITIONER AND PLDTAC TOOK THEIR
RIGHT, INTEREST AND TITLE TO THE FARM SUBJECT TO THE NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF THE
LEGAL PRINCIPLE THAT RESPONDENTS EL DORADO ET AL.s PRIOR, ACTUAL KNOWLEDGE OF PETITIONER PLDTS
AGREEMENT TO BUY AND SELL WITH RESPONDENT CARRASCOSO RESULTING IN THE DELIVERY TO, AND POSSESSION,
OCCUPATION AND DEVELOPMENT BY, SAID PETITIONER OF THE FARM, IS EQUIVALENT TO REGISTRATION OF SUCH
RIGHT, INTEREST AND TITLE AND, THEREFORE, A PRIOR REGISTRATION NOT AFFECTED BY THE LATER NOTICE OF LIS
PENDENS.[58] (Underscoring supplied)

Carrascoso posits that in the El Dorado Board Resolution and the Affidavit of Feliciano Leviste, both dated March 23,
1972, no objection was interposed to his mortgaging of the property to any bank provided that the balance of the
purchase price of the property under the March 23, 1972 Deed of Sale of Real Property is recognized, hence, El Dorado
could collect the unpaid balance of P1,300,000.00 only after the mortgage in favor of HSB is paid in full; and the filing of
the complaint for rescission with damages on March 15, 1977 was premature as he fully paid his obligation to HSB only
on April 5, 1977 as evidenced by the Cancellation of Mortgage[59] signed by HSB President Gregorio B. Licaros.

Carrascoso further posits that extensions of the period to pay El Dorado were verbally accorded him by El Dorados
directors and officers, particularly Jose and Angel Leviste.

Article 1191 of the Civil Code provides:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages
in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance
with Articles 1385 and 1388 and the Mortgage Law.

Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of
the other, such that the obligation of one is dependent upon the obligation of the other.[60] They are to be performed
simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other.[61]

The right of rescission of a party to an obligation under Article 1191 is predicated on a breach of faith by the other party
who violates the reciprocity between them.[62]

A contract of sale is a reciprocal obligation. The seller obligates itself to transfer the ownership of and deliver a
determinate thing, and the buyer obligates itself to pay therefor a price certain in money or its equivalent.[63] The non-
payment of the price by the buyer is a resolutory condition which extinguishes the transaction that for a time existed,
and discharges the obligations created thereunder.[64] Such failure to pay the price in the manner prescribed by the
contract of sale entitles the unpaid seller to sue for collection or to rescind the contract.[65]

In the case at bar, El Dorado already performed its obligation through the execution of the March 23, 1972 Deed of Sale
of Real Property which effectively transferred ownership of the property to Carrascoso. The latter, on the other hand,
failed to perform his correlative obligation of paying in full the contract price in the manner and within the period
agreed upon.
The terms of the Deed are clear and unequivocal: Carrascoso was to pay the balance of the purchase price of the
property amounting to P1,300,000.00 plus interest thereon at the rate of 10% per annum within a period of three (3)
years from the signing of the contract on March 23, 1972. When Jose Leviste informed him that El Dorado was seeking
rescission of the contract by letter of February 21, 1977, the period given to him within which to fully satisfy his
obligation had long lapsed.

The El Dorado Board Resolution and the Affidavit of Jose Leviste interposing no objection to Carrascosos mortgaging of
the property to any bank did not have the effect of suspending the period to fully pay the purchase price, as expressly
stipulated in the Deed, pending full payment of any mortgage obligation of Carrascoso.

As the CA correctly found:

The adverted resolution (Exhibit 2) does not say that the obligation of Carrascoso to pay the balance was extended.
Neither can We see in it anything that can logically infer said accommodation.

A partially unpaid seller can agree to the buyers mortgaging the subject of the sale without changing the time fixed for
the payment of the balance of the price. The two agreements are not incompatible with each other such that when one
is to be implemented, the other has to be suspended. In the case at bench, there was no impediment for Carrascoso to
pay the balance of the price after mortgaging the land.

Also, El Dorados subordinating its preferred claim or waiving its superior vendors lien over the land in favor of the
mortgagee of said property only means that in a situation where the unpaid price of the Land and loan secured by the
mortgage over the Land both become due and demandable, the mortgagee shall have precedence in going after the
Land for the satisfaction of the loan. Such accommodations do not necessarily imply the modification of the period fixed
in the contract of sale for the payment by Carrascoso of the balance.

The palpable purpose of El Dorado in not raising any objection to Carrascosos mortgaging the land was to eliminate any
legal impediment to such a contract. That was so succinctly expressed in the Affidavit (Exhibit 2-A) of President Feleciano
(sic) Leviste. El Dorados yielding its superior lien over the land in favor of the mortgagee was plainly intended to
overcome the natural reluctance of lending institutions to accept a land whose price has not yet been fully paid as
collateral of a loan.[66] (Underscoring supplied)

Respecting Carrascosos insistence that he was granted verbal extensions within which to pay the balance of the
purchase price of the property by El Dorados directors and officers Jose and Angel Leviste, this Court finds the same
unsubstantiated by the evidence on record.

It bears recalling that Jose Leviste wrote Carrascoso, by letter of February 21, 1977, calling his attention to his failure to
comply, despite numerous requests, with his obligation to pay the amount of P1,300,000.00 and 10% annual interest
thereon, and advising him that we would like to rescind the contract of sale. This letter reiterated the term of payment
agreed upon in the March 23, 1972 Deed of Sale of Real Property and Carrascososs non-compliance therewith.

Carrascoso, harping on Jose Levistes March 10, 1977 letter to Lauros counsel wherein he (Jose Leviste) stated that some
of the Directors of the corporation could not see their way clear in complying with the demands of [Lauro] and have
failed to reach a consensus to bring the corresponding action for rescission of the contract against Dr. Fernando
Carrascoso, argues that the extensions priorly given to him no doubt lead to the logical conclusion on some of the
directors inability to file suit against him.[67]

The argument is specious. As the CA found, even if some officers of El Dorado were initially reluctant to file suit against
him, the same should not be interpreted to mean that this was brought about by a prior extension of the period to pay
the balance of the purchase price of the property as such reluctance could have been due to a myriad of reasons totally
unrelated to the period of payment of the balance.

The bottomline however is, if El Dorado really intended to extend the period of payment of the balance there was
absolutely no reason why it did not do it in writing in clear and unmistakable terms. That there is no such writing
negates all the speculations of the court a quo and pretensions of Carrascoso.

xxx

The unalterable fact here remains that on March 23, 1973, with or without demand, the obligation of Carrascoso to pay
P519,933.33 became due. The same was true on March 23, 1974 and on March 23, 1975 for equal amounts. Since he did
not perform his obligation under the contract of sale, he, therefore, breached it. Having breached the contract, El
Dorados cause of action for rescission of that contract arose.[68] (Underscoring supplied)

Carrascoso goes on to argue that the appellate court erred in ignoring the import of the warranty of non-tenancy
expressly stipulated in the March 23, 1972 Deed of Sale of Real Property. He alleges that on March 8, 1972 or two weeks
prior to the execution of the Deed of Sale, he discovered, while inspecting the property on board a helicopter, that there
were people and cattle in the area; when he confronted El Dorado about it, he was told that the occupants were
caretakers of cattle who would soon leave;[69] four months after the execution of the Deed of Sale, upon inquiry with
the Bureau of Lands and the Bureau of Soils, he was informed that there were people claiming to be tenants in certain
portions of the property;[70] and he thus brought the matter again to El Dorado which informed him that the occupants
were not tenants but squatters.[71]

Carrascoso now alleges that as a result of what he concludes to be a breach of the warranty of non-tenancy committed
by El Dorado, he incurred expenses in the amount of P2,890,000.00 for which he should be reimbursed, his unpaid
obligation to El Dorado amounting to P1,300,000.00 to be deducted therefrom.[72]

The breach of an express warranty makes the seller liable for damages.[73] The following requisites must be established
in order that there be an express warranty in a contract of sale: (1) the express warranty must be an affirmation of fact
or any promise by the seller relating to the subject matter of the sale; (2) the natural tendency of such affirmation or
promise is to induce the buyer to purchase the thing; and (3) the buyer purchases the thing relying on such affirmation
or promise thereon.[74]

Under the March 23, 1972 Deed of Sale of Real Property, El Dorado warranted that the property was not being
cultivated by any tenant and was, and therefore, not covered by the provisions of the Land Reform Code. If Carrascoso
would become liable under the said law, he would be reimbursed for all expenses and damages incurred thereon.

Carrascoso claims to have incurred expenses in relocating persons found on the property four months after the
execution of the Deed of Sale. Apart from such bare claim, the records are bereft of any proof that those persons were
indeed tenants.[75] The fact of tenancy[76] not having been priorly established,[77] El Dorado may not be held liable for
actual damages.

Carrascoso further argues that both the trial and appellate courts erred in holding that the sale of the 1,000 hectare
portion of the property to PLDT, as well as its subsequent sale to PLDTAC, is subject to the March 15, 1977 Notice of Lis
Pendens.

PLDT additionally argues that the CA incorrectly ignored the Agreement to Buy and Sell which it entered into with
Carrascoso on July 11, 1975, positing that the efficacy of its purchase from Carrascoso, upon his fulfillment of the
condition it imposed resulting in its decision to formalize their transaction and execute the April 6, 1977 Deed of Sale,
retroacted to July 11, 1975 or before the annotation of the Notice of Lis Pendens.[78]
The pertinent portions of the July 11, 1975 Agreement to Buy and Sell between PLDT and Carrascoso read:

2. That the VENDOR hereby agrees to sell to the VENDEE and the latter hereby agrees to purchase from the former,
1,000 hectares of the above-described parcel of land as shown in the map hereto attached as Annex A and made an
integral part hereof and as hereafter to be more particularly determined by the survey to be conducted by Certeza &
Co., at the purchase price of P3,000.00 per hectare or for a total consideration of Three Million Pesos (P3,000,000.00)
payable in cash.

3. That this contract shall be considered rescinded and cancelled and of no further force and effect, upon failure of the
VENDOR to clear the aforementioned 1,000 hectares of land of all the occupants therein located, within a period of one
(1) year from the date of execution of this Agreement. However, the VENDEE shall have the option to extend the life of
this Agreement by another six months, during which period the VENDEE shall definitely inform the VENDOR of its
decision on whether or not to finalize the deed of absolute sale for the aforementioned 1,000 hectares of land.

The VENDOR agrees that the amount of P500.00 per family within the aforementioned 1,000 hectares of land shall be
spent by him for relocation purposes, which amount however shall be advanced by the VENDEE and which shall not
exceed the total amount of P120,000.00, the same to be thereafter deducted by the VENDEE from the aforementioned
purchase price of P3,000,000.00.

The aforementioned advance of P120,000.00 shall be remitted by the VENDEE to the VENDOR upon the signing of this
Agreement.

xxx

It is likewise further agreed that the VENDEE shall have the right to enter into any part of the aforementioned 1,000
hectares at any time within the period of this Agreement for purposes of commencing the development of the same.

xxx

5. Title to the aforementioned land shall also be cleared of all liens or encumbrances and if there are any unpaid taxes,
existing mortgages, liens and encumbrances on the land, the payments to be made by the VENDEE to the VENDOR of
the purchase price shall first be applied to liquidate said mortgages, liens and/or encumbrances, such that said
payments shall be made directly to the corresponding creditors. Thus, the balance of the purchase price will be paid to
the VENDOR after the title to the land is cleared of all such liens and encumbrances.
xxx

7. The VENDOR agrees that, during the existence of this Agreement and without the previous written permission from
the VENDEE, he shall not sell, cede, assign and/or transfer the parcel of land subject of this Agreement.[79]

A notice of lis pendens is an announcement to the whole world that a particular real property is in litigation, and serves
as a warning that one who acquires an interest over said property does so at his own risk, or that he gambles on the
result of the litigation over said property.[80]

Once a notice of lis pendens has been duly registered, any cancellation or issuance of title over the land involved as well
as any subsequent transaction affecting the same would have to be subject to the outcome of the suit. In other words, a
purchaser who buys registered land with full notice of the fact that it is in litigation between the vendor and a third
party stands in the shoes of his vendor and his title is subject to the incidents and result of the pending litigation.[81]

x x x Notice of lis pendens has been conceived and, more often than not, availed of, to protect the real rights of the
registrant while the case involving such rights is pending resolution or decision. With the notice of lis pendens duly
recorded, and while it remains uncancelled, the registrant could rest secure that he would not lose the property or any
part of it during the litigation.

The filing of a notice of lis pendens in effect (1) keeps the subject matter of litigation within the power of the court until
the entry of the final judgment so as to prevent the defeat of the latter by successive alienations; and (2) binds a
purchaser of the land subject of the litigation to the judgment or decree that will be promulgated thereon whether such
a purchaser is a bona fide purchaser or not; but (3) does not create a non-existent right or lien.

The doctrine of lis pendens is founded upon reason of public policy and necessity, the purpose of which is to keep the
subject matter of the litigation within the power of the court until the judgment or decree shall have been entered;
otherwise by successive alienations pending the litigation, its judgment or decree shall be rendered abortive and
impossible of execution. The doctrine of lis pendens is based on considerations of public policy and convenience, which
forbid a litigant to give rights to others, pending the litigation, so as to affect the proceedings of the court then
progressing to enforce those rights, the rule being necessary to the administration of justice in order that decisions in
pending suits may be binding and may be given full effect, by keeping the subject matter in controversy within the
power of the court until final adjudication, that there may be an end to litigation, and to preserve the property that the
purpose of the pending suit may not be defeated by successive alienations and transfers of title.[82] (Italics in the
original)

In ruling against PLDT and PLDTAC, the appellate court held:

PLDT and PLDTAC argue that in reality the Farm was bought by the former on July 11, 1975 when Carrascoso and it
entered into the Agreement to Buy and Sell (Exhibit 15). How can an agreement to buy and sell which is a preparatory
contract be the same as a contract of sale which is a principal contract? If PLDTs contention is correct that it bought the
Farm on July 11, 1975, why did it buy the same property again on April 6, 1977? There is simply no way PLDT and
PLDTAC can extricate themselves from the effects of said Notice of Lis Pendens. It is admitted that PLDT took possession
of the Farm on July 11, 1975 after the execution of the Agreement to Buy and Sell but it did so not as owner but as
prospective buyer of the property. As prospective buyer which had actual on (sic) constructive notice of the lis pendens,
why did it pursue and go through with the sale if it had not been willing to gamble with the result of this case?[83]
(Underscoring supplied)

Further, in its July 8, 2004 Resolution, the CA held:

PLDT cannot shield itself from the notice of lis pendens because all that it had at the time of its inscription was an
Agreement to Buy and Sell with CARRASCOSO, which in effect is a mere contract to sell that did not pass to it the
ownership of the property.
xxx

Ownership was retained by CARRASCOSO which EL DORADO may very well recover through its action for rescission.

xxx

PLDTs possession at the time the notice of lis pendens was registered not being a legal possession based on ownership
but a mere possession in fact and the Agreement to Buy and Sell under which it supposedly took possession not being
registered, it is not protected from an adverse judgment that may be rendered in the case subject of the notice of lis
pendens.[84] (Underscoring supplied)

In a contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell,
ownership is not transferred upon delivery of the property but upon full payment of the purchase price.[85] In the
former, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded;
whereas in the latter, title is retained by the vendor until the full payment of the price, such payment being a positive
suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to
convey title from becoming effective.[86]

PLDT argues that the July 11, 1975 Agreement to Buy and Sell is a conditional contract of sale, thus calling for the
application of Articles 1181[87] and 1187[88] of the Civil Code as held in Coronel v. Court of Appeals.[89]

The Court is not persuaded.

For in a conditional contract of sale, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such
that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law without any further act having to be performed by the
seller.[90] Whereas in a contract to sell, upon fulfillment of the suspensive condition, ownership will not automatically
transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has
to convey title to the prospective buyer by entering into a contract of absolute sale.[91]

A perusal of the contract[92] adverted to in Coronel reveals marked differences from the Agreement to Buy and Sell in
the case at bar. In the Coronel contract, there was a clear intent on the part of the therein petitioners-sellers to transfer
title to the therein respondent-buyer. In the July 11, 1975 Agreement to Buy and Sell, PLDT still had to definitely inform
Carrascoso of its decision on whether or not to finalize the deed of absolute sale for the 1,000 hectare portion of the
property, such that in the April 6, 1977 Deed of Absolute Sale subsequently executed, the parties declared that they are
now decided to execute such deed, indicating that the Agreement to Buy and Sell was, as the appellate court held,
merely a preparatory contract in the nature of a contract to sell. In fact, the parties even had to stipulate in the said
Agreement to Buy and Sell that Carrascoso, during the existence of the Agreement, shall not sell, cede, assign and/or
transfer the parcel of land, which provision this Court has held to be a typical characteristic of a contract to sell.[93]

Being a contract to sell, what was vested by the July 11, 1975 Agreement to Buy and Sell to PLDT was merely the
beneficial title to the 1,000 hectare portion of the property.

The right of Daniel Jovellanos to the property under the contract [to sell] with Philamlife was merely an inchoate and
expectant right which would ripen into a vested right only upon his acquisition of ownership which, as aforestated, was
contingent upon his full payment of the rentals and compliance with all his contractual obligations thereunder. A vested
right is an immediate fixed right of present and future enjoyment. It is to be distinguished from a right that is expectant
or contingent. It is a right which is fixed, unalterable, absolute, complete and unconditional to the exercise of which no
obstacle exists, and which is perfect in itself and not dependent upon a contingency. Thus, for a property right to be
vested, there must be a transition from the potential or contingent to the actual, and the proprietary interest must have
attached to a thing; it must have become fixed or established and is no longer open to doubt or controversy.[94]
(Underscoring supplied)

In the case at bar, the July 11, 1975 Agreement to Buy and Sell was not registered, which act of registration is the
operative act to convey and affect the land.

An agreement to sell is a voluntary instrument as it is a willful act of the registered owner. As such voluntary instrument,
Section 50 of Act No. 496 [now Section 51 of PD 1529] expressly provides that the act of registration shall be the
operative act to convey and affect the land. And Section 55 of the same Act [now Section 53 of PD 1529] requires the
presentation of the owners duplicate certificate of title for the registration of any deed or voluntary instrument. As the
agreement to sell involves an interest less than an estate in fee simple, the same should have been registered by filing it
with the Register of Deeds who, in turn, makes a brief memorandum thereof upon the original and owners duplicate
certificate of title. The reason for requiring the production of the owners duplicate certificate in the registration of a
voluntary instrument is that, being a willful act of the registered owner, it is to be presumed that he is interested in
registering the instrument and would willingly surrender, present or produce his duplicate certificate of title to the
Register of Deeds in order to accomplish such registration. However, where the owner refuses to surrender the
duplicate certificate for the annotation of the voluntary instrument, the grantee may file with the Register of Deeds a
statement setting forth his adverse claim, as provided for in Section 110 of Act No. 496. xxx[95] (Underscoring supplied)

In Valley Golf Club, Inc. v. Salas,[96] where a Deed of Absolute Sale covering a parcel of land was executed prior to the
annotation of a notice of lis pendens by the original owner thereof but which Deed was registered after such annotation,
this Court held:

The advance payment of P15,000.00 by the CLUB on October 18, 1960 to ROMERO, and the additional payment by the
CLUB of P54,887.50 as full payment of the purchase price on October 26, 1960, also to ROMERO, cannot be held to be
the dates of sale such as to precede the annotation of the adverse claim by the SISTERS on October 25, 1960 and the lis
pendens on October 27, 1960. It is basic that it is the act of registration of the sale that is the operative act to convey
and affect the land. That registration was not effected by the CLUB until December 4, 1963, or three (3) years after it
had made full payment to ROMERO. xxx
xxx

As matters stand, therefore, in view of the prior annotations of the adverse claim and lis pendens, the CLUB must be
legally held to have been aware of the flaws in the title. By virtue of the lis pendens, its acquisition of the property was
subject to whatever judgment was to be rendered in Civil Case No. 6365. xxx The CLUBs cause of action lies, not against
the SISTERS, to whom the property had been adjudged by final judgment in Civil Case No. 6365, but against ROMERO
who was found to have had no right to dispose of the land.[97] (Underscoring supplied)

PLDT further argues that El Dorados prior, actual knowledge of the July 11, 1975 Agreement to Buy and Sell is equivalent
to prior registration not affected by the Notice of Lis Pendens. As such, it concludes that it was not a purchaser pendente
lite nor a purchaser in bad faith.

PLDT anchors its argument on the testimony of Lauro and El Dorados counsel Atty. Aquino from which it infers that Atty.
Aquino filed the complaint for rescission and caused the notice of lis pendens to be annotated on Carrascosos title only
after reading newspaper reports on the sale to PLDT of the 1,000 hectare portion of the property.

The pertinent portions of Atty. Aquinos testimony are reproduced hereunder:

Q: Do you know, Atty. Aquino, what you did after the filing of the complaint in the instant case of Dr. Carrascoso?

A: Yes, I asked my associates to go to Mamburao and had the notice of Lis Pendens covering the property as a result of
the filing of the instant complaint.

Q: Do you know the notice of Lis Pendens?

A: Yes, it is evidenced by a [Transfer] Certificate Copy of Title of Dr. Carrascoso entitled Notice of Lis Pendens.

Q: As a consequence of the filing of the complaint which was annotated, you have known that?

A: Yes.

xxx

Q: After the annotation of the notice of Lis Pendens, do you know, if any further transaction was held on the property?

A: As we have read in the newspaper, that Dr. Carrascoso had sold the property in favor of the PLDT, Co.

Q: And what did you do?

A: We verified the portion of the property having recorded under entry No. 24770 xxx and we also discovered that the
articles incorporated (sic) and other corporate matters had been organized and established of the PLDT, Co., and had
been annotated.

xxx
Q: Do you know what happened to the property?

A: It was sold by the PLDT to its sub-PLDT Agitating (sic) Co. when at that time there was already notice of Lis Pendens.

xxx

Q: In your testimony, you mentioned that you had come cross- (sic) reading the sale of the subject litigation (sic)
between Dr. Fernando Carrascoso, the defendant herein and the PLDT, one of defendants-intervenor, may I say when?

A: I cannot remember now, but it was in the newspaper where it was informed or mentioned of the sold property to
PLDT.

xxx

Q: Will you tell to the Honorable Court what newspaper was that?

A: Well, I cannot remember what is that newspaper. That is only a means of [confirming] the transaction. What was
[confirmed] to us is whether there was really transaction (sic) and we found out that there was in the Register of Deeds
and that was the reason why we obtained the case.

Q: Well, may I say, is there any reason, the answer is immaterial. The question is as regard the matter of time when
counsel is being able (sic) to read the newspaper allegedly (interrupted)

xxx

Q: The idea of the question, your Honor, is to establish and ask further the notice of [lis pendens] with regards (sic) to
the transfer of property to PLDT, would have been accorded prior to the pendency of the case.

xxx

A: I cannot remember.[98]

PLDT also relies on the following testimony of Carrascoso:

Q: You mentioned Doctor a while ago that you mentioned to the late Governor Feliciano Leviste regarding your
transaction with the PLDT in relation to the subject property you allegedly mention (sic) your intention to sell with the
PLDT?

A: It was Dr. Jose Leviste and Dr. Angel Leviste that was constantly in touched (sic) with me with respect to my
transaction with the PLDT, sir.

Q: Any other officer of the corporation who knows with instruction aside from Dr. Angel Leviste and Dr. Jose Leviste?

A: Yes, sir. It was Trinidad Andaya Leviste and Assemblyman Expedito Leviste.
xxx
Q: What is the position of Mrs. Trinidad Andaya Leviste with the plaintiff-corporation?

A: One of the stockholders and director of the plaintiff-corporation, sir.

Q: Will you please tell us the other officers?

A: Expedito Leviste, sir.

A: Will you tell the position of Expedito Leviste?

A: He was the corporate secretary, sir.

Q: If you know, was Dr. Jose Leviste also a director at that time?

A: Yes, sir.[99]

On the other hand, El Dorado asserts that it had no knowledge of the July 11, 1975 Agreement to Buy and Sell prior to
the filing of the complaint for rescission against Carrascoso and the annotation of the notice of lis pendens on his title. It
further asserts that it always acted in good faith:

xxx The contract to sell between the Petitioner [Carrascoso] and PLDT was executed in July 11, 1975. There is no
evidence that El Dorado was notified of this contract. The property is located in Mindoro, El Dorado is based in Manila.
The land was planted to rice. This was not an unusual activity on the land, thus it could have been the Petitioner who
was using the land. Not having been notified of this sale, El Dorado could not have stopped PLDT from developing the
land.

The absolute sale of the land to PLDT took place on April 6, 1977, or AFTER the filing of this case on March 15, 1977 and
the annotation of a notice of lis pendens on March 16, 1977. Inspite of the notice of lis pendens, PLDT then PLDTAC
persisted not only in buying the land but also in putting up improvements on the property such as buildings, roads,
irrigation systems and drainage. This was done during the pendency of this case, where PLDT and PLDTAC actively
participated as intervenors. They were not innocent bystanders. xxx[100]
This Court finds the above-quoted testimony of Atty. Aquino to be susceptible of conflicting interpretations. As such, it
cannot be the basis for inferring that El Dorado knew of the July 11, 1975 Agreement to Buy and Sell prior to the
annotation of the notice of lis pendens on Carrascosos title.

Respecting Carrascosos allegation that some of the directors and officers of El Dorado had knowledge of his dealings
with PLDT, it is true that knowledge of facts acquired or possessed by an officer or agent of a corporation in the course
of his employment, and in relation to matters within the scope of his authority, is notice to the corporation, whether he
communicates such knowledge or not.[101] In the case at bar, however, apart from Carrascosos claim that he in fact
notified several of the directors about his intention to sell the 1,000 hectare portion of the property to PLDT, no
evidence was presented to substantiate his claim. Such self-serving, uncorroborated assertion is indubitably inadequate
to prove that El Dorado had notice of the July 11, 1975 Agreement to Buy and Sell before the annotation of the notice of
lis pendens on his title.
PLDT is, of course, not without recourse. As held by the CA:

Between Carrascoso and PLDT/PLDTAC, the former acted in bad faith while the latter acted in good faith. This is so
because it was Carrascosos refusal to pay his just debt to El Dorado that caused PLDT/PLDTAC to suffer pecuniary losses.
Therefore, Carrascoso should return to PLDT/PLDTAC the P3,000,000.00 price of the farm plus legal interest from receipt
thereof until paid.[102] (Underscoring supplied)

The appellate courts decision ordering the rescission of the March 23, 1972 Deed of Sale of Real Property between El
Dorado and Carrascoso being in order, mutual restitution follows to put back the parties to their original situation prior
to the consummation of the contract.

The exercise of the power to rescind extinguishes the obligatory relation as if it had never been created, the extinction
having a retroactive effect. The rescission is equivalent to invalidating and unmaking the juridical tie, leaving things in
their status before the celebration of the contract.

Where a contract is rescinded, it is the duty of the court to require both parties to surrender that which they have
respectively received and to place each other as far as practicable in his original situation, the rescission has the effect of
abrogating the contract in all parts.[103] (Underscoring supplied)

The April 6, 1977 and May 30, 1977 Deeds of Absolute Sale being subject to the notice of lis pendens, and as the Court
affirms the declaration by the appellate court of the rescission of the Deed of Sale executed by El Dorado in favor of
Carrascoso, possession of the 1,000 hectare portion of the property should be turned over by PLDT to El Dorado.

As regards the improvements introduced by PLDT on the 1,000 hectare portion of the property, a distinction should be
made between those which it built prior to the annotation of the notice of lis pendens and those which it introduced
subsequent thereto.

When a person builds in good faith on the land of another, Article 448 of the Civil Code governs:
Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to
appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and
548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent.
However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the
building or trees. In such a case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate
the building or trees after the proper indemnity. The parties shall agree upon the terms of the lease and in case of
disagreement, the court shall fix the terms thereof.

The above provision covers cases in which the builders, sowers or planters believe themselves to be owners of the land
or, at least, to have a claim of title thereto.[104] Good faith is thus identified by the belief that the land is owned; or that
by some title one has the right to build, plant, or sow thereon.[105]

The owner of the land on which anything has been built, sown or planted in good faith shall have the right to
appropriate as his own the building, planting or sowing, after payment to the builder, planter or sower of the necessary
and useful expenses,[106] and in the proper case, expenses for pure luxury or mere pleasure.[107]
The owner of the land may also oblige the builder, planter or sower to purchase and pay the price of the land.

If the owner chooses to sell his land, the builder, planter or sower must purchase the land, otherwise the owner may
remove the improvements thereon. The builder, planter or sower, however, is not obliged to purchase the land if its
value is considerably more than the building, planting or sowing. In such case, the builder, planter or sower must pay
rent to the owner of the land.

If the parties cannot come to terms over the conditions of the lease, the court must fix the terms thereof.

The right to choose between appropriating the improvement or selling the land on which the improvement of the
builder, planter or sower stands, is given to the owner of the land.[108]

On the other hand, when a person builds in bad faith on the land of another, Articles 449 and 450 govern:

Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without
right to indemnity.

Art. 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the
demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition at
the expense of the person who built, planted or sowed; or he may compel the builder or planter to pay the price of the
land, and the sower the proper rent.

In the case at bar, it is undisputed that PLDT commenced construction of improvements on the 1,000 hectare portion of
the property immediately after the execution of the July 11, 1975 Agreement to Buy and Sell with the full consent of
Carrascoso.[109] Thus, until March 15, 1977 when the Notice of Lis Pendens was annotated on Carrascosos TCT No. T-
6055, PLDT is deemed to have been in good faith in introducing improvements on the 1,000 hectare portion of the
property.

After March 15, 1977, however, PLDT could no longer invoke the rights of a builder in good faith.

Should El Dorado then opt to appropriate the improvements made by PLDT on the 1,000 hectare portion of the
property, it should only be made to pay for those improvements at the time good faith existed on the part of PLDT or
until March 15, 1977,[110] to be pegged at its current fair market value.[111]

The commencement of PLDTs payment of reasonable rent should start on March 15, 1977 as well, to be paid until such
time that the possession of the 1,000 hectare portion is delivered to El Dorado, subject to the reimbursement of
expenses as aforestated, that is, if El Dorado opts to appropriate the improvements.[112]

If El Dorado opts for compulsory sale, however, the payment of rent should continue up to the actual transfer of
ownership.[113]

WHEREFORE, the petitions are DENIED. The Decision dated January 13, 1996 and Resolution dated July 8, 2004 of the
Court of Appeals are AFFIRMED with MODIFICATION in that

1) the Regional Trial Court of San Jose, Occidental Mindoro, Branch 45 is further directed to:
a. determine the present fair price of the 1,000 hectare portion of the property and the amount of the expenses actually
spent by PLDT for the improvements thereon as of March 15, 1977;

b. include for determination the increase in value (plus value) which the 1,000 hectare portion may have acquired by
reason of the existence of the improvements built by PLDT before March 15, 1977 and the current fair market value of
said improvements;

2. El Dorado is ordered to exercise its option under the law, whether to appropriate the improvements, or to oblige PLDT
to pay the price of the land, and

3) PLDT shall pay El Dorado the amount of Two Thousand Pesos (P2,000.00) per month as reasonable compensation for
its occupancy of the 1,000 hectare portion of the property from the time that its good faith ceased to exist until such
time that possession of the same is delivered to El Dorado, subject to the reimbursement of the aforesaid expenses in
favor of PLDT or until such time that the payment of the purchase price of the 1,000 hectare portion is made by PLDT in
favor of El Dorado in case the latter opts for its compulsory sale.

Costs against petitioners.

SO ORDERED.
G.R. No. L-27587 February 18, 1970

AMADO CARUMBA, petitioner,

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

Luis N. de Leon for petitioner.

Reno R. Gonzales for respondents.

REYES, J.B.L., J.:

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

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

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

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

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

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

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

Upon the execution and delivery of said (final) deed the purchaser, redemptioner, or his assignee shall be substituted to
and acquire all the right, title, interest, and claim of the judgment debtor to the property as of the time of the levy,
except as against the judgment debtor in possession, in which case the substitution shall be effective as of the time of
the deed ... (Emphasis supplied)

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

WHEREFORE, the decision of the Court of Appeals is reversed and that of the Court of First Instance affirmed. Costs
against respondent Santiago Balbuena.
G.R. No. 76500 August 2, 1991
SPOUSES AQUILINO GATMAITAN & LILIA AYTON and SPOUSES EMILIANO DEALING and TEODORA GATMAITAN,
petitioners,
vs.
THE COURT OF APPEALS, (FORMERLY IAC) and SPS. DONATO PASCUAL and ROSITA CRISTOBAL, respondents.
Leopoldo O. Sta. Maria for petitioners.
Elison Natividad for private respondent.
FELICIANO, J.:

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

Lot No. 758 located at Baliuag, Bulacan with an area of 623 square meters was originally registered (Original Certificate
of Title No. 12765) in the name of the deceased spouses Lorenzo Gatmaitan and Filomena Dela Cruz, parents of
petitioner Aquilino Gatmaitan and his sister, Emeteria Gatmaitan. On 2 December 1952, Aquilino and Emeteria, for and
in consideration of the sum of P300.00, executed in favor of respondents spouses Donato Pascual and Rosita Cristobal
Pascual (Pascual spouses) an extrajudicial partition and sale with a right to repurchase covering Lot No. 758.1 Thereafter,
the Pascual spouses took possession of the property and introduced improvements thereon.

On 4 August 1956, Aquilino and Emeteria again executed an extrajudicial partition adjudicating this time to Aquilino and
his wife petitioner Lilia Ayton the whole of Lot No. 758.2 Consequently, Original Certificate of Title No. 12765 was
cancelled and in lieu thereof, TCT No. 155759 was issued in the name of the spouses Aquilino and Lilia Gatmaitan.3

Sometime in January 1970, the Gatmaitan spouses executed in favor of the Pascual spouses an instrument entitled
"Bilihan Tuluyan Ng Lupa"4 by which they absolutely conveyed to the latter spouses for a stated consideration of
P500.00, a one-half portion of Lot No. 758 consisting of about 331.5 square meters. While this instrument was neither
notarized nor registered, the Pascual spouses, in accordance with the contract, continued in possession of the subject
half of Lot No. 758.

Subsequently, on 17 January 1972, the Gatmaitan spouses by an instrument entitled "Kasulatan ng Bilihan"5 sold to
petitioner spouses Emiliano Dealino and Teodora Gatmaitan ( Dealino spouses), who were neighbors of the Pascual
spouses in Sto. Cristo, Baliuag, Bulacan, the whole of Lot No. 758.6 As a consequence of this sale, TCT No. 155759 was
cancelled and TCT No. 1571767 was issued in the name of the Dealino spouses. This second sale came to the knowledge
of the Pascual spouses sometime in November 1972. Thus, on 8 November 1972, Donato Pascual executed an Affidavit
of Adverse Claim with respect to the one-half (1/2) portion of Lot No. 758 which had earlier been sold by the spouses
Gatmaitan to him and his wife.

On 23 November 1972, the Dealino spouses in an instrument entitled "Kasulatan ng Bilihang Patuluyan,"8 conveyed
back to the Gatmaitan spouses the one-half (1/2) portion of Lot No. 758 which the Gatmaitan spouses had originally sold
to the Pascual spouses. The following day, the Gatmaitan spouses executed a Deed of Real Estate Mortgage covering
this same one- half (1/2) portion in favor of the Dealino spouses allegedly to secure an indebtedness of' P1,000.00.

Hence, on 30 April 1973, the Pascual spouses filed a complaint for reconveyance of the one-half (1/2) portion of Lot No.
758 against the spouses Aquilino and Lilia Gatmaitan and the spouses Emiliano and Teodora Dealino.
The trial court in its decision9 dated 13 June 1982 held that the earlier sale of the one-half (1/2) portion of Lot No. 758
to the Pascual spouses prevailed over the later sale of the whole lot to the Dealino spouses as the latter should be
deemed to have had constructive notice of that earlier sale of the property, being neighbors of the Pascual spouses, the
actual possessors of one-half (1/2) of the subject Lot No. 758. Thus, registration of the sale in their favor by the Dealino
spouses had not effectively transferred to them the ownership of that one-half (1/2) portion of said lot.

On appeal, the then Intermediate Appellate Court IAC on 17 April 198610 affirmed the decision of the trial court.

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

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

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

It is well settled, that if immovable property is sold to two (2) different parties, the ownership shall pertain to the person
acquiring it who, in good faith, first registered it in the Registry of Property. This rule however, admits of an exception,
and that is where the second purchaser had knowledge of the other sale, prior to or at the time of the sale. In such case,
his knowledge is equivalent to registration and maintains his purchase with bad faith.11 The applicable rule in this case
would be that the ownership shall pertain to the person who, in good faith, first entered into possession of the property
or, in the absence of possession, to the person who presents the oldest title, provided there is god faith.12

It appears that in 1952, the whole of Lot No. 758 was sold by the heirs of the deceased spouses Lorenzo Gatmaitan and
Filomena De la Cruz to the Pascual spouses with the right to repurchase within two (2) years. The petitioner Gatmaitan
spouses to whom Lot No. 758 was finally adjudicated in 1956, however, were only able to pay to the Pascual spouses an
amount of P300.00 out of the repurchase price of P600.00.13 Notwithstanding the failure to redeem the property, the
Pascual spouses did not consolidate formally the title of the property under their names. Instead, the Gatmaitan spouses
executed in favor of the Pascual spouses a Deed of Absolute Sale conveying to them the one-half (1/2) portion of the
subject lot.14 This sale was not registered by the Pascual spouses; however, they remained in possession of the one-half
(1/2) portion of the lot.

In the meantime, on January 1970, the Gatmaitan spouses sold the whole of Lot No. 758 to the Dealino spouses,
neighbors of the Pascual spouses in Santo Cristo, Baliuag, Bulacan.15 The Dealino spouses registered the property in
their names and were issued TCT No. 157176. Thus, there resulted two (2) sales with respect to the one-half (1/2)
portion which the Pascual spouses continued to possess.
As earlier noted, the trial court found that the Dealino spouses were buyers in bad faith in respect of the one-half (1/2)
portion of Lot No. 758 earlier sold by the Gatmaitan spouses to the Pascual spouses. It held that the Dealino spouses
should be considered to have had constructive notice of that earlier sale of the one-half (1/2) portion to the Pascual
spouses, since the latter were in actual possession of the property and as they were neighbors in Sto. Cristo. The
fundamental rule is that the factual conclusions and findings of the trial court are entitled to great weight on appeal and
should not be disturbed except for cogent and strong reasons.16 Petitioners have failed to adduce any sufficient ground
to set aside the conclusions and findings of fact of the trial court which were affirmed by the Intermediate Appellate
Court.

The fact that the Pascual spouses were in possession of the subject property, ought to have put the Dealino spouses on
inquiry.1âwphi1 Before consenting to the sale themselves, they should have investigated the basis of the possession of
the Pascual spouses. Since the Dealino spouses failed to exercise the ordinary care expected from a buyer of real
property, they must suffer the consequence of their negligence.17 The decision of the IAC should be upheld.

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

It appears that the receipt18 issued by the Pascual spouses which the Gatmaitan spouses presented in evidence, stated
that the repurchase price was not P300.00 as alleged by the Gatmaitan spouses, but P600.00 since the consideration
was P500.00 plus the expenses for the preparation of the document amounting to P100.00. Thus, the P300.00 paid by
the Gatmaitan spouses to the Pascual spouses was only a partial payment of the whole repurchase price. Having only
repaid the amount of P300.00 instead of P600.00, as agreed upon, the Gatmaitan spouses were without any right to
repossess the whole of Lot No. 758. This being the case, the sale to the Dealino spouses was valid only insofar as the
other half portion is concerned.

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

It is the position of the Gatmaitan spouses that the aforementioned "Bilihang Tuluyan ng Lupa" is not valid for lack of
consideration. There is, however, the presumption that an instrument sets out the true agreement of the parties thereto
and that it was executed for valuable consideration.19 The Gatmaitan spouses failed to present any evidence showing
that this instrument was later on disregarded by both parties. Mere allegation is not evidence; the presumption of the
validity of the "Bilihang Tuluyan ng Lupa" was not overturned.

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

SO ORDERED.
G.R. No. L-29972 January 26, 1976

ROSARIO CARBONELL, petitioner,

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

MAKASIAR, J.

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

The dispositive part of the challenged resolution reads:

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

Without costs.

The facts of the case as follows:

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

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

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

Petitioner and respondent Jose Poncio then went to the Republic Savings Bank and secured the consent of the President
thereof for her to pay the arrears on the mortgage and to continue the payment of the installments as they fall due. The
amount in arrears reached a total sum of P247.26. But because respondent Poncio had previously told her that the
money, needed was only P200.00, only the latter amount was brought by petitioner constraining respondent Jose
Poncio to withdraw the sum of P47.00 from his bank deposit with Republic Savings Bank. But the next day, petitioner
refunded to Poncio the sum of P47.00.
On January 27, 1955, petitioner and respondent Poncio, in the presence of a witness, made and executed a document in
the Batanes dialect, which, translated into English, reads:

CONTRACT FOR ONE HALF LOT WHICH I BOUGHT FROM

JOSE PONCIO

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

(Sgd) JOSE PONCIO

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

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

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

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

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

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

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

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

On February 2, 1955, respondent Jose Poncio executed the formal deed of sale in favor of respondent Mrs. Infante in
the total sum of P3,554.00 and on the same date, the latter paid Republic Savings Bank the mortgage indebtedness of
P1,500.00. The mortgage on the lot was eventually discharged.
Informed that the sale in favor of respondent Emma Infante had not yet been registered, Atty. Garcia prepared an
adverse claim for petitioner, who signed and swore to an registered the same on February 8, 1955.

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

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

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

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

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

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

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

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

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

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

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

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

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

Hence, this appeal by certiorari.

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

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

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

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

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

If there is no inscription, what is decisive is prior possession in good faith. If there is inscription, as in the case at bar,
prior registration in good faith is a pre-condition to superior title.

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

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

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

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

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

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

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

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

As recounted by Chief Justice Roberto Concepcion, then Associate Justice, in the preceding case of Rosario Carbonell vs.
Jose Poncio, Ramon Infante and Emma Infante (1-11231, May 12, 1958), Poncio alleged in his answer:

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

II

EXISTENCE OF THE PRIOR SALE TO CARBONELL

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

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

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

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

Then, also, defendants say in their brief:

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

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

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

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

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

1. That on January 27, 1955, the plaintiff purchased from the defendant Poncio a parcel of land with an area of 195
square meters, more or less, covered by TCT No. 5040 of the Province of Rizal, located at San Juan del Monte, Rizal, for
the price of P6.50 per square meter;
2. That the purchase made by the plaintiff was not reduced to writing except for a short note or memorandum Exh.
A, which also recited that the defendant Poncio would be allowed to continue his stay in the premises, among other
things, ... (pp. 91-92, ROA, emphasis supplied).

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

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

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

(6) In the resolution dated October 30, 1968 penned by then Court of Appeals Justice Esguerra (now a member of
this Court), concurred in by Justices Villamor and Nolasco, constituting the majority of a Special Division of Five, the
Court of Appeals, upon motion of the Infantes, while reversing the decision of November 2, 1967 and affirming the
decision of the trial court of January 20, 1965 dismissing plaintiff's complaint, admitted the existence and genuineness of
Exhibit "A", the private memorandum dated January 27, 1955, although it did not consider the same as satisfying "the
essential elements of a contract of sale," because it "neither specifically describes the property and its boundaries, nor
mention its certificate of title number, nor states the price certain to be paid, or contrary to the express mandate of
Articles 1458 and 1475 of the Civil Code.
(7) In his dissent concurred in by Justice Rodriguez, Justice Gatmaitan maintains his decision of November 2, 1967
as well as his findings of facts therein, and reiterated that the private memorandum Exhibit "A", is a perfected sale, as a
sale is consensual and consummated by mere consent, and is binding on and effective between the parties. This
statement of the principle is correct [pp. 89-92, rec.].

III

ADEQUATE CONSIDERATION OR PRICE FOR THE SALE

IN FAVOR OF CARBONELL

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

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

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

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

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

With respect to the claim of Poncio that he signed the document Exhibit "A" under the belief that it was a permit for him
to remain in the premises in ease he decides to sell the property to Carbonell at P20.00 per square meter, the
observation of the Supreme Court through Mr. Chief Justice Concepcion in G.R. No. L-11231, supra, bears repeating:
... Incidentally, the allegation in Poncio's answer to the effect that he signed Exhibit A under the belief that it 'was a
permit for him to remain in the premises in the event that 'he decided to sell the property' to the plaintiff at P20.00 a sq.
m is, on its face, somewhat difficult to believe. Indeed, if he had not decided as yet to sell that land to plaintiff, who had
never increased her offer of P15 a square meter, there as no reason for Poncio to get said permit from her. Upon the
they if plaintiff intended to mislead Poncio, she would have Exhibit A to be drafted, probably, in English, instead of
taking the trouble of seeing to it that it was written precisely in his native dialect, the Batanes. Moreover, Poncio's
signature on Exhibit A suggests that he is neither illiterate nor so ignorant as to sign a document without reading its
contents, apart from the fact that Meonada had read Exhibit A to him-and given him a copy thereof, before he signed
thereon, according to Meonada's uncontradicted testimony. (pp. 46-47, ROA).

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

IV

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

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

Moreover, it is not shown that Poncio owns another parcel with the same area, adjacent to the lot of his cousin
Carbonell and likewise mortgaged by him to the Republic Savings Bank. The transaction therefore between Poncio and
Carbonell can only refer and does refer to the lot involved herein. If Poncio had another lot to remove his house, Exhibit
A would not have stipulated to allow him to stay in the sold lot without paying any rent for one year and thereafter to
pay rental in case he cannot find another place to transfer his house.
While petitioner Carbonell has the superior title to the lot, she must however refund to respondents Infantes the
amount of P1,500.00, which the Infantes paid to the Republic Savings Bank to redeem the mortgage.

It appearing that the Infantes are possessors in bad faith, their rights to the improvements they introduced op the
disputed lot are governed by Articles 546 and 547 of the New Civil Code. Their expenses consisting of P1,500.00 for
draining the property, filling it with 500 cubic meters of garden soil, building a wall around it and installing a gate and
P11,929.00 for erecting a b ' bungalow thereon, are useful expenditures, for they add to the value of the property
(Aringo vs. Arenas, 14 Phil. 263; Alburo vs. Villanueva, 7 Phil. 277; Valencia vs. Ayala de Roxas, 13 Phil. 45).

Under the second paragraph of Article 546, the possessor in good faith can retain the useful improvements unless the
person who defeated him in his possession refunds him the amount of such useful expenses or pay him the increased
value the land may have acquired by reason thereof. Under Article 547, the possessor in good faith has also the right to
remove the useful improvements if such removal can be done without damage to the land, unless the person with the
superior right elects to pay for the useful improvements or reimburse the expenses therefor under paragraph 2 of
Article 546. These provisions seem to imply that the possessor in bad faith has neither the right of retention of useful
improvements nor the right to a refund for useful expenses.

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

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

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

WITH COSTS AGAINST PRIVATE RESPONDENTS.

[G.R. No. 141463. August 6, 2002]

VICTOR ORQUIOLA and HONORATA ORQUIOLA, petitioners, vs. HON. COURT OF APPEALS, HON. VIVENCIO S. BACLIG,
Presiding Judge, Regional Trial Court, Branch 77, Quezon City, THE SHERIFF OF QUEZON CITY and HIS/HER DEPUTIES and
PURA KALAW LEDESMA, substituted by TANDANG SORA DEVELOPMENT CORPORATION, respondents.
DECISION
QUISUMBING, J.:

This petition for review seeks the reversal of the decision[1] of the Court of Appeals dated January 28, 1999 in CA-G.R.
SP No. 47422, which dismissed the petition to prohibit Judge Vivencio Baclig of the Regional Trial Court of Quezon City,
Branch 77, from issuing a writ of demolition against petitioners, and the sheriff and deputy sheriff of the same court
from implementing an alias writ of execution. Also assailed is the resolution[2] of the Court of Appeals dated December
29, 1999 which denied petitioners motion for reconsideration.

The facts are as follows:

Pura Kalaw Ledesma was the registered owner of Lot 689, covered by TCT Nos. 111267 and 111266, in Tandang Sora,
Quezon City. This parcel of land was adjacent to certain portions of Lot 707 of the Piedad Estates, namely, Lot 707-A and
707-B, registered in the name of Herminigilda Pedro under TCT Nos. 16951 and 16952, respectively. On October 29,
1964, Herminigilda sold Lot 707-A and 707-B to Mariano Lising who then registered both lots and Lot 707-C in the name
of M.B. Lising Realty and subdivided them into smaller lots.

Certain portions of the subdivided lots were sold to third persons including herein petitioners, spouses Victor and
Honorata Orquiola, who purchased a portion of Lot 707-A-2, Lot 5, Block 1 of the subdivision plan (LRC), Psd-42965. The
parcel is now #33 Doa Regina St., Regina Village, Tandang Sora, Quezon City. The other portions were registered in the
name of the heirs of Pedro, heirs of Lising, and other third persons.

Sometime in 1969, Pura Kalaw Ledesma filed a complaint, docketed as Civil Case No. Q-12918, with the Regional Trial
Court of Quezon City against Herminigilda Pedro and Mariano Lising for allegedly encroaching upon Lot 689. During the
pendency of the action, Tandang Sora Development Corporation replaced Pura Kalaw Ledesma as plaintiff by virtue of
an assignment of Lot 689 made by Ledesma in favor of said corporation. Trial continued for three decades.

On August 21, 1991, the trial court finally adjudged defendants Pedro and Lising jointly and severally liable for
encroaching on plaintiffs land and ordered them:

(a) to solidarily pay the plaintiff Tandang Sora Dev. Corp. actual damages in the amount of P20,000 with interest from
date of filing of the complaint;

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

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

(d) to pay attorneys fees in the amount of FIVE THOUSAND PESOS (P5,000.00) with interest computed from the date of
filing of the complaint;
(e) to relocate the boundaries to conform with the Commissioners Report, particularly, Annexes A and B thereof, at the
expense of the defendants.[3]

As a result, in February 1998, the Deputy Sheriff of Quezon City directed petitioners, through an alias writ of execution,
to remove the house they constructed on the land they were occupying.

On April 2, 1998, petitioners received a Special Order dated March 30, 1998, from the trial court stating as follows:

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

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

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

SO ORDERED.[4]

To prohibit Judge Vivencio Baclig of the Regional Trial Court of Quezon City from issuing a writ of demolition and the
Quezon City sheriff from implementing the alias writ of execution, petitioners filed with the Court of Appeals a petition
for prohibition with prayer for a restraining order and preliminary injunction on April 17, 1998.[5] Petitioners alleged
that they bought the subject parcel of land in good faith and for value, hence, they were parties in interest. Since they
were not impleaded in Civil Case No. Q-12918, the writ of demolition issued in connection therewith cannot be enforced
against them because to do so would amount to deprivation of property without due process of law.

The Court of Appeals dismissed the petition on January 28, 1999. It held that as buyers and successors-in-interest of
Mariano Lising, petitioners were considered privies who derived their rights from Lising by virtue of the sale and could
be reached by the execution order in Civil Case No. Q-12918. Thus, for lack of merit, the petition was ordered
dismissed.[6]

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

I.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DECISION IN CIVIL CASE NO. Q-12918 CAN ALSO BE
ENFORCED AGAINST THE PETITIONERS EVEN IF THEY WERE NOT IMPLEADED AS PARTIES THERETO.

II.
THE HONORABLE COURT OF APPEALS ERRED IN NOT UPHOLDING PETITIONERS TITLE DESPITE THEIR BEING BUILDER IN
GOOD FAITH AND INNOCENT PURCHASER AND FOR VALUE.

III.

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

For our resolution are the following issues: (1) whether the alias writ of execution may be enforced against petitioners;
and (2) whether petitioners were innocent purchasers for value and builders in good faith.

On the first issue, petitioners claim that the alias writ of execution cannot be enforced against them. They argue that the
appellate court erred when it relied heavily on our ruling in Vda. de Medina vs. Cruz[8] in holding that petitioners are
successors-in-interest of Mariano Lising, and as such, they can be reached by the order of execution in Civil Case No. Q-
12918 even though they were not impleaded as parties thereto. Petitioners submit that Medina is not applicable in this
case because the circumstances therein are different from the circumstances in the present case.

In Medina, the property in dispute was registered under Land Registration Act No. 496 in 1916 and Original Certificate of
Title No. 868 was issued in the name of Philippine Realty Corporation (PRC). In 1949, Benedicta Mangahas and Francisco
Ramos occupied and built houses on the lot without the PRCs consent. In 1959, PRC sold the lot to Remedios Magbanua.
Mangahas and Ramos opposed and instituted Civil Case No. C-120 to annul the sale and to compel PRC to execute a
contract of sale in their favor. The trial court dismissed the complaint and ordered Mangahas and Ramos to vacate the
lot and surrender possession thereof to Magbanua. The judgment became final and executory. When Magbanua had
paid for the land in full, PRC executed a deed of absolute sale in her favor and a new title was consequently issued in her
name. Magbanua then sought the execution of the judgment in Civil Case No. C-120. This was opposed by petitioner
Medina who alleged that she owned the houses and lot subject of the dispute. She said that she bought the houses from
spouses Ricardo and Eufrocinia de Guzman, while she purchased the lot from the heirs of the late Don Mariano San
Pedro y Esteban. The latter held the land by virtue of a Titulo de Composicion Con El Estado Num. 4136, dated April 29,
1894. In opposing the execution, Medina argued that the trial court did not acquire jurisdiction over her, claiming that
she was not a party in Civil Case No. C-120, thus, she could not be considered as a person claiming under Ramos and
Mangahas.

When Medina reached this Court, we held that the decision in Civil Case No. C-120, which had long become final and
executory, could be enforced against petitioner even though she was not a party thereto. We found that the houses on
the subject lot were formerly owned by Mangahas and Ramos who sold them to spouses de Guzman, who in turn sold
them to Medina. Under the circumstances, petitioner was privy to the two judgment debtors Mangahas and Ramos, and
thus Medina could be reached by the order of execution and writ of demolition issued against the two. As to the lot
under dispute, we sustained Magbanuas ownership over it, she being the holder of a Torrens title. We declared that a
Torrens title is generally conclusive evidence of ownership of the land referred to therein, and a strong presumption
exists that a Torrens title was regularly issued and valid. A Torrens title is incontrovertible against any informacion
possessoria, or other title existing prior to the issuance thereof not annotated on the Torrens title. Moreover, persons
dealing with property covered by a Torrens certificate of title are not required to go beyond what appears on its face.
Medina markedly differs from the present case on major points. First, the petitioner in Medina acquired the right over
the houses and lot subject of the dispute after the original action was commenced and became final and executory. In
the present case, petitioners acquired the lot before the commencement of Civil Case No. Q-12918. Second, the right
over the disputed land of the predecessors-in-interest of the petitioner in Medina was based on a title of doubtful
authenticity, allegedly a Titulo de Composicion Con El Estado issued by the Spanish Government in favor of one Don
Mariano San Pedro y Esteban, while the right over the land of the predecessors-in-interest of herein petitioners is based
on a fully recognized Torrens title. Third, petitioners in this case acquired the registered title in their own names, while
the petitioner in Medina merely relied on the title of her predecessor-in-interest and tax declarations to prove her
alleged ownership of the land.

We must stress that where a case like the present one involves a sale of a parcel of land under the Torrens system, the
applicable rule is that a person dealing with the registered property need not go beyond the certificate of title; he can
rely solely on the title and he is charged with notice only of such burdens and claims as are annotated on the title.[9] It is
our view here that the petitioners, spouses Victor and Honorata Orquiola, are fully entitled to the legal protection of
their lot by the Torrens system, unlike the petitioner in the Medina case who merely relied on a mere Titulo de
Composicion.

Coming now to the second issue, were petitioners purchasers in good faith and for value? A buyer in good faith is one
who buys the property of another without notice that some other person has a right to or interest in such property. He
is a buyer for value if he pays a full and fair price at the time of the purchase or before he has notice of the claim or
interest of some other person in the property.[10] The determination of whether one is a buyer in good faith is a factual
issue which generally is outside the province of this Court to determine in a petition for review. An exception is when
the Court of Appeals failed to take into account certain relevant facts which, if properly considered, would justify a
different conclusion.[11] The instant case is covered by this exception to the general rule. As found by the Court of
Appeals and not refuted by private respondent, petitioners purchased the subject land in 1964 from Mariano Lising.[12]
Civil Case No. Q-12918 was commenced sometime in 1969. The Court of Appeals overlooked the fact that the purchase
of the land took place prior to the institution of Civil Case No. Q-12918. In other words, the sale to petitioners was made
before Pura Kalaw Ledesma claimed the lot. Petitioners could reasonably rely on Mariano Lisings Certificate of Title
which at the time of purchase was still free from any third party claim. Hence, considering the circumstances of this
case, we conclude that petitioners acquired the land subject of this dispute in good faith and for value.

The final question now is: could we consider petitioners builders in good faith? We note that this is the first time that
petitioners have raised this issue. As a general rule, this could not be done. Fair play, justice, and due process dictate
that parties should not raise for the first time on appeal issues that they could have raised but never did during trial and
even during proceedings before the Court of Appeals.[13] Nevertheless, we deem it proper that this issue be resolved
now, to avoid circuitous litigation and further delay in the disposition of this case. On this score, we find that petitioners
are indeed builders in good faith.

A builder in good faith is one who builds with the belief that the land he is building on is his, and is ignorant of any defect
or flaw in his title.[14] As earlier discussed, petitioner spouses acquired the land in question without knowledge of any
defect in the title of Mariano Lising. Shortly afterwards, they built their conjugal home on said land. It was only in 1998,
when the sheriff of Quezon City tried to execute the judgment in Civil Case No. Q-12918, that they had notice of private
respondents adverse claim. The institution of Civil Case No. Q-12918 cannot serve as notice of such adverse claim to
petitioners since they were not impleaded therein as parties.
As builders in good faith and innocent purchasers for value, petitioners have rights over the subject property and hence
they are proper parties in interest in any case thereon.[15] Consequently, private respondents should have impleaded
them in Civil Case No. Q-12918. Since they failed to do so, petitioners cannot be reached by the decision in said case. No
man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by any
judgment rendered by the court. In the same manner, a writ of execution can be issued only against a party and not
against one who did not have his day in court. Only real parties in interest in an action are bound by the judgment
therein and by writs of execution and demolition issued pursuant thereto.[16] In our view, the spouses Victor and
Honorata Orquiola have valid and meritorious cause to resist the demolition of their house on their own titled lot, which
is tantamount to a deprivation of property without due process of law.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated January 28, 1999, and its resolution
dated December 29, 1999, in CA-G.R. SP No. 47422, are REVERSED and SET ASIDE. Respondents are hereby enjoined
from enforcing the decision in Civil Case No. Q-12918 through a writ of execution and order of demolition issued against
petitioners. Costs against private respondent.

SO ORDERED.
G.R. No. 147468 April 9, 2003

SPOUSES EDUARDO ARENAS DOMINGO & JOSEFINA CHAVEZ DOMINGO, petitioners,

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

YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals dated November 22, 2000 in CA-G.R. CV
No. 62473,1 as well as the resolution dated March 15, 2001, denying petitioners' Motion for Reconsideration.2

The facts are not in dispute.

The spouses Cesar and Lilia Roces were the owners of two contiguous parcels of land located on Arayat Street,
Mandaluyong, covered by Transfer Certificates of Title Nos. 57217 and 57218.3 On November 13, 1962, the Government
Service Insurance System (GSIS) caused the annotation of an affidavit of adverse claim on the titles alleging that the
spouses have mortgaged the same to it.4

Subsequently, GSIS wrote a letter to Cesar Roces demanding the surrender of the owner's duplicates of titles. When
Roces failed to comply, GSIS filed a petition with the then Court of First Instance of Rizal, docketed as Civil Case No. R-
1359, praying that the owner's duplicates in Roces' possession be declared null and void and that the Register of Deeds
of Pasig be directed to issue new owner's duplicates to GSIS.5 On September 5, 1977, the Court of First Instance issued
an order granting the petition.6 The order became final and executory, and TCT Nos. 57217 (11663) and 57218 (11664)
were issued in the name of GSIS.7

Cesar Roces died intestate on January 26, 1980.8 He was survived by his widow, Lilia Roces, and their children: Cesar
Roberto Roces, Ana Ines Magdalena Roces Tolentino, Luis Miguel M. Roces, Jose Antonio Roces and Maria Vida
Presentacion Roces, all of whom are the respondents in this case.

On July 22, 1992, Reynaldo L. Montinola, a nephew of Lilia Roces, executed an affidavit of self-adjudication over the
Arayat properties. He alleged that the properties were owned by the spouses Cesar and Lilia Roces, both of whom died
intestate, on September 13, 1987 and June 27, 1989, respectively; that the properties were acquired during the
existence of their marriage; that the spouses left no heirs except the brother of Lilia Roces, who was his father; that
neither of the spouses left any will nor any debts; and that he was the sole heir of the Roces spouses.9

On January 5, 1993, Montinola filed a petition against GSIS with the Regional Trial Court of Pasig, docketed as Civil Case
No. R-4743, praying for the cancellation of TCT Nos. 57217 (11663) and 57218 (11664).10 During the trial, GSIS failed to
produce any document evidencing the alleged real estate mortgage by Roces of the properties. Hence, the trial court
rendered judgment in favor of Montinola, declaring the owner's duplicates of TCT No. 57217 (11663) and 57218 (11664)
as null and void and ordering the Registry of Deeds of Mandaluyong to issue new owner's duplicates of the said titles.11

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

Sometime in July 1993, Montinola executed a deed of absolute sale of the property covered by TCT No. 7299 in favor of
petitioner spouses Eduardo and Josefina Domingo.13 Thereafter, TCT No. 7673 was issued in the names of petitioners.
Both TCT Nos. 7299 and 7673 contained the following annotation:

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

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

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

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

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

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

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

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

d) Attorney's fees in the reasonable amount of P30,000.00; and costs.

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

SO ORDERED.17

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

IN THE LIGHT OF ALL THE FOREGOING, the appeal is GRANTED. The Decision of the Court a quo appealed from is SET
ASIDE AND REVERSED. Another Decision is hereby rendered in favor of the Appellants as follows:

1. The "Affidavit of Self-Adjudication" (Exhibit "G"), Transfer Certificate of Title No. 7299 (Exhibits "N" and "22",
Domingo), the "Deed of Absolute Sale" (Exhibit "20") and Transfer Certificate of Title No. 7673 (Exhibit "21") are hereby
declared null and void.

2. Transfer Certificate of Title No. 57218 (11664), under the names of Cesar P. Roces and Lilia Montinola, is hereby
reinstated.
3. The Appellees are hereby ordered to pay, jointly and severally, to the Appellants the amount of P50,000.00 as and by
way of attorney's fees.

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

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

SO ORDERED.19

Petitioners filed a Motion for Reconsideration,20 which was denied in a Resolution dated March 15, 2000.21 Hence this
petition, raising the following errors:

1. THE COURT OF APPEALS ERRED IN HOLDING THAT THE ANNOTATION IN THE TITLE REGARDING SEC. 4, RULE 74 IS AN
ENCUMBRANCE WHICH DISQUALIFIES PETITIONERS FROM BEING INNOCENT PURCHASERS FOR VALUE;

2. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT IT WAS RESPONDENTS WHO MADE IT POSSIBLE FOR
REYNALDO MONTINOLA TO PERPETUATE THE FRAUD AND, THEREFORE, THEY SHOULD BE THE ONE TO BEAR RESULTING
DAMAGE;

3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENTS HAVE NO EXISTING INTEREST IN THE PROPERTY
SINCE IT WAS PREVIOUSLY MORTGAGED AND FORECLOSED BY THE G.S.I.S.; AND

4. THE COURT OF APPEALS ERRED IN HOLDING PETITIONERS LIABLE TO RESPONDENTS FOR ATTORNEY'S FEES, THEREBY
ADDING MORE INJURY TO THEIR MISFORTUNE.22

The petition lacks merit.

It is true that one who deals with property registered under the Torrens system need not go beyond the same, but only
has to rely on the title. He is charged with notice only of such burdens and claims as are annotated on the title.
However, this principle does not apply when the party has actual knowledge of facts and circumstances that would
impel a reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack of
title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the
property in litigation. One who falls within the exception can neither be denominated an innocent purchaser for value
nor a purchaser in good faith.23

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

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

The foregoing rule clearly covers transfers of real property to any person, as long as the deprived heir or creditor
vindicates his rights within two years from the date of the settlement and distribution of estate. Contrary to petitioners'
contention, the effects of this provision are not limited to the heirs or original distributees of the estate properties, but
shall affect any transferee of the properties.

In David v. Malay,25 it was held that the buyer of real property the title of which contain an annotation pursuant to Rule
74, Section 4 of the Rules of Court cannot be considered innocent purchasers for value. In the same vein, the annotation
at the back of TCT No. 7299 in this case referring to Rule 74, Section 4 of the Rules of Court was sufficient notice to
petitioners of the limitation on Montinola's right to dispose of the property. The presence of an irregularity which
excites or arouses suspicion should prompt the vendee to look beyond the certificate and investigate the title of the
vendor appearing on the face thereof.26 Purchasers of registered land are bound by the annotations found at the back
of the certificate of title.27

Hence, petitioners cannot be considered buyers in good faith and cannot now avoid the consequences brought about by
the application of Rule 74, Section 4 of the Rules of Court.

Petitioner's claim that respondents were guilty of laches and estoppel is likewise untenable. Laches is the failure or
neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or
should have been done earlier. The essential elements of laches are: (1) conduct on the part of defendant or one under
whom he claims, giving rise to the situation complained of; (2) delay in asserting complainant's right after he had
knowledge of the defendant's conduct and after he has an opportunity to sue; (3) lack of knowledge or notice on the
part of the defendant that the complainant would assert the right on which he bases his suit; and (4) injury or prejudice
to the defendant in the event relief is accorded to the complainant.28

On the other hand, estoppel by laches arises from the negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it.29

In the case at bar, only four months elapsed from the time respondents discovered Montinola's fraudulent acts,
sometime in May 1993, to the time they filed their complaint on September 6, 1993. This relatively short span of time
can hardly be called unreasonable, especially considering that respondents used this period of time to investigate the
transfers of the property.30 Delay is an indispensable requisite for a finding of estoppel by laches, but to be barred from
bringing suit on grounds of estoppel and laches, the delay must be lengthy and unreasonable.31 No unreasonable delay
can be attributed to respondents in this case.

WHEREFORE, in view of the foregoing, the instant petition for review is DENIED. The decision and resolution of the Court
of Appeals in CA-G.R. No. CV No. 62473 are AFFIRMED in toto.

SO ORDERED.
SPOUSES SAMUEL ULEP (Deceased) and SUSANA REPOGIA-ULEP; SAMUEL ULEP is substituted by his surviving spouses
SUSANA REPOGIA-ULEP and his children: SALLY, RENATO, RODELIO and RICHARD, all surnamed ULEP, and VALENTINA
ULEP,
Petitioners,

- versus -

HONORABLE COURT OF APPEALS, former Eight Division, IGLESIA NI CRISTO, MAXIMA RODICO and spouses WARLITO
PARINGIT and ENCARNACION PARINGIT- GANTE,
Respondents.

G.R. No. 125254

Present:

PANGANIBAN, J., Chairman

SANDOVAL-GUTIERREZ,
CORONA,
CARPIO MORALES and
GARCIA, JJ.

Promulgated:

October 11, 2005

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

DECISION
GARCIA, J.:

Under consideration is this petition for review under Rule 45 of the Rules of Court seeking the reversal and setting aside
of the Decision[1] dated August 15, 1995 of the Court of Appeals (CA) in CA-G.R. CV. No. 39333, and its Resolution[2]
dated April 25, 1996, denying petitioners motion for reconsideration.

The assailed decision modified the June 17, 1991 decision[3] of the Regional Trial Court at Urdaneta, Pangasinan, Branch
48, in its Civil Case No. U-3929, an action for Quieting of Title, Reconveyance and Declaration of Nullity of Titles and
Subdivision Plan, with Damages, thereat commenced by the petitioners against the herein private respondents.

The factual antecedents:

Principal petitioners SAMUEL ULEP, now deceased and substituted by his heirs, and VALENTINA ULEP are brother-and-
sister. Together with their siblings, namely, Atinedoro Ulep and Rosita Ulep, they are children of the late Valentin Ulep.

During his lifetime, the father Valentin Ulep owned a parcel of land, identified as Lot 840 with an area of 3,270 square
meters, located at Asingan, Pangasinan.

Sometime in 1950, the older Ulep sold the one-half (1/2) eastern portion of Lot 840, comprising an area of 1,635 square
meters, to respondent Maxima Rodico, while the remaining one-half (1/2) western portion with the same area, to his
son Atinedoro Ulep married to Beatriz Ulep, and to his other daughter Valentina Ulep.

On June 5, 1952, all the transferees of Lot 840, namely, Maxima Rodico (for the eastern portion) and Atinedoro Ulep and
Valentina Ulep (for the western portion), were jointly issued in their names Transfer Certificate of Title No. 12525.

On June 18, 1971, Atinedoro Ulep, his wife Beatriz and sister Valentina Ulep sold the one-half (1/2) portion of the area
sold to them by their father to their brother Samuel Ulep and the latters wife, Susana Repogia-Ulep. The portion sold to
Samuel and Susana has an area of 817.5 square meters. The document of sale was registered with the Office of the
Registry of Deeds of Pangasinan on February 20, 1973.

Later, an area of 507.5 square meters of the western portion of Lot 840 was sold by the spouses Atinedoro Ulep and
Beatriz Ulep to respondent Warlito Paringit and the latters spouse Encarnacion Gante, who were then issued TCT No.
12688 on September 23, 1975.

Evidently, all the foregoing transactions were done and effected without an actual ground partition or formal subdivision
of Lot 840.

In June 1977, respondent Iglesia ni Cristo (INC) begun constructing its chapel on Lot 840. In the process, INC encroached
portions thereof allegedly pertaining to petitioners and blocked their pathways.

This prompted Samuel Ulep and sister Rosita Ulep to make inquiries with the Office of the Register of Deeds of
Pangasinan. To their consternation, they discovered from the records of said office that a deed of sale bearing date
December 21, 1954, was

purportedly executed by their brother Atinedoro Ulep his, wife Beatriz and their sister Valentina Ulep in favor of INC
over a portion of 620 square meters, more or less, of Lot 840, and that on the basis of said deed, INC was issued TCT No.
12689 on September 23, 1975[4] over the portion allegedly sold to it by the three. Samuel was further shocked to find
out that on July 9, 1975, an affidavit of subdivision was executed by respondents INC, Maxima Rodico and the spouses
Warlito Paringit and Encarnation Gante, on the basis of which affidavit Lot 840 was subdivided into four (4) lots, namely:
(1) Lot 840-A, covered by TCT No. 16205 in his (Samuels) name that of his wife, Susana Repogia-Ulep; (2) Lot 840-B,
covered by TCT No. 12688 in the names of Warlito Paringit and the latters wife Encarnacion Gante; (3) Lot-C 840-C,
covered by TCT No. 12689 in the name of INC; and (4) Lot 840-D, covered by TCT No. 12690[5] in the name of Maxima
Rodico.

Such was the state of things when, on March 29, 1983, in the Regional Trial Court at Pangasinan, the spouses Samuel
Ulep and Susana Repogia-Ulep, the spouses Atinedoro Ulep and Beatriz Ulep and their sister Valentina Ulep, filed their
complaint for Quieting of Title, Reconveyance and Declaration of Nullity of Title and Subdivision Plan with Damages
against respondents INC, Maxima Rodico and the spouses Warlito Paringit and Encarnacion Gante. In their complaint,
docketed as Civil Case No. U-3929, the Uleps basically alleged that they and respondents are co-owners of Lot 840 in the
following proportions:
1,635 square meters to Maxima Rodico;

817.5 square meters to spouses Samuel Ulep and Susana Repogia-Ulep;

507.5 square meters to spouses Warlito Paringit and Encarnacion Gante;

210 square meters to spouses Atinedoro Ulep and Beatriz Ulep, and Valentina Ulep;
100 square meters to Iglesia Ni Cristo.[6]
In the same complaint, the spouses Atinedoro Ulep and Beatriz Ulep and their sister Valentina Ulep denied having
executed a deed of sale in favor of INC over a portion of 620 square meters of Lot 840, claiming that their signatures
appearing on the deed were forged. At the most, so they claimed, what they sold to INC was only 100 square meters and
not 620 square meters. Petitioners Samuel Ulep and Valentina Ulep, along with the spouses Atinedoro Ulep and Beatriz
Ulep, likewise averred that the subject lot was subdivided without their knowledge and consent.

In their common Answer, respondents Maxima Rodico and the spouses Warlito Paringit and Encarnacion Gante
maintained that the segregation of their shares was known to petitioners and that it was done with the consent of
Samuel Ulep himself.

For its part, INC, in its separate Answer, asserted that it purchased from the spouses Atinedoro Ulep and Beatriz Ulep
and their sister Valentina Ulep the portion containing 620 square meters of Lot 840 on December 21, 1954, as evidenced
by a deed of sale duly registered with the Registry of Deeds of Pangasinan.

During the pendency of the proceedings in Civil Case No. U-3929, Atinedoro Ulep died. Less than a month thereafter, or
more specifically on November 16, 1987, Atinedoros widow Beatriz Ulep and their children executed a deed of
renunciation, thereunder waiving all their rights and interests over Lot 840 and relinquishing the same in favor of the
spouses Samuel Ulep and Susana Repogia-Ulep.[7]

Eventually, in a decision dated June 17, 1991, the trial court rendered judgment, as follows:
There being no res adjudicata in this case as already decided by the Court of Appeals, this Court renders judgment as
borne out by the evidence presented in favor of the [petitioners] and against the [respondents], ordering the latter and
all persons claiming title under them to vacate and surrender a portion of 520 sq. m. of the land in question in favor of
the [petitioners] in such a way that [respondent] INC owns only 100 sq. m.; declaring and annulling the following
documents;

1. Deed of sale dated December 21, 1954 allegedly executed by plaintiffs-spouses Atinedoro Ulep and Beatriz Aguilar
and Valentina Ulep in favor of [respondent] INC, (Exh. A);
2. TCT No. 12689 issued to Iglesia Ni Cristo (Exh. K-1);
3. The affidavit of confirmation of subdivision, (Exh. K and Exh. 2); and
4. TCT No. 12605 (Exh. K-4) and a new TCT No. be issued to include the original 817.5 sq. m. in favor of Samuel Ulep and
Susan Repogia;

Declaring Lot No. 840 to be owned by the following parties in the following proportions:
(a) 1,635 sq. m. eastern portion to [respondent] Maxima Rodico already covered by TCT No. 12690
(Exh. K-3);

(b) 817.5 sq. m. to [petitioners] Samuel Ulep and Susana Repogia and a new TCT to be issued;

(c) of 210 sq. m. to [petitioners] Samuel Ulep and Susana Repogia; and the other one-half or 105 sq. m.
to [petitioner] Valentina Ulep in accordance with Exh. C, a deed of renunciation executed by the heirs of Atinedoro Ulep
who died in 1987 and his surviving spouse Beatriz Aguilar and a new Transfer Certificate of Title be issued;

(d) 507.5 sq. m. to [respondents] Warlito Paringit and Encarnacion Gante, already covered by TCT No.
12688 (Exh. K-2);

(e) 100 sq. m. to [respondent] Iglesia Ni Cristo; and a new title to be issued;

and ordering the Register of Deeds of Pangasinan, to issue new Transfer Certificate of Title in favor of [petitioners]
Samuel Ulep and Susana Repogia covering 817.5 sq. m.; and another new Transfer Certificate of Title covering 105 sq. m.
in favor of Valentina Ulep and the other of 210 sq. m. or 105 sq. m. in favor of Samuel Ulep and Susana Repogia
pursuant to Exh. C; and still another new Transfer Certificate of Title covering 100 sq. m. in favor of Iglesia Ni Cristo and
for the latter to pay the costs.

SO ORDERED.[8] (Words in bracket ours).

Dissatisfied, respondent INC interposed an appeal to the Court of Appeals (CA), which appellate recourse was thereat
docketed as CA-G.R. CV No. 39333. For their part, respondents Maxima Rodico and the spouses Warlito Paringit and
Encarnacion Gante opted not to appeal.

As stated at the threshold hereof, the appellate court, in its Decision dated August 15, 1995, modified that of the trial
court, thus:

WHEREFORE, premises considered, the appealed judgment is MODIFIED as above indicated. Accordingly, the decretal
portion of said judgment should read as follows:

1. The Deed of Absolute Sale dated December 21, 1954 executed by plaintiffs-spouses Atinedoro Ulep and Beatriz
Aguilar and Valentina Ulep in favor of [respondent] INC is declared valid (Exh. K-1).

2. Lot No. 840 is declared as owned by the following parties in the following proportions:

(f) 1,635 sq. m. eastern portion to [respondent] Maxima Rodico already covered by TCT No. 12690 (Exh. K-3);

(g) 297.5 sq. m. to [petitioner]-spouses Samuel Ulep and Susana Repogia;

(h) of 210 sq. m. to [petitioner]-spouses Samuel Ulep and Susana Repogia; and the other one-half or 105 sq. m. to
Valentina Ulep in accordance with Exh. C, a deed of renunciation executed by the heirs of Atinedoro Ulep who died in
1987 and his surviving spouse Beatriz Aguilar;

(i) 507.5 sq. m. to [respondents] Warlito Paringit and Encarnacion Gante, already covered by TCT No. 12688 (Exh. K-
2);
(j) 620 sq. m. to [respondent] INC, already covered by TCT No. 12689 (Exh. K-1).

3. TCT No. 16205 registered in the names of [petitioner-spouses] Samuel and Susan Ulep (Exh. K-4) is annulled.

The Register of Deeds of Pangasinan is ordered to issue a new TCT in favor of [petitioner-spouses] Samuel Ulep and
Susana Repogia covering only 297.5 sq. m.; and another new TCT covering 105 sq. m. in favor of Valentina Ulep and the
other of 210 sq. m. or 105 sq. m. in favor of [petitioner-spouses] Samuel Ulep and Susana Repogia pursuant to Exh. C. No
Costs.

SO ORDERED.[9] (Words in brackets ours).

In so ruling, the Court of Appeals explained:

There is no adequate evidentiary demonstration in the record that the deed of sale (dated December 21, 1954 executed
by Atinedoro Ulep, his wife Beatriz and sister Valentina Ulep in favor of INC over the 620 square-meter area of the
western portion of Lot 840) is void and inefficacious on account of forgery.

As a public instrument which enjoys the presumption of regularity, clear and convincing evidence is necessary to
contradict the terms thereof.

xxx xxx xxx

In the present case, the biased, interested testimony of [petitioners] cannot overcome the evidentiary force of the deed
of sale which was acknowledged before a notary public, and hence, a public document.

xxx xxx xxx

The sale of 620 sq. m. in favor of [respondent] INC executed by vendors Atinedoro and Valentina Ulep is dated
December 21, 1954, while the sale of 817.50 sq. meters by the same vendors to [petitioners] Samuel and Susana Ulep
was made on June 18, 1971. [Respondent] INC registered its 620 sq. meters on December 21, 1954 by reason of which
TCT No. 12689 was issued in its name. [Petitioner-spouses] Samuel and Susana Ulep registered the land sold to them on
February 9, 1977 and TCT No. 16205 was issued in their names. Evidently, applying Article 1544, [petitioner] INCs
ownership and title over the 620 sq. meters prevail. The land consisting of 620 sq. meters was first sold to INC and its
title was registered first. Thus, the same vendors could have sold only the remaining 297.50 sq. meters of Lot 840 to
[petitioner-spouses] Samuel and Susana Ulep and TCT No. 16205 issued in the latters name for 817.50 sq. meters is null
and void. There is no evidence that [respondent] INC is guilty of bad faith in acquiring the 620 sq. meters portion of Lot
840. (Words in bracket ours).
Their motion for reconsideration having been denied by the same court in its equally challenged Resolution of April 25,
1996, petitioners are now with us via the present recourse, faulting the appellate court as follows:

I.

THE HONORABLE COURT OF APPEALS ERRED IN NOT AFFIRMING THE DECISION DATED JUNE 17, 1991 (ANNEX A) OF THE
TRIAL COURT, REGIONAL TRIAL COURT, FIRST JUDICIAL REGION, BRANCH 48, URDANETA PANGASINAN IN CIVIL CASE NO.
3929.
II.

AND IN THE ALTERNATIVE, THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING PETITIONERS SAMUEL ULEP
AND SUSANA REPOGIA THE AREA OF 817.5 SQUARE METERS AND IN NOT REDUCING THE SHARE OF PRIVATE
RESPONDENTS, SPOUSES WARLITO PARINGIT AND ENCARNACION GANTE FROM 507.5 SQUARE METERS TO 197 SQUARE
METERS.[10]

Petitioners initially submit that the factual findings of the trial court should not have been disturbed by the appellate
court, the same being entitled to great weight and respect.

We have consistently held that factual findings of the Court of Appeals and other lower courts are, as a rule, final and
conclusive upon this Court, except, inter alia, where their findings are at odd with each other,[11] as here.

Simply put, the issue before us is whether or not the Court of Appeals committed reversible error in modifying the
decision of the trial court.

Evidently, the issue necessitates an inquiry into the facts. While, as a rule, factual issues are not within the province of
this Court, nonetheless, in light of the conflicting factual findings of the two (2) courts below, an examination of the facts
obtaining in this case is in order.

Petitioners contend that respondent INC is entitled to only 100 square meters and not 620 square meters of the western
portion of Lot 840. To them, the deed of sale conveying 620 square meters thereof to INC was void as the signatures of
the vendors therein, namely, the spouses Atinedoro Ulep and Beatriz Ulep and Valentina Ulep, were forged. They submit
that what should instead be upheld was the sale of 817.5 square meters in their favor by the same vendors.

As the Court sees it, the present controversy is a classic case of double sale. On December 21, 1954, Atinedoro Ulep, his
wife Beatriz Ulep and sister Valentina Ulep sold the disputed area (620 square-meter) of Lot 840 to INC. Subsequently,
on January 18, 1971, a second sale was executed by the same vendors in favor of spouses Samuel Ulep and Susana Ulep.
The Court is, therefore, called upon to determine which of the two groups of buyers has a better right to the area in
question.

Article 1544 of the Civil Code provides the statutory solution:

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

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

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession;
and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.
Otherwise stated, the law provides that a double sale of immovable transfers ownership to (1) the first registrant in
good faith; (2) then, the first possessor in good faith; and (3) finally, the buyer who in good faith presents the oldest
title.[12]

Jurisprudence teaches that the governing principle is primus tempore, potior jure (first in time, stronger in right).
Knowledge gained by the first buyer of the second sale cannot defeat the first buyers rights except where the second
buyer registers in good faith the second sale ahead of the first, as provided by the aforequoted provision of the Civil
Code. Such knowledge of the first buyer does not bar him from availing of his rights under the law, among them to
register first his purchase as against the second buyer. In converso, knowledge gained by the second buyer of the first
sale defeats his rights even if he is first to register the second sale, since such knowledge taints his prior registration with
bad faith. This is the price exacted by the same provision of the Civil Code for the second buyer to be able to displace the
first buyer; before the second buyer can obtain priority over the first, he must show that he acted in good faith
throughout (i.e. ignorance of the first sale and of the first buyers rights) from the time of acquisition until the title is
transferred to him by registration, or, failing registration, by delivery of possession.[13]

Per records, the sale of the disputed 620 square-meter portion of Lot 840 to respondent INC was made on December 21,
1954 and registered with the Registry of Deeds of Pangasinan on January 5, 1955. In fact, INC was issued a title over the
same portion on September 23, 1975. On the other hand, the conveyance to the spouses Samuel Ulep and Susana
Repogia-Ulep happened on January 18, 1971 and the spouses registered their document of conveyance only on
February 22, 1973.[14]

Clearly, not only was respondent INC the first buyer of the disputed area. It was also the first to register the sale in its
favor long before petitioners Samuels and Susanas intrusion as second buyers. Although Samuel and Susana thereafter
registered the sale made to them, they did so only after 18 years from the time INC caused the registration of its own
document of sale.
Registration means any entry made in the books of the Registry which records solemnly and permanently the right of
ownership and other real rights.[15] However, mere registration is not sufficient. Good faith must concur with
registration, else registration becomes an exercise in futility.[16] In the instant case, the registration made by
respondent INC of its deed of sale more than satisfies this requirement. The same thing cannot be said of petitioners
Samuel Ulep and Susana Ulep. Said petitioners, by their own admission, were aware that there existed an agreement
between INC and vendors Atinedoro Ulep, his wife Beatriz and sister Valentina Ulep involving a portion of 100 square
meters of Lot 840. Knowledge of such transaction should have put the spouses Samuel Ulep and Susana Ulep upon such
inquiry or investigation as might be necessary to acquaint them with the possible defects in the title of their vendors.
They should have acted with that measure of precaution which may reasonably be required of a prudent man in a
similar situation. After all, good faith, or the lack of it, is, in the last analysis, a question of intention. But in ascertaining
the intention by which one is actuated on a given occasion, courts are necessarily controlled by the evidence as to the
conduct and outward acts by which the inward motive may, with safety, be determined. So it is that the honesty of
intention, the honest lawful intent, which constitutes good faith implies a freedom from knowledge and circumstances
which ought to put a person on inquiry. [17] Hence, proof of such knowledge overcomes the presumption of good faith.

Here, the spouses Samuel Ulep and Susana Ulep were fully aware, or could have been, if they had chosen to inquire, of
the rights of INC under the deed of sale duly annotated on the common title of the spouses Atinedoro Ulep and Beatriz
Ulep and Valentina Ulep. Verily, the sale to INC should prevail over the sale made to spouses Samuel and Susana
because INC was the first registrant in good faith.
Petitioners allegation of forgery relative to the deed of sale executed on December 21, 1954 by the spouses Atinedoro
Ulep, his wife Beatriz and sister Valentina Ulep over the 620 square-meter portion of Lot 840 cannot be sustained. As a
rule, forgery cannot be presumed and must be proved by clear, positive and convincing evidence, the burden for which
lies on the party alleging it. The fact of forgery can only be established by a comparison between the alleged forged
signature and the authentic and genuine signature of the person whose signature is theorized to have been forged.[18]

Here, petitioners claim of forgery is unsupported by any substantial evidence other than their own self-serving
testimonies. As it were, they failed to present handwriting experts and other persons familiar with the handwriting of
the spouses Atinedoro Ulep, his wife Beatriz and sister Valentina Ulep that would show that their signatures appearing
in the questioned deed of sale in favor of respondent INC were forged. Due to the technicality of the procedure involved
in the examination of forged documents, the expertise of questioned document examiners is usually helpful. These
handwriting experts can help determine fundamental, significant differences in writing characteristics between the
questioned and the standard or sample specimen signatures, as well as the movement and manner of execution strokes.

Petitioners insist that the conveyance of only 100 square meters to INC was in fact evidenced by a deed of sale notarized
by a certain Atty. Benjamin Fernandez.[19] However, they sorely failed to produce in court the said alleged deed of sale.
They could have, at the very least, presented Atty. Fernandez to prove the existence of that deed, but they did not. The
only plausible conclusion is that no such deed exists.

On the other hand, to bolster its claim of ownership, respondent INC presented the December 21, 1954 deed of sale
executed in its favor by the spouses Atinedoro and Beatriz Ulep and Valentina Ulep over a portion of 620 square meters
of Lot 840. To be sure, INCs deed of sale was duly notarized by Atty. Bernabe Salcedo Calimlim.[20] Generally, a
notarized document carries the evidentiary weight conferred upon it with respect to its due execution, and documents
acknowledged before a notary public have in their favor the presumption of regularity.[21] Thus, the notarized deed of
sale executed on December 21, 1954 by Atinedoro Ulep, his wife Beatriz and sister Valentina Ulep over the contested
area in favor of respondent INC deserves full credence and is valid and enforceable in the absence, as here, of
overwhelming evidence to the contrary.

In a last-ditch but futile attempt to persuade the Court, petitioners alternatively pray that INCs portion of 620 square
meters of Lot 840, assuming that INC is entitled to it, should be taken from the western portion of the same lot sold to
respondent spouses Warlito Paringit and Encarnacion Gante, and not from them. To petitioners, the share of the
spouses Warlito and Encarnacion should accordingly be reduced from 507.5 square meters to only 197 square meters.

We note, however, that petitioners never raised before the trial court nor before the appellate court the issue of
Warlitos and Encarnacions entitlement to 507.5 square meters. Quite the contrary, petitioners even alleged in their
complaint that the spouses Warlito Paringit and Encarnacion Gante are owners of 507.5 square meters of Lot 840. They
never questioned the spouses ownership of said portion. This issue was only posed by petitioners in the instant petition
before this Court. It is certainly too late for them to raise said issue for the first time at this late stage of the proceedings.

Points of law, theories, issues and arguments not brought to the attention of the lower court need not be, and ordinarily
will not be, considered by a reviewing court, as these cannot be raised for the first time on appeal. Basic considerations
of fair play, justice and due process underlie the rule. It would be unfair to the adverse party who would have no
opportunity to present evidence in contra to the new theory, which it could have done had it been aware of it at the
time of the hearing before the trial court.[22]

Of course, this rule admits of certain exceptions. For one, issues of lack of jurisdiction, though not raised below, may be
considered by the reviewing court as they may be raised at any stage. For another, the reviewing court may also
consider an issue not properly raised during trial when there is plain error. Likewise, it may entertain such arguments
when there are jurisprudential developments affecting the issues, or when the issues raised present a matter of public
policy.[23] Unfortunately for petitioners, however, none of these exceptions exists in this case. It is thus too late in the
day for petitioners to raise in this recourse the sale made by the spouses Atinedoro Ulep and Beatriz Ulep of the 507.5
square-meter area of Lot 840 to the spouses Warlito Paringit and Encarnacion Gante. To allow petitioners to do so
would be utterly unfair to the latter.

WHEREFORE, the petition is DENIED and the assailed decision and resolution of the Court of Appeals AFFIRMED in toto.

Costs against petitioners.

SO ORDERED.
SPOUSES RAMY and ZENAIDA PUDADERA,

G.R. No. 170073

Petitioners,

Present:
- versus -

CORONA, C. J., Chairperson,

IRENEO MAGALLANES and the late DAISY TERESA CORTEL MAGALLANES substituted by her children, NELLY M.
MARQUEZ, ELISEO MAGALLANES and ANGEL MAGALLANES,

VELASCO, JR.,
LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.

Promulgated:
Respondents.

October 18, 2010

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

DECISION

DEL CASTILLO, J.:

One is considered a buyer in bad faith not only when he purchases real estate with knowledge of a defect or lack of title
in his seller but also when he has knowledge of facts which should have alerted him to conduct further inquiry or
investigation.

This Petition for Review on Certiorari seeks to reverse and set aside the Court of Appeals (CAs) June 6, 2005 Decision[1]
in CA-G.R. CV No. 55850, which affirmed the September 3, 1996 Decision[2] of the Regional Trial Court (RTC) of Iloilo
City, Branch 39 in Civil Case No. 22234. Likewise assailed is the September 20, 2005 Resolution[3] denying petitioners
motion for reconsideration.
Factual Antecedents

Belen Consing Lazaro (Lazaro) was the absolute owner of a parcel of land, Lot 11-E, with an area of 5,333 square meters
(sq. m.) located in the District of Arevalo, Iloilo City and covered by Transfer Certificate of Title (TCT) No. T-51250. On
March 13, 1979, Lazaro sold a 400 sq. m. portion of Lot 11-E to Daisy Teresa Cortel Magallanes (Magallanes) for the sum
of P22,000.00 under a Contract To Sale[4] [sic] payable in two years. On July 21, 1980, upon full payment of the monthly
installments, Lazaro executed a Deed of Definite Sale[5] in favor of Magallanes. Thereafter, Magallanes had the lot
fenced and had a nipa hut constructed thereon.

The other portions of Lot 11-E were, likewise, sold by Lazaro to several buyers, namely, Elizabeth Norada, Jose
Macaluda, Jose Melocoton, Nonilon Esteya, Angeles Palma, Medina Anduyan, Evangelina Anas and Mario Gonzales.[6]
On July 14, 1980, Lazaro executed a Partition Agreement[7] in favor of Magallanes and the aforesaid buyers delineating
the portions to be owned by each buyer. Under this agreement, Magallanes and Mario Gonzales were assigned an 800
sq. m. portion of Lot 11-E, with each owning 400 sq. m. thereof, denominated as Lot No. 11-E-8 in a Subdivision Plan[8]
which was approved by the Director of Lands on August 25, 1980.

It appears that the Partition Agreement became the subject of legal disputes because Lazaro refused to turn over the
mother title, TCT No. T-51250, of Lot 11-E to the aforesaid buyers, thus, preventing them from titling in their names the
subdivided portions thereof. Consequently, Magallanes, along with the other buyers, filed an adverse claim with the
Register of Deeds of Ilolilo City which was annotated at the back of TCT No. T-51250 on April 29, 1981.[9] Thereafter,
Magallanes and Gonzales filed a motion to surrender title in Cadastral Case No. 9741 with the then Court of First
Instance of Iloilo City, Branch 1 and caused the annotation of a notice of lis pendens at the back of TCT No. T-51250 on
October 22, 1981.[10]

On November 23, 1981, Lazaro sold Lot 11-E-8, i.e., the lot previously assigned to Magallanes and Mario Gonzales under
the aforesaid Partition Agreement, to her niece, Lynn Lazaro, and the latters husband, Rogelio Natividad (Spouses
Natividad), for the sum of P8,000.00.[11] As a result, a new title, TCT No. T-58606,[12] was issued in the name of
Spouses Natividad. Due to this development, Magallanes pursued her claims against Spouses Natividad by filing a civil
case for specific performance, injunction and damages. On September 2, 1983, Magallanes caused the annotation of a
notice of lis pendens at the back of TCT No. T-58606.[13] Subsequently, Spouses Natividad subdivided Lot 11-E-8 into
two, Lot 11-E-8-A and Lot 11-E-8-B, each containing 400 sq. m.
The civil case filed by Magallanes was later dismissed by the trial court for lack of jurisdiction as per an Order dated
September 16, 1985 which was inscribed at the back of TCT No. T-58606 on July 7, 1986.[14] Four days prior to this
inscription or on July 3, 1986, Spouses Natividad sold Lot 11-E-8-A (subject lot) to petitioner Ramy Pudadera (who later
married petitioner Zenaida Pudadera on July 31, 1989) as evidenced by a Deed of Sale[15] for the sum of P25,000.00. As
a consequence, a new title, TCT No. 72734,[16] was issued in the name of the latter.

Sometime thereafter Magallanes caused the construction of two houses of strong materials on the subject lot. On April
20, 1990, petitioners filed an action for forcible entry against Magallanes with the Municipal Trial Court in Cities of Iloilo
City, Branch 2. On July 17, 1991, the trial court dismissed the action.[17] It held that Magallanes was first in possession
of the subject lot by virtue of the Deed of Definite Sale dated July 21, 1980 between Lazaro and Magallanes. After the
aforesaid sale, Magallanes filled the lot with soil; put up a fence; and built a small hut thereon. On the other hand, the
trial court found that when petitioner Ramy Pudadera bought the subject lot from Spouses Natividad on July 3, 1986,
the former had notice that someone else was already in possession of the subject lot.
Having failed to recover the possession of the subject lot through the aforesaid forcible entry case, petitioners
commenced the subject action for Recovery of Ownership, Quieting of Title and Damages against Magallanes and her
husband, Ireneo, in a Complaint[18] dated February 25, 1995. Petitioners alleged that they are the absolute owners of
Lot 11-E-8-A as evidenced by TCT No. T-72734; that Magallanes is also claiming the said lot as per a Deed of Definite Sale
dated July 21, 1980; that the lot claimed by Magallanes is different from Lot 11-E-8-A; and that Magallanes constructed,
without the consent of petitioners, several houses on said lot. They prayed that they be declared the rightful owners of
Lot 11-E-8-A and that Magallanes be ordered to pay damages.

In her Answer,[19] Magallanes countered that she is the absolute lawful owner of Lot 11-E-8-A; that Lot 11-E-8-A
belongs to her while Lot 11-E-8-B belongs to Mario Gonzales; that petitioners had prior knowledge of the sale between
her and Lazaro; that she enclosed Lot 11-E-8-A with a fence, constructed a house and caused soil fillings on said lot
which petitioners were aware of; and that she has been in actual possession of the said lot from March 11, 1979 up to
the present. She prayed that TCT No. T-72734 in the name of petitioner Ramy Pudadera be cancelled and a new one be
issued in her name.
During the pendency of this case, Magallanes passed away and was substituted by her heirs, herein respondents.
Ruling of the Regional Trial Court

On September 6, 1996, the trial court rendered judgment in favor of respondents, viz:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondents] and against the
[petitioners]:

1. Declaring the [respondent] Daisy Teresa Cortel Magallanes, substituted by her heirs, Nelly M. Magallanes,
Eliseo Magallanes and Angel Magallanes and Ireneo Magallanes, as the rightful owners of Lot 11-E-8-A, Psd-06-002539,
which is now covered by Transfer Certificate of Title No. T-72734, still in the name of Ramy Pudadera, situated in the
District of Arevalo, Iloilo City, with an area of 400 square meters more or less;

2. The [petitioners] spouses Ramy Pudadera and Zenaida Pudadera are hereby ordered to execute the necessary
Deed of Reconveyance in favor of the above-named parties, namely[,] Nelly M. Magallanes, Eliseo Magallanes, x x x
Angel Magallanes, and Ireneo Magallanes;

3. Ordering the [petitioners] to pay jointly and severally the [respondents] the amount of P10,000.00 as attorneys
fees and the costs of the suit.

SO ORDERED.[20]

The trial court ruled that respondents are the rightful owners of the subject lot which was sold by Lazaro to their
predecessor-in-interest, Magallanes, on July 21, 1980. When Lazaro sold the subject lot for a second time to Spouses
Natividad on November 23, 1981, no rights were transmitted because, by then, Magallanes was already the owner
thereof. For the same reason, when Spouses Natividad subsequently sold the subject lot to petitioners on July 3, 1986,
nothing was transferred to the latter.

The trial court further held that petitioners cannot be considered buyers in good faith and for value because after
Magallanes bought the subject lot from Lazaro, Magallanes immediately took possession of the lot, and constructed a
fence with barbed wire around the property. The presence of these structures should, thus, have alerted petitioners to
the possible flaw in the title of the Spouses Natividad considering that petitioners visited the subject lot several times
before purchasing the same. Neither can petitioners claim that the title of the subject lot was clean considering that a
notice of lis pendens was annotated thereon in connection with a civil case that Magallanes filed against Spouses
Natividad involving the subject lot. Although the notice of lis pendens was subsequently cancelled on July 7, 1986, the
deed of sale between petitioners and Spouses Natividad was executed on July 3, 1986 or four days before said
cancellation. Thus, petitioners had notice that the subject property was under litigation. Since respondents are the
rightful owners of the subject lot, petitioners should execute a deed of conveyance in favor of the former so that a new
title may be issued in the name of the respondents.

Ruling of the Court of Appeals

On June 6, 2005, the CA rendered the assailed Decision:

WHEREFORE, with all the foregoing, the decision of the Regional Trial Court, Branch 39, Iloilo City dated September 3,
1996 in civil case no. 22234 for Quieting of Title, Ownership and Damages is hereby AFFIRMED in toto.

All other claims and counterclaims are hereby dismissed for lack of factual and legal basis.

No pronouncement as to cost.

SO ORDERED.[21]

In affirming the ruling of the trial court, the appellate court reasoned that under the rule on double sale what finds
relevance is whether the second buyer registered the second sale in good faith, that is, without knowledge of any defect
in the title of the seller. Petitioners predecessor-in-interest, Spouses Natividad, were not registrants in good faith. When
Magallanes first bought the subject lot from Lazaro on July 21, 1980, Magallanes took possession of the same and had it
fenced and filled with soil. This was made way ahead of the November 23, 1981 Deed of Sale between Lazaro and
Spouses Natividad. With so much movement and transactions involving the subject lot and given that Lyn Lazaro-
Natividad is the niece of Lazaro, the appellate court found it hard to believe that the Spouses Natividad were completely
unaware of any controversy over the subject lot.

The CA, likewise, agreed with the trial court that at the time petitioners acquired the subject lot from Spouses Natividad
on July 3, 1986, a notice of lis pendens was still annotated at the back of TCT No. T-58606 due to a civil case filed by
Magallanes against Spouses Natividad. Although the case was subsequently dismissed by the trial court for lack of
jurisdiction, the notice of lis pendens was still subsisting at the time of the sale of the subject lot between Spouses
Natividad and petitioners on July 3, 1986 because the lis pendens notice was cancelled only on July 7, 1986.
Consequently, petitioners cannot be considered buyers and registrants in good faith because they were aware of a flaw
in the title of the Spouses Natividad prior to their purchase thereof.

Issues

1. The Court of Appeals erred in not considering the judicial admissions of Magallanes as well as the documentary
evidence showing that she was claiming a different lot, Lot No. 11-E-8-B, and not Lot 11-E-8-A which is registered in the
name of petitioners under TCT No. T-72734, consequently, its findings that Magallanes is the rightful owner of Lot 11-E-
8-A is contrary to the evidence on record;

2. The Court of Appeals erred in applying the principle of innocent purchasers for value and in good faith to
petitioners. Granting that the said principle may be applied, the Court of Appeals erred in finding that petitioners are not
innocent purchasers for value;

3. The Court of Appeals erred in affirming the award of attorneys fees against the petitioners.[22]
Petitioners Arguments

Petitioners postulate that the subject lot is different from the lot which Magallanes bought from Lazaro. As per
Magallanes testimony in the ejectment case, she applied for the zoning permit for Lot 11-E-8-B and not Lot 11-E-8-A.
Further, the tax declarations submitted in evidence therein showed that Magallanes paid for the real estate taxes of Lot
11-E-8-B and not Lot 11-E-8-A. Hence, there is no conflict of claims since petitioners are asserting their rights over Lot
11-E-8-A while respondents claim ownership over Lot 11-E-8-B. Moreover, assuming that there was a double sale, the
same did not involve petitioners. The first sale was between Lazaro and Magallanes while the second sale was between
Lazaro and Spouses Natividad. It was erroneous for the appellate court to conclude that Lyn Natividad was in bad faith
simply because she is the niece of Lazaro. The Spouses Natividad were not impleaded in this case and cannot be charged
as buyers in bad faith without giving them their day in court. Petitioners claim that respondents should first impugn the
validity of Spouses Natividads title by proving that the latter acted in bad faith when they bought the subject lot from
Lazaro. Petitioners aver that the evidence on record failed to overcome the presumption of good faith. Considering that
Spouses Natividad were buyers in good faith and considering further that petitioners title was derived from Lazaro,
petitioners should, likewise, be considered buyers in good faith.

Petitioners further argue that the rule on notice of lis pendens was improperly applied in this case. The trial courts order
dismissing the civil case filed by Magallanes against Spouses Natividad had long become final and executory before
petitioners bought the subject lot from Spouses Natividad. While it is true that the order of dismissal was annotated at
the back of TCT No. T-58606 only on July 7, 1986 or four days after the sale between Spouses Natividad and petitioners,
the cancellation of the notice of lis pendens was a mere formality. In legal contemplation, the notice was, at the time of
the sale on July 3, 1986, ineffective. Citing Spouses Po Lam v. Court of Appeals,[23] petitioners contend that the then
existing court order for the cancellation of the lis pendens notice at the time of the sale made them buyers in good faith.

Finally, petitioners question the award of attorneys fees in favor of respondents for lack of basis. Petitioners claim that
they should be awarded damages because respondents unlawfully prevented them from taking possession of the
subject lot.

Respondents Arguments

Respondents counter that they are in possession of, and claiming ownership over the subject lot, i.e., Lot 11-E-8-A, and
not Lot 11-E-8-B. The claim of petitioners that the subject lot is different from what respondents assert to be lawfully
theirs is, thus, misleading. The subject lot was acquired by respondents predecessor-in-interest, Magallanes, when
Lazaro sold the same to Magallanes through a contract to sell in 1979 and a deed of sale in 1980 after full payment of
the monthly installments.
After executing the contract to sell, Magallanes immediately took possession of the subject lot; constructed a fence with
barbed wire; and filled it up with soil in preparation for the construction of concrete houses. She also built a nipa hut
and stayed therein since 1979 up to her demise. Respondents emphasize that upon payment of the full purchase price
under the contract to sell and the execution of the deed of sale, Magallanes undertook steps to protect her rights due to
the refusal of Lazaro to surrender the mother title of the subject lot. Magallanes recorded an adverse claim at the back
of the mother title of the subject lot and an initial notice of lis pendens thereon. She then filed a civil case against Lazaro,
and, later on, against Lazaros successors-in-interest, Spouses Natividad, which resulted in the inscription of a notice of lis
pendens on TCT No. 51250 and TCT No. T-58606. When petitioners bought the subject lot from Spouses Natividad on
July 3, 1986, the said notice of lis pendens was subsisting because the court dismissal of said case was inscribed on the
title only on July 7, 1986. Petitioners cannot, therefore, be considered buyers in good faith.
Our Ruling

We affirm the decision of the CA with modifications.

Petitioners and respondents are claiming ownership over the same lot.

Petitioners contend that they are claiming ownership over Lot 11-E-8-A while Magallanes claim is over Lot 11-E-8-B.
Thus, there is no conflict between their claims.

The argument is specious.

It is clear that Magallanes is claiming ownership over Lot 11-E-8-A and not Lot 11-E-8-B. In her Answer to the Complaint,
she alleged that she is the absolute lawful owner of Lot 11-E-8-A.[24] Her act of fencing Lot 11-E-8-A and constructing
two houses of strong materials thereon further evince her claim of ownership over the subject lot. Thus, in the forcible
entry case which petitioners previously filed against Magallanes involving the subject lot, the trial court noted:

At the pre-trial conference held on June 13, 1990, both parties agreed to a relocation survey of the lot whereupon the
Court commissioned the Bureau of Lands to undertake a relocation survey of the lot in question.

On October 1, 1990, the Bureau of Lands thru Engr. Filomeno P. Daflo submitted the relocation survey report with the
following findings: x x x

xxxx

5. That it was ascertained in our investigation that the entire lot occupied by [Magallanes] (lot 11-E-8-A) is the very same
lot claimed by the [petitioners], as pointed out by its representative.[25] (Emphasis supplied.)

After losing in the aforesaid forcible entry case, petitioners commenced the subject action for quieting of title and
recovery of ownership over Lot 11-E-8-A. Plainly, both parties are asserting ownership over the same lot, i.e. Lot 11-E-8-
A, notwithstanding the error in the entries made by Magallanes in her zoning application and tax declaration forms.

The notice of lis pendens at the back of the mother title of the subject lot was already ordered cancelled at the time of
the sale of the subject lot to petitioners, hence, said notice cannot be made a basis for finding petitioners as buyers in
bad faith.
A notice of lis pendens at the back of the mother title (i.e., TCT No. T-58606) of Lot 11-E-8-A was inscribed on September
2, 1983 in connection with the civil case for specific performance, injunction and damages which Magallanes filed
against Spouses Natividad. This case was subsequently dismissed by the trial court for lack of jurisdiction in an Order
dated September 16, 1985 which has already become final and executory as per the Certification dated June 16, 1986
issued by the Branch Clerk of Court of the RTC of Iloilo City, Branch 33.[26] The aforesaid court dismissal was, however,
inscribed only on July 7, 1986 or three days after the sale of the subject lot to petitioners.[27]

Based on these established facts, petitioners correctly argue that the said notice of lis pendens cannot be made the basis
for holding that they are buyers in bad faith. Indeed, at the time of the sale of the subject lot by Spouses Natividad to
petitioners on July 7, 1986, the civil case filed by Magallanes against Spouses Natividad had long been dismissed for lack
of jurisdiction and the said order of dismissal had become final and executory. In Spouses Po Lam v. Court of
Appeals,[28] the buyers similarly bought a property while a notice of lis pendens was subsisting on its title. Nonetheless,
we ruled that the buyers cannot be considered in bad faith because the alleged flaw, the notice of lis pendens, was
already being ordered cancelled at the time of the sale and the cancellation of the notice terminated the effects of such
notice.[29]

This notwithstanding, petitioners cannot be considered buyers in good faith because, as will be discussed hereunder,
they were aware of other circumstances pointing to a possible flaw in the title of Spouses Natividad prior to the sale of
the subject lot. Despite these circumstances, petitioners did not take steps to ascertain the status of the subject lot but
instead proceeded with the purchase of the same.

One who buys a property with knowledge of facts which should put him upon inquiry or investigation as to a possible
defect in the title of the seller acts in bad faith.

Lot 11-E-8, of which the subject lot (i.e., Lot 11-E-8-A) forms part, was sold by Lazaro to two different buyers. As
narrated earlier, Lot 11-E-8 is a portion of Lot 11-E, a 5,333 sq. m. lot covered by TCT No. T-51250. Lazaro subdivided the
said lot and sold portions thereof to several buyers. One of these buyers was Magallanes who purchased a 400 sq. m.
portion on March 13, 1979. The metes and bounds of this lot were later delineated in a Partition Agreement dated July
14, 1980 executed by Lazaro in favor of the aforesaid buyers. As per this agreement, Magallanes and Mario Gonzales
were assigned Lot 11-E-8 comprising 800 sq. m with each owning a 400 sq. m. portion thereof. This was the first sale
involving Lot 11-E-8.

After the aforesaid sale, it appears Lazaro refused to turnover the mother title of Lot 11-E which resulted in the filing of
legal suits by Magallanes and the other buyers against her (Lazaro). While these suits were pending, Lazaro sold Lot 11-
E-8 to her niece Lynn and the latters husband Rogelio Natividad on November 23, 1981. Consequently, a new title, TCT
No. T-58606, was issued covering Lot 11-E-8 in the name of Spouses Natividad. This was the second sale of Lot 11-E-8.

Subsequently, Spouses Natividad subdivided Lot 11-E-8 into two, i.e., Lot 11-E-8-A and Lot 11-E-8-B, with each
containing 400 sq. m. On July 3, 1986, they sold Lot 11-E-8-A to petitioners. Lot 11-E-8-A is the 400 sq. m. portion of Lot
11-E-8 which Magallanes claims to be owned by her pursuant to the aforesaid Partition Agreement while the other half,
Lot 11-E-8-B, pertains to the lot of Mario Gonzales.

The question before us, then, is who between petitioners and respondents have a better right over Lot 11-E-8-A?
Article 1544 of the Civil Code provides:

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

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

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

Thus, in case of a double sale of immovables, ownership shall belong to (1) the first registrant in good faith; (2) then, the
first possessor in good faith; and (3) finally, the buyer who in good faith presents the oldest title.[30] However, mere
registration is not enough to confer ownership. The law requires that the second buyer must have acquired and
registered the immovable property in good faith. In order for the second buyer to displace the first buyer, the following
must be shown: (1) the second buyer must show that he acted in good faith (i.e., in ignorance of the first sale and of the
first buyers rights) from the time of acquisition until title is transferred to him by registration or failing registration, by
delivery of possession; and (2) the second buyer must show continuing good faith and innocence or lack of knowledge of
the first sale until his contract ripens into full ownership through prior registration as provided by law.[31]

One is considered a purchaser in good faith if he buys the property without notice that some other person has a right to
or interest in such property and pays its fair price before he has notice of the adverse claims and interest of another
person in the same property.[32] Well-settled is the rule that every person dealing with registered land may safely rely
on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go beyond the
certificate to determine the condition of the property.[33] However, this rule shall not apply when the party has actual
knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the
purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent
man to inquire into the status of the title of the property in litigation.[34] His mere refusal to believe that such defect
exists, or his willful closing of his eyes to the possibility of the existence of a defect in his vendors title will not make him
an innocent purchaser for value if it later develops that the title was in fact defective, and it appears that he had such
notice of the defect had he acted with that measure of precaution which may reasonably be required of a prudent man
in a like situation.[35]

In the case at bar, both the trial court and CA found that petitioners were not buyers and registrants in good faith owing
to the fact that Magallanes constructed a fence and small hut on the subject lot and has been in actual physical
possession since 1979. Hence, petitioners were aware or should have been aware of Magallanes prior physical
possession and claim of ownership over the subject lot when they visited the lot on several occasions prior to the sale
thereof. Thus, the trial court held:

This Court believes the version of [Magallanes], that when she bought the property from [Lazaro], she took immediate
possession of the 400-square meter portion and constructed a fence [with] barbed wire surrounding the said property.
She also constructed a house made of nipa, bamboo and concrete materials. This fact was even confirmed by
[petitioner] Zenaida Pudadera in her testimony.
This Court cannot believe the testimony of [petitioner] Zenaida Pudadera that they were the ones who constructed the
fence surrounding the 400-square meter portion, because there was already an existing fence made of bamboos and
barbed wire put up by [Magallanes]. When the [petitioners] therefore, visited the land in question, several times before
the purchase, particularly [petitioner] Ramy Pudadera, he must have seen the fence surrounding the property in
question. He should have been curious why there was an existing fence surrounding the property? [sic] He should have
asked or verified as to the status of the said property. A real estate buyer must exercise ordinary care in buying x x x real
estate, especially the existence of the fence in this case which must have [alerted him to inquire] whether someone was
already in possession of the property in question.[36]

We find no sufficient reason to disturb these findings. The factual findings of the trial court are accorded great weight
and respect and are even binding on this Court particularly where, as here, the findings of the trial and appellate courts
concur.[37] Although this rule is subject to certain exceptions, we find none obtaining in this case.

Petitioners next argue that since the second sale involves Lazaro and their predecessor-in-interest, Spouses Natividad,
due process requires that Spouses Natividad should first be allowed to establish that they (Spouses Natividad) are
second buyers and first registrants in good faith before any finding on petitioners own good faith can be made
considering that they (petitioners) merely acquired their title from Spouses Natividad. Petitioners lament that Spouses
Natividad were not impleaded in this case. Thus, the finding that petitioners acted in bad faith was improper.

The argument fails on two grounds.

First, as previously explained, the evidence duly established that petitioners were aware of facts pointing to a possible
flaw in the title of Spouses Natividad when they visited the subject lot on several occasions prior to the sale. This, by
itself, was sufficient basis to rule that they acted in bad faith. Stated differently, the presence or absence of good faith
on the part of Spouses Natividad during the second sale involving the subject lot will not erase the bad faith of
petitioners in purchasing the subject lot from Spouses Natividad.

Second, petitioners miscomprehend the right to due process. The records indicate that at no instance during the trial of
this case were they prevented from presenting evidence, including the testimonies of Spouses Natividad, to support
their claims. Thus, they were not denied their day in court. Petitioners seem to forget that they were the ones who filed
this action to recover ownership and quiet title against Magallanes. If petitioners intended to bolster their claim of good
faith by impleading the Spouses Natividad in this case, there was nothing to prevent them from doing so. Time and
again, we have ruled that the burden of proof to establish the status of a purchaser and registrant in good faith lies upon
the one who asserts it.[38] This onus probandi cannot be discharged by mere invocation of the legal presumption of
good faith.[39]

In sum, petitioners were negligent in not taking the necessary steps to determine the status of the subject lot despite
the presence of circumstances which would have impelled a reasonably cautious man to do so. Thus, we affirm the
findings of the lower courts that they cannot be considered buyers and registrants in good faith. Magallanes, as the first
buyer and actual possessor, was correctly adjudged by the trial court as the rightful owner of the subject lot and the
conveyance thereof in favor of her heirs, herein respondents, is proper under the premises. In addition, the trial court
should be ordered to cause the cancellation of TCT No. T-72734 by the Register of Deeds of Iloilo City and the issuance
of a new certificate of title in the names of respondents.[40] This is without prejudice to any remedy which petitioners
may have against Spouses Natividad and/or Lazaro.
The award of attorneys fees is improper.

On the issue of the propriety of attorneys fees which the trial court awarded in favor of respondents, we are inclined to
agree with petitioners that the same should be deleted for lack of basis. An award of attorneys fees is the exception
rather than the rule.[41] The right to litigate is so precious that a penalty should not be charged on those who may
exercise it erroneously.[42] It is not given merely because the defendant prevails and the action is later declared to be
unfounded unless there was a deliberate intent to cause prejudice to the other party.[43] We find the evidence of bad
faith on the part of petitioners in instituting the subject action to be wanting. Thus, we delete the award of attorneys
fees.

WHEREFORE, the petition is PARTIALLY GRANTED. The June 6, 2005 Decision and September 20, 2005 Resolution of the
Court of Appeals in CA-G.R. CV No. 55850 are AFFIRMED with the following MODIFICATIONS: (1) The Regional Trial Court
of Iloilo City, Branch 39 is ORDERED to cause the cancellation by the Register of Deeds of Iloilo City of TCT No. T-72734
and the issuance, in lieu thereof, of the corresponding certificate of title in the names of respondents, heirs of Daisy
Teresa Cortel Magallanes, and (2) The award of attorneys fees in favor of respondents is DELETED.

No pronouncement as to costs.

SO ORDERED.