ROMEO PAYLAGO AND ROSARIO DIMAANDAL, PETITIONERS, VS. INES PASTRANA JARABE AND THE HONORABLE COURT OF APPEALS, RESPONDENTS.

This is an appeal by certiorari from the decision of the Court of
Appeals affirming the lower court’s decision in the case of Romeo Paylago, et
al. vs. Ines Pastrana Jarabe, CA-G.R. No. 25031-R, promulgated on June 6, 1962.  (Civil Case No. R-709 of the Court of First
Instance of Oriental Mindoro).

The entire lot involved in this suit was originally covered by
Homestead Patent issued on June 7, 1920 under Act No. 926 and later under OCT
No. 251 of the Registry of Deeds of Mindoro, issued on June 22, 1920 in the
name of Anselmo Lacatan.  On May 17,
1948, after the death of Anselmo Lacatan, TCT No. T-728 (which cancelled OCT
No. 251) was issued in the name of his two sons and heirs, Vidal and Florentino
Lacatan.  Vidal Lacatan died on August
27, 1950.

On March 23, 1953, Vidal Lacatan’s heirs, namely, Maximo, Tomas
and Lucia Lacatan, executed a deed of sale (Exh. C) in favor of the spouses
Romeo Paylago and Rosario Dimaandal, plaintiffs-petitioners herein, over a
portion of the entire lot under TCT No. T-728, which portion is described as
follows:

North 
– Provincial Road;

East  
– Property of Romeo Paylago;

South – Property of Florentino Lacatan;

West 
– Provincial Road (Nabuslot-Batingan);

containing an area of
3.9500 hectares.

On October 6, 1953,
Florentino Lacatan also died, leaving as his heirs, his widow and three
children, Felipe, Rosita and Florencia Lacatan. 
On December 31, 1953, the said children of Florentino Lacatan likewise
executed a deed of sale (Exh. D) in favor of the same vendees over another portion
of the same lot described as follows:

North 
– Provincial Road (Calapan-Pinamalayan);

East  
– Heirs of Sotero Mongo;

South – Aniceta Lolong;

West 
– Heirs of Vidal Lacatan;

with an area of 2.8408 hectares.

On March 2, 1954, by
virtue of the registration of the two deeds of sale (Exhs. C and D), a new TCT
No. T-4208 covering the total area of 6.7908 hectares was issued in favor of
plaintiffs-petitioners, the Paylago spouses.  A subsequent subdivision survey for the
purpose of segregating the two aforementioned portions of land described in the
deeds (Exhs. C and D) as well as in the new TCT No. T-4208, however, disclosed
that a portion (one half hectare) of the total area purchased by
plaintiffs-petitioners and indicated in the sketch Exh. B at a point marked
Exh. B-1 was being occupied by defendant-respondent.  Hence, the action to recover possession and
ownership of the said portion.

Vis-a-vis the foregoing
undisputed facts, the trial court and the Court of Appeals found that a portion
of land in question which is described as follows:

North 
– Provincial Road;

East  
– Apolonio Lacatan;

South – Anselmo Lacatan;

West 
– Valentin Lastica;

and
with an area of one half hectare is indicated in the sketch of subdivision plan
marked Exh. B-1 of Exh. B; that on November 27, 1938, the said portion of land
was purchased by Hilario Jarabe, late husband of defendant-respondent, from one
Apolonio Lacatan, which sale is evidenced by an unregistered deed of sale (Exh.
6); that Apolonio Lacatan, in turn, bought the same in 1936 from Anselmo
Lacatan, the original registered owner in whose favor OCT No. 251 and later TCT
No.

T-4208
were issued; that the first deed of sale, also unregistered, executed by
Anselmo Lacatan in favor of Apolonio Lacatan was lost during the Japanese
occupation; that the herein defendant-respon­dent has been in possession of the
said portion continuously, pub­licly, peacefully and adversely as owner thereof
from 1938 up to the present; and, that the herein plaintiffs-petitioners knew,
nay, admitted in a deed of lease, paragraph 3 (Exh. 4), that
defendant-respondent has been in possession of the premises since 1945.

After trial, the lower court
held that plaintiffs-petitioners were not purchasers in good faith and,
accordingly, rendered judgment in favor of defendant-respondent, declaring the
latter as owner of the land in question with the right to retain possession of
the same.  The decision was affirmed in
toto by the Court of Appeals.

From the evidence adduced
by the parties evolved the issue: Who has a better right in case of double sale
of real property, the registered buyer or the prior but unregistered purchaser?

This Court has formulated in no uncertain terms the general principle
governing the matter: as between two purchasers, the one who has registered the
sale in his favor, in good faith, has a preferred right over the other who has
not registered his title, even if the latter is in the actual possession of the
immovable property (Mendiola v. Pacalda, 10 Phil. 705; Veguillas v. Jaucian, 25
Phil. 315; Po Sun Tun v. Price, 54 Phil. 192). 
Indeed, the fore­going principle finds concrete bases in the pertinent
provisions of the New Civil Code, Article 1544, providing that if the same
innovable property should have been sold to different vendees, “the
ownership shall belong to the person acquiring it who in good faith first
recorded it in the registry of property.”

There is no question that the sales made in favor of plaintiffs-petitioners
were registered while the alleged sale executed in favor of
defendant-respondent was not.  Applying
the foregoing principle of law to the instant case, it is now contended by
plaintiffs-peti­tioners that their certificate of title must prevail over
defendant-respondent, and that the courts below correspondingly committed error
in deciding the case to the contrary.

But there is more than
meets the eye in the case at bar.  While
plaintiffs-petitioners have a registered title, it cannot be – denied that
their acquisition and subsequent registration were tainted with the vitiating
element of bad faith.  It was so found by
both the Court of First Instance and the Court of Appeals, and their finding is
conclusive upon us.  Thus,
in Evangelista vs. Montaño, 93 Phil. 275, 279, this Court ruled:

“Both the Court of First Instance and the Court of Appeals
absolved the defendants, having found and declared after weighing the evidence
that the plaintiff was not a purchaser in good faith.  That this conclusion is a finding of fact
and, being a finding of fact, not subject to review, is too plain to admit of
argument.”

Both Courts below found that petitioners knew beforehand that the
parcel of land in question was owned by defendant-respondent.

In its decision the Court of Appeals declared that
“plaintiffs herein were aware of that peaceful, continuous and adverse
possession of defendant since 1945, because this fact is admitted by said
plaintiffs in a deed of lease, paragraph 3 (Exhibit 4) covering a portion of
the entire lot, and situated just across the road from the land in
question.”  (Dec., C. App., p. 4).

Considering that the boundaries of the lands that the petitioners
Paylago purchased in 1953 and 1954 were well defined, they must have known that
the portion occupied by defendant-respondent under claim of ownership and
leased to them by the latter was included in the description, And coupled with
their knowledge that defendant-respon­dent purchased the same from Apolonio
Lacatan, plaintiffs-petitioners should have inquired and made an investigation
as to the possible defects of the title of the Lacatan heirs over the entire
lot sold to them, granting that the latter’s certificate of title was
clear.  This, they failed to do.  They cannot now claim complete ignorance of
defendant-respondent’s claim over the property. 
As was well stated in one case, “a purchaser who has knowledge of
facts which should put him upon inquiry and investigation as to possible
defects of the title of the vendor and fails to make such inquiry and
investigation, cannot claim that he is a purchaser in good faith and had
acquired a valid title thereto.” (Sampilo v. Court of Appeals, 55 O. G.
No. 30, p. 5772).  To the same effect is
the following doctrine laid down by the Supreme Court in the case of Leung Yee
v. F. L. Strong Machinery Co. & Williamson, 37 Phil. 644.  Said the
Court:

“One who purchases real estate with knowledge of a defect or
lack of title in his vendor cannot claim that he has acquired title thereto in
good faith, as against the true owner of the land or of an interest therein;
and the same rule must be applied to one who has knowledge of facts which
should have put him upon such inquiry and investiga­tion as might be necessary
to acquaint him with the defects of the title of his vendor.  A purchaser can­not close his eyes to facts
which should put a reasonable man upon his guard and then claims that he acted
in good faith under the belief that there was no defect in the title of the
vendor.  His mere refusal to believe that
such defect exists, or his willful closing of his eyes to the possibility of
the existence of a defect in his vendor’s title, will not make him an innocent
purchaser for value, if it afterwards develops that the title was defec­tive,
and it appears that he had such notice of the defect as would have led to its
discovery had he acted with that measure of precaution which may reasonably be
required of a prudent man in a like situation.”

The fundamental premise of the preferential rights established by
Article 1544 of the New Civil Code is good faith (Bernas v. Bolo, 81 Phil. 16). 
To be entitled to the priority, the second vendee must not only show
prior recording of his deed of conveyance or posses­sion of the property sold,
but must, above all, have acted in good faith, that is to say, without
knowledge of the existence of another alienation by his vendor to a stranger
(Obras Pias v. Ignacio, 17 Phil.
45; Leung Yee v. F. L. Strong Machinery Co., et al., op cit.; Emas v. De Zuzuarregui, et al., 53
Phil. 197). Short of this qualify­ing circumstance, the mantle of legal
protection and the consequential guarantee of indefeasibility of title to the
registered property will not in any way shelter the recording purchaser against
known and just claims of a prior though unregistered buyer.  Verily, it is now settled jurisprudence that
knowledge of a prior transfer of a regis­tered property by a subsequent
purchaser makes him a purchaser in bad faith and his knowledge of such transfer
vitiates his title acquired by virtue of the later instrument of conveyance
which was registered in the Registry of Deeds (Ignacio v. Chua Hong, 52 Phil.
940; Gustilo, et al. v. Maravilla, 48 Phil. 442; Ramos, et al. v. Dueno, et
al., 50 Phil. 786).  The registration of
the later instrument creates no right as against the first purchaser.  For the rights secured under the provisions
of Article 1544 of the New Civil Code to the one of the two purchasers of the
same real estate, who has secured and inscribed his title thereto in the Registry
of Deeds, do not accrue, as already mentioned, unless such inscription is done
in good faith (Leung Yee v. F. L. Strong Machinery Co., et al., op cit.).  To hold
otherwise would reduce the Torrens system to a shield for the commission of
fraud (Gustilo, et al. v. Maravilla, op cit.).

Plaintiffs-petitioners cited the case of Bacolod-Murcia Milling
Co., Inc. v. De la Rama, et al.,
G. R. No. L-4526, September 1959, to disprove bad faith ascribed to them.  But the citation does not fit with the facts
of the present case.  It is to be noted
that the second purchaser in the De la Rama case had no knowledge of the
previous sale and possession of the first purchaser at the time he
(second purchaser) acquired the property involved therein.  “(T)here is nothing in the complaint which may in any way indicate that
he knew such possession and encumbrance when he bought the property from its
owner.”  Plain­tiffs-petitioners in
the instant case, however, had knowledge of defendant-respondent’s claim of
ownership over the land in question long before they purchased the same from
the Lacatan heirs.  They were even told,
as previously intimated, that defendant-respondent bought the land from
Apolonio Lacatan.  Thus, it could easily
be distinguished that the second purchaser in the De la Rama case acted with
good faith, i.e., without knowledge of the anterior sale and claim of ownership
of the first vendee, whereas, plaintiffs-petitioners herein acted with manifest
bad faith in buying the land in question, all the while knowing that
defendant-respondent owns the same.  Such
knowledge of defendant-respondent’s ownership of the land is more than enough
to overthrow the presumption of good faith created by law in favor of
plaintiffs-petitioners.  This being the
case, we cannot just close our eyes and blindly stamp our approval on the
argument of plaintiffs-petitioners that they have the better right simply
because their title is registered and as such is indefeasible.

Plaintiffs-petitioners also contend that the identity of the land
in question has not been established. 
Again, we disagree.  Evidence of
record, both oral and documentary, unequivocally show that the said portion of
land can be identified and segregated, and has been in fact identified and
segregated (Exh. B-1), from the
entire lot covered by TCT No. T-4208 (Exh. A) issued in the names of
plaintiffs-petitioners.  The boundaries
of the same have been clearly indicated as that planted by madrecacao trees.  Even the surveyor hired by
plaintiffs-petitioners was able to fix the said boundaries in such a manner as
to definitely and accurately segregate the pre­mises from the adjoining
property.  How could
plaintiffs-petitioners now argue that the land has not been identified when the
Supreme Court itself says that what really defines a piece of land is not the
area mentioned in the description but the boundaries (Sanchez v. Director of
Lands, 63 Phil. 378; Buizer v. Cabrera, etc., 81 Phil. 669; Bayot v. Director
of Lands, 98 Phil. 935)?  Besides, the
area has been also established as one-half hectare.

Another collateral question raised by plaintiffs-petitioners is
the admission by the courts a quo of secondary evidence to esta­blish
the contents of the first unregistered deed of sale executed by Anselmo Lacatan
in favor
of Apolonio Lacatan when the loss or destruc­tion of the original document,
according to them, has not been esta­blished. 
Again, the findings of the Court of Appeals destroy this assertion of
petitioners (Dec., p. 5):

“Undeniably the alleged unregistered document could no longer
be examined by the parties in court, because it was lost – but its original,
however, upon the trial court’s findings which we have no
reason to question – has been sufficiently
proved as having existed.”

As observed by this Supreme Court,
“the destruction of the instru­ment may be proved by any person knowing
the fact.  The loss may be shown by any
person who knew the fact of its loss, or by any one who has made, in the
judgment of the court, a sufficient examination of the place or places where
the document or papers of similar character are kept by the person in whose
custody the document lost was, and has been unable to find it; or has made any
other investigation which is sufficient to satisfy the court that the
instrument is indeed lost.” 
(Michael & Co. v. Enriquez, 33 Phil. 87).  And “it is not even necessary to prove
its loss beyond all possibility of mistake. 
A reasonable probability of its loss is sufficient, and this may be
shown by a bona fide and diligent search,
fruitlessly made, for it in places where it
is likely to be found.” 
(Government of P. I. v. Martinez, 44 Phil. 817).  And after proving the due execution and
delivery of the document, to­gether with the fact that the same has been lost
or destroyed, its contents may be proved, among others, by the recollection of
wit­nesses (Vaguillas v. Jaucian, 25 Phil. 315).

Finding that the facts and the law support the same, it is our
opinion, and so hold, that the appealed decision should be, as it is hereby
affirmed.  Costs against petitioners
spouses Paylago and Dimaandal.

Dizon, Makalintal, Bengzon, Zaldivar, Sanchez, Castro, Angeles, and Fernando, JJ., concur.