ABELARDO CRUZ (DECEASED) SUBSTITUTED BY HEIRS CONSUELO C. CRUZ, CLARO C. CRUZ AND STEPHEN C. CRUZ, PER RESOLUTION, PETITIONERS, VS. LEODEGARIA CABANA, TEOFILO LEGASPI, ILUMINADA…

The Court affirms the questioned decision of the now defunct Court of
Appeals which affirmed that of the Court of First Instance of Quezon
Province, but directs that the seller, respondent Leodegaria Cabana who
sold the property in question twice, first to her co-respondents Teofilo
Legaspi and Iluminada Cabana and later to petitioner Abelardo Cruz (now
deceased), should reimburse to petitioner’s heirs the amounts of
P2,352.50, which the late petitioner Abelardo Cruz paid to the
Philippine National Bank to discharge the mortgage obligation of said
respondent Leodegaria Cabana in favor of said bank, and of P3,397.50,
representing the amount paid by said Abelardo Cruz to her as
consideration of the sale with pacto de retro of the subject property.

This is a simple case of double sale of real property. Respondent
appellate court in its decision of August 13, 1980 stated the background
facts and resolved the issue in favor of defendants-appellees, first
buyers-respondents herein, and against plaintiff-appellant Abelardo
Cruz, petitioner herein (substituted by his heirs), as follows:

“Defendants’ evidence shows that on October 21, 1968, defendant
Leodegaria Cabana sold the land in question to defendants-spouses
Teofilo Legaspi and Iluminada Cabaña (Exh. 1). The said
defendants-spouses attempted to register the deed of sale but said
registration was not accomplished because they could not present the
owner’s duplicate of title which was at that time in the possession of
the PNB as mortgage.

“Likewise, when plaintiff tried to register the deed of sale
executed by Leodegaria Cabaña on September 3, 1970, said plaintiff was
informed that the owner thereof had sold the land to defendants-spouses
on October 21, 1968. Plaintiff was able to register the land in his name
on February 9, 1971 (Exh. A). With the admission of both parties that
the land in question was sold to two persons, the main issue to be
resolved in this appeal is as to who of said vendees has a better title
to said land.

“There is no dispute that the land in question was sold with right
of repurchase on June 1, 1965 to defendants-spouses Teofilo Legaspi and
Iluminada Cabaña (Exh. 1). The said document ‘Bilihang Muling Mabibili’
stipulated that the land can be repurchased by the vendor within one
year from December 31, 1966 (see par. 5, Exh. 1). Said land was not
repurchased and in the meantime, however, said defendants-spouses took
possession of the land.

“Upon request of Leodegaria Cabaña, the title of the land was lent
to her in order to mortgage the property to the Philippine National
Bank. Said title was, forthwith, deposited with the PNB. On October 21,
1968, defendant Leodegaria Cabaña sold the land by way of absolute sale
to the defendants-spouses (Exh. 2). However, on Novem­ber 29, 1968
defendant sold the same property to herein plaintiff and the latter was
able to register it in his name.

“The transaction in question is governed by Article 1544 of the
Civil Code. True it is that the plaintiff was able to register the sale
in his name but was he in good faith in doing so?

“While the title was registered in plaintiff-appellant’s name on
February 9, 1971 (Exh. A), it appears that he knew of the sale of the
land to defendants-spouses Legaspi as he was informed in the Office of
the Register of Deeds of Quezon. It appears that the defendants-spouses
registered their document of sale on May 13, 1965 under Primary En­try
No. 210113 of the Register of Deeds (Exh. 2).

“Under the foregoing circumstances, the right of ownership and
title to the land must be resolved in favor of the defendants-spouses
Legaspi on three counts. First, the plaintiff-appellant was not in good
faith in registering the title in his name. Consistent is the
jurisprudence in this jurisdiction that in order that the provi­sions of
Article 1544 of the new Civil Code may be invoked, 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 (10 Manresa 170, 171). It
cannot be set up by a second purchaser who comes into possession of the
property that has already been acquired by the first purchaser in full
dominion (Bautista vs. Sison, 39 Phil. 615), this notwithstanding that
the second purchaser records his title in the public registry, if the
regis­tration be done in bad faith, the philosophy underlying this rule
being that the public records cannot be covered into instruments of
fraud and oppression by one who secures an inscription therein in bad
faith (Chupinghong vs. Borreros, 7 CA Rep. 699).

“A purchaser who has knowledge of fact which would 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. 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 latter instrument of conveyance which creates no right
as against the first purchaser (Reylago vs. Jarabe, L-20046, March 27,
1968, 22 SCRA 1247).

“In the second place, the defendants-spouses registered the deed
of absolute sale ahead of plaintiff-appellant. Said spouses were not
only able to obtain the title because at that time, the owner’s
duplicate certificate was still with the Philippine National Bank.

“In the third place, defendants-spouses have been in possession
all along of the land in question. If immovable property is 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; and
should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession (Soriano, et al.
vs. The Heirs of Domingo Magali, et al., L-15133, July 31, 1963, 8 SCRA
489). Priority of possession stands good in favor of herein
defendants-spouses (Evangelista vs. Abad, [CA] 36 O.G. 2913; Sanchez vs.
Ramos, 40 Phil. 614; Quimson vs. Rosete, 87 Phil. 159).”

The Court finds that in this case of double sale of real property,
respondent appellate court, on the basis of the undisputed facts,
correctly applied the provisions of Article 1544 of the Civil Code 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 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.”

There is no question that respondents-spouses Teofilo Legaspi and
Iluminada Cabana were the first buyers, first on June 1, 1965 under a
sale with right of repurchase and later on October 21, 1968 under a deed
of absolute sale and that they had taken possession of the land sold to
them; that petitioner was the second buyer under a deed of sale dated
November 29, 1968, which to all indications, contrary to the text, was a
sale with right of repurchase for ninety (90) days.^[1]
There is no question either that respondents Legaspi spouses were the
first and the only ones to be in possession of the subject property.

Said respondents spouses were likewise the first to register the sale
with right of repurchase in their favor on May 13, 1965 under Primary
Entry No. 210113 of the Register of Deeds. They could not regis­ter the
absolute deed of sale in their favor and obtain the corresponding
transfer certificate of title because at that time the seller’s
duplicate certificate was still with the bank. But there is no question,
and the lower courts so found conclusively as a matter of fact, that
when petitioner Cruz succeeded in registering the later sale in his
favor, he knew and he was informed of the prior sale in favor of
respondents-spouses. Respondent appellate court correctly held that such
“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 latter instrument
of conveyance which creates no right as against the first purchaser.”

As the Court held in Carbonell vs. Court of Appeals^[2]
“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 [the above quoted] Article 1544.” As the writer stressed in
his concurring opinion therein, “(T)he governing principle here is prius tempore, potior jure
(first in time, stronger in right). Knowledge gained by the first buyer
of the second sale cannot defeat the first buyer’s rights except only
as provided by the Civil Code and that is where the second buyer first
registers in good faith the second sale ahead of the first.
Such knowledge of the first buyer does not bar her from availing of her
rights under the law, among them, to register first her purchase as
against the second buyer. But in converso knowledge gained by
the second buyer of the first sale defeats his rights even if he is
first to register the second sale, since such knowledge taints his prior
registration with bad faith. This is the price exacted by Article 1544
of the Civil Code for the second buyer being able to displace the first
buyer: that before the second buyer can obtain priority over the first,
he must show that he acted in good faith throughout (i.e. in ignorance
of the first sale and of the first buyer’s rights) – from the
time of acquisition until the title is transferred to him by
registration or failing registration, by delivery of possession. 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.”

Petitioner’s prayer for alternative relief for reimbursement of the
amount of P2,352.50 paid by him to the bank to discharge the existing
mortgage on the property and of the amount of P3,397.50 representing the
price of the second sale are well taken insofar as the seller
Leodegaria Cabana is concerned. These amounts have been received by the
said seller Leodegaria Cabana on account of a void second sale and must
be duly reimbursed by her to petitioner’s heirs, but the Legaspi spouses
cannot be held liable therefor since they had nothing to do with the
said second sale nor did they receive any benefit therefrom.
Petitioner’s claim for reimbursement of the amount of P102.58 as real
estate taxes paid on the property is not well taken because the
respondents Legaspi spouses had been paying the real estate taxes on the
same property since June 1, 1969.4

ACCORDINGLY, the appealed judgment of respondent appellate court,
upholding respondents-spouses Teofilo Legaspi and Iluminada Cabana as
the true and rightful owners of the property in litigation and ordering
the issuance of a new title with the cancellation as null and void of
Title No. T-99140 obtained by petitioner Abelardo C. Cruz, is hereby
affirmed in toto. In accordance with the partial grant of
petitioner’s prayer for alternative relief as stated in the preceding
paragraph hereof, the Court hereby orders and sentences respondent
Leodegaria Cabana to reimburse and pay to petitioner’s heirs the total
sum of P5,750.00.

Melencio-Herrera, Plana, Relova, Gutierrez, Jr., and De La Fuente, JJ., concur.

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^[*] Eighth Division composed of Samuel F. Reyes, Jorge R. Coquia, ponente, and Mariano A. Zosa, JJ.

^[1] Respondents Legaspi spouses cite in their brief “facts of record” which were not denied or disputed by petitioner, as follows:

“First. The price paid by Cruz was uncon­scionably small. The
complaint alleged that the land with an area of 27,882 square meters had
an annual income of P3,000.00 (Record on Appeal p. 8) but the vendor,
Leodegaria Cabana, was paid the paltry sum of only P5,000.00 (Record on
Appeal, p. 25).

“Second. Cruz bought the land without even making an inspection.
The deed of sale was executed on November 25, 1968 but he visited the
property only after February, 1971 or after a lapse of more than two
years. (tsn Nov. 23, 1971, page 18). Surely, there must be something
fishy when real estate with an income of P3,000.00 yearly can be had for
only P5,000.00. By this fantastically low price, the buyer is already
put on notice of a possible defect in seller’s title and yet Cruz did
not even visit the locality where he could have made appropriate
inquiries.

“Third. By petitioner’s own admission (brief, p. 4), the agreement
between them (Cruz and Leodegaria Cabaña) was SALE WITH RIGHT OF
REPURCHASE within 90 days, however, the deed prepared by Atty. Bonus,
counsel of Cruz in the trial court up to the Court of Appeals, was a
deed of absolute sale.

a clear premeditated circumvention of the agreement.

x x x x

“Fourth. The deed of sale in favor of Cruz was executed on
November 29, 1968 (Record on Appeal, p. 11) but he declared the property
for taxation only on April 20, 1971, or after the lapse of over two
years.

an indubitable showing that Cruz was uncertain of his title and
was not duty bound to pay taxes thereon. And please note that he was
constrained to pay the real estate taxes only because he found in
Legaspi’s answer to his complaint in the trial court that Legaspi had
been paying the taxes on this property since June 1, 1969 (Record on
Appeal, p. 9). Obviously Cruz must have realized that his claim of
ownership would be adversely affected by not declaring this property in
his name and not paying real estate taxes.”

^[2] 69 SCRA 99 (1976).

^[3] Idem, pp. 122, 123.

^[4] See footnote 1, supra.