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…

Cruz versus Cabana

The Case

This is a simple case of double sale of real property. Abelardo Cruz, substituted after his death by his heirs Consuelo, Claro, and Stephen, all surnamed Cruz, sued Leodegaria Cabana and the spouses Teofilo Legaspi and Iluminada Cabana to settle who rightfully owns a parcel of land in Quezon Province that Leodegaria Cabana sold twice — first to the Legaspi spouses and later to Abelardo Cruz. The case matters because it is the Supreme Court's cleanest statement of how Article 1544 of the Civil Code operates when the second buyer registers first but registers in bad faith, and of the rule that the first buyer in time is stronger in right.

Procedural History

Abelardo Cruz filed the action in the Court of First Instance of Quezon Province. The trial court ruled in favor of the Legaspi spouses as first buyers. Cruz appealed to the Court of Appeals, which, in its decision of August 13, 1980, affirmed the trial court and held that the Legaspi spouses had the better title on three counts: Cruz was not in good faith in registering the title in his name; the Legaspi spouses registered their deed of sale ahead of him; and they had been in possession all along. Cruz then came to the Supreme Court by petition for review. The Court, through Justice Teehankee, affirmed the appellate decision but granted in part his alternative prayer for reimbursement against the seller.

Facts

On June 1, 1965, Leodegaria Cabana sold the land to the spouses Teofilo Legaspi and Iluminada Cabana under a document styled "Bilihang Muling Mabibili," a sale with right of repurchase, repurchasable within one year from December 31, 1966. The land was not repurchased, and the Legaspi spouses took possession. They registered that document on May 13, 1965 under Primary Entry Number 210113 of the Register of Deeds.

At Leodegaria Cabana's request, the owner's duplicate certificate of title was lent to her so she could mortgage the property to the Philippine National Bank, and the title was deposited with the bank. On October 21, 1968, she sold the same land by absolute deed to the Legaspi spouses. They could not register the absolute sale because the owner's duplicate was still with the bank.

On November 29, 1968, Leodegaria Cabana sold the same property again, this time to Abelardo Cruz, who paid three thousand three hundred ninety-seven pesos and fifty centavos as consideration. Cruz later paid two thousand three hundred fifty-two pesos and fifty centavos to the Philippine National Bank to discharge her mortgage. He registered the sale in his name on February 9, 1971, obtaining Title Number T-99140. But when he tried to register, he was informed that the land had already been sold to the Legaspi spouses. The lower courts found conclusively that Cruz knew of the prior sale when he registered.

Issues

• Whether or not, in a double sale of immovable property, the second buyer who first registers the sale in good faith acquires ownership under Article 1544 of the Civil Code.
• Whether or not Abelardo Cruz was a buyer in good faith when he registered the second sale in his favor.
• Whether or not the seller, Leodegaria Cabana, must reimburse the amounts Cruz paid to the bank and as purchase price.

Applicable Provisions

Article 1544 of the Civil Code governs double sales and provides:

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

This provision supplies the order of preference among competing buyers, but every step of it is conditioned on good faith, which is the pivot of this case.

Ruling

On the first issue, the Court held that the Court of Appeals correctly applied Article 1544. Ownership of immovable property sold to different vendees belongs to the person acquiring it who in good faith first recorded it in the Registry of Property. Registration alone does not confer priority; good faith must accompany it.

On the second issue, the Court ruled that Cruz was not a buyer in good faith. When he registered the later sale in his favor, he knew and was informed of the prior sale in favor of the Legaspi spouses. As the Court put it, quoting the appellate court with approval:

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.

The Court stressed that the second buyer must show continuing good faith and innocence, or lack of knowledge of the first sale, from the time of acquisition until the title is transferred to him by registration, or failing registration, by delivery of possession. The governing principle 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 where the second buyer first registers in good faith ahead of the first. But knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, because such knowledge taints his registration with bad faith. The Court also noted that the Legaspi spouses were first in possession, and that possession is the next tiebreaker under Article 1544.

On the third issue, the Court held that Cruz's alternative prayer for reimbursement was well taken only against the seller. The two thousand three hundred fifty-two pesos and fifty centavos paid to the bank and the three thousand three hundred ninety-seven pesos and fifty centavos purchase price were received by Leodegaria Cabana on account of a void second sale and must be reimbursed by her. The Legaspi spouses cannot be held liable, having had nothing to do with the second sale and receiving no benefit from it. The claim for one hundred two pesos and fifty-eight centavos in real estate taxes was denied, since the Legaspi spouses had been paying the taxes since June 1, 1969.

Doctrine

In a double sale of immovable property, ownership belongs to the buyer who in good faith first records the sale in the Registry of Property. Good faith is indispensable at every stage: the second buyer must show continuing good faith and lack of knowledge of the first sale from acquisition until registration. Knowledge of a prior sale taints the second buyer's registration with bad faith and creates no right as against the first purchaser, even if the second buyer registers first. Where the second sale is void as against the first buyer, the seller who received the price and the mortgage payments must reimburse the second buyer, who has no claim against the first buyer.

Disposition

The Court affirmed in full the appellate judgment upholding the Legaspi spouses as the true and rightful owners and cancelling Cruz's Title Number T-99140 as null and void, and ordered Leodegaria Cabana to reimburse Cruz's heirs the total sum of five thousand seven hundred fifty pesos.

Remember This

Memorize the line: prius tempore, potior jure — first in time, stronger in right — and remember that under Article 1544 the second buyer's prior registration saves him only if his good faith runs unbroken until registration. Examiners use this case to test double sale priority, the meaning of a buyer in bad faith, and the seller's liability to reimburse the losing second buyer.