DIGESTED Carbonell vs. Court of Appeals, and Poncio 69 SCRA 99 January 1976

FACTS:

On January 27, 1955, respondent Jose Poncio executed a private memorandum of sale of his parcel of land with improvements situated in San Juan, Rizal in favor of petitioner Rosario Carbonell who knew that the said property was at that time subject to a mortgage in favor of the Republic Savings Bank (RSB) for the sum of P1,500.00. Four days later, Poncio, in another private memorandum, bound himself to sell the same property for an improved price to one Emma Infante for the sum of P2,357.52, with the latter still assuming the existing mortgage debt in favor of the RSB in the amount of P1,177.48. Thus, in February 2, Poncio executed a formal registerable deed of sale in her (Infante's) favor. So, when the first buyer Carbonell saw the seller Poncio a few days afterwards, bringing the formal deed of sale for the latter's signature and the balance of the agreed cash payment, she was told that he could no longer proceed with formalizing the contract with her (Carbonell) because he had already formalized a sales contract in favor of Infante.

To protect her legal rights as the first buyer, Carbonell registered on February 8, 1955 with the Register of Deeds her adverse claim as first buyer entitled to the property. Meanwhile, Infante, the second buyer, was able to register the sale in her favor only on February 12, 1955, so that the transfer certificate of title issued in her name carried the duly annotated adverse claim of Carbonell as the first buyer. The trial court declared the claim of the second buyer Infante to be superior to that of the first buyer Carbonell, a decision which the Court of Appeals reversed. Upon motion for reconsideration, however, Court of Appeals annulled and set aside its first decision and affirmed the trial court’s decision.

ISSUE:

Who has the superior right over the subject property?

COURT RULING:

The Supreme Court reversed the appellate court’s decision and declared the first buyer Carbonell to have the superior right over the subject property, relying on Article 1544 of the Civil Code. 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 paragraphs, good faith must characterize the prior possession, while under the second paragraph, good faith must characterize the act of anterior registration.

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 to Infante as there was no such sale to Infante then. Hence, Carbonell's prior purchase of the land was made in good faith which did not cease after Poncio told her on January 31, 1955 of his second sale of the same lot to Infante. Carbonell wanted to meet Infante but the latter refused so to protect her legal rights, Carbonell registered her adverse claim on February 8, 1955. Under the circumstances, this recording of Carbonell’s adverse claim should be deemed to have been done in good faith and should emphasize Infante's bad faith when the latter registered her deed of sale 4 days later.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 CARBONELLDULY 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.

Castro, C.J, Aquino and Martin, JJ., concur.

Separate Opinions

TEEHANKEE, J., concurring:

I concur. My concurrence proceeds from the same premise as the dissenting opinion of Justice Munoz Palma that both the conflicting buyers of the real property in question, namely, petitioner Rosario Carbonell as the first buyer may be deemed purchasers in good faith at the respective dates of their purchase.

The answer to the question of who between the two buyers in good faith should prevail is provided in the second paragraph of Article 1544 of the Civil Code 1 (formerly Article 1473 of the old Civil Code) which ordains that "the ownership of the immovable property shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property."

In the case at bar, the seller executed on January 27, 1955 the private memorandum of sale of the property in favor of the first buyer Carbonell, However, six days later on February 2, 1955, the seller sold the property for a second time for an improved price, this time executing a formal registrable deed of sale in favor of the second buyer Infante.

So it was that when the first buyer Carbonell saw the seller a few days afterwards bringing the formal deed of sale for the seller's signature and the balance of the agreed cash payment, the seller told her that he could not proceed anymore with formalizing the first sale because he had already formalized the second sale in favor of the second buyer Infante.

Since Carbonell (the first buyer) did not have a formal registrable deed of sale, she did the next best thing to protect her legal rights and registered on February 8, 1955 with the Rizal Register of Deeds her adverse claim as first buyer entitled to the property. The second buyer Infante registered the deed of sale in her favor with the Rizal Register of Deeds only on February 12, 1955 (notwithstanding its having been executed ten days earlier on February 2, 1955), and therefore the transfer certificate of title issued in her favor carried the duly annotated adverse claim of Carbonell as the first buyer.

Both these registrations were in good faith and hence, as provided by the cited code article, the first buyer Carbonell as also the first registrant is legally entitled to the property.

The fact that Carbonell registered only an adverse claim as she had no registrable deed of sale is of no moment. The facts of record amply show that she had a written memorandum of sale, which was partially executed with the advance payment made by her for the seller's mortgage account with the bank, and which was perfected and binding in law by their accord on the subject matter and price. Carbonell could in law enforce in court her rights as first buyer under the memorandum agreement and compel the seller to execute in her favor a formal registrable deed of sale which would relate back to the date of the original memorandum agreement.

And under the cited code provision, Carbonell had to duly register such adverse claim as first buyer, as otherwise the subsequent registration of the second buyer's deed of sale would have obliterated her legal rights and enable the seller to achieve his fraudulent act of selling the property a second time for a better price in derogation of her prior right thereto.

The fact that the seller refused to execute the formal deed of sale in Carbonell's favor and (as was only to be expected) informed her that he could not proceed anymore with the sale because he had sold it for a second time for a better price did not convert her prior registration of her adverse claim into one of bad faith.

The fraudulent seller's act of informing the first buyer that he has wrongfully sold his property for a second time cannot work out to his own advantage and to the detriment of the innocent first buyer (by being considered as an "automatic registration" of the second sale) and defeat the first buyer's right of priority, in time in right and in registration.

The governing principle here is prius tempore, portior jure 2 (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 other so 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.

The above principles were aptly restated in a 1948 Court of Appeals decision in the case of Gallardo, vs. Gallardo penned by Justice J.B.L. Reyes, then a member of the appellate court. 3 The facts of that case and the case at bar are virtually Identical, except that the earlier case was decided under the old Civil Code (Article 1473 thereof now reproduced as Article 1544 of the present Civil Code), and the ratio decidendi thereof, mutatis mutandis, is fully applicable, as follows:

Analysis of article 1473 of the Civil Code shows that before a second vendee can obtain priority over the first, it is indispensable that he should have acted in good faith, (that is to say, in ignorance of the rights of the first vendee's rights) until the title is transferred to him by actual or constructive delivery of the thing sold. This is the price exacted by law for his being able to displace the first vendee; and the mere fact that the second contract of sale was perfected in good faith is not sufficient if, before the title passes, the second vendee acquires knowledge of the first transaction. That the second buyer innocently agreed to purchase the land may protect him against responsibility of conspiring with his vendor to defraud the established rights of the first purchaser; but to defeat the latter's priority in time (based on the old principle "prius tempore, potior jure," first in time, better in right) the good faith or innocence of the posterior vendee must needs continue until his contract ripens into ownership by tradition or recording (Palanca vs. Director of lands, 43 Phil. 141, 154).

That the formal deed of conveyance to Gabino Gallardo was executed after that of Caoagas is of no moment, the contract of sale being perfected and binding by mere accord on the subject matter and the price, even if neither is delivered (Article 1450, Civil Code), the deed of conveyance will relate back to the date of the original agreement. 4

Finally, in the present case, the first buyer's registration (February 8, 1955) concededly preceded the second buyer's registration (February 12, 1955) by four days, and therefore, as provided by the Civil Code, the first buyer thereby duly preserved her right of priority and is entitled to the property.

MUÑOZ PALMA, J., dissenting:

Strongly convinced as I am that the decision of the Court of Appeals under review should be affirmed, this dissenting opinion is being written.

We are here confronted with a double sale made by Jose Poncio of his 195-square meter lot located at V. Again St., San Juan, Rizal, covered by Transfer Certificate of Title No. 5040, the solution to which is found in Art. 1544 of the Civil Code, more particularly the second paragraph thereof which provides that should the thing sold be immovable property, the ownership shall belong to the person acquiring it who in good with first recorded it in the Registry of property.

1. The two purchasers, namely, petitioner Rosario Carbonell and respondent Emma Infante, are both purchasers in good faith.

That Rosario Carbonell is a buyer in good faith cannot be disputed for at the time negotiations for the purchase of the lot were being made between her and the vendor, Jose Poncio, as of January 27, 1955, there was no indication at all from the latter that another sale was being contemplated.

That Emma Infante is likewise a buyer in good faith is supported by: (a) an express finding of the trial court in its decision of January 20, 1965, to the effect that when the vendor and purchaser. Infante consummated the sale on or about January 29, 1955, an examination of the original of T.C.T. 5040 on file with the Register of Deeds of Rizal as well as the owner's duplicate revealed no annotation of any encumbrance or lien other than the mortgage in favor of the Republic Savings Bank (p. 92, Record on Appeal); (b) the findings of fact of the Court of Appeals given in the decision penned by then Justice Salvador V. Esguerra as well as in the first decision written by Justice Magno Gatmaitan which subsequently became the basis of the dissenting opinion to the majority, and from which I quote:

2. CONSIDERING: That as basis for discussion of this issue, it must have to be remembered that the first vendee, Rosario Carbonell, certainly was an innocent purchaser ... but also must it be remembered that Emma L. Infante, when she bought the property on 2 February, 1955, under Exhibit 3-Infante, neither had she before then been, preliminary informed of the first sate to Rosario ...; indeed as Emma has testified on this detail, it is easy to accept her declaration:

Q. When Mr. Jose Poncio offered you this land in question, did he tell you that the land was sold or otherwise promised to Mrs. Carbonell?

A. Of course not, otherwise will never buy.

(tsn. II:27)

in other words, at the respective dates of their purchase, both vendees, Rosario and Emma, were innocent and had acted in the best of good faith ... (pp. 9-10 of Justice Gatmaitan's decision found on pp. 76-77, rollo; see also p. 7 of his dissenting opinion found on p. 95, rollo).

Departing from a well-entrenched rule set down in a long array of decisions of this Court that factual findings of the trial court and of the Court -of Appeals are generally binding and conclusive, 1 and that on appeal by certiorari, questions of fact are not to be determined nor reviewed by Us 2 the Majority Opinion of my colleagues however undertakes a fact-finding process of its own, and draws the conclusion that Emma Infante was a buyer in bad faith because, among other things: (a) Emma allegedly refused to talk to Rosario Carbonell when the latter went to see her about the sale of the lot, which "is not the attitude expected of a good neighbor imbued with Christian charity and goodwill as well as a clean conscience" (p. 10, Majority Opinion); (b) "(B)efore 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. . and Poncio as well as the bank, must have inevitably informed here that said mortgage passbook could not be given to her because it was already delivered to Carbonell" (p. 9, Ibid); and (c) "... (T)he 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 ..." (p. 20, Majority Opinion; all italicized portions supplied) — all of which are unsupported by the evidence and diametrically contrary to the findings of the court a quo and the appellate court sustaining the good faith of Emma Infante.

2. Inasmuch as the two purchasers are undoubtedly in good faith, the next question to be resolved is who of the two first registered her purchase or title in good faith.

In applying Art. 1544 of the Civil Code, it is not enough that the buyer bought the property in good faith, but that the registration of her title must also be accomplished in good faith. This requirement of good faith is not only applicable to the second or subsequent purchaser but to the first as well. 3

Construing and applying the second paragraph of Art. 1473 of the Spanish Civil Code which has been adopted verbatim in Art. 1544 of the Civil Code of the Philippines, this Court in Leung Lee vs. FL Strong Machinery Co., et al 37 Phil. 644, declared:

It has been suggested that since the provisions of article 1473 of the Civil Code require "good faith," in express terms, in relation to "possession" and title but contain no express requirement as to 'good faith' in relation to the "inscription" of the property in the registry, it must he presumed that good faith is not an essential requisite of registration in order that it may have the effect contemplated in this article. We cannot agree with this contention. It could not have been the intention of the legislator to base the preferential right secured under this article of the code upon an inscription of title in bad faith. Such an interpretation placed upon the language of this section would open wide the door to fraud and collusion. The public records cannot be converted into instruments of fraud and oppression by one who secures an inscription therein in bad faith. The force and effect given by law to an inscription in a public record presupposes the good faith of him who enters such inscription; and rights created by statute, which are predicated upon an inscription in a public registry, do not and cannot accrue under an inscription "in bad faith," to the benefit of the person who thus makes the inscription. (pp. 648-649, supra)

Good faith means "freedom from knowledge and circumstances which ought to put a person on inquiry"; 3* it consists of an honest intention to abstain from taking any conscientious advantage of another. 4

On this point it is my view that Rosario Carbonell cannot be held to have a title superior to that of Emma Infante for even if We were to concede that the notation of her adverse claim on February 8, 1955, was in the nature of registration of title as required in Art. 1544 of the Civil Code, 5 the same was not accomplished in good faith. This is obvious from occurrences narrated in the Majority Opinion, thus: that on January 27, 1955, Carbonell and Jose Poncio made and executed the memorandum of sale, Exhibit A; that thereafter Carbonell asked Atty. Salvador Reyes to prepare the formal deed of sale which she brought to Poncio together with the amount of some P400.00, the balance she had to pay in addition to her assuming the mortgage obligation to Republic Savings Bank; that upon arriving at Poncio's house the latter told Carbonell that he could not proceed anymore with the sale because he had already given the lot to Emma Infants; that on February 5, 1955, Carbonell saw Emma Infante erecting a wall around the lot with a gate; that Carbonell consulted Atty. Jose Garcia who advised her to present an adverse claim with the office of the Register of Deeds, and that being informed that the sale in favor of Emma Infante had not yet been registered, Atty. Garcia prepared the notice of adverse claim which was signed and sworn to by Rosario Carbonell and registered on February 8, 1955. (see pp. 34, Decision)

At the time petitioner herein caused the annotation of her adverse claim she was, therefore, cognizant of facts which impaired her title to the property in question, and taking advantage of the situation that the second purchaser had not as yet registered her deed of sale, she went ahead of the second buyer and annotated what was only in the nature of an adverse claim inasmuch as she had no registrable document of sale at the time. That annotation of Carbonell's adverse claim did not produce any legal effects as to place her in a preferential situation to that of Infante, the second purchaser, for the simple reason that a registration made in bad faith is equivalent to no registration at all. It is a settled rule that the inscription in the registry, to be effective, must be made in good faith. (Pena, supra, p. 164)

3. One last point to be considered is the theory advanced by the dissenting opinion of Justice Gatmaitan that while Carbonell's registration of her adverse claim may indeed be considered in bad faith, nonetheless that of Infante was likewise in bad faith because at the time of the registration of the latter's deed of sale there was already inscribed on the original of the title on file with the Register of Deeds the adverse claim of Rosario Carbonell.

With due respect to the foregoing conclusion of highly respected Colleague, I hold the view that the act of the registration of Infante's deed of sale on February 12, 1955, was but a formality in the sense that it simply formalized what had already been accomplished earlier, that is, the registration of Infantes purchase as against Carbonell when the latter inquired knowledge of the second sale on or about January 27, 1955, when she brought the memorandum of sale, Exh. A, to Jose Poncio and was informed by the latter that he could not go through with the sale because he had already sold it to Emma Infante, which information was bolstered by the fact that Carbonell saw Infante erecting a wall around the lot on February 5.

We have long accepted the rule that knowledge is equivalent to registration. What would be the purpose of registration other than to give notice to interested parties and to the whole world of the existence of rights or liens against the property under question?

What has been clearly and succinctly postulated in T. de Winkleman and Winkleman vs. Veluz 1922, 43 Phil. 604, 609, is applicable to the case before Us, and We quote therefrom:

. . . The purpose of registering an instrument relating to land, annuities, mortgages, liens or any other class of real rights is to give notice to persons interested of the existence of these various liens against the property. If the parties interested have actual notice of the existence of such liens then the necessity for registration does not exist. Neither can one who has actual notice of existing liens acquire any rights in such property free from such liens by the mere fact that such liens have not been proven recorded. (citing Obras Pias vs. Devera Ignacio, 17 Phil. 45, 47).

We cannot overlook the fact that while it may be true that the vendor Poncio had signed the memorandum, Exh. A, from which it may be implied that he sold a lot to Carbonell, there were other things to be accomplished for purposes of binding third parties, the lot in question being registered land, such as the execution of a formal deed of sale. Such a document of sale was never signed by Poncio for according to petitioner Carbonell, when she presented to Poncio the corresponding document together with the sum of P400.00 which according to her was the balance of the purchase price after she had assumed the mortgage with the Republic Bank, she was informed by the vendor that the property had been sold to

another. That sale was confirmed when Carbonell saw Infante erecting a wall around the lot on February 5, 1955. As of that moment when Carbonell had notice or actual knowledge of the second sale in favor of Emma Infante a valid registration of the latter's deed of sale was constituted as against Carbonell. Accordingly, Infante has a preferential right to the property, the registration of her sale having been effected in the foregoing manner, prior to the annotation of Carbonell's adverse claim on February 8, 1955.

The circumstances of the present case are strikingly similar to the hypothetical problem posed in Commentator Edgardo Paras' Book on the Civil Code of the Philippines and I wholeheartedly concur with his solution of the problem which is based on law. From him I quote: 6

A sold a parcel of land with a torrens title to B on January 5. A week later, A sold the same land to C. Neither sale was registered. As soon as B learned of the sale in favor of C, he (B) registered an adverse claim stating that he was making the claim because the second sale was in fraud of his rights as first buyer. Later, C registered the deed of sale that had been made in his favor. Who is now the owner B or C?

Ans. C is clearly the owner, although he was the second buyer. This is so, not because of the registration of the sale itself but because of the AUTOMATIC registration in his favor caused by Bs knowledge of the first sale (actual knowledge being equivalent to registration). The purpose of registration is to notify. This notification was done because of Bs knowledge. It is wrong to assert that B was only trying to protect his right-for there was no more right to be protected. He should have registered the sale BEFORE knowledge came to him. It is now too late. It is clear from this that with respect to the principle "actual knowledge is equivalent to registration of the sale about which knowledge has been obtained' — the knowledge may be that-of either the FIRST or the SECOND buyer. (pp. 142-143, Vol. V, 1972 Ed.)

Aside from the fact that the sale to Infante was considered registered prior to the registration of Carbonell's notice of adverse claim, Infante also took immediate physical possession of the property by erecting a fence with a gate around the lot on February 5, at least tree days prior to Carbonell Is registration on February 8, 1955.

On top of all these, equity is on the side of Emma Infante. Under the Majority Opinion, Emma Infante stands to lose the lot she bought in good faith which was fully paid for plus the building she erected thereon for which she spent the total sun of a little less than P14,000.00, or equivalent to about P40,000.00 at the time the case was decided by the Appellate Court, considering that Rosario Carbonell is being given the option either to order the removal of the house or to acquire it at P13,429.00. On this point I agree with the following statement of Justice Esguerra who penned the decision of the Appellate Court, thus:

It is indeed inequitable and re revolting to one's sense of justice and fairness that Rosario Carbonell who paid out of her own money the sum of only P200.00 to the Republic Savings Bank for the account of Jose Poncio, which was the motivation for the execution of the private instrument, Exhibit A, should have a superior right to the land involved. The property has been improved at a great expense and a building of strong materials has been constructed thereon Emma Infants ho spent for her lot and building the total sum of P13,429.00 made, up of P11,929.00 for cost of land and improvements and the building and P1,500.00 to discharge the mortgage in favor of the Republic Savings Bank. with the present purchasing power of the peso this aft i more than 13 years, would be not equivalent to about P40,000.00. Courts should not lend a hand to the perpetration of such kind of injustice and outrage (see page 88, rollo)

I close paraphrasing the Supreme Court of Oklahoma in Phelps vs. Theime, et al., 217 p. 376; 377, that "equity is a right wiseneth that considerate all of the particular circumstances of the case and is also tempered with the sweetness of mercy." (quoting from St. Germain) In this case now before Us there is no need to invoke mercy, for all that is required is a wise consideration of the particular circumstances narrated above which warrant a judgment in favor of respondents Infants.

With all the foregoing, I vote for the affirmance of the decision under review.

Separate OpinionsTEEHANKEE, J., concurring:

I concur. My concurrence proceeds from the same premise as the dissenting opinion of Justice Munoz Palma that both the conflicting buyers of the real property in question, namely, petitioner Rosario Carbonell as the first buyer may be deemed purchasers in good faith at the respective dates of their purchase.

The answer to the question of who between the two buyers in good faith should prevail is provided in the second paragraph of Article 1544 of the Civil Code 1 (formerly Article 1473 of the old Civil Code) which ordains that "the ownership of the immovable property shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property."

In the case at bar, the seller executed on January 27, 1955 the private memorandum of sale of the property in favor of the first buyer Carbonell, However, six days later on February 2, 1955, the seller sold the property for a second time for an improved price, this time executing a formal registrable deed of sale in favor of the second buyer Infante.

So it was that when the first buyer Carbonell saw the seller a few days afterwards bringing the formal deed of sale for the seller's signature and the balance of the agreed cash payment, the seller told her that he could not proceed anymore with formalizing the first sale because he had already formalized the second sale in favor of the second buyer Infante.

Since Carbonell (the first buyer) did not have a formal registrable deed of sale, she did the next best thing to protect her legal rights and registered on February 8, 1955 with the Rizal Register of Deeds her adverse claim as first buyer entitled to the property. The second buyer Infante registered the deed of sale in her favor with the Rizal Register of Deeds only on February 12, 1955 (notwithstanding its having been executed ten days earlier on February 2, 1955), and therefore the transfer certificate of title issued in her favor carried the duly annotated adverse claim of Carbonell as the first buyer.

Both these registrations were in good faith and hence, as provided by the cited code article, the first buyer Carbonell as also the first registrant is legally entitled to the property.

The fact that Carbonell registered only an adverse claim as she had no registrable deed of sale is of no moment. The facts of record amply show that she had a written memorandum of sale, which was partially executed with the advance payment made by her for the seller's mortgage account with the bank, and which was perfected and binding in law by their accord on the subject matter and price. Carbonell could in law enforce in court her rights as first buyer under the memorandum agreement and compel the seller to execute in her favor a formal registrable deed of sale which would relate back to the date of the original memorandum agreement.

And under the cited code provision, Carbonell had to duly register such adverse claim as first buyer, as otherwise the subsequent registration of the second buyer's deed of sale would have obliterated her legal rights and enable the seller to achieve his fraudulent act of selling the property a second time for a better price in derogation of her prior right thereto.

The fact that the seller refused to execute the formal deed of sale in Carbonell's favor and (as was only to be expected) informed her that he could not proceed anymore with the sale because he had sold it for a second time for a better price did not convert her prior registration of her adverse claim into one of bad faith.

The fraudulent seller's act of informing the first buyer that he has wrongfully sold his property for a second time cannot work out to his own advantage and to the detriment of the innocent first buyer (by being considered as an "automatic registration" of the second sale) and defeat the first buyer's right of priority, in time in right and in registration.

The governing principle here is prius tempore, portior jure 2 (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 other so 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.

The above principles were aptly restated in a 1948 Court of Appeals decision in the case of Gallardo, vs. Gallardo penned by Justice J.B.L. Reyes, then a member of the appellate court. 3 The facts of that case and the case at bar are virtually Identical, except that the earlier case was decided under the old Civil Code (Article 1473 thereof now reproduced as Article 1544 of the present Civil Code), and the ratio decidendi thereof, mutatis mutandis, is fully applicable, as follows:

Analysis of article 1473 of the Civil Code shows that before a second vendee can obtain priority over the first, it is indispensable that he should have acted in good faith, (that is to say, in ignorance of the rights of the first vendee's rights) until the title is transferred to him by actual or constructive delivery of the thing sold. This is the price exacted by law for his being able to displace the first vendee; and the mere fact that the second contract of sale was perfected in good faith is not sufficient if, before the title passes, the second vendee acquires knowledge of the first transaction. That the second buyer innocently agreed to purchase the land may protect him against responsibility of conspiring with his vendor to defraud the established rights of the first purchaser; but to defeat the latter's priority in time (based on the old principle "prius tempore, potior jure," first in time, better in right) the good faith or innocence of the posterior vendee must needs continue until his contract ripens into ownership by tradition or recording (Palanca vs. Director of lands, 43 Phil. 141, 154).

That the formal deed of conveyance to Gabino Gallardo was executed after that of Caoagas is of no moment, the contract of sale being perfected and binding by mere accord on the subject matter and the price, even if neither is delivered (Article 1450, Civil Code), the deed of conveyance will relate back to the date of the original agreement. 4

Finally, in the present case, the first buyer's registration (February 8, 1955) concededly preceded the second buyer's registration (February 12, 1955) by four days, and therefore, as provided by the Civil Code, the first buyer thereby duly preserved her right of priority and is entitled to the property.

MUÑOZ PALMA, J., dissenting:

Strongly convinced as I am that the decision of the Court of Appeals under review should be affirmed, this dissenting opinion is being written.

We are here confronted with a double sale made by Jose Poncio of his 195-square meter lot located at V. Again St., San Juan, Rizal, covered by Transfer Certificate of Title No. 5040, the solution to which is found in Art. 1544 of the Civil Code, more particularly the second paragraph thereof which provides that should the thing sold be immovable property, the ownership shall belong to the person acquiring it who in good with first recorded it in the Registry of property.

1. The two purchasers, namely, petitioner Rosario Carbonell and respondent Emma Infante, are both purchasers in good faith.

That Rosario Carbonell is a buyer in good faith cannot be disputed for at the time negotiations for the purchase of the lot were being made between her and the vendor, Jose Poncio, as of January 27, 1955, there was no indication at all from the latter that another sale was being contemplated.

That Emma Infante is likewise a buyer in good faith is supported by: (a) an express finding of the trial court in its decision of January 20, 1965, to the effect that when the vendor and purchaser. Infante consummated the sale on or about January 29, 1955, an examination of the original of T.C.T. 5040 on file with the Register of Deeds of Rizal as well as the owner's duplicate revealed no annotation of any encumbrance or lien other than the mortgage in favor of the Republic Savings Bank (p. 92, Record on Appeal); (b) the findings of fact of the Court of Appeals given in the decision penned by then Justice Salvador V. Esguerra as well as in the first decision written by Justice Magno Gatmaitan which subsequently became the basis of the dissenting opinion to the majority, and from which I quote:

2. CONSIDERING: That as basis for discussion of this issue, it must have to be remembered that the first vendee, Rosario Carbonell, certainly was an innocent purchaser ... but also must it be remembered that Emma L. Infante, when she bought the property on 2 February, 1955, under Exhibit 3-Infante, neither had she before then been, preliminary informed of the first sate to Rosario ...; indeed as Emma has testified on this detail, it is easy to accept her declaration:

Q. When Mr. Jose Poncio offered you this land in question, did he tell you that the land was sold or otherwise promised to Mrs. Carbonell?

A. Of course not, otherwise will never buy.

(tsn. II:27)

in other words, at the respective dates of their purchase, both vendees, Rosario and Emma, were innocent and had acted in the best of good faith ... (pp. 9-10 of Justice Gatmaitan's decision found on pp. 76-77, rollo; see also p. 7 of his dissenting opinion found on p. 95, rollo).

Departing from a well-entrenched rule set down in a long array of decisions of this Court that factual findings of the trial court and of the Court of Appeals are generally binding and conclusive, 1 and that on appeal by certiorari, questions of fact are not to be determined nor reviewed by Us 2 the Majority Opinion of my colleagues however undertakes a fact-finding process of its own, and draws the conclusion that Emma Infante was a buyer in bad faith because, among other things: (a) Emma allegedly refused to talk to Rosario Carbonell when the latter went to see her about the sale of the lot, which "is not the attitude expected of a good neighbor imbued with Christian charity and goodwill as well as a clean conscience" (p. 10, Majority Opinion); (b) "(B)efore 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. . and Poncio as well as the bank, must have inevitably informed here that said mortgage passbook could not be given to her because it was already delivered to Carbonell" (p. 9, Ibid); and (c) "... (T)he 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 ..." (p. 20, Majority Opinion; all italicized portions supplied) — all of which are unsupported by the evidence and diametrically contrary to the findings of the court a quo and the appellate court sustaining the good faith of Emma Infante.

2. Inasmuch as the two purchasers are undoubtedly in good faith, the next question to be resolved is who of the two first registered her purchase or title in good faith.

In applying Art. 1544 of the Civil Code, it is not enough that the buyer bought the property in good faith, but that the registration of her title must also be accomplished in good faith. This requirement of good faith is not only applicable to the second or subsequent purchaser but to the first as well. 3

Construing and applying the second paragraph of Art. 1473 of the Spanish Civil Code which has been adopted verbatim in Art. 1544 of the Civil Code of the Philippines, this Court in Leung Lee vs. FL Strong Machinery Co., et al 37 Phil. 644, declared:

It has been suggested that since the provisions of article 1473 of the Civil Code require "good faith," in express terms, in relation to "possession" and title but contain no express requirement as to 'good faith' in relation to the "inscription" of the property in the registry, it must he presumed that good faith is not an essential requisite of registration in order that it may have the effect contemplated in this article. We cannot agree with this contention. It could not have been the intention of the legislator to base the preferential right secured under this article of the code upon an inscription of title in bad faith. Such an interpretation placed upon the language of this section would open wide the door to fraud and collusion. The public records cannot be converted into instruments of fraud and oppression by one who secures an inscription therein in bad faith. The force and effect given by law to an inscription in a public record presupposes the good faith of him who enters such inscription; and rights created by statute, which are predicated upon an inscription in a public registry, do not and cannot accrue under an inscription "in bad faith," to the benefit of the person who thus makes the inscription. (pp. 648-649, supra)

Good faith means "freedom from knowledge and circumstances which ought to put a person on inquiry"; 3* it consists of an honest intention to abstain from taking any conscientious advantage of another. 4

On this point it is my view that Rosario Carbonell cannot be held to have a title superior to that of Emma Infante for even if We were to concede that the notation of her adverse claim on February 8, 1955, was in the nature of registration of title as required in Art. 1544 of the Civil Code, 5 the same was not accomplished in good faith. This is obvious from occurrences narrated in the Majority Opinion, thus: that on January 27, 1955, Carbonell and Jose Poncio made and executed the memorandum of sale, Exhibit A; that thereafter Carbonell asked Atty. Salvador Reyes to prepare the formal deed of sale which she brought to Poncio together with the amount of some P400.00, the balance she had to pay in addition to her assuming the mortgage obligation to Republic Savings Bank; that upon arriving at Poncio's house the latter told Carbonell that he could not proceed anymore with the sale because he had already given the lot to Emma Infants; that on February 5, 1955, Carbonell saw Emma Infante erecting a wall around the lot with a gate; that Carbonell consulted Atty. Jose Garcia who advised her to present an adverse claim with the office of the Register of Deeds, and that being informed that the sale in favor of Emma Infante had not yet been registered, Atty. Garcia prepared the notice of adverse claim which was signed and sworn to by Rosario Carbonell and registered on February 8, 1955. (see pp. 34, Decision)

At the time petitioner herein caused the annotation of her adverse claim she was, therefore, cognizant of facts which impaired her title to the property in question, and taking advantage of the situation that the second purchaser had not as yet registered her deed of sale, she went ahead of the second buyer and annotated what was only in the nature of an adverse claim inasmuch as she had no registrable document of sale at the time. That annotation of Carbonell's adverse claim did not produce any legal effects as to place her in a preferential situation to that of Infante, the second purchaser, for the simple reason that a registration made in bad faith is equivalent to no registration at all. It is a settled rule that the inscription in the registry, to be effective, must be made in good faith. (Pena, supra, p. 164)

3. One last point to be considered is the theory advanced by the dissenting opinion of Justice Gatmaitan that while Carbonell's registration of her adverse claim may indeed be considered in bad faith, nonetheless that of Infante was likewise in bad faith because at the time of the registration of the latter's deed of sale there was already inscribed on the original of the title on file with the Register of Deeds the adverse claim of Rosario Carbonell.

With due respect to the foregoing conclusion of highly respected Colleague, I hold the view that the act of the registration of Infante's deed of sale on February 12, 1955, was but a formality in the sense that it simply formalized what had already been accomplished earlier, that is, the registration of Infantes purchase as against Carbonell when the latter inquired knowledge of the second sale on or about January 27, 1955, when she brought the memorandum of sale, Exh. A, to Jose Poncio and was informed by the latter that he could not go through with the sale because he had already sold it to Emma Infante, which information was bolstered by the fact that Carbonell saw Infante erecting a wall around the lot on February 5.

We have long accepted the rule that knowledge is equivalent to registration. What would be the purpose of registration other than to give notice to interested parties and to the whole world of the existence of rights or liens against the property under question?

What has been clearly and succinctly postulated in T. de Winkleman and Winkleman vs. Veluz 1922, 43 Phil. 604, 609, is applicable to the case before Us, and We quote therefrom:

... The purpose of registering an instrument relating to land, annuities, mortgages, liens or any other class of real rights is to give notice to persons interested of the existence of these various liens against the property. If the parties interested have actual notice of the existence of such liens then the necessity for registration does not exist. Neither can one who has actual notice of existing liens acquire any rights in such property free from such liens by the mere fact that such liens have not been proven recorded. (citing Obras Pias vs. Devera Ignacio, 17 Phil. 45, 47).

We cannot overlook the fact that while it may be true that the vendor Poncio had signed the memorandum, Exh. A, from which it may be implied that he sold a lot to Carbonell, there were other things to be accomplished for purposes of binding third parties, the lot in question being registered land, such as the execution of a formal deed of sale. Such a document of sale was never signed by Poncio for according to petitioner Carbonell, when she presented to Poncio the corresponding document together with the sum of P400.00 which according to her was the balance of the purchase price after she had assumed the mortgage with the Republic Bank, she was informed by the vendor that the property had been sold to

another. That sale was confirmed when Carbonell saw Infante erecting a wall around the lot on February 5, 1955. As of that moment when Carbonell had notice or actual knowledge of the second sale in favor of Emma Infante a valid registration of the latter's deed of sale was constituted as against Carbonell. Accordingly, Infante has a preferential right to the property, the registration of her sale having been effected in the foregoing manner, prior to the annotation of Carbonell's adverse claim on February 8, 1955.

The circumstances of the present case are strikingly similar to the hypothetical problem posed in Commentator Edgardo Paras' Book on the Civil Code of the Philippines and I wholeheartedly concur with his solution of the problem which is based on law. From him I quote: 6

A sold a parcel of land with a torrens title to B on January 5. A week later, A sold the same land to C. Neither sale was registered. As soon as B learned of the sale in favor of C, he (B) registered an adverse claim stating that he was making the claim because the second sale was in fraud of his rights as first buyer. Later, C registered the deed of sale that had been made in his favor. Who is now the owner B or C?

Ans. C is clearly the owner, although he was the second buyer. This is so, not because of the registration of the sale itself but because of the AUTOMATIC registration in his favor caused by Bs knowledge of the first sale (actual knowledge being equivalent to registration). The purpose of registration is to notify. This notification was done because of Bs knowledge. It is wrong to assert that B was only trying to protect his right-for there was no more right to be protected. He should have registered the sale BEFORE knowledge came to him. It is now too late. It is clear from this that with respect to the principle "actual knowledge is equivalent to registration of the sale about which knowledge has been obtained' — the knowledge may be that-of either the FIRST or the SECOND buyer. (pp. 142-143, Vol. V, 1972 Ed.)

Aside from the fact that the sale to Infante was considered registered prior to the registration of Carbonell's notice of adverse claim, Infante also took immediate physical possession of the property by erecting a fence with a gate around the lot on February 5, at least tree days prior to Carbonell Is registration on February 8, 1955.

On top of all these, equity is on the side of Emma Infante. Under the Majority Opinion, Emma Infante stands to lose the lot she bought in good faith which was fully paid for plus the building she erected thereon for which she spent the total sun of a little less than P14,000.00, or equivalent to about P40,000.00 at the time the case was decided by the Appellate Court, considering that Rosario Carbonell is being given the option either to order the removal of the house or to acquire it at P13,429.00. On this point I agree with the following statement of Justice Esguerra who penned the decision of the Appellate Court, thus:

It is indeed inequitable and re revolting to one's sense of justice and fairness that Rosario Carbonell who paid out of her own money the sum of only P200.00 to the Republic Savings Bank for the account of Jose Poncio, which was the motivation for the execution of the private instrument, Exhibit A, should have a superior right to the land involved. The property has been improved at a great expense and a building of strong materials has been constructed thereon Emma Infants ho spent for her lot and building the total sum of P13,429.00 made, up of P11,929.00 for cost of land and improvements and the building and P1,500.00 to discharge the mortgage in favor of the Republic Savings Bank. with the present purchasing power of the peso this aft i more than 13 years, would be not equivalent to about P40,000.00. Courts should not lend a hand to the perpetration of such kind of injustice and outrage (see page 88, rollo)

I close paraphrasing the Supreme Court of Oklahoma in Phelps vs. Theime, et al., 217 p. 376; 377, that "equity is a right wiseneth that considerate all of the particular circumstances of the case and is also tempered with the sweetness of mercy." (quoting from St. Germain) In this case now before Us there is no need to invoke mercy, for all that is required is a wise consideration of the particular circumstances narrated above which warrant a judgment in favor of respondents Infants.

With all the foregoing, I vote for the affirmance of the decision under review.

Footnotes

CARMELITA FUDOT, Petitioner, G.R. No. 171008vs. September 13, 2007 CATTLEYA LAND, INC., VELASCO, JR., JJ. Respondent.

Facts:Sometime in July 1992, Cattleya Land, Inc. (hereinafter referred to as respondent) asked someone to check, on its behalf, the titles of nine (9) lots, the subject land included, which it intended to buy from the spouses Troadio and Asuncion Tecson. Finding no defect on the titles, respondent purchased the nine lots through a Deed of Conditional Sale on 6 November 1992. Subsequently, on 30 August 1993, respondent and the Tecsons executed a Deed of Absolute Sale over the same properties. The Deed of Conditional Sale and the Deed of Absolute Sale were registered with the Register of Deeds on 06 November 1992 and 04 October 1993, respectively. The Register of Deeds refused to actually annotate the deed of sale on the titles because of the existing notice of attachment pending before the Regional Trial Court of Bohol. The attachment was eventually cancelled by virtue of a compromise agreement between the Tecsons and their attaching creditor which was brokered by respondent. Titles to six (6) of the nine (9) lots were issued, but the Register of Deeds refused to issue titles to the remaining three (3) lots , because the titles covering the same were still unaccounted for.

Later, respondent learned that the Register of Deeds had already registered the deed of sale in favor of petitioner and issued a new title herein.The respondent filed its Complaintfor Quieting Of Title &/Or Recovery Of Ownership, Cancellation Of Title With Damages before the Regional Trial Court of Tagbilaran City.

Issue:Is the issuance of Deed of Sale valid?

Held:On 31 October 2001, the trial court rendered its decision: (i) quieting the title or ownership of the subject land in favor of respondent; (ii) declaring the deed of sale between petitioner and spouses Tecson invalid; (iii) ordering the registration of the subject land in favor of respondent; (iv) dismissing respondent’s claim for damages against the Register of Deeds for insufficiency of evidence; (v) dismissing Asuncion’s claim for damages against petitioner for lack of factual basis; and (vi) dismissing petitioner’s counterclaim for lack of the required preponderance of evidence.

CARMELITA FUDOT, G.R. No. 171008- versus - Chairperson,CARPIO,CARPIO MORALES,TINGA, andCATTLEYA LAND, INC., VELASCO, JR., JJ.Respondent.D E C I S I O N TINGA, J.: For resolution is a petition that seeks to nullify the Decision[1] and Resolution[2] of the Court of Appeals dated 28 April 2005 and 11 January 2006, respectively, in C.A.G.R. CV No. 73025 which declared respondent as having a better right over a parcel of land located in Doljo, Panglao, Bohol. The facts, as culled from the records, follow. Sometime in July 1992, Cattleya Land, Inc. (hereinafter referred to as respondent) asked someone to check, on its behalf, the titles of nine (9) lots, the subject land included, which it intended to buy from the spouses Troadio and Asuncion Tecson. Finding no defect on the titles, respondent purchased the nine lots through a Deed of Conditional Sale on 6 November 1992. Subsequently, on 30 August 1993, respondent and the Tecsons executed a Deed of Absolute Sale over the same properties. The Deed of Conditional Sale and the Deed of Absolute Sale were registered with the Register of Deeds on 06 November 1992 and 04 October 1993, respectively.[3] The Register of Deeds, Atty. Narciso dela Serna, refused to actually annotate the deed of sale on the titles because of the existing notice of attachment in connection with Civil Case No. 3399 pending before the Regional Trial Court of Bohol.[4] The attachment was eventually cancelled by virtue of a compromise agreement between the Tecsons and their attaching creditor which was brokered by respondent. Titles to six (6) of the nine (9) lots were issued, but the Register of Deeds refused to issue titles to the remaining three (3) lots , because the titles covering the same were still unaccounted for.On 23 January 1995, petitioner presented for registration before the Register of Deeds the owners copy of the title of the subject property, together with the deed of sale purportedly executed by the Tecsons in favor of petitioner on 19 December 1986. On the following day, respondent sent a letter of protest/opposition to petitioners application. Much to its surprise, respondent learned that the Register of Deeds had already registered the deed of sale in favor of petitioner and issued a new title in her name.[5] On 5 May 1995, respondent filed its Complaint[6] for Quieting Of Title &/Or Recovery Of Ownership, Cancellation Of Title With Damages before the Regional Trial Court of Tagbilaran City.[7] On 26 June 1995, Asuncion filed a complaint-in-intervention, claiming that she never signed any deed of sale covering any part of their conjugal property in favor of petitioner. She averred that her signature in petitioners deed of sale was forged thus, said deed should be declared null and void.[8] She also claimed that she has discovered only recently that there was an amorous relationship between her husband and petitioner.[9] Petitioner, for her part, alleged in her answer[10] that the spouses Tecson had sold to her the subject property for P20,000.00 and delivered to her the owners copy of the title on 26 December 1986. She claims that she subsequently presented the said title to the Register of Deeds but the latter refused to register the same because the property was still under attachment. On 31 October 2001, the trial court rendered its decision:[11] (i) quieting the title or ownership of the subject land in favor of respondent; (ii) declaring the deed of sale between petitioner and spouses Tecson invalid; (iii) ordering the registration of the subject land in favor of respondent; (iv) dismissing respondents claim for damages against the Register of Deeds for insufficiency of evidence; (v) dismissing Asuncions claim for damages against petitioner for lack of factual basis; and (vi) dismissing petitioners counterclaim for lack of the required preponderance of evidence.[12]

According to the trial court, respondent had recorded in good faith the deed of sale in its favor ahead of petitioner. Moreover, based on Asuncions convincing and unrebutted testimony, the trial court concluded that the purported signature of Asuncion in the deed of sale in favor of petitioner was forged, thereby rendering the sale void.[13] Petitioner sought recourse to the Court of Appeals, arguing in the main that the rule on double sale was applicable to the case. The appellate court, however, dismissed her appeal, holding that there was no double sale because the alleged sale to petitioner was null and void in view of the forgery of Asuncions purported signature in the deed. The appellate court noted that petitioner failed to rebut Asuncions testimony despite opportunities to do so.[14] Moreover, even if there was double sale, according to the appellate court, respondents claim would still prevail since it was able to register the second sale in its favor in good faith, had made inquiries before it purchased the lots, and was informed that the titles were free from encumbrance except the attachment on the property due to Civil Case No. 3399.[15] Petitioner sought reconsideration of the decision but the Court of Appeals denied her motion for reconsideration for lack of merit.[16] Petitioner thus presents before this Court the following issues for resolution: I. BETWEEN 2 BUYERS OF REGISTERED LAND, WHO HAS THE BETTER RIGHT-IS IT THE FIRST BUYER WHO WAS GIVEN THE OWNERS DUPLICATE TCT TOGETHER WITH A DEED OF SALE IN 1986, OR THE SECOND BUYER IN 1992 WITH ONLY A DEED OF SALE. II.IS A BUYER OF REGISTERED LAND WHO DID NOT DEMAND OR REQUIRE THE DELIVERY OF THE OWNERS DUPLICATE TCT A BUYER IN GOOD FAITH. III. II. IN SUBSEQUENT REGISTRATION OF REGISTERED LANDS, AS BY SALE, WHICH LAW SHALL GOVERN, ARTICLE 1455 OF CIVIL CODE OR P.D. 1529 OR TORRENS SYSTEM.[17] Petitioner avers that she was the first buyer in good faith and even had in her possession the owners copy of the title so much so that she was able to register the deed of sale in her favor and caused the issuance of a new title in her name. She argues that the presentation and surrender of the deed of sale and the owners copy carried with it the conclusive authority of Asuncion Tecson which cannot be overturned by the latters oral deposition.[18] Petitioner claims that respondent did not demand nor require delivery of the owners duplicate title from the spouses Tecson, neither did it investigate the circumstances surrounding the absence of the title. These indicate respondents knowledge of a defect in the title of the spouses and, thus, petitioner concludes that respondent was not a buyer in good faith.[19] Finally, petitioner insists that the applicable law in this case is P.D. No. 1529, a special law dealing precisely with the registration of registered lands or any subsequent sale thereof, and not Article 1544 of the Civil Code which deals with immovable property not covered by the Torrens System.[20] Respondent points out, on one hand, that petitioners first two issues which present an inquiry on who has a better right or which one is a buyer in good faith, are questions of fact not proper in a petition for review. The third issue, on the other hand, is ostensibly a question of law which had been unsuccessfully raised below.[21] Respondent maintains that there is no room to speak of petitioner as a buyer in good faith since she was never a buyer in the first place, as her claim is based on a null and void deed of sale, so the court a quo found. Respondent also asserts that its status as a buyer in good faith was established and confirmed in the proceedings before the two courts below.[22] Lastly, respondent argues that P.D. No. 1529 finds no application in the instant case. The production of the owners duplicate certificate x x x being conclusive authority from the registered owner is only true as between the registration applicant and the register of deeds concerned, but never to third parties. Such conclusive authority, respondent adds, is only for the Register of Deeds to enter a new certificate or to make a memorandum of registration in accordance with such instrument. It cannot cure the fatal defect that the instrument from which such registration was effected is null and void ab initio, respondent concludes.[23] The petition is bereft of merit. Petitioners arguments, which rest on the assumption that there was a double sale, must fail. In the first place, there is no double sale to speak of. Art. 1544 of the Civil Code,[24] which provides the rule on double sale, applies only to a situation where the same property is validly sold to different vendees. In this case, there is only one sale to advert to, that between the spouses Tecson and respondent.

In Remalante v. Tibe,[25] this Court ruled that the Civil Law provision on double sale is not applicable where there is only one valid sale, the previous sale having been found to be fraudulent. Likewise, in Espiritu and Apostol v. Valerio,[26] where the same parcel of land was purportedly sold to two different parties, the Court held that despite the fact that one deed of sale was registered ahead of the other, Art. 1544 of the Civil Code will not apply where said deed is found to be a forgery, the result of this being that the right of the other vendee should prevail. The trial court declared that the sale between the spouses Tecson and petitioner is invalid, as it bears the forged signature of Asuncion. Said finding is based on the unrebutted testimony of Asuncion and the trial courts visual analysis and comparison of the signatures in her Complaint-in-Intervention and the purported deed of sale. This finding was upheld by the Court of Appeals, as it ruled that the purported sale in petitioners favor is null and void, taking into account Asuncions unrefuted deposition. In particular, the Court of Appeals noted petitioners failure to attend the taking of the oral deposition and to give written interrogatories. In short, she did not take the necessary steps to rebut Asuncions definitive assertion. The congruence of the wills of the spouses is essential for the valid disposition of conjugal property.[27] Thus, under Article 166 of the Civil Code[28] which was still in effect on 19 December 1986 when the deed of sale was purportedly executed, the husband cannot generally alienate or encumber any real property of the conjugal partnership without the wifes consent. In this case, following Article 173[29] of the Civil Code, on 26 June 1995, or eight and a half years (8 ) after the purported sale to petitioner, Asuncion filed her Complaint-in-Intervention seeking the nullification thereof, and while her marriage with Troadio was still subsisting. Both the Court of Appeals and the trial court found Asuncions signature in the deed of sale to have been forged, and consequently, the deed of sale void for lack of marital consent. We find no reason to disturb the findings of the trial court and the Court of Appeals. Findings of fact of lower courts are deemed conclusive and binding upon the Supreme Court subject to certain exceptions,[30] none of which are present in this case. Besides, it has long been recognized in our jurisprudence that a forged deed is a nullity and conveys no title.[31] Petitioner argues she has a better right over the property in question, as the holder of and the first one to present, the owners copy of the title for the issuance of a new TCT. The Court is not persuaded. The act of registration does not validate petitioners otherwise void contract. Registration is a mere ministerial act by which a deed, contract, or instrument is sought to be inscribed in the records of the Office of the Register of Deeds and annotated at the back of the certificate of title covering the land subject of the deed, contract, or instrument. While it operates as a notice of the deed, contract, or instrument to others, it does not add to its validity nor converts an invalid instrument into a valid one as between the parties,[32] nor amounts to a declaration by the state that the instrument is a valid and subsisting interest in the land.[33] The registration of petitioners void deed is not an impediment to a declaration by the courts of its invalidity. Even assuming that there was double sale in this case, petitioner would still not prevail. The pertinent portion of Art. 1544 provides: Art. 1544. x x x. 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 x. In interpreting this provision, the Court declared 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. However, 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.[34] It is thus essential, to merit the protection of Art. 1544, second paragraph, that the second realty buyer must act in good faith in registering his deed of sale.[35]We agree with the trial court and the Court of Appeals that respondent was a buyer in good faith, having purchased the nine (9) lots, including the subject lot, without any notice of a previous sale, but only a notice of attachment relative to a pending civil case. In fact, in its desire to finally have the title to the properties transferred in its name, it persuaded the parties in the said case to settle the same so that the notice of attachment could be cancelled. Relevant to the discussion are the following provisions of P.D. No. 1529: Sec. 51. Conveyance and other dealings by registered owner. An owner of registered land may convey, mortgage, lease, charge or otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages, lease or other voluntary instruments as are sufficient in law. But no deed, mortgage, lease or other voluntary instrument, except a will purporting to convey or affect registered land shall take effect as a conveyance or bind the land, but shall

operate only as a contract between the parties and as evidence of authority to the Register of Deeds to make Registration.The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned, and in all cases under this Decree, the registration shall be made in the office of the Register of Deeds for the province or city where the land lies. (Emphasis supplied) Sec. 52. Constructive notice upon registration.Every conveyance, mortgage, lease, lien attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed or entered in the office of the Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing or entering. It has been held that between two transactions concerning the same parcel of land, the registered transaction prevails over the earlier unregistered right. The act of registration operates to convey and affect the registered land so that a bona fide purchaser of such land acquires good title as against a prior transferee, if such prior transfer was unrecorded.[36] As found by the courts a quo, respondent was able to register its purchase ahead of petitioner. It will be recalled that respondent was able to register its Deed of Conditional Sale with the Register of Deeds as early as 6 November 1992, and its Deed of Absolute Sale on 14 October 1993. On the other hand, petitioner was able to present for registration her deed of sale and owners copy of the title only on 23 January 1995, or almost nine years after the purported sale. Why it took petitioner nine (9) years to present the deed and the owners copy, she had no credible explanation; but it is clear that when she finally did, she already had constructive notice of the deed of sale in respondents favor. Without a doubt, respondent had acquired a better title to the property.Finally, anent petitioners claim that P.D. No. 1529 applies to registered lands or any subsequent sale thereof, while Art. 1544 of the Civil Code applies only to immovable property not covered by the Torrens System, suffice it to say that this quandary has already been answered by an eminent former member of this Court, Justice Jose Vitug, who explained that the registration contemplated under Art. 1544 has been held to refer to registration under P.D. No. 1529, thus:The registration contemplated under Art. 1544 has been held to refer to registration under Act 496 Land Registration Act (now PD 1529) which considers the act of registration as the operative act that binds the land (see Mediante v. Rosabal, 1 O.G. [12] 900, Garcia v. Rosabal, 73 Phil 694). On lands covered by the Torrens System, the purchaser acquires such rights and interest as they appear in the certificate of title, unaffected by any prior lien or encumbrance not noted therein. The purchaser is not required to explore farther than what the Torrens title, upon its face, indicates. The only exception is where the purchaser has actual knowledge of a flaw or defect in the title of the seller or of such liens or encumbrances which, as to him, is equivalent to registration (see Sec. 39, Act 496; Bernales v. IAC, G.R. 75336, 18 October 1988; Hernandez vs. Sales, 69 Phil 744; Tajonera s. Court of Appeals, L-26677, 27 March 1981) (Emphasis supplied)[37] WHEREFORE, the petition is DENIED. The assailed decision and resolution of the Court of Appeals are affirmed. Costs against petitioner. SO ORDERED.

Balatbat v. CAFacts:

A parcel of land was acquired by plaintiff Aurelio Roque and Maria Mesina during their conjugal union. Maria died on August 28, 1966. On June 15, 1977, Aurelio filed a case for partition. The trial court held that Aurelio is entitled to the ½ portion at his share in the conjugal property, and 1/5 of the other half which formed part of Maria’s estate, divided equally among him at his 4 children. The decision having become final and executory, the Register of Deeds of Manila issued a transfer certificate of title on October 5, 1979 according to the ruling of the court. On April 1, 1980, Aurelio sold his 6/10 share to spouses Aurora Tuazon-Repuyan and Jose Repuyan, as evidenced by a deed of absolute sale. On June 21, 1980, Aurora caused the annotation of her affidavit of adverse claim. On August 20, 1980, Aurelio filed a complaint for rescission of contract grounded on the buyers’ failure to pay the balance of the purchase price. On February 4, 1982, another deed of absolute sale was executed between Aurelio and his children, and herein petitioner Clara Balatbat, involving the entire lot. Balatbat filed a motion for the issuance of writ of possession, which was granted by the court on September 20, 1982, subject to valid rights and interests of third persons. Balatbat filed a motion to intervene in the rescission case, but did not file her complaint in intervention. The court ruled that the sale between Aurelio and Aurora is valid.

Issues:

(1) Whether the alleged sale to private respondents was merely executory

(2) Whether there was double sale

(3) Whether petitioner is a buyer in good faith and for value

Held:

(1) Contrary to petitioner's contention that the sale dated April 1, 1980 in favor of private respondents Repuyan was merely executory for the reason that there was no delivery of the subject property and that consideration/price was not fully paid, we find the sale as consummated, hence, valid and enforceable. The Court dismissed vendor's Aurelio Roque complaint for rescission of the deed of sale and declared that the Sale dated April 1, 1980, as valid and enforceable. No appeal having been made, the decision became final and executory.

The execution of the public instrument, without actual delivery of the thing, transfers the ownership from the vendor to the vendee, who may thereafter exercise the rights of an owner over the same. In the instant case, vendor Roque delivered the owner's certificate of title to herein private respondent. The provision of Article 1358 on the necessity of a public document is only for convenience, not for validity or enforceability. It is not a requirement for the validity of a contract of sale of a parcel of land that this be embodied in a public instrument. A contract of sale being consensual, it is perfected by the mere consent of the parties. Delivery of the thing bought or payment of the price is not necessary for the perfection of the contract; and failure of the vendee to pay the price after the execution of the contract does not make the sale null and void for lack of consideration but results at most in default on the part of the vendee, for which the vendor may exercise his legal remedies.

(2) Article 1544 of the Civil Code provides that in case of double sale of an immovable property, ownership shall be transferred (1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in default thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the person who presents the oldest title, provided there is good faith. In the case at bar, vendor Aurelio Roque sold 6/10 portion of his share to private respondents Repuyan on April 1, 1980. Subsequently, the same lot was sold again by vendor Aurelio Roque (6/10) and his children (4/10), represented by the Clerk of Court pursuant to Section 10, Rule 39 of the Rules of Court, on February 4, 1982. Undoubtedly, this is a case of double sale contemplated under Article 1544 of the New Civil Code.

Evidently, private respondents Repuyan's caused the annotation of an adverse claim on the title of the subject property on July 21, 1980. The annotation of the adverse claim in the Registry of Property is sufficient compliance as mandated by law and serves notice to the whole world. On the other hand, petitioner filed a notice of lis pendens only on February 2, 1982. Accordingly, private respondents who first caused the annotation of the adverse claim in good faith shall have a better right over herein petitioner. As between two purchasers, the one who has registered the sale in his favor, has a preferred right over the other who has not registered his title even if the latter is in actual possession of the immovable property. Further, even in default of the first registrant or first in possession, private respondents have presented the oldest title. Thus, private respondents who acquired the subject property in good faith and for valuable consideration established a superior right as against the petitioner.

(3) Petitioner cannot be considered as a buyer in good faith. If petitioner did investigate before buying the land on February 4, 1982, she should have known that there was a pending case and an annotation of adverse claim was made in the title of the property before the Register of Deeds and she could have discovered that the subject property was already sold to the private respondents. It is incumbent upon the vendee of the property to ask for the delivery of the owner's duplicate copy of the title from the vendor. 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 in the title of his vendor. Good faith, or the want of it is not a visible, tangible fact that can be seen or touched, but rather a state or condition of mind which can only be judged of by actual or fancied tokens or signs.

CLARA M. BALATBAT, petitioner, vs. COURT OF APPEALS and Spouses JOSE REPUYAN and AURORA REPUYAN, respondents.D E C I S I O NTORRES, JR., J.:

Petitioner Clara M. Balatbat instituted this petition for review pursuant to Rule 45 of the Revised Rules of Court seeking to set aside the decision dated August 12, 1992 of the respondent Court of Appeals in CA-G.R. CV No. 29994 entitled Alejandro Balatbat and Clara Balatbat, plaintiffs-appellants, versus Jose Repuyan and Aurora Repuyan, defendants-appellees, the dispositive portion of which reads:[1]

WHEREFORE, the judgment appealed from is affirmed with the modification that the awards of P10,000.00 for attorneys fees and P5,000.00 as costs of litigation are deleted.

SO ORDERED.

The records show the following factual antecedents:

It appears that on June 15, 1977, Aurelio A. Roque filed a complaint for partition docketed as Civil Case No. 109032 against Corazon Roque, Alberto de los Santos, Feliciano Roque, Severa Roque and Osmundo Roque before the then Court of First Instance of Manila, Branch IX.[2] Defendants therein were declared in default and plaintiff presented evidence ex-parte. On March 29, 1979, the trial court rendered a decision in favor of plaintiff Aurelio A. Roque, the pertinent portion of which reads:[3]

From the evidence, it has been clearly established that the lot in question covered by Transfer Certificate of Title No. 51330 was acquired by plaintiff Aurelio Roque and Maria Mesina during their conjugal union and the house constructed thereon was likewise built during their marital union. Out of their union, plaintiff and Maria Mesina had four children, who are the defendants in this case. When Maria Mesina died on August 28, 1966, the only conjugal properties left are the house and lot above stated of which plaintiff herein, as the legal spouse, is entitled to one-half share pro-indiviso thereof. With respect to the one-half share pro-indiviso now forming the estate of Maria Mesina, plaintiff and the four children, the defendants here, are each entitled to one-fifth (1/5) share pro-indiviso. The deceased wife left no debt.

Wherefore, judgment is hereby rendered ordering the partition of the properties, subject matter of this case consisting of the house and lot, in the following manner:

1. Of the house and lot forming the conjugal properties, plaintiff is entitled to one-half share pro-indiviso thereof while the other half forms the estate of the deceased Maria Mesina;

2. Of the Estate of deceased Maria Mesina, the same is to be divided into five (5) shares and plaintiff and his four children are entitled each to one-fifth share thereof pro-indiviso.

Plaintiff claim for moral, exemplary and actual damages and attorneys fees not having been established to the satisfaction of the Court, the same is hereby denied.

Without pronouncement as to costs.

SO ORDERED.

On June 2, 1979, the decision became final and executory. The corresponding entry of judgment was made on March 29, 1979.[4]

On October 5, 1979, the Register of Deeds of Manila issued a Transfer Certificate of Title No. 135671 in the name of the following persons in the following proportions:[5]

Aurelio A. Roque 6/10 share

Severina M. Roque 1/10 share

Osmundo M. Roque 1/10 share

Feliciano M. Roque 1/10 share

Corazon M. Roque 1/10 share

On April 1, 1980, Aurelio A. Roque sold his 6/10 share in T.C.T. No. 135671 to spouses Aurora Tuazon-Repuyan and Jose Repuyan as evidenced by a Deed of Absolute Sale.[6]

On July 21, 1980, Aurora Tuazon Repuyan caused the annotation of her affidavit of adverse claim[7] on the Transfer Certificate of Title No. 135671,[8] to wit:

Entry No. 5627/T-135671 - NOTICE OF ADVERSE CLAIM - Filed by Aurora Tuazon Repuyan, married, claiming among others that she bought 6/10 portion of the property herein described from Aurelio Roque for the amount of P50,000.00 with a down payment of P5,000.00 and the balance of P45,000.00 to be paid after the partition and subdivision of the property herein described, other claims set forth in Doc. No. 954, page 18, Book 94 of _____________________ 64 ________PEDRO DE CASTRO, Notary Public of Manila.

Date of instrument - July 21, 1980

Date of inscription- July 21, 1980 at 3:35 p.m.

TERESITA H. NOBLEJAS

Acting Register of Deeds

By:

RAMON D. MACARICAN

Acting Second Deputy

On August 20, 1980, Aurelio A. Roque filed a complaint for Rescission of Contract docketed as Civil Case No. 134131 against spouses Aurora Tuazon-Repuyan and Jose Repuyan before Branch IV of the then Court of First Instance of Manila. The complaint is grounded on spouses Repuyans failure to pay the balance of P45,000.00 of the purchase price.[9] On September 5, 1980, spouses Repuyan filed their answer with counterclaim.[10]

In the meantime, the trial court issued an order in Civil Case No. 109032 (Partition case) dated February 2, 1982, to wit:[11]

In view of all the foregoing and finding that the amount of P100,000.00 as purchase price for the sale of the parcel of land covered by TCT No. 51330 of the Registry of Deeds of Manila consisting of 84 square meters situated in Callejon Sulu, District of Santa Cruz, Manila, to be reasonable and fair, and considering the opportunities given defendants to sign the deed of absolute sale voluntarily, the Court has no alternative but to order, as it hereby orders, the Deputy Clerk of this Court to sign the deed of absolute sale for and in behalf of defendants pursuant to Sec. 10, Rule 39 of the Rules of Court, in order to effect the partition of the property involved in this case.

SO ORDERED.

A deed of absolute sale was executed on February 4, 1982 between Aurelio S. Roque, Corazon Roque, Feliciano Roque, Severa Roque and Osmundo Roque and Clara Balatbat, married to Alejandro Balatbat.[12] On April 14, 1982, Clara Balatbat filed a motion for the issuance of a writ of possession which was granted by the trial court on September 14, 1982 subject, however, to valid rights and interest of third persons over the same portion thereof, other than vendor or any other person or persons privy to or claiming any rights or interest under it. The corresponding writ of possession was issued on September 20, 1982.[13]

On May 20, 1982, petitioner Clara Balatbat filed a motion to intervene in Civil Case No. 134131[14] which was granted as per courts resolution of October 21, 1982.[15] However, Clara Balatbat failed to file her complaint in intervention.[16] On April 15, 1986, the trial court rendered a decision dismissing the complaint, the pertinent portion of which reads:[17]

The rescission of contracts are provided for in the laws and nowhere in the provision of the Civil Code under the title Rescissible Contracts does the circumstances in the case at bar appear to have occurred, hence, the prayer for rescission is outside the ambit for which rescissible [sic] could be granted.

The Intervenor - Plaintiff, Clara Balatbat, although allowed to intervene, did not file her complaint in intervention.

Consequently, the plaintiff having failed to prove with sufficient preponderance his action, the relief prayed for had to be denied. The contract of sale denominated as Deed of Absolute Sale (Exh. 7 and sub-markings) being valid and enforceable, the same pursuant to the provisions of Art. 1159 of the Civil Code which says:

Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.

has the effect of being the law between the parties and should be complied with. The obligation of the plaintiff under the contract being to have the land covered by TCT No. 135671 partitioned and subdivided, and title issued in the name of the defendant buyer (see page 2 par. C of Exh. 7-A) plaintiff had to comply thereto to give effect to the contract.

WHEREFORE, judgment is rendered against the plaintiff, Aurelio A. Roque, and the plaintiff in intervention, Clara Balatbat, and in favor of the defendants, dismissing the complaint for lack of merit, and declaring the Deed of Absolute Sale dated April 1, 1980 as valid and enforceable and the plaintiff is, as he is hereby ordered, to partition and subdivide the land covered by T.C.T. No. 135671, and to aggregate therefrom a portion equivalent to 6/10 thereof, and cause the same to be titled in the name of the defendants, and after which, the defendants to pay the plaintiff the sum of P45,000.00. Considering further that the defendants suffered damages since they were forced to litigate unnecessarily, by way of their counterclaim, plaintiff is hereby ordered to pay defendants the sum of P15,000.00 as moral damages, attorneys fees in the amount of P5,000.00.

Costs against plaintiff.

SO ORDERED.

On March 3, 1987, petitioner Balatbat filed a notice of lis pendens in Civil Case No. 109032 before the Register of Deeds of Manila.[18]

On December 9, 1988, petitioner Clara Balatbat and her husband, Alejandro Balatbat filed the instant complaint for delivery of the owner's duplicate copy of T.C.T. No. 135671 docketed as Civil Case No. 88-47176 before Branch 24 of the Regional Trial Court of Manila against private respondents Jose Repuyan and Aurora Repuyan.[19]

On January 27, 1989, private respondents filed their answer with affirmative defenses and compulsory counterclaim.[20]

On November 13, 1989, private respondents filed their memorandum[21] while petitioners filed their memorandum on November 23, 1989.[22]

On August 2, 1990, the Regional Trial Court of Manila, Branch 24, rendered a decision dismissing the complaint, the dispositive portion of which reads:[23]

Considering all the foregoing, this Court finds that the plaintiffs have not been able to establish their cause of action against the defendants and have no right to the reliefs demanded in the complaint and the complaint of the plaintiff against the defendants is hereby DISMISSED. On the counterclaim, the plaintiff are ordered to pay defendants the amount of Ten Thousand Pesos by way of attorneys fees, Five Thousand Pesos as costs of litigation and further to pay the costs of the suit.

SO ORDERED.

Dissatisfied, petitioner Balatbat filed on appeal before the respondent Court of Appeals which rendered the assailed decision on August 12, 1992, to wit:[24]

WHEREFORE, the judgment appealed from is affirmed with the modification that the awards of P10,000.00 for attorneys fees and P5,000.00 as costs of litigation are deleted.

SO ORDERED.

On March 22, 1993, the respondent Court of Appeals denied petitioners motion for reconsideration.[25]

Hence, this petition for review.

Petitioner raised the following issues for this Courts resolution:

I

WHETHER OR NOT THE ALLEGED SALE TO THE PRIVATE RESPONDENTS WAS MERELY EXECUTORY AND NOT A CONSUMMATED TRANSACTION?

II

WHETHER OR NOT THERE WAS A DOUBLE SALE AS CONTEMPLATED UNDER ART. 1544 OF THE CIVIL CODE?

III

WHETHER OR NOT PETITIONER WAS A BUYER IN GOOD FAITH AND FOR VALUE?

IV

WHETHER OR NOT THE COURT OF APPEALS ERRED IN GIVING WEIGHT AND CONSIDERATION TO THE EVIDENCE OF THE PRIVATE RESPONDENTS WHICH WERE NOT OFFERED?

Petitioner asseverates that the respondent Court of Appeals committed grave abuse of discretion tantamount to lack or excess of jurisdiction in affirming the appealed judgment considering (1) that the alleged sale in favor of the private respondents Repuyan was merely executory; (2) that there is no double sale; (3) that petitioner is a buyer in good faith and for value; and (4) that private respondents did not offer their evidence during the trial.

Contrary to petitioners contention that the sale dated April 1, 1980 in favor of private respondents Repuyan was merely executory for the reason that there was no delivery of the subject property and that consideration/price was not fully paid, we find the sale as consummated, hence, valid and enforceable. In a decision dated April 15, 1986 of the Regional Trial Court of Manila, Branch IV in Civil Case No. 134131, the Court dismissed vendors Aurelio Roque complaint for rescission of the deed of sale and declared that the sale dated April 1, 1980, as valid and enforceable. No appeal having been made, the decision became final and executory. It must be noted that herein petitioner Balatbat filed a motion for intervention in that case but did not file her complaint in intervention. In that case wherein Aurelio Roque sought to rescind the April 1, 1980 deed of sale in favor of the private respondents for non-payment of the P45,000.00 balance, the trial court dismissed the complaint for rescision. Examining the terms and conditions of the Deed of Sale dated April 1, 1980, the P45,000.00 balance is payable only after the property covered by T.C.T. No. 135671 has been partitioned and subdivided, and title issued in the name of the BUYER hence, vendor Roque cannot demand payment of the balance unless and until the property has been subdivided and titled in the name of the private respondents. Devoid of any stipulation that ownership in the thing shall not pass to the purchaser until he has fully paid the price,[26] ownership in the thing shall pass from the vendor to the vendee upon actual or constructive delivery of the thing sold even if the purchase price has not yet been fully paid. The failure of the buyer to make good the price does not, in law, cause the ownership to revest to the seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Article 1191 of the New Civil Code.[27] Non-payment only creates a right to demand the fulfillment of the obligation or to rescind the contract.

With respect to the non-delivery of the possession of the subject property to the private respondent, suffice it to say that ownership of the thing sold is acquired only from the time of delivery thereof, either actual or constructive.[28] Article 1498 of the Civil Code provides that - when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot be inferred.[29] The execution of the public instrument, without actual delivery of the thing, transfers the ownership from the vendor to the vendee, who may thereafter exercise the rights of an owner over the same.[30] In the instant case, vendor Roque delivered the owners certificate of title to herein private respondent. It is not necessary that vendee be physically present at every square inch of the land bought by him, possession of the public instrument of the land is sufficient to accord him the rights of ownership. Thus, delivery of a parcel of land may be done by placing the vendee in control and possession of the land (real) or by embodying the sale in a public instrument (constructive). The provision of Article 1358 on the necessity of a public document is only for convenience, not for validity or enforceability. It is not a requirement for the validity of a contract of sale of a parcel of land that this be embodied in a public instrument.[31]

A contract of sale being consensual, it is perfected by the mere consent of the parties.[32] Delivery of the thing brought or payment of the price is not necessary for the perfection of the contract; and failure of the vendee to pay the price after the execution of the contract does not make the sale null and void for lack of consideration but results at most in default on the part of the vendee, for which the vendor may exercise his legal remedies.[33]

Article 1544 of the New Civil Code provides:

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 movable 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 present the oldest title, provided there is good faith.

Article 1544 of the Civil Code provides that in case of double sale of an immovable property, ownership shall be transferred (1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in default thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the person who presents the oldest title, provided there is good faith.[34]

In the case at bar, vendor Aurelio Roque sold 6/10 portion of his share in TCT No. 135671 to private respondents Repuyan on April 1, 1980. Subsequently, the same lot was sold again by vendor Aurelio Roque (6/10) and his children (4/10), represented by the Clerk of Court pursuant to Section 10, Rule 39 of the Rules of Court, on February 4, 1982. Undoubtedly, this is a case of double sale contemplated under Article 1544 of the New Civil Code.

This is an instance of a double sale of an immovable property hence, the ownership shall vests in the person acquiring it who in good faith first recorded it in the Registry of Property. Evidently, private respondents Repuyans caused the annotation of an adverse claim on the title of the subject property denominated as Entry No. 5627/T-135671 on July 21, 1980.[35] The annotation of the adverse claim on TCT No. 135671 in the Registry of Property is sufficient compliance as mandated by law and serves notice to the whole world.

On the other hand, petitioner filed a notice of lis pendens only on February 2, 1982. Accordingly, private respondents who first caused the annotation of the adverse claim in good faith shall have a better right over herein petitioner. Moreover, the physical possession of herein petitioners by virtue of a writ of possession issued by the trial court on September 20, 1982 is subject to the valid rights and interest of third persons over the same portion thereof, other than vendor or any other person or persons privy to or claiming any rights to interest under it.[36] As between two purchasers, the one who has registered the sale in his favor, has a preferred right over the other who has not registered his title even if the latter is in actual possession of the immovable property.[37] Further, even in default of the first registrant or first in possession, private respondents have presented the oldest title.[38] Thus, private respondents who acquired the subject property in good faith and for valuable consideration established a superior right as against the petitioner.

Evidently, petitioner cannot be considered as a buyer in good faith. In the complaint for rescission filed by vendor Aurelio Roque on August 20, 1980, herein petitioner filed a motion for intervention on May 20, 1982 but did not file her complaint in intervention, hence, the decision was rendered adversely against her. If petitioner did investigate before buying the land on February 4, 1982, she should have known that there was a pending case and an annotation of adverse claim was made in the title of the property before the Register of Deeds and she could have discovered that the subject property was already sold to the private respondents. It is incumbent upon the vendee of the property to ask for the delivery of the owners duplicate copy of the title from the vendor. A purchaser of a valued piece of property cannot just close his eyes to facts which should put a reasonable man upon his guard and then claim that he acted in good faith and under the belief that there were no defect in the title of the vendor.[39] 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 in the title of his vendor. Good

faith, or the want of it is not a visible, tangible fact that can be seen or touched, but rather a state or condition of mind which can only be judged of by actual or fancied tokens or signs.[40]

In fine, petitioner had nobody to blame but herself in dealing with the disputed property for failure to inquire or discover a flaw in the title to the property, thus, it is axiomatic that - culpa lata dolo aequiparatur - gross negligence is equivalent to intentional wrong.

IN VIEW OF THE FOREGOING PREMISES, this petition for review is hereby DISMISSED for lack of merit. No pronouncement as to costs.

IT IS SO ORDERED.

SPS. LUMBRES vs. SPS. TABLADANOVEMBER 11, 2010 ~ LEAVE A COMMENTSPS. LUMBRES vs. SPS. TABLADA

G.R. No. 165831

February 23, 2007

FACTS: on January 9, 1995 Spring Homes, former owner of the parcel of land in dispute, entered into a pro forma Contract to Sell with the respondent spouses Tablada. The prepared typewritten contract, with the blank spaces therein merely filled up, contains the designation of the parcel sold, the price per square meter and the stipulation as to payment. After having been paid the sum total of P179,500.00, which the respondents claim to be the full purchase price of the subject lot, Spring Homes executed a Deed of Absolute Sale in favor of the respondents. In the deed the subject lot was already made to appear as covered by a TCT. Because the anticipated Pag-Ibig loan failed to materialize, the P230,000.00, which, under the Contract to Sell, was supposed to be paid upon release of the loan, was left unpaid.

Respondents later declared the subject lot for taxation purposes and paid the corresponding real property taxes thereon. Using their own funds, they caused the construction thereon of a residential house, which they presently occupy. A Certificate of Occupancy was issued to them and the house was declared in their names.

With the execution of the aforesaid Deed of Absolute Sale, the respondent spouses sent a demand letter to Spring Homes for the transfer and release to them of the original or owner’s copy of the TCT, who promised to deliver the said title and even apologized for the delay. However, to their great dismay, the spouses subsequently learned that the TCT was canceled and a new one issued to the petitioners. On account thereof, the respondent spouses filed with the RTC a civil suit against the petitioners, Spring Homes and the RD of Calamba City for nullification of title, reconveyance and damages.

It appears, however, that after the filing of the Civil Case the spouses Lumbres filed a civil case before the RTC of Calamba City, against Spring Homes. The petitioners filed with the Register of Deeds of Calamba City a Notice of Lis Pendens over all the properties registered in the name of the said corporation, including the subject lot. The RTC issued an order attaching all of Spring Homes properties, subject lot. Premiere Development Bank subsequently intervened because all said properties had been mortgaged to it.

The petitioner spouses entered into a Compromise Agreement in the Civil Case with Spring Homes and Premiere Development Bank, which was approved by the RTC. In that Compromise Agreement, both Spring Homes and Premiere Development Bank recognized the rights and interests of the petitioner spouses over the parcels of land The subject property (Lot 8, Block 3) was among the properties covered by the aforementioned compromise agreement that were judicially assigned, transferred and conveyed to the petitioners.

Meanwhile, due to the respondents’ alleged failure to pay the P230,000.00 unpaid balance as per the Contract to Sell earlier adverted to despite demands, the subject lot was sold by Spring Homes to the petitioners, again by way of a Deed of Absolute Sale executed on December 22, 2000 for and in consideration of the sum of P157,500.00. The mortgage on the lot was released by Premiere Development Bank. Subsequently a TCT covering the subject lot was issued in petitioners’ favor.

The instant case cropped up when, asserting their ownership of the subject lot on the basis of the TCT the petitioners demanded of the respondents to vacate said lot and to pay them the rentals due thereon. Their demands having come to naught, the petitioner spouses then filed in the MTCC for ejectment against respondent Tabladas and all persons claiming rights under them. The MTCC dismissed the petitioners’ ejectment complaint and ruled for the respondents.

Aggrieved, the petitioners appealed to the RTC. In The RTC reversed and set aside the MTCC decision and ordered the respondent spouses to vacate subject lot to surrender the possession thereof to the petitioners. In holding that the petitioners have superior right on the subject lot over the respondents, the RTC, applying the provisions of Articles 1350, 1352 and 1409 of the Civil Code, deemed the Deed of Absolute Sale in favor of the respondents void ab initio for want of valid consideration. With their MR having been denied by the RTC in the respondent spouses then went to the CA on a petition for review.

The CA granted the respondents’ petition, thereby reversing the assailed Orders of the RTC and reinstating the earlier decision of the MTCC. Their MR having been denied by the CA,petitioners are now before us via the instant recourse raising the following issues:

ISSUE: Who, as between the petitioners and the respondents, is entitled to the physical or material possession of the property involved, independent of their respective claims of ownership thereof

HELD:

petition denied.

Before proceeding with a discussion of the issues laid out above, it must be stressed that the present case is one for ejectment. As such, our judgment hereon is effective only with respect to possession. It does not bind the title or affect the ownership of the lot in question.

Upon scrutiny, however, the CA astutely observed that despite there being no question that the total land area of the subject lot is 105 square meters, the Contract to Sell executed and entered into by Spring Homes and the respondent spouses states, however, that while there is only one parcel of land being sold, the Contract to Sell speaks of two (2) land areas, namely, “105 sqm” and “42 sqm,” and two (2) prices per square meter differ.

The CA could only think of one possible explanation: the Contract to Sell refers only to a single lot with a total land area of 105 square meters. The 42 square meters mentioned in the same contract and therein computed at the rate of P6,000 per square meter refer to the cost of the house which would be constructed by the respondents on the subject lot through a Pag-Ibig loan.

Looking at that portion of the Contract to Sell, the CA found merit in the respondents’ contention that the total selling price of P409,500 includes not only the price of the lot but also the cost of the house that would be constructed thereon. We are inclined to agree. The CA went on to say:

It could be argued that the contract to sell never mentions the construction of any house or building on the subject property. Had it been the intention of the parties that the total selling price would include the amount of the house that would be taken from a loan to be obtained from Pag-Ibig, they could have specified so. However, one should not lose sight of the fact that the contract to sell is an accomplished form. [Respondents,] trusting Spring Homes, could not be expected to demand that another contract duly reflective of their agreements be utilized instead of the accomplished form. The terms and conditions of the contract may not contemplate the inclusion of the cost of the house in the total selling price, but the entries typewritten thereon sufficiently reveal the intentions of the parties.

The position of the [respondents] finds support in the documents and subsequent actuations of Bertha Pasic, the representative of Spring Homes. [Respondents] undeniably proved that they spent their own hard-earned money to construct a house thereon after their Pag-Ibig loan did not materialize. It is highly unjust for the [respondents] to pay for the amount of the house when the loan did not materialize due to the failure of Spring Homes to deliver the owner’s duplicate copy of the TCT.

If the total selling price was indeed P409,500.00, as [petitioners] would like to poster, said amount should have appeared as the consideration in the deed of absolute sale dated January 15, 1996. However, only P157,500.00 was stated. The amount stated in the Deed of Absolute Sale dated January 15, 1996 was not only a portion of the selling price, because the Deed of Sale dated December 22, 2000 also reflected P157,500.00 as consideration. It is not shown that [petitioners] likewise applied for a loan with Pag-Ibig. The reasonable inference is that the consistent amount stated in the two Deeds of Absolute Sale was the true selling price as it perfectly jibed with the computation in the Contract to Sell.

We find the CA’s reasoning to be sound. At any rate, the execution of the January 16, 1996 Deed of Absolute Sale in favor of the respondents effectively rendered the previous Contract to Sell ineffective and canceled. Furthermore, we find no merit in petitioners’ contention that the first sale to the respondents was void for want of consideration. As the CA pointed out in its assailed decision:

Other than the [petitioners’] self-serving assertion that the Deeds of Absolute Sale was executed solely for the purpose of obtaining a Pag-Ibig loan, no other concrete evidence was tendered to justify the execution of the deed of absolute sale. They failed to overcome the clear and convincing evidence of the [respondents] that as early as July 5, 1995 the latter had already paid the total amount of P179,500.00, much bigger than the actual purchase price for the subject land.

Having stated that the Deed of Absolute Sale executed in favor of the respondent spouses is valid and with sufficient consideration, the MTCC correctly applied the provisions of Article 1544 of the Civil Code. Article 1544 reads:

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.

Notwithstanding the fact that the petitioners, as the second buyer, registered their Deed of Absolute Sale, in contrast to the Deed of Sale of the respondents which was not registered at all precisely because of Spring Homes’ failure to deliver the owner’s copy of the TCT, the respondents’ right could not be deemed defeated as the petitioners are in bad faith. Petitioners cannot claim good faith since at the time of the execution of the Compromise Agreement in Civil Case, they were indisputably and reasonably informed that the subject lot was previously sold to the respondents. In fact, they were already aware that the respondents had constructed a house thereon and are presently in possession of the same.

Knowledge gained by the second buyer of the first sale defeats his rights even if he is the first to register the second sale because such knowledge taints his prior registration with bad faith. For the second buyer to displace 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.

Hence, there was nothing to cede or transfer to the petitioners when the Compromise Agreement was entered into insofar as the subject lot is concerned as it was already sold to and fully paid for by the respondents as early as January 16, 1996 when the Absolute Deed of Sale was executed in their favor by Spring Homes. More so that Spring Homes has no more to sell to the petitioners when it executed in the latter’s favor the second deed of absolute sale on December 22, 2000.

The respondents are the current occupants of the subject lot. They had constructed their residential house thereon and are living there at present. The action for ejectment was fashioned to provide a speedy, albeit temporary, remedy to the dispossessed party while the issue of lawful possession or de jure possession is pending or about to be filed. The remedy of ejectment ought to maintain the status quo and prevent the party-litigants from further aggravating the situation and causing further damage.

NOTES:

1. When acting as an ejectment court, the Metropolitan, Municipal and Circuit Trial Courts’ jurisdiction is limited to the determination of the issue on possession de facto and not possession de jure.11 By way of exception, however, if the issue of possession depends on the resolution of the issue of ownership, which is sufficiently alleged in the complaint, as here, the MTCC may resolve the issue of ownership although the resulting judgment would be conclusive only with respect to possession but not to the ownership of the property.

2. Regardless of the actual condition of the title to the property, the party in peaceful, quiet possession thereof shall not be ejected therefrom. Thus, a party who can prove prior possession can recover such possession even against the owner himself. Whatever may be the character of the defendant’s prior possession, whether it be legal or illegal, since he had in his favor priority in time, he has the security that entitles him to remain on the property until he is lawfully ejected therefrom by a person having a better right by accion publciana or accion reivindicatoria.15

TEN FORTY REALTY V. CRUZ| PanganibanG.R. No. 151212 | September 10, 2003Jun28

FACTS:

• Petitioner filed an ejectment complaint against Marina Cruz(respondent) before the MTC. Petitioner alleges that the land indispute was purchased from Barbara Galino on December 1996, andthat said land was again sold to respondent on April 1998;

• On the other hand, respondent answer with counterclaim that never was there an occasion when petitioner occupied a portion of the premises. In addition, respondent alleges that said land was a public land (respondent filed a miscellaneous sales application with the Community Environment and Natural Resources Office) and the action for ejectment cannot succeed where it appears that respondent had been in possession of the property prior to the petitioner;

• On October 2000, MTC ordered respondent to vacate the land and surrender to petitioner possession thereof. On appeal, the RTC reversed the decision. CA sustained the trial court’s decision.

ISSUE/S:

Whether or not petitioner should be declared the rightful owner of the property.

HELD:

No. Respondent is the true owner of the land.1) The action filed by the petitioner, which was an action for “unlawful detainer”, is improper. As the bare allegation of petitioner’s tolerance of respondent’s occupation of the premises has not been proven, the possession should be deemed illegal from the beginning. Thus, the CA correctly ruled that the ejectment case should have been for forcible entry. However, the action had already prescribed because the complaint was filed on May 12, 1999 – a month after the last day forfiling;2) The subject property had not been delivered to petitioner; hence, it did not acquire possession either materially or symbolically. As between the two buyers, therefore, respondent was first in actual possession of the property.

As regards the question of whether there was good faith in the second buyer. Petitioner has not proven that respondent was aware that her mode of acquiring the property was defective at the time she acquired it from Galino. At the time, the property — which was public land –had not been registered in the name of Galino; thus, respondent relied on the tax declarations thereon. As shown, the former’s name appeared on the tax declarations for the property until its sale to the latter in 1998. Galino was in fact occupying the realty when respondent took over possession. Thus, there was no circumstance that could have placed the latter upon inquiry or required her to further investigate petitioner’s right of ownership.

DOCTRINE/S:

Execution of Deed of Sale; Not sufficient as delivery. Ownership is transferred not by contract but by tradition or delivery. Nowhere in the Civil Code is it provided that the execution of a Deed of Sale is a conclusive presumption of delivery of possession of a piece of real estate. The execution of a public instrument gives rise only to a prima facie presumption of delivery. Such presumption is destroyed when the delivery is not effected, because of a legal impediment. Such constructive or symbolic delivery, being merely presumptive, was deemed negated by the failure of the vendee to take actual possession of the land sold. Disqualification from Ownership of Alienable Public Land.

Private corporations are disqualified from acquiring lands of the public domain, as provided under Section 3 of Article XII of the Constitution. While corporations cannot acquire land of the public domain, they can however acquire private land. However, petitioner has not presented proof that, at the time it purchased the property from Galino, the property had ceased to be of the public domain and was already private land. The established rule is that alienable and disposable land of the public domain held and occupied by a possessor — personally or through predecessors-in-interest, openly, continuously, and exclusively for 30 years — is ipso jure converted to private property by the mere lapse of time.

RULING:

The Supreme Court DENIED the petition.TEN FORTY REALTY AND DEVELOPMENT CORP., Represented by its President, VERONICA G. LORENZANA, petitioner, vs. MARINA CRUZ, respondent.D E C I S I O NPANGANIBAN, J.:

In an ejectment suit, the question of ownership may be provisionally ruled upon for the sole purpose of determining who is entitled to possession de facto. In the present case, both parties base their alleged right to possess on their right to own. Hence, the Court of Appeals did not err in passing upon the question of ownership to be able to decide who was entitled to physical possession of the disputed land.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify the August 31, 2001 Decision[2] and December 19, 2001 Resolution[3] of the Court of Appeals (CA) in CA- GR SP No. 64861. The dispositive portion of the assailed Decision is as follows:

WHEREFORE, premises considered, the petition is hereby DISMISSED and the Decision dated May 4, 2001 is hereby AFFIRMED.[4]

The assailed Resolution denied petitioner's Motion for Reconsideration.

The Facts

The facts of the case are narrated by the CA as follows:

A complaint for ejectment was filed by [Petitioner Ten Forty Realty and Development Corporation] against x x x [Respondent Marina Cruz] before the Municipal Trial Court in Cities (MTCC) of Olongapo City, docketed as Civil Case 4269, which alleged that: petitioner is the true and absolute owner of a parcel of lot and residential house situated in #71 18th Street, E.B.B. Olongapo City, particularly described as:

A parcel of residential house and lot situated in the above-mentioned address containing an area of 324 square meters more or less bounded on the Northeast by 041 (Lot 255, Ts-308); on the Southeast by 044 (Lot 255, Ts-308); on the Southwest by 043 (Lot 226-A & 18th street) and on the Northwest by 045 (Lot 227, Ts-308) and declared for taxation purposes in the name of [petitioner] under T.D. No. 002-4595-R and 002-4596.

having acquired the same on December 5, 1996 from Barbara Galino by virtue of a Deed of Absolute Sale; the sale was acknowledged by said Barbara Galino through a 'Katunayan'; payment of the capital gains tax for the transfer of the property was evidenced by a Certification Authorizing Registration issued by the Bureau of Internal Revenue; petitioner came to know that Barbara Galino sold the same property on April 24, 1998 to Cruz, who immediately occupied the property and which occupation was merely tolerated by petitioner; on October 16, 1998, a complaint for ejectment was filed with the Barangay East Bajac-Bajac, Olongapo City but for failure to arrive at an amicable settlement, a Certificate to File Action was issued; on April 12, 1999 a demand letter was sent to [respondent] to vacate and pay reasonable amount for the use and occupation of the same, but was ignored by the latter; and due to the refusal of [respondent] to vacate the premises, petitioner was constrained to secure the services of a counsel for an agreed fee of P5,000.00 as attorneys fee and P500.00 as appearance fee and incurred an expense of P5,000.00 for litigation.

In respondents Answer with Counterclaim, it was alleged that: petitioner is not qualified to own the residential lot in dispute, being a public land; according to Barbara Galino, she did not sell her house and lot to petitioner but merely obtained a loan from Veronica Lorenzana; the payment of the capital gains tax does not necessarily show that the Deed of Absolute Sale was at that time already in existence; the court has no jurisdiction over the subject matter because the complaint was filed beyond the one (1) year period after the alleged unlawful deprivation of possession; there is no allegation that petitioner had been in prior possession of the premises and the same was lost thru force, stealth or violence; evidence will show that it was Barbara Galino who was in possession at the time of the sale and vacated the property in favor of respondent; never was there an occasion when petitioner occupied a portion of the premises, before respondent occupied the lot in April 1998, she caused the cancellation of the tax declaration in the name of Barbara Galino and a new one issued in respondents name; petitioner obtained its tax declaration over the same property on November 3, 1998, seven (7) months [after] the respondent [obtained hers]; at the time the house and lot [were] bought by respondent, the house was not habitable, the power and water connections were disconnected; being a public land, respondent filed a miscellaneous sales application with the Community Environment and Natural Resources Office in Olongapo City; and the action for ejectment cannot succeed where it appears that respondent had been in possession of the property prior to the petitioner.[5]

In a Decision[6] dated October 30, 2000, the Municipal Trial Court in Cities (MTCC) ordered respondent to vacate the property and surrender to petitioner possession thereof. It also directed her to pay, as damages for its continued unlawful use, P500 a month from April 24, 1999 until the property was vacated, P5,000 as attorneys fees, and the costs of the suit.

On appeal, the Regional Trial Court[7] (RTC) of Olongapo City (Branch 72) reversed the MTCC. The RTC ruled as follows: 1) respondents entry into the property was not by mere tolerance of petitioner, but by virtue of a Waiver and Transfer of Possessory Rights and Deed of Sale in her favor; 2) the execution of the Deed of Sale without actual transfer of the physical possession did not have the effect of making petitioner the owner of the property, because there was no delivery of the object of the sale as provided for in Article 1428 of the Civil Code; and 3) being a corporation, petitioner was disqualified from acquiring the property, which was public land.

Ruling of the Court of Appeals

Sustaining the RTC, the CA held that petitioner had failed to make a case for unlawful detainer, because no contract -- express or implied -- had been entered into by the parties with regard to possession of the property. It ruled that the action should have been for forcible entry, in which prior physical possession was indispensable -- a circumstance petitioner had not shown either.

The appellate court also held that petitioner had challenged the RTCs ruling on the question of ownership for the purpose of compensating for the latters failure to counter such ruling. The RTC had held that, as a corporation, petitioner had no right to acquire the property which was alienable public land.

Hence, this Petition.[8]

Issues

Petitioner submits the following issues for our consideration:

1. The Honorable Court of Appeals had clearly erred in not holding that [r]espondents occupation or possession of the property in question was merely through the tolerance or permission of the herein [p]etitioner;

[2.] The Honorable Court of Appeals had likewise erred in holding that the ejectment case should have been a forcible entry case where prior physical possession is indispensable; and

[3.] The Honorable Court of Appeals had also erred when it ruled that the herein [r]espondents possession or occupation of the said property is in the nature of an exercise of ownership which should put the herein [p]etitioner on guard.[9]

The Courts Ruling

The Petition has no merit.

First Issue:Alleged Occupation by Tolerance

Petitioner faults the CA for not holding that the former merely tolerated respondents occupation of the subject property. By raising this issue, petitioner is in effect asking this Court to reassess factual findings. As a general rule, this kind of reassessment cannot be done through a petition for review on certiorari under Rule 45 of the Rules of Court, because this Court is not a trier of facts; it reviews only questions of law.[10] Petitioner has not given us ample reasons to depart from the general rule.

On the basis of the facts found by the CA and the RTC, we find that petitioner failed to substantiate its case for unlawful detainer. Admittedly, no express contract existed between the parties. Not shown either was the corporations alleged tolerance of respondents possession.

While possession by tolerance may initially be lawful, it ceases to be so upon the owners demand that the possessor by tolerance vacate the property.[11] To justify an action for unlawful detainer, the permission or tolerance must have been present at the beginning of the possession.[12] Otherwise, if the possession was unlawful from the start, an action for unlawful detainer would be an improper remedy. Sarona v. Villegas[13] elucidates thus:

A close assessment of the law and the concept of the word tolerance confirms our view heretofore expressed that such tolerance must be present right from the start of possession sought to be recovered, to categorize a cause of action as one of unlawful detainer not of forcible entry. Indeed, to hold otherwise would espouse a dangerous doctrine. And for two reasons. First. Forcible entry into the land is an open challenge to the right of the possessor. Violation of that right authorizes the speedy redress in the inferior court provided for in the rules. If one year from the forcible entry is allowed to lapse before suit is filed, then the remedy ceases to be speedy; and the possessor is deemed to have waived his right to seek relief in the inferior court. Second, if a forcible entry action in the inferior court is allowed after the lapse of a number of years, then the result may well be that no action for forcible entry can really prescribe. No matter how long such defendant is in physical possession, plaintiff will merely make a demand, bring suit in the inferior court upon a plea of tolerance to prevent prescription to set in and summarily throw him out of the land. Such a conclusion is unreasonable. Especially if we bear in mind the postulates that proceedings of forcible entry and unlawful detainer are summary in nature, and that the one year time bar to suit is but in pursuance of the summary nature of the action.[14]

In this case, the Complaint and the other pleadings do not recite any averment of fact that would substantiate the claim of petitioner that it permitted or tolerated the occupation of the property by Respondent Cruz. The Complaint contains only bare allegations that 1) respondent immediately occupied the subject property after its sale to her, an action merely tolerated by petitioner;[15] and 2) her allegedly illegal occupation of the premises was by mere tolerance.[16]

These allegations contradict, rather than support, petitioners theory that its cause of action is for unlawful detainer. First, these arguments advance the view that respondents occupation of the property was unlawful at its inception. Second, they counter the essential requirement in unlawful detainer cases that petitioners supposed act of sufferance or tolerance must be present right from the start of a possession that is later sought to be recovered.[17]

As the bare allegation of petitioners tolerance of respondents occupation of the premises has not been proven, the possession should be deemed illegal from the beginning. Thus, the CA correctly ruled that the ejectment case should have been for forcible entry -- an action that had already prescribed, however, when the Complaint was filed on May 12, 1999. The prescriptive period of one year for forcible entry cases is reckoned from the date of respondents actual entry into the land, which in this case was on April 24, 1998.

Second Issue:Nature of the Case

Much of the difficulty in the present controversy stems from the legal characterization of the ejectment Complaint filed by petitioner. Specifically, was it for unlawful detainer or for forcible entry?

The answer is given in Section 1 of Rule 70 of the Rules of Court, which we reproduce as follows:

SECTION 1. Who may institute proceedings, and when. - Subject to the provisions of the next succeeding section, a person deprived of the possession of any land or building by force, intimidation, threat, strategy, or stealth, or a lessor, vendor, vendee, or other person against whom the possession of any land or building is unlawfully withheld after the expiration or termination of the right to hold possession, by virtue of any contract, express or implied, or the legal representatives or assigns of any such lessor, vendor, vendee, or other person, may, at any time within one (1) year after such unlawful deprivation or withholding of possession, bring an action in the proper Municipal Trial Court against the person or persons unlawfully withholding or depriving of possession, or any person or persons claiming under them, for the restitution of such possession, together with damages and costs.

While both causes of action deal only with the sole issue of physical or de facto possession,[18] the two cases are really separate and distinct, as explained below:

x x x. In forcible entry, one is deprived of physical possession of land or building by means of force, intimidation, threat, strategy, or stealth. In unlawful detainer, one unlawfully withholds possession thereof after the expiration or termination of his right to hold possession under any contract, express or implied. In forcible entry, the possession is illegal from the beginning and the basic inquiry centers on who has the prior possession de facto. In unlawful detainer, the possession was originally lawful but became unlawful by the expiration or termination of the right to possess, hence the issue of rightful possession is decisive for, in such action, the defendant is in actual possession and the plaintiffs cause of action is the termination of the defendants right to continue in possession.

What determines the cause of action is the nature of defendants entry into the land. If the entry is illegal, then the action which may be filed against the intruder within one year therefrom is forcible entry. If, on the other hand, the entry is legal but the possession thereafter became illegal, the case is one of unlawful detainer which must be filed within one year from the date of the last demand.[19]

It is axiomatic that what determines the nature of an action as well as which court has jurisdiction over it are the allegations in the complaint[20] and the character of the relief sought.[21]

In its Complaint, petitioner alleged that, having acquired the subject property from Barbara Galino on December 5, 1996,[22] it was the true and absolute owner[23] thereof; that Galino had sold the property to Respondent Cruz on April 24, 1998;[24] that after the sale, the latter immediately occupied the property, an action that was merely tolerated by petitioner;[25] and that, in a letter given to respondent on April 12, 1999,[26] petitioner had demanded that the former vacate the property, but that she refused to do so.[27] Petitioner thereupon prayed for judgment ordering her to vacate the property and to pay reasonable rentals for the use of the premises, attorneys fees and the costs of the suit.[28]

The above allegations appeared to show the elements of unlawful detainer. They also conferred initiatory jurisdiction on the MTCC, because the case was filed a month after the last demand to vacate -- hence, within the one-year prescriptive period.

However, what was actually proven by petitioner was that possession by respondent had been illegal from the beginning. While the Complaint was crafted to be an unlawful detainer suit, petitioners real cause of action was for forcible entry, which had already prescribed. Consequently, the MTCC had no more jurisdiction over the action.

The appellate court, therefore, did not err when it ruled that petitioners Complaint for unlawful detainer was a mere subterfuge or a disguised substitute action for forcible entry, which had already prescribed. To repeat, to maintain a viable action for forcible entry, plaintiff must have been in prior physical possession of the property; this is an essential element of the suit.[29]

Third Issue:Alleged Acts of Ownership

Petitioner next questions the CAs pronouncement that respondents occupation of the property was an exercise of a right flowing from a claim of ownership. It submits that the appellate court should not have passed upon the issue of ownership, because the only question for resolution in an ejectment suit is that of possession de facto.

Clearly, each of the parties claimed the right to possess the disputed property because of alleged ownership of it. Hence, no error could have been imputed to the appellate court when it passed upon the issue of ownership only for the purpose of resolving the issue of possession de facto.[30] The CAs holding is moreover in accord with jurisprudence and the law.

Execution of a Deed of SaleNot Sufficient as Delivery

In a contract of sale, the buyer acquires the thing sold only upon its delivery in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee.[31] With respect to incorporeal property, Article 1498 lays down the general rule: the execution of a public instrument shall be equivalent to the delivery of the thing that is the object of the contract if, from the deed, the contrary does not appear or cannot be clearly inferred.

However, ownership is transferred not by contract but by tradition or delivery.[32] Nowhere in the Civil Code is it provided that the execution of a Deed of Sale is a conclusive presumption of delivery of possession of a piece of real estate.[33]

This Court has held that the execution of a public instrument gives rise only to a prima facie presumption of delivery. Such presumption is destroyed when the delivery is not effected because of a legal impediment.[34] Pasagui v. Villablanca[35] had earlier ruled that such constructive or symbolic delivery, being merely presumptive, was deemed negated by the failure of the vendee to take actual possession of the land sold.

It is undisputed that petitioner did not occupy the property from the time it was allegedly sold to it on December 5, 1996 or at any time thereafter. Nonetheless, it maintains that Galinos continued stay in the premises from the time of the sale up

to the time respondents occupation of the same on April 24, 1998, was possession held on its behalf and had the effect of delivery under the law.[36]

Both the RTC and the CA disagreed. According to the RTC, petitioner did not gain control and possession of the property, because Galino had continued to exercise ownership rights over the realty. That is, she had remained in possession, continued to declare it as her property for tax purposes and sold it to respondent in 1998.

For its part, the CA found it highly unbelievable that petitioner -- which claims to be the owner of the disputed property -- would tolerate possession of the property by respondent from April 24, 1998 up to October 16, 1998. How could it have been so tolerant despite its knowledge that the property had been sold to her, and that it was by virtue of that sale that she had undertaken major repairs and improvements on it?

Petitioner should have likewise been put on guard by respondents declaration of the property for tax purposes on April 23, 1998,[37] as annotated in the tax certificate filed seven months later.[38] Verily, the tax declaration represented an adverse claim over the unregistered property and was inimical to the right of petitioner.

Indeed, the above circumstances derogated its claim of control and possession of the property.

Order of Preference in DoubleSale of Immovable Property

The ownership of immovable property sold to two different buyers at different times is governed by Article 1544 of the Civil Code, which reads as follows:

Article 1544. x x x

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.

Galino allegedly sold the property in question to petitioner on December 5, 1996 and, subsequently, to respondent on April 24, 1998. Petitioner thus argues that being the first buyer, it has a better right to own the realty. However, it has not been able to establish that its Deed of Sale was recorded in the Registry of Deeds of Olongapo City.[39] Its claim of an unattested and unverified notation on its Deed of Absolute Sale[40] is not equivalent to registration. It admits that, indeed, the sale has not been recorded in the Registry of Deeds.[41]

In the absence of the required inscription, the law gives preferential right to the buyer who in good faith is first in possession. In determining the question of who is first in possession, certain basic parameters have been established by jurisprudence.

First, the possession mentioned in Article 1544 includes not only material but also symbolic possession.[42] Second, possessors in good faith are those who are not aware of any flaw in their title or mode of acquisition.[43] Third, buyers of real property that is in the possession of persons other than the seller must be wary -- they must investigate the rights of the possessors.[44] Fourth, good faith is always presumed; upon those who allege bad faith on the part of the possessors rests the burden of proof.[45]

Earlier, we ruled that the subject property had not been delivered to petitioner; hence, it did not acquire possession either materially or symbolically. As between the two buyers, therefore, respondent was first in actual possession of the property.

Petitioner has not proven that respondent was aware that her mode of acquiring the property was defective at the time she acquired it from Galino. At the time, the property -- which was public land -- had not been registered in the name of Galino; thus, respondent relied on the tax declarations thereon. As shown, the formers name appeared on the tax declarations for the property until its sale to the latter in 1998. Galino was in fact occupying the realty when respondent took over possession. Thus, there was no circumstance that could have placed the latter upon inquiry or required her to further investigate petitioners right of ownership.

Disqualification from Ownershipof Alienable Public Land

Private corporations are disqualified from acquiring lands of the public domain, as provided under Section 3 of Article XII of the Constitution, which we quote:

Sec. 3. Lands of the public domain are classified into agricultural, forest or timber, mineral lands, and national parks. Agricultural lands of the public domain may be further classified by law according to the uses to which they may be devoted. Alienable lands of the public domain shall be limited to agricultural lands. Private corporations or associations

may not hold such alienable lands of the public domain except by lease, for a period not exceeding twenty-five years, and not to exceed one thousand hectares in area. Citizens of the Philippines may not lease not more than five hundred hectares, or acquire not more than twelve hectares thereof by purchase, homestead, or grant. x x x. (Italics supplied)

While corporations cannot acquire land of the public domain, they can however acquire private land.[46] Hence, the next issue that needs to be resolved is the determination of whether the disputed property is private land or of the public domain.

According to the certification by the City Planning and Development Office of Olongapo City, the contested property in this case is alienable and disposable public land.[47] It was for this reason that respondent filed a miscellaneous sales application to acquire it.[48]

On the other hand, petitioner has not presented proof that, at the time it purchased the property from Galino, the property had ceased to be of the public domain and was already private land. The established rule is that alienable and disposable land of the public domain held and occupied by a possessor -- personally or through predecessors-in-interest, openly, continuously, and exclusively for 30 years -- is ipso jure converted to private property by the mere lapse of time.[49]

In view of the foregoing, we affirm the appellate courts ruling that respondent is entitled to possession de facto. This determination, however, is only provisional in nature.[50] Well-settled is the rule that an award of possession de facto over a piece of property does not constitute res judicata as to the issue of its ownership.[51]

WHEREFORE, this Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.

SO ORDERED.SPOUSES REGALADO SANTIAGO and ROSITA PALABYAB, JOSEFINA ARCEGA, petitioners, vs. THE HON. COURT OF APPEALS; THE HON. CAMILO C. MONTESA, JR., Presiding Judge of the RTC of Malolos, Bulacan, Branch 19, and QUIRICO ARCEGA, respondents.D E C I S I O NHERMOSISIMA, JR., J.:

Assailed in this petition for review under Rule 45 is the November 8, 1991 Decision of respondent Court of Appeals in CA-G.R. CV No. 25069. It affirmed in toto the judgment of Branch 19, Regional Trial Court of Malolos, Bulacan, in Civil Case No. 8470-M. The action therein sought to declare null and void the Kasulatan ng Bilihang Tuluyan ng Lupa executed on July 18, 1971 by the late Paula Arcega, sister of private respondent, in favor of herein petitioners over a parcel of land consisting of 927 square meters, situated in Barangay Tabing Ilog, Marilao, Bulacan.

Paula Arcega was the registered owner of that certain parcel of land covered by Transfer Certificate of Title No. T-115510. Her residential house stood there until 1970 when it was destroyed by a strong typhoon.

On December 9, 1970, Paula Arcega executed what purported to be a deed of conditional sale over the land in favor of Josefina Arcega and the spouses Regalado Santiago and Rosita Palabyab, the petitioners herein, for and in consideration of P20,000.00. The vendees were supposed to pay P7,000.00 as downpayment. It was expressly provided that the vendor would execute and deliver to the vendees an absolute deed of sale upon full payment by the vendees of the unpaid balance of the purchase price of P13,000.00.

Subsequently, on July 18, 1971, supposedly upon payment of the remaining balance, Paula Arcega executed a deed of absolute sale of the same parcel of land in favor of petitioners. Thereupon, on July 20, 1971, TCT No. T-115510, in the name of Paula Arcega, was cancelled and a new title, TCT No. T-148989 was issued in the name of petitioners.

On April 10, 1985, Paula Arcega died single and without issue, leaving as heirs her two brothers, Narciso Arcega[1] and private respondent Quirico Arcega.

Incidentally, before Paula Arcega died, a house of four bedrooms with a total floor area of 225 square meters was built over the parcel of land in question. Significantly, the master's bedroom, with toilet and bath, was occupied by Paula Arcega until her death despite the execution of the alleged deed of absolute sale. The three other bedrooms, smaller than the master's bedroom, were occupied by the petitioners who were the supposed vendees in the sale.

Private respondent Quirico Arcega, as heir of his deceased sister, filed on October 24, 1985 Civil Case No. 8470-M before the RTC of Malolos, Bulacan, seeking to declare null and void the deed of sale executed by his sister during her lifetime in favor of the petitioners on the ground that said deed was fictitious since the purported consideration therefor of P20,000.00 was not actually paid by the vendees to his sister.

Answering the complaint before the RTC, petitioner spouses averred that private respondent's cause of action was already barred by the statute of limitations considering that the disputed deed of absolute sale was executed in their favor on July 18, 1971, by which TCT No. 148989 was issued on July 20, 1971, while private respondent's complaint was filed in court only on October 24, 1985 or more than fourteen (14) years from the time the cause of action accrued. Petitioners also deny that the sale was fictitious. They maintain that the purchase price was actually paid to Paula Arcega and that said amount was spent by the deceased in the construction of her three-door apartment on the parcel of land in question.

Josefina Arcega, the other petitioner, was declared in default for failure to file her answer within the reglementary period.

After trial, the RTC rendered judgment in favor of private respondent Quirico Arcega, viz.:

"(a) Declaring as null and void and without legal force and effect the 'Kasulatan Ng Bilihang Tuluyan ng Lupa' dated July 18, 1971 executed by the deceased Paula Arcega covering a parcel of land embraced under TCT No. T-115510 in favor of the defendants;

(b) Declaring TCT No. T-148989 issued and registered in the names of defendants Josefina Arcega and spouses Regalado Santiago and Rosita Palabyab as null and void;

(c) Ordering the reconveyance of the property including all improvements thereon covered by TCT No. T-115510, now TCT No. T-148989, to the plaintiff, subject to real estate mortgage with the Social Security System; and

(d) To pay jointly and severally the amount of P10,000.00 as attorney's fees.

On the counterclaim, the same is hereby dismissed for lack of legal and/or factual basis (p. 6, decision, pp. 295-300, rec.)."[2]

In ruling for private respondent, the trial court, as affirmed in toto by the public respondent Court of Appeals, found that:

"On the basis of the evidence adduced, it appears that plaintiff Quirico Arcega and his brother Narciso Arcega are the only surviving heirs of the deceased Paula Arcega who on April 10, 1985 died single and without issue. Sometime in 1970, a strong typhoon destroyed the house of Paula Arcega and the latter together with the defendants decided to construct a new house. All the defendants[3] being members of the SSS, Paula deemed it wise to lend her title to them for purposes of loan with the SSS. She executed a deed of sale to effect the transfer of the property in the name of the defendants and thereafter the latter mortgaged the same for P30,000.00 but the amount actually released was only P25,000.00. Paula Arcega spent the initial amount of P30,000.00 out of her savings for the construction of the house sometime in 1971 and after the same and the proceeds of the loan were exhausted, the same was not as yet completed. Paula Arcega and her brothers sold the property which they inherited for P45,000.00 and the same all went to the additional construction of the house, however, the said amount is not sufficient. Thereafter, Paula Arcega and her brothers sold another property which they inherited for P805,950.00 and one-third (1/3) thereof went to Paula Arcega which she spent a portion of which for the finishing touches of the house. The house as finally finished in 1983 is worth more than P100,000.00 with a floor area of 225 square meters consisting of four bedrooms . A big master's bedroom complete with a bath and toilet was occupied by Paula Arcega up to the time of her death on April 10, 1985 and the other three smaller bedrooms are occupied by spouses, defendants Regalado Santiago and Rosita Palabyab, and Josefina Arcega. After the death of Paula Arcega defendant Josefina Arcega and Narciso Arcega constructed their own house at back portion of the lot in question.

There is clear indication that the deed of sale, which is unconscionably low for 937 square meters in favor of the defendants sometime on July 18, 1971 who are all members of SSS, is merely designed as an accommodation for purposes of loan with the SSS. Paula Arcega cognizant of the shortage of funds in her possession in the amount of P30,000.00, deemed it wise to augment her funds for construction purposes by way of a mortgage with the SSS which only defendants could possibly effect they being members of the SSS. Since the SSS requires the collateral to be in the name of the mortgagors, Paula Arcega executed a simulated deed of sale (Kasulatan ng Bilihang Tuluyan ng Lupa) for P20,000.00 dated July 18, 1971 in favor of the defendants and the same was notarized by Atty. Luis Cuvin who emphatically claimed that no money was involved in the transaction as the parties have other agreement. The allegations of the defendants that the property was given to them (Kaloob) by the deceased has no evidentiary value. While it is true that Rosita Palabyab stayed with the deceased since childhood, the same cannot be said with respect to defendant Josefina Arcega, distant relative and a niece of the wife of Narciso Arcega, who stayed with deceased sometime in 1966 at the age of 19 years and already working as a saleslady in Manila. Did the deceased indeed give defendant Josefina Arcega half of her property out of love and gratitude? Such circumstance appears illogical if not highly improbable. As a matter of fact defendant Josefina Arcega in her unguarded moment unwittingly told the truth that couple (Regalado Santiago and Rosita Palabyab) had indeed borrowed the title and then mortgaged the same with the SSS as shown in her direct testimony which reads:

'Atty Villanueva:

Q- Why did you say that the house is owned by spouses Santiago but the lot is bought by you and Rosita?

A- Because at that time, the couple[4] borrowed the title and then mortgaged the property with the SSS. There is only one title but both of us owned it. (TSN dtd. 19 Oct. '88, p. 5)"[5]

On appeal, the public respondent Court of Appeals dismissed the same, affirming in all respects the RTC judgment.

Hence, this petition.

The petition is unmeritorious.

Verily, this case is on all fours with Suntay v. Court of Appeals.[6] There, a certain Federico Suntay was the registered owner of a parcel of land in Sto. Nino, Hagonoy, Bulacan. A rice miller, Federico applied on September 30, 1960 as a miller-contractor of the then National Rice and Corn Corporation (NARIC), but his application was disapproved because he was tied up with several unpaid loans. For purposes of circumvention, he thought of allowing his nephew-lawyer, Rafael Suntay, to make the application for him. To achieve this Rafael prepared a notarized Absolute Deed of Sale whereby Federico, for and in consideration of P20,000.00, conveyed to Rafael said parcel of land with all its existing structures. Upon the execution and registration of said deed, Certificate of Title No. 0-2015 in the name of Federico was cancelled and, in lieu thereof, TCT No. T-36714 was issued in the name of Rafael. Sometime in the months of June to August, 1969,[7] Federico requested Rafael to deliver back to him the owner's duplicate of the transfer certificate of title over the properties in question for he intended to use the property as collateral in securing a bank loan to finance the expansion of his rice mill. Rafael, however, without just cause, refused to deliver the title insisting that said property was "absolutely sold and conveyed [to him] xxx for a consideration of P20,000.00, Philippine currency, and for other valuable consideration." We therein ruled in favor of Federico Suntay and found that the deed of sale in question was merely an absolutely simulated contract for the purpose of accommodation and therefore void. In retrospect, we observed in that case:

"Indeed the most protuberant index of simulation is the complete absence of an attempt in any manner on the part of the late Rafael to assert his rights of ownership over the land and rice mill in question. After the sale, he should have entered the alnd and occupied the premises thereof. He did not even attempt to. If he stood as owner, he would have collected rentals from Federico for the use and occupation of the land and its improvements. All that the late Rafael had was a title in his name.

xxx xxx xxx

xxx The fact that, notwithstanding the title transfer, Federico remained in actual possession, cultivation and occupation of the disputed lot from the time the deed of sale was executed until the present, is a circumstance which is unmistakably added proof of the fictitiousness of the said transfer, the same being contrary to the principle of ownership." [8]

In the case before us, while petitioners were able to occupy the property in question, they were relegated to a small bedroom without bath and toilet,[9] while Paula Arcega remained virtually in full possession of the completed house and lot using the big master's bedroom with bath and toilet up to the time of her death on April 10, 1985.[10] If, indeed, the transaction entered into by the petitioner's and the late Paula Arcega on July 18, 1971 was a veritable deed of absolute sale, as it was purported to be, then Ms. Arcega had no business whatsoever remaining in the property and, worse, to still occupy the big master's bedroom with all its amenities until her death on April 10, 1985. Definitely, any legitimate vendee of real property who paid for the property with good money wil not accede to an arrangement whereby the vendor continues occupying the most favored room in the house while he or she, as new owner, endures the disgrace and absurdity of having to sleep in a small bedroom without bath and toilet as if he or she is a guest or a tenant in the house. In any case, if petitioners really stood as legitimate owners of the property, they would have collected rentals from Paula Arcega for the use and occupation of the master's bedroom as she would then be a mere lessee of the property in question. However, not a single piece of evidence was presented to show that this was the case. All told, the failure of petitioners to take exclusive possession of the property allegedly sold to them, or in the alternative, to collect rentals from the alleged vendee Paula Arcega, is contrary to the principle of ownership and a clear badge of simulation that renders the whole transaction void and without force and effect, pursuant to Article 1409 of the New Civil Code:

"The following contracts are inexistent and void from the beginning:

xxx xxx xxx

(2) Those which are absolutely simulated or fictitious;

xxx xxx xxx."

The conceded fact that subject deed of absolute sale executed by Paula Arcega in favor of petitioners is a notarized document does not justify the petitioners' desired conclusion that said sale is undoubtedly s true conveyance to which the parties thereto are irrevocably and undeniably bound. To be considered with great significance is the fact that Atty. Luis Cuvin who notarized the deed disclaimed the truthfulness of the document when he testified that "NO MONEY WAS INVOLVED IN THE TRANSACTION."[11] Furthermore, though the notarization of the deed of sale in question vests in its favor the presumption of regularity, it is not the intention nor the function of the notary public to validate and make binding an instrument never, in the first place, intended to have any binding legal effect upon the parties thereto. The intention of the parties still is and always will be the primary consideration in determining the true nature of a contract. Here, the parties to the "Kasulatan ng Bilihang Tuluyan ng Lupa," as shown by the evidence and accompanying circumstances, never intended to convey the property thereto from one party to the other for valuable consideration. Rather, the transaction was merely used to facilitate a loan with the SSS with petitioners-mortgagors using the property in question, the title to which they were able to register in their names through the simulated sale, as collateral.

The fact that petitioners were able to secure a title in their names, TCT No. 148989, did not operate to vest upon petitioners ownership over Paula Arcega's property. That act has never been recognized as a mode of acquiring ownership. As a matter of fact, even the original registration of immovable property does not vest title thereto.[12] The Torrens system does not create or vest title. It only confirms and records title already existing and vested. It does not

protect a usurper from the true owner. It cannot be a shield for the commission of fraud. It does not permit one to enrich himself at the expense of another.[13] Where one does not have any rightful claim over a real property, the Torrens system of registration can confirm or record nothing.

Petitioners, nevertheless, insist that both the trial court and the respondent court should have followed the Parole Evidence Rule and prevented evidence, like the testimony of Notary Public, Atty. Luis Cuvin, private respondent Quirico Arcega, among others, which impugned the two notarized deeds of sale.

The rule on parole evidence under Section 9, Rule 130 is qualified by the following exceptions:

However, a party may present evidence to modify, explain or add to the terms of the written agreement if he puts in issue in his pleading;

(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;

(b) The failure of the written agreement to express the true intent and agreement of the parties thereto;

(c) The validity of the written agreement; or

(d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the written agreement.

The term agreement includes wills.

In this case, private respondent Quirico Arcega was able to put in issue in his complaint before the Regional Trial Court the validity of the subject deeds of sale for being a simulated transaction:

6. That in 1971, the defendants, who by then were already employed in private firms and had become members of the Social Security System by virtue of their respective employments, decided among themselves to build a new house on the property of PAULA ARCEGA above described and to borrow money from the Social Security System to finance the proposed construction.

7. That in order to secure the loan from the Social Security System it was necessary that the lot on which the proposed house would be erected should be registered and titled in the names of the defendants.

xxx xxx xxx

9. That in conformity with the above plans and schemes of the defendants, they made PAULA ARCEGA execute and sign a fictitious, hence null and void KASULATAN NG BILIHANG TULUYAN NG LUPA on July 18, 1971, before Notary Public LUIS CUVIN, of Bulacan and entered in his register as Doc. No. 253, Page No. 52, Book No. XIX, Series of 1971, by which PAULA ARCEGA purportedly convyed(sic) in favor of the defendants JOSEFINA ARCEGA and the spouses REGALADO SANTIAGO and ROSITA PALABYAB, the whole parcel of land above described for the sum of TWENTY THOUSAND (P20,000.00), as consideration which was not actually, then or thereafter paid either wholly or partially. A copy of said document is hereto attached as Annex B and made integral part hereof.

10. That defendants pursuing their unlawful scheme registered the said void and inexistent KASULATAN NG BILIHANG TULUYAN NG LUPA with the office of the Register of Deeds of Bulacan, procured the cancellation of Transfer Certificate of Title No. 115510, in the name of PAULA ARCEGA and the issuance of Transfer Certificate of Title No. 148989, in their names, a xeroxed copy of which is hereto attached as Annex C and made integral part hereof.

11. That still in furtherance of their unjust and unlawful schemes, defendants secured a loan from Social Security System in the amount of P30,000.00, securing the payment thereof with a Real Estate Mortgage on the above-described property then already titled in their names as aforestated (pp. 2-3, complaint, pp. 1-5, rec.).[14]

Moreover, the parol evidence rule may be waived by failure to invoke it, as by failure to object to the introduction of parol evidence. And, where a party who is entitled to the benefit of the rule waives the benefit thereof by allowing such evidence to be received without objection and without any effort to have it stricken from the minutes or disregarded by the trial court, he cannot, after the trial has closed and the case has been decided against him, invoke the rule in order to secure a reversal of the judgment by an appellate court.[15] Here, the records are devoid of any indication that petitioners ever objected to the admissibility of parole evidence introduced by private respondent in open court. The court cannot disregard evidence which would ordinarily be incompetent under the rules but has been rendered admissible by the failure of party to object thereto.[16] Petitioners have no one to blame but themselves in this regard.

Finally, petitioners argue that private respondents complaint filed before the trial court on October 24, 1985 is already barred by the statute of limitations and laches considering that the deed of absolute sale was executed in their favor by the deceased Paula Arcega on July 20, 1971. Indeed, more than fourteen (14) years had elapsed from the time his cause of action accrued to the time that the complaint was filed. Articles 1144 and 1391 of the New Civil Code provide:

ART. 1144. The following actions must be brought within ten years from the time the right of action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;(3) Upon a judgment.

ART. 1391. The action for annulment shall be brought within four years.

This period shall begin:

In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.

In cases of mistake or fraud, from the time of the discovery of the same.

And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases.

This submission is utterly without merit, the pertinent provision being Article 1410 of the New Civil Code which provides unequivocably that [T]he action or defense for the declaration of the inexistence of a contract does not prescribe.[17]

As for laches, its essence 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; it is 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.[18] But there is, to be sure, no absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according to its particular circumstances. The question of laches is addressed to the sound discretion of the court, and since laches is an equitable doctrine, its application is controlled by equitable considerations. It cannot be worked to defeat justice or to perpetrate fraud and injustice.[19] In the case under consideration, it would not only be impractical but well-nigh unjust and patently inequitous to apply laches against private respondent and vest ownership over a valuable piece of real property in favor of petitioners by virtue of an absolutely simulated deed of sale never, in the first place, meant to convey any right over the subject property. It is the better rule that courts, under the principle of equity, will not be guided or bound strictly by the statute of limitations or the doctrine of laches when to do so, manifest wrong or injustice would result.[20]

WHEREFORE, premises considered, the petition is hereby DENIED with costs against petitioners.

SO ORDERED.

Padilla, (Chairman), Bellosillo, VituSECOND DIVISION

ROCKVILLE EXCEL INTERNATIONAL EXIM CORPORATION, Petitioner,

- versus -

SPOUSES OLIGARIO CULLA and BERNARDITA MIRANDA, Respondents. G.R. No. 155716 Present: *YNARES- SANTIAGO,**CARPIO-MORALES,Acting Chairperson,BRION,DEL CASTILLO, andABAD, JJ.

Promulgated: October 2, 2009x ---------------------------------------------------------------------------------------- x D E C I S I O N BRION, J.: Whether a Deed of Absolute Sale is really an absolute sale of real property or an equitable mortgage is the main issue now before us. Petitioner Rockville Excel International Exim Corporation (Rockville) prays in this petition[1] that we reverse the October 9, 2002 decision[2] of the Court of Appeals (CA) in CA G.R. SP No. 66070, denying its appeal and affirming the decision of the Regional Trial Court (RTC), Batangas City, Branch 2 in Civil Case No. 4789, which dismissed their complaint for specific performance against the respondents Spouses Oligario (Oligario) and Bernardita Culla. BACKGROUND FACTS The spouses Oligario and Bernardita (Sps. Culla) are the registered owners of a parcel of land covered by Transfer Certificate of Title (TCT) No. 5416. They mortgaged this property to PS Bank to secure a loan of P1,400,000.00. Sometime in 1993, the Office of the Clerk of Court and the Ex-Officio Sheriff issued a Sheriffs Notice of Sale for the extrajudicial foreclosure of the property. To prevent the foreclosure, Oligario approached Rockville represented by its president and chairman, Diana Young for financial assistance. Rockville accommodated Oligarios request and extended him a loan of P1,400,000.00. This amount was increased by P600,000.00 for the cash advances Oligario requested, for a total loan amount of P2,000,000.00. According to Rockville, when Oligario failed to pay the P2,000,000.00 loan after repeated demands and promises to pay, the Sps. Culla agreed to pay their indebtedness by selling to Rockville another property the spouses owned in Brgy. Calicanto, Batangas City (property). The property has an area of approximately 7,074 square meters and is covered by TCT No. T-19538. Since a survey of the surrounding properties revealed that the property is worth more than the Sps. Cullas P2,000,000.00 loan, the parties agreed to fix the purchase price at P3,500,000.00. As narrated by Rockville, it accepted the offer for a dacion en pago; on June 25, 1994, Rockville and Oligario executed a Deed of Absolute Sale over the property. While the property was a conjugal property of the Sps. Culla, only Oligario signed the Deed of Absolute Sale. Rockville asserted that, by agreement with the Sps. Culla, Rockville would pay the additional P1,500,000.00 after Bernardita affixes her signature to the Deed of Absolute Sale. Rockville claimed that it had always been ready and willing to comply with its obligation to deliver the P1,500,000.00. In fact, Rockville initially deposited this whole amount with May Bank of Malaysia, with notice to Oligario, which amount was subsequently transferred to Rockvilles law firm. However, when Bernardita continued to refuse to sign the Deed of Absolute Sale, Rockville caused the annotation of an adverse claim on TCT No. T-19538 in order to protect its interest in the property. Furthermore, Rockville tried to transfer the title of the property in its name but the Registry of Deeds refused to carry out the transfer, given the absence of Bernarditas signature in the Deed of Absolute Sale. On February 4, 1997, Rockville filed a complaint for Specific Performance and Damages before the Regional Trial Court (RTC) of Batangas City, Branch 2 against the Sps. Culla, praying that the lower court order Bernardita to sign the Deed of Absolute Sale or, in the alternative, to authorize the sale even without Bernarditas signature. In their Answer, the Sps. Culla alleged that the purported Deed of Absolute Sale failed to reflect their true intentions, as the deed was meant only to guarantee the debt to Diana Young, not to Rockville. Contrary to Rockvilles contention, the agreement was that the P1,500,000.00 had to be paid before Bernardita would sign the Deed of Absolute Sale. When neither Rockville nor Diana Young paid the P1,500,000.00, the Sps. Culla volunteered to repay the P2,000,000.00 and opted to rescind the sale. On October 26, 1999, the RTC decided the case in the respondents favor,[3] dismissing Rockvilles complaint after finding that the transaction between the parties was in reality an equitable mortgage, not an absolute sale. The dispositive portion of the RTC decision states: WHEREFORE, in view of all the foregoing, the complaint filed by the plaintiff, Rockville Excel International Exim Corporation against defendants Oligario Culla and Bernardita Miranda is hereby DISMISSED. The Absolute Deed of Sale executed between the said plaintiff and defendants on June 25, 1994 is hereby declared as an equitable mortgage and, defendants are hereby entitled to redeem the mortgaged property upon full payment of their mortgaged debt to the plaintiff in the total amount of two million pesos (P2,000,000.00) with legal rate of interest from June 25, 1994, the time the loan matured, until it is fully satisfied. With costs against the plaintiff. SO ORDERED.

THE CA DECISION Rockville appealed to the CA. In the assailed October 9, 2002 decision, the CA concluded that the purported contract of sale between Rockville and the Sps. Culla was in reality an equitable mortgage based on the following factual circumstances: (a) the glaring inadequacy in the consideration for the sale and the actual market value of the property; (b) the fact that the Sps. Culla remained in possession of the property even after the execution of the Deed of Absolute Sale; (c) the fact that Rockville never paid the Sps. Culla the agreed P1,500,000.00 balance in the purchase price; and (d) Rockvilles continuous grant of extensions to the Sps. Culla to pay their loan despite the execution of the deed of sale. THE PETITION The present petition filed after the CA denied Rockvilles motion for reconsideration asks us to resolve whether the parties agreement is an absolute sale or an equitable mortgage of real property. Rockville submits that the CA erred in finding that the contract of sale with the Sps. Culla was an equitable mortgage, insisting that the transaction was a dacion en pago. Rockville points out that the Sps. Culla themselves admitted that they agreed to sell the property as payment for the P2,000,000.00 loan and for the additional payment of P1,500,000.00 Rockville was to pay. Rockville further argues that even without Bernarditas signature on the Deed of Absolute Sale, the document is still binding as Oligario represented the spouses in the transaction. Since Bernardita benefited from the transaction, with the P1,400,000.00 of the purchase price having been used to redeem the mortgaged conjugal property, Rockville posits that Bernardita impliedly and effectively ratified the sale. The Sps. Culla, on the other hand, maintain the contrary view and insist that the RTC and the CA were correct in holding that the sale was in fact an equitable mortgage. THE COURTS RULING We find the petitioners arguments to be legally flawed, and therefore deny the petition for lack of merit. No dacion en pago Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of an existing obligation. It is a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent to the payment of an outstanding debt.[4] For dacion en pago to exist, the following elements must concur: (a) existence of a money obligation; (b) the alienation to the creditor of a property by the debtor with the consent of the former; and (c) satisfaction of the money obligation of the debtor.[5]

Rockville mainly contends that the Sps. Culla sold their property to pay their due and demandable P2,000,000.00 debt; the transaction is therefore a dacion en pago. It also repeatedly emphasized that Bernardita admitted in her testimony that she would have signed the Deed of Absolute Sale if Rockville had paid the P1,500,000.00.

Rockvilles arguments would have been telling and convincing were it not for the undisputed fact that even after the execution of the Deed of Absolute Sale, Rockville still granted Oligario time to repay his P2,000,000.00 indebtedness. In fact, as Diana Young admitted in her testimony, Rockville gave Oligario the chance to pay off the loan on the same day that the deed was executed. As Diana Young stated:

Q. Why, he was asking for the extension of P2 million pesos that he barrowed (sic) from you to be paid by him? A. He asked me for the extension of time to pay. Q. After the execution of the deed of sale (Exhibit C)? A. On the very day. Yes, after the lapse of the six (6) months to pay back the property. Q. So what appears was a document of sale Exhibit C was executed signed by the defendant, Oligario Culla, signed by you and then notarized by a Notary Public. A. Yes, sir. Q. On same occasion he asked from you that he be given an extension of six (6) months within which to pay the loan of P2 million pesos? A. Yes, sir.[6]

If the parties had truly intended a dacion en pago transaction to extinguish the Sps. Cullas P2,000,000.00 loan and Oligario had sold the property in payment for this debt, it made no sense for him to continue to ask for extensions of the time to pay the loan. More importantly, Rockville would not have granted the requested extensions to Oligario if payment through a dacion en pago had taken place. That Rockville granted the extensions simply belied its contention that they had intended a dacion en pago. On several occasions, we have decreed that in determining the nature of a contract, courts are not bound by the title or name given by the parties. The decisive factor in evaluating an agreement is the intention of the parties, as shown, not necessarily by the terminology used in the contract but, by their conduct, words, actions and deeds prior to, during and immediately after executing the agreement.[7] Thus, to ascertain the intention of the parties, their contemporaneous and subsequent acts should be considered. Once the intention of the parties is duly ascertained, that intent is deemed as integral to the contract as its originally expressed unequivocal terms.[8] Thus, we agree with the factual findings of the RTC and the CA that no agreement of sale was perfected between Rockville and the Sps. Culla. On the contrary, what they denominated as a Deed of Absolute Sale was in fact an equitable mortgage. Definition of equitable mortgage An equitable mortgage has been defined as one which although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, there being no impossibility nor anything contrary to law in this intent.[9] A contract of sale is presumed to be an equitable mortgage when any of the following circumstances, enumerated in Article 1602 of the Civil Code, is present: Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate;(2) When the vendor remains in possession as lessee or otherwise;

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

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws. [Emphasis supplied.]

The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.[10] For the presumption of an equitable mortgage to arise under Article 1602, two (2) requisites must concur: (a) that the parties entered into a contract denominated as a contract of sale; and, (b) that their intention was to secure an existing debt by way of a mortgage. Any of the circumstances laid out in Article 1602, not the concurrence nor an overwhelming number of the enumerated circumstances, is sufficient to support the conclusion that a contract of sale is in fact an equitable mortgage.[11] In several cases, we have not hesitated to declare a purported contract of sale to be an equitable mortgage based solely on one of the enumerated circumstances under Article 1602.[12] This approach follows the rule that when doubt exists on the nature of the parties transaction, the law favors the least transmission of property rights.[13] Indicators of equitable mortgage In the present case, three attendant circumstances indicate that the purported sale was in fact an equitable mortgage. First, the Sps. Culla retained possession of the property. Second, Rockville kept a part of the purchase price. Third, as previously discussed, Rockville continued to give the Sps. Culla extensions on the period to repay their loan even after the parties allegedly agreed to a dacion en pago. These circumstances, coupled with the clear and unequivocal testimonies of Oligario and Bernardita that the purpose of the Deed of Absolute Sale was merely to guarantee their loan, clearly reveal the parties true intention to execute an equitable mortgage and not a contract of sale.

That a contract where the vendor remains in physical possession of the land, as lessee or otherwise, is an equitable mortgage is well-settled.[14] The reason for this rule lies in the legal reality that in a contract of sale, the legal title to the property is immediately transferred to the vendee; retention by the vendor of the possession of the property is inconsistent with the vendees acquisition of ownership under a true sale.[15] It discloses, in the alleged vendee, a lack of interest in the property that belies the truthfulness of the sale.[16] According to Rockville, it took possession of the property, albeit constructively and not through actual occupation. Rockville contends, too, that its possession of the title to the property and its subsequent attempt to register the property in its name are clear indicators of its intent to enforce the contract of sale.We cannot agree with these positions. In the first place, the Sps. Culla retained actual possession of the property and this was never disputed. Rockville itself admits this in its petition, but claims in justification that since the property is contiguous to the site of the Sps. Cullas family home, it would have been impossible for Rockville to obtain actual possession of the property. Regardless of where the property is located, however, if the transaction had really been a sale as Rockville claimed, it should have asserted its rights for the immediate delivery and possession of the lot instead of allowing the Sps. Culla to freely stay in the premises. Its failure to do so suggests that Rockville did not truly intend to enforce the contract of sale.Moreover, we observe that while Rockville did take steps to register the property in its name, it did so more than two years after the Deed of Absolute Sale was executed, and only after Oligarios continued failure to pay the P2,000,000.00 loan. In addition, Rockville admitted that it never paid the P1,500,000.00 balance to the Sps. Culla. As found by the RTC, while Rockville claims that it deposited this amount with May Bank of Malaysia and notified Oligario of the deposit, no evidence was presented to support this claim. Besides, even if this contention had been true, the deposit in a foreign bank was neither a valid tender of payment nor an effective consignation. Lastly, the numerous extensions granted by Rockville to Oligario to pay his debt after the execution of the Deed of Sale convince us that the parties never intended to enter into a contract of sale; instead, the intent was merely to secure the payment of Oligarios loan.All told, we see no reason to depart from the findings and conclusions of both the trial court and the Court of Appeals.

WHEREFORE, premises considered, we DENY the petition for lack of merit; the assailed Decision dated October 9, 2002 in CA G.R. SP No. 66070 is thus AFFIRMED. Costs against the petitioner.

SO ORDERED.BERNICE LEGASPI, petitioner, vs. SPOUSES RITA and FRANCISCO ONG, respondents.D E C I S I O NAUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari filed by petitioner Bernice Legaspi seeking to annul and set aside the Decision dated July 30, 1998 of the Court of Appeals (CA)[1] reversing the decision of the trial court and ruling that the deed of sale with right to repurchase executed by respondent spouses in favor of petitioner over the subject property was an equitable mortgage; and its Resolution dated January 4, 2000[2] denying petitioners motion for reconsideration.

Respondent spouses Francisco and Rita Ong were owners of a parcel of land located at 375 Matienza Street, San Miguel, Manila with an area of 1,010 square meters and a two-storey house. They mortgaged the subject property with the Permanent Savings and Loan Bank (PSLB) to secure their loan. For their failure to pay their loan, PSLB foreclosed the mortgage on the subject property and thereafter sold it in a public auction where the bank emerged as the highest bidder. Respondent spouses failed to redeem the property within the redemption period, thus, the title was consolidated in the name of PSLB under Transfer Certificate of Title (TCT) No. 182956 on November 10, 1988[3] but respondent spouses continued to occupy the premises. When PSLB was subsequently ordered liquidated by the Monetary Board of the Central Bank, PSLBs acquired assets were required to be disposed of to pay its debts, thus respondent spouses, being the original owners of the subject property, were given first priority by the Central Bank Liquidator to buy back their property in the amount of P2,655,000.00 on or before June 13, 1989. Since respondent spouses had no money then, they approached petitioners father, Stephen Hong, a classmate and friend of respondent Francisco, and sought his help to pay and redeem the subject property. Petitioner and her father were shown the title of the subject property in respondent Ritas name. After some deliberations thereon, the parties agreement was reduced into writing denominated as a Deed of Sale with Right to Repurchase[4] drafted by petitioners counsel, Atty. Bienvenido Rillo, in the following terms and conditions:

. . .

The title to above-described property is presently held by the Central Bank of the Philippines and the latter has given VENDOR the privilege of getting back the title to the above-described property by paying them the amount of TWO MILLION SIX HUNDRED FIFTY FIVE THOUSAND (P2,655,000.00) PESOS;

VENDOR has offered to sell this property to VENDEE on condition she be allowed to repurchase this property subject to the terms and conditions hereinafter recited:

1. VENDEE shall pay the Central Bank of the Philippines the amount of TWO MILLION SIX HUNDRED FIFTY FIVE THOUSAND (P2,655,000.00) PESOS for and in behalf of VENDOR;

2. VENDOR shall have the right to repurchase the above-described property within a period of four (4) months, without interest, which shall be extended by another month upon request of the VENDOR;

3. During the four (4) month period or its extension VENDOR shall have the right to re-sell the said property to any party, other than the VENDEE, who may desire to purchase the property;

4. In the event VENDOR should fail to repurchase the property within the four (4) months agreed upon then VENDEE, notwithstanding the extended period, shall pay interest at the rate of four (4%) percent per month reckoned from the execution of this document;

5. In the event VENDOR shall repurchase the property at any time before the expiration of four (4) months or its extended period the VENDOR shall pay interest on the amount at the rate of four (4%) percent per month reckoned from the signing of this Agreement;

6. Should VENDOR fail to comply with the foregoing terms and conditions then the property shall by virtue thereof become the property of VENDEE;

7. All expenses to be incurred as a result of this transaction such as documentary stamps, transfer fee, capital gains tax and documentation fees, shall be for the account of VENDOR;

NOW, THEREFORE, for and in consideration of the foregoing, VENDOR hereby sells, cedes, transfers and conveys unto the VENDEE the above-described parcel of land together with all the improvement thereon fall (sic) from any lien and encumbrances. VENDOR hereby warrants the property is not devoted to the cultivation of palay or corn nor is it covered by the priority development program of the government.[5]

which respondent spouses and petitioner signed on June 13, 1989. Immediately after the deed was signed, and since it was the last day to redeem the property, petitioner, with her lawyer, Atty. Rillo, and respondent Francisco went to the Central Bank and with petitioners check paid the amount of P2,655,000.00 to the bank for and in behalf of respondents. A Deed of Absolute Sale[6] was executed between PSLBs Liquidator, Renan V. Santos, and respondent spouses, as original owners, over the subject property on June 13, 1989. Respondent Francisco then wrote[7] the Deputy Liquidator of PSLB, Central Bank, to release the Deed of Sale and the title to the subject property to petitioner as his authorized representative. Petitioner received the documents on June 19, 1989.[8]

On September 26, 1989, petitioner wrote respondents a letter[9] reminding them that the four-month period to repurchase the subject property will expire on October 12, 1989 and that failure to pay the amount of P2,655,000.00 on its due date will force her to take the corresponding action to consolidate title on the property in her name. On November 23, 1989, petitioners counsel wrote respondents a letter[10] informing them that petitioner, acting on their request for extension of a weeks time to repurchase the subject property, consented to give them up to November 28, 1989. However, respondent spouses failed to redeem the subject property from petitioner within the period given them. Despite the expiration of the period to repurchase, petitioner still granted respondent spouses opportunity to repurchase the subject property in a letter dated April 14, 1990, where petitioners counsel demanded for the payment of the amount of P2,655,000.00 plus all the interest due thereon within five days from receipt otherwise, necessary legal action will be taken to transfer ownership in petitioners name.[11]

In October 1990, petitioner filed a petition for consolidation of ownership[12] before the Regional Trial Court (RTC) of Manila, which was raffled to Branch 39,[13] docketed as Civil Case No. 90-54623. Petitioner prayed for the cancellation of TCT No. 182956 and for the issuance of a new title in her name, attorneys fees and cost of suit.

In their answer with compulsory counterclaim,[14] respondent spouses alleged that the Deed of Sale with Right to Repurchase did not reflect the true intention of the parties because the document was actually an equitable mortgage with illegal provision, i.e., pactum commissorium; that petitioner has no cause of action against respondents; that there was non-joinder of the real party-in-interest; that the Court has no jurisdiction over the case; that relief sought will cause undue enrichment on respondents as the subject property claimed was worth P15 million.[15] They prayed for the dismissal of the petition and asked for damages, attorneys fees and costs of the suit as counterclaim.

On July 6, 1993, the RTC rendered its decision[16] in favor of petitioner, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered ordering the consolidation of title in the name of petitioner Bernice Legaspi and the Register of Deeds of the City of Manila is hereby ordered to cancel Transfer Certificate of Title No. 182956, issued in the name of Permanent Savings and Loan Bank, and in lieu thereof, a new one be issued in the name of petitioner BERNICE LEGASPI upon payment of the corresponding charges. Respondents are hereby ordered to pay attorneys fees in the sum of P25,000.00.

Respondents counterclaim is hereby DISMISSED for lack of merit. With costs against respondents.[17]

In arriving at its decision, the trial court made the following disquisition:

The main controversy centers on the true nature of Exhibit C, the Deed of Absolute Sale with Right to Repurchase. The Court examines Exhibit C, and finds it clear, unambiguous and unequivocal. If the terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the stipulation shall control (Art. 1370 CC). The intention of the parties is to be deduced from the language employed by them and the terms of the contract found unambiguous, are conclusive in the absence of averment and proof of mistake, the question being not what intention existed in the minds of the parties but what intention is expressed by the language used. When the words of a contract are plain and readily understandable, there is no room for construction (Dihiasan, et al. vs. CA, G.R. 49839, Sept. 14, 1987).

According to Rita Ong who admitted having signed the document she trusted Mr. Hong as her husbands former classmate. There is a presumption in law that a person takes ordinary care of his concern (Rule 131, Sec. 5(d), Revised Rules of Evidence). It is to be presumed that Rita Ong a pharmacy and medical technology graduate would not sign a document without being satisfied of the contents thereof. She knew fully well what she was signing. Rita Ong admitted on the stand that the matter was discussed in the residence of the petitioner in the presence of her husband and Mr. Hong. She was completely aware, therefore, that she was executing a document, a Deed of Sale with Right to Repurchase. If she did not like its contents, she could easily refrain from signing the document. After signing the document, she cannot now be heard to complain that the parties to said exhibit intended the same to be loan with mortgage contrary to what are clearly expressed therein. The natural presumption is that one does not sign a document without first informing himself of its contents. It is the duty of every contracting party to learn and know the contents of a contract before he signs and delivers it. He owes this duty to the other party to the contract because the latter may probably pay his money and shape his action in reliance upon the agreement. To permit a party when sued on a written contract to admit that he signed it but to deny that it expresses the agreement he made or to allow him to admit that he signed it but did not read it or know its stipulation could absolutely destroy the value of all contracts. (Tan Tun Sia vs. Yu Bin Sentua, 56 Phil. 711).

The Court rejects respondents Exhibits 11, 11-A and 12 to show the inadequacy of the price considering that evaluation of P4,500.00 per square meter and the appraisal of P15M were not made on or before June 13, 1989, the date the contract was executed by the parties. The evidence shows that the lot in question is titled in the name of Permanent Savings and Loan Bank for P2,655,000.00 and was paid by the petitioner in such amount. Said amount is approximately 50% of their total assessed value of P1,016,580.00 (Exhibit D) as appearing in the tax declaration. A difference in value is not always a decisive factor for determining whether or not the contract is one of sale with right to repurchase or equitable mortgage.

After the sale on June 13, 1989, Spouses Ong did not pay the real estate taxes on the land.

The records show that after the expiration of respondents right to repurchase the lot, demands were made but were completely ignored, hence, the filing of this case and the unlawful detainer with the Metropolitan Trial Court (Exhibit E).

Assessing the evidence on record, the Court declares that the contract entered into by the petitioner and respondents Spouses Ong is one of a sale with right to repurchase, as supported by the evidence on record. Respondents Ongs had already parted with their property when the mortgage was foreclosed by Permanent Savings and Loan Bank for P2,655,000.00 which was the price of the lot and, therefore, having discussed the transaction with the petitioner prior to the preparation of the contract, respondents cannot now repudiate what they have done. Since petitioner was forced to litigate to enforce her right under the contract, respondent spouses Ong should pay reasonable attorneys fees.[18]

Respondent spouses motion for reconsideration was denied in an Order dated November 25, 1993.[19]

At the time that the proceedings for the petition for consolidation of ownership were on-going, petitioner, on February 14, 1991, claiming her right to possess the subject property on the basis of respondents failure to repurchase the subject property had filed an unlawful detainer case against respondents[20] before the Metropolitan Trial Court (MeTC), Branch 19, Manila, docketed as Civil Case No. 134770-CV. The MeTC decided against respondent spouses on September 1, 1993[21] whereby respondent spouses were ordered to vacate the subject property and surrender possession thereof to petitioner; to pay P25,000.00 a month from February 13, 1991 as reasonable compensation for the use and occupancy of the subject property until possession is surrendered to petitioner; and attorneys fees plus cost of the suit. The MeTC granted the motion for execution filed by petitioner and issued a writ of execution on October 8, 1993.[22] Possession of the subject property was delivered by the sheriff to petitioners father on October 11, 1993.[23] Respondent spouses appeal with the RTC was dismissed in an Order dated March 9, 1994[24] for being moot and academic as the respondents had already abandoned the property and possession thereof was turned over to petitioner and ordered that the records be remanded to the court a quo for execution of its own judgment.

As respondents were aggrieved by the decision of the RTC granting the consolidation of title in petitioners name, respondent spouses appealed to the CA. During the pendency of respondents appeal, petitioner filed a motion for execution pending appeal of the RTCs decision dated July 6, 1993. The appellate court granted the motion for execution pending appeal in a Resolution[25] dated December 1, 1994, subject to the posting of a bond in the amount of P50,000.00. It anchored its judgment on the following findings:[26] (1) the property had been adjudged by the trial court to be owned by petitioner who paid the purchase price to the bank; (2) the ejectment case filed by petitioner against respondents was decided by the MeTC in favor of the former by ordering respondents to vacate the property, to pay P25,000.00 a month from February 13, 1991, as compensation for the use of the property and to surrender possession, in addition to attorneys fees; (3) possession of the property was already delivered to petitioner and that respondents had already abandoned the premises much earlier; (4) upon inspection made by the sheriff, it was found that the house was

destroyed, cannibalized and stripped of vital fixtures and furnitures; (5) major repairs had to be undertaken at quite staggering cost; (6) realty taxes were not paid by respondents from 1989 up to the present nor did they pay the capital gains tax, transfer fee, documentary stamps and documentation fees even though there was an agreement for such payment; (7) taxes due on the property, and surcharges on overdue payment continue to accumulate which endangered the property and the possibility of its being lost through auction sale; and (8) the grant of execution pending appeal would then bind the petitioner to preserve the property and to return it to respondents should the appeal be in their favor.

Respondent spouses filed their motion for reconsideration which was denied by the CA in a Resolution dated June 30, 1995.[27] As a consequence, the Register of Deeds of Manila cancelled TCT No. 182956 in the name of PSLB and issued TCT No. 219397 in petitioners name.

On July 30, 1998, the CA rendered herein assailed decision reversing the RTC decision dated July 6, 1993, the dispositive portion of which reads:

Wherefore, judgment is hereby rendered setting aside the decision of the court a quo dated July 6, 1993 in Civil Case No. 90-54623 and dismissing the complaint of plaintiff-appellee.

The appellants are hereby ordered to redeem the property from appellee in the amount of P2,655,000.00 with legal interest computed from the time the sale of redemption fell due up to the time the obligation is fully paid.

Appellee is hereby ordered to pay appellants the monthly rent of the subject premises from October 1993 up to the time possession thereof is turned over to appellant, which is hereby fixed in the amount of P25,000.00 a month; attorneys fees in the amount of P100,000.00; and the cost of suit.[28]

The appellate courts reversal was based on the following findings:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:

(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

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

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.

From the aforecited provisions, it is clear that the contract executed between the parties is one of equitable mortgage. The law requires anyone, and not the concurrence of all the circumstances mentioned therein to conclude that the transaction is one of equitable mortgage. It is clear from the records of the case, that appellants remained in possession of the property even after the execution of the contract, aside from the fact that the amount in the document purportedly the consideration of the sale was only P2.6 Million, while the property commands the price of P16 Million (Exhs. 12-12-U; TSN, August 12, 1992, pp. 16-17, 19), hence, there was gross inadequacy of the price. Likewise, the deed stipulates the payment of interest (TSN, April 27, 1992, p. 40; TSN, May 28, 1992, p. 31), and there were a number of extensions of time given by the appellee for the payment by appellants of the sum of P2.6 Million (TSN, Sept. 30, 1991, pp. 5-6, 54-56).

These circumstances proven by the appellants to show that the agreement was not sale with right to repurchase but one of equitable mortgage are conclusive. On the other hand, appellee failed to rebut these pieces of evidence.

. . .

The extensions of the original period of redemption as contained in pars. 2, 3 and 5 of the Deed of Sale with Right to Repurchase are indicative that the instrument was one of equitable mortgage. As ruled by the Supreme Court in Reyes vs. De Leon, 20 SCRA 639 and Burdalian vs. CA, 129 SCRA 645, it said that

It is well-settled that extension of the period of redemption is indicative of equitable mortgage.

After a careful evaluation of the above-stated circumstances, this Court finds the present case to exhibit several of the familiar badges of a concealed mortgage enumerated by Art. 1602 of the Civil Code. According to the said provisions of the Civil Code, presence of any of the circumstances enumerated would be sufficient enough to declare the transaction of

absolute sale as one impressed with an equitable mortgage. In the instant case there is even more than one circumstance indicating an equitable mortgage . . .

It has also been convincingly shown that appellants were badly in need of money at the time of the transaction because they wanted to redeem the property and the deadline within which to do that had almost been up. This circumstance is likewise conclusive of the fact that a pacto de retro sale may be deemed an equitable mortgage when executed due to urgent necessity for money of the apparent vendor.[29]

The CA denied petitioners motion for reconsideration in a Resolution dated January 4, 2000.

Petitioner filed the instant petition for review on certiorari on the question of whether a Deed of Sale with Right To Repurchase may be interpreted as one of equitable mortgage as found by the CA.

As a rule, only questions of law may be raised in a petition for review under Rule 45 of the Rules of Court, nonetheless factual issues may be entertained by this Court in exceptional cases. These include instances where the findings of fact are conflicting or when the findings of the CA are contrary to those of the trial court,[30] as in the present case. We are constrained to go over the records of the case and examine the arguments of the parties in their pleadings.

We have consistently decreed that the nomenclature used by the contracting parties to describe a contract does not determine its nature.[31] Decisive for the proper determination of the true nature of the transaction between the parties is the intent of the parties,[32] as shown not necessarily by the terminology used in the contract but by all the surrounding circumstances, such as the relative situations of the parties at that time; the attitudes, acts, conduct, and declarations of the parties; the negotiations between them leading to the deed; and generally, all pertinent facts having a tendency to fix and determine the real nature of their design and understanding.[33]

Even if a contract is denominated as a pacto de retro, the owner of the property may still disprove it by means of parol evidence, provided that the nature of the agreement is placed in issue by the pleadings filed with the trial court. It must be stressed, however, that there is no conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage. In fact, it is often a question difficult to resolve and is frequently made to depend on the surrounding circumstances of each case. When in doubt, courts are generally inclined to construe a transaction purporting to be a sale as an equitable mortgage, which involves a lesser transmission of rights and interests over the property in controversy.[34]

Art. 1602 of the Civil Code enumerates the instances when a contract, regardless of its nomenclature, may be presumed to be an equitable mortgage. They are as follows: (a) when the price of a sale with right to repurchase is unusually inadequate; (b) when the vendor remains in possession as lessee or otherwise; (c) when upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (d) when the purchaser retains for himself a part of the purchase price; (e) when the vendor binds himself to pay the taxes on the thing sold; and, (f) in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. Art. 1603 provides that in case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage.

The presence of even one of the above-mentioned circumstances as enumerated in Article 1602 is sufficient basis to declare a contract of sale with right to repurchase as one of equitable mortgage. As stated by the Code Commission which drafted the new Civil Code, in practically all of the so-called contracts of sale with right of repurchase, the real intention of the parties is that the pretended purchase price is money loaned and in order to secure the payment of the loan, a contract purporting to be a sale with pacto de retro is drawn up.[35]

The CA found the presence of four circumstances in the transaction on which bases it ruled that the transaction was an equitable mortgage, to wit: (a) respondents remained in possession of the subject property even after the execution of the contract; (b) there was gross inadequacy of price of P2,655,000.00 as contract price since the property commands the price of P16 million; (c) extensions of the original period of redemption; and (d) stipulation of interest.

We agree with the finding of the CA that the transaction between respondents and petitioner was not a sale with right to repurchase but an equitable mortgage.

Petitioner argues that Article 1602 does not apply in the instant case; that petitioner was the one who purchased the subject property from PSLB, the registered owner, for and in behalf of respondents; that since the ownership had been consolidated in PSLB and the title was in PSLBs name as early as November 10, 1988, respondents were no longer the owners of the subject property at the time the Deed of Sale with Right To Repurchase was executed by respondents in favor of petitioner on June 13, 1989; that respondents can no longer constitute a mortgage on the subject property; that respondents had the personality to sell the property only because they were the original owners who were favored by the Bank with the first option but it was petitioners money that was used in buying back the subject property. Petitioner also claims that there was never any loan between the parties as money was not given by one to the other since petitioner paid her money directly to the bank, thus debt which is a condition sine qua non of an equitable mortgage was absent.

We are not persuaded.

While it is true that the title to the subject property was consolidated in PSLBs name as early as 1988, the property was bought back by respondent spouses, the original owners, who were given the first option to buy it during PSLBs liquidation. Respondents were given up to June 13, 1989 to buy back the property and since they had no money, they had to approach petitioners father to help them in their predicament. As respondents were able to redeem the subject property with the use of petitioners money, a deed of sale was executed by the Liquidator in favor of respondent spouses on June 13, 1989, the last day given to respondents to buy back the property. Since the money came from petitioner, respondent spouses, as owners, had executed a document, which was denominated as a Deed of Sale with Right to Repurchase, which was prepared by petitioners counsel and signed by the parties also on June 13, 1989. It can be seen that the transactions are intimately related and they were even embodied in the deed of sale with right to repurchase, to wit:

The title to above-described property is presently held by the Central Bank of the Philippines and the latter has given VENDOR the privilege of getting back the title to the above-described property by paying them the amount of TWO MILLION SIX HUNDRED FIFTY FIVE THOUSAND (P2,655,000.00) PESOS;

VENDOR has offered to sell this property to VENDEE on condition she be allowed to repurchase this property subject to the terms and conditions hereinafter recited:

1. VENDEE shall pay the Central Bank of the Philippines the amount of TWO MILLION SIX HUNDRED FIFTY FIVE THOUSAND (P2,655,000.00) PESOS for and in behalf of VENDOR;

Clearly, the deed of sale with right to repurchase was precisely executed by respondents to secure the money paid by petitioner for and in behalf of respondents to PSLB Liquidator to buy back the subject property, i.e., as equitable mortgage. Notably, respondent spouses bought back the subject property in the amount of P2,655,000.00 and sold the same to petitioner at exactly the same amount they paid to PSLB Liquidator. If the intention of the respondent spouses were to sell, they could have at least earned some profit or interest on such sale, otherwise, they could have just allowed PSLB Liquidator to sell it to anybody in a public bidding. Respondents wanted to hold on to their property and not to part with it by selling the same.

Petitioner claims that respondents expressly recognized their intention to sell the subject property to her when they executed a letter[36] requesting the bank Liquidator to release the Deed of Sale executed between the bank and respondents as well as the duplicate copy of the title to petitioner.

We are not impressed.

Respondent Francisco wrote Deputy Liquidator Leopoldo Ramos and requested him to release the deed of sale and title to the subject property to petitioner as his authorized representative. There was nothing in the letter that would show that respondents acknowledged petitioner as the new owner of the property.

Although, we do not agree with the CA that the price of the sale with right to repurchase is grossly inadequate since the appraisal of the property in the amount of more than P16 million was not made on or before June 13, 1989, the date the contract was executed by the parties, but only on July 24, 1992,[37] we find in the transaction the presence of some other circumstances enumerated in Art. 1602 of the Civil Code which would establish that the transaction was an equitable mortgage rather than sale.

Respondent spouses, as vendors, remained in the possession of the subject property even after the execution of the deed of sale with right to repurchase.[38] Well settled to the point of being elementary is the doctrine that where the vendor remains in physical possession of the land as lessee or otherwise, the contract should be treated as an equitable mortgage.[39] If the deed executed was really what it purports to be, a sale with right to repurchase, petitioner should have asserted her right for the immediate delivery of the subject property to her so that she would have the enjoyment and possession of the same, since petitioner, during those times, was renting a place in New Manila, Quezon City,[40] and not allowed respondents to freely stay in the premises.

Notably, in all the letters of petitioner and her lawyer, i.e., reminding respondents that the period to repurchase was about to lapse and later the extension of period to repurchase and demands for respondents to repurchase the property in the amount of P2,655,000.00 plus interest within a certain period, were sent to respondents address which is the subject property, without registering any objection on respondents continuous possession of the same. In effect, petitioner acknowledged respondents right to retain possession of the subject property even after the execution of the pacto de retro sale. It was only on January 14, 1991 that petitioner made a demand for respondents to vacate the subject property after respondents failed to repurchase the property.

Another circumstance is the fact that the period to repurchase the subject property was extended by petitioner. In the letter dated November 23, 1989[41] to respondents by petitioners counsel, Atty. Rillo, he stated that petitioner had consented to respondents request for an extension of time to repurchase the subject property by giving them up to November 28, 1989. In fact, even in the petition for consolidation itself, petitioner stated that despite the expiration of the right to repurchase on November 28, 1989, petitioner still granted respondent spouses opportunity to repurchase the subject property in a letter dated April 14, 1990 by paying the amount due thereon. Moreover, petitioner, on cross-examination, even admitted that more than one extension was given for the respondents to repurchase.[42] It is well settled that extension of the period of redemption is indicative of equitable mortgage.[43]

Petitioner claims that there was no separate instrument extending the period of redemption granting a new period executed between the parties. Petitioner through her counsel wrote Exhibit I extending the period of redemption. In Claravall vs. Court of Appeals,[44] we held that a note executed extending a period of redemption is indicative of equitable mortgage.

Also, we find that there was no transmission of ownership to the vendee. As stated in the deed, to wit:

8. Should VENDOR fail to comply with the foregoing terms and conditions then the property shall by virtue thereof become the property of VENDEE;

This stipulation is contrary to the nature of a true pacto de retro sale since ownership of the property sold is immediately transferred to the vendee a retro upon execution of the sale, subject only to the repurchase of a vendor a retro within the stipulated period. Such stipulation is considered a pactum commissorium enabling the mortgagee to acquire ownership of the mortgaged properties without need of foreclosure proceedings which is a nullity being contrary to the provisions of Article 2088 of the Civil Code. The inclusion of such stipulation in the deed shows the intention to mortgage rather than to sell.

Moreover, the following provision, to wit:

3. During the four (4) month period or its extension VENDOR shall have the right to re-sell the said property to any party, other than the VENDEE, who may desire to purchase the property;

of the subject deed is a concrete revelation of the real intention of the parties, as contemplated in paragraph (6) of Article 1602 of the Civil Code, that the transaction was merely to secure the payment of a debt. A purchaser like the petitioner would not allow the respondent spouses, as the purported vendors, to re-sell the property to any party who may desire to purchase the property. This clearly indicates that petitioner recognized the right of respondent spouses to exercise their ownership of the property.

Petitioner contends that the assailed decision of the CA runs counter with the findings of the same appellate court in the Resolution dated December 1, 1994 granting petitioners motion for execution pending appeal.

While the appellate court had earlier issued a Resolution granting the motion for execution pending appeal which upheld the trial courts findings that the transaction between the parties was one of sale, such finding did not preclude the same appellate court from making its final judgment on the appealed case after a review of the evidence. The nature of the transaction is the very issue raised in the appeal filed by the respondents. Execution pending appeal does not bar the continuance of the appeal on the merits,[45] for the Rules of Court precisely provides for restitution according to equity in case the executed judgment is reversed on appeal.[46]

We find no basis for the CA to order petitioner to pay respondents the monthly rent of P25,000.00 for the formers possession of the subject property from October 1993 up to the time the property is surrendered to respondents. The origin of this petition for review is the petition for consolidation of ownership filed by petitioner which was granted by the trial court since it found that the transaction between respondents and petitioner is a sale. Respondents then filed their appeal with the CA. An examination of the appellants (respondents) brief filed before the appellate court merely claimed that they are the ones entitled to the damages and attorneys fees without mention of any back rentals. In fact, in the prayer in their brief, respondents merely asked that another judgment be rendered dismissing the plaintiffs (petitioners) complaint. Moreover, the appellate court did not make any discussion on the basis of how it arrived in the amount of P25,000.00 as monthly rental since the same was only mentioned in the dispositive portion of the decision. Courts in making an award must point out specific facts which can serve as basis for measuring whatever compensatory or actual damages are borne.[47]

We also disallow the award of attorneys fees as the appellate court merely stated such award in the dispositive portion without explicitly stating in the text of the decision the legal reason for such award. In Consolidated Bank & Trust Corporation (Solidbank) vs. Court of Appeals,[48] we held:

The award of attorneys fees lies within the discretion of the court and depends upon the circumstances of each case. However, the discretion of the court to award attorneys fees under Article 2208 of the Civil Code of the Philippines demands factual, legal and equitable justification, without which the award is a conclusion without a premise and improperly left to speculation and conjecture. It becomes a violation of the proscription against the imposition of a penalty on the right to litigate (Universal Shipping Lines Inc. v. Intermediate Appellate Court, 188 SCRA 170 [1990]). The reason for the award must be stated in the text of the courts decision. If it is stated only in the dispositive portion of the decision, the same shall be disallowed. As to the award of attorneys fees being an exception rather than the rule, it is necessary for the court to make findings of fact and law that would bring the case within the exception and justify the grant of the award. Refractories Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA 539 [1989].

WHEREFORE, the petition is PARTIALLY GRANTED. The decision of the Court of Appeals is AFFIRMED with MODIFICATION to the effect that the award of monthly rentals on the subject property and attorneys fees in favor of respondents is DELETED.

SO ORDERED.

GO V. BACARON (2005)

THIRD DIVISION[ G.R. NO. 159048, October 11, 2005 ]BENNY GO, PETITIONER, VS. ELIODORO BACARON, RESPONDENT.

FACTS:

Eliodoro BACARON conveyed a 15.3955-hectare parcel of land in favor of Benny GO for P20,000.00. He however averred that prior to extending said loan to him, GO required him to execute a document purporting to be a Transfer of Rights but was told that the same would only be a formality as he could redeem the unregistered land the moment he pays the loan. BACARON remains in possession of the property even after the conclusion of the transaction and continued paying the real property taxes subsequent to the alleged sale. About a year thereafter, BACARON, seeking to recover his property, went to GO to pay his alleged "loan" but the latter refused to receive the same and to return his property saying that the transaction between them was a sale and not a mortgage.

ISSUE:Whether the agreement entered into by the parties was one for equitable mortgage or for absolute sale.

HELD:

The instances in which a contract of sale is presumed to be an equitable mortgage are enumerated in Article 1602 of the Civil Code as follows:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:

(1) When the price of a sale with right to repurchase is unusually inadequate;(2) When the vendor remains in possession as lessee or otherwise;(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed;(4) When the purchaser retains for himself a part of the purchase price;(5) When the vendor binds himself to pay the taxes on the thing sold;(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.

Furthermore, Article 1604 of the Civil Code provides that the provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.

The present Contract, which purports to be an absolute deed of sale, should be deemed an equitable mortgage for the following reasons: (1) the consideration has been proven to be unusually inadequate; (2) the supposed vendor has remained in possession of the property even after the execution of the instrument; and (3) the alleged seller has continued to pay the real estate taxes on the property.BENNY GO, G.R. No. 159048Petitioner,Present:Panganiban, J.,Chairman,- versus - Sandoval-GutierrezCorona,Carpio Morales, andGarcia, JJPromulgated:ELIODORO BACARON,Respondent. October 11, 2005x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - -- x DECISION PANGANIBAN, J.: The present Contract, which purports to be an absolute deed of sale, should be deemed an equitable mortgage for the following reasons: (1) the consideration has been proven to be unusually inadequate; (2) the supposed vendor has remained in possession of the property even after the execution of the instrument; and (3) the alleged seller has continued to pay the real estate taxes on the property.

The Case Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to set aside the October 17, 2002 Decision[2] and the May 20, 2003 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 67218. The assailed Decision disposed as follows: WHEREFORE, premises considered, the Decision dated February 24, 2000 of the Regional Trial Court of Davao City, Branch 12, in Civil Case No. 25,101-97 is hereby REVERSED and SET ASIDE and a new one is hereby rendered ordering the reformation of the subject instrument, such that the same must be considered a mortgage contract and not a transfer of right. Costs against [petitioner].[4] The assailed Resolution denied Reconsideration. The Facts The antecedents are narrated by the CA as follows: As evidenced by the Transfer of Rights dated October 1, 1993, Eliodoro Bacaron conveyed a 15.3955-hectare parcel of land located in Langub, Talomo, Davao City, in favor of Benny Go for P20,000.00.About a year thereafter, Bacaron, seeking to recover his property, went to Go to pay his alleged P20,000.00 loan but the latter refused to receive the same and to return his property saying that the transaction between the two of them was a sale and not a mortgage as claimed by Bacaron. Consequently, on March 5, 1997, Eliodoro Bacaron, as plaintiff [herein respondent], filed a Complaint for Reformation of Instrument with Damages and prayer for the issuance of a writ of preliminary injunction, with the Regional Trial Court of Davao City, Branch 12, against the [petitioner] Benny Go, which case was docketed as Civil Case No. 25,101-97. In his Complaint, [respondent] alleged that in the middle part of 1993, he suffered business reversals which prompted him, being in urgent need of funds, to borrow P20,000.00 from the [petitioner]. He however averred that prior to extending said loan to him, the [petitioner] required him to execute a document purporting to be a Transfer of Rights but was told that the same would only be a formality as he could redeem the unregistered land the moment he pays the loan. Admitting that he signed the instrument despite knowing that the same did not express the true intention of the parties agreement, i.e., that the transaction was a mere equitable mortgage, the [respondent] explained that he did so only because he was in a very tight financial situation and because he was assured by the [petitioner] that he could redeem his property. To support this claim, [respondent] stressed the fact that the consideration in the instrument was merely P20,000.00, which is grossly inadequate as the selling price of a 15-hectare land considering that, at that time, the market value of land in Davao City amounts to P100,000.00 per hectare. [Respondent] narrated that a year thereafter, or in a middle part of 1994, he was able to raise the P20,000.00 and went to the [petitioner] to pay his loan but the latter refused to accept his payment, insisting that the transaction entered into by the parties was not an equitable mortgage, as the [respondent] insists, but a real transfer of right over the property. Because of said refusal, [respondent] continued, he was compelled to refer the matter to his lawyer in order to request the [petitioner] to accept his payment otherwise he would file the necessary action in court. Despite said formal demand by the [respondent], however, [petitioner] allegedly continued to refuse to recognize the equitable mortgage, prompting [respondent] to consign the P20,000.00 with the Clerk of Court of the RTC of Davao City, Branch 12. He thus insisted that it is [petitioner] who is dead wrong in not recognizing the equitable mortgage since, aside from the fact that the consideration was unusually inadequate, [respondent] allegedly remained in possession of the property.[Respondent] thus prayed for an award for moral damages, in view of the [petitioners] evident bad faith in refusing to recognize the equitable mortgage, and for attorneys fees as [petitioners] alleged stubbornness compelled him to engage the services of counsel. He likewise sought an award for exemplary damages to deter others from committing similar acts and at the same time asked the court to issue a writ of preliminary injunction and/or temporary restraining order to prevent [petitioner] from dispossessing [respondent] of the subject property or from disposing of the same in favor of third parties as these acts would certainly work injustice for and cause irreparable damage to the [respondent]. The prayer for the issuance of a restraining order was however denied by the court in an Order. [Petitioner] filed his Answer on May 5, 1997, denying [respondents] claim that the transaction was only an equitable mortgage and not an actual transfer of right. He asserted that the truth of the matter was that when [respondent] suffered business reverses, his accounts with the [petitioner], as evidenced by postdated checks, cash vouchers and promissory notes, remained unpaid and his total indebtedness, exclusive of interests, amounted to P985,423.70. [Petitioner] further averred that, in order to avoid the filing of cases against him, [respondent] offered to pay his indebtedness through dacion en pago, giving the land in question as full payment thereof. In addition, he stressed that considering that the property is still untitled and the [respondent] bought the same from one Meliton Bacarro for only P50,000.00, it is most unreasonable for him to agree to accept said land in exchange for over a million pesos of indebtedness. He claimed though that he was only forced to do so when [respondent] told him that if he did not accept the offer, other creditors would grab the same. By way of affirmative defenses, the [petitioner] pointed out that [respondent] has no cause of action against him as the [respondent] failed to comply with the essential requisites for an action for reformation of instrument. He moreover alleged

that the [respondent] is in estoppel because, by his own admission, he signed the document knowing that the same did not express the true intention of the parties. Further, [petitioner] claimed that there was a valid transfer of the property herein since the consideration is not only the actual amount written in the instrument but it also includes the outstanding obligation of [respondent] to the [petitioner] amounting to almost P1 million. As counterclaim, [petitioner] averred that, because of this baseless complaint, he suffered mental anguish, wounded feelings and besmirched reputation, entitling him to moral damages amounting to P20,000.00, and that in order to deter others from doing similar acts, exemplary damages amounting to P20,000.00 should likewise be awarded in his favor. [Petitioner] also prayed for attorneys fees and litigation expenses claiming that, because he was constrained to litigate, he was forced to hire the services of counsel. x x x x x x x x x Trial ensued and thereafter the trial court rendered its Decision dated February 24, 2000 dismissing the complaint while finding the [petitioners] counterclaim meritorious. In making said ruling, the lower court, citing Article 1350 (should be 1359) of the New Civil Code, found that [respondent] failed to establish the existence of all the requisites for an action for reformation by clear, convincing and competent evidence. Considering [respondents] own testimony that he read the document and fully understood the same, signing it without making any complaints to his lawyer, the trial court held that the evidence on record shows that the subject instrument had been freely and voluntarily entered into by the parties and that the same expresses the true intention of the parties. The court further noted that the [respondents] wife even signed the document and that the same had been duly acknowledged by the parties before a notary public as their true act and voluntary deed. The trial court likewise observed that, contrary to [respondents] claim that the transaction was a mere mortgage of the property, the terms of the instrument are clear and unequivocable that the property subject of the document was sold, transferred, ceded and conveyed to the [petitioner] by way of absolute sale, and hence, no extrinsic aids are necessary to ascertain the intention of the parties as the same is determinable from the document itself. Moreover, said court emphasized that considering the fact that [respondent] is an educated person, having studied in an exclusive school like Ateneo de Davao, and an experienced businessman, he is presumed to have acted with due care and to have signed the instrument with full knowledge of its contents and import. [Respondents] claim that he merely borrowed money from the [petitioner] and mortgaged the property subject of litigation to guarantee said loan was thus found to be specious by the court, which found that the [respondent] was actually indebted to the [petitioner] for almost a million pesos and that the true consideration of the sale was in fact said outstanding obligation. With respect to [respondents] alleged possession of the property and payment of real estate taxes, both of which were relied upon by the [respondent] to boost his assertion that the transaction was merely an equitable mortgage, the trial court said that his claim of possession is belied by the fact that the actual occupants of the property recognize that the [petitioner] owns the same and in fact said occupants prevented [respondents] wife from entering the premises. The court, noting that the [petitioner] also paid the realty taxes, was also of the opinion that [respondent] merely made such payments in order to lay the basis of his allegation that the contract was a mere equitable mortgage. Accordingly, the court held that [respondent] is also not entitled to his other claims and that his unfounded action caused [petitioner] to an award for moral damages, in addition to the expenses he incurred in defending his cause, i.e. services of a lawyer and transportation and other expenses, which justifies an award for the reimbursement of his expenses and attorneys fees.[5] Ruling of the Court of Appeals Granting respondents appeal, the appellate court ruled that the Contract entered into by the parties should be deemed an equitable mortgage, because the consideration for the sale was grossly inadequate. By continuing to harvest the crops and supervise his workers, respondent remained in control of the property. True, upon the institution of this case, petitioner paid the required real estate taxes that were still in arrears. Respondent, however paid the taxes for 1995, 1996 and 1997 -- the years between the dates when the alleged absolute sale was entered into on October 1, 1993, and when this case was instituted on March 5, 1997.[6] Granting respondents prayer for reformation of the Contract, the CA ruled that the instrument failed to reflect the true intention of the parties because of petitioners inequitable conduct.[7] Hence, this Petition.[8] The Issues Petitioner raises the following issues for this Courts consideration: I.

Whether o[r] not the Court of Appeals erred in ruling that there was inadequate consideration. II. Whether o[r] not the Court of Appeals erred in ruling that the respondent remained in possession of the land in question. III. Whether or not the Court of Appeals erred in ruling that the taxes were not paid by the petitioner. IV. Whether or not the Court of Appeals erred in ruling that reformation is proper.[9] Simply put, these are the issues to be resolved: (1) whether the agreement entered into by the parties was one for equitable mortgage or for absolute sale; and (2) whether the grant of the relief of contract reformation was proper. The Courts Ruling The Petition has no merit. First Issue:Equitable Mortgage An equitable mortgage has been defined as one which although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law.[10] The instances in which a contract of sale is presumed to be an equitable mortgage are enumerated in Article 1602 of the Civil Code as follows: Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate;(2) When the vendor remains in possession as lessee or otherwise;(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed;(4) When the purchaser retains for himself a part of the purchase price;(5) When the vendor binds himself to pay the taxes on the thing sold;(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws. Furthermore, Article 1604 of the Civil Code provides that [t]he provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. In the present case, three of the instances enumerated in Article 1602 -- grossly inadequate consideration, possession of the property, and payment of realty taxes -- attended the assailed transaction and thus showed that it was indeed an equitable mortgage. Inadequate Consideration Petitioner Go avers that the amount of P20,000 was not unusually inadequate. He explains that the present parties entered into a Dacion en Pago, whereby respondent conveyed the subject property as payment for his outstanding debts to petitioner -- debts supposedly amounting to P985,243.70.[11] To substantiate his claim, petitioner presented the checks that respondent had issued, as well as the latters testimony purportedly admitting the genuineness and due execution of

the checks and the existence of the outstanding debts.[12] Petitioner Go contends that respondent failed to establish by sufficient evidence that those debts had already been paid.[13] Petitioner relies on the trial courts finding that respondent knowingly and intentionally entered into a contract of sale, not an equitable mortgage.[14] On the other hand, Respondent Bacaron argues that the value of the property at the time of the alleged sale was P120,000 per hectare, and that the indicated sale amount of P20,000 was thus grossly iniquitous.[15] Allegedly, the previous cash advances secured from petitioners father had been settled, as evidenced by the fact that petitioner did not negotiate further or encash the checks; the latter could have done so, if the obligation was still extant.[16] Respondent points out that he paid for that obligation with the coprax he had previously delivered to the father.[17] Petitioner allegedly admitted this fact, though inadvertently, when he testified that respondent had already paid some of the latters previous cash advances.[18] Otherwise, petitioner would have then set off his own debt to respondent (amounting to P214,000) against the amount of almost one million pesos that the latter supposedly owed him.[19] Checks have the character of negotiability. At the same time, they may constitute evidence of indebtedness.[20] Those presented by petitioner may indeed evince respondents indebtedness to him in the amounts stated on the faces of those instruments. He, however, acknowledges (1) that respondent paid some of the obligations through the coprax delivered to petitioners father; and (2) that petitioner owed and subsequently paid respondent P214,000.[21] The parties respective arguments show that the sum of P20,000, by itself, is inadequate to justify the purported absolute Transfer of Rights.[22] Petitioners claim that there was a dacion en pago is not reflected on the instrument executed by the parties. That claim, however, confirms the inadequacy of the P20,000 paid in consideration of the Transfer of Rights; hence, the Contract does not reflect the true intention of the parties. As to what their true intention was -- whether dacion en pago or equitable mortgage -- will have to be determined by some other means. Possession According to Article 1602(2) of the New Civil Code, one of the instances showing that a purported contract of sale is presumed to be an equitable mortgage is when the supposed vendor remains in possession of the property even after the conclusion of the transaction. In general terms, possession is the holding of a thing or the enjoyment of a right, whether by material occupation or by the fact that the right -- or, as in this case, the property -- is subjected to the will of the claimant.[23] In Director of Lands v. Heirs of Abaldonado,[24] the gathering of the products of and the act of planting on the land were held to constitute occupation, possession and cultivation. In the present case, the witnesses of respondent swore that they had seen him gather fruits and coconuts on the property. Based on the cited case, the witnesses testimonies sufficiently establish that even after the execution of the assailed Contract, respondent has remained in possession of the property. The testimonies proffered by petitioners witnesses merely indicated that they were tenants of the property. Petitioner only informed them that he was the new owner of the property. This attempt at a factual presentation hardly signifies that he exercised possession over the property. As held by the appellate court, petitioners other witness (Redoa) was unconvincing, because he could not even say whether he resided within the premises.[25] The factual findings of the trial court and the CA are conflicting and, hence, may be reviewed by this Court.[26] Normally, the findings of the trial court on the credibility of witnesses should be respected. Here, however, their demeanor while testifying is not at issue. What is disputed is the substance of their testimonies -- the facts to which they testified. Assuming that the witnesses of petitioner were indeed credible, their testimonies were insufficient to establish that he enjoyed possession over the property. Payment of Realty Taxes Finally, petitioner asserts that the trial courts finding that he paid the realty taxes should also be given corresponding weight.[27] Respondent counters with the CAs findings that it was he who paid realty taxes on the property. The appellate court concluded that he had paid taxes for the years 1995, 1996 and 1997 within each of those years; hence, before the filing of the present controversy. In contrast, petitioner paid only the remaining taxes due on October 17, 1997, or after the case had been instituted. This fact allegedly proves that respondent has remained in possession of the property and continued to be its owner.[28] He argues that if he had really transferred ownership, he would have been foolish to continue paying for those taxes.[29] On this point, we again rule for respondent. Petitioner indeed paid the realty taxes on the property for the years 1980 to 1997. The records show that the payments were all simultaneously made only on October 31, 1997, evidently in the light of the Complaint respondent had filed before the trial court on March 5, 1997.[30] On the other hand, respondent continued to pay for the realty taxes due on the property for the years 1995, 1996 and 1997.[31]

That the parties intended to enter into an equitable mortgage is bolstered by respondents continued payment of the real property taxes subsequent to the alleged sale. Payment of those taxes is a usual burden attached to ownership. Coupled with continuous possession of the property, it constitutes evidence of great weight that a person under whose name the realty taxes were declared has a valid and rightful claim over the land.[32] That the parties intended to enter into an equitable mortgage is also shown by the fact that the seller was driven to obtain the loan at a time when he was in urgent need of money; and that he signed the Deed of Sale, despite knowing that it did not express the real intention of the parties.[33] In the present proceedings, the collapse of his business prompted respondent to obtain the loan.[34] Petitioner himself admitted that at the time they entered into the alleged absolute sale, respondent had suffered from serious business reversals.[35]

Second Issue:Reformation of Instrument Petitioner claims that the CA erred in granting the remedy of reformation of contracts. He avers that the failure of the instrument to express the parties true agreement was not due to his mistake; or to fraud, inequitable conduct, or accident.[36] We rule for respondent. Ultimately, it is the intention of the parties that determines whether a contract is one of sale or of mortgage.[37] In the present case, one of the parties to the contract raises as an issue the fact that their true intention or agreement is not reflected in the instrument. Under this circumstance, parol evidence becomes admissible and competent evidence to prove the true nature of the instrument.[38] Hence, unavailing is the assertion of petitioner that the interpretation of the terms of the Contract is unnecessary, and that the parties clearly agreed to execute an absolute deed of sale. His assertion does not hold, especially in the light of the provisions of Article 1604 of the Civil Code, under which even contracts purporting to be absolute sales are subject to the provisions of Article 1602. Moreover, under Article 1605 of the New Civil Code, the supposed vendor may ask for the reformation of the instrument, should the case be among those mentioned in Articles 1602 and 1604. Because respondent has more than sufficiently established that the assailed Contract is in fact an equitable mortgage rather than an absolute sale, he is allowed to avail himself of the remedy of reformation of contracts. WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution AFFIRMED. SO ORDERED.BENJAMIN BAUTISTA, petitioner, vs.SHIRLEY G. UNANGST and OTHER UNKNOWN PERSONS, respondentS.

D E C I S I O N

REYES, R.T., J.:

THE presumption of equitable mortgage imposes a burden on the buyer to present clear evidence to rebut it. He must overthrow it, lest it persist.1 To overturn that prima facie presumption, the buyer needs to adduce substantial and credible evidence to prove that the contract was a bona fide deed of sale with right to repurchase.

This petition for review on certiorari impugns the Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 859423 which reversed and set aside that4 of the Regional Trial Court (RTC) in an action for specific performance or recovery of possession, for sum of money, for consolidation of ownerships and damages.

The Facts

On November 15, 1996, Hamilton Salak rented a car from GAB Rent-A-Car, a car rental shop owned by petitioner Benjamin Bautista. The lease was for three (3) consecutive days at a rental fee of P1,000.00 per day.5 However, Salak failed to return the car after three (3) days prompting petitioner to file a complaint against him for estafa, violation of Batas Pambansa Blg. 22 and carnapping.6

On February 2, 1997, Salak and his common-law wife, respondent Shirley G. Unangst, were arrested by officers of the Criminal Investigation Service Group (CISG) of the Philippine National Police while riding the rented car along Quezon City. The next day, petitioner demanded from Salak at the CISG Office the sum of P232,372.00 as payment for car rental fees, fees incurred in locating the car, attorney's fees, capital gains tax, transfer tax, and other incidental expenses.7

Salak and respondent expressed willingness to pay but since they were then short on cash, Salak proposed to sell to petitioner a house and lot titled in the name of respondent. Petitioner welcomed the proposal after consulting his wife,

Cynthia. Cynthia, on the other hand, further agreed to pay the mortgage loan of respondent over the subject property to a certain Jojo Lee in the amount of P295,000.00 as the property was then set to be publicly auctioned on February 17, 1997.8

To formalize their amicable settlement, Cynthia, Salak and respondent executed a written agreement.9 They stipulated that respondent would sell, subject to repurchase, her residential property in favor of Cynthia for the total amount of P527,372.00 broken down, as follows: (1) P295,000.00 for the amount paid by Cynthia to Lee to release the mortgage on the property; and (2) P232,372.00, which is the amount due to GAB Rent-A-Car. Cynthia also agreed to desist from pursuing the complaint against Salak and respondent.10

Respondent and petitioner also executed a separate deed of sale with right to repurchase,11 specifying, among others, that: (1) respondent, as vendor, shall pay capital gains tax, current real estate taxes and utility bills pertaining to the property; (2) if respondent fails to repurchase the property within 30 days from the date of the deed, she and her assigns shall immediately vacate the premises and deliver its possession to petitioner without need of a judicial order; and (3) respondent's refusal to do so will entitle petitioner to take immediate possession of the property.12

Respondent failed to repurchase the property within the stipulated period. As a result, petitioner filed, on June 5, 1998, a complaint for specific performance or recovery of possession, for sum of money, for consolidation of ownership and damages against respondent and other unnamed persons before the RTC of Olongapo City.

In his complaint,13 petitioner alleged, among others, that after respondent failed to repurchase the subject realty, he caused the registration of the deed of sale with the Register of Deeds and the transfer of the tax declarations in his name; that respondent failed to pay the capital gains taxes and update the real estate taxes forcing him to pay said amounts in the sum of P71,129.05 and P11,993.72, respectively; and that respondent violated the terms of the deed when she, as well as the other unnamed persons, refused to vacate the subject property despite repeated demands.14

Petitioner prayed before the RTC that an order be issued in his favor directing respondents to: (1) surrender the possession of the property; (2) pay P150,000.00 for the reasonable compensation for its use from March 7, 1997 to June 7, 1998, plus P10,000.00 per month afterward; (3) pay the amount advanced by petitioner, to wit: P71,129.05 and P11,993.72 for the payment of capital gains tax and real estate taxes, respectively; and P70,000.00 for attorney's fees.15

On June 16, 1998, petitioner filed an amended complaint,16 reiterating his previous allegations but with the added prayer for consolidation of ownership pursuant to Article 1607 of the Civil Code.17

On the other hand, respondents controverted the allegations in the complaint and averred in their Answer,18 among others, that plaintiff had no cause of action inasmuch as respondent Unangst signed the subject deed of sale under duress and intimidation employed by petitioner and his cohorts; that, assuming that her consent was freely given, the contract of sale was simulated and fictitious since the vendor never received the stipulated consideration; that the sale should be construed as an equitable mortgage pursuant to Articles 1602 and 1604 of the Civil Code because of its onerous conditions and shockingly low consideration; that their indebtedness in the form of arrears in car rentals merely amounts to P90,000.00; and that the instant action was premature as plaintiff had not yet consolidated ownership over the property. Defendants counterclaimed for moral damages in the amount of P500,000.00 and attorney's fees in the amount of P50,000.00, plus P500.00 per appearance.19

On July 29, 2004, after due proceedings, the RTC rendered a decision in favor of petitioner, disposing as follows:

WHEREFORE, judgment is rendered finding the Deed of Sale with Right to Repurchase (Exh. "C") as, indeed, a document of sale executed by the defendant in favor of the plaintiff covering the parcel of land house (sic) situated at Lot 3-B, Blk. 10, Waterdam Road, Gordon Heights, Olongapo City, declared under Tax Declaration Nos. 004-7756R and 7757R (Exhs. "I" and "I-1"). The defendant and any person taking rights from her is (sic) ordered to immediately vacate from the place and turn over its possession to the plaintiff. They are likewise directed not to remove any part of the building on the lot.

The ownership of the said property is properly consolidated in the name of the plaintiff.

The defendant is further ordered to pay to the plaintiff the amount of P10,000.00 a month from March 7, 1997 up to the time possession of the lot and house is restored to the plaintiff representing the reasonable value for the use of the property; the amount of P71,129.05 representing the payment made by the plaintiff on the capital gain taxes and the further amount of P70,000.00 for attorney's fees and the costs of suit.

SO ORDERED.20

Respondents failed to interpose a timely appeal. However, on September 10, 2004, respondent Unangst filed a petition for relief pursuant to Section 38 of the 1997 Rules on Civil Procedure. She argued that she learned of the decision of the RTC only on September 6, 2004 when she received a copy of the motion for execution filed by petitioner.21

Petitioner, on the other hand, moved for the dismissal of respondent's petition on the ground that the latter paid an insufficient sum of P200.00 as docket fees.22

It appears that respondent Unangst initially paid P200.00 as docket fees as this was the amount assessed by the Clerk of Court of the RTC.23 Said amount was insufficient as the proper filing fees amount to P1,715.00. Nevertheless, the correct amount was subsequently paid by said respondent on February 22, 2005.24

In their comment,25 respondents countered that they should not be faulted for paying deficient docket fees as it was due to an erroneous assessment of the Clerk of Court.26

The RTC granted the petition for relief. Subsequently, it directed respondents to file a notice of appeal within twenty-four (24) hours from receipt of the order.27 Accordingly, on February 23, 2005, respondents filed their notice of appeal.28

Respondents contended before the CA that the RTC erred in: (1) not annulling the deed of sale with right to repurchase; (2) declaring that the deed of sale with right to repurchase is a real contract of sale; (3) ordering the consolidation of ownership of the subject property in the name of petitioner.29 They argued that respondent Unangst's consent to the deed of sale with right to repurchase was procured under duress and that even assuming that her consent was freely given, the contract partakes of the nature of an equitable mortgage.30

On the other hand, petitioner insisted, among others, that although the petition for relief of respondents was filed on time, the proper filing fees for said petition were paid beyond the 60-day reglementary period. He posited that jurisdiction is acquired by the court over the action only upon full payment of prescribed docket fees.31

CA Disposition

In a Decision32 dated April 7, 2006, the CA reversed and set aside the RTC judgment.33 The dispositive part of the appellate court's decision reads, thus:

IN VIEW OF ALL THE FOREGOING, the instant appeal is hereby GRANTED, the challenged Decision dated July 29, 2004 hereby (sic) REVERSED and SET ASIDE, and a new one entered declaring the Deed of Sale With Right Of Repurchase dated February 4, 1997 as an equitable mortgage. No cost.

SO ORDERED.34

The CA declared that the Deed of Sale with Right of Repurchase executed by the parties was an equitable mortgage. On the procedural aspect pertaining to the petition for relief filed by respondent Unangst, the CA ruled that "the trial court, in opting to apply the rules liberally, cannot be faulted for giving due course to the questioned petition for relief which enabled appellants to interpose the instant appeal."35 It ratiocinated:

Appellee recognizes the timely filing of appellants' petition for relief to be able to appeal judgment but nonetheless points out that the proper filing fees were paid beyond the 60-day reglementary period. Arguing that the court acquires jurisdiction over the action only upon full payment of the prescribed docket fees, he submits that the trial court erred in granting appellants' petition for relief despite the late payment of the filing fees.

While this Court is fully aware of the mandatory nature of the requirement of payment of appellate docket fee, the High Court has recognized that its strict application is qualified by the following: first, failure to pay those fees within the reglementary period allows only discretionary, not automatic, dismissal; second, such power should be used by the court in conjunction with its exercise of sound discretion in accordance with the tenets of justice and fair play, as well as with a great deal of circumspection in consideration of all attendant circumstances (Meatmasters International Corporation v. Lelis Integrated Development Corporation, 452 SCRA 626 [2005], citing La Salette College v. Pilotin, 418 SCRA 380 [2003]).

Applied in the instant case, the docket fees were admittedly paid only on February 22, 2005, or a little less than two (2) months after the period for filing the petition lapsed. Yet, this matter was sufficiently explained by appellants. The records bear out that appellants initially paid P200.00 as docket fees because this was the amount assessed by the Clerk of Court of the RTC of Olongapo City (p. 273, Records). As it turned out, the fees paid was insufficient, the proper filing fees being P1,715.00, which was eventually paid by appellants on February 1, 2005 (p. 296, Records). As such, appellants cannot be faulted for their failure to pay the proper docket fees for, given the prevailing circumstances, such failure was clearly not a dilatory tactic nor intended to circumvent the Rules of Court. On the contrary, appellants demonstrated their willingness to pay the docket fees when they subsequently paid on the same day they were assessed the correct fees (p. 299, Records). Notably, in Yambao v. Court of Appeals (346 SCRA 141 [2000]), the High Court declared therein that "the appellate court may extend the time for the payment of the docket fees if appellants is able to show that there is a justifiable reason for his failure to pay the correct amount of docket fees within the prescribed period, like fraud, accident, mistake, excusable negligence, or a similar supervening casualty, without fault on the part of appellant." Verily, the trial court, in opting to apply the rules liberally, cannot be faulted for giving due course to the questioned petition for relief which enabled appellants to interpose the instant appeal.36

On the substantial issues, the CA concluded that "While the records is bereft of any proof or evidence that appellee employed unlawful or improper pressure against appellant Unangst to give her consent to the contract of sale, there is, nevertheless, sufficient basis to hold the subject contract as one of equitable mortgage."37 It explained:

Jurisprudence has consistently held that the nomenclature used by the contracting parties to describe a contract does not determine its nature. The decisive factor in determining the true nature of the transaction between the parties is the intent of the parties, as shown not necessarily by the terminology used in the contract but by all the surrounding circumstances, such as the relative situations of the parties at that time; the attitudes, acts, conduct, and declarations of the parties; the negotiations between them leading to the deed; and generally, all pertinent facts having a tendency to fix and determine the real nature of their design and understanding (Legaspi v. Ong, 459 SCRA 122 [2005]).

It must be stressed, however, that there is no conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage. In fact, it is often a question difficult to resolve and is frequently made to depend on the surrounding circumstances of each case. When in doubt, courts are generally inclined to construe a transaction purporting to be a sale as an equitable mortgage, which involves a lesser transmission of rights and interests over the property in controversy (Legaspi, ibid.).

Article 1602 of the Civil Code enumerates the instances where a contract shall be presumed to be an equitable mortgage when - (a) the price of a sale with right to repurchase is unusually inadequate; (b) the vendor remains in possession as lessee or otherwise; (c) upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (d) the purchaser retains for himself a part of the purchase price; (e) the vendor binds himself to pay taxes on the thing sold; and, (f) in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation (Legaspi, supra; Martinez v. Court of Appeals, 358 SCRA 38 [2001]).

For the presumption of an equitable mortgage to arise under Article 1602, two (2) requisites must concur: (a) that the parties entered into a contract denominated as a contract of sale; and, (b) that their intention was to secure an existing debt by way of a mortgage. Any of the circumstance laid out in Article 1602, not the concurrence nor an overwhelming number of the circumstances therein enumerated, suffices to construe a contract of sale to be one of equitable mortgage (Lorbes v. Court of Appeals, 351 SCRA 716 [2001]).

Applying the foregoing considerations in the instant case, there is hardly any doubt that the true intention of the parties is that the transaction shall secure the payment of a debt. It is not contested that before executing the subject deed, Unangst and Salak were under police custody and were sorely pressed for money. Such urgent prospect of prolonged detention helps explain why appellants would subscribe to an agreement like the deed in the instant case. This might very well explain appellants' insistence that Unangst was not truly free when she signed the questioned deed. Besides, there is no gainsaying that when appellee allowed appellants to retain possession of the realty sold for 30 days, as part of the agreement, that period of time surely signaled a time allotted to Salak and Unangst, as debtors, within which to pay their mortgage indebtedness.

The High Court, in several cases involving similar situations, has declared that "while it was true that plaintiffs were aware of the contents of the contracts, the preponderance of the evidence showed, however, that they signed knowing that said contracts did not express their real intention, and if they did so notwithstanding this, it was due to the urgent necessity of obtaining funds. Necessitous men are not, truly speaking, free men; but to answer a present emergency, will submit to any terms that the crafty may impose upon them" (Lorbes, ibid.; Reyes v. Court of Appeals, 339 SCRA 97 [2000]; Lao v. Court of Appeals, 275 SCRA 237 [1997]; Zamora v. Court of Appeals, 260 SCRA 10 [1996]; Labasan v. Lacuesta, 86 SCRA 16 [1978]).

After all, Article 1602(6) provides that a contract of sale with right to repurchase is presumed to be an equitable mortgage in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any obligation. In fine, a careful review of the records convincingly shows that the obtaining facts in this case qualify the controversial agreement between the parties as an equitable mortgage under Article 1602 of the New Civil Code.38

Issues

Petitioner has resorted to the present recourse under Rule 45, assigning to the CA the following errors:

(a) The Honorable Court of Appeals committed grave error in finding that the respondent perfected an appeal via Petition for Relief To Be Able To Appeal Judgment even when the proper docket fees were paid beyond the period prescribed to bring such action under Section 3 of Rule 38 of the 1997 Rules of Civil Procedure in relation to the pronouncements by the Honorable Court in the cases of Philippine Rabbit Bus Lines, Inc. v. Arciaga [148 SCRA 433], Philippine Pryce Assurance Corp. v. Court of Appeals [148 SCRA 433] and Sun Insurance Office, Ltd. v. Asuncion [170 SCRA 274].

(b) The Honorable Court of Appeals erred on a question of law in reversing the Decision of the Court a quo finding the Deed of Sale with Right to Repurchase a document of sale executed by the respondent in favor of the petitioner and in further holding such contract as one of equitable mortgage.39

Our Ruling

On the first issue, petitioner contends that respondents' "Petition for Relief to Be Able to Appeal Judgment," which paved the way for the allowance of respondents' appeal of the RTC decision, was filed within the prescriptive period but the

proper docket fees for it were belatedly paid.40 He thus posits that the RTC did not acquire jurisdiction over said petition. Having no jurisdiction, the RTC could not have allowed respondents to appeal.

On this issue, respondent counters that the belated payment of proper docket fees was not due to their fault but to the improper assessment by the Clerk of Court. Respondent asserts the ruling of the CA that the court may extend the time for the payment of the docket fees if there is a justifiable reason for the failure to pay the correct amount. Moreover, respondent argues that petitioner failed to contest the RTC Order dated February 21, 2004 that allowed the payment of supplementary docket fees. Petitioner failed to file a motion for reconsideration or a petition for certiorari to the higher court to question said order.

We agree with respondents. Their failure to pay the correct amount of docket fees was due to a justifiable reason.

The right to appeal is a purely statutory right. Not being a natural right or a part of due process, the right to appeal may be exercised only in the manner and in accordance with the rules provided therefor.41 For this reason, payment of the full amount of the appellate court docket and other lawful fees within the reglementary period is mandatory and jurisdictional.42 Nevertheless, as this Court ruled in Aranas v. Endona,43 the strict application of the jurisdictional nature of the above rule on payment of appellate docket fees may be mitigated under exceptional circumstances to better serve the interest of justice. It is always within the power of this Court to suspend its own rules, or to except a particular case from their operation, whenever the purposes of justice require it.44

In not a few instances, the Court relaxed the rigid application of the rules of procedure to afford the parties the opportunity to fully ventilate their cases on the merits. This is in line with the time-honored principle that cases should be decided only after giving all parties the chance to argue their causes and defenses.45 For, it is far better to dispose of a case on the merit which is a primordial end, rather than on a technicality, if it be the case, that may result in injustice.46 The emerging trend in the rulings of this Court is to afford every party-litigant the amplest opportunity for the proper and just determination of his cause, free from the constraints of technicalities.47

As early as 1946, in Segovia v. Barrios,48 the Court ruled that where an appellant in good faith paid less than the correct amount for the docket fee because that was the amount he was required to pay by the clerk of court, and he promptly paid the balance, it is error to dismiss his appeal because "(e)very citizen has the right to assume and trust that a public officer charged by law with certain duties knows his duties and performs them in accordance with law. To penalize such citizen for relying upon said officer in all good faith is repugnant to justice."49

Technicality and procedural imperfections should thus not serve as bases of decisions.50 In that way, the ends of justice would be better served. For, indeed, the general objective of procedure is to facilitate the application of justice to the rival claims of contending parties, bearing always in mind that procedure is not to hinder but to promote the administration of justice.51

We go now to the crux of the petition. Should the deed of sale with right to repurchase executed by the parties be construed as an equitable mortgage? This is the pivotal question here.

According to petitioner, the deed should not be construed as an equitable mortgage as it does not fall under any of the instances mentioned in Article 1602 of the Civil Code where the agreement can be construed as an equitable mortgage. He added that the "language and terms of the Deed of Sale with Right to Repurchase executed by respondent in favor of the petition are clear and unequivocal. Said contract must be construed with its literal sense."52

We cannot agree.

Respondent is correct in alleging that the deed of sale with right to repurchase qualifies as an equitable mortgage under Article 1602. She merely secured the payment of the unpaid car rentals and the amount advanced by petitioner to Jojo Lee.

The transaction between the parties is one of equitable mortgage and not a sale with right to purchase as maintained by petitioners. Article 1602 of the New Civil Code provides that the contract is presumed to be an equitable mortgage in any of the following cases:

(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

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

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.53 (Emphasis ours)

The conclusion that the deed of sale with right to repurchase is an equitable mortgage is buttressed by the following:

First, before executing the deed, respondent and Salak were under police custody due to the complaint lodged against them by petitioner. They were sorely pressed for money, as they would not be released from custody unless they paid petitioner. It was at this point that respondent was constrained to execute a deed of sale with right to repurchase. Respondent was in no position whatsoever to bargain with their creditor, petitioner. Nel consensui tam contrarium est quam vis atqui metus. There can be no consent when under force or duress. Bale wala ang pagsang-ayon kung ito'y nakuha sa pamimilit o paraang di malaya.

It is established that respondent signed the deed only because of the urgent necessity of obtaining funds.1avvphi1 When the vendor is in urgent need of money when he executes the sale, the alleged sale with pacto de retro will be construed as an equitable mortgage.54 "Necessitous men are not, truly speaking, free men; but to answer a present emergency will submit to any terms that the crafty may impose upon them."55

Second, petitioner allowed respondent and Salak to retain the possession of the property despite the execution of the deed. In fact, respondent and Salak were not bound to deliver the possession of the property to petitioner if they would pay him the amount he demanded.56

Where in a contract of sale with pacto de retro, the vendor remains in possession, as a lessee or otherwise, the contract shall be presumed to be an equitable mortgage.57 The reason for the presumption lies in the fact that in a contract of sale with pacto de retro, the legal title to the property is immediately transferred to the vendee, subject to the vendor's right to redeem. Retention, therefore, by the vendor of the possession of the property is inconsistent with the vendee's acquisition of the right of ownership under a true sale.58 It discloses, in the alleged vendee, a lack of interest in the property that belies the truthfulness of the sale a retro.59

Third, it is likewise undisputed that the deed was executed by reason of: (1) the alleged indebtedness of Salak to petitioner, that is, car rental payments; and (2) respondent's own obligation to petitioner, that is, reimbursement of what petitioner paid to the mortgagee, Jojo Lee. Fact is, the purchase price stated in the deed was the amount of the indebtedness of both respondent and Salak to petitioner.60

Apparently, the deed purports to be a sale with right to purchase. However, since it was executed in consideration of the aforesaid loans and/or indebtedness, said contract is indubitably an equitable mortgage. The rule is firmly settled that whenever it is clearly shown that a deed of sale with pacto de retro, regular on its face, is given as security for a loan, it must be regarded as an equitable mortgage.61

The above-mentioned circumstances preclude the Court from declaring that the parties intended the transfer of the property from one to the other by way of sale. They are more than sufficient to show that the true intention of the parties is to secure the payment of said debts. Verily, an equitable mortgage under paragraphs 2 and 6 of Article 1602 exists here. Settled is the rule that to create the presumption enunciated by Article 1602, the existence of one circumstance is enough.62

Moreover, under Article 1603 of the Civil Code it is provided that: "(i)n case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage." In this case, We have no doubt that the transaction between the parties is that of a loan secured by said property by way of mortgage.

In Lorbes v. Court of Appeals,63 the Court held that:

The decisive factor in evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract but by all the surrounding circumstances, such as the relative situation of the parties at that time, the attitude, acts, conduct, declarations of the parties, the negotiations between them leading to the deed, and generally, all pertinent facts having a tendency to fix and determine the real nature of their design and understanding. As such, documentary and parol evidence may be submitted and admitted to prove the intention of the parties.

Sales with rights to repurchase, as defined by the Civil Code, are not favored. We will not construe instruments to be sales with a right to repurchase, with the stringent and onerous effects which follow, unless the terms of the document and the surrounding circumstances require it. Whenever, under the terms of the writing, any other construction can fairly and reasonably be made, such construction will be adopted and the contract will be construed as a mere loan unless the court can see that, if enforced according to its terms, it is not an unconscionable one.64

Article 1602 of the Civil Code is designed primarily to curtail the evils brought about by contracts of sale with right of repurchase, such as the circumvention of the laws against usury and pactum commissorium.65

WHEREFORE, the petition is DENIED for lack of merit.

SO ORDERED.