FIRST DIVISION

[G.R. No. 56232. June 22, 1984.]

ABELARDO CRUZ (deceased) substituted by Heirs Consuelo C.
Cruz, Claro C. Cruz and Stephen C. Cruz, per Resolution,
petitioners, vs. LEODEGARIA CABANA, TEOFILO LEGASPI,
ILUMINADA CABANA and THE HONORABLE COURT OF
APPEALS,
*
respondents.
Nazareno, Azada, Sabado & Dizon for petitioners.
Felixberto N . Boquiren for respondents.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; SALES; DOUBLE SALE OF REAL
PROPERTY; OWNERSHIP OF PROPERTY ACQUIRED BY VENDEE WHO FIRST
REGISTERS SALE IN GOOD FAITH. As the Court held in Carbonell vs. Court of
Appeals, 69 SCRA 99 (1976), "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 Article 1544 of the Civil Code." As the writer stressed in his concurring
opinion therein, "The governing principle here is prius tempore, potior jure (rst in
time, stronger in right). Knowledge gained by the rst buyer of the second sale
cannot defeat the rst buyer's right except only as provided by the Civil Code and
that is where the second buyer rst registers in good faith the second sale ahead of
the rst. Such knowledge of the rst buyer does not bar her from availing of her
rights under the law, among them to register rst her purchase as against the
second buyer. But in converso knowledge gained by the second buyer of the rst
sale defeats his rights even if he is rst 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 of the second buyer being able to displace the rst
buyer; that before the second buyer can obtain priority over the rst, he must show
that he acted in good faith throughout (i.e. in ignorance of the rst sale and of the
rst 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
rst sale until his contract ripens into full ownership through prior registration as
provided by law."
2. ID.; ID.; ID.; ID.; ID.; KNOWLEDGE OF PRIOR SALE TAINTS SECOND
PURCHASER'S PRIOR REGISTRATION WITH BAD FAITH; CASE AT BAR. When
petitioner Cruz succeeded in registering the later sale in his favor, he knew and was
informed of the prior sale in favor of respondents-spouses. Respondents appellate
court correctly held that such "knowledge of a prior transfer of a registered property
by a subsequent purchasers makes him a purchaser in bad faith and his knowledge
of such transfer vitiates his title acquired by virtue of the latter instruments of
conveyance with creates no right as against the first purchaser."
D E C I S I O N
TEEHANKEE, J p:
The Court arms the questioned decision of the now defunct Court of Appeals
which armed that of the Court of First Instance of Quezon Province, but directs
that the seller, respondent Leodegaria Cabana who sold the property in question
twice, rst to her co-respondents Teolo Legaspi and Iluminada Cabana and later to
petitioner Abelardo Cruz (now deceased), should reimburse to petitioner's heirs the
amounts of P2,352.50, which the late petitioner Abelardo Cruz paid to the Philippine
National Bank to discharge the mortgage obligation of said respondent Leodegaria
Cabana in favor of said bank, and of P3,397.50, representing the amount paid by
said Abelardo Cruz to her as consideration of the sale with pacto de retro of the
subject property.
This is a simple case of double sale of real property. Respondent appellate court in
its decision of August 13, 1980 stated the background facts and resolved the issue in
favor of defendants-appellees, rst buyers-respondents herein, and against plainti-
appellant Abelardo Cruz, petitioner herein (substituted by his heirs), as follows:
"Defendants' evidence shows that on October 21, 1968, defendant
Leodegaria Cabaa sold the land in question to defendants-spouses Teolio
Legaspi and Iluminada Cabaa (Exh. 1). The said defendants-spouses
attempted to register the deed of sale but said registration was not
accomplished because they could not present the owner's duplicate of title
which was at that time in the possession of the PNB as mortgage.
"Likewise, when plainti tried to register the deed of sale executed by
Leodegaria Cabaa on September 3, 1970, said plainti was informed that
the owner thereof had sold the land to defendants-spouses on October 21,
1968. Plainti was able to register the land in his name on February 9, 1971
(Exh. A). With the admission of both parties that the land in question was
sold to two persons, the main issue to be resolved in this appeal is as to
who of said vendees has a better title to said land.
"There is no dispute that the land in question was sold with right of
repurchase on June 1, 1965 to defendants-spouses Teolo Legaspi and
Iluminada Cabaa (Exh. 1). The said document `Bilihang Muling Mabibili'
stipulated that the land can be repurchased by the vendor within one year
from December 31, 1966 (see par. 5, Exh. 1). Said land was not
repurchased and in the meantime, however, said defendants-spouses took
possession of the land.
"Upon request of Leodegaria Cabaa, the title of the land was lent to her in
order to mortgage the property to the Philippine National Bank. Said title
was, forthwith, deposited with the PNB. On October 21, 1968, defendant
Leodegaria Cabaa sold the land by way of absolute sale to the defendants-
spouses (Exh. 2). However, on November 29, 1968 defendant sold the
same property to herein plainti and the latter was able to register it in his
name.
"The transaction in question is governed by Article 1544 of the Civil Code.
True it is that the plainti was able to register the sale in his name but was
he in good faith in doing so?
"While the title was registered in plainti-appellant's name on February 9,
1971 (Exh. A), it appears that he knew of the sale of the land to defendants-
spouses Legaspi as he was informed in the Oce of the Register of Deeds
of Quezon. It appears that the defendants-spouses registered their
document of sale on May 13, 1965 under Primary Entry No. 210113 of the
Register of Deeds (Exh. 2).
"Under the foregoing circumstances, the right of ownership and title to the
land must be resolved in favor of the defendants-spouses Legaspi on three
counts. First, the plainti-appellant was not in good faith in registering the
title in his name. Consistent is the jurisprudence in this jurisdiction that in
order that the provisions of Article 1544 of the new Civil Code may be
invoked, it is necessary that the conveyance must have been made by a
party who has an existing right in the thing and the power to dispose of it
(10 Manresa 170, 171). It cannot be set up by a second purchaser who
comes into possession of the property that has already been acquired by
the rst purchaser in full dominion (Bautista vs. Sison, 39 Phil. 615), this
notwithstanding that the second purchaser records his title in the public
registry, if the registration be done in bad faith, the philosophy underlying
this rule being that the public records cannot be covered into instruments of
fraud and oppression by one who secures an inscription therein in bad faith
(Chupinghong vs. Borreros, 7 CA Rep. 699).
"A purchaser who has knowledge of fact which would put him upon inquiry
and investigation as to possible defects of the title of the vendor and fails to
make such inquiry and investigation, cannot claim that he is a purchaser in
good faith. Knowledge of a prior transfer of a registered property by a
subsequent purchaser makes him a purchaser in bad faith and his
knowledge of such transfer vitiates his title acquired by virtue of the latter
instrument of conveyance which creates no right as against the rst
purchaser (Reylago vs. Jarabe, L-20046, March 27, 1968, 22 SCRA 1247).
"In the second place, the defendants-spouses registered the deed of
absolute sale ahead of plainti-appellant. Said spouses were not only able to
obtain the title because at that time, the owner's duplicate certicate was still
with the Philippine National Bank.
"In the third place, defendants-spouses have been in possession all along of
the land in question. If immovable property is sold to dierent vendees, the
ownership shall belong to the person acquiring it who in good faith rst
recorded it in the registry of property; and should there be no inscription,
the ownership shall pertain to the person who in good faith was rst in the
possession (Soriano, et al. vs. The Heirs of Domingo Magali, et al., L-15133,
July 31, 1963, 8 SCRA 489). Priority of possession stands good in favor of
herein defendants-spouses (Evangelista vs. Abad, [CA] 36 O.G. 2913;
Sanchez vs. Ramos, 40 Phil. 614; Quimson vs. Rosete, 87 Phil. 159)."
The Court finds that in this case of double sale of real property, respondent appellate
court, on the basis of the undisputed facts, correctly applied the provisions of Article
1544 of the Civil Code that
"Art. 1544. If the same thing should have been sold to different vendees,
the ownership shall be transferred to the person who may have rst taken
possession thereof in good faith, if it should be movable property.
"Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
"Should there be no inscription, the ownership shall pertain to the person
who in good faith was first in the possession; and, in the absence thereof, to
the person who presents the oldest title, provided there is good faith."
There is no question that respondents-spouses Teolo Legaspi and Iluminada
Cabana were the rst buyers, rst on June 1, 1965 under a sale with right of
repurchase and later on October 21, 1968 under a deed of absolute sale and that
they had taken possession of the land sold to them; that petitioner was the
second buyer under a deed of sale dated November 29, 1968, which to all
indications, contrary to the text, was a sale with right of repurchase for ninety
(90) days. 1 There is no question either that respondents Legaspi spouses were
the first and the only ones to be in possession of the subject property.

Said respondents spouses were likewise the rst to register the sale with right of
repurchase in their favor on May 13, 1965 under Primary Entry No. 210113 of the
Register of Deeds. They could not register the absolute deed of sale in their favor
and obtain the corresponding transfer certicate of title because at that time the
seller's duplicate certicate was still with the bank. But there is no question, and
the lower courts so found conclusively as a matter of fact, that when petitioner Cruz
succeeded in registering the later sale in his favor, he knew and he was informed of
the prior sale in favor of respondents-spouses. Respondent appellate court correctly
held that such "knowledge of a prior transfer of a registered property by a
subsequent purchaser makes him a purchaser in bad faith and his knowledge of
such transfer vitiates his title acquired by virtue of the latter instrument of
conveyance which creates no right as against the first purchaser." cdll
As the Court held in Carbonell vs. Court of Appeals
2
"it is essential that the buyer of
realty must act in good faith in registering his deed of sale to merit the protection of
the second paragraph of [the above quoted] Article 1544." As the writer stressed in
his concurring opinion therein, "(T)he governing principle here is prius tempore,
potior jure (rst in time, stronger in right). Knowledge gained by the rst buyer of
the second sale cannot defeat the rst buyer's rights except only as provided by the
Civil Code and that is where the second buyer rst registers in good faith the second
sale ahead of the rst. Such knowledge of the rst buyer does not bar her from
availing of her rights under the law, among them, to register rst her purchase as
against the second buyer. But in converso knowledge gained by the second buyer of
the rst sale defeats his rights even if he is rst 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 rst
buyer; that before the second buyer can obtain priority over the rst, he must show
that he acted in good faith throughout (i.e. in ignorance of the rst sale and of the
rst 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
rst sale until his contract ripens into full ownership through prior registration as
provided by law." cdphil
Petitioner's prayer for alternative relief for reimbursement of the amount of
P2,352.50 paid by him to the bank to discharge the existing mortgage on the
property and of the amount of P3,397.50 representing the price of the second sale
are well taken insofar as the seller Leodegaria Cabana is concerned. These amounts
have been received by the said seller Leodegaria Cabana on account of a void second
sale and must be duly reimbursed by her to petitioner's heirs, but the Legaspi
spouses cannot be held liable therefor since they had nothing to do with the said
second sale nor did they receive any benet therefrom. Petitioner's claim for
reimbursement of the amount of P102.58 as real estate taxes paid on the property
is not well taken because the respondents Legaspi spouses had been paying the real
estate taxes on the same property since June 1, 1969.
4
ACCORDINGLY, the appealed judgment of respondent appellate court, upholding
respondents-spouses Teolo Legaspi and Iluminada Cabana as the true and rightful
owners of the property in litigation and ordering the issuance of a new title with the
cancellation as null and void of Title No. T-99140 obtained by petitioner Abelardo C.
Cruz, is hereby armed in toto. In accordance with the partial grant of petitioner's
prayer for alternative relief as stated in the preceding paragraph hereof, the Court
hereby orders and sentences respondent Leodegaria Cabana to reimburse and pay
to petitioner's heirs the total sum of P5,750.00.
Melencio-Herrera, Plana, Relova, Gutierrez, Jr. and De la Fuente, JJ ., concur.
Footnotes
* Eighth Division composed of Samuel F. Reyes, Jorge R. Coquia, ponente, and
Mariano A. Zosa, JJ.
1. Respondents Legaspi spouses cite in their brief "facts of record" which were not
denied or disputed by petitioner, as follows:
"First. The price paid by Cruz was unconscionably small. The complaint alleged
that the land with an area of 27,882 square meters had an annual income of
P3,000.0 (Record on Appeal p. 8) but the vendor, Leodegaria Cabana was paid the
paltry sum of only P5,000.00 (Record on Appeal, p. 25).
"Second. Cruz bought the land without even making an inspection. The deed of
sale was executed on November 25, 1968 but he visited the property only after
February, 1971 or after a lapse of more than two years. (tsn Nov. 23, 1971, page
18). Surely, there must be something shy when real estate with an income of
P3,000.00 yearly can be had for only P5,000.00. By this fantastically low price, the
buyer is already put on notice of a possible defect in seller's title and yet Cruz did
not even visit the locality where he could have made appropriate inquiries.
"Third. By petitioner's own admission (brief, p. 4), the agreement between them
(Cruz and Leodegaria Cabaa) was SALE WITH RIGHT OF REPURCHASE within 90
days, however, the deed prepared by Atty. Bonus, counsel of Cruz in the trial
court up to the Court of Appeals, was a deed of absolute sale.
a clear premeditated circumvention of the agreement. . . .
"Fourth. The deed of sale in favor of Cruz was executed on November 29,1968
(Record on Appeal, p. 11) but he declared the property for taxation only on April
20, 1971, or after the lapse of over two years.
an indubitable showing that Cruz was uncertain of his title and was not duty bound
to pay taxes thereon. And please note that he was constrained to pay the real
estate taxes only because he found in Legaspi's answer to his complaint in the trial
court that Legaspi had been paying the taxes on this property since June 1, 1969 (
Record on Appeal, p. 9). Obviously Cruz must have realized that his claim of
ownership would be adversely aected by not declaring this property in his name
and not paying real estate taxes."
2. 60 SCRA 99 (1976).
3. Idem, pp. 122, 123.
4. See footnote, 1, supra.