Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No.

132281 September 15, 2006

enterprises: the Lagon Enterprises and the Rural Bank of Isulan. He was also one of the clients of Josefina's son, Carlos Valdez, Jr. Hence, on May 9, 1979, Josefina, through her attorney-in-fact, Carlos Valdez, Jr., and Lagon entered into a contract of sale involving the aforementioned 4,094-square meter portion of what used to be Lot No. 3. No transfer certificate of title could as yet be issued to Lagon because at the time of the sale, the intestate estate of the late Carlos Valdez, Sr. had still to be settled and partitioned. On October 9, 1981, TCT No. T-19529, formerly covering Lot No. 3 was cancelled and superseded by eight (8) titles corresponding to the eight (8) resulting subdivision lots and bearing the following particulars: TCT No. 16436 16437 16438 16439 16440 16441 16442 16443 Lot No. 3-A 3-B 3-C 3-D 3-E 3-F 3-G 3-H Area 2,586 sq. meters 2,802 sq. meters 2,534 sq. meters 3,198 sq. meters 3,359 sq. meters 2,952 sq. meters 3,650 sq. meters 3,644 sq. meters

ROLENDO T. DELFIN, petitioner, vs. JOSEFINA L. VALDEZ and JOSE V. LAGON, respondents. DECISION GARCIA, J.: In this petition for review under Rule 45 of the Rules of Court, petitioner Rolendo T. Delfin seeks the annulment and setting aside of the Decision1 dated December 16, 1997 of the Court of Appeals (CA), as reiterated in its Resolution of January 26, 1998,2 in CA G.R. CV No. 48751, affirming en toto an earlier decision of the Regional Trial Court (RTC) of Sultan Kudarat, Branch 19, in an action to quiet title thereat commenced by the petitioner against the herein respondents, Josefina L. Valdez and Jose V. Lagon. The material facts are undisputed: The spouses Carlos Valdez, Sr. and Josefina de Leon-Valdez (Josefina, hereafter), were the owners of a parcel of land with an area of 24,725 square meters located in the commercial district of Isulan, Sultan Kudarat. The property was designated as Lot No. 3 of Pls-208-D-13 and covered by Transfer Certificate of Title (TCT) No. T-19529 (T-1902) issued on August 18, 1967. Carlos Valdez, Sr. died intestate on March 26, 1966, survived by his widow, Josefina, and their children, among whom is Carlos Valdez, Jr., a practicing lawyer. On December 28, 1978, Josefina caused the subdivision of Lot No. 3 into eight (8) lots, namely, Lots Nos. 3-A to 3-H, all fronting the national road. To enhance the value of the property, she decided to sell a 4,094-square meter portion thereof, more particularly Lot No. 3-C and a portion of Lot No. 3-D to her co-respondent herein, Jose V. Lagon (Lagon, for short), a successful businessman in Sultan Kudarat who owned a construction firm and other business

All the foregoing subdivision titles were under the name of "Josefina L. Valdez, married to Carlos Valdez, Sr." Later, Josefina further caused the subdivision of Lot No. 3-D covered by TCT No. 16439, resulting in the existence of Lot No. 3-D-1, containing an area of 1,551 square meters. Lot No. 3-D-1 is the property involved in this case. On June 4, 1987, Josefina sold Lot No. 3-D-1 to the herein petitioner, Rolendo T. Delfin (Delfin, for brevity). Delfin registered the sale on June 16, 1987 and obtained TCT No. 20380 therefor in his name.

It turned out that the area comprising the entirety of Lot No. 3-D-1 (1,551 square meters) which used to be a portion of Lot No. 3-D was already included in the earlier sale of May 9, 1979 between Josefina and Lagon over the 4,094-square meter portion of the mother lot, Lot No. 3. On September 24, 1990, upon learning that a portion of the property already sold to him was subsequently sold by Josefina to Delfin, Lagon filed in the RTC of Sultan Kudarat a complaint for specific performance with damages against Josefina and her attorney-in-fact, Atty. Carlos Valdez, Jr. Lagon's complaint was docketed as Civil Case No. 778, which eventually reached this Court in G.R. No. 140715, entitled Josefina L. Valdez and Carlos L. Valdez, Jr. v. Court 3 of Appeals and Jose Lagon, a petition for review interposed by Josefina and Carlos Valdez, Jr. against an amended decision of the CA in the aforesaid civil case. For his part, upon knowing of Civil Case No. 778, Delfin instituted in the same court an action to quiet title against Josefina and Lagon, docketed as Civil Case No. 779, now the subject of the present petition. On January 20, 1995, the RTC of Sultan Kudarat, Branch 90, upon its finding that Delfin, albeit a prior registrant, was a purchaser in bad faith because he allegedly knew the prior sale between Josefin and Lagon, came out with its decision in Civil Case No. 779, dismissing Delfin's complaint for quieting of title and rendering judgment for Lagon, to wit: WHEREFORE, upon all the foregoing considerations, judgment is hereby rendered, dismissing [Delfin's] complaint. In [Lagon's] counterclaim, judgment is hereby rendered: (a) declaring [Delfin] a purchaser in bad faith, all consequently, a possessor in bad faith of Lot No. 3D-1 xxx; (b) declaring [Lagon] to have a superior right to the land in question, identified as Lot No. 3-D-1 xxx, the same being a portion of or is included in the parcel of land priorly purchased by said [Lagon];

(c) declaring the Deed of Absolute Sale xxx dated June 4, 1987, executed by xxx Josefina xxx in favor of xxx Delfin, covering Lot No. 3-D-1 xxx together with its corresponding Transfer Certificate of Title No. T-20380 issued in the name [Delfin], null and void; (d) directing the Register of Deeds of Sultan Kudarat to cancel Transfer Certificate of Title No. T-20380 in favor of [Delfin], covering the disputed lot xxx, and to issue a new TRANSFER CERTIFICATE OF TITLE in favor of [Lagon] covering said Lot No. 3-D-1 xxx; (e) ordering [Delfin], and those acting for and in his behalf to vacate Lot No. 3-D-1 xxx and surrender possession thereof to [Lagon]: [Delfin] may remove his aforementioned improvement from the said lot within TWO (2) MONTHS from the finality of this JUDGMENT, unless [Lagon] elects to acquire the same and pay [Delfin] the amount of TEN (10) THOUSAND PESOS within TWO (2) MONTHS from finality of this JUDGMENT. Should [Lagon] fail to pay the said amount within the said period of TWO (2) MONTHS from the finality of this Judgment, the period of Two (2) Months within which [Delfin] may remove his aforesaid useful improvement, consisting of a building housing the IVY PHARMACY and the Medical Specialist Center shall commence from the expiration of the TWO (2) MONTHS given [Lagon] to pay for the said useful improvement; (f) ordering [Delfin] to pay [Lagon] the sums of: 1. P50,000.00 by way of moral and exemplary damages; 2. P50,000.00 by way of attorney's fees; 3. P30,000.00 by way of litigation expenses; 4. P43,191.50 representing the actual airplane transportation expenses incurred by [Lagon's] lawyer's attendance during the trial

of the xxx case; and further ordering [Delfin] to pay the costs of suit. IT IS SO ORDERED. (Words in brackets added.) From the above decision of the RTC, Delfin immediately went on appeal to the CA whereat his appellate recourse was docketed as CA-G.R. CV No. 48751. As stated at the outset hereof, the CA, in its challenged Decision5 dated December 16, 1987, affirmed en toto that of the trial court. With his motion for reconsideration having been denied by the CA in its affirmatory Resolution of January 26, 1998, Delfin is now with this Court via the present petition, claiming that the appellate court erred 1. when it ruled that petitioner was a buyer in bad faith proceeding from evidence which are unsubstantiated, hearsay or mere conjectures; 2. when it failed to rule the issue involving [respondent] Josefina L. Valdez, which was timely raised by petitioner in his appeal brief but effectively brushed aside by affirmance in toto of the lower court's decision; 3. when it did not leave the parties where they are under the doctrine of pari delicto, which was timely raised as a question of law in his appeal brief; 4. in awarding by way of reconveyance to respondent Lagon the subject property not originally pleaded in his counterclaim; and 5. in affirming the award of damages not supported by substantial evidence. We GRANT the petition, but upon a different ground. From the very opening statement of the appellate court in the decision under review, it is obvious that said court, along with the court below it, resolved the controversy on the premise that there exists a case of double sale. On that premise, the CA and the trial court applied to this case the provisions of Article 1544 of the Civil Code, which reads:
4

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. To the two (2) courts below, the two (2) sales of the lot in question Lot No. 3-D-1 are: (1) the sale entered into on May 9, 1979 between Josefina, through her attorney-in-fact, Atty. Carlos Valdez, Jr., in favor of Lagon over the 4,094-square meter portion of the former Lot No. 3 which portion covered the entire area of Lot No. 3D-1, referred to herein as the first sale; and (2) the sale of Lot No. 3D-1 entered into between Josefina and Delfin on June 4, 1987, hereinafter referred to as the second sale. While on the surface, there is apparently a situation of double sale, in truth and in law, there is only one: the sale of Lot No. 3-D-1 by Josefina to the petitioner on June 4, 1987. Hence, Article 1544 of the Civil Code finds no application in this case. The application of Article 1544 of the Civil Code presupposes the existence of two (2) valid and binding contracts of sale, which, under legal contemplation, is made possible by the operation of the Torrens System whereunder registration is the operative act which transfers title or ownership of a titled property, such that before the first buyer registers his sale to consolidate ownership and title in his favor, the seller who retains the title and ownership in the meantime can validly transfer such title and ownership by way of a second sale to another buyer, who, in case he succeeds in registering said second sale before he acquired notice of the first sale, can defeat the rights of the first buyer under Article 1544 of the Civil Code. With our decision6 in Josefina L. Valdez and Carlos L. Valdez, Jr. v. Court of Appeals and Jose Lagon,7 decided on September 24,

2004 and involving, among others, Lot No. 3-D-1, the factual landscape of this case has completely changed. We quote the Court's pertinent ruling in the aforesaid case of Valdez: The respondent [Lagon] admitted in his complaint that he undertook to construct the said building and transfer the Rural Bank of Isulan to the property he had purchased from xxx Josefina. The respondent [Lagon] affirmed the authenticity and due execution of his affidavit and his obligations therein, and testified, thus: ATTY. VALDEZ: Q Mr. Lagon, you testified that according to you the construction of the same, the PCIB Isulan was a compliance of your obligation under your contract with the Valdezes, do you recall having testified on that? A Yes, Sir.

it is made to reasons not of his own making but due to factors brought about by circumstances then prevailing, and elaboration on the same can only be properly stated on the proper time to come. Far from being a mere affidavit, the document embodies the unequivocal undertaking of [Lagon] to construct a fully operational commercial building and to transfer the Rural Bank of Isulan to the subject property as part of the consideration of the sale within five (5) years from the execution of the deed of sale, or until May 9, 1984. The intractable refusal of [Lagon] to pay the balance of the purchase price of the property despite the petitioners' (i.e., Josefina and Carlos Valdez, Jr.) demands had no legal basis. As such, xxx Josefina's refusal to deliver the torrens title over the subject property under xxx [Lagon's] name was justified, precisely because of xxx [Lagon's] refusal to comply with his obligation to pay the balance of the purchase price. Had xxx [Lagon] paid the purchase price of the property, such failure on the part of xxx Josefina to deliver the torrens title to and under the name of [Lagon] would have warranted the suspension of the five-year period agreed upon for the construction of a fully operational commercial building, as well as the transfer of the aforesaid bank to the property. This is so because absent such torrens title under the name of xxx [Lagon], no building permit for the construction of the buildings could be secured. Considering all the foregoing, the failure of xxx [Lagon] to cause the construction of the commercial building and the transfer of the bank to the property sold under the deed of sale executed between him and xxx Josefina was due to xxx [Lagon's] own fault. There was no need for xxx Josefina to make a notarized demand to xxx [Lagon] or file an action to rescind the deed of absolute sale to enable her to recover the ownership of the property. This is so because xxx Josefina and xxx [Lagon] had agreed that upon [his] failure to construct a new and fully operational commercial building and to cause the transfer of the

Q With in (sic) how many years, by the say (sic), were you supposed to comply with that condition by putting up a bank or a commercial building in that area? A Q Supposed to be five years, Sir. From when?

A According to the affidavit, from the time I purchased the property up to or from May 9, 1979 to 1984, Sir. xxx xxx xxx

In his letter to xxx Carlos, Jr., [Lagon], through counsel, admitted the binding effect of his affidavit as follows: It is hereby submitted therefore that there is in effect substantial compliance on the part of Mr. Lagon with regards to the additional condition laid down in his affidavit herein-referred to. If you deem it that Mr. Lagon has not satisfactorily complied with all the obligations you imposed upon him to do thereunder,

Rural Bank of Isulan to the property on or before May 9, 1984, the deed of absolute sale would be deemed null and void without need of any demand from xxx [Josefina and Atty. Calos Valdes, Jr. Such agreement is evidenced by the affidavit executed by xxx [Lagon] himself on April 27, 1981. We do not agree with xxx [Lagon's] contentions that xxx Josefina through her son and attorney-in-fact xxx Carlos, Jr., had agreed to the sale of a portion of the property, the construction of the PCIB branch office thereon, and the crediting of the amount paid by the PCIB to xxx [Lagon's] account, and deducted from the balance of the purchase price. In the first place, xxx [Lagon] failed to adduce a morsel of evidence that xxx Josefina had knowledge of the said agreement and had agreed thereto. Furthermore, xxx [Lagon] failed to adduce documentary evidence that xxx Josefina authorized her son and attorney-in-fact to enter into such an agreement. It bears stressing that xxx [Josefina] specifically and unequivocally required in the special power of attorney, as part of the consideration of the sale of the property to xxx [Lagon], the latter's obligation to construct a new and fully operational commercial building and transfer the Rural Bank of Isulan to the property. Had she agreed to modify the Special Power of Attorney she executed in favor of her son, xxx Carlos, Jr., for sure, she would have executed a document to that effect. She did not do so. xxx Carlos, Jr. could not lawfully bind xxx Josefina thereon because he was not so authorized to enter into such an agreement with xxx [Lagon]; neither can such authority be implied from the Special Power of Attorney xxx Josefina executed in favor of her son, xxx Carlos, Jr. In sum, then, xxx [Lagon] had no cause for specific performance against xxx [Josefina and Carlos Valdez, Jr.] However, xxx [Josefina and Carlos Valdez, Jr.] are obliged to refund to xxx [Lagon] the latter's partial payments for the subject property. (Words in brackets and parenthesis added; Emphasis supplied)

Clear it is from the above that on account of Lagon's failure to comply with the terms and conditions of the so-called first sale, this Court deemed that sale "null and void" without need of any demand from Josefina and her son Carlos Valdez, Jr. for Lagon to comply with the agreed terms and conditions attendant to that so-called first sale. With the reality that this Court in Valdez deemed the so-called first sale as null and void by reason of Lagon's breach of the express terms and conditions relative thereto before the second sale was entered into by and between Josefina and Delfin, the provisions of Article 1544 of the Civil Code on double sales do not apply. Josefina had full and complete ownership over the subject lot (Lot No. 3-D1) at the time of the second sale, the obligation to return to Lagon the sum of money originally received by her from the latter notwithstanding. This title and ownership of Lot No. 3-D-1 was effectively transferred from Josefina to Delfin with the issuance of a clean new transfer certificate of title in the name of Delfin upon the registration of the second sale. Finding the inapplicability of Article 1544 of the Civil Code to the present case, we see no need to address the legal issues raised in this petition for having become moot and academic. WHEREFORE, the instant petition is GRANTED and the assailed CA Decision and Resolution are hereby ANNULLED and SET ASIDE and a new one entered quieting the title of petitioner Rolendo T. Delfin over Lot No. 3-D-1, now covered by TCT No. 20380 in his name, and DISMISSING all counterclaims in Civil Case No. 779. Costs against respondent Jose V. Lagon. SO ORDERED.