G

G.R. No. 106042 February 28, 1994

RUFINA BAUTISTA, ALFREDO JR., LUZVIMINDA, MARIZA, JOSEPHINE, ALEJANDRO and AMELITA, all surnamed VALDEZ,petitioners,vs.HON. COURT OF APPEALS, HON. MARINA L. BUZON, SPOUSES DONALD SALVADOR and CRESENCIA SALVADOR,respondents.

Ricardo C. Valmonte for petitioners.

Felix R. Solomon for private respondents.

NOCON,J.:This is a petition for review of a decision of the Court of Appeals in the case entitled "Spouses Alfredo Valdez and Rufina Bautista v. Spouses Donald Salvador and Cresencia Salvador," (CA-G.R. CV No. 31620).1The background facts of the case as follows:

On August 10, 1983, spouses Alfredo Valdez and Rufina Bautista, herein petitioners,2purchased a parcel of land with an area of three hundred twenty six (326) square meters located in Barrio Maysilo (now Santolan), Malabon originally registered in the name of Dionisio Santiago.3Petitioners Valdez bought the subject property from Maria de la Cruz vda. de Santiago. The sale was effected in a deed of extrajudicial settlement with absolute sale executed in their favor.4In this instrument, vendors Maria dela Cruz and Jose Santiago, claiming to be the widow and son respectively of Dionisio Santiago, adjudicated unto themselves, as the only heirs of the deceased,5the latter's one half interest on the property covered by Transfer Certificate of Title No. 343919, which together with the one half share thereon of Maria dela Cruz vda. de Santiago, was sold to spouses Alfredo Valdez and Rufina Bautista for a consideration of P55,420.00. Consequently, Transfer Certificate of Title (TCT) No. 343919 was cancelled, and in lieu thereof, TCT No. 105231 was issued in the name of spouses Alfredo Valdez and Rufina Bautista.6In a letter sent by their counsel dated February 27, 1984, petitioners demanded that herein private respondents-spouses Donald and Cresencia Salvador show proof of their right to occupy the subject premises and to vacate the same.7After respondents failed to vacate the premises despite intervention by the barangay officials of the locality,8petitioners filed a complaint before the Regional Trial Court of Malabon for recovery of possession of property on July 1, 1988.9The actual possessors of the land in question, herein private respondents, represented by their attorney-in-fact Philip Salvador, claim ownership over the property after having bought the same on installments from the registered owner Dionisio Santiago. They allege that half of the property (163 sq. m.) was sold to them onDecember 20, 1974for P16,300.00.10Payment thereon was completed on October 15, 1981.11OnOctober 20, 1979the other half of the land was bought for P20,000.00, payment of which was received by Benjamina Magalong,12Dionisio Santiago's wife, allegedly because the latter was already too weak and sickly.

On February 28, 1991 the trial court rendered judgment dismissing the complaint for lack of merit and ordering the plaintiffs spouses Alfredo Valdez to pay defendants Salvador P5,000.00 for attorney's fees and to pay the costs of the suit.13The trial court found that there was a double sale of the immovable in question. Applying Article 1544 of the New Civil Code, the courta quoheld that as to half of the property in question, private respondents (Salvador spouses) had a preferential right as against (Valdez spouses) who were purchasers in bad faith.14The petitioners were taken to task for failing to make inquiry concerning the rights of private respondents who were in possession of the property.

In his testimony, plaintiff Alfredo Valdez stated that before he bought the property, he inquired from Maria dela Cruz about the house erected thereon and he was informed by the latter that she had allowed her relatives to build said house, with the understanding that they would vacate said property and remove their house should she need the property, and that he did not inquire from the defendants themselves why they have their house on the property nor inform them that he was buying said property (tsn, May 11, 1989, pp. 14-15). He likewise admitted that the property in question is only about one half kilometer away from his residence; that the defendants have their house on said property since 1970 and that Dionisio Santiago likewise had a house on said property where he lived with his common-law wife, Benjamina Magalong, while his legal wife, Maria dela Cruz, lives in another place in the same neighborhood, and that he did not talk to Benjamina Magalong (Ibid, pp. 7 and 10). In other words, plaintiffs merely relied on the statement of Maria dela Cruz that defendants were her relatives whom she had allowed to build a house on the property which she was offering to sell to them until such time that she needed the same, although they knew that Maria dela Cruz did not live on said property with her husband Dionisio Santiago, who resided thereon with his common-law wife Benjamina Magalong.Thus, had plaintiffs inquired from defendants themselves or from Benjamina Magalong by what right did defendants have a house on the property in question, before they bought the entire property, they could have been informed of the deed of sale executed by Dionisio Santiago in defendants' favor. As held inDe Guzman, Jr. v. Court of Appeals, 156 SCRA 701, 710:

The failure of appellees to take the ordinary precautions which a prudent man would have taken under the circumstances, specially in buying a piece of land in the actual, visible and public possession of another person, other than the vendor, constitutes gross negligence amounting to bad faith.

In this connection, it has been held that where, as in this case, the land sold is in the possession of a person other than the vendor, the purchaser is required to go beyond the certificate of title and mae (sic) inquiries concerning the rights of the actual possessor. Failure to do so would make him a purchaser in bad faith. (Incala vs. Mendoza, CA-G.R. No. 13677-R, November 9, 1965, De Jesus vs. Revilla, CA-G.R. No. 13562-R, October 5, 1965; Marcelino vs. Manikan, CA-G.R. No. 32792-R, June 22, 1956).

xxx xxx xxx

One who purchases real property which is in actual possession of another should, at least make some inquiry concerning the right of those in possession. The actual possession by other than the vendor should, at least put the purchaser upon inquiry. He can scarely (sic), in the absence of such inquiry, be regarded as a bona fide purchaser as against such possessors. (Conspecto vs. Fruto, 31 Phil. 144).15With respect to the other half of the property (163 sq. m.) the trial court ruled that petitioners had preferential right over the land. The sale made on December 20, 1979 by Benjamina Magalong in favor of private respondents had no force and effect.

. . . Not being the registered owner nor authorized by the registered owner, Benjamin Magalong had no right to sell the other half portion of the property covered by TCT No. 343919. Consequently, upon the demise of Dionisio Santiago on November 26, 1982, the latter's right over the one half portion of the property covered by TCT No. 343919 passed on to his legal heir, i.e., his wife Maria dela Cruz as appearing on the face of said certificate of title, as the other half was already sold by him to Donald Salvador, by virtue of the Deed of Absolute Sale dated December 20, 1974(Exh. "14").16On appeal,17appellants-spouses Valdez challenged the trial court's decision to award one half of the property to private respondents and claimed that they should have left the parties where they are pursuant to the doctrine of inpari delicto.18The Court of Appeals held that these points were already raised and resolved by the courta quo. Nevertheless, the court proceeded to examine the case. Relief prayed for by appellants was denied and the decision appealed from was affirmedin totoby respondent court.19Hence the instant petition, where the following issues are elevated:

I

PUBLIC RESPONDENTS MISAPPLIED ARTICLE 1544 OF THE NEW CIVIL CODE. THEIR HOLDING THAT PETITIONERS ARE IN BAD FAITH AND PRIVATE RESPONDENTS HAVE BETTER RIGHT OVER THE QUESTIONED PROPERTY IS AGAINST THE EVIDENCE AND ESTABLISHED PRINCIPLES OF LAW.

II

ASSUMING THAT PETITIONERS ARE IN BAD FAITH, PUBLIC RESPONDENTS ERRED WHEN THEY DID NOT LEAVE THE PARTIES WHERE THEY ARE CONSIDERING THAT PRIVATE RESPONDENTS SLEPT ON THEIR RIGHT FOR UNREASONABLE LENGTH OF TIME BY NOT REGISTERING THEIR ALLEGED DEED OF SALE.20The trial court already adjudged petitioners as having preferential right over one half of the subject property.21Hence the present controversy covers only the remaining one half of the land which the trial court adjudicated in favor of private respondents.

Petitioners theorize that public respondents (the Trial Court and the Court of Appeals) erred when they held the spouses Valdez to be purchasers in bad faith. They claim to have satisfied the legal requirement that "in order (for) a purchaser of land with a Torrens Title (to) be considered a purchaser in good faith, it is enough that he examines the latest certificate of title . . ."22Further, they maintain that they inquired from the vendors Maria dela Cruz vda. de Santiago and Jose Santiago, concerning the rights of private respondents who were in possession of the property.23The trial court held that plaintiffs spouses Valdez (herein petitioners) should have inquired from defendants spouses Salvador themselves or from Benjamina Magalong.24This requirement, petitioners argue, is unreasonable and pointless.

Firstly, because it exacts more than what the law requires from a buyer of land covered by a Torrens Title. Secondly, although the private respondents were given the opportunities to present their claim or ownership, the latter repeatedly failed to support their claim of over the property.25Thirdly, to inquire from Benjamina Magalong would be futile for she had no right to stay on the property, proof of which is her subsequent eviction.26We are not persuaded.

Before us is a case registered land which had been sold to two different persons.

The first sale was made by the registered owner Dionisio Santiago in favor of private respondents (spouses Salvador) on December 20, 1974.27It was never registered although private respondents have been in uniterrupted possession since 1970 up to the present, first as lessees and later on as owners.

The second sale was made by Dionisio Santiago's heirs, Maria dela Cruz vda. de Santiago and Jose Santiago, in favor of petitioners on August 10, 1983, nearly a year after the former's death. It was recorded and TCT No. 106251 was issued in the name of petitioners.

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 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.

Where the thing sold twice is an immovable, the one who acquires it and first records it in the Registry of Property, both made in good faith,28shall be deemed the owner. The requirement of the law then, is two-fold: acquisition in good faith and registration in good faith. Mere registration of title is not enough, good faith must concur with the registration.29To be entitled to priority, the second purchaser must not only establish prior recording of his deed but must have acted in good faith, without knowledge of the existence of another alienation by the vendor to another.30Who then is a purchaser in good faith?

In the early case ofLeung Yee v. F.L. Strong Machinery Co. and Williamson,31we explained the matter in this wise:

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 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 title of his vendor. . . . Good faith, or the lack of it, is in its last analysis a question of intention; but in ascertaining the intention by which one is actuated in a given occasion, we are necessarily controlled by the evidence as to the conduct and outward acts by which alone the inward motive may, with safety be determined. So it is that "honesty of intention," "the honest lawful intent," which constitutes good faithimplies a"freedom from knowledge and circumstances which ought to put a person on inquiry." and so it is that proof of such knowledge overcomes the presumption of good faith in which the courts always indulge in the absence of proof to the contrary. "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. (Wilder vs. Gilman, 55 Vt., 505;Cf.Cardenas vs. Miller, 108 Cal., 250 Breaux-Renoudet, Cypress Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8 10, 17.)

And more succintly inCui and Joven v. Henson32, we said:

A purchaser in good faith is one who buys property of another,without notice that some other person has a right to, or interest in, such property and pays a full and fair price for the same, at the time of such purchase, or before he has notice of the claim or interest of some other person in the property. Good faith consists in an honest intention to abstain from taking any unconscientious advantage of another. Good faith is an opposite of fraud and of bad faith, and its non existence must be established by competent proof.

Being a question of intention, good faith or the lack of it can only be ascertained from the circumstances surrounding the purchases of the land. We shall now analyze whether or not petitioners bought the land in good faith.

According to the trial court, petitioners should have inquired from the actual possessors, including private respondents, "by what right did they have for having a house on the property, before purchasing the entire property" and not merely from the vendors.33They claim that such a requirement is unreasonable and that their inquiry with the vendors is sufficient to make them buyers in good faith.

It is true that petitioners examined the certificate of title of Dionisio Santiago before they bought the lot and found it clean and without annotation of any encumbrance. And it is equally true that a person dealing with the owner of registered land is not bound to go beyond the certificate of title as he is charged with notice of burdens on the property which are noted on the face of the register or on the certificate of title.34However, it is important to note that petitioners did not buy the land from the registered owner, Dionisio Santiago. They bought it from his heirs, Maria dela Cruz and Jose Santiago.

Where a purchaser buys from one who is not the registered owner himself, the law requires a higher degree of prudence even if the land object of the transaction is registered. One who buys from one who is not the registered owner is expected to examine not only the certificate of title but all factual circumstances necessary for him to determine if there are any flaws in the title of the transferor, or in his capacity to transfer the land.35The trial court correctly cited our pronouncement that "(o)ne who purchases real property which is in the actual possession of others should at least, make some inquiry concerning the rights of those in possession. The actual possession by others (sic) than the vendor should, at least, put the purchaser upon inquiry. He can scarcely, in the absence of such inquiry, be regarded as abona fidepurchaser as against such possessors."36In order to fulfill of good faith, it is imperative for a purchaser of land which is possessed by persons not the vendor to inquire and investigate into the rights or title of those in possession. The absence of such inquiry will remove them from the realm ofbona fideacquisition.

Although petitioners made inquiry regarding the rights of private respondents to possess the subject property, this case involves certain peculiarities which lead us to affirm the respondent trial and appellate courts finding that petitioners are not purchasers in good faith.

While petitioners claim to have so inquired, they did so from the vendors who were not the registered owner. As we have seen from jurisprudence previously cited, buying land from one not the registered owner should have put the buyer on guard concerning facts which would acquaint him with defects in the title or capacity to transfer of the vendor.37In addition, petitioners admit that they reside only half a kilometer away from the property in question. This fact greatly facilitates such inquiry from the actual possessors and not only from the vendors. Furthermore, petitioner's husband Alfredo Valdez (plaintiff in the lower court) knew that private respondents have a house on the property in question which they have been occupying since 1970.38At the very least, they would have been apprised of the reputation of private respondents' possession since they are neighbors residing in the same locale.

As aptly put by the respondent:39As records bear it out, appellant had knowledge of circumstances which ought to have put them on an inquiry but they did not. Such failure to exercise ordinary care expected of real estate buyers necessarily means bearing the consequences of their own acts. . . . .

Regarding private respondents' failure to present evidence of their claim of title despite several opportunities to do so, the trial court adequately accounted for the same. If found that private respondent Cresencia Salvador was not a proper party in the barangay conciliation proceedings and that Donald Salvador was abroad at the time. Hence, her failure to present such evidence does not militate against private respondents' inculpability.40Next, petitioners argue that the land in question has not been properly identified and described in evidence for private respondents [viz. Exhibits 14 & 14-A (Deed of Sale dated December 20, 1974) do not describe which portion of land they refer; receipts of payment executed by Dionisio Santiago vary with respect to their subject lots; the deed of sale was executed December 1974 when payment was only completed on October 15, 1981; private respondents' evidence does not show that the land has been fully paid for because a number of Exhibits (16-A; 16-E; 16-M; 16-DD; 16-EE; and 16-GG) are no evidence of payments. They are incompetent and hearsay for not being properlyidentified.]41We are satisfied with the analysis and decision of the trial court regarding this matter Apart from petitioners' tenuous allegations, the identity of the subject property cannot be seriously doubted. It held:

The circumstances that the Deed of Absolute Sale dated December 20, 1974, covering one half portion of the property stated that the consideration of P16,300.00 was received by Dionisio Santiago from defendant Donald Salvador (Exh. "14"), whereas said amount was actually paid in installment for a period of almost seven (7) years, as shown by the receipts therefor (Exhs. "16"; and "16-A", to "16-TT"), does not affect the validity of the transaction. As explained by Philip Salvador, after the deed of sale was executed, Dionisio Santiago wanted a full payment of the consideration but since he and Donald Salvador did not have money, they agreed to have the consideration paid in installment and that the copy of said deed of sale was given to him and Donald Salvador by Dionisio Santiago only upon full payment of the consideration of P16,300.00 (tsn September 21, 1990, pp. 6-7). Moreover, defendant Donald Salvador started paying the realty taxes on the property owned by Dionisio Santiago beginning with the year 1975-76 (Exhs. "8", "9", "11", "12" and "13").

In their Memorandum, plaintiffs pointed out the property allegedly sold by Dionisio Santiago to defendant Donald Salvador was not properly identified as the deed of sale refers to one half portion of Lot 14-B situated at Maysilo St., Municipality of Malabon, whereas TCT No. 343919 covering said property states that it is situated in Barrio Maysilo, Municipality of Malabon and there is a wide difference between street and barrio. No significance can be attributed to such circumstances. The deed of sale expressly mentioned that the one half portion of the property (Lot 14-B) sold to Donald Salvador by Dionisio Santiago is covered by TCT No. 343919. In fact plaintiffs (herein petitioners) tax declaration covering the property in question, attached as Annex "B" to their Complaint, also states that the property is located at Maysilo Street. And as alleged in paragraph 3 of the Complaint, Barangay Maysilo is now called Santulan.42Lastly, petitioners advance the theory that, even assuming petitioners to be purchasers in bad faith, public respondents should have left the parties where they are since both are at fault. Private respondents are equally to blame for failing to register the alleged sale from the time they possessed the Deed of Absolute Sale (October 15, 1981) to the time petitioners purchased the property (August 10, 1983), an unreasonable period of one year and ten months. It is because of this omission that the present controversy arose, hence private respondents should be held responsible and the parties held to be inpari delicto.43The circumstances between the parties cannot qualify as being inpari delictofor they are not similarly situated.

The trial court already held worthy of credence private respondents' testimony that they were not able to register said deed of sale after they had paid the last installment to Dionisio Santiago because the latter could no longer locate his copy of the transfer certificate of title.44We respect the findings of the trial court on this factual matter, it being a better judge of the witness's demeanor at the time he is called to the stand.

We also do not find private respondents equally blameworthy for failing to register during the period of time cited above by petitioners. The uninterrupted possession of the property may have fostered complacency but their omission to register within this period cannot constitute a situation of inpari delicto.

WHEREFORE, the instant petition is DISMISSED.

SO ORDERED.

G.R. No. 156973 June 4, 2004SPOUSES TOMAS OCCEA and SILVINA OCCEA,petitioners,vs.LYDIA MORALES OBSIANA ESPONILLA, ELSA MORALES OBSIANA SALAZAR and DARFROSA OBSIANA SALAZAR ESPONILLA,respondents.

D E C I S I O N

PUNO,J.:The case at bar involves a portion of the 1,198-square meter residential lot (lot no. 265) situated in Sibalom, Antique, originally owned by spouses Nicolas and Irene Tordesillas under OCT No. 1130. The Tordesillas spouses had three (3) children, namely: Harod, Angela and Rosario, the latter having been survived by her two (2) children, Arnold and Lilia de la Flor.

After the death of the Tordesillas spouses, the lot was inherited by their children Harod and Angela, and grandchildren Arnold and Lilia. In 1951, the heirs executed aDeed ofPacto de RetroSale1in favor of Alberta Morales covering the southwestern portion of the lot with an area of 748 square meters.Three (3) years later, in1954,Arnold and Lilia executed aDeed of Definite Sale of Shares, Rights, Interests and Participations2over the same 748 sq. m. lot in favor of Alberta Morales.The notarized deed also attested that the lot sold by vendors Arnold and Lilia to Alberta were their share in the estate of their deceased parents.

Alberta possessed the lot as owner, constructed a house on it and appointed a caretaker to oversee her property.Thereafter, in July 1956, vendor Arnold de la Flor borrowed the OCT from Alberta covering the lot. He executed an Affidavit3acknowledging receipt of the OCT in trust and undertook to return said title free from changes, modifications or cancellations.

In 1966, Arnold and Angela, nephew and daughter respectively of the Tordesillas spouses, without the knowledge of Alberta, executed aDeed of Extrajudicial Settlement4declaring the two of them as the only co-owners of the undivided 1,198 sq. m. lot no. 265, without acknowledging their previous sale of 748 sq. m. thereof to Alberta.A number of times, thereafter, Alberta and her nieces asked Arnold for the OCT of the land but Arnold just kept on promising to return it.

In 1983, Arnold executed anAffidavit of Settlement of the Estate5of Angela who died in 1978 without issue, declaring himself as the sole heir of Angela and thus consolidating the title of the entire lot in his name.

In 1985, vendeeAlberta Morales died. Her nieces-heirs,Lydia, Elsa and Dafrosa,succeeded in the ownership of the lot.Months later, as the heirs were about to leave for the United States, they asked Arnold to deliver to them the title to the land so they can register it in their name. Arnold repeatedly promised to do so but failed to deliver the title to them.

On December 4, 1986, after Albertas heirs left for the States, Arnold used the OCT he borrowed from the deceased vendee Alberta Morales,subdivided the entire lotno. 265into three sublots, and registered them all under his name,viz:lot no. 265-A (with TCT No. 16895), lot no. 265-B (with TCT No. 16896) and lot no. 265-C (with TCT No. 16897). He then paid the real estate taxes on the property.

On August 13, 1990, Arnold sold lot nos. 265-B & C to spouses Tomas and Sylvina Occea, which included the 748 sq. m. portion previously sold to Alberta Morales. A Deed of Absolute Sale6over said lots was executed to the Occea spouses and titles were transferred to their names.

In 1993, after the death of Arnold, the three (3) nieces-heirs of Alberta Morales learned about the second sale of their lot to the Occea spouses when they were notified by caretaker Abas that they were being ejected from the land. In 1994,the heirs filed a case7for annulment of sale and cancellation of titles, with damages, against the second vendees Occea spouses. In their complaint, they alleged that the Occeas purchased the land in bad faith as they were aware that the lots sold to them had already been sold to Alberta Morales in 1954. They averred that before the sale, when Tomas Occea conducted an ocular inspection of the lots, Morito Abas, the caretaker appointed by Alberta Morales to oversee her property, warned them not to push through with the sale as the land was no longer owned by vendor Arnold as the latter had previously sold the lot to Alberta Morales who had a house constructed thereon.

For their part, the Occea spouses claimedthat the OCT in the name of the original owners of the lots, the Tordesillas spouses, was cancelled after it was subdivided between Angela and Arnold in 1969; that new TCTs had been issued in the latters names; that they were unaware that the subject lots were already previously sold to Morales as they denied that Tomas had a talk with caretaker Abas on the matter; that as of December 4, 1987, the TCTs covering the lots were in the name of Arnold and his wife, without any adverse claim annotated thereon; that vendor Arnold represented to them that the occupants they saw on the land were squatters and that he merely tolerated their presence; thatthey did not personally investigate the alleged squatters on the land and merely relied on the representation of vendor Arnold;that sometime in 1966-1967, Arnold and his co-heir Angela caused the survey of the original lot and subdivided it into 3 lots, without opposition from Morales or her heirs. Thus, three (3) TCTs were issued in 1969 to Arnold and Angela and, two of the lots were then sold to the Occea spouses, again without objection from Alberta Morales.

The Occea spouses alleged that they were buyers in good faith as the titles to the subject lots were free from liens or encumbrances when they purchased them. They claimed that in 1989, Arnold offered to sell the subject lots to them. On August 13, 1990, after they verified with the Antique Registry of Deeds that Arnolds TCTs were clean and unencumbered, Arnold signed the instrument of sale over the subject lots in favor of the Occeas forP100,000.00 and new titles were issued in their names.

The Occeas likewise set up the defenses of laches and prescription. They argue that Alberta and plaintiffs-heirs were barred from prosecuting their action as they failed to assert their right for forty (40) years. Firstly, they point out that vendor Arnold and Angela subdivided the entire lot in 1966 and declared themselves as the only co-owners thereof in the deed of extrajudicial settlement. Alberta Morales failed to oppose the inclusion of her 748 sq. m. lot in the deed. Thus, the title to the entire lot no. 256 was transferred to the names of Arnold and Angela. Secondly, preparatory to the division of the lots, vendor Arnold had the land surveyed but Alberta again failed to oppose the same. Finally, Alberta and her heirs who are claiming adverse rights over the land based on the 1951 Deed of Pacto de Retro Sale and the 1954 Deed of Definite Sale of Shares failed for 40 years to annotate their adverse claims on the new titles issued to Arnold and Angela, enabling the latter to possess a clean title and transfer them to the Occea spouses.

After trial, the lower court rendered a decision declaring the Occea spouses as buyers in good faith and ruled that the action of the heirs was time-barred.

On appeal by Albertas heirs, the Court of Appeals reversed the decision of the trial court. It found that the Occeas purchased the land in bad faith and that the action filed by Albertas heirs was not barred by prescription or laches. The dispositive portion reads:

WHEREFORE,the instant appeal is herebyGRANTED.Accordingly, the assailed decision is herebyREVERSEDandSET ASIDEand a new one is rendered declaring the Deed of Absolute Sale dated August 13, 1990 executed between Arnold de la Flor in favor of defendants-appellees null and void and ordering the cancellation of Transfer Certificate of Title Nos. 16896, 16897, T-18241 and T-18242.

SO ORDERED.8Hence this appeal where petitioner-spouses Occea raise the following issues:

IWHETHER OR NOT A VERBAL INFORMATION COULD BE MADE TO PREVAIL OVER A CLEAN CERTIFICATE OF TITLE OF A REGISTERED LAND WHICH IS FREE OF ANY LIEN OR ENCUMBRANCE ANNOTATED ON ITS CERTIFICATE OF TITLE OR ANY ADVERSE CLAIM RECORDED WITH THE REGISTER OF DEEDS.

II

WHETHER OR NOT A BUYER OF A REGISTERED LAND IS OBLIGATED TO MAKE INQUIRIES OF ANY POSSIBLE DEFECT OR ADVERSE CLAIM AFFECTING ITS OWNERSHIP WHICH DOES NOT APPEAR ON THE CERTIFICATE OF TITLE.

III

WHETHER OR NOT THE PERIOD OF MORE THAN FORTY (40) YEARS WITHOUT POSITIVE ACTION TAKEN BY RESPONDENTS, AS WELL AS BY ALBERTA MORALES, TO PROTECT THEIR INTEREST CAN BE CONSIDERED LACHES AND THUS THEIR PRESENT ACTION HAS PRESCRIBED.On thefirst two issues,petitioner-spouses claim that they were purchasers of the land in good faith as the law does not obligate them to go beyond a clean certificate of title to determine the condition of the property. They argue that a person dealing with registered land is only charged with notice of the burden on the property annotated on the title. When there is nothing on the title to indicate any cloud or vice in the ownership of the property or any encumbrance thereon, the purchaser is not required to explore further than the title in quest of any hidden defect or inchoate right that may subsequently defeat his right thereto. They claim they had every right to purchase the land despite the verbal warning made by caretaker Abas as the information was mere hearsay and cannot prevail over the title of the land which was free from any encumbrance.

Their arguments do not persuade.

The petition at bar presents a case of double sale of an immovable property. Article 1544 of the New Civil Code provides that in case an immovable property is sold to different vendees, the ownership shall belong: (1) to the person acquiring itwho in good faith first recorded itin the Registry of Property; (2) should there be no inscription, the ownership shall pertain tothe person who in good faith was first in possession;and, (3) in the absence thereof, to the person who presents the oldest title, provided there is good faith.

In all cases, good faith is essential. It is the basic premise of the preferential rights granted to the one claiming ownership over an immovable.9What is material is whether the second buyer first registers the second sale in good faith,i.e.,without knowledge of any defect in the title of the property sold.10The defense of indefeasibility of a Torrens title does not extend to a transferee who takes the certificate of title in bad faith, with notice of a flaw.11The governing principle ofprius tempore, potior jure(first in time, stronger in right) enunciated under Art. 1544 has been clarified, thus:

x x x Knowledge by the first buyer of the second sale cannot defeat the first buyers rights except when the second buyer first registers in good faith the second sale(Olivares vs. Gonzales, 159 SCRA 33).Conversely,knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since such knowledge taints his registration with bad faith(see alsoAstorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984).InCruz vs. Cabaa(G.R. No. 56232, 22 June 1984, 129 SCRA 656), it was held thatit is 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(citingCarbonell vs. Court of Appeals,69 SCRA 99 andCrisostomo vs. CA, G.R. No. 95843, 02 September 1992).12In the case at bar, we find that petitioner-spouses failed to prove good faith in their purchase and registration of the land. Apurchaser in good faith and for valueis one who buys property without notice that some other person has a right to or interest in such property and pays its fair price before he has notice of the adverse claims and interest of another person in the same property. So it is that the "honesty of intention" which constitutes good faith implies afreedom from knowledge ofcircumstances which ought to put a person on inquiry.At the trial, Tomas Occea admitted that he found houses built on the land during its ocular inspection prior to his purchase. He relied on the representation of vendor Arnold that these houses were owned by squatters and that he was merely tolerating their presence on the land. Tomas should have verified from the occupants of the land the nature and authority of their possession instead of merely relying on the representation of the vendor that they were squatters, having seen for himself that the land was occupied by persons other than the vendor who was not in possession of the land at that time. The settled rule is thata buyer of real property in the possession of persons other than the seller must be wary and should investigate the rights of those in possession. Without such inquiry, the buyer can hardly be regarded as a buyer in good faith and cannot have any right over the property.13A purchaser cannot simply close his eyes to facts which should put a reasonable man on his guard and then claim that he acted in good faith under the belief that there was no defect in the title of his vendor.14His mere refusal to believe that such defect exists or his willful closing of his eyes to the possibility of the existence of a defect in his vendors title will not make him an innocent purchaser for value if it later develops that the title was in fact defective, and it appears that he would have notice of the defect had he acted with that measure of precaution which may reasonably be required of a prudent man in a similar situation.

Indeed, the general rule is that one who deals with property registered under the Torrens system need not go beyond the same, but only has to rely on the title. He is charged with notice only of such burdens and claims as are annotated on the title. However, this principle does not apply when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property in litigation. One who falls within the exception can neither be denominated an innocent purchaser for value nor a purchaser in good faith.15The evidence of the private respondents show that when Tomas Occea conducted an ocular inspection of the land prior to the second sale, Abas, the caretaker of the house which Alberta Morales built on the land, personally informed Tomas that the lot had been previously sold by the same vendor Arnold to Alberta Morales. With this information, the Occeas were obliged to look beyond the title of their vendor and make further inquiries from the occupants of the land as to their authority and right to possess it. However, despite this information about a prior sale, the Occeas proceeded with the purchase in haste. They did not inquire from Abas how they could get in touch with the heirs or representatives of Alberta to verify the ownership of the land. Neither do the records reveal that they exerted effort to examine the documents pertaining to the first sale. Having discovered that the land they intended to buy was occupied by a person other than the vendor not in actual possession thereof, it was incumbent upon the petitioners to verify the extent of the occupants possessory rights.16The Occeas did nothing and chose to ignore and disbelieve Abas statement.

On thethird issue,we hold that the action to annul title filed by respondents-heirs is not barred by laches and prescription.Firstly,laches is a creation of equity and its application is controlled by equitable considerations. Laches cannot be used to defeat justice or perpetuate fraud and injustice. Neither should its application be used to prevent the rightful owners of a property from recovering what has been fraudulently registered in the name of another.17Secondly,prescription does not apply when the person seeking annulment of title or reconveyance is in possession of the lot because the action partakes of a suit to quiet title which is imprescriptible.18In this case, Morales had actual possession of the land when she had a house built thereon and had appointed a caretaker to oversee her property. Her undisturbed possession of the land for a period of fifty (50) long years gave her and her heirs a continuing right to seek the aid of a court of equity to determine the nature of the claim of ownership of petitioner-spouses.19As held by this Court inFaja vs. Court of Appeals:20x x x There is settled jurisprudence thatone who is in actual possession of a piece of land claiming to be owner thereof may wait until his possession is disturbed or his title attacked before taking steps to vindicate his right, the reason for the rule being, that his undisturbed possession gives him a continuing right to seek the aid of a court of equity to ascertain and determine the nature of the adverse claimand its effect on his own title, which right can be claimed only by one who is in possession. x x xThe right toquiet title to the property, seek its reconveyance andannul any certificate of title covering it accrued only from the time the one in possession was made aware of a claim adverse to his own, and it is only then that the statutory period of prescription commences to run against such possessor.In the case at bar, Morales caretaker became aware of the second sale to petitioner-spouses only in 1991 when he received from the latter a notice to vacate the land. Respondents-heirs did not sleep on their rights for in 1994, they filed their action to annul petitioners title over the land. It likewise bears to stress that when vendor Arnold reacquired title to the subject property by means of fraud and concealment after he has sold it to Alberta Morales, a constructive trust was created in favor of Morales and her heirs. As the defrauded parties who were in actual possession of the property, an action of the respondents-heirs to enforce the trust and recover the property cannot prescribe. They may vindicate their right over the property regardless of the lapse of time.21Hence, the rule that registration of the property has the effect of constructive notice to the whole world cannot be availed of by petitioners and the defense of prescription cannot be successfully raised against respondents.

In sum, the general rule is that registration under the Torrens system is the operative act which gives validity to the transfer of title on the land. However, it does not create or vest title especially where a party has actual knowledge of the claimants actual, open and notorious possession of the property at the time of his registration.22A buyer in bad faith has no right over the land. As petitioner-spouses failed to register the subject land in good faith, ownership of the land pertains to respondent-heirs who first possessed it in good faith.

IN VIEW WHEREOF,the petition isDISMISSED. No costs.

SO ORDERED.G.R. No. L-34500 March 18, 1988

MOISES OLIVARES and JUANITA T. OLIVARES,petitioners-appellants,vs.THE HONORABLE CARLOS V. GONZALES as Judge of the Court of First Instance of Iloilo (Branch VI), respondent and JACINTO TUVILLA, CEFERINO TUVILLA, and JUAN TUMABINI,respondents-appellees.

Mario Guarina III for petitioners-appellants.

Enrique Arguelles for respondents-appellees.

MELENCIO-HERRERA,J.:The Disputed Property is a piece of unregistered land located at Tigbauan, Iloilo Identified as Assessor's Lot No. 343. It was previously owned by respondents-appellees Jacinto Tuvilla and Ceferino Tuvilla (the Tuvillas, for short) both of Tigbauan, Iloilo.

Sometime in 1955, the Tuvillas executed a "Deed of Sale with Right to Repurchase" in favor of respondent-appellee Juan Tumabini over the Disputed Property in consideration of the sum of P1,350.00. The document was duly acknowledged before a Notary Public but was not recorded in the Registry of Property.

Sometime in 1959, the Tuvillas executed a "Deed of Sale with Pacto de Retro" over the Disputed Property in favor of petitioners- appellants, Moises Olivares and Juanita T. Olivares (the Olivareses, for short). This document was acknowledged before a Notary Public and registered with the Registry of Deeds. In 1966, the Tuvillas also executed in favor of the Olivareses a "Deed of Absolute Sale" covering the Disputed Property. Petitioners-appellants have been in possession of the Disputed Property since 1959.

On October 11, 1967, respondent-appellee, Juan Tumabini filed Civil Case No. 7410 before Branch I of the then Court of First Instance of Iloilo against the Tuvillas for the consolidation of ownership over the Disputed Property by reason of the alleged failure of the Tuvillas to redeem the property from Tumabini (hereinafter referred to as the Consolidation Case). The Olivareses, however, were not included as parties to the said case.

During the pre-trial of the Consolidation Case, counsel for the parties agreed to consider thepacto de retrosale as one of equitable mortgage. Thus, the Trial Court rendered judgment in favor of Tumabini in the amount of P 1,350.00, pursuant to which, the Court subsequently issued a Writ of Execution on October 23, 1968.

On November 23, 1968, the Olivareses instituted Civil Case No. 7777 before Branch VI of the former Court of First Instance of Iloilo, for Quieting of Title, against the Tuvillas, Juan Tumabini the Provincial Sheriff and Pyramid Surety (hereinafter, the Quieting of Title Case). The said Court issued a Restraining Order to stop the sale in the Consolidation Case (No. 7410) pending in Branch 1, but the said order was lifted on February 6, 1969.

Subsequently, the Consolidation Case (No. 7410), the Disputed Property was sold at public auction and a Writ of Possession was issued in Tumabinis favor. However, the tenant of the Olivareses refused to surrender possession, prompting a citation for contempt. Action thereon was deferred, however, pending termination of Civil Case No. 7777.

On July 7, 1970, in the Quieting of Title Case (No. 7777), the Trial Court issued an Order dismissing said case, as follows:

Acting upon the motion for dismissal of this case filed by Atty. Enrique Arguelles, counsel for the defendants, it appearing that the instant action has been filed since November 23, 1968 and up to this time plaintiffs failed to exert effort to have the defendants summoned, for failure to prosecute and lack of interest on the part of the plaintiffs for such unreasonable length of time, as prayed, let this case be dismissed

No reconsideration was sought nor any appeal taken by the Olivareses.

On July 14, 1971, the same case was refiled, also in Branch VI, docketed as Civil Case No. 8698 (the Refiled Case) which, however, was dismissed by the Court on September 6, 1971 "it appearing that Civil Case No. 7777 previously filed and dismissed by the Court embraces the same subject matter and the same party litigants as the case at bar."

On September 20, 1971, the Court denied the Motion for Reconsideration filed by the Olivareses. Hence, this appeal by certiorari.

The question posed is whether the dismissal of the Quieting of Title Case (No. 7777) "for failure to prosecute" barred the institution of a subsequent suit, Civil Case No. 8698, by the same plaintiff against the same defendants on the same cause of action. Section 3, Rule 17 of the Rules of Court specifically provides:

Sec. 3. Failure to prosecute. If plaintiff fails to appear at the time of the trial, or to prosecute his action for an unreasonable length of time, or to comply with these rules or any order of the court, the action may be dismissed upon motion of the defendant or upon the court's own motion. This dismissal shall have the effect of an adjudication upon the merits, unless otherwise provided by the court.

Procedurally speaking, therefore, since the dismissal by the Trial Court was unqualified, it had the effect of an adjudication upon the merits.

However, the equities of the case are with the Olivareses. The first sale withpacto de retroby the Tuvillas to Tumabini was unregistered; in contrast, the sale in favor of the Olivareses was duly recorded. The Consolidation Case (Case No. 7410) instituted by Tumabini against the Tuvillas for consolidation of his ownership did not include the Olivareses as parties defendants even though they were then in possession of the Disputed Property. Justice and equity demand, therefore, that their side be heard in the Refiled Case (No. 8698). Then, too, the contempt incident and the matter of the Writ of Possession in the Consolidation Case (No. 7410) were left unresolved pending the outcome of the Quieting of Title Case (No. 7777).

In other words, it would be more in keeping with substantial justice if the controversy between the parties to be resolved on the merits rather than on a procedural technicality in the light of the express mandate of the Rules that they be "liberally construed in order to promote their object and to assist the parties in obtaining just, speedy and inexpensive determination of every action and proceeding." The dismissal of actions is based on sound judicial discretion and such discretion "must be exercised wisely and prudently never capriciously, with a view to substantial justice." For having failed to meet that standard it will have to be held that respondent Judge acted with grave abuse of discretion (see Tandoc vs. Tensuan, I, 50835, October 30, 1979, 93 SCRA 880).

WHEREFORE, the questioned Order of dismissal, dated September 6, 1971, in Civil Case No. 8698, is hereby SET ASIDE and the said case REMANDED for prompt hearing and determination on the merits. This Decision shag be immediately executory upon promulgation. No costs.

SO ORDERED.

G.R. No. 103959 August 21, 1997

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.

HERMOSISIMA, 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 affirmedin totothe 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 his two brothers, Narciso Arcega1and 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, seeing to declare null ad 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.).2In ruling for private respondent, the trial court, as affirmedin totoby 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 defendants3being members of the SSS, Paula Arcega 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 defendants and thereafter the later mortgaged the same for P30,000.00 but the amount actually released was only P25,000.00. Paula Arcega spent the initial amount of P30,000.000 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 a 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 the 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 the 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 Josefna Arcega in her unguarded moment unwittingly told the truth that the 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 the spouses Santiago but the lot is bought by you and Rosita?

A Because at that time, the couple4borrowed 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)5On 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 withSuntay v.Court of Appeals.6There, a certain Federico Suntay was the registered owner of a parcel of land in Sto. Nio, 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, 1969,7Federico 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] . . . 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 land 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

. . . 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.8In 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,9while 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, 1985.10If, indeed, the transaction entered into by the petitioners 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, and legitimate vendee of real property who paid for the property with good money will 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 a 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."11Furthermore, 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.12The 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.13Where 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 conveyed(sic) in favor of the defendants JOSEFINA ARCEGA and the spouse 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 the 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.).14Moreover, 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.15Here, the records are devoid of any indication that petitioners ever objected to the admissibility of parole evidence introduced by the 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 a party to object thereto.16Petitioners have no one to blame but themselves in this regard.

Finally, petitioners argue that private respondent's 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. 1141. The following actions must be brought withinten yearsfrom 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 withinfour 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."17As 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.18But 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.19In 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.20WHEREFORE, premises considered, the petition is hereby DENIED with costs against petitioners.

SO ORDERED.

G.R. No. L-2263 May 30, 1951PAZ Y. OCAMPO, JOSEFA Y. OCAMPO, ISIDRO Y. OCAMPO, GIL Y. OCAMPO, MAURO Y. OCAMPO, and VICENTE Y. OCAMPO,plaintiffs-appellees,vs.CONRADO POTENCIANO, VICTOR POTENCIANO and LOURDES POTENCIANO,defendants.VICTOR POTENCIANO and LOURDES POTENCIANO,defendants-appellants.

Salvador P. de Tangle for appellants.Amado A. Yatco and Rosendo J. Tansinsin for appellees.REYES,J.:This is an appeal bycertiorariform a decision of the Court of Appeals.

From the findings of fact of said court, which are conclusive for the purposes of this appeal, it appears that on February 3, 1930, Edilberto Ocampo, married to Paz Yatco, executed a deed purporting to convey to his relative, Conrado Potenciano, and the latter's wife, Rufina Reyes, by way of sale withpacto de retrofor the sum of P2,5000, a town a lot with a house as strong materials standing thereon. On that same day, Ocampo signed another document, making it appear that, for an annual rental of P300, which, as may be noted, is equivalent to 12 per cent of the purchase price, the vendees were leasing to him the house and lot for the duration of the redemption period.

The property involved in the above transaction is located at the center of the poblacion of Bian, Laguna, and in the opinion of the Court of Appeals, worth between 20 and 25 pesos. Though registered in the name of Ocampo alone, it in reality belonged to him and his wife as conjugal property.

The period originally fixed for the repurchase was one year, "extendible to another year," but several extensions were granted, with the vendor paying part of the principal in addition to interests. The last extension granted was for year from February 3, 1937, and the period having elapsed without the repurchase having been made, Potenciano, on January 24, 1939, filed with the register of deeds of Laguna an affidavit for the consolidation of title, on the strength which the register of deeds issued transfer certificate of title no. 18056 in the name of Potenciano and his wife. This, however, did not close the avenue for settlement, for on February 28, 1939, with Edilberto Ocampo and Rufina Reyes already dead, Potenciano gave Paz Yatco an option to repurchase the property for P2,500 within 5 years, and a lease thereon for the same period of time at annual rental of P300 which, as may again be noted, is equivalent to 12 per cent of the purchase price. On or about February 7, 1944, Paz Yatco sought to exercise the option by tendering to Potenciano at his clinic in Manila the sum of P4,000 an amount sufficient to cover both principal and interest, and upon the tender being rejected, deposited the money in court and brought an action in her own name and as judicial administratrix of the estate of her deceased husband to compel Potenciano to accept it and to have the title to the property reinstated in her name and that of her husband.

Intervening in the case, Potenciano's children, Victor and Lourdes, filed a cross-complaint, alleging that the option to purchase granted by their father to plaintiff on February 28, 1939, was null and void as to the share of their deceased mother Rufina Reyes in the property in litigation, which share passed to them by right of inheritance, and that as to their father's share in the same property they, the intervenors, were exercising the right of redemption accorded by law to co-owners of property held in common, for which purpose they had already tendered him the sum of P1,250 on the fifth day after they learned of said option through plaintiff's complaint. To meet these allegations, plaintiff amended her complaint by including the intervenors as defendants and alleging, in effect, that thepacto de retrosale in question was in reality a mortgage to secure a pre-existing debt, with the rental contract thrown in to cover the stipulated interest of 12 per cent; that the option agreement for the repurchase of the property within five years from February 28, 1939, and for the payment of rental for that period in an amount equal to an annual interest of 12 per cent on the loan, was also meant to be in reality an extension of the life of the mortgage; and that the tender of payment was valid, the same having been made within the extended period. The Court of First Instance, after trial, upheld these allegations and gave judgment in favor of the children of Edilberto Ocampo and Paz Yatco, who had substituted the latter after her death.

When the case was elevated to the Court of Appeals, that court took a somewhat different view and rendered judgment declaring:

(a) That contract Exhibit A entered into between Edilberto Ocampo and Conrado Potenciano was one of mortgage, with interest at the rate of 12 per cent per annum;

(b) That the "option to purchase" and the "contract of lease" (Exhibit E and E-1) were validly executed by defendant Conrado Potenciano and binding upon the property in litigation;

(c) That appellants were not co-owners of said property, by inheritance of one-half of the same from their deceased mother Rufina Reyes;

(d) That appellants were not entitled to exercise the right of legal redemption (retracto legal) of the other half of the property belonging to their father Conrado Potenciano;

(e) That the late Paz Yatco exercised her option to purchase the property in litigation within the time she had to do so;

(f) That the consignation of the P4,000 in Japanese military notes, made with the Clerk of the Court of First Instance of Laguna in payment of the property in question, was in accordance with the law and relieved the heirs of the spouses Ocampo-Yatco from paying anew said purchase price;

(g) Ordering defendant Conrado Potenciano to execute the corresponding deed of conveyance, sufficient in law to transfer the title of the property in litigation to the heirs of the deceased spouses Edilberto Ocampo and Paz Yatco; and

(h) Ordering the Register of Deeds of Laguna to cancel transfer certificate of title No. 18056 (Exhibit 1) and issue in lieu thereof a new transfer certificate of title for said property in favor of the heirs of the spouses Edilberto Ocampo and Paz Yatco, upon payment by appellees of the corresponding fees and the registration in his office of the deed of conveyance mentioned in the next preceding paragraph.

This judgment that is now before us for review.

First thing to be noted is that the Court of Appeals found and it is not disputed that thepacto de retrosale made by Edilberto Ocampo in favor of Conrado Potenciano and his wife was in reality a loan with security or an equitable mortgage, with simulated rental for interest. Such being the case, the lenders had no right, through the unilateral declaration of one or both them, to consolidate title in themselves over the property given as security. The consolidation of title effected by Potenciano in this case was, therefore, null and void.

The Court of Appeals, however, held that the mortgage contract was superseded, through novation, by the option agreement for the repurchase of the property mortgaged, and the appellants now contend that this war error because Potenciano had no authority to enter into that agreement after the death of his wife. To this contention we have to agree. The Court of Appeals erred in supposing that the surviving spouse had such authority asde factoadministrator of the conjugal estate. As pointed out by appellants, the decisions relied on by that court in support of its view are now obsolete. Those decisions laid down the rule that, upon the dissolution of the marriage by the death of the wife, the husband must liquidate the partnership affairs. But the procedure has been changed by Act No. 3176 (approved on November 24, 1924), now section 2, Rule 75, of the Rules of Court, which provides that when the marriage is dissolved by the death of either husband or wife, the partnership affairs must be liquidated in the testate or intestate proceedings of the deceased spouse (Moran, Comments on the Rules of Court, 3rd ed., Vol. II, p. 324).

Furthermore, there is ground to believe that, as alleged by the appellees, the option agreement in question was nothing more than mere extension of time for the payment of the mortgagee debt, since in the mind of the parties the real transaction had between them was that of loan with security, or equitable mortgage, though as is usual in these cases, it was given the form of sale with right to repurchase.

It follows from the foregoing that at the time Paz Yatco made the tender of payment and consigned the necessary amount in court, the said contract of loan with security was still in effect, and as the tender was made in legal currency (Haw Piavs.China Banking Corporation,*45 O.G. [Supp. 9] 229), the tender and consignation must be held to produce their legal effect, which is that of relieving the debtor from liability. (Art. 1176, Civil Code; Limkakovs.Teodoro, 74 Phil., 313.)

Under this view of the case, it is not necessary to consider the claim of the appellants Victor Potenciano and Lourdes Potenciano and that the Court of Appeals erred in not declaring them owners of the property in question, they having inherited one-half of it from their mother and acquired the other half from their father in the exercise of their right of legal redemption as co-owners. As ownership in the property never passed to their parents, these appellants acquired nothing.

Wherefore, with the modifications of the judgment below, let judgment be entered, declaring the obligation evidenced by Exhibit "A", which is hereby held to be mere contract of loan with security or equitable mortgage, already discharged, and ordering the Register of Deeds of Laguna to cancel transfer certificate of title No. 18056 and to issue in lieu thereof a new certificate of title for said property in favor of the heirs of the spouses Edilberto Ocampo and Paz Yatco upon payment of the corresponding fees. With costs against the appellants.

G.R. No. L-59514 February 25, 1988

PACIANO REMALANTE,petitioner,vs.CORNELIA TIBE and THE COURT OF APPEALS,respondents.

CORTES,J.:Disputed in this case is the ownership of six (6) parcels of land. The trial court awarded three (3) parcels to petitioner and the other three (3) to private respondent, but the Court of Appeals held otherwise and awarded all six (6) to private respondent. Hence the instant petition.

In a complaint filed before the trial court, private respondent Cornelia Tibe, as plaintiff, sought the annulment of certain contracts and other documents which became the bases for the transfer of six (6) parcels of land from private respondent to petitioner Paciano Remalante, the defendant below. Private respondent claimed that petitioner, through fraud, deceit, abuse of confidence and misrepresentation, induced her to sign three (3) affidavits of transfer (Exhibits I-3, K and M), purported to be bail bonds, that transferred three (3) parcels of land under Tax Declaration Nos. 20280, 20273 and 20274 to petitioner. Petitioner thereafter presented the affidavits to the Provincial Assessor and caused the three (3) parcels of land to be declared under Tax Declaration Nos. 20323, 20324 and 20325.

Private respondent also claimed that petitioner forged her signature in a deed of absolute sale (Exhibit 22) whereby her other three parcels of land described under Tax Declaration Nos. 13959, 17388 and 16999 were transferred to petitioner's name.

Petitioner in his answer denied the allegations of private respondent and claimed that he is the absolute owner of the six (6) parcels of land described in the complaint. He further claimed that the first three (3) parcels of land mentioned were bought by him from Silvino Alminario and that it was private respondent, who, by means of fraud and misrepresentation caused the transfer of the three (3) parcels of land to her name, and declared them under Tax Declaration Nos. 20280, 20273 and 20274, purportedly so that she can use the land as collateral to secure a loan from a bank in Leyte. Petitioner also claimed that he bought the three (3) parcels of land described under Tax Declaration Nos. 13959,17388 and 16999 from private respondent, as evidenced by a deed of absolute sale (Exhibit 22) executed by her in his favor.

Private respondent's evidence shows that on December 15, 1965, petitioner came to the house of private respondent and requested her to sign papers purported to be bail bonds for his provisional liberty in connection with a concubinage case filed against him by his wife. However, private respondent discovered later that the papers she was made to sign were actually: (1) affidavits of transfer (Exhibits I-3, K and M) of her three parcels of land under Tax Declaration Nos. 20280, 20273 and 20274 which she purportedly donated to petitioner; and (2) a deed of absolute sale (Exhibit 22) in favor of petitioner of her other three parcels of land under Tax Declaration Nos. 13959, 17388 and 16999.

On the other hand, petitioner presented evidence to show that he is the owner of the six (6) parcels of land subject of this case. He claimed that he bought the first three (3) parcels (those covered by Tax Declaration Nos. 20280, 20273 and 20274) from Silvino Alminario before they were bought by private respondent. He agreed to have the properties transferred to the name of private respondent to accomodate her request to use the properties as collateral in securing a loan from a bank. However, he found out later that private respondent did not apply for any loan. Petitioner reported the case to the Municipal Mayor of Dagami, Leyte and private respondent was summoned before the mayor and was made to sign affidavits of transfer (Exhibits I-3, K and M) in favor of petitioner.

As to the other three (3) parcels under Tax Declaration Nos. 13959,17388 and 16999, petitioner claimed that the properties were voluntarily sold to him by private respondent, as evidenced by a deed of absolute sale (Exhibit 22).

On the basis of the foregoing facts, the trial court rendered judgment:

1. Annulling the deed of sale(Exhibit 22)executed by the plaintiff in favor of the defendant respecting the properties described in Tax Declaration Nos. 13959, 17388 and 16999, all of Leyte; and declaring the plaintiff absolute owner thereof,

2. Declaring the defendant absolute owner of the properties declared and described in Tax Declaration Nos. 20280, 20324. 20323, 20274, 20273 and 20325, all in Leyte;*3. Ordering the plaintiff to deliver the ownership and peaceful possession of the properties mentioned in the immediately preceding paragraph to the defendant;

Dismissing the complaint and counterclaim without pronouncement as to costs. (Rollo, p. 33).

From this decision, both parties appealed.

On appeal, respondent court set aside the decision of the trial court and rendered a new one as follows:

1. Annulling Exhibits 9 and 10, the deeds of sale executed by Silvino Alminario in favor of Paciano Remalante respecting the three parcels of land described under Tax Declaration Nos. 19641,19676 and 19600, now, under Tax Declaration Nos. 20323,20324 and 20325 in the name of Paciano Remalante; and declaring Cornelia Tibe as the absolute owner thereof;

2. Annulling Exhibits I, K and M, the affidavits of transfer executed by Cornelia Tibe in favor of Paciano Remalante which became the basis of the cancellation of Tax Declaration Nos. 20280, 20273 and 20274 in the name of Cornelia Tibe by Tax Declaration Nos. 20323, 20324 and 20325 in the name of Paciano Remalante; and ordering the cancellation of the immediately preceeding three tax declarations in favor of Cornelia Tibe

3. Annulling Exhibit 22, the deed of sale executed by Cornelia Tibe in favor of Paciano Remalante respecting the properties described in Tax Declaration Nos. 13959,17388 and 16999; and declaring Cornelia Tibe as the absolute owner thereof;

4. Ordering Paciano Remalante to deliver and/or refrain from disturbing the ownership and peaceful possession of Cornelia Tibe over the properties mentioned in the preceeding paragraphs; and

5. Ordering Paciano Remalante to pay to Cornelia Tibe the amount of P1,000.00 as attorney's fees and costs. (Rollo, pp. 40- 41).

In seeking the review of the decision of the Court of Appeals, petitioner makes the following assignment of errors:

I

THE COURT OF APPEALS ERRED IN AWARDING THE OWNERSHIP OF THE THREE PARCELS OF LAND TO PRIVATE RESPONDENT UNDER TAX DECLARATION NOS. 20323, 20324 AND 20325, RESPECTIVELY, AS THE SAME BELONGED TO PETITIONER.

II

THE COURT OF APPEALS ERRED IN NOT GIVING CREDENCE TO THE DECISION OF THE TRIAL COURT AND IN NOT ADOPTING THE SAME IN TOTO. (Brief for Petitioner-Appellant, p. 1).

From petitioner's assignment of errors, it is evident that the issues to be resolved are actually anchored on the proper appreciation of the attendant facts which petitioners would have this Court review.

The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari under Rule 45 of the Revised Rules of Court. "The jurisdiction of the Supreme Court in cases brought to it from the Court of Appeals is limited to reviewing and revising the errors of law imputed to it, its findings of fact being conclusive" [Chan v. Court of Appeals, G.R. No. L-27488, June 30,1970,33 SCRA 737, reiterating a long line of decisions]. This Court has emphatically declared that "it is not the function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that might have be