G.R. No. 106042 - Bautista vs. Court of Appeals

Petitioners: Spouses Alfredo Valdez and Rufina Bautista (with subsequent substitution by the heirs of Alfredo Valdez after his death).
Private Respondents: Spouses Donald Salvador and Cresencia Salvador, who were in actual possession of the property.
Subject Property: A parcel of land measuring 326 square meters located in Barrio Maysilo (now Santolan), Malabon, originally registered in the name of Dionisio Santiago.

On August 10, 1983, petitioners purchased the property from Maria dela Cruz vda. de Santiago and Jose Santiago, who claimed to be the heirs (widow and son, respectively) of the late Dionisio Santiago.
The sale was effected via an extrajudicial settlement with an absolute sale deed, where the vendors adjudicated to themselves the one-half interest of Dionisio Santiago, which, together with the one-half share they held as Maria dela Cruz vda. de Santiago, was sold to the petitioners.
As a result of the transaction, the original Transfer Certificate of Title (TCT) No. 343919 was cancelled, and a new TCT No. 105231 was issued in the name of the petitioners.

Before the sale to petitioners, private respondents claimed to have bought a portion of the property on installments from Dionisio Santiago.
According to the private respondents:

A sale covering 163 square meters was transacted on December 20, 1974 for P16,300.00, with full payment completed on October 15, 1981.
A separate transaction executed on October 20, 1979 involved the purchase of the other half of the land; however, this sale was conducted by Benjamina Magalong (Dionisio Santiago’s common-law wife) who, not being the registered owner, lacked the authority to sell that portion.

Petitioners, upon taking possession, demanded that the private respondents – who were occupying the premises – prove their right or vacate the property.

After the respondents failed to vacate the property despite intervention by barangay officials, petitioners filed a complaint for recovery of possession before the Regional Trial Court of Malabon on July 1, 1988.
The trial court found evidence of a double sale: one transaction in favor of the private respondents and another in favor of the petitioners.
Applying Article 1544 of the New Civil Code, the trial court ruled that, as to one half of the property, the private respondents had a preferential right since petitioners were found to be purchasers in bad faith.
The trial court also held that petitioners failed to exercise the appropriate inquiry regarding the rights of those in actual possession, as they solely relied on the statements from the vendors.
Consequently, the trial court dismissed petitioners’ complaint, ordered them to pay attorney’s fees of P5,000.00 to the private respondents, and imposed the costs of the suit.

On appeal, the petitioners-challenged the trial court's decision, raising issues regarding the alleged misapplication of Article 1544 and claiming that the parties should remain as they were (in pari delicto) due to deficiencies on both sides.
The Court of Appeals examined the factual and legal issues, ultimately denying the relief sought by petitioners and affirming the trial court’s ruling in toto.
The petitions ultimately reached the Supreme Court for review, but the petition was dismissed, thereby upholding the previous findings against the petitioners.

Whether public respondents misapplied Article 1544 of the New Civil Code by holding that petitioners were purchasers in bad faith, thereby giving priority to private respondents’ claim over the property.

The determination hinges on whether the petitioners’ reliance solely on the certificate of title, without further inquiry into the rights of the actual possessors, constitutes bad faith.

Whether, assuming that petitioners were in bad faith, the courts erred in not leaving the parties as they were (invoking the doctrine of in pari delicto), considering the alleged prolonged inaction of the private respondents in registering their deed of sale.

This touches on the issue of whether both parties are equally responsible for the resulting controversy and whether the private respondents’ delay in registration should wipe out their priority claim.