G.R. No. 77008 - Lopez vs. Court of Appeals

Case Summary (G.R. No. 77008)

Factual Background

Respondent Lita Ebarle owned a parcel of land in Cagayan de Oro containing 476 square meters, designated as Lot No. 430-L-2-L-5, more particularly described in the record. On January 15, 1972, Ebarle sold the land to respondent spouses Norberto and Felisa Israel on an installment basis. A down payment of P2,000.00 was made, and the remaining P100.00 monthly payments were to continue until full payment. However, the Deed of Sale was executed only on June 15, 1973 and notarized only on July 9, 1975. After the down payment, the Israel spouses took possession of the property and constructed a house, which they allowed the Sagrados to occupy. In 1974, the Israel spouses also allowed the spouses Alberto and Teresita Jumao-as to construct another house on the same property.

Later, on March 11, 1975, Ebarle sold to petitioners spouses Abarquez a larger parcel containing 862 square meters, designated as Lot No. 430-L-2-L-C (LRC) Psd-216208, for P17,240.00, under a deed of sale. The deed was registered by petitioners on July 3, 1975, and TCT No. T-19445 was issued in their name. The larger parcel, however, included the 476 square meter lot previously sold to the Israel spouses as Lot No. 430-L-2-L-5. Petitioners’ counsel sent a demand letter dated December 18, 1975 to the Sagrados and the Israels to remove their houses, but the latter refused, asserting ownership based on their purchase from Ebarle.

Civil Case Filed and Parties’ Claims

On September 8, 1978, petitioners filed with the then CFI of Misamis Oriental, 15th Judicial District, Branch VII a complaint for quieting of titles and damages docketed as Civil Case No. 5132 against the Sagrados, the Jumao-as, and the Israels. The Israel spouses filed an Answer in Intervention on December 23, 1976, alleging ownership. On April 21, 1977, the Israel spouses, together with the Sagrados and Jumao-as, filed a Third-Party Complaint against Ebarle, alleging that she had sold to petitioners a parcel already sold to the Israel spouses.

On December 29, 1977, petitioners and the other parties submitted a partial stipulation of facts. They admitted that the land in controversy once comprised two lots, namely Lot No. 430-L-2-L-5 and Lot No. 430-L-2-L-6. They also admitted that the area now covered by TCT No. T-19445 in petitioners’ name formed from petitioners’ acquisition from Ebarle on March 11, 1975 and registered on July 3, 1975. Most importantly, they admitted that Ebarle had earlier sold on installments to the Israel spouses, on June 15, 1973, the 476 square meter Lot No. 430-L-2-L-5, and that this smaller lot now formed part of the larger lot covered by petitioners’ title. It was further stated that the real dispute centered on the portion corresponding to the earlier sale, where the houses and improvements of the defendants/intervenors were located.

Ebarle later sought leave to file a Fourth-Party Complaint against Engineer Romualdo Lagsa, alleging an erroneous inclusion of the 476-square-meter lot in the technical description. The court granted the motion on March 21, 1978. Engineer Lagsa denied preparing an erroneous technical description and asserted that he had been commissioned by Ebarle to prepare two descriptions, one for the smaller lot and one for the larger lot, and that he lacked knowledge of Ebarle’s prior sale.

On December 27, 1978, Ebarle was declared non-suited for failure to attend pre-trial, and the trial court dismissed her complaint and counterclaim.

Decision of the Trial Court

After trial on the merits, the trial court rendered a decision on July 14, 1986, ruling in favor of petitioners. The dispositive portion declared petitioners as the true and legal owners of the lot in question. It treated the defendants as possessors in good faith, and therefore gave them the option to buy the houses at a value fixed by the court. It further ordered defendants to pay a monthly rental for the lot for the period from 1976 to 1986, subject to offset if petitioners exercised the option. On the third-party complaint, it ordered Ebarle to reimburse the amount advanced as partial payment and awarded moral and exemplary damages, attorney’s fees, and litigation expenses against the third-party defendants.

Appellate Proceedings and the Court of Appeals’ Ruling

The Sagrados, Jumao-as, and Israel spouses appealed. On July 27, 1990, the Court of Appeals reversed the trial court’s decision. It found Ms. Ebarle and the spouses Abarquez to be in bad faith. It also held that an award of moral damages was warranted as the proximate result of the wrongful act, justified exemplary damages as correction for the public good, and found that Ebarle’s wrongful act compelled the Israel spouses to incur attorney’s fees and litigation expenses.

The Court of Appeals ordered the Register of Deeds of Cagayan de Oro City to cancel TCT No. T-19445 and to issue a new title covering only the portion outside Lot No. 430-L-2-L-5, technically described as described in the decision. It likewise directed the Israel spouses to pay Ebarle the unpaid balance of the purchase price for Lot No. 430-L-2-L-5 at six percent (6%) legal interest from the date of finality. It ordered Ebarle to pay the Israel spouses moral damages of P10,000.00, exemplary damages of P5,000.00, attorney’s fees of P3,000.00, and P1,000.00 litigation expenses, together with costs of suit below and on appeal.

Issues Raised in the Petition

Petitioners sought certiorari from the appellate ruling that they were purchasers in bad faith, that their title should be cancelled, and that the Israel spouses’ earlier right over the contested 476-square-meter portion should be protected. They also challenged the appellate awards flowing from the finding of bad faith.

Legal Basis and Reasoning of the Supreme Court

The Court held that the appellate court’s finding that petitioners were purchasers in bad faith was correct. It anchored its analysis on Article 1544 of the New Civil Code, which governs ownership where the same immovable is sold to different vendees. For immovables, ownership belongs to the person who, in good faith, first recorded the sale in the Registry of Property. If there is no inscription, ownership pertains to the person who in good faith first took possession, and in the absence of that, to the person with the oldest title, provided that there is good faith.

While the record established that the Israel spouses’ deed was only notarized and registered after petitioners had already registered their deed, the Court emphasized that the element controlling the second vendee’s preferential right under Article 1544 was good faith. The Court reasoned that the Israel spouses had the better right because petitioners lacked good faith when they bought and registered the larger lot whose technical description included the smaller lot already possessed and improved by the Israels. It invoked that if a vendee in a double sale registers the sale after acquiring knowledge of the prior sale, registration constitutes registration in bad faith and does not confer rights; such registration is treated as if it were no registration, and the vendee who first took possession in good faith is preferred. The decision cited Palaranca vs. Director of Lands, 43 Phil. 146, Cagaoan vs. Cagaoan, 43 Phil. 554, and Fernandez vs. Mercader, 43 Phil. 581 for the rule on bad-faith registration in double sales.

The Court accepted as a critical factual basis the appellate conclusion that petitioners already knew of the existence of the houses erected on the small lot before they purchased the larger lot. Petitioners engaged Engineer Lagsa to conduct a relocation survey, and the engineer showed petitioners the perimeter or extent of the big lot. The Court noted that Engineer Lagsa admitted in the record that he was asked by Ebarle to prepare two plans and technical descriptions covering the small lot and the big lot, and that he also was engaged by petitioners to prepare plans for the lots. The Court found it implausible that petitioners did not know Ebarle had already sold the small lot to the Israels.

The Court also relied on the general rule, reiterated in the decision, that a purchaser cannot deliberately ignore facts that would put a reasonable person on guard and claim good faith when it later appears that the title was defective and the purchaser had notice of defects that would have led to discovery had precaution been taken. It quoted that willful closing of the eyes to possible defects does not make one an innocent purchaser for value, referencing Crisostomo vs. Court of Appeals, 197 SCRA 833 [1991].

On the factual testimony, the Court added that Engineer Lagsa testified that he brought Mr. Abarquez to

Case Syllabus (G.R. No. 77008)

The petitioners, Edilberto C. Abarquez and Helen C. Abarquez, filed a petition for certiorari with preliminary injunction/restraining order assailing a decision of the Court of Appeals dated July 27, 1990.
The petitioners sought to nullify the appellate ruling that reversed the trial court, found petitioners spouses Abarquez to have acted in bad faith, and ordered the cancellation of TCT No. T-19445.
The respondents were the Hon. Court of Appeals and private parties including Mr. & Mrs. Leonardo Sagrado, Mr. & Mrs. Alberto Jumao-as, and Mr. & Mrs. Norberto Israel.

Property and Double Sale Setting

Respondent Lita Ebarle owned a parcel in Cagayan de Oro described as Lot No. 430-L-2-L-5 with an area of 476 square meters, identified as Lot 430-L-2-L-5 within a larger lot structure.
On June 15, 1973, respondent Ebarle sold Lot No. 430-L-2-L-5 to respondents spouses Norberto and Felisa Israel on an installment basis, with a down payment and monthly payments, but the deed of sale was executed only on June 15, 1973 and notarized only on July 9, 1975.
After receipt of the down payment, the Israel spouses took possession and constructed a house on the land, and they allowed the Sagrado spouses to occupy a house on the same property.
In 1974, the Israel spouses also allowed the Jumao-as spouses to construct another house on the same property.
On March 11, 1975, respondent Ebarle sold a different parcel described as Lot No. 430-L-2-L-C (LRC) Psd-216208, with an area of 862 square meters more or less, to the petitioners for P17,240.00, under a deed of sale.
The petitioners’ parcel included the 476-square-meter portion previously sold to the Israel spouses, creating the double sale controversy.

Petitioners’ Registration and Resulting Title

The petitioners registered their deed with the Office of the Registry of Deeds of Cagayan de Oro City on July 3, 1975.
The registration resulted in issuance of TCT No. T-19445 in the petitioners’ name.
The dispute centered on the petitioners’ title covering land that contained the portion earlier sold to the Israel spouses.
Petitioners’ counsel sent a demand letter on December 18, 1975 to the Sagrado spouses and the Israel spouses to remove the houses constructed on the property.
The occupants refused, asserting ownership based on their purchase from respondent Ebarle.

Trial Court Proceedings and Pleadings

On September 8, 1978, petitioners filed with the then CFI of Misamis Oriental, 15th Judicial District, Branch VII a complaint for quieting of titles and damages, docketed as Civil Case No. 5132.
The Israel spouses filed an Answer in Intervention alleging ownership over the subject land.
On April 21, 1977, the Israel spouses, together with the Sagrado and Jumao-as spouses, filed a Third-Party Complaint against respondent Ebarle for selling to petitioners land that Ebarle had already sold to the intervenors.
On December 29, 1977, the parties submitted a partial stipulation of facts.
The stipulation admitted that the land in controversy formerly comprised two lots: Lot No. 430-L-2-L-5 and Lot No. 430-L-2-L-6.
The stipulation acknowledged that the land in controversy was now covered by TCT No. T-19445 in petitioners’ name.
The stipulation recognized that the Israel spouses acquired Lot No. 430-L-2-L-5 on installment basis under a deed executed on June 15, 1973, but that the deed was not registered.
The real controversy was framed as the portion of Lot No. 430-L-2-L-C (LRC) Psd. 216208 that used to be Lot No. 430-L-2-L-5, where the houses and improvements were located.

Engineer’s Role in Relocation Survey

On March 13, 1978, respondent Ebarle moved for leave to file a Fourth-Party Complaint against Engineer Romualdo Lagsa for allegedly erroneously including Lot No. 430-L-2-L-5 in the technical description of the big lot.
The trial court granted the motion on March 21, 1978.
Engineer Lagsa denied preparing an erroneous technical description in the challenged plan and alleged that he had been commissioned by Ebarle to prepare the description of the small lot and later to prepare a plan and technical description for the big lot.
Engineer Lagsa asserted that he did not know that Ebarle had already sold the small lot to the Israel spouses, nor did he know of Ebarle’s intention to sell the same parcel to two different buyers.
The trial court declared respondent Ebarle non-suited on December 27, 1978 for failure of her and her counsel to attend pre-trial proceedings, leading to dismissal of her complaint and counterclaim.

Trial Court Decision

After trial on the merits on July 14, 1986, the trial court ruled in favor of the petitioners.
The trial court declared petitioners as the true and legal owners of the lot in question.
The trial court considered the defendants as possessors in good faith and provided the defendants the option to buy the houses on the property.
The trial court fixed values for the houses and set the price for defendants including Jumao-as and Sagrado.
The trial court ordered payment of rental of P30.00 a month, or a sum covering 1976 to 1986, subject to offset from the purchase price if the plaintiffs exercised the option.
On the third-party complaint, the trial court ordered respondent Lita Ebarle to pay P6,823.26 as reimbursement for amounts advanced as partial payment of the lot.
The trial court awarded moral damages of P10,000.00, exemplary damages of P5,000.00, attorney’s fees of P3,000.00, and litigation expenses of P1,000.00 with costs against the third-party defendants.

Court of Appeals Reversal

The Sagrado spo