G.R. No. 123547 - Martinez vs. Court of Appeals

Case Summary (G.R. No. 123547)

Factual Background

In February 1981 Rev. Fr. Dante Martinez entered into an oral agreement with Godofredo and Manuela de la Paz (accompanied by their mother, Claudia de la Paz) to purchase Lot No. 1337-A-3, Villa Fe Subdivision, Cabanatuan City, for P15,000, with a P3,000 downpayment and the balance payable in installments. At the time the lot was still registered in the name of Claudia de la Paz, although she had executed a Deed of Absolute Sale in favor of Manuela de la Paz dated May 26, 1976 and registration later issued as TCT No. T-40496. After his downpayment, petitioner obtained a building permit dated April 23, 1981, commenced construction, paid real estate taxes, and completed the house on October 6, 1981; he and his family continuously occupied the residence thereafter. Petitioner completed payment on January 31, 1983; the De la Pazes signed writings acknowledging the sale and promising delivery of the deed, but they never executed the deed.

Competing Transactions and Notice

On October 28, 1981 the De la Pazes executed a Deed of Absolute Sale with Right to Repurchase to Spouses Reynaldo and Susan Veneracion for P150,000 covering three lots, one of which was the lot occupied by petitioner. The Veneracions never took actual possession, but they obtained titles and later caused registration of the lot as TCT No. T-44612 on March 5, 1984. In June 1983 the De la Pazes executed a second Deed of Absolute Sale over two of the lots. In March 1986 Reynaldo Veneracion sent petitioner a letter asserting ownership and demanding vacancy; petitioner in turn demanded execution of a deed from the De la Pazes and sought conciliation before the Katarungang Pambarangay, which failed.

Proceedings Below

On May 12, 1986 Reynaldo Veneracion filed an ejectment action in the Municipal Trial Court, Branch III, Cabanatuan City against petitioner and his mother. The MTC, after summary procedure, found defendants (petitioner and mother) to be rightful possessors in good faith and dismissed the complaint on January 29, 1987, advising that the appropriate remedy for ownership was accion publiciana in the Regional Trial Court. Reynaldo Veneracion filed a notice of appeal on March 3, 1987 but did not timely pay the appellate docket fee. Petitioner later sought execution on the ground of finality; the MTC denied execution and forwarded the records to the Regional Trial Court, where the ejectment appeal and petitioner’s appeal were consolidated as Civil Case No. 670-AF. On February 20, 1991 the RTC, Branch 28, declared the Veneracions the true owners by virtue of registration, subject to petitioner’s rights as builder in good faith, and ordered petitioner to vacate after receipt of the cost of construction and payment of attorney’s fees and costs. Separately, on May 30, 1986 petitioner filed a complaint for annulment of sale with damages in RTC, Branch 25; on March 5, 1990 that court also found the Veneracions owners subject to petitioner’s rights as builder in good faith and awarded damages and attorney’s fees against the De la Pazes. Petitioner appealed both RTC decisions to the Court of Appeals, which consolidated the appeals and affirmed, including a resolution denying reconsideration dated January 31, 1996. Petitioner then brought this petition for review under Rule 45.

Issues Presented

The principal issues were stated as: (1) whether Spouses Reynaldo and Susan Veneracion were buyers in good faith entitled to ownership under Art. 1544 of the Civil Code in a double sale; (2) whether payment of the appellate docket fee within the period to appeal was a prerequisite to perfection of the appeal from the MTC; and (3) whether the Court of Appeals violated Art. VIII, Sec. 14, 1987 Constitution by denying reconsideration without stating legal reasons.

Evidence and Trial Findings on Possession and Title

The record established that petitioner obtained a building permit on April 23, 1981, completed construction by October 6, 1981 (verified by Engr. Felix D. Minor, the building inspector), and continuously occupied the house while paying taxes. Petitioner produced writings signed by the De la Pazes acknowledging the P15,000 sale and promising delivery of the deed; he completed payment on January 31, 1983 but the De la Pazes did not execute the deed. The Veneracions inspected some premises in October 1981 and later acquired recorded titles, which were registered in March 1984. The MTC found petitioner a possessor in good faith; the RTC and the Court of Appeals gave primacy to registered titles and declared the Veneracions owners subject to petitioner’s rights as builder in good faith.

Analysis under Art. 1544 and the Requirement of Good Faith

The Court analyzed double-sale rules under Art. 1544, which accords priority to the person who in good faith first recorded title in the Registry of Property, failing which to the person in good faith first in possession, and failing both to the one who presents the oldest title. The Court emphasized that where registration exists the twofold requirement is acquisition in good faith and recording in good faith. The Court found that the Veneracions could not claim good faith because they knew or had notice of facts that should have put a reasonably prudent purchaser on inquiry—specifically, the existence of an occupying structure completed and occupied by petitioner as early as October 1981. The Court held that reliance upon assurances from Godofredo de la Paz, who was not the registered owner at the time, did not satisfy the standard of good faith.

Characterization of the Deed with Right to Repurchase as an Equitable Mortgage

The Court concluded that the Deed of Absolute Sale with Right to Repurchase executed on October 28, 1981 evidenced an equitable mortgage rather than a bona fide sale. It applied the tests in Art. 1602 and Art. 1603: circumstances indicating intent to secure a debt included the Veneracions’ failure to take possession, the De la Pazes’ continued possession of other lots, absence of effort by the Veneracions to possess the properties during redemption, and their subsequent acquiescence when the De la Pazes offered the lots to third parties at a higher price. The Court held that, in case of doubt, a contract styled as a sale with right to repurchase should be construed as an equitable mortgage, and that the facts here justified that construction.

On the Formality of the First Sale to Petitioner and Applicability of Arts. 1357, 1358, and 1403(2)

The Court rejected the Court of Appeals’ reliance on Arts. 1357 and 1358 to displace petitioner’s claim for lack of a notarized deed. The Court observed that those provisions do not require notarization as a prerequisite to enforceability but require the sale of real property to be in writing to be enforceable under Art. 1403(2); they permit a contracting party to compel the other to observe the required form. Petitioner had repeatedly demanded execution of the deed and had other indicia of ownership: payment, possession, building permit, taxes, and contemporaneous writings acknowledging the sale.

Appellate Docket Fee and Perfection of Appeal

On the question whether failure to pay the appellate docket fee deprived the MTC of jurisdiction or rendered the MTC decision final, the Court distinguished earlier cases relied upon by petitioner and held them inapplicable to appeals governed by the Judiciary Reorganization Act and the Interim Rules and Guidelines. Citing secs. 20 and 23 of the Interim Rules, the Court held that perfection of an appeal required filing a notice of appeal within the reglementary period and expiration of the last day to appeal by any party; payment of the appellate docket fee was not a prerequisite to perfection. The Court therefore concluded that the Veneracions’ failure to pay the docket fee was not fatal to their appeal.

Motion for Reconsideration and Constitutional Requirement

Regarding petitioner’s contention that the Court of Appeals violated Art. VIII, Sec. 14, 1987 Constitution by denying his motion for reconsideration without stating legal reasons, the Court found no violation. The Court of Appeals expressly stated t

Case Syllabus (G.R. No. 123547)

Parties and Procedural Posture

REV. FR. DANTE MARTINEZ, PETITIONER was the buyer and occupant who asserted ownership of Lot No. 1337-A-3 after paying the purchase price and erecting a house thereon.
SPOUSES MAXIMO HIPOLITO AND MANUELA DE LA PAZ AND GODOFREDO DE LA PAZ, RESPONDENTS were the original vendors who sold the lot to petitioner and later executed transactions with other buyers.
SPOUSES REYNALDO VENERACION AND SUSAN VENERACION, RESPONDENTS were subsequent purchasers and registrants who obtained TCT No. T-44612 for the lot and sued for ejectment.
The case reached the Supreme Court by way of a petition for review on certiorari from the decision and resolution of the Court of Appeals affirming the Regional Trial Courts' rulings that favored the Veneracions subject to petitioner’s rights as builder in good faith.

Key Factual Allegations

REV. FR. DANTE MARTINEZ entered into an oral agreement in February 1981 to buy the lot for P15,000 and paid a downpayment of P3,000.
REV. FR. DANTE MARTINEZ obtained a building permit on April 23, 1981 and completed construction of a house on October 6, 1981, after which he paid real property taxes and continuously occupied the dwelling.
SPOUSES MAXIMO HIPOLITO AND MANUELA DE LA PAZ AND GODOFREDO DE LA PAZ, RESPONDENTS executed contemporaneous writings acknowledging receipt of payment on January 31, 1983 and a certification on March 19, 1986 indicating intent to sign an affidavit of sale.
SPOUSES MAXIMO HIPOLITO AND MANUELA DE LA PAZ AND GODOFREDO DE LA PAZ, RESPONDENTS executed a Deed of Absolute Sale with Right to Repurchase to the VENERACIONS dated October 28, 1981 for P150,000 which included the lot previously occupied by petitioner.
SPOUSES REYNALDO VENERACION AND SUSAN VENERACION later acquired deeds and registered title in their name on March 5, 1984, and subsequently demanded possession by letter dated March 19, 1986.

Procedural History

SPOUSES REYNALDO VENERACION AND SUSAN VENERACION filed an ejectment action in the Municipal Trial Court which rendered judgment in favor of the defendants as possessors in good faith on January 29, 1987.
SPOUSES REYNALDO VENERACION AND SUSAN VENERACION filed a notice of appeal on March 3, 1987 but failed to pay the appellate docket fee within the reglementary period.
The Municipal Trial Court denied petitioner’s motion for execution of judgment for failure to perfect appeal, and the appeals and related actions were consolidated and elevated to the Regional Trial Court, which declared the Veneracions owners subject to petitioner’s rights as builder in good faith.
The Regional Trial Court in Branch 25 also found the Veneracions owners subject to petitioner’s builder’s rights and awarded damages to petitioner against the De la Pazes.
The Court of Appeals affirmed the Regional Trial Courts’ decisions and denied petitioner’s motion for reconsideration, prompting the present petition for review on certiorari to the Supreme Court.

Issues Presented

Whether SPOUSES REYNALDO VENERACION AND SUSAN VENERACION were buyers in good faith for purposes of Art. 1544 of the Civil Code and thereby acquired ownership by prior registration.
Whether the failure to pay the appellate docket fee within the period to appeal rendered the Municipal Trial Court decision final and unappealable.
Whether the Court of Appeals complied with Art. VIII, Sec. 14, 1987 Constitution in stating the basis for denying the motion for reconsideration.

Statutory Framework

Art. 1544, Civil Code governs double sales of immovable property and prescribes priority to the person who in good faith first recorded title, or in default to possession, or otherwise to the oldest title.
Art. 1357, Art. 1358, and Art. 1403(2), Civil Code concern required form for contracts affecting real property but do not compel notarization for enforceability where writing is otherwise present.
Arts. 1602–1603, Civil Code provide that a sale with right to repurchase may be construed as an equitable mortgage when circumstances indicate the parties intended security rather than a true sale.
Sec. 20 and Sec. 23 of