Caram, Jr. vs. Laureta

In a double sale of immovable property, a later buyer who registers in bad faith acquires no priority under Article 1544; the first vendee who took possession in good faith prevails, and the action to declare the second sale void does not prescribe.

Marcos Mata owned a parcel of agricultural land covered by Original Certificate of Title No. 3019. In 1945, the civil government in Tagum, Davao was not yet organized, so there was no authorized officer before whom a deed of sale could be acknowledged, making registration impossible. The land was later claimed under two deeds of sale—one in favor of Claro L. Laureta and another in favor of Fermin Z. Caram, Jr.—bringing into play Article 1544 of the Civil Code on double sales.

On June 10, 1945, Marcos Mata conveyed a large tract of agricultural land covered by Original Certificate of Title No. 3019 to Claro L. Laureta by a deed of absolute sale. The deed was not registered because it was not acknowledged before a notary public or other authorized officer; at that time, the civil government in Tagum, Davao was not yet organized, and no authorized officer was available to acknowledge the sale. Mata delivered to Laureta peaceful and lawful possession of the land together with the Owner's Duplicate Original Certificate of Title No. 3019, sketch plan, tax declaration, tax receipts, and other related papers. Since June 10, 1945, Laureta remained in continuous, adverse, and notorious occupation of the land without molestation, paid realty taxes, and introduced improvements worth not less than P20,000 by the time of the complaint.

On May 5, 1947, Mata sold the same land to Fermin Z. Caram, Jr. The deed in Caram's favor was acknowledged before Atty. Abelardo Aportadera. On May 22, 1947, Mata, through Attys. Aportadera and Gumercindo Arcilla, filed a petition in the Court of First Instance of Davao for issuance of a new Owner's Duplicate of Original Certificate of Title No. 3019, alleging that the title had been lost in his evacuation place in Magugpo, Tagum, Davao. On June 5, 1947, the court ordered the Register of Deeds of Davao to issue a new Owner's Duplicate Certificate of Title No. 3019 in Mata's favor and declared the lost title null and void. On December 9, 1947, the second sale was registered, and Transfer Certificate of Title No. 140 was issued in Caram's name.

On June 25, 1959, Laureta filed an action in the Court of First Instance of Davao for nullity, recovery of ownership and/or reconveyance with damages and attorney's fees against Marcos Mata, Codidi Mata, Caram, and the Register of Deeds of Davao City. On August 29, 1959, Marcos Mata and Codidi Mata filed an answer with counterclaim admitting the existence of the private absolute deed of sale in favor of Laureta but alleging that Mata signed it under duress, threat, and intimidation because Laureta was the commanding officer of the 10th Division, USFIP, operating in unoccupied areas of Northern Davao with headquarters at Project No. 7 (Km. 60, Davao Agusan Highways), Municipality of Tagum, Davao. They alleged that Laureta's words and requests were laws; that although Mata did not want to sell or sign the document without understanding it, he was ordered to accept P650.00 in Mindanao Emergency notes; and that fear of harm to himself or his family left him no alternative but to sign. They also admitted a record in the Registry of Deeds of a document allegedly signed by Mata in favor of Caram but denied ever signing it, claiming he knew he had already signed a deed of sale in favor of Laureta and that Laureta possessed the certificate of title; if his thumb mark appeared in the Caram document, his consent was obtained through fraud and misrepresentation because he was illiterate and ignorant and did not know what he was signing, and he received no consideration. Caram filed his answer on October 23, 1959, alleging no knowledge or information about the previous encumbrances, transactions, and alienations in favor of Laureta until the filing of the complaints.

At trial, the court discredited Aportadera's testimony and found that Irespe and Aportadera knew of the prior sale to Laureta (Exhibit A) when the deed in Caram's favor (Exhibit F) was executed, and that Laureta had been in possession of the land since 1945. The trial court found that Irespe accompanied Mata and Leaning (Ining) Mansaca to Aportadera's office, where Mansaca narrated the circumstances of the sale of his own land to Laureta, and that the two properties had been sold on the same occasion and under the same circumstances. It also found that Irespe had been a witness in cases filed by Aportadera as Provincial Fiscal against Laureta and was made guardian ad litem of Mansaca at Aportadera's suggestion. The Court of Appeals affirmed those findings.

• Agency of Irespe and Aportadera: Petitioner argued that Pedro Irespe was merely a broker or intermediary tasked to pay Marcos Mata P1,000.00 for the property and to see that the deed of sale was properly executed; the identity of the property and the price had already been agreed upon. He further argued that Atty. Abelardo Aportadera merely acted as a notary public in the execution of the deed, and that the Court of Appeals erred in concluding they were his attorneys-in-fact.
• Bad Faith and Knowledge: Petitioner maintained that he could not be considered to have acted in bad faith because there was no direct proof that Irespe and Aportadera, his alleged agents, had knowledge of the first sale to Laureta.
• Effect of Agents' Knowledge: Petitioner assigned as error the Court of Appeals' holding that the knowledge of Irespe and Aportadera of a prior unregistered sale of titled property was attributable to him and equivalent in law to registration of that sale.
• Prescription: Petitioner contended that the second deed of sale, Exhibit F, was a voidable contract; that an action for annulment on the ground of fraud must be brought within four years from discovery; that Laureta was deemed to have discovered the sale on December 9, 1947, when the deed was recorded and Transfer Certificate of Title No. 140 was issued to Caram; and that the present case, filed on June 29, 1959, had therefore prescribed. In a memorandum, petitioner insisted that the action prescribed because the second contract was not void under Article 1409 and Article 1544 does not declare void a second sale of immovable registered in bad faith.

• Agency of Irespe and Aportadera: Whether the Court of Appeals erred in concluding that Irespe and Aportadera were attorneys-in-fact of Caram for the purpose of buying the property.
• Bad Faith and Imputation: Whether the Court of Appeals erred in concluding that the evidence constituted legal evidence of fraud on the part of Irespe and Aportadera attributable to Caram, and in holding that their knowledge of the prior unregistered sale was attributable to Caram and equivalent to registration.
• Double Sale and Good Faith Possession: Whether the first sale to Laureta prevails over the second sale to Caram under Article 1544 of the Civil Code, considering Caram's bad faith and Laureta's prior possession in good faith.
• Prescription: Whether Laureta's action for reconveyance or nullity on the ground of fraud prescribed within four years, or whether the second sale was void and the action imprescriptible under Article 1410.

• Agency of Irespe and Aportadera: No. The finding that Irespe and Aportadera acted as Caram's representatives is supported by the fact that Mata and Caram never met and by Caram's admission that Aportadera acted as his notary public and attorney-in-fact at the same time in the purchase.
• Bad Faith and Imputation: No. Bad faith was properly imputed to Caram because his agents had actual knowledge or knowledge of circumstances that should have prompted inquiry into Laureta's prior sale and possession; under agency, the principal is bound by the agents' acts and knowledge.
• Double Sale and Good Faith Possession: The first sale to Laureta prevails. Under Article 1544, Caram's registration in bad faith is treated as no registration, and Laureta, first in possession in good faith, is preferred.
• Prescription: No. The second sale was not merely voidable; it was void because registered in bad faith, and an action for declaration of the inexistence of a void contract does not prescribe under Article 1410.

• Agency of Irespe and Aportadera: Petitioner's characterization was rejected. The record showed that Mata and Caram never met; Mata testified that he knew Aportadera but did not know Caram. Thus the sale could only have been through Caram's representatives, Irespe and Aportadera. Caram himself admitted in his answer that Aportadera acted as his notary public and attorney-in-fact at the same time in the purchase. The Court of Appeals' conclusion that they were Caram's attorneys-in-fact was therefore supported.
• Bad Faith and Imputation: The trial court discredited Aportadera's testimony, and the Court of Appeals affirmed on credibility and because Aportadera's own testimony supported the finding. The trial court found that Irespe and Aportadera knew of the prior sale to Laureta on the day Mata and Irespe, accompanied by Leaning Mansaca, went to Aportadera's office for the sale of the same property to Caram, with Irespe acting as Caram's attorney-in-fact. Mansaca was there to engage Aportadera to annul the sale of his own land to Laureta, and when he narrated the circumstances, he must have included Mata's sale because the two properties had been sold on the same occasion and under the same circumstances. Irespe, who had been a witness in most cases filed by Aportadera as Provincial Fiscal against Laureta, must have known of Laureta's land purchases, one of which was Mata's sale; it was not a coincidence that Irespe was made guardian ad litem of Mansaca at Aportadera's suggestion and was Caram's attorney-in-fact. The evidence established that Irespe, Caram's attorney-in-fact, had knowledge of the prior transaction, Exhibit A, when Exhibit F was executed, and that this knowledge had the effect of registration as to Caram. Even if they lacked actual knowledge, they had knowledge of circumstances that ought to have put them on inquiry: Mata's certificate of title and other papers had been taken by soldiers under the command of Col. Claro L. Laureta, and Laureta was already in possession at the time of the second sale. They should have investigated the nature of Laureta's possession; failure to exercise ordinary care expected of a buyer of real estate meant they bore the consequences. Caveat emptor required the purchaser to be aware of the vendor's supposed title, and one who buys without checking the vendor's title takes all risks and losses. The principle that a person dealing with a registered owner need not go behind the certificate did not apply because it was common knowledge that when Laureta's soldiers took Mata's documents, the civil government of Tagum was not yet established and there were no officials to ratify sales and make them registerable; Aportadera and Irespe knew that any prior sale by Mata could not have been registered. Thus Irespe and Aportadera, acting as Caram's agents, purchased in bad faith, and under the principle of agency, Caram as principal was also deemed to have acted in bad faith.
• Double Sale and Good Faith Possession: Article 1544 provides that in a double sale of immovable property, ownership belongs to the person acquiring it who in good faith first recorded it; if there is no inscription, 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. Since Caram was a registrant in bad faith, the situation was as if there was no registration at all. The question then was who was first in possession in good faith. A possessor in good faith is one who is not aware that there exists in his title or mode of acquisition any flaw that invalidates it. Laureta was first in possession and was a possessor in good faith. Although Mata alleged that the deed of sale in favor of Laureta was procured by force, that defect was cured when, after the lapse of four years from the time the intimidation ceased, Mata lost both his right to file an action for annulment and his right to set up nullity of the contract as a defense in an action to enforce it. The first sale in favor of Laureta therefore prevailed over the sale in favor of Caram.
• Prescription: Petitioner's premise that the second deed was a voidable contract was incorrect. Fraud can be a ground for annulment only if employed prior to or simultaneously with the consent or creation of the contract; the fraud or dolo causante must be that which determines or is the essential cause of the contract. Article 1338 defines dolo causante as insidious words or machinations of one of the contracting parties that induced the other to enter into the contract and without which he would not have agreed. No evidence showed that Caram's representatives, Irespe and Aportadera, induced Mata to enter into the contract through insidious words or machinations. Since the second deed was not voidable, Article 1391, requiring an action for annulment within four years from discovery of fraud, did not apply. Moreover, Laureta had been in continuous possession of the land since June 1945. More importantly, the second contract of sale, having been registered in bad faith, was null and void. Article 1410 provides that any action or defense for the declaration of the inexistence of a contract does not prescribe. The fact that the second contract was not considered void under Article 1409 and that Article 1544 does not expressly declare void a deed of sale registered in bad faith did not mean the contract was not void. Article 1544 specifically provides who shall be the owner in a double sale; to give it full effect, one of the contracts must be declared void to cut off all rights arising from it, otherwise Article 1544 would be meaningless. The first sale in favor of Laureta prevailed.

• Double Sale of Immovable Property — Under Article 1544 of the Civil Code, when the same immovable property is sold to different vendees, ownership belongs to the person acquiring it who in good faith first recorded it; if there is no inscription, 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. A registration made in bad faith is treated as no registration. In this case, Caram registered the second sale in bad faith, so his registration gave him no priority; Laureta, who was first in possession in good faith, was preferred.
• Good Faith and Duty of Inquiry of a Purchaser — A purchaser who knows of a defect or lack of title in his vendor cannot claim good faith as against the true owner; the same rule applies to one who knows facts that should put him upon inquiry and investigation to acquaint him with defects in the vendor's title. Caveat emptor requires the purchaser to be aware of the vendor's supposed title, and one who buys without checking the vendor's title bears the risks. The Court applied this to Caram's agents, who knew that Mata's title papers had been taken by Laureta's soldiers and that Laureta was in possession, yet failed to investigate.
• Registered Land and Duty to Inquire — The principle that a person dealing with a registered owner is not bound to go behind the certificate and inquire into transactions not intimated therein does not apply where the prior sale could not have been registered and the buyer had knowledge of circumstances putting him on inquiry. The Court applied this because the civil government in Tagum was not yet organized, so the prior sale could not have been registered, and the agents knew Mata's title papers had been taken by Laureta's soldiers.
• Agency and Imputation of Bad Faith — The principal is bound by the acts and knowledge of his agents acting within their authority; bad faith of the agents is imputed to the principal. The Court applied this because Irespe and Aportadera acted as Caram's representatives in the purchase, and their bad faith was attributed to Caram.
• Dolo Causante as Ground for Annulment — Fraud that can annul a contract must be employed prior to or simultaneously with the consent or creation of the contract and must be the essential cause that induced the other party to enter into it; Article 1338 defines it as insidious words or machinations of one contracting party without which the other would not have agreed. The Court found no such fraud by Caram's representatives, so the second sale was not voidable.
• Imprescriptibility of Action to Declare Inexistence of Void Contract — Under Article 1410 of the Civil Code, an action or defense for the declaration of the inexistence of a contract does not prescribe. The Court applied this because the second sale, registered in bad faith, was void, so Laureta's action was not barred by the four-year period for annulment of voidable contracts.
• Curing of Voidable Contract by Prescription — A contract voidable by reason of intimidation is cured after four years from the time the intimidation ceases; the aggrieved party loses both the right to file an action for annulment and the right to set up nullity as a defense. The Court applied this to Mata's allegation that the first sale to Laureta was procured by force, leaving Laureta as a possessor in good faith.

• "One who purchases real estate with knowledge of a defect or lack of title in his vendor can not 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 who 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 the title of his vendor." — This passage, quoted from Leung Yee vs. F. L. Strong Machinery Co. and Williamson, states the duty-of-inquiry rule that defeated Caram's claim of good faith.
• "Since Caram was a registrant in bad faith, the situation is as if there was no registration at all." — This states the ratio for applying Article 1544: Caram's bad-faith registration gave him no priority in the double sale.
• "A more important reason why Laureta's action could not have prescribed is that the second contract of sale, having been registered in bad faith, is null and void. Article 1410 of the Civil Code of the Philippines provides that any action or defense for the declaration of the inexistence of a contract does not prescribe." — This is the controlling rationale on prescription, holding that the action was imprescriptible.
• "The first sale in favor of Laureta prevails over the sale in favor of Caram." — This is the ultimate holding on the double sale.

• Leung Yee vs. F. L. Strong Machinery Co. and Williamson, 37 Phil. 644 — Quoted and followed for the rule that a purchaser with knowledge of a defect or lack of title in the vendor, or with knowledge of facts requiring inquiry, cannot claim good faith as against the true owner.
• Quimson vs. Suarez, 45 Phil. 906 — Cited in connection with the principle that a person dealing with the owner of registered land is not bound to go behind the certificate and inquire into transactions not intimated therein; the principle was held inapplicable because the prior sale could not have been registered and the buyers had notice of circumstances.
• Salvoro vs. Tañega, 87 SCRA 349, 361 and 87 SCRA 363 — Cited in the discussion of the registered-land principle and bad-faith registration; the citations were used in rejecting Caram's reliance on the certificate of title and in treating his bad-faith registration as ineffective.

• Article 1544, New Civil Code — Governs double sale of immovable property. The Court applied it by treating Caram's bad-faith registration as no registration and preferring Laureta, who was first in possession in good faith.
• Article 1338, New Civil Code — Defines dolo causante as insidious words or machinations of one contracting party that induce the other to enter into a contract and without which he would not have agreed. The Court found no such fraud by Caram's representatives, so the second sale was not voidable.
• Article 1391, Civil Code — Provides that an action for annulment must be brought within four years from discovery of fraud. The Court held it inapplicable because the second deed was not a voidable contract.
• Article 1410, Civil Code — Provides that an action or defense for the declaration of the inexistence of a contract does not prescribe. The Court applied it because the second sale, registered in bad faith, was void, making Laureta's action imprescriptible.
• Article 1409, Civil Code — Enumerates contracts that are inexistent and void from the beginning. Petitioner invoked it to argue the second sale was not void; the Court held that the fact the second contract was not listed there and that Article 1544 does not expressly declare it void did not mean it was not void.
• Article 526, Civil Code — Defines a possessor in good faith as one who is not aware that there exists in his title or mode of acquisition any flaw that invalidates it. The Court used this definition to characterize Laureta as a possessor in good faith.

Justices Makasiar, Guerrero, De Castro, and Melencio-Herrera concurred. Mr. Justice de Castro was designated to sit with the First Division.