Kings Properties Corporation vs. Galido

A prior unregistered sale of registered land is valid and binding between the parties, and a subsequent buyer who acquires the property with actual or constructive notice of the first sale — including knowledge of a registered adverse claim — is not a purchaser in good faith and cannot defeat the first buyer’s rights under the rule of prius tempore, potior jure (first in time, stronger in right). Further, the approval of the Secretary of Agriculture and Natural Resources (now DENR Secretary) required under Section 118 of Commonwealth Act No. 141 for the alienation of a homestead after five years but before twenty-five years from issuance of title is merely directory; the absence of prior approval does not void the sale, and subsequent approval operates to ratify and adopt the transaction.

On 18 April 1966, the heirs of Domingo Eniceo — Rufina Eniceo and Maria Eniceo — were awarded Homestead Patent No. 112947 covering four parcels of land in San Isidro, Antipolo, Rizal, with a total area of 14.8882 hectares, registered under Original Certificate of Title (OCT) No. 535. The patent was issued subject to the inalienability restrictions of Commonwealth Act No. 141, as amended. On 10 September 1973, Rufina Eniceo and Maria Eniceo executed a notarized deed of absolute sale in favor of Canuto A. Galido for ₱250,000, and the owner’s duplicate copy of OCT No. 535 was delivered to Galido. The sale was not immediately registered, and the Eniceo heirs continued to occupy the property. Decades later, the Eniceo heirs obtained a second owner’s duplicate title by claiming loss of the original, and subsequently sold portions of the same property to Kings Properties Corporation in March and April 1995. Galido annotated an adverse claim on the title in March 1995, before Kings Properties’ purchases, and later sought judicial cancellation of Kings Properties’ titles and registration of his own deed.

• Issuance of Homestead Patent: On 18 April 1966, the heirs of Domingo Eniceo, namely Rufina Eniceo and Maria Eniceo, were awarded Homestead Patent No. 112947 covering four lots (Lots 1, 3, 4, and 5) in San Isidro, Antipolo, Rizal, with a total area of 14.8882 hectares. The property was registered under Original Certificate of Title (OCT) No. 535, subject to restrictions under Sections 118, 121, 122, and 124 of Commonwealth Act No. 141 (the Public Land Act), including a five-year absolute prohibition on alienation and a requirement for prior approval of the Secretary of Agriculture and Natural Resources for any alienation made after five years but before twenty-five years from issuance of the patent.

• First Sale to Respondent: On 10 September 1973, Rufina Eniceo and Maria Eniceo executed a notarized deed of absolute sale in favor of respondent Canuto A. Galido, conveying the entire Antipolo property for ₱250,000. The owner’s duplicate copy of OCT No. 535 was delivered to respondent by a certain Carmen Aldana, constituting constructive delivery. The sale was not immediately registered with the Registry of Deeds, and the Eniceo heirs remained in physical possession of the land.

• Reissuance of Owner’s Duplicate Title: After the death of Maria Eniceo in June 1975, the surviving Eniceo heirs claimed the owner’s duplicate copy of OCT No. 535 was lost. On 5 April 1988, they registered a Notice of Loss and subsequently filed a petition in the Regional Trial Court, Branch 72, Antipolo, Rizal (LRC Case No. 584-A) for issuance of a new owner’s duplicate copy. The court found no annotations on the certified true copy of OCT No. 535 and ordered issuance of a second owner’s copy on 31 January 1989, declaring the original owner’s copy cancelled. The Registry of Deeds issued the second owner’s copy on 6 April 1989. Respondent came to know of this proceeding in 1991 and filed a criminal case for false testimony against Rufina Eniceo and Leonila Bolinas (who were later acquitted).

• Offer and Second Sale to Petitioner: Sometime in February 1995, Leonila Bolinas, acting on behalf of the Eniceo heirs, offered the Antipolo property for sale to petitioner’s general manager, Alberto Tronio Jr. Tronio inspected the property, saw Bolinas’ relatives occupying it, and verified with the Registry of Deeds that OCT No. 535 appeared free of liens and encumbrances. On 14 March 1995, respondent caused the annotation of his adverse claim on OCT No. 535. On 20 March 1995, the Eniceo heirs executed a deed of absolute sale in favor of petitioner covering Lots 3 and 4 for ₱500,000. Transfer Certificate of Title (TCT) Nos. 277747 and 277120 were issued that day; TCT No. 277120 in petitioner’s name bore the annotated adverse claim. On 5 April 1995, the Eniceo heirs sold Lots 1 and 5 to petitioner for ₱1,000,000, resulting in cancellation of TCT No. 277120 and issuance of TCT No. 278588 in petitioner’s name, also carrying the adverse claim annotation.

• DENR Approval: On 17 August 1995, the Secretary of the Department of Environment and Natural Resources (DENR) approved the 1973 deed of sale between the Eniceo heirs and respondent, more than 21 years after its execution.

• Filing of the Action: On 16 January 1996, respondent filed a civil complaint with the Regional Trial Court of Antipolo City, Branch 71, against the Eniceo heirs and petitioner, seeking cancellation of petitioner’s TCTs, registration of the 1973 deed of sale, and issuance of new transfer certificates of title in his favor.

• Trial Court Findings: The trial court dismissed the complaint on 4 July 2000. It found that respondent did not testify on the genuineness of the deed of sale, failed to register it for over 22 years, and did not oppose the petition for a new owner’s duplicate title, constituting waiver and laches. The trial court considered petitioner a buyer in good faith for value who exercised due diligence, and opined that even if the deed were genuine, the transaction was merely an equitable mortgage because the vendors retained possession and respondent never took physical control.

• Appellate Reversal: The Court of Appeals reversed, holding that the notarized deed of sale carried a presumption of regularity and that forgery was not proved; laches did not bar the claim because the registration of unrecorded sales binds the parties, and no prejudice to petitioner was shown; the DENR Secretary’s approval was merely directory and its subsequent grant ratified the sale; petitioner was a buyer in bad faith because respondent’s adverse claim was annotated before petitioner’s purchases, serving as constructive notice; and the deed could not be presumed an equitable mortgage absent evidence of a debt. The CA declared the 1973 sale valid, nullified petitioner’s TCTs, and ordered issuance of new titles in respondent’s name.

• Laches: Petitioner argued that respondent was barred by laches because he slept on his rights by failing to register the 1973 deed of sale for over 22 years, despite knowledge as early as 1991 of the Eniceo heirs’ acquisition of a second owner’s duplicate title, and did not take timely action to prevent the subsequent sales to petitioner.

• Equitable Mortgage: Petitioner maintained that the 1973 deed of sale should be presumed an equitable mortgage under Article 1602(2) of the Civil Code, because the Eniceo heirs remained in physical possession of the land even after the alleged sale, and no delivery of possession was made to respondent.

• Forgery and Invalidity of First Sale: Petitioner alleged that the deed of sale in favor of respondent was a forgery and thus null and void, echoing the Eniceo heirs’ claim in their answer that the document was fake and spurious.

• Lack of DENR Approval: Petitioner contended that the sale to respondent was void for lack of the required approval of the DENR Secretary within the 25-year period following issuance of the homestead patent, as mandated by Section 118 of Commonwealth Act No. 141.

• Buyer in Good Faith: Petitioner insisted it was an innocent purchaser for value and in good faith, having conducted due diligence by inspecting the property and verifying the title, which at the time of inspection appeared clean of any adverse claims.

• Validity of First Sale: Respondent countered that the notarized deed of sale was executed with all legal formalities and carried the presumption of regularity; forgery was never proved by clear and convincing evidence. The delivery of the owner’s duplicate certificate constituted a valid symbolic delivery, transferring ownership.

• Effect of DENR Approval: Respondent argued that the approval of the DENR Secretary, though obtained late, ratified and validated the sale, consistent with jurisprudence holding that the requirement is merely directory for sales made after the five-year prohibitory period.

• No Equitable Mortgage: Respondent contended that the deed could not be presumed an equitable mortgage because there was absolutely no evidence of any debt owed by the Eniceo heirs to respondent, and mere continued possession by the vendors is insufficient to raise the presumption.

• Petitioner’s Bad Faith: Respondent pointed out that the annotation of his adverse claim on 14 March 1995 — prior to petitioner’s purchases on 20 March and 5 April 1995 — constituted constructive notice to the whole world under Section 52 of Presidential Decree No. 1529, thus defeating any claim of good faith by petitioner. Under the rule on double sales, the first buyer in good faith retains priority.

• Laches Not Applicable: Respondent maintained that he did not sleep on his rights; upon learning of the Eniceo heirs’ actions, he took prompt legal steps, including filing a criminal case for false testimony, registering his adverse claim, and instituting the civil action once new titles were issued. The essential element of prejudice to the defendant was absent.

• Validity of the 1973 Deed of Sale: Whether the deed of sale executed on 10 September 1973 is valid, notwithstanding allegations of forgery and the absence of prior DENR Secretary approval.

• Equitable Mortgage: Whether the 1973 deed of sale should be presumed an equitable mortgage under Article 1602(2) of the Civil Code because the vendors (the Eniceo heirs) remained in possession of the property.

• Good Faith of Petitioner: Whether petitioner Kings Properties Corporation was a buyer in good faith for value, entitling it to protection against the prior unregistered sale to respondent.

• Laches: Whether respondent’s claim is barred by laches due to his failure to register the 1973 sale or to assert his rights sooner.

• Validity of the 1973 Deed of Sale: The notarized deed of sale dated 10 September 1973 constituted a perfected and consummated contract of sale. The object (the Antipolo property) and the price certain (₱250,000) were defined, meeting the requisites of Articles 1318 and 1458 of the Civil Code. The execution of a public instrument and delivery of the owner’s duplicate copy amounted to constructive delivery, vesting ownership in respondent. Forgery was not proven; a notarized document enjoys a presumption of regularity, and the burden of proving forgery by clear and convincing evidence — which petitioner and the Eniceo heirs failed to discharge — lies with the party alleging it. The absence of prior DENR Secretary approval did not render the sale void. For alienations after the five-year prohibitory period but before the twenty-five-year mark, the approval requirement under Section 118 of Commonwealth Act No. 141, as amended, is merely directory. The subsequent approval on 17 August 1995 operated to ratify and adopt the transaction as if it had been previously authorized (citing Spouses Alfredo v. Spouses Borras). Thus, the 1973 sale was valid and binding.

• Equitable Mortgage: The deed of sale was not an equitable mortgage. The presumption under Article 1602(2) of the Civil Code — which arises when the vendor remains in possession — requires that the parties intended the contract to secure an existing debt by way of mortgage. Petitioner failed to present any evidence that the Eniceo heirs were indebted to respondent. Mere tolerated possession does not suffice to convert a sale into a mortgage. Moreover, the defense of equitable mortgage is personal to the vendor, who must seek reformation of the instrument under Article 1605. The Eniceo heirs initially denied the sale entirely, claiming forgery, and only raised equitable mortgage as an alternative on appeal — a change of theory impermissible at that stage. Because the Eniceo heirs did not appeal the CA decision, that ruling is final as to them, and petitioner, as their successor-in-interest, is estopped from asserting a theory inconsistent with their original defense.

• Good Faith of Petitioner: Petitioner was a buyer in bad faith and cannot claim the protection of an innocent purchaser for value. A buyer in good faith is one who purchases without notice of another’s right or interest in the property. Here, respondent caused the annotation of his adverse claim on OCT No. 535 on 14 March 1995, prior to petitioner’s purchases on 20 March and 5 April 1995. Under Section 52 of Presidential Decree No. 1529, such registration operates as constructive notice to the entire world. Consequently, petitioner was charged with knowledge of the defect in its vendors’ title. In double sales, the second buyer who registers the sale with knowledge of a prior sale cannot claim good faith; priority attaches to the first buyer (the principle of prius tempore, potior jure). As established in Carbonell v. Court of Appeals, the second buyer’s subsequent acquisition of constructive knowledge of the first sale defeats his rights, even if he registered first, because that knowledge taints registration with bad faith.

• Laches: Respondent’s claim was not barred by laches. The elements of laches are unreasonable delay and prejudice to the defendant. Although respondent did not register the 1973 sale promptly, his subsequent actions — filing a criminal case upon learning of the reissuance of the title, annotating an adverse claim as soon as he became aware of an impending second sale, and instituting the civil complaint after the new TCTs were issued — demonstrated diligence in protecting his interest. The necessary element of injury or prejudice to petitioner was not shown. Furthermore, under the Torrens system, an unrecorded sale remains valid between the immediate parties; registration is intended to protect innocent third persons without knowledge, a category into which petitioner does not fall.

• Directory nature of DENR Secretary approval for post-five-year homestead sales: Under Section 118 of Commonwealth Act No. 141, as amended, the prohibition against alienation without the approval of the Secretary of Agriculture and Natural Resources applies absolutely only within the first five years from issuance of the patent; thereafter, the approval requirement becomes merely directory or a formality. The absence of prior approval does not render the sale void, and subsequent approval by the Secretary operates to ratify and adopt the transaction as if previously authorized. (Reaffirmed from Spouses Alfredo v. Spouses Borras, 452 Phil. 178.)

• Constructive delivery by public instrument: Execution of a deed of sale in a public instrument is equivalent to delivery of the land, resulting in symbolic possession being transferred to the buyer. The delivery of the owner’s duplicate certificate of title further supports the transfer of ownership. (Citing Navera v. Court of Appeals, 184 SCRA 584.)

• Equitable mortgage — presumption requirements: The presumption of equitable mortgage under Article 1602 of the Civil Code — including the presumption arising from the vendor’s continued possession — is not conclusive. To trigger the presumption, there must be clear evidence, including parol evidence, that the parties intended the contract as security for an existing debt, not a genuine sale. Mere tolerated possession is insufficient. (Reiterating Matanguihan v. Court of Appeals, 341 Phil. 379; Lim v. Calaguas, 45 O.G. No. 8, p. 3394; Redondo v. Jimenez, 536 SCRA 639.)

• Equitable mortgage — defense personal to vendor: The right to seek reformation of an instrument as an equitable mortgage under Article 1605 belongs to the apparent vendor. A subsequent purchaser who merely steps into the vendor’s shoes cannot assert the defense if the vendor did not properly raise it, especially if the vendor’s original theory of the case was that the deed was a forgery. A change of theory on appeal is not permitted. (Citing Philippine Ports Authority v. City of Iloilo, 453 Phil. 927.)

• Constructive notice of adverse claim defeats good faith: Under Section 52 of Presidential Decree No. 1529, the registration of an adverse claim on a certificate of title constitutes constructive notice to all persons from the time of such registration. A subsequent buyer who purchases the property after the annotation of the adverse claim is deemed to have knowledge of the defect in the vendor’s title and cannot be considered a purchaser in good faith. (Citing Balatbat v. Court of Appeals, 329 Phil. 858.)

• Double sale — second buyer’s good faith must be continuous: In cases of double sale governed by Article 1544 of the Civil Code, the second buyer must show continuing good faith and ignorance of the first sale from the time of acquisition until the title is transferred by registration or, failing registration, by delivery of possession. Knowledge acquired by the second buyer of the first sale — whether actual or constructive — prior to registration defeats the second buyer’s rights, even if the second sale was registered first. The governing principle is prius tempore, potior jure (first in time, stronger in right). (Reaffirming Carbonell v. Court of Appeals, 161 Phil. 131.)

• Laches — elements of unreasonable delay and prejudice: Laches requires failure or neglect, for an unreasonable and unexplained length of time, to do that which could have been done earlier by due diligence, giving rise to a presumption of abandonment, and resulting in injury or prejudice to the defendant. (Citing LICOMCEN, Incorporated v. Foundation Specialists, Inc., 531 SCRA 705.)

• “The failure to secure the approval of the Secretary does not ipso facto make a sale void. The absence of approval by the Secretary does not a sale made after the expiration of the 5-year period, for in such event the requirement of Section 118 of the Public Land Act becomes merely directory or a formality. The approval may be secured later, producing the effect of ratifying and adopting the transaction as if the sale had been previously authorized.” — From Spouses Alfredo v. Spouses Borras, quoted by the Court, establishing the directory nature of the approval requirement.

• “A purchaser of a valued piece of property cannot just close his eyes to facts which should put a reasonable man upon his guard and then claim that he acted in good faith and under the belief that there were no defect in the title of the vendor. 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 who has knowledge of facts which should have put him upon such inquiry and investigation as be necessary to acquaint him with the defects in the title of his vendor.” — Articulating the standard of good faith in land purchases and the effect of constructive notice through an adverse claim.

• “In double sales, the first buyer always has priority rights over subsequent buyers of the same property. … The governing principle here is prius tempore, potior jure (first in time, stronger in right). Knowledge gained by the first buyer of the second sale cannot defeat the first buyer’s rights except only as provided by the Code and that is where the second buyer first registers in good faith the second sale ahead of the first. … But in converso knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register the second sale, since such knowledge taints his prior registration with bad faith.” — Summarizing the priority rule in double sales and the effect of the second buyer’s knowledge.

• Spouses Alfredo v. Spouses Borras, 452 Phil. 178 (2003) — Followed: laid down the rule that the DENR Secretary’s approval under Section 118 of CA 141 is directory for sales made after the five-year prohibition; subsequent approval ratifies the transaction. Central to the Court’s ruling on the validity of the first sale.

• Navera v. Court of Appeals, G.R. No. 56838, 26 April 1990, 184 SCRA 584 — Followed: a sale made in a public instrument is tantamount to delivery and results in symbolic possession being transferred to the buyer, supporting consummation of the 1973 sale.

• Matanguihan v. Court of Appeals, 341 Phil. 379 (1997) — Applied: defined the essential requisites of an equitable mortgage and emphasized that the presumption is not conclusive and may be rebutted by contrary proof.

• Balatbat v. Court of Appeals, 329 Phil. 858 (1996) — Applied: held that registration of an adverse claim places subsequent buyers in bad faith because such annotation is constructive notice, directly governing the determination of petitioner’s bad faith.

• Carbonell v. Court of Appeals, 161 Phil. 131 (1976) — Applied: enunciated the rule in double sales that the first buyer’s rights prevail, and that a second buyer’s knowledge of the first sale, even if acquired after the second purchase but before registration, taints the registration with bad faith.

• LICOMCEN, Incorporated v. Foundation Specialists, Inc., G.R. No. 167022, 31 August 2007, 531 SCRA 705 — Cited for the definition and elements of laches.

• Article 1318, Civil Code — No contract exists unless the requisites of consent, object certain, and cause are present. Applied to find the 1973 deed of sale perfected.

• Article 1458, Civil Code — Defines a contract of sale and the obligations of the seller to transfer ownership and deliver the thing sold. Used to determine the sale had been consummated by constructive delivery.

• Article 1602(2), Civil Code — Presumption of equitable mortgage when the vendor remains in possession as lessee or otherwise. Applied and held not to arise on the facts because no debt was shown.

• Article 1604, Civil Code — Cross-reference for application of equitable mortgage provisions. Mentioned.

• Article 1605, Civil Code — Provides that in cases under Articles 1602 and 1604, the apparent vendor may ask for reformation of the instrument. Highlighted to show the defense is personal to the vendor.

• Section 118, Commonwealth Act No. 141 (Public Land Act), as amended by Commonwealth Act No. 456 — Restricts alienation of homestead lands: absolutely prohibited within five years; requires Secretary’s approval thereafter until twenty-five years. Interpreted as directory for post-five-year sales.

• Section 51, Presidential Decree No. 1529 (Property Registration Decree) — Conveyance of registered land not registered is valid between the parties but not against innocent third persons. Applied to bind petitioner, who was not innocent.

• Section 52, Presidential Decree No. 1529 — Registration of instruments or entries affecting registered land constitutes constructive notice to all persons. Crucial in holding that the annotated adverse claim charged petitioner with knowledge of respondent’s interest.

Associate Justices Teresita J. Leonardo-De Castro, Arturo D. Brion, Mariano C. Del Castillo, and Roberto A. Abad concurred.