Martinez vs. Court of Appeals

A second purchaser of immovable property cannot claim good faith under Article 1544 of the Civil Code if aware of facts that should prompt inquiry into the rights of a possessor, and a contract denominated as a sale with right to repurchase is presumed an equitable mortgage when the circumstances indicate the parties merely intended to secure a debt.

In February 1981, private respondents Godofredo and Manuela De la Paz orally sold a subdivision lot to petitioner Rev. Fr. Dante Martinez for P15,000.00. Martinez paid the downpayment, secured a building permit with the registered owner's consent, and completed construction of his residence on the lot by October 1981. In January 1983, Martinez fully paid the purchase price, but the De la Pazes failed to deliver the promised deed of sale. Meanwhile, in October 1981, the De la Pazes executed a "Deed of Absolute Sale with Right to Repurchase" over the same lot, along with two others, in favor of private respondents Spouses Reynaldo and Susan Veneracion for P150,000.00. The Veneracions never took actual possession of the lots. Before the redemption period expired, the De la Pazes offered to sell the lots to a third party, prompting the Veneracions to offer P180,000.00 for two of the lots, resulting in a Deed of Absolute Sale executed in June 1983. The Veneracions registered the property in March 1984, despite having knowledge of Martinez's house on the lot as early as 1981, relying merely on Godofredo De la Paz's assurance that he would address the matter.

• First Sale to Petitioner: In February 1981, the De la Pazes orally sold a lot to Martinez for P15,000.00. After giving the downpayment, Martinez secured a building permit with the consent of the registered owner and completed his house on the lot by October 1981. Martinez fully paid the purchase price in January 1983. The De la Pazes executed receipts acknowledging the payment and promising a Deed of Sale, but never delivered the deed.
• Subsequent Transactions with Veneracions: In October 1981, while Martinez was constructing his house, the De la Pazes executed a "Deed of Absolute Sale with Right to Repurchase" over three lots, including Martinez's lot, in favor of the Veneracions for P150,000.00. The Veneracions never took actual possession of any of the lots. Before the one-year redemption period expired, the De la Pazes offered to sell the lots to a third party for P200,000.00. The Veneracions countered by offering to buy two of the lots for P180,000.00, resulting in a Deed of Absolute Sale executed on June 2, 1983.
• Registration and Discovery: The Veneracions registered the lots in March 1984. Reynaldo Veneracion admitted he knew of Martinez's occupancy as early as January 1984, but merely relied on Godofredo De la Paz's assurance that he would talk to the occupant. In March 1986, Veneracion demanded that Martinez vacate the property. Martinez responded by demanding the execution of the deed of sale from the De la Pazes and recording a notice of lis pendens on the Veneracions' title.

• Good Faith of Second Buyers: Petitioner argued that the CA and RTC erred in holding the Veneracions were buyers and registrants in good faith, given their knowledge of his possession.
• Applicability of Precedents: Petitioner maintained that the lower courts erred in ignoring the rulings in Salvoro v. Tanega and Arcenas v. Del Rosario.
• Perfection of Appeal: Petitioner contended that the CA erred in giving due course to the appeal in CA-G.R. SP No. 24477 because the Veneracions failed to pay the appellate docket fee within the reglementary period, which should have rendered the MTC decision final and executory.
• Constitutional Violation: Petitioner argued that the CA violated the Constitution by denying the motion for reconsideration without stating the legal basis therefor.

• Good Faith and Lack of Notice: Respondents countered that the Veneracions were buyers in good faith because the prior sale to Martinez was not notarized as required by Articles 1357 and 1358 of the Civil Code, thus they had no knowledge of it, and they relied on the vendor's assurance to address the occupancy.
• Perfection of Appeal: Respondents argued that the appeal was validly perfected despite the delayed payment of docket fees.

• Double Sale and Good Faith: Whether the Veneracions are buyers in good faith under Article 1544 of the Civil Code, entitling them to ownership of the disputed lot.
• Perfection of Appeal: Whether the payment of the appellate docket fee within the reglementary period is necessary for the perfection of an appeal from the MTC to the RTC.
• Constitutional Requirement for Denial of MR: Whether the CA resolution denying the motion for reconsideration violated the constitutional requirement to state the legal basis for the denial.

• Double Sale and Good Faith: The Veneracions were not buyers in good faith. Under Article 1544, priority in double sale requires both prior registration and acquisition in good faith. The Veneracions knew of the construction on the lot as early as October 1981, imposing a duty to inquire into the nature of the occupant's right, which they failed to discharge by merely relying on the vendor's assurance. Moreover, the first contract between the De la Pazes and the Veneracions was an equitable mortgage under Article 1602, as evidenced by the Veneracions' failure to take possession, the De la Pazes' continued possession of an adjacent lot, and the Veneracions' offer to buy the property again when the De la Pazes found another buyer. The true sale occurred in June 1983, at which time the Veneracions already had knowledge of Martinez's possession. The CA's reliance on Articles 1357 and 1358 was erroneous because those provisions only require the sale of real property to be in writing for enforceability, not notarized.
• Perfection of Appeal: Payment of the appellate docket fee is not a prerequisite for perfecting an appeal from the MTC to the RTC under the Interim Rules and Guidelines implementing B.P. Blg. 129. Perfection requires only the filing of a notice of appeal and the expiration of the period to appeal.
• Constitutional Requirement for Denial of MR: The CA did not violate the Constitution. The requirement that a denial of a motion for reconsideration state the basis therefor was satisfied when the CA stated that the motion raised nothing new and that the arguments had already been considered in the decision.

• Double Sale (Art. 1544, Civil Code) — Where immovable property is the subject of a double sale, ownership shall be transferred: (1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in default thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the person who presents the oldest title. The requirement is two-fold: acquisition in good faith and recording in good faith. The second purchaser must prove not only prior recording but also that they acted without knowledge or notice of a prior sale.
• Duty to Investigate — A purchaser who is aware of facts which should put a reasonable person upon guard cannot turn a blind eye and later claim good faith. The fact that there are persons, other than the vendors, in actual possession of the disputed lot should put the purchaser on inquiry as to the nature of the possessor's right over the property. Reliance on the vendor's assurance does not meet the standard of good faith.
• Equitable Mortgage (Art. 1602, Civil Code) — A contract of sale with right to repurchase gives rise to the presumption that it is an equitable mortgage in cases such as when the price is unusually inadequate, the vendor remains in possession, or when it may be fairly inferred that the real intention was to secure a debt. In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage.
• Perfection of Appeal (MTC to RTC) — Under the Interim Rules and Guidelines implementing the Judiciary Reorganization Act of 1981 (B.P. Blg. 129), the perfection of an appeal from the MTC to the RTC requires only the filing of a notice of appeal within the reglementary period and the expiration of the last day to appeal by any party. The payment of the appellate docket fee is not a jurisdictional requirement for perfection.

• "The requirement of the law, where title to the property is recorded in the Register of Deeds, is two-fold: acquisition in good faith and recording in good faith. To be entitled to priority, the second purchaser must not only prove prior recording of his title but that he acted in good faith, i.e., without knowledge or notice of a prior sale to another."
• "A purchaser who is aware of facts which should put a reasonable man upon his guard cannot turn a blind eye and later claim that he acted in good faith."
• "The fact that there are persons, other than the vendors, in actual possession of the disputed lot should have put private respondents on inquiry as to the nature of petitioner's right over the property. But he never talked to petitioner to verify the nature of his right. He merely relied on the assurance of private respondent Godofredo De la Paz, who was not even the owner of the lot in question, that he would take care of the matter. This does not meet the standard of good faith."

• Santos v. Court of Appeals, 253 SCRA 632 (1996) — Followed. Held that the payment of an appeal fee is not a prerequisite for the perfection of an appeal from the MTC to the RTC under the Interim Rules and Guidelines implementing B.P. Blg. 129.
• Matanguihan v. Court of Appeals, 275 SCRA 380 (1997) — Applied. Cited for the principle that the nature of a contract is determined by the contemporaneous and subsequent acts of the parties, supporting the recharacterization of the sale with right to repurchase as an equitable mortgage.
• Bautista v. Court of Appeals, 230 SCRA 446 (1994) — Applied. Cited for the doctrine that good faith must be ascertained from the circumstances surrounding the purchase and that a purchaser aware of facts putting a reasonable person on guard cannot claim good faith.
• Borromeo v. Court of Appeals, 186 SCRA 1 (1990) — Applied. Cited to support the ruling that the constitutional requirement for stating the basis for the denial of a motion for reconsideration is satisfied when the court states that the motion raises nothing new.

• Article 1544, Civil Code — Governs double sales of immovable property. Applied to determine the rights of the Veneracions as subsequent purchasers, ultimately denying them priority due to lack of good faith.
• Article 1602, Civil Code — Enumerates the cases where a contract of sale with right to repurchase is presumed to be an equitable mortgage. Applied to recharacterize the October 1981 transaction between the De la Pazes and the Veneracions as an equitable mortgage.
• Article 1603, Civil Code — Provides that in case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage.
• Articles 1357, 1358, and 1403(2), Civil Code — Require that the sale of real property be in writing to be enforceable, but do not require notarization. The Court found the CA erred in relying on these provisions to excuse the Veneracions' lack of knowledge, as the prior sale's lack of notarization did not negate the duty to inquire into the actual possession of the property.
• Article VIII, Section 14, 1987 Constitution — Requires that no petition for review or motion for reconsideration shall be refused due course or denied without stating the basis therefor. Applied to uphold the validity of the CA's resolution denying reconsideration.
• Sections 20 and 23, Interim Rules and Guidelines (B.P. Blg. 129) — Govern the procedure for taking and perfecting appeals from lower courts to the RTC, requiring only a notice of appeal and the expiration of the appeal period, without mandating the payment of docket fees for perfection.

Bellosillo, Quisumbing, Buena, and De Leon, Jr.