Morales Development Company, Inc. vs. The Court of Appeals

Where registered land is sold to different vendees and neither conveyance has been registered, ownership belongs under Article 1544 of the Civil Code to the vendee who in good faith first took possession; a purchaser who relies on a certificate of title in the vendor’s name is not bound to investigate prior conveyances or the stated consideration.

The controversy involves a parcel of registered land in Catanauan, Quezon, originally titled in the name of Enrique P. Montinola. Morales Development Company, Inc. and the Deseos each claimed ownership through deeds emanating from Montinola or his successors-in-interest. Because the land was registered and neither buyer had succeeded in registering its deed, the controlling statutory backdrop is Article 1544 of the Civil Code, governing ownership in a double sale of immovable property.

Lot No. 2488 of the Cadastral Survey of Catanauan, Province of Quezon, used to belong to Enrique P. Montinola and was covered by Transfer Certificate of Title No. T-15687 of the Register of Deeds of Quezon in his name. Alleging that his owner’s duplicate copy of the certificate had been lost, Montinola succeeded in securing from the Court of First Instance an order for the issuance of a second owner’s duplicate. With that second duplicate, he sold the lot on September 24, 1954, to Pio Reyes. Upon registration of the deed of sale to Reyes, TCT No. T-15687 was cancelled and, in lieu thereof, TCT No. 21036 in the name of Reyes was issued on November 18, 1954.

Lupo Abella, married to Felisa Aguilar, purchased the land from Reyes. The deed of conveyance executed by Reyes was registered, and the Abellas obtained TCT No. 21037 in their name upon cancellation of TCT No. 21036. About seven months later, or on June 16, 1955, the Abellas sold the land for P7,000, of which P4,500 was then paid, to Hermenegildo Deseo and Socorro Deseo, who immediately took possession of the property.

It appears, however, that the first owner’s duplicate of TCT No. T-15687 was either never lost or was subsequently found by Montinola. Using it, Montinola mortgaged the lot before February 21, 1956, to the Philippine National Bank for P700. Then, on February 21, 1956, Montinola sold the property to Morales for P2,000, from which the sum due to the Bank was deducted. Upon presentation of the deed of sale in favor of Morales, the Register of Deeds of Quezon advised Morales that TCT No. T-15687 had already been cancelled and the property sold, first to Pio Reyes and then to the Abellas. Thereupon, Morales filed a petition for the annulment and cancellation of the second owner’s copy of TCT No. T-15687. After due notice to Reyes and the Abellas, but not to the Deseos, the petition was granted on March 12, 1956.

Having been unable, in view of these developments, to register the deed of conveyance executed by the Abellas, the Deseos commenced the present action against Morales for the annulment of the subsequent sale to Morales and the registration of the deed of conveyance in their favor. They alleged that their deed enjoyed preference over the sale to Morales because they had priorly bought the lot in good faith and for value and had been first in possession in good faith. Morales claimed a better right on the ground that it had bought the property in good faith and for value, relying upon the first owner’s duplicate copy of TCT No. T-15687, unlike the Deseos, whose predecessor in interest, Pio Reyes, had relied upon the second owner’s duplicate, which Morales alleged had been secured fraudulently. Morales further alleged that the sale to Reyes and the sale by Reyes to the Abellas were null and void because both took place under suspicious circumstances, so that Reyes and the Abellas were not purchasers in good faith and for value.

The factual findings material to the Supreme Court were that the Deseos purchased for value and in good faith in reliance on TCT No. 21037 in the Abellas’ name; that their purchase preceded Morales’s by about eight months; that they took immediate possession and remained in possession; that TCT No. T-15687 had been cancelled over a year before Montinola sold to Morales; that Morales was informed of this when it sought registration; and that TCT No. 21037 had not been ordered cancelled.

• Suspicious Sales and Bad Faith: Petitioner maintained that the sale by Montinola to Reyes and the later sale by Reyes to the Abellas were suspicious because the consideration stated in the deeds was P1.00; that Reyes and the Abellas were therefore not purchasers in good faith and for value; and that both sales were consequently null and void.
• Better Right Based on the First Owner’s Duplicate: Petitioner claimed a better right because it bought the property in good faith and for value relying upon the first owner’s duplicate copy of TCT No. T-15687, unlike the Deseos, whose predecessor in interest, Pio Reyes, had relied upon the second owner’s duplicate, which petitioner alleged had been secured fraudulently.
• Deseos’ Alleged Duty to Investigate: Petitioner argued that it was not enough for the Deseos to have gone to the Office of the Register of Deeds and found no flaws in the title of the Abellas; the Deseos should also have ascertained why the Abellas had paid only P1.00 to Reyes and why Reyes had paid the same amount to Montinola.

• Preference Through Prior Good-Faith Purchase and Possession: Respondents maintained that their deed of conveyance enjoyed preference over the sale to Morales because they had priorly bought Lot No. 2488 in good faith and for value and had been first in possession of the lot, likewise in good faith.
• Annulment of the Morales Sale and Registration of Their Deed: Respondents sought the annulment of the subsequent sale by Montinola to Morales and the registration of the deed of conveyance executed by the Abellas in their favor.

• Validity of the Prior Sales: Whether the sale by Montinola to Reyes and the sale by Reyes to the Abellas were null and void because of suspicious circumstances, including the stated P1.00 consideration, and because Reyes and the Abellas were allegedly not purchasers in good faith and for value.
• Better Right in the Double Sale: Whether Morales or the Deseos had a better right to the registered lot under Article 1544 of the Civil Code where neither buyer had registered its conveyance.
• Duty to Investigate: Whether the Deseos were bound to investigate the prior deeds of conveyance and the stated P1.00 consideration beyond verifying the genuineness of TCT No. 21037 in the Abellas’ name.

• Validity of the Prior Sales: No. The sales to Reyes and the Abellas were not null and void ab initio; inadequacy of monetary consideration and bad faith do not render a conveyance inexistent, and fraud or bad faith may render a contract rescissible or voidable but valid until annulled. Reyes and the Abellas were also not parties to the case.
• Better Right in the Double Sale: The Deseos. Under Article 1544 of the Civil Code, since neither buyer had registered its conveyance, ownership pertained to the Deseos as the only party who took possession in good faith.
• Duty to Investigate: No. Having verified the genuineness of the owner’s duplicate of TCT No. 21037 in the Abellas’ name, the Deseos were justified in relying on it and had no legal obligation to make further investigation; Morales’s negligence was the proximate cause of the wrong.

• Validity of the Prior Sales: The Court rejected Morales’s syllogism that the sales were suspicious because the deeds stated P1.00 consideration, that Reyes and the Abellas were therefore not good-faith purchasers for value, and that the sales were null and void. It noted that stating P1.00 is not unusual in deeds following Anglo-Saxon practice, and that even if the consideration were suspicious, that circumstance alone did not justify inferring bad faith or lack of value. Bad faith and inadequacy of monetary consideration do not render a conveyance inexistent; the assignor’s liberality may be sufficient cause for a valid contract. Fraud or bad faith may render a contract rescissible or voidable, but valid until annulled, where there is an object certain, a cause, and consent. Moreover, the conveyances could not be annulled in this case because Reyes and the Abellas were not parties.
• Better Right in the Double Sale: The Deseos bought for value and in good faith relying on TCT No. 21037 in the Abellas’ name. Their purchase preceded Morales’s by about eight months, and they immediately took possession, held the land when Montinola conveyed it to Morales, and remained in possession. TCT No. T-15687 in Montinola’s name had been cancelled over a year before he sold to Morales, and Morales was informed of this when it sought to register. TCT No. 21037 had not been ordered cancelled. Because the land was registered and neither buyer had registered its deed, Article 1544 provided that ownership pertained to the Deseos as the only party who took possession in good faith.
• Duty to Investigate: Morales argued that the Deseos should have ascertained why the Abellas paid only P1.00 to Reyes and why Reyes paid the same to Montinola. The Court held that the Deseos did not know those sums were the consideration, and they were not bound to check the prior deeds. Having found the owner’s duplicate of TCT No. 21037 to be genuine and matching the original on file, they were fully justified in relying on it and had no legal obligation to make further investigation. Conversely, if that verification was insufficient for the Deseos, it was even less sufficient for Morales to rely on Montinola’s copy of TCT No. T-15687. Had Morales checked the Register of Deeds before purchasing, it would have discovered that TCT No. T-15687 had long been cancelled and the property previously sold to Reyes and then to the Abellas. Morales’s negligence was thus the proximate cause of the wrong, and it must suffer the consequences.

• Double Sale of Registered Land (Article 1544, 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 in the Registry of Property. If there is no inscription, ownership pertains to the person who in good faith was first in possession; in the absence thereof, to the person who presents the oldest title, provided there is good faith. The Court applied this rule because neither the Deseos nor Morales had registered its conveyance; the Deseos, having first taken possession in good faith, were declared owners.
• Good Faith Reliance on a Certificate of Title — A purchaser for value may rely on the vendor’s certificate of title, particularly where the owner’s duplicate appears genuine and matches the original on file with the Register of Deeds. Such purchaser is not legally obliged to investigate prior deeds of conveyance or the consideration stated therein. The Deseos were held justified in relying on TCT No. 21037 in the Abellas’ name, while Morales’s reliance on a cancelled title without checking the Register of Deeds was negligent.
• Effect of Inadequacy of Consideration and Bad Faith — Inadequacy of monetary consideration and bad faith do not render a conveyance inexistent or void ab initio. The assignor’s liberality may be sufficient cause for a valid contract; fraud or bad faith may render a contract rescissible or voidable, but valid until annulled, provided there is an object certain, a cause, and consent. This defeated Morales’s attack on the prior sales.
• Annulment Requires Inclusion of Parties to the Contract — A conveyance may not be annulled in a case where the parties to that conveyance are not parties to the litigation. The Court noted that the sales to Reyes and the Abellas could not be annulled because Reyes and the Abellas were not parties.
• Negligence as Proximate Cause — The party whose negligence is the proximate cause of the resulting wrong must suffer its consequences. Morales’s failure to verify the title before purchasing made it the party responsible for its own loss.

• "Since the object of this litigation is a registered land and the two (2) buyers thereof have so far been unable to register the deeds of conveyance in their respective favor, it follows that 'the ownership' of said lot 'pertain(s)' — pursuant to Article 1544 of our Civil Code — to the Deseos, as the only party who took possession thereof in good faith." — This states the ratio for the double-sale issue and applies Article 1544 to the Deseos as the first good-faith possessor.
• "Having found that the owner's duplicate copy of TCT No. 21037, in the name of the Abellas, was a genuine copy of the original on file with the Office of the Register of Deeds, the Deseos were fully justified in relying upon said TCT No. 21037, and had no legal obligation to make farther investigation." — This defines the extent of a purchaser’s duty to investigate when relying on a certificate of title.
• "In short, the negligence of Morales was the proximate cause of the resulting wrong, and, hence, Morales should be the party to suffer its consequences." — This fixes the consequence of Morales’s failure to check the Register of Deeds before purchasing.
• "Indeed, bad faith and inadequacy of the monetary consideration do not render a conveyance inexistent, for the assignor's liberality may be sufficient cause for a valid contract, whereas fraud or bad faith may render either rescissible or voidable although valid until annulled, a contract concerning an object certain, entered into with a cause and with the consent of the contracting parties, as in the case at bar." — This rejects Morales’s theory that the P1.00 consideration made the prior sales void.

• Soriano vs. Heirs of D. Magali, 62 O.G. 4786 — Cited in footnote to the Court’s application of Article 1544, supporting the rule that ownership in a double sale of registered land may pertain to the good-faith first possessor.
• De la Cruz vs. Fabie, 35 Phil. 144 — Cited among authorities for the principle that the party whose negligence caused the wrong must bear its consequences.
• Blondeau vs. Nano, 61 Phil. 625 — Cited among authorities for the same negligence and proximate-cause principle.
• Lara vs. Ayroso, 95 Phil. 185 — Cited among authorities for the same negligence and proximate-cause principle.
• Philippine National Bank vs. Court of Appeals, L-26001, Oct. 29, 1968 — Cited among authorities for the same negligence and proximate-cause principle.

• Article 1544, Civil Code — The Court cited this provision for double sale of immovable property: ownership belongs to the person acquiring in good faith who first recorded it; if no inscription, to the person who in good faith was first in possession; absent possession, to the person with the oldest title, provided good faith. Because neither buyer had registered, the Deseos’s prior good-faith possession was decisive.
• Article 1350, Civil Code — Cited for the rule that the assignor’s liberality may be sufficient cause for a valid contract. This supported the conclusion that the P1.00 stated consideration did not invalidate the prior sales.
• Articles 1318, 1355, 1381, and 1390, Civil Code — Cited for the proposition that fraud or bad faith may render a contract rescissible or voidable but valid until annulled, where there is an object certain, a cause, and consent. This defeated Morales’s claim that the prior sales were null and void ab initio.

Reyes, J.B.L.; Dizon; Makalintal; Zaldivar; Sanchez; Castro; Fernando; Capistrano; Teehankee; and Barredo, JJ., concurred.