Occeña vs. Esponilla

A buyer of real property in the possession of persons other than the seller must be wary and should investigate the rights of those in possession; without such inquiry, the buyer can hardly be regarded as a buyer in good faith and cannot have any right over the property. The general rule that one dealing with registered land need not go beyond the certificate of title does not apply when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry.

The case involves a 1,198-square meter residential lot (Lot No. 265) in Sibalom, Antique, originally owned by spouses Nicolas and Irene Tordesillas under OCT No. 1130. The Tordesillas spouses had three children: Harod, Angela, and Rosario, the latter survived by her two children, Arnold and Lilia de la Flor. After the death of the Tordesillas spouses, the lot was inherited by their children Harod and Angela, and grandchildren Arnold and Lilia. The dispute arose from successive transactions over a portion of this lot, involving a pacto de retro sale, a definite sale, and later a second sale to the petitioners, raising issues under Article 1544 of the New Civil Code on double sales and the Torrens system's protection of purchasers in good faith.

The case involves a portion of the 1,198-square meter residential lot (Lot No. 265) in Sibalom, Antique, originally owned by spouses Nicolas and Irene Tordesillas under OCT No. 1130. The Tordesillas spouses had three children: Harod, Angela, and Rosario, the latter survived by her two children, Arnold and Lilia de la Flor. After the death of the Tordesillas spouses, the lot was inherited by their children Harod and Angela, and grandchildren Arnold and Lilia. In 1951, the heirs executed a Deed of Pacto de Retro Sale in favor of Alberta Morales covering the southwestern portion of the lot with an area of 748 square meters. Three years later, in 1954, Arnold and Lilia executed a Deed of Definite Sale of Shares, Rights, Interests and Participations over the same 748 sq. m. lot in favor of Alberta Morales. The notarized deed also attested that the lot sold by vendors Arnold and Lilia to Alberta were their share in the estate of their deceased parents. Alberta possessed the lot as owner, constructed a house on it, and appointed a caretaker to oversee her property.

Thereafter, in July 1956, vendor Arnold de la Flor borrowed the OCT from Alberta covering the lot. He executed an Affidavit acknowledging receipt of the OCT in trust and undertook to return said title free from changes, modifications or cancellations. In 1966, Arnold and Angela, without the knowledge of Alberta, executed a Deed of Extrajudicial Settlement declaring the two of them as the only co-owners of the undivided 1,198 sq. m. lot no. 265, without acknowledging their previous sale of 748 sq. m. thereof to Alberta. A number of times, thereafter, Alberta and her nieces asked Arnold for the OCT of the land but Arnold just kept on promising to return it. In 1983, Arnold executed an Affidavit of Settlement of the Estate of Angela who died in 1978 without issue, declaring himself as the sole heir of Angela and thus consolidating the title of the entire lot in his name.

In 1985, vendee Alberta Morales died. Her nieces-heirs, Lydia, Elsa and Dafrosa, succeeded in the ownership of the lot. Months later, as the heirs were about to leave for the United States, they asked Arnold to deliver to them the title to the land so they can register it in their name. Arnold repeatedly promised to do so but failed to deliver the title to them. On December 4, 1986, after Alberta's heirs left for the States, Arnold used the OCT he borrowed from the deceased vendee Alberta Morales, subdivided the entire lot no. 265 into three sublots, and registered them all under his name: lot no. 265-A (with TCT No. 16895), lot no. 265-B (with TCT No. 16896) and lot no. 265-C (with TCT No. 16897). He then paid the real estate taxes on the property.

On August 13, 1990, Arnold sold lot nos. 265-B & C to spouses Tomas and Sylvina Occeña, which included the 748 sq. m. portion previously sold to Alberta Morales. A Deed of Absolute Sale over said lots was executed to the Occeña spouses and titles were transferred to their names. In 1993, after the death of Arnold, the three nieces-heirs of Alberta Morales learned about the second sale of their lot to the Occeña spouses when they were notified by caretaker Abas that they were being ejected from the land. In 1994, the heirs filed a case for annulment of sale and cancellation of titles, with damages, against the second vendees Occeña spouses. In their complaint, they alleged that the Occeñas purchased the land in bad faith as they were aware that the lots sold to them had already been sold to Alberta Morales in 1954. They averred that before the sale, when Tomas Occeña conducted an ocular inspection of the lots, Morito Abas, the caretaker appointed by Alberta Morales to oversee her property, warned them not to push through with the sale as the land was no longer owned by vendor Arnold as the latter had previously sold the lot to Alberta Morales who had a house constructed thereon.

For their part, the Occeña spouses claimed that the OCT in the name of the original owners of the lots, the Tordesillas spouses, was cancelled after it was subdivided between Angela and Arnold in 1969; that new TCTs had been issued in the latter's names; that they were unaware that the subject lots were already previously sold to Morales as they denied that Tomas had a talk with caretaker Abas on the matter; that as of December 4, 1987, the TCTs covering the lots were in the name of Arnold and his wife, without any adverse claim annotated thereon; that vendor Arnold represented to them that the occupants they saw on the land were squatters and that he merely tolerated their presence; that they did not personally investigate the alleged squatters on the land and merely relied on the representation of vendor Arnold; that sometime in 1966-1967, Arnold and his co-heir Angela caused the survey of the original lot and subdivided it into 3 lots, without opposition from Morales or her heirs. The Occeña spouses alleged that they were buyers in good faith as the titles to the subject lots were free from liens or encumbrances when they purchased them. They claimed that in 1989, Arnold offered to sell the subject lots to them. On August 13, 1990, after they verified with the Antique Registry of Deeds that Arnold's TCTs were clean and unencumbered, Arnold signed the instrument of sale over the subject lots in favor of the Occeñas for ₱100,000.00 and new titles were issued in their names.

The Occeñas likewise set up the defenses of laches and prescription. They argued that Alberta and plaintiffs-heirs were barred from prosecuting their action as they failed to assert their right for forty (40) years. They pointed out that vendor Arnold and Angela subdivided the entire lot in 1966 and declared themselves as the only co-owners thereof in the deed of extrajudicial settlement, and Alberta Morales failed to oppose the inclusion of her 748 sq. m. lot in the deed. Secondly, preparatory to the division of the lots, vendor Arnold had the land surveyed but Alberta again failed to oppose the same. Finally, Alberta and her heirs who are claiming adverse rights over the land based on the 1951 Deed of Pacto de Retro Sale and the 1954 Deed of Definite Sale of Shares failed for 40 years to annotate their adverse claims on the new titles issued to Arnold and Angela, enabling the latter to possess a clean title and transfer them to the Occeña spouses.

• Good Faith and Clean Title: Petitioner-spouses claimed that they were purchasers of the land in good faith as the law does not obligate them to go beyond a clean certificate of title to determine the condition of the property. They argued that a person dealing with registered land is only charged with notice of the burden on the property annotated on the title, and when there is nothing on the title to indicate any cloud or vice in the ownership of the property or any encumbrance thereon, the purchaser is not required to explore further than the title in quest of any hidden defect or inchoate right that may subsequently defeat his right thereto.
• Verbal Information vs. Torrens Title: They claimed they had every right to purchase the land despite the verbal warning made by caretaker Abas as the information was mere hearsay and cannot prevail over the title of the land which was free from any encumbrance.
• Laches and Prescription: The Occeñas argued that Alberta and plaintiffs-heirs were barred from prosecuting their action as they failed to assert their right for forty (40) years, pointing to the 1966 extrajudicial settlement, the survey of the land, and the failure to annotate adverse claims on the new titles.

• Bad Faith of Second Vendees: The heirs of Alberta Morales alleged that the Occeñas purchased the land in bad faith as they were aware that the lots sold to them had already been sold to Alberta Morales in 1954, citing the warning given by caretaker Morito Abas during Tomas Occeña's ocular inspection.
• Prior Sale and Possession: They averred that before the sale, when Tomas Occeña conducted an ocular inspection of the lots, Morito Abas, the caretaker appointed by Alberta Morales to oversee her property, warned them not to push through with the sale as the land was no longer owned by vendor Arnold as the latter had previously sold the lot to Alberta Morales who had a house constructed thereon.

• Good Faith of Second Buyer: Whether a verbal information could be made to prevail over a clean certificate of title of a registered land which is free of any lien or encumbrance annotated on its certificate of title or any adverse claim recorded with the register of deeds.
• Duty to Inquire Beyond the Title: Whether a buyer of a registered land is obligated to make inquiries of any possible defect or adverse claim affecting its ownership which does not appear on the certificate of title.
• Laches and Prescription: Whether the period of more than forty (40) years without positive action taken by respondents, as well as by Alberta Morales, to protect their interest can be considered laches and thus their present action has prescribed.

• Good Faith of Second Buyer: No. The petitioner-spouses failed to prove good faith in their purchase and registration of the land. A purchaser in good faith and for value is one who buys property without notice that some other person has a right to or interest in such property and pays its fair price before he has notice of the adverse claims and interest of another person in the same property.
• Duty to Inquire Beyond the Title: Yes. A buyer of real property in the possession of persons other than the seller must be wary and should investigate the rights of those in possession. The general rule that one dealing with registered land need not go beyond the title does not apply when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry.
• Laches and Prescription: No. The action to annul title filed by respondents-heirs is not barred by laches and prescription. Laches cannot be used to defeat justice or perpetuate fraud and injustice, and prescription does not apply when the person seeking annulment of title or reconveyance is in possession of the lot because the action partakes of a suit to quiet title which is imprescriptible.

• Good Faith of Second Buyer: The Court applied Article 1544 of the New Civil Code on double sale of an immovable property, which provides that ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. In all cases, good faith is essential. The Court found that the Occeña spouses failed to prove good faith because Tomas Occeña admitted that he found houses built on the land during its ocular inspection prior to his purchase, and he relied on the representation of vendor Arnold that these houses were owned by squatters. The Court held that Tomas should have verified from the occupants of the land the nature and authority of their possession instead of merely relying on the representation of the vendor that they were squatters, having seen for himself that the land was occupied by persons other than the vendor who was not in possession of the land at that time. The settled rule is that a buyer of real property in the possession of persons other than the seller must be wary and should investigate the rights of those in possession. Without such inquiry, the buyer can hardly be regarded as a buyer in good faith and cannot have any right over the property.
• Duty to Inquire Beyond the Title: The Court acknowledged the general rule that one who deals with property registered under the Torrens system need not go beyond the same, but only has to rely on the title. However, this principle does not apply when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property in litigation. The evidence showed that when Tomas Occeña conducted an ocular inspection of the land prior to the second sale, Abas, the caretaker of the house which Alberta Morales built on the land, personally informed Tomas that the lot had been previously sold by the same vendor Arnold to Alberta Morales. With this information, the Occeñas were obliged to look beyond the title of their vendor and make further inquiries from the occupants of the land as to their authority and right to possess it. However, despite this information about a prior sale, the Occeñas proceeded with the purchase in haste. They did not inquire from Abas how they could get in touch with the heirs or representatives of Alberta to verify the ownership of the land. Neither do the records reveal that they exerted effort to examine the documents pertaining to the first sale.
• Laches and Prescription: The Court held that laches is a creation of equity and its application is controlled by equitable considerations. Laches cannot be used to defeat justice or perpetuate fraud and injustice. Neither should its application be used to prevent the rightful owners of a property from recovering what has been fraudulently registered in the name of another. Prescription does not apply when the person seeking annulment of title or reconveyance is in possession of the lot because the action partakes of a suit to quiet title which is imprescriptible. In this case, Morales had actual possession of the land when she had a house built thereon and had appointed a caretaker to oversee her property. Her undisturbed possession of the land for a period of fifty (50) long years gave her and her heirs a continuing right to seek the aid of a court of equity to determine the nature of the claim of ownership of petitioner-spouses. The right to quiet title to the property, seek its reconveyance and annul any certificate of title covering it accrued only from the time the one in possession was made aware of a claim adverse to his own, and it is only then that the statutory period of prescription commences to run against such possessor. Morales' caretaker became aware of the second sale to petitioner-spouses only in 1991 when he received from the latter a notice to vacate the land. Respondents-heirs did not sleep on their rights for in 1994, they filed their action to annul petitioners' title over the land. The Court also noted that when vendor Arnold reacquired title to the subject property by means of fraud and concealment after he has sold it to Alberta Morales, a constructive trust was created in favor of Morales and her heirs. As the defrauded parties who were in actual possession of the property, an action of the respondents-heirs to enforce the trust and recover the property cannot prescribe.

• Good faith in double sales under Article 1544 — In a double sale of an immovable property, ownership belongs to the person acquiring it who in good faith first recorded it in the Registry of Property; should there be 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. In all cases, good faith is essential. Knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since such knowledge taints his registration with bad faith.
• Purchaser in good faith and for value — A purchaser in good faith and for value is one who buys property without notice that some other person has a right to or interest in such property and pays its fair price before he has notice of the adverse claims and interest of another person in the same property. The "honesty of intention" which constitutes good faith implies a freedom from knowledge of circumstances which ought to put a person on inquiry.
• Duty to investigate possession by persons other than the seller — A buyer of real property in the possession of persons other than the seller must be wary and should investigate the rights of those in possession. Without such inquiry, the buyer can hardly be regarded as a buyer in good faith and cannot have any right over the property. A purchaser cannot simply close his eyes to facts which should put a reasonable man on his guard and then claim that he acted in good faith under the belief that there was no defect in the title of his vendor.
• Exception to the Torrens system rule — The general rule is that one who deals with property registered under the Torrens system need not go beyond the same, but only has to rely on the title. However, this principle does not apply when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property in litigation.
• Laches as an equitable defense — Laches is a creation of equity and its application is controlled by equitable considerations. Laches cannot be used to defeat justice or perpetuate fraud and injustice. Neither should its application be used to prevent the rightful owners of a property from recovering what has been fraudulently registered in the name of another.
• Imprescriptibility of actions to quiet title by possessors — Prescription does not apply when the person seeking annulment of title or reconveyance is in possession of the lot because the action partakes of a suit to quiet title which is imprescriptible. One who is in actual possession of a piece of land claiming to be owner thereof may wait until his possession is disturbed or his title attacked before taking steps to vindicate his right, the reason being that his undisturbed possession gives him a continuing right to seek the aid of a court of equity to ascertain and determine the nature of the adverse claim and its effect on his own title.
• Constructive trust arising from fraud — When a vendor reacquires title to property by means of fraud and concealment after he has sold it to another, a constructive trust is created in favor of the defrauded vendee. As the defrauded parties who were in actual possession of the property, an action to enforce the trust and recover the property cannot prescribe.

• "A purchaser in good faith and for value is one who buys property without notice that some other person has a right to or interest in such property and pays its fair price before he has notice of the adverse claims and interest of another person in the same property. So it is that the 'honesty of intention' which constitutes good faith implies a freedom from knowledge of circumstances which ought to put a person on inquiry." — This passage defines the standard of good faith applied to the second buyers and establishes that good faith requires freedom from knowledge of circumstances that ought to put a person on inquiry.
• "The settled rule is that a buyer of real property in the possession of persons other than the seller must be wary and should investigate the rights of those in possession. Without such inquiry, the buyer can hardly be regarded as a buyer in good faith and cannot have any right over the property." — This is the ratio decidendi on the duty of a buyer to investigate when the property is in the possession of persons other than the seller, which the Court applied to find the Occeñas in bad faith.
• "However, this principle does not apply when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property in litigation. One who falls within the exception can neither be denominated an innocent purchaser for value nor a purchaser in good faith." — This passage articulates the exception to the Torrens system rule that a buyer need not go beyond the certificate of title, which was the controlling principle in this case.
• "Laches cannot be used to defeat justice or perpetuate fraud and injustice. Neither should its application be used to prevent the rightful owners of a property from recovering what has been fraudulently registered in the name of another." — This passage states the equitable limitation on the defense of laches, which the Court applied to reject the petitioners' defense.

• Cruz vs. Cabaña, G.R. No. 56232, 22 June 1984, 129 SCRA 656 — Cited for the proposition that it is essential, to merit the protection of Art. 1544, second paragraph, that the second realty buyer must act in good faith in registering his deed of sale.
• Faja vs. Court of Appeals, 75 SCRA 441 (1977) — Cited for the settled jurisprudence that one who is in actual possession of a piece of land claiming to be owner thereof may wait until his possession is disturbed or his title attacked before taking steps to vindicate his right, the reason being that his undisturbed possession gives him a continuing right to seek the aid of a court of equity.
• Spouses Castro vs. Miat, G.R. No. 143297, February 11, 2003 — Cited for the settled rule that a buyer of real property in the possession of persons other than the seller must be wary and should investigate the rights of those in possession.
• Heirs of Ramon Durano, Sr. vs. Uy, 344 SCRA 238 (2000) — Cited for the rule that a purchaser cannot simply close his eyes to facts which should put a reasonable man on his guard and then claim that he acted in good faith under the belief that there was no defect in the title of his vendor.
• Spouses Domingo vs. Roces, G.R. No. 147468, April 9, 2003 — Cited for the exception to the general rule that one who deals with property registered under the Torrens system need not go beyond the same, which does not apply when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry.
• Alcantara-Daus vs. Spouses de Leon, G.R. No. 149750, June 16, 2003 — Cited for the rule that laches cannot be used to defeat justice or perpetuate fraud and injustice.
• Heirs of Santiago vs. Heirs of Santiago, G.R. No. 151440, June 17, 2003 — Cited for the rule that prescription does not apply when the person seeking annulment of title or reconveyance is in possession of the lot because the action partakes of a suit to quiet title which is imprescriptible.
• Millena vs. Court of Appeals, 324 SCRA 126 (2000) — Cited for the proposition that undisturbed possession of the land for a period of fifty (50) long years gave the possessor and her heirs a continuing right to seek the aid of a court of equity to determine the nature of the claim of ownership.
• Heirs of Ermac vs. Heirs of Ermac, G.R. No. 149679, May 30, 2003 — Cited for the rule that when a vendor reacquires title to property by means of fraud and concealment, a constructive trust is created in favor of the defrauded vendee, and an action to enforce the trust and recover the property cannot prescribe.
• Lavides vs. Pre, 367 SCRA 382 (2001) — Cited for the rule that registration under the Torrens system does not create or vest title especially where a party has actual knowledge of the claimant's actual, open and notorious possession of the property at the time of his registration.

• Article 1544, New Civil Code — The provision on double sale of immovable property, which provides that ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property; should there be 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. The Court applied this provision to determine that the second buyers, who failed to register in good faith, had no right over the land.

Quisumbing, Austria-Martinez, Callejo, Sr., and Tinga, JJ., concurred.