Rosaroso vs. Soria

A purchaser of immovable property that is in the actual, visible, and public possession of persons other than the vendor must investigate the rights of those in possession; failure to do so constitutes gross negligence amounting to bad faith, and any subsequent registration of the sale is ineffective to confer ownership — the buyer who first possessed the property in good faith prevails under Article 1544 when there is no prior registration in good faith. Moreover, the consideration of a notarized deed of sale enjoys a disputable presumption of validity, which cannot be overcome by self-serving testimony alone.

Spouses Luis Rosaroso and Honorata Duazo acquired several real properties in Daan Bantayan, Cebu City, including the subject lots. The couple had nine children. After Honorata died in 1952, Luis married Lourdes Pastor Rosaroso. On November 4, 1991, Luis executed a Deed of Absolute Sale covering Lots 8, 19, 22, 23, and two other parcels in favor of his children from the first marriage — the petitioners. The deed was notarized, but the sale was not registered. The children had been living on the properties since birth and remained in actual possession. In 1993 and 1994, Luis executed special powers of attorney and a second deed of absolute sale in favor of respondent Meridian Realty Corporation, represented by Sophia Sanchez, who visited the lots, saw houses on them, but did not inquire about the occupants’ rights. The second sale was registered ahead of the first.

• The Subject Properties: Spouses Luis Rosaroso and Honorata Duazo owned several parcels of land in Daan Bantayan, Cebu, including Lots 8, 19, 22, and 23, covered by TCT Nos. 31852, 11155, 10885, and 10886, respectively, along with Lot Nos. 5665 and 7967.

• The First Sale (1991): On November 4, 1991, Luis, with the consent of his second wife Lourdes, executed a Deed of Absolute Sale conveying the above lots to his children by his first marriage — petitioners Hospicio, Antonio, Angelica, and Cleofe. The deed was notarized by Atty. William Boco. Petitioners claimed they paid consideration, which they used to help sustain their father’s daily needs. The vendees were in actual possession of the properties, having lived there since birth, but they did not register the sale.

• The SPAs and the Second Sale (1993–1994): On April 3, 1993, Luis executed a Special Power of Attorney (First SPA) authorizing his granddaughter Laila Solutan to sell and convey Lots 8, 22, and 23. Petitioners alleged Luis was sick, infirm, blind, and of unsound mind at that time, and that his thumbmark was affixed through manipulation. A second SPA dated July 21, 1993, authorized Laila and her spouse Ham Solutan to mortgage Lot 19 to Vital Lending Investors, Inc. for ₱150,000.00. On August 23, 1994, Luis executed a Deed of Absolute Sale conveying three parcels of residential land to Meridian Realty Corporation for ₱960,500.00 (Second Sale). Meridian’s vice-president Sophia Sanchez, accompanied by agents and Laila, visited the site and saw houses on the lots. She did not inquire into the occupants’ rights, believing Luis’ statement that the houses were his.

• Meridian’s Knowledge and Registration: Before purchasing, Meridian checked the titles with the Register of Deeds and found no annotation of the prior sale to petitioners. It also caused the cancellation of a mortgage on one title. The second sale was subsequently registered. The first sale remained unregistered.

• The Complaint: Luis himself originally filed a complaint for declaration of nullity of documents and damages against Lucila, Laila, and Meridian in January 1995. After Luis died, an amended complaint was filed by the petitioner-children, impleading Ham Solutan and Lourdes as defendants. Petitioners sought to nullify the SPAs and the second sale, claiming the first sale was valid and that Meridian was in bad faith. Respondents countered that the first sale was simulated for lack of consideration, that the SPAs and the second sale were valid, and that Meridian acted in good faith. Lourdes claimed she and Luis signed the first deed out of pity because the children said it was needed for a loan application, and that no money was paid.

• RTC Findings: The trial court found that the first deed of sale was genuine and complied with legal formalities; that petitioners had been in possession since birth; that Luis no longer owned the properties when he sold to Meridian; and that Meridian, having seen houses on the lots, was not a buyer in good faith.

• CA Reversal: The appellate court ruled the first sale void for lack of consideration, relying on Lourdes’ testimony; upheld the second sale and SPAs as valid notarized documents; and held that the revocation of the first SPA came only after the second sale had been consummated, thus Meridian correctly relied on the SPA.

• Validity of the First Sale: Petitioners argued that the first deed of sale was executed with all legal formalities, duly notarized, and thus entitled to the presumption of truth and regularity. They invoked the trial court’s finding that Atty. Boco testified to its due execution. The consideration was paid and used for the father’s daily needs, as testified by Antonio Rosaroso.

• Meridian’s Bad Faith: Petitioners maintained that Meridian was a buyer in bad faith because its representative saw houses on the lots but deliberately failed to inquire into the rights of the occupants. The fact of actual, visible possession by persons other than the vendor should have put Meridian on guard.

• Double Sale Precedence: Since petitioners were in prior possession in good faith and Meridian’s registration was tainted with bad faith, ownership should vest in petitioners under Article 1544 of the Civil Code. They also pointed out that the titles remained free from any annotation of the second sale, contradicting Meridian’s claim of registration.

• Lack of Consideration: Respondents asserted that the first sale was simulated and void for want of consideration. Lourdes testified that the children made Luis sign the deed by saying it was needed for a loan application, and no purchase price was ever paid. The CA credited this testimony to nullify the first sale.

• Good Faith of Meridian: Meridian argued it was an innocent purchaser for value that relied on the clean titles and the notarized SPA and deed of sale. It conducted a title check with the Register of Deeds, which showed no encumbrance or prior sale, and had the second sale registered first. Any failure to investigate the occupants was not fatal because Luis claimed ownership.

• Validity of SPAs and Second Sale: Respondents contended that Luis was of sound mind when executing the SPAs, as confirmed by his attending physician, and that the second sale was consummated before the first SPA was revoked. The second SPA, which was never revoked, independently authorized the mortgage and subsequent dealings with Lot 19.

• Consideration of the First Sale: Whether the Deed of Absolute Sale dated November 4, 1991 was void for lack of consideration.

• Good Faith of the Subsequent Buyer: Whether Meridian Realty Corporation was a buyer in good faith under Article 1544 of the Civil Code, such that its prior registration would confer ownership despite the earlier unregistered sale to petitioners.

• Consideration of the First Sale: The first sale was valid. Under Section 3, Rule 131 of the Rules of Court, private transactions are presumed fair and regular, the ordinary course of business is presumed followed, and there is a presumption of sufficient consideration for a contract. Respondents failed to rebut these presumptions with clear and convincing evidence. The self-serving testimony of Lourdes that no payment was made did not suffice to overcome the notarized deed. Even assuming non-payment, the remedy was rescission under Article 1191 of the Civil Code, not an automatic voiding of the sale. Ownership does not revert to the seller until the contract is resolved or rescinded.

• Good Faith of the Subsequent Buyer: Meridian was a buyer in bad faith. Under Article 1544, in a double sale of immovable property, ownership transfers to the buyer who first registers in good faith. The law requires both acquisition in good faith and registration in good faith. Meridian’s representative saw houses on the lots, indicating actual possession by persons other than the vendor. A purchaser of land in the visible possession of another is duty-bound to investigate the possessor’s rights. The failure to do so constitutes gross negligence amounting to bad faith, rendering the subsequent registration ineffective — it is as if there was no registration at all. Consequently, the prior sale to petitioners, who were in possession in good faith, prevails. The trial court’s factual finding of bad faith was accorded great respect because it was in a better position to evaluate evidence and witness demeanor.

• Double Sale of Immovable Property (Article 1544, Civil Code): In a double sale of immovable property, ownership shall belong to (1) the buyer who in good faith first records the sale in the Registry of Property; (2) in default of such inscription, the buyer who in good faith was first in possession; (3) in default thereof, the buyer who presents the oldest title, provided there is good faith. Registration must be coupled with good faith — the registrant must have no knowledge of defects in the vendor’s title, nor awareness of facts that should prompt inquiry. Registration in bad faith is equivalent to no registration at all.

• Duty of Inquiry When Land Is in Possession of Third Parties: A purchaser of real property that is in the actual, visible, and public possession of a person other than the vendor cannot simply rely on the certificate of title. He must investigate the rights of the possessor. Failure to make such inquiry is gross negligence and amounts to bad faith, disqualifying him as an innocent purchaser for value. This is an exception to the general rule that a buyer may rely on the Torrens title.

• Effect of Non-Payment of Consideration in a Sale: The failure of the buyer to pay the purchase price does not automatically void the sale or revest ownership in the seller. It merely gives the seller the right to demand fulfillment or rescind the contract under Article 1191 of the Civil Code. Until rescission or resolution, the buyer remains the owner.

• Presumption of Consideration for Contracts: Under Rule 131, Section 3 of the Rules of Court, there is a disputable presumption that a written contract is supported by sufficient consideration. This presumption stands in lieu of evidence unless rebutted by clear and convincing proof. Bare allegations and self-serving testimony are insufficient to overturn it.

• "The requirement of the law then is two-fold: acquisition in good faith and registration in good faith. Good faith must concur with the registration. If it would be shown that a buyer was in bad faith, the alleged registration they have made amounted to no registration at all." — This encapsulates the dual requirement under Article 1544.

• "When a piece of land is in the actual possession of persons other than the seller, the buyer must be wary and should investigate the rights of those in possession. Without making such inquiry, one cannot claim that he is a buyer in good faith. … A want of caution and diligence which an honest man of ordinary prudence is accustomed to exercise in making purchases, is in contemplation of law, a want of good faith." — This defines the duty of inquiry and the standard of good faith.

• "The failure of the buyer to make good the price does not, in law, cause the ownership to revest to the seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Article 1191 of the New Civil Code. Non-payment only creates a right to demand the fulfillment of the obligation or to rescind the contract." — This distinguishes the effect of non-payment from nullity.

• Surtida v. Rural Bank of Malinao (Albay), Inc., G.R. No. 170563, December 20, 2006, 511 SCRA 507 — Applied for the proposition that disputable presumptions of fairness, regularity, and sufficient consideration stand in place of evidence unless rebutted.

• Clara M. Balatbat v. Court of Appeals and Spouses Repuyan, G.R. No. 109410, August 28, 1996, 329 Phil 870 — Followed to hold that non-payment of the purchase price does not automatically revest ownership; rescission under Article 1191 is required.

• San Lorenzo Development Corporation v. Court of Appeals, 490 Phil 7 (2005) — Cited for the interpretation of Article 1544, emphasizing the requirement of good faith in both acquisition and registration, and the principle that registration in bad faith is a nullity.

• Spouses Sarmiento v. Court of Appeals, 507 Phil 101 (2005) — Relied upon to define the duty of a buyer to investigate the rights of persons in actual possession, and that failure to do so amounts to bad faith.

• Abarquez v. Court of Appeals, G.R. No. 95843, September 2, 1992, 213 SCRA 415 — Cited within San Lorenzo for the rule that registration with knowledge of a previous sale is in bad faith and ineffectual.

• Article 1544, Civil Code — Double sale rule for immovable property; applied to determine that Meridian’s prior registration was ineffective due to bad faith, and petitioners, as first possessors in good faith, had a superior right.

• Article 1191, Civil Code — Right to rescind reciprocal obligations; invoked to explain that non-payment does not void the sale but merely grants the seller a right to rescind.

• Section 3, Rule 131, Rules of Court — Disputable presumptions regarding private transactions, ordinary course of business, and sufficient consideration; applied to uphold the first sale’s validity absent clear evidence to the contrary.

• Article 524, Civil Code (as referenced in Sarmiento) — Possession may be exercised in one’s own name or in that of another; used to support the principle that possession by an overseer or representative does not diminish the duty to inquire.

Presbitero J. Velasco, Jr., Diosdado M. Peralta, Roberto A. Abad, and Marvic Mario Victor F. Leonen concurred. No separate concurring opinions were noted.