Sta. Fe Realty, Inc. vs. Sison

A buyer of registered land who fails to investigate the actual, visible, and public possession of a person other than the seller is a buyer in bad faith, and the registration of the subsequent title does not vest ownership as against the prior possessor. Gross inadequacy of price does not, by itself, void a sale, and unilateral extrajudicial rescission is ineffective absent a contractual stipulation or judicial decree.

Sta. Fe Realty, Inc. owned a 60,987-square-meter tract under TCT No. 61132. In 1989, SFRI agreed to sell a 15,598-sq m southeastern portion to Fabregas, who immediately sold it to Sison. Sison took possession, made improvements, and paid taxes. Despite repeated demands, SFRI and Fabregas refused to deliver the owner’s copy of the title and the subdivision plan. In 1991, SFRI subdivided the entire tract and later sold a 16,000-sq m lot (Lot 1-B-3-C) to Jose Orosa, which encompassed the area previously sold to Sison. Sison then filed suit for reconveyance after learning of the second sale and failing to reach an amicable settlement.

• The First Sale: In 1989, SFRI authorized the sale of a southeastern 15,598-sq m portion of its land covered by TCT No. 61132 to Fabregas, who then sold the same portion to Sison for a stated price of ₱10,918.00. The deeds of absolute sale were duly notarized and executed pursuant to SFRI board resolutions.
• Possession and Improvements: Sison caused the segregation of the 15,598-sq m lot (designated as Lot 1-B-1), took immediate possession, fenced the property, erected a no-trespassing sign, installed barbed wire and tree hedges, and constructed a fishpond and a resort on the land.
• Refusal to Deliver Title: Petitioners refused to pay the realty taxes and capital gains tax and to turn over the owner’s copy of TCT No. 61132 and the subdivision plan. As a result, Sison paid the realty taxes from 1979 to 1990 to protect his interest, but the documents were still withheld.
• Subsequent Subdivision and Sale to Orosa: In 1991, SFRI caused a new subdivision of the entire 60,987-sq m property, resulting in new lots including Lot 1-B-3-C with an area of 16,000 sq m. SFRI sold Lot 1-B-3-C to co-defendant Jose Orosa by Deed of Sale dated March 1, 1994. Orosa obtained TCT No. T-297261 in his name.
• Identity of the Properties: It was admitted in the pre-trial order that Lot 1-B-1 sold to Sison lies within the property later sold by SFRI to Orosa. A geodetic engineer’s report and sketch plan confirmed that Lot 1-B-1 coincided with Lot 1-B-3-C in TCT No. T-297261, except for an excess of 402 square meters.
• Petitioners’ Defenses: SFRI and Fabregas denied agreeing to sell to Sison. They claimed the deeds of sale were simulated to reflect a lower price of ₱10,918.00 instead of the true consideration of ₱700,000.00 plus assignment of certain Pangasinan properties, all to reduce capital gains tax. They further alleged that Sison failed to pay the agreed price, so Fabregas unilaterally sent a notice rescinding the sale, which Sison did not contest. Orosa asserted that he was a buyer in good faith, relying on the clean title and unaware of Sison’s claim.

• Simulation of Contracts: Petitioners argued that the deeds of sale were absolutely simulated because they did not reflect the true purchase price of ₱700,000.00 and the assignment of other properties. They contended that the gross disproportion between the stated price and the value of the land demonstrated false consideration.
• Unilateral Rescission: Fabregas maintained that she validly rescinded the sale extrajudicially by sending a notice of rescission to Sison after he failed to pay the consideration; Sison’s failure to contest the rescission confirmed its validity.
• Innocent Purchaser for Value: Petitioners contended that Orosa was a buyer in good faith and for value because SFRI’s title bore no annotation of any lien, encumbrance, or adverse claim, and Orosa was the first to register the property under the Torrens system.

• Validity of the Deeds of Sale: Sison anchored his cause of action on the two deeds of sale, his possession, and his occupation. He maintained that the contracts were voluntarily executed, notarized, and supported by consideration.
• Invalidity of Extrajudicial Rescission: Sison asserted that the unilateral rescission had no legal effect because there was no stipulation allowing extrajudicial rescission and no judicial action was taken to confirm any breach.
• Buyer in Bad Faith: Sison argued that Orosa could not be a purchaser in good faith because Sison’s actual, visible, and public possession — including fencing, signs, fishpond, and resort — was apparent and should have prompted investigation. The subsequent registration could not defeat his prior ownership rights.

• Simulation: Whether the deeds of absolute sale between SFRI and Fabregas, and between Fabregas and Sison, were simulated and void due to alleged false consideration or gross inadequacy of price.
• Unilateral Rescission: Whether Fabregas validly rescinded the contract of sale unilaterally and extrajudicially, without judicial action or a stipulation authorizing such rescission.
• Buyer in Good Faith: Whether Jose Orosa was an innocent purchaser for value, thereby barring reconveyance to Sison.

• Simulation: The deeds of sale were valid and not simulated. All essential elements of a contract of sale — consent, determinate subject matter, and price certain — were present. Petitioners admitted voluntarily signing the notarized deeds. The claim of simulation was incompatible with the claim of gross inadequacy of price: the existence of any actual consideration, however inadequate, negates an absolutely simulated sale. Gross inadequacy of price does not void a contract unless it indicates a defect in consent or that the parties intended a donation or other act, none of which were proven. The presumption of regularity and validity of contracts was not overcome.
• Unilateral Rescission: The rescission was ineffective. No stipulation in the contract granted Fabregas the right to unilaterally rescind upon non-payment. In the absence of such a stipulation, a party cannot extrajudicially rescind; a judicial or notarial act is necessary. The notice sent by Fabregas was a mere unilateral declaration that could not produce the resolution of the contract; only a final court decree can conclusively settle the validity of rescission. Moreover, invoking rescission impliedly presupposes a valid contract, contradicting the claim of simulation.
• Buyer in Good Faith: Orosa was a buyer in bad faith. The lower courts’ concurrent factual findings on this point were conclusive. The pre-trial admission and the geodetic engineer’s report confirmed that the lot sold to Orosa encompassed the land already sold to Sison. Despite the clean title, Orosa failed to observe the ordinary prudence required of a buyer of real property: Sison’s possession was actual, visible, and public through fencing, no-trespassing signs, barbed wire, hedges, a fishpond, and a resort. A buyer must investigate the rights of persons in possession other than the seller; failure to do so constitutes gross negligence amounting to bad faith. Registration under the Torrens system does not vest title or cure bad faith; a certificate of title is merely evidence of ownership and cannot protect a buyer who ignores open possession. As SFRI had already lost ownership upon the prior sale to Sison, Orosa acquired no rights, and reconveyance was proper.

• Simulation and Inadequacy of Price — A contract of sale is not simulated if there is any actual consideration, no matter how inadequate. Gross inadequacy of price alone does not void a sale; it affects validity only if it shows a defect in consent, fraud, mistake, or undue influence, or that the parties intended a donation or other contract. Applied to reject the claim that the ₱10,918.00 price rendered the deeds simulated.
• Unilateral Extrajudicial Rescission — In the absence of a stipulation granting the right, a party cannot unilaterally and extrajudicially rescind a reciprocal obligation. The rescission must be sought through judicial action, and only a final court decree produces the resolution of the contract. Applied to declare Fabregas’s notice of rescission void.
• Buyer in Bad Faith vis-à-vis Possession — A purchaser of real property who fails to investigate the actual, visible, and public possession of a person other than the seller is a buyer in bad faith. The duty extends to reading the “public manuscript” — the physical condition of the land — and the absence of inquiry constitutes gross negligence. Applied to Orosa, whose failure to discover Sison’s improvements and possession resulted in a finding of bad faith.
• Torrens Title and Ownership — Registration under the Torrens system is not a mode of acquiring ownership; a certificate of title is merely evidence of title. It does not vest ownership in a buyer who acts in bad faith or shield a usurper from the true owner. Applied to deny Orosa’s claim of ownership based on prior registration.

• “When a man proposes to buy or deal with realty, his duty is to read the public manuscript, that is, to look and see who is there upon it and what his rights are. 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.”
• “In the absence of a stipulation, a party cannot unilaterally and extrajudicially rescind a contract. A judicial or notarial act is necessary before a valid rescission can take place. … [T]he party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law.”
• “Gross inadequacy of price by itself will not result in a void contract. Gross inadequacy of price does not even affect the validity of a contract of sale, unless it signifies a defect in the consent or that the parties actually intended a donation or some other contract.”
• “If there exists an actual consideration for transfer evidenced by the alleged act of sale, no matter how inadequate it be, the transaction could not be a simulated sale.”

• Bacungan v. CA, et al., 595 Phil. 284 (2008) — Followed for the rule that gross inadequacy of price does not invalidate a sale unless it indicates a defect in consent or a disguised donation.
• Alina v. Heirs of Angelica A. Lorenzo, et al., 578 Phil. 698 (2008) — Applied for the principle that a claim of simulation is incompatible with an admission of consideration, however inadequate.
• Tating v. Marcella, 548 Phil. 19 (2007) — Cited to place the burden of proving simulation on the party impugning the contract’s validity.
• Eds Manufacturing, Inc. v. Healthcheck International Inc., 719 Phil. 205 (2013) and Iringan v. CA, 418 Phil. 286 (2001) — Relied upon for the necessity of judicial or notarial act to effect rescission in the absence of a stipulation.
• Golden Valley Exploration, Inc. v. Pinkian Mining Company, et al., 736 Phil. 230 (2014) — Cited for the rule that unilateral rescission proceeds at the party’s own risk pending a court decree.
• Rosaroso, et al. v. Soria, et al., 711 Phil. 644 (2013) — Applied for the doctrine that a buyer who disregards the visible possession of another is in bad faith and the consequent duty to investigate.
• Hortizuela v. Tagufa, G.R. No. 205867, February 23, 2015, 751 SCRA 371 — Cited to underscore that registration is not a mode of acquiring ownership and a certificate of title is merely evidence.

• Article 1355, Civil Code — Gross inadequacy of price does not by itself void a contract, except where it indicates a defect in consent or that the parties intended a donation or other contract. Applied to reject the simulation argument.
• Article 1191, Civil Code — In reciprocal obligations, the power to rescind is implied in cases of breach; however, the court, not the party, shall decree rescission, absent a stipulation that rescission may be made extrajudicially. Applied to nullify Fabregas’s unilateral rescission.
• Section 13, Article VIII, 1987 Constitution — Referenced in the certification of the decision, not directly applied to the merits.

Associate Justice Presbitero J. Velasco, Jr. (Chairperson), Associate Justice Diosdado M. Peralta, Associate Justice Jose Portugal Perez, Associate Justice Francis H. Jardeleza. No separate opinions were filed.