DOUBLE SALE OF REAL PROPERTY

FACTS: For his bootlegging business, Pete Castellano is renting Lipari warehouse from Turk Sollozzo. One day, Sollozzo sold the said property to Castellano and the latter paid the selling price upon the execution of their handwritten agreement. A few years later, Tony Soprano appeared at the warehouse demanding that Castellano leave the premises as he allegedly bought the property from Turk Sollozzo. Soprano showed Castellano a notarized deed of absolute sale and served upon the latter a notice to vacate, with a warning that any failure of Castellano to comply would result in a court action or a "friendly visit" by enforcers from the Soprano family. As Castellano's consigliere, he seeks your wisdom on the matter. ISSUE: Who has the better right to the warehouse? HELD: In double sale of an immovable, the following is the established rule of preference in determining ownership: (a) (b) (c) the person acquiring it who in good faith first recorded it in the Registry of Property; the person who in good faith was first in the possession; and in the absence thereof, to the person who presents the oldest title, provided there is good faith .

It must be observed that the law strictly requires that before the second buyer can obtain priority over the first, he must show that he acted in good faith throughout (i.e., in ignorance of the first sale and of the first buyers rights) from the time of acquisition until the title is transferred to him by registration or failing registration, by delivery of possession.

It must be noted that Soprano cannot be deemed to be in good faith because when he bought the real property, it is in possession of Castellano, a person other than the seller, Sollozzo. In the case of Conspecto vs. Fuerto, the Supreme Court pronounced that, one who purchases real property which is in actual possession of others should, at least, make some inquiry concerning the rights of those in possession. The actual possession by people other than the vendor should, at least, put the purchaser upon inquiry. He can scarcely, in the absence of such inquiry, be regarded as a bona fide purchaser as against such possessions. It was contend that when buyers bought the property they knew that the same property was previously sold to them. Therefore, since they are buyers in bad faith, ownership of the property must pertain to the buyers, who, in good faith, were first in possession. Is the contention correct? Why? Held: No. The argument is misplaced. Petitioners invoke Article 1544 of the Civil Code which reads: Article 1544. If the same things should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain 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. (Emphasis ours) The above provision does not apply to the instant case considering that the transaction between petitioners and spouses Belmes is a mere contract to sell, not a contract of sale. Along the same vein, in Sps. Serrano v. Caguiat, G.R. No. 139173, February 26, 2007, there was a contract where a partial payment was made. The balance was to be paid on an agreed date and after payment, the owners will execute the final deed of sale. The SC held it be a contract to sell. A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendors obligation to transfer title is subordinate to the happening of a future and uncertain event, so that if the suspensive condition does take place, the parties would stand as if the conditional obligation had never existed. The suspensive condition is commonly the full payment of the purchase price. (Philippine National Bank v. Court of Appeals and Lapaz Kaw Ngo, G.R. No. 119580, September 26, 1996, citing Rose Packing Co., Inc. v. Court of Appeals, 167 SCRA 309, 318 (1988) and Lim v. Court of Appeals, 182 SCRA 564, 670 (1990)). The differences between a contract to sell and a contract of sale are well-settled in jurisprudence. As early as 1951, in Sing Yee v. Santos, 47 O.G. 6372 (1951), it was held: x x x *a+ distinction must be made between a contract of sale in which title passes to the buyer upon delivery of the thing sold and a contract to sell x x x where by agreement the ownership is reserved in the seller and is not to pass until the full payment, of the purchase price is made. In the first case, non-payment of the price is a positive suspensive condition. Being contraries, their effect in law cannot be identical. In the first case, the vendor has lost and cannot recover the ownership of the land sold until and unless the contract of sale itself is resolved and set aside. In the second case, however, the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract. In other words, in a contract to sell, ownership is retained by the seller and is not to pass to the buyer until full payment of the price.(Jacinto v. Kaparaz, 209 SCRA 246 (1992). In this case, the Receipt for Partial Payment shows that the true agreement between the parties is a contract to sell. First, ownership over the property was retained by sellers and was not to pass to buyer until full payment of the purchase price. Thus, owners need not push through with the sale should buyer fail to remit the balance of the purchase price before the deadline on March 23, 1990. In effect, petitioners have the right to rescind unilaterally the contract the moment respondent fails to pay within the fixed period. (Chua v. CA, G.R. No. 119255, April 9, 2003, 401 SCRA 54). Second, the agreement between the parties was not embodied in a deed of sale. The absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership, but only a transfer after full payment of the purchase price. Third, seller/owners retained possession of the certificate of title of the lot. This is an additional indication that the agreement did not transfer to the buyer, either by actual or constructive delivery, ownership of the property. It is true that Article 1482 of the Civil Code provides that Whenever earnest mo ney is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract. However, this article

speaks of earnest money given in a contract of sale. In this case, the earnest money was given in a contract to sell. The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price. Now, since the earnest money was given in a contract to sell, Article 1482, which speaks of a contract of sale, does not apply. Contract to sell vs. contract of sale explained - G.R. No. 188064 G.R. No. 188064 "x x x. The Courts Ruling The petition lacks merit. The Court agrees with the ruling of the courts below that the subject Deed of Conditional Sale with Assumption of Mortgage entered into by and among the two parties and FSL Bank on November 26, 1990 is a contract to sell and not a contract of sale. The subject contract was correctly classified as a contract to sell based on the following pertinent stipulations: 8. That the title and ownership of the subject real properties shall remain with the First Party until the full payment of the Second Party of the balance of the purchase price and liquidation of the mortgage obligation of2,000,000.00. Pending payment of the balance of the purchase price and liquidation of the mortgage obligation that was assumed by the Second Party, the Second Party shall not sell, transfer and convey and otherwise encumber the subject real properties without the written consent of the First and Third Party. 9. That upon full payment by the Second Party of the full balance of the purchase price and the assumed mortgage obligation herein mentioned the Third Party shall issue the corresponding Deed of Cancellation of Mortgage and the First Party shall execute the corresponding Deed of Absolute Sale in favor of the Second Party.[7] Based on the above provisions, the title and ownership of the subject properties remains with the petitioner until the respondent fully pays the balance of the purchase price and the assumed mortgage obligation. Thereafter, FSL Bank shall then issue the corresponding deed of cancellation of mortgage and the petitioner shall execute the corresponding deed of absolute sale in favor of the respondent. Accordingly, the petitioners obligation to sell the subject properties becomes demandable only upon the happening of the positive suspensive condition, which is the respondents full payment of the purchase price. Without respondents full payment, there can be no breach o f contract to speak of because petitioner has no obligation yet to turn over the title. Respondents failure to pay in full the purchase price is not the breach of contract contemplated under Article 1191 of the New Civil Code but rather just an event that prevents the petitioner from being bound to convey title to the respondent. The 2009 case of Nabus v. Joaquin & Julia Pacson[8] is enlightening: The Court holds that the contract entered into by the Spouses Nabus and respondents was a contract to sell, not a contract of sale. A contract of sale is defined in Article 1458 of the Civil Code, thus: Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. xxx

Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of sale are the following: a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; b) Determinate subject matter; and c) Price certain in money or its equivalent. Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and, thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. xxx xxx xxx Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the prospective sellers obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code which states: Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated. However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale. Further, Chua v. Court of Appeals, cited this distinction between a contract of sale and a contract to sell: In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the property and

cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full payment of the price. In the latter contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. It is not the title of the contract, but its express terms or stipulations that determine the kind of contract entered into by the parties. In this case, the contract entitled Deed of Conditional Sale is actually a contract to sell. The contract stipulated that as soon as the full consideration of the sale has been paid by the vendee, the corresponding transfer documents shall be executed by the vendor to the vendee for the portion sold. Where the vendor promises to execute a deed of absolute sale upon the completion by the vendee of the payment of the price, the contract is only a contract to sell. The aforecited stipulation s hows that the vendors reserved title to the subject property until full payment of the purchase price. xxx Unfortunately for the Spouses Pacson, since the Deed of Conditional Sale executed in their favor was merely a contract to sell, the obligation of the seller to sell becomes demandable only upon the happening of the suspensive condition. The full payment of the purchase price is the positive suspensive condition, the failure of which is not a breach of contract, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. Thus, for its non-fulfilment, there is no contract to speak of, the obligor having failed to perform the suspensive condition which enforces a juridical relation. With this circumstance, there can be no rescission or fulfillment of an obligation that is still non-existent, the suspensive condition not having occurred as yet. Emphasis should be made that the breach contemplated in Article 1191 of the New Civil Code is the obligors failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. [Emphases and underscoring supplied] Consistently, the Court handed down a similar ruling in the 2010 case of Heirs of Atienza v. Espidol, [9] where it was written: Regarding the right to cancel the contract for non-payment of an installment, there is need to initially determine if what the parties had was a contract of sale or a contract to sell. In a contract of sale, the title to the property passes to the buyer upon the delivery of the thing sold. In a contract to sell, on the other hand, the ownership is, by agreement, retained by the seller and is not to pass to the vendee until full payment of the purchase price. In the contract of sale, the buyers non-payment of the price is a negative resolutory condition; in the contract to sell, the buyers full payment of the price is a positive suspensive co ndition to the coming into effect of the agreement. In the first case, the seller has lost and cannot recover the ownership of the property unless he takes action to set aside the contract of sale. In the second case, the title simply remains in the seller if the buyer does not comply with the condition precedent of making payment at the time specified in the contract. Here, it is quite evident that the contract involved was one of a contract to sell since the Atienzas, as sellers, were to retain title of ownership to the land until respondent Espidol, the buyer, has paid the agreed price. Indeed, there seems no question that the parties understood this to be the case. Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell due in December 2002.That payment, said both the RTC and the CA, was a positive suspensive condition failure of which was not regarded a breach in the sense that there can be no rescission of an obligation (to turn over title) that did not yet exist since the suspensive condition had not taken place. x x x. [Emphases and underscoring supplied] Thus, the Court fully agrees with the CA when it resolved: Considering, however, that the Deed of Conditional Sale was not cancelled by Vendor Reyes (petitioner) and that out of the total purchase price of the subject property in the amount of 4,200,000.00, the remaining unpaid balance of Tuparan (respondent) is only 805,000.00, a substantial amount of the purchase price has already been paid. It is only right and just to allow Tuparan to pay the said unpaid balance of the purchase price to Reyes.[10]

Article 1544 of the Civil Code provides: "ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first possession thereof in good faith, if it should be movable property. "Should it be immovable property, the 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, the ownership shall pertain 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." Otherwise stated, where it is an immovable property that 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 14 presents the oldest title, provided there is good faith. The requirement of the law then is two-fold: acquisition in 15 good faith and registration in good faith . The rationale behind this is well-expounded in Uraca vs. Court of 16 Appeals, where this Court held: "Under the foregoing, the prior registration of the disputed property by the second buyer does not by itself confer ownership or a better right over the property. Article 1544 requires that such registration must be coupled with good faith. Jurisprudence teaches us that "(t)he governing principle is primus tempore, potior jure (first in time, stronger in right). Knowledge gained by the first buyer of the second sale cannot defeat the first buyers right except where the second buyer registers in good faith the second sale ahead of the first, as provided by the Civil Code. Such knowledge of the first buyer does not bar her from availing of her rights under the law, among them, to register first her purchase as against the second buyer. But in converso, knowledge gained by the second buyer of the first sale defeats his right even if he is first to register the second sale, since such knowledge taints his prior registration with bad faith. This is the price exacted by Article 1544 of the Civil Code for the second buyer being able to displace the first buyer, that before the second buyer can obtain priority over the first, he must show that he acted in good faith throughout (i.e. in ignorance of the first sale and of the first buyers right) from the time of acquisition until the title is transferred to him by registration or failing registration, by delivery of possession." (Emphasis supplied) We have consistently held that "in cases of double sale of immovables, what finds relevance and materiality is not whether or not the second buyer was a buyer in good faith but whether or not said second buyer registers such 20 second sale in good faith, that is, without knowledge of any defect in the title of the property sold ." In Salvoro vs. 21 Tanega, we had the occasion to rule that: "If a vendee in a double sale registers the sale after he has acquired knowledge that there was a previous sale of the same property to a third party or that another person claims said property in a previous sale, the registration will constitute a registration in bad faith and will not confer upon him any right." Mere registration of title is not enough, good faith must concur with the registration. To be entitled to priority, the second purchaser must not only establish prior recording of his deed, but must have acted in good faith, without 22 knowledge of the existence of another alienation by the vendor to the other. In the old case of Leung Yee vs. F. L. Strong Machinery, Co. and Williamson, this Court ruled: "One who purchases a real estate with knowledge of a defect of title in his vendor cannot claim that he has acquired title thereto in good faith as against the true owner of the land or of an interest therein ; and the same rule must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor. A purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor. His mere refusal to believe that such a defect exists, or his

willful closing of his eyes to the possibility of the existence of a defect in his vendors title will not make him an innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defect as would have led to its discovery had he acted with that measure of precaution which 23 may reasonably be required of a prudent man in a like situation . x x x "