SECOND DIVISION

G.R. No. 105902 February 9, 2000

SEVERINO BARICUATRO, JR., petitioner,

vs.
COURT OF APPEALS, TENTH DIVISION, MARIANO B. NEMENIO AND FELISA V.
NEMENIO, CONSTANTINO M. GALEOS AND EUGENIO V. AMORES, respondents.

BUENA, J.:

This appeal by certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the
decision of the Court of Appeals1 dated April 30, 1992 in CA-G.R. CV No. 19399, affirming in
toto the decision of the Regional Trial Court of Cebu2 in Civil Case No. R-15442 for quieting of
title.

The antecedent facts as found by the trial court and adopted by the Court of Appeals are as
follows:3

On October 16, 1968, Severino Baricuatro, Jr., now deceased and substituted by his legal heirs,
bought two (2) lots on an installment basis from Constantino M. Galeos, one of the private
respondents in this petition.4 The two lots, designated as Lot Nos. 9 and 10, are part of the
Victoria Village (presently called Spring Village), a subdivision project in Pakigne, Minglanilla,
Cebu.5 Lot Nos. 9 and 10 were sold on an installment basis for P3,320.00 and P4,515.00,
respectively.6 Petitioner, however, was unable to pay the full amount to respondent Galeos. At
the time the original action for quieting of title was filed in the trial court, petitioner had an
unpaid balance of P1,000.00 as to Lot No. 9 and P3,020.00 as to Lot No. 10. The titles to the said
lots remained in the name of respondent Galeos.7 As emphasized by the Court of Appeals, the
contract of sale involving Lot No. 10 expressly provided that "the parties both agree that a final
deed of sale shall be executed, in favor of the buyer upon full and complete payment of the total
purchase price agreed upon."8

After the sale, petitioner introduced certain improvements on the said lots and started to reside
therein in 1970.9 Since then petitioner has been in actual and physical possession of the two (2)
lots.10

However, on December 7, 1968, about two (2) months from the date of the previous sale to
petitioner, respondent Galeos sold the entire subdivision, including the two (2) lots, to his co-
respondent Eugenio Amores.11 Subsequently, petitioner was informed by respondent Galeos
about the sale to respondent Amores and was advised to pay the balance of the purchase price of
the two (2) lots directly to respondent Amores.12

After the sale of the entire subdivision to respondent Amores, he allegedly took possession
thereof and developed the same for residential purposes.13 Respondent Amores registered the
deed of sale covering the entire subdivision on February 13, 1969,14 secured the transfer of the
title to the same in his name, subdivided the entire land, and acquired individual titles to the
subdivided lots in his name, including the title of the two (2) lots.15 TCT No. 20016 was issued
for Lot No. 9 and TCT No. 20017 for Lot No. 10, both in the name of respondent Amores.16

On December 27, 1974, respondent Amores sold the two (2) lots to the spouses Mariano and
Felisa Nemenio, two of the respondents herein.17 Prior to the sale, however, petitioner was
informed through a letter by respondent Amores about the impending sale of the two (2) lots but
the former failed to respond.18 The respondent spouses Nemenio caused the transfer of the titles19
to the said lots and the issuance of tax declarations in their names. Thereafter, the respondent
spouses Nemenio demanded from petitioner to vacate the said lots but the latter refused to do so.

Thus, a complaint for quieting of title was filed by the respondent spouses Nemenio against
petitioner in the Regional Trial Court of Cebu, Branch V, docketed as Civil Case No. R-15442.20

Subsequently, respondents Galeos and Amores were impleaded by petitioner as third-party

defendants.

On November 27, 1986, the trial court rendered a decision,21 declaring the respondent spouses
Nemenio as the owners of Lot Nos. 9 and 10. The dispositive part of the said decision reads:22

WHEREFORE, judgment is hereby rendered as follows:

1. In the main action:

(a) declaring the plaintiffs [spouses Nemenio] owners of Lots (sic) Nos. 9
and 10 and the corresponding titles validly issued to plaintiffs [spouses
Nemenio] and binding against the whole world;

(b) ordering the defendant [petitioner herein] to surrender to plaintiffs the

possession of Lots (sic) Nos. 9 and 10 after the latter indemnify the former
the fair value of the improvements introduced on the said lots by
defendant [petitioner herein] before he knew of the defects of his title over
the lots in question; otherwise, plaintiffs [spouses Nemenio] to sell the
said lots to defendants [should read defendant]; in both cases, in case of
disagreement as to the value of improvements or value of the said lots,
their value to be fix (sic) by the Court;

(c) ordering the defendant [petitioner herein] to desist from further

asserting his supposed rights to Lots (sic) Nos. 9 and 10;

(d) ordering the defendant [petitioner herein] to pay P2,500.00 as

attorney's fees and litigation expenses of P1,000.00;

(e) dismissing the defendant's [petitioner herein] counterclaim, with costs

against defendant [petitioner herein];

2. As to the third-party complaint:

 (a) ordering the third-party defendant [respondent] Constantino M. Galeos
to pay or refund defendant [petitioner] Baricuatro, Jr. the sum of
P3,810.00 with legal interest of 6% per annum from the filing of the third-
party complaint on February 3, 1977, until the amount is fully paid;

(b) dismissing the third-party complaint as against third-party defendant

[respondent] Eugenio Amores;

(c) dismissing third-party defendants' counterclaims, without costs.

SO ORDERED.

On appeal to the respondent court,23 petitioner assailed the findings of the trial court that third-
party defendant and respondent Amores validly acquired ownership of the two (2) lots registered
the same in good faith,24 and that respondent spouses Nemenio are purchasers in good faith.25

Finding no merit in the appellant's arguments, the respondent court affirmed in toto the judgment
of the trial court in a decision dated April 30, 1992.26 The respondent court adopted the factual
finding of the trial court that when the disputed lots were sold to respondent Amores on
December 7, 1968, the latter did not find any improvement on the disputed lots and respondent
Galeos' title to the same was clean and unencumbered, and that respondent Amores came to
know of the sale between respondent Galeos and petitioner only after the sale of the lots to him.27

On July 9, 1992, petitioner filed the present Petition for Review on Certiorari, assigning the
following errors:28

I.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING

THAT THIRD-PARTY DEFENDANT AMORES VALIDLY ACQUIRED
OWNERSHIP OF THE TWO (2) LOTS IN QUESTION AND THAT HE WAS IN
GOOD FAITH WHEN HE REGISTERED THE SALE OF THE TWO (2) LOTS IN
QUESTION IN THE REGISTRY OF PROPERTY;

II.

THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT

PLAINTIFFS [SPOUSES NEMENIO] WERE PURCHASERS IN GOOD FAITH;

III.

THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT ARTICLE

1544 OF THE NEW CIVIL CODE OF THE PHILIPPINES IS APPLICABLE;

IV.
 THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE AWARD OF
ATTORNEY'S FEES AND EXPENSES OF LITIGATION TO PLAINTIFFS
[SPOUSES NEMENIO].

Respondent Amores, in his Comment filed on August 31, 1992,29 on the other hand, argues that
the present petition raises only questions of fact,30 hence, it should be dismissed by this Court.

In his Reply dated January 6, 1993,31 petitioner insists that as an exception to the general rule, ". .
. [the] Supreme Court also ruled that "THE QUESTION AS TO WHETHER OR NOT THE
CONCLUSION DRAWN BY THE COURT OF APPEALS FROM PROVEN FACTS IS
CORRECT, INVOLVES A QUESTION OF LAW."32 (citation omitted).1wphi1.nt

Petitioner, now substituted by his legal heirs, in his memorandum filed on March 31, 1993, raises
questions of fact which were already passed upon both by the Court of Appeals and the trial
court33 and reiterates his contention before the respondent court that respondents Amores and
spouses Nemenio are not purchasers in good faith.34 Furthermore, petitioner argues that the
general principles on trust must be applied in this case and not Article 1544 of the New Civil
Code.35

On the other hand, respondent spouses Nemenio, in their memorandum filed on March 16, 1993,
assert that the Torrens system of land registration should be upheld by this Court, and that an
innocent purchaser for value, relying solely on an unencumbered title, should be protected.36

Respondent Amores, in his memorandum filed on March 31, 1993, contends that there are no
compelling reasons to overturn the findings of facts of the respondent court, and prays for the
affirmation of the assailed decision and the dismissal of the instant petition.37

We find the petition to be impressed with merit.

Before addressing the merits of the controversy, we shall first dispose of certain preliminary
matters relating to the application of the mode of appeal under Rule 45 of the Rules of Court and
the guiding principles in an action for quieting of title.

At the outset, it should be noted that the jurisdiction of this Court in a petition for review on
certiorari under Rule 45 of the Rules of Court is limited to reviewing only errors of law. This
court is not a trier of facts. It is settled doctrine that findings of facts of the Court of Appeals are
binding and conclusive upon this Court.38 Such factual findings shall not be disturbed, unless: (1)
the conclusion is a finding grounded entirely on speculation, surmise and conjecture; (2) the
inference made is manifestly mistaken; (3) there is grave abuse of discretion; (4) the judgment is
based on a misapprehension of facts: (5) the findings of fact are conflicting; (6) the Court of
Appeals went beyond the issues of the case and its findings are contrary to the admissions of
both appellant and appellees; (7) the findings of fact of the Court of Appeals are contrary to
those of the trial court; (8) said findings of fact are conclusions without citation of specific
evidence on which they are based; (9) the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the respondents; and (10) the findings of
fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted
by the evidence on record.39 After a careful scrutiny of the records and the pleadings submitted
by the parties, we find exception to the general rule that factual findings by the trial court,
especially when affirmed by the appellate court, are binding and conclusive upon this Court and
hold that the lower court, are binding and conclusive upon this Court and hold that the lower
courts misappreciated the evidence proffered. Certain relevant facts were overlooked by the
respondent court, which facts, if properly appreciated, would justify a different conclusion from
the one reached in assailed decision.

1. Regarding the nature of the action filed before the trial court, quieting of title is a common law
remedy for the removal of any cloud upon or doubt or uncertainty with respect to title to real
property.40 Originating in equity jurisprudence, its purpose is to secure ". . . an adjudication that a
claim of title to or an interest in property, adverse to that of the complainant, is invalid, so that
the complainant and those claiming under him may be forever afterward free from any danger of
hostile claim."41 In an action for quieting of title, the competent court is tasked to determine the
respective rights of the complainant and other claimants, ". . .not only to place things in their
proper place, to make the one who has no rights to said immovable respect and not disturb the
other, but also for the benefit of both, so that he who has the right would see every cloud of doubt
over the property dissipated, and he could afterwards without fear introduce the improvements he
may desire, to use, and even to abuse the property as he deems best (citation omitted.)"42 Such
remedy may be availed of under the circumstances enumerated in the Civil Code:

Art. 476. Whenever there is a cloud on title to real property or any interest therein, by
reason of any instrument, record, claim, encumbrance or proceeding which is apparently
valid or effective but is in truth and in fact invalid, ineffective, voidable, or
unenforceable, and may be prejudicial to said title, an action may be brought to remove
such cloud or to quiet the title.

An action may also be brought to prevent a cloud from being cast upon title to real
property or any interest therein.

With these in mind, we now proceed to resolve the merits of the instant controversy.

In this petition, petitioner emphatically contends that respondent Amores, the second buyer,
cannot be categorized as a purchaser in good faith, arguing on the basis of the letter which the
latter sent to the petitioner, reminding the petitioner of his overdue account and warning him that
if he could not come up with the proper solution, it would be his last chance before respondent
Amores does other remedies before the law.43 The respondent court, in its decision dated April
30, 1992, rejected this contention and adopted the finding of the trial court that ". . . at the time of
the sale to [respondent] Amores by the previous registered owner Constantino Galeos sometime
in 1968, [respondent] Amores found no improvements established on the land subject of the sale,
and [respondent] Galeos' title to the lots was clean and unencumbered, and that [respondent]
Amores came to know of the sale by installment executed between [respondent] Galeos and
[petitioner] Baricuatro only after the sale of said lots to him."44 The respondent court discarded
petitioner's argument and ruled that "[t]he fact that [respondent] Amores subsequently tried to
collect the balance of the purchase price from [petitioner] Baricuatro as shown by his letter to
[petitioner] Baricuatro dated November 10, 1972 does not by itself prove that he was aware of
the previous transaction with [petitioner] Baricuatro at the time of the sale to him in 1968, that
would place him in the category of a buyer in bad faith."45

We do not agree. 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 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 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 the possession; and, in the absence thereof, to the person who presents
the oldest title, provided there is good faith. (Emphasis supplied.)

Under article 1544, the ownership of an immovable property shall belong to the purchaser who
in good faith registers it first in the registry of property. As we ruled in the case of Uraca vs.
Court of Appeals:46

xxx xxx xxx

. . . 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 buyer's
rights 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 rights 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 buyer's rights)
from the time of acquisition until the title is transferred to him by registration or failing
registration, by delivery of possession. . . . . .47 (Emphasis supplied)

The second buyer must show continuing good faith and innocence or lack of knowledge
of the first sale until his contract ripens into full ownership through prior registration as
provided by law.48 (Emphasis supplied.)

For a second buyer to successfully invoke the protection provided by article 1544 of the Civil
Code, he must posses good faith from the time of acquisition of the property until the registration
of the deed of conveyance covering the same.
In the instant case, both lower courts attributed good faith to respondent Amores, the second
buyer of the disputed lots, particularly at the consummation of the second sale on December 7,
1968 when respondents Amores and Galeos executed a deed of absolute sale,49 after observing
that respondent Amores "found no improvements established on the land subject of the sale" at
the time of the sale in December 1968 and "[respondent] Galeos' title to the lots was clean and
unencumbered," and that [respondent] Amores came to know of the sale by installment executed
between [respondent] Galeos and [petitioner] Baricuatro only after the sale of said lots to him."50

Assuming arguendo that respondent Amores was in good faith when he bought the entire
subdivision, including the two (2) disputed lots, from respondent Galeos on December 7, 1968,
there is no showing in the assailed decision that he continued to act in good faith until the title to
the property was transferred to him by registration in the Register of Deeds on February 13,
1969, as required by Article 1544, hence the need for a reevaluation of the factual findings of the
respondent court.

A careful and thorough scrutiny of the records of this case reveals that respondent Amores did
not act in good faith when he registered his title to the disputed lots on February 13, 1969.
Assuming that respondent Amores was in good faith when he bought the disputed lots on
December 7, 1968, however, when he registered his title on February 13, 1969, the
preponderance of evidence supports the finding that he already had knowledge of the previous
sale of the disputed lots to petitioner. Such knowledge tainted his registration with bad faith. To
merit protection under article 1544, the second buyer must act in good faith from the time of the
sale until the registration of the same.

First, as culled from the records of this case, respondent Galeos disclosed to the trial court that it
was his agreement51 with respondent Amores that those who have obligations with respect to the
disputed lots would continue to pay to respondent Amores, thus:52

xxx xxx xxx

ATTY. DOSDOS:

Q: Why, at the time of your sale of the Victoria Village to Mr. Amores was Mr.
Baricuatro still indebted to you for the two parcels of land?

WITNESS [GALEOS]:

A: Yes, sir, there was a balance.

ATTY. DOSDOS:

Q: Now COURT: (to witness)

Q: How much was the balance?

WITNESS [GALEOS]:
 A: I cannot recall exactly.

COURT:

Q: Was it your agreement with Mr. Amores that those who have obligations will
continue to pay to Mr. Amores, is that part of your agreement?

WITNESS [GALEOS]:

A: Yes, sir.

COURT: (TO ATTY. DOSDOS).

Q: Do you have the agreement between Mr. Amores and Mr. Galeos?

ATTY. DOSDOS:

A: The document?

COURT:

Q: Yes?

ATTY. MARCOS:

A: It is in our possession and we have it marked already your Honor.

xxx xxx x x x53(Emphasis supplied)

Hence, the inevitable conclusion to be drawn is that respondent Amores had knowledge of the
previous sale to petitioner when he entered into a contract of sale with respondent Galeos on
December 7, 1968 and cannot therefore be considered as a purchaser in good faith.

Second, respondent Amores testified on direct examination, that he first learned of the
transaction between respondent Galeos and petitioner in 1972 when respondent Galeos showed
him a letter addressed to petitioner (referring to the letter dated October 6, 1972),54 a copy of
which was sent to him.55 After receiving such information, he wrote petitioner on November 10,
1972 allegedly to verify the truth of the matter.56 A reading of respondent Galeos' letter dated
October 6, 1972 and addressed to petitioner, however, readily shows that contrary to his
testimony, respondent Amores was not without knowledge of the previous sale to petitioner
when he received the said letter. In the said letter, respondent Galeos stated that". . . he has been
informed that collections effected on the contracts I have assigned to Mr. Eugenio V. Amores
has (sic) not been moving for reasons known only to you" and that "[it] appears on his
[respondent Amores] record and confirmed to be correct that all the contracts have gone beyond
the limitations and restrictions pertinent thereto."57 Consistent with our finding that respondent
Amores was not without knowledge of the previous sale to petitioner when he acquired and
registered the disputed lots, in the tone and contents of respondent Amores' letter dated
November 10, 1972 and addressed to petitioner, written allegedly to verify the truth about the
previous sale from petitioner. As found be respondent court, the said letter obviously shows an
intent to collect the balance of the purchase price of the disputed lots from petitioner which
presupposes knowledge of the previous sale by respondent Amores. Such an attempt to collect
the balance of the purchase price supports our finding that respondent Amores had knowledge of
the previous sale when he bought the disputed lots.

Third and most enlightening is respondent Amores testimony on cross-examination which

contradicts his own testimony on direct examination regarding the time when he first learned of
the transaction between respondent Galeos and petitioner. According to respondent Amores, he
learned of petitioner's interest in the disputed lots when he had the subdivision leveled58 starting
in December 1968 until March 1969.59 Respondent Amores thereafter admitted that in January or
February 1969, it was respondent Galeos who told him when they "met at the downtown" that
the disputed lots were already sold to petitioner on installment basis.60 He insisted though that he
had no knowledge of the previous sale of the disputed lots to petitioner when he bought the
entire subdivision considering that the same had a clean title.61

Lastly, consistent with his testimony that it was his agreement with respondent Amores that those
who have obligations with respect to the disputed lots would continue to pay directly to the
latter, respondent Galeos testified upon the sale of subdivision to respondent Amores, he
informed petitioner of the said transaction in order that the latter would continue to pay the
balance of the purchase price of the disputed lots directly to respondent Amores.62 On cross-
examination he disclosed that a few days before the actual sale63 of the entire subdivision to
respondent Amores, he first informed petitioner of his decision to sell the said subdivision to
respondent Amores and told petitioner to pay the balance of the purchase price to respondent
Amores.64

Having thus found that respondent Amores was not in good faith when he registered the deed of
sale covering the disputed lots, we now consider its effect on the rights of respondent spouses
Nemenio as subsequent purchasers of the disputed lots.

Respondent spouses Nemenio assert that they are purchasers in good faith, claiming that they
meticulously examined the title of respondent Amores and "finding the same to be free from any
flaws, liens and encumbrances," they "did not hesitate to buy the land."65 Having allegedly
registered the deeds of sale in good faith, they submit that the "one who first registers the
document in the Registry of Property has a better right over that sale which is not registered."66

We disagree. As we have consistently held in a long line of cases, the rights of innocent
purchasers for value should prevail.67 It appears from the records that while respondent spouses
Nemenio bought the disputed lots from respondent Amores on December 27, 1974,68 they
registered the deeds of sale only on August 30, 1976.69 Respondent Mariano Nemenio admitted
on cross-examination that the first time he visited petitioner's residence was in early 1975, thus:"

xxx xxx xxx

 ATTY. GONZAGA:

Q: The question is when for the first time after you bought the property that you
visited the Baricuatro's residence?

WITNESS (Mariano Nemenio)

A: The first time it could be I think early 1975. I am not exactly sure as to the exact
date, but I used to pass their place when I had the opportunity to pass the property. I
always passed with them.

ATTY. GONZAGA:

Q: How many months after you bought these two (2) lots?

WITNESS (Mariano Nemenio)

A: I am not sure exactly as to the exact time but it was sometime after I bought the
property.

ATTY. GONZAGA:

Q: About ten (10) months?

WITNESS (Mariano Nemenio)

A: Ten months after. I am not sure as that was a long time ago.

xxx xxx x x x70

It may be deduced from the foregoing inquisition that having visited petitioner's residence in
early 1975, respondent spouses Nemenio cannot claim to be purchasers in good faith when they
registered in their title to the disputed lots an August 30, 1976. The registration by the respondent
spouses Nemenio was done in bad faith, hence, it amounted to no "inscription" at all. As we held
in the case of Philippine Stock Exchange, Inc. vs. Court of Appeals,71 "[t]he inscription in the
registry, to be effective, must be made in good faith. The defense of indefeasibility of a Torrens
Title does not extend to a transferee who takes the certificate of title with notice of a flaw."72
"[A] holder in bad faith of a certificate of title is not entitled to the prosecution of the law, for the
law cannot be used as a shield for fraud."73

WHEREFORE, the decision of the respondent Court of Appeals, dated April 30, 1992, in CA-
G.R CV No. 19399, is REVERSED and judgment is hereby rendered:

1) Declaring the petitioner SEVERINO BARICUATRO, JR. as the rightful owner of the
disputed lots and ordering him to pay respondent Constantino M. Galeos the unpaid
balance of P1,000.00 as to Lot No. 9 and P3,020,00 as to Lot No. 10;
 2) Declaring the deed of sale dated December 7, 1968 between respondent Constantino
M. Galeos and respondent Eugenio V. Amores insofar as Lot 9 and 10 of Spring Village
is concerned as null and void, thus, ordering respondent Constantino M. Galeos to
reimburse respondent Eugenio V. Amores the value/purchase price the latter paid for
Lots 9 and 10 undert the said deed of sale, with legal interest from the date of finality of
this decision;

3) Declaring the deed of sale dated December 27, 1974 between respondent Eugenio V.
Amores and respondent spouses Mariano B. Nemenio and Felisa V. Nemenio as null and
void, thus, ordering respondent Eugenio V. Amores to reimburse respondent spouses
Mariano B. Nemenio and Felisa V. Nemenio the purchase price they paid by virtue of the
said deed of sale, with legal interest from the date of finality of this decision;

4) Ordering the Register of Deeds of the province of Cebu to cancel Transfer Certificate
of Title Nos. 39002 and 39003 in the name of spouses Mariano B. Nemenio and Felisa V.
Nemenio, and Transfer Certificate of Title Nos. 20016 and 20017 in the name of Eugenio
V. Amores; and, to issue a new Certificate of Title for Lot No. 9 and Lot No. 10 in favor
of petitioner Severino Baricuatro, Jr. in lieu of the foregoing certificates of title, upon
payment of all lawful fees, charges and taxes;

5) Ordering private respondents Mariano and Felisa Nemenio, Constantino M. Galeos

and Eugenio V. Amores to pay P5,000.00 as attorney's fees and litigation expenses of
P1,000.00.1wphi1.nt

Cost against private respondents.

SO ORDERED.