SAN LORENZO DEVELOPMENT CORPORATION v. CA

FACTS:

The case involves the disputed sale of two parcels of land in Sta. Rosa, Laguna. Respondents Miguel Lu and Pacita Zavalla (hereinafter, the Spouses Lu) owned the two parcels of land. On August 20, 1986, they allegedly sold the land to respondent Pablo Babasanta for the price of fifteen pesos (P15.00) per square meter. Babasanta made a downpayment of fifty thousand pesos (P50,000.00) and several other payments totaling two hundred thousand pesos (P200,000.00). In May 1989, Babasanta demanded the execution of a final deed of sale and claimed that he learned that the Spouses Lu sold the property to another person without his knowledge and consent.

Meanwhile, petitioner San Lorenzo Development Corporation (SLDC) filed a motion for intervention, claiming that it bought the two parcels of land in a separate transaction. The trial court admitted the amended complaint of Babasanta and allowed SLDC to intervene. SLDC then filed a complaint-in-intervention, asserting its right as a buyer in good faith and value.

The Spouses Lu initially entered into a contract to sell the property to Babasanta but later sold it to SLDC. SLDC claimed to have bought the property in good faith, relying on the clean certificates of title delivered to them by the Spouses Lu. They argued that they had no obligation to look beyond the titles to determine if there were any adverse claims or notice of lis pendens. The trial court upheld the sale of the property to SLDC, applying Article 1544 of the Civil Code, which states that ownership should pertain to the buyer who first acquired possession of the property.

However, the Court of Appeals set aside the trial court's decision and declared the sale to SLDC null and void, considering them a purchaser in bad faith. The appellate court ordered the Spouses Lu to execute a deed of conveyance in favor of Babasanta and for him to pay the remaining balance of the purchase price. SLDC and the Spouses Lu filed separate motions for reconsideration, but the Spouses Lu later informed the appellate court that they are no longer contesting the decision.

The petitioner, Sps. Lu, owned a property which they sold to respondent, Babasanta. However, prior to the sale, the Sps. Lu secured a loan from SLDC and used the money to pay their obligation to Babasanta. SLDC claimed that it had no reason to suspect that the money would be used to pay the debt to Babasanta and argued that the amount it advanced to Pacita Lu would be deducted from the balance of the purchase price due from it. SLDC also asserted that Pacita never informed them of the prior sale to Babasanta and that it immediately took possession of the property after the sale. On the other hand, Babasanta argued that SLDC could not have acquired ownership of the property because it failed to comply with the requirement of registration in good faith, as there was already a notice of lis pendens annotated on the titles. Babasanta also claimed that SLDC's bad faith is evident from its failure to inquire about the purpose of the manager's check issued to him. The Sps. Lu informed the court that due to financial constraints, they no longer have an interest in pursuing their rights in the case.

ISSUES:

  1. Who between SLDC and Babasanta has a better right over the two parcels of land subject of the case?

  2. Did SLDC acquire ownership of the property in good faith?

  3. Did Babasanta acquire ownership of the property through the execution of a receipt and partial payment?

  4. Was there delivery of the property to Babasanta?

  5. Whether or not SLDC qualifies as a buyer in good faith.

  6. Whether or not the notice of lis pendens affects the consummated sale between SLDC and the Spouses Lu.

  7. Whether or not SLDC's registration of the sale had been tainted by the prior notice of lis pendens.

  8. Whether or not the claim of Babasanta can prevail over SLDC's claim.

  9. Whether there was a double sale of the same land in this case.

  10. Whether the "contract to sell" between Babasanta and the Spouses Lu is governed by Article 1544 of the Civil Code.

RULING:

  1. The agreement between Babasanta and the Spouses Lu is a contract to sell, not a contract of sale. Ownership of the property would not be transferred to Babasanta until full payment of the purchase price. Babasanta failed to fulfill his obligation to pay the balance of the purchase price, thus the obligation on the part of the sellers to convey title never acquired obligatory force. Therefore, SLDC has a better right over the property.

  2. SLDC acquired ownership of the property in good faith. It relied on the correctness of the certificate of title and the absence of any notice of lis pendens at the time of the sale. The burden rests on Babasanta to prove that SLDC was aware of the prior sale to him, but he failed to do so.

  3. Babasanta did not acquire ownership of the property through the execution of a receipt and partial payment. The agreement between Babasanta and the Spouses Lu, though valid, was not embodied in a public instrument, which is necessary for constructive delivery.

  4. There was no delivery of the property to Babasanta, whether actual or constructive, which is essential to transfer ownership of the property. Thus, even on the assumption that the perfected contract between the parties was a sale, ownership could not have passed to Babasanta in the absence of delivery.

  5. SLDC qualifies as a buyer in good faith since there is no evidence that it had knowledge of the prior transaction in favor of Babasanta. SLDC had acted in good faith from the time of execution of the first deed up to the transfer and delivery of possession of the lands. A person dealing with the owner of registered land is not bound to go beyond the certificate of title as he is charged with notice of burdens on the property which are noted on the face of the register or on the certificate of title.

  6. The notice of lis pendens has no effect on the consummated sale between SLDC and the Spouses Lu. The annotation of the notice of lis pendens was effected after the sale to SLDC had already been consummated.

  7. Even if SLDC's registration of the sale had been tainted by the prior notice of lis pendens, Babasanta's claim could not prevail over that of SLDC's. If a vendee in a double sale registers the sale after acquiring knowledge of a previous sale, the registration constitutes a registration in bad faith and does not confer upon him any right.

  8. SLDC's claim prevails over Babasanta's claim because SLDC was first in possession of the property and had acquired it in good faith.

  9. There was no double sale of the same land in this case.

  10. The "contract to sell" between Babasanta and the Spouses Lu is not governed by Article 1544 of the Civil Code.

PRINCIPLES:

  • Contracts are perfected by mere consent, manifested through the meeting of the offer and acceptance.

  • Contracts shall be obligatory as long as the essential requisites for their validity are present.

  • A contract to sell is different from a contract of sale in that ownership is reserved in the seller until full payment of the price.

  • In a contract to sell, the obligation to pay the price must be fulfilled and proper consignation of payment is necessary to extinguish the obligation.

  • Sale is a consensual contract.

  • Sale is a consensual contract that is perfected by mere consent. The essential elements of a contract of sale are consent, object certain, and cause of the obligation.

  • Ownership of the thing sold is acquired by the vendee from the moment it is delivered to him, either through actual delivery or legal or constructive delivery.

  • Delivery or tradition is the mode by which ownership is transferred. Sale by itself does not transfer ownership; it only creates an obligation to transfer ownership.

  • In cases of double sale of immovable property, the principle of primus tempore, potior jure applies. The ownership shall belong to the person who acquires it and first records it in the Registry of Property, made in good faith.

  • Registration of the sale after the annotation of a notice of lis pendens does not obliterate the effects of delivery and possession in good faith.

  • A purchaser in good faith is one who buys property without notice of another person's right or interest in the property and pays a full and fair price at the time of purchase.

  • A person dealing with the owner of registered land is not bound to go beyond the certificate of title and is charged with notice of burdens on the property noted on the face of the register or certificate of title.

  • The constructive notice provided by the registration of a notice of lis pendens operates from the time of registration.

  • The annotation of a notice of lis pendens serves as a warning to prospective buyers or encumbrancers that the property is in litigation and that they should keep their hands off the property unless they intend to gamble on the results of the litigation.

  • Registration of a sale in bad faith, after acquiring knowledge of a previous sale, does not confer any right to the buyer. The buyer who takes possession of the property first in good faith shall be preferred.

  • In cases of double sale, the general rule is that the buyer who registers the sale in good faith and is first in time acquires a better right.

  • If neither party registers the sale, the party who first takes possession of the property in good faith acquires a better right.

  • If neither party registers the sale nor takes possession of the property, the party who has a prior date of title acquires a better right, with good faith as the common critical element.

  • Article 1544 of the Civil Code does not apply in cases where one contract is a sale of the land itself while the other contract is a mere promise to sell the land or an assignment of the right to repurchase the same land.