FACTS:

The case involves a dispute over the ownership of a parcel of land known as Lot No. 7036-A-7. Rizal Madrid, one of the registered owners, sold part of his share to Aleja Gamiao and Felisa Dayag. Gamiao and Dayag subsequently sold the southern half of the lot to Teodoro dela Cruz and the northern half to Restituto Hernandez. Hernandez later donated the northern half to his daughter, Evangeline Hernandez-del Rosario. Meanwhile, the Madrid brothers conveyed all their rights and interests over the land to Pacifico Marquez, who subdivided the land into eight lots and mortgaged some of them to Consolidated Rural Bank, Inc. of Cagayan Valley (CRB) and Rural Bank of Cauayan (RBC). CRB foreclosed on the mortgages due to loan defaults and became the owner of the land. The Heirs of Teodoro dela Cruz filed a case for reconveyance and damages against Marquez, CRB, RBC, and a buyer of one of the lots. The Regional Trial Court (RTC) ruled in favor of the defendants, but the Court of Appeals reversed this decision, declaring the Heirs as the lawful owners of the southern half of the lot and nullifying Marquez's sale and the mortgages. CRB's motion for reconsideration was denied by the Court of Appeals.

ISSUES:

1. Whether the rule on double sale provided in Article 1544 of the Civil Code is applicable to the present case.

2. Whether the Heirs of Teodoro dela Cruz acted in good faith in taking possession of the subject property.

3. Whether the first buyers, Gamiao and Dayag, ever took possession of the subject property.

4. Whether the sale to Gamiao and Dayag was made in bad faith.

5. Whether the principle of prior tempore, potior jure or "he who is first in time is preferred in right" should apply in a situation where not all the requisites of Art. 1544 of the Civil Code are present.

6. Whether Marquez, the second vendee, acted in good faith when he purchased the subject property.

7. Whether the purchaser/mortgagee is considered in good faith and entitled to protection under the Torrens system despite failing to exercise due diligence in verifying the status of the property being purchased/mortgaged

8. Whether the ocular inspection of the property is necessary to determine the possession rights of the occupants for the purposes of protecting the purchaser/mortgagee

9. Whether the transfer of the property to a third party after the original purchaser/mortgagee obtained title affects the latter's good faith or entitlement to protection under the Torrens system

RULING:

1. The rule on double sale under Article 1544 of the Civil Code is not applicable to the present case because it contemplates a situation where a single vendor sells the same immovable property to multiple buyers. In this case, the first deed of sale involved vendors who acquired the subject property from Rizal Madrid and the second deed of sale involved the Madrid brothers who were no longer the owners of the property.

2. and 3. There was no finding that the Heirs of Teodoro dela Cruz acted in good faith in taking possession of the subject property, nor was there proof that Gamiao and Dayag, the first buyers, ever took possession of the property. These issues were not addressed by the court.

3. The sale to Gamiao and Dayag was confirmed a day ahead of the actual sale, which indicates bad faith. However, this issue was not addressed by the court.

4. The principle of prior tempore, potior jure should apply in a situation where not all the requisites of Art. 1544 are present. The principle of prior tempore, potior jure states that the first vendee is the one who can invoke this principle. In the present case, the Heirs, being the first vendee, have a superior right to the subject property.

5. Marquez did not act in good faith when he purchased the subject property. In order for the second buyer to obtain priority over the first, he must show that he acted in good faith from the time of acquisition until the title is transferred to him by registration or delivery of possession. Marquez knew that the subject property was being claimed by the Heirs, indicating a defect in the vendor's title. Furthermore, Marquez did not take possession of the property and failed to inquire about the possession of others. Therefore, Marquez did not satisfy the requirement of good faith.

6. The purchaser/mortagee is not considered in good faith and is not entitled to the protection under the Torrens system if they fail to exercise due diligence in verifying the status of the property being purchased/mortgaged. This is especially true if there are circumstances that should have prompted the purchaser/mortgagee to investigate further or inspect the property.

7. The ocular inspection of the property is necessary to determine the possession rights of the occupants. A prudent purchaser/mortgagee is expected to inquire into the nature of possession of the occupants, particularly whether they possess the land as owners. Failure to take such precautionary steps may be considered as negligence, thus precluding the purchaser/mortgagee from claiming or invoking the rights of a "purchaser in good faith."

8. The transfer of the property to a third party after the original purchaser/mortgagee obtained title does not affect the latter's good faith or entitlement to protection under the Torrens system. Once a purchaser/mortgagee acquires title to the property, their possession is protected under the Torrens system, even if they subsequently transfer the property to another person.

PRINCIPLES:

• The rule on double sale under Article 1544 of the Civil Code applies only to cases where a single vendor sells the same immovable property to multiple buyers.

• In order for tradition or the transfer of ownership to be valid, it is necessary that the conveyor (seller) had the right and the will to convey the thing. Merely intending to transfer the property is not enough.

• The preexistence of the right on the part of the conveyor is an essential requirement for the validity of the transfer of ownership.

• Principle of prior tempore, potior jure - "he who is first in time is preferred in right."

• Nemo dat quod non habet - no one can give what one does not have.

• A purchaser/mortgagee cannot close their eyes to facts that should have put a reasonable person on guard and prompt them to investigate further.

• A purchaser/mortgagee is expected to exercise due diligence, including an ocular inspection of the property, to ascertain the possession rights of occupants.

• Certificates of title are not meant to protect a usurper from the true owner or to perpetrate fraud.

• Possession of the property, whether actual or constructive, is an important indication of ownership.

• The Torrens system cannot be used to shield fraud.

• The decision of the lower court may be affirmed or reversed by the higher court.

• The party ordered to pay the costs of the case must bear the expenses incurred in the proceedings.