Spouses De Guzman, Jr. v. Court of Appeals
REITERATIONFacts
The Antecedents: Deogracias Queriza executed a Deed of Pacto de Retro Sale over a parcel of unregistered residential land in favor of his niece, Raymunda Ringor Quirmit (private respondent), for P500.00, with a five-year period to repurchase. Private respondent took possession and built her house on a portion of the land but did not register the deed. Deogracias Queriza later mortgaged the land to Manaoag Rural Bank and, without repurchasing, executed a Deed of Inter Vivos Donation in favor of his nephew, Miguel Queriza. Miguel Queriza declared the land for taxation, registered the donation, and subsequently sold the land to petitioners Spouses Gregorio de Guzman, Jr. and Corazon Quinto. Procedural History: Petitioners sent private respondent a notice to vacate, and upon refusal, filed a Civil Case for Quieting of Title and Recovery of Possession. The trial court ruled in favor of petitioners, declaring them owners and ordering private respondent to vacate. On appeal, the Court of Appeals reversed, declaring private respondent the owner, applying Article 1544 of the New Civil Code and finding petitioners to be purchasers in bad faith. Petitioners' motion for reconsideration was denied. The Petition: Petitioners seek review of the Court of Appeals' decision, arguing it erred in applying Article 1544, not holding the pacto de retro sale as an equitable mortgage, and not applying the rule that the negligent party should bear the loss. They also claim the appellate court erred in denying their motion for reconsideration.
Issue(s)
Whether the Court of Appeals erred in applying Article 1544 of the New Civil Code when it was not invoked in the lower court. Whether the pacto de retro sale between Deogracias Queriza and private respondent should be considered an equitable mortgage. Whether petitioners, as purchasers, were negligent and should bear the loss as between two innocent parties. Whether the Court of Appeals erred in denying the motion for reconsideration; and the effect of failure to consolidate ownership and registration.
Ruling
The petition is denied, and the decision of the Court of Appeals declaring private respondent Raymunda Ringor Quirmit as the owner of the land in dispute is affirmed.
Ratio Decidendi
On the application of Article 1544 of the New Civil Code: While the Court of Appeals erred in applying Article 1544 of the New Civil Code, which pertains to double sales of registered property, to a case involving an unregistered land and an earlier pacto de retro sale, this error did not constitute entertaining an issue not raised in the lower court. The core issue in an action for quieting of title and recovery of possession is who between the parties has a better right to the property, which was precisely what the appellate court resolved. Therefore, the issue of who has a better right was indeed raised and addressed. On whether the pacto de retro sale was an equitable mortgage: The Court found that the transaction between Deogracias Queriza and private respondent was a genuine pacto de retro sale, not an equitable mortgage. The consideration of P500.00 was not unusually inadequate, and the evidence showed that private respondent appropriated the fruits of the land after the sale, contrary to the trial court's finding. Private respondent's explanation for not consolidating ownership, based on her uncle's assurance due to his lack of heirs, was deemed satisfactory given their close relationship and the trust involved, especially since Deogracias Queriza was a Notary Public. On petitioners' negligence and bad faith: The rule that the negligent party bears the loss between two innocent parties does not apply because petitioners were not innocent purchasers. The Court of Appeals found that petitioners were purchasers in bad faith. Private respondent was in actual possession of the land with her house on it, and petitioners lived nearby. Private respondent had even confronted them and informed them of her prior purchase. Petitioners failed to exercise due diligence by inquiring into private respondent's rights, relying solely on the Deed of Donation to Miguel Queriza. Their reliance on the Notary Public's assurance about a clean title was insufficient, especially for unregistered land. On the failure to consolidate ownership and the effect of registration: The essence of a pacto de retro sale is that title vests in the vendee a retro, subject to the vendor's right to repurchase. Failure to repurchase within the period vests absolute title in the vendee by operation of law. Private respondent acquired absolute ownership in 1962. Therefore, Deogracias Queriza had no title to donate to Miguel Queriza in 1967, and consequently, Miguel Queriza could not convey any title to petitioners. Registration of deeds does not vest title; it is merely evidence. Petitioners' registration in bad faith was a useless ceremony as against private respondent, whose actual knowledge of the sale to her effectively served as notice.
Main Doctrine
A pacto de retro sale, upon failure of the vendor a retro to repurchase within the stipulated period, vests absolute title and ownership in the vendee a retro by operation of law. Subsequent transactions by the vendor a retro, such as a donation, are void for lack of title. A purchaser who fails to exercise due diligence to inquire into the rights of the actual possessor of unregistered land is considered a purchaser in bad faith.