Berico v. Court of Appeals
REITERATIONFacts
The Antecedents: Jose de los Santos owned a parcel of land. He sold a portion (2.25 hectares) to private respondents Ciriaco Flores and Felisa Bareja on October 31, 1961, via a private document. Private respondents took possession immediately, declared the property for taxation, and paid taxes thereon. Subsequently, Jose de los Santos sold the entire Lot No. 785 to petitioner Lorenzo Berico in two separate deeds dated January 3, 1963, and March 30, 1963. Petitioner Berico was aware of the prior sale to private respondents and their possession. Despite this knowledge, Berico registered the deeds of sale on June 5, 1968, and obtained Transfer Certificate of Title (TCT) No. T-1346 in his name, cancelling the Original Certificate of Title (OCT) No. P-671. Private respondents discovered this and registered their deed of sale on November 8, 1978. Procedural History: Private respondents filed a complaint for annulment of TCT No. T-1346. The Regional Trial Court (RTC) ruled in favor of private respondents, annulling TCT No. T-1346 and ordering the issuance of a new title reflecting private respondents' ownership over their portion. The Court of Appeals (CA) affirmed the RTC's decision but modified the dispositive portion, ordering Berico to execute a deed of reconveyance for the 2.25 hectares in favor of private respondents, to be annotated on TCT No. T-1346 until partition. Petitioners appealed to the Supreme Court. The Petition: Petitioners argue that the action is barred by prescription and that their acquisition of the land was not tainted with bad faith.
Issue(s)
Whether the action for annulment of title filed by the private respondents is barred by prescription. Whether the acquisition of the property by the petitioners was tainted with bad faith, rendering their registration ineffective under Article 1544 of the Civil Code.
Ruling
The petition is denied. The Court of Appeals' decision is affirmed, ordering the petitioner to execute a deed of reconveyance for 2.25 hectares in favor of the private respondents, to be annotated on TCT No. T-1346.
Ratio Decidendi
On the issue of prescription: The Court ruled that the action was not barred by prescription. The registration of the sale in favor of petitioners and the issuance of TCT No. T-1346 were fraudulent and vitiated by bad faith, thus not operating as constructive notice. The four-year prescriptive period for fraud must be counted from the discovery of the fraud, which was on November 8, 1978, when private respondents learned of the cancellation of the OCT and issuance of TCT to Berico. The complaint was filed on December 14, 1978, well within the prescriptive period. Furthermore, the action was deemed one for quieting of title, which does not prescribe. On the issue of bad faith and the application of Article 1544: The Court held that petitioner Lorenzo Berico acted in bad faith. He had prior knowledge of the sale to private respondents and their possession of the property. His registration of the deeds of sale and the subsequent issuance of TCT No. T-1346 were done with evident bad faith. The Court reiterated that for Article 1544 of the Civil Code to apply to immovable property, the registration must be done in good faith. Since Berico's registration was in bad faith, it was ineffectual and vested him with no preferential rights. The Court emphasized that the spring cannot rise higher than its source; the TCT issued based on a bad faith registration conferred no better right. As private respondents were the anterior possessors in good faith, ownership vested in them under the third paragraph of Article 1544. Their subsequent registration further solidified their claim. The Court clarified that the case did not involve a constructive trust under Article 1456 of the Civil Code, as private respondents never parted with ownership or possession, and petitioners never acquired possession through fraud in the sense contemplated by the article. The Court stressed that the Torrens system cannot be used to perpetrate fraud, and registration must be in good faith to be effective.
Main Doctrine
In cases of double sale of immovable property, ownership belongs to the vendee who in good faith first recorded the sale in the Registry of Property. If there is no inscription, ownership belongs to the one who was first in possession in good faith. Mere registration is insufficient; it must be accompanied by good faith. Registration made in bad faith is ineffective and does not confer preferential rights.