Digested Case

of
DE GUZMAN vs. QUIRIMIT (Court of Appeals)
(G.R. No. L-46935)
December 21, 1987

Facts:

D was the original owner of a parcel of unregistered residential land.

On July 20, 1957, he executed a Deed of Pacto de Retro sale over said land in favor of his niece, R, with the
express stipulation that the "vendor a retro may exercise the right of repurchase within 5 years from the
execution of these presents and upon failure to take advantage of the right herein granted him, then this
contract shall acquire the character of absolute, irrevocable and consummated sale.

Private respondent did not register the Deed of Pacto de Retro Sale, but took possession of the land by
building her house on a portion thereof.

On April 26, 1967, D, without having exercised his right to repurchase under the Pacto de Retro Sale,
executed over said parcel of land, a Deed of Donation in favor of M, who thereafter declared the land in his
name for taxation purposes and registered the Deed of Donation.

M, however, sold the land to Jr. The Deed of Sale was registered and the tax declaration placed under his
name.

Jr sent R a written notice to vacate the land in question, and R refused to vacate and so, instituted a Civil
Case for Quieting of Title and Recovery of Possession to the Trial Court.

The court rendered judgment declaring Jr as owner of the land in question. It ruled that the Pacto de Retro
Sale was only a mortgage and that the Deed of Donation in favor of Jr was valid.

On Appeal by R, the Court of Appeals reversed the decision. The appellate court held that private
respondent had a preferential right to the land as against petitioners who were purchasers in bad faith since
it was found the transaction between D and R to be what it purported to be a pacto de retro sale and not
an equitable mortgage.

Jr moved for a reconsideration of the appellate court's decision and upon denial thereof, took the present
recourse.

Issues:

(a) Whether or not the contact was only a mortgage?

(b) Whether or not the donation by D to M of the said and its sale to Jr was were valid?

Ruling and Ratio:

(a) No. The consideration of P500.00 paid by R in 1957 was not unusually inadequate, considering that
the land had an assessed value of only P380.00 at the time of Ms sale thereof to Jr in 1971. Further,
the finding of the trial court, allegedly on the admission of R that it was the D who appropriated the
fruits of the land after the sale is contrary to the evidence on record because in Rs testimony, R
declared that it was she who enjoyed the products of said land. Hence, the Supreme Court was as
equally convinced as the appellate court that the transactions between D and R was a pacto de retro
sale.
(b) No. The transaction between D and R was a true pacto de retro sale. The essence of a pacto de retro
sale is that title and ownership of the property sold are immediately vested in the vendee a retro,
subject to the resolutory condition of repurchase by the vendor a retro within the stipulated period.

In the case at bar, absolute ownership of the land in question was vested on R in 1962 upon failure
of D to repurchase said land. Hence, the allegedly donated the same to M, D was no longer the
owner thereof. Settled is the rule that a donor cannot lawfully convey what is not his property. There
being no title to the property which D could convey to M, it necessarily follows that no title to the
property could be conveyed by the latter to Jr.

To be noted that the registration does not vest title. It is not a mode of acquiring ownership but is
merely evidence of such title over a particular property.

Moreover, Jrs registration of their deed of sale was done in bad faith as the Supreme Court
conferred with the findings of the Appellate Court that:

1. When the sale was consummated in favor of Jr, he was actually residing in a house standing
right on the land in question, and were living not far from appellant.
2. Even before Jr bought the land, R had already confronted and informed him that the land had
already been sold to her. [t.s.n., p. 8, July 7, 1972] Jr was thus forewarned; the least he could
do was to inquire from M and from the other relatives of the original owner, D, by what right
or title R. But it seems that Jr did not bother to do this and merely relied upon the Deed of
Donation made in favor of M. Had Jrexercised due diligence in inquiring into the right or title
of R who was residing in the property they would doubtless have found out that appellant was
occupying it by virtue of the Pacto de Retro Sale of July 20, 1957, which apparently had become
an absolute sale on July 20, 1962 by express provision thereof and the apparent failure of D to
redeem the property.

The failure of appellees to take the ordinary precautions which a prudent man would have taken
under the circumstances, especially in buying a piece of land in the actual visible and
public possession of another person, other than the vendor, constitutes gross negligence
amounting to bad faith.

In this connection, the Appellate Court provided that it has been held that where, as in this case,
the land sold is in the possession of a person other than the vendor, the purchaser is required to go
beyond the certificate of title and may inquiries concerning the rights of the actual possessor.
Failure to do so would make him a purchaser in bad faith. [Incala vs. Mendoza, CA-G.R. No. 13677-
R, November 9, 1965; De Jesus vs. Revilla, CA-G. R. No. 13562-R, October 5, 1965; Martelino vs.
Manikan CA-G.R. No. 32792-R, June 22, 1956].