Through a petition for review on certiorari,^[1] the petitioner Roman Catholic Church (Church) seeks to set aside the May 18, 2006 decision^[2] and the August 11, 2006 resolution^[3] of the Court of Appeals (CA) in CA-G.R.-CV No. 65069.  The CA reversed the July 30, 1999 decision^[4] of the Regional Trial Court (RTC) of Naga City, Branch 24, in Civil Case No. 94-3286.

THE FACTUAL ANTECEDENTS
The Church, represented by the Archbishop of Caceres, owned a 32-square meter lot that measured 2x16 meters located in Barangay Dinaga, Canaman, Camarines Sur.^[5] On September 25, 1992, the Church contracted with respondent Regino Pante for the sale of the lot (thru a Contract to Sell and to Buy^[6]) on the belief that the latter was an actual occupant of the lot. The contract between them fixed the purchase price at P11,200.00, with the initial P1,120.00 payable as down payment, and the remaining balance payable in three years or until September 25, 1995.

On June 28, 1994, the Church sold in favor of the spouses Nestor and Fidela Rubi (spouses Rubi) a 215-square meter lot that included the lot previously sold to Pante.  The spouses Rubi asserted their ownership by erecting a concrete fence over the lot sold to Pante, effectively blocking Pante and his family’s access from their family home to the municipal road.  As no settlement could be reached between the parties, Pante instituted with the RTC an action to annul the sale between the Church and the spouses Rubi, insofar as it included the lot previously sold to him.^[7]

The Church filed its answer with a counterclaim, seeking the annulment of its contract with Pante.  The Church alleged that its consent to the contract was obtained by fraud when Pante, in bad faith, misrepresented that he had been an actual occupant of the lot sold to him, when in truth, he was merely using the 32-square meter lot as a passageway from his house to the town proper.  It contended that it was its policy to sell its lots only to actual occupants.  Since the spouses Rubi and their predecessors-in-interest have long been occupying the 215-square meter lot that included the 32-square meter lot sold to Pante, the Church claimed that the spouses Rubi were the rightful buyers.

During pre-trial, the following admissions and stipulations of facts were made:

1. The lot claimed by Pante is a strip of land measuring only 2x16 meters;
   
2. The lot had been sold by the Church to Pante on September 25, 1992;
   
3. The lot was included in the sale to the spouses Rubi by the Church; and
   
4. Pante expressly manifested and represented to the Church that he had been actually occupying the lot he offered to buy.^[8]

In a decision dated July 30, 1999,^[9] the RTC ruled in favor of the Church, finding that the Church’s consent to the sale was secured through Pante’s misrepresentation that he was an occupant of the 32-square meter lot. Contrary to his claim, Pante was only using the lot as a passageway; the Church’s policy, however, was to sell its lots only to those who actually occupy and reside thereon.  As the Church’s consent was secured through its mistaken belief that Pante was a qualified “occupant,” the RTC annulled the contract between the Church and Pante, pursuant to Article 1390 of the Civil Code.^[10]

The RTC further noted that full payment of the purchase price was made only on September 23, 1995, when Pante consigned the balance of P10,905.00 with the RTC, after the Church refused to accept the tendered amount. It considered the three-year delay in completing the payment fatal to Pante’s claim over the subject lot; it ruled that if Pante had been prompt in paying the price, then the Church would have been estopped from selling the lot to the spouses Rubi.  In light of Pante’s delay and his admission that the subject lot had been actually occupied by the spouses Rubi’s predecessors, the RTC upheld the sale in favor of the spouses Rubi.

Pante appealed the RTC’s decision with the CA.  In a decision dated May 18, 2006,^[11] the CA granted Pante’s appeal and reversed the RTC’s ruling.  The CA characterized the contract between Pante and the Church as a contract of sale, since the Church made no express reservation of ownership until full payment of the price is made.  In fact, the contract gave the Church the right to repurchase in case Pante fails to pay the installments within the grace period provided; the CA ruled that the right to repurchase is unnecessary if ownership has not already been transferred to the buyer.

Even assuming that the contract had been a contract to sell, the CA declared that Pante fulfilled the condition precedent when he consigned the balance within the three-year period allowed under the parties’ agreement; upon full payment, Pante fully complied with the terms of his contract with the Church.

After recognizing the validity of the sale to Pante and noting the subsequent sale to the spouses Rubi, the CA proceeded to apply the rules on double sales in Article 1544 of the Civil Code:

Article 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. [Emphasis ours.]

Since neither of the two sales was registered, the CA upheld the full effectiveness of the sale in favor of Pante who first possessed the lot by using it as a passageway since 1963.

The Church filed the present petition for review on certiorari under Rule 45 of the Rules of Court to contest the CA’s ruling.

THE PETITION

The Church contends that the sale of the lot to Pante is voidable under Article 1390 of the Civil Code, which states:

Article 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties:

(1) Those where one of the parties is incapable of giving consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. [Emphasis ours.]

It points out that, during trial, Pante already admitted knowing that the spouses Rubi have been residing on the lot.   Despite this knowledge, Pante misrepresented himself as an occupant because he knew of the Church’s policy to sell lands only to occupants or residents thereof. It thus claims that Pante’s misrepresentation effectively vitiated its consent to the sale; hence, the contract should be nullified.

For the Church, the presence of fraud and misrepresentation that would suffice to annul the sale is the primary issue that the tribunals below should have resolved.  Instead, the CA opted to characterize the contract between the Church and Pante, considered it as a contract of sale, and, after such characterization, proceeded to resolve the case in Pante’s favor. The Church objects to this approach, on the principal argument that there could not have been a contract at all considering that its consent had been vitiated.

THE COURT’S RULING

The Court resolves to deny the petition.

No misrepresentation existed vitiating the
seller’s consent and invalidating the contract

Consent is an essential requisite of contracts^[12] as it pertains to the meeting of the offer and the acceptance upon the thing and the cause which constitute the contract.^[13]  To create a valid contract, the meeting of the minds must be free, voluntary, willful and with a reasonable understanding of the various obligations the parties assumed for themselves.^[14] Where consent, however, is given through mistake, violence, intimidation, undue influence, or fraud, the contract is deemed voidable.^[15] However, not every mistake renders a contract voidable.  The Civil Code clarifies the nature of mistake that vitiates consent:

Article 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract.

Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract.

A simple mistake of account shall give rise to its correction. [Emphasis ours.]

For mistake as to the qualification of one of the parties to vitiate consent, two requisites must concur:

1. the mistake must be either with regard to the identity or with regard to the qualification of one of the contracting parties; and
   
   
2. the identity or qualification must have been the principal consideration for the celebration of the contract.^[16]

In the present case, the Church contends that its consent to sell the lot was given on the mistaken impression arising from Pante’s fraudulent misrepresentation that he had been the actual occupant of the lot. Willful misrepresentation existed because of its policy to sell its lands only to their actual occupants or residents. Thus, it considers the buyer’s actual occupancy or residence over the subject lot a qualification necessary to induce it to sell the lot.

Whether the facts, established during trial, support this contention shall determine if the contract between the Church and Pante should be annulled.  In the process of weighing the evidentiary value of these established facts, the courts should consider both the parties’ objectives and the subjective aspects of the transaction, specifically, the parties’ circumstances – their condition, relationship, and other attributes – and their conduct at the time of and subsequent to the contract. These considerations will show what influence the alleged error exerted on the parties and their intelligent, free, and voluntary consent to the contract.^[17]

Contrary to the Church’s contention, the actual occupancy or residency of a buyer over the land does not appear to be a necessary qualification that the Church requires before it could sell its land.  Had this been indeed its policy, then neither Pante nor the spouses Rubi would qualify as buyers of the 32-square meter lot, as none of them actually occupied or resided on the lot.  We note in this regard that the lot was only a 2x16-meter strip of rural land used as a passageway from Pante’s house to the municipal road.

We find well-taken Pante’s argument that, given the size of the lot, it could serve no other purpose than as a mere passageway; it is unthinkable to consider that a 2x16-meter strip of land could be mistaken as anyone’s residence. In fact, the spouses Rubi were in possession of the adjacent lot, but they never asserted possession over the 2x16-meter lot when the 1994 sale was made in their favor; it was only then that they constructed the concrete fence blocking the passageway.

We find it unlikely that Pante could successfully misrepresent himself as the actual occupant of the lot; this was a fact that the Church (which has a parish chapel in the same barangay where the lot was located) could easily verify had it conducted an ocular inspection of its own property. The surrounding circumstances actually indicate that the Church was aware that Pante was using the lot merely as a passageway.

The above view is supported by the sketch plan,^[18] attached to the contract executed by the Church and Pante, which clearly labeled the 2x16-meter lot as a “RIGHT OF WAY”; below these words was written the name of “Mr. Regino Pante.” Asked during cross-examination where the sketch plan came from, Pante answered that it was from the Archbishop’s Palace; neither the Church nor the spouses Rubi contradicted this statement.^[19]

The records further reveal that the sales of the Church’s lots were made after a series of conferences with the occupants of the lots.^[20]  The then parish priest of Canaman, Fr. Marcaida, was apparently aware that Pante was not an actual occupant, but nonetheless, he  allowed the sale of the lot to Pante, subject to the approval of the Archdiocese’s Oeconomous. Relying on Fr. Marcaida’s recommendation and finding nothing objectionable, Fr. Ragay (the Archdiocese’s Oeconomous) approved the sale to Pante.

The above facts, in our view, establish that there could not have been a deliberate, willful, or fraudulent act committed by Pante that misled the Church into giving its consent to the sale of the subject lot in his favor. That Pante was not an actual occupant of the lot he purchased was a fact that the Church either ignored or waived as a requirement.  In any case, the Church was by no means led to believe or do so by Pante’s act; there had been no vitiation of the Church’s consent to the sale of the lot to Pante.

From another perspective, any finding of bad faith, if one is to be made, should be imputed to the Church.  Without securing a court ruling on the validity of its contract with Pante, the Church sold the subject property to the spouses Rubi. Article 1390 of the Civil Code declares that voidable contracts are binding, unless annulled by a proper court action.  From the time the sale to Pante was made and up until it sold the subject property to the spouses Rubi, the Church made no move to reject the contract with Pante; it did not even return the down payment he paid. The Church’s bad faith in selling the lot to Rubi without annulling its contract with Pante negates its claim for damages.

In the absence of any vitiation of consent, the contract between the Church and Pante stands valid and existing.  Any delay by Pante in paying the full price could not nullify the contract, since (as correctly observed by the CA) it was a contract of sale.  By its terms, the contract did not provide a stipulation that the Church retained ownership until full payment of the price.^[21]  The right to repurchase given to the Church in case Pante fails to pay within the grace period provided^[22] would have been unnecessary had ownership not already passed to Pante.

The rule on double sales

The sale of the lot to Pante and later to the spouses Rubi resulted in a double sale that called for the application of the rules in Article 1544 of the Civil Code:

Article 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. [Emphasis ours.]

As neither Pante nor the spouses Rubi registered the sale in their favor, the question now is who, between the two, was first in possession of the property in good faith.

Jurisprudence has interpreted possession in Article 1544 of the Civil Code to mean both actual physical delivery and constructive delivery.^[23]   Under either mode of delivery, the facts show that Pante was the first to acquire possession of the lot.

Actual delivery of a thing sold occurs when it is placed under the control and possession of the vendee.^[24] Pante claimed that he had been using the lot as a passageway, with the Church’s permission, since 1963.  After purchasing the lot in 1992, he continued using it as a passageway until he was prevented by the spouses Rubi’s concrete fence over the lot in 1994.  Pante’s use of the lot as a passageway after the 1992 sale in his favor was a clear assertion of his right of ownership that preceded the spouses Rubi’s claim of ownership.

Pante also stated that he had placed electric connections and water pipes on the lot, even before he purchased it in 1992, and the existence of these connections and pipes was known to the spouses Rubi.^[25] Thus, any assertion of possession over the lot by the spouses Rubi (e.g., the construction of a concrete fence) would be considered as made in bad faith because works had already existed on the lot indicating possession by another.   “[A] buyer of real property in the possession of persons other than the seller must be wary and should investigate the rights of those in possession.  Without such inquiry, the buyer can hardly be regarded as a buyer in good faith and cannot have any right over the property."^[26]

Delivery of a thing sold may also be made constructively.  Article 1498 of the Civil Code states that:

Article 1498.  When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.

Under this provision, the sale in favor of Pante would have to be upheld since the contract executed between the Church and Pante was duly notarized, converting the deed into a public instrument.^[27]  In Navera v. Court of Appeals,^[28] the Court ruled that:

[A]fter the sale of a realty by means of a public instrument, the vendor, who resells it to another, does not transmit anything to the second vendee, and if the latter, by virtue of this second sale, takes material possession of the thing, he does it as mere detainer, and it would be unjust to protect this detention against the rights of the thing lawfully acquired by the first vendee.

Thus, under either mode of delivery, Pante acquired prior possession of the lot.

WHEREFORE, we DENY the petition for review on certiorari, and AFFIRM the decision of the Court of Appeals dated May 18, 2006, and its resolution dated August 11, 2006, issued in CA-G.R.-CV No. 65069. Costs against the Roman Catholic Church.

SO ORDERED.

Carpio, (Chairperson), Perez, Sereno, and Reyes, JJ., concur.

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^[1] Filed under Rule 45 of the Rules of Court.

^[2] Rollo, pp. 24-36. Penned by Associate Justice Vicente Q. Roxas, with the concurrence of Associate Justices Godardo A. Jacinto and Juan Q. Enriquez, Jr.

^[3] Id. at 38.

^[4] Id. at 39-46. Penned by Judge Corazon A. Tordilla.

^[5] The lot was described as Lot 3, Block 2, and part of Original Certificate of Title No. 206; id. at 47.

^[6] Id. at 47-49.

^[7] Docketed as Civil Case No. 94-3286, and filed before the RTC of Naga City, Branch 24.

^[8] Rollo, p. 28.

^[9] Supra note 4, at 46.  The dispositive portion read:

WHEREFORE, judgment is hereby rendered annulling the contract to sell and buy and upholding the deed of absolute sale in favor of the defendants Rubi.  Since the [down payment] of P1,120.00 had been paid to the Roman Catholic Church as early as June 8, 1992, said defendant is hereby ordered to return the said amount to the plaintiff with interest thereon of 12% per annum. Plaintiff may also withdraw his deposit of P10,905.00 from the Office of the Clerk of Court as soon as this decision becomes final.

^[10] CIVIL CODE, Article 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties:

1)   Those where one of the parties is incapable of giving consent to a contract;
2)   Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.

^[11] Supra note 2.

^[12] CIVIL CODE, Article 1318.

^[13] Id., Article 1319.

^[14] Melencio Sta. Maria, Jr., Obligations and Contracts: Text and Cases (2003 ed.), p. 339.

^[15] CIVIL CODE, Article 1330.

^[16] Desiderio Jurado, Comments and Jurisprudence on Obligations and Contracts (2002 ed.), p. 426.

^[17] See Sps. Theis v. Court of Appeals, 335 Phil. 632 (1997).

^[18] Annex B of Pante’s Complaint, RTC Records, p. 11.

^[19] TSN of March 24, 1995, p. 53.

^[20] Rollo, p. 44.

^[21] Anama v. Court of Appeals, 466 Phil. 64 (2004). See also Mila A. Reyes v. Victoria T. Tuparan, G.R. No. 188064, June 1, 2011.

^[22] Rollo, p. 48.

^[23] See Catain v. Rios, et al., 136 Phil. 601, 603 (1969), citing  Bautista v. Sioson, 39 Phil. 615 (1919); and  Lichauco v. Berenguer, 39 Phil. 643 (1919).

^[24] CIVIL CODE, Article 1497.

^[25] TSN, July 2, 1996, p. 26.

^[26] Occeña v. Esponilla, G.R. No. 156973, June 4, 2004, 431 SCRA 116, 124-125, citing Sps. Castro v. Miat, G.R. No. 143297, February 11, 2003, 445 SCRA 282.

^[27] See Dailisan v. Court of Appeals, G.R. No. 176448, July 28, 2008, 560 SCRA 351, 356; and Calma v. Santos, G.R. No. 161027, June 22, 2009, 590 SCRA 359, 371.

^[28] 263 Phil. 526, 538 (1990), citing Quimson v. Rosete, 87 Phil. 159 (1950); Sanchez v. Ramos, 40 Phil. 614 (1919); and Florendo v. Foz, 20 Phil. 388 (1911).