G.R. No. 123547 . May 21, 2001.
REV. FR. DANTE MARTINEZ, petitioner, vs. HONORABLE COURT OF APPEALS, HONORABLE JUDGE JOHNSON BALLUTAY, PRESIDING JUDGE, BRANCH 25, REGIONAL TRIAL COURT OF CABANATUAN CITY, HONORABLE JUDGE ADRIANO TUAZON, JR., PRESIDING JUDGE, BRANCH 28, REGIONAL TRIAL COURT OF CABANATUAN CITY, SPOUSES REYNALDO VENERACION and SUSAN VENERACION, SPOUSES MAXIMO HIPOLITO and MANUELA DE LA PAZ and GODOFREDO DE LA PAZ, respondents.

FACTS

In February 1981, respondents Godofredo De la Paz and his sister Manuela De la Paz (married to Maximo Hipolito) entered into an oral contract of sale with petitioner Rev. Fr. Dante Martinez for Lot No. 1337-A-3 in Cabanatuan City for P15,000.00. The lot was then still registered in the name of their mother, Claudia De la Paz, but Manuela had previously purchased it via a Deed of Absolute Sale dated May 26, 1976. Petitioner gave a P3,000.00 downpayment, secured a building permit with Claudia De la Paz’s written consent, began construction of a house, and paid real estate taxes. He completed payment on January 31, 1983, for which the De la Pazes executed a promissory note promising to deliver a Deed of Sale by February 25, 1983, but they never did.
Meanwhile, on October 28, 1981, the De la Pazes sold the same lot (along with two others) to respondents spouses Reynaldo and Susan Veneracion under a Deed of Absolute Sale with Right to Repurchase for P150,000.00, redeemable within one year. The Veneracions never took actual possession during the redemption period but held the titles. Before the redemption period expired, the De la Pazes offered to sell the two highway lots (including the lot sold to petitioner) to the Veneracions for P180,000.00, which the Veneracions accepted. A Deed of Absolute Sale was executed on June 2, 1983. In January 1984, Reynaldo Veneracion discovered a house on the lot and was assured by Godofredo De la Paz that he would talk to the occupant (petitioner’s mother). Relying on this, the Veneracions registered the sale on March 5, 1984, and TCT No. T-44612 was issued in their name.
Petitioner learned of the Veneracions’ claim after receiving a demand letter on March 19, 1986. He demanded the Deed of Sale from the De la Pazes and informed the Veneracions of his prior purchase. Barangay conciliation failed. The Veneracions filed an ejectment case against petitioner in the Municipal Trial Court (MTC). The MTC dismissed the complaint, ruling petitioner was a possessor in good faith and that the issue of ownership should be resolved in an accion publiciana in the Regional Trial Court (RTC). The Veneracions appealed to the RTC but failed to pay the docket fee. Petitioner moved for execution of the MTC judgment, but the MTC denied it and forwarded the records to the RTC. The Veneracions’ appeal and petitioner’s appeal from the denial of execution were consolidated in the RTC, Branch 28.
The RTC ruled in favor of the Veneracions, declaring them the true owners by virtue of prior registration, subject to petitioner’s rights as a builder in good faith, and ordered petitioner to vacate after receiving payment for the house. The Court of Appeals affirmed this decision.

ISSUE

The primary issue is who between petitioner and the Veneracions has a better right to the disputed lot, considering the sequence and nature of the transactions and the application of the principles regarding double sale and rights of a builder in good faith.

RULING

The Supreme Court denied the petition and affirmed the decisions of the lower courts. The Court held that the Veneracions are the rightful owners of the lot. The contract between petitioner and the De la Pazes was an oral contract to sell, which is unenforceable under the Statute of Frauds as it was not evidenced by any written note or memorandum. While partial performance (payment and construction) may take it out of the Statute of Frauds, petitioner did not specifically plead this exception. Therefore, it cannot be enforced. In contrast, the Veneracions’ title, derived from a duly notarized and registered deed of sale, is valid and prevails. Petitioner is considered a builder in good faith. As such, he is entitled to reimbursement for the necessary and useful expenses (the value of the house) under Article 448 of the Civil Code. The Veneracions, as owners, have the option to appropriate the house by paying its value or to sell the land to petitioner. The case was remanded to the trial court to determine the current market value of the house and to give the Veneracions the choice under Article 448. The award of attorney’s fees to the Veneracions was deleted for lack of basis.