G.R. No. 231395, June 26, 2023
AFP RETIREMENT AND SEPARATION BENEFITS SYSTEM (AFP-RSBS), PETITIONER, VS. PLASTIC KING INDUSTRIAL CORP. AND MERLEN AGABIN AND ATTY. NILO J. FLAVIANO [DECEASED], SUBSTITUTED BY HIS HEIRS, NAMELY, JOHANNA FLAVIANO, CARLITO FLAVIANO, JR. [DECEASED], NELIA FLAVIANO AND LETECIA FLAVIANO, RESPONDENTS.

FACTS

On August 8, 1995, Atty. Nilo Flaviano, on his own behalf and as attorney-in-fact for his co-owners, executed an Exclusive Contract to Sell a 4,000-square meter property in General Santos City. On August 30, 1995, Atty. Flaviano executed a “Transfer of Rights” over Lot Y-2-C (3,800 sq m) in favor of Plastic King Industrial Corp., represented by Merlen Agabin. A Memorandum of Agreement stated the purchase price was PHP 15,200,000.00, with a down payment for titling expenses. However, the lot was later subdivided and titled under the names of Atty. Flaviano and his family (OCT Nos. P-6208, P-6209, P-6210), not Plastic King.
Subsequently, AFP-RSBS negotiated with the Flavianos to purchase the subdivided lots. On December 23, 1996, they executed an Amended Contract to Sell for PHP 40,010,000.00. On March 4, 1997, a Deed of Absolute Sale was executed in favor of AFP-RSBS. AFP-RSBS paid the price in full by February 28, 1997, and new TCTs were issued in its name on March 17, 1997.
Plastic King filed a complaint for specific performance against the Flavianos on March 12, 1997, alleging the prior sale and demanding the titles and property. Plastic King claimed it informed AFP-RSBS of its prior claim via phone calls and that a notice of lis pendens was annotated on the titles, but AFP-RSBS proceeded with the purchase. The Flavianos denied the sale to Plastic King, claimed the “Transfer of Rights” was a forgery, and asserted they had revoked the first sale through an agreement with Plastic King’s agent.

ISSUE

The core issue revolves around the application of Article 1544 of the Civil Code (double sale) to determine who has a better right to the property—Plastic King as the first buyer or AFP-RSBS as the second buyer who registered the sale—and the related questions of good faith, the validity of the titles issued to AFP-RSBS, and the corresponding remedies.

RULING

The Court of Appeals affirmed the trial court’s decision, which was upheld by the Supreme Court. The rulings held that:
1. Plastic King was the rightful owner. The “Transfer of Rights” was a valid contract of sale, not a forgery. The Flavianos’ defense of revocation through their agent was unsubstantiated.
2. AFP-RSBS was not a purchaser in good faith. It was aware of Plastic King’s prior claim before it paid the purchase price and registered the sale. The notice of lis pendens annotated on the titles was a clear warning of the pending litigation.
3. Consequently, the titles issued to AFP-RSBS (TCT Nos. T-77598, T-77599, T-77596) were declared void.
4. The Register of Deeds was ordered to cancel AFP-RSBS’s titles and reinstate the original certificates of title (OCTs) in the Flavianos’ names.
5. Atty. Flaviano (substituted by his heirs) was ordered to deliver the titles and the property itself to Plastic King and to reimburse AFP-RSBS the purchase price of PHP 40,010,000.00.
6. Atty. Flaviano was also ordered to pay Plastic King moral damages, attorney’s fees, and litigation costs.
The Supreme Court denied AFP-RSBS’s petition, affirming the appellate court’s decision. The key principle applied was that under Article 1544, the second buyer must register the sale in good faith to acquire ownership. Since AFP-RSBS registered the sale with knowledge of the prior sale and pending case, it acted in bad faith, and Plastic King, as the first buyer, retained the superior right.