Not in good faith

This is a case of double sale of a parcel of land where the ultimate issue is who has a better right to the subject property between the parties claiming right over it. In resolving such issue, the question of “who is a buyer in good faith” should be answered and explained like in this case.

Subject of the controversy here is Lot 12 which is a 10,214-square meter portion of lot 2006 with an area of 12,092 sq.m. Lot 2006 was originally a portion of Lot H-5865 registered in the name of Sergio with a total area of 15 hectares. This was later on transferred to Adela, Sergio’s only grand-daughter, by means of an Affidavit of Adjudication of the entire estate of Sergio. Then Adela sold a portion of Lot 2006 with an area of 7,094 sq.m.to Berto and 5,000 sq.m. to Celso.

Six years later, another alleged heir of Sergio by the name of Virgie executed a Confirmation of Ownership over a 10,214 sq.m. portion of Lot 2006, then renounced all her rights to Leo. This is Lot 12 that became subject of this controversy when Leo sold it to a realty company (LVR) which in turn sold it to Mario and Cely who registered it and obtained TCT (No. T-31041).

So, later on the heirs of Berto and Celso filed a complaint before the Regional Trial Court (RTC) for Quieting of Title, Annulment of Instruments and Documents and Cancellation of Certificate of Title against the spouses Mario and Cely and the real estate company (LVR), claiming that the issuance of title in Mario’s name clouded their rights and title as owners of Lot 12.

In their answer, the spouses Mario and Cely and LVR claimed that they are purchasers for value and in good faith and that the sale in favor of Berto and Celso was not registered and cannot prejudice third persons and the whole world.

After trial on the merits, the RTC ruled in favor of the heirs of Berto and Celso. It held that Virgie cannot validly convey to Leo her rights over Lot 12, through Confirmation of Ownership, since at the time of its execution, Adela the granddaughter of Sergio the original owner already sold Lot 2006, which included Lot 12, to Berto and Celso. Furthermore, Virgie is not an heir of Sergio as she was even prosecuted for falsification of public document in connection with the Confirmation of Ownership she executed.

On appeal by the spouses Mario and Cely, the Court of Appeals (CA) reversed the RTC decision. The CA ruled that Mario and Cely are innocent purchasers for value because when Mario learned that the heirs of Berto and Celso were occupying the lot, he conducted an investigation as to the nature of their claim over Lot 12 before he purchased the same consistent with that of an innocent purchaser for value. Was the CA correct?

The Supreme Court said no. According to the SC, the question of who among the parties have a better right over Lot 12 must be answered by determining whether the spouses Mario and Cely acquired it in good faith from LVR Realty, the registered owner. The capacity of their predecessor in interest (LVR) to convey title is relevant to determine whether they are innocent purchasers for value.

A buyer for value in good faith is one who buys the property of another without notice that some other person has a right to, or interest in, such property and pays full and fair price for the same, at the time of such purchase, or before he has notice of the claim or interest of some other persons in said property. He need only to show that he relied on the face of the title to the property and need not prove that he made further inquiry. Good faith implies freedom from knowledge of circumstances which put a person on inquiry.

Applied to this case, even if the realty company (LVR) is the registered owner, the heirs of Berto and Celso are in actual possession of Lot 12. Hence Mario and Cely cannot merely rely on the face of the title in the name of LVR Realty but must exercise a higher degree of diligence and investigate the claim of the heirs of Berto and Celso. In this case, Mario verified the title with the Register of Deeds, inspected the property and confirmed that some of the heirs of Berto and Celso were in possession of Lot 12. He was even able speak to Soledad, the representative of the heirs of Berto from whom he discovered that the heirs of Berto and Celso were also claiming ownership of Lot 12 on the basis of Adela’s Affidavit of Ownership as granddaughter of the original registered owner, Sergio. So Mario and Cely were already aware of the possession and adverse claim of the heirs of Berto and Celso. They should have investigated LVR’s capacity to convey the title and ascertain the veracity of Virgie’s Confirmation of Ownership.

However, they have not shown that they undertook such steps before finally deciding to purchase Lot 12. As such they are not innocent purchasers for value and cannot have a better right to Lot 12. So the decision of the RTC should be reinstated (Heirs of Isabelo and Antonio Cudal etc. vs. Spouses Suguitan, G.R. 244405, Aug. 27, 2020).

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