Among the matters with which lawyers are frequently asked for advice are those relating to the sale and purchase of real property. A supposedly straightforward and simple transaction where parties negotiate and agree upon a price on a property, draw up and sign a Deed of Sale, have the same notarized before a notary public, and process the transfer before the concerned government agencies; the transaction can turn awry and complicated when the seller does not have the capacity to transfer either by not being the owner or by having already sold the property to another party prior.
Thus, the importance of vetting a property properly before agreeing to any sale, whether by a lawyer or a real estate titling company that can do the due diligence for you. As various jurisprudence shows, due diligence can spell the difference as to who has the right of ownership between two conflicting buyers.
The required due diligence, however, can vary depending on the subject property’s current condition. The case of the Heirs of Isabelo Cudal, et al. v. Spouses Suguitan, et al. which was decided by the Supreme Court in 2020 is instructive on such matters.
In the said case, the Supreme Court decided who between the two buyers (hereinafter, Buyer A and Buyer B) had a better right to a parcel of land that was sold to them by two different sellers who both claimed ownership over the property.
While Buyer A had possession over the land and had a sale prior in time, he did not have any Title from the Registry of Deeds confirming or evidencing ownership. Meanwhile, Buyer B being the registered owner of the land had a title evidencing ownership over the land but is not in possession of the said property.
At the trial court level, the court found favor for Buyer A. However, when the case reached the appellate courts, the courts ruled in favor of Buyer B.
Faced with these conflicting decisions, the Supreme Court decided the matter focused on the validity of the title held by Buyer B. Did Buyer B acquire the property in good faith and for value such that he can assert a better right over Buyer B?
The Supreme Court held that Buyer B was not a buyer in good faith primarily due to the due diligence they conducted.
Ordinarily, to prove good faith, a buyer of a registered and titled land need only show that he relied on the face of the title to the property which on its face does not contain any sign of another person’s interest in the same such as annotation of encumbrances or ongoing cases.
However, this degree of proof of good faith is sufficient only when the following conditions concur: First, the seller is the registered owner of the land; second, the latter is in possession thereof; and third, at the time of the sale, the buyer was not aware of any claim or interest of some other person in the property, or of any defect or restriction in the title of the seller or in his capacity to convey title to the property.
When any of the above conditions are not present, the buyer cannot merely rely on the title but is on notice and is obliged to exercise a higher degree of diligence by scrutinizing the certificate of title and examining all factual circumstances in order to determine the seller’s title and capacity to transfer any interest in the property. As an example, the Court held that when the seller is not in possession of the land, the buyer must investigate the rights of the actual possessor. Failure to exercise such degree of precaution makes him a buyer in bad faith.
Being buyers in bad faith, Buyer B cannot have a better right over the land than Buyer A. The Court reversed the appellate court’s decision and found Buyer A to be the lawful owner of the said property.