Buyers in Good Faith

Property ownership is one of the most significant investments Filipinos make in their lifetime. The Torrens system of land registration was designed to provide security in land ownership by giving registered owners complete peace of mind. However, cases of fraudulent property transfers continue to occur, raising critical questions about who prevails when innocent parties are caught in the middle. The recent Supreme Court decision in SPOUSES ORENCIO S. MANALESE and ELOISA B. MANALESE, AND ARIES B. MANALESE,, versus THE ESTATE OF THE LATE SPOUSES NARCISO and OFELIA FERRERAS, represented by its Special Administrator, DANILO S. FERRERAS (G.R. No. 254046, November 25, 2024) provides valuable insights into how Philippine courts determine the rights of parties in cases involving fraudulent property transfers, particularly regarding the concept of “innocent purchaser for value.” Understanding these principles is crucial for anyone buying or selling property in the Philippines.

The Mirror and Curtain Principles of the Torrens System

The Torrens system is anchored on three fundamental principles: the “mirror,” the “curtain,” and insurance principles. The “mirror” principle states that a publicly available register accurately reflects all interests affecting the land within its coverage. As explained in the Supreme Court decision, “if something is not on the register, then people are entitled to ignore it.” This principle allows the public to rely on what is reflected in the certificate of title.

The “curtain” principle, meanwhile, ensures that interests not appearing on the register will not bind new title-holders or other third parties. Under this principle, the register serves as the sole source of information for prospective purchasers, allowing them to “draw a metaphorical curtain across all prior and existing interests in the land that do not appear in the ‘mirror’.”

Presidential Decree No. 1529 (Property Registration Decree) embodies these principles by providing that every registration made in the Registry of Deeds serves as constructive notice to all persons. This means that anyone dealing with registered land is presumed to know everything contained in the registration records.

Beyond the Face of the Title:

While many believe that examining just the certificate of title is sufficient, the Supreme Court has clarified that this is not always the case. Contrary to popular belief, the Court emphasized that a person dealing with registered land must exercise diligence beyond merely examining the face of the title when suspicious circumstances exist.

The case highlighted that “while the Court can commiserate with the respondent in his sad plight, nonetheless we have no power to make or alter contracts in order to save him from the adverse stipulations.” The Court advised prospective parties in property transactions to exercise the diligence of reasonably prudent persons by:

Verifying the origin, history, authenticity, and validity of the title with the Office of the Register of Deeds
Engaging competent professionals to verify boundaries and technical descriptions
Conducting actual ocular inspections of the property
Inquiring from owners and possessors of adjoining lots
Taking additional measures to establish legitimate ownership

The decision explicitly states that a person claiming to be an innocent purchaser for value must show that they did not have knowledge of any defect in the seller’s title or capacity to transfer the property.

What Constitutes Bad Faith in Property Transactions

The Supreme Court identified several factors that can indicate bad faith in property transactions:

Knowledge of a defect or lack of title in the vendor
Awareness of sufficient facts that would prompt a reasonably prudent person to inquire further
Failing to investigate suspicious circumstances, such as:
- Recently issued titles
- Significant price disparities between transactions
- Properties being sold shortly after acquisition
- Absence of proper occupancy matching ownership claims

In the case at hand, the Court determined that the buyers could not claim good faith when they failed to inquire about suspicious circumstances, including the fact that the seller had acquired the property at a significantly lower price (₱250,000) than what they were paying (₱3,300,000), and that the titles showed recent transfers that should have raised questions.

Two-Pronged Approach to Determining Good Faith

The Supreme Court proposed a two-pronged approach to evaluate good faith in property transactions:

First, examine the intrinsic evidence—information contained in the register and certificate of title. If this evidence shows defects in the seller’s title, the buyer is deemed to have constructive notice of these defects, regardless of actual knowledge.

Second, assess extrinsic evidence—circumstances outside the register and certificate of title. For these, actual knowledge or failure to exercise reasonable diligence in discovering such circumstances can defeat a claim of good faith.

The Court emphasized that “with respect to extraneous matters, the burden on the party claiming good faith is to show the absence of suspicious facts or circumstances or lack of knowledge thereof; and in their presence, such party exercised the diligence of a reasonably prudent person to inquire into such facts or circumstances.”

Protecting your Property Investment

The Torrens system aims to protect registered landowners who have not voluntarily disposed of their property in a manner allowed by law. When purchasing property, conducting thorough due diligence beyond simply checking the certificate of title is essential. This includes examining the history of the title, verifying ownership records, and investigating any suspicious circumstances surrounding the transaction.

If you’re planning to purchase property or are dealing with issues related to disputed property ownership, seeking professional legal guidance is crucial to protect your interests. Don’t rely solely on face-value documents—invest in proper legal advice to ensure your property investment remains secure.

Dagsaan Monterde Castillo Law is a full-service law office that practices in various fields of law, including but not limited to Business Retainership, Family and Matrimonial Relations, Civil and Corporate Litigation, Criminal Law, Real Estate Law, Labor and Employment, Administrative and Regulatory Practice, Wills and Probate, Torts and Damages, and Contracts.

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This article is for informational purposes only and does not constitute legal advice. Readers are encouraged to consult a lawyer for guidance on their specific situations

Disclaimer: This content is not legal advise and may involve AI assistance. Information may be inaccurate

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