Civil Law II Q. No. 7 Bar 2022
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A holder of registered title may invoke the status of a buyer for value in good faith as a defense against any action questioning his title.Ꮮαwρhi৷ Such status, however, is never presumed but must be proven by the person invoking it.
A [buyer for value in good faith] is one who buys 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 the property. He buys the property with the well-founded belief that the person from whom he receives the thing had title to the property and capacity to convey it.
To prove good faith, a buyer of registered and titled land need only show that he relied on the face of the title to the property. He need not prove that he made further inquiry for he is not obliged to explore beyond the four corners of the title.
Such degree of proof of good faith, however, 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.
Absent one or two of the foregoing conditions, then the law itself puts the buyer on notice and obliges the latter 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.
Under such circumstance, it is no longer sufficient for said buyer to merely show that he relied on the face of the title; he must now also show that he exercised reasonable precaution by inquiring beyond the title. Failure to exercise such degree of precaution makes him a buyer in bad faith.
Additionally, in Gabutan v. Nacalaban, (1) it was stated that the buyer must investigate the rights of the actual possessor in cases where the purchased land is in possession of a person other than the seller, to wit:
The "honesty of intention" which constitutes good faith implies a freedom from knowledge of circumstances which ought to put a person on inquiry. If the land purchased is in the possession of a person other than the vendor, the purchaser must be wary and must investigate the rights of the actual possessor. Without such inquiry, the purchaser cannot be said to be in good faith and cannot have any right over the property.
HEIRS OF ISABELO CUDAL, SR., et al vs. SPOUSES MARCELINO A. SUGUITAN, et al.
Citing Spouses Bautista v. Silva 533 Phil. 627 (2006)
Footnotes
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RE: When the purchaser or the mortgagee is a bank, the rule on innocent purchasers or mortgagees for value is applied more strictly |
Time and again, the Court has emphasized that it is required and expected of banks to exercise the highest degree of diligence, along with high standards of integrity and performance in view of its significant role in commercial transactions, not to mention its contribution, to the economy in general.
"Since their business and industry are imbued with public interest, banks are required to exercise extraordinary diligence, which is more than that of a Roman paterfamilias or a good father of a family, in handling their transactions." Even as a mortgagee, a bank is not relieved of its responsibility to exercise a higher degree of caution.
In Land Bank of the Philippines v. Belle Corporation the Court underscored the following:
"When the purchaser or the mortgagee is a bank, the rule on innocent purchasers or mortgagees for value is applied more strictly. Being in the business of extending loans secured by real estate mortgage, banks are presumed to be familiar with the rules on land registration. Since the banking business is impressed with public interest, they are expected to be more cautious, to exercise a higher degree of diligence, care and prudence, than private individuals in their dealings, even those involving registered lands. Banks may not simply rely on the face of the certificate of title."
Hence, they cannot assume that, simply because the title offered as security is on its face free of any encumbrances or lien, they are relieved of the responsibility of taking further steps to verify the title and inspect the properties to be mortgaged. As expected, the ascertainment of the status or condition of a properly offered to it as security for a loan must be a standard and indispensable part of a bank's operations
The Bank's failure to observe the degree of diligence expected of it clearly constitutes negligence.
REMEDIOS T. BANTA VS. EQUITABLE BANK, INC. (NOW BDO UNIBANK, INC.), et al.
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