3. Innocent Purchaser for Value; Rights

Application of caveat emptor in judicial sales

Caveat emptor is applicable in judicial sales. The purchaser in a judicial sale acquires no higher or better title or right than that of the judgment debtor. If it happens that the judgment debtor has no right, interest, or lien on and to the property sold, the purchaser acquires none.

Prescriptive Period (Sec. 102, P.D. 1529)

The action must be instituted within 6 years from when the right to sue first accrued. If the plaintiff is minor, insane or imprisoned, he has additional 2 years after disability is removed to file the action.

Under the circumstances obtaining in Spouses Stilianopoulos v. Register of Deeds for Legazpi City and the National Treasurer, G.R. No. 224678, July 03, 2018, the period should be reckoned from the moment the innocent purchaser for value registers his or her title and upon actual knowledge thereof of the original title holder/claimant.

Effect of subsequent foreclosure to a prior purchaser in good faith

A mortgagee may subsequently foreclose a mortgage, but whether an earlier purchaser’s right prevails depends on the applicable rules on registration and priority, not on good faith alone (P.D. No. 1529, Secs. 51 and 52; Civil Code, Art. 2125). Under the Torrens System, a buyer of registered lands is not required by law to inquire further than what the Torrens certificate indicates on its face. If a person proceeds to buy it relying on the title, that person is considered a buyer in good faith.

SALE BY SELLER WITH VOIDABLE TITLE IN GOOD FAITH and WITHOUT NOTICE OF THE DEFECT

• Perfection stage

A valid sale creates reciprocal obligations; as a rule, the buyer acquires ownership upon actual or constructive delivery (Arts. 1475, 1477, 1496), subject to Article 1506 where the seller has voidable title.

2. Consummation stage

Valid sale if title has not yet been avoided, buyer becomes owner of the goods under the condition that the sale:

• was made in good faith
• is for value
• is without notice of seller’s defect or title (Art. 1506)

Alienations Made by an Excluded Heir

Alienations of hereditary property, and acts of administration performed by the excluded heir, before the judicial order of exclusion, are valid as to third persons who acted in good faith. (Art. 1036)

NOTE: The validity of the alienation is determined by the good faith or bad faith of the transferee, not of the transferor. (Balane, supra)

The co-heirs of the excluded heir have the right to recover damages from the disqualified heir. (Art. 1036)

Effects if the lease of real property is not registered

• The lease is not binding on innocent third persons such as a purchaser. (Salonga, et al. v. Acuña, CA, 54 O.G. 2943)
• Naturally, such an innocent third person is allowed to terminate the lease in case he buys the property from the owner-lessor, unless there is a stipulation to the contrary in the contract of sale. (NCC, Art. 1676)
• When a third person already knows of the existence and duration of the lease, he is bound by such lease even if it has not been recorded. The reason is simple: actual knowledge is, for this purpose, equivalent to registration. (Ignacio v. Soriano, G.R. No. 78975, September 7, 1989)

NOTE: But if the sale is fictitious and was only resorted to for the purpose of extinguishing the lease, the supposed vendee cannot terminate the lease. The sale is presumed fictitious if at that time the supposed vendee demands the termination of the lease, the sale is not recorded in the Registry of Property. [NCC, Art. 1676(3)]

• If the stranger knows of the existence of the lease but has been led to believe that the lease would expire very soon, or before the new lease in favor of him begins (when in fact this was not true), the stranger can still be considered innocent. (Quimson v. Suarez, G.R. No. L-21381, April 5, 1924)

Mortgagee in Good Faith

A mortgagee has a right to rely in good faith on the certificate of title of the mortgagor of the property given as security and in the absence of any sign that might arouse suspicion, has no obligation to undertake further investigation. Hence, even if the mortgagor is not the rightful owner of, or does not have a valid title to, the mortgaged property, the mortgagee in good faith is nonetheless entitled to protection.”

The doctrine does not apply to a situation where the title is still in the name of the rightful owner and the mortgagor is a different person pretending to be the owner. In such a case, the mortgagee is not an innocent mortgagee for value and the registered owner will generally not lose his title. (Ereña vs. Querrer-Kauffman, G.R. No. 165853, June 22, 2006)

Innocent Purchaser for Value

For a petition for review of the decree to prosper, the land must not have passed to an innocent purchaser for value.

Innocent purchaser for value is one who buys the property of another, without notice that some other person has a right or interest in such property and pays the full price for the same, at the time of such purchase or before he has notice of the claims or interest of some other person in the property. One claiming to be an innocent purchaser for value has the burden of proving such status. (Leong v. See, G.R. No. 194077, Dec. 3, 2014.)

Note: Where innocent third persons who rely on the correctness of the certificate of title thus issued acquired rights over the property, the court cannot disregard such rights and order the total cancellation of the certificate. (Tenio-Obsequio v. Court of Appeals, G.R. No. 107967, Mar. 1, 1994.)

Note: “the defense of having purchased the property in good faith may be availed of only where registered land is involved and the buyer had relied in good faith on the clear title of the registered owner." It does not apply when the land is not yet registered with the Registry of Deeds. (Heirs of Gregorio Lopez v. Development Bank of the Phils., G.R. No. 193551, Nov. 19, 2014.)

Summary of Recovery or Non-Recovery Principle