Facts
The case concerns two parcels of land in Tacloban City originally registered under Andrea and Rustico de Guia. Their heir, Adolfo de Guia, inherited the properties but faced foreclosure on existing mortgages. In 1994, Adolfo convinced Bayani Cerilla to redeem the properties, after which Adolfo executed Deeds of Absolute Sale in Cerilla’s favor. New titles were issued in Cerilla’s name (TCT Nos. T-40257 and T-39792). Later, Cerilla executed another Deed of Sale selling the properties back to Adolfo, but this document was unnotarized. Adolfo then filed an Adverse Claim.
Subsequently, Adolfo and Cerilla executed a Memorandum of Agreement (MOA) whereby Cerilla would buy the properties for ₱15 million, with partial payment made and the balance to follow after the ejectment of illegal settlers. Adolfo failed to remove the settlers, so Cerilla attempted ejectment himself but failed, incurring costs and loans, including one from FEBTC (secured by TCT No. T-39792). Later, Cerilla borrowed from Edward Ciacho, who required that encumbrances and adverse claims be cleared. Adolfo appeared before Ciacho to assure him that the claims had been settled. Thereafter, Ciacho granted loans totaling ₱1.3 million, secured by mortgages over the two titles, with Adolfo even signing the Deed of Real Estate Mortgage.
When Cerilla defaulted, Ciacho had a Deed of Absolute Sale prepared in his favor, which Cerilla signed but requested not to register. Eventually, titles were transferred to Ciacho’s name. Adolfo then sued for annulment of the sale, arguing that Cerilla was merely an accommodation party and had no ownership to sell.
The RTC ruled for the De Guias, declaring the Deed of Absolute Sale between Cerilla and Ciacho invalid, cancelling the titles in Ciacho’s name, and reinstating Cerilla’s titles (but subject to Ciacho’s mortgage rights). It found that Cerilla was merely an accommodation party and that Ciacho was not a buyer in good faith. The CA affirmed, holding that Cerilla never owned the properties, the sale to Ciacho was void, and the issuance of title in Ciacho’s name did not cure the defect. Ciacho elevated the case to the Supreme Court, insisting that there was a valid contract of sale and that he was a purchaser in good faith.
ISSUE: Whether Edward Ciacho qualifies as an innocent purchaser for value such that the sale to him was valid despite underlying defects in the title.
Ruling
The Supreme Court denied the petition, affirming the lower courts’ findings.
Article 1458 of the Civil Code provides that “[b]y the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party to pay therefor a price certain in money or its equivalent.” Corollarily, Article 1459 provides that “[t]he thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered.” Thus, a contract for the sale of property by a person who was not the owner thereof, or by an unauthorized person, is void.
In this case, as discussed, Cerilla had no authority to sell the subject properties precisely because Adolfo remained the owner thereof. Neither did the issuance of titles for the subject properties registered under the name of Ciacho cure the lack of title or authority of Cerilla to transfer the ownership of the subject properties.
As correctly found by the CA, the rule is settled that the issuance of a certificate of title is not a grant of ownership over the property, but merely evidence of such ownership or right thereon. Further, Ciacho cannot be considered an innocent purchaser for value. Generally, to be considered an innocent purchaser for value, the buyer does not have any notice of defect or irregularity as to the right or interest of the seller, and the buyer is without notice that a third party has a claim to the subject property. Thus, if there is anything on the certificate of title that leads to suspicion or raises any cloud on the title, right, or ownership of the subject property, the buyer cannot be deemed an innocent purchaser for value.
While it may be correct to say, that with the cancellation of the Adverse Claim and the conformity of Adolfo T. De Guia to the Deed of Real Estate Mortgage might have assured Ciacho to proceed with the grant of the loan without any further fear of impediment of title, yet the fact remains that Ciacho cannot feign ignorance of the nature of the adverse claim which is indeed anchored on a Deed of Absolute Sale expected by Cerilla in favor of De Guia [Adolfo]. Equally, Ciacho must have known that Cerilla’s title came from the De Guias and should have been extra-inquisitive as to the resale. If these were not known to Ciacho, or he failed to know or did not bother to know these glaring facts despite the appearance of De Guia [Adolfo] before him, this Court believes that Ciacho had not exercised the due diligence required to qualify him as a mortgagee in good faith. Having known the sale and resale between De Guia [Adolfo] and Cerilla, Ciacho should have exercised extra prudence in extending the loan with a mortgage. The matter of sale and resale is a clear indicator of an apparent flaw in Cerilla’s titles, which should have buoyed up more of Ciacho’s caution in dealing with the said certificates of title.