G.R. No. 188265
November 17, 2010
Doctrine
If there is a notice of adverse claim, the rule that a buyer of registered land needs only to show that he relied on the title that covers the property to prove good faith is inapplicable. In other words, a buyer who has knowledge on the notice of adverse claim but still proceeded to buy the property is a buyer in bad faith.
Facts
Some heirs inherited a parcel of land which they subdivided into 13 lots. in a judicial partition, the court distributed four of the lots as follows: a) Lots 1 and 12 to Aquino; b) Lot 2 to Corpuz and Sobremesana; and © Lot 6 to Yap, Cruz, and the Vivars. The other lots were distributed to the other heirs.
Thereafter, the heirs entered into an agreement to sell Lots 1, 2, 12, and 6 in favor of petitioner GHM. It was agreed that GHM shall pay in three installments. GHM paid the first installment upon execution of the contract. On August 4, 1989, GHM caused a Notice of Adverse Claim to be annotated on TCT 67462 RT-1. However, the heir-sellers of the four lots wrote to GHM that they were still working on the titling of the lots in their names. Notwithstanding, GHM agreed to proceed with the agreement to sell.
Sometime in August 1989, Filinvest applied for the registration of title but was denied. Filinvest alleged that it bought Lots 1, 2, 6, and 12 of the property from their respective owners as evidenced by three deeds of absolute sale in its favor dated September 10, November 18, and December 29, 1989 and that Filinvest was entitled to the registrations of such sales. Filinvest further contended that although the title carried a notice of adverse claim, that notice was only with respect to seller Yap’s interest in Lot 6 and it did not affect Lots 1, 2, 12, and the remaining interests in Lot 6.
Hence, GHM filed against the heirs-sellers and Filinvest a complaint for the annulment of the deeds of sale issued in the latter’s favor. The RTC ruled in favor of GHM. However, the CA declared that only the contract to sell Lot 6 was valid in favor of GHM and the sale of Lots 1, 2, and 12 were valid in favor of Filinvest.
Issue
Whether or not the contracts to sell that the sellers executed in GHM’s favor covering the same lots sold to Filinvest are valid and enforceable?
Held (YES)
To prove good faith, the rule is that the buyer of registered land needs only show that he relied on the title that covers the property. But this is true only when, at the time of the sale, the buyer was unaware of any adverse claim to the property.
In other words, if there is adverse claim on the property, the law requires the buyer to exercise a higher degree of diligence before proceeding with his purchase. He must examine not only the certificate of title, but also the seller’s right and capacity to transfer any interest in the property. In such a situation, the buyer must show that he exercised reasonable precaution by inquiring beyond the four corners of the title. Failing in these, he may be deemed a buyer in bad faith.
The annotation of an adverse claim is intended to protect the claimant’s interest in the property. The notice is a warning to third parties dealing with the property that someone claims an interest in it or asserts a better right than the registered owner. Such notice constitutes, by operation of law, notice to the whole world.
In this case, Filinvest was on notice that GHM had caused to be annotated on TCT 67462 RT-1, the mother title, as early as August 4, 1989 a notice of adverse claim covering Lot 6. This notwithstanding, Filinvest still proceeded to buy Lots 1, 2, 6, and 12 on September 10, November 18, and December 29, 1989. Filinvest’s knowledge that GHM, a competitor, had bought Lot 6 in which Filinvest was interested, that GHM had annotated an adverse claim to that Lot 6, and that GHM had physical possession of the title, should have put Filinvest on its toes regarding the prospects it faced if it bought the other lots covered by the title in question. Filinvest should have investigated the true status of Lots 1, 2, 6, and 12 by asking GHM the size and shape of its interest in the lands covered by the same title, especially since both companies were engaged in the business of developing lands.
Although the notice of adverse claim pertained to only one lot and Filinvest wanted to acquire interest in some other lots under the same title, the notice served as warning to it that one of the owners was engaged in double selling.
Hence, the contracts to sell that the sellers executed in GHM’s favor covering the same lots sold to Filinvest are valid and enforceable.