Have you ever wondered what makes a property sale truly valid? It’s not just about signing papers and exchanging money. A recent Supreme Court decision highlights a crucial point: if the buyer knows the seller isn’t the real owner, that sale can be declared invalid. This case, involving two parcels of land in Tacloban City, serves as a powerful reminder of the importance of due diligence and good faith in property transactions.
Let’s break down the story of Edward C. Ciacho (the petitioner) versus Spouses Adolfo T. De Guia and Fe Alma V. De Guia, and Bayani S. Cerilla (the respondents) – G.R. No. 259051, February 26, 2025
The dispute revolved around two parcels of land in Tacloban City, originally owned by Spouses Enrique and Andrea de Guia. These properties were eventually acquired by Adolfo T. De Guia after a mortgage foreclosure.
Adolfo T. De Guia executed “Deeds of Absolute Sale” transferring the properties to Bayani S. Cerilla. However, the Supreme Court ultimately found that Cerilla was merely an “accommodation party” for Adolfo. This means Cerilla was holding the titles “on paper” but was not the true owner; the arrangement was a way for Adolfo to address existing encumbrances.
Edward C. Ciacho agreed to lend money to Bayani S. Cerilla. This loan was secured by the two parcels of land. Ciacho knew about existing issues, including a mortgage with Far East Bank and Trust Company (FEBTC), as the titles were encumbered. He even obtained an affidavit from Adolfo stating that adverse claims on the titles had been settled. Edeard Ciacho loaned Bayani Cerilla PHP 500,000, later increasing it to PHP 800,000.
When Cerilla failed to repay the loan, Ciacho prepared a “Deed of Absolute Sale” in his favor for the two properties. However, this deed was never registered.
Edward Ciacho later filed a complaint seeking to annul the earlier Deed of Absolute Sale from Adolfo De Guia to Bayani Cerilla and have the properties declared his own. Adolfo, on the other hand, argued that there was no actual transfer of ownership to Cerilla and that Ciacho knew Cerilla was merely an “accommodation party”. Adolfo claimed Ciacho acted in bad faith.
The central issue before the Supreme Court was whether there was a valid contract of sale between Cerilla and Ciacho, and crucially, whether Ciacho acquired the properties in good faith.
The Courts’ Decisions
The Regional Trial Court (RTC) ruled in favor of Adolfo and Alma de Guia, declaring the Deed of Absolute Sale to Ciacho invalid. The RTC found that there was no real agreement for the sale and that Cerilla was simply an “accommodation party”. It concluded that Ciacho was not a buyer in good faith.
The Court of Appeals (CA) upheld the RTC’s decision, affirming that Cerilla was an “accommodation party” and that Ciacho was not a lawful owner and did not acquire the title in good faith.
The Supreme Court ultimately DENIED Ciacho’s Petition for Review, thereby affirming the decisions of the lower courts.
Here’s why the sale to Ciacho was invalidated:
No Valid Transfer of Ownership: The Court found that Cerilla was merely an “accommodation party” for Adolfo. This meant Cerilla did not truly own the properties and therefore could not transfer ownership to Ciacho. A contract of sale requires the seller to be the owner of the thing sold, or at least have the right to transfer ownership at the time of delivery.
Ciacho Knew (or Should Have Known): The Court emphasized that Ciacho was not an innocent purchaser for value. His own actions and statements indicated his knowledge of the existing problems and the true nature of Cerilla’s ownership.
He was aware of the adverse claims and encumbrances on the titles. The titles remained in Adolfo’s name even after the alleged sale to Cerilla and at the time Ciacho was preparing his own sale document.
Ciacho’s efforts to get an affidavit from Adolfo about settled claims further showed his awareness of the issues surrounding the properties. Despite knowing these defects, Ciacho proceeded with the transaction.
Bad Faith Invalidates the Sale: Because Ciacho was aware that Cerilla was not the real owner and that the titles were encumbered, he acted in bad faith. A person cannot claim to be an innocent purchaser for value if they have notice of a defect in the seller’s title.
In essence, the Court ruled that there was no valid contract of sale between Cerilla and Ciacho because Cerilla lacked true ownership and Ciacho was not a buyer in good faith, having knowledge of this fundamental defect. The properties rightfully belonged to Spouses Adolfo and Alma de Guia.
This case underscores a vital principle in property law: a buyer must verify the seller’s true ownership and ensure the transaction is done in good faith. Simply having a signed deed isn’t enough if the seller doesn’t have the legal right to transfer the property, and the buyer is aware of this deficiency. Always conduct thorough due diligence, including checking land titles and understanding the full history of the property, to protect your investment.
