Short answer. Awareness of a defect. A possessor is in good faith when he does not know of any flaw in his title or mode of acquisition that invalidates it; anyone else is in bad faith. The distinction decides who keeps the fruits, who is paid for improvements, and who answers for losses.
What the law says
He is deemed a possessor in good faith who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.
Civil Code, Article 526 — Possessor in Good Faith and Bad Faith. Read the full provision →
What the law says
Mistake upon a doubtful or difficult question of law may be the basis of good faith.
Civil Code, Article 526 — Possessor in Good Faith and Bad Faith. Read the full provision →
The test is what the possessor knew
Article 526 defines the good-faith possessor as one who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it, and puts everyone else on the other side of the line. Two things follow. The possessor must have some title or mode of acquisition to begin with — a deed, a donation, an inheritance, a purchase — so a person who simply occupied land he knew was not his has nothing to be in good faith about. And the question is his awareness of the defect, not whether the defect exists.
Why the classification is worth fighting over
It changes what the possessor keeps and what he owes when the property is taken back from him. The possessor in good faith is treated far more generously in respect of the fruits he gathered and the improvements he made, and he answers less severely for deterioration of the property. The one in bad faith knew he was holding another's property and is dealt with accordingly. In a dispute over land occupied for years, with crops harvested and a house built, the good-faith question is usually worth more in money than the ownership question itself.
Good faith is a state that can end
It is not fixed at the moment of acquisition. A buyer who genuinely knew nothing of the defect when he paid is in good faith then — but once he is served with a demand, shown the true owner's title, or sued, he can no longer say he is unaware of the flaw. From that point his position changes, which is why the date of the first letter, notice or annotation matters so much. Note too the article's closing concession: mistake upon a doubtful or difficult question of law may be the basis of good faith, which is narrower than it sounds and does not excuse ignorance of plain rules.
What the record has to show
Keep everything from the acquisition itself — the deed, the certificate of title as it stood when you bought, the tax declarations, proof of what you paid and to whom, and any evidence of the checks you made before paying. Buyers who inspected the property and examined the registry copy of the title are in a different position from those who relied on a photocopy and a relative's word. On the other side, if you are the true owner, your first written demand is the document that starts the clock, so send it promptly and keep proof of when it was received.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Philippine Long Distance Telephone Company vs. Citi Appliance M.C. Corporation, G.R. No. 214546, October 9, 2019 — read the decision on LawPhil →
- Pen Development Corporation and Las Brisas Resort Corporation vs. Martinez Leyba, Inc, G.R. No. 211845, August 9, 2017 — read the decision on LawPhil →
- Dolores Alejo vs. Sps. Ernesto Cortez and Priscilla San Pedro, Sps. Jorge Leonardo and Jacinta Leonardo and the Register of Deeds of Bulacan, G.R. No. 206114, June 19, 2017 — read the decision on LawPhil →
- National Housing Authority vs. Manila Seedling Bank Foundation, G.R. No. 183543, June 20, 2016 — read the decision on LawPhil →