INNOCENT PURCHASER IN GOOD FAITH
required to explore farther than what the
1. PURCHASER IN GOOD FAITH
 One who buys the property of another
without notice that some other person has the
right or interest in it, and who pays a full and
fair price at the time of the purchase or before
receiving any notice of another person’s
claim.
 Requisites of Good Faith
- Seller is the registered owner of the land
- Seller is in possession thereof
- The buyer was not aware of any claim or
interest of some other person in the
property, or of any defect or restriction in
the title of the seller or in his capacity to
convey title to the property
 2 obligations of buyer in a contract of sale
- Payment of consideration
- Performance of such first obligation in
good faith
 Good faith is a matter of intent.
 Bad faith must be established by competent
proof by the party alleging the same.
 The Property Registration Decree guarantees
to every purchaser of registered land in good
faith that they can take and hold the same free
from any encumbrances EXCEPT those set
forth on the certificate of title and those
expressly mentioned in the decree as having
been preserved against it.
2. PURCHASER IS NOT REQUIRED TO
EXPLORE FURTHER THAN WHAT THE
TITLE INDICATES FOR HIDDEN DEFECTS
 GR: Every person dealing with the registered
land may safely rely on the correctness of the
certificate of title and is no longer required to
look behind the certificate in order to
determine the actual owner.
 He is charged with notice only of such
burdens and claims which are annotated on
the title, for registration is the operative act
that binds the property.
 Thus, it follows that where there is nothing in
the certificate of title to indicate any cloud or
vice in the ownership of the property, or any
encumbrance thereon, the purchaser is not
Torrens title upon its face indicates in quest
for any hidden defect inchoate right that may
be subsequently defeat his right thereto.
 XPN: when the party has actual knowledge
of facts and circumstances that would impel
a reasonably cautious man to make such
inquiry or when the purchaser has some
knowledge of the defect or the lack of title in
his vendor or of sufficient facts to induce a
reasonably prudent man to inquire into the
status of the title of the property in litigation.
 Also, one who buys from one who is not the
registered owner is expected to examine not
only the certificate of title but all the factual
circumstances necessary for him to determine
if there are any flaws in the title of the
transferor, or in his capacity to transfer the
land.
 In a series of transfers, in order that a
purchaser may be considered in good faith, it
is enough that he examines the latest
certificate of title. In line with this principle,
he need not go behind this title and scrutinize
each and every title that preceded it.
2(A). A PURCHASER WHO HAS
KNOWLEDGE OF DEFECT OF HIS
VENDOR’S TITLE CANNOT CLAIM GOOD
FAITH
 One who purchases real estate with
knowledge of a defect or lack of title in his
vendor cannot claim that he has acquired title
thereto in good faith as against the true owner
of the land or of an interest therein; and the
same rule must be applied to one who has
knowledge of facts which should have put
him upon such inquiry and investigation as
might be necessary to acquaint him with the
defects in the title of his vendor.
 His mere refusal to believe that such defect
exists, or his willful closing of his eyes to the
possibility of the existence of a defect in his
vendor’s title will not make him an innocent
purchaser for value.
 It is that “the honesty of intention”, “the
honest lawful intent”, which constitutes good
 faith implies a “freedom from knowledge and  Where the Torrens title was issued as a result
circumstances which ought to put a person on of regular land registration proceedings and
inquiry,” and so it is that proof of such was in the name of the mortgagor when
knowledge overcomes the presumption of given as a security for a bank loan, the
good faith in which the courts always indulge subsequent declaration of said title as null
in the absence of proof to the contrary. and void is not a ground for nullifying the
mortgage rights of a bank which had acted in
2(B). AS BETWEEN TWO PERSONS IN GOOD
good faith. (St. Dominic Corporation vs
FAITH, THE LAWFUL HOLDER OF A TITLE
Intermediate Appellate Court)
IS PREFERRED
 Rule: When a mortgagee relies upon what
 As between 2 persons both of whom are in appears on the face of the Torrens title and
good faith and both innocent of any lends money in all good faith on the basis of
negligence, the law must protect and prefer the title in the name of the mortgagor, his or
the lawful holder of registered title over the her right or lien upon the land mortgaged
transferee of a vendor bereft of any must be respected and protected for being an
transmissible rights. innocent mortgagee for value.
 But if a person by mistake or to the prejudice
of another with or without bad faith, the
certificate of title which may have been
issued to him under the circumstances may
and should be cancelled or corrected.
2(C). PURCHASER CHARGED ONLY WITH
NOTICE OF LIENS NOTED ON THE TITLE
 A person dealing with registered land is only
charged with notice of the burdens on the
property which are noted on the face of the
register or the certificate of title. To require
him to do more is to defeat one of the primary
objects of the Torrens system.
 This rule however REFERS only to
properties registered under the Torrens
system, not those under Act No. 3344.
 One who purchases real property which is in
actual possession of other should, at least,
make some inquiry concerning the rights of
those in possession. The actual possession by
persons other than the vendor should, at least,
put the purchaser upon inquiry.
3. RULE OF GOOD FAITH EQUALLY
APPLIES TO MORTGAGEE OF REAL
PROPERTY
 The phrase “innocent purchaser for value” in
section 33 of the Property Registration
Decree includes an innocent lessee,
mortgagee, or other encumbrance for value.
CASES:
1. HOMEOWNERS SAVINGS VS. FELONIA
PEREZ, J.:
FACTS:
The case involved a real property owned by Felonia
and De Guzman. Sometime in June 1990, they
mortgaged the property to Delgado to secure a loan.
However, instead of a real estate mortgage, the
parties executed a deed of absolute sale with an
option to repurchase. On December 1991, Felonia
and De Guzman filed an action for reformation of
instrument.
Inspite of the pendency of the Reformation case in
which she was the defendant, Delgado filed a
Petition for Consolidation of Ownership of Property
Sold with an Option to Repurchase and Issuance of a
New Certificate of Title. The RTC declared Delgado
the absolute owner and ordered the Registry of Deeds
to issue a new certificate of title in the name of
Delgado.
Aggrieved, Felonia and De Guzman elevated the
case to the CA through a petition for annulment of
judgment. On June 1995, Delgado mortgage the
property to Homeowners Savings and Loan Bank
(HSLB) using her newly registered title. On
September 1995, Felonia and De Guzman caused the
annotation of a notice of lis pendens on Delgados
title. On November 1997, HLRB foreclosed the
property and later consolidated ownership in its
favor.
Felonia and De Guzman instituted a complaint
before RTC of Las Pinas for reconveyance of
possession and ownership of the subject property in
their favor. As defendant, HLRC contended that it
was a mortgagee in good faith. RTC ruled in favor of
Felonia and De Guzman. CA affirmed the RTC
decision
ISSUE: Whether or not HSLB is a mortgagee and
a purchaser in good faith
HELD: No. Decision of CA sustained.
Civil Law: Who is a Purchaser in good faith
The rights of the parties to the present case are
defined not by the determination of whether or not
HSLB is a mortgagee in good faith, but of whether
or not HSLB is a purchaser in good faith. And, HSLB
is not such a purchaser. A purchaser in good faith is
defined as one who buys a property without notice
that some other person has a right to, or interest in,
the property and pays full and fair price at the time
of purchase or before he has notice of the claim or
interest of other persons in the property.
In the case at bar, HSLB utterly failed to take the
necessary precautions. At the time the subject
property was mortgaged, there was yet no annotated
Notice of Lis Pendens. However, at the time HSLB
purchased the subject property, the Notice of Lis
Pendens was already annotated on the title. When a
prospective buyer is faced with facts and
circumstances as to arouse his suspicion, he must
take precautionary steps to qualify as a purchaser in
good faith.
Lis pendens is a Latin term which literally means, a
pending suit or a pending litigation while a notice of
lis pendens is an announcement to the whole world
that a real property is in litigation, serving as a
warning that anyone who acquires an interest over
the property does so at his/her own risk, or that
he/she gambles on the result of the litigation over the
property. It is a warning to prospective buyers to take
precautions and investigate the pending litigation.
The purpose of a notice of lis pendens is to protect
the rights of the registrant while the case is pending
resolution or decision. With the notice of lis pendens
duly recorded and remaining uncancelled, the
registrant could rest secure that he/she will not lose
the property or any part thereof during litigation.
Indeed, at the time HSLB bought the subject
property, HSLB had actual knowledge of the
annotated Notice of Lis Pendens. Instead of heeding
the same, HSLB continued with the purchase
knowing the legal repercussions a notice of lis
pendens details.
2. ARGUELLES VS. MALARAYAT RURAL
BANK
VILLARAMA, JR., J.:
FACTS:
The late Fermina M. Guia was the registered owner
of Lot 3, a parcel of agricultural land. Fermina M.
Guia sold the south portion of the land with an
approximate area of 1,350 square meters to the
spouses Petronio and Macaria Arguelles.
Although the spouses Arguelles immediately
acquired possession of the land, the Deed of Sale was
neither registered with the Register of Deeds nor
annotated on title. At the same time, Fermina M.
Guia ordered her son Eddie Guia and the latter's wife
Teresita Guia to subdivide the land covered by title
into three lots and to apply for the issuance of
separate titles therefor, to wit: Lot 3-A, Lot 3-B, and
Lot 3-C.
Thereafter, she directed the delivery of the Transfer
Certificate of Title (TCT) corresponding to Lot 3-C
to the vendees of the unregistered sale or the spouses
Arguelles. However, despite their repeated demands,
the spouses Arguelles claimed that they never
received the TCT corresponding to Lot 3-C from the
spouses Guia.
The spouses Guia then obtained a loan in the amount
of ₱240,000 from the respondent Malarayat Rural
Banlc and secured the loan with a Deed of Real
Estate Mortgage over Lot 3-C. The loan and Real
Estate Mortgage were made pursuant to the Special
Power of Attorney purportedly executed by the
registered owner of Lot 3-C, Fermina M. Guia, in
favor of the mortgagors, spouses Guia.
On 1997, the spouses Arguelles found out about the
said mortgage. They then filed a complaint for the
annulment and cancellation of the mortgage lien.
After 2 years, they registered their adverse claim
based on an unregistered sale. RTC decided in favor
of the spouses Arguelles. The CA reversed RTCs
decision.
ISSUE: W/N the respondent Malarayat Rural Bank
is a mortgagee in good faith who is entitled to
protection on its mortgage lien.
RULING:
The petition is meritorious.
Doctrine of "mortgagee in good faith" based on the
rule that all persons dealing with the property
covered by a Torrens Certificate of Title, as buyers
or mortgagees, are not required to go beyond what
appears on the face of the title. The public interest in
upholding the indefeasibility of a certificate of title,
as evidence of lawful ownership of the land or of any
encumbrance thereon, protects a buyer or mortgagee
who, in good faith, relied upon what appears on the
face of the certificate of title.
As an exception to the rule, in cases where the
mortgagee does not directly deal with the registered
owner of real property, the law requires that a higher
degree of prudence be exercised by the mortgagee.
In this case, respondent Malarayat Rural Bank fell
short of the required degree of diligence, prudence,
and care in approving the loan application of the
spouses Guia.
Respondent should have diligently conducted an
investigation of the land offered as collateral.
Although the Report of Inspection and Credit
Investigation found at the dorsal portion of the
Application for Agricultural Loan proved that the
respondent Malarayat Rural Bank inspected the land,
the respondent turned a blind eye to the finding
therein that the "lot is planted [with] sugarcane with
annual yield (crops) in the amount of ₱15,000.
The respondent's stance that the mere planting and
harvesting of sugarcane cannot reasonably trigger
suspicion that there is adverse possession over the
land offered as mortgage is untenable. Indeed, such
fact should have immediately prompted the
respondent to conduct further inquiries, especially
since the spouses Guia were not the registered
owners of the land being mortgaged. They merely
derived the authority to mortgage the lot from the
Special Power of Attorney allegedly executed by the
late Fermina M. Guia. Hence, it was incumbent upon
the respondent Malarayat Rural Bank to be more
cautious in dealing with the spouses Guia, and
inquire further regarding the identity and possible
adverse claim of those in actual possession of the
property.