G.R. No.

158682            January 31, 2005

SPOUSES BIENVENIDO R. MACADANGDANG and VIRGINIA C. MACADANGDANG, petitioners

CORONA, J.:

FACTS:

 Petitioners, spouses Bienvenido and Virginia Macadangdang (Macadangdang spouses)

 The case involves a house and lot in Lot 6, Block 22-A, Phase 5-A, Parkhomes Subdivision, Tunasan, Muntinlupa,
Metro Manila, covered by TCT No. 146553 in the name of Emma A. Omalin.

 December 1986, the Macadangdang spouses offered to buy the subject property from Omalin for ₱380,000 on
installment basis.

 On the same date, the Macadangdang spouses made a downpayment of ₱5,000 through the broker, Sto. Nino
Realty Services, Inc.

 On January 1887 they paid another ₱175,000.

 Thereafter, Omalin executed a deed of sale with mortgage dated January 5, 1987. The deed provided for the
payment of the balance of ₱200,000 in three installments.

 The Macadangdang spouses took possession of the house and lot on January 18, 1987.

 After the Macadangdangs had paid a total of ₱270,000 in instalments , the parties agreed that the balance of
₱110,000 was to be paid upon delivery of the TCT.

 On January 29, 1988, Omalin executed a deed of absolute sale in favor of the Macadangdang spouses. However,
the Macadangdang sps did not pay the ₱110,000 balance because Omalin failed to deliver the TCT. It turned
out that the property was mortgaged to private respondent spouses Ramon and Gloria Martinez
(Martinez spouses).

 on March 5, 1987, a certain Atty. Paterno Santos, a broker, offered to mortgage the subject property to the
Martinez spouses for ₱200,000. Atty. Santos was in possession of a "clean" TCT No. 146553 and a fire insurance
policy covering said property. The spouses Martinez accepted the mortgage with interest at 36% p.a. and duly
recorded it at the Registry of Deeds of Makati. The proper annotation was made at the back of the title.

 From September 1987 to March 1988, Omalin paid the monthly interest of ₱6,000 but failed to pay the
subsequent interest amounting to ₱114,000.

 The Macadangdang spouses filed a criminal case for estafa against Omalin and a combined action for specific
performance, annulment of contract and damages against the spouses Martinez and Omalin.

RTC : in favor of the Macadangdang spouses:

1. Emma A. Omalin, Ramon Martinez and Gloria Martinez are hereby ordered to deliver to the plaintiffs the
owner’s duplicate copy of TCT No. 146553, upon plaintiffs’ payment of the balance of ₱100.000.

2. Emma A. Omalin is ordered to pay plaintiffs the amount of as moral damages and attorney’s fees and costs of
suit.

Court of Appeals: Modified RTC - Defendant Omalin remains to be the owner of the property despite the existence of a
valid mortgage, she has the right to sell it.

The sale in favor of plaintiffs-appellee (Macadangdang) is likewise valid, subject to the right of defendants-appellants
(Martinez) to foreclose the property for failure of defendant Omalin to pay her indebtedness.

1. Ramon and Gloria Martinez as mortgagees in good faith.

2. Declaring the deed of sale with mortgage in favor of plaintiffs-appellees Bienvenido and Virginia
Macadangdang as valid and ordering them to pay defendant Omalin the balance of the price in the sum of
₱110,000.
 3. Ordering Martinez spouses to deliver the owner’s duplicate copy of TCT No. 146553 to plaintiffs-appellees,
subject to the existing encumbrance and the right of defendants-appellants to foreclose the property should
defendant Omalin fail to pay her obligation.

4. Emma A. Omalin to pay plaintiffs-appellees the amount of ₱30,000 as moral damages and as attorney’s fees
and costs of suit.

ISSUE:

WON CA erred in reversing the RTC’s decision and considering the Martinez spouses as mortgagees in good faith

RULING

Petition lacks merit.

The instant petition involves registered land.

 Unlike the case of unregistered land, in which an earlier instrument, be it sale or mortgage, prevails over a latter
one, and the registration of any one of them is immaterial

In registered land,. Between two transactions concerning the same parcel of land, the registered transaction prevails over
the earlier unregistered right.

The act of registration operates to convey and affect the registered land so that a bonafide purchaser of such land
acquires good title as against a prior transferee, if such prior transfer was unrecorded.7

Sections 51 and 52 of PD 1529, otherwise known as the Property Registration Decree, are pertinent:

 Stating that an owner may deal with their land within the existing laws

 The act of registration shall be the operative act to convey or affect the land insofar as third persons are
concerned, and in all cases under this Decree, the registration shall be made in the office of the Register of
Deeds for the province or city where the land lies.

Sec. 51. Conveyance and other dealings by registered owner. – An owner of registered land may convey, mortgage, lease, charge or
otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages, lease or other voluntary
instruments as are sufficient in law. But no deed, mortgage, lease or other voluntary instrument, except a will purporting to convey or
affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties and
as evidence of authority to the Register of Deeds to make Registration.

Sec. 52. Constructive notice upon registration. – Every conveyance, mortgage, lease, lien attachment, order, judgment, instrument or
entry affecting registered land shall, if registered, filed or entered in the office of the Register of Deeds for the province or city where
the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing or entering.

Prior registration of a lien creates a preference as the act of registration is the operative act that conveys and affects the
land.8 Considering that the prior sale of the subject property to the Macadangdang spouses was not registered, it was the
registered mortgage to the spouses Martinez that was valid and effective. For sure, it was binding on Omalin and, for that
matter, even on the Macadangdang spouses, the parties to the prior sale.

The rule on prior registration is subject only to one exception, that is, when a party has knowledge of a prior existing
interest which is unregistered at the time he acquires a right to the same land, his knowledge of that prior unregistered
interest has the effect of registration as to him.9

The Martinez spouses claimed they had never met the Macadangdang spouses and were unaware that Omalin had
already sold the property to them. Hence, the appellate court declared the Martinez spouses as mortgagees in good faith
and innocent mortgagees for value.

 "Innocent purchaser for value" is deemed to include an innocent lessee, mortgagee or other (beneficiary of
an) encumbrance for value.10 An innocent purchaser for value is one who buys the property of another without
notice that some other person has a right to or interest in such property and pays a full and fair price for the
same at the time of such purchase or before he has notice of the claim of another person.11

As a general rule, where the certificate of title is in the name of the vendor when the land is sold, the vendee has the
right to rely on what appears on the face of the title and is not obligated to look beyond what appears on the face of the
certificate of title of the vendor.

Except when the vendee is required to make the necessary inquiries if there is anything in the certificate of title which
raises any cloud or vice in the ownership of the property.

 Mere refusal to believe that such defect exists, or his willful disregard of the possibility of the existence of a
defect in his vendor’s title will not make him an innocent purchaser for value if it afterwards develops that the
title is in fact defective
Nothing on record shows that the title of Omalin, the mortgagor, was flawed when it was presented to the spouses
Martinez. Their reliance on the title was therefore reasonable and correct. Where innocent third persons rely on the lack
of defect of a certificate of title and acquire rights over the property, the Court cannot disregard such rights. On this note,
being innocent registered mortgagees for value, the Martinez spouses acquired a superior right over the property.

Accordingly, we find no reversible error by the appellate court in upholding the existing encumbrance over the subject
property acquired by the Macadangdang spouses, in declaring the spouses Martinez as mortgagees in good faith and in
recognizing their right to foreclose on the mortgage should Omalin fail to pay her obligation. The registered mortgage
contract of the Martinez spouses has given them the superior right, not as owners but only as mortgagees.

Consequently, they are entitled to be paid the amounts due them under the real estate mortgage registered in their
favor. In the event Omalin, as mortgagor, fails to pay the mortgage obligation or, should any party, for that matter, who
may have an interest in the mortgaged property like the petitioners herein fail to redeem it from the mortgagees, the
latter, as declared by the Court of Appeals, may enforce their rights against the property by foreclosing on the mortgage,
regardless of who its owner may be, considering that the registered mortgage attaches to the property.

The instant petition is hereby DENIED and decision of the Court of Appeals is AFFIRMED.