HOMEOWNERS SAVINGS AND LOAN BANK, Petitioner-Appellant, vs. ASUNCION P.

FELONIA and LYDIA

C. DE GUZMAN, represented by MARIBEL FRIAS, Respondents-Appellees. MARIE MICHELLE P.
DELGADO, REGISTER OF DEEDS OF LAS PINAS CITY and RHANDOLFO B. AMANSEC, in his capacity as
Clerk of Court Ex-Officio Sheriff, Office of the Clerk of Court, Las Piñas City,
G.R. No. 189477
February 26, 2014

FACTS

Felonia and de Guzman are owners of a parcel of land. In 1990, they mortgaged it to Delgado. But
instead of executing a real estate mortgage, the parties executed a deed of absolute sale with a right to
repurchase.

In 1991, Felonia and de Guzman filed an action for reformation of contract which was subsequently
granted. However, in 1995, while the reformation case was still pending, Delgado filed a "Petition for
Consolidation of Ownership of Property Sold with an Option to Repurchase and Issuance of a New
Certificate of Title". Delgado's petition was granted thus the trial court issued a TCT in her name. This
allowed Delgado to mortgage such property to HSLB.

A few days later, Felonia and de Guzman learned of Delgado's mortgage, thus they made an annotation
in the title of the aforementioned property of the notice of lis pendens.

In 1997, HSLB foreclosed the property and eventually purchased it.

In 2000, the CA reversed the decision of the RTC regarding the consolidation case of Delgado and
declared Felonia and de Guzman as absolute owners of the said property. HSLB prayed that the
mortgage lien in their favor be annotated as entry and be carried over to the TCT-402 on the ground that
they are a mortgagee in good faith.

ISSUE

Whether or not HSLB is entitled to the annotation of their mortgage lien in TCT-402.

RULING

The Supreme Court ruled that HSLB is no longer entitled to have its mortgage lien annotated in TCT-402.
In Bank of Commerce v. San Pablo, Jr., the doctrine of mortgagee in good faith was explained - despite
the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the
mortgage contract and any foreclosure sale arising there from are given effect by reason of public policy.
In the case at bar, since at the time the subject property was mortgaged, there was yet no annotated
Notice of Lis Pendens, it can be concluded that HSLB is a mortgagee in good faith.

However, the Supreme Court believes that 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. HSLB is not such a purchaser in good faith. According to the law, 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 HSLB purchased the subject property, the Notice of Lis Pendens was
already annotated on the title. Therefore, there is no doubt that at the time appellant purchased the
subject property, it was aware of the pending litigation concerning the same property and thus, the title
issued in its favor was subject to the outcome of said litigation.