G.R. No. 82564. October 13, 1989.
IGMIDIO ABANDO and CONSOLACION ABANDO, petitioners, vs. FRANCISCO LOZADA, MILAGROS LOZADA and THE HONORABLE COURT OF APPEALS, respondents.

FACTS

Petitioners, the spouses Abando, were the registered owners of three parcels of land. They were deceived by representatives of Prime Exchange Co., Inc. into signing documents they believed were a lease contract. These documents were, in reality, a Joint Venture Agreement and a Deed of Assignment transferring their titles to Prime Exchange in exchange for corporate shares. The titles were subsequently transferred to Prime Exchange. The corporation then sold two lots to its president, Ernesto Pucan, who mortgaged them to respondent spouses Lozada to secure a loan. Upon Pucan’s default, the mortgage was foreclosed, and the properties were awarded to the Lozadas, who obtained new titles.
The Abandos filed an action to annul all transactions and restore their titles. The trial court ruled in their favor, declaring all agreements, including the mortgage, null and void. However, the Court of Appeals reversed this decision regarding the Lozadas, declaring them purchasers in good faith and the lawful owners of the two parcels acquired at the foreclosure sale.

ISSUE

Whether or not the respondent spouses Lozada are purchasers in good faith and for value, thereby acquiring valid title to the properties through the foreclosure sale.

RULING

Yes, the respondents are purchasers in good faith. The Supreme Court affirmed the Court of Appeals’ ruling. The legal logic rests on the principles governing innocent purchasers for value and the indefeasibility of a Torrens title. For a mortgagee or purchaser to be considered in good faith, it is sufficient that they rely on the face of the certificate of title, without the duty to investigate further, provided there is no showing of any defect or knowledge of any flaw.
In this case, the Lozadas had no prior knowledge of the fraud perpetrated against the Abandos. Before granting the loan, Francisco Lozada verified from the Register of Deeds that the titles were indeed clean and in Pucan’s name. The foreclosure proceedings were regular, with no evidence of haste or irregularity. The Court emphasized that as between two innocent parties—the defrauded original owner and the innocent mortgagee—the one whose act (the Abandos’ signing of the documents) made the fraud possible must bear the loss. The Lozadas’ reliance on the clean titles issued under Pucan’s name was justified and legally sufficient to confer upon them the status of purchasers in good faith at the foreclosure sale, thus validating their ownership.