FACTS:

The petitioners in this case, PNB and the Lucero Spouses, filed motions for reconsideration to challenge the court's previous decision. The respondents argued that PNB failed to inspect the property offered as security and the Lucero Spouses failed to inquire about the property's status. The court reviewed existing jurisprudence and defined a purchaser in good faith as one who buys property without notice of another person's right or interest in it. The court stressed that a purchaser must go beyond the certificate of title and make inquiries about the actual possessor if the land is in the possession of someone other than the vendor. The failure to take such precautionary steps would mean negligence and preclude the buyer from claiming the rights of a "purchaser in good faith". This principle also applies to mortgagees of real property.

This case delves into the concept of good faith and due diligence in property transactions. It clarifies that closing one's eyes to the possibility of a defect in the title does not make a person an innocent purchaser or mortgagee. To be considered in good faith, a purchaser must exercise due diligence, conduct an investigation, and evaluate the surrounding facts and circumstances. An average person on the street should apply common sense in weighing the facts and circumstances rather than relying on technical legal knowledge. A higher degree of care and prudence is expected from mortgagees, especially banks or financial institutions dealing with registered lands. It distinguishes between good faith, which requires honest intention, and bad faith, which involves dishonest purposes. The determination of good faith and the exercise of due diligence are factual matters. Although the court is generally not a trier of facts, there are exceptions when the findings of the Court of Appeals contradict those of the trial court.

In this case, the court stressed that the determination of someone being an innocent purchaser for value is typically a question of fact not within its jurisdiction. However, there are exceptions, such as when the findings of the Court of Appeals conflict with those of the trial court. The trial court is better positioned to assess witness credibility and the weight of evidence in this specific case.

ISSUES:

1. Whether Philippine National Bank (PNB) and the Lucero Spouses can be considered buyers in good faith.

2. Whether PNB exercised due diligence and prudence in its dealings involving the disputed property.

3. Whether the Lucero Spouses acquired the disputed property in good faith, considering they purchased it from petitioner PNB as an acquired asset.

4. Whether the Lucero Spouses exercised due diligence before purchasing the property and can be considered as buyers in good faith.

5. • Whether the respondents had constructive notice of the mortgage, foreclosure, and consolidation of title of the property in favor of PNB.
6. • Whether the respondents, as claimants of ownership rights over the property, exercised acts of ownership or verified the status of the property.

RULING:

1. The trial court concluded that PNB and the Lucero Spouses are purchasers in good faith. However, the appellate court found that they cannot be regarded as buyers in good faith. The Supreme Court held that the determination of whether a buyer or mortgagee is in good faith is generally outside the province of the court in a petition for review. However, there are exceptions to this rule, one of which is when the findings of the Court of Appeals are contrary to those of the trial court. In this case, since the findings of the appellate court are contrary to the trial court's findings, the issue of whether PNB and the Lucero Spouses are buyers in good faith is reviewable by the Supreme Court.

2. PNB could not be completely exonerated from any liability arising from its omission or negligence in further investigating the nature of the possession or the title of the respondents who were the alleged occupants of the property. PNB failed to present any witness who had personal knowledge of whether the bank had conducted the required ocular inspection or investigation before accepting the property as security for the loan. The Supreme Court found that there is no showing that PNB ascertained the status and condition of the property before approving the loan, which is expected of a banking institution dealing with registered land. Therefore, the Court upheld the appellate court's finding that PNB cannot be considered a mortgagee in good faith.

3. The Lucero Spouses acquired the disputed property in good faith and for a valuable consideration. They purchased the property from petitioner PNB, which had valid title to the property acquired through foreclosure proceedings. The Court found that the Lucero Spouses can be considered as buyers in good faith, as they relied on the clean title of the bank and exercised the prudence expected of an average person, not a person with legal training.

4. The Lucero Spouses exercised due diligence before purchasing the property. They relied on the title of petitioner PNB, which was acquired after years of foreclosure proceedings. The Court emphasized that financing institutions, like petitioner PNB, are expected to investigate the real property offered as security for a loan application. The Lucero Spouses, as buyers, can rely on what appears on the face of the Certificate of Title, especially considering that the requirements for foreclosure were complied with by petitioner PNB.

5. The Court held that the respondents had constructive notice of the mortgage, foreclosure, and consolidation of title of the property in favor of PNB. The foreclosure notice and the Certificate of Sale were published in a newspaper of general circulation, which operated as constructive notice to all persons adversely affected by the foreclosure. Furthermore, the respondents should have been charged with notice of the consolidation of title and the issuance of a new Transfer Certificate of Title to PNB.

6. The Court also ruled that the respondents, as claimants of ownership rights over the property, failed to exercise acts of ownership or verify the status of the property. There was no evidence that the respondents paid real estate taxes or introduced improvements on the property. Moreover, the respondents did not inquire or investigate with the Register of Deeds or the Assessor's Office regarding the status of the property. The Court emphasized that the law aids the vigilant, not those who slumber on their rights.

7. Therefore, the Court upheld the validity of the title of the petitioners, the Lucero Spouses, to the property and declared them innocent purchasers for value in good faith.

PRINCIPLES:

• The determination of good faith and the exercise of due diligence and prudence are questions of fact.

• The Supreme Court is generally not a trier of facts, but there are exceptions when the findings of the Court of Appeals are contrary to those of the trial court.

• A banking institution is expected to exercise more care and prudence in its dealings involving registered land.

• The burden of proof is on the mortgagee to prove its compliance with the requirements for foreclosure and to establish its status as a mortgagee in good faith.

• A buyer of property can be considered in good faith if they exercise due diligence expected of an average person who weighs facts and circumstances without legal training.

• Financing institutions are expected to investigate and assess the real property offered as security for a loan application.

• Buyers can rely on the face of the Certificate of Title and the clean title of the seller, especially if the requirements for foreclosure were complied with.

• Doctrine of constructive notice - Persons claiming any title or interests in a registered property are deemed to have constructive notice of any registration, such as a mortgage, foreclosure, or consolidation of title, that affects the property.

• Acts of ownership - As claimants of ownership rights over a property, the burden is upon the claimants to show, by preponderance of evidence, acts of ownership, such as payment of taxes or introduction of improvements, to support their claim.

• Vigilantibus sed non dormientibus jura subveniunt - The law aids the vigilant, not those who slumber on their rights. Claimants must exercise due diligence and act promptly to enforce their alleged rights to a property.