On October 15, 1969, Spouses Canuto and Ma. Aranzazu Oreta and SOLID Homes, Inc.

executed a contract to sell involving a parcel of land. Upon signing the contract, the spouses oreta made payment amounting to P7,869.40 with the agreement that the balance shall be payable in monthly installments of P451.70 at 12% per annum. On November 4, 1976, SOLID executed several real estate mortgage contracts in favor of State Investment Homes, Inc. (STATE) over its subdivided parcels of land, one of which is the subject lot. For Failure of SOLID to comply with its mortgage obligations contract, STATE extrajudicially foreclosed the mortgaged properties including the subject lot on April 6, 1983, with the corresponding certificate of sale issued therefor to STATE annotated at the back of the titles covering the said properties on October 13, 1983 On June 23, 1984, SOLID thru a Memorandum of Agreement negotiated for the deferment of consolidation of ownership over the foreclosed properties by committing to redeem the properties from STATE. On August 15, 1988, the spouses filed a complaint before the Housing and Land Use Regulatory Board, HLRB, against the developer SOLID and STATE for failure on the part of SOLID "to execute the necessary absolute deed of sale as well as to deliver title to said property . . . in violation of the contract to sell . . .," despite full payment of the purchase price as of January 7, 1981. In its Answer, SOLID, by way of alternative defense, alleged that the obligations under the Contract to Sell has become so difficult . . . the herein respondents be partially released from said obligation by substituting subject lot with another suitable residential lot from another subdivision which respondents own/operates". Upon the other hand, STATE, to which the subject lot was mortgaged, averred that unless SOLID pays the redemption price of P125,1955.00, it has "a right to hold on and not release the foreclosed properties. However, HLURB ordered State to execute a deed of conveyance in favor of complainants and deliver the title to the land. Solid was then ordered to pay State the portion of the loan which corresponds to the value of the lot. this judgment was sutained by the Board of Commissioners, Office of the President, and Court of Appeals. ISSUE W/N spuses Oreta's unregistered rights are superior over State's registered mortgage over the property HELD In fact, petitioner admits the superior rights of respondents-spouses Oreta over the subject property as it did not pray for the nullification of the contract between respondents-spouses and SOLID, but instead asked for the payment of the release value of the property in question, plus interest, attorney's fees and costs of suit against SOLID or, in case of the latter's inability to pay, against respondents-spouses before it can be required to release the title of the subject property in favor of the respondent spouses. State's registered mortgage right over the property is inferior to that of respondents' unregistered right. The unrecorded sale is preferred for the reason that if the original owner (Solid) had parted with the ownership of the thing sold, he would no longer have the free disposal of it and would not be able to mortgage it. Registration of the mortgage is not important since it is understood to be without prejudice to the rights of third persons. Pero if mag-ask si mam, about the issue regarding the Torrens system: ISSUE W/N State has the right to rely on the face of the Torrens title HELD As a general rule, where there is nothing in the title to indicate any cloud or vice in the ownership thereof, the purchaser is not required to explore further. An exception to this is when the mortgagee or purchaser has knowledge of a defect or lack of title on the part of the vendor or that he was aware of sufficient facts to induce a reasonably prudent man to inquire furher. In this case, petitioner knows full well that Solid is engaged in selling subdivision lots. Therefore, as founded on jurisprudence, it should have taken necessary precautions to ascertain any flaw. Moreover, the uniform practice of financing institutions is to investigate, examine, and assess real property offered as security. State is therefore not a mortgagee in good faith.