CIVLTD 2017 (GR. No. 206343 Land Bank vs. Musni)
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Michael Parreño VillagraciaCIVLTD 2017 (GR. No. 206343 Land Bank vs. Musni)
Uploaded by
Michael Parreño Villagracia2017 (GR. NO. 206343 LAND BANK VS.
MUSNI)
Mortgagee in Good Faith; Banks
FACTS: Respondent Musni filed a petition for reconveyance of land and cancellation of title against the
Spouses Santos, Eduardo Sonza and Land Bank.
Musni alleges that he is the owner of a parcel of land which the Santoses sold by falsifying a deed of sale
causing the transfer of the title of the lot in both Santos and Sonza’s names which they then mortgaged to
Land Bank as security for their loan.
Musni was dispossessed when Land Bank foreclosed the property upon the failure of Santos and Sonza to
pay the loan. The lot was then transferred under the name of Land Bank. Musni then filed a criminal case
against Santos and Sonza for falsification of a public document. The courts found Santos guilty.
Santos in her defense, admits to the fact of mortgage, foreclosure, and conviction. That together with
Sozna, they ran a lending business in which Musni secured a loan, by executing a deed of sale over the lot
in their favor. This lot’s title was then transferred to Santos and Sonza and was then mortgaged to land
bank, which was then foreclosed.
Land Bank in its answer asserted that the transfer in its name was because of a decision rendered by the
DAR Adjudication Board. It asserts that the transaction with Santos and Sonza were legitimate, and that it
verified the authenticity of the title with the Register of Deeds. It prayed that if the reconveyance to Musni
be ordered, it should be paid the value of the property and expenses it incurred.
RTC ruled in favor of Musni, relying on the conviction of Santos for falsification of a deed of sale. It found
that Musni never agreed to sell the property, in addition the amount given for the lot was inconsiderable,
and that the sale was executed before the loan’s maturity. It also ruled that Land Bank was not an innocent
purchaser for value, that Santos’ criminal case should have alerted the bank to ascertain the ownership
before foreclosing the same.
Land Bank and Santos appealed the decision. Land Bank reiterating that it has demonstrated its good faith.
The CA found the sale between Musni and Santos void as the documents were falsified and that Santos
not being owners could not have validly mortgaged the property. CA held that the bank was not in good
faith for failure to observe the due diligence required of banks.
Land Bank’s MR was denied. It filed a petition for review against Musni, Santos and Sonza reiterating its
good faith. Petitioner asserts that when it examined the titles offered as security, it found neither infirmity or
defect and even verified Santos’ financial capability. Moreover, that the mortgage was executed before the
criminal case against the mortgagor, insisting that a criminal complaint didn’t operate as a notice to the
bank, since it was not a party.
ISSUES: WON Petitioner is a mortgagee in good faith
RULING: No, it failed to follow the diligence needed to be exercised by banks when dealing with registered
land.
RATIO: The determination of WON Petitioner acted in good faith is a factual matter not cognizable in a R45
Petition.
The doctrine of mortgagee in good faith is based on the rule, persons dealing with property covered by a
TCT are not required to go beyond what appears on the face of the tile. However in the case of banks,
greater care and due diligence is required since they are imbued with public interest, failing to do so
renders them mortgagees in bad faith.
Before approval of the loan, they first must have conducted an ocular inspection of the property and verified
the genuineness of the title to determine the real owners thereof.
Petitioner is not an ordinary mortgagee. It is a bank. Its business imbued with public interest.
During trial, petitioner presented its officer to testify which failed to establish that the bank had a standard
operating procedure in accepting the property as security, including having an ocular inspection of the site.
Land Bank’s claim of exhaustive investigation was just a generalization of its operating procedure without
any showing that it was followed.
What further militates the claim of Land Bank’s good faith, is that the TCT which was mortgaged to it was
issued by virtue of DAR decision.
The date of the decision was in December 29, 1997 but was only inscribed on Feb 25, 1998. If this is so,
why is it that Santos was issued the TCT only on Feb 8, 1998 before the inscription and that she never
mentioned any DAR decision awarding the lot to her. This should’ve aroused suspicion on the part of Land
Bank.
A purchaser in good faith is one who buys property without notice that some other person has a right to or
interest in such property and pays its fair price before he has notice of the adverse claims and interest of
another person in the same property. Factual circumstances as afore-cited surrounding the acquisition of
the disputed property do not make Land Bank an innocent purchaser for value or a purchaser in good faith.
It could’ve inquired how Sonza acquired the land mortgaged to it and later forclosed. The fact that the land
was foreclosed after the criminal case was instituted by Musni should’ve been a warning.
In its defense that it could not have known the criminal action since it was not a party to it, the rule on
innocent mortgagees is applied strictly when it comes to banks. They cannot simply rely on the face of the
certificate of title.
Petition denied.
