LAND BANK OF THE PHILIPPINES vs. LORENZO MUSNI

FACTS: Respondent Lorenzo Musni (Musni) was the compulsory heir of Jovita Musni (Jovita), who was the owner of a lot in Comillas, La Paz, Tarlac. Musni filed before the Regional Trial Court of Tarlac City a complaint for reconveyance of land and cancellation of TCT against Spouses Nenita Sonza Santos and Ireneo Santos (Spouses Santos), Eduardo Sonza (Eduardo), and Land Bank of the Philippines (Land Bank). Musni alleged that Nenita falsified a Deed of Sale, and caused the transfer of title of the lot in her and her brother Eduardo's name. Then the spouses Santos and Eduardo mortgaged the lot to Land Bank as security for their loan. Musni said that he was dispossessed of the lot when Land Bank foreclosed the property upon Nenita and Eduardo's failure to pay their loan. Later, the titles of the lot and another foreclosed land were consolidated in anothet TCT, under the name of Land Bank. Musni also claimed that Nenita and Eduardo was convicted for falsification of a public document which he filed against them before the MTC of Tarlac.

Land Bank filed its Amended Answer to the RTC with Counterclaim and Crossclaim. It asserted that the transfer of the title in its name was because of a decision rendered by the Department of Agrarian Reform Adjudication Board, Region III. It countered that its transaction with the Spouses Santos and Eduardo was legitimate, and that it verified the authenticity of the title with the Register of Deeds. Further, the bank loan was secured by another lot owned by the Spouses Santos, and not solely by the lot being claimed by Musni. Land Bank prayed that it be paid the value of the property and the expenses it incurred, should the trial court order the reconveyance of the property to Musni.

On June 27, 2008, the trial court rendered a Decision, in favor of Musni. It relied on the fact that Nenita was convicted of falsification of the Deed of Sale. The trial court found that Musni did not agree to sell the property to the Spouses Santos and Eduardo. In addition, the amount of Musni 's indebtedness was an insufficient consideration for the market value of the property. Lastly, the sale was executed before the loan's maturity.The trial court also found that Land Bank was not an "innocent purchaser for value. The institution of the criminal case against Nenita should have alerted the bank to ascertain the ownership of the lot before it foreclosed the same. Land Bank and Nenita separately moved for reconsideration, which were both denied by the trial court in an Omnibus Order. Land Bank and Spouses Santos separately appealed to the Court of Appeals. In its appeal,25 Land Bank reiterated that "it has demonstrated, by a preponderance of evidence, that it is a mortgagee in good faith and a subsequent innocent purchaser for value; as such, its rights as the new owner of the subject property must be respected and protected by the courts. However, the Court of Appeals ruled in favor of Musni. Land Bank moved for reconsideration, but the same was denied.

Hence, the present petition.

ISSUES: 1. Whether or not petitioner is a mortgagee in good faith and an innocent purchaser for value; and

2. Whether or not petitioner is entitled to the award of damages.

HELD: 1. No. Petitioner is neither a mortgagee in good faith nor an innocent purchaser for value. Petitioner's defense that it could not have known the criminal action since it was not a party to the case and that there was no notice of lis pendens filed by respondent Musni, is unavailing. Had petitioner exercised the degree of diligence required of banks, it would have ascertained the ownership of one of the properties mortgaged to it. Where "the findings of fact of the trial courts are affirmed by the Court of Appeals, the same are accorded the highest degree of respect and, generally, will not be disturbed on appeal. Such findings are binding and conclusive on this Court."

Accordingly, this Court finds no reason to disturb the findings of the Court of Appeals, which affirmed the findings of the trial court, that petitioner is neither a mortgagee in good faith nor an innocent purchaser for value.

2. No. Petitioner is not entitled to the award of damages. In its Decision, the trial court ordered respondents Nenita and Eduardo to pay petitioner damages in the amount equivalent to the appraised value of the property being claimed by respondent Musni. The Court of Appeals deleted the award. It considered the grant of award as a partial extinguishment of the real estate mortgage, which is not allowed. Since the mortgage is indivisible, the Court of Appeals nullified the real estate mortgage involving the two properties, and deleted the award.

Although the Court of Appeals' basis for deleting the award is erroneous, this Court affirms the removal on a different ground since petitioner did not seek relief from the Court with clean hands. Petitioner may have incurred losses when it entered into the mortgage transaction with respondents Spouses Santos and Eduardo, and the corresponding foreclosure sale. However, the losses could have been avoided if only petitioner exercised the required due diligence.