Far East Bank & Trust Co. v. Marquez
REITERATIONFacts
The Antecedents: Respondent Arturo L. Marquez entered into a Contract to Sell with Transamerican Sales and Exposition (TSE) for a 52.5 sq. m. lot and a three-storey townhouse unit (Unit No. 10) for ₱800,000.00. This lot was part of a property covered by TCT No. 156254. Subsequently, TSE obtained a loan from petitioner Far East Bank & Trust Co. (FEBTC) for ₱7,650,000.00 and mortgaged the entire property covered by TCT No. 156254. Respondent Marquez had paid ₱600,000.00 when construction slackened, and he later discovered it was due to the foreclosure of the mortgage by FEBTC for TSE's failure to pay its loan. Procedural History: Respondent Marquez filed a case with the HLURB's Office of Appeals, Adjudication and Legal Affairs (OAALA) seeking to compel TSE to complete construction, prevent the enforceability of the foreclosure, and declare the mortgage between TSE and FEBTC invalid for violating Section 18 of PD 957. The OAALA ruled in favor of Marquez, declaring the mortgage unenforceable against him and ordering FEBTC to compute and accept payment for Marquez's lot and deliver the corresponding title upon full payment, and ordering the cancellation of mortgage and sale annotations on TCT No. 156254. FEBTC appealed to the Board of Commissioners of the HLURB, which affirmed the OAALA decision. The Office of the President dismissed FEBTC's subsequent appeal. FEBTC then elevated the case to the Court of Appeals (CA) via a Petition for Review. The Petition: The CA denied FEBTC's petition. The CA found that FEBTC knew a subdivision was forthcoming as the loan was to partially finance a townhouse project and ruled that FEBTC should have verified TSE's representations regarding government approvals. FEBTC filed the present Petition for Review with the Supreme Court.
Issue(s)
Whether the mortgage contract violated Section 18 of PD 957, rendering it void insofar as third persons are concerned. Whether the remedy granted by the HLURB, as sustained by the Office of the President and the Court of Appeals, is proper. Whether the inadvertent failure of the notary public to affix his signature on the Certification against forum shopping provided a sufficient basis for the dismissal of the appeal.
Ruling
The Supreme Court partly granted the petition. It affirmed the decision of the HLURB, but clarified that it shall be applicable only to the 52.5-square-meter lot with the three-storey town house unit denominated as Unit No. 10. The Court held that the mortgage was void as against respondent Marquez due to the violation of Section 18 of PD 957. The Court also found no cogent reason to alter the CA's ruling regarding the Certification against forum shopping, noting that the CA still ruled on the merits despite the technical defect.
Ratio Decidendi
On the Violation of Section 18 of PD 957: The Court held that Section 18 of PD 957, which requires prior written approval from the Housing and Land Use Regulatory Board (HLURB) for the mortgage of a subdivision lot or condominium unit, is mandatory and prohibitory. The fact that the mortgage covered the entire parcel of land, of which the subject lot was a part, did not exempt it from the provision. The Court emphasized that the legislative intent of PD 957 is to protect innocent lot buyers from unscrupulous developers. Petitioner FEBTC could not claim to be an innocent mortgagee in good faith because it was negligent in its duty to conduct due diligence. The bank should have verified the existence of buyers like the respondent, especially since it was dealing with a townhouse project already in progress. Its reliance solely on a clean title and the mortgagor's representation was insufficient. Therefore, the mortgage was void insofar as respondent Marquez was concerned. On the Remedy Granted: The Court affirmed the remedy granted by the HLURB, as sustained by the Office of the President and the CA, but limited its application to respondent Marquez's specific lot. The Court reasoned that since the mortgage was void against Marquez, his rights as a buyer were superior. The remedy ordered by the HLURB, which allowed Marquez to pay the loan value of his lot directly to the mortgagee and receive title upon full payment, was deemed equitable. However, the Court found that the HLURB's order to cancel mortgage and sale annotations on the entire TCT No. 156254 was improper, as Marquez only had actionable interest over his specific lot, not the entire parcel. On the Certification Against Forum Shopping: The Court found no cogent reason to alter the CA's ruling regarding the defective Certification Against Forum Shopping. The Court noted that despite the technical defect, the CA still proceeded to rule on the merits of the case. Furthermore, since the Supreme Court itself had already ruled against petitioner FEBTC on the substantive issues, the issue of the certification became moot.
Main Doctrine
Under PD 957, the mortgage of a subdivision lot or a condominium unit is void if executed by a property developer without the prior written approval of the Housing and Land Use Regulatory Board (HLURB). An encumbrance over an entire property, of which the subject lot or unit is merely a part, does not validate a lien over the specific portion at issue if the requisite approval was not obtained.