Home Bankers Savings v. Arevalo
REITERATIONFacts
The Antecedents: Private respondents entered into separate contracts to sell with TransAmerican Sales and Exposition for portions of land and townhouse units. Some respondents fully paid their purchase price, while others made partial payments. TransAmerican, through its owner Engr. Jesus Garcia, failed to complete the construction and deliver the titles as stipulated. Subsequently, Garcia and his wife obtained a P4,000,000.00 loan from petitioner Home Bankers Savings & Trust Company, mortgaging eight lots, five of which were the subject of the contracts to sell with the private respondents. Petitioner registered its mortgage without any prior encumbrance noted on the titles. When Garcia defaulted on the loan, petitioner foreclosed the mortgage and emerged as the highest bidder. Procedural History: Private respondents filed a complaint with the HLURB against Garcia/TransAmerican and petitioner, seeking completion of their units, annulment of the mortgage, release of titles, and damages. Petitioner argued it had no cause of action against them and that it was a buyer in good faith. The HLURB's OAALA declared the mortgage unenforceable against the complainants and ordered the cancellation of the mortgage and sale annotations, directing petitioner to deliver the titles. Petitioner's appeal to the HLURB Board of Commissioners was dismissed, as was its subsequent appeal to the Office of the President. The Court of Appeals also denied petitioner's petition for review, affirming the lower rulings and citing the violation of P.D. No. 957. The Petition: Petitioner seeks review on certiorari under Rule 45 of the Rules of Court, assailing the Court of Appeals' decision and resolution. Petitioner argues that the HLURB lacks jurisdiction to nullify a real estate mortgage, that the mortgage is valid and enforceable, and that even if found invalid, the unregistered contracts to sell are only binding between the parties and not against petitioner. The Supreme Court, however, found the petition devoid of merit, upholding the jurisdiction of the HLURB based on P.D. No. 957 and P.D. No. 1344, and affirming that the mortgage was void and unenforceable against the private respondents due to petitioner's negligence and violation of statutory requirements.
Issue(s)
Whether the Housing and Land Use Regulatory Board (HLURB) has jurisdiction to declare a real estate mortgage constituted by a developer void or unenforceable. Whether the real estate mortgage constituted by Engr. Garcia/TransAmerican in favor of Home Bankers is valid and enforceable against the private respondents. Whether the unregistered contracts to sell in favor of private respondents are valid and enforceable against petitioner Home Bankers.
Ruling
The petition is dismissed for lack of merit. The Supreme Court affirmed the decision of the Court of Appeals, upholding the jurisdiction of the HLURB and declaring the mortgage void and unenforceable against the private respondents.
Ratio Decidendi
On the jurisdiction of HLURB: The Supreme Court reiterated that the HLURB has exclusive jurisdiction over cases involving unsound real estate business practices, claims by subdivision lot or condominium unit buyers against project owners/developers, and cases of specific performance of contractual and statutory obligations filed by buyers. This jurisdiction was expanded by P.D. No. 1344 and transferred to the HLURB from the NHA. The act of mortgaging a subdivision project without the prior written approval of the HLURB, as required by Section 18 of P.D. No. 957, constitutes an unsound real estate business practice and is prejudicial to buyers, thus falling squarely within the HLURB's exclusive jurisdiction. The ruling in Union Bank of the Philippines vs. HLURB, et al. was applied, confirming that HLURB's regulatory power over the real estate trade is broad enough to include annulment of mortgages constituted without buyer consent and without proper authority. On the validity and enforceability of the mortgage: The Court found the mortgage void and unenforceable against the private respondents. Section 18 of P.D. No. 957 explicitly prohibits the owner or developer from mortgaging any unit or lot without prior written approval from the HLURB. This provision is considered prohibitory, and acts committed contrary to it are void. In this case, the mortgage was constituted without the required HLURB approval and without the knowledge and consent of the private respondents who had existing contracts to sell. The Court emphasized that the intent of P.D. No. 957 is to protect innocent lot buyers from unscrupulous developers. The petitioner's claim of being a mortgagee in good faith was rejected due to its negligence. The Court noted that petitioner knew the loan was for the development of the townhouse project and should have inquired about the status of the lots, including whether HLURB approval was obtained and if there were existing buyers. Its failure to do so, despite the clean titles, meant it was deemed to have constructive knowledge of the private respondents' rights. On the enforceability of unregistered contracts to sell: The Court disagreed with the petitioner's contention that the unregistered contracts to sell were unenforceable against it. Section 17 of P.D. No. 957 mandates the seller to register such contracts. The responsibility for registration lies with the seller (Garcia/TransAmerican), not the buyers. Furthermore, given the petitioner's negligence in ascertaining the status of the lots and its failure to obtain HLURB approval for the mortgage, it could not claim to be an innocent purchaser for value and in good faith. Therefore, it was bound by the private respondents' contracts to sell, even if unregistered. The Court also pointed out that the last paragraph of Section 18 of P.D. No. 957 provides recourse for buyers who have not fully paid, allowing them to pay their installments directly to the mortgagee.
Main Doctrine
A real estate mortgage constituted by a subdivision developer on lots subject to existing contracts to sell, without the prior written approval of the Housing and Land Use Regulatory Board (HLURB) and without the consent of the buyers, is void and unenforceable against the buyers, even if the mortgagee bank acted in good faith and the titles were clean at the time of the mortgage. The bank's negligence in failing to conduct proper due diligence, including verifying HLURB approval and the existence of buyers, negates its claim of being an innocent mortgagee.