Metropolitan Bank and Trust Company, Inc. v. SLGT Holdings, Inc.
REITERATIONFacts
The Antecedents: Respondent ASB Development Corporation (ASB) developed the BSA Twin Towers Condominium Project. Respondents Danilo A. Dylanco and SLGT Holdings, Inc. (Dylanco and SLGT) entered into contracts to sell with ASB for specific units, paying the full price with the understanding that delivery would occur by December 1999. ASB failed to deliver the units as the project remained unfinished. Dylanco and SLGT later discovered that the lots on which the project was being erected had been mortgaged to petitioners Metropolitan Bank and Trust Company, Inc. (Metrobank) and United Coconut Planters Bank (UCPB) without the prior written approval of the Housing and Land Use Regulatory Board (HLURB), and without notifying the unit buyers. Procedural History: Dylanco and SLGT filed separate complaints with the HLURB for delivery of property and title, and for the declaration of nullity of the mortgage. These actions were filed while ASB was undergoing rehabilitation proceedings with the Securities and Exchange Commission (SEC). The Housing Arbiter ruled in favor of Dylanco and SLGT, declaring the mortgage invalid for lack of HLURB clearance and denying the banks' request to suspend proceedings. The HLURB Board of Commissioners affirmed this decision, with modifications. Metrobank and UCPB appealed to the Office of the President (OP), which consolidated the cases and dismissed the appeals. The OP later granted SLGT's motion for reconsideration, declaring the mortgage contract null and void in its entirety. The banks then appealed to the Court of Appeals (CA), which affirmed the OP's decision. The CA denied the banks' motions for reconsideration, leading to the present petitions. The Petition: Petitioners Metrobank and UCPB filed separate petitions for review under Rule 45 of the Rules of Court, seeking to nullify the consolidated Decision and Resolution of the Court of Appeals. They argue that the CA erred in declaring the entire mortgage contract void and in directing the banks to release the mortgage. They also contend that the HLURB, OP, and CA should not have proceeded with the case due to the SEC's order suspending all actions for claims against ASB during its rehabilitation. The core issues raised are the nullity of the entire mortgage and the applicability of the SEC's suspension order.
Issue(s)
Whether the mortgage constituted on the condominium project is null and void in its entirety. Whether the resolution of the complaints before the HLURB should have been suspended due to the ongoing rehabilitation proceedings of ASB before the SEC.
Ruling
The petitions are DENIED. The assailed Court of Appeals Decision and Resolution are AFFIRMED.
Ratio Decidendi
On the nullity of the mortgage: The Court affirmed the ruling that the mortgage constituted on the condominium project without the prior written approval of the HLURB, in violation of Section 18 of PD 957, is null and void. The Court emphasized that PD 957 aims to protect innocent buyers from fraudulent practices, and Section 18 is a prohibitory provision. Acts contrary to it are void. The Court reiterated the principle that a mortgage contract is by nature indivisible. Therefore, if a portion of the mortgage is declared void due to a violation of PD 957, the entire mortgage contract must be declared null and void. The Court also held that petitioner banks could not claim to be mortgagees in good faith, as they failed to exercise the required due diligence in discovering the ongoing condominium project and the potential pre-selling of units, which would have alerted them to the applicability of PD 957. Their business, being affected with public interest, requires a higher degree of care. On the suspension of proceedings: The Court ruled that the complaints filed by Dylanco and SLGT were not suspended by the SEC's rehabilitation order. Citing Arranza v. B.F. Homes, Inc., the Court clarified that the suspension of actions under Section 6(c) of PD 902-A applies only to monetary claims. The claims of Dylanco and SLGT were for the enforcement of ASB's statutory and contractual obligations as a condominium developer, specifically the delivery of their units free from liens and encumbrances and the declaration of nullity of the mortgage. These claims were not purely pecuniary in nature. The Court distinguished this case from Sobrejuanite v. ASB Development Corporation, where the claim involved a refund with interest, thus being a monetary claim. The Court stressed that suspending these proceedings would defeat the purpose of PD 957 and perpetuate injustice.
Main Doctrine
A mortgage constituted on a condominium project without the prior written approval of the Housing and Land Use Regulatory Board (HLURB), in violation of Section 18 of Presidential Decree No. 957, is null and void. The indivisibility of a mortgage contract mandates that such nullity extends to the entire mortgage, not just a portion thereof. Furthermore, claims for the enforcement of statutory and contractual obligations of a condominium developer under PD 957 are not suspended by rehabilitation proceedings before the Securities and Exchange Commission, as these are not purely monetary claims.