Philippine Bank of Communications v. Pridisons Realty
REITERATIONFacts
The Antecedents: Pridisons Realty Corporation (Pridisons) mortgaged its 1,988-square meter land to Philippine Bank of Communications (PBComm) on November 23, 1989, to secure a ₱7,000,000.00 loan. Pridisons later transferred its rights to Ivory Crest Realty and Development Corporation (Ivory Crest). Ivory Crest applied for and obtained a certificate of registration and license to sell condominium units on the land from the Housing and Land Use Regulatory Board (HLURB) in June 1991. Among the buyers were respondents Bormacheco, Inc., Nazario F. Santos, Teresita Chua Tek, Charito Ong Lee, and Ernesto Sibal (respondent buyers). Procedural History: When Pridisons defaulted, PBComm initiated extrajudicial foreclosure. However, the respondent buyers filed actions for specific performance with damages, demanding titles to their units free from liens, including PBComm's mortgage. The HLURB, the Office of the President (OP), and the Court of Appeals (CA) all ruled against PBComm. The HLURB and OP asserted HLURB's jurisdiction over mortgagee banks in condominium/subdivision cases and declared the mortgage invalid for lack of HLURB approval under Section 18 of PD No. 957. The CA affirmed these rulings, finding that PBComm was aware of the proposed condominium development despite the mortgage being executed on raw land before the project's formal application. The Petition: PBComm filed a petition for review on certiorari, assailing the CA's affirmation of the HLURB's jurisdiction and the nullification of the mortgage. PBComm argued it was not engaged in real estate business, thus not under HLURB's jurisdiction, and that Section 18 of PD No. 957 did not apply as the mortgage was on raw land before the project commenced. PBComm also contended that the finding of its awareness of the project was unsupported by evidence.
Issue(s)
Whether the HLURB has jurisdiction over mortgagee banks in cases involving condominium projects. Whether the mortgage executed by Pridisons in favor of PBComm is valid despite the lack of prior written approval from the HLURB under Section 18 of PD No. 957.
Ruling
The petition is denied. The decision of the Court of Appeals affirming the HLURB's jurisdiction and the nullity of the mortgage is affirmed.
Ratio Decidendi
On the HLURB's jurisdiction over mortgagee banks: The Court upheld the HLURB's jurisdiction, citing the broad interpretation of its regulatory powers under Section 1 of PD No. 957, which includes cases of unsound real estate business practices. Even though paragraphs (b) and (c) of Section 1 limit cases to those between buyers and developers, paragraph (a) allows for the inclusion of third parties like mortgagee banks when their actions contribute to unsound practices. The Court reiterated that PD No. 957 is a social justice measure designed to protect innocent lot buyers, and to disassociate the issue of mortgage nullity from the primary case would cause inconvenience and hinder speedy justice. Jurisprudence consistently supports the broad construction of HLURB's jurisdiction to include actions for annulment of mortgages in condominium or subdivision projects, as seen in previous cases where the Court affirmed HLURB's authority even when the bank was under liquidation. On the validity of the mortgage in favor of PBComm: The Court agreed with the lower tribunals that while Section 18 of PD No. 957 generally applies to existing projects and Section 4 to raw lands, the surrounding circumstances indicated PBComm's awareness of the proposed condominium project. The Court found that PBComm's reliance solely on the mortgage's execution date on raw land was insufficient to discount its foreknowledge or possible complicity in the development plans. Standard banking practices require loan applicants, especially realty companies, to disclose loan purposes and present project feasibility studies, leading to a presumption that PBComm had such information. Furthermore, annotations on loan renewals during the project's development and the issuance of condominium titles suggested PBComm's actual knowledge, implying the mortgage was executed to circumvent Section 18. Consequently, the failure to comply with the mandatory requirement of HLURB approval rendered the mortgage void, upholding the rights of the respondent buyers.
Main Doctrine
A real estate mortgage constituted over a parcel of land intended for a condominium project, even if executed before the project's formal registration, requires prior written approval from the Housing and Land Use Regulatory Board (HLURB) under Section 18 of PD No. 957 if the mortgagee has knowledge of the proposed development. Failure to secure such approval renders the mortgage void, prioritizing the rights of innocent buyers of condominium units.