Philippine National Bank v. Dee
REITERATIONFacts
The Antecedents: Respondent Teresita Tan Dee (Dee) purchased a residential lot from Prime East Properties Inc. (PEPI), formerly Antipolo Properties, Inc. PEPI later assigned its rights over the property to Armed Forces of the Philippines-Retirement and Separation Benefits System, Inc. (AFP-RSBS). PEPI obtained a loan from Philippine National Bank (PNB) secured by a mortgage over several properties, including Dee's lot. The mortgage was cleared by the Housing and Land Use Regulatory Board (HLURB). After Dee fully paid the purchase price, PEPI and AFP-RSBS executed a deed of sale in her favor. Dee sought the delivery of her owner's duplicate title from PNB, but to no avail. Procedural History: Dee filed a complaint with the HLURB for specific performance to compel the delivery of her title. The HLURB ruled in favor of Dee, ordering PNB to release the mortgage and surrender the title, and ordering PEPI and AFP-RSBS to deliver the title free from liens and encumbrances. The HLURB decision was affirmed by its Board of Commissioners, with a modification on the interest rate. The Office of the President (OP) affirmed the Board's decision, with modification on the monetary award. The Court of Appeals (CA) affirmed the OP's decision. PNB's motion for reconsideration was denied, leading to the present petition for review. The Petition: PNB assails the CA's decision, arguing that it erred in ordering the outright release of the title despite PNB's duly registered and HLURB-approved mortgage, and in ordering the cancellation of the mortgage without the mortgagor settling its loan obligation to PNB or Dee exercising her right of redemption. PNB claims it is not privy to the transactions between Dee and PEPI and that its rights are protected by Act 3135. PEPI, on the other hand, claims the title was due for release due to a Memorandum of Agreement and dacion en pago with PNB.
Issue(s)
Whether the Court of Appeals erred in ordering the outright release of TCT No. 619608 despite PNB’s duly registered and HLURB-approved mortgage, considering Section 25 of P.D. No. 957 and the principle of relativity of contracts. Whether the Court of Appeals erred in ordering the cancellation of the mortgage/release of title in favor of respondent Dee despite the lack of payment or settlement by the mortgagor of its existing loan obligation to PNB, or the prior exercise of the right of redemption by the mortgagor, or direct payment made by respondent Dee to PNB, considering P.D. No. 957 as a social justice measure and the Memorandum of Agreement between PEPI and PNB.
Ruling
The petition is DENIED for lack of merit. The Decision of the Court of Appeals is AFFIRMED. Petitioner PNB and respondents PEPI and AFP-RSBS are ENJOINED to strictly comply with the HLURB Decision dated May 21, 2003, as modified by the Board of Commissioners Decision dated March 15, 2004 and Office of the President Decision dated August 4, 2004.
Ratio Decidendi
On the issue of PNB's mortgage and the release of title: The Court reiterated the principle of relativity of contracts, acknowledging that PNB is not privy to the contract between Dee and PEPI. However, the Court clarified that PNB was not being tasked to assume PEPI's obligations. The order for the cancellation or release of the mortgage was a consequence of Dee's full payment of the purchase price, as mandated by Section 25 of P.D. No. 957. This provision requires the owner or developer to redeem the mortgage or its corresponding portion within six months from the issuance of the title to the buyer upon full payment. The mortgage, being an accessory contract, does not affect the ownership of the property, which was already the subject of a contract to sell between PEPI and Dee at the time of the mortgage. Although PEPI was still the owner at the time of the mortgage, PNB, by obtaining HLURB clearance, was aware of the nature of the development project and the potential for existing contracts with buyers. The Court emphasized that P.D. No. 957, a social justice measure, protects innocent lot buyers, and banks dealing with properties subject to existing contracts to sell are bound by these contracts. On the issue of PNB's obligation despite the mortgage: The Court found that PNB, despite having a valid mortgage and HLURB clearance, was still bound to respect the transactions between PEPI and Dee. This is because P.D. No. 957, as a social justice measure, protects innocent lot buyers. The Court cited Luzon Development Bank v. Enriquez, stating that a bank is bound by a contract to sell involving a subdivision lot protected by P.D. No. 957. Furthermore, the Court considered the Memorandum of Agreement executed between PEPI and PNB, which involved a dacion en pago (dation in payment) as partial settlement of PEPI's obligation. This agreement stipulated that PNB would release its mortgage lien on fully paid mortgaged properties upon the issuance of titles over the dacioned properties. The execution of this dacion en pago effectively extinguished PEPI's loan obligation to PNB concerning the value of Dee's property. Therefore, PNB could no longer refuse the cancellation or release of the mortgage, as it had stepped into PEPI's shoes regarding this property, and any claims PNB had against PEPI and AFP-RSBS should not prejudice Dee's rights over the fully paid property.
Main Doctrine
A bank, even if it holds a valid mortgage over a subdivision lot, is bound to respect the rights of an installment buyer who has fully paid for the lot, especially when the mortgage was obtained with knowledge of existing contracts to sell and when the bank later accepts the property through dacion en pago to settle the developer's debt.