United Overseas Bank of the Philippines, Inc. v. Board of Commissioners of the Housing and Land Use Regulatory Board
REITERATIONFacts
1. The Antecedents: Respondent J.O.S. Managing Builders, Inc. (JOS Managing Builders) developed the Aurora Milestone Tower condominium project. JOS Managing Builders sold Unit E on the 10th floor to respondent EDUPLAN Philippines, Inc. (EDUPLAN), which fully paid for the unit. Subsequently, JOS Managing Builders mortgaged the lots on which the project was built to petitioner United Overseas Bank (UOB) without prior approval from the Housing and Land Use Regulatory Board (HLURB). When JOS Managing Builders failed to deliver the Condominium Certificate of Title to EDUPLAN due to the mortgage, EDUPLAN filed a complaint against JOS Managing Builders and UOB before the HLURB. 2. Procedural History: The HLURB Arbiter declared the mortgage and foreclosure proceedings void for violating Presidential Decree No. 957 and ordered the release of the title to EDUPLAN. The HLURB Board of Commissioners affirmed this decision with modification, deleting certain monetary awards. UOB appealed to the Court of Appeals (CA), which dismissed the appeal for failure to exhaust administrative remedies. A motion for reconsideration was denied. UOB then filed a Petition for Review on Certiorari with the Supreme Court. 3. The Petition: The petition argues that the CA erred in dismissing the case for failure to exhaust administrative remedies, asserting that the issue of whether the HLURB correctly declared the entire mortgage void is a purely legal question, which is an exception to the doctrine. UOB contends that the HLURB exceeded its jurisdiction by nullifying the entire mortgage, arguing that the nullity should only apply to EDUPLAN's unit, as EDUPLAN only has an actionable interest over that specific unit, citing prior jurisprudence. The core of the petition is that the HLURB should not have declared the entire mortgage void, but only that portion affecting EDUPLAN's unit.
Issue(s)
Whether the Court of Appeals erred in dismissing the petition for failure to exhaust administrative remedies. Whether the HLURB erred in declaring the entire mortgage executed between J.O.S. Managing Builders and United Overseas Bank null and void.
Ruling
The petition is granted. The Decision and Resolution of the Court of Appeals are reversed and set aside. The Decision of the HLURB is affirmed with modification, declaring the mortgage executed and foreclosure proceedings between J.O.S. Managing Builders and United Overseas Bank, with respect to EDUPLAN's unit, null and void.
Ratio Decidendi
On the issue of exhaustion of administrative remedies: The Court held that the doctrine of exhaustion of administrative remedies is not an iron-clad rule and has several exceptions. In this case, the issue of whether non-compliance with HLURB clearance would result in the nullification of the entire mortgage contract is a purely legal question. Such questions, which do not involve an examination of the probative value of evidence but rather the interpretation and application of law, are exceptions to the rule. Therefore, the CA erred in dismissing the petition on the ground of non-exhaustion of administrative remedies, as judicial intervention was warranted. On the nullity of the entire mortgage: The Court found that the HLURB erred in declaring the entire mortgage null and void. While the mortgage executed by JOS Managing Builders in favor of United Overseas Bank without prior HLURB approval violates Section 18 of P.D. No. 957, this violation renders the mortgage unenforceable only insofar as the complaining buyer's interest is concerned. A unit buyer, like EDUPLAN, has an actionable interest only over the specific unit purchased and not over the entire mortgaged property. Therefore, the nullification of the mortgage should be limited to the extent of EDUPLAN's purchased unit. The Court reiterated its ruling in Philippine National Bank v. Lim, which held that a unit buyer has no standing to seek the complete nullification of the entire mortgage. The Court also noted that the failure of JOS Managing Builders to secure prior approval and United Overseas Bank's failure to inquire placed them in pari delicto, but this did not warrant the nullification of the entire mortgage, as the primary intent of P.D. No. 957 is to protect buyers.
Main Doctrine
A mortgage executed by a condominium developer without the prior written approval of the Housing and Land Use Regulatory Board (HLURB), as required by Section 18 of P.D. No. 957, is valid but unenforceable against the buyer of a condominium unit whose interest is prejudiced by the violation. The nullification of the mortgage, if any, should only pertain to the interest of the complaining buyer and cannot extend to the entire mortgage contract, as a unit buyer has no standing to seek the complete nullification of the entire mortgage. The doctrine of exhaustion of administrative remedies does not apply when the issue is purely legal.