G.R. No. 171677 ; January 30, 2013
PHILIPPINE NATIONAL BANK, substituted by TRANCHE 1 (SPV-AMC), INC., Petitioner, vs. RINA PARA YNO LIM and PUERTO AZUL LAND, INC., Respondents.

FACTS

Puerto Azul Land, Inc. (PALI), a condominium developer, obtained loans from Philippine National Bank (PNB) secured by a real estate mortgage over eight parcels of land comprising its Vista de Loro project. PALI subsequently sold a condominium unit to Rina Parayno Lim. PALI later defaulted on its loans, prompting PNB to initiate foreclosure. PALI filed a case to annul the mortgage, arguing it was void for lack of prior HLURB approval as required by Section 18 of P.D. No. 957 (The Subdivision and Condominium Buyers’ Protective Decree). The trial court upheld the mortgage’s validity, ruling the requirement was for PALI’s protection and its violation did not render the mortgage void.
Meanwhile, Lim filed a separate complaint with the HLURB against PALI and PNB for specific performance and annulment of mortgage, seeking delivery of her unit’s title. The HLURB ruled in Lim’s favor, declaring the mortgage unenforceable against her and ordering PNB to cancel the mortgage annotation on her title upon full payment of her unit. This decision was affirmed by the HLURB Board of Commissioners, the Office of the President, and the Court of Appeals.

ISSUE

Whether the mortgage constituted by PALI over the subdivision lots, without the prior written approval of the HLURB as required by P.D. No. 957, is valid and enforceable against a buyer in good faith of a condominium unit within the project.

RULING

The Supreme Court DENIED the petition and AFFIRMED the CA decision. The mortgage is unenforceable against the buyer, Rina Parayno Lim. The legal logic rests on the mandatory and prohibitory nature of Section 18 of P.D. No. 957, which states that “no mortgage… shall be made by the owner or developer without prior written approval of the Authority.” This provision is a police power measure designed for public welfare, specifically to protect innocent subdivision and condominium buyers. A mortgage executed in violation of this law is not merely an administrative violation but is rendered unenforceable against such buyers.
The Court emphasized that the law creates a legal presumption that the buyer has no knowledge of any encumbrance on the property unless the required HLURB approval is annotated on the title at the time of sale. Since PNB’s mortgage lacked this approval, Lim, as a buyer in good faith, is not bound by it. PNB, as a banking institution, is presumed to know this legal requirement and its failure to ensure compliance precludes it from asserting the mortgage against the protected buyer. The ruling prioritizes the protective intent of the law for homebuyers over the contractual claims of a creditor who dealt with the developer.