GR 128354; (April, 2005) (Digest)
G.R. No. 128354 ; April 26, 2005
HOME BANKERS SAVINGS & TRUST CO., Petitioner, vs. THE HONORABLE COURT OF APPEALS, PABLO N. AREVALO, FRANCISCO A. UY, SPOUSES LEANDRO A. SORIANO, JR. and LILIAN SORIANO, ALFREDO LIM and FELISA CHI LIM/ALFREDO LIM, Respondents.
FACTS
Private respondents entered into separate contracts to sell with TransAmerican Sales and Exposition, through its owner Jesus Garcia, for specific townhouse units on a parcel of land in Quezon City. They made substantial or full payments. The contracts stipulated that titles would be delivered free from liens upon full payment. However, Garcia failed to complete the units or deliver titles. Subsequently, Garcia and his wife obtained a loan from petitioner Home Bankers Savings and Trust Company, mortgaging eight lots as collateral, five of which corresponded to the units sold to private respondents. The mortgage was annotated on clean titles. Upon Garcia’s default, petitioner foreclosed the mortgage and acquired the properties at auction.
Private respondents filed a complaint with the HLURB against Garcia and petitioner, seeking annulment of the mortgage, cancellation of its annotations, and delivery of titles. The case against Garcia was archived due to inability to serve summons, leaving petitioner as the active respondent.
ISSUE
Whether the real estate mortgage constituted by Garcia in favor of petitioner is valid and enforceable against the private respondents, the buyers of the subdivision lots.
RULING
The Supreme Court ruled the mortgage is unenforceable against the private respondents. The legal logic rests on the mandatory provisions of Presidential Decree No. 957 (The Subdivision and Condominium Buyers’ Protective Decree). Section 18 of the decree explicitly requires that before a developer can mortgage a subdivision lot, written approval from the HLURB must be secured, and all lot buyers must be notified. Petitioner, as a banking institution, is presumed to know this law. Its failure to verify compliance with this statutory requirement before accepting the mortgage constitutes gross negligence. Consequently, it cannot invoke the status of a mortgagee in good faith. The law prioritizes the protection of subdivision lot buyers, and a mortgage executed in violation of its mandatory provisions is invalid as against such buyers. The clean certificates of title do not shield petitioner, as its failure to exercise due diligence by checking HLURB approval is fatal. The foreclosure and annotations arising from the void mortgage were correctly ordered cancelled by the HLURB and affirmed by the Court of Appeals.