G.R. No. 168646 & G.R. No. 168666; January 12, 2011
LUZON DEVELOPMENT BANK, Petitioner, vs. ANGELES CATHERINE ENRIQUEZ, Respondent.

DELTA DEVELOPMENT AND MANAGEMENT SERVICES, INC., Petitioner, vs. ANGELES CATHERINE ENRIQUEZ and LUZON DEVELOPMENT BANK, Respondents.

FACTS

Ricardo De Leon, owner of Delta Development and Management Services, Inc. (DELTA), obtained a loan from Luzon Development Bank (BANK) to develop Delta Homes I. To secure the loan, De Leon and his spouse executed a real estate mortgage (REM) over several properties, including Lot 4, which was annotated on Transfer Certificate of Title (TCT) No. T-637183. DELTA obtained a License to Sell from the HLURB. In 1997, DELTA executed a Contract to Sell with Angeles Catherine Enriquez (Enriquez) over a house and lot on Lot 4 for ₱614,950.00, with Enriquez making a downpayment. When DELTA defaulted on its loan, the BANK agreed to a dacion en pago (Deed of Assignment in Payment of Debt) dated September 30, 1998, whereby DELTA assigned several properties, including Lot 4, to the BANK in payment of the debt. This dacion en pago was not annotated on the TCT. Enriquez, unaware of the dacion en pago, filed a complaint with the HLURB against DELTA and the BANK, alleging DELTA sold the property at a price exceeding Batas Pambansa Bilang 220 ceilings and failed to secure HLURB clearance for the mortgage, seeking a refund of her payments, damages, and administrative fines.
The HLURB Arbiter ordered DELTA to accept Enriquez’s balance payment based on a reduced price of ₱375,000.00, deliver title free from liens, and pay damages and administrative fines. The HLURB Board of Commissioners modified this decision, ordering Enriquez to pay her arrears to DELTA with interest and DELTA to pay an administrative fine, but deleted the award of damages to Enriquez. Both Enriquez and the BANK appealed to the Office of the President (OP). The OP affirmed the Board’s decision with modification, holding both DELTA and the BANK solidarily liable to deliver the title to Enriquez upon her full payment of the balance, and ordering DELTA to pay the BANK the value of the lot. The Court of Appeals affirmed the OP’s decision with modification, stating DELTA alone is liable to pay the BANK the value of the lot. Both the BANK and DELTA filed separate petitions for review with the Supreme Court.

ISSUE

The core legal issue is whether the BANK, as an assignee of the subdivision lot through a dacion en pago, is bound by the Contract to Sell between DELTA (the developer) and Enriquez (the buyer) and can be compelled to deliver the title to Enriquez, or whether the BANK is an innocent purchaser for value entitled to the property free from Enriquez’s claim.

RULING

The Supreme Court DENIED the petitions and AFFIRMED the Court of Appeals’ Decision with modification. The BANK is not an innocent purchaser for value and is bound by the Contract to Sell between DELTA and Enriquez. The protective mantle of Presidential Decree No. 957 (The Subdivision and Condominium Buyer’s Protective Decree) covers Enriquez.
1. The BANK is bound by the Contract to Sell and is not an innocent purchaser for value. The dacion en pago was essentially a payment by DELTA to the BANK using the property. The BANK, as a mortgagee-bank familiar with subdivision projects and HLURB regulations, was in bad faith. It knew or should have known that the property was part of a registered subdivision project and was the subject of a prior Contract to Sell. The BANK failed to verify the status of the lots with the HLURB or require DELTA to submit a certification that the lots were free from any buyer’s claim, as required by prudent banking practice and HLURB rules. Its failure to annotate the dacion en pago on the title further evidenced its knowledge of the existing claim. Therefore, the BANK stepped into the shoes of DELTA and assumed its obligations under the Contract to Sell with Enriquez.
2. PD 957 protects subdivision lot buyers like Enriquez. The law is a social legislation designed to protect buyers from fraudulent practices. The BANK, not being an innocent purchaser for value, cannot defeat the rights of a buyer under PD 957. The Court emphasized that the statute’s purpose must be upheld.
3. Liability for Delivery of Title. The Court modified the CA decision. It held DELTA and the BANK jointly and severally liable to execute the necessary deed of absolute sale and deliver the title to Lot 4 to Enriquez, free from all liens and encumbrances, upon Enriquez’s full payment of the balance of the purchase price (as determined in the HLURB proceedings, which upheld the contractual price of ₱614,950.00, minus her payments, with applicable interest).
4. Liability for the Lot’s Value. The Court also modified the CA decision regarding the payment of the lot’s value. It held that DELTA and the BANK are jointly and severally liable to account for the value of the lot between themselves. This means Enriquez must pay the balance to either DELTA or the BANK, and the recipient is accountable to the other for the latter’s interest. The primary obligation to deliver the title rests on both.
5. Other Claims. The Court reinstated the HLURB Arbiter’s award of moral damages (₱50,000.00) and exemplary damages (₱50,000.00) in favor of Enriquez, payable by DELTA, due to the anxiety and distress caused. Attorney’s fees were also awarded. The administrative fines against DELTA for violation of PD 957 were affirmed.