GR 181790; (January, 2009) (Digest)
G.R. No. 181790 January 30, 2009
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, vs. GREGORIO CAPULONG, Respondent.
FACTS
On January 28, 1983, petitioner Development Bank of the Philippines (DBP) granted a loan of ₱16,000,000.00 to Asialand Development Corporation (ADC) for real estate development. The loan was secured by a mortgage on the project site, then covered by ten mother certificates of title. After the mortgage was constituted, ADC subdivided the property into residential lots and sold five lots to respondent Gregorio Capulong via a Contract to Sell on September 30, 1984. ADC failed to pay its obligation, prompting DBP to extrajudicially foreclose the mortgage and acquire the property. ADC did not redeem it. The Asset Privatization Trust (APT), later the Property Management Office (PMO), took over the assets from DBP. Capulong, having fully paid but failing to obtain titles, filed a complaint with the HLURB against ADC, DBP, and PMO, alleging violations of PD 957, including non-registration of the Contract to Sell and failure to inform him of the mortgage. The HLURB Arbiter ruled in favor of Capulong, declaring the foreclosure null and void, and ordered ADC, DBP, and PMO to transfer titles or replace the lots, and pay damages and attorney’s fees. The HLURB Board of Commissioners affirmed but modified the award. The Office of the President affirmed in toto. The Court of Appeals denied DBP’s petition.
ISSUE
1. Whether the mortgage, foreclosure, and auction sale are null and void.
2. Whether DBP, not being an owner or developer, had an obligation under PD 957 to inform the lot buyer of the mortgage.
3. Whether DBP is liable for damages.
4. Whether DBP’s counterclaims should be dismissed.
RULING
The Supreme Court partially granted the petition. It affirmed the lower courts’ findings that DBP was not an innocent mortgagee. DBP knew the loan was for realty development and should have verified if portions of the property were already subject to contracts with buyers, notwithstanding that the mortgage preceded the sale to Capulong. DBP failed to exercise due diligence by relying solely on ADC’s representations and not independently verifying requisite permits. Thus, the mortgage and foreclosure were properly declared null and void as to Capulong’s lots, and DBP was obligated to cooperate in transferring titles or replacing the lots. However, the award of moral damages, liquidated damages, and attorney’s fees against DBP was deleted. The Court found no direct causal connection between DBP’s failure to require ADC’s compliance with PD 957 and Capulong’s injury, which stemmed from ADC’s failure to inform him of the mortgage. Furthermore, the lower decisions lacked factual bases for the damages awarded against DBP. The dispositive portion affirmed the CA Decision and Resolution but modified them by deleting the monetary awards against DBP.