G.R. No. 210582. July 29, 2020.
HOME DEVELOPMENT MUTUAL FUND (HDMF), Petitioner, vs. EULOGIA N. CATAQUIZ AND MANUEL P. CATAQUIZ, Respondents.

FACTS

On January 19, 1998, Rudy N. Cataquiz entered into a sales agreement and a construction contract with Francisco M. Soriano Co. Inc. (FMSCI), an HDMF-accredited developer, for the purchase of a lot and construction of a house in Davao City. To finance this, Rudy applied for a housing loan with HDMF, designating FMSCI as the beneficiary. On March 12, 1998, HDMF issued a Notice of Approval/Letter of Guaranty for P180,000.00. On March 14, 1998, Rudy executed a Loan and Mortgage Agreement with HDMF for P188,500.00, which was annotated on his Transfer Certificate of Title (TCT) on March 17, 1998. The house construction was completed and accepted by Rudy on March 26, 1998. Rudy died on April 19, 1998. His parents and heirs, Spouses Eulogia and Manuel Cataquiz, requested HDMF to release the title, but HDMF refused, citing Rudy’s failure to “accept” the loan during his lifetime and that the loan was not included in the accounts taken out on April 23, 1998, due to his death. HDMF argued the loan was not covered by Mortgage Redemption Insurance (MRI) as the premium was to be taken from the unreleased loan proceeds. FMSCI similarly argued the sales documents were void for lack of consideration. Spouses Cataquiz filed a complaint for specific performance and damages. The Regional Trial Court (RTC) ruled in favor of the spouses, ordering HDMF to pay death benefits, release the title, cancel the mortgage, and consider the loan extinguished, and ordering FMSCI to turn over possession. The Court of Appeals (CA) affirmed with modification, directing the spouses to pay the MRI premium to HDMF.

ISSUE

Whether the Court of Appeals erred in affirming the lower court’s decision which held HDMF liable to release the loan benefits and title to the heirs, and considered the loan obligation extinguished, despite the borrower’s death prior to the actual release of the loan proceeds and the alleged non-coverage of the Mortgage Redemption Insurance.

RULING

The Supreme Court DENIED the petition and AFFIRMED the CA Decision and Resolution. The Court held that the Loan and Mortgage Agreement was perfected and binding upon its execution and annotation prior to Rudy’s death. The release of the loan proceeds was a duty of HDMF, not a suspensive condition for the agreement’s effectivity. The MRI was a compulsory part of the loan agreement, and its coverage took effect upon the issuance of the Notice of Approval/Letter of Guaranty, not upon the release of the loan proceeds. This is supported by HDMF’s own circulars which provide for MRI Interim Coverage effective from the date of the Notice of Approval. The Court found no reversible error in the factual determinations of the RTC and CA regarding HDMF’s and FMSCI’s negligence. Following the precedent in Serrano v. CA, the Court ruled that the MRI is for the benefit of both the lender and the borrower’s heirs, and the premium can be paid by the heirs to effectuate the coverage. Denying the heirs the MRI benefits would contravene the social justice purpose of the Pag-IBIG Fund law. Thus, HDMF was obligated to release the death benefits and title, with the loan considered extinguished, subject to the spouses’ payment of the MRI premium.