Julio bought from TSE through its owner/general manager, Mr. Manuel. a three story townhouse unit (No. 10) on a parcel of land with an area of 52.5 sq.m. which is a portion of a land covered by TCT No. 383697. The price of the sale was P800,000 payable in monthly installments under a contract to sell.
Two months later, TSE obtained a loan from a bank in the amount of P7,650,000 and mortgaged the property covered by TCT 383697 where the townhouse project was already in progress. TSE however failed to pay its obligation to the bank, so the latter extra-judicially foreclosed the real estate mortgage over the land including that 52.5sqm townhouse unit purchased by Julio. As a result of the foreclosure, construction of the townhouse unit slackened. At that time, Julio had already paid P600,000, so when he discovered the foreclosure, he stopped further payment. He also filed with the HLURB a case to compel TSE to complete the construction of the townhouse, to prevent the enforceability of the extrajudicial foreclosure and to declare as invalid the mortgage between TSE and the bank for having been entered into in violation of section 18,PD 957.
The HLURB as affirmed by the Office of the President ruled in favor of Julio: (1) declaring the mortgage between TSE and the bank unenforceable against Julio; (2) ordering the bank to compute and determine the loan value of Julio’s unit and to receive the amortization from him and deliver the title of unit 10 upon full payment; (3) ordering the Register of Deeds to cancel the annotations of the mortgage executed by TSE in favor of the Bank as well as the certificate of sale of the extrajudicial foreclosure without prejudice to the bank’s right to require TSE to constitute new collateral in lieu of said title.
The bank questioned this ruling. It insisted that section 18 does not apply because the land mortgaged to it was one whole un-subdivided parcel, not a subdivided lot, so the approval of the HLURB was not a requirement for the constitution of the mortgage over the property. Besides, it contended that it is an innocent mortgagee in good faith. Was the bank correct?
No. It is undisputed that the subject 52.5sqm lot with a three story townhouse unit is part of the property mortgaged to the bank and is covered by TCT No. 156254. The lot was technically described and segregated in a Contract to Sell that had been entered before the mortgaged loan was contracted. The fact that the lot had no separate TCT did not make it less of a "subdivision lot" entitled to the protection of Section 18, PD 957. That the subject of the mortgage loan was the entire land, not the individual subdivided lots, does not take the loan beyond the coverage of said section. Undeniably, the lot was also mortgaged when the entire parcel of land, of which it was a part, was encumbered. The avowed purpose of PD 957, to protect innocent lot buyers, compels the reading of section 18 as prohibitory-acts committed contrary to it are void.
The bank could not also argue that it is an innocent mortgagee for value whose lien must be respected and protected since the title offered to it as security was clean of any encumbrance or lien. It should have considered that it was dealing with a townhouse project already in progress. It should b\have been aware that, to finance the project, sources of funds could have been used other than the loan which was intended to serve the prupose only partially. Hence, there was need to verify whether any part of the property was already the subject of any other contract involving buyers or potential buyers. Having been wanting in care and prudence it cannot be deemed to be an innocent mortgagee.
But the mortgage contract is void only in so far as Julio and his lot are concerned. The HLURB went overboard when it ruled that the mortgage over the entire land was void since the subject of the litigation is limited only to the lot that Julio is buying, not the entire parcel. Julio has no personality or standing to bring suit on the entire property, as he has an actionable interest over his lot only. (Far East bank etc. vs. Marquez, G.R. 147964, January 20, 2004)