PHILIPPINE NATIONAL BANK, substituted by TRANCHE 1 (SPV-AMC), INC., vs.

RINA PARA YNO LIM and

PUERTO AZUL LAND, INC., G.R. No. 171677, January 30, 2013

DECISION

REYES, J.:

This is a petition for review on certiorari1 under Rule 45 of the Rules of Court to assail the Decision2
dated September 29, 2005 and Resolution3dated February 23, 2006 of the Comi of Appeals (CA) in CA-
G.R. SP No. 82435 entitled "Philippine National Bank substituted by Tranche 1 (SPV-AMC), Inc. v. Rina
Parayno Lim and Puerto Azul Land, Inc., the Office of the President and the Housing and Land Use
Regulatory Board."

In its Decision4 dated September 29, 2005, the CA dismissed the petition for review filed by petitioner
Philippine National Bank (PNB) from the Decision5 dated June 18, 2003 of the Office of the President
(OP). The dispositive portion of the CA Decision dated September 29, 2005 reads:

WHEREFORE, premises considered, the petition for review is hereby DISMISSED. The Decision of the
Office of the President dated June 18, 2003 is AFFIRMED WITH MODIFICATION that the award of moral
damages and attorney’s fees is DELETED.

SO ORDERED.6

In its Resolution7 dated February 23, 2006, the CA denied PNB’s Motion for Reconsideration.

Antecedent Facts

One of herein respondents, Puerto Azul Land, Inc. (PALI), is the owner and developer of Vista de Loro
Condominium (Vista de Loro), a condominium project that straddles on eight (8) parcels of land located
at the Puerto Azul Beach and Hotel Complex, Ternate, Cavite. The lots are registered in PALI’s name
under Transfer Certificates of Title (TCT) Nos. 404201, 404202, 404203, 404204, 404432, 404433,
404434 and 404425 of the Cavite Province Registry of Deeds.

On May 17, 1993, the Housing and Land Use Regulatory Board (HLURB) issued in favor of PALI, relative
to Vista de Loro, a License to Sell pursuant to Presidential Decree (P.D.) No. 957, otherwise known as
"The Subdivision and Condominium Buyers’ Protective Decree".

On May 13, 1994, PALI and PNB entered into a "Credit Agreement" by virtue of which PNB loaned to
PALI ₱150,000,000.00 to finance the construction and development of Vista de Loro. As security, PALI
mortgaged to PNB the eight (8) lots mentioned above. In the "Credit Agreement", PALI made several
representations, one of which is as follows:

Section 6. Representation and Warranties.

The Borrower PALI represents and warrants to the Bank PNBas follows:

xxxx
6.02. Authority; Corporate Action; No Violation. At the time of the execution and delivery of this
Agreement, the Note/s and the other documentation contemplated thereby, their execution and
delivery as well as the performance and observance by the borrower of the respective terms and
provisional (sic) thereof, (I) will have been duly authorized by all necessary corporate actions, (II) will
have received such approvals, if any, of any court, office or administrative or regulatory agency or
authority having jurisdiction over the transactions contemplated thereby, and (III) will not contravene or
violate any applicable provision of law or the Borrower’s Articles of Incorporation or By-Laws, or of any
contract or agreement or indenture or other instrument to which the borrower is a party or by which
any of its properties may be bound.8

On June 8, 1995 and September 25, 1996, PNB loaned to PALI additional amounts of ₱120,000,000.00
and ₱50,000,000.00. It was agreed that these two (2) subsequent loans shall likewise be secured by the
same mortgage which was earlier constituted on the eight (8) lots owned by PALI.

On September 8, 1997, PALI and its co-respondent in the instant petition, Rina Parayno Lim (Lim),
entered into a Contract to Sell, covering Unit 48C in Cluster Dominiko of Vista de Loro. Unit 48C is
covered by Condominium Certificate of Title (CCT) No. 408 and Cluster Dominiko is situated on the land
covered by TCT No. 404201. PNB’s mortgage is annotated on both titles.9

PALI defaulted in the payment of its loans. Thus, PNB moved for the foreclosure of the subject mortgage
and a Notice of Sale dated April 19, 1999 was thereafter issued, scheduling the sale of the eight (8) lots
at public auction on May 25, 1999.10

1st Annulment of Mortgage Case

On May 24, 1999, PALI filed with the Regional Trial Court of Naic, Cavite (RTC) a Complaint11 against
PNB for the annulment of the subject mortgage with application for the issuance of a temporary
restraining order and/or writ of preliminary injunction. PALI alleged that the subject mortgage is void as
it was not approved by the HLURB as required by Section 1812 of P.D. No. 957. PALI’s complaint was
docketed as Civil Case No. NC-99-1005 and raffled to Branch 15.

In an Order13 dated August 29, 2003, the RTC dismissed PALI’s complaint stating that:

The failure on the part of the plaintiff PALI to comply with its undertaking to secure the approval of the
mortgage by the HLURB does not invalidate the mortgage or render it unenforceable. It would be rank
injustice to hold otherwise for then the validity of the contract would be left to the entire discretion and
whim of the plaintiff.

xxxx

In the instant case, it is the claim of plaintiff that it did not have free disposal of the mortgaged
properties at the time the mortgage was constituted. Contrary to plaintiff’s submission, as the registered
owner of the real properties covered by the mortgage, plaintiff had absolute title to such properties and
may make use of it in such manner it may deem fit for its advantage so long as such use is not injurious
or harmful to others.

Plaintiff can validly constitute the mortgage under consideration since the validity thereof does not
depend on the written approval of the HLURB. Even in the absence of such approval, the mortgage
remains valid and enforceable since PD No. 957 merely prohibits the owner or developer from
mortgaging any unit or lot without such approval. Nowhere in the said Decree is it provided that a
mortgage entered into by the owner or developer in violation thereof is not valid. x x x.

xxxx

It is quite evident from the foregoing that plaintiff intended to be bound by its contract of mortgage
with defendant PNB. Plaintiff may not now be heard to complain that its contract with PNB is invalid for
its failure to seek the written approval from the HLURB of the mortgage it has entered into and hide
behind the mantle of PD No. 957 which is meant for the protection of subdivision lot or condominium
unit buyers and not the owner or developer which in the instant case is the plaintiff.

WHEREFORE, premises considered, let judgment be rendered in favor of the defendants and against the
plaintiff: (I) declare the Real Estate Mortgage subject matter of this case as valid and enforceable; (II)
lifting the temporary restraining order issued; and (III) allowing the foreclosure of the mortgaged
properties.

SO ORDERED.14

PALI moved for reconsideration, which was denied by the RTC in an Order15 dated March 30, 2004. The
RTC declared the subject mortgage as voidable since there is nothing in Section 18 of P.D. No. 957
suggesting that the failure to secure the approval of the HLURB relative to the execution of the said
mortgage would render the same as void. Nonetheless, the RTC ruled that while the subject mortgage is
voidable, PALI is estopped from questioning its validity. The RTC explained that:

The point of contention is Section 18 of P.D. No. 957 which provides in part, to wit: "No mortgage on any
unit or lot shall be made by the owner or developer without prior written approval of the authority (now
the Housing and Land Use Regulatory Board or HLURB)." Certainly, the prohibition is mandatory since it
commands and leaves no discretion in the matter. It is true that as provided by Article 5, Civil Code,
"Acts executed against the provisions of mandatory or prohibitory laws shall be void, except when the
law itself authorizes their validity." But the word "void" refers to both acts which are ipso facto void and
to acts which are merely voidable (Municipality of Camiling vs. Lopez, 99 Phil. 187, cited in Aquino and
Griño-Aquino, The Civil Code of the Philippines and Family Code, 1990 ed., p. 12). In the cited case, it
was held that the lease of fishponds executed by a municipality, without the consent of the provincial
governor as required by law, was merely voidable and not void ab initio. The instant controversy is akin
to the Municipality of Camiling case in that a prior approval or consent by a specific authority is a pre-
requisite to the validity of a given transaction. Yet, the absence of such previous consent merely makes
the transaction voidable, or valid unless and until made void. Consequently, the real estate mortgage
between the parties without the antecedent HLURB written approval is only voidable, and remains valid
until set aside.

But may not Plaintiff have the mortgage be (sic) annulled now, which is in fact the remedy it prays for?
PALI has the principle of estoppel against it, having misrepresented itself to have free disposal of the
property subject of the mortgage. It is PALI’s responsibility to seek HLURB approval of the mortgage.
Note that Section 18 of P.D. No. 957 prohibits a mortgage by an owner or developer without HLURB
approval. PALI is the owner and developer of the Vista de Loro Condominium Project, subject of the
mortgage. Since the prohibition covers Plaintiff, it is incumbent upon it to secure the consent of HLURB
before the property can be mortgaged to PNB. PALI cannot pass the buck to PNB by arguing that it is
new in the business and PNB being vastly experienced, the responsibility lies with the latter. Ignorance
of the law excuses no one from compliance therewith (Article 3, Civil Code). Truly, to nullify the real
estate mortgage due to Plaintiffs’ failure to secure the required written HLURB approval would be to
allow Plaintiff to unjustly benefit from its own inaction or negligence at the expense of PNB.16

PALI filed with this Court a petition for review on certiorari, which was docketed as G.R. No. 163377. In a
Resolution17 dated June 7, 2004, this Court denied PALI’s petition. Thus:

Considering the allegations, issues, and arguments adduced in the petition for review on certiorari of the
orders of the Regional Trial Court, Naic, Cavite, Branch 15, dated August 29, 2003 and March 30, 2004,
the Court Resolves to DENY the petition for failure of the petitioner to sufficiently show that the
Regional Trial Court committed any reversible error in the challenged orders as to warrant the exercise
by this Court of its discretionary appellate jurisdiction in this case.18

This Court’s Resolution dated June 7, 2004 became final and executory on September 10, 2004.19

2nd Annulment of Mortgage Case

On July 19, 1999, Lim filed with the HLURB a complaint20 against PALI, PNB, the Registrar of Deeds of
the Province of Cavite and Atty. Jude Jose F. Latorre, Sr., a Notary Public for Cavite City, seeking for the
nullification of the subject mortgage, suspension of PALI’s license to sell, and award of damages. Lim
claimed that apart from the fact that the subject mortgage is prejudicial to her interest, it is void for lack
of the requisite approval of the HLURB. Lim likewise emphasized that by the time she learned of the
subject mortgage, she had already paid PALI the total amount of ₱5,752,215.24.

The Ruling of the HLURB

On October 25, 2000, the HLURB gave due course to Lim’s complaint and rendered a Decision,21 the
dispositive portion of which states:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Declaring the Real Estate Mortgage between PALI and PNB dated March 22, 1994 involving the Vista
de Loro Heights condominium null and void;

2. Ordering respondent PNB to return the CCT covering the property subject of the instant case,
particularly CCT No. 408 to PALI in order for the latter to cause delivery of the aforementioned title in
the name of complainant, upon payment by the latter of the balance of the purchase price in the
amount of ₱413,847.78;

3. Ordering respondents PALI and PNB to jointly and solidarily pay complainant the following:

a) the sum of ₱10,000.00 as moral damages;

b) the sum of ₱15,000.00 as exemplary damages;

c) the sum of ₱15,000.00 as attorney’s fees; and

d) cost of suit.

4. For violating Section 18 of PD 957, the License to Sell of PALI over the subject project is hereby
ordered suspended and they are further directed to pay this Board the sum of ₱10,000.00 as
administrative fine.

SO ORDERED.22

The HLURB ruled that PALI’s failure to secure its approval rendered the subject mortgage void. Thus:

From the arguments of respondents as well as the documentary exhibits presented by complainant,
more particularly the Complaint and Affidavit of Merit of Cynthia Hermoso, it was strongly established
that indeed the required Mortgage Clearance was not procured before the Mortgage Contract between
PALI and PNB was executed. This act is not only prohibited but also penalized under P.D. No. 957.23

Likewise ruling that litis pendentia will not bar Lim from having the subject mortgage annulled, the
HLURB ratiocinated as follows:

The defense of litis pendentia and forum-shopping presupposes dual actions involving the same parties
with identical reliefs sought. Respondent PALI failed to submit any evidence to prove that complainant
was a party to the case pending before the Regional Trial Court of Naic, Cavite. Jurisdiction falls within
this Board over this case since the same involves the relief for violation of P.D. 957. This falls under the
purview of unsound real estate business practice, as enunciated in P.D. 1344.24

Consequently, PNB filed a Petition for Review25 with the Board of Commissioners of the HLURB.

In a Decision26 dated October 26, 2001, the Third Division of the HLURB’s Board of Commissioners
partially affirmed the HLURB’s Decision dated October 25, 2000, viz:

Wherefore, the decision of the office below is hereby modified with the deletion of the award of
exemplary damages and of the directive for the suspension of the license to sell of respondent Puerto
Azul Land, Inc.

In all other respects, the decision of the office below is affirmed.

So ordered.27

PNB appealed to the OP.28 However, in a Decision29 dated June 18, 2003, the OP affirmed the assailed
decision of the HLURB’s Board of Commissioners. Thus:

After a careful and thorough evaluation and study of the records of this case, this Office hereby adopts
by reference the findings of fact and conclusions of law contained in the decisions.

xxxx

WHEREFORE, premises considered, judgment appealed from is hereby AFFIRMED in toto.

SO ORDERED.30
PNB moved for reconsideration31 but this was denied by the OP in its Order32 dated February 10, 2004.
On March 18, 2004, PNB filed with the CA a Petition for Review33 under Rule 43 of the Rules of Court,
assailing the OP’s June 18, 2003 and February 10, 2004 Orders. PNB argued that: (a) it is not bound by
the contract between Lim and PALI as it is not a party thereto; (b) the power to annul the subject
mortgage is judicial in nature and exclusively vested with the RTCs; (c) in Dy v. Court of Appeals,34 this
Court stated that there is nothing in Section 18 of P.D. No. 957 which provides that a mortgage without
the HLURB’s approval is null and void; (d) the remedy provided by Section 25 of P.D. No. 957 is
redemption and not the nullification of the mortgage; and (e) it is a mortgagee in good faith as PALI’s
titles do not bear an annotation of any lien or encumbrance at the time of the constitution of the subject
mortgage.

PNB thereafter moved for substitution of parties stating that it had assigned its interest in PALI’s loan
and the subject mortgage to Tranche 1 (SPV-AMC), Inc. (Tranche 1) pursuant to Republic Act No.
9182.35 This was granted by the CA in a Resolution36 dated September 2, 2005.

The Ruling of the CA

On September 29, 2005, the CA rendered the herein assailed Decision37 partially granting PNB’s
petition. The CA upheld the HLURB’s jurisdiction to annul the subject mortgage and dismissed PNB’s
claim that it is a mortgagee in good faith, the rights of which should prevail over Lim’s rights as the
buyer of Unit 48C. The CA, however, reversed the award of moral damages and attorney’s fees in Lim’s
favor for lack of factual basis. The CA ratiocinated that:

Clearly, PALI’s act of mortgaging parcels of land on which the condominium project is located without
the approval of the HLURB was not only an unsound real estate business practice but also highly
prejudicial to the buyer. The jurisdiction of the HLURB to regulate the real estate trade is broad enough
to include jurisdiction over complaints for annulment of the mortgage with damages (Home Bankers
Savings and Trust Co. vs. Court of Appeals, et. al., April 26, 2005 citing Union Bank of the Philippines vs.
Housing and Land Use Regulatory Board, 210 SCRA 558).

PNB likewise contends that it is a mortgagee in good faith and for value, hence, should not be prejudiced
by declaring the mortgage null and void.

Such claim is without merit.

Judicial notice can be taken of the uniform practice of banks to investigate, examine and assess the real
estate offered as security for the application of a loan. We cannot overemphasize the fact that the Bank
cannot barefacedly argue that simply because the title or titles offered as security were clean of any
encumbrances or lien, that it was thereby relieved of taking any other step to verify the over-reaching
implications should the subdivision be auctioned on foreclosure (Home Bankers Savings and Trust Co. vs.
Court of Appeals, et. al., April 26, 2005). Thus, the claim of PNB that it is a mortgagee in good faith
cannot be sustained.

As to the award of damages, We find the same improper. The decision of the HLURB Arbiter (which was
modified by the Board which decision was in turn affirmed in toto by the Office of the President) states
that the award of moral damages was based on the speculated moral suffering of Lim. No proof of
pecuniary loss is necessary in order that moral damages may be adjudicated. However, there must be
proof that petitioner caused physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury to the plaintiff (Lim).
Speculated moral suffering as found by the HLU[RB] Arbiter is not sufficient to sustain the award.

The decision likewise failed to state in the body of the decision the basis of the award of attorney’s fees.
Whatever attorney’s fees are awarded, the court must explicitly state in the body of its decision, and not
only in the dispositive portion thereof, the legal reason for the award. The power of the courts to grant
damages and attorney’s fees demands factual, legal and equitable justification; its basis cannot be left to
speculation or conjecture (Ranola vs. Court of Appeals, 322 SCRA 1). Consequently, the issue of whether
or not PNB can be held solidarily liable with PALI for damages, is moot and academic.38

On November 2, 2005, Tranche 1 filed a Motion for Partial Reconsideration39 but this was denied by the
CA in its Resolution40 dated February 23, 2006.

Issues

The instant petition seeks the reversal of the herein assailed Decision dated September 29, 2005 and
Resolution dated February 23, 2006 of the CA, which declared the subject mortgage as null and void.
The petition is anchored on the following grounds:

I.

THE HONORABLE COURT HAS ALREADY RULED, IN A FINAL AND EXECUTORY DECISION, THAT THE 1994
MORTGAGE CONTRACT IS VALID.

II.

THE COURT OF APPEALS COMMITTED GRAVE ERROR IN RULING THAT THE HLURB HAD JURISDICTION
AND AUTHORITY TO ANNUL AND SET ASIDE THE 1994 MORTGAGE CONTRACT BETWEEN PNB AND PALI.

III.

THE COURT OF APPEALS COMMITTED GRAVE ERROR IN RULING THAT PNB WAS NOT A MORTGAGEE IN
GOOD FAITH.41

The Petitioner’s Allegations

Tranche 1 posits that pursuant to the principle of res judicata, the RTC Order dated August 29, 2003,
which this Court affirmed in its Resolution dated June 7, 2004, is a bar to a re-litigation of the issues
relative to the (a) HLURB’s jurisdiction to annul the subject mortgage, and (b) validity of the said
mortgage.

It is true that Section 1 of P.D. No 957 confers upon the HLURB the authority to decide cases involving
"unsound real estate business practices" and "specific performance of contractual and statutory
obligations filed by buyers of subdivision or condominium unit against the owner, developer, broker or
salesman". However, there is nothing in P.D. No. 957 or P.D. No. 134442 which vests in the HLURB the
jurisdiction to annul mortgage contracts over subdivision lots and condominium units entered into
between the owners and developers, on one hand, and third party lenders, on the other.
Quoting Dy,43 Tranche 1 likewise argues that "there is nothing in the said provision of P.D. No. 957
which states that a mortgage executed without the approval of the National Housing Authority now
HLURB is null and void". Besides, in Lopez and Javelona v. El Hogar Filipino,44 this Court was unequivocal
that "prohibitory statute may itself point out the consequences of its violation; and if on a consideration
of the whole statute, it appears that the legislature intended to define such consequences and to
exclude any other penalty or forfeiture than such as is declared in the statute itself, no other will be
enforced, and if an action can be maintained on the transaction of which the prohibited transaction was
a part, without sanctioning the illegality, such action will be entertained."45 In P.D. No. 957, penalties
are provided for, to wit, revocation of both the registration of the subdivision or condominium project
and the developer’s license to sell, imposition of fines, and/or imprisonment against the persons
responsible for the violations.

Tranche 1 also maintains that PNB is a mortgagee in good faith, the rights of which should prevail over
the rights of Lim, who is a buyer in bad faith. At the time the subject mortgage was constituted, PALI’s
titles bore no annotation of any lien or encumbrance. In contrast thereto, at the time Lim purchased
Unit 48C, the subject mortgage was already annotated on TCT No. 404201 and CCT No. 408. Hence, it
can be presumed that Lim had constructive knowledge of the existence of the subject mortgage.

Section 2546 of P.D. No. 957 explicitly provides for redemption as a remedy available to a buyer of a
condominium unit in case an outstanding mortgage covering the purchased property exists.

Lim’s Arguments

In her Comment,47 Lim stresses that she was not a party to the first annulment of mortgage case filed
with the RTC. Further, the HLURB’s jurisdiction over her complaint cannot be assailed since the relief she
sought was posed against PALI and PNB’s acts which were violative of P.D. No. 957.

While Lim admits that she was not privy to the subject mortgage executed between PALI and PNB, she
was directly affected by the same.

Besides, it is beyond dispute that no mortgage clearance was obtained from the HLURB. Thus, the
subject mortgage cannot be enforced against her and the other buyers of units in the condominium
project.

As to PNB, it failed to exercise due diligence relative to the execution of the subject mortgage. PNB
cannot be considered as a mortgagee in good faith in the light of this Court’s pronouncement in
pertinent cases, that the rule stating that persons dealing with registered lands can rely solely on the
certificates of title, does not apply to banks.

PALI’s Contentions

In its Comment,48 PALI reiterates the arguments it had raised in the first annulment of mortgage case
filed with the RTC and proceedings before the HLURB.

PALI contends that the subject mortgage is void for having been constituted sans HLURB’s approval,
hence, in contravention of Section 18 of P.D. No. 957. Consonant to the foregoing, this Court ruled in Far
East Bank & Trust Co. v. Marquez49 that “the avowed purpose of [P.D. No.] 957 compels the reading of
Section 18 as prohibitory―acts committed contrary to it are void.”50

Further, Article 5 of the New Civil Code is explicit that "acts executed against the provisions of
mandatory or prohibitory laws shall be void, except when the law itself authorizes their validity."
Therefore, even if P.D. No. 957 only provides for fines and imprisonment as penalties, they are not the
sole consequences of violations of its provisions. The subject mortgage is void for having been
constituted without complying with the requirements laid down in P.D. No. 957.

Citing Alonso v. Cebu Country Club, Inc.,51 PALI also posits that a minute resolution is not a precedent.
PALI thus concludes that this Court’s affirmation, by way of a minute resolution, of the RTC’s ruling
anent the validity of the subject mortgage, does not constitute res judicata.

PALI likewise refutes Tranche 1’s stance that Lim should have instead availed of the remedy of
redemption provided for in P.D. No. 957. PALI emphasizes that redemption presupposes that the subject
mortgage is valid. In the case at bar, the mortgage is void, hence, there is nothing to be redeemed.

Our Ruling

We partially grant the instant

petition. As the issues raised herein
are interrelated, they shall be
discussed jointly. By reason of res
judicata, the binding effect of the
subject mortgage on PNB and PALI
cannot anymore be assailed.

As pointed out by Tranche 1, this Court had already sustained the validity of the subject mortgage by
way of a minute resolution issued on June 7, 2004, which became final and executory on September 10,
2004. The said resolution affirmed the RTC’s finding that even if the subject mortgage is voidable, PALI is
already estopped from challenging its validity for to rule otherwise would be tantamount to rewarding
the latter to benefit from its own inaction or negligence.

PALI refutes the above and cites Alonso52 to argue that a minute resolution is not a precedent.

In Alonso, we declared that a "minute resolution may amount to a final action on the case but it is not a
precedent."53 However, we continued to state that "it can not bind non-parties to the action."54
Corollary thereto, we can conclude that a minute resolution, while not a precedent relative to strangers
to an action, nonetheless binds the parties therein, and calls for res judicata’s application.

Nationwide Security and Allied Services, Inc. v. Valderama55 is instructive anent the effects of the
issuance of a minute resolution, viz:

It is true that, although contained in a minute resolution, our dismissal of the petition was a disposition
of the merits of the case. When we dismissed the petition, we effectively affirmed the CA ruling being
questioned. As a result, our ruling in that case has already become final.

x x x.
With respect to the same subject matter and the same issues concerning the same parties, it constitutes
res judicata. However, if other parties or another subject matter (even with the same parties and issues)
is involved, the minute resolution is not binding precedent. x x x.56

(Underlining ours)

It is therefore clear from the above that for purposes of the application of res judicata, minute
resolutions issued by this Court are as much precedents as promulgated decisions, hence, binding upon
the parties to the action.

In Heirs of Maximino Derla v. Heirs of Catalina Derla Vda. de Hipolito,57 we enumerated the following as
the elements of res judicata:

a) The former judgment or order must be final;

b) It must be a judgment or order on the merits, that is, it was rendered after a consideration of the
evidence or stipulations submitted by the parties at the trial of the case;

c) It must have been rendered by a court having jurisdiction over the subject matter and the parties; and

d) There must be, between the first and second actions, identity of parties, of subject matter and of
cause of action. This requisite is satisfied if the two (2) actions are substantially between the same
parties.58

In the case at bar, the validity of the subject mortgage between PALI and PNB was the primary issue
raised by the parties and resolved by the RTC after the conclusion of a full-blown trial. On September 10,
2004, the issue was finally laid to rest. A final and executory judgment, no matter how erroneous,
cannot be changed even by this Court.59 Inevitably, res judicata operates to bar PALI and PNB from
raising the same issue lest there will be no end to litigation.

The HLURB has the authority to

take cognizance of a complaint for
nullification of a mortgage, but in
the case at bar, its ruling shall only
affect Unit 48C of Vista de Loro,
which was the subject of the
Contract to Sell executed between
PALI and Lim

The jurisdiction of the HLURB to regulate the real estate trade is broad enough to include jurisdiction
over complaints for annulment of mortgage.60 This is pursuant to the intent of P.D. No. 957 to protect
hapless buyers from the unjust practices of unscrupulous developers which may constitute mortgages
over condominium projects sans the knowledge of the former and the consent of the HLURB.

In Far East Bank,61 we held that:

Acts executed against the provisions of mandatory or prohibitory laws shall be void.1âwphi1 Hence, the
mortgage over the lot is null and void insofar as private respondent is concerned.

The remedy granted by the HLURB and sustained by the Office of the President is proper only insofar as
it refers to the lot of respondent. In short, the mortgage contract is void as against him. Since there is no
law stating the specifics of what should be done under the circumstances, that which is in accord with
equity should be ordered. The remedy granted by the HLURB in the first and the second paragraphs of
the dispositive portion62 of its Decision insofar as it referred to respondent’s lot is in accord with equity.

The HLURB, however, went overboard in its disposition in paragraphs 3 and 4, which pertained not only
to the lot but to the entire parcel of land mortgaged. Such ruling was improper. The subject of this
litigation is limited only to the lot that respondent is buying, not to the entire parcel of land. He has no
personality or standing to bring suit on the whole property, as he has actionable interest over the
subject lot only.63 (Citations omitted and underlining ours)

In Far East Bank, we sustained the HLURB when it declared the mortgage entered into between the
subdivision developer and the bank as unenforceable against the lot buyer. However, we were
categorical that the HLURB acted beyond bounds when it nullified the mortgage covering the entire
parcel of land, of which the lot subject of the buyer’s complaint is merely a part.

In the case now before us, while it is within Lim’s right to file a complaint before the HLURB to protect
her right as a condominium unit buyer, she has no standing to seek for the complete nullification of the
subject mortgage. She has an actionable interest only over Unit 48C of Cluster Dominiko of Vista de
Loro, no more and no less.

Further, notwithstanding the existence of the subject mortgage, Section 2564 of P.D. No. 957 affords
Lim the remedy of redemption. Under the said section, PALI shall be compelled to redeem from PNB at
least the portion of the mortgage corresponding to Unit 48C within six months from the issuance of CCT
No. 408 to Lim. Thereafter, PALI should deliver to Lim her title over the condominium unit free from all
liens and encumbrances.

The issue of whether or not PNB

was a mortgagee in good faith need
not be resolved.

The issue of whether or not PNB was in good faith need not be resolved since the validity of the
mortgage between PALI and PNB is a settled matter. While diligence on the part of PNB was wanting
when it failed to independently conduct inquiries and verify circumstances surrounding the execution of
the subject mortgage, the fact remains that it extended loans to PALI in 1994 long before Lim purchased
Unit 48C of Cluster Dominiko of Vista de Loro. It is thus offensive to the concept of fair play to declare
PNB liable with PALI for the latter’s violation of Lim’s rights.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is PARTLY GRANTED. The Decision dated
September 29, 2005 and Resolution dated February 23, 2006 of the Court of Appeals in CA-G.R. SP No.
82435 are hereby MODIFIED as follows:

(a) The real estate mortgage entered into between Puerto Azul Land, Inc. and Philippine National Bank
remains valid pursuant to the Resolution dated June 7, 2004, which we issued relative to G.R. No.
163377, albeit without prejudice to the rights provided for in Section 25 of Presidential Decree No. 957
accruing to Rina Parayno Lim and to those who are similarly situated; and

(b) The Decision dated October 25, 2000 of the Housing and Land Use Regulatory Board Arbiter is
AFFIRMED except items ( 1) and (3) of the dispositive portion65 thereof respectively declaring the real
estate mortgage executed by and between Puerto Azul Land, Inc. and Philippine National Bank as void,
and holding Philippine National Bank solidarity liable with Puerto Azul Land, Inc. to Rina Parayno Lim for
moral and exemplary damages, attorney's fees and costs of suit.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice

WE CONCUR:

Footnotes

1 Rollo, pp. 48-86.

2 Penned by Associate Justice Juan Q. Enriquez, Jr., with Associate Justices Conrado M. Vasquez, Jr. and
Japar B. Dimaampao, concurring; id. at 15-23.

3 Id. at 26-27.

4 Id. at 15-23.

5 Id. at 298-299.

6 Id. at 23.

7 Id. at 26-27.

8 Id. at 141-142.

9 Id. at 51, 132.

10 Id. at 183.

11 Id. at 170-177.

12 Sec. 18. Mortgages. No mortgage on any unit or lot shall be made by the owner or developer without
prior written approval of the Authority. Such approval shall not be granted unless it is shown that the
proceeds of the mortgage loan shall be used for the development of the condominium or subdivision
project and effective measures have been provided to ensure such utilization. The loan value of each lot
or unit covered by the mortgage shall be determined and the buyer thereof, if any, shall be notified
before the release of the loan. The buyer may, at his option, pay his installment for the lot or unit
directly to the mortgagee who shall apply the payments to the corresponding mortgage indebtedness
secured by the particular lot or unit being paid for, with a view to enabling said buyer to obtain title over
the lot or unit promptly after full payment thereto.

13 Rollo, pp. 134-144.

14 Id. at 138-144.

15 Id. at 145-147.

16 Id. at 146-147.

17 Id. at 148.

18 Id.

19 Id. at 149.

20 Id. at 150-157.

21 Id. at 237-242.

22 Id. at 241-242.

23 Id. at 239-240.

24 Id. at 240.

25 Id. at 243-253.

26 Id. at 280-283.

27 Id. at 283.

28 Id. at 284-291.

29 Id. at 298-299.

30 Id. at 298.

31 Id. at 312-322.

32 Id. at 323-324.

33 Id. at 325-347.

34 G.R. No. 97929, December 17, 1991, 204 SCRA 878.

35 Rollo, pp. 400-405; Republic Act No. 9182 is otherwise known as "An Act Granting Tax Exemptions
and Fee Privileges to Special Purpose Vehicles Which Acquire or Invest in Non-Performing Assets, Setting
the Regulatory Framework Therefor, and for Other Purposes", effective December 23, 2002.

36 Id. at 407-408.

37 Id. at 15-23.

38 Id. at 35-36.

39 Id. at 104-120.

40 Id. at 26-27.

41 Id. at 56.

42 Otherwise known as "Empowering the National Housing Authority to Issue Writ of Execution in the
Enforcement of its Decisions Under Presidential Decree No. 957", effective April 2, 1978.

43 Supra note 34.

44 47 Phil. 249 (1925).

45 Id. at 286.

46 Sec. 25. Issuance of Title.  The owner or developer shall deliver the title of the lot or unit to the
buyer upon full payment of the lot or unit. No fee, except those required for the registration of the deed
of sale in the Registry of Deeds, shall be collected for the issuance of such title. In the event a mortgage
over the lot or unit is outstanding at the time of the issuance of the title to the buyer, the owner or
developer shall redeem the mortgage or the corresponding portion thereof within six months from such
issuance in order that the title over any fully paid lot or unit may be secured and delivered to the buyer
in accordance herewith. (Underlining ours)

47 Rollo, pp. 446-453.

48 Id. at 459-475.

49 465 Phil. 276 (2004).

50 Id. at 287, citing Article 5 of the CIVIL CODE OF THE PHILIPPINES.

51 426 Phil. 61 (2002).

52 Id.

53 Id. at 86, citing Komatsu Industries (Phils.) Inc. v. Court of Appeals, 352 Phil. 440, 446 (1998).

54 Id.
55 G.R. No. 186614, February 23, 2011, 644 SCRA 299.

56 Id. at 309, citing Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue, G.R. No.
167330, September 18, 2009, 600 SCRA 413, 446.

57 G.R. No. 157717, April 13, 2011, 648 SCRA 638.

58 Id. at 652-653, citing Villanueva v. CA, 349 Phil. 99, 109 (1998).

59 Id. at 653.

60 Manila Banking Corporation v. Rabina, G.R. No. 145941, December 16, 2008, 574 SCRA 16, 23, citing
Union Bank v. HLURB, G.R. No. 95364, June 29, 1992, 210 SCRA 558, 564.

61 Supra note 49.

62 1. Declaring the mortgage executed by and between x x x Engr. Jesus Garcia/Transamerican Sales and
Exposition and Far East Bank and Trust Company to be unenforceable against respondent;

2. Ordering the x x x Far East Bank and Trust Company to compute and/or determine the loan value of
the respondent who was not able to complete or make full payment and accept payment and/or receive
the amortization from the [respondent] and upon full payment to deliver the title corresponding to Unit
No. 10 of that Townhouse Project located at No. 10 Panay Ave., Quezon City;

3. Ordering the Register of Deeds of Quezon City to cancel the annotations of the mortgage
indebtedness between x x x Engr. Jesus Garcia and Far East Bank and Trust Company;

4. Ordering, likewise, the Register of Deeds of Quezon City to cancel the annotation of the Certificate of
Sale in favor of the Far East Bank and Trust Company on Transfer Certificate of Title No. 156254 to which
the lot subject of this case is a part thereof, without prejudice to its right to require x x x Engr. Jesus
Garcia/Transamerican Sales and Exposition to constitute new collateral in lieu of said title sufficient in
value to cover the mortgage obligation.

x x x x. (Underlining ours); id. at 282-283.

63 Id. at 289.

64 Supra note 46.

65 Supra note 22.

FLORITA LIAM, v. UNITED COCONUT PLANTERS BANK, G.R. No. 194664, June 15, 2016

DECISION

REYES, J.:

This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court seeking to annul and set
aside the Decision2 dated September 24, 2010 of the Court of Appeals (CA) in CA-G.R. SP No. 112195
holding that United Coconut Planters Bank (UCPB) was wrongly impleaded in Florita Liam's (Liam)
complaint for specific performance before the Housing and Land Use Regulatory Board (HLURB).

The Facts

On April 11, 1996, Liam entered into a contract to sell3 with developer Primetown Property Group, Inc.
(PPGI) for the purchase of Condominium Unit No. 603, Hongkong Tower, of the latter's Makati Prime
City (MPC) condominium project in San Antonio Village, Makati City for the price of P2,614,652.66. The
parties also stipulated that the unit will be delivered not later than 35 months from the start of actual
construction.

To finance the construction of the condominium project, PPGI obtained a loan from UCPB. PPGI
thereafter partially settled its loan by transferring to UCPB its right to collect all receivables from
condominium buyers, including Liam. For this purpose, PPGI and UCPB executed a Memorandum of
Agreement (MOA)4 and a document denominated as Sale of Receivables and Assignment of Rights and
Interests (Deed of Sale/Assignment)5 both dated April 23, 1998.

On May 29, 1998, PPGI notified Liam of the sale of its receivables to UCPB. PPGI directed her to remit
any remaining balance of the condominium unit's purchase price to UCPB. PPGI further stated that
"[the] payment arrangement shall in no way cause any amendment of [the] terms and conditions, nor
the cancellation of the Contract to Sell [she] executed with PPGI."6

Liam heeded the notice and forthwith remitted her payments to UCPB. However, on March 9, 1999,
Liam wrote UCPB asking for the deferment of her amortization payments until such time that the unit is
ready for delivery.7 At that point, Liam stopped making payments. On February 28, 2001, Liam again
wrote UCPB complaining of the delayed delivery of the unit and reiterating that she will only resume
making payments once the unit is delivered. Liam also requested the waiver of interests and penalties
for the period prior to UCPB's assumption as the payee of her amortizations.8

Pier requests, however, were left unanswered. Thus, on April 14, 2004, Liam demanded for the refund
of all the payments she made for PPGI's failure to deliver the unit on the stipulated date.9

On July 1, 2005, UCPB proposed to Liam a financing package for the full settlement of the balance of the
purchase price.10

On October 17, 2005, Liam saw UCPB's newspaper advertisement offering to the public the sale of
'ready for occupancy' units in the Palm Tower of MPC condominium project at a much lower price.11

On November 14, 2005, Liam requested UCPB to suspend the restructuring of her loan and instead
asked for the downgrading of her purchased two-bedroom condominium unit to another unit equivalent
in value to the P1,223,000.00 total payments she already made. She also questioned the realty tax and
documentary stamp tax imposed by UCPB in the proposed financing package.12

Her requests, however, remained unheeded. Thus, on April 10, 2006, Liam filed a Complaint13 for
specific performance before the HLURB against PPGI and UCPB. The complaint recounted the foregoing
episodes and alleged that UCPB promised to deliver the unit within six months. Liam prayed that she be
given first priority to choose among the available units at Palm Tower which has a minimum price of
P24,984.15 per square meter and that her total payments of P1,232,259.91 be credited to the contract
for her newly chosen unit. To justify her plea, Liam averred that UCPB has already devaluated the
market values of the condominium units from the original purchase price of P43,089.00 per sq m to
P24,984.15 per sq m.

Liam also claimed that she is not liable for the realty taxes on her unit because she is neither in
possession thereof nor the holder of its title.

Liam further complained that UCPB has been biased in charging the interest rates to its buyers at 13%
per annum as against the 11% per annum rate imposed on auction buyers. UCPB was also allegedly
unfair in charging buyers with realty taxes and capital gains tax when the same should be shouldered by
the developer.

In its Answer,14 PPGI denied receiving any demand from Liam and averred that she is already estopped
from making any claims against PPGI because she agreed to the substitution of PPGI by UCPB. In the
same pleading, PPGI moved for the deferment of the proceedings in view of its pending petition for
corporate rehabilitation before Branch 138 of the Regional Trial Court of Makati City, which ordered on
August 15, 2003, that the enforcement of all claims against PPGI be suspended.15 Finally, PPGI
counterclaimed for attorney's fees and litigation expenses.

Meanwhile, UCPB averred that it had no legal obligation to deliver the unit to Liam because it is not the
developer of the condominium project. UCPB maintained that it is merely a creditor of PPGI. UCPB
explained that it only acquired PPGI's right to collect its receivables from Liam and other condominium
buyers. UCPB denied giving a specific date for the completion of Liam's unit because such matter was
beyond its control but rather devolved upon PPGI as the developer.

UCPB further declared that the units are already complete, hence, Liam should resume payment of her
amortizations. UCPB contended that it already acted favorably on Liam's request for waiver of penalties
and interests.

UCPB explained that the newspaper advertisements pertained to the units it acquired from PPGI as
payment for the latter's loan. The advertisements did not have any connection to the contract to sell
between Liam and PPGI, the purchase price of which was the prevailing market price at the time of its
signing.

Finally, UCPB tagged the complaint as a malicious and unnecessary suit and demanded for
indemnification of its legal expenses in the amount of P50,000.00.16

Ruling of the HLURB

In a Decision17 dated August 16, 2007, HLURB Arbiter Marino Bernardo M. Torres (Torres) ruled in favor
of Liam, to wit:

WHEREFORE, premises considered, it is hereby ordered that:

1. UCPB give [Liam] the privilege to choose among the available units at Palm Tower, San Antonio
Village, or in the alternative[,] to maintain the previous unit subject of the Contract to Sell;

2. The Realty Tax must be [for] the account of the respondent UCPB, the unit being in the possession of
the respondent;

3. The Capital Gains Tax having been waived, [the] documentary stamp tax must also be charged to
respondent UCPB.

It is so ordered.18
Upon the appeal filed by PPGI and UCPB, the above ruling was affirmed with modification by the HLURB
Board of Commissioners in a Decision19 dated May 22, 2008, thus:

WHEREFORE, premises considered, the appeal is PARTIALLY GRANTED. Accordingly[,] the judgment
appealed from is MODIFIED to read as follows:

1. Ordering the parties to continue with their contract and upon [Liam's] full payment of the purchase
price of P2,614,652.66, ordering respondent UCPB to deliver [U]nit 603 of HongKong Tower and to
execute the corresponding deed of sale in [Liam's] favor. In the alternative, at the option of [Liam],
[UCPB] is ordered to refund to her the total installment payments made with interest at 6% per annum
until fully paid reckoned from the filing of the complaint.

2. Declaring that the [R]ealty [T]ax must be for the account of the respondent UCPB, the unit being in
the possession of the respondent.

3. Declaring that [Liam] is liable for the payment of the documentary stamp tax.

SO ORDERED.20

In so ruling, the HLURB Board of Commissioners ratiocinated that Liam cannot complain about the lower
purchase price of other units or demand for the amendment of the stipulated price in her Contract to
Sell with PPGI. Liam and PPGI have long agreed on the purchase price before the lower price of the
other units was even advertised. Liam was, however, held entitled to a refund because the unit was not
completed within the period stipulated in the contract.21ChanRoblesVirtualawlibrary

Liam was held not liable for realty tax because she was never in possession of the condominium unit.
She was nevertheless held liable to pay the documentary stamp taxes for the registration of the deed of
sale.22ChanRoblesVirtualawlibrary

Ruling of the Office of the President

UCPB thereafter appealed to the Office of the President (OP) arguing that it should not be obligated to
refund Liam's alleged total installment payments because it did not step into the shoes of PPGI.23 In the
Decision24 dated May 7, 2009, the OP, through the Deputy Executive Secretary for Legal Affairs,
rejected UCPB's argument. The OP held that the Deed of Sale/Assignment between UCPB and PPGI
covered all the rights and interests arising from or out of the contract to sell between Liam and PPGI.
The OP ruling disposed thus:

WHEREFORE, premises considered, the appeal is DISMISSED. The Decision dated May 22, 2008 rendered
by the Board of Commissioners of the Housing and Land Use Regulatory Board is hereby AFFIRMED.

SO ORDERED.25

On UCPB's motion for reconsideration, the OP reiterated its findings in a Resolution26 dated December
10, 2009, by stressing that since PPGI assigned all its rights and interests to UCPB, the latter is deemed
subrogated to and bound by exactly the same conditions to which PPGI was bound under the contract to
sell. Thus, UPCB is obligated to return the payments of Liam after the project was not completed on
time.

Ruling of the CA

Unwavering, UCPB sought recourse before the CA contending that it was merely an agent of PPGI in
collecting the receivables from Liam and was never a party to the contract to sell. Hence, it cannot be
made to assume the liabilities of PPGI as owner, developer or project manager of the condominium unit.
Even assuming that UCPB is liable, its liability must be limited to the amount it actually received from
Liam in behalf of PPGI.27

In a Decision28 dated September 24, 2010, the CA ruled in favor of UCPB. The CA limited the issue to the
liability of UCPB for specific performance under the contract to sell between PPGI and Liam.

The CA ruled that Liam had no right to demand for specific performance from UCPB because it was not a
privy to the contract to sell. The obligations of PPGI to Liam remained subsisting and it continued to be
Liam's obligor with respect to the delivery of the condominium units even after the assignment. Thus,
UCPB cannot be held liable for PPGI's breach of its obligation to Liam. The CA concluded that UCPB was
wrongly impleaded in the complaint for specific performance. Accordingly, the CA ruling disposed as
follows:

IN VIEW OF THE FOREGOING, the assailed 7 May 2009 Decision of the Office of the President is hereby
REVERSED and SET ASIDE.

SO ORDERED.29

Liam moved for the reconsideration30 of the foregoing judgment but her motion was denied in the
Resolution31 dated December 3, 2010 of the CA. Hence, the present petition submitting the following
issues for resolution, viz:

WHETHER OR NOT THE HONORABLE SUPREME COURT, ALBEIT NOT A TRIER OF FACTS, BUT BEING THE
FINAL ARBITER OF ANY JUSTIFIABLE CONTROVERSIES, HAS THE POWER AND AUTHORITY TO REVIEW THE
FACTS AND EVIDENCE OBTAINING IN THIS CASE DUE TO THE EXISTENCE OF WELL RECOGNIZED
EXCEPTIONS TO THE RULE[;]
WHETHER OR NOT THE [CA] ERRED IN REVERSING AND SETTING ASIDE THE DECISIONS OF THE OFFICES A
QUO[;]

WHE[T]HER OR NOT THE [CA] ERRED IN NOT HOLDING THAT THE DECISION OF THE HLURB HAS BECOME
FINAL AND EXECUTORY BY THE [UCPB'S] FAILURE TO POST THE REQUIRED APPEAL BOND PURSUANT TO
SECTION 2 OF RULE XVI[,] IN RELATION [TO SECTION] 1 OF RULE XVIII, OF THE RULES OF PROCEDURE OF
THE [HLURB] BOARD OF COMMISSIONERS.32

Ruling of the Court

The Court denies the petition.

Preliminary Considerations

Contrary to Liam's submissions, there are no factual issues in this appeal since the following
circumstances and events are not disputed by the parties: a) PPGI and Liara have a subsisting Contract to
Sell; b) PPGI executed agreements with UCPB without Liam's consent; c) PPGI failed to deliver the
condominium unit subject of the Contract to Sell within the stipulated period.

The crucial point of contention is actually the correct interpretation of the nature of the agreements
between PPGI and UCPB and their repercussions to the Contract to Sell between PPGI and Liam. These
matters are legal questions33 as they do not require an examination of the probative value of the
evidence presented by the parties but rather the determination of the applicable law on the given state
of facts.34 The Court has delineated the distinctions between a question of law and a question of fact as
follows:

A question of law arises when there is doubt as to what the law is on a certain state of facts, while there
is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to
be one of law, the same must not involve an examination of the probative value of the evidence
presented by the litigants or any of them. The resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence
presented, the questioned posed is one of fact. Thus, the test of whether a question is one of law or of
fact is not the appellation given to such question by the party raising the same; rather, it is whether the
appellate court can determine the issue raised without reviewing or evaluating the evidence, in which
case, it is a question of law; otherwise, it is a question of fact.35 (Italics in the original)

Thus, the petition is the proper subject of the Court's review under Rule 45 of the Rules of Court.

The transaction between UCPB and PPGI was an assignment of credit and not subrogation.

"An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who
acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor.
It may be in the form of sale, but at times it may constitute a dation in payment, such as when a debtor,
in order to obtain a release from his debt, assigns to his creditor a credit he has against a third
person."36
Simply, an assignment of credit is the process of transferring the right of the assignor to the assignee
who would then have the right to proceed against the debtor. The assignment may be done either
gratuitously or onerously, in which case, the assignment has an effect similar to that of a sale.37

On the other hand, subrogation is a process by which the third party pays the obligation of the debtor to
the creditor with the latter's consent. As a consequence, the paying third party steps into the shoes of
the original creditor as subrogee of the latter.38 It results in a subjective novation of the contract in that
a third person is subrogated to the rights of the creditor.39

The crucial distinction between assignment and subrogation actually deals with the necessity of the
consent of the debtor in the original transaction. In an assignment of credit, the consent of the debtor is
not necessary in order that the assignment may fully produce legal effects. What the law requires in an
assignment of credit is not the consent of the debtor but merely notice to him as the assignment takes
effect only from the time he has knowledge thereof. A creditor may, therefore, validly assign his credit
and its accessories without the debtor's consent.40

Meanwhile, subrogation requires an agreement among the three parties concerned - the original
creditor, the debtor, and the new creditor. It is a new contractual relation based on the mutual
agreement among all the necessary parties.41

The terms of the MOA and Deed of Sale/Assignment between PPGI and UCPB unequivocally show that
the parties intended an assignment of PPGPs credit in favor of UCPB.

Section 1 of the MOA is explicit that as partial settlement of its loan, PPGI sold in favor of UCPB its
unsold condominium units in MPC as well as its outstanding receivables from the 539 units covered by
Contracts to Sell, viz:

ARTICLE I

SUBJECT

Section 1.01 In partial settlement of FIRST PARTY'S [PPGI] outstanding and/or maturing obligation with
SECOND PARTY [UCPB], to the extent of P1,160,965,734.33, FIRST PARTY has offered the following
modes of settlement, viz:
a.
Absolute Sale over unsold condominium units/parking spaces of Makati Prime City (hereinafter referred
as "MPC) including all existing and future improvements thereon situated at St. Pauls Road, Antonio
Village, Makati City, and covered by Condominium Certificates of Titles (CCTs) registered with the
Register of Deeds for Makati City, the technical description of which are listed in Annex "A" and made
integral part hereof;
xxxx
c.
Sale of outstanding receivables due or payable to SECOND PARTY over 538 "MPC" sold units and 176
"KIENER" sold units, from Buyers who have purchased said units and the Assignment of Rights and
Interests arising out of the units pertinent [to] Contract to Sell (CTS) as evidenced by pertinent and
individual Contracts to Sell (CTS), hereto attached as Annex "C;
x x x x42 (Emphasis supplied)
"This agreement was implemented through the Deed of Sale/Assignment whereby the parties reiterated
and emphasized that they intended an assignment of PPGI's receivables thus giving UCPB the right to
run after the former's condominium buyers with outstanding balances under a Contract to Sell, like
herein petitioner Liam."43 The operative provisions of the Deed of Sale/Assignment provide thus:
WHEREAS, under the terms and conditions of the Memorandum of Agreement, the FIRST PARTY [PPGI]
had agreed to sell, transfer, convey and set over unto SECOND PARTY [UCPB], all the Accounts
Receivables accruing from FIRST PARTY'S Makati Prime City Condominium Project ("MPC" for brevity)
and Kiener Hills Condominium Project ("KIENER" for brevity), as enumerated in a list hereto attached as
Annexes "A" and "B", respectively and forms an integral part hereof, together with all the incidental
rights, titles, interests and participations over the units covered by the Contracts to Sell from which the
Accounts] Receivables have arisen;

WHEREAS, the parties have agreed that the consideration of this [Deed of Sale/Assignment] shall be the
aggregate amount of PESOS: SEVEN HUNDRED FORTY-EIGHT MILLION (P748,000,000.00), Philippine
currency broken down as follows:

xxxx

NOW, THEREFORE, for and in consideration of the foregoing premises and the aggregate amount of
PESOS : SEVEN HUNDRED FORTY-EIGHT MIL[L]ION (P748,000,000.00) Philippine currency, FIRST PARTY
[PPGI] hereby sells, transfers, conveys and set over as by these presents it has assigned, transferred,
conveyed and set over unto SECOND PARTY [UCPB] all Accounts Receivables accruing from FIRST
PARTY'S "MPC" and "KIENER" as enumerated in a list hereto attached as Annexes "A" and "B"
respectively together with the assignment of all its rights, titles, interests and participations over the
units covered by or arising from the Contracts to Sell from which the Accounts Receivables have arisen,
under the following terms and conditions:

1. The FIRST PARTY hereby sells, transfers, conveys, assigns and sets over unto the SECOND PARTY
[HLURB]:

all the Account Receivables or moneys due which may grow due upon the said receivables pursuant to
the list attached as Annexes "A" and "B";

all its rights and interest arising from or out of the Contract to Sell of its respective
receivable[s]/condominium unit.

x x x x44
"The primary consideration in determining the true nature of a contract is the intention of the parties. If
the words of a contract appear to contravene the evident intention of the parties, the latter shall prevail.
Such intention is determined not only from the express terms of their agreement, but also from the
contemporaneous and subsequent acts of the parties."45 However, if the terms of a contract are clear
and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations
shall control.46

The provisions of the foregoing agreements between PPGI and UCPB are clear, explicit and unambiguous
as to leave no doubt about their objective of executing an assignment of credit instead of subrogation.
The MOA and the Deed of Sale/Assignment clearly state that UCPB became an assignee of UCPB's
outstanding receivables of its condominium buyers. The Court perceives no proviso or any extraneous
factor that incites a contrary interpretation. Even the simultaneous and subsequent acts of the parties
accentuate their intention to treat their agreements as assignment of credit.

As Liam herself submits, her consent to the MOA and Deed of Sale/Assignment was not secured and she
only learned about them when PPGI informed her to remit her payments to UCPB in a letter dated May
29, 1998, which reads:

This refers to your purchase of Unit #603 of Hongkong Tower, [MPC], a project of [PPGI], the
development of which has been partially financed by [UCPB] wherein the rights, title and interest over
the said unit(s); which includes among others your installment payments have been assigned to them.

In connection with Section 18 of Presidential Decree No. 957, x x x, we hereby direct your goodself to
remit all payments under your Contract to Sell directly to [UCPB] x x x.

This payment arrangement shall in no way cause any amendment of the other terms and conditions, nor
the cancellation of the Contract to Sell you have executed with PPGI.47

The absence of Liam's consent to the transactions between PPGI and UCPB affirms their nature as
assignment of credit. As already mentioned, the consent of the debtor is not essential in assignment of
credit. What the law requires is merely notice to him. A creditor may, therefore, validly assign his credit
and its accessories without the debtor's consent. The purpose of the notice is only to inform the debtor
that from the date of the assignment, payment should be made to the assignee and not to the original
creditor.48

The last paragraph of the letter also confirms that UCPB's acquisition of PPGI's receivables did not
involve any changes in the Contract to Sell between PPGI and Liam; neither did it vary the rights and the
obligations of the parties therein. Thus, no novation by subrogation could have taken place.

The CA was therefore correct in ruling that the agreement between PPGI and UCPB was an assignment
of credit. UCPB acquired PPGI's right to demand, collect and receive Liam's outstanding balance; UCPB
was not subrogated into PPGI's place as developer under the Contract to Sell.

UCPB was improperly impleaded in Liam's complaint.

The CA is correct when it concluded that as a mere assignee, UCPB cannot be impleaded in Liam's
complaint for specific performance. It is clear that the intention of the parties was merely to assign the
receivables; and therefore, there is no ground to hold UCPB solidarily liable with PPGI.

In the recent case of Chin Kong Wong Choi v. UCPB,49 the Court reiterated the rulings of the CA in the
cases of UCPB v. O'Halloran50 and UCPB v. Ho,51 thus:

In UCPB v. O'Halloran, docketed as CA.-G.R. S.P. No. 101699, respondent O'Halloran's accounts with
Primetown were also assigned by Prirnetown to UCPB, under the same Agreement as in this case. Since
Primetown failed to deliver the condominium units upon full payment of the purchase price, O'Halloran
likewise sued both Primetown and UCPB for cancellation of the contracts to sell, and the case eventually
reached the CA. The CA held UCPB liable to refund the amount it actually received from O'Halloran. The
CA held that there is no legal, statutory or contractual basis to hold UCPB solidarily liable with
Primetown for the full reimbursement of the payments made by O'Halloran. The CA found that based on
the Agreement, UCPB is merely the assignee of the receivables under the contracts to sell to the extent
that the assignment is a manner adopted by which Primetown can pay its loan to the bank. The CA held
that the assignment of receivables did not make UCPB the owner or developer of the unfinished project
to make it solidarily liable with Primetown. The CA decision dated 23 July 2009 in C.A.-G.R. S.P. No.
101699 became final and executory upon Entry of Judgment on 17 August 2009 for O'Halloran and 18
August 2009 for UCPB.

In UCPB v. Ho, docketed as C.A.-G.R. S.P. No. 113446, respondent Ho was similarly situated with
O'Halloran and Spouses Choi. Upon reaching the CA, the CA considered the Agreement between UCPB
and Primetown as an assignment of credit, because: 1) the parties entered into the Agreement without
the consent of the debtor; 2) UCPB's obligation "to deliver to the buyer the title over the condominium
unit upon their full payment" signifies that the title to the condominium unit remained with Primetown;
3) UCPB's prerogative "to rescind the contract to sell and transfer the title of condominium unit to its
name upon failure of the buyer to pay the full purchase price" indicates that UCPB was merely given the
right to transfer title in its name to apply the property as partial payment of Primetown's obligation; and
4) the Agreement clearly states that the assignment is limited to the receivables and does not include
"any and all liabilities which [Primetown] may have assumed under the individual contract to sell." Thus,
the CA ruled that UCPB was a mere assignee of the right of Primetown to collect on its contract to sell
with Ho. The CA, then, applied the ruling in UCPB v. O'Halloran in finding UCPB jointly liable with
Primetown only for the payments UCPB had actually received from Ho.

On 4 December 2013, this Court issued a Resolution denying Ho's petition for review for failure to show
any reversible error on the part of the CA. On 2 April 2014, this Court likewise denied the motion for
reconsideration with finality. Thus, the 9 May 2013 Decision of the Special Fifteenth Division of the CA in
CA-G.R. SP No. 113446 became final and executory.52 (Citations omitted and emphasis in the original)

Following our pronouncement in the case of Chin Kong Wong Choi, which finds application in the
present case, UCPB should not be held liable for the obligations and liabilities of PPGI under its contract
to sell with Liam, considering that the bank is a mere assignee of the rights and receivables under the
Agreement it executed with PPGI. There being no other grounds to hold UCPB solidarity liable with PPGI,
the instant petition must be denied for lack of merit.

The lack of an appeal bond before the HLURB Board of Commissioners did not render final and
executory the appealed judgment of the HLURB Arbiter.

It is incorrect for Liam to argue that the Decision dated August 16, 2007 of HLURB Arbiter Torres has
become final and executory in view of UCPB's failure to post a bond when it appealed to the HLURB
Board of Commissioners. Section 2, Rule XVI of the 2004 HLURB Rules of Procedure,53 provides:

Sec. 2. Contents of the Appeal Memorandum. - The appeal memorandum shall state the date when the
appellant received a copy of the decision, the grounds relied upon, the arguments in support thereof,
and the relief prayed for.

In addition, the appellant shall attach to the appeal memorandum the following:
Affidavit of service of the appeal memorandum executed jointly by the appellant and his counsel, which
substantially complies with Supreme Court Circular No. 19-91, stating in essence the date of such
service, copies of the registry return receipt shall likewise be attached;
A verified certification jointly executed by the appellant and his counsel in accord with Supreme Court
Circular No. 28-91 as amended, attesting that they have not commenced a similar, related or any other
proceeding involving the same subject matter or causes of action before any other court or
administrative tribunal in the Philippines; and

In case of money judgment, an appeal bond satisfactory to the Board equivalent to the amount of the
award excluding interests, damages and attorney's fees.54 (Emphasis ours)

Evidently, the HLURB Rules of Procedure mandates the posting of an appeal bond only in cases where
the appealed judgment involves a monetary award. The Decision dated August 16, 2007 of HLURB
Arbiter Torres was not a judgment for a specific sum of money. Instead, it ordered UCPB to give Liana
the privilege to choose among the available units at Palm Tower, San Antonio Village, or in the
alternative, to maintain the previous unit subject of the Contract to Sell.55

WHEREFORE, premises considered, the petition is DENIED. The Decision dated September 24, 2010 of
the Court of Appeals in CA-G.R. SP No. 112195 is hereby AFFIRMED.

SO ORDERED.

Velasco, Jr., (Chairperson), Peralta, and Perez, JJ., concur.

Jardeleza, J., on leave.

Endnotes:

1Rollo, pp. 9-34.

2 Penned by Presiding Justice Andres B. Reyes, Jr., with Associate Justices Japar B. Dimaampao and Jane
Aurora C. Lantion concurring; id. at 248-261.

3 Id. at 85-90.

4 Id. at 282-292.

5 Id. at 293-297.

6 Id. at 91.

7 Id. at 92.

8 Id. at 93-94.

9 Id. at 96-97.

10 Id. at 98.

11 Id. at 101.

12 Id. at 103-104.
13 Id. at 78-84.

14 Id. at 37-43.

15 Id. at 44-45.

16 Id. at 105-110.

17 Id. at 138-139.

18 Id. at 139.

19 Composed of Commissioner and Chief Executive Officer Rornulo Q. Fabul, Commissioner Jesus Y.
Pang and Ex-Officio Commissioner Joel I. Jacob; id. at 166-170.

20 Id. at 169-170.

21 Id. at 168-169.

22 Id. at 169.

23 Id. at 171-183.

24 Id. at 72-76.chanrobleslaw

25 Id. at 76.

26 Id. at 77.

27 Id. at 48-68.

28 Id. at 248-261.

29 Id. at 261.

30 Id. at. 262-269.

31 Id. at 277-278.

32 Id. at 19.

33See Licaros v. Gatmaitan, 414 Phil. 857, 873 (2001).

34See Engr. Dueñas v. Guce-Africa, 618 Phil. 10, 19 (2009).

35 Id., citing Velayo-Fong v. Sps. Velayo, 539 Phil. 377, 386-387 (2006).
36Spouses Serfino v. Far East Dank and Trust Company, Inc., 697 Phil. 51, 57 (2012), citing Aquintey v.
Sps. Tibong, 540 Phil. 422, 446 (2006).

37Licaros v. Gaimaitan, supra note 33, at 866-867.

38 Id. at 867.

39Starbright Sales Enterprises, Inc. v. Philippine Realty Corporation et al., 679 Phil. 330, 336 (2012).

40Licaros v. Gaimaitan, supra note 33, at 867-868.

41 Id. at 868.

42Rollo, pp. 285-286.

43 Id. at 290.

44 Id. at 293-294.

45Spouses Villaceran, et al. v. De Guzman, 682 Phil. 426, 435 (2012).

46 CIVIL CODE OF THE PHILIPPINES, Article 1370.

47Rollo, p. 91.

48Project Builders, Inc. v. Court of Appeals, 411 Phil. 264, 274 (2001).

49 G.R. No. 207747, March 11, 2015, 753 SCRA 153.

50 CA-G.R. SP No. 101699, July 23, 2009.

51 CA-G.R. SP No. 113446, May 9, 2013.

52Chin Kong Wong Choi v. UCPB, supra note 49, at 163-165.

53 The Rules of Procedure in effect at the time the appeal to the HLURB Board of Commissioners was
filed. Currently, the 2011 HLURB Rules of Procedure is in effect.

54 The rule was cited as a reference in Peña v. GSIS, 533 Phil. 670, 678 (2006).

55Rollo, p. 139.
UNITED OVERSEAS BANK OF THE PHILIPPINES, INC., v. THE BOARD OF COMMISSIONERS-HLURB, J.O.S.
MANAGING BUILDERS, INC., AND EDUPLAN PHILS., INC., G.R. No. 182133, June 23, 2015

DECISION

PERALTA, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the
Decision1 and Resolution2 of the Court of Appeals (CA), dated February 27, 2006 and March 5, 2008,
respectively, in CAG.R.SP No. 86401.

The antecedents are as follows:

Respondent J.O.S. Managing Builders, Inc. (JOS Managing Builders) is the registered owner and
developer of the condominium project Aurora Milestone Tower. On December 16, 1997, JOS Managing
Builders and respondent EDUPLAN Philippines, Inc. (EDUPLAN) entered into a Contract to Sell covering
Condominium Unit E, 10th Floor of the Aurora Milestone Tower with an area of 149.72 square meters,
more or less. In August 1998, EDUPLAN effected full payment, and in December 1998, JOS Managing
Builders and EDUPLAN executed a Deed of Absolute Sale over the condominium unit. Notwithstanding
the execution of the deed of sale in favor of EDUPLAN, JOS Managing Builders failed to cause the
issuance of a Condominium Certificate of Title over the condominium unit in the name of EDUPLAN.
EDUPLAN learned that the lots on which the condominium building project Aurora Milestone Tower was
erected had been mortgaged by JOS Managing Builders to petitioner United Overseas Bank of the
Philippines (United Overseas Bank) without the prior written approval of the Housing and Land Use
Regulatory Board (HLURB). Due to the inability of JOS Managing Builders to deliver the condominium
certificate of title covering the unit purchased by EDUPLAN, the latter filed a complaint for specific
performance and damages against JOS Managing Builders and United Overseas Bank before the HLURB
praying that: (a) the mortgage between JOS Managing Builders and United Overseas Bank be declared
null and void; (b) JOS Managing Builders and United Overseas Bank be compelled to cause the issuance
and release of the Condominium Certificate of Title; and (c) JOS Managing Builders be ordered to
provide emergency power facilities, to refund the monthly telephone carrier charges, and to
permanently cease and desist from further collecting such charges.

In its defense, JOS Managing Builders alleged that it could not issue an individual Condominium
Certificate of Title in favor of EDUPLAN, because petitioner United Overseas Bank has custody of the
Transfer Certificates of Title covering the condominium building.

United Overseas Bank, on the other hand, alleged that JOS Managing Builders is the owner of several
parcels of land covered by Transfer Certificate of Title (TCT) Nos. N-146444, N-146445 and N-143601. On
April 3, 1997, JOS Managing Builders executed in favor of United Overseas Bank a Real Estate Mortgage3
over the said parcels of land and the improvements existing or to be erected thereon to secure the Two
Hundred Million Peso (PhP200,000,000.00)4 loan it acquired from the bank. The subject condominium
building project Aurora Milestone Tower, which is situated in the said parcels of land, are part of the
properties mortgaged to United Overseas Bank. JOS Managing Builders defaulted in the payment of its
loan obligations to United Overseas Bank. Hence, United Overseas Bank foreclosed the mortgage
constituted over properties of JOS Managing Builders and the subject properties were sold by public
auction on March 22, 1999 wherein United Overseas Bank was declared as the highest bidder.
Subsequently, a certificate of sale was issued in favor of United Overseas Bank corresponding to the
foreclosed properties, which was registered with the Register of Deeds of Quezon City on April 27, 1999.

On August 15, 2001, the HLURB Arbiter ruled,5 in favor of EDUPLAN and declared the mortgage
executed between JOS Managing Builders and United Overseas Bank as well as the foreclosure
proceedings null and void, pointing out that the mortgage was executed without the approval of the
HLURB as required under Section 18 of Presidential Decree (P.D.) No. 957.6 The Arbiter held that that
since EDUPLAN has paid the full purchase price of the condominium unit, JOS Managing Builders and
United Overseas Bank should cause the release from encumbrance of the mother titles to the
condominium building project, and issue the corresponding condominium certificate of title in favor of
EDUPLAN. Further, JOS Managing Builders should provide EDUPLAN with emergency power facilities and
refund it with the monthly telephone carrier charges it has been collecting since September 1999, and
permanently cease and desist from further imposing and collecting such fees. Moreover, JOS Managing
Builders was directed to pay EDUPLAN damages, attorney's fees and costs of suit. The dispositive portion
of the decision reads:

Wherefore, the foregoing premises considered and as prayed for, judgment is hereby rendered in favor
of the Complainant and against the Respondents as follows:

1. Declaring the mortgage executed by Respondent J.O.S. Managing Builders in favor of Respondent
United Overseas Bank (Westmont) as null and void, including the foreclosure of the mortgage, for being
in violation of Section 18 of P.D. 957;

2. Ordering Respondents to cause the release from the encumbrances of the "mother titles" to the
Condominium Building Project and, issuance of the individual Condominium Certificate of Title of
Complainant to its Condominium Unit, free from any and all liens and encumbrances;

3. Ordering Respondent J.O.S. Managing Builders to provide the Complainant with emergency power
facilities, strictly as represented in its sales brochures;

4. Ordering Respondent J.O.S. Managing Builders to refund to Complainant the monthly telephone
carrier charges it has been collecting since September 1, 1999 and permanently cease and desist from
further imposing and collecting said charges;

5. Ordering Respondent J.O.S. to pay the complainant P100,000.00 by way of temperate damages,
P50,000.00 by way of exemplary damages, P40,000.00 as and by way of Attorney's Fees; and the costs of
suit.

6. Ordering Respondent J.O.S. Managing Builders to pay Respondent United Overseas Bank (Westmont)
the loan release value of the subject condominium unit.

United Overseas Bank then filed a petition for review with the HLURB. On August 20, 2004, the HLURB
Board of Commissioners affirmed the Arbiter's decision, but deleted the award of emergency power
facilities and refund of the monthly telephone carrier charges. Hence, United Overseas Bank filed a
petition for review under Rule 43 before the CA.7

On February 27, 2006, the CA dismissed the petition.8 A motion for reconsideration was filed, but it was
denied for lack of merit.9 The CA held that United Overseas Bank did not exhaust the administrative
remedies available to it due to its failure to appeal the decision of the HLURB Board of Commissioners to
the Office of the President before going to the CA.

Hence, the petition assigning the lone error:

THE COURT OF APPEALS ERRED IN REFUSING TO APPLY THE EXCEPTION TO THE DOCTRINE OF
EXHAUSTION OF ADMINISTRATIVE REMEDIES.10

Petitioner United Overseas Bank argues that the CA erred when it dismissed the petition due to its
failure to exhaust administrative remedies. It alleges that the question on whether the HLURB is correct
in declaring null and void the entire mortgage constituted by JOS Managing Builders in favor of United
Overseas Bank, as well as the foreclosure of the entire mortgage, is a legal question which is an
exception to the rule on exhaustion of administrative remedies.

The petition is meritorious.

The doctrine of exhaustion of administrative remedies is a cornerstone of our judicial system. The thrust
of the rule is that courts must allow administrative agencies to carry out their functions and discharge
their responsibilities within the specialized areas of their respective competence.11 It has been held,
however, that the doctrine of exhaustion of administrative remedies and the doctrine of primary
jurisdiction are not iron-clad rules. In the case of Republic v. Lacap,12 the Court enumerated the
numerous exceptions to these rules, namely: (a) where there is estoppel on the part of the party
invoking the doctrine; (b) where the challenged administrative act is patently illegal, amounting to lack
of jurisdiction; (c) where there is unreasonable delay or official inaction that will irretrievably prejudice
the complainant; (d) where the amount involved is relatively so small as to make the rule impractical
and oppressive; (e) where the question involved is purely legal and will ultimately have to be decided by
the courts of justice; (f) where judicial intervention is urgent; (g) where the application of the doctrine
may cause great and irreparable damage; (h) where the controverted acts violate due process; (i) where
the issue of non-exhaustion of administrative remedies has been rendered moot; (j) where there is no
other plain, speedy and adequate remedy; (k) where strong public interest is involved; and (1) in quo
warranto proceedings.

The situation in paragraph (e) of the foregoing enumeration obtains in this case.

The issue on whether non-compliance with the clearance requirement with the HLURB would result to
the nullification of the entire mortgage contract or only a part of it is purely legal which will have to be
decided ultimately by a regular court of law. It does not involve an examination of the probative value of
the evidence presented by the parties. There is a question of law when the doubt or difference arises as
to what the law is on a certain state of facts, and not as to the truth or the falsehood of alleged facts.
Said question at best could be resolved only tentatively by the administrative authorities. The final
decision on the matter rests not with them but with the courts of justice. Exhaustion of administrative
remedies does not apply, because nothing of an administrative nature is to be or can be done. The issue
does not require technical knowledge and experience, but one that would involve the interpretation and
application of law.14 There is, thus, no need to exhaust administrative remedies, under the premises.

The Court will now proceed to the legal issue on hand.

Petitioner United Overseas Bank alleges that the HLURB erred in declaring null and void the entire
mortgage constituted by JOS Managing Builders in its favor, as EDUPLAN does not claim ownership over
all the properties mortgaged by JOS Managing Builders in favor of United Overseas Bank, but only over a
single condominium unit, i.e., Unit E, 10th Floor of the Aurora Milestone Tower.

We agree with petitioner.

The HLURB erred in declaring null and void the entire mortgage executed between JOS Managing
Builders and United Overseas Bank.

At the onset, it is worthy to note that jurisprudence have varying conclusions of the issue at hand. In Far
East Bank & Trust Co. v Marquez,15 the Court sustained the HLURB when it declared the mortgage
entered into between the subdivision developer and the bank as unenforceable against the lot buyer for
failure of the developer to obtain the prior written approval of the HLURB. However, we were
categorical that the HLURB acted beyond bounds when it nullified the mortgage covering the entire
parcel of land, of which the lot subject of the buyer's complaint is merely a part of.

In Far East Bank, the Court held that:

Acts executed against the provisions of mandatory or prohibitory laws shall be void. Hence, the
mortgage over the lot is null and void insofar as private respondent is concerned.

The remedy granted by the HLURB and sustained by the Office of the President is proper only insofar as
it refers to the lot of respondent. In short, the mortgage contract is void as against him. Since there is no
law stating the specifics of what should be done under the circumstances, that which is in accord with
equity, should be ordered. The remedy granted by the HLURB in the first and the second paragraphs of
the dispositive portion of its Decision insofar as it referred to respondent's lot is in accord with equity.

The HLURB, however, went overboard in its disposition in paragraphs 3 and 4, which pertained not only
to the lot but to the entire parcel of land mortgaged. Such ruling was improper. The subject of this
litigation is limited only to the lot that respondent is buying, not to the entire parcel of land. He has no
personality or standing to bring suit on the whole property, as he has actionable interest over the
subject lot only. (Citations omitted and underscoring ours)16

In Metropolitan Bank and Trust Co., Inc. v. SLGT Holdings, Inc.,17 however, the Court nullified the entire
mortgage contract executed between the subdivision developer and the bank albeit the fact that only
two units or lot buyer/s filed a case for declaration of nullity of mortgage. In the said case, the entire
mortgage contract was nullified on the basis of the principle of indivisibility of mortgage as provided in
Article 208918 of the New Civil Code.

This notwithstanding, in the fairly recent case of Philippine National Bank v. Lim,19 the Court reverted to
our previous ruling in Far East Bank that a unit buyer has no standing to seek for the complete
nullification of the entire mortgage, because he has an actionable interest only over the unit he has
bought. Hence, in the said case, the mortgage was nullified only insofar as it affected the unit buyer.

We find the recent view espoused in Philippine National Bank to be in accord with law and equity. While
a mortgage may be nullified if it was in violation of Section 18 of P.D. No. 957, such nullification applies
only to the interest of the complaining buyer. It cannot extend to the entire mortgage. A buyer of a
particular unit or lot has no standing to ask for the nullification of the entire mortgage.

Since EDUPLAN has an actionable interest only over Unit E, 10th Floor, Aurora Milestone Tower, it is but
logical to conclude that it has no standing to seek for the complete nullification of the subject mortgage
and the HLURB was incorrect when it voided the whole mortgage between JOS Managing Builders and
United Overseas Bank.

Considering that EDUPLAN had already paid the full purchase price of the subject unit, the latter is
entitled to the transfer of ownership of the subject property in its favor. This right is provided for in
Section 25 of P.D. No. 957, 50 wit:

Issuance of Title. The owner or development shall deliver the title of the lot or unit to the buyer upon
full payment of the lot or unit, x x x.

Verily, JOS Managing Builders has the obligation to cause the delivery of the Title to the subject
condominium unit in favor of EDUPALN.

Nevertheless, despite the fact that the mortgage constituted between JOS Managing Builders and
United Overseas Bank cannot bind EDUPLAN, because of the non-observance of the provision of P.D.
No. 957 by JOS managing Builders, the mortgage between the former and United Overseas Bank is still
valid.

In the present case, it is undisputed that JOS Managing Builders mortgaged several parcels of land,
including all the buildings and improvements therein covered by TCT Nos. N-146444, N-146445 and N-
143601 to United Overseas Bank without prior clearance from the HLURB. The said omission clearly
violates Section 18 of P.D. No. 957 (The Subdivision and condominium Buyers' Protective Decree), which
provides as follows:

Section 18. Mortgages. - No mortgage on any unit or lot shall be made by the owner or developer
without prior written approval of the [HLURB]. xxx (Word in bracket added)

It should be noted, however, that the failure of JOS Managing Builders to secure prior approval of the
mortgage from the HLURB and United Overseas Bank's failure to inquire on the status of the property
offered for mortgage placed the condominium developer and the creditor Bank in pari delicto.20 Hence,
they cannot ask the courts for relief for such parties should be left where they are found for being
equally at fault.

More importantly, it should be understood that the prior approval requirement is intended to protect
buyers of condominium units from fraudulent manipulations perpetrated by unscrupulous condominium
sellers and operators, such as their failure to deliver titles to the buyer or titles free from lien and
encumbrances.21 This is pursuant to the intent of P.D. No. 957 to protect hapless buyers from the
unjust practices of unscrupulous developers which may constitute mortgages over condominium
projects sans the knowledge of the former and the consent of the HLURB.

Thus, failure to secure the HLURB'S prior written approval as required by P.D. No. 957 will not annul the
entire mortgage between the condominium developer and the creditor bank, otherwise the protection
intended for condominium buyers will inadvertently be extended to the condominium developer even
though, by failing to secure the government's prior approval, it is the party at fault.

To rule otherwise would certainly affect the stability of large-scale mortgages, which is prevalent in the
real estate industry. To be sure, mortgagee banks would be indubitably placed at risk if condominium
developers are empowered to unilaterally invalidate mortgage contracts based on their mere failure to
secure prior written approval of the mortgage by the HLURB, which could be easily caused by
inadvertence or by deliberate intent.

From all the foregoing, the HLURB erred when it declared the entire mortgage constituted by JOS
Managing Builders, Inc. in favor of United Overseas Bank null and void based solely on the complaint of
EDUPLAN which was only claiming ownership over a single condominium unit of Aurora Milestone
Tower. Accordingly, the mortgage executed between JOS Managing Builders and United Overseas Bank
is valid.

WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals, dated
February 27, 2006 and March 5, 2008, respectively, in CA-G.R. SP No. 86401, are REVERSED and SET
ASIDE. The Decision of the HLURB, dated August 20, 2004, is AFFIRMED with MODIFICATION. The
mortgage executed and the succeeding foreclosure proceedings between respondent J.O.S. Managing
Builders, Inc. and petitioner United Overseas Bank of the Philippines, Inc., with respect to respondent
EDUPLAN Philippines, Inc.'s unit E., 10TH Floor, Aurora Milestone Tower, is declared null and void.

SO ORDERED.

Endnotes:

1 Penned by Associate Justice Portia Alino-Hormachuelos, with Associate Justices Amelita G. Tolentino
and Vicente S. E. Veloso, concurring; rollo, pp. 15-22.

2Rollo, pp. 24-29.

3 CA rollo, pp. 102-103.

4 This amount was later on increased to PhP250,000,000.00 by virtue of an Amendment of Real Estate
Mortgage, id. at 105.

5 CA rollo, pp. 52-63.

6 The Subdivision and Condominium Buyers Protective Decree.

7Rollo, pp. 23-25.

8Id. at 15-22.

9Id. at 24-29.

10Id. at 37.
11Universal Robina Corp. (Corn Division) v. Laguna Lake Development Authority, G.R No. 191427, May
30, 2011, 649 SCRA 506, 511.

12 546 Phil. 87 (2007).

13Republic v. Lacap, supra, at 97-98. (Underscoring supplied)

14Vigilar v. Aquino, G.R. No. 180388, January 18, 2011, 639 SCRA 772, 778, citing Republic v. Lacap,
supra note 12, at 98.

15 465 Phil. 276 (2004).

16Far East Bank & Trust Co. v. Marquez, supra, at 298, cited in Philippine National Bank v. Lim, supra
note 15, at 543-544.

17 G.R. Nos. 175181-82 and G.R. Nos. 175354 & 175387-88, September 14, 2007, 533 SCRA 516.

18 Article 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the
successors-in-interest of the debtor or of the creditor, x x x.

19 G.R. No. 171677, January 30, 2013, 689 SCRA 523, 543, citing Manila Banking Corporation v. Rabina,
G.R. No. 145941, December 16, 2008, 574 SCRA 16, 23.

20 The pari delicto rule porivdes that when two parties are equally at fault, the law leaves them as they
are and denies recovery by either one of them. (Land Bank of the Philippines v. Poblete, G.R. No.
196577, February 25, 2013, 691 SCRA 613).

21 See third Whereas Clause of P.D. No. 957.

22Id.