2014 Case Digest: Philippine National Bank v. Dee




G.R. No. 182128              February 19, 2014


PONENTE: Reyes, J.

TOPIC: PD 957, Mortgage over subdivision land or condominium lot subject to contract to sell


                Some time in July 1994, respondent Dee Dee bought from respondent Prime East Properties Inc.5 (PEPI) on an installment basis a residential lot located in Binangonan, Rizal, with an area of 204 square meters and covered by TCT No. 619608. Subsequently, PEPI assigned its rights over a 213,093–sq m property on August 1996 to respondent Armed Forces of the Philippines–Retirement and Separation Benefits System, Inc. (AFP–RSBS), which included the property purchased by Dee.

                Thereafter, or on September 10, 1996, PEPI obtained a P205,000,000.00 loan from petitioner Philippine National Bank, secured by a mortgage over several properties, including Dee’s property. The mortgage was cleared by the Housing and Land Use Regulatory Board (HLURB) on September 18, 1996.

                After Dee’s full payment of the purchase price, a deed of sale was executed by respondents PEPI and AFP–RSBS on July 1998 in Dee’s favor. Consequently, Dee sought from the petitioner the delivery of the owner’s duplicate title over the property, to no avail. Thus, she filed with the HLURB a complaint for specific performance to compel delivery of TCT No. 619608 by the petitioner, PEPI and AFP–RSBS, among others.


                Whether or not PNB, as mortgagee, was bound by the contract to sell previously executed over the subdivision lot mortgaged.



                YES. In this case, there are two phases involved in the transactions between respondents PEPI and Dee – the first phase is the contract to sell, which eventually became the second phase, the absolute sale, after Dee’s full payment of the purchase price. In a contract of sale, the parties’ obligations are plain and simple. The law obliges the vendor to transfer the ownership of and to deliver the thing that is the object of sale. On the other hand, the principal obligation of a vendee is to pay the full purchase price at the agreed time. Based on the final contract of sale between them, the obligation of PEPI, as owners and vendors of Lot 12, Block 21–A, Village East Executive Homes, is to transfer the ownership of and to deliver Lot 12, Block 21–A to Dee, who, in turn, shall pay, and has in fact paid, the full purchase price of the property.

                It must be stressed that the mortgage contract between PEPI and the petitioner is merely an accessory contract to the principal three–year loan takeout from the petitioner by PEPI for its expansion project. It need not be belabored that “a mortgage is an accessory undertaking to secure the fulfillment of a principal obligation,” and it does not affect the ownership of the property as it is nothing more than a lien thereon serving as security for a debt.

Owner or developer of subdivision lot or condominium unit may mortgage the same despite contract to sell

                Note that at the time PEPI mortgaged the property to the petitioner, the prevailing contract between respondents PEPI and Dee was still the Contract to Sell, as Dee was yet to fully pay the purchase price of the property. On this point, PEPI was acting fully well within its right when it mortgaged the property to the petitioner, for in a contract to sell, ownership is retained by the seller and is not to pass until full payment of the purchase price. In other words, at the time of the mortgage, PEPI was still the owner of the property.

                 Thus, in China Banking Corporation v. Spouses Lozada, the Court affirmed the right of the owner/developer to mortgage the property subject of development, to wit: “P.D. No. 957 cannot totally prevent the owner or developer from mortgaging the subdivision lot or condominium unit when the title thereto still resides in the owner or developer awaiting the full payment of the purchase price by the installment buyer.” Moreover, the mortgage bore the clearance of the HLURB, in compliance with Section 18 of P.D. No. 957, which provides that “no mortgage on any unit or lot shall be made by the owner or developer without prior written approval of the HLURB.”

Bank-mortgagee bound by the contract to sell over the property mortgaged

                Nevertheless, despite the apparent validity of the mortgage between the petitioner and PEPI, the former is still bound to respect the transactions between respondents PEPI and Dee. The petitioner was well aware that the properties mortgaged by PEPI were also the subject of existing contracts to sell with other buyers. While it may be that the petitioner is protected by Act No. 3135, as amended, it cannot claim any superior right as against the installment buyers. This is because the contract between the respondents is protected by P.D. No. 957, a social justice measure enacted primarily to protect innocent lot buyers. Thus, in Luzon Development Bank v. Enriquez, the Court reiterated the rule that a bank dealing with a property that is already subject of a contract to sell and is protected by the provisions of P.D. No. 957, is bound by the contract to sell.

                The transferee BANK is bound by the Contract to Sell and has to respect Enriquez’s rights thereunder. This is because the Contract to Sell, involving a subdivision lot, is covered and protected by PD 957. x x x More so in this case where the contract to sell has already ripened into a contract of absolute sale.

                The Court affirmed HLURB’s orders:

  1. PNB to cancel the mortgage and surrender/release the title to Dee.
  2. PEPI and AFP-RSBS to pay PNB the redemption value of the subject property as agreed upon by them in the REM within 6 months from the time the owner’s duplicate of TCT is actually surrendered and released by PNB to Dee.
  3. In the alternative, in case of legal and physical impossibility on the part of PEPI, AFP–RSBS, and PNB to comply and perform their respective obligation/s, as above–mentioned, respondents PEPI and AFP–RSBS are hereby ordered to jointly and severally pay to Dee the amount of P520,000.00) plus interest to be computed from the filing of complaint on April 24, 2002 until fully paid.
  4. PEPI, AFP-RSBS and PNB to pay solidarily Dee attorney’s fees, cost of litigation, and administrative fine.
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