G.R. No. 128354 - Home Bankers Savings and Trust Co. vs. Court of Appeals

Multiple private respondents entered into separate contracts to sell with TransAmerican Sales and Exposition concerning portions of land covered by TCT No. 19155 and the construction of one three-storey townhouse per unit.
Specific transactions include:

Respondent Pablo N. Arevalo purchased Unit No. 5 for P750,000.00 on August 21, 1988 and paid in full by September 3, 1988.
Respondent Alfredo Lim purchased Unit No. 1 for P800,000.00 on December 22, 1988, with full payment rendered on the same day.
Respondent Francisco A. Uy purchased Unit No. 6 for P800,000.00 on October 29, 1988, paying in installments (totaling P581,507.41) and later halted further payments due to non-completion of his unit.
Respondent spouses Leandro A. Soriano, Jr. and Lilian Soriano purchased Unit No. 3 on February 15, 1990 for P1,600,000.00, having partially paid (P669,960.00) and ceasing further payments because the project was not completed.
Respondents Alfredo Lim and Santos Lim purchased Unit No. 7 in October 1988 for P700,000.00; full payment was made as of March 18, 1989, and Santos Lim subsequently assigned his interest to Felisa Chi Lim.

All contracts stipulated that upon full payment, the individual townhouse units would be constructed per approved plans and specifications, and titles would be delivered free from liens or encumbrances.

On May 30, 1989, Engr. Jesus Garcia, acting as Owner/General Manager of TransAmerican, and his wife Lorelie Garcia, obtained a loan of P4,000,000.00 from petitioner Home Bankers Savings and Trust Co.
Without securing prior written approval from the Housing and Land Use Regulatory Board (HLURB), Garcia mortgaged eight lots (TCT Nos. 3349 to 3356) as collateral.
The proceeds from the loan were expressly intended for developing the lots into an eight-unit townhouse project, even though five of these lots were already subject to contracts to sell with private respondents.
Upon default by Garcia when the loan matured, petitioner instituted an extrajudicial foreclosure.
As a result, a certificate of sale was issued by the sheriff on February 26, 1990, which was subsequently registered and annotated on the respective titles in the Register of Deeds of Quezon City.

On November 8, 1990, private respondents filed a complaint with the Office of Appeals, Adjudication and Legal Affairs (OAALA) of the HLURB, charging non-delivery of titles and non-completion of the townhouse units.
Their reliefs included:

Completion of the townhouse units.
Annulment of the mortgage in favor of petitioner.
Cancellation of the foreclosure sale and certificate of sale annotations.
Delivery of clean titles or computation of remaining loan values for installment payers.

Petitioner answered by denying any cause of action, maintaining that it relied on clean, reconstituted titles and that no notice of contracts or encumbrances had been given.
The OAALA rendered its Decision on August 16, 1991 in favor of private respondents, ordering cancellations and specific performance remedies.
Petitioner’s subsequent appeals to the HLURB’s Board of Commissioners and to the Office of the President were both dismissed, leading to the elevation of the case to the Court of Appeals (CA).
The CA, in its decision dated November 28, 1996 and the subsequent Resolution dated February 19, 1997, upheld the findings of the HLURB and affirmed the invalidity of the mortgage as against private respondents.

Petitioner argued that HLURB did not have jurisdiction to nullify a mortgage executed by a real estate developer and that being a mortgagee who relied on clean titles, it was entitled to full protection under the Torrens system.
However, evidence indicated that private respondents had contractual rights dating as far back as 1988, which petitioner failed to investigate.
The negligence of petitioner was underscored by its reliance solely on the ostensibly clean certificate of title without verifying the existence of buyers or the required HLURB approvals.

Whether the HLURB has jurisdiction to annul or declare unenforceable a real estate mortgage executed without its prior written approval, as mandated under Section 18 of P.D. No. 957.
Whether such jurisdiction extends to canceling foreclosure sales and rectifying title annotations affecting buyers’ rights.

Whether the mortgage contract, executed by Garcia/TransAmerican without the consent of the buyers (private respondents) and without HLURB approval, is valid and enforceable against the respondents.
Whether the existence of prior contracts to sell (entered into as early as 1988) affects the validity of the mortgage executed in 1989.

Whether petitioner’s failure to inquire into or verify the status of the lots—including the presence of buyers and contracts to sell—constitutes negligence that negates its claim as an innocent mortgagee.
Whether reliance solely on the certificate of title is sufficient to overcome the need for further investigation given the circumstances of a developing subdivision project.

Whether unregistered contracts to sell can bind petitioner, especially when petitioner had actual or constructive knowledge of the existence of these contracts.
The extent to which the failure to register such contracts under Section 17 of P.D. No. 957 affects the rights of the parties involved.