G.R. No. 210582 - Home Development Mutual Fund vs. Spouses Cataquiz

On January 19, 1998, Rudy N. Cataquiz entered into both a sales agreement and a construction contract with Francisco M. Soriano Co. Inc. (FMSCI) for the purchase of a 100-square-meter lot (Lot 11, Block 16, Phase II, Well-Spring Village, Catalunan Pequeñao, Davao City) for P70,000.00 and for the construction of a house for P190,000.00.
FMSCI, being an HDMF-accredited developer, was designated as the beneficiary of the housing loan that Rudy applied for with the Home Development Mutual Fund (HDMF) to finance the acquisition and the construction.

Rudy applied for a housing loan with the HDMF, and on March 12, 1998, he received a Notice of Approval/Letter of Guaranty in the amount of P180,000.00.
On March 14, 1998, Rudy executed the Loan and Mortgage Agreement with HDMF for P188,500.00, an agreement notarized by Notary Public Francis Arnold de Vera, and the mortgage was subsequently annotated on Transfer Certificate of Title (TCT) No. T-296838.
The Notice of Approval/Letter of Guaranty contained specific requirements, including the submission of documents such as the duly registered Loan and Mortgage Agreement, the TCT, and the Tax Declaration in Rudy’s name.

The construction of the house was completed on March 26, 1998, and Rudy accepted the house shortly thereafter.
Rudy died on April 19, 1998, only a few days after accepting the constructed house.
As Rudy’s only surviving heirs, his parents, Eulogia N. Cataquiz and Manuel P. Cataquiz, subsequently requested the release of the title over the property in their favor.

HDMF refused to release the title over the subject property on the ground of Rudy’s failure to “accept” the housing loan during his lifetime, contending that the loan was not included among those took out on April 23, 1998.
HDMF argued that due to Rudy’s failure to submit certain documents on time and his death before the loan proceeds were released, the loan was not covered by the Mortgage Redemption Insurance (MRI).
FMSCI claimed that because the proceeds were not released, the execution of the Sales Agreement, Deed of Sale, and the Deed of Assignment with Special Power of Attorney should be rendered null and void for want of consideration.
In response to HDMF’s and FMSCI’s positions, Spouses Cataquiz sued for specific performance and damages to compel both defendants to turn over the title and possession of the subject property.

The Regional Trial Court (RTC), Branch 14, Davao City, rendered a decision on June 27, 2006, in which it found both HDMF and FMSCI negligent in their respective duties:

HDMF was faulted for failing to include Rudy’s loan in the scheduled takeout list, despite compliance with documentary requirements.
FMSCI was held liable for acting in bad faith by causing the withdrawal of Rudy’s loan application and the cancellation of the mortgage executed by Rudy.

The RTC ordered HDMF to pay Rudy’s death benefits, release TCT No. T-296838, cancel the mortgage, and treat the loan as fully paid; it also ordered FMSCI to transfer possession of the lot and the house, in addition to awarding attorney’s fees and costs.
On appeal, the Court of Appeals (CA) affirmed the RTC’s decision with modification by directing the Spouses Cataquiz to pay the cost of the premium for MRI coverage.
HDMF, aggrieved by the CA’s findings—particularly on the matter of MRI premium coverage—filed a Petition for Review on Certiorari with the Supreme Court.

Whether the actions (or inactions) of HDMF in not releasing the loan proceeds, despite Rudy’s timely compliance with documentary requirements, constitute negligence or breach of contractual obligations.

Whether Rudy’s death, occurring before the release of the loan proceeds, can justify HDMF’s nonperformance.
Whether HDMF’s reference to a technical lapse—the failure to include Rudy’s loan in the April 23, 1998, takeout list—adequately excuses its duty.

The question of whether the Mortgage Redemption Insurance (MRI) coverage was effectively in place, given that:

The insurance coverage was to take effect upon the issuance of the Notice of Approval/Letter of Guaranty rather than upon the actual release of loan proceeds.
The technicality of the set release date should impact the rights of the heirs in claiming the benefits of the MRI.

Whether the conduct of FMSCI amounted to bad faith and negligence in handling Rudy’s loan application, leading to the cancellation of the mortgage and affecting the overall transaction.

How the reciprocal obligations between HDMF (as the lender) and the borrower (Rudy) were affected by administrative delays and negligent actions.
Whether the cancellation of the mortgage can be attributed solely to administrative issues or mismanagement by both HDMF and FMSCI.

The overall determination of whether the factual findings of the RTC and the CA are supported by evidence, thereby justifying the affirmation of their decisions by the Supreme Court.