Metropolitan Bank and Trust Co. v. SLGT Holdings, Inc.
G.R. Nos. 175181-82, 175354 &175387-88
Decision Date


G.R. Nos. 175181-82. September 14, 2007.


[G.R. Nos. 175354 &175387-88. September 14, 2007.]




It happened before; it will likely happen again. A developer embarks on an aggressive marketing campaign and succeeds in selling units in a yet to-be completed condominium project. Short of funds, the developer borrows money from a bank and, without apprising the latter of the pre-selling transactions, mortgages the condominium complex, but also without informing the buyers of the mortgage constitution. Saddled with debts, the developer fails to meet its part of the bargain. The defaulting developer is soon sued by the fully-paid unit buyers for specific performance or refund and is threatened at the same time with a foreclosure of mortgage. Having his hands full parrying legal blows from different directions, the developer seeks a declaration of suspension of payment, followed by a petition for rehabilitation with suspension of action.

With a slight variation, the scenario thus depicted describes the instant case which features respondent ASB Development Corporation (ASB, for short),as the defaulting developer of the BSA Twin Towers Condominium Project (BSA Towers or Project, for short) situated at Ortigas Center, Mandaluyong City, and respondents Danilo A. Dylanco and SLGT Holdings, Inc. (Dylanco and SLGT, respectively, hereinafter) as the unit buyers. Petitioners Metropolitan Bank and Trust Company, Inc. (Metrobank) and United Coconut Planters Bank (UCPB) are the lending-mortgagee banks. IcDCaS

And now to the case:

Before the Court are these separate petitions for review under Rule 45 of the and Resolution dated June 29, 2006, and October 31, 2006, respectively, of the Court of Appeals (CA) in CA-G.R. SP No. 92807, CA-G.R. SP No. 92808 and CA-G.R. SP No. 92882. IcaEDC

The first assailed issuance affirmed the earlier Decision dated October 10, 2005 of the Office of the President (OP, hereinafter),as modified in its Order of December 22, 2005, in consolidated OP Case No. 05-F-212 and OP Case No. 05-G-215. The second assailed issuance, on the other hand, denied reconsideration of the first. DcaCSE

Per its Resolution of March 26, 2007, the Court ordered the consolidation of these petitions.

From the petitions and the comments thereon, with their respective annexes, and other pleadings, the Court gathers the following facts: DAHEaT

On October 25, 1995, Dylanco and SLGT each entered into a contract to sell with ASB for the purchase of a unit (Unit 1106 for Dylanco and Unit 1211 for SLGT) at BSA Towers then being developed by the latter. As stipulated, ASB will deliver the units thus sold upon completion of the construction or before December 1999. Relying on this and other undertakings, Dylanco and SLGT each paid in full the contract price of their respective units. The promised completion date came and went, but ASB failed to deliver, as the Project remained unfinished at that time. To make matters worse, they learned that the lots on which the BSA Towers were to be erected had been mortgaged to Metrobank, as the lead bank, and UCPB without the prior written approval of the Housing and Land Use Regulatory Board (HLURB).

Alarmed by this foregoing turn of events, Dylanco, on August 10, 2004, filed with the HLURB a complaint for delivery of property and title and for the declaration of nullity of mortgage. A similar complaint filed by SLGT followed three (3) days later. At this time, it appears that the ASB Group of Companies, which included ASB, had already filed with the Securities and Exchange Commission a petition for rehabilitation and a rehabilitation receiver had in fact been appointed.

What happened next are laid out in the OP decision adverted to above, thus:

In response to the above complaints, ASB alleged ...that it encountered liquidity problems sometime in ...2000 after its creditors UCPB and Metrobank simultaneously demanded payments of their loans ...;that on May 4, 2000, the ...Commission (SEC) granted its petition for rehabilitation; that it negotiated with UCPB and Metrobank ...but nothing came out positive from their negotiation .... ATcaEH

On the other hand, Metrobank claims that complainants Dylanco and SLGT have no personality to ask for the nullification of the mortgage because they are not parties to the mortgage transaction ...;that the complaints must be dismissed because of the ongoing rehabilitation of ASB; ...that its claim against ASB, including the mortgage to the Project have already been transferred to Asia Recovery Corporation; ....

UCPB, for its part, denies its liability to SLGT for lack of privity of contract ...and questioned the personality of SLGT to challenge the validity of the mortgage reasoning that the latter is not party to the mortgage contract ...and maintains that the mortgage transaction was done in good faith. ...Finally, it prays for the suspension of the proceedings because of the on-going rehabilitation of ASB. cCSTHA

In resolving the complaint in favor of Dylanco and SLGT, the Housing Arbiter ruled that the mortgage constituted over the lots is invalid for lack of mortgage clearance from the HLURB. He also rebuffed the banks' request to suspend the proceedings under Section 5 of

The HLURB Board of Commissioners, [per its separate Decision both dated April 21, 2005] affirmed the above rulings ...with the modification that ASB should cause the subdivision of the mother titles into condominium certificates of title of Dylanco and SLGT free from all liens and encumbrances. [On June 28, 2005 the HLURB denied the separate motions of Metrobank and UCPB for reconsideration. (Words in brackets and emphasis added). HIAEcT

For perspective, the decretal portion of the HLURB's underlying decision with respect to the Dylanco case, docketed thereat as REM-A-050208-0021, reads as follows:

WHEREFORE, the appeals are dismissed for lack of merit and the decision of the office below is modified as follows:

1. Declaring the mortgage over the subject condominium unit in favor of respondent Metrobank as null and void for violation of Section 18 of PD No. 957; aIcETS

2. Directing respondent bank to cancel/release the mortgage on the subject condominium unit Unit 1106;and accordingly, surrender/release the title thereof to the complainant;

3. Directing respondent Bank to release to respondent ASB the transfer certificate of title of the lots covering the BSA Twin Towers Project; directing ASB to cause the subdivision of the mother titles into condominium certificates of tile within 90 days and to thereafter deliver title to complainant Dylanco free from all liens and encumbrances; and cTIESa

4. Ordering respondent ASB to complete the subject condominium project as per SEC Order dated 03 November 2004. (Words in brackets added)

On the other hand, the HLURB decision on the SLGT case, docketed as REM-A-050208-0020, was, on all material points, of the same tenor as in the Dylanco case, albeit the unit involved is different and the banks referred to in SLGT are UCPB and Metrobank. TcHCDI

From the HLURB resolutions in REM-A-050208-0020 and REM-A-050208-0021, Metrobank appealed to the OP, followed by UCPB's own appeal from the resolution in REM-A-050208-0020. Owing to the obvious similarities in both cases, the OP had them consolidated, the Dylanco case docketed as O.P. Case No. 05-F-212 and the SLGT case as O.P. Case No. 05-F-215. DcSACE

On October 10, 2005, the OP rendered a decision against Metrobank and UCPB, disposing as follows: CETIDH

WHEREFORE, premises considered, the appeals filed by Metropolitan Bank and Trust Company and the United Coconut Planters Bank are hereby DISMISSED for lack of merit.


From the October 10, 2005 OP Decision, petitioner banks and SLGT interposed their respective motions for reconsideration, SLGT excepting to that portion of the decision declaring the mortgage contract as void only insofar as it and Dylanco are concerned. To SLGT, the indivisibility of a mortgage contract requires that a declaration of nullity or a validity for that matter should cover the entire mortgage.

On December 22, 2005, the OP issued an Order acting favorably on SLGT's motion, but denying those of Metrobank and UCPB. The fallo of the OP's Order reads: DHIETc

"WHEREFORE, the Motions for Reconsideration of Metrobank and UCPB are hereby DENIED. With respect to the partial motion for reconsideration of SLGT ...,the same is hereby GRANTED. Accordingly, the mortgage contract executed between ASB Development Corporation and respondent banks (Metrobank and UCPB) is hereby declared null and void in its entirety.Respondents-appellants are hereby ordered to release to ASBDC TCT Nos. 9834 and 9835, and for ASBDC to cause the subdivision of the mother titles into condominium certificates of title, and thereafter deliver to complainants SLGT and Dylanco their respective condominium certificates of title free of lien and encumbrances.

The records of the instant cases are hereby remanded to HLURB for its appropriate disposition. ScAHTI

SO ORDERED. (Emphasis and words in brackets added)

In time, petitioner banks went to the CA on a petition for review under Rule 43 of theCA-G.R. SP No. 92807, CA-G.R. SP No. 92808 and CA-G.R. SP No. 92882. aTEScI

As stated at the threshold hereof, the appellate court, in its assailed Decision of June 29, 2006, affirmed the OP's October 10, 2005 Decision as modified in its December 22, 2005 Order, the affirmance being predicated, in gist, on the following main premises:

1. A mortgage constituted on a condominium project without the approval of the HLURB in violation of the prescription of Presidential Decree (PD) SAHIDc

2. The complaints of Dylanco and SLGT are not covered by the order issued by the SEC suspending all actions and proceedings against ASB.

Petitioner banks' separate motions for reconsideration were later denied in the CA's equally assailed resolution dated October 31, 2006. TcEaDS

Hence, these separate petitions.

Although formulated a bit differently, the grounds and arguments advanced in support of the petitions converge and focus on two issues, to wit: AIECSD

1. The declaration of nullity of the entire mortgage constituted on the project land site and the improvements thereon; and

2. The applicability to this case of the suspension order granted by SEC to ASB. IDSaEA


As to the first issue, it is the petitioners' posture that the CA, and, before it, the OP, erred when it declared the subject mortgage contract void in its entirety and then directed both petitioner banks to release the mortgage on the Project. ISHCcT

We are not persuaded.

Both petitioners do not dispute executing the mortgage in question without the HLURB's prior written approval and notice to both individual respondents. Section 18 of HTSIEa

SEC. 18. Mortgages. No mortgage of any unit or lot shall be made by the owner or developer without prior written approval of the HLURB.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 ....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 ....(Emphasis and word in bracket added)

There can thus be no quibbling that the project lot/s and the improvements introduced or be introduced thereon were mortgaged in clear violation of the aforequoted provision of TIDcEH

As it were, supra, of the decree directly addresses the problem of fraud and other manipulative practices perpetrated against buyers when the lot or unit they have contracted to acquire, and which they religiously paid for, is mortgaged without their knowledge, let alone their consent. The avowed purpose of Any less stringent construal would only accord unscrupulous developers and their financiers unbridled discretion to follow or not to follow

In , involving a defaulting mortgagor-subdivision developer, a mortgagee-bank and a lot buyer, the Court expounded on the rationale behind SaHIEA

. . . The unmistakable intent of the law is to protect innocent lot buyers from scheming subdivision developers. As between these small lot buyers and the gigantic financial institutions which the developers deal with, it is obvious that the law as an instrument of social justice must favor the weak. Indeed, the petitioner bank had at its disposal vast resources with which it could adequately protect its loan activities, and therefore is presumed to have conducted the usual "due diligence" checking and ascertaining . . . the actual status, condition, utilization and occupancy of the property offered as collateral. . . . On the other hand, private respondents obviously were powerless to discover the attempt of the land developer to hypothecate the property being sold to them. It was precisely in order to deal with this kind of situation that

The Court then quoted with approval the following instructive comments of the Solicitor General: DEIHAa

Verily, if

Given the foregoing perspective, the next question to be addressed turns on whether or not the nullity extends to the entire mortgage contract.

The poser should be resolved, as the CA and OP did resolve it, in the affirmative. This disposition stems from the basic postulate that a mortgage contract is, by nature, indivisible. Consequent to this feature, a debtor cannot ask for the release of any portion of the mortgaged property or of one or some of the several properties mortgaged unless and until the loan thus secured has been fully paid, notwithstanding the fact that there has been partial fulfillment of the obligation. Hence, it is provided that the debtor who has paid a part of the debt cannot ask for the proportionate extinguishments of the mortgage as long as the debt is not completely satisfied.

The situation obtaining in the case at bench is within the purview of the aforesaid rule on the indivisibility of mortgage. It may be that Section 18 of Ergo, a declaration of nullity for violation of Section 18 of ITaESD

It will not avail the petitioners any to feign ignorance of

Neither could they rightly claim to be mortgagees in good faith. We shall explain. AIaHES

The unyielding rule is that persons dealing with property brought under the Torrens system of land registration have the right to rely on what appears on the certificate of title without inquiring further; that in the absence of anything to excite or arouse suspicion that should impel a reasonably cautious person to make such further inquiry, a would-be mortgagee is without obligation to look beyond the certificate and investigate the title of the mortgagor. Such rule, however, does not apply to mortgagee-banks, their business being one affected with public interest, holding as they do and keeping, in trust, money pertaining to the depositing public which they should guard with earnest. Unlike private individuals, it behooves banks to exercise greater care and prudence in their dealings, including those involving registered lands. As we wrote in , "a banking institution is expected to exercise due diligence before entering into a mortgage contract. The ascertainment of the status or condition of a property offered to it as a security must be standard and indispensable part of its operations." A bank that failed to observe due diligence cannot be accorded the status of a bona fide mortgagee.

Surely, petitioner banks cannot plausibly assert compliance with the due diligence requirement exacted contextually by the situation. For, have they done so, they could have easily discovered that there is an on-going condominium project on the lots offered as mortgage collateral and, as such, could have aroused their suspicion that the developer may have engaged in pre-selling, or, with like effect, that there may be unit buyers therein, as was the case here. Having been short in care and prudence, petitioners cannot be deemed to be mortgagees in good faith entitled to the benefits arising from such status. HEIcDT

This thus brings us to the next issue of whether or not the HLURB, OP and, necessarily, the CA reversibly erred in continuing with the resolution of this case notwithstanding the rehabilitation proceedings before, and the appointment by, the SEC of a receiver for ASB which, under Section 6 (c) of necessarily suspended "all actions for claims" against distressed corporations.

Petitioners maintain that individual respondents' demands initially filed with the HLURB partake of the nature of "claim" within the contemplation of the aforesaid suspensive section of to drive home the idea of the encompassing reach of the word "claim" which they deem to include any and all claims or demands of whatever nature and character. SEHTAC

The Court is unable to accommodate the petitioners.

As we articulated in ., the fact that respondent B.F. Homes is under receivership does not preclude the continuance before the HLURB of the case for specific performance of a real estate developer's obligation under Says the Court further: IAETDc

...The appointment of a receiver does not dissolve the corporation, nor does it interfere with the exercise of corporate rights. In this case where there appears to be no restraints imposed upon respondent as it undergoes rehabilitation receivership, respondent ...continues or should continue to perform its contractual and statutory responsibilities to petitioners as homeowners.

xxx xxx xxx

No violation of the SEC order suspending payments to creditors would result as far as petitioners' complaint before the HLURB is concerned. To reiterate, what petitioners seek to enforce are respondent's obligation as subdivision developer [for which the HLURB, not the SEC, is equipped with the expertise to deal with the matter].Such claims are basically not pecuniary in nature. HSaIET

Arranza actually complemented the earlier case of where the Court defined and explained the term "claim" in the following wise:

We agree . . . that the word "claim" as used in Sec. 6 (c) of IHaSED

Petitioners' citation and undue reliance on Sobrejuanite is quite misplaced in view of differing set of facts. In that case, the Court held that the HLURB is bereft of jurisdiction to proceed with the case during the pendency of the rehabilitation proceedings since the spouses Sobrejuanite's claim involves pecuniary consideration, or a claim for refund of the purchase price paid, with interest, to be precise. Unlike the spouses Sobrejuanite in Sobrejuanite, SLGT's and Dylanco's complaints in the instant case did not seek monetary recovery or to touch the corporate coffers of ASB ahead of others. They did not even consider themselves as money claimants. All they ask was for the enforcement of ASB's statutory and contractual obligations as a condominium developer. In the concrete, they pressed for the delivery of their units free from all liens and encumbrances and the declaration of nullity of the mortgage in question arising from the breach of Section 18 of

Significantly, in Sobrejuanite,the Court stated the observation, in reference to the Arranza case, that "the proceedings before the HLURB may be suspended during the rehabilitation of the ailing corporation" "if the claim was for monetary awards." ACcDEa

The Court is very much aware of A.M. No. 00-8-10-SC or the which defines the term "claim" as including all claims or demands of whatever character against a debtor or its property, whether for money or otherwise. But as aptly explained by the CA, Section 24 of the interim rules limits the coverage of the Rules on rehabilitation and consequently the rule of suspension of action to those who stand in the category or debtors and creditors. The relationship between the petitioner banks, as mortgagor of the ASB property, on one hand, and respondents SLGT and Dylanco, as unit buyers, on the other, cannot be that of a debtor-creditor as to bring the case within the purview of the Sobrejuanite case. Then, too, the vinculum that binds SLGT/Dylanco, as unit buyers and as suitors before the HLURB, and ASB is far from being akin to that of debtor-creditor. As it were, SLGT/Dylanco sued ASB for having constituted, in breach of

Looking beyond the strictly legal issues involved in this case, however, the pendency of the rehabilitation proceedings ought not, as stressed in the Order of the OP, be invoked to defeat or deny the claim of individual respondents. Suspending the proceedings would only perpetuate and compound the injustice committed by ASB on SLGT and Dylanco. It would reduce to pure jargon the beneficent provisions and render illusory the purpose of acIHDA

WHEREFORE, the instant petitions are DENIED and the assailed CA Decision and Resolution are AFFIRMED.

Cost against the petitioners. DAHEaT


Puno, C.J.,Sandoval-Gutierrez, Corona and Azcuna, JJ., concur


1. Penned by Associate Justice Vicente S.E. Veloso and concurred in by Associate Justices Conrado M. Vasquez, Jr. and Mariano C. Del Castillo; rollo (G.R. Nos. 175181-82),pp. 59 et seq.

2. Id. at 82-83.

3. Id. at 18 et seq.

4. Id. at 798 et seq.

5. Rollo (G.R. Nos. 175354 & 175387-88),p. 768.

6. Created by Mortgage Trust Indenture entered into by Metrobank Trust and ASB dated September 20, 1999. Metrobank Trust signed as Trustee in behalf of certain creditors among whom is UCPB; rollo (G.R. Nos. 175181-82),pp. 277 et seq.

7. As participating creditor in the Mortgage Trust Indenture, UCPB is the holder of a Mortgage Participation Certificate, representing its aliquot interest in the mortgage created by the Indenture.

8. Impleading Metrobank and ASB as defendants; rollo (G.R. Nos. 175181-82),pp. 307 et seq.

9. Id. at 293 et seq.;SLGT impleaded UCPB as additional defendant.

10. Id. at 1259 et seq.

11. Rollo (G.R. Nos. 175354 & 175387-88),pp. 292 et seq.

12. Supra note 3.

13. Supra note 4.

14. Supra note 1.

15. Supra note 2.

16. Article 5,

17. G.R. No. 104528, January 18, 1996, 252 SCRA 5.

18. Art. 2089 of the

19. ,G.R. No. 122801, April 8, 1997, 301 SCRA 366.

20. ,G.R. No. 116111, January 21, 1999, 271 SCRA 76; ,G.R. No. L-36897, June 25, 1980, 98 SCRA 280.

21. ,G.R. No. 131679, February 1, 2000, 324 SCRA 346, citing cases.

22. G.R. No. 147788, March 19, 2002, 379 SCRA 490.

23. Rural Bank of Compostela, supra.

24. SEC. 6. In order to effectively exercise such jurisdiction over corporations the SEC shall possess the following powers: ...c) To appoint one or more receivers of the property ...which is the subject of the action pending before the Commission ...Provided, finally That upon appointment of a ...rehabilitation receiver ...all actions for claims against corporations ...pending before any court, tribunal, board or body shall be suspended accordingly. (Italics added.).

25. Amended by

26. G.R. No. 165675, September 30, 2005, 471 SCRA 763.

27. G.R. No. 131683, June 19, 2000, 333 SCRA 799.

28. Id. at 811.

29. Id. at 815.

30. G.R. No. 107002, October 7, 1994, 237 SCRA 446.

31. At page 774 of the Sobrejuanite case, supra.

32. Its provisions were based primarily on the provisions of the .

33. Under Sec. 24, the rehabilitation plan produces, among others, the following effects: 1. It binds the debtor, including creditors whether or not they participated or opposed the plan; 2. Payment to the creditors must be made in accordance with the plan; 3. Existing contracts and arrangements between the debtor and creditor shall be interpreted as continuing; and 4. Any compromise on amounts or rescheduling of timing of payments by the debtor shall be binding on the creditor regardless of whether or not the plan is successfully implemented.

34. Supra note 4, at p. 7 of the Order.