G.R. No. 182128 : February 19, 2014



Some time in July 1994, respondent Teresita Tan Dee (Dee) bought from respondent Prime East Properties Inc. (PEPI) ) on an installment basis a residential lot located in Binangonan, Rizal. 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 aP205,000,000.00 loan from petitioner Philippine National Bank (petitioner), secured by a mortgage over several properties, including Dees property.

After Dees full payment of the purchase price, a deed of sale was executed by respondents PEPI and AFP-RSBS on July 1998 in Dees favor. Consequently, Dee sought from the petitioner the delivery of the owners duplicate title but latter refused. As a result, Dee filed with Housing and Land Use Regulatory Board (HLURB) a case for specific performance to compel the delivery of the title by the petitioner, PEPI and AFP- RSBS. HLURB ruled in favor of Dee and directed the petitioner to cancel/ release the mortgage over the lot and ordered that PEPI and AFP- RSBS to deliver the title to of the lot in the name of Dee, free from all liens and encumbrances.

The HLURB decision was affirmed by its Board of Commissioners and by the OP, hence the petitioner filed a petition for review with the CA which also affirmed the OP decision.

Petitioner maintains that it cannot be compelled to cancel the mortgage until the mortgagor (PEPI and AFP RSBS) has settled its obligation.

ISSUE: Whether or not petitioner may be compelled to cancel/ release the mortgage

HELD: YES. Petition Denied

CIVIL LAW: Obligations of the parties in a contract of sale

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 Dees 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. 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. There is nothing in the decision of the HLURB, as affirmed by the OP and the CA, which shows that the petitioner is being ordered to assume the obligation of any of the respondents. There is also nothing in the HLURB decision, which validates the petitioners claim that the mortgage has been nullified.The order of cancellation/release of the mortgage is simply a consequence of Dees full payment of the purchase price.

MERCANTILE LAW: Mortgage contract a mere accessory contract

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 belaboured that a mortgage is an accessory undertaking to secure the fulfilment 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.

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.

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.