Concorde Condominium, Inc. vs. Philippine National Bank

The HLURB has exclusive jurisdiction over a condominium corporation’s complaint for annulment of mortgage and reconveyance of common areas when the action arises from the developer’s alleged unsound real estate business practices, including the unauthorized segregation and encumbrance of such common areas in violation of the Condominium Act and Presidential Decree No. 957. A mortgagee‑bank claiming good faith must present credible proof of pre‑mortgage due diligence, such as a prior ocular inspection and inquiry into the property’s history; a belated or post‑dated inspection report and failure to verify the property’s origin as part of a condominium project negate good faith.

Pulp and Paper, Inc. (PPI) developed Concorde Condominium, a seven‑storey building on two parcels of land in Makati City. On November 4, 1974, PPI executed a Master Deed with Declaration of Restrictions that enumerated the common areas, which included the two parcels of land, the basement, the deck roof, and all other areas of common use; the uncovered parking area directly at the rear of the building was among the “limited common areas” reserved for unit owners’ parking. The Master Deed obliged PPI to form a condominium corporation to hold title to and manage the common areas. Pursuant to that covenant, Concorde Condominium, Inc. (CCI) was incorporated on January 6, 1975. Despite the project’s completion and CCI’s organization, the certificates of title over the land and common areas were never transferred to CCI.

Without CCI’s knowledge or consent, PPI consolidated and subdivided the two parcels, segregated the uncovered parking area into a separate lot, and obtained new titles from the Register of Deeds after securing a favorable resolution from the Land Registration Authority (Consulta No. 2439, June 10, 1996). In 1997, again without notice to CCI or the unit owners, PPI applied with the HLURB to alter the condominium plan and amend the Master Deed so as to exclude the uncovered parking area from the common areas. The HLURB granted clearance, relying on a mere Corporate Secretary’s Certificate—not a board resolution. The Register of Deeds then issued TCT No. 208874 in PPI’s name without the Master Deed annotation. PPI mortgaged that lot to PNB‑IFL on May 23, 1997; the loan later went into default, the mortgage was foreclosed, and the property was sold at public auction to Philippine National Bank (PNB) on September 1, 1999.

CCI sued PPI, PNB‑IFL, and the Register of Deeds before the HLURB, seeking annulment of title, mortgage, and reconveyance.

• The Condominium Project and Master Deed: In 1974, Pulp and Paper, Inc. (PPI) developed Concorde Condominium on two parcels in Legaspi Village, Makati, covered by TCT Nos. [351672] S‑20277 and [420504] S‑20278. On November 4, 1974, PPI executed a Master Deed with Declaration of Restrictions that listed the common areas, including the two parcels of land, the basement, the deck roof, and all other areas of common use. The Master Deed identified uncovered parking spaces at the rear of the building as “limited common areas,” allocated for exclusive use of unit owners, with specific parking slot allocations per floor. Section 6 of the Master Deed obligated PPI to form a condominium corporation to hold title to all common areas and manage the project. Pursuant to this, Concorde Condominium, Inc. (CCI) was incorporated on January 6, 1975.

• PPI’s Segregation and Alteration of the Plan: Despite the project’s completion and CCI’s incorporation, the titles to the land were never transferred to CCI. Without CCI’s knowledge and consent, PPI, through its president Robert G. Young, had the two parcels resurveyed and subdivided, and on July 10, 1996 obtained new TCT Nos. 206284 (1,225 sq m) and 206285 (1,006 sq m, covering the uncovered parking area) still in PPI’s name, with the Master Deed annotation carried over. On January 16, 1997, again without CCI’s knowledge or consent, PPI applied with the HLURB for alteration of the condominium plan to exclude the uncovered parking area (TCT No. 206285) from the common areas. The HLURB approved the alteration on March 25, 1997 based solely on a Corporate Secretary’s Certificate stating that 84% of CCI’s controlling interest had approved the amendment, though no board resolution or registrable instrument was submitted. Thereafter, TCT No. 206285 was cancelled and TCT No. 208874 was issued in PPI’s name without the Master Deed annotation.

• Mortgage and Foreclosure: On May 23, 1997, PPI executed a real estate mortgage over the lot covered by TCT No. 208874 in favor of Philippine National Bank‑International Finance Limited (PNB‑IFL) to secure a ₱26,300,000.00 loan to PPI and two other corporations. The borrowers defaulted, PNB‑IFL foreclosed, and at the public auction on September 1, 1999, Philippine National Bank (PNB) was the highest bidder and was issued a certificate of sale.

• CCI’s Complaint before the HLURB: On May 5, 2000, CCI filed a complaint for annulment of title, mortgage, and reconveyance. CCI alleged that PPI’s acts were done in bad faith, without notice to or consent of the unit owners, and violated the Master Deed and the Condominium Act. CCI claimed that PNB‑IFL was not an innocent mortgagee because it failed to exercise due diligence; an ocular inspection would have revealed that the lot was directly behind the condominium building, used for parking by unit owners, with no demarcation separating it from the condominium project. PPI’s answer raised the defense of lack of HLURB jurisdiction, insisting the case involved title and ownership cognizable only by regular courts, and argued that the government approvals enjoyed the presumption of regularity. PNB‑IFL and PNB claimed they acted in good faith, relying on the clean title and asserting that a proper inspection had been conducted.

• The HLURB Arbiter’s December 14, 2005 Decision: After unit‑owner intervenors were allowed, the HLURB Arbiter voided the new titles (TCT Nos. 206284, 206285, 208874), declared the amendment of the Master Deed and the mortgage void, ordered reconveyance of the properties to CCI, and held PPI liable for exemplary damages and attorney’s fees. The Arbiter found that PPI had failed to secure the statutorily required consent of a simple majority of registered unit owners for the Master Deed amendment, submitting only a Secretary’s Certificate, not a board resolution; hence, the amendment and all subsequent acts were nullities.

Concorde Condominium, Inc. (G.R. No. 228354):

• Jurisdiction of the HLURB: CCI argued that its complaint alleged unsound real estate business practice—PPI’s unauthorized segregation and mortgage of common areas without unit‑owner consent and without HLURB approval—bringing the case squarely within the HLURB’s exclusive jurisdiction under P.D. No. 957 and P.D. No. 1344. The ultimate prayer for reconveyance did not convert the action into a real action cognizable by regular courts; existing jurisprudence holds that the HLURB may resolve issues involving title when incidental to its regulatory function.

• Mortgagee in Good Faith: CCI contended that PNB‑IFL failed to exercise the requisite diligence of a banking institution. It pointed to the Inspection and Appraisal Report dated November 23, 1998—more than a year after the May 23, 1997 mortgage—which stated that TCT No. 208874 was “not available when verified.” No actual pre‑mortgage ocular inspection was conducted, the report contained no description of the lot’s physical features or its connection to the condominium building, and PNB‑IFL made no inquiry into the property’s history from which its origin as a condominium common area would have been disclosed.

New PPI Corporation (G.R. No. 228359):

• Lack of HLURB Jurisdiction: New PPI maintained that the HLURB lacked jurisdiction because CCI’s complaint essentially sought annulment of title and reconveyance of real property—matters within the exclusive original jurisdiction of the Regional Trial Court. Citing Vda. De Herrera v. Bernardo, New PPI asserted that a decision rendered without jurisdiction is void and cannot create any obligation.

• Failure to Exhaust Administrative Remedies: New PPI argued that the CA erred in dismissing its petition on the ground of failure to exhaust administrative remedies, because an exception applies when the administrative act is patently illegal and void ab initio for want of jurisdiction. It further posited that the CA’s favorable ruling for PNB should inure to its benefit due to commonality of interests, and that its liability to CCI could not stand once jurisdiction was found lacking.

PNB‑IFL and PNB (G.R. No. 228354):

• Jurisdiction of the HLURB: Respondents maintained that the CA correctly held the HLURB had no jurisdiction because the complaint directly assailed the validity of TCT No. 208874 and involved the determination of ownership of real property—a real action within the exclusive competence of regular courts. They argued that the complaint did not concern enforcement of contractual rights between developer and buyers but rather the validity of an alteration of a condominium plan approved by the HLURB and a resolution of the LRA.

• Section 18 of P.D. No. 957 Inapplicable: According to PNB‑IFL and PNB, Section 18’s prohibition on mortgage without HLURB approval did not cover the segregated lot because, at the time of mortgage, the uncovered parking area had been validly excluded from the condominium project through an HLURB‑approved amendment of the Master Deed.

• Status as Mortgagee/Purchaser in Good Faith: They asserted that PNB‑IFL conducted a thorough investigation, inspection, and appraisal of the property before accepting it as collateral, following standard banking procedure. They relied on the clean title TCT No. 208874 and the presumption of regularity of government approvals. They stressed that nothing in the physical condition of the lot or in the title suggested it remained part of the condominium common areas; the condominium building itself had basement parking. They should not be stripped of their rights without due process for a defect attributable solely to PPI.

Concorde Condominium, Inc. (respondent in G.R. No. 228359):

• Failure to Exhaust Administrative Remedies: CCI countered that New PPI never appealed the HLURB Arbiter’s December 14, 2005 decision to the Office of the President and thus could not bypass the administrative hierarchy by directly seeking review in the CA. New PPI’s claim of lack of jurisdiction did not excuse its failure to exhaust remedies. Moreover, there was no commonality of interests between New PPI and PNB‑IFL/PNB because their liabilities arose from distinct sources—PPI’s contractual and statutory obligations to unit buyers versus PNB‑IFL’s loan transaction.

• Jurisdiction: CCI reiterated that its complaint prayed for nullification of a mortgage made in violation of Section 18 of P.D. No. 957, a matter well within the HLURB’s exclusive competence.

• Jurisdiction of the HLURB: Whether the HLURB has jurisdiction over CCI’s complaint for annulment of title, mortgage, and reconveyance involving the condominium common areas.

• Effect of New PPI’s Failure to Appeal: Whether the dismissal of New PPI’s petition before the CA was proper given its failure to appeal the HLURB Arbiter’s decision, and whether New PPI could claim the benefit of the appellate ruling favorable to PNB.

• Status of PNB‑IFL as Mortgagee in Good Faith: Whether PNB‑IFL established that it was a mortgagee in good faith, and consequently, whether the mortgage and foreclosure sale to PNB were valid.

• Jurisdiction of the HLURB: The HLURB possesses exclusive jurisdiction over the case. The nature of an action and jurisdiction are determined by the material allegations of the complaint. CCI alleged that PPI mortgaged a portion of the common areas without the unit owners’ consent and without HLURB approval—acts that constitute unsound real estate business practice under P.D. No. 957 and P.D. No. 1344. The HLURB’s regulatory authority is broad enough to cover actions for annulment of mortgage and foreclosure sale, even if they touch upon title to real property, because split jurisdiction is disfavored and the HLURB’s technical expertise must extend to all controversies arising from subdivision and condominium development. This conclusion is supported by Peña v. GSIS, Spouses Vargas v. Spouses Caminas, Union Bank of the Philippines v. HLURB, Home Bankers Savings and Trust Co. v. CA, and Maria Luisa Park Association, Inc. v. Almendras, which consistently hold that the HLURB may invalidate mortgages constituted by project owners without buyer consent and without NHA/HLURB approval.

• Effect of New PPI’s Failure to Appeal: New PPI (formerly PPI) did not appeal the HLURB Arbiter’s December 14, 2005 decision to the Office of the President, thereby acquiescing to the findings and conclusions regarding its obligations to the unit owners. Well‑settled rule provides that a party who fails to appeal from a judgment can no longer seek its modification or reversal. The appeal of PNB‑IFL and PNB did not inure to New PPI’s benefit because their interests were not common: New PPI’s liability to the condominium buyers rested on its breach of contractual and statutory duties, while PNB‑IFL and PNB’s defense concerned the validity of the mortgage. Even a final judgment upholding the mortgage would leave untouched New PPI’s distinct obligations to CCI, those having become final and executory by operation of its own inaction.

• Status of PNB‑IFL as Mortgagee in Good Faith: PNB‑IFL was not a mortgagee in good faith; consequently, the mortgage and the foreclosure sale to PNB are void. Although good faith is ordinarily a factual issue beyond the scope of a Rule 45 petition, review is warranted when the factual findings of the CA conflict with those of the HLURB and the OP. The Master Deed explicitly designated the uncovered parking area as a limited common area and vested ownership and management in CCI. PPI’s amendment of the Master Deed was void because it failed to obtain the consent of a simple majority of registered unit owners; the submitted Corporate Secretary’s Certificate was insufficient. Those void acts gave PPI no valid title to dispose of the lot. The subsequent mortgage of the segregated lot without HLURB approval contravened Section 18 of P.D. No. 957 and constituted unsound real estate business practice.

  As a mortgagee‑bank, PNB‑IFL was required to exercise a higher degree of diligence. Its own Inspection and Appraisal Report, dated November 23, 1998—more than a year after the May 23, 1997 mortgage—stated that TCT No. 208874 was “not available when verified.” The report provided no description of the premises or their physical connection to the condominium building, and made no inquiry into the property’s recent history, which would have revealed its origin as a common area. These deficiencies defeated the claim of good faith. The burden of proving good faith lies on the party asserting it; mere invocation of the presumption of regularity in government approvals cannot discharge this onus. Because the mortgage was void, the foreclosure sale to PNB was likewise void. Nevertheless, the void mortgage remains as evidence of the contract of indebtedness, and PNB‑IFL may pursue payment from New PPI, subject to any unsettled claims and defenses between them.

• HLURB’s Expanded Jurisdiction over Unsound Real Estate Business Practices: Under P.D. No. 957 and P.D. No. 1344, the HLURB has exclusive jurisdiction over complaints founded on unsound real estate business practices, claims for refund, and actions for specific performance of contractual and statutory obligations filed by subdivision lot or condominium unit buyers against project owners or developers. This jurisdiction encompasses actions for annulment of mortgage, foreclosure sale, and reconveyance when a developer mortgages common areas without unit‑owner consent and without prior HLURB approval, even if title to real property is incidentally involved. Split jurisdiction is disfavored; the HLURB’s specialized expertise applies to all controversies arising from condominium and subdivision development.

• Effect of Failure to Appeal and Commonality of Interest Exception: A party who fails to appeal a judgment is conclusively bound by it and may not thereafter seek its modification or reversal. The appeal of one party does not inure to the benefit of a co‑party unless their interests are common. Where co‑parties’ liabilities arise from distinct and independent juridical relations (e.g., developer’s liability to unit buyers versus creditor’s right under a mortgage), no commonality of interest exists.

• Heightened Diligence Required of Mortgagee‑Banks: A banking institution entering into a mortgage transaction must exercise greater care and prudence than a private individual. It cannot rely solely on the face of a clean certificate of title; an ocular inspection of the property offered as security and an inquiry into its history are standard, indispensable parts of a bank’s operations. The burden of proving status as a mortgagee in good faith rests on the bank, and good faith is never presumed. A belated or post‑dated inspection report, coupled with an absence of descriptive detail showing awareness of the property’s physical relationship to a condominium project, negates good faith.

• Unsound Real Estate Business Practice under P.D. No. 957: A developer commits unsound real estate business practice by unilaterally segregating a condominium’s common areas, amending the master deed without the simple majority consent of registered unit owners required by Section 4 of Republic Act No. 4726 (the Condominium Act), and thereafter mortgaging the segregated portion without the prior written approval of the HLURB under Section 18 of P.D. No. 957. These acts are void ab initio and cannot prejudice the rights of unit owners.

• “When an administrative agency or body is conferred quasi‑judicial functions, all controversies relating to the subject matter pertaining to its specialization are deemed to be included within the jurisdiction of said administrative agency or body. Split jurisdiction is not favored.” (quoting Peña v. GSIS) — Applied to affirm HLURB’s competence over mortgage annulment involving condominium common areas.

• “The provisions of P.D. No. 957 were intended to encompass all questions regarding subdivisions and condominiums. The intention was aimed at providing for an appropriate government agency, the HLURB, to which all parties aggrieved in the implementation of provisions and the enforcement of contractual rights with respect to said category of real estate may take recourse.” — Encapsulates the legislative policy behind broad HLURB jurisdiction.

• “The bank is expected to exercise greater care and prudence in its dealings, including those involving registered lands. … The ascertainment of the status or condition of a property offered to it as security for a loan must be a standard and indispensable part of its operations.” — Sets the standard for mortgagee‑banks and was decisive in finding PNB‑IFL not in good faith.

• “The burden of proving the status of a purchaser/mortgagee in good faith lies upon one who asserts that status. This onus probandi cannot be discharged by mere invocation of the legal presumption of good faith.” — Highlights that good faith must be proved, not presumed.

• “PPI’s refusal to transfer title to CCI and subsequent acts, without the knowledge or consent of the condominium buyers, are highly prejudicial to the registered unit owners. Undeniably, each has an undivided interest in the common areas of the condominium project.” — Underscores the developer’s breach of its contractual and statutory duty.

• Peña v. Government Service Insurance System, 533 Phil. 670 (2006) — Followed as controlling for the proposition that HLURB jurisdiction extends to complaints involving title to real property when the action arises from a developer‑buyer relationship and implicates unsound real estate practices.

• Spouses Vargas v. Spouses Caminas, 577 Phil. 185 (2008) — Cited to reiterate that the HLURB has jurisdiction over cases for annulment of a real estate mortgage constituted by a project owner without buyer consent and without prior NHA approval.

• Union Bank of the Philippines v. HLURB, 285 Phil. 1095 (1992) — Relied upon as the seminal ruling that a developer’s act of mortgaging a condominium project without buyer’s knowledge and consent and without NHA approval amounts to unsound real estate business practice, placing the action within the HLURB’s exclusive domain.

• Home Bankers Savings and Trust Co. v. Court of Appeals, 496 Phil. 637 (2005) — Followed to reinforce that the HLURB may declare a mortgage void insofar as condominium buyers are concerned.

• Maria Luisa Park Association, Inc. v. Almendras, 606 Phil. 670 (2009) — Cited for the rationale that P.D. No. 957 intended to concentrate all questions regarding subdivisions and condominiums in the HLURB, which possesses the requisite technical expertise.

• Philippine National Bank v. Vila, 792 Phil. 86 (2016) — Applied for the rule requiring mortgagee‑banks to conduct a physical inspection and to bear the burden of proving good faith; failure to take precautionary steps precludes invocation of good faith.

• Land Bank of the Philippines v. Belle Corporation, 768 Phil. 368 (2015) — Used to emphasize that banks are expected to exercise the highest degree of diligence and may not rely solely on the certificate of title.

• Spouses Aquino v. Spouses Aguilar, 762 Phil. 52 (2015) — Cited for the settled rule that a party who fails to appeal from a judgment can no longer seek its modification or reversal.

• Maricalum Mining Corporation v. Remington Industrial Sales Corporation, 568 Phil. 219 (2008) — Cited for the exception to the rule on appeals inuring to co‑parties, requiring a commonality of interest.

• Section 4, Republic Act No. 4726 (Condominium Act) — Provides that the enabling or master deed may be amended upon registration of an instrument executed by a simple majority of the registered owners of the property. The Court held that PPI failed to satisfy this requirement because it submitted merely a Corporate Secretary’s Certificate, not a duly approved resolution of the unit owners.

• Section 18, Presidential Decree No. 957 (Subdivision and Condominium Buyers’ Protective Decree) — Prohibits any mortgage on any unit or lot by the owner or developer without prior written approval of the Authority (HLURB), which shall not be granted unless the proceeds are used for project development and effective safeguards are provided. The Court found PPI’s mortgage of the segregated common area without HLURB approval to be a direct violation and an unsound real estate business practice.

• Section 1, Presidential Decree No. 1344 — Confers on the National Housing Authority (now HLURB) exclusive jurisdiction to hear and decide cases involving unsound real estate business practices, claims for refund, and specific performance of contractual and statutory obligations filed by subdivision lot or condominium unit buyers. The Court anchored its ruling on jurisdiction on this provision, in conjunction with P.D. No. 957.

Leonen (Acting Chairperson), J. Reyes, Jr., and Hernando, JJ., concurred. Peralta (Chairperson), J., was on official business.