Philippine National Bank v. Office of the President
NEW DOCTRINEFacts
The Antecedents: Private respondents were buyers on installment of subdivision lots from Marikina Village, Inc. The developer, Marikina Village, Inc., mortgaged these lots to petitioner Philippine National Bank (PNB) despite having executed land purchase agreements with the private respondents. The private respondents, unaware of the mortgage, complied with their obligations and constructed houses on their lots. The developer defaulted, and PNB foreclosed on the mortgage, becoming the highest bidder and owner of the lots. Procedural History: The Housing and Land Use Regulatory Board (HLURB) Office of Appeals, Adjudication and Legal Affairs (OAALA) ruled that PNB could only collect the remaining amortizations from the private respondents, not compel them to pay again for the lots. The HLURB affirmed this decision. The Office of the President, invoking P.D. 957, also concurred with the HLURB. The Petition: PNB filed a petition with the Supreme Court, challenging the decision of the Office of the President. PNB argued that P.D. 957 should not apply because the mortgage was executed before its enactment, and that PNB was not privy to the contracts between the private respondents and the developer.
Issue(s)
Whether Presidential Decree No. 957 applies to a mortgage contract executed prior to its enactment. Whether petitioner Philippine National Bank, as a third party to the land purchase agreements, can be compelled to accept the remaining amortizations from the private respondents and issue titles. Whether the retroactive application of P.D. 957 violates the impairment clause of the Constitution.
Ruling
The petition is denied. The Supreme Court affirmed the decision of the Office of the President, holding that P.D. 957 applies retroactively to protect innocent lot buyers and that the impairment clause does not shield contracts from the State's police power when public welfare is involved.
Ratio Decidendi
On the applicability of P.D. 957 to prior mortgage contracts: The Court held that P.D. 957 applies retroactively to mortgage contracts executed prior to its enactment. While laws generally have no retroactive effect unless provided, the Court inferred the intent of P.D. 957 from its preamble and the situation it sought to remedy. The decree's purpose is to protect innocent lot buyers from unscrupulous developers who fail to deliver titles free from liens and encumbrances, or who fraudulently sell the same lots to different purchasers. The Court emphasized that as an instrument of social justice, the law must favor the weak, which in this case are the small lot buyers, over financial institutions like the petitioner bank, which has the resources to conduct due diligence and ascertain the status of the property offered as collateral. The Court cited Sutherland on Statutory Construction, stating that the intent of the legislature is the law itself and must be enforced even if it deviates from the strict letter of the statute when that letter leads away from the true intent and purpose of the legislature. On the petitioner bank's privity to the contracts and obligation to accept payments: The Court disagreed with the petitioner's claim of non-privity. Citing Section 18 of P.D. 957, the Court stated that the law obliges the bank to accept payments of remaining unpaid amortizations from the private respondents. Section 18 explicitly grants the buyer the option to pay installment payments directly to the mortgagee, who is then required to apply these payments to the corresponding mortgage indebtedness secured by the particular lot or unit. This provision allows the buyer to obtain title promptly after full payment, irrespective of the bank's direct contractual relationship with the developer. The Court reiterated that this is without prejudice to the bank seeking relief against the subdivision developer. On the alleged violation of the impairment clause: The Court found no violation of the impairment clause. It cited Justice Isagani Cruz's pronouncements that a contract valid at its execution may be legally modified or invalidated by a subsequent law if that law is a proper exercise of the police power, which affects the public welfare. The Court further referenced Juarez v. Court of Appeals, stating that the impairment clause is no longer inviolate when private agreements affect the public interest and come within the embrace of the police power. The Court reasoned that P.D. 957, enacted to protect innocent buyers and ensure decent human settlements, is a valid exercise of police power. Allowing a mortgage contract executed before P.D. 957 to defeat the purpose of the decree would render the law ineffective and allow fraudulent practices to persist, which is contrary to the State's mandate to protect its citizens and promote social justice.
Main Doctrine
Presidential Decree No. 957, "The Subdivision and Condominium Buyers' Protective Decree," applies retroactively to mortgage contracts executed prior to its enactment, to protect innocent subdivision lot buyers from unscrupulous developers, even if the mortgagee is a financial institution. The State's police power, exercised to protect public welfare and social justice, can override the impairment clause in such cases.