THIRD DIVISION

[G.R. No. 104528. January 18, 1996.]

PHILIPPINE NATIONAL BANK, Petitioner, v. OFFICE OF THE PRESIDENT, HOUSING

AND LAND USE REGULATORY BOARD (HLURB), ALFONSO MAGLAYA, ANGELINA
MAGLAYA P. REYES, JORGE C. BERNARDINO, CORAZON DE LEON, VICTORIANO
ACAYA, FLORENCIA CULTURA, MARIA CAMPOS, ERNESTO SARMIENTO, SANTIAGO
TAMONAN, APOLONIA TADIAQUE, SIMEON DE LEON, NATIVIDAD J. CRUZ,
NATIVIDAD B. LORESCO, FELICIDAD GARCIA, ANA ANITA TAN, LUCAS SERVILLION,
JOSE NARAWAL, represented by their duly authorized Attorney-in-Fact, CORAZON DE
LEON AND SPOUSES LEOPOLDO AND CARMEN SEBASTIAN,
Respondents.chanroblesvirtuallawlibrary

SYLLABUS

1. ADMINISTRATIVE LAW; OFFICE OF THE PRESIDENT- APPEAL THEREFROM MAY

BE TAKEN TO THE COURT OF A~PEALS; SUPREME COURT MAY TAKE COGNIZANCE
THEREOF IN THE INTEREST OF SPEEDY JUSTICE. — Under Revised Administrative
Circular No. 1-95, "appeals from judgments or final orders of the . . . Office of the
President . . . may be taken to the Court of Appeals . . ." However, in order to hasten the
resolution of this case, which was deemed submitted for decision three years ago, the Court
resolved to make an exception to the said Circular in the interest of speedy justice.

2. CIVIL LAW; GENERALLY, LAWS HAVE NO RRETROACTIVE EFFECT — Pursuant to

Article 4 of the Civil Code," (l)aws shall have no retroactive effect, unless the contrary is
provided."cralaw virtua1aw library

3. ADMINISTRATIVE LAW; PRESIDENTIAL DECREE NO. 957 (THE SUBDIVISION AND

CONDOMINIUM BUYERS’ PROTECTIVE DECREE) WITH RETROACTIVE APPLICATION.
— It is obvious and indubitable that P.D. 957 was intended to cover even those real estate
mortgages, like the one at issue here, executed prior to its enactments, and such intent (as
succinctly captured in the preamble) must be given effect if the laudable purpose of
protecting innocent purchasers is to be achieved. While P.D. 957 did not expressly provide
for retroactivity in its entirety, yet the same can be plainly inferred from the unmistakable
intent of the law 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.
Likewise noteworthy are certain provisions of P.D. 957, which themselves constitute strong
arguments in favor of the retroactivity of P.D. 957 as a whole. These are Sections 20, 21 and
23 thereof, which by their very terms have retroactive effect and will impact upon even those
contracts and transactions entered into prior to P.D. 957’s enactment

4. STATUTORY CONSTRUCTION; INTENT OF THE STATUTE IS THE LAW. — The

instent of a statute is the law. If a statute is valid it is to have effect according to the purpose
and intent of the lawmaker. The intent is the vital part, the essence of the law, and the
primary rule of construction is to ascertain and give effect to the intent. The intention of the
legislature in enacting a law is the law itself, and must be enforced when ascertained;
although it may not be consistent with the strict letter of the statute. Courts will not follow the
letter of a statute when it leads away from the true intent and purpose of the legislature and
to conclusions inconsistent with the general purpose of the act. Intent is the spirit which
gives life to a legislative enactment. In construing statutes the proper course is to start out
and follow the true intent of the legislature and to adopt that sense which harmonizes best
with the context and promotes in the fullest manner the apparent policy and objects of the
legislature. (Sutherland, in his well-known treatise on Statutory Construction [quoted with
approval by this Court in an old case of consequence, Ongsiako v. Gamboa]).

5. CONSTITUTIONAL LAW; CONSTITUTION, NON-IMPAIRMENT CLAUSE: CAN NOT

PREVAIL OVER POLICE POWER OF THE STATE. — Despite the Impairment clause, a
contract valid at the time of its execution may be legally modified or even completely
invalidated by a subsequent law. If the law is a proper exercise of the police power, it will
prevail over the contract. Into each contract are read the provisions of existing law and,
always, a reservation of the police power as long as the agreement deals with a matter
affecting the public welfare. Such a contract, it has been held, suffers a congenital infirmity,
and this is its susceptibility to change by the legislature as a postulate of the legal order.

6. ADMINISTRATIVE LAW PRESIDENTIAL DECREE NO. 957 (THE SUBDIVIION AND

CONDOMINIUM BUYERS’ DECREE); REAL ESTATE MORTGAGE MADE BY THE
SUBDIVISION OWNER IN FAVOR OF THE BANK DECLARED NULL AND VOID WHERE
RIGHTS OF SUBDIVISION LOT BUYERS CLASH WITH THE MORTGAGEES BANK’S
RIGHT TO FORECLOSE. — The decision of the Court of Appeals in Breta and Hamor v.
Lao, et al, penned by then Court of Appeals Associate Justice Jose A R. Melo, now a
respected member of this Court, is persuasive, the factual circumstances therein being of
great similarity to the antecedent facts of the case at bench. By the foregoing citation, this
Court thus adopts by reference the foregoing as part of this Decision. The real estate
mortgage in the above cited case, although constituted in 1975 and outside the beneficial
aegis of P.D. 957,was struck down by the Court of Appeals which found in favor of
subdivision lot buyers when the rights of the latter clashed with the mortgagee bank’s right to
foreclose the property. The Court of Appeals in that case upheld the decision of the trial
court declaring the real estate mortgage as null and void.

7. ID.; ID.; ID.; ID. MORTGAGEE BANK OBLIGED TO ACCEPT PAYMENT OF

REAMINING UNPAID AMORTIZATIONS OF SUBDIVISION LOT BUYERS. — A to the
second issue of non-privity, petitioner avers that, in view of the provisions of Article 1311 of
the Civil Code, PNB, being a "total stranger to the land purchase agreement," cannot be
made to take the developer’s place. We disagree. P.D. 957 being applicable, Section 18 of
said law obliges petitioner Bank to accept the payment of the rernaining unpaid
amortizations tendered by private respondents. Privity of contracts as a defense does not
apply in this case for the law explicitly grants to the buyer the option to pay the installment
payment for his lot or unit directly to the mortgagee (petitioner), which is required to apply
such payments to reduce the corresponding portion of the mortgage indebtedness secured
by the particular lot or unit being paid for. And, as stated earlier, this is without prejudice to
petitioner Bank’s seeking relief against the subdivision developer.
RESOLUTION

PANGANIBAN, J.:

May a buyer of a property at a foreclosure sale dispossess prior purchasers on installment of

individual lots therein, or compel them to pay again for the lots which they previously bought
from the defaulting mortgagor-subdivision developer, on the theory that P.D. 957, "The
Subdivision and Condominium Buyers’ Protective Decree", is not applicable to the mortgage
contract in question, the same having been executed prior to the enactment of P.D. 957?
This is the question confronting the Court in this Petition challenging the Decision dated
March 10, 1992 of the Office of the President of the Philippines in O.P. Case No. 4249,
signed by the Executive Secretary, Franklin M. Drilon, "by authority of the President."cralaw
virtua1aw library

Private respondents were buyers on installment of subdivision lots from Marikina Village, Inc.
(represented by spouses Antonio and Susana Astudillo). Notwithstanding the land purchase
agreements it executed over said lots, the subdivision developer mortgaged the lots in favor
of the petitioner, Philippine National Bank. Unaware of this mortgage, private respondents
duly complied with their obligations as lot buyers and constructed their houses on the lots in
question.

Subsequently, the subdivision developer defaulted and PNB foreclosed on the mortgage. As
highest bidder at the foreclosure sale, the bank became owner of the lots.chanroblesvirtual|
awlibrary

Acting on suits brought by private respondents (which were later consolidated), the HLURB
Office of Appeals Adjudication and Legal Affairs (OAALA) in a decision rendered on October
28, 1988 ruled that PNB — without prejudice to seeking relief against Marikina Village, Inc.
— may collect from private respondents only the "remaining amortization, in accordance with
the land purchase agreements they had previously entered into with "Marikina Village. Inc.,
and cannot compel private respondents to pay all over again for the lots they had already
bought from said subdivision developer. On May 2, 1989, the Housing and Land Use
Regulatory Board affirmed this decision. On March 10, 1992, the Office of the President,
invoking P.D. 957, likewise concurred with the HLURB. Hence, the present recourse to this
Court.

Under Revised Administrative Circular No. 1-95, "appeals from judgments or final orders of
the . . . Office of the President . . . may be taken to the Court of Appeals . . . ." However, in
order to hasten the resolution of this case, which was deemed submitted for decision three
years ago, the Court resolved to make an exception to the said Circular in the interest of
speedy justice.

Petitioner bank raised the following issues:chanroblesvirtuallawlibrary

1. The Office of the President erred in applying P.D. 957 because said law was enacted only
on July 12, 1976, while the subject mortgage was executed on December 18, 1975; and

2. Petitioner Bank is not privy to the contracts between private respondents and mortgagor-
subdivision developer, hence, the Office of the President erred in ordering petitioner Bank to
accept private respondents’ remaining amortization and issue the corresponding titles after
payment thereof.

Normally, pursuant to Article 4 of the Civil Code." (l)aws shall have no retroactive effect,
unless the contrary is provided." However, it is obvious and indubitable that P.D. 957 was
intended to cover even those real estate mortgages, like the one at issue here, executed
prior to its enactment, and such intent (as succinctly captured in the preamble quoted below)
must be given effect if the laudable purpose of protecting innocent purchasers is to be
achieved:chanrobles.com : virtual lawlibrary

"WHEREAS, it is the policy of the State to afford its inhabitants the requirements of decent
human settlement and to provide them with ample opportunities for improving their quality of
life;

"WHEREAS, numerous reports reveal that many real estate subdivision owners, developers,
operators, and/or sellers have reneged on their representations and obligations to provide
and maintain properly subdivision roads, drainage, sewerage, water systems, lighting
systems, and other similar basic requirements, thus endangering the health and safety of
home and lot buyers;

"WHEREAS, reports of alarming magnitude also show cases of swindling and fraudulent
manipulations perpetrated by unscrupulous subdivision and condominium sellers and
operators, such as failure to deliver titles to the buyers or titles free from liens and
encumbrance’ and to pay real estate taxes, and fraudulent sales of the same subdivision lots
to different innocent purchasers for value;" 1 (Emphasis supplied)

While P.D. 957 did not expressly provide for retroactivity in its entirety, yet the same can be
plainly inferred from the unmistakable intent of the law 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 ascertained
(whether thru ocular inspection or other modes of investigation) the actual status, condition,
utilization and occupancy of the property offered as collateral. It could not have been
unaware that the property had been built on by small lot buyers. 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 P.D. 957 was enacted, its very essence and intendment being to provide a
protective mantle over helpless citizens who may fall prey to the razzmatazz of what P.D.
957 termed "unscrupulous subdivision and condominium sellers."cralaw virtua1aw library
The intent of the law, as culled from its preamble and from the situation, circumstances and
condition it sought to remedy, must be enforced. Sutherland, in his well-known treatise on
Statutory Construction (quoted with approval by this Court in an old case of consequence,
Ongsiako v. Gamboa 2), says:jgc:chanrobles.com.ph

"The intent of a statute is the law. If a statute is valid it is to have effect according to the
purpose and intent of the lawmaker. The intent is the vital part, the essence of the law, and
the primary rule of construction is to ascertain and give effect to the intent. The intention of
the legislature in enacting a law is the law itself, and must be enforced when ascertained;
although it may not be consistent with the strict letter of the statute. Courts will not follow the
letter of a statute when it leads away from the true intent and purpose of the legislature and
to conclusions inconsistent with the general purpose of the act. Intent is the spirit which
gives life to a legislative enactment. In construing statutes, the proper course is to start out
and follow the true intent of the legislature and to adopt that sense which harmonizes best
with the context and promotes in the fullest manner the apparent policy and objects of the
legislature." 3chanroblesvirtuallawlibrary

Truly, this Court cannot allow the injustice that will be wrought by a strictly prospective
application of the law. Little people who have toiled for years through blood and tears would
be deprived of their homes through no fault of their own. As the Solicitor General, in his
comment, argues:jgc:chanrobles.com.ph

"Verily, if P.D. 957 were to exclude from its coverage the aforecited mortgage contract, the
vigorous regulation which P.D. 957 seeks to impose on unconscientious subdivision sellers
will be translated into a feeble exercise of police power just because the iron hand of the
State cannot particularly touch mortgage contracts badged with the fortunate accident of
having been constituted prior to the enactment of P.D. 957. Indeed, it would be illogical in
the extreme if P.D. 957 is to be given full force and effect and yet, the fraudulent practices
and manipulations it seeks to curb in the first instance can nevertheless be liberally
perpetrated precisely because P.D. 957 cannot be applied to existing antecedent mortgage
contracts. The legislative intent could not have conceivably permitted a loophole which all
along works to the prejudice of subdivision lot buyers (private respondents)." 4

Likewise noteworthy are certain provisions of P.D. 957, which themselves constitute strong
arguments in favor of the retroactivity of P.D. 957 as a whole. These are Sections 20, 21 and
23 thereof, which by their very terms have retroactive effect and will impact upon even those
contracts and transactions entered into prior to P.D. 957’s enactment:chanroblesvirtual|
awlibrary

"SEC. 20. Time of Completion. — Every owner or developer shall construct and provide the
facilities, improvements, infrastructures and other forms of development, including water
supply and lighting facilities, which are offered and indicated in the approved subdivision or
condominium plans, brochures, prospectus, printed matters, letters or in any form of
advertisement, within one year from the date of the issuance of the license for the
subdivision or condominium project or such other period of time as may be fixed by the
Authority.
"SEC. 1. Sales Prior to Decree. — In cases of subdivision lots or condominium units sold or
disposed of prior to the effectivity of this Decree, it shall be incumbent upon the owner or
developer of the subdivision or condominium project to complete compliance with his or its
obligations as provided in the preceding section within two years from the date of this
Decree unless otherwise extended by the Authority or unless an adequate performance
bond is filed in accordance with Section 6 hereof.

"Failure of the owner or developer to comply with the obligations under this and the
preceding provisions shall constitute a violation punishable under Section 38 and 39 of this
Decree.chanroblesvirtuallawlibrary

"SEC. 23. Non-Forfeiture of Payments. — No installment payment made by a buyer in a

subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited
in favor of the owner or developer when the buyer, after due notice to the owner or
developer, desists from further payment due to the failure of the owner or developer to
develop the subdivision or condominium project according to the approved plans and within
the time limit for complying with the same. Such buyer may, at his option, be reimbursed the
total amount paid including amortization interests but excluding delinquency interests, with
interest thereon at the legal rate." (Emphasis supplied)

As for objections about a possible violation of the impairment clause, we find the following
statements of Justice Isagani Cruz enlightening and pertinent to the case a
bench:jgc:chanrobles.com.ph

"Despite the impairment clause, a contract valid at the time of its execution may be legally
modified or even completely invalidated by a subsequent law. If the law is a proper exercise
of the police power, it will prevail over the contract.chanrobles.com : virtual lawlibrary

"Into each contract are read the provisions of existing law and, always, a reservation of the
police power as long as the agreement deals with a matter affecting the public welfare. Such
a contract, it has been held, suffers a congenital infirmity, and this is its susceptibility to
change by the legislature as a postulate of the legal order." 5

This Court ruled along similar lines in Juarez v. Court of Appeals 6:jgc:chanrobles.com.ph

"The petitioner complains that the retroactive application of the law would violate the
impairment clause. The argument does not impress. The impairment clause is now no longer
inviolate; in fact, there are many who now believe it is an anachronism in the present-day
society. It was quite useful before in protecting the integrity of private agreements from
government meddling, but that was when such agreements did not affect the community in
general. They were indeed purely private agreements then. Any interference with them at
that time was really an unwarranted intrusion that could properly struck down.

"But things are different now. More and more the interests of the public have become
involved in what are supposed to be still private agreements, which have as a result been
removed from the protection of the impairment clause. These agreements have come within
the embrace of the police power, that obtrusive protector of the public interest. It is a
ubiquitous policeman indeed. As long as the contract affects the public welfare one way or
another so as to require the interference of the State, then must the police power be
asserted, and prevail, over the impairment clause."cralaw virtua1aw library

The decision of the Court of Appeals in Breta and Hamor v. Lao, Et. Al. 7, penned by then
Court of Appeals Associate Justice Jose A. R. Melo, now a respected member of this Court
is persuasive, the factual circumstances therein being of great similarity to the antecedent
facts of the case at bench:jgc:chanrobles.com.ph

"Protection must be afforded small homeowners who toil and save if only to purchase on
installment a tiny home lot they can call their own. The consuming dream of every Filipino is
to be able to buy a lot, no matter how small, so that he may somehow build a house. It has,
however, been seen of late that these honest, hard-living individuals are taken advantage of,
with the delivery of titles delayed, the subdivision facilities, including the most essential such
as water installations not completed, or worse yet, as in the instant case, after almost
completing the payments for the property and after constructing a house, the buyer is
suddenly confronted by the stark reality, contrived or otherwise, in which another person
would now appear to be owner.chanroblesvirtuallawlibrary

x x x

"We cannot over emphasize the fact that the BANK cannot barefacedly argue that simply
because the title or titles offered as security were clean of any encumbrance or lien, that it
was thereby relieved of thing any other step to verify the over-reaching implications should
the subdivision be auctioned on foreclosure. The BANK could not have closed its eyes that it
was dealing over a subdivision where there were already houses constructed. Did it not
enter the mind of the responsible officers of the BANK that there may even be subdivision
residents who have almost completed their installment payments?" (Id., pp. 7 & 9)

By the foregoing citation, this Court thus adopts by reference the foregoing as part of this
Decision.

The real estate mortgage in the above cited case although constituted in 1975 and outside
the beneficial aegis of P.D. 957, was struck down by the Court of Appeals which found in
favor of subdivision lot buyers when the rights of the latter clashed with the mortgagee
bank’s right to foreclose the property. The Court of Appeals in that case upheld the decision
of the trial court declaring the real estate mortgage as null and void.chanroblesvirtual|
awlibrary

As to the second issue of non-privity, petitioner avers that, in view of the provisions of Article
1311 of the Civil Code, PNB, being a "total stranger to the land purchase agreement,"
cannot be made to take the developer’s place.

We disagree. P.D. 957 being applicable, Section 18 of said law obliges petitioner Bank to
accept the payment of the remaining unpaid amortization tendered by private respondents.

"SEC. 18. Mortgages. — No mortgage on any unit or lot shall be made by the owner or
developer without prior written approval of the Authority. 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 and effective measures have been provided to
ensure such utilization. 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, with a view to enabling said buyer to obtain title over the
lot or unit promptly after full payment thereof ." (Emphasis
supplied)chanroblesvirtuallawlibrary

Privity of contracts as a defense does not apply in this case for the law explicitly grants to the
buyer the option to pay the installment payment for his lot or unit directly to the mortgagee
(petitioner, which is required to apply such payments to reduce the corresponding portion of
the mortgage indebtedness secured by the particular lot or unit being paid for. And, as stated
earlier, this is without prejudice to petitioner Bank’s seeking relief against the subdivision
developer.

Finally, before closing this Resolution, we enjoin petitioner Bank to focus not only on the
strictly legal issues involved in this case but also to take another look at the larger issues
including social justice and the protection of human rights as enshrined in the Constitution,
firstly, because legal issues are raised and decided not in a vacuum but within the context of
existing social, economic and political conditions, law being merely a brick in the up-building
of the social edifice; and secondly, Petitioner, being THE state bank, is for all intents and
purposes an instrument for the implementation of state policies so cherished in our
fundamental law. These consideration are obviously far more weighty than the winning of
any particular suit or the acquisition of any specific property. Thus, as the country strives to
move ahead towards economic self-sufficiency and to achieve dreams of "NIC-blood" and
social well-being for the majority of our countrymen, we hold that petitioner Bank, the
premier bank in the country, which has in recent years made record earnings and acquired
an enable international stature, with branches and subsidiaries in key financial centers
around the world, should be equally as happy with the disposition of this case as the private
respondents, who were almost deprived and dispossessed of their very homes purchased
through their hard work and with their meager savings.

WHEREFORE, in view of the foregoing considerations, the petition is hereby DENIED,

petitioner having failed to show any REVERSIBLE ERROR or GRAVE ABUSE OF
DISCRETION in the assailed decision. No costs.chanrobles.com : virtual lawlibrary

SO ORDERED.

Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.