THIRD DIVISION

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

PHILIPPINE NATIONAL BANK, petitioner, vs. 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. cdasia

Santiago, Jr. Vidad Corpus & Associates for petitioner.

The Solicitor General for respondents.

SYLLABUS

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

MAY BE TAKEN TO THE COURT OF APPEALS AND 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; EFFECT OF LAWS; GENERALLY, NO RETROACTIVE EFFECT —
Pursuant to Article 4 of the Civil Code, "(l)aws shall have no retroactive effect,
unless the contrary is provided." cdasia

3 . ID.; THE SUBDIVISION AND CONDOMINIUM BUYERS' PROTECTIVE

DECREE (P.D. NO. 957); GIVEN 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 enactment, 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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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. ID.; ID.; PRESIDENTIAL DECREE NO. 957; REAL ESTATE MORTGAGE

MADE BY THE SUBDIVISION OWNER IN FAVOR OF A BANK DECLARED NULL AND
VOID WHERE RIGHTS OF BUYERS CLASHED WITH THE MORTGAGEE BANK'S
RIGHT TO FORECLOSE. — The decision of the Court of Appeals in Breta and
Hamor vs. 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 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.
5. ID.; ID.; ID.; MORTGAGEE BANK OBLIGED TO ACCEPT PAYMENT OF
REMAINING UNPAID AMORTIZATIONS OF SUBDIVISION LOT BUYERS. — 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 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.

6. STATUTORY CONSTRUCTION; STATUTES; EFFECT MUST BE IN

ACCORDANCE WITH THE PURPOSE AND INTENT OF THE LAWMAKERS. — 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. (Sutherland, in his
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 well-known treatise on Statutory Construction [quoted with approval by this
Court in an old case of consequence, Ongsiako vs. Gamboa]).
7. CONSTITUTIONAL LAW; BILL OF RIGHTS; NON-IMPAIRMENT CLAUSE;
CANNOT 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.

RESOLUTION

PANGANIBAN, J : p

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."
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. cdtai

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 amortizations, 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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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: cdt

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 amortizations 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: aisadc

"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 encumbrances,
and to pay real estate taxes, and fraudulent sales of the same
subdivision lots to different innocent purchasers for value ; " 1
(Emphasis supplied) cdta

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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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. "

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 vs. Gamboa 2 ),
says:
"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." 3

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:
"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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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: cdtai

"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. 21. 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. cdt

"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 at bench:
"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.
aisadc

"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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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 vs. Court of Appeals 6 :
"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. cdta

"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."

The decision of the Court of Appeals in Breta and Hamor vs. 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:
"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. cdasia

xxx xxx xxx

"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 taking 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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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. cdtai

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 amortizations
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) cdt

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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 property. Thus, as the country strives to move ahead towards economic self-
sufficiency and to achieve dreams of "NIC-hood" 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
enviable 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. aisadc

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

Footnotes
1. Preamble, Presidential Decree No. 957.

2. 86 Phil. 50 (April 8, 1950).

3. Vol. II, Sutherland, Statutory Construction, pp. 693-95.
4. Comment filed by the Solicitor General on behalf of the public respondent, p. 9;
Rollo , p. 78.
5. J. Isagani A. Cruz, Constitutional Law, 1991 edition, p. 242, citing Home Building
and Loan Assn. vs. Blaisdell, 290 U.S. 398.
6. 214 SCRA 475, 480 (October 7, 1992).
7. CA-G.R. No. 58728-R, promulgated on November 11, 1981.

CD Technologies Asia, Inc. © 2021 cdasiaonline.com