PNB v.

OP
GR No. 104528
January 18, 1996
FACTS:
This petition assails the decision of the Office of the President of the Philippines (OP).
Represented by spouses Astudillo, herein private respondents were buyers on installment of
subdivision lots from Marikina Village, Inc. Notwithstanding the land purchase agreements over
the lots, the subdivision developer mortgaged the lots in favor of the petitioner, Philippine
National Bank (PNB). Unaware, private respondents duly complied with their obligations as lot
buyers and constructed their houses on the lots. Eventually, the developer defaulted and PNB
foreclosed on the mortgage. As highest bidder at the sale, the bank became owner of the lots.
After a suit was filed with the HLURB, the latter ruled that PNB 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 the lots they had already bought from said subdivision
developer. The Office of the President, invoking P.D. 957, affirmed the decision thus this
petition.
ISSUE:
1. Whether or not the Office of the President erred in applying PD 957 for it violates the
non-impairment clause.
HELD:
1. No.
The mortgage contract was entered into before the effectivity of PD 957 and normally laws
shall have no retroactive effect, unless the contrary is provided. The intent of the lawmakers in
enacting PD 957 is undoubtedly to give it retroactive effect so the OP did not err in ruling that it
must apply. The law in issue was primarily enacted to address the problem of developers and
sellers employing fraud to swindle from innocent lot purchasers. As between the small lot buyers
and the financial institutions like PNB which the developers deal with, it is obvious that social
justice must favor the weak. PNB has vast resources and is presumed to have conducted the due
diligence in checking and ascertaining and occupancy of the property. Otherwise, small people
who have toiled for years would be deprived of their homes through no fault of their own.
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. 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, protector of the public interest. 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.
The law explicitly grants to the buyer the option to pay the installment payment for his lot or
unit directly to the 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

Prepared by: Jo-Anne D. Coloquio

paid for. And this is without prejudice to petitioner seeking relief against the subdivision
developer. Wherefore, petition is denied.

Prepared by: Jo-Anne D. Coloquio