GR 104528; (January, 1996) (Digest)
G.R. No. 104528 ; January 18, 1996
PHILIPPINE NATIONAL BANK, petitioner, vs. OFFICE OF THE PRESIDENT, HOUSING AND LAND USE REGULATORY BOARD, ALFONSO MAGLAYA, ET AL., respondents.
FACTS
Private respondents were installment buyers of subdivision lots from Marikina Village, Inc. They complied with their obligations, built houses on the lots, and were unaware that the subdivision developer had mortgaged the same property to petitioner Philippine National Bank (PNB). The developer defaulted on the loan, prompting PNB to foreclose on the mortgage. PNB emerged as the highest bidder at the foreclosure sale, thereby acquiring ownership of the lots. PNB then sought to dispossess the lot buyers or compel them to pay anew for the lots.
The lot buyers filed suits, which were consolidated. The Housing and Land Use Regulatory Board (HLURB) ruled that PNB could only collect from the buyers the remaining amortizations under their original purchase agreements with the developer, not require a second full payment. The Office of the President affirmed this decision, invoking the protective provisions of Presidential Decree No. 957 (The Subdivision and Condominium Buyers’ Protective Decree). PNB appealed to the Supreme Court.
ISSUE
Whether P.D. 957 applies to a mortgage executed prior to its enactment, thereby protecting the installment buyers from being dispossessed or forced to pay again by the mortgagee-bank that acquired the property at a foreclosure sale.
RULING
The Supreme Court ruled in the affirmative, affirming the decisions of the Office of the President and the HLURB. While the Civil Code provides that laws have no retroactive effect unless otherwise stated, the clear intent of P.D. 957, as gleaned from its preamble, is to protect innocent subdivision buyers from fraudulent practices, including the encumbrance of sold lots without their knowledge. The law was enacted precisely to remedy the precise situation where developers hypothecate properties already sold to buyers. This intent must be given effect to achieve social justice.
The Court emphasized that as between the small lot buyers and a large financial institution like PNB, the law favors the weak. The bank is presumed to have conducted due diligence on the property offered as collateral and could have discovered its occupancy by the buyers. In contrast, the buyers had no means to discover the mortgage. Furthermore, the defense of lack of privity of contract between PNB and the buyers does not hold, as Section 18 of P.D. 957 explicitly allows the buyer to pay the remaining installments directly to the mortgagee, who must apply them to the mortgage debt on that specific lot. The bank’s recourse is to seek relief against the defaulting developer. The petition was denied.