DEVELOPMENT BANK OF THE PHILIPPINES, PETITIONER, VS. THE COURT OF APPEALS, HON. HERMOGENES CALUAG, JUDGE OF THE COURT OF FIRST INSTANCE OF RIZAL, AND SPOUSES HONESTO G. NICANDRO…

Development Bank of the Philippines versus Nicandro

The Case

This is a petition for certiorari brought by the Development Bank of the Philippines, the DBP, against the Court of Appeals, the trial judge, and the spouses Honesto and Elisa Nicandro. The Bank asks the Supreme Court to set aside the decision of the Court of Appeals which affirmed the trial court's ruling that the Bank's purchase of two lots from the People's Homesite and Housing Corporation was void for violating the Bank's own charter. The case matters because it is the classic ruling on curative statutes — laws that reach back to heal defective transactions — and on when such a law must yield to a vested right that has already accrued in favor of a third person.

Procedural History

The dispute first surfaced in an administrative proceeding. When the Register of Deeds of Quezon City could not decide whether to issue the certificates of title to the Bank or to the Nicandro spouses, he referred the matter on consulta to the Land Registration Commission. The Commission ruled in favor of the Nicandro spouses. The Bank appealed, and the Supreme Court, in an earlier decision, reversed the Commission and held that the annotation of the Bank's sales agreement bound third parties, so that the titles should issue to the Bank as the first registrant.

Meanwhile, the Nicandro spouses filed a separate action in the Court of First Instance of Rizal to rescind the sale to the Bank and to cancel any title issued to it. The trial court held the sale to the Bank null and void for violating Section 13 of the Bank's charter, without providing for the return of the price paid. The Bank appealed, and the Court of Appeals affirmed. The Bank then came to the Supreme Court by petition for certiorari.

Facts

In March 1955 the Board of Governors of the DBP set aside a sum of money to buy land for a housing project for its employees. In October 1955 the Bank bought from the People's Homesite and Housing Corporation 159 lots in the Diliman Estate Subdivision in Quezon City, paying a substantial down payment on the price. Because the subdivision plan was still awaiting approval, the sales agreement was not immediately registered. Lots 2 and 4, the properties in litigation, formed part of those 159 lots.

Doubts were raised about the legality of the acquisition under the Bank's charter, and the matter was referred to the Secretary of Justice. In the meantime, without the Bank's knowledge, the mother title was partly cancelled and a new title was issued to the corporation for the segregated portion. In September 1958 the corporation's acting manager wrote to the Bank asking that Lots 2 and 4 be excluded as inadvertently included, but the Bank refused, insisting that they formed part of the 159 lots already sold to it. Disregarding that refusal, the corporation approved an order of payment for the same two lots in favor of the Nicandro spouses, who paid the down payment and later the full price, and deeds of sale were prepared in their favor. The corporation's own homesite management chief recommended that the execution of the final deeds be suspended, but the deeds were nonetheless signed, though the originals were retained by the corporation and never released.

The Bank's sales agreement was registered and annotated on the title in January 1959. The Secretary of Justice then issued an opinion that the Bank had no power to undertake the housing project, and the Office of the President directed the Bank to revoke its resolution. The Nicandro spouses tried to register their deeds but were refused, and they filed adverse claims instead. Congress later amended the Bank's charter in June 1961, and in November 1961 the spouses filed this action to rescind the sale to the Bank and to recover damages.

Issues

• Whether or not the Nicandro spouses, who were not parties to the sales agreement between the corporation and the Bank, have legal personality to ask for the annulment of that contract.
• Whether or not the amendment of the Bank's charter by Republic Act No. 3147 should be given retroactive effect so as to validate the Bank's acquisition of the lots.
• Whether or not the Nicandro spouses acquired a vested right that would be impaired by giving the curative statute retroactive effect.

Applicable Provisions

Section 13 of Republic Act No. 85, the original charter of the Bank, was the provision whose violation the lower courts relied upon. As reproduced in the amended charter, the prohibition reads:

No officer or employee of the bank nor any government official who may exercise executive or supervisory authority over the said bank either directly, or indirectly, for himself or as representative or agent of others shall, except when the same shall be in the form of advances appropriated or set aside by the Bank itself in order to provide for housing for the benefit of its officials and employees, borrow money from the Bank, nor shall become a guarantor, indorser or surety for loans from the said bank to the others, or in any manner be an obligor for moneys borrowed from the said Bank.

The amendment is decisive because it expressly carves out housing advances set aside by the Bank for its officials and employees, which is precisely the transaction under attack.

Section 110 of Act 496, the Land Registration Act, governs the adverse claim that the spouses registered:

Whoever claims any right or interest in registered land adverse to the registered owner, arising subsequent to the date of the original registration, may, if no other provision is made in this Act for registering the same, make a statement in writing setting forth fully his alleged right or interest, and how or under whom acquired, and a reference to the volume and page of the certificate of title of the registered owner, and a description of the land in which the right or interest is claimed.

It bears on the case because the spouses never registered their deeds of sale; they only filed adverse claims, which the Court weighed against the Bank's earlier registration.

Ruling

On the first issue, the Court held that the spouses have sufficient standing. The general rule is that an action for annulment may be brought only by those bound principally or subsidiarily by the contract, but there is an exception: a person not so bound may sue if he is prejudiced in his rights with respect to one of the contracting parties and can show the detriment that could positively result to him. The spouses paid the full price for lots already sold to the Bank, and that prejudice is undeniable.

On the second issue, the Court held that the Court of Appeals erred in refusing retroactive effect to the amendment. The Court explained that curative statutes are retrospective legislation which reach back on past events to correct errors and irregularities and to render valid attempted acts otherwise ineffective. Congress enacted the amendment precisely while the legality of the acquisition was under question, and its purpose was to erase doubts about the Bank's power to acquire the lots for its employees' housing project. It is therefore a curative statute.

On the third issue, the Court held that the spouses had no vested right capable of defeating the cure. In the earlier registration case the Court had already ruled that the Bank's annotation constituted sufficient registration to bind third parties and that the title should issue to the first registrant, the Bank. The spouses' adverse claims came later. With no vested right impaired, the curative statute applies retroactively and validates the acquisition.

Doctrine

First, the rule on standing admits an exception: a stranger to a contract may sue to annul it if he is prejudiced in his rights with respect to a contracting party and can show positive detriment. Second, a curative statute reaches back to validate acts that failed of legal effect because of a statutory disability, and it will be given retroactive effect unless it impairs a vested right. Third, a vested right is not created by a later, unregistered claim where an earlier registrant has already acquired a preferred right under the Torrens system.

Disposition

The petition was granted; the decisions of the Court of Appeals and the trial court were set aside, and the acquisition by the Bank was upheld as validated by the curative amendment.

Remember This

Memorize the line that a curative statute reaches back on past events to render valid that which was invalid, unless it impairs a vested right. Examiners use this case to test the retroactivity of curative laws and the exception to the rule on who may sue to annul a contract.