[G.R. No. L-28774. September 21, 1982.

]
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, v. THE COURT OF APPEALS, HON.
HERMOGENES CALUAG, JUDGE OF THE COURT OF FIRST INSTANCE OF RIZAL, and SPOUSES
HONESTO G. NICANDRO and ELISA F. NICANDRO, Respondents.
Federico G. Cabling or petitioner.
Antonio M. Koh, Ramon Quisumbing, Jr., Jalandoni and Adriano for Private Respondents.
SYNOPSIS
On October 25, 1955, petitioner Development Bank of the Philippines (DBP) purchased from the Philippine
Homesite and Housing Corporation (PHHC) some 159 contiguous lots for the Banks housing project for its
employees. The Secretary of Justice, however, in an opinion, ruled that the Banks resolution is violative of
the express prohibition of its Organic Act, specifically Section 25 of Republic Act No. 85 which expressly bars
any bank officer or employee from borrowing or getting a loan from the Bank. This was followed by a
Presidential directive ordering the Bank to cancel its purchase resolution. On October 14, 1958, PHHC sold
two of the said 159 lots to private respondents, the Nicandro spouses. On March 14, 1960, the Secretary of
Justice, answering a query of the Bank whether the lots could be sold to its employees on cash basis, ruled
negatively. Then on June 17, 1961, Republic Act No. 3147, amending Section 23 of the Organic Act of the
Bank, was approved and became effective. Under the amendment, the Bank was empowered to undertake a
housing project for its employees. On November 10, 1961, respondent spouses sued for rescission of the
sale to the Bank of the two lots in question and, the consequent cancellation of the Banks certificate of title
thereto. After due proceedings, both the trial court and the Court of Appeals ordered the rescission prayed
for, but the Supreme Court decision of February 28, 1980, held otherwise, on the sole ground that the
passage of R.A. No. 3147 cured retroactively the lack of authority and violation of the law relied upon by
those lower courts. Hence, the instant motion for reconsideration. Private respondents assert that the
application of the principle of retroactivity in the case at bar was not proper since they had already acquired
a vested right to buy the lots in controversy preferentially over the Bank.
Granting the motion for reconsideration, the Supreme Court set aside its previous decision granting the
petition for review and held that R.A. No. 3147 contained no provision imparting to it retroactive effect and
inasmuch as (a) it is not only that the contract between the Bank and PHHC, being prohibited by law is void
from the beginning and could not be ratified but, (b) that PHHC could not waive the illegality thereof, it is
juridically absurd to give curative character to said legislation.
Motion granted. Petition denied.

SYLLABUS

1. CIVIL LAW; CIVIL CODE; GENERAL PRINCIPLES; NON-RETROACTIVITY OF LAWS. Article 4 of the Civil
Code ordains explicitly that laws "have no retroactive effect, unless the contrary is provided." The said
provision is unequivocal and definite, leaving no room for doubt as to its application. Corollarily, no court
decision, much less of any foreign one can alter such mandate.
2. ID.; ID.; ID.; ID.; INVALIDITY OF MANDATORILY PROHIBITORY LAWS ON CONTRACTS IS NOT WAIVABLE;
CASE AT BAR. Under Article 1409 of the new Civil Code, it is made clear that "contracts expressly
prohibited by law or declared void by law" are "inexistent and void from the beginning" and "cannot be
ratified," thereby making emphatic that as far as prohibitory laws are concerned, their invalidity is not
waivable. In the instant case, Section 23 of Republic Act 85 cannot but be considered as mandatorily
prohibitory, containing as it does heavy penal sanctions for its violations. Consequently, considering that the
contract between the PHHC and the Bank of October 25, 1955 was void from its inception being expressly
prohibited by law, PHHC could not have waived such invalidity and was therefore, free to disengage itself
therefrom as if it did not exist. No court action was necessary in that respect. (Paras, Civil Code of the
Philippines Annotated, Vol. IV, p. 550, 1967 ed.). What is more, in addition to the above general principles,
since what is involved here is a contractual matter, reference to the pertinent provisions of the Civil Code on
contracts is even more compelling in its repudiation of the agreement here at issue. As already stated
above, Article 1409 declares as "inexistent and void from the beginning (contracts) expressly prohibited
or declared void by law" (No. 7) and further, that such "contracts) cannot be ratified. (last paragraph)

3. ID.; ID.; ID.; PARI DELICTO DOCTRINE; NOT APPLICABLE IN CASE AT BAR. Article 1411 provides that
"when the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a
criminal offense, both parties being in pari delicto, they shall have no action against each other, and both
shall be prosecuted." In the case at bar, however, it is neither the cause nor the object that is illegal, rather
it is the objective as already explained earlier. More, We are impressed that the prohibition against an officer
or employee to borrow money from the employer bank is intrinsically against public policy and not merely
illegal by statutory precept. We have already held that the doctrine of in pari delicto cannot be invoked when
to disallow the illegal transaction would enhance public policy. (Philippine Banking v. Lui She, 21 SCRA 52;
Rellosa v. Gaw Chee Hun, 93 Phil. 827).
4. ID.; ID.; ID.; VESTED RIGHT THEORY APPLICABLE IN INSTANT CASE. Logically and corollarily, the
deprivation of any right of action to the PHHC vis-a-vis the Bank does not carry with it the loss of the right of
action by a third party who precisely predicated his transaction on the very premise that the agreement
between the Bank and PHHC was non-existent, hence his priority over the prohibited party or the Bank. If
the PHHC itself is not barred by pari delicto, much less could respondents covered thereby. Indeed it would
be unjust, unfair and inequitable to deprive respondents of the right that clearly belonged to them to deal
with PHHC who at the time of the transaction was not only guided by opinions of the Secretary of Justice but
totally disengaged from its agreement with the Bank by the directive of the President declaring the illegality
and juridical non-existence of the transaction between it and the Bank. In simple terms, at the time the
Nicandros dealt with the PHHC, and that was after the Secretary of Justice had given the adverse opinion
and the President had ordered the Bank to cancel its purchase resolution, and even much longer before
Republic Act 3147 was passed, the latter was entirely free to act as it did, and then and there, the vested
right of said respondents was born. So, even if it were juridically possible to sustain generally that Articles 4,
5 and 1409 of the New Civil Code could be rendered ineffective by a law enacted after an illegal transaction
has already been entered into by certain parties, as a curative statute, a point We do not have to decide
here, it is gravely doubtful if the theory of curative retroactiveness could be applied here, considering that
the result in such a case would be violative of the constitutional injunction against deprivation of vested
rights born of contracts the obligations under which would be impaired. (Article IV, Section 11, Constitution
of the Philippines)
5. ID.; ID.; ID.; PRINCIPLE OF CURATIVE RETROACTIVITY NOT APPLICABLE IN CASE AT BAR. After
reviewing more carefully and maturely the juridical roots of this controversy in the light of the arguments
adduced by the parties relative to respondents motion for reconsideration, We feel persuaded that indeed
Our decision of February 28, 1980 was incomplete in the sense that We did not examine and rule on the
relevant aspects of the retroactivity theory We applied. It now remains for Us to hold as We do hold that
Republic Act 3147 contained no provision imparting to it retroactive effect and inasmuch as, (a) it is not only
that the contract between the Bank and the PHHC could not be ratified but, (b)that PHHC could not waive
the illegality thereof, it is juridically absurd to give curative character to said legislation. We reiterate that
the rules of statutory construction on curative retroactivity referred to in Our decision do not squarely apply
to the instant situation.

RESOLUTION

BARREDO, J.:

Motion for reconsideration filed by respondent spouses seeking reversal of Our decision of February 28, 1980
which overturned the decision of the Court of Appeals in CA-G.R. No, 35418-E, entitled Honesto G. Nicandro,
Et. Al. v. Development Bank of the Philippines, Et Al., affirming the judgment of the Court of First Instance of
Rizal upholding the right of said private respondents over two lots which they had purchased from the then
Philippine Homesite and Housing Corporation, now National Housing Authority, to be referred to later in the
opinion only as PHHC, which appear to have been among 159 lots purportedly covered already by an earlier
sales agreement between the said housing corporation, on the one hand, and the Development Bank of the
Philippines hereinafter to be referred to as Bank, on the other.
To be more specific, the background facts relevant to the motion for reconsideration now before Us extant in
the records and in Our decision sought to be reconsidered are as follows:
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On October 25, 1955 the Bank entered into an agreement of sale to it by the PHHC of 159 contiguous lots
having a total area of 91,188.30 square meters located in the Diliman Estate Subdivision West Triangle,
Quezon City, paying them a down payment of P400,000.00 of the P802,155.56 stipulated purchase price.
However, the sale could not be then registered because the subdivision plan of the area was still pending
approval.
The foregoing transaction notwithstanding, on October 14, 1958, the then Acting General Manager of the
PHHC, Sergio Ortiz, approved an order of sale of lots Nos. 2 and 4, which were among the above 159, to
private respondent spouses, the Nicandros. On November 7, 1958, two deeds of sale, one in favor of the
husband and another in favor of the wife, were prepared by the Sales Division of the PHHC evidently upon
orders of higher authorities thereof, and submitted to and approved by the Board of Directors, after which it
was signed by General Manager Bernardo Torres. For reasons not appearing in the record, the originals of
those deeds were retained at the PHHC office.
At this juncture, it must be stated that when Acting General Manager Ortiz approved the order of sale, and
that was before the board and General Manager Torres acted, their subordinates pointedly informed him as
well as the board and Torres later that the two lots then being sold to the Nicandros were among the 159
lots involved in the transaction with the Bank.
On January 15, 1959, the sales agreement between the PHHC and the Bank was entered in the day book of
the Office of the Register of Deeds of Quezon City as a "sale of an unsegregated portion ; new titles to be
issued upon presentation of the corresponding subdivision plan and technical descriptions duly approved by
the authorities." (Exhibit 15) At that time, the title over the lots was TCT 1356.
On their part, on February 16, 1959, the Nicandros sought to register their signed duplicate copy of the sale
to them, but the Register of Deeds demurred because precisely, the original was not presented, apart from
the omission to submit the consent of the GSIS, then the mortgagee of the property, and for lack of the
required documentary stamps. On the following day, February 17, 1959 the Bank nonetheless registered
affidavits of adverse claims on lots 2 and 4. This was done already on TCT 36533 which had replaced TCT
1356.
Such attempt of the Nicandros and action by the Bank were spawned by the fact that evidently, the validity
of the transaction between the PHHC and the Bank had been earlier questioned, for as early as January 20,
1959, the Secretary of Justice, upon request of the Executive Secretary, rendered an opinion (Opinion No.
16, Series of 1959) thus:
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(1)" Premises considered, it is our opinion that the RFC (DBP) has no express or incidental power to
undertake the housing project under consideration and that the same is incongruous with, if not a clear
violation of, the prohibition contained in Section 23 of Republic Act No. 85. (Annex A, Complaint.)"
Importantly, on February 17, 1959, on the basis of the foregoing opinion of the Secretary of Justice, the
Office of the President required the Bank to revoke its resolution authorizing the purchase of the PHHC lots.
(That was the day before the Nicandros tried to register the sale to them) Still, upon being informed that the
required subdivision plan had already been duly recorded on TCT 36533, the Bank forthwith requested, as
already stated, the annotation of its sales agreement, which was done.
Subsequently, the Bank went a step farther by asking for the issuance of new certificates of title in its favor.
This petition was elevated en consulta to the land Registration Commission which denied the requested
registration on July 29, 1959. However, in the appeal to this Supreme Court, it was held on April 29, 1961,
in G.R. No. L-16448, 1 SCRA 1334, that the annotation made by the Bank on January 15, 1959 constituted
sufficient annotation to bind third persons, including the Nicandros. But long prior to Our decision, on March
14, 1960, the Secretary of Justice, answering a query of the Bank whether the lots could be sold to its
employees on cash basis ruled negatively in Opinion No. 4, series of 1960.
Matters were at such stage, when on June 17, 1961, Republic Act No. 3147 amending Section 23 of the
Organic Act of the Bank, Republic Act 85, was approved and became effective. 1 The said amendatory Act
provides:
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"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. Any such officer or employee who violates the
provisions of this section shall be immediately removed by competent authority and said officer or employee
shall be punished by imprisonment of not less than one year nor exceeding five years and by a fine of not
less than one thousand nor more than five thousand pesos."
To definitely clear up matters, on November 10, 1961, the subject action was filed by respondent spouses
praying for the rescission of the sale to the Bank of the two lots in question and the consequent cancellation
of the Banks certificate of title thereto, with damages, alleging as their main bases that the said purchase
by the Bank was not only ultra vires but illegal, being a direct violation of the express prohibition of Section
13 of Republic Act 85, and as an alternative remedy, they asked that the PHHC be made to pay them the
"value which said properties may have on the date of the decision." After due proceedings, both the trial
court and Court of Appeals ordered the rescission prayed for, but in Our decision of February 28, 1980, We
held otherwise, on the sole ground that the passage of Republic Act 3147 cured retroactively the lack of
authority and violation of law relied upon by those lower courts, hence the instant motion for
reconsideration, followed by a supplement thereto with the comment thereon of petitioner, rejoinder of
respondents, the petitioners comment on said rejoinder and finally the sur-rejoinder of respondents.
The basic prop of respondents plea for reconsideration is that it was inappropriate for Us to apply in this
case the principle of retroactivity, given the peculiar circumstances of this case, wherein, it is claimed, it
appears that the Nicandros had already acquired a vested right to buy the lots in controversy preferentially
over the Bank. Indeed, as matters stood at the time of the passage, there could be no doubt that the Banks
resolution authorizing the purchase in question was, if well intentioned as far as the welfare of its employees
was concerned, definitely beyond the powers of said board, if not on its face, more importantly in its
intention. It is an undeniable fact that the money appropriated in the resolution was to be used to pay the
PHHC for the account of the respective employees who would be lucky to be awarded a lot, with the
obligation on their part of paying the Bank in periodic installments. In substance and in truth, such an
arrangement amounted to each employee concerned borrowing or getting a loan from the bank. This
concept of the transaction is assumed by both parties as the plain unvarnished objective of the resolution.
And such being the factual situation whose legality or validity We were called upon to determine,
respondents maintain that in a way Our decision evaded the real issue or failed to pass upon the pertinent
ramifications and implications of the retroactivity theory on which the same was solely based.
After reviewing more carefully and maturely the juridical roots of this controversy in the light of the
arguments adduced by the parties relative to respondents motion for reconsideration, We feel persuaded
that indeed Our decision was incomplete in the sense that We did not examine and rule on the relevant
aspects of the retroactivity theory We applied.
To start with, We assumed without any evidentiary basis that Republic Act 4137 was purposely intended to
remedy the problem that the facts of this case had spawned. Nothing in the record indicates that evidence
was introduced in such regard, thus making Our ruling more or less a mere surmise or inference, quite
logical as it might be in common sense. But who could know that the legislature so intended, considering
that it is a familiar rule of statutory construction that generally all laws are intended to be prospective in
their effect unless there are express provisions to the contrary? Thus, Article 4 of the Civil Code ordains
explicitly that laws "have no retroactive effect, unless the contrary is provided."
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As if to avoid the natural logical consequence of this provision of the Civil Code just quoted, Our decision
resorted to a shade of the theory of retroactivity and held that the intention of Republic Act 3147 was
curative, holding that curative laws "are forms of retrospective legislation(s) which reach back on past
events and which would be otherwise ineffective for the purpose the parties intended: They thus make
valid that which before enactment of the statute was invalid," footnoting said proposition with three
American decisions, not one of them of the Federal Court.
But as We see it now, at best, the holdings We have quoted are general principles to be applied only in the
appropriate cases wherein their peculiar respective circumstances permit. On the other hand, the abovequoted Article 4 of our Civil Code is unequivocal and definite, leaving no room for doubt as to its application.
Corollarily, no court decision, much less of any foreign one can alter such mandate. And, indeed, in this
connection, it may be pointed out that whereas the Old Civil Code provision (Article 3) corresponding to
what is Article 4 now was followed immediately by its Article 4 providing that:
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"Acts performed contrary to law are void, except in cases in which the law itself gives validity to such acts.

Rights granted by law may be waived, provided such waiver be not contrary to public interest or public
order, or prejudicial to a third person."
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While the second paragraph of said old Article 4 permitted the waiver of rights granted by law, such as
perhaps the non-retroactivity under Article 4, in our new Civil Code, under its Article 1409, it is made clear
that "contracts expressly prohibited by law or declared void by law" are "inexistent and void from the
beginning" and "cannot be ratified," thereby making emphatic that as far as prohibitory laws are concerned,
their invalidity is not waivable. In the instant case, Section 23 of Republic Act 85 cannot but be considered
as mandatorily prohibitory, containing as it does heavy penal sanctions for its violations. Consequently,
considering that the contract between the PHHC and the Bank of October 25, 1955 was void from its
inception being expressly prohibited by law, PHHC could not have waived such invalidity and was therefore,
free to disengage itself therefrom as if it did not exist. No court action was necessary in that respect. (Paras,
Civil Code of the Philippines Annotated, Vol. IV, p. 550, 1967 ed.)
What is more, in addition to the above general principles, since what is involved here is a contractual matter,
reference to the pertinent provisions of the Civil Code on contracts is even more compelling in its repudiation
of the agreement here at issue. As already stated above, Article 1409 declares as "inexistent and void from
the beginning (contracts) expressly prohibited or declared void by law" (No. 7) and further, that such
"contract(s) cannot be ratified." (last paragraph)
Of course, Article 1411 provides that "when the nullity proceeds from the illegality of the cause or object of
the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no
action against each other, and both shall be prosecuted." In the case at bar, however, it is neither the cause
nor the object that is illegal, rather it is the objective as already explained earlier. More, We are impressed
that the prohibition against an officer or employee to borrow money from the employer-bank is intrinsically
against public policy and not merely illegal by statutory precept. We have already held that the doctrine of in
pari delicto cannot be invoked when to disallow the illegal transaction would enhance public policy.
(Philippine Banking v. Lui She, 21 SCRA 52; Rellosa v. Gaw Chee Hun, 93 Phil. 827)
Logically and corrolarily, the deprivation of any right of action to the PHHC vis-a-vis the Bank does not carry
with it the loss of the right of action by a third party who precisely predicated his transaction on the very
premise that the agreement between the Bank and PHHC was non-existent, hence his priority over the
prohibited party or the Bank. If the PHHC itself is not barred by pari delicto, much less could respondents
covered thereby. Indeed, it would be unjust, unfair and inequitable to deprive respondents of the right that
clearly belonged to them to deal with the PHHC who at the time of the transaction was not only guided by
opinions of the Secretary of Justice but totally disengaged from its agreement with the Bank by the directive
of the President declaring the illegality and juridical non-existence of the transaction between it and the
Bank. In simple terms, at the time the Nicandros dealt with PHHC, and that was after the Secretary of
Justice had given his adverse opinion and the president had ordered the Bank to cancel its purchase
resolution, and even much longer before Republic Act 4137 was passed, the latter was entirely free to act as
it did, and then and there, the vested right of said respondents was born. So, even if it were juridically
possible to sustain generally that Articles 4, 5 and 1409 of the Civil Code (New) could be rendered
ineffective by a law enacted after an illegal transaction has already been entered into by certain parties, as a
curative statute, a point We do not have to decide here, it is gravely doubtful if the theory of curative
retroactiveness could be applied here, considering that the result in such a case would be violative of the
constitutional injunction against deprivation of vested rights born of contracts the obligations under which
would be impaired. (Article IV, Section 11, Constitution of the Philippines)
At this juncture, it may be added that the decision of this Court in G.R. No. L-16488 of April 29, 1961, 1
SCRA 13334 above-referred to may not be availed of by petitioner Bank, not only because the validity of the
purchase here in controversy was not made an issue, much less passed upon there, but also because, the
PHHC, instead of ratifying the same repudiated it by transacting with respondents Nicandros over the same
subject matter. In a sense, We feel that the bad faith imputed by Us to the respondents in Our decision was
rather uncalled for, since the questionable character of the sale to the Bank had already been passed upon
by authoritative officials when they dealt with the PHHC.
It now only remains for us to hold as We do hold that Republic Act 3417 contained no provision imparting to
it retroactive effect and inasmuch as, for the considerations already discussed above, (a) it is not only that
the contract between the Bank and the PHHC could not be ratified but (b) that PHHC could not waive the
illegality thereof, it is juridically absurd to give curative character to said legislation. We reiterate that the
rules of statutory construction on curative retroactivity referred to in Our decision do not squarely apply to
the instant situation.

The Bank insists only now that the contract was not violative of even the original Article 23 aforequoted
because there is no showing that any employee of the Bank even borrowed from the Bank. Such contention
overlooks conveniently the fact that as We have said earlier, the evident intent and purpose of the purchase
was to resell the land to the employees on installment. Besides, if such late argument had any basis, of what
use then was their invocation of Republic Act 4137 as curative? What would have been there to cure?
IN VIEW OF ALL THE FOREGOING, We are constrained to resolve, as We do hereby resolve, to reconsider
and set aside Our decision in this case of February 28, 1980, and in lieu thereof, We hereby render judgment
denying the petition for review, without costs.
IT IS SO ORDERED.
Guerrero, Abad Santos, De Castro and Escolin, JJ., concur.
Aquino, J., no part.
Endnotes:

1. Section on 23 of Republic Act 85 originally read thus:" `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 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. Any such officer or employee who violates the provisions
of this section shall be immediately removed by competent authority and said officer or employee shall be
punished by imprisonment of not less than one year nor exceeding five years and by a fine of not less than
one thousand nor more than five thousand pesos."