NDC vs Philippine Veterans Bank (192 SCRA 257)

National Development Corporation vs Philippine Veterans Bank
192 SCRA 257 [GR No. 84132-33 December 10, 1990]

Facts: The particular enactment in question is Presidential Decree No. 1717, which ordered the rehabilitation of the Agrix Group of Companies to be administered mainly by the National Development Company. The law outlined the procedure for filling claims against the Agrix Companies and created a claims committee to process these claims. Especially relevant to this case, and noted at the outset, is section 4(1) thereof providing that “all mortgages and other liens presently attaching to any of the assets of the dissolved corporations are hereby extinguished.” Earlier, the Agrix Marketing Inc. had executed in favor of private respondent Philippine Veterans Bank a real estate mortgage dated July 7, 1978 over three parcels of land situated in Los Baños, Laguna. During the existence of the mortgage, Agrix went bankrupt. It was the expressed purpose of salvaging this and the other Agrix companies that the aforementioned decree was issued by President Marcos. A claim for the payment of its loan credit was filed by PNB against herein petitioner, however the latter alleged and invoked that the same was extinguished by PD 1717.

Issue: Whether or not Philippine Veterans Bank as creditor of Agrix is still entitled for payment without prejudice to PD 1717.

Held: Yes. A mortgage lien is a property right derived from contract and so comes under the protection of Bill of rights so do interests on loans, as well s penalties and charges, which are also vested rights once they accrue. Private property cannot simply be taken by law from one person and given to another without just compensation and any known public purpose. This is plain arbitrariness and is not permitted under the constitution.

The court also feels that the decree impairs the obligation of the contract between Agrix and the private respondent without justification. While it is true that the police power is superior to the impairment clause, the principle will apply only where the contract is so related to the public welfare that it will be considered congenitally susceptible to change by the legislature in the interest of greater number.

Our finding in sum, is that PD 1717 is an invalid exercise of the police power, not being in conformity with the traditional requirements of a lawful subject and a lawful method. The extinction of the mortgage and other liens and of the interest and other charges pertaining to the legitimate creditors of Agrix constitutes taking without due process of law, and this is compounded by the reduction of the secured creditors to the category of unsecured creditors in violation of the equal protection clause. Moreover, the new corporation being neither owned nor controlled by the government, should have been created only by general and not special law. And in so far as the decree also interferes with purely private agreements without any demonstrated connection with the public interest, there is likewise an impairment of the obligation of the contract.


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