TL;DR

The Supreme Court ruled that land awarded to farmer-beneficiaries under agrarian reform laws cannot be foreclosed by banks within ten years of being granted, except by the Land Bank. This case, Heirs of Jose De Lara, Sr. v. Rural Bank of Jaen, Inc., emphasizes the protection of agrarian reform beneficiaries and the policy against transferring ownership of awarded lands outside of hereditary succession or government channels during the prohibitory period. The Court invalidated the foreclosure by Rural Bank of Jaen, Inc. because it occurred within this restricted period, reinforcing the importance of agrarian reform laws in securing land ownership for farmers and preventing circumvention through mortgage and foreclosure.

When the Bank Comes Knocking: Agrarian Reform Lands and Foreclosure Limits

This case, Heirs of Jose De Lara, Sr. v. Rural Bank of Jaen, Inc., revolves around a critical intersection of agrarian reform and banking practices in the Philippines. At its heart is the question: Can a rural bank foreclose on land awarded to a farmer-beneficiary under agrarian reform laws, specifically Presidential Decree No. 27 (PD 27) and Republic Act No. 6657 (RA 6657), within the ten-year prohibitory period? This legal battle highlights the tension between promoting agricultural land ownership among farmers and the rights of financial institutions to recover loans secured by land. The heirs of Jose De Lara, Sr., a farmer-beneficiary, fought to protect their land from foreclosure by Rural Bank of Jaen, Inc., arguing that the mortgage and subsequent foreclosure were illegal under agrarian reform laws.

The narrative begins with Jose De Lara, Sr., who was awarded a parcel of agricultural land under the Operation Land Transfer program of PD 27. He received Transfer Certificate of Title No. EP-86727 in 1998. Subsequently, Jose obtained a loan from Rural Bank of Jaen, Inc., using the awarded land as collateral. Unfortunately, Jose defaulted on his loan, leading the bank to foreclose the mortgage and purchase the land at a public auction in 2003. The bank then sought to cancel Jose’s title and have a new one issued in its name. This action was contested by Jose’s heirs, who argued that the mortgage itself was void from the start because it violated the ten-year restriction on transferring land awarded under agrarian reform laws. This restriction, initially found in PD 27 and later in RA 6657, aims to ensure that land intended for farmer-beneficiaries remains with them for a specified period, preventing its reversion to traditional landowners or financial institutions through debt.

The case journeyed through various levels of agrarian adjudication. The Provincial Agrarian Reform Adjudicator (PARAD) initially sided with the bank, ordering the cancellation of Jose’s title. However, the Department of Agrarian Reform Adjudication Board (DARAB) reversed this decision, emphasizing the prohibition against transferring awarded agricultural lands except through specific means like hereditary succession or to the government. The DARAB argued that allowing foreclosure and transfer to a bank would circumvent the agrarian reform laws. On appeal, the Court of Appeals (CA) sided with the PARAD, reinstating the order to cancel Jose’s title, reasoning that Jose had fully paid for the land and could validly mortgage it. Ultimately, the Supreme Court took on the case to resolve the conflicting decisions and clarify the extent of protection afforded to agrarian reform beneficiaries.

The Supreme Court’s analysis began by addressing a crucial jurisdictional issue. It pointed out that the DARAB’s jurisdiction is limited to agrarian disputes, which necessitate a tenancy relationship between the parties. In this case, no such relationship existed between Jose’s heirs and the Rural Bank of Jaen, Inc. The dispute arose from a loan and mortgage, not from an agrarian tenancy matter. Therefore, the Court found that the DARAB, and consequently the PARAD, lacked jurisdiction to hear the case. Jurisdiction is determined by law and cannot be conferred by consent or waiver of the parties. Even though the parties did not initially raise the jurisdictional issue, the Supreme Court addressed it because it was apparent from the case records.

Furthermore, the Supreme Court highlighted that the bank’s proper recourse should have been with the Register of Deeds, not the DARAB, to consolidate ownership after a foreclosure. Section 63 of Presidential Decree No. 1529 outlines the procedure for foreclosure, indicating that the purchaser at a foreclosure sale should file the necessary documents with the Register of Deeds for title transfer, after non-redemption by the mortgagor. This procedural misstep further underscored the inappropriateness of the bank’s action before the agrarian tribunals.

However, the Court did not stop at jurisdiction. It proceeded to address the substantive issue of whether the foreclosure itself was valid. The Supreme Court firmly held that the foreclosure was void ab initio because it violated the explicit provisions of PD 27 and RA 6657, as amended by RA 9700. PD 27 clearly states that title to land acquired under agrarian reform is non-transferable except by hereditary succession or to the government. RA 6657, as amended, reinforces this principle, extending the non-transferability to ten years from the award, except for transfers through hereditary succession, to the government, the Land Bank of the Philippines, or other qualified beneficiaries.

The Court emphasized the public policy behind these restrictions: to develop generations of farmers and ensure sustained agricultural production. Allowing foreclosure within the prohibitory period would defeat this purpose, making agrarian reform lands vulnerable to reversion to financial institutions and undermining the farmers’ emancipation. While recognizing that rural banks are generally permitted to foreclose mortgages on agricultural lands under RA 7353 and RA 6657, the Supreme Court clarified that this right is not absolute. It is constrained by the non-transferability provisions of agrarian reform laws during the initial ten-year period. The mortgage itself, and consequently the foreclosure stemming from it, was deemed to violate public policy and was therefore void from the outset under Article 1409 of the Civil Code, which declares contracts with objects contrary to law or public policy as inexistent and void.

In conclusion, the Supreme Court’s decision in Heirs of Jose De Lara, Sr. v. Rural Bank of Jaen, Inc. strongly reaffirms the protection afforded to farmer-beneficiaries under Philippine agrarian reform laws. It clarifies that the ten-year restriction on land transfer is not merely a procedural formality but a substantive safeguard against losing awarded land through foreclosure within that period. This ruling serves as a crucial reminder to financial institutions and a source of security for agrarian reform beneficiaries, reinforcing the policy that land awarded to farmers should primarily benefit them and their families, securing their place in the agricultural sector.

FAQs

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Heirs of Jose De Lara, Sr. v. Rural Bank of Jaen, Inc., G.R. No. 212012, March 28, 2022