The Supreme Court affirmed that forest lands are outside the commerce of man and cannot be privately owned. This ruling reinforces the principle that titles issued over non-disposable public lands are void from the beginning, even if a financial institution acted in good faith when accepting the land as collateral. Land Bank of the Philippines (LBP) could not claim a valid mortgage interest over land that was initially within the forest zone and only later declared alienable, as the original title was invalid. This decision highlights the importance of verifying the classification and status of land before accepting it as collateral, reinforcing the state’s power to reclaim public domain land and protecting the environment.
Can a Bank Claim Mortgage Rights Over Land Wrongfully Titled as Private Property?
This case revolves around a parcel of land in Davao City originally titled to Angelito Bugayong in 1969. The land, covered by Original Certificate of Title (OCT) No. P-2823, was later subdivided and sold to various individuals, eventually leading to Lourdes Farms, Inc. securing a Transfer Certificate of Title (TCT) No. T-57348. Lourdes Farms, Inc. then mortgaged the property to Land Bank of the Philippines (LBP). However, residents of the land raised concerns, prompting an investigation that revealed the land was within the forest zone at the time the original sales patent was issued to Bugayong. This crucial detail brought into question the validity of all subsequent titles derived from OCT No. P-2823.
The Republic of the Philippines, represented by the Director of Lands, filed a complaint seeking the cancellation of the title and reversion of the land to the public domain. The core legal question was whether LBP, as a mortgagee in good faith, could claim a valid mortgage interest over the property despite the flawed origin of the title. LBP argued that it relied on the Torrens title, which showed no apparent defects, and that its mortgage rights should be protected. The case reached the Supreme Court after the Regional Trial Court (RTC) and the Court of Appeals (CA) both ruled in favor of the Republic, declaring the original title and all derivative titles void.
The Supreme Court emphasized the principle that forest lands are outside the commerce of man and cannot be privately appropriated. The Court quoted Gordula v. Court of Appeals, stating that forest lands are “unsusceptible of private appropriation in any form.” This principle is rooted in the Regalian Doctrine, which asserts state ownership over natural resources. The Court reiterated that a certificate of title is void when it covers property classified as forest, timber, or mineral land, regardless of whether the current holder is an innocent purchaser for value. The Court cited Republic v. Reyes, stating:
Any title issued covering non-disposable lots even in the hands of an alleged innocent purchaser for value shall be cancelled.
The Court found that since OCT No. P-2823 was issued when the land was still within the forest zone, it was invalid from the outset. Consequently, all subsequent titles derived from it, including TCT No. T-57348 held by Lourdes Farms, Inc., were also void. The Supreme Court affirmed that LBP could not claim a valid mortgagee’s interest because the mortgagor, Lourdes Farms, Inc., never had valid ownership of the land. Article 2085 of the Civil Code requires that the mortgagor be the absolute owner of the property being mortgaged. As Lourdes Farms, Inc. did not have the capacity to mortgage the land, LBP acquired no rights over it. The Supreme Court emphasized that mortgagees of non-disposable lands, where titles were erroneously issued, gain no protection under the Land Registration Law.
LBP’s argument that it acted in good faith by relying on the Torrens title was not persuasive. The Court reiterated that the Director of Lands lacks jurisdiction over public forest lands, and any title issued over such lands is void from the beginning. The defense of indefeasibility of title does not apply against the State in cases involving public land fraudulently included in patents or certificates of title. The Court also dismissed LBP’s claim that the ruling impaired the obligation of contracts, stating that the State’s power to regulate the use and occupancy of forest lands is a valid exercise of police power.
The Supreme Court addressed the issue of prescription, noting that it does not run against the State in cases involving the reversion of public forest land. The Court referenced Reyes v. Court of Appeals, quoting Republic v. Court of Appeals:
Public land fraudulently included in patents or certificates of title may be recovered or reverted to the State in accordance with Section 101 of the Public Land Act. Prescription does not lie against the State in such cases for the Statute of Limitations does not run against the State. The right of reversion or reconveyance to the State is not barred by prescription.
The Supreme Court acknowledged LBP’s cross-claim against Lourdes Farms, Inc. for the outstanding obligation or a substitute collateral. However, due to the lack of factual basis and the failure of the RTC to rule on the cross-claim, the Court remanded the case to the RTC for further proceedings. The Court emphasized that it is not a trier of facts and cannot resolve the cross-claim without a definitive factual determination. The Court referenced De Liano v. Court of Appeals:
Appellant has to specify in what aspect of the law or the facts the trial court erred. The conclusion, therefore, is that appellant must carefully formulate his assignment of errors.
Ultimately, the Supreme Court affirmed the CA decision, declaring OCT No. P-2823 and all derivative titles void, including TCT No. T-57348 mortgaged to LBP. The land was ordered reverted to the public domain. The Court emphasized the importance of preserving forest lands and upheld the State’s authority to reclaim property that was improperly titled. This decision underscores the need for thorough due diligence in land transactions, particularly when dealing with properties that may have originated from public lands.
FAQs
What was the key issue in this case? | The key issue was whether Land Bank of the Philippines (LBP), as a mortgagee, could claim a valid interest in land that was originally part of the forest zone and improperly titled as private property. The Supreme Court ultimately ruled against LBP, reinforcing the principle that forest lands are outside the commerce of man and cannot be privately owned. |
What is the Regalian Doctrine? | The Regalian Doctrine asserts state ownership over natural resources, including forest lands. This doctrine is enshrined in the Philippine Constitution and serves as the basis for laws protecting public lands from private appropriation. |
Why was the original land title declared void? | The original land title (OCT No. P-2823) was declared void because it was issued when the land was still classified as forest land. Under Philippine law, forest lands are not alienable and disposable and therefore cannot be privately owned. |
What is the significance of Article 2085 of the Civil Code in this case? | Article 2085 of the Civil Code states that the mortgagor must be the absolute owner of the property being mortgaged. Since Lourdes Farms, Inc. did not have valid ownership of the land, it could not legally mortgage it to LBP. |
What does it mean to be a “mortgagee in good faith”? | A mortgagee in good faith is one who, without negligence, relies on the validity of the mortgagor’s title to the property. However, this defense does not apply when the land is non-disposable public land, such as forest land. |
Does prescription apply against the State in land disputes? | No, prescription does not run against the State in cases involving the reversion of public forest land. This means the State can reclaim improperly titled public land at any time. |
What is the State’s police power, and how does it relate to this case? | The State’s police power is its authority to enact laws that interfere with personal liberty or property to promote the general welfare. In this case, the State’s assertion of its right to reclaim forest land is a valid exercise of its police power to protect the environment. |
What was the outcome of LBP’s cross-claim against Lourdes Farms, Inc.? | The Supreme Court remanded LBP’s cross-claim against Lourdes Farms, Inc. to the RTC for further proceedings. This was because the RTC had not made a definitive factual determination regarding the claim. |
What is the main takeaway for financial institutions from this case? | Financial institutions must exercise extreme due diligence when accepting land as collateral, particularly properties with a history linked to public land grants. Verifying the land’s original classification and status is critical to avoid potential losses. |
This case serves as a stark reminder of the importance of upholding the Regalian Doctrine and protecting our forest lands. It underscores the principle that titles derived from improperly issued patents or certificates of title are void and can be reclaimed by the State. The ruling also highlights the need for financial institutions to conduct thorough due diligence before accepting land as collateral. As the Supreme Court reaffirmed, the preservation of our natural resources is paramount, and individual interests must sometimes yield to the greater good.
For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.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: Land Bank of the Philippines vs. Republic of the Philippines, G.R. No. 150824, February 04, 2008