The Supreme Court ruled that lands awarded to farmer-beneficiaries under Presidential Decree (PD) 27 and Republic Act (RA) 6657, as amended, cannot be foreclosed by banks within a 10-year period from the issuance of the Emancipation Patent (EP). This decision reinforces the protection granted to agrarian reform beneficiaries, ensuring they retain ownership and control over their land during this crucial period. The Court emphasized that any foreclosure sale violating this restriction is void ab initio, underscoring the state’s commitment to agrarian reform and social justice.

When Debt Collides with Agrarian Reform: Can a Bank Foreclose on Emancipation Land?

The case revolves around a parcel of land in Nueva Ecija awarded to Jose E. De Lara, Sr. as a farmer-beneficiary under PD 27. After receiving his EP in 1998, Jose obtained a loan from Rural Bank of Jaen, Inc., using the land as collateral. Unfortunately, Jose defaulted on his loan, leading the bank to foreclose on the mortgage and eventually consolidate ownership over the property. This action prompted a legal battle between Jose’s heirs and the bank, questioning whether the foreclosure was valid given the restrictions on transferring land acquired under agrarian reform laws. The core legal question is whether a bank can validly foreclose on land covered by an EP within the 10-year prohibitory period established to protect agrarian reform beneficiaries.

The dispute reached the Department of Agrarian Reform Adjudication Board (DARAB), which initially favored the heirs, stating the consolidation of ownership was prohibited under agrarian laws. However, the Court of Appeals (CA) reversed this decision, reinstating the ruling of the Provincial Agrarian Reform Adjudicator (PARAD) that favored the bank. The CA reasoned that Jose and his wife had fully paid their amortizations to the Land Bank of the Philippines and voluntarily entered into the mortgage contract. This led to the Supreme Court, which ultimately sided with the heirs, emphasizing the importance of upholding agrarian reform policies.

The Supreme Court first addressed the issue of jurisdiction, noting that the DARAB’s authority extends only to cases involving an agrarian dispute. According to Section 3(d) of RA 6657, an agrarian dispute involves controversies relating to tenurial arrangements, compensation for acquired lands, or terms of ownership transfer between landowners and farmworkers. Crucially, the Court found no tenancy relationship between Jose’s heirs and the bank. The bank’s claim stemmed solely from the foreclosure, not from any agrarian arrangement, thus the DARAB lacked jurisdiction.

The Court referenced Heirs of Julian Dela Cruz v. Heirs of Alberto Cruz, highlighting that jurisdiction is determined by the allegations in the complaint, not by the parties’ consent or waiver. This principle ensures that tribunals do not overstep their legal boundaries, regardless of the parties’ actions. The absence of a tenancy relationship meant that the case fell outside the DARAB’s purview, rendering its decisions invalid.

Building on this jurisdictional point, the Court emphasized that the bank should have sought recourse with the Register of Deeds, not the DARAB. Section 63 of PD 1529 outlines the procedure for foreclosure, requiring the purchaser to file a certificate of sale with the Register of Deeds. If the property is not redeemed, the purchaser presents a final deed of sale or a sworn statement of non-redemption, leading to the issuance of a new certificate of title. The bank bypassed this process by directly petitioning the DARAB, further underscoring the procedural flaws in its claim.

Even if the DARAB had jurisdiction, the Supreme Court asserted that the foreclosure would still be invalid. Presidential Decree (PD) 27, which initiated agrarian reform, explicitly restricts the transfer of land acquired under its provisions, stating:

Title to land acquired pursuant to this Decree or the Land Reform Program of the Government shall not be transferable except by hereditary succession or to the Government in accordance with the provisions of this Decree, the Code of Agrarian Reforms and other existing laws and regulations.

This restriction is designed to protect farmer-beneficiaries from losing their land, ensuring they can cultivate and benefit from it. The Court cited Rural Bank of Dasmariñas v. Jarin, which emphasized that foreclosure is essentially a transfer of ownership, thus it contradicts the intent of PD 27.

The enactment of RA 9700, which amended Section 27 of RA 6657, introduced a critical nuance. Initially, RA 6657 restricted the transfer of awarded lands for ten years. RA 9700 extended this restriction to lands acquired under PD 27 and other agrarian reform laws but maintained the 10-year limit. This meant that while beneficiaries could not freely transfer their land, this restriction had a defined timeframe. The amended Section 27 of RA 6657 now reads:

SEC. 27. Transferability of Awarded Lands. — Lands acquired by beneficiaries under this Act or other agrarian reform laws shall not be sold, transferred or conveyed except through hereditary succession, or to the government, or to the LBP, or to other qualified beneficiaries through the DAR for a period of ten (10) years: Provided, however, That the children or the spouse of the transferor shall have a right to repurchase the land from the government or LBP within a period of two (2) years.

Here’s a comparison of the key laws:

Law	Transfer Restrictions	Permitted Transfers
PD 27	No transfer, except under specific conditions.	Hereditary succession or transfer to the government.
RA 6657 (Original)	10-year restriction on transfers.	Hereditary succession, transfer to the government, LBP, or qualified beneficiaries.
RA 9700 (Amendment to RA 6657)	10-year restriction extended to lands under PD 27 and other agrarian laws.	Hereditary succession, transfer to the government, LBP, or qualified beneficiaries.

Although RA 6657 and RA 7881 allow banks to foreclose on agricultural lands, the Supreme Court noted a critical detail: the foreclosure occurred within the 10-year period. Jose received his EP in 1998, and the foreclosure sale happened in 2003—only four years later. This timing violated the restrictions of PD 27 and RA 6657, rendering the foreclosure invalid. The Court emphasized that agreements violating law and public policy are void from the beginning. Article 1409 of the Civil Code provides:

ART. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

The Supreme Court concluded that the foreclosure sale to the bank was void ab initio, upholding the rights of the farmer-beneficiary and the principles of agrarian reform. This ruling ensures that farmer-beneficiaries are protected from losing their land due to foreclosure within the critical 10-year period, thereby promoting social justice and agrarian reform.

FAQs

What was the key issue in this case?	The key issue was whether a bank could foreclose on land covered by an Emancipation Patent (EP) within the 10-year restriction period following the issuance of the EP to a farmer-beneficiary.
What is an Emancipation Patent (EP)?	An EP is a title issued to farmer-beneficiaries under agrarian reform laws, granting them ownership of the land they till. It represents the fulfillment of the government’s promise to emancipate tenants from the bondage of the soil.
What does “void ab initio” mean?	“Void ab initio” means “void from the beginning.” In this context, it means the foreclosure sale was invalid from its inception because it violated agrarian reform laws.
What is the significance of the 10-year restriction period?	The 10-year restriction period is designed to protect farmer-beneficiaries from losing their land shortly after receiving it. This period ensures they have time to establish themselves and benefit from their land ownership.
What laws govern the transfer of land acquired through agrarian reform?	Presidential Decree (PD) 27 and Republic Act (RA) 6657, as amended by RA 9700, govern the transfer of land acquired through agrarian reform. These laws aim to protect farmer-beneficiaries and promote social justice.
What options did the bank have in this situation?	The bank could have waited until the 10-year restriction period expired before pursuing foreclosure. Alternatively, they could have explored other means of recovering the loan that did not involve transferring the land ownership within the prohibited period.
Why did the Supreme Court say the DARAB lacked jurisdiction?	The Supreme Court determined that no agrarian dispute existed because there was no tenurial arrangement or relationship between the farmer’s heirs and the bank. The dispute arose solely from the foreclosure of the mortgage, not from any agricultural tenancy.
What is the role of the Register of Deeds in foreclosure cases?	The Register of Deeds is responsible for recording the certificate of sale and issuing a new certificate of title to the purchaser if the property is not redeemed. This ensures proper documentation and transfer of ownership.
Can banks foreclose on agricultural land?	Yes, banks can foreclose on agricultural land, but they must comply with the provisions of RA 6657 and other relevant laws. This includes respecting the 10-year restriction period and ensuring that the foreclosure does not violate the rights of farmer-beneficiaries.

This case underscores the judiciary’s commitment to protecting the rights of agrarian reform beneficiaries and upholding the principles of social justice. The decision clarifies the limitations on foreclosing land covered by Emancipation Patents within the 10-year restriction period, providing crucial guidance for banks and farmer-beneficiaries alike. Compliance with agrarian reform laws is paramount to ensure that the goals of land distribution and empowerment of farmers are realized.

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: HEIRS OF JOSE DE LARA, SR. VS. RURAL BANK OF JAEN, INC., G.R. No. 212012, March 28, 2022