When Allowed

[G.R. No. 162032. November 25, 2015.]

RURAL BANK OF MALASIQUI, INC., petitioner, vs. ROMEO M.

CERALDE and EDUARDO M. CERALDE, JR., respondents.

DECISION

BERSAMIN, J  : p

This appeal resolves the question of which between the parties — on

one hand, the petitioner, the rural bank that foreclosed the mortgage
constituted on the agricultural lands earlier expropriated under the land reform
program of the State, and acquired the lands under mortgage as the highest
bidder in the ensuing foreclosure sale; and,
on the other, the respondents, the registered owners and
mortgagors of the lands in favor of the petitioner — was
entitled to the payment of the just compensation for the lands.
In this suit initiated by the respondents to assert their right to the net
value of the just compensations, the petitioner prevailed in the Regional Trial
Court (RTC), Branch 57, in San Carlos City,
Pangasinan by virtue of the judgment rendered on July 15, 1995
(dismissing the respondents' complaint for
lack of cause of action), 1 but the Court of Appeals (CA),
reversing the judgment of the RTC on appeal through the assailed decision
promulgated on April 15, 2003, 2 ordered the petitioner
instead to pay to the respondents the sum of P119,912.00, plus legal interest
reckoned from July 12, 1993, the date when the complaint was filed,
representing the net value of the just compensation.
The petitioner is now before the Court to seek the review and
reversal of the adverse decision of the CA.
Antecedents
The antecedents, as narrated by the CA, are the following:
 Romeo M. Ceralde and Eduardo M. Ceralde, Jr.,
are the owners of the parcels of land covered by Transfer
Certificate of Title (TCT) Nos. 111647 and 111648
respectively, of the Registry of Deeds of Pangasinan. Under varied
dates in the years 1978, 1980, 1981 and 1982, they mortgaged these
properties in favor of appellee [R]ural [B]ank of Malasiqui, Inc., as
security for agricultural loans they obtained from the bank. At the time,
however, the land had already been placed
under the coverage of Operation Land Transfer and the corresponding
Certificates of Land Transfer were already issued to the tenants
thereon. Nevertheless, appellee rural bank, through its president,
adviced (sic) mortgagors-appellants to submit an Affidavit of Non-
Tenancy, which appellants complied with. The mortgages were then
approved by appellee rural bank. 3
After the respondents did not pay the loans at maturity, the petitioner
caused the extrajudicial foreclosure of the mortgages. In the ensuing
foreclosure sale, the petitioner acquired the mortgaged properties for
being the highest bidder.
The respondents commenced this action in the RTC to recover the net
value of the just compensation of the lands subject of the mortgages,
averring that their right to receive the payment for just compensation either
directly from the tenants or from the Land Bank of the Philippines could not
be the subject of the foreclosure proceedings; and that their equitable interest
in the right to receive the just compensation was protected under Section
80 of Republic Act No. 3844 (Agricultural Land Reform Code), as amended,
based on Opinion No. 92, Series of 1978, issued by the Secretary of Justice.
They prayed that the extrajudicial foreclosure of the mortgages constituted
over the two parcels of land covered by Transfer Certificate of Title No.
111647 and TCT No. 111648 of the Registry of Deeds of Pangasinan be
annulled; that TCT No. 151066 and TCT No.
151067 of the Registry of Deeds of Pangasinan in the name of the petitioner
be cancelled; and that the petitioner be ordered to pay them P119,912.00,
representing the net value of the properties, plus legal interest. 4
In its answer, the petitioner contended that it had
foreclosed the mortgages because of the failure of the respondents to pay
their loans upon maturity and despite repeated demands; that it had
acquired the properties as the highest bidder in the foreclosure
sale; that the respondents had misrepresented to it the untenanted
status of the properties by submitting affidavits of non-tenancy to support their
loan application; that it had found out later on that the lands were really
tenanted; that the properties, which were already registered in its name, were
sold to the tenants in actual possession and
cultivation of the lands; that the claim of the respondents was already
barred by laches; that they were also guilty of forum shopping; and that their
complaint did not state any factual or legal basis for the award of damages
and attorney's fees. 5
Ruling of the RTC
The RTC rendered its judgment dated July 15, 1995
dismissing the complaint of the respondents. 6 It opined that the petitioner only
enforced the mortgage contract
upon the default of the respondents; that nothing in the records
showed that the conduct of the foreclosure and the ensuing sale had
disregarded the law and the rules governing extrajudicial
foreclosures; that the respondents' claim of having informed the petitioner
about the existence of the tenants could not be believed; that the respondents
were guilty of misrepresentation from the very beginning in obtaining the loan;
and that the respondents were barred by estoppel on account of their
misrepresentation, as well as by laches in view of the fact that their objection
came too late and only after the properties had already been transferred
in the names of the tenant-beneficiaries.  CAIHTE

Decision of the CA
On appeal, the respondents argued that the rule on estoppel did not
apply because the petitioner had been aware
from the beginning of the existence of the tenants on their
landholdings; that respondent Romeo M. Ceralde had testified that Atty.
Dolores Acuña, the president of the petitioner, had directly informed
him that their loan application would be granted if he could
secure the certificate of non-tenancy from the Municipal Agrarian Reform
Officer (MARO) whose office was just across from the petitioner's
premises; that Romeo had further testified that their tenants were depositing
their harvests in the warehouse owned by Atty. Acuña, thereby
indicating that the petitioner had been well aware of the tenanted
condition of the lands; and that because such testimonies were not
controverted, objections thereto were already waived.
As earlier mentioned, on April 15, 2003, the CA
reversed the RTC, 7 ruling thusly:
Appellants assert, in this appeal, that the court a quo committed
error in finding them guilty of, or barred by, estoppel. They
argue that the rule on estoppel does not apply to them because
appellee rural bank was also aware from the beginning that they have
tenants on their landholdings used as collateral for their loans. Thus, in
granting the loans, appellee rural bank was also in bad faith. Appellant
Romeo Ceralde testified that he was told by the president of appellee
rural bank that their loan will be granted if he could secure a
certificate of non-tenancy from the Municipal Agrarian Reform Leader
whose office is just in front of the rural bank. He further
testified that their tenants were the ones depositing their harvests
in the warehouse owned by Atty. Dolores
Acuña, the President of appellee rural bank,
apparently to bolster the contention that appellee rural bank was
aware that appellants' lands are tenanted.
The other appellant, Eduardo Ceralde, testified also
along the same line. These testimonies were not
controverted by appellee rural bank which,
accordingly, is deemed to have waived its objection
thereto. The argument is well taken considering that the rule on
estoppel has no application where the knowledge or
means of knowledge of both parties is equal, as in the instant case.
Appellee is therefore likewise in estoppel. And having performed
affirmative acts, advising them to submit certificates of non-tenancy
upon which appellants based their subsequent actions, cannot
thereafter refute its acts or renege
on the effects of the same, to the prejudice of the latter. To allow it to d
o so would be tantamount to conferring upon it the liberty to limit its
liability at its whim and caprice, which is against the very
principles of equity and natural justice.
Appellants further asserted that the Court a quo erred in not
declaring that the extrajudicial foreclosure by the appellee rural
bank of the mortgages on their landholdings is contrary to law and,
therefore, void ab initio.
It is undisputed that when informed by appellee rural
bank of the impending foreclosure of their mortgages, appellant
Romeo Ceralde went to see the manager of appellee rural
bank to inform her that the Land Bank of the Philippines will
be the one to pay their mortgage obligations.
Notwithstanding the information and apparent
objection to the impending foreclosure, appellee went ahead
with the foreclosure proceedings and, thereafter,
sought the registration of the properties in its name. Eventually,
appellee sold the same to the tenants for a total sum of P140,000.00,
in the process depriving appellants of their
right to receive the sum of P119,912.00 representing the net
value of their landholdings alter deducting the amount of P28,088.00
for which the properties were sold to appellee rural bank at the public
auction sale.
Again, appellants' argument appears to be well
taken. The pertinent provision of the Agrarian Reform Code provides,
as follows:
 "In the event there is existing lien or encumbrance
on the land in favor of any Government lending institution
at the time of acquisition by the Bank, the landowner
shall be paid the net value of the land
(i.e., the value of the land determined under Proclamation
No. 27 minus the outstanding
balance/s of the obligation/s secured by the line/s or
encumbrance/s), and the outstanding
balance/s of the obligations to the lending institution/s
shall be paid by the Land Bank in Land Bank bonds or
other securities existing charters of these
institutions to the contrary notwithstanding. A similar
settlement may be negotiated  by the Land Bank
in the case of obligations secured by liens or
encumbrances in favor of private parties or
institutions." (Underscoring supplied)
As stated by the Secretary of Justice in his Opinion No. 92,
series of 1978, in a similar case or situation, "the Land Bank is thus
charged with the obligation to settle or
negotiate the settlement of the obligations secured by the mortgage,
lien or encumbrance whether the lender is a government or a private
lending institution. This assumes that the right of the mortgagee
(appellee) to enforce its lien through foreclosure proceedings against
appellants' landholdings no longer subsists." Verily, therefore, appellee
violated the law, Section 80 of the Agrarian Reform Code,
when it enforced its lien against appellants properties through
foreclosure proceedings.
In respect of the lower court's findings that appellants are
guilty of laches, the same cannot be allowed to prosper.
"The question of laches is addressed to the sound
direction of the court and since laches is an equitable doctrine, its
application is controlled by equitable considerations. It cannot be
applied to defeat justice or to perpetuate fraud."
Besides, it appears that the properties were sold or the mortgages
foreclosed on 12 July 1983 while the complaint was filed on 12 July
1993. As provided for under Article 1142 of the Civil Code, "A
mortgage action prescribes after ten years." Obviously, appellants'
right of action has not yet prescribed.
Apparently, as the foregoing discussion indicates the trial court
has indeed committed errors which warrant the reversal of its decision
in the present aforementioned case.  DETACa

WHEREFORE, premises considered, the appealed

decision is hereby REVERSED and SET ASIDE and a new
one ENTERED ordering
appellee to pay the appellants the sum of P119,912.00, plus interest
 at the legal rate computed from 12 July 1993, the time when their
complaint was filed.
SO ORDERED. 8
Issues
Undaunted, the petitioner appeals, insisting that:
I
THAT IT WAS ERROR
FOR THE COURT OF APPEALS TO RULE THAT PRIVATE
RESPONDENTS ARE NOT GUILTY OF LACHES AND ESTOPPEL;
II
THAT IT WAS ERROR FOR THE COURT OF APPEALS IN RULING
(sic) THAT PETITIONER RURAL BANK VIOLATED THE AGRARIAN
LAWS;
III
THAT IT WAS ERROR
FOR THE COURT OF APPEALS TO DECLARE THAT PRIVATE
RESPONDENTS ARE STILL ENTITLED TO BE
PAID THE SUM OF P119,912.00 WITH INTEREST
WHICH IS THE ALLEGED NET VALUE OF THEIR
LANDHOLDINGS. 9
Ruling
The appeal lacks merit.
I
Action was not barred by
either prescription, laches or estoppel
The petitioner maintains that the CA wrongly relied on Article
1142 of the Civil Code because it was Article 1149 of the Civil
Code that applied; and that the respondents were already
barred by estoppel by virtue of their misrepresentation about the lands not
being tenanted.
The petitioner is correct about the erroneous reliance on Article
1142 of the Civil Code, a legal provision on prescription that states: "A
mortgage action prescribes after ten years." The phrase mortgage action used
in Article 1142 refers to an action to foreclose a mortgage, and has
nothing to do with an action to annul the foreclosure of the mortgage, 10 like
this one.
Nonetheless, we find to be untenable the petitioner's contention in its
motion for reconsideration that Article 1149 of the Civil Code ("All other
actions whose periods are not fixed in this Code or in other laws must be
brought within five years from the time the right of action accrues.") was
instead applicable. 11 This action to annul the foreclosure of the mortgage was
not yet barred by prescription because the applicable period of prescription
was 10 years from the time the right of action accrued by virtue of the action
being upon a written
contract. 12 Indeed, the reckoning of the period of prescription should start
from July 12, 1983, when the foreclosure of the mortgage was made,
indicating that this action, being commenced on July 12, 1993, was not
barred by prescription.
Similarly, the petitioner's argument that the respondents were already
barred by laches had no substance. It would be wrong and
unjust to bar the respondents from recovering what was rightfully and legally
theirs. In this regard, we adopt with approval the CA's
declaration to the effect that the rule on laches, being an equitable doctrine
whose application was controlled by equitable considerations, could not be
applied to defeat justice or to perpetrate fraud. Indeed, the Court should
implement the better rule, which is that the courts,
under the principle of equity, are not to be guided
strictly by the statute of limitations or the doctrine of laches when a manifest
wrong or injustice would result from doing so. 13
The petitioner posits that the respondents' misrepresentation
on the non-tenancy of the lands subject of the mortgage estopped them from
recovering the just compensation from the petitioner.
The petitioner's position does not merit serious consideration.
Estoppel is applied when the following elements concur, namely:
. . . first, the actor who usually must have knowledge, notice or
suspicion of the true facts, communicates something to another in a
misleading way, either by words, conduct or silence; second, the other
in fact relies, and relies reasonably or justifiably,
upon that communication; third, the other would be harmed materially
if the actor is later permitted to assert any claim inconsistent with his
earlier conduct; and fourth, the actor knows, expects or
foresees that the other would act upon the information given or that a
reasonable person in the actor's position would expect or foresee such
action. 14
The petitioner's insistence on having been misled into
approving the loan application by the respondents'
submission of the affidavit of non-tenancy was entirely
belied by the records. To begin with, the CA itself found that the petitioner had
been well aware of the conditions of the landholding,
including the existence of the tenants thereon. Secondly, the CA
concluded that the petitioner was also in bad faith, for, based
on the testimony of Romeo, it was the president herself of the petitioner who
had told him that the loan application would be granted if only he could secure
a certificate of non-tenancy from the MARO whose office had been located
just in front of the petitioner's premises. 15 And, thirdly, the tenants
deposited the harvests in the warehouse
owned by the president of the petitioner, thereby signifying that the petitioner
had actual knowledge of the existence of the tenants on the lands under
mortgage.
The established circumstances of the case
rendered the doctrine of estoppel absolutely inapplicable. There was no
question that the petitioner had not been misled by any misrepresentation
on the status of tenancy on the lands. The submission of the affidavit of non-
tenancy by the respondents had been at the behest of its president who was
then acting in its behalf. It is plain, moreover, that because its
business of rural banking involved the duty
and the responsibility to investigate the conditions of the lands being tendered
as collaterals, the petitioner should have
discovered the presence of the tenants in due time and quickly
enough by its exercise of due diligence.  aDSIHc

II
The petitioner argues that it did not violate Republic Act No. 3844,
because Operation Land Transfer (OLT) of the Department of Agrarian
Reform (DAR) had not yet been implemented at the time the title was
consolidated in its name.
The argument is absolutely devoid of factual
foundation. The records of the case
indicate that the expropriation by the Government
preceded the consolidation of title
in the name of the petitioner. The landholdings were placed under the OLT in
1980 and 1981, and the certificates of land transfer (CLTs) were then issued
as a consequence. 16 Although the respondents had obtained the loans
from the petitioner in 1978, 1980, 1981 and 1982, the petitioner had
foreclosed the mortgages only on July 12, 1983, and the title was
consolidated in the name of the petitioner only on August 14, 1984. It also
appears that the respondents had informed the petitioner prior to the actual
foreclosure on July 12, 1983 that the mortgage obligation would be
paid by the Land Bank of the Philippines.
Still, the petitioner, insisting that it did not violate Section 80 of Republic
Act No. 3844, submits that it was Section 71 of Republic Act No.
6657 that should govern. It contends that because Section 71 did not
disallow it as a banking or financial institution to hold any mortgage
rights, it could then validly acquire title to the mortgaged properties.
The contention of the petitioner cannot be upheld.
Section 80 of Republic Act No. 3844, as amended by Section
7 of Presidential Decree No. 251, declares:
Section 80. Modes of Payment. — The Bank shall
finance the acquisition of farm lots under any of the following
modes of settlement:
1. Cash payment of 10% and balance in 25-year tax-free
6% Land Bank bonds;
2. Payment of 30% in preferred shares of stock
issued by the Bank and balance in 25-year tax-free 6%
Land Bank bonds;
3. Full guarantee on the payment of the fifteen (15) equal
annual amortizations to be made by the tenant/farmer;
4. Payment through the establishment of annuities or
pensions with insurance;
5. Exchange arrangement for government stocks in
government-owned controlled corporations or private
corporations where the government has holdings;
6. Such other modes of settlement as may be further
adopted by the Board of Directors and
approved by the President of the Philippines.
In the event there is existing lien or encumbrance on the land in
favor of any Government lending institution
at the time of acquisition by the Bank, the landowner shall be
paid the net value of the land (i.e., the value of the land determined
under Proclamation No. 27 minus the outstanding
balance/s of the obligation/s secured by the lien/s or encumbrance/s),
and the outstanding balance/s of the obligations to the lending
institution/s shall be paid by the Land Bank in Land Bank bonds or
other securities; existing charters of those institutions to the contrary
notwithstanding. A similar settlement may be negotiated by the Land
Bank in the case of obligations secured by liens or encumbrances in
favor of private parties or institutions.
Whenever the Bank pays the whole or a portion of the total
cost of farm lots, the Bank shall be subrogated by reason
thereof, to the right of the landowner to collect and receive the yearly
amortizations on farm lots or the amount paid including interest
thereon, from tenant/farmers in whose favour said farm lots had been
 transferred pursuant to Presidential Decree No. 27, dated October 21,
1972.
The profits accruing from payment shall be exempt from the tax
on capital gains.
Section 71 of Republic Act No. 6657 reads:
Section 71. Bank Mortgages. — Banks and other financial
institutions allowed by law to hold mortgage rights or security interests
in agricultural lands to secure loans and other obligations of borrowers,
may acquire title to these mortgaged properties, regardless of area,
subject to existing laws on compulsory transfer of foreclosed assets
and acquisition as prescribed under Section 13 of this Act.
The texts show that Section 80 of Republic Act No. 3844 and Section
71 of Republic Act No. 6657 were not inconsistent with each other, but
actually complemented each other. Section 80, as amended by Presidential
Decree No. 251, only stated that the Land Bank of the Philippines would
be the institution to pay the private lending institutions. Equally relevant
was that Section 75 17 of Republic Act No.
6657 stipulated that the provisions of Republic Act No. 3844 would have
suppletory effect to Republic Act No. 6657. Absent the inconsistency between
Section 80 of Republic Act No. 3844 and Section 71 of Republic Act No.
6657, the bases of the CA in declaring the petitioner to have violated Republic
Act No. 3844 remained.
The respondents, citing MOJ Opinion No. 092, Series of 1978, have
asserted that the petitioner still could not foreclose because of Section
80 of Republic Act No. 3844.
MOJ Opinion No. 092 was issued on July 5, 1978 by then
Minister of Justice Vicente Abad Santos to respond to the request for a legal
opinion from the Minister of Agrarian Reform regarding landholdings
covered by Presidential Decree No. 27 that "have been previously
mortgaged to banking institutions," specifically on the following
issues, to wit: 
ETHIDa

a) Whether or not lands covered by P.D. No. 27 may

be the object of foreclosure proceedings after October 21, 1972;
b) Whether or not the right of a landowner to receive payment
from the Land Bank may be the object of foreclosure proceedings.
The response of the Minister of Justice was as follows:
I find merit in the position taken by that Ministry that lands
covered by P.D. No. 27 may not be the object of foreclosure
proceedings after the promulgation of said decree on October 21,
1972. With the peremptory declaration that the tenant farmer "shall be
deemed owner" of the land he tills, and the declaration that lands
acquired thereunder or under 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 the Decree, the Code of Agrarian Reform, and
other existing laws and regulations", I believe that whatever
right the mortgager has to the property is superseded by the statutory
declaration transferring ownership
from the mortgagor to the tenant by operation of law.
Foreclosure of mortgage is a remedy by which the property covered
may be subjected to sale to pay the debt for which the mortgage
stands as security, and since the land is by law no longer transferable
except to the heirs of the tenant-farmer or to the government, I do not
see how the right to foreclose can subsist when the mortgaged
property has ceased to be alienable property of the mortgagor,
and the property cannot be transferred to the purchaser
in the foreclosure proceedings. The situation is analogous to one
where the mortgaged property is expropriated before foreclosure takes
place, regarding which it has been held that the mortgagee loses his
lien upon the expropriated property as "the land taken no longer
belongs to the mortgagor, because it has been by virtue of a
sovereign power, free of the mortgage", (Chicago v. Salinger, et al., 52
NE 2d-184 [1943]; see also In Re Diliman, 267 NW-623 [1936]; In Re
City of Rochester, 32 NE 702 [1892])
This conclusion finds support in the provision of Section
80 of R.A. No. 3844 (Code of Agrarian Reform, as
amended by P.D. No. 251), which provides insofar as pertinent:
"SEC. 80. Modes of Payment. — The Bank shall
finance the acquisition of farm lots under
any of the following modes of settlement:
xxx xxx xxx
"In the event there is existing lien or encumbrance
on the land in favor of any Government lending institution
at the time of acquisition by the Bank, the landowner
shall be paid the net value of the land
(i.e., the value of the land determined under Presidential
Decree No. 27 minus the outstanding
balance/s of the obligation/s
secured by the lien/s of encumbrance/s,
and the outstanding
balance/s of the obligations to the lending institution/s
shall be paid by the Land Bank in Land Bank bonds or
other securities; existing charters of those
institutions to the contrary notwithstanding. A similar
settlement may be negotiated by the Land Bank
 in the case of obligations secured by liens or
encumbrances in favor of private parties or institutions.
xxx xxx xxx
The Land Bank is thus charged with the obligation to settle, or
negotiate the settlement of, the obligations secure by the mortgage,
lien or encumbrance whether the lender is a government or a private
lending institution. This
assumes that the might of the mortgagor to enforce his lien through
foreclosure proceedings against the property no longer subsists. I may
add that with respect to cases where the mortgage might by now (but
after October 21, 1972) have already been
foreclosed, the titles of the purchaser at the auction sale having
actually been perfected after the redemption period had
expired, the foreclosure might have to be set aside through judicial
proceedings.
I am aware that a ruling that lands covered by P.D. No. 27 may
not be the object of the foreclosure proceedings
after the promulgation of said decree on October 21, 1972, would
concede that P.D. No. 27
had the effect of impairing the obligation of the duly executed
mortgage contracts affecting said lands. There is no question,
however, that the land reform program of the government as
accelerated under P.D. No. 27 and mandated by the Constitution itself
(Act XIV, Sec. 12), was undertaken
in the exercise of the police power of the state. It is settled in a long
line of decisions of the Supreme
Court that the constitutional guaranty of non-impairment of obligations 
of contract is limited by the exercise of the police power of the state.
[Pangasinan Transp. v. P.S.C., 70 Phil. 221 (1940); Phil. American Life
Ins. Co. v. The Auditor General, 22 SCRA, 135 (1968); De Ramos v.
Court of Agrarian Relations, I-19555, May 29, 1964; Stone v.
Mississippi, 101 U.S. 814] One limitation on the contract clause arises
from the police power, the reason being that public
welfare is superior to private rights. [Since, Phil. Pol. Law, 11th ed. at
p. 642] The situation here, is like that in eminent domain proceedings,
where the state expropriates private property for public use,
and the only condition to be complied with is the payment of just
compensation. Technically the condemnation proceedings do not
impair the contract on destroy its obligations, but merely
appropriate of take it for public use [Long Is. Water Sup. Co. v.
Brooklyn, 166 U.S. 635]. As the Land
Bank is obliged to setter the obligations
secured by the mortgage, the mortgagee is not left without
compensation.
The first query is therefore answered in the negative.
 Regarding query No. 2, I do not see how foreclosure
proceedings can be instituted
against the "right of the landowner to receive payment from the Land
Bank". As the mortgage had ceased to exist
upon the transfer of title to the tenant by virtue of the promulgation of P
.D. No. 27 on October 21, 1972, there can be no mortgage to foreclose
and therefore no subject for the foreclosure proceedings. Whatever
equitable interest the mortgagee has in the land owners'
right to receive payment is protected under Section 80, above-quoted,
directing the Land Bank to settle existing liens and encumbrances
affecting the property. cSEDTC

Without passing judgment on the merits of MOJ Opinion No. 092,

Series of 1978, the Court only needs to remind that the legal opinion
remained good only in so far as it was not inconsistent
with the law it purported to interpret. It remains beyond question that Section
80 of Republic Act No. 3844, supra, did not
prohibit the foreclosure of the mortgage of agricultural landholdings. It clearly
only provided that the Land Bank of the Philippines would
pay the landowners the net value of the land minus the outstanding
balance of the obligations in favor of the lending institutions in the event of an
existing lien or encumbrance on the land in favor of private parties or
institutions. Hence, the opinion of the then
Minister of Justice to the effect that banks were not allowed to foreclose lands
covered by Presidential Decree No. 27, as amended, became legally
untenable. Conformably with the tenets of statutory construction, the law as
written should be applied absent any ambiguity.
The petitioner urges that the respondents violated Republic Act No.
3844 by mortgaging their lands to it despite such lands being already
subject to the OLT. The urging lacks substance, however,
because the petitioner did not cite any provision of law that prohibited
agricultural lands subject of the OLT from serving as collateral in
order to secure loans and other obligations of the landowners.
What is quite clear and uncontroverted is that both the petitioner
and the respondents were guilty of bad faith.
Although the coverage of the lands in question under the OLT was made
known to the petitioner only after the execution of the mortgages albeit
prior to the foreclosure, the latter was already put on notice of the coverage
under the OLT, and should have desisted from proceeding
with the foreclosure in accordance with law.
Contrary to the petitioner's claim, Section 80 of Republic Act No.
3844 remained in effect after the effectivity of Republic Act No.
6657. The latter law expressly repealed only the following provisions, namely:
Section 35 of Republic Act No. 3834; 18 Presidential Decree No.
316; 19 the last two paragraphs of Section 12 of Presidential Decree No.
946; 20 and Presidential Decree No. 1038. 21 Worthy to note,
too, is that the repealed laws did not concern the subject matter of Section
80 of Republic Act No. 3844; hence, the catch-all repeal or amendment of all
other laws, decrees, executive orders, rules and regulations, issuances or
parts thereof inconsistent with Republic Act No. 6657 did not affect Section
80 of Republic Act No. 3844.
In view of the foregoing, Section 80 of Republic Act No. 3844 and
Section 71 of Republic Act No. 6657 must be given equal application.
III
The foregoing elaborations also dispose of the final issue of whether or
not the respondents were entitled to the net value of their
landholdings. The petitioner contends that they were not
because, firstly, the respondents had acted in bad
faith by misrepresenting that the lands were not tenanted; and, secondly, title
was already consolidated in its name when the lands came to be
covered by OLT. We hold that the respondents were entitled to the net
value of the lands not only by law but also by equity. As to equity, we need
only to point out that when the parties are both at
fault, the mistake of one is negated by the other's, and they are then
returned to their previous status where the law will look at the facts as if
neither is at fault. In such event, we can only apply the law, particularly
Section 80 of Republic Act No. 3844, as amended, and such application
favors the respondents, as we have already explained.
WHEREFORE, the Court AFFIRMS the decision promulgated on April
15, 2003; and ORDERS the petitioner to pay the costs of suit.
SO ORDERED.

This conclusion finds support in the provision of Section 80 of R.A. No. 3844 (Code
of Agrarian Reform, as amended by P.D. No. 251), which provides insofar as pertinent:

"SEC. 80. Modes of Payment. — The Bank shall finance the acquisition of farm lots
under any of the following modes of settlement:
 "In the event there is existing lien or encumbrance on the land in favor of any
Government lending institution at the time of acquisition by the Bank, the landowner shall
be paid the net value of the land (i.e., the value of the land determined under Presidential
Decree No. 27 minus the outstanding balance/s of the obligation/s secured by the lien/s of
encumbrance/s, and the outstanding balance/s of the obligations to the lending
institution/s shall be paid by the Land Bank in Land Bank bonds or other securities; existing
charters of those institutions to the contrary notwithstanding. A similar settlement may be
negotiated by the Land Bank in the case of obligations secured by liens or encumbrances in
favor of private parties or institutions.

The Land Bank is thus charged with the obligation to settle, or negotiate the
settlement of, the obligations secure by the mortgage, lien or encumbrance whether the
lender is a government or a private lending institution. This assumes that the might of the
mortgagor to enforce his lien through foreclosure proceedings against the property no
longer subsists. I may add that with respect to cases where the mortgage might by now (but
after October 21, 1972) have already been foreclosed, the titles of the purchaser at the
auction sale having actually been perfected after the redemption period had expired, the
foreclosure might have to be set aside through judicial proceedings.

A ruling that lands covered by P.D. No. 27 may not be the object of the foreclosure
proceedings after the promulgation of said decree on October 21, 1972, would concede that
P.D. No. 27 had the effect of impairing the obligation of the duly executed mortgage
contracts affecting said lands. There is no question, however, that the land reform program
of the government as accelerated under P.D. No. 27 and mandated by the Constitution itself
(Act XIV, Sec. 12), was undertaken in the exercise of the police power of the state.
It is settled in a long line of decisions of the Supreme Court that the constitutional
guaranty of non-impairment of obligations of contract is limited by the exercise of the
police power of the state.
[Pangasinan Transp. v. P.S.C., 70 Phil. 221 (1940); Phil. American Life Ins. Co. v. The Auditor
General, 22 SCRA, 135 (1968); De Ramos v. Court of Agrarian Relations, I-19555, May 29,
1964; Stone v. Mississippi, 101 U.S. 814]
One limitation on the contract clause arises from the police power, the reason being that
public welfare is superior to private rights.
The situation here, is like that in eminent domain proceedings, where the state expropriates
private property for public use, and the only condition to be complied with is the payment
of just compensation. Technically the condemnation proceedings do not impair the contract
on destroy its obligations, but merely appropriate of take it for public use. As the Land Bank
is obliged to setter the obligations secured by the mortgage, the mortgagee is not left
without compensation.
 The first query is therefore answered in the negative.

Regarding query No. 2, I do not see how foreclosure proceedings can be instituted
against the "right of the landowner to receive payment from the Land Bank". As the
mortgage had ceased to exist upon the transfer of title to the tenant by virtue of the
promulgation of P.D. No. 27 on October 21, 1972, there can be no mortgage to foreclose
and therefore no subject for the foreclosure proceedings. Whatever equitable interest the
mortgagee has in the land owners' right to receive payment is protected under Section 80,
above-quoted, directing the Land Bank to settle existing liens and encumbrances affecting
the property.