January 14, 1998

DAR OPINION NO. 09-98

Atty. Lourdes B. Abillar

3rd Floor State Centre Building

333 Juan Luna Street

Binondo, Manila

Dear Atty. Abillar:

This refers to your request for legal opinion regarding the sale or transfer of agricultural land by the Development Bank of the Philippines (DBP) in cases where such sale, transfer or conveyance is made necessary as a result of the bank's foreclosure of mortgaged land.

You state that your client is intending to participate in a public bidding to be conducted by DBP involving a two-hectare foreclosed agricultural land; and that DBP and the Municipal Agrarian Reform Officer/Provincial Agrarian Reform Officer (MARO/PARO) have entirely different views on the disposition of foreclosed agricultural lands to third persons, wherein the DBP opined that it can validly dispose said property by sale through public bidding since the property was foreclosed on or after 12 March 1995 (date of effectivity of R.A. No. 7881), while the MARO/PARO concerned have the view that the DBP cannot validly dispose foreclosed agricultural lands to third persons without the intervention of DAR as clarified in DAR M.C. No. 05, Series of 1996. You further state that following the line of argument of the MARO/PARO based on the provision of DAR MC No. 05, Series of 1996, it follows that DBP, likewise, cannot validly conduct a public bidding on foreclosed agricultural lands.

DAR submits that the sale or transfer of agricultural land by DBP in favor of qualified third person, as a result of DBP's foreclosure of the mortgaged land, on or after 12 March 1995, is in accordance with law and therefore can be considered as valid. Section 71 of R.A. No. 6657 provides that banks may acquire title to mortgaged properties, subject to existing laws on compulsory transfer of foreclosed assets and acquisition as prescribed under Section 16 of said Act. Section 25 of R.A. No. 337 (the General Banking Act) provides that no bank shall hold the possession of any real estate under mortgage or trust deed, or the title or possession of any real estate purchased to secure any debt due to it, for a longer period than five (5) years. Moreover, Section 6 of R.A. No. 7881 provides that the transfer by banks of such foreclosed asset is permitted. The aforesaid provisions of pertinent laws clearly manifest the legislative intent to allow banks and other financial institutions to dispose of their properties under the General Banking Act.

On the issue on whether or not public bidding on foreclosed agricultural land can be validly undertaken by DBP, it is submitted that all the aforesaid provisions of law when taken together would obviously connote that any financial institution, such as the DBP, may validly conduct a public bidding over their foreclosed agricultural lands. However, since said properties fall under CARP coverage, the same shall still be acquired by the government through the DAR for distribution to qualified farmer-beneficiaries pursuant to the provisions of R.A. No. 6657 (Sections 16 and 71), DAR Administrative Order No. 2, Series of 1997 and Memorandum Circular no. 5, Series of 1996.

We hope to have enlightened you on the matter.

Very truly yours,

(SGD.) ARTEMIO A. ADASA, JR.

Undersecretary for Legal Affairs, and Policy and Planning