June 1, 1998

DAR OPINION NO. 66-98

MEMORANDUM

FOR             :     RENATO F . HERRERA
                           OIC-Regional Director, DARRO III

SUBJECT    :     "Carry over of Encumbrances Annotated at the EPs."

This refers to your Memorandum of 23 March 1998 relative to the agricultural lands owned by Dimson Farms, Inc., embraced under TCT Nos. 156657 and 142081, with an aggregate area of 294.6398 has.; more or less, located at Prado Siongco, Lubao, Pampanga.

You posed the following queries, to wit:

1.         What will happen now to the payments made by the farmer-, beneficiaries to the landowner?

2.         Shall the Land Bank of the Philippines (LBP) still compensate the Dimson Farms, Inc. for the value of their agricultural properties?

3.         What procedural remedies shall be applicable to discharge the encumbrance annotated at the titles of the landowner, which are now carried over at the respective EPs of the concerned, farmer-beneficiaries?

You state the following as a background for your queries: that in 1973 the subject properties were placed under Operation Land Transfer (OLT) pursuant to Presidential Decree No. 27; that the landowner denied the existence and establishment of tenancy relationship with the tenant farmers, which started along and complicated legal struggle between the landowner and the farmers; that the farmer beneficiaries prevailed over the issue by virtue of the decision of the Court of Appeals finding them as lawful tenants which was affirmed with finality by the Supreme Court; that in compliance with the said decision, the FBs concerned started paying fifteen (15) equal amortizations in fifteen (15) years, with six percent (6%) interest rate, which the landowner also received and even issued corresponding receipts thereof; that sometime in 1988 and 1989, Dimson Farms, Inc., without the requisite DAR clearance, was able to subdivide the subject properties and obtained registered titles, then secured a mortgage loan using the same properties with different mortgagee banks; that one of these mortgages was with the Guagua Savings Bank, a private financial institution which was able to cause the annotation of encumbrance of the mortgage amount at the titles of the subdivided landholdings of Dimson Farms, Inc., and that on November 4, 1997 the DAR Regional Office issued an Order placing the agricultural properties of the Dimson Farms, Inc. involving the entire portion of the original/mother titles under DAR coverage based mainly on the aforementioned decision of the Court of Appeals as affirmed with finality by the Supreme Court.

Anent your first query, since the entire portion of the land covered by TCT Nos. 156657 and 142081 have been declared part of the land reform area and subjected to Operation Land Transfer, the payments made on or after 21 October 1972 by the farmer-beneficiaries constituted advanced amortization payments on the cost of the land that they were required to pay under Presidential Decree No. 27, hence, such payments are to be treated as land amortizations.

Anent your second query, should the payments made by the beneficiaries to the landowner are not the full payment of the cost of the land as provided for under P.D. No. 27, the beneficiaries shall pay for the total cost thereof if the landowner opted for a direct payment scheme in cash or in kind. On the other hand, the LBP shall compensate the landowner (less rentals/payments already made by the beneficiaries to the landowner) for the value of their agricultural properties should the option taken by the landowner in the payment of land compensation is thru the LBP payment scheme in the latter's role as the financial intermediary of the agrarian reform program.

Anent your last query, please be informed that the carry-over of liens to the Eps issued to farmer-beneficiaries is a legal requirement and cannot be dispensed with Section 62 of P.D. No. 1529 (the Property Registration Decree) provides, quote:

"A mortgage or lease on registered land may be discharged or cancelled by means of an instrument executed by the mortgage (sic) or lessee in a form sufficient in law, which shall be filed with the Register of Deeds who shall make the appropriate memorandum upon the certificate of title."

Pursuant to the aforequoted provision, Land Registration Authority Circular No. 54 requires that the liens or encumbrances shall be carried over to the EP/CLOA presented for registration, unless the appropriate instrument for its cancellation is likewise presented.

While it is admitted that the annotation of such liens/encumbrances on the titles (EPs) issued to farmer-beneficiaries is apparently unfair as they are not privies to the previous transaction of the mortgagor and mortgagee, yet this does not mean that they will have to pay for the balance of the mortgage loan. Further, since there is obviously a patent violation committed by the landowner of the aforesaid decision of the CA and SC, and existing agrarian laws, rules and regulations, it is believed that the mortgage should be released and the annotations be cancelled. As correctly pointed out under DOJ Opinion No. 92, Series of 1978, the farmer-beneficiaries are already deemed owners of the land as of 21 October 1972 by operation of law and, as such, it could no longer, be transferred except to the heirs of the tenants or to the government, and the same could not accordingly be the subject of foreclosure proceedings. This is pursuant to the settled rule underscored by the Supreme Court in a long line of decisions that the constitutional guarantee of non-impairment of obligations is limited by the exercise of the police power of the State (i.e., public welfare is superior to private rights) of which the implementation of P.D. No. 27 is being undertaken in the exercise thereof.

In view of the aforegoing, the Land Bank must therefore take notice of such encumbrance and pay the amount of the loan (minus the amount already paid by the farmer-beneficiaries) which amount shall be deducted from the total land compensation. However, should the amount of loan be greater than the actual land valuation as provided for by law, the excess thereof must necessarily be shouldered by the landowner, and the mortgagee bank should perforce correspondingly issue a Certificate of Release of Mortgage as a matter of course in order not to unduly prejudice the farmer-beneficiaries who, at the inception of OLT implementation and even before the contract of mortgage, are already deemed owners of the lands in issue.

We hope to have clarified the matters with you and please be guided accordingly.

22 May 1998

(SGD.) ARTEMIO A. ADASA, JR.

Undersecretary for Legal Affairs, and Policy and Planning

Copy furnished:

The Manager

c/o Atty. Wilfredo Mangiliman

Guagua Savings Bank

Guagua, Pampanga