January 11, 1996
DAR OPINION NO. 02-96
The Regional Director
DAR, Region VII
Corner Magallanes and Burgos Sts.
Cebu City
Dear Director Llames:
This refers to the request of Mr. Manuel V. Moreno, et al. for DAR to grant them permit to use their CLOAs (CLOA Nos. 00030265, 00030264 and 00030516) as collateral for a loan with the LBP or any other government financial institution to enable them to participate in the Integrated Social Forestry Program of the government by planting gemelina, mahogany and mango trees, aside from sugarcane.
It is submitted that CLOAs can be legally used as collateral for loans. While Section 27 of R.A. 6657 expressly provides that lands acquired by beneficiaries under said Act may not be sold, transferred or conveyed except thru hereditary succession, or to the government, or to the LBP, or to other qualified beneficiaries for a period of ten (10) years, such prohibition applies only to transactions where ownership is parted with. Said provision of law does not apply to the contract of mortgage, because ownership still remains with the mortgagor. As held by the Supreme Court in the case entitled "Eleazar and Elena Adlawan vs. Hon. Judge Ramon Torres" (G.R. Nos. 65957-58; July 5, 1994), by mortgaging a piece of property, a debtor merely subjects it to lien, but ownership is not parted with. Such being the case, a mortgage is not one of transactions referred to in the aforequoted provision. Moreover, since dispositions made in favor of the government and the LBP are excepted from the aforecited prohibition against the transfer, the DAR sees no legal impediment in case the LBP or GFI forecloses on the mortgage, provided the mortgage deed contains a provision that in the event of foreclosure, the lot shall be transferred to qualified agrarian reform beneficiaries.
Please be guided accordingly.
Very truly yours,
(SGD.) HECTOR D. SOLIMAN
Assistant Secretary
Legal Affairs Office
Copy furnished:
Mr. Manuel V. Moreno
M.V. Moreno Construction
137 San Jose Extension
Dumaguete City