January 27, 1997
DAR OPINION NO. 06-97
Mr. Daniel M. Jayme
VP-Finance and Administration
Squires Bingham Arms Inc.
550 Edsa, Cubao
Quezon City
Dear Mr. Jayme:
This has reference to your letter dated 15 January 1997 seeking opinion on whether a property which has been legally converted can be the subject of a contract of mortgage in favor of a bank.
As gleaned from your letter together with the enclosures therein attached, the subject property has an aggregate area of three hundred one thousand and forty eight (301,048) square meters and situated at Barangay Laiya Aplaya, San Juan, Batangas; that said landholding is covered by a Transfer Certificate of Title No. T-49599 and registered in the name of Rafael A. Llana; that on 06 November 1996, Secretary Ernesto D. Garilao of the Department of Agrarian Reform approved the conversion order of the subject landholding as part of the 151,538.50 hectares of the Aplaya Laiya Tourism Estate Development Project (ALTEDP) as site for the Batangas Tourism Development Area (BIDA) in Region IV; and that to pursue the proposed project you are asking for a certification from the DAR as a condition sine qua non before the bank can legally accept the same as collateral in a contract of mortgage.
It is opined that there is nothing illegal nor improper to use the converted property as collateral in a contract of mortgage with the bank. The rationale for the allowance of a mortgage as security is premised on the theory that contract of mortgage is even less burdensome than the contract sale. It stands to reason that if a converted property can be the subject of a contract of sale, with more reason that it can be the subject of a contract of mortgage. As held by the Supreme Court in the case of "Adlawan, et al. vs. Hon. Torres, et al." G.R. No. 65957-58, July 5, 1994, by mortgaging a piece of property, a debtor merely subject it to a lien but ownership thereof is not parted with.
Moreover, after the property has been legally converted, the same ceases to be agricultural over which the DAR has no more jurisdiction. The aforecited interpretation is in consonance with the legal maxim in statutory construction that "when the reason of the law ceases, the law ceases". Such being the case, there is no reason much less legal impediment why the property which has been legally converted cannot be the object of a contract of mortgage to finance the proposed project.
We hope to have clarified the matter with you.
Very truly yours,
(SGD.) ARTEMIO A. ADASA, JR.
Undersecretary for Legal Affairs, and Policy and Planning