Metropolitan Bank v. Viray
REITERATIONFacts
The Antecedents: On July 7, 1979, Rico Shipping, Inc., represented by Erlinda Viray-Jarque, and Edgardo D. Viray (Viray), as solidary obligors, obtained two loans from Metropolitan Bank and Trust Company (MBTC) totaling ₱250,000. They executed a promissory note for repayment in installments with interest. Subsequently, the loans were renewed, and a balance of ₱115,946 remained unpaid despite demands. On June 5, 1981, and September 3, 1981, debtors obtained two additional loans of ₱50,000 each from MBTC, which also remained unpaid. Procedural History: MBTC filed a complaint for sum of money against the debtors with the RTC of Manila, which rendered a judgment in favor of MBTC on April 28, 1983, ordering the debtors to pay jointly and severally. Meanwhile, on December 29, 1982, Viray was issued free patents over three parcels of land, with Original Certificates of Title (OCT) registered on January 18, 1983. These OCTs contained a restriction against encumbrance or alienation for five years from the date of the patent, and that the land shall not be liable for debts contracted prior to the expiration of said period. On March 6, 1984, the RTC of Manila issued a writ of execution, and on October 12, 1984, the sheriff sold the lots at public auction to MBTC. A Deed of Final Conveyance was executed on August 23, 1990, and Transfer Certificates of Title (TCT) were issued in MBTC's name. On July 30, 1991, Viray filed an action for annulment of sale with the RTC of Cagayan de Oro City, seeking to nullify the execution sale, certificate of sale, deed of final conveyance, and TCTs. The RTC ruled in favor of MBTC, declaring the auction sale valid and Viray's right to redeem prescribed. Viray appealed to the Court of Appeals (CA). The Petition: The CA reversed the RTC's decision, declaring the auction sale null and void ab initio for violating Section 118 of Commonwealth Act No. 141 (CA 141) as it occurred within the five-year prohibition period. MBTC filed a petition for review on certiorari with the Supreme Court.
Issue(s)
Whether the auction sale of lands acquired under free patent falls within the five-year prohibition period laid down in Section 118 of Commonwealth Act No. 141. Whether the prohibition against alienation or sale under Section 118 of CA 141 applies to involuntary (execution) sales.
Ruling
The Supreme Court denied the petition and affirmed the Decision of the Court of Appeals. The auction sale was declared null and void ab initio. The Register of Deeds was ordered to cancel the TCTs in MBTC's name and restore the OCTs in Viray's name, without prejudice to Viray's continuing obligation to pay the judgment debt.
Ratio Decidendi
On the issue of whether the auction sale falls within the five-year prohibition period: The Court held that Section 118 of Commonwealth Act No. 141 clearly provides that lands acquired under free patent or homestead shall not be encumbered or alienated within five years from the date of issuance of the patent, nor shall they become liable for the satisfaction of any debt contracted prior to the expiration of the period. In this case, the free patents were issued on December 29, 1982, and the execution sale occurred on October 12, 1984, which is less than two years after the issuance of the patents. This clearly falls within the five-year prohibition period. The Court emphasized that the law's prohibition is absolute for the specified period, irrespective of when the debt was incurred. The purpose of the law is to preserve the land for the patentee and their family, fostering stability and self-sufficiency, which is a matter of public policy. Therefore, any sale in violation of this provision is void and produces no legal effect. On the issue of whether the prohibition applies to involuntary (execution) sales: The Court reiterated its ruling in Artates v. Urbi and Beach v. Pacific Commercial Company and Sheriff of Nueva Ecija, holding that the prohibition under Section 118 of CA 141 applies to both voluntary and involuntary sales. It is immaterial whether the satisfaction of the debt by encumbrance or alienation of the land grant was made voluntarily or involuntarily through a levy and consequent public auction. In both instances, the law is violated. The Court clarified that the phrase 'nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of the said period' is mandatory. The obligation, even if adjudicated by a court, cannot be satisfied out of the homestead lot within the prohibited period. The public policy behind the grant of free patents and homesteads aims to preserve the land for the family, and this policy cannot be circumvented by private agreement or judicial execution within the statutory period.
Main Doctrine
Lands acquired under free patent or homestead are subject to a five-year prohibition against encumbrance or alienation from the date of issuance of the patent, and shall not be liable for debts contracted prior to the expiration of this period. This prohibition applies to both voluntary and involuntary (execution) sales, regardless of when the debt was incurred.