G.R. No. 162032 , November 25, 2015
Rural Bank of Malasiqui, Inc., Petitioner, vs. Romeo M. Ceralde and Eduardo M. Ceralde, Jr., Respondents.

FACTS

Respondents Romeo M. Ceralde and Eduardo M. Ceralde, Jr. were the registered owners of agricultural lands placed under the Operation Land Transfer program, with Certificates of Land Transfer already issued to tenant-beneficiaries. They mortgaged these lands to petitioner Rural Bank of Malasiqui, Inc. to secure loans. The bank required and they submitted Affidavits of Non-Tenancy. Upon respondents’ loan default, the bank extrajudicially foreclosed the mortgages and acquired the properties as the highest bidder. The lands were subsequently sold to the tenants.
Respondents filed a complaint against the bank, seeking to annul the foreclosure and to recover the net value of the just compensation for the expropriated lands. They argued that their right to receive just compensation from the Land Bank could not be foreclosed, invoking Section 80 of Republic Act No. 3844 (Agricultural Land Reform Code). The Regional Trial Court dismissed the complaint, citing respondents’ misrepresentation and estoppel. The Court of Appeals reversed, ordering the bank to pay respondents the net just compensation.

ISSUE

Whether the petitioner bank, as the mortgagee-foreclosure purchaser, is entitled to the payment of just compensation for the expropriated agricultural lands, to the exclusion of the respondents as the original landowners-mortgagors.

RULING

The Supreme Court affirmed the decision of the Court of Appeals, ruling that the respondents, as the original landowners, are entitled to the just compensation. The legal logic hinges on the application of agrarian reform laws suppletory to the Comprehensive Agrarian Reform Law. Section 80 of R.A. No. 3844 explicitly provides that the right to receive payment for expropriated land is “inalienable” and “not liable to attachment or execution.” This protective provision aims to ensure that farmer-beneficiaries acquire the land unburdened and that landowners are directly compensated.
The Court held that this statutory protection extends to the right to compensation itself, making it a personal claim of the landowner that cannot be validly transferred or mortgaged. Consequently, the mortgage and its subsequent foreclosure over the land did not encompass the respondents’ inalienable right to the compensation. The bank’s acquisition of the land titles through foreclosure did not transfer this personal claim. While both parties may have been at fault—the respondents for misrepresentation and the bank for possible bad faith—the clear mandate of the agrarian law prevails, directing payment to the landowners. The claim was also not barred by prescription, as an action upon an obligation created by law prescribes in ten years.