G.R. No. 198770 ; November 12, 2012
AURELIA GUA-AN AND SONIA GUA-AN MAMON, Petitioners, vs. GERTRUDES QUIRINO, represented by ELMER QUIRINO, Respondent.

FACTS

The case involves a 2.88-hectare agricultural land in Bukidnon, originally covered by a Certificate of Land Transfer (CLT) issued to Prisco Quirino, Sr. under P.D. No. 27. On February 27, 1985, Prisco executed a Deed of Conditional Sale over the landholding to Ernesto Bayagna for P40,000.00. The deed stipulated Prisco’s right to repurchase the land after eight years, with an automatic four-year extension, and further provided that Ernesto would continue possession until redemption. In 1996, Prisco offered to redeem the land, but Ernesto refused and instead allowed the original landowner, petitioner Aurelia Gua-An, to redeem it through her daughter, Sonia.
After Prisco’s death, his widow, respondent Gertrudes Quirino, filed a complaint for specific performance and redemption before the DARAB. The Regional Adjudicator dismissed the complaint. The DARAB affirmed, canceling Prisco’s CLT for violating agrarian laws by failing to cultivate the land and for entering into a prohibited transaction. On appeal, the Court of Appeals reversed the DARAB. It ruled the Deed was an equitable mortgage, not a sale, and thus not a prohibited transfer. It held Prisco remained a beneficiary with security of tenure, affording his heirs a preferential right of redemption.

ISSUE

Whether the transaction between Prisco Quirino, Sr. and Ernesto Bayagna is valid and whether respondent Gertrudes Quirino retains a right of redemption over the subject landholding.

RULING

The Supreme Court granted the petition, reversing the Court of Appeals and reinstating the DARAB decision. The legal logic is anchored on the absolute prohibition under P.D. No. 27 and subsequent agrarian laws against the transfer of rights by a farmer-beneficiary, except to the government, the Land Bank, or by hereditary succession. The Court agreed with the CA that the Deed of Conditional Sale, given its terms—particularly the indefinite right to repurchase and continued possession by the vendor—constituted an equitable mortgage under Article 1602 of the Civil Code.
However, the Court diverged on the legal consequence. An equitable mortgage is still a transfer of usufructuary rights or a security interest over the landholding. Such a transaction is expressly prohibited by Section 73(f) of R.A. No. 6657 (CARL), which forbids a beneficiary from conveying any usufructuary right to circumvent the law. Ministry of Agrarian Reform Memorandum Circular No. 7, series of 1979, explicitly declares such transactions null and void. Since the transaction violated this fundamental prohibition, it was invalid from its inception. Consequently, Prisco Quirino lost his status as a beneficiary for violating agrarian reform laws. His CLT was correctly canceled by the DARAB, and no right of redemption could emanate from a void transaction. The landholding was properly ordered to be reallocated to a qualified beneficiary.