G.R. No. L-62831-32 July 31, 1986
PHILIPPINE NATIONAL BANK, petitioner, vs. HON. INTERMEDIATE APPELLATE COURT and SPS. TEODORO and VICTORIA FLORENDO, respondents.

FACTS

Spouses Teodoro and Victoria Florendo were the registered owners of three parcels of land mortgaged to the Philippine National Bank (PNB) to secure a loan. One parcel, covered by OCT No. S-V-97, became subject to Operation Land Transfer under Presidential Decree No. 27 and was redistributed to tenants. The Land Bank of the Philippines (LBP), pursuant to Section 80 of Republic Act No. 3844 as amended, remitted to PNB Land Bank bonds worth P94,500.00 and a check for P332.31, totaling P94,832.31, to settle the Florendos’ outstanding obligation for that specific parcel and secure its release.
PNB, however, informed the Florendos it would only accept P15,500.00 of the bonds at face value and the remaining P79,400.00 at a 40% discount, thereby crediting only P63,564.62 against the obligation. PNB cited an internal policy of discounting bonds for lands not subjected to agrarian reform. It refused to release the mortgaged titles. The Florendos filed a case for specific performance and damages with the Court of Agrarian Relations (CAR), which ruled in their favor, ordering PNB to accept the full remittance as satisfaction of the loan and to release all mortgaged properties. Both parties appealed to the then Intermediate Appellate Court.

ISSUE

The primary issues were: (1) whether the CAR had jurisdiction over the case; and (2) whether PNB was legally compelled to accept the Land Bank bonds at their full face value as payment for the Florendos’ loan.

RULING

The Supreme Court affirmed the appellate court’s decision, dismissing PNB’s petition. On jurisdiction, the Court held that the CAR properly exercised jurisdiction because the core controversy arose from the agrarian reform process—specifically, the implementation of P.D. No. 27 and the consequent payment through Land Bank bonds for the expropriated land. This brought the matter within the CAR’s specialized competence.
On the substantive issue, the Court ruled that PNB was obligated to accept the Land Bank bonds at full face value. The legal basis was Section 80 of R.A. No. 3844 , as amended by P.D. No. 251, which governs payments for lands acquired under agrarian reform. The law mandates that financial institutions shall accept Land Bank bonds “at their face value” for loans secured by such lands. PNB’s internal policy of applying a discount contravened this explicit statutory command. The Court emphasized that the law’s intent is to facilitate land reform, and allowing discounting would undermine the compensation scheme and prejudice the landowner. Since the LBP remittance covered the outstanding obligation for the expropriated parcel, PNB’s refusal to honor the bonds at par value was unjustified. Consequently, the Florendos’ loan was deemed fully paid, entitling them to the release of all mortgaged titles. The Court, however, modified the decision by deleting the order for LBP to pay the Florendos’ separate loan with the Development Bank of the Philippines, as that was an unrelated transaction.