G.R. No. L-67220. May 7, 1987.
ILVINO AGALO-OS and GREGORIO AGALO-OS, plaintiffs-appellants, vs. INTERMEDIATE APPELLATE COURT, DEVELOPMENT BANK OF THE PHILIPPINES and JULIO GEROCHE, respondents-appellees.

FACTS

The spouses Vicente and Consuelo Agaloos, predecessors-in-interest of the petitioners, held a fishpond lease (FLA No. 719) from the government over a public land, expiring on December 31, 1965. In 1955, they obtained a loan from the Rehabilitation Finance Corporation (RFC, now DBP), secured by an “Assignment of Leasehold Rights” over the fishpond. The loan matured in 1965 without any amortization paid. After the spouses died, petitioner Ilvino Agalo-os entered into a “Supplemental Agreement” in 1966 with respondent Julio Geroche, leasing the same fishpond to Geroche for ten years. The agreement, approved by DBP, stipulated that Geroche’s rental payments would be applied to the outstanding loan. Geroche made some payments, but the obligation was not fully settled.
In 1972, DBP took possession of the fishpond by virtue of the assignment. Petitioners filed a complaint for reformation of instrument and damages, arguing that the assignment was merely a mortgage requiring foreclosure, and that the Supplemental Agreement novated the original loan terms, giving Geroche until 1976 to pay. The trial court dismissed the complaint, a decision affirmed by the Intermediate Appellate Court.

ISSUE

Whether the petitioners have a cause of action for reformation and damages against DBP and Geroche, considering the expiration of the underlying fishpond lease from the government.

RULING

The Supreme Court denied the petition and affirmed the appellate court’s decision. The core legal logic rests on the expiration of the fundamental leasehold right. The petitioners’ entire cause of action was predicated on rights derived from the government-issued Fishpond Lease Agreement (FLA No. 719), which expressly expired on December 31, 1965, and was never renewed. This fact was stipulated by the parties. Consequently, upon that expiration date, the petitioners’ predecessor-in-interest no longer held any leasehold right that could be assigned, mortgaged, or subsequently leased to Geroche.
The Court rejected the argument of implied renewal. A lease over public land for fishpond purposes is not implied; it requires a positive grant or license from the proper authorities under applicable laws like P.D. No. 704. The petitioners’ continued occupation after lease expiry, without a new grant, conferred no legal right. Since the source right had expired, the subsequent “Supplemental Agreement” with Geroche could not novate or breathe life into the prior loan security arrangement. The DBP’s act of taking possession, while potentially irregular if the assignment were a mortgage, became a moot issue because the petitioners had no remaining enforceable interest in the property to protect. The findings of fact by the appellate court, supported by evidence and stipulations, were conclusive.