Development Bank of the Philippines vs. Asok

Section 119 of Commonwealth Act No. 141, as amended, applies to land originally acquired under a free patent even after the patent title has been cancelled and a transfer certificate of title has been issued to an heir; the term “legal heirs” therein is construed broadly to include the patentee’s daughter-in-law and grandchildren; and the five-year repurchase period in an extrajudicial foreclosure runs from the expiration of the one-year redemption period, which is reckoned from the registration of the certificate of sale under Act No. 3135.

The land in controversy was originally acquired under a free patent issued on July 19, 1967, and the governing statutory framework is Section 119 of Commonwealth Act No. 141, as amended, which grants the free-patent applicant, widow, or legal heirs a five-year right to repurchase conveyed land. DBP is a government financial institution created and operating under Executive Order No. 81, as amended by Republic Act No. 8523. The foreclosure was conducted under Act No. 3135, which regulates the extrajudicial sale of property under special powers inserted in or annexed to real estate mortgages.

Spouses Dionesio and Matea S. Asok owned several parcels of land. Upon their deaths on September 14, 1973 and February 22, 1982, respectively, their eleven children inherited the properties. One of the inherited lands was covered by Original Certificate of Title (OCT) No. P-4272, a free patent issued on July 19, 1967, located at Pagawan, Manticao, Misamis Oriental, with an area of 39,552 square meters. Pursuant to an extrajudicial settlement of the estate with quitclaim executed by the children, the subject property was inherited by Denison Asok. OCT No. P-4272 was cancelled and Transfer Certificate of Title (TCT) No. T-9626 was issued and registered in his name on November 17, 1987.

On August 31, 1989, Denison Asok and his wife, respondent Ella Gagarani Asok, borrowed P100,000 from petitioner Development Bank of the Philippines (DBP), a government financial institution created and operating under Executive Order No. 81, as amended by Republic Act No. 8523. They mortgaged the subject lot as collateral to guarantee payment of the loan. When they failed to pay on due date, the mortgage was extrajudicially foreclosed pursuant to Act No. 3135. DBP emerged as the highest bidder with a bid of P163,297. On November 28, 1991, a certificate of sale was issued in favor of DBP, and this was registered on December 24, 1992. On March 25, 1998, DBP’s ownership over the property was consolidated and TCT No. T-27172 was issued in its name.

Meanwhile, Denison Asok died on October 24, 1993 and was succeeded by his surviving spouse and children, the respondents. On May 15, 1998, respondents filed a complaint for repurchase against DBP in the Regional Trial Court of Initao, Misamis Oriental, Branch 44, docketed as Civil Case No. 98-68. On July 3, 1998, they filed an amended complaint after learning that TCT No. T-9626 had been cancelled by TCT No. T-27172 issued in DBP’s name. They invoked their right to repurchase the property under Section 119 of Commonwealth Act No. 141, as amended.

The complaint was precipitated by DBP’s consolidation of ownership and issuance of TCT No. T-27172 in its name. The dates material to the controversy were undisputed: the certificate of sale was registered on December 24, 1992, and respondents filed their complaint on May 15, 1998.

• Applicability of Section 119: Petitioner contended that Section 119 of Commonwealth Act No. 141 covers homesteads and free patents only, and because the free patent issued to Asok’s parents had already been cancelled and a new TCT had been issued to Asok, the property mortgaged to DBP was no longer covered by a free patent but by a TCT.
• Status as Legal Heirs: Petitioner argued that respondents were not the legal heirs of the patentees because they were merely their daughter-in-law and grandchildren.
• Prescription: Petitioner asserted that even if respondents were entitled under Section 119, the right had prescribed because the period should be counted from the date of conveyance, meaning the date of sale, not the date of registration of the certificate of sale. It cited Lee Chuy Realty Corporation vs. CA and Mata vs. CA.

• Applicability of Section 119: Whether Section 119 of Commonwealth Act No. 141 applies where the land originally covered by a free patent was inherited by the patentees’ son, a new transfer certificate of title was issued in his name, and the land was later mortgaged and extrajudicially foreclosed.
• Legal Heirs: Whether respondents, as the daughter-in-law and grandchildren of the free-patent grantee, are “legal heirs” entitled to repurchase under Section 119.
• Prescription of the Right to Repurchase: Whether the right to repurchase had prescribed, specifically whether the five-year period is counted from the date of sale or from the registration of the certificate of sale.

• Applicability of Section 119: Yes. Section 119 applies despite the cancellation of the free patent and issuance of a TCT to the heir, because its policy is to preserve the land in the patentee’s family.
• Legal Heirs: Yes. “Legal heirs” is used in a generic and broad sense and includes persons called to succession by will or by operation of law; respondents, as daughter-in-law and grandchildren, may repurchase.
• Prescription of the Right to Repurchase: No. The five-year period under Section 119 runs from the expiration of the one-year redemption period, which is reckoned from registration of the certificate of sale under Act No. 3135; the complaint filed on May 15, 1998 was timely.

• Applicability of Section 119: Section 119 applies because its plain intent is to give the homesteader or patentee every chance to preserve and keep in the family the land gratuitously granted by the State as a reward for labor in cleaning, developing, and cultivating it. Inheritance by the patentees’ son and issuance of a new title in his name did not remove the land from the provision; the policy is fulfilled because the land remains in the patentee’s family. Ferrer vs. Mangente was cited to the effect that the law’s benefits extend to those closely related to the applicant and entitled to legal succession.
• Legal Heirs: The term “legal heirs” in Section 119 is generic and broad enough to cover any person called to succession either by will or by operation of law; it includes testate and intestate heirs and is not limited to compulsory heirs. Madarcos vs. de la Merced was relied on. Respondents inherited from Asok, who inherited from his parents; Ella Gagarani Asok, as daughter-in-law of the patentees, could be considered among the legal heirs who may repurchase, consistent with Salenillas vs. CA, where the daughter and son-in-law of the patentees were allowed to repurchase. The law must be liberally construed to carry out its purpose.
• Prescription of the Right to Repurchase: The issue had already been resolved in Rural Bank of Davao City, Inc. vs. CA: if the land is mortgaged to parties other than rural banks, the mortgagor may redeem within one year from registration of the certificate of sale under Act No. 3135; if he fails, he or his heirs may repurchase within five years from expiration of the redemption period under Section 119. Belisario vs. Intermediate Appellate Court and Manuel vs. PNB were cited for the rule that the redemption period is reckoned from registration of the certificate of sale and the five-year period begins from expiration of the one-year redemption period. The certificate of sale was registered on December 24, 1992, so the one-year redemption period expired on December 24, 1993; the five-year repurchase period ran until December 24, 1998. The complaint filed on May 15, 1998 was therefore timely. Petitioner’s citations to Lee Chuy Realty Corporation vs. CA and Mata vs. CA did not apply: the statement in Lee Chuy was obiter dictum because the issue there was whether a judicial action to redeem coupled with consignation was equivalent to a formal offer to redeem under the Civil Code, and Mata did not involve an extrajudicial foreclosure sale.

• Section 119 of Commonwealth Act No. 141 — liberal construction and family preservation — Section 119 grants the free-patent or homestead applicant, his widow, or legal heirs a five-year period from conveyance to repurchase the land. The provision is liberally construed to give the patentee every chance to preserve and keep in the family the land gratuitously granted by the State. The Court applied it despite the cancellation of the free patent and issuance of a transfer certificate of title to the patentee’s son, because the land remained in the patentee’s family.
• “Legal heirs” under Section 119 — generic and broad — The term is used in a generic sense and covers any person called to succession either by will or by operation of law; it includes testate and intestate heirs and is not limited to compulsory heirs. The Court held that respondents, as the daughter-in-law and grandchildren of the patentees, fell within this broad category and could repurchase.
• Redemption and repurchase periods in extrajudicial foreclosure of free patent or homestead land — Where land acquired under a free patent or homestead is mortgaged to parties other than rural banks, the mortgagor may redeem within one year from registration of the certificate of sale under Act No. 3135. If redemption is not made, the mortgagor or his heirs may repurchase within five years from the expiration of the redemption period under Section 119 of the Public Land Act. The Court applied this sequence to hold the complaint timely.
• Reckoning of the five-year repurchase period in extrajudicial foreclosure — For purposes of Section 119 in an extrajudicial foreclosure, the five-year period is not counted from the date of sale but from the expiration of the one-year redemption period, which is reckoned from the registration of the certificate of sale. The Court distinguished citations to Lee Chuy Realty Corporation vs. CA and Mata vs. CA as inapplicable or obiter.

• "The plain intent of Sec. 119 is to give the homesteader or patentee every chance to preserve and keep in the family the land that the State has gratuitously given him as a reward for his labor in cleaning, developing and cultivating it." — This states the policy basis for applying Section 119 even after the land has passed to an heir and a new title has been issued.
• "The term “legal heirs” is used in Section 119 in a generic sense. It is broad enough to cover any person who is called to the succession either by provision of a will or by operation of law." — This defines the breadth of “legal heirs” and supports the inclusion of the patentee’s daughter-in-law and grandchildren as persons entitled to repurchase.
• "If the land is mortgaged to parties other than rural banks, the mortgagor may redeem the property within one (1) year from the registration of the certificate of sale pursuant to Act No. 3135. If he fails to do so, he or his heirs may repurchase the property within five (5) years from the expiration of the redemption period also pursuant to Section 119 of the Public Land Act." — This is the controlling formulation of the redemption and repurchase periods applied by the Court.
• "Consequently, the CA was correct in holding that the complaint filed on May 15, 1998 was on time." — This applies the reckoning rule to the undisputed registration date and confirms the timeliness of the repurchase action.

• Ferrer vs. Mangente, 151-A Phil. 427 (1973) — Relied on to hold that the benefits of Section 119 extend to the patentee’s legal heirs and that the law’s policy is fulfilled when the land remains in the patentee’s family.
• Madarcos vs. de la Merced, G.R. No. L-39975, 30 June 1989, 174 SCRA 599 — Cited for the rule that “legal heirs” under Section 119 is used in a generic sense and includes both testate and intestate heirs, not only compulsory heirs.
• Salenillas vs. CA, G.R. No. 78687, 31 January 1989, 169 SCRA 829 — Followed to allow the daughter and son-in-law of the patentees to repurchase, consistent with the liberal construction of Section 119.
• Rural Bank of Davao City, Inc. vs. CA, G.R. No. 83992, 27 January 1993, 217 SCRA 554 — Controlling precedent summarizing the rules on redemption and repurchase of free-patent or homestead land in extrajudicial foreclosure.
• Belisario vs. Intermediate Appellate Court, G.R. No. 73503, 30 August 1988, 165 SCRA 101 — Cited for the rule that the one-year redemption period is reckoned from registration of the certificate of sale.
• Manuel vs. PNB, 101 Phil. 968 (1957) — Cited for the rule that the five-year repurchase period begins to run from the expiration of the one-year redemption period.
• Lee Chuy Realty Corporation vs. CA, G.R. No. 104114, 4 December 1995, 250 SCRA 596 — Cited by petitioner but distinguished; the statement on reckoning from the date of sale was obiter dictum because the issue there involved judicial action to redeem coupled with consignation.
• Mata vs. CA, 376 Phil. 525 (1999) — Cited by petitioner but distinguished because it did not involve an extrajudicial foreclosure sale.

• Section 119, Commonwealth Act No. 141 (Public Land Act), as amended — Grants the free-patent or homestead applicant, his widow, or legal heirs the right to repurchase conveyed land within five years from the date of conveyance. The Court applied it despite the cancellation of the free patent and issuance of a transfer certificate of title, and construed “legal heirs” broadly.
• Act No. 3135 — Regulates the extrajudicial sale of property under special powers inserted in or annexed to real estate mortgages. The Court used it to hold that the one-year redemption period is reckoned from registration of the certificate of sale.
• Executive Order No. 81, as amended by Republic Act No. 8523 — Identifies the Development Bank of the Philippines as a government financial institution created and operating under that charter.
• Rule 45, Rules of Court — The procedural basis for the petition for review on certiorari filed before the Supreme Court.

Puno, C.J. (Chairperson); Carpio Morales, J.*; Azcuna, J.; and Leonardo-De Carpio, J.

• As replacement of Justice Antonio T. Carpio who is on official leave per Special Order No. 515.