Metropolitan Bank and Trust Company vs.

Edgardo Viray
G.R. No. 162218
February 25, 2010

Facts:

Edgardo Viray and Erlinda Viray-Jarque obtained three separate loans from Metropolitan Bank
and Trust Company in their own personal capacity and as solidary obligors in the total amount of
P350,000.00 in the years 1979, June 1981 and September 1981. The debtors failed and refused to
pay on the the due date.

MBTC filed a complaint for sum of money against the debtors with the RTC of Manila, Branch
4. On 28 April 1983, the RTC of Manila rendered a judgment in favor of MBTC.

Meanwhile, on 29 December 1982, the government issued Free Patents in favor of Viray over
three parcels of land all situated in Barangay Bulua, Cagayan de Oro City, Misamis Oriental.
Original Certificate of Title (OCT) Nos. P-2324, P-2325 and P-2326 were issued covering Free
Patent Nos. [X-1] 10525, [X-1] 10526 and [X-1] 10527, respectively.

The OCTs containing the free patents were registered with the Registry of Deeds of Cagayan de
Oro City on 18 January 1983.

On 6 March 1984, the RTC of Manila issued a writ of execution over the lots owned by
Viray. On 12 October 1984, pursuant to the writ of execution, the City Sheriff of Cagayan de Oro
sold the lots at public auction in favor of MBTC as the winning bidder. The next day, the sheriff
issued a Certificate of Sale to MBTC.

On 23 August 1990, the sheriff executed a Deed of Final Conveyance to MBTC. The Register of
Deeds of Cagayan de Oro City cancelled OCT Nos. P-2324, P-2325 and P-2326 and issued in
MBTCs name Transfer Certificate of Title (TCT) Nos. T-59171, T-59172 and T-
59173, respectively.

On 30 July 1991, Viray filed an action for annulment of sale against the sheriff and MBTC with
the RTC of Cagayan de Oro City, Misamis Oriental, Branch 23.Viray sought the declaration of
nullity of the execution sale, the sheriffs certificate of sale, the sheriffs deed of final conveyance
and the TCT's issued by the Register of Deeds.

On 21 September 1993, the RTC of Cagayan de Oro City rendered its decision in favor of
MBTC.

Viray filed an appeal with the CA alleging that the RTC of Cagayan de Oro City committed
reversible error in ruling solely on the issue of redemption instead of the issue of validity of the
auction sale, being the lis mota of the action.
On 21 August 2003, the appellate court reversed the decision of the RTC of Cagayan de Oro
City. The CA ruled that the auction sale conducted by the sheriff was null and void ab initio since
the sale was made during the five-year prohibition period in violation of Section 118 of
Commonwealth Act No. 141 (CA 141) or the Public Land Act.

MBTC filed a Motion for Reconsideration which was denied in a Resolution dated 13 February
2004.

Issue:

Whether the auction sale falls within the five-year prohibition period laid down in Section 118 of
CA 141.

Held:

Yes.

Petitioner MBTC insists that the five-year prohibition period against the alienation or sale of the
property provided in Section 118 of CA 141 does not apply to an obligation contracted before the
grant or issuance of the free patent or homestead. The alienation or sale stated in the law pertains
to voluntary sales and not to forced or execution sales.

Respondent Viray, on the other hand, maintains that the express prohibition in Section 118 of CA
141 does not qualify or distinguish whether the debt was contracted prior to the date of the
issuance of the free patent or within five years following the date of such issuance. Further,
respondent asserts that Section 118 of CA 141 absolutely prohibits any and all sales, whether
voluntary or not, of lands acquired under free patent or homestead, made within the five-year
prohibition period.

Section 118 of CA 141 states:

SECTION 118. Except in favor of the Government or any of its branches, units, or instruction,
lands acquired under free patent or homestead provisions shall not be subject to encumbrance or
alienation from the date of the approval of the application and for a term of five years from and
after the date of issuance of the patent and grant, nor shall they become liable to the satisfaction
of any debt contracted prior to the expiration of said period, but the improvements or crops on
the land may be mortgaged or pledged to qualified persons, associations, or corporations.

No alienation, transfer, or conveyance of any homestead after five years and before twenty-five
years after issuance of title shall be valid without the approval of the Secretary of Agriculture and
Natural Resources, which approval shall not be denied except on constitutional and legal
grounds.

In the present case, the three loans were obtained on separate dates 7 July 1979, 5 June 1981 and
3 September 1981, or several years before the free patents on the lots were issued by the
government to respondent on 29 December 1982. The RTC of Manila, in a Decision dated 28
April 1983, ruled in favor of petitioner ordering the debtors, including respondent, to pay jointly
and severally certain amounts of money. The public auction conducted by the sheriff on the lots
owned by respondent occurred on 12 October 1984.

For a period of five years or from 29 December 1982 up to 28 December 1987, Section 118 of
CA 141 provides that the lots comprising the free patents shall not be made liable for the
payment of any debt until the period of five years expires. In this case, the execution sale of the
lots occurred less than two years after the date of the issuance of the patents. This clearly falls
within the five-year prohibition period provided in the law, regardless of the dates when the loans
were incurred.