IN RE: PETITION TO CANCEL ENCUMBRANCE ANNOTATED ON TRANSFER CERTIFICATE OF TITLE NO. 143917 OF THE REGISTRY OF DEEDS OF RIZAL. ALEJANDRO DE GUZMAN, PETITIONER-APPELLEE, VS. LAND…

Alejandro de Guzman versus Land Authority

The Case

This is a petition filed by Alejandro de Guzman, the registered owner of a seventy square meter parcel of land in the Tambobong Estate in Malabon, Rizal, seeking to cancel the encumbrance annotated on his transfer certificate of title. The Land Authority, the government entity then tasked with administering landed estates for distribution to the landless, opposed the petition. The case matters because it tests whether the conditions imposed on lands sold under the "Land for the Landless" program are perpetual safeguards that bind every subsequent owner, or mere temporary restrictions that lapse with the five-year period. The Supreme Court's answer fixes the enduring force of administrative orders that carry the weight of law.

Procedural History

De Guzman filed his petition to cancel the conditions before the Court of First Instance of Rizal. After hearing and the presentation of evidence by both the petitioner and the oppositor, the lower court issued an order granting the petition and directing the Register of Deeds of Rizal to cancel the encumbrance. The lower court reasoned that conditions numbered two and three should be read in connection with condition number one, and that they were not meant to place a perpetual limitation on the buyer's right of ownership but a limitation for five years only. The Land Authority moved for reconsideration, De Guzman opposed, and the lower court denied the motion. The Land Authority then interposed an appeal to the Supreme Court, which decided the case on September 15, 1986.

Facts

Alejandro de Guzman owned a seventy square meter parcel of land in the Tambobong Estate in Malabon, Rizal, covered by Transfer Certificate of Title No. 143917 of the Registry of Deeds of Rizal. An entry carried over from an earlier title, originally inscribed in 1956, annotated three conditions on the property. First, the land could not be sold, assigned, encumbered, mortgaged, or transferred within five years from the date of the instrument without the written consent of the Chairman of the Land Tenure Administration. Second, except by hereditary succession, it could not be conveyed to any person who is not landless and who is disqualified to acquire or own land in the Philippines. Third, a violation of either of the two preceding conditions would be sufficient ground for the Chairman of the Land Tenure Administration, or his duly authorized representative, to take such action as may be necessary for the reversion of the land to the government.

On March 27, 1967, De Guzman filed a petition in the Court of First Instance of Rizal to cancel all three conditions, on the ground that more than five years had elapsed since the annotation of the encumbrance. The Land Authority opposed, conceding that condition number one could be cancelled because its five-year period had lapsed, but insisting that conditions numbered two and three carry no prescriptive period at all and are therefore perpetual in character. It relied on Land Administrative Order No. R-3, the rules and regulations governing the acquisition and disposition of landed estates, from which the annotated conditions were drawn.

The lower court granted the petition, holding that conditions numbered two and three should be read together with condition number one and were meant to limit ownership for five years only. The Land Authority sought reconsideration, which was denied, and then appealed. Before the Supreme Court, the Land Authority argued that the conditions are mere restrictions safeguarding the "Land for the Landless" policy of the State, a valid exercise of regulatory power over the right of ownership. De Guzman countered that this argument disregards property rights and the constitutional guarantee of freedom to contract, because the restrictions are unreasonable, arbitrary, and capricious.

Issues

• Whether or not conditions numbered two and three, which carry no prescriptive period, may be cancelled on the sole ground that five years have elapsed since their annotation.
• Whether or not these conditions, imposed under an administrative order implementing the constitutional policy of breaking up landed estates, are binding upon the registered owner and are not contrary to law, morals, customs, or public policy.

Applicable Provisions

Section 16 of Land Administrative Order No. R-3, on the prohibition to alienate, provides:

The applicant shall not sell, assign, encumber, mortgage, or transfer, his rights under the agreement to sell or in the property subject thereof without first obtaining the written consent of the Secretary of Agriculture and Natural Resources and this condition shall subsist until the lapse of five years from the date the execution of the final deed sale in favor and shall be annotated as an encumbrance on the certificate of title of the property that may be issued in his favor.

This is the source of condition number one, the only condition the Land Authority conceded could be cancelled because its five-year period had run.

Section 17 of the same Order, on the conveyance of lands covered by final deeds of sale, provides:

Except by hereditary succession, no lands acquired hereunder shall be transferred or assigned to any individual unless he be landless and not otherwise disqualified from acquiring and owning lands in the Philippines. This prohibition shall be made a condition in all deeds sale and shall be annotated as encumbrance in the certificate of title.

This is the source of condition number two, and it contains no period of limitation, which is why the Court refused to read one into it.

Section 18 of the same Order, on the effect of a violation, provides:

Any sale, assignment, encumbrance, mortgage, or transfer made in violation of the provisions of the next two preceding paragraphs hereof is null and void, and shall be sufficient ground for the Secretary of Agriculture and Natural Resources to cancel the deed sale and to order the reversion the land to the government and the forfeiture whatever payments made on account thereof. In case however, a deed of sale has already been issued, the violation of the said provisions shall be sufficient ground for the Secretary of Agriculture and Natural Resources to take appropriate action in court with a view to obtaining the reversion of the land involved to the government. All lands reverted to the government shall be disposed as vacant lot.

This is the source of condition number three, which supplies the remedy of reversion and therefore must stand as long as the prohibition it enforces stands.

Ruling

On the first issue, the Court ruled that conditions numbered two and three cannot be cancelled. Only condition number one carries a five-year period. Conditions numbered two and three carry no prescriptive period at all, and the lapse of five years from annotation does not extinguish them. The lower court erred in reading all three conditions as limited to five years.

On the second issue, the Court held that the conditions are binding and valid. It noted that it had ruled on the same issue at least twice before, in De Gallego versus Land Authority and in Republic versus Siochi, and saw no reason to deviate. The Court traced the conditions to Sections 16, 17, and 18 of Land Administrative Order No. R-3, dated October 19, 1951, published in the Official Gazette, and held that the Order has the force and effect of law. The Court explained:

Conditions No. 2 and 3, having been imposed pursuant to an Administrative order which has the force and effect of the law, are therefore binding upon any person who acquires title to the same, it appearing that said Conditions are annotated as encumbrances on the back of the Certificate of Title of the land. Moreover, the said conditions are not contrary to law, morals, customs, or public policy. In fact, these Conditions had been imposed inorder to implement more effectively the main purpose of the constitutional provisions which is to break up landed estates into reasonably portions and to discourage the concentration of excessive landed wealth in an entity or a few individuals.

Because the conditions are annotated on the certificate of title, they bind whoever acquires the land. Because they serve the constitutional policy of breaking up landed estates and discouraging the concentration of landed wealth, they are a valid exercise of regulatory power and do not offend property rights or freedom to contract.

Doctrine

A condition annotated on a certificate of title under an administrative order that has the force and effect of law binds every person who acquires the land, whether or not that person had notice beyond the annotation itself. Where the governing provision fixes a period, as Section 16 does for the prohibition to alienate, the restriction lasts only for that period. Where the governing provision fixes no period, as Sections 17 and 18 do for the requirement that the transferee be landless and for the remedy of reversion, no period may be read into it, and the restriction is perpetual. Restrictions imposed to carry out the constitutional policy of breaking up landed estates and discouraging the concentration of excessive landed wealth in a few hands are not contrary to law, morals, customs, or public policy, and are a valid exercise of the State's regulatory power.

Disposition

The Supreme Court reversed and set aside the order of the lower court insofar as it cancelled conditions numbered two and three, with costs against De Guzman; the Land Authority prevailed on the appeal.

Remember This

Memorize the line that conditions imposed under an administrative order with the force and effect of law, and annotated on the title, bind every subsequent owner, and that only the condition with a stated period expires with that period. Examiners use this case to test the force of administrative orders as law and the validity of "Land for the Landless" restrictions against the constitutional guarantees of property and contract.