PHILIPPINE NATIONAL BANK, PETITIONER, VS. HON. AUGUSTO M. AMORES, PRESIDING JUDGE, COURT OF FIRST INSTANCE OF MANILA, BRANCH XXIV, MAXIMO KALAW INVESTMENT CORPORATION, AND AUGUS…

The instant petition seeks to review on a pure question of law
the decision^[1]
dated July 8, 1980 of the then Court of First Instance of Manila, Branch XXIV,
granting the declaratory relief prayed for in Civil Case No. 124328.^[2]
The dispositive portion of the decision reads:

PREMISES CONSIDERED, the Court finding the complaint to be
meritorious, hereby grants the same and declares that pursuant to the provisions
of Section 80 of Republic Act No. 3844, as amended by Presidential Decree 251,
defendant Philippine National Bank must accept, as of date of payment, the
entire P130,000.00 of Land Bank bonds paid to it by
the defendant Land Bank of the Philippines, in the above-entitled case, at
their full face value and without any discount. 
Without pronouncement as to costs.

SO ORDERED.^[3]

The undisputed facts are stated in the assailed decision of the
court a quo, thus:

The plaintiff Maximo Kalaw
Investment Corporation, hereinafter referred to as Kalaw
Investment, is the registered owner of Lot 1 of the consolidation-subdivision
plan LRC, Psd-13492, covered by Transfer Certificate of Title No. RT-96 (53532)
of the Register of Deeds for Oriental Mindoro, with
the area of 3,132,122 square meters more or less.

The plaintiffs Kalaw Investment and Augusto Kalaw obtained a loan
from defendant Philippine National Bank, hereinafter referred to as PNB, in the
amount of P150,000.00, and in order to secure the said
loan the aforesaid property was mortgaged to defendant PNB.

A portion of said property, with an area of 45,186 hectares, was
subjected to Operations Land Transfer in favor of tenants-beneficiaries in
accordance with Presidential Decree No. 27 and the provi­sions of Republic Act
No. 3844 (otherwise known as the Code of Agrarian Reform of the Philippines),
as amended more particularly by Presidential Decree No. 251.

As of the date of July 28,
1977 defendant Land
Bank of the Philippines,
hereinafter referred to as LBP, paid defendant PNB for the account of the
plaintiffs P14,588.50 in cash and Land Bank Bonds with
a total face value of P130,000.00.

Pursuant to PNB Board Resolution No. 627 (Exhibit
“1-PNB”), defendant PNB, after crediting the sum of P14,588.50 to the account of plaintiff Augusto
Kalaw, applied the Land Bank bonds to the payment of
the account on a one-to-one basis to the extent of P31,000.00 and on a
discounted basis to the extent of P59,400.00, or a total of P90,400.00.

Contesting the manner of applica­tion of Land Bank bonds to the
payment of loan obligations pursuant to Board Resolution No. 627, plaintiffs
herein wrote the PNB requesting the reconsideration or revision of its policy.

Defendant PNB, however, did not find merit in the request of
plaintiffs but agreed that the latter seek judicial ruling to which it would
abide.

Defendant LBP has directly taken issue with the co-defendant PNB on
the aforementioned policy.

As a consequence, plaintiffs brought the present action for
declaratory relief.^[4]

xxx                                           xxx                                           xxx

The petitioner Philippine National Bank (PNB) appealed from the
decision of the lower court and assigned several errors.  However, there is, in fact, only one question
to be resolved here, i.e., whether or not a government lending institution
(like PNB, the petitioner herein) may be compelled to accept Land Bank notes at
face value in payment of pre-existing obligations secured by land partially
taken by the Land Bank under Operation Land Transfer pursuant to the Agrarian
Reform Code (RA No. 3844 as amended particularly by PD No. 251).

The petitioner PNB, relating PD 27 with Section 80 of the
Agrarian Reform Code, as amended particularly by PD 251, affirms that lands not
subject to PD 27 are also not subject to Section 80.  Necessarily, therefore, when land mortgaged
to PNB is partly subjected to PD 27, only that part also of the corresponding
lien is subjected to Section 80, the unaffected portion being governed by the
PNB charter.

The petitioner’s interpretation not only unduly stretches the scope
of PD 251 but is also antithetical to the objectives of the land reform
program.  Analyzing both laws, we see
that PD 27 effects emancipation of the tenant-farmer from the bondage of the
soil while Section 80 provides the mode of bankrolling the emancipation
measure.  As soon as
the tenant-farmer acquires ownership over the land, he is deemed emancipated
and the objective of PD 27 is attained. 
But the previous owner of the land taken still has to be
compensated.  This is then the moment
when Section 80 comes into play, i.e., in providing for the mode of determining
the value or cost of the acquisition of the land subjected to PD 27.  From the above, we see that the only
correlation that Section 80 has with PD 27 is to the extent of determining the
cost of the land transferred to the tenant-farmer.  The method for effecting
the release of the whole encumbered estate, which naturally includes the
portions not subjected to PD 27, if there are any, does not fall within the
ambit of both decrees.  This being the
case, there is, therefore, no reason to decrease the effective value of the
Land Bank bonds, for that would be the inevitable result if the full
application of their face value is pro tanto limited
only to that portion of the land subjected to PD 27 and discounted with respect
to those portions which were not taken by the Land Bank.

At this point, it must be stressed that Land Bank bonds are
deemed “contracts and the obligations resulting therefrom
fall within the purview of the non-impairment clause of the constitution and
any impairment thereof becomes an encroachment upon the obligation itself which
cannot be permitted.”^[5]

Suffice it to mention that the petitioner is a government lending
institution and as such, it has the obligation to support unequivocably
government programs already on stream and not to introduce its own
interpretative policies which may thwart such programs or modify them to
nothingness.  This is specially
compelling with regard to land reform, the great venture of the government.

The preamble of PD 251 eloquently articulates government intent
to implement the state policy of “diverting landlord capital in
agriculture to industrial development” by “mobilizing and harnessing
properly all available government resources for the realization of the desired
agrarian reform program.”^[6]
For agrarian reform cannot be fully realized without the intervention of the
government, particularly in the payment of just compensation.  Surely, the tenant by himself does not have
and can not afford the wherewithal to defray the cost of the land transferred
to him.  It is only with the full support
and active assistance of the government principally through its financial
institutions that payment of just compensation to the landowner may be
realized.  The petitioner PNB is one of
the government resources contemplated in the said preamble.

In a country, like ours, which still espouses democratic ideals,
but which ideals are threatened by extreme and radical forces, the early and
full implementation of the government’s land reform program sans complications
and technicalities may yet save the nation and keep democracy alive.  The petitioner, a premier government lending
institution must perform its part.  In
the implementation of the financing portion of this laudable program, the PNB
must not pinch centavos.

Moreover, explicit is the law that a mortgage obligation is one
and indivisible.^[7]
Every portion of the property mortgaged is answerable for the whole obligation
as soon as the latter falls due.  The
mortgagor cannot opt, much less compel the mortgagee,
to apply any payment made by him on a specific portion of the mortgaged
property to effect release.  Neither may
the mortgagee apply payments made to it on, and consequently release,
a portion of the mortgaged property and effect foreclosure on the rest.  From the foregoing, it is clear that
petitioner PNB cannot be allowed to do precisely what it had done in the case
at bar.  To illustrate, the computation
made by the petitioner is hereby reproduced:

1. Land Bank remittance      P104,988.50

2. Applied to:

a)  Accrued interest               18,086.15

b)  Service charge                   2,891.41

c)  Principal                         149,977.40

3. Balance of prin–                    65,966.46

cipal debt

4. Less:

Cash payments by               
35,966.46

respondents

5. Balance owed by

respondents                     P 30,000.00^[8]

The Land Bank remittance (No. 1 above) was applied by the
petitioner in the following manner:

a) Cash Portion
……………… P14,588.50

b)
Bonds Taken at

Face Value ……………..   31,000.00

c)
Bonds Taken at

Market Value

(Discounted) …………..  59,400.00^[9]

The total amount paid by the Land Bank in
cash and notes amounted to P144,588.50, P130,000.00 of
which was the total face value of the bonds.

The petitioner’s method evidently contravenes the principle of
indivisibility of mortgage for it applied the Land Bank bonds as payment on a
one-to-one basis pro tanto of the mortgage debt
secured by the particular portion acquired by the Land Bank which had an area
of 45.186 hectares, but on a discounted basis with respect to the other
portions of the debt secured by the same mortgage.

Furthermore, and as correctly noted by
the trial court, Section 80 of the Agrarian Reform Code does not distinguish
between land wholly subjected to agrarian reform and land only partially
affected thereby.  Applying the rule on
statutory construction, “Ubi lex
non distinguit, nec nos distinguere debemos,”^[10]
this Court must perforce follow the meaning expressed by the words of the law.

The pertinent legal provision states:

SEC. 80. 
Modes of Payment.  — The Bank shall finance the acquisition of
farm lots under any of the following modes of settlement:

1.       Cash payment of 10%
and balance in 25-year tax-free 6% Land Bank bonds:

xxx                                        xxx                                           xxx

In the event there is an existing lien or encumbrance on the land
in favor of any Government lending institution at the time of acquisition by
the Bank, the landowner shall be paid the net value of the land (i.e., the
value of the land determined under Proclamation No. 27 minus the outstanding
balance/s of the obligation/s secured by the lien/s or encumbrance/s), and the
outstanding balance/s of the obligations to the lending institution/s shall be
paid by the Land Bank in Land Bank bonds or other securities, existing charters
of those institutions to the contrary notwithstanding.  A similar settlement may be negotiated by the
Land Bank in the case of obligations secured by liens or encumbrances in favor
of private parties or institutions.

There is nothing in the above quoted provision of law which
authorizes a government lending institution to make a distinction in its
acceptance of land bank bonds as payment. 
There is also nothing in the said law which can be construed to mean
that when the area actually “land reformed” is just a portion of the
property encumbered, only that portion of the loan value corresponding to the
area actually taken will be paid with Land Bank bonds at their face value.

The law, in fact, is clear, i.e., that the debt secured by a
mortgage constituted on the land taken under the Agrarian Reform Code shall be
paid in Land Bank bonds even if the charters of government lending institutions
contain provisions contrary to Section 80. 
The last sentence of the law in question which provides that “a
similar settlement may be negotiated,” applies only to obligations
contracted with private parties or institutions but not those contracted with
government lending institutions like the petitioner herein.

From the foregoing, there is no doubt that the petitioner PNB, as
a government lending institution, is obliged to accept payments made to it by
the private respondents, through the Land Bank, in the form of Land Bank bonds
at their par or face value.  The
petitioner may not discount said payments but must apply the full face value of
the bonds on the outstanding balance.

WHEREFORE, premises considered, the petition is hereby
DENIED.  The decision of the trial court
dated July 8, 1980 is
AFFIRMED.

No costs.

SO ORDERED.

Yap, (Chairman), Melencio-Herrera,
Paras, and
Padilla, JJ., concur.

^[1] Penned by then Judge Augusto M. Amores, now Justice of the Sandiganbayan.

^[2] Maximo Kalaw Investment
Corporation, et al. v. PNB et al.

^[3] Rollo,
108.

^[4] Id.,
100-101.

^[5] Gonzales v. GSIS, No. L-51997, September 10, 1981, 107 SCRA 492 citing Dantoni v.
Board of Levee Commissioners, 227 La 575, 80 So. 2d
81.

^[6] Second paragraph.

^[7]Articles 2089 and 2090 of the New Civil Code; Dayrit
v. Court of Appeals, 36 SCRA 548.

^[8] Rollo,
14.

^[9] Id., 13.

^[10]
Where the law does not distinguish, we should not distinguish, Colgate v.
Jimenez, No. L-14787, January 28, 1961, 1 SCRA 267; Robles v. Zambales Chromite, No. L-16182, August 29, 1961, 2 SCRA 1051.