G.R. No. 256301 - People vs. Joel Gabisay, Jr. and Ronnie Doninia

On 7 July 1979, Rico Shipping, Inc.—represented by its President, Erlinda Viray-Jarque—and respondent Edgardo D. Viray (in his personal capacity and as a solidary obligor) secured two separate loans from petitioner Metropolitan Bank and Trust Company (MBTC) totaling P250,000.
The debtors executed a promissory note with an undertaking to pay in four semi-annual installments of P62,500, commencing 23 January 1980, at 15% interest per annum plus a 2% annual credit evaluation and supervision fee.
The two loans were later renewed and consolidated under one promissory note. A total payment of P134,054 was made, leaving an unpaid balance of P115,946 despite MBTC’s demands.

On 5 June 1981, the debtors executed another promissory note and obtained an additional loan of P50,000 from MBTC with a due date on 2 November 1981, accompanied by a 16% interest rate per annum and a 2% annual fee.
The debtors again defaulted on payment upon the due date despite repeated demands by MBTC.
On 3 September 1981, a third loan amounting to P50,000 was obtained by the debtors on a promissory note, with payment due on 14 November 1981 under similar interest and fee conditions.
As with the previous loans, the debtors failed to pay by the prescribed due date.

MBTC filed a complaint for sum of money, prompting the RTC of Manila, Branch 4, to render a judgment on 28 April 1983 in favor of MBTC.
The RTC ordered the debtors to pay jointly and severally:

For the first and second causes of action: P50,000 each with interest at 16% per annum and a penalty charge of 1% per month.
For the third cause of action: P115,946.00 with interest at 1% per annum and a similar penalty charge computed from the filing date.
Additionally, P15,000.00 for attorney’s fees and payment of suit costs were also ordered.

On 29 December 1982, the government issued Free Patents in favour of Viray over three parcels of land (Lot Nos. 26275, 26276, 26277) situated in Barangay Bulua, Cagayan de Oro City, as evidenced by OCT Nos. P-2324, P-2325, and P-2326.
The OCTs featured an inscription indicating that the lands acquired under free patent were inalienable and not liable to encumbrance or debt satisfaction for a period of five years from the issuance date.
The OCTs were duly registered with the Registry of Deeds on 18 January 1983.

On 6 March 1984, a writ of execution was issued over the lands owned by Viray.
On 12 October 1984, the City Sheriff of Cagayan de Oro sold the parcels at public auction in favour of MBTC, with the Certificate of Sale issued the following day.
Subsequently, on 23 August 1990, a Deed of Final Conveyance was executed and the Register of Deeds cancelled the OCTs to issue Transfer Certificates of Title (TCT Nos. T-59171, T-59172, and T-59173) in MBTC’s name.

On 30 July 1991, Viray filed an action for the annulment of sale against the sheriff and MBTC before the RTC of Cagayan de Oro City, seeking nullity of the execution sale, certificate of sale, deed of final conveyance, and the TCTs.
On 21 September 1993, the RTC ruled in favour of MBTC, declaring the auction sale valid due to Viray’s failure to redeem the properties within the prescribed period.
Viray’s appeal claimed that the RTC erroneously focused on the issue of redemption rather than the validity of the auction sale under the “lis mota” doctrine.
On 21 August 2003, the Court of Appeals (CA) reversed the RTC decision, nullifying the auction sale as it occurred within the five-year prohibition period prescribed by Section 118 of Commonwealth Act No. 141 (CA 141).
The CA ordered the cancellation of TCT Nos. T-59171, T-59172, and T-59173, and the restoration of OCTs in Viray’s name, while allowing that his obligation to satisfy the judgment debt persisted.
MBTC’s Motion for Reconsideration was denied on 13 February 2004, leading to the petition for review.

Whether the auction sale of the lots falls within the five-year prohibition period mandated by Section 118 of CA 141.

The central question involves interpreting the prohibitory provision: Does the law bar any alienation (voluntary or involuntary) of lands acquired under free patent within five years from the issuance of the patent?
Whether the fact that the debts predate the issuance of the free patents bears any relevance to the application of Section 118.
Whether the nature of the sale—as "forced" or through execution—affects its validity under the prohibition period.