Foreign Land Ownership Constitutionality Prevails Over Execution Sales

The Supreme Court recently ruled on a case that underscores a fundamental principle of Philippine law: aliens cannot own private lands in the Philippines, even through an execution sale. In Encarnacion v. Johnson (G.R. No. 192285, July 11, 2018), the Court nullified auction sales where a Canadian citizen acquired properties as the highest bidder, reaffirming the constitutional prohibition on foreign land ownership.

The case also clarifies the remedies available to third-party claimants whose properties are levied upon in execution proceedings, distinguishing between the proper remedy of a separate action to vindicate ownership and the exceptional remedy of annulment of judgment.

The Facts of the Case

The case originated from a Canadian court judgment. Thomas Johnson, a Canadian citizen, obtained a default judgment in British Columbia against spouses Narvin and Mary Edwarson for a fraudulent investment scheme. Johnson then filed an action in the Philippines for recognition and enforcement of the foreign judgment before the Regional Trial Court (RTC) of Olongapo City.

The RTC issued a writ of execution, which was later amended to include properties registered under the name of Mateo Encarnacion, Mary's father. Mateo filed a third-party claim, asserting ownership over the levied properties. Despite this, auction sales were conducted, and Johnson emerged as the highest bidder for several parcels of land.

Mateo later filed a petition for annulment of judgment before the Court of Appeals, which denied the petition. Mateo's heirs, who substituted him after his death, elevated the case to the Supreme Court.

The Issue: Third-Party Claims and Annulment of Judgment

The Court addressed two main issues: whether annulment of judgment was the proper remedy for a third-party claimant, and whether an alien could acquire private lands through an execution sale.

On the first issue, the Court ruled that Mateo's heirs could not avail of annulment of judgment. The remedy under Rule 47 of the Rules of Court is exceptional and limited to grounds of lack of jurisdiction or extrinsic fraud. More importantly, the petitioner must show that ordinary remedies are no longer available through no fault of the petitioner.

The Court noted that Mateo was not a party to the action for recognition of foreign judgment, nor was he a real party in interest, having previously transferred his interest in the properties to his daughter Mary. His proper recourse was to file a separate action to vindicate his claim of ownership over the levied properties, as provided under Section 16, Rule 39 of the Rules of Court.

The Constitutional Prohibition on Alien Land Ownership

Despite denying the petition for annulment, the Court took cognizance of a more serious issue: Johnson's acquisition of lands through the execution sale violated the Constitution.

Section 7, Article XII of the Constitution provides that no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain. The Court emphasized that aliens are absolutely prohibited from acquiring private lands in the Philippines, with only hereditary succession as an exception.

The Court cited a long line of cases, including Matthews v. Taylor and Hulst v. PR Builders, Inc., to emphasize that this prohibition is clear and inflexible. What cannot be done directly cannot be done indirectly—an alien cannot acquire lands through an execution sale, which has for its object the transfer of ownership to the highest bidder.

The Court nullified the auction sales where Johnson was declared the highest bidder, citing Article 1409(1) and (7) of the Civil Code, which declares contracts contrary to law or public policy as void from the beginning. The case was remanded to the RTC to conduct anew the auction sales, excluding Johnson from participating as a bidder.

Practical Takeaways

• Aliens cannot own Philippine lands, even through execution sales. The constitutional prohibition under Section 7, Article XII of the Constitution is absolute, with hereditary succession as the only exception.
• Third-party claimants have specific remedies. If properties are levied upon, a third-party claimant may file a terceria (affidavit of third-party claim), seek damages against the bond, or file a separate action to vindicate ownership. Annulment of judgment is not the proper remedy.
• Annulment of judgment is exceptional. It is available only on grounds of lack of jurisdiction or extrinsic fraud, and only when ordinary remedies are no longer available through no fault of the petitioner.
• Courts may act on constitutional violations even if not raised below. The Supreme Court will not ignore a blatant violation of the Constitution, even if the lower courts failed to consider it.
• Execution sales to disqualified bidders are void. Contracts with an illegal object or purpose are void from the beginning under Article 1409 of the Civil Code.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.