Central Mindanao University vs. Department of Agrarian Reform Adjudication Board 215 SCRA 86 (1992)

Facts:On 16 January 1958, President Carlos Garcia issued Proclamation No. 467 reserving for the Mindanao Agricultural College, now the CMU, a piece of land to be used as its future campus. In 1984, CMU embarked on a project titled "Kilusang Sariling Sikap" wherein parcels of land were leased to its faculty members and employees. Under the terms of the program, CMU will assist faculty members and employee groups through the extension of technical know-how, training and other kinds of assistance. In turn, they paid the CMU a service fee for use of the land. The agreement explicitly provided that there will be no tenancy relationship between the lessees and the CMU.When the program was terminated, a case was filed by the participants of the "Kilusang Sariling Sikap" for declaration of status as tenants under the CARP. In its resolution, DARAB, ordered, among others, the segregation of 400 hectares of the land for distribution under CARP. The land was subjected to coverage on the basis of DAR's determination that the lands do not meet the condition for exemption, that is, it is not "actually, directly, and exclusively used" for educational purposes.

Issue:Is the CMU land covered by CARP? Who determines whether lands reserved for public use by presidential proclamation is no longer actually, directly and exclusively used and necessary for the purpose for which they are reserved?

Held:The land is exempted from CARP. CMU is in the best position to resolve and answer the question of when and what lands are found necessary for its use. The Court also chided the DARAB for resolving this issue of exemption on the basis of "CMU's present needs." The Court stated that the DARAB decision stating that for the land to be exempt it must be "presently, actively exploited and utilized by the university in carrying out its present educational program with its present student population and academic faculty" overlooked the very significant factor of growth of the university in the years to come.

ASSOCIATION OF SMALL LANDOWNERS IN THE PHILIPPINES vs.HONORABLE SECRETARY OF AGRARIAN REFORM

FACTSThe association of the Small Landowners of the Philippines invokes the right of retention granted by PD 27 to owners of rice and corn lands not exceeding 7 hectares as long as they are cultivating on intend to cultivate the same. Their respected lands do not exceed the statutory limits but are occupied by tenants who re actually cultivating such lands.Because PD No. 316 provides that no tenant-farmer in agricultural land primarily devoted to rice and corn shall be ejected or removed from his farm holding until such time as the respective rights of the tenant-farmers and the land owners shall have been determined, they petitioned the court for a writ of mandamus to compel the DAR Secretary to issue the IRR, as they could not eject their tenants and so are unable to enjoy their right of retention.ISSUEWhether or not the assailed statutes are valid exercises of police power.Whether or not the content and manner of just compensation provided for the CARP is violative of the Constitution.Whether or not the CARP and EO 228 contravene a well accepted principle of eminent domain by divesting the land owner of his property even before actual payment to him in full of just compensationHELDYes. The subject and purpose of agrarian reform have been laid down by the Constitution itself, which satisfies the first requirement of the lawful subject. However, objection is raised to the manner fixing the just compensation, which it is claimed is judicial prerogatives. However, there is no arbitrariness in the provision as the determination of just compensation by DAR is only preliminary unless accepted by all parties concerned. Otherwise, the courts will still have the right to review with finality the said determination.No. Although the traditional medium for payment of just compensation is money and no other, what is being dealt with here is not the traditional exercise of the power and eminent domain. This is a revolutionary kind of expropriation, which involves not mere millions of pesos. The initially intended amount of P50B may not be enough, and is in fact not even fully available at the time. The invalidation of the said section resulted in the nullification of the entire program.No. EO 228 categorically stated that all qualified farmer-beneficiaries were deemed full owners of the land they acquired under PP 27, after proof of full payment of just compensation. The CARP Law, for its part, conditions the transfer of possession and ownership of the land to the government on the receipt by the landowner of the corresponding payment or the deposit of DAR of the compensation in cash or LBP bonds with an accessible bank. Until then, title also remains with the landowner.

[G.R. No. 128557. December 29, 1999]LAND BANK OF THE PHILIPPINES, petitioner vs. COURT OF APPEALS and JOSE PASCUAL, respondents.

The lofty effort of the Government to implement an effective agrarian reform program has resulted in the massive distribution of huge tracks of land to tenant farmers. But it divested many landowners of their property, and although the Constitution assures them of just compensation its determination may involve a tedious litigation in the end. More often, land appraisal becomes a prolonged legal battle among the contending parties - the landowner, the tenant and the Government. At times the confrontation is confounded by the numerous laws on agrarian reform which although intended to ensure the effective implementation of the program have only given rise to needless confusion which we are called upon to resolve, as the case before us.

Private respondent Jose Pascual owned three (3) parcels of land located in Guttaran, Cagayan. Parcel 1 covered by TCT No. 16655 contains an area of 149,852 square meters as surveyed by the DAR but the actual land area transferred is estimated at 102,229 square meters and classified as unirrigated lowland rice; Parcel 2 covered by TCT No. 16654 contains an area of 123,043 square meters as surveyed by the DAR but the actual land area transferred is estimated at 85,381 square meters and classified as cornland; and, Parcel 3 covered by TCT No. 16653 contains an area of 192,590 square meters but the actual land area transferred is estimated at 161,338 square meters and classified as irrigated lowland rice.[if ! Pursuant to the Land Reform Program of the Government under PD 27 and EO 228 the Department of Agrarian Reform (DAR) placed these lands under its Operation Land Transfer (OLT).

Under EO 228 the value of rice and corn lands is determined thus -Sec. 2. Henceforth, the valuation of rice and corn lands covered by P.D. 27 shall be based on the average gross production determined by the Barangay Committee on Land Production in accordance with Department Memorandum Circular No. 26, series of 1973 and related issuances and regulations of the Department of Agrarian Reform. The average gross production shall be multiplied by two and a half (2.5), the product of which shall be multiplied by Thirty-Five Pesos (P35), the government support price for one cavan of 50 kilos of palay on October 21, 1972, or Thirty-One Pesos (P31), the government support price for one cavan of 50 kilos of corn on October 21, 1972, and the amount arrived at shall be the value of the rice and corn land, as the case may be, for the purpose of determining its cost to the farmer and compensation to the landowner (emphasis supplied).

Hence, the formula for computing the Land Value (LV) or Price Per Hectare (PPH) of rice and corn lands is 2.5 x AGP x GSP = LV or PPH.

In compliance with EO 228, the Provincial Agrarian Reform Officer (PARO) of the DAR in an "Accomplished OLT Valuation Form No. 1" dated 2 December 1989 recommended that the "Average Gross Productivity" (AGP) based on "[3] Normal Crop Year" for Parcels 1 and 2 should be 25 cavans per hectare for unirrigated lowland rice and 10 cavans per hectare for corn land.

Meanwhile, the Office of the Secretary of Agrarian Reform (SAR) also conducted its own valuation proceedings apart from the PARO. On 10 October 1990 Secretary Benjamin T. Leong of the DAR using the AGP of 25.66 cavans for unirrigated rice landsissued an order valuing Parcel 1 at P22,952.97 and requiring herein petitioner Land Bank of the Philippines (LBP) to pay the amount. On 1 February 1991 petitioner LBP approved the valuation.

In 1991 private respondent Jose Pascual, opposing the recommended AGP of the PARO, filed a petition for the annulment of the recommendation on the productivity and valuation of the land covered by OLT, subject matter hereof, with the Department of Agrarian Reform Adjudication Board (DARAB). Oscar Dimacali, Provincial Agrarian Reform Adjudicator (PARAD) of Cagayan heard the case. Despite due notice however Francisco Baculi, the PARO who issued the assailed recommendation, failed to appear at the trial. Only private respondent Jose Pascual and Atty. Eduard Javier of petitioner LBP were presentThereafter private respondent was allowed to present evidence ex-parte.

At the hearings conducted by the PARAD private respondent presented as evidence another "Accomplished OLT Valuation Form No. 1," for Parcel 3 dated 22 June 1976 to support his claim that the "OLT Valuation Form" issued by PARO Francisco Baculi extremely undervalued the AGP of his lands. In the "1976 OLT Valuation Form" the AGP based on "(3) Normal Crop Year" was 80 cavans per hectare for lowland rice unirrigated, 28 cavans per hectare for corn lands and 100 cavans per hectare for lowland rice irrigated.

Private respondent also presented Tax Declarations for Parcels 1 and 2 stating that the AGP was 80 cavans for unirrigated rice lands and 28 cavans for corn lands.

On 11 June 1992 the PARAD ruled in favor of private respondent nullifying the 2 December 1989 AGP recommended by the PAROInstead, the PARAD applied the 22 June 1976 AGP and the AGP stated in private respondents Tax Declarations to determine the correct compensation. The PARAD also used the "Government Support Price" (GSP) of P300 for each cavan of palay and P250 for each cavan of corn. He then ordered petitioner LBP to pay private respondent P613,200.00 for Parcel 1, P148,750.00 for Parcel 2, and P1,200,000.00 for Parcel 3, or a total amount of P1,961,950.00

After receiving notice of the decision of the PARAD, private respondent accepted the valuation. However, when the judgment became final and executory, petitioner LBP as the financing arm in the operation of PD 27 and EO 228 refused to pay thus forcing private respondent to apply for a Writ of Execution with the PARAD which the latter issued on 24 December 1992.[ Still, petitioner LBP declined to comply with the order.

On 29 June 1994 Secretary Ernesto Garilao Jr. of the DAR wrote a letter to petitioner LBP requiring the latter to pay the amount stated in the judgment of the PARAD. Again, petitioner LBP rejected the directive of Secretary Garilao. Petitioners Executive Vice President, Jesus Diaz, then sent a letter to Secretary Garilao arguing that (a) the valuation of just compensation should be determined by the courts; (b) PARAD could not reverse a previous order of the Secretary of the DAR and, (c) the valuation of lands under EO 228 falls within the exclusive jurisdiction of the Secretary of the DAR and not of the DARAB.

On 23 January 1995 the Secretary of Agrarian Reform replied to petitioner -We agree with your contention that the matter of valuation of lands covered by P.D. 27 is a matter within the administrative implementation of agrarian reform, hence, cognizable exclusively by the Secretary.However, in this particular case, there is another operative principle which is the finality of decisions of the Adjudication Board. Since the matter has been properly threshed out in the quasi-judicial proceeding and the decision has already become final and executory, we cannot make an exception in this case and allow the non-payment of the valuation unless we are enjoined by a higher authority like the courts.Therefore at the risk of occasional error, we maintain that payment should be made in this case. However we believe situations like this would be lessened tremendously through the issuance of the attached memorandum circular [if !

supportFootnotes][17][endif]to the Field Offices.[if !supportFootnotes][18][endif]

Despite the letter of Secretary G. Garilao, petitioner LBP remained adamant in its refusal to pay private respondent. It reiterated its stand that the PARAD had no jurisdiction to value lands covered by PD 27. [if !supportFootnotes][19][endif]

On 17 June 1995 counsel for private respondent also wrote petitioner LBP demanding payment. On 20 June 1995 petitioner replied -x x x x Although we disagree with the foregoing view that the PARAD decision on the land valuation of a PD 27 landholding has become final for numerous legal reasons, in deference to the DAR Secretary, we informed him that we will pay the amount decided by the PARAD of Cagayan provided the tenant beneficiaries of Mr. Pascual be consulted first and the land transfer claim be redocumented to the effect that said beneficiaries re-execute the Landowner Tenant Production Agreement-Farmers Undertaking to show their willingness to the PARAD valuation and to amortize the same to this bank. This is in consonance with the legal mandate of this bank as the financing arm of PD 27/EO 228 landholdings. In other words, the beneficiaries must agree to the amount being financed, otherwise, financing may not be possible pursuant to this banks legal mandate (emphasis supplied).[if !

supportFootnotes][20][endif]

Petitioner LBP having consistently refused to comply with its obligation despite the directive of the Secretary of the DAR and the various demand letters of private respondent Jose Pascual, the latter finally filed an action for Mandamus in the Court of Appeals to compel petitioner to pay the valuation determined by the PARAD. On 15 July 1996 the appellate court granted the Writ now being assailed. The appellate court also required petitioner LBP to pay a compounded interest of 6% per annum in compliance with DAR Administrative Order No. 13, series of 1994. [if !supportFootnotes][21][endif] On 11 March 1997 petitioner's Motion for Reconsideration was denied;[if !supportFootnotes][22][endif] hence, this petition.

Petitioner LBP avers that the Court of Appeals erred in issuing the Writ of Mandamus in favor of private respondent and argues that the appellate court cannot impose a 6% compounded interest on the value of Jose Pascual's land since Administrative Order No. 13 does not apply to his case. Three (3) reasons are given by petitioner why the Court of Appeals cannot issue the writ:

First, it cannot enforce PARADs valuation since it cannot make such determination for want of jurisdiction hence void. Section 12, par. (b), of PD 946[if !supportFootnotes][23][endif] provides that the valuation of lands covered by PD 27 is under the exclusive jurisdiction of the Secretary of Agrarian Reform. Petitioner asserts that Sec. 17 of EO 229 [if !supportFootnotes][24][endif] and Sec. 50 of RA No. 6657,[if !supportFootnotes][25][endif] which granted DAR the exclusive jurisdiction over all agrarian reform matters thereby divesting the Court of Agrarian Relations of such power, did not repeal Sec. 12, par. (b), of PD 946. Petitioner now attempts to reconcile the pertinent laws by saying that only the Secretary of Agrarian Reform can determine the value of rice and corn lands under Operation Land Transfer of PD 27, while on the other hand, all other lands covered by RA 6657 (CARL) shall be valued by the DARAB, hence, the DARAB of the DAR has no jurisdiction to determine the value of the lands covered by OLT under PD 27.

To bolster its contention that Sec. 12, par. (b), of PD 946 was not repealed, petitioner LBP cites Sec. 76 of RA 6657.[if !supportFootnotes][26][endif] It argues that since Sec. 76 of RA 6657 only repealed the last two (2) paragraphs of Sec. 12 of PD 946, it is obvious that Congress had no intention of repealing par. (b). Thus, it remains valid and effective. As a matter of fact, even the Secretary of Agrarian Reform agreed that Sec. 12, par. (b), of PD 946 still holds. Based on this assumption, the Secretary of the DAR has opined that the valuation of rice and corn lands is under his exclusive jurisdiction and has directed all DARAB officials to refrain from valuing lands covered by PD 27. [if !supportFootnotes][27][endif]

Petitioner maintains that the Secretary of the DAR should conduct his own proceedings to determine the value of Parcels 2 and 3 and that his valuation of Parcel 1[if !supportFootnotes][28][endif]should be upheld.

We do not agree. In Machete v. Court of Appeals [if !supportFootnotes][29][endif] this Court discussed the effects on PD 946 of Sec. 17 of EO 229 and Sec. 50 of RA 6657 when it held -The above quoted provision (Sec. 17) should be deemed to have repealed Sec. 12 (a) and (b) of Presidential Decree No. 946 which invested the then courts of agrarian relations with original exclusive jurisdiction over cases and questions involving rights granted and obligations imposed by presidential issuances promulgated in relation to the agrarian reform program (emphasis supplied).

Thus, petitioners contention that Sec. 12, par. (b), of PD 946 is still in effect cannot be sustained. It seems that the Secretary of Agrarian Reform erred in issuing Memorandum Circular No. I, Series of 1995, directing the DARAB to refrain from hearing valuation cases involving PD 27 lands. For on the contrary, it is the DARAB which has the authority to determine the initial valuation of lands involving agrarian reform [if !supportFootnotes][30][endif] although such valuation may only be considered preliminary as the final determination of just compensation is vested in the courts. [if !supportFootnotes][31][endif]

Second, petitioner LBP contends that the Court of Appeals cannot issue the Writ of Mandamus because it cannot be compelled to perform an act which is beyond its legal duty. [if !supportFootnotes][32][endif] Petitioner cites Sec. 2 of PD 251,[if !

supportFootnotes][33][endif] which amended Sec. 75 of RA 3844,[if !supportFootnotes][34][endif] which provides that it is the duty of petitioner bank "(t)o finance and/or guarantee the acquisition, under Presidential Decree No. 85 dated December 25, 1972, of farm lands transferred to the tenant farmers pursuant to Presidential Decree No. 27 (P.D. 27) dated October 21, 1972." Section 7 of PD 251 also provides that "(w)henever the Bank pays the whole or a portion of the total costs of farm lots, the Bank shall be subrogated by reason thereof, to the right of the landowner to collect and receive the yearly amortizations on farm lots or the amount paid including interest thereon, from tenant-farmers in whose favor said farm lot has been transferred pursuant to Presidential Decree No. 27, dated October 21, 1972" (emphasis supplied).

Petitioner further argues that for a financing or guarantee agreement to exist there must be at least three (3) parties: the creditor, the debtor and the financier or the guarantor. Since petitioner merely guarantees or finances the payment of the value of the land, the farmer-beneficiarys consent, being the principal debtor, is indispensable and that the only time petitioner becomes legally bound to finance the transaction is when the farmer-beneficiary approves the appraised land value. Petitioner fears that if it is forced to pay the value as determined by the DARAB, the government will suffer losses as the farmer-beneficiary, who does not agree to the appraised land value, will surely refuse to reimburse the amounts that petitioner had disbursed. Thus, it asserts, that the landowner, the DAR, the Land Bank and the farmer-beneficiary must all agree to the value of the land as determined by them.

A perusal of the law however shows that the consent of the farmer-beneficiary is not required in establishing the vinculum juris for the proper compensation of the landowner. Section 18 of RA 6657 states -Sec. 18. Valuation and Mode of Compensation. - The LBP shall compensate the landowner in such amount as may be agreed upon by the landowner and the DAR and the LBP in accordance with the criteria provided for in Sections 16 and 17 and other pertinent provisions hereof, or as may be finally determined by the court as the just compensation for the land (emphasis supplied).

As may be gleaned from the aforementioned section, the landowner, the DAR and the Land Bank are the only parties involved. The law does not mention the participation of the farmer-beneficiary. However, petitioner insists that Sec. 18 of RA 6657[if !supportFootnotes][35][endif] does not apply in this case as it involves lands covered by PD 27. It argues that in appraising PD 27 lands the consent of the farmer-beneficiary is necessary to arrive at a final valuation. Without such concurrence, the financing scheme under PD 251 cannot be satisfied.[if !supportFootnotes][36][endif]

We cannot see why Sec. 18 of RA 6657 should not apply to rice and corn lands under PD 27. Section 75 of RA 6657[if !supportFootnotes][37][endif] clearly states that the provisions of PD 27 and EO 228 shall only have a suppletory effect. Section 7 of the Act also provides -Sec. 7. Priorities.- The DAR, in coordination with the PARC shall plan and program the acquisition and distribution of all agricultural lands through a period of (10) years from the effectivity of this Act. Lands shall be acquired and distributed as follows:Phase One: Rice and Corn lands under P.D. 27; all idle or abandoned lands; all private lands voluntarily offered by the owners for agrarian reform;xxx and all other lands owned by the government devoted to or suitable for agriculture, which shall be acquired and distributed immediately upon the effectivity of this Act, with the implementation to be completed within a period of not more than four (4) years (emphasis supplied).

This eloquently demonstrates that RA 6657 includes PD 27 lands among the properties which the DAR shall acquire and distribute to the landless. And to facilitate the acquisition and distribution thereof, Secs. 16, 17 and 18 of the Act should be adhered to. In Association of Small Landowners of the Philippines v. Secretary of Agrarian Reform [if !

supportFootnotes][38][endif] this Court of Appeals applied the provisions RA 6657 to rice and corn lands when it upheld the constitutionality of the payment of just compensation for PD 27 lands through the different modes stated in Sec. 18.

Having established that under Sec. 18 of RA 6657 the consent of the farmer-beneficiary is unnecessary in the appraisal of land value, it must now be determined if petitioner had agreed to the amount of compensation declared by the PARAD. If it did, then we can now apply the doctrine in Sharp International Marketing v. Court of Appeals. [if !supportFootnotes][39]

[endif] In that case, the Land Bank refused to comply with the Writ of Mandamus issued by the Court of Appeals on the ground that it was not obliged to follow the order of the Secretary of Agrarian Reform to pay the landowner. This Court concurred with the Land Bank saying that the latter could not be compelled to obey the Secretary of Agrarian Reform since the bank did not merely exercise a ministerial function. Instead, it had an independent discretionary role in land valuation and that the only time a writ of mandamus could be issued against the Land Bank was when it agreed to the amount of compensation determined by the DAR -It needs no exceptional intelligence to understand the implication of this transmittal. It simply means that if LBP agrees on the amount stated in the DAS,[if !supportFootnotes][40][endif] after its review and evaluation, it becomes its duty to sign the deed. But not until then. For, it is only in that event that the amount to be compensated shall have been established according to law.

Although the case at bar pertains to an involuntary sale of land, the same principle should apply. Once the Land

Bank agrees with the appraisal of the DAR, which bears the approval of the landowner, it becomes its legal duty to finance the transaction. In the instant case, petitioner participated in the valuation proceedings held in the office of the PARAD through its counsel, Atty. Eduard Javier.[if !supportFootnotes][41][endif] It did not appeal the decision of PARAD which became final and executory.[if !supportFootnotes][42][endif] As a matter of fact, petitioner even stated in its Petition that "it is willing to pay the value determined by the PARAD PROVIDED that the farmer beneficiaries concur thereto."[if !supportFootnotes][43][endif] These facts sufficiently prove that petitioner LBP agreed with the valuation of the land. The only thing that hindered it from paying the amount was the non-concurrence of the farmer-beneficiary. But as we have already stated, there is no need for such concurrence. Without such obstacle, petitioner can now be compelled to perform its legal duty through the issuance of a writ of mandamus.

Anent petitioners argument that the government will lose money should the farmer-beneficiary be unwilling to pay, we believe such apprehension is baseless. In the event that the farmer-beneficiary refuses to pay the amount disbursed by petitioner, the latter can foreclose on the land as provided for in Secs. 8 to 11 of EO 228. Petitioner LBP would then be reimbursed of the amount it paid to the landowner.

Third, petitioner LBP asserts that a writ of mandamus cannot be issued where there is another plain, adequate and complete remedy in the ordinary course of law. Petitioner claims that private respondent had three (3) remedies. The first remedy was to ask the sheriff of the DARAB to execute the ruling of PARAD by levying against the Agrarian Reform Fund for so much of the amount as would satisfy the judgment. Another remedy was to file a motion with the DAR asking for a final resolution with regard to the financing of the land valuation. Lastly, private respondent could have filed a case in the Special Agrarian Court for the final determination of just compensation.[if !supportFootnotes][44][endif]

We hold that as to private respondent the suggested remedies are far from plain, adequate and complete. After the judgment of PARAD became final and executory, private respondent applied for a writ of execution which was eventually granted. However, the sheriff was unable to implement it since petitioner LBP was unwilling to pay. The PARAD even issued an order requiring petitioners manager to explain why he should not be held in contempt. [if !supportFootnotes][45][endif] Two (2) years elapsed from the time of the PARAD ruling but private respondents claim has remained unsatisfied. This shows that petitioner has no intention to comply with the judgment of PARAD. How then can petitioner still expect private respondent to ask the DARABs sheriff to levy on the Agrarian Reform Fund when petitioner bank which had control of the fund[if !supportFootnotes][46][endif]firmly reiterated its stand that the DARAB had no jurisdiction?

Petitioners contention that private respondent should have asked for a final resolution from the DAR as an alternative remedy does not impress us either. When private respondent sensed that petitioner would not satisfy the writ of execution issued by the PARAD, he sought the assistance of the Secretary of Agrarian Reform who then wrote to petitioner to pay the amount in accordance with the decision of PARAD. [if !supportFootnotes][47][endif] Still, petitioner refused. The Secretary then sent another letter to petitioner telling the latter to pay private respondent. [if !supportFootnotes][48][endif] Obviously, the stand of the Secretary was that petitioner should pay private respondent in accordance with the PARAD valuation which had already become final. It would have been redundant for private respondent to still ask for a final resolution from the DAR.

The allegation of petitioner that private respondent should have filed a case with the Special Agrarian Court is also without merit. Although it is true that Sec. 57 of RA 6657 provides that the Special Agrarian Courts shall have jurisdiction over the final determination of just compensation cases, it must be noted that petitioner never contested the valuation of the PARAD.[if !supportFootnotes][49][endif] Thus, the land valuation stated in its decision became final and executory. [if !supportFootnotes][50]

[endif] There was therefore no need for private respondent Pascual to file a case in the Special Agrarian Court.With regard to the decision of the Court of Appeals imposing an interest based on Administrative Order No. 13,

Series of 1994, the Order should be examined to ascertain if private respondent can avail of the 6% compounded interest prescribed for unpaid landowners. As to its coverage, the Order states: These rules and regulations shall apply to landowners: (1) whose lands are actually tenanted as of 21 October 1972 or thereafter and covered by OLT; (2) who opted for government financing through Land Bank of the Philippines as mode of compensation; and, (3) who have not yet been paid for the value of their land.

At first glance it would seem that private respondents lands are indeed covered by AO No. 13. However, Part IV shows that AO No. 13 provides a fixed formula for determining the Land Value (LV) and the additional interests it would have earned. The formula utilizes the Government Support Price (GSP) of 1972, which is P35.00/cavan of palay and P31.00/cavan of corn. For its Increment Formula AO No. 13 states: The following formula shall apply -For palay: LV= (2.5 x AGP x P35) x (1.06)nFor corn: LV= (2.5 x AGP x P31) x (1.06)n.[if !supportFootnotes][51][endif]

In the decision of PARAD, however, the Land Value (LV) of private respondents property was computed by using the GSP for 1992, which is P300.00 per cavan of palay and P250.00 per cavan of corn.[if !supportFootnotes][52][endif] PARAD Dimacali used the following equations:For palay: LV = (2.5 x AGP x 300 )For corn: LV = (2.5 x AGP x 250)

Hence, the formula in AO No. 13 could no longer be applied since the PARAD already used a higher GSP.The purpose of AO No. 13 is to compensate the landowners for unearned interests. [if !supportFootnotes][53][endif] Had they

been paid in 1972 when the GSP for rice and corn was valued at P35.00 and P31.00, respectively, and such amounts were deposited in a bank, they would have earned a compounded interest of 6% per annum. Thus, if the PARAD used the 1972 GSP, then the product of (2.5 x AGP x P35 or P31) could be multiplied by (1.06)n to determine the value of the land

plus the additional 6% compounded interest it would have earned from 1972. However, since the PARAD already increased the GSP from P35.00 to P300.00/cavan of palay and from P31.00 to P250.00/cavan of corn, there is no more need to add any interest thereon, muchless compound it. To the extent that it granted 6% compounded interest to private respondent Jose Pascual, the Court of Appeals erred.WHEREFORE, the assailed Decision of the Court of Appeals granting the Writ of Mandamus directing petitioner Land Bank of the Philippines to pay private respondent Jose Pascual the total amount of P1,961,950.00 stated in the Decision dated 11 June 1992 of the Provincial Agrarian Reform Adjudicator (PARAD) of Cagayan is AFFIRMED, with the modification that the 6% compounded interest per annum provided under DAR Administrative Order No. 13, Series of 1994 is DELETED, the same being no longer applicable.

SO ORDERED.

LAND BANK OF THE PHILIPPINES, Petitioner, v. HEIRS OF JESUS ALSUA, REPRESENTED BY BIBIANO C. SABINO, Respondents.D E C I S I O NPERLAS-BERNABE, J.:Assailed in this petition for review on certiorari1 are the Decision2 dated October 31, 2013 and the Resolution3

dated February 18, 2014 of the Court of Appeals (CA) in CA-G.R. SP No. 127483, fixing the just compensation for respondents’ 47.4535-hectare (ha.) land at P2,465,423.02, less the initial valuation already paid in the amount of P1,369,708.02, with legal interest at the rate of 12% per annum (p.a.) from November 13, 2001 to June 30, 2013, and 6% p.a. from July 1, 2013 until full satisfaction, using the formula stated in Department of Agrarian Reform (DAR) Administrative Order (AO) No. 5, series of 1998.4chanroblesvirtuallawlibrary

The Facts

Jesus Alsua (Jesus) owned a 62.1108 has. parcel of unregistered agricultural land known as Lot No. 8882, Cad-201, situated in Malidong, Pioduran, Albay, covered by Tax Declaration No. 99-13-001-00675 in his name.6chanroblesvirtuallawlibrary

On March 6, 1994, respondents Heirs of Jesus Alsua and their representative Bibiano C. Sabino (respondents) voluntarily offered to sell7 the entire parcel of land to the government under Republic Act No. (RA) 6657,8 as amended, otherwise known as the “Comprehensive Agrarian Reform Law of 1988,” but only 47.4535 has. thereof, consisting of 43.7158 has. of cocoland and 3.7377 has. of unirrigated riceland (subject lands), were acquired.9chanroblesvirtuallawlibrary

Upon receipt from the DAR of the Claim Folder (CF) on April 20, 2001, albeit containing incomplete documents, petitioner Land Bank of the Philippines (LBP) valued the subject lands at P1,369,708.0210 (LBP’s valuation) using the formula11 stated in DAR AO No. 5, series of 1998, as follows:chanRoblesvirtualLawlibrary

Cocoland 43.7158 ha. x P29,018.46 P1,268,565.19  

Unirrigated Riceland

3.7377 ha. x 27,060.18 101,142.83

P1,369,708.0212

 

The necessary documents were completed only in September 2001,13 hence, the CF was considered to have been received only on the latter date,14 and the LBP’s valuation approved on September 25, 2001.15chanroblesvirtuallawlibrary

The DAR then offered to respondents the LBP’s valuation as just compensation for the lands, but the latter rejected the valuation.16 Thus, the LBP was prompted to deposit the said amount in cash and in Agrarian Reform Bonds in respondents’ name.17chanroblesvirtuallawlibrary

After summary administrative proceedings for the determination of just compensation, docketed as DARAB Case No. 05-01-0059-A’-2001, the Provincial Agrarian Reform Adjudicator (PARAD), in a Decision18 dated January 29, 2004, fixed the value of the subject lands at P5,479,744.15. The LBP moved for reconsideration but was denied in a Resolution19 dated March 11, 2004.

Dissatisfied with the PARAD’s valuation, the LBP filed a petition20 for determination of just compensation before the Regional Trial Court of Legazpi City, Branch 3 (RTC), docketed as Agrarian Case No. 04-02, averring that the PARAD’s valuation was excessively high and is contrary to the legally prescribed factors in determining just compensation.21chanroblesvirtuallawlibrary

On the other hand, respondents maintained the correctness of the PARAD’s valuation, insisting that it considered all the factors that may be used as basis in order to arrive at a just and equitable valuation of the subject lands, including their potential use and corresponding increase in value.22chanroblesvirtuallawlibrary

In the interim, or on November 29, 2001, the Register of Deeds of Albay issued Original Certificates of Title (OCT) Nos. C-2772123and 2772224in the names of the agrarian reform beneficiaries.

During the pendency of the proceedings, the RTC appointed the Agrarian Operations Center of the LBP to conduct a reinvestigation of the gross production and selling price data within the 12-month period preceding June 30, 2009.25 On July 4, 2011, the Commissioner submitted his Report26 dated July 1, 2011, finding that the subject cocoland has a density of 80 trees per hectare with more than 35 years of age. 27 Considering the lack of data from the landowners who were absent during the ocular inspection, and after ascertaining that the coconut production for the 12-month period prior to June 30, 2009 based on the industry data (PCA data) was unattainable in the area since the coconut trees were still recovering from the impact of typhoons Milenyo and Reming which hit the country in September and November 2006, respectively,28 he merely attached the production and selling price data from the Philippine Coconut Authority (PCA) for the concerned period.

The RTC Ruling

In a Decision29 dated August 17, 2012, the RTC rejected the valuation of both the LBP and the PARAD and fixed the just compensation for the subject lands at P4,245,820.5330 as follows:chanRoblesvirtualLawlibraryLV for Cocoland = P3,654,285.91  LV for Riceland = 350,072.98  LV for Trees = 241, 461.64  

  P4,245,820.5331

 

The RTC used the formula under DAR AO No. 5, series of 1998, as amended, i.e., LV = (CNI x 0.9) + (MV x 0.1),32 utilizing production data or values within the 12-month period preceding the presumptive date of taking on June 30, 2009 pursuant to DAR AO No. 1, series of 2010,33 which “currentizes” the bases for the production data and values and does away with the payment of interest that will compensate for the loss of purchasing power due to inflation.34 It explained that to reckon the taking from November 29, 2001,35 or the date the OCTs were issued in favor of the beneficiaries, pursuant to the ruling in LBP v. Dumlao,36 will be unjust to the landowners, considering the diminution in the purchasing power of the peso. On the other hand, while interests may be imposed for the delay in the payment of the compensation, such imposition will be unjust to the State which would be unduly penalized for the “steadfastness of the implementors of the agrarian reform program in their administrative determination of compensation that the landowners had repudiated.”37chanroblesvirtuallawlibrary

The LBP moved for reconsideration38 which was, however, denied by the RTC in an Order39 dated October 25, 2012, prompting it to elevate its case to the CA.

The CA Ruling

In a Decision40 dated October 31, 2013, the CA fixed the just compensation of the subject lands at P2,465,423.02, less the initial valuation already paid in the amount of P1,369,708.02, plus legal interest at the rate of 12% p.a. from November 13, 2001 to June 30, 2013, and at 6% p.a. from July 1, 2013 until full satisfaction.41chanroblesvirtuallawlibrary

The CA affirmed the applicability of the provisions of DAR AO No. 5, series of 1998 in the computation of the just compensation for the subject lands but declared that the RTC erred in fixing the date of taking on June 30, 2009 (i.e., the presumptive date of taking pursuant to DAR AO No. 1, series of 2010).42 It pointed out that the taking of lands under the agrarian reform program partakes of the nature of an expropriation proceeding; thus, just compensation should be pegged at the price or value of the property at the time it was taken from the owner and not its value at the time of rendition of judgment or the filing of the complaint if the government takes possession of the land before the institution of expropriation proceedings.43chanroblesvirtuallawlibrary

Separately, however, the CA used different values from that employed by the LBP in computing the capitalized net income (CNI) for purposes of arriving at the land value (LV) of the 43.7158 has. cocoland as the same

purportedly “did not reflect the true income generating capacity of the property.”44 Instead, the CA based the selling price on the average farm gate prices of copra for the four-year period from 2000 to 2003. On the other hand, while it found that the RTC correctly used the one-factor formula in computing the LV of the unirrigated riceland, i.e., MV x 2, considering the lack of available information on Comparable Sales, it used the market value (MV) per tax declaration45 and grossed it up with the location adjustment factor and the applicable Regional Consumer Price Index in accordance with Item II (A.9) of DAR AO No. 5, series of 1998. Accordingly, it valued the subject lands as follows:chanRoblesvirtualLawlibraryLV for Cocoland = P1,936,892.34  LV for Unirrigated Riceland = 287,069.04  

LV for Trees = 241,461.64    P2,465,423.0246  Aggrieved, the LBP filed a motion for reconsideration47 which was, however, denied in a Resolution48 dated February 18, 2014, hence, the instant petition.

The Issue Before the Court

The essential issue for the Court’s resolution is whether or not the CA committed any reversible error in fixing the just compensation for the subject lands.

The Court’s Ruling

Settled is the rule that when the agrarian reform process is still incomplete, such as in this case where the just compensation due the landowner has yet to be settled, just compensation should be determined and the process be concluded under RA 6657.49chanroblesvirtuallawlibrary

For purposes of determining just compensation, the fair market value of an expropriated property is determined by its character and its price at the time of taking,50 or the “time when the landowner was deprived of the use and benefit of his property,”51 such as when title is transferred in the name of the beneficiaries, as in this case. In addition, the factors enumerated under Section 17 of RA 6657, i.e., (a) the acquisition cost of the land, (b) the current value of like properties, (c) the nature and actual use of the property and the income therefrom, (d) the owner’s sworn valuation, (e) the tax declarations, (f) the assessment made by government assessors, (g) the social and economic benefits contributed by the farmers and the farmworkers, and by the government to the property, and (h) the non-payment of taxes or loans secured from any government financing institution on the said land, if any, must be equally considered.52chanroblesvirtuallawlibrary

In this case, both the RTC and the CA applied the provisions of DAR AO No. 5, series of 1998 in computing the just compensation for the subject lands. Under the said AO, there shall be one basic formula for the valuation of lands, i.e., LV = (CNI x 0.6) + (CS x 0.3) + (MV x 0.1), where:chanRoblesvirtualLawlibraryLV = Land Value

CNI = Capitalized Net Income

CS = Comparable Sales

MV = Market Value per Tax DeclarationThe above-stated formula shall be used only if all the three factors i.e., CNI, CS, and MV, are present, relevant, and applicable. In case one or two factors are not present, the said AO provides for alternate formulas.53chanroblesvirtuallawlibrary

Records show that the comparable sales (CS) were found to be unavailable54 so the alternative formula, i.e., LV = (CNI x 0.9) + (MV x 0.1), was used by the LBP, the RTC, and the CA in fixing the just compensation for the subject cocoland. On the other hand, they used the one-factor formula under the said AO, i.e., LV = MV x 2, in valuing the subject riceland considering the lack of comparable sales (CS) and production data to arrive at the capitalized net income (CNI). It appears, however, that both the RTC and the CA made variations from the formula under the said AO.

A. RTC and CA Valuation of the Subject Cocoland.

For its part, the RTC used production data or values within the 12-month period preceding the presumptive date of taking of the subject cocoland on June 30, 2009,55 in accordance with DAR AO No. 1, series of 2010.56

It is significant to point out, however, that the said AO only applies to tenanted rice and corn lands acquired

under Presidential Decree No. 2757and Executive Order No. (EO) 228,58 which scenario does not obtain in this case. Besides, the long-standing rule is that an expropriated property must be valued at the time of taking,59 in this case, upon the issuance of the OCTs in the name of the beneficiaries on November 29, 2001.60 Hence, the said AO cannot be made to obtain and the RTC’s valuation cannot be sustained.

On the other hand, while the CA correctly held that just compensation shall be the price or value of the property at the time it was taken from the owner and appropriated by the government, 61 or on November 29, 2001, it, departed from the parameters prescribed under DAR AO No. 5, series of 1998 in computing the capitalized net income (CNI) in order to arrive at the land value (LV) for the subject lands. Particularly, under the foregoing AO, the selling price (SP) for purposes of computing the capitalized net income (CNI) shall be “the average of the latest available 12-months' selling prices prior to the date of receipt of the CF by LBP for processing , such prices to be secured from the Department of Agriculture (DA) and other appropriate regulatory bodies or, in their absence, from the Bureau of Agricultural Statistics. x x x.”

In rejecting the LBP’s proposed valuation which used the prices of copra from July 2000 to June 2001 per certification from the PCA, the CA opined that the data and values used therein did not reflect the true income generating capacity of the property.62 Instead, it used the data for the four-year period from 2000 to 2003, thus, including data or values beyond the time of taking. Consequently, the Court similarly cannot adopt the CA’s computation.

B.  RTC and CA Valuation of the Subject Riceland.

The RTC used the one-factor formula under DAR AO No. 5, series of 1998, utilizing unit market value (UMV) taken from the Schedule of Base Unit Market Value63 as of 2002, pursuant to the pertinent ordinance of the Sangguniang Panlalawigan of Albay.64 Having been based on data or values beyond the time of taking on November 29, 2001, the Court cannot accept the RTC’s valuation. To reiterate, just compensation is the fair market value of an expropriated property at the time of taking,65 in this case, the value of the subject lands upon the issuance of the OCTs in the name of the beneficiaries on November 29, 2001.

For its part, the CA used the same formula but utilized the unit market value (UMV) from the Schedule of Unit Market Value for Albay effective 2000 in the amount of P34,690.00,66 and then grossed it up with the location adjustment factor and the applicable Regional Consumer Price Index in accordance with Item II (A.9)67 of DAR AO No. 5, series of 1998. Considering that the taking took place on November 29, 2001, the UMV should be that corresponding for the year 2001. However, records are bereft of showing that the UMV for the year 2000 is the same UMV obtaining for the year 2001. Thus, on this score, the CA’s computation must equally be rejected.

C. RTC and CA Valuation of the Trees Included in the Just Compensation.

It is relevant to point out that the RTC’s valuation of the standing trees in the amount of P241,461.64,68 as affirmed by the CA,69 appears to have been pegged according to the prevailing values within the 12-month period preceding June 30, 2009. As mentioned, such date was long after the subject lands’ taking on November 29, 2001 and, hence, can neither be countenanced.

D. The Proper Valuation and Remand Guidelines.

In view of the foregoing disquisitions, the just compensation for the subject lands should be computed based on the factors stated in Section 17 of RA 6657, as amended. However, the Court has pored over the records and observed that the only factors considered by both courts in determining the just compensation were (a) the nature and actual use of the property, and the income therefrom, as well as (b) the market value of the subject lands,70without a showing that the other factors under the said section were even taken into account or, otherwise, found to be inapplicable, contrary to what the law requires.

Similarly, the Court has gone over the LBP’s findings and computation, as contained in the Claims and Valuation and Processing Form,71 and is likewise unable to adopt the same since it was partly based on the field investigation report72 which admittedly did not consider (a) the economic and social benefits of the subject lands,73and (b) the current value of like properties within the vicinity.74 To reiterate, the factors enumerated under Section 17 of RA 6657 must be considered in computing just compensation. Accordingly, the Court finds a need to remand Agrarian Case No. 04-02 to the RTC for the determination of just compensation in accordance with these factors. Relative thereto, the RTC is further directed to observe the following guidelines in the remand of the case:chanRoblesvirtualLawlibrary

1. Just compensation must be valued at the time of taking, or the “time when the landowner was deprived of the use and benefit of his property,75 in this case, upon the issuance of OCT Nos. C-27721 and 27722 in the names of the agrarian reform beneficiaries on November 29, 2001.76 Hence, the evidence to be presented by the parties before the trial court for the valuation of the subject lands must be based on the values prevalent on such time of taking for like agricultural lands.77chanroblesvirtuallawlibrary

2. The evidence must conform to Section 17 of RA 6657, as amended, prior to its amendment by RA 9700.78 It bears pointing out that while Congress passed RA 9700 on July 1, 2009, amending certain provisions of RA 6657, as amended, among them, Section 17, and declaring “[t]hat all previously acquired lands wherein valuation is subject to challenge by landowners shall be completed and finally resolved pursuant to Section 17 of [RA 6657], as amended,”79 the law should not be retroactively applied to pending claims/cases. In fact, DAR AO No. 2, series of 200980 implementing RA 9700 expressly excepted from the application of the amended Section 17 all claim folders received by LBP prior to July 1, 2009, which shall be valued in accordance with Section 17 of RA 6657, as amended, prior to its further amendment by RA No. 9700.81chanroblesvirtuallawlibrary

Records show that the CF from the DAR was actually received by the LBP on April 20, 2001, but the latter considered the same as received only later in September 2001 with the completion of the necessary documents.82 Hence, Section 17 of RA 6657, as amended, prior to its further amendment by RA 9700, should be the basis for the valuation of the subject lands. In the event that the respondents had already withdrawn the amount deposited by the LBP, the withdrawn amount should be deducted from the final land valuation to be paid by LBP.83chanroblesvirtuallawlibrary

3. The RTC may impose interest on the just compensation as may be warranted by the circumstances of the case.84 In previous cases, the Court has allowed the grant of legal interest in expropriation cases where there is delay in the payment since the just compensation due to the landowners was deemed to be an effective forbearance on the part of the State.85 Legal interest shall be pegged at the rate of 12% interest p.a. from the time of taking until June 30, 2013 only. Thereafter, or beginning July 1, 2013, until fully paid, interest shall be at 6% p.a. in line with the amendment introduced by BSP-MB Circular No. 799,86 series of 2013.87chanroblesvirtuallawlibrary

4. Finally, the RTC is advised that while it should be mindful of the different formulae created by the DAR in arriving at just compensation, it is not strictly bound to adhere thereto if the situations before it do not warrant their application. As held in LBP v. Heirs of Maximo Puyat:88

[T]he determination of just compensation is a judicial function; hence, courts cannot be unduly restricted in their determination thereof. To do so would deprive the courts of their judicial prerogatives and reduce them to the bureaucratic function of inputting data and arriving at the valuation. While the courts should be mindful of the different formulae created by the DAR in arriving at just compensation, they are not strictly bound to adhere thereto if the situations before them do not warrant it. Apo Fruits Corporation v. Court of Appeals [(565 Phil. 418 (2007)] thoroughly discusses this issue, to wit:chanRoblesvirtualLawlibrary[T]he basic formula and its alternatives–administratively determined (as it is not found in Republic Act No. 6657, but merely set forth in DAR AO No. 5, Series of 1998)–although referred to and even applied by the courts in certain instances, does not and cannot strictly bind the courts. To insist that the formula must be applied with utmost rigidity whereby the valuation is drawn following a strict mathematical computation goes beyond the intent and spirit of the law. The suggested interpretation is strained and would render the law inutile. Statutory construction should not kill but give life to the law. As we have established in earlier jurisprudence, the valuation of property in eminent domain is essentially a judicial function which is vested in the regional trial court acting as a SAC, and not in administrative agencies. The SAC, therefore, must still be able to reasonably exercise its judicial discretion in the evaluation of the factors for just compensation, which cannot be arbitrarily restricted by a formula dictated by the DAR, an administrative agency. Surely, DAR AO No. 5 did not intend to straightjacket the hands of the court in the computation of the land valuation. While it provides a formula, it could not have been its intention to shackle the courts into applying the formula in every instance. The court shall apply the formula after an evaluation of the three factors, or it may proceed to make its own computation based on the extended list in Section 17 of Republic Act No. 6657, which includes other factors[.] x x x.cralawredWHEREFORE, the petition is DENIED insofar as it seeks to sustain the valuation of the subject lands made by petitioner Land Bank of the Philippines. The Decision dated October 31, 2013 and the Resolution dated February 18, 2014 rendered by the Court of Appeals in CA-G.R. SP No. 127483, fixing the just compensation for respondents’ 47.4535 hectares of land at P2,465,423.02, less the initial valuation already paid in the amount of P1,369,708.02, plus legal interest as afore-discussed, which did not fully consider the factors enumerated under Section 17 of Republic Act No. 6657, as amended, are hereby SET ASIDE. Accordingly, Agrarian Case No. 04-02 is REMANDED to the Regional Trial Court of Legazpi City, Branch 3 for the proper

determination of just compensation in accordance with the guidelines set in this Decision. The trial court is directed to conduct the proceedings in said case with reasonable dispatch and to submit to the Court a report on its findings and recommended conclusions within sixty (60) days from notice of this Decision.

Hacienda Luisita Inc. (HLI) v. Presidential Agrarian Reform Council (PARC), et al., G.R. No. 171101, July 5, 2011

I.      THE FACTS

In 1958, the Spanish owners of Compañia General de Tabacos de Filipinas (Tabacalera) sold Hacienda Luisita and the Central Azucarera de Tarlac, the sugar mill of the hacienda, to the Tarlac Development Corporation (Tadeco), then owned and controlled by the Jose Cojuangco Sr. Group. The Central Bank of the Philippines assisted Tadeco in obtaining a dollar loan from a US bank. Also, the GSIS extended a PhP5.911 million loan in favor of Tadeco to pay the peso price component of the sale, with the condition that “the lots comprising the Hacienda Luisita be subdivided by the applicant-corporation and sold at cost to the tenants, should there be any, and whenever conditions should exist warranting such action under the provisions of the Land Tenure Act.” Tadeco however did not comply with this condition.

On May 7, 1980, the martial law administration filed a suit before the Manila RTC against Tadeco, et al., for them to surrender Hacienda Luisita to the then Ministry of Agrarian Reform (MAR) so that the land can be distributed to farmers at cost. Responding, Tadeco alleged that Hacienda Luisita does not have tenants, besides which sugar lands – of which the hacienda consisted – are not covered by existing agrarian reform legislations. The Manila RTC rendered judgment ordering Tadeco to surrender Hacienda Luisita to the MAR. Therefrom, Tadeco appealed to the CA.

On March 17, 1988, during the administration of President Corazon Cojuangco Aquino, the Office of the Solicitor General moved to withdraw the government’s case against Tadeco, et al. The CA dismissed the case, subject to the PARC’s approval of Tadeco’s proposed stock distribution plan (SDP) in favor of its farmworkers. [Under EO 229 and later RA 6657, Tadeco had the option of availing stock distribution as an alternative modality to actual land transfer to the farmworkers.] On August 23, 1988, Tadeco organized a spin-off corporation, herein petitioner HLI, as vehicle to facilitate stock acquisition by the farmworkers. For this purpose, Tadeco conveyed to HLI the agricultural land portion (4,915.75 hectares) and other farm-related properties of Hacienda Luisita in exchange for HLI shares of stock.

On May 9, 1989, some 93% of the then farmworker-beneficiaries (FWBs) complement of Hacienda Luisita signified in a referendum their acceptance of the proposed HLI’s Stock Distribution Option Plan (SODP).  On May 11, 1989, the SDOA was formally entered into by Tadeco, HLI, and the 5,848 qualified FWBs. This attested to by then DAR Secretary Philip Juico. The SDOA embodied the basis and mechanics of HLI’s SDP, which was eventually approved by the PARC after a follow-up referendum conducted by the DAR on October 14, 1989, in which 5,117 FWBs, out of 5,315 who participated, opted to receive shares in HLI.

On August 15, 1995, HLI applied for the conversion of 500 hectares of land of the hacienda from agricultural to industrial use, pursuant to Sec. 65 of RA 6657. The DAR approved the application on August 14, 1996, subject to payment of three percent (3%) of the gross selling price to the FWBs and to HLI’s continued compliance with its undertakings under the SDP, among other conditions.

On December 13, 1996, HLI, in exchange for subscription of 12,000,000 shares of stocks of Centennary Holdings, Inc. (Centennary), ceded 300 hectares of the converted area to the latter. Subsequently, Centennary sold  the entire 300 hectares for PhP750 million to Luisita Industrial Park Corporation (LIPCO), which used it in developing an industrial complex. From this area was carved out 2 parcels, for which 2 separate titles were issued in the name of LIPCO. Later, LIPCO transferred these 2 parcels to the Rizal Commercial Banking Corporation (RCBC) in payment of LIPCO’s PhP431,695,732.10 loan obligations to RCBC.  LIPCO’s titles were cancelled and new ones were issued to RCBC. Apart from the 500 hectares, another 80.51 hectares were later detached from Hacienda Luisita and acquired by the government as part of the Subic-Clark-Tarlac Expressway (SCTEX) complex. Thus, 4,335.75 hectares remained of the original 4,915 hectares Tadeco ceded to HLI.

Such, was the state of things when two separate petitions reached the DAR in the latter part of 2003. The first was filed by the Supervisory Group of HLI (Supervisory Group), praying for a renegotiation of the SDOA, or, in the alternative, its revocation. The second petition, praying for the revocation and nullification of the SDOA and the distribution of the lands in the hacienda, was filed by Alyansa ng mga Manggagawang Bukid ng Hacienda Luisita (AMBALA). The DAR then constituted a Special Task Force (STF) to attend to issues relating to the SDP of HLI. After investigation and evaluation, the STF found that HLI has not complied with its obligations under RA 6657 despite the implementation of the SDP. On

December 22, 2005, the PARC issued the assailed Resolution No. 2005-32-01, recalling/revoking the SDO plan of Tadeco/HLI. It further resolved that the subject lands be forthwith placed under the compulsory coverage or mandated land acquisition scheme of the CARP.

From the foregoing resolution, HLI sought reconsideration. Its motion notwithstanding, HLI also filed a petition before the Supreme Court in light of what it considers as the DAR’s hasty placing of Hacienda Luisita under CARP even before PARC could rule or even read the motion for reconsideration. PARC would eventually deny HLI’s motion for reconsideration via Resolution No. 2006-34-01 dated May 3, 2006.

II.    THE ISSUES

(1)  Does the PARC possess jurisdiction to recall or revoke HLI’s SDP?

(2)  [Issue raised by intervenor FARM (group of farmworkers)] Is Sec. 31 of RA 6657, which allows stock transfer in lieu of outright land transfer, unconstitutional?

(3)  Is the revocation of the HLI’s SDP valid? [Did PARC gravely abuse its discretion in revoking the subject SDP and placing the hacienda under CARP’s compulsory acquisition and distribution scheme?]

(4)  Should those portions of the converted land within Hacienda Luisita that RCBC and LIPCO acquired by purchase be excluded from the coverage of the assailed PARC resolution? [Did the  PARC gravely abuse its discretion when it included LIPCO’s and RCBC’s respective properties that once formed part of Hacienda Luisita under the CARP compulsory acquisition scheme via the assailed Notice of Coverage?]

III.   THE RULING

[The Court DENIED the petition of HLI and AFFIRMED  the PARC resolution placing the lands subject of HLI’s SDP under compulsory coverage on mandated land acquisition scheme of the CARP, with the MODIFICATION  that the original 6,296 qualified FWBs were given the option to remain as stockholders of HLI. It also excluded from the mandatory CARP coverage that part of Hacienda Luisita that had been acquired by RCBC and LIPCO.]

        (1)  YES, the PARC has jurisdiction to revoke HLI’s SDP under the doctrine of necessary implication.

Under Sec. 31 of RA 6657, as implemented by DAO 10, the authority to approve the plan for stock distribution of the corporate landowner belongs to PARC. Contrary to petitioner HLI’s posture, PARC also has the power to revoke the SDP which it previously approved. It may be, as urged, that RA 6657 or other executive issuances on agrarian reform do not explicitly vest the PARC with the power to revoke/recall an approved SDP. Such power or authority, however, is deemed possessed by PARC under the principle of necessary implication, a basic postulate that what is implied in a statute is as much a part of it as that which is expressed.

Following the doctrine of necessary implication, it may be stated that the conferment of express power to approve a plan for stock distribution of the agricultural land of corporate owners necessarily includes the power to revoke or recall the approval of the plan. To deny PARC such revocatory power would reduce it into a toothless agency of CARP, because the very same agency tasked to ensure compliance by the corporate landowner with the approved SDP would be without authority to impose sanctions for non-compliance with it. 

              (2)  NO, Sec. 31 of RA 6657 is not unconstitutional. [The Court actually refused to pass upon the constitutional question because it was not raised at the earliest opportunity and because the resolution thereof is not the lis mota of the case. Moreover, the issue has been rendered moot and academic since SDO is no longer one of the modes of acquisition under RA 9700.]

When the Court is called upon to exercise its power of judicial review over, and pass upon the constitutionality of, acts of the executive or legislative departments, it does so only when the following essential requirements are first met, to wit: (1) there is an actual case or controversy; (2) that the constitutional question is raised at the earliest possible opportunity by a proper party or one with locus standi; and (3) the issue of constitutionality must be the very lis mota of the case.

Not all the foregoing requirements are satisfied in the case at bar.

While there is indeed an actual case or controversy, intervenor FARM, composed of a small minority of 27 farmers, has

yet to explain its failure to challenge the constitutionality of Sec. 31 of RA 6657 as early as November 21, 1989 when PARC approved the SDP of Hacienda Luisita or at least within a reasonable time thereafter, and why its members received benefits from the SDP without so much of a protest. It was only on December 4, 2003 or 14 years after approval of the SDP that said plan and approving resolution were sought to be revoked, but not, to stress, by FARM or any of its members, but by petitioner AMBALA. Furthermore, the AMBALA petition did NOT question the constitutionality of Sec. 31 of RA 6657, but concentrated on the purported flaws and gaps in the subsequent implementation of the SDP. Even the public respondents, as represented by the Solicitor General, did not question the constitutionality of the provision.   On the other hand, FARM, whose 27 members formerly belonged to AMBALA, raised the constitutionality of Sec. 31 only on May 3, 2007 when it filed its Supplemental Comment with the Court. Thus, it took FARM some eighteen (18) years from November 21, 1989 before it challenged the constitutionality of Sec. 31 of RA 6657 which is quite too late in the day.  The FARM members slept on their rights and even accepted benefits from the SDP with nary a complaint on the alleged unconstitutionality of Sec. 31 upon which the benefits were derived.  The Court cannot now be goaded into resolving a constitutional issue that FARM failed to assail after the lapse of a long period of time and the occurrence of numerous events and activities which resulted from the application of an alleged unconstitutional legal provision.

The last but the most important requisite that the constitutional issue must be the very lis mota of the case does not likewise obtain. The lis mota aspect is not present, the constitutional issue tendered not being critical to the resolution of the case. The unyielding rule has been to avoid, whenever plausible, an issue assailing the constitutionality of a statute or governmental act. If some other grounds exist by which judgment can be made without touching the constitutionality of a law, such recourse is favored.

The lis mota in this case, proceeding from the basic positions originally taken by AMBALA (to which the FARM members previously belonged) and the Supervisory Group, is the alleged non-compliance by HLI with the conditions of the SDP to support a plea for its revocation. And before the Court, the lis mota is whether or not PARC acted in grave abuse of discretion when it ordered the recall of the SDP for such non-compliance and the fact that the SDP, as couched and implemented, offends certain constitutional and statutory provisions. To be sure, any of these key issues may be resolved without plunging into the constitutionality of Sec. 31 of RA 6657. Moreover, looking deeply into the underlying petitions of AMBALA, et al., it is not the said section per se that is invalid, but rather it is the alleged application of the said provision in the SDP that is flawed.

It may be well to note at this juncture that Sec. 5 of RA 9700, amending Sec. 7 of  RA 6657, has all but superseded Sec. 31 of RA 6657 vis-à-vis the stock distribution component of said Sec. 31. In its pertinent part, Sec. 5 of RA 9700 provides: “[T]hat after June 30, 2009, the modes of acquisition shall be limited to voluntary offer to sell and compulsory acquisition.” Thus, for all intents and purposes, the stock distribution scheme under Sec. 31 of RA 6657 is no longer an available option under existing law. The question of whether or not it is unconstitutional should be a moot issue.

                (3)  YES, the revocation of the HLI’s SDP valid. [NO, the PARC did NOT gravely abuse its discretion in revoking the subject SDP and placing the hacienda under CARP’s compulsory acquisition and distribution scheme.]

The revocation of the approval of the SDP is valid: (1) the mechanics and timelines of HLI’s stock distribution violate DAO 10 because the minimum individual allocation of each original FWB of 18,804.32 shares was diluted as a result of the use of “man days” and the hiring of additional farmworkers; (2) the 30-year timeframe for HLI-to-FWBs stock transfer is contrary to what Sec. 11 of DAO 10 prescribes. 

In our review and analysis of par. 3 of the SDOA on the mechanics and timelines of stock distribution, We find that it violates two (2) provisions of DAO 10. Par. 3 of the SDOA states:

3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY [HLI] shall arrange with the FIRST PARTY [TDC] the acquisition and distribution to the THIRD PARTY [FWBs] on the basis of number of days worked and at no cost to them of one-thirtieth (1/30) of 118,391,976.85 shares of the capital stock of the SECOND PARTY that are presently owned and held by the FIRST PARTY, until such time as the entire block of 118,391,976.85 shares shall have been completely acquired and distributed to the THIRD PARTY.

[I]t is clear as day that the original 6,296 FWBs, who were qualified beneficiaries at the time of the approval of the SDP, suffered from watering down of shares.  As determined earlier, each original FWB is entitled to 18,804.32 HLI shares.  The original FWBs got less than the guaranteed 18,804.32 HLI shares per beneficiary, because the acquisition and distribution of the HLI shares were based on “man days” or “number of days worked” by the FWB in a year’s time.  As explained by HLI, a beneficiary needs to work for at least 37 days in a fiscal year before he or she becomes entitled to HLI shares.  If it falls below 37 days, the FWB, unfortunately, does not get any share at year end.   The number of HLI shares

distributed varies depending on the number of days the FWBs were allowed to work in one year.  Worse, HLI hired farmworkers in addition to the original 6,296 FWBs, such that, as indicated in the Compliance dated August 2, 2010 submitted by HLI to the Court, the total number of farmworkers of HLI as of said date stood at 10,502.   All these farmworkers, which include the original 6,296 FWBs, were given shares out of the 118,931,976.85 HLI shares representing the 33.296% of the total outstanding capital stock of HLI.  Clearly, the minimum individual allocation of each original FWB of 18,804.32 shares was diluted as a result of the use of “man days” and the hiring of additional farmworkers.

Going into another but related matter, par. 3 of the SDOA expressly providing for a 30-year timeframe for HLI-to-FWBs stock transfer is an arrangement contrary to what Sec. 11 of DAO 10 prescribes.   Said Sec. 11 provides for the implementation of the approved stock distribution plan within three (3) months from receipt by the corporate landowner of the approval of the plan by PARC. In fact, based on the said provision, the transfer of the shares of stock in the names of the qualified FWBs should be recorded in the stock and transfer books and must be submitted to the SEC within sixty (60) days from implementation.

To the Court, there is a purpose, which is at once discernible as it is practical, for the three-month threshold. Remove this timeline and the corporate landowner can veritably evade compliance with agrarian reform by simply deferring to absurd limits the implementation of the stock distribution scheme.

Evidently, the land transfer beneficiaries are given thirty (30) years within which to pay the cost of the land thus awarded them to make it less cumbersome for them to pay the government. To be sure, the reason underpinning the 30-year accommodation does not apply to corporate landowners in distributing shares of stock to the qualified beneficiaries, as the shares may be issued in a much shorter period of time.

Taking into account the above discussion, the revocation of the SDP by PARC should be upheld [because of violations of] DAO 10. It bears stressing that under Sec. 49 of RA 6657, the PARC and the DAR have the power to issue rules and regulations, substantive or procedural. Being a product of such rule-making power, DAO 10 has the force and effect of law and must be duly complied with. The PARC is, therefore, correct in revoking the SDP. Consequently, the PARC Resolution No. 89-12-2 dated November 21, l989 approving the HLI’s SDP is nullified and voided.

(4)  YES, those portions of the converted land within Hacienda Luisita that RCBC and LIPCO acquired by purchase should be excluded from the coverage of the assailed PARC resolution.

[T]here are two (2) requirements before one may be considered a purchaser in good faith, namely: (1) that the purchaser buys the property of another without notice that some other person has a right to or interest in such property; and (2) that the purchaser pays a full and fair price for the property at the time of such purchase or before he or she has notice of the claim of another.

It can rightfully be said that both LIPCO and RCBC are––based on the above requirements and with respect to the adverted transactions of the converted land in question––purchasers in good faith for value entitled to the benefits arising from such status.

First, at the time LIPCO purchased the entire three hundred (300) hectares of industrial land, there was no notice of any supposed defect in the title of its transferor, Centennary, or that any other person has a right to or interest in such property. In fact, at the time LIPCO acquired said parcels of land, only the following annotations appeared on the TCT in the name of Centennary: the Secretary’s Certificate in favor of Teresita Lopa, the Secretary’s Certificate in favor of Shintaro Murai, and the conversion of the property from agricultural to industrial and residential use.

The same is true with respect to RCBC. At the time it acquired portions of Hacienda Luisita, only the following general annotations appeared on the TCTs of LIPCO: the Deed of Restrictions, limiting its use solely as an industrial estate; the Secretary’s Certificate in favor of Koji Komai and Kyosuke Hori; and the Real Estate Mortgage in favor of RCBC to guarantee the payment of PhP 300 million.

To be sure, intervenor RCBC and LIPCO knew that the lots they bought were subjected to CARP coverage by means of a stock distribution plan, as the DAR conversion order was annotated at the back of the titles of the lots they acquired.  However, they are of the honest belief that the subject lots were validly converted to commercial or industrial purposes and for which said lots were taken out of the CARP coverage subject of PARC Resolution No. 89-12-2 and, hence, can be legally and validly acquired by them.  After all, Sec. 65 of RA 6657 explicitly allows conversion and disposition of agricultural lands previously covered by CARP land acquisition “after the lapse of five (5) years from its award when the land ceases to be economically feasible and sound for agricultural purposes or the locality has become urbanized and the land will have a greater economic value for residential, commercial or industrial purposes.”  Moreover,

DAR notified all the affected parties, more particularly the FWBs, and gave them the opportunity to comment or oppose the proposed conversion.  DAR, after going through the necessary processes, granted the conversion of 500 hectares of Hacienda Luisita pursuant to its primary jurisdiction under Sec. 50 of RA 6657 to determine and adjudicate agrarian reform matters and its original exclusive jurisdiction over all matters involving the implementation of agrarian reform.  The DAR conversion order became final and executory after none of the FWBs interposed an appeal to the CA.  In this factual setting, RCBC and LIPCO purchased the lots in question on their honest and well-founded belief that the previous registered owners could legally sell and convey the lots though these were previously subject of CARP coverage.   Ergo, RCBC and LIPCO acted in good faith in acquiring the subject lots.

And second, both LIPCO and RCBC purchased portions of Hacienda Luisita for value. Undeniably, LIPCO acquired 300 hectares of land from Centennary for the amount of PhP750 million pursuant to a Deed of Sale dated July 30, 1998. On the other hand, in a Deed of Absolute Assignment dated November 25, 2004, LIPCO conveyed portions of Hacienda Luisita in favor of RCBC by way of dacion en pago to pay for a loan of PhP431,695,732.10.

In relying upon the above-mentioned approvals, proclamation and conversion order, both RCBC and LIPCO cannot be considered at fault for believing that certain portions of Hacienda Luisita are industrial/commercial lands and are, thus, outside the ambit of CARP. The PARC, and consequently DAR, gravely abused its discretion when it placed LIPCO’s and RCBC’s property which once formed part of Hacienda Luisita under the CARP compulsory acquisition scheme via the assailed Notice of Coverage.

[The Court went on to apply the operative fact doctrine to determine what should be done in the aftermath of its disposition of the above-enumerated issues:

While We affirm the revocation of the SDP on Hacienda Luisita subject of PARC Resolution Nos. 2005-32-01 and 2006-34-01, the Court cannot close its eyes to certain “operative facts” that had occurred in the interim.   Pertinently,  the “operative fact” doctrine realizes that, in declaring a  law or executive action null and void, or, by extension, no longer without force and effect, undue harshness and resulting unfairness must be avoided. This is as it should realistically be, since rights might have accrued in favor of natural or juridical persons and obligations justly incurred in the meantime. The actual existence of a statute or executive act is, prior to such a determination, an operative fact and may have consequences which cannot justly be ignored; the past cannot always be erased by a new judicial declaration.

While the assailed PARC resolutions effectively nullifying the Hacienda Luisita SDP are upheld, the revocation must, by application of the operative fact principle, give way to the right of the original 6,296 qualified FWBs to choose whether they want to remain as HLI stockholders or not.   The Court cannot turn a blind eye to the fact that in 1989, 93% of the FWBs agreed to the SDOA (or the MOA), which became the basis of the SDP approved by PARC per its Resolution No. 89-12-2 dated November 21, 1989. From 1989 to 2005, the FWBs were said to have received from HLI salaries and cash benefits, hospital and medical benefits, 240-square meter homelots, 3% of the gross produce from agricultural lands, and 3% of the proceeds of the sale of the 500-hectare converted land and the 80.51-hectare lot sold to SCTEX. HLI shares totaling 118,391,976.85 were distributed as of April 22, 2005. On August 6, 20l0, HLI and private respondents submitted a Compromise Agreement, in which HLI gave the FWBs the option of acquiring a piece of agricultural land or remain as HLI stockholders, and as a matter of fact, most FWBs indicated their choice of remaining as stockholders. These facts and circumstances tend to indicate that some, if not all, of the FWBs may actually desire to continue as HLI shareholders.   A matter best left to their own discretion.]

[WHEREFORE, the instant petition is DENIED. 

THE HON. SECRETARY OF THE DEPARTMENT OF AGRARIAN REFORM, Petitioner, v. NEMESIO DUMAGPI, REPRESENTED BY VICENTE DUMAGPI, Respondent.D E C I S I O NREYES, J.:Before this Court is a petition for review on certiorari1 by the Secretary of the Department of Agrarian Reform (DAR) from the Decision2 dated October 7, 2010 of the Court of Appeals (CA), in CA-G.R. CV No. 01724-MIN, which affirmed the Decision3 dated December 16, 2005 of the Regional Trial Court (RTC) of Pagadian City, Branch 22, in Civil Case No. 3985, the fallo of which reads:chanRoblesvirtualLawlibrary

WHEREFORE, judgment is hereby rendered:

1. Ordering all the private defendants and their privies to restore the possession on the property in question in favor of the plaintiff and his heirs;

2. Ordering the cancellation of Land Ownership Award No. 00014318 over Lot 684, CSD-09-001830, containing an area of 15,304 square meters issued on December 8, 1990, awarded to Juan Aguilar, Sr. with the corresponding Original Certificate of Title, as well as the Certificate of Land Ownership Award No. 00614859 over Lot 686, CSD-09-001830 containing an area of 16,474 square meters issued on December 8, 1990, awarded to Juan Aguilar, Sr. with the corresponding Original Certificate of Title;

3. Ordering the cancellation of Certificate of Land Ownership Award No. 00014832 over Lot 682, CSD-09-001830, containing an area of 32,428 square meters issued on November 20, 1990, awarded to Dionito V. Custodio with the corresponding Original Certificate of Title as well as the Certificate of Land Ownership Award No. 014833 over Lot 683, CSD-09-001830 containing an area of 25,616 square meters issued on November 20, 1990 with the corresponding Original Certificate of Title.

4. Sentencing all the private defendants jointly and severally to pay plaintiff the sum of P100,000[.00] or plus an appearance fee of P2,000.00 as per appearance in court as attorney’s fees, moral damages in the amount of P50,000.00. All with interests at the rate of 6% per annum until fully paid; and

With costs against private defendants.

SO ORDERED.4

The Facts

On August 12, 1997, Nemesio Dumagpi (Nemesio), filed a complaint denominated Accion Reivindicatoria, Quieting of Title, and Damages before the RTC against Juan Aguilar, Sr. (Aguilar), Rosalino C. Valencia (Valencia), Dionito B. Custodio (Custodio) and the Secretary of DAR (defendants), wherein he alleged that he is the owner of land in Siay, Zamboanga del Sur designated as Lot No. F-18-5483-D, containing 211,967 square meters and covered by Tax Declaration No. 1203 issued in 1957; that due to his open, notorious, adverse and exclusive possession, occupation and cultivation of the said land in the concept of owner since July 4, 1945, during which he introduced improvements thereon such as a residential house of light materials, canals, dikes, and rice paddies and planted coconut and fruit trees and exclusively enjoyed the produce, the said lot has long been converted into his private property by operation of law.

In 1964, Nemesio applied for a free patent over the subject lot under Application No. 18-5483, which he said was approved in 1966, but the patent was never released due to opposition from the defendants; that sometime in 1973, defendant Aguilar forcibly entered and occupied the northwest portion of Lot No. F-18-5483-D; in 1986, Aguilar intervened as claimant/protestant and appeared at a hearing conducted by the Bureau of Lands at Buug, Zamboanga del Sur on September 10, 1996; another claimant, Wenceslao Dominguez, occupant of the property at the southeast boundary, also opposed his free patent application; sometime in 1989, defendants Custodio and Valencia, by means of force, allegedly dispossessed Nemesio of a total of two hectares at the mid-northern portion of his lot; in March 1997, the above-named free patent oppositors, all allegedly distant relatives of Nemesio, threatened to physically oust him from his lot, and it was then that he learned for the first time that titles had been issued by the DAR to the private defendants through deceit, fraud and misrepresentation, along a much-reduced portion was also issued in his name. These titles are:

1 Aguilar was awarded (a) Certificate of Land Ownership Award (CLOA) No. 00014318 over Lot 684, CSD-09-

001830, containing 15,304 sq m, and was issued Original Certificate of Title (OCT) No. E-10590 on December 8, 1990; and (b) CLOA No. 00014859 over Lot 686, CSD-09-001830, with an area of 16,474 sq m for which he was issued OCT No. E-10591 on December 8, 1990;

23 Custodio was awarded CLOA No. 00014832 over Lot 682, CSD-09-001830, containing 32,428 sq m for

which he was issued OCT No. E-10375 on November 20, 1990;45 Valencia was awarded CLOA No. 00014833 over Lot 683, CSD-09-001830, containing 25,616 sq m, and

was issued OCT No. E-10376 on November 20, 1990;67 Nemesio was issued OCT No. E-9704 containing 11,440 sq m, although he never applied for Certificate of

Land Ownership from the DAR;5

The private defendants moved to dismiss the complaint on September 19, 1997 on the ground that the controversy involved the implementation of the agrarian reform law, which is outside the court’s jurisdiction. DAR in its answer sought the dismissal of the complaint, arguing that Nemesio did not own or possess the subject lot and thus has no cause of action to recover title and possession, much less seek the removal of a cloud over his alleged title, even as the titles issued by DAR can only be attacked directly and not collaterally.

The private defendants did not file an answer, and on January 9, 1998, Nemesio moved to declare them in default. On February 6, 1998, the RTC denied Nemesio’s motion, along with the private defendant’s motion to dismiss the complaint, and ordered them to file their answer immediately. On February 12, 1998, the private defendants asked for extension to file their answer, which the court granted on February 18, 1998. But instead of an answer, on March 3, 1998 they filed a motion for reconsideration of the denial of their motion to dismiss. On March 20, 1998, the RTC directed the parties to submit their position papers. On March 27, 1998, Nemesio moved anew to declare the private defendants in default, and this time the RTC conceded. On December 3, 1998, he began the presentation of his evidence before the Clerk of Court.

In his testimony, Nelson S. Dumagpi, son of Nemesio, identified the 22-ha lot claimed by Nemesio (who died on November 1, 1998) and the survey plan, blue print and tracing cloth approved by Director of Lands Nicanor Jorge in 1966 in support of Nemesio’s application for free patent in 1964; he further testified that his father had been cultivating the land since World War II, introducing improvements and planting crops and trees; that his uncle Vicente also settled in the land whereas the private defendants were intruders who tried unsuccessfully to oust them from the land.6cralawlawlibrary

Rodolfo G. Salvador, Jr., an employee of Land Management Services Office under the Bureau of Lands of the Department of Environment and Natural Resources (DENR) Region 9, confirmed the free patent application of Nemesio and identified the pertinent documents kept in a vault in his office; that while it appears that the free patent was approved on September 5, 1966, he did not know if it was released; that the private defendants were subsequently granted titles to portions of the lot by the DAR.7cralawlawlibrary

Florentino Dumagpi, first cousin of Nemesio, testified that upon invitation of Nemesio he and his brothers came to farm the land in 1955 for a share of the crops; that by 1955, portions thereof had already been cultivated and some trees had been cut to build a camarin; that they left in 1965 to be near the school of their children; that in 1972, he visited the land and saw his cousin Nemesio still occupying a portion thereof but none of the private defendants except some squatters.8cralawlawlibrary

DAR presented Ariston Labrador (Labrador), a retired Municipal Agrarian Reform Officer for Diplahan, Zamboanga del Sur, which then included the subject DAR resettlement site, now part of the Municipality of Siay. He testified that the resettlement site contains 2,598 has and used to be part of a coal mine reservation; that the area was reclassified and declared as a resettlement site under Proclamation No. 2342 dated March 14, 1984, to be administered and disposed of by DAR pursuant to the Comprehensive Agrarian Reform Program; that following DAR guidelines, he verified a list of qualified beneficiaries, which included the private defendants who had been personally cultivating portions which were eventually titled to them; that Nemesio cultivated a small part of the lot he claimed but during his visit he had stopped doing so due to advanced age; that he did not know that the surveyor was a brother of defendant Aguilar.9cralawlawlibrary

The RTC rendered its Decision10 on December 16, 2005 in favor of Nemesio, excerpts of which are quoted below as follows:chanRoblesvirtualLawlibrary

Based on the evidence presented and offered, testimonial and documentary, the following facts preponderate for the plaintiff, viz:

That since July 4, 1945 or prior thereto, plaintiff possessed, occupied and cultivated a parcel of agricultural land situated at Paradise, Diplahan, Zamboanga del Sur, and which possession, occupation and cultivation had been continuous, open, notorious, adverse and exclusive in the concept of owner; and which land is particularly described as Lot No. F-18-5483-D, situated in Municipality of Siay, Zamboanga del Sur, bounded on the North, along lines 7-8-9 by property of Pablo Paderes; along lines 9-1-2 by property of Martin Bacatan; on the East, along line 2-3 by Sibuguey River; on the South, along lines 3-4-5 by property of Wenceslao Dominguez; along line 5-6 by property of Teodorico Buendia; on the West along line 6-7 by public land. x x x Containing an area of TWO HUNDRED ELEVEN THOUSAND NINE HUNDRED EIGHTY[-]SEVEN (211,987) SQUARE METERS, more or less, covered by Tax Declaration No. 1203 for the year 1957 and having an assessed value of more than P20,000.00 at present, that plaintiff had introduced improvements therein such as coconut trees, fruit trees, a residential house made of light materials, canals, dikes and rice paddies where he had exclusively enjoyed the produce thereon; that to perfect his title, plaintiff had applied for a free patent per his Application No. 18-5483 with the Bureau of Lands on the said parcel of land in 1964; that sometime in 1973, defendant Juan Aguilar, Sr. forcibly entered and occupied a portion of the afore-described property consisting of more or less 18 hectares at the north southwestern portion thereof; that plaintiff followed up his Free Patent Application where he found out that his Free Patent Application with the Bureau of Lands and the patent thereto should have been granted were it not for the protest filed by a certain Wenceslao Dominguez, an occupant of a land situated at the southeastern boundary of the land of the plaintiff, that sometime in 1986 defendant Juan Aguilar intervened in the Free Patent Application of the plaintiff as claimant/protestant, and in the hearing conducted by the Bureau of Lands at Buug, Zamboanga del Sur, on September 10, 1996, plaintiff and defendant Juan Aguilar agreed to have a relocation o[f] the actual boundaries claimed by each of them. No relocation survey, however, was conducted thereon; that sometime in the year 1989, defendant Dionito B. Custodio, who was then residing at Gaulan, Diplahan, Zamboanga del Sur, by means of force, dispossessed plaintiff from a portion of the land in question consisting of two (2) hectares at the mid-northern portion thereof; that also in the same year of 1989, defendant Rosalino C. Valencia, who was then residing at Lindang, Diplahan, Zamboanga del Sur, by means of force, dispossessed plaintiff from a portion of the land in question consisting of two (2) hectares at the northeastern portion thereof; that plaintiff, thereafter, waited for the title of his land above-described; that sometime in the month of March, 1997, all the private defendants threatened plaintiff to physically move out from the land in question and telling him that they have acquired titles thereto, thereby sowing fear on the person of the plaintiff who is now a helpless, weak old man; that, thereafter, plaintiff made verifications on the status of his Free Patent Application and on April, 1997, he found out that thru deceit, fraud and gross misrepresentation of facts, all private defendants have partitioned the land in question and were able to acquire titles thereto to the damage and prejudice of the plaintiff and that public respondent, in violation of the due process clause of the constitution of rights, awarded unto the private defendants certificates of land ownership awards in the following manner:cralawreda) Defendant Juan Aguilar, Sr. was awarded Certificate of Land Ownership Award No.

00014318 over Lot 684, CSD-09-001830 containing an area of 15,304 square meters for which Original Certificate of Title No. E-10,590 was issued on December 8, 1990 and Certificate of Land Ownership Award No. 00014859 over Lot 686, CSD-09-001830 containing an area of 16,474 square meters for which Original Certificate of Title No. E-10,591 wa [sic] issued on December 8, 1990;

b) Defendant Dionito V. Custodio was awarded Certificate of Land Ownership Award No. 00014832 over Lot 682, CSD-09-001830 containing an area of 32,428 square meters for which Original Certificate of Title No. E-10,375 was issued on November 20, 1990;

(c) Defendant Rosalino C. Valencia was awarded Certificate of Land Ownership Award No. 00014833 over Lot 683, CSD-09-001830 containing an area of 25,616 square meters for which Original Certificate of Title No. E-10,376 was issued on November 20, 1990; and

(d) Plaintiff Nemesio Dumagpi was awarded Original Certificate of Title No. E-9,704 containing an area of 11,440 square meters despite the fact that plaintiff did not file for any CLO award as the land covered thereby is already covered by the aforementioned free patent application.

That the continuous, open, notorious and exclusive occupation and cultivation of the herein plaintiff over the land in question for more than thirty (30) years prior to the issuance of the assailed Certificate of Land Ownership Awards (CLOAs) and the certificates of title issued therefor has already attained the character and duration equivalent to a title and an express grant from the government unto the plaintiff and the same cannot be taken from him without violating his constitutional right;11

On appeal, the DAR interposed the following issues:chanRoblesvirtualLawlibrary

I

THE TRIAL COURT GRAVELY ERRED IN ASSUMING JURISDICTION OVER THE INSTANT CASE[;]

II

THE TRIAL COURT GRAVELY ERRED IN ITS FINDING THAT THE SUBJECT PARCEL OF LAND IS “ALIENABLE AND DISPOSABLE” LAND OF THE PUBLIC DOMAIN MADE AS THE BASIS FOR APPLYING THE RULES ON CONFIRMATION OF IMPERFECT TITLES[;]

III

THE TRIAL COURT COMMITTED GRAVE ABUSE OF JUDICIAL DISCRETION AND SERIOUSLY ERRED IN DECIDING THE INSTANT CASE WITHOUT RESOLVING PRIVATE DEFENDANTS MOTION TO LIFT ORDER OF DEFAULT[.]12

Ruling of the CA

In dismissing the appeal of DAR, the CA noted, first, that between Nemesio and the private defendants there was no tenurial, leasehold, or any agrarian relationship whatsoever that could bring the controversy within the jurisdiction of DAR Adjudication Board (DARAB). Under Section 3(d) of Republic Act (R.A.) No. 6657, 13 an agrarian dispute refers to any controversy relating to tenurial arrangements, whether leasehold, tenancy, stewardship or otherwise, over lands devoted to agriculture, including disputes concerning farmworkers’ associations or representation of persons in negotiating, fixing, maintaining, changing, or seeking to arrange terms or conditions of such tenurial arrangements. It includes any controversy relating to terms and conditions of transfer of ownership from landowners to farmworkers, tenants and other agrarian reform beneficiaries, whether the disputants stand in the proximate relation of farm operator and beneficiary, landowner and tenant, or lessor and lessee. The CA invoked Morta, Sr. v. Occidental14 where this Court held as follows:chanRoblesvirtualLawlibrary

For DARAB to have jurisdiction over a case, there must exist a tenancy relationship between the parties. In order for a tenancy agreement to take hold over a dispute, it would be essential to establish all its indispensable elements, to wit: 1) that the parties are the landowner and the tenant or agricultural lessee; 2) that the subject matter of the relationship is an agricultural land; 3) that there is consent between the parties to the relationship; 4) that the purpose of the relationship is to bring about agricultural production; 5) that there is personal cultivation on the part of the tenant or agricultural lessee; and 6) that the harvest is shared between the landowner and the tenant or agricultural lessee. In Vda. de Tangub v. Court of Appeals, we held that the jurisdiction of the Department of Agrarian Reforms is limited to the following:

a) adjudication of all matters involving implementation of agrarian reform;b) resolution of agrarian conflicts and land-tenure related problems; andc) approval and disapproval of the conversion, restructuring or readjustment of agricultural lands into

residential, commercial, industrial, and other non-agricultural uses.15 (Citations omitted)

Second, according to the CA, the private defendants did not appeal from the RTC decision, and instead it appears that the DAR has taken up the cudgels for them through its appeal, whereas its only participation in the case pertains only to the issue of jurisdiction. On the other hand, the complaint below concerns merely Nemesio’s right to recover ownership and possession over the subject property, a purely in personam civil action. DAR thus acted inappropriately by raising the issue of the RTC’s failure to resolve the DAR’s motion to lift its order of default. Besides, having filed its answer, DAR cannot now question the jurisdiction of the RTC.

Petition for Review to the Supreme Court

In this petition for review, DAR raises the following issues:

I THE HONORABLE [CA], WITH ALL DUE RESPECT, ERRED WHEN IT AFFIRMED THE DECISION OF THE COURT A QUO AND IN RULING THAT THE PRESENT CONTROVERSY IS A CIVIL ACTION IN COMPLEXION AND NOT AN AGRARIAN REFORM MATTER WITHIN THE EXCLUSIVE ORIGINAL JURISDICTION OF THE DAR;

IIIII THE HONORABLE [CA], WITH ALL DUE RESPECT, ERRED WHEN IT AFFIRMED THE DECISION OF

THE TRIAL COURT BELOW DESPITE THE FACT THAT NEMESIO DUMAGPI LACKS LEGAL PERSONALITY TO ASK FOR RECOVERY OF OWNERSHIP AND/OR PETITION THE COURT TO

REMOVE CLOUD COVERING A TRACT OF LAND HE DOES NOT OWN OR POSSESS.16

Ruling of the Court

The Court finds merit in the petition.

The RTC held, invoking Republic of the Philippines v. Court of Appeals,17 that the entire 22-ha lot claimed by Nemesio had ipso jure attained the character of private property on account of his continuous, open, notorious and exclusive occupation and cultivation for 30 years prior to the issuance of the CLOAs and OCTs to the private defendants, who were mere intruders; that the OCTs issued to them are invalid, ineffective, voidable or unenforceable, and are clouds of title prejudicial to the title of the plaintiff.18 Thus, Nemesio’s action to recover title to or possession is not an action in rem, like a land registration proceeding or the probate of a will, but an action in personam in which the judgment is binding only upon the parties properly impleaded and duly given an opportunity to be heard.19cralawlawlibrary

The Court disagrees.

Article XII, Section 2 of the 1987 Constitution provides that “[a]ll lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated.” Under Section 3 of Article XII, lands of the public domain are classified into agricultural, forest or timber, mineral lands and national parks, and alienable lands of the public domain, which shall be limited to agricultural lands. Pursuant to Section 48(b) of Commonwealth Act No. 141, or the Public Land Act, only citizens of the Philippines may be granted title to alienable public agricultural land, to wit:chanRoblesvirtualLawlibrary

Section 48. x x x

x x x x

(b) Those who by themselves or through their predecessors in interest have been in open, continuous, exclusive, and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition or ownership, for at least thirty years immediately preceding the filing of the application for confirmation of title except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the conditions essential to a government grant and shall be entitled to a certificate of title under the provisions of this chapter.

As asserted by the DAR and testified to by Labrador, from 1938 to 1984 the subject lot was part of a coal mine reservation, established under Proclamation No. 234, Series of 1938, as amended by Proclamation No. 402, Series of 1953. On March 14, 1984, a portion of the reservation containing 2,598 has was reclassified under Presidential Proclamation No. 2342 as agricultural land reserved for resettlement. On June 10, 1988, R.A. No. 6657, or the Comprehensive Agrarian Reform Law (CARL), placed the said reclassified area under the administration and disposition of the DAR, pursuant to Section 2 thereof.

Concerning Nemesio’s claim of entitlement to a free patent, Section 44 of Commonwealth Act No. 141 provides:chanRoblesvirtualLawlibrary

Sec. 44. Any natural-born citizen of the Philippines who is not the owner of more than twenty-four hectares and who since July fourth, nineteen hundred and twenty-six or prior thereto, has continuously occupied and cultivated, either by himself or through his predecessors-in-interest, a tract or tracts of agricultural public lands subject to disposition, or who shall have paid the real estate tax thereon while the same has not been occupied by any person shall be entitled, under the provisions of this chapter, to have a free patent issued to him for such tract or tracts of such land not to exceed twenty-four hectares.cralawred

x x x x

There is no dispute that the land Nemesio is claiming was not alienable public agricultural land but in truth was classified and reserved as a coal mine from 1938 to 1984, a period which overlapped with his claimed acquisitive possession. Clearly, he cannot invoke Section 48(b) of Commonwealth Act No. 141 and assert an acquisitive title thereto by reason of open, continuous, exclusive, and notorious possession for 30 years.

Then, even granting arguendo that his application for free patent was approved by DENR, it is not denied that

the same was never released. In fact, DAR claimed that it was never approved precisely because the land was not alienable. Even Nemesio admitted that his free patent application was not approved due to opposition by several other claimants. And even if the same was approved and released, it would still have been void under the Constitution, for as held in Heirs of Santiago v. Heirs of Santiago,20 free patent applications under the Public Land Act, as amended, apply only to disposable lands of the public domain.

Importantly, the CLOAs and OCTs issued over the subject lot were pursuant to the implementation of the agrarian law under the exclusive jurisdiction of the DAR Secretary. Section 2 of R.A. No. 6657 provides that “[t]he State may resettle landless farmers and farmworkers in its own agricultural estates, which shall be distributed to them in the manner provided by law.” Nemesio has questioned the participation of the DAR in the action below and its right to bring the present petition, yet it was he who, attacking the validity of the CLOAs and OCTs issued by the DAR Secretary pursuant to R.A. No. 6657, has impleaded the said public official as a party-defendant along with the private defendants.

As the lead agency in the government’s Agrarian Reform Program, DAR issued Administrative Order No. 09-89, Series of 1989, on May 5, 1989, containing the “Rules and Procedures Governing Titling and Distribution of Lots in DAR Settlement Projects,” intended to accelerate the issuance of CLOAs to qualified beneficiaries in settlement projects administered by the DAR; it covers the titling and distribution of agricultural lands within proclaimed settlement projects under the administration of the DAR, as provided for by existing laws.

Even DARAB’s New Rules of Procedure issued on May 30, 1994 expressly recognized, under Section 1(g), Rule II thereof, that matters involving strictly the administrative implementation of R.A. No. 6657, otherwise known as the CARL of 1988 and other agrarian laws as enunciated by pertinent rules, shall be the exclusive prerogative of and cognizable by the Secretary of the DAR.

Nemesio has doubtful standing to petition for quieting of title, which is clearly a collateral attack against the CLOAs and titles the DAR Secretary issued to the private defendants. He has no title, records, or instruments to uphold, and moreover, under Section 23 of R.A. No. 6657 as agrarian reform beneficiary he is allowed only three has, not 22 has. Even granting that his complaint may be treated as one for reconveyance, there is no ownership or title to reconvey to him because he never had one, not even through acquisitive prescription.

Moreover, as the lead agency mandated to implement the government’s agrarian reform program, the DAR is the real party in interest, since at issue is the validity of its actions comprising the determination of the qualified agrarian reform beneficiaries and the issuance of CLOAs and titles to them. Since, therefore, the implementation of agrarian law is within the exclusive jurisdiction of the DAR Secretary, and issues concerning the issuance of the subject titles can only be raised to the DAR Secretary, the RTC has no jurisdiction to decide Civil Case No. 3985, and its judgment therein is of necessity void and can never become final. As the Court held in Leonor v. CA:21cralawlawlibrary

A void judgment for want of jurisdiction is no judgment at all. It cannot be the source of any right nor the creator of any obligation. All acts performed pursuant to it and all claims emanating from it have no legal effect. Hence, it can never become final and any writ of execution based on it is void; “x x x it may be said to be a lawless thing which can be treated as an outlaw and slain at sight, or ignored wherever and whenever it exhibits its head.22 (Citation omitted)

WHEREFORE, premises considered, the petition is GRANTED. The Decision dated October 7, 2010 of the Court of Appeals in CA-G.R. CV No. 01724-MIN, which affirmed the Decision dated December 16, 2005 of the Regional Trial Court of Pagadian City, Branch 22, in Civil Case No. 3985, is REVERSED and SET ASIDE, and a new judgment is entered DISMISSING the complaint in Civil Case No. 3985 for lack of jurisdiction.

SO ORDERED.