SECOND DIVISION

On January 29, 1998, SEARBEMCO, as seller, and respondent DOLE Philippines, Inc.
(Stanfilco Division) (DOLE), as buyer, entered into a Banana Production and Purchase
STANFILCO EMPLOYEES AGRARIAN G.R. No. 154048 Agreement[4] (BPPA). The BPPA provided that SEARBEMCO shall sell exclusively to DOLE,
REFORM BENEFICIARIES MULTI-
PURPOSE COOPERATIVE, Present: and the latter shall buy from the former, all Cavendish bananas of required specifications to be
Petitioner, planted on the land owned by SEARBEMCO. The BPPA states:
CARPIO, J., Chairperson,
LEONARDO-DE CASTRO, The SELLER agrees to sell exclusively to the BUYER, and the BUYER agrees
- versus - BRION, to buy all Cavendish Banana of the Specifications and Quality described in
DEL CASTILLO, and EXHIBIT A hereof produced on the SELLERS plantation covering an area of
ABAD, JJ. 351.6367 hectares, more or less, and which is planted and authorized under
letter of instruction no. 790 as amended on November 6, 1999 under the terms
DOLE PHILIPPINES, INC. (STANFILCO and conditions herein stipulated. The SELLER shall not increase or decrease
DIVISION), ORIBANEX SERVICES, INC. Promulgated: the area(s) stated above without the prior written approval of the BUYER.
and SPOUSES ELLY AND MYRNA However, the SELLER may reduce said area(s) provided that if the SELLER
ABUJOS, November 27, 2009 replaces the reduction by planting bananas on an equivalent area(s)
Respondents. elsewhere, it is agreed that such replacement area(s) shall be deemed
x ------------------------------------------------------------------------------------------ x covered by the Agreement. If the SELLER plants an area(s) in excess of said
351.6367 hectares, the parties may enter into a separate agreement regarding
the production of said additional acreage. SELLER will produce banana to the
DECISION maximum capacity of the plantation, as much as practicable, consistent with
good agricultural practices designed to produce banana of quality having the
standards hereinafter set forth for the duration of this Banana Production and
Purchase Agreement.
BRION, J.:

SEARBEMCO bound and obliged itself, inter alia, to do the following:

Before this Court is the petition for review on certiorari[1] filed by petitioner Stanfilco Employees
V. SPECIFIC OBLIGATIONS OF THE SELLER
Agrarian Reform Beneficiaries Multi-Purpose Cooperative (SEARBEMCO). It assails:
xxx
(a) the decision[2] of the Court of Appeals (CA) in CA-G.R. SP No. 66148 p.) Sell exclusively to the BUYER all bananas produced from the subject
dated November 27, 2001; and plantation, except those rejected by the BUYER for failure to meet the
specifications and conditions contained in Exhibit A hereof. In the case of any
such rejected bananas, the SELLER shall have the right to sell such
(b) the CAs resolution[3] of June 13, 2002 in the same case, denying SEARBEMCOs rejected bananas to third parties, for domestic non-export
consumption. The SELLER shall only sell bananas produced from the
motion for reconsideration.
plantation and not from any other source. [Emphasis supplied.]
Any dispute arising from or in connection with the BPPA between the parties shall be finally
THE FACTUAL ANTECEDENTS
settled through arbitration. To quote the BPPA:

IX. ARBITRATION OF DISPUTE


All disputes arising in connection with this Agreement shall be finally settled
under the Rules of Conciliation and Arbitration of the International Chamber of
Commerce by three (3) Arbitrators appointed in accordance with said Rules.
The Arbitration shall be held in a venue to be agreed by the parties. Judgment
upon the award rendered may be entered in any Philippine Court having
jurisdiction or application may be made to such court for judicial acceptance of
the award and as order of enforcement, as the case may be.
On December 11, 2000, DOLE filed a complaint with the Regional Trial Court [5] (RTC) against
SEARBEMCO, the spouses Elly and Myrna Abujos (spouses Abujos), and Oribanex Services,
Inc. (Oribanex) for specific performance and damages, with a prayer for the issuance of a writ
of preliminary injunction and of a temporary restraining order. DOLE alleged that SEARBEMCO
sold and delivered to Oribanex, through the spouses Abujos, the bananas rejected by DOLE,
in violation of paragraph 5(p), Article V of the BPPA which limited the sale of rejected bananas
for domestic non-export consumption. DOLE further alleged that Oribanex is likewise an
exporter of bananas and is its direct competitor.
DOLE narrated in its complaint how SEARBEMCO sold and delivered the rejected bananas to
Oribanex through the spouses Abujos:
9.) That, however, on April 12, 2000 at about 5:00 oclock in the afternoon,
[DOLE] through its authorized security personnel discovered that defendant
SEARBEMCO, in violation of Section 5(p) Article V of the Banana Production
and Purchase Agreement, packed the bananas rejected by [DOLE] in boxes
marked CONSUL in Packing Plant 32 in DAPCO Panabo and sold and
delivered them to defendant Abujos;
10.) That about 373 CONSUL marked boxes were packed and knowingly sold
by defendant SEARBEMCO to ORIBANEX SERVICES, INC. through
defendants Abujos who carried and loaded the same on board a blue Isuzu
Canter bearing plate no. LDM 976 and delivered to defendant ORIBANEX for
export at the TEFASCO Wharf covered by Abujos Delivery Receipt, a copy of
which is hereto attached as Annex B;
11.) That the following day, April 13, 2000, again the same security found that
defendant SEARBEMCO continued to pack the bananas rejected by plaintiff
in boxes marked as CONSUL and, in violation of paragraph 5(p) Article V of
the Banana Production and Purchase Agreement, sold and delivered them to
defendant ORIBANEX SERVICES, INC., for export, through defendants
Abujos;
12.) That about 648 CONSUL marked boxes were packed and knowingly sold
by defendant SEARBEMCO to ORIBANEX SERVICES, INC., through
defendants Abujos who carried and loaded the same on board a red Isuzu
Forwarder, bearing plate no. LCV 918, and delivered to defendant ORIBANEX
for export at the TEFASCO Wharf covered by Abujos Delivery Receipt, a copy
of which is hereto attached and marked as Annex C;
13.) That the sale of a total of 712 boxes of rejected bananas covering April
12 and 13, 2000, or any other dates prior thereto or made thereafter by
defendant SEARBEMCO to defendant ORIBANEX SERVICES, INC. through
defendant Abujos is in utter violation of the Agreement between plaintiff
[DOLE] and defendant SEARBEMCO that SEARBEMCO may sell bananas
rejected by plaintiff to parties for domestic non-export consumption only.
SEARBEMCO responded with a motion to dismiss on the grounds of lack of jurisdiction over
the subject matter of the claim, lack of cause of action, failure to submit to arbitration which is
a condition precedent to the filing of a complaint, and the complaints defective verification and
certification of non-forum shopping.[6] SEARBEMCO argued that:
1) the Department of Agrarian Reform Adjudication Board (DARAB) has
exclusive jurisdiction over the action filed by DOLE, pursuant to Sections 1 and
3(e) of Administrative Order No. 09, Series of 1998[7] (AO No. 9-98) and
Section 5(a) and (c) of Administrative Order No. 02, Series of 1999 [8](AO No.
2-99) of the Department of Agrarian Reform (DAR), since the dispute between
the parties is an agrarian dispute within the exclusive competence of the
DARAB to resolve;
2) the filing of the complaint is premature, as the dispute between DOLE and
SEARBEMCO has not been referred to and resolved by arbitration, contrary
to Article IX of the BPPA and Article V, Sec. 30(g)[9] of AO No. 9-98 of the DAR;
3) it did not violate Section 5(p), Article V of the BPPA, since the rejected
bananas were sold to the spouses Abujos who were third-party buyers and not
exporters of bananas; and
4) the complaint is fatally defective as the Board of Directors of DOLE did not
approve any resolution authorizing Atty. Reynaldo Echavez to execute the
 requisite Verification and Certification Against Forum Shopping and, therefore,
the same is fatally defective.
DOLE opposed SEARBEMCOs motion to dismiss alleging, among others, that:
1) the dispute between the parties is not an agrarian dispute within the exclusive
jurisdiction of the DARAB under Republic Act No. 6657 [10] (RA No. 6657); and
2) the Arbitration Clause of the BPPA is not applicable as, aside from SEARBEMCO,
DOLE impleaded other parties (i.e.,the spouses Abujos and Oribanex who are not
parties to the BPPA) as defendants.[11]
Subsequently, DOLE filed on February 2, 2001 an amended complaint,[12] the amendment
consisting of the Verification and Certification against forum shopping for DOLE executed by
Danilo C. Quinto, DOLEs Zone Manager.
THE RTC RULING
The RTC denied SEARBEMCOs motion to dismiss in an Order dated May 16, 2001.[13]
trial court stated that the case does not involve an agrarian conflict and is a judicial matter that
it can resolve.
SEARBEMCO moved for the reconsideration of the RTC Order.[14] The RTC denied the motion
for lack of merit in its Order ofJuly 12, 2001.[15]
THE CA RULING
On July 26, 2001, SEARBEMCO filed a special civil action for certiorari[16] with the CA
alleging grave abuse of discretion on the part of the RTC for denying its motion to dismiss and
the subsequent motion for reconsideration.
SEARBEMCO argued that the BPPA the parties executed is an agri-business venture
agreement contemplated by DARs AO No. 9-98. Thus, any dispute arising from the
interpretation and implementation of the BPPA is an agrarian dispute within the exclusive
jurisdiction of the DARAB.
In a decision dated November 27, 2001,[17] the CA found that the RTC did not gravely abuse
its discretion in denying SEARBEMCOs motion to dismiss and motion for reconsideration.
The CA ruled that the [DAR] has no jurisdiction, under said [AO No. 9-98], over actions
between [SEARBEMCO] and [DOLE] for enforcement of the said Agreement when one
commits a breach thereof and for redress by way of specific performance and damages
inclusive of injunctive relief.[18] It held that the case is not an agrarian dispute within the purview
of Section 3(d) of RA No. 6657,[19] but is an action to compel SEARBEMCO to comply with its
obligations under the BPPA; it called for the application of the provisions of the Civil Code, not
RA No. 6657.
The CA likewise disregarded SEARBEMCOs emphatic argument that DOLEs complaint was
prematurely filed because of its failure to first resort to arbitration. The arbitration clause under
the BPPA, said the CA, applies only when the parties involved are parties to the agreement; in
its complaint, DOLE included the spouses Abujos and Oribanex as defendants. According to
The the CA, if [DOLE] referred its dispute with [SEARBEMCO] to a Panel of Arbitrators, any
judgment rendered by the latter, whether for or against [DOLE] will not be binding on the
[spouses Abujos] and [Oribanex], as case law has it that only the parties to a suit, as well as
their successors-in-interest, are bound by the judgment of the Court or quasi-judicial bodies.[20]
On SEARBEMCOs argument that the Verification and Certification Against Forum Shopping
under DOLEs amended complaint is defective for failure to state that this was based on
personal knowledge, the CA ruled that the omission of the word personal did not render the
Verification and Certification defective.
SEARBEMCO moved for reconsideration of the decision, but the CA denied the motion for lack
of merit in its resolution of June 13, 2002.[21]
ASSIGNMENT OF ERRORS
In the present petition, SEARBEMCO submits that the CA erred in ruling that:
 1.) the RTC has jurisdiction over the subject matter of the complaint of DOLE,
considering that the case involves an agrarian dispute within the exclusive
jurisdiction of the DARAB;
2.) the complaint of DOLE states a cause of action, despite the fact that SEARBEMCO
has not violated any provision of the BPPA; and
3.) the filing of the complaint is not premature, despite DOLEs failure to submit its
claim to arbitration a condition precedent to any juridical recourse.
THE COURTS RULING
We do not find the petition meritorious.
DOLEs complaint falls within
thejurisdiction of the regular courts, not
the DARAB.
SEARBEMCO mainly relies on Section 50[22] of RA No. 6657 and the characterization of the
controversy as an agrarian dispute or as an agrarian reform matter in contending that the
present controversy falls within the competence of the DARAB and not of the regular
courts. The BPPA, SEARBEMCO claims, is a joint venture and a production, processing and
marketing agreement, as defined under Section 5 (c) (i) and (ii) of DAR AO No. 2-99;[23] hence,
any dispute arising from the BPPA is within the exclusive jurisdiction of the
DARAB. SEARBEMCO also asserts that the parties relationship in the present case is not only
that of buyer and seller, but also that of supplier of land covered by the CARP and of manpower
on the part of SEARBEMCO, and supplier of agricultural inputs, financing and technological
expertise on the part of DOLE. Therefore, SEARBEMCO concludes that the BPPA is not an
ordinary contract, but one that involves an agrarian element and, as such, is imbued with public
interest.
We clarify at the outset that what we are reviewing in this petition is the legal question
of whether the CA correctly ruled that the RTC committed no grave abuse discretion in denying
SEARBEMCOs motion to dismiss. In ruling for legal correctness, we have to view the CA
decision in the same context that the petition for certiorari it ruled upon was presented to the
appellate court; we have to examine the CA decision from the prism of whether it correctly
determined the presence or absence of grave abuse of discretion in the RTC ruling before it,
not on the basis of whether the RTC ruling on the merits of the case was correct. In other
words, we have to be keenly aware that the CA undertook a Rule 65 review, not a review on
appeal, of the challenged RTC ruling.A court acts with grave abuse of discretion amounting to
lack or excess of jurisdiction when its action was performed in a capricious and whimsical
exercise of judgment equivalent to lack of discretion. The abuse of discretion must be so patent
and gross as to amount to an evasion of a positive duty or to a virtual refusal to perform a duty
enjoined by law, or to act at all in contemplation of the law, as where the power is exercised in
an arbitrary and despotic manner by reason or passion or personal hostility. [24]
As the CA found, the RTCs action was not attended by any grave abuse of discretion
and the RTC correctly ruled in denying SEARBEMCOs motion to dismiss. We fully agree
with the CA.
Section 3(d) of RA No. 6657 is clear in defining an agrarian dispute: any controversy
relating to tenurial arrangements, whether leasehold, tenancy, stewardship or otherwise, over
lands devoted to agriculture, including dispute concerning farm-workers associations or
representations of persons in negotiating, fixing, maintaining, changing or seeking to arrange
terms or conditions of such tenurial arrangements. It includes any controversy relating to
compensation of lands acquired under this Act and other 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.[25]
RA No. 6657 is procedurally implemented through the 2003 DARAB Rules of Procedure where
Section 1, Rule II[26] enumerates the instances where the DARAB shall have primary and
exclusive jurisdiction. A notable feature of RA No. 6657 and its implementing rules is the focus
on agricultural lands and the relationship over this land that serves as the basis in the
determination of whether a matter falls under DARAB jurisdiction.

In Heirs of the Late Hernan Rey Santos v. Court of Appeals,[27]we held that:
For DARAB to have jurisdiction over a case, there must exist a tenancy
relationship between the parties. x x x. In Vda. De Tangub v. Court of
Appeals (191 SCRA 885), we held that the jurisdiction of the Department of
Agrarian Reform 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; and c.) approval and disapproval of the
conversion, restructuring or readjustment of agricultural lands into residential,
commercial, industrial, and other non-agricultural uses. [Emphasis supplied].
The case of Pasong Bayabas Farmers Association, Inc. v. Court of Appeals [28] lists
down the indispensable elements for a tenancy relationship to exist: (1) the parties are the
landowner and the tenant or agricultural lessee; (2) the subject matter of the relationship is
an agricultural land; (3) there is consent between the parties to the relationship; (4) the
purpose of the relationship is to bring about agricultural production; (5) there is personal
cultivation on the part of the tenant or agricultural lessee; and (6) the harvest is shared between
the landowner and the tenant or the agricultural lessee.
The parties in the present case have no tenurial, leasehold, or any other agrarian
relationship that could bring their controversy within the ambit of agrarian reform laws and
within the jurisdiction of the DARAB. In fact, SEARBEMCO has no allegation whatsoever in its
motion to dismiss regarding any tenancy relationship between it and DOLE that gave the
present dispute the character of an agrarian dispute.
We have always held that tenancy relations cannot be presumed. The elements of
tenancy must first be proved by substantial evidence which can be shown through records,
documents, and written agreements between the parties. A principal factor, too, to consider in
determining whether a tenancy relationship exists is the intent of the parties.[29]
SEARBEMCO has not shown that the above-mentioned indispensable elements of
tenancy relations are present between it and DOLE. It also cannot be gleaned from the intention
of the parties that they intended to form a tenancy relationship between them. In the absence
of any such intent and resulting relationship, the DARAB cannot have jurisdiction. Instead, the
present petition is properly cognizable by the regular courts, as the CA and the RTC correctly
ruled.
Notably, the requirement of the existence of tenurial relationship has been relaxed in
the cases of Islanders CARP-Farmers Beneficiaries Muti-Purpose Cooperative, Inc. v.
Lapanday Agricultural and Devt. Corporation[30] and Cubero v. Laguna West Multi-Purpose
Cooperative, Inc.[31] The Court, speaking through former Chief Justice Panganiban, declared
in Islanders that:
[The definition of agrarian dispute in RA No. 6657 is] broad enough to include
disputes arising from any tenurial arrangement beyond the traditional
landowner-tenant or lessor-lessee relationship. xxx [A]grarian reform extends
beyond the mere acquisition and redistribution of land, the law acknowledges
other modes of tenurial arrangements to effect the implementation of CARP.[32]
While Islanders and Cubero may seem to serve as precedents to the present case, a
close analysis of these cases, however, leads us to conclude that significant differences exist
in the factual circumstances between those cases and the present case, thus rendering the
rulings in these cited cases inapplicable.
Islanders questioned (through a petition for declaration of nullity filed before the RTC
of Tagum City) the lack of authority of the farmer-beneficiaries alleged representative to enter
into a Joint Production Agreement with Lapanday. The farmers-beneficiaries assailed the
validity of the agreement by additionally claiming that its terms contravened RA No. 6657.
Cubero likewise involved a petition to declare the nullity of a Joint Venture Agreement
between the farmer-beneficiaries and Laguna West Multi-Purpose Cooporative, Inc. The
successors of the farmer-beneficiaries assailed the agreement before the RTC of Tanauan,
Batangas for having been executed within the 10-year prohibitory period under Section 27 of
RA No. 6657.
In both cases, the Court ruled that the RTC lacked jurisdiction to hear the complaint
and declared the DARAB as the competent body to resolve the dispute. The Court declared
that when the question involves the rights and obligations of persons engaged in the
management, cultivation, and use of an agricultural land covered by CARP, the case falls
squarely within the jurisdictional ambit of the DAR.
Carefully analyzed, the principal issue raised in Islanders and Cubero referred to
the management, cultivation, and use of the CARP-covered agricultural land; the issue of
the nullity of the joint economic enterprise agreements in Islanders and Cuberowould directly
affect the agricultural land covered by CARP. Those cases significantly did not pertain to post-
harvest transactionsinvolving the produce from CARP-covered agricultural lands, as the case
before us does now.
Moreover, the resolution of the issue raised in Islanders and Cubero required the
interpretation and application of the provisions of RA No. 6657, considering that the farmer-
beneficiaries claimed that the agreements contravened specific provisions of that law. In the
present case, DOLEs complaint for specific performance and damages before the RTC did not
question the validity of the BPPA that would require the application of the provisions of RA No.
6657; neither did SEARBEMCOs motion to dismiss nor its other pleadings assail the validity of
the BPPA on the ground that its provisions violate RA No. 6657. The resolution of the present
case would therefore involve, more than anything else, the application of civil law provisions
on breaches of contract, rather than agrarian reform principles. Indeed, in support of their
arguments, the parties have capitalized and focused on their relationship as buyer and
seller. DOLE, the buyer, filed a complaint against SEARBEMCO, the seller, to enforce the
BPPA between them and to compel the latter to comply with its obligations. The CA is thus
legally correct in its declaration that the action before the RTC does not involve an agrarian
dispute, nor does it call for the application of Agrarian Reform laws. x x x. The action of [DOLE]
involves and calls for the application of the New Civil Code, in tandem with the terms
and conditions of the [BPPA] of [SEARBEMCO] and [DOLE].[33]
We find SEARBEMCOs reliance on DAR AO No. 9-98 and AO No. 2-99 as bases for
DARABs alleged expanded jurisdiction over all disputes arising from the interpretation of
agribusiness ventures to be misplaced. DARABs jurisdiction under Section 50 of RA No. 6657
should be read in conjunction with the coverage of agrarian reform laws; administrative
issuances like DAR AO Nos. 9-98 and 2-99 cannot validly extend the scope of the jurisdiction
set by law. In so ruling, however, we do not pass upon the validity of these administrative
issuances. We do recognize the possibility that disputes may exist between parties to joint
economic enterprises that directly pertain to the management, cultivation, and use of CARP-
covered agricultural land. Based on our above discussion, these disputes will fall within
DARABs jurisdiction.
Even assuming that the present case can be classified as an agrarian dispute involving
the interpretation or implementation of agribusiness venture agreements, DARAB still cannot
validly acquire jurisdiction, at least insofar as DOLEs cause of action against the third parties
the spouses Abujos and Oribanex is concerned. To prevent multiple actions, we hold that the
present case is best resolved by the trial court.
DOLEs complaint validly states a
cause of action
SEARBEMCO asserts that the pleading containing DOLEs claim against it states no cause of
action. It contends that it did not violate any of the provisions of the BPPA, since the bananas
rejected by DOLE were sold to the spouses Abujos who are third-party buyers and are not
exporters of bananas transactions that the BPPA allows. Since the sole basis of DOLEs
complaint was SEARBEMCOs alleged violation of the BPPA, which SEARBEMCO insists did
not take place, the complaint therefore did not state a cause of action.
Due consideration of the basic rules on lack of cause of action as a ground for a motion to
dismiss weighs against SEARBEMCOs argument.
In the case of Jimenez, Jr. v. Jordana,[34] this Court had the opportunity to discuss the
sufficiency of the allegations of the complaint to uphold a valid cause of action, as follows:
In a motion to dismiss, a defendant hypothetically admits the truth of the
material allegations of the plaintiffs complaint. This hypothetical admission
extends to the relevant and material facts pleaded in, and the inferences fairly
deductible from, the complaint. Hence, to determine whether the sufficiency of
the facts alleged in the complaint constitutes a cause of action, the test is as
follows: admitting the truth of the facts alleged, can the court render a valid
judgment in accordance with the prayer?
 To sustain a motion to dismiss, the movant needs to show that the
plaintiffs claim for relief does not exist at all. On the contrary, the complaint is
sufficient if it contains sufficient notice of the cause of action even though the
allegations may be vague or indefinite, in which event, the proper recourse
would be, not a motion to dismiss, but a motion for a bill of particulars.[35]
In applying this authoritative test, we must hypothetically assume the truth of DOLEs
allegations, and determine whether the RTC can render a valid judgment in accordance with
its prayer.
We find the allegations in DOLEs complaint to be sufficient basis for the judgment prayed
for. Hypothetically admitting the allegations in DOLEs complaint that SEARBEMCO sold the
rejected bananas to Oribanex, a competitor of DOLE and also an exporter of bananas, through
the spouses Abujos, a valid judgment may be rendered by the RTC holding SEARBEMCO
liable for breach of contract. That the sale had been to the spouses Abujos who are not
exporters is essentially a denial of DOLEs allegations and is not therefore a material
consideration in weighing the merits of the alleged lack of cause of action. What SEARBEMCO
stated is a counter-statement of fact and conclusion, and is a defense that it will have to prove
at the trial. At this point, the material consideration is merely what the complaint expressly
alleged. Hypothetically assuming DOLEs allegations of ultimate sale to Oribanex, through the
spouses Abujos, to be true, we hold following the test of sufficiency in Jordana that DOLEs
prayer for specific performance and damages may be validly granted; hence, a cause of action
exists.
The filing of the complaint is not
premature since arbitration
proceedings are not necessary in the
present case
SEARBEMCO argues that DOLE failed to comply with a condition precedent before the filing
of its complaint with the RTC, i.e.,DOLE did not attempt to settle their controversy through
arbitration proceedings. SEARBEMCO relies on Article V, Section 30(g) of DAR AO No. 9-
98[36] and Section 10 of DAR AO No. 2-99[37] which provide that as a rule, voluntary methods
such as mediation or conciliation, shall be preferred in resolving disputes involving joint
economic enterprises. SEARBEMCO also cites Section IX of the BPPA which provides that all
disputes arising out of or in connection with their agreement shall be finally settled through
arbitration.
Following our conclusion that agrarian laws find no application in the present case, we find as
the CA did that SEARBEMCOs arguments anchored on these laws are completely
baseless. Furthermore, the cited DAR AO No. 2-99, on its face, only mentions a preference,
not a strict requirement of referral to arbitration. The BPPA-based argument deserves more
and closer consideration.
We agree with the CA ruling that the BPPA arbitration clause does not apply to the
present case since third parties are involved. Any judgment or ruling to be rendered by the
panel of arbitrators will be useless if third parties are included in the case, since the arbitral
ruling will not bind them; they are not parties to the arbitration agreement. In the present case,
DOLE included as parties the spouses Abujos and Oribanex since they are necessary
parties, i.e., they were directly involved in the BPPA violation DOLE alleged, and their
participation are indispensable for a complete resolution of the dispute. To require the spouses
Abujos and Oribanex to submit themselves to arbitration and to abide by whatever judgment
or ruling the panel of arbitrators shall make is legally untenable; no law and no agreement made
with their participation can compel them to submit to arbitration.
In support of its position, SEARBEMCO cites the case of Toyota Motor Philippines Corp. v.
Court of Appeals[38] which holds that, the contention that the arbitration clause has become
dysfunctional because of the presence of third parties is untenable. Contracts are respected
as the law between the contracting parties. As such, the parties are thereby expected to abide
with good faith in their contractual commitments. SEARBEMCO argues that the presence of
third parties in the complaint does not affect the validity of the provisions on arbitration.
Unfortunately, the ruling in the Toyota case has been superseded by the more recent cases
of Heirs of Augusto L. Salas, Jr. v. Laperal Realty Corporation[39] and Del Monte Corporation-
USA v. Court of Appeals.[40]
Heirs of Salas involved the same issue now before us: whether or not the complaint of
petitioners-heirs in that case should be dismissed for their failure to submit the matter to
arbitration before filing their complaint. The petitioners-heirs included as respondents third
persons who were not parties to the original agreement between the petitioners-heirs and
respondent Laperal Realty. In ruling that prior resort to arbitration is not necessary, this Court
held:
The object of arbitration is to allow the expeditious determination of a
dispute. Clearly, the issue before us could not be speedily and efficiently
resolved in its entirety if we allow simultaneous arbitration proceedings
and trial, or suspension of trial pending arbitration. Accordingly, the
interest of justice would only be served if the trial court hears and
adjudicates the case in a single and complete proceeding.[42]

Respondent Laperal Realty, as a contracting party to the Agreement, Following these precedents, the CA was therefore correct in its conclusion that the parties
has the right to compel petitioners to first arbitrate before seeking judicial relief.
However, to split the proceedings into arbitration for respondent Laperal Realty agreement to refer their dispute to arbitration applies only where the parties to the BPPA
and trial for the respondent lot buyers, or to hold trial in abeyance pending are solely the disputing parties.
arbitration between petitioners and respondent Laperal Realty, would in effect
result in multiplicity of suits, duplicitous procedure and unnecessary delay. On
the other hand, it would be in the interest of justice if the trial court hears the Additionally, the inclusion of third parties in the complaint supports our declaration that
complaint against all herein respondents and adjudicates petitioners rights as
the present case does not fall under DARABs jurisdiction. DARABs quasi-judicial powers under
against theirs in a single and complete proceeding.[41]
Section 50 of RA No. 6657 may be invoked only when there is prior certification from
the Barangay Agrarian Reform Committee (or BARC) that the dispute has been submitted to it
The case of Del Monte is more direct in stating that the doctrine held in the Toyota case has
for mediation and conciliation, without any success of settlement.[43] Since the present dispute
already been abandoned:
need not be referred to arbitration (including mediation or conciliation) because of the inclusion
The Agreement between petitioner DMC-USA and private of third parties, neither SEARBEMCO nor DOLE will be able to present the requisite BARC
respondent MMI is a contract. The provision to submit to arbitration any
dispute arising therefrom and the relationship of the parties is part of that certification that is necessary to invoke DARABs jurisdiction; hence, there will be no compliance
contract and is itself a contract. As a rule, contracts are respected as the with Section 53 of RA No. 6657.
law between the contracting parties and produce effect as between them,
their assigns and heirs. Clearly, only parties to the Agreement, i.e.,
petitioners DMC-USA and its Managing Director for Export Sales WHEREFORE, premises considered, we hereby DENY the petition for certiorari for lack of
Paul E. Derby, and private respondents MMI and its Managing
merit. The Regional Trial Court, Branch 34, Panabo City, is hereby directed to proceed with the
Director Lily Sy are bound by the Agreement and its arbitration
clause as they are the only signatories thereto. Petitioners Daniel case in accordance with this Decision. Costs against petitioner SEARBEMCO.
Collins and Luis Hidalgo, and private respondent SFI, not parties to the
Agreement and cannot even be considered assigns or heirs of the parties,
are not bound by the Agreement and the arbitration clause therein. SO ORDERED.
Consequently, referral to arbitration in the State of California pursuant to
the arbitration clause and the suspension of the proceedings in Civil Case
No. 2637-MN pending the return of the arbitral award could be called
for but only as to petitioners DMC-USA and Paul E. Derby, Jr., and private
respondents MMI and Lily Sy, and not as to other parties in this case, in
accordance with the recent case ofHeirs of Augusto L. Salas, Jr. v. Laperal
Realty Corporation, which superseded that of [sic] Toyota Motor
Philippines Corp. v. Court of Appeals.

xxxx
 THIRD DIVISION

Veneranda is the wife of the late Dionisio Paler, Sr.[3] who is the registered owner of a parcel
PEOPLE OF THE PHILIPPINES, G.R. No. 178266
Petitioner, of irrigated riceland, containing an area of more than four (4) hectares, situated
Present:
in Barangay Mabini (Roxas), Mainit, Surigao del Norte, and covered by Original Certificate of
QUISUMBING, J.,* Title (OCT) No. 5747.[4] One (1) hectare of this riceland (subject property) was cultivated by the
YNARES-SANTIAGO,
- versus - Chairperson, respondents as agricultural tenants for more than ten (10) years, with an agreed lease rental
AUSTRIA-MARTINEZ,
NACHURA, and of twelve and one half (12) cavans of palay, at 45 kilos per cavan, per harvest. The respondents
REYES, JJ.
allegedly failed to pay the rentals since 1997. Initially, Veneranda brought the matter before the
SAMUEL and LORETA VANZUELA, Promulgated:
Respondents. July 21, 2008 Department of Agrarian Reform (DAR) Office in Mainit, Surigao del Norte, but no amicable

settlement was reached by the parties. Thus, Veneranda filed a criminal complaint for estafa

against the respondents.

x------------------------------------------------------------------------------------x Consequently, respondents were charged in an Information [5] dated February 28, 2002 which

reads:

DECISION That in about and during the period from 1997 to 2001 in Brgy. Roxas, Mainit,
Surigao del Norte, Philippines and within the jurisdiction of this Honorable
NACHURA, J.: Court, said spouses Samuel and Loreta Vanzuela, conspiring, confederating
and mutually helping one another, having leased and occupied the farmland
of Veneranda S. Paler and other heirs of the late Dionesio Paler, Sr., and
Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Civil having harvested and accounted for a total of 400 sacks of palay for the past
10 harvest seasons of which 25% thereof were hold (sic) in trust by them or a
Procedure. The petitioner People of the Philippines (petitioner) seeks the reversal of the total value ofP80,000.00, did then and there willfully, unlawfully and feloniously
misappropriate, misapply and convert said sum of P80,000.00 to their own use
Order[2] dated May 18, 2007, issued by the Regional Trial Court (RTC), Branch 30 of Surigao
and benefit to the damage and prejudice of said Veneranda Paler and other
City, which dismissed for lack of jurisdiction over the subject matter the criminal case for estafa heirs of the late Dionesio Paler, Sr. in the aforementioned sum of P80,000.00.
filed by private complainant Veneranda S. Paler (Veneranda) against respondents Samuel Contrary to law.
Vanzuela (Samuel) and his wife, Loreta Vanzuela (Loreta) (respondents). The case ostensibly
Upon arraignment, respondents pleaded not guilty. During pre-trial, the parties agreed
involves an agrarian dispute, hence, according to the RTC, within the exclusive original
that the respondents had been the agricultural tenants of Veneranda for more than ten (10)
jurisdiction of the Department of Agrarian Reform Adjudication Board (DARAB).
years; and that the palay was harvested twice a year on the subject property. Thereafter, trial
The antecedents are as follows:
on the merits ensued. After the prosecution rested its case, the respondents filed a Demurrer
 CONSTITUTION, SPECIFICALLY THE EQUAL PROTECTION
to Evidence,[6] praying that the criminal case be dismissed for failure of the petitioner to CLAUSE.[11]
establish the culpability of the respondents beyond reasonable doubt. Petitioner filed a
Petitioner, on one hand, contends that, under Section 57 of Republic Act (RA) 6657, otherwise
Comment/Opposition[7] arguing that the respondents, as agricultural tenants, were required by
known as the Comprehensive Agrarian Reform Law (CARL), Special Agrarian Courts (SACs)
law to hold the lease rentals in trust for the landowner and thereafter turn over the same to the
were vested with limited criminal jurisdiction, i.e., with respect only to the prosecution of all
latter.
criminal offenses under the said Act; that the only penal provision in RA 6657 is Section 73
In an Order[8] dated May 18, 2007, the RTC dismissed the criminal case ratiocinating, thus: thereof in relation to Section 74, which does not cover estafa; that no agrarian reform law

From the averments of the information, the admissions of the parties and the confers criminal jurisdiction upon the DARAB, as only civil and administrative aspects in the
evidence adduced by the prosecution, it is easily discernable (sic) that the
instant case pertains to the non-payment of rentals by the accused to the implementation of the agrarian reform law have been vested in the DAR; that necessarily, a
private complainant, involving a lease of an agricultural land by the former from
the latter. This being so, the controversy in the case at bench involves an criminal case for estafa instituted against an agricultural tenant is within the jurisdiction and
agrarian dispute which falls under the primary and exclusive original
competence of regular courts of justice as the same is provided for by law; that the cases relied
jurisdiction of the Department of Agrarian Reform Adjudication Board
(DARAB), pursuant to Section 1, Rule II of the DARAB New Rules of upon by the RTC do not find application in this case since the same were concerned only with
Procedure, x x x.
the civil and administrative aspects of agrarian reform implementation; that there is no law

which provides that agricultural tenants cannot be prosecuted for estafa after they have
Citing our ruling in David v. Rivera[9] and Philippine Veterans Bank v. Court of Appeals,[10] the misappropriated the lease rentals due the landowners; and that to insulate agricultural tenants
RTC opined that it had no jurisdiction over the subject matter of the case because the from criminal prosecution for estafa would, in effect, make them a class by themselves, which
controversy had the character of an agrarian dispute. The trial court did not find it necessary to cannot be validly done because there is no law allowing such classification. Petitioner submits
rule on the respondents Demurrer to Evidence and, in fact, no mention of it was made that there is no substantial distinction between an agricultural tenant who incurs criminal liability

for estafa for misappropriating the lease rentals due his landowner, and a non-agricultural
in the assailed Order of May 18, 2007. Hence, this petition raising the following issues: tenant who likewise incurs criminal liability for misappropriation.[12]

1. WHETHER OR NOT THE HONORABLE REGIONAL TRIAL COURT

BRANCH 30, SURIGAO CITY HAS JURISDICTION OVER THE CHARGE Finally, petitioner posits that, at this point, it is premature to discuss the merits of the case
FOR ESTAFA EVEN IF IT INVOLVES AGRICULTURAL TENANTS OF
THE PRIVATE COMPLAINANT; [AND] because the RTC has yet to receive in full the evidence of both parties before it can render a

2. WHETHER OR NOT THE SEEMING EXEMPTION FROM CRIMINAL decision on the merits. Petitioner also claims that it is pointless to delve into the merits of the
PROSECUTION OF AGRICULTURAL TENANTS FOR ESTAFA WOULD
CONTRAVENE THE PROVISIONS OF SECTION 1, ARTICLE III OF THE case at this stage, since the sole basis of the assailed RTC Order is simply lack of

jurisdiction.[13]
 Respondents, on the other hand, argue that share tenancy is now automatically
converted into leasehold tenancy wherein one of the obligations of an agricultural tenant is
merely to pay rentals, not to deliver the landowner's share; thus, petitioner's allegation that
respondents misappropriated the landowner's share of the harvest is not tenable because
share tenancy has already been abolished by law for being contrary to public policy.
Accordingly, respondents contend that the agricultural tenant's failure to pay his lease rentals
does not give rise to criminal liability for estafa. Respondents stand by the ruling of the RTC
that pursuant to Section 1, Rule II of the DARAB New Rules of Procedure, the DARAB has
jurisdiction over agrarian disputes; and that respondents did not commit estafa for their alleged
failure to pay their lease rentals. Respondents submit that a simple case for ejectment and
collection of unpaid lease rentals, instead of a criminal case, should have been filed with the
DARAB. Respondents also submit that, assuming arguendo that they failed to pay their lease
rentals, they cannot be held liable for Estafa, as defined under Article 315, paragraph 4, No.
1(b) of the Revised Penal Code, because the liability of an agricultural tenant is a mere
monetary civil obligation; and that an agricultural tenant who fails to pay the landowner
becomes merely a debtor, and, thus, cannot be held criminally liable for estafa. [14]
Ostensibly, the main issue we must resolve is whether the RTC has jurisdiction over
the crime of estafa, because the assailed order is premised on the RTCs lack of jurisdiction
over the subject matter. However, should our resolution be in the affirmative, the more crucial
issue is whether an agricultural tenant, who fails to pay the rentals on the land tilled, can be
successfully prosecuted for estafa.
For the guidance of the bench and bar, we find it appropriate to reiterate the doctrines
laid down by this Court relative to the respective jurisdictions of the RTC and the DARAB.
The three important requisites in order that a court may acquire criminal jurisdiction are (1) the
court must have jurisdiction over the subject matter; (2) the court must have jurisdiction over
the territory where the offense was committed; and (3) the court must have jurisdiction over the
person of the accused.[15]
First. It is a well-entrenched doctrine that the jurisdiction of a tribunal over the subject matter of
an action is conferred by law. It is determined by the material allegations of the complaint or
information and the law at the time the action was commenced. Lack of jurisdiction of the
court over an action or the subject matter of an action, cannot be cured by the silence,
acquiescence, or even by express consent of the parties. Thus, the jurisdiction of the court
over the nature of the action and the subject matter thereof cannot be made to depend upon
the defenses set up in the court or upon a motion to dismiss; otherwise, the question of
jurisdiction would depend almost entirely on the defendant. Once jurisdiction is vested, the
same is retained up to the end of the litigation.[16]
In the instant case, the RTC has jurisdiction over the subject matter because the law
confers on it the power to hear and decide cases involving estafa. In Arnado v. Buban,[17] we
held that:
Under Article 315 of the Revised Penal Code, "the penalty of prision
correccional in its maximum period to prision mayor in its minimum period
shall be imposed if the amount of the fraud is over P12,000.00 but does not
exceed P22,000.00; and if such amount exceeds the latter sum, the penalty
provided x x x shall be imposed in its maximum period, adding one (1) year for
its additional P10,000.00 x x x."Prision mayor in its minimum period, ranges
from six (6) years and one (1) day to eight (8) years. Under the law, the
jurisdiction of municipal trial courts is confined to offenses punishable by
imprisonment not exceeding six (6) years, irrespective of the amount of the
fine.
 Hence, jurisdiction over the criminal cases against the [respondents]
pertains to the regional trial court. x x x
The allegations in the Information are clear -- Criminal Case No. 6087 involves alleged
misappropriation of the amount ofP80,000.00.
Second. The RTC also has jurisdiction over the offense charged since the crime was
committed within its territorial jurisdiction.
Third. The RTC likewise acquired jurisdiction over the persons of the respondents because
they voluntarily submitted to the RTC's authority. Where the court has jurisdiction over the
subject matter and over the person of the accused, and the crime was committed within its
territorial jurisdiction, the court necessarily exercises jurisdiction over all issues that the law
requires the court to resolve.[18]
Thus, based on the law and material allegations of the information filed, the RTC erroneously
concluded that it lacks jurisdiction over the subject matter on the premise that the case before
it is purely an agrarian dispute. The cases relied upon by the RTC, namely, David v.
Rivera[19] and Philippine Veterans Bank v. Court of Appeals,[20] are of different factual
settings. They hinged on the subject matter of Ejectment and Annulment of Certificate of Land
Ownership Awards (CLOAs), respectively. It is true that inMachete v. Court of Appeals[21] this
Court held that RTCs have no jurisdiction over cases for collection of back rentals filed against
agricultural tenants by their landowners. In that case, however, what the landowner filed before
the RTC was a collection suit against his alleged tenants. These three cases show that trial
courts were declared to have no jurisdiction over civil cases which were initially filed with them
but were later on characterized as agrarian disputes and thus, within DARAB's jurisdiction. No
such declaration has been made by this Court with respect to criminal cases.
Instead, we have Monsanto v. Zerna,[22] where we upheld the RTCs jurisdiction to try the private
respondents, who claimed to be tenants, for the crime of qualified theft. However, we stressed
therein that the trial court cannot adjudge civil matters that are beyond its
competence. Accordingly, the RTC had to confine itself to the determination of whether private
respondents were guilty of the crime. Thus, while a court may have authority to pass upon the
criminal liability of the accused, it cannot make any civil awards that relate to the agrarian
relationship of the parties because this matter is beyond its jurisdiction and, correlatively, within
DARAB's exclusive domain.
In the instant case, the RTC failed to consider that what is lodged before it is a criminal case
for estafa involving an alleged misappropriated amount of P80,000.00 -- a subject matter over
which the RTC clearly has jurisdiction. Notably, while the RTC has criminal jurisdiction
conferred on it by law, the DARAB, on the other hand, has no authority to try criminal cases at
all. In Bautista v. Mag-isa Vda. de Villena,[23] we outlined the jurisdiction of the DARAB, to wit:
For agrarian reform cases, jurisdiction is vested in the Department of Agrarian
Reform (DAR); more specifically, in the Department of Agrarian Reform
Adjudication Board (DARAB).
Executive Order 229 vested the DAR with (1) quasi-judicial powers to
determine and adjudicate agrarian reform matters; and (2) jurisdiction over all
matters involving the implementation of agrarian reform, except those falling
under the exclusive original jurisdiction of the Department of Agriculture and
the Department of Environment and Natural Resources. This law divested the
regional trial courts of their general jurisdiction to try agrarian reform matters.
Under Republic Act 6657, the DAR retains jurisdiction over all agrarian reform
matters. The pertinent provision reads:
 Section 50. Quasi-Judicial Powers of the DAR. The
DAR is hereby vested with the primary jurisdiction to
determine and adjudicate agrarian reform matters and shall
have exclusive original jurisdiction over all matters involving
the implementation of agrarian reform, except those falling
under the exclusive jurisdiction of the Department of
Agriculture and the Department of Environment and Natural
Resources.
It shall not be bound by technical rules of procedure
and evidence but shall proceed to hear and decide all cases,
disputes or controversies in a most expeditious manner,
employing all reasonable means to ascertain the facts of
every case in accordance with justice and equity and the
merits of the case. Toward this end, it shall adopt a uniform
rule of procedure to achieve a just, expeditious and
inexpensive determination of every action or proceeding
before it.
xxxxxxxxx
Subsequently, in the process of reorganizing and strengthening the DAR, Executive Order No.
129-A[24] was issued; it created the DARAB to assume the adjudicatory powers and functions
of the DAR. Pertinent provisions of Rule II of the DARAB 2003 Rules of Procedure read:
SECTION 1. Primary and Exclusive Original Jurisdiction. The Adjudicator shall
have primary and exclusive original jurisdiction to determine and adjudicate
the following cases:
1.1. The rights and obligations of persons, whether natural or
juridical, engaged in the management, cultivation, and use of
all agricultural lands covered by Republic Act (RA) No. 6657,
otherwise known as the Comprehensive Agrarian Reform
Law (CARL), and other related agrarian laws;
xxxxxxxxx
1.4. Those cases involving the ejectment and dispossession
of tenants and/or leaseholders;
x x x x x x x x x.
Section 3(d) of RA 6657, or the CARL, defines an agrarian dispute over which the DARAB has
exclusive original jurisdiction as:
(d) . . . refer[ing] 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
including
any controversy relating to compensation of lands acquired under this Act and
other 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.[25]
Clearly, the law and the DARAB Rules are deafeningly silent on the conferment of any criminal
jurisdiction in favor of the DARAB. It is worth stressing that even the jurisdiction over the
prosecution of criminal offenses in violation of RA 6657 per se is lodged with the SACs and not
with the DARAB.[26] While indeed, the parties admit that there is an agricultural tenancy
relationship in this case, and that under the circumstances, Veneranda as landowner could
have simply filed a case before the DARAB for collection of lease rentals and/or dispossession
of respondents as tenants due to their failure to pay said lease rentals, there is no law which
prohibits landowners from instituting a criminal case for estafa, as defined and penalized under
Article 315 of the Revised Penal Code, against their tenants. Succinctly put, though the matter
before us apparently presents an agrarian dispute, the RTC cannot shirk from its duty to
adjudicate on the merits a criminal case initially filed before it, based on the law and evidence
presented, in order to determine whether an accused is guilty beyond reasonable doubt of the
crime charged.
However, we must reiterate our ruling in Re: Conviction of Judge Adoracion G. Angeles,[27] that From the facts alleged, it is clear that the accused received from the sale of

while we do not begrudge a party's prerogative to initiate a case against those who, in his the abaca harvested by them a sum of money which did not all belong to

opinion, may have wronged him, we now remind landowners that such prerogative of instituting them because one-half of it corresponds to the landlord's share of the

a criminal case against their tenants, on matters related to an agrarian dispute, must be abaca under the tenancy agreement. This half the accused were under

exercised with prudence, when there are clearly lawful grounds, and only in the pursuit of truth obligation to deliver to the landlord. They therefore held it in trust for

and justice. him. But instead of turning it over to him, they appropriated it to their own use

and refused to give it to him notwithstanding repeated demands. In other

Thus, even as we uphold the jurisdiction of the RTC over the subject matter of the instant words, the accused are charged with having committed fraud by

criminal case, we still deny the petition. misappropriating or converting to the prejudice of another money received by

them in trust or under circumstances which made it their duty to deliver it to its

Herein respondents were charged with the crime of estafa as defined under Article 315, owner. Obviously, this is a form of fraud specially covered by the penal

paragraph 4, No. 1(b) of the Revised Penal Code, which refers to fraud committed provision above cited.

By misappropriating or converting, to the prejudice of another, money, goods, In Embuscado v. People,[31] the accused appealed to this Court his conviction for the crime of

or any other personal property received by the offender in trust or on theft by the Court of First Instance even as the information charged him with Estafa and of

commission, or for administration, or under any other obligation involving the which he was convicted by the City Court. This Court ruled that the accused was denied due

duty to make delivery of or to return the same, even though such obligation be process when the Court of First Instance convicted him of a crime not charged in the

totally or partially guaranteed by a bond; or by denying having received such information, and then reinstated with modification the ruling of the City Court convicting him of

money, goods, or other property. estafa.

Unfortunately for the petitioner, these cited cases are inapplicable. People v.

We viewed the cases invoked by the petitioner, namely, People v. Carulasdulasan and Carulasdulasan and Becare[32] involved a relationship of agricultural share tenancy between

Becarel[28] and Embuscado v. People[29]where this Court affirmed the conviction for estafa of the landowner and the accused. In such relationship, it was incumbent upon the tenant to hold

the accused therein who were also agricultural tenants. In People v. Carulasdulasan and in trust and, eventually, account for the share in the harvest appertaining to the landowner,

Becarel,[30] this Court held that - failing which the tenant could be held liable for misappropriation. As correctly pointed out by

the respondents, share tenancy has been outlawed for being contrary to public policy as early
as 1963, with the passage of R.A. 3844.[33] What prevails today, under R.A. 6657, is agricultural trial court for further proceedings, as it would only further delay the resolution of this case. We

leasehold tenancy relationship, and all instances of share tenancy have been automatically have opted to rule on the merits of the parties contentions, and hereby declare that respondents

converted into leasehold tenancy. In such a relationship, the tenants obligation is simply to pay cannot be held liable for estafa for their failure to pay the rental on the agricultural land subject

rentals, not to deliver the landowners share. Given this dispensation, the petitioners allegation of the leasehold.

that the respondents misappropriated the landowners share of the

harvest as contained in the information is untenable. Accordingly, the respondents cannot be WHEREFORE, the petition is DENIED. No costs.

held liable under Article 315, paragraph 4, No. 1(b) of the Revised Penal Code.
SO ORDERED.

It is also worth mentioning that in Embuscado v. People,[34] this Court merely dwelt on the issue

of whether the accused charged with estafa could be convicted of the crime of theft. Issues of

tenancy vis-a-vis issues of criminal liability of tenants were not addressed. Thus, the dissenting

opinion of then Justice Teodoro R. Padilla in the said case is worth mentioning when he opined

that:

It is also my opinion that the petitioner cannot be found guilty of estafa because

the mangoes allegedly misappropriated by him were not given to him in trust

or on commission, or for administration, or under any obligation involving the

duty to make delivery of, or to return the same, as provided for in Art. 315, par.

4, No. 1(b) of the Revised Penal Code. What was entrusted to him for

cultivation was a landholding planted with coconut and mango trees and the

mangoes, allegedly misappropriated by him, were the fruits of the trees planted

on the land. Consequently, the action, if any, should have been for accounting

and delivery of the landlord's share in the mangoes sold by the petitioner.[35]

In fine, we hold that the trial court erred when it dismissed the criminal case for lack of

jurisdiction over the subject matter.However, we find no necessity to remand the case to the
 THIRD DIVISION The plaintiffs claimed that they were the registered owners of a five-hectare parcel of
land in Soledad, Sta. Rosa, Nueva Ecija (subject property) under Transfer Certificate of Title

JOSE MENDOZA,* G.R. No. 165676 No. 34267. Sometime in 1988, respondent Narciso unlawfully entered the subject property by
Petitioner, means of strategy and stealth, and without their knowledge or consent. Despite the plaintiffs
Present:
CORONA, C.J.,** repeated demands, respondent Narciso refused to vacate the subject property.[7]
CARPIO MORALES, Chairperson,
BRION,
- versus - VILLARAMA, JR., and On August 9, 1988, respondent Narciso filed his answer, claiming, among others, that
SERENO, JJ.
his brother, respondent Benigno Germino, was the plaintiffs agricultural lessee and he merely
helped the latter in the cultivation as a member of the immediate farm household. [8]
Promulgated:
NARCISO GERMINO and BENIGNO November 22, 2010
GERMINO, After several postponements, the plaintiffs filed a motion to remand the case to the
Respondents.
x-----------------------------------------------------------------------------------------x Department of Agrarian Reform Adjudication Board (DARAB), in view of the tenancy issue
raised by respondent Narciso.

DECISION
Without conducting a hearing, and despite respondent Narcisos objection, the MTC
BRION, J.: issued an order on October 27, 1995, remanding the case to the DARAB, Cabanatuan City for
further proceedings.[9]
Before us is the petition for review on certiorari[1] filed by petitioner Jose Mendoza to On December 14, 1995, the plaintiffs[10] filed an amended complaint with the Provincial
challenge the decision[2] and the resolution[3] of the Court of Appeals (CA) in CA-G.R. SP No. Agrarian Reform Adjudicator (PARAD), impleading respondent Benigno as additional
48642.[4] defendant.

The plaintiffs alleged that Efren Bernardo was the agricultural lessee of the subject
FACTUAL BACKGROUND property. Respondent Benigno unlawfully entered the subject property in 1982 or 1983 through
strategy and stealth, and without their knowledge or consent. He withheld possession of the
The facts of the case, gathered from the records, are briefly summarized below. subject property up to 1987, and appropriated for himself its produce, despite repeated
demands from the plaintiffs for the return of the property. In 1987, they discovered that
On June 27, 1988, the petitioner and Aurora C. Mendoza[5] (plaintiffs) filed a complaint respondent Benigno had transferred possession of the subject property to respondent Narciso,
with the Municipal Trial Court (MTC) of Sta. Rosa, Nueva Ecija against respondent Narciso who refused to return the possession of the subject property to the plaintiffs and appropriated
Germino for forcible entry.[6] the lands produce for himself. The subject property was fully irrigated and was capable of
harvest for 2 cropping seasons. Since the subject property could produce 100 cavans of palay
per hectare for each cropping season, or a total of 500 cavans per cropping season for the five-
hectare land, the plaintiffs alleged that the respondents were able to harvest a total of 13,000
cavans of palay from the time they unlawfully withheld possession of the subject property in
1982 until the plaintiffs filed the complaint. Thus, they prayed that the respondents be ordered
to jointly and severally pay 13,000 cavans of palay, or its monetary equivalent, as actual
damages, to return possession of the subject property, and to pay P15,000.00 as attorneys
fees.[11]
On January 9, 1996, the respondents filed their answer denying the allegations in the
complaint, claiming, among others, that the plaintiffs had no right over the subject property as
they agreed to sell it to respondent Benigno for P87,000.00. As a matter of fact, respondent
Benigno had already made a P50,000.00 partial payment, but the plaintiffs refused to receive
the balance and execute the deed of conveyance, despite repeated demands. The
respondents also asserted that jurisdiction over the complaint lies with the Regional Trial Court
since ownership and possession are the issues.[12]
THE PARAD RULING
In a March 19, 1996 decision, PARAD Romeo Bello found that the respondents were
mere usurpers of the subject property, noting that they failed to prove that respondent Benigno
was the plaintiffs bona fide agricultural lessee. The PARAD ordered the respondents to vacate
the subject property, and pay the plaintiffs 500 cavans of palay as actual damages. [13]
Not satisfied, the respondents filed a notice of appeal with the DARAB, arguing that
the case should have been dismissed because the MTCs referral to the DARAB was void with
the enactment of Republic Act (R.A.) No. 6657,[14] which repealed the rule on referral under
Presidential Decree (P.D.) No. 316.[15]
THE DARAB RULING
The DARAB decided the appeal on July 22, 1998. It held that it acquired jurisdiction
because of the amended complaint that sufficiently alleged an agrarian dispute, not the MTCs
referral of the case. Thus, it affirmed the PARAD decision.[16]
The respondents elevated the case to the CA via a petition for review under Rule 43
of the Rules of Court.[17]
THE CA RULING
The CA decided the appeal on October 6, 2003.[18] It found that the MTC erred in
transferring the case to the DARAB since the material allegations of the complaint and the relief
sought show a case for forcible entry, not an agrarian dispute. It noted that the subsequent
filing of the amended complaint did not confer jurisdiction upon the DARAB. Thus, the CA set
aside the DARAB decision and remanded the case to the MTC for further proceedings.
When the CA denied[19] the subsequent motion for reconsideration,[20] the petitioner
filed the present petition.[21]
THE PETITION
The petitioner insists that the jurisdiction lies with the DARAB since the nature of the
action and the allegations of the complaint show an agrarian dispute.
THE CASE FOR THE RESPONDENTS
The respondents submit that R.A. No. 6657 abrogated the rule on referral previously
provided in P.D. No. 316. Moreover, neither the Rules of Court nor the Revised Rules on
Summary Procedure (RRSP) provides that forcible entry cases can be referred to the DARAB.
 THE ISSUE
The core issue is whether the MTC or the DARAB has jurisdiction over the case.
OUR RULING
We deny the petition.
Jurisdiction is determined by the allegations in the complaint
It is a basic rule that jurisdiction over the subject matter is determined by the allegations
in the complaint.[22] It is determined exclusively by the Constitution and the law. It cannot be
conferred by the voluntary act or agreement of the parties, or acquired through or waived,
enlarged or diminished by their act or omission, nor conferred by the acquiescence of the court.
Well to emphasize, it is neither for the court nor the parties to violate or disregard the rule, this
matter being legislative in character.[23]
Under Batas Pambansa Blg. 129,[24] as amended by R.A. No. 7691,[25] the MTC shall
have exclusive original jurisdiction over cases of forcible entry and unlawful detainer. The
RRSP[26] governs the remedial aspects of these suits.[27]
Under Section 50[28] of R.A. No. 6657, as well as Section 34[29] of Executive Order No.
129-A,[30] the DARAB has primary and exclusive jurisdiction, both original and appellate, to
determine and adjudicate all agrarian disputes involving the implementation of the
Comprehensive Agrarian Reform Program, and other agrarian laws and their implementing
rules and regulations.
An agrarian dispute refers to any controversy relating to, among others, tenancy over
lands devoted to agriculture.[31] For a case to involve an agrarian dispute, the following
essential requisites of an agricultural tenancy relationship must be present: (1) the parties are
the landowner and the tenant; (2) the subject is agricultural land; (3) there is consent; (4) the
purpose is agricultural production; (5) there is personal cultivation; and (6) there is sharing of
harvest or payment of rental.[32]
In the present case, the petitioner, as one of the plaintiffs in the MTC, made the
following allegations and prayer in the complaint:
3. Plaintiffs are the registered owners of a parcel of land covered by
and described in Transfer Certificate of Title Numbered 34267, with an area of
five (5) hectares, more or less situated at Bo. Soledad, Sta. Rosa, Nueva Ecija.
x x x;
4. That so defendant thru stealth, strategy and without the knowledge,
or consent of administrator x x x much more of the herein plaintiffs, unlawfully
entered and occupied said parcel of land;
5. Inspite of x x x demands, defendant Germino, refused and up to the
filing of this complaint, still refused to vacate the same;
6. The continuos (sic) and unabated occupancy of the land by the
defendant would work and cause prejudice and irreparable damage and injury
to the plaintiffs unless a writ of preliminary injunction is issued;
7. This prejudice, damage or injury consist of disturbance of property
rights tantamount to deprivation of ownership or any of its attributes without
due process of law, a diminution of plaintiffs property rights or dominion over
the parcel of land subject of this dispute, since they are deprived of freely
entering or possessing the same;
8. The plaintiffs are entitled to the relief demanded or prayed for, and
the whole or part of such relief/s consist of immediately or permanently
RESTRAINING, ENJOINING or STOPPING the defendant or any person/s
acting in his behalf, from entering, occupying, or in any manner committing,
performing or suffering to be committed or performed for him, any act indicative
of, or tending to show any color of possession in or about the tenement,
premises or subject of this suit, such as described in par. 3 of this complaint;
9. Plaintiffs are ready and willing to post a bond answerable to any
damage/s should the issuance of the writ x x x;
10. As a consequence of defendants malevolent refusal to vacate the
premises of the land in dispute, plaintiffs incurred litigation expenses of
P1,500.00, availing for the purpose the assistance of a counsel at an agreed
honorarium of P5,000.00 and P250.00 per appearance/ not to mention the
moral damages incurred due to sleepless nights and mental anxiety, including
 exemplary damages, the award and amount of which are left to the sound
discretion of this Honorable Court. affirmative defense of the defendant, although under the RRSP, such a hearing is not a matter
of right.[38] If it is shown during the hearing or conference that, indeed, tenancy is the issue, the
PRAYER
MTC should dismiss the case for lack of jurisdiction. [39]
WHEREFORE, it is respectfully prayed of this Honorable Court that
pending the resolution of the issue in this case, a restraining order be issued
RESTRAINING, ENJOINING, or STOPPING the defendant or any person/s In the present case, instead of conducting a preliminary conference, the MTC
acting in his behalf, from ENTERING OR OCCUPYING the parcel of land, or immediately referred the case to the DARAB. This was contrary to the rules. Besides, Section
any portion thereof, described in paragraph 3 of this complaint, nor in any
manner committing, performing or suffering to be committed or, performed for 2[40] of P.D. No. 316, which required the referral of a land dispute case to the Department of
him, by himself or thru another, any act indicative of, or tending to show any
Agrarian Reform for the preliminary determination of the existence of an agricultural tenancy
color of possession in or about the premises subject of this suit;
relationship, has indeed been repealed by Section 76[41] of R.A. No. 6657 in 1988.
THEREAFTER, making said writ of preliminary injunction
PERMANENT; and on plaintiffs damages, judgment be rendered ordering the
defendant to pay to the plaintiffs the sum alleged in paragraph 10 above. Amended complaint did confer jurisdiction on the DARAB

GENERAL RELIEFS ARE LIKEWISE PRAYED FOR.[33]

Neither did the amendment of the complaint confer jurisdiction on the DARAB. The

Based on these allegations and reliefs prayed, it is clear that the action in the MTC plaintiffs alleged in the amended complaint that the subject property was previously tilled by

was for forcible entry. Efren Bernardo, and the respondents took possession by strategy and stealth, without their
knowledge and consent. In the absence of any allegation of a tenancy relationship between

Allegation of tenancy does not divest the MTC of jurisdiction the parties, the action was for recovery of possession of real property that was within the
jurisdiction of the regular courts.[42]

Although respondent Narciso averred tenancy as an affirmative and/or special defense

in his answer, this did not automatically divest the MTC of jurisdiction over the complaint. It The CA, therefore, committed no reversible error in setting aside the DARAB decision.

continued to have the authority to hear the case precisely to determine whether it had While we lament the lapse of time this forcible entry case has been pending resolution, we are

jurisdiction to dispose of the ejectment suit on its merits. [34] After all, jurisdiction is not affected not in a position to resolve the dispute between the parties since the evidence required in courts

by the pleas or the theories set up by the defendant in an answer or a motion to dismiss. is different from that of administrative agencies.[43]

Otherwise, jurisdiction would become dependent almost entirely upon the whims of the
defendant.[35] WHEREFORE, the petition is DENIED. The October 6, 2003 Decision and October 12,
2004 Resolution of the Court of Appeals in CA-G.R. SP No. 48642 are AFFIRMED. No

Under the RRSP, the MTC is duty-bound to conduct a preliminary conference[36] and, pronouncement as to costs.

if necessary, to receive evidence to determine if such tenancy relationship had, in fact, been
shown to be the real issue.[37] The MTC may even opt to conduct a hearing on the special and
SO ORDERED.
 SECOND DIVISION
G.R. No. 194818, June 09, 2014
CHARLES BUMAGAT, JULIAN BACUDIO, ROSARIO PADRE, SPOUSES ROGELIO AND
ZOSIMA PADRE, AND FELIPE DOMINCIL, Petitioner, v. REGALADO
ARRIBAY, Respondent.
DECISION
DEL CASTILLO, J.:
A case involving agricultural land does not immediately qualify it as an agrarian dispute. The
mere fact that the land is agricultural does not ipso facto make the possessor an agricultural
lessee or tenant; there are conditions or requisites before he can qualify as an agricultural
lessee or tenant, and the subject matter being agricultural land constitutes simply one
condition. In order to qualify as an agrarian dispute, there must likewise exist a tenancy
relation between the parties.
This Petition for Review on Certiorari1 seeks to set aside the February 19, 2010 Decision2 of
the Court of Appeals (CA) in CA-G.R. SP No. 101423, entitled “Regalado Arribay, Petitioner,
versus Charles Bumagat, Julian Bacudio, Rosario Padre, Spouses Rogelio and Zosima
Padre, and Felipe Domincil,” as well as its November 9, 2010 Resolution3 denying
reconsideration of the assailed judgment.
Factual Antecedents
Petitioners are the registered owners, successors-in-interest, or possessors of agricultural
land, consisting of about eight hectares, located in Bubog, Sto. Tomas, Isabela Province, to
wit:ChanRoblesVirtualawlibrary
1. Charles Bumagat (Bumagat) – 14,585 square meters covered by Transfer Certificate of
Title No. (TCT) 014557;4cralawred
2. Julian Bacudio (Bacudio) – 14,797 square meters covered by TCT 014556;5cralawred
3. Rosario Padre – 14,974 square meters covered by TCT 0145546 in the name of Dionicio
Padre;7cralawred
4. Spouses Rogelio and Zosima Padre – 6,578 square meters covered by TCT 0145618in the
name of Ireneo Padre;9cralawred
5. Spouses Rogelio and Zosima Padre – 6,832 square meters covered by TCT 014560 in the
name of their predecessor-in-interest Felix Pacis;10cralawred
6. Felipe Domincil – 14,667 square meters covered by TCT 014558;11 and
7. Felipe Domincil – 7,319 square meters.12
The certificates of title to the above titled properties were issued in 1986 pursuant to
emancipation patents.13cralawred
On July 19, 2005, petitioners filed a Complaint14 for forcible entry against respondent before
the 2nd Municipal Circuit Trial Court (MCTC) of Cabagan-Delfin Albano, Isabela. The case
was docketed as Special Civil Action No. 475 (SCA 475). In an Amended
Complaint,15 petitioners alleged that on May 9, 2005, respondent – with the aid of armed
goons, and through the use of intimidation and threats of physical harm – entered the above-
described parcels of land and ousted them from their lawful possession; that respondent then
took over the physical possession and cultivation of these parcels of land; and that petitioners
incurred losses and injuries by way of lost harvests and other damages. Petitioners thus
prayed for injunctive relief, actual damages in the amount of not less than P40,000.00 for
each cropping season lost, P30,000.00 attorney’s fees, and costs.
Respondent filed a Motion to Dismiss,16 claiming that the subject properties are agricultural
lands – which thus renders the dispute an agrarian matter and subject to the exclusive
jurisdiction of the Department of Agrarian Reform Adjudication Board (DARAB). However, in
a January 30, 2006 Order,17 the MCTC denied the motion, finding that the pleadings failed to
show the existence of a tenancy or agrarian relationship between the parties that would bring
their dispute within the jurisdiction of the DARAB. Respondent’s motion for reconsideration
was similarly rebuffed.18cralawred
Respondent filed his Amended Answer with Counterclaim,19 alleging among others that
petitioners’ titles have been ordered cancelled in a December 1, 2001 Resolution20 issued by
the Department of Agrarian Reform, Region 2 in Administrative Case No. A0200 0028 94;
that he is the absolute owner of approximately 3.5 hectares of the subject parcels of land,
and is the administrator and overseer of the remaining portion thereof, which belongs to his
principals Leonardo and Evangeline Taggueg (the Tagguegs); that petitioners abandoned the
subject properties in 1993, and he planted the same with corn; that in 2004, he planted the
land to rice; that he sued petitioners before the Municipal Agrarian Reform Office (MARO) for
non-payment of rentals since 1995; and that the court has no jurisdiction over the ejectment
case, which is an agrarian controversy.
The parties submitted their respective Position Papers and other evidence.21cralawred
During the proceedings before the MCTC, respondent presented certificates of title,
supposedly issued in his name and in the name of the Tagguegs in 2001, which came as a
result of the supposed directive in Administrative Case No. A0200 0028 94 to cancel
petitioners’ titles. As claimed by respondent, the subject parcels of land formed part of a
23.663-hectare property owned by one Romulo Taggueg, Sr. (Romulo Sr.) and covered by
Original Certificate of Title No. (OCT) P-4835, which was placed under the Operation Land
Transfer Program pursuant to Presidential Decree No. 2722 (PD 27). Petitioners supposedly
became farmer-beneficiaries under the program, and the parcels of land were awarded to
them. Meanwhile, Romulo Sr. died and his heirs instituted Administrative Case No. A0200
0028 94 to cancel petitioners’ titles. The heirs won the case, and later on new titles over the
property were issued in their favor. In turn, one of the heirs transferred his title in favor of
respondent.
Ruling of the Municipal Circuit Trial Court
On April 12, 2007, a Decision23 was rendered by the MCTC in SCA 475, the dispositive
portion of which reads:ChanRoblesVirtualawlibrary
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendant as follows:
1. Ordering the defendant or any person or persons acting in his behalf to vacate the entire
SEVENTY NINE THOUSAND SEVEN HUNDRED FIFTY TWO (79,752)[-]SQUARE
METERS, property described under paragraph 2 of the amended complaint and to
peacefully surrender the physical possession thereof in favor of each of the plaintiffs;
2. Ordering the defendant to pay each of the plaintiffs representing actual damages as
follows:ChanRoblesVirtualawlibrary
o Charles Bumagat …………………...P109,390.00
o Julian Bacudio ……………………...P110,980.00
o Rosario Padre ………………………P112,305.00
o Sps. Rogelio and Zosima Padre …….P100,575.00
o Felipe Domincil ……………………P165,429.00
3. Ordering the defendant to pay plaintiffs representing the Attorney’s fees in the amount of
P10,000.00.
4. Ordering the defendant to pay costs of the suit.
SO ORDERED.24
Essentially, the MCTC held that based on the evidence, petitioners were in actual possession
of the subject parcels of land, since respondent himself admitted that he brought an action
against petitioners before the MARO to collect rentals which have remained unpaid since
1995 – thus implying that petitioners, and not respondent, were in actual possession of the
land, and belying respondent’s claim that he took possession of the property in 1993 when
petitioners supposedly abandoned the same. The court added that petitioners’ claims were
corroborated by the statements of other witnesses – farmers of the adjoining lands –
declaring that petitioners have been in unmolested and peaceful possession of the subject
property until May 9, 2005, when they were dispossessed by respondent.
The MCTC added that it had jurisdiction over the case since there is no tenancy relationship
between the parties, and the pleadings do not allege such fact; that respondent’s own
witnesses declared that the subject property was never tenanted nor under lease to tenants.
Finally, the MCTC held that while respondent and his principals, the Tagguegs, have been
issued titles covering the subject property, this cannot give respondent “license to take the
law into his own hands and unilaterally eject the plaintiffs from the land they have been
tilling.”25cralawred
Ruling of the Regional Trial Court
Respondent appealed26 the MCTC Decision before the Regional Trial Court (RTC), insisting
that the DARAB has jurisdiction over the case; that he has been in actual possession of the
subject land since 2003; that while petitioners hold certificates of title to the property, they
never acquired ownership over the same for failure to pay just compensation therefor; that
petitioners’ titles have been ordered cancelled, and they reverted to the status of mere
tenants; and that the MCTC erred in granting pecuniary awards to petitioners.
On October 15, 2007, the RTC issued its Order27 denying the appeal for lack of merit and
affirming in toto the appealed MCTC judgment. In sum, the RTC pronouncement echoed the
MCTC findings that no tenancy or any other agrarian relationship existed between the
parties, nor do the pleadings bear out such fact; that the evidence preponderantly shows that
petitioners were in actual possession of the subject land; and that petitioners were entitled to
compensation as awarded by the court a quo.
Ruling of the Court of Appeals
Respondent went up to the CA by Petition for Review,28 assailing the Decision of the RTC
and claiming that since petitioners acquired title by virtue of PD 27, this should by itself
qualify the controversy as an agrarian dispute covered by the DARAB; that there is no need
to allege in the pleadings that he and the heirs of Romulo Sr. acquired title to the property, in
order for the dispute to qualify as an agrarian dispute; that petitioners’ titles were ordered
cancelled in Administrative Case No. A0200 0028 94; that he has been in possession of the
property since 2003; and that the trial court erred in granting pecuniary awards to petitioners.
On February 19, 2010, the CA issued the assailed Decision, which held
thus:ChanRoblesVirtualawlibrary
IN VIEW WHEREOF, the petition is GRANTED. The assailed Order of the Regional Trial
Court of Cabagan, Isabela, Branch 22, dated October 15, 2007, affirming in toto the previous
Decision of the MCTC of Cabagan-Sto. Tomas, Isabela is hereby REVERSED and SET
ASIDE. Civil Case No. 475, entitled “Charles Bumagat, Julian Bacudio, Rosario Padre, Sps.
Rogelio and Zosima Padre and Felipe Domincil versus Regalado Arribay” is DISMISSED.
SO ORDERED.29
In reversing the trial court, the CA agreed that the parties’ dispute fell under the jurisdiction of
the DARAB since petitioners’ titles were obtained pursuant to PD 27, and under the 1994
DARAB rules of procedure, cases involving the issuance, correction and cancellation of
Certificates of Land Ownership Award (CLOAs) and Emancipation Patents (EPs) which are
registered with the Land Registration Authority fall under DARAB jurisdiction. 30 The appellate
court added that the Complaint for ejectment attacked the certificates of title issued in favor of
respondent and the Tagguegs because the complaint prayed for –
x x x the annulment of the coverage of the disputed property within the Land Reform Law
which is but an incident involving the implementation of the CARP. These are matters
relating to terms and conditions of transfer of ownership from landlord to agrarian reform
beneficiaries over which DARAB has primary and exclusive original jurisdiction, pursuant to
Section 1(f), Rule II, DARAB New Rules of Procedure. 31
Petitioners moved for reconsideration, but in a November 9, 2010 Resolution, the CA stood
its ground. Hence, the present recourse.
Issue
Petitioners raise the following issue in this Petition:ChanRoblesVirtualawlibrary
WITH ALL DUE RESPECT, THE COURT OF APPEALS ERRED WHEN IT RULED THAT
THE MCTC HAD NO JURISDICTION OVER THE COMPLAINT OF THE (PETITIONERS),
INSTEAD IT IS THE DARAB THAT HAS JURISDICTION, SINCE THE COMPLAINT
ESSENTIALLY PRAYS FOR THE ANNULMENT OF THE COVERAGE OF THE DISPUTED
PROPERTY WITH THE LAND REFORM LAW WHICH IS BUT AN INCIDENT INVOLVING
THE IMPLEMENTATION OF THE CARP.32
Petitioners’ Arguments
In their Petition and Reply,33 petitioners seek a reversal of the assailed CA dispositions and
the reinstatement of the MCTC’s April 12, 2007 Decision, arguing that their Complaint for
ejectment simply prays for the recovery of de facto possession from respondent, who through
force, threat and intimidation evicted them from the property; that there is no agrarian reform
issue presented therein; that the fact that the controversy involved agricultural land does
not ipso facto make it an agrarian dispute; that the parties’ dispute does not relate to any
tenurial arrangement over agricultural land; and that quite the contrary, the parties are
strangers to each other and are not bound by any tenurial relationship, whether by tenancy,
leasehold, stewardship, or otherwise.34cralawred
Petitioners add that when certificates of title were issued in their favor, they ceased to be
tenant-tillers of the land but became owners thereof; that full ownership over the property was
acquired when emancipation patents were issued in their favor; 35 that when their certificates
of title were issued, the application of the agrarian laws was consummated; and that as
owners of the subject property, they were thus in peaceful and adverse physical possession
thereof when respondent ousted them by force, threat and intimidation. Petitioners argue
further that respondent is not the former landowner, nor the representative thereof; he is
merely an absolute stranger who came into the picture only later.
Finally, petitioners argue that it was erroneous for the CA to rule that in seeking to evict
respondent, they were in effect mounting an attack on the latter’s title and thus their
Complaint in effect sought the “the annulment of the coverage of the disputed property within
the Land Reform Law which is but an incident involving the implementation of the
CARP,”36 which thus relates to “terms and conditions of transfer of ownership from landlord to
agrarian reform beneficiaries over which DARAB has primary and exclusive original
jurisdiction x x x.”37cralawred
Respondent’s Arguments
Seeking the denial of the Petition, respondent in his Comment38 insists that the ejectment
case is intertwined with the CARP Law,39 since petitioners’ titles were obtained by virtue of
the agrarian laws, which thus places the controversy within the jurisdiction of the DARAB;
that under the 2003 DARAB Rules of Procedure, specifically Rule II, Section 1, paragraph
1.440 thereof, cases involving the ejectment and dispossession of tenants and/or leaseholders
fall within the jurisdiction of the DARAB; that under such rule, the one who ejects or
dispossesses the tenant need not be the landowner or lessor, and could thus be anybody,
including one who has no tenurial arrangement with the evicted/ dispossessed tenant.
Respondent adds that with the cancellation of petitioners’ titles, they were directed to enter
into a leasehold relationship with the owners of the subject parcels of land, or the heirs of
Romulo Sr. – whose petition for exemption and application for retention were granted and
approved by the Department of Agrarian Reform, Region 2 in Administrative Case No. A0200
0028 94 – and later, with him as transferor and purchaser of a 3.5-hectare portion thereof.
Our Ruling
The Court grants the Petition.
In declaring that the parties’ dispute fell under the jurisdiction of the DARAB, the CA held that
respondents’ titles were obtained pursuant to PD 27, and pursuant to the 1994 DARAB rules
of procedure then applicable, cases involving the issuance, correction and cancellation of
CLOAs and EPs which are registered with the Land Registration Authority fall under DARAB
jurisdiction. It added that since the Complaint prayed for the annulment of the coverage of
the disputed property under the land reform law, which thus relates to terms and conditions of
transfer of ownership from landlord to agrarian reform beneficiaries, the DARAB exercises
jurisdiction.
What the appellate court failed to realize, however, is the fact that as between petitioners and
the respondent, there is no tenurial arrangement, not even an implied one. As correctly
argued by petitioners, a case involving agricultural land does not immediately qualify it as an
agrarian dispute. The mere fact that the land is agricultural does not ipso facto make the
possessor an agricultural lessee or tenant. There are conditions or requisites before he can
qualify as an agricultural lessee or tenant, and the subject being agricultural land constitutes
just one condition.41 For the DARAB to acquire jurisdiction over the case, there must exist a
tenancy relation between the parties. “[I]n order for a tenancy agreement to take hold over a
dispute, it is 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.” 42 In the
present case, it is quite evident that not all of these conditions are present. For one, there is
no tenant, as both parties claim ownership over the property.
Besides, when petitioners obtained their emancipation patents and subsequently their
certificates of title, they acquired vested rights of absolute ownership over their respective
landholdings. “It presupposes that the grantee or beneficiary has, following the issuance of a
certificate of land transfer, already complied with all the preconditions required under P.D.
No. 27, and that the landowner has been fully compensated for his property. And upon the
issuance of title, the grantee becomes the owner of the landholding and he thereby ceases to
be a mere tenant or lessee. His right of ownership, once vested, becomes fixed and
established and is no longer open to doubt or controversy.” 43 Petitioners “became the
owner[s] of the subject property upon the issuance of the emancipation patents and, as such,
[enjoy] the right to possess the same—a right that is an attribute of absolute
ownership.”44cralawred
On the other hand, it appears that respondent obtained title through Romulo Sr.’s heirs,
whose claim to the property is by virtue of an unregistered deed of donation in their favor
supposedly executed prior to September 21, 1972. On this basis, the heirs filed in 1993 a
petition with the Department of Agrarian Reform, Region 2 to exempt the property from
coverage under PD 27, which was granted in a December 29, 1994 Order.45 By then, or way
back in 1986 petitioners had been issued certificates of title thus, respondent’s acquisition of
the property appears questionable, considering the Court’s pronouncement in Gonzales v.
Court of Appeals,46 thus:ChanRoblesVirtualawlibrary
The sole issue to be resolved is whether the property subject of the deed of donation which
was not registered when P.D. No. 27 took effect, should be excluded from x x x Operation
Land Transfer.
Petitioners insist that the deed of donation executed by Ignacio Gonzales validly transferred
the ownership and possession of Lot 551-C which comprises an area of 46.97 hectares to his
14 grandchildren. They further assert that inasmuch as Lot 551-C had already been donated,
the same can no longer fall within the purview of P.D. No. 27, since each donee shall have a
share of about three hectares only which is within the exemption limit of seven hectares for
each landowner provided under P.D. No. 27.
Article 749 of the Civil Code provides inter alia that “in order that the donation of an
immovable may be valid, it must be made in a public document, specifying therein the
property donated and the value of the charges which the donee must satisfy.” Corollarily,
Article 709 of the same Code explicitly states that “the titles of ownership, or other rights over
immovable property, which are not duly inscribed or annotated in the Registry of property
shall not prejudice third persons.” From the foregoing provisions, it may be inferred that as
between the parties to a donation of an immovable property, all that is required is for said
donation to be contained in a public document. Registration is not necessary for it to be
considered valid and effective. However, in order to bind third persons, the donation must be
registered in the Registry of Property (now Registry of Land Titles and Deeds). Although the
non-registration of a deed of donation shall not affect its validity, the necessity of registration
comes into play when the rights of third persons are affected, as in the case at bar.
It is actually the act of registration that operates to convey registered land or affect title
thereto. Thus, Section 50 of Act No. 496 (Land Registration Act), as amended by Section 51
of P.D. No. 1529 (Property Registration Decree), provides:ChanRoblesVirtualawlibrary
SEC. 51. Conveyance and other dealings by registered owner - . . . But no deed, mortgage,
lease, or other voluntary instrument, except a will purporting to convey or affect registered
land, shall take effect as a conveyance or bind the land, but shall operate only as a contract
between the parties and as evidence of authority to the Register of Deeds to make
registration.
The act of registration shall be the operative act to convey or affect the land insofar as third
persons are concerned, . . .
Further, it is an entrenched doctrine in our jurisdiction that registration in a public registry
creates constructive notice to the whole world (Olizon vs. Court of Appeals, 236 SCRA 148
[1994]). Thus, Section 51 of Act No. 496, as amended by Section 52 of P.D. No. 1529,
provides:ChanRoblesVirtualawlibrary
SEC. 52. Constructive notice upon registration - Every conveyance, mortgage, lease, lien,
attachment, order, judgment, instrument or entry affecting registered land shall, if registered,
filed or entered in the Office of the Register of Deeds for the province or city where the land
to which it relates lies, be constructive notice to all persons from the time of such registering,
filing or entering.
It is undisputed in this case that the donation executed by Ignacio Gonzales in favor of his
grandchildren, although in writing and duly notarized, has not been registered in accordance
with law. For this reason, it shall not be binding upon private respondents who did not
participate in said deed or had no actual knowledge thereof. Hence, while the deed of
donation is valid between the donor and the donees, such deed, however, did not bind the
tenants-farmers who were not parties to the donation. As previously enunciated by this Court,
non-registration of a deed of donation does not bind other parties ignorant of a previous
transaction (Sales vs. Court of Appeals, 211 SCRA 858 [1992]). So it is of no moment that
the right of the [tenant]-farmers in this case was created by virtue of a decree or law. They
are still considered “third persons” contemplated in our laws on registration, for the fact
remains that these [tenant]-farmers had no actual knowledge of the deed of donation.
 respondent has not sufficiently shown that he has any preferential right to the same either;
xxxx the Court adheres to the identical findings of fact of the MCTC and RTC.

As a final note, our laws on agrarian reform were enacted primarily because of the realization
that there is an urgent need to alleviate the lives of the vast number of poor farmers in our
country. Yet, despite such laws, the majority of these farmers still live on a hand-to-mouth
existence. This can be attributed to the fact that these agrarian laws have never really been
effectively implemented. Certain individuals have continued to prey on the disadvantaged,
and as a result, the farmers who are intended to be protected and uplifted by the said laws
find themselves back in their previous plight or even in a more distressing situation. This
Court ought to be an instrument in achieving a dignified existence for these farmers free from
pernicious restraints and practices, and there’s no better time to do it than now. 47
When petitioners’ titles were issued in 1986, these became indefeasible and incontrovertible.
Certificates of title issued pursuant to emancipation patents acquire the same protection
accorded to other titles, and become indefeasible and incontrovertible upon the expiration of
one year from the date of the issuance of the order for the issuance of the patent. Lands so
titled may no longer be the subject matter of a cadastral proceeding; nor can they be decreed
to other individuals.48 “The rule in this jurisdiction, regarding public land patents and the
character of the certificate of title that may be issued by virtue thereof, is that where land is
granted by the government to a private individual, the corresponding patent therefor is
recorded, and the certificate of title is issued to the grantee; thereafter, the land is
automatically brought within the operation of the Land Registration Act, the title issued to the
grantee becoming entitled to all the safeguards provided in Section 38 of the said Act. In
other words, upon expiration of one year from its issuance, the certificate of title shall become
irrevocable and indefeasible like a certificate issued in a registration proceeding.” 49cralawred
Finally, respondent’s submissions are unreliable for being contradictory. In some of his
pleadings, he claims to have acquired possession over the property as early as in 1993; in
others, he declares that he entered the land in 2003. Notably, while he claimed in his Answer
in the MCTC that he entered the land in 1993, he declared in his appeal with the RTC and
Petition for Review in the CA that he took possession of the property only in
2003.50 Irreconcilable and unexplained contradictions on vital points in respondent’s account
necessarily disclose a weakness in his case.51cralawred
Regarding the award of actual damages, which respondent prominently questioned all
throughout the proceedings, this Court finds that there is sufficient basis for the MCTC to
award petitioners the total amount of P598,679.00 by way of actual damages. The trial
court’s findings on this score are based on the evidence presented by the petitioners and the
respective statements of their witnesses, who themselves are farmers cultivating lands
adjacent to the subject property.52cralawred
WHEREFORE, the Petition is GRANTED. The assailed February 19, 2010 Decision and
November 9, 2010 Resolution of the Court of Appeals in CA-G.R. SP No. 101423
are REVERSED and SET ASIDE. The April 12, 2007 Decision of the 2nd Municipal Circuit
Trial Court of Cabagan-Delfin Albano, Isabela in Special Civil Action No. 475
is REINSTATED and AFFIRMED.
SO ORDERED.

For the above reasons, the Court is not inclined to believe respondent’s contention that with
the issuance of the December 29, 1994 Order of the Department of Agrarian Reform, Region
2 in Administrative Case No. A0200 0028 94 ordering the cancellation of petitioners’ titles, the
latter were relegated to the status of mere tenants. Nor can the Court agree with the
appellate court’s observation that through the forcible entry case, petitioners impliedly seek to
exclude the property from land reform coverage; there is no factual or legal basis for such
conclusion, and no such inference could be logically generated. To begin with, petitioners
acknowledge nothing less than ownership over the property.

Likewise, for the foregoing reasons, it may be concluded that petitioners exercised prior
peaceful and uninterrupted possession of the property until the same was interrupted by
respondent’s forcible intrusion in 2005; being farmer-beneficiaries under PD 27 and finally
having acquired title to the property in 1986, the Court is inclined to believe that petitioners
continued to till their landholdings without fail. Indeed, the evidence on record indicates such
peaceful and undisturbed possession, while respondent’s claim that he entered the property
as early as in 1993 remains doubtful, in light of his own admission that he sued petitioners for
the collection of supposed rentals which they owed him since 1995. Petitioners’ witnesses
further corroborate their claim of prior peaceful possession. With regard to the portion of the
property which is not titled to petitioners but over which they exercise possessory rights,
 SECOND DIVISION
ruling of the DARAB Regional Adjudicator(Adjudicator) who ordered the respondents to
peacefully vacate certain portions of the subject landholding. [4]

DEL MONTE PHILIPPINES INC. G.R. No. 180013

EMPLOYEES AGRARIAN REFORM The Court is now urged to rule on the issue of jurisdiction of regular courts over
BENEFICIARIES COOPERATIVE Present: petitions for recovery of possession vis--visthe original, primary and exclusive jurisdiction of the
(DEARBC),
Petitioner, CARPIO, J., Chairperson, Department of Agrarian Reform (DAR) and the DARAB over agrarian disputes and/or agrarian
NACHURA,
reform implementation as provided for under Section 50 of Republic Act No. 6657 (R.A. 6657).
PERALTA,
ABAD and
- versus - MENDOZA, JJ.
The Facts

JESUS SANGUNAY and SONNY The property subject of this case is a portion of an entire landholding located in
LABUNOS, Promulgated: Sankanan, Manolo Fortich, Bukidnon, with an area of 1,861,922 square meters, more or less,
Respondents.
January 31, 2011 covered by Original Certificate of Title No. AO-3 [Certificate of Land Ownership
Award (CLOA)].[5] The said landholding was awarded to DEARBC, an agrarian cooperative and
beneficiary under the Comprehensive Agrarian Reform Program (CARP). Subsequently,
DEARBC leased a substantial portion of the land to Del Monte Philippines, Inc. (DMPI) under
Section 8 of R.A. No. 6657 through a Growers Contract dated February 21, 1989.
x ----------------------------------------------------------------------------------------x

On July 7, 1998, DEARBC filed a complaint for Recovery of Possession and Specific

DECISION
MENDOZA, J.:
This is a petition for review on certiorari[1] assailing the Resolutions[2] of the Court of
Appeals (CA) in CA-G.R. SP No. 01715, which dismissed the petition filed by Del Monte
Philippines Inc. Employees Agrarian Reform Beneficiaries Cooperative(DEARBC), challenging
the May 12, 2006 Decision[3] of the Central Office of the Department of Agrarian Reform
Adjudication Board (DARAB). For lack of jurisdiction, the DARAB reversed and set aside the
Performance with Damages[6] with the DARAB Region 10 Office against several respondents,
among whom were Jesus Sangunay (Sangunay) and Sonny Labunos(Labunos).
Essentially, DEARBC claimed that both Sangunay and Labunos illegally entered
portions of its property called Field 34. Sangunay utilized approximately one and a half (1 )
hectare portion[7] where he planted corn, built a house and resided from 1986 to the
present. Labunos, on the other hand, tilled an area of approximately eight (8) hectares where
he planted fruit trees, gmelina, mahogany and other crops as a source of his livelihood. [8] Both
respondents refused to return the parcels of land notwithstanding a demand to vacate
them. This illegal occupation resulted in the deprivation of the proper and reasonable use of
the land and damages.
 On December 11, 1990, the Adjudicator ruled in favor of DEARBC on the ground that
the respondents failed to present proof of ownership over the subject portions of the
landholding. According to the Adjudicator, their bare allegation of possession, even prior to the
award of the land to DEARBC, did not suffice as proof of ownership. Thus:
In the series of hearing conducted by this Adjudicator and in the
position papers submitted by some of the defendants, none of them was able
to present proof, either documentary or otherwise, that they owned the areas
they respectively occupied and cultivate[d], or that their occupation and
cultivation was with the consent and authority of the complainant.
X x x against all reasons, the fact remains that their occupation and
cultivation thereof, granting it is true, have not been validated by the DAR and
they were not among the identified FBs over the said subject landholding. [9]
Aggrieved, respondents elevated the case to the DARAB Central Office before which
Sangunay filed his position paper. He claimed that the subject property was located along
the Maninit River and was an accrual deposit. He inherited the land from his father in 1948 and
had since been in open, public, adverse, peaceful, actual, physical, and continuous possession
thereof in the concept of an owner. He cultivated and lived on the land with the knowledge of
DEARBC. Sangunay presented Tax Declaration No. 15-018 and Real Property Historical
Ownership issued by the Municipal Assessor of Manolo Fortrich, showing that he had declared
the property for taxation purposes long before DEARBC acquired it. In sum, Sangunay
asserted that, as a qualified farmer-beneficiary, he was entitled to security of tenure under the
agrarian reform law and, at any rate, he had already acquired the land by prescription.
For his part, Labunos reiterated the above arguments and added that the subject
portion of the landholding was previously owned by one Genis Valdenueza who sold it to his
father, Filoteo, as early as 1950. Like Sangunay, he asserted rights of retention and ownership
by prescription because he had been in open, public, adverse, peaceful, actual, physical, and
continuous possession of the landholding in the concept of an owner. [10]
In its May 12, 2006 Decision,[11] the DARAB dismissed the case for lack of
jurisdiction. It ruled that the issue of ownership of the subject land classifies the controversy
as a regular case falling within the jurisdiction of regular courts and not as an agrarian
dispute.[12] Thus:
X x x the plaintiff-appellees cause of action is for the recovery of
possession and specific performance with damages with respect to the
subject landholding. Such cause of action flows from the plaintiff-appellees
contention that it owns the subject landholding. On the other hand, defendant-
appellants refuted and assailed such ownership as to their respective
landholdings. Thus, the only question in this case is who owns the said
landholdings. Without doubt, the said question classified the instant
controversy to a regular case. At this premise, We hold that the only issue to
be resolved by this Board is whether or not the instant case presents an
agrarian dispute and is therefore well within Our jurisdiction.
xxx
In the case at bar, petitioner-appellants wanted to recover x x the
subject landholding on the premise of ownership xxx. Defendants-appellants
assail such allegations saying that the landholdings are accrual deposits and
maintaining their open, peaceful and adverse possession over the same.
Indubitably, there assertions and issues classify the present controversy as a
regular case. As such, clearly, this Board has no jurisdiction to rule upon the
instant case. Obviously, the dispute between the parties does not relate to
any tenurial arrangement. Thus, this Board has no jurisdiction over the same.
DEARBC challenged the DARAB Decision in the CA through a petition for review filed
under Rule 43 of the Rules of Civil Procedure. In its Resolution dated June 27, 2007,[13] the CA
dismissed the petition for procedural infirmities in its verification, certification and
attachments, viz:
1) The Verification and Certification is defective due to the following
reasons:
a) There is no assurance that the allegations in the petition
are based on personal knowledge and in authentic records,
in violation of Section 4 par. (2), Rule 7 of the Revised Rules
of Civil Procedure;
 b) The Community Tax Certificate Nos. of the affiant therein
Position of the Parties
are not indicated;

c) The affiant is not authorized to sign the same for and in

behalf of the petitioner cooperative; DEARBC claims that the action it filed for recovery of possession falls within the
jurisdiction of the DARAB because it partakes of either a boundary dispute, a correction of a
2) The attached copies of the Motion for Reconsideration filed before the
DARAB Quezon City and the Complaint filed before the DAR, Region XD, CLOA or an ouster of an interloper or intruder found under Section 1 of Rule 11 of the 2003
and the Decision and Resolution rendered therein are mere plain DARAB Rules of Procedure[17] and Administrative Order 03 Series of 2003.[18] Under those
photocopies, in violation of Sec. 6 par. (c), Rule 43, supra.
rules, any conflict involving agricultural lands and the rights of beneficiaries is within the
jurisdiction of the DARAB.
In a motion for reconsideration, DEARBC invoked substantial compliance with the
pertinent procedural rules, pointing to the attached Secretarys Certificate as sufficient proof of
In his Comment,[19] Labunos argues that only questions of law may be resolved in
authority given to the President and Chairman of the Board, Dennis Hojas(Hojas), to represent
appeals under Rule 45 and that it is the decision of the CA which must be challenged and not
DEARBC. On August 24, 2007,[14] the CA denied the motion because DEARBC failed to attach
the DARAB decision. On the merits, he cites cases where this Court ruled that the jurisdiction
a copy of the board resolution showing Hojas authority to file the petition. This was a fatal error
of the DARAB is limited only to agrarian disputes and other matters relating to the
that warranted dismissal of the petition, according to the appellate court.
implementation of the CARP.The subject land has not been transferred, distributed and/or sold
to tenants, and it is obvious that the complaint is not for the correction of a title but for the
Hence, this petition for review.
recovery of possession and specific performance. Issues of possession may be dealt with by
the DARAB only when they relate to agrarian disputes. Otherwise, jurisdiction lies with the
With regard to the dismissal of the case by the CA on technical grounds, the Court is of the
regular courts.
view that it was correct. DEARBC clearly failed to comply with the rules which mistake was a
fatal error warranting the dismissal of the petition for review. However, it has been the constant
Sangunay prays that he be declared as the owner of the land, particularly his area in
ruling of this Court that every party-litigant should be afforded the amplest opportunity for the
Field 34, based on the following grounds:1] that the tax receipts and Tax Declaration No. 15-
proper and just disposition of his cause, free from constraints of technicalities.[15] Rules of
018 were issued in his name; 2] that R.A. No. 6657 provides that farmers already in place and
procedure are mere tools designed to expedite the resolution of cases and other matters
those not accommodated in the distribution of privately-owned lands must be given preferential
pending in court. A strict and rigid application of the rules that would result in technicalities that
rights in the distribution of lands from the public domain (to which the subject land as an
tend to frustrate rather than promote justice must be avoided.[16] Thus, the Court opts to brush
accretion belongs); and 3] that acquisitive prescription had set in his favor.
aside the procedural flaw and resolve the core issue of jurisdiction as it has been discussed by
the parties anyway.
The Courts Ruling

The Court finds no merit in the petition.

 Where a question of jurisdiction between the DARAB and the Regional Trial Court is
at the core of a dispute, basic jurisprudential tenets come into play. It is the rule that the
jurisdiction of a tribunal, including a quasi-judicial office or government agency, over the nature
and subject matter of a petition or complaint is determined by the material allegations therein
and the character of the relief prayed for[20] irrespective of whether the petitioner or complainant
is entitled to any or all such reliefs.[21] In the same vein, jurisdiction of the court over the subject
matter of the action is not affected by the pleas or the theories set up by the defendant in an
answer or a motion to dismiss. Otherwise, jurisdiction will become dependent almost entirely
upon the whims of the defendant.[22]
Under Section 50 of R.A. No. 6657[23] and as held in a string of cases, the DAR is
vested with the primary jurisdiction to determine and adjudicate agrarian reform matters and
shall have the exclusive jurisdiction over all matters involving the implementation of the agrarian
reform program.[24] The DARAB was created, thru Executive Order No. 109-A, to assume the
powers and functions with respect to the adjudication of agrarian reform cases. Hence, all
matters involving the implementation of agrarian reform are within the DARs primary, exclusive
and original jurisdiction. At the first instance, only the DARAB, as the DARs quasi-judicial body,
can determine and adjudicate all agrarian disputes, cases, controversies, and matters or
incidents involving the implementation of the CARP.[25] 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 compensation of lands acquired under this Act and other terms and
conditions of transfer of ownership from landowner 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.[26]
The following allegations were essentially contained in the complaints filed separately
against the respondents before the DARAB with some variance in the amount of damages and
fees prayed for:
1. The complainant is an agrarian cooperative duly
registered and organized under the laws of the Republic of thePhilippines xxx.
2. Complainant is an awardee of Comprehensive Agrarian
Reform Program (CARP), situated at Limbona, Bukidnon under Original
Certificate of Title A-3 as evidenced by Certificate of Land Ownership Award
(CLOA) xxx.
xxxx
5. The defendant illegally entered and tilled the land owned by the
complainant, inside the portion of Field 34, with an area of one and a half (1 )
hectares, more or less, located at Sankanan, Manolo Fortrich, Bukidnon xxx.
xxxx
8. Demands were made by the complainant for the defendant to
vacate the premises but the latter adamantly refused and did not vacate the
area xxx.
9. The defendant has caused actual damages in the amount of xxx in
the form of back rentals and an estimated amount of xxx brought about by the
defendant for all his unlawful acts towards the land and the owner of the land.
10. To recover the possession of the land and to protect and vindicate
its rights, the complainant was compelled to engage the servces of a legal
counsel x x x
PRAYER
WHEREFORE, premises considered, it is most respectfully prayed of
this Honorable Board, that a decision be rendered:
Ejecting the defendant from the subject landholding and/or
causing him to cede possession of the land to complainant.[Emphasis
ours]
xxxx
 Verily, all that DEARBC prayed for was the ejectment of the respondents from the DARAB Rules of Procedure,[30] is unavailing. Nowhere in the complaint was the correction or
respective portions of the subject lands they allegedly entered and occupied illegally. DEARBC cancellation of the CLOA prayed for, much less mentioned. DEARBC merely asserted its sole
avers that, as the owner of the subject landholding, it was in prior physical possession of the ownership of the awarded land and no boundary dispute was even hinted at.
property but was deprived of it by respondents intrusion.
WHEREFORE, the petition is DENIED.
Clearly, no agrarian dispute exists between the parties. The absence of tenurial
arrangements, whether leasehold, tenancy, stewardship or otherwise, cannot be overlooked. In
this case, no juridical tie of landownership and tenancy was alleged between DEARBC and
SO ORDERED.
Sangunay or Labunos, which would so categorize the controversy as an agrarian dispute. In
fact, the respondents were contending for the ownership of the same parcels of land. [27]

This set of facts clearly comprises an action for recovery of possession. The claim of
being farmer-beneficiaries with right of retention will not divest the regular courts of jurisdiction,
since the pleas of the defendant in a case are immaterial.

The ruling in DAR v. Hon. Hakim S. Abdulwahid and Yupangco Cotton Mills, Inc. [28] is
inapplicable to the present case. The complaint in Abdulwahid impugn(ed) the CARP coverage
of the landholding involved and its redistribution to farmer beneficiaries, and (sought) to effect
a reversion thereof to the original owner, Yupangco and essentially prayed for the annulment
of the coverage of the disputed property within the CARP. The dispute was on the terms and
conditions of transfer of ownership from landlord to agrarian reform beneficiaries over which
DARAB has primary and exclusive original jurisdiction, pursuant to Section 1(f), Rule II, DARAB
New Rules of Procedure.[29]

Although the complaint filed by DEARBC was similarly denominated as one for
recovery of possession, it utterly lacks allegations to persuade the Court into ruling that the
issue encompasses an agrarian dispute.

DEARBCs argument that this case partakes of either a boundary dispute, correction of
a CLOA, and ouster of an interloper or intruder, as found under Section 1, Rule 11 of the 2003
 EN BANC
G.R. No. 127876 December 17, 1999
ROXAS & CO., INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, DEPARTMENT OF AGRARIAN REFORM,
SECRETARY OF AGRARIAN REFORM, DAR REGIONAL DIRECTOR FOR REGION IV,
MUNICIPAL AGRARIAN REFORM OFFICER OF NASUGBU, BATANGAS and
DEPARTMENT OF AGRARIAN REFORM ADJUDICATION BOARD,respondents.
PUNO, J.:
This case involves three (3) haciendas in Nasugbu, Batangas owned by petitioner and the
validity of the acquisition of these haciendas by the government under Republic Act No.
6657, the Comprehensive Agrarian Reform Law of 1988.
Petitioner Roxas & Co. is a domestic corporation and is the registered owner of three
haciendas, namely, Haciendas Palico, Banilad and Caylaway, all located in the Municipality
of Nasugbu, Batangas. Hacienda Palico is 1,024 hectares in area and is registered under
Transfer Certificate of Title (TCT) No. 985. This land is covered by Tax Declaration Nos.
0465, 0466, 0468, 0470, 0234 and 0354. Hacienda Banilad is 1,050 hectares in area,
registered under TCT No. 924 and covered by Tax Declaration Nos. 0236, 0237 and 0390.
Hacienda Caylaway is 867.4571 hectares in area and is registered under TCT Nos. T-44662,
T-44663, T-44664 and T-44665.
The events of this case occurred during the incumbency of then President Corazon C.
Aquino. In February 1986, President Aquino issued Proclamation No. 3 promulgating a
Provisional Constitution. As head of the provisional government, the President exercised
legislative power "until a legislature is elected and convened under a new Constitution." 1 In
the exercise of this legislative power, the President signed on July 22, 1987, Proclamation
No. 131 instituting a Comprehensive Agrarian Reform Program and Executive Order No. 229
providing the mechanisms necessary to initially implement the program.
On July 27, 1987, the Congress of the Philippines formally convened and took over legislative
power from the President. 2 This Congress passed Republic Act No. 6657, the
Comprehensive Agrarian Reform Law (CARL) of 1988. The Act was signed by the President
on June 10, 1988 and took effect on June 15, 1988.
Before the law's effectivity, on May 6, 1988, petitioner filed with respondent DAR a voluntary
offer to sell Hacienda Caylaway pursuant to the provisions of E.O. No. 229. Haciendas Palico
and Banilad were later placed under compulsory acquisition by respondent DAR in
accordance with the CARL.
Hacienda Palico
On September 29, 1989, respondent DAR, through respondent Municipal Agrarian Reform
Officer (MARO) of Nasugbu, Batangas, sent a notice entitled "Invitation to Parties" to
petitioner. The Invitation was addressed to "Jaime Pimentel, Hda. Administrator, Hda.
Palico." 3 Therein, the MARO invited petitioner to a conference on October 6, 1989 at the
DAR office in Nasugbu to discuss the results of the DAR investigation of Hacienda Palico,
which was "scheduled for compulsory acquisition this year under the Comprehensive
Agrarian Reform Program." 4
On October 25, 1989, the MARO completed three (3) Investigation Reports after investigation
and ocular inspection of the Hacienda. In the first Report, the MARO found that 270 hectares
under Tax Declaration Nos. 465, 466, 468 and 470 were "flat to undulating (0-8% slope)" and
actually occupied and cultivated by 34 tillers of sugarcane. 5 In the second Report, the MARO
identified as "flat to undulating" approximately 339 hectares under Tax Declaration No. 0234
which also had several actual occupants and tillers of sugarcane; 6 while in the third Report,
the MARO found approximately 75 hectare under Tax Declaration No. 0354 as "flat to
undulating" with 33 actual occupants and tillers also of sugarcane. 7
On October 27, 1989, a "Summary Investigation Report" was submitted and signed jointly by
the MARO, representatives of the Barangay Agrarian Reform Committee (BARC) and Land
Bank of the Philippines (LBP), and by the Provincial Agrarian Reform Officer (PARO). The
Report recommended that 333.0800 hectares of Hacienda Palico be subject to compulsory
acquisition at a value of P6,807,622.20. 8 The following day, October 28, 1989, two (2) more
Summary Investigation Reports were submitted by the same officers and representatives.
They recommended that 270.0876 hectares and 75.3800 hectares be placed under
compulsory acquisition at a compensation of P8,109,739.00 and P2,188,195.47,
respectively. 9
On December 12, 1989, respondent DAR through then Department Secretary Miriam D.
Santiago sent a "Notice of Acquisition" to petitioner. The Notice was addressed as follows:
Roxas y Cia, Limited
Soriano Bldg., Plaza Cervantes
Manila, Metro Manila. 10
Petitioner was informed that 1,023.999 hectares of its land in Hacienda Palico were subject to
immediate acquisition and distribution by the government under the CARL; that based on the
DAR's valuation criteria, the government was offering compensation of P3.4 million for
333.0800 hectares; that whether this offer was to be accepted or rejected, petitioner was to
inform the Bureau of Land Acquisition and Distribution (BLAD) of the DAR; that in case of
petitioner's rejection or failure to reply within thirty days, respondent DAR shall conduct
summary administrative proceedings with notice to petitioner to determine just compensation
for the land; that if petitioner accepts respondent DAR's offer, or upon deposit of the
compensation with an accessible bank if it rejects the same, the DAR shall take immediate
possession of the land. 11
Almost two years later, on September 26, 1991, the DAR Regional Director sent to the LBP
Land Valuation Manager three (3) separate Memoranda entitled "Request to Open Trust
Account." Each Memoranda requested that a trust account representing the valuation of three
portions of Hacienda Palico be opened in favor of the petitioner in view of the latter's rejection
of its offered value. 12
Meanwhile in a letter dated May 4, 1993, petitioner applied with the DAR for conversion of
Haciendas Palico and Banilad from agricultural to non-agricultural lands under the provisions
of the CARL. 13 On July 14, 1993, petitioner sent a letter to the DAR Regional Director
reiterating its request for conversion of the two haciendas. 14
Despite petitioner's application for conversion, respondent DAR proceeded with the
acquisition of the two Haciendas. The LBP trust accounts as compensation for Hacienda
Palico were replaced by respondent DAR with cash and LBP bonds. 15 On October 22, 1993,
from the mother title of TCT No. 985 of the Hacienda, respondent DAR registered Certificate
of Land Ownership Award (CLOA) No. 6654. On October 30, 1993, CLOA's were distributed
to farmer beneficiaries. 16
Hacienda Banilad
On August 23, 1989, respondent DAR, through respondent MARO of Nasugbu, Batangas,
sent a notice to petitioner addressed as follows:
Mr. Jaime Pimentel
Hacienda Administrator
Hacienda Banilad
Nasugbu, Batangas 17
The MARO informed Pimentel that Hacienda Banilad was subject to compulsory
acquisition under the CARL; that should petitioner wish to avail of the other schemes
such as Voluntary Offer to Sell or Voluntary Land Transfer, respondent DAR was
willing to provide assistance thereto. 18
On September 18, 1989, the MARO sent an "Invitation to Parties" again to Pimentel inviting
the latter to attend a conference on September 21, 1989 at the MARO Office in Nasugbu to
discuss the results of the MARO's investigation over Hacienda Banilad. 19
On September 21, 1989, the same day the conference was held, the MARO submitted two
(2) Reports. In his first Report, he found that approximately 709 hectares of land under Tax
Declaration Nos. 0237 and 0236 were "flat to undulating (0-8% slope)." On this area were
discovered 162 actual occupants and tillers of sugarcane. 20 In the second Report, it was
found that approximately 235 hectares under Tax Declaration No. 0390 were "flat to
undulating," on which were 92 actual occupants and tillers of sugarcane. 21
The results of these Reports were discussed at the conference. Present in the conference
were representatives of the prospective farmer beneficiaries, the BARC, the LBP, and Jaime
Pimentel on behalf of the landowner. 22After the meeting, on the same day, September 21,
1989, a Summary Investigation Report was submitted jointly by the MARO, representatives of
the BARC, LBP, and the PARO. They recommended that after ocular inspection of the
property, 234.6498 hectares under Tax Declaration No. 0390 be subject to compulsory
acquisition and distribution by CLOA. 23 The following day, September 22, 1989, a second
Summary Investigation was submitted by the same officers. They recommended that
737.2590 hectares under Tax Declaration Nos. 0236 and 0237 be likewise placed under
compulsory acquisition for distribution. 24
On December 12, 1989, respondent DAR, through the Department Secretary, sent to
petitioner two (2) separate "Notices of Acquisition" over Hacienda Banilad. These Notices
were sent on the same day as the Notice of Acquisition over Hacienda Palico. Unlike the
Notice over Hacienda Palico, however, the Notices over Hacienda Banilad were addressed
to:
Roxas y Cia. Limited
7th Floor, Cacho-Gonzales Bldg. 101 Aguirre St., Leg.
Makati, Metro Manila. 25
Respondent DAR offered petitioner compensation of P15,108,995.52 for 729.4190
hectares and P4,428,496.00 for 234.6498 hectares. 26
On September 26, 1991, the DAR Regional Director sent to the LBP Land Valuation Manager
a "Request to Open Trust Account" in petitioner's name as compensation for 234.6493
hectares of Hacienda Banilad. 27 A second "Request to Open Trust Account" was sent on
November 18, 1991 over 723.4130 hectares of said Hacienda. 28
On December 18, 1991, the LBP certified that the amounts of P4,428,496.40 and
P21,234,468.78 in cash and LBP bonds had been earmarked as compensation for
petitioner's land in Hacienda Banilad. 29
On May 4, 1993, petitioner applied for conversion of both Haciendas Palico and Banilad.
Hacienda Caylaway
Hacienda Caylaway was voluntarily offered for sale to the government on May 6, 1988 before
the effectivity of the CARL. The Hacienda has a total area of 867.4571 hectares and is
covered by four (4) titles — TCT Nos. T-44662, T-44663, T-44664 and T-44665. On January
12, 1989, respondent DAR, through the Regional Director for Region IV, sent to petitioner two
(2) separate Resolutions accepting petitioner's voluntary offer to sell Hacienda Caylaway,
particularly TCT Nos. T-44664 and T-44663. 30 The Resolutions were addressed to:
Roxas & Company, Inc.
7th Flr. Cacho-Gonzales Bldg.
Aguirre, Legaspi Village
Makati, M. M 31
On September 4, 1990, the DAR Regional Director issued two separate Memoranda to the
LBP Regional Manager requesting for the valuation of the land under TCT Nos. T-44664 and
T-44663. 32 On the same day, respondent DAR, through the Regional Director, sent to
petitioner a "Notice of Acquisition" over 241.6777 hectares under TCT No. T-44664 and
533.8180 hectares under TCT No. T-44663. 33 Like the Resolutions of Acceptance, the
Notice of Acquisition was addressed to petitioner at its office in Makati, Metro Manila.
Nevertheless, on August 6, 1992, petitioner, through its President, Eduardo J. Roxas, sent a
letter to the Secretary of respondent DAR withdrawing its VOS of Hacienda Caylaway. The
Sangguniang Bayan of Nasugbu, Batangas allegedly authorized the reclassification of
Hacienda Caylaway from agricultural to non-agricultural. As a result, petitioner informed
respondent DAR that it was applying for conversion of Hacienda Caylaway from agricultural
to other
uses. 34
In a letter dated September 28, 1992, respondent DAR Secretary informed petitioner that a
reclassification of the land would not exempt it from agrarian reform. Respondent Secretary
also denied petitioner's withdrawal of the VOS on the ground that withdrawal could only be
based on specific grounds such as unsuitability of the soil for agriculture, or if the slope of the
land is over 18 degrees and that the land is undeveloped. 35
Despite the denial of the VOS withdrawal of Hacienda Caylaway, on May 11, 1993, petitioner
filed its application for conversion of both Haciendas Palico and Banilad. 36 On July 14, 1993,
petitioner, through its President, Eduardo Roxas, reiterated its request to withdraw the VOS
over Hacienda Caylaway in light of the following:
1) Certification issued by Conrado I. Gonzales, Officer-in-Charge,
Department of Agriculture, Region 4, 4th Floor, ATI (BA) Bldg., Diliman,
Quezon City dated March 1, 1993 stating that the lands subject of referenced
titles "are not feasible and economically sound for further agricultural
development.
2) Resolution No. 19 of the Sangguniang Bayan of Nasugbu, Batangas
approving the Zoning Ordinance reclassifying areas covered by the
referenced titles to non-agricultural which was enacted after extensive
consultation with government agencies, including [the Department of
Agrarian Reform], and the requisite public hearings.
3) Resolution No. 106 of the Sangguniang Panlalawigan of Batangas dated
March 8, 1993 approving the Zoning Ordinance enacted by the Municipality
of Nasugbu.
4) Letter dated December 15, 1992 issued by Reynaldo U. Garcia of the
Municipal Planning & Development, Coordinator and Deputized Zoning
Administrator addressed to Mrs. Alicia P. Logarta advising that the
Municipality of Nasugbu, Batangas has no objection to the conversion of the
lands subject of referenced titles to non-agricultural. 37
On August 24, 1993 petitioner instituted Case No. N-0017-96-46 (BA) with respondent DAR
Adjudication Board (DARAB) praying for the cancellation of the CLOA's issued by respondent
DAR in the name of several persons. Petitioner alleged that the Municipality of Nasugbu,
where the haciendas are located, had been declared a tourist zone, that the land is not
suitable for agricultural production, and that the Sangguniang Bayan of Nasugbu had
reclassified the land to non-agricultural.
In a Resolution dated October 14, 1993, respondent DARAB held that the case involved the
prejudicial question of whether the property was subject to agrarian reform, hence, this
question should be submitted to the Office of the Secretary of Agrarian Reform for
determination. 38
On October 29, 1993, petitioner filed with the Court of Appeals CA-G.R. SP No. 32484. It
questioned the expropriation of its properties under the CARL and the denial of due process
in the acquisition of its landholdings.
Meanwhile, the petition for conversion of the three haciendas was denied by the MARO on
November 8, 1993.
Petitioner's petition was dismissed by the Court of Appeals on April 28, 1994. 39 Petitioner
moved for reconsideration but the motion was denied on January 17, 1997 by respondent
court. 40
Hence, this recourse. Petitioner assigns the following errors:
A. RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING
THAT PETITIONER'S CAUSE OF ACTION IS PREMATURE FOR FAILURE
TO EXHAUST ADMINISTRATIVE REMEDIES IN VIEW OF THE PATENT
ILLEGALITY OF THE RESPONDENTS' ACTS, THE IRREPARABLE
DAMAGE CAUSED BY SAID ILLEGAL ACTS, AND THE ABSENCE OF A
PLAIN, SPEEDY AND ADEQUATE REMEDY IN THE ORDINARY COURSE
OF LAW — ALL OF WHICH ARE EXCEPTIONS TO THE SAID DOCTRINE.
B. RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING
THAT PETITIONER'S LANDHOLDINGS ARE SUBJECT TO COVERAGE
UNDER THE COMPREHENSIVE AGRARIAN REFORM LAW, IN VIEW OF
THE UNDISPUTED FACT THAT PETITIONER'S LANDHOLDINGS HAVE
BEEN CONVERTED TO NON-AGRICULTURAL USES BY PRESIDENTIAL
PROCLAMATION NO. 1520 WHICH DECLARED THE MUNICIPALITY
NASUGBU, BATANGAS AS A TOURIST ZONE, AND THE ZONING
ORDINANCE OF THE MUNICIPALITY OF NASUGBU RE-CLASSIFYING
CERTAIN PORTIONS OF PETITIONER'S LANDHOLDINGS AS NON-
AGRICULTURAL, BOTH OF WHICH PLACE SAID LANDHOLDINGS
OUTSIDE THE SCOPE OF AGRARIAN REFORM, OR AT THE VERY
LEAST ENTITLE PETITIONER TO APPLY FOR CONVERSION AS
CONCEDED BY RESPONDENT DAR.
C. RESPONDENT COURT OF APPEALS GRAVELY ERRED WHEN IT
FAILED TO DECLARE THE PROCEEDINGS BEFORE RESPONDENT DAR
VOID FOR FAILURE TO OBSERVE DUE PROCESS, CONSIDERING THAT
RESPONDENTS BLATANTLY DISREGARDED THE PROCEDURE FOR
THE ACQUISITION OF PRIVATE LANDS UNDER R.A. 6657, MORE
PARTICULARLY, IN FAILING TO GIVE DUE NOTICE TO THE
PETITIONER AND TO PROPERLY IDENTIFY THE SPECIFIC AREAS
SOUGHT TO BE ACQUIRED.
D. RESPONDENT COURT OF APPEALS GRAVELY ERRED WHEN IT
FAILED TO RECOGNIZE THAT PETITIONER WAS BRAZENLY AND
ILLEGALLY DEPRIVED OF ITS PROPERTY WITHOUT JUST
COMPENSATION, CONSIDERING THAT PETITIONER WAS NOT PAID
JUST COMPENSATION BEFORE IT WAS UNCEREMONIOUSLY
STRIPPED OF ITS LANDHOLDINGS THROUGH THE ISSUANCE OF
CLOA'S TO ALLEGED FARMER BENEFICIARIES, IN VIOLATION OF R.A.
6657. 41
The assigned errors involve three (3) principal issues: (1) whether this Court can take
cognizance of this petition despite petitioner's failure to exhaust administrative remedies; (2)
whether the acquisition proceedings over the three haciendas were valid and in accordance
with law; and (3) assuming the haciendas may be reclassified from agricultural to non-
agricultural, whether this court has the power to rule on this issue.
I. Exhaustion of Administrative Remedies.
In its first assigned error, petitioner claims that respondent Court of Appeals gravely erred in
finding that petitioner failed to exhaust administrative remedies. As a general rule, before a
party may be allowed to invoke the jurisdiction of the courts of justice, he is expected to have
exhausted all means of administrative redress. This is not absolute, however. There are
instances when judicial action may be resorted to immediately. Among these exceptions are:
(1) when the question raised is purely legal; (2) when the administrative body is in estoppel;
(3) when the act complained of is patently illegal; (4) when there is urgent need for judicial
intervention; (5) when the respondent acted in disregard of due process; (6) when the
respondent is a department secretary whose acts, as an alter ego of the President, bear the
implied or assumed approval of the latter; (7) when irreparable damage will be suffered; (8)
when there is no other plain, speedy and adequate remedy; (9) when strong public interest is
involved; (10) when the subject of the controversy is private land; and (11) in quo
warranto proceedings. 42
Petitioner rightly sought immediate redress in the courts. There was a violation of its rights
and to require it to exhaust administrative remedies before the DAR itself was not a plain,
speedy and adequate remedy.
Respondent DAR issued Certificates of Land Ownership Award (CLOA's) to farmer
beneficiaries over portions of petitioner's land without just compensation to petitioner. A
Certificate of Land Ownership Award (CLOA) is evidence of ownership of land by a
beneficiary under R.A. 6657, the Comprehensive Agrarian Reform Law of 1988. 43 Before this
may be awarded to a farmer beneficiary, the land must first be acquired by the State from the
landowner and ownership transferred to the former. The transfer of possession and
ownership of the land to the government are conditioned upon the receipt by the landowner
of the corresponding payment or deposit by the DAR of the compensation with an accessible
bank. Until then, title remains with the landowner. 44 There was no receipt by petitioner of any
compensation for any of the lands acquired by the government.
The kind of compensation to be paid the landowner is also specific. The law provides that the
deposit must be made only in "cash" or "LBP bonds." 45 Respondent DAR's opening of trust
account deposits in petitioner' s name with the Land Bank of the Philippines does not
constitute payment under the law. Trust account deposits are not cash or LBP bonds. The
replacement of the trust account with cash or LBP bonds did not ipso facto cure the lack of
compensation; for essentially, the determination of this compensation was marred by lack of
due process. In fact, in the entire acquisition proceedings, respondent DAR disregarded the
basic requirements of administrative due process. Under these circumstances, the issuance
of the CLOA's to farmer beneficiaries necessitated immediate judicial action on the part of the
petitioner.
 II. The Validity of the Acquisition Proceedings Over the Haciendas.
Petitioner's allegation of lack of due process goes into the validity of the acquisition
proceedings themselves. Before we rule on this matter, however, there is need to lay down
the procedure in the acquisition of private lands under the provisions of the law.
A. Modes of Acquisition of Land under R. A. 6657
Republic Act No. 6657, the Comprehensive Agrarian Reform Law of 1988 (CARL), provides
for two (2) modes of acquisition of private land: compulsory and voluntary. The procedure for
the compulsory acquisition of private lands is set forth in Section 16 of R.A. 6657, viz:
Sec. 16. Procedure for Acquisition of Private Lands. — For purposes of
acquisition of private lands, the following procedures shall be followed:
a). After having identified the land, the landowners and the
beneficiaries, the DAR shall send its notice to acquire the
land to the owners thereof, by personal delivery or registered
mail, and post the same in a conspicuous place in the
municipal building and barangay hall of the place where the
property is located. Said notice shall contain the offer of the
DAR to pay a corresponding value in accordance with the
valuation set forth in Sections 17, 18, and other pertinent
provisions hereof.
b) Within thirty (30) days from the date of receipt of written
notice by personal delivery or registered mail, the landowner,
his administrator or representative shall inform the DAR of
his acceptance or rejection of the offer.
c) If the landowner accepts the offer of the DAR, the LBP
shall pay the landowner the purchase price of the land within
thirty (30) days after he executes and delivers a deed of
transfer in favor of the Government and surrenders the
Certificate of Title and other muniments of title.
d) In case of rejection or failure to reply, the DAR shall
conduct summary administrative proceedings to determine
the compensation for the land requiring the landowner, the
LBP and other interested parties to submit evidence as to
the just compensation for the land, within fifteen (15) days
from receipt of the notice. After the expiration of the above
period, the matter is deemed submitted for decision. The
DAR shall decide the case within thirty (30) days after it is
submitted for decision.
e) Upon receipt by the landowner of the corresponding
payment, or, in case of rejection or no response from the
landowner, upon the deposit with an accessible bank
designated by the DAR of the compensation in cash or in
LBP bonds in accordance with this Act, the DAR shall take
immediate possession of the land and shall request the
proper Register of Deeds to issue a Transfer Certificate of
Title (TCT) in the name of the Republic of the Philippines.
The DAR shall thereafter proceed with the redistribution of
the land to the qualified beneficiaries.
f) Any party who disagrees with the decision may bring the
matter to the court of proper jurisdiction for final
determination of just compensation.
In the compulsory acquisition of private lands, the landholding, the landowners and the
farmer beneficiaries must first be identified. After identification, the DAR shall send a Notice
of Acquisition to the landowner, by personal delivery or registered mail, and post it in a
conspicuous place in the municipal building and barangay hall of the place where the
property is located. Within thirty days from receipt of the Notice of Acquisition, the landowner,
his administrator or representative shall inform the DAR of his acceptance or rejection of the
offer. If the landowner accepts, he executes and delivers a deed of transfer in favor of the
government and surrenders the certificate of title. Within thirty days from the execution of the
deed of transfer, the Land Bank of the Philippines (LBP) pays the owner the purchase price.
If the landowner rejects the DAR's offer or fails to make a reply, the DAR conducts summary
administrative proceedings to determine just compensation for the land. The landowner, the
LBP representative and other interested parties may submit evidence on just compensation
within fifteen days from notice. Within thirty days from submission, the DAR shall decide the
case and inform the owner of its decision and the amount of just compensation. Upon receipt
by the owner of the corresponding payment, or, in case of rejection or lack of response from
the latter, the DAR shall deposit the compensation in cash or in LBP bonds with an
accessible bank. The DAR shall immediately take possession of the land and cause the
issuance of a transfer certificate of title in the name of the Republic of the Philippines. The
land shall then be redistributed to the farmer beneficiaries. Any party may question the
decision of the DAR in the regular courts for final determination of just compensation.
The DAR has made compulsory acquisition the priority mode of the land acquisition to hasten
the implementation of the Comprehensive Agrarian Reform Program (CARP). 46 Under
Section 16 of the CARL, the first step in compulsory acquisition is the identification of the
land, the landowners and the beneficiaries. However, the law is silent on how the
identification process must be made. To fill in this gap, the DAR issued on July 26, 1989
Administrative Order No.12, Series or 1989, which set the operating procedure in the
identification of such lands. The procedure is as follows:
II. OPERATING PROCEDURE
A. The Municipal Agrarian Reform Officer, with the assistance of the
pertinent Barangay Agrarian Reform Committee (BARC), shall:
1. Update the masterlist of all agricultural lands covered
under the CARP in his area of responsibility. The masterlist
shall include such information as required under the
attached CARP Masterlist Form which shall include the
name of the landowner, landholding area, TCT/OCT number,
and tax declaration number.
2. Prepare a Compulsory Acquisition Case Folder (CACF)
for each title (OCT/TCT) or landholding covered under
Phase I and II of the CARP except those for which the
landowners have already filed applications to avail of other
modes of land acquisition. A case folder shall contain the
following duly accomplished forms:
a) CARP CA Form 1 — MARO Investigation
Report
b) CARP CA Form 2 — Summary
Investigation Report of Findings and
Evaluation
c) CARP CA Form 3 — Applicant's
Information Sheet
d) CARP CA Form 4 — Beneficiaries
Undertaking
e) CARP CA Form 5 — Transmittal Report
to the PARO
The MARO/BARC shall certify that all information contained
in the above-mentioned forms have been examined and
verified by him and that the same are true and correct.
3. Send a Notice of Coverage and a letter of invitation to a
conference/meeting to the landowner covered by the
Compulsory Case Acquisition Folder. Invitations to the said
conference/meeting shall also be sent to the prospective
farmer-beneficiaries, the BARC representative(s), the Land
Bank of the Philippines (LBP) representative, and other
interested parties to discuss the inputs to the valuation of the
property. He shall discuss the MARO/BARC investigation
report and solicit the views, objection, agreements or
suggestions of the participants thereon. The landowner shall
also be asked to indicate his retention area. The minutes of
the meeting shall be signed by all participants in the
conference and shall form an integral part of the CACF.
4. Submit all completed case folders to the Provincial
Agrarian Reform Officer (PARO).
B. The PARO shall:
1. Ensure that the individual case folders are forwarded to
him by his MAROs.
2. Immediately upon receipt of a case folder, compute the
valuation of the land in accordance with A.O. No. 6, Series of
1988. 47 The valuation worksheet and the related CACF
valuation forms shall be duly certified correct by the PARO
and all the personnel who participated in the
accomplishment of these forms.
3. In all cases, the PARO may validate the report of the
MARO through ocular inspection and verification of the
property. This ocular inspection and verification shall be
mandatory when the computed value exceeds = 500,000 per
estate.
4. Upon determination of the valuation, forward the case
folder, together with the duly accomplished valuation forms
and his recommendations, to the Central Office. The LBP
representative and the MARO concerned shall be furnished
a copy each of his report.
C. DAR Central Office, specifically through the Bureau of
Land Acquisition and Distribution (BLAD), shall:
1. Within three days from receipt of the case folder from the
PARO, review, evaluate and determine the final land
valuation of the property covered by the case folder. A
summary review and evaluation report shall be prepared and
duly certified by the BLAD Director and the personnel
directly participating in the review and final valuation.
2. Prepare, for the signature of the Secretary or her duly
authorized representative, a Notice of Acquisition (CARP CA
 Form 8) for the subject property. Serve the Notice to the
landowner personally or through registered mail within three
days from its approval. The Notice shall include, among
others, the area subject of compulsory acquisition, and the
amount of just compensation offered by DAR.
3. Should the landowner accept the DAR's offered value, the
BLAD shall prepare and submit to the Secretary for approval
the Order of Acquisition. However, in case of rejection or
non-reply, the DAR Adjudication Board (DARAB) shall
conduct a summary administrative hearing to determine just
compensation, in accordance with the procedures provided
under Administrative Order No. 13, Series of 1989.
Immediately upon receipt of the DARAB's decision on just
compensation, the BLAD shall prepare and submit to the
Secretary for approval the required Order of Acquisition.
4. Upon the landowner's receipt of payment, in case of
acceptance, or upon deposit of payment in the designated
bank, in case of rejection or non-response, the Secretary
shall immediately direct the pertinent Register of Deeds to
issue the corresponding Transfer Certificate of Title (TCT) in
the name of the Republic of the Philippines. Once the
property is transferred, the DAR, through the PARO, shall
take possession of the land for redistribution to qualified
beneficiaries.
Administrative Order No. 12, Series of 1989 requires that the Municipal Agrarian Reform
Officer (MARO) keep an updated master list of all agricultural lands under the CARP in his
area of responsibility containing all the required information. The MARO prepares a
Compulsory Acquisition Case Folder (CACF) for each title covered by CARP. The MARO
then sends the landowner a "Notice of Coverage" and a "letter of invitation" to a
"conference/meeting" over the land covered by the CACF. He also sends invitations to the
prospective farmer-beneficiaries the representatives of the Barangay Agrarian Reform
Committee (BARC), the Land Bank of the Philippines (LBP) and other interested parties to
discuss the inputs to the valuation of the property and solicit views, suggestions, objections or
agreements of the parties. At the meeting, the landowner is asked to indicate his retention
area.
The MARO shall make a report of the case to the Provincial Agrarian Reform Officer (PARO)
who shall complete the valuation of the land. Ocular inspection and verification of the
property by the PARO shall be mandatory when the computed value of the estate exceeds
P500,000.00. Upon determination of the valuation, the PARO shall forward all papers
together with his recommendation to the Central Office of the DAR. The DAR Central Office,
specifically, the Bureau of Land Acquisition and Distribution (BLAD), shall review, evaluate
and determine the final land valuation of the property. The BLAD shall prepare, on the
signature of the Secretary or his duly authorized representative, a Notice of Acquisition for
the subject property. 48 From this point, the provisions of Section 16 of R.A. 6657 then
apply. 49
For a valid implementation of the CAR program, two notices are required: (1) the Notice of
Coverage and letter of invitation to a preliminary conference sent to the landowner, the
representatives of the BARC, LBP, farmer beneficiaries and other interested parties pursuant
to DAR A.O. No. 12, Series of 1989; and (2) the Notice of Acquisition sent to the landowner
under Section 16 of the CARL.
The importance of the first notice, i.e., the Notice of Coverage and the letter of invitation to
the conference, and its actual conduct cannot be understated. They are steps designed to
comply with the requirements of administrative due process. The implementation of the CARL
is an exercise of the State's police power and the power of eminent domain. To the extent
that the CARL prescribes retention limits to the landowners, there is an exercise of police
power for the regulation of private property in accordance with the Constitution. 50 But where,
to carry out such regulation, the owners are deprived of lands they own in excess of the
maximum area allowed, there is also a taking under the power of eminent domain. The taking
contemplated is not a mere limitation of the use of the land. What is required is the surrender
of the title to and physical possession of the said excess and all beneficial rights accruing to
the owner in favor of the farmer beneficiary. 51 The Bill of Rights provides that "[n]o person
shall be deprived of life, liberty or property without due process of law." 52 The CARL was not
intended to take away property without due process of law. 53 The exercise of the power of
eminent domain requires that due process be observed in the taking of private property.
DAR A.O. No. 12, Series of 1989, from whence the Notice of Coverage first sprung, was
amended in 1990 by DAR A.O. No. 9, Series of 1990 and in 1993 by DAR A.O. No. 1, Series
of 1993. The Notice of Coverage and letter of invitation to the conference meeting were
expanded and amplified in said amendments.
DAR A.O. No. 9, Series of 1990 entitled "Revised Rules Governing the Acquisition of
Agricultural Lands Subject of Voluntary Offer to Sell and Compulsory Acquisition Pursuant to
R.A. 6657," requires that:
B. MARO
1. Receives the duly accomplished CARP
Form Nos. 1 & 1.1 including supporting
documents.
2. Gathers basic ownership documents
listed under 1.a or 1.b above and prepares
corresponding VOCF/CACF by
landowner/landholding.
 3. Notifies/invites the landowner and
representatives of the LBP, DENR, BARC
and prospective beneficiaries of the
schedule of ocular inspection of the property
at least one week in advance.
4. MARO/LAND BANK FIELD OFFICE/BARC
a) Identify the land and
landowner, and determine
the suitability for agriculture
and productivity of the land
and jointly prepare Field
Investigation Report (CARP
Form No. 2), including the
Land Use Map of the
property.
b) Interview applicants and
assist them in the
preparation of the
Application For Potential
CARP Beneficiary (CARP
Form No. 3).
c) Screen prospective
farmer-beneficiaries and for
those found qualified, cause
the signing of the respective
Application to Purchase and
Farmer's Undertaking
(CARP Form No. 4).
d) Complete the Field
Investigation Report based
on the result of the ocular
inspection/investigation of
the property and documents
submitted. See to it that
Field Investigation Report is
duly accomplished and
signed by all concerned.
5. MARO
a) Assists the DENR Survey
Party in the conduct of a
boundary/ subdivision
survey delineating areas
covered by OLT, retention,
subject of VOS, CA (by
phases, if possible),
infrastructures, etc.,
whichever is applicable.
b) Sends Notice of
Coverage (CARP Form No.
5) to landowner concerned
or his duly authorized
representative inviting him
for a conference.
c) Sends Invitation Letter
(CARP Form No. 6) for a
conference/public hearing to
prospective farmer-
beneficiaries, landowner,
representatives of BARC,
LBP, DENR, DA, NGO's,
farmers' organizations and
other interested parties to
discuss the following
matters:
Result of
Field
Investigatio
n
Inputs to
valuation
Issues
raised
Comments/
recommend
ations by all
parties
concerned.
 d) Prepares Summary of IV. OPERATING PROCEDURES:
Minutes of the
conference/public hearing to Steps Responsible Activity Forms/
be guided by CARP Form
No. 7.
Agency/Unit Document

e) Forwards the completed (requirements)

VOCF/CACF to the
Provincial Agrarian Reform
Office (PARO) using CARP A. Identification and
Form No. 8 (Transmittal
Memo to PARO). Documentation

xxx xxx xxx xxx xxx xxx

DAR A.O. No. 9, Series of 1990 lays down the rules on both Voluntary Offer to Sell (VOS) 5 DARMO Issue Notice of Coverage CARP
and Compulsory Acquisition (CA) transactions involving lands enumerated under Section 7 of
the CARL. 54 In both VOS and CA. transactions, the MARO prepares the Voluntary Offer to to LO by personal delivery Form No. 2
Sell Case Folder (VOCF) and the Compulsory Acquisition Case Folder (CACF), as the case
may be, over a particular landholding. The MARO notifies the landowner as well as with proof of service, or
representatives of the LBP, BARC and prospective beneficiaries of the date of the ocular
inspection of the property at least one week before the scheduled date and invites them to
registered mail with return
attend the same. The MARO, LBP or BARC conducts the ocular inspection and investigation
by identifying the land and landowner, determining the suitability of the land for agriculture
and productivity, interviewing and screening prospective farmer beneficiaries. Based on its card, informing him that his
investigation, the MARO, LBP or BARC prepares the Field Investigation Report which shall
be signed by all parties concerned. In addition to the field investigation, a boundary or property is now under CARP
subdivision survey of the land may also be conducted by a Survey Party of the Department of
Environment and Natural Resources (DENR) to be assisted by the MARO. 55 This survey coverage and for LO to select
shall delineate the areas covered by Operation Land Transfer (OLT), areas retained by the
landowner, areas with infrastructure, and the areas subject to VOS and CA. After the survey his retention area, if he desires
and field investigation, the MARO sends a "Notice of Coverage" to the landowner or his duly
authorized representative inviting him to a conference or public hearing with the farmer
beneficiaries, representatives of the BARC, LBP, DENR, Department of Agriculture (DA), to avail of his right of retention;
non-government organizations, farmer's organizations and other interested parties. At the
public hearing, the parties shall discuss the results of the field investigation, issues that may and at the same time invites him
be raised in relation thereto, inputs to the valuation of the subject landholding, and other
comments and recommendations by all parties concerned. The Minutes of the to join the field investigation to
conference/public hearing shall form part of the VOCF or CACF which files shall be
forwarded by the MARO to the PARO. The PARO reviews, evaluates and validates the Field be conducted on his property
Investigation Report and other documents in the VOCF/CACF. He then forwards the records
to the RARO for another review.
which should be scheduled at

DAR A.O. No. 9, Series of 1990 was amended by DAR A.O. No. 1, Series of 1993. DAR A.O.
least two weeks in advance of
No. 1, Series of 1993 provided, among others, that:
said notice. subject property to identify

A copy of said Notice shall CARP the landholding, determines

be posted for at least one Form No. 17 its suitability and productivity;

week on the bulletin board of and jointly prepares the Field

the municipal and barangay Investigation Report (FIR)

halls where the property is and Land Use Map. However,

located. LGU office concerned the field investigation shall

notifies DAR about compliance proceed even if the LO, the

with posting requirements thru representatives of the DENR and

return indorsement on CARP prospective ARBs are not available

Form No. 17. provided, they were given due

6 DARMO Send notice to the LBP, CARP notice of the time and date of

BARC, DENR representatives Form No. 3 investigation to be conducted.

and prospective ARBs of the schedule of the field investigation Similarly, if the LBP representative

to be conducted on the subject is not available or could not come

property. on the scheduled date, the field

7 DARMO With the participation of CARP investigation shall also be conducted,

BARC the LO, representatives of Form No. 4 after which the duly accomplished

LBP the LBP, BARC, DENR Land Use Part I of CARP Form No. 4 shall

DENR and prospective ARBs, Map be forwarded to the LBP

Local Office conducts the investigation on representative for validation. If he agrees

to the ocular inspection report of DAR, and DA dated 27 January 1992.

he signs the FIR (Part I) and 8 DARMO Screen prospective ARBs

accomplishes Part II thereof. BARC and causes the signing of CARP

In the event that there is a the Application of Purchase Form No. 5

difference or variance between and Farmer's Undertaking

the findings of the DAR and the (APFU).

LBP as to the propriety of 9 DARMO Furnishes a copy of the CARP

covering the land under CARP, duly accomplished FIR to Form No. 4

whether in whole or in part, on the landowner by personal

the issue of suitability to agriculture, delivery with proof of

degree of development or slope, service or registered mail

and on issues affecting idle lands, will return card and posts

the conflict shall be resolved by a copy thereof for at least

a composite team of DAR, LBP, one week on the bulletin

DENR and DA which shall jointly board of the municipal

conduct further investigation and barangay halls where

thereon. The team shall submit its the property is located.

report of findings which shall be LGU office concerned CARP

binding to both DAR and LBP, notifies DAR about Form No. 17

pursuant to Joint Memorandum compliance with posting

Circular of the DAR, LBP, DENR requirement thru return

 endorsement on CARP subject to acquisition. 56 This time, the Notice of Coverage is sent to the landowner before the
conduct of the field investigation and the sending must comply with specific requirements.
Form No. 17. Representatives of the DAR Municipal Office (DARMO) must send the Notice of Coverage to
the landowner by "personal delivery with proof of service, or by registered mail with return
B. Land Survey card," informing him that his property is under CARP coverage and that if he desires to avail
of his right of retention, he may choose which area he shall retain. The Notice of Coverage
shall also invite the landowner to attend the field investigation to be scheduled at least two
10 DARMO Conducts perimeter or Perimeter weeks from notice. The field investigation is for the purpose of identifying the landholding and
determining its suitability for agriculture and its productivity. A copy of the Notice of Coverage
And/or segregation survey or shall be posted for at least one week on the bulletin board of the municipal and barangay
halls where the property is located. The date of the field investigation shall also be sent by
DENR delineating areas covered Segregation the DAR Municipal Office to representatives of the LBP, BARC, DENR and prospective
farmer beneficiaries. The field investigation shall be conducted on the date set with the
Local Office by OLT, "uncarpable Survey Plan participation of the landowner and the various representatives. If the landowner and other
representatives are absent, the field investigation shall proceed, provided they were duly
notified thereof. Should there be a variance between the findings of the DAR and the LBP as
areas such as 18% slope
to whether the land be placed under agrarian reform, the land's suitability to agriculture, the
degree or development of the slope, etc., the conflict shall be resolved by a composite team
and above, unproductive/ of the DAR, LBP, DENR and DA which shall jointly conduct further investigation. The team's
findings shall be binding on both DAR and LBP. After the field investigation, the DAR
unsuitable to agriculture, Municipal Office shall prepare the Field Investigation Report and Land Use Map, a copy of
which shall be furnished the landowner "by personal delivery with proof of service or
retention, infrastructure. registered mail with return card." Another copy of the Report and Map shall likewise be
posted for at least one week in the municipal or barangay halls where the property is located.
In case of segregation or
Clearly then, the notice requirements under the CARL are not confined to the Notice of
subdivision survey, the Acquisition set forth in Section 16 of the law. They also include the Notice of Coverage first
laid down in DAR A.O. No. 12, Series of 1989 and subsequently amended in DAR A.O. No.
9, Series of 1990 and DAR A.O. No. 1, Series of 1993. This Notice of Coverage does not
plan shall be approved merely notify the landowner that his property shall be placed under CARP and that he is
entitled to exercise his retention right; it also notifies him, pursuant to DAR A.O. No. 9, Series
by DENR-LMS. of 1990, that a public hearing, shall be conducted where he and representatives of the
concerned sectors of society may attend to discuss the results of the field investigation, the
C. Review and Completion land valuation and other pertinent matters. Under DAR A.O. No. 1, Series of 1993, the Notice
of Coverage also informs the landowner that a field investigation of his landholding shall be
of Documents conducted where he and the other representatives may be present.

11. DARMO Forward VOCF/CACF CARP B. The Compulsory Acquisition of Haciendas Palico and Banilad

to DARPO. Form No. 6
xxx xxx xxx.
DAR A.O. No. 1, Series of 1993, modified the identification process and increased the
number of government agencies involved in the identification and delineation of the land
In the case at bar, respondent DAR claims that it, through MARO Leopoldo C. Lejano, sent a
letter of invitation entitled "Invitation to Parties" dated September 29, 1989 to petitioner
corporation, through Jaime Pimentel, the administrator of Hacienda Palico. 57 The invitation
was received on the same day it was sent as indicated by a signature and the date received
at the bottom left corner of said invitation. With regard to Hacienda Banilad, respondent DAR
claims that Jaime Pimentel, administrator also of Hacienda Banilad, was notified and sent an
invitation to the conference. Pimentel actually attended the conference on September 21,
1989 and signed the Minutes of the meeting on behalf of petitioner corporation. 58 The
Minutes was also signed by the representatives of the BARC, the LBP and farmer
beneficiaries. 59 No letter of invitation was sent or conference meeting held with respect to
60
Hacienda Caylaway because it was subject to a Voluntary Offer to Sell to respondent DAR.
When respondent DAR, through the Municipal Agrarian Reform Officer (MARO), sent to the
various parties the Notice of Coverage and invitation to the conference, DAR A.O. No. 12,
Series of 1989 was already in effect more than a month earlier. The Operating Procedure in
DAR Administrative Order No. 12 does not specify how notices or letters of invitation shall be
sent to the landowner, the representatives of the BARC, the LBP, the farmer beneficiaries
and other interested parties. The procedure in the sending of these notices is important to
comply with the requisites of due process especially when the owner, as in this case, is a
juridical entity. Petitioner is a domestic
corporation, 61 and therefore, has a personality separate and distinct from its shareholders,
officers and employees.
The Notice of Acquisition in Section 16 of the CARL is required to be sent to the landowner
by "personal delivery or registered mail." Whether the landowner be a natural or juridical
person to whose address the Notice may be sent by personal delivery or registered mail, the
law does not distinguish. The DAR Administrative Orders also do not distinguish. In the
proceedings before the DAR, the distinction between natural and juridical persons in the
sending of notices may be found in the Revised Rules of Procedure of the DAR Adjudication
Board (DARAB). Service of pleadings before the DARAB is governed by Section 6, Rule V of
the DARAB Revised Rules of Procedure. Notices and pleadings are served on private
domestic corporations or partnerships in the following manner:
Sec. 6. Service upon Private Domestic Corporation or Partnership. — If the
defendant is a corporation organized under the laws of the Philippines or a
partnership duly registered, service may be made on the president, manager,
secretary, cashier, agent, or any of its directors or partners.
Similarly, the Revised Rules of Court of the Philippines, in Section 13, Rule 14 provides:
Sec. 13. Service upon private domestic corporation or partnership. — If the
defendant is a corporation organized under the laws of the Philippines or a
partnership duly registered, service may be made on the president, manager,
secretary, cashier, agent, or any of its directors.
Summonses, pleadings and notices in cases against a private domestic corporation before
the DARAB and the regular courts are served on the president, manager, secretary, cashier,
agent or any of its directors. These persons are those through whom the private domestic
corporation or partnership is capable of action. 62
Jaime Pimentel is not the president, manager, secretary, cashier or director of petitioner
corporation. Is he, as administrator of the two Haciendas, considered an agent of the
corporation?
The purpose of all rules for service of process on a corporation is to make it reasonably
certain that the corporation will receive prompt and proper notice in an action against
it. 63 Service must be made on a representative so integrated with the corporation as to make
it a priori supposable that he will realize his responsibilities and know what he should do with
any legal papers served on him, 64 and bring home to the corporation notice of the filing of the
action. 65Petitioner's evidence does not show the official duties of Jaime Pimentel as
administrator of petitioner's haciendas. The evidence does not indicate whether Pimentel's
duties is so integrated with the corporation that he would immediately realize his
responsibilities and know what he should do with any legal papers served on him. At the time
the notices were sent and the preliminary conference conducted, petitioner's principal place
of business was listed in respondent DAR's records as "Soriano Bldg., Plaza Cervantes,
Manila," 66 and "7th Flr. Cacho-Gonzales Bldg., 101 Aguirre St., Makati, Metro
Manila."67 Pimentel did not hold office at the principal place of business of petitioner. Neither
did he exercise his functions in Plaza Cervantes, Manila nor in Cacho-Gonzales Bldg.,
Makati, Metro Manila. He performed his official functions and actually resided in the
haciendas in Nasugbu, Batangas, a place over two hundred kilometers away from Metro
Manila.
Curiously, respondent DAR had information of the address of petitioner's principal place of
business. The Notices of Acquisition over Haciendas Palico and Banilad were addressed to
petitioner at its offices in Manila and Makati. These Notices were sent barely three to four
months after Pimentel was notified of the preliminary conference. 68Why respondent DAR
chose to notify Pimentel instead of the officers of the corporation was not explained by the
said respondent.
Nevertheless, assuming that Pimentel was an agent of petitioner corporation, and the notices
and letters of invitation were validly served on petitioner through him, there is no showing that
Pimentel himself was duly authorized to attend the conference meeting with the MARO,
BARC and LBP representatives and farmer beneficiaries for purposes of compulsory
acquisition of petitioner's landholdings. Even respondent DAR's evidence does not indicate
this authority. On the contrary, petitioner claims that it had no knowledge of the letter-
invitation, hence, could not have given Pimentel the authority to bind it to whatever matters
were discussed or agreed upon by the parties at the preliminary conference or public hearing.
Notably, one year after Pimentel was informed of the preliminary conference, DAR A.O. No.
9, Series of 1990 was issued and this required that the Notice of Coverage must be sent "to
the landowner concerned or his duly authorized representative." 69
Assuming further that petitioner was duly notified of the CARP coverage of its haciendas, the
areas found actually subject to CARP were not properly identified before they were taken
over by respondent DAR. Respondents insist that the lands were identified because they are
all registered property and the technical description in their respective titles specifies their
metes and bounds. Respondents admit at the same time, however, that not all areas in the
haciendas were placed under the comprehensive agrarian reform program invariably by
reason of elevation or character or use of the land. 70
The acquisition of the landholdings did not cover the entire expanse of the two haciendas, but
only portions thereof. Hacienda Palico has an area of 1,024 hectares and only 688.7576
hectares were targetted for acquisition. Hacienda Banilad has an area of 1,050 hectares but
only 964.0688 hectares were subject to CARP. The haciendas are not entirely agricultural
lands. In fact, the various tax declarations over the haciendas describe the landholdings as
"sugarland," and "forest, sugarland, pasture land, horticulture and woodland." 71
Under Section 16 of the CARL, the sending of the Notice of Acquisition specifically requires
that the land subject to land reform be first identified. The two haciendas in the instant case
cover vast tracts of land. Before Notices of Acquisition were sent to petitioner, however, the
exact areas of the landholdings were not properly segregated and delineated. Upon receipt of
this notice, therefore, petitioner corporation had no idea which portions of its estate were
subject to compulsory acquisition, which portions it could rightfully retain, whether these
retained portions were compact or contiguous, and which portions were excluded from CARP
coverage. Even respondent DAR's evidence does not show that petitioner, through its duly
authorized representative, was notified of any ocular inspection and investigation that was to
be conducted by respondent DAR. Neither is there proof that petitioner was given the
opportunity to at least choose and identify its retention area in those portions to be acquired
compulsorily. The right of retention and how this right is exercised, is guaranteed in Section 6
of the CARL, viz:
Sec. 6. Retention Limits. — . . . .
The right to choose the area to be retained, which shall be compact or
contiguous, shall pertain to the landowner; Provided, however, That in case
the area selected for retention by the landowner is tenanted, the tenant shall
have the option to choose whether to remain therein or be a beneficiary in
the same or another agricultural land with similar or comparable features. In
case the tenant chooses to remain in the retained area, he shall be
considered a leaseholder and shall lose his right to be a beneficiary under
this Act. In case the tenant chooses to be a beneficiary in another agricultural
land, he loses his right as a leaseholder to the land retained by the
landowner. The tenant must exercise this option within a period of one (1)
year from the time the landowner manifests his choice of the area for
retention.
Under the law, a landowner may retain not more than five hectares out of the total area of his
agricultural land subject to CARP. The right to choose the area to be retained, which shall be
compact or contiguous, pertains to the landowner. If the area chosen for retention is
tenanted, the tenant shall have the option to choose whether to remain on the portion or be a
beneficiary in the same or another agricultural land with similar or comparable features.
C. The Voluntary Acquisition of Hacienda Caylaway
Petitioner was also left in the dark with respect to Hacienda Caylaway, which was the subject
of a Voluntary Offer to Sell (VOS). The VOS in the instant case was made on May 6,
1988, 72 before the effectivity of R.A. 6657 on June 15, 1988. VOS transactions were first
governed by DAR Administrative Order No. 19, series of 1989, 73 and under this order, all
VOS filed before June 15, 1988 shall be heard and processed in accordance with the
procedure provided for in Executive Order No. 229, thus:
III. All VOS transactions which are now pending before the DAR and for
which no payment has been made shall be subject to the notice and hearing
requirements provided in Administrative Order No. 12, Series of 1989, dated
26 July 1989, Section II, Subsection A, paragraph 3.
All VOS filed before 15 June 1988, the date of effectivity of the CARL, shall
be heard and processed in accordance with the procedure provided for in
Executive Order No. 229.
xxx xxx xxx.
Sec. 9 of E.O. 229 provides:
Sec. 9. Voluntary Offer to Sell. — The government shall purchase all
agricultural lands it deems productive and suitable to farmer cultivation
voluntarily offered for sale to it at a valuation determined in accordance with
Section 6. Such transaction shall be exempt from the payment of capital
gains tax and other taxes and fees.
Executive Order 229 does not contain the procedure for the identification of private land as
set forth in DAR A.O. No. 12, Series of 1989. Section 5 of E.O. 229 merely reiterates the
procedure of acquisition in Section 16, R.A. 6657. In other words, the E.O. is silent as to the
procedure for the identification of the land, the notice of coverage and the preliminary
conference with the landowner, representatives of the BARC, the LBP and farmer
beneficiaries. Does this mean that these requirements may be dispensed with regard to VOS
filed before June 15, 1988? The answer is no.
First of all, the same E.O. 229, like Section 16 of the CARL, requires that the land, landowner
and beneficiaries of the land subject to agrarian reform be identified before the notice of
acquisition should be issued. 74 Hacienda Caylaway was voluntarily offered for sale in 1989.
The Hacienda has a total area of 867.4571 hectares and is covered by four (4) titles. In two
separate Resolutions both dated January 12, 1989, respondent DAR, through the Regional
Director, formally accepted the VOS over the two of these four
titles. 75 The land covered by two titles has an area of 855.5257 hectares, but only 648.8544
hectares thereof fell within the coverage of R.A. 6657. 76 Petitioner claims it does not know
where these portions are located.
Respondent DAR, on the other hand, avers that surveys on the land covered by the four titles
were conducted in 1989, and that petitioner, as landowner, was not denied participation
therein, The results of the survey and the land valuation summary report, however, do not
indicate whether notices to attend the same were actually sent to and received by petitioner
or its duly authorized representative. 77 To reiterate, Executive Order No. 229 does not lay
down the operating procedure, much less the notice requirements, before the VOS is
accepted by respondent DAR. Notice to the landowner, however, cannot be dispensed with.
It is part of administrative due process and is an essential requisite to enable the landowner
himself to exercise, at the very least, his right of retention guaranteed under the CARL.
III. The Conversion of the three Haciendas.
It is petitioner's claim that the three haciendas are not subject to agrarian reform because
they have been declared for tourism, not agricultural
purposes. 78 In 1975, then President Marcos issued Proclamation No. 1520 declaring the
municipality of Nasugbu, Batangas a tourist zone. Lands in Nasugbu, including the subject
haciendas, were allegedly reclassified as non-agricultural 13 years before the effectivity of R.
A. No. 6657. 79 In 1993, the Regional Director for Region IV of the Department of Agriculture
certified that the haciendas are not feasible and sound for agricultural development. 80 On
March 20, 1992, pursuant to Proclamation No. 1520, the Sangguniang Bayan of Nasugbu,
Batangas adopted Resolution No. 19 reclassifying certain areas of Nasugbu as non-
agricultural. 81 This Resolution approved Municipal Ordinance No. 19, Series of 1992, the
Revised Zoning Ordinance of Nasugbu 82 which zoning ordinance was based on a Land Use
Plan for Planning Areas for New Development allegedly prepared by the University of the
Philippines. 83 Resolution No. 19 of the Sangguniang Bayan was approved by the
Sangguniang Panlalawigan of Batangas on March 8, 1993. 84
Petitioner claims that proclamation No. 1520 was also upheld by respondent DAR in 1991
when it approved conversion of 1,827 hectares in Nasugbu into a tourist area known as the
Batulao Resort Complex, and 13.52 hectares in Barangay Caylaway as within the potential
tourist belt. 85 Petitioner present evidence before us that these areas are adjacent to the
haciendas subject of this petition, hence, the haciendas should likewise be converted.
Petitioner urges this Court to take cognizance of the conversion proceedings and rule
accordingly. 6
We do not agree. Respondent DAR's failure to observe due process in the acquisition of
petitioner's landholdings does not ipso facto give this Court the power to adjudicate over
petitioner's application for conversion of its haciendas from agricultural to non-
agricultural. The agency charged with the mandate of approving or disapproving applications
for conversion is the DAR.
At the time petitioner filed its application for conversion, the Rules of Procedure governing the
processing and approval of applications for land use conversion was the DAR A.O. No. 2,
Series of 1990. Under this A.O., the application for conversion is filed with the MARO where
the property is located. The MARO reviews the application and its supporting documents and
conducts field investigation and ocular inspection of the property. The findings of the MARO
are subject to review and evaluation by the Provincial Agrarian Reform Officer (PARO). The
PARO may conduct further field investigation and submit a supplemental report together with
his recommendation to the Regional Agrarian Reform Officer (RARO) who shall review the
same. For lands less than five hectares, the RARO shall approve or disapprove applications
for conversion. For lands exceeding five hectares, the RARO shall evaluate the PARO Report
and forward the records and his report to the Undersecretary for Legal Affairs. Applications
over areas exceeding fifty hectares are approved or disapproved by the Secretary of Agrarian
Reform.
The DAR's mandate over applications for conversion was first laid down in Section 4 (j) and
Section 5 (l) of Executive Order No. 129-A, Series of 1987 and reiterated in the CARL and
Memorandum Circular No. 54, Series of 1993 of the Office of the President. The DAR's
jurisdiction over applications for conversion is provided as follows:
A. The Department of Agrarian Reform (DAR) is mandated
to "approve or disapprove applications for conversion,
restructuring or readjustment of agricultural lands into non-
agricultural uses," pursuant to Section 4 (j) of Executive
Order No. 129-A, Series of 1987.
B. Sec. 5 (l) of E.O. 129-A, Series of 1987, vests in the DAR,
exclusive authority to approve or disapprove applications for
conversion of agricultural lands for residential, commercial,
industrial and other land uses.
C. Sec. 65 of R.A. No. 6657, otherwise known as the
Comprehensive Agrarian Reform Law of 1988, likewise
empowers the DAR to authorize under certain conditions,
the conversion of agricultural lands.
D. Sec. 4 of Memorandum Circular No. 54, Series of 1993 of
the Office of the President, provides that "action on
applications for land use conversion on individual
landholdings shall remain as the responsibility of the DAR,
which shall utilize as its primary reference, documents on the
comprehensive land use plans and accompanying
ordinances passed upon and approved by the local
government units concerned, together with the National
Land Use Policy, pursuant to R.A. No. 6657 and E.O. No.
129-A. 87
Applications for conversion were initially governed by DAR A.O. No. 1, Series of 1990 entitled
"Revised Rules and Regulations Governing Conversion of Private Agricultural Lands and
Non-Agricultural Uses," and DAR A.O. No. 2, Series of 1990 entitled "Rules of Procedure
Governing the Processing and Approval of Applications for Land Use Conversion." These Banilad and Caylaway are non-agricultural, hence, exempt from the coverage of the CARL
A.O.'s and other implementing guidelines, including Presidential issuances and national lies with the DAR, not with this Court.
policies related to land use conversion have been consolidated in DAR A.O. No. 07, Series of
1997. Under this recent issuance, the guiding principle in land use conversion is: Finally, we stress that the failure of respondent DAR to comply with the requisites of due
process in the acquisition proceedings does not give this Court the power to nullify the
to preserve prime agricultural lands for food production while, at the same CLOA's already issued to the farmer beneficiaries. To assume the power is to short-circuit the
time, recognizing the need of the other sectors of society (housing, industry administrative process, which has yet to run its regular course. Respondent DAR must be
and commerce) for land, when coinciding with the objectives of the given the chance to correct its procedural lapses in the acquisition proceedings. In Hacienda
Comprehensive Agrarian Reform Law to promote social justice, Palico alone, CLOA's were issued to 177 farmer beneficiaries in 1993. 92 Since then until the
industrialization and the optimum use of land as a national resource for present, these farmers have been cultivating their lands. 93 It goes against the basic precepts
public welfare. 88 of justice, fairness and equity to deprive these people, through no fault of their own, of the
land they till. Anyhow, the farmer beneficiaries hold the property in trust for the rightful owner
"Land Use" refers to the manner of utilization of land, including its allocation, development of the land.
and management. "Land Use Conversion" refers to the act or process of changing the current
use of a piece of agricultural land into some other use as approved by the DAR. 89 The IN VIEW WHEREOF, the petition is granted in part and the acquisition proceedings over the
conversion of agricultural land to uses other than agricultural requires field investigation and three haciendas are nullified for respondent DAR's failure to observe due process therein. In
conferences with the occupants of the land. They involve factual findings and highly technical accordance with the guidelines set forth in this decision and the applicable administrative
matters within the special training and expertise of the DAR. DAR A.O. No. 7, Series of 1997 procedure, the case is hereby remanded to respondent DAR for proper acquisition
lays down with specificity how the DAR must go about its task. This time, the field proceedings and determination of petitioner's application for conversion.
investigation is not conducted by the MARO but by a special task force, known as the Center
for Land Use Policy Planning and Implementation (CLUPPI-DAR Central Office). The SO ORDERED.
procedure is that once an application for conversion is filed, the CLUPPI prepares the Notice
of Posting. The MARO only posts the notice and thereafter issues a certificate to the fact of
posting. The CLUPPI conducts the field investigation and dialogues with the applicants and
the farmer beneficiaries to ascertain the information necessary for the processing of the
application. The Chairman of the CLUPPI deliberates on the merits of the investigation report
and recommends the appropriate action. This recommendation is transmitted to the Regional
Director, thru the Undersecretary, or Secretary of Agrarian Reform. Applications involving
more than fifty hectares are approved or disapproved by the Secretary. The procedure does
not end with the Secretary, however. The Order provides that the decision of the Secretary
may be appealed to the Office of the President or the Court of Appeals, as the case may
be, viz:

Appeal from the decision of the Undersecretary shall be made to the

Secretary, and from the Secretary to the Office of the President or the Court
of Appeals as the case may be. The mode of appeal/motion for
reconsideration, and the appeal fee, from Undersecretary to the Office of the
Secretary shall be the same as that of the Regional Director to the Office of
the Secretary. 90

Indeed, the doctrine of primary jurisdiction does not warrant a court to arrogate unto itself
authority to resolve a controversy the jurisdiction over which is initially lodged with an
administrative body of special competence. 91Respondent DAR is in a better position to
resolve petitioner's application for conversion, being primarily the agency possessing the
necessary expertise on the matter. The power to determine whether Haciendas Palico,
 EN BANC
G.R. No. 171101 July 5, 2011
HACIENDA LUISITA, INCORPORATED, Petitioner,
LUISITA INDUSTRIAL PARK CORPORATION and RIZAL COMMERCIAL BANKING
CORPORATION,Petitioners-in-Intervention,
vs.
PRESIDENTIAL AGRARIAN REFORM COUNCIL; SECRETARY NASSER
PANGANDAMAN OF THE DEPARTMENT OF AGRARIAN REFORM; ALYANSA NG MGA
MANGGAGAWANG BUKID NG HACIENDA LUISITA, RENE GALANG, NOEL MALLARI,
and JULIO SUNIGA1 and his SUPERVISORY GROUP OF THE HACIENDA LUISITA, INC.
and WINDSOR ANDAYA, Respondents.
DECISION
VELASCO, JR., J.:
"Land for the landless," a shibboleth the landed gentry doubtless has received with much
misgiving, if not resistance, even if only the number of agrarian suits filed serves to be the
norm. Through the years, this battle cry and root of discord continues to reflect the seemingly
ceaseless discourse on, and great disparity in, the distribution of land among the people,
"dramatizing the increasingly urgent demand of the dispossessed x x x for a plot of earth as
their place in the sun."2 As administrations and political alignments change, policies
advanced, and agrarian reform laws enacted, the latest being what is considered a
comprehensive piece, the face of land reform varies and is masked in myriads of ways. The
stated goal, however, remains the same: clear the way for the true freedom of the farmer. 3
Land reform, or the broader term "agrarian reform," has been a government policy even
before the Commonwealth era. In fact, at the onset of the American regime, initial steps
toward land reform were already taken to address social unrest.4 Then, under the 1935
Constitution, specific provisions on social justice and expropriation of landed estates for
distribution to tenants as a solution to land ownership and tenancy issues were incorporated.
In 1955, the Land Reform Act (Republic Act No. [RA] 1400) was passed, setting in motion the
expropriation of all tenanted estates.5
On August 8, 1963, the Agricultural Land Reform Code (RA 3844) was enacted,6 abolishing
share tenancy and converting all instances of share tenancy into leasehold tenancy.7 RA
3844 created the Land Bank of the Philippines (LBP) to provide support in all phases of
agrarian reform.
As its major thrust, RA 3844 aimed to create a system of owner-cultivatorship in rice and
corn, supposedly to be accomplished by expropriating lands in excess of 75 hectares for their
eventual resale to tenants. The law, however, had this restricting feature: its operations were
confined mainly to areas in Central Luzon, and its implementation at any level of intensity
limited to the pilot project in Nueva Ecija.8
Subsequently, Congress passed the Code of Agrarian Reform (RA 6389) declaring the entire
country a land reform area, and providing for the automatic conversion of tenancy to
leasehold tenancy in all areas. From 75 hectares, the retention limit was cut down to seven
hectares.9
Barely a month after declaring martial law in September 1972, then President Ferdinand
Marcos issued Presidential Decree No. 27 (PD 27) for the "emancipation of the tiller from the
bondage of the soil."10 Based on this issuance, tenant-farmers, depending on the size of the
landholding worked on, can either purchase the land they tilled or shift from share to fixed-
rent leasehold tenancy.11 While touted as "revolutionary," the scope of the agrarian reform
program PD 27 enunciated covered only tenanted, privately-owned rice and corn lands.12
Then came the revolutionary government of then President Corazon C. Aquino and the
drafting and eventual ratification of the 1987 Constitution. Its provisions foreshadowed the
establishment of a legal framework for the formulation of an expansive approach to land
reform, affecting all agricultural lands and covering both tenant-farmers and regular
farmworkers.13
So it was that Proclamation No. 131, Series of 1987, was issued instituting a comprehensive
agrarian reform program (CARP) to cover all agricultural lands, regardless of tenurial
arrangement and commodity produced, as provided in the Constitution.
On July 22, 1987, Executive Order No. 229 (EO 229) was issued providing, as its
title14 indicates, the mechanisms for CARP implementation. It created the Presidential
Agrarian Reform Council (PARC) as the highest policy-making body that formulates all
policies, rules, and regulations necessary for the implementation of CARP.
On June 15, 1988, RA 6657 or the Comprehensive Agrarian Reform Law of 1988, also
known as CARL or the CARP Law, took effect, ushering in a new process of land
classification, acquisition, and distribution. As to be expected, RA 6657 met stiff opposition,
its validity or some of its provisions challenged at every possible turn.Association of Small
Landowners in the Philippines, Inc. v. Secretary of Agrarian Reform 15 stated the observation
that the assault was inevitable, the CARP being an untried and untested project, "an
experiment [even], as all life is an experiment," the Court said, borrowing from Justice
Holmes.
The Case
In this Petition for Certiorari and Prohibition under Rule 65 with prayer for preliminary
injunctive relief, petitioner Hacienda Luisita, Inc. (HLI) assails and seeks to set aside PARC
Resolution No. 2005-32-0116 and Resolution No. 2006-34-0117 issued on December 22, 2005
and May 3, 2006, respectively, as well as the implementing Notice of Coverage dated
January 2, 2006 (Notice of Coverage).18
The Facts
At the core of the case is Hacienda Luisita de Tarlac (Hacienda Luisita), once a 6,443-
hectare mixed agricultural-industrial-residential expanse straddling several municipalities of
Tarlac and owned by Compañia General de Tabacos de Filipinas (Tabacalera). In 1957, the
Spanish owners of Tabacalera offered to sell Hacienda Luisita as well as their controlling
interest in the sugar mill within the hacienda, the Central Azucarera de Tarlac (CAT), as an
indivisible transaction. The Tarlac Development Corporation (Tadeco), then owned and/or
controlled by the Jose Cojuangco, Sr. Group, was willing to buy. As agreed upon, Tadeco
undertook to pay the purchase price for Hacienda Luisita in pesos, while that for the
controlling interest in CAT, in US dollars.19
To facilitate the adverted sale-and-purchase package, the Philippine government, through the
then Central Bank of the Philippines, assisted the buyer to obtain a dollar loan from a US
bank.20 Also, the Government Service Insurance System (GSIS) Board of Trustees extended
on November 27, 1957 a PhP 5.911 million loan in favor of Tadeco to pay the peso price
component of the sale. One of the conditions contained in the approving GSIS Resolution No.
3203, as later amended by Resolution No. 356, Series of 1958, reads as follows:
That the lots comprising the Hacienda Luisita shall 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;21
As of March 31, 1958, Tadeco had fully paid the purchase price for the acquisition of
Hacienda Luisita and Tabacalera’s interest in CAT.22
The details of the events that happened next involving the hacienda and the political color
some of the parties embossed are of minimal significance to this narration and need no
belaboring. Suffice it to state that on May 7, 1980, the martial law administration filed a suit
before the Manila Regional Trial Court (RTC) against Tadeco, et al., for them to surrender
Hacienda Luisita to the then Ministry of Agrarian Reform (MAR, now the Department of
Agrarian Reform [DAR]) so that the land can be distributed to farmers at cost. Responding,
Tadeco or its owners 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. As perceived then, the government commenced the case against Tadeco as a
political message to the family of the late Benigno Aquino, Jr.23
Eventually, the Manila RTC rendered judgment ordering Tadeco to surrender Hacienda
Luisita to the MAR. Therefrom, Tadeco appealed to the Court of Appeals (CA).
On March 17, 1988, the Office of the Solicitor General (OSG) moved to withdraw the
government’s case against Tadeco, et al. By Resolution of May 18, 1988, the CA dismissed
the case the Marcos government initially instituted and won against Tadeco, et al. The
dismissal action was, however, made subject to the obtention by Tadeco of the PARC’s
approval of a stock distribution plan (SDP) that must initially be implemented after such
approval shall have been secured.24 The appellate court wrote:
The defendants-appellants x x x filed a motion on April 13, 1988 joining the x x x
governmental agencies concerned in moving for the dismissal of the case subject, however,
to the following conditions embodied in the letter dated April 8, 1988 (Annex 2) of the
Secretary of the [DAR] quoted, as follows:
1. Should TADECO fail to obtain approval of the stock distribution plan for failure to
comply with all the requirements for corporate landowners set forth in the guidelines
issued by the [PARC]: or
2. If such stock distribution plan is approved by PARC, but TADECO fails to initially
implement it.
xxxx
WHEREFORE, the present case on appeal is hereby dismissed without prejudice, and
should be revived if any of the conditions as above set forth is not duly complied with by the
TADECO.25
Markedly, Section 10 of EO 22926 allows corporate landowners, as an alternative to the
actual land transfer scheme of CARP, to give qualified beneficiaries the right to purchase
shares of stocks of the corporation under a stock ownership arrangement and/or land-to-
share ratio.
Like EO 229, RA 6657, under the latter’s Sec. 31, also provides two (2) alternative modalities,
i.e., land or stock transfer, pursuant to either of which the corporate landowner can comply
with CARP, but subject to well-defined conditions and timeline requirements. Sec. 31 of RA
6657 provides:
SEC. 31. Corporate Landowners.¾Corporate landowners may voluntarily transfer ownership
over their agricultural landholdings to the Republic of the Philippines pursuant to Section 20
hereof or to qualified beneficiaries x x x.
Upon certification by the DAR, corporations owning agricultural lands may give their
qualified beneficiaries the right to purchase such proportion of the capital stock of the
corporation that the agricultural land, actually devoted to agricultural activities, bears
in relation to the company’s total assets, under such terms and conditions as may be
agreed upon by them. In no case shall the compensation received by the workers at the time
the shares of stocks are distributed be reduced. x x x
Corporations or associations which voluntarily divest a proportion of their capital stock, equity
or participation in favor of their workers or other qualified beneficiaries under this section shall
be deemed to have complied with the provisions of this Act: Provided, That the following
conditions are complied with:
(a) In order to safeguard the right of beneficiaries who own shares of stocks to
dividends and other financial benefits, the books of the corporation or association
shall be subject to periodic audit by certified public accountants chosen by the
beneficiaries;
(b) Irrespective of the value of their equity in the corporation or association, the
beneficiaries shall be assured of at least one (1) representative in the board of
directors, or in a management or executive committee, if one exists, of the
corporation or association;
(c) Any shares acquired by such workers and beneficiaries shall have the same rights
and features as all other shares; and
(d) Any transfer of shares of stocks by the original beneficiaries shall be void ab initio
unless said transaction is in favor of a qualified and registered beneficiary within the
same corporation.
If within two (2) years from the approval of this Act, the [voluntary] land or stock transfer
envisioned above is not made or realized or the plan for such stock distribution approved by
the PARC within the same period, the agricultural land of the corporate owners or corporation
shall be subject to the compulsory coverage of this Act. (Emphasis added.)
Vis-à-vis the stock distribution aspect of the aforequoted Sec. 31, DAR issued Administrative
Order No. 10, Series of 1988 (DAO 10),27 entitled Guidelines and Procedures for Corporate
Landowners Desiring to Avail Themselves of the Stock Distribution Plan under Section 31 of
RA 6657.
From the start, the stock distribution scheme appeared to be Tadeco’s preferred option, for,
on August 23, 1988,28 it organized a spin-off corporation, HLI, as vehicle to facilitate stock
acquisition by the farmworkers. For this purpose, Tadeco assigned and 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.29
Pedro Cojuangco, Josephine C. Reyes, Teresita C. Lopa, Jose Cojuangco, Jr., and Paz C.
Teopaco were the incorporators of HLI.30
To accommodate the assets transfer from Tadeco to HLI, the latter, with the Securities and
Exchange Commission’s (SEC’s) approval, increased its capital stock on May 10, 1989 from
PhP 1,500,000 divided into 1,500,000 shares with a par value of PhP 1/share to PhP
400,000,000 divided into 400,000,000 shares also with par value of PhP 1/share,
150,000,000 of which were to be issued only to qualified and registered beneficiaries of the
CARP, and the remaining 250,000,000 to any stockholder of the corporation.31
As appearing in its proposed SDP, the properties and assets of Tadeco contributed to the
capital stock of HLI, as appraised and approved by the SEC, have an aggregate value of PhP
590,554,220, or after deducting the total liabilities of the farm amounting to PhP 235,422,758,
a net value of PhP 355,531,462. This translated to 355,531,462 shares with a par value of
PhP 1/share.32
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. On May 11, 1989, the Stock Distribution Option Agreement (SDOA),
styled as a Memorandum of Agreement (MOA),33 was entered into by Tadeco, HLI, and the
5,848 qualified FWBs34 and attested to by then DAR Secretary Philip Juico. The SDOA
embodied the basis and mechanics of the SDP, which would eventually be submitted to the
PARC for approval. In the SDOA, the parties agreed to the following:
1. The percentage of the value of the agricultural land of Hacienda Luisita
(P196,630,000.00) in relation to the total assets (P590,554,220.00) transferred and
conveyed to the SECOND PARTY [HLI] is 33.296% that, under the law, is the
proportion of the outstanding capital stock of the SECOND PARTY, which is
P355,531,462.00 or 355,531,462 shares with a par value of P1.00 per share, that
has to be distributed to the THIRD PARTY [FWBs] under the stock distribution plan,
the said 33.296% thereof being P118,391,976.85 or 118,391,976.85 shares.
2. The qualified beneficiaries of the stock distribution plan shall be the farmworkers
who appear in the annual payroll, inclusive of the permanent and seasonal
employees, who are regularly or periodically employed by the SECOND PARTY.
3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY
shall arrange with the FIRST PARTY [Tadeco] the acquisition and distribution to
the THIRD PARTY 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.
4.The SECOND PARTY shall guarantee to the qualified beneficiaries of the [SDP]
that every year they will receive on top of their regular compensation, an amount that
approximates the equivalent of three (3%) of the total gross sales from the production
of the agricultural land, whether it be in the form of cash dividends or incentive
bonuses or both.
5. Even if only a part or fraction of the shares earmarked for distribution will have
been acquired from the FIRST PARTY and distributed to the THIRD PARTY, FIRST
 PARTY shall execute at the beginning of each fiscal year an irrevocable proxy, valid
and effective for one (1) year, in favor of the farmworkers appearing as shareholders
of the SECOND PARTY at the start of said year which will empower the THIRD
PARTY or their representative to vote in stockholders’ and board of directors’
meetings of the SECOND PARTY convened during the year the entire 33.296% of
the outstanding capital stock of the SECOND PARTY earmarked for distribution and
thus be able to gain such number of seats in the board of directors of the SECOND
PARTY that the whole 33.296% of the shares subject to distribution will be entitled to.
6. In addition, the SECOND PARTY shall within a reasonable time subdivide and
allocate for free and without charge among the qualified family-beneficiaries residing
in the place where the agricultural land is situated, residential or homelots of not
more than 240 sq.m. each, with each family-beneficiary being assured of receiving
and owning a homelot in the barangay where it actually resides on the date of the
execution of this Agreement.
7. This Agreement is entered into by the parties in the spirit of the (C.A.R.P.) of the
government and with the supervision of the [DAR], with the end in view of improving
the lot of the qualified beneficiaries of the [SDP] and obtaining for them greater
benefits. (Emphasis added.)
As may be gleaned from the SDOA, included as part of the distribution plan are: (a)
production-sharing equivalent to three percent (3%) of gross sales from the production of the
agricultural land payable to the FWBs in cash dividends or incentive bonus; and (b)
distribution of free homelots of not more than 240 square meters each to family-beneficiaries.
The production-sharing, as the SDP indicated, is payable "irrespective of whether [HLI]
makes money or not," implying that the benefits do not partake the nature of dividends, as the
term is ordinarily understood under corporation law.
While a little bit hard to follow, given that, during the period material, the assigned value of
the agricultural land in the hacienda was PhP 196.63 million, while the total assets of HLI was
PhP 590.55 million with net assets of PhP 355.53 million, Tadeco/HLI would admit that the
ratio of the land-to-shares of stock corresponds to 33.3% of the outstanding capital stock of
the HLI equivalent to 118,391,976.85 shares of stock with a par value of PhP 1/share.
Subsequently, HLI submitted to DAR its SDP, designated as "Proposal for Stock Distribution
under C.A.R.P.,"35which was substantially based on the SDOA.
Notably, in a follow-up referendum the DAR conducted on October 14, 1989, 5,117 FWBs,
out of 5,315 who participated, opted to receive shares in HLI.36 One hundred thirty-two (132)
chose actual land distribution.37
After a review of the SDP, then DAR Secretary Miriam Defensor-Santiago (Sec. Defensor-
Santiago) addressed a letter dated November 6, 198938 to Pedro S. Cojuangco (Cojuangco),
then Tadeco president, proposing that the SDP be revised, along the following lines:
1. That over the implementation period of the [SDP], [Tadeco]/HLI shall ensure that
there will be no dilution in the shares of stocks of individual [FWBs];
2. That a safeguard shall be provided by [Tadeco]/HLI against the dilution of the
percentage shareholdings of the [FWBs], i.e., that the 33% shareholdings of the
[FWBs] will be maintained at any given time;
3. That the mechanics for distributing the stocks be explicitly stated in the [MOA]
signed between the [Tadeco], HLI and its [FWBs] prior to the implementation of the
stock plan;
4. That the stock distribution plan provide for clear and definite terms for determining
the actual number of seats to be allocated for the [FWBs] in the HLI Board;
5. That HLI provide guidelines and a timetable for the distribution of homelots to
qualified [FWBs]; and
6. That the 3% cash dividends mentioned in the [SDP] be expressly provided for [in]
the MOA.
In a letter-reply of November 14, 1989 to Sec. Defensor-Santiago, Tadeco/HLI explained that
the proposed revisions of the SDP are already embodied in both the SDP and
MOA.39 Following that exchange, the PARC, under then Sec. Defensor-Santiago,
by Resolution No. 89-12-240 dated November 21, 1989, approved the SDP of Tadeco/HLI.41
At the time of the SDP approval, HLI had a pool of farmworkers, numbering 6,296, more or
less, composed of permanent, seasonal and casual master list/payroll and non-master list
members.
From 1989 to 2005, HLI claimed to have extended the following benefits to the FWBs:
(a) 3 billion pesos (P3,000,000,000) worth of salaries, wages and fringe benefits
(b) 59 million shares of stock distributed for free to the FWBs;
(c) 150 million pesos (P150,000,000) representing 3% of the gross produce;
(d) 37.5 million pesos (P37,500,000) representing 3% from the sale of 500 hectares
of converted agricultural land of Hacienda Luisita;
(e) 240-square meter homelots distributed for free;
 (f) 2.4 million pesos (P2,400,000) representing 3% from the sale of 80 hectares at 80
million pesos (P80,000,000) for the SCTEX;
(g) Social service benefits, such as but not limited to free
hospitalization/medical/maternity services, old age/death benefits and no interest
bearing salary/educational loans and rice sugar accounts. 42
Two separate groups subsequently contested this claim of HLI.
On August 15, 1995, HLI applied for the conversion of 500 hectares of land of the hacienda
from agricultural to industrial use,43 pursuant to Sec. 65 of RA 6657, providing:
SEC. 65. Conversion of Lands.¾After 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, the DAR, upon application of the beneficiary or the
landowner, with due notice to the affected parties, and subject to existing laws, may authorize
the reclassification, or conversion of the land and its disposition: Provided, That the
beneficiary shall have fully paid its obligation.
The application, according to HLI, had the backing of 5,000 or so FWBs, including
respondent Rene Galang, and Jose Julio Suniga, as evidenced by the Manifesto of Support
they signed and which was submitted to the DAR.44After the usual processing, the DAR, thru
then Sec. Ernesto Garilao, approved the application on August 14, 1996, per DAR
Conversion Order No. 030601074-764-(95), Series of 1996,45 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.46 Consequently, HLI’s Transfer Certificate of Title (TCT) No. 28791047 was canceled
and TCT No. 29209148 was issued in the name of Centennary. HLI transferred the remaining
200 hectares covered by TCT No. 287909 to Luisita Realty Corporation (LRC) 49 in two
separate transactions in 1997 and 1998, both uniformly involving 100 hectares for PhP 250
million each.50
Centennary, a corporation with an authorized capital stock of PhP 12,100,000 divided into
12,100,000 shares and wholly-owned by HLI, had the following incorporators: Pedro
Cojuangco, Josephine C. Reyes, Teresita C. Lopa, Ernesto G. Teopaco, and Bernardo R.
Lahoz.
Subsequently, Centennary sold51 the entire 300 hectares to Luisita Industrial Park
Corporation (LIPCO) for PhP 750 million. The latter acquired it for the purpose of developing
an industrial complex.52 As a result, Centennary’s TCT No. 292091 was canceled to be
replaced by TCT No. 31098653 in the name of LIPCO.
From the area covered by TCT No. 310986 was carved out two (2) parcels, for which two (2)
separate titles were issued in the name of LIPCO, specifically: (a) TCT No. 365800 54 and (b)
TCT No. 365801,55 covering 180 and four hectares, respectively. TCT No. 310986 was,
accordingly, partially canceled.
Later on, in a Deed of Absolute Assignment dated November 25, 2004, LIPCO transferred
the parcels covered by its TCT Nos. 365800 and 365801 to the Rizal Commercial Banking
Corporation (RCBC) by way of dacion en pagoin payment of LIPCO’s PhP 431,695,732.10
loan obligations. LIPCO’s titles were canceled and new ones, TCT Nos. 391051 and 391052,
were issued to RCBC.
Apart from the 500 hectares alluded to, another 80.51 hectares were later detached from the
area coverage of Hacienda Luisita which had been acquired by the government as part of the
Subic-Clark-Tarlac Expressway (SCTEX) complex. In absolute terms, 4,335.75 hectares
remained of the original 4,915 hectares Tadeco ceded to HLI.56
Such, in short, was the state of things when two separate petitions, both undated, reached
the DAR in the latter part of 2003. In the first, denominated as Petition/Protest,57 respondents
Jose Julio Suniga and Windsor Andaya, identifying themselves as head of the Supervisory
Group of HLI (Supervisory Group), and 60 other supervisors sought to revoke the SDOA,
alleging that HLI had failed to give them their dividends and the one percent (1%) share in
gross sales, as well as the thirty-three percent (33%) share in the proceeds of the sale of the
converted 500 hectares of land. They further claimed that their lives have not improved
contrary to the promise and rationale for the adoption of the SDOA. They also cited violations
by HLI of the SDOA’s terms.58 They prayed for a renegotiation of the SDOA, or, in the
alternative, its revocation.
Revocation and nullification of the SDOA and the distribution of the lands in the hacienda
were the call in the second petition, styled as Petisyon (Petition).59 The Petisyon was
ostensibly filed on December 4, 2003 by Alyansa ng mga Manggagawang Bukid ng Hacienda
Luisita (AMBALA), where the handwritten name of respondents Rene Galang as "Pangulo
AMBALA" and Noel Mallari as "Sec-Gen. AMBALA"60 appeared. As alleged, the petition was
filed on behalf of AMBALA’s members purportedly composing about 80% of the 5,339 FWBs
of Hacienda Luisita.
HLI would eventually answer61 the petition/protest of the Supervisory Group. On the other
hand, HLI’s answer62to the AMBALA petition was contained in its letter dated January 21,
2005 also filed with DAR.
Meanwhile, the DAR constituted a Special Task Force to attend to issues relating to the SDP
of HLI. Among other duties, the Special Task Force was mandated to review the terms and
conditions of the SDOA and PARC Resolution No. 89-12-2 relative to HLI’s SDP; evaluate
HLI’s compliance reports; evaluate the merits of the petitions for the revocation of the SDP;
conduct ocular inspections or field investigations; and recommend appropriate remedial
measures for approval of the Secretary.63
After investigation and evaluation, the Special Task Force submitted its "Terminal Report:
Hacienda Luisita, Incorporated (HLI) Stock Distribution Plan (SDP) Conflict" 64 dated
September 22, 2005 (Terminal Report), finding that HLI has not complied with its obligations
under RA 6657 despite the implementation of the SDP. 65 The Terminal Report and the
Special Task Force’s recommendations were adopted by then DAR Sec. Nasser
Pangandaman (Sec. Pangandaman).66
Subsequently, Sec. Pangandaman recommended to the PARC Executive Committee
(Excom) (a) the recall/revocation of PARC Resolution No. 89-12-2 dated November 21, 1989
approving HLI’s SDP; and (b) the acquisition of Hacienda Luisita through the compulsory
acquisition scheme. Following review, the PARC Validation Committee favorably endorsed
the DAR Secretary’s recommendation afore-stated.67
On December 22, 2005, the PARC issued the assailed Resolution No. 2005-32-01, disposing
as follows:
NOW, THEREFORE, on motion duly seconded, RESOLVED, as it is HEREBY RESOLVED,
to approve and confirm the recommendation of the PARC Executive Committee adopting in
toto the report of the PARC ExCom Validation Committee affirming the recommendation of
the DAR to recall/revoke the SDO plan of Tarlac Development Corporation/Hacienda Luisita
Incorporated.
RESOLVED, further, that the lands subject of the recalled/revoked TDC/HLI SDO plan be
forthwith placed under the compulsory coverage or mandated land acquisition scheme of the
[CARP].
APPROVED.68
A copy of Resolution No. 2005-32-01 was served on HLI the following day, December 23,
without any copy of the documents adverted to in the resolution attached. A letter-request
dated December 28, 200569 for certified copies of said documents was sent to, but was not
acted upon by, the PARC secretariat.
Therefrom, HLI, on January 2, 2006, sought reconsideration.70 On the same day, the DAR
Tarlac provincial office issued the Notice of Coverage71 which HLI received on January 4,
2006.
Its motion notwithstanding, HLI has filed the instant recourse 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.72 As HLI later rued, it "can not know from the
above-quoted resolution the facts and the law upon which it is based."73
PARC would eventually deny HLI’s motion for reconsideration via Resolution No. 2006-34-01
dated May 3, 2006.
By Resolution of June 14, 2006,74 the Court, acting on HLI’s motion, issued a temporary
restraining order,75enjoining the implementation of Resolution No. 2005-32-01 and the notice
of coverage.
On July 13, 2006, the OSG, for public respondents PARC and the DAR, filed its
Comment76 on the petition.
On December 2, 2006, Noel Mallari, impleaded by HLI as respondent in his capacity as "Sec-
Gen. AMBALA," filed his Manifestation and Motion with Comment Attached dated December
4, 2006 (Manifestation and Motion).77 In it, Mallari stated that he has broken away from
AMBALA with other AMBALA ex-members and formed Farmworkers Agrarian Reform
Movement, Inc. (FARM).78 Should this shift in alliance deny him standing, Mallari also prayed
that FARM be allowed to intervene.
As events would later develop, Mallari had a parting of ways with other FARM members,
particularly would-be intervenors Renato Lalic, et al. As things stand, Mallari returned to the
AMBALA fold, creating the AMBALA-Noel Mallari faction and leaving Renato Lalic, et al. as
the remaining members of FARM who sought to intervene.
On January 10, 2007, the Supervisory Group79 and the AMBALA-Rene Galang faction
submitted their Comment/Opposition dated December 17, 2006.80
On October 30, 2007, RCBC filed a Motion for Leave to Intervene and to File and Admit
Attached Petition-In-Intervention dated October 18, 2007.81 LIPCO later followed with a
similar motion.82 In both motions, RCBC and LIPCO contended that the assailed resolution
effectively nullified the TCTs under their respective names as the properties covered in the
TCTs were veritably included in the January 2, 2006 notice of coverage. In the main, they
claimed that the revocation of the SDP cannot legally affect their rights as innocent
purchasers for value. Both motions for leave to intervene were granted and the
corresponding petitions-in-intervention admitted.
On August 18, 2010, the Court heard the main and intervening petitioners on oral arguments.
On the other hand, the Court, on August 24, 2010, heard public respondents as well as the
respective counsels of the AMBALA-Mallari-Supervisory Group, the AMBALA-Galang faction,
and the FARM and its 27 members83 argue their case.
Prior to the oral arguments, however, HLI; AMBALA, represented by Mallari; the Supervisory
Group, represented by Suniga and Andaya; and the United Luisita Workers Union,
represented by Eldifonso Pingol, filed with the Court a joint submission and motion for
approval of a Compromise Agreement (English and Tagalog versions)dated August 6, 2010.
On August 31, 2010, the Court, in a bid to resolve the dispute through an amicable
settlement, issued a Resolution84 creating a Mediation Panel composed of then Associate
Justice Ma. Alicia Austria-Martinez, as chairperson, and former CA Justices Hector Hofileña
and Teresita Dy-Liacco Flores, as members. Meetings on five (5) separate dates, i.e.,
September 8, 9, 14, 20, and 27, 2010, were conducted. Despite persevering and painstaking
efforts on the part of the panel, mediation had to be discontinued when no acceptable
agreement could be reached.
The Issues
HLI raises the following issues for our consideration:
I.
WHETHER OR NOT PUBLIC RESPONDENTS PARC AND SECRETARY
PANGANDAMAN HAVE JURISDICTION, POWER AND/OR AUTHORITY TO
NULLIFY, RECALL, REVOKE OR RESCIND THE SDOA.
II.
[IF SO], x x x CAN THEY STILL EXERCISE SUCH JURISDICTION, POWER
AND/OR AUTHORITY AT THIS TIME, I.E., AFTER SIXTEEN (16) YEARS FROM
THE EXECUTION OF THE SDOA AND ITS IMPLEMENTATION WITHOUT
VIOLATING SECTIONS 1 AND 10 OF ARTICLE III (BILL OF RIGHTS) OF THE
CONSTITUTION AGAINST DEPRIVATION OF PROPERTY WITHOUT DUE
PROCESS OF LAW AND THE IMPAIRMENT OF CONTRACTUAL RIGHTS AND
OBLIGATIONS? MOREOVER, ARE THERE LEGAL GROUNDS UNDER THE CIVIL
CODE, viz, ARTICLE 1191 x x x, ARTICLES 1380, 1381 AND 1382 x x x ARTICLE
1390 x x x AND ARTICLE 1409 x x x THAT CAN BE INVOKED TO NULLIFY,
RECALL, REVOKE, OR RESCIND THE SDOA?
III.
WHETHER THE PETITIONS TO NULLIFY, RECALL, REVOKE OR RESCIND THE
SDOA HAVE ANY LEGAL BASIS OR GROUNDS AND WHETHER THE
PETITIONERS THEREIN ARE THE REAL PARTIES-IN-INTEREST TO FILE SAID
PETITIONS.
IV.
WHETHER THE RIGHTS, OBLIGATIONS AND REMEDIES OF THE PARTIES TO
THE SDOA ARE NOW GOVERNED BY THE CORPORATION CODE (BATAS
PAMBANSA BLG. 68) AND NOT BY THE x x x [CARL] x x x.
On the other hand, RCBC submits the following issues:
I.
RESPONDENT PARC COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT DID NOT
EXCLUDE THE SUBJECT PROPERTY FROM THE COVERAGE OF THE CARP
DESPITE THE FACT THAT PETITIONER-INTERVENOR RCBC HAS ACQUIRED
VESTED RIGHTS AND INDEFEASIBLE TITLE OVER THE SUBJECT PROPERTY
AS AN INNOCENT PURCHASER FOR VALUE.
A. THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE NOTICE OF
COVERAGE DATED 02 JANUARY 2006 HAVE THE EFFECT OF
NULLIFYING TCT NOS. 391051 AND 391052 IN THE NAME OF
PETITIONER-INTERVENOR RCBC.
B. AS AN INNOCENT PURCHASER FOR VALUE, PETITIONER-
INTERVENOR RCBC CANNOT BE PREJUDICED BY A SUBSEQUENT
REVOCATION OR RESCISSION OF THE SDOA.
II.
THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE NOTICE OF COVERAGE
DATED 02 JANUARY 2006 WERE ISSUED WITHOUT AFFORDING PETITIONER-
INTERVENOR RCBC ITS RIGHT TO DUE PROCESS AS AN INNOCENT
PURCHASER FOR VALUE.
LIPCO, like RCBC, asserts having acquired vested and indefeasible rights over certain
portions of the converted property, and, hence, would ascribe on PARC the commission of
grave abuse of discretion when it included those portions in the notice of coverage. And apart
from raising issues identical with those of HLI, such as but not limited to the absence of valid
grounds to warrant the rescission and/or revocation of the SDP, LIPCO would allege that the
assailed resolution and the notice of coverage were issued without affording it the right to due
process as an innocent purchaser for value. The government, LIPCO also argues, is
estopped from recovering properties which have since passed to innocent parties.
Simply formulated, the principal determinative issues tendered in the main petition and to
which all other related questions must yield boil down to the following: (1) matters of standing;
(2) the constitutionality of Sec. 31 of RA 6657; (3) the jurisdiction of PARC to recall or revoke
HLI’s SDP; (4) the validity or propriety of such recall or revocatory action; and (5) corollary to
(4), the validity of the terms and conditions of the SDP, as embodied in the SDOA.
Our Ruling
I.
We first proceed to the examination of the preliminary issues before delving on the more
serious challenges bearing on the validity of PARC’s assailed issuance and the grounds for it.
Supervisory Group, AMBALA and their
respective leaders are real parties-in-interest
HLI would deny real party-in-interest status to the purported leaders of the Supervisory Group
and AMBALA, i.e., Julio Suniga, Windsor Andaya, and Rene Galang, who filed the revocatory
petitions before the DAR. As HLI would have it, Galang, the self-styled head of AMBALA,
gained HLI employment in June 1990 and, thus, could not have been a party to the SDOA
executed a year earlier.85 As regards the Supervisory Group, HLI alleges that supervisors are
not regular farmworkers, but the company nonetheless considered them FWBs under the
SDOA as a mere concession to enable them to enjoy the same benefits given qualified
regular farmworkers. However, if the SDOA would be canceled and land distribution effected,
so HLI claims, citing Fortich v. Corona,86 the supervisors would be excluded from receiving
lands as farmworkers other than the regular farmworkers who are merely entitled to the "fruits
of the land."87
The SDOA no less identifies "the SDP qualified beneficiaries" as "the farmworkers who
appear in the annual payroll, inclusive of the permanent and seasonal employees, who are
regularly or periodically employed by [HLI]."88 Galang, per HLI’s own admission, is employed
by HLI, and is, thus, a qualified beneficiary of the SDP; he comes within the definition of a
real party-in-interest under Sec. 2, Rule 3 of the Rules of Court, meaning, one who stands to
be benefited or injured by the judgment in the suit or is the party entitled to the avails of the
suit.
The same holds true with respect to the Supervisory Group whose members were admittedly
employed by HLI and whose names and signatures even appeared in the annex of the
SDOA. Being qualified beneficiaries of the SDP, Suniga and the other 61 supervisors are
certainly parties who would benefit or be prejudiced by the judgment recalling the SDP or
replacing it with some other modality to comply with RA 6657.
Even assuming that members of the Supervisory Group are not regular farmworkers, but are
in the category of "other farmworkers" mentioned in Sec. 4, Article XIII of the
Constitution,89 thus only entitled to a share of the fruits of the land, as indeed Fortich teaches,
this does not detract from the fact that they are still identified as being among the "SDP
qualified beneficiaries." As such, they are, thus, entitled to bring an action upon the SDP. 90 At
any rate, the following admission made by Atty. Gener Asuncion, counsel of HLI, during the
oral arguments should put to rest any lingering doubt as to the status of protesters Galang,
Suniga, and Andaya:
Justice Bersamin: x x x I heard you a while ago that you were conceding the qualified farmer
beneficiaries of Hacienda Luisita were real parties in interest?
Atty. Asuncion: Yes, Your Honor please, real party in interest which that question refers to the
complaints of protest initiated before the DAR and the real party in interest there be
considered as possessed by the farmer beneficiaries who initiated the protest. 91
Further, under Sec. 50, paragraph 4 of RA 6657, farmer-leaders are expressly allowed to
represent themselves, their fellow farmers or their organizations in any proceedings before
the DAR. Specifically:
SEC. 50. Quasi-Judicial Powers of the DAR.¾x x x
xxxx
Responsible farmer leaders shall be allowed to represent themselves, their fellow
farmers or their organizations in any proceedings before the DAR: Provided, however,
that when there are two or more representatives for any individual or group, the
representatives should choose only one among themselves to represent such party or group
before any DAR proceedings. (Emphasis supplied.)
Clearly, the respective leaders of the Supervisory Group and AMBALA are contextually real
parties-in-interest allowed by law to file a petition before the DAR or PARC.
This is not necessarily to say, however, that Galang represents AMBALA, for as records
show and as HLI aptly noted,92 his "petisyon" filed with DAR did not carry the usual
authorization of the individuals in whose behalf it was supposed to have been instituted. To
date, such authorization document, which would logically include a list of the names of the
authorizing FWBs, has yet to be submitted to be part of the records.
PARC’s Authority to Revoke a Stock Distribution Plan
On the postulate that the subject jurisdiction is conferred by law, HLI maintains that PARC is
without authority to revoke an SDP, for neither RA 6657 nor EO 229 expressly vests PARC
with such authority. While, as HLI argued, EO 229 empowers PARC to approve the plan for
stock distribution in appropriate cases, the empowerment only includes the power to
disapprove, but not to recall its previous approval of the SDP after it has been implemented
by the parties.93 To HLI, it is the court which has jurisdiction and authority to order the
revocation or rescission of the PARC-approved SDP.
We disagree.
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. However, 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.94
We have explained that "every statute is understood, by implication, to contain all such
provisions as may be necessary to effectuate its object and purpose, or to make effective
rights, powers, privileges or jurisdiction which it grants, including all such collateral and
subsidiary consequences as may be fairly and logically inferred from its terms." 95 Further,
"every statutory grant of power, right or privilege is deemed to include all incidental power,
right or privilege.96
Gordon v. Veridiano II is instructive:
The power to approve a license includes by implication, even if not expressly granted, the
power to revoke it. By extension, the power to revoke is limited by the authority to grant the
license, from which it is derived in the first place. Thus, if the FDA grants a license upon its
finding that the applicant drug store has complied with the requirements of the general laws
and the implementing administrative rules and regulations, it is only for their violation that the
FDA may revoke the said license. By the same token, having granted the permit upon his
ascertainment that the conditions thereof as applied x x x have been complied with, it is only
for the violation of such conditions that the mayor may revoke the said permit. 97 (Emphasis
supplied.)
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.
As public respondents aptly observe, 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.98 With the view We take of the case, only PARC
can effect such revocation. The DAR Secretary, by his own authority as such, cannot
plausibly do so, as the acceptance and/or approval of the SDP sought to be taken back or
undone is the act of PARC whose official composition includes, no less, the President as
chair, the DAR Secretary as vice-chair, and at least eleven (11) other department heads.99
On another but related issue, the HLI foists on the Court the argument that subjecting its
landholdings to compulsory distribution after its approved SDP has been implemented would
impair the contractual obligations created under the SDOA.
The broad sweep of HLI’s argument ignores certain established legal precepts and must,
therefore, be rejected.
A law authorizing interference, when appropriate, in the contractual relations between or
among parties is deemed read into the contract and its implementation cannot successfully
be resisted by force of the non-impairment guarantee. There is, in that instance, no
impingement of the impairment clause, the non-impairment protection being applicable only
to laws that derogate prior acts or contracts by enlarging, abridging or in any manner
changing the intention of the parties. Impairment, in fine, obtains if a subsequent law changes
the terms of a contract between the parties, imposes new conditions, dispenses with those
agreed upon or withdraws existing remedies for the enforcement of the rights of the
parties.100 Necessarily, the constitutional proscription would not apply to laws already in effect
at the time of contract execution, as in the case of RA 6657, in relation to DAO 10, vis-à-vis
HLI’s SDOA. As held in Serrano v. Gallant Maritime Services, Inc.:
The prohibition [against impairment of the obligation of contracts] is aligned with the general
principle that laws newly enacted have only a prospective operation, and cannot affect acts or
contracts already perfected; however, as to laws already in existence, their provisions are
read into contracts and deemed a part thereof. Thus, the non-impairment clause under
Section 10, Article II [of the Constitution] is limited in application to laws about to be enacted
that would in any way derogate from existing acts or contracts by enlarging, abridging or in
any manner changing the intention of the parties thereto.101 (Emphasis supplied.)
Needless to stress, the assailed Resolution No. 2005-32-01 is not the kind of issuance within
the ambit of Sec. 10, Art. III of the Constitution providing that "[n]o law impairing the obligation
of contracts shall be passed."
Parenthetically, HLI tags the SDOA as an ordinary civil law contract and, as such, a breach of
its terms and conditions is not a PARC administrative matter, but one that gives rise to a
cause of action cognizable by regular courts.102 This contention has little to commend itself.
The SDOA is a special contract imbued with public interest, entered into and crafted pursuant
to the provisions of RA 6657. It embodies the SDP, which requires for its validity, or at least
its enforceability, PARC’s approval. And the fact that the certificate of compliance 103––to be
issued by agrarian authorities upon completion of the distribution of stocks––is revocable by
the same issuing authority supports the idea that everything about the implementation of the
SDP is, at the first instance, subject to administrative adjudication.
HLI also parlays the notion that the parties to the SDOA should now look to the Corporation
Code, instead of to RA 6657, in determining their rights, obligations and remedies. The Code,
it adds, should be the applicable law on the disposition of the agricultural land of HLI.
Contrary to the view of HLI, the rights, obligations and remedies of the parties to the SDOA
embodying the SDP are primarily governed by RA 6657. It should abundantly be made clear
that HLI was precisely created in order to comply with RA 6657, which the OSG aptly
described as the "mother law" of the SDOA and the SDP.104 It is, thus, paradoxical for HLI to
shield itself from the coverage of CARP by invoking exclusive applicability of the Corporation
Code under the guise of being a corporate entity.
Without in any way minimizing the relevance of the Corporation Code since the FWBs of HLI
are also stockholders, its applicability is limited as the rights of the parties arising from the
SDP should not be made to supplant or circumvent the agrarian reform program.
Without doubt, the Corporation Code is the general law providing for the formation,
organization and regulation of private corporations. On the other hand, RA 6657 is the special
law on agrarian reform. As between a general and special law, the latter shall prevail—
generalia specialibus non derogant.105 Besides, the present impasse between HLI and the
private respondents is not an intra-corporate dispute which necessitates the application of the
Corporation Code. What private respondents questioned before the DAR is the proper
implementation of the SDP and HLI’s compliance with RA 6657. Evidently, RA 6657 should
be the applicable law to the instant case.
HLI further contends that the inclusion of the agricultural land of Hacienda Luisita under the
coverage of CARP and the eventual distribution of the land to the FWBs would amount to a
disposition of all or practically all of the corporate assets of HLI. HLI would add that this
contingency, if ever it comes to pass, requires the applicability of the Corporation Code
provisions on corporate dissolution.
We are not persuaded.
Indeed, the provisions of the Corporation Code on corporate dissolution would apply insofar
as the winding up of HLI’s affairs or liquidation of the assets is concerned. However, the mere
inclusion of the agricultural land of Hacienda Luisita under the coverage of CARP and the
land’s eventual distribution to the FWBs will not, without more, automatically trigger the
dissolution of HLI. As stated in the SDOA itself, the percentage of the value of the agricultural
land of Hacienda Luisita in relation to the total assets transferred and conveyed by Tadeco to
HLI comprises only 33.296%, following this equation: value of the agricultural lands divided
by total corporate assets. By no stretch of imagination would said percentage amount to a
disposition of all or practically all of HLI’s corporate assets should compulsory land
acquisition and distribution ensue.
This brings us to the validity of the revocation of the approval of the SDP sixteen (16) years
after its execution pursuant to Sec. 31 of RA 6657 for the reasons set forth in the Terminal
Report of the Special Task Force, as endorsed by PARC Excom. But first, the matter of the
constitutionality of said section.
Constitutional Issue
FARM asks for the invalidation of Sec. 31 of RA 6657, insofar as it affords the corporation, as
a mode of CARP compliance, to resort to stock distribution, an arrangement which, to FARM,
impairs the fundamental right of farmers and farmworkers under Sec. 4, Art. XIII of the
Constitution.106
To a more specific, but direct point, FARM argues that Sec. 31 of RA 6657 permits stock
transfer in lieu of outright agricultural land transfer; in fine, there is stock certificate ownership
of the farmers or farmworkers instead of them owning the land, as envisaged in the
Constitution. For FARM, this modality of distribution is an anomaly to be annulled for being
inconsistent with the basic concept of agrarian reform ingrained in Sec. 4, Art. XIII of the
Constitution.107
Reacting, HLI insists that agrarian reform is not only about transfer of land ownership to
farmers and other qualified beneficiaries. It draws attention in this regard to Sec. 3(a) of RA
6657 on the concept and scope of the term "agrarian reform." The constitutionality of a law,
HLI added, cannot, as here, be attacked collaterally.
The instant challenge on the constitutionality of Sec. 31 of RA 6657 and necessarily its
counterpart provision in EO 229 must fail as explained below.
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. 108
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. 3l
of RA 6657, since as early as November 21, l989 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 via PARC Resolution No. 89-12-2 dated
November 21, 1989 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.
It has been emphasized in a number of cases that the question of constitutionality will not be
passed upon by the Court unless it is properly raised and presented in an appropriate case at
the first opportunity.109 FARM is, therefore, remiss in belatedly questioning the
constitutionality of Sec. 31 of RA 6657. The second requirement that the constitutional
question should be raised at the earliest possible opportunity is clearly wanting.
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.110 If some other grounds exist by which judgment can be made
without touching the constitutionality of a law, such recourse is favored. 111 Garcia v.
Executive Secretary explains why:
Lis Mota — the fourth requirement to satisfy before this Court will undertake judicial review —
means that the Court will not pass upon a question of unconstitutionality, although properly
presented, if the case can be disposed of on some other ground, such as the application of
the statute or the general law. The petitioner must be able to show that the case cannot be
legally resolved unless the constitutional question raised is determined. This requirement is
based on the rule that every law has in its favor the presumption of constitutionality; to justify
its nullification, there must be a clear and unequivocal breach of the Constitution, and not one
that is doubtful, speculative, or argumentative.112 (Italics in the original.)
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 9700,113 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.
It is true that the Court, in some cases, has proceeded to resolve constitutional issues
otherwise already moot and academic114 provided the following requisites are present:
x x x first, there is a grave violation of the Constitution; second, the exceptional character of
the situation and the paramount public interest is involved; third, when the constitutional issue
raised requires formulation of controlling principles to guide the bench, the bar, and the
public; fourth, the case is capable of repetition yet evading review.
These requisites do not obtain in the case at bar.
For one, there appears to be no breach of the fundamental law. Sec. 4, Article XIII of the
Constitution reads:
The State shall, by law, undertake an agrarian reform program founded on the right of the
farmers and regular farmworkers, who are landless, to OWN directly or COLLECTIVELY THE
LANDS THEY TILL or, in the case of other farmworkers, to receive a just share of the fruits
thereof. To this end, the State shall encourage and undertake the just distribution of all
agricultural lands, subject to such priorities and reasonable retention limits as the Congress
may prescribe, taking into account ecological, developmental, or equity considerations, and
subject to the payment of just compensation. In determining retention limits, the State shall
respect the right of small landowners. The State shall further provide incentives for voluntary
land-sharing. (Emphasis supplied.)
The wording of the provision is unequivocal––the farmers and regular farmworkers have a
right TO OWN DIRECTLY OR COLLECTIVELY THE LANDS THEY TILL. The basic law
allows two (2) modes of land distribution—direct and indirect ownership. Direct transfer to
individual farmers is the most commonly used method by DAR and widely accepted. Indirect
transfer through collective ownership of the agricultural land is the alternative to direct
ownership of agricultural land by individual farmers. The aforequoted Sec. 4 EXPRESSLY
authorizes collective ownership by farmers. No language can be found in the 1987
Constitution that disqualifies or prohibits corporations or cooperatives of farmers from being
the legal entity through which collective ownership can be exercised. The word "collective" is
defined as "indicating a number of persons or things considered as constituting one group or
aggregate,"115 while "collectively" is defined as "in a collective sense or manner; in a mass or
body."116 By using the word "collectively," the Constitution allows for indirect ownership of
land and not just outright agricultural land transfer. This is in recognition of the fact that land
reform may become successful even if it is done through the medium of juridical entities
composed of farmers.
Collective ownership is permitted in two (2) provisions of RA 6657. Its Sec. 29 allows
workers’ cooperatives or associations to collectively own the land, while the second
paragraph of Sec. 31 allows corporations or associations to own agricultural land with the
farmers becoming stockholders or members. Said provisions read:
SEC. 29. Farms owned or operated by corporations or other business associations.—In the
case of farms owned or operated by corporations or other business associations, the
following rules shall be observed by the PARC.
In general, lands shall be distributed directly to the individual worker-beneficiaries.
In case it is not economically feasible and sound to divide the land, then it shall be owned
collectively by the worker beneficiaries who shall form a workers’ cooperative or association
which will deal with the corporation or business association. x x x (Emphasis supplied.)
SEC. 31. Corporate Landowners.— x x x
xxxx
Upon certification by the DAR, corporations owning agricultural lands may give their qualified
beneficiaries the right to purchase such proportion of the capital stock of the corporation that
the agricultural land, actually devoted to agricultural activities, bears in relation to the
company’s total assets, under such terms and conditions as may be agreed upon by them. In
no case shall the compensation received by the workers at the time the shares of stocks are
distributed be reduced. The same principle shall be applied to associations, with respect to
their equity or participation. x x x (Emphasis supplied.)
Clearly, workers’ cooperatives or associations under Sec. 29 of RA 6657 and corporations or
associations under the succeeding Sec. 31, as differentiated from individual farmers, are
authorized vehicles for the collective ownership of agricultural land. Cooperatives can be
registered with the Cooperative Development Authority and acquire legal personality of their
own, while corporations are juridical persons under the Corporation Code. Thus, Sec. 31 is
constitutional as it simply implements Sec. 4 of Art. XIII of the Constitution that land can be
owned COLLECTIVELY by farmers. Even the framers of the l987 Constitution are in unison
with respect to the two (2) modes of ownership of agricultural lands tilled by farmers––
DIRECT and COLLECTIVE, thus:
MR. NOLLEDO. And when we talk of the phrase "to own directly," we mean the principle of
direct ownership by the tiller?
MR. MONSOD. Yes.
MR. NOLLEDO. And when we talk of "collectively," we mean communal ownership,
stewardship or State ownership?
MS. NIEVA. In this section, we conceive of cooperatives; that is farmers’ cooperatives owning
the land, not the State.
MR. NOLLEDO. And when we talk of "collectively," referring to farmers’ cooperatives, do the
farmers own specific areas of land where they only unite in their efforts?
MS. NIEVA. That is one way.
MR. NOLLEDO. Because I understand that there are two basic systems involved: the
"moshave" type of agriculture and the "kibbutz." So are both contemplated in the report?
MR. TADEO. Ang dalawa kasing pamamaraan ng pagpapatupad ng tunay na reporma sa
lupa ay ang pagmamay-ari ng lupa na hahatiin sa individual na pagmamay-ari – directly – at
ang tinatawag na sama-samang gagawin ng mga magbubukid. Tulad sa Negros, ang gusto
ng mga magbubukid ay gawin nila itong "cooperative or collective farm." Ang ibig sabihin ay
sama-sama nilang sasakahin.
xxxx
MR. TINGSON. x x x When we speak here of "to own directly or collectively the lands they
till," is this land for the tillers rather than land for the landless? Before, we used to hear "land
for the landless," but now the slogan is "land for the tillers." Is that right?
MR. TADEO. Ang prinsipyong umiiral dito ay iyong land for the tillers. Ang ibig sabihin ng
"directly" ay tulad sa implementasyon sa rice and corn lands kung saan inaari na ng mga
magsasaka ang lupang binubungkal nila. Ang ibig sabihin naman ng "collectively" ay sama-
samang paggawa sa isang lupain o isang bukid, katulad ng sitwasyon sa
Negros.117 (Emphasis supplied.)
As Commissioner Tadeo explained, the farmers will work on the agricultural land "sama-
sama" or collectively. Thus, the main requisite for collective ownership of land is collective or
group work by farmers of the agricultural land. Irrespective of whether the landowner is a
cooperative, association or corporation composed of farmers, as long as concerted group
work by the farmers on the land is present, then it falls within the ambit of collective
ownership scheme.
Likewise, Sec. 4, Art. XIII of the Constitution makes mention of a commitment on the part of
the State to pursue,by law, an agrarian reform program founded on the policy of land for the
landless, but subject to such priorities as Congress may prescribe, taking into account such
abstract variable as "equity considerations." The textual reference to a law and Congress
necessarily implies that the above constitutional provision is not self-executoryand that
legislation is needed to implement the urgently needed program of agrarian reform. And RA
6657 has been enacted precisely pursuant to and as a mechanism to carry out the
constitutional directives. This piece of legislation, in fact, restates 118 the agrarian reform policy
established in the aforementioned provision of the Constitution of promoting the welfare of
landless farmers and farmworkers. RA 6657 thus defines "agrarian reform" as "the
redistribution of lands … to farmers and regular farmworkers who are landless … to lift the
economic status of the beneficiaries and all other arrangements alternative to the
physical redistribution of lands, such as production or profit sharing, labor administration
and the distribution of shares of stock which will allow beneficiaries to receive a just share
of the fruits of the lands they work."
With the view We take of this case, the stock distribution option devised under Sec. 31 of RA
6657 hews with the agrarian reform policy, as instrument of social justice under Sec. 4 of
Article XIII of the Constitution. Albeit land ownership for the landless appears to be the
dominant theme of that policy, We emphasize that Sec. 4, Article XIII of the Constitution, as
couched, does not constrict Congress to passing an agrarian reform law planted on direct
land transfer to and ownership by farmers and no other, or else the enactment suffers from
the vice of unconstitutionality. If the intention were otherwise, the framers of the Constitution
would have worded said section in a manner mandatory in character.
For this Court, Sec. 31 of RA 6657, with its direct and indirect transfer features, is not
inconsistent with the State’s commitment to farmers and farmworkers to advance their
interests under the policy of social justice. The legislature, thru Sec. 31 of RA 6657, has
chosen a modality for collective ownership by which the imperatives of social justice may, in
its estimation, be approximated, if not achieved. The Court should be bound by such policy
choice.
FARM contends that the farmers in the stock distribution scheme under Sec. 31 do not own
the agricultural land but are merely given stock certificates. Thus, the farmers lose control
over the land to the board of directors and executive officials of the corporation who actually
manage the land. They conclude that such arrangement runs counter to the mandate of the
Constitution that any agrarian reform must preserve the control over the land in the hands of
the tiller.
This contention has no merit.
While it is true that the farmer is issued stock certificates and does not directly own the land,
still, the Corporation Code is clear that the FWB becomes a stockholder who acquires an
equitable interest in the assets of the corporation, which include the agricultural lands. It was
explained that the "equitable interest of the shareholder in the property of the corporation is
represented by the term stock, and the extent of his interest is described by the term shares.
The expression shares of stock when qualified by words indicating number and ownership
expresses the extent of the owner’s interest in the corporate property."119 A share of stock
typifies an aliquot part of the corporation’s property, or the right to share in its proceeds to
that extent when distributed according to law and equity and that its holder is not the owner of
any part of the capital of the corporation.120 However, the FWBs will ultimately own the
agricultural lands owned by the corporation when the corporation is eventually dissolved and
liquidated.
Anent the alleged loss of control of the farmers over the agricultural land operated and
managed by the corporation, a reading of the second paragraph of Sec. 31 shows otherwise.
Said provision provides that qualified beneficiaries have "the right to purchase such
proportion of the capital stock of the corporation that the agricultural land, actually devoted to
agricultural activities, bears in relation to the company’s total assets." The wording of the
formula in the computation of the number of shares that can be bought by the farmers does
not mean loss of control on the part of the farmers. It must be remembered that the
determination of the percentage of the capital stock that can be bought by the farmers
depends on the value of the agricultural land and the value of the total assets of the
corporation.
There is, thus, nothing unconstitutional in the formula prescribed by RA 6657. The policy on
agrarian reform is that control over the agricultural land must always be in the hands of the
farmers. Then it falls on the shoulders of DAR and PARC to see to it the farmers should
always own majority of the common shares entitled to elect the members of the board of
directors to ensure that the farmers will have a clear majority in the board. Before the SDP is
approved, strict scrutiny of the proposed SDP must always be undertaken by the DAR and
PARC, such that the value of the agricultural land contributed to the corporation must always
be more than 50% of the total assets of the corporation to ensure that the majority of the
members of the board of directors are composed of the farmers. The PARC composed of the
President of the Philippines and cabinet secretaries must see to it that control over the board
of directors rests with the farmers by rejecting the inclusion of non-agricultural assets which
will yield the majority in the board of directors to non-farmers. Any deviation, however, by
PARC or DAR from the correct application of the formula prescribed by the second paragraph
of Sec. 31 of RA 6675 does not make said provision constitutionally infirm. Rather, it is the
application of said provision that can be challenged. Ergo, Sec. 31 of RA 6657 does not
trench on the constitutional policy of ensuring control by the farmers.
A view has been advanced that there can be no agrarian reform unless there is land
distribution and that actual land distribution is the essential characteristic of a constitutional
agrarian reform program. On the contrary, there have been so many instances where,
despite actual land distribution, the implementation of agrarian reform was still unsuccessful.
As a matter of fact, this Court may take judicial notice of cases where FWBs sold the
awarded land even to non-qualified persons and in violation of the prohibition period provided
under the law. This only proves to show that the mere fact that there is land distribution does
not guarantee a successful implementation of agrarian reform.
As it were, the principle of "land to the tiller" and the old pastoral model of land ownership
where non-human juridical persons, such as corporations, were prohibited from owning
agricultural lands are no longer realistic under existing conditions. Practically, an individual
farmer will often face greater disadvantages and difficulties than those who exercise
ownership in a collective manner through a cooperative or corporation. The former is too
often left to his own devices when faced with failing crops and bad weather, or compelled to
obtain usurious loans in order to purchase costly fertilizers or farming equipment. The
experiences learned from failed land reform activities in various parts of the country are lack
of financing, lack of farm equipment, lack of fertilizers, lack of guaranteed buyers of produce,
lack of farm-to-market roads, among others. Thus, at the end of the day, there is still no
successful implementation of agrarian reform to speak of in such a case.
Although success is not guaranteed, a cooperative or a corporation stands in a better position
to secure funding and competently maintain the agri-business than the individual farmer.
While direct singular ownership over farmland does offer advantages, such as the ability to
make quick decisions unhampered by interference from others, yet at best, these advantages
only but offset the disadvantages that are often associated with such ownership arrangement.
Thus, government must be flexible and creative in its mode of implementation to better its
chances of success. One such option is collective ownership through juridical persons
composed of farmers.
Aside from the fact that there appears to be no violation of the Constitution, the requirement
that the instant case be capable of repetition yet evading review is also wanting. It would be
speculative for this Court to assume that the legislature will enact another law providing for a
similar stock option.
As a matter of sound practice, the Court will not interfere inordinately with the exercise by
Congress of its official functions, the heavy presumption being that a law is the product of
earnest studies by Congress to ensure that no constitutional prescription or concept is
infringed.121 Corollarily, courts will not pass upon questions of wisdom, expediency and
justice of legislation or its provisions. Towards this end, all reasonable doubts should be
resolved in favor of the constitutionality of a law and the validity of the acts and processes
taken pursuant thereof.122
Consequently, before a statute or its provisions duly challenged are voided, an unequivocal
breach of, or a clear conflict with the Constitution, not merely a doubtful or argumentative
one, must be demonstrated in such a manner as to leave no doubt in the mind of the Court.
In other words, the grounds for nullity must be beyond reasonable doubt.123 FARM has not
presented compelling arguments to overcome the presumption of constitutionality of Sec. 31
of RA 6657.
The wisdom of Congress in allowing an SDP through a corporation as an alternative mode of
implementing agrarian reform is not for judicial determination. Established jurisprudence tells
us that it is not within the province of the Court to inquire into the wisdom of the law, for,
indeed, We are bound by words of the statute.124
II.
The stage is now set for the determination of the propriety under the premises of the
revocation or recall of HLI’s SDP. Or to be more precise, the inquiry should be: whether or
not PARC gravely abused its discretion in revoking or recalling the subject SDP and placing
the hacienda under CARP’s compulsory acquisition and distribution scheme.
The findings, analysis and recommendation of the DAR’s Special Task Force contained and
summarized in its Terminal Report provided the bases for the assailed PARC
revocatory/recalling Resolution. The findings may be grouped into two: (1) the SDP is
contrary to either the policy on agrarian reform, Sec. 31 of RA 6657, or DAO 10; and (2) the
alleged violation by HLI of the conditions/terms of the SDP. In more particular terms, the
following are essentially the reasons underpinning PARC’s revocatory or recall action:
(1) Despite the lapse of 16 years from the approval of HLI’s SDP, the lives of the
FWBs have hardly improved and the promised increased income has not
materialized;
(2) HLI has failed to keep Hacienda Luisita intact and unfragmented;
(3) The issuance of HLI shares of stock on the basis of number of hours worked––or
the so-called "man days"––is grossly onerous to the FWBs, as HLI, in the guise of
rotation, can unilaterally deny work to anyone. In elaboration of this ground, PARC’s
Resolution No. 2006-34-01, denying HLI’s motion for reconsideration of Resolution
No. 2005-32-01, stated that the man days criterion worked to dilute the entitlement of
the original share beneficiaries;125
(4) The distribution/transfer of shares was not in accordance with the timelines fixed
by law;
(5) HLI has failed to comply with its obligations to grant 3% of the gross sales every
year as production-sharing benefit on top of the workers’ salary; and
(6) Several homelot awardees have yet to receive their individual titles.
Petitioner HLI claims having complied with, at least substantially, all its obligations under the
SDP, as approved by PARC itself, and tags the reasons given for the revocation of the SDP
as unfounded.
Public respondents, on the other hand, aver that the assailed resolution rests on solid
grounds set forth in the Terminal Report, a position shared by AMBALA, which, in some
pleadings, is represented by the same counsel as that appearing for the Supervisory Group.
FARM, for its part, posits the view that legal bases obtain for the revocation of the SDP,
because it does not conform to Sec. 31 of RA 6657 and DAO 10. And training its sight on the
resulting dilution of the equity of the FWBs appearing in HLI’s masterlist, FARM would state
that the SDP, as couched and implemented, spawned disparity when there should be none;
parity when there should have been differentiation.126
The petition is not impressed with merit.
In the Terminal Report adopted by PARC, it is stated that the SDP violates the agrarian
reform policy under Sec. 2 of RA 6657, as the said plan failed to enhance the dignity and
improve the quality of lives of the FWBs through greater productivity of agricultural lands. We
disagree.
Sec. 2 of RA 6657 states:
SECTION 2. Declaration of Principles and Policies.¾It is the policy of the State to pursue a
Comprehensive Agrarian Reform Program (CARP). The welfare of the landless farmers and
farm workers will receive the highest consideration to promote social justice and to move the
nation towards sound rural development and industrialization, and the establishment of owner
cultivatorship of economic-sized farms as the basis of Philippine agriculture.
To this end, a more equitable distribution and ownership of land, with due regard to the rights
of landowners to just compensation and to the ecological needs of the nation, shall be
undertaken to provide farmers and farm workers with the opportunity to enhance their dignity
and improve the quality of their lives through greater productivity of agricultural lands.
The agrarian reform program is founded on the right of farmers and regular farm workers,
who are landless, to own directly or collectively the lands they till or, in the case of other farm
workers, to receive a share of the fruits thereof. To this end, the State shall encourage the
just distribution of all agricultural lands, subject to the priorities and retention limits set forth in
this Act, having taken into account ecological, developmental, and equity considerations, and
subject to the payment of just compensation. The State shall respect the right of small
landowners and shall provide incentives for voluntary land-sharing. (Emphasis supplied.)
Paragraph 2 of the above-quoted provision specifically mentions that "a more equitable
distribution and ownership of land x x x shall be undertaken to provide farmers and farm
workers with the opportunity to enhance their dignity and improve the quality of their lives
through greater productivity of agricultural lands." Of note is the term "opportunity" which is
defined as a favorable chance or opening offered by circumstances. 127 Considering this, by
no stretch of imagination can said provision be construed as a guarantee in improving the
lives of the FWBs. At best, it merely provides for a possibility or favorable chance of uplifting
the economic status of the FWBs, which may or may not be attained.
Pertinently, improving the economic status of the FWBs is neither among the legal obligations
of HLI under the SDP nor an imperative imposition by RA 6657 and DAO 10, a violation of
which would justify discarding the stock distribution option. Nothing in that option agreement,
law or department order indicates otherwise.
Significantly, HLI draws particular attention to its having paid its FWBs, during the regime of
the SDP (1989-2005), some PhP 3 billion by way of salaries/wages and higher benefits
exclusive of free hospital and medical benefits to their immediate family. And attached as
Annex "G" to HLI’s Memorandum is the certified true report of the finance manager of Jose
Cojuangco & Sons Organizations-Tarlac Operations, captioned as "HACIENDA LUISITA,
INC. Salaries, Benefits and Credit Privileges (in Thousand Pesos) Since the Stock Option
was Approved by PARC/CARP," detailing what HLI gave their workers from 1989 to 2005.
The sum total, as added up by the Court, yields the following numbers: Total Direct Cash Out
(Salaries/Wages & Cash Benefits) = PhP 2,927,848; Total Non-Direct Cash Out
(Hospital/Medical Benefits) = PhP 303,040. The cash out figures, as stated in the report,
include the cost of homelots; the PhP 150 million or so representing 3% of the gross produce
of the hacienda; and the PhP 37.5 million representing 3% from the proceeds of the sale of
the 500-hectare converted lands. While not included in the report, HLI manifests having given
the FWBs 3% of the PhP 80 million paid for the 80 hectares of land traversed by the
SCTEX.128 On top of these, it is worth remembering that the shares of stocks were given by
HLI to the FWBs for free. Verily, the FWBs have benefited from the SDP.
To address urgings that the FWBs be allowed to disengage from the SDP as HLI has not
anyway earned profits through the years, it cannot be over-emphasized that, as a matter of
common business sense, no corporation could guarantee a profitable run all the time. As has
been suggested, one of the key features of an SDP of a corporate landowner is the likelihood
of the corporate vehicle not earning, or, worse still, losing money.129
The Court is fully aware that one of the criteria under DAO 10 for the PARC to consider the
advisability of approving a stock distribution plan is the likelihood that the plan "would result in
increased income and greater benefits to [qualified beneficiaries] than if the lands were
divided and distributed to them individually."130 But as aptly noted during the oral arguments,
DAO 10 ought to have not, as it cannot, actually exact assurance of success on something
that is subject to the will of man, the forces of nature or the inherent risky nature of
business.131 Just like in actual land distribution, an SDP cannot guarantee, as indeed the
SDOA does not guarantee, a comfortable life for the FWBs. The Court can take judicial notice
of the fact that there were many instances wherein after a farmworker beneficiary has been
awarded with an agricultural land, he just subsequently sells it and is eventually left with
nothing in the end.
In all then, the onerous condition of the FWBs’ economic status, their life of hardship, if that
really be the case, can hardly be attributed to HLI and its SDP and provide a valid ground for
the plan’s revocation.
Neither does HLI’s SDP, whence the DAR-attested SDOA/MOA is based, infringe Sec. 31 of
RA 6657, albeit public respondents erroneously submit otherwise.
The provisions of the first paragraph of the adverted Sec. 31 are without relevance to the
issue on the propriety of the assailed order revoking HLI’s SDP, for the paragraph deals with
the transfer of agricultural lands to the government, as a mode of CARP compliance, thus:
SEC. 31. Corporate Landowners.¾Corporate landowners may voluntarily transfer ownership
over their agricultural landholdings to the Republic of the Philippines pursuant to Section 20
hereof or to qualified beneficiaries under such terms and conditions, consistent with this Act,
as they may agree, subject to confirmation by the DAR.
The second and third paragraphs, with their sub-paragraphs, of Sec. 31 provide as follows:
Upon certification by the DAR, corporations owning agricultural lands may give their
qualified beneficiaries the right to purchase such proportion of the capital stock of the
corporation that the agricultural land, actually devoted to agricultural activities, bears
in relation to the company’s total assets, under such terms and conditions as may be
agreed upon by them. In no case shall the compensation received by the workers at the time
the shares of stocks are distributed be reduced. x x x
Corporations or associations which voluntarily divest a proportion of their capital stock, equity
or participation in favor of their workers or other qualified beneficiaries under this section shall
be deemed to have complied with the provisions of this Act: Provided, That the following
conditions are complied with:
(a) In order to safeguard the right of beneficiaries who own shares of stocks to
dividends and other financial benefits, the books of the corporation or association
shall be subject to periodic audit by certified public accountants chosen by the
beneficiaries;
(b) Irrespective of the value of their equity in the corporation or association, the
beneficiaries shall be assured of at least one (1) representative in the board of
directors, or in a management or executive committee, if one exists, of the
corporation or association;
(c) Any shares acquired by such workers and beneficiaries shall have the same rights
and features as all other shares; and
(d) Any transfer of shares of stocks by the original beneficiaries shall be void ab initio
unless said transaction is in favor of a qualified and registered beneficiary within the
same corporation.
The mandatory minimum ratio of land-to-shares of stock supposed to be distributed or
allocated to qualified beneficiaries, adverting to what Sec. 31 of RA 6657 refers to as that
"proportion of the capital stock of the corporation that the agricultural land, actually devoted to
agricultural activities, bears in relation to the company’s total assets" had been observed.
Paragraph one (1) of the SDOA, which was based on the SDP, conforms to Sec. 31 of RA
6657. The stipulation reads:
1. The percentage of the value of the agricultural land of Hacienda Luisita (P196,630,000.00)
in relation to the total assets (P590,554,220.00) transferred and conveyed to the SECOND
PARTY is 33.296% that, under the law, is the proportion of the outstanding capital stock of
the SECOND PARTY, which is P355,531,462.00 or 355,531,462 shares with a par value of
P1.00 per share, that has to be distributed to the THIRD PARTY under the stock distribution
plan, the said 33.296% thereof being P118,391,976.85 or 118,391,976.85 shares.
The appraised value of the agricultural land is PhP 196,630,000 and of HLI’s other assets is
PhP 393,924,220. The total value of HLI’s assets is, therefore, PhP 590,554,220.132 The
percentage of the value of the agricultural lands (PhP 196,630,000) in relation to the total
assets (PhP 590,554,220) is 33.296%, which represents the stockholdings of the 6,296
original qualified farmworker-beneficiaries (FWBs) in HLI. The total number of shares to be
distributed to said qualified FWBs is 118,391,976.85 HLI shares. This was arrived at by
getting 33.296% of the 355,531,462 shares which is the outstanding capital stock of HLI with
a value of PhP 355,531,462. Thus, if we divide the 118,391,976.85 HLI shares by 6,296
FWBs, then each FWB is entitled to 18,804.32 HLI shares. These shares under the SDP are
to be given to FWBs for free.
The Court finds that the determination of the shares to be distributed to the 6,296 FWBs
strictly adheres to the formula prescribed by Sec. 31(b) of RA 6657.
Anent the requirement under Sec. 31(b) of the third paragraph, that the FWBs shall be
assured of at least one (1) representative in the board of directors or in a management or
executive committee irrespective of the value of the equity of the FWBs in HLI, the Court
finds that the SDOA contained provisions making certain the FWBs’ representation in HLI’s
governing board, thus:
5. Even if only a part or fraction of the shares earmarked for distribution will have been
acquired from the FIRST PARTY and distributed to the THIRD PARTY, FIRST PARTY shall
execute at the beginning of each fiscal year an irrevocable proxy, valid and effective for one
(1) year, in favor of the farmworkers appearing as shareholders of the SECOND PARTY at
the start of said year which will empower the THIRD PARTY or their representative to vote in
stockholders’ and board of directors’ meetings of the SECOND PARTY convened during the
year the entire 33.296% of the outstanding capital stock of the SECOND PARTY earmarked
for distribution and thus be able to gain such number of seats in the board of directors of the
SECOND PARTY that the whole 33.296% of the shares subject to distribution will be entitled
to.
Also, no allegations have been made against HLI restricting the inspection of its books by
accountants chosen by the FWBs; hence, the assumption may be made that there has been
no violation of the statutory prescription under sub-paragraph (a) on the auditing of HLI’s
accounts.
Public respondents, however, submit that the distribution of the mandatory minimum ratio of
land-to-shares of stock, referring to the 118,391,976.85 shares with par value of PhP 1 each,
should have been made in full within two (2) years from the approval of RA 6657, in line with
the last paragraph of Sec. 31 of said law.133
Public respondents’ submission is palpably erroneous. We have closely examined the last
paragraph alluded to, with particular focus on the two-year period mentioned, and nothing in it
remotely supports the public respondents’ posture. In its pertinent part, said Sec. 31 provides:
SEC. 31. Corporate Landowners x x x
If within two (2) years from the approval of this Act, the [voluntary] land or stock transfer
envisioned above is not made or realized or the plan for such stock distribution approved by
the PARC within the same period, the agricultural land of the corporate owners or corporation
shall be subject to the compulsory coverage of this Act. (Word in bracket and emphasis
added.)
Properly viewed, the words "two (2) years" clearly refer to the period within which the
corporate landowner, to avoid land transfer as a mode of CARP coverage under RA 6657, is
to avail of the stock distribution option or to have the SDP approved. The HLI secured
approval of its SDP in November 1989, well within the two-year period reckoned from June
1988 when RA 6657 took effect.
Having hurdled the alleged breach of the agrarian reform policy under Sec. 2 of RA 6657 as
well as the statutory issues, We shall now delve into what PARC and respondents deem to
be other instances of violation of DAO 10 and the SDP.
On the Conversion of Lands
Contrary to the almost parallel stance of the respondents, keeping Hacienda Luisita
unfragmented is also not among the imperative impositions by the SDP, RA 6657, and DAO
10.
The Terminal Report states that the proposed distribution plan submitted in 1989 to the
PARC effectively assured the intended stock beneficiaries that the physical integrity of the
farm shall remain inviolate. Accordingly, the Terminal Report and the PARC-assailed
resolution would take HLI to task for securing approval of the conversion to non-agricultural
uses of 500 hectares of the hacienda. In not too many words, the Report and the resolution
view the conversion as an infringement of Sec. 5(a) of DAO 10 which reads: "a. that the
continued operation of the corporation with its agricultural land intact and unfragmented is
viable with potential for growth and increased profitability."
The PARC is wrong.
In the first place, Sec. 5(a)––just like the succeeding Sec. 5(b) of DAO 10 on increased
income and greater benefits to qualified beneficiaries––is but one of the stated criteria to
guide PARC in deciding on whether or not to accept an SDP. Said Sec. 5(a) does not exact
from the corporate landowner-applicant the undertaking to keep the farm intact and
unfragmented ad infinitum. And there is logic to HLI’s stated observation that the key phrase
in the provision of Sec. 5(a) is "viability of corporate operations": "[w]hat is thus required is not
the agricultural land remaining intact x x x but the viability of the corporate operations with its
agricultural land being intact and unfragmented. Corporate operation may be viable even if
the corporate agricultural land does not remain intact or [un]fragmented."134
It is, of course, anti-climactic to mention that DAR viewed the conversion as not violative of
any issuance, let alone undermining the viability of Hacienda Luisita’s operation, as the DAR
Secretary approved the land conversion applied for and its disposition via his Conversion
Order dated August 14, 1996 pursuant to Sec. 65 of RA 6657 which reads:
Sec. 65. Conversion of Lands.¾After the lapse of five 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, the DAR upon application of the beneficiary or landowner
with due notice to the affected parties, and subject to existing laws, may authorize the x x x
conversion of the land and its dispositions. x x x
On the 3% Production Share
On the matter of the alleged failure of HLI to comply with sharing the 3% of the gross
production sales of the hacienda and pay dividends from profit, the entries in its financial
books tend to indicate compliance by HLI of the profit-sharing equivalent to 3% of the gross
sales from the production of the agricultural land on top of (a) the salaries and wages due
FWBs as employees of the company and (b) the 3% of the gross selling price of the
converted land and that portion used for the SCTEX. A plausible evidence of compliance or
non-compliance, as the case may be, could be the books of account of HLI. Evidently, the cry
of some groups of not having received their share from the gross production sales has not
adequately been validated on the ground by the Special Task Force.
Indeed, factual findings of administrative agencies are conclusive when supported by
substantial evidence and are accorded due respect and weight, especially when they are
affirmed by the CA.135 However, such rule is not absolute. One such exception is when the
findings of an administrative agency are conclusions without citation of specific evidence on
which they are based,136 such as in this particular instance. As culled from its Terminal
Report, it would appear that the Special Task Force rejected HLI’s claim of compliance on the
basis of this ratiocination:
 The Task Force position: Though, allegedly, the Supervisory Group receives the 3%
gross production share and that others alleged that they received 30 million pesos
still others maintain that they have not received anything yet. Item No. 4 of the MOA
is clear and must be followed. There is a distinction between the total gross sales
from the production of the land and the proceeds from the sale of the land. The
former refers to the fruits/yield of the agricultural land while the latter is the land itself.
The phrase "the beneficiaries are entitled every year to an amount approximately
equivalent to 3% would only be feasible if the subject is the produce since there is at
least one harvest per year, while such is not the case in the sale of the agricultural
land. This negates then the claim of HLI that, all that the FWBs can be entitled to, if
any, is only 3% of the purchase price of the converted land.
 Besides, the Conversion Order dated 14 August 1996 provides that "the benefits,
wages and the like, presently received by the FWBs shall not in any way be reduced
or adversely affected. Three percent of the gross selling price of the sale of the
converted land shall be awarded to the beneficiaries of the SDO." The 3% gross
production share then is different from the 3% proceeds of the sale of the converted
land and, with more reason, the 33% share being claimed by the FWBs as part
owners of the Hacienda, should have been given the FWBs, as stockholders, and to
which they could have been entitled if only the land were acquired and redistributed
to them under the CARP.
xxxx
  The FWBs do not receive any other benefits under the MOA except the
aforementioned [(viz: shares of stocks (partial), 3% gross production sale (not all)
and homelots (not all)].
Judging from the above statements, the Special Task Force is at best silent on whether HLI
has failed to comply with the 3% production-sharing obligation or the 3% of the gross selling
price of the converted land and the SCTEX lot. In fact, it admits that the FWBs, though not all,
have received their share of the gross production sales and in the sale of the lot to SCTEX.
At most, then, HLI had complied substantially with this SDP undertaking and the conversion
order. To be sure, this slight breach would not justify the setting to naught by PARC of the
approval action of the earlier PARC. Even in contract law, rescission, predicated on violation
of reciprocity, will not be permitted for a slight or casual breach of contract; rescission may be
had only for such breaches that are substantial and fundamental as to defeat the object of the
parties in making the agreement.137
Despite the foregoing findings, the revocation of the approval of the SDP is not without basis
as shown below.
On Titles to Homelots
Under RA 6657, the distribution of homelots is required only for corporations or business
associations owning or operating farms which opted for land distribution. Sec. 30 of RA 6657
states:
SEC. 30. Homelots and Farmlots for Members of Cooperatives.¾The individual members of
the cooperatives or corporations mentioned in the preceding section shall be provided with
homelots and small farmlots for their family use, to be taken from the land owned by the
cooperative or corporation.
The "preceding section" referred to in the above-quoted provision is as follows:
SEC. 29. Farms Owned or Operated by Corporations or Other Business Associations.¾In the
case of farms owned or operated by corporations or other business associations, the
following rules shall be observed by the PARC.
In general, lands shall be distributed directly to the individual worker-beneficiaries.
In case it is not economically feasible and sound to divide the land, then it shall be owned
collectively by the worker-beneficiaries who shall form a workers’ cooperative or association
which will deal with the corporation or business association. Until a new agreement is entered
into by and between the workers’ cooperative or association and the corporation or business
association, any agreement existing at the time this Act takes effect between the former and
the previous landowner shall be respected by both the workers’ cooperative or association
and the corporation or business association.
Noticeably, the foregoing provisions do not make reference to corporations which opted for
stock distribution under Sec. 31 of RA 6657. Concomitantly, said corporations are not obliged
to provide for it except by stipulation, as in this case.
Under the SDP, HLI undertook to "subdivide and allocate for free and without charge among
the qualified family-beneficiaries x x x residential or homelots of not more than 240 sq. m.
each, with each family beneficiary being assured of receiving and owning a homelot in the
barrio or barangay where it actually resides," "within a reasonable time."
More than sixteen (16) years have elapsed from the time the SDP was approved by PARC,
and yet, it is still the contention of the FWBs that not all was given the 240-square meter
homelots and, of those who were already given, some still do not have the corresponding
titles.
During the oral arguments, HLI was afforded the chance to refute the foregoing allegation by
submitting proof that the FWBs were already given the said homelots:
Justice Velasco: x x x There is also an allegation that the farmer beneficiaries, the qualified
family beneficiaries were not given the 240 square meters each. So, can you also [prove] that
the qualified family beneficiaries were already provided the 240 square meter homelots.
Atty. Asuncion: We will, your Honor please.138
Other than the financial report, however, no other substantial proof showing that all the
qualified beneficiaries have received homelots was submitted by HLI. Hence, this Court is
constrained to rule that HLI has not yet fully complied with its undertaking to distribute
homelots to the FWBs under the SDP.
On "Man Days" and the Mechanics of Stock Distribution
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.
Based on the above-quoted provision, the distribution of the shares of stock to the FWBs,
albeit not entailing a cash out from them, is contingent on the number of "man days," that is,
the number of days that the FWBs have worked during the year. This formula deviates from
Sec. 1 of DAO 10, which decrees the distribution of equal number of shares to the FWBs as
the minimum ratio of shares of stock for purposes of compliance with Sec. 31 of RA 6657. As
stated in Sec. 4 of DAO 10:
Section 4. Stock Distribution Plan.¾The [SDP] submitted by the corporate landowner-
applicant shall provide for the distribution of an equal number of shares of the same class
and value, with the same rights and features as all other shares, to each of the qualified
beneficiaries. This distribution plan in all cases, shall be at least the minimum ratio for
purposes of compliance with Section 31 of R.A. No. 6657.
On top of the minimum ratio provided under Section 3 of this Implementing Guideline, the
corporate landowner-applicant may adopt additional stock distribution schemes taking into
account factors such as rank, seniority, salary, position and other circumstances which may
be deemed desirable as a matter of sound company policy. (Emphasis supplied.)
The above proviso gives two (2) sets or categories of shares of stock which a qualified
beneficiary can acquire from the corporation under the SDP. The first pertains, as earlier
explained, to the mandatory minimum ratio of shares of stock to be distributed to the FWBs in
compliance with Sec. 31 of RA 6657. This minimum ratio contemplates of that "proportion of
the capital stock of the corporation that the agricultural land, actually devoted to agricultural
activities, bears in relation to the company’s total assets."139 It is this set of shares of stock
which, in line with Sec. 4 of DAO 10, is supposed to be allocated "for the distribution of an
equal number of shares of stock of the same class and value, with the same rights and
features as all other shares, to each of the qualified beneficiaries."
On the other hand, the second set or category of shares partakes of a gratuitous extra grant,
meaning that this set or category constitutes an augmentation share/s that the corporate
landowner may give under an additional stock distribution scheme, taking into account such
variables as rank, seniority, salary, position and like factors which the management, in the
exercise of its sound discretion, may deem desirable.140
Before anything else, it should be stressed that, at the time PARC approved HLI’s SDP, HLI
recognized 6,296individuals as qualified FWBs. And under the 30-year stock distribution
program envisaged under the plan, FWBs who came in after 1989, new FWBs in fine, may be
accommodated, as they appear to have in fact been accommodated as evidenced by their
receipt of HLI shares.
Now then, by providing that the number of shares of the original 1989 FWBs shall depend on
the number of "man days," HLI violated the afore-quoted rule on stock distribution and
effectively deprived the FWBs of equal shares of stock in the corporation, for, in net effect,
these 6,296 qualified FWBs, who theoretically had given up their rights to the land that could
have been distributed to them, suffered a dilution of their due share entitlement. As has been
observed during the oral arguments, HLI has chosen to use the shares earmarked for
farmworkers as reward system chips to water down the shares of the original 6,296
FWBs.141 Particularly:
Justice Abad: If the SDOA did not take place, the other thing that would have happened is
that there would be CARP?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: That’s the only point I want to know x x x. Now, but they chose to enter SDOA
instead of placing the land under CARP. And for that reason those who would have gotten
their shares of the land actually gave up their rights to this land in place of the shares of the
stock, is that correct?
Atty. Dela Merced: It would be that way, Your Honor.
Justice Abad: Right now, also the government, in a way, gave up its right to own the land
because that way the government takes own [sic] the land and distribute it to the farmers and
pay for the land, is that correct?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: And then you gave thirty-three percent (33%) of the shares of HLI to the
farmers at that time that numbered x x x those who signed five thousand four hundred ninety
eight (5,498) beneficiaries, is that correct?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: But later on, after assigning them their shares, some workers came in from
1989, 1990, 1991, 1992 and the rest of the years that you gave additional shares who were
not in the original list of owners?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: Did those new workers give up any right that would have belong to them in
1989 when the land was supposed to have been placed under CARP?
Atty. Dela Merced: If you are talking or referring… (interrupted)
Justice Abad: None! You tell me. None. They gave up no rights to land?
Atty. Dela Merced: They did not do the same thing as we did in 1989, Your Honor.
Justice Abad: No, if they were not workers in 1989 what land did they give up? None, if they
become workers later on.
Atty. Dela Merced: None, Your Honor, I was referring, Your Honor, to the original…
(interrupted)
Justice Abad: So why is it that the rights of those who gave up their lands would be diluted,
because the company has chosen to use the shares as reward system for new workers who
come in? It is not that the new workers, in effect, become just workers of the corporation
whose stockholders were already fixed. The TADECO who has shares there about sixty six
percent (66%) and the five thousand four hundred ninety eight (5,498) farmers at the time of
the SDOA? Explain to me. Why, why will you x x x what right or where did you get that right
to use this shares, to water down the shares of those who should have been benefited, and
to use it as a reward system decided by the company?142
From the above discourse, it 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. As
stated:
Section 11. Implementation/Monitoring of Plan.¾The approved stock distribution plan shall
be implemented within three (3) months from receipt by the corporate landowner-applicant of
the approval thereof by the PARC, and the transfer of the shares of stocks in the names of
the qualified beneficiaries shall be recorded in stock and transfer books and submitted to the
Securities and Exchange Commission (SEC) within sixty (60) days from the said
implementation of the stock distribution plan. (Emphasis supplied.)
It is evident from the foregoing provision that the implementation, that is, the distribution of
the shares of stock to the FWBs, must be made within three (3) months from receipt by HLI of
the approval of the stock distribution plan by PARC. While neither of the clashing parties has
made a compelling case of the thrust of this provision, the Court is of the view and so holds
that the intent is to compel the corporate landowner to complete, not merely initiate, the
transfer process of shares within that three-month timeframe. Reinforcing this conclusion is
the 60-day stock transfer recording (with the SEC) requirement reckoned from the
implementation of the SDP.
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.
The argument is urged that the thirty (30)-year distribution program is justified by the fact that,
under Sec. 26 of RA 6657, payment by beneficiaries of land distribution under CARP shall be
made in thirty (30) annual amortizations. To HLI, said section provides a justifying dimension
to its 30-year stock distribution program.
HLI’s reliance on Sec. 26 of RA 6657, quoted in part below, is obviously misplaced as the
said provision clearly deals with land distribution.
SEC. 26. Payment by Beneficiaries.¾Lands awarded pursuant to this Act shall be paid for by
the beneficiaries to the LBP in thirty (30) annual amortizations x x x.
Then, too, the ones obliged to pay the LBP under the said provision are the beneficiaries. On
the other hand, in the instant case, aside from the fact that what is involved is stock
distribution, it is the corporate landowner who has the obligation to distribute the shares of
stock among the FWBs.
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 for violating 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.143 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.
III.
We now resolve the petitions-in-intervention which, at bottom, uniformly pray for the exclusion
from the coverage of the assailed PARC resolution those portions of the converted land
within Hacienda Luisita which RCBC and LIPCO acquired by purchase.
Both contend that they are innocent purchasers for value of portions of the converted farm
land. Thus, their plea for the exclusion of that portion from PARC Resolution 2005-32-01, as
implemented by a DAR-issued Notice of Coverage dated January 2, 2006, which called for
mandatory CARP acquisition coverage of lands subject of the SDP.
To restate the antecedents, after the conversion of the 500 hectares of land in Hacienda
Luisita, HLI transferred the 300 hectares to Centennary, while ceding the remaining 200-
hectare portion to LRC. Subsequently, LIPCO purchased the entire three hundred (300)
hectares of land from Centennary for the purpose of developing the land into an industrial
complex.144 Accordingly, the TCT in Centennary’s name was canceled and a new one issued
in LIPCO’s name. Thereafter, said land was subdivided into two (2) more parcels of land.
Later on, LIPCO transferred about 184 hectares to RCBC by way of dacion en pago, by virtue
of which TCTs in the name of RCBC were subsequently issued.
Under Sec. 44 of PD 1529 or the Property Registration Decree, "every registered owner
receiving a certificate of title in pursuance of a decree of registration and every subsequent
purchaser of registered land taking a certificate of title for value and in good faith shall hold
the same free from all encumbrances except those noted on the certificate and enumerated
therein."145
It is settled doctrine that one who deals with property registered under the Torrens system
need not go beyond the four corners of, but can rely on what appears on, the title. He is
charged with notice only of such burdens and claims as are annotated on the title. This
principle admits of certain exceptions, such as when the party has actual knowledge of facts
and circumstances that would impel a reasonably cautious man to make such inquiry, or
when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient
facts to induce a reasonably prudent man to inquire into the status of the title of the property
in litigation.146 A higher level of care and diligence is of course expected from banks, their
business being impressed with public interest.147
Millena v. Court of Appeals describes a purchaser in good faith in this wise:
x x x A purchaser in good faith is one who buys property of another, without notice that some
other person has a right to, or interest in, such property at the time of such purchase, or
before he has notice of the claim or interest of some other persons in the property. Good
faith, or the lack of it, is in the final analysis a question of intention; but in ascertaining the
intention by which one is actuated on a given occasion, we are necessarily controlled by the
evidence as to the conduct and outward acts by which alone the inward motive may, with
safety, be determined. Truly, good faith is not a visible, tangible fact that can be seen or
touched, but rather a state or condition of mind which can only be judged by actual or fancied
tokens or signs. Otherwise stated, good faith x x x refers to the state of mind which is
manifested by the acts of the individual concerned. 148 (Emphasis supplied.)
In fine, there 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.149
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.
It cannot be claimed that RCBC and LIPCO acted in bad faith in acquiring the lots that were
previously covered by the SDP. Good faith "consists in the possessor’s belief that the person
from whom he received it was the owner of the same and could convey his title. Good faith
requires a well-founded belief that the person from whom title was received was himself the
owner of the land, with the right to convey it. There is good faith where there is an honest
intention to abstain from taking any unconscientious advantage from another."150 It is the
opposite of fraud.
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 PhP
750 million pursuant to a Deed of Sale dated July 30, 1998.151 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 PhP 431,695,732.10.
As bona fide purchasers for value, both LIPCO and RCBC have acquired rights which cannot
just be disregarded by DAR, PARC or even by this Court. As held in Spouses Chua v.
Soriano:
With the property in question having already passed to the hands of purchasers in good faith,
it is now of no moment that some irregularity attended the issuance of the SPA, consistent
with our pronouncement in Heirs of Spouses Benito Gavino and Juana Euste v. Court of
Appeals, to wit:
x x x the general rule that the direct result of a previous void contract cannot be valid, is
inapplicable in this case as it will directly contravene the Torrens system of
registration. Where innocent third persons, relying on the correctness of the certificate
of title thus issued, acquire rights over the property, the court cannot disregard such
rights and order the cancellation of the certificate. The effect of such outright cancellation
will be to impair public confidence in the certificate of title. The sanctity of the Torrens system
must be preserved; otherwise, everyone dealing with the property registered under the
system will have to inquire in every instance as to whether the title had been regularly or
irregularly issued, contrary to the evident purpose of the law.
Being purchasers in good faith, the Chuas already acquired valid title to the property.
A purchaser in good faith holds an indefeasible title to the property and he is entitled
to the protection of the law.152 x x x (Emphasis supplied.)
To be sure, the practicalities of the situation have to a point influenced Our disposition on the
fate of RCBC and LIPCO. After all, the Court, to borrow from Association of Small
Landowners in the Philippines, Inc.,153 is not a "cloistered institution removed" from the
realities on the ground. To note, the approval and issuances of both the national and local
governments showing that certain portions of Hacienda Luisita have effectively ceased,
legally and physically, to be agricultural and, therefore, no longer CARPable are a matter of
fact which cannot just be ignored by the Court and the DAR. Among the approving/endorsing
issuances:154
(a) Resolution No. 392 dated 11 December 1996 of the Sangguniang Bayan of
Tarlac favorably endorsing the 300-hectare industrial estate project of LIPCO;
(b) BOI Certificate of Registration No. 96-020 dated 20 December 1996 issued in
accordance with the Omnibus Investments Code of 1987;
(c) PEZA Certificate of Board Resolution No. 97-202 dated 27 June 1997, approving
LIPCO’s application for a mixed ecozone and proclaiming the three hundred (300)
hectares of the industrial land as a Special Economic Zone;
(d) Resolution No. 234 dated 08 August 1997 of the Sangguniang Bayan of Tarlac,
approving the Final Development Permit for the Luisita Industrial Park II Project;
(e) Development Permit dated 13 August 1997 for the proposed Luisita Industrial
Park II Project issued by the Office of the Sangguniang Bayan of Tarlac;155
(f) DENR Environmental Compliance Certificate dated 01 October 1997 issued for
the proposed project of building an industrial complex on three hundred (300)
hectares of industrial land;156
(g) Certificate of Registration No. 00794 dated 26 December 1997 issued by the
HLURB on the project of Luisita Industrial Park II with an area of three million
(3,000,000) square meters;157
(h) License to Sell No. 0076 dated 26 December 1997 issued by the HLURB
authorizing the sale of lots in the Luisita Industrial Park II;
(i) Proclamation No. 1207 dated 22 April 1998 entitled "Declaring Certain Parcels of
Private Land in Barangay San Miguel, Municipality of Tarlac, Province of Tarlac, as a
Special Economic Zone pursuant to Republic Act No. 7916," designating the Luisita
Industrial Park II consisting of three hundred hectares (300 has.) of industrial land as
a Special Economic Zone; and
(j) Certificate of Registration No. EZ-98-05 dated 07 May 1998 issued by the PEZA,
stating that pursuant to Presidential Proclamation No. 1207 dated 22 April 1998 and
Republic Act No. 7916, LIPCO has been registered as an Ecozone
Developer/Operator of Luisita Industrial Park II located in San Miguel, Tarlac, Tarlac.
While a mere reclassification of a covered agricultural land or its inclusion in an economic
zone does not automatically allow the corporate or individual landowner to change its
use,158 the reclassification process is a prima facie indicium that the land has ceased to be
economically feasible and sound for agricultural uses. And if only to stress, DAR Conversion
Order No. 030601074-764-(95) issued in 1996 by then DAR Secretary Garilao had effectively
converted 500 hectares of hacienda land from agricultural to industrial/commercial use and
authorized their disposition.
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.
As regards the 80.51-hectare land transferred to the government for use as part of the
SCTEX, this should also be excluded from the compulsory agrarian reform coverage
considering that the transfer was consistent with the government’s exercise of the power of
eminent domain159 and none of the parties actually questioned the transfer.
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.160 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. 161
The oft-cited De Agbayani v. Philippine National Bank162 discussed the effect to be given to a
legislative or executive act subsequently declared invalid:
x x x It does not admit of doubt that prior to the declaration of nullity such challenged
legislative or executive act must have been in force and had to be complied with. This is so
as until after the judiciary, in an appropriate case, declares its invalidity, it is entitled to
obedience and respect. Parties may have acted under it and may have changed their
positions. What could be more fitting than that in a subsequent litigation regard be had to
what has been done while such legislative or executive act was in operation and presumed to
be valid in all respects. It is now accepted as a doctrine that prior to its being nullified, its
existence as a fact must be reckoned with. This is merely to reflect awareness that precisely
because the judiciary is the government organ which has the final say on whether or not a
legislative or executive measure is valid, a period of time may have elapsed before it can
exercise the power of judicial review that may lead to a declaration of nullity. It would be to
deprive the law of its quality of fairness and justice then, if there be no recognition of what
had transpired prior to such adjudication.
In the language of an American Supreme Court decision: "The actual existence of a statute,
prior to such a determination of [unconstitutionality], is an operative fact and may have
consequences which cannot justly be ignored. The past cannot always be erased by a new
judicial declaration. The effect of the subsequent ruling as to invalidity may have to be
considered in various aspects,––with respect to particular relations, individual and corporate,
and particular conduct, private and official." x x x
Given the above perspective and considering that more than two decades had passed since
the PARC’s approval of the HLI’s SDP, in conjunction with numerous activities performed in
good faith by HLI, and the reliance by the FWBs on the legality and validity of the PARC-
approved SDP, perforce, certain rights of the parties, more particularly the FWBs, have to be
respected pursuant to the application in a general way of the operative fact doctrine.
A view, however, has been advanced that the operative fact doctrine is of minimal or
altogether without relevance to the instant case as it applies only in considering the effects of
a declaration of unconstitutionality of a statute, and not of a declaration of nullity of a contract.
This is incorrect, for this view failed to consider is that it is NOT the SDOA dated May 11,
1989 which was revoked in the instant case. Rather, it is PARC’s approval of the HLI’s
Proposal for Stock Distribution under CARP which embodied the SDP that was nullified.
A recall of the antecedent events would show that on May 11, 1989, Tadeco, HLI, and the
qualified FWBs executed the SDOA. This agreement provided the basis and mechanics of
the SDP that was subsequently proposed and submitted to DAR for approval. It was only
after its review that the PARC, through then Sec. Defensor-Santiago, issued the assailed
Resolution No. 89-12-2 approving the SDP. Considerably, it is not the SDOA which gave
legal force and effect to the stock distribution scheme but instead, it is the approval of the
SDP under the PARC Resolution No. 89-12-2 that gave it its validity.
The above conclusion is bolstered by the fact that in Sec. Pangandaman’s recommendation
to the PARC Excom, what he proposed is the recall/revocation of PARC Resolution No. 89-
12-2 approving HLI’s SDP, and not the revocation of the SDOA. Sec. Pangandaman’s
recommendation was favorably endorsed by the PARC Validation Committee to the PARC
Excom, and these recommendations were referred to in the assailed Resolution No. 2005-32-
01. Clearly, it is not the SDOA which was made the basis for the implementation of the stock
distribution scheme.
That the operative fact doctrine squarely applies to executive acts––in this case, the approval
by PARC of the HLI proposal for stock distribution––is well-settled in our jurisprudence. In
Chavez v. National Housing Authority,163We held:
Petitioner postulates that the "operative fact" doctrine is inapplicable to the present case
because it is an equitable doctrine which could not be used to countenance an inequitable
result that is contrary to its proper office.
On the other hand, the petitioner Solicitor General argues that the existence of the various
agreements implementing the SMDRP is an operative fact that can no longer be disturbed or
simply ignored, citing Rieta v. People of the Philippines.
The argument of the Solicitor General is meritorious.
The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals, wherein it is
stated that a legislative or executive act, prior to its being declared as unconstitutional by the
courts, is valid and must be complied with, thus:
xxx xxx xxx
This doctrine was reiterated in the more recent case of City of Makati v. Civil Service
Commission, wherein we ruled that:
Moreover, we certainly cannot nullify the City Government's order of suspension, as we have
no reason to do so, much less retroactively apply such nullification to deprive private
respondent of a compelling and valid reason for not filing the leave application. For as we
have held, a void act though in law a mere scrap of paper nonetheless confers legitimacy
upon past acts or omissions done in reliance thereof. Consequently, the existence of a
statute or executive order prior to its being adjudged void is an operative fact to which legal
consequences are attached. It would indeed be ghastly unfair to prevent private respondent
from relying upon the order of suspension in lieu of a formal leave application. (Citations
omitted; Emphasis supplied.)
The applicability of the operative fact doctrine to executive acts was further explicated by this
Court in Rieta v. People,164 thus:
Petitioner contends that his arrest by virtue of Arrest Search and Seizure Order (ASSO) No.
4754 was invalid, as the law upon which it was predicated — General Order No. 60, issued
by then President Ferdinand E. Marcos — was subsequently declared by the Court, in
Tañada v. Tuvera, 33 to have no force and effect. Thus, he asserts, any evidence obtained
pursuant thereto is inadmissible in evidence.
We do not agree. In Tañada, the Court addressed the possible effects of its declaration of the
invalidity of various presidential issuances. Discussing therein how such a declaration might
affect acts done on a presumption of their validity, the Court said:
". . .. In similar situations in the past this Court had taken the pragmatic and realistic course
set forth in Chicot County Drainage District vs. Baxter Bank to wit:
‘The courts below have proceeded on the theory that the Act of Congress, having been found
to be unconstitutional, was not a law; that it was inoperative, conferring no rights and
imposing no duties, and hence affording no basis for the challenged decree. . . . It is quite
clear, however, that such broad statements as to the effect of a determination of
unconstitutionality must be taken with qualifications. The actual existence of a statute, prior to
[the determination of its invalidity], is an operative fact and may have consequences which
cannot justly be ignored. The past cannot always be erased by a new judicial declaration.
The effect of the subsequent ruling as to invalidity may have to be considered in various
aspects — with respect to particular conduct, private and official. Questions of rights claimed
to have become vested, of status, of prior determinations deemed to have finality and acted
upon accordingly, of public policy in the light of the nature both of the statute and of its
previous application, demand examination. These questions are among the most difficult of
those which have engaged the attention of courts, state and federal, and it is manifest from
numerous decisions that an all-inclusive statement of a principle of absolute retroactive
invalidity cannot be justified.’
xxx xxx xxx
"Similarly, the implementation/enforcement of presidential decrees prior to their publication in
the Official Gazette is ‘an operative fact which may have consequences which cannot be
justly ignored. The past cannot always be erased by a new judicial declaration . . . that an all-
inclusive statement of a principle of absolute retroactive invalidity cannot be justified.’"
The Chicot doctrine cited in Tañada advocates that, prior to the nullification of a statute, there
is an imperative necessity of taking into account its actual existence as an operative fact
negating the acceptance of "a principle of absolute retroactive invalidity." Whatever was done
while the legislative or the executive act was in operation should be duly recognized and
presumed to be valid in all respects. The ASSO that was issued in 1979 under General Order
No. 60 — long before our Decision in Tañada and the arrest of petitioner — is an operative
fact that can no longer be disturbed or simply ignored. (Citations omitted; Emphasis
supplied.)
To reiterate, although the assailed Resolution No. 2005-32-01 states that it revokes or recalls
the SDP, what it actually revoked or recalled was the PARC’s approval of the SDP embodied
in Resolution No. 89-12-2. Consequently, what was actually declared null and void was an
executive act, PARC Resolution No. 89-12-2,165and not a contract (SDOA). It is, therefore,
wrong to say that it was the SDOA which was annulled in the instant case. Evidently, the
operative fact doctrine is applicable.
IV.
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,
2005.166 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.
With respect to the other FWBs who were not listed as qualified beneficiaries as of November
21, 1989 when the SDP was approved, they are not accorded the right to acquire land but
shall, however, continue as HLI stockholders. All the benefits and homelots 167 received by the
10,502 FWBs (6,296 original FWBs and 4,206 non-qualified FWBs) listed as HLI
stockholders as of August 2, 2010 shall be respected with no obligation to refund or return
them since the benefits (except the homelots) were received by the FWBs as farmhands in
the agricultural enterprise of HLI and other fringe benefits were granted to them pursuant to
the existing collective bargaining agreement with Tadeco. If the number of HLI shares in the
names of the original FWBs who opt to remain as HLI stockholders falls below the
guaranteed allocation of 18,804.32 HLI shares per FWB, the HLI shall assign additional
shares to said FWBs to complete said minimum number of shares at no cost to said FWBs.
With regard to the homelots already awarded or earmarked, the FWBs are not obliged to
return the same to HLI or pay for its value since this is a benefit granted under the SDP. The
homelots do not form part of the 4,915.75 hectares covered by the SDP but were taken from
the 120.9234 hectare residential lot owned by Tadeco. Those who did not receive the
homelots as of the revocation of the SDP on December 22, 2005 when PARC Resolution No.
2005-32-01 was issued, will no longer be entitled to homelots. Thus, in the determination of
the ultimate agricultural land that will be subjected to land distribution, the aggregate area of
the homelots will no longer be deducted.
There is a claim that, since the sale and transfer of the 500 hectares of land subject of the
August 14, 1996 Conversion Order and the 80.51-hectare SCTEX lot came after compulsory
coverage has taken place, the FWBs should have their corresponding share of the land’s
value. There is merit in the claim. Since the SDP approved by PARC Resolution No. 89-12-2
has been nullified, then all the lands subject of the SDP will automatically be subject of
compulsory coverage under Sec. 31 of RA 6657. Since the Court excluded the 500-hectare
lot subject of the August 14, 1996 Conversion Order and the 80.51-hectare SCTEX lot
acquired by the government from the area covered by SDP, then HLI and its subsidiary,
Centennary, shall be liable to the FWBs for the price received for said lots. HLI shall be liable
for the value received for the sale of the 200-hectare land to LRC in the amount of PhP
500,000,000 and the equivalent value of the 12,000,000 shares of its subsidiary, Centennary,
for the 300-hectare lot sold to LIPCO for the consideration of PhP 750,000,000. Likewise, HLI
shall be liable for PhP 80,511,500 as consideration for the sale of the 80.51-hectare SCTEX
lot.
We, however, note that HLI has allegedly paid 3% of the proceeds of the sale of the 500-
hectare land and 80.51-hectare SCTEX lot to the FWBs. We also take into account the
payment of taxes and expenses relating to the transfer of the land and HLI’s statement that
most, if not all, of the proceeds were used for legitimate corporate purposes. In order to
determine once and for all whether or not all the proceeds were properly utilized by HLI and
its subsidiary, Centennary, DAR will engage the services of a reputable accounting firm to be
approved by the parties to audit the books of HLI to determine if the proceeds of the sale of
the 500-hectare land and the 80.51-hectare SCTEX lot were actually used for legitimate
corporate purposes, titling expenses and in compliance with the August 14, 1996 Conversion
Order. The cost of the audit will be shouldered by HLI. If after such audit, it is determined that
there remains a balance from the proceeds of the sale, then the balance shall be distributed
to the qualified FWBs.
A view has been advanced that HLI must pay the FWBs yearly rent for use of the land from
1989. We disagree. It should not be forgotten that the FWBs are also stockholders of HLI,
and the benefits acquired by the corporation from its possession and use of the land
ultimately redounded to the FWBs’ benefit based on its business operations in the form of
salaries, and other fringe benefits under the CBA. To still require HLI to pay rent to the FWBs
will result in double compensation.
For sure, HLI will still exist as a corporation even after the revocation of the SDP although it
will no longer be operating under the SDP, but pursuant to the Corporation Code as a private
stock corporation. The non-agricultural assets amounting to PhP 393,924,220 shall remain
with HLI, while the agricultural lands valued at PhP 196,630,000 with an original area of
4,915.75 hectares shall be turned over to DAR for distribution to the FWBs. To be deducted
from said area are the 500-hectare lot subject of the August 14, 1996 Conversion Order, the
80.51-hectare SCTEX lot, and the total area of 6,886.5 square meters of individual lots that
should have been distributed to FWBs by DAR had they not opted to stay in HLI.
HLI shall be paid just compensation for the remaining agricultural land that will be transferred
to DAR for land distribution to the FWBs. We find that the date of the "taking" is November
21, 1989, when PARC approved HLI’s SDP per PARC Resolution No. 89-12-2. DAR shall
coordinate with LBP for the determination of just compensation. We cannot use May 11, 1989
when the SDOA was executed, since it was the SDP, not the SDOA, that was approved by
PARC.
The instant petition is treated pro hac vice in view of the peculiar facts and circumstances of
the case.
WHEREFORE, the instant petition is DENIED. PARC Resolution No. 2005-32-01 dated
December 22, 2005 and Resolution No. 2006-34-01 dated May 3, 2006, placing the lands
subject of HLI’s SDP under compulsory coverage on mandated land acquisition scheme of
the CARP, are hereby AFFIRMED with the MODIFICATION that the original 6,296 qualified
FWBs shall have the option to remain as stockholders of HLI. DAR shall immediately
schedule meetings with the said 6,296 FWBs and explain to them the effects, consequences
and legal or practical implications of their choice, after which the FWBs will be asked to
manifest, in secret voting, their choices in the ballot, signing their signatures or placing their
thumbmarks, as the case may be, over their printed names.
aforementioned lots were used or spent for legitimate corporate purposes. Any unspent or
unused balance as determined by the audit shall be distributed to the 6,296 original FWBs.
HLI is entitled to just compensation for the agricultural land that will be transferred to DAR to
be reckoned from November 21, 1989 per PARC Resolution No. 89-12-2. DAR and LBP are
ordered to determine the compensation due to HLI.

Of the 6,296 FWBs, he or she who wishes to continue as an HLI stockholder is entitled to
18,804.32 HLI shares, and, in case the HLI shares already given to him or her is less than
18,804.32 shares, the HLI is ordered to issue or distribute additional shares to complete said
prescribed number of shares at no cost to the FWB within thirty (30) days from finality of this
Decision. Other FWBs who do not belong to the original 6,296 qualified beneficiaries are not
entitled to land distribution and shall remain as HLI shareholders. All salaries, benefits, 3%
production share and 3% share in the proceeds of the sale of the 500-hectare converted land
and the 80.51-hectare SCTEX lot and homelots already received by the 10,502 FWBs,
composed of 6,296 original FWBs and 4,206 non-qualified FWBs, shall be respected with no
obligation to refund or return them.
DAR shall submit a compliance report after six (6) months from finality of this judgment. It
shall also submit, after submission of the compliance report, quarterly reports on the
execution of this judgment to be submitted within the first 15 days at the end of each quarter,
until fully implemented.
The temporary restraining order is lifted.
SO ORDERED.

Within thirty (30) days after determining who from among the original FWBs will stay as
stockholders, DAR shall segregate from the HLI agricultural land with an area of 4,915.75
hectares subject of PARC’s SDP-approving Resolution No. 89-12-2 the following: (a) the 500-
hectare lot subject of the August 14, l996 Conversion Order; (b) the 80.51-hectare lot sold to,
or acquired by, the government as part of the SCTEX complex; and (c) the aggregate area of
6,886.5 square meters of individual lots that each FWB is entitled to under the CARP had he
or she not opted to stay in HLI as a stockholder. After the segregation process, as indicated,
is done, the remaining area shall be turned over to DAR for immediate land distribution to the
original qualified FWBs who opted not to remain as HLI stockholders.

The aforementioned area composed of 6,886.5-square meter lots allotted to the FWBs who
stayed with the corporation shall form part of the HLI assets.

HLI is directed to pay the 6,296 FWBs the consideration of PhP 500,000,000 received by it
from Luisita Realty, Inc. for the sale to the latter of 200 hectares out of the 500 hectares
covered by the August 14, 1996 Conversion Order, the consideration of PhP 750,000,000
received by its owned subsidiary, Centennary Holdings, Inc. for the sale of the remaining 300
hectares of the aforementioned 500-hectare lot to Luisita Industrial Park Corporation, and the
price of PhP 80,511,500 paid by the government through the Bases Conversion Development
Authority for the sale of the 80.51-hectare lot used for the construction of the SCTEX road
network. From the total amount of PhP 1,330,511,500 (PhP 500,000,000 + PhP 750,000,000
+ PhP 80,511,500 = PhP 1,330,511,500) shall be deducted the 3% of the total gross sales
from the production of the agricultural land and the 3% of the proceeds of said transfers that
were paid to the FWBs, the taxes and expenses relating to the transfer of titles to the
transferees, and the expenditures incurred by HLI and Centennary Holdings, Inc. for
legitimate corporate purposes. For this purpose, DAR is ordered to engage the services of a
reputable accounting firm approved by the parties to audit the books of HLI and Centennary
Holdings, Inc. to determine if the PhP 1,330,511,500 proceeds of the sale of the three (3)