Case Digest: Ayala & Capitol Citifarms v. Castillo, et al.

G. R. No. 178110 : June 15, 2011




CCFI owned two parcels of land (the subject land) with a total area of 221.3048 hectares located at Barangay Tibig in Silang,Cavite. The subject land was mortgaged in favor of one of CCFIs creditors, MBC. Pursuant to Resolution No. 505 of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP), MBC was placed under receivership on22 May 1987, in accordance with Section 29 of the Central Bank Act. Pursuant to this law, the assets of MBC were placed in the hands of its receiver under custodia legis. On 29 September 1989, the DAR issued a Notice of Coverage placing the property under compulsory acquisition under the Comprehensive Agrarian Reform Law of 1988.

In the meantime, CCFI was unable to comply with its mortgage obligations to MBC. The latter foreclosed on the lien, and the land was awarded to it in an auction sale held on4 January 1991. The sale was duly annotated on the titles as Entry No. 5324-44. In a Deed of Partial Redemption, CCFI was authorized to partially redeem the two parcels of land and sell them to a third party, pending full payment of the redemption price.Under the Deed, the down payment, which was 30% of the purchase price, would be payable to the bank only upon approval of the exemption of the two parcels of land from the coverage of CARL or upon their conversion to non-agricultural use.

On the same date, the property was sold to petitioner ALI in a Deed of Sale over the properties covered by TCT Nos. 128672 and 144245. The sale was not absolute but conditional stating that MBC was to continue to have custody of the corresponding titles for as long as any obligation remained due it.

Prompted by the numerous proceedings for compulsory acquisition initiated by the DAR against MBC, Governor Reyes requested then DAR Secretary Ernesto Garilao to issue an order exempting the landholdings of MBC from CARL and to declare a moratorium on the compulsory acquisition of MBCs landholdings. But Secretary Garilao denied the request. On1 August 1995, MBC and Governor Reyes filed with the OP a Petition for Review of Secretary Garilaos Decision. The OP issued a Stay Orderof the appealed Decision. Thereafter, MBC filed with the OP a motion for the issuance of an order granting the former a period of five years within which to seek the conversion of its landholdings to non-agricultural use.

Instead of ruling on the motion alone, however, the OP, through Executive Secretary Ruben D. Torres remanded the case to the DAR and ordered the agency to determine which parcels of land were exempt from the coverage of the CARL. Secretary Torres denied the Motion for Reconsideration filed by the DAR.

Secretary Garilao issued a Resolution dated3 October 1997, granting MBCs Request for Clearance to Sell, with the sale to be undertaken by CCFI. He applied Section 73-A of Republic Act No. (R.A.) 6657, as amended by R.A. 7881, that allows the sale of agricultural land where such sale or transfer is necessitated by a banks foreclosure of a mortgage. DAR Memorandum Circular No. 05, Series of 1996 further clarified the above provision, stating that foreclosed assets are subject to existing laws on their compulsory transfer under Section 16 of the General Banking Act. CCFI thereafter filed an application for conversion and/or exemption pursuant to its prerogative as a landowner under Part IV of DAR A.O. 12-94 and the procedure outlined therein.

On 31 October 1997, Secretary Garilao issued Conversion Order No. 4-97-1029-051, approving the conversion and/or exemption of the 221-hectare property in Silang, exempting the properties from agrarian reform coverage, as it was beyond eighteen (18) degrees in slope.

On 19 May 2000, he farmers tilling the subject land filed a Petition for Revocation of Conversion Order No. 4-97-1029-051 alleging: (1) that the sale in 1995 by CCFI to ALI was invalid; and (2) that CCFI and ALI were guilty of misrepresentation in claiming that the property had been reclassified through a mere Resolution, when the law required an ordinance of the Sanggunian. The issue of the alleged Notice of Acquisition was never raised. Neither was there any mention of the issuance of a Notice of Coverage.

On18 December 2000, DAR Secretary Horacio Morales, Jr.declared that the action to revoke the conversion had not yet prescribed. According to him, Section 34 of A.O. 1-99 imposing the one-year prescription period did not apply, because administrative rules should be applied prospectively. Thus, the rule to be followed was that prevailing at the time of the issuance of the Conversion Order DAR A.O. 12-94 not A.O. 1-99, which was the rule prevailing when the Petition for Revocation was filed. But he never passed upon or even mentioned any matter related to the Notice of Acquisition.

It is important to note, however, that Secretary Morales declared that CCFI and ALI had completed the payment of disturbance compensation to the farmers, as shown by theKasunduan,which was a waiver of all the farmers rights over the landholding, and by theKatunayan ng Pagbabayad,which expressly acknowledged the amounts paid as the full and final settlement of their claims against CCFI and ALI.

On26 September 2002, acting on the Motion for Reconsideration filed by ALI, DAR Secretary Hernani Braganza reversedthe Revocation of Conversion Order 4-97-1029-051. Again,Secretary Braganza was not afforded an opportunity to discuss any evidence related to the existence or effect of any Notice of Acquisition, as the joinder of issues was limited.

Secretary Braganza found that the Deed of Partial Redemption was conditional, and that there was no transfer of ownership to CCFI or its successor-in-interest, ALI. Hence, there could be no violation of the CARL arising from an unauthorized transfer of the land to ALI. In fact, the obligation of ALI to pay the purchase price did not arise until the DARs issuance of an order of exemption or conversion. On14 January 2003, Secretary Braganza granted ALIs Motion for Extension to develop the land for another five (5) years.

The farmers questioned the jurisdiction of the DAR to determine the ownership of the lands and to determine whether or not the sale was conditional, as these issues are within the ambit of the civil courts.

Secretary Roberto Pagdanganan denied the farmers Motion for Reconsideration and affirming the finality of the Braganza Order.

On appeal, the upheld Conversion Order No. 4-97-1029-051 issued by then Secretary of the Department of Agrarian Reform (DAR) Ernesto Garilao, as well as the Orders issued by Secretary Hernani Braganza and Secretary Roberto Pagdanganan both affirming the conversion.

The CA found merit in the OPs rationale for maintaining the Conversion Order, yet invalidated the same on the basis that a Notice of Coverage and a Notice of Acquisition had already been issued over the lands, thus they could no longer be subject to conversion.

Hence, this petition.


Whether or not the subject property has long been converted into non-agricultural uses?

Whether or not the CA is barred from resolving the issue of the alleged Notice of Acquisition thaw only raised for the first time on appeal?


The petition is granted.

POLITICAL LAW: conversion order

The provision invoked in AO 12-94, paragraph E, disallows applications for conversion of lands for which the DAR has issued a notice of acquisition. But paragraph E falls under heading VI,Policies and Guiding Principles.By no stretch of the imagination can a mere principle be interpreted as an absolute proscription on conversion.Secretary Garilao thus acted within his authority in issuing the Conversion Order, precisely because the law grants him the sole power to make this policy judgment,despitethe guiding principle regarding the notice of acquisition.

The thrust of this provision, which DAR Secretary Garilao rightly took into account in issuing the Conversion Order, is that even if the land has not yet been reclassified, if its use has changed towards the modernization of the community, conversion is still allowed.

As DAR Secretary, Garilao had full authority to balance the guiding principle in paragraph E against that in paragraph B (3) and to find for conversion. Note that the same guiding principle which includes the general proscription against conversion was scrapped from the new rules on conversion, DAR A.O. 1, Series of 2002, or the Comprehensive Rules on Land Use Conversion. It must be emphasized that the policy allowing conversion, on the other hand, was retained. This is a complex case in which there can be no simplistic or mechanical solution. The Comprehensive Agrarian Reform Law is not intractable, nor does it condemn a piece of land to a single use forever.

Paragraph B (3), Part VI of DAR AO 12-94 allows conversion when the land will have greater economic value for residential, commercial or industrial purposesas certified by the Local Government Unit.It is clear that the thrust of the community and the local government is the conversion of the lands. To this end, the two Resolutions, one issued by the Sangguniang Bayan of Silang, the other by the Sangguniang PanlalawiganofCavite, while not strictly for purposes of reclassification, are sufficient compliance with the requirement of the Conversion Order.

Paragraph E and paragraph B (3) were thus set merely as guidelines in issues of conversion. CARL is to be solely implemented by the DAR, taking into accountcurrentland use as governed by the needs and political will of the local government and its people. The palpable intent of the Administrative Order is to make the DAR the principal agency in deciding questions on conversion.

POLITICAL LAW: cancellation of revocation order

The Conversion Order was issued by Secretary Garilao on31 October 1997. Respondents questioned the Order only on19 May 2000, almost two years and seven months later. Since the action was filed during the effectivity of A.O. 01-99, its provision on prescription should apply.

The rule applicable in determining the timeliness of a petition for cancellation or withdrawal of a conversion order is the rule prevailing at the time of the filing of that petition, and not at the time of the issuance of the Conversion Order. It is axiomatic that laws have prospective effect, as the Administrative Code provides. While A.O. 01-99 was not yet promulgated at the time of the issuance of the Conversion Order, it was already published and in effect when the Petition for Revocation was filed on19 May 2000.

Regarding the question on when the one-year prescription period should be reckoned, it must be still be resolved in conformity with the prospective character of laws and rules. In this case, the one-year period should be reckoned from the date of effectivity of A.O. 1-99, which is31 March 1999. Therefore, no petition for cancellation or withdrawal of conversion of lands already converted as of30 March 1999may be filed after1 March 2000.

The Conversion Order is final and executory.

POLITICAL LAW: operative fact

The reclassification/conversion of the land has long been a foregone fact. While respondents insist that the process by which the land was reclassified was invalid, their claim is immaterial, because, as stated, the two procedures are distinct. Independently of the Sangguniang Bayans own initiative, the DAR issued a Certificate of Eligibility. These issuances only bolster the fact that, at the time it was converted, the land was no longer agricultural, and that it would generate more revenue if reclassified as a residential area. Resolution No. ML-08-S-96, adopted by the Sangguniang Bayan of Silang, recommended conversion based on the favorable findings of the Committee on Housing and Land Use.

POLITICAL LAW: exemption from CARL

The Conversion Order was a product of policy determinations made by the DAR, the Office of the President, and even the Supreme Court. Secretary Torres had ordered the DAR to respect the temporary custody of those properties by the Statutory Receiver (BSP Deputy Governor Alberto Reyes) by deferring their coverage under the CARL This order stemmed in turn from the BSP Resolution of 22 May 1987 placing MBCs assets undercustodia legis. Bolstered by the need to save MBC, which was one of BSPs crucial debtors, the Supreme Court allowed the BSP receiver to sell MBCs assets to a third party under the best terms and conditions, to give it ample opportunity to rehabilitate MBC. The disposition of MBCs properties was a judgment call made by the BSP, which, as the sole agency mandated to assist banks and financial institutions in distress, exercises asset management on a macro level.

In light of the foregoing, it would be absurd to impute bad faith to ALI solely because it chose to purchase the redeemed land. Similarly, ALI cannot be held accountable for all the years that the land remained idle pending conversion. To deny relief to ALI would be tantamount to placing the private sector in the unjust situation of investing, upon invitation from the government, in a banks distressed assets among which are lands the government itself has ordered converted then subsequently confiscating the same from it.

Petitioners did not renege on their duty to pay disturbance compensation to the tenant-farmers. They expended substantial amounts in addition to the purchase price of the foreclosed lands for litigation and administrative processing costs, the farmers compensation, and improvements on the land. The development projects were grounded on a reliance on national government actions that support the thrust ofCavitetowards urbanization.

REMEDIAL LAW: issue raised for the first time on appeal

The CA found the Conversion Order valid on all points, with the sole exception of the effect of the alleged issuance of a Notice of Acquisition.

After perusing the records of the DAR and the OP, however, there is no admissible proof presented to support this claim. A Notice of Acquisition was never offered in evidence before the DAR and never became part of the records even at the trial court level. Thus, its existence is not a fully established fact for the purpose of serving as the sole basis the entire history of the policy decisions made by the DAR and the OP were to be overturned. The CA committed reversible error when it gave credence to a mere assertion by the tenant-farmers, rather than to the policy evaluation made by the OP.

In fact, the records show that this issue was not raised in the original Petition for Revocation in the second Motion for Reconsideration filed by the farmers before the DAR, and that no Notice of Acquisition was attached to their Appeal Memorandum to the OP.As a consequence, the OP, Secretary Pagdanganan, Secretary Braganza, and Secretary Morales did not have any opportunity to dwell on this issue in their Orders and Decision. Instead, what respondents persistently allege is the concealment of the sale by CCFI and ALI.

It is well established that issues raised for the first time on appeal and not raised in the proceedings in the lower court are barred by estoppel. Points of law, theories, issues, and arguments not brought to the attention of the trial court ought not to be considered by a reviewing court, as these cannot be raised for the first time on appeal. To consider the alleged facts and arguments belatedly raised would amount to trampling on the basic principles of fair play, justice, and due process. More important, if these matters had been raised earlier, they could have been seriously examined by the administrative agency concerned.

The Order of the Office of the President is affirmed.