Alcantara vs. Reta

No right of first refusal under Presidential Decree No. 1517 exists unless the land has been proclaimed an Urban Land Reform Zone, the claimant is a legitimate tenant thereon, and the owner intends to sell the property. Petitioners satisfied none of these requisites and therefore could not invoke Section 3(g) of the decree.

Cornelio B. Reta, Jr. was the registered owner of land in Barangay Sasa, Davao City covered by Transfer Certificate of Title No. T-72594, occupied by petitioners under varying arrangements involving houses, monthly rentals, and gathering of tuba. Presidential Decree No. 1517, otherwise known as the Urban Land Reform Act, grants specified rights and privileges, including a right of first refusal, to legitimate tenants of areas proclaimed as Urban Land Reform Zones.

Edilberto Alcantara, Florencio Villarmia, Policarpio Obregon, Ricardo Roble, Escolastica Ondong, Esteban Rallos, Henry Sesbino, Sergio Sesbino, Manuel Centeno, Renato Cruz, Marcelino Ceneza, Buenaventura Ondong and Benjamin Halasan occupied land in Barangay Sasa, Davao City covered by Transfer Certificate of Title No. T-72594 and owned by Cornelio B. Reta, Jr. Respondent had converted the land into a commercial center and demanded that petitioners vacate, while petitioners asserted continuous occupation as tenants or lessees.

According to petitioners, they were legitimate tenants or lessees entitled to purchase the land by right of first refusal, and the amicable settlement executed between Reta and Ricardo Roble was void for violating Presidential Decree No. 1517. Respondent denied that characterization, maintaining that the property had never been proclaimed an Urban Land Reform Zone and that petitioners had failed to pay rentals for its use. The record showed that petitioners themselves had requested proclamation of the occupied land as an Urban Land Reform Zone, which on May 27, 1986 was referred to Jose L. Atienza, General Manager of the National Housing Authority, for appropriate action, and thereafter, by 2nd Indorsement dated July 1, 1986, to acting mayor Zafiro Respicio of Davao City.

The individual arrangements varied. Respondent denied having lease agreements with Edilberto Alcantara and Ricardo Roble. Alcantara presented no proof of a lease agreement other than his testimony that he bought the house he occupied from his father-in-law. Roble was allowed by Reta to use sixty-two coconut trees for P186 from which he gathered tuba, and was allowed to construct his house on the land to facilitate that gathering. As to the other petitioners, Reta admitted verbal agreements under which rentals were paid monthly, but demanded that they vacate the premises. No sale or intended sale of the property by Reta to a third party was shown.

Petitioners filed suit to enforce the claimed right of first refusal, enjoin ejectment, and annul the amicable settlement. The trial court found the land outside Presidential Decree No. 1517, rejected petitioners' status as legitimate tenants, dismissed the complaint, and ordered payment of unpaid rentals. The Court of Appeals affirmed that dismissal in full.

• Right of First Refusal: Petitioner argued that they were tenants or lessees of the land covered by Transfer Certificate of Title No. T-72594, which Reta had converted into a commercial center, and that as legitimate tenants or lessees threatened with ejectment they had the right of first refusal to purchase the land under Section 3(g) of Presidential Decree No. 1517.
• Nullity of Amicable Settlement: Petitioner maintained that the amicable settlement executed between Reta and Ricardo Roble was void ab initio for being violative of Presidential Decree No. 1517.

• Non-Coverage by Presidential Decree No. 1517: Respondent countered that the land was beyond the ambit of Presidential Decree No. 1517 since it had not been proclaimed as an Urban Land Reform Zone.
• Non-Payment of Rentals: Respondent argued that the applicable law was Batas Pambansa Blg. 25 in view of plaintiffs' failure to pay rentals for the use of the land.
• Validity of Amicable Settlement: Respondent maintained that the amicable settlement between him and Ricardo Roble was translated to the latter and fully explained in his own dialect.

• Right of First Refusal: Whether petitioners have the right of first refusal under Presidential Decree No. 1517.

• Right of First Refusal: No. Petitioners cannot exercise the right of first refusal because the land was never proclaimed an Urban Land Reform Zone, they were not legitimate tenants under the decree, and the owner manifested no intention to sell.

• Right of First Refusal: Presidential Decree No. 1517 pertains to areas proclaimed as Urban Land Reform Zones, and no such proclamation was shown; on the contrary, petitioners' own request to have the occupied land declared as such, referred on May 27, 1986 to the National Housing Authority General Manager and on July 1, 1986 to the acting mayor of Davao City, confirmed its absence. Qualification under the decree further requires (1) legitimate tenancy for ten years or more, (2) a home built on the land by contract, and (3) continuous residence for the last ten years, which petitioners did not establish. Alcantara offered only testimony of purchase of his house from his father-in-law without proof of lease; Roble's use of sixty-two coconut trees for P186 to gather tuba was usufruct, not lease, and his house construction to facilitate gathering was in the nature of personal easement, so the amicable settlement's validity would not alter his non-status as legitimate tenant; the other petitioners' admitted verbal monthly arrangements were terminated when Reta demanded that they vacate, pursuant to the rule for leases with unfixed periods paid monthly. Finally, even a qualified tenant could invoke the right only upon the owner's intended sale to a third party, and no intention by Reta to sell was shown.

• Coverage of Presidential Decree No. 1517 — The Urban Land Reform Act applies only to areas proclaimed as Urban Land Reform Zones. Applied here, absence of proclamation over the Sasa, Davao City property precluded any claim of rights under the decree.
• Legitimate Tenant under Presidential Decree No. 1517 — To qualify for the rights and privileges granted by the decree, one must be (1) a legitimate tenant of the land for ten years or more, (2) have built his home on the land by contract, and (3) have resided continuously for the last ten years. Petitioners failed to fall within this category and therefore were not entitled to the right of first refusal.
• Usufruct vs. Lease; Personal Easement — Usufruct is the right to enjoy the property of another with the obligation of preserving its form and substance, unless the title constituting it or the law otherwise provides. Roble's privilege to gather tuba from sixty-two coconut trees was usufruct rather than lease, and permission to build a house to facilitate gathering was in the nature of personal easement under Article 614 of the Civil Code, not tenancy by contract.
• Termination of Verbal Monthly Lease — A contract is a meeting of minds whereby one binds himself to give something or render service, and where the lease period is unfixed and rent is paid monthly, the lease is understood to be from month to month. The verbal monthly arrangements were thus terminated upon the lessor's demand to vacate.
• Right of First Refusal Requires Intended Sale — The right of first refusal under Presidential Decree No. 1517 arises only where the owner intends to sell the property to a third party. With no intention to sell shown, the situation allowing exercise of the right had not arisen.

• "Presidential Decree No. 1517, otherwise known as 'The Urban Land Reform Act,' pertains to areas proclaimed as Urban Land Reform Zones." — States the threshold coverage rule that defeated petitioners' claim because the subject land was never so proclaimed.
• "To be able to qualify and avail oneself of the rights and privileges granted by the said decree, one must be: (1) a legitimate tenant of the land for ten (10) years or more; (2) must have built his home on the land by contract; and, (3) has resided continuously for the last ten (10) years." — Provides the canonical three-part test for legitimate tenancy applied to reject petitioners' status.
• "Usufruct gives a right to enjoy the property of another with the obligation of preserving its form and substance, unless the title constituting it or the law otherwise provides." — Defines why Roble's tuba-gathering arrangement was usufruct rather than lease.
• "P. D. No. 1517 applies where the owner of the property intends to sell it to a third party." — Articulates the additional ground that absence of intent to sell bars exercise of the right of first refusal.

• Sen Po Ek Marketing Corporation vs. Martinez, 325 SCRA 210, 224 (2000) — Cited as authority that Presidential Decree No. 1517 pertains to areas proclaimed as Urban Land Reform Zones.
• Carreon vs. Court of Appeals, 353 Phil. 271, 280 (1998) — Cited as authority for the three requisites to qualify for rights and privileges under the decree, including legitimate tenancy, home built by contract, and continuous residence.
• Bermudez vs. Intermediate Appellate Court, 227 SCRA 327, 331 (1986) — Cited as authority that Presidential Decree No. 1517 applies where the owner intends to sell the property to a third party.

• Section 3(g), Presidential Decree No. 1517 — Invoked by petitioners as source of the right of first refusal for legitimate tenants; held inapplicable because the land was not an Urban Land Reform Zone, claimants were not legitimate tenants, and no sale was intended.
• Article 562, Civil Code of the Philippines — Defines usufruct as enjoyment of another's property with obligation to preserve form and substance; applied to characterize Roble's tuba-gathering privilege as usufruct, not lease.
• Article 1305, Civil Code of the Philippines — Defines contract as a meeting of minds whereby one binds himself to give something or render service; cited in analyzing the verbal lease agreements and their termination.
• Article 1687, Civil Code of the Philippines — Provides that if the lease period is unfixed, it is understood from month to month when rent is monthly; applied to hold that the verbal monthly agreements ceased upon demand to vacate.

Davide, Jr., C.J. (Chairman), Kapunan, and Ynares-Santiago, JJ., concur. Puno, J., on official leave.