Ayala Land, Inc. vs. Castillo

A prior Notice of Acquisition does not absolutely bar the DAR from issuing a conversion order, as the provision disallowing conversion of lands already under a notice of acquisition is merely a guiding principle under DAR Administrative Order No. 12, Series of 1994, not an absolute proscription; the DAR Secretary retains the authority to balance competing guiding principles and determine the propriety of conversion based on the land's actual condition and the needs of the community. Moreover, issues not raised before the administrative agency cannot be raised for the first time on appeal, and a conversion order that has attained finality may no longer be questioned after the prescriptive period has lapsed.

Capitol Citifarms, Inc. (CCFI) owned two parcels of land totaling 221.3048 hectares in Barangay Tibig, Silang, Cavite, mortgaged to Manila Banking Corporation (MBC). MBC was placed under receivership by the Bangko Sentral ng Pilipinas (BSP) on 22 May 1987 pursuant to Resolution No. 505 of the Monetary Board, placing its assets under custodia legis. The Supreme Court, in G.R. No. 85960, later authorized the partial liquidation of MBC's assets, including the subject landholding, to be sold at fair market value to enable MBC to settle its obligations — 85% of which, amounting to P8,771,893,000, was owed to BSP. This backdrop of banking rehabilitation and asset monetization informed the subsequent policy determinations of the Office of the President and the DAR regarding the subject property's exemption from or conversion under the Comprehensive Agrarian Reform Law (CARL).

CCFI owned two parcels of land with a total area of 221.3048 hectares located at Barangay Tibig in Silang, Cavite, mortgaged to Manila Banking Corporation (MBC). On 22 May 1987, MBC was placed under receivership by the BSP pursuant to Resolution No. 505 of the Monetary Board, and its assets were placed 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. CCFI defaulted on its mortgage obligations, and MBC foreclosed on the lien, acquiring the land at an auction sale on 4 January 1991. The Supreme Court, in G.R. No. 85960, subsequently authorized the partial liquidation of MBC's assets, including the subject landholding, directing that they be sold "at their fair market value, under the best terms and condition and for the highest price under current real estate appraisals."

On 29 December 1995, MBC executed a Deed of Partial Redemption authorizing CCFI to partially redeem the two parcels and sell them to a third party, pending full payment of the redemption price. Under the Deed, the downpayment — 30% of the purchase price — would be payable to MBC only upon approval of the exemption of the land from CARL coverage or upon its conversion to non-agricultural use. On the same date, CCFI sold the property to Ayala Land, Inc. (ALI) in a conditional Deed of Sale, with MBC retaining custody of the titles pending full payment. The sale was registered only on 29 September 1999.

Meanwhile, BSP Deputy Governor Alberto Reyes requested DAR Secretary Ernesto Garilao to exempt MBC's landholdings from CARL coverage and declare a moratorium on compulsory acquisition. Secretary Garilao denied the request on 14 February 1995. MBC appealed to the Office of the President, which issued a Stay Order and, through Executive Secretary Ruben D. Torres, rendered a Decision on 11 October 1996 remanding the case to the DAR to determine which lands were exempt from CARL coverage. Secretary Torres emphasized the need to balance agrarian reform implementation with the rehabilitation of MBC, whose debt to BSP amounted to P8,771,893,000. The DAR was directed to cease and desist from subjecting MBC's properties to CARL pending resolution.

On 3 October 1997, Secretary Garilao issued a Resolution granting MBC's request for clearance to sell, applying Section 73-A of R.A. No. 6657, as amended by R.A. No. 7881, which allows the sale of agricultural land necessitated by a bank's foreclosure of a mortgage. CCFI thereafter filed an application for conversion and/or exemption. On 31 October 1997, Secretary Garilao issued Conversion Order No. 4-97-1029-051, approving the conversion based on findings of the DAR's Center for Land Use Policy, Planning and Implementation (CLUPPI) and the Municipal Agrarian Reform Officer that the property was beyond 18 degrees in slope, undeveloped, not irrigated, and exempt from agrarian reform coverage. CCFI submitted supporting documents including Resolutions from the Sangguniang Bayan of Silang and the Sangguniang Panlalawigan of Cavite recommending conversion, and proof of disturbance compensation paid to 118 tenants who executed waivers of all claims over the property.

Almost three years later, on 19 May 2000, the tenant-farmers filed a Petition for Revocation alleging that the 1995 sale to ALI was invalid and that CCFI and ALI misrepresented the property's reclassification status. The issue of any Notice of Acquisition was never raised. On 18 December 2000, DAR Secretary Horacio Morales, Jr. revoked the Conversion Order, finding that the delayed registration of the sale evidenced intent to evade CARL coverage — though the Supreme Court itself had authorized the sale in G.R. No. 85960. Secretary Morales never mentioned any Notice of Acquisition. On 26 September 2002, DAR Secretary Hernani Braganza reversed the revocation on reconsideration, finding that the Deed of Partial Redemption was conditional and that no transfer of ownership had occurred at the time of the sale. On 13 August 2003, DAR Secretary Roberto Pagdanganan denied the farmers' Motion for Reconsideration, declared the Braganza Order final and executory, and directed the issuance of a Certificate of Finality. The farmers appealed to the OP, which dismissed the appeal on 28 January 2004. The farmers then elevated the case to the Court of Appeals, which reversed the OP on 31 January 2007, invalidating the conversion on the sole ground that a Notice of Acquisition had allegedly been issued — an issue never raised before the DAR or the OP, and unsupported by any admissible copy of such notice in the records.

• New Issue on Appeal: Petitioners argued that the CA resolved an issue — the alleged Notice of Acquisition preventing conversion — that was raised for the first time on appeal, never having been passed upon by the DAR or the OP, in violation of basic rules of fair play, justice, and due process.
• No Factual Basis: Petitioners maintained that the CA's finding of a Notice of Acquisition had no factual basis, as no such document was ever offered in evidence before the DAR or became part of the records; what was attached was a mere photocopy of a Notice of Coverage.
• Guiding Principle, Not Absolute Bar: Petitioners contended that the provision in DAR A.O. No. 12-94 disallowing conversion of lands under a notice of acquisition was merely a guiding principle, not an absolute proscription, and that the DAR Secretary had full authority to balance competing principles and determine the propriety of conversion.
• Prescription and Finality: Petitioners argued that the Conversion Order had long attained finality and could no longer be questioned, as the farmers' Petition for Revocation was filed almost three years after its issuance, beyond the one-year prescriptive period under DAR A.O. No. 1, Series of 1999, which was the rule in effect at the time of filing.
• Operative Fact: Petitioners asserted that the conversion and/or reclassification of the lands had become an operative fact, confirmed by findings of multiple government agencies that the land was no longer agricultural.
• Banking System Stability: Petitioners invoked the OP's policy determination that the lands were exempt from CARL coverage partly to maintain the stability of the country's banking system, given MBC's indebtedness to BSP and the Supreme Court's own authorization of the sale.

• Notice of Acquisition Bars Conversion: Respondents argued that a Notice of Coverage and Notice of Acquisition had already been issued over the subject property as early as 1989, and that DAR A.O. No. 12 enjoins the conversion of lands already under a notice of acquisition.
• Concealment and Misrepresentation: Respondents contended that CCFI and ALI concealed the 1995 sale by delaying its registration until 1999, after the conversion order was issued, in order to evade CARL coverage and the retention limits under Section 6 of R.A. No. 6657.
• Invalid Reclassification: Respondents maintained that the property had not been validly reclassified, as the Municipality of Silang lacked an approved town plan or zoning ordinance approved by the HLURB, and what was passed was a mere Sangguniang Bayan Resolution, not an ordinance as required by Section 20 of the Local Government Code.
• Prescription Under A.O. 12-94: Respondents argued that the applicable prescriptive period was the five-year period under DAR A.O. No. 12-94, the rule in effect at the time the Conversion Order was issued, not the one-year period under A.O. No. 1-99, and that their petition was therefore timely filed.

• New Issue on Appeal: Whether the Court of Appeals erred in resolving the issue of the alleged Notice of Acquisition, which was raised for the first time on appeal and never passed upon by the DAR or the OP.
• Guiding Principle vs. Absolute Bar: Whether the provision in DAR A.O. No. 12-94 disallowing conversion of lands under a notice of acquisition constitutes an absolute prohibition or merely a guiding principle that the DAR Secretary may balance against competing policy considerations.
• Prescription and Finality: Whether the Conversion Order had attained finality and could no longer be questioned, given the prescriptive period under the applicable DAR administrative order.
• Operative Fact: Whether the conversion and/or reclassification of the subject lands had become an operative fact that could no longer be undone.
• Banking System Policy: Whether the OP's policy determination exempting the lands from CARL coverage to maintain banking system stability was a valid ground for upholding the conversion.

• New Issue on Appeal: Yes. The CA committed reversible error in ruling on an issue never raised before the DAR or the OP, as issues raised for the first time on appeal are barred by estoppel and violate basic principles of fair play, justice, and due process.
• Guiding Principle vs. Absolute Bar: No, the provision is not an absolute bar. Paragraph E of Part VI of DAR A.O. No. 12-94 falls under the heading "Policies and Guiding Principles" and cannot be interpreted as an absolute proscription on conversion; the DAR Secretary has full authority to balance it against paragraph B(3), which allows conversion when the land will have greater economic value for non-agricultural purposes.
• Prescription and Finality: Yes. The Conversion Order had attained finality, the applicable prescriptive period being the one-year period under DAR A.O. No. 1, Series of 1999, which was in effect when the Petition for Revocation was filed on 19 May 2000, reckoned from the effectivity of A.O. 1-99 on 31 March 1999.
• Operative Fact: Yes. The conversion and/or reclassification had become an operative fact, confirmed by findings of CLUPPI, the MARO, the Sangguniang Bayan of Silang, NIA, PCA, and DENR that the land was no longer agricultural and would generate greater revenue if reclassified.
• Banking System Policy: Yes. The OP's policy determination balancing agrarian reform implementation against the rehabilitation of MBC and the stability of the banking system was a valid ground, supported by the Supreme Court's own Resolution in G.R. No. 85960 authorizing the sale of MBC's assets.

• New Issue on Appeal: The records show that the issue of the Notice of Acquisition was never raised in the original Petition for Revocation, in the Motion for Reconsideration before the DAR, or in the Appeal Memorandum to the OP. No Notice of Acquisition was attached to any pleading; what was attached was a mere photocopy of a Notice of Coverage. As a consequence, Secretaries Garilao, Morales, Braganza, and Pagdanganan, as well as the OP, had no opportunity to dwell on this issue. It is well established that issues raised for the first time on appeal are barred by estoppel, as considering belatedly raised facts and arguments would trample on basic principles of fair play, justice, and due process. More importantly, had these matters been raised earlier, they could have been seriously examined by the administrative agency concerned, which possesses the special and technical training to evaluate them. The CA thus erred in passing upon and ruling on an issue not raised by the farmers themselves, founding its conclusion on a legal theory only newly discovered by the appellate court itself.

• Guiding Principle vs. Absolute Bar: The provision invoked — paragraph E, Part VI of DAR A.O. No. 12-94 — falls under the heading "Policies and Guiding Principles." By no stretch can a mere "principle" be interpreted as an absolute proscription on conversion. Under the same heading, paragraph B(3) allows conversion when the land will have greater economic value for residential, commercial, or industrial purposes "as certified by the Local Government Unit." Secretary Garilao thus acted within his authority in balancing paragraph E against paragraph B(3) and finding for conversion. Notably, the general proscription against conversion of lands under a notice of acquisition was scrapped from the new rules on conversion, DAR A.O. No. 1, Series of 2002, while the policy allowing conversion was retained. The DAR is vested with exclusive authority to approve or disapprove applications for conversion pursuant to E.O. No. 129-A, and the palpable intent of A.O. No. 12-94 is to make the DAR the principal agency in deciding questions on conversion, taking into account current land use as governed by the needs and political will of the local government and its people.

• Prescription and Finality: 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, not at the time of the issuance of the Conversion Order. DAR A.O. No. 1, Series of 1999 was promulgated on 30 March 1999 and published on 31 March 1999, making it the governing rule when the farmers filed their Petition for Revocation on 19 May 2000. The one-year prescriptive period must be reckoned from the date of effectivity of A.O. 1-99, i.e., 31 March 1999, so that no petition for cancellation of lands already converted as of 30 March 1999 could be filed after 1 March 2000. The farmers' petition, filed on 19 May 2000, was therefore time-barred. A conversion order is a final judgment that cannot be repeatedly assailed in perpetuity, especially after the farmers received disturbance compensation and executed waivers — acts implying acknowledgment of the order's validity. The doctrine of estoppel bars them from approbating and disapprobating at the same time.

• Operative Fact: The findings of CLUPPI, the Sangguniang Bayan of Silang, and Secretary Morales himself confirm as an operative fact the reclassification and/or conversion of the lands. Multiple government agencies — CLUPPI, NIA, PCA, DENR — certified that the property was beyond 18 degrees in slope, undeveloped, not irrigated, only marginally suitable for agriculture, and outside the irrigable area of the Cavite Friar Lands Irrigation Systems. The Sangguniang Bayan of Silang conducted plebiscites before issuing its Resolution recommending conversion, citing increased municipal revenue, employment generation, and socio-economic upliftment. The DAR issued a Certificate of Eligibility for Conversion on 16 January 1996. Conversion and reclassification are separate procedures; the two Resolutions submitted by CCFI were sufficient as supporting documents for the conversion application, even if not strictly for reclassification purposes. The requirement of an approved town plan is a requirement in the process of reclassification under the Local Government Code, not in the process of conversion, where the DAR has sole prerogative.

• Banking System Policy: The OP's first Decision, dated 11 October 1996, expressly declared that the preservation of MBC's assets warranted higher consideration, and that the ends of justice would be better served if BSP were given the fullest opportunity to monetize assets outside CARL coverage or convertible to non-agricultural uses. This was bolstered by the Supreme Court's own Resolution in G.R. No. 85960 authorizing the sale of MBC's assets "under the best terms and conditions" — a disposition the Court called the "best solution for Manila Banking and CCFI." The Conversion Order was thus a product of policy determinations made by the DAR, the OP, and the Supreme Court. To deny relief to ALI would place the private sector in the unjust position of investing, upon government invitation, in a bank's distressed assets — among which are lands the government itself ordered converted — then subsequently confiscating the same. ALI cannot be held accountable for the years the land remained idle pending conversion, nor can bad faith be imputed solely on account of the delay in registration of the sale, which was itself a consequence of the conditional nature of the transaction and the Supreme Court's directives.

• Issues Cannot Be Raised for the First Time on Appeal — Points of law, theories, issues, and arguments not brought to the attention of the lower court or administrative agency ought not to be considered by a reviewing court. To consider facts and arguments belatedly raised would amount to trampling on the basic principles of fair play, justice, and due process. Applied in this case to bar the farmers from invoking the alleged Notice of Acquisition before the CA when it was never raised before the DAR or the OP.

• Respect for Factual Findings of Administrative Agencies — Factual findings of administrative agencies, particularly those whose officials have acquired expertise in specific matters within their jurisdiction, are generally accorded respect and even finality if supported by substantial evidence. The Court accorded full respect to the DAR Secretary's findings on the propriety of conversion and to the OP's policy evaluation.

• Finality of Conversion Orders — A conversion order is a final order that resolves whether property may be converted to non-agricultural use. Once final and executory, it can no longer be questioned. Parties who have accepted disturbance compensation and executed waivers impliedly acknowledging the order's validity are estopped from subsequently assailing it.

• Operative Fact Doctrine in Land Conversion — The conversion and/or reclassification of land, once confirmed by findings of competent government agencies and supported by certifications from CLUPPI, NIA, PCA, and DENR, becomes an operative fact that cannot be undone, especially where the land has ceased to be agricultural and would generate greater economic value for non-agricultural purposes.

• Prospective Application of Administrative Rules — Laws and administrative rules have prospective effect. The rule applicable in determining the timeliness of a petition is the rule prevailing at the time of the filing of the petition, not at the time of the issuance of the order being challenged. The one-year prescriptive period under A.O. 1-99 was reckoned from its date of effectivity, not from the date of issuance of the Conversion Order.

• No Vested Right in Judicial Relief — There can be no vested right in a judicial relief, as it is a mere statutory privilege and not a property right. A right must have become a title, legal or equitable, to the present or future enjoyment of property to be vested.

• "By no stretch of the imagination can a mere 'principle' be interpreted as an absolute proscription on conversion." — This passage articulates the ratio decidendi on the nature of paragraph E of DAR A.O. No. 12-94 as a guiding principle rather than an absolute bar, affirming the DAR Secretary's authority to balance competing principles in deciding conversion applications.

• "We cannot uphold respondents' proposition for us to disregard basic rules, particularly the rule that new issues cannot be raised for the first time on appeal." — This states the Court's fundamental procedural ruling barring the farmers from raising the Notice of Acquisition issue before the CA when it was never raised before the DAR or the OP.

• "CARL cannot be used to stultify modernization. It is not the role of the Supreme Court to apply the missing notice of acquisition in perpetuity." — This passage frames the broader policy dimension of the case, emphasizing that agrarian reform law must be balanced against modernization and the stability of government policy decisions made over a long period.

• "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 bank's distressed assets — among which are lands the government itself has ordered converted — then subsequently confiscating the same from it." — This encapsulates the equitable rationale for upholding the conversion in favor of a third-party buyer who acted on government policy directives.

• Aguinaldo Industries Corporation vs. Commissioner of Internal Revenue & Court of Tax Appeals, 112 SCRA 136 — Cited as controlling authority for the rule that issues not raised at the administrative forum cannot be raised for the first time on appeal, as this would undermine the requirement of prior exhaustion of administrative remedies.

• Villorente vs. Aplaya Laiya Corporation, G.R. No. 145013, 31 March 2005, 454 SCRA 493 — Followed for the doctrine that a conversion order is a final order that cannot be repeatedly assailed, and that farmer-beneficiaries who accept disturbance compensation conformably with a conversion order are estopped from later assailing its validity.

• United Paracale Mining Company vs. Joselito Dela Rosa, G.R. No. 63786-7, 7 April 1993, 221 SCRA 108 — Cited for the principle that there can be no vested right in judicial relief, as it is a mere statutory privilege and not a property right.

• Sebastian vs. Morales, 445 Phil. 595 (2003) — Cited for the doctrine that factual findings of the DAR Secretary, who has acquired expertise in matters within his jurisdiction, deserve full respect and ought not to be altered, modified, or reversed without justifiable reason.

• Alarcon vs. Court of Appeals, G.R. No. 152085, 8 July 2003, 323 SCRA 716 — Cited for the proposition that conversion and reclassification are separate and distinct procedures.

• Section 73-A, R.A. No. 6657, as amended by R.A. No. 7881 — Allows the sale and/or transfer of agricultural land where such sale or transfer is necessitated by a bank's foreclosure of a mortgage. Applied by Secretary Garilao in granting MBC's request for clearance to sell its foreclosed landholdings.

• Section 6, R.A. No. 6657 — Prescribes retention limits for landowners, not exceeding five hectares, and prohibits sales, dispositions, or transfers of private agricultural lands executed by the original landowner in violation of the Act. Cited by the dissent in arguing that CCFI's sale of more than 200 hectares to ALI was void.

• Section 65, R.A. No. 6657 — Authorizes the reclassification or conversion of lands awarded under CARP after the lapse of five years from award, when the land ceases to be economically feasible for agricultural purposes or the locality has become urbanized. Cited by the dissent to argue that CARP must first be implemented before conversion may be sought.

• Section 20, R.A. No. 7160 (Local Government Code) — Authorizes cities and municipalities to reclassify agricultural lands through an ordinance passed by the sanggunian after conducting public hearings. Cited by the dissent to argue that a mere resolution was insufficient for valid reclassification.

• Paragraph VI(E), DAR A.O. No. 12, Series of 1994 — Provides that no application for conversion shall be given due course if the DAR has issued a Notice of Acquisition under the Compulsory Acquisition process. Held by the majority to be merely a guiding principle, not an absolute bar.

• Paragraph VI(B)(3), DAR A.O. No. 12, Series of 1994 — Allows conversion when the land will have greater economic value for residential, commercial, or industrial purposes, as certified by the local government unit. Applied to support the DAR Secretary's authority to approve conversion despite the guiding principle in paragraph E.

• Section 34, DAR A.O. No. 1, Series of 1999 — Lays down a one-year prescriptive period for filing a petition for cancellation or withdrawal of a conversion order, with exceptions for grounds enumerated in Section 35(b), (e), and (f), where the petition may be filed within the period for development stipulated in the order. Applied to hold that the farmers' petition was time-barred.

• Section 18, E.O. No. 292 (Administrative Code) — Provides that laws have prospective effect. Applied to support the ruling that the prescriptive period under A.O. 1-99, not A.O. 12-94, governed the farmers' petition.

• Sections 20 and 21, Article II, 1987 Constitution — State policies on the role of the private sector in national development and the promotion of rural development. Cited to support the balancing of agrarian reform with private enterprise and investment incentives.

Carpio Morales, (Chairperson), and Brion, JJ., concurred.

• Villarama, Jr., J. — The dissent argued that the petition should be denied and the CA Decision affirmed. Its principal contentions were: (1) the existence of a Notice of Acquisition was an admitted fact, evidenced by CCFI's own May 1996 letter-request to the DAR Regional Director seeking the lifting of the Notice of Acquisition — an admission against interest binding on ALI as successor-in-interest; (2) paragraph VI(E) of DAR A.O. No. 12-94 was not a mere guiding principle but a preventive measure against evasion of CARL, and the DAR erred in giving due course to CCFI's application when a Notice of Acquisition had already been issued; (3) the petition for revocation was timely filed under the exception in Section 34 of A.O. 1-99, which allows filing within the five-year development period for violations of DAR rules under Section 35(b) and (f), making the May 2000 petition well within the period; (4) CCFI committed serious violations of DAR rules by concealing the 1995 sale until 1999 to evade the retention limits under Section 6 of R.A. No. 6657 and the reporting requirements for transactions involving agricultural lands exceeding five hectares; (5) the property was not validly reclassified because Silang lacked an approved town plan/zoning ordinance from the HLURB, and what was passed was a mere resolution, not an ordinance as required by Section 20 of the Local Government Code; and (6) the OP's "policy pronouncement" on balancing banking stability with agrarian reform ignored the declared State policy under Section 2 of R.A. No. 6657 that the welfare of landless farmers and farmworkers shall receive the highest consideration. The dissent further recommended referral to the Court En Banc given the huge financial impact of the case, reportedly involving transactions valued at more than P24 billion for the entire 221.3048 hectares. Bersamin, J., joined the dissent in full.