Bacaling vs. Muya

Lands officially classified as residential by the National Urban Planning Commission and the Bureau of Lands prior to the effectivity of P.D. No. 27 are excluded from the coverage of agrarian reform laws, and certificates of land transfer issued over such residential lands are void ab initio.

Nelita M. Bacaling and her spouse Ramon Bacaling owned three parcels of land totaling 9.9631 hectares in Barangay Cubay, Jaro, Iloilo City, covered by TCT Nos. T-5801, T-5833, and T-5834. In 1955, the landholding was subdivided into 110 sub-lots and approved as residential by the National Urban Planning Commission (NUPC) and the Bureau of Lands, intended for development as the Bacaling-Moreno Subdivision, a low-cost residential community. A GSIS real estate loan of ₱600,000 was obtained in 1957 to fund the subdivision project, secured by a mortgage over all 110 sub-lots; only ₱240,000 was released. The mortgage was foreclosed, and ownership vested in GSIS from 1961 until Bacaling recovered the lots in 1989 after protracted litigation. Respondents occupied the lots during the martial law period and claimed tenancy status, while Bacaling consistently disclaimed any tenancy relationship.

Nelita M. Bacaling and her spouse Ramon Bacaling owned three parcels of land totaling 9.9631 hectares in Barangay Cubay, Jaro, Iloilo City, designated as Lot No. 2103-A (Psd-24069), Lot No. 2103-B-12 (Psd 26685), and Lot No. 2295, covered by TCT Nos. T-5801, T-5833, and T-5834. In 1955, the landholding was subdivided into 110 sub-lots covered by TCT Nos. T-10664 to T-10773. On May 16, 1955, the NUPC approved the landholding as residential or subdivision, and on May 24, 1955, the Bureau of Lands approved the corresponding subdivision plan for development into a low-cost residential community the spouses called the Bacaling-Moreno Subdivision.

In 1957, the Bacalings obtained a real estate loan of ₱600,000 from GSIS for subdivision development, secured by a mortgage over all 110 sub-lots. Only ₱240,000 was released. The Bacalings defaulted on amortizations, and GSIS foreclosed the mortgage. After litigation reaching the Supreme Court, the foreclosure sale was confirmed; ownership vested in GSIS from 1961, the year of the foreclosure sale, with the confirmation retroacting to that date. Nelita Bacaling, by then a widow, eventually recovered the 110 sub-lots in 1989.

According to the Office of the President's findings, in 1972 and thereafter, respondents Felomino Muya, Crispin Amor, Wilfredo Jereza, Rodolfo Lazarte, and Nemesio Tonocante clandestinely entered and occupied the entire 110 sub-lots, taking advantage of the peace-and-order situation at the onset of martial law and the GSIS foreclosure. They sowed the lots as if they were their own and altered the roads, drainage, boundaries, and monuments. Respondents, for their part, claimed that in 1964 they were instituted by Bacaling's administrator as tenant-tillers on a sharing basis — 2½ hectares each for Muya, Amor, Tonocante, and Lazarte, and 1½ hectares for Jereza. They asserted that in 1974 their relationship changed to leasehold, that they religiously delivered rental payments to Bacaling, and that in 1980 they secured certificates of land transfer in their names, making various payments to Land Bank of the Philippines as amortizing owner-cultivators.

In 1977, the Iloilo City Council enacted Zoning Ordinance No. 212 declaring the 110 sub-lots as residential and non-agricultural, consistent with the 1955 NUPC and Bureau of Lands classification. In 1978, Bacaling registered the Bacaling-Moreno Subdivision with the National Housing Authority and obtained a license to sell the 110 sub-lots. On August 21, 1990, Bacaling sold the 110 sub-lots to petitioner Jose Juan Tong, together with Vicente Juan and Victoria Siady, for ₱1,700,000, after repurchasing the property from GSIS. In 1992, Bacaling executed an irrevocable special power of attorney in favor of Tong, authorizing him to file and prosecute cases involving the lots, settle occupation and tenancy issues, and cause the transfer of title to the vendees.

Using the special power of attorney, Tong and Bacaling filed a petition for cancellation of the CLTs with DAR Region VI. The DAR dismissed the petition, finding no legitimate conversion from agricultural to residential prior to October 21, 1972, when Operation Land Transfer under P.D. No. 72 took effect. The DAR Central Office affirmed, and motions for reconsideration failed. On September 19, 1997, Bacaling and Tong appealed to the Office of the President, which reversed the DAR orders in toto on May 22, 1998, declaring the 110 sub-lots exempt from CARL coverage and cancelling the CLTs. The OP found that the lots had been completely converted to residential by the NUPC and Bureau of Lands declarations and by factual circumstances including the GSIS loan, the subdivision into 110 titled lots, and adjacent residential communities. Motions for reconsideration were denied on July 22, 1999.

Respondents elevated the OP Decision to the Court of Appeals under Rule 43. Before the petition was resolved, on December 2, 1999, Bacaling manifested that she was revoking the irrevocable power of attorney and admitting respondents as her tenants of agricultural lots. On January 31, 2001, the Court of Appeals reversed the OP Decision and reinstated the DAR Regional Director's order, validating the CLTs without ruling on Tong's material interest. Tong's motion for reconsideration was denied on June 5, 2001. On October 8, 2001, Bacaling moved to withdraw the present petition, claiming the power of attorney had been nullified and that respondents were bona fide tenants of agricultural land. Tong was left to pursue the case alone.

• Exemption from Agrarian Reform Coverage: Petitioner Tong argued that the 110 sub-lots were classified as residential in 1955 by the NUPC and the Bureau of Lands, and were therefore exempt from P.D. No. 27, Operation Land Transfer, and the Comprehensive Agrarian Reform Law. As a consequence, the CLTs issued to respondents in October 1980 were invalid as having been issued without jurisdiction.
• Absence of Bona Fide Tenancy: Petitioner maintained that respondents were not bona fide tenants because the landholdings were residential and no competent proof of the landowner's consent was ever presented by respondents.
• Non-Retroactivity of Agrarian Laws: Petitioner argued that approval of the Secretary of Agrarian Reform was not necessary for the valid classification of the lands into residential because the CARL and related agrarian laws have no retroactive application.
• Standing to Litigate: Petitioner Tong asserted material interest to pursue the petition as transferee of the 110 sub-lots and as attorney-in-fact under an irrevocable special power of attorney coupled with interest.

• Timing of GSIS Ownership: Respondents contended that GSIS was the owner of the parcels only from 1989, not from 1961, because the foreclosure proceedings that began in 1957 only attained finality upon promulgation by the Supreme Court in 1989.
• Tenancy Status: Respondents claimed they were legally instituted as tenant-tillers in 1964 by Bacaling's administrator, that their relationship changed to leasehold in 1974, that they religiously delivered rental payments, and that they secured CLTs in 1980 with various payments to Land Bank as amortizing owner-cultivators.
• Revocation of Power of Attorney: Bacaling, in her manifestation, argued that the irrevocable power of attorney had been nullified and that Tong consequently lacked authority to appear before the Court, and that respondents were bona fide tenants of agricultural land.

• Standing: Whether petitioner Tong has the requisite interest to litigate this petition for review on certiorari.
• Tenancy Relationship: Whether respondents are agricultural lessees entitled to the benefits accorded by agrarian laws.
• Coverage of P.D. No. 27: Whether the 110 sub-lots classified as residential by the NUPC and the Bureau of Lands prior to October 21, 1972 are covered by Operation Land Transfer under P.D. No. 72.

• Standing: Yes. Petitioner Tong possesses adequate and legitimate interest as transferee of the 110 sub-lots and as attorney-in-fact under an irrevocable special power of attorney coupled with interest, which Bacaling cannot unilaterally revoke.
• Tenancy Relationship: No. Respondents are not agricultural lessees because the first, third, and sixth requisites of a valid agricultural leasehold relationship are lacking — GSIS, not Bacaling, was the owner from 1961 to 1989, and there is no showing that GSIS consented to the tenancy or received a share in the harvest.
• Coverage of P.D. No. 27: No. The 110 sub-lots were officially classified as residential in 1955 by the NUPC and the Bureau of Lands, and are therefore excluded from the coverage of P.D. No. 27, which applies only to private agricultural lands primarily devoted to rice and corn.

• Standing: Under the Rules of Civil Procedure, "interest" means material interest — an interest in issue and to be affected by the judgment — and a real party in interest is one who would be benefited or injured by the judgment. As transferee who fully paid for the 110 sub-lots and as attorney-in-fact under an irrevocable special power of attorney, Tong stands to be benefited or injured by the judgment. The agency is one coupled with interest, created for the mutual interest of agent and principal to complete the contract of sale. Such an agency cannot be revoked at the pleasure of the principal; the fiduciary relationship of ordinary agency is replaced by material consideration. Bacaling's motion to dismiss, filed after she had already benefited from the sale and after her complaint to annul the sale was dismissed with prejudice, was treated skeptically as a belated attempt to divest Tong of his rights. Allegations of fraud are not proof; rescission requires judicial process where both parties are heard. Since no judgment has set aside the agency, Tong maintains material interest with or without Bacaling's cooperation. The rule that a party may not change theories on appeal further undermines Bacaling's belated reversal of position.

• Tenancy Relationship: Six requisites must concur for a valid agricultural leasehold relationship: (1) the parties are the landowner and the tenant; (2) the subject matter is agricultural land; (3) there is consent between the parties; (4) the purpose is agricultural production; (5) there is personal cultivation; and (6) the harvest is shared. The first, third, and sixth requisites are absent. GSIS, not Bacaling, was the owner from 1961 to 1989, because the confirmation of the foreclosure sale retroacts to the date of the actual sale in 1961. Respondents' agreement to till the land was not with GSIS, the real landowner; there is no showing GSIS consented to the tenancy or received a share in the harvest. Respondents' argument that GSIS owned the lots only from 1989 was rejected because what was appealed to the Supreme Court was the issue of redemption, not the validity of the foreclosure or the transfer of ownership to GSIS. The ownership of GSIS was not disputed; only the existence of the right to redeem was at issue, and the Court ruled no right of redemption existed after judicial confirmation of the auction sale since GSIS is not a banking institution and the foreclosure was judicial. Bacaling's consistent disclamation of respondents as tenants, and her belated change of position, carry little evidentiary weight.

• Coverage of P.D. No. 27: The nature of the disputed property is the key factor in ascertaining whether a landowner-tenant relationship exists; if the lot is not agricultural land, the rules on agrarian reform do not apply. Lands previously converted to non-agricultural or residential uses prior to the effectivity of R.A. No. 6657 by agencies other than the DAR are excluded from agrarian reform coverage. P.D. No. 27 by its terms applies only to tenant-farmers of private agricultural lands primarily devoted to rice and corn. The 110 sub-lots were officially classified as residential since 1955, when the NUPC and the Bureau of Lands approved the subdivision plan. This classification was reinforced by the GSIS loan for subdivision development, the Iloilo City zoning ordinance of 1977, the NHA registration and license to sell in 1978, and the sale to Tong in 1990 for residential purposes. The NUPC, created under Executive Order No. 98, was duty-bound to act only upon realty projects for human settlements, not agricultural purposes; its subdivision regulations mandated NUPC approval of all subdivisions intended for residential, commercial, and industrial purposes. The 1955 NUPC approval constituted an official classification of the sub-lots as residential — the only objective and effectual means of obtaining such classification in 1955, since neither P.D. No. 27 nor R.A. No. 6657 was then in effect. The CLTs issued to respondents are void ab initio because they cover residential lands contrary to the mandate of P.D. No. 27, which was only prospectively effective. Certificates of land transfer are not absolute evidence of ownership and cannot serve as proof of security of tenure over residential lands.

• Agency Coupled with Interest — An agency created for the mutual interest of agent and principal, such as one constituted to complete the performance of a contract of sale, is irrevocable and cannot be revoked at the pleasure of the principal. The fiduciary relationship inherent in ordinary contracts of agency is replaced by material consideration. Revocation requires judicial process; the principal cannot unilaterally determine the existence and gravity of grounds for rescission. Allegations of fraud are not proof, and proof requires the intervention of the courts where both parties are heard. Applied in this case: Bacaling executed an irrevocable special power of attorney in favor of Tong to complete the sale of the 110 sub-lots; her belated attempt to revoke it after benefiting from the sale and after her annulment complaint was dismissed with prejudice was denied.

• Requisites of Agricultural Leasehold Relationship — Six requisites must concur: (1) the parties are the landowner and the tenant or agricultural lessee; (2) the subject matter is agricultural land; (3) there is consent between the parties to the relationship; (4) the purpose is to bring about agricultural production; (5) there is personal cultivation by the tenant; and (6) the harvest is shared between the landowner and the tenant. Applied in this case: the first, third, and sixth requisites were lacking because GSIS, not Bacaling, was the owner from 1961 to 1989, and respondents never obtained GSIS's consent or shared harvest with it.

• Residential Classification Excludes Agrarian Reform Coverage — Lands officially classified as residential by competent government agencies prior to the effectivity of agrarian reform laws are excluded from the coverage of agrarian reform. The key factor in ascertaining whether a landowner-tenant relationship exists is the nature of the disputed property; if the lot is not agricultural land, agrarian reform rules do not apply. P.D. No. 27 applies only to private agricultural lands primarily devoted to rice and corn. Applied in this case: the NUPC and Bureau of Lands classified the 110 sub-lots as residential in 1955, well before P.D. No. 27 took effect, and this classification was reinforced by subsequent government actions.

• Retroaction of Foreclosure Sale Confirmation — The date of confirmation by the trial court of a foreclosure sale retroacts to the date of the actual sale itself, vesting ownership in the purchaser from the date of the auction sale. Applied in this case: GSIS's ownership was deemed vested in 1961, the year of the foreclosure sale, even though confirmation came only in 1975.

• Certificates of Land Transfer Not Absolute Evidence of Ownership — CLTs are not absolute evidence of ownership of subject lots and do not bar a finding that their issuance is void from inception when they cover residential lands outside the mandate of P.D. No. 27. Applied in this case: the CLTs issued to respondents were declared void ab initio.

• "But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an interest, the agency having been created for the mutual interest of the agent and the principal xxx [Petitioner's] interest, obviously, is not limited to the commissions she earned as a result of her business transactions, but one that extends to the very subject matter of the power of management delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure of the principal." — This passage, quoted from Sevilla vs. Court of Appeals, articulates the doctrine of agency coupled with interest and explains why Bacaling could not unilaterally revoke the irrevocable special power of attorney executed in favor of Tong.

• "The key factor in ascertaining whether there is a landowner-tenant relationship xxx is the nature of the disputed property." — Quoted from Tiongson vs. Court of Appeals, this formulation establishes the controlling test for agrarian reform coverage: the character of the land, not the parties' assertions, determines whether tenancy laws apply.

• "We are convinced that the 1955 approval by the NUPC of the subdivision of the subject three (3) parcels of land owned by Nelita Bacaling and her spouse into one hundred ten (110) sub-lots caused the conversion, if not outright classification, of the entire landholding into a residential community for sale to interested buyers. This is an official classification of the sub-lots as residential units and constitutes the only objective and effectual means of obtaining in 1955 the classification and reservation of private land for non-agricultural use, i.e. residential, industrial or commercial, since neither P.D. No. 27 nor R.A. No. 6657 (together with the specified formal mechanisms stipulated therein for converting a piece of agricultural land into a residential lot) were then binding and effective." — This passage states the ratio decidendi on the third issue: that the NUPC's 1955 approval constituted an official residential classification predating and excluding agrarian reform coverage.

• Government Service Insurance System vs. Court of Appeals, 175 SCRA 19 (1989) — Controlling precedent on the retroaction of foreclosure sale confirmation: GSIS's ownership vested in 1961, the year of the sale, because the trial court's confirmation retroacts to the date of the actual sale. This established that GSIS, not Bacaling, was the owner during the period respondents claimed tenancy.
• Tiongson vs. Court of Appeals, 130 SCRA 482 (1984) — Followed for the rule that the nature of the disputed property is the key factor in ascertaining whether a landowner-tenant relationship exists; if the lot is not agricultural, agrarian reform rules do not apply.
• Natalia Realty, Inc. vs. Department of Agrarian Reform, 225 SCRA 282 (1983) — Followed for the rule that lands previously converted to non-agricultural or residential uses prior to the effectivity of R.A. No. 6657 by agencies other than the DAR are excluded from agrarian reform coverage.
• Sevilla vs. Court of Appeals, 160 SCRA 171 (1988) — Followed for the doctrine that an agency coupled with interest cannot be revoked at the pleasure of the principal; the agent's interest extends to the very subject matter of the power delegated.
• Magno-Adamos vs. Bagasao, 162 SCRA 747 (1988) — Followed for the proposition that NUPC endorsements approving a subdivision plan constitute strong evidence of residential conversion contradicting alleged tenancy.
• Santos vs. de Guzman, 111 Phil. 671 (1961) — Followed for the ruling that a tenant may be ejected from a landholding included in a homesite subdivision duly approved by the National Planning Commission.
• Republic vs. Castellvi, 58 SCRA 336 (1974) — Followed for giving great weight to NUPC certification of residential classification, ordering appraisal as residential rather than agricultural lands.
• Cruz vs. Court of Appeals, 233 SCRA 301 (1994) — Cited for the rule that a party who adopts a certain theory in the court below may not change that theory on appeal, as it would be unfair to the other party and offensive to fair play, justice, and due process.
• Gayos vs. Gayos, 67 SCRA 146 (1975) — Cited for the procedural rule that a court should strive to settle the entire controversy in a single proceeding, leaving no root or branch to bear the seeds of future litigation.

• P.D. No. 27 — Decrees the emancipation of tenants from the bondage of the soil, transferring ownership of land to tenant-farmers of private agricultural lands primarily devoted to rice and corn. Applied to exclude the 110 residential sub-lots from coverage, as the decree applies only to agricultural lands and was only prospectively effective.
• P.D. No. 72 — The land reform law under which respondents obtained certificates of land transfer, effective October 21, 1972. Applied to determine the cutoff date for coverage; the 1955 residential classification predated it.
• R.A. No. 6657 (Comprehensive Agrarian Reform Law of 1988) — The comprehensive agrarian reform law. Applied to confirm that lands converted to non-agricultural uses prior to its effectivity by agencies other than DAR are excluded from coverage.
• Executive Order No. 98, s. 1946 — Created the National Urban Planning Commission and defined its powers and duties, including the preparation of general plans, zoning ordinances, and subdivision regulations. Applied to establish the NUPC's competence and duty to classify lands for residential use and the mandatory requirement of NUPC approval for subdivisions.
• Section 2, Rule 3, Revised Rules of Civil Procedure — Defines a real party in interest as the party who would be benefited or injured by the judgment or the party entitled to the avails of the suit. Applied to sustain Tong's standing as a real party in interest.

Bellosillo, Mendoza, and Quisumbing, JJ., concurred.