Department of Agrarian Reform vs. Sutton

An administrative order that includes livestock farms within the coverage of agrarian reform and prescribes retention limits for their ownership is unconstitutional, because livestock-raising is an industrial activity outside the constitutional definition of "agricultural land," and an administrative agency may not enlarge its authority beyond the scope intended by the Constitution or the enabling statute.

The respondents — Delia T. Sutton, Ella T. Sutton-Soliman, and Harry T. Sutton — inherited land in Aroroy, Masbate, which had been devoted exclusively to cow and calf breeding. Their family acquired the landholdings as early as 1948 and had long been in the cattle-breeding business in Masbate, popularly known as the cattle-breeding capital of the Philippines. On October 26, 1987, pursuant to the then-existing agrarian reform program, the respondents made a voluntary offer to sell (VOS) their landholdings to the Department of Agrarian Reform (DAR) to avail of certain incentives under the law, including tax exemptions and an additional five percent cash payment. On June 10, 1988, Republic Act No. 6657, the Comprehensive Agrarian Reform Law (CARL), took effect and included in its coverage farms used for raising livestock, poultry, and swine.

The respondents — Delia T. Sutton, Ella T. Sutton-Soliman, and Harry T. Sutton — inherited land in Aroroy, Masbate, which had been devoted exclusively to cow and calf breeding. Their family acquired the landholdings as early as 1948 and had long been engaged in the cattle-breeding business in Masbate, a province popularly known as the cattle-breeding capital of the Philippines. On October 26, 1987, pursuant to the then-existing agrarian reform program, the respondents made a voluntary offer to sell (VOS) their landholdings to DAR to avail of certain incentives under the law, including exemption from capital gains tax and an additional five percent cash payment under Section 19 of the CARP.

On June 10, 1988, Republic Act No. 6657, the Comprehensive Agrarian Reform Law (CARL), took effect, including in its coverage farms used for raising livestock, poultry, and swine. On December 4, 1990, the Supreme Court ruled en banc in Luz Farms vs. Secretary of DAR that lands devoted to livestock and poultry-raising are not included in the definition of agricultural land, and declared unconstitutional certain provisions of the CARL insofar as they included livestock farms in the coverage of agrarian reform. In view of this ruling, the respondents filed with DAR a formal request to withdraw their VOS, as their landholding was devoted exclusively to cattle-raising and thus exempted from the CARL.

On December 21, 1992, the Municipal Agrarian Reform Officer of Aroroy, Masbate, inspected the respondents' land and found that it was devoted solely to cattle-raising and breeding, recommending to the DAR Secretary that it be exempted from the CARL's coverage. On April 27, 1993, the respondents reiterated their request to withdraw the VOS and asked for the return of supporting papers they had submitted. DAR ignored the request. On December 27, 1993, DAR issued Administrative Order No. 9, series of 1993, which provided that only portions of private agricultural lands used for raising livestock, poultry, and swine as of June 15, 1988, shall be excluded from the CARL's coverage, fixing retention limits at a 1:1 animal-land ratio (one hectare per head of animal) and a ratio of 1.7815 hectares for livestock infrastructure for every 21 heads of cattle.

On February 4, 1994, the respondents wrote the DAR Secretary advising him to consider as final and irrevocable the withdrawal of their VOS, as under the Luz Farms doctrine their entire landholding was exempted from the CARL. On September 14, 1995, DAR Secretary Ernesto D. Garilao issued an Order partially granting the respondents' application for exemption, applying the retention limits in A.O. No. 9: 1,209 hectares were exempted for grazing purposes and a maximum of 102.5635 hectares for infrastructure, while the rest of the landholding was ordered segregated and placed under compulsory acquisition. The respondents moved for reconsideration, contending that their entire landholding should be exempted as it was devoted exclusively to cattle-raising, but the motion was denied. They then appealed to the Office of the President, assailing both the reasonableness and validity of A.O. No. 9 and its constitutionality in light of Luz Farms. On October 9, 2001, the Office of the President affirmed DAR's order, ruling that A.O. No. 9 did not run counter to Luz Farms as it merely provided guidelines to determine whether land was being used for cattle-raising, though it left the constitutionality of the A.O. for judicial determination. The Court of Appeals thereafter declared A.O. No. 9 null and void for contravening the intent of the 1987 Constitutional Commission to exclude livestock farms from the land reform program, reversing the Office of the President's ruling insofar as it affirmed DAR's determination that the respondents' landholding was covered by agrarian reform.

• Rule-Making Power: Petitioner maintained that it issued A.O. No. 9 pursuant to its rule-making power under Section 49 of the CARL, in order to limit the area of livestock farms that may be retained by a landowner, consistent with its mandate to place all public and private agricultural lands under the coverage of agrarian reform.
• Prevention of Evasion: Petitioner argued that the A.O. was necessary to remedy reports that some unscrupulous landowners had converted their agricultural farms to livestock farms in order to evade coverage under the agrarian reform program.

• Constitutionality of DAR A.O. No. 9: Whether DAR Administrative Order No. 9, series of 1993, which prescribes maximum retention limits for owners of lands devoted to livestock raising and includes such lands within the coverage of agrarian reform, is constitutional.
• Scope of DAR's Rule-Making Power: Whether DAR exceeded its delegated rule-making authority under Section 49 of the CARL by issuing an administrative order that includes livestock farms in the agrarian reform program.

• Constitutionality of DAR A.O. No. 9: No. The administrative order was declared null and void for contravening the Constitution, as the 1987 Constitutional Commission clearly intended to exclude all lands exclusively devoted to livestock, swine, and poultry-raising from the coverage of agrarian reform.
• Scope of DAR's Rule-Making Power: No. DAR exceeded its rule-making authority by enlarging the coverage of agrarian reform beyond the scope intended by the Constitution and the enabling statute; administrative rules must conform to and be consistent with constitutional and statutory provisions.

• Constitutionality of DAR A.O. No. 9: The deliberations of the 1987 Constitutional Commission show a clear intent to exclude all lands exclusively devoted to livestock, swine, and poultry-raising from the land reform program. In Luz Farms vs. Secretary of DAR, the Court clarified that livestock, swine, and poultry-raising are industrial activities that do not fall within the definition of "agriculture" or "agricultural activity," as a great portion of the investment in such enterprises is in the form of industrial fixed assets — animal housing structures, feedmills, warehousing facilities, anti-pollution equipment, deepwells, and other technological appurtenances. Because livestock-raising is industrial, not agricultural, lands devoted to it are not "agricultural lands" subject to agrarian reform. A.O. No. 9 contravened this constitutional intent by including livestock farms in the coverage of agrarian reform and prescribing retention limits for their ownership. Furthermore, Congress enacted R.A. No. 7881 amending the CARL by dropping from the definition of "agricultural activity" and "commercial farming" lands devoted to commercial livestock, poultry, and swine-raising, thereby aligning statutory law with the constitutional intent. The reenactment of the statute with this significant modification reflected legislative approval of the exclusion. The undesirable scenario DAR sought to prevent — landowners converting agricultural lands to livestock farms to evade CARL coverage — did not apply to the respondents, whose family had been in the cattle-breeding business since 1948, long before the CARL's enactment, with no evidence of recent conversion or intent to evade.

• Scope of DAR's Rule-Making Power: While administrative agencies are endowed with powers legislative in nature — the authority to issue rules to regulate the implementation of a law entrusted to them — the fundamental rule in administrative law is that, to be valid, administrative rules and regulations must be issued by authority of law and must not contravene the Constitution. The rule-making power of an administrative agency may not be used to abridge the authority given to it by Congress or by the Constitution, nor can it be used to enlarge the agency's power beyond the scope intended. Constitutional and statutory provisions control with respect to what rules may be promulgated and the scope of such regulations. DAR had no power to regulate livestock farms that the Constitution exempted from agrarian reform coverage; in issuing A.O. No. 9, it exceeded its authority. In case of conflict between an administrative order and the Constitution, the latter prevails.

• Validity of Administrative Regulations — To be valid, administrative rules and regulations must be issued by authority of a law and must not contravene the provisions of the Constitution. The rule-making power of an administrative agency may not be used to abridge the authority given to it by Congress or by the Constitution, nor can it be used to enlarge the power of the administrative agency beyond the scope intended. Constitutional and statutory provisions control with respect to what rules and regulations may be promulgated and the scope of their regulations. In case of conflict between an administrative order and the Constitution, the latter prevails.

• Livestock-Raising as Industrial Activity — Livestock, swine, and poultry-raising are industrial activities and do not fall within the definition of "agriculture" or "agricultural activity." The raising of livestock is different from crop or tree farming; a great portion of the investment is in the form of industrial fixed assets such as animal housing structures, feedmills, warehousing facilities, anti-pollution equipment, deepwells, and other technological appurtenances. Lands devoted to livestock-raising are thus classified as industrial, not agricultural, lands and are exempt from agrarian reform coverage. This doctrine was established in Luz Farms vs. Secretary of DAR and reiterated in Natalia Realty, Inc. vs. DAR.

• Implied Legislative Approval by Reenactment — The reenactment of a statute by Congress without substantial change is an implied legislative approval and adoption of the previous law. Conversely, by making a new law, Congress seeks to supersede an earlier one. Congress's enactment of R.A. No. 7881, which amended the CARL by dropping from its coverage lands devoted to commercial livestock, poultry, and swine-raising, reflected legislative alignment with the constitutional intent to exclude livestock farms from agrarian reform.

• "The fundamental rule in administrative law is that, to be valid, administrative rules and regulations must be issued by authority of a law and must not contravene the provisions of the Constitution." — This passage states the controlling doctrine on the validity of administrative regulations, anchoring the Court's invalidation of A.O. No. 9 on the principle that administrative rules must conform to constitutional provisions.

• "The rule-making power of an administrative agency may not be used to abridge the authority given to it by Congress or by the Constitution. Nor can it be used to enlarge the power of the administrative agency beyond the scope intended." — This formulation defines the outer limits of delegated rule-making authority, explaining why DAR's inclusion of livestock farms in agrarian reform coverage constituted an unconstitutional enlargement of power.

• "Clearly, petitioner DAR has no power to regulate livestock farms which have been exempted by the Constitution from the coverage of agrarian reform. It has exceeded its power in issuing the assailed A.O." — This is the dispositive ratio decidendi applying the constitutional exclusion of livestock farms to DAR's administrative order, directly concluding that DAR acted beyond its mandate.

• Luz Farms vs. Secretary of DAR, 192 SCRA 51 (1990) — Controlling precedent. The Supreme Court held that lands devoted to livestock and poultry-raising are not included in the definition of agricultural land and declared unconstitutional certain CARL provisions that included livestock farms in agrarian reform coverage. This ruling was the foundation for the Court's conclusion that DAR A.O. No. 9 contravened the Constitution.

• Natalia Realty, Inc. vs. DAR, 225 SCRA 278 (1993) — Followed and applied. The Court reiterated that industrial, commercial, and residential lands are not covered by the CARL, and that the term "agricultural land" does not include lands classified as mineral, forest, residential, commercial, or industrial. The Court drew a parallel logical deduction for livestock farms classified as industrial lands.

• Pagpalain Haulers, Inc. vs. Trajano, 310 SCRA 354 (1999) — Cited for the proposition that administrative rules and regulations must be issued by authority of law and must not contravene the Constitution.

• Conte vs. Commission on Audit, 264 SCRA 19 (1996) — Cited twice: first for the principle that constitutional and statutory provisions control with respect to what rules may be promulgated by administrative agencies and the scope of their regulations, and again for the doctrine that in case of conflict between an administrative order and the Constitution, the latter prevails.

• Section 49, Republic Act No. 6657 (Comprehensive Agrarian Reform Law of 1988) — Grants DAR rule-making power to implement the CARL. The Court found that this authority was exceeded by DAR when it issued A.O. No. 9, as the rule-making power cannot be used to enlarge the agency's authority beyond the scope intended by the Constitution or the enabling statute.

• Section 4, Republic Act No. 6657 — Provides that the CARL shall cover all public and private agricultural lands. The Court clarified, citing Natalia Realty, that the term "agricultural land" does not include lands classified as mineral, forest, residential, commercial, or industrial — and livestock farms fall under the industrial classification.

• Sections 1 and 3, Republic Act No. 7881 — Amended the CARL by changing the definition of "agricultural activity" and "commercial farming" to drop from its coverage lands devoted to commercial livestock, poultry, and swine-raising. The Court treated this as legislative alignment with the constitutional intent to exclude livestock farms from agrarian reform, reinforcing the invalidity of A.O. No. 9.

Hilario G. Davide, Jr. (Chief Justice), Artemio V. Panganiban, Leonardo A. Quisumbing, Consuelo Ynares-Santiago, Angelina Sandoval-Gutierrez, Antonio T. Carpio, Ma. Alicia Austria-Martinez, Renato C. Corona, Conchita Carpio Morales, Romeo J. Callejo, Sr., Adolfo S. Azcuna, Dante O. Tinga, Minita V. Chico-Nazario, and Cancio C. Garcia — all concurred in the decision.