Heirs of Ramon Arce, Sr. vs. Department of Agrarian Reform

Lands devoted to livestock raising are classified as industrial, not agricultural, and are therefore exempt from CARP coverage, provided such use was established prior to the CARL's enactment on June 15, 1988 and has been maintained; the temporary transfer of livestock for health and sanitary reasons does not divest the land of its industrial character, and the growing of napier grass as fodder for livestock does not convert the land to agricultural use.

The Heirs of Ramon Arce, Sr.—Eulalio, Lorenza, Ramon Jr., Mauro, and Esperanza Arce—have been registered owners since the 1950s of 76.39 hectares of land in Brgy. Macabud, Montalban, Rizal, covered by Transfer Certificates of Title Nos. T-442673, 442674, 442675, and 442676. The land was utilized as pasture for cattle, buffaloes, carabaos, and goats for milk and dairy production in the manufacture of Arce Dairy Ice Cream, employing a "feedlot operation" method in which animals were confined and fed on a cut-and-carry or zero-grazing basis. Republic Act No. 6657, the Comprehensive Agrarian Reform Law (CARL) of 1988, took effect on June 15, 1988, implementing the State's Comprehensive Agrarian Reform Program (CARP) over all public and private agricultural lands.

Since the 1950s, well before the enactment of Republic Act No. 6657 or the Comprehensive Agrarian Reform Law (CARL) of 1988, the Heirs of Ramon Arce, Sr. have been the registered owners of four parcels of land totaling 76.39 hectares in Brgy. Macabud, Montalban, Rizal, covered by Transfer Certificates of Title Nos. T-442673, 442674, 442675, and 442676. The land was devoted to livestock raising—cattle, buffaloes, carabaos, and goats—for milk and dairy production used in the manufacture of Selecta Carabao's Milk and Ice Cream, now known as Arce Dairy Ice Cream. The petitioners employed a "feedlot operation" method, in which animals were confined and fed on a cut-and-carry or zero-grazing basis, with a good pasture developed and maintained to ensure regular feed supply.

Sometime in 1998, the Philippine Carabao Center–Department of Agriculture (PCC-DA) recommended that petitioners' livestock be transferred to avoid liver fluke infestation in the area. In compliance, petitioners moved the older and milking livestock, which were susceptible to infection, to their feedlot facility in Novaliches, Quezon City. The younger cattle, not susceptible to the fluke infection, remained on the subject lands. Petitioners continued to plant and grow napier grass on the subject lands, which was cut, carried, and used as fodder for livestock maintained both on the subject lands and at the Novaliches property.

On August 6, 2008, the Provincial Agrarian Reform Officer (PARO) of Teresa, Rizal issued a Notice of Coverage (NOC) over the subject lands under the CARP. Petitioners responded with a letter dated October 17, 2008, seeking exclusion and exemption on the ground that the land had been utilized for livestock raising even before the CARL's enactment, submitting supporting documents including Certificates of Ownership of Large Cattle, livestock inventories, and photographs. The PARO treated the letter as a Petition for Exclusion from CARP Coverage. Both the Municipal Agrarian Reform Officer (MARO), in a Report and Recommendation dated December 2, 2008, and the DAR Provincial Office Legal Division, in an Evaluation Report dated March 4, 2009, investigated the subject lands and recommended granting the petition, finding that the properties had been actually, directly, and exclusively devoted to livestock raising since the 1960s.

On December 22, 2009, DAR Regional Director Antonio G. Evangelista issued an Order granting the Petition to Lift Notice of Coverage, which became final and executory on April 29, 2011, as no motion for reconsideration or appeal was filed. Meanwhile, on May 12, 2011, Joevin M. Ucag of DAR Region IV-A submitted an Ocular Inspection Report stating that "there was no livestock/cattle found in the area of Macabud, Rodriguez, Rizal." Thereafter, the Samahan ng mga Magsasakang Nagkakaisa sa Sitio Calumpit (SAMANACA) sent letters to DAR Secretary Virgilio R. De Los Reyes seeking to annul Regional Director Evangelista's Order, which were treated as a Petition to Annul an Invalid Resolution. On December 7, 2012, the DAR Secretary denied the Petition for Exclusion, ruling that while the subject lands had been a livestock farm prior to the CARL's enactment, petitioners failed to prove that the lands were actually, directly, exclusively, and continuously used for livestock activity up to the present, citing Ucag's report that there were no longer cattle and livestock facilities within the subject lands.

Petitioners appealed to the Office of the President, which on April 29, 2015 reversed the DAR Secretary's Order and granted the exclusion, finding that the transfer of livestock was temporary and necessary for health reasons and that the subject lands had always been maintained as pasture land planted with napier grass. The DAR then filed a Petition for Review with the Court of Appeals, which on August 5, 2016 granted the DAR's petition, holding that petitioners failed to refute that since 1998 there were no longer cattle in the subject lands and that the same were no longer used as grazing lands. Petitioners' Motion for Reconsideration was denied by the CA on November 28, 2016, prompting the present petition.

• Administrative Due Process: Petitioners argued that the CA erred in upholding the DAR Secretary's findings of fact, which were based on an ocular inspection conducted by Ucag without prior notice to them, thereby violating their basic rights to administrative due process and depriving them of the opportunity to refute the findings.
• Continued Livestock Use: Petitioners maintained that the subject lands remained actually, directly, and exclusively used for livestock raising purposes, as they were utilized to sustain the feedlot operations and intensive system of farming, with napier grass grown on the land supplying fodder for livestock maintained both on the subject lands and at the Novaliches facility.
• Exhaustion of Administrative Remedies: Petitioners contended that the CA erroneously gave due course to the DAR's Petition for Review despite the non-observance of the rule on exhaustion of administrative remedies.
• Finality of Regional Director's Order: Petitioners argued that the DAR Secretary erred in reversing Regional Director Evangelista's December 22, 2009 Order after it had already attained finality.
• Standing of SAMANACA: Petitioners asserted that SAMANACA had no legal standing to assail the Regional Director's Order, as its members were never in possession of the subject lands and were not tenants, farmers, or tillers thereon.

• Loss of Livestock Use: Respondent DAR countered that while the subject lands had been a livestock farm prior to the CARL's enactment, petitioners failed to prove that the lands were actually, directly, exclusively, and continuously used for livestock activity up to the present, as there were no longer cattle and livestock facilities within the subject lands.
• Reliance on Ocular Inspection: Respondent relied on Ucag's Ocular Inspection Report dated May 12, 2011, which stated that no livestock or cattle were found in the area, to support the finding that the subject lands were no longer devoted to livestock raising.
• Application of Uy Doctrine: Respondent invoked the case of Department of Agrarian Reform vs. Vicente K. Uy, arguing that the status of the subject lands as industrial land was not maintained because they were no longer exclusively, directly, and actually devoted to livestock activity up to the present.

• Due Process in Ocular Inspection: Whether the CA erred in upholding the DAR Secretary's findings of fact which were based on an ocular inspection conducted in violation of petitioners' right to administrative due process.
• Exemption from CARP Coverage: Whether the subject lands remain actually, directly, and exclusively used for livestock raising purposes and thus exempt from CARP coverage.
• Exhaustion of Administrative Remedies: Whether the CA erroneously gave due course to respondent's Petition for Review despite the non-observance of the rule on exhaustion of administrative remedies.
• Intervention by SAMANACA: Whether SAMANACA may be allowed to intervene in the proceedings before the Supreme Court.

• Due Process in Ocular Inspection: Yes. The CA erred in relying on findings derived from an ocular inspection conducted without notice to petitioners, in violation of administrative due process.
• Exemption from CARP Coverage: Yes. The subject lands remain devoted to livestock raising and are classified as industrial, not agricultural, thus exempt from CARP coverage under the Constitution and prevailing jurisprudence.
• Exhaustion of Administrative Remedies: N/A (The text does not contain a separate ruling on this issue; the petition was granted on the substantive grounds discussed.)
• Intervention by SAMANACA: No. SAMANACA failed to demonstrate a direct and immediate legal interest in the subject lands, as its members were never in possession thereof and were not identified as qualified beneficiaries with supporting evidence.

• Due Process in Ocular Inspection: The Court found that Ucag's ocular inspection was conducted without the knowledge and prior notice to the petitioners, violating their right to administrative due process. The Ocular Inspection Report did not specify the area inspected, and there was no evidence that Ucag was permitted to enter the gated premises of the subject lands. Any inspection must have been conducted only from outside the premises, and given the sloping terrain combined with tall napier grasses, it was likely that Ucag failed to spot the livestock. Furthermore, petitioners were not given the opportunity to submit evidence against Ucag's report for the DAR's consideration. The MARO's findings, as the primary official in charge of investigating land sought to be exempted, deserved greater weight if supported by substantial evidence, and both the MARO and DARPO had recommended granting the exclusion after their own inspections.

• Exemption from CARP Coverage: The Court applied the constitutional principle, as articulated in Luz Farms vs. Secretary of DAR, that it was never the intention of the framers of the 1987 Constitution to include the livestock and poultry industry in the agrarian reform program. Lands devoted to livestock raising are classified as industrial, not agricultural, and thus exempt from CARP coverage. Substantial evidence showed that the subject lands had been devoted to livestock production since the 1950s, a fact acknowledged by the DAR itself. The temporary transfer of older and milking livestock to the Novaliches property, upon PCC-DA's recommendation to avoid liver fluke infestation, did not detract from the land's livestock-farming use, as the transfer was temporary and health-motivated. The younger cattle remained on the subject lands, and petitioners submitted photographs of livestock freely grazing thereon. The growing of napier grass on the subject lands did not automatically render them agricultural, as the grass was used as fodder for the livestock—consistent with the feedlot operation method recognized under DAR Administrative Order No. 01, Series of 2004. The DAR adduced no proof that the napier grass was planted for agricultural business. Moreover, the Bureau of Soils and Water Management certified that the subject land was not suitable for agriculture, being predominantly with a slope of more than 18 percent, which the CARL itself exempts from coverage. The CA also misread Department of Agrarian Reform vs. Uy, as the two conditions from A.O. No. 9, Series of 1993 cited therein were part of the "facts" portion, not the "decision" portion, and that administrative order had already been declared unconstitutional in Department of Agrarian Reform vs. Sutton. Finally, the CARL prohibits conversion of agricultural lands to non-agricultural purposes after its effectivity; here, there was no showing that the subject lands, devoted to livestock raising prior to the CARL, had been converted to agricultural land after its passage.

• Exhaustion of Administrative Remedies: N/A

• Intervention by SAMANACA: Intervention is not a matter of absolute right but is subject to the court's sound discretion. The applicant must show a legal interest in the matter in litigation that is direct and immediate, such that the intervenor will either gain or lose by the direct legal operation of the judgment. SAMANACA's allegation that its members had been identified as qualified beneficiaries was unsubstantiated by any evidence. Its members were never in possession of the subject lands, nor were they tenants, farmers, or tillers thereon. At most, SAMANACA's interest was inchoate, contingent, and expectant, which could not justify intervention.

• Luz Farms Doctrine — Lands devoted to livestock raising are industrial, not agricultural, in nature and are therefore excluded from the coverage of the agrarian reform program. The 1987 Constitutional Commission's deliberations show a clear intent to exclude all lands exclusively devoted to livestock, swine, and poultry-raising. The raising of livestock is different from crop or tree farming and is an industrial, not an agricultural, activity. In this case, the doctrine was applied to exempt the petitioners' 76.39 hectares, which had been devoted to livestock raising since the 1950s.

• Unconstitutionality of DAR A.O. No. 9, Series of 1993 — As established in Department of Agrarian Reform vs. Sutton, DAR Administrative Order No. 9, Series of 1993, which sought to regulate livestock farms by including them in agrarian reform coverage and prescribing maximum retention limits, was declared unconstitutional for contravening the Constitution. The rule-making power of an administrative agency may not be used to enlarge its power beyond the scope intended by Congress or the Constitution. In this case, the Court clarified that the CA misread Department of Agrarian Reform vs. Uy by treating the two conditions under A.O. No. 09-93 as operative requirements, when in fact that administrative order had already been struck down.

• Weight of MARO's Findings — As the primary official in charge of investigating land sought to be exempted as livestock land, the MARO's findings on the use and nature of the land, if supported by substantial evidence on record, are to be accorded greater weight, if not finality. In this case, both the MARO and the DARPO Legal Division recommended granting the exclusion after their respective inspections, findings that the DAR and CA improperly disregarded in favor of Ucag's defective ocular inspection.

• Requirements for Intervention — Intervention under Rule 19 of the Rules of Court requires the applicant to possess a legal interest in the matter in litigation that is direct and immediate, such that the intervenor will either gain or lose by the direct legal operation of the judgment. The interest must be actual and material, not indirect, contingent, conjectural, consequential, or collateral. Permission to intervene is subject to the court's sound discretion, considering whether intervention will unduly delay or prejudice the adjudication of the rights of the original parties. In this case, SAMANACA's interest was held to be inchoate, contingent, and expectant, as its members were never in possession of the subject lands and failed to substantiate their claim of being qualified beneficiaries.

• "it was never the intention of the framers of the Constitution to include the livestock and poultry industry in the coverage of the constitutionally mandated agrarian reform program of the government." — This passage, quoting Luz Farms vs. Secretary of DAR, articulates the constitutional basis for excluding livestock lands from CARP coverage and is the foundational principle underlying the Court's ruling.

• "the transfer, as established, was necessary for health and sanitary considerations having been recommended by the Executive Director of the Philippine Carabao Center of the Department of Agriculture (PCC-DA). Such transfer is temporary in nature and did not divert the use thereof from the purpose of livestock farming." — This passage, quoting the Office of the President's decision and adopted by the Court, establishes that a temporary, health-motivated transfer of livestock does not divest land of its industrial character for CARP exemption purposes.

• "the deliberations of the 1987 Constitutional Commission show a clear intent to exclude, inter alia, all lands exclusively devoted to livestock, swine and poultry-raising. The Court clarified in the Luz Farms case that livestock, swine and poultry-raising are industrial activities and do not fall within the definition of 'agriculture' or 'agricultural activity.'" — This passage, quoting Department of Agrarian Reform vs. Sutton, reinforces the constitutional distinction between industrial livestock raising and agricultural activity, and clarifies the invalidity of DAR A.O. No. 9, Series of 1993.

• "Clearly, SAMANACA's assertions do not amount to a direct and immediate legal interest, so much so that they will either gain or lose by the direct legal operation of the court's judgment. At most, their interest, if any, is characterized as inchoate, contingent and expectant – which could not have justified intervention." — This passage defines the threshold for intervention in agrarian reform proceedings, distinguishing a protectable legal interest from a mere expectancy.

• Luz Farms vs. Secretary of DAR, 270 Phil. 151 (1990) — Controlling precedent. The Court declared unconstitutional the CARL provisions that included lands devoted to livestock under CARP coverage, establishing that livestock raising is an industrial, not agricultural, activity. This case was the primary basis for exempting the petitioners' lands.

• Natalia Realty and Estate Developers and Investors Corp., Inc. vs. Department of Agrarian Reform, 296-A Phil. 271 (1993) — Followed. The Court reiterated that industrial, commercial, and residential lands are not covered by the CARL, and that "agricultural land" does not include lands classified as mineral, forest, residential, commercial, or industrial.

• Department of Agrarian Reform vs. Sutton, 510 Phil. 177 (2005) — Followed. The Court declared DAR A.O. No. 9, Series of 1993 unconstitutional for contravening the Constitution's intent to exclude livestock lands from agrarian reform. This case was relied upon to clarify that the CA misread Department of Agrarian Reform vs. Uy.

• Department of Agrarian Reform vs. Vicente K. Uy, 544 Phil. 308 (2007) — Distinguished. The CA relied on this case to require that lands be exclusively, directly, and actually used for livestock up to the present. The Supreme Court clarified that the two conditions from A.O. No. 09-93 cited in Uy were part of the "facts" portion, not the "decision" portion, and that the administrative order had already been declared unconstitutional in Sutton.

• Department of Agrarian Reform vs. Court of Appeals, 718 Phil. 232 (2013) — Followed. The Court cited this case for the proposition that lands devoted to the raising of livestock, poultry, and swine have been classified as industrial, not agricultural, and thus exempted from agrarian reform.

• Republic of the Philippines vs. Salvador N. Lopez Agri-Business Corp., 654 Phil. 44 (2011) — Followed. The Court cited this case for the principle that the MARO's findings on the use and nature of the land, if supported by substantial evidence, are to be accorded greater weight, if not finality.

• Hon. Executive Secretary vs. Northeast Freight Forwarders, Inc., 600 Phil. 789 (2009) — Followed. The Court relied on this case for the requirements of intervention, including the need for a direct and immediate legal interest and the court's sound discretion in permitting intervention.

• Section 4, Republic Act No. 6657 (Comprehensive Agrarian Reform Law of 1988) — Defines the scope of the CARP, covering all public and private agricultural lands regardless of tenurial arrangement and commodity produced. The Court applied this provision in conjunction with the constitutional exclusion of livestock lands, noting that "agricultural land" does not include industrial lands such as those devoted to livestock raising.

• Section 3(c), Republic Act No. 6657 — Defines "agricultural land" as land devoted to agricultural activity and not classified as mineral, forest, residential, commercial, or industrial land. The Court applied this definition to classify the subject lands as industrial, given their devotion to livestock raising.

• DAR Administrative Order No. 01, Series of 2004 — Defines "Feedlot Operation (Intensive System)" as a type of cattle raising where animals are confined and fed on a cut-and-carry basis or zero grazing, with a good pasture developed and maintained to ensure regular feed supply. The Court applied this definition to recognize the petitioners' farming method as a legitimate livestock-raising operation.

• DAR Administrative Order No. 9, Series of 1993 — Prescribed conditions for livestock land exemption, including exclusive, direct, and actual use for livestock on or before June 15, 1988, and satisfaction of land-to-livestock ratios. The Court noted this administrative order was declared unconstitutional in Department of Agrarian Reform vs. Sutton and could not be applied as a basis for denying the exclusion.

• Rule 19, Rules of Court — Governs intervention by third parties in ongoing proceedings. The Court applied this rule to deny SAMANACA's motion for intervention, finding that its members lacked the direct and immediate legal interest required.

• Rule 45, Rules of Court — Governs Petition for Review on Certiorari to the Supreme Court. The petition was filed under this rule, assailing the CA's Decision and Resolution.

Leonardo-De Castro (Acting Chairperson, designated pursuant to Special Order No. 2559 dated May 11, 2018), Del Castillo, Jardeleza, and Gesmundo (designated Acting Member pursuant to Special Order No. 2560 dated May 11, 2018), JJ., concurred.