Land Bank of the Philippines v. AMS Farming Corporation

G.R. No. 174971 · 2008-10-15 · J. CHICO-NAZARIO, J.: · Primary: Civil; Secondary: Agrarian Reform

REITERATION

Facts

The Antecedents: NAFCO leased 51 hectares to AMS in 1970. APECO acquired the land and executed a new lease with AMS in 1986 for 51.15 hectares for 10 years. Ownership later transferred to TOTCO. In 1988, Republic Act No. 6657 (CARL) took effect. In 1991, TOTCO and AMS executed a MOA increasing the leased area to 61.65 hectares and extending the lease for 25 years, but this MOA was not registered. AMS developed a banana plantation on the land. TOTCO offered its land for sale under the CARP. DAR, adopting LBP's valuation, offered ₱1,806,754.83, which TOTCO rejected. TOTCO filed a complaint for just compensation (DAR Case No. 52-99). The RTC appointed Commissioners who recommended a valuation of ₱328,026.85 per hectare, leading to a total award of ₱21,403,903.00 to TOTCO, including improvements and standing crops. AMS filed a Third Party Claim, asserting ownership of the standing crops and improvements, valued at ₱54,453,576.54, and requested that the compensation for these be paid to them. The RTC denied TOTCO's motion to expunge AMS's claim. Meanwhile, AMS filed its own petition for determination of just compensation (Special Agrarian Case No. 61-2000), claiming ₱48,952,473.28 for its standing crops and improvements. The RTC ruled in favor of AMS, ordering DAR and LBP to pay AMS the determined compensation. LBP appealed to the Court of Appeals (CA). Procedural History: The RTC, in DAR Case No. 52-99, awarded just compensation to TOTCO for the land, including improvements and standing crops. AMS filed a Third Party Claim, asserting ownership of the improvements and crops. The RTC denied TOTCO's motion to expunge AMS's claim. Subsequently, AMS filed Special Agrarian Case No. 61-2000 for determination of just compensation for its improvements and crops. The RTC ruled in favor of AMS, ordering DAR and LBP to pay AMS. LBP appealed to the Court of Appeals (CA-G.R. SP No. 77520). The CA dismissed LBP's appeal, affirming the RTC's decision in Special Agrarian Case No. 61-2000. The CA found the MOA valid and binding on AMS, and that AMS's claim was not prejudiced by the judgment in DAR Case No. 52-99. The CA also dismissed LBP's appeal on technical grounds, including forum shopping and LBP not being the real party-in-interest. LBP filed a Motion for Reconsideration, which the CA denied. The Petition: LBP filed a Petition for Review on Certiorari with the Supreme Court, assailing the CA's decision and resolution.

Issue(s)

Whether the Court of Appeals gravely erred in sustaining the RTC's Decision awarding just compensation to AMS for improvements after it had already awarded just compensation to TOTCO for the same improvements. Whether the Court of Appeals gravely erred in ruling that AMS's interest over the improvements could not be prejudiced by the RTC's decision in DAR Case No. 52-99. Whether the Court of Appeals gravely erred in the interpretation and application of Section 6 in relation to Section 73 of RA 6657 by sustaining the validity of the Memorandum of Agreement executed on August 8, 1991, after the effectivity of the Act. Whether the Court of Appeals gravely erred in ruling that the Voluntary Offer to Sell (VOS) is not required since it would be an exercise in futility. Whether the Court of Appeals gravely erred in declaring that LBP is not the real party-in-interest and violated the rule on forum shopping. Whether the Court of Appeals gravely erred in not resolving the issue on the RTC granting the awards for Peso-Dollar rate adjustment, interest rate of twelve (12%) per annum reckoned from November 24, 1997, and attorney's fees equivalent to 10% of the judgment.

Ruling

The Supreme Court GRANTED the Petition for Review. The Decision and Resolution of the Court of Appeals were ANNULLED and SET ASIDE. The Petition for the determination of just compensation filed by AMS Farming Corporation in Special Agrarian Case No. 61-2000 was ordered DISMISSED, without prejudice to AMS filing the appropriate case against its lessor, Totco Credit Corporation, pursuant to the provisions of the Civil Code on lease contracts.

Ratio Decidendi

On the issue of whether the Court of Appeals gravely erred in sustaining the RTC's Decision awarding just compensation to AMS for improvements after it had already awarded just compensation to TOTCO for the same improvements: The Supreme Court ruled that the Memorandum of Agreement (MOA) dated August 8, 1991, which extended the lease and increased the area, was not registered. Under Article 1648 of the Civil Code and Section 51 of PD 1529, an unregistered lease is binding only between the parties but not on third persons. LBP, as a third party, was only aware of the registered Lease Agreement dated February 21, 1986, which had already expired. Therefore, AMS, as a lessee under an unregistered MOA, could not compel LBP to recognize it and be bound by its terms. The Court found that AMS had no right to claim just compensation from LBP under the CARL for its standing crops and improvements, as these are considered appurtenant to the land and their valuation is for the landowner. The recourse of AMS should be against its lessor, TOTCO, under the Civil Code. On the issue of whether the Court of Appeals gravely erred in ruling that AMS's interest over the improvements could not be prejudiced by the RTC's decision in DAR Case No. 52-99: The Court held that the RTC and CA erred in resolving AMS's claim under the CARL instead of the Civil Code. AMS, as a lessee, had no right to just compensation under the CARL for its improvements, as this right is primarily for the landowner. The standing crops and improvements are valued as part of the land for the landowner's compensation. The Court emphasized that the CARL does not create a privileged class of lessees. The rights of AMS as a lessee are defined by the MOA and the Civil Code, independent of the CARP proceedings involving TOTCO's land. The fact that the land was placed under CARP did not alter AMS's status as a lessee or grant it additional compensation rights. On the issue of whether the Court of Appeals gravely erred in the interpretation and application of Section 6 in relation to Section 73 of RA 6657 by sustaining the validity of the Memorandum of Agreement executed on August 8, 1991, after the effectivity of the Act: The Court clarified that Section 6 of CARL, particularly its last paragraph, invalidates dispositions executed in violation of retention limits. However, it also states that those executed prior to CARL are valid only if registered within three months. The MOA, executed after CARL's effectivity, was not nullified by Section 6 because it did not violate retention limits but merely renewed an existing lease. The Court found that the MOA was a new contract, not merely an accessory to the prior lease, and its non-registration meant it was binding only between TOTCO and AMS, not on third parties like LBP. The Court disagreed with the CA's reasoning that registering the principal lease was sufficient for the MOA. On the issue of whether the Court of Appeals gravely erred in ruling that the Voluntary Offer to Sell (VOS) is not required since it would be an exercise in futility: This issue was not directly resolved by the Supreme Court in its final ruling, as the case was dismissed on other grounds. However, the Court noted that AMS's claim for just compensation under the CARL was misplaced. The Court's primary focus was on the nature of AMS's rights as a lessee and the binding effect of unregistered agreements. On the issue of whether the Court of Appeals gravely erred in declaring that LBP is not the real party-in-interest and violated the rule on forum shopping: The Supreme Court found that the CA erred in ruling that LBP was not a real party-in-interest. Citing jurisprudence, the Court affirmed LBP's significant role and independent judgment in land valuation and compensation under CARL, entitling it to appeal. The Court also found no forum shopping, as LBP and DAR, though government agencies, are distinct entities with potentially different interests, and LBP was not privy to DAR's appeal. The Court also clarified that LBP could be represented by its own Legal Department, with the conformity of the Government Corporate Counsel, and did not need the OSG's concurrence. On the issue of whether the Court of Appeals gravely erred in not resolving the issue on the RTC granting the awards for Peso-Dollar rate adjustment, interest rate of twelve (12%) per annum reckoned from November 24, 1997, and attorney's fees equivalent to 10% of the judgment: The Supreme Court did not explicitly rule on these specific awards. However, by dismissing AMS's petition for just compensation under the CARL, these awards in favor of AMS became moot. The Court's decision focused on the fact that AMS's recourse should be against TOTCO under the Civil Code, not against LBP under the CARL.

Main Doctrine

A lease agreement, even if extended by a Memorandum of Agreement (MOA), if not registered, is binding only between the parties thereto and not on third persons. Consequently, a lessee cannot claim just compensation from the Land Bank of the Philippines (LBP) under the Comprehensive Agrarian Reform Law (CARL) for improvements introduced on the leased property; their recourse is against the lessor under the Civil Code.