December 24, 1998

DAR OPINION NO. 124-98

HON . ALBERTO B. REYNO

Senior Vice-President

Development Bank of the Philippines

Makati City

Dear Mr. Reyno:

This has reference to your letter dated 03 November 1998 seeking opinion on the queries posed therein, to wit:

a)         Whether a direct payment scheme in the instant case between tenant and the mortgagee bank (DBP) is legal and not violative of agrarian laws, rules and regulations.

b)         Whether the proposed direct payment scheme is an ordinary sale transaction and therefore outside the coverage of Executive Order No. 407.

As gleaned from your letter, the subject property comprises two (2) parcels of agricultural lands, covered by Transfer Certificates of Title Nos. T-291422 (M) and T-291423 (M), respectively, situated at Barangay Lolomboy, Bocaue, Bulacan and cultivated by Mr. Nestor Villanueva; that pursuant to Court of Appeals decision dated 21 February 1994 which was affirmed by the Supreme Court dated 18 January 1996, Mr. Nestor Villanueva was declared as bona fide tenant with right of first refusal to purchase subject properties; that DBP negotiated with Mr. Villanueva on the payment scheme and mode of transfer of the said property; and that under the proposed direct payment scheme, Mr. Villanueva will pay P9.0 million to DBP instead of only P4.5 million under E.O. No. 407.

Anent your first query, although Sections 20 and 21 of Republic Act No. 6657 (Comprehensive Agrarian Reform Law) allow VLT/DPS scheme as valid and legal, the same is not absolute. Specifically, DAR Administrative Order No. 02, Series of 1995 expressly provides that "land titles with existing liens and encumbrances shall not be covered under the VLT/DPS scheme". Moreover, DAR Administrative Order No. 8, Series of 1997 categorically provides that lands mortgaged with banking and/or financial institutions may not be the subject of VLT/DPS (Item II. L). This prohibition was incorporated by the DAR to simplify VLT/DPS transactions, particularly to facilitate the immediate transfer of title to the Agrarian Reform Beneficiaries (ARBs). Without this safeguard, tenants might enter into VLT/DPS agreements with banks which might sell agricultural lands foreclosed by them under a selling price or terms and conditions grossly disadvantageous and prejudicial to the tenants, which is violative of Section 20 (b) of R.A. No. 6657.

Anent your second query, Executive Order No. 407 is very explicit by providing at the government through the DAR shall accelerate the acquisition and distribution of agricultural lands, agro-forestry lands and other lands of the public domain suitable for agriculture. Corollarily, Section 7 of R.A. No. 6657 mandates, among others, that all lands foreclosed by government financial institutions, all lands acquired by the Presidential Commission on Good Government, and all other lands owned by the government devoted to or suitable for agriculture, shall be acquired and distributed immediately upon the effectivity of the said Act on 15 June 1988. Moreover, Executive Order No. 360, Series of 1989, enjoins all government financial institutions and government-owned or controlled corporations to grant the Department of Agrarian Reform the right of first refusal in the sale or disposition of all lands owned by them which are suitable for agriculture.

Obviously, the VLT/DPS scheme in the case at bar is not an ordinary transaction which can be placed outside the ambit of Executive Order No. 407. Such being the case, it is E.O. No. 407 that will govern the mode of coverage as regards the landholdings in issue. The said law clearly provides, quote:

"all government instrumentalities including but not limited to government agencies, government owned and controlled corporations or financial institutions such as the Development Bank of the Philippines, Philippines National Bank, Republic Planters Bank, Asset Privatization Trust, Presidential Commission on Good Government, Department of Agriculture, State Colleges and Universities, Department of National Defense, shall immediately execute Deeds of Transfer in favor of the Republic of the Philippines as represented by the Department of Agrarian Reform and surrender to the latter department all landholdings suitable for agriculture including all pertinent ownership documents in their custody, such as the owner's duplicate copy of the certificates of title, tax declarations and other documents necessary to effect the transfer of ownership" (emphasis supplied)

In view of all the foregoing, we submit that the proposed direct payment scheme between tenant Nestor Villanueva and DBP is not tenable and will be violative of existing agrarian laws, rules and regulations. Accordingly, the subject landholdings should be immediately compulsorily acquired under CARP pursuant to the provisions of Sections 4, 7, 16 and 71 of R.A. No. 6657 and Executive Order No. 407, Series of 1990.

We hope to have clarified the matters with you.

Very truly yours,

(SGD.) DANILO T. LARA

Undersecretary for Legal Affairs, and Policy and Planning

Copy furnished:

Dir. Gloria Fabia

BLAD, DAR, Quezon City

RD Renato F. Herrera

DAR — Region III

Pedmar Building, Dolores

San Fernando, Pampanga

PARO Linda Hermogino

DAR — Provincial Office

Aquino Ave., Baliuag

Bulacan

MARO Fe Jacinto

DAR — Municipal Office

Sta. Maria, Bulacan