April 13, 2004
DAR OPINION NO. 11-04
Ms. Nena C. Ang
Chairwoman
Nation Petroleum Corporation
39th Flr. Yuchengco Tower RCBC Plaza
6819 Ayala Avenue cor. Sen. Gil Puyat Ave.
Makati City
Dear Chairwoman Ang:
This refers to your letter dated 11 December 2003 (in relation to your earlier letter dated 05 November 2003), requesting for legal opinion on the following issues, to wit:
1. Whether or not the CLOA-properties remain subject to the provisions of Republic Act No. 6657, otherwise known as the Comprehensive Agrarian Reform Law (CARL), notwithstanding the issuance by the Secretary of the DAR of an Order approving the conversion of the land use of said properties from agricultural to industrial use;
2. Whether or not the loan to be secured by Nation Petroleum Corporation (NPC) to cover the costs of constructing a petroleum depot on the CLOA-properties falls within the legal contemplation of and qualifies as a "loan obligation secured to develop or improve . . . land awarded/allocated to beneficiaries", as provided in Section V of DAR Administrative Order No. 01, series of 1989;
3. Whether or not the CLOA-properties may be mortgaged by the landowners to partially secure the loan of NPC from various banking institutions intended to fund the cost of constructing its petroleum depot in light of Section V of DAR A.O. No. 01, series of 1989.
4. In the event that the answer to item (3) is in the affirmative, whether or not a banking institution to which the CLOA-properties have been mortgaged to secure the loan of NPC may acquire title over such properties in the event of foreclosure sale within the ten (10) year prohibitory period imposed under Section 27 of the CARL, particularly in the light of Section V of DAR A.O. No. 01, series of 1989; and
5. Assuming that the answer to item (4) is in the affirmative, whether or not a banking institution which shall have acquired title over the CLOA-properties as a result of a foreclosure sale may proceed to immediately sell, transfer or convey such properties to third party buyer/s or transferees notwithstanding the ten (10) year prohibitory period imposed under Section 27 of the CARL. aTcIAS
You stated that the subject parcels of land located in Brgy. Castañas, Sariaya, Quezon were awarded to the landowners by the Department of Agrarian Reform on 30 July 1997; that sometime in August 2002, the landowners entered into a Joint Venture Agreement (JVA) with Nation Petroleum Corporation (NPC) for the purpose of jointly filing an application for conversion of the CLOA-properties from agricultural to industrial use with the DAR; that under the terms of the Joint Venture Agreement, upon approval of the Application for Conversion and issuance of a final Order, NPC shall undertake to construct facilities for a petroleum depot, a portion of which is to be located in said properties; that on 04 January 2003, a sworn Application for Land Use Conversion was filed by the landowners and NPC with the DAR; that in an Order dated 9 July 2003, then DAR Secretary Roberto M, Pagdanganan approved the Application for Land Use Conversion, directing the conversion of the CLOA-properties from agricultural to industrial use subject to the conditions stipulated therein; that pursuant to its undertaking in the Joint Venture Agreement, NPC is now in the process of securing funding from various banking institutions; and that the banking institutions with which NPC is negotiating have expressed interest in funding the project but have raised certain issues regarding the legality of utilizing the CLOA-properties as security for the loan to be granted to NPC.
Anent your first query, the following provisions of DAR Administrative Order No. 01, Series of 2002 (2002 Comprehensive Rules on Land Use Conversion) and DAR Opinion No. 14, Series of 1995 are pertinent:
1. Section 34, DAR Administrative Order No. 01, Series of 2002
"Section 34. Effects of approval of conversion — The approval of an application for conversion shall have, but shall not be limited to, the following effects:
34.1 It shall be limited to the specific use of the land authorized in the Conversion Order;
34.2 It shall be subject to the schedule indicated in the detailed site development, work and financial plans, but in no case shall the period of development extend beyond five (5) years from issuance of the Conversion Order except as authorized by the Secretary or the approving official on meritorious grounds, provided that, if the development cannot be accomplished within five (5) years, the grantee of the Conversion Order shall submit a written request for extension within the six (6) months before the lapse of the five (5) year period, and provided further, that the extended development period shall be one (1) year for every five (5) hectares, but in no case shall the extension exceed five (5) years.
34.3 The conditions thereof shall be binding upon successors-in-interest of the property."
2. Sections 47 and 49, DAR Administrative Order No. 01, Series of 2002
"Section 47. Grounds — The following acts or omissions shall warrant revocation of the Conversion Order:
47.1 Lack of jurisdiction of the approving authority;
47.2 Misrepresentation or concealment of facts material to the grant of conversion;
47.3 Non-compliance with the conditions of the Conversion Order;
47.4 Non-compliance with the agreement on disturbance compensation payment;
47. Conversion to a use other than that authorized in the Conversion Order; or
47.6 Any other serious violation of agrarian laws. " (emphasis supplied)
xxx xxx xxx
"Section 49. Effect of Revocation or Withdrawal of Conversion Order — The land subject thereof shall revert to the status of agricultural lands and shall be subject to CARP coverage as circumstances may warrant." (emphasis supplied)
3. DAR Opinion No. 14, series of 1995
"DAR Order of Conversion is in effect a go-signal, for the use of the property for non-agricultural purposes, which further means that as long as said property is developed for the purpose specified in the application for conversion, it will no longer be distributed to farmer-beneficiaries under the Comprehensive Agrarian Reform Program. DAR will place the property under CARP compulsory coverage should there be failure to implement and complete the development of the areas within the specified time, as provided in paragraph XVI of DAR A.O. 2, series of 1994." (emphasis supplied)
Concerning your second query, the answer is in the negative. The subject lands are, strictly speaking, no longer deemed agricultural awarded lands for they have already been converted into industrial use. AIHTEa
As regards your third query, in order not to possibly unduly put the ARBs at risk, it is our considered opinion that subject lands should not be mortgaged by the ARBs. We have to safeguard and protect the welfare and interests of the ARBs since there is the possibility that should the business venture (petroleum depot) not prosper or materialize the agrarian reform beneficiaries will be at risk of losing their lands in case of foreclosure.
Moreover, it is worthy to note that in Nos. 2 and 3 of the terms and conditions in the subject Joint Venture Agreement dated 08 August 2002, "the Landowners shall cede and deliver possession and use of their landholdings to the Corporation" while "the Corporation shall undertake conversion of the landholdings by putting up its facilities for petroleum depot, shouldering all the expenses therefore until its completion."
For the landowner-ARBs to mortgage their awarded lands to fund the cost of constructing the petroleum depot would mean that they are not merely delivering the possession and use of their landholdings as agreed in the JVA but they will likewise in effect be providing for the capitalization of the business venture. This will be violative and not in keeping with the terms and conditions of the Joint Venture Agreement that the Corporation shall undertake conversion of the landholdings by putting up its facilities for petroleum depot, shouldering all the expenses therefore until its completion.
Anent your fourth and fifth queries, considering that our answer in item No. 3 is in the negative, with regret, we cannot further render definitive opinions thereon.
This opinion is rendered on the basis of the facts presented and on record. However, if upon investigation it will be disclosed that the facts are different, then this opinion shall be considered null and void.
Thank you for communicating with us and we hope to have clarified the matters.
Very truly yours,
(SGD.) RICARDO S. ARLANZA
Undersecretary for Policy, Planning and Legal Affairs Office