June 5, 1997

DAR OPINION NO. 64-97

Ms. Ma. Teresa D. Listana

13-C, Robina St., Brgy. Bungad

S.F.D.M., Quezon City

Dear Ms. Listana:

This has reference to your letter dated 11 December 1996 addressed to the Department of Agrarian Reform seeking opinion on the queries posed therein, to wit:

1.         Can a foreign corporation acquire or own a large tract of agricultural land to be developed into plantation? What about a locally registered corporation, 60% owned by Filipinos and 40% owned by Japanese?

2.         What are the provisions of law regarding the lease agreement concept for a large tract of land of land be developed into agricultural purposes?

3.         What is the provision of law for the ten (10) year deferment of CARP for large agricultural operations?

4.         If a corporation buys a large titled agricultural land not yet covered by CARP, what are the implications? If the land purchased is being held by a private person under a mere tax declaration, what also are the implications?

As regards your first query, a foreign corporation is disqualified to acquire or own a large tract of agricultural land in the Philippines. The disqualification of a foreign corporation to own agricultural lands is anchored on Section 7 of Article XII (National Economy and Patrimony) of the 1987 Constitution which expressly provides that: "save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain." Furthermore, Section 3 of the same article of the 1987 Constitution provides that private corporations or associations may not hold alienable lands of the public domain except by lease.

Concomitantly, Section 4 of Republic Act No. 7652 (An Act Allowing The Long-Term Lease of Private Lands By Foreign Investors) expressly provides that any foreign investor investing in the Philippines shall be allowed to lease private lands in accordance with the laws of the Republic of the Philippines subject to the following conditions:

(1)       No lease contract shall be for a period exceeding fifty (50) years, renewable once for a period of not more than twenty-five (25) years;

(2)       The leased area shall be used solely for the purpose of the investment upon the mutual agreement of the parties;

(3)       the leased premises shall comprise such area as may reasonably be required for the purpose of the investment subject however to the Comprehensive Agrarian Reform Law and the Local Government Code.

As regards locally registered corporations, the prohibition enshrined in the 1987 Constitution relative to the acquisition or purchase of agricultural lands of the public domain stands. Said prohibition is not affected by the fact that 60% of the capital is owned by Filipinos while the remaining 40% is owned by Japanese because circumvention is not sanctioned in this jurisdiction.

Moreover, the Securities and Exchange Commission has adopted DOJ Opinion No. 18, Series of 1989 to the effect that: "Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less than 60% only the number of shares corresponding to such percentage shall be counted as of Philippine nationality". Thus, if the percentage of a Filipino ownership is less than 60%, a corporation or partnership is deemed a foreign corporation or partnership not entitled to own or acquire large tract of agricultural lands in the Philippines.

As regards your second query, aside from the aforementioned provisions of R.A. No. 7652, Section 3 of Article XII (National Economy and Patrimony) of the 1987 Constitution expressly provides that: "private corporations or associations may not hold such lands of the public domain except by lease, for a period not exceeding twenty-five (25) years, renewable for not more than twenty-five (25) years, and not exceed one thousand (1,000) hectares in area. " However, although foreign investors are allowed long-term lease of private lands, nonetheless, since private corporations of Filipino ownership are disqualified to acquire by purchase agricultural lands of the public domain in the Philippines, with more reason then that foreign corporations are likewise disqualified to own said public agricultural lands. As held by the Supreme Court in the case of "Lausan Ayog, et al., vs. Judge Cusi", prohibition against purchases of public agricultural lands by private corporations is to equitably diffuse land ownership or to encourage owner-cultivatorship of economic family-size farms and to prevent a recurrence of huge landholdings. Huge landholdings by corporations or private persons had spawned social unrest. From all the foregoing, it is clear therefore that foreign corporations or investors cannot own or lease agricultural lands of the public domain. Neither can they own private lands since they could only lease them.

As regards your third query, Section 11 of R.A. 6657 (Comprehensive Agrarian Reform Law) as amended by R.A. 7881 expressly provides that: " commercial farms, which are private agricultural lands devoted to saltbeds, fruit farms, orchard, vegetable and cut-flower farms, and cacao, coffee and rubber plantations, shall be subject to immediate compulsory acquisition and distribution after ten (10) years from the effectivity of this Act. This means that the acquisition and distribution of private agricultural lands under deferment pursuant to R.A. No. 6657 shall not be undertaken until the lapse of the ten (10) year period to be reckoned from 15 June 1988. In case of new farms, the 10-year deferment period shall begin from the first year of commercial production and operation, as determined by DAR Administrative Order No. 16, Series of 1988. The rationale for the 10-year deferment in the acquisition of commercial farms is to allow landowners to recover their investments and insulate them from possible disruptions in operations and productivity during said period before eventual acquisition and distribution thereof take place.

Anent your last query, Filipino corporations are allowed to retain or own private agricultural lands but only up to five (5) hectares. Section 6 of R.A. 6657 expressly provides: "no person may own or retain directly or indirectly, any public or private agricultural land . . . but in no case shall retention by the landowner exceed five hectares." The aforecited provision clearly limits the ownership or right of retention of corporations to only five (5) hectares regardless of whether it is titled or not. The term "person" has been interpreted in the generic sense so as to include both natural and juridical persons. However, qualified Filipino stockholders can likewise own a maximum area of five (5) hectares in their individual names or personal capacity since it is a settled rule in corporation law that a corporation has a personality distinct and separate from that of its stockholders. By Filipino ownership, it does not mean that the corporation must be one of hundred percent (100%) Filipino capitalization; it is enough that at least sixty percent (60%) of the capital is owned by Filipino citizens (Section 2, article XII of the 1987 Philippine Constitution).

Moreover, Section 2 of R.A. No. 6657 (Comprehensive Agrarian Reform Law) expressly provides that: "owners of agricultural land have the obligation to cultivate directly or through labor administration the lands they owned and thereby make the land productive". Clearly, the law suggests that cultivation requirement need not be performed personally as the law allows labor administration in the alternative. Nonetheless, only Filipino corporations are capacitated to acquire by purchase private agricultural lands in the Philippines. Through this Proscription, any intent to circumvent the acquisition of private agricultural lands through the use of a dummy can be effectively safeguarded.

Property held on the strength of Tax Declarations are not conclusive proofs of ownership. As held by the Supreme Court, in the case of "Heirs of Juan Oclarit versus Court of Appeals", G.R. No. 96644, June 17, 1994, tax receipts and declarations of ownership for taxation purposes shall become strong evidence of ownership acquired by prescription only when accompanied by proof of actual possession of the property.

We hope to have clarified matters with you.

Very truly yours,

(SGD.) ARTEMIO A. ADASA, JR.

Undersecretary for Legal Affairs, and Policy and Planning

Copy furnished:

Mr. Tanaka Yoshimoto

1132-37-5 Mukogaoka, Bunkyo-ku

Tokyo, Japan