G.R. No. 178110 ; June 15, 2011
AYALA LAND, INC. and CAPITOL CITIFARMS, INC., Petitioners, vs. SIMEONA CASTILLO, LORENZO PERLAS, JESSIELYN CASTILLO, LUIS MAESA, ROLANDO BATIQUIN, and BUKLURAN MAGSASAKA NG TIBIG, as represented by their attorney-in-fact, SIMEONA CASTILLO, Respondents.

FACTS

Capitol Citifarms, Inc. (CCFI) owned two parcels of agricultural land totaling 221.3048 hectares in Silang, Cavite, which were mortgaged to Manila Banking Corporation (MBC). After MBC was placed under receivership by the Bangko Sentral ng Pilipinas (BSP), the DAR issued a Notice of Coverage over the property on September 29, 1989. Due to CCFI’s default, MBC foreclosed on the mortgage and acquired the land at auction on January 4, 1991. Pursuant to a Supreme Court order for MBC’s partial liquidation, CCFI was allowed to partially redeem and sell the land. On December 29, 1995, CCFI conditionally sold the property to Ayala Land, Inc. (ALI), with the sale contingent upon the land’s exemption from CARL coverage or its conversion to non-agricultural use. Following a petition by MBC and the provincial governor, the Office of the President (OP) ordered the DAR to determine which of MBC’s lands were exempt from CARL and to cease distributing them, balancing agrarian reform with banking system stability. Subsequently, DAR Secretary Ernesto Garilao issued Conversion Order No. 4-97-1029-051 on October 31, 1997, approving the conversion/exemption of the property based on findings that it was beyond 18 degrees in slope and supported by local government resolutions and settlement of tenant claims. Almost three years later, on May 19, 2000, the farmer-respondents filed a Petition for Revocation of the Conversion Order, alleging an invalid sale and misrepresentation, but did not raise the issue of a prior Notice of Acquisition. The OP upheld the Conversion Order. The Court of Appeals reversed the OP, invalidating the Conversion Order on the ground that a Notice of Coverage and a Notice of Acquisition had already been issued, barring conversion. Petitioners CCFI and ALI filed this Petition for Review.

ISSUE

Whether the Court of Appeals erred in invalidating Conversion Order No. 4-97-1029-051 on the basis that a prior Notice of Acquisition barred conversion, despite said issue being raised for the first time on appeal and the Conversion Order having attained finality.

RULING

The Supreme Court GRANTED the petition. The Court of Appeals erred in invalidating the Conversion Order.
1. Procedural Ground: The issue that a Notice of Acquisition barred conversion was raised for the first time on appeal before the CA. It was never raised in the farmers’ Petition for Revocation before the DAR or in their appeal to the OP. The CA was therefore barred from entertaining this new issue, as factual findings of administrative agencies are generally binding if supported by substantial evidence.
2. Substantive Grounds:
* The rule that a prior Notice of Acquisition bars conversion is merely a guiding principle, not an absolute prohibition. The DAR retains the authority to determine the propriety of conversion upon an applicant’s compliance with requirements.
* The Conversion Order had long attained finality. The farmers filed their Petition for Revocation almost three years after its issuance, and they are barred from appealing it after such finality.
* The conversion/reclassification of the lands had become an operative fact. CCFI had complied with all documentary requirements, including local government resolutions and proof of settlement with tenants.
* The OP had resolved that the lands were exempt from CARL coverage, a decision partly aimed at maintaining the stability of the banking system, considering MBC was under BSP receivership and its assets needed to be monetized.
Thus, the CA Decision was reversed, and the Conversion Order was upheld.