CHAPTER VIII: CORPORATE FARMS SECTION 29. Farms Owned or Operated by Corporations or Other Business Associations. — In the case of farms owned or operated by corporations or other business associations, the following rules shall be observed by the PARC: In general, lands shall be distributed directly to the individual worker-beneficiaries. In case it is not economically feasible and sound to divide the land, then it shall be owned collectively by the worker-beneficiaries who shall form a workers’ cooperative ‘or association which will deal with the corporation or business association. Until a new agreement is entered into by and between the workers’ cooperative or association and the corporation or business association, any agreement existing at the time this Act takes effect between the former and the previous landowner shall be respected by both the workers’ cooperative or association and the corporation or business association. NOTE! Modes of Distribution ‘There are two modes of distribution of corporate farms, namely: » 2) direct; and indirect. As a rule, corporate farms are to be distributed directly to the individual worker-beneficiaries. If it is not economically feasible and sound to divide the land, then it shall be distributed indirectly to the worker-beneficiaries through a workers’ cooperative or association. 104 fe 29. THE COMPREHENSIVE AGRARIAN REFORM LAW OF 1988 105 (CHAPTER VIII: CORPORATE FARMS, Collective ownership is sanctioned by the Constitution.’ This nin recognition of the fact that land reform may become successful even if itis done through the medium of juridical entities composed ‘of furmers. In the words of the Supreme Court in Hacienda Luisita, Inc. v. Presidential Agrarian Reform Council:? “As it were, the principle of “land to the tiller” and the old pastoral model of land ownership where non-human juridical persons, such as corporations, were prohibited from owning agricultural lands are no longer realistic under existing conditions. Practically, an individual farmer will often face greater disadvantages ‘and difficulties than those who exercise ownership in a collective manner through a cooperative or corporation. ‘The former is too often left to his own devices when faced with failing crops and bad weather, or compelled to obtain usurious loans in order to purchase costly fertilizers or farming equipment. The experiences learned from failed land reform setivities in various parts of the country are lack of financing, lack of farm equipment, lack of fertilizers, lack of guaranteed buyers of produce, lack of farm-to-market roads, among others. Thus, at the end of the day, there is still no successful implementation of agrarian reform to speak of in such a case. “Although success is not guaranteed, a cooperative or a corporation stands in a better position to secure funding and competently maintain the agri-business than the individual farmer. While direct singular ownership over farmland does offer advantages, such as the ability to make quick decisions unhampered by interference from others, yet at best, these advantages only but offset the disadvantages that are often associated with such ownership arrangement. Thus, government must he flexible and creative in its mode of implementation to better its chances of success. One such option is collective ownership through juridical persons composed of farmers.” Winder Article XII, Section 4 °GR. No, 171101 (duly 5, 2011), 668 Phil, 865-698,106 AGRARIAN LAW AND SOCIAL LEGISLATION Secs. 90-81 SECTION 30. Homelots and Farmlots for Members of Cooperatives, — The individual members of the cooperatives or corporations mentioned in the preceding section shall be provided with homelots and small farmlots for their family use, to be taken from the land owned by the cooperative or corporation. NOTES: Entitlement to Homelot and Small Farmlot As stated earlier, if it is not economically feasible and sound to divide the farm owned or operated by corporations or other business associations, it will be distributed indirectly to the worker= beneficiaries through a workers’ cooperative or association. Under this situation, the beneficiaries are entitled to a homelot and a small farmlot not exceeding 1,000 square meters which the beneficiary can use as the site of his permanent dwelling and for raising vegetables, poultry, pigs and other animals and engaging in minor industries, ‘The homelot and small farmlot will be taken from the I awarded to the cooperative or association, If the existing homelot is situated within the retained area the landowner, the beneficiary may be made to transfer his dwell in his farmlot or other area designated for his homelot, provid that the landowner shoulders the cost of the transfer.? SECTION 31. Corporate Landowners. — Corporat landowners may voluntarily transfer ownership over agricultural landholdings to the Republic of the Philip) pursuant to Section 20 hereof or to qualified under such terms and conditions, consistent with this agricultural lands may give their qualified beneficiaries right to purchase such proportion of the capital stock of corporation that the agricultural land, actually devoted agricultural activities, bears in relation to the comy total assets, under such terms and conditions as may "Department of Agrarian Reform Administrative Order No. 12, sori of I ec. 81 THE COMPREHENSIVE AGRARIAN REFORM LAW OF 1988 107 (CHAPTER VIII: CORPORATE FARMS: agreed upon by them. In no case shall the compensation received by the workers at the time the shares of stocks are distributed be reduced. The same principle shall be applied to associations, with respect to their equity or participation, Corporations or associations which voluntarily divest # proportion of their capital stock, equity or participation in favor of their workers or other qualified beneficiaries under this section shall be deemed to have complied with the provisions of this Act: Provided, That the following ‘onditions are complied with: a) In order to safeguard the right of benefi- ciaries who own shares of stocks to dividends and other financial benefits, the books of the corpora- tion or association shall be subject to periodic au- dit by certified public accountants chosen by the beneficiaries; b) Irrespective of the value of their equity in the corporation or association, the beneficiaries shall be assured of at least one (1) representative in the board of directors, or in a management or executive committee, if one exists, of the corporation or association; and ©) Any shares acquired by such workers and beneficiaries shall have the same rights and features as all other shares[;] d) Any transfer of shares of stocks by the ‘original beneficiaries shall be void ab initio unless ‘nid transaction is in favor of a qualified and registered beneficiary within the same corporation. If within two (2) years from the approval of this Act, land or stock transfer envisioned above is not made or ized or the plan for such stock distribution approved by PARC within the same period, the agricultural land of sorporate owners or corporation shall be subject to the ry coverage of this Act.108 AGRARIAN LAW AND SOCIAL LEGISLATION See. 81 NOTES: ‘Schemes Under Section 31 No Longer Operative Under Section 31, there are two schemes available to corporat landowners, namely: 1) Voluntary land transfer; and 2) Stock distribution. Both schemes are no longer operative, Section 7 of Comprehensive Agrarian Reform Law of 1988, as amended Republic Act No. 9700, allowed voluntary land transfers and st distribution only up to June 30, 2009 only. After June 30, 2 the modes of acquisition is limited to voluntary offer to sell compulsory acquisition. Thus: “Section 7. Priorities — xxx (a)fter June 30, 2009, the modes of acquisition shall be limited to voluntary offer to sell and compulsory acquisition;” Hacienda Luisita, Ine. v. Presidential ‘Agrarian Reform Council GR. No. 171101 [July 5, 2011}, 668 Phil. 365-698 FACTS: In 1957, Tarlac Development Corporation bought Hacienda Luisita and Central Azucarera De Tarlac from their Spanish owners. The Philippine government, through the then Central Bank of the Philippines, assisted the Tarlac Development Corporation in getting a dollar loan from an “American bank to pay for the dollar component ofthe sale, while the Government. Service Insurance System extended a P5.911 ‘million loan in favor of the Tarlac Development Corporation to pay the peso price component of the sale. One condition for the Government Service Insurance ‘System loan was that the Tarlac Development Corporation shall subdivide the lots comprising the Hacienda Luisita and sell them at a cost to the tenants and whenever conditions should exist warranting such action under the Land ‘Tenure Act. On May 7, 1980, the martial law administration filed a ‘complaint with ‘the Regional Trial Court against the Tarlac Development Corporation to compel it to surrender Hacienda Luisita to the then Ministry of Agrarian Reform (now Depart- ment of Agrarian Reform) for distribution of the land to the tenants, Although Tarlac Development Corporation maintained that Hacienda Luisita doos not have tenants, and therefore, not Sec. 31 THE COMPREHENSIVE AGRARIAN REFORM LAW OF 1088 (CHAPTER VIII: CORPORATE FARMS covered by existing agrarian reform legislations, the Regional ‘Trial Court ordered the Tarlac Development Corporation to surrender Hacienda Luisita to the Ministry of Agrarian Reform. ‘Tarlac Development Corporation appealed the Decision to the Court of Appeals. During the pendency of the appeal, the Office of the Solicitor General moved to withdraw the Government's case against the Tarlac Development Corporation. ‘The Court of Appeals granted the motion on conditions that the Tarlac Development Corporation must submit a Stock Distribution Plan duly approved by the Presidential Agrarian Reform Council and that it implements the plan after such approval. Failure to comply with said conditions will cause the revival of the case, On August 23, 1988, Tarlac Development Corporation organized the Hacienda Luisita, Inc., as a vehicle to facilitate stock acquisition by the farm workers. For this purpose, the ‘Tarlac Development Corporation assigned and conveyed to the Hacienda Luisita, Inc. the agricultural land portion (4,915.75 hectares) and other farm-related properties of Hacienda Luisita in exchange of Hacienda Luisita, Inc., shares of stock To accommodate the transfer of assets from Tarlac Development Corporation to Hacienda Luisita, Inc., the latter imereased its capital stock from P1.5M (divided into 1,500,000 shares with a par value of Pi/share) to P4M (divided into 400,000,000 shares also with a par value of PU/share). Of the 400,000,000 shares, Hacienda Luisita, Ine, issued 150,000,000 shares to qualified and registered agrarian reform beneficiaries and issued the remaining 250,000,000 to any stockholder of the corporation. Under the Stock Distribution Plan, the properties and ‘assets which the Tarlac Development Corporation contributed lo the capital stock of the Hacienda Luisita, Inc. amounted to 690,954,220. Deducting the total liabilities of the farm in the Amount of P235,422,758 leaves a net value of P355,531,462 This translated to 855,601,462 shares with a par valie of P/share, In a referendum conducted on May 9, 1989, 99% of the frmworker-beneficiaries of Hacienda Luisita signified their ‘aecoptance of the proposed Hacienda Luisita, Inc., Stock Distribution Option Plan. ‘Thus, on May 11, 1989, the Tarlac Development Corpora- ion, the Hacienda Luisita, Ine., and the 5,848 qualified farm Worker-beneficiaries entered into a Stock Distribution Option 109a0 AGRARIAN LAW AND SOCIAL LEGISLATION Sec. Agreement, which included the following as part ofthe distribu- tion plan: (a) a production-sharing equivalent to 9% of gross sales from agricultural land production payable to the farm worker- boneficiaries in cash dividends or incentive bonus, irrespective of whether the Hacienda Luisita, Inc., makes money or not; and (b) the distribution of free homelots of not over 240 square meters each to family-beneficiaries. ‘The Presidential Agrarian Reform Council approved the Stock Distribution Option Agreement. ‘On August 15, 1995, the Hacienda Luisita, Inc, sought to convert 500 hectares of land ofthe hacienda from agricultural to industrial use. On August 14, 1996, the Department of Agrarian Reform approved the same on the condition that it pays 3% of the gross selling price to the beneficiaries and that it complies with its undertakings under the Stock Distribution Plan. On December 13, 1996, the Hacienda Luisita, Inc., ceded 300 hectares of the converted area to Centennary Holdings, Inc., fand transferred the remaining 200 hectares to Luisita Realty Corporation. ‘Subsequently, Centennary Holdings, Ine., sold the entire 300 hectares to Luisita Industrial Park Corporation for the purpose of developing an industrial complex. Later on, in a Deed of Absolute Assignment dated November 25, 2004, the Luisita Industrial Park Corporation transferred the parcels to Rizal ‘Commercial Banking Corporation by way of dacion en pago to pay Luisita Industrial Park Corporation's P431,695,732.10 loan obligation. Apart from the 500 hectares of converted area, the government acquired another 80.51 hectares of Hacienda Luisi as part of the Subie-Clark-Tarlac Expressway complex. Thus, 4,835.76 hectares remained ofthe original 4,916 hectares which the Tarlac Development Corporation ceded to the Hacienda Luista, Ine. ‘Tharoafter, a group of supervisors fled with the Department of Agrarian Reform a petition to revoke the Stock Distribution Option Agreement alleging that the Hacienda Luisa, Ine, had failed to give them their dividends, the 1% share in grose sales, and the 33'% share in the proceeds of the sale of the converted 500 hectares of land. Another group of beneficiaries who wanted distribution of land and not stock option also filed a petition to revoke the Stock Distribution Option Agreement. fcc. 31_ THE COMPREHENSIVE AGRARIAN REFORM LAW ¢ 108s CHAPTER Vill: CORPORATE FARMS Finding that Hacienda Luisita, Ine., has not complied with its obligations under the Comprehensive Agrarian Reform Law of 1988 despite implementing the Stock Distribution Plan, the Presidential Agrarian Reform Council revoked the Stock Distribution Option Agreement and placed Hacienda Luisita under the compulsory coverage of the agrarian reform law. Later, Rizal Commercial Banking Corporation and Luisita Industrial Park Corporation intervened in the proceedings, questioning the inclusion of the lands they had gained from Hacienda Luisita, Inc., in the coverage of the agrarian reform rogram. ISSUES: 1. Does the Presidential Agrarian Reform Council have jurisdiction, power and authority to nullify or revoke the Stock Distribution Option Agreement? 2 Was the Presidential Agrarian Reform Council correct in nullifying or revoking the Stock Distribution Option Agreement? 3. Was the Presidential Agrarian Reform Council correct in including the lands that the Rizal Commercial Banking Corporation and Luisita Industrial Park Corporation had gained from the Hacienda Luisita, Inc, in the coverage of the agrarian reform program, 4, Should the 80.51-hectare land transferred to the government for use as part of the Subie-Clark-Tarlac Expressway, be excluded from the compulsory agrarian reform coverage? HELD: 1. The Presidential Agrarian Reform Council has jurisdiction, power and authority to nullify or revoke the Stock Distribution Option Agreement. While the Comprehensive Agrarian Reform Law of 1988 or other executive issuances on agrarian reform do not explicitly vest the Presidential Agrarian Reform Council with the power to revoke or recall an approved ‘Stock Distribution Plan, the law deems such power or authority ‘as present under the doctrine of necessary implication ~ a basic postulate that what a statute implies is as much a part of it ‘as that which it expresses, Following the doctrine of necessary implication, the conferment of an express power to approve a plan for stock distribution of the agricultural land of corporate ‘owners necessarily includes the power to revoke or recall the ‘approval of the plan. 2. ‘The Presidential Agrarian Reform Council was ‘correct in nullifying or revoking the Stock Distribution Option Agreement. umme AGRARIAN LAW AND SOCIAL LEGISLATION See, Firstly, because Hacienda Luisita, Inc, has not complied with its undertaking to distribute homelots to the beneficiaries under the Stock Distribution Plan despite the lapse of 16 years. Regarding the homelots already awarded or earmarked, the beneficiaries are not obliged to return the same to Hacienda Luisita, In. or pay for their value since this isa benefit granted under the Stock Distribution Plan. The homelots are not part of the 4,915.75 hectares covered by the Stock Distribution Plan but were taken from the 120.9234-hectare residential lot owned by the Tarlae Development Corporation. Those who did not receive the homelots as of the revoeation ofthe Stock Distribution Plan will no longer he entitled to homelots. Thus, in determining the ultimate agricultural land that will be subjected to land distribution, the aggregate area of the homelots will no longer be deducted. However, since the Stock Distribution Plan was already revoked with finality, the government through the Department of Agrarian Reform must pay Hacienda Luisita, Inc., the just compensation for said homelots in consonance with Section 4, Article XIII of the 1987 Constitution that the land taken for use in the agrarian reform program is “subject to the payment of just compensation. Secondly, because the mechanics and timelines of stock distribution violate Department of Agrarian Reform Administrative Order No. 10, series of 1988. Distributing the shares of stock, although not entailing a cash out from the beneficiaries, is contingent on the number of “man days,” that is, the number of days that the beneficiaries have worked. during the year. By providing that the number of shares of the original 1989 beneficiaries shall depend on the number of “man days,” Hacienda Luisita, Inc., violated the rule on stock distribution and deprived the beneficiaries of equal shares of stock in the corporation, for, in net effect, these 6,296 qualified beneficiaries, who had given up their rights to the land that could have been distributed to them, suffered a dilution of their due share entitlement. Hacienda Luisita, Ine., has used the shares earmarked for farmworkers as reward system chips to water dows the shares of the original 6,296 beneficiaries, The original 6,296 benoficiarios, who were qualified at the time of the approval of the Stock Distribution Plan, suffered from watering down of shares. Each original beneficiary is entitled to 18,804.32 Hacienda Luisita, Inc., shares. The original beneficiaries got less than the guaranteed 18,804.32 Hacienda Luisita, Ine. “As modified by the Supreme Court Resolution dated Apeil 24, 2012, (il ‘THE COMPREHENSIVE AGRARIAN REFORM LAW OF 1985 (CHAPTER VILL: CORPORATE FARMS shares per beneficiary, because the acquisition and distribution ‘ofthe Hacienda Luisita, In, shares were based on “man days” ‘r*number of days worked” by the beneficiaries in a year’s time, ‘As explained by Hacienda Luisita, Ine, a beneficiary needs to work for atleast 37 days ina fiscal year before he or she becomes, ‘entitled to Hacienda Luisita, Inc, shares. If it falls below 37 days, the beneficiary unfortunately, gots no share at year-end. 3. The Presidential Agrarian Reform Council was hnot correct in including the lands that the Rizal Commercial Banking Corporation and Luisita Industrial Park Corporation had gained from the Hacienda Luisita, Inc., in the coverage of the agrarian reform program, As bona fide purchasers for value, both the Luisita Industrial Park Corporation and the Rizal amercial Banking Corporation have acquired rights which ‘one cannot just disregard. However, considering that the sale and transfer of the 500 hectares of land subject of the August 14, 1996 Conversion Order came after compulsory coverage has taken place, the beneficiaries should have their corresponding share of the land's value, Hacienda Luisita, Inc., shall be liable for the value received for the sale of the 200-hectare land to Luisita Realty Corporation and the equivalent value of the 12,000,000 shares of its subsidiary, Centennary Holdings, Inc., for the 300-hectare lot sold to the Luisita Industrial Park Corporation. 4. As regards the 80.51-hectare land transferred to the government for use as part of the Subic-Clark-Tarlac Expressway, this should also be excluded from the compulsory fagrarian reform coverage considering that the transfer was ‘consistent with the government's exercise of the power of ‘eminent domain and none of the parties questioned the transfer. But considering that the sale and transfer of the 80.51-hectare Subie-Clark-Tarlac Expressway lot came after compulsory ‘coverage has taken place, the beneficiaries should have their ‘corresponding share of the land's value, for which Hacienda Lnisita, Ine., is liable. ‘The 6,296 original beneficiaries shall forfeit and relinquish their rights over the Hacienda Tarisita, Ine, shaven of stock jsued to them in favor of Hacienda Luisita, In. The 4,206 non- ‘qualified farmworker-beneficiaries shall remain as stockholders ‘of Hacienda Luisita, Ine Ax modified by the Suprome Court Rese on dated November 22, 2011 nana ‘AGRARIAN LAW AND SOCIAL LEGISLATION See Je 0 THE COMPREHENSIVE AGRARIAN REFORM LAW OF 1988118 (CHAPTER Vill: CORPORATE FARMS: SECTION 82. Production-Sharing. — Pending final transfer, individuals or entities owning, or operating lease or management contract, agricultural lands are he: mandated to execute a production-sharing plan with th farmworkers or farmworkers’ organization, if any, wh three percent (3%) of the gross sales from the producti of such lands are distributed within sixty (60) days of end of the fiscal year as compensation to regular and farmworkers in such lands over and above the compensat they currently receive: Provided, That these individuals entities realize gross sales in excess of five million pesos annum unless the DAR, upon proper application, determi a lower ceiling. Inthe event that the individual or entity realizes a prof an additional ten percent (10%) of the net profit after shall be distributed to said regular and other farmwot within ninety (90) days of the end of the fiscal year. To forestall any disruption in the normal operat of lands to be turned over to the farmworker-beneficia: mentioned above, a transitory period, the length of wl shall be determined by the DAR, shall be established. a) Three percent (3%) of the gross sales — to be distributed to regular and other farmworkers (over and above the compensation they currently receive); and b) One percent (1%) of the gross sales - to be distributed to the managerial, supervisory and technical employees; and 2) _ If profits are realized — additional ten percent (10%) of the net profit after tax, to be distributed to regular and other farmworkers. k Distribution Option and Production and Profit Sharing home Distinguished _ Stock distribution is provided under Section 31 of the Vomprehensive Agrarian Reform Law of 1988. In this provision, Ke beneficiaries can own shares, equity, or participation corporations or associations that own agricultural land. lone beneficiaries were afforded the right to have at least one Jepresentative in the corporation's or association's board of directors management committee. On the other hand, the production and profit sharing scheme '\ provided under Section 32 of the same law. As noted earlier, fwnding land transfer, individuals or entities owning or operating wicultural land under lease or management contract are required sudopt such a scheme with the farmworkers, as well as provide the During this transitory period, at least one percent (1 of the gross sales of the entity shall be distributed to managerial, supervisory and technical group in place the time of the effectivity of this Act, as compensation such transitory managerial and technical functions as it perform, pursuant to an agreement that the farmworl beneficiaries and the managerial, supervisory and group may conclude, subject to the approval of the DAR. tion 32 Declared Unconstitutional with Respect to Livestock, try, and Swine ‘Section 32 of the Comprehensive Agrarian Reform Law of 1988, NOTES: Section 32 — a Transitory Provision ‘This provision applies only while the land transfer is bei processed and finalized. The scheme requires individuals or entiti owning, or operating an agricultural land under lease or man‘ ‘ment contract to adopt a production and profit sharing scheme wit farm workers in this manner: found to be unreasonable, confiscatory, and violative of due acess, hence, null and void for being unconstitutional, insofar as it dluded livestock, poultry and swine farms in its coverage.* 1) if more than Five Million Pesos (Php6,000,000.00) gross sales/year are realized: aa NAN or hene is eect: Jo.20s00 smber 4, 1990), 270 Phil. 181-1646 AGRARIAN LAW AND SOCIAL LEGISLATION Sees, $2.A.99) SECTION 82-A. Incentives. — Individuals or entities owning or operating fishponds and prawn farms are hereby mandated to execute within six (6) months from the effectivity of this Act an incentive plan with their regular fishpond or prawn farmworkers or fishpond or prawn farm worker organization, if any, whereby seven point five percent (7.5% of their net profit before tax from the operation of the fishpond or prawn farms are distributed within sixty (60) days at the end of the fiscal year as compensation to regular and other pond workers in such ponds over and above the compensation they currently receive. In order to safeguard the right of the regular fishpo: or prawn farm workers under the incentive plan, the books of the fishpond or prawn farm owners shall be subject to periodic audit or inspection by certified public accountants chosen by the workers. ‘The foregoing provision shall not apply to agricultu lands subsequently converted to fishpond or prawn farms provided the size of the land converted does not exceed the retention limit of the landowner. NOTES: Incentives for Regular Fishpond or Prawn Farmworkers. ‘This provision applies to individuals or entities owning oF ‘operating fishponds and prawn farms. ‘The incentive is 7.5% of the. net profit before tax over. SECTION 33. Payment of Shares of Cooperative or Association, — Shares of a cooperative or association acquired by farmer- beneficiaries or worker-beneficiaries shall be fully paid for in an amount corresponding to the valuation as determined in the immediately succeeding section. The landowner and the LBP shall assist the farmer-beneficiaries and worker- beneficiaries in the payment for said shares by providing credit financing. TAs added by Republie Act No, 7881 feo 34 THE COMPREHENSIVE AGRARIAN REFORM LAW OF 1988117 CHAPTER VIIE: CORPORATE FARMS NOTES: Value of Shares ‘The value of shares of a cooperative or association will be Wotermined by the Land Bank. SECTION 34. Valuation of Lands. — A valuation scheme for the land shall be formulated by the PARC, taking into ‘account the factors enumerated in Section 17, in addition to the need to stimulate the growth of cooperatives and the objective of fostering responsible participation of the worker-beneficiaries in the creation of wealth. In the determination of a price that is just not only to the individual but to society as well, the PARC shall consult ‘losely with the landowner and the worker-beneficiaries. In case of disagreement, the price as determined by the PARC, if accepted by the worker-beneficiaries, shall he followed, without prejudice to the landowner's right to potition the Special Agrarian Court to resolve the issue of valuation, NOTES: ‘Tho Land Bank Now Determines the Valuation Executive Order No. 405 promulgated on June 14, 1990, has (runsferred the authority of the Presidential Agrarian Reform ‘Council to determine the valuation or just compensation to the Land Hank. Section 1 of the said executive order provides as follows: “SECTION 1. The Land Bank of the Philippines shall be primarily responsible for the determination of the land valuation and compensation for all private lands suitable for agriculture under either the Voluntary Offerto Sell (VOS) or Compulaory Acquisition (CA) arrangoment ‘as governed by Republic Act No. 6657. The Department of Agrarian Reform shall make use of the determination of the land valuation and compensation by the Land Bank of the Philippines, in the performance of its functions.”