G.R. No.

L-51333 February 19, 1991

RAMONA R. LOCSIN, accompanied by her husband RENATO L. LOCSIN; TERESITA R.

GUANZON, accompanied by her husband ROMEO R. GUANZON; CELINA R. SIBUG
accompanied by her husband CARLOS V. SIBUG; MA. LUISA R. PEREZ, accompanied by her
husband JOSE V. PEREZ; EDITHA R. YLANAN, accompanied by her husband CARLOS W.
YLANAN; and ANA MARIE R. BENEDICTO, accompanied by her husband JOSE LUIS U.
BENEDICTO, petitioners,
vs.
HONORABLE JUDGE VICENTE P. VALENZUELA, Judge of the Court of First Instance of
Negros Occidental, Branch III and SPOUSES JOSEPH SCHON and HELEN BENNETT
SCHON, respondents.

G.R. No. L-52289 February 19, 1991

RAMONA R. LOCSIN, accompanied by her husband RENATO R. LOCSIN; TERESITA R.

GUANZON, accompanied by her husband ROMEO G. GUANZON; CELINA R. SIBUG,
accompanied by her husband CARLOS V. SIBUG; MA. LUISA R. PEREZ, accompanied by her
husband JOSE V. PEREZ; EDITHA R. YLANAN, accompanied by her husband CARLOS W.
YLANAN; and ANA MARIE R. BENEDICTO, accompanied by her husband JOSE LUIS U.
BENEDICTO, petitioners,
vs.
CARLOS PANALIGAN, AMADO MARQUEZ, HERBERT PEDROS, ANTONIO FELICIANO, JR.,
HUGO AGUILOS, ALBERTO GUBATON, JULIA VDA. DE ESQUELITO, SERAFIN
JANDOQUELE, SEREFIAS ESQUESIDA, CARLOS DELA CRUZ, ELISEO GELONGOS,
ESPINDION JOCSON, SALVADOR MUNUN, ULFIANO ALEGRIA, and IRINEO BALERA, and the
Spouses JOSEPH SCHON and HELEN BENNETT SCHON respondents.

Mirano, Mirano & Associates Law Offices for petitioners.

Jose V. Valmayor and Samuel SM Lezama for respondents in 51333.
Ledesma, Guinez, Causing, Espino & Serftno Law Office for private respondents in G.R. No. 51333.
Bonifacio R. Cruz for private respondents in G.R. No. 52289.

FELICIANO, J.:

There are two (2) petitions for review before us: (1) G.R. No. 51333 which asks for review of the
decision of the then Court of First Instance CFI of Negros Occidental, Branch 3, in Civil Case No.
13823; and (2) G.R. No. 52289 which seeks review of the decision of the then Court of Agrarian
Relations ("CAR"), 11th Judicial District, in CAR Case No. 76. Both the CFI of Negros Occidental
and the CAR dismissed petitioners' complaint for lack of jurisdiction. The Supreme Court, in a
Resolution dated 16 June 1982, consolidated G.R. Nos. 51333 and 52289.

In a Resolution 1
dated 18 May 1989, the Court partly resolved the consolidated petitions by declaring that the
appropriate Regional Trial Court had jurisdiction over the two (2) cases.

The facts relevant for resolution of the remaining substantive aspects of the CFI case and the CAR
case, may be summarized from the Court's Resolution of 18 May 1989 ––

Petitioner Ramona R. Locsin, Teresita Guanzon, Celia R. Sibug, Maria Rosa R. Perez,
Editha Ylanan and Ana Marie R. Benedicto were co-owners of a large tract of agricultural
land known as "Hacienda Villa Regalado" located in Barrio Panubigan Canlaon City, Negros
Occidental. The tract of land was covered by Transfer Certificate of Title No. T-494 and there
more particularly described in the following terms:

TRANSFER CERTIFICATE OF TITLE NO. T-494

A parcel of land . . . containing an area of THREE MILLION THIRTY-THREE

THOUSAND AND FORTY-EIGHT (3,033,048) square meters, more or less. (Rollo,
of G.R. No. 52289, p. 31.)

A portion of this land, known as Lot No. 2-C-A-3 and consisting of an area of 60.07464
hectares, was subject to the lifetime usufructuary rights of respondent Helen Schon. The bulk
of this lot was cultivated by the following lessees-tenants who customarily delivered the
rentals to Helen Schon:

xxx xxx xxx

(Rollo, of G.R. No. 51333, p. 4.)

On 22 October 1972, after the onset of the martial law administration of former President
Marcos, Presidential Decree No. 27 was promulgated, decreeing the "Emancipation of
Tenants." The tract of land owned in common by petitioners, including the portion thereof
subject to Helen Schon's usufructuary rights, fell within the scope of the "Operation Land
Transfer". In consequence, staff members of the Department of Agrarian Relations advised
the tenants-tillers of said land, and the necessary parcellary map sketch was made and
submitted to the Bureau of Land Office in Dumaguete City. (Rollo, of G.R. No. 51333, Annex
"A" of Petition, pp. 19-20) Petitioners through counsel sought the opinion of the DAR as to
who (petitioners or respondent Helen Schon) should be entitled to receive the rental
payments which continued to be made by the respondent tenants to Helen Schon. The DAR
District Officer rendered an opinion on 13 May 1977 that the rental payments as of October
1972 were properly considered as amortization payments for the land and as such should
pertain to the landowners and not to the usufructuary. (Id., p. 5)

1. Civil Case No. 13828, Court of First Instance, Negros Occidental.

On 22 May 1978, petitioners filed against spouses Joseph and Helen Schon Civil Case No.
13828 . . ., for collection of rentals plus damages with prayer for preliminary injunction. There
petitioners claimed that since the land subject to Helen Schon's usufructuary rights was
among the parcels of land which collectively had been declared by the DAR as a land reform
area pursuant to Presidential Decree No. 27, the rental payments which the respondent
spouses had been collecting from the tenants really pertained and should be delivered to the
petitioners, beginning from 21 October 1972, as constituting or forming part of the
amortization payments for the land to be made by the tenants. Petitioners sought in that
 case to recover from the Schons all such rentals or the money value thereof, and prayed for
injunction to prevent respondents from collecting any further rental payments from the
tenants of the land involved.

Upon the other hand, in the Answer filed on 12 July 1978, the respondents Schon contended
that . . ., upon the assumption arguendo that the Court of First Instance did have jurisdiction,
Article 609 of the Civil Code must in any case be applied by that court in resolving the case.

2. CAR Case No. 76, Court of agrarian Relations

Approximately five (5) months after filing their complaint before the Negros Occidental Court
of First Instance, petitioners filed a second complaint on 13 October 1978, this time with the
Court of Agrarian Relations, 11th Judicial District, San Carlos City. In this complaint before
the Agrarian Court, petitioners impleaded as corespondents of the spouses Schon the
tenants who were cultivating the land burdened with the usufruct of Helen Schon. Petitioners
prayed that the respondent tenants be required to pay to petitioners (rather than to the
spouses Schon) all future rentals beginning with the crop year of 1978 and every year
thereafter, until full payment of the amortization payment computed by the DAR. In their
Answer, the respondents Schon once again asserted lack of jurisdiction over the subject
matter of the case, this time on the part of the Court of Agrarian Relations. . . .

The respondent tenants, for their part, agreed with the Schons that there was no tenancy
relationship existing in respect of the land cultivated by them, since such land had already
been brought within the ambit of "Operation Land Transfer", and prayed that the petitioners
and the usufructuary be required to litigate among themselves their respective rights before
the proper court.2

As noted earlier, the Agrarian Court rendered a decision dismissing petitioners' complaint in CAR
Case No. 76, declaring itself as bereft of jurisdiction to decide that case.

On appeal by petitioners, the Court of Appeals ruled that since the only issue presented in
the appeal was whether or not the CAR had subject matter jurisdiction over the case, the
appeal raised "a pure question of law" and certified the case to this Court for disposition.

On 16 March 1979, the CFI of Negros Occidental dismissed petitioners' complaint upon the
ground that jurisdiction to hear and decide that case was vested in the CAR. This order was
brought directly to this Court by petitioners.

In our Resolution dated 18 May 1989, the Court, after declaring that jurisdiction over the two
(2) cases was lodged in the appropriate Regional Trial Court by virtue of the provisions of
Section 19 (7) of Batas Pambansa Blg. 129, required the petitioners and private respondents
in G.R. Nos. 51333 and 52289 to file simultaneous memoranda on the remaining non-
jurisdiction issues. At the same time, the Court directed the Solicitor General to file a motion
for intervention on behalf of the Government and to submit a memorandum on the same
issues. Both parties and the Solicitor-General complied.

The substantive issues to be resolved here are the following:

(1) As between the naked owners and the usufructuary, who should be entitled to the
amounts paid by the tenants beginning 21 October 1972? and
 (2) What is the legal character of the payments made by the tenants beginning 21 October
1972 –– payments on the price of the land itself or civil fruits of the land?

The two (2) above issues are obviously interrelated and the Court will discuss them together.

Petitioners insist that the payments made by private respondent tenants to private respondent Helen
Schon beginning on 21 October 1972 should be considered as amortization payments for the price
of the land and as such should belong to the landowners and not to the usufructuary. Upon the other
hand, private respondent Helen Schon urges that those amounts should pertain to her considering
that her rights as usufructuary persist during her lifetime and have not been extinguished by
operation of the Land Reform Law. the further argues that assuming her usufructuary rights had
been extinguished, the provisions of Article 609 of the Civil Code should be applied, and that
thereunder she would be entitled either to replacement of the land burdened with her usufruct (the
fruits of which would then be payable to her) or payment of legal interest on the amount of the
purchase price of the land.

Presidential Decree No. 27, issued on 21 October 1972, declared the "emancipation of tenants"
tilling agricultural lands primarily devoted to rice and corn. It stated that:

xxx xxx xxx

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of

the powers in me vested by the Constitution as Commander-in-Chief of the Armed Forces of
the Philippines, and pursuant to Proclamation No. 1081, dated September 21, 1972, and
General Order No. 1 dated September 22, 1972 as amended do hereby decree and order
the emancipation of all tenant farmers as of this day, October 21, 1972;

This shall apply to tenant farmers of private agricultural lands primarily devoted to rice and
corn under a system of sharecrop or lease-tenancy, whether classified as landed estate or
not;

The tenant-farmer, whether in land classified, as landed estate or not, shall be deemed
owner of a portion constituting a family size farm of five (5) hectares if not irrigated and three
(3) hectares if irrigated;

In all cases, the landowner may retain an area of not more than seven (7) hectares if such
landowner is cultivating such area or will now cultivate it;

For the purpose of determining the cost of the land to be transferred to the tenant-farmer
pursuant to this Decree, the value of the land shall be equivalent to two and one-half (2 1/2)
times the average harvest of three normal crop years immediately preceding the
promulgation of this Decree;

The total cost of the land, including interest at the rate of six (6) percentum per annum, shall
be paid by the tenant in fifteen (15) years [in] fifteen equal annual amortizations;

xxx xxx xxx

(Emphasis supplied)
Presidential Decree No. 57, dated 19 November 1972, amended Presidential Decree No. 27 and
prescribed in part as follows:

P.D. No. 57.

xxx xxx xxx

SECTION 1. To further accelerate the attainment of objectives set forth in Presidential

Decree No. 27, the following provisions are hereby corporated, to wit:

1. Landowner shall be exempt from the capital gains tax on the proceeds of the amortization
paid him by the tenant-purchaser and likewise from income tax due on the accruing interests
paid as an addition to the total cost of the land.

xxx xxx xxx

It is also important to adduce Department Circular No. 8, dated 1 April 1975, issued by the
Department of Agrarian Reform pursuant to Presidential Decree No. 27 and which constitutes
contemporaneous administrative construction of Presidential Decrees Nos. 27 and 57. Department
Circular No. 8 stated that:

xxx xxx xxx

3. Tenant-farmers are deemed owners of the land they till as of October 21, 1972, subject to
the rules and regulations to be hereafter promulgated. On lands already covered by
Operation Land Transfer, the leasehold system shall be provisionally maintained and the
lease rentals paid by the tenant-farmers to the landowner [shall] be credited as amortization
payments. Payment of rentals shall be stopped when the Land Bank shall have paid the cost
of land. On lands not yet covered by Operation Land Transfer, leasehold shall continue to
govern the relationship between the landowner and his tenant-tillers. (Emphasis supplied)

Finally, after the effective date of the 1987 Constitution, Executive Order No. 228 dated 17 July 1987
was promulgated and provided in part as follows:

SECTION 1. All qualified farmer beneficiaries are now deemed full owners as of October 21,
1972 of the land they acquired by virtue of Presidential Decree No. 27 (hereinafter referred to
as P.D. No. 27).

SECTION 2. Henceforth, the valuation of rice and corn lands covered by P.D. No. 27 shall be
based on the average gross production determined by the Barangay Committee on Land
Production in accordance with Department Memorandum Circular No. 26, series of 1973,
and related issuances and regulations of the Department of Agrarian Reform. The average
gross production per hectare shall be multiplied by two and a half (2.5), the product of which
shall be multiplied by Thirty Five Pesos (P35.00), the government support price for one
cavan of 50 Kilos of palay on October 21, 1972, or Thirty One Pesos (P31.00), the
government support price for one cavan of 50 kilos of corn on October 21, 1972, and the
amount arrived at shall be the value of the rice and corn land, as the case may be, for the
purpose of determining its cost to the farmer and compensation to the landowner, pursuant
to Department of Agrarian Reform Memorandum Circular No. 26, series of 1973, and other
pertinent issuances. In the event a party questions in court the resolution of the dispute, the
landowner's compensation claim shall still be processed for payment and the proceeds shall
 be held in trust by the Trust Department of the Land Bank in accordance with the provisions
of Section 5 hereof, pending the resolution of the dispute before the court. (Emphasis
supplied)

Reading the foregoing provisions together, we observe that under Presidential Decree No. 2, the
basic statute, the tenant-farmer became owner of a family-size farm of five (5) hectares or, if the land
was irrigated, three (3) hectares, and that the tenant-owner had to pay for the cost of the land within
fifteen (15) years by paying fifteen (15) equal annual amortization payments. Thus, it appears clear
that ownership over lands (like Lot No. 2-C-A-3) subjected to Operation Land Transfer moved from
the registered owner (the old landowner) to the tenants (the new landowners). The fifteen (15)
annual amortizations to be paid by the tenants-owners were intended to replace the landholdings
which the old landowners gave up in favor of the new landowners, the tenants-owners. 3

It follows that in respect of land subjected to Operation Land Transfer, the tenants-farmers became
owners of the land they tilled as of the effective date of Presidential Decree No. 27, i.e., 21 October
1972. Pending full payment of the cost of the land to the old landowner by the Land Bank of the
Philippines, the leasehold system was "provisionally maintained" but the "lease rentals" paid by the
tenants-farmers prior to such full payment by the Land Bank to the old landowner, would be
credited no longer as rentals but rather as "amortization payments" of the price of the land, the un-
amortized portion being payable by the Land Bank. In respect of lands brought within the coverage
of Operation Land Transfer, the leasehold system was legally and effectively terminated immediately
on 21 October 1972 (notwithstanding the curious statement in Department Circular No. 8 that it was
"provisionally maintained"). It was in respect of lands not yet subjected to the terms and effects of
Operation Land Transfer that the leasehold system did continue to govern the relationship between
the "landowner and his tenant-tillers".

The exemption of the old landowner from the capital gains tax on the amortization payments made
to him by the tenants-purchasers, under Presidential Decree No. 57 (supra), underscores the fact,
referred to above, that ownership or dominion over the land moved immediately from landowner to
tenant-farmer, rather than upon completion of payment of the price of the land. In general, capital
gains are realized only when the owner disposes of his property.

We believe and so hold that Lot No. 2-C-A-3 having been declared part of the land reform area and
subjected to Operation Land Transfer, the payments made on and after 21 October 1972 by the
private respondent tenants-farmers constituted amortization payments on the cost of the land that
they were required to pay under Presidential Decree No. 27. These payments, therefore, legally
pertain to petitioners, the former landowners as part of the compensation for the dominion over land
of which they were deprived by operation of Presidential Decree No. 27. Those payments can not be
characterized as rentals like those which had been paid to Helen Schon as usufructuary prior to the
promulgation of Presidential Decree No. 27 and prior to the effectivity of Operation Land Transfer. 1âwphi1

We turn to the question of what rights, if any, were retained by Helen Schon as a usufructuary, after
the effectivity of Presidential Decree No. 27. We believe that the usufruct which had therefore
existed as a jus in re aliena in favor of Helen Schon was effectively extinguished by Presidential
Decree No. 27. To hold, as private respondent Helen Schon apparently urges, that her usufruct was
not extinguished but rather remained impressed upon the land passing on to the new owners, would
obviously defeat the very purpose of the land reform statute. Presidential Decree No. 27 was
enacted to "emancipate" the tenants from the "bondage of the soil" by giving to tenants-farmers
ownership of the land which they were cultivating upon the assumption that they would work harder
to improve their lot in life if they became landowners rather than mere tillers of somebody else's land.
To hold Helen Schon as entitled to continue enjoying, as usufructuary, the natural or civil fruits of Lot
No. 2-C-A-3, would be to set at naught the major purpose projected by Presidential Decree No. 27
and maintained by Executive Order No. 228.

This is not to say that respondent Helen Schon lost any and all rights upon the promulgation of
Presidential Decree No. 27. In a legal, technical sense, it may be difficult to hold that Presidential
Decree No. 27 resulted in the lands brought within the scope of Operation Land Transfer being
"expropriated for public use", as this term is used in Article 609 of the Civil Code, which reads thus:

Art. 609. Should the thing in usufruct be expropriated for public use, the owner shall be
obliged either to replace it with another thing of the same value and of similar conditions, or
to pay the usufructuary the legal interest on the amount of the indemnity for the whole period
of the usufruct. If the owner chooses the latter alternative, he shall give security for the
payment of the interest.

For it was not the Government or any of its agencies which took over ownership of the land nor was
such land devoted subsequently to "public use", since ownership was transferred directly from
former landowner to the tenant-tiller as new landowner, for the use and benefit exclusively of the
new landowner. While, however, Article 609 of the Civil Code may not be strictly applicable, we
believe that the situation contemplated in Article 609 is sufficiently close to that which resulted from
application of Presidential Decree No. 27 to the land here involved. Bearing in mind that refusal to
decide an otherwise unavoidable issue upon the ground of non liquet ("it is not clear") is not a
permissible response by a court where there is no provision of law clearly and specifically applicable
to the facts at hand, we believe that Article 609 should be applied to the present set of facts by
4

analogy.

It follows that respondent Helen Schon, so long as her rights as usufructuary persist under the
instrument which gave birth to such rights, would be entitled to a replacement reasonably equivalent
to the land previously burdened with her usufructuary right, or to legal interest on the amount of the
indemnity or cost of the land paid by private respondent tenants-farmers and the Land Bank. While
the option or choice belongs to petitioners, considering that Helen Schon had already received part
of the purchase price of the land previously owned by petitioners from private respondent tenants-
farmers, and in the interest of expeditious justice, we consider it the second alternative that should
be given effect. Thus, from the monies that she actually received from private respondent tenants-
farmers on and after 21 October 1972, respondent Helen Schon is entitled to retain an amount
equivalent to the legal interest on said amounts for every year that the usufruct would by its own
terms have continued to exist had it not been extinguished by operation of Presidential Decree No.
27; the balance of such amounts received by her shall be turned over to petitioners. She is also
entitled to the same right in respect of the balance of the price of the land petitioners presumably
received from the Land Bank.

WHEREFORE, for all the foregoing, private respondent spouses Joseph and Helen Schon are
hereby DIRECTED to deliver to petitioners the amounts paid to them by private respondent tenants-
farmers beginning on 21 October 1972, after deducting therefrom an amount equivalent to simple
legal interest thereon computed at six (6%) percent per annum on the amount received each year.
No pronouncement as to costs.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr. and Bidin, JJ., concur.

Davide, Jr., J., took no part.
Footnotes