Legal Notes: HLI Must Subscribe To The Tenets Of Social Justice And Distribute The Land To The Farmers

Legal Notes of Rep. Kaka Bag-ao

Issue #5, Volume 1, Series of 2010

Akbayan Party-list

North-wing 616, House of Representatives

Phone – 9316026 or 9315001 loc 7435 | Email: |Contact Annie Bag-ao (+639088849546)

HLI Must Subscribe To The Tenets Of Social Justice And Distribute The Land To The Farmers

The Stock Distribution Program being implemented by Hacienda Luisita is contrary to the purpose of the agrarian reform law and violates the constitution.

To meet the ends of social justice, the distribution of the land to the farmers who have tilled it all their lives is in order.

The provision in the law which allows such option should also be declared unconstitutional by the Supreme Court for being contrary to the noble purpose of agrarian reform.

The Hacienda Luisita Inc. Stock Distribution Program


The Stock Distribution Option (SDO) as a mode of land acquisition and distribution is provided under Section 31 of Republic Act No. 6657.  Under this option, instead of giving the land directly to the farmers, corporate landowners can instead sell the stocks of the corporation to the farmers in exchange for the agricultural land.  The value of the land determines the maximum number of stocks which may be issued to the farmers. Simply put, the farmers do not own the land but owns the part of a corporation which corresponds to the agricultural land and merely receives dividends on the stocks.


At first brush, an SDO may seem very promising to the farmers. However, if implemented inappropriately, SDOs can do more harm than good to the farmers.


The sad reality is that SDOs are being used by corporate landowners to deceive farmers. Corporate landowners can undervalue the agricultural land so that the number of stocks to be issued will only be a small percentage of the entire outstanding stocks of corporation. This will ultimately limit the participation of the farmers in the conduct of the business of the corporation. Also, the farmers will only receive an insignificant amount of dividends because they only own a small number of stocks. In this set-up, only the landowners benefit.


Today, 12 out of the 14 SDOs being implemented in the country since the passage of R.A. 6657, have been questioned and petitioned for revocation. Among these is the Hacienda Luisita Inc. (HLI) Stock Distribution Option.  The farmers of HLI are still without any agricultural land which they can call their own. The farmers of HLI may hold certificates of shares as proof that they own part of HLI, but the glaring and sad reality is that these certificates have not given them any real benefits.  In fact, many farmers do not even know the exact number of shares of stocks that are registered in their names.  Worse, portions of the landholding were converted and sold without their knowledge and participation.  This fragmented the ownership of the land and its use no longer contributed to the agricultural operation of HLI and rendered naught the purpose of agrarian reform.


The SDO being implemented by HLI also violates the very provision of R.A. 6657 which it is based upon.  According to the law, SDOs should be implemented within two years from 1988, or the approval date of R.A. 6657.  However, the implementation of HLI’s SDO spans over a period of 30 years.  This is an outright ground for the revocation of the SDO.


Lastly, HLI uses the “number of days worked by a farmer” as a basis for determining the number of stocks to be given to a farmer. Through this, HLI can unilaterally deny any farmer his entitlement to the stocks by the simple expediency of not giving him any working hours or days.


Due to these reasons, the SDO did not improve the lives of the farmers of HLI. In fact, the farmers are even at a worse state than they were prior to the creation of the SDO.  Thus, the SDO must be revoked and the agricultural lands be distributed to the farmers in line with the Constitutional policy of “land to the tiller”.


Which should come first, distribution or the referendum?

The case of the HLI farmers is now pending before the Supreme Court. At the moment, both parties are still in the process of mediation. Despite this, the Court should be very vigilant and ensure that the consent of the farmers are not vitiated in coming up with a decision or agreement.


Through the course of the mediation proceedings, HLI agreed to distribute the land to the farmers but with the condition that a referendum be first conducted wherein the farmers will vote if they want to stick with the SDO or continue with land distribution. HLI’s insistence of this option evidently shows that it is not really serious in pursuing land distribution and this will render useless all the proceedings before the Supreme Court as well.


On the other hand, the farmers definitely want land distribution.  Thus, it is without a doubt that distribution of the land should come first.  The fundamental role of agrarian reform is to empower and liberate the farmers from centuries of bondage and give them ownership and control over the lands they till. The lands should be given to the farmers first before we even ask them what to do with it. Ultimately, giving them concrete ownership of the lands, in the form of CLOAs, will protect them from the intimidation, domination and false promises of powerful landlords.


The issue of “just compensation”


Land Bank of the Philippines (LBP) is the institution which has the primary responsibility of administratively determining land valuation and compensation for all lands covered under R.A.  6657.


During the mediation proceedings, LBP presented its valuation of the HLI land at P167, 411 per hectare. HLI vehemently opposed the valuation and argued that LBP’s basis was erroneous and proposed that a private appraiser should determine the compensation for the land.


HLI’s persistence to have a private appraiser determine the valuation of the land cannot be allowed. The valuation which the private appraiser may come up with can be significantly disparate from that of LBP’s. If this happens, it will cause a great distortion in the valuation of other lands surrounding the agricultural land. Allowing HLI to have a private appraiser will also open the floodgates of other landowners employing their own private appraisers and will provide them an arena to ask for higher compensation.


In computing the “just compensation”, the basis should be the valuation given by HLI in 1989 which was used to determine the amount of stocks to be distributed to the farmers. HLI undervalued the land and pegged it at P40,000/hectare in 1989 to limit the ownership of the farmers. Due to the fact that HLI undervalued the land, HLI should also suffer the consequences of its acts and that the undervaluation of the land should also be applied to them. This will prevent HLI, or any corporate landowner, from unjustly profiting from the distribution of the land.


It is interesting to note that through the life of the SDO, HLI sold 500 hectares of agricultural lands of the corporation. However, the share of the farmers in the proceeds of the sale was never released to them. At the time of the sale in 1996, HLI assured that the proceeds would “create jobs”, “purchase new equipment to improve the efficiency of operations”, “pay off debts” and position it to “declare dividends to the shareholders.”  None of that happened.  Thus, HLI must return to the farmers at least their share in the proceeds of the sale.


The SDO also provided that the farmers are entitled to 3% of gross sales of the corporation every year. However, HLI failed to comply with its obligation. Consequently, the 3% of the gross sales each year should be included in the payment of just compensation.


Likewise, the computation of “just compensation” must factor in the imputed rental value of the land or unrealized income of the farmers by reason of the transfer of the title to the property to HLI.  In other cases, like DOLE and Del Monte, the lands covered by the R.A. 6657 were first transferred to the names of the farmers then leased back to the former landowners.  In effect, in the case of HLI, the land of the farmers was used for free by HLI.  HLI should pay the farmers the rental value of the land for the duration of the SDO.


In the guise of grandeur promises, HLI was able to persuade the farmers to avail of the SDO.  However, the underlying devious intent behind the creation of the SDO by HLI is very apparent.  HLI wanted to circumvent the coverage of R.A. 6657 and never really intended to fulfill its assurances.  The State has already allowed 21 years to lapse without freeing the farmers of HLI from their bondage to the land they till.  Social justice calls for putting an end to the persistent intimidation, oppression and false hopes that HLI has been giving the farmers for decades. The Supreme Court must heed the call of the people and finally award the land to the farmers.


Finally, the SDO under Section 31 of R.A. 6657 is actually a dangerous vehicle which may be used by corporations to their advantage against farmers who most likely have no basic knowledge of the laws in order to protect themselves.  Thus, to fully protect the interests of the farmers, it is best to remove all the possible vehicles of subverting agrarian reform, such as the SDO, and deny the corporations even the slightest opportunity to do the same.

*** A lawyer by profession, AKBAYAN Rep. Kaka Bag-ao was the Convenor of the Alternative Legal Group, a network of NGOs providing legal support to marginalized communities. She was the legal counsel of the Sumilao farmers.

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