Professional Documents
Culture Documents
Cases 1
Cases 1
ROMEO R. SALALIMA, and ALBAY PROVINCIAL consisting of buildings, machines, and similar
TREASURER ABUNDIO M. NUÑEZ, respondents. improvements standing on their offices at Tiwi,
Albay. The amounts to be realized from this
SARMIENTO, J.:
advertised auction sale are supposed to be
The National Power Corporation (NAPOCOR) applied to the tax delinquencies claimed, as and
questions the power of the provincial for, as we said, real property taxes. The back
government of Albay to collect real property taxes NAPOCOR has supposedly accumulated
taxes on its properties located at Tiwi, Albay, were computed at P214,845,184.76.
amassed between June 11, 1984 up to March 10,
NAPOCOR opposed the sale, interposing in
1987.
support of its non-liability Resolution No. 17-87,
It appears that on March 14 and 15, 1989, the of the Fiscal Incentives Review Board (FIRB),
respondents caused the publication of a notice which provides as follows:
of auction sale involving the properties of
BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That
NAPOCOR and the Philippine Geothermal Inc.
the tax and duty exemption privileges of the
National Power Corporation, including those devote all its returns from its capital investment
pertaining to its domestic purchases of as well as excess revenues from its operation, for
petroleum and petroleum products, granted expansion, To enable the Corporation to pay its
under the terms and conditions of indebtedness and obligations and in furtherance
Commonwealth Act No. 120 (Creating the and effective implementation of the policy
National Power Corporation, defining its powers, enunciated in Section One of this Act, the
objectives and functions, and for other Corporation, including its subsidiaries, is hereby
purposes), as amended, are restored effective declared exempt from the payment of all forms
March 10, 1987, subject to the following of taxes, duties, fees, imposts as well as costs and
conditions: 1 service fees including filing fees, appeal bonds,
supersedeas bonds, in any court or
as well as the Memorandum of Executive
administrative proceedings. 5
Secretary Catalino Macaraig, which also states
thus: (2) On August 24, 1975, Presidential Decree No.
776 was promulgated, creating the Fiscal
Pursuant to Sections 1 (f) and 2 (e) of Executive
Incentives Review Board (FIRB). Among other
Order No. 93, series of 1986, FIRB Resolution No.
things, the Board was tasked as follows:
17-87, series of 1987, restoring, subject to
certain conditions prescribed therein, the tax Section 2. A Fiscal Incentives Review Board is
and duty exemption privileges of NPC as hereby created for the purpose of determining
provided under Commonwealth Act No. 120, as what subsidies and tax exemptions should be
amended, effective March 10, 1987, is hereby modified, withdrawn, revoked or suspended,
confirmed and approved. 2 which shall be composed of the following
officials:
On March 10, 1989, the Court resolved to issue a
temporary restraining order directing the Albay Chairman - Secretary of Finance
provincial government "to CEASE AND DESIST Members - Secretary of Industry
from selling and disposing of the NAPOCOR - Director General of the National Economic and
properties subject matter of this petition. 3 It Development Authority
appears, however, that "the temporary - Commissioner of Internal Revenue
restraining order failed to reach respondents - Commissioner of Customs
before the scheduled bidding at 10:00 a.m. on
The Board may recommend to the President of
March 30, 1989 ... [h]ence, the respondents
the Philippines and for reasons of compatibility
proceeded with the bidding wherein the
with the declared economic policy, the
Province of Albay was the highest bidder. 4
withdrawal, modification, revocation or
The Court gathers from the records that: suspension of the enforceability of any of the
abovestated statutory subsidies or tax
(1) Under Section 13, of Republic Act No. 6395,
exemption grants, except those granted by the
amending Commonwealth Act No. 120 (charter
Constitution. To attain its objectives, the Board
of NAPOCOR):
may require the assistance of any appropriate
Section 13. Non-profit Character of the government agency or entity. The Board shall
Corporation; Exemption from All Taxes, Duties, meet once a month, or oftener at the call of the
Fees, Imposts and Other Charges by the Secretary of Finance. 6
Government and Government Instrumentalities.
The Corporation shall be non-profit and shall
(3) On June 11, 1984, Presidential Decree No. c) impose conditions for the restoration of tax
1931 was promulgated, prescribing, among and/or duty exemption;
other things, that:
d) prescribe the date or period of effectivity of
Section 1. The provisions of special or general the restoration of tax and/or duty exemption;
law to the contrary notwithstanding, all
e) formulate and submit to the President for
exemptions from the payment of duties, taxes,
approval, a complete system for the grant of
fees, impost and other charges heretofore
subsidies to deserving beneficiaries, in lieu of or
granted in favor of government-owned or
in combination with the restoration of tax and
controlled corporations including their
7 duty exemptions or preferential treatment in
subsidiaries are hereby withdrawn.
taxation, indicating the source of funding
(4) Meanwhile, FIRB Resolution No. 10-85 was therefor, eligible beneficiaries and the terms and
issued, "restoring" NAPOCOR's tax exemption conditions for the grant thereof taking into
effective June 11, 1984 to June 30, 1985; consideration the international commitments of
the Philippines and the necessary precautions
(5) Thereafter, FIRB Resolution No. 1-86 was
such that the grant of subsidies does not become
issued, granting tax exemption privileges to
the basis for countervailing action. 10
NAPOCOR from July 1, 1985 and indefinitely
thereafter; (8) On October 5, 1987, the Office of the
President issued the Memorandum, confirming
(6) Likewise, FIRB Resolution No. 17-87 was
NAPOCOR's tax exemption aforesaid. 11
promulgated, giving NAPOCOR tax exemption
privileges effective until March 10, 1987; 8 The provincial government of Albay now defends
the auction sale in question on the theory that
(7) On December 17, 1986, Executive Order No.
the various FIRB issuances constitute an undue
93 was promulgated by President Corazon
delegation of the taxing Power and hence, null
Aquino, providing, among other things, as
and void, under the Constitution. It is also
follows:
contended that, insofar as Executive Order No.
SECTION 1. The provisions of any general or 93 authorizes the FIRB to grant tax exemptions,
special law to the contrary notwithstanding, all the same is of no force and effect under the
tax and duty incentives granted to government constitutional provision allowing the legislature
and private entities are hereby withdrawn, alone to accord tax exemption privileges.
except. 9
It is to be pointed out that under Presidential
and Decree No. 776, the power of the FIRB was
merely to "recommend to the President of the
SECTION 2. The Fiscal Incentives Review Board Philippines and for reasons of compatibility with
created under Presidential Decree No. 776, as the declared economic policy, the withdrawal,
amended, is hereby authorized to: modification, revocation or suspension of the
a) restore tax and/or duty exemptions enforceability of any of the above-cited statutory
withdrawn hereunder in whole or in part; subsidies or tax exemption grants, except those
granted by the Constitution." It has no authority
b) revise the scope and coverage of tax and/or to impose taxes or revoke existing ones, which,
duty exemption that may be restored; after all, under the Constitution, only the
legislature may accomplish. 12 The question
therefore is whether or not the various tax
exemptions granted by virtue of FIRB Albay admits that as of March 10, 1987 (the date
Resolutions Nos. 10-85, 1-86, and 17-87 are valid Resolution No. 17-87 was affirmed by the
and constitutional. Memorandum of the Office of the President,
dated October 5, 1987), NAPOCOR's exemption
We shall deal with FIRB No. 17-87 later, but with
had been validly restored. What it questions is
respect to FIRB Resolutions Nos. 10- 85 and 1-86,
NAPOCOR's liability in the interregnum between
we sustain the provincial government of Albay.
June 11, 1984, the date its tax privileges were
As we said, the FIRB, under its charter, withdrawn, and March 10, 1987, the date they
Presidential Decree No. 776, had been were purportedly restored. To be sure, it objects
empowered merely to "recommend" tax to Executive Order No. 93 as alledgedly a
exemptions. By itself, it could not have validly delegation of legislative power, but only insofar
prescribed exemptions or restore taxability. as its (NAPOCOR's) June 11, 1984 to March 10,
Hence, as of June 11, 1984 (promulgation of 1987 tax accumulation is concerned. We
Presidential Decree No. 1931), NAPOCOR had therefore leave the issue of "delegation" to the
ceased to enjoy tax exemption privileges. future and its constitutionality when the proper
case arises. For the nonce, we leave Executive
The fact that under Executive Order No. 93, the Order No. 93 alone, and so also, its validity as far
FIRB has been given the prerogative to "restore as it grants tax exemptions (through the FIRB)
tax and/or duty exemptions withdrawn beginning December 17, 1986, the date of its
hereunder in whole or in part," 13 and "impose promulgation.
conditions for ... tax and/or duty exemption" 14is
of no moment. These provisions are prospective NAPOCOR must then be held liable for the
in character and can not affect the Board's past intervening years aforesaid. So it has been held:
acts.
xxx xxx xxx
The Court is aware that in its preamble,
The last issue to be resolved is whether or not
Executive Order No. 93 states:
the private-respondent is liable for the fixed and
WHEREAS, a number of affected entities, deficiency percentage taxes in the amount of
government and private were able to get back P3,025.96 (i.e. for the period from January 1,
their tax and duty exemption privileges through 1946 to February 29, 1948) before the approval
the review mechanism implemented by the of its municipal franchises. As aforestated, the
Fiscal Incentives Review Board (FIRB); 15but by franchises were approved by the President only
no means can we say that it has "ratified" the on February 24,1948. Therefore, before the said
acts of FIRB. It is to misinterpret the scope of date, the private respondent was liable for the
FIRB's powers under Presidential Decree No. 776 payment of percentage and fixed taxes as seller
to say that it has. Apart from that, Section 2 of of light, heat, and power which, as the petitioner
the Executive Order was clearly intended to claims, amounted to P3,025.96. The legislative
amend Presidential Decree No. 776, which franchise (R.A. No. 3843) exempted the grantee
means, mutatis mutandis, that FIRB did not have from all kinds of taxes other than the 2% tax from
the right, in the first place, to grant tax the date the original franchise was granted. The
exemptions or withdraw existing ones. exemption, therefore, did not cover the period
before the franchise was granted, i.e. before
Does Executive Order No. 93 constitute an February 24, 1948. ... 16
unlawful delegation of legislative power? It is to
be stressed that the provincial government of
Actually, the State has no reason to decry the (b) The entire proceeds of the additional one per
taxation of NAPOCOR's properties, as and by way cent real property tax levied for the Special
of real property taxes. Real property taxes, after Education Fund created under R.A. No. 5447
all, form part and parcel of the financing collected in the province or city on real property
apparatus of the Government in development situated in their respective territorial
and nation-building, particularly in the local jurisdictions shall be distributed as follows:
government level, Thus:
(1) Collections in the provinces: Fifty per cent
SEC. 86. Distribution of proceeds. — (a) The shall accrue to the municipality where the
proceeds of the real property tax, except as property subject to the tax is situated; twenty
otherwise provided in this Code, shall accrue to per cent shall accrue to the province; and thirty
the province, city or municipality where the per cent shall be remitted to the Treasurer of the
property subject to the tax is situated and shall Philippines to be expended exclusively for
be applied by the respective local government stabilizing the Special Education Fund in
unit for its own use and benefit. municipalities, cities and provinces in
accordance with the provisions of Section seven
(b) Barrio shares in real property tax collections.
of R.A. No. 5447.
— The annual shares of the barrios in real
property tax collections shall be as follows: (2) Collections in the cities: Sixty per cent shall be
retained by the city; and forty per cent shall be
(1) Five per cent of the real property tax
remitted to the Treasurer of the Philippines to be
collections of the province and another five
expended exclusively for stabilizing the special
percent of the collections of the municipality
education fund in municipalities, cities and
shall accrue to the barrio where the property
provinces as provided under Section 7 of R.A. No.
subject to the tax is situated.
5447.
(2) In the case of the city, ten per cent of the
However, any increase in the shares of
collections of the tax shag likewise accrue to the
provinces, cities and municipalities from said
barrio where the property is situated.
additional tax accruing to their respective local
Thirty per cent of the barrio shares herein school boards commencing with fiscal year 1973-
referred to may be spent for salaries or per 74 over what has been actually realized during
diems of the barrio officials and other the fiscal year 1971-72 which, for purposes of
administrative expenses, while the remaining this Code, shall remain as the based year, shall
seventy per cent shall be utilized for be divided equally between the general fund and
development projects approved by the Secretary the special education fund of the local
of Local Government and Community government units concerned. The Secretary of
Development or by such committee created, or Finance may, however, at his discretion, increase
representatives designated, by him. to not more than seventy-five per cent the
amount that shall accrue annually to the local
SEC. 87. Application of proceeds. — (a) The general fund.
proceeds of the real property tax pertaining to
the city and to the municipality shall accrue (c) The proceeds of all delinquent taxes and
entirely to their respective general funds. In the penalties, as well as the income realized from the
case of the province, one-fourth thereof shall use, lease or other disposition of real property
accrue to its road and bridge fund and the acquired by the province or city at a public
remaining three-fourths, to its general fund. auction in accordance with the provisions of this
Code, and the proceeds of the sale of the was immune from taxes citing Resolution 17-87
delinquent real property or, of the redemption of the Fiscal Incentives Review Board (FIRB).
thereof shall accrue to the province, city or
municipality in the same manner and proportion ISSUE:
as if the tax or taxes had been paid in regular Whether the granting of exemption by the FIRB
course. constituted undue delegation of taxing power
SO ORDERED.
DIGEST:
NPC v Albay
FACTS:
The province of Albay sought to sell Napocor
properties in order for the proceeds to be
applied to the real property taxes Napocor
allegedly owned the Albay provincial
government. Napocor opposed alleging that it
CALTEX PHILIPPINES, INC., petitioner, vs. THE must still fail. Tax exemptions as a general rule
HONORABLE COMMISSION ON AUDIT, are construed strictly against the grantee and
HONORABLE COMMISSIONER BARTOLOME C. liberally in favor of the taxing authority. The
FERNANDEZ and HONORABLE COMMISSIONER burden of proof rests upon the party claiming
ALBERTO P. CRUZ, respondents. exemption to prove that it is in fact covered by
the exemption so claimed. The party claiming
Administrative Law; Commission on Audit; The
exemption must therefore be expressly
audit power of the Auditor General under the
mentioned in the exempting law or at least be
1935 Constitution and the Commission on Audit
within its purview by clear legislative intent.
under the 1973 Constitution authorized them to
disallow illegal expenditures of funds or uses of Same; Same; Though LOI 1416 may suspend the
funds and property.—There can be no doubt, payment of taxes by copper mining companies it
however, that the audit power of the Auditor does not give petitioner the same privilege with
General under the 1935 Constitution and the respect to the payment of OPSF dues.—In the
Commission on Audit under the 1973 case at bar, petitioner failed to prove that it is
Constitution authorized them to disallow illegal entitled, as a consequence of its sales to ATLAS
expenditures of funds or uses of funds and and MARCOPPER, to claim reimbursement from
property. Our present Constitution retains that the OPSF under LOI 1416. Though LOI 1416 may
same power and authority, further strengthened suspend the payment of taxes by copper mining
by the definition of the COA’s general jurisdiction companies, it does not give petitioner the same
in Section 26 of the Government Auditing Code privilege with respect to the payment of OPSF
of the Philippines and Administrative Code of dues.
1987. Pursuant to its power to promulgate
Same; Same; It is settled that a taxpayer may not
accounting and auditing rules and regulations for
affect taxes due from the claims that he may
the prevention of irregular, unnecessary,
have against the government.—It is settled that
excessive or extravagant expenditures or uses of
a taxpayer may not offset taxes due from the
funds, the COA promulgated on 29 March 1977
claims that he may have against the government.
COA Circular No. 77-55. Since the COA is
Taxes cannot be the subject of compensation
responsible for the enforcement of the rules and
because the government and taxpayer are not
regulations, it goes without saying that failure to
mutually creditors and debtors of each other and
comply with them is a ground for disapproving
a claim for taxes is not such a debt, demand,
the payment of the proposed expenditure.
contract or judgment as is allowed to be set-off.
Civil Law; Taxation; LOI 1416 has no binding force Caltex Philippines, Inc. vs. Commission on Audit,
or effect as it was never published in the Official 208 SCRA 726, G.R. No. 92585 May 8, 1992
Gazette after its issuance or at anytime after the
DAVIDE, JR., J.:
decision in the above-mentioned cases.—LOI
1416 has, therefore, no binding force or effect as This is a petition erroneously brought under Rule
it was never published in the Official Gazette 44 of the Rules of Court 1 questioning the
after its issuance or at any time after the decision authority of the Commission on Audit (COA) in
disallowing petitioner's claims for
Same; Same; Tax exemptions as a general rule
reimbursement from the Oil Price Stabilization
are construed strictly against the grantee and
Fund (OPSF) and seeking the reversal of said
liberally in favor of the taxing authority.—
Commission's decision denying its claims for
Furthermore, even granting arguendo that LOI
recovery of financing charges from the Fund and
1416 has force and effect, petitioner’s claim
reimbursement of underrecovery arising from Sec. 8 . There is hereby created a Trust Account
sales to the National Power Corporation, Atlas in the books of accounts of the Ministry of
Consolidated Mining and Development Energy to be designated as Oil Price Stabilization
Corporation (ATLAS) and Marcopper Mining Fund (OPSF) for the purpose of minimizing
Corporation (MAR-COPPER), preventing it from frequent price changes brought about by
exercising the right to offset its remittances exchange rate adjustments and/or changes in
against its reimbursement vis-a-vis the OPSF and world market prices of crude oil and imported
disallowing its claims which are still pending petroleum products. The Oil Price Stabilization
resolution before the Office of Energy Affairs Fund may be sourced from any of the following:
(OEA) and the Department of Finance (DOF).
a) Any increase in the tax collection from ad
Pursuant to the 1987 Constitution, 2 any valorem tax or customs duty imposed on
decision, order or ruling of the Constitutional petroleum products subject to tax under this
Commissions 3 may be brought to this Court Decree arising from exchange rate adjustment,
on certiorari by the aggrieved party within thirty as may be determined by the Minister of Finance
(30) days from receipt of a copy thereof. in consultation with the Board of Energy;
The certiorari referred to is the special civil
b) Any increase in the tax collection as a result of
action for certiorari under Rule 65 of the Rules of
the lifting of tax exemptions of government
Court. 4
corporations, as may be determined by the
Considering, however, that the allegations that Minister of Finance in consultation with the
the COA acted with: Board of Energy;
(a) total lack of jurisdiction in completely
c) Any additional amount to be imposed on
ignoring and showing absolutely no respect for
petroleum products to augment the resources of
the findings and rulings of the administrator of
the Fund through an appropriate Order that may
the fund itself and in disallowing a claim which is
be issued by the Board of Energy requiring
still pending resolution at the OEA level, and (b)
payment by persons or companies engaged in
"grave abuse of discretion and completely
the business of importing, manufacturing and/or
without jurisdiction" 5 in declaring that
marketing petroleum products;
petitioner cannot avail of the right to offset any
amount that it may be required under the law to d) Any resulting peso cost differentials in case
remit to the OPSF against any amount that it may the actual peso costs paid by oil companies in the
receive by way of reimbursement therefrom are importation of crude oil and petroleum products
sufficient to bring this petition within Rule 65 of is less than the peso costs computed using the
the Rules of Court, and, considering further the reference foreign exchange rate as fixed by the
importance of the issues raised, the error in the Board of Energy.
designation of the remedy pursued will, in this
instance, be excused. The Fund herein created shall be used for the
following:
The issues raised revolve around the OPSF
created under Section 8 of Presidential Decree 1) To reimburse the oil companies for cost
(P.D.) No. 1956, as amended by Executive Order increases in crude oil and imported petroleum
(E.O.) No. 137. As amended, said Section 8 reads products resulting from exchange rate
as follows: adjustment and/or increase in world market
prices of crude oil;
2) To reimburse the oil companies for possible 1986 — P233,190,916.00
cost under-recovery incurred as a result of the 1987 — 335,065,650.00
reduction of domestic prices of petroleum 1988 — 719,412,254.00;
products. The magnitude of the underrecovery,
directing it to remit the same, with interest and
if any, shall be determined by the Ministry of
surcharges thereon, within sixty (60) days from
Finance. "Cost underrecovery" shall include the
receipt of the letter; advising it that the COA will
following:
hold in abeyance the audit of all its claims for
i. Reduction in oil company take as directed by reimbursement from the OPSF; and directing it
the Board of Energy without the corresponding to desist from further offsetting the taxes
reduction in the landed cost of oil inventories in collected against outstanding claims in 1989 and
the possession of the oil companies at the time subsequent periods. 7
of the price change;
In its letter of 3 May 1989, petitioner requested
ii. Reduction in internal ad valorem taxes as a the COA for an early release of its
result of foregoing government mandated price reimbursement certificates from the OPSF
reductions; covering claims with the Office of Energy Affairs
since June 1987 up to March 1989, invoking in
iii. Other factors as may be determined by the
support thereof COA Circular No. 89-299 on the
Ministry of Finance to result in cost
lifting of pre-audit of government transactions of
underrecovery.
national government agencies and government-
The Oil Price Stabilization Fund (OPSF) shall be owned or controlled corporations. 8
administered by the Ministry of Energy.
In its Answer dated 8 May 1989, the COA denied
The material operative facts of this case, as petitioner's request for the early release of the
gathered from the pleadings of the parties, are reimbursement certificates from the OPSF and
not disputed. repeated its earlier directive to petitioner to
forward payment of the latter's unremitted
On 2 February 1989, the COA sent a letter to collections to the OPSF to facilitate COA's audit
Caltex Philippines, Inc. (CPI), hereinafter referred action on the reimbursement claims. 9
to as Petitioner, directing the latter to remit to
the OPSF its collection, excluding that By way of a reply, petitioner, in a letter dated 31
unremitted for the years 1986 and 1988, of the May 1989, submitted to the COA a proposal for
additional tax on petroleum products authorized the payment of the collections and the recovery
under the aforesaid Section 8 of P.D. No. 1956 of claims, since the outright payment of the sum
which, as of 31 December 1987, amounted to of P1.287 billion to the OEA as a prerequisite for
P335,037,649.00 and informing it that, pending the processing of said claims against the OPSF
such remittance, all of its claims for will cause a very serious impairment of its cash
reimbursement from the OPSF shall be held in position. 10 The proposal reads:
abeyance. 6
We, therefore, very respectfully propose the
On 9 March 1989, the COA sent another letter to following:
petitioner informing it that partial verification
(1) Any procedural arrangement acceptable to
with the OEA showed that the grand total of its
COA to facilitate monitoring of payments and
unremitted collections of the above tax is
reimbursements will be administered by the
P1,287,668,820.00, broken down as follows:
ERB/Finance Dept./OEA, as agencies designated administering the OPSF. This Commission,
by law to administer/regulate OPSF. however, expressing serious doubts as to the
propriety of the offsetting of all types of
(2) For the retroactive period, Caltex will deliver
reimbursements from the OPSF against all
to OEA, P1.287 billion as payment to OPSF,
categories of remittances, advised these oil
similarly OEA will deliver to Caltex the same
companies that such offsetting was bereft of
amount in cash reimbursement from OPSF.
legal basis. Aggrieved thereby, these companies
(3) The COA audit will commence immediately now seek reconsideration and in support thereof
and will be conducted expeditiously. clearly manifest their intent to make
arrangements for the remittance to the Office of
(4) The review of current claims (1989) will be Energy Affairs of the amount of collections
conducted expeditiously to preclude further equivalent to what has been previously
accumulation of reimbursement from OPSF. offset, provided that this Commission authorizes
On 7 June 1989, the COA, with the Chairman the Office of Energy Affairs to prepare the
taking no part, handed down Decision No. 921 corresponding checks representing
accepting the above-stated proposal but reimbursement from the OPSF. It is alleged that
prohibiting petitioner from further offsetting the implementation of such an arrangement,
remittances and reimbursements for the current whereby the remittance of collections due to the
and ensuing years. 11 Decision No. 921 reads: OPSF and the reimbursement of claims from the
Fund shall be made within a period of not more
This pertains to the within separate requests of than one week from each other, will benefit the
Mr. Manuel A. Estrella, President, Petron Fund and not unduly jeopardize the continuing
Corporation, and Mr. Francis Ablan, President daily cash requirements of these firms.
and Managing Director, Caltex (Philippines) Inc.,
for reconsideration of this Commission's adverse Upon a circumspect evaluation of the
action embodied in its letters dated February 2, circumstances herein obtaining, this Commission
1989 and March 9, 1989, the former directing perceives no further objectionable feature in the
immediate remittance to the Oil Price proposed arrangement, provided that 15% of
Stabilization Fund of collections made by the whatever amount is due from the Fund is
firms pursuant to P.D. 1956, as amended by E.O. retained by the Office of Energy Affairs, the same
No. 137, S. 1987, and the latter reiterating the to be answerable for suspensions or
same directive but further advising the firms to disallowances, errors or discrepancies which
desist from offsetting collections against their may be noted in the course of audit and
claims with the notice that "this Commission will surcharges for late remittances without
hold in abeyance the audit of all . . . claims for prejudice to similar future retentions to answer
reimbursement from the OPSF." for any deficiency in such surcharges, and
provided further that no offsetting of
It appears that under letters of authority issued remittances and reimbursements for the current
by the Chairman, Energy Regulatory Board, the and ensuing years shall be allowed.
aforenamed oil companies were allowed to
offset the amounts due to the Oil Price Pursuant to this decision, the COA, on 18 August
Stabilization Fund against their outstanding 1989, sent the following letter to Executive
claims from the said Fund for the calendar years Director Wenceslao R. De la Paz of the Office of
1987 and 1988, pending with the then Ministry Energy Affairs: 12
of Energy, the government entity charged with Dear Atty. dela Paz:
Pursuant to the Commission on Audit Decision Review of the provisions of P.D. 1596 as
No. 921 dated June 7, 1989, and based on our amended by E.O. 137 seems to indicate that
initial verification of documents submitted to us recovery of financing charges by oil companies is
by your Office in support of Caltex (Philippines), not among the items for which the OPSF may be
Inc. offsets (sic) for the year 1986 to May 31, utilized. Therefore, it is our view that recovery of
1989, as well as its outstanding claims against financing charges has no legal basis. The
the Oil Price Stabilization Fund (OPSF) as of May mechanism for such claims is provided in DOF
31, 1989, we are pleased to inform your Office Circular 1-87.
that Caltex (Philippines), Inc. shall be required to
b. Product Sales –– Sales to International
remit to OPSF an amount of P1,505,668,906,
Vessels/Airlines
representing remittances to the OPSF which
were offset against its claims reimbursements BOE Resolution No. 87-01 dated February 7,
(net of unsubmitted claims). In addition, the 1987 as implemented by OEA Order No. 87-03-
Commission hereby authorize (sic) the Office of 095 indicating that (sic) February 7, 1987 as the
Energy Affairs (OEA) to cause payment of effectivity date that (sic) oil companies should
P1,959,182,612 to Caltex, representing claims pay OPSF impost on export sales of petroleum
initially allowed in audit, the details of which are products. Effective February 7, 1987 sales to
presented hereunder: . . . international vessels/airlines should not be
included as part of its domestic sales. Changing
As presented in the foregoing computation the
the effectivity date of the resolution from
disallowances totalled P387,683,535, which
February 7, 1987 to October 20, 1987 as covered
included P130,420,235 representing those
by subsequent ERB Resolution No. 88-12 dated
claims disallowed by OEA, details of which is (sic)
November 18, 1988 has allowed Caltex to
shown in Schedule 1 as summarized as follows:
include in their domestic sales volumes to
Disallowance of COA international vessels/airlines and claim the
Particulars Amount corresponding reimbursements from OPSF
during the period. It is our opinion that the
Recovery of financing charges P162,728,475 /a
effectivity of the said resolution should be
Product sales 48,402,398 /b
February 7, 1987.
Inventory losses
Borrow loan arrangement 14,034,786 /c c. Inventory losses –– Settlement of Ad Valorem
Sales to Atlas/Marcopper 32,097,083 /d
We reviewed the system of handling Borrow and
Sales to NPC 558
Loan (BLA) transactions including the related BLA
——————
agreement, as they affect the claims for
P257,263,300
reimbursements of ad valorem taxes. We
Disallowances of OEA 130,420,235 observed that oil companies immediately
————————— —————— settle ad valorem taxes for BLA transaction (sic).
Total P387,683,535 Loan balances therefore are not tax paid
inventories of Caltex subject to reimbursements
The reasons for the disallowances are discussed
but those of the borrower. Hence, we
hereunder:
recommend reduction of the claim for July,
a. Recovery of Financing Charges August, and November, 1987 amounting to
P14,034,786.
d. Sales to Atlas/Marcopper
LOI No. 1416 dated July 17, 1984 provides that "I xxx xxx xxx
hereby order and direct the suspension of
On 6 November 1989, petitioner filed with the
payment of all taxes, duties, fees, imposts and
COA a Supplemental Omnibus Request for
other charges whether direct or indirect due and
Reconsideration. 14
payable by the copper mining companies in
distress to the national and local governments." On 16 February 1990, the COA, with Chairman
It is our opinion that LOI 1416 which implements Domingo taking no part and with Commissioner
the exemption from payment of OPSF imposts as Fernandez dissenting in part, handed down
effected by OEA has no legal basis. Decision No. 1171 affirming the disallowance for
recovery of financing charges, inventory losses,
Furthermore, we wish to emphasize that
and sales to MARCOPPER and ATLAS, while
payment to Caltex (Phil.) Inc., of the amount as
allowing the recovery of product sales or those
herein authorized shall be subject to availability
arising from export sales. 15 Decision No. 1171
of funds of OPSF as of May 31, 1989 and
reads as follows:
applicable auditing rules and regulations. With
regard to the disallowances, it is further Anent the recovery of financing charges you
informed that the aggrieved party has 30 days contend that Caltex Phil. Inc. has the .authority
within which to appeal the decision of the to recover financing charges from the OPSF on
Commission in accordance with law. the basis of Department of Finance (DOF)
Circular 1-87, dated February 18, 1987, which
On 8 September 1989, petitioner filed an
allowed oil companies to "recover cost of
Omnibus Request for the Reconsideration of the
financing working capital associated with crude
decision based on the following grounds: 13
oil shipments," and provided a schedule of
A) COA-DISALLOWED CLAIMS ARE AUTHORIZED reimbursement in terms of peso per barrel. It
UNDER EXISTING RULES, ORDERS, appears that on November 6, 1989, the DOF
RESOLUTIONS, CIRCULARS ISSUED BY THE issued a memorandum to the President of the
DEPARTMENT OF FINANCE AND THE ENERGY Philippines explaining the nature of these
REGULATORY BOARD PURSUANT TO EXECUTIVE financing charges and justifying their
ORDER NO. 137. reimbursement as follows:
The OEA disseminated this Circular to all oil 4. In allowing reimbursement of financing
companies in its Memorandum Circular No. 88- charges from OPSF, Circular No. 1-87 of the
12-017. 26 Department of Finance violates P.D. No. 1956
and E.O. No. 137; and
The COA can neither ignore these issuances nor
formulate its own interpretation of the laws in 5. Department of Finance rules and regulations
the light of the determination of executive implementing P.D. No. 1956 do not likewise
agencies. The determination by the Department allow reimbursement of financing
29
of Finance and the OEA that financing charges charges.
are recoverable from the OPSF is entitled to
We find no merit in the first assigned error.
great weight and consideration. 27 The function
of the COA, particularly in the matter of allowing As to the power of the COA, which must first be
or disallowing certain expenditures, is limited to resolved in view of its primacy, We find the
the promulgation of accounting and auditing theory of petitioner –– that such does not extend
rules for, among others, the disallowance of to the disallowance of irregular, unnecessary,
irregular, unnecessary, excessive, extravagant, excessive, extravagant, or unconscionable
or unconscionable expenditures, or uses of expenditures, or use of government funds and
government funds and properties. 28 properties, but only to the promulgation of
accounting and auditing rules for, among others,
(3) Denial of petitioner's claim for
such disallowance –– to be untenable in the light
reimbursement would be inequitable.
of the provisions of the 1987 Constitution and
Additionally, COA's claim that petitioner is
related laws.
gaining, instead of losing, from the extension of
credit, is belatedly raised and not supported by Section 2, Subdivision D, Article IX of the 1987
expert analysis. Constitution expressly provides:
In impeaching the validity of petitioner's Sec. 2(l). The Commission on Audit shall have the
assertions, the respondents argue that: power, authority, and duty to examine, audit,
and settle all accounts pertaining to the revenue
1. The Constitution gives the COA discretionary
and receipts of, and expenditures or uses of
power to disapprove irregular or unnecessary
funds and property, owned or held in trust by, or
government expenditures and as the monetary
pertaining to, the Government, or any of its
claims of petitioner are not allowed by law, the
subdivisions, agencies, or instrumentalities,
COA acted within its jurisdiction in denying
including government-owned and controlled
them;
corporations with original charters, and on a
2. P.D. No. 1956 and E.O. No. 137 do not allow post-audit basis: (a) constitutional bodies,
reimbursement of financing charges from the commissions and offices that have been granted
OPSF; fiscal autonomy under this Constitution; (b)
autonomous state colleges and universities; (c)
3. Under the principle of ejusdem generis, the
other government-owned or controlled
"other factors" mentioned in the second
corporations and their subsidiaries; and (d) such
purpose of the OPSF pursuant to E.O. No. 137
non-governmental entities receiving subsidy or
equity, directly or indirectly, from or through the
government, which are required by law or the unnecessary, excessive, or extravagant
granting institution to submit to such audit as a expenditures or uses of funds and property. 31
condition of subsidy or equity. However, where
Upon the other hand, under the 1935
the internal control system of the audited
Constitution, the power and authority of the
agencies is inadequate, the Commission may
COA's precursor, the General Auditing Office,
adopt such measures, including temporary or
were, unfortunately, limited; its very role was
special pre-audit, as are necessary and
markedly passive. Section 2 of Article XI
appropriate to correct the deficiencies. It shall
thereofprovided:
keep the general accounts, of the Government
and, for such period as may be provided by law, Sec. 2. The Auditor General shall examine, audit,
preserve the vouchers and other supporting and settle all accounts pertaining to the
papers pertaining thereto. revenues and receipts from whatever source,
including trust funds derived from bond issues;
(2) The Commission shall have exclusive
and audit, in accordance with law and
authority, subject to the limitations in this
administrative regulations, all expenditures of
Article, to define the scope of its audit and
funds or property pertaining to or held in trust by
examination, establish the techniques and
the Government or the provinces or
methods required therefor, and promulgate
municipalities thereof. He shall keep the general
accounting and auditing rules and regulations,
accounts of the Government and the preserve
including those for the prevention and
the vouchers pertaining thereto. It shall be the
disallowance of irregular, unnecessary,
duty of the Auditor General to bring to the
excessive, extravagant, or, unconscionable
attention of the proper administrative officer
expenditures, or uses of government funds and
expenditures of funds or property which, in his
properties.
opinion, are irregular, unnecessary, excessive, or
These present powers, consistent with the extravagant. He shall also perform such other
declared independence of the functions as may be prescribed by law.
30
Commission, are broader and more extensive
As clearly shown above, in respect to irregular,
than that conferred by the 1973 Constitution.
unnecessary, excessive or extravagant
Under the latter, the Commission was
expenditures or uses of funds, the 1935
empowered to:
Constitution did not grant the Auditor General
Examine, audit, and settle, in accordance with the power to issue rules and regulations to
law and regulations, all accounts pertaining to prevent the same. His was merely to bring that
the revenues, and receipts of, and expenditures matter to the attention of the proper
or uses of funds and property, owned or held in administrative officer.
trust by, or pertaining to, the Government, or
The ruling on this particular point, quoted by
any of its subdivisions, agencies, or
petitioner from the cases of Guevarra
instrumentalities including government-owned
vs. Gimenez 32 and Ramos vs.Aquino, 33 are no
or controlled corporations, keep the general
longer controlling as the two (2) were decided in
accounts of the Government and, for such period
the light of the 1935 Constitution.
as may be provided by law, preserve the
vouchers pertaining thereto; and promulgate There can be no doubt, however, that the audit
accounting and auditing rules and regulations power of the Auditor General under the 1935
including those for the prevention of irregular, Constitution and the Commission on Audit under
the 1973 Constitution authorized them to
disallow illegal expenditures of funds or uses of more extensive powers, they did not intend
funds and property. Our present Constitution merely to make the COA a toothless tiger, but
retains that same power and authority, further rather envisioned a dynamic, effective, efficient
strengthened by the definition of the COA's and independent watchdog of the Government.
general jurisdiction in Section 26 of the
The issue of the financing charges boils down to
Government Auditing Code of the
34 the validity of Department of Finance Circular
Philippines and Administrative Code of
No. 1-87, Department of Finance Circular No. 4-
1987. 35 Pursuant to its power to promulgate
88 and the implementing circulars of the OEA,
accounting and auditing rules and regulations for
issued pursuant to Section 8, P.D. No. 1956, as
the prevention of irregular, unnecessary,
amended by E.O. No. 137, authorizing it to
excessive or extravagant expenditures or uses of
determine "other factors" which may result in
funds, 36 the COA promulgated on 29 March
cost underrecovery and a consequent
1977 COA Circular No. 77-55. Since the COA is
reimbursement from the OPSF.
responsible for the enforcement of the rules and
regulations, it goes without saying that failure to The Solicitor General maintains that, following
comply with them is a ground for disapproving the doctrine of ejusdem generis, financing
the payment of the proposed expenditure. As charges are not included in "cost underrecovery"
observed by one of the Commissioners of the and, therefore, cannot be considered as one of
1986 Constitutional Commission, Fr. Joaquin G. the "other factors." Section 8 of P.D. No. 1956, as
Bernas: 37 amended by E.O. No. 137, does not explicitly
define what "cost underrecovery" is. It merely
It should be noted, however, that whereas under
states what it includes. Thus:
Article XI, Section 2, of the 1935 Constitution the
Auditor General could not correct "irregular, . . . "Cost underrecovery" shall include the
unnecessary, excessive or extravagant" following:
expenditures of public funds but could only
"bring [the matter] to the attention of the proper i. Reduction in oil company takes as directed by
administrative officer," under the 1987 the Board of Energy without the corresponding
Constitution, as also under the 1973 reduction in the landed cost of oil inventories in
Constitution, the Commission on Audit can the possession of the oil companies at the time
"promulgate accounting and auditing rules and of the price change;
regulations including those for the prevention ii. Reduction in internal ad valorem taxes as a
and disallowance of irregular, unnecessary, result of foregoing government mandated price
excessive, extravagant, or unconscionable reductions;
expenditures or uses of government funds and
properties." Hence, since the Commission on iii. Other factors as may be determined by the
Audit must ultimately be responsible for the Ministry of Finance to result in cost
enforcement of these rules and regulations, the underrecovery.
failure to comply with these regulations can be a These "other factors" can include only those
ground for disapproving the payment of a which are of the same class or nature as the two
proposed expenditure. specifically enumerated in subparagraphs (i) and
Indeed, when the framers of the last two (2) (ii). A common characteristic of both is that they
Constitutions conferred upon the COA a more are in the nature of government mandated price
active role and invested it with broader and reductions. Hence, any other factor which seeks
to be a part of the enumeration, or which could Court can do nothing. The duty of this Court is
qualify as a cost underrecovery, must be of the not to legislate, but to apply or interpret the law.
same class or nature as those specifically Be that as it may, this Court wishes to emphasize
enumerated. that as the facts in this case have shown, it was
at the behest of the Government that petitioner
Petitioner, however, suggests that E.O. No. 137
refinanced its oil import payments from the
intended to grant the Department of Finance
normal 30-day trade credit to a maximum of 360
broad and unrestricted authority to determine
days. Petitioner could be correct in its assertion
or define "other factors."
that owing to the extended period for payment,
Both views are unacceptable to this Court. the financial institution which refinanced said
payments charged a higher interest, thereby
The rule of ejusdem generis states that "[w]here resulting in higher financing expenses for the
general words follow an enumeration of persons petitioner. It would appear then that equity
or things, by words of a particular and specific considerations dictate that petitioner should
meaning, such general words are not to be somehow be allowed to recover its financing
construed in their widest extent, but are held to losses, if any, which may have been sustained
be as applying only to persons or things of the because it accommodated the request of the
same kind or class as those specifically Government. Although under Section 29 of the
mentioned. 38 A reading of subparagraphs (i) and National Internal Revenue Code such losses may
(ii) easily discloses that they do not have a be deducted from gross income, the effect of
common characteristic. The first relates to price that loss would be merely to reduce its taxable
reduction as directed by the Board of Energy income, but not to actually wipe out such losses.
while the second refers to reduction in The Government then may consider some
internal ad valoremtaxes. Therefore, positive measures to help petitioner and others
subparagraph (iii) cannot be limited by the similarly situated to obtain substantial relief. An
enumeration in these subparagraphs. What amendment, as aforestated, may then be in
should be considered for purposes of order.
determining the "other factors" in subparagraph
(iii) is the first sentence of paragraph (2) of the Upon the other hand, to accept petitioner's
Section which explicitly allows cost theory of "unrestricted authority" on the part of
underrecovery only if such were incurred as a the Department of Finance to determine or
result of the reduction of domestic prices of define "other factors" is to uphold an undue
petroleum products. delegation of legislative power, it clearly
appearing that the subject provision does not
Although petitioner's financing losses, if indeed provide any standard for the exercise of the
incurred, may constitute cost underrecovery in authority. It is a fundamental rule that
the sense that such were incurred as a result of delegation of legislative power may be sustained
the inability to fully offset financing expenses only upon the ground that some standard for its
from yields in money market placements, they exercise is provided and that the legislature, in
do not, however, fall under the foregoing making the delegation, has prescribed the
provision of P.D. No. 1956, as amended, because manner of the exercise of the delegated
the same did not result from the reduction of the authority. 39
domestic price of petroleum products. Until
paragraph (2), Section 8 of the decree, as Finally, whether petitioner gained or lost by
amended, is further amended by Congress, this reason of the extensive credit is rendered
irrelevant by reason of the foregoing National Power Corporation (NPC); and (c) other
disquisitions. It may nevertheless be stated that cost underrecoveries incurred as may be finally
petitioner failed to disprove COA's claim that it decided by the Supreme
had in fact gained in the process. Otherwise Court; . . .
stated, petitioner failed to sufficiently show that
Hence, petitioner can recover its claim arising
it incurred a loss. Such being the case, how can
from sales of petroleum products to the National
petitioner claim for reimbursement? It cannot
Power Corporation.
have its cake and eat it too.
III. With respect to its claim for reimbursement
II. Anent the claims arising from sales to the
on sales to ATLAS and MARCOPPER, petitioner
National Power Corporation, We find for the
relies on Letter of Instruction (LOI) 1416, dated
petitioner. The respondents themselves admit in
17 July 1984, which ordered the suspension of
their Comment that underrecovery arising from
payments of all taxes, duties, fees and other
sales to NPC are reimbursable because NPC was
charges, whether direct or indirect, due and
granted full exemption from the payment of
payable by the copper mining companies in
taxes; to prove this, respondents trace the laws
distress to the national government. Pursuant to
providing for such exemption. 40 The last law
this LOI, then Minister of Energy, Hon. Geronimo
cited is the Fiscal Incentives Regulatory Board's
Velasco, issued Memorandum Circular No. 84-
Resolution No. 17-87 of 24 June 1987 which
11-22 advising the oil companies that Atlas
provides, in part, "that the tax and duty
Consolidated Mining Corporation and
exemption privileges of the National Power
Marcopper Mining Corporation are among those
Corporation, including those pertaining to its
declared to be in distress.
domestic purchases of petroleum and petroleum
products . . . are restored effective March 10, In denying the claims arising from sales to ATLAS
1987." In a Memorandum issued on 5 October and MARCOPPER, the COA, in its 18 August 1989
1987 by the Office of the President, NPC's tax letter to Executive Director Wenceslao R. de la
exemption was confirmed and approved. Paz, states that "it is our opinion that LOI 1416
which implements the exemption from payment
Furthermore, as pointed out by respondents, the
of OPSF imposts as effected by OEA has no legal
intention to exempt sales of petroleum products
basis;" 42 in its Decision No. 1171, it ruled that
to the NPC is evident in the recently passed
"the CPI (CALTEX) (Caltex) has no authority to
Republic Act No. 6952 establishing the
claim reimbursement for this uncollected impost
Petroleum Price Standby Fund to support the
because LOI 1416 dated July 17, 1984, . . . was
OPSF. 41 The pertinent part of Section 2, Republic
issued when OPSF was not yet in existence and
Act No. 6952 provides:
could not have contemplated OPSF imposts at
Sec. 2. Application of the Fund shall be subject to the time of its formulation." 43 It is further stated
the following conditions: that: "Moreover, it is evident that OPSF was not
created to aid distressed mining companies but
(1) That the Fund shall be used to reimburse the
rather to help the domestic oil industry by
oil companies for (a) cost increases of imported
stabilizing oil prices."
crude oil and finished petroleum products
resulting from foreign exchange rate In sustaining COA's stand, respondents
adjustments and/or increases in world market vigorously maintain that LOI 1416 could not have
prices of crude oil; (b) cost underrecovery intended to exempt said distressed mining
incurred as a result of fuel oil sales to the
companies from the payment of OPSF dues for In applying said provision, this Court ruled in the
the following reasons: case of Tañada vs. Tuvera: 46
a. LOI 1416 granting the alleged exemption was WHEREFORE, the Court hereby orders
issued on July 17, 1984. P.D. 1956 creating the respondents to publish in the Official Gazette all
OPSF was promulgated on October 10, 1984, unpublished presidential issuances which are of
while E.O. 137, amending P.D. 1956, was issued general application, and unless so published they
on February 25, 1987. shall have no binding force and effect.
b. LOI 1416 was issued in 1984 to assist Resolving the motion for reconsideration of said
distressed copper mining companies in line with decision, this Court, in its Resolution
the government's effort to prevent the collapse promulgated on 29 December 1986, 47 ruled:
of the copper industry. P.D No. 1956, as
We hold therefore that all statutes, including
amended, was issued for the purpose of
those of local application and private laws, shall
minimizing frequent price changes brought
be published as a condition for their effectivity,
about by exchange rate adjustments and/or
which shall begin fifteen days after publication
changes in world market prices of crude oil and
unless a different effectivity date is fixed by the
imported petroleum product's; and
legislature.
c. LOI 1416 caused the "suspension of all taxes,
Covered by this rule are presidential decrees and
duties, fees, imposts and other charges, whether
executive orders promulgated by the President
direct or indirect, due and payable by the copper
in the exercise of legislative powers whenever
mining companies in distress to the Notional and
the same are validly delegated by the legislature
Local Governments . . ." On the other hand, OPSF
or, at present, directly conferred by the
dues are not payable by (sic) distressed copper
Constitution. Administrative rules and
companies but by oil companies. It is to be noted
regulations must also be published if their
that the copper mining companies do not pay
purpose is to enforce or implement existing laws
OPSF dues. Rather, such imposts are built in or
pursuant also to a valid delegation.
already incorporated in the prices of oil
products. 44 xxx xxx xxx
Lastly, respondents allege that while LOI 1416 WHEREFORE, it is hereby declared that all laws
suspends the payment of taxes by distressed as above defined shall immediately upon their
mining companies, it does not accord petitioner approval, or as soon thereafter as possible, be
the same privilege with respect to its obligation published in full in the Official Gazette, to
to pay OPSF dues. become effective only after fifteen days from
their publication, or on another date specified by
We concur with the disquisitions of the
the legislature, in accordance with Article 2 of
respondents. Aside from such reasons, however,
the Civil Code.
it is apparent that LOI 1416 was never published
in the Official Gazette 45 as required by Article 2 LOI 1416 has, therefore, no binding force or
of the Civil Code, which reads: effect as it was never published in the Official
Gazette after its issuance or at any time after the
Laws shall take effect after fifteen days following
decision in the abovementioned cases.
the completion of their publication in the Official
Gazette, unless it is otherwise provided. . . . Article 2 of the Civil Code was, however, later
amended by Executive Order No. 200, issued on
18 June 1987. As amended, the said provision An examination of the records of this case shows
now reads: that petitioner failed to prove or substantiate its
contention that the amount of P130,420,235.00
Laws shall take effect after fifteen days following
is still pending before the OEA and the DOF.
the completion of their publication either in the
Additionally, We find no reason to doubt the
Official Gazette or in a newspaper of general
submission of respondents that said amount has
circulation in the Philippines, unless it is
already been passed upon by the OEA. Hence,
otherwise provided.
the ruling of respondent COA disapproving said
We are not aware of the publication of LOI 1416 claim must be upheld.
in any newspaper of general circulation pursuant
V. The last issue to be resolved in this case is
to Executive Order No. 200.
whether or not the amounts due to the OPSF
Furthermore, even granting arguendo that LOI from petitioner may be offset against
1416 has force and effect, petitioner's claim petitioner's outstanding claims from said fund.
must still fail. Tax exemptions as a general rule Petitioner contends that it should be allowed to
are construed strictly against the grantee and offset its claims from the OPSF against its
liberally in favor of the taxing authority. 48The contributions to the fund as this has been
burden of proof rests upon the party claiming allowed in the past, particularly in the years 1987
exemption to prove that it is in fact covered by and 1988. 51
the exemption so claimed. The party claiming
Furthermore, petitioner cites, as bases for
exemption must therefore be expressly
offsetting, the provisions of the New Civil Code
mentioned in the exempting law or at least be
on compensation and Section 21, Book V, Title I-
within its purview by clear legislative intent.
B of the Revised Administrative Code which
In the case at bar, petitioner failed to prove that provides for "Retention of Money for
it is entitled, as a consequence of its sales to Satisfaction of Indebtedness to
52
ATLAS and MARCOPPER, to claim Government." Petitioner also mentions
reimbursement from the OPSF under LOI 1416. communications from the Board of Energy and
Though LOI 1416 may suspend the payment of the Department of Finance that supposedly
taxes by copper mining companies, it does not authorize compensation.
give petitioner the same privilege with respect to
Respondents, on the other hand, citing Francia
the payment of OPSF dues.
vs. IAC and Fernandez, 53 contend that there can
IV. As to COA's disallowance of the amount of be no offsetting of taxes against the claims that
P130,420,235.00, petitioner maintains that the a taxpayer may have against the government, as
Department of Finance has still to issue a final taxes do not arise from contracts or depend
and definitive ruling thereon; accordingly, it was upon the will of the taxpayer, but are imposed by
premature for COA to disallow it. By doing so, the law. Respondents also allege that petitioner's
latter acted beyond its reliance on Section 21, Book V, Title I-B of the
49
jurisdiction. Respondents, on the other hand, Revised Administrative Code, is misplaced
contend that said amount was already because "while this provision empowers the COA
disallowed by the OEA for failure to substantiate to withhold payment of a government
it. 50 In fact, when OEA submitted the claims of indebtedness to a person who is also indebted to
petitioner for pre-audit, the abovementioned the government and apply the government
amount was already excluded. indebtedness to the satisfaction of the obligation
of the person to the government, like authority
or right to make compensation is not given to the the existence of the government; taxes may be
private person." 54 The reason for this, as stated levied with a regulatory purpose to provide
in Commissioner of Internal Revenue vs. Algue, means for the rehabilitation and stabilization of
Inc., 55 is that money due the government, either a threatened industry which is affected with
in the form of taxes or other dues, is its lifeblood public interest as to be within the police power
and should be collected without hindrance. of the state. 57 There can be no doubt that the oil
Thus, instead of giving petitioner a reason for industry is greatly imbued with public interest as
compensation or set-off, the Revised it vitally affects the general welfare. Any
Administrative Code makes it the respondents' unregulated increase in oil prices could hurt the
duty to collect petitioner's indebtedness to the lives of a majority of the people and cause
OPSF. economic crisis of untold proportions. It would
have a chain reaction in terms of, among others,
Refuting respondents' contention, petitioner
demands for wage increases and upward
claims that the amounts due from it do not arise
spiralling of the cost of basic commodities. The
as a result of taxation because "P.D. 1956,
stabilization then of oil prices is of prime concern
amended, did not create a source of taxation; it
which the state, via its police power, may
instead established a special fund . . .," 56 and
properly address.
that the OPSF contributions do not go to the
general fund of the state and are not used for Also, P.D. No. 1956, as amended by E.O. No. 137,
public purpose, i.e., not for the support of the explicitly provides that the source of OPSF is
government, the administration of law, or the taxation. No amount of semantical juggleries
payment of public expenses. This alleged lack of could dim this fact.
a public purpose behind OPSF exactions
It is settled that a taxpayer may not offset taxes
distinguishes such from a tax. Hence, the ruling
due from the claims that he may have against the
in the Francia case is inapplicable.
government. 58Taxes cannot be the subject of
Lastly, petitioner cites R.A. No. 6952 creating the compensation because the government and
Petroleum Price Standby Fund to support the taxpayer are not mutually creditors and debtors
OPSF; the said law provides in part that: of each other and a claim for taxes is not such a
debt, demand, contract or judgment as is
Sec. 2. Application of the fund shall be subject to
allowed to be set-off. 59
the following conditions:
We may even further state that technically, in
xxx xxx xxx
respect to the taxes for the OPSF, the oil
(3) That no amount of the Petroleum Price companies merely act as agents for the
Standby Fund shall be used to pay any oil Government in the latter's collection since the
company which has an outstanding obligation to taxes are, in reality, passed unto the end-users –
the Government without said obligation being – the consuming public. In that capacity, the
offset first, subject to the requirements of petitioner, as one of such companies, has the
compensation or offset under the Civil Code. primary obligation to account for and remit the
taxes collected to the administrator of the OPSF.
We find no merit in petitioner's contention that This duty stems from the fiduciary relationship
the OPSF contributions are not for a public between the two; petitioner certainly cannot be
purpose because they go to a special fund of the considered merely as a debtor. In respect,
government. Taxation is no longer envisioned as therefore, to its collection for the OPSF vis-a-
a measure merely to raise revenue to support vis its claims for reimbursement, no
compensation is likewise legally feasible. Firstly, SO ORDERED.
the Government and the petitioner cannot be
said to be mutually debtors and creditors of each
other. Secondly, there is no proof that DIGEST:
petitioner's claim is already due and liquidated.
Under Article 1279 of the Civil Code, in order that G.R. No. 92585 May 8, 1992CALTEX
compensation may be proper, it is necessary PHILIPPINES, INC., petitioner,vs.THE
that: HONORABLE COMMISSION ON AUDIT,
HONORABLECOMMISSIONER BARTOLOME C.
(1) each one of the obligors be bound principally, FERNANDEZ and HONORABLECOMMISSIONER
and that he be at the same time a principal ALBERTO P. CRUZ, respondents.
creditor of the other;
Topic: (1) tax vs. ordinary debt, (2)
(2) both debts consist in a sum of :money, or if purpose/objective of taxation: non-revenue /
the things due are consumable, they be of the special / regulatoryPonente: Davide, Jr. J.
same kind, and also of the same quality if the
latter has been stated; DOCTRINE:
(3) the two (2) debts be due; A taxpayer may not offset taxes due from the
claims that he may have againstthe government.
(4) they be liquidated and demandable;
QUICK FACTS
(5) over neither of them there be any retention
or controversy, commenced by third persons : Caltex Philippines questions the decisions of
and communicated in due time to the debtor. COA fordisallowing the offsetting of its claims for
reimbursement with its due OPSFremittance
That compensation had been the practice in the
past can set no valid precedent. Such a practice
has no legal basis. Lastly, R.A. No. 6952 does not FACTS:
authorize oil companies to offset their claims
against their OPSF contributions. Instead, it The Oil Price Stabilization Fund (OPSF) was
prohibits the government from paying any created under Sec. 8, PD 1956, asamended by
amount from the Petroleum Price Standby Fund EO 137 for the purpose of minimizing frequent
to oil companies which have outstanding price changesbrought about by exchange rate
obligations with the government, without said adjustments. It will be used to reimburse theoil
obligation being offset first subject to the rules companies for cost increase and possible cost
on compensation in the Civil Code. underrecovery incurred dueto reduction of
domestic prices.COA sent a letter to Caltex
WHEREFORE, in view of the directing the latter to remit to the OPSF
foregoing, judgment is hereby rendered itscollection. Caltex requested COA for an early
AFFIRMING the challenged decision of the release of its reimbursementcertificates which
Commission on Audit, except that portion the latter denied.COA disallowed recover of
thereof disallowing petitioner's claim for financing charges, inventory losses and sales
reimbursement of underrecovery arising from tomarcopper and atlas but allowed the recovery
sales to the National Power Corporation, which of product sale or those arisingfrom export
is hereby allowed. sales.Petitioner’s Contention:Department of
With costs against petitioner. Finance issued Circular No. 4-88 allowing
reimbursement.Denial of claim a special fund of thegovernment. Taxation is no
for reimbursement would be inequitable. NCC longer envisioned as a measure merely toraise
(compensation)and Sec. 21, Book V, Title I-B of revenue to support the existence of the
the Revised Administrative Code (Retention government; taxes may belevied with a
of Money for Satisfaction of Indebtedness to regulatory purpose to provide means for the
Government) allows offsetting.Amounts due do rehabilitationand stabilization of a threatened
not arise as a result of taxation since PD 1956 did industry which is affected with publicinterest as
not create asource of taxation, it instead to be within the police power of the State.
established a special fund. This lack of
publicpurpose behind OPSF exactions
distinguishes it from tax. The oil industry is greatly imbued with public
interest as it vitally affectsthe general welfare.
Respondent’s Contention:Based on Francia v.
IAC, there’s no offsetting of taxes against the the
claimsthat a taxpayer may have against the
government, as taxes do not arise fromcontracts PD 1956, as amended by EO No. 137 explicitly
or depend upon the will of the taxpayer, but are provides that the sourceof OPSF is taxation.
imposed by law.
ACCORDINGLY, the constitutionality of Section 2 levies and collects from soft drinks producers
of Republic Act No. 2264, otherwise known as and manufacturers at tax of 1/16 of a
the Local Autonomy Act, as amended, is hereby centavo forevery bottle of soft drink corked.
upheld and Municipal Ordinance No. 27 of the
Municipality of Tanauan, Leyte, series of 1962,
re-pealing Municipal Ordinance No. 23, same 4.
series, is hereby declared of valid and legal
effect. Costs against petitioner-appellant.
Ordinance No. 27
–
DIGEST:
5.
Pepsi filed a complaint before the CFI to declare
SEC 2 of RA No. 2264 (Local Autonomy Act)
as unconstitutional and as anundue delegation Tax imposed on both Ordinances No. 23 and 27
of taxing authority. Pepsi also sought tohave is
Ordinances 23 and 27 by the Municipality of
denominated as “municipal production tax”
Tanauan be declared as null and void2.
6.
In a Stipulation of Facts entered into by the
parties:a.
CFI dismissed the complaint and upheld the gov’t carries with it the power to confer on such
constitutionalityof the 2 ordinances. local
is an unconstitutional taking of a vested property According to P.D. No. 316, which was
right. It is also his contention that the inclusion promulgated in implementation of P.D. No. 27:
of even small landowners in the program along
No tenant-farmer in agricultural lands primarily
with other landowners with lands consisting of
devoted to rice and corn shall be ejected or
seven hectares or more is undemocratic.
removed from his farmholding until such time as
In his Comment, the Solicitor General submits the respective rights of the tenant- farmers and
that the petition is premature because the the landowner shall have been determined in
motion for reconsideration filed with the accordance with the rules and regulations
Minister of Agrarian Reform is still unresolved. implementing P.D. No. 27.
As for the validity of the issuance of E.O. Nos. 228
The petitioners claim they cannot eject their
and 229, he argues that they were enacted
tenants and so are unable to enjoy their right of
pursuant to Section 6, Article XVIII of the
retention because the Department of Agrarian
Transitory Provisions of the 1987 Constitution
Reform has so far not issued the implementing
which reads:
rules required under the above-quoted decree.
The incumbent president shall continue to They therefore ask the Court for a writ of
exercise legislative powers until the first mandamus to compel the respondent to issue
Congress is convened. the said rules.
In his Comment, the public respondent argues to cover them also, the said measures are
that P.D. No. 27 has been amended by LOI 474 nevertheless not in force because they have not
removing any right of retention from persons been published as required by law and the ruling
who own other agricultural lands of more than 7 of this Court in Tanada v. Tuvera.10 As for LOI
hectares in aggregate area or lands used for 474, the same is ineffective for the additional
residential, commercial, industrial or other reason that a mere letter of instruction could not
purposes from which they derive adequate have repealed the presidential decree.
income for their family. And even assuming that
I
the petitioners do not fall under its terms, the
regulations implementing P.D. No. 27 have Although holding neither purse nor sword and so
already been issued, to wit, the Memorandum regarded as the weakest of the three
dated July 10, 1975 (Interim Guidelines on departments of the government, the judiciary is
Retention by Small Landowners, with an nonetheless vested with the power to annul the
accompanying Retention Guide Table), acts of either the legislative or the executive or
Memorandum Circular No. 11 dated April 21, of both when not conformable to the
1978, (Implementation Guidelines of LOI No. fundamental law. This is the reason for what
474), Memorandum Circular No. 18-81 dated some quarters call the doctrine of judicial
December 29,1981 (Clarificatory Guidelines on supremacy. Even so, this power is not lightly
Coverage of P.D. No. 27 and Retention by Small assumed or readily exercised. The doctrine of
Landowners), and DAR Administrative Order No. separation of powers imposes upon the courts a
1, series of 1985 (Providing for a Cut-off Date for proper restraint, born of the nature of their
Landowners to Apply for Retention and/or to functions and of their respect for the other
Protest the Coverage of their Landholdings departments, in striking down the acts of the
under Operation Land Transfer pursuant to P.D. legislative and the executive as unconstitutional.
No. 27). For failure to file the corresponding The policy, indeed, is a blend of courtesy and
applications for retention under these measures, caution. To doubt is to sustain. The theory is that
the petitioners are now barred from invoking before the act was done or the law was enacted,
this right. earnest studies were made by Congress or the
President, or both, to insure that the
The public respondent also stresses that the
Constitution would not be breached.
petitioners have prematurely initiated this case
notwithstanding the pendency of their appeal to In addition, the Constitution itself lays down
the President of the Philippines. Moreover, the stringent conditions for a declaration of
issuance of the implementing rules, assuming unconstitutionality, requiring therefor the
this has not yet been done, involves the exercise concurrence of a majority of the members of the
of discretion which cannot be controlled through Supreme Court who took part in the
the writ of mandamus. This is especially true if deliberations and voted on the issue during their
this function is entrusted, as in this case, to a session en banc.11 And as established by judge
separate department of the government. made doctrine, the Court will assume jurisdiction
over a constitutional question only if it is shown
In their Reply, the petitioners insist that the
that the essential requisites of a judicial inquiry
above-cited measures are not applicable to them
into such a question are first satisfied. Thus,
because they do not own more than seven
there must be an actual case or controversy
hectares of agricultural land. Moreover,
involving a conflict of legal rights susceptible of
assuming arguendo that the rules were intended
judicial determination, the constitutional
question must have been opportunely raised by influence its decision. Blandishment is as
the proper party, and the resolution of the ineffectual as intimidation.
question is unavoidably necessary to the
For all the awesome power of the Congress and
decision of the case itself. 12
the Executive, the Court will not hesitate to
With particular regard to the requirement of "make the hammer fall, and heavily," to use
proper party as applied in the cases before us, Justice Laurel's pithy language, where the acts of
we hold that the same is satisfied by the these departments, or of any public official,
petitioners and intervenors because each of betray the people's will as expressed in the
them has sustained or is in danger of sustaining Constitution.
an immediate injury as a result of the acts or
It need only be added, to borrow again the words
measures complained of. 13 And even if, strictly
of Justice Laurel, that —
speaking, they are not covered by the definition,
it is still within the wide discretion of the Court ... when the judiciary mediates to allocate
to waive the requirement and so remove the constitutional boundaries, it does not assert any
impediment to its addressing and resolving the superiority over the other departments; it does
serious constitutional questions raised. not in reality nullify or invalidate an act of the
Legislature, but only asserts the solemn and
In the first Emergency Powers Cases, 14 ordinary
sacred obligation assigned to it by the
citizens and taxpayers were allowed to question
Constitution to determine conflicting claims of
the constitutionality of several executive orders
authority under the Constitution and to establish
issued by President Quirino although they were
for the parties in an actual controversy the rights
invoking only an indirect and general interest
which that instrument secures and guarantees to
shared in common with the public. The Court
them. This is in truth all that is involved in what
dismissed the objection that they were not
is termed "judicial supremacy" which properly is
proper parties and ruled that "the
the power of judicial review under the
transcendental importance to the public of these
Constitution. 16
cases demands that they be settled promptly
and definitely, brushing aside, if we must, The cases before us categorically raise
technicalities of procedure." We have since then constitutional questions that this Court must
applied this exception in many other cases. 15 categorically resolve. And so we shall.
The other above-mentioned requisites have also II
been met in the present petitions.
We proceed first to the examination of the
In must be stressed that despite the inhibitions preliminary issues before resolving the more
pressing upon the Court when confronted with serious challenges to the constitutionality of the
constitutional issues like the ones now before it, several measures involved in these petitions.
it will not hesitate to declare a law or act invalid
when it is convinced that this must be done. In The promulgation of P.D. No. 27 by President
arriving at this conclusion, its only criterion will Marcos in the exercise of his powers under
be the Constitution as God and its conscience martial law has already been sustained
give it the light to probe its meaning and discover in Gonzales v. Estrella and we find no reason to
its purpose. Personal motives and political modify or reverse it on that issue. As for the
considerations are irrelevancies that cannot power of President Aquino to promulgate Proc.
No. 131 and E.O. Nos. 228 and 229, the same was
authorized under Section 6 of the Transitory the primary and specific purpose of which is to
Provisions of the 1987 Constitution, quoted authorize the release of public funds from the
above. treasury. 19 The creation of the fund is only
incidental to the main objective of the
The said measures were issued by President
proclamation, which is agrarian reform.
Aquino before July 27, 1987, when the Congress
of the Philippines was formally convened and It should follow that the specific constitutional
took over legislative power from her. They are provisions invoked, to wit, Section 24 and
not "midnight" enactments intended to pre- Section 25(4) of Article VI, are not applicable.
empt the legislature because E.O. No. 228 was With particular reference to Section 24, this
issued on July 17, 1987, and the other measures, obviously could not have been complied with for
i.e., Proc. No. 131 and E.O. No. 229, were both the simple reason that the House of
issued on July 22, 1987. Neither is it correct to Representatives, which now has the exclusive
say that these measures ceased to be valid when power to initiate appropriation measures, had
she lost her legislative power for, like any not yet been convened when the proclamation
statute, they continue to be in force unless was issued. The legislative power was then solely
modified or repealed by subsequent law or vested in the President of the Philippines, who
declared invalid by the courts. A statute does embodied, as it were, both houses of Congress.
not ipso facto become inoperative simply
The argument of some of the petitioners that
because of the dissolution of the legislature that
Proc. No. 131 and E.O. No. 229 should be
enacted it. By the same token, President
invalidated because they do not provide for
Aquino's loss of legislative power did not have
retention limits as required by Article XIII,
the effect of invalidating all the measures
Section 4 of the Constitution is no longer
enacted by her when and as long as she
tenable. R.A. No. 6657 does provide for such
possessed it.
limits now in Section 6 of the law, which in fact is
Significantly, the Congress she is alleged to have one of its most controversial provisions. This
undercut has not rejected but in fact section declares:
substantially affirmed the challenged measures
Retention Limits. — Except as otherwise
and has specifically provided that they shall be
provided in this Act, no person may own or
suppletory to R.A. No. 6657 whenever not
retain, directly or indirectly, any public or private
inconsistent with its provisions. 17 Indeed, some
agricultural land, the size of which shall vary
portions of the said measures, like the creation
according to factors governing a viable family-
of the P50 billion fund in Section 2 of Proc. No.
sized farm, such as commodity produced,
131, and Sections 20 and 21 of E.O. No. 229, have
terrain, infrastructure, and soil fertility as
been incorporated by reference in the CARP
determined by the Presidential Agrarian Reform
Law. 18
Council (PARC) created hereunder, but in no case
That fund, as earlier noted, is itself being shall retention by the landowner exceed five (5)
questioned on the ground that it does not hectares. Three (3) hectares may be awarded to
conform to the requirements of a valid each child of the landowner, subject to the
appropriation as specified in the Constitution. following qualifications: (1) that he is at least
Clearly, however, Proc. No. 131 is not an fifteen (15) years of age; and (2) that he is
appropriation measure even if it does provide for actually tilling the land or directly managing the
the creation of said fund, for that is not its farm; Provided, That landowners whose lands
principal purpose. An appropriation law is one have been covered by Presidential Decree No. 27
shall be allowed to keep the area originally one important qualification. Correctly and
retained by them thereunder, further, That categorically stated, the rule is that mandamus
original homestead grantees or direct will lie to compel the discharge of the
compulsory heirs who still own the original discretionary duty itself but not to control the
homestead at the time of the approval of this Act discretion to be exercised. In other words,
shall retain the same areas as long as they mandamus can issue to require action only but
continue to cultivate said homestead. not specific action.
The argument that E.O. No. 229 violates the Whenever a duty is imposed upon a public
constitutional requirement that a bill shall have official and an unnecessary and unreasonable
only one subject, to be expressed in its title, delay in the exercise of such duty occurs, if it is a
deserves only short attention. It is settled that clear duty imposed by law, the courts will
the title of the bill does not have to be a intervene by the extraordinary legal remedy of
catalogue of its contents and will suffice if the mandamus to compel action. If the duty is purely
matters embodied in the text are relevant to ministerial, the courts will require specific action.
each other and may be inferred from the title. 20 If the duty is purely discretionary, the courts
by mandamus will require action only. For
The Court wryly observes that during the past
example, if an inferior court, public official, or
dictatorship, every presidential issuance, by
board should, for an unreasonable length of
whatever name it was called, had the force and
time, fail to decide a particular question to the
effect of law because it came from President
great detriment of all parties concerned, or a
Marcos. Such are the ways of despots. Hence, it
court should refuse to take jurisdiction of a cause
is futile to argue, as the petitioners do in G.R. No.
when the law clearly gave it jurisdiction
79744, that LOI 474 could not have repealed P.D.
mandamus will issue, in the first case to require
No. 27 because the former was only a letter of
a decision, and in the second to require that
instruction. The important thing is that it was
jurisdiction be taken of the cause. 22
issued by President Marcos, whose word was law
during that time. And while it is true that as a rule the writ will not
be proper as long as there is still a plain, speedy
But for all their peremptoriness, these issuances
and adequate remedy available from the
from the President Marcos still had to comply
administrative authorities, resort to the courts
with the requirement for publication as this
may still be permitted if the issue raised is a
Court held in Tanada v. Tuvera. 21 Hence, unless
question of law. 23
published in the Official Gazette in accordance
with Article 2 of the Civil Code, they could not III
have any force and effect if they were among
There are traditional distinctions between the
those enactments successfully challenged in that
police power and the power of eminent domain
case. LOI 474 was published, though, in the
that logically preclude the application of both
Official Gazette dated November 29,1976.)
powers at the same time on the same subject. In
Finally, there is the contention of the public the case of City of Baguio v. NAWASA, 24for
respondent in G.R. No. 78742 that the writ of example, where a law required the transfer of all
mandamus cannot issue to compel the municipal waterworks systems to the NAWASA
performance of a discretionary act, especially by in exchange for its assets of equivalent value, the
a specific department of the government. That is Court held that the power being exercised was
true as a general proposition but is subject to eminent domain because the property involved
was wholesome and intended for a public use. from making a use which interferes with
Property condemned under the police power is paramount rights of the public. Whenever the
noxious or intended for a noxious purpose, such use prohibited ceases to be noxious — as it may
as a building on the verge of collapse, which because of further changes in local or social
should be demolished for the public safety, or conditions — the restriction will have to be
obscene materials, which should be destroyed in removed and the owner will again be free to
the interest of public morals. The confiscation of enjoy his property as heretofore.
such property is not compensable, unlike the
Recent trends, however, would indicate not a
taking of property under the power of
polarization but a mingling of the police power
expropriation, which requires the payment of
and the power of eminent domain, with the
just compensation to the owner.
latter being used as an implement of the former
In the case of Pennsylvania Coal Co. v. like the power of taxation. The employment of
Mahon, 25 Justice Holmes laid down the limits of the taxing power to achieve a police purpose has
the police power in a famous aphorism: "The long been accepted. 26 As for the power of
general rule at least is that while property may expropriation, Prof. John J. Costonis of the
be regulated to a certain extent, if regulation University of Illinois College of Law (referring to
goes too far it will be recognized as a taking." The the earlier case of Euclid v. Ambler Realty Co.,
regulation that went "too far" was a law 272 US 365, which sustained a zoning law under
prohibiting mining which might cause the the police power) makes the following significant
subsidence of structures for human habitation remarks:
constructed on the land surface. This was
Euclid, moreover, was decided in an era when
resisted by a coal company which had earlier
judges located the Police and eminent domain
granted a deed to the land over its mine but
powers on different planets. Generally speaking,
reserved all mining rights thereunder, with the
they viewed eminent domain as encompassing
grantee assuming all risks and waiving any
public acquisition of private property for
damage claim. The Court held the law could not
improvements that would be available for public
be sustained without compensating the grantor.
use," literally construed. To the police power, on
Justice Brandeis filed a lone dissent in which he
the other hand, they assigned the less intrusive
argued that there was a valid exercise of the
task of preventing harmful externalities a point
police power. He said:
reflected in the Euclid opinion's reliance on an
Every restriction upon the use of property analogy to nuisance law to bolster its support of
imposed in the exercise of the police power zoning. So long as suppression of a privately
deprives the owner of some right theretofore authored harm bore a plausible relation to some
enjoyed, and is, in that sense, an abridgment by legitimate "public purpose," the pertinent
the State of rights in property without making measure need have afforded no compensation
compensation. But restriction imposed to whatever. With the progressive growth of
protect the public health, safety or morals from government's involvement in land use, the
dangers threatened is not a taking. The distance between the two powers has
restriction here in question is merely the contracted considerably. Today government
prohibition of a noxious use. The property so often employs eminent domain interchangeably
restricted remains in the possession of its owner. with or as a useful complement to the police
The state does not appropriate it or make any power-- a trend expressly approved in the
use of it. The state merely prevents the owner Supreme Court's 1954 decision in Berman v.
Parker, which broadened the reach of eminent authorized to transfer to neighboring properties
domain's "public use" test to match that of the the authorized but unused rights accruing to the
police power's standard of "public purpose." 27 site prior to the Terminal's designation as a
landmark — the rights which would have been
The Berman case sustained a redevelopment
exhausted by the 59-story building that the city
project and the improvement of blighted areas in
refused to countenance atop the Terminal.
the District of Columbia as a proper exercise of
Prevailing bulk restrictions on neighboring sites
the police power. On the role of eminent domain
were proportionately relaxed, theoretically
in the attainment of this purpose, Justice
enabling Penn Central to recoup its losses at the
Douglas declared:
Terminal site by constructing or selling to others
If those who govern the District of Columbia the right to construct larger, hence more
decide that the Nation's Capital should be profitable buildings on the transferee sites. 30
beautiful as well as sanitary, there is nothing in
The cases before us present no knotty
the Fifth Amendment that stands in the way.
complication insofar as the question of
Once the object is within the authority of compensable taking is concerned. To the extent
Congress, the right to realize it through the that the measures under challenge merely
exercise of eminent domain is clear. prescribe retention limits for landowners, there
is an exercise of the police power for the
For the power of eminent domain is merely the regulation of private property in accordance with
means to the end. 28 the Constitution. But where, to carry out such
In Penn Central Transportation Co. v. New York regulation, it becomes necessary to deprive such
City, 29 decided by a 6-3 vote in 1978, the U.S owners of whatever lands they may own in
Supreme Court sustained the respondent's excess of the maximum area allowed, there is
Landmarks Preservation Law under which the definitely a taking under the power of eminent
owners of the Grand Central Terminal had not domain for which payment of just compensation
been allowed to construct a multi-story office is imperative. The taking contemplated is not a
building over the Terminal, which had been mere limitation of the use of the land. What is
designated a historic landmark. Preservation of required is the surrender of the title to and the
the landmark was held to be a valid objective of physical possession of the said excess and all
the police power. The problem, however, was beneficial rights accruing to the owner in favor of
that the owners of the Terminal would be the farmer-beneficiary. This is definitely an
deprived of the right to use the airspace above it exercise not of the police power but of the power
although other landowners in the area could do of eminent domain.
so over their respective properties. While Whether as an exercise of the police power or of
insisting that there was here no taking, the Court the power of eminent domain, the several
nonetheless recognized certain compensatory measures before us are challenged as violative of
rights accruing to Grand Central Terminal which the due process and equal protection clauses.
it said would "undoubtedly mitigate" the loss
caused by the regulation. This "fair The challenge to Proc. No. 131 and E.O. Nos. 228
compensation," as he called it, was explained by and 299 on the ground that no retention limits
Prof. Costonis in this wise: are prescribed has already been discussed and
dismissed. It is noted that although they excited
In return for retaining the Terminal site in its many bitter exchanges during the deliberation of
pristine landmark status, Penn Central was the CARP Law in Congress, the retention limits
finally agreed upon are, curiously enough, not except to those who will not see. There is no
being questioned in these petitions. We need to elaborate on this matter. In any event,
therefore do not discuss them here. The Court the Congress is allowed a wide leeway in
will come to the other claimed violations of due providing for a valid classification. Its decision is
process in connection with our examination of accorded recognition and respect by the courts
the adequacy of just compensation as required of justice except only where its discretion is
under the power of expropriation. abused to the detriment of the Bill of Rights.
The argument of the small farmers that they It is worth remarking at this juncture that a
have been denied equal protection because of statute may be sustained under the police power
the absence of retention limits has also become only if there is a concurrence of the lawful
academic under Section 6 of R.A. No. 6657. subject and the lawful method. Put otherwise,
Significantly, they too have not questioned the the interests of the public generally as
area of such limits. There is also the complaint distinguished from those of a particular class
that they should not be made to share the require the interference of the State and, no less
burden of agrarian reform, an objection also important, the means employed are reasonably
made by the sugar planters on the ground that necessary for the attainment of the purpose
they belong to a particular class with particular sought to be achieved and not unduly oppressive
interests of their own. However, no evidence has upon individuals. 34 As the subject and purpose
been submitted to the Court that the requisites of agrarian reform have been laid down by the
of a valid classification have been violated. Constitution itself, we may say that the first
requirement has been satisfied. What remains to
Classification has been defined as the grouping
be examined is the validity of the method
of persons or things similar to each other in
employed to achieve the constitutional goal.
certain particulars and different from each other
in these same particulars. 31 To be valid, it must One of the basic principles of the democratic
conform to the following requirements: (1) it system is that where the rights of the individual
must be based on substantial distinctions; (2) it are concerned, the end does not justify the
must be germane to the purposes of the law; (3) means. It is not enough that there be a valid
it must not be limited to existing conditions only; objective; it is also necessary that the means
and (4) it must apply equally to all the members employed to pursue it be in keeping with the
of the class. 32 The Court finds that all these Constitution. Mere expediency will not excuse
requisites have been met by the measures here constitutional shortcuts. There is no question
challenged as arbitrary and discriminatory. that not even the strongest moral conviction or
the most urgent public need, subject only to a
Equal protection simply means that all persons
few notable exceptions, will excuse the
or things similarly situated must be treated alike
bypassing of an individual's rights. It is no
both as to the rights conferred and the liabilities
exaggeration to say that a, person invoking a
imposed. 33 The petitioners have not shown that
right guaranteed under Article III of the
they belong to a different class and entitled to a
Constitution is a majority of one even as against
different treatment. The argument that not only
the rest of the nation who would deny him that
landowners but also owners of other properties
right.
must be made to share the burden of
implementing land reform must be rejected. That right covers the person's life, his liberty and
There is a substantial distinction between these his property under Section 1 of Article III of the
two classes of owners that is clearly visible Constitution. With regard to his property, the
owner enjoys the added protection of Section 9, public agricultural lands may be covered by the
which reaffirms the familiar rule that private CARP as the Constitution calls for "the just
property shall not be taken for public use distribution of all agricultural lands." In any
without just compensation. event, the decision to redistribute private
agricultural lands in the manner prescribed by
This brings us now to the power of eminent
the CARP was made by the legislative and
domain.
executive departments in the exercise of their
IV discretion. We are not justified in reviewing that
discretion in the absence of a clear showing that
Eminent domain is an inherent power of the it has been abused.
State that enables it to forcibly acquire private
lands intended for public use upon payment of A becoming courtesy admonishes us to respect
just compensation to the owner. Obviously, the decisions of the political departments when
there is no need to expropriate where the owner they decide what is known as the political
is willing to sell under terms also acceptable to question. As explained by Chief Justice
the purchaser, in which case an ordinary deed of Concepcion in the case of Tañada v. Cuenco: 36
sale may be agreed upon by the parties. 35 It is
The term "political question" connotes what it
only where the owner is unwilling to sell, or
means in ordinary parlance, namely, a question
cannot accept the price or other conditions
of policy. It refers to "those questions which,
offered by the vendee, that the power of
under the Constitution, are to be decided by the
eminent domain will come into play to assert the
people in their sovereign capacity; or in regard to
paramount authority of the State over the
which full discretionary authority has been
interests of the property owner. Private rights
delegated to the legislative or executive branch
must then yield to the irresistible demands of the
of the government." It is concerned with issues
public interest on the time-honored justification,
dependent upon the wisdom, not legality, of a
as in the case of the police power, that the
particular measure.
welfare of the people is the supreme law.
It is true that the concept of the political
But for all its primacy and urgency, the power of
question has been constricted with the
expropriation is by no means absolute (as indeed
enlargement of judicial power, which now
no power is absolute). The limitation is found in
includes the authority of the courts "to
the constitutional injunction that "private
determine whether or not there has been a
property shall not be taken for public use
grave abuse of discretion amounting to lack or
without just compensation" and in the abundant
excess of jurisdiction on the part of any branch
jurisprudence that has evolved from the
or instrumentality of the Government." 37 Even
interpretation of this principle. Basically, the
so, this should not be construed as a license for
requirements for a proper exercise of the power
us to reverse the other departments simply
are: (1) public use and (2) just compensation.
because their views may not coincide with ours.
Let us dispose first of the argument raised by the
The legislature and the executive have been seen
petitioners in G.R. No. 79310 that the State
fit, in their wisdom, to include in the CARP the
should first distribute public agricultural lands in
redistribution of private landholdings (even as
the pursuit of agrarian reform instead of
the distribution of public agricultural lands is first
immediately disturbing property rights by
provided for, while also continuing apace under
forcibly acquiring private agricultural lands.
the Public Land Act and other cognate laws). The
Parenthetically, it is not correct to say that only
Court sees no justification to interpose its "just" is used to intensify the meaning of the
authority, which we may assert only if we believe word "compensation" to convey the idea that
that the political decision is not unwise, but the equivalent to be rendered for the property
illegal. We do not find it to be so. to be taken shall be real, substantial, full,
ample. 41
In U.S. v. Chandler-Dunbar Water Power
Company,38 it was held: It bears repeating that the measures challenged
in these petitions contemplate more than a mere
Congress having determined, as it did by the Act
regulation of the use of private lands under the
of March 3,1909 that the entire St. Mary's river
police power. We deal here with an actual taking
between the American bank and the
of private agricultural lands that has
international line, as well as all of the upland
dispossessed the owners of their property and
north of the present ship canal, throughout its
deprived them of all its beneficial use and
entire length, was "necessary for the purpose of
enjoyment, to entitle them to the just
navigation of said waters, and the waters
compensation mandated by the Constitution.
connected therewith," that determination is
conclusive in condemnation proceedings As held in Republic of the Philippines v.
instituted by the United States under that Act, Castellvi, 42 there is compensable taking when
and there is no room for judicial review of the the following conditions concur: (1) the
judgment of Congress ... . expropriator must enter a private property; (2)
the entry must be for more than a momentary
As earlier observed, the requirement for public
period; (3) the entry must be under warrant or
use has already been settled for us by the
color of legal authority; (4) the property must be
Constitution itself No less than the 1987 Charter
devoted to public use or otherwise informally
calls for agrarian reform, which is the reason why
appropriated or injuriously affected; and (5) the
private agricultural lands are to be taken from
utilization of the property for public use must be
their owners, subject to the prescribed
in such a way as to oust the owner and deprive
maximum retention limits. The purposes
him of beneficial enjoyment of the property. All
specified in P.D. No. 27, Proc. No. 131 and R.A.
these requisites are envisioned in the measures
No. 6657 are only an elaboration of the
before us.
constitutional injunction that the State adopt the
necessary measures "to encourage and Where the State itself is the expropriator, it is not
undertake the just distribution of all agricultural necessary for it to make a deposit upon its taking
lands to enable farmers who are landless to own possession of the condemned property, as "the
directly or collectively the lands they till." That compensation is a public charge, the good faith
public use, as pronounced by the fundamental of the public is pledged for its payment, and all
law itself, must be binding on us. the resources of taxation may be employed in
raising the amount." 43 Nevertheless, Section
The second requirement, i.e., the payment of
16(e) of the CARP Law provides that:
just compensation, needs a longer and more
thoughtful examination. Upon receipt by the landowner of the
corresponding payment or, in case of rejection
Just compensation is defined as the full and fair
or no response from the landowner, upon the
equivalent of the property taken from its owner
deposit with an accessible bank designated by
by the expropriator. 39 It has been repeatedly
the DAR of the compensation in cash or in LBP
stressed by this Court that the measure is not the
bonds in accordance with this Act, the DAR shall
taker's gain but the owner's loss. 40 The word
take immediate possession of the land and shall in a matter which under this Constitution is
request the proper Register of Deeds to issue a reserved to it for final determination.
Transfer Certificate of Title (TCT) in the name of
Thus, although in an expropriation proceeding
the Republic of the Philippines. The DAR shall
the court technically would still have the power
thereafter proceed with the redistribution of the
to determine the just compensation for the
land to the qualified beneficiaries.
property, following the applicable decrees, its
Objection is raised, however, to the manner of task would be relegated to simply stating the
fixing the just compensation, which it is claimed lower value of the property as declared either by
is entrusted to the administrative authorities in the owner or the assessor. As a necessary
violation of judicial prerogatives. Specific consequence, it would be useless for the court to
reference is made to Section 16(d), which appoint commissioners under Rule 67 of the
provides that in case of the rejection or disregard Rules of Court. Moreover, the need to satisfy the
by the owner of the offer of the government to due process clause in the taking of private
buy his land- property is seemingly fulfilled since it cannot be
said that a judicial proceeding was not had
... the DAR shall conduct summary administrative
before the actual taking. However, the strict
proceedings to determine the compensation for
application of the decrees during the
the land by requiring the landowner, the LBP and
proceedings would be nothing short of a mere
other interested parties to submit evidence as to
formality or charade as the court has only to
the just compensation for the land, within fifteen
choose between the valuation of the owner and
(15) days from the receipt of the notice. After the
that of the assessor, and its choice is always
expiration of the above period, the matter is
limited to the lower of the two. The court cannot
deemed submitted for decision. The DAR shall
exercise its discretion or independence in
decide the case within thirty (30) days after it is
determining what is just or fair. Even a grade
submitted for decision.
school pupil could substitute for the judge
To be sure, the determination of just insofar as the determination of constitutional
compensation is a function addressed to the just compensation is concerned.
courts of justice and may not be usurped by any
xxx
other branch or official of the government. EPZA
v. Dulay 44 resolved a challenge to several In the present petition, we are once again
decrees promulgated by President Marcos confronted with the same question of whether
providing that the just compensation for the courts under P.D. No. 1533, which contains
property under expropriation should be either the same provision on just compensation as its
the assessment of the property by the predecessor decrees, still have the power and
government or the sworn valuation thereof by authority to determine just compensation,
the owner, whichever was lower. In declaring independent of what is stated by the decree and
these decrees unconstitutional, the Court held to this effect, to appoint commissioners for such
through Mr. Justice Hugo E. Gutierrez, Jr.: purpose.
The method of ascertaining just compensation This time, we answer in the affirmative.
under the aforecited decrees constitutes
xxx
impermissible encroachment on judicial
prerogatives. It tends to render this Court inutile It is violative of due process to deny the owner
the opportunity to prove that the valuation in
the tax documents is unfair or wrong. And it is landowner and the DAR and the LBP, in
repulsive to the basic concepts of justice and accordance with the criteria provided for in
fairness to allow the haphazard work of a minor Sections 16 and 17, and other pertinent
bureaucrat or clerk to absolutely prevail over the provisions hereof, or as may be finally
judgment of a court promulgated only after determined by the court, as the just
expert commissioners have actually viewed the compensation for the land.
property, after evidence and arguments pro and
The compensation shall be paid in one of the
con have been presented, and after all factors
following modes, at the option of the landowner:
and considerations essential to a fair and just
determination have been judiciously evaluated. (1) Cash payment, under the following terms and
conditions:
A reading of the aforecited Section 16(d) will
readily show that it does not suffer from the (a) For lands above fifty (50) hectares, insofar as
arbitrariness that rendered the challenged the excess hectarage is concerned — Twenty-
decrees constitutionally objectionable. Although five percent (25%) cash, the balance to be paid in
the proceedings are described as summary, the government financial instruments negotiable at
landowner and other interested parties are any time.
nevertheless allowed an opportunity to submit
evidence on the real value of the property. But (b) For lands above twenty-four (24) hectares
more importantly, the determination of the just and up to fifty (50) hectares — Thirty percent
compensation by the DAR is not by any means (30%) cash, the balance to be paid in government
final and conclusive upon the landowner or any financial instruments negotiable at any time.
other interested party, for Section 16(f) clearly (c) For lands twenty-four (24) hectares and
provides: below — Thirty-five percent (35%) cash, the
Any party who disagrees with the decision may balance to be paid in government financial
bring the matter to the court of proper instruments negotiable at any time.
jurisdiction for final determination of just (2) Shares of stock in government-owned or
compensation. controlled corporations, LBP preferred shares,
The determination made by the DAR is only physical assets or other qualified investments in
preliminary unless accepted by all parties accordance with guidelines set by the PARC;
concerned. Otherwise, the courts of justice will (3) Tax credits which can be used against any tax
still have the right to review with finality the said liability;
determination in the exercise of what is
admittedly a judicial function. (4) LBP bonds, which shall have the following
features:
The second and more serious objection to the
provisions on just compensation is not as easily (a) Market interest rates aligned with 91-day
resolved. treasury bill rates. Ten percent (10%) of the face
value of the bonds shall mature every year from
This refers to Section 18 of the CARP Law the date of issuance until the tenth (10th) year:
providing in full as follows: Provided, That should the landowner choose to
SEC. 18. Valuation and Mode of Compensation. forego the cash portion, whether in full or in
— The LBP shall compensate the landowner in part, he shall be paid correspondingly in LBP
such amount as may be agreed upon by the bonds;
(b) Transferability and negotiability. Such LBP The contention of the petitioners in G.R. No.
bonds may be used by the landowner, his 79777 is that the above provision is
successors-in- interest or his assigns, up to the unconstitutional insofar as it requires the owners
amount of their face value, for any of the of the expropriated properties to accept just
following: compensation therefor in less than money,
which is the only medium of payment allowed. In
(i) Acquisition of land or other real properties of
support of this contention, they cite
the government, including assets under the
jurisprudence holding that:
Asset Privatization Program and other assets
foreclosed by government financial institutions The fundamental rule in expropriation matters is
in the same province or region where the lands that the owner of the property expropriated is
for which the bonds were paid are situated; entitled to a just compensation, which should be
neither more nor less, whenever it is possible to
(ii) Acquisition of shares of stock of government-
make the assessment, than the money
owned or controlled corporations or shares of
equivalent of said property. Just compensation
stock owned by the government in private
has always been understood to be the just and
corporations;
complete equivalent of the loss which the owner
(iii) Substitution for surety or bail bonds for the of the thing expropriated has to suffer by reason
provisional release of accused persons, or for of the expropriation . 45 (Emphasis supplied.)
performance bonds;
In J.M. Tuazon Co. v. Land Tenure
(iv) Security for loans with any government Administration, 46 this Court held:
financial institution, provided the proceeds of
It is well-settled that just compensation means
the loans shall be invested in an economic
the equivalent for the value of the property at
enterprise, preferably in a small and medium-
the time of its taking. Anything beyond that is
scale industry, in the same province or region as
more, and anything short of that is less, than just
the land for which the bonds are paid;
compensation. It means a fair and full equivalent
(v) Payment for various taxes and fees to for the loss sustained, which is the measure of
government: Provided, That the use of these the indemnity, not whatever gain would accrue
bonds for these purposes will be limited to a to the expropriating entity. The market value of
certain percentage of the outstanding balance of the land taken is the just compensation to which
the financial instruments; Provided, further, That the owner of condemned property is entitled,
the PARC shall determine the percentages the market value being that sum of money which
mentioned above; a person desirous, but not compelled to buy, and
an owner, willing, but not compelled to sell,
(vi) Payment for tuition fees of the immediate would agree on as a price to be given and
family of the original bondholder in government received for such property. (Emphasis supplied.)
universities, colleges, trade schools, and other
institutions; In the United States, where much of our
jurisprudence on the subject has been derived,
(vii) Payment for fees of the immediate family of the weight of authority is also to the effect that
the original bondholder in government hospitals; just compensation for property expropriated is
and payable only in money and not otherwise. Thus
(viii) Such other uses as the PARC may from time —
to time allow.
The medium of payment of compensation is a small segment of the population but of the
ready money or cash. The condemnor cannot entire Filipino nation, from all levels of our
compel the owner to accept anything but society, from the impoverished farmer to the
money, nor can the owner compel or require the land-glutted owner. Its purpose does not cover
condemnor to pay him on any other basis than only the whole territory of this country but goes
the value of the property in money at the time beyond in time to the foreseeable future, which
and in the manner prescribed by the it hopes to secure and edify with the vision and
Constitution and the statutes. When the power the sacrifice of the present generation of
of eminent domain is resorted to, there must be Filipinos. Generations yet to come are as
a standard medium of payment, binding upon involved in this program as we are today,
both parties, and the law has fixed that standard although hopefully only as beneficiaries of a
as money in cash. 47 (Emphasis supplied.) richer and more fulfilling life we will guarantee
to them tomorrow through our thoughtfulness
Part cash and deferred payments are not and
today. And, finally, let it not be forgotten that it
cannot, in the nature of things, be regarded as a
is no less than the Constitution itself that has
reliable and constant standard of
ordained this revolution in the farms, calling for
compensation. 48
"a just distribution" among the farmers of lands
"Just compensation" for property taken by that have heretofore been the prison of their
condemnation means a fair equivalent in money, dreams but can now become the key at least to
which must be paid at least within a reasonable their deliverance.
time after the taking, and it is not within the
Such a program will involve not mere millions of
power of the Legislature to substitute for such
pesos. The cost will be tremendous. Considering
payment future obligations, bonds, or other
the vast areas of land subject to expropriation
valuable advantage. 49(Emphasis supplied.)
under the laws before us, we estimate that
It cannot be denied from these cases that the hundreds of billions of pesos will be needed, far
traditional medium for the payment of just more indeed than the amount of P50 billion
compensation is money and no other. And so, initially appropriated, which is already staggering
conformably, has just compensation been paid in as it is by our present standards. Such amount is
the past solely in that medium. However, we do in fact not even fully available at this time.
not deal here with the traditional excercise of
We assume that the framers of the Constitution
the power of eminent domain. This is not an
were aware of this difficulty when they called for
ordinary expropriation where only a specific
agrarian reform as a top priority project of the
property of relatively limited area is sought to be
government. It is a part of this assumption that
taken by the State from its owner for a specific
when they envisioned the expropriation that
and perhaps local purpose.
would be needed, they also intended that the
What we deal with here is a revolutionary kind of just compensation would have to be paid not in
expropriation. the orthodox way but a less conventional if more
practical method. There can be no doubt that
The expropriation before us affects all private they were aware of the financial limitations of
agricultural lands whenever found and of the government and had no illusions that there
whatever kind as long as they are in excess of the would be enough money to pay in cash and in full
maximum retention limits allowed their owners. for the lands they wanted to be distributed
This kind of expropriation is intended for the among the farmers. We may therefore assume
benefit not only of a particular community or of
that their intention was to allow such manner of certain degree of pragmatism has influenced our
payment as is now provided for by the CARP Law, decision on this issue, but after all this Court is
particularly the payment of the balance (if the not a cloistered institution removed from the
owner cannot be paid fully with money), or realities and demands of society or oblivious to
indeed of the entire amount of the just the need for its enhancement. The Court is as
compensation, with other things of value. We acutely anxious as the rest of our people to see
may also suppose that what they had in mind the goal of agrarian reform achieved at last after
was a similar scheme of payment as that the frustrations and deprivations of our peasant
prescribed in P.D. No. 27, which was the law in masses during all these disappointing decades.
force at the time they deliberated on the new We are aware that invalidation of the said
Charter and with which they presumably agreed section will result in the nullification of the entire
in principle. program, killing the farmer's hopes even as they
approach realization and resurrecting the
The Court has not found in the records of the
spectre of discontent and dissent in the restless
Constitutional Commission any categorical
countryside. That is not in our view the intention
agreement among the members regarding the
of the Constitution, and that is not what we shall
meaning to be given the concept of just
decree today.
compensation as applied to the comprehensive
agrarian reform program being contemplated. Accepting the theory that payment of the just
There was the suggestion to "fine tune" the compensation is not always required to be made
requirement to suit the demands of the project fully in money, we find further that the
even as it was also felt that they should "leave it proportion of cash payment to the other things
to Congress" to determine how payment should of value constituting the total payment, as
be made to the landowner and reimbursement determined on the basis of the areas of the lands
required from the farmer-beneficiaries. Such expropriated, is not unduly oppressive upon the
innovations as "progressive compensation" and landowner. It is noted that the smaller the land,
"State-subsidized compensation" were also the bigger the payment in money, primarily
proposed. In the end, however, no special because the small landowner will be needing it
definition of the just compensation for the lands more than the big landowners, who can afford a
to be expropriated was reached by the bigger balance in bonds and other things of
Commission. 50 value. No less importantly, the government
financial instruments making up the balance of
On the other hand, there is nothing in the
the payment are "negotiable at any time." The
records either that militates against the
other modes, which are likewise available to the
assumptions we are making of the general
landowner at his option, are also not
sentiments and intention of the members on the
unreasonable because payment is made in
content and manner of the payment to be made
shares of stock, LBP bonds, other properties or
to the landowner in the light of the magnitude of
assets, tax credits, and other things of value
the expenditure and the limitations of the
equivalent to the amount of just compensation.
expropriator.
Admittedly, the compensation contemplated in
With these assumptions, the Court hereby
the law will cause the landowners, big and small,
declares that the content and manner of the just
not a little inconvenience. As already remarked,
compensation provided for in the afore- quoted
this cannot be avoided. Nevertheless, it is
Section 18 of the CARP Law is not violative of the
devoutly hoped that these countrymen of ours,
Constitution. We do not mind admitting that a
conscious as we know they are of the need for title to the property taken remains in the owner
their forebearance and even sacrifice, will not until payment is actually made. 52 (Emphasis
begrudge us their indispensable share in the supplied.)
attainment of the ideal of agrarian reform.
In Kennedy v. Indianapolis, 53 the US Supreme
Otherwise, our pursuit of this elusive goal will be
Court cited several cases holding that title to
like the quest for the Holy Grail.
property does not pass to the condemnor until
The complaint against the effects of non- just compensation had actually been made. In
registration of the land under E.O. No. 229 does fact, the decisions appear to be uniformly to this
not seem to be viable any more as it appears that effect. As early as 1838, in Rubottom v.
Section 4 of the said Order has been superseded McLure, 54 it was held that "actual payment to
by Section 14 of the CARP Law. This repeats the the owner of the condemned property was a
requisites of registration as embodied in the condition precedent to the investment of the
earlier measure but does not provide, as the title to the property in the State" albeit "not to
latter did, that in case of failure or refusal to the appropriation of it to public use." In Rexford
register the land, the valuation thereof shall be v. Knight, 55 the Court of Appeals of New York
that given by the provincial or city assessor for said that the construction upon the statutes was
tax purposes. On the contrary, the CARP Law that the fee did not vest in the State until the
says that the just compensation shall be payment of the compensation although the
ascertained on the basis of the factors authority to enter upon and appropriate the land
mentioned in its Section 17 and in the manner was complete prior to the payment. Kennedy
provided for in Section 16. further said that "both on principle and authority
the rule is ... that the right to enter on and use
The last major challenge to CARP is that the
the property is complete, as soon as the property
landowner is divested of his property even
is actually appropriated under the authority of
before actual payment to him in full of just
law for a public use, but that the title does not
compensation, in contravention of a well-
pass from the owner without his consent, until
accepted principle of eminent domain.
just compensation has been made to him."
The recognized rule, indeed, is that title to the
Our own Supreme Court has held
property expropriated shall pass from the owner
in Visayan Refining Co. v. Camus and
to the expropriator only upon full payment of the
Paredes, 56 that:
just compensation. Jurisprudence on this settled
principle is consistent both here and in other If the laws which we have exhibited or cited in
democratic jurisdictions. Thus: the preceding discussion are attentively
examined it will be apparent that the method of
Title to property which is the subject of
expropriation adopted in this jurisdiction is such
condemnation proceedings does not vest the
as to afford absolute reassurance that no piece
condemnor until the judgment fixing just
of land can be finally and irrevocably taken from
compensation is entered and paid, but the
an unwilling owner until compensation is paid ...
condemnor's title relates back to the date on
. (Emphasis supplied.)
which the petition under the Eminent Domain
Act, or the commissioner's report under the It is true that P.D. No. 27 expressly ordered the
Local Improvement Act, is filed. 51 emancipation of tenant-farmer as October 21,
1972 and declared that he shall "be deemed the
... although the right to appropriate and use land
owner" of a portion of land consisting of a family-
taken for a canal is complete at the time of entry,
sized farm except that "no title to the land should counter-balance the express provision in
owned by him was to be actually issued to him Section 6 of the said law that "the landowners
unless and until he had become a full-fledged whose lands have been covered by Presidential
member of a duly recognized farmers' Decree No. 27 shall be allowed to keep the area
cooperative." It was understood, however, that originally retained by them thereunder, further,
full payment of the just compensation also had That original homestead grantees or direct
to be made first, conformably to the compulsory heirs who still own the original
constitutional requirement. homestead at the time of the approval of this Act
shall retain the same areas as long as they
When E.O. No. 228, categorically stated in its
continue to cultivate said homestead."
Section 1 that:
In connection with these retained rights, it does
All qualified farmer-beneficiaries are now
not appear in G.R. No. 78742 that the appeal
deemed full owners as of October 21, 1972 of
filed by the petitioners with the Office of the
the land they acquired by virtue of Presidential
President has already been resolved. Although
Decree No. 27. (Emphasis supplied.)
we have said that the doctrine of exhaustion of
it was obviously referring to lands already validly administrative remedies need not preclude
acquired under the said decree, after proof of immediate resort to judicial action, there are
full-fledged membership in the farmers' factual issues that have yet to be examined on
cooperatives and full payment of just the administrative level, especially the claim that
compensation. Hence, it was also perfectly the petitioners are not covered by LOI 474
proper for the Order to also provide in its Section because they do not own other agricultural lands
2 that the "lease rentals paid to the landowner than the subjects of their petition.
by the farmer- beneficiary after October 21,
Obviously, the Court cannot resolve these issues.
1972 (pending transfer of ownership after full
In any event, assuming that the petitioners have
payment of just compensation), shall be
not yet exercised their retention rights, if any,
considered as advance payment for the land."
under P.D. No. 27, the Court holds that they are
The CARP Law, for its part, conditions the entitled to the new retention rights provided for
transfer of possession and ownership of the land by R.A. No. 6657, which in fact are on the whole
to the government on receipt by the landowner more liberal than those granted by the decree.
of the corresponding payment or the deposit by
V
the DAR of the compensation in cash or LBP
bonds with an accessible bank. Until then, title The CARP Law and the other enactments also
also remains with the landowner. 57 No outright involved in these cases have been the subject of
change of ownership is contemplated either. bitter attack from those who point to the
shortcomings of these measures and ask that
Hence, the argument that the assailed measures
they be scrapped entirely. To be sure, these
violate due process by arbitrarily transferring
enactments are less than perfect; indeed, they
title before the land is fully paid for must also be
should be continuously re-examined and
rejected.
rehoned, that they may be sharper instruments
It is worth stressing at this point that all rights for the better protection of the farmer's rights.
acquired by the tenant-farmer under P.D. No. 27, But we have to start somewhere. In the pursuit
as recognized under E.O. No. 228, are retained of agrarian reform, we do not tread on familiar
by him even now under R.A. No. 6657. This ground but grope on terrain fraught with pitfalls
and expected difficulties. This is inevitable. The 4. Landowners who were unable to exercise their
CARP Law is not a tried and tested project. On rights of retention under P.D. No. 27 shall enjoy
the contrary, to use Justice Holmes's words, "it is the retention rights granted by R.A. No. 6657
an experiment, as all life is an experiment," and under the conditions therein prescribed.
so we learn as we venture forward, and, if
5. Subject to the above-mentioned rulings all the
necessary, by our own mistakes. We cannot
petitions are DISMISSED, without
expect perfection although we should strive for
pronouncement as to costs.
it by all means. Meantime, we struggle as best
we can in freeing the farmer from the iron SO ORDERED.
shackles that have unconscionably, and for so
long, fettered his soul to the soil.
1. R.A. No. 6657, P.D. No. 27, Proc. No. 131, and
E.O. Nos. 228 and 229 are SUSTAINED against all
the constitutional objections raised in the herein
petitions.