Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 182209               October 3, 2012

LAND BANK OF THE PHILIPPINES, Petitioner, 

vs.
EMILIANO R. SANTIAGO, JR., Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

This is a Petition for Review on Certiorari seeking to annul and set aside the September 28,
1 

2007 Decision and March 14, 2008 Resolution of the Court of Appeals in CA-G.R. SP No.
2  3 

82467, which affirmed the January 21, 2000 Decision of the Regional Trial Court of
4 

Cabanatuan City, Branch 23, sitting as a Special Agrarian Court (SAC Branch 23 ), as
modified by the January 28, 2004 Resolution of the Regional Trial Court of Cabanatuan City,
5 

Branch 29 (SAC Branch 29) in Agrarian Case No. 125-AF.

The antecedents of this case, as culled from the records, are as follows:

Petitioner Land Bank of the Philippines (LBP) is a government financial institution designated
6 

under Section 64 of Republic Act No. 6657 as the financial intermed iary of the agrarian
7 

reform program of the government. 8

Respondent Emiliano R. Santiago, Jr. (respondent) is one of the heirs of Emiliano F.

Santiago (Santiago), the registered owner of an 18.5615-hectare parcel of land (subject
property) in Laur, Nueva Ecija, covered by Transfer Certificate of Title (TCT) No. NT-60359. 9

Pursuant to the government’s Operation Land Transfer (OLT) Program under Presidential
Decree No. 27, the Department of Agrarian Reform (DAR) acquired 17.4613 hectares of the
10 

subject property. 11

In determining the just compensation payable to Santiago, the LBP and the DAR used the
following formula under Presidential Decree No. 27, which states:

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

and Executive Order No. 228, which reads:

Sec. 2. Henceforth, the valuation of rice and corn lands covered by P.D. No. 27 shall be
based on the average gross production determined by the Barangay Committee on Land
Production in accordance with Department Memorandum Circular No. 26, series of 1973 and
related issuances and regulation of the Department of Agrarian Reform. The average gross
production per hectare shall be multiplied by two and a half (2.5), the product of which shall
be multiplied by Thirty-Five Pesos (₱ 35.00), the government support price for one cavan of
50 kilos of palay on October 21, 1972, or Thirty One Pesos (₱ 31.00), the government
support price for one cavan of 50 kilos of corn on October 21, 1972, and the amount arrived
at shall be the value of the rice and corn land, as t he case may be, for the purpose of
determining its cost to the farmer and compensation to t he land owner.

The above formula in equation form is :

(Average Gross Production [AGP] x 2.5 Hectares x

Land Value (LV) =
Government Support Price [GSP])

Using the foregoing formula, the land value of the subject property was pegged at 3,915
cavans of palay, using 90 cavans of palay per year for the irrigated portion and 44.33 cavans
of palay per year for the unirrigated portio n, as the AGP per hectare in San Joseph, Laur,
Nueva Ecija, as established by the Barangay Committee on Land Production (BCLP), based
on three normal crop years immediately preceding the promulgation of Presidential Decree
No. 27. 12

As Santiago had died earlier on November 1, 1987, the LBP , in 1992, reserved in trust for
13 

his heirs the amount of One Hundred Thirty-Five Thousand Four Hundred Eighty-Two Pesos
and 12/100 (₱ 135,482.12), as just compensation computed by LBP and DAR using the
above formula with ₱ 35.00 as the GSP per cavan of palay for the year 1972 under
Executive Order No. 228. 14

The land valuation of the subject property is broken down as follows : 15 

x Area
AGP x 2 and ½ = LV in
Acquired x GSP = LV
cavans hectares Cavans
(hectare)

90 2.5 16.9544 16
3,814.74 ₱ 35.00 ₱ 133,515.92

44.33 2.5 5069 17

56.18 ₱ 35.00 1,966.20

    17.4613 3,870.92   ₱ 35,482.12

This amount was released to Santiago’s heirs on April 28, 1998, pursuant to this Court’s
18 

decision in Land Bank of the Philippines v. Court of Appeals. LBP, on May 21, 1998 and
19 

June 1, 1998, also paid the heirs the sum of ₱ 353,122.62, representing the incremental
interest of 6% on the preliminary compensation, compounded annually for 22
years, pursuant to Provincial Agrarian Reform Council (PARC) Resolution No. 94-24-1 and
20  21 

DAR Administrative Order (AO) No. 13, series of 1994. 22

However, on November 20, 1998, respondent, as a co-owner and administrator of the

subject property, filed a petition before the RTC of Cabanatuan City, Branch 23, acting as a
Special Agrarian Court (SAC Branch 23), for the "approval and appraisal of just
compensation" due on the subject property. This was docketed as SAC Case No. 125-AF. 23

While respondent was in total agreement with the land valuation of the subject property at
3,915 cavans of palay, he contended that the 1998 GSP per cavan, which was ₱ 400.00,
should be used in the computation of the just compensation for the subject property.
Moreover, the incremental interest of 6% compounded annually, as per PARC Resolution
No. 94-24-1, should be imposed on the principal amount from 1972 to 1998 or for 26 years. 24

On January 21, 2000, the SAC Branch 23 rendered its Decision, the dispositive portion of
which reads:

WHEREFORE, the defendant Land Bank of the Philippines is hereby ordered to pay the
plaintiff in the sum of ₱ 1,039,017.88 representing the balance of the land valuation of the
plaintiff with legal interest at 12 % from the yea r 1998 until the same is fully paid subject to
the modes of compensation under R.A. No. 6657. 25

The SAC Branch 23 arrived at its ruling, ratiocinating in this wise:

The defendant LBP arrived at this aforesaid amount by pegging the price at the rate of ₱
35.00 per cavan, which was the government support price GSP in 1972, pursuant to E.O.
No. 228.

With the GSP of palay in 1992 being already ₱ 300.00 per cavan x x x, it is ver y clear, the n,
that the respondent was denied the true, current actual money equivalence of the land
valuation of 3,915 cavans of palay mutually agreed upon by the parties.

Aptly, plaintiff had been s hort-paid. x x x.

xxxx

The sum of ₱ 135,482.12 as the money value o f 3,915 ca vans did not, therefore, amount to
"just compensation" to respondent since what was due to him of 3,915 cavans was diluted
when t he defendant LBP gave a money value at the rate of ₱ 35.00 per cavan, which was a
far cry from the pre vailing true and actual GSP o f ₱ 300.00 per cavan in 1992 x x x. 26

Discontented with the ruling, respondent filed a Motion for Reconsideration of the SAC’s
27 

decision on February 16, 2000, arguing that the GSP per cavan of palay should be
computed at ₱ 400.00 instead of ₱ 300.00 because payment of the preliminary
compensation was made by LBP in 1998 and not in 1992. Respondent likewise ins isted that
in addition to the 12% legal interest ordered by the SAC, a compounded annual interest of
6% of the principal amount should be awarded to them pursuant to the PARC Resolution
and DAR AO No. 13. Furthermore, respondent asked that the DAR be ordered to return to
him the unacquired portion of the subject property. 28

On February 10, 2000, Judge Andres R. Amante, Jr., the presiding judge of SAC Branch 23,
inhibited himself from resolving the motion for reconsideration, thus, the case was re-raffled
29 

to the RTC of Cabanatuan City, Branch 29, acting as Special Agrarian Court (SAC Branch
29).30

On January 28, 2004, the SAC Branch 29 issued a Resolution, with the following fallo:

WHEREFORE, the decision is reconsidered as follows:

1. The defendant Land Bank of the Philippines is hereby ordered to pay the petitioner the
sum of ₱ 1,039,017.88 representing the land valuation of the petitioner with legal interest of
six percent (6%) per annum beginning year 1998 until the same is fully paid subject to the
modes of compensation under Republic Act No. 6657.

2. The Land Bank of the Philippines is ordered to return to the petitioner the unacquired area
embraced and covered by TCT No. NT-60359 after segregating the area taken by the DAR. 31

In denying respondent’s claim over the 6% compounded annual interest, the SAC Branch 29
explained that the purpose of the compounded interest was to compensate the landowners
for unearned interest, as their money would have earned if they had been paid in 1972,
when the GSP for a cavan of palay was still at ₱ 35.00. The SAC Branch 29 said that since a
higher GSP was already used in the computation of the subject property’s land value, there
was no more justification in adding any compounded interest to the principal amount. 32

The SAC Branch 29 also lowered the legal interest from 12% to 6% on the ground that
respondent’s claim cannot be considered as a forbearance of money. Furthermore, since the
government only acquired 17.4 hectares of the subject property, it ordered LBP to return the
unacquired portion to respondent. 33

Respondent filed a Petit io n for Review before this Court, questioning the SAC Branch 29’s
ruling on his non-entitlement to the incremental interest of 6%. The case, entitled Heirs of
Emiliano F. Santiago, represented by Emiliano R. Santiago, Jr. as administrator of the land
covered by TCT No. NT 60354 v. Republic of the Philippines, represented by the Department
of Agrarian Reform, and Land Bank of the Philippines, and docketed as G.R. No. 162055,
was, however, denied by this Court on March 31, 2004, for lack of merit. 34

Meanwhile, LBP filed a Petition for Review before the Court of Appeals, questioning the just
35 

compensation fixed and the legal interest granted by the SAC Branch 23 in its January 21,
2000 Decision and by the SAC Branch 29 in its January 28, 2004 Resolution.

On September 28, 2007, the Court of Appeals, in CA-G.R. SP No. 82467, affirmed the SAC
Branch 23’s Decision as modified by the SAC Branch 29’s Resolution. The dispositive
portion of that Decision reads:

WHEREFORE, based on the fore going, the instant petition for review filed pursuant to
Section 60 of Republic Act No. 6657 is hereby DISMISSED. ACCORDINGLY, the Decision
dated January 21, 2000 of the Regional Trial Court of Cabanatuan City, Branch 23, sitting as
Special Agrarian Court, as modified by the Resolution dated January 28, 2004 of the
Regional Trial Court of Cabanatuan City, Branch 29, is hereby AFFIRM ED. 36

The Court of Appeals held that the formula in DAR AO No. 13 could no longer be applied
since the Provincial Agrarian Reform Ad judicator (PARAD) had already been using a higher
GSP. Since the formula could no longer be applied, as a higher GSP was used in the
computation of respondent’s just compensation, the Court of Appeals ruled that he was no
longer entitled to the incremental interest of 6%.
37

The LBP moved to reconsider the foregoing decis ion on October 25, 2007. However, the
38 

Court of Appeals, find ing no new argument worthy of its reconsideration, denied such
motion in a Resolution dated March 14, 2008.

The LBP is now before us, claiming that its petition should be allowed for the following
reason:
THE COURT OF APPEALS COMMI TTED A S ERIOUS ERROR OF LAW
IN AFFIRMING THE JANUARY 21, 2000 DECISION OF THE REGIONAL TRIAL COURT
(RTC) OF CABANATUAN CITY, BR. 23, SITTING AS SPECIAL AGRARIAN COURT (AS M
ODIFI ED BY THE RESOLUTION DATED JANUARY 28, 2004 OF THE RTC OF CABAN
ATUAN CITY, BRANCH 29) WHICH FIXED THE JUST COMPENSATION OF SUBJECT
PROPERTIES ACQUIRED UNDER P.D. 27 WITHOUT OBS ERVING THE PRESCRI BED
FORM ULA UNDER P.D. 27 AND E.O. 228. 39

Issues

The following are the issues propounded by the LBP for this Court’s Resolution:

1. WHETHER OR NOT THE COURT OF APPEALS CAN DISREGARD THE FORMULA

PRESCRIBED UNDER P.D. 27 AND E.O. 228 IN FIXING THE JUST COMPENSATION OF
SUBJECT P.D. 27-ACQUIRED LAN D.

2. WHETHER OR NOT THE COURT OF APPEALS ERRED IN AFFIRMING THE GRAN T

BY THE COURT A QUO O F 6% INTERES T TO THE RESPONDENT.  40

1st Issue
Computation of Just Compensation

LBP has been consistent in its position that the formula prescribed in Presidential Decree
No. 27 and Executive Order No. 228 is the only formula that should be applied in the
computation of the valuation of lands acquired under Presidential Decree No. 27. In support
of its position, LBP cites this Court’s ruling in Gabatin v. Land Bank of the
Philippines, wherein we held that the GSP should be pegged at the time of the taking of the
41 

properties, which in this case was deemed effected on October 21, 1972, the effectivity date
of Presidential Decree No. 27.

This Court notes that even before respondent filed a petition for the judicial determination of
the just compensation due him for the subject property before the SAC Branch 23 on
November 20, 1998, Republic Act No. 6657, otherwise known as the Comprehensive
Agrarian Reform Law of 1988, already took effect on June 15, 1988.

The determination of the just compensation therefore in this case depends on the valuation
formula to be applied: the formula under Presidential Decree No. 27 and Executive Order
No. 228 or the formula under Republic Act No. 6657? This Court finds the case of Meneses
v. Secretary of Agrarian Reform applicable insofar as it has determined what formula should
42 

be used in computing the just compensation for property expropriated under Presidential
Decree No. 27 under the factual milieu of this case, viz:

Respondent correctly cited the case of Gabatin v. Land Bank of the Philippines, where the
Court ruled that "incomputing the just compensation for expropriation proceedings, it is the
value of the land at the time of the taking or October 21, 1972, the effectivity date of P.D. No.
27, not at the time of the rendition of judgment, which should be take n into consideration. "
Under P.D. No. 27 and E.O. No. 228, the following formula is used to compute the land value
for palay:

LV (land value) = 2.5 x AGP x GSP x (1.06)n

It should also be pointed out, however, that in the more recent case of Land Bank of the
Philippines vs. Natividad, the Court categorically ruled: "the seizure of the landholding did not
take place on the date of effectivity of P.D. No. 27 but would take effect on the payment of
just compensation." Under Section 17 of R.A. No. 6657, the following factors are considered
in de termining just compensation, to wit:

Sec. 17. Determination of Just Compensation. - In determining just compensation, the cost of

acquisition of the land, the current value of like properties , its nature, actual use and income,
the sworn valuation by the owner, the tax de clarations , and the assessment made by
government assessors shall be considered. The social and economic benefits contributed by
the farmers and the farm-workers and by the Government to the property as well as the non-
payment of taxes or loans secured from any government financing institution on the said
land shall be considered as additional factors to determine its valuation.

Consequently, the question that arises is which o f these two rulings should be applied?

Under the circumstances of this case, the Court deems it more equitable to apply the ruling
in the Natividad case. In said case, the Court applied the provisions of R.A. No. 6657 in
computing just compensation for property expropriated under P.D. No. 27, stating, viz:

Land Bank's contention that the property was acquired for purposes of agrarian reform on
October 21, 1972, the time of the effectivity of PD 27, ergo just compensation should be
based on the value of the property as of that time and not at the time of possession in 1993,
is like wise erroneous. In Office of the President, Malacañang, Manila v. Court of Appeals,
we ruled that the seizure of the land holding did not take place on the date of effectivity of PD
27 but would take effect on the payment of just compensation.

Under the factual circumstances of this case, the agrarian reform process is still incomplete
as the just compensation to be paid private respondents has yet to be settled. Considering
the pass age of Republic Act No. 6657 (RA 6657) before the completion of this process, the
just compensation should be determined and the process concluded under the said law.
Indeed, RA 6657 is the applicable law, with PD 27 and EO 228 having only suppletory effect,
conformably with our ruling in Paris v. Alfeche.

xxxx

It would certainly be inequitable to determine just compensation based on the guideline

provided by PD 27 and EO 228 considering the DAR's failure to determine the just
compensation for a considerable length of time. That just compensation should be
determined in accordance with RA 6657, and not PD 27 or EO 228, is especially imperative
considering that just compensation should be the full and fair equivalent of the property
taken from its owner by the expropriator, the equivalent being real, substantial, full and
ample. (Emphases supplied, citations omitted.)
43 

The ruling in Land Bank of the Philippines v. Natividad was likewise applied in Land Bank of
44 

the Philippines v. Heirs of Angel T. Domingo, when the landowner Domingo filed a Petition
45 

for the Determination and Payment of Just Compensation despite his receipt of LBP’s partial
payment. This Court held that since the amount of just compensation to be paid Domingo
had yet to be settled, then the agrarian reform process was still incomplete; thus, it should be
completed under Republic Ac t No. 6657.
Based on the foregoing, when the agrarian reform process is still incomplete as the just
compensation due the landowner has yet to be settled, such just compensation should be
determined and the process concluded under Republic Act No. 6657. 46

Elucidating on this pronouncement, this Court, in Land Bank of the Philippines v. Puyat, held
47 

In the case at bar, respondents’ title to the property was cancelled and awarded to farmer-
beneficiaries on March 20, 1990. In 1992, Land Bank approved the initial valuation for the
just compensation that will be given to respondents. Both the taking of respondents’ property
and the valuation occurred during the effectivity of RA 6657. When t he acquisition process
under PD 27 remains incomplete and is overtaken by RA 6657, the process should be
completed under RA 6657, with PD 27 and EO 228 having suppletory effect only. This
means that PD 27 applies only insofar as there are gaps in RA 6657; where RA 6657 is
sufficient, PD 27 is superseded. Among the matters where RA 6657 is sufficient is the
determination of just compensation. In Section 17 thereof, the legislature has provided for
the factors that are determinative of just compensation. Petitioner cannot insist on applying
PD 27 which would render Section 17 of RA 6657 inutile. ( Emphases ours, citation omitted.)

Similarly, in the case before us, the emancipation patents were issued to the farmer-
beneficiaries from 1992 to 1994. While the preliminary compensation of ₱ 135,482.12 was
reserved in trust at LBP for the heirs of Santiago in 1992, this amount was not received by
the heirs until 1998, as its release, pending the final determination of the land valuation,
became the subject of a petition in this Court in Land Bank of the Philippines v. Court of
Appeals. Like in the case cited above, both the taking and the valuation of the subject
48 

property occurred after Republic Ac t No. 6657 had already become effective. Until now, the
issue of just compensation for the subject property has not been settled and the process has
yet to be completed; thus, the provisions of Republic Act No. 6657 shall apply.

Section 17 of Republic Ac t No. 6657 or the Comprehensive Agrarian Reform Law of 1988
provides:

SEC. 17. Determination of Just compensation. - In determining just compensation, the cost

of acquisition of the land, the current value of like properties, its nature, actual use and
income, the sworn valuation by the owner, the tax declarations, and the assessment made
by government assessors shall be considered. The social and economic benefits contributed
by the farmers and the farm workers and by the Government to the property as well as the
non-payment of taxes or loans secured from any government financing institution on the said
land shall be considered as additional factors to determine its valuation.

This Court is not unaware of the new agrarian reform law, Republic Act No. 9700 or the
CARPER Law, entitled "An Act Strengthening the Comprehensive Agrarian Reform Program
(CARP), Extending the Acquisition and Distribution of all Agricultural Lands, Instituting
Necessary Reforms, Amending for the Purpose Certain Provisions of Republic Act No. 6657,
Otherwise Known as the Comprehensive Agrarian Reform Law of 1988, as amended, and
Appropriating Funds Therefor," passed by the Congress on July 1, 2009, further amending
49 

Republic Act No. 6657, as amended.

That this case, despite the new law, still falls under Section 17 of Republic Ac t No. 6657 is
supported even by Republic Act No. 9700, which states that "previously acquired lands
wherein valuation is subject to challenge shall be completed and resolved pursuant to
Section 17 of Republic Act No. 6657, as amended," viz:
Section 5. Section 7 of Republic Act No. 6657, as amended, is hereby further amended to
read as follows:

SEC. 7. Priorities. - The DAR, in coordination with the Presidential Agrarian Reform Council
(P ARC) shall plan and pro ram the final acquisition and distribution of all remaining
unacquired and undistributed agricultural lands from the effectivity o f this Ac t until June 30,
2014. Lands shall be acquired and distributed as follows:

Phase One : During t he five (5)-year extension period hereafter all remaining lands above
fifty (50) hectares shall be covered for purposes of agrarian reform upon the effectivity of this
Act. All private agricultural lands of landowners with aggregate land holdings in excess of fifty
(50) hectares which have already been subjected to a notice of coverage issued on or before
December 10, 2008; rice and corn lands under Presidential Decree No. 27; all idle or
abandoned lands; all private lands voluntarily offered by the owners for agrarian reform: x x x
Provided, furthermore, That al l previously acquired lands where in valuation is subject to
challenge by landowners s hall be completed and finally resolved pursuant to Section 17 of
Republic Act No. 6657, as amended: x x x. (Emphases supplied.)

Section 7 of Republic Act No. 9700, further amending Section 17 of Republic Ac t No. 6657,
as amended, reads:

Section 7. Section 17 of Republic Act No. 6657, as amended, is hereby further amended to
read as follows:

SEC. 17. Determination of Just Compensation. – In determining just compensation, the cost

of acquisition of the land, the value of the standing crop, the current value of like properties,
its nature, actual use and income, the sworn valuation by the owner, the tax declarations, the
assessment made by government assessors, and seventy percent (70%) of t he zonal
valuation of the Bureau of Internal Revenue (BIR), translated into a basic formula by t he
DAR shall be considered, subject to the final decision of the proper court. The social and
economic benefits contributed by the farmers and the farm workers and by the Government
to the property as well as the nonpayment of taxes or loans secured from any government
financing institution on the said land shall be considered as additional factors to determine its
valuation. (Emphases supplied; further amendments made to Section 17 of R.A. N o. 6657,
as amended, are italicized.)

The foregoing shows that the Section 17 referred to in Section 5 of Republic Act No. 9700 is
the old Section 17 under Republic Act No. 6657, as amended; that is, prior to further
amendment by Republic Ac t No. 9700.

A reading of the provisions of Republic Ac t No. 9700 will readily show that the old
provisions, under Republic Act No. 6657, are referred to as Sections under "Republic Act No.
6657, as amended," as distinguished from "further amendments" under Republic Act No.
9700.

DAR AO No. 02-09, the Implementing Rules of Republic Act No. 9700, which DAR
formulated pursuant to Section 31 of Republic Act No. 9700, makes the above distinction
50 

even clearer, to wit:

VI. Transitory Provision
With respect to cases where the Master List of ARBs has been finalized on or before July 1,
2009 pursuant to Administrative Order No. 7, Series of 2003, the acquisition and distribution
of landholdings shall continue to be processed under the provisions of R.A. No. 6657 prior to
its amendment by R.A. No. 9700.

However, with respect to land valuation, all Claim Folders received by LBP prior to July 1,
2009 shall be valued in accordance with Section 17 of R.A. No. 6657 prior to its amendment
by R.A. No. 9700. (Emphasis supplied.)

Thus, DAR AO No. 02-09 authorizes the valuation of lands in accordance with the old
Section 17 of Republic Act No. 6657, as amended (prior to further amendment by Republic
Act No. 9700), so long as the claim folders for such lands have been received by LBP before
its amendment by Republic Act No. 9700 in 2009. 51

2nd Issue
Imposition of 6% Legal Interest

All the courts a quo imposed a legal interest on the just compensation due respondent, albeit
the SAC Branch 29 lowered it from 12% to 6% per annum.

LBP argues that DARAO No. 13, which provides for an incremental interest of 6%,
compounded annually, should be the governing rule when it comes to the grant of interest. 52

Respondent on the other hand, prays that the original award of 12% interest be reinstated as
the unreasonable delay in the payment of his just compensation constitutes forbearance of
money. 53

This Court notes that the award of 6% legal interest was not given under DAR AO No. 13, as
the courts a quo explicitly stated that DARAO No. 13 was not applicable, albeit citing a n
incorrect reason, i.e., that this was because a higher GSP was already used. As we have
discussed above, "the law and jurisprudence on the determination of just compensation of
agrarian lands are settled," and the courts below deviated from them when they simply used
54 

a higher GSP in the computation of respondent’s just compensation. 1âwphi1

The Court has allowed the grant of interest in expropriation cases where there is delay in the
payment of just compensation. In fact, the interest imposed in case of delay in payments in
55 

agrarian cases is 12% per annum and not 6% as "the imposition x x x is in the nature of
56 

damages for delay in payment which in effect makes the obligation on the part of the
government one of forbearance." 57

Quoting Republic v. Court of Appeals this Court, in Land Bank of the Philippines v.

58 

Rivera, held :
59 

The constitutional limitation of "just compensation" is considered to be the sum equivalent to

the market value of the property, broadly described to be the price fixed by the seller in open
market in the usual and ordinary course of legal action and competition or the fair value of
the property as between one who receives, and one who desires to sell, if fixed at the time of
the actual taking by the government. Thus, if property is taken for public use before
compensation is deposited with the court having jurisdiction over the case , the final
compensation must include interest on its jus t value to be computed from the time the
property is taken to the time when compensation is actually paid or deposited with the court.
In fine , between the taking of the property and the actual payment, legal interests accrue in
order to place the owner in a position as good as (but not better than) the position he was in
before the taking occurred.

The Bulacan trial court, in its 1979 decision, was correct in imposing interest on the zonal
value of the property to be computed from the time petitioner instituted condemnation
proceedings and "took" the property in September 1969. This allowance of interest on the
amount found to be the value of the property as of the time of the taking computed, being an
effective forbearance, at 12% per annum should help eliminate the issue of the constant
fluctuation and inflation of the value of the currency over time.  (Citation omitted, emphasis
60 

in the original.)

The Court, in Republic, recognized that "the just compensation due to the landowners for
their expropriated property amounted to an effective forbearance on the part of the State." In 61 

fixing the interest rate at 12%, it followed the guidelines on the award of interest that we
enumerated in Eastern Shipping Lines, In c. v. Court of Appeals, to wit:62 

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions
under Title XVIII on "Damages" o f the Civil Code govern in determining the measure of
recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Fur t her more, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at t he discretion of the court
at the rate of 6% per annum. N o interest, however, shall be adjudged on unliquidated claims
or damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extra judicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time the demand
is made, the interest shall begin to run only from the d ate the judgment o f the court is made
(at which time the quantification of damages ma y be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit. (Citations omitted.)
63 

This Court therefore deems it proper to impose a 12% legal interest per annum, computed
from the date of the "taking" of the subject property on the just compensation to be
determined by the SAC, due to respondent, less whatever he and his co-owners had already
received.

Rem and of the Case

Given that the only factor considered by the SAC in the determination of just compensation
was the changing government support price for a cavan of palay, this Court is constrained to
remand the case to the SAC Branch 29 for the reception of evidence and determination of
just compensation in accordance with Section 17 of Republic Act No. 6657 and DAR AO No.
64 

02-09 dated October 15, 2009, the latest DAR issuance on fixing just compensation. 65

Guidelines in the Remand of the Case

In Land Bank of the Philippines v. Heirs of Salvador Encinas and Jacoba Delgado, we said
66 

that "the taking of private lands under the agrarian reform program partakes of the nature of
an expropriation proceeding." Thus, the SAC is "reminded to adhere strictly to the doctrine
that just compensation must be valued at the time of taking" and not at the time of the
67 

rendition of judgment. 68

In the same case, this Court also required the trial court to consider the following factors as
enumerated in Section 17 of Republic Ac t No. 6657, as amended :

(1) the acquisition cost of the land ; (2) the current value of the properties; (3) its nature,
actual use, and income ; (4) the sworn valuation by the owner; (5) the tax declarations ; (6)
the assessment made by government assessors; (7) the social and economic benefits
contributed by the farmers and the farmworkers, and by the government to the property; and
(8) the non-payment of taxes or loans secured from any government financing institution on
the said land, if any. 69

It is stressed that the foregoing factors, and the formula as translated by the DAR in its
implementing rules, are mandatory and not mere guides that the SAC may disregard. This 70 

Court has held:

While the de termination o f just compensation is essentially a judicial function vested in the
RTC acting as a SAC, the judge cannot abuse his discretion by not taking into full
consideration the factors specifically identified by law and implementing rules. SACs are not
at liberty to disregard the formula laid down by the DAR, because unless an administrative
order is declared invalid, courts have no option but to apply it. The SAC cannot ignore,
without violating the agrarian law, the formula provided by the DAR for the determination of
just compensation. (Emphasis in the original, citation omitted.)
71 

WHEREFORE, premises considered, the petition is DENIED insofar as it seeks to have the

Land Bank of the Philippines’ valuation of the subject property sustained. The assailed
September 28, 2007 Decision and March 14, 2008 Resolution of the Court of Appeals in CA-
G.R. SP No. 82467 are REVERSED and SET ASIDE for lack of factual and legal basis.
Agrarian Case No. 125-AF is REMANDED back to the Regional Trial Court of Cabanatuan
City, Branch 29, to determine the just compensation due Emiliano R. Santiago, Jr., less
whatever payments he and his co-owners had received, strictly in accordance with the
guidelines in this Decision; Section 17 of Republic Act No. 6657, as amended; and
Department of Agrarian Reform Administrative Order No. 02-09 dated October 15, 2009.
SO ORDERED.

LAND BANK OF THE PHILIPPINES, Petitioner, 

vs.
EDGARDO L. SANTOS, represented by his assignee, ROMEO L. SANTOS, Respondent.

x-----------------------x

G.R. No. 214021

EDGARDO L. SANTOS, represented by his assignee, ROMEO L. SANTOS, Petitioner, 

vs.
LAND BANK OF THE PHILIPPINES, Respondent.

DECISION

PERLAS-BERNABE, J.:

Before the Court: are consolidated petitions for review on certiorari  assailing the Decision  1
1 2

dated December 4, 2013 and the Resolution  dated August 11, 2014 of the Court of Appeals
3

(CA) in CA-G.R. SP Nos. 110779 and 121813, which affirmed the Orders dated July 9,
2009  and August 24, 2009  of the Regional Trial Court of Naga City (RTC), Branch 23,
4 5

acting as a Special Agrarian Court (SAC), in Civil Case Nos. 2001-0229 and 2001-0315, and
the Order  dated October 10, 2011 in Civil Case No. 2001-0315, directing the Land Bank of
6

the Philippines (LBP) to: (a) release to Edgardo L. Santos (Santos) the initial valuation of
Lands 1 and 2 upon submission of two (2) valid identification (ID) cards, two (2) latest ID
pictures, current community tax certificate (CTC), and execution of a Deed of Assignment,
Warranties and Undertaking in favor of the LBP; and (b) pay I twelve percent (12%) interest
on the unpaid just compensation for Land 3, reckoned from January 1, 2010 until full
payment.

The Facts

Santos owned three (3) parcels of agricultural land devoted to corn situated in the
Municipality of Sagnay, Camarines Sur, covered by Tax Declaration (TD) Nos. 197-018-0579
(Land 1) and 97-010-076 (Land 2),  and Transfer Certificate of Title (TCT) No. 5717  (Land 3;
7 8

collectively, subject lands).

In 1984, the subject lands were placed under the government's Operation Land Transfer
Program  pursuant to Presidential Decree (PD) No. 27,  and distributed to the farmer-
9 10

beneficiaries who were issued the corresponding Emancipation Patents.  The Department of
11

Agrarian Reform (DAR) fixed the just compensation at P164,532.50 for Land 1, P39,841.93
for Land 2,  and P66,2l4.03 for Land 3,  using the formula provided under Executive Order
12 13

No. (EO) 228,  Series of 1987.

14

On May 25, 2000, the LBP received the claim folder covering the subject lands  and allowed
15

Santos to collect the initial valuation for Land 3. It withheld the release of the valuation for
Lands 1 and 2 until the submission of the certificates of title thereto,  since it was discovered
16

that they were covered by Decree Nos. N-82378  and 622575,  respectively.
17 18
Thus, on August 30, 2000 and December 17, 2003, respectively, Santos was issued
Agrarian Reform (AR) Bond No. 0079665 in the amount of P11,674.59 representing the
initial valuation of Land 3 and AR Bond No. 0079666 in the amount of P30,428.83
representing the six percent (6%) increment pursuant to PD 27 and EO 228, and paid cash
in the total amount of P4,678.16. 19

Finding the valuation unreasonable, Santos filed three (3) petitions  for summary
20

administrative proceedings for the determination of just compensation of the subject lands
before the Office of the Provincial Adjudicator (PARAD) of Camarines Sur, docketed as
DARAB Case Nos. V-RC-051-CS-00, V-RC-074-CS-00, and V-RC-075-CS-00.

On March 27, 2001, the PARAD rendered separate decisions  fixing the just compensation
21

as follows: (a) P510,034.29  for Land 1; (b) P2,532,060.31  for' Land 2;

22 23

and (c) Pl,147,466.73  for Land 3, using the formula, LV = AGP x 2.5 x GSP. However, in

24 25

arriving at such values, I the PARAD used the recent government support price (GSP) for
com of P300.00/cavan (P6.00/kilo) as certified by the National Food Authority Provincial
Manager of Camarines Sur, instead of the P31.00/cavan provided under Section 2  of EO 26

228. Hence, it no longer applied the six percent (6%) annual incremental interest granted
under DAR Administrative Order (DAR AO) No. 13,  Series of 1994. In a letter  dated
27 28

September 5, 2001, Santos unconditionally 'accepted and called for the immediate payment
of the valuations for Lands 2 and 3.

Dissatisfied with the PARAD's valuation, the LBP instituted two (2) separate complaints  (or 29

the determination of just compensation before the RTC, averring that the computations were
erroneous when they disregarded the formula provided under EO 228. The cases were
raffled to its Branch 21, and docketed as Civil Case Nos. 2001-0299  for Land 1, and 2001-
30

0315  for Lands 2 and 3.

31

Santos moved to dismiss  the complaints on the ground that the LBP has no legal
32

personality to institute such action, and that the complaints were barred by the finality of the
PARAD's Decision.

In a consolidated Order  dated November 9, 2001, the RTC dismissed both complaints.
33

Meanwhile, Branch 23 of the same RTC was designated as the new SAC that gave due
course to the LBP's notices of appeal.  The appeals, however, were set aside by the CA's
34

Fifth and Third Divisions, which remanded the cases to the RTC for appropriate proceedings,
and computation of just compensation, respectively. 35

On May 5, 2009, Santos filed before the RTC a motion to release the initial valuation for
Lands 1 and 2 as fixed by the DAR, which was granted on June 2, 2009, conditioned on the
submission of several documentary requirements.  Santos moved for reconsideration,
36

pointing out that what was sought was the initial valuation only and not its full payment, but
nonetheless, committed (a) to submit two (2) valid ID cards, two (2) latest ID pictures and his
CTC for the current year, and (b) to execute a Deed of Assignment, Warranties and
Undertaking in favor of the LBP. 37

In opposition, the LBP insisted that Santos must: (a) first establish his ownership over the
said properties, it appearing that a Decree covering Land 1 was issued in favor of a certain
Mariano Garchitorena, hence, the owner's duplicate of the said title must be surrendered to
the Registry of Deeds for cancellation; and (b) submit a real estate tax clearance to prove
that there were no encumbrances burdening the property and that the taxes thereon had
been fully paid until 1972. 38
In an Order  dated July 9, 2009, the RTC ruled in favor of Santos, holding that since Land 1
39

was processed as an untitled property and the LBP had admitted in its petitions for just
compensation that Santos was the owner of the untitled lands covered by PD 27 as reflected
in the tax declarations, the LBP cannot maintain an inconsistent position by requiring Santos
to prove his ownership thereto. It added that the submission of the required documents may
still be directed upon full payment of the just compensation.

The LBP's motion for reconsideration  was denied in an Order  dated August 24, 2009.
40 41

The LBP elevated the matter to the CA via a petition for certiorari and Prohibition  with
42

prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order
(TRO), docketed as CA-GR. SP No. 110779, asserting that the RTC abused its discretion
considering that: (a) it was not at liberty to disregard  DAR AO No. 2, Series of 2005,  which
43 44

prescribes the requirements for the release of the initial valuation to a landowner; and (b) no
1 further proceedings were necessary to arrive at the just compensation for Lands 2 and 3 in
view of the final and executory decision in CA-G.R. CV No. 75010 that directed the remand
of the case to the RTC for computation purposes only, hence, res judicata had set in. 45

The LBP's application for the issuance of a TRO having been denied,  it was constrained to
46

deposit the initial valuation for Lands 1 and 2 as directed by the RTC  after Santos'
47

assignee,  Romeo Santos, signed the required Deed of Assignment, Warranties and
48

Undertaking  in favor of the LBP.

49

In an Order  dated March 17, 2010, the RTC directed the LBP to submit a revaluation for
50

Lands 1, 2, and 3 in accordance with the factors set forth under Republic Act (RA) No.
6657,  otherwise known as the "Comprehensive Agrarian Reform Law of 1988," as
51

implemented by DAR AO No. 1, Series of 2010. 52

In compliance therewith, the LBP recomputed the valuation of the subject lands as follows:
P514,936.44  for Land 1, P2,506,873.43  for Land 2, and Pl,155,223.41  for Land 3, which
53 54 55

Santos accepted. Considering, however, the pendency of CA-G.R. SP No. 110779 involving

Lands 1 and 2, Santos moved for a separate judgment relative to Land 3. 56

The RTC Ruling

On June 22, 2011, the RTC issued a Judgment  in Civil Case No. 2001-0315, adopting and
57

approving the LBP's uncontested revaluation for Land 3 in the amount of Pl,155,223.41, and
ordering its payment to Santos in accordance with Section 18 of RA 6657, minus the initial
valuation that had already been paid to him.

Santos moved for reconsideration, contending that the RTC failed to order the payment of
twelve percent (12%) interest reckoned from the time the property was taken 1from him by
the government in 1972 and distributed to the farmer beneficiaries until full payment of the
just compensation.  In an Order  dated August 31, 2011, the RTC granted the motion and
58 59

awarded twelve percent (12%) interest computed from June 26, 2000 when the LBP
approved the payment of the initial valuation for the property up to the date the decision was
rendered, or a total amount of Pl,437,669.75.

Both parties moved for reconsideration. 60

In an Order  dated October 10, 2011, the RTC modified its August 31, 2011 Order, holding
61

that the twelve percent (12%) interest should be reckoned from January 1, 2010 until full
payment since the revaluation of Land 3 already included the required six percent (6%)
annual incremental interest under DAR AO No. 13, Series of 1994,  DAR AO No. 2, Series
62

of 2004,  and DAR AO No. 6, Series of 2008,  from the time of taking until December 31,
63 64

2009.

Dissatisfied, Santos filed a petition for review  before the CA, docketed as CA-G.R. SP No.
65

121813, which was subsequently consolidated with the LBP's petition in CA-GR. SP No.
110779. 66

On October 12, 2011, the LBP fully paid Santos the amount of Pl,155,223.41 representing
the just compensation for Land 3. 67

The CA Ruling

In a Decision  dated December 4, 2013, the CA dismissed the petitions, and affirmed the
68

RTC's Orders dated July 9, 2009 and August 24, 2009 subject of CA-G.R. SP No. 110779,
and the Order dated October 11, 2011 subject of CA-G.R. SP No. 121813.

In CA-G.R. SP No. 110779, the CA ruled that no grave abuse of discretion was committed

by the RTC when it proceeded with the determination of just compensation, thereby rejecting
the LBP's contention that the RTC was barred by res judicata from conducting further
proceedings to determine just compensation with the finality  of its earlier decisions in CA-
69

G.R. CV Nos. 74919  and 75010.  It pointed out that the said decisions merely resolved the
70 71

LBP's personality to institute an action for determination of just compensation, and reinstated
the LBP's complaints for just compensation which were well within the RTC's original and
exclusive jurisdiction under RA 6657. It likewise sustained the release of the initial valuation
for Lands 1 and 2 conditioned on the submission of only the documents mentioned in the
RTC's July 9, 2009 Order, finding that the failure to produce the titles thereto were beyond
Santos' control and that his claim of ownership had been sufficiently established. It added
that the RTC's June 22, 2011 Judgment conditioned the release of the final just
compensation upon compliance with the requirements of the law. 72

In CA-G.R. SP No. 121813, the CA upheld the RTC's ruling that Santos was entitled to a
twelve percent (12%) interest reckoned from January 1, 2010 until its full payment since the
revaluation by the LBP of Land 3 already included six percent (6%) annual incremental
interest until December 31, 2009. 73

Aggrieved, both parties moved for reconsideration which were denied in a Resolution  dated
74

August 11, 2014; hence, these consolidated petitions.

The Issues Before the Court

In its petition in G.R. No. 213863, the LBP contended that the CA committed reversible error
in: (a) not finding the RTC to have acted with grave abuse of discretion in allowing the
release of the initial valuation of Lands 1 and 2 without submitting the documents listed
under DAR AO No. 2, Series of 2005; (b) ignoring the final decision in CA-G.R. CV No.
75010 that effectively barred the RTC from further proceeding with the determination of just
compensation relative to Lands 2 and 3; and (c) holding it liable for twelve percent (12%)
interest on the unpaid just compensation for Land 3.
On the other hand, Santos raised in his petition in G.R. No. 214021 the sole question of
whether or not the CA erred in reckoning the award of twelve percent (12%) interest from
January 1, 2010 until full payment of the just compensation.

The Court's Ruling

The Court has repeatedly held that the seizure of landholdings or properties covered by
PD 27 did not take place on October 21, 1972, but upon the payment of just
compensation.  Thus, if the agrarian reform process is still incomplete, as in this case
75

where the just compensation due the landowner has yet to be settled, just compensation
should be determined and the process concluded under RA 6657. 76

As summarized in LBP v. Sps. Banal,  the procedure for the determination of just

77

compensation under RA 6657 commences with the LBP determining the initial valuation of
the lands under the land reform program.  Using the LBP's valuation, the DAR makes an
78

offer to the landowner.  In case the landowner rejects the offer, the DAR adjudicator
79

conducts a summary administrative proceeding to determine the compensation for the land
by requiring the landowner, the LBP, and other interested parties to submit evidence on the
just compensation of the land. A party who disagrees with the decision of the DAR
adjudicator may bring the matter to the RTC, designated as a Special Agrarian Court for final
determination of just compensation. 80

Note that in case of rejection, RA 6657 entitles the landowner to withdraw the initial valuation
of the landholding pending the determination of just compensation.  In this case, however,
81

the LBP, citing DAR AO No. 2, Series of 2005, posited that the release of such amount is
conditioned on the submission of all the documentary requirements listed therein, and that
the RTC's failure to require Santos to comply therewith constitutes grave abuse of
discretion.
82

The Court is not persuaded.

Grave abuse of discretion connotes an arbitrary or despotic exercise of power due to

passion, prejudice or personal hostility; or the whimsical, arbitrary, or capricious exercise of
power that amounts to an evasion or refusal to perform a positive duty enjoined by law or to
act at all in contemplation of law. For an act to be struck down as having been done with
grave abuse of discretion, the abuse must be patent and gross. 83

Contrary to the LBP's assertion in G.R. No. 213863, nowhere from the said administrative
guideline can it be inferred that the submission of the complete documents is a pre-condition
for the release of the initial valuation to a landowner. To hold otherwise would effectively
protract payment of the amount which RA 6657 guarantees to be immediately due the
landowner even pending the determination of just compensation. As elucidated in LBP v.
CA:84

As an exercise of police power, the expropriation of private property under the CARP puts
the landowner, and not the government, in a situation where the odds are already stacked
against his favor. He has no recourse but to allow it. His only consolation is that he can
negotiate for the amount of compensation to be paid for the expropriated property. As
expected, the landowner will exercise this right to the hilt, but subject however to the
limitation that he can only be entitled to a "just compensation." Clearly therefore, by rejecting
and disputing the valuation of the DAR, the landowner is merely exercising his right to seek
just compensation. If we are to x x x [withhold] the release of the offered compensation
despite depriving the landowner of the possession and use of his property, we are in
effect penalizing the latter for simply exercising a right afforded to him by law.

Obviously, this would render the right to seek a fair and just compensation illusory as it would
discourage owners of private lands from contesting the offered valuation of the DAR even if
they find it unacceptable, for fear of the hardships that could result from long delays in the
resolution of their cases. This is contrary to the rules of fair play because the concept of just
compensation embraces not only the correct determination of the amount to be paid to the
owners of the land, but also the payment of the land within a reasonable time from its taking.
Without prompt payment, compensation cannot be considered "just" for the property owner is
made to suffer the consequence of being immediately deprived of his land while being made
to wait for a decade or more before actually receiving the amount necessary to cope with his
loss.  (Emphasis supplied)
85

Thus, the leniency accorded by the RTC cannot be construed as a capricious exercise of
power as it merely expedited the procedure for payment which is inherently fairer under the
circumstances considering that: (a) Santos has been "deprived of his right to enjoy his
properties as early as 1983, and has not yet received any compensation therefor since
then;"  (b) the existence of the certificates of title over Lands 1 and 2 which the LBP insists
86

to be submitted had not been sufficiently established;  (c) the LBP had judicially admitted,
87

that Santos is the owner of Lands 1 and 2 which were identified as covered by tax
declarations;  and (d) compliance with the required documents may still be directed before
88

the full payment of the correct just compensation  which, up to this time, has not yet been
89

finally determined. Moreover, as aptly pointed out by the CA, Santos' failure to produce the
titles to Lands 1 and 2 was not motivated by any obstinate refusal to abide by the
requirements but due to impediments beyond his control. 90

Perforce, no reversible error or grave abuse of discretion can be imputed on the CA in

sustaining the RTC Orders dated July 9, 2009 and August 24, 2009 which allowed the
withdrawal of the initial valuation upon Santos' (a) submission of two (2) valid ID cards, two
(2) latest ID pictures, I and his current CTC, and (b) execution of a Deed of Assignment,
Warranties and Undertaking in favor of the LBP.

Neither can the Court subscribe to the LBP's contention that the RTC was barred by res
judicata from conducting further proceedings to determine just compensation for Lands 2
and 3 since the final and executory Decision in CA-G.R. CV No. 75010 merely called for a
remand of the case for computation purposes only. 1âwphi1

Res judicata means a matter adjudged, a thing judicially acted upon or decided; a thing or
matter settled by judgment.  The doctrine of res judicata provides that a final judgment, on
1âwphi1

the merits rendered by a court of competent jurisdiction is conclusive as to the rights of the
parties and their privies and constitutes an absolute bar to subsequent actions involving the
same claim, demand, or cause of action. The elements of res judicata are (a) identity of
parties or at least such as representing the same interest in both actions; (b) identity of
rights asserted and relief prayed for, the relief being founded on the same
facts; and (c) the identity in the two (2) particulars is such that any judgment which may be
rendered in the other action will, regardless of which party is successful, amount to res
judicata in the action under consideration.91

As correctly observed by the CA, the decision in CA-G.R. CV No. 75010 did not preclude the
RTC from proceeding with the determination of just compensation of the subject lands since
the issue raised in the said case merely pertained to the LBP's legal standing to institute the
complaints for just compensation and not the valuation of the subject lands.  The 92

pronouncement in the said decision on the matter of computation of just compensation was a
mere obiter dictum, an opinion expressed upon some question of law that was not
necessary in the determination of the case before it.  As succinctly pointed out in the case
93

of LBP v. Suntay,  "it is a remark made, or opinion expressed, by a judge, in his decision
94

upon a cause by the way, that is, incidentally or collaterally, and not directly upon the

question before him, or upon a point not necessarily involved in the determination of the
cause, or introduced by way of illustration, or analogy or argument. It does not embody the
resolution or determination of the court, and is made without argument, or full consideration
of the point. It lacks the force of an adjudication, being a mere expression of an opinion
with no binding force for purposes of res judicata." 95

Besides, it bears stressing that the original and exclusive jurisdiction over all petitions for the
determination of just compensation is vested in the RTC,  hence, it cannot be unduly
96

restricted in the exercise of its judicial function.

With respect to the award of twelve percent (12%) interest on the unpaid just compensation
for Land 3 subject of GR. No. 214021, the Court finds untenable the LBP's contention that
the same was bereft of factual and legal bases, grounded on its having promptly paid Santos
the initial valuation therefor barely two months after it approved the DAR's valuation on June
26, 2000. 97

Notably, while the LBP released the initial valuation in the amount of P46,781.58 in favor of
Santos in the year 2000, the said amount is way below, or only four (4% )  of the just
98

compensation finally adjudged by the RTC. To be considered as just, the compensation must
be fair and equitable, and the landowners must have received it without any delay.

It is doctrinal that the concept of just compensation contemplates of just and timely payment.
It embraces not only the correct determination of the amount to be paid to the landowner, but
also the payment of the land within a reasonable time from its taking, as otherwise,
compensation cannot be considered "just," for the owner is made to suffer the consequence
of being immediately deprived of his land while being made to wait for years before actually
receiving the amount necessary to cope with his loss. 99

In LBP v. Orilla,  the Court elucidated that "prompt payment" of just compensation is not
100

satisfied by the mere deposit with any accessible bank of the provisional compensation
determined by it or by the DAR, and its subsequent release to the landowner after
compliance with the legal requirements set by RA 6657, to wit:

Just compensation is defined as the full and fair equivalent of the property taken from its
owner by the expropriator. It has been repeatedly stressed by this Court that the true
measure is not the taker's gain but the owner's loss. The word 'just" is used to modify the
meaning of the word "compensation" to convey the idea that the equivalent to be given for
the property to be taken shall be real, substantial, full, and ample.

The concept of just compensation embraces not only the correct determination of the
amount to be paid to the owners of the land, but also payment within a reasonable time from
its taking. Without prompt payment, compensation cannot be considered "just" inasmuch as
the property owner is made to suffer the consequences of being immediately deprived of his
land while being made to wait for a decade or more before actually receiving the amount
necessary to cope with his loss.
Put differently, while prompt payment of just compensation requires the immediate
deposit and release to the landowner of the provisional compensation as determined
by the DAR, it does not end there. Verily, it also encompasses the payment in full of
the just compensation to the landholders as finally determined by the courts. Thus, it
cannot be said that there is already prompt payment of just compensation when there
is only a partial payment thereof, as in this case.  (Emphasis supplied)
101

Thus, in expropriation cases, interest is imposed if there is delay in the payment of just

compensation to the landowner since the obligation is deemed to be an effective
forbearance on the part of the State. Such interest shall be pegged at the rate of twelve
percent (12%) per annum on the unpaid balance of the just compensation, reckoned from
the time of taking,  or the time when the landowner was deprived of the use and benefit of
102

his property  such as when title is transferred to the Republic,  or emancipation patents are
103 104

issued by the government,  until full payment.  To clarify, unlike the six percent (6%) annual
105

incremental interest allowed under DAR AO No. 13, Series of 1994, DAR AO No. 2, Series of
2004 and DAR AO No. 6, Series of 2008, this twelve percent (12%) annual interest is not
granted on the computed just compensation; rather, it is a penalty imposed for damages
incurred by the landowner due to the delay in its payment. 106

Accordingly, the award of twelve percent (12%) annual interest on the unpaid balance of the
just compensation for Land 3 should be computed from the time of taking and not from
January 1, 2010 as ruled by the RTC and the CA, until full payment on October 12,
2011.  However, copies of the emancipation patents issued to the farmer-beneficiaries have
107

not been attached to the records of the case. Hence, the Court is constrained to remand the
case to the RTC of Naga City for receipt of evidence as to the date of the grant of the
emancipation patents, which shall serve as the reckoning point for the computation of the
interests due Santos.

WHEREFORE, the petitions are DENIED. The Decision dated December 4, 2013 and the

Resolution dated August 11, 2014 of the Court of Appeals in CA-G.R. SP Nos. 110779 and
121813 are hereby AFFIRMED with the MODIFICATION that the awarded twelve percent
(12%) interest shall be computed from the date of taking until full payment of the just
compensation on October 12, 2011 for the property covered by TCT No. 5717 (Land 3). The
records of the case are REMANDED to the Regional Trial Court of Naga City, Branch 23 for
further reception of evidence as to the date of the grant of the emancipation patents in favor
of the farmer-beneficiaries of Land 3, which shall serve as the reckoning point for the
computation of the said award.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 100091 October 22, 1992

CENTRAL MINDANAO UNIVERSITY REPRESENTED ITS PRESIDENT DR. LEONARDO

A. CHUA, petitioner, 
vs.
THE DEPARTMENT OF AGRARIAN REFORM ADJUDICATION BOARD, THE COURT OF
APPEALS and ALVIN OBRIQUE, REPRESENTING BUKIDNON FREE FARMERS
AGRICULTURAL LABORERS ORGANIZATION (BUFFALO), respondents.

CAMPOS, JR., J.:

This is a Petition for Review on Certiorari under Rule 65 of the Rules of Court to nullify the
proceedings and decision of the Department of Agrarian Reform Adjudication Board (DARAB
for brevity) dated September 4, 1989 and to set aside the decision the decision * of the Court
of Appeals dated August 20, 1990, affirming the decision of the DARAB which ordered the
segregation of 400 hectares of suitable, compact and contiguous portions of the Central
Mindanao University (CMU for brevity) land and their inclusion in the Comprehensive
Agrarian Reform Program (CARP for brevity) for distribution to qualified beneficiaries, on the
ground of lack of jurisdiction.

This case originated in a complaint filed by complainants calling themselves as the Bukidnon
Free Farmers and Agricultural Laborers Organization (BUFFALO for brevity) under the
leadership of Alvin Obrique and Luis Hermoso against the CMU, before the Department of
Agrarian Reform for Declaration of Status as Tenants, under the CARP.

From the records, the following facts are evident. The petitioner, the CMU, is an agricultural
educational institution owned and run by the state located in the town of Musuan, Bukidnon
province. It started as a farm school at Marilang, Bukidnon in early 1910, in response to the
public demand for an agricultural school in Mindanao. It expanded into the Bukidnon
National Agricultural High School and was transferred to its new site in Managok near
Malaybalay, the provincial capital of Bukidnon.

In the early 1960's, it was converted into a college with campus at Musuan, until it became
what is now known as the CMU, but still primarily an agricultural university. From its
beginning, the school was the answer to the crying need for training people in order to
develop the agricultural potential of the island of Mindanao. Those who planned and
established the school had a vision as to the future development of that part of the
Philippines. On January 16, 1958 the President of the Republic of the Philippines, the late
Carlos P. Garcia, "upon the recommendation of the Secretary of Agriculture and Natural
Resources, and pursuant to the provisions of Section 53, of Commonwealth Act No. 141, as
amended", issued Proclamation No. 476, withdrawing from sale or settlement and reserving
for the Mindanao Agricultural College, a site which would be the future campus of what is
now the CMU. A total land area comprising 3,080 hectares was surveyed and registered and
titled in the name of the petitioner under OCT Nos. 160, 161 and 162. 1

In the course of the cadastral hearing of the school's petition for registration of the
aforementioned grant of agricultural land, several tribes belonging to cultural communities,
opposed the petition claiming ownership of certain ancestral lands forming part of the tribal
reservations. Some of the claims were granted so that what was titled to the present
petitioner school was reduced from 3,401 hectares to 3,080 hectares.

In the early 1960's, the student population of the school was less than 3,000. By 1988, the
student population had expanded to some 13,000 students, so that the school community
has an academic population (student, faculty and non-academic staff) of almost 15,000. To
cope with the increase in its enrollment, it has expanded and improved its educational
facilities partly from government appropriation and partly by self-help measures.

True to the concept of a land grant college, the school embarked on self-help measures to
carry out its educational objectives, train its students, and maintain various activities which
the government appropriation could not adequately support or sustain. In 1984, the CMU
approved Resolution No. 160, adopting a livelihood program called "Kilusang Sariling Sikap
Program" under which the land resources of the University were leased to its faculty and
employees. This arrangement was covered by a written contract. Under this program the
faculty and staff combine themselves to groups of five members each, and the CMU
provided technical know-how, practical training and all kinds of assistance, to enable each
group to cultivate 4 to 5 hectares of land for the lowland rice project. Each group pays the
CMU a service fee and also a land use participant's fee. The contract prohibits participants
and their hired workers to establish houses or live in the project area and to use the
cultivated land as a collateral for any kind of loan. It was expressly stipulated that no
landlord-tenant relationship existed between the CMU and the faculty and/or employees.
This particular program was conceived as a multi-disciplinary applied research extension and
productivity program to utilize available land, train people in modern agricultural technology
and at the same time give the faculty and staff opportunities within the confines of the CMU
reservation to earn additional income to augment their salaries. The location of the CMU at
Musuan, Bukidnon, which is quite a distance from the nearest town, was the proper setting
for the adoption of such a program. Among the participants in this program were Alvin
Obrique, Felix Guinanao, Joven Caballero, Nestor Pulao, Danilo Vasquez, Aronio Pelayo
and other complainants. Obrique was a Physics Instructor at the CMU while the others were
employees in the lowland rice project. The other complainants who were not members of the
faculty or non-academic staff CMU, were hired workers or laborers of the participants in this
program. When petitioner Dr. Leonardo Chua became President of the CMU in July 1986, he
discontinued the agri-business project for the production of rice, corn and sugar cane known
as Agri-Business Management and Training Project, due to losses incurred while carrying on
the said project. Some CMU personnel, among whom were the complainants, were laid-off
when this project was discontinued. As Assistant Director of this agri-business project,
Obrique was found guilty of mishandling the CMU funds and was separated from service by
virtue of Executive Order No. 17, the re-organization law of the CMU.

Sometime in 1986, under Dr. Chua as President, the CMU launched a self-help project
called CMU-Income Enhancement Program (CMU-IEP) to develop unutilized land resources,
mobilize and promote the spirit of self-reliance, provide socio-economic and technical
training in actual field project implementation and augment the income of the faculty and the
staff.

Under the terms of a 3-party Memorandum of Agreement 2 among the CMU, the CMU-
Integrated Development Foundation (CMU-IDF) and groups or "seldas" of 5 CMU
employees, the CMU would provide the use of 4 to 5 hectares of land to a selda for one (1)
calendar year. The CMU-IDF would provide researchers and specialists to assist in the
preparation of project proposals and to monitor and analyze project implementation. The
selda in turn would pay to the CMU P100 as service fee and P1,000 per hectare as
participant's land rental fee. In addition, 400 kilograms of the produce per year would be
turned over or donated to the CMU-IDF. The participants agreed not to allow their hired
laborers or member of their family to establish any house or live within vicinity of the project
area and not to use the allocated lot as collateral for a loan. It was expressly provided that no
tenant-landlord relationship would exist as a result of the Agreement.

Initially, participation in the CMU-IEP was extended only to workers and staff members who
were still employed with the CMU and was not made available to former workers or
employees. In the middle of 1987, to cushion the impact of the discontinuance of the rice,
corn and sugar cane project on the lives of its former workers, the CMU allowed them to
participate in the CMU-IEP as special participants.

Under the terms of a contract called Addendum To Existing Memorandum of Agreement

Concerning Participation To the CMU-Income Enhancement Program, 3 a former employee
would be grouped with an existing selda of his choice and provided one (1) hectare for a
lowland rice project for one (1) calendar year. He would pay the land rental participant's fee
of P1,000.00 per hectare but on a charge-to-crop basis. He would also be subject to the
same prohibitions as those imposed on the CMU employees. It was also expressly provided
that no tenant-landlord relationship would exist as a result of the Agreement.

The one-year contracts expired on June 30, 1988. Some contracts were renewed. Those
whose contracts were not renewed were served with notices to vacate.

The non-renewal of the contracts, the discontinuance of the rice, corn and sugar cane
project, the loss of jobs due to termination or separation from the service and the alleged
harassment by school authorities, all contributed to, and precipitated the filing of the
complaint.

On the basis of the above facts, the DARAB found that the private respondents were not
tenants and cannot therefore be beneficiaries under the CARP. At the same time, the
DARAB ordered the segregation of 400 hectares of suitable, compact and contiguous
portions of the CMU land and their inclusion in the CARP for distribution to qualified
beneficiaries.

The petitioner CMU, in seeking a review of the decisions of the respondents DARAB and the
Court of Appeals, raised the following issues:

1.) Whether or not the DARAB has jurisdiction to hear and decide Case No. 005 for
Declaration of Status of Tenants and coverage of land under the CARP.

2.) Whether or not respondent Court of Appeals committed serious errors and grave abuse
of discretion amounting to lack of jurisdiction in dismissing the Petition for Review
on Certiorari and affirming the decision of DARAB.
In their complaint, docketed as DAR Case No. 5, filed with the DARAB, complainants
Obrique, et al. claimed that they are tenants of the CMU and/or landless peasants
claiming/occupying a part or portion of the CMU situated at Sinalayan, Valencia, Bukidnon
and Musuan, Bukidnon, consisting of about 1,200 hectares. We agree with the DARAB's
finding that Obrique, et. al. are not tenants. Under the terms of the written agreement signed
by Obrique, et. al., pursuant to the livelihood program called "Kilusang Sariling Sikap
Program", it was expressly stipulated that no landlord-tenant relationship existed between
the CMU and the faculty and staff (participants in the project). The CMU did not receive any
share from the harvest/fruits of the land tilled by the participants. What the CMU collected
was a nominal service fee and land use participant's fee in consideration of all the kinds of
assistance given to the participants by the CMU. Again, the agreement signed by the
participants under the CMU-IEP clearly stipulated that no landlord-tenant relationship
existed, and that the participants are not share croppers nor lessees, and the CMU did not
share in the produce of the participants' labor.

In the same paragraph of their complaint, complainants claim that they are landless
peasants. This allegation requires proof and should not be accepted as factually true.
Obrique is not a landless peasant. The facts showed he was Physics Instructor at CMU
holding a very responsible position was separated from the service on account of certain
irregularities he committed while Assistant Director of the Agri-Business Project of cultivating
lowland rice. Others may, at the moment, own no land in Bukidnon but they may not
necessarily be so destitute in their places of origin. No proof whatsoever appears in the
record to show that they are landless peasants.

The evidence on record establish without doubt that the complainants were originally
authorized or given permission to occupy certain areas of the CMU property for a definite
purpose — to carry out certain university projects as part of the CMU's program of activities
pursuant to its avowed purpose of giving training and instruction in agricultural and other
related technologies, using the land and other resources of the institution as a laboratory for
these projects. Their entry into the land of the CMU was with the permission and written
consent of the owner, the CMU, for a limited period and for a specific purpose. After the
expiration of their privilege to occupy and cultivate the land of the CMU, their continued stay
was unauthorized and their settlement on the CMU's land was without legal authority. A
person entering upon lands of another, not claiming in good faith the right to do so by virtue
of any title of his own, or by virtue of some agreement with the owner or with one whom he
believes holds title to the land, is a squatter. 4 Squatters cannot enter the land of another
surreptitiously or by stealth, and under the umbrella of the CARP, claim rights to said
property as landless peasants. Under Section 73 of R.A. 6657, persons guilty of committing
prohibited acts of forcible entry or illegal detainer do not qualify as beneficiaries and may not
avail themselves of the rights and benefits of agrarian reform. Any such person who
knowingly and wilfully violates the above provision of the Act shall be punished with
imprisonment or fine at the discretion of the Court.

In view of the above, the private respondents, not being tenants nor proven to be landless
peasants, cannot qualify as beneficiaries under the CARP.

The questioned decision of the Adjudication Board, affirmed in toto by the Court of Appeals,
segregating 400 hectares from the CMU land is primarily based on the alleged fact that the
land subject hereof is "not directly, actually and exclusively used for school sites, because
the same was leased to Philippine Packing Corporation (now Del Monte Philippines)".
In support of this view, the Board held that the "respondent University failed to show that it is
using actually, really, truly and in fact, the questioned area to the exclusion of others, nor did
it show that the same is directly used without any intervening agency or person", 5 and
"there is no definite and concrete showing that the use of said lands are essentially
indispensable for educational purposes". 6 The reliance by the respondents Board and
Appellate Tribunal on the technical or literal definition from Moreno's Philippine Law
Dictionary and Black's Law Dictionary, may give the ordinary reader a classroom meaning of
the phrase "is actually directly and exclusively", but in so doing they missed the true meaning
of Section 10, R.A. 6657, as to what lands are exempted or excluded from the coverage of
the CARP.

The pertinent provisions of R.A. 6657, otherwise known as the Comprehensive Agrarian
Reform Law of 1988, are as follows:

Sec. 4. SCOPE. — The Comprehensive Agrarian Reform Law of 1988 shall

cover, regardless of tenurial arrangement and commodity produced, all public
and private agricultural lands as provided in Proclamation No. 131 and
Executive Order No. 229 including other lands of the public domain suitable
for agriculture.

More specifically, the following lands are covered by the Comprehensive

Agrarian Reform Program:

(a) All alienable and disposable lands of the public domain devoted to or
suitable for agriculture. No reclassification of forest of mineral lands to
agricultural lands shall be undertaken after the approval of this Act until
Congress, taking into account ecological, developmental and equity
considerations, shall have determined by law, the specific limits of the public
domain;

(b) All lands of the public domain in excess of the specific limits ad
determined by Congress in the preceding paragraph;

(c) All other lands owned by the Government devoted to or suitable for
agriculture; and

(d) All private lands devoted to or suitable for agriculture regardless of the
agricultural products raised or that can be raised thereon.

Sec. 10 EXEMPTIONS AND EXCLUSIONS. — Lands actually, directly and

exclusively used and found to be necessary for parks, wildlife, forest
reserves, reforestration, fish sanctuaries and breeding grounds, watersheds
and mangroves, national defense, school sites and campuses including
experimental farm stations operated by public or private schools for
educational purposes, seeds and seedlings research and pilot production
centers, church sites and convents appurtenant thereto, mosque sites and
Islamic centers appurtenant thereto, communal burial grounds and
cemeteries, penal colonies and penal farms actually worked by the inmates,
government and private research and quarantine centers and all lands with
eighteen percent (18%) slope and over, except those already
developed shall be exempt from the coverage of this Act. (Emphasis
supplied).
The construction given by the DARAB to Section 10 restricts the land area of the CMU to its
present needs or to a land area presently, actively exploited and utilized by the university in
carrying out its present educational program with its present student population and
academic facility — overlooking the very significant factor of growth of the university in the
years to come. By the nature of the CMU, which is a school established to promote
agriculture and industry, the need for a vast tract of agricultural land and for future programs
of expansion is obvious. At the outset, the CMU was conceived in the same manner as land
grant colleges in America, a type of educational institution which blazed the trail for the
development of vast tracts of unexplored and undeveloped agricultural lands in the Mid-
West. What we now know as Michigan State University, Penn State University and Illinois
State University, started as small land grant colleges, with meager funding to support their
ever increasing educational programs. They were given extensive tracts of agricultural and
forest lands to be developed to support their numerous expanding activities in the fields of
agricultural technology and scientific research. Funds for the support of the educational
programs of land grant colleges came from government appropriation, tuition and other
student fees, private endowments and gifts, and earnings from miscellaneous sources. 7 It
was in this same spirit that President Garcia issued Proclamation No. 476, withdrawing from
sale or settlement and reserving for the Mindanao Agricultural College (forerunner of the
CMU) a land reservation of 3,080 hectares as its future campus. It was set up in Bukidnon, in
the hinterlands of Mindanao, in order that it can have enough resources and wide open
spaces to grow as an agricultural educational institution, to develop and train future farmers
of Mindanao and help attract settlers to that part of the country.

In line with its avowed purpose as an agricultural and technical school, the University
adopted a land utilization program to develop and exploit its 3080-hectare land reservation
as follows: 8

No. of Hectares Percentage

a. Livestock and Pasture 1,016.40 33

b. Upland Crops 616 20

c. Campus and Residential sites 462 15

d. Irrigated rice 400.40 13

e. Watershed and forest reservation 308 10

f. Fruit and Trees Crops 154 5

g. Agricultural
Experimental stations 123.20 4

3,080.00 100%

The first land use plan of the CARP was prepared in 1975 and since then it has undergone
several revisions in line with changing economic conditions, national economic policies and
financial limitations and availability of resources. The CMU, through Resolution No. 160 S.
1984, pursuant to its development plan, adopted a multi-disciplinary applied research
extension and productivity program called the "Kilusang Sariling Sikap Project" (CMU-
KSSP). The objectives 9 of this program were:

1. Provide researches who shall assist in (a) preparation of proposal; (b)

monitor project implementation; and (c) collect and analyze all data and
information relevant to the processes and results of project implementation;

2. Provide the use of land within the University reservation for the purpose of
establishing a lowland rice project for the party of the Second Part for a
period of one calendar year subject to discretionary renewal by the Party of
the First Part;

3. Provide practical training to the Party of the Second Part on the

management and operation of their lowland project upon request of Party of
the Second Part; and

4. Provide technical assistance in the form of relevant livelihood project

specialists who shall extend expertise on scientific methods of crop
production upon request by Party of the Second Part.

In return for the technical assistance extended by the CMU, the participants in a project pay
a nominal amount as service fee. The self-reliance program was adjunct to the CMU's
lowland rice project.

The portion of the CMU land leased to the Philippine Packing Corporation (now Del Monte
Phils., Inc.) was leased long before the CARP was passed. The agreement with the
Philippine Packing Corporation was not a lease but a Management and Development
Agreement, a joint undertaking where use by the Philippine Packing Corporation of the land
was part of the CMU research program, with the direct participation of faculty and students.
Said contracts with the Philippine Packing Corporation and others of a similar nature (like
MM-Agraplex) were made prior to the enactment of R.A. 6657 and were directly connected
to the purpose and objectives of the CMU as an educational institution. As soon as the
objectives of the agreement for the joint use of the CMU land were achieved as of June
1988, the CMU adopted a blue print for the exclusive use and utilization of said areas to
carry out its own research and agricultural experiments.

As to the determination of when and what lands are found to be necessary for use by the
CMU, the school is in the best position to resolve and answer the question and pass upon
the problem of its needs in relation to its avowed objectives for which the land was given to it
by the State. Neither the DARAB nor the Court of Appeals has the right to substitute its
judgment or discretion on this matter, unless the evidentiary facts are so manifest as to show
that the CMU has no real for the land.

It is our opinion that the 400 hectares ordered segregated by the DARAB and affirmed by the
Court of Appeals in its Decision dated August 20, 1990, is not covered by the CARP
because:

(1) It is not alienable and disposable land of the public domain;

(2) The CMU land reservation is not in excess of specific limits as determined
by Congress;
 (3) It is private land registered and titled in the name of its lawful owner, the
CMU;

(4) It is exempt from coverage under Section 10 of R.A. 6657 because the
lands are actually, directly and exclusively used and found to be
necessary for school site and campus, including experimental farm stations
for educational purposes, and for establishing seed and seedling research
and pilot production centers. (Emphasis supplied).

Under Section 4 and Section 10 of R.A. 6657, it is crystal clear that the jurisdiction of the
DARAB is limited only to matters involving the implementation of the CARP. More
specifically, it is restricted to agrarian cases and controversies involving lands falling within
the coverage of the aforementioned program. It does not include those which are actually,
directly and exclusively used and found to be necessary for, among such purposes, school
sites and campuses for setting up experimental farm stations, research and pilot production
centers, etc.

Consequently, the DARAB has no power to try, hear and adjudicate the case pending before
it involving a portion of the CMU's titled school site, as the portion of the CMU land
reservation ordered segregated is actually, directly and exclusively used and found by the
school to be necessary for its purposes. The CMU has constantly raised the issue of the
DARAB's lack of jurisdiction and has questioned the respondent's authority to hear, try and
adjudicate the case at bar. Despite the law and the evidence on record tending to establish
that the fact that the DARAB had no jurisdiction, it made the adjudication now subject of
review.

Whether the DARAB has the authority to order the segregation of a portion of a private
property titled in the name of its lawful owner, even if the claimant is not entitled as a
beneficiary, is an issue we feel we must resolve. The quasi-judicial powers of DARAB are
provided in Executive Order No. 129-A, quoted hereunder in so far as pertinent to the issue
at bar:

Sec. 13. –– AGRARIAN REFORM ADJUDICATION BOARD — There is

hereby created an Agrarian Reform Adjudication Board under the office of
the Secretary. . . . The Board shall assume the powers and functions with
respect to adjudication of agrarian reform cases under Executive Order 229
and this Executive Order . . .

Sec. 17. –– QUASI JUDICIAL POWERS OF THE DAR. — The DAR is

hereby vested with quasi-judicial powers to determine and adjudicate
agrarian reform matters and shall have exclusive original jurisdiction over all
matters including implementation of Agrarian Reform.

Section 50 of R.A. 6658 confers on the DAR quasi-judicial powers as follows:

The DAR is hereby vested with primary jurisdiction to determine and

adjudicate agrarian reform matters and shall have original jurisdiction over all
matters involving the implementation of agrarian reform. . . .

Section 17 of Executive Order No. 129-A is merely a repetition of Section 50, R.A.
6657. There is no doubt that the DARAB has jurisdiction to try and decide any
agrarian dispute in the implementation of the CARP. An agrarian dispute is defined
 by the same law as any controversy relating to tenurial rights whether leasehold,
tenancy stewardship or otherwise over lands devoted to 
agriculture. 10

In the case at bar, the DARAB found that the complainants are not share tenants or lease
holders of the CMU, yet it ordered the "segregation of a suitable compact and contiguous
area of Four Hundred hectares, more or less", from the CMU land reservation, and directed
the DAR Regional Director to implement its order of segregation. Having found that the
complainants in this agrarian dispute for Declaration of Tenancy Status are not entitled to
claim as beneficiaries of the CARP because they are not share tenants or leaseholders, its
order for the segregation of 400 hectares of the CMU land was without legal authority. w do
not believe that the quasi-judicial function of the DARAB carries with it greater authority than
ordinary courts to make an award beyond what was demanded by the
complainants/petitioners, even in an agrarian dispute. Where the quasi-judicial body finds
that the complainants/petitioners are not entitled to the rights they are demanding, it is an
erroneous interpretation of authority for that quasi-judicial body to order private property to
be awarded to future beneficiaries. The order segregation 400 hectares of the CMU land was
issued on a finding that the complainants are not entitled as beneficiaries, and on an
erroneous assumption that the CMU land which is excluded or exempted under the law is
subject to the coverage of the CARP. Going beyond what was asked by the complainants
who were not entitled to the relief prayed the complainants who were not entitled to the relief
prayed for, constitutes a grave abuse of discretion because it implies such capricious and
whimsical exercise of judgment as is equivalent to lack of jurisdiction.

The education of the youth and agrarian reform are admittedly among the highest priorities in
the government socio-economic programs. In this case, neither need give way to the other.
Certainly, there must still be vast tracts of agricultural land in Mindanao outside the CMU
land reservation which can be made available to landless peasants, assuming the claimants
here, or some of them, can qualify as CARP beneficiaries. To our mind, the taking of the
CMU land which had been segregated for educational purposes for distribution to yet
uncertain beneficiaries is a gross misinterpretation of the authority and jurisdiction granted by
law to the DARAB.

The decision in this case is of far-reaching significance as far as it concerns state colleges
and universities whose resources and research facilities may be gradually eroded by
misconstruing the exemptions from the CARP. These state colleges and universities are the
main vehicles for our scientific and technological advancement in the field of agriculture, so
vital to the existence, growth and development of this country.

It is the opinion of this Court, in the light of the foregoing analysis and for the reasons
indicated, that the evidence is sufficient to sustain a finding of grave abuse of discretion by
respondents Court of Appeals and DAR Adjudication Board. We hereby declare the decision
of the DARAB dated September 4, 1989 and the decision of the Court of Appeals dated
August 20, 1990, affirming the decision of the quasi-judicial body, as null and void and
hereby order that they be set aside, with costs against the private respondents.

SO ORDERED
G.R. No. 93661 September 4, 1991

SHARP INTERNATIONAL MARKETING, petitioner, 

vs.
HON. COURT OF APPEALS (14th Division), LAND BANK OF THE PHILIPPINES and
DEOGRACIAS VISTAN,respondents.

Brillantes, Nachura, Navarro & Arcilla Law Office and Yap, Apostol, Bandon & Gumaro for
petitioner.

Miguel M. Gonzales and Norberto L. Martinez for private respondents.

CRUZ, J.:

This case involves the aborted sale of the Garchitorena estate to the Government in
connection with the Comprehensive Agrarian Reform Program. This opinion is not intended
as a pre-judgment of the informations that have been filed with the Sandiganbayan for
alleged irregularities in the negotiation of the said transaction. We are concerned here only
with the demand of the petitioner that the private respondents sign the contract of sale and
thus give effect thereto as a perfected agreement. For this purpose, we shall determine only
if the challenged decision of the Court of Appeals denying that demand should be affirmed or
reversed.

The subject-matter of the proposed sale is a vast estate consisting of eight parcels of land
situated in the municipality of Garchitorena in Camarines Norte and with an area of
1,887.819 hectares. The record shows that on April 27, 1988, United Coconut Planters Bank
(UCPB) entered into a Contract to Sell the property to Sharp International Marketing, the
agreement to be converted into a Deed of Absolute Sale upon payment by the latter of the
full purchase price of P3,183,333.33. On May 14, 1988, even before it had acquired the land,
the petitioner, through its President Alex Lina, offered to sell it to the Government for
P56,000,000.00, (later increased to P65,000,000.00). Although the land was still registered
in the name of UCPB, the offer was processed by various government agencies during the
months of June to November, 1988, resulting in the recommendation by the Bureau of Land
Acquisition and Distribution in the Department of Agrarian Reform for the acquisition of the
property at a price of P35,532.70 per hectare, or roughly P67,000,000.00. On December 1,
1988, a Deed of Absolute Sale was executed between UCPB and Sharp by virtue of which
the former sold the estate to the latter for the stipulated consideration of P3,183,333.33. The
property was registered in the name of the petitioner on December 6, 1988. On December
27, 1988, DAR and the Land Bank of the Philippines created a Compensation Clearing
Committee (CCC) to expedite processing of the papers relating to the acquisition of the land
and the preparation of the necessary deed of transfer for signature by the DAR Secretary
and the LBP President. The following day, the CCC held its first meeting and decided to
recommend the acquisition of the property for P62,725,077.29. The next day, December 29,
1988, DAR Secretary Philip Ella Juico issued an order directing the acquisition of the estate
for the recommended amount and requiring LBP to pay the same to Sharp, 30% in cash and
the balance in government financial instruments negotiable within 30 days from issuance by
Sharp of the corresponding muniments of title.

On January 9, 1989, Secretary Juico and petitioner Lina signed the Deed of Absolute Sale.
On that same day, the LBP received a copy of the order issued by Secretary Juico on
December 29, 1988. On January 17, 1989, LBP Executive Vice President Jesus Diaz signed
the CCC evaluation worksheet but with indicated reservations. For his part, LBP President
Deogracias Vistan, taking into account these reservations and the discovery that Sharp had
acquired the property from UCPB for only P3.1 million, requested Secretary Juico to
reconsider his December 29, 1988 order. Secretary Juico then sought the opinion of the
Secretary of Justice as to whether the LBP could refuse to pay the seller the compensation
fixed by the DAR Secretary. Meantime, on February 3, 1989, Vistan informed Juico that LBP
would not pay the stipulated purchase price. The reply of the Justice Department on March
12, 1989, was that the decision of the DAR Secretary fixing the compensation was not final if
seasonably questioned in court by any interested party (including the LBP); otherwise, it
would become final after 15 days from notice and binding on all parties concerned, including
the LBP, which then could not refuse to pay the compensation fixed. Reacting to Sharp's
repeated demands for payment, Juico informed Lina on April 7,1989, that DAR and LBP had
dispatched a team to inspect the land for reassessment. Sharp then filed on April 18, 1989, a
petition for mandamus with this court to compel the DAR and LBP to comply with the
contract, prompting Juico to issue the following order:

Since the whole property of 1,887 hectares was acquired by Claimant for a
consideration of P3 M, the buying price per hectare then was only about P1,589.83.
It is incomprehensible how the value-of land per hectare in this secluded Caramoan
Peninsula can go so high after a short period of time. The increase is difficult to
understand since the land is neither fully cultivated nor has it been determined to
possess special and rich features or potentialities other than agricultural purposes.

We cannot fail to note that the value of land under CARP, particularly in the most
highly developed sections of Camarines Sur, ranges from P18,000.00 to P27,000 per
hectare.

In view of the above findings of fact, the value of P62,725,077.29 is definitely too
high as a price for the property in question.

However, in order to be fair and just to the landowner, a reevaluation of the land in
question by an impartial and competent third party shall be undertaken. For this
purpose, a well known private licensed appraiser shall he commissioned by DAR.

WHEREFORE, premises considered, Order is hereby issued for the reappraisal and
re-evaluation of the subject property. For that purpose, DAR shall avail of the
services of Cuervo and Associates to undertake and complete the appraisal of the
subject property within 60 days from date of this Order.

On April 26, 1989, this Court referred the petition to the Court of Appeals, which dismissed it
on October 31, 1989. In an exhaustive and well-reasoned decision penned by Justice Josue
M. Bellosillo,  it held that mandamus did not he because the LBP was not a mere rubber
1

stamp of the DAR and its signing of the Deed of Absolute Sale was not a merely ministerial
act. It especially noted the failure of the DAR to take into account the prescribed guidelines in
ascertaining the just compensation that resulted in the assessment of the land for the
unconscionable amount of P62 million notwithstanding its original acquisition cost of only P3
million. The decision also held that the opinion of the Secretary of Justice applied only to
compulsory acquisition of lands, not to voluntary agreements as in the case before it.
Moreover, the sale was null and void ab initio because it violated Section 6 of RA 6657,
which was in force at the time the transaction was entered into.

The petitioners are now back with this Court, this time to question the decision of the Court of
Appeals on the following grounds:

The Court of Appeals seriously erred in including in its Decision findings of facts
which are not borne by competent evidence.

The Court of Appeals erred in holding that the valuation made on the Garchitorena
estate has not yet become final.

The Court of Appeals erred in holding that the opinion of the Secretary of Justice is
not applicable to the case at bar.

The Court of Appeals erred in holding that herein petitioner is not entitled to a writ of
mandamus.

The Court of Appeals erred in holding that the sale of Garchitorena estate from
UCPB in favor of the petitioner is void.

The Court of Appeals erred in holding that the P62 million is not a just compensation.

We need not go into each of these grounds as the basic question that need only to be
resolved is whether or not the petitioners are entitled to a writ of mandamus to compel the
LBP President Deogracias Vistan to sign the Deed of Absolute Sale dated January 9, 1989.

It is settled that mandamus is not available to control discretion. The writ may issue to
compel the exercise of discretion but not the discretion itself. mandamus can require action
only but not specific action where the act sought to be performed involves the exercise of
discretion.
2

Section 18 of RA 6657 reads as follows:

Sec. 18. Valuation and mode of compensation. — The LBP shall compensate the
landowner in such amount as may be agreed upon by the landowner and the DAR
and the LBP, in accordance with the criteria provided for in Secs. 16 and 17, and
other pertinent provisions hereof, or as may be finally determined by the court, as the
just compensation for the land. ... (Emphasis supplied).

We agree with the respondent court that the act required of the LBP President is not merely
ministerial but involves a high degree of discretion. The compensation to be approved was
not trifling but amounted to as much as P62 million of public funds, to be paid in exchange
for property acquired by the seller only one month earlier for only P3 million. The respondent
court was quite correct when it observed:

As may be gleaned very clearly from EO 229, the LBP is an essential part of the
government sector with regard to the payment of compensation to the landowner. It
is, after all, the instrumentality that is charged with the disbursement of public funds
for purposes of agrarian reform. It is therefore part, an indispensable cog, in the
governmental machinery that fixes and determines the amount compensable to the
landowner. Were LBP to be excluded from that intricate, if not sensitive, function of
establishing the compensable amount, there would be no amount "to be established
by the government" as required in Sec. 6, EO 229. This is precisely why the law
requires the DAS, even if already approved and signed by the DAR Secretary, to be
transmitted still to the LBP for its review, evaluation and approval.

It needs no exceptional intelligence to understand the implications of this transmittal.

It simply means that if LBP agrees on the amount stated in the DAS, after its review
and evaluation, it becomes its duty to sign the deed. But not until then. For, it is only
in that event that the amount to be compensated shall have been "established'
according to law. Inversely, if the LBP, after review and evaluation, refuses to sign, it
is because as a party to the contract it does not give its consent thereto. This
necessarily implies the exercise of judgment on the part of LBP, which is not
supposed to be a mere rubber stamp in the exercise. Obviously, were it not so, LBP
could not have been made a distinct member of PARC, the super body responsible
for the successful implementation of the CARP. Neither would it have been given the
power to review and evaluate the DAS already signed by the DAR Secretary. If the
function of the LBP in this regard is merely to sign the DAS without the concomitant
power of review and evaluation, its duty to "review/evaluate' mandated in Adm. Order
No. 5 would have been a mere surplusage, meaningless, and a useless ceremony.

Thus, in the exercise of such power of review and evaluation, it results that the
amount of P62,725,077.29 being claimed by petitioner is not the "amount to be
established by the government." Consequently, it cannot be the amount that LBP is
by law bound to compensate petitioner.

Under the facts, SHARP is not entitled to a writ of mandamus. For, it is essential for
the writ to issue that the plaintiff has a legal right to the thing demanded and that it is
the imperative duty of the defendant to perform the act required. The legal right of the
plaintiff to the thing demanded must be well-defined, clear and certain. The
corresponding duty of the defendant to perform the required act must also be clear
and specific (Enriquez v. Bidin, L-29620, October 12, 1972, 47 SCRA 183; Orencia
v. Enrile, L-28997, February 22, 1974, 55 SCRA 580; Dionisio v. Paterno, 103 SCRA
342; Lemi v. Valencia, 26 SCRA 203; Aquino v. Mariano, 129 SCRA 532).

Likewise, respondents cannot be compelled by a writ of mandamus to discharge a

duty that involves the exercise of judgment and discretion, especially where
disbursement of public funds is concerned. It is established doctrine that mandamus
will not issue to control the performance of discretionary, non-ministerial, duties, that
is, to compel a body discharging duties involving the exercise of discretion to act in a
particular way or to approve or disapprove a specific application (B.P. Homes, Inc. v.
National Water Resources Council, L-78529, Sept. 17, 1987; 154 SCRA 88).
mandamus win not issue to control or review the exercise of discretion by a public
officer where the law imposes upon him the right or duty to exercise judgment in
reference to any matter in which he is required to act (Mata v. San Diego, L-30447,
March 21, 1975; 63 SCRA 170).

Even more explicit is R.A. 6657 with respect to the indispensable role of LBP in the
determination of the amount to be compensated to the landowner. Under Sec. 18
thereof, "the LBP shall compensate the landowner in such amount as may be agreed
 upon by the landowner and the DAR and LBP, in accordance with the criteria
provided in Secs. 16 and 17, and other pertinent provisions hereof, or as may be
finally determined by the court, as the just compensation for the land."

Without the signature of the LBP President, there was simply no contract between Sharp and
the Government. The Deed of Absolute Sale dated January 9, 1989, was incomplete and
therefore had no binding effect at all. Consequently, Sharp cannot claim any legal right
thereunder that it can validly assert in a petition for mandamus.

In National Marketing Corporation v. Cloribel,  this Court held:

3

... the action for mandamus had no leg to stand on because the writ was sought to
enforce alleged contractual obligations under a disputed contract — disputed not
only on the ground that it had failed of perfection but on the further ground that it was
illegal and against public interest and public policy ...

The petitioner argues that the LBP President was under obligation to sign the agreement
because he had been required to do so by Secretary Juico, who was acting by authority of
the President in the exercise of the latter's constitutional power of control. This argument
may be dismissed with only a brief comment. If the law merely intended LBP's automatic
acquiescence to the DAR Secretary's decision, it would not have required
the separateapproval of the sale by that body and the DAR. It must also be noted that the
President herself, apparently disturbed by public suspicion of anomalies in the transaction,
directed an inquiry into the matter by a committee headed by former Justice Jose Y. Feria of
this Court. Whatever presumed authority was given by her to the DAR Secretary in
connection with the sale was thereby impliedly withdrawn.

It is no argument either that the Government is bound by the official decisions of Secretary
Juico and cannot now renege on his commitment. The Government is never estopped from
questioning the acts of its officials, more so if they are erroneous, let alone irregular.
4

Given the circumstances attending the transaction which plainly show that it is not merely
questionable but downright dishonest, the Court can only wonder at the temerity of the
petitioner in insisting on its alleged right to be paid the questioned purchase price. The fact
that criminal charges have been flied by the Ombudsman against the principal protagonists
of the sale has, inexplicably, not deterred or discomfited it. It does not appear that the
petitioner is affected by the revelation that it offered the property to the Government even if it
was not yet the owner at the time; acquired it for P3 million after it had been assured that the
sale would materialize; and sold it a month later for the bloated sum of P62 million, to earn a
gross profit of P59 million in confabulation with some suspect officials in the DAR. How the
property appreciated that much during that brief period has not been explained. What is clear
is the public condemnation of the transaction as articulated in the mass media and affirmed
in the results of the investigations conducted by the Feria Fact-Finding Committee, the
Senate House Joint Committee on Agrarian Matters, and the Office of the Ombudsman.

It would seem to the Court that the decent tiling for the petitioner to do, if only in deference to
a revolted public opinion, was to voluntarily withdraw from the agreement. Instead, it is
unabashedly demanding the exorbitant profit it would derive from an illegal and
unenforceable transaction that ranks as one of the most cynical attempts to plunder the
public treasury.
The above rulings render unnecessary discussion of the other points raised by the petitioner.
The Court has given this petition more attention than it deserves. We shall waste no more
time in listening to the petitioner's impertinent demands. LBP President Deogracias Vistan
cannot be faulted for refusing to be a party to the shameful scheme to defraud the
Government and undermine the Comprehensive Agrarian Reform Program for the
petitioner's private profit. We see no reason at all to disturb his discretion. It merits in fact the
nation's commendation.

WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered.

G.R. No. 167809             November 27, 2008

LAND BANK OF THE PHILIPPINES, petitioner, 

vs.
JOSEFINA R. DUMLAO, A. FLORENTINO R. DUMLAO, JR., STELLA DUMLAO-ATIENZA,
and NESTOR R. DUMLAO, represented by Attorney-In-Fact, A. Florentino R. Dumlao,
Jr., respondents.

DECISION

REYES, R.T., J.:

IN determining just compensation for lands covered by the government’s Operation Land
Transfer, which law applies – Presidential Decree (PD) No. 271 or Republic Act (RA) No.
66572 known as the Comprehensive Agrarian Reform (CARP) Law?

This and other related questions are brought to the Court via this petition for review
on certiorari3 of the Decision4 of the Court of Appeals (CA) granting each of respondents a five-
hectare retention area and ordering petitioner to pay them One Hundred Nine Thousand Pesos
(P109,000.00) per hectare for the excess of the retained area.

The Facts

Respondents Josefina R. Dumlao, A. Florentino R. Dumlao, Jr., Stella Dumlao-Atienza, and

Nestor R. Dumlao, heirs of the deceased Florentino G. Dumlao, were the co-owners of several
parcels of agricultural land with an aggregate area of 32.2379 hectares situated at Villaverde,
Nueva Vizcaya.

The properties are covered by: (1) Transfer Certificate of Title (TCT) No. T-1180 with an area of
11.33 hectares;5 (2) TCT No. 41508 consisting of 6.2201 hectares;6 (3) TCT No. 41507 with an
area of 4.0001 hectares;7 (4) TCT No. 41506 consisting of 3.9878 hectares;8 (5) TCT No. 41504
consisting of 5.0639 hectares; and (6) TCT No. 41505 with an area of 1.6360 hectares.

The properties were placed under Operation Land Transfer by the Department of Agrarian
Reform (DAR).9 However, the definite time of actual taking was not stated. 10

Pursuant to PD No. 27 and Executive Order (EO) No. 228, 11 a preliminary valuation was made by
the DAR on the landholdings covered by TCT Nos. 41504 and T-1180 with a total area of
16.3939 hectares. Finding the valuation to be correct, petitioner bank informed respondents of the
said valuation.12 Payments were then deposited in the name of the landowners. 13 Meanwhile,
processing of the properties covered by the other four (4) titles, namely, TCT Nos. 41505, 41506,
41507 and 41508, remains pending with the DAR.14

On July 9, 1995, respondents filed a Complaint15 before the Regional Trial Court (RTC) in Nueva
Vizcaya, Branch 28,16 for determination of just compensation for their properties. It was
claimed, inter alia, that they were not paid their just compensation for the properties despite
issuance of certificates of land transfer to farmer-beneficiaries by the DAR. 17 They prayed for the
appointment of three (3) competent and disinterested commissioners who would determine and
report to the court the just compensation of their landholdings based on their current fair market
value, without prejudice to their retention rights. They also asked for payment of actual and moral
damages, attorney’s fees, and costs of suit.18

In its Answer, the DAR, represented by the Municipal Agrarian Reform Office (MARO) and
Provincial Agrarian Reform Office (PARO), posited that the complaint lacked a cause of action
and that the RTC did not have jurisdiction. Under Section 50 of RA No. 6657, it is the Department
of Agrarian Reform Adjudication Board (DARAB) which is vested with primary and original
jurisdiction over land valuation, while the RTC as a Special Agrarian Court may review the
DARAB’s decision.19

Petitioner, which was impleaded as defendant in the valuation case before the trial court, likewise
filed its Answer, raising a similar line of defense.20 Petitioner added that while payment for the
properties covered by TCT Nos. T-1180 and T-41504 were already deposited in trust for
respondents, the claimfolders for the remaining four properties is still with the DAR. Thus, the
filing of the complaint against petitioner was premature.

After the termination of pre-trial conference, respondent Atty. A. Florentino Dumlao, Jr. submitted
his affidavit on which he was cross-examined. Following the submission of their testimonial and
documentary evidence, respondents rested their case.

Upon motion of respondents, the RTC, on April 15, 1998, appointed Atty. John D. Balasya, Clerk
of Court, as commissioner. He was mandated to "receive, examine, and ascertain valuation of the
properties."21 Believing that the valuation of the properties is not commensurate to their true value
and, hence, not a "just" compensation, Atty. Balasya stated in his Commissioner’s Report dated
July 21, 1998,22 that:

The evidences submitted by the parties as well as those gathered by the undersigned
show that only two (2) parcels of land were valued under Presidential Decree No. 27. The
parcels of land are located in Nagbitin, Villaverde, Nueva Vizcaya and per Exhibit "O," the
unirrigated riceland in Nagbitin are considered first class agricultural lands. Under Tax
Ordinance No. 96-45 adopting and authorizing the 1996 Schedule of Fair Market Values
for the Different Classes of Real Property in Nueva Vizcaya (Exhibit "G" and Exhibit "G-
1") the market value of first class unirrigated Riceland in the Municipality of Villaverde
is P109,000.00 Per Department Order No. 56-97 dated May 27, 1997 issued by the
Department of Finance, Re: Implementation of the Revised Zonal Values of Real
Properties in all Municipalities under the jurisdiction of Revenue District Office No. 14
(Bayombong, Nueva Vizcaya), Revenue Region No. 3, Tuguegarao, Cagayan for Internal
Revenue Tax purposes, the zonal value of land in other Barangays in Villaverde
is P60.00/square meter.

In summary, the undersigned believes that the valuation of respondents Land Bank of the
Philippines and the Department of Agrarian Reform is not commensurate to the definition
of just compensation x x x.23

RTC Ruling
On October 14, 1998, the RTC issued a decision,24 the fallo of which reads:

WHEREFORE, the Court hereby orders the remand of the case with respect to TCT Nos.
1180 and T-41504 to the proper DAR agency for further proceedings and orders the
dismissal of the case with respect to TCT Nos. T-41508, T-41507, T-41506, and T-41505
for having been prematurely filed, there being no preliminary valuation made yet on the
said parcels of land. No pronouncement as to costs.

SO ORDERED.25

Respondents moved for reconsideration. Consequently, on December 21, 1998, the trial court
modified26 its decision in the following manner:

WHEREFORE, premises considered, in the higher interest of justice, the Court

MODIFIES its October 14, 1998 decision by ordering plaintiffs to adduce additional
evidence to support their contentions under PD 27/EO 228 within 30 days from receipt of
this Order furnishing a copy thereof to the defendants who are given 15 days from receipt
to comment thereon. Thereafter, the matter shall be deemed submitted for resolution.

SO ORDERED.27

Instead of adducing additional evidence, respondents filed a motion for reconsideration of the trial
court’s December 21, 1998 order. Positing that the additional evidence required by the court
pertains to the formula under PD No. 27, respondents insisted on P109,000.00 per hectare, the
market value of the properties, as just compensation. 28 Accordingly, the trial court, on March 18,
1999, issued another order,29 the dispositive portion of which states:

WHEREFORE, premises considered, the Court hereby sets the just compensation in the
amount of P6,912.50 per hectare for lot covered by TCT No. T-1180 and the amount
provided for in the Land Valuation Summary and Farmers Undertaking for lot covered by
TCT No. T-41504 to be paid to the plaintiffs with interest from the time of the taking until
fully paid.

SO ORDERED.30

CA Disposition

Dissatisfied with the March 18, 1999 RTC Order, respondents appealed to the CA. On February
16, 2005, the CA rendered a decision31 modifying the trial court’s ruling, viz.:

WHEREFORE, in view of the foregoing, the trial court’s decision is hereby MODIFIED.
The plaintiffs-appellants’ right of retention is recognized. Plaintiffs-appellants Josefina, A.
Florentino, Jr. and Stella, all surnamed Dumlao are each entitled to retain five (5)
hectares pursuant to the provisions of R.A. 6657.

The excess in area after application of the right of retention is valued at One Hundred
Nine Thousand (P109,000.00) Pesos per hectare with interest at the prevailing rate from
the time of taking until fully paid.

No costs.

SO ORDERED.32
The CA declared that the definite time of the actual taking of the subject properties is not
certain.33 Further, there is no doubt that the transfer of the subject landholdings is governed by
PD No. 27.34 However, after the passage of RA No. 6657, the formula relative to valuation under
PD No. 27 no longer applies.35 The appellate court held:

The trial court, therefore, in the determination of just compensation is not confined within
the valuation provisions of P.D. 27. It can depart from it so long as the valuation assigned
on the land transferred is within the meaning of the phrase "just compensation" provided
for in J.M. Tuazon Co. vs. Land Tenure Administration (31 SCRA 413).36

Relying on the Commissioner’s Report, the CA assigned the lower value of P109,000.00 per
hectare as just compensation for the subject properties. 37

Issues

Petitioner bank has resorted to the present recourse, imputing to the CA the following errors:

A.

WHEN THE CHALLENGED DECISION ADHERED TO THE COMMISSIONER’S

REPORT AND FIXED THE VALUEOF THE LANDHOLDINGS AT P109,000.00 PER
HECTARE WITH INTEREST AT THE PREVAILING RATE FROM THE TIME OF
TAKING UNTIL FULLY PAID, WORKING A MODIFICATION OF THE LEGALLY
PRESCRIBED BASIC FORMULA FOR DETERMINING THE JUST COMPENSATION
OF LANDS ACQUIRED THROUGH OPERATION LAND TRANSFER (OLT),
CONTRARY TO THE CLEAR MANDATE OF PD 27/EO 228.

B.

WHEN THE CHALLENGED DECISION DECLARED THAT OCTOBER 21, 1972

CANNOT BE DEEMED AS THE DATE OF TAKING OF THE SUBJECT PROPERTIES.

C.

WHEN THE CHALLENGED DECISION DECLARED THAT RESPONDENTS’ ENTIRE

LANDHOLDINGS ARE COVERED BY PD 27 AND THAT RESPONDENTS JOSEFINA,
A. FLORENTINO, JR., AND STELLA ARE ENTITLED TO RETAIN FIVE (5) HECTARES
EACH.38 (Underscoring supplied)

Our Ruling

The just compensation due to respondents should be determined under the provisions of
RA No. 6657.

Petitioner asserts that since the properties were acquired pursuant to PD No. 27, the formula for
computing just compensation provided by said decree and EO No. 228 should apply.
Respondents, on the other hand, insist on the application of RA No. 6657 with respect to the
computation.

Petitioner is mistaken. The 1987 Constitution, specifically Article XIII on Social Justice and
Human Rights, mandates the State’s adoption of an agrarian reform program for the benefit of the
common people.39 The recognition of the need for genuine land reform, however, started earlier.
PD No. 27, issued on October 21, 1972, more than a decade before the enactment of the 1987
Constitution, provided for the compulsory acquisition of private lands for distribution among
tenant-farmers and specified the maximum retention limits for landowners. 40

The agrarian reform thrust was further energized with the enactment of EO No. 228 on July 17,
1987, when full land ownership was declared in favor of the beneficiaries of PD No. 27. The
executive issuance also provided for the valuation of still unvalued covered lands, as well as the
manner of their payment. On July 22, 1987, Presidential Proclamation No. 131, instituting a
comprehensive agrarian reform program, as well as EO No. 229 41 providing the mechanics for its
implementation, were likewise enacted.42

When the Philippine Congress was formally reorganized, RA No. 6657, otherwise known as the
Comprehensive Agrarian Reform Law of 1988, was immediately enacted. It was signed by
President Corazon Aquino on June 10, 1988. This law, while considerably changing the earlier
presidential issuances, including PD No. 27 and EO No. 228, nevertheless gave them suppletory
effect insofar as they are not inconsistent with its provisions. 43

On one hand, PD No. 27 provides the formula to be used in arriving at the exact total cost of the
acquired lands:44

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

The total cost of the land, including interest at the rate of six (6) per centum per annum,
shall be paid by the tenant in fifteen (15) years of fifteen (15) equal annual amortizations.
(Emphasis supplied)

Implementing the formula under PD No. 27, EO No. 228 states:

SECTION 2. Henceforth, the valuation of rice and corn lands covered by P.D. No. 27
shall be based on the average gross production determined by the Barangay Committee
on Land Production in accordance with Department Memorandum Circular No. 26, series
of 1973 and related issuances and regulation of the Department of Agrarian Reform. The
average gross production per hectare shall be multiplied by two and a half (2.5),
the product of which shall be multiplied by Thirty-Five Pesos (P35.00), the
government support price for one cavan of 50 kilos of palay on October 21, 1972,
or Thirty-One Pesos (P31.00), the government support price for one cavan of 50 kilos of
corn on October 21, 1972, and the amount arrived at shall be the value of the rice
and corn land, as the case may be, for the purpose of determining its cost to the
farmer and compensation to the landowner. (Emphasis supplied)

Thus, under PD No. 27 and EO No. 228, the formula for computing the Land Value (LV) or Price
Per Hectare (PPH) of rice and corn lands is:

2.5 x AGP45 x GSP46 = LV or PPH

The parameters of PD No. 27 and EO No. 228 are manifestly different from the guidelines
provided by RA No. 6657 for determining just compensation. Section 17 of RA No. 6657 is
explicit:

Sec. 17. Determination of Just Compensation. – In determining just compensation, the

cost of acquisition of the land, the current value of the like properties, its nature, actual
 use and income, the sworn valuation by the owner, the tax declarations, and the
assessment made by government assessors shall be considered. The social and
economic benefits contributed by the farmers and the farmworkers and by the
Government to the property as well as the non-payment of taxes or loans secured from
any government financing institution on the said land shall be considered as additional
factors to determine its valuation.

Due to the divergent formulae or guidelines presented by these laws, a number of cases have
already been brought to the Court regarding which law applies in computing just compensation
for landholdings acquired under PD No. 27. On this score, the Court has repeatedly held that if
just compensation was not settled prior to the passage of RA No. 6657, it should be computed in
accordance with said law, although the property was acquired under PD No. 27.

In the recent Land Bank of the Philippines v. Heirs of Angel T. Domingo,47 We rejected the DAR’s
valuation of just compensation based on the formula provided by PD No. 27 and EO No. 228. We
held then that Section 17 of RA No. 6657 is applicable. The latter law, being the latest law in
agrarian reform, should control.

When RA 6657 was enacted into law in 1988, the agrarian reform process in the present
case was still incomplete as the amount of just compensation to be paid to Domingo had
yet to be settled. Just compensation should therefore be determined and the
expropriation process concluded under RA 6657.

Guided by this precept, just compensation for purposes of agrarian reform under
PD 27 should adhere to Section 17 of RA 6657 x x x.

In Land Bank of the Philippines v. Estanislao,48 the Court ruled that taking into account the
passage of RA No. 6657 in 1988 pending the settlement of just compensation, it is that law which
applies to landholdings seized under PD No. 27, with said decree and EO No. 288 having only
suppletory effect. Prior to that declaration, the Court already decreed in Land Bank of the
Philippines v. Natividad,49 citing Paris v. Alfeche,50 that:

Under the factual circumstances of this case, the agrarian reform process is still
incomplete as the just compensation to be paid private respondents has yet to be settled.
Considering the passage of Republic Act No. 6657 (6657) before the completion of the
process, the just compensation should be determined and the process concluded under
the said law. Indeed, RA 6657 is the applicable law, with PD 27 and EO 228 having only
suppletory effect, conformably with our ruling in Paris v. Alfeche. 51

Agrarian reform is a revolutionary kind of expropriation. 52 The recognized rule in expropriation is

that title to the expropriated property shall pass from the owner to the expropriator only upon full
payment of the just compensation.53 Thus, payment of just compensation to the landowner is
indispensable.

In fact, Section 4, Article XIII of the 1987 Constitution mandates that the redistribution of
agricultural lands shall be subject to the payment of just compensation. The deliberations of the
1986 Constitutional Commission on this subject reveal that just compensation should not do
violence to the Bill of Rights but should also not make an insurmountable obstacle to a successful
agrarian reform program. Hence, the landowner’s right to just compensation should be balanced
with agrarian reform.54

In the case under review, the agrarian reform process was not completed. The just compensation
to be paid respondents was not settled prior to the enactment of RA No. 6657, the law
subsequent to PD No. 27 and EO No. 228. In fact, the non-payment of just compensation is
precisely the reason why respondents filed a petition for the determination of just compensation
before the RTC on July 13, 1995.

The records do not show when respondents or their father, Florentino Dumlao, was formally
notified of the expropriation. The records, however, bear out that the bank sent Florentino Dumlao
a letter stating that it had approved the land transfer claim involving that property covered by TCT
No. T-1180 on November 5, 1990. Moreover, the various Land Valuation Summary and Farmers
Undertakings showing the valuation of the land transferred to the farmers-beneficiaries were
approved on May 17, 198955 and July 21, 1989.56 It is thus crystal clear that even after the
passage of RA No. 6657 in 1988, neither petitioner nor the DAR had settled the matter of just
compensation with respondents as landowners.

Besides, RA No. 6657 applies to rice and corn lands covered by PD No. 27. In Paris v.
Alfeche,57 the Court explained:

Considering the passage of RA 6657 before the completion of the application of the
agrarian reform process to the subject lands, the same should now be completed under
the said law, with PD 27 and EO 228 having only suppletory effect. This ruling finds
support in Land Bank of the Philippines v. CA, wherein the Court stated:

"We cannot see why Sec. 18 of RA 6657 should not apply to rice and corn
lands under PD 27. Section 75 of RA 6657 clearly states that the provisions of
PD 27 and EO 228 shall only have a suppletory effect. Section 7 of the Act also
provides –

Sec. 7. Priorities. – The DAR, in coordination with the PARC shall plan
and program the acquisition and distribution of all agricultural lands
through a period of ten (10) years from the effectivity of this Act. Lands
shall be acquired and distributed as follows:

Phase One: Rice and Corn lands under P.D. 27; all idle or abandoned
lands; all private lands voluntarily offered by the owners for agrarian
reform; x x x and all other lands owned by the government devoted to or
suitable for agriculture, which shall be acquired and distributed
immediately upon the effectivity of this Act, with the implementation to be
completed within a period of not more than four (4) years.

This eloquently demonstrates that RA 6657 includes PD 27 lands among

the properties which the DAR shall acquire and distribute to the landless.
And to facilitate the acquisition and distribution thereof, Secs. 16, 17, and
18 of the Act should be adhered to. In Association of Small Landowners of the
Philippines v. Secretary of Agrarian Reform, this Court applied the provisions (of)
RA 6657 to rice and corn lands when it upheld the constitutionality of the
payment of just compensation for PD 27 lands through the different modes stated
in Sec. 18." (Emphasis supplied)

Verily, there is nothing to prevent Section 17 of RA No. 6657 from being applied to determine the
just compensation for lands acquired under PD No. 27.

In Natividad,58 the Court ruled that the DAR’s failure to determine the just compensation for a
considerable length of time made it inequitable to follow the guidelines provided by PD No. 27
and EO No. 228. Hence, RA No. 6657 should apply. The same rationale was followed
in Meneses v. Secretary of Agrarian Reform.59 There, the Court noted that despite the lapse of
more than thirty (30) years since the expropriation of the property in 1972, petitioners had yet to
benefit from it, while the farmer-beneficiaries were already harvesting the property’s produce.
Thus, RA No. 6657 was applied instead of PD No. 27 in determining just compensation.

In Meneses, the Court compared the conflicting rulings in Gabatin v. Land Bank of the
Philippines,60 cited by petitioner, and Land Bank of the Philippines v. Natividad.61 This Court
affirmed Natividad, stating that it would be more equitable to apply the same due to the
circumstances obtaining, i.e. the more than 30-year delay in the payment of just compensation.

The application of RA No. 6657 due to the inequity faced by landowners continued in Lubrica v.
Land Bank of the Philippines.62 The landowners were also deprived of their properties in 1972 but
had yet to receive their just compensation even after the passage of RA No. 6657. Since the
landholdings were already subdivided and distributed to the farmer-beneficiaries, the Court,
speaking through Justice Consuelo Ynares-Santiago, deemed it unreasonable to compute just
compensation using the values at the time of taking in 1972 as dictated by PD No. 27, and not at
the time of payment pursuant to RA No. 6657.

We find no cogent reason not to apply the same ratiocination here. In the case at bar,
emancipation patents, and eventually, transfer certificates of title, were issued to the farmer-
beneficiaries63 at least twenty-eight (28) years ago. On March 16, 1990, the DAR acknowledged
that the property covered by TCT No. T-1180 had already been distributed to farmer-beneficiaries
through emancipation patents. As early as June 10, 1975, a portion of the same property was
conveyed to a certain Rosalina Abon, although this was not annotated on the owner’s title. 64

Needless to say, respondents have already been deprived of the use and dominion over their
landholdings for a substantial period of time. In the interim, petitioner bank has abjectly failed to
pay, much less to determine, the just compensation due to respondents. The law clearly
recognizes that the exact value of lands taken under PD No. 27, or the just compensation to be
given to the landowner must be determined with certainty before the land titles are
transferred.65 Petitioner’s gross failure to compensate respondents for loss of their land, while
transferring the same to the farmer-beneficiaries, make it unjust to determine just compensation
based on the guidelines provided by PD No. 27 and EO No. 228.

Accordingly, just compensation should be computed in accordance with RA No. 6657 in order to
give full effect to the principle that the recompense due to the landowner should be the full and
fair equivalent of the property taken from the owner by the expropriator. The measure is not the
taker’s gain but the owner’s loss. The word "just" is used to intensify the meaning of the word
"compensation" to convey the idea that the equivalent to be rendered for the property to be taken
shall be real, substantial, full, and ample.66

The determination of just compensation is a function addressed to the courts of justice and may
not be usurped by any other branch or official of the government. 67 However, the determination
made by the trial court, which relied solely on the formula prescribed by PD No. 27 and EO No.
228, is grossly erroneous. The amount of P6,912.50 per hectare, which is based on the DAR
valuation of the properties "at the time of their taking in the 1970s," 68 does not come close to a full
and fair equivalent of the property taken from respondents.

Meanwhile, the CA’s act of setting just compensation in the amount of P109,000.00 would have
been a valid exercise of this judicial function, had it followed the mandatory formula prescribed by
RA No. 6657. However, the appellate court merely chose the lower of two (2) values specified by
the commissioner as basis for determining just compensation, namely: (a) P109,000.00 per
hectare as the market value of first class unirrigated rice land in the Municipality of Villaverde;
and (b) P60.00 per square meter as the zonal value of the land in other barangays in Villaverde.
This is likewise erroneous because it does not adhere to the formula provided by RA No. 6657.
It cannot be overemphasized that the just compensation to be given to the owner cannot be
assumed and must be determined with certainty.69 Its determination involves the examination of
the following factors specified in Section 17 of RA No. 6657, as amended, namely: (1) the cost of
acquisition of the land; (2) the current value of the properties; (3) its nature, actual use, and
income; (4) the sworn valuation by the owner; (5) the tax declarations; (6) the assessment made
by government assessors; (7) the social and economic benefits contributed by the farmers and
the farmworkers and by the government to the property; and (8) the non-payment of taxes or
loans secured from any government financing institution on the said land, if any. 70

Section 17 was converted into a formula by the DAR through Administrative Order (AO) No. 6,
Series of 1992,71 as amended by AO No. 11, Series of 1994,72 the pertinent portions of which
provide:

A. There shall be one basic formula for the valuation of lands covered by [Voluntary Offer
to Sell] or [Compulsory Acquisition] regardless of the date of offer or coverage of the
claim:

LV = (CNI x 0.6) + (CS x 0.3) + (MV x 0.1)

Where: LV = Land Value

CNI = Capitalized Net Income

CS = Comparable Sales

MV = Market Value per Tax Declaration

The above formula shall be used if all the three factors are present, relevant and
applicable.

A.1 When the CS factor is not present and CNI and MV are applicable, the formula shall
be:

LV = (CNI x 0.9) + (MV x 0.1)

A.2 When the CNI factor is not present, and CS and MV are applicable, the formula shall
be:

LV = (CS x 0.9) + (MV x 0.1)

A.3 When both the CS and CNI are not present and only MV is applicable, the formula
shall be:

LV = MV x 2

In no case shall the value of the land using the formula MV x 2 exceed the lowest value
of land within the same estate under consideration or within the same barangay or
municipality (in that order) approved by LBP within one (1) year from receipt of
claimfolder.

xxxx
A.6 The basic formula in the grossing-up of valuation inputs such as LO’s Offer, Sales
Transaction (ST), Acquisition Cost (AC), Market Value Based on Mortgage (MVM) and
Market Value per Tax Declaration (MV) shall be:

Grossed-up Valuation Valuation Input x Regional Consumer Price Index (RCPI)

=
input Adjustment Factor

The RCPI Adjustment Factor shall refer to the ratio of RCPI for the month issued by the
National Statistics Office as of the date when the claimfolder (CF) was received by LBP
from DAR for processing or, in its absence, the most recent available RCPI for the month
issued prior to the date of receipt of CF from DAR and the RCPI for the month as of the
date/effectivity/registration of the valuation input. Expressed in equation form:

RCPI for the Month as of the Date of Receipt of Claimfolder

by LBP from DAR or the Most recent RCPI for the Month
RCPI
Issued Prior to the Date of RCPI Receipt of CF
Adjustment =
___________
Factor
RCPI for the Month Issued as of the
Date/Effectivity/Registration of the Valuation Input

B. Capitalized Net Income (CNI) – This shall refer to the difference between the gross
sales (AGP x SP) and total cost of operations (CO) capitalized at 12%.

Expressed in equation form:

CNI = (AGP x SP) – CO

___________
.12

Where: CNI = Capitalized Net Income

AGP = Latest available 12-month's gross production immediately prec

date of offer in case of VOS or date of notice of coverage in ca

SP = The average of the latest available 12 month’s selling prices pr

date of receipt of the claimfolder by LBP for processing, such p
be secured from the Department of Agriculture (DA) and other
appropriate regulatory bodies or, in their absence, from the Bur
Agricultural Statistics. If possible, SP data shall be gathered fro
barangay or municipality where the property is located. In the a
thereof, SP may be secured within the province or region.

CO = Cost of Operations
Whenever the cost of operations could not be obtained or verif
assumed net income rate (NIR) of 20% shall be used. Landhol
planted to coconut which are productive at the time of offer/cov
shall continue to use the 70% NIR. DAR and LBP shall continu
conduct joint industry studies to establish the applicable NIR fo
crop covered under CARP.
 .12 = Capitalization Rate

xxxx

C. CS shall refer to any one or the average of all the applicable sub-factors, namely, ST,
AC and MVM:

Where: ST = Sales Transactions as defined under Item C.2

AC = Acquisition Cost as defined under Item C.3

MVM = Market Value Based on Mortgage as defined under Item C.4

xxxx

D. In the computation of Market Value per Tax Declaration (MV), the most recent Tax
Declaration (TD) and Schedule of Unit Market Value (SMV) issued prior to receipt of
claimfolder by LBP shall be considered. The Unit Market Value (UMV) shall be grossed
up from the date of its effectivity up to the date of receipt of claimfolder by LBP from DAR
for processing, in accordance with item II.A.A.6. (Emphasis and underscoring supplied)

While the determination of just compensation involves the exercise of judicial discretion, such
discretion must be discharged within the bounds of the law. 73 The DAR, as the government
agency principally tasked to implement the agrarian reform program, has the duty to issue rules
and regulations to carry out the object of the law. The DAR administrative orders precisely filled in
the details of Section 17 of RA No. 6657 by providing a basic formula by which the factors
mentioned in the provision may be taken into account. 74 Special agrarian courts are not at liberty
to disregard the formula devised to implement the said provision because unless an
administrative order is declared invalid, courts have no option but to apply it. 75

In his Report, the Commissioner merely specified the market value of first class unirrigated
ricelands in the municipality where the properties are located, as well as the zonal value of lands
in other barangays in the same municipality. For their part, respondents attempted to prove the
following: market value of unirrigated ricelands for the Municipality of Villaverde, set
at P109,000.00 per hectare, pursuant to Sangguniang Bayan Tax Ordinance No. 96-45; 76 annual
production of unirrigated ricefields in Villaverde, at 80 cavans during "palagad" cropping, and 101
cavans under regular cropping;77 government support price for palay for the period October 1,
1990 to October 1995 at P6.00 per kilo, and from November 1, 1995 to the time of the filing of the
petition at P8.00 per kilo.78

However, the records do not bear out if these factors are the only ones relevant, present and
applicable in this case, so that just compensation can now be computed by the Court based on
the formula provided by the DAR administrative orders. Based on the evidence adduced, it
appears that market value and comparable net income (CNI) are being proved. However, CNI
cannot be computed in the absence of information regarding cost of operations. 79

We are thus compelled to remand the case to the court a quo to determine the final valuation of
respondents’ properties. The trial court is mandated to consider the factors provided under
Section 17 of RA No. 6657, as translated into the formula prescribed by DAR AO No. 6-92, as
amended by DAR AO No. 11-94.
Furthermore, upon its own initiative, or at the instance of any of the parties, the RTC may again
appoint one or more commissioners to examine, investigate and ascertain facts relevant to the
dispute including the valuation of properties and to file a written report with the RTC. 80

We next address the second issue – date of taking.

The "taking" of the properties for the purpose of computing just compensation should be
reckoned from the date of issuance of emancipation patents, and not on October 21, 1972,
as petitioner insists. The nature of the land at that time determines the just compensation to be
paid.81

We cannot sustain petitioner’s position that respondents’ properties were statutorily taken on
October 21, 1972, the date of effectivity of PD No. 27; that on that date, respondents were
effectively deprived of possession and dominion over the land; and that when EO No. 228 fixed
the basis in determining land valuation using the government support price of P35.00 for one
cavan of 50 kilos of palay on October 21, 1972, it was consistent with the settled rule that just
compensation is the value of the property at the time of the taking. 82

In Association of Small Landowners v. Secretary of Agrarian Reform,83 the Court held that title to
the property expropriated shall pass from the owner to the expropriator only upon full payment of
just compensation. The Court further held that:

It is true that P.D. No. 27 expressly ordered the emancipation of tenant-farmer as [of]
October 21, 1972 and declared that he shall be deemed the owner of a portion of land
consisting of a family-sized farm except that no title to the land owned by him was to be
actually issued to him unless and until he had become a full-fledged member of a duly
recognized farmer’s cooperative. It was understood, however, that full payment of
just compensation also had to be made first, conformably to the constitutional
requirement.84 (Emphasis supplied)

In Land Bank of the Philippines v. Estanislao,85 the Court declared that seizure of landholdings or
properties covered by PD No. 27 did not take place on October 21, 1972, but upon the payment
of just compensation.

Land Bank’s contention that the property was acquired for purposes of agrarian reform on
October 21, 1972, the time of the effectivity of PD 27, ergo just compensation should be
based on the value of the property as of that time and not at the time of possession in
1993, is likewise erroneous. In Office of the President, Malacañang, Manila v. Court of
Appeals, we ruled that the seizure of the landholding did not take place on the date of
effectivity of PD 27 but  would take effect on the payment of just
compensation.86 (Emphasis in the original)

However, for purposes of computing just compensation, this Court recently declared in Land
Bank of the Philippines v. Heirs of Angel T. Domingo87 that the time of taking should be reckoned
from the issue dates of emancipation patents.

The date of taking of the subject land for purposes of computing just
compensation should be reckoned from the issuance dates of the emancipation
patents. An emancipation patent constitutes the conclusive authority for the issuance of
a Transfer Certificate of Title in the name of the grantee. It is from the issuance of an
emancipation patent that the grantee can acquire the vested right of ownership in the
landholding, subject to the payment of just compensation to the landowner. 88 (Emphasis
supplied)
It is undisputed that emancipation patents were issued to the farmer-beneficiaries. However, their
issuance dates are not shown. As such, the trial court should determine the date of issuance of
these emancipation patents in order to ascertain the date of taking and proceed to compute the
just compensation due to respondents, in accordance with RA No. 6657.

Now, to the third and final issue.

Respondents are entitled to payment of just compensation even on those properties which
have not been processed by the DAR.

Petitioner admits that of respondents’ landholdings, only those covered by TCT Nos. T-1180 and
T-41504, totaling 16.3939 hectares, were processed and initially valued by the DAR. Pending
initial processing by the DAR of the remaining landholdings, petitioner posits that it cannot be
made to pay the amount of P109,000.00 per hectare for those covered by TCT Nos. 41508,
41507, 41506, and 41505, with an aggregate area of 17.2379 hectares.

The argument is specious for three reasons.

First, the determination of just compensation is judicial in nature. The DAR’s land valuation is
only preliminary and is not, by any means, final and conclusive upon the landowner or any other
interested party. In the exercise of its functions, the courts still have the final say on what the
amount of just compensation will be.89

In Natividad, the Court held that:

[T]here is nothing contradictory between the DAR’s primary jurisdiction to determine and
adjudicate agrarian reform matters and exclusive original jurisdiction over all matters
involving the implementation of agrarian reform, which includes the determination of
questions of just compensation, and the original and exclusive jurisdiction of regional
trial courts over all petitions for the determination of just compensation. The first
refers to administrative proceedings, while the second refers to judicial proceedings.

In accordance with settled principles of administrative law, primary jurisdiction is vested in

the DAR to determine in a preliminary manner the just compensation for the lands
taken under the agrarian reform program, but such determination is subject to
challenge before the courts. The resolution of just compensation cases for the taking of
lands under agrarian reform is, after all, essentially a judicial function.

Thus, the trial court did not err in taking cognizance of the case as the determination of
just compensation is a function addressed to the courts of justice. 90 (Emphasis supplied)

In fact, the law does not make the DAR valuation absolutely binding as the amount payable by
petitioner. A reading of Section 1891 of RA No. 6657 shows that it is the courts, not the DAR,
which make the final determination of just compensation.

Accordingly, RA No. 6657 directs petitioner to pay the DAR’s land valuation only if the landowner,
the DAR and petitioner agree on the amount of just compensation. Otherwise, the amount
determined by the special agrarian court as just compensation shall be paid by petitioner.
Corollarily, there is no reason for petitioner to wait for the DAR valuation of the properties, if the
court has already determined the just compensation due to respondents.

Second, to wait for the DAR valuation despite its unreasonable neglect and delay in processing
the four properties’ claimfolders is to violate the elementary rule that payment of just
compensation must be within a reasonable period from the taking of property. Cosculluela v.
Court of Appeals92 could not have been clearer:

Just compensation means not only the correct determination of the amount to be
paid to the owner of the land but also the payment of the land within a reasonable
time from its taking. Without prompt payment, compensation cannot be considered
"just" for the property owner is made to suffer the consequence of being immediately
deprived of his land while being made to wait for a decade or more before actually
receiving the amount necessary to cope with his loss. x x x. 93 (Emphasis supplied)

In the case at bar, the properties have long been expropriated by the government and their fruits
enjoyed by the farmer-beneficiaries. Respondent have been made to wait for decades for
payment of their recompense. They were not even allowed to withdraw the amount claimed to
have been deposited with petitioner bank on their behalf. It would certainly be iniquitous to wait
for the DAR to process the properties covered by the four other titles before the special agrarian
court can finally determine the amount of their just compensation. 94

Third, while the DAR is vested with primary jurisdiction to determine in a preliminary
manner the amount of just compensation, the circumstances of this case militate against the
application of the doctrine of primary jurisdiction.

The principle of exhaustion of administrative remedies is a relative one and is flexible depending
on the peculiarity and uniqueness of the factual and circumstantial settings of a case. It is
disregarded: (1) when there is a violation of due process; (2) when the issue involved is purely a
legal question; (3) when the administrative action is patently illegal and amounts to lack or excess
of jurisdiction; (4) when there is estoppel on the part of the administrative agency concerned; (5)
when there is irreparable injury; (6) when respondent is a department secretary whose acts, as
an alter ego of the President, bears the implied and assumed approval of the latter; (7) when to
require exhaustion of administrative remedies would be unreasonable; (8) when it would
amount to a nullification of a claim; (9) when the subject matter is a private land in land case
proceedings; (10) when the rule does not provide a plain, speedy and adequate remedy;
(11) when there are circumstances indicating the urgency of judicial intervention, and
unreasonable delay would greatly prejudice the complainant; (12) when no administrative
review is provided by law; (13) where the rule of qualified political agency applies; and (14) when
the issue of non-exhaustion of administrative remedies has been rendered moot. 95

Here, to require exhaustion of administrative remedies would be unreasonable. What is more,

judicial intervention is necessary so as not to unduly prejudice the landowners. Respondents
have long been deprived of their landholdings, yet compensation has been withheld from them.
Accordingly, to make respondents wait for the DAR to process the claimfolders of the remaining
four properties would be unreasonable, unjust and manifestly prejudicial to them.

Respondents are entitled to the right of retention over their lands.

The right of retention is constitutionally guaranteed, subject to qualification by the legislature. It

serves to mitigate the effects of compulsory land acquisition by balancing the rights of the
landowner and the tenant and by implementing the doctrine that social justice was not meant to
perpetrate an injustice against the landowner. A retained area, as its name denotes, is land which
is not supposed to anymore leave the landowner’s dominion, thus sparing the government from
the inconvenience of taking land only to return it to the landowner afterwards, which would be a
pointless process.96

The opinion of the MARO97 that respondents are not entitled to retain areas out of their
landholdings because they applied for the same after the grace period set by the
government98 fails to persuade. A landowner whose land was taken pursuant to PD No. 27 has a
right to retain seven hectares of land, provided that the landowner is cultivating the area or will
now cultivate it.99 Those who did not avail of their rights of retention under PD No. 27 are entitled
to exercise the same under Section 6100 of RA No. 6657.101 Landowners may still avail of their
retention rights notwithstanding the August 27, 1985 deadline imposed by DAR AO No. 1, Series
of 1985. In Daez v. Court of Appeals,102 the Court, citing Association of Small Landowners, Inc. v.
Secretary of Agrarian Reform,103 disregarded said deadline and sustained the landowner’s
retention rights. Notably, under RA No. 6657, landowners who do not personally cultivate their
lands are no longer required to do so in order to qualify for the retention of an area not exceeding
five hectares. Instead, they are now required to maintain the actual tiller of the area retained,
should the latter choose to remain in those lands.104 Verily, there is no impediment to the exercise
by respondents of their retention rights under RA No. 6657.

In sum, We rule that:

1. The provisions of RA No. 6657 apply in determining the just compensation due to respondents
for the taking of their property. However, the value of P109,000.00, based on the property’s
market value and assigned by the CA as just compensation, is erroneous. The trial court is thus
directed to receive evidence pertaining to the factors to be considered in determining just
compensation, in accordance with DAR AO No. 6, Series of 1992, as amended by AO No. 11,
Series of 1994.

2. For purposes of computing just compensation, the date of issuance of emancipations is

deemed the date of taking, not October 21, 1972.

3. Respondents are entitled to payment of just compensation on their entire landholdings covered
by Operation Land Transfer, except for the five hectares of retention area each of them are
entitled to.

WHEREFORE, the petition is DENIED. The case is REMANDED to the court a quo for final
determination of just compensation due to respondents.

SO ORDERED.
G.R. No. 171101               July 5, 2011

HACIENDA LUISITA, INCORPORATED, Petitioner,

LUISITA INDUSTRIAL PARK CORPORATION and RIZAL COMMERCIAL BANKING
CORPORATION,Petitioners-in-Intervention, 
vs.
PRESIDENTIAL AGRARIAN REFORM COUNCIL; SECRETARY NASSER
PANGANDAMAN OF THE DEPARTMENT OF AGRARIAN REFORM; ALYANSA NG MGA
MANGGAGAWANG BUKID NG HACIENDA LUISITA, RENE GALANG, NOEL MALLARI,
and JULIO SUNIGA1 and his SUPERVISORY GROUP OF THE HACIENDA LUISITA, INC.
and WINDSOR ANDAYA, Respondents.

DECISION

VELASCO, JR., J.:

"Land for the landless," a shibboleth the landed gentry doubtless has received with much
misgiving, if not resistance, even if only the number of agrarian suits filed serves to be the
norm. Through the years, this battle cry and root of discord continues to reflect the seemingly
ceaseless discourse on, and great disparity in, the distribution of land among the people,
"dramatizing the increasingly urgent demand of the dispossessed x x x for a plot of earth as
their place in the sun."2 As administrations and political alignments change, policies
advanced, and agrarian reform laws enacted, the latest being what is considered a
comprehensive piece, the face of land reform varies and is masked in myriads of ways. The
stated goal, however, remains the same: clear the way for the true freedom of the farmer. 3

Land reform, or the broader term "agrarian reform," has been a government policy even
before the Commonwealth era. In fact, at the onset of the American regime, initial steps
toward land reform were already taken to address social unrest. 4 Then, under the 1935
Constitution, specific provisions on social justice and expropriation of landed estates for
distribution to tenants as a solution to land ownership and tenancy issues were incorporated.

In 1955, the Land Reform Act (Republic Act No. [RA] 1400) was passed, setting in motion
the expropriation of all tenanted estates.5

On August 8, 1963, the Agricultural Land Reform Code (RA 3844) was enacted, 6 abolishing
share tenancy and converting all instances of share tenancy into leasehold tenancy. 7 RA
3844 created the Land Bank of the Philippines (LBP) to provide support in all phases of
agrarian reform.

As its major thrust, RA 3844 aimed to create a system of owner-cultivatorship in rice and
corn, supposedly to be accomplished by expropriating lands in excess of 75 hectares for
their eventual resale to tenants. The law, however, had this restricting feature: its operations
were confined mainly to areas in Central Luzon, and its implementation at any level of
intensity limited to the pilot project in Nueva Ecija.8
Subsequently, Congress passed the Code of Agrarian Reform (RA 6389) declaring the entire
country a land reform area, and providing for the automatic conversion of tenancy to
leasehold tenancy in all areas. From 75 hectares, the retention limit was cut down to seven
hectares.9

Barely a month after declaring martial law in September 1972, then President Ferdinand
Marcos issued Presidential Decree No. 27 (PD 27) for the "emancipation of the tiller from the
bondage of the soil."10 Based on this issuance, tenant-farmers, depending on the size of the
landholding worked on, can either purchase the land they tilled or shift from share to fixed-
rent leasehold tenancy.11 While touted as "revolutionary," the scope of the agrarian reform
program PD 27 enunciated covered only tenanted, privately-owned rice and corn lands. 12

Then came the revolutionary government of then President Corazon C. Aquino and the
drafting and eventual ratification of the 1987 Constitution. Its provisions foreshadowed the
establishment of a legal framework for the formulation of an expansive approach to land
reform, affecting all agricultural lands and covering both tenant-farmers and regular
farmworkers.13

So it was that Proclamation No. 131, Series of 1987, was issued instituting a comprehensive
agrarian reform program (CARP) to cover all agricultural lands, regardless of tenurial
arrangement and commodity produced, as provided in the Constitution.

On July 22, 1987, Executive Order No. 229 (EO 229) was issued providing, as its
title14 indicates, the mechanisms for CARP implementation. It created the Presidential
Agrarian Reform Council (PARC) as the highest policy-making body that formulates all
policies, rules, and regulations necessary for the implementation of CARP.

On June 15, 1988, RA 6657 or the Comprehensive Agrarian Reform Law of 1988, also
known as CARL or the CARP Law, took effect, ushering in a new process of land
classification, acquisition, and distribution. As to be expected, RA 6657 met stiff opposition,
its validity or some of its provisions challenged at every possible turn. Association of Small
Landowners in the Philippines, Inc. v. Secretary of Agrarian Reform  15 stated the observation
that the assault was inevitable, the CARP being an untried and untested project, "an
experiment [even], as all life is an experiment," the Court said, borrowing from Justice
Holmes.

The Case

In this Petition for Certiorari and Prohibition under Rule 65 with prayer for preliminary
injunctive relief, petitioner Hacienda Luisita, Inc. (HLI) assails and seeks to set aside PARC
Resolution No. 2005-32-0116 and Resolution No. 2006-34-0117 issued on December 22, 2005
and May 3, 2006, respectively, as well as the implementing Notice of Coverage dated
January 2, 2006 (Notice of Coverage). 18

The Facts

At the core of the case is Hacienda Luisita de Tarlac (Hacienda Luisita), once a 6,443-
hectare mixed agricultural-industrial-residential expanse straddling several municipalities of
Tarlac and owned by Compañia General de Tabacos de Filipinas (Tabacalera). In 1957, the
Spanish owners of Tabacalera offered to sell Hacienda Luisita as well as their controlling
interest in the sugar mill within the hacienda, the Central Azucarera de Tarlac (CAT), as an
indivisible transaction. The Tarlac Development Corporation (Tadeco), then owned and/or
controlled by the Jose Cojuangco, Sr. Group, was willing to buy. As agreed upon, Tadeco
undertook to pay the purchase price for Hacienda Luisita in pesos, while that for the
controlling interest in CAT, in US dollars. 19

To facilitate the adverted sale-and-purchase package, the Philippine government, through

the then Central Bank of the Philippines, assisted the buyer to obtain a dollar loan from a US
bank.20 Also, the Government Service Insurance System (GSIS) Board of Trustees extended
on November 27, 1957 a PhP 5.911 million loan in favor of Tadeco to pay the peso price
component of the sale. One of the conditions contained in the approving GSIS Resolution
No. 3203, as later amended by Resolution No. 356, Series of 1958, reads as follows:

That the lots comprising the Hacienda Luisita shall be subdivided by the applicant-
corporation and sold at cost to the tenants, should there be any, and whenever conditions
should exist warranting such action under the provisions of the Land Tenure Act; 21

As of March 31, 1958, Tadeco had fully paid the purchase price for the acquisition of
Hacienda Luisita and Tabacalera’s interest in CAT.22

The details of the events that happened next involving the hacienda and the political color
some of the parties embossed are of minimal significance to this narration and need no
belaboring. Suffice it to state that on May 7, 1980, the martial law administration filed a suit
before the Manila Regional Trial Court (RTC) against Tadeco, et al., for them to surrender
Hacienda Luisita to the then Ministry of Agrarian Reform (MAR, now the Department of
Agrarian Reform [DAR]) so that the land can be distributed to farmers at cost. Responding,
Tadeco or its owners alleged that Hacienda Luisita does not have tenants, besides which
sugar lands––of which the hacienda consisted––are not covered by existing agrarian reform
legislations. As perceived then, the government commenced the case against Tadeco as a
political message to the family of the late Benigno Aquino, Jr.23

Eventually, the Manila RTC rendered judgment ordering Tadeco to surrender Hacienda
Luisita to the MAR. Therefrom, Tadeco appealed to the Court of Appeals (CA).

On March 17, 1988, the Office of the Solicitor General (OSG) moved to withdraw the
government’s case against Tadeco, et al. By Resolution of May 18, 1988, the CA dismissed
the case the Marcos government initially instituted and won against Tadeco, et al. The
dismissal action was, however, made subject to the obtention by Tadeco of the PARC’s
approval of a stock distribution plan (SDP) that must initially be implemented after such
approval shall have been secured.24 The appellate court wrote:

The defendants-appellants x x x filed a motion on April 13, 1988 joining the x x x

governmental agencies concerned in moving for the dismissal of the case subject, however,
to the following conditions embodied in the letter dated April 8, 1988 (Annex 2) of the
Secretary of the [DAR] quoted, as follows:

1. Should TADECO fail to obtain approval of the stock distribution plan for failure to
comply with all the requirements for corporate landowners set forth in the guidelines
issued by the [PARC]: or

2. If such stock distribution plan is approved by PARC, but TADECO fails to initially
implement it.
 xxxx

WHEREFORE, the present case on appeal is hereby dismissed without prejudice, and
should be revived if any of the conditions as above set forth is not duly complied with by the
TADECO.25

Markedly, Section 10 of EO 22926 allows corporate landowners, as an alternative to the

actual land transfer scheme of CARP, to give qualified beneficiaries the right to purchase
shares of stocks of the corporation under a stock ownership arrangement and/or land-to-
share ratio.

Like EO 229, RA 6657, under the latter’s Sec. 31, also provides two (2) alternative
modalities, i.e., land or stock transfer, pursuant to either of which the corporate landowner
can comply with CARP, but subject to well-defined conditions and timeline requirements.
Sec. 31 of RA 6657 provides:

SEC. 31. Corporate Landowners.¾Corporate landowners may voluntarily transfer ownership

over their agricultural landholdings to the Republic of the Philippines pursuant to Section 20
hereof or to qualified beneficiaries x x x.

Upon certification by the DAR, corporations owning agricultural lands may give their
qualified beneficiaries the right to purchase such proportion of the capital stock of the
corporation that the agricultural land, actually devoted to agricultural activities, bears
in relation to the company’s total assets, under such terms and conditions as may be
agreed upon by them. In no case shall the compensation received by the workers at the time
the shares of stocks are distributed be reduced. x x x

Corporations or associations which voluntarily divest a proportion of their capital stock, equity
or participation in favor of their workers or other qualified beneficiaries under this section
shall be deemed to have complied with the provisions of this Act: Provided, That the
following conditions are complied with:

(a) In order to safeguard the right of beneficiaries who own shares of stocks to
dividends and other financial benefits, the books of the corporation or association
shall be subject to periodic audit by certified public accountants chosen by the
beneficiaries;

(b) Irrespective of the value of their equity in the corporation or association, the
beneficiaries shall be assured of at least one (1) representative in the board of
directors, or in a management or executive committee, if one exists, of the
corporation or association;

(c) Any shares acquired by such workers and beneficiaries shall have the same
rights and features as all other shares; and

(d) Any transfer of shares of stocks by the original beneficiaries shall be void ab initio
unless said transaction is in favor of a qualified and registered beneficiary within the
same corporation.

If within two (2) years from the approval of this Act, the [voluntary] land or stock transfer
envisioned above is not made or realized or the plan for such stock distribution approved by
the PARC within the same period, the agricultural land of the corporate owners or
corporation shall be subject to the compulsory coverage of this Act. (Emphasis added.)

Vis-à-vis the stock distribution aspect of the aforequoted Sec. 31, DAR issued Administrative
Order No. 10, Series of 1988 (DAO 10),27 entitled Guidelines and Procedures for Corporate
Landowners Desiring to Avail Themselves of the Stock Distribution Plan under Section 31 of
RA 6657.

From the start, the stock distribution scheme appeared to be Tadeco’s preferred option, for,
on August 23, 1988,28 it organized a spin-off corporation, HLI, as vehicle to facilitate stock
acquisition by the farmworkers. For this purpose, Tadeco assigned and conveyed to HLI the
agricultural land portion (4,915.75 hectares) and other farm-related properties of Hacienda
Luisita in exchange for HLI shares of stock.29

Pedro Cojuangco, Josephine C. Reyes, Teresita C. Lopa, Jose Cojuangco, Jr., and Paz C.
Teopaco were the incorporators of HLI.30

To accommodate the assets transfer from Tadeco to HLI, the latter, with the Securities and
Exchange Commission’s (SEC’s) approval, increased its capital stock on May 10, 1989 from
PhP 1,500,000 divided into 1,500,000 shares with a par value of PhP 1/share to PhP
400,000,000 divided into 400,000,000 shares also with par value of PhP 1/share,
150,000,000 of which were to be issued only to qualified and registered beneficiaries of the
CARP, and the remaining 250,000,000 to any stockholder of the corporation. 31

As appearing in its proposed SDP, the properties and assets of Tadeco contributed to the
capital stock of HLI, as appraised and approved by the SEC, have an aggregate value of
PhP 590,554,220, or after deducting the total liabilities of the farm amounting to PhP
235,422,758, a net value of PhP 355,531,462. This translated to 355,531,462 shares with a
par value of PhP 1/share.32

On May 9, 1989, some 93% of the then farmworker-beneficiaries (FWBs) complement of

Hacienda Luisita signified in a referendum their acceptance of the proposed HLI’s Stock
Distribution Option Plan. On May 11, 1989, the Stock Distribution Option Agreement
(SDOA), styled as a Memorandum of Agreement (MOA),33 was entered into by Tadeco, HLI,
and the 5,848 qualified FWBs34 and attested to by then DAR Secretary Philip Juico. The
SDOA embodied the basis and mechanics of the SDP, which would eventually be submitted
to the PARC for approval. In the SDOA, the parties agreed to the following:

1. The percentage of the value of the agricultural land of Hacienda Luisita

(P196,630,000.00) in relation to the total assets (P590,554,220.00) transferred and
conveyed to the SECOND PARTY [HLI] is 33.296% that, under the law, is the
proportion of the outstanding capital stock of the SECOND PARTY, which is
P355,531,462.00 or 355,531,462 shares with a par value of P1.00 per share, that
has to be distributed to the THIRD PARTY [FWBs] under the stock distribution plan,
the said 33.296% thereof being P118,391,976.85 or 118,391,976.85 shares.

2. The qualified beneficiaries of the stock distribution plan shall be the farmworkers
who appear in the annual payroll, inclusive of the permanent and seasonal
employees, who are regularly or periodically employed by the SECOND PARTY.

3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY
shall arrange with the FIRST PARTY [Tadeco] the acquisition and distribution to
 the THIRD PARTY on the basis of number of days worked and at no cost to them of
one-thirtieth (1/30) of 118,391,976.85 shares of the capital stock of the SECOND
PARTY that are presently owned and held by the FIRST PARTY, until such time as
the entire block of 118,391,976.85 shares shall have been completely acquired and
distributed to the THIRD PARTY.

4.The SECOND PARTY shall guarantee to the qualified beneficiaries of the [SDP]
that every year they will receive on top of their regular compensation, an amount that
approximates the equivalent of three (3%) of the total gross sales from the
production of the agricultural land, whether it be in the form of cash dividends or
incentive bonuses or both.

5. Even if only a part or fraction of the shares earmarked for distribution will have
been acquired from the FIRST PARTY and distributed to the THIRD PARTY, FIRST
PARTY shall execute at the beginning of each fiscal year an irrevocable proxy, valid
and effective for one (1) year, in favor of the farmworkers appearing as shareholders
of the SECOND PARTY at the start of said year which will empower the THIRD
PARTY or their representative to vote in stockholders’ and board of directors’
meetings of the SECOND PARTY convened during the year the entire 33.296% of
the outstanding capital stock of the SECOND PARTY earmarked for distribution and
thus be able to gain such number of seats in the board of directors of the SECOND
PARTY that the whole 33.296% of the shares subject to distribution will be entitled
to.

6. In addition, the SECOND PARTY shall within a reasonable time subdivide and
allocate for free and without charge among the qualified family-beneficiaries residing
in the place where the agricultural land is situated, residential or homelots of not
more than 240 sq.m. each, with each family-beneficiary being assured of receiving
and owning a homelot in the barangay where it actually resides on the date of the
execution of this Agreement.

7. This Agreement is entered into by the parties in the spirit of the (C.A.R.P.) of the
government and with the supervision of the [DAR], with the end in view of improving
the lot of the qualified beneficiaries of the [SDP] and obtaining for them greater
benefits. (Emphasis added.)

As may be gleaned from the SDOA, included as part of the distribution plan are: (a)
production-sharing equivalent to three percent (3%) of gross sales from the production of the
agricultural land payable to the FWBs in cash dividends or incentive bonus; and (b)
distribution of free homelots of not more than 240 square meters each to family-beneficiaries.
The production-sharing, as the SDP indicated, is payable "irrespective of whether [HLI]
makes money or not," implying that the benefits do not partake the nature of dividends, as
the term is ordinarily understood under corporation law.

While a little bit hard to follow, given that, during the period material, the assigned value of
the agricultural land in the hacienda was PhP 196.63 million, while the total assets of HLI
was PhP 590.55 million with net assets of PhP 355.53 million, Tadeco/HLI would admit that
the ratio of the land-to-shares of stock corresponds to 33.3% of the outstanding capital stock
of the HLI equivalent to 118,391,976.85 shares of stock with a par value of PhP 1/share.

Subsequently, HLI submitted to DAR its SDP, designated as "Proposal for Stock Distribution
under C.A.R.P.,"35which was substantially based on the SDOA.
Notably, in a follow-up referendum the DAR conducted on October 14, 1989, 5,117 FWBs,
out of 5,315 who participated, opted to receive shares in HLI. 36 One hundred thirty-two (132)
chose actual land distribution. 37

After a review of the SDP, then DAR Secretary Miriam Defensor-Santiago (Sec. Defensor-
Santiago) addressed a letter dated November 6, 198938 to Pedro S. Cojuangco (Cojuangco),
then Tadeco president, proposing that the SDP be revised, along the following lines:

1. That over the implementation period of the [SDP], [Tadeco]/HLI shall ensure that
there will be no dilution in the shares of stocks of individual [FWBs];

2. That a safeguard shall be provided by [Tadeco]/HLI against the dilution of the

percentage shareholdings of the [FWBs], i.e., that the 33% shareholdings of the
[FWBs] will be maintained at any given time;

3. That the mechanics for distributing the stocks be explicitly stated in the [MOA]
signed between the [Tadeco], HLI and its [FWBs] prior to the implementation of the
stock plan;

4. That the stock distribution plan provide for clear and definite terms for determining
the actual number of seats to be allocated for the [FWBs] in the HLI Board;

5. That HLI provide guidelines and a timetable for the distribution of homelots to
qualified [FWBs]; and

6. That the 3% cash dividends mentioned in the [SDP] be expressly provided for [in]
the MOA.

In a letter-reply of November 14, 1989 to Sec. Defensor-Santiago, Tadeco/HLI explained that

the proposed revisions of the SDP are already embodied in both the SDP and
MOA.39 Following that exchange, the PARC, under then Sec. Defensor-Santiago,
by Resolution No. 89-12-240 dated November 21, 1989, approved the SDP of Tadeco/HLI. 41

At the time of the SDP approval, HLI had a pool of farmworkers, numbering 6,296, more or
less, composed of permanent, seasonal and casual master list/payroll and non-master list
members.

From 1989 to 2005, HLI claimed to have extended the following benefits to the FWBs:

(a) 3 billion pesos (P3,000,000,000) worth of salaries, wages and fringe benefits

(b) 59 million shares of stock distributed for free to the FWBs;

(c) 150 million pesos (P150,000,000) representing 3% of the gross produce;

(d) 37.5 million pesos (P37,500,000) representing 3% from the sale of 500 hectares
of converted agricultural land of Hacienda Luisita;

(e) 240-square meter homelots distributed for free;

 (f) 2.4 million pesos (P2,400,000) representing 3% from the sale of 80 hectares at 80
million pesos (P80,000,000) for the SCTEX;

(g) Social service benefits, such as but not limited to free

hospitalization/medical/maternity services, old age/death benefits and no interest
bearing salary/educational loans and rice sugar accounts. 42

Two separate groups subsequently contested this claim of HLI.

On August 15, 1995, HLI applied for the conversion of 500 hectares of land of the hacienda
from agricultural to industrial use,43 pursuant to Sec. 65 of RA 6657, providing:

SEC. 65. Conversion of Lands.¾After the lapse of five (5) years from its award, when the
land ceases to be economically feasible and sound for agricultural purposes, or the locality
has become urbanized and the land will have a greater economic value for residential,
commercial or industrial purposes, the DAR, upon application of the beneficiary or the
landowner, with due notice to the affected parties, and subject to existing laws, may
authorize the reclassification, or conversion of the land and its disposition: Provided, That the
beneficiary shall have fully paid its obligation.

The application, according to HLI, had the backing of 5,000 or so FWBs, including
respondent Rene Galang, and Jose Julio Suniga, as evidenced by the Manifesto of Support
they signed and which was submitted to the DAR.44After the usual processing, the DAR, thru
then Sec. Ernesto Garilao, approved the application on August 14, 1996, per DAR
Conversion Order No. 030601074-764-(95), Series of 1996, 45 subject to payment of three
percent (3%) of the gross selling price to the FWBs and to HLI’s continued compliance with
its undertakings under the SDP, among other conditions.

On December 13, 1996, HLI, in exchange for subscription of 12,000,000 shares of stocks of
Centennary Holdings, Inc. (Centennary), ceded 300 hectares of the converted area to the
latter.46 Consequently, HLI’s Transfer Certificate of Title (TCT) No. 287910 47 was canceled
and TCT No. 29209148 was issued in the name of Centennary. HLI transferred the remaining
200 hectares covered by TCT No. 287909 to Luisita Realty Corporation (LRC) 49 in two
separate transactions in 1997 and 1998, both uniformly involving 100 hectares for PhP 250
million each.50

Centennary, a corporation with an authorized capital stock of PhP 12,100,000 divided into
12,100,000 shares and wholly-owned by HLI, had the following incorporators: Pedro
Cojuangco, Josephine C. Reyes, Teresita C. Lopa, Ernesto G. Teopaco, and Bernardo R.
Lahoz.

Subsequently, Centennary sold51 the entire 300 hectares to Luisita Industrial Park

Corporation (LIPCO) for PhP 750 million. The latter acquired it for the purpose of developing
an industrial complex.52 As a result, Centennary’s TCT No. 292091 was canceled to be
replaced by TCT No. 31098653 in the name of LIPCO.

From the area covered by TCT No. 310986 was carved out two (2) parcels, for which two (2)
separate titles were issued in the name of LIPCO, specifically: (a) TCT No. 365800 54 and (b)
TCT No. 365801,55 covering 180 and four hectares, respectively. TCT No. 310986 was,
accordingly, partially canceled.
Later on, in a Deed of Absolute Assignment dated November 25, 2004, LIPCO transferred
the parcels covered by its TCT Nos. 365800 and 365801 to the Rizal Commercial Banking
Corporation (RCBC) by way of dacion en pago in payment of LIPCO’s PhP 431,695,732.10
loan obligations. LIPCO’s titles were canceled and new ones, TCT Nos. 391051 and 391052,
were issued to RCBC.

Apart from the 500 hectares alluded to, another 80.51 hectares were later detached from the
area coverage of Hacienda Luisita which had been acquired by the government as part of
the Subic-Clark-Tarlac Expressway (SCTEX) complex. In absolute terms, 4,335.75 hectares
remained of the original 4,915 hectares Tadeco ceded to HLI.56

Such, in short, was the state of things when two separate petitions, both undated, reached
the DAR in the latter part of 2003. In the first, denominated as Petition/Protest, 57 respondents
Jose Julio Suniga and Windsor Andaya, identifying themselves as head of the Supervisory
Group of HLI (Supervisory Group), and 60 other supervisors sought to revoke the SDOA,
alleging that HLI had failed to give them their dividends and the one percent (1%) share in
gross sales, as well as the thirty-three percent (33%) share in the proceeds of the sale of the
converted 500 hectares of land. They further claimed that their lives have not improved
contrary to the promise and rationale for the adoption of the SDOA. They also cited violations
by HLI of the SDOA’s terms.58 They prayed for a renegotiation of the SDOA, or, in the
alternative, its revocation.

Revocation and nullification of the SDOA and the distribution of the lands in the hacienda
were the call in the second petition, styled as Petisyon (Petition).59 The Petisyon was
ostensibly filed on December 4, 2003 by Alyansa ng mga Manggagawang Bukid ng
Hacienda Luisita (AMBALA), where the handwritten name of respondents Rene Galang as
"Pangulo AMBALA" and Noel Mallari as "Sec-Gen. AMBALA" 60 appeared. As alleged, the
petition was filed on behalf of AMBALA’s members purportedly composing about 80% of the
5,339 FWBs of Hacienda Luisita.

HLI would eventually answer61 the petition/protest of the Supervisory Group. On the other
hand, HLI’s answer62 to the AMBALA petition was contained in its letter dated January 21,
2005 also filed with DAR.

Meanwhile, the DAR constituted a Special Task Force to attend to issues relating to the SDP
of HLI. Among other duties, the Special Task Force was mandated to review the terms and
conditions of the SDOA and PARC Resolution No. 89-12-2 relative to HLI’s SDP; evaluate
HLI’s compliance reports; evaluate the merits of the petitions for the revocation of the SDP;
conduct ocular inspections or field investigations; and recommend appropriate remedial
measures for approval of the Secretary.63

After investigation and evaluation, the Special Task Force submitted its "Terminal Report:
Hacienda Luisita, Incorporated (HLI) Stock Distribution Plan (SDP) Conflict" 64 dated
September 22, 2005 (Terminal Report), finding that HLI has not complied with its obligations
under RA 6657 despite the implementation of the SDP.65 The Terminal Report and the
Special Task Force’s recommendations were adopted by then DAR Sec. Nasser
Pangandaman (Sec. Pangandaman).66

Subsequently, Sec. Pangandaman recommended to the PARC Executive Committee

(Excom) (a) the recall/revocation of PARC Resolution No. 89-12-2 dated November 21, 1989
approving HLI’s SDP; and (b) the acquisition of Hacienda Luisita through the compulsory
acquisition scheme. Following review, the PARC Validation Committee favorably endorsed
the DAR Secretary’s recommendation afore-stated. 67

On December 22, 2005, the PARC issued the assailed Resolution No. 2005-32-01,
disposing as follows:

NOW, THEREFORE, on motion duly seconded, RESOLVED, as it is HEREBY RESOLVED,

to approve and confirm the recommendation of the PARC Executive Committee adopting in
toto the report of the PARC ExCom Validation Committee affirming the recommendation of
the DAR to recall/revoke the SDO plan of Tarlac Development Corporation/Hacienda Luisita
Incorporated.

RESOLVED, further, that the lands subject of the recalled/revoked TDC/HLI SDO plan be
forthwith placed under the compulsory coverage or mandated land acquisition scheme of the
[CARP].

APPROVED.68

A copy of Resolution No. 2005-32-01 was served on HLI the following day, December 23,
without any copy of the documents adverted to in the resolution attached. A letter-request
dated December 28, 200569 for certified copies of said documents was sent to, but was not
acted upon by, the PARC secretariat.

Therefrom, HLI, on January 2, 2006, sought reconsideration. 70 On the same day, the DAR
Tarlac provincial office issued the Notice of Coverage71 which HLI received on January 4,
2006.

Its motion notwithstanding, HLI has filed the instant recourse in light of what it considers as
the DAR’s hasty placing of Hacienda Luisita under CARP even before PARC could rule or
even read the motion for reconsideration.72 As HLI later rued, it "can not know from the
above-quoted resolution the facts and the law upon which it is based." 73

PARC would eventually deny HLI’s motion for reconsideration via Resolution No. 2006-34-01
dated May 3, 2006.

By Resolution of June 14, 2006,74 the Court, acting on HLI’s motion, issued a temporary
restraining order,75enjoining the implementation of Resolution No. 2005-32-01 and the notice
of coverage.

On July 13, 2006, the OSG, for public respondents PARC and the DAR, filed its
Comment76 on the petition.

On December 2, 2006, Noel Mallari, impleaded by HLI as respondent in his capacity as

"Sec-Gen. AMBALA," filed his Manifestation and Motion with Comment Attached dated
December 4, 2006 (Manifestation and Motion).77 In it, Mallari stated that he has broken away
from AMBALA with other AMBALA ex-members and formed Farmworkers Agrarian Reform
Movement, Inc. (FARM).78 Should this shift in alliance deny him standing, Mallari also prayed
that FARM be allowed to intervene.

As events would later develop, Mallari had a parting of ways with other FARM members,
particularly would-be intervenors Renato Lalic, et al. As things stand, Mallari returned to the
AMBALA fold, creating the AMBALA-Noel Mallari faction and leaving Renato Lalic, et al. as
the remaining members of FARM who sought to intervene.

On January 10, 2007, the Supervisory Group79 and the AMBALA-Rene Galang faction
submitted their Comment/Opposition dated December 17, 2006. 80

On October 30, 2007, RCBC filed a Motion for Leave to Intervene and to File and Admit
Attached Petition-In-Intervention dated October 18, 2007. 81 LIPCO later followed with a
similar motion.82 In both motions, RCBC and LIPCO contended that the assailed resolution
effectively nullified the TCTs under their respective names as the properties covered in the
TCTs were veritably included in the January 2, 2006 notice of coverage. In the main, they
claimed that the revocation of the SDP cannot legally affect their rights as innocent
purchasers for value. Both motions for leave to intervene were granted and the
corresponding petitions-in-intervention admitted.

On August 18, 2010, the Court heard the main and intervening petitioners on oral
arguments. On the other hand, the Court, on August 24, 2010, heard public respondents as
well as the respective counsels of the AMBALA-Mallari-Supervisory Group, the AMBALA-
Galang faction, and the FARM and its 27 members 83 argue their case.

Prior to the oral arguments, however, HLI; AMBALA, represented by Mallari; the Supervisory
Group, represented by Suniga and Andaya; and the United Luisita Workers Union,
represented by Eldifonso Pingol, filed with the Court a joint submission and motion for
approval of a Compromise Agreement (English and Tagalog versions) dated August 6, 2010.

On August 31, 2010, the Court, in a bid to resolve the dispute through an amicable
settlement, issued a Resolution84 creating a Mediation Panel composed of then Associate
Justice Ma. Alicia Austria-Martinez, as chairperson, and former CA Justices Hector Hofileña
and Teresita Dy-Liacco Flores, as members. Meetings on five (5) separate dates, i.e.,
September 8, 9, 14, 20, and 27, 2010, were conducted. Despite persevering and painstaking
efforts on the part of the panel, mediation had to be discontinued when no acceptable
agreement could be reached.

The Issues

HLI raises the following issues for our consideration:

I.

WHETHER OR NOT PUBLIC RESPONDENTS PARC AND SECRETARY

PANGANDAMAN HAVE JURISDICTION, POWER AND/OR AUTHORITY TO
NULLIFY, RECALL, REVOKE OR RESCIND THE SDOA.

II.

[IF SO], x x x CAN THEY STILL EXERCISE SUCH JURISDICTION, POWER

AND/OR AUTHORITY AT THIS TIME, I.E., AFTER SIXTEEN (16) YEARS FROM
THE EXECUTION OF THE SDOA AND ITS IMPLEMENTATION WITHOUT
VIOLATING SECTIONS 1 AND 10 OF ARTICLE III (BILL OF RIGHTS) OF THE
CONSTITUTION AGAINST DEPRIVATION OF PROPERTY WITHOUT DUE
PROCESS OF LAW AND THE IMPAIRMENT OF CONTRACTUAL RIGHTS AND
 OBLIGATIONS? MOREOVER, ARE THERE LEGAL GROUNDS UNDER THE CIVIL
CODE, viz, ARTICLE 1191 x x x, ARTICLES 1380, 1381 AND 1382 x x x ARTICLE
1390 x x x AND ARTICLE 1409 x x x THAT CAN BE INVOKED TO NULLIFY,
RECALL, REVOKE, OR RESCIND THE SDOA?

III.

WHETHER THE PETITIONS TO NULLIFY, RECALL, REVOKE OR RESCIND THE

SDOA HAVE ANY LEGAL BASIS OR GROUNDS AND WHETHER THE
PETITIONERS THEREIN ARE THE REAL PARTIES-IN-INTEREST TO FILE SAID
PETITIONS.

IV.

WHETHER THE RIGHTS, OBLIGATIONS AND REMEDIES OF THE PARTIES TO

THE SDOA ARE NOW GOVERNED BY THE CORPORATION CODE (BATAS
PAMBANSA BLG. 68) AND NOT BY THE x x x [CARL] x x x.

On the other hand, RCBC submits the following issues:

I.

RESPONDENT PARC COMMITTED GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT DID NOT
EXCLUDE THE SUBJECT PROPERTY FROM THE COVERAGE OF THE CARP
DESPITE THE FACT THAT PETITIONER-INTERVENOR RCBC HAS ACQUIRED
VESTED RIGHTS AND INDEFEASIBLE TITLE OVER THE SUBJECT PROPERTY
AS AN INNOCENT PURCHASER FOR VALUE.

A. THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE NOTICE OF

COVERAGE DATED 02 JANUARY 2006 HAVE THE EFFECT OF
NULLIFYING TCT NOS. 391051 AND 391052 IN THE NAME OF
PETITIONER-INTERVENOR RCBC.

B. AS AN INNOCENT PURCHASER FOR VALUE, PETITIONER-

INTERVENOR RCBC CANNOT BE PREJUDICED BY A SUBSEQUENT
REVOCATION OR RESCISSION OF THE SDOA.

II.

THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE NOTICE OF

COVERAGE DATED 02 JANUARY 2006 WERE ISSUED WITHOUT AFFORDING
PETITIONER-INTERVENOR RCBC ITS RIGHT TO DUE PROCESS AS AN
INNOCENT PURCHASER FOR VALUE.

LIPCO, like RCBC, asserts having acquired vested and indefeasible rights over certain
portions of the converted property, and, hence, would ascribe on PARC the commission of
grave abuse of discretion when it included those portions in the notice of coverage. And
apart from raising issues identical with those of HLI, such as but not limited to the absence of
valid grounds to warrant the rescission and/or revocation of the SDP, LIPCO would allege
that the assailed resolution and the notice of coverage were issued without affording it the
right to due process as an innocent purchaser for value. The government, LIPCO also
argues, is estopped from recovering properties which have since passed to innocent parties.

Simply formulated, the principal determinative issues tendered in the main petition and to
which all other related questions must yield boil down to the following: (1) matters of
standing; (2) the constitutionality of Sec. 31 of RA 6657; (3) the jurisdiction of PARC to recall
or revoke HLI’s SDP; (4) the validity or propriety of such recall or revocatory action; and (5)
corollary to (4), the validity of the terms and conditions of the SDP, as embodied in the
SDOA.

Our Ruling

I.

We first proceed to the examination of the preliminary issues before delving on the more
serious challenges bearing on the validity of PARC’s assailed issuance and the grounds for
it.

Supervisory Group, AMBALA and their

respective leaders are real parties-in-interest

HLI would deny real party-in-interest status to the purported leaders of the Supervisory
Group and AMBALA, i.e., Julio Suniga, Windsor Andaya, and Rene Galang, who filed the
revocatory petitions before the DAR. As HLI would have it, Galang, the self-styled head of
AMBALA, gained HLI employment in June 1990 and, thus, could not have been a party to
the SDOA executed a year earlier. 85 As regards the Supervisory Group, HLI alleges that
supervisors are not regular farmworkers, but the company nonetheless considered them
FWBs under the SDOA as a mere concession to enable them to enjoy the same benefits
given qualified regular farmworkers. However, if the SDOA would be canceled and land
distribution effected, so HLI claims, citing Fortich v. Corona, 86 the supervisors would be
excluded from receiving lands as farmworkers other than the regular farmworkers who are
merely entitled to the "fruits of the land."87

The SDOA no less identifies "the SDP qualified beneficiaries" as "the farmworkers who
appear in the annual payroll, inclusive of the permanent and seasonal employees, who are
regularly or periodically employed by [HLI]."88 Galang, per HLI’s own admission, is employed
by HLI, and is, thus, a qualified beneficiary of the SDP; he comes within the definition of a
real party-in-interest under Sec. 2, Rule 3 of the Rules of Court, meaning, one who stands to
be benefited or injured by the judgment in the suit or is the party entitled to the avails of the
suit.

The same holds true with respect to the Supervisory Group whose members were admittedly
employed by HLI and whose names and signatures even appeared in the annex of the
SDOA. Being qualified beneficiaries of the SDP, Suniga and the other 61 supervisors are
certainly parties who would benefit or be prejudiced by the judgment recalling the SDP or
replacing it with some other modality to comply with RA 6657.

Even assuming that members of the Supervisory Group are not regular farmworkers, but are
in the category of "other farmworkers" mentioned in Sec. 4, Article XIII of the
Constitution,89 thus only entitled to a share of the fruits of the land, as indeed Fortich teaches,
this does not detract from the fact that they are still identified as being among the "SDP
qualified beneficiaries." As such, they are, thus, entitled to bring an action upon the SDP. 90 At
any rate, the following admission made by Atty. Gener Asuncion, counsel of HLI, during the
oral arguments should put to rest any lingering doubt as to the status of protesters Galang,
Suniga, and Andaya:

Justice Bersamin: x x x I heard you a while ago that you were conceding the qualified farmer
beneficiaries of Hacienda Luisita were real parties in interest?

Atty. Asuncion: Yes, Your Honor please, real party in interest which that question refers to
the complaints of protest initiated before the DAR and the real party in interest there be
considered as possessed by the farmer beneficiaries who initiated the protest. 91

Further, under Sec. 50, paragraph 4 of RA 6657, farmer-leaders are expressly allowed to
represent themselves, their fellow farmers or their organizations in any proceedings before
the DAR. Specifically:

SEC. 50. Quasi-Judicial Powers of the DAR.¾x x x

xxxx

Responsible farmer leaders shall be allowed to represent themselves, their fellow

farmers or their organizations in any proceedings before the DAR: Provided, however,
that when there are two or more representatives for any individual or group, the
representatives should choose only one among themselves to represent such party or group
before any DAR proceedings. (Emphasis supplied.)

Clearly, the respective leaders of the Supervisory Group and AMBALA are contextually real
parties-in-interest allowed by law to file a petition before the DAR or PARC.

This is not necessarily to say, however, that Galang represents AMBALA, for as records
show and as HLI aptly noted, 92 his "petisyon" filed with DAR did not carry the usual
authorization of the individuals in whose behalf it was supposed to have been instituted. To
date, such authorization document, which would logically include a list of the names of the
authorizing FWBs, has yet to be submitted to be part of the records.

PARC’s Authority to Revoke a Stock Distribution Plan

On the postulate that the subject jurisdiction is conferred by law, HLI maintains that PARC is
without authority to revoke an SDP, for neither RA 6657 nor EO 229 expressly vests PARC
with such authority. While, as HLI argued, EO 229 empowers PARC to approve the plan for
stock distribution in appropriate cases, the empowerment only includes the power to
disapprove, but not to recall its previous approval of the SDP after it has been implemented
by the parties.93 To HLI, it is the court which has jurisdiction and authority to order the
revocation or rescission of the PARC-approved SDP.

We disagree.

Under Sec. 31 of RA 6657, as implemented by DAO 10, the authority to approve the plan for
stock distribution of the corporate landowner belongs to PARC. However, contrary to
petitioner HLI’s posture, PARC also has the power to revoke the SDP which it previously
approved. It may be, as urged, that RA 6657 or other executive issuances on agrarian
reform do not explicitly vest the PARC with the power to revoke/recall an approved SDP.
Such power or authority, however, is deemed possessed by PARC under the principle of
necessary implication, a basic postulate that what is implied in a statute is as much a part of
it as that which is expressed.94

We have explained that "every statute is understood, by implication, to contain all such
provisions as may be necessary to effectuate its object and purpose, or to make effective
rights, powers, privileges or jurisdiction which it grants, including all such collateral and
subsidiary consequences as may be fairly and logically inferred from its terms." 95 Further,
"every statutory grant of power, right or privilege is deemed to include all incidental power,
right or privilege.96

Gordon v. Veridiano II is instructive:

The power to approve a license includes by implication, even if not expressly granted, the
power to revoke it. By extension, the power to revoke is limited by the authority to grant the
license, from which it is derived in the first place. Thus, if the FDA grants a license upon its
finding that the applicant drug store has complied with the requirements of the general laws
and the implementing administrative rules and regulations, it is only for their violation that the
FDA may revoke the said license. By the same token, having granted the permit upon his
ascertainment that the conditions thereof as applied x x x have been complied with, it is only
for the violation of such conditions that the mayor may revoke the said permit. 97 (Emphasis
supplied.)

Following the doctrine of necessary implication, it may be stated that the conferment of
express power to approve a plan for stock distribution of the agricultural land of corporate
owners necessarily includes the power to revoke or recall the approval of the plan.

As public respondents aptly observe, to deny PARC such revocatory power would reduce it
into a toothless agency of CARP, because the very same agency tasked to ensure
compliance by the corporate landowner with the approved SDP would be without authority to
impose sanctions for non-compliance with it.98 With the view We take of the case, only PARC
can effect such revocation. The DAR Secretary, by his own authority as such, cannot
plausibly do so, as the acceptance and/or approval of the SDP sought to be taken back or
undone is the act of PARC whose official composition includes, no less, the President as
chair, the DAR Secretary as vice-chair, and at least eleven (11) other department heads. 99

On another but related issue, the HLI foists on the Court the argument that subjecting its
landholdings to compulsory distribution after its approved SDP has been implemented would
impair the contractual obligations created under the SDOA.

The broad sweep of HLI’s argument ignores certain established legal precepts and must,
therefore, be rejected.

A law authorizing interference, when appropriate, in the contractual relations between or

among parties is deemed read into the contract and its implementation cannot successfully
be resisted by force of the non-impairment guarantee. There is, in that instance, no
impingement of the impairment clause, the non-impairment protection being applicable only
to laws that derogate prior acts or contracts by enlarging, abridging or in any manner
changing the intention of the parties. Impairment, in fine, obtains if a subsequent law
changes the terms of a contract between the parties, imposes new conditions, dispenses
with those agreed upon or withdraws existing remedies for the enforcement of the rights of
the parties.100 Necessarily, the constitutional proscription would not apply to laws already in
effect at the time of contract execution, as in the case of RA 6657, in relation to DAO 10, vis-
à-vis HLI’s SDOA. As held in Serrano v. Gallant Maritime Services, Inc.:

The prohibition [against impairment of the obligation of contracts] is aligned with the general
principle that laws newly enacted have only a prospective operation, and cannot affect acts
or contracts already perfected; however, as to laws already in existence, their provisions are
read into contracts and deemed a part thereof. Thus, the non-impairment clause under
Section 10, Article II [of the Constitution] is limited in application to laws about to be enacted
that would in any way derogate from existing acts or contracts by enlarging, abridging or in
any manner changing the intention of the parties thereto. 101 (Emphasis supplied.)

Needless to stress, the assailed Resolution No. 2005-32-01 is not the kind of issuance within
the ambit of Sec. 10, Art. III of the Constitution providing that "[n]o law impairing the
obligation of contracts shall be passed."

Parenthetically, HLI tags the SDOA as an ordinary civil law contract and, as such, a breach
of its terms and conditions is not a PARC administrative matter, but one that gives rise to a
cause of action cognizable by regular courts.102 This contention has little to commend itself.
The SDOA is a special contract imbued with public interest, entered into and crafted
pursuant to the provisions of RA 6657. It embodies the SDP, which requires for its validity, or
at least its enforceability, PARC’s approval. And the fact that the certificate of
compliance103––to be issued by agrarian authorities upon completion of the distribution of
stocks––is revocable by the same issuing authority supports the idea that everything about
the implementation of the SDP is, at the first instance, subject to administrative adjudication.

HLI also parlays the notion that the parties to the SDOA should now look to the Corporation
Code, instead of to RA 6657, in determining their rights, obligations and remedies. The
Code, it adds, should be the applicable law on the disposition of the agricultural land of HLI.

Contrary to the view of HLI, the rights, obligations and remedies of the parties to the SDOA
embodying the SDP are primarily governed by RA 6657. It should abundantly be made clear
that HLI was precisely created in order to comply with RA 6657, which the OSG aptly
described as the "mother law" of the SDOA and the SDP. 104 It is, thus, paradoxical for HLI to
shield itself from the coverage of CARP by invoking exclusive applicability of the Corporation
Code under the guise of being a corporate entity.

Without in any way minimizing the relevance of the Corporation Code since the FWBs of HLI
are also stockholders, its applicability is limited as the rights of the parties arising from the
SDP should not be made to supplant or circumvent the agrarian reform program.

Without doubt, the Corporation Code is the general law providing for the formation,
organization and regulation of private corporations. On the other hand, RA 6657 is the
special law on agrarian reform. As between a general and special law, the latter shall prevail
—generalia specialibus non derogant. 105 Besides, the present impasse between HLI and the
private respondents is not an intra-corporate dispute which necessitates the application of
the Corporation Code. What private respondents questioned before the DAR is the proper
implementation of the SDP and HLI’s compliance with RA 6657. Evidently, RA 6657 should
be the applicable law to the instant case.

HLI further contends that the inclusion of the agricultural land of Hacienda Luisita under the
coverage of CARP and the eventual distribution of the land to the FWBs would amount to a
disposition of all or practically all of the corporate assets of HLI. HLI would add that this
contingency, if ever it comes to pass, requires the applicability of the Corporation Code
provisions on corporate dissolution.

We are not persuaded.

Indeed, the provisions of the Corporation Code on corporate dissolution would apply insofar
as the winding up of HLI’s affairs or liquidation of the assets is concerned. However, the
mere inclusion of the agricultural land of Hacienda Luisita under the coverage of CARP and
the land’s eventual distribution to the FWBs will not, without more, automatically trigger the
dissolution of HLI. As stated in the SDOA itself, the percentage of the value of the
agricultural land of Hacienda Luisita in relation to the total assets transferred and conveyed
by Tadeco to HLI comprises only 33.296%, following this equation: value of the agricultural
lands divided by total corporate assets. By no stretch of imagination would said percentage
amount to a disposition of all or practically all of HLI’s corporate assets should compulsory
land acquisition and distribution ensue.

This brings us to the validity of the revocation of the approval of the SDP sixteen (16) years
after its execution pursuant to Sec. 31 of RA 6657 for the reasons set forth in the Terminal
Report of the Special Task Force, as endorsed by PARC Excom. But first, the matter of the
constitutionality of said section.

Constitutional Issue

FARM asks for the invalidation of Sec. 31 of RA 6657, insofar as it affords the corporation,
as a mode of CARP compliance, to resort to stock distribution, an arrangement which, to
FARM, impairs the fundamental right of farmers and farmworkers under Sec. 4, Art. XIII of
the Constitution.106

To a more specific, but direct point, FARM argues that Sec. 31 of RA 6657 permits stock
transfer in lieu of outright agricultural land transfer; in fine, there is stock certificate ownership
of the farmers or farmworkers instead of them owning the land, as envisaged in the
Constitution. For FARM, this modality of distribution is an anomaly to be annulled for being
inconsistent with the basic concept of agrarian reform ingrained in Sec. 4, Art. XIII of the
Constitution.107

Reacting, HLI insists that agrarian reform is not only about transfer of land ownership to
farmers and other qualified beneficiaries. It draws attention in this regard to Sec. 3(a) of RA
6657 on the concept and scope of the term "agrarian reform." The constitutionality of a law,
HLI added, cannot, as here, be attacked collaterally.

The instant challenge on the constitutionality of Sec. 31 of RA 6657 and necessarily its
counterpart provision in EO 229 must fail as explained below.

When the Court is called upon to exercise its power of judicial review over, and pass upon
the constitutionality of, acts of the executive or legislative departments, it does so only when
the following essential requirements are first met, to wit:

(1) there is an actual case or controversy;

(2) that the constitutional question is raised at the earliest possible opportunity by a
proper party or one with locus standi; and
 (3) the issue of constitutionality must be the very lis mota of the case. 108

Not all the foregoing requirements are satisfied in the case at bar.

While there is indeed an actual case or controversy, intervenor FARM, composed of a small
minority of 27 farmers, has yet to explain its failure to challenge the constitutionality of Sec.
3l of RA 6657, since as early as November 21, l989 when PARC approved the SDP of
Hacienda Luisita or at least within a reasonable time thereafter and why its members
received benefits from the SDP without so much of a protest. It was only on December 4,
2003 or 14 years after approval of the SDP via PARC Resolution No. 89-12-2 dated
November 21, 1989 that said plan and approving resolution were sought to be revoked, but
not, to stress, by FARM or any of its members, but by petitioner AMBALA. Furthermore, the
AMBALA petition did NOT question the constitutionality of Sec. 31 of RA 6657, but
concentrated on the purported flaws and gaps in the subsequent implementation of the SDP.
Even the public respondents, as represented by the Solicitor General, did not question the
constitutionality of the provision. On the other hand, FARM, whose 27 members formerly
belonged to AMBALA, raised the constitutionality of Sec. 31 only on May 3, 2007 when it
filed its Supplemental Comment with the Court. Thus, it took FARM some eighteen (18)
years from November 21, 1989 before it challenged the constitutionality of Sec. 31 of RA
6657 which is quite too late in the day. The FARM members slept on their rights and even
accepted benefits from the SDP with nary a complaint on the alleged unconstitutionality of
Sec. 31 upon which the benefits were derived. The Court cannot now be goaded into
resolving a constitutional issue that FARM failed to assail after the lapse of a long period of
time and the occurrence of numerous events and activities which resulted from the
application of an alleged unconstitutional legal provision.

It has been emphasized in a number of cases that the question of constitutionality will not be
passed upon by the Court unless it is properly raised and presented in an appropriate case
at the first opportunity.109 FARM is, therefore, remiss in belatedly questioning the
constitutionality of Sec. 31 of RA 6657. The second requirement that the constitutional
question should be raised at the earliest possible opportunity is clearly wanting.

The last but the most important requisite that the constitutional issue must be the very lis
mota of the case does not likewise obtain. The lis mota aspect is not present, the
constitutional issue tendered not being critical to the resolution of the case. The unyielding
rule has been to avoid, whenever plausible, an issue assailing the constitutionality of a
statute or governmental act.110 If some other grounds exist by which judgment can be made
without touching the constitutionality of a law, such recourse is favored. 111 Garcia v.
Executive Secretary explains why:

Lis Mota — the fourth requirement to satisfy before this Court will undertake judicial review
— means that the Court will not pass upon a question of unconstitutionality, although
properly presented, if the case can be disposed of on some other ground, such as the
application of the statute or the general law. The petitioner must be able to show that the
case cannot be legally resolved unless the constitutional question raised is determined. This
requirement is based on the rule that every law has in its favor the presumption of
constitutionality; to justify its nullification, there must be a clear and unequivocal breach of
the Constitution, and not one that is doubtful, speculative, or argumentative. 112 (Italics in the
original.)

The lis mota in this case, proceeding from the basic positions originally taken by AMBALA (to
which the FARM members previously belonged) and the Supervisory Group, is the alleged
non-compliance by HLI with the conditions of the SDP to support a plea for its revocation.
And before the Court, the lis mota is whether or not PARC acted in grave abuse of discretion
when it ordered the recall of the SDP for such non-compliance and the fact that the SDP, as
couched and implemented, offends certain constitutional and statutory provisions. To be
sure, any of these key issues may be resolved without plunging into the constitutionality of
Sec. 31 of RA 6657. Moreover, looking deeply into the underlying petitions of AMBALA, et
al., it is not the said section per se that is invalid, but rather it is the alleged application of the
said provision in the SDP that is flawed.

It may be well to note at this juncture that Sec. 5 of RA 9700, 113 amending Sec. 7 of RA 6657,
has all but superseded Sec. 31 of RA 6657 vis-à-vis the stock distribution component of said
Sec. 31. In its pertinent part, Sec. 5 of RA 9700 provides: "[T]hat after June 30, 2009, the
modes of acquisition shall be limited to voluntary offer to sell and compulsory acquisition."
Thus, for all intents and purposes, the stock distribution scheme under Sec. 31 of RA 6657 is
no longer an available option under existing law. The question of whether or not it is
unconstitutional should be a moot issue.

It is true that the Court, in some cases, has proceeded to resolve constitutional issues
otherwise already moot and academic114 provided the following requisites are present:

x x x first, there is a grave violation of the Constitution; second, the exceptional character of
the situation and the paramount public interest is involved; third, when the constitutional
issue raised requires formulation of controlling principles to guide the bench, the bar, and the
public; fourth, the case is capable of repetition yet evading review.

These requisites do not obtain in the case at bar.

For one, there appears to be no breach of the fundamental law. Sec. 4, Article XIII of the
Constitution reads:

The State shall, by law, undertake an agrarian reform program founded on the right of the
farmers and regular farmworkers, who are landless, to OWN directly or COLLECTIVELY
THE LANDS THEY TILL or, in the case of other farmworkers, to receive a just share of the
fruits thereof. To this end, the State shall encourage and undertake the just distribution of all
agricultural lands, subject to such priorities and reasonable retention limits as the Congress
may prescribe, taking into account ecological, developmental, or equity considerations, and
subject to the payment of just compensation. In determining retention limits, the State shall
respect the right of small landowners. The State shall further provide incentives for voluntary
land-sharing. (Emphasis supplied.)

The wording of the provision is unequivocal––the farmers and regular farmworkers have a
right TO OWN DIRECTLY OR COLLECTIVELY THE LANDS THEY TILL. The basic law
allows two (2) modes of land distribution—direct and indirect ownership. Direct transfer to
individual farmers is the most commonly used method by DAR and widely accepted. Indirect
transfer through collective ownership of the agricultural land is the alternative to direct
ownership of agricultural land by individual farmers. The aforequoted Sec. 4 EXPRESSLY
authorizes collective ownership by farmers. No language can be found in the 1987
Constitution that disqualifies or prohibits corporations or cooperatives of farmers from being
the legal entity through which collective ownership can be exercised. The word "collective" is
defined as "indicating a number of persons or things considered as constituting one group or
aggregate,"115 while "collectively" is defined as "in a collective sense or manner; in a mass or
body."116 By using the word "collectively," the Constitution allows for indirect ownership of
land and not just outright agricultural land transfer. This is in recognition of the fact that land
reform may become successful even if it is done through the medium of juridical entities
composed of farmers.

Collective ownership is permitted in two (2) provisions of RA 6657. Its Sec. 29 allows
workers’ cooperatives or associations to collectively own the land, while the second
paragraph of Sec. 31 allows corporations or associations to own agricultural land with the
farmers becoming stockholders or members. Said provisions read:

SEC. 29. Farms owned or operated by corporations or other business associations.—In the
case of farms owned or operated by corporations or other business associations, the
following rules shall be observed by the PARC.

In general, lands shall be distributed directly to the individual worker-beneficiaries.

In case it is not economically feasible and sound to divide the land, then it shall be owned
collectively by the worker beneficiaries who shall form a workers’ cooperative or association
which will deal with the corporation or business association. x x x (Emphasis supplied.)

SEC. 31. Corporate Landowners.— x x x

xxxx

Upon certification by the DAR, corporations owning agricultural lands may give their qualified
beneficiaries the right to purchase such proportion of the capital stock of the corporation that
the agricultural land, actually devoted to agricultural activities, bears in relation to the
company’s total assets, under such terms and conditions as may be agreed upon by them. In
no case shall the compensation received by the workers at the time the shares of stocks are
distributed be reduced. The same principle shall be applied to associations, with respect to
their equity or participation. x x x (Emphasis supplied.)

Clearly, workers’ cooperatives or associations under Sec. 29 of RA 6657 and corporations or

associations under the succeeding Sec. 31, as differentiated from individual farmers, are
authorized vehicles for the collective ownership of agricultural land. Cooperatives can be
registered with the Cooperative Development Authority and acquire legal personality of their
own, while corporations are juridical persons under the Corporation Code. Thus, Sec. 31 is
constitutional as it simply implements Sec. 4 of Art. XIII of the Constitution that land can be
owned COLLECTIVELY by farmers. Even the framers of the l987 Constitution are in unison
with respect to the two (2) modes of ownership of agricultural lands tilled by farmers––
DIRECT and COLLECTIVE, thus:

MR. NOLLEDO. And when we talk of the phrase "to own directly," we mean the principle of
direct ownership by the tiller?

MR. MONSOD. Yes.

MR. NOLLEDO. And when we talk of "collectively," we mean communal ownership,

stewardship or State ownership?

MS. NIEVA. In this section, we conceive of cooperatives; that is farmers’ cooperatives

owning the land, not the State.
MR. NOLLEDO. And when we talk of "collectively," referring to farmers’ cooperatives, do the
farmers own specific areas of land where they only unite in their efforts?

MS. NIEVA. That is one way.

MR. NOLLEDO. Because I understand that there are two basic systems involved: the
"moshave" type of agriculture and the "kibbutz." So are both contemplated in the report?

MR. TADEO. Ang dalawa kasing pamamaraan ng pagpapatupad ng tunay na reporma sa

lupa ay ang pagmamay-ari ng lupa na hahatiin sa individual na pagmamay-ari – directly – at
ang tinatawag na sama-samang gagawin ng mga magbubukid. Tulad sa Negros, ang gusto
ng mga magbubukid ay gawin nila itong "cooperative or collective farm." Ang ibig sabihin ay
sama-sama nilang sasakahin.

xxxx

MR. TINGSON. x x x When we speak here of "to own directly or collectively the lands they
till," is this land for the tillers rather than land for the landless? Before, we used to hear "land
for the landless," but now the slogan is "land for the tillers." Is that right?

MR. TADEO. Ang prinsipyong umiiral dito ay iyong land for the tillers. Ang ibig sabihin ng
"directly" ay tulad sa implementasyon sa rice and corn lands kung saan inaari na ng mga
magsasaka ang lupang binubungkal nila. Ang ibig sabihin naman ng "collectively" ay sama-
samang paggawa sa isang lupain o isang bukid, katulad ng sitwasyon sa
Negros.117 (Emphasis supplied.)

As Commissioner Tadeo explained, the farmers will work on the agricultural land "sama-
sama" or collectively. Thus, the main requisite for collective ownership of land is collective or
group work by farmers of the agricultural land. Irrespective of whether the landowner is a
cooperative, association or corporation composed of farmers, as long as concerted group
work by the farmers on the land is present, then it falls within the ambit of collective
ownership scheme.

Likewise, Sec. 4, Art. XIII of the Constitution makes mention of a commitment on the part of
the State to pursue, by law, an agrarian reform program founded on the policy of land for the
landless, but subject to such priorities as Congress may prescribe, taking into account such
abstract variable as "equity considerations." The textual reference to a law and Congress
necessarily implies that the above constitutional provision is not self-executoryand that
legislation is needed to implement the urgently needed program of agrarian reform. And RA
6657 has been enacted precisely pursuant to and as a mechanism to carry out the
constitutional directives. This piece of legislation, in fact, restates 118 the agrarian reform policy
established in the aforementioned provision of the Constitution of promoting the welfare of
landless farmers and farmworkers. RA 6657 thus defines "agrarian reform" as "the
redistribution of lands … to farmers and regular farmworkers who are landless … to lift the
economic status of the beneficiaries and all other arrangements alternative to the
physical redistribution of lands, such as production or profit sharing, labor administration
and the distribution of shares of stock which will allow beneficiaries to receive a just share
of the fruits of the lands they work."

With the view We take of this case, the stock distribution option devised under Sec. 31 of RA
6657 hews with the agrarian reform policy, as instrument of social justice under Sec. 4 of
Article XIII of the Constitution. Albeit land ownership for the landless appears to be the
dominant theme of that policy, We emphasize that Sec. 4, Article XIII of the Constitution, as
couched, does not constrict Congress to passing an agrarian reform law planted on direct
land transfer to and ownership by farmers and no other, or else the enactment suffers from
the vice of unconstitutionality. If the intention were otherwise, the framers of the Constitution
would have worded said section in a manner mandatory in character.

For this Court, Sec. 31 of RA 6657, with its direct and indirect transfer features, is not
inconsistent with the State’s commitment to farmers and farmworkers to advance their
interests under the policy of social justice. The legislature, thru Sec. 31 of RA 6657, has
chosen a modality for collective ownership by which the imperatives of social justice may, in
its estimation, be approximated, if not achieved. The Court should be bound by such policy
choice.

FARM contends that the farmers in the stock distribution scheme under Sec. 31 do not own
the agricultural land but are merely given stock certificates. Thus, the farmers lose control
over the land to the board of directors and executive officials of the corporation who actually
manage the land. They conclude that such arrangement runs counter to the mandate of the
Constitution that any agrarian reform must preserve the control over the land in the hands of
the tiller.

This contention has no merit.

While it is true that the farmer is issued stock certificates and does not directly own the land,
still, the Corporation Code is clear that the FWB becomes a stockholder who acquires an
equitable interest in the assets of the corporation, which include the agricultural lands. It was
explained that the "equitable interest of the shareholder in the property of the corporation is
represented by the term stock, and the extent of his interest is described by the term shares.
The expression shares of stock when qualified by words indicating number and ownership
expresses the extent of the owner’s interest in the corporate property." 119 A share of stock
typifies an aliquot part of the corporation’s property, or the right to share in its proceeds to
that extent when distributed according to law and equity and that its holder is not the owner
of any part of the capital of the corporation. 120 However, the FWBs will ultimately own the
agricultural lands owned by the corporation when the corporation is eventually dissolved and
liquidated.

Anent the alleged loss of control of the farmers over the agricultural land operated and
managed by the corporation, a reading of the second paragraph of Sec. 31 shows otherwise.
Said provision provides that qualified beneficiaries have "the right to purchase such
proportion of the capital stock of the corporation that the agricultural land, actually devoted to
agricultural activities, bears in relation to the company’s total assets." The wording of the
formula in the computation of the number of shares that can be bought by the farmers does
not mean loss of control on the part of the farmers. It must be remembered that the
determination of the percentage of the capital stock that can be bought by the farmers
depends on the value of the agricultural land and the value of the total assets of the
corporation.

There is, thus, nothing unconstitutional in the formula prescribed by RA 6657. The policy on
agrarian reform is that control over the agricultural land must always be in the hands of the
farmers. Then it falls on the shoulders of DAR and PARC to see to it the farmers should
always own majority of the common shares entitled to elect the members of the board of
directors to ensure that the farmers will have a clear majority in the board. Before the SDP is
approved, strict scrutiny of the proposed SDP must always be undertaken by the DAR and
PARC, such that the value of the agricultural land contributed to the corporation must always
be more than 50% of the total assets of the corporation to ensure that the majority of the
members of the board of directors are composed of the farmers. The PARC composed of the
President of the Philippines and cabinet secretaries must see to it that control over the board
of directors rests with the farmers by rejecting the inclusion of non-agricultural assets which
will yield the majority in the board of directors to non-farmers. Any deviation, however, by
PARC or DAR from the correct application of the formula prescribed by the second
paragraph of Sec. 31 of RA 6675 does not make said provision constitutionally infirm.
Rather, it is the application of said provision that can be challenged. Ergo, Sec. 31 of RA
6657 does not trench on the constitutional policy of ensuring control by the farmers.

A view has been advanced that there can be no agrarian reform unless there is land
distribution and that actual land distribution is the essential characteristic of a constitutional
agrarian reform program. On the contrary, there have been so many instances where,
despite actual land distribution, the implementation of agrarian reform was still unsuccessful.
As a matter of fact, this Court may take judicial notice of cases where FWBs sold the
awarded land even to non-qualified persons and in violation of the prohibition period
provided under the law. This only proves to show that the mere fact that there is land
distribution does not guarantee a successful implementation of agrarian reform.

As it were, the principle of "land to the tiller" and the old pastoral model of land ownership
where non-human juridical persons, such as corporations, were prohibited from owning
agricultural lands are no longer realistic under existing conditions. Practically, an individual
farmer will often face greater disadvantages and difficulties than those who exercise
ownership in a collective manner through a cooperative or corporation. The former is too
often left to his own devices when faced with failing crops and bad weather, or compelled to
obtain usurious loans in order to purchase costly fertilizers or farming equipment. The
experiences learned from failed land reform activities in various parts of the country are lack
of financing, lack of farm equipment, lack of fertilizers, lack of guaranteed buyers of produce,
lack of farm-to-market roads, among others. Thus, at the end of the day, there is still no
successful implementation of agrarian reform to speak of in such a case.

Although success is not guaranteed, a cooperative or a corporation stands in a better

position to secure funding and competently maintain the agri-business than the individual
farmer. While direct singular ownership over farmland does offer advantages, such as the
ability to make quick decisions unhampered by interference from others, yet at best, these
advantages only but offset the disadvantages that are often associated with such ownership
arrangement. Thus, government must be flexible and creative in its mode of implementation
to better its chances of success. One such option is collective ownership through juridical
persons composed of farmers.

Aside from the fact that there appears to be no violation of the Constitution, the requirement
that the instant case be capable of repetition yet evading review is also wanting. It would be
speculative for this Court to assume that the legislature will enact another law providing for a
similar stock option.

As a matter of sound practice, the Court will not interfere inordinately with the exercise by
Congress of its official functions, the heavy presumption being that a law is the product of
earnest studies by Congress to ensure that no constitutional prescription or concept is
infringed.121 Corollarily, courts will not pass upon questions of wisdom, expediency and
justice of legislation or its provisions. Towards this end, all reasonable doubts should be
resolved in favor of the constitutionality of a law and the validity of the acts and processes
taken pursuant thereof.122

Consequently, before a statute or its provisions duly challenged are voided, an unequivocal
breach of, or a clear conflict with the Constitution, not merely a doubtful or argumentative
one, must be demonstrated in such a manner as to leave no doubt in the mind of the Court.
In other words, the grounds for nullity must be beyond reasonable doubt. 123 FARM has not
presented compelling arguments to overcome the presumption of constitutionality of Sec. 31
of RA 6657.

The wisdom of Congress in allowing an SDP through a corporation as an alternative mode of

implementing agrarian reform is not for judicial determination. Established jurisprudence tells
us that it is not within the province of the Court to inquire into the wisdom of the law, for,
indeed, We are bound by words of the statute. 124

II.

The stage is now set for the determination of the propriety under the premises of the
revocation or recall of HLI’s SDP. Or to be more precise, the inquiry should be: whether or
not PARC gravely abused its discretion in revoking or recalling the subject SDP and placing
the hacienda under CARP’s compulsory acquisition and distribution scheme.

The findings, analysis and recommendation of the DAR’s Special Task Force contained and
summarized in its Terminal Report provided the bases for the assailed PARC
revocatory/recalling Resolution. The findings may be grouped into two: (1) the SDP is
contrary to either the policy on agrarian reform, Sec. 31 of RA 6657, or DAO 10; and (2) the
alleged violation by HLI of the conditions/terms of the SDP. In more particular terms, the
following are essentially the reasons underpinning PARC’s revocatory or recall action:

(1) Despite the lapse of 16 years from the approval of HLI’s SDP, the lives of the
FWBs have hardly improved and the promised increased income has not
materialized;

(2) HLI has failed to keep Hacienda Luisita intact and unfragmented;

(3) The issuance of HLI shares of stock on the basis of number of hours worked––or
the so-called "man days"––is grossly onerous to the FWBs, as HLI, in the guise of
rotation, can unilaterally deny work to anyone. In elaboration of this ground, PARC’s
Resolution No. 2006-34-01, denying HLI’s motion for reconsideration of Resolution
No. 2005-32-01, stated that the man days criterion worked to dilute the entitlement of
the original share beneficiaries;125

(4) The distribution/transfer of shares was not in accordance with the timelines fixed
by law;

(5) HLI has failed to comply with its obligations to grant 3% of the gross sales every
year as production-sharing benefit on top of the workers’ salary; and

(6) Several homelot awardees have yet to receive their individual titles.
Petitioner HLI claims having complied with, at least substantially, all its obligations under the
SDP, as approved by PARC itself, and tags the reasons given for the revocation of the SDP
as unfounded.

Public respondents, on the other hand, aver that the assailed resolution rests on solid
grounds set forth in the Terminal Report, a position shared by AMBALA, which, in some
pleadings, is represented by the same counsel as that appearing for the Supervisory Group.

FARM, for its part, posits the view that legal bases obtain for the revocation of the SDP,
because it does not conform to Sec. 31 of RA 6657 and DAO 10. And training its sight on the
resulting dilution of the equity of the FWBs appearing in HLI’s masterlist, FARM would state
that the SDP, as couched and implemented, spawned disparity when there should be none;
parity when there should have been differentiation. 126

The petition is not impressed with merit.

In the Terminal Report adopted by PARC, it is stated that the SDP violates the agrarian
reform policy under Sec. 2 of RA 6657, as the said plan failed to enhance the dignity and
improve the quality of lives of the FWBs through greater productivity of agricultural lands. We
disagree.

Sec. 2 of RA 6657 states:

SECTION 2. Declaration of Principles and Policies.¾It is the policy of the State to pursue a
Comprehensive Agrarian Reform Program (CARP). The welfare of the landless farmers and
farm workers will receive the highest consideration to promote social justice and to move the
nation towards sound rural development and industrialization, and the establishment of
owner cultivatorship of economic-sized farms as the basis of Philippine agriculture.

To this end, a more equitable distribution and ownership of land, with due regard to the rights
of landowners to just compensation and to the ecological needs of the nation, shall be
undertaken to provide farmers and farm workers with the opportunity to enhance their dignity
and improve the quality of their lives through greater productivity of agricultural lands.

The agrarian reform program is founded on the right of farmers and regular farm workers,
who are landless, to own directly or collectively the lands they till or, in the case of other farm
workers, to receive a share of the fruits thereof. To this end, the State shall encourage the
just distribution of all agricultural lands, subject to the priorities and retention limits set forth in
this Act, having taken into account ecological, developmental, and equity considerations, and
subject to the payment of just compensation. The State shall respect the right of small
landowners and shall provide incentives for voluntary land-sharing. (Emphasis supplied.)

Paragraph 2 of the above-quoted provision specifically mentions that "a more equitable
distribution and ownership of land x x x shall be undertaken to provide farmers and farm
workers with the opportunity to enhance their dignity and improve the quality of their lives
through greater productivity of agricultural lands." Of note is the term "opportunity" which is
defined as a favorable chance or opening offered by circumstances. 127 Considering this, by
no stretch of imagination can said provision be construed as a guarantee in improving the
lives of the FWBs. At best, it merely provides for a possibility or favorable chance of uplifting
the economic status of the FWBs, which may or may not be attained.
Pertinently, improving the economic status of the FWBs is neither among the legal
obligations of HLI under the SDP nor an imperative imposition by RA 6657 and DAO 10, a
violation of which would justify discarding the stock distribution option. Nothing in that option
agreement, law or department order indicates otherwise.

Significantly, HLI draws particular attention to its having paid its FWBs, during the regime of
the SDP (1989-2005), some PhP 3 billion by way of salaries/wages and higher benefits
exclusive of free hospital and medical benefits to their immediate family. And attached as
Annex "G" to HLI’s Memorandum is the certified true report of the finance manager of Jose
Cojuangco & Sons Organizations-Tarlac Operations, captioned as "HACIENDA LUISITA,
INC. Salaries, Benefits and Credit Privileges (in Thousand Pesos) Since the Stock Option
was Approved by PARC/CARP," detailing what HLI gave their workers from 1989 to 2005.
The sum total, as added up by the Court, yields the following numbers: Total Direct Cash Out
(Salaries/Wages & Cash Benefits) = PhP 2,927,848; Total Non-Direct Cash Out
(Hospital/Medical Benefits) = PhP 303,040. The cash out figures, as stated in the report,
include the cost of homelots; the PhP 150 million or so representing 3% of the gross produce
of the hacienda; and the PhP 37.5 million representing 3% from the proceeds of the sale of
the 500-hectare converted lands. While not included in the report, HLI manifests having
given the FWBs 3% of the PhP 80 million paid for the 80 hectares of land traversed by the
SCTEX.128 On top of these, it is worth remembering that the shares of stocks were given by
HLI to the FWBs for free. Verily, the FWBs have benefited from the SDP.

To address urgings that the FWBs be allowed to disengage from the SDP as HLI has not
anyway earned profits through the years, it cannot be over-emphasized that, as a matter of
common business sense, no corporation could guarantee a profitable run all the time. As has
been suggested, one of the key features of an SDP of a corporate landowner is the
likelihood of the corporate vehicle not earning, or, worse still, losing money. 129

The Court is fully aware that one of the criteria under DAO 10 for the PARC to consider the
advisability of approving a stock distribution plan is the likelihood that the plan "would result
in increased income and greater benefits to [qualified beneficiaries] than if the lands were
divided and distributed to them individually."130 But as aptly noted during the oral arguments,
DAO 10 ought to have not, as it cannot, actually exact assurance of success on something
that is subject to the will of man, the forces of nature or the inherent risky nature of
business.131 Just like in actual land distribution, an SDP cannot guarantee, as indeed the
SDOA does not guarantee, a comfortable life for the FWBs. The Court can take judicial
notice of the fact that there were many instances wherein after a farmworker beneficiary has
been awarded with an agricultural land, he just subsequently sells it and is eventually left
with nothing in the end.

In all then, the onerous condition of the FWBs’ economic status, their life of hardship, if that
really be the case, can hardly be attributed to HLI and its SDP and provide a valid ground for
the plan’s revocation.

Neither does HLI’s SDP, whence the DAR-attested SDOA/MOA is based, infringe Sec. 31 of
RA 6657, albeit public respondents erroneously submit otherwise.

The provisions of the first paragraph of the adverted Sec. 31 are without relevance to the
issue on the propriety of the assailed order revoking HLI’s SDP, for the paragraph deals with
the transfer of agricultural lands to the government, as a mode of CARP compliance, thus:
SEC. 31. Corporate Landowners.¾Corporate landowners may voluntarily transfer ownership
over their agricultural landholdings to the Republic of the Philippines pursuant to Section 20
hereof or to qualified beneficiaries under such terms and conditions, consistent with this Act,
as they may agree, subject to confirmation by the DAR.

The second and third paragraphs, with their sub-paragraphs, of Sec. 31 provide as follows:

Upon certification by the DAR, corporations owning agricultural lands may give their
qualified beneficiaries the right to purchase such proportion of the capital stock of the
corporation that the agricultural land, actually devoted to agricultural activities, bears
in relation to the company’s total assets, under such terms and conditions as may be
agreed upon by them. In no case shall the compensation received by the workers at the time
the shares of stocks are distributed be reduced. x x x

Corporations or associations which voluntarily divest a proportion of their capital stock, equity
or participation in favor of their workers or other qualified beneficiaries under this section
shall be deemed to have complied with the provisions of this Act: Provided, That the
following conditions are complied with:

(a) In order to safeguard the right of beneficiaries who own shares of stocks to
dividends and other financial benefits, the books of the corporation or association
shall be subject to periodic audit by certified public accountants chosen by the
beneficiaries;

(b) Irrespective of the value of their equity in the corporation or association, the
beneficiaries shall be assured of at least one (1) representative in the board of
directors, or in a management or executive committee, if one exists, of the
corporation or association;

(c) Any shares acquired by such workers and beneficiaries shall have the same
rights and features as all other shares; and

(d) Any transfer of shares of stocks by the original beneficiaries shall be void ab initio
unless said transaction is in favor of a qualified and registered beneficiary within the
same corporation.

The mandatory minimum ratio of land-to-shares of stock supposed to be distributed or

allocated to qualified beneficiaries, adverting to what Sec. 31 of RA 6657 refers to as that
"proportion of the capital stock of the corporation that the agricultural land, actually devoted
to agricultural activities, bears in relation to the company’s total assets" had been observed.

Paragraph one (1) of the SDOA, which was based on the SDP, conforms to Sec. 31 of RA
6657. The stipulation reads:

1. The percentage of the value of the agricultural land of Hacienda Luisita (P196,630,000.00)
in relation to the total assets (P590,554,220.00) transferred and conveyed to the SECOND
PARTY is 33.296% that, under the law, is the proportion of the outstanding capital stock of
the SECOND PARTY, which is P355,531,462.00 or 355,531,462 shares with a par value of
P1.00 per share, that has to be distributed to the THIRD PARTY under the stock distribution
plan, the said 33.296% thereof being P118,391,976.85 or 118,391,976.85 shares.
The appraised value of the agricultural land is PhP 196,630,000 and of HLI’s other assets is
PhP 393,924,220. The total value of HLI’s assets is, therefore, PhP 590,554,220. 132 The
percentage of the value of the agricultural lands (PhP 196,630,000) in relation to the total
assets (PhP 590,554,220) is 33.296%, which represents the stockholdings of the 6,296
original qualified farmworker-beneficiaries (FWBs) in HLI. The total number of shares to be
distributed to said qualified FWBs is 118,391,976.85 HLI shares. This was arrived at by
getting 33.296% of the 355,531,462 shares which is the outstanding capital stock of HLI with
a value of PhP 355,531,462. Thus, if we divide the 118,391,976.85 HLI shares by 6,296
FWBs, then each FWB is entitled to 18,804.32 HLI shares. These shares under the SDP are
to be given to FWBs for free.

The Court finds that the determination of the shares to be distributed to the 6,296 FWBs
strictly adheres to the formula prescribed by Sec. 31(b) of RA 6657.

Anent the requirement under Sec. 31(b) of the third paragraph, that the FWBs shall be
assured of at least one (1) representative in the board of directors or in a management or
executive committee irrespective of the value of the equity of the FWBs in HLI, the Court
finds that the SDOA contained provisions making certain the FWBs’ representation in HLI’s
governing board, thus:

5. Even if only a part or fraction of the shares earmarked for distribution will have been
acquired from the FIRST PARTY and distributed to the THIRD PARTY, FIRST PARTY shall
execute at the beginning of each fiscal year an irrevocable proxy, valid and effective for one
(1) year, in favor of the farmworkers appearing as shareholders of the SECOND PARTY at
the start of said year which will empower the THIRD PARTY or their representative to vote in
stockholders’ and board of directors’ meetings of the SECOND PARTY convened during the
year the entire 33.296% of the outstanding capital stock of the SECOND PARTY earmarked
for distribution and thus be able to gain such number of seats in the board of directors of the
SECOND PARTY that the whole 33.296% of the shares subject to distribution will be entitled
to.

Also, no allegations have been made against HLI restricting the inspection of its books by
accountants chosen by the FWBs; hence, the assumption may be made that there has been
no violation of the statutory prescription under sub-paragraph (a) on the auditing of HLI’s
accounts.

Public respondents, however, submit that the distribution of the mandatory minimum ratio of
land-to-shares of stock, referring to the 118,391,976.85 shares with par value of PhP 1 each,
should have been made in full within two (2) years from the approval of RA 6657, in line with
the last paragraph of Sec. 31 of said law.133

Public respondents’ submission is palpably erroneous. We have closely examined the last
paragraph alluded to, with particular focus on the two-year period mentioned, and nothing in
it remotely supports the public respondents’ posture. In its pertinent part, said Sec. 31
provides:

SEC. 31. Corporate Landowners x x x

If within two (2) years from the approval of this Act, the [voluntary] land or stock transfer
envisioned above is not made or realized or the plan for such stock distribution approved by
the PARC within the same period, the agricultural land of the corporate owners or
corporation shall be subject to the compulsory coverage of this Act. (Word in bracket and
emphasis added.)

Properly viewed, the words "two (2) years" clearly refer to the period within which the
corporate landowner, to avoid land transfer as a mode of CARP coverage under RA 6657, is
to avail of the stock distribution option or to have the SDP approved. The HLI secured
approval of its SDP in November 1989, well within the two-year period reckoned from June
1988 when RA 6657 took effect.

Having hurdled the alleged breach of the agrarian reform policy under Sec. 2 of RA 6657 as
well as the statutory issues, We shall now delve into what PARC and respondents deem to
be other instances of violation of DAO 10 and the SDP.

On the Conversion of Lands

Contrary to the almost parallel stance of the respondents, keeping Hacienda Luisita
unfragmented is also not among the imperative impositions by the SDP, RA 6657, and DAO
10.

The Terminal Report states that the proposed distribution plan submitted in 1989 to the
PARC effectively assured the intended stock beneficiaries that the physical integrity of the
farm shall remain inviolate. Accordingly, the Terminal Report and the PARC-assailed
resolution would take HLI to task for securing approval of the conversion to non-agricultural
uses of 500 hectares of the hacienda. In not too many words, the Report and the resolution
view the conversion as an infringement of Sec. 5(a) of DAO 10 which reads: "a. that the
continued operation of the corporation with its agricultural land intact and unfragmented is
viable with potential for growth and increased profitability."

The PARC is wrong.

In the first place, Sec. 5(a)––just like the succeeding Sec. 5(b) of DAO 10 on increased
income and greater benefits to qualified beneficiaries––is but one of the stated criteria to
guide PARC in deciding on whether or not to accept an SDP. Said Sec. 5(a) does not exact
from the corporate landowner-applicant the undertaking to keep the farm intact and
unfragmented ad infinitum. And there is logic to HLI’s stated observation that the key phrase
in the provision of Sec. 5(a) is "viability of corporate operations": "[w]hat is thus required is
not the agricultural land remaining intact x x x but the viability of the corporate operations
with its agricultural land being intact and unfragmented. Corporate operation may be viable
even if the corporate agricultural land does not remain intact or [un]fragmented." 134

It is, of course, anti-climactic to mention that DAR viewed the conversion as not violative of
any issuance, let alone undermining the viability of Hacienda Luisita’s operation, as the DAR
Secretary approved the land conversion applied for and its disposition via his Conversion
Order dated August 14, 1996 pursuant to Sec. 65 of RA 6657 which reads:

Sec. 65. Conversion of Lands.¾After the lapse of five years from its award when the land
ceases to be economically feasible and sound for agricultural purposes, or the locality has
become urbanized and the land will have a greater economic value for residential,
commercial or industrial purposes, the DAR upon application of the beneficiary or landowner
with due notice to the affected parties, and subject to existing laws, may authorize the x x x
conversion of the land and its dispositions. x x x
On the 3% Production Share

On the matter of the alleged failure of HLI to comply with sharing the 3% of the gross
production sales of the hacienda and pay dividends from profit, the entries in its financial
books tend to indicate compliance by HLI of the profit-sharing equivalent to 3% of the gross
sales from the production of the agricultural land on top of (a) the salaries and wages due
FWBs as employees of the company and (b) the 3% of the gross selling price of the
converted land and that portion used for the SCTEX. A plausible evidence of compliance or
non-compliance, as the case may be, could be the books of account of HLI. Evidently, the
cry of some groups of not having received their share from the gross production sales has
not adequately been validated on the ground by the Special Task Force.

Indeed, factual findings of administrative agencies are conclusive when supported by

substantial evidence and are accorded due respect and weight, especially when they are
affirmed by the CA.135 However, such rule is not absolute. One such exception is when the
findings of an administrative agency are conclusions without citation of specific evidence on
which they are based,136 such as in this particular instance. As culled from its Terminal
Report, it would appear that the Special Task Force rejected HLI’s claim of compliance on
the basis of this ratiocination:

 The Task Force position: Though, allegedly, the Supervisory Group receives the 3%
gross production share and that others alleged that they received 30 million pesos
still others maintain that they have not received anything yet. Item No. 4 of the MOA
is clear and must be followed. There is a distinction between the total gross sales
from the production of the land and the proceeds from the sale of the land. The
former refers to the fruits/yield of the agricultural land while the latter is the land itself.
The phrase "the beneficiaries are entitled every year to an amount approximately
equivalent to 3% would only be feasible if the subject is the produce since there is at
least one harvest per year, while such is not the case in the sale of the agricultural
land. This negates then the claim of HLI that, all that the FWBs can be entitled to, if
any, is only 3% of the purchase price of the converted land.
 Besides, the Conversion Order dated 14 August 1996 provides that "the benefits,
wages and the like, presently received by the FWBs shall not in any way be reduced
or adversely affected. Three percent of the gross selling price of the sale of the
converted land shall be awarded to the beneficiaries of the SDO." The 3% gross
production share then is different from the 3% proceeds of the sale of the converted
land and, with more reason, the 33% share being claimed by the FWBs as part
owners of the Hacienda, should have been given the FWBs, as stockholders, and to
which they could have been entitled if only the land were acquired and redistributed
to them under the CARP.

xxxx

 The FWBs do not receive any other benefits under the MOA except the
aforementioned [(viz: shares of stocks (partial), 3% gross production sale (not all)
and homelots (not all)].

Judging from the above statements, the Special Task Force is at best silent on whether HLI
has failed to comply with the 3% production-sharing obligation or the 3% of the gross selling
price of the converted land and the SCTEX lot. In fact, it admits that the FWBs, though not
all, have received their share of the gross production sales and in the sale of the lot to
SCTEX. At most, then, HLI had complied substantially with this SDP undertaking and the
conversion order. To be sure, this slight breach would not justify the setting to naught by
PARC of the approval action of the earlier PARC. Even in contract law, rescission,
predicated on violation of reciprocity, will not be permitted for a slight or casual breach of
contract; rescission may be had only for such breaches that are substantial and fundamental
as to defeat the object of the parties in making the agreement. 137

Despite the foregoing findings, the revocation of the approval of the SDP is not without basis
as shown below.

On Titles to Homelots

Under RA 6657, the distribution of homelots is required only for corporations or business
associations owning or operating farms which opted for land distribution. Sec. 30 of RA 6657
states:

SEC. 30. Homelots and Farmlots for Members of Cooperatives.¾The individual members of
the cooperatives or corporations mentioned in the preceding section shall be provided with
homelots and small farmlots for their family use, to be taken from the land owned by the
cooperative or corporation.

The "preceding section" referred to in the above-quoted provision is as follows:

SEC. 29. Farms Owned or Operated by Corporations or Other Business Associations.¾In

the case of farms owned or operated by corporations or other business associations, the
following rules shall be observed by the PARC.

In general, lands shall be distributed directly to the individual worker-beneficiaries.

In case it is not economically feasible and sound to divide the land, then it shall be owned
collectively by the worker-beneficiaries who shall form a workers’ cooperative or association
which will deal with the corporation or business association. Until a new agreement is
entered into by and between the workers’ cooperative or association and the corporation or
business association, any agreement existing at the time this Act takes effect between the
former and the previous landowner shall be respected by both the workers’ cooperative or
association and the corporation or business association.

Noticeably, the foregoing provisions do not make reference to corporations which opted for
stock distribution under Sec. 31 of RA 6657. Concomitantly, said corporations are not
obliged to provide for it except by stipulation, as in this case.

Under the SDP, HLI undertook to "subdivide and allocate for free and without charge among
the qualified family-beneficiaries x x x residential or homelots of not more than 240 sq. m.
each, with each family beneficiary being assured of receiving and owning a homelot in the
barrio or barangay where it actually resides," "within a reasonable time."

More than sixteen (16) years have elapsed from the time the SDP was approved by PARC,
and yet, it is still the contention of the FWBs that not all was given the 240-square meter
homelots and, of those who were already given, some still do not have the corresponding
titles.
During the oral arguments, HLI was afforded the chance to refute the foregoing allegation by
submitting proof that the FWBs were already given the said homelots:

Justice Velasco: x x x There is also an allegation that the farmer beneficiaries, the qualified
family beneficiaries were not given the 240 square meters each. So, can you also [prove]
that the qualified family beneficiaries were already provided the 240 square meter homelots.

Atty. Asuncion: We will, your Honor please.138

Other than the financial report, however, no other substantial proof showing that all the
qualified beneficiaries have received homelots was submitted by HLI. Hence, this Court is
constrained to rule that HLI has not yet fully complied with its undertaking to distribute
homelots to the FWBs under the SDP.

On "Man Days" and the Mechanics of Stock Distribution

In our review and analysis of par. 3 of the SDOA on the mechanics and timelines of stock
distribution, We find that it violates two (2) provisions of DAO 10. Par. 3 of the SDOA states:

3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY [HLI] shall
arrange with the FIRST PARTY [TDC] the acquisition and distribution to the THIRD PARTY
[FWBs] on the basis of number of days worked and at no cost to them of one-thirtieth (1/30)
of 118,391,976.85 shares of the capital stock of the SECOND PARTY that are presently
owned and held by the FIRST PARTY, until such time as the entire block of 118,391,976.85
shares shall have been completely acquired and distributed to the THIRD PARTY.

Based on the above-quoted provision, the distribution of the shares of stock to the FWBs,
albeit not entailing a cash out from them, is contingent on the number of "man days," that is,
the number of days that the FWBs have worked during the year. This formula deviates from
Sec. 1 of DAO 10, which decrees the distribution of equal number of shares to the FWBs as
the minimum ratio of shares of stock for purposes of compliance with Sec. 31 of RA 6657. As
stated in Sec. 4 of DAO 10:

Section 4. Stock Distribution Plan.¾The [SDP] submitted by the corporate landowner-

applicant shall provide for the distribution of an equal number of shares of the same class
and value, with the same rights and features as all other shares, to each of the qualified
beneficiaries. This distribution plan in all cases, shall be at least the minimum ratio for
purposes of compliance with Section 31 of R.A. No. 6657.

On top of the minimum ratio provided under Section 3 of this Implementing Guideline, the
corporate landowner-applicant may adopt additional stock distribution schemes taking into
account factors such as rank, seniority, salary, position and other circumstances which may
be deemed desirable as a matter of sound company policy. (Emphasis supplied.)

The above proviso gives two (2) sets or categories of shares of stock which a qualified
beneficiary can acquire from the corporation under the SDP. The first pertains, as earlier
explained, to the mandatory minimum ratio of shares of stock to be distributed to the FWBs
in compliance with Sec. 31 of RA 6657. This minimum ratio contemplates of that "proportion
of the capital stock of the corporation that the agricultural land, actually devoted to
agricultural activities, bears in relation to the company’s total assets."139 It is this set of shares
of stock which, in line with Sec. 4 of DAO 10, is supposed to be allocated "for the distribution
of an equal number of shares of stock of the same class and value, with the same rights and
features as all other shares, to each of the qualified beneficiaries."

On the other hand, the second set or category of shares partakes of a gratuitous extra grant,
meaning that this set or category constitutes an augmentation share/s that the corporate
landowner may give under an additional stock distribution scheme, taking into account such
variables as rank, seniority, salary, position and like factors which the management, in the
exercise of its sound discretion, may deem desirable. 140

Before anything else, it should be stressed that, at the time PARC approved HLI’s SDP, HLI
recognized 6,296individuals as qualified FWBs. And under the 30-year stock distribution
program envisaged under the plan, FWBs who came in after 1989, new FWBs in fine, may
be accommodated, as they appear to have in fact been accommodated as evidenced by
their receipt of HLI shares.

Now then, by providing that the number of shares of the original 1989 FWBs shall depend on
the number of "man days," HLI violated the afore-quoted rule on stock distribution and
effectively deprived the FWBs of equal shares of stock in the corporation, for, in net effect,
these 6,296 qualified FWBs, who theoretically had given up their rights to the land that could
have been distributed to them, suffered a dilution of their due share entitlement. As has been
observed during the oral arguments, HLI has chosen to use the shares earmarked for
farmworkers as reward system chips to water down the shares of the original 6,296
FWBs.141 Particularly:

Justice Abad: If the SDOA did not take place, the other thing that would have happened is
that there would be CARP?

Atty. Dela Merced: Yes, Your Honor.

Justice Abad: That’s the only point I want to know x x x. Now, but they chose to enter SDOA
instead of placing the land under CARP. And for that reason those who would have gotten
their shares of the land actually gave up their rights to this land in place of the shares of the
stock, is that correct?

Atty. Dela Merced: It would be that way, Your Honor.

Justice Abad: Right now, also the government, in a way, gave up its right to own the land
because that way the government takes own [sic] the land and distribute it to the farmers and
pay for the land, is that correct?

Atty. Dela Merced: Yes, Your Honor.

Justice Abad: And then you gave thirty-three percent (33%) of the shares of HLI to the
farmers at that time that numbered x x x those who signed five thousand four hundred ninety
eight (5,498) beneficiaries, is that correct?

Atty. Dela Merced: Yes, Your Honor.

Justice Abad: But later on, after assigning them their shares, some workers came in from
1989, 1990, 1991, 1992 and the rest of the years that you gave additional shares who were
not in the original list of owners?
Atty. Dela Merced: Yes, Your Honor.

Justice Abad: Did those new workers give up any right that would have belong to them in
1989 when the land was supposed to have been placed under CARP?

Atty. Dela Merced: If you are talking or referring… (interrupted)

Justice Abad: None! You tell me. None. They gave up no rights to land?

Atty. Dela Merced: They did not do the same thing as we did in 1989, Your Honor.

Justice Abad: No, if they were not workers in 1989 what land did they give up? None, if they
become workers later on.

Atty. Dela Merced: None, Your Honor, I was referring, Your Honor, to the original…
(interrupted)

Justice Abad: So why is it that the rights of those who gave up their lands would be diluted,
because the company has chosen to use the shares as reward system for new workers who
come in? It is not that the new workers, in effect, become just workers of the corporation
whose stockholders were already fixed. The TADECO who has shares there about sixty six
percent (66%) and the five thousand four hundred ninety eight (5,498) farmers at the time of
the SDOA? Explain to me. Why, why will you x x x what right or where did you get that right
to use this shares, to water down the shares of those who should have been benefited, and
to use it as a reward system decided by the company? 142

From the above discourse, it is clear as day that the original 6,296 FWBs, who were qualified
beneficiaries at the time of the approval of the SDP, suffered from watering down of shares.
As determined earlier, each original FWB is entitled to 18,804.32 HLI shares. The original
FWBs got less than the guaranteed 18,804.32 HLI shares per beneficiary, because the
acquisition and distribution of the HLI shares were based on "man days" or "number of days
worked" by the FWB in a year’s time. As explained by HLI, a beneficiary needs to work for at
least 37 days in a fiscal year before he or she becomes entitled to HLI shares. If it falls below
37 days, the FWB, unfortunately, does not get any share at year end. The number of HLI
shares distributed varies depending on the number of days the FWBs were allowed to work
in one year. Worse, HLI hired farmworkers in addition to the original 6,296 FWBs, such that,
as indicated in the Compliance dated August 2, 2010 submitted by HLI to the Court, the total
number of farmworkers of HLI as of said date stood at 10,502. All these farmworkers, which
include the original 6,296 FWBs, were given shares out of the 118,931,976.85 HLI shares
representing the 33.296% of the total outstanding capital stock of HLI. Clearly, the minimum
individual allocation of each original FWB of 18,804.32 shares was diluted as a result of the
use of "man days" and the hiring of additional farmworkers.

Going into another but related matter, par. 3 of the SDOA expressly providing for a 30-year
timeframe for HLI-to-FWBs stock transfer is an arrangement contrary to what Sec. 11 of
DAO 10 prescribes. Said Sec. 11 provides for the implementation of the approved stock
distribution plan within three (3) months from receipt by the corporate landowner of the
approval of the plan by PARC. In fact, based on the said provision, the transfer of the shares
of stock in the names of the qualified FWBs should be recorded in the stock and transfer
books and must be submitted to the SEC within sixty (60) days from implementation. As
stated:
Section 11. Implementation/Monitoring of Plan.¾The approved stock distribution plan shall
be implemented within three (3) months from receipt by the corporate landowner-applicant of
the approval thereof by the PARC, and the transfer of the shares of stocks in the names of
the qualified beneficiaries shall be recorded in stock and transfer books and submitted to the
Securities and Exchange Commission (SEC) within sixty (60) days from the said
implementation of the stock distribution plan. (Emphasis supplied.)

It is evident from the foregoing provision that the implementation, that is, the distribution of
the shares of stock to the FWBs, must be made within three (3) months from receipt by HLI
of the approval of the stock distribution plan by PARC. While neither of the clashing parties
has made a compelling case of the thrust of this provision, the Court is of the view and so
holds that the intent is to compel the corporate landowner to complete, not merely initiate,
the transfer process of shares within that three-month timeframe. Reinforcing this conclusion
is the 60-day stock transfer recording (with the SEC) requirement reckoned from the
implementation of the SDP.

To the Court, there is a purpose, which is at once discernible as it is practical, for the three-
month threshold. Remove this timeline and the corporate landowner can veritably evade
compliance with agrarian reform by simply deferring to absurd limits the implementation of
the stock distribution scheme.

The argument is urged that the thirty (30)-year distribution program is justified by the fact
that, under Sec. 26 of RA 6657, payment by beneficiaries of land distribution under CARP
shall be made in thirty (30) annual amortizations. To HLI, said section provides a justifying
dimension to its 30-year stock distribution program.

HLI’s reliance on Sec. 26 of RA 6657, quoted in part below, is obviously misplaced as the
said provision clearly deals with land distribution.

SEC. 26. Payment by Beneficiaries.¾Lands awarded pursuant to this Act shall be paid for by
the beneficiaries to the LBP in thirty (30) annual amortizations x x x.

Then, too, the ones obliged to pay the LBP under the said provision are the beneficiaries. On
the other hand, in the instant case, aside from the fact that what is involved is stock
distribution, it is the corporate landowner who has the obligation to distribute the shares of
stock among the FWBs.

Evidently, the land transfer beneficiaries are given thirty (30) years within which to pay the
cost of the land thus awarded them to make it less cumbersome for them to pay the
government. To be sure, the reason underpinning the 30-year accommodation does not
apply to corporate landowners in distributing shares of stock to the qualified beneficiaries, as
the shares may be issued in a much shorter period of time.

Taking into account the above discussion, the revocation of the SDP by PARC should be
upheld for violating DAO 10. It bears stressing that under Sec. 49 of RA 6657, the PARC and
the DAR have the power to issue rules and regulations, substantive or procedural. Being a
product of such rule-making power, DAO 10 has the force and effect of law and must be duly
complied with.143 The PARC is, therefore, correct in revoking the SDP. Consequently, the
PARC Resolution No. 89-12-2 dated November 21, l989 approving the HLI’s SDP is nullified
and voided.

III.
We now resolve the petitions-in-intervention which, at bottom, uniformly pray for the
exclusion from the coverage of the assailed PARC resolution those portions of the converted
land within Hacienda Luisita which RCBC and LIPCO acquired by purchase.

Both contend that they are innocent purchasers for value of portions of the converted farm
land. Thus, their plea for the exclusion of that portion from PARC Resolution 2005-32-01, as
implemented by a DAR-issued Notice of Coverage dated January 2, 2006, which called for
mandatory CARP acquisition coverage of lands subject of the SDP.

To restate the antecedents, after the conversion of the 500 hectares of land in Hacienda
Luisita, HLI transferred the 300 hectares to Centennary, while ceding the remaining 200-
hectare portion to LRC. Subsequently, LIPCO purchased the entire three hundred (300)
hectares of land from Centennary for the purpose of developing the land into an industrial
complex.144 Accordingly, the TCT in Centennary’s name was canceled and a new one issued
in LIPCO’s name. Thereafter, said land was subdivided into two (2) more parcels of land.
Later on, LIPCO transferred about 184 hectares to RCBC by way of dacion en pago, by
virtue of which TCTs in the name of RCBC were subsequently issued.

Under Sec. 44 of PD 1529 or the Property Registration Decree, "every registered owner
receiving a certificate of title in pursuance of a decree of registration and every subsequent
purchaser of registered land taking a certificate of title for value and in good faith shall hold
the same free from all encumbrances except those noted on the certificate and enumerated
therein."145

It is settled doctrine that one who deals with property registered under the Torrens system
need not go beyond the four corners of, but can rely on what appears on, the title. He is
charged with notice only of such burdens and claims as are annotated on the title. This
principle admits of certain exceptions, such as when the party has actual knowledge of facts
and circumstances that would impel a reasonably cautious man to make such inquiry, or
when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient
facts to induce a reasonably prudent man to inquire into the status of the title of the property
in litigation.146 A higher level of care and diligence is of course expected from banks, their
business being impressed with public interest.147

Millena v. Court of Appeals describes a purchaser in good faith in this wise:

x x x A purchaser in good faith is one who buys property of another, without notice that some
other person has a right to, or interest in, such property at the time of such purchase, or
before he has notice of the claim or interest of some other persons in the property. Good
faith, or the lack of it, is in the final analysis a question of intention; but in ascertaining the
intention by which one is actuated on a given occasion, we are necessarily controlled by the
evidence as to the conduct and outward acts by which alone the inward motive may, with
safety, be determined. Truly, good faith is not a visible, tangible fact that can be seen or
touched, but rather a state or condition of mind which can only be judged by actual or
fancied tokens or signs. Otherwise stated, good faith x x x refers to the state of mind which is
manifested by the acts of the individual concerned. 148 (Emphasis supplied.)

In fine, there are two (2) requirements before one may be considered a purchaser in good
faith, namely: (1) that the purchaser buys the property of another without notice that some
other person has a right to or interest in such property; and (2) that the purchaser pays a full
and fair price for the property at the time of such purchase or before he or she has notice of
the claim of another.
It can rightfully be said that both LIPCO and RCBC are––based on the above requirements
and with respect to the adverted transactions of the converted land in question––purchasers
in good faith for value entitled to the benefits arising from such status.

First, at the time LIPCO purchased the entire three hundred (300) hectares of industrial land,
there was no notice of any supposed defect in the title of its transferor, Centennary, or that
any other person has a right to or interest in such property. In fact, at the time LIPCO
acquired said parcels of land, only the following annotations appeared on the TCT in the
name of Centennary: the Secretary’s Certificate in favor of Teresita Lopa, the Secretary’s
Certificate in favor of Shintaro Murai, and the conversion of the property from agricultural to
industrial and residential use.149

The same is true with respect to RCBC. At the time it acquired portions of Hacienda Luisita,
only the following general annotations appeared on the TCTs of LIPCO: the Deed of
Restrictions, limiting its use solely as an industrial estate; the Secretary’s Certificate in favor
of Koji Komai and Kyosuke Hori; and the Real Estate Mortgage in favor of RCBC to
guarantee the payment of PhP 300 million.

It cannot be claimed that RCBC and LIPCO acted in bad faith in acquiring the lots that were
previously covered by the SDP. Good faith "consists in the possessor’s belief that the person
from whom he received it was the owner of the same and could convey his title. Good faith
requires a well-founded belief that the person from whom title was received was himself the
owner of the land, with the right to convey it. There is good faith where there is an honest
intention to abstain from taking any unconscientious advantage from another." 150 It is the
opposite of fraud.

To be sure, intervenor RCBC and LIPCO knew that the lots they bought were subjected to
CARP coverage by means of a stock distribution plan, as the DAR conversion order was
annotated at the back of the titles of the lots they acquired. However, they are of the honest
belief that the subject lots were validly converted to commercial or industrial purposes and
for which said lots were taken out of the CARP coverage subject of PARC Resolution No.
89-12-2 and, hence, can be legally and validly acquired by them. After all, Sec. 65 of RA
6657 explicitly allows conversion and disposition of agricultural lands previously covered by
CARP land acquisition "after the lapse of five (5) years from its award when the land ceases
to be economically feasible and sound for agricultural purposes or the locality has become
urbanized and the land will have a greater economic value for residential, commercial or
industrial purposes." Moreover, DAR notified all the affected parties, more particularly the
FWBs, and gave them the opportunity to comment or oppose the proposed conversion.
DAR, after going through the necessary processes, granted the conversion of 500 hectares
of Hacienda Luisita pursuant to its primary jurisdiction under Sec. 50 of RA 6657 to
determine and adjudicate agrarian reform matters and its original exclusive jurisdiction over
all matters involving the implementation of agrarian reform. The DAR conversion order
became final and executory after none of the FWBs interposed an appeal to the CA. In this
factual setting, RCBC and LIPCO purchased the lots in question on their honest and well-
founded belief that the previous registered owners could legally sell and convey the lots
though these were previously subject of CARP coverage. Ergo, RCBC and LIPCO acted in
good faith in acquiring the subject lots.

And second, both LIPCO and RCBC purchased portions of Hacienda Luisita for value.
Undeniably, LIPCO acquired 300 hectares of land from Centennary for the amount of PhP
750 million pursuant to a Deed of Sale dated July 30, 1998. 151 On the other hand, in a Deed
of Absolute Assignment dated November 25, 2004, LIPCO conveyed portions of Hacienda
Luisita in favor of RCBC by way of dacion en pago to pay for a loan of PhP 431,695,732.10.

As bona fide purchasers for value, both LIPCO and RCBC have acquired rights which cannot
just be disregarded by DAR, PARC or even by this Court. As held in Spouses Chua v.
Soriano:

With the property in question having already passed to the hands of purchasers in good
faith, it is now of no moment that some irregularity attended the issuance of the SPA,
consistent with our pronouncement in Heirs of Spouses Benito Gavino and Juana Euste v.
Court of Appeals, to wit:

x x x the general rule that the direct result of a previous void contract cannot be valid, is
inapplicable in this case as it will directly contravene the Torrens system of
registration. Where innocent third persons, relying on the correctness of the certificate
of title thus issued, acquire rights over the property, the court cannot disregard such
rights and order the cancellation of the certificate. The effect of such outright
cancellation will be to impair public confidence in the certificate of title. The sanctity of the
Torrens system must be preserved; otherwise, everyone dealing with the property registered
under the system will have to inquire in every instance as to whether the title had been
regularly or irregularly issued, contrary to the evident purpose of the law.

Being purchasers in good faith, the Chuas already acquired valid title to the property.
A purchaser in good faith holds an indefeasible title to the property and he is entitled
to the protection of the law.152 x x x (Emphasis supplied.)

To be sure, the practicalities of the situation have to a point influenced Our disposition on the
fate of RCBC and LIPCO. After all, the Court, to borrow from Association of Small
Landowners in the Philippines, Inc.,153 is not a "cloistered institution removed" from the
realities on the ground. To note, the approval and issuances of both the national and local
governments showing that certain portions of Hacienda Luisita have effectively ceased,
legally and physically, to be agricultural and, therefore, no longer CARPable are a matter of
fact which cannot just be ignored by the Court and the DAR. Among the approving/endorsing
issuances:154

(a) Resolution No. 392 dated 11 December 1996 of the Sangguniang Bayan of
Tarlac favorably endorsing the 300-hectare industrial estate project of LIPCO;

(b) BOI Certificate of Registration No. 96-020 dated 20 December 1996 issued in
accordance with the Omnibus Investments Code of 1987;

(c) PEZA Certificate of Board Resolution No. 97-202 dated 27 June 1997, approving
LIPCO’s application for a mixed ecozone and proclaiming the three hundred (300)
hectares of the industrial land as a Special Economic Zone;

(d) Resolution No. 234 dated 08 August 1997 of the Sangguniang Bayan of Tarlac,
approving the Final Development Permit for the Luisita Industrial Park II Project;

(e) Development Permit dated 13 August 1997 for the proposed Luisita Industrial
Park II Project issued by the Office of the Sangguniang Bayan of Tarlac; 155
 (f) DENR Environmental Compliance Certificate dated 01 October 1997 issued for
the proposed project of building an industrial complex on three hundred (300)
hectares of industrial land;156

(g) Certificate of Registration No. 00794 dated 26 December 1997 issued by the
HLURB on the project of Luisita Industrial Park II with an area of three million
(3,000,000) square meters;157

(h) License to Sell No. 0076 dated 26 December 1997 issued by the HLURB
authorizing the sale of lots in the Luisita Industrial Park II;

(i) Proclamation No. 1207 dated 22 April 1998 entitled "Declaring Certain Parcels of
Private Land in Barangay San Miguel, Municipality of Tarlac, Province of Tarlac, as a
Special Economic Zone pursuant to Republic Act No. 7916," designating the Luisita
Industrial Park II consisting of three hundred hectares (300 has.) of industrial land as
a Special Economic Zone; and

(j) Certificate of Registration No. EZ-98-05 dated 07 May 1998 issued by the PEZA,
stating that pursuant to Presidential Proclamation No. 1207 dated 22 April 1998 and
Republic Act No. 7916, LIPCO has been registered as an Ecozone
Developer/Operator of Luisita Industrial Park II located in San Miguel, Tarlac, Tarlac.

While a mere reclassification of a covered agricultural land or its inclusion in an economic

zone does not automatically allow the corporate or individual landowner to change its
use,158 the reclassification process is a prima facie indicium that the land has ceased to be
economically feasible and sound for agricultural uses. And if only to stress, DAR Conversion
Order No. 030601074-764-(95) issued in 1996 by then DAR Secretary Garilao had
effectively converted 500 hectares of hacienda land from agricultural to industrial/commercial
use and authorized their disposition.

In relying upon the above-mentioned approvals, proclamation and conversion order, both
RCBC and LIPCO cannot be considered at fault for believing that certain portions of
Hacienda Luisita are industrial/commercial lands and are, thus, outside the ambit of CARP.
The PARC, and consequently DAR, gravely abused its discretion when it placed LIPCO’s
and RCBC’s property which once formed part of Hacienda Luisita under the CARP
compulsory acquisition scheme via the assailed Notice of Coverage.

As regards the 80.51-hectare land transferred to the government for use as part of the
SCTEX, this should also be excluded from the compulsory agrarian reform coverage
considering that the transfer was consistent with the government’s exercise of the power of
eminent domain159 and none of the parties actually questioned the transfer.

While We affirm the revocation of the SDP on Hacienda Luisita subject of PARC Resolution
Nos. 2005-32-01 and 2006-34-01, the Court cannot close its eyes to certain "operative facts"
that had occurred in the interim. Pertinently, the "operative fact" doctrine realizes that, in
declaring a law or executive action null and void, or, by extension, no longer without force
and effect, undue harshness and resulting unfairness must be avoided. This is as it should
realistically be, since rights might have accrued in favor of natural or juridical persons and
obligations justly incurred in the meantime.160 The actual existence of a statute or executive
act is, prior to such a determination, an operative fact and may have consequences which
cannot justly be ignored; the past cannot always be erased by a new judicial declaration. 161
The oft-cited De Agbayani v. Philippine National Bank162 discussed the effect to be given to a
legislative or executive act subsequently declared invalid:

x x x It does not admit of doubt that prior to the declaration of nullity such challenged
legislative or executive act must have been in force and had to be complied with. This is so
as until after the judiciary, in an appropriate case, declares its invalidity, it is entitled to
obedience and respect. Parties may have acted under it and may have changed their
positions. What could be more fitting than that in a subsequent litigation regard be had to
what has been done while such legislative or executive act was in operation and presumed
to be valid in all respects. It is now accepted as a doctrine that prior to its being nullified, its
existence as a fact must be reckoned with. This is merely to reflect awareness that precisely
because the judiciary is the government organ which has the final say on whether or not a
legislative or executive measure is valid, a period of time may have elapsed before it can
exercise the power of judicial review that may lead to a declaration of nullity. It would be to
deprive the law of its quality of fairness and justice then, if there be no recognition of what
had transpired prior to such adjudication.

In the language of an American Supreme Court decision: "The actual existence of a statute,
prior to such a determination of [unconstitutionality], is an operative fact and may have
consequences which cannot justly be ignored. The past cannot always be erased by a new
judicial declaration. The effect of the subsequent ruling as to invalidity may have to be
considered in various aspects,––with respect to particular relations, individual and corporate,
and particular conduct, private and official." x x x

Given the above perspective and considering that more than two decades had passed since
the PARC’s approval of the HLI’s SDP, in conjunction with numerous activities performed in
good faith by HLI, and the reliance by the FWBs on the legality and validity of the PARC-
approved SDP, perforce, certain rights of the parties, more particularly the FWBs, have to be
respected pursuant to the application in a general way of the operative fact doctrine.

A view, however, has been advanced that the operative fact doctrine is of minimal or
altogether without relevance to the instant case as it applies only in considering the effects of
a declaration of unconstitutionality of a statute, and not of a declaration of nullity of a
contract. This is incorrect, for this view failed to consider is that it is NOT the SDOA dated
May 11, 1989 which was revoked in the instant case. Rather, it is PARC’s approval of the
HLI’s Proposal for Stock Distribution under CARP which embodied the SDP that was
nullified.

A recall of the antecedent events would show that on May 11, 1989, Tadeco, HLI, and the
qualified FWBs executed the SDOA. This agreement provided the basis and mechanics of
the SDP that was subsequently proposed and submitted to DAR for approval. It was only
after its review that the PARC, through then Sec. Defensor-Santiago, issued the assailed
Resolution No. 89-12-2 approving the SDP. Considerably, it is not the SDOA which gave
legal force and effect to the stock distribution scheme but instead, it is the approval of the
SDP under the PARC Resolution No. 89-12-2 that gave it its validity.

The above conclusion is bolstered by the fact that in Sec. Pangandaman’s recommendation
to the PARC Excom, what he proposed is the recall/revocation of PARC Resolution No. 89-
12-2 approving HLI’s SDP, and not the revocation of the SDOA. Sec. Pangandaman’s
recommendation was favorably endorsed by the PARC Validation Committee to the PARC
Excom, and these recommendations were referred to in the assailed Resolution No. 2005-
32-01. Clearly, it is not the SDOA which was made the basis for the implementation of the
stock distribution scheme.

That the operative fact doctrine squarely applies to executive acts––in this case, the
approval by PARC of the HLI proposal for stock distribution––is well-settled in our
jurisprudence. In Chavez v. National Housing Authority, 163 We held:

Petitioner postulates that the "operative fact" doctrine is inapplicable to the present case
because it is an equitable doctrine which could not be used to countenance an inequitable
result that is contrary to its proper office.

On the other hand, the petitioner Solicitor General argues that the existence of the various
agreements implementing the SMDRP is an operative fact that can no longer be disturbed or
simply ignored, citing Rieta v. People of the Philippines.

The argument of the Solicitor General is meritorious.

The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals, wherein it is

stated that a legislative or executive act, prior to its being declared as unconstitutional by the
courts, is valid and must be complied with, thus:

x x x           x x x          x x x

This doctrine was reiterated in the more recent case of City of Makati v. Civil Service
Commission, wherein we ruled that:

Moreover, we certainly cannot nullify the City Government's order of suspension, as we have
no reason to do so, much less retroactively apply such nullification to deprive private
respondent of a compelling and valid reason for not filing the leave application. For as we
have held, a void act though in law a mere scrap of paper nonetheless confers legitimacy
upon past acts or omissions done in reliance thereof. Consequently, the existence of a
statute or executive order prior to its being adjudged void is an operative fact to which legal
consequences are attached. It would indeed be ghastly unfair to prevent private respondent
from relying upon the order of suspension in lieu of a formal leave application. (Citations
omitted; Emphasis supplied.)

The applicability of the operative fact doctrine to executive acts was further explicated by this
Court in Rieta v. People,164 thus:

Petitioner contends that his arrest by virtue of Arrest Search and Seizure Order (ASSO) No.
4754 was invalid, as the law upon which it was predicated — General Order No. 60, issued
by then President Ferdinand E. Marcos — was subsequently declared by the Court, in
Tañada v. Tuvera, 33 to have no force and effect. Thus, he asserts, any evidence obtained
pursuant thereto is inadmissible in evidence.

We do not agree. In Tañada, the Court addressed the possible effects of its declaration of
the invalidity of various presidential issuances. Discussing therein how such a declaration
might affect acts done on a presumption of their validity, the Court said:

". . .. In similar situations in the past this Court had taken the pragmatic and realistic course
set forth in Chicot County Drainage District vs. Baxter Bank to wit:
‘The courts below have proceeded on the theory that the Act of Congress, having been
found to be unconstitutional, was not a law; that it was inoperative, conferring no rights and
imposing no duties, and hence affording no basis for the challenged decree. . . . It is quite
clear, however, that such broad statements as to the effect of a determination of
unconstitutionality must be taken with qualifications. The actual existence of a statute, prior
to [the determination of its invalidity], is an operative fact and may have consequences which
cannot justly be ignored. The past cannot always be erased by a new judicial declaration.
The effect of the subsequent ruling as to invalidity may have to be considered in various
aspects — with respect to particular conduct, private and official. Questions of rights claimed
to have become vested, of status, of prior determinations deemed to have finality and acted
upon accordingly, of public policy in the light of the nature both of the statute and of its
previous application, demand examination. These questions are among the most difficult of
those which have engaged the attention of courts, state and federal, and it is manifest from
numerous decisions that an all-inclusive statement of a principle of absolute retroactive
invalidity cannot be justified.’

x x x           x x x          x x x

"Similarly, the implementation/enforcement of presidential decrees prior to their publication in

the Official Gazette is ‘an operative fact which may have consequences which cannot be
justly ignored. The past cannot always be erased by a new judicial declaration . . . that an all-
inclusive statement of a principle of absolute retroactive invalidity cannot be justified.’"

The Chicot doctrine cited in Tañada advocates that, prior to the nullification of a statute,
there is an imperative necessity of taking into account its actual existence as an operative
fact negating the acceptance of "a principle of absolute retroactive invalidity." Whatever was
done while the legislative or the executive act was in operation should be duly recognized
and presumed to be valid in all respects. The ASSO that was issued in 1979 under General
Order No. 60 — long before our Decision in Tañada and the arrest of petitioner — is an
operative fact that can no longer be disturbed or simply ignored. (Citations omitted;
Emphasis supplied.)

To reiterate, although the assailed Resolution No. 2005-32-01 states that it revokes or
recalls the SDP, what it actually revoked or recalled was the PARC’s approval of the SDP
embodied in Resolution No. 89-12-2. Consequently, what was actually declared null and void
was an executive act, PARC Resolution No. 89-12-2, 165and not a contract (SDOA). It is,
therefore, wrong to say that it was the SDOA which was annulled in the instant case.
Evidently, the operative fact doctrine is applicable.

IV.

While the assailed PARC resolutions effectively nullifying the Hacienda Luisita SDP are
upheld, the revocation must, by application of the operative fact principle, give way to the
right of the original 6,296 qualified FWBs to choose whether they want to remain as HLI
stockholders or not. The Court cannot turn a blind eye to the fact that in 1989, 93% of the
FWBs agreed to the SDOA (or the MOA), which became the basis of the SDP approved by
PARC per its Resolution No. 89-12-2 dated November 21, 1989. From 1989 to 2005, the
FWBs were said to have received from HLI salaries and cash benefits, hospital and medical
benefits, 240-square meter homelots, 3% of the gross produce from agricultural lands, and
3% of the proceeds of the sale of the 500-hectare converted land and the 80.51-hectare lot
sold to SCTEX. HLI shares totaling 118,391,976.85 were distributed as of April 22,
2005.166 On August 6, 20l0, HLI and private respondents submitted a Compromise
Agreement, in which HLI gave the FWBs the option of acquiring a piece of agricultural land
or remain as HLI stockholders, and as a matter of fact, most FWBs indicated their choice of
remaining as stockholders. These facts and circumstances tend to indicate that some, if not
all, of the FWBs may actually desire to continue as HLI shareholders. A matter best left to
their own discretion.

With respect to the other FWBs who were not listed as qualified beneficiaries as of
November 21, 1989 when the SDP was approved, they are not accorded the right to acquire
land but shall, however, continue as HLI stockholders. All the benefits and
homelots167 received by the 10,502 FWBs (6,296 original FWBs and 4,206 non-qualified
FWBs) listed as HLI stockholders as of August 2, 2010 shall be respected with no obligation
to refund or return them since the benefits (except the homelots) were received by the FWBs
as farmhands in the agricultural enterprise of HLI and other fringe benefits were granted to
them pursuant to the existing collective bargaining agreement with Tadeco. If the number of
HLI shares in the names of the original FWBs who opt to remain as HLI stockholders falls
below the guaranteed allocation of 18,804.32 HLI shares per FWB, the HLI shall assign
additional shares to said FWBs to complete said minimum number of shares at no cost to
said FWBs.

With regard to the homelots already awarded or earmarked, the FWBs are not obliged to
return the same to HLI or pay for its value since this is a benefit granted under the SDP. The
homelots do not form part of the 4,915.75 hectares covered by the SDP but were taken from
the 120.9234 hectare residential lot owned by Tadeco. Those who did not receive the
homelots as of the revocation of the SDP on December 22, 2005 when PARC Resolution
No. 2005-32-01 was issued, will no longer be entitled to homelots. Thus, in the determination
of the ultimate agricultural land that will be subjected to land distribution, the aggregate area
of the homelots will no longer be deducted.

There is a claim that, since the sale and transfer of the 500 hectares of land subject of the
August 14, 1996 Conversion Order and the 80.51-hectare SCTEX lot came after compulsory
coverage has taken place, the FWBs should have their corresponding share of the land’s
value. There is merit in the claim. Since the SDP approved by PARC Resolution No. 89-12-2
has been nullified, then all the lands subject of the SDP will automatically be subject of
compulsory coverage under Sec. 31 of RA 6657. Since the Court excluded the 500-hectare
lot subject of the August 14, 1996 Conversion Order and the 80.51-hectare SCTEX lot
acquired by the government from the area covered by SDP, then HLI and its subsidiary,
Centennary, shall be liable to the FWBs for the price received for said lots. HLI shall be liable
for the value received for the sale of the 200-hectare land to LRC in the amount of PhP
500,000,000 and the equivalent value of the 12,000,000 shares of its subsidiary,
Centennary, for the 300-hectare lot sold to LIPCO for the consideration of PhP 750,000,000.
Likewise, HLI shall be liable for PhP 80,511,500 as consideration for the sale of the 80.51-
hectare SCTEX lot.

We, however, note that HLI has allegedly paid 3% of the proceeds of the sale of the 500-
hectare land and 80.51-hectare SCTEX lot to the FWBs. We also take into account the
payment of taxes and expenses relating to the transfer of the land and HLI’s statement that
most, if not all, of the proceeds were used for legitimate corporate purposes. In order to
determine once and for all whether or not all the proceeds were properly utilized by HLI and
its subsidiary, Centennary, DAR will engage the services of a reputable accounting firm to be
approved by the parties to audit the books of HLI to determine if the proceeds of the sale of
the 500-hectare land and the 80.51-hectare SCTEX lot were actually used for legitimate
corporate purposes, titling expenses and in compliance with the August 14, 1996 Conversion
Order. The cost of the audit will be shouldered by HLI. If after such audit, it is determined that
there remains a balance from the proceeds of the sale, then the balance shall be distributed
to the qualified FWBs.

A view has been advanced that HLI must pay the FWBs yearly rent for use of the land from
1989. We disagree. It should not be forgotten that the FWBs are also stockholders of HLI,
and the benefits acquired by the corporation from its possession and use of the land
ultimately redounded to the FWBs’ benefit based on its business operations in the form of
salaries, and other fringe benefits under the CBA. To still require HLI to pay rent to the FWBs
will result in double compensation.

For sure, HLI will still exist as a corporation even after the revocation of the SDP although it
will no longer be operating under the SDP, but pursuant to the Corporation Code as a private
stock corporation. The non-agricultural assets amounting to PhP 393,924,220 shall remain
with HLI, while the agricultural lands valued at PhP 196,630,000 with an original area of
4,915.75 hectares shall be turned over to DAR for distribution to the FWBs. To be deducted
from said area are the 500-hectare lot subject of the August 14, 1996 Conversion Order, the
80.51-hectare SCTEX lot, and the total area of 6,886.5 square meters of individual lots that
should have been distributed to FWBs by DAR had they not opted to stay in HLI.

HLI shall be paid just compensation for the remaining agricultural land that will be transferred
to DAR for land distribution to the FWBs. We find that the date of the "taking" is November
21, 1989, when PARC approved HLI’s SDP per PARC Resolution No. 89-12-2. DAR shall
coordinate with LBP for the determination of just compensation. We cannot use May 11,
1989 when the SDOA was executed, since it was the SDP, not the SDOA, that was
approved by PARC.

The instant petition is treated pro hac vice in view of the peculiar facts and circumstances of
the case.

WHEREFORE, the instant petition is DENIED. PARC Resolution No. 2005-32-01 dated
December 22, 2005 and Resolution No. 2006-34-01 dated May 3, 2006, placing the lands
subject of HLI’s SDP under compulsory coverage on mandated land acquisition scheme of
the CARP, are hereby AFFIRMED with the MODIFICATION that the original 6,296 qualified
FWBs shall have the option to remain as stockholders of HLI. DAR shall immediately
schedule meetings with the said 6,296 FWBs and explain to them the effects, consequences
and legal or practical implications of their choice, after which the FWBs will be asked to
manifest, in secret voting, their choices in the ballot, signing their signatures or placing their
thumbmarks, as the case may be, over their printed names.

Of the 6,296 FWBs, he or she who wishes to continue as an HLI stockholder is entitled to
18,804.32 HLI shares, and, in case the HLI shares already given to him or her is less than
18,804.32 shares, the HLI is ordered to issue or distribute additional shares to complete said
prescribed number of shares at no cost to the FWB within thirty (30) days from finality of this
Decision. Other FWBs who do not belong to the original 6,296 qualified beneficiaries are not
entitled to land distribution and shall remain as HLI shareholders. All salaries, benefits, 3%
production share and 3% share in the proceeds of the sale of the 500-hectare converted
land and the 80.51-hectare SCTEX lot and homelots already received by the 10,502 FWBs,
composed of 6,296 original FWBs and 4,206 non-qualified FWBs, shall be respected with no
obligation to refund or return them.
Within thirty (30) days after determining who from among the original FWBs will stay as
stockholders, DAR shall segregate from the HLI agricultural land with an area of 4,915.75
hectares subject of PARC’s SDP-approving Resolution No. 89-12-2 the following: (a) the
500-hectare lot subject of the August 14, l996 Conversion Order; (b) the 80.51-hectare lot
sold to, or acquired by, the government as part of the SCTEX complex; and (c) the
aggregate area of 6,886.5 square meters of individual lots that each FWB is entitled to under
the CARP had he or she not opted to stay in HLI as a stockholder. After the segregation
process, as indicated, is done, the remaining area shall be turned over to DAR for immediate
land distribution to the original qualified FWBs who opted not to remain as HLI stockholders.

The aforementioned area composed of 6,886.5-square meter lots allotted to the FWBs who
stayed with the corporation shall form part of the HLI assets.

HLI is directed to pay the 6,296 FWBs the consideration of PhP 500,000,000 received by it
from Luisita Realty, Inc. for the sale to the latter of 200 hectares out of the 500 hectares
covered by the August 14, 1996 Conversion Order, the consideration of PhP 750,000,000
received by its owned subsidiary, Centennary Holdings, Inc. for the sale of the remaining 300
hectares of the aforementioned 500-hectare lot to Luisita Industrial Park Corporation, and
the price of PhP 80,511,500 paid by the government through the Bases Conversion
Development Authority for the sale of the 80.51-hectare lot used for the construction of the
SCTEX road network. From the total amount of PhP 1,330,511,500 (PhP 500,000,000 + PhP
750,000,000 + PhP 80,511,500 = PhP 1,330,511,500) shall be deducted the 3% of the total
gross sales from the production of the agricultural land and the 3% of the proceeds of said
transfers that were paid to the FWBs, the taxes and expenses relating to the transfer of titles
to the transferees, and the expenditures incurred by HLI and Centennary Holdings, Inc. for
legitimate corporate purposes. For this purpose, DAR is ordered to engage the services of a
reputable accounting firm approved by the parties to audit the books of HLI and Centennary
Holdings, Inc. to determine if the PhP 1,330,511,500 proceeds of the sale of the three (3)
aforementioned lots were used or spent for legitimate corporate purposes. Any unspent or
unused balance as determined by the audit shall be distributed to the 6,296 original FWBs.

HLI is entitled to just compensation for the agricultural land that will be transferred to DAR to
be reckoned from November 21, 1989 per PARC Resolution No. 89-12-2. DAR and LBP are
ordered to determine the compensation due to HLI.

DAR shall submit a compliance report after six (6) months from finality of this judgment. It
shall also submit, after submission of the compliance report, quarterly reports on the
execution of this judgment to be submitted within the first 15 days at the end of each quarter,
until fully implemented.

The temporary restraining order is lifted.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-21064 February 18, 1970

J.M. TUASON and CO., INC., petitioner-appellee, 

vs.
THE LAND TENURE ADMINISTRATION, THE SOLICITOR GENERAL and THE AUDITOR
GENERAL, respondents-appellants.

Araneta, Mendoza and Papa for petitioner-appellee.

Office of the Solicitor General and M. B. Pablo for respondents appellants.

FERNANDO, J.:

In this special civil action for prohibition to nullify a legislative act directing the expropriation
of the Tatalon Estate, Quezon City,1 this Court is called upon to inquire further into how far the
power of Congress under the constitution to authorize upon payment of just compensation the
expropriation of lands to be subdivided into small lots and conveyed at cost to individuals 2 may
extend, the more so as this is the first time the judiciary is confronted with such a challenge
addressed to the validity of a statute specifically made applicable to a particular piece of land,
owned by petitioner J. M. Tuason & Co. In the leading case of Guido v. Rural Progress,3 decided
in 1949. this Court in passing upon the scope of the power of the President conferred by statute
"to acquire private lands or any interest therein, through purchase or expropriation, and to
subdivide the same into home lots or small farms for resale at reasonable prices and under such
conditions as he may fix to their bona fide tenants or occupants"4 had occasion to delineate the
contours of the above constitutional provision, reconciling the undoubtedly broad grant of
constitutional authority to Congress with the right of property that might be adversely affected by
its exercise.
The prevailing opinion in the later case Republic v. Baylosis5 tilted the balance in favor of
property. In deciding this suit, filed with the Court of First Instance of Quezon City, the lower
court, as was understandable, bowed to what it considered the compulsion such an opinion
carries and being unable to perceive any relevant ground for distinction, declared the challenged
statute invalid. The respondents, the Land Tenure Administration, the Solicitor General and the
Auditor General in this prohibition proceeding, appealed. We are possessed undoubtedly of
greater discretion on the matter. Nor is it to be lost sight of, as abovementioned, that this is the
first controversy where the expropriation of a particular property authorized by Congress under
the above constitutional provision is assailed as beyond its power. The opportunity is thus here
present of making more definite the boundaries of such congressional competence.

As will hereafter be explained with some measure of fullness, we cannot affix the stamp of
approval to the judgment of the lower court; we reach a different conclusion. There is to our
mind no sufficient showing of the unconstitutionality of the challenged act. We reverse.

On August 3, 1959, Republic Act No. 2616 took effect without executive approval. It is
therein provided: "The expropriation of the Tatalon Estate in Quezon City jointly owned by
the J. M. Tuason and Company, Inc., Gregorio Araneta and Company, Inc., and Florencio
Deudor, et al., is hereby authorized."6 As noted in the appealed decision:

The lands involved in this action, to which Republic Act No. 2616 refer and
which constitute a certain portion of the Sta. Mesa Heights Subdivision, have
a total area of about 109 hectares and are covered by Transfer Certificates of
Title Nos. 42774 and 49235 of the Registry of Deeds of Rizal (Quezon City)
registered in the name of petitioner. 7

Thereafter, on November 15, 1960, respondent Land Tenure Administration was directed by the
then Executive Secretary to institute the proceeding for the expropriation of the Tatalon Estate.
Not losing any time, petitioner J.M. Tuason & Co., Inc. filed before the lower court on November
17, 1960 a special action for prohibition with preliminary injunction against respondents praying
that the above act be declared unconstitutional, seeking in the meanwhile a preliminary injunction
to restrain respondents from instituting such expropriation proceeding, thereafter to be made
permanent after trial. The next day, on November 18, 1960, the lower court granted the prayer for
the preliminary injunction upon the filing of a P20,000.00 bond. After trial, the lower court
promulgated its decision on January 10, 1963 holding that Republic Act No. 2616 as amended is
unconstitutional and granting the writ of prohibition prayed for.

Hence this appeal by respondents, one we find meritorious. With the problem thus laid bare
and with an exposition of the constitutional principles that compel a result different from that
arrived at by the lower court, we cannot accept its holding that the statute thus assailed
should be annulled.

1. Respondents would interpose two procedural bars sufficient in their opinion to preclude
the lower court from passing on the question of validity. 8 The first is the allegation that in effect
this special proceeding for prohibition is "actually a suit against the State, which is not allowed
without its consent."9 The second would require, on the assumption that the suit could proceed,
that the Executive Secretary, as the real party in interest, ought to have been impleaded. Neither
objection suffices to preclude the lower court from passing upon the question of validity of the
statute in question.

As was held by this Court in the leading case of Angara v. Electoral 

Commission, 10 speaking through Justice Laurel, the power of judicial review is granted, if not
expressly, at least by clear implication from the relevant provisions of the 
Constitution. 11 This power may be exercised when the party adversely affected by either a
legislative or executive act, or a municipal ordinance for that matter, files the appropriate suit to
test its validity. The special civil action of prohibition has been relied upon precisely to restrain the
enforcement of what is alleged to be an unconstitutional statute. 12 As it is a fundamental
postulate that the Constitution as the supreme law is binding on all governmental agencies,
failure to observe the limitations found therein furnishes a sufficient ground for a declaration of the
nullity of the governmental measure challenged. The argument then that the government is the
adverse party and that therefore must consent to its being sued certainly is far from persuasive.
Moreover, it is equally well-settled that for the purpose of thus obtaining a judicial declaration of
nullity, it is enough if the respondents or defendants named be the government officials who
would give operation and effect to official action allegedly tainted with unconstitutionality. As it
cannot be denied that in 1959 the then Land Tenure Administration as well as the Solicitor
General were called upon to enforce the statute now assailed, it would appear clear that the
existence on the Executive Secretary being made a party lacks support in law.

It would be then to set aside and disregard doctrines of unimpeachable authority if the plea
of respondents on these procedural points raised were to meet an affirmative response. That
we are not disposed to do.

2. Thus we reach the merits. It would appear, as noted at the outset, that for the purpose of
deciding the question of validity squarely raised, a further inquiry into the scope of the
constitutional power of Congress to authorize the expropriation of lands to be subdivided into
small lots and conveyed at cost to individuals 13 is indicated, if for no other purpose than to
attain a greater degree of clarity. The question is one then of constitutional construction. It is well
to recall fundamentals. The primary task is one of ascertaining and thereafter assuring the
realization of the purpose of the framers and of the people in the adoption of the Constitution. 14

We look to the language of the document itself in our search for its meaning. We do not of
course stop there, but that is where we begin. It is to be assumed that the words in which
constitutional provisions are couched express the objective sought to be attained. They are
to be given their ordinary meaning except where technical terms are employed in which case
the significance thus attached to them prevails. As the Constitution is not primarily a lawyer's
document, it being essential for the rule of law to obtain that it should ever be present in the
people's consciousness, its language as much as possible should be understood in the
sense they have in common use. What it says according to the text of the provision to be
construed compels acceptance and negates the power of the courts to alter it, based on the
postulate that the framers and the people mean what they say. Thus there are cases where
the need for construction is reduced to a minimum.

This is one of them. It does not admit of doubt that the congressional power thus conferred is
far from limited. It is left to the legislative will to determine what lands may be expropriated so
that they could be subdivided for resale to those in need of them. Nor can it be doubted
either that as to when such authority may be exercised is purely for Congress to decide. Its
discretion on the matter is not to be interfered with. The language employed is not swathed
in obscurity. The recognition of the broad congressional competence is undeniable. The
judiciary in the discharge of its task to enforce constitutional commands and prohibitions is
denied the prerogative of curtailing its well-nigh all-embracing sweep.

Reference to the historical basis of this provision as reflected in the proceedings of the

Constitutional Convention, two of the extrinsic aids to construction along with the
contemporaneous understanding and the consideration of the consequences that flow from
the interpretation under consideration, yields additional light on the matter. The opinion of
Justice Tuason, in the Guido case did precisely that. It cited the speech of delegate Miguel
Cuaderno, who, in speaking of large estates and trusts in perpetuity, stated: "There has been
an impairment of public tranquility, and to be sure a continuous impairment of it, because of
the existence of these conflicts. In our folklore the oppression and exploitation of the tenants
are vividly referred to; their sufferings at the hand of the landlords are emotionally pictured in
our drama; and even in the native movies and talkies of today, this theme of economic
slavery has been touched upon. In official documents these same conflicts are narrated and
exhaustively explained as a threat to social order and 
stability." 15 He invoked likewise what happened to the family of our national hero Jose Rizal: "But
we should go to Rizal for inspiration and illumination in this problem of the conflicts between
landlords and tenants. The national hero and his family were persecuted because of these same
conflicts in Calamba, and Rizal himself met a martyr's death because of his exposal of the cause
of the tenant class, because he would not close his eyes to oppression and persecution with his
own people as victims." 16 Delegate Cuaderno closed with this appeal: "If we are to be true to our
trust, if it is our purpose in drafting our constitution to insure domestic tranquility and to provide for
the well-being of our people, we cannot, we must not fail to prohibit the ownership of large
estates, to make it the duty of the government to break up existing large estates, and to provide
for their acquisition by purchase or through expropriation and sale to their occupants, as has
been provided in the Constitutions of Mexico and Jugoslavia." 17

The above address was delivered during the early days of the convention on August 21,
1934. 18 Subsequently, the day before the above constitutional provision was voted on January
29, 1935 he reiterated what was said by him in the above address. Thus: "Mr. President, this will
be my last speech in the Convention. And I just want to remind the Convention of the first speech
that I delivered — the first speech I delivered before this Assembly. I believe, Mr. President, that
one of the best provisions that this draft of the Constitution contains is this provision that will
prevent the repetition of the history of misery, of trials and tribulations of the poor tenants
throughout the length and breadth of the Philippine Islands." 19

This is not to say that such an appeal to history as disclosed by what could be accepted as
the pronouncement that did influence the delegates to vote for such a grant of power could
be utilized to restrict the scope thereof, considering the language employed. For what could
be expropriated are "lands," not "landed estates." It is well to recall what Justice Laurel would
impress on us, "historical discussion while valuable is not necessarily decisive." 20It is easy to
understand why.

The social and economic conditions are not static. They change with the times. To identify
the text of a written constitution with the circumstances that inspired its inclusion may render
it incapable of being responsive to future needs. Precisely, it is assumed to be one of the
virtues of a written constitution that it suffices to govern the life of the people not only at the
time of its framing but far into the indefinite future. It is not to be considered as so lacking in
flexibility and suppleness that it may be a bar to measures, novel and unorthodox, as they
may appear to some, but nonetheless imperatively called for. Otherwise it might expose itself
to the risk of inability to survive in the face of complexities that time may bring in its wake.

It would thus be devoid of the character of permanency, which is the distinguishing mark of a
constitution. Such was the conclusion deliberately arrived at after extensive discussion in the
Constitutional Convention that the Constitution as adopted in 1935 would be good not only
for the Commonwealth but for the Republic, with all the vicissitudes that time and
circumstance would bring. Our people in signifying their adherence to the Constitution at the
plebiscite thereafter held were of a similar persuasion.

The continuing life of a constitution was stressed by one of the chief architects of the
Constitution, Manuel A. Roxas, later to be the first President of the Republic. For him it is
"the essence of such an instrument." 21 It was his view that the constitution to be adopted by the
Constitutional Convention of 1934 would "have an indefinite life, will be permanent, subject of
course, to revisions, amendments and other changes that may be adopted
constitutionally." 22 That would be an assurance that constitutional guarantees "will be maintained,
property rights will be safeguarded and individual rights maintained immaculate and
sanctified. ..." 23 Another prominent delegate, Gregorio Perfecto, later a member of this Tribunal,
aptly noted that the transitory character is essentially incompatible with the nature of laws, and
necessarily so of a constitution, which is the supreme law of a people and therefore must be
impressed with such attribute of permanency, much more than ordinary statutes passed under its
authority. 24

It could thus be said of our Constitution as of the United States Constitution, to borrow from
Chief Justice Marshall's pronouncement in M'Culloch v. Maryland 25 that it is "intended to
endure for ages to come and consequently, to be adapted to the various crisis of human affairs."
It cannot be looked upon as other than, in the language of another American jurist, Chief Justice
Stone, "a continuing instrument of government." 26 Its framers were not visionaries, toying with
speculations or theories, but men of affairs, at home in statecraft, laying down the foundations of
a government which can make effective and operative all the powers conferred or assumed, with
the corresponding restrictions to secure individual rights and, anticipating, subject to the
limitations of human foresight, the problems that events to come in the distant days ahead will
bring. Thus a constitution, to quote from Justice Cardozo, "state or ought to state not rules for the
passing hour, but principles for an expanding future." 27

To that primordial intent, all else is subordinated. Our Constitution, any constitution, is not to
be construed narrowly or pedantically, for the prescriptions therein contained, to paraphrase
Justice Holmes, are not mathematical formulas having their essence in their form, but are
organic living institutions, the significance of which is vital nor formal. There must be an
awareness, as with Justice Brandeis, not only of what has been, but of what may be. The
words employed by it are not to be construed to yield fixed and rigid answers but as
impressed with the necessary attributes of flexibility and accommodation to enable them to
meet adequately whatever problems the future has in store. It is not, in brief, a printed finality
but a dynamic process.

3. The conclusion is difficult to resist that the text of the constitutional provision in question,
its historical background as noted in pronouncements in the Constitutional Convention and
the inexonerable need for the Constitution to have the capacity for growth and ever be
adaptable to changing social and economic conditions all argue against its restrictive
construction. Such an approach was reflected succinctly in the dissenting opinion of Justice
J.B.L. Reyes, concurred in by the present Chief Justice, in the Baylosis case. We find it
persuasive.

His dissenting opinion opens thus: "I am constrained to dissent from the opinion of the
majority. The reasons set forth by it against the validity of the proposed expropriation strike
me as arguments against the expropriation policies adopted by the government rather than
reasons against the existence and application of the condemnation power in the present
case." 28 Then he stated: "The propriety of exercising the power of eminent domain under Article
XIII, section 4 of our Constitution can not be determined on a purely quantitative or area basis.
Not only does the constitutional provision speak of lands instead of landed estates, but I see no
cogent reason why the government, in its quest for social justice and peace, should exclusively
devote attention to conflicts of large proportions, involving a considerable number of individuals,
and eschew small controversies and wait until they grow into a major problem before taking
remedial action." 29
As to the role of the courts in the appraisal of the congressional implementation of such a
power, he had this to say: "The Constitution considered the small individual land tenure to be
so important to the maintenance of peace and order and to the promotion of progress and
the general welfare that it not only provided for the expropriation and subdivision of lands but
also opened the way for the limitation of private landholdings (Art. XIII, section 3). It is not for
this Court to judge the worth of these and other social and economic policies expressed by
the Constitution; our duty is to conform to such policies and not to block their realization." 30

The above dissent, as well as that penned by the then Chief Justice Paras with whom the
then Justice Pablo was in agreement, with Justice Alex Reyes writing a concurring opinion,
resulted in that the main opinion of Justice Montemayor, while prevailing, failed to elicit the
necessary majority vote of six. If for that reason alone re-examination would not appear to be
inappropriate. Moreover, it could not be considered as controlling the present suit, in view of
the fact that the exercise of the congressional authority to expropriate land was not direct as
in this case but carried out in pursuance of the statutory authority conferred on the President
under Commonwealth Act No. 539.

The absence of any controlling force of such prevailing opinion can likewise be predicated on
facts which would differentiate the present situation from that found in the Baylosis case.
Thus Justice Montemayor noted: "The evidence shows that both Sinclair and Cirilo P.
Baylosis at one time were willing to sell to some of the tenants and occupants herein
involved under certain conditions and provided that they buy in groups, presumably to avoid
subdivisions and the problem of dealing with many individual buyers, but the tenants failed to
buy. Naturally, they may not now compel Sinclair and Cirilo P. Baylosis to sell to them
through the Government by means of expropriation. Besides, the bulk of the lands that
Sinclair and Cirilo P. Baylosis had formerly offered to them for sale which offer they failed to
take advantage of, has now been sold to others, the other co-defendants herein, in small
lots." 31 Likewise, it was noted by him: "There is another point that merits consideration. The
defendants claim and correctly that many of the tenants and occupants now insisting on
expropriation have lands of their own." 32

The more fundamental reason though why we find ourselves unable to yield deference to
such opinion of Justice Montemayor, well-written and tightly-reasoned as it is, is its undue
stress on property rights. It thus appears then that it failed to take into account the greater
awareness exhibited by the framers of our Constitution of the social forces at work when they
drafted the fundamental law. To be more specific, they were seriously concerned with the
grave problems of inequality of wealth, with its highly divisive tendency, resulting in the
generous scope accorded the police power and eminent domain prerogatives of the state,
even if the exercise thereof would cover terrain previously thought of as beyond state
control, to promote social justice and the general welfare.

This is not to say of course that property rights are disregarded. This is merely to emphasize
that the philosophy of our Constitution embodying as it does what Justice Laurel referred to
as its "nationalistic and socialist traits discoverable upon even a sudden dip into a variety of
[its] provisions" although not extending as far as the "destruction or annihilation" of the rights
to property, 33 negates the postulate which at one time reigned supreme in American
constitutional law as to their well-nigh inviolable character. This is not so under our Constitution,
which rejects the doctrine of laissez faire with its abhorrence for the least interference with the
autonomy supposed to be enjoyed by the property owner. Laissez faire, as Justice Malcolm
pointed out as far back as 1919, did not take too firm a foothold in our jurisprudence. 34 Our
Constitution is much more explicit. There is no room for it for Laissez faire. So Justice Laurel
affirmed not only in the above opinion but in another concurring opinion quoted with approval in at
least two of our subsequent decisions. 35 We had occasion to reiterate such a view in the ACCFA
case, decided barely two months ago. 36

This particular grant of authority to Congress authorizing the expropriation of land is a clear
manifestation of such a policy that finds expression in our fundamental law. So is the social
justice principle enshrined in the Constitution of which it is an expression, as so clearly
pointed out in the respective dissenting opinions of Justice J.B.L. Reyes and Chief Justice
Paras in the Baylosis case. Why it should be thus is so plausibly set forth in the ACCFA
decision, the opinion being penned by Justice Makalintal. We quote: "The growing
complexities of modern society, however, have rendered this traditional classification of the
functions of government quite unrealistic, not to say absolute. The areas which used to be
left to private enterprise and initiative and which the government was called upon to enter
optionally, and only "because it was better equipped to administer for the public welfare than
is any private individual or group of individuals," continue to lose their well-defined
boundaries and to be absorbed within activities that the government must undertake in its
sovereign capacity if it is to meet the increasing social challenges of the times. Here as
almost everywhere else the tendency is undoubtedly towards a greater socialization of
economic forces. Here of course this development was envisioned, indeed adopted as a
national policy, by the Constitution itself in its declaration of principle concerning the
promotion of social justice."

It would thus appear that the prevailing opinion in the Baylosis case is far from compelling.
To the extent that the conclusion reached by us in this suit proceeds from a different reading
of the constitutional provision in question, it must be deemed as being possessed of less
than decisive weight.

4. There need be no fear that such constitutional grant of power to expropriate lands is
without limit. As in the case of the more general provision on eminent domain, there is the
explicit requirement of the payment of just compensation. It is well-settled that just
compensation means the equivalent for the value of the property at the time of its taking.
Anything beyond that is more, and anything short of that is less, than just compensation. It
means a fair and full equivalent for the loss sustained, which is the measure of the indemnity,
not whatever gain would accrue to the expropriating entity. The market value of the land
taken is the just compensation to which the owner of condemned property is entitled, the
market value being that sum of money which a person desirous, but not compelled to buy,
and an owner, willing, but not compelled to sell, would agree on as a price to be given and
received for such property. There must be a consideration then of all the facts which make it
commercially valuable. The question is what would be obtained for it on the market from
parties who want to buy and would give full value. Testimonies as to real estate transactions
in the vicinity are admissible. It must be shown though that the property as to use must be of
similar character to the one sought to be condemned. The transaction must likewise be
coeval as to time. To the market value must be added the consequential damages, if any,
minus the consequential benefits. The assessed value of real property while
constituting prima facie evidence of its value in case of condemnation proceedings is not
conclusive. 37

Then, too, it is a prerequisite for the valid exercise of such a congressional power that the
taking be for the public use. To quote from the Guido decision: "It has been truly said that
the assertion of the right on the part of the legislature to take the property of one citizen and
transfer it to another, even for a full compensation, when the public interest is not promoted
thereby, is claiming a despotic power, and one inconsistent with every just principle and
fundamental maxim of a free government." 38 It is on that account that we granted prohibition to
restrain respondent Rural Progress Administration from proceeding with the expropriation of
petitioner's land, two adjoining lots, part commercial with a combined area of slightly more than
two hectares. As was stressed by Justice Tuason in his opinion: "No fixed line of demarcation
between what taking is for public use and what is not can be made; each case has to be judged
according to its peculiar circumstances. It suffices to say for the purpose of this decision that the
case under consideration is far wanting in those elements which make for public convenience or
public use." 39 Such is not the situation before us now. Nor are we disposed to dispute the
legislative appraisal of the matter.

5. The failure to meet the exacting standard of due process would likewise constitute a valid
objection to the exercise of this congressional power. That was so intimated in the above
leading Guido case. There was an earlier pronouncement to that effect in a decision
rendered long before the adoption of the Constitution under the previous organic law then in
force, while the Philippines was still an unincorporated territory of the United States. 40

It is obvious then that a landowner is covered by the mantle of protection due process
affords. It is a mandate of reason. It frowns on arbitrariness, it is the anti-thesis of any
governmental act that smacks of whim or caprice. It negates state power to act in an
oppressive manner. It is, as had been stressed so often, the embody of the sporting idea of
fair play. In that sense, it stands as a guaranty of justice. That is the standard that must be
met by any governmental agency in the exercise of whatever competence is entrusted to 
it.41 As was so emphatically stressed by the present Chief Justice, "acts of Congress, as well as
those of the Executive, can deny due process only under pain of nullity, . ... ." 42

It is easily understandable then why the expropriation of lots less than one hectare in City of
Manila v. Arellano Law College, 43 Lee Tay v. Choco 44 and Republic vs. 
Samia  45 and of lots less than two hectares in Commonwealth v. De Borja 46 and Republic v.
Prieto 47 was not given the sanction of approval by this Court, the failure to meet the due process
requirement being quite evident.

6. It is primarily the equal protection guaranty though that petitioner's case is made to rest.
The Constitution requires that no person be denied "the equal protection of the laws." 48 A
juridical being is included within its terms.

The assumption underlying such a guaranty is that a legal norm, whether embodied in a rule,
principle, or standard, constitutes a defense against anarchy at one extreme and tyranny at
the other. Thereby, people living together in a community with its myriad and complex
problems can minimize the friction and reduce the conflicts, to assure, at the very least, a
peaceful ordering of existence. The ideal situation is for the law's benefits to be available to
all, that none be placed outside the sphere of its coverage. Only thus could chance and favor
be excluded and the affairs of men governed by that serene and impartial uniformity, which
is of the very essence of the idea of law.

The actual, given things as they are and likely to continue to be, cannot approximate the
ideal. Nor is the law susceptible to the reproach that it does not take into account the realities
of the situation. The constitutional guaranty then is not to be given a meaning that disregards
what is, what does in fact exist. 49 To assure that the general welfare be promoted, which is the
end of law, a regulatory measure may cut into the rights to liberty and property. Those adversely
affected may under such circumstances invoke the equal protection clause only if they can show
that the governmental act assailed, far from being inspired by the attainment of the common weal
was prompted by the spirit of hostility, or at the very least, discrimination that finds no support in
reason. .
It suffices then that the laws operate equally and uniformly on all persons under similar
circumstances or that all persons must be treated in the same manner, the conditions not
being different, both in the privileges conferred and the liabilities imposed. Favoritism and
undue preference cannot be allowed. For the principle is that equal protection and security
shall be given to every person under circumstances, which if not identical are analogous. If
law be looked upon in terms of burden or charges, those that fall within a class should be
treated in the same fashion, whatever restrictions cast on some in the group equally binding
on the rest.

It is precisely because the challenged statute applies only to petitioner that he could assert a
denial of equal protection. As set forth in its brief: "Republic Act No. 2616 is directed solely
against appellee and for this reason violates the equal protection clause of the Constitution.
Unlike other laws which confer authority to expropriate landed estates in general, it singles
out the Tatalon Estate. It cannot be said, therefore, that it deals equally with other lands in
Quezon City or elsewhere." 50 With due recognition then of the Power of Congress to designate
the particular property to be taken and how much thereof may be condemned in the exercise of
the power of expropriation, it is still a judicial question whether in the exercise of such
competence, the party adversely affected is the victim of partiality and prejudice. That the equal
protection clause will not allow.

The judiciary can look into the facts then, no conclusiveness being attached to a
determination of such character when reliance is had either to the due process clause which
is a barrier against arbitrariness and oppressiveness and the equal protection guaranty
which is an obstacle to invidious discrimination.

We start of course with the presumption of validity, the doubts being resolved in favor of the
challenged enactment. 51 As this is the first statute of its kind assailed, we should not stop our
inquiry there. The occasion that called for such legislation, if known, goes far in meeting any
serious constitutional objection raised. We turn to the Explanatory Note of the bill, 52 which was
enacted into the challenged statute. It started with the declaration that it provides for the
"expropriation of the Tatalon Estate, Quezon City, and for the sale at cost of the lots therein to
their present bona fide occupants, authorizing therefor the appropriation of ten million pesos."
Then it continued: "The Tatalon Estate has an area of more than ninety six hectares and the lots
therein are at present occupied by no less than one thousand five hundred heads of families,
most of whom are veterans of World War II. It is the earnest desire of this group of patriotic and
loyal citizens to purchase the lots at a minimum cost." Why there was such a need for
expropriation was next taken up: "The population of Quezon City has considerably increased.
This increase in population is posing a serious housing problem to city residents. This bill will not
only solve the problem but will also implement the land-for-the-landless program of the present
Administration."

What other facts are there which would remove the alleged infirmity of the statute on equal
protection grounds? The brief for respondents invited our attention to the social problem
which this legislation was intended to remedy. Thus: "There is a vital point which should
have great weight in the decision of this case. The petitioner led the occupants of Tatalon
Estate to believe that they were dealing with the representatives of the real owners, the
Veterans Subdivision, in the purchase of their lots. The occupants believed in good faith that
they were dealing with the representatives of the owners of the lots. This belief was bolstered
by the fact that the petitioners herein even entered into a compromise agreement on March
16, 1953 with the Deudors, agreeing to give the latter millions of pesos in settlement of their
claim over the Tatalon Estate. The occupants, therefore, purchased their respective portions
from the Veterans Subdivision in good faith. The petitioner allowed the Veterans Subdivision
to construct roads in the Tatalon Estate; it allowed said firm to establish an office in the
Tatalon Estate and to advertise the sale of the lots inside the Tatalon Estate. Petitioner
admits having full knowledge of the activities of the Veterans Subdivision and yet did not lift a
finger to stop said acts. The occupants paid good money for their lots and spent fortunes to
build their homes. It was after the place has been improved with the building of the roads
and the erection of substantial residential homes that petitioner stepped into the picture,
claiming for the first time that it is the owner of the Tatalon Estate. Some of the occupants
had erected their houses as early as 1947 and 1948. ..." 53

The cutting edge of the above assertions could have been blunted by the brief for petitioner.
This is all it did say on the matter though: "Appellants alleged that appellee 'led the
occupants of Tatalon Estate to believe that they were dealing with the representatives of the
real owners, the Veterans Subdivision, in the purchase of their lots' ... . There is absolutely
no evidence on record to establish this ludicrous allegation." 54 Only the alleged duplicity of
petitioner was denied, leaving unanswered the rather persuasive recital of conditions that could
rightly motivate Congress to act as it did. Clearly, there is no sufficient refutation of the
seriousness of the problem thus underscored by respondents, the solution of which is the aim of
the statute now under attack.

This is not to deny that whenever Congress points to a particular piece of property to be
expropriated, it is faced with a more serious scrutiny as to its power to act in the premises. It
would require though a clear and palpable showing of its having singled out a party to bear
the brunt of governmental authority that may be legitimately exerted, induced, it would
appear by a feeling of disapproval or ill-will to make out a case of this guaranty having been
disregarded. If such were the case, then in the language of Justice Laurel, it "will be the time
to make the [judicial] hammer fall and heavily. But not until then." 55 The most careful study of
the matter before us however yields the conclusion that petitioner was unable to sustain the
burden of demonstrating a denial of equal protection.

Moreover, there is nothing to prevent Congress in view of the public funds at its disposal to
follow a system of priorities. It could thus determine what lands would first be the subject of
expropriation. This it did under the challenged legislative act. As already noted, Congress
was moved to act in view of what it considered a serious social and economic problem. The
solution which for it was the most acceptable was the authorization of the expropriation of the
Tatalon Estate. So it provided under the statute in question. It was confronted with a situation
that called for correction, and the legislation that was the result of its deliberation sought to
apply the necessary palliative. That it stopped short of possibly attaining the cure of other
analogous ills certainly does not stigmatize its effort as a denial of equal protection. We have
given our sanction to the principle underlying the exercise of police power and taxation, but
certainly not excluding eminent domain, that "the legislature is not required by the
Constitution to adhere to the policy of "all or none". 56 Thus, to reiterate, the invocation by
petitioner of equal protection clause is not attended with success.

7. The other points raised may be briefly disposed of. Much is made of what the lower court
considered to be the inaccuracy apparent on the face of the challenged statute as to the
ownership of the Tatalon Estate. It could very well be that Congress ought to have taken
greater pains to avoid such imprecision. At any rate, the lower court, unduly alarmed, would
consider it a deprivation of property without due process of law. 57 Such a fear is unwarranted.
In the course of the expropriation proceedings, there undoubtedly would be a judicial
determination as to the party entitled to the just compensation. As of now then, such a question
would appear at the very least to be premature. Reference is likewise made as to the effect of the
authorized expropriation on those purchasers of lots located in the Tatalon Estate. Again, on the
occasion of the expropriation, whatever contractual rights might he possessed by vendors and
vendees could be asserted and accorded the appropriate constitutional protection.
8. What appears undeniable is that in the light of the broad grant of congressional power so
apparent from the text of the constitutional provision, the historical background as made
clear during the deliberation for the Constitutional Convention, and the cardinal postulate
underlying constitutional construction that its provisions are not to be interpreted to preclude
their being responsive to future needs, the fundamental law being intended to govern the life
of a nation as it unfolds through the ages, the challenged statute can survive the test of
validity. If it were otherwise, then the judiciary may lend itself susceptible to the charge that in
its appraisal of governmental measures with social and economic implications, its decisions
are characterized by the narrow, unyielding insistence on the primacy of property rights,
contrary to what the Constitution ordains. In no other sphere of judicial activity are judges
called upon to transcend personal predilections and private notions of policy, lest legislation
intended to bring to fruition the hope of a better life for the great masses of our people, as
embodied in the social justice principle of which this constitutional provision under scrutiny is
a manifestation, be unjustifiably stricken down. The appealed decision cannot stand.

WHEREFORE, the decision of the lower court of January 10, 1963 holding that Republic Act
No. 2616 as amended by Republic Act No. 3453 is unconstitutional is reversed. The writ of
prohibition suit is denied, and the preliminary injunction issued by the lower court set aside.
With costs against petitioner.

Zaldivar, Sanchez and Villamor, JJ., concur.

Makalintal, J., concurs in the result.