Republic of the Philippines

SUPREME COURT
Manila

EN BANC

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.,"35 which 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.44 After 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. 28791047 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. 36580054 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,75 enjoining 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
members83 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-executory and 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, restates118 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 6,296 individuals 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:

xxx xxx xxx

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.’

xxx xxx xxx

"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-
2,165 and 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.

PRESBITERO J. VELASCO, JR.

Associate Justice

WE CONCUR:
 RENATO C. CORONA
Chief Justice

ANTONIO T. CARPIO TERESITA J. LEONARDO-DE CASTRO

Associate Justice Associate Justice

(On official leave)

ARTURO D. BRION
DIOSDADO M. PERALTA*
Associate Justice
Associate Justice

LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ JOSE CATRAL MENDOZA

Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the opinion of the
Court.

RENATO C. CORONA
Chief Justice

Footnotes

* On official leave.

1 "Jose Julio Zuniga" in some parts of the records.

2Association of Small Landowners in the Philippines, Inc. v. Secretary of Agrarian Reform, G.R. No
78742, July 14, 1989, 175 SCRA 343, 352.

3 Id. at 392.

4Yujiro Hayami, et al., Toward an Alternative Land Reform Paradigm: A Philippine Perspective 53
(1990).

5 Id.

6Bureau of Agrarian Reform Information and Education (BARIE) & Communications Development
Division (CDD), Agrarian Reform History 19 (2006).

7 Salmorin v. Zaldivar, G.R. No. 169691, July 23, 2008, 559 SCRA 564, 572.

8 Yujiro Hayami, et al., supra note 4, at 57.

9 Id.

10 Id.

11
Id. at 60; BARIE & CDD, supra note 6, at 21.

12 BARIE & CDD, supra note 6, at 22.

13 Yujiro Hayami, et al., supra note 4, at 71.

14 Providing the Mechanism for the Implementation of the Comprehensive Agrarian Reform Program.

15 Supra note 2.

16 Rollo, pp. 100-101.

17 Id. at 782-800.

18 Id. at 103-106.

19 Id. at 3644, Memorandum of HLI.

20 Id. at 3809, Memorandum of Farmworkers Agrarian Reform Movement, Inc. (FARM).

21 Id. at 3645-3646, Memorandum of HLI.

22 Id. at 3645.

23 Id. at 3810, Memorandum of FARM.

24 Id. at 3811.

25 Id. at 3651, Memorandum of HLI.

26SECTION 10. Corporate Landowners. Corporate landowners may give their workers and other
qualified beneficiaries the right to purchase such proportion of the capital stock of the corporation
that the land assets bear in relation to the corporation’s total assets, and grant additional
compensation which may be used for this purposes. The approval by the PARC of a plan for such
stock distribution, and its initial implementation, shall be deemed compliance with the land
distribution requirements of the CARP.

27 Section 1.

1a.) Qualified Corporate Landowner-Applicant¾All bona fide stock corporations

owning agricultural land utilized for agricultural production and existing as such as of
June 15, 1988, the date of effectivity of R.A. No. 6657, may apply for and avail of the
voluntary stock distribution plan [SDP] provided in Section 31 thereof. New
corporations incorporated after the effectivity of R.A. No. 6657 may also apply,
provided that they are subsidiaries of or spin-offs from their mother corporation x x x.

1b.) Qualified Beneficiaries¾The qualified beneficiaries in the [SDP] are all those
identified beneficiaries of land transfer enumerated under Section 22 of RA 6657.

The [SDP] shall be agreed upon by both the corporate landowner-applicant and the qualified
beneficiaries and subject to approval by PARC. x x x

Section 2. Applicant and Time of Filing¾The corporate landowner-applicant shall file the
[SDP] in a form to be prescribed by DAR and obtain approval within two (2) years from the
effectivity of RA 6657 but prior to DAR’s notice of compulsory acquisition of said property
under the same law.

Section 3. Proportion of Distribution¾The [SDP] of corporate landowner-applicant must give

the qualified beneficiaries the right to purchase at least such proportion of the capital stock of
the corporation that the agricultural land, actually devoted to agricultural activities, bears in
relation to the corporation’s total assets under such terms and conditions as may be agreed
upon by them.

Section 4. Stock Distribution Plan¾The [SDP] submitted by the corporate landowner-

applicant shall provide 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. This distribution plan in all cases, shall be at least the minimum ratio
for purposes of compliance with Section 31 of RA 6657.

On top of the minimum ratio provided under Section 3 of this Implementing Guideline,
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.

Section 5. Criteria for Evaluation of Proposal¾The [SDP] submitted by the corporate

landowner-applicant shall meet the following minimum criteria:

a. that the continued operation of the corporation with its agricultural land intact and
unfragmented is viable with potential for growth and increased profitability;

b. that the plan for stock distribution to qualified beneficiaries would result in
increased income and greater benefits to them, than if the lands were divided and
distributed to them individually;

c. that the stock distribution plan is acceptable to a majority, defined as 50% plus 1,
of all the qualified beneficiaries;

d. that the plan shall include a provision that the books of the corporation shall be
subject to periodic audit by certified public accountants chosen by the beneficiaries;

e. that irrespective of the value of the beneficiaries equity in the corporation, they
shall be assured of at least one (1) representative in the Board of Directors or in a
management or executive committee, if one exists x x x;

f. that a beneficiary who avails of a stock option must first execute the necessary
waiver from being a beneficiary in another stock distribution plan x x x;

g. other criteria that the DAR may prescribe x x x.

Section 6. Valuation and Compensation¾The valuation of corporate assets submitted by the

corporate landowner-applicant in this proposal shall be subject to verification and audit
examination by DAR. The determination of the value of the agricultural land shall be based
on the land valuation guidelines promulgated by DAR.

Section 7. Modes of Stock Distribution¾The [SDP] x x x may be effected through divestment

of the existing equity holdings by stockholders or other modes of stock distribution
acceptable to both parties and duly approved by DAR.

Section 8. Limited Transferability of Beneficiaries Stocks x x x.

Section 9. Payment of Shares – The payment of the purchase price of the shares shall be
under such terms and conditions agreed upon by the corporate landowner-applicant and the
beneficiaries, provided that in no case shall the compensation received by the workers, at
the time the shares of stock are distributed, be reduced.

Section 10. Disposition of Proposal¾After the evaluation of the [SDP] submitted by the
corporate landowner-applicant to the [DAR] Secretary, he shall forward the same with all the
supporting documents to the Presidential Agrarian Reform Council (PARC), through its
Executive Committee, with his recommendation for final action.

Section 11. Implementation / Monitoring of Plan¾The approved [SDP] 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 the stock and transfer books and submitted to the
Securities and Exchange Commission (SEC) within sixty (60) days from the said
implementation of the [SDP].

Upon completion, the corporate landowner-applicant shall be issued a Certificate of

Compliance. The [DAR] Secretary x x x shall strictly monitor the implementation to determine
whether or not there has been compliance with the approved [SDP] as well as the
requirements of the CARP. For this purpose, the corporate landowner-applicant shall make
available its premises for ocular inspection, its personnel for interview, and its records for
examination at normal business hours.

Section 12. Non-compliance with any of the requirements of Section 31 of RA 6675, as

implemented by this Implementing Guidelines shall be grounds for the revocation of the
Certificate of Compliance issued to the corporate landowner-applicant.
 Section 13. Nothing herein shall be construed as precluding the PARC from making its own
independent evaluation and assessment of the stock distribution plan x x x and in prescribing
other requirements.

28 Rollo, p. 386.

29 Id. at 148.

30 Id. at 3767.

31 Id. at 1318-1319.

32 Id. at 3736-3740.

33 Id. at 147-150.

34Id. at 3746. The figure is lifted from "A Proposal for Stock Distribution under CARP"; Memorandum
of HLI, Annex "A."

35 Id. at 3730-3748.

A PROPOSAL FOR STOCK DISTRIBUTION UNDER C.A.R.P.

Tarlac Development Corporation, [Tadeco] engaged principally in agricultural pursuits,

proposes to comply with the Comprehensive Agrarian Reform Program (C.A.R.P.) x x x with
[regard] to its farm x x x "Hacienda Luisita" by availing of Section 31 of [RA] 6657 which
allows a corporate landowner to choose between physically dividing its agricultural land
subject to agrarian reform among its farmworkers and adopting a plan of distribution to the
same beneficiaries of the shares of the capital stock of the corporation owning the
agricultural land.

In view of the fact that the portions of Hacienda Luisita devoted to agriculture, consisting of
approximately 4,915.75 hectares, if divided and distributed among more or less 7,000
farmworkers as potential beneficiaries, would not be adequate to give the said farmhands a
decent means of livelihood, [Tadeco] has decided to resort to the distribution of shares to the
qualified beneficiaries as the better and more equitable mode of compliance with the
C.A.R.P.

One of the important businesses of [Tadeco] was to operate Hacienda Luisita which is a
sugarcane farm, the agricultural parts of which x x x have an aggregate area of about
4,915.75 hectares.

Prior to 1981, [Tadeco] operated the said farm x x x manually. The only mechanized portion
of the operation then was the preparation of the land. Under this system of cultivation,
production was so exiguous that the yield per hectare was even below the break-even point.
To survive the crippling economic crisis begotten by the depressed price of sugar [Tadeco]
began introducing in Hacienda Luisita in 1981 new technology in sugarcane farming by way
of mechanization. The size and contiguous nature of the land made the mechanized
approach ideal. Its intention was not to cut cost thru labor displacement but to take
advantage of the better productivity level accruing to this type of operation.

In no time at all, x x x the yield per hectare almost doubled and went up to 80 tons. And what
was before a marginal operation became a viable one.

FARMWORKER-BENEFICIARIES

Hacienda Luisita, as an agricultural enterprise, employs at the moment 6,296 farmworkers,

excluding those whose names have been dropped from the list for not having worked in the
farm for the past two years. Its labor complement consists of 337 permanent farmworkers,
275 seasonal, 3,807 casuals who are master list members and 1,877 casuals who are non-
master list members, although it actually needs only 4,047 of them to run the farm.

Since its acquisition of Hacienda Luisita in 1958, [Tadeco] has never resorted to
retrenchment in personnel even during extremely difficult times x x x, which saw the sugar
industry on the brink of collapse. It has promptly complied with increases in the minimum
wage law. There has been no collective bargaining negotiation that did not produce an
across-the-board increase in wages for labor, so that a Hacienda Luisita worker received
compensation much higher than the floor wage prescribed for the sugar industry.
For Crop Year 1987-88, [Tadeco] paid a total of P48,040,000.00 in terms of salaries and
wages and fringe benefits of its employees and farmworkers in Hacienda Luisita. Among the
fringe benefits presently enjoyed by its personnel, under their existing collective bargaining
agreement [CBA] with management, are the following:

1.) 100% free hospitalization and medical plan for all employees and workers, and
their spouses, children and parents;

2.) Service and amelioration bonuses;

3.) Interest-free loans on education, rice and sugar, and salary and special loans;

4.) Bus fare subsidy for students who are children of employees and workers in the
farm, and

5.) Retirement plan that is fully funded and non-contributory.

To be entitled to the above-mentioned benefits, a qualified worker has only to work for 37
days in one crop year.

SPIN-OFF CORPORATION

To expedite compliance with the requirements of the [CARP] on stock distribution and at the
same time assure the farmworker-beneficiaries of the farm of receiving greater benefits than
if the agricultural land were to be divided among them instead, [Tadeco] conceived of
separating the agricultural portions of Hacienda Luisita from the rest of its business and
transferring and conveying the said agricultural land and such properties, assets, equipment,
rights, interests and accounts related to its operation, including liabilities, obligations and
encumbrances incurred thereby, to another corporation separate and distinct, and for that
purpose caused, thru its controlling stockholders, the registration and incorporation of [HLI]
on August 23, 1988, as the entity to serve as the spin-off vehicle in whose favor the said
properties and assets were later on to be transferred and conveyed.

Capital Structure. – To accommodate such transfer of assets, [HLI], with the approval of the
[SEC], increased its authorized capital stock on May 10, 1989, from P1,500,000.00, divided
into 1,500,000 shares with a par value of P1.00 per share, to P400,000,000.00, divided into
400,000,000 shares also with a par value of P1.00 per share, 150,000,000 of which issuable
only to qualified and registered beneficiaries of the (C.A.R.P.) and 250,000,000, to any
stockholder or stockholders of the corporation.

Valuation of Assets Transferred. – By virtue of a Deed of Assignment and Conveyance

executed on March 22, 1989, [Tadeco] subscribed to P355,131,462.00 worth of shares in the
increase in authorized capital stock of the spin-off corporation, [HLI], and in payment of its
subscription transferred and conveyed to the latter the agricultural portions of Hacienda
Luisita x x x having a total area of 4,915.7466 hectares, which are covered x x x together
with such other properties, assets, equipment, rights, interests and accounts as are
necessary in the operation of the agricultural land.

Such properties and assets contributed by [Tadeco] to the capital stock of [HLI], as
appraised and approved by the [SEC], have an aggregate value of P590,554,220.00, but
inasmuch as the conveyance of assets also involved the transfer of liabilities to the spin-off
corporation, the net value left, after deducting the total liabilities of the farm amounting to
P235,422,758.99, is P355,131,462.00 which is precisely the amount of [Tadeco’s]
subscription to the increase in capital stock of [HLI].

The total value of the properties and assets transferred and conveyed by [Tadeco] to [HLI]
amounting to P590,554,220.00 may be broken down as follows:

1.) Agricultural land, x x x totaling 4,915.7466

hectares at their fair market value
of P40,000.00 per hectare ……………………… P196,630,000.00

2.) Machinery and Equipment, x x x consisting

of heavy equipment, [etc.] ……………………... 43,932,600.00
3.) Current Assets x x x …………………………… 162,638,993.00

4.) Land Improvements, in the nature of

roads, culverts, bridges, [etc.] ………………….. 31,886,300.00
 5.) Unappraised Assets, such as railroad
system and equipment, x x x and construction
in progress……………………………………… 8,805,910.00
6.) Long Term Note Receivable …………………... 28,063,417.00

7.) Residential Land, with a total

area of 120.9234 hectares at their
appraisal value of P50.00 per sq. m. …………… 60,462,000.00

8.) Land, consisting of 187 lots used for

roads, railway, canals, lagoons, x x x
having an aggregate area
of 265.7495 hectares …………………………… 58,135,000.00

The break down of the liabilities and obligations contracted in operating the farm land of
Hacienda Luisita [totaling P235,422,758.00] and that have to be deducted from the total
value of the properties and assets transferred to arrive at their net value, is hereinbelow
indicated:

xxxx

The above valuations of both assets and liabilities have been given the imprimatur of the
[SEC] by reason of its approval of the increase in the authorized capital stock of [HLI], the
subscription to such increase of [Tadeco], and the payment by [Tadeco] of its subscription
thru transfer of assets and liabilities. Consequently, the net value of the assets and
properties transferred to [HLI] of P355,131,462.00, if added to the subscription of the
incorporators [HLI] to the original authorized capital stock of the said corporation amounting
to P400,000.00, would give us the total capital stock subscribed and outstanding of [HLI] of
P355,531,462.00 which, as will be seen later on, plays an important role in determining what
amount of shares of the capital stock of [HLI] may be distributed among its farmworker-
beneficiaries pursuant to Section 31 of Republic Act No. 6657.

MECHANICS OF STOCK DISTRIBUTION PLAN

Under Section 31 of [RA] 6657, a corporation owning agricultural land may distribute among
the qualified beneficiaries such proportion or percentage of its capital stock that the value of
the agricultural land actually devoted to agricultural activities, bears in relation to the
corporation’s total assets. Conformably with this legal provision, [Tadeco] hereby submits for
approval a stock distribution plan that envisions the following:

1.) The percentage of the value of the agricultural portions of Hacienda Luisita
(P196,630,000.00) in relation to the total assets (P590,554,220.00) transferred and
conveyed to the spin-off corporation, x x x is 33.3%, or to be exact, 33.296%, that in
accordance with law, is the proportion of the outstanding capital stock of the
corporation owning the agricultural land, which is P355,531,462.00 or 355,531,462
shares with a par value of P1.00 per share, that is proposed to be distributed to the
qualified beneficiaries of the plan.

2.) The said 33.3% of the outstanding capital stock of [HLI] is P118,391,976.85 or
118,391,976.85 shares with a par value of P1.00 per share.

3.) The qualified beneficiaries of the [SDP] shall be the farmworkers who appear in
the annual payroll, inclusive of the permanent and seasonal employees, who are
regularly or periodically employed by [HLI] x x x.

4.) [HLI] shall arrange with [Tadeco] at the end of each fiscal year, for a period of 30
years, the acquisition and distribution to the farmworker-beneficiaries, on the basis of
number of days worked during the year and at no cost to them, of one-thirtieth (1/30)
of 118,391,976.85 shares of the capital stock of [HLI], equivalent to
P118,391,976.85, that are presently owned and held by [Tadeco], until such time as
the entire block of P118,391,976.85 shares shall have been completely acquired and
distributed among the farmworker-beneficiaries.

5.) [HLI] guarantees to the qualified beneficiaries of the stock distribution plan that
every year they will receive, on top of their regular compensation, an amount that
approximates three (3%) percent 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.
 6.) Even if only a part or fraction of the shares earmarked for distribution will have
been acquired from [Tadeco] and distributed among the farmworker-beneficiaries,
[Tadeco] 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 [HLI] at the start of the said year which will empower the said farmworkers or their
representative to vote in stockholders’ meetings of [HLI] convened during the year
the entire 33.3% of the outstanding capital stock of [HLI] earmarked for distribution
and thus be able from the very beginning to gain such number of seats in the board
of directors of [HLI] that the whole 33.3% of the shares subject to distribution will be
entitled to.

7.) In addition, [HLI] 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 barrio or barangay where it actually resides.

STOCK RIGHTS AND RESTRICTIONS

As previously explained, the amendment of the articles of incorporation of [HLI] increasing its
capital stock provided for the classification of its shares of stock into two types: Class "A" and
Class "B" shares. Shares of stock representing the proportion of the outstanding capital
stock of the said corporation to be distributed among its farmworker-beneficiaries shall
constitute the Class "A" shares, while the rest of the capital stock shall become Class "B"
shares or shares sans any restrictions and can be issued to any stockholder.

Class "A" shares have the same rights as the x x x Class "B" shares. But their issuance
being limited to farmworker-beneficiaries only, Class "A" shares are subject to the restriction
that for a period of 10 years from and after their distribution, no sale, transfer or conveyance
of such shares x x x shall be valid unless it be by hereditary succession or in favor of
qualified and registered beneficiaries within the same corporation. This limitation on the
transferability appears x x x in the amended articles of incorporation of [HLI] and in due time
will be printed on the corresponding certificates of stock of that type of shares.

Limiting the effectivity of the restriction to 10 years finds support in Section 27 of the
Republic Act No. 6657 which makes land distributed among beneficiaries under the [CARP]
non-transferable for only 10 years, and since stock distribution is a lawful alternative to the
fragmentation of land, the said legal provision should equally apply to a case where stock
option is the choice.

ADVANTAGES OF STOCK PLAN OVER LAND DISTRIBUTION

There are puissant reasons behind [Tadeco’s] preference for stock distribution to land
apportionment, and they are the following:

1.) The physical fragmentation and distribution of the agricultural segments of

Hacienda Luisita, among potential farmworker-beneficiaries who number
approximately 7,000 would result in each individual farmhand receiving less than a
hectare of land that in no way could produce enough to enable him to lead a
comfortable life;

2.) As the recipient of a parcel of agricultural land, the farmworker has to take care of
injecting the necessary inputs needed by the land and shoulder the cost of
production, and

3.) The farmworker incurs the obligation of paying to the government for his share of
the agricultural land, although the law allows him 30 years within which to do it.

On the other hand, the stock distribution plan envisaged by [Tadeco] contemplates of:

A. Distributing the shares of stock over a number of years among the qualified
beneficiaries at no cost to them;

B. Allowing the farmworker to continue to work on the land as such and receive the
wages and other benefits provided for by his [CBA] with the corporate landowner;

C. Entitling him to receive dividends, whether in cash or in stock, on the shares

already distributed to him and benefit from whatever appreciation in value that the
said shares may gain as the corporation becomes profitable;
 D. Qualifying him to become the recipient of whatever income-augmenting and
benefit-improving schemes that the spin-off corporation may establish, such as the
payment of the guaranteed three (3%) percent of gross sales every year and the free
residential or homelots to be allotted to family beneficiaries of the plan, and

E. Keeping the agricultural land intact and unfragmented, to maintain the viability of
the sugar operation involving the farm as a single unit and thus warrant to the
acknowledged farmworker-beneficiaries, hand-in-hand with their acquisition of the
shares of the capital stock of the corporation owning the land, a continuing and
stable source of income.

Indeed, the stock distribution plan of [Tadeco] x x x has many strong points and adherence
to the law is one of them.

For instance, in arranging for the acquisition by the farmworker-beneficiaries of shares of the
capital stock of the corporation owning the land gratis, the corporate landowner upholds
Section 9 of the Guidelines and Procedures promulgated to implement Section 31 of [RA]
6657, which prohibits the use of government funds in paying for the shares. Moreover, the
plan for the free dispersal of shares will not in any way diminish the regular compensation
being received by the farmworker-beneficiaries at the time of share distribution, which is
proscribed by Section 31 of [RA] 6657.

IMPORTANCE TO ECONOMIC DEVELOPMENT

Hacienda Luisita at present is the principal source of sugarcane needed by a sugar mill
owned and operated by [CAT] in the area. It supplies 50% of the sugarcane requirement of
the mill that has 1,850 employees and workers in its employ. Any disruption in the present
operation of Hacienda Luisita which would affect its present productivity level would therefore
automatically influence the operational viability of the sugar factory x x x and which, in turn,
would have repercussions on the livelihood of the present employees and workers of the mill
as well as the livelihood of the thousands of sugarcane planters and their families within the
Tarlac sugar district being serviced by the sugar mill.

On the other hand, the well-being of the sugar mill has to be the prime concern also of the
corporate owner of Hacienda Luisita, simply because it is the entity that mills and converts
the sugarcane produce of the latter to a finished product. Not only that. By milling with [CAT]
which has the most efficient sugar mill in the region, the corporate owner of Hacienda Luisita
in effect guarantees to itself maximum recovery from its farm’s sugarcane – something that is
essential to its financial capability. In other words, the relationship between farm and mill is
one of absolute reciprocity and interdependence. One cannot exist without the other.

The importance of the agricultural land of Hacienda Luisita staying undivided cannot be
gainsaid. For it to remain lucrative, it has to be operated as a unit x x x. And on its successful
operation rests the well-being of so many businesses and undertakings in the province, or in
a wider perspective, in the region, that are largely dependent upon it for existence.

CONFORMITY OF FARMWORKER-BENEFICIARIES

On May 11, 1989, a historic event took place in Hacienda Luisita when the representatives of
[Tadeco] and [HLI] and 5,848 farmworker-beneficiaries inked their accord, in the presence of
officials of the [DAR], to a [MOA] that embodies the stock distribution plan subject of this
proposal. The said 5,848 farmworker-beneficiaries who gave their conformity to the
agreement represent 92.9% of their entire complement which is much more than the majority
(50% plus one) that the law requires.

CONCLUSION

Here is a stock distribution plan that calls for the acquisition and distribution every year, for
the next 30 years, of 3,946,399.23 shares, worth P3,946,399.23, of the capital stock of the
corporation owning the agricultural land among its qualified farmworker-beneficiaries at no
cost to them. It also guarantees to pay to them each year the equivalent of three (3%)
percent of the gross sales of the production of the land, which is about P7,320,000.00 yearly,
irrespective of whether the said corporation makes money or not. It contemplates of allowing
the farmworker-beneficiaries from the very start to occupy such number of seats in the board
of directors of the corporate landowner as the whole number of shares of stock set aside for
distribution may entitle them, so that they could have a say in forging their own destiny. And
last but not least, it intends to help give the same farmworker-beneficiaries, who are
qualified, adequate shelter by providing residential or homelots not exceeding 240 sq.m.
each for free which they can call their own.
 The above stock distribution plan is hereby submitted on the basis of all these benefits that
the farmworker-beneficiaries of Hacienda Luisita will receive under its provisions in
addition to their regular compensation as farmhands in the agricultural enterprise and the
fringe benefits granted to them by their [CBA] with management. x x x

36Under DAO 10, Sec. 1b.), par. 2, "the acceptance of the [SDP] by the majority of all the qualified
beneficiaries shall be binding upon all the said qualified beneficiaries within the applicant
corporation."

37 Rollo, p. 14.

38 Id. at 1308-1309.

39 Id. at 1310-1313.

40 Entitled "Resolution Approving the Stock Distribution Plan of [Tadeco]/HLI."

41 Rollo, p. 151.

42 Id. at 3667-3668.

43 Id. at 647-650.

44 Id. at 80, Petition of HLI; id. at 944, Consolidated Reply of HLI; id. at 1327-1328.

45 Id. at 651-664.

46 Id. at 1485-1487.

47 Id. at 1483-1484.

48 Id. at 1492-1493.

49 Id. at 1362.

50 Id. at 3669.

51 Id. at 1499-1509, via a Deed of Sale dated July 30, 1998.

52 Id. at 1362.

53 Id. at 1514-1518.

54 Id. at 1519-1520.

55 Id. at 1521-1522.

56 TSN, August 18, 2010, pp. 153-155.

57 Rollo, pp. 153-158, signed by 62 individuals.

58 Id. at 546.

59 Id. at 175-183.

60Id. at 442, Mallari’s Comment to Petition. Mallari would, per his account, breakaway from AMBALA
to form, with ex-AMBALA members, Farmers Agrarian Reform Movement, Inc. or FARM.

61 Id. at 159-174.

62 Id. at 184-192.

63 Id. at 679-680.

64Id. at 386-405. The following are the pertinent findings of the Special Task Force as stated in its
Terminal Report:
IV. IDENTIFICATION OF THE PROBLEMS/ISSUES/CONCERNS:

Matrix on the Comparative Views of the Farmer Groups vis-à-vis those of HLI Management,
Along With the Corresponding FGD/OCI. Results was prepared and the compliance reports
submitted, the petitions of the FWBs, particularly the AMBALA and the Supervisory Group,
together with the respective responses to said petitions by HLI management and the
FGD/OCI results were utilized to make a comparative summary, exemplified hereunder.

1. INDIVIDUAL ISSUES RAISED BY THE SUPERVISORY GROUP OF HACIENDA

LUISITA INCORPORATED VIS-Á-VIS REJOINDER OF HLI AND OBSERVATION OF TF.

1.1. Issue: Non-enjoyment of the rights and privileges that were supposed to be
given to the FWBs as stated in the [MOA] prompted the supervisory group to claim
for the "one percent (1%)" share from the HLI representing their share as supervisors
during the transition period.

 HLI management: Such claim is a total misapprehension of Section 32 of

R.A. No. 6657, the last paragraph of which requires the payment of 1% of the
gross sale to managerial, supervisory and technical workers at the time of the
effectivity of R.A. No. 6657. There were no such managerial employees and
supervisors engaged in temporarily managing and supervising the operation
of the land until its final turnover to the farmworkers since there was no land
to transfer in the first place.
 The Task Force position: That Section 32 of R.A. No. 6657 may not directly
apply to the instant case but the non-realization of the said 1% share of
expectation in the gross sale is a cause of disenchantment. The claim for the
1% share is not included in the MOA. x x x

1.2. Issue: Non-receipt of the 10% dividend

 HLI contends that the distribution of said dividend does not apply to corporate
farms like HLI which opted for the SD Plan.
 Task force finding: The FWBs do not receive such financial return despite the
stipulation on the matter.

1.3. Issue: On the three percent (3%) out of the thirty three percent (33%)
representing the equity shares given from the proceeds of the sale of the 500
hectares (converted to non-agricultural use).

 The HLI management argues that the corporation, banking on the legal
fiction of separate corporate existence, is not obliged to give 33% of the
gross selling price of the land since the legal owner is the corporation itself
and not the stockholders. And the 3% was given by the HLI merely as a
bonus for the FWBs.
 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.

1.4. Issue: Illegal conversion and financial incapability of HLI to proceed with the
proposed development, thereby leaving the areas unproductive.
  The HLI management contends that the Petition for Conversion was duly
approved by the DAR on 14 August 1996 and it had the conformity of more
than 5,000 FWBs who signed a manifesto of support.
 In the Petitions and/during the OCI/FGD [Ocular Inspection/Focused Group
Discussion] the 500 hectares subject of conversion appear to still remain
undeveloped. A clear example is the Central Techno Park which has a
landscaped entrance and concrete roads but the only things which can be
seen inside the premises are cogon grasslands. The FWBs further
maintained that they were either not given any monetary benefit from the
conversion of the 500 hectares or that they were only partially given.

2. CONCERNS MANIFESTED IN THE PETITION FILED BY THE ALYANSA NG MGA

MANGGAGAWANG BUKID NG HACIENDA LUISITA (AMBALA) LED BY MR. RENE
GALANG

2.1. Issue: That DAR Administrative Order No. 10, series of 1988, guidelines in the
corporate availment of SDO, should observe Section 31 of R.A. No. 6657 qualified
beneficiaries and provide that they (FWBs) be allowed to buy the land from the
company.

The HLI management posits the proposition that Section 31 is very clear and
unambiguous. It grants to the FWBs the right to purchase shares of stocks in the
corporation that owns the agricultural land itself and not the land. HLI is correct in this
unless the SDP is disregarded.

2.2. Issue: Cancellation of the SDO and immediate coverage of the area are
requested as the agreements in the implementation of the SDO were allegedly not
followed/complied with.

 The HLI management warranted that subject SD Plan is the most feasible
scheme/alternative vis-à-vis physical distribution of the landholding under
compulsory acquisition.
 During the FGD/OCI, it was represented that the terms, conditions and
benefits provided for in the MOA/commitment appear not to have been
substantially followed. Hereunder, is a more detailed discussion of the
issues:

2.2.1. On the issue of non compliance with the MOA

* FWBs are supposed to receive P700-800 dividends annually.

* P800-1000 production sharing per year. The Hacienda is operating continuously

which only proves that the Hacienda is earning.

 HLI, however, claims that it is not incurring profits, thus, there are no
dividends to be distributed. But the shares of stocks and 3% production share
have been given.
 FGD/OCI finding shows that the number of shares of stocks to be received
by the FWBs, depends on their designation (i.e., permanent, casual or
seasonal) and on the number of man days. Retired and retrenched workers
are not given shares of stocks and cease as share holders. Undisputedly, the
setup under the MOA is one-sided in favor the HLI. The work schedule, upon
which the extent of entitlement to be granted shares of stock is wholly within
the prerogative and discretion of HLI management that a FWB can still be
denied thereof by the simple expediency of not giving him any working
hours/days. And this is made possible by the fact that [there] are more
farmers/farmworkers in its employ than what is, according to HLI, necessary
to make it operational.

2.2.2. On the issue of representation

 It was verified that the Board of Directors election is annually conducted.

However, majority of the FWBs are no longer interested and, in fact, have
boycotted the elections because of the minority representation of the FWBs
(4 as against 7). They claim that they are always outnumbered and some
claim that the representatives elected are pro management. x x x [N]o fruitful
and harmonious corporate activities can be expected as any resistance will
be counter-productive, that to continue the operation under the SDP that is
challenged herein will only be an empty exercise. The farmers and
 farmworkers will not, under the circumstances, be able to realize the
contemplated receipt of benefits under the Program.

2.2.3. On the issue of the 240-square meter homelot

 As to the 240 square meter homelots, not all of the FWBs were given
homelots. Of those given, they complain that they still do not have the
corresponding titles. And, those already given titles maintain that said
documents are useless as such, for they cannot even be used as bank
collaterals, despite even the lapse of the 5-year prescriptive period, because
banks and other financial institutions refuse to honor the same without
clearance from the HLI management. x x x

2.2.4. On the issue of coverage of the Hacienda

 The HLI contends that dividing the 4,915.75 hectares among 6,296
beneficiaries would result to a farm lot of 0.78 hectare per individual FWB,
which is not an economic size farm. Differences in the physical conditions of
the landholding must be considered such as soil fertility and accessibility.
The question of who would get the fertile or accessible part of the land and
who would receive less would result/culminate in a "battle royale" among the
FWBs.

DAR has established guidelines on the matter of such allocations and no problem
has been encountered in its implementation of the CARP. By and large for a whole
scale cultivation and production, formation of cooperatives has proven to be an
effective mechanism to address the problem. The law even encourages the use of
such combination [cf. Section 29, (3rd par.), Rep. Act No. 6657]. lawphi 1

2.2.5. On the agreement that other benefits will be given other than those provided
for in the MOA

 It was stipulated that the SDO would provide the FWBs other benefits x x x a
less than a hectare-farm would not be able to provide, like the 3% of the
gross production sales, to be shared with the FWBs, on top of their regular
compensation.
 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)].

V. PRELIMINARY CONSIDERATIONS

1. The common issues raised by the petitioners are focused on the revocation of the
existing SDO that was proposed by HLI and approved by the PARC on ground,
among others that the provisions of Section 31 of R.A. No. 6657, upon which the
SDO/SDP was based is contrary to the basic policy of the agrarian reform program
on Land Acquisition and Redistribution, as may be gleaned from the second
paragraph of Section 2 of R.A. No. 6657, which reads:

"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 farmworkers with the opportunity
to enhance their dignity and to improve the quality of their lives through greater
productivity of agricultural lands." (underscoring supplied).

Envisioned in the foregoing provision is the physical land transfer to prospective

beneficiaries as reiterated in Section 5 thereof, as follows:

"Schedule of Implementation. The distribution of all lands covered by this Act shall be
implemented immediately and completed within ten (10) years from the effectivity
thereof".

2. While SDO/SDP is an alternative arrangement to the physical distribution of lands

pursuant to Section 31 of R.A. No. 6657, logic and reason dictate that such
agreement must materialize within a specific period during the lifetime of CARP,
stating clearly therein when such arrangement must end. The aforementioned
provision may be considered as the provision of the law on "suspended coverage",
parallel to the provisions of Section 11 on Commercial Farming where coverage of
CARP is deferred for ten (10) years after the effectivity of Republic Act No. 6657.
 Stated simply, owners of commercial farms are given a chance to recoup their
investment for ten (10) years before same is finally subjected to coverage under the
CARP.

VI. FINDINGS, ANALYSIS AND RECOMMENDATION:

1. Providing for the quintessence and spirit of the agrarian reform program, Republic
Act No. 6657 explicitly provides:

"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 farmworkers will receive the highest consideration to promote
social justice and to move the nation toward sound rural development and
industrialization, and the establishment of owner cultivatorship of economic-size
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 farmworkers with the opportunity
to enhance their dignity and improve the quality of their lives through greater
productivity of agricultural lands" (underscoring added). 1avvphil

Within the context of the foregoing policy/objective, the farmer/farmworker

beneficiaries (FWBs) in agricultural land owned and operated by corporations may
be granted option by the latter, with the intervention and prior certification of DAR, "x
x x 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 asset x x x" (Section 31, Rep. Act NO. 6657). Toward this end, DAR
issued Administrative Order No. 10, series of 1988, copy of which is attached as
Annex "K" and made an integral part hereof, which requires that the stock distribution
option (SDO) shall meet the following criteria, reading, inter alia:

"a. that the continued operation of the corporation with its agricultural land
intact and unfragmented is viable, with potential for growth and increased
profitability;

"b. that the plan for stock distribution to qualified beneficiaries would result in
increased income and greater benefits to them, than if the lands were divided
and distributed to them individually;

xxxx

And to ensure, effective and fair implementation of the contemplated Stock

Distribution Plan (SDP), the said AO also provides:

"SECTION 12. Revocation of Certificate of Compliance¾Non-compliance with any of

the requirements of Section 31 of RA 6657, as implemented by these Implementing
Guidelines shall be grounds for the revocation of the Certificate of Compliance
issued to the corporate landowner-applicant.

SECTION 13. Reservation Clause¾Nothing herein shall be construed as precluding

the PARC from making its own independent evaluation and assessment of the stock
distribution plan of the corporate landowner-applicant and from prescribing other
requirements."

Herein, however, there is yet no Certificate of Compliance issued.

The reason is simple. Despite the lapse of sixteen (16) years, from the time the SDP
was approved in November 1989, by resolution of the x x x (PARC), the objective
and policy of CARP, i.e., acquisition and distribution (herein under the [SDP], only
shares of stocks) is yet to be fully completed; the FWBs, instead of the
promised/envisioned better life under the CARP (therein, as corporate owner), do still
live in want, in abject poverty, highlighted by the resulting loss of lives in their
vain/futile attempt to be financially restored at least to where they were before the
CARP (SDP) was implemented. While they were then able to make both ends meet,
with the SDP, their lives became miserable.

2. For the foregoing considerations, as further dramatized by the following

violations/noncompliance with the guidelines prescribed, which are legally presumed
 as integrated in the agreements/accords/stipulations arrived at thereunder like the
HLI SDP, namely:

2.1. Noncompliance with Section 11 of Administrative Order No. 10, Series of 1988,
which provides:

"The 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 the stock and transfer books and submitted to the
Securities and Exchange Commission (SEC) within sixty (60) days from the said
implementation plan."

The [SDP], however, submitted a 30-year implementation period in terms of the

transfer of shares of stocks to the farmworkers beneficiaries (FWBs). The MOA
provides:

"At the end of each fiscal year: for a period of 30 years, SECOND PARTY shall
arrange with the FIRST PARTY the acquisition and distribution to the THIRD PARTY
on the basis of the number of days worked and at no cost to them of one-thirtieth
(1/30) of …"

Plainly, pending the issuance of the corresponding shares of stocks, the FWBs
remain ordinary farmers and/or farmworker and the land remain under the full
ownership and control of the original owner, the HLI/TADECO.

To date the issuance and transfer of the shares of stocks, together with the recording
of the transfer, are yet to be complied with.

2.2. Noncompliance with the representations/warranties made under Section 5 (a)

and (b) of said Administrative Order No. 10.

As claimed by HLI itself, the corporate activity has already stopped that the
contemplated profitability, increased income and greater benefits enumerated in the
SDP have remained mere illusions.

2.3. The agricultural land involved was not maintained "unfragmented". At least, 500
hectares hereof have been carved out after its land use has been converted to non-
agricultural uses.

The recall of said SDP/SDO of HLI is recommended. More so, since:

1. It is contrary to Public Policy

Section 2 of [RA] 6657 provides that the welfare of landless farmworkers will receive the
highest consideration to promote social justice. As such, the State undertake a more
equitable distribution and ownership of land that shall provide farmworkers with the
opportunity to enhance their dignity and improve the quality of their lives through greater
productivity of agricultural lands.

In the case of Hacienda Luisita, the farmworkers alleged that the quality of their lives has not
improved. In fact it even deteriorated especially with the HLI Management declaration that
the company has not gained profits, in the last 15 years, that there could be no declaration
and distribution of dividends.

2. The matter of issuance/distribution shares of stocks in lieu of actual distribution of the

agricultural land involved, was made totally dependent on the discretion/caprice of HLI.
Under the setup, the agreement is grossly onerous to the FWBs as their man days of work
cannot depart from whatever management of HLI unilaterally directs.

They can be denied the opportunity to be granted a share of stock by just not allowing them
to work altogether under the guise of rotation. Meanwhile, within the 30-year period of
bondage, they may already reach retirement or, worse, get retrenched for any reason, then,
they forever lose whatever benefit he could have received as regular agrarian beneficiary
under the CARP if only the SDP of HLI were not authorized and approved.

Incidentally, the FWBs did not have participation in the valuation of the agricultural land for
the purpose of determining its proportionate equity in relation to the total assets of the
corporation. Apparently, the sugarlands were undervalued.
 3. The FWBs were misled into believing by the HLI, through its carefully worded Proposal
that "x x x the stock distribution plan envisaged by [Tadeco], in effect, assured of:

"A. Distributing the shares of stock over a numbers of years among the qualified
beneficiaries at no cost to them;

B. Allowing the farmworker to continue to work on the land as such and receive the
wages and other benefits provided for by his collective bargaining agreement with
the corporate landowner;

C. Entitling him to receive dividends, whether in cash or in stock, on the shares

already distributed to him and benefit from whatever appreciation in value that the
said shares may gain as the corporation becomes profitable;

D. Qualifying him to become the recipient of whatever income-augmenting and

benefit-improving schemes that the spin-off corporation may establish, such as the
payment of the guaranteed three (3%) percent of gross sales every year and the free
residential or homelots to be allotted to family beneficiaries of the plan; and

E. Keeping the agricultural land intact and unfragmented, to maintain the viability of
the sugar operation involving the farm as a single unit and thus warrant to the
acknowledged farmworker-beneficiaries, hand-in-[hand] with their acquisition of the
shares of the capital stock of the corporation owing the land, a continuing and stable
source of income." (Annex "A", supra).

At the expense of being repetitive, the be sugar-coated assurances were, more than enough
to made them fall for the SDO as they made them feel rich as "stock holder" of a rich and
famous corporation despite the dirt in their hands and the tatters, they use; given the feeling
of security of tenure in their work when there is none; expectation to receive dividends when
the corporation has already suspended operations allegedly due to loses; and a stable sugar
production by maintaining the agricultural lands when a substantial portion thereof of, almost
1/8 of the total area, has already been converted to non-agricultural uses.

65 Id. at 694-699.

66 Id. at 339-342.

67 Id. at 100.

68 Id. at 101.

69 Id. at 146.

70 Id. at 107-140.

71 Id. at 103-106.

72 Id. at 19.

73
Id. at 52

74 Id. at 255-256.

75 Id. at 257-259.

76 Id. at 334-367.

77 Id. at 436-459.

78Attys. Edgar Bernal and Florisa Almodiel signed the motion/manifestation as counsel of Mallari
and/or FARM.

79The Supervisory Group later teamed up with the AMBALA-Mallari faction. For brevity, they are
referred to herein as the "AMBALA-Mallari-Supervisory Group."

80 Rollo, pp. 530-641.

81 Id. at 1350-1359.

82 Id. at 1535-1544.

83 TSN, August 24, 2010, p. 229.

84 Rollo, pp. 3060-3062.

85 Id. at 81.

86 G.R. No. 131457, August 19, 1999, 312 SCRA 751.

87 Rollo, p. 82.

88 Id. at 149.

89Sec. 4. The State shall, by law, undertake an agrarian reform program 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 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 forvoluntary land-sharing.

90 Consumido v. Ros, G.R. No. 166875, July 31, 2007, 528 SCRA 696, 702.

91 TSN, August 18, 2010, p. 141.

92 Rollo, p. 871.

93 Id. at 38.

Atienza v. Villarosa, G.R. No. 161081, May 10, 2005, 458 SCRA 385, 403; citing Chua v. Civil
94

Service Commission, G.R. No. 88979, February 7, 1992, 206 SCRA 65.

95 Id.

96 Id.

97 No. L-55230, November 8, 1988, 167 SCRA 51, 59-60.

98 Public respondents’ Memorandum, p. 24

99 EO 229, Sec. 18.

100 BANAT Party-list v. COMELEC, G.R. No. 177508, August 7, 2009, 595 SCRA 477, 498.

101
G.R. No. 167614, March 24, 2009, 582 SCRA 254, 275-276.

102 Rollo, p. 40; TSN August 18, 2010, p. 74.

DAO 10, Section 11. Implementation / Monitoring of Plan¾The approved [SDP] shall be
103

implemented within three (3) months x x x.

Upon completion [of the stock distribution], the corporate landowner-applicant shall be issued
a Certificate of Compliance. x x x

Section 12. Non-compliance with any of the requirements of Section 31 of RA 6675, as

implemented by this Implementing Guidelines shall be grounds for the revocation of the
Certificate of Compliance issued to the corporate landowner-applicant. x x x

104 TSN, August 24, 2010, p. 13.

Koruga v. Arcenas, G.R. Nos. 168332 and 169053, June 19, 2009, 590 SCRA 49, 68; citing In
105

Re: Petition for Assistance in the Liquidation of the Rural Bank of Bokod (Benguet), Inc., PDIC v.
Bureau of Internal Revenue, G.R. No. 158261, December 18, 2006, 511 SCRA 123, 141.
106 TSN, August 24, 2010, p. 205.

107 Id.

108Garcia v. Executive Secretary, G.R. No. 157584, April 2, 2009, 583 SCRA 119, 129; citing
Franciso, Jr. v. House of Representatives, G.R. No. 160261, November 10, 2003, 415 SCRA 44.

ABS-CBN Broadcasting Corporation v. Philippine Multi-Media System, Inc., G.R. Nos. 175769-70,
109

January 19, 2009, 576 SCRA 262, 289 citing Philippine Veterans Bank v. Court of Appeals, G.R. No.
132561, June 30, 2005, 462 SCRA 336; Apex Mining Co., Inc. v. Southeast Mindanao Gold Mining
Corp., G.R. Nos. 152613, 152628, 162619-20 and 152870-71.

110 Franciso, Jr. v. House of Representatives, supra note 108.

Alvarez v. PICOP Resources, Inc., G.R. Nos. 162243, etc., November 29, 2006, 508 SCRA 498,
111

552.

112 Supra note 108, at 138-139.

An Act Strengthening the CARP, Extending the Acquisition and Distribution of all Agricultural
113

Lands, Instituting Necessary Reforms, Amending for the Purpose Certain Provisions of RA 6657, as
Amended and Appropriating Funds therefor.

114 Quizon v. Comelec, 545 SCRA 635; Mattel, Inc. v. Francisco, 560 SCRA 506.

115 Webster’s Third New International Dictionary Unabridged 444-445 (1993).

116 Id. at 445.

117 Records of the Constitutional Commission, Vol. II, p. 678.

118Sec. 2, 3rd paragraph , of RA 6657 states: The agrarian reform program is founded on the right of
farmers and regular farmers who are landless, to own land directly or collectively the lands they till
or, in the case of other farmworkers to receive a share of the fruits thereof. To this end, the State
shall encourage and undertake the just distribution of all agricultural lands, subject to priorities and
retention limits set forth in this Act x x x.

119 11 Fletcher, Cyc. Corps. (1971 Rev. Vol.) Sec. 5083.

120 Mobilia Products, Inc. v. Umezawa, G.R. Nos. 149357 and 149403, March 4, 2005.

121 Cawaling v. COMELEC, G.R. No. 146319, October 26, 2001, 368 SCRA 453.

122 Basco v. PAGCOR, G.R. No. 138298, November 29, 2000, 346 SCRA 485

123Angara v. Electoral Commission, 63 Phil. 139 (1936); Cawaling v. COMELEC, supra, citing
Alvarez v. Guingona, 252 SCRA 695 (1996).

124 National Food Authority v. Masda Security Agency, Inc., G.R. No. 163448, March 8, 2005.

125 Rollo, p. 794. The PARC resolution also states:

HLI’s implementation of the distribution of the mandatory minimum ratio of land-to-shares of

stock to the ARBs [Agrarian Reform Beneficiaries] was based on man days, within its policy
of no-work no-shares of stock, and not to equal number of shares depending upon their
rightful share, as required in the rules, and therefore practically divested the ARBs, as to
their qualification/entitlement, as ARBs at HLI’s whims, to their disadvantage and prejudice in
the form of diminution in the minimum ration of shares. Having increased x x x the number of
workers (contractual), the equity share of each permanent employee, as of 1989, naturally
had to be, as in fact, reduced.

Further x x x, HLI took it upon itself, or usurped, the duty or mandate of DAR to qualify the
recipient ARBs and imposed its own criteria and discretion in the allocation of the mandatory
minimum ratio of land-to share by basing the distribution on the number of days worked. Still
worse, HLI made allocation to recipients who are not in the ARBs original masterlist as
admittedly, it distributed to about 11,955 stockholders of record 59,362,611 shares
representing the second half of the total number of shares earmarked for distribution
 when in fact there were only 6,296 farm workers or less, at the time when the land was
placed under CARP under the SDP/SDO scheme. (Emphasis added.)

126 Memorandum of Renato Lalic, et al., p. 14.

127 Little Oxford Dictionary 442 (7th ed.).

128 Rollo, p. 3676.

The SGV & Co.’s Independent Auditors Report on HLI for years ended 2009, 2008 and 2007
129

contains the following entries: "[T]he Company has suffered recurring losses from operations and
has substantial negative working capital deficiency. The Company has continued to have no
operations and experienced financial difficulties as a result of a strike staged by the labor union on
November 6, 2004." Rollo, p. 3779, Annex "I" of HLI’s Memorandum.

130 Sec. 5(2).

131 TSN, August 24, 2010, p. 125.

132 MOA, 4th Whereas clause.

133 Memorandum of public respondents, p. 41.

134 HLI Consolidated Reply and Opposition, p. 65.

Herida v. F&C Pawnshop and Jewelry Store, G.R. No. 172601, April 16, 2009, 585 SCRA 395,
135

401.

136 Bascos, Jr. v. Taganahan, G.R. No. 180666, February 18, 2009, 579 SCRA 653, 674-675.

Cannu v. Galang, G.R. No. 139523, May 26, 2005, 459 SCRA 80, 93-94; Ang v. Court of
137

Appeals, G.R. No.80058, February 13, 1989, 170 SCRA 286.

138 TSN, August 18, 2010, p. 58.

139 RA 6657, Sec. 31.

140 DAO 10, s. 1988, Sec. 1.

141 TSN, August 18, 2010, p. 106.

142 Id. at 103-106.

See Abakada Guro Party List v. Purisima, G.R. No. 166715, August 14, 2008, 562 SCRA 251,
143

288-289.

144 Rollo, p. 1362.

145
Lu v. Manipon, G.R. No. 147072, May 7, 2002, 381 SCRA 788, 796.

146 Sandoval v. Court of Appeals, G.R. No. 106657, August 1, 1996, 260 SCRA 283, 295.

147 Cavite Development Bank v. Lim, G.R. No. 131679, February 1, 2000, 324 SCRA 346, 359..

148 G.R. No. 127797, January 31, 2000, 324 SCRA 126, 136-137.

149 Rollo, p. 1568.

150 Duran v. Intermediate Appellate Court, No. L-64159, September 10, 1985, 138 SCRA 489, 494.

151 Rollo, pp. 1499-1509.

152 G.R. No. 150066, April 13, 2007, 521 SCRA 68, 82-83.

153 Supra note 2.

 154 Memorandum of RCBC, p. 52.

155 Id.

156 Id. at 52-53.

157 Id at 53.

Roxas & Company, Inc. v. DAMBA-NFSW, G.R. Nos. 149548, etc., December 4, 2009, 607
158

SCRA 33, 56.

159 RA, 8974, Sec. 6.

See <http://www.congress.gov.ph/committees/commnews/commnews_det.php?newsid=1231> (last

visited June 23, 2011).

160 Manila Motor Co., Inc. v. Flores, 99 Phil. 738, 739 (1956).

161 Fernandez v. P. Cuerva & Co., No. L-21114, November 28, 1967, 21 SCRA 1095, 1104;
citing Chicot County Drainage Dist. V. Baxter States Bank (1940) 308 US 371.

162 No. L-23127, April 29, 1971, 38 SCRA 429, 434-435.

163 G.R. No. 164527, August 15, 2007, 530 SCRA 235.

164 G.R. No. 147817, August 12, 2004, 436 SCRA 273.

See Province of North Cotabato v. GRP Peace Panel on Ancestral Domain, G.R. Nos. 183591,
165

183752, 183893, 183951 and 183962, October 14, 2008, 568 SCRA 402.

166 Rollo, p. 193.

167Id. at 3738. These homelots do not form part of the 4,915.75 hectares of agricultural land in
Hacienda Luisita. These are part of the residential land with a total area of 120.9234 hectares, as
indicated in the SDP.

The Lawphil Project - Arellano Law Foundation

DISSENTING OPINION

CORONA, C.J.:

MR. OPLE. xxxx But when the Constitution directs Congress to the effect that the State shall encourage and
undertake distribution of all agricultural lands, subject to limitations put by law especially on retention limits,
does this contemplate — this question I address to the Committee and particularly to Commissioner Tadeo
— a blanket approach to all agricultural lands so that we do not distinguish between, let us say, the owners
of Hacienda Luisita, the biggest plantation in Luzon with 6,000 hectares[,] and this chap in Laguna or
Quezon who has only 10 hectares of coconut plantation? Sa inyo bang masid at wari ay masasagasaan ng
land distribution ang dalawang ito: ang may-ari ng pinakamalaking hasyenda dito sa Luzon at isang hindi
naman mayaman, ni hindi mariwasa, pangkaraniwang tao lamang na nagmamay-ari ng isang sukat ng
lupang tinatamnan ng niyog na hindi hihigit sa sampung ektarya?

MR. TADEO. Pareho.

xxx xxx xxx

MR. OPLE. xxxx With respect to just a few enormous landed estates, I have already given examples:
Hacienda Luisita, the biggest in Luzon, with 6,000 hectares of rice and corn land and sugar land and with
6,000 tenants and workers; the Canlubang Sugar Estate, just across the city in Laguna; and in the West
Visayas alone with about 30,000 sugar planters or hacenderos — the aggregate for the nation escapes me
for the moment. In the ultimate stage of the land reform program as now envisioned, will all of these estates
be redistributed to their tenants, and if they have no tenants to whom will they be redistributed?

MR. TADEO. The principle is agrarian land for the tillers and land for the landless. x x x1
Agrarian reform is an essential element of social justice under the 1987 Constitution. It "mandates that
farmers and farmworkers have the right to own the lands they till, individually or collectively, through
cooperatives or similar organizations."2 It aims to liberate farmers and farmworkers from bondage to the soil,
to ensure that they do not remain slaves of the land but stewards thereof.

The decision of the Court in this case today should promote the constitutional intent of social justice through
genuine and meaningful agrarian reform. This is imperative because the framers of the 1987 Constitution
themselves recognized the importance of Hacienda Luisita in the implementation of agrarian reform in the
Philippines. Thus, this case is of transcendental importance as it is a test of the Court’s fidelity to agrarian
reform, social justice and the Constitution.

History of Agrarian Reform

in the Philippines

Agrarian reform has been envisioned to be liberating for a major but marginalized sector of Philippine
society, the landless farmers and farmworkers. History, too, has been said to be liberating. A quick review of
the long and tortuous story "of the toiling masses to till the land as freemen and not as slaves chained in
bondage to a feudalistic system of land ownership"3 should enlighten us better on the significance of the
Court’s decision in this case.

By Royal Decree of November 7, 1751 the King of Spain acknowledged that the revolts which broke out
among peasants in the provinces of Cavite, Bulacan, Laguna and Morong (now, Rizal) stemmed from
"injuries which the [Filipinos] received from the managers of the estates which are owned by the religious of
St. Dominic and those of St. Augustine – usurping the lands of the [Filipinos], without leaving them the
freedom of the rivers for their fishing, or allowing them to cut woods for their necessary use, or even collect
the wild fruits xxx."4 The King approved the pacification measures adopted by Don Pedro Calderon Enriquez
of the Royal Audiencia who "demanded from the aforesaid religious the titles of ownership of the lands
which they possessed; and notwithstanding the resistance that they made to him xxx distributed to the
villages the lands which the [religious] orders had usurped, and all which they held without legitimate cause
[he] declared to be crown lands."5

It has been two centuries and three scores since the first recorded attempt at compulsory land redistribution
in the Philippines.

It proved to be ineffectual though for by the end of the Spanish period and the beginning of the American era
the same religious orders still controlled vast tracts of land commonly known as "friar lands."6 In his Special
Reports to the U.S. President in 1908, Governor General William Howard Taft placed friar landholdings at
171,991 hectares tilled by about 70,000 landless tenants.7 Noting that such situation was "[a] most potential
source of disorder in the islands," Taft negotiated with Rome for the purchase of the friar lands for $7 Million
with sinking funds.8 The "lands were to be disposed of to the tenants as rapidly as the public interest will
permit"9 even at a net pecuniary loss to the colonial government.10

However, in a sudden shift of policy, the U.S. sold friar lands on terms most advantageous to it11 – large
tracts12 were sold for close to $7 Million to corporate and individual investors.13 Most tenants in possession
were said to have been disinterested to purchase the lands.14 They were extended assistance though in the
form of better sharing and credit arrangements to ameliorate agrarian relations.15

Soon after the Philippines was plunged into a series of peasant uprisings led by the Sakdalista in the 1930’s
and the Hukbalahap in the 1950’s. Appeasement came in the form of RA 1199 (Agricultural Tenancy Act of
1954) and RA 1400 (Land Reform Act of 1955). RA 1199 allowed tenants to become leaseholders while RA
1400 mandated compulsory land redistribution. However, RA 1400 set unreasonable retention limits at 300
hectares for private rice lands and 600 hectares for corporate lands.16

As peasant unrest continued to fester, RA 3844 (Land Reform Code of 1963) was enacted instituting the
"operation land transfer" program but allowing a maximum retention area of 75 hectares.17 This was followed
in 1971 by RAs 6389 and 6390 (Code of Agrarian Reforms) which created the Department of Agrarian
Reform, reinforced the position of farmers18 and expanded the scope of agrarian reform by reducing the
retention limit to 24 hectares.19 In 1972, President Ferdinand E. Marcos issued PD 2 proclaiming the entire
Philippines as a land reform area. However, PD 27 subsequently restricted the scope of land reform to the
compulsory redistribution of tenanted rice and corn lands exceeding seven hectares.

Thus, more than two and a half centuries after compulsory land redistribution was first attempted in the
Philippines, there remained so much unfinished business. It is this which the social justice provisions of the
1987 Constitution were intended to finish. Section 4, Article XIII thereof commands:

Section 4. The State shall, by law, undertake an agrarian reform program founded on the right of
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)

By its plain language, it requires that the law implementing the agrarian reform program envisioned by the
Constitution should employ a land redistribution mechanism. Subject only to retention limits as may be
prescribed by Congress and to payment of just compensation, ownership of all agricultural lands are to be
distributed and transferred to the farmers and farmworkers who till the land.

There is absolutely no doubt in my mind that the Constitution has ordained land redistribution as the
mechanism of agrarian reform. First, it recognizes the right of farmers and regular farmworkers who are
landless to own directly or collectively the lands they till. Second, it affirms the primacy20 of this
right which is enshrined as the centerpiece of agrarian reform, thereby guaranteeing its enforcement. Third,
in the same breath, it directs that, to such end, the State shall undertake the just distribution of all
agricultural lands,21 subject only to retention limits and just compensation.

Pursuant to the mandate of Section 4, Article XIII of the Constitution, Congress enacted RA 6657
(Comprehensive Agrarian Reform Law of 1988). It was supposed to be a revolutionary law, introducing
innovative approaches to agrarian reform. Among its novel provisions (and relevant to this case) is Section
31 which provides:

SEC. 31. Corporate Landowners. - Corporate 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 upon, subject to
confirmation by the DAR.

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.

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 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.

Section 31 of RA 6657 grants corporate landowners like petitioner Hacienda Luisita, Inc. (HLI) the option to
give qualified agrarian reform beneficiaries the right to purchase capital stock of the corporation
proportionate to how much 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. Such
voluntary divestment of a portion of the corporate landowner’s capital stock to qualified agrarian reform
beneficiaries is considered compliance with the agrarian reform law (RA 6657), subject to certain conditions.

The Fundamental Issue

Section 31 of RA 6657 is at the center of this controversy as it is the basis of the assailed stock distribution
plan executed by petitioner HLI with farmworker-beneficiaries.
On the Constitutionality
Of Section 31 of RA 6657

The Constitution has vested this Court with the power and duty to determine and declare whether the scales
of constitutionality have been kept in balance or unduly tipped, whether an official action is constitutional or
not. As the fundamental and supreme law of the land, the Constitution also serves as the counterweight
against which the validity of all actions of the government is weighed. With it, the Court ascertains whether
the action of a department, agency or public officer preserves the constitutional equilibrium or disturbs it.

In this case, respondents argue that Section 31 of RA 6657 has been weighed and found wanting.22 In
particular, its constitutionality is assailed insofar as it provides petitioner HLI the choice to resort to stock
distribution in order to comply with the agrarian reform program. Respondents assert that the stock
distribution arrangement is fundamentally infirm as it impairs the right of farmers and farmworkers under
Section 4, Article XIII of the Constitution to own the land they till.23

For its part, petitioner HLI points out that the constitutional issue has been raised collaterally and is therefore
proscribed.

The ponencia opines that the challenge on the constitutionality of Section 31 of RA 6657 and its counterpart
provision in EO 229 must fail because such issue is not the lis mota of the case.24 Moreover, it has become
moot and academic.25

I strongly disagree.

While the sword of judicial review must be unsheathed with restraint, the Court must not hesitate to wield it
to strike down laws that unduly impair basic rights and constitutional values.

Moreover, jurisprudence dictates:

It is a well-established rule that a court should not pass upon a constitutional question and decide a law to
be unconstitutional or invalid unless such question is raised by the parties and that when it is raised, if the
record also presents some other ground upon which the court may raise its judgment, that course will be
adopted and the constitutional question will be left for consideration until such question will be unavoidable.26

In this case, the question of constitutionality has been raised by the parties-in-interest to the case.27 In
addition, any discussion of petitioner HLI’s stock distribution plan necessarily and inescapably involves a
discussion of its legal basis, Section 31 of RA 6657. More importantly, public interest and a grave
constitutional violation render the issue of the constitutionality of Section 31 of RA 6657 unavoidable.
Agrarian reform is historically imbued with public interest and, as the records of the Constitutional
Commission show, Hacienda Luisita has always been viewed as a litmus test of genuine agrarian reform.
Furthermore, the framers emphasized the primacy of the right of farmers and farmworkers to directly or
collectively own the lands they till. The dilution of this right not only weakens the right but also debases the
constitutional intent thereby presenting a serious assault on the Constitution.

It is also noteworthy that while the ponencia evades the issue of constitutionality, it adverts to the doctrine of
operative facts in its attempt to come up with what it deems to be a just and equitable resolution of this case.
This is significant. The ponencia itself declares that the doctrine of operative facts is applied in order to avoid
undue harshness and resulting unfairness when a law or executive action is declared null and
void,28 therefore unconstitutional. As the Court explained the doctrine:

Under the operative fact doctrine, the law is recognized as unconstitutional but the effects of the
unconstitutional law, prior to its declaration of nullity, may be left undisturbed as a matter of equity and fair
play. In fact, the invocation of the operative fact doctrine is an admission that the law is unconstitutional.29

Assuming for the sake of argument that the constitutionality of Section 31 of RA 6657 has been superseded
and rendered moot by Section 5 of RA 9700 vis-a-vis stock distribution as a form of compliance with
agrarian reform, the issue does not thereby become totally untouchable. Courts will still decide cases,
otherwise moot and academic, if:

xxx 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; and fourth, the case is capable of repetition
yet evading review...30

In this case, all the above-mentioned requisites are present:

First, a grave violation of the Constitution exists. Section 31 of RA 6657 runs roughshod over the language
and spirit of Section 4, Article XIII of the Constitution.
The first sentence of Section 4 is plain and unmistakeable. It grounds the mandate for agrarian reform on
the right of farmers and regular farmworkers, who are landless, to own directly or collectively the land they
till. The express language of the provision is clear and unequivocal – agrarian reform means that farmers
and regular farmworkers who are landless should be given direct or collective ownership of the land they till.
That is their right.

Unless there is land distribution, there can be no agrarian reform. Any program that gives farmers or
farmworkers anything less than ownership of land fails to conform to the mandate of the Constitution. In
other words, a program that gives qualified beneficiaries stock certificates instead of land is not agrarian
reform.

Actual land distribution is the essential characteristic of a constitutional agrarian reform program. The polar
star, when we speak of land reform, is that the farmer has a right to the land he tills.31 Indeed, a reading of
the framers’ intent clearly shows that the philosophy behind agrarian reform is the distribution of land to
farmers, nothing less.

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.

MR. BENNAGEN. Madam President, nais ko lang dagdagan iyong sagot ni Ginoong Tadeo. xxxx

Kasi, doon sa "collective ownership," kasali din iyong "communal ownership" ng mga minorya. Halimbawa
sa Tanay, noong gumawa kami ng isang pananaliksik doon, nagtaka sila kung bakit kailangan pang
magkaroon ng "land reform" na kung saan ay bibigyan sila ng tig-iisang titulo. At sila nga ay nagpunta sa
Ministry of Agrarian Reform at sinabi nila na hindi ito ang gusto nila; kasi sila naman ay magkakamag-anak.
Ang gusto nila ay lupa at hindi na kailangan ang tig-iisang titulo. Maraming ganitong kaso mula sa Cordillera
hanggang Zambales, Mindoro at Mindanao, kayat kasali ito sa konsepto ng "collective ownership."

xxx xxx xxx

MR. VILLACORTA. xxx Section 532 gives the opportunity for tillers of the soil to own the land that they till;
xxx

xxx xxx xxx

MR. TADEO. xxx Ang dahilan ng kahirapan natin sa Pilipinas ngayon ay ang pagtitipon-tipon ng vast tracts
of land sa kamay ng iilan. Lupa ang nagbibigay ng buhay sa magbubukid at sa iba pang manggagawa sa
bukid. Kapag inalis sa kanila ang lupa, parang inalisan na rin sila ng buhay. Kaya kinakailangan talagang
magkaroon ng tinatawag na just distribution. xxx

xxx xxx xxx

MR. TADEO. Kasi ganito iyan. Dapat muna nating makita ang prinsipyo ng agrarian reform, iyong maging
may-ari siya ng lupa na kaniyang binubungkal. Iyon ang kauna-unahang prinsipyo nito. xxx

xxx xxx xxx

MR. TINGSON. xxx 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.

xxx xxx xxx

MR. BENNAGEN. Maaari kayang magdagdag sa pagpapaliwanag ng "primacy"? Kasi may cultural
background ito. Dahil agrarian society pa ang lipunang Pilipino, maigting talaga ang ugnayan ng mga
magsasaka sa kanilang lupa. Halimbawa, sinasabi nila na ang lupa ay pinagbuhusan na ng dugo, pawis at
luha. So land acquires a symbolic content that is not simply negated by growth, by productivity, etc. The
primacy should be seen in relation to an agrarian program that leads to a later stage of social development
which at some point in time may already negate this kind of attachment. The assumption is that there are
already certain options available to the farmers. Marahil ang primacy ay ang pagkilala sa pangangailangan
ng magsasaka – ang pag-aari ng lupa. Ang assumption ay ang pag-aari mismo ng lupa becomes the basis
for the farmers to enjoy the benefits, the fruits of labor. xxx (678)

xxx xxx xxx

MR. TADEO. xxx Kung sinasabi nating si Kristo ay liberating dahil ang api ay lalaya at ang mga bihag ay
mangaliligtas, sinabi rin ni Commissioner Felicitas Aquino na kung ang history ay liberating, dapat ding
maging liberating ang Saligang Batas. Ang magpapalaya sa atin ay ang agrarian and natural resources
reform.

The primary, foremost and paramount principles and objectives are contained [i]n lines 19 to 22: "primacy of
the rights and of farmers and farmworkers to own directly or collectively the lands they till." Ito ang kauna-
unahan at pinakamahalagang prinsipyo at layunin ng isang tunay na reporma sa lupa – na ang
nagbubungkal ng lupa ay maging may-ari nito. xxx (695-696)

The essential thrust of agrarian reform is land-to-the-tiller. Thus, to satisfy the mandate of the constitution,
any implementation of agrarian reform should always preserve the control over the land in the hands of its
tiller or tillers, whether individually or collectively.

Consequently, any law that goes against this constitutional mandate of the actual grant of land to farmers
and regular farmworkers must be nullified. If the Constitution, as it is now worded and as it was intended by
the framers envisaged an alternative to actual land distribution (e.g., stock distribution) such option could
have been easily and explicitly provided for in its text or even conceptualized in the intent of the framers.
Absolutely no such alternative was provided for. Section 4, Article XIII on agrarian reform, in no uncertain
terms, speaks of land to be owned directly or collectively by farmers and regular farm workers.

By allowing the distribution of capital stock, not land, as "compliance" with agrarian reform, Section 31 of RA
6657 directly and explicitly contravenes Section 4, Article XIII of the Constitution. The corporate landowner
remains to be the owner of the agricultural land. Qualified beneficiaries are given ownership only of shares
of stock, not the lands they till. Landless farmers and farmworkers become landless stockholders but still
tilling the land of the corporate owner, thereby perpetuating their status as landless farmers and
farmworkers.

Second, this case is of exceptional character and involves paramount public interest. In La Bugal-B’Laan
Tribal Association, Inc.,33 the Court reminded itself of the need to recognize the extraordinary character of
the situation and the overriding public interest involved in a case. Here, there is a necessity for a categorical
ruling to end the uncertainties plaguing agrarian reform caused by serious constitutional doubts on Section
31 of RA 6657. While the ponencia would have the doubts linger, strong reasons of fundamental public
policy demand that the issue of constitutionality be resolved now,34 before the stormy cloud of doubt can
cause a social cataclysm.

At the risk of being repetitive, agrarian reform is fundamentally imbued with public interest and the
implementation of agrarian reform at Hacienda Luisita has always been of paramount interest. Indeed, it was
specifically and unequivocally targeted when agrarian reform was being discussed in the Constitutional
Commission. Moreover, the Court should take judicial cognizance of the violent incidents that intermittently
occur at Hacienda Luisita, solely because of the agrarian problem there. Indeed, Hacienda Luisita proves
that, for landless farmers and farmworkers, the land they till is their life.

The Constitution does not only bestow the landless farmers and farmworkers the right to own the land they
till but also concedes that right to them and makes it a duty of the State to respect that right through genuine
and authentic agrarian reform. To subvert this right through a mechanism that allows stock distribution in lieu
of land distribution as mandated by the Constitution strikes at the very heart of social justice. As a grave
injustice, it must be struck down through the invalidation of the statutory provision that permits it.

To leave this issue unresolved is to allow the further creation of laws, rules or orders that permit policies
creating, unintentionally or otherwise, means to avoid compliance with the foremost objective of agrarian
reform – to give the humble farmer and farmworker the right to own the land he tills. To leave this matter
unsettled is to encourage future subversion or frustration of agrarian reform, social justice and the
Constitution.

Third, the constitutional issue raised requires the formulation of controlling principles to guide the bench, the
bar and the public.35 Fundamental principles of agrarian reform must be established in order that its aim may
be truly attained.

One such principle that must be etched in stone is that no law, rule or policy can subvert the ultimate goal of
agrarian reform, the actual distribution of land to farmers and farmworkers who are landless. Agrarian reform
requires that such landless farmers and farmworkers be given direct or collective ownership of the land they
till, subject only to the retention limits and the payment of just compensation. There is no valid substitute to
actual distribution of land because the right of landless farmers and farmworkers expressly and specifically
refers to a right to own the land they till.

Fourth, this case is capable of repetition, yet evading review. As previously mentioned, if the subject
provision is not struck down today as unconstitutional, the possibility of passing future laws providing for a
similar option is ominously present. Indeed, what will stop our legislators from providing artificial alternatives
to actual land distribution if this Court, in the face of an opportunity to do so, does not declare that such
alternatives are completely against the Constitution?

We would be woefully remiss in our duty of safeguarding the Constitution and the constitutionally
guaranteed right of a historically marginalized sector if we allowed a substantial deviation from its language
and intent.

The following findings of the Special Task Force as stated in its Terminal Report36 are worth reiterating:

... sugar-coated assurances were more than enough to make them fall for the SDO as they made them feel
rich as "stock holder" of a rich and famous corporation despite the dirt in their hands and the tatters they
use; given the feeling of security of tenure in their work when there is none; expectation to receive dividends
when the corporation has already suspended operations allegedly due to losses; and a stable sugar
production by maintaining the agricultural lands when a substantial portion thereof, of almost 1/8 of the total
areas, has already been converted to non-agricultural uses.

Truly, the pitiful consequences of a convoluted agrarian reform policy, such as those reported above, can be
avoided if laws were made to truly fulfill the aim of the constitutional provisions on agrarian reform. As the
Constitution sought to make the farmers and farmworkers masters of their own land, the Court should not
hesitate to state, without mincing word, that qualified agrarian reform beneficiaries deserve no less than
ownership of land.

The river cannot rise higher than its source. An unconstitutional provision cannot be the basis of a
constitutional act. As the stock distribution plan of petitioner HLI is based on Section 31 of RA 6657 which is
unconstitutional, the stock distribution plan must perforce also be unconstitutional.

On Petitioner’s Long Due Obligation

to Distribute Hacienda Luisita to Farmers

Another compelling reason exists for ordering petitioner HLI to distribute the lands of Hacienda Luisita to
farmworker beneficiaries -- the National Government, in 1957, aided petitioner HLI’s predecessor-in-interest
in acquiring Hacienda Luisita with the condition that the acquisition of Hacienda Luisita should be made "with
a view to distributing this hacienda to small farmers in line with the [government]37’s social justice
program."38 The distribution of land to the farmers should have been made within ten years. That was a sine
qua non condition. It could have not been done away with for mere expediency. Petitioner HLI is bound by
that condition.39

Indeed, the National Government sought to enforce the condition when it filed a case on May 7, 1980
against Tarlac Development Corporation (TADECO), petitioner HLI’s predecessor-in-interest, in the
Regional Trial Court of Manila, Branch 43.40 The case, docketed as Civil Case No. 131654 entitled "Republic
of the Philippines vs. TADECO," sought the surrender by TADECO of Hacienda Luisita to the Ministry of
Agrarian Reform for distribution to qualified farmworker-beneficiaries.41 In a decision dated December 2,
1985, the trial court upheld the position of the National Government and ordered TADECO to transfer control
of Hacienda Luisita to the Ministry of Agrarian Reform, which will distribute the land to small farmers after
paying TADECO P3.988 Million.42
The trial court’s decision was appealed to the Court of Appeals where it was docketed as CA-G.R. CV No.
08364. The appellate court, in a resolution dated May 18, 1988, dismissed the appeal without prejudice:

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 TADECO.

The conditions referred to are the following:

(a) 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

(b) if such stock distribution plan is approved by PARC, but TADECO fails to initially implement it.43

In this case, the stock distribution plan of petitioner HLI, TADECO’s successor-in-interest, could not have
been validly approved by the PARC as it was null and void for being contrary to law. Its essential terms,
particularly the "man days" method for computing the number of shares to which a farmworker-beneficiary is
entitled and the extended period for the complete distribution of shares to qualified farmworker-beneficiaries
are against the letter and spirit of Section 31 of RA 6657, assuming that provision is valid, and DAO No. 10-
1988.

Even assuming that the approval could have been validly made by the PARC, the subsequent revocation of
such approval meant that there was no more approval to speak of, that the approval has already been
withdrawn. Thus, in any case, the decision of the trial court should be revived, albeit on appeal. Such revival
means that petitioner HLI cannot now evade its obligation which has long be overdue, Hacienda Luisita
should be distributed to qualified farmworker-beneficiaries.

On the Equities of the Case

And its Qualifications

Agrarian reform’s underlying principle is the recognition of the rights of farmers and farmworkers who are
landless to own, directly or collectively, the lands they till. Actual land distribution to qualified agrarian reform
beneficiaries is mandatory. Anything that promises something other than land must be struck down for being
unconstitutional.

Be that as it may and regardless of the constitutionality of Section 31 of RA 6657, the lifting of the temporary
restraining order in this case coupled with the affirmation of PARC Resolution No. 2005-32-01 dated
December 22, 2005 removes all barriers to the compulsory acquisition of Hacienda Luisita for actual land
distribution to qualified farmworker-beneficiaries. The said PARC resolution directed that Hacienda Luisita
"be forthwith placed under compulsory coverage or mandated land acquisition scheme"44 and, pursuant
thereto, a notice of coverage45 was issued. Hence, the overall effect of the lifting of the temporary restraining
order in this case should be the implementation of the "compulsory coverage or mandatory acquisition
scheme" on the lands of Hacienda Luisita.

This notwithstanding and despite the nullity of Section 31 of RA 6657 and its illegitimate offspring, petitioner
HLI’s stock distribution plan, I am willing to concede that the equities of the case might possibly call for the
application of the doctrine of operative facts. The Court cannot with a single stroke of the pen undo
everything that has transpired in Hacienda Luisita vis-à-vis the relations between petitioner HLI and the
farmworker-beneficiaries resulting from the execution of the stock distribution plan more than two decades
ago. A simplistic declaration that no legal effect whatsoever may be given to any action taken pursuant to
the stock distribution plan by virtue of its nullification will only result in unreasonable and unfair
consequences in view of previous benefits enjoyed and obligations incurred by the parties under the said
stock distribution plan.

Let me emphasize, however, that this tenuous concession is not without significant qualifications.

First, while operative facts and considerations of fairness and equity might be considered in disposing of this
case, the question of constitutionality of Section 31 of RA 6657 and, corollarily, of petitioner HLI’s stock
distribution plan, should be addressed squarely. As the said provision goes against both the letter and spirit
of the Constitution, the Court must categorically say in no uncertain terms that it is null and void. The same
principle applies to petitioner HLI’s stock distribution plan.

Second, pursuant to both the express mandate and the intent of the Constitution, the qualified farmer-
beneficiaries should be given ownership of the land they till. That is their right and entitlement, which is
subject only to the prescribed retention limits and the payment of just compensation, as already explained.

Due to considerations of fairness and equity, however, those who wish to waive their right to actually own
land and instead decide to hold on to their shares of stock may opt to stay as stockholders of petitioner HLI.
Nonetheless, this scheme should apply in this case only.
Third, the proper action on the instant petition should be to dismiss it. For how can we grant it when it invites
us to rule against the constitutional right of landless farmworker-beneficiaries to actually own the land they
till? How can we sustain petitioner HLI’s claim that its stock distribution plan should be upheld when we are
in fact declaring that it is violative of the law and of the Constitution? Indeed, to affirm the correctness of
PARC Resolution No. 2005-32-01 dated December 22, 2005 revoking the stock distribution plan and
directing the compulsory distribution of Hacienda Luisita lands to the farmworker-beneficiaries and, at the
same time, grant petitioner HLI’s prayer for the nullification of the said PARC Resolution is an exercise in
self-contradiction.

To say that we are partially granting the petition is to say that there is rightness in petitioner HLI’s position
that it can validly frustrate the actual distribution of Hacienda Luisita to the farmworker-beneficiaries. That is
fundamentally and morally wrong.

A Final Word

Our action here today is not simply about Hacienda Luisita or a particular stock distribution plan. Our
recognition of the right under the Constitution of those who till the land to steward it is the Court’s marching
order to dismantle the feudal tenurial relations that for centuries have shackled them to the soil in exchange
for a pitiful share in the fruits, and install them as the direct or collective masters of the domain of their labor.
It is not legal, nor moral, to replace their shackles with mere stock certificates or any other superficial
alternative.

We take action in these cases today to promote social justice, champion the cause of the poor and distribute
wealth more equitably. By applying the agrarian reform provision of the Constitution, we seek to empower
the farmers, enhance their dignity and improve their lives by freeing them from their bondage to the land
they till and making them owner-stewards thereof. We express iron-clad fealty to Section 4, Article XIII of the
Constitution to dismantle the concentration of land in the hands of the privileged few. Thus, we direct the
implementation of a genuine agrarian reform as envisioned by the Constitution by ordering the just
distribution of land for the democratization of productive resources.

History will be the unforgiving judge of this Court. We cannot correct a historical anomaly and prevent the
eruption of a social volcano by fancy legal arguments and impressively crafted devices for corporate control.

WHEREFORE, I vote that the petition be DISMISSED. Section 31 of RA 6657 should be declared NULL and
VOID for being unconstitutional. Consequently, the stock distribution plan of petitioner HLI should likewise
be declared NULL and VOID for being unconstitutional.

Accordingly, PARC Resolution Nos. 2005-32-01 dated December 22, 2005 and 2006-34-01 dated May 3,
2006 should be AFFIRMED in so far as they direct the implementation of compulsory coverage or mandated
land acquisition scheme in Hacienda Luisita with the MODIFICATION that, pro hac vice due to
considerations of fairness and equity, qualified farmworker-beneficiaries may waive their right to actually
own the lands they till and stay as stockholders of petitioner HLI.

RENATO C. CORONA
Chief Justice

Footnotes

1 Record of the Constitutional Commission, Vol. II, pp. 663-664. Emphasis supplied.

2 Id., p. 607.

3Land Reform – Pillar of the Nation’s Recovery, Commissioner Gregorio D. Tingson, Record of the
Constitutional Commission, vol. III, p. 784.

4 As translated to English in Blair, E.H. & Robertson, J.A.. 1911. The Philippine Islands, 1493-1803,
Vol. 1, No. 48: 27-36. Arthur and Clarke Company, Cleveland. Accessed
through http://quod.lib.umich.edu/p/philamer/ on 13 March 2011.

5 Id.

6Saulo-Adriano, Lourdes, A General Assessment of the Comprehensive Agrarian Reform Program,

pp. 5-11 (1991), Philippine Institute for Development Studies. Accessed through
http://dirp4.pids.gov.ph.
7 WM. H. Taft (Secretary of War January 23, 1908) and J. M. Dickinson (Secretary of War November
23, 1910), Special Reports on the Philippines to the President, Washington, D.C., January 23, 1908,
p. 21. Found in The United States and its Territories of the University of Michigan Library
Southeast Asia collection which contains the full text of monographs and government documents
published in the United States, Spain, and the Philippines between 1870 and 1925 and accessed
through http://quod.lib.umich.edu/p/philamer/ on March 13, 2011.

8 Id. at p. 59.

9 Id. at p. 85.

10 Id.

11Taft explained that "[a]t the rate of interest the bonds draw, the cost of the lands would in 30 years,
when the bonds mature, have represented more than treble the original cost. The Philippine
government needs its resources for internal improvements, and it would have been poor financiering
to pay interest on the bonds and finally the principal and continue to hold these lands until they
would be taken up by inhabitants of the islands, which would mean in the remote future." Id., p. 106.

12The Philippine Bill of 1902 set the ceilings on the hectarage of individual and corporate
landholdings at 16 has. and 1,024 has., respectively.

13 Supra note 7 at pp. 105-106.

14 Id.

15 See Public Act No. 4054 (1933).

16 Sec. 6.

17 Sec. 51.

18Among others, it provided for the automatic conversion of existing agricultural share tenancy to
agricultural leasehold and strengthened the rights of pre-emption and redemption.

19 Sec. 16, amending Sec. 51 of RA 3844.

20 The original formulation of the present Section 4, article XIII was as follows:

SEC. 5. The State shall undertake a genuine agrarian reform program founded on the
primacy of the rights of farmers and farmworkers to own directly or collectively the lands they
till. To this end, the State shall encourage and undertake the just distribution of all
agricultural lands, subject to such retention limits as the National Assembly may prescribe
and subject to a fair and progressive system of compensation. (Record of the Constitutional
Commission, vol. II, p. 605.)

The deliberations of the members of the Constitutional Commission also reveal the following:

MR. TADEO. Ang tunay na reporma sa lupa ay pangunahing nakabatay sa kapakinabangan

ng mg biyaya nito sa nagbubungkal ng lupa at lumilikha ng yaman nito at sa nagmamay-ari
ng lupa. (Id., p. 677)

xxx xxx xxx

MR. BENNAGEN. Maaari kayang magdagdag sa pagpapaliwanag ng "primacy"? Kasi may

cultural background ito. Dahil agrarian society pa ang lipunang Pilipino, maigting talaga ang
ugnayan ng mga magsasaka sa kanilang lupa. Halimbawa, sinasabi nila na ang lupa ay
pinagbuhusan na ng dugo, pawis at luha. So land acquires a symbolic content that is not
simply negated by growth, by productivity, etc. The primacy should be seen in relation to an
agrarian program that leads to a later stage of social development which at some point in
time may already negate this kind of attachment. The assumption is that there are already
certain options available to the farmers. Marahil ang primacy ay ang pagkilala sa
pangangailangan ng magsasaka – ang pag-aari ng lupa. Ang assumption ay ang pag-aari
mismo ng lupa becomes the basis for the farmers to enjoy the benefits, the fruits of labor.
xxx (Id., p. 678)

MR. TADEO. xxx Kung sinasabi nating si Kristo ay liberating dahil ang api ay lalaya at ang
mga bihag ay mangaliligtas, sinabi rin ni Commissioner Felicitas Aquino na kung ang history
 ay liberating, dapat ding maging liberating ang Saligang Batas. Ang magpapalaya sa atin ay
ang agrarian and natural resources reform.

The primary, foremost and paramount principles and objectives are contained [i]n lines 19 to
22: "primacy of the rights and of farmers and farmworkers to own directly or collectively the
lands they till." Ito ang kauna-unahan at pinakamahalagang prinsipyo at layunin ng isang
tunay na reporma sa lupa – na ang nagbubungkal ng lupa ay maging may-ari nito. xxx (695-
696)

MR. DAVIDE. xxx we did not delete the concept of the primacy of the rights of farmers and
farm workers. In other words, this only confirms the existence of the right, as worded; it is
confirmatory of that right. There is no need to emphasize that right because that right is
conceded, and it now becomes the duty of the State to undertake these genuine and
authentic land and agrarian reforms.

X x x x x xxxx

MR. TADEO. Maliwanag na nandito iyong primacy of the rights.

MR. DAVIDE. Certainly, it is inherent, it is conceded, and that is why we give it a mandate.
We make it a duty on the part of the State to respect that particular right. (696-697)

21 Former Chief Justice Hilario G. Davide, Jr., then a Commissioner in the Constitutional
Commission, stated that considering the right of farmers and farmworkers to the lands that they till,
"it now becomes the duty of the State to undertake these genuine and authentic land and agrarian
reforms." Records, vol. II, p. 697.

22 The expression comes from the Daniel 5:25: "Mene, mene, thekel, upharsin." It is loosely
translated as "You have been weighed and found wanting; hence, you have been divided and
handed to others."

23 TSN, Aug. 24, 2010, p. 205.

24 Ponencia, p. 42.

25 Id. at 43.

26 Sotto v. Commission on Elections, 76 Phil. 516, 522 (1946). (Emphasis supplied)

27 Noel Mallari and Farmworkers Agrarian Reform Movement, Inc.

28 Ponencia, p. 70.

29League of Cities of the Philippines v. Commission on Elections, G.R. No. 176951, 24 August 2010.
(Emphasis supplied)

30Quizon v. Commission on Elections, G.R. No. 177927, 15 February 2008, 545 SCRA 635; Mattel,
Inc. v. Francisco, G.R. No. 166886, 30 July 2008, 560 SCRA 506.

31Commissioner Felicitas S. Aquino of the Constitutional Commission made this remark during the
deliberations on the provision on agrarian reform. According to her, while a farmer’s right to the land
he tills is not an immutable right as the claim of ownership does not automatically pertain or
correspond to the same land that the farmer or farm worker is actually and physically tilling, it simply
yields to the limitations and adjustments provided for in the second sentence of the first paragraph,
specifically the retention limits. (Records of the Constitutional Commission, vol. III, p. 10)

32 As stated earlier, the present Section 4 was numbered Section 5 in the first draft.

La Bugal-B’laan Tribal Association, Inc., et al. v. Victor O. Ramos, Secretary, Dept. Of

33

Environment & Natural Resources, et al., G.R. No. 127882, December 1, 2004.

34 Gonzales v. COMELEC, G.R. No. L-27833, 18 April 1969, 27 SCRA 836.

35This is in consonance with the Court’s symbolic function of educating the members of the judiciary
and of the legal profession as to the controlling principles and concepts on matters of great public
importance. (See David v. Arroyo, G.R. Nos. 171396, 171409, 171485, 171483, 171400, 171489 &
171424, 03 May 2006, 489 SCRA 160.)
 36 Rollo, pp. 386-405.

37 The term used was "Administration."

38Central Bank Monetary Board Resolution No. 1240 dated August 27, 1957 as quoted in Alyansa
ng mga Manggagawag Bukid ng Hacienda Luisita’s Petisyon (Para sa Pagpapawalang-Bisa sa
Stock Distribution Option), Annex "K" of the petition. Rollo, pp. 175-183, 175.

39Contracts are obligatory and, as a rule, are binding to both parties, their heirs and assigns. See
Articles 1308 and 1311, New Civil Code.

40Comment/Opposition of respondents Supervisory Group of Hacienda Luisita, Inc., p. 7. Rollo, pp.

530-641, p. 536.

41 Id.

42 Id.

43 Court of Appeals resolution dated May 18, 1988 in CA-G.R. CV No. 08364.

44 Rollo, p. 101.

45 Id. at 103-106.

The Lawphil Project - Arellano Law Foundation

DISSENTING OPINION

SERENO, J.:

What the majority has created by its Decision are several legal and operational aberrations that will only set
back the long-term resolution of the agrarian conflicts involving Hacienda Luisita and create even more
havoc in our legal system. Instead of definitively putting the multi-angled issues to rest, the majority has only
succeeded in throwing back the agrarian problem to the farmers, the original landowners and the
Department of Agrarian Reform (DAR).

First, the majority Decision ruled in categorical language to (a) deny the Petition of Hacienda Luisita, Inc.
(HLI), (b) affirm PARC Resolution No. 2005-32-01 dated 22 December 2005 and Resolution No. 2006-34-01
dated 03 May 2006, which revoked the approval of the HLI Stock Distribution Plan (SDP); and (c) pronounce
that PARC Resolution No. 89-9-12 approving the HLI’s Stock Distribution Plan (SDP), "is nullified and
voided." However, without any legal basis left to support the SDP after the pronouncement of the complete
nullity of the administrative approval thereof, the majority proceeded to allow the farmworker-beneficiaries
(FWBs) of Hacienda Luisita the option to choose a completely legally baseless arrangement. It is legally
baseless because an SDP and its operating agreement, a Stock Distribution Option Agreement (SDOA), can
only be valid with the corresponding PARC approval. There is not a single legal twig on which the order to
proceed with the voting option can hang, except the will of this Court’s majority.

Second, they ruled that the SDOA dated 11 May 1989 between petitioner HLI, Tarlac Development
Corporation (TADECO) and the farmworker-beneficiaries (FWBs) is illegal for two violations: (a) the
distribution of shares of stock based on the number of man-days worked, and (b) the prolonged thirty-year
time frame for the distribution of shares; additionally, they ruled that these two arrangements have worked
an injustice on the FWBs, contrary to the spirit and letter of agrarian reform. Yet, the majority will allow them
to remain in such a prejudicial arrangement if they so decide. To allow the FWBs, the disadvantaged sector
sought to be uplifted through agrarian reform, to remain in an illegal arrangement simply because they
choose to so remain is completely contrary to the mandatory character of social justice legislation.

Third, while the majority states that a stock distribution option agreement can only be valid if the majority of
the shares or the control of the corporation is in the hands of the farmers, they still ruled that the doctrine of
operative facts led them to unqualifiedly validate the present corporate arrangement wherein the FWBs
control only 33% of the shares of petitioner HLI, without ordering in the dispositive portion of the Decision a
condition precedent to the holding of the referendum – the restructuring of HLI whereby majority control is
firmly lodged in the FWBs.

Fourth, the majority employ the doctrine of operative facts to justify the voting option, even if jurisprudence
allows this doctrine to be applied only in the extreme case in which equity demands it. The doctrine of
operative facts applies only to prevent a resulting injustice, if the courts were to deny legal effect to acts
done in good faith, pursuant to an illegal legislation or perhaps even executive action, but prior to the judicial
declaration of the nullity of the government action. Here, there is no room for the application of the equity
jurisdiction of the Court, when the CARL, in Section 31, categorically provides for direct land distribution in
the event a stock distribution is not completed.

Fifth, assuming equity were to be applied, then it should be applied in favor of the FWBs by ordering direct
land distribution, because that is the inequity that continues to fester – that the FWBs who have been
promised ownership of the lands they till are denied the same, twenty-three years after the passage of
CARL.

Sixth, the majority ruled that the issue of constitutionality of the stock distribution option under Section 31 of
the Comprehensive Agrarian Reform Law, Republic Act No. 6657, is not the lis mota of the case; hence, the
issue of constitutionality should be avoided if there is another basis for the court to rule on the case. Yet, the
majority proceeded to discuss and even rule in favor of its constitutionality.

Should there be no reversal of the above aberrant ruling allowing the FWBs to vote to remain in HLI, the
only way for the ruling to not work too grave an injustice is if petitioner HLI is required to be restructured in
such a way: (1) that the correct valuation of the lands vis-à-vis non-land assets be made, and (2) that no
less than 51% of the controlling shares, as well as the beneficial ownership of petitioner HLI, be in the hands
of qualified FWBs. Unless this is done, DAR should not even proceed to conduct a referendum giving the
FWBs the choice to stay in a corporation of which they have no control.

I posit, as Justice Arturo D. Brion does, that FWBs be immediately empowered to dispose of the lands as
they so deem fit. I disagree with the majority that those who will opt to leave the SDOA can only dispose of
their lands no less than ten (10) years after the registration of the certificate of land ownership award
(CLOA) or the emancipation patent (EP) and not until they have fully paid the purchase price to the Land
Bank of the Philippines (LBP). These farmers have waited for decades for the recognition of their rights
under the Comprehensive Agrarian Reform Law (CARL). Whether we use Justice Brion’s starting point of 11
May 1989, or my starting point of 11 May 1991, twenty years have lapsed and the land has been locked
under agricultural use all that time, with no opportunity to exploit its value for other purposes. We should
allow the farmers the chance to ride on the crest of economic progress by giving them the chance to engage
in the market, not only as entrepreneurs, as corporate or cooperative farmers, but also as lessors or even as
real estate sellers. The Court should allow the DAR to devise a mechanism that would enable direct land
transfer to buyers or co-development partners, so that the lands and the farmers can truly be free. This is
where the Court’s equity jurisdiction can weigh in favor of the farmers – to cut down the bureaucratic red
tape so that genuine economic freedom on their part can be realized. Nothing can be more economically
stifling than to condemn the use of the land to only one – agricultural – and to deny the FWBs the best
economic use of the land for such a prolonged period of time.

We must also not lose sight of the fact that 3,290 hectares of the Hacienda Luisita lands have already been
reclassified into non-agricultural uses – industrial, commercial and residential – by the then municipality of
Tarlac (which is now a city). If there would again be any application of the equity jurisdiction of the court, it is
here where equity can be applied, and the farmers must be allowed to take advantage of this upgraded
classification.

I have also proposed that the just compensation to TADECO/HLI be fixed at the current fair market value, as
defined by laws, regulations and jurisprudence, which is at the time of the taking. This is the only logical
conclusion from the ponencia of Justice Presbitero J. Velasco, Jr. and the opinion of Justice Brion – both of
them, and I would require petitioner HLI, to return to the FWBs the proceeds from the sale of the lands sold
or transferred at the then prevailing market rates. The Decision and those Opinions therefore fix the just
compensation at "fair market value," at the time when the transfer transaction took place, precisely for the
reason that they recognize that the purchase price is the just compensation. It is not fair to require TADECO
or petitioner HLI to accept less than fair market value if what is being required from them is the payment to
the qualified FWBs of the proceeds of the sale of those lands earlier sold or disposed of at fair market value.
There is an objection that to peg the just compensation at fair market value would mean HLI lands would be
prohibitively expensive for the FWBs to acquire and thus they can never pay off the purchase price therefor.
But to rule otherwise is unjust to HLI and contrary to the statutory requirement of payment to landowners of
just compensation at fair market value. It is for DAR to facilitate all kinds of economic arrangements whereby
the farmers can ultimately pay off the value of the land, including the direct transfer of the land to buyers.

I did not go the route proposed by Justice Brion that the just compensation be fixed as of 11 May 1989, and
that TADECO or petitioner HLI not be awarded any interest on the amount they should have been paid.
There would be injustice in such a proposal, because not only is this approach inconsistent with Justice
Brion’s position that the market price paid by LIPCO be given to the FWBs, there have already been many
improvements introduced by TADECO or petitioner HLI since that time, and to deny them compensation for
the value either of those industrial fruits (the improvements) or of the civil fruits (interest on the just
compensation) would be seriously unjust. Regardless of the history of the land, improvements have been
introduced by TADECO/HLI for which this Court must allow compensation.
It is not right for this Court to distinguish between two classes of persons whose lands the law has subjected
to expropriation – by virtue of either compulsory acquisition under CARL or other lawful confiscatory power
such as eminent domain – and then to condemn CARL original landowners to an inferior position by denying
them compensation at fair market value vis-a-vis others whose properties are subjected to compulsory
acquisition, but not by land reform. Let this be an acid test for the government – whether it wants and is able
to abide by a standard of fairness applicable to all kinds of landowners.

Factual Antecedents

On 15 June 1988, the CARL took effect.1 The CARL was enacted to promote social justice for landless
farmers and provide "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."2 The CARL is "a social justice
and poverty alleviation program which seeks to empower the lives of agrarian reform beneficiaries through
equitable distribution and ownership of the land based on the principle of land to the tiller."3 It was designed
to "liberate the Filipino farmer from the shackles of landlordism and transform him into a self-reliant citizen
who will participate responsibly in the affairs of the nation."4

Under the CARL, corporations that own agricultural lands have two options:

(a) Land transfer option - voluntarily transfer the ownership of the land to the government or to
qualified beneficiaries; or

(b) Stock distribution option - divest or give qualified beneficiaries capital stocks in proportion to the
value of the agricultural lands devoted to agricultural activities relative to the company’s total assets.5

Tarlac Development Corporation (TADECO), a domestic corporation principally engaged in agricultural

pursuits, owned and operated a farm, known as Hacienda Luisita, which was covered under the
CARL.6 Hacienda Luisita is a 6,443-hectare agricultural land7 that straddles the municipalities of Tarlac,
Concepcion and La Paz in Tarlac province.8 At the time, there were 6,296 farm workers, who were qualified
as beneficiaries (hereinafter FWBs) under the CARL.9

The management of TADECO and the FWBs, allegedly, agreed to a stock distribution plan instead of a land
transfer. To facilitate the plan, both parties agreed to create a spin-off corporation that would receive the
agricultural lands and farm related-properties from TADECO.10 In exchange, FWBs would be given shares in
the spin-off corporation in proportion to the value of the agricultural lands.11

Thus, TADECO formed and organized a spin-off corporation – Hacienda Luisita, Inc., (HLI), which is the
petitioner in the instant case.12 Petitioner HLI’s primary purpose was to engage in and carry on the business
of planting, cultivation, production, purchase, sale, barter or exchange of all agricultural products and to own,
operate, buy, sell, and receive as security lands to raise such products or as reasonably and necessarily
required by the transaction of the lawful business of the corporation.13

On 22 March 1989, TADECO assigned and conveyed to petitioner HLI approximately 4,916 hectares of
agricultural lands14 and other properties related to the former’s agricultural operations in exchange for shares
of stock in the spin-off corporation.15

On 11 May 1989, petitioner HLI and TADECO entered into a Memorandum of Agreement with the FWBs for
a stock distribution option with respect to the agricultural lands in Hacienda Luisita.16 The SDOA provides
that:

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
[petitioner 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 stock distribution plan
that every year they will receive, on top of their regular compensation, an amount that approximates
the equivalent of three (3%) percent 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, the 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 the 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 herein in the spirit of the Comprehensive Agrarian
Reform Program (C.A.R.P.) of the government and with the supervision of the Department of
Agrarian Reform, with the end in view of improving the lot of the qualified beneficiaries of the stock
distribution plan and obtaining for them greater benefits. (Emphasis supplied)

In brief, the FWBs were entitled to 33.29% of the total capital stock of petitioner HLI, the equivalent of the
value of the agricultural lands compared with its total assets.17 Since petitioner HLI’s outstanding capital
shares of stock amounted to a total of 355,531,462, the FWBs were entitled to 118,391,976.85 shares under
the SDOA.18 These shares were to be distributed for free at the end of each fiscal year for a period of thirty
years to qualified FWBs on the basis of "man-days."19

On 28 September 1989, the government conducted a consultative meeting for the benefit of the leaders of
the FWBs in Hacienda Luisita, where they were presented with the various options available under the
Comprehensive Agrarian Reform Program (CARP) and the salient features of the possible business
arrangements under the land distribution option.20 Subsequently, an information campaign was conducted in
the ten affected barangays to explain to the FWBs the different schemes of ownership under the land
transfer option and other options available under the CARP.21

The SDOA was signed by 5,898 FWBs out of a total work force of 6,296 FWBs, or 92.9% of the
FWBs.22 Subsequently, a referendum was conducted by public respondent Department of Agrarian Reform
(DAR) where 5,117 out of the 5,315 FWBs participating voted in favor of the stock distribution; only 132
FWBs preferred land transfer.23 Thereafter, petitioner HLI submitted the SDOA for approval to the DAR.24

On 06 November 1989, public respondent Presidential Agrarian Reform Council (PARC), through then DAR
Secretary Miriam Defensor-Santiago, informed petitioner HLI of the favorable endorsement of the SDOA, but
identified some issues for the latter’s consideration and revision such as the mechanics of the stock
distribution and the matter of the dilution of the shares.25

On 14 November 1989, petitioner HLI, in response, clarified to then DAR Secretary Defensor-Santiago
several matters regarding the SDOA, specifically the dilution of the shares of FWBs, the mechanics for the
distribution of the shares, the actual number of board seats, the distribution of home lots, and the three
percent cash dividend.26

On 21 November 1989, public respondent PARC unanimously approved the SDOA of TADECO and
petitioner HLI for the Hacienda Luisita farm.27

According to petitioner HLI,28 from the time the SDOA was implemented in 1989, the FWBs received the
following benefits under the stock distribution plan:

a. Three billion pesos – Salaries, wages and fringe benefits from 1989 – 2004;

b. Fifty-nine million pesos – Shares of stock in petitioner HLI given for free in fifteen (15) years,
instead of thirty (30) years;29

c. One hundred fifty million pesos – Three percent (3%) share in the gross sales of the production of
the agricultural lands of petitioner HLI;
 d. Thirty-seven million five hundred thousand pesos – Three percent (3%) share from the proceeds
of the sale of lands;

e. Home lots of two hundred forty square meters each to 3,274 families of FWBs for free;30 and

f. Other benefits.31

On 10 August 1995, petitioner HLI applied for the conversion of five hundred (500) hectares of agricultural
lands, which were part of the 4,916 hectares in the Hacienda Luisita farm, subject of the SDOA.32

The affected FWBs filed their statement of support for the application for conversion with the DAR.33 The
application was also unanimously approved by the four directors in the Board of petitioner HLI, who
represented the stockholder FWBs.34 On 01 September 1995, the Sangguniang Bayan of Tarlac approved
the integration and/or inclusion of the Luisita Land Use Plan in the general zoning map of the then
Municipality of Tarlac and thus reclassified three thousand two hundred ninety (3,290) hectares of the
Hacienda Luisita land from agricultural to commercial, industrial and residential purposes, the land
reclassification being required before approval of the application for conversion.35

On 14 August 1996, the DAR approved the application for conversion and reclassified 500 hectares of
Hacienda Luisita agricultural lands into industrial use.36

Petitioner HLI transferred and sold two hundred (200) hectares of the converted industrial lands to Luisita
Realty Inc.,37 for a total amount of ₱500,000,000.38

Meanwhile, the old titles covering the remaining 300 hectares of converted lands were cancelled and a new
consolidated title was issued in the name of petitioner HLI over that portion of the land.39 On 13 December
1996, petitioner HLI assigned the same 300-hectare property40 to Centennary Holdings, Inc., in exchange for
12,000,000 shares in the latter’s company.41 A new certificate of title was subsequently issued in the name
of Centennary Holdings.42

Thereafter, petitioner HLI entered into a Joint Venture Agreement with other corporate entities43 to form
Luisita Industrial Park Corporation (LIPCO), which was envisioned to be the corporate vehicle that would
purchase and develop the converted industrial land in Hacienda Luisita.44 After it was created and organized,
LIPCO agreed to develop the 300-hectare property into a first-class industrial estate45 and purchased the
property from Centennary Holdings for ₱750,000,000.46

Under the contract of sale, Centennary Holdings guaranteed that there were no third parties with any right or
claim over the property47 and that it had duly obtained a valid conversion of the property for use as an
industrial estate.48 Moreover, LIPCO alleged that at the time it acquired the property from Centennary
Holdings, the only annotations found in the title were 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.49

Pursuant to the sale, a new title was issued in the name of LIPCO covering the 300 hectare property.50 This
title was later on amended to account for the partial subdivision of the 300 hectare property into two
separate lots of 180 hectares and 4 hectares covered by two separate titles.51 The remaining 115 hectares
of the original property remained under LIPCO’s original title.52

In October 1996, LIPCO mortgaged its property in Hacienda Luisita to Rizal Commercial Banking
Corporation (RCBC) to guaranty the payment of a ₱300,000,000 loan, which was annotated in LIPCO’s title
over the property.53

The entire 300-hectare industrial estate was thereafter designated by then President Fidel Ramos as a
special economic zone (the Luisita Industrial Park II) by virtue of his powers under the Special Economic
Zone Act of 1995.54 The same industrial estate project of LIPCO over the 300-hectare land in Hacienda
Luisita was also endorsed and supported by the Sangguniang Bayan of the Municipality of Tarlac.55

LIPCO claims that from 1998 to 2001, it made developments to the 300-hectare property through its
contractor, Hazama Philippines, Inc., which included main roads and sub-roads with proper drainage, a
power control house, deep well and water tanks, a drainage reservoir and sewerage treatment plant, a
telecommunication system, underground electrical distribution lines, concrete perimeter security fences, and
a security house.56 LIPCO further alleges that it paid US$14,782,956.20 to its contractor for the said
improvements and developments to the land.57

On 25 November 2004, LIPCO assigned and transferred through a dacion en pago the two subdivided lands
in Hacienda Luisita to RCBC as full payment for its loan amounting to ₱431,695,732.10.58 LIPCO’s titles to
these two subdivided lots were subsequently transferred to RCBC.59 At the time of the dacion en pago,
RCBC claimed that there was no annotation in the titles of the two subdivided properties which showed that
there was any controversy or adverse claim, except for the deed of restrictions and its own real estate
mortgage over the properties.60

In November 2009, the Bases Conversion Development Authority (BCDA) acquired approximately 84
hectares of the property as a right-of-way for a segment of the SCTEX (Subic-Clark-Tarlac-
Expressway).61 An interchange was also constructed on a portion of the Tarlac-Clark segment traversing
petitioner’s landholdings, for which the government paid ₱80,000,000 as just compensation to petitioner
HLI.62 The legal issue relevant to this portion of the land and its use and expropriation by the government
was never expounded in full in the proceedings of the case, but petitioner HLI introduced the matter by
manifesting that it in fact distributed 3% of the ₱80,000,000 to the FWBs. This assertion, however, is not
included in the certified true report submitted by Jose Cojuangco & Sons Organizations - Tarlac
Operations,63 as the report detailed all the amounts HLI gave to its workers only from 1989 to 2005.64

Proceedings in the PARC

On 14 October 2003, the Supervisory Group of HLI (Supervisory Group) filed a "Petition/Protest" with public
respondent PARC, praying for the renegotiation of the SDOA, or alternatively, the distribution of petitioner
HLI’s agricultural lands to the FWBs.65 The petition/protest of the Supervisory Group, led by Jose Julio
Zuñiga and Windsor Andaya, contained sixty-two signatures of persons, who claimed to be supervisors in
Hacienda Luisita and who held shares in petitioner HLI.66

Petitioner HLI filed an Answer dated 04 November 2004,67 resisting the demands of the Supervisory Group
and reiterating that the SDOA is "impervious to any nullification, termination, abrogation, or renegotiation"
since the provisions of the law and the rules have been complied with.68

On 04 December 2003, private respondent Alyansang Mangagawang Bukid ng Hacienda Luisita (AMBALA)
filed a separate "Petisyon" in the Department of Agrarian Reform.69 Private respondent AMBALA made a
similar prayer for the revocation of the SDOA in Hacienda Luisita. Rene Galang and Noel Mallari, who were
the President and Vice President of AMBALA, respectively, signed the petition.70 Petitioner HLI consequently
filed an Answer to the AMBALA petition.71

On 22 November 2004, then DAR Secretary Rene Villa created a Special Task Force on the Hacienda
Luisita stock distribution option plan to review the terms and conditions of the SDOA, and evaluate the
compliance reports and the merits of the two petitions.72 On 15 August 2005, the DAR created a Special
Team to reinforce the Special Task Force.

On 22 September 2005, the DAR’s Special Team issued the Terminal Report, where it found that petitioner
HLI had not complied with its obligations under the law on the implementation of the stock distribution
plan.73 Specifically, the Terminal Report identified the following defects and violations:74 (a) absence of the
certificate of compliance since the stock distribution option plan had yet to be fully completed; (b) the
prolonged implementation of the distribution of shares to FWBs for a thirty-year period; (c) conversion of
portions of the Hacienda Luisita farm (500 hectares) for non-agricultural uses; and (d) distribution of shares
based on the number of days worked by the FWBs.

On 30 September 2005, the DAR Secretary, using the Terminal Report as basis, recommended to the
PARC Executive Committee the recall/revocation of the approval of the SDOA and the compulsory
acquisition of petitioner HLI’s agricultural lands. In reply to the DAR Secretary’s recommendations, the
PARC Executive Committee created a PARC ExCom Validation Committee to review and validate the DAR
Secretary’s findings.75

On 12 October 2005, fourteen FWBs allegedly filed their position paper before the PARC assailing its failure
to tackle the constitutionality of Section 31 of the CARL and limiting its basis for invalidating the SDOA for
violating the said provision and its implementing rules.76

On 29 November 2005, private respondents Supervisory Group and AMBALA, through Atty. Jobert Pahilga
of the Sentro Para sa Tunay na Repormang Agraryo Foundation (SENTRA), filed their Memorandum
arguing that the SDOA with petitioner HLI was a "big mistake and a monumental failure."77 The
constitutionality of the CARL’s provisions allowing for the stock distribution option itself was, however, not
raised.

On 22 December 2005, after conducting hearings and receiving the memoranda filed by the parties, the
PARC issued Resolution No. 2005-32-01 (the questioned PARC Resolution), which affirmed the
recommendation to recall/revoke the stock distribution plan of TADECO and petitioner HLI, and placed their
lands under compulsory coverage or mandated land acquisition scheme of the CARP. The dispositive
portion of the questioned PARC Resolution reads:

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 compulsory coverage or mandated land acquisition scheme of the Comprehensive Agrarian Reform
Program.78 (Emphasis supplied)

Pursuant to the questioned PARC Resolution, then DAR Secretary Nasser Pangandaman (public
respondent Pangandaman) ordered the acquisition and distribution of the entire agricultural landholdings of
petitioner HLI under the compulsory acquisition scheme of the CARL.79

On 02 January 2006, petitioner HLI moved for a reconsideration of the PARC Resolution.80 Private
respondents Supervisory Group and AMABALA, together with the United Luisita Worker’s Union (ULWU) as
intervenor, consequently filed their opposition to petitioner HLI’s motion for reconsideration.81

The DAR subsequently issued several notices of coverage over the lands in Hacienda Luisita in the name of
TADECO/HLI:

Table of Covered Lands of Hacienda Luisita

Location Pasajes, San Miguel, Luisita, Dumarals,

Municipality of Ungot and Bantog in Sierra, Lapaz84
Concepcion82 Tarlac83
Grand Total of Areas 1,909.5365 2,736.6949 1,291.9457
under the Titles (in
hectares)
Cancelled 98.7511 690.1578 236.8159
Canal/Road 1.1736 6.8949 30.5083
Capable 1,809.6118 2,069.642285 1,024.6215

The Hacienda Luisita lands in these notices of coverage also embraced the 300-hectare lot that was earlier
converted by the DAR for industrial use and now titled in the name of LIPCO, including the two titles
transferred to RCBC through a dacion en pago.86 However, the DAR motu propio desisted from
implementing the order of compulsory coverage over the said lands, in spite of the notices of coverage.87

Acting on the pending motion for reconsideration, the PARC Excom Validation Committee – headed by
Undersecretary Ernesto Pineda of the Department of Justice – recommended the dismissal of petitioner
HLI’s motion.88 This recommendation was adopted in toto by the PARC Council.89

Thereafter, 5,364 individuals claiming to be bona fide FWBs signed and filed with the DAR hundreds of
separate petitions.90 All of them claimed that they had freely entered the SDOA with petitioner HLI and
prayed that the SDOA not be cancelled by the DAR.

Proceedings in the Court

On 01 February 2006, without awaiting the resolution of its pending motion for reconsideration, petitioner
HLI filed the instant Rule 65 Petition to nullify the questioned PARC Resolution.91 Petitioner HLI included in
the Petition a prayer for a temporary restraining order to hold the implementation of the questioned PARC
Resolution, and to prevent compulsory coverage of the lands under the CARL. Despite the DAR’s own order
to cease and desist from implementing the Notices of Coverage, petitioner HLI, nevertheless, alleges that
the DAR was still bent on implementing the questioned PARC Resolution.92

On 14 June 2006, the Court granted petitioner HLI’s preliminary prayer for a temporary restraining order and
enjoined public respondents from implementing the questioned PARC Resolution.93

On 13 July 2006, public respondents, through the Office of the Solicitor General, filed their Comment.94

On 05 December 2006, private respondent Noel Mallari filed a Manifestation and Motion with Comment
Attached.95 Private respondent Mallari manifested that he and other members of AMBALA had left the
organization and founded the Farmworkers Agrarian Reform Movement, Inc. (FARM). Respondent Mallari
was joined and supported by some other FWBs, who affixed their signatures in the Petition.96 They prayed
that the new organization be allowed to enter its appearance and/or intervene in the instant case, and that
the instant Petition be dismissed. Respondent Mallari subsequently filed a supplement to the earlier
comment, raising therein as a substantive issue the unconstitutionality of the stock distribution option under
Section 31 of the CARL.97
On 22 December 2006, private respondents Supervisory Group98 and AMBALA (Galang Group)99 filed their
own Comment/Opposition, through their counsel, Atty. Pahilga of SENTRA, who had earlier represented
them in the PARC proceedings below.100

On 30 May 2007, petitioner HLI filed a Consolidated Reply101 to the comments filed by the two private
respondents102 and public respondents.103 Petitioner assailed the fact that private respondents did not
actually represent bona fide FWBs, as shown by the numerous and separate petitions signed by 5,364
FWBs filed in the PARC, who had expressed their desire to maintain the SDOA.104

On 30 October 2007, petitioner-in-intervention RCBC moved to intervene in the instant case considering that
the two subdivided lots of Hacienda Luisita that were transferred to it by virtue of the dacion en pago were
included in the notices of coverage issued under the authority of the questioned PARC Resolution.105 On 27
November 2007, LIPCO likewise moved to intervene in the instant case, considering that the DAR’s notices
of coverage also included the balance of 115 hectares of converted industrial land under TCT No. 310986,
which remained under its name.106

Public respondents filed their consolidated comment to the petitions-in-intervention of RCBC and LIPCO,
arguing inter alia that the two intervenor corporations were not innocent purchasers of land and that
TADECO and petitioner HLI reneged in this commitment to keep Hacienda Luisita "intact and
unfragmented."107 In contrast, petitioner HLI raised no objection to the intervention of RCBC and LIPCO.
Thereafter, RCBC and LIPCO filed their respective replies to public respondent’s consolidated comment.108

The Court then required: (a) petitioner HLI to submit certified true copies of the stock and transfer books
submitted to the Securities and Exchange Commission showing compliance with the SDOA; and (b) the
DAR Secretary to submit the list of qualified FWBs in Hacienda Luisita at the time the SDOA was signed on
11 May 1989.109 In compliance, petitioner HLI submitted a summary of stock distribution to beneficiaries from
1989-1990 to 2003-2004, as follows:110

Summary of Shares of Stock Distribution

CY – 1989-1990 to CY – 2003-2004
Distributed Shares Accelerated Shares Total Shares of
Status CTR
of Stock of Stock Stock
Fortnightly 882 11,309,418 11,309,418 22,618,836
Weeklies 8,597 47,948,819 47,948,819 95,897,638
Trash
2,476 104,374 104,374 208,748
Project
TOTAL 11,955111 59,362,611 59,362,611 118,725,222112

Public respondents likewise presented to the Court a list of qualified FWBs who signed the SDOA on 11
May 1989.113

On 11 August 2010, petitioner HLI and private respondents AMBALA (principally through one of its factions,
the "Mallari Group"),114 the Supervisory Group115 and the ULWU,116 with the concurrence of TADECO,
submitted to the Court a proposed compromise agreement for approval.117 Under the proposed compromise
agreement, the parties would respect the individual decisions of the FWBs as to whether they would stay
with the stock distribution contained in the SDOA, or would proceed with land distribution.118 Petitioner HLI
subsequently manifested that based on a "census" conducted on 6-8 August 2010 among the allegedly
10,502 qualified FWBs, 7,302 voted for stock distribution and 139 voted for land distribution.119

On 11 August 2010, the three groups that signed the proposed compromise agreement, namely, AMBALA-
Mallari Group, the Supervisory Group and ULWU, terminated the services of Atty. Pahilga of SENTRA. On
13 August 2010, Atty. Carmelito Santoyo entered his appearance as the new counsel for the three groups.

Private respondent AMBALA, now represented by Rene Galang (AMBALA-Galang Group), through the
same Atty. Pahilga of SENTRA, submitted its opposition to the compromise agreement and argued that it
was entered into without authority from the FWBs and contained stipulations contrary to law and public
policy.120 Thereafter, Atty. Capulong of the Public Interest Law Center121 also entered his appearance as lead
counsel for Rene Galang and as collaborating Counsel for AMBALA-Galang Group.122

Subsequently, the FARM group, through its counsel Atty. Christian Monsod of the Rights Network, moved to
intervene in the instant case and sought permission to file their comment-in-intervention.123 Although it
participated through the manifestation and motion124 previously filed by Noel Mallari, the FARM Group’s
latest comment-in-intervention was now signed by its officers and members led by Renato Lalic,125 and
excluded Mallari, who had apparently switched sides back to the AMBALA-Mallari Group and joined in the
proposed compromise agreement with petitioner HLI.126 FARM adopted by reference the earlier
manifestation filed on its behalf by Mallari, and prayed for the dismissal of the instant petition.127 It likewise
asked that Section 31 of CARL allowing for stock distribution to farmer beneficiaries be declared
unconstitutional. In its Resolution dated 17 August 2010, the Court deferred action on the FARM Group’s
latest request for intervention.

The Court heard the parties on oral arguments on 18128 and 24 August 2010.129

The Court also created a Special Committee to mediate between the contending parties.130 However, they
failed to reach an acceptable settlement. It must be emphasized that the creation of this Committee should
not serve as an indicator of any Court policy on whether mediation can still be ordered in cases filed before it
or where oral arguments have already been conducted. To clarify, the Court has no existing policy on such
matters.

After the oral arguments, the Court required parties to submit their respective memoranda and documents
relative thereto.131 The parties filed the following:

a. Petitioner HLI’s Memorandum dated 23 September 2010, praying for the reversal of the
questioned PARC Resolution and declaring the notice of coverage null and void;132

b. Private respondents AMBALA-Mallari Group, ULWU (Eldifonso Pingol) and Supervisory Group
(Zuñiga and Andaya) Memorandum dated 12 September 2010, through Atty. Santoyo, which prayed
that the questioned PARC Resolution also be declared null and void and set aside, and the
Compromise Agreement dated 06 August 2010 be approved;133

c. Private respondent AMBALA-Galang Group’s Memorandum dated 21 September 2010, through

Atty. Pahilga of SENTRA, praying for the affirmance of the questioned PARC Resolution and
ordering the actual distribution of the agricultural lands to the FWBs;134

d. Private respondent AMBALA-Galang Group’s Memorandum to Discuss Prejudicial Issues dated

23 September 2010, through Atty. Capulong of the Public Interest Law Center, praying that the Court
disregard the compromise agreement and/or referendum and order the distribution of the land to the
qualified beneficiaries;135

e. Respondent-intervenor FARM Group’s Memorandum dated 24 September 2010, through Atty.

Monsod of the Rights Network, praying for the declaration of Section 31 of the CARL as
unconstitutional and the dismissal of the instant Petition;136

f. Public respondents PARC and DAR Memorandum dated 23 September 2010, though the Office of
the Solicitor General, praying for the dismissal of the instant Petition;137

g. Petitioner-in-intervention LIPCO’s Memorandum dated 23 September 2010, arguing that it is an

innocent purchaser for value of the lands subject of compulsory coverage under the CARL and that
its title cannot be collaterally attacked;138 and

h. Petitioner-in-intervention RCBC’s Memorandum dated 23 September 2010 praying for the

reversal and setting aside of the questioned PARC Resolution and exclusion of their lands from the
notice of compulsory coverage under the CARL.139

Issues

Taking cognizance of the arguments espoused by all of the parties, the Court has simplified the various
factual and legal controversies raised and will limit its disposition to the following matters:

I. Whether the parties, specifically private respondents Supervisory Group, AMBALA, FARM and
ULWU, have a real interest in the present controversy involving the coverage of the Hacienda Luisita
land;

II. Whether we may rule on the constitutional challenge against the validity of a stock distribution
plan under Section 31 of the CARL;

III. Whether the PARC or the SEC has jurisdiction over the issue of validity of the SDOA and,
consequently, the authority to affirm or revoke the same;

IV. Whether there is a legal and factual basis to revoke the SDOA; and

V. Whether the purchasers or transferees of the converted lands in Hacienda Luisita are qualified to
be innocent purchasers for value.

Ruling
 I.

Private respondents Supervisory Group AMBALA, FARM and ULWU, representing qualified farm worker
beneficiaries entitled to the benefits under the SDOA, are real parties in interest in the instant case.

To qualify a person to be a real party in interest in whose name an action must be prosecuted,140 he must
appear to be the present real owner of the right sought to be enforced.141 Interest within the meaning of the
rule means material interest, an interest in issue and to be affected by the decree, as distinguished from
mere interest in the question involved, or a mere incidental interest.142 It is distinguished from a mere
expectancy or a future, contingent or subordinate.143

In filing the Petition/Protest with the DAR, private respondent Supervisory Group primarily sought the
renegotiation of the SDOA with petitioner HLI. Private respondent claimed that its members were entitled to
the rights and privileges under the SDOA but were not able to enjoy most of them.144

With respect to the Supervisory Group, it appears the sixty-two (62) signatories of private respondent
Supervisory Group’s Petition/Protest in the DAR were awarded a total of 1,073,369 shares, as detailed in
the signature sheet.145 The list submitted by petitioner HLI to the Court confirmed that private respondent
Supervisory Group’s spokespersons – Jose Julio Zuñiga and Windsor Andaya – were beneficiaries and
recipients of shares under the SDOA from 1989-2004.146 Public respondents’ records even show that Zuñiga
was one of the FWBs who originally signed the SDOA in 1989.147 Having been recipients of the shares of
stock and other benefits under the SDOA, private respondent Supervisory Group and its members clearly
have a real interest in the validity and/or implementation of the SDOA. As real parties in interest under the
Rules, they have standing to raise questions regarding the same and pursue an action with the proper
authority.

With respect to AMBALA (both the Mallari and Galang Group), private respondent AMBALA filed the
"Petisyon" in the DAR as qualified FWBs entitled to receive benefits under the SDOA. Rene Galang and
Noel Mallari (President and Vice-President of private respondent AMBALA) represented themselves as
leaders of qualified FWBs. They demanded from petitioner HLI, among others, the payment of their shares
from the sale of converted lands and alternatively, the distribution of the Hacienda Luisita lands under
compulsory acquisition in the CARL. Similar to Mr. Zuñiga of private respondent Supervisory Group, Mr.
Mallari’s standing to question the SDOA arises from his status as one of the original signatories
thereto.148 Clearly, their substantial and material interest derives from the fact that they were entitled to
benefits under the SDOA, which they had previously agreed to and signed.

The representatives of private respondent AMBALA were also recipients of shares of stock under the
SDOA.149 Even if Galang, as head of private respondent AMBALA, allegedly started his employment with the
company only in June 1990 after the SDOA was signed,150 he still possesses a real interest in the agreement
because he was identified as one of the beneficiaries of the stock distribution option. Therefore, any ruling
on the SDOA with respect to its validity or implementation will invariably affect their rights and that of other
members of private respondent AMBALA, who have claims under the said agreement.

In any case, petitioner HLI has expressly acknowledged that private respondents AMBALA and Supervisory
Group are real parties-in-interest with respect to filing the petition before the DAR.151 Petitioner HLI’s
acknowledgement of private respondents’ interest in the case may have been precipitated by their proposed
compromise agreement submitted for approval to the Court.152 Regardless of the Court’s resolution of the
proposed compromise agreement, petitioner HLI’s admission foreclosed the issue as to private respondents’
interest and/or rights as qualified FWBs in the present action to question the SDOA.

The members of the AMABALA Galang Group, which opposed the compromise agreement with petitioner
HLI, likewise claim rights under the SDOA as FWBs and, hence, also possess a real interest in this case. It
will be recalled that the group is represented by Rene Galang, who was the President of AMBALA at the
time the complaint before the PARC proceedings was filed.153 Thereafter, the private respondent AMBALA
split into two factions (Mallari Group and Galang Group), presumably arising from their disagreement with
respect to the proposed compromise agreement and the change of counsel. The AMBALA Mallari Group,
which was represented by Atty. Santoyo, favored the approval of the compromise agreement, while the
AMBALA Galang Group, insisted on land distribution and retained its previous counsel, Atty. Pahilga of
SENTRA.154 In any event, Rene Galang, similar to Noel Mallari, also received shares of stocks from
petitioner HLI under the SDOA,155 and thus, has a real interest in the outcome of the case.

On the other hand, FARM was the break-away group from AMBALA, which was headed by Noel Mallari
when it first entered its appearance in the Court’s proceedings.156 When Mallari returned to AMBALA, the
officers and members of the FARM continued to intervene in the proceedings headed by Renato Lalic, and
were represented by Atty. Monsod of the Rights Network. Members of the FARM all claim to have been
long-term occupants, residents of and workers at the Hacienda Luisita lands, and that they also own shares
of petitioner HLI and homelots arising from the SDOA.157 As beneficiaries under the SDOA, members of
FARM are also real parties in interest since they will be directly affected by the validity or invalidity of the
SDOA.
Finally, ULWU first intervened in the proceeding at the PARC level, when it joined the Supervisory Group
and AMBALA in opposing petitioner HLI’s motion for reconsideration of the questioned PARC
resolution.158 However, ULWU, together with the other two groups joined petitioner HLI in seeking the
Court’s approval of the proposed compromise agreement. There is no denying that ULWU also has standing
in the instant case, since it not only received benefits under the SDOA, but also dealt with petitioner HLI in
entering into a compromise agreement.

Ultimately, qualified FWBs who originally consented to the SDOA or those who are entitled to and/or
received benefits under the said agreement have a substantial interest in the adjudication of the status and
legitimacy of the SDOA.

Petitioners-in-Intervention RCBC and LIPCO are Real Parties in Interest.

Petitioners-in-intervention RCBC and LIPCO have a legal and substantial interest as the present owners of
the converted lands subject of compulsory coverage under the questioned PARC Resolution.159 The rights of
petitioners-in-intervention over the converted lands, which were transferred to them by petitioner HLI and
Centennary Holdings, will be affected by the revocation of the SDOA and the subsequent inclusion of the
transferred properties in compulsory acquisition. Their interest stems from being owners of land that was
included in the notice of compulsory coverage. Their rights over portions of the Hacienda Luisita lands,
previously owned by petitioner HLI and converted into industrial lands by the DAR, will be directly affected if
the DAR is permitted to expropriate the same for distribution to qualified FWBs under the CARL. Hence,
they have a substantial and material interest in the outcome of the questioned PARC Resolution insofar as it
may possibly deprive them of their rights over the lands they purchased.

II.

The constitutional validity of the stock distribution option under the CARL was not timely raised and is not
the lis mota in this case.

Respondent-intervenor FARM questioned the validity of the stock distribution option of a corporate
landowner under Section 31 of the CARL on the ground that it is in violation of the constitutional provision on
agrarian reform, specifically the distribution of land to the farmers.160 Respondent-intervenor argued that the
stock distribution option was not one of the modes intended by the agrarian reform policy in giving "land to
the landless." In response, petitioner HLI countered that the issue of the CARL’s constitutionality cannot be
collaterally attacked.161

Before the Court can exercise its power to pass upon the issue of constitutionality, the following requisites
must be present:

1. There must be an actual case or controversy calling for the exercise of judicial power;

2. The person challenging the act must have the standing to question the validity of the subject act
or issuance; otherwise stated, he must have a personal and substantial interest in the case such that
he has sustained, or will sustain, direct injury as a result of its enforcement;

3. The question of constitutionality must be raised at the earliest opportunity; and

4. The issue of constitutionality must be the very lis mota of the case.162

Although the first two requisites are present, FARM has not shown compliance with the remaining two
requisites.

With respect to the timeliness of the issue, respondent-intervenor FARM did not raise the constitutional
question at the earliest possible time. The petitions filed in the PARC, which precipitated the present case,
did not contain any constitutional challenge against the stock distribution option under the CARL. As
previous members of private respondent AMBALA, nothing prevented respondent-intervenor FARM from
arguing on the purported constitutional infirmity of a stock distribution option as opposed to a direct land
transfer, in the AMBALA Petition in the PARC proceedings below.

Respondent-intervenor FARM would argue that it raised the constitutionality issue in its position paper at the
level of the PARC.163 However, this is a late attempt on its part to remedy the situation and comply with the
foregoing requisite on timeliness in the exercise of judicial review. Nothing in the initiatory petitions of private
respondents Supervisory Group and AMBALA assailed the inherent invalidity of stock distribution options as
provided in Section 31 of the CARL.

Respondent-intervenor FARM posits that it fully complied with the requirement of timeliness under the
doctrine of judicial review since the earliest possible opportunity to raise the issue must be with a court with
the competence to resolve the constitutional question, citing as basis Serrano v. Gallant Maritime Services,
Inc.164 This case is significantly different from Serrano as to render the latter’s legal conclusions inapplicable
to the present situation.

In Serrano, the question of the validity of the money claims clause of the Migrant Workers and Overseas
Filipinos Act of 1995165 was timely raised at the very first instance in a competent court, namely in Antonio
Serrano’s petition for certiorari filed with the Court of Appeals.166 In sharp contrast, the question of the
constitutionality of the CARL in this case was belatedly included in respondent-intervenor FARM’s
supplemental comment167 after an earlier manifestation and motion had already been filed. Thus,
respondent-intervenor’s earliest opportunity to raise the constitutionality of Section 31 of the CARL was in
the very first pleading it filed in this Court, and not in a supplemental comment.

Even assuming arguendo that the rule requiring the timeliness of the constitutional question can be relaxed,
the Court must refrain from making a final determination on the constitutional validity of a stock distribution
option at this time because it is not the lis mota of the present controversy and the case can be disposed of
on some other ground.

The Court will not touch the issue of constitutionality unless it is truly unavoidable and is the very lis mota
or crux of the controversy.168 In the seminal case of Garcia v. Executive Secretary, the Court explained the
concept of lis mota as a requirement of judicial review in this wise:

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.169

A court should not pass upon a constitutional question and decide a law to be unconstitutional or invalid
unless such question is raised by the parties; when raised, if the record presents some other ground upon
which the court may rest its judgment, the latter course will be adopted and the constitutional question will
be left for consideration until a case arises wherein a decision upon such question will be
unavoidable.170 The Court will not shirk its duty of wielding the power of judicial review in the face of gross
and blatant acts committed by other branches of government in direct violation of the Constitution; but
neither will it be overly eager to brandish it when there are other available grounds that would avoid a
constitutional clash.

It will be recalled that what the qualified beneficiaries assailed in the PARC proceedings was the failure on
the part of petitioner HLI to fulfill its obligations under the SDOA, and what they prayed for was for the lands
to be the subject of direct land transfer. The question of constitutionality of a stock distribution option can be
avoided simply by limiting the present inquiry on the provisions of the SDOA and its implementation.
Whether the PARC committed grave abuse of discretion in recalling or revoking the approval of the SDOA
need not involve a declaration of unconstitutionality of the provisions of the CARL on stock distribution.

There is no "paramount public interest" that compels this Court to rule on the question of constitutionality. As
a legislative act, the CARL enjoys the presumption of constitutionality.171 Absent any glaring constitutional
violation or evident proof thereof, the Court must uphold the CARL. Indeed, paramount public interest is
better served by precluding a finding on the CARL at this point, since such finding could unfairly impact other
corporate landowners and farmer beneficiaries under a stock distribution option in other parts of the
country172 who are not parties to the instant case.

While we do not rule on the constitutionality of stock distribution option, we also need to state that there
appears to be no clear and unequivocal prohibition under the Constitution that expressly disallows stock
distribution option under the provisions on agrarian reform:

The State shall, by law, undertake an agrarian reform program founded on the right of 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.173

The primary constitutional principle is to allow the tiller to exercise rights of ownership over the lands, but it
does not confine this right to absolute direct ownership. Farmworkers are even allowed to simply have a
share in the fruits of the land they till for as long as what they receive is just and fair. The framers of the
Constitution established the right of landless farmers and regular farmworkers to own the lands they till
directly or collectively, but left the identification of the means of ownership to Congress. This was an
important decision, considering that Congress has the better facilities and faculties to adjudge the most
appropriate and beneficial methods for the exercise of the constitutional right in cases where dividing a small
landholding among a multitude of qualified FWBs would result in parceling out patches of land not viable for
individual farming. Whether stock distribution is a valid method identified by Congress for lands owned by a
corporation, or whether it is a "loophole" in the CARL to evade land distribution in contravention of the intent
of the Constitution, is a question that need not be answered now.

III.

The PARC has jurisdiction over the question of the validity of and/or compliance with the SDOA.

Petitioner HLI assails the jurisdiction of the PARC to recall the SDOA. It argues that the PARC’s authority is
limited to approval or disapproval of a stock distribution proposal made by a corporate landowner and
qualified FWBs; purportedly, this does not include a revocation of the agreement, especially after it has
already been implemented. It theorizes that the agreement, once approved by the PARC, "ascends" to the
level of an ordinary civil contract and thus any action to annul the same must be through the regular courts
and not the PARC.174

The PARC was created primarily to coordinate the implementation of the comprehensive agrarian reform
program (CARP) and to ensure the timely and effective delivery of the necessary support services.175 It was
tasked to "formulate and/or implement the policies, rules and regulations necessary to implement each
component of the CARP, and may authorize any of its members to formulate rules and regulations
concerning aspects of agrarian reform falling within their area of responsibility."176

With respect to the stock distribution option under the CARL, one of the PARC’s powers is to approve a
stock distribution plan of corporate land owners.177 After the DAR Secretary evaluates the stock distribution
plan, he shall forward it together with the supporting documents and his recommendations to the PARC,
which shall decide whether or not to approve the same.178

Petitioner’s argument is not persuasive, since it espouses a deprivation of the PARC’s authority to effectively
implement the policies, rules and regulations of the CARL.

Under the CARL, the stock distribution option would ordinarily necessitate an outright delivery of the shares
to qualified FWBs. This method of distributing shares would be effected within a short period, in much the
same speed as that of lands transferred under the first option. In a stock distribution scheme, government
approval is necessary in two instances:

1. Approving the proposal for stock distribution option plan or agreement arrived at between the
corporate landowner and qualified FWBs (approval of the agreement); and

2. Approving compliance by all the concerned parties of the terms and conditions of the plan or
agreement (approval of the compliance).

The first involves a conceptual and theoretical authorization that the terms of the stock distribution are in
accordance with the law and agrarian reform policy. The failure to obtain approval of the agreement does
not preclude the parties from renegotiating the agreement and submitting it again for approval, especially if
the PARC raises concerns regarding some of the terms.

The second instance determines whether the parties faithfully implemented and complied with their
obligations under the approved agreement. Hence, the failure to obtain approval of the compliance
demonstrates a defect in the fulfillment of the parties of their responsibilities. This situation occurs if, for
example, after a few months from the approval of the agreement, not a single share has been received by
any of the qualified FWBs or recorded in the books of the corporate landowner. In fact, the law expressly
provides that should the stock transfer not materialize, then the agricultural land of the corporate owners or
corporation shall be subject to compulsory coverage.179

Petitioner HLI does not question the authority of the PARC with respect to the approval of the
agreement,180 but it raises an issue as to whether the approval of the compliance remains within the
authority of the PARC. Although the CARL is silent on the latter authority, it is more logical and efficient for
this necessary power to remain lodged with the PARC.

Jurisdiction over a subject matter is conferred by law.181 Section 50 of the CARL and Section 17 of Executive
Order No. 229 vests in the DAR the primary and exclusive jurisdiction, both original and appellate, to
determine and adjudicate all matters involving the implementation of agrarian reform.182 The DAR’s primary
and exclusive jurisdiction includes authority over agrarian disputes, which also covers "disputes on the terms
and conditions of the transfer of ownership from landowners to agrarian reform beneficiaries."183 Congress
provides the exclusive jurisdiction of the DAR in agrarian disputes, in this language:
SECTION 50-A. Exclusive Jurisdiction on Agrarian Dispute. — No court or prosecutor's office shall take
cognizance of cases pertaining to the implementation of the CARP except those provided under Section 57
of Republic Act No. 6657, as amended. If there is an allegation from any of the parties that the case is
agrarian in nature and one of the parties is a farmer, farmworker, or tenant, the case shall be automatically
referred by the judge or the prosecutor to the DAR which shall determine and certify within fifteen (15) days
from referral whether an agrarian dispute exists: Provided, That from the determination of the DAR, an
aggrieved party shall have judicial recourse. In cases referred by the municipal trial court and the
prosecutor's office, the appeal shall be with the proper regional trial court, and in cases referred by the
regional trial court, the appeal shall be to the Court of Appeals. …"184 (Emphasis supplied)

Since a stock distribution option is an alternative method of transferring ownership of agricultural land to
FWBs, any controversy regarding compliance with the approved terms and conditions of such transfer is
necessarily an agrarian dispute that is within the primary and exclusive jurisdiction of the DAR, and
necessarily the PARC. The function of requiring approval of the compliance of the SDOA is precisely to
ensure compliance with the earlier approval. The CARL could not have tolerated a situation where qualified
FWBs would be without any recourse against a landowner who failed to live up to its promises under a stock
distribution agreement.

General jurisdiction over agrarian disputes over stock distribution agreements necessarily implies a specific
authority to monitor and enforce implementation of the same. As distinguished from express powers, implied
powers are those that can be inferred or are implicit in the wordings or conferred by necessary or fair
implication of the enabling act.185 Public respondents correctly identified the explanation of Chavez v.
National Housing Authority,186 on the doctrine of necessary implication in administrative law, in this wise:

Basic in administrative law is the doctrine that a government agency or office has express and implied
powers based on its charter and other pertinent statutes. Express powers are those powers granted,
allocated, and delegated to a government agency or office by express provisions of law. On the other hand,
implied powers are those that can be inferred or are implicit in the wordings of the law or conferred by
necessary or fair implication in the enabling act. In Angara v. Electoral Commission, the Court clarified and
stressed that when a general grant of power is conferred or duty enjoined, every particular power necessary
for the exercise of the one or the performance of the other is also conferred by necessary implication. It was
also explicated that when the statute does not specify the particular method to be followed or used by a
government agency in the exercise of the power vested in it by law, said agency has the authority to adopt
any reasonable method to carry out its functions. (Emphasis supplied)

It must be clarified that the power to revoke or recall approval of the agreement resides only in the PARC,
and does not extend to the DAR. The DAR itself recognized the primacy of the PARC’s evaluation and
assessment of a stock distribution plan.187 The continuing authority of the PARC to monitor and ensure
proper implementation of a stock distribution option is consistent with its power to order the forfeiture of
agricultural lands in case of the landowner’s failure to distribute the stocks. The CARL expressly provides for
the compulsory coverage of the agricultural lands if there is no distribution of the stocks to qualified
FWBs.188 In fact, the PARC is duty bound to subject the agricultural lands of the landowner to compulsory
coverage if stock distribution does not materialize.

In the instant case, the complaints of the qualified FWBs were properly lodged with the PARC, which had
earlier given its approval of the agreement but has yet to render approval of the compliance. It must be
noted that the SDOA under question is extraordinary since it provided a longer period of thirty years for the
distribution of the shares to the qualified FWBs. Rather than immediately awarding the entire lot of shares of
stock, petitioner HLI opted to spread out and prolong the distribution. The PARC was not in a position to
immediately render approval of the compliance since petitioner HLI still had three decades before it could
implement a complete stock distribution in favor of the qualified FWBs.

Disputes Over the SDOA Are Inherently Agrarian in Nature.

Although petitioner HLI will not deny qualified FWBs a remedy against any claim of non-fulfillment of
obligations under the SDOA, it asserts that such remedy is of a class of suits that is not within the ambit of
the CARL, but instead falls under the laws on civil contracts189 or even the Corporation Code.190 Petitioner
HLI is not correct.

The nature of the dispute of the petitions filed in the PARC is inherently agrarian in nature and not simply
contractual or corporate.191 Undeniably, the parties were compelled to agree on an acceptable mode of
transfer of land ownership by the pronouncements of the CARL. This was, however, not an ordinary civil
contract entered into between two parties standing on equal footing, as in fact land distribution was
constitutionally sanctioned to balance the prevailing inequity between rich land owners and poor farmers.

The determination of whether the dispute under a stock distribution option is agrarian, civil or corporate in
nature relies on the allegations of the complaint, the purported relationship between the contending parties
and the rights sought to be enforced.192 In this case, petitioner HLI and the farm workers share multiple
relationships that can be the source of rights and obligations between them. Primarily, petitioner HLI’s
relationship with the farm workers is that of a corporate landowner and qualified beneficiary under the CARL.
But they also share an employer-employee relationship, insofar as the farm workers receive salaries and
benefits from the corporation. There is likewise a tri-partite civil and contractual relationship arising from the
SDOA between petitioner HLI (the spin-off corporation), TADECO (the original corporate landowner), and
the qualified FWBs. Finally, the farm workers are also stockholders of petitioner HLI, having been awarded
shares under the SDOA. Indeed, these various relationships give rise to distinct rights and prescribe
separate remedies under the law.

However, the overriding consideration for the stock distribution agreement under the CARL is the
relationship of landowner-farm worker, which was the legal basis for the parties to have entered into the
SDOA in the first place. Petitioner HLI and TADECO signed the SDOA precisely because the farm workers
who agreed thereto were identified as qualified FWBs entitled to the benefits under the CARL. Similarly, the
farm workers’ acquisition of the additional status of stockholders of petitioner HLI arose out of their original
status as qualified FWBs. Hence, all disputes arising from the stock distribution must be viewed in light of
this principal juridical tie of corporate landowner and qualified FWBs. Parties cannot invoke other incidental
relationships (civil or corporate) to deprive the PARC of its primary and exclusive jurisdiction over complaints
filed by qualified FWBs against a stock distribution agreement, which is invariably an agrarian dispute.

Granting the PARC jurisdiction over disputes involving stock distribution agreements does not diminish the
jurisdiction of regular or commercial courts or the SEC; it is merely a recognition of its special competence
over the matter of implementation of the CARL, especially when it comes to stock distribution agreements
with FWBs. It is absurd to deprive the PARC of jurisdiction simply because civil or corporate causes of
action are included and in this case, belatedly, by petitioner HLI.

Considering the several capacities involved under a stock distribution option between a corporate landowner
and qualified FWBs, the better rule now is that all disputes arising from their stock distribution agreement
and/or its implementation shall be within the jurisdiction of the PARC in accordance with its primary and
exclusive jurisdiction under the CARL over agrarian disputes.193

IV.

There is legal and factual basis to recall/revoke the approval of the SDOA and order the compulsory
coverage of the agricultural lands of Hacienda Luisita.

Proceeding to the substantial merits of the case, questioned PARC resolution should be affirmed insofar as
it found factual and legal basis to revoke/recall approval of the SDOA between petitioner HLI and the
qualified FWBs.

Violating the Integrity of the Pool of the qualified FWBs; Variability in their Number of Shares

The SDOA grossly violated the provisions of the CARL with respect to the stock distribution option when its
basis for distributing the shares was made on the ground of its continuing determination of the man-hours
served by the qualified FWBs. The rolling policy of petitioner HLI is contrary to the intent of stock distribution
option under the CARL.

The CARL provides that a corporate land owner may give its 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.194 In qualifying the ratio of shares to be
received by each of the qualified FWBs, the DAR explained that, as a minimum, each of the qualified FWBs
would receive an equal number of shares of stock of the same class and value, with the same rights and
features as all other shares.195 Although the DAR allowed shares of stock to be distributed based on other
factors, such as rank, seniority, salary or position, this distribution is in addition to the minimum ratio earlier
described, which guarantees a base number of shares for all types of qualified FWBs.196 Hence, the
minimum ratio under a stock distribution scheme is a fixed value that should be equally received by all
qualified FWBs; meanwhile, the additional shares are variable depending on an agreed upon criteria.

The SDOA also provided for a moving distribution of shares of stock based on the "number of days" worked
by qualified FWBs, which is undeniably a variable criterion, in violation of the fixed minimum ratio.197

There is no error in identifying the qualified FWBs based on the payroll of petitioner HLI as of a fixed point in
time. Under the fixed minimum ratio in a stock distribution scheme, persons would be identified as qualified
beneficiaries198 based on whether they appear on the corporate landowner’s payroll as
farmworkers,199 regardless of whether they are regular or seasonal or whether they receive compensation in
a daily, weekly, monthly or "pakyaw" basis. In this case, there were 6,296 farmworkers as of 11 May 1989,
who were qualified as beneficiaries at the time of the signing of the SDOA. Thus, each of these farmworkers
should have received an equal number of the total shares distributed by petitioner HLI.200

However, contrary to above-mentioned fixed minimum ratio, petitioner HLI adopted a wholly variable and
mobile criterion – the number of shares would be based on the number of man-days each qualified FWB
logged in every year.201 Instead of receiving an equal amount, farmworkers under the SDOA would receive
varying number of shares depending on the man-days rendered. 202 Thus, if some of the 6,296 farmworkers
served more man-days than the others, then they would be entitled to more shares. The scheme is in clear
violation of the policy of equal number of shares as a minimum ratio for all qualified FWBs.

Worse, the qualified FWBs’ entitlement to receipt of shares was made on a rolling basis at the end of each
year for the next thirty years. The number of shares was not only variable depending on the number of man-
days served, but also on the time period when these man-days were served. Under the SDOA, there would
be a yearly and partial distribution of shares to the qualified FWBs based on the annual number of man-days
performed. Hence, qualified FWBs who worked in a previous year, but failed to get the same number of
man-days or failed to work at all in the succeeding year, would not receive an equivalent number of shares
at the end of the year. Moreover, persons who were not part of the original 6,296 farmworkers, but were
subsequently employed by petitioner HLI, would still be entitled to annual proportionate shares of stock
under the SDOA.203 Thus, the original FWBs were deprived of their guaranteed equal shareholdings by the
proportional allocation of stocks to farmworkers who were not even employed at the time of the signing of
the SDOA.204 The variable determination of the number of shares to which qualified FWBs were entitled
resulted in the dilution of their shares, since the number of recipients "ballooned" through time (10,502
FWBs) but the number of stocks to be distributed remained the same.

In fact, the policy of "no-work-no-share-of-stock"205 becomes patently burdensome in its operation, since it
was found that petitioner HLI had control of the number of man-days to be given to the qualified FWBs,
which in turn determined the number of shares they were to receive under the SDOA. In its Terminal Report,
the DAR Special Team found that:

"FGD/OCI finding that the number of shares of stock to be received by the FWBs, depends on their
designation (i.e., permanent, casual or seasonal) and on the number of man days. Retired and retrenched
workers are not given shares of stocks and cease as share holders. Indisputedly (sic), the setup under the
MOA is one-sided in favor of HLI. The work schedule, upon which the extent of entitlement to be granted
shares of stock is wholly within the prerogative and discretion of HLI management that a FWB can still be
denied thereof by the simple expediency of not giving him any working hours/days. And this is made
possible by the fact that [there] are more farmers/farmworkers in its employ than what is, according to HLI,
necessary to make it operational."206

"2. The matter of issuance/distribution [of] shares of stocks in lieu of actual distribution of the agricultural
land involved, was made totally dependent on the discretion/caprice of HLI. Under the setup, the agreement
is grossly onerous to the FWBs as their man days of work cannot depart from whatever management of HLI
unilaterally directs."207

"They can be denied the opportunity to be granted a share of stock by just not allowing them to work
altogether under the guise of rotation. Meanwhile, within the 30-year period of bondage, they may already
reach retirement, or, worse, get retrenched for any reason, then, they forever lose whatever benefit he (sic)
could have received as regular agrarian beneficiary under the CARP if only the SDP of HLI were not
authorized and approved." 208 (Emphasis supplied)

Petitioner HLI retained control as to who would be granted the opportunity to become farmworkers in any
given year and the number of man-days they would serve. It likewise had the discretion to determine who
would be granted the annual benefit as well as the number of shares to be awarded. Qualified FWBs were
thus, subject to the discretion or caprice of petitioner HLI, who could dilute or outrightly deny their
entitlement to the shares of stocks.209 It could play favorites and award man-days only to qualified FWBs
who supported management while troublesome FWBs could be penalized by not allocating any man-days,
thereby minimizing their entitlement to the shares.

Petitioner HLI’s intent to reward the services of the farmworkers through the distribution of shares, which is
also an incentive system to increase production is understandable. However, this scheme is more
appropriate in the distribution of variable additional shares –not for the fixed minimum ratio necessary under
a stock distribution option. Distribution of shares of stock based on the man-days rendered by the
farmworker is more akin to additional compensation to an employee for services rendered. However, the
CARL speaks of stock distribution as an alternative method to substitute direct land distribution and not as
an added benefit to its employees.

The determination of qualified FWBs’ shares based on the rolling criterion of man-days resulted in an
expanded list of beneficiaries. Had the 6,296 qualified FWBs opted for direct land transfer, they would not
have worried about sharing their titles to the land with other farm workers who came to work in Hacienda
Luisita after the SDOA. Under the land transfer option, the finite parcel of land is directly awarded to
identified FWBs with titles and documents to evidence their individual ownership to the exclusion of others.
In contrast, the SDOA allowed the number of beneficiaries to balloon to 10,502 stockholder-beneficiaries
(and growing) for as long as they performed work in the farm. Regardless of whether they were original
residents in the area or migrants from nearby provinces, subsequent farm workers could be included and
thus, expand the number of recipients. This in turn diluted the rights and benefits the original FWBs should
have enjoyed under the SDOA vis-à-vis the newer stockholders. On this ground alone, there is sufficient
basis to recall and/or revoke the SDOA since it is contrary to the intent of a stock distribution to existing and
qualified FWBs.

Prolonged Period of Distribution

The CARL provides in Section 31:

"If within two (2) years from the approval of this Act, the 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 supplied)

The two year period from the approval of the CARL contemplates three situational deadlines with respect to
the agricultural landholdings of a corporate landowner: (1) the realization of a land transfer to qualified
FWBs; (2) the realization of the stock transfer to qualified FWBs; and (3) the approval of the PARC of the
stock distribution. The instant situation falls under number (3) above, but the question that was not clearly
answered by the law is how many years after the PARC’s approval of the stock distribution should it take
before the stock transfer is actually completed. Whatever the timeframe may be, the thirty year period for the
distribution of stocks is patently unreasonable and is not within the intent of a stock distribution option
provided for by the CARL.

The piecemeal distribution of the shares over thirty years is an oppressive form of diminishing the value of
the shares and is prejudicial to the interests of the FWBs. Apportioning the number of shares to the FWBs
over a prolonged period reduces their capacity to enjoy their rights completely and immediately. For
example, if petitioner HLI had declared cash dividends of ₱1.00 per share in the fifteenth year of distribution,
then qualified FWBs would enjoy only half of the dividends owed them since they had yet to receive the
other half of the shares allotted to them (assuming, of course, that they were to receive the same number of
shares each year).210 Rather than enjoy the full benefit of the shares of stock due and owed them, the FWBs
are made to wait for three decades before they can appreciate the full benefits as a stockholder-beneficiary
of petitioner HLI.

The inequity of the thirty-year period is highlighted when it is compared to the situation of an immediate land
transfer. In a land transfer, a FWB can immediately feel the full benefit of land redistribution under the CARL
upon the award of an emancipation patent or certificate of land ownership award and his actual physical
possession of the land.211 In sharp contrast to the SDOA, the qualified FWBs were deprived of full ownership
of the entire shareholdings due them under the staggered stock distribution scheme. Qualified FWBs,
regardless of their age or health conditions, had to continue working for petitioner HLI for a period of thirty
years if they wanted to realize the complete benefits of the SDOA. The protracted award of stocks nurtured
a culture of forced dependency upon petitioner HLI on the part of the qualified FWBs.

No other conclusion can be drawn from the two year period provided for in the land and stock transfer under
the CARL except that full transfer of benefits to the landless farmers under the land reform program should
be immediate. The shortened period for distribution should likewise apply in cases of the PARC approval of
the stock distribution scheme. It would, thus, be reasonable to expect that all the shares of petitioner HLI
allocated to the qualified FWBs would have been completely and absolutely distributed to them within two
years from the PARC’s approval of the SDOA, or no later than 14 November 1991. In fact, the DAR was
more exacting when it required the approved stock distribution plan be implemented within three months
from receipt of the PARC approval.212 It was wrong for the DAR Special Team to allow implementation within
ten years.213 The two-year period is reasonably sufficient to realize the full transfer of shares and for qualified
FWBs to understand and familiarize themselves with their rights and privileges as corporate stockholders.

Although operational and practical considerations may possibly permit some impediment to the automatic
and complete transfer of shares, the gradual build-up214 of shares of stock for a period of thirty years is
simply wrong and defeats the objective of actual redistribution of land ownership to the farmers. The CARL
never envisioned the unreasonable delay in qualified FWBs’ enjoyment of the benefits, which would have
prolonged their suffering as landless farmers, especially when compared to the promptness of a land
transfer option. That petitioner HLI suddenly accelerated the distribution of the shares on 22 April 2005,
more than fifteen years after the SDOA was signed,215 only shows that no operational difficulty could have
prevented the prompt receipt by the qualified FWBs of their shares. That the accelerated distribution was
approved by petitioner HLI fortuitously almost a year after private respondents filed their protests with the
PARC216 raises the suspicion that its benevolence was targeted precisely to mitigate opposition to the
SDOA,217 foreclosing rejection of the agreement due to the completion of the distribution of the shares. 218

There is no justification, contrary to what petitioner HLI proposes, to compare the thirty-year period for
distributing the stocks to the thirty annual amortizations, to be paid to the Landbank of the Philippines (LBP)
the land transfer, required of the FWBs.219 The thirty annual amortization payments to be made by the
qualified FWBs are beneficial to the farmers, insofar as the LBP allows a prolonged period of time for them
to pay for the lands transferred to them under preferable rates. In the case of amortization payments, the
longer the period of payment, the better for the farmer since the obligation to pay is broken down to
manageable installments. It also allows the farmers the full and complete use of the land, in order to
immediately earn income, from which to source his amortization payments to LBP.220 In sharp contrast, the
thirty-year period of distributing shares under the SDOA is detrimental to the qualified FWBs; they are
unable to enjoy their entitlement under a stock distribution scheme, since they have to wait several years
before full transfer of all the shares due and owing to them.221 Agrarian reform and land distribution was
made to benefit the farmer by allowing immediate use of the redistributed land or rights thereunder while
stretching the financial obligations or commitments out over manageable periods of time. The SDOA
achieves the complete opposite by delaying the FWBs’ acquisition of full rights as stockholders, and thus,
must be struck down.

Valuation of the Land

The identification and valuation of the corporate assets of petitioner HLI, as a spin-off corporation, was not
subjected to verification and audit examination by the DAR and resulted in the undervaluation of the shares
due to the qualified FWBs.

The value ascribed to the assets of the corporate landowner, especially the agricultural lands, is crucial as it
determines the number of shares to be distributed to the qualified FWBs. Under a stock distribution option,
the qualified FWBs are entitled to a proportion of the shares in accordance with the value of the agricultural
lands actually devoted to agricultural activities in relation to the company's total assets.222 The determination
of the number of shares each qualified FWB should receive can be reduced to this mathematical formula:

Value of Agricultural No. of Total Outstanding

Lands Shares of Stock
No. of shares of stock
X =
for every qualified FWB.
Value of the Company's No. of qualified FWBs
Total Assets

If the valuation given to the agricultural land is decreased the number of shares of each qualified FWB
decreases. Moreover, the number of shares for each qualified FWB will decrease if the value of the
company’s total assets increases without a corresponding increase in the value of its agricultural lands.
Given the significance of the valuation to the dynamics of stock distribution, the DAR required that the
valuation of the corporate assets under the stock distribution plan be subject to verification and audit
examination by the DAR and based on the DAR’s own valuation guidelines.223

In this case, the values of the agricultural land or petitioner HLI’s assets were never subjected to DAR
verification or audit examination. When TADECO transferred the agricultural land together with other assets
and liabilities, there was only the "imprimatur of the Securities and Exchange Commission by reason of its
approval of the increase in the authorized capital stock" of petitioner HLI.224 Petitioner HLI did not
demonstrate that the values ascribed therein, especially to the agricultural land, were verified and audited by
the DAR based on its own guidelines.

The absence of the DAR verification and audit of the values of the agricultural lands and petitioner HLI’s
total assets creates suspicion on the correctness of the number of shares distributed under the SDOA. Aside
from the agricultural land, petitioner HLI included other non-land assets, such as machineries, land
improvements and long term receivables, to increase the value of the total assets. However, inclusion of
these other non-land assets served to diminish the ratio of the agricultural land to the total assets, and
consequently decreased the proportional share to which the qualified FWBs were entitled to.

The assets and liabilities transferred by TADECO to petitioner HLI are broken down as follows:225

ASSETS TRANSFERRED CAPITAL STOCK AND LIABILITIES

Description Value in ₱ % Description Value in ₱ %
1. Agricultural 196,360,000 33.27% CAPITAL 355,131,462 60.14%
Lands (169 STOCK:
parcels of (355,131,462
4,915.7466 has., shares to
at ₱40,000 per petitioner
hectare) HLI)
2. Machinery 43,932,600 7.44% LIABILITIES: 62,334,106 10.56%
and Equipment A. Notes
(Heavy Payable
equipment, farm
tractors and
farm implements
3. Current 162,638,993 27.55% B. Accrued 11,854,547 2.01%
Assets (cash Expenses
 accounts
receivables,
inventories,
growing crops
and prepaid
insurance)
4. Land 31,886,300 5.40% C. Accounts 86,873,899 14.71%
Improvements Payable
(roads, culverts,
bridges,
irrigation canals,
equipment and
appurtenant
structures)
5. Unappraised 8,805,910 1.49% D. Current 9,560,000 1.62%
Assets (railroad Portion of
system and LTD
equipment,
furniture and
fixtures,
communication
and utility, other
equipment, and
construction in
progress)
6. Long Term 28,063,417 4.75% E. Income 24,126,946 4.09%
Notes Tax Payable
Receivables
7. Residential 60,462,000 10.24% F. Due to 4,533,260 0.77%
Land (11 lots of Affiliated
120.9234 has., Companies
at ₱500,000 per
hectare)
8. Lands used 58,135,000 9.85% G. Long 36,140,000 6.12%
for roads, Term Debt
railways, canals,
lagoons, parks,
eroded portion,
cemetery and
water reservoir
(187 lots
consisting of
265.7495 has.)
TOTAL Assets 590,284,220 100% TOTAL 590,284,220 100%
Capital Stock
and
Liabilities

Based on the values of the assets and liabilities transferred, petitioner HLI’s agricultural land of 4,915.7466
hectares was only 33.3% of its total assets, which means that the qualified FWBs were entitled to the same
proportion with respect to the total capital stocks, or to 118,391,976.85 shares only.226

However, as pointed out by private respondent FARM, there were other lots in Hacienda Luisita that were
not included in the stock distribution scheme, but should have been covered under the CARP.227 TADECO,
as the previous agricultural landowner, preempted the determination of the lands to be covered under the
CARP by selecting which of the agricultural lands it would transfer to petitioner HLI and consequently,
subject to the SDOA. The DAR never approved the exclusion of the other lands that TADECO kept for itself.
It seems incongruous to the intention of the CARP under a stock distribution agreement, to let the corporate
landowner choose and select which of its agricultural lands would be included and which ones it would retain
for itself. Serious doubts are entertained with respect to the process of inclusion and exclusion of agricultural
lands for CARP coverage employed by the corporate landowner, especially since the excluded land area
(1,527 hectares) involves one-third the size of the land TADECO surrendered for the SDOA (4,916
hectares). The exclusion of a substantial amount of land from the SDOA is highly suspicious and deserves a
review by the DAR. Whether these lands were properly excluded should have been subject to the DAR’s
determination and validation. Thus, the DAR is tasked to determine the breadth and scope of the portion of
the agricultural landholdings of TADECO and petitioner HLI that should have been the subject of CARP
coverage at the time of the execution of the SDOA on 11 May 1989.

Private respondent also alleged that there was an undervaluation of the agricultural land and cited sources
that would identify different valuations of the lands ranging from ₱55,000 per hectare to ₱500,000 per
hectare. Assuming that these cited values were accurate, the claimed valuation of the agricultural land at
₱40,000 per hectare is very low and grossly disproportionate to the total assets.228 Although no conclusive
findings on the correctness of the valuations alleged is made for the mean time, as this is properly a function
of the DAR, the exclusion of the DAR from the process of valuation of the agricultural lands to determine the
qualified FWBs’ proportional share in petitioner HLI is unacceptable. In fact, the Special Team noted that
even the FWBs did not participate in the valuation of the agricultural land.229

It is doubtful that the qualified FWBs had sufficient appreciation of the significance of the pooling of the
agricultural lands and non-land assets transferred to petitioner HLI. Even assuming that the DAR approves
the value of the agricultural land assigned by petitioner HLI and TADECO under the SDOA arrangement, the
reality is that other non-land assets were included in the mix of corporate assets given by TADECO to
petitioner HLI. Whether intentional or accidental, these additional non-land assets, which were almost twice
the value of the agricultural lands affected, in all likelihood watered down the proportional share of the
qualified FWBs under the SDOA. Qualified FWBs were thus relegated to being minority stockholders in
petitioner HLI, without any real corporate strength to take effective control of the management of the
corporation. In effect, TADECO obligingly transferred the agricultural land in paper to the qualified FWBs
through the proportional delivery of shares of stock, but succeeded in retaining dominion over the real
property by holding an almost two-thirds majority over petitioner HLI. The SDOA’s arrangement of relegating
the qualified FWBs to the status of minority stockholders is simply irreconcilable with the objective of
empowering the qualified FWBs as stockholders in lieu of direct land distribution, as Justice Presbitero
Velasco, Jr., illustrated during the oral arguments:

JUSTICE VELASCO:

I tend to agree with the statement made by Justice Perez that it is possible that it is the application of
Section 31 that is erroneous and that it should have been the DAR and PARC that should have applied it
correctly. What I am trying to point out is the fact that in this [S]DOA of HLI, the farmer beneficiaries were
made only minority stockholders but in order to achieve the policy behind the CARL to distribute income and
wealth to the landless farmers then it must be a condition for the approval of the SDOA that the farmer
beneficiaries should be the majority stockholders, or more importantly, that they should be the only
stockholders of the corporation. Meaning, to say they have full control over the use of the landholdings of the
corporation. In such a situation it is as if the landholdings are being owned and managed by a cooperative of
farmer beneficiaries or a farmer organization owns it and in such a situation the policies, goals behind the
CARL can still be achieved, do you agree with that?230 (Emphasis supplied)

To illustrate, corporate control of petitioner HLI would have been different if only the agricultural lands were
transferred by TADECO. In that case, since the agricultural lands composed the only assets of the new
corporate entity (petitioner HLI) without any liabilities, then the entirety of the shares of stocks would belong
to the qualified FWBs.231 Thus, the landless farmer beneficiaries would have full, absolute and collective
control and management of the corporation, and thus exercise effective "owner-like" rights over the
agricultural lands, similar to a land transfer option but under a different scheme. Taking the illustration a step
further, a partnership of equality between the qualified FWBs and the corporate landowners could have at
least been achieved if the value of the other assets transferred were equal to or less than the value of the
agricultural lands. In this scenario, the former corporate land owner and the qualified FWBs would have
equal say on how petitioner HLI’s business would be managed, such as with regard to purchasing properties
and machineries for its business, introducing improvements on the lands, entering into loan agreements,
mortgaging their lands as security, or even applying for conversion of idle lands.

In this case, however, TADECO was solely responsible for choosing which assets and liabilities it would
transfer to petitioner HLI. Thus, it effectively designated how many shares qualified FWBs would receive vis-
à-vis the ratio of the agricultural lands to the value of the total assets transferred. This arrangement created
opportunities for TADECO to dilute the qualified FWBs’ shareholdings by either "undervaluing the land
assets or overvaluing the non-land assets."232 It bears stressing that the incorporation of petitioner HLI and
the subsequent transfer of the agricultural lands and other assets were undertaken by TADECO even before
the qualified FWBs had agreed to the SDOA.233 Furthermore, the SDOA was signed before the DAR had
conducted a massive information campaign and conducted a referendum among the qualified FWBs.234 Not
only was there an issue as to the propriety of the valuations ascribed to the conveyed assets, serious doubts
are entertained as to whether the qualified FWBs completely understood the effect of increasing the asset
pool to their shareholdings, much less that they were agreeing to a diminished or minority role in the running
of petitioner HLI under the SDOA.235

Even the combined and unified 33.296% vote of all qualified FWBs would not significantly sway major
corporate decisions of petitioner HLI. Regardless of how the minority directors of the qualified FWBs were to
vote, the majority would be able to railroad any corporate act it deems fit. The authority the qualified FWBs
would have over the corporate affairs of petitioner HLI236 would be a mere token representation, lacking
effective control in determining the direction of the corporate entity having ownership and possession of the
agricultural land. The inequity is made more apparent if it is remembered that the main asset of the
corporation – the agricultural land – could have been entirely under the FWBs’ names under a land
distribution scheme.

Agrarian reform was instituted under the Constitution to liberate ordinary farmers from their dependency on
the landowners, but not at the expense of exchanging their bondages for corporate serfdom237 under a
meaningless stock distribution scheme. In this case, although no express pronouncement as to the validity
of a stock distribution scheme under the CARL is made, the stock distribution arrangement in Hacienda
Luisita is fatally flawed on the basis of the three grounds discussed earlier and must be struck down.

No Violation of Due Process or the Non-Impairment Clause

Petitioner HLI’s broad invocation of violation of its rights to due process and the non-impairment clause is
without merit.238

First, petitioner HLI assails the failure on the part of public respondent PARC to afford it an opportunity to
submit evidence to support its case. However, the records show that petitioner HLI was able to present its
opposition to private respondents’ petitions in the proceedings below. Public respondent PARC even issued
an order requesting petitioner HLI to submit comments and/or oppositions to the petitions filed by private
respondents Supervisory Group and AMBALA and also furnishing it copies of the said petitions.239 In fact,
the Technical Working Group even met with the legal counsel of petitioner HLI to discuss the extent of
petitioner HLI’s compliance with the SDOA and to clarify some of the SDOA’s provisions.240

Petitioner HLI likewise assails the failure of the questioned PARC Resolution to state the facts and the law
on which the ruling is based.241 The questioned PARC Resolution adopted the recommendations of the
PARC Executive Committee to revoke/recall the approval of the SDOA and to cause the agricultural lands in
Hacienda Luisita to be subject to compulsory coverage. It is not per se wrong for an administrative agency,
such as the PARC, to adopt wholesale the reports of its representatives or designated teams, which were
specifically mandated to conduct an investigation of the matter, and which possessed the competence to
perform the task. In this case, the Terminal Report of the DAR Special Team outlined the allegations of the
petitions and petitioner HLI’s defenses, and clearly set forth its findings with respect to its recommendation
to recall/revoke the SDOA. Unless there is a blatant factual error or misapplication of the law or its rules,
nothing prevents the administrative agency from affirming the delegated authority’s recommendations in
toto.

Although public respondent PARC failed to attach a copy of the Terminal Report and recommendation of the
PARC Executive Committee, this lapse in procedure is not so grave as to warrant absolute nullification of
the questioned PARC Resolution. In any case, petitioner HLI was subsequently furnished said documents,
which were used as well in furthering the instant petition before the Court.

Second, petitioner HLI’s insistence on the non-impairment clause is misplaced, as it deals with a
fundamental right against the exercise of legislative power, and not of judicial or quasi-judicial power.

In Lim v. Secretary of Agriculture, the Court explained the scope of the non-impairment clause thus:

For it is well-settled that a law within the meaning of this constitutional provision has reference primarily to
statutes and ordinances of municipal corporations. Executive orders issued by the President whether
derived from his constitutional power or valid statutes may likewise be considered as such. It does not cover,
therefore, the exercise of the quasi-judicial power of a department head even if affirmed by the President.
The administrative process in such a case partakes more of an adjudicatory character. It is bereft of any
legislative significance. It falls outside the scope of the non-impairment clause.242 (Emphasis supplied)

In the instant case, the recall/revocation of the SDOA is necessarily an exercise of the PARC’s quasi-judicial
power. Public respondent PARC was made to decide conflicting claims based on petitioner HLI’s purported
violations of the provisions of the SDOA. There was an adjudication of the respective rights of the parties to
the SDOA, as well as the validity of the SDOA. The questioned PARC resolution was not a legislative act or
an administrative order that prescribed regulations applicable to all kinds of stock distribution options; it was
a decision on the competing allegations of non-performance under the SDOA, which was sought to be
enforced. No less than petitioner HLI’s counsel concedes that the assailed acts of public respondent PARC
were not legislative in nature for purposes of invoking the non-impairment clause under the Constitution.243

Petitioner HLI also argues that it has substantially complied with and performed the obligations under the
SDOA for the past sixteen (16) years; thus, public respondent PARC is precluded from reviewing the
agreement and ordering its nullification. As earlier discussed, the SDOA was subject to approval of
compliance by public respondent PARC, in order to ensure that the obligations of the corporate landowner
would not become hollow promises. What is contemplated in the CARL is conferment on the qualified FWBs
of their full rights as stockholders, in the same manner as title and ownership of the land are absolutely
transferred to the farmer-beneficiary in a land transfer scheme. In fact, no less than the Section 31 of the
CARL allows for compulsory coverage of agricultural lands in the event that the stock transfer is not made or
realized. Piecemeal and delayed distribution of shares should likewise result in the same penalty.

In arguing that it has substantially complied with the CARL, petitioner HLI would seek to capitalize on the
benefits it extended to the qualified FWBs in terms of salaries, wages, fringe benefits, free hospital and
medical services, vacation and sick leaves, amelioration bonus, school bus allowances for dependents,
emergency relief allowances, maternity benefits, financial benefits due to old age/death and various loans.
However, these benefits were derived from the employer-employee relationship between petitioner HLI and
the farmworkers. Petitioner HLI gave farmworkers their salaries and extended other employment benefits for
the man-days that the latter rendered in favor of the company, and not because they were qualified FWBs.
The obligations of the corporate landowner to give salaries and benefits to farmworkers are founded on
different legal bases as opposed to its obligation to provide the benefits of a genuine stock distribution option
to qualified FWBs. Indeed, the CARL provides that nothing in the implementation of the stock distribution
scheme shall justify the reduction or diminution of the benefits received or enjoyed by the
worker/beneficiaries.244

Petitioner HLI’s enumeration of the benefits is out of place in the present controversy surrounding the stock
distribution option, since these were granted in exchange for the services rendered by the farmworkers to
the former. Petitioner HLI cannot claim magnanimity in extending these benefits, when it received a fair
day’s labor from the farmworkers.

Neither can petitioner HLI have the petitions dismissed on the ground of the ten-year prescriptive period for
actions for specific performance or cancellation of civil contracts.245 Allowing the distribution of the shares to
stretch for a period of thirty years before the SDOA can be deemed completely implemented tolls the
prescriptive period for an action to cancel it. Hence, the mere lapse of 10 years should not preclude qualified
FWBs from questioning the 30-year SDOA, especially if the violation was committed or discovered in the
eleventh or subsequent years. It would be prejudicial to the interests of qualified FWBs to deny them a
remedy for the continued non-performance of petitioner HLI’s obligations, when these obligations have not
yet been completely satisfied and remain to be continuing obligations for thirty years.

THE WAY FORWARD

Reversion of Hacienda Luisita Lands to Compulsory Coverage

Since the SDOA was patently void and failed to properly distribute the shares of petitioner HLI to the 6,296
original qualified FWBs, the questioned PARC Resolutions revoking the SDOA and ordering the compulsory
coverage of the entire Hacienda Luisita agricultural lands under the CARL should be affirmed.

The change of modality, from the alternative mode of stock distribution option to the general rule of direct
land redistribution246 under compulsory coverage, is explicitly sanctioned under Section 31 of the CARL.

Section 29 should also be recalled herein:

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

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

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

In exchange, petitioner HLI as the previous landowners is entitled to the payment of just compensation of
the value of the land at the time of the taking. Since the award of direct land transfer is being settled by the
Court only now, then the value of the property should be similarly pegged at this point. 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.247

For purposes of just compensation, the fair market value of an expropriated property is determined by its
character and its price at the time of taking.248 Therefore, the proper reckoning period to determine the value
of the lands of petitioner HLI and/or TADECO is at the time of the taking, which approximates the fair market
value of the properties as they stand now, and not as they were two decades ago. The fair market value
takes into consideration the evolving nature of the land and its appreciated value, arising from the
improvements introduced by petitioner HLI into the area, as well as the development in neighboring lands.
I differ from the position of Justice Brion that would reckon the taking from the time the SDOA was entered
into, on 11 May 1989, and yet deprive petitioner HLI of interest payments in the interim. The proposal
amounts to undue hardship on the part of petitioner HLI as the previous landowner. While it is the duty of the
Court to protect the weak and the underprivileged, this duty should not be carried out to such an extent as to
deny justice to the landowner.249

Pegging the value of the property to the time of the execution of the SDOA almost twenty years prior will
undoubtedly affect the valuation of the property. The improvements there and the developments in
neighboring areas contributed to the increase in the land’s value, regardless of whether they were
introduced by petitioner HLI or not. The appreciation of the value will not be accounted for if the price is to be
pegged at 1989. The increases in value cannot be ignored or taken away from petitioner HLI, if
compensation to it as a landowner is to be considered just. "The word ‘just’ is used to intensify the meaning
of the word ‘compensation’ and to convey the idea that the equivalent to be rendered for the property to be
taken shall be real, substantial, full, and ample."250 Compensation cannot be real, substantial, full and ample
if the price paid for the property expropriated under CARL is made to retroact the value of the land to more
than two decades prior to the actual taking.

The payment of interest from the execution of the SDOA up to full satisfaction of just compensation may
have presumably approximated the improvements and the appreciation in the land’s value throughout the
years. Certainly, the computation of the amount of interest from 1989 would entail additional inconvenience,
if not another future source of conflict, to the parties and the DAR. There are differences in the values of
some of the portions of the land, and our jurisprudence on entitlement to interest involving government
payments here have been less than clear and definitive. Yet, the proposal forwarded by Justice Brion would
value the land at its decreased level in 1989 and at the same time deny interest from 1989, on the ground
that petitioner HLI never lost possession of the lands because of the SDOA. Hence, petitioner HLI would be
made to suffer twice the loss of its lands – first, by paying its properties at the 1989 levels; and second, by
ignoring improvements made on the lands, which have appreciated its value.

The more equitable and just option under our jurisprudence that accounts for petitioner HLI’s twin losses of
land and improvements is to allow payment of the fair market value of the property at the time of the taking.
Regardless of whether the Hacienda Luisita lands remain viable as agricultural land or gain more substantial
economic value for non-agricultural purposes, petitioner HLI will be justly compensated for the properties.
Meanwhile, the FWBs will gain more from the direct transfer of valuable lands, and their freedom, as
owners, to determine for themselves the best use for the lands according to their present nature and
character. Although compensation may cause certain financial hardship to the government, there are
various modes of payment of just compensation under the CARL,251 which it can explore in order to give
what is due to petitioner HLI for the lands subject of direct land transfer. As proposed here, the amount of
just compensation owed to petitioner HLI, may be offset by its liabilities to the government and the qualified
FWBs.

I cannot subscribe either to the imposition of liability upon petitioner HLI for the payment of rentals from 1989
as a form of damages in favor of the qualified FWBs. The rental payments would connote that petitioner HLI
used the land, now belonging to qualified FWBs, to the exclusion of the owners. However, the land did not
yet belong to the qualified FWBs at the time the property was being used by petitioner HLI; thus, they cannot
demand payment for the use of the land that they did not yet own at that time. It would be iniquitous to
extract from petitioner HLI reasonable compensation for the use of the Hacienda Luisita lands from the
execution of the SDOA, when the properties were properly under its name and without any cloud of doubt as
to its title thereto.

The Operative Facts Doctrine Inapplicable.

Our system of laws will be turned on its head by the application of the "doctrine of operative facts" in this
case. It must be remembered that this doctrine is the exception; as an exception, it can only be applied
sparingly under the right set of circumstances.

A very clear explanation of the doctrine is provided by former Chief Justice Fernando in his ponencia in De
Agbayani v. Philippine National Bank252 and his Concurring Opinion in Fernandez v. P. Cuerva & Co.253 His
analysis of the doctrine consists of a two-step process.

He first lays down the basic proposition:

… The decision now on appeal reflects the orthodox view that an unconstitutional act, for that matter an
executive order or a municipal ordinance likewise suffering from that infirmity, cannot be the source of any
legal rights or duties. Nor can it justify any official act taken under it. Its repugnancy to the fundamental law
once judicially declared results in its being to all intents and purposes a mere scrap of paper. As the new
Civil Code puts it: "When the courts declare a law to be inconsistent with the Constitution, the former shall
be void and the latter shall govern. Administrative or executive acts, orders and regulations shall be valid
only when they are not contrary to the laws of the Constitution. It is understandable why it should be so, the
Constitution being supreme and paramount. Any legislative or executive act contrary to its terms cannot
survive.254
The orthodox views finds support in the well-settled doctrine that the Constitution is supreme and provides
the measure for the validity of legislative or executive acts. Clearly then, neither the legislative nor the
executive branch, and for that matter, much less, this Court, has power under the Constitution to act
contrary to its term. Any attempted exercise of power in violation of its provisions if to that extent
unwarranted and null.255

Then he recognizes that some effects of the invalid act may be recognized as an exception to its
consequent nullity but always in the context of the particulars of a case and not as a matter of general
application:

This doctrine admits of qualifications, however. As the American Supreme Court stated: "The actual
existence of a statute prior to such a determination [of constitutionality], is an operative fact and may have
consequences which 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 regulations,
individual and corporate, and particular conduct, private and official.256

Such exceptions have, for a very long time, recognized only instances when inequity would result from
completely disregarding the good faith compliance with statutes before they were pronounced
unconstitutional.

Manila Motor Co., Inc., v. Flores257 and De Agbayani v. Philippine National Bank,258 cited by the ponencia,
and Republic v. Herida,259 and Republic v. CFI,260 cited by Justice Brion, all involve the application of the
debt moratorium laws. In those cases, the Court held that during the period from the effectivity of the debt
moratorium laws until they were struck down as unconstitutional in Rutter v. Esteban,261 the parties could not
be faulted for relying on the belief that the payment of debts was suspended by virtue of the debt moratorium
laws. In Fernandez v. P. Cuerva & Co.,262 another case relied on by the ponencia, another statute – the
Reorganization Law – was the invalid act declared by the Court. In Rieta v. People,263 also relied on by the
ponencia, again another statute – General Order No. 60 issued by former President Ferdinand Marcos
under his martial law legislative power – was invalidated.

While the ponencia claims that the application of the doctrine of operative facts to executive issuances is
well-settled in our jurisprudence, the ponente relies on only two cases to support this claim – City
Government of Makati v. Civil Service Commission,264 and Chavez v. National Housing Authority, R-II
Builders, Inc., et al.265 In both instances, clear considerations of equity were present.

In City Government of Makati, a city employee was arrested without warrant and incarcerated for three
years, until acquitted of the crime charged. Meantime, she was suspended on account of the arrest.
Because she could not report for work, as she was in jail, she was dropped from the rolls for being absent
without leave for more than a year. After her acquittal, she requested her reinstatement, but this request was
repeatedly denied due to the lack of an approved leave. Her case was brought to the Civil Service
Commission and the Court of Appeals, and both sustained her right to be reinstated. The Court deemed that
the city government’s order of suspension was equivalent to an approved leave of absence, inasmuch as it
was the city itself that "placed her under suspension and thus excused her from further formalities in
applying for sick leave. Moreover, the arrangement bound the city government to allow private respondent to
return to her work after the termination of her case."266

The City of Makati raised as an alternative defense the theory that the order of suspension could not have
created the above effect, as it was void considering there was no pending administrative charge against her;
thus, the employee was still required to file a leave application. The Court held that it could not go to the
extent of declaring the suspension order void, as competence was presumed to reside in the City’s
personnel officer who issued the suspension order. Further, even if it were void, "(i)t would indeed be ghastly
unfair to prevent private respondent from relying upon the order of suspension in lieu of a formal leave
application."267

The application of the doctrine of operative facts in Chavez v. NHA and R-II Builders Inc., as in City of
Makati was not made in a vacuum. It was applied considering the following:

The SMDRP agreements have produced vested rights in favor of the slum dwellers, the buyers of reclaimed
land who were issued titles over said land, and the agencies and investors who made investments in the
project or who bought SMPPCs. These properties and rights cannot be disturbed or questioned after the
passage of around ten (10) years from the start of the SMDRP implementation. Evidently, the "operative
fact" principle has set in. The titles to the lands in the hands of the buyers can no longer be invalidated.

No similar demands of equity apply in this case. In fact, equity cannot apply in the clear presence of law.
Section 31 of the CARL clearly mandates this Court to order land distribution. To recall:

If within two (2) years from the approval of this Act, the 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.

That the doctrine of operative facts must be applied strictly only to instances in which the law is silent, and
the equity remedies of this Court are called for, is clear from two Decisions of this Court.

In Republic v. CA & Henrico Uvero, et al.,268 the Court held:

A judicial declaration of invalidity, it is also true, may not necessarily obliterate all the effects and
consequences of a void act occurring prior to such a declaration. Thus, in our decisions on the moratorium
laws, we have been constrained to recognize the interim effects of said laws prior to their declaration of
unconstitutionality, but there we have likewise been unable to simply ignore strong considerations of equity
and fair play. So also, even as a practical matter, a situation that may aptly be described as fait accompli
may no longer be open for further inquiry, let alone to be unsettled by a subsequent declaration of nullity of a
governing statute.

The instant controversy, however, is too far distant away from any of the above exceptional cases. To this
day, the controversy between the petitioner and the private respondents on the issue of just compensation is
still unresolved, partly attributable to the instant petition that has prevented the finality of the decision
appealed from. The fact of the matter is that the expropriation cases, involved in this instance, were still
pending appeal when the EPZA ruling was rendered and forthwith invoked by said parties.

In Planters Products v. Fertiphil,269 the Court summed up its view on the application of the doctrine thus:

At any rate, We find the doctrine inapplicable. The general rule is that an unconstitutional law is void. It
produces no rights, imposes no duties and affords no protection. It has no legal effect. It is, in legal
contemplation, inoperative as if it has not been passed. Being void, Fertiphil is not required to pay the levy.
All levies paid should be refunded in accordance with the general civil code principle against unjust
enrichment. The general rule is supported by Article 7 of the Civil Code, which provides:

Art. 7. Laws are repealed only by subsequent ones, and their violation or non-observance shall not be
excused by disuse or custom or practice to the contrary. When the courts declare a law to be inconsistent
with the Constitution, the former shall be void and the latter shall govern.

The doctrine of operative fact, as an exception to the general rule, only applies as a matter of equity and fair
play. It nullifies the effects of an unconstitutional law by recognizing that the existence of a statute prior to a
determination of unconstitutionality is an operative fact and may have consequences which cannot always
be ignored. The past cannot always be erased by a new judicial declaration.

The doctrine is applicable when a declaration of unconstitutionality will impose an undue burden on those
who have relied on the invalid law. Thus, it was applied to a criminal case when a declaration of
unconstitutionality would put the accused in double jeopardy or would put in limbo the acts done by a
municipality in reliance upon a law creating it.

Here, We do not find anything iniquitous in ordering PPI to refund the amounts paid by Fertiphil under LOI
No. 1465. It unduly benefited from the levy. It was proven during the trial that the levies paid were remitted
and deposited to its bank account. Quite the reverse, it would be inequitable and unjust not to order a
refund. To do so would unjustly enrich PPI at the expense of Fertiphil. Article 22 of the Civil Code explicitly
provides that "every person who, through an act of performance by another comes into possession of
something at the expense of the latter without just or legal ground shall return the same to him". We cannot
allow PPI to profit from an unconstitutional law. Justice and equity dictate that PPI must refund the amounts
paid by Fertiphil.

Republic v. CA & Uvero denied the application of the doctrine of operative facts. The government had
wanted the Court to apply the doctrine to fix the value of the just compensation for the expropriated land of
private respondents at the rate fixed by Presidential Decree No. 76, which was valid at the time of the
expropriation, but invalidated by the time Uvero was decided. The Court held that since the just
compensation had never been completely settled, the situation was far from calling for the application of the
doctrine.

In Planters Product, the Court denied the application of the doctrine of operative facts, because there was
nothing inequitable or iniquitous in ordering Planters Products, Inc., from returning to Fertiphil Corporation all
the amounts the latter paid pursuant to a letter of instruction (LOI) President Marcos had issued to that
effect. This LOI was found unconstitutional by the trial court, and this finding was affirmed by both the Court
of Appeals and by the Supreme Court. In fact, this Court found that what would be inequitable and unjust is
for Planters Products, Inc., to retain the amounts held.

While substantial justice is the underlying aim of agrarian reform, it is equally true that equity may only be
applied where positive law is silent. That the operative facts doctrine is one of equity has been discussed by
the majority. In the same breath, the majority fails to delineate a clearly entrenched legal rule from an
equitable rule, glossing over the fact that equity cannot take the place of positive law. Aptly described as "a
justice outside legality," this doctrine is applied only in the absence of, and never against, statutory law.
Aequetas nunquam contravenit legis.270

For all its conceded merit, equity is thus only available in the absence of law, and not as its replacement.
Equity has no application, as to do so would be tantamount to overruling or supplanting the express
provisions of law.271

The pertinent positive rules being present here, they should preempt and prevail over all abstract arguments
based only on equity.272 To state otherwise would tolerate impunity in litigation.

In this case, Section 31 of the CARL is clear – the lands must be distributed if the stocks are not distributed.
The validity of both the SDP and the SDOA is in question and unsettled. It would be unjust and inequitable
to withhold from the qualified FWBs what is due them – their appropriate portions of the land. Petitioner HLI
can have its shares back from the qualified FWBs and be paid just compensation. It would not suffer from
any injustice by the application of the law.

On the other hand, if we call this a case in which equity is due petitioner HLI, then we encourage impunity.
Impunity is when we reward the violation of the SDP by allowing its implementation to be marred by the
illegalities that we have found here. In all the cases cited, the doctrine is never a reward for illicit acts as
performed here. What this Court would signal is that it is rewarding a hollow promise of compliance with the
law in order to obtain an administrative permit; then, after the permit has been obtained, break the law, since
the lawbreakers can have this illicit act validated by the Court. This must absolutely not happen.

The doctrine of operative facts cannot apply either for two important reasons: (1) it will legitimize the injustice
committed to the FWBs when their collective shares were arbitrarily reduced to only 33% of petitioner HLI
through the undervaluation of the transferred assets; and (2) it will legitimize a second illegal reduction of the
shares of the FWBs when more stockholders were added to their collective group. This Court cannot allow
them to waive the rights that were granted to them under the social justice clause of the Constitution.

It strains reason how qualified FWBs can be allowed the "false choice"273 of agreeing to a patently illegal
SDO scheme, especially when their approval of the SDOA will not even improve their standing in the
corporation, but only allowed to continue being minority stockholders. The vulnerability of qualified FWBs
under the voting option is underscored by their current economic hardships and their desperate need for
immediate financial assistance, as explained by counsel for FARM, Atty. Christian Monsod:

ATTY. MONSOD:

Both of them bad. Yes, Your Honor, because the farmers have other options than merely accepting one
thousand three Hundred or one thousand four hundred square meters where they put in Seven Thousand
Eight Hundred square meters into the enterprise. They can have the land, if they get the land there are
many modalities, there are many ways by which they can be helped by government by which they can earn
more from the land and if your read Your Honor all the answers of the farmers on why they got the money,
there is not a single one I read, maybe you did, but I did not read a single answer of the farmers saying it
was excellent, it was a good deal for us. They say – we have no money, we have no food better there is
cash now, you know, I need it, how long will I have to wait for the case, it has been four (4) years I cannot
wait much longer at least there is something here that I am getting and maybe 20 Million, maybe another 30
Million to do it. I have not read any reply of the farmer that does not reflect the fact that he is in a desperate,
no choice situation that means there is something wrong with it. Now, for example, Your Honor, there is a
portion there that says – you will get that measly one thousand three hundred or one thousand four hundred
square meters because of the thirty three (33%) thing. And said – if you want to sell, Hacienda Luisita has a
right of first refusal, it is three hundred sixty (360) days right of first refusal. If a farmer needs money very
badly there is a good offer from his land and he needs it, he goes to Hacienda Luisita and Hacienda Luisita
will make him wait to three hundred sixty (360) days, don’t you think he will accept a much lower price
because precisely he is on the edge of survival. This is the kind of option that has been given to the farmer.
DAR was not asked to participate in this process, when they are asked why the DAR was not participating
they said DAR can say its opinion in the Supreme Court. But precisely DAR was needed in order to make
sure that the consent of the famer was not vitiated that there was a reciprocity of values which there is none
here.274 (Emphasis supplied)

The compulsory coverage of the agricultural lands of petitioner HLI will not necessarily result in its automatic
dissolution as a corporate entity. It must be remembered that the "sale" of the agricultural lands in this
instance is not the ordinary business transfer of corporate assets as approved by petitioner HLI’s
stockholders in accordance with the Corporation Code;275 the transfer of the agricultural land to qualified
FWBs is in the exercise of the state’s expropriation powers to take property for a legal objective (agrarian
land reform) upon due payment of just compensation. Neither can the taking of the agricultural lands of
petitioner HLI (which are only 33.296% of its total assets) be considered as substantially all of its assets
under the Corporation Code,276 since the corporation is not rendered incapable of engaging in the business
of "planting, cultivation, production, purchase, sale, barter or exchange of all agricultural products."277
In fact, after the transfer of the agricultural land is transferred to the qualified FWBs, nothing prevents
petitioner HLI from buying or leasing the same lands from them as a collective entity, and continuing to
conduct its primary business. In any event, the expropriation of the agricultural lands under the CARL will
not result in the dissipation of the assets of petitioner HLI, since it will be compensated by the government
for the agricultural lands expropriated, proceeds from which can be used to continue with the business, to
fund the lease of agricultural lands, or to pay for any debts or liabilities incurred by petitioner HLI. Whether
the stockholders of petitioner HLI will agree to continue with the business or initiate the process of
dissolution is a matter that will have to be addressed in another forum, and not before the Court at this time.

With respect to the SCTEX lands, petitioner HLI has not denied receipt of the ₱80,000,000 from the
government as just compensation. The just compensation paid for the expropriated lands properly belongs
to the qualified FWBs, as they should now be considered as the rightful land owners under the direct land
transfer option. Having been subjected to expropriation by the government, the SCTEX land is now
invariably outside the scope of CARP coverage. However, since the qualified FWBs became the valid
landowners before the said expropriation, the just compensation should accrue to them. What they seek –
and indeed, what should be conveyed to them – is not only the landholdings per se, but also all payments
that had rightfully accrued to them as landowners by virtue of the notice of coverage. This amount includes
the total of ₱80,000,000 received by petitioner HLI as just compensation, and not just the 3% HLI claims it
paid. Although it asserts having distributed 3% of the proceeds or ₱2,400,000, no evidence on the record
supports its bare assertion. The amount given is important, as it may decrease petitioner HLI’s liability to the
qualified FWBs. Be that as it may, this fact does not detract from the qualified FWBs’ entitlement to the just
compensation paid by the government for lands properly belonging to them.

The division of Hacienda Luisita lands may indeed result in inefficient economies of scale, wherein 6,296
qualified FWBs will receive only a small portion of the land that was claimed by petitioner HLI to be
inadequate to significantly improve their economic conditions.278 Nevertheless, nothing prevents the
farmworker beneficiaries from organizing themselves into a cooperative to manage the agricultural lands or
to deal with petitioner HLI as suggested by the DAR,279 considering that even CARL makes provisions for
such alternatives for farms operated by corporations or associations.280

In addition, considering the lapse of the prohibitive period for the transfer of agricultural lands, nothing
prevents the FWBs, as direct owner-beneficiaries of the Hacienda Luisita lands, from selling their ownership
interest back to petitioner HLI, or to any other interested third-party, such as but not limited to the
government, LBP, or other qualified beneficiaries, among others. Considering that the Hacienda Luisita
lands were placed under CARP coverage through the SDOA scheme of petitioner HLI on 11 May 1989 and
the lapse of the two-year period for the approval of its compliance, the period prohibiting the transfer of
awarded lands under CARL281 has undeniably lapsed. As landowner-beneficiaries, the qualified FWBs are
now free to transact with third parties with respect to their land interests, regardless of whether they have
fully paid for the lands or not.

To make the qualified FWBs of Hacienda Luisita wait another 10 years from the issuance of the Certificate
of Land Ownership Award (CLOA) or Emancipation Patent (EP) before being allowed to transfer the
land282 is unduly prohibitive in the instant case. The prohibitive period under the CARL was meant to provide
CARP beneficiaries sufficient time to profit from the awarded lands in order to sustain their daily living, pay
off the yearly amortization, and earn modest savings for other needs. This period protected them from being
influenced by dire necessity and short-sightedness and consequently, selling their awarded lands to a willing
buyer (oftentimes the previous landowner) in exchange for quick money. This reasoning ordinarily may have
been availing during the first few years of the CARL, but becomes an unreasonable obstruction for the
qualified FWBs of Hacienda Luisita, who have been made to endure a null and void SDOA for more than 20
years.

Undeniably, some of the lands under compulsory coverage have become more viable for non-agricultural
purposes, as seen from the converted lands of LIPCO and RCBC. In fact, the then Municipality of Tarlac had
unanimously approved the Luisita Land Use Plan covering 3,290 hectares of agricultural lands in Hacienda
Luisita, owned by, among others, petitioner HLI;283 and reclassifying them for residential, commercial,
industrial or institutional use.284 The development of these kinds of land in Hacienda Luisita would better
serve the local communities through the increase in economic activities in the area and the creation of more
domestic employment.

Similarly, qualified FWBs should be afforded the same freedom to have the lands awarded to them
transferred, disposed of, or sold, if found to have substantially greater economic value as reclassified lands.
The proceeds from the sale of reclassified lands in a free, competitive market may give the qualified FWBs
greater options to improve their lives. The funds sourced from the sale may open up greater and more
diverse entrepreneurial opportunities for them as opposed to simply tying them to the awarded lands.
Severely restricting the options available to them with respect to the use or disposition of the awarded lands
will only prolong their bondage to the land instead of freeing them from economic want. Hence, in the
interest of equity, the ten-year prohibitive period for the transfer of the Hacienda Luisita lands covered under
the CARL shall be deemed to have been lifted, and nothing shall prevent qualified FWBs from negotiating
the sale of the lands transferred to them.
The determination of the best feasible way to manage the lands is best left to the qualified FWBs
themselves,285 to be assisted by public respondent DAR. Public respondent is now called upon to put into
action its assurances to the Court that it is fully prepared to enforce compulsory coverage and to extend
support to the FWBs to make an economic success of direct land distribution:

SECRETARY DELOS REYES:

… The government is prepared to extend support based on R.A. 9700. We are mandated to extend credit
support to the farmer beneficiaries, not only in Hacienda Luisita, but also in the other areas that we are
acquiring land. …

JUSTICE ABAD:

No, but we have to be realistic. I’m saying is that if we do this now, in this particular case, do you have
enough support for the farmers? And can you guarantee that they will be able to farm their hectare land?

SECRETARY DELOS REYES:

Yes, Your Honor. …

JUSTICE ABAD:

So you believe that this can be done in Hacienda Luisita?

SECRETARY DELOS REYES:

Yes, Your Honor. …

JUSTICE ABAD:

You gave me comfort that if we annul this SDOA at least the government will answer for the result?

SECRETARY DELOS REYES:

Yes, Your Honor.286

JUSTICE SERENO:

… Because that is basically the option of land distribution is that the farmers must learn to be an
entrepreneur. … Now to what extent are you prepared to create a program for this transformation of the
farmer? As an entrepreneur of course you have outlined the steps, and then a farmer into a stockholder
because if you are saying that there are about ten (10) or eleven (11) SDOs and many of them are being
questioned, then we might find ourselves with a possibility that even this exception is not really viable under
that concept. So is the DAR ready to try to give lessons in corporate citizenship in being a stockholder to his
farmer beneficiaries?

SECRETARY DELOS REYES:

Yes, Your Honor, in the same way that we are prepared to transform the farmers into entrepreneurs. We are
prepared to undertake the task.287 (Emphasis supplied)

For indeed, agrarian reform is broader than just giving farmworkers land to till.288 Rather, it is multi-
dimensional in scope, and includes extending useful public services to increase agricultural productivity and
to ensure independence and economic security for themselves and their families:289

Agrarian Reform is in effect, quite a distinct thing, more complex and more profound, from this simple aspect
of the distribution of land conceived of at times by an already decrepit revolutionism. Also, it is more than the
convenience of giving up ownership of the land to the campensino so as to tie him to the soil and increase
production, because he invests more, as some think. Agrarian reform is much more than this: It is based on
the right of man who tills the soil that this shall be useful for his welfare and independence; so that the
concept must include, in addition to the land problem itself, that of credit to enable him to work the soil and
that of security of markets to make it truly productive.290

V.

Petitioners-in-intervention RCBC and LIPCO are innocent purchasers for value and subsequent events
preclude the legal and physical impossibility of the return of the converted lands.
The lands in Hacienda Luisita that were converted into industrial lands and sold to petitioners-in-intervention
can no longer be the subject of compulsory coverage, especially since these were transferred to innocent
purchasers for value. In any event, compulsory coverage and transfer of the land is no longer feasible,
considering the supervening events attendant in the instant case.

To begin with, the rules do not prohibit the sale or transfer of lands, which have already been converted into
commercial or industrial lands. Under DAR Administrative Order No. 10-88, the minimum criteria for keeping
the lands intact and unfragmented are limited to viable agricultural lands and with potential for growth and
increased profitability.291 Hence, the obligation of the corporate landowner under a stock distribution
agreement was to prevent the malicious sale or transfer of agricultural lands to deprive stockholder-farmer-
beneficiaries of their livelihood.

However, nothing prevents a landowner from applying for the conversion of agricultural lands into
commercial or industrial lands that would eventually be transferred or sold to third parties, as provided for
under CARL.292 It is not denied that, at times, converting agricultural lands to other uses may be more
economical or profitable, rather than maintaining them in their present nature. It would be folly to insist on
maintaining agricultural lands that are no longer profitable in their present state and deprive the landowners
of the business opportunity to maximize available resources. Landowners shall be free to transfer or sell
agricultural lands converted into other uses, for as long as the applications for conversion comply with the
guidelines set by law and duly approved by the DAR.293 In the instant case, nothing prevented petitioner HLI
from applying for the conversion of the 500 hectares of the reclassified agricultural lands into commercial
and industrial lands and eventually transferring these to petitioners-in-intervention.

It will be recalled that the 500-hectare land was first reclassified from agricultural to commercial, industrial
and residential purposes by the Sangguniang Bayan of Tarlac294 in the general zoning map of the then
Municipality of Tarlac. Thereafter, the DAR approved the application for conversion into industrial
use.295 Thus, when petitioner HLI partitioned and transferred the property to Luisita Realty, Inc. (200
hectares) and Centennary Holdings, (300 hectares), there was no impediment thereto.

Since the conversion of the 500-hectare reclassified lands in Hacienda Luisita was in compliance with the
guidelines set by the law and duly approved by the DAR, then petitioners-in-intervention RCBC and LIPCO,
as subsequent purchasers for fair value of a portion of the property and holders of titles thereto, cannot now
be defeated in their rights.

An innocent purchaser for value and in good faith is one who "buys the property of another without notice
that some other person has a right to or interest in the property and who pays the full and fair price for it at
the time of the purchase, or before they get notice of some other persons’ claim of interest in the
property."296 A person dealing with registered land has a right to rely on the Torrens certificate of title and to
dispense with the need for inquiring further, except when the party has actual knowledge of the 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 of the vender or of sufficient facts to induce a reasonably prudent
man to inquire into the status of the title of the property in litigation.297

In Vencilao v. Court of Appeals, the Court explained:

As a general rule, where the certificate of title is in the name of the vendor when the land is sold, the vendee
for value has the right to rely on what appears on the face of the title. He is under no obligation to look
beyond the certificate and investigate the title of the vendor appearing on the face of the certificate. By way
of exception, the vendee is required to make the necessary inquiries if there is anything in the certificate of
title which indicates any cloud or vice in the ownership of the property. Otherwise, his mere refusal to believe
that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in his
vendor's title, will not make him an innocent purchaser for value if it afterwards develops that the title was in
fact defective, and it appears that he had such notice of the defect as would have led to its discovery had he
acted with that measure of precaution which may reasonably be required of a prudent man in a like
situation.298

At the time petitioners-in-intervention bought the converted properties, there was nothing in the titles thereto
that would alert them to any claim or defect.

The 500-hectare converted land was partitioned and transferred to Luisita Realty, Inc., and Centennary
Holdings. Luisita Realty paid petitioner HLI the amount of ₱500,000,000 for the 200-hectare land, and two
titles covering 100 hectares each were issued in the former’s name. Meanwhile, Centennary Holdings
received the 300-hectare land in exchange for the issuance of 12,000,000 shares of stock in favor of
petitioner HLI, a title to which was likewise issued. The same 300-hectare land was eventually sold to
petitioner-in-intervention LIPCO for ₱750,000,000, and title was transferred to it. When petitioner-in-
intervention LIPCO failed to pay its loan from petitioner-in-intervention RCBC, it entered into a dacion en
pago agreement with RCBC, wherein portions of the 300-hectare land were transferred in exchange for
writing off the loan then amounting to ₱431,695,732.10. Both LIPCO and RCBC were issued separate titles
over the same 300-hectare converted land.
Prior to acquiring the property Centennary Holdings, the only restrictions appearing in the title of the 300-
hectare property were the Secretary’s Certificate in favor of Teresita Lopa and Shintaro Murai.299 After
LIPCO purchased the property and before a portion was transferred to petitioner-in-intervention RCBC
through the dacion en pago, the only restrictions appearing on the face of LIPCO’s title300 to the property
were the following: (1) Deed of Restrictions; (2) Secretary’s Certificate in favor of Koji Komai and Kyosuke
Nori; and (3) the Real Estate Mortgage in favor of RCBC for ₱300,000,000. Hence, there was nothing in the
titles to the properties that would have alerted petitioners-in-intervention of any defect at the time these
properties were sold to them. No adverse claim or pending litigation was annotated in the title that would
defeat or supersede the claims of petitioners-in-intervention as purchasers of the property.

In fact, the Deed of Restrictions in LIPCO’s title specifically constrained the use and occupancy of the
property "solely as an industrial estate for non-polluting, general, industrial and manufacturing activities,"
and required prior written consent of petitioner HLI before the property could be used as a "vegetable/fruit
plantation."301 Thus, LIPCO and RCBC had no inkling that the 300-hectare property would be used for
anything but for industrial and manufacturing activities. The actions of both LIPCO and RCBC in dealing with
the property were in conformity with the use and purpose of the land as an industrial estate. They had every
reason to believe in good faith that the property was available for industrial purposes and free from any
defect with respect to CARP coverage.

That the property was previously agricultural land that was subject to conversion is not sufficient notice to
deny the rights of petitioners-in-intervention as innocent purchasers for value. At the time LIPCO purchased
the property for purposes of establishing an industrial estate on 30 July 1998, the land had already been
converted from an agricultural into industrial land, with the imprimatur of the DAR no less. If at all, the DAR’s
conversion order was precisely what assured LIPCO that the property was approved for sale and not subject
to CARP coverage. In fact, private respondents’ petitions were filed after the 300-hectare property had
already been converted and transferred by petitioner HLI to Centennary Holdings and thereafter sold to
LIPCO.

That the land was covered by a reclassification ordinance of the local government and by the DAR
Conversion Order only bolstered their good faith belief in the validity of the sellers’ titles to the property. In
addition, the Housing and Land Use Regulatory Board (HLURB) even registered the 300-hectare land of
LIPCO and granted the owner thereof the license to sell the land.302

Neither can it be denied that a full and fair consideration was given in exchange for the said lands. LIPCO
paid the total amount of ₱750,000,000 to Centennary Holdings in exchange for the 300-hectare
land;303 while RCBC wrote off a portion of LIPCO’s debt amounting to ₱431,695,732.10 when it received the
two titles to the subdivided 300-hectare lands.304

With respect to petitioner-in-intervention RCBC, the Court has previously exacted more than just ordinary
diligence from banks and other financial institutions in the conduct of their financial dealings with real
properties. The standard required of banks and other financial institutions, however, does not deprive them
of the protections afforded innocent purchasers for value, once they have shown that they have exercised
the level of diligence required. Thus, the Court ruled:

While we agree with petitioners that GSIS, as a financial institution, is bound to exercise more than just
ordinary diligence in the conduct of its financial dealings, we nevertheless find no law or jurisprudence
supporting petitioners’ claim that financial institutions are not protected when they are innocent purchasers
for value. When financial institutions exercise extraordinary diligence in determining the validity of the
certificates of title to properties being sold or mortgaged to them and still fail to find any defect or
encumbrance upon the subject properties after said inquiry, such financial institutions should be protected
like any other innocent purchaser for value if they paid a full and fair price at the time of the purchase or
before having notice of some other person's claim on or interest in the property.305

In the instant case, petitioner-in-intervention RCBC has displayed an observance of extraordinary degree of
diligence in acquiring the property from LIPCO. Petitioner-in-intervention conducted ocular inspections and
investigations of the properties to be the subjected to dacion en pago, in accordance with its credit policies.
It likewise confirmed that LIPCO had possession over the lands, and that there was no other possessor or
occupant thereof. It even confirmed the ownership and possession of LIPCO, with the residents in the
vicinity endorsing the latter’s plans to create an industrial estate.306

To allow the converted land to be included in the compulsory coverage of the CARL would not only overturn
the finality of the conversion order properly issued by the DAR, but also deprive petitioners-in-intervention of
property without due process of law.

In Spouses Villorente v. Aplaya Laiya Corporation, the Court in no uncertain terms upheld the finality of a
conversion order:

Indubitably, the Conversion Order of the DAR was a final order, because it resolved the issue of whether the
subject property may be converted to non-agricultural use. The finality of such Conversion Order is not
dependent upon the subsequent determination, either by agreement of the parties or by the DAR, of the
compensation due to the tenants/occupants of the property caused by its conversion to non-agricultural use.
Once final and executory, the Conversion Order can no longer be questioned.307

In this case, the DAR’s conversion order has already attained finality and can no longer be questioned,
especially by a collateral attack on the SDOA that includes the converted lands. Not only has the conversion
order been issued in accordance with law and the rules, it has also been executed with the subsequent
transfers of titles to the lands to the present owners, Luisita Realty, Inc., LIPCO and RCBC. To reverse the
final conversion order through the nullification of the SDOA would work injustice to LIPCO and RCBC, who
were not even parties to the PARC proceedings below. Moreover, the indefeasibility of titles under the
Torrens system308 would be put in peril, if the questioned PARC Resolution would be allowed to nullify a
claim of ownership through a collateral proceeding. Especially in this case, LIPCO and RCBC were not
notified of the proceedings below nor did they participate therein. Yet, their registered titles would be
impugned by an indirect attack.309 The time is ripe for this Court to settle lingering doubts as to the finality of
conversion orders of the DAR, in order to secure the rights and benefits to which farmworkers are entitled
and to shore up investor’s confidence in the reliability of titles to the converted lands that they have obtained
and developed.310

Nevertheless, the Court notes that Luisita Realty, which received the 200-hectare portion of converted land
from petitioner HLI, failed to intervene in the instant case. Despite the notice of coverage issued under the
questioned PARC resolution which included the converted lands it purchased, Luisita Realty did not seek to
defend its claims of ownership in the instant case, unlike petitioners-in-intervention LIPCO and RCBC.
Although the right to due process disallows decisions of the court to bind those who are not parties to the
case,311 it is deemed to have waived its right to be heard. Furthermore, Luisita Realty derives its right of
ownership over the converted land from petitioner HLI, who is a party to the instant case. If petitioner HLI’s
ownership of the 200-hectare converted land is assailed, Luisita Realty cannot claim a greater right than that
of its predecessor. Since all of petitioner HLI’s agricultural lands in Hacienda Luisita are now subject to direct
land transfer, those transferred by petitioner HLI to Luisita Realty are necessarily covered. Unlike
petitioners-in-intervention LIPCO and RCBC, who timely raised and defended their claims as innocent
purchasers for value before the Court, Luisita Realty kept its silence and did not bother to establish its rights
over the converted lands in the proceedings before the Court. Absent any proof of Luisita Realty’s status as
an innocent purchaser for value, the 200-hectare converted lands it received from petitioner HLI shall
likewise be subject to direct land transfer, without prejudice to its right to claim just compensation under the
law and the rules.

In any case, the supervening events have further established that the areas so converted are no longer
economically feasible and sound for agricultural purposes. The subsequent development of and partial
improvements312 on the converted lands of petitioners-in-intervention RCBC and LIPCO only affirm their
viability and feasibility for industrial and commercial purposes, and not for agricultural use.

That these converted lands were declared as a Special Economic Zone by then President Ramos (Luisita
Industrial Park II) only emphasizes the desirability and economy of using them as industrial lands. Before
they may be used for other purposes, reclassified agricultural lands must undergo the process of
conversion;313 the DAR’s approval of the conversion of agricultural land into an industrial estate is a condition
precedent for its conversion into an ecozone.314 A proposed ecozone cannot be considered for presidential
proclamation, unless the landowner first submits to PEZA a land-use conversion clearance certificate from
the DAR.315

Prior to the President’s approval of the Luisita Industrial Park II as a special economic zone on 22 April
1998,316 the DAR had already approved the conversion of the land to an industrial zone on 14 August
1996.317 It can be deduced that the presidential proclamation of the converted land as a special economic
zone was a logical progression arising from the earlier intention to use the land for industrial purposes. This
intention was the reason why the DAR allowed the conversion in the first place. Thus, agricultural land that
has been approved for conversion by the DAR for commercial or industrial purposes, and subsequently
proclaimed as a special economic zone by the President, can no longer be subject to coverage under the
CARP.

To order that these lands now revert to agricultural use for the planting of sugar would be more costly and
disadvantageous, since it involves undoing these improvements and rehabilitating the land to become viable
for planting. If the DAR were to order the expropriation of the 300-hectare converted lands, then payment of
just compensation must be made to petitioners-in-intervention as lawful and titled owners at the time of the
taking. Such a scenario will not bode well for the cash-strapped agrarian reform program, since the present
market value of the lands has vastly increased due to the partial improvements and developments
introduced therein. Petitioner-in-intervention LIPCO even claims to have paid US$14,782,956.30 for the civil
works and power supply system built on the converted land by its contractor, Hazama Philippines,
Inc.318 Worse, additional resources would be needed to remove these improvements and rehabilitate the
industrial estate for agricultural farming. As found by the DAR, the converted lands were not irrigated and
were in need of new irrigation facilities to make them viable for agriculture.319
Be that as it may, the Court should not, however, turn a blind eye to the fact that the proper recipients of the
purchase price for the transferred and converted lands are the FWBs, under the compulsory coverage
scenario. Had the qualified FWBs opted for direct land transfer of the entire Hacienda Luisita lands, then
Centennary Holdings, LIPCO and RCBC would have all been dealing directly with them for the transfer and
purchase of the 300-hectare lands. Instead, the stock distribution option placed the proceeds of the sale of
these converted lands unto the hands of petitioner HLI as the corporate landowner. Considering that the
land is to be redistributed to the qualified FWBs, and that the 300-hectare converted lands are no longer
feasible as agricultural lands, it is to the best interest of justice and equity that petitioner HLI should return
the amounts received from the sale and/or transfer of the converted lands, net of the taxes and other
legitimate expenses actually incurred in the sale of the land. This is without prejudice to the reasonable
offset of the amounts owed by the qualified FWBs to petitioner HLI from the benefits they received as
stockholders under the SDOA.

Final Note

It is not denied that TADECO and petitioner HLI have attempted to give life to the pronouncement of
agrarian reform through the distribution of

shares of stock to the FWBs.320 Sadly, the mechanism they resorted to was fatally flawed and unjust in its
implementation. Simply put, the SDOA has failed as an alternative to land redistribution scheme in
empowering the landless farmworkers of Hacienda Luisita. An agrarian system that perpetuates excessive
dependence on the few landed by the many landless carries within itself the seed of its own disintegration.321

I vote to affirm the PARC’s present resort to compulsory coverage of the agricultural lands, which is required
under CARL in order to uphold the constitutional goal of land redistribution. Agrarian reform was aimed at
placing the poor farmers on a parity with the landowner. As an alternative to direct land distribution, the
stock distribution option under CARL was intended to hand control of the lands indirectly to the farmer by
designating them as stockholders of the corporate landowner. However, instead of ensuring their freedom
with the promise of corporate control, the petitioner HLI’s SDOA made them subservient and minority
stockholders, who continue to be beholden to the good graces of the majority corporate landowner.

Under the SDOA, qualified FWBs were awarded "intangible paper" assets that became worthless, as the
fortunes of petitioner HLI went south, instead of receiving "real and income-generating" assets, which
offered a multitude of possibilities for their use. Despite the good intention of coming up with an alternative
option under the agrarian land reform program, the failure of the SDOA to fulfill the promises of agrarian
social justice in Hacienda Luisita leaves no other legal option than to order the unconditional and complete
transfer of the agricultural lands to the qualified FWBs, not in the next generation, but now. In ordering the
immediate redistribution of the Hacienda Luisita agricultural lands, what is sought is the reinvigoration of the
constitutional mandate for agrarian reform and the empowerment of the farmworker-beneficiaries by giving
them the means to determine their own destiny.322

DISPOSITIVE PORTION

IN VIEW OF THE FOREGOING, I vote to AFFIRM WITH MODIFICATIONS PARC Resolution No. 2005-32-
01 dated 22 December 2005 and Resolution No. 2006-34-01 dated 03 May 2006. I dissent from the
majority’s position with respect to how they modified the questioned PARC Resolutions. I would direct the
modifications of the PARC Resolutions in the following manner.

The agricultural lands of TADECO and petitioner HLI are hereby ordered to be subject to compulsory
coverage by the DAR. The previous approval of the SDOA is hereby REVOKED, and the parties thereto are
hereby ordered restored to their previous states, subject to the following conditions:

1. Agricultural lands covered by CARL and previously held by TADECO, including those transferred
to petitioner HLI, shall be subject to compulsory coverage and immediately distributed to the 6,296
original qualified FWBs who signed the SDOA or, if deceased, their heirs, subject to the disposition
of the converted lands expressed in the paragraph after the next, but shall necessarily exclude only
the following:

a. 300 out of the 500 hectares of converted lands, now in the name of LIPCO and RCBC;

b. 80-hectares of SCTEX lands; and

c. homelots already awarded to the qualified FWBs.

2. Petitioner HLI and Luisita Realty, Inc., shall be entitled to the payment of just compensation for the
agricultural lands and the 200-hectare converted lands, respectively, at the time of the actual taking
at fair market value, which shall be determined by the DAR; petitioner HLI shall not be held liable for
the payment of rentals for the use of the property.
 3. All shares of stock of petitioner HLI issued to the qualified FWBs, as beneficiaries of the direct
land transfer, are nullified; and all such shares are restored to the name of TADECO, insofar as it
transferred assets and liabilities to petitioner HLI, as the spin-off corporation; but the shares issued
to non-qualified FWBs shall be considered as additional and variable employee benefits and shall
remain in their names.

4. Petitioner HLI shall have no claim over all salaries, wages and benefits given to farmworkers; and
neither shall the farmworkers, qualified or not, be required to return the same, having received them
for services rendered in an employer-employee relationship.

5. Petitioner HLI shall be liable to the qualified FWBs for the value received for the sale or transfer of
the 300 out of the 500 hectares of converted lands, specifically the equivalent value of 12,000,000
shares of Centennary Holdings; for the 300-hectare land assigned, but not less than ₱750,000,000;
and the money received from the sale of the SCTEX land, less taxes and other legitimate expenses
normally associated with the sale of land.

6. Petitioner HLI’s liability shall be offset by payments actually received by qualified FWBs under the
SDOA, namely:

a. Three percent (3%) total gross sales from the production of the agricultural lands;323

b. homelots awarded to qualified FWBs;

c. any dividend given to qualified FWBs; and

d. proceeds of the sale of the 300-hectare converted land and SCTEX land, if any,
distributed to the FWBs.324

The DAR is DIRECTED to determine the scope of TADECO’s and/or petitioner HLI’s agricultural lands that
should have been included under the compulsory coverage of CARL at the time the SDOA was executed on
11 May 1989, but excluding the lands mentioned above. The lands of TADECO not covered by the SDOA
should be covered by this ruling, after appropriate determination by DAR, considering that they were
covered by CARL but operationally excluded therefrom when TADECO unilaterally assigned to the spin-off
HLI only 4,916 hectares of the 6,443 hectares it owned. The DAR is also ORDERED to monitor the land
distribution and extend support services that the qualified farmworker-beneficiaries may need in choosing
the most appropriate and economically viable option for land distribution, and is further REQUIRED to
render a compliance report on this matter one-hundred eighty (180) days after receipt of this Order. The
compliance report shall include a determination of the exact land area of Hacienda Luisita that shall be
subject to compulsory coverage in accordance with the Decision.

Petitioner HLI is REQUIRED to render a complete accounting and submit evidentiary proof of all the benefits
given and extended to the qualified FWBs under the void SDOA – including but not limited to the dividends
received, homelots awarded, and proceeds of the sales of the lands, which shall serve as bases for the
offset of its liabilities to the qualified FWBs – and its accounting shall be subject to confirmation and
verification by the DAR.

All titles issued over the 300-hectare converted land, including those under the names of petitioners-in-
intervention Rizal Commercial Banking Corporation and Luisita Industrial Park Corporations and those
awarded as homelots are hereby AFFIRMED and EXCLUDED from the notice of compulsory coverage. The
200-hectare converted lands transferred to Luisita Realty, Inc., by petitioner Hacienda Luisita, Inc., is
deemed covered by the direct land transfer under the CARP in favor of the qualified FWBs, subject to the
payment of just compensation.

The Temporary Restraining Order issued on 14 June 2006, enjoining the implementation of the questioned
PARC Resolution and Notices of Coverage, is hereby LIFTED.

MARIA LOURDES P. A. SERENO

Associate Justice

Footnotes

1 Natalia Realty v. DAR, G.R. No. 103302, 12 August 1993, 225 SCRA 278.

2 Land Bank of the Philippines, v. De Abello, et al., G.R. No. 168631, 07 April 2009, 584 SCRA 342.
3 Heirs of Aurelio Reyes v. Garilao, G. R. No. 136466, 25 November 2009, 605 SCRA 294.

4 Jeffrey M. Riedinger, Agrarian Reform in the Philippines (Stanford University Press 1995) at 117.

5 CARL, Sec. 29 and 31.

6 CARL, Sec. 4.

7 Petitioner HLI’s Memorandum dated 23 September 2010, at 2, citing "The Factual Back[d]rop of the
Hacienda Luisita Case" contained in the memorandum filed by Solicitor General Francisco Chavez
in the Court of Appeals, Republic of the Philippines v. Tarlac Development Corporation, et al., CA-
G.R. No. 08634 (rollo, Vol. 3, at 3644); See also Private Respondent FARM’s Memorandum dated
24 September 2010, at 55-56; rollo, Vol. 3, at 3859-3860.

8 Terminal Report dated 22 September 2005; rollo, Vol. 1, at 386.

9 Public Respondent PARC Comment at 3; rollo, Vol. 1, at 336.

10"WHEREAS, to facilitate stock acquisition by the farmworkers and at the same time give them
greater benefits than if the agricultural land were to be divided among them instead, the FIRST
PARTY caused the in-corporation and organization of the SECOND PARTY as the spin-off
corporation to whom it has transferred and conveyed the agricultural portions of Hacienda Luisita
and other farm-related properties in exchange for shares of stock of the latter, ..." (SDOA, Whereas
Clause [rollo, Vol.1, at 148])

11 Id.

12On 23 August 1988, petitioner HLI was registered with the Securities and Exchange Commission.
(2008 General Information Sheet of HLI; rollo , Vol. 2, at 2200-2207)

13 Amended Article of Incorporation of petitioner HLI; rollo, Vol. 3, at 3762-3776.

14 "WHEREAS, in view of the fact that the part of Hacienda Luisita devoted to agriculture, consisting
approximately 4,915.75 hectares, if divided and distributed among more or less 7,000 farmworkers
as potential beneficiaries, would not be adequate to give the said farmworkers a decent means of
livelihood, the FIRST PARTY and the THIRD PARTY agreed to resort to distribution of shares of
stock to the beneficiaries the better and more equitable mode of compliance with the C.A.R.P. …"
(SDOA, Whereas Clause [rollo, Vol.1, at 148])

15"WHEREAS, the FIRST PARTY has transferred and conveyed to the SECOND PARTY the said
agricultural land of Hacienda Luisita and other properties necessary for its operation at an appraised
valuation of P590,554,220.00, the value of the agricultural land being P196,630,000.00 and the other
assets, P393,924,220.00, which valuations have been appraised and approved in principle by the
Securities and Exchange Commission. …" (SDOA, Whereas Clause [rollo, Vol.1, at 148]; See Public
Respondent PARC Comment at 3 [rollo, Vol. 1, at 336])

16 SDOA dated 11 May 1989; rollo, Vol. 1, at 147-150.

17The value of petitioner HLI’s agricultural land was pegged at ₱196,630,000. If compared to the
claimed total assets worth ₱590,554,220, then the agricultural land is 33.296% of petitioner HLI’s
assets.

18(355,531,462 total shares of stock) x (33.29% proportional share of FWBs) = 118,391,976.85

shares.

19Man-days refer to the number of days that a farmworker beneficiary has worked in relation to their
entitlement to shares of stock under the SDOA. Some of the parties in the case employed the term
"mandays" (Petitioner HLI’s Consolidated Reply 29 May 2007, at 55-56) but we use its more
readable form "man-days" in this Opinion.

20Inter-Agency Committee on Hacienda Luisita, Inc., Highlights of Consultative Meeting; rollo, Vol. 3,
at 4015-4016.

21 Minutes of Information Campaign Conducted; rollo, Vol. 3, at 4017-4024.

22Petition, par. 2, at 21 (rollo, Vol. 1, at 30); see also Terminal Report dated 22 September 2005, at
2 (rollo, Vol. 1, at 387).
23Petition, par. 3, at 22 (rollo, Vol. 1, at 31); Compliance dated 25 August 2009; (rollo, Vol. 2, at
2213-2492)

24 Proposal for Stock Distribution under C.A.R.P. (May 1989); rollo, Vol. 3, at 3730-3748.

25 PARC Letter dated 06 November 1989; rollo, Vol. 1, at 1308-1309.

26 Letter dated 14 November 1989; rollo, Vol. 1, at 1310-1313.

27PARC Resolution No. 89-12-2 and PARC Letter dated 12 December 1989; rollo, Vol. 1, at 151-
152.

28 Petition, par. 5, at 22-23; rollo, Vol. 1, at 31-32.

29On 22 April 2005, petitioner HLI completed the distribution of 3,433,167 shares of stock
corresponding to Crop Year 2003-2004 to all its existing stockholders of record as of June 2004.
(Petitioner HLI Letter dated 09 June 2005 [rollo, Vol. 1, at 193])

30Out of these FWBs, 2,362 have allegedly received titles to their lots from the Register of Deeds.
(Petition at par. 5(e), 23 [rollo, Vol. 1, at 32])

31Other benefits include: free hospital and medical services for FWBs and their spouses, children
and parents; vacation and sick leaves; amelioration bonus; school bus allowance for dependents;
emergency relief allowance; maternity benefits; financial benefits due to old age/death; unused sick
leave conversion; and various loans.

32The lands applied for conversion were covered under Original Certificate of Title/Transfer
Certificate of Title Nos. 258719, 240197 and 236741, with an area of 149.7733 hectares, 8.7763
hectares and 1,594.2008 hectares, respectively. (rollo, Vol. 1, at 647-650; see also Petition at par.
5(f), 23 [rollo, Vol. 1, at 32] and TCT Nos. 240197, 258719 and 236741 [rollo, Vol. 2, at 1423-1468])

33"The proposed conversion has the support or concurrence of the affected FWBs as verified by the
PLUTC [PARC Land Use Technical Committee] Inspection Team." (DAR Conversion Order No.
0306017074-764-95, Series of 1996, at 9-11 [rollo, Vol. 1, at 659-661]; see also RCBC Petition-in-
Intervention dated 18 October 2007, par. 4.1 at 13 [rollo, Vol. 2, at 1372] and Manipesto ng
Pagsuporta [rollo, Vol. 1, at 1327-1328]).

34"The eleven (11) directors, including the four directors (representing the farmer-beneficiaries,
namely: Ernesto Sangil, Jose Cabilangan, Felimon Salas, Jr., and Jose Buneo Navarro) approved
HLI’s plan to convert 500 hectares into an industrial estate (300 hectares) and medium to low-cost
residential area (200 hectares)." (DAR Conversion Order No. 0306017074-764-95, Series of 1996,
at 3 [rollo, Vol. 1, at 653]; see also RCBC Petition-in-Intervention dated 18 October 2007, par. 4.2 at
13 [rollo, Vol. 2, at 1372])

35Sangguniang Bayan Resolution No. 280 dated 01 September 1995 (rollo, Vol. 3, at 3594-3595);
Supervisory Group and AMBALA Comment/Opposition dated 17 December 2006, par. 7.1, at 16
(rollo, Vol. 1, at 545); RCBC Petition-in-Intervention dated 18 October 2007, par. 5 at 13 (rollo, Vol.
2, at 1372).

36 DARCO Conversion Order No. 030601074-764-(95), Series of 1996; rollo, Vol. 1, at 651-664.

37 RCBC Petition-in-Intervention dated 18 October 2007, at 3; rollo, Vol. 2, at 1362.

38The first 100 hectares covered under TCT No. 287909 were sold on 24 June 1997 for
P250,000,000 and the remaining 100 hectares under the same title were sold on 27 June 1997 also
for P250,000,000. (Deeds of Absolute Sale; rollo, Vol. 3, at 3753-3756)

39TCT Nos. 236741, 258718, 258719 and 240197 were cancelled and TCT No. 287910 was issued.
(Rollo, Vol. 2, at 1483-1484)

40This three hundred hectare portion of land was covered under Transfer Certificate of Title No.
287910.

41 Deed of Conveyance and Exchange dated 13 December 1996; rollo, Vol. 2, at 1485-1487.

42 TCT No. 292091; rollo, Vol. 2, at 1492-1493.

 These corporate entities include two domestic corporations (Rizal Commercial Banking
43

Corporation and Aguila Holdings, Inc.), and a Japanese corporation (Itochu Corporation).

44 Joint Venture Agreement dated 14 October 1996; rollo, Vol. 3, at 4313-4342.

45 Memorandum of Agreement dated 12 November 1997; rollo, Vol. 2, at 1494-1498.

46Deed of Absolute Sale dated 30 July 1998 (rollo, Vol. 2, at 1499-1509) and Supplemental to Deed
of Absolute Sale dated 01 February 2000 (rollo, Vol. 2, at 1510-1513).

47"SELLER’s Warranties – The SELLER warrants to the BUYER the following: xxx (b) There are no
third parties with any right or claim whatsoever over the Property; …" (Deed of Absolute Sale dated
30 July 1998, at 3; rollo, Vol. 2, at 1501)

48"… (d) At the time of the execution of this Agreement, the SELLER has duly obtained a valid
Department of Agrarian Reform Conversion Certificate that the Property is classified for us as an
industrial estate; xxx" (Deed of Absolute Sale dated 30 July 1998, at 4; rollo, Vol. 2, at 1502)

49 LIPCO Petition-in-intervention dated 22 November 2007, par. 10, at 14; rollo, Vol. 2, at 1558.

50 TCT No. 310986; rollo, Vol. 2, at 1514-1518.

TCT No. 365800 covering one hundred eighty (180) hectares (rollo, Vol. 2, at 1519-1520) and TCT
51

No. 365801 covering four hectares (rollo, Vol. 1, at 1521-1522).

52 LIPCO’s Petition for Intervention dated 22 November 2007, par. 12.2, at 15; rollo, Vol. 2, at 1559.

53Real Estate Mortgage (rollo, Vol. 3, at 3420-3423); RCBC’s Motion for Leave to Intervene dated 18
October 2007, par. 3.4, at 3 (rollo, Vol. 2, at 1352); RCBC’s Petition-in-Intervention dated 18 October
2007, par. 9.1, at 17 (rollo, Vol. 2, at 1376).

54"Upon the recommendation of the Philippine Economic Zone Authority, and pursuant to the
powers vested in me by law, I, FIDEL V. RAMOS, President of the Republic of the Philippines, and
by virtue of the Special Economic Zone Act of 1995, do hereby designate the following parcels of
private lands in Barangay San Miguel, Municipality of Tarlac, Province of Tarlac, as Luisita Industrial
Park II, consisting of THREE HUNDRED (300) HECTARES, more or less, as defined by the herein
technical description: …" (Presidential Proclamation No. 1207 dated 22 April 1998 [rollo, Vol. 3, at
3400-3402]; see also Certificate of Registration No. EZ-98-05 [rollo, Vol. 3, at 3403])

55 Sangguniang Bayan Resolution No. 392 dated 16 December 1996; rollo, Vol. 3, at 4355.

Petitioner-in-Intervention LIPCO’s Memorandum dated 23 September 2010, par. 17, at 7; see also
56

Annex "X-series" of the Memorandum.

57 Petitioner-in-Intervention LIPCO’s Memorandum dated 23 September 2010, par. 73.1, at 41.

58 Deed of Absolute Assignment; rollo, Vol. 2, at 1523-1527.

59TCT Nos. 365800 and 365801 in the name of LIPCO were cancelled and new titles (TCT Nos.
391051 and 391052) were issued in the name of RCBC. (Rollo, Vol. 2, at 1528-1533)

RCBC’s Motion for Leave to Intervene date 18 October 2007, par. 3.9, at 4 (rollo, Vol. 2, at 1353);
60

RCBC’s Petition-in-Intervention dated 18 October 2007, par. 16, at 21 (rollo, Vol. 2, at 1380).

61Petition dated 30 January 2006; rollo, Vol. 1, at 59. See also SCTEX project cost escalation, land
valuation questioned,
http://www.congress.gov.ph/committees/commnews/commnews_det.php?newsid=1231, as cited in
footnote 161 of the Decision, at 78.

62 Id.

63 Attached as Annex "G" of petitioner’s Memorandum.

64Prepared by the finance manager, captioned as "Hacienda Luisita, Inc. Salaries, Benefits and
Credit Privileges (in Thousand pesos) Since the Stock Option was Approved by PARC/CARP," rollo,
Vol. 3, at 3676.
65"1. To have a renegotiations of the Memorandum of Agreement the soonest possible time in order
to cope up with the demands of time wherein our rights must be properly recognized by delivering to
us what is due to us which must be strictly followed by HLI; …"

"6. We will be moving for the immediate implementation of the law to have the portions so far
covered under the CARP be finally distributed to the HLI farmers in general if only to protect our long
awaited dreams to come into reality." (Rollo, Vol. 1, at 155-156)

66 Rollo, Vol. 1, at 157-158.

67 Rollo, Vol. 1, at 159-174.

68"… HLI would like to reiterate its position that its Stock Distribution Option (SDO) is impervious to
any nullification, termination, abrogation, renegotiation or any appellation its detractors [may] want to
christen their move. For how could they ask for the cancellation of an SDO (and its Certificate of
Compliance) that has strictly complied with the provisions of both Rep. Act No. 6657 and its
implementing rules under Administrative Order No. 10 on stock distribution?" (Id. at 172)

"Petisyon (Para sa Pagpapawalang Bisa sa Stock Distribution Option [SDO], Pagpapatigil sa

69

Pagpapalit Gamit ng Lupa at Pamamahagi ng Lupaing Napapaloob sa Hacienda Luisita, Inc.)"; rollo,
Vol. 1, at 369-375.

70 Rollo, Vol. 1, at 379.

71 Opposition dated 21 January 2005; rollo, Vol. 1, at 184-192.

72 DAR Special Order No. 789, Series of 2004; rollo, Vol. 1, at 679-680.

73 Rollo, Vol. 1, at 386-405.

74 Terminal Report at 14-19; rollo, Vol. 1, at 399-404.

75 PARC Resolution No. 2005-SP-01.

76Respondent-intervenor FARM’s Memorandum dated 24 September 2010, at 11; rollo, Vol. 3, at

3816.

77Private respondents Supervisory Group and AMBALA Memorandum dated 25 November 2005;
rollo, Vol. 1, at 711-729.

78 PARC Resolution No. 2005-32-01; rollo, Vol. 1, at 100-101.

79"Pursuant to the decision of the Presidential Agrarian Reform (PARC), as contained in the PARC
Resolution No. 05-32-01 S.2005, revoking/recalling the Stock Distribution Scheme granted to
Hacienda Luisita Inc., you are hereby directed to immediately initiate appropriate action to acquire
and distribute the entire Hacienda Luisita agricultural landholding under the Compulsory Acquisition
Scheme of the Comprehensive Agrarian Reform Program, subject to the retention limits prescribed
under R.A. 6657, as amended." (Respondent Pangandaman’s DAR Memorandum dated 23
December 2005 [rollo, Vol. 1, at 213]; see also Memorandum dated 27 December 2005 of
Undersecretary Narciso Nieto [rollo, Vol. 1, at 214])

80 Rollo, Vol. 1, at 107-143.

Opposition to Motion for Reconsideration and Motion for Immediate and Expeditious Execution of
81

PARC Resolution dated 16 January 2006, filed by Atty. Jobert Pahilga of SENTRA and Atty. Romeo
Capulong of the Public Interest Law Center. (Rollo, Vol. 1, at 771-781)

82 Notice of Coverage dated 02 January 2006; rollo, Vol. 2, at 1407-1409.

83 Notice of Coverage dated 02 January 2006; rollo, Vol. 2, at 1410-1414.

84Notice of Coverage dated 02 January 2006; rollo, Vol. 1, at 103-106 and rollo, Vol. 2, at 1415-
1418.

85 This Notice of Coverage identified TCT No. 236741 in the name of petitioner HLI, a portion of
which (341.4507 hectares) was ordered converted by the DAR for industrial use. (TCT No. 236741
[rollo, Vol. 2, at 1427-1468]; DAR Conversion Order No. 0306017074-764-95, Series of 1996 [rollo,
Vol. 1, at 651-664]) It likewise covered several lots under TCT No. 310986 in the name of LIPCO,
which were also converted to industrial lands. (TCT No. 310986 [rollo, Vol. 2, at 1715-1717]; LIPCO
Petition-in-Intervention dated 22 November 2007, par. 3-5, at 17-19 [rollo, Vol. 2, at 1561-1563])

86 RCBC’s Petition-in-Intervention dated 18 October 2007, par. 21, at 24; rollo, Vol. 2, at 1383.

87"In the interest of substantial justice and orderly proceedings within the context of procedural due
process, the directive to temporarily cease and desist from implementing the coverage is hereby
reiterated and the same to remain effective until the matter is resolved." (DAR Memorandum dated
07 February 2006; rollo, Vol. 1, at 227)

88 ExCom Validation Committee Resolution dated 24 March 2006; rollo, Vol. 1, at 408-423.

89 PARC Council Resolution No. 2006-34-01 dated 03 May 2006; rollo, Vol. 1, at 407-424.

90A Petition to Maintain Stock Distribution Option Agreement and three hundred ten separate
petitions entitled "Petisyon sa Kagawaran ng Repormang Pansakahan" filed by 5,364 FWBs. (rollo,
Vol. 1, at 987-1307)

91 Petition; rollo, Vol. 1, at 3-193.

92Petitioner HLI Manifestation and Urgent Motion for Issuance of Temporary Restraining Order
dated 18 May 2006; rollo, Vol. 1, at 233-254.

93 Resolution; rollo, Vol. 1, at 257-259.

94 Rollo, Vol. 1, at 334-428.

95 Rollo, Vol. 1, at 436-519.

96 Rollo, Vol. 1, at 460-517.

97"Section 31 of the Comprehensive Agrarian Reform Law is unconstitutional in so far as it fails to

effect agrarian land reform that covers a redistribution of both wealth and power." (Supplemental
Comment, through collaborating counsel Mary Ann dela Peña of the PEACE Foundation, Inc.; rollo,
Vol. 1, at 822-837).

98 The Supervisory Group was then represented by Windsor Andaya and Jose Julio Zuniga.

99 AMABALA was then represented by Rene Galang.

100 Rollo, Vol. 1, at 530-770.

101 Rollo, Vol. 1, at 856-979.

(a) Private respondents Supervisory Group and AMBALA; and (b) private respondents Mallari and
102

FARM.

103 Public respondents PARC and DAR Secretary.

104 Consolidated Reply at 7-17; rollo, Vol. 1, at 862-872.

105 Rollo, Vol. 2, at 1350-1533.

106 Rollo, Vol. 2, at 1535-1734.

107 Rollo, Vol. 2, at 1767-1793.

LIPCO Reply dated 06 October 2008 (rollo, Vol. 2, at 1800-1829); RCBC Reply dated 12
108

September 2008 (rollo, Vol. 2, at 1835-1871).

109 Resolution dated 01 June 2009; rollo, Vol. 2, at 1880-1881.

110 Petitioner HLI’s Compliance dated 07 July 2009; rollo, Vol. 2, at 1905-2208.

111The 11,955 recipients of the shares were later on "sanitized" by petitioner HLI and certified to be
only 10,502 FWBs, which is 1,453 less than the original number. (Certification dated 05 August
2010; rollo, Vol. 3, at 2612)
112Under the SDOA, the qualified FWBs were entitled only to 118,391,976.85 shares, based on the
proportional value of the agricultural land to the total value of all of petitioner HLI’s assets.

113 Public Respondents Compliance dated 25 August 2009; rollo, Vol. 2, at 2213-2492.

114Private respondent AMBALA was herein represented by Noel Mallari, who was previously
identified in the Petition filed by him in the name of FARM.

115 Private respondent Supervisory Group was represented by Julio Zuniga and Windsor Andaya.

116 ULWU was represented by Eldifonso Pingol.

Joint Submission and Motion for Approval of Attached Compromise Agreement dated 10 August
117

2010; rollo, Vol. 3, at 2898-2913.

118 Id.

119 Petitioner HLI’s Manifestation and Motion dated 13 August 2010; rollo, Vol. 3, at 2917.

Private Respondent AMBALA’s Comment/Opposition dated 16 August 2010; rollo, Vol. 3, at

120

2958-2987.

Atty. Capulong of the Public Interest Law Center previously represented AMBALA, the
121

Supervisory Group and ULWU in their consolidated opposition to the motion for reconsideration of
petitioner HLI that was filed in the PARC.

122 Entry of Appearance dated14 September 2010; rollo, Vol. 3, at 3158.

123 Lalic Group’s Motion for Leave to Intervene with Comment-in-Intervention dated 16 August 2010;
rollo, Vol. 3, at 2988-3009.

124 Manifestation and Motion with Comment Attached; rollo, Vol. 1, at 436-519.

125 There were 28 signatories to the FARM’s Comment-in-intervention. (rollo, Vol. 3, 3003-3006)

126FARM’s Motion for Leave to Intervene with Comment-in-Intervention dated 16 August 2010, par.
4, at 2; rollo, Vol. 3, at 2989.

FARM’s Comment-in-Intervention dated 16 August 2010, par. 2-3, at 7-5; rollo, Vol. 3, at 2997-
127

2998.

128 Resolution dated 27 July 2010; rollo, Vol. 3, at 2558-2259.

129 Resolution dated 18 August 2010; rollo, Vol. 3, at 3024-3027.

130 Resolution dated 31 August 2010; rollo, Vol. 3, at 3060-3062.

131 Resolution dated 24 August 2010; rollo, Vol. 3, at 3055-3057.

132 Rollo, Vol. 3, at 3635-3805.

133 Rollo, Vol. 3, at 3215-3230.

134 Rollo, Vol. 3, at 3231-3279.

135 Rollo, Vol. 3, at 4173-4217.

136 Rollo, Vol. 3, at 3806-3931.

137 Rollo, Vol. 3, at 3932-4024.

138 Rollo, Vol. 3, at 3280-3634.

139 Rollo, Vol. 3, at 4219-4473.

140"A real party in interest is the party who stands to be benefited or injured by the judgment in the
suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules,
every action must be prosecuted or defended in the name of the real party in interest." (Rules of
Court, Rule 3, Sec. 2)

National Housing Authority v. Magat, G.R. No. 164244, 30 July 2009, 594 SCRA 356, citing
141

Shipside, Inc. v. Court of Appeals, 404 Phil. 981, 998 (2001) and Pioneer Insurance & Surety
Corporation v. Court of Appeals, G.R. No. 84197, 28 July 1989, 175 SCRA 668.

Sumalo Homeowners Association of Hermosa, Bataan v. Litton, et al., G.R. No. 146061, 31
142

August 2006, 500 SCRA 385, citing VSC Commercial Enterprises v. Court of Appeals, G.R. No.
121159, 16 December 2002, 394 SCRA 74, 79.

143 Id.

144"1. That while we adhere to the law, we equally make manifestation that we do not now enjoy
most of the rights and privileges that we are supposed to enjoy as provided in our Memorandum of
Agreement (SDOA) with the Hacienda Luisita, Inc. as such but not limited to the 1 per cent share
from the HLI which represents our shares as supervisors during the transition period; …"
(Supervisory Group’s Petition/Protest, par.1, at 1; rollo, Vol. 1, at 153)

145 Rollo, Vol. 1, at 157-158.

146As indicated in the signature sheet of the Petition/Protest, the list submitted confirmed that Zuñiga
and Andaya both received 15,633 and 19,565 shares from the years 1989 to 2004. After the
Petition/Protest was filed in the DAR, they again received an equivalent number of shares
("accelerated shares"), and thus doubling their individual shareholdings to 31,266 shares (Zuñiga)
and 39,130 shares (Andaya). (Annex "A" of petitioner HLI’s Compliance dated 07 July 2009; rollo,
Vol. 2, at 1913 and 1932).

147 DAR Certification dated 24 August 2009; rollo, Vol. 2, at 2329.

148 DAR Certification dated 24 August 2009; rollo, Vol. 2, at 2413.

149 Annex "A" of petitioner HLI’s Compliance dated 07 July 2009; rollo, Vol. 2, at 1920, 2032, 2105.

150 Petitioner HLI’s Consolidated Reply dated 29 May 2007, para 2.2.1 (a), at 14; rollo, Vol. 1, at 869.

"The petitioners before the DAR/PARC are real parties-in-interest, namely private respondents
151

RENE GALANG and NOEL MALLARI who signed the ‘petisyon’ of the Alyansa ng mga
Manggawang Bukid ng Hacienda Luisita (AMBALA) filed with the Department of Agrarian Reform
(DAR) and the sixty-two (62) farmworkers who signed the ‘petition/protest’ filed with the DAR on
October 14, 2003, led by private respondents JOSE JULIO SUNIGA and WINDSOR ANDAYA;"
(Petitioner HLI’s Memorandum dated 23 September 2010, par. 6.1, at 73; rollo, Vol. 3, at 3715)

Joint Submission and Motion for Approval of Attached Compromise Agreement dated 10 August
152

2010; rollo, Vol. 3, at 2898-2913.

"Petisyon (Para sa Pagpapawalang Bisa sa Stock Distribution Option [SDO], Pagpapatigil sa

153

Pagpapalit Gamit ng Lupa at Pamamahagi ng Lupaing Napapaloob sa Hacienda Luisita, Inc.)"; rollo,
Vol. 1, at 369-375.

Rene Galang was represented in his individual capacity by Atty. Capulong of the Public Interest
154

Law Center. But Atty. Capulong was also the collaborating counsel representing the AMBALA
Galang Group. (Entry of Appearance dated14 September 2010; rollo, Vol. 3, at 3158)

155 Rene Galang received 47,216 shares from petitioner HLI. (Rollo, Vol. 2, at 1920)

156 Rollo, Vol. 1, at 436-519.

157 FARM’s Memorandum dated 24 September 2010, at 111-112; rollo, Vol. 3, at 3915-3916.

Opposition to Motion for Reconsideration and Motion for Immediate and Expeditious Execution of
158

PARC Resolution dated 16 January 2006, filed by Atty. Jobert Pahilga of SENTRA and Atty. Romeo
Capulong of the Public Interest Law Center. (Rollo, Vol. 1, at 771-781)

159
The Court had earlier granted the petition-in-intervention of RCBC and noted the petition-in-
intervention of LIPCO. (Resolution dated 10 December 2007)
160Respondent-intervenor FARM’s Memorandum dated 24 September 2010, at 14-45; rollo, Vol. 3,
at 3819-3850.

161 Petitioner HLI’s Memorandum dated 23 September 2010, at 76-80; rollo, Vol. 3, at 3718-3722.

162 Biraogo v. Philippine Truth Commission, G.R. No. 192935 & 193036, 07 December 2010,
citing Senate of the Philippines v. Ermita, G.R. No. 169777, 20 April 2006, 488 SCRA 1, 35,
and Francisco v. House of Representatives, 460 Phil. 830, 842 (2003).

163"As regards the third requisite of timeliness of raising the constitutionality issue, Respondents-
Intervenors have already raised the constitutional issue in their position paper at the level of the
Presidential Reform Council (PARC)." (Respondent-intervenor FARM’s Memorandum dated 24
September 2010, at 42; rollo, Vol. 3, at 3847)

164 G.R. No. 167614, 24 March 2009, 582 SCRA 254.

165"Sec. 10. Money Claims. - … In case of termination of overseas employment without just, valid or
authorized cause as defined by law or contract, the workers shall be entitled to the full
reimbursement of his placement fee with interest of twelve percent (12%) per annum, plus his
salaries for the unexpired portion of his employment contract or for three (3) months for every year of
the unexpired term, whichever is less." (Republic Act No. 8042, Sec. 10)

"Petitioner (Serrano) filed a Motion for Partial Reconsideration (with the NLRC), but this time he
166

questioned the constitutionality of the subject clause. The NLRC denied the motion."

"Petitioner filed a Petition for Certiorari with the CA, reiterating the constitutional challenge against
the subject clause. After initially dismissing the petition on a technicality, the CA eventually gave due
course to it, as directed by this Court in its Resolution dated August 7, 2003 which granted the
petition for certiorari, docketed as G.R. No. 151833, filed by petitioner." (Serrano v. Gallant Maritime
Services, supra. note 164)

167"Section 31 of the Comprehensive Agrarian Reform Law is unconstitutional in so far as it fails to

effect agrarian land reform that covers a redistribution of both wealth and power." (Supplemental
Comment, through collaborating counsel Mary Ann dela Peña of the PEACE Foundation, Inc.; rollo,
Vol. 1, at 822-837).

Francisco v. House of Representatives, G. R. No. 160261, 160262, 160263, 160277, 160292,

168

160295, 160310, 160318, 160342, 160343, and 160360, 10 November 2003, 415 SCRA 44.

169 Garcia v. Executive Secretary, G.R. No. 157584, 02 April 2009, 583 SCRA 119.

170 Sotto v. Commission on Elections, 76 Phil 516 (1946).

171"Any law duly enacted by Congress carries with it the presumption of constitutionality. Before a
law may be declared unconstitutional by this Court, there must be a clear showing that a specific
provision of the fundamental law has been violated or transgressed. When there is neither a violation
of a specific provision of the Constitution nor any proof showing that there is such a violation, the
presumption of constitutionality will prevail and the law must be upheld. To doubt is to sustain."
(Aquino v. COMELEC, G. R. No. 189793, 07 April 2010, 617 SCRA 623)

172As of 26 January 2006, there were thirteen (13) corporate landowners with approved stock
distribution option plans for monitoring by the DAR covering 7,703 hectares of private agricultural
lands. (DAR Administrative Order No. 01-2006)

173 Constitution, Art. XIII, Sec. 4.

174"However, when the corporate landowner and the farmworkers have entered into an [sic] Stock
Distribution Agreement (SDOA) as in this case, which the PARC approved, the SDOA has ascended
to the level of a civil contract where the parties are governed by the law on contracts under civil law."
(Petitioner HLI’s Memorandum, par. 4.7.1, at 43; rollo, Vol. 3, at 3685)

175 Executive Order No. 229, Sec. 1.

176The policies, rules and regulations for formulation by the PARC included following: (a)
Recommended small farm economy areas, which shall be specific by crop and based on thorough
technical study and evaluation; (b) The schedule of acquisition and redistribution of specific agrarian
reform areas, provided that such acquisition shall not be implemented until all the requirements are
completed, including the first payment to the landowners concerned; and (c) Control mechanisms for
evaluating the owner's declaration of current fair market value in order to establish the government's
compensation offer, taking into account current land transactions in the locality, the landowner's
annual income from his land, and other factors. (Executive Order No. 229, Sec. 1)

"If within two (2) years from the approval of this Act, the land or stock transfer envisioned above is
177

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." (CARL, Sec. 31, last paragraph)

178"After the evaluation of the stock distribution plan submitted by the corporate land-owner applicant
to the Secretary of Agrarian Reform, he shall forward the same with all the supporting documents to
the Presidential Agrarian Reform Council (PARC), through its Executive Committee, with his
recommendation for final action." (Guidelines and Procedures for Corporate Landowners Desiring to
Avail Themselves of the Stock Distribution Option under Sec. 31 of R.A. 6657, DAR Administrative
Order No. 10-88, Sec. 10)

179 CARL, Sec. 31, last paragraph.

180 "There is no question that the PARC has jurisdiction to approve or disapprove the application of
corporate landowners to avail of stock distribution under Sec. 31 as an alternative arrangement
under Sec. 3 of RA 6657 to land redistribution." (Petitioner HLI’s Memorandum, par. 4.7.1, at 43;
rollo, Vol. 3, at 3685)

Lakeview Golf and Country Club, Inc., v. Luzvimin Samahang Nayon, G. R. No. 171253, 16 April
181

2009, 585 SCRA 368.

182 Lakeview Golf and Country Club, Inc., v. Luzvimin Samahang Nayon, id.

"[Agrarian dispute] includes any controversy relating to compensation of lands acquired under this
183

Act and other terms and conditions of transfer of ownership from landowners to farmworkers,
tenants and other agrarian reform beneficiaries, whether the disputants stand in the proximate
relation of farm operator and beneficiary, landowner and tenant, or lessor and lessee." (CARL, Sec.
3-d)

184 Republic Act No. 9700, Sec. 19.

185 Soriano v. Laguardia, G. R. No. 164785 and 165636, 29 April 2009, 587 SCRA 79.

G.R. No. 164527, 15 August 2007, 530 SCRA 235, citing Angara v. Electoral Commission, 63
186

Phil. 139, 177 (1936).

187"Reservation Clause - Nothing herein shall be construed as precluding the PARC from making its
own independent evaluation and assessment of the stock distribution plan of the corporate
landowner-applicant and in prescribing other requirements." (DAR Administrative Order No. 10-88,
Sec. 12)

188 CARL, Sec. 31, last par.

189 Petitioner HLI’s Memorandum, at 31-46; rollo, Vol. 3, at 3673-3688.

190 Id., at 75; rollo, Vol. 3, at 3717.

191Agrarian dispute includes any controversy relating to compensation of lands acquired and other
terms and conditions of transfer of ownership from landowners to farmworkers, tenants and other
agrarian reform beneficiaries, whether the disputants stand in the proximate relation of farm operator
and beneficiary, landowner and tenant, or lessor and lessee. (CARL, Sec. 3 [d])

192"The basic rule is that jurisdiction over the subject matter is determined by the allegations in the
complaint. Jurisdiction is not affected by the pleas or the theories set up by the defendant in an
answer or a motion to dismiss. Otherwise, jurisdiction would become dependent almost entirely upon
the whims of the defendant." (Arzaga v. Copias, G.R. No. 152404, 28 March 2003, 400 SCRA 148)

193 As amended by Republic Act No. 9700, Sec. 19.

194 CARL, Sec. 31.

195"The stock distribution plan submitted by the corporate landowner-applicant shall provide 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. This distribution plan in all
cases shall be at least the minimum ratio for purposes of compliance with Section 31 of RA 6657.
…" (DAR Administrative Order No. 10-88, Sec. 4, 1st par.)

196"… On top of the minimum ratio provided under Section 3 of this Implementing Guideline,
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." (DAR Administrative Order No. 10-88, Sec. 4, 1st
par.)

197 "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 (Petitioner HLI)."

"3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY shall
arrange with the FIRST PARTY (TADEDCO) the acquisition and distribution to the THIRD
PARTY (qualified FWBs) on the basis of number of days worked and at no cost to them of
one-thirtieth (1/30) of 118,391,3976.85 shares of stock 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 118,391,3976.85 shares shall have been completely acquired and distributed
to the THIRD PARTY." (SDOA at p. 3 [rollo, Vol. 1, at 149]; emphasis supplied)

198 "The lands covered by the CARP shall be distributed as much as possible to landless residents of
the same barangay, or in the absence thereof, landless residents of the same municipality in the
following order of priority: (a) agricultural lessees and share tenants; (b) regular farmworkers; (c)
seasonal farmworkers; (d) other farmworkers; (e) actual tillers or occupants of public lands; (f)
collectives or cooperatives of the above beneficiaries; and (g) others directly working on the land. …"
(CARL, Sec. 22)

"Farmworker is a natural person who renders services for value as an employee or laborer in an
199

agricultural enterprise or farm regardless of whether his compensation is paid on a daily, weekly,
monthly or ‘pakyaw’ basis." (CARL, Sec. 3 [g])

200Assuming arguendo that there were 118,391,976.85 shares to be distributed to the 6,296
farmworkers who signed the SDOA, then each of them should have been entitled to a minimum ratio
of 18,804.32 shares in petitioner HLI.

201 "Considering that the list of qualified worker-beneficiaries is a mobile one that changes from time
to time and will depend on the number of days that they have worked during the year, there is no
fixed number of shares due each qualified worker-beneficiary to speak of and the much-feared
dilution of his shares cannot, therefore, possibly take place." (Letter dated 14 November 1989, at 2;
rollo, Vol. 1, at 1311; emphasis supplied)

202"JUSTICE VELASCO: … Your stock distribution option agreement is unique in the sense that
these workers or farmer beneficiaries will get the stocks only when they work for the company.
Meaning to say, it will be dependent on the work to be performed by these workers or farmer
beneficiaries?

ATTY. ASUNCION: That is correct Your Honor they call it man days." (TSN dated 18 August
2010, at 38-38)

203"4. As more new workers are hired, throughout the suspended period of 30 years, the lesser be
the entitlement of the original farmer beneficiaries considering the policy of HLI under its SDP that
the share is determined by the actual day’s work, proportionately computed." (PARC Council
Resolution No. 2006-34-01 dated 03 May 2006, at 16; rollo, Vol. 1, at 422)

204Assuming that as claimed by petitioner HLI that 118,391,976 shares of stock have all been
completed distributed to the 10,502 stockholders of record (Petitioner HLI’s Letter dated 09 June
2005 [rollo, Vol. 2, at 2208]; Certification dated 05 August 2010 [rollo, Vol. 3, at 2612]) and assuming
further that each of them received an equal number of shares, then each of them would have
received 11,273.28 shares, which is 59.95% of 18,804.32 shares that were supposed to be received
by the original 6,296 farmworkers.

205 Petitioner HLI’s Memorandum, par. 5.2 (a), at 51; rollo, Vol. 3, at 3693.

206
Terminal Report dated 22 September 2005, at 12; rollo, Vol. 1, at 397.

207 Terminal Report dated 22 September 2005, at 18; rollo, Vol. 1, at 403.
208 Id.

209"The original farmers, under the man-days scheme of stock distribution can still be denied
entitlement to a share of stock by just not allowing him to work. In effect, the matter of distribution of
shares of stock was made totally dependent on the discretion of HLI management, for, by the simple
expediency of denying employment, one will never qualify to receive a share irrespective of whether
or not he is an original, regular and/or permanent worker." (PARC Council Resolution No. 2006-34-
01 dated 03 May 2006, at 16-17; rollo, Vol. 1, at 422-423)

210Petitioner HLI’s proposal for the stock distribution even clarifies that the qualified FWBs will be
entitled only to receive dividends whether cash or in stock, on the shares already distributed to them.
This necessarily excludes their receipt of the announced dividends on the other shares to which they
are entitled to but have yet to receive within the thirty year period. (Rollo, Vol. 3, at 3144)

211 "The rights and responsibilities of the beneficiaries shall commence from their receipt of a duly
registered emancipation patent or certificate of land ownership award and their actual physical
possession of the awarded land. Such award shall be completed in not more than one hundred
eighty (180) days from the date of registration of the title in the name of the Republic of the
Philippines: Provided, That the emancipation patents, the certificates of land ownership award, and
other titles issued under any agrarian reform program shall be indefeasible and imprescriptible after
one (1) year from its registration with the Office of the Registry of Deeds, subject to the conditions,
limitations and qualifications of this Act, the property registration decree, and other pertinent laws.
The emancipation patents or the certificates of land ownership award being titles brought under the
operation of the torrens system, are conferred with the same indefeasibility and security afforded to
all titles under the said system, as provided for by Presidential Decree No. 1529, as amended by
Republic Act No. 6732."

"It is the ministerial duty of the Registry of Deeds to register the title of the land in the name
of the Republic of the Philippines, after the Land Bank of the Philippines (LBP) has certified
that the necessary deposit in the name of the landowner constituting full payment in cash or
in bond with due notice to the landowner and the registration of the certificate of land
ownership award issued to the beneficiaries, and to cancel previous titles pertaining thereto."
(CARL, Sec. 24)

212"The 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 qualified beneficiaries shall be recorded in the 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. …" (DAR Administrative Order No. 10-88, Sec.
11)

213"2. While the SDO/SDP is an alternative arrangement to the physical distribution of lands
pursuant to Section 31 of R.A. 6657, logic and reason dictate that such agreement must materialize
within a specific period during the lifetime of the CARP, stating clearly therein when such
arrangement must end. The aforementioned provision (CARL, Sec. 5) may be considered as the
provision of the law on ‘suspended coverage,’ parallel to the provisions on Section 11 on
Commercial Farming where coverage of CARP is deferred for ten (10) years after the effectivity of
Republic Act No. 6657. Stated simply, owners of commercial farms are given a chance to recoup
their investment for ten (10) years before same is finally subjected to coverage under the CARP."
(Terminal Report dated 22 September 2005, at 14; rollo, Vol. 1, at 399)

214"On the matter of the need to protect the worker-beneficiaries’ participation in the capital stock of
the Company from dilution, we hereby guarantee that, happen what may during the time span of 30
years, the Company will have distributed to the worker-beneficiaries 33.296% of its outstanding
capital stock at the end of the said period and that while the interest of the worker-beneficiaries in
the Company gradually builds up through the years until it reaches 33.296%, their representation in
the Board of Directors of the Company every year or at any given time will always be at the level of
33.296% or one-third (1/3) of the total number of seats in the said Board." (Letter dated 14
November 1989; rollo, Vol. 1, at 1311; emphasis supplied).

215On 22 April 2005, petitioner HLI completed the distribution of 3,433,167 shares of stock
corresponding to Crop Year 2003-2004 to all its existing stockholders of record as of June 2004.
(Petitioner HLI Letter dated 09 June 2005 [rollo, Vol. 1, at 193])

Private respondents Supervisory Group and AMBALA filed their protests with the PARC on 14
216

October 2003 and 04 December 2003, respectively.

217"It is our position that since Hacienda Luisita, Inc., owner of the agricultural portions of the
property known as Hacienda Luisita, has accelerated after 15 years the distribution to its
farmworker-beneficiaries of the entire 118,396,000 shares of stock that were originally scheduled to
allocated over a period of 30 years under its Stock Distribution Option (SD), such act has completed
the implementation of the said Stock Distribution option (SDO) as a vehicle of land reform and has,
as a consequence, taken out of the ambit of agrarian reform Hacienda Luisita, Inc., to which the
agricultural land belongs." (Comments dated 18 November 2005, at 7; rollo, Vol. 1, at 709)

218"Secondly, the allegation that all of the shares of stock have already been distributed to the
farmers, by way of acceleration, was only triggered by the filing of protests/complaints by the
disillusioned farmers against the SDP of TDC/HLI." (PARC Council Resolution No. 2006-34-01 dated
03 May 2006, at 8; rollo, Vol. 1, at 414)

219"Lands awarded pursuant to this Act shall be paid for by the beneficiaries to the LBP in thirty (30)
annual amortizations at six percent (6%) interest per annum. The annual amortization shall start one
(1) year from the date of the certificate of land ownership award registration. However, if the
occupancy took place after the certificate of land ownership award registration, the amortization shall
start one (1) year from actual occupancy. The payments for the first three (3) years after the award
shall be at reduced amounts as established by the PARC: Provided, That the first five (5) annual
payments may not be more than five percent (5%) of the value of the annual gross production as
established by the DAR. Should the scheduled annual payments after the fifth (5th) year exceed ten
percent (10%) of the annual gross production and the failure to produce accordingly is not due to the
beneficiary's fault, the LBP shall reduce the interest rate and/or reduce the principal obligation to
make the repayment affordable. …" (CARL, Sec. 26)

220"The rights and responsibilities of the beneficiaries shall commence from their receipt of a duly
registered emancipation patent or certificate of land ownership award and their actual physical
possession of the awarded land." (CARL, Sec. 24)

221 "JUSTICE BRION: I see your point. My question is about the thirty (30) years. Where did these
thirty years (30) years come from? Then I would like to suggest to you, counsel that you look at the
land distribution scheme where there is the thirty (30) year period, under the land distribution
scheme the transfer of the land would be immediate but the payment should be over a period of
thirty (30) years. And now, what we are seeing here is a transfer of shares of stock contemplated to
be for a period of thirty (30) years, but the transfer is not immediate, but supposedly there is no
payment. So, it seems to me that ….

SOL. GEN. CADIZ: It is the reverse, Your Honor. In fact, thirty (30) years to pay; now it is
thirty (30) years to acquire." (TSN dated 24 August 2010, at 46)

222 CARL, Sec. 31.

223"The valuation of corporate assets submitted by the corporate landowner-applicant in this

proposal shall be subject to the verification and audit examination by DAR. The determination of the
value of the agricultural land shall be based on the land valuation guidelines promulgated by the
DAR." (DAR Administrative Order No. 10-88, Sec. 6)

"The above valuations of both assets and liabilities have been given the imprimatur of the
224

Securities and Exchange Commission by reason of its approval of the increase in the authorized
capital stock of Hacienda Luisita, Inc., the subscription to such increase of Tarlac Development
Corporation, and the payment by Tarlac Development Corporation of its subscription thru transfer of
assets and liabilities." (Proposal for Stock Distribution Option under the CARP at 9; rollo, Vol. 3, at
3739)

225 Proposal for Stock Distribution Option under the CARP at 6-9; rollo, Vol. 3, at 3736-739

₱196,360,000 (value of agricultural land) ÷ ₱590,554,220 (total value of company’s assets) ×

226

355,131,462 shares (capital stock) = 118,391,976.85 shares.

227Table of Excluded Lands (Private Respondent FARM’s Memorandum dated 24 September 2010,
at 55-56; rollo, Vol. 3, at 3859-3860)

Description Land Area

(in Hectares)
Total Land Area 6,443
Less:
1. Sugar Mill Land 66
2. Lands "Unfit for agriculture" 263
 3. Roads and Creeks 266
4. Agro-Forest Land 159
5. Residential Lots for Beneficiaries 121
6. Reserve for Additional Homelots 652
Total Exclusions 1,527
EQUALS: Land subject of SDOA 4,916

228"According to HLI, the farmer’s 4,916 hectares were valued at P196.6 million, which amounts to
P4 per square meter, or P40,000 per hectare. The 121 hectares contributed for homelots by
TADECO, was valued at P60.5 million, or P500,000 per hectare. According to Putzel, all the lands
were valued at P55,000/hectare in the books of TADECO in 1988 and that the land for the homelots
and land improvements were valued at P6.7 million and P5.6 million respectively. (The SEC says
that the records of TADECO’s books are no longer available.)" (Respondent FARM’s Memorandum
at 57; rollo, Vol. 3, at 3861)

229 "Incidentally, the FWBs did not have participation in the valuation of the agricultural land for the
purpose of determining its proportionate equity in relation to the total assets of the corporation.
Apparently, the sugarland are undervalued." (Terminal Report dated 22 September 2005, at 18;
rollo, Vol. 1, 403)

230 TSN dated 24 August 2010, at 230-231

231"There are a variety of means by which both to meet the constitutional requirement that regular
farmworkers receive direct or collective ownership of the land they till and permit the continued
operation of such corporate farms as are proven to be efficient in their present scale of operation.
For example, separate corporate entities could be established, with one corporation having
ownership of all land assets coupled with the distribution of all the stock of that corporation to the
worker beneficiaries. Assuming existing operations were maintained; existing management retained,
or comparable management hired; and wage and benefits levels remained constant, farm
profitability would not differ significantly from previously levels. However, the land-related portion of
this profits would now benefit the farmworkers." (Riedinger, supra. note 4, at 160; emphasis
supplied)

"The provision created obvious incentives to dilute the value of the workers’ shares by either
232

undervaluing the land assets or overvaluing the non-land assets." (Riedinger, supra. note 4, at 159)

233Petitioner HLI was registered in the SEC only on 23 August 1988 and received the assigned
agricultural lands and other assets from TADECO on 22 March 1989. However, the SDOA was
signed by TADECO, petitioner HLI and the FWBs only on 11 May 1989.

234It was only after the SDOA was signed on 11 May 1989, that the DAR issued a massive
information campaign on 14 October 1989 and conducted a referendum. (Petitioner HLI’s
Memorandum dated 23 September 2010, at 11; rollo, Vol. 3, at 3645)

235"The problem was not really that the farmworkers on the hacienda were denied the freedom of
expression or the right to choose, as one peasant organization charged. It was rather that
farmworkers, tenants and the landless rural poor continued to be denied an environment that would
allow them to identify what their choices were." (James Putzel, A Captive Land: The Politics of
Agrarian Reform in the Philippines [Ateneo de Manila University Press 1992] at 335)

236The stock distribution arrangement "contemplates of allowing the farmer-beneficiaries from the
very start to occupy such number of seats in the board of directors of the corporate landowner as the
whole number of shares of stock set aside for distribution may entitle them, so that they could have a
say in forging their destiny." (Proposal for Stock Distribution under C.A.R.P. (May 1989) at 17; rollo,
Vol. 3, at 3747)

237 Respondent FARM’s Memorandum at 60; rollo, Vol. 3, at 3864.

238 Petitioner HLI’s Memorandum at 47-48; rollo, Vol. 3, at 3689-3690.

239 DAR Order dated 06 December 2004; rollo, Vol. 3, at 3750.

"The Technical Working Group had a meeting with Atty. Jun dela Merced, HLI Legal Counsel,
240

where the extent of HLI’s compliance and some clarification on the MOA entered into by and
between the corporation and the FWBs were discussed." (Terminal Report dated 22 September
2005, at 7; rollo, Vol. 1, at 392)

241"No decision shall be rendered by any court without expressing therein clearly and distinctly the
facts and the law on which it is based." (Constitution, Art. VIII, Sec. 14)

242 34 SCRA 751, 764 (1970).

243"JUSTICE MORALES: So, my question now is, again I sound like a broken record, are the
assailed acts of PARC considered legislative for you to invoke the Constitutional non impairment
clause?

ATTY. ASUNCION: My answer is no, your Honor please." (TSN, 18 August 2010, at 66)

244"In no case shall the compensation received by the workers at the time the shares of stocks are
distributed be reduced." (CARL, Sec. 31)

245 Civil Code, Art. 1144.

246"Only a programme that makes land redistribution central to the logic of reform can help to break
both the economic and political ties of dependence and subordination between the rural poor and
their patrons." (Putzel, supra. note 235, at 33-34)

LBP v. Rivera, G. R. No. 182431, 17 November 2010, citing Republic v. Court of Appeals, 433
247

Phil. 106 (2002).

LBP v. Livioco, G. R. No. 170685, 22 September 2010, citing Heirs of Francisco R. Tantoco, Sr. v.
248

Court of Appeals, G.R. No. 149621, 05 May 2006, 489 SCRA 590, 613.

Landbank of the Philippines v. Heirs of Domingo, G. R. No. 168533, 04 February 2008, 543
249

SCRA 627, citing Landbank of the Philippines v. Court of Appeals. 319 Phil. 246, 249 (1995).

NAPOCOR v. Diato-Bernal, G. R. No. 180979, 15 December 2010, citing Republic v. Libunao,

250

594 SCRA 363, 376 (2009).

251 CARL, Sec. 18.

252 G. R. No. L-23127, 29 April 1971, 38 SCRA 429.

253 G. R. No. L-21114, 28 November 1967.

254 De Agbayani v. Philippine National Bank, supra.

255 Concurring Opinion, Fernandez v. P. Cuerva & Co., supra.

256 Id., citing Chicot Country Drainage Dist. vs. Baxter States Bank, 308 US 371 (1940).

257 G. R. No. L-9396, 16 August 1956, 99 Phil. 738.

258 G. R. No. L-23127, 29 April 1971, 38 SCRA 429.

259 G. R. No. L-34486, 27 December 1982, 119 SCRA 411.

260 G. R. No. L-29725, 27 January 1983, 120 SCRA 154.

261 G.R. No. L-3708, 18 May 1953, 93 Phil. 68 (1953).

262 G. R. No. L-21114, 28 November 1967.

263 G. R. No. 147817, 12 August 2004, 436 SCRA 273.

264 G, R. No. 131392, 06 February 2002, 376 SCRA 248.

265
G. R. No. 164527, 15 August 2007, 530 SCRA 235.

"This pledge sufficiently served as legitimate reason for her to altogether dispense with the formal
266

application for leave; there was no reason to, as in fact it was not required, since she was for all
practical purposes incapacitated or disabled to do so." (City Government of Makati v. Civil Service
Commission, supra.)

267 City Government of Makati v. Civil Service Commission, id.

268 G.R. No. 79732, 08 November 1993, 227 SCRA 509.

269 G. R. No. 166006, 14 March 2008, 548 SCRA 485.

270 Zabat v. Court of Appeals, No. L-36958, 10 July 1986, 142 SCRA 58.

271 PTA v. St. Mattew Christian Academy, G.R. No. 176518, 2 March 2010, 614 SCRA 41.

272 Causapin v. Court of Appeals, G.R. NO. 107432, 4 July 1997, 233 SCRA 615, 625.

"ATTY. MONSOD: The compromise agreement presents the farmers with two (2) false choices."
273

(TSN dated 24 August 2010, at 218)

274 TSN dated 24 August 2010, at 219-220.

275"Subject to the provisions of existing laws on illegal combinations and monopolies, a corporation
may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge
or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon
such terms and conditions and for such consideration, which may be money, stocks, bonds or other
instruments for the payment of money or other property or consideration, as its board of directors or
trustees may deem expedient, when authorized by the vote of the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock, or in case of non-stock corporation, by the vote of at
least to two-thirds (2/3) of the members, in a stockholder's or member's meeting duly called for the
purpose. Written notice of the proposed action and of the time and place of the meeting shall be
addressed to each stockholder or member at his place of residence as shown on the books of the
corporation and deposited to the addressee in the post office with postage prepaid, or served
personally: Provided, That any dissenting stockholder may exercise his appraisal right under the
conditions provided in this Code." (Batas Pambansa Blg. 68, Sec. 40)

"A sale or other disposition shall be deemed to cover substantially all the corporate property and
276

assets if thereby the corporation would be rendered incapable of continuing the business or
accomplishing the purpose for which it was incorporated." (Batas Pambansa Blg. 68, Sec. 40)

277 Amended Article of Incorporation of petitioner HLI; rollo, Vol. 3, at 3762-3776.

278However, Jeffrey Riedinger presented contrary claims that "that small sugar cane farms were
more efficient in terms of total factor productivity" and that "Philippine sugarcane yields were, on
average, little more than one-half of those of the small (1 to 2 hectare) owner operated farms of
Taiwan, and only one-quarter yields obtained on small owner-operated farms in Maharashtra state in
western India." (Riedinger, supra. note 4, at 80-85) Riedinger even asserted that "[a]nalysis suggests
that the workers would be no worse off, indeed might be substantially better off, if they were to
purchase the land assets of Hacienda Luisita under the terms of the reform law rather than accept
the proposed ‘no cost’ stock distribution." (Id., at 150)

279"DAR has established guidelines on the matter of such allocations and no problem has been
encountered in its implementation of the CARP. By and large for a whole scale cultivation and
production, formation of cooperatives has proven to be an effective mechanism to address the
problem. …" (Terminal Report dated 22 September 2005 at 13; rollo, Vol. 1, at 398).

280"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. ..." (CARL, Sec. 29, 2nd par.)

281"Transferability of Awarded Lands. — Lands acquired by beneficiaries under this Act or other
agrarian reform laws shall not be sold, transferred or conveyed except through hereditary
succession, or to the government, or to the LBP, or to other qualified beneficiaries through the DAR
for a period of ten (10) years: Provided, however, That the children or the spouse of the transferor
shall have a right to repurchase the land from the government or LBP within a period of two (2)
years. Due notice of the availability of the land shall be given by the LBP to the BARC of the
barangay where the land is situated. The PARCCOM, as herein provided, shall, in turn, be given due
notice thereof by the BARC. …

"If the land has not yet been fully paid by the beneficiary, the rights to the land may be
transferred or conveyed, with prior approval of the DAR, to any heir of the beneficiary or to
 any other beneficiary who, as a condition for such transfer or conveyance, shall cultivate the
land himself/herself. Failing compliance herewith, the land shall be transferred to the LBP
which shall give due notice of the availability of the land in the manner specified in the
immediately preceding paragraph.

"In the event of such transfer to the LBP, the latter shall compensate the beneficiary in one
lump sum for the amounts the latter has already paid, together with the value of
improvements he/she has made on the land." (CARL, Sec. 27, as amended; emphasis
supplied)

282"Lands awarded to ARBs under this Act may not be sold, transferred or conveyed except through
hereditary succession or to the Government, or to the LBP, or to other qualified beneficiaries within a
period of ten (10) years; Provided, however, that the children or the spouse of the transferor shall
have a right to repurchase the land from the government or the LBP within a period of two (2) years
from the date of transfer." (DAR Administrative Order No. 02-2009, Part F, 10.2)

283 "The Sangguniang Bayan of Tarlac, Tarlac, hereby, approves the Luisita Land Use Plan
submitted by the Luisita Realty Corporation covering the lands owned by Hacienda Luisita Inc.,
Central Azucarera de Tarlac, Tarlac Development Corporation, Luisita Golf and Country Club, Inc.,
Luisita Realty Corporation, [illegible] in the Luisita Industrial Park and others, covering over Three
Thousand Two Hundred Ninety (3,290) hectares, as enumerated in the list of transfer certificates of
titles, which list, including photocopies of the titles referred to in the list. Is hereto attached as Annex
‘B’, (hereinafter referred to as the ‘Luisita lands’), which is hereby approved for integration/inclusion
in the general zoning map of the Municipality." (Sangguniang Bayan Resolution No. 280 dated 01
September 1995, Sec. 1; rollo, Vol. 3, at 3594-3595)

284"The Luisita Lands included in the Luisita Land Use Plan, whose present classification is
agricultural, are hereby reclassified to residential, commercial, industrial or institutional use, as the
case may be, in accordance with the Luisita Land Use Plan, as said Luisita Lands have been found
to have substantially greater economic value for residential, commercial, or industrial purposes.
Furthermore, the Luisita Lands included in the Luisita Land Use Plan, whose present classification,
as per its tax declaration or other official government document, is non-agricultural, is hereby
confirmed as non-agricultural and shall remain as non-agricultural in accordance with the Luisita
Land Use Plan." (Id., Sec. 2; emphasis supplied)

285"JUSTICE BERSAMIN: All right, the last question that I would like you to answer is this – is this
land if it were to be distributed among your members included, among the farmers your members
included, would you go back to sugar production or sugar cane production or planting?

ATTY. PAJILDA: It is a matter not yet discussed by the group but our contention Your Honor
is that if the whole of the agricultural land of Luisita should be awarded to the farmworkers it
should not be parcelized and given to them individually but it should be owned or under the
control or management of the farmers cooperative where this cooperative will be the one to
run the business of the organization, Your Honor.

JUSTICE BERSAMIN: So you would fall back on Section 29?

ATTY. PAJILDA: Yes, Your Honor." (TSN dated 24 August 2010, at 186-187)

286 TSN dated 24 August 2010, at 104-108.

287 TSN dated 24 August 2010, at 120-121.

288 "For many years, land reform has been considered an end in itself, a device to promote social
justice. Today it is regarded not only as a tool of social justice but as a definite part of agricultural
development. Land ownership gives Juan Cruz the pride of possession, but this is meaningless
unless Cruz gets every kind of assistance to draw the most out of his plot. Mere landownership is
like gold turned to sand. If land reform is indeed part of agricultural development, then increased and
efficient production is its goal" (Mariano N. Querol, Land Reform in Asia [Solidaridad Publishing
House 1974] at 25)

289"Agrarian reform involves both redistribution of landownership (land reform) and the development
of complementary credit, extension, infrastructure, pricing, and research programs." (Riedinger,
supra. note 4, at 2)

Lynn Smith Thomas, Agrarian Reform in Latin America (1965), as cited in Milagros A. German,
290

The Agrarian Law in the New Society (U. P. Law Center 1980) at 75-76.

291 DAR Administrative Order No. 10-88. Sec. 5 (a).

292 "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, the DAR, upon application
of the beneficiary or the landowner with respect only to his/her retained area which is tenanted, 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 if the applicant is a beneficiary under
agrarian laws and the land sought to be converted is the land awarded to him/her or any portion
thereof, the applicant, after the conversion is granted, shall invest at least ten percent (10%) of the
proceeds coming from the conversion in government securities: Provided, further, That the applicant
upon conversion shall fully pay the price of the land: Provided, furthermore, That irrigated and
irrigable lands, shall not be subject to conversion: Provided, finally, That the National Irrigation
Administration shall submit a consolidated data on the location nationwide of all irrigable lands within
one (1) year from the effectivity of this Act." (CARL, Sec. 65)

Reclassified agricultural lands must undergo the process of conversion in the DAR before they
293

may be used for other purposes. (Ros v. DAR, G. R. No. 132477, 31 August 2005, 468 SCRA 471;
DAR v. Polo Coconut Plantation, Co., Inc., G. R. No. 168787 and 169271, 03 September 2008, 564
SCRA 78)

294Sangguniang Bayan Resolution No. 280 dated 01 September 1995 (rollo, Vol. 3, at 3594-3595);
Supervisory Group and AMBALA Comment/Opposition dated 17 December 2006, par. 7.1, at 16
(rollo, Vol. 1, at 545); RCBC Petition-in-Intervention dated 18 October 2007, par. 5 at 13 (rollo, Vol.
2, at 1372).

295 DARCO Conversion Order No. 030601074-764-(95), Series of 1996; rollo, Vol. 1, at 651-664.

Coastal Pacific Trading, Inc., v. Southern Rolling Mills, Co., Inc., G.R. No. 118692, 28 July 2006,
296

497 SCRA 11.

297 Rufloe v. Burgos, G. R. No. 143573, 30 January 2009, 577 SCRA 264.

298 G.R. No. 123713, 01 April 1998, 288 SCRA 574.

299 TCT No. 292091, rollo, Vol. 2, at 1492-1493.

300 TCT No. 310985, rollo, Vol. 2, at 1514-1518.

301 TCT No. 310985, id., at 1515.

HLURB Certificate of Registration No. 00794 and HLURB License to Sell No. 00776 both dated
302

26 December 1997; rollo, Vol. 3, at 4399-4400.

303 Rollo, Vol. 2, at 1499-1513.

304 Rollo, Vol. 2, at 1523-1527.

305 Ty v. Queen’s Row Subdivision, G. R. No. 173158, 04 December 2009, 607 SCRA 324.

306 Rollo, Vol. 3, at 4357-4362.

307 G. R. No. 145013, 31 March 2005, 454 SCRA 493.

308"[A] Torrens title is evidence of indefeasible title to property in favor of the person in whose name
the title appears. It is conclusive evidence with respect to the ownership of the land described
therein." (Vda. De Aguilar, v. Spouses Alfaro, G. R. No. 164402, 05 July 2010, citing Baloloy v.
Hular, 481 Phil. 398, 410 [2004], and Carvajal v. Court of Appeals, 345 Phil. 582, 594 [1997])

"Indeed, a certificate of title, once registered, should not thereafter be impugned, altered,
309

changed, modified, enlarged or diminished, except in a direct proceeding permitted by law.

Otherwise, reliance on registered titles would be lost." (Ugale v. Gorospe, G. R. No. 149516, 11
September 2006, 501 SCRA 376)

310"What the Philippine government must do is to clarify existing rules and regulations concerning
land use and land conversions in order to avoid disputes that have the potential of encouraging
domestic unrest and discoursing foreign investment particularly in industrial and real estate
development. Foreign investors need to know that the land they acquire for development will not be
subject to later disputes, while farmer-beneficiaries need to be sure that they still obtain the land they
are entitled to under the CARP." (Janeth San Pedro, Agrarian Reform’s Constraint on Land
 Acquisition and Development for Non-Agricultural Use in the Philippines, 12 Transnat’l Law. 319
[1999] at 351)

Laguinilla, v. Velasco, G. R. No. 169276, 16 June 2009, 589 SCRA 224, citing Aron v. Realon,
311

G.R. No. 159156, January 31, 2005, 450 SCRA 372, 389.

312 Petitioner-in-intervention RCBC has claimed that the property has been partially developed into
an industrial estate with a main road fully paved with proper drainage and equipped with a power
control house, deep well and water tanks, drainage reservoir and STP, concrete perimeter security
fence, and security gate house. (Petitioner-in-intervention RCBC’s Memorandum dated 23
September 2010, at 85) On the other hand, petitioner-in-intervention LIPCO claims 62% completion
of its 115.779 hectare property, where concrete roads, a power control house, an elevated water
tank, two main gates, a drainage reservoir with a release gate, a drying tower, and an aceration tank
is already put in place. (Petitioner-in-intervention LIPCO’s Memorandum dated 23 September 2010,
at 41)

313 Ros v. DAR, G.R. No. 132477, 31 August 2005, 468 SCRA 471.

DAR v. Polo Coconut Plantation, Co., Inc., G. R. No. 168787 and 169271, 03 September 2008,
314

564 SCRA 78, citing Republic Act No. 7916, Sec. 5 and DAR Administrative Order No. 1, s. 1999,
Sec. 6(e).

DAR v. Polo Coconut Plantation, Co., Inc., id., citing Rules and Regulation to Implement R.A.
315

7916. Part III, Rule IV, Sec. 3

316 Presidential Proclamation No. 1207 dated 22 April 1998; rollo, Vol. 3, at 3400-3402.

317 DARCO Conversion Order No. 030601074-764-(95), Series of 1996; rollo, Vol. 1, at 651-664.

318 Petitioner-in-Intervention LIPCO’s Memorandum dated 23 September 2010, par. 73.1, at 41.

319"4. Accordingly, thought the subject area is included in the NIA service are, the HLI has been
using the NIA irrigation facilities because of the complaint of the farmworkers downstream (outside
the HLI) that they are not getting enough water, if HLI tapped it. To make matters worse, the eruption
of Mt. Pinatubo has caused the lahar siltation to close the O’Donnel River which is the main source
of the irrigation water of Tarlac. Without other source to its irrigation water requirement, the HLI
heavily depends on ground water pumping at 50 feet deep." (DAR Conversion Order No.
0306017074-764-(95), s. of 1996, at 6-7; rollo, Vol. 2, at 1474-75)

320"This Agreement is entered into by the parties herein in the spirit of the Comprehensive Agrarian
Reform Program (C.A.R.P.) of the government and with the supervision of the Department of
Agrarian Reform, with the end in view of improving the lot of the qualified beneficiaries of the stock
distribution plan and obtaining for them greater benefits." (SDOA dated 11 May 1989, at 4; rollo, Vol.
1, at 150; emphasis supplied)

Jesus M. Montemayor, The Economic, Social and Political Rationale of Agrarian Reform, Agrarian
321

Reform Land Law (UP Law Center, 1975), at 210.

322"Mr. President, no one will argue with the productive potential inherent in people who own the
land they till. To own land is to hold one’s destiny in his own hands. This is why rural development
must be anchored on land reform." (Sen. Heherson Alvarez, Sponsorship Speech of the CARL in
Rufus B. Rodriguez, Comprehensive Agrarian Reform Law Annotated [2004] at 175)

323 Based on its own records, petitioner HLI distributed the 3% production share to qualified FWBs
amounting to ₱151,386,000 from 1989-2005. (Report on Salaries, Benefits and Credit Privileges;
rollo, Vol. 3, at 3759-3761)

324Private respondents Supervisory Group and AMBALA admit that ₱37,500.000 was distributed to
the FWBs as part of the sales of the proceeds of the converted 500 hectare lands. (Memorandum
dated 25 November 2005 filed in the PARC, par. 46, at 19 [rollo, Vol. 1, at 728]; see also petitioner
HLI’s Motion for Reconsideration dated 02 January 2006, at 20 [rollo, Vol. 1, at 752])

The Lawphil Project - Arellano Law Foundation

SEPARATE CONCURRING AND DISSENTING OPINION

BRION, J.:

On December 22, 2005, the public respondent Presidential Agrarian Reform Council (PARC) issued
Resolution No. 2005-32-01. This Resolution revoked the Stock Distribution Plan (SDP) that Tarlac
Development Corporation (Tadeco) executed with its spin-off corporation Hacienda Luisita, Inc. (HLI) and its
qualified farmworkers-beneficiaries (FWBs), and placed the Hacienda Luisita under the compulsory
coverage of the Comprehensive Agrarian Reform Program (CARP). This Resolution set in motion a series of
events that led to the present controversy.

The Court is mainly called upon to decide the legality of the HLI’s SDP. An underlying issue is whether the
PARC has the power and authority to revoke the SDP that it previously approved; if so, whether there is
legal basis to revoke it and place the Hacienda Luisita under compulsory coverage of the CARP. The Court
has to resolve, too, whether the petitioners-intervenors Luisita Industrial Park Corporation (LIPCO) and Rizal
Commercial Banking Corporation (RCBC) legally acquired the converted parcels of land (acquired lands)
from HLI.

FACTUAL ANTECEDENTS

Acquisition of Hacienda Luisita

To put this case in its proper context, I begin with a review of HLI’s history and the significant events that
ultimately led to the present case.

The Hacienda Luisita is a 6,443 hectare parcel of land originally owned by the Compania General de
Tabacos de Filipinas (Tabacalera).1 In 1957, the Spanish owners of Tabacalera decided to sell this land and
its sugar mill, Central Azucarera de Tarlac. Jose Cojuangco, Sr. took interest and requested assistance from
the Philippine government in raising the necessary funds through: (a) the Central Bank, to obtain a dollar
loan from the Manufacturer’s Trust Company (MTC) in New York for the purchase of the sugar mill; and (b)
the Government Service Insurance System (GSIS), to obtain a peso loan for the purchase of the Hacienda.
The Central Bank used a portion of the country’s dollar reserves as security for Cojuangco’s loan with the
MTC on the condition that Cojuangco would acquire Hacienda Luisita for distribution to farmers within 10
years from its acquisition.2 The GSIS also approved Jose Cojuangco, Sr.’s loan for ₱5.9 million under
Resolution No. 3203 (November 25, 1957) which stated in part:

12. That the lots comprising the Hacienda Luisita shall be subdivided by the applicant-corporation among
the tenants who shall pay the cost thereof under reasonable terms and conditions;3

At the urging of Jose Cojuangco, Sr., GSIS issued Resolution No. 356 (February 5, 1958), amending
Resolution No. 3203 in the following manner:

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;4

Thus, on April 8, 1958, Jose Cojuangco, Sr., through Tadeco, acquired Hacienda Luisita and Central
Azucarera de Tarlac.5

Ten (10) years after the acquisition of Hacienda Luisita, the land remained undistributed, contrary to the
conditions stated in the loan/security agreements. Citing GSIS’ Resolution No. 356, the Cojuangcos
reasoned out that there were no tenants in the Hacienda; thus, there was no one to distribute the land to.6

On May 7, 1980, the Marcos government filed a case before the Manila Regional Trial Court (RTC) to
compel Tadeco to surrender Hacienda Luisita to the Ministry of Agrarian Reform so that the land could be
distributed to the farmers. On December 2, 1985, the Manila RTC ordered Tadeco to surrender the land to
the Ministry of Agrarian Reform. The Cojuangcos appealed this decision to the Court of Appeals (CA).7

The Stock Distribution Option Agreement

While the case was pending with the CA, Corazon Aquino became President of the Philippines. On July 22,
1987 President Aquino issued Presidential Proclamation No. 131 and Executive Order (EO) No. 229, which
outlined her agrarian reform program. EO No. 229 included a provision for the Stock Distribution Option
(SDO), a mode of complying with the land reform law that did not require actual transfer of the land to the
tiller.8

In view of these developments, the government withdrew its case against the Cojuangcos on March 17,
1988. The Department of Agrarian Reform (DAR), GSIS, and the Central Bank did not object to the motion
to dismiss the case, on the assumption that Hacienda Luisita would be distributed through the government’s
CARP. On May 18, 1988, the CA dismissed the case the Marcos government filed against Tadeco.9
On June 10, 1988, President Aquino signed into law Republic Act No. 6657 or the Comprehensive Agrarian
Reform Law (CARL). The CARL included a provision that authorized stock distribution as a mode of
compliance; the SDO allowed a corporate landowner to give its farmers and farmworkers shares of its
stocks in lieu of actually distributing the land to them.10 HLI was incorporated on August 23, 1988,
presumably to avail of the SDO under the CARL.11

On May 11, 1989, HLI, Tadeco and the Hacienda Luisita farmworkers executed a Stock Distribution Option
Agreement (SDOA). The SDOA was signed by 92.9% of the farmworkers, or by 5,498 out of a total of 6,296
farmworkers.12

On October 14, 1989, the DAR conducted a referendum among the farmworkers. Out of the 5,315 FWBs
who participated, 5,117 voted in favor of the SDOA. As a result, the PARC unanimously approved HLI’s
SDP – which was based on the SDOA – through Resolution No. 89-12-2 dated November 21, 1989. This
was the first SDP that PARC approved.13

Land Conversion and Sale to Third Parties

On August 10, 1995, HLI filed an application for the conversion of 500 hectares of Hacienda Luisita from
agricultural to industrial use.14 None of the parties to the present case disputes that HLI’s application had the
support of 5000 or so FWBs, including respondent Rene Galang and Jose Julio Suniga who signed and
submitted a Manifestation of Support to the DAR.15 A year later, or August 14, 1996, then DAR Secretary
Ernesto Garilao issued a conversion order, granting HLI’s application to convert the 500 hectares of HLI land
from agricultural to industrial use. The conversion order was granted because the "area applied for
conversion is no longer economically feasible and sound for agricultural purposes."16

Thereafter, on October 14, 1996, the HLI entered into a joint venture agreement with RCBC, Agila Holdings,
Inc., and Itochu Corporation to form LIPCO whose main objective was to handle the acquisition,
development, and operation of an industrial park on the converted portion of the Hacienda.17 LIPCO
registered with the Board of Investments on December 20, 1996. On June 27, 1997, the Philippine
Economic Zone Authority (PEZA) approved LIPCO’s application to be declared a mixed ecozone. It further
proclaimed the 300 hectare area as a Special Economic Zone, known as Luisita Industrial Park 2.

On December 11, 1996, the Sangguniang Bayan ng Tarlac, Tarlac (which earlier reclassified 3,290 hectares
of Hacienda Luisita from agricultural to commercial/industrial/residential land18) issued a resolution endorsing
and recognizing LIPCO’s plan to establish an industrial estate.

On December 13, 1996, HLI transferred 300 hectares of industrial land to Centennary Holdings, Inc.
(Centennary), in exchange for 12,000,000 shares of stock of Centennary, through a Deed of Conveyance
and Assignment.19 Centennary then sold the land to LIPCO through their November 12, 1997 Memorandum
of Agreement, so that LIPCO can develop it into a first-class industrial estate.20 To finance the project,
LIPCO obtained a P300 million loan from RCBC, secured by a real estate mortgage over the land.21

On April 22, 1998, then President Fidel V. Ramos declared the 300 hectare property as a Special Economic
Zone under Proclamation No. 1207.22 Following this proclamation, the PEZA issued Certificate of
Registration No. EZ-98-05 on May 7, 1998, certifying that LIPCO is the duly registered ecozone
developer/operator of Luisita Industrial Park 2.23

When LIPCO could not pay its outstanding loan to RCBC, it entered a dacion en pago to settle the loan
which had ballooned to P432.05 million by November 2002.24 On November 25, 2004, LIPCO and RCBC
entered into a Deed of Absolute Assignment, through which LIPCO conveyed two parcels of land (with a
total area of 184.22 hectares) to RCBC, leaving LIPCO with 115.779 hectares of land.25

HLI also sold the remaining 200 hectares of industrial land to Luisita Realty Corporation (Luisita Realty), 100
hectares in 1997 for ₱250 million, and another 100 hectares in 1998 for another ₱250 million.26 (Details of
this sale are not clear from the records of the present case as Luisita Realty is not an active party to the
case.)

The Petitions before PARC

Claiming that the HLI did not deliver on its promises under the SDOA/SDP, the Supervisory Group of
workers of HLI filed a petition with the DAR on October 14, 2003, seeking to renegotiate the
SDOA/SDP.27 Similarly, on December 4, 2003, the DAR received another petition from the Alyansa ng mga
Manggagawang Bukid ng Hacienda Luisita (AMBALA), a group composed of HLI farmers and farmworkers,
praying for the revocation of the SDOA/SDP.28

On November 22, 2004, then DAR Secretary Rene C. Villa issued Special Order No. 789, series of 2004,
which created the Special Task Force on Hacienda Luisita, Inc. Stock Distribution Option Plan.29 This task
force was convened primarily to review the SDP and evaluate HLI’s compliance with its terms and
conditions.
Based on the parties’ pleadings and the ocular inspection conducted, the Special Task Force issued a
Terminal Report on September 22, 2005, which found that the HLI did not comply with its obligations under
the law in implementing the SDP.30 The pertinent portions of the Terminal Report are quoted below:

VI. FINDINGS, ANALYSIS AND RECOMMENDATION:

1. Providing for the quintessence and spirit of the agrarian reform program, Republic Act No. 6657 explicitly
provides:

"SECTION 2. Declaration of Principles and Policies. – It is the policy of the State to pursue a
Comprehensive Agrarian Reform Program (CARP). The welfare of the landless farmers and farmworkers
will receive the highest consideration to promote social justice and to move the nation toward sound rural
development and industrialization, and the establishment of owner cultivatorship of economic-size 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
farmworkers with the opportunity to enhance their dignity and improve the quality of their lives through
greater productivity of agricultural lands" (underscoring added).

Within the context of the foregoing policy/objective, the farmer/farmworker beneficiaries (FWBs) in
agricultural land owned and operated by corporations may be granted the option by the latter, with the
intervention and prior certification of DAR, "xxx the right to purchase such portion of the capital stock of the
corporation that the agricultural land, actually devoted to agricultural activities, bears in relation to the
company’s total asset xxx" (Sec. 31, Rep. Act No. 6657). Toward this end, DAR issued Administrative Order
No. 10, series of 1988, copy of which is attached as Annex "K" and made an integral part hereof, which
requires that the stock distribution option (SDO) shall meet the following criteria, reading, inter alia:

"a. that the continued operation of the corporation with its agricultural land intact and unfragmented
is viable, with potential for growth and increased profitability;

"b. that the plan for the stock distribution to qualified beneficiaries would result in increased income
and greater benefits to them, than if the lands were divided and distributed to them individually;

xxxx.

And to ensure effective and fair implementation of the contemplated Stock Distribution Plan (SDP), the said
AO also provides:

"SEC. 12. Revocation of Certificate of Compliance. – Non-compliance with any of the requirements of Sec.
31 of RA 6657, as implemented by these Implementing Guidelines shall be grounds for the revocation of the
Certificate of Compliance issued to the corporate landowner-applicant.

SEC. 13. Reservation Clause – Nothing herein shall be construed as precluding the PARC from making its
own independent evaluation and assessment of the stock distribution plan of the corporate landowner-
applicant and from prescribing other requirements."

Herein, however, there is yet no Certificate of Compliance issued.

The reason is simple. Despite the lapse of sixteen (16) years, from the time the SDP was approved in
November 1989, by resolution of the Presidential Agrarian Reform Council (PARC), the objective and policy
of CARP, i.e., acquisition and distribution (herein under the Stock Distribution Plan, only shares of stocks) is
yet to be fully completed; the FWBs, instead of the promised/envisioned better life under the CARP (herein,
as corporate owner), do still live in want, in abject poverty, highlighted by the resulting loss of lives in their
vain/futile attempt to be financially restored at least to where they were before the CARP(SDP) was
implemented. While they were then able to make both ends meet, with the SDP, their lives became
miserable.

2. For the foregoing considerations, as further dramatized by the following violations/noncompliance with the
guidelines prescribed, which are legally presumed as integrated in the agreements/accords/stipulations
arrived at thereunder like the HLI SDP, namely:

2.1 Noncompliance with Section 11 of Administrative Order No. 10, Series of 1988, which provides:

"The 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 the stock and transfer books and submitted to
the Securities and Exchange Commission (SEC) within sixty (60) days from the said implementation plan.
The Stock Distribution Plan, however, submitted a 30-year implementation period in terms of the transfer of
shares of stocks to the farmworkers beneficiaries (FWBs). The MOA provides:

"At the end of each fiscal year: for a period of 30 years, SECOND PARTY shall arrange with the FIRST
PARTY the acquisition and distribution to the THIRD PARTY on the basis of the number of days worked and
at no cost to them of one-thirtieth (1/30) of…"

Plainly, pending the issuance of the corresponding shares of stocks, the FWBs remain ordinary farmers
and/or farmworkers and the land remain under the full ownership and control of the original owner, the
HLI/TADECO.

To date the issuance and transfer of the shares of stocks, together with the recording of the transfer, are yet
to be complied with.

2.2 Noncompliance with the representations/warranties made under section 5(a) and (b) of said
Administrative Order No. 10.

As claimed by HLI itself, the corporate activity has already stopped so that the contemplated profitability,
increased income and greater benefits enumerated in the SDP have remained mere illusions.

2.3 The agricultural land involved was not maintained "unfragmented". At least, 500 hectares hereof have
been carved out after its land use has been converted to non-agricultural uses.

The recall of said SDP/SDO of HLI is recommended. More so since:

1. It is contrary to Public Policy

Section 2 of Republic Act 6657 provides that the welfare of the landless farmworkers will receive the highest
consideration to promote social justice. As such, the State undertake a more equitable distribution and
ownership of land that shall provide farmworkers with the opportunity to enhance their dignity and improve
the quality of their lives through greater productivity of agricultural lands.

In the case of Hacienda Luisita, the farmworkers alleged that the quality of their lives has not improved. In
fact, it even deteriorated especially with the HLI Management declaration that the company has not gained
profits, in the last 15 years, that there could be no declaration and distribution of dividends.

2. The matter of issuance/distribution shares of stocks in lieu of actual distribution of the agricultural land
involved, was made totally dependent on the discretion/caprice of HLI. Under the setup, the agreement is
grossly onerous to the FWBs as their man days of work cannot depart from whatever management HLI
unilaterally directs.

They can be denied the opportunity to be granted a share of stock by just not allowing them to work
altogether under the guise of rotation. Meanwhile, within the 30-year period of bondage, they may already
reach retirement or, worse, get retrenched for any reason, then, they forever lose whatever benefit he could
have received as regular agrarian beneficiary under the CARP if only the SDP of HLI were not authorized or
approved.

Incidentally, the FWBs did not have participation in the valuation of the agricultural land for the purpose of
determining its proportionate equity in relation to the total assets of the corporation. Apparently, the
sugarlands were undervalued.

3. The FWBs were misled into believing by the HLI, through its carefully worded Proposal that "xxx the stock
distribution plan envisaged by Tarlac Development Corporation, in effect, assured of:

"A. Distributing the shares of stock over a number of years among the qualified beneficiaries at no
cost to them;

B. Allowing the farmworker to continue to work on the land as such and receive the wages and other
benefits provided for by his collective bargaining agreement with the corporate landowner;

C. Entitling him to receive dividends, whether in cash or in stock, on the shares already distributed to
him and benefit from whatever appreciation in value that the said shares may gain as the corporation
becomes profitable;

D. Qualifying him to become the recipient of whatever income-augmenting and benefit-improving

schemes that the spin-off corporation may establish, such as the payment of the guaranteed three
(3%) percent of gross sales every year and the free residential or homelots to be allotted to family
beneficiaries of the plan; and
 E. Keeping the agricultural land intact and unfragmented, to maintain the viability of the sugar
operation involving the farm as a single unit and thus, warrant to the acknowledged farmworker-
beneficiaries, hand-in-hand with their acquisition of the shares of the capital stock of the corporation
owning the land, a continuing and stable source of income" (Annex "A", supra).

At the expense of being repetitive, the sugar-coated assurances were, more than enough to made them fall
for the SDO as they made them feel rich as "stock holder" of a rich and famous corporation despite the dirt
in their hands and the tatters, they use; given the feeling of security of tenure in their work when there is
none; expectation to receive dividends when the corporation has already suspended operations allegedly
due to losses; and a stable sugar production by maintaining the agricultural lands when a substantial portion
thereof, almost 1/8 of the total area, has already been converted to non-agricultural uses.

Based on the Terminal Report, the DAR issued a Memorandum dated September 30, 2005, recommending
to the PARC Executive Committee the revocation of the HLI SDP that the PARC initially approved under
Resolution No. 89-12-2 dated November 21, 1989. According to the September 30, 2005 Memorandum:

The DAR Special Legal Team, created by the undersigned to make a follow through on the work started by
the Hacienda Luisita Task Force during the time of former Secretary Rene C. Villa, for the purpose of
reviewing the implementation of subject SDP, has conducted a thorough review of Hacienda Luisita’s
operation in relation to its implementation, and consistent with the provisions of the relevant PARC
resolution and the subsequent Memorandum of Agreement (MOA) executed by and between the HLI
Management and the concerned Farm Workers Beneficiaries (FWBs), has recommend (sic) for the
scrapping and/or revocation of said SDP, on the following grounds, to wit:

1. That despite the lapse of sixteen (16) years, the lives of the concerned Farm Workers
Beneficiaries (FWBs) became even more miserable, contrary to what has been envisioned by the
said SDP. This "reality" clearly undermines Section 2 of RA 6657 which provides, "that the welfare of
landless farm workers will receive the highest consideration to promote social justice, under which
context, the State shall undertake a more equitable distribution and ownership of land that shall
provide farm workers with the opportunity to enhance their dignity and improve the quality of their
lives through greater productivity of agricultural lands."

2. Non-compliance on the part of HLI to relevant provisions of Administrative Order No. 10, Series of
1988, specifically Sections 5(a) and 5(b) and Section 11, thereof, in relation to the implementation of
said SDP.

Section 5 (a) and (b) provides:

Section 5. Criteria for Evaluation Proposal – The stock distribution plan submitted by the corporate
landowner-applicant shall meet the following minimum criteria:

a. That the continued operation of the corporation with its agricultural land intact and unfragmented
is viable, with potential for growth and increased profitability;

b. That the plan for stock distribution to qualified beneficiaries would result in increased income and
greater benefits to them, than if their lands were divided and distributed to them individually; xxx

The following are the violations committed in the above-cited provisions, to wit:

- The HLI Management declared that the company has not gained profits in the last 15 years.
Hence, the FWBs of HLI do not receive financial return i.e., ten percent (10%) dividend, three
percent (3%) gross production share (partial), and three percent (3%) out of thirty three percent
representing equity shares from the proceeds of the sale of the converted land from HLI (partial);

- In the Focused Group Discussion (FGC) and Ocular Inspection (OCI), it was found that the number
of shares of stocks to be received by the FWBs depends on their designations (i.e., permanent,
casual, or seasonal) and the number of man days. Retired and retrenched workers are not given
shares of stocks and cease to be stockholders. This setup is grossly onerous to the FWBs and one-
sided in favour of HLI;

- Not all FWBs were given homelots; and

- The subject agricultural land was not maintained "unfragmented." More than 1/8 of the total area or
500 hectares has already been converted to non-agricultural use.

Section 11 provides:

Section 11. Implementation – Monitoring of the Plan – the approved stock distribution plan shall be
implemented within the 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 on the 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.

Upon completion, the corporate landowner-applicant shall be issued a Certificate of Compliance. The
Secretary of Agrarian Reform or his designated representatives shall strictly monitor the implementation to
determine whether or not there has been compliance with the approved stock distribution plan as well as the
requirements of the CARP. For this purpose, the corporate landowner-applicant shall make available its
premises for ocular inspection, its personnel for interview, and its records for examination at normal
business hours.

Clearly, there is no Certificate of Compliance issued up to this date, or after sixteen (16) years from the time
of approval of said SDP by the Presidential Agrarian Reform Council. This could be traced to one of the
onerous provisions of the MOA between HLI and the FWBs which stipulates a 30-year period of
implementation to complete the required distribution of shares of stocks, a clear violation of the explicit
provision of Section 11 of Administrative Order No. 10, Series of 1988, mandating a 3-month period of
implementation for such purposes.31

On October 13, 2005, the PARC Executive Committee created the PARC ExeCom Validation Committee via
Resolution No. 2005-SP-01 to review the recommendations of the DAR Secretary. After meeting with all the
parties involved, the PARC ExeCom Validation Committee confirmed the DAR’s recommendation to revoke
the SDP. On December 13, 2005, PARC issued Resolution No. 2005-32-01, revoking the SDP and placing
HLI lands under compulsory CARP coverage.32 HLI moved for the reconsideration of this PARC resolution
on January 2, 2006.33 On the same day, the DAR issued a Notice of Coverage to HLI. This Notice of
Coverage included the parcels of land already transferred to LIPCO and RCBC.34

The Present Case

While its motion for reconsideration was still pending with the DAR, HLI filed the present petition for certiorari
with this Court, assailing PARC Resolution No. 2005-32-01 and the Notice of Coverage. On May 3, 2006,
PARC subsequently issued Resolution No. 2006-34-01, denying HLI’s motion for reconsideration.35

On July 13, 2006, the Office of the Solicitor General (OSG), representing PARC and the DAR, filed its
Comment to HLI’s petition.

On December 2, 2006, Noel Mallari, the Secretary General of AMBALA, filed a Manifestation and Motion
with Comment with this Court, explaining that he had already broken away from AMBALA and had formed
the Farmworkers Agrarian Reform Movement, Inc. (FARM), now respondent-intervenor, with other former
members of AMBALA.36 Noel Mallari subsequently left FARM and returned to AMBALA. Renato Lalic and
the other members of FARM continued as respondent-intervenors in these proceedings.

On October 30, 2007, RCBC moved to intervene in the proceedings as a petitioner-intervenor;37 LIPCO
similarly intervened.38 In essence, these two petitioners-in-intervention assailed the Notice of Coverage for
including the parcels of land that they claim to have purchased in good faith from HLI.

The Court conducted oral arguments on August 18, 2010 and August 24, 2010.

On August 31, 2010, the Court issued a Resolution creating a mediation panel39 to explore the possibility of
the parties coming to a compromise agreement. When the parties could not come to a suitable agreement
within the given period of time, the mediation panel suspended further proceedings.

THE ISSUES

HLI holds the view that the PARC has no authority to nullify, revoke or rescind the PARC-approved SDP. It
further disputes the private respondent farmer groups’ claim that the SDP is void for being illegal. HLI
stresses in this regard that the SDP authorized the distribution of the following benefits to the FWBs:

a. 59 million shares of stock distributed for free including fringe benefits;

b. ₱3 billion in salaries, wages, and other benefits;

c. ₱150 million representing 3% of the gross sales of the production of the agricultural lands;

d. ₱37.5 million representing 3% of the proceeds from the sale of the 500 hectares of agricultural
land;

e. ₱2.4 million representing 3% of the proceeds from the sale of the 80 hectares for the Subic-Clark-
Tarlac Expressway (SCTEX); and
 f. 240 sqm. homelots to each of the 3,274 families of the FWBs, distributed for free.40

The FWBs, represented by the Supervisory Group, Alyansa ng mga AMBALA and FARM, contradict this HLI
position with the claim that in the 16 years that the HLI was operational, their lives grew progressively worse,
due mainly to HLI’s failure to comply with its promises and obligations under the SDP.

Taking this argument further, FARM opines that the second paragraph of Section 31 (providing for the stock
distribution option as a mode of agrarian reform) is unconstitutional, as it violates the intent of Section 4,
Article XIII of the Constitution, which recognizes the right of farmers and farmworkers to own, directly or
collectively, the lands they till. FARM also claims that this provision contains a suspect classification
involving a vulnerable sector protected by the Constitution, as it discriminates against farmers working on
corporate farms/haciendas.

From the various submitted pleadings,41 the parties call upon the Court to resolve the following issues:

I. Whether the private respondents are the real parties-in-interest and have the legal personality to
file their petitions before the Department of Agrarian Reform (DAR);

II. Whether Section 31 of the CARL, providing for the stock distribution option, is constitutional;

III. Whether the PARC has jurisdiction to recall or revoke the HLI’s SDP that it earlier approved;

IV. Whether there is legal or factual basis to revoke the SDP; and

V. Whether LIPCO and RCBC are transferees in good faith.

I submit this Separate Opinion to concur with some of the positions in the ponencia and in the other
opinions, and to express my own positions, particularly on the consequences of the illegality of the SDP.

THE SEPARATE OPINION

I. The private respondent farmer groups are real parties-in-interest

HLI concedes that the private respondent farmer groups, whose members signed and filed the petitions
before the DAR, are real parties-in-interest.42 These groups are the Supervisory Group (represented by Julio
Zuniga and Windsor Andaya) and AMBALA (represented by Rene Galang and Noel Mallari). FARM
(represented by Renato Lalic), a newly-formed organization of former AMBALA members, sought to
intervene in the proceedings before the Court to assail the constitutionality of Section 31 of the CARL.

At the same time, HLI cautions that their interest in this case does not necessarily characterize them as
"farmers and regular farmworkers" who are entitled to landownership under the CARL.43 HLI argues that the
"farmers and regular farmworkers" entitled to own the lands they till exclude seasonal farmworkers, as the
Court ruled in Carlos O. Fortich, et al. v. Renato C. Corona, et al.44 Thus, it posits that the private
respondents who are not among its 337 permanent farmworkers45 cannot be considered as beneficiaries
under Section 22 of the CARL.46

The requirement of standing involves a party’s right to present his case and to participate in the proceedings
before the court. To have standing, a party must stand to be benefitted or injured by the judgment in the suit,
or to be entitled to the avails of the suit;47 he must have sustained, or will sustain, direct injury as a result of
its enforcement.48 Since the central question in this case involves the validity of the SDOA/SDP, those who
stand to be benefited or injured by the Court’s judgment on this question are necessarily real parties-in-
interest.

The real parties-in-interest as reflected in the pleadings, are the following: (1) those who are signatories of
the May 11, 1989 SDOA; and (2) those who are not signatories to the May 11, 1989 SDOA but, by its terms,
are nevertheless entitled to its benefits. The SDOA included as its qualified beneficiaries those "farmworkers
who appear in the annual payroll, inclusive of permanent and seasonal employees, who are regularly or
periodically hired by the SECOND PARTY [HLI]."49 It made no distinction between regular and seasonal
farmworkers, and between regular and supervisory farmworkers. All that the SDOA required for inclusion as
a beneficiary is that the farmworker appear in HLI’s annual payroll, regardless of when he or she began
working for HLI.

Thus, Rene Galang, who started his employment with HLI in 1990 after the SDOA was executed, also
possesses standing to participate in this case, since he is considered a qualified beneficiary even if he was
not an SDOA signatory like Julio Zuniga, Windsor Andaya and Noel Mallari. Although FARM is an
organization created only after the present petition was filed with the Court, its members are qualified
beneficiaries of the SDOA and, like Rene Galang, are also clothed with the requisite standing.
The Court cannot test a party’s standing based on who should be considered qualified beneficiaries under
Section 22 of the CARL, which, as HLI argued on the basis of our ruling in Fortich,50 excludes seasonal
workers. Section 22 of the CARL, in relation to the Fortich ruling, will find application only if the Court rules
that the SDOA/SDP is illegal and confirms the compulsory coverage and distribution of Hacienda Luisita
under the CARL. Before any such ruling is made, the application of a Section 22/Fortich-based standard of
standing will not only be premature; it will also deny due process to those who qualify as beneficiaries under
the SDOA/SDP but who may not qualify as such under the Fortich standard. Thus, HLI’s arguments on this
matter are irrelevant to the question of standing.

RCBC and LIPCO’s intervention is permissible based on the standards provided under Section 1, Rule 19 of
the Rules of Court:

Section 1. Who may intervene.— A person who has a legal interest in the matter in litigation, or in the
success of either of the parties, or an interest against both, or is so situated as to be adversely affected by a
distribution or other disposition of property in the custody of the court or of an officer thereof may, with leave
of court, be allowed to intervene in the action. The court shall consider whether or not the intervention will
unduly delay or prejudice the adjudication of the rights of the original parties, and whether or not the
intervenor’s rights may be fully protected in a separate proceeding. [Emphasis ours.]

Their interest in this case stems from being the purchasers of 300 hectares of HLI land, which the PARC
included in its Notice of Compulsory Coverage. Thus, the Court’s resolution of this case will directly affect
their right to the purchased lands, as they stand to be stripped of their ownership and possession of these
lands.

II. Constitutionality of stock distribution option under the CARL

In the exercise of the power of judicial review over a legislative act alleged to be unconstitutional, the Court
must ensure that the constitutional issue meets the following essential requirements:

(1) there is an actual case or controversy;

(2) 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.51

I agree that the constitutional issue in the present case fails to comply with the lis mota requirement. The
settled rule is that courts will refrain from ruling on the issue of constitutionality unless it is truly unavoidable
and the issue lies at the core of, or is the core of, the dispute in the case;52 In other words, the case cannot
be resolved unless the constitutional question is passed upon.53 Equally settled is the presumption of
constitutionality that every law carries; to justify its nullification, there must be a clear and unequivocal
breach of the Constitution, not one that is doubtful, speculative or argumentative.54

The present dispute is principally anchored on the alleged grave abuse of discretion that the PARC
committed when it revoked HLI’s SDP. All the other issues raised, such as the extent of the PARC’s
jurisdiction, the legality of the SDOA, and LIPCO’s and RCBC’s rights as transferees of portions of HLI’s
lands, originate from this determination. In my view (and as Justices Velasco and Sereno also posit), the
Court can resolve these issues without having to delve into the constitutionality of the stock distribution
option embodied in Section 31 of CARL. Contrary therefore to the Separate Opinion of Chief Justice Renato
C. Corona, I see no compelling reason for this Court to consider the constitutional issue. This issue is
likewise best left unresolved, given that the CARL has now been superseded by RA 970055 and the stock
distribution option is no longer allowed by law; not only is a constitutional pronouncement not necessary as
discussed above, but such pronouncement may even unsettle what to date are stable stock distribution
relationships under this superseded law.

III. The PARC’s power to revoke its previous approval of the SDP

I also maintain that the PARC’s power and authority to approve the SDP under Section 31 of the CARL
includes, by implication, the power to revoke this approval.

The PARC was created via Executive Order (EO) No. 229, which provides:

Section 18. The Presidential Agrarian Reform Council (PARC). To coordinate the implementation of the
CARP and to ensure the timely and effective delivery of the necessary support services, there is hereby
created the Presidential Agrarian Reform Council composed of the President as Chairman, and the
Secretaries or Heads of the following agencies, as follows:

Department of Agrarian Reform Vice Chairman

 Department of Agriculture Vice Chairman
Department of Environment and Natural Resources Vice Chairman

Executive Secretary Member

Department of Budget and Management Member

Department of Finance Member

Department of Justice Member

Department of Labor and Employment Member

Department of Local Government Member

Department of Public Works and Highways Member
Department of Trade and Industry Member

Department of Transportation and Communications Member

National Economic and Development Authority Member

Land Bank of the Philippines Member

Presidential Commission on Good Government Member

The President shall appoint representatives of agrarian reform beneficiaries and affected landowners as
members of PARC.

The DAR shall provide the Secretariat for the PARC and the Secretary of Agrarian Reform shall be the
Director-General thereof.

The PARC shall formulate and/or implement the policies, rules and regulations necessary to implement each
component of the CARP, and may authorize any of its members to formulate rules and regulations
concerning aspects of agrarian reform falling within their area of responsibility.

Given this composition and assigned mission, with the President of the Philippines as its Chairperson and
the various Department Secretaries as its Vice-Chairpersons, the PARC is undoubtedly an administrative
body whose level of authority and power is higher than that of the DAR Secretary.

The PARC’s authority to approve the SDP is expressed in Section 10 of EO No. 229, which provides:

Section 10. Corporate Landowners. Corporate landowners may give their workers and other qualified
beneficiaries the right to purchase such proportion of the capital stock of the corporation that the land assets
bear in relation to the corporation's total assets, and grant additional compensation which may be used for
this [these] purposes. The approval by the PARC of a plan for such stock distribution, and its initial
implementation, shall be deemed compliance with the land distribution requirements of the CARP.

The CARL preserved the PARC’s authority to approve the SDP in its Section 31, which states:

Section 31. Corporate Landowners. - Corporate 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 upon, subject to
confirmation by the DAR.

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.

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 condition 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 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.

As the PARC has the power and authority to approve the SDP, it also has, by implication, the power to
revoke the approval of the plan unless this implied power is expressly, or by a contrary implication, withheld
from it by law. This conclusion is consistent with the Court’s ruling in Francisco I. Chavez v. National
Housing Authority, et al.:56

Basic in administrative law is the doctrine that a government agency or office has express and implied
powers based on its charter and other pertinent statutes. Express powers are those powers granted,
allocated, and delegated to a government agency or office by express provisions of law. On the other hand,
implied powers are those that can be inferred or are implicit in the wordings of the law or conferred by
necessary or fair implication in the enabling act. In Angara v. Electoral Commission, the Court clarified and
stressed that when a general grant of power is conferred or duty enjoined, every particular power necessary
for the exercise of the one or the performance of the other is also conferred by necessary implication. It was
also explicated that when the statute does not specify the particular method to be followed or used by a
government agency in the exercise of the power vested in it by law, said agency has the authority to adopt
any reasonable method to carry out its functions.

While the provision does not specify who has the authority to revoke the approval of the stock distribution
plan, logic dictates that the PARC be the proper body to exercise this authority. If the approval was at the
highest level (i.e., at the level of the PARC), revocation cannot be at any other level; otherwise, the absurd
situation of a lower level of authority revoking the action of a higher level will result.

In line with the power granted to the PARC and the DAR to issue rules and regulations to carry out the
objectives of the CARL,57 the DAR issued Administrative Order (AO) No. 10-1988 or the "Guidelines and
Procedures for Corporate Landowners Desiring to Avail Themselves of the Stock Distribution Plan Under
Section 31 of R.A. 6657 and Superseding Department of Agrarian Reform Administrative Order No. 4-1987."
The pertinent provisions of the guidelines provide:

Section 10. Disposition of Proposal – After the evaluation of the stock distribution plan submitted by the
corporate landowner-applicant to the Secretary of Agrarian Reform, he shall forward the same with all the
supporting documents to the Presidential Agrarian Reform Council (PARC), through its Executive
Committee, with his recommendation for final action.

Section 11. Implementation – Monitoring of Plan – The 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 the 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.

Upon completion, the corporate landowner-applicant shall be issued a Certificate of Compliance. The
Secretary of Agrarian Reform or his designated representatives shall strictly monitor the implementation to
determine whether or not there has been compliance with the approved stock distribution plan as well as the
requirements of the CARP. For this purpose, the corporate landowner-applicant shall make available its
premises for ocular inspection, its personnel for interview, and its records for examination at normal
business hours.

Section 12. Revocation of Certificate of Compliance – Non-compliance with any of the requirements of
Section 31 of RA 6657, as implemented by this Implementing Guidelines shall be grounds for the revocation
of the Certificate of Compliance issued to the corporate landowner-applicant.

Section 13. Reservation Clause – Nothing herein shall be construed as precluding the PARC from making
its own independent evaluation and assessment of the stock distribution plan of the corporate landowner-
applicant and in prescribing other requirements.
Thus, the corporate landowner is obliged under Section 11 of this AO to implement the SDP within three
months after the plan is approved by the PARC. A Certificate of Compliance follows the execution of the
SDP to confirm its compliance with statutory and regulatory requirements. Compliance, however, is not a
one-time determination; even after the approval of the SDP, the Secretary of Agrarian Reform, or his
designated representatives, is under the obligation to strictly monitor the implementation of the SDP to
ensure continuing compliance with the statutory (the CARL) and regulatory (the AO) requirements.

Section 12 of the AO confirms that the Certificate of Compliance can still be revoked even after its issuance,
if the corporate landowner is found violating the requirements of Section 31 of the CARL. If this authority is
granted after the corporate landowner has been issued a Certificate of Compliance, with more reason
should the approval of the SDP be subject to revocation prior to the issuance of a Certificate of Compliance.
At that prior point, the PARC has not even accepted and approved compliance with the SDP as legally
satisfactory. While the rules do not expressly designate the PARC as the entity with the authority to revoke,
the PARC nevertheless is granted the continuing authority, under Section 18 of EO No. 229, to implement
the policies, rules and regulations necessary to implement each component of the CARP. This grant is a
catch-all authority intended to cover all the implicit powers that the express grants do not specifically state,
and must necessarily include the power of revocation.

IV. The SDP is null and void for being contrary to law

Along with my colleagues, I consider HLI’s SDP/SDOA to be null and void because its terms are contrary to
law. I specifically refer to two main points of invalidity. First is the "man days" method the SDP/SDOA
adopted in computing the number of shares each FWB is entitled to get; and second is the extended period
granted to HLI to complete the distribution of the 118,391,976.85 shares, which violates the compliance
periods provided under Section 11 of AO No. 10-1988.

Under the SDOA/SDP, the qualified FWBs will receive, at the end of every fiscal year, HLI shares based on
the number of days that they worked for HLI during the year. This scheme runs counter to Section 4 of the
DAR AO No. 10-1988, which states:

Section 4. Stock Distribution Plan. – The stock distribution plan submitted by the corporate-landowner
applicant shall provide 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. This
distribution plan in all cases, shall be at least the minimum ration for purposes of compliance with Section 31
of RA 6657.

On top of the minimum ration provided under Section 3 of this Implementing Guideline, 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.

The "man days" method of determining the shares to be distributed to each FWB is contrary to the mandate
to distribute equal number of shares to each FWB, and is not saved by the prerogative of the landowner to
adopt distribution schemes based on factors desirable as a matter of sound company policy. The "man
days" method leaves it entirely to the unregulated will of HLI, as the employer, to determine the number of
workers and their working hours, that in turn becomes the basis in computing the shares to be distributed to
each worker. The workers earn shares depending on whether they were called to work under an uncertain
work schedule that HLI wholly determines. Under this set-up, intervening events that interrupt work and that
are wholly dictated by HLI, effectively lessen the shares of stocks that a worker earns. This is far from the
part-ownership of the company at a given point in time that the CARL and its implementing rules envisioned.

The 30-year distribution period, on the other hand, violates the three month period that Section 11 of AO No.
10-1988 prescribes in the implementation of the distribution scheme:

Section 11 Implementation – Monitoring of Plan – The 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 the 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.

Contrary to this provision, the HLI’s SDP/SDOA authorized a slow incremental distribution of shares over a
30-year period. Thus, FWB participation, particularly over the early years, was minimal and the unearned
and undistributed shares remained with HLI. This scheme totally runs counter to the concept of making the
FWBs part-owners, through their stock participation, within the time that Section 11 requires for the
implementation of the stock distribution scheme. Stated more bluntly, the FWBs largely remained farmers
while the land supposedly subject to land reform remained with HLI.
These SDP provisions, among others, prejudiced the FWBs and denied them of their rights under the law.
Consequently, PARC Resolution No. 2005-32-01 is legally correct in revoking the SDP of HLI.58

The recall/revocation of the SDP carried with it the revocation of the SDOA, since the two are essentially the
same. The SDOA is the contract between the FWBs and the landowners (HLI/Tadeco) that was embodied
and made the very core of the SDP – the proposal submitted by HLI for the PARC’s approval as compliance
with the CARL. The illegality that permeates the SDP (leading to PARC’s decision to revoke it) therefore
also extends to the SDOA. If we recognize that the SDP is different from the SDOA, as the ponencia
suggests, inconsistency and absurdity would result.

a. Consequnces of the Revocation of SDP/SDOA

The revocation of the SDP/SDOA carries two significant consequences.

The first is the compulsory coverage of HLI agricultural lands by the CARP, as the PARC ordered through its
Notice of Coverage. This coverage should cover the whole 4,915.75 hectares of land subject of the SDOA,
including the 500 hectares later sold to LIPCO, RCBC and the LRC, and the 80 hectares purchased by the
government as part of the SCTEX. As discussed below, the implementation of this coverage should be
subject to the validity of the subsequent dealings involving specific parcels of the covered land.

The second is the invalidity from the very beginning of the SDP/SDOA, both in its terms and in its
implementation. Thus, mutual restitution should take place, i.e., the parties are bound to return to each other
what they received on account of the nullified SDP/SDOA. It is on this latter point that I diverge from the
majority’s ruling on the effects of the nullification of the SDP/SDOA.

These consequences are separately discussed below.

b. The compulsory CARP coverage and extent of Notice of Coverage.

b. 1. Basis of the compulsory CARP coverage

Section 31 is clear and categorical on the consequence of the revocation – the agricultural land of the
corporate owners or corporation shall be subject to compulsory coverage under the CARL. The DAR AO No.
10-1988 effectively defines the corporate land covered – the land actually devoted to agriculture – as this is
the basis for the allocation of shares to FWBs. Thus, as discussed below, compulsory coverage upon the
failure of the stock distribution plan shall extend to the whole of HLI’s agricultural lands, subject only to
exceptional exclusions that may be recognized.

b.2. Exclusion from Notice of Coverage based on intervening developments

A seeming problem, in light of the intervening conversion to industrial use and the sale of 500 hectares of
converted land to third parties, is the extent of actual implementation of PARC’s Notice of Coverage.

As narrated above, HLI applied for the conversion to industrial use of 500 hectares of the original 4,915.75
that the SDOA covered. Significantly, the application was made with the consent and approval of the FWBs,
as expressed in their Manifestation of Support.59 That the landowner and/or the FWBs can request for
conversion is a possibility that the law made allowance for. Section 65 of the CARL in this regard states:

Section 65. Conversion of Lands. – After the lapse of five (5) years from its award, when the land ceases to
be economically feasible and sound 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 fact of conversion in the present case, however, is not a divisive issue between HLI and the FWBs as
the latter consented to and accepted the conversion; they only question their share in the proceeds after the
converted lands were sold to third parties. If at all, conversion as an issue rears its head between the PARC
and HLI because of the intervening sale of the converted lands and the PARC’s Notice of Coverage that,
given the invalidity of the SDOA/SDP, should be effective on May 11, 1989 as discussed below. Even the
PARC, however, is not in the position to question the fact of conversion as the PARC itself approved the
conversion after full compliance with the CARL and the DAR’s applicable regulations;60 the PARC’s question
arises only because of its apparent view that compulsory CARP coverage has primacy over all dealings
involving HLI agricultural lands.

In these lights, the validity of the transfer of the converted lands to LIPCO, RCBC, LRC (through
Centennary) and SCTEX, depends on the validity of the transfers made and on how they are affected by the
agrarian character and the FWB ownership of the transferred lands; the validity of the conversion is a given
or is at least a non-material consideration.
As the undisputed facts show, the converted lands are titled properties that the purchasers LIPCO, RCBC
and the government acquired in a series of documented and fully examined transactions. In these dealings,
a significant consideration is the good faith of the purchasers who, in the usual course, can rely on the
presented certificate of title, subject only to the requirements of good faith.61

A purchaser in good faith is one who buys the property of another without notice that some other person has
a right to, or an interest in, such property and pays a full and fair price for the property at the time of
purchase, or before he has notice of some other person’s claim or interest in the property.62 The law
requires, on the part of the buyer, lack of notice of a defect in the title of the seller, and payment in full of the
fair price at the time of the sale or prior to having notice of any defect in the seller’s title.63

Every registered owner and every subsequent purchaser for value in good faith holds the title to the property
free from all encumbrances except those noted in the certificate. Hence, a purchaser is not required to
explore further than what the Torrens title on its face indicates in its inquiry for hidden defects or inchoate
rights that may defeat his right to the property.64 Every person dealing with registered land may safely rely on
the correctness of the certificate of title issued, and the law does not oblige him to go behind the certificate
to determine the condition of the property.65

To determine whether LIPCO was a purchaser in good faith, I examined the certificate of title of Centennary
Holdings, Inc. at the time of LIPCO’s purchase.66 Notably, the only annotations and/or restrictions in the title
were (a) the Secretary’s Certificate in favor of Teresita Lopa and Shintaro Murai;67 (b) the sale in favor of
LIPCO for ₱750 million;68 and (c) the conversion of the property from agricultural to industrial and residential
use.69 None of these annotations suggests any defect in Centennary’s title, nor do they place potential
buyers on notice that some other person had a claim or interest in the property.

While LIPCO may have known that the property it was purchasing was covered by an SDOA between HLI
and its FWBs, the coverage, by itself, is not enough to constitute bad faith on LIPCO’s part. The property
LIPCO purchased was covered by a validly issued DAR Conversion Order, which served to assure LIPCO
that the property it was purchasing had already been approved for sale and industrial development, and thus
already lies outside CARP coverage. Reliance on the Conversion Order is strengthened by the numerous
government issuances which all classified these lands as industrial land to be developed as a Special
Economic Zone.70

In the case of RCBC, LIPCO’s certificates71 covering the parcels transferred to RCBC through a dacion en
pago, contained the following annotations: (a) the Deed of Restrictions;72 (b) the Secretary’s Certificate in
favor of Koji Komai and Kyosuke Nori;73 and (c) the Real Estate Mortgage in favor of RCBC, for ₱300
million.74 Again, nothing in these annotations would lead possible buyers or transferees like RCBC to
question LIPCO’s right, as owner, to transfer these properties.

I likewise find that RCBC sufficiently demonstrated extraordinary diligence in purchasing part of the acquired
lands from LIPCO. Before it acquired these lands, RCBC reviewed and inspected LIPCO’s certificates of title
and other relevant documents to trace the origin of LIPCO’s titles to ascertain the nature of the property.75 It
likewise conducted ocular inspections on the property, and confirmed that the property was not only in
LIPCO’s possession; more than this, nobody was occupying the property.76 As with LIPCO, the fact that the
property had already been converted by the DAR assured RCBC that the property it was purchasing was no
longer agricultural land and was, therefore, outside CARP coverage.

Aside from the good faith both LIPCO and RCBC demonstrated, they paid the full and fair price for their
purchases. LIPCO paid Centennary the total amount of ₱750 million for the 300 hectares of land.77 Likewise,
RCBC received approximately 184 hectares of land from LIPCO in exchange for LIPCO’s debt amounting to
₱431.7 million.78

A critical point in these transfers, in light of the invalidity of the SDOA/SDP, is the consent of the real owners
of the transferred properties – the respondent FWBs in the present case. As previously mentioned, their
main objection does not relate to the conversion of the 500 hectares to industrial use; neither is it on the
transfer of the property to LIPCO and RCBC. The thrusts of their objections are clear from a survey of the
pleadings. What the private respondents strongly object to is the share they received from the transfers; they
argue that they are entitled to more than the trifling 3% of the proceeds of the sale that HLI gave them. Thus,
the respondent FWBs – as the owners of the converted lands at the time of their transfers because of the
invalidity of the SDOA/SDP and the compulsory CARP coverage of the lands these instruments cover – at
the very least gave their consent and ratified the transfers made. At this point, they only have to receive the
price due them on the transactions so that all the elements of the sale, viewed as a contract, can be
complete.

Not to be forgotten as an important side consideration, in examining the transfers to LIPCO and RCBC from
the point of view of agrarian reform, is the acquired lands’ present state of development; they have already
been partially developed into an industrial estate – significant portions have been covered by cemented
roads, and permanent structures have been erected.79 As RCBC convincingly argued, it would not be
practicable to raze down these permanent structure, and rehabilitate partially developed non-agricultural
land so that it can be used for agricultural purposes. As a colleague observed, the DAR Conversion
Order80 itself notes that the converted lands have no source of irrigation and no new irrigation facilities, and
would have to be developed in these regards in order to be viable for farming.

Thus, I totally disagree with the PARC’s ruling that the portions sold to RCBC and LIPCO should continue to
be included in the CARP’s compulsory coverage and should simply be turned over to the qualified
beneficiaries. Although these lands fell under compulsory CARP coverage even before their sale to RCBC
and LIPCO, the intervening events that gave rise to legally valid transactions cannot be disregarded in the
name of agrarian reform. Whatever remaining objections there may now be (in this case, the sharing of the
proceeds of the sales) are simply disputes that do not affect the validity of the underlying transactions, and
can be resolved as issues in the present case.

The land transferred to the government, for use as part of the SCTEX has not at all been discussed in the
proceedings of the case81 and does not appear to have been covered by any conversion order. Presumably,
however, the transfer was pursuant to the government’s exercise of the power of eminent domain – an
overriding act of government that carries the presumption of regularity unless otherwise proven. I mention
this aspect of the HLI properties because of its potential materiality. In the exercise of the power of eminent
domain, the government must necessarily pay just compensation to the owner. The FWBs, as owners at the
time of the expropriation because of the land’s prior compulsory coverage under the CARP, should receive
the full amount that the government paid.

The remaining 200 hectares (of the original 500 hectares converted from agricultural to industrial use with
the DAR’s approval) appear to be a big gaping black hole in the attendant facts of this case. They appear to
have been sold by HLI to Luisita Realty.82 The latter, however, did not intervene in this case and likewise did
not assail PARC Resolution No. 2005-32-01, or the DAR’s Notice of Coverage order. On the one hand, this
silence and omission may be argued to mean acquiescence with the PARC decision to place the land under
the compulsory CARP coverage. On the other hand, the sale to Luisita Realty is part and parcel of the series
of transactions that, for the reasons given above, cannot and should not now be questioned if Luisita Realty
is similarly situated as LIPCO and RCBC.

I opt for the latter view and for giving LRC the full opportunity to present its case before the DAR at the
implementation stage of this Decision. I reason out that the failure of Luisita Realty to actively intervene at
the PARC level and before this Court does not really affect the intrinsic validity of the transfer made in its
favor if indeed it is similarly situated as LIPCO and RCBC. Accordingly, a definitive ruling on the transfer of
the 200 hectares to Luisita Realty is now premature to make, and should be referred to the DAR for its
determination.

b.3. HLI is entitled to just compensation based on the covered land’s 1989 value.

Since the land is subject to compulsory coverage under the CARL, HLI is entitled to just compensation. For
purposes of just compensation, the taking should be reckoned not from the Court or the PARC’s declaration
of nullity of the SDP, but from May 11, 1989 – when the invalid SDOA/SDP was executed for purposes of
compliance with the CARL’s requirements.

To repeat, May 11, 1989 is the point in time when HLI complied with its obligation under the CARL as a
corporate landowner, through the stock distribution mode of compliance.83 This is the point, too, when the
parties themselves determined – albeit under a contract that is null and void, but within the period of
coverage that the CARL required and pursuant to the terms of what this law allowed – that compliance with
the CARL should take place. From the eminent domain perspective, this is the point when the deemed
"taking" of the land, for agrarian reform purposes, should have taken place if the compulsory coverage and
direct distribution of lands had been the compliance route taken. As the chosen mode of compliance was
declared a nullity, the alternative compulsory coverage (that the SDOA was intended to replace) and the
accompanying "taking" should thus be reckoned from May 11, 1989.

The FWBs should, therefore, be considered as entitled to the ownership of the land beginning May 11, 1989,
although HLI’s possession and control, as an undisputed reality independently of the SDOA, continue up to
the time of the PARC decision (which we hereby affirm with modification) is implemented. The DAR, as the
implementing agency on agrarian reform cases, shall determine the amount of just compensation due HLI,
computed from May 11, 1989, and shall likewise be tasked with the adjustment of the parties’ financial
relationships flowing from their agrarian relations and from the intervening events that followed the voided
SDOA. In the process of adjusting and settling these claims, the parties are encouraged to employ
mediation and conciliation techniques, with DAR facilitating the proceedings.

In determining just compensation, the DAR should find guidance from Section 17 of the CARL, which states:

Section 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 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.

Lest the matter of interest on the compensation due be a delaying feature of the implementation, I maintain
that although HLI is entitled to just compensation based on the land’s value in 1989, it cannot be awarded
any interest.

Jurisprudence holds that when property is taken for public use before compensation is deposited with the
court having jurisdiction over the case, the final compensation must include interests on its just value, to be
computed from the time the property is taken up to the time compensation is actually paid or deposited with
the court.84

In the present case, HLI never lost possession and control of the land under the terms of the SDOA. This is
an actual and corporate reality (not simply a consequence of the void SDOA) that the Court cannot ignore. It
is only upon the implementation of this Court’s decision, partially affirming PARC Resolution No. 2005-32-01
(placing HLI lands under compulsory coverage of the land acquisition scheme of the CARL), that HLI will be
deprived of its possession. Thus, no interest can be due from the just compensation that the DAR shall
determine. On the contrary, and as discussed below, HLI should pay rentals to the FWBs for its continued
possession and control of the land from May 11, 1989 until its turn over.

b.4. The qualified FWBs are entitled to actual possession of land except the lands legally transferred to
LIPCO, RCBC, and the government

The land subject to agrarian reform coverage under the terms of the CARL, as ordered by the DAR and
confirmed by the PARC, covers the entire 4,915.75 hectares of agricultural land subject of the SDOA,
including the 300 hectares later sold to LIPCO and RCBC, the 200 hectares sold to Luisita Realty, and the
80 hectares purchased by the government to form part of the SCTEX. However, the FWB ownership, based
on agrarian reform coverage, should yield to the sale and transfer of the acquired lands – the 380 hectares
sold – since these were validly acquired by LIPCO, RCBC and SCTEX, as discussed above.85

Since the sale and transfer of these acquired lands came after compulsory CARP coverage had taken place,
the FWBs are entitled to be paid for the 300 hectares of land transferred to LIPCO based on its value in
1989, not on the ₱750 million selling price paid by LIPCO to HLI as proposed by the ponencia. This outcome
recognizes the reality that the value of these lands increased due to the improvements introduced by HLI,
specifically HLI’s move to have these portions reclassified as industrial land while they were under its
possession.86 Thus, unless it is proven that the P750 million is equivalent to the value of the land as of May
11, 1989 and excludes the value of any improvements that may have been introduced by HLI, I maintain that
the land’s 1989 value, as determined by the DAR, should be the price paid to the FWBs for the lands
transferred to LIPCO and RCBC.

On the other hand, the FWBs are entitled to be paid the full amount of just compensation that HLI received
from the government for the 80 hectares of expropriated land forming the SCTEX highway. What was
transferred in this case was a portion of the HLI property that was not covered by any conversion order. The
transfer, too, came after compulsory CARP coverage had taken place and without any significant
intervention from HLI. Thus, the whole of the just compensation paid by the government should accrue
solely to the FWBs as owners.

I note that complications may arise in adjusting the parties’ relationships with respect to the sale of the
acquired lands, as another party –the Land Bank of the Philippines – enters the picture as the entity that
advances the payment of lands distributed to FWBs under land reform.87 The DAR, as the agency tasked
with the valuation of the CARL-covered lands and the general implementation of land reform, must take the
interests of three parties into consideration. For purposes of this adjustment, the DAR should apply the
principles of set-off or compensation whenever applicable,88 based on the rulings, guidelines and parameters
of the Court’s decision.

b.5. HLI must pay the qualified FWBs yearly rent for the use of the land from 1989

Since land reform coverage and the right to the transfer of the CARL-covered lands accrued to the FWBs as
of May 11, 1989, HLI – which continued to possess and to control the covered land – should pay the
qualified FWBs yearly rental for the use and possession of the covered land up to the time HLI surrenders
possession and control over these lands.89 As a detail of land reform implementation, the authority to
determine the appropriate rentals belongs to the DAR, using established norms and standards for the
purpose. Proper adjustment, of course, should be made for the sale of the acquired lands to LIPCO and to
the government as no rentals can be due for these portions after their sale.

The ponencia objects to the imposition of rental fee on HLI:

[T]he income earned by the corporation from its possession and use of the land ultimately redounded to the
benefit of the FWBs based on its business operations in the form of salaries, benefits voluntarily granted by
HLI and other fringe benefits under the CBA. There would be double compensation if HLI is still required to
pay rent for the use of the land in question.90

The objection’s logic, unfortunately, is flawed. That the FWBs, as owners of the land, are entitled to rent for
HLI’s possession and use does not preclude them from receiving salaries and benefits for work they
performed on the land for HLI. To put it simply, the FWBs are entitled to the rent as owners of the land, and
to the salaries and benefits as employees of HLI which had control and possession of the land and which
conducted business operations based on the control and possession it enjoyed.

Parenthetically and considering the lapse of more than 10 years from the "taking" of the Hacienda Luisita, I
bring to the parties’ attention Section 27 of the CARL which authorizes the FWBs to sell the lands acquired
by them under the CARP:

SEC. 27. Transferability of Awarded Lands. - Lands acquired by beneficiaries under this Act may not be
sold, transferred or conveyed except through hereditary succession, or to the government, or to the LBP, or
to other qualified beneficiaries for a period of ten (10) years: Provided, however, That the children or the
spouse of the transferor shall have a right to repurchase the land from the government or LBP within a
period of two (2) years. Due notice of the availability of the land shall be given by the LBP to the Barangay
Agrarian Reform Committee (BARC) of the barangay where the land is situated. The Provincial Agrarian
Coordinating Committee (PARCCOM), as herein provided, shall, in turn, be given due notice thereof by the
BARC.

If the land has not yet been fully paid by the beneficiary, the right to the land may be transferred or
conveyed, with prior approval of the DAR, to any heir of the beneficiary or to any other beneficiary who, as a
condition for such transfer or conveyance, shall cultivate the land himself. Failing compliance herewith, the
land shall be transferred to the LBP which shall give due notice of the availability of the land in the manner
specified in the immediately preceding paragraph.

In the event of such transfer to the LBP, the latter shall compensate the beneficiary in one lump sum for the
amounts the latter has already paid, together with the value of improvements he has made on the land.

Under this provision, the qualified FWBs who are no longer interested in owning their proportionate share of
the land may opt to sell it to LBP, who in turn can sell it to HLI and LRC, in order not to disrupt their existing
operations. The Court leaves it to the parties to avail of Section 27 in the process of adjusting and settling
their claims.

b.6. The DAR must identify the qualified FWBs

As a last point on compulsory CARP coverage, the beneficiaries who deserve to participate in the
distribution of HLI land should be those qualified as of May 11, 1989 under the standards specified by
Section 22 of the CARL, which provides:

Qualified Beneficiaries. – The lands covered by the CARP shall be distributed as much as possible to
landless residents of the same barangay, or in the absence thereof, landless residents of the same
municipality in the following order of priority:

(a) agricultural lessees and share tenants;

(b) regular farm workers;

(c) seasonal farm workers;

(d) other farm workers;

(e) actual tillers or occupants of public lands;

(f) collectives or cooperatives of the above beneficiaries; and

(g) others directly working on the land.

This question is for the DAR to resolve and is without prejudice to agreements the HLI and the FWBs may
arrive at before the DAR. As a starting point, the DAR should use the list of qualified FWBs that Tadeco
applied in 1989 when it sought the approval of its SDP.

c. Consequences of SDOA/SDP Invalidity.

c.1. The Operative Fact Doctrine is not applicable

While the ponencia affirms the revocation of the SDP, it declares that it "cannot close its eyes to certain
‘operative facts’ that had occurred in the interim [the period between PARC’s approval of the SDP up to its
revocation]. x x x the revocation must, however, 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 (also styled as the MOA) which became the basis
of the SDP approved by PARC x x x." The ponencia justifies the application of the operative fact doctrine,
"since the operative fact principle applies to a law or an executive action, the application of the doctrine to
the [nullification of] PARC Resolution No. 89-12-2 which is an executive action is correct."91

The ponencia’s view proceeds from a misinterpretation of the term "executive action" to which the operative
fact doctrine may be applied.92

The operative fact doctrine applies in considering the effects of a declaration of unconstitutionality of a
statute or a rule issued by the Executive Department that is accorded the same status as a statute. The
"executive action," in short, refers to those issuances promulgated by the Executive Department pursuant to
their quasi-legislative or rule-making powers. Its meaning cannot be expanded to cover just about any act
performed by the Executive Department, as that would be to negate the rationale behind the doctrine.

Aside from being a principle of equity, the Court is also keenly aware that an underlying reason for the
application of the operative fact doctrine is the presumption of constitutionality that statutes carry. Rules and
regulations promulgated in pursuance of the authority conferred upon the administrative agency by law,
partake of the nature of a statute and similarly enjoy the presumption of constitutionality.93 Thus, it is only to
this kind of executive action that the operative fact doctrine can apply.94

The SDOA/SDP is neither a statute nor an executive issuance but, as mentioned, is a contract between the
FWBs and the landowners. A contract stands on a different plane than a statute or an executive issuance.
When a contract is contrary to law, it is deemed void ab initio. It produces no legal effects whatsoever, in
accordance with the principle quo nullum est nullum producit effectum.95 Contracts do not carry any
presumption of constitutionality or legality that those observing the law rely upon. For this reason, the
operative fact doctrine applies only to a declaration of unconstitutionality of a statute or an executive
rulemaking issuance, conferring legitimacy upon past acts or omissions done in reliance thereof prior to the
declaration of its invalidity;96 the statute or the executive issuance, before its invalidity, was an operative fact
to which legal consequences attached.

To extend this same principle to an unconstitutional or illegal contract would be to invite chaos into our legal
system. It will make the parties a law unto themselves, allowing them to enter into contracts whose effects
will anyway be recognized as legal even if the contracts are subsequently voided by the courts. From this
perspective, the operative fact doctrine that applies to unconstitutional statutes is clearly not relevant to the
present case.

Furthermore, I see no reason to allow the FWBs to remain as stockholders of HLI; maintaining that stock
ownership goes against the CARL’s declared policy of making the welfare of the farmers and the farmworker
the highest consideration, not to mention that the direct constitutional mandate is land ownership by farmers-
tillers, not stock ownership in a landowning corporation. To remain as stockholders of an almost-bankrupt
corporation certainly will not afford the FWBs the "opportunity to enhance their dignity and improve the
quality of their lives."97 By the HLI’s own admission, it shut down its operations in 2004; its audited financial
statements as of December 31, 2007 and December 31, 2008 reflect a capital deficiency of ₱1.1 billion and
₱1.63 billion, respectively.

c.2. FWBs must return to HLI the benefits they actually received by virtue of the SDOA

The nullity of a contract goes into its very existence, and the parties to it must generally revert back to their
respective situations prior to its execution; restitution is, therefore, in order. With the SDP being void and
without effect, the FWBs should return everything they are proven to have received pursuant to the terms of
the SDOA/SDP, and these include:

1. the 59 million shares of stock of HLI distributed for free;

2. the ₱150 million representing 3% of the gross sales of the production of the agricultural lands;

3. the ₱37.5 million representing 3% of the proceeds from the sale of the 500 hectares of agricultural
land (including what may have been received from the expropriation by government of the land used
for SCTEX); and

4. the 240 sqm. homelots distributed for free to each of the 3,274 families of FWBs.98

I observe that these are grants that HLI claimed, but have not proven, to have been fully received by the
grantees; the evidence on record fails to show that all the FWBs under the SDOA equally received their
allotted shares.
During the oral arguments on August 18, 2010, the Court instructed Atty. Gener Asuncion of HLI to submit
proof that: (a) HLI gave the 3% share in HLI’s total gross sales of the products of the land that the FWBs
were entitled to, from 1989 up to 2004, when HLI ceased operations; and (b) HLI distributed the home lots to
the FWBs. The records do not show any compliance with the Court’s directive as HLI failed to submit any
document proving compliance. At most, the records only contain the "Hacienda Luisita, Inc. Salaries,
Benefits and Credit Privileges (in Thousand Pesos) Since the Stock Option was Approved by
PARC/CARP,"99 which provided that HLI gave the FWBs a total of ₱150 million as the 3% production share
from 1989 to 2005.

Weighing the findings in the DAR Memorandum, dated September 30, 2005, (as affirmed by the PARC) that
HLI only partially complied with its obligation to provide the FWBs with the 3% production share, against
HLI’s self-serving allegation that it fully complied with this obligation, I find insufficient basis to conclude (as
the ponencia does) that "HLI had complied substantially with this SDOA undertaking and the conversion
order."100

No substantial proof likewise exists that the FWBs who qualified under the SDOA, received the home lots
that HLI claims it distributed. In the same manner, although HLI alleged that it also distributed 3% of the ₱80
million paid for the 80 hectares of land used by the SCTEX complex, no evidence in the records supports
this assertion.

All these are aspects of implementation that are up to the DAR to ascertain if the Court will decide on
starting with a clean slate reckoned from 1989 by decreeing that compulsory CARP coverage should start at
that point in time, and proceeding to adjust the relations of the parties with due regard to the events that
intervened. A consideration starting from a clean slate requires the accounting and restitution of what the
parties received, or are due to receive, from one another.

I point out the above deficiencies as they involve factual questions that will be material in the clean slate
approach I mentioned above. I point out, however, that whatever restitutions may have to be made in a
clean slate approach, the FWBs who worked for HLI should retain the ₱3 billion given to them as salaries
and wages, and any other benefit they may have received as employees of HLI. They received these sums
as wages and compensation earned for services rendered, and these are no longer subject to question.

V. Conclusion

For the foregoing reasons, I vote to DENY the petitioner Hacienda Luisita, Inc.’s petition, and AFFIRM public
respondent PARC’s Resolution No. 2005-32-01 revoking the SDP, as well as its Resolution No. 2006-34-01
denying the petitioner’s motion for reconsideration.

The decision to subject the land to compulsory agrarian reform coverage should be AFFIRMED, with the
MODIFICATION that while the acquired lands were included by the public respondent Department of
Agrarian Reform in its Notice of Compulsory Coverage, the purchase by the petitioners-intervenors, as well
as the portion of land acquired for the SCTEX complex, should be recognized as valid and effective. I make
no conclusion with respect to the transfer of 200 hectares to Luisita Realty, Inc., but I recognize that the
validity of the transfer can still be proven, if Luisita Realty, Inc. so desires, before the DAR. Otherwise, the
200 hectares should be subject to compulsory CARP coverage.

VI. ORDERS AND DIRECTIVES

I. TO THE DEPARTMENT OF AGRARIAN REFORM

The public respondent Department of Agrarian Reform is hereby ORDERED to implement the Notice of
Compulsory Coverage as soon as possible and to monitor the land distribution to ensure the equitable
distribution of the land to the qualified farmworkers-beneficiaries. In this regard, it is ORDERED to:

a) determine the amount of just compensation that the petitioner Hacienda Luisita, Inc. is entitled to
for the 4,915.75 hectares of Hacienda Luisita, based on its value on May 11, 1989;

b) determine the amount of yearly rentals that petitioner Hacienda Luisita, Inc. must pay the qualified
farmworkers-beneficiaries, for the use and possession of the land from 1989, until possession is
officially turned over to the Department of Agrarian Reform for distribution (with due adjustment for
the portions sold to Luisita Industrial Park Corporation, Rizal Commercial Banking Corporation and
the government for the Subic-Clark-Tarlac Expressway);

c) identify the farmworkers-beneficiaries who are qualified to receive land under the compulsory
CARP coverage of the agricultural land of Hacienda Luisita, Inc., and the benefits and awards under
this Decision;

d) determine the benefits under the void Stock Distribution Option Agreement/Stock Distribution Plan
that the qualified farmworkers-beneficiaries actually received from Hacienda Luisita, Inc.;
 e) settle the distribution of the proceeds of the sale of the parcels of land sold to the Luisita Industrial
Park Corporation and Rizal Commercial Banking Corporation, with the qualified farmworkers-
beneficiaries participating to the extent of the value of these parcels of land as of May 11, 1989;

f) settle the distribution of the proceeds of the sale of the expropriated land to the government for the
Subic-Clark-Tarlac Expressway, with the qualified farmworkers-beneficiaries entitled to all the
proceeds that Hacienda Luisita, Inc. received for this transaction;

g) settle the claims and obligations arising from the Court’s Decision, taking into account that the
Land Bank of the Philippines is the party mandated by law to advance the payment of the land taken
for agrarian reform purposes; and

h) provide the Luisita Realty, Inc. the opportunity to present evidence, with notice to all the parties to
this case, to prove the validity of the transfer of 200 hectares of converted land by Hacienda Luisita,
Inc.

In adjusting the parties’ rights, claims and obligations to one another based on the rulings, guidelines and
parameters of this Court’s Decision, the Department of Agrarian Reform shall take advantage of the principle
of set-off or compensation under the Civil Code of the Philippines, whenever applicable; shall employ
mediation and conciliation techniques, whenever possible; shall apply Section 27 of the CARL, if possible;
and shall cause the least disturbance to the status quo, particularly in the restitution of the home lots
previously distributed under the nullified Stock Distribution Option Agreement/Stock Distribution Plan.

The Department of Agrarian Reform shall submit quarterly reports of its implementation efforts to this Court
starting at the end of the second quarter after the finality of the Court’s Decision, until the case is considered
fully closed and terminated.

II. TO THE QUALIFIED FWBs UNDER THE VOIDED SDOA

Those who qualified as farmworkers-beneficiaries under the nullified Stock Distribution Option
Agreement/Stock Distribution Plan and who, accordingly, received shares of stocks and benefits under this
Agreement/Plan are ORDERED to return, the following for purposes of accounting, compensation, or off-
setting with amounts due from HLI, in accordance with the DAR’s final implementation resolution:

a) the 59 million shares of stock of the petitioner Hacienda Luisita, Inc.; otherwise, these shares of
stocks can simply be considered cancelled or reverted back to Hacienda Luisita, Inc.;

b) the ₱150 million, representing 3% of the gross sales of the production of the agricultural lands;

c) the ₱37.5 million, representing 3% of the proceeds from the sale of the 300 hectares of
agricultural land; and

d) the 240 sqm. home lots distributed for free to each of the 3,274 families of the farmworkers-
beneficiaries.

III. TO HACIENDA LUISITA, INC.

The petitioner Hacienda Luisita, Inc. is ORDERED to:

a) surrender possession of the 4,535.75 hectares of land subject to compulsory coverage under RA
6657, to the Department of Agrarian Reform (i.e., including the 200 hectares transferred to Luisita
Realty that the Department of Agrarian Reform /Presidential Agrarian Reform Council did not
recognize), subject to the opportunity granted under this Decision to Luisita Realty Corporation to
prove its ownership.

b) pay the qualified farmworkers-beneficiaries, as determined by the Department of Agrarian

Reform, the value of the 300 hectares of land transferred to Luisita Industrial Park Corporation and
Rizal Commercial Banking Corporation, based on the May 11, 1989 value as determined by the
Department of Agrarian Reform; this same directive applies with respect to the 200 hectares
transferred to Luisita Realty, Inc., when and if the Department of Agrarian Reform finds the sale of
the property valid; otherwise, the 200 hectares shall fall under the PARC’s Notice of Coverage;

c) pay the qualified farmworkers-beneficiaries, as determined by the Department of Agrarian Reform,

the just compensation it received from the government for the 80 hectares of expropriated land used
for the Subic-Clark-Tarlac Expressway; and

d) pay the qualified farmworkers-beneficiaries yearly rental for the use of the land (except for the
portions already transferred to Luisita Industrial Park Corporation, Rizal Commercial Banking
 Corporation and Subic-Clark-Tarlac Expressway) from 1989 until the land is turned over to the
Department of Agrarian Reform, based on the value as determined by the Department of Agrarian
Reform.

They are entitled to RETAIN the salaries, wages and other benefits they received as employees of the
petitioner Hacienda Luisita, Inc.

Submitted for the En Banc’s consideration.

ARTURO D. BRION
Associate Justice

Footnotes

1 Rollo, p. 3044.

2 Id. at 3809.

3 Id. at 3645.

4 Id. at 3646.

5 Id. at 3810.

6 Id. at 3810.

7 Id. at 3811.

8 Id. at 3811.

9
Id. at 3811.

10 Id. at 3811.

11 Id. at 3811.

12 Id. at 3812.

13 Id. at 3653.

14 Id. at 3668.

15 Id. at 1327-28.

16 Id. at 4227.

17 Id. at 4229.

18 Resolution No. 280 dated September 1, 1996, rollo, p. 4226.

19 Rollo, Volume 3, p. 4229.

20 Id. at 4232.

21 Id. at 3420-3421.

22 Id. at 4233.

23 Id. at 4235.

24 Id. at 4239.

25 Id. at 4240.
26 Id. at 3669.

27 Id. at 153-156.

28 Id. at 175-183.

29 Id. at 679-680.

30 Id. at 386-405.

31 Rollo, pp. 340-342.

32 Id. at 730-731.

33 Id. at 732-765.

34 Id. at 103-104.

35 Rollo, pp.407-425.

36 Id. at 436-450.

37 Id. at 1350-1359.

38 Id. at 1535-1544.

39The Mediation Panel is composed of former Associate Justice Ma. Alicia Austria-Martinez, as
Chairperson, and former CA Justices Hector Hofilena and Teresita Dy-Liacco Flores as members.
rollo, Volume 3, pp. 3060-3062.

40 Rollo, Volume 3, pp. 3694-3695.

41 The parties submitted the following pleadings:

a) Petitioner HLI’s Memorandum dated September 23, 2010;

b) Memorandum dated September 12, 2010, filed by private respondents AMBALA-Mallari

Group, United Luisita Workers’ Union, and the Supervisory Group, as represented by Atty.
Santoyo;

c) Memorandum dated September 21, 2010, filed by private respondent AMBALA-Galang,

as represented by Atty. Pahilga of Sentro Para sa Tunay na Repormang Agraryo Foundation
(SENTRA);

d) Memorandum dated September 24, 2010, filed by respondent-intervenor FARM, as

represented by Atty. Monsod;

e) Memorandum dated September 23, 2010, filed by public respondents’ PARC and DAR, as
represented by the Office of the Solicitor General;

f) Petitioner-Intervenor LIPCO’s September 23, 2010 Memorandum; and

g) Petitioner-Intervenor RCBC’s September 23, 2010 Memorandum.

42 HLI Memorandum, p. 73.

43 Ibid.

44 G.R. No. 131457, August 19, 1999, 312 SCRA 751, 761.

45HLI states that it has only 337 permanent farmworkers, of the 10,502 FWBs; HLI Memorandum, p.
74.

Section 22. Qualified Beneficiaries. - The lands covered by the CARP shall be distributed as much
46

as possible to landless residents of the same barangay, or in the absence thereof, landless residents
of the same municipality in the following order of priority:
 (a) agricultural lessees and share tenants;

(b) regular farm workers;

(c) seasonal farm workers;

(d) other farm workers;

(e) actual tillers or occupants of public lands;

(f) collective or cooperatives of the above beneficiaries; and

(g) others directly working on the land.

Provided, however, That the children of landowners who are qualified under Section 6 of this
Act shall be given preference in the distribution of the land of their parents; and: Provided,
further, that actual tenant -tillers in the landholding shall not be ejected or removed
therefrom.

Beneficiaries under Presidential Decree No. 27 who have culpably sold, disposed of, or
abandoned their land are disqualified to become beneficiaries under their program.

A basic qualification of a beneficiary shall be his willingness, aptitude and ability to cultivate
and make land as productive as possible. The DAR shall adopt a system of monitoring the
record or performance of each beneficiary, so that any beneficiary guilty of negligence or
misuse of the land or any support extended to him shall forfeit his right to continue as such
beneficiary. The DAR shall submit periodic reports on the performance of the beneficiaries to
the PARC.

If, due to landowner's retention rights or to the number of tenants, lessees, or workers on the
land, there is not enough land to accommodate any or some of them, they may be granted
ownership of other lands available for distribution under this Act, at the option of the
beneficiaries.

Farmers already in place and those not accommodated in the distribution of privately-owned
lands will be given preferential rights in the distribution of lands from the public domain.

47 RULES OF COURT, Rule 3, Section 2.

48 People v. Vera, 65 Phil. 56, 89 (1937).

49 Rollo, p. 149.

50 Supra note 44.

51 Francisco v. House of Representatives, G.R. No. 160261, November 10, 2003, 415 SCRA 133.

52Spouses Romualdez v. Commission on Elections, G. R. No. 167011, April 30, 2008, 553 SCRA
370.

53 See Garcia v. Executive Secretary, G.R. No. 157584, April 2, 2009, 583 SCRA 119.

54 Arceta v. Mangrobang, G.R. No. 152895, June 15, 2004, 432 SCRA 136.

55This 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 therefore,"
amended the CARL by removing the stock distribution option as a mode of compliance with the
agrarian reform program.

56 G.R. No. 164527, August 15, 2007, 530 SCRA 235, 295-296.

57 Section 49 of the CARL states: "The PARC and the DAR shall have the power to issue rules and
regulations, whether substantive or procedural, to carry out the objects and purposes of this Act.
Said rules shall take effect ten (10) days after publication in two (2) national newspapers of general
circulation."
58 Rollo, p. 101.

59 Supra note 15.

60See Ros v. CA, G.R. No. 132477, August 31, 2005, 468 SCRA 471 and Alarcon v. CA, 453 Phil.
373 (2003).

See Republic v. Orfinada, Sr., G.R. No. 141145, November 12, 2004, citing Legarda v. CA, G.R.
61

No. 94457, December 16, 1997, 280 SCRA 642, 679.

62 Centeno v. Spouses Viray, 440 Phil. 881, 885 (2002).

63 De Leon v. Ong, G.R. No. 170405, February 2, 2010, 611 SCRA 381.

64 PNB v. Intermediate Appellate Court, G.R. No. 71753, August 25, 1989, 176 SCRA 736.

65 Cabuhat v. Court of Appeals, G.R. No. 122425, September 28, 2001, 366 SCRA 176.

66 Rollo, pp. 3375-3376.

67E-38-18798; Kind: Secretary’s Certificate in favor of Teresita C. Lopa. Cond: By virtue of which
Teresita C. Lopa is hereby authorized and empowered to sign, execute and deliver whatever deeds,
agreements and other documents as may be necessary to consummate the sale for and in behalf of
the corporation, as per Doc. No. 271; p-56; bk. III; s-1997 of Not. Pub. A.M. Lopez.

Date of instrument – Nov. 11, 1997

Date of inscription – Aug. 3, 1998 at 8:20 a.m.

GUERRERO E. CAMPOS, Reg. of Deeds

E-38-18799; Kind: Secretary’s Certificate in favor of Shintaro Murai. Cond: By virtue of which
Shintaro Murai is hereby authorized to sign, execute and delivery the Deed of Absolute Sale
and whatever deeds and agreements, and other documents, as may be necessary to
consummate the said Deed of Absolute Sale for and in behalf of the corporation, as per Doc.
No. 277; p-51; bk. III; s-1997 of Not. Pub. A.M. Lopez.

Date of instrument – Nov. 11, 1997

Date of inscription – Aug. 3, 1998 at 8:20 a.m.

68 E-38-18800: Kind: Sale; in favor of LUISITA INDUSTRIAL PARK CORPORATION. Cond: This title
is hereby cancelled by virtue of the aforementioned document and for the sum of (₱750,000,000.00)
and in lieu thereof TCT 310986 is issued on page 186 Vol. T-1546 as per Doc. No. 22; p-6; bk. II; s-
1998 of Not. Pub. E.C. Dela Merced Jr.

Date of instrument – Jul 30, 1998

Date of inscription – Aug. 3, 1998 at 8:20 a.m.

E-38-18805: Kind: Order. in favor of Hacienda Luisita, Incorporated, rep. by Mr. Pedro Cojuangco.
69

Cond: By virtue of an order of DAR Quezon City, the herein property is hereby converted from
Agricultural to Industrial and residential uses.

Date of instrument – Aug. 14, 1996

Date of inscription – Aug. 3, 1998 at 8:20 a.m.

70 These government issuances include:

a. Resolution No. 392, dated December 11, 1996, of the Sanguniang Barangay of
Municipality of Tarlac, recognizing LIPCO’s plan to establish a 300 hectare industrial estate
in the municipality of Tarlac (Rollo, Volume 3, p. 3377);

b. Board of Investments (BOI) Certificate of Registration No. 96-020 dated December 20,
1996, recognizing LIPCO as duly registered with the BOI (Id. at 3384);
 c. Resolution No. 97-202 issued by the Philippine Economic Zone Authority (PEZA),
approving LIPCO’s application as a mixed economic zone, as well as proclaiming the 300
hectares as a special economic zone to be known as Luisita Industrial Park 2 (Id. at 3385-
3388);

d. Certificate of Registration No. 00794 issued by the HLURB, recognizing the Luisita
Industrial Park 2 project as an industrial subdivision (Id. at 3398); and

e. Presidential Proclamation No. 1207 issued by President Ramos, declaring the 300
hectares of the converted industrial land as a Special Economic Zone (Id. at 3400-3402).

71 Rollo, pp. 3475-3482.

72 Both TCT Nos. 365800 and 365801 contained the following annotation:

-conditions-

1. USE AND OCCUPANCY

1.1 The Property and its improvements shall be used solely as an industrial estate for
non-polluting, general, industrial and manufacturing activities provided that such
activities are confined within a [the] buildings and do not pollute, contaminate or
contribute noxious fumes, smoke or dust, offensive odor, disturbing noise or
vibration, and excessive heat to the surrounding environment nor contain a hazard
potential due to the nature of the products, materials or processes involved, nor
discharge any and all other pollutants and substances which may contaminate the
air, the water, the soil and the environment.

1.2 Without the prior written consent of Hacienda Luisita, Inc., the Property or any
part thereof shall not be used as an open field depot or dump for depositing and/or
sale of unreconditioned, unassembled and/or unremodelled surplus vehicles,
machineries, equipment or scrap and or any other unreconditioned or unprocessed
second hand materials, goods or items, dormitory or for residential purposes,
vegetables/fruit plantation, experimental farms such as fishponds, and the
establishment of residential projects, commercial establishments including hotel,
shopping mall, retail establishment, food stores, and other uses other than
mentioned in 1.1 above.

2. SEWER – The developer is required to build a water and sewerage treatment plant for
both domestic and industrial water for factories of the industrial park.

3. DRAINAGE – all drainage system shall comply with the drainage mater plan of Hacienda
Luisita, Inc. Storm water shall drain into existing drainage main lines. All industrial or factory
waste or by products harmful to living matters, having an obnoxious odor, and/or detrimental
to the proper maintenance of the river, should first be primarily treated according to
government regulations before.

4. GAS STATIONS/FUEL PUMPS – No gas stations or fuel pumps to service the general
public shall be constructed, operated or established within the industrial park.

5. ADVERTISING SIGNS – Advertising signs shall conform with the aesthetic appearance of
the estate. It shall be limited to those necessary for the business carried on within the
property and shall be the least obnoxious in character and design.

6. POWER PLANT – No electric generating power plant shall be established on the Property
without the prior written consent of Hacienda Luisita, Inc., which consent shall not be
unreasonably withheld:

7. TERM AND ENFORCEMENT OF RESTRICTIONS – The restriction, easements and

reservation mentioned hereinabove shall be valid and run with the land for a period of 50
years from 31 Jan. 1988 and compliance thereto may be enforced by court action either by
Hacienda Luisita, Inc. or by any property owner in the industrial estate or both, as well as by
their respective successors and assigns, provided, however, that public utility or service
entities may enforce their easement rights as provided for herein independently of any other
party or parties.

E-42-3728; Kind: SECRETARY’S CERTIFICATE. in favor of KOJI KOMAI and KYOSUKE HORI.
73

Cond. By virtue of which, KOJI KOMAI and KYOSUKE HORI are hereby authorized and empowered
to sign, for and in behalf of the Corporation and subject to all other conditions specified in Doc. No.
391; p-80; bk. III; s-1999 of Not. Pub. EUFROCINO C. DELA MERCED, JR. of Makati City, M.M.

Date of instrument – Aug. 19, 1999

Date of inscription – Feb. 26, 2002 at 9:20 a.m.

74E-42-3729; Kind: REAL ESTATE MORTGAGE (REM) In favor of RIZAL COMMERCIAL BANKING
CORPORATION (RCBC). Cond. The property herein described is hereby Mortgaged to guarantee
the payment for the sum of THREE HUNDRED MILLION (₱300,000,000.00) Pesos, Phil. Currency
with interest thereon and subject to all other conditions specified in Doc. No. 254; p-52; bk. 18; s-
1998 of Not. Pub. JEROME O. SARTE, of Makati City, M.M.

Date of instrument – October 26, 1998

Date of inscription – Feb. 26, 2002 at 9:20 a.m.

75 Rollo, p. 4262.

76 Id. at 4264.

77 Id. at 1499-1509.

78 Id. at 1523-1527.

See RCBS’s Memorandum dated September 23, 2010, p. 85, and LIDCO’s Memorandum dated
79

September 23, 2010, p. 41.

80 Rollo, pp. 656-657.

81Although HLI asserts that it distributed 3% of the ₱80 Million that the government paid for the land
used for the SCTEX.

82 Rollo, Volume 3, pp. 3753-3758.

83Section 31 of the CARL provides: 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.

Apo Fruits Corporation v. Land Bank of the Philippines, G.R. No. 164195, October 12, 2010, citing
84

Republic v. Court of Appeals, G.R. No. 146587, July 2, 2002, 383 SCRA 611.

85With respect to the 80 hectares acquired for the SCTEX, note that these were acquired by the
government so that the acquisition carries the presumption of regularity.

86 Rollo, pp. 651-664.

87 Section 64 of the CARL provides:

Section 64. Financial Intermediary for the CARP. - The Land Bank of the Philippines shall be
the financial intermediary for the CARP, and shall ensure that the social justice objectives of
the CARP shall enjoy a preference among its priorities.

Legal compensation is grounded on the Civil Code of the Philippines, the pertinent provisions of
88

which are quoted below:

Article 1278. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other.

Article 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;
 (3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.

89Art. 448. The owner of the land on which anything has been built, sown or planted in good faith,
shall have the right to appropriate as his own the works, sowing or planting, after payment of the
indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the
price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be
obliged to buy the land if its value is considerably more than that of the building or trees. In such
case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the
building or trees after proper indemnity.

The parties shall agree upon the terms of the lease and in case of disagreement, the court
shall fix the terms thereof. (361a)

xxx

Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor
in good faith may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right of
retention, the person who has defeated him in the possession having the option of refunding
the amount of the expenses or of paying the increase in value which the thing may have
acquired by reason thereof.

90 J. Velasco’s Reply, pp. 4-5.

91
Justice Presbitero J. Velasco, Jr.’s Reply to Separate Opinion of Chief Justice Renato Corona,
Reflections (Concurring and Dissenting) of Justice Arturo D. Brion, and Reflections of Justice Maria
Lourdes P.A. Serreno, p. 4.

See Francisco I. Chavez v. National Housing Authority, G.R. No. 164527, August 15, 2007, 530
92

SCRA 235; De Agbayani v. Philippine National Bank, No. L-231127, April 29, 1971, 38 SCRA 429;

93 Ruben E. Agpalo, Administrative Law, Law on Public Officers and Election Law (2005 ed.), p. 57,
citing People v. Maceren, 79 SCRA 450 (1977).

94Hardly was there an instance that the Court applied the operative fact doctrine in considering the
effects of nullifying an executive act done not pursuant to the exercise of quasi-legislative power.
Majority of the cases found the doctrine applicable in considering the effects of a declaration of
unconstitutionality of a statute or an administrative issuance. See the cases of Corominas, Jr. v.
Labor Standards Commission, No. L-14837, June 30, 1961, 2 SCRA 721; Municipality of Malabang,
Lanao del Sur, et al. v. Benito, et al., G.R. No. L-28113, March 29, 1969, 27 SCRA 533; and De
Agbayani v. Philippine National Bank, supra note 40.

3 Castan, 7th ed., p. 409, as cited in D. Jurado, Comments and Jurisprudence on Obligations and
95

Contracts (2002 ed.), p. 570.

96See Chavez v. National Housing Authority, G.R. No. 164527, August 15, 2007, 530 SCRA 235,
333, citing City of Makati v. Civil Service Commission, G.R. No. 131392, February 6, 2002, 376
SCRA 248, 257.

97 CARL, Section 2 – Declaration of Principles and Policies.

98 Rollo, pp. 3694-3695.

99 Id. at 3760-3761.

100 Ponencia, p. 63.

 SEPARATE OPINION

MENDOZA, J.:

I fully concur with the well-explained position of Chief Justice Renato Corona that the Stock Distribution Plan
(SDP) is unconstitutional as it is inconsistent with the basic concept of agrarian reform. Land reform entails
land distribution to those who till the land. If there is no actual land distribution, there is no land reform.

Indeed, the distribution of shares of stock, not land, cannot be considered as compliance with the
constitutional provision on agrarian reform. Section 31 of Republic Act (R.A.) No. 6657, which allows stock
distribution, directly and explicitly contravenes Section 4, Article XIII of the Constitution. Doubtless, the SDP
of petitioner Hacienda Luisita, Inc. (HLI), which has as its basis Section 31 of R.A. No. 6657, is
unconstitutional.

Under the SDP, instead of being given lands, the Farmworkers/Beneficiaries (FWBs) were given shares of
stocks in HLI, by which scheme, being in the minority, they have absolutely no control over the land. In fact,
they can lose it. A case in point is the segregation and conversion of 300 hectares of HLI land from
agricultural to non-agricultural purposes. When the 300 hectares were converted, transferred, mortgaged,
and sold to pay an indebtedness, the FWBs had no say about it and effectively lost a big chunk of their land.

In a genuine land reform, the qualified FWBs should be given, directly or collectively, ownership of the land
they till with all legal rights and entitlement, subject only to the limitations under the law, like the retention
limits, expropriation and payment of just compensation. Under a collective ownership, if they are not in
control of the cooperative or association, it cannot be considered a compliance with the law.

At any rate, as the majority is of the view that the constitutionality of the SDP cannot be assailed in this case
as it is not the lis mota, I agree with the ponencia that FWBs are real parties-in-interest and that the
Presidential Agrarian Reform Council (PARC) has the power and authority to revoke the SDP. I am also of
the considered position that there has been serious violations of the Stock Distribution Option Agreement
(SDOA). The reasons, some contained in the Terminal Report, dated September 22, 2005, by the Special
Task Force, are the following:

1] The "man days" method of computation, adopted in computing the number of shares to which
each FWB is entitled, prejudiced the original qualified FWBs numbering about 6,296 and denied
them of their rights under the law. When their numbers increased to 10,502 through the years under
the "man days" method, the value of the shares of the original FWBs was effectively diluted.

Under the man-days system, the FWBs could be denied the opportunity to be granted shares of
stock by just being not allowed to work altogether under the guise of rotation. There is also no
guarantee that they would receive their due if they get retrenched or retired.

2] The 30-year time frame for stock transfer extended the period for HLI to complete the distribution
of the 118,391,976.85 shares and, thus, violated the compliance periods provided under Section 31
of the CARL and Section 11 of AO No. 10-1988. Per Section 11, the approved stock distribution plan
shall be implemented within three (3) months from receipt by the corporate landowner 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 the 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.

3] The agricultural land involved has not been maintained as "unfragmented." At least 500 hectares
thereof have been carved out after its land use has been converted to non-agricultural uses.

4] There was no DAR verification and audit of the values of the agricultural lands and petitioner HLI’s
total assets. Thus, the value of the supposed shares of the FWBs in HLI is suspect.

5] HLI failed to comply with its obligation to grant 3% of the gross sales every year as production
sharing benefit on top of the worker’s salaries.

6] HLI failed to comply with its undertaking to distribute homelots to all the FWBs under the SDOA.

Moreover, as stated in the Terminal Report, the FWBs did not have any participation in the valuation of the
agricultural land for the purpose of determining its proportionate equity in relation to the total assets of the
corporation.

Pending the issuance of the corresponding shares of stocks, the FWBs remain ordinary farmers and/or
farmworkers and the land remains under the full ownership and control of the original owner, the
HLI/TADECO. Per Terminal Report, there was no compliance with the representations/warranties made
under section 5(a) and (b) of said Administrative Order No. 10. As claimed by HLI itself, the corporate
activity has already stopped so that the contemplated profitability, increased income and greater benefits
enumerated in the SDP have remained mere illusions.

Regarding the 300 hectares sold to Luisita Industrial Park Corporation (LIPCO) and RCBC, again I am with
the ponencia that they were buyers in good faith and, thus, said portions should be excluded from the
CARP’s compulsory coverage. Records disclose that the conversion of these lands was with the
acquiescence of the FWBs and approved by the PARC after full compliance with R.A. No. 6657 and the
DAR’s applicable regulations. The only dispute on this is the proceeds of the sale. After the conversion was
approved, Centennary Holdings sold it to LIPCO for P750 million. On the other hand, RCBC received
approximately 184 hectares of land from LIPCO, through a dacion en pago, in payment for LIPCO’s debt
amounting to P431.7 million. There is no indication that LIPCO and RCBC, both of whom exercised due
diligence, were on notice that there was a defect in the titles of the lands they purchased. The FWBs,
however, are entitled to receive the proceeds of the sales to LIPCO and RCBC based on their value at the
time of the taking plus legal interest.

As to the remaining 200 hectares (of the original 500 hectares converted from agricultural to non-agricultural
use with the DAR’s approval), which appear to have been sold by HLI to Luisita Realty
Corporation (LRC), they should be subject to compulsory CARP coverage. Unlike LIPCO and RCBC, LRC
never assailed PARC Resolution No. 2005-32-01, or the DAR’s Notice of Coverage order. Its silence and
inaction may be deemed an acquiescence with the PARC decision to place the land under the compulsory
coverage of the CARP. Certainly, LRC’s situation is different from the two, particularly RCBC, who is a
mortgagee and, later, payee or purchaser in good faith. LRC, however, should be reimbursed for what it had
paid plus legal interest.

With respect to the 80 hectares expropriated by the government for the SCTEX, there seems to be no
dispute except on the disposition of the proceeds. The portion should be excluded from the coverage,
pursuant to Section 6-A of Republic Act No. 6657, as amended by R.A. No. 9700. Like in the purchase by
LIPCO and RCBC, the proceeds should go to the FWBs based on the value at the time of taking plus legal
interest.

There being a violation of the SDOA, the petition should be denied and PARC’s Resolution No. 2005-32-01
revoking the SDP, as well as its Resolution No. 2006-34-01, denying the petitioner’s motion for
reconsideration should be affirmed, with the modification that the purchase of the 300-hectare portion by
LIPCO and RCBC, as well as the expropriation of the 80-hectare portion for the SCTEX complex, should be
considered as valid. Thus, the said portions should be beyond the compulsory CARP coverage.

As a consequence of the violations, the subject lands should be distributed to the FWBs under the
supervision of the DAR, who will determine just compensation, after proper audit and valuation of those
already given and received and set off. Needless to state, the compensation should be with legal interest. I
agree with the position of Justice Arturo Brion that the reckoning date for purposes of just compensation
should be May 11, 1989, when the SDOA was executed. Said date is the time of the taking of the land for
agrarian reform purposes.

In this regard, except on the matter of the 200 hectares sold to LRC, I adopt the reasoning of, and
disposition recommended by, Justice Brion in his Separate Concurring and Dissenting Opinion.

Further, I fully agree with the ponencia that the FWBs are entitled to retain the salaries, wages and other
benefits they received for services rendered by them as employees of HLI.

The bottom line is that the qualified FWBs should be given, directly or collectively, ownership of the land
they till with all legal rights and entitlement, subject only to the prescribed retention limits, expropriation and
the payment of just compensation.

The FWBs, however, who would opt to remain as stockholders of HLI, may waive their hard-won right to
actually own the lands they till. After all, it is an attribute of ownership subject, of course, to the limitations
under the law.

Under Section 27 of R.A. No. 6657, FWBs may sell the lands they acquired under the CARP subject to the
limitations stated therein. Thus:

SEC. 27. Transferability of Awarded Lands. - Lands acquired by beneficiaries under this Act may not be
sold, transferred or conveyed except through hereditary succession, or to the government, or to the LBP, or
to other qualified beneficiaries for a period of ten (10) years: Provided, however, That the children or the
spouse of the transferor shall have a right to repurchase the land from the government or LBP within a
period of two (2) years. Due notice of the availability of the land shall be given by the LBP to the Barangay
Agrarian Reform Committee (BARC) of the barangay where the land is situated. The Provincial Agrarian
Coordinating Committee (PARCCOM), as herein provided, shall, in turn, be given due notice thereof by the
BARC.
 If the land has not yet been fully paid by the beneficiary, the right to the land may be transferred or
conveyed, with prior approval of the DAR, to any heir of the beneficiary or to any other beneficiary who, as a
condition for such transfer or conveyance, shall cultivate the land himself. Failing compliance herewith, the
land shall be transferred to the LBP which shall give due notice of the availability of the land in the manner
specified in the immediately preceding paragraph.

In the event of such transfer to the LBP, the latter shall compensate the beneficiary in one lump sum for the
amounts the latter has already paid, together with the value of improvements he has made on the land.

Considering, however, that more than 10 years have elapsed from May 11, 1989, the date of the "taking" of
the Hacienda Luisita, the qualified FWBs, who can validly dispose of their due shares, may do so, in favor of
LBP or other qualified beneficiaries. The 10-year period need not be counted from the issuance of the
Emancipation Title (EP) or Certificate of Land Ownership Award (CLOA) because, under the SDOA, shares,
not land, were to be awarded and distributed.

The DAR shall select the method of determining the will of the parties and supervise it.

JOSE CATRAL MENDOZA

Associate Justice

Hacienda Luisita Inc. (HLI) v. Presidential Agrarian Reform Council

(PARC), et al., G.R. No. 171101, November 22, 2011

RESOLUTION
VELASCO, JR., J.:

I. THE FACTS

On July 5, 2011, the Supreme Court en banc voted unanimously (11-0) to DISMISS/DENY the petition
filed by HLI and AFFIRM with MODIFICATIONS the resolutions of the PARC revoking HLI’s Stock Distribution
Plan (SDP) and placing the subject lands in Hacienda Luisita under compulsory coverage of the
Comprehensive Agrarian Reform Program (CARP) of the government.

The Court however did not order outright land distribution. Voting 6-5, the Court noted that there are
operative facts that occurred in the interim and which the Court cannot validly ignore. Thus, the Court declared
that the revocation of the SDP must, by application of the operative fact principle, give way to the right of the
original 6,296 qualified farmworkers-beneficiaries (FWBs) to choose whether they want to remain as HLI
stockholders or [choose actual land distribution]. It thus ordered the Department of Agrarian Reform (DAR)
to “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.”

The parties thereafter filed their respective motions for reconsideration of the Court decision.

II. THE ISSUES

(1) Is the operative fact doctrine available in this case?

(2) Is Sec. 31 of RA 6657 unconstitutional?
(3) Can’t the Court order that DAR’s compulsory acquisition of Hacienda Lusita cover the full 6,443 hectares
allegedly covered by RA 6657 and previously held by Tarlac Development Corporation (Tadeco), and not just
the 4,915.75 hectares covered by HLI’s SDP?
(4) Is the date of the “taking” (for purposes of determining the just compensation payable to HLI) November 21,
1989, when PARC approved HLI’s SDP?
(5) Has the 10-year period prohibition on the transfer of awarded lands under RA 6657 lapsed on May 10, 1999
(since Hacienda Luisita were placed under CARP coverage through the SDOA scheme on May 11, 1989),
and thus the qualified FWBs should now be allowed to sell their land interests in Hacienda Luisita to third
parties, whether they have fully paid for the lands or not?
(6) THE CRUCIAL ISSUE: Should the ruling in the July 5, 2011 Decision that the qualified FWBs be given an
option to remain as stockholders of HLI be reconsidered?

III. THE RULING

[The Court PARTIALLY GRANTED the motions for reconsideration of respondents PARC, et al. with
respect to the option granted to the original farmworkers-beneficiaries (FWBs) of Hacienda Luisita to remain
with petitioner HLI, which option the Court thereby RECALLED and SET ASIDE. It reconsidered its earlier
decision that the qualified FWBs should be given an option to remain as stockholders of HLI,
and UNANIMOUSLY directed immediate land distribution to the qualified FWBs.]
1. YES, the operative fact doctrine is applicable in this case.

[The Court maintained its stance that the operative fact doctrine is applicable in this case since,
contrary to the suggestion of the minority, the doctrine is not limited only to invalid or unconstitutional laws but
also applies to decisions made by the President or the administrative agencies that have the force and effect
of laws. Prior to the nullification or recall of said decisions, they may have produced acts and consequences
that must be respected. It is on this score that the operative fact doctrine should be applied to acts and
consequences that resulted from the implementation of the PARC Resolution approving the SDP of HLI. The
majority stressed that the application of the operative fact doctrine by the Court in its July 5, 2011 decision
was in fact favorable to the FWBs because not only were they allowed to retain the benefits and homelots
they received under the stock distribution scheme, they were also given the option to choose for themselves
whether they want to remain as stockholders of HLI or not.]

2. NO, Sec. 31 of RA 6657 NOT unconstitutional.

[The Court maintained that the Court is NOT compelled to rule on the constitutionality of Sec. 31 of
RA 6657, reiterating that it was not raised at the earliest opportunity and that the resolution thereof is not
the lis mota of the case. Moreover, the issue has been rendered moot and academic since SDO is no longer
one of the modes of acquisition under RA 9700. The majority clarified that in its July 5, 2011 decision, it made
no ruling in favor of the constitutionality of Sec. 31 of RA 6657, but found nonetheless that there was no
apparent grave violation of the Constitution that may justify the resolution of the issue of constitutionality.]

3. NO, the Court CANNOT order that DAR’s compulsory acquisition of Hacienda Lusita cover the
full 6,443 hectares and not just the 4,915.75 hectares covered by HLI’s SDP.

[Since what is put in issue before the Court is the propriety of the revocation of the SDP, which only
involves 4,915.75 has. of agricultural land and not 6,443 has., then the Court is constrained to rule only as
regards the 4,915.75 has. of agricultural land. Nonetheless, this should not prevent the DAR, under its
mandate under the agrarian reform law, from subsequently subjecting to agrarian reform other agricultural
lands originally held by Tadeco that were allegedly not transferred to HLI but were supposedly covered by RA
6657.

However since the area to be awarded to each FWB in the July 5, 2011 Decision appears too
restrictive – considering that there are roads, irrigation canals, and other portions of the land that are
considered commonly-owned by farmworkers, and these may necessarily result in the decrease of the area
size that may be awarded per FWB – the Court reconsiders its Decision and resolves to give the DAR leeway
in adjusting the area that may be awarded per FWB in case the number of actual qualified FWBs decreases.
In order to ensure the proper distribution of the agricultural lands of Hacienda Luisita per qualified FWB, and
considering that matters involving strictly the administrative implementation and enforcement of agrarian
reform laws are within the jurisdiction of the DAR, it is the latter which shall determine the area with which
each qualified FWB will be awarded.

On the other hand, the majority likewise reiterated its holding that the 500-hectare portion of Hacienda
Luisita that have been validly converted to industrial use and have been acquired by intervenors Rizal
Commercial Banking Corporation (RCBC) and Luisita Industrial Park Corporation (LIPCO), as well as the
separate 80.51-hectare SCTEX lot acquired by the government, should be excluded from the coverage of the
assailed PARC resolution. The Court however ordered that the unused balance of the proceeds of the sale of
the 500-hectare converted land and of the 80.51-hectare land used for the SCTEX be distributed to the FWBs.]

4. YES, the date of “taking” is November 21, 1989, when PARC approved HLI’s SDP.

[For the purpose of determining just compensation, the date of “taking” is November 21, 1989 (the
date when PARC approved HLI’s SDP) since this is the time that the FWBs were considered to own and
possess the agricultural lands in Hacienda Luisita. To be precise, these lands became subject of the agrarian
reform coverage through the stock distribution scheme only upon the approval of the SDP, that is, on
November 21, 1989. Such approval is akin to a notice of coverage ordinarily issued under compulsory
acquisition. On the contention of the minority (Justice Sereno) that the date of the notice of coverage [after
PARC’s revocation of the SDP], that is, January 2, 2006, is determinative of the just compensation that HLI is
entitled to receive, the Court majority noted that none of the cases cited to justify this position involved the
stock distribution scheme. Thus, said cases do not squarely apply to the instant case. The foregoing
notwithstanding, it bears stressing that the DAR's land valuation is only preliminary and is not, by any means,
final and conclusive upon the landowner. The landowner can file an original action with the RTC acting as a
special agrarian court to determine just compensation. The court has the right to review with finality the
determination in the exercise of what is admittedly a judicial function.]

5. NO, the 10-year period prohibition on the transfer of awarded lands under RA 6657 has NOT lapsed on
May 10, 1999; thus, the qualified FWBs should NOT yet be allowed to sell their land interests in
Hacienda Luisita to third parties.
 [Under RA 6657 and DAO 1, the awarded lands may only be transferred or conveyed after 10 years
from the issuance and registration of the emancipation patent (EP) or certificate of land ownership award
(CLOA). Considering that the EPs or CLOAs have not yet been issued to the qualified FWBs in the instant
case, the 10-year prohibitive period has not even started. Significantly, the reckoning point is the issuance of
the EP or CLOA, and not the placing of the agricultural lands under CARP coverage. Moreover, should the
FWBs be immediately allowed the option to sell or convey their interest in the subject lands, then all efforts at
agrarian reform would be rendered nugatory, since, at the end of the day, these lands will just be transferred
to persons not entitled to land distribution under CARP.]

6. YES, the ruling in the July 5, 2011 Decision that the qualified FWBs be given an option to remain as
stockholders of HLI should be reconsidered.

[The Court reconsidered its earlier decision that the qualified FWBs should be given an option to
remain as stockholders of HLI, inasmuch as these qualified FWBs will never gain control [over the subject
lands] given the present proportion of shareholdings in HLI. The Court noted that the share of the FWBs in
the HLI capital stock is [just] 33.296%. Thus, even if all the holders of this 33.296% unanimously vote to remain
as HLI stockholders, which is unlikely, control will never be in the hands of the FWBs. Control means the
majority of [sic] 50% plus at least one share of the common shares and other voting shares. Applying the
formula to the HLI stockholdings, the number of shares that will constitute the majority is 295,112,101 shares
(590,554,220 total HLI capital shares divided by 2 plus one [1] HLI share). The 118,391,976.85 shares subject
to the SDP approved by PARC substantially fall short of the 295,112,101 shares needed by the FWBs to
acquire control over HLI.]
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 78742 July 14, 1989

ASSOCIATION OF SMALL LANDOWNERS IN THE PHILIPPINES, INC., JUANITO D. GOMEZ,

GERARDO B. ALARCIO, FELIPE A. GUICO, JR., BERNARDO M. ALMONTE, CANUTO RAMIR B.
CABRITO, ISIDRO T. GUICO, FELISA I. LLAMIDO, FAUSTO J. SALVA, REYNALDO G. ESTRADA,
FELISA C. BAUTISTA, ESMENIA J. CABE, TEODORO B. MADRIAGA, AUREA J. PRESTOSA,
EMERENCIANA J. ISLA, FELICISIMA C. ARRESTO, CONSUELO M. MORALES, BENJAMIN R.
SEGISMUNDO, CIRILA A. JOSE & NAPOLEON S. FERRER, petitioners,
vs.
HONORABLE SECRETARY OF AGRARIAN REFORM, respondent.

G.R. No. 79310 July 14, 1989

ARSENIO AL. ACUNA, NEWTON JISON, VICTORINO FERRARIS, DENNIS JEREZA, HERMINIGILDO
GUSTILO, PAULINO D. TOLENTINO and PLANTERS' COMMITTEE, INC., Victorias Mill District,
Victorias, Negros Occidental, petitioners,
vs.
JOKER ARROYO, PHILIP E. JUICO and PRESIDENTIAL AGRARIAN REFORM COUNCIL, respondents.

G.R. No. 79744 July 14, 1989

INOCENTES PABICO, petitioner,

vs.
HON. PHILIP E. JUICO, SECRETARY OF THE DEPARTMENT OF AGRARIAN REFORM, HON. JOKER
ARROYO, EXECUTIVE SECRETARY OF THE OFFICE OF THE PRESIDENT, and Messrs. SALVADOR
TALENTO, JAIME ABOGADO, CONRADO AVANCENA and ROBERTO TAAY, respondents.

G.R. No. 79777 July 14, 1989

NICOLAS S. MANAAY and AGUSTIN HERMANO, JR., petitioners,

vs.
HON. PHILIP ELLA JUICO, as Secretary of Agrarian Reform, and LAND BANK OF THE
PHILIPPINES, respondents.

CRUZ, J.:

In ancient mythology, Antaeus was a terrible giant who blocked and challenged Hercules for his life on his
way to Mycenae after performing his eleventh labor. The two wrestled mightily and Hercules flung his
adversary to the ground thinking him dead, but Antaeus rose even stronger to resume their struggle. This
happened several times to Hercules' increasing amazement. Finally, as they continued grappling, it dawned
on Hercules that Antaeus was the son of Gaea and could never die as long as any part of his body was
touching his Mother Earth. Thus forewarned, Hercules then held Antaeus up in the air, beyond the reach of
the sustaining soil, and crushed him to death.

Mother Earth. The sustaining soil. The giver of life, without whose invigorating touch even the powerful
Antaeus weakened and died.

The cases before us are not as fanciful as the foregoing tale. But they also tell of the elemental forces of life
and death, of men and women who, like Antaeus need the sustaining strength of the precious earth to stay
alive.

"Land for the Landless" is a slogan that underscores the acute imbalance in the distribution of this precious
resource among our people. But it is more than a slogan. Through the brooding centuries, it has become a
battle-cry dramatizing the increasingly urgent demand of the dispossessed among us for a plot of earth as
their place in the sun.

Recognizing this need, the Constitution in 1935 mandated the policy of social justice to "insure the well-
being and economic security of all the people," 1 especially the less privileged. In 1973, the new Constitution
affirmed this goal adding specifically that "the State shall regulate the acquisition, ownership, use, enjoyment
and disposition of private property and equitably diffuse property ownership and profits." 2 Significantly, there
was also the specific injunction to "formulate and implement an agrarian reform program aimed at
emancipating the tenant from the bondage of the soil." 3

The Constitution of 1987 was not to be outdone. Besides echoing these sentiments, it also adopted one
whole and separate Article XIII on Social Justice and Human Rights, containing grandiose but undoubtedly
sincere provisions for the uplift of the common people. These include a call in the following words for the
adoption by the State of an agrarian reform program:

SEC. 4. The State shall, by law, undertake an agrarian reform program founded on the right
of 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.

Earlier, in fact, R.A. No. 3844, otherwise known as the Agricultural Land Reform Code, had already been
enacted by the Congress of the Philippines on August 8, 1963, in line with the above-stated principles. This
was substantially superseded almost a decade later by P.D. No. 27, which was promulgated on October 21,
1972, along with martial law, to provide for the compulsory acquisition of private lands for distribution among
tenant-farmers and to specify maximum retention limits for landowners.

The people power revolution of 1986 did not change and indeed even energized the thrust for agrarian
reform. Thus, on July 17, 1987, President Corazon C. Aquino issued E.O. No. 228, declaring full land
ownership in favor of the beneficiaries of P.D. No. 27 and providing for the valuation of still unvalued lands
covered by the decree as well as the manner of their payment. This was followed on July 22, 1987 by
Presidential Proclamation No. 131, instituting a comprehensive agrarian reform program (CARP), and E.O.
No. 229, providing the mechanics for its implementation.

Subsequently, with its formal organization, the revived Congress of the Philippines took over legislative
power from the President and started its own deliberations, including extensive public hearings, on the
improvement of the interests of farmers. The result, after almost a year of spirited debate, was the
enactment of R.A. No. 6657, otherwise known as the Comprehensive Agrarian Reform Law of 1988, which
President Aquino signed on June 10, 1988. This law, while considerably changing the earlier mentioned
enactments, nevertheless gives them suppletory effect insofar as they are not inconsistent with its
provisions. 4

The above-captioned cases have been consolidated because they involve common legal questions,
including serious challenges to the constitutionality of the several measures mentioned above. They will be
the subject of one common discussion and resolution, The different antecedents of each case will require
separate treatment, however, and will first be explained hereunder.

G.R. No. 79777

Squarely raised in this petition is the constitutionality of P.D. No. 27, E.O. Nos. 228 and 229, and R.A. No.
6657.

The subjects of this petition are a 9-hectare riceland worked by four tenants and owned by petitioner Nicolas
Manaay and his wife and a 5-hectare riceland worked by four tenants and owned by petitioner Augustin
Hermano, Jr. The tenants were declared full owners of these lands by E.O. No. 228 as qualified farmers
under P.D. No. 27.

The petitioners are questioning P.D. No. 27 and E.O. Nos. 228 and 229 on grounds inter alia of separation
of powers, due process, equal protection and the constitutional limitation that no private property shall be
taken for public use without just compensation.

They contend that President Aquino usurped legislative power when she promulgated E.O. No. 228. The
said measure is invalid also for violation of Article XIII, Section 4, of the Constitution, for failure to provide for
retention limits for small landowners. Moreover, it does not conform to Article VI, Section 25(4) and the other
requisites of a valid appropriation.

In connection with the determination of just compensation, the petitioners argue that the same may be made
only by a court of justice and not by the President of the Philippines. They invoke the recent cases of EPZA
v. Dulay 5 and Manotok v. National Food Authority. 6 Moreover, the just compensation contemplated by the
Bill of Rights is payable in money or in cash and not in the form of bonds or other things of value.
In considering the rentals as advance payment on the land, the executive order also deprives the petitioners
of their property rights as protected by due process. The equal protection clause is also violated because the
order places the burden of solving the agrarian problems on the owners only of agricultural lands. No similar
obligation is imposed on the owners of other properties.

The petitioners also maintain that in declaring the beneficiaries under P.D. No. 27 to be the owners of the
lands occupied by them, E.O. No. 228 ignored judicial prerogatives and so violated due process. Worse, the
measure would not solve the agrarian problem because even the small farmers are deprived of their lands
and the retention rights guaranteed by the Constitution.

In his Comment, the Solicitor General stresses that P.D. No. 27 has already been upheld in the earlier cases
of Chavez v. Zobel, 7 Gonzales v. Estrella, 8 and Association of Rice and Corn Producers of the Philippines,
Inc. v. The National Land Reform Council. 9 The determination of just compensation by the executive
authorities conformably to the formula prescribed under the questioned order is at best initial or preliminary
only. It does not foreclose judicial intervention whenever sought or warranted. At any rate, the challenge to
the order is premature because no valuation of their property has as yet been made by the Department of
Agrarian Reform. The petitioners are also not proper parties because the lands owned by them do not
exceed the maximum retention limit of 7 hectares.

Replying, the petitioners insist they are proper parties because P.D. No. 27 does not provide for retention
limits on tenanted lands and that in any event their petition is a class suit brought in behalf of landowners
with landholdings below 24 hectares. They maintain that the determination of just compensation by the
administrative authorities is a final ascertainment. As for the cases invoked by the public respondent, the
constitutionality of P.D. No. 27 was merely assumed in Chavez, while what was decided in Gonzales was
the validity of the imposition of martial law.

In the amended petition dated November 22, 1588, it is contended that P.D. No. 27, E.O. Nos. 228 and 229
(except Sections 20 and 21) have been impliedly repealed by R.A. No. 6657. Nevertheless, this statute
should itself also be declared unconstitutional because it suffers from substantially the same infirmities as
the earlier measures.

A petition for intervention was filed with leave of court on June 1, 1988 by Vicente Cruz, owner of a 1. 83-
hectare land, who complained that the DAR was insisting on the implementation of P.D. No. 27 and E.O. No.
228 despite a compromise agreement he had reached with his tenant on the payment of rentals. In a
subsequent motion dated April 10, 1989, he adopted the allegations in the basic amended petition that the
above- mentioned enactments have been impliedly repealed by R.A. No. 6657.

G.R. No. 79310

The petitioners herein are landowners and sugar planters in the Victorias Mill District, Victorias, Negros
Occidental. Co-petitioner Planters' Committee, Inc. is an organization composed of 1,400 planter-members.
This petition seeks to prohibit the implementation of Proc. No. 131 and E.O. No. 229.

The petitioners claim that the power to provide for a Comprehensive Agrarian Reform Program as decreed
by the Constitution belongs to Congress and not the President. Although they agree that the President could
exercise legislative power until the Congress was convened, she could do so only to enact emergency
measures during the transition period. At that, even assuming that the interim legislative power of the
President was properly exercised, Proc. No. 131 and E.O. No. 229 would still have to be annulled for
violating the constitutional provisions on just compensation, due process, and equal protection.

They also argue that under Section 2 of Proc. No. 131 which provides:

Agrarian Reform Fund.-There is hereby created a special fund, to be known as the Agrarian Reform Fund,
an initial amount of FIFTY BILLION PESOS (P50,000,000,000.00) to cover the estimated cost of the
Comprehensive Agrarian Reform Program from 1987 to 1992 which shall be sourced from the receipts of
the sale of the assets of the Asset Privatization Trust and Receipts of sale of ill-gotten wealth received
through the Presidential Commission on Good Government and such other sources as government may
deem appropriate. The amounts collected and accruing to this special fund shall be considered
automatically appropriated for the purpose authorized in this Proclamation the amount appropriated is in
futuro, not in esse. The money needed to cover the cost of the contemplated expropriation has yet to be
raised and cannot be appropriated at this time.

Furthermore, they contend that taking must be simultaneous with payment of just compensation as it is
traditionally understood, i.e., with money and in full, but no such payment is contemplated in Section 5 of the
E.O. No. 229. On the contrary, Section 6, thereof provides that the Land Bank of the Philippines "shall
compensate the landowner in an amount to be established by the government, which shall be based on the
owner's declaration of current fair market value as provided in Section 4 hereof, but subject to certain
controls to be defined and promulgated by the Presidential Agrarian Reform Council." This compensation
may not be paid fully in money but in any of several modes that may consist of part cash and part bond, with
interest, maturing periodically, or direct payment in cash or bond as may be mutually agreed upon by the
beneficiary and the landowner or as may be prescribed or approved by the PARC.

The petitioners also argue that in the issuance of the two measures, no effort was made to make a careful
study of the sugar planters' situation. There is no tenancy problem in the sugar areas that can justify the
application of the CARP to them. To the extent that the sugar planters have been lumped in the same
legislation with other farmers, although they are a separate group with problems exclusively their own, their
right to equal protection has been violated.

A motion for intervention was filed on August 27,1987 by the National Federation of Sugarcane Planters
(NASP) which claims a membership of at least 20,000 individual sugar planters all over the country. On
September 10, 1987, another motion for intervention was filed, this time by Manuel Barcelona, et al.,
representing coconut and riceland owners. Both motions were granted by the Court.

NASP alleges that President Aquino had no authority to fund the Agrarian Reform Program and that, in any
event, the appropriation is invalid because of uncertainty in the amount appropriated. Section 2 of Proc. No.
131 and Sections 20 and 21 of E.O. No. 229 provide for an initial appropriation of fifty billion pesos and thus
specifies the minimum rather than the maximum authorized amount. This is not allowed. Furthermore, the
stated initial amount has not been certified to by the National Treasurer as actually available.

Two additional arguments are made by Barcelona, to wit, the failure to establish by clear and convincing
evidence the necessity for the exercise of the powers of eminent domain, and the violation of the
fundamental right to own property.

The petitioners also decry the penalty for non-registration of the lands, which is the expropriation of the said
land for an amount equal to the government assessor's valuation of the land for tax purposes. On the other
hand, if the landowner declares his own valuation he is unjustly required to immediately pay the
corresponding taxes on the land, in violation of the uniformity rule.

In his consolidated Comment, the Solicitor General first invokes the presumption of constitutionality in favor
of Proc. No. 131 and E.O. No. 229. He also justifies the necessity for the expropriation as explained in the
"whereas" clauses of the Proclamation and submits that, contrary to the petitioner's contention, a pilot
project to determine the feasibility of CARP and a general survey on the people's opinion thereon are not
indispensable prerequisites to its promulgation.

On the alleged violation of the equal protection clause, the sugar planters have failed to show that they
belong to a different class and should be differently treated. The Comment also suggests the possibility of
Congress first distributing public agricultural lands and scheduling the expropriation of private agricultural
lands later. From this viewpoint, the petition for prohibition would be premature.

The public respondent also points out that the constitutional prohibition is against the payment of public
money without the corresponding appropriation. There is no rule that only money already in existence can
be the subject of an appropriation law. Finally, the earmarking of fifty billion pesos as Agrarian Reform Fund,
although denominated as an initial amount, is actually the maximum sum appropriated. The word "initial"
simply means that additional amounts may be appropriated later when necessary.

On April 11, 1988, Prudencio Serrano, a coconut planter, filed a petition on his own behalf, assailing the
constitutionality of E.O. No. 229. In addition to the arguments already raised, Serrano contends that the
measure is unconstitutional because:

(1) Only public lands should be included in the CARP;

(2) E.O. No. 229 embraces more than one subject which is not expressed in the title;

(3) The power of the President to legislate was terminated on July 2, 1987; and

(4) The appropriation of a P50 billion special fund from the National Treasury did not
originate from the House of Representatives.

G.R. No. 79744

The petitioner alleges that the then Secretary of Department of Agrarian Reform, in violation of due process
and the requirement for just compensation, placed his landholding under the coverage of Operation Land
Transfer. Certificates of Land Transfer were subsequently issued to the private respondents, who then
refused payment of lease rentals to him.

On September 3, 1986, the petitioner protested the erroneous inclusion of his small landholding under
Operation Land transfer and asked for the recall and cancellation of the Certificates of Land Transfer in the
name of the private respondents. He claims that on December 24, 1986, his petition was denied without
hearing. On February 17, 1987, he filed a motion for reconsideration, which had not been acted upon when
E.O. Nos. 228 and 229 were issued. These orders rendered his motion moot and academic because they
directly effected the transfer of his land to the private respondents.

The petitioner now argues that:

(1) E.O. Nos. 228 and 229 were invalidly issued by the President of the Philippines.

(2) The said executive orders are violative of the constitutional provision that no private
property shall be taken without due process or just compensation.

(3) The petitioner is denied the right of maximum retention provided for under the 1987
Constitution.

The petitioner contends that the issuance of E.0. Nos. 228 and 229 shortly before Congress convened is
anomalous and arbitrary, besides violating the doctrine of separation of powers. The legislative power
granted to the President under the Transitory Provisions refers only to emergency measures that may be
promulgated in the proper exercise of the police power.

The petitioner also invokes his rights not to be deprived of his property without due process of law and to the
retention of his small parcels of riceholding as guaranteed under Article XIII, Section 4 of the Constitution.
He likewise argues that, besides denying him just compensation for his land, the provisions of E.O. No. 228
declaring that:

Lease rentals paid to the landowner by the farmer-beneficiary after October 21, 1972 shall
be considered as advance payment for the land.

is an unconstitutional taking of a vested property right. It is also his contention that the inclusion of even
small landowners in the program along with other landowners with lands consisting of seven hectares or
more is undemocratic.

In his Comment, the Solicitor General submits that the petition is premature because the motion for
reconsideration filed with the Minister of Agrarian Reform is still unresolved. As for the validity of the
issuance of E.O. Nos. 228 and 229, he argues that they were enacted pursuant to Section 6, Article XVIII of
the Transitory Provisions of the 1987 Constitution which reads:

The incumbent president shall continue to exercise legislative powers until the first Congress is convened.

On the issue of just compensation, his position is that when P.D. No. 27 was promulgated on October 21.
1972, the tenant-farmer of agricultural land was deemed the owner of the land he was tilling. The leasehold
rentals paid after that date should therefore be considered amortization payments.

In his Reply to the public respondents, the petitioner maintains that the motion he filed was resolved on
December 14, 1987. An appeal to the Office of the President would be useless with the promulgation of E.O.
Nos. 228 and 229, which in effect sanctioned the validity of the public respondent's acts.

G.R. No. 78742

The petitioners in this case invoke the right of retention granted by P.D. No. 27 to owners of rice and corn
lands not exceeding seven hectares as long as they are cultivating or intend to cultivate the same. Their
respective lands do not exceed the statutory limit but are occupied by tenants who are actually cultivating
such lands.

According to P.D. No. 316, which was promulgated in implementation of P.D. No. 27:

No tenant-farmer in agricultural lands primarily devoted to rice and corn shall be ejected or
removed from his farmholding until such time as the respective rights of the tenant- farmers
and the landowner shall have been determined in accordance with the rules and regulations
implementing P.D. No. 27.

The petitioners claim they cannot eject their tenants and so are unable to enjoy their right of retention
because the Department of Agrarian Reform has so far not issued the implementing rules required under the
above-quoted decree. They therefore ask the Court for a writ of mandamus to compel the respondent to
issue the said rules.

In his Comment, the public respondent argues that P.D. No. 27 has been amended by LOI 474 removing
any right of retention from persons who own other agricultural lands of more than 7 hectares in aggregate
area or lands used for residential, commercial, industrial or other purposes from which they derive adequate
income for their family. And even assuming that the petitioners do not fall under its terms, the regulations
implementing P.D. No. 27 have already been issued, to wit, the Memorandum dated July 10, 1975 (Interim
Guidelines on Retention by Small Landowners, with an accompanying Retention Guide Table),
Memorandum Circular No. 11 dated April 21, 1978, (Implementation Guidelines of LOI No. 474),
Memorandum Circular No. 18-81 dated December 29,1981 (Clarificatory Guidelines on Coverage of P.D.
No. 27 and Retention by Small Landowners), and DAR Administrative Order No. 1, series of 1985 (Providing
for a Cut-off Date for Landowners to Apply for Retention and/or to Protest the Coverage of their
Landholdings under Operation Land Transfer pursuant to P.D. No. 27). For failure to file the corresponding
applications for retention under these measures, the petitioners are now barred from invoking this right.

The public respondent also stresses that the petitioners have prematurely initiated this case notwithstanding
the pendency of their appeal to the President of the Philippines. Moreover, the issuance of the implementing
rules, assuming this has not yet been done, involves the exercise of discretion which cannot be controlled
through the writ of mandamus. This is especially true if this function is entrusted, as in this case, to a
separate department of the government.

In their Reply, the petitioners insist that the above-cited measures are not applicable to them because they
do not own more than seven hectares of agricultural land. Moreover, assuming arguendo that the rules were
intended to cover them also, the said measures are nevertheless not in force because they have not been
published as required by law and the ruling of this Court in Tanada v. Tuvera.10 As for LOI 474, the same is
ineffective for the additional reason that a mere letter of instruction could not have repealed the presidential
decree.

Although holding neither purse nor sword and so regarded as the weakest of the three departments of the
government, the judiciary is nonetheless vested with the power to annul the acts of either the legislative or
the executive or of both when not conformable to the fundamental law. This is the reason for what some
quarters call the doctrine of judicial supremacy. Even so, this power is not lightly assumed or readily
exercised. The doctrine of separation of powers imposes upon the courts a proper restraint, born of the
nature of their functions and of their respect for the other departments, in striking down the acts of the
legislative and the executive as unconstitutional. The policy, indeed, is a blend of courtesy and caution. To
doubt is to sustain. The theory is that before the act was done or the law was enacted, earnest studies were
made by Congress or the President, or both, to insure that the Constitution would not be breached.

In addition, the Constitution itself lays down stringent conditions for a declaration of unconstitutionality,
requiring therefor the concurrence of a majority of the members of the Supreme Court who took part in the
deliberations and voted on the issue during their session en banc.11 And as established by judge made
doctrine, the Court will assume jurisdiction over a constitutional question only if it is shown that the essential
requisites of a judicial inquiry into such a question are first satisfied. Thus, there must be an actual case or
controversy involving a conflict of legal rights susceptible of judicial determination, the constitutional question
must have been opportunely raised by the proper party, and the resolution of the question is unavoidably
necessary to the decision of the case itself. 12

With particular regard to the requirement of proper party as applied in the cases before us, we hold that the
same is satisfied by the petitioners and intervenors because each of them has sustained or is in danger of
sustaining an immediate injury as a result of the acts or measures complained of. 13 And even if, strictly
speaking, they are not covered by the definition, it is still within the wide discretion of the Court to waive the
requirement and so remove the impediment to its addressing and resolving the serious constitutional
questions raised.

In the first Emergency Powers Cases, 14 ordinary citizens and taxpayers were allowed to question the
constitutionality of several executive orders issued by President Quirino although they were invoking only an
indirect and general interest shared in common with the public. The Court dismissed the objection that they
were not proper parties and ruled that "the transcendental importance to the public of these cases demands
that they be settled promptly and definitely, brushing aside, if we must, technicalities of procedure." We have
since then applied this exception in many other cases. 15

The other above-mentioned requisites have also been met in the present petitions.

In must be stressed that despite the inhibitions pressing upon the Court when confronted with constitutional
issues like the ones now before it, it will not hesitate to declare a law or act invalid when it is convinced that
this must be done. In arriving at this conclusion, its only criterion will be the Constitution as God and its
conscience give it the light to probe its meaning and discover its purpose. Personal motives and political
considerations are irrelevancies that cannot influence its decision. Blandishment is as ineffectual as
intimidation.
For all the awesome power of the Congress and the Executive, the Court will not hesitate to "make the
hammer fall, and heavily," to use Justice Laurel's pithy language, where the acts of these departments, or of
any public official, betray the people's will as expressed in the Constitution.

It need only be added, to borrow again the words of Justice Laurel, that —

... when the judiciary mediates to allocate constitutional boundaries, it does not assert any
superiority over the other departments; it does not in reality nullify or invalidate an act of the
Legislature, but only asserts the solemn and sacred obligation assigned to it by the
Constitution to determine conflicting claims of authority under the Constitution and to
establish for the parties in an actual controversy the rights which that instrument secures and
guarantees to them. This is in truth all that is involved in what is termed "judicial supremacy"
which properly is the power of judicial review under the Constitution. 16

The cases before us categorically raise constitutional questions that this Court must categorically resolve.
And so we shall.

II

We proceed first to the examination of the preliminary issues before resolving the more serious challenges
to the constitutionality of the several measures involved in these petitions.

The promulgation of P.D. No. 27 by President Marcos in the exercise of his powers under martial law has
already been sustained in Gonzales v. Estrella and we find no reason to modify or reverse it on that issue.
As for the power of President Aquino to promulgate Proc. No. 131 and E.O. Nos. 228 and 229, the same
was authorized under Section 6 of the Transitory Provisions of the 1987 Constitution, quoted above.

The said measures were issued by President Aquino before July 27, 1987, when the Congress of the
Philippines was formally convened and took over legislative power from her. They are not "midnight"
enactments intended to pre-empt the legislature because E.O. No. 228 was issued on July 17, 1987, and
the other measures, i.e., Proc. No. 131 and E.O. No. 229, were both issued on July 22, 1987. Neither is it
correct to say that these measures ceased to be valid when she lost her legislative power for, like any
statute, they continue to be in force unless modified or repealed by subsequent law or declared invalid by
the courts. A statute does not ipso facto become inoperative simply because of the dissolution of the
legislature that enacted it. By the same token, President Aquino's loss of legislative power did not have the
effect of invalidating all the measures enacted by her when and as long as she possessed it.

Significantly, the Congress she is alleged to have undercut has not rejected but in fact substantially affirmed
the challenged measures and has specifically provided that they shall be suppletory to R.A. No. 6657
whenever not inconsistent with its provisions. 17 Indeed, some portions of the said measures, like the
creation of the P50 billion fund in Section 2 of Proc. No. 131, and Sections 20 and 21 of E.O. No. 229, have
been incorporated by reference in the CARP Law. 18

That fund, as earlier noted, is itself being questioned on the ground that it does not conform to the
requirements of a valid appropriation as specified in the Constitution. Clearly, however, Proc. No. 131 is not
an appropriation measure even if it does provide for the creation of said fund, for that is not its principal
purpose. An appropriation law is one the primary and specific purpose of which is to authorize the release of
public funds from the treasury. 19 The creation of the fund is only incidental to the main objective of the
proclamation, which is agrarian reform.

It should follow that the specific constitutional provisions invoked, to wit, Section 24 and Section 25(4) of
Article VI, are not applicable. With particular reference to Section 24, this obviously could not have been
complied with for the simple reason that the House of Representatives, which now has the exclusive power
to initiate appropriation measures, had not yet been convened when the proclamation was issued. The
legislative power was then solely vested in the President of the Philippines, who embodied, as it were, both
houses of Congress.

The argument of some of the petitioners that Proc. No. 131 and E.O. No. 229 should be invalidated because
they do not provide for retention limits as required by Article XIII, Section 4 of the Constitution is no longer
tenable. R.A. No. 6657 does provide for such limits now in Section 6 of the law, which in fact is one of its
most controversial provisions. This section declares:

Retention Limits. — Except as otherwise provided in this Act, no person may own or retain,
directly or indirectly, any public or private agricultural land, the size of which shall vary
according to factors governing a viable family-sized farm, such as commodity produced,
terrain, infrastructure, and soil fertility as determined by the Presidential Agrarian Reform
Council (PARC) created hereunder, but in no case shall retention by the landowner exceed
five (5) hectares. Three (3) hectares may be awarded to each child of the landowner, subject
to the following qualifications: (1) that he is at least fifteen (15) years of age; and (2) that he
 is actually tilling the land or directly managing the farm; Provided, That landowners whose
lands have been covered by Presidential Decree No. 27 shall be allowed to keep the area
originally retained by them thereunder, further, That original homestead grantees or direct
compulsory heirs who still own the original homestead at the time of the approval of this Act
shall retain the same areas as long as they continue to cultivate said homestead.

The argument that E.O. No. 229 violates the constitutional requirement that a bill shall have only one
subject, to be expressed in its title, deserves only short attention. It is settled that the title of the bill does not
have to be a catalogue of its contents and will suffice if the matters embodied in the text are relevant to each
other and may be inferred from the title. 20

The Court wryly observes that during the past dictatorship, every presidential issuance, by whatever name it
was called, had the force and effect of law because it came from President Marcos. Such are the ways of
despots. Hence, it is futile to argue, as the petitioners do in G.R. No. 79744, that LOI 474 could not have
repealed P.D. No. 27 because the former was only a letter of instruction. The important thing is that it was
issued by President Marcos, whose word was law during that time.

But for all their peremptoriness, these issuances from the President Marcos still had to comply with the
requirement for publication as this Court held in Tanada v. Tuvera. 21 Hence, unless published in the Official
Gazette in accordance with Article 2 of the Civil Code, they could not have any force and effect if they were
among those enactments successfully challenged in that case. LOI 474 was published, though, in the
Official Gazette dated November 29,1976.)

Finally, there is the contention of the public respondent in G.R. No. 78742 that the writ of mandamus cannot
issue to compel the performance of a discretionary act, especially by a specific department of the
government. That is true as a general proposition but is subject to one important qualification. Correctly and
categorically stated, the rule is that mandamus will lie to compel the discharge of the discretionary duty itself
but not to control the discretion to be exercised. In other words, mandamus can issue to require action only
but not specific action.

Whenever a duty is imposed upon a public official and an unnecessary and unreasonable
delay in the exercise of such duty occurs, if it is a clear duty imposed by law, the courts will
intervene by the extraordinary legal remedy of mandamus to compel action. If the duty is
purely ministerial, the courts will require specific action. If the duty is purely discretionary, the
courts by mandamus will require action only. For example, if an inferior court, public official,
or board should, for an unreasonable length of time, fail to decide a particular question to the
great detriment of all parties concerned, or a court should refuse to take jurisdiction of a
cause when the law clearly gave it jurisdiction mandamus will issue, in the first case to
require a decision, and in the second to require that jurisdiction be taken of the cause. 22

And while it is true that as a rule the writ will not be proper as long as there is still a plain, speedy and
adequate remedy available from the administrative authorities, resort to the courts may still be permitted if
the issue raised is a question of law. 23

III

There are traditional distinctions between the police power and the power of eminent domain that logically
preclude the application of both powers at the same time on the same subject. In the case of City of Baguio
v. NAWASA, 24 for example, where a law required the transfer of all municipal waterworks systems to the
NAWASA in exchange for its assets of equivalent value, the Court held that the power being exercised was
eminent domain because the property involved was wholesome and intended for a public use. Property
condemned under the police power is noxious or intended for a noxious purpose, such as a building on the
verge of collapse, which should be demolished for the public safety, or obscene materials, which should be
destroyed in the interest of public morals. The confiscation of such property is not compensable, unlike the
taking of property under the power of expropriation, which requires the payment of just compensation to the
owner.

In the case of Pennsylvania Coal Co. v. Mahon, 25 Justice Holmes laid down the limits of the police power in
a famous aphorism: "The general rule at least is that while property may be regulated to a certain extent, if
regulation goes too far it will be recognized as a taking." The regulation that went "too far" was a law
prohibiting mining which might cause the subsidence of structures for human habitation constructed on the
land surface. This was resisted by a coal company which had earlier granted a deed to the land over its
mine but reserved all mining rights thereunder, with the grantee assuming all risks and waiving any damage
claim. The Court held the law could not be sustained without compensating the grantor. Justice Brandeis
filed a lone dissent in which he argued that there was a valid exercise of the police power. He said:

Every restriction upon the use of property imposed in the exercise of the police power
deprives the owner of some right theretofore enjoyed, and is, in that sense, an abridgment by
the State of rights in property without making compensation. But restriction imposed to
 protect the public health, safety or morals from dangers threatened is not a taking. The
restriction here in question is merely the prohibition of a noxious use. The property so
restricted remains in the possession of its owner. The state does not appropriate it or make
any use of it. The state merely prevents the owner from making a use which interferes with
paramount rights of the public. Whenever the use prohibited ceases to be noxious — as it
may because of further changes in local or social conditions — the restriction will have to be
removed and the owner will again be free to enjoy his property as heretofore.

Recent trends, however, would indicate not a polarization but a mingling of the police power and the power
of eminent domain, with the latter being used as an implement of the former like the power of taxation. The
employment of the taxing power to achieve a police purpose has long been accepted. 26 As for the power of
expropriation, Prof. John J. Costonis of the University of Illinois College of Law (referring to the earlier case
of Euclid v. Ambler Realty Co., 272 US 365, which sustained a zoning law under the police power) makes
the following significant remarks:

Euclid, moreover, was decided in an era when judges located the Police and eminent
domain powers on different planets. Generally speaking, they viewed eminent domain as
encompassing public acquisition of private property for improvements that would be available
for public use," literally construed. To the police power, on the other hand, they assigned the
less intrusive task of preventing harmful externalities a point reflected in the Euclid opinion's
reliance on an analogy to nuisance law to bolster its support of zoning. So long as
suppression of a privately authored harm bore a plausible relation to some legitimate "public
purpose," the pertinent measure need have afforded no compensation whatever. With the
progressive growth of government's involvement in land use, the distance between the two
powers has contracted considerably. Today government often employs eminent domain
interchangeably with or as a useful complement to the police power-- a trend expressly
approved in the Supreme Court's 1954 decision in Berman v. Parker, which broadened the
reach of eminent domain's "public use" test to match that of the police power's standard of
"public purpose." 27

The Berman case sustained a redevelopment project and the improvement of blighted areas in the District of
Columbia as a proper exercise of the police power. On the role of eminent domain in the attainment of this
purpose, Justice Douglas declared:

If those who govern the District of Columbia decide that the Nation's Capital should be
beautiful as well as sanitary, there is nothing in the Fifth Amendment that stands in the way.

Once the object is within the authority of Congress, the right to realize it through the exercise
of eminent domain is clear.

For the power of eminent domain is merely the means to the end. 28

In Penn Central Transportation Co. v. New York City, 29 decided by a 6-3 vote in 1978, the U.S Supreme
Court sustained the respondent's Landmarks Preservation Law under which the owners of the Grand
Central Terminal had not been allowed to construct a multi-story office building over the Terminal, which had
been designated a historic landmark. Preservation of the landmark was held to be a valid objective of the
police power. The problem, however, was that the owners of the Terminal would be deprived of the right to
use the airspace above it although other landowners in the area could do so over their respective properties.
While insisting that there was here no taking, the Court nonetheless recognized certain compensatory rights
accruing to Grand Central Terminal which it said would "undoubtedly mitigate" the loss caused by the
regulation. This "fair compensation," as he called it, was explained by Prof. Costonis in this wise:

In return for retaining the Terminal site in its pristine landmark status, Penn Central was authorized to
transfer to neighboring properties the authorized but unused rights accruing to the site prior to the Terminal's
designation as a landmark — the rights which would have been exhausted by the 59-story building that the
city refused to countenance atop the Terminal. Prevailing bulk restrictions on neighboring sites were
proportionately relaxed, theoretically enabling Penn Central to recoup its losses at the Terminal site by
constructing or selling to others the right to construct larger, hence more profitable buildings on the
transferee sites. 30

The cases before us present no knotty complication insofar as the question of compensable taking is
concerned. To the extent that the measures under challenge merely prescribe retention limits for
landowners, there is an exercise of the police power for the regulation of private property in accordance with
the Constitution. But where, to carry out such regulation, it becomes necessary to deprive such owners of
whatever lands they may own in excess of the maximum area allowed, there is definitely a taking under the
power of eminent domain for which payment of just compensation is imperative. The taking contemplated is
not a mere limitation of the use of the land. What is required is the surrender of the title to and the physical
possession of the said excess and all beneficial rights accruing to the owner in favor of the farmer-
beneficiary. This is definitely an exercise not of the police power but of the power of eminent domain.
Whether as an exercise of the police power or of the power of eminent domain, the several measures before
us are challenged as violative of the due process and equal protection clauses.

The challenge to Proc. No. 131 and E.O. Nos. 228 and 299 on the ground that no retention limits are
prescribed has already been discussed and dismissed. It is noted that although they excited many bitter
exchanges during the deliberation of the CARP Law in Congress, the retention limits finally agreed upon are,
curiously enough, not being questioned in these petitions. We therefore do not discuss them here. The Court
will come to the other claimed violations of due process in connection with our examination of the adequacy
of just compensation as required under the power of expropriation.

The argument of the small farmers that they have been denied equal protection because of the absence of
retention limits has also become academic under Section 6 of R.A. No. 6657. Significantly, they too have not
questioned the area of such limits. There is also the complaint that they should not be made to share the
burden of agrarian reform, an objection also made by the sugar planters on the ground that they belong to a
particular class with particular interests of their own. However, no evidence has been submitted to the Court
that the requisites of a valid classification have been violated.

Classification has been defined as the grouping of persons or things similar to each other in certain
particulars and different from each other in these same particulars. 31 To be valid, it must conform to the
following requirements: (1) it must be based on substantial distinctions; (2) it must be germane to the
purposes of the law; (3) it must not be limited to existing conditions only; and (4) it must apply equally to all
the members of the class. 32 The Court finds that all these requisites have been met by the measures here
challenged as arbitrary and discriminatory.

Equal protection simply means that all persons or things similarly situated must be treated alike both as to
the rights conferred and the liabilities imposed. 33 The petitioners have not shown that they belong to a
different class and entitled to a different treatment. The argument that not only landowners but also owners
of other properties must be made to share the burden of implementing land reform must be rejected. There
is a substantial distinction between these two classes of owners that is clearly visible except to those who
will not see. There is no need to elaborate on this matter. In any event, the Congress is allowed a wide
leeway in providing for a valid classification. Its decision is accorded recognition and respect by the courts of
justice except only where its discretion is abused to the detriment of the Bill of Rights.

It is worth remarking at this juncture that a statute may be sustained under the police power only if there is a
concurrence of the lawful subject and the lawful method. Put otherwise, the interests of the public generally
as distinguished from those of a particular class require the interference of the State and, no less important,
the means employed are reasonably necessary for the attainment of the purpose sought to be achieved and
not unduly oppressive upon individuals. 34 As the subject and purpose of agrarian reform have been laid
down by the Constitution itself, we may say that the first requirement has been satisfied. What remains to be
examined is the validity of the method employed to achieve the constitutional goal.

One of the basic principles of the democratic system is that where the rights of the individual are concerned,
the end does not justify the means. It is not enough that there be a valid objective; it is also necessary that
the means employed to pursue it be in keeping with the Constitution. Mere expediency will not excuse
constitutional shortcuts. There is no question that not even the strongest moral conviction or the most urgent
public need, subject only to a few notable exceptions, will excuse the bypassing of an individual's rights. It is
no exaggeration to say that a, person invoking a right guaranteed under Article III of the Constitution is a
majority of one even as against the rest of the nation who would deny him that right.

That right covers the person's life, his liberty and his property under Section 1 of Article III of the
Constitution. With regard to his property, the owner enjoys the added protection of Section 9, which reaffirms
the familiar rule that private property shall not be taken for public use without just compensation.

This brings us now to the power of eminent domain.

IV

Eminent domain is an inherent power of the State that enables it to forcibly acquire private
lands intended for public use upon payment of just compensation to the owner. Obviously,
there is no need to expropriate where the owner is willing to sell under terms also acceptable
to the purchaser, in which case an ordinary deed of sale may be agreed upon by the
parties. 35 It is only where the owner is unwilling to sell, or cannot accept the price or other
conditions offered by the vendee, that the power of eminent domain will come into play to
assert the paramount authority of the State over the interests of the property owner. Private
rights must then yield to the irresistible demands of the public interest on the time-honored
justification, as in the case of the police power, that the welfare of the people is the supreme
law.
But for all its primacy and urgency, the power of expropriation is by no means absolute (as indeed no power
is absolute). The limitation is found in the constitutional injunction that "private property shall not be taken for
public use without just compensation" and in the abundant jurisprudence that has evolved from the
interpretation of this principle. Basically, the requirements for a proper exercise of the power are: (1) public
use and (2) just compensation.

Let us dispose first of the argument raised by the petitioners in G.R. No. 79310 that the State should first
distribute public agricultural lands in the pursuit of agrarian reform instead of immediately disturbing property
rights by forcibly acquiring private agricultural lands. Parenthetically, it is not correct to say that only public
agricultural lands may be covered by the CARP as the Constitution calls for "the just distribution of all
agricultural lands." In any event, the decision to redistribute private agricultural lands in the manner
prescribed by the CARP was made by the legislative and executive departments in the exercise of their
discretion. We are not justified in reviewing that discretion in the absence of a clear showing that it has been
abused.

A becoming courtesy admonishes us to respect the decisions of the political departments when they decide
what is known as the political question. As explained by Chief Justice Concepcion in the case of Tañada v.
Cuenco: 36

The term "political question" connotes what it means in ordinary parlance, namely, a
question of policy. It refers to "those questions which, under the Constitution, are to be
decided by the people in their sovereign capacity; or in regard to which full discretionary
authority has been delegated to the legislative or executive branch of the government." It is
concerned with issues dependent upon the wisdom, not legality, of a particular measure.

It is true that the concept of the political question has been constricted with the enlargement of judicial
power, which now includes the authority of the courts "to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of
the Government." 37 Even so, this should not be construed as a license for us to reverse the other
departments simply because their views may not coincide with ours.

The legislature and the executive have been seen fit, in their wisdom, to include in the CARP the
redistribution of private landholdings (even as the distribution of public agricultural lands is first provided for,
while also continuing apace under the Public Land Act and other cognate laws). The Court sees no
justification to interpose its authority, which we may assert only if we believe that the political decision is not
unwise, but illegal. We do not find it to be so.

In U.S. v. Chandler-Dunbar Water Power Company,38 it was held:

Congress having determined, as it did by the Act of March 3,1909 that the entire St. Mary's
river between the American bank and the international line, as well as all of the upland north
of the present ship canal, throughout its entire length, was "necessary for the purpose of
navigation of said waters, and the waters connected therewith," that determination is
conclusive in condemnation proceedings instituted by the United States under that Act, and
there is no room for judicial review of the judgment of Congress ... .

As earlier observed, the requirement for public use has already been settled for us by the Constitution itself
No less than the 1987 Charter calls for agrarian reform, which is the reason why private agricultural lands
are to be taken from their owners, subject to the prescribed maximum retention limits. The purposes
specified in P.D. No. 27, Proc. No. 131 and R.A. No. 6657 are only an elaboration of the constitutional
injunction that the State adopt the necessary measures "to encourage and undertake the just distribution of
all agricultural lands to enable farmers who are landless to own directly or collectively the lands they till."
That public use, as pronounced by the fundamental law itself, must be binding on us.

The second requirement, i.e., the payment of just compensation, needs a longer and more thoughtful
examination.

Just compensation is defined as the full and fair equivalent of the property taken from its owner by the
expropriator. 39 It has been repeatedly stressed by this Court that the measure is not the taker's gain but the
owner's loss. 40 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, ample. 41

It bears repeating that the measures challenged in these petitions contemplate more than a mere regulation
of the use of private lands under the police power. We deal here with an actual taking of private agricultural
lands that has dispossessed the owners of their property and deprived them of all its beneficial use and
enjoyment, to entitle them to the just compensation mandated by the Constitution.

As held in Republic of the Philippines v. Castellvi, 42 there is compensable taking when the following
conditions concur: (1) the expropriator must enter a private property; (2) the entry must be for more than a
momentary period; (3) the entry must be under warrant or color of legal authority; (4) the property must be
devoted to public use or otherwise informally appropriated or injuriously affected; and (5) the utilization of the
property for public use must be in such a way as to oust the owner and deprive him of beneficial enjoyment
of the property. All these requisites are envisioned in the measures before us.

Where the State itself is the expropriator, it is not necessary for it to make a deposit upon its taking
possession of the condemned property, as "the compensation is a public charge, the good faith of the public
is pledged for its payment, and all the resources of taxation may be employed in raising the
amount." 43 Nevertheless, Section 16(e) of the CARP Law provides that:

Upon receipt by the landowner of the corresponding payment or, in case of rejection or no
response from the landowner, upon the deposit with an accessible bank designated by the
DAR of the compensation in cash or in LBP bonds in accordance with this Act, the DAR shall
take immediate possession of the land and shall request the proper Register of Deeds to
issue a Transfer Certificate of Title (TCT) in the name of the Republic of the Philippines. The
DAR shall thereafter proceed with the redistribution of the land to the qualified beneficiaries.

Objection is raised, however, to the manner of fixing the just compensation, which it is claimed is entrusted
to the administrative authorities in violation of judicial prerogatives. Specific reference is made to Section
16(d), which provides that in case of the rejection or disregard by the owner of the offer of the government to
buy his land-

... the DAR shall conduct summary administrative proceedings to determine the
compensation for the land by requiring the landowner, the LBP and other interested parties
to submit evidence as to the just compensation for the land, within fifteen (15) days from the
receipt of the notice. After the expiration of the above period, the matter is deemed submitted
for decision. The DAR shall decide the case within thirty (30) days after it is submitted for
decision.

To be sure, 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. EPZA v. Dulay 44 resolved a challenge to
several decrees promulgated by President Marcos providing that the just compensation for property under
expropriation should be either the assessment of the property by the government or the sworn valuation
thereof by the owner, whichever was lower. In declaring these decrees unconstitutional, the Court held
through Mr. Justice Hugo E. Gutierrez, Jr.:

The method of ascertaining just compensation under the aforecited decrees constitutes
impermissible encroachment on judicial prerogatives. It tends to render this Court inutile in a
matter which under this Constitution is reserved to it for final determination.

Thus, although in an expropriation proceeding the court technically would still have the
power to determine the just compensation for the property, following the applicable decrees,
its task would be relegated to simply stating the lower value of the property as declared
either by the owner or the assessor. As a necessary consequence, it would be useless for
the court to appoint commissioners under Rule 67 of the Rules of Court. Moreover, the need
to satisfy the due process clause in the taking of private property is seemingly fulfilled since it
cannot be said that a judicial proceeding was not had before the actual taking. However, the
strict application of the decrees during the proceedings would be nothing short of a mere
formality or charade as the court has only to choose between the valuation of the owner and
that of the assessor, and its choice is always limited to the lower of the two. The court cannot
exercise its discretion or independence in determining what is just or fair. Even a grade
school pupil could substitute for the judge insofar as the determination of constitutional just
compensation is concerned.

xxx

In the present petition, we are once again confronted with the same question of whether the
courts under P.D. No. 1533, which contains the same provision on just compensation as its
predecessor decrees, still have the power and authority to determine just compensation,
independent of what is stated by the decree and to this effect, to appoint commissioners for
such purpose.

This time, we answer in the affirmative.

xxx

It is violative of due process to deny the owner the opportunity to prove that the valuation in
the tax documents is unfair or wrong. And it is repulsive to the basic concepts of justice and
fairness to allow the haphazard work of a minor bureaucrat or clerk to absolutely prevail over
 the judgment of a court promulgated only after expert commissioners have actually viewed
the property, after evidence and arguments pro and con have been presented, and after all
factors and considerations essential to a fair and just determination have been judiciously
evaluated.

A reading of the aforecited Section 16(d) will readily show that it does not suffer from the arbitrariness that
rendered the challenged decrees constitutionally objectionable. Although the proceedings are described as
summary, the landowner and other interested parties are nevertheless allowed an opportunity to submit
evidence on the real value of the property. But more importantly, the determination of the just compensation
by the DAR is not by any means final and conclusive upon the landowner or any other interested party, for
Section 16(f) clearly provides:

Any party who disagrees with the decision may bring the matter to the court of proper
jurisdiction for final determination of just compensation.

The determination made by the DAR is only preliminary unless accepted by all parties concerned.
Otherwise, the courts of justice will still have the right to review with finality the said determination in the
exercise of what is admittedly a judicial function.

The second and more serious objection to the provisions on just compensation is not as easily resolved.

This refers to Section 18 of the CARP Law providing in full 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 Sections 16 and 17, and other pertinent
provisions hereof, or as may be finally determined by the court, as the just compensation for
the land.

The compensation shall be paid in one of the following modes, at the option of the
landowner:

(1) Cash payment, under the following terms and conditions:

(a) For lands above fifty (50) hectares, insofar as the excess
hectarage is concerned — Twenty-five percent (25%) cash,
the balance to be paid in government financial instruments
negotiable at any time.

(b) For lands above twenty-four (24) hectares and up to fifty

(50) hectares — Thirty percent (30%) cash, the balance to be
paid in government financial instruments negotiable at any
time.

(c) For lands twenty-four (24) hectares and below — Thirty-

five percent (35%) cash, the balance to be paid in
government financial instruments negotiable at any time.

(2) Shares of stock in government-owned or controlled corporations, LBP preferred shares,

physical assets or other qualified investments in accordance with guidelines set by the
PARC;

(3) Tax credits which can be used against any tax liability;

(4) LBP bonds, which shall have the following features:

(a) Market interest rates aligned with 91-day treasury bill

rates. Ten percent (10%) of the face value of the bonds shall
mature every year from the date of issuance until the tenth
(10th) year: Provided, That should the landowner choose to
forego the cash portion, whether in full or in part, he shall be
paid correspondingly in LBP bonds;

(b) Transferability and negotiability. Such LBP bonds may be

used by the landowner, his successors-in- interest or his
assigns, up to the amount of their face value, for any of the
following:
 (i) Acquisition of land or other real properties of the
government, including assets under the Asset Privatization
Program and other assets foreclosed by government financial
institutions in the same province or region where the lands for
which the bonds were paid are situated;

(ii) Acquisition of shares of stock of government-owned or

controlled corporations or shares of stock owned by the
government in private corporations;

(iii) Substitution for surety or bail bonds for the provisional

release of accused persons, or for performance bonds;

(iv) Security for loans with any government financial

institution, provided the proceeds of the loans shall be
invested in an economic enterprise, preferably in a small and
medium- scale industry, in the same province or region as the
land for which the bonds are paid;

(v) Payment for various taxes and fees to government:

Provided, That the use of these bonds for these purposes will
be limited to a certain percentage of the outstanding balance
of the financial instruments; Provided, further, That the PARC
shall determine the percentages mentioned above;

(vi) Payment for tuition fees of the immediate family of the

original bondholder in government universities, colleges,
trade schools, and other institutions;

(vii) Payment for fees of the immediate family of the original

bondholder in government hospitals; and

(viii) Such other uses as the PARC may from time to time
allow.

The contention of the petitioners in G.R. No. 79777 is that the above provision is unconstitutional insofar as
it requires the owners of the expropriated properties to accept just compensation therefor in less than
money, which is the only medium of payment allowed. In support of this contention, they cite jurisprudence
holding that:

The fundamental rule in expropriation matters is that the owner of the property expropriated
is entitled to a just compensation, which should be neither more nor less, whenever it is
possible to make the assessment, than the money equivalent of said property. Just
compensation has always been understood to be the just and complete equivalent of the
loss which the owner of the thing expropriated has to suffer by reason of the expropriation
. 45 (Emphasis supplied.)

In J.M. Tuazon Co. v. Land Tenure Administration, 46 this Court held:

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. (Emphasis supplied.)

In the United States, where much of our jurisprudence on the subject has been derived, the weight of
authority is also to the effect that just compensation for property expropriated is payable only in money and
not otherwise. Thus —

The medium of payment of compensation is ready money or cash. The condemnor cannot
compel the owner to accept anything but money, nor can the owner compel or require the
condemnor to pay him on any other basis than the value of the property in money at the time
and in the manner prescribed by the Constitution and the statutes. When the power of
eminent domain is resorted to, there must be a standard medium of payment, binding upon
both parties, and the law has fixed that standard as money in cash. 47 (Emphasis supplied.)
 Part cash and deferred payments are not and cannot, in the nature of things, be regarded as
a reliable and constant standard of compensation. 48

"Just compensation" for property taken by condemnation means a fair equivalent in money,
which must be paid at least within a reasonable time after the taking, and it is not within the
power of the Legislature to substitute for such payment future obligations, bonds, or other
valuable advantage. 49 (Emphasis supplied.)

It cannot be denied from these cases that the traditional medium for the payment of just compensation is
money and no other. And so, conformably, has just compensation been paid in the past solely in that
medium. However, we do not deal here with the traditional excercise of the power of eminent domain. This is
not an ordinary expropriation where only a specific property of relatively limited area is sought to be taken by
the State from its owner for a specific and perhaps local purpose.

What we deal with here is a revolutionary kind of expropriation.

The expropriation before us affects all private agricultural lands whenever found and of whatever kind as
long as they are in excess of the maximum retention limits allowed their owners. This kind of expropriation is
intended for the benefit not only of a particular community or of a small segment of the population but of the
entire Filipino nation, from all levels of our society, from the impoverished farmer to the land-glutted owner.
Its purpose does not cover only the whole territory of this country but goes beyond in time to the foreseeable
future, which it hopes to secure and edify with the vision and the sacrifice of the present generation of
Filipinos. Generations yet to come are as involved in this program as we are today, although hopefully only
as beneficiaries of a richer and more fulfilling life we will guarantee to them tomorrow through our
thoughtfulness today. And, finally, let it not be forgotten that it is no less than the Constitution itself that has
ordained this revolution in the farms, calling for "a just distribution" among the farmers of lands that have
heretofore been the prison of their dreams but can now become the key at least to their deliverance.

Such a program will involve not mere millions of pesos. The cost will be tremendous. Considering the vast
areas of land subject to expropriation under the laws before us, we estimate that hundreds of billions of
pesos will be needed, far more indeed than the amount of P50 billion initially appropriated, which is already
staggering as it is by our present standards. Such amount is in fact not even fully available at this time.

We assume that the framers of the Constitution were aware of this difficulty when they called for agrarian
reform as a top priority project of the government. It is a part of this assumption that when they envisioned
the expropriation that would be needed, they also intended that the just compensation would have to be paid
not in the orthodox way but a less conventional if more practical method. There can be no doubt that they
were aware of the financial limitations of the government and had no illusions that there would be enough
money to pay in cash and in full for the lands they wanted to be distributed among the farmers. We may
therefore assume that their intention was to allow such manner of payment as is now provided for by the
CARP Law, particularly the payment of the balance (if the owner cannot be paid fully with money), or indeed
of the entire amount of the just compensation, with other things of value. We may also suppose that what
they had in mind was a similar scheme of payment as that prescribed in P.D. No. 27, which was the law in
force at the time they deliberated on the new Charter and with which they presumably agreed in principle.

The Court has not found in the records of the Constitutional Commission any categorical agreement among
the members regarding the meaning to be given the concept of just compensation as applied to the
comprehensive agrarian reform program being contemplated. There was the suggestion to "fine tune" the
requirement to suit the demands of the project even as it was also felt that they should "leave it to Congress"
to determine how payment should be made to the landowner and reimbursement required from the farmer-
beneficiaries. Such innovations as "progressive compensation" and "State-subsidized compensation" were
also proposed. In the end, however, no special definition of the just compensation for the lands to be
expropriated was reached by the Commission. 50

On the other hand, there is nothing in the records either that militates against the assumptions we are
making of the general sentiments and intention of the members on the content and manner of the payment
to be made to the landowner in the light of the magnitude of the expenditure and the limitations of the
expropriator.

With these assumptions, the Court hereby declares that the content and manner of the just compensation
provided for in the afore- quoted Section 18 of the CARP Law is not violative of the Constitution. We do not
mind admitting that a certain degree of pragmatism has influenced our decision on this issue, but after all
this Court is not a cloistered institution removed from the realities and demands of society or oblivious to the
need for its enhancement. The Court is as acutely anxious as the rest of our people to see the goal of
agrarian reform achieved at last after the frustrations and deprivations of our peasant masses during all
these disappointing decades. We are aware that invalidation of the said section will result in the nullification
of the entire program, killing the farmer's hopes even as they approach realization and resurrecting the
spectre of discontent and dissent in the restless countryside. That is not in our view the intention of the
Constitution, and that is not what we shall decree today.
Accepting the theory that payment of the just compensation is not always required to be made fully in
money, we find further that the proportion of cash payment to the other things of value constituting the total
payment, as determined on the basis of the areas of the lands expropriated, is not unduly oppressive upon
the landowner. It is noted that the smaller the land, the bigger the payment in money, primarily because the
small landowner will be needing it more than the big landowners, who can afford a bigger balance in bonds
and other things of value. No less importantly, the government financial instruments making up the balance
of the payment are "negotiable at any time." The other modes, which are likewise available to the landowner
at his option, are also not unreasonable because payment is made in shares of stock, LBP bonds, other
properties or assets, tax credits, and other things of value equivalent to the amount of just compensation.

Admittedly, the compensation contemplated in the law will cause the landowners, big and small, not a little
inconvenience. As already remarked, this cannot be avoided. Nevertheless, it is devoutly hoped that these
countrymen of ours, conscious as we know they are of the need for their forebearance and even sacrifice,
will not begrudge us their indispensable share in the attainment of the ideal of agrarian reform. Otherwise,
our pursuit of this elusive goal will be like the quest for the Holy Grail.

The complaint against the effects of non-registration of the land under E.O. No. 229 does not seem to be
viable any more as it appears that Section 4 of the said Order has been superseded by Section 14 of the
CARP Law. This repeats the requisites of registration as embodied in the earlier measure but does not
provide, as the latter did, that in case of failure or refusal to register the land, the valuation thereof shall be
that given by the provincial or city assessor for tax purposes. On the contrary, the CARP Law says that the
just compensation shall be ascertained on the basis of the factors mentioned in its Section 17 and in the
manner provided for in Section 16.

The last major challenge to CARP is that the landowner is divested of his property even before actual
payment to him in full of just compensation, in contravention of a well- accepted principle of eminent domain.

The recognized rule, indeed, is that title to the property expropriated shall pass from the owner to the
expropriator only upon full payment of the just compensation. Jurisprudence on this settled principle is
consistent both here and in other democratic jurisdictions. Thus:

Title to property which is the subject of condemnation proceedings does not vest the condemnor until the
judgment fixing just compensation is entered and paid, but the condemnor's title relates back to the date on
which the petition under the Eminent Domain Act, or the commissioner's report under the Local
Improvement Act, is filed. 51

... although the right to appropriate and use land taken for a canal is complete at the time of entry, title to the
property taken remains in the owner until payment is actually made. 52 (Emphasis supplied.)

In Kennedy v. Indianapolis, 53 the US Supreme Court cited several cases holding that title to property does
not pass to the condemnor until just compensation had actually been made. In fact, the decisions appear to
be uniformly to this effect. As early as 1838, in Rubottom v. McLure, 54 it was held that "actual payment to the
owner of the condemned property was a condition precedent to the investment of the title to the property in
the State" albeit "not to the appropriation of it to public use." In Rexford v. Knight, 55 the Court of Appeals of
New York said that the construction upon the statutes was that the fee did not vest in the State until the
payment of the compensation although the authority to enter upon and appropriate the land was complete
prior to the payment. Kennedy further said that "both on principle and authority the rule is ... that the right to
enter on and use the property is complete, as soon as the property is actually appropriated under the
authority of law for a public use, but that the title does not pass from the owner without his consent, until just
compensation has been made to him."

Our own Supreme Court has held in Visayan Refining Co. v. Camus and Paredes, 56 that:

If the laws which we have exhibited or cited in the preceding discussion are attentively
examined it will be apparent that the method of expropriation adopted in this jurisdiction is
such as to afford absolute reassurance that no piece of land can be finally and irrevocably
taken from an unwilling owner until compensation is paid ... . (Emphasis supplied.)

It is true that P.D. No. 27 expressly ordered the emancipation of tenant-farmer as 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 farmers' cooperative." It was understood, however, that full
payment of the just compensation also had to be made first, conformably to the constitutional requirement.

When E.O. No. 228, categorically stated in its Section 1 that:

All qualified farmer-beneficiaries are now deemed full owners as of October 21, 1972 of the
land they acquired by virtue of Presidential Decree No. 27. (Emphasis supplied.)
it was obviously referring to lands already validly acquired under the said decree, after proof of full-fledged
membership in the farmers' cooperatives and full payment of just compensation. Hence, it was also perfectly
proper for the Order to also provide in its Section 2 that the "lease rentals paid to the landowner by the
farmer- beneficiary after October 21, 1972 (pending transfer of ownership after full payment of just
compensation), shall be considered as advance payment for the land."

The CARP Law, for its part, conditions the transfer of possession and ownership of the land to the
government on receipt by the landowner of the corresponding payment or the deposit by the DAR of the
compensation in cash or LBP bonds with an accessible bank. Until then, title also remains with the
landowner. 57 No outright change of ownership is contemplated either.

Hence, the argument that the assailed measures violate due process by arbitrarily transferring title before
the land is fully paid for must also be rejected.

It is worth stressing at this point that all rights acquired by the tenant-farmer under P.D. No. 27, as
recognized under E.O. No. 228, are retained by him even now under R.A. No. 6657. This should counter-
balance the express provision in Section 6 of the said law that "the landowners whose lands have been
covered by Presidential Decree No. 27 shall be allowed to keep the area originally retained by them
thereunder, further, That original homestead grantees or direct compulsory heirs who still own the original
homestead at the time of the approval of this Act shall retain the same areas as long as they continue to
cultivate said homestead."

In connection with these retained rights, it does not appear in G.R. No. 78742 that the appeal filed by the
petitioners with the Office of the President has already been resolved. Although we have said that the
doctrine of exhaustion of administrative remedies need not preclude immediate resort to judicial action, there
are factual issues that have yet to be examined on the administrative level, especially the claim that the
petitioners are not covered by LOI 474 because they do not own other agricultural lands than the subjects of
their petition.

Obviously, the Court cannot resolve these issues. In any event, assuming that the petitioners have not yet
exercised their retention rights, if any, under P.D. No. 27, the Court holds that they are entitled to the new
retention rights provided for by R.A. No. 6657, which in fact are on the whole more liberal than those granted
by the decree.

The CARP Law and the other enactments also involved in these cases have been the subject of bitter attack
from those who point to the shortcomings of these measures and ask that they be scrapped entirely. To be
sure, these enactments are less than perfect; indeed, they should be continuously re-examined and
rehoned, that they may be sharper instruments for the better protection of the farmer's rights. But we have to
start somewhere. In the pursuit of agrarian reform, we do not tread on familiar ground but grope on terrain
fraught with pitfalls and expected difficulties. This is inevitable. The CARP Law is not a tried and tested
project. On the contrary, to use Justice Holmes's words, "it is an experiment, as all life is an experiment,"
and so we learn as we venture forward, and, if necessary, by our own mistakes. We cannot expect
perfection although we should strive for it by all means. Meantime, we struggle as best we can in freeing the
farmer from the iron shackles that have unconscionably, and for so long, fettered his soul to the soil.

By the decision we reach today, all major legal obstacles to the comprehensive agrarian reform program are
removed, to clear the way for the true freedom of the farmer. We may now glimpse the day he will be
released not only from want but also from the exploitation and disdain of the past and from his own feelings
of inadequacy and helplessness. At last his servitude will be ended forever. At last the farm on which he toils
will be his farm. It will be his portion of the Mother Earth that will give him not only the staff of life but also the
joy of living. And where once it bred for him only deep despair, now can he see in it the fruition of his hopes
for a more fulfilling future. Now at last can he banish from his small plot of earth his insecurities and dark
resentments and "rebuild in it the music and the dream."

WHEREFORE, the Court holds as follows:

1. R.A. No. 6657, P.D. No. 27, Proc. No. 131, and E.O. Nos. 228 and 229 are SUSTAINED
against all the constitutional objections raised in the herein petitions.

2. Title to all expropriated properties shall be transferred to the State only upon full payment
of compensation to their respective owners.

3. All rights previously acquired by the tenant- farmers under P.D. No. 27 are retained and
recognized.

4. Landowners who were unable to exercise their rights of retention under P.D. No. 27 shall
enjoy the retention rights granted by R.A. No. 6657 under the conditions therein prescribed.
 5. Subject to the above-mentioned rulings all the petitions are DISMISSED, without
pronouncement as to costs.

SO ORDERED.

Fernan, (C.J.), Narvasa, Melencio-Herrera, Gutierrez, Jr., Paras, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento, Cortes, Griño-Aquino, Medialdea and Regalado, JJ., concur.

Footnotes

1 Art. 11, Sec. 5.

2 1973 Constitution, Art. II, Sec. 6.
3 Ibid., Art. XIV, Sec. 12.
4 R.A. No. 6657, Sec. 15.
5 149 SCRA 305.
6 150 SCRA 89.
7 55 SCRA 26.
8 91 SCRA 294.
9 113 SCRA 798.
10 136 SCRA 271; 146 SCRA 446.
11 Art. VIII, Sec. 4(2).
12 Dumlao v. COMELEC, 95 SCRA 392.
13 Ex Parte Levitt, 303 US 633.
14 Araneta v. Dinglasan, 84 Phil. 368.
15 Pascual v. Secretary of Public Works, 110 Phil. 331; PHILCONSA v. Gimenez, 15 SCRA
479; Sanidad v. COMELEC, 73 SCRA 333.
16 Angara v. Electoral Commission, 63 Phil. 139.
17 R.A. No. 6657, Sec. 75.
18 Ibid., Sec. 63.
19 Bengzon v. Secretary of Justice, 299 US 410.
20 Alalayan v. NPC, 24 SCRA 172; Sumulong v. COMELEC, 73 Phil. 288. Tio v. Videogram
Regulatory Board, 151 SCRA 208.
21 Supra.
22 Lamb v. Phipps, 22 Phil. 456.
23 Malabanan v. Ramento, 129 SCRA 359; Espanol v. Chairman, Philippine Veterans
Administration, 137 SCRA 314.
24 106 Phil. 144.
25 260 US 393.
26 Powell v. Pennsylvania, 127 US 678: Lutz v. Araneta, 98 Phil. 148; Tio v. Videogram
Regulatory Board, supra.
27 John J. Costonis "The Disparity Issue: A Context for the Grand Central Terminal
Decision," Harvard Law Review, Vol. 91:40,1977, p. 404.
28 348 US 1954.
29 438 US 104.
30 See note 27.
31 International Harvester Co. v. Missouri, 234 US 199.
32 People v. Cayat, 68 Phil. 12.
33 Ichong v. Hernandez, 101 Phil. 1155.
34 US v. Toribio, 15 Phil. 85; Fable v. City of Manila, 21 Phil. 486; Case v. Board of Health,
24 Phil. 256.
35 Noble v. City of Manila, 67 Phil. 1.
36 100 Phil. 1101.
37 1987 Constitution, Art. VIII, Sec. 1.
38 57 L ed. 1063.
39 Manila Railroad Co. v. Velasquez, 32 Phil. 286.
40 Province of Tayabas v. Perez, 66 Phil. 467; J.M. Tuazon & Co., Inc. v. Land Tenure
Administration, 31 SCRA 413; Municipality of Daet v. Court of Appeals, 93 SCRA 503;
Manotok v. National Housing Authority, 150 SCRA 89.
41 City of Manila v. Estrada, 25 Phil. 208.
42 58 SCRA 336.
43 Lewis, Law of Eminent Domain, 3rd Edition, pp. 1166- 1167.
44 149 SCRA 305.
45 Manila Railroad Co. v. Velasquez, 32 Phil. 286; Province of Tayabas v. Perez, supra, at
note 40.
46 31 SCRA 413.
47 Mandl v. City of Phoenix, 18 p 2d 273.
48 Sacramento Southern R. Co. v. Heilbron 156 Cal. 408,104 pp. 979, 980.
 49 City of Waterbury v. Platt Bros. & Co., 56 A 856, 76 Conn, 435 citing Butler v. Ravine
Road Sewer Com'rs, 39 N.J.L. 665; Bloodgood v. Mohawk v. H.R.R. Co., N.Y. 18 Wend. 9
35, 31 Am. Dec. 313; Sanborn v. Helden, 51 Cal 266; Burlington & C.R. Co. v. Schweikart,
14 p. 329, 10 Colo, 178; 23 Words and Phrases, pl. 460.
50 Record of the Constitutional Commission, Vol. 2, pp. 647, 704; Vol. 3, pp. 16-20, 243-247.
51 Chicago Park Dist. v. Downey Coal Co., 1 Ill. 2d 54.
52 Kennedy v. Indianapolis, 103 US 599, 26 L ed 550.
53 Ibid.
54 4 Blkf., 508.
55 11 NY 314.
56 40 Phil. 550.
57 Sec. 16(d).

ASSOCIATION OF SMALL LANDOWNERS IN PHILIPPINES v. SECRETARY OF AGRARIAN

REFORM, GR No. 78742, 1989-07-14
Facts:
The Constitution of 1987... he State of an agrarian reform program:
SEC. 4. The State shall, by law, undertake an agrarian reform program founded on the right of
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.
the enactment of R.A. No. 6657, otherwise known as the Comprehensive Agrarian Reform Law of
1988,... which President Aquino signed on June 10,... 1988.
G.R. No. 79777... the constitutionality of P.D. No. 27, E.O. Nos. 228 and 229, and R.A. No. 6657.
The subjects of this petition are a 9-hectare riceland worked by four tenants and owned by
petitioner Nicolas Manaay and his wife and a 5-hectare riceland worked by four tenants and owned
by petitioner Agustin Hermano,... Jr. The tenants were declared full owners of these lands by E.O.
No. 228 as qualified farmers under P.D. No. 27.
questioning P.D. No. 27 and E.O. Nos. 228 and 229 on grounds inter alia of separation of powers,
due process, equal protection and the constitutional limitation that no private property shall be
taken for public use... without just compensation.
They contend that President Aquino usurped legislative power when she promulgated E.O. No.
228. The said measure is invalid also for violation of Article XIII, Section 4, of the Constitution, for
failure to provide for retention limits for... small landowners. Moreover, it does not conform to
Article VI, Section 25(4) and the other requisites of a valid appropriation.
They invoke the recent cases of EPZA v. Dulay[5] and Manotok v. National Food Authority.[6]
Moreover, the just compensation contemplated by the Bill of Rights is payable in money or in cash
and not in the form of bonds or other things of value.
the executive order also deprives the petitioners of their property rights as protected by due
process. The equal protection clause is also violated because the order... places the burden of
solving the agrarian problems on the owners only of agricultural lands.
that in declaring the beneficiaries under P.D. No. 27 to be the owners of the lands occupied by
them, E.O. No. 228 ignored judicial prerogatives and so violated due process. Worse, the
measure would not solve the agrarian... problem because even the small farmers are deprived of
their lands and the retention rights guaranteed by the Constitution.
it is contended that P.D. No. 27, E.O. Nos. 228 and 229 (except Sections 20 and 21) have been
impliedly repealed by R.A. No. 6657.
G.R. No. 79310
This petition seeks to prohibit the implementation of Proc. No. 131 and E.O. No. 229.
The petitioners claim that the power to provide for a Comprehensive Agrarian Reform Program as
decreed by the Constitution belongs to Congress and not the President.
the
President could exercise legislative power until the Congress was convened, she could do so only
to enact emergency measures during the transition period.
Proc. No. 131 and E.O. No. 229 would still have to be annulled for violating the constitutional
provisions on just compensation, due process, and equal protection.
they contend that taking must be simultaneous with payment of just compensation as it is
traditionally understood, i.e., with money and in full, but no such payment is contemplated in
Section 5 of the E.O. No. 229.
Section 6 thereof provides that the Land Bank of the Philippines "shall compensate the landowner
in an amount to be established by the government, which shall be based on the owner's
declaration of current fair mar... ket value as provided in Section 4 hereof, but subject to certain...
controls to be defined and promulgated by the Presidential Agrarian Reform Council." This
compensation may not be paid fully in money but in any of several modes that may consist of part
cash and part bond, with interest, maturing periodically,... or direct payment in cash or bond as
may be mutually agreed upon by the beneficiary and the landowner or as may be prescribed or
approved by the PARC.
lleges that President Aquino had no authority to fund the Agrarian Reform Program... the
appropriation is invalid because of uncertainty in the amount appropriated.
the sugar planters have failed to show that they belong to a different class and should be differently
treated.
the constitutional prohibition is against the payment of public money without the corresponding
appropriation
G.R. No. 79744
The petitioner now argues that:
(1) E.O. Nos. 228 and 229 were invalidly issued by the President of the Philippines.
(2) The said executive orders are violative of the constitutional provision that no private property
shall be taken without due process or just compensation.
(3) The petitioner is denied the right of maximum retention provided for under the 1987
Constitution.
E.O Nos. 228 and 229... violating the doctrine of separation of powers. The legislative power
granted to the President under the Transitory
Provisions refers only to emergency measures that may be promulgated in the proper exercise of
the police power.
As for the validity of the issuance of E.O. Nos. 228 and 229, he argues that... they were enacted
pursuant to Section 6, Article XVIII of the Transitory Provisions of the 1987 Constitution which
reads:
The incumbent president shall continue to exercise legislative powers until the first Congress is
convened.
distinctions between the police power and the power of eminent domai... was eminent domain
because the property involved was wholesome and intended for a public use.
Property condemned under the police power is noxious or intended for a noxious purpose, such as
a... building on the verge of collapse, which should be demolished for the public safety, or obscene
materials, which should be destroyed in the interest of public morals. The confiscation of such
property is not compensable,... he taking of property under the... power of expropriation, which
requires the payment of just compensation to the owner.
Every restriction upon the use of property imposed in the exercise of the police power deprives the
owner of some right theretofore enjoyed, and is, in that sense, an abridgment by the State of rights
in property without making compensation.
Whenever the use prohibited... ceases to be noxious - as it may because of further changes in
local or social conditions - the restriction will have to be removed and the owner will again be free
to enjoy his property as heretofore.
As for the power of expropriation, P... which sustained a zoning law under the police power...
eminent domain as encompassing public acquisition of private property for... improvements that
would be available for "public use," literally construed.
Preservation of the landmark was held to be a valid objective of the police... power.
o the extent that the measures under challenge merely prescribe retention limits for landowners,...
But where, to carry out such regulation, it becomes necessary to deprive such owners of whatever
lands they may own in excess of the maximum area allowed,... there is definitely a taking under the
power of eminent domain for which payment of just compensation is imperative.
The argument of the small farmers that they have been denied equal protection because of the
absence of retention limits has also become academic under Section 6 of R.A. No. 6657
Classification
Equal protection... that all persons or things similarly situated must be treated alike both as to the
rights conferred and the liabilities imposed
Basically, the requirements for a proper exercise of the power are... it is not correct to say that only
public agricultural lands may be covered by the CARP as the Constitution calls for "the just
distribution of all agricultural lands.
"political question... are to be decided by the people in their sovereign capacity
It is concerned with issues dependent upon the wisdom, not legality, of a particular measure.
the requirement for public use has already been settled for us by the Constitution itsel
The second requirement,... the payment of just compensation... s held in Republic of the
Philippines v. Castellvi,[4... following conditions concur
The purposes specified in P.D. No. 27, Proc. No. 131 and R.A. No. 6657 are only an elaboration of
the constitutional... injunction that the State adopt the necessary measures "to encourage and
undertake the just distribution of all agricultural lands to enable farmers who are landless to own
directly or collectively the lands they till." That public use, as pronounced by the... fundamental law
itself, must be binding on us.
(1) the expropriator must enter a... private property; (2) the entry must be for more than a
momentary period; (3) the entry must be under warrant or color of legal authority; (4) the property
must be devoted to public use or otherwise informally appropriated or injuriously affected;... and (5)
the utilization of the property for public use must be in such a way as to oust the owner and deprive
him of beneficial enjoyment of the property.
Section 16(e) of the CARP Law provides that:
Upon receipt by the landowner of the corresponding payment or, in case of rejection or no
response from the landowners upon the deposit with an accessible bank designated by the DAR of
the compensation in cash or in LBP bonds in accordance with this Act, the DAR... shall take
immediate possession of the land and shall request the proper Register of Deeds to issue a
Transfer Certificate of Title (TCT) in the name of the Republic of the Philippines. The DAR shall
thereafter proceed with the redistribution of the land to... the qualified beneficiaries.
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 governmen... the determination of the just
compensation by the DAR is not by any means... final and conclusive upon the landowner or any
other interested party, for Section 16(f) clearly provides:
DAR is only preliminary... courts of justice will still have the right to review with finality
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 Sections 16 and 17,... and other pertinent provisions hereof, or as
may be finally determined by the court, as the just compensation for the land.
(1) Cash payment
(2) Shares of stock in government-owned or controlled corporations, LBP preferred shares,
physical assets or other qualified investments in accordance with guidelines set by the PARC;
3) Tax credits which can be used against any tax liability;
(4) LBP bonds,... Such a program will involve not mere millions of pesos. The cost will be
tremendous.
Such amount is in fact not even fully available at this time.
Section 18 of the CARP Law is not violative of the Constitution.
The recognized rule, indeed, is that title to the property expropriated shall pass from the owner to
the expropriator only upon full payment of the just compensation. Jurisprudence on this settled
principle is... consistent both here and in other democratic jurisdictions.
all rights acquired by the tenant-farmer under P.D. No. 27, as recognized under E.O. No. 228, are
retained by him even now under R.A. No. 6657
Issues:
roc. No. 131 and E.O. No. 229 should be invalidated because they do not provide for retention
limits as required by Article XIII, Section 4 of the Constitution is no longer... tenable.
Proc. No. 131 and E.O. No. 229 should be invalidated because they do not provide for retention
limits as required by Article XIII, Section 4 of the Constitution is no longer... tenable.
E.O. No. 229 violates the constitutional requirement that a bill shall have only one subject, to be
expressed in its title, deserves only short attention. It is settled that the title of the bill does not...
have to be a catalogue of its contents and will suffice if the matters embodied in the text are
relevant to each other and may be inferred from the title.
The taking contemplated is not a mere limitation of the use of the land.
The challenge to Proc. No. 131 and E.O. Nos. 228 and 229 on the ground that no retention limits
are prescribed has already been discussed and dismissed.
he DAR shall conduct summary administrative proceedings to determine the compensation for the
land by requiring the landowner, the LBP and other interested parties to submit evidence as to
the... just compensation for the land, within fifteen (15) days from the receipt of the notice. After
the expiration of the above period, the matter is deemed submitted for decision. The DAR shall
decide the case within thirty (30) days after... it is submitted for decision.
Ruling:
The promulgation of P.D. No. 27 by President Marcos in the exercise of his powers under martial
law has already been sustained in Gonzales v. Estrella and we find no reason to modify or reverse
it on that issue. As for the power of President
Aquino to promulgate Proc. No. 131 and E.O. Nos. 228 and 229, the same was authorized under
Section 6 of the Transitory Provisions of the 1987 Constitution,... An appropriation law is one the
primary and specific purpose of which is to authorize the release of public funds from the... treasur
The creation of the fund is only incidental to the main objective of the proclamation, which is
agrarian reform.
R.A. No. 6657 does provide for such limits now in Section 6 of the law, which in fact is one of its
most controversial provisions. This section declares:
Retention Limits. - Except as otherwise provided in this Act, no person may own or retain, directly
or indirectly, any public or private agricultural land, the size of which shall vary according to factors
governing a viable... family-sized farm, such as commodity produced, terrain, infrastructure, and
soil fertility as determined by the Presidential Agrarian Reform Council (PARC) created hereunder,
but in no case shall retention by the landowner exceed five (5) hectares. Three
(3) hectares may be awarded to each child of the landowner, subject to the following
qualifications: (1) that he is at least fifteen (15) years of age; and (2) that he is actually tilling the
land or directly managing the farm; Provided, That landowners whose... lands have been covered
by Presidential Decree No. 27 shall be allowed to keep the area originally retained by them
thereunder, further, That original homestead grantees or direct compulsory heirs who still own the
original homestead at the time of the approval of... this Act shall retain the same areas as long as
they continue to cultivate said homestead.
But restriction imposed to protect the public health, safety or morals from dangers threatened is not
a taking.
o the police power, on the other hand, they assigned the less intrusive task of preventing harmful
externalities
So long as suppression of a privately authored harm bore a plausible relation to some legitimate
"public purpose," the pertinent measure need... have afforded no compensation whatever.
there is an... exercise of the police power for the regulation of private property in accordance with
the Constitution.
What is required is the surrender of... the title to and the physical possession of the said excess
and all beneficial rights accruing to the owner in favor of the farmer-beneficiary. This is definitely
an exercise not of the police power but of the power of eminent... domain.
(1) public use... just compensation.
Principles:
that... private property shall not be taken for public use without just compensation.
Eminent domain is an inherent power of the State that enables it to forcibly acquire private lands
intended for public use upon payment of just compensation to the owner.
as in the case of the police power, that the welfare of the people is the supreme law.
he power of expropriation is by no means absolute... private property shall not be taken for public
use without just... compensation"
Just compensation is defined as the full and fair equivalent of the property taken from its owner by
the expropriator.[39] It has been repeatedly stressed by this Court that the measure is not the
taker's gain... but the owner's loss.[40] 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, ample... deal here with an actual taking of private agricultural lands
that has dispossessed the... owners of their property and deprived them of all its beneficial use and
enjoyment, to entitle them to the just compensation mandated by the Constitution.
Any party who disagrees with the decision may bring the matter to the court of proper jurisdiction
for final determination of just compensation.
The fundamental rule in expropriation matters is that the owner of the property expropriated is
entitled to a just compensation, which should be neither more nor less, whenever it is possible to
make the assessment, than the money... equivalent of said property. Just compensation has
always been understood to be the just and complete equivalent of the loss which the owner of the
thing expropriated has to suffer by reason of the expropriation.
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.
"Just compensation" for property taken by condemnation means a fair equivalent in money, which
must be paid at least within a reasonable time after the taking, and it is not within the power of the
Legislature to substitute for such payment future obligations,... bonds, or other valuable
advantage.[... we do not deal here with the traditional exercise of the power of eminent
domain. This is not an ordinary expropriation where only a specific property of relatively limited
area is sought to be taken by the State from... its owner for a specific and perhaps local
purpose. What we deal with here is a revolutionary kind of expropriation.
his kind of expropriation is intended for the... benefit not only of a particular community or of a
small segment of the population but of the entire Filipino nation, from all levels of our society, from
the impoverished farmer to the land-glutted owner.
Its purpose does not cover only the whole territory of... this country but goes beyond in time to the
foreseeable future, which it hopes to secure and edify with the vision and the sacrifice of the
present generation of Filipinos... heir intention was to allow such manner of payment as is now
provided for by the CARP Law, particularly the... payment of the balance (if the owner cannot be
paid fully with money), or indeed of the entire amount of the just compensation, with other things of
value
Accepting the theory that payment of the just compensation is not always required to be made fully
in money, we find further that the proportion of cash payment to the other things of value
constituting the total payment, as determined on the basis of the areas of the lands... expropriated,
is not unduly oppressive upon the landowner... he other modes, which are likewise available to the
landowner at his option, are also not unreasonable... because payment is made in shares of stock,
LBP bonds, other properties or assets, tax credits, and other things of value equivalent to the
amount of just compensation.
1. R.A. No. 6657, P.D. No. 27, Proc. No. 131, and E.O. Nos. 228 and 229 are SUSTAINED
against all the constitutional objections raised in the herein petitions.
2. Title to all expropriated properties shall be transferred to the State only upon full payment of
compensation to their respective owners.
3. All rights previously acquired by the tenant-farmers under P.D. No. 27 are retained and
recognized.
4. Landowners who were unable to exercise their rights of retention under P.D. No. 27 shall enjoy
the retention rights granted by R.A. No. 6657 under the conditions therein prescribed.
5. Subject to the above-mentioned rulings, all the petitions are DISMISSED, without
pronouncement as to costs.
SO ORDERED.
 EN BANC

G.R. No. 136827 July 31, 2001

THE SECRETARY OF AGRARIAN REFORM, THE REGIONAL DIRECTOR FOR REGION XI, ALEJO V.
DUQUE, MNSA and THE PROVINCIAL AGRARIAN REFORM OFFICER OF DAVAO CITY, JUAN C.
BARROT, BOTH OF THE DEPARTMENT OF AGRARIAN REFORM, FARMERS-BENEFICIARIES
REYNALDO H. BASALAN, AUREO H. BASALAN, JUSTINA FROILAN, PEDRO T. OROYAN, and THE
REST OF THE PRIVATE RESPONDENTS IN DARAB CASE NO. XI-1112-DC-94 (DARAB APPEAL CASE
NO. 6047/CA-G.R. SP NO. 46262), petitioners,
vs.
TROPICAL HOMES, INC., respondent.

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

G.R. No. 136799 July 31, 2001

SECRETARY OF AGRARIAN REFORM, REGIONAL DIRECTOR, REGION XI and PROVINCIAL

AGRARIAN REFORM OFFICER, DAVAO CITY, BOTH OF THE DEPARTMENT OF AGRARIAN
REFORM, TOMASA T. ESTILLORE, FELIX S. GICALA, ERLINDA P. MALACURA, AGUIDO A.
BENTAZA, ERNESTO MANIEGO, SANDY M. PADRIGON, BENJAMIN P. CAMINADE, EVELIO P. RICA,
VICTOTIA P. BISNAR, INOCENTIS CAMUS, RODRIGO B. LUCES, ELIAS C. MANIEGO, PACIFICO H.
BASALAN, AMBROSIO L. GEALON, AMADA P. TUBIG, JULIANO A. MASIN, LEONORA S. VILLAMOR,
ORCISIA D. ANTANG, AQUILINA M. SORIA, ANASTACIO A. DUMLAO, JIMMY ABAYAN OTIDA,
JUANEVE D. PERIQUIT, NUMERIANO C. CAMINADE, WILFREDO A. MARQUEZ, DOMINADOR FANO
ANDALES, AGUSTINA G. CARDONA, CESAR J. LABELLA, MAMERTO G. ESPERANZA, NAVALES
WALDO B. DELINA, VISITACION TAYO DATOR, NORMA C. PACYAO, EXPEDITA BALDERAMA
SELARGA, DOROTEO CASAS ROM, MAGDALENA G. AUGUIS, PILAR MASIN MATAS, JOVINA B.
PELAYAO, TEODULO O. CARDENO, FIDEL G. LIBRE, PANFILO DINGAL ANIÑON, EDUARDO A.
CORTEZ, VENANCIO B. CARIO, JONATHAN G. COMIDOY, EVERARDO L. BERNIR, CRISPIN B.
SALUPAN, RUFINA A. VILLAHERMOSA, ANDREA G. A. PORLARES, NEMESIO C. GASCAL, VICENTE
I. CARDENO, SAMUEL A. CREDO, LITA OPLINA QUIMPAN, RUPERTO G. QUINDOY, AGRIPINA
SURDILLA, SIXTO B. DIEZ, FUENTES A. CORTEZ, ISIDRO P. MAKIWAG, INECITA B. BAYUD,
TERESITA DAHUYLA, MAURICIO A. VELARDE, AUREO BASALAN, ANTONIO GATDULA, ISIDRO
REPONTE, TEOFILO G. MELLIJOR, DIOSDADO L. BAYRON, ROMEO GITO, JR., ROQUE QUIÑONES,
ANASTACIO DAHOYLA, PEDRO DELLOSA RUBILLAR, PEDRO T. OROYAN, EMETERIO VENTEDO
BAUTISTA, PERLA MARQUEZ BAGUIO, ROGELIO PELAYO CATAPAN, REY BACHILLER ARAGON,
LEOPOLDO P. DIORESMA, JEREMIAS SUDAY, DANIEL D. DARUNDAY, BONIFACIO FULGUERINAS,
ANDRES C. PANTOJA, FELOMINO L. GETIZO, CRISPIN ABELLA, CRISTITA S. BAGUIO, JOSE S.
CAYAPOS, GREGORIO C. ROM, MELQUIADES M. CHAVES, RAMIL C. AYCO, LUZVIMINDA V.
OMBING, MARCELO F. BOLOTAULO, ANTONIO DE LOS REYES, FERNANDO R. QUIÑO, TEOFILA
FLORES, ROLANDO DELMO, JULIANA V. ACUÑA, VICTORINA A. CAMINADE, MIGUEL M. VILLEGAS,
BONIFACIO A. ALCONTIN, AQUILINO C. BUZON, APARICIO A. MONTAÑA, EDUARDO RACOMA,
CONCHITA RECEDE VALLE, ROQUE T. CHAVEZ, CESAR COLIS DONOS, CARLITO VILLANCIO,
ESTRELLA CARCELLER, FELIPE A. ALO, CESO G. RANGAS, BERTOLDO S. LLAMERA, ARCADIO
ACALA, LETECIA B. OUANO, TOMAS B. RUBILLAR, GERARDO C. DOONG, ELIZA JANE C.
GILLANO, ROMUALDO CRUZ, MAMERTO F. SURDILLA, LEONARDO V. ORBETA, JUSTINA V.
FROILAN, FERMIN R. CABALLERO, DOMINGO M. MANSALAY, REYNALDO D. SURDILLA, ROSITA C.
LUNA, JERRY A. SUDAY, MIGUEL O. PADRIGON, CRISANTA CABALLES, ARMANDO L.
RELAMPAGOS, HERMAN E. RECOMA, JOSE G. MARTINEZ, DOMINADOR L. CARTILLAS, JOSEFINA
C. BUSANO, REMEDIOS Y. NAVALES, ESTANISLAO A. CARDONA, and SILVINO DE LOS
SANTOS, petitioners-appellants,
vs.
TROPICAL HOMES, INC., respondent-appellee.

DE LEON, JR., J.:

These two (2) consolidated petitions for review on certiorari, filed under Rule 45 of the Rules of Court, seek
the reversal of the Decision1 of the Court of Appeals in CA-G.R. SP No. 46262 dated August 5, 1998.
However, while petitioners in G.R. No. 136827 entitled "Secretary of Agrarian Reform, et al. v. Tropical
Homes, Inc." also pray for a reversal of the appellate court's Resolution2 dated October 8, 1998 denying
their motion for reconsideration, the petitioners-appellants in G.R. No. 136799 entitled "Secretary of Agrarian
Reform, et al. v. Tropical Homes, Inc.", pray that the Resolution3 dated November 10, 1998 of the appellate
court ordering their motion for reconsideration expunged from the rollo, be set aside.

The Comprehensive Agrarian Reform Program (CARP) is the bastion of social justice of poor landless
farmers, the mechanism designed to redistribute to the underprivileged the natural right to toil the earth, and
to liberate them from oppressive tenancy. To those who seek its benefit, it is the means towards a viable
livelihood and ultimately, a decent life. The objective of the State is no less certain: "landless farmers and
farmworkers will receive the highest consideration to promote social justice and to move the nation toward
sound rural development and industrialization."4 Unfortunately, these two (2) related cases leave us in a
serious predicament. For while we sympathize with the economically wanting, especially the landless
farmers, we cannot go against what is laid down in our statute books and in established jurisprudence. Thus,
we resolved to deny both petitions.

Carlos Iñigo is the former registered owner of parcels of land covered by TCT Nos. 30843, 30844, 30845
and 30846 located in Bago Iñigo, Toril, Davao City, with an aggregate area of more or less One Million Five
Hundred Thirty-Two Thousand Four Hundred Fifteen (1,532,415) square meters.

On July 17, 1971, Iñigo and herein respondent Tropical Homes, Inc. (TROPICAL for brevity) entered into a
Joint Venture Agreement for the development of the property into a residential area, which was later known
as the "Better Living Subdivision".

Inasmuch as the property was located in an agricultural zone, TROPICAL filed with the City Council of
Davao an application for reclassification of the area from agricultural into residential.

On October 2, 1972, the City Council of Davao, through Resolution No. 558,5 declared the site of the Better
Living Subdivision as residential area, maintaining that it was outside the present Zonification and
Development Plan of the City.

On February 14, 1975, Rosita M. Iñigo, by then the widow of Carlos Iñigo, together with the rest of the heirs
of the late Carlos Iñigo, divided among themselves the properties above-mentioned through a Deed of
Extra-Judicial Partition. This Deed was inscribed in the Register of Deeds of Davao City. As a result, TCT
Nos. 30843, 30844, 30845 and 30846 were cancelled and in lieu thereof, TCT Nos. 47427, 47428, 47429
and 47430 were issued in their names.

On May 31, 1977, the Joint Venture Agreement dated July 17, 1971 entered into by the late Carlos Iñigo and
respondent Tropical was also inscribed in the Registry of Deeds of Davao City. Coupled with the Notice and
Manifestation of Conformity of the Heirs of the late Carlos Iñigo, TCT Nos. 47427, 47428, 47429 and 47430
were cancelled and replaced by TCT Nos. 56940, 56941, 56942 and 56943, all registered in the name of
TROPICAL.

On August 29, 1990, the Department of Agrarian Reform (DAR), through its Davao City office, notified
respondent Tropical that its property would be covered by the CARP.

On April 25, 1991, DAR issued three (3) Notices of Acquisition to TROPICAL, specifying that One Million
Thirty-Seven Thousand Two Hundred Seventy-Two (1,037,272) square meters of the land covered by TCT
Nos. 56940, 56941, 56942 and 56943 would be the subject of compulsory acquisition.

This landholding is what is now involved in the present controversy.

Following the issuance of the corresponding Notices of Valuation, the DAR Regional Director instructed the
Register of Deeds of Davao City to cancel the titles of three (3) separate parcels of land consisting of an
area of One Million Thirty-Seven Thousand Two Hundred Seventy-Two (1,037,272) square meters, the area
subject to compulsory acquisition. Thereafter, TCT No. T-184249 was issued in the name of the Republic of
the Philippines.

Consequently, DAR, through Certificate of Land Ownership Award (CLOA) No. 301148, distributed the
landholding to the identified farmer-beneficiaries.

On November 17, 1993, TROPICAL filed a petition with the Provincial Agrarian Reform Adjudicator
(PARAD)6 for the cancellation of the CLOA mainly on the ground that the landholding was outside the
coverage of the CARP.

While the petition was pending, a Motion For Intervention7 was filed by Rolando B. Bersamin, Gaudencio O.
Basa, Henry Cabrera, Rolando A. Bersamin II, Isidora Fallorina, Rodrigo Chavez, Arnel Dahoyla, Sandro
Severino, Bellano Pacyao, Genara Diez and Eddie Maniego, all of whom alleged that they are bona
fide residents of the landholding but were excluded in the CLOA.

In a Decision8 dated May 6, 1997, the PARAD ruled in favor of TROPICAL. It also denied the motion for
intervention, finding that the right over the property could be properly threshed out in a separate proceeding
duly instituted for that purpose. Since their subsequent motion for reconsideration was similarly denied, the
petitioners, as respondents in that case, filed a Notice of Appeal with the Department of Agrarian Reform
Adjudication Board (DARAB) on May 30, 1997. Three (3) days later, they filed a Manifestation and Motion
for the Issuance of a Temporary Restraining Order (TRO) and Writs of Preliminary Prohibitory and
Mandatory Injunction with the same office, claiming that TROPICAL arrogated upon itself possessory
rights over the property by causing the demolition of the farmers-beneficiaries' houses, fencing the property
and posting guards to secure the area, in clear violation of the DARAB New Rules on Procedure.9 DARAB
issued an Order granting the motion. Moreover, in a Decision10 dated December 4, 1997, DARAB reversed
the ruling of the PARAD.

On December 11, 1997, TROPICAL filed a petition for review on certiorari with the Court of Appeals and an
Urgent Motion for the Issuance of a TRO. It claimed that it would suffer irreparable injury if the execution of
the assailed DARAB Decision was not enjoined; and that if petitioners continue demolishing the gates and
the fence surrounding the land, unauthorized persons would be able to illegally enter and occupy it, bringing
to naught all the time, effort and money consumed in clearing the area.11 Subsequently, the appellate court
granted the TRO prayed for, which was later replaced by a Writ of Preliminary Injunction.

On August 5, 1998, the Court of Appeals rendered its questioned Decision12 in favor of TROPICAL. Both
petitioners and petitioners-appellants filed their respective motions for reconsiderations. While the first
motion was denied for having been filed beyond the fifteen (15) day reglementary period, the second motion
for reconsideration was ordered expunged from the rollo, pursuant to the motion for partial reconsideration
filed by TROPICAL. In that motion, it was alleged inter alia that petitioners-appellants are not parties to the
case and that at no point in the whole legal process, from the PARAD to the Court of Appeals, were they
allowed to intervene.

Hence, the present petitions.

The procedural infirmities of this case are replete, and sadly, fatal to both causes of action. In G.R. No.
136827, a careful review of the records reveals that the petition should have been dismissed outright for
having been filed beyond the reglementary period to appeal. Petitioners' claim that they received the
Decision of the Court of Appeals dated August 5, 1998 on the 19th of the same month.13 Thus, counting
fifteen (15) days from August 19, 1998, their motion for reconsideration should have been filed on
September 3, 1998.14 However, what they filed instead was a Motion for Extension of Time15 praying for an
additional fifteen (15) days to file their motion for reconsideration. Unfortunately for petitioners, this Court
has already ruled squarely on the matter that no such motion for extension shall be entertained. In the case
of Habaluyas Enterprises, Inc. v. Japson,16 we ruled that the fifteen (15) day reglementary period for
appealing or for filing a motion for reconsideration cannot be extended. Petitioners argued that the Legal
Assistance Division of the DAR Provincial Office in Davao City is undermanned because a substantial
number of its staff is on official leave. Surely, this is an understandable excuse, albeit a non-legal one. We
cannot go against what is settled in our jurisprudence by the mere expedient that there is not enough people
to do the work. This is a problem that should be properly addressed by the executive branch of the
government. The DAR must develop a system of procedure that would enable it to comply with the
reglementary period for filing pleadings.17 Apparently, petitioners erroneously assumed that the extension
was granted considering that their motion for reconsideration was filed only on September 18, 1998,18 or
fifteen (15) days after the assailed Decision had become final and executory. In Rolloque, et al. v. Court of
Appeals, et al.,19 we already ruled in this wise -

xxx xxx xxx

The filing by petitioners of a motion for extension of time to file motion for reconsideration did not toll
the fifteen (15) days period before a judgment becomes final and executory.

Since the decision of respondent Court of Appeals dated November 28, 1996 has long become final
and executory at the time of the filing of this petition, this Court can no longer alter or modify the
same.

xxx xxx xxx

Not having perfected their appeal in the manner and within the period fixed by law, the decision of the Court
of Appeals had become final and executory. Such a failure carries with it the result that no court can
exercise appellate jurisdiction to review the case.20 However, it is true that we have recognized certain
exceptions to this rule. In Ramos v. Bagasao,21 we excused the delay of four (4) days in the filing of a notice
of appeal because the questioned decision of the trial court was served upon appellant at a time when her
counsel of record was already dead.22 Her new counsel could only file the appeal four (4) days after the
prescribed reglementary period was over.23 In Republic v. Court of Appeals,24 we allowed the perfection of
an appeal by the Republic despite the delay of six (6) days to prevent a gross miscarriage of justice since it
stood to lose hundreds of hectares of land already titled in its name and had since then been devoted for
educational purposes.25 In Olacao v. National Labor Relations Commission,26 we accepted a tardy appeal
considering that the subject matter in issue had theretofore been judicially settled, with finality, in another
case.27 The dismissal of the appeal would have had the effect of the appellant being ordered twice to make
the same reparation to the appellee.28 Unfortunately, we find no reason to make this case an exception. Our
ruling in Habaluyas Enterprises, Inc. v. Japson29 has been in force for fifteen (15) years. It is hard to believe
that petitioners were not aware of this ruling, or assuming that they were, their utter disregard of it is simply
unacceptable.

The petitioners-appellants in G.R. No. 136799 likewise committed a procedural error fatal to their cause of
action. When they filed their Motion for Intervention on November 25, 1996,30 the DARAB New Rules of
Procedure was already in effect.31 Rule IX, Sec. 3 thereof states -

SECTION 3. Intervention. The filing of a motion for intervention shall be discouraged. Such motion
shall be entertained only upon a clear showing by the would-be intervenor that he has a substantial
right or interest in the case that cannot be adequately pursued and protected in another proceeding.

Thus, for such a motion for intervention to be entertained, two (2) requisites must concur. First, the would-be
intervenor must show that he has a substantial right or interest in the case and that second, it cannot be
adequately pursued and protected in another proceeding. The absence of even one requisite will warrant its
denial. Acting on this provision, the PARAD in fact denied the motion for intervention, ruling that "their
(petitioners-intervenors) rights over the property xxx can be properly threshed out in a separate proceeding
duly instituted for the purpose".32 In Republic v. Sandiganbayan,33 we held that the discretion of a court (in
this case a quasi-judicial agency) to allow intervention, once exercised, cannot be reviewed by certiorari nor
controlled by mandamus save in instances where such discretion has been exercised in an arbitrary or
capricious manner. Petitioners-appellants have not shown that the exercise of this discretion was made in
the manner above- described. Hence, it behooves this Court to leave the denial of the motion for
intervention to the wisdom of the PARAD. Besides, the theory of petitioners-appellants that as bona
fide occupants of the landholding, they automatically acquire a substantial right or interest in the case34 is
unmeritorious. The (right or) interest here referred to is generally required to be direct and not consequential,
and one properly determinable in the action in which intervention is sought.35 The issue of whether or not
they were improperly excluded from the CLOA is an issue totally different from that in G.R. No. 136827,
which is whether the City Council of Davao, through Resolution No. 558, validly reclassified the landholding
from agricultural area to residential area, hence, rendering it outside the coverage of the CARP. If indeed it
was validly reclassified, then there would be no CLOA to speak of. Petitioners-appellants would have had no
cause of action. Conversely, if the reclassification was invalid, then the CLOA's legality would merely be
affirmed. It must be borne in mind that the alleged substantial right or interest of petitioners-appellants is
based not on the legality or illegality of the CLOA brought about by the supposed questionable
reclassification done by the City Council of Davao through Resolution No. 558, rather, it is based on their
claim that they were improperly excluded from it. Thus, their interest is not one properly determinable in the
action in which intervention is sought. To further complicate the case by adding parties who have totally
separate interests which can be the proper subject of a separate proceeding, will simply delay the
expeditious resolution thereof. It has been settled that the right to intervene is not an absolute right, for the
statutory rules or conditions for the right to apply must be shown.36 As the two (2) requisites were not met,
petitioners-appellants have no standing to intervene. At this point, the proper course of action was simply to
have filed a separate proceeding altogether.

Furthermore, the fact that petitioners-appellants were served with pleadings, resolutions, orders and
decisions from the PARAD to this Court cannot be construed as an implied admission of their being parties
to the case. Not even the Resolution37 dated December 12, 1997 of the Court of Appeals requiring them to
Comment on the Petition of TROPICAL, nor the Resolution38 dated June 16, 1999 of this Court requiring
them to Reply to the Comment39 filed by the same respondent makes them parties. Intervention is merely
collateral or accessory or ancillary to the principal action, and is not an independent proceedings.40 By this
process, a person not originally made a party may be permitted on his own application to obtain the status of
a party to the principal action.41 In other words, the only way for an intervenor to become a party of a case is
if a court or any other quasi-judicial agency authorized by law grants his motion to intervene. In the case at
bar, petitioners-appellants failed to produce any evidence that would prove that their motion to intervene was
granted. In fact, the records show that it was denied by the PARAD. The petitioners-appellants, not being
parties to this case, and therefore having no legal standing to file the petition before us, their said petition
must be denied.

Finally, even if petitioners-appellants could prove that they had every right to intervene, it is too late in the
day to allow the same. The petitioners in G.R. No. 136827 failed to file their motion for reconsideration of the
Decision42 of the Court of Appeals within the reglementary period. Thus, it has become final and executory.
Logically, as the case has already been terminated by final judgment, intervention is no longer possible.43

It is indeed lamentable that the two (2) instant petitions must be denied for failure to comply with the
procedural requirements set forth in the Rules of Court. While it is true that a litigation is not a game of
technicalities, it is equally true that every case must be prosecuted in accordance with the prescribed
procedure to ensure an orderly and speedy administration of justice.44

WHEREFORE, in view of the foregoing, the consolidated petitions are hereby DENIED. The assailed
Resolution dated November 10, 1998 of the Court of Appeals ordering petitioners-appellants' motion for
reconsideration expunged from the rollo is hereby AFFIRMED.
SO ORDERED. 1âw phi 1.nêt

Bellosillo, Mendoza, Quisumbing, JJ., concur.

Buena, J., abroad on official business.

Footnotes

1 Penned by Associate Justice Jorge S. Imperial and concurred in by Associate Justices Ramon A.
Barcelona and Demetrio G. Demetria (Third Division), Rollo, G.R. No. 136799, pp. 39-53.
2 CA Rollo, p. 452.

3 CA Rollo, p. 462.

4 Declaration of Policies and Principles, Republic Act No. 6657:

"AN ACT INSTITUTING A COMPREHENSIVE AGRARIAN REFORM PROGRAM TO PROMOTE

SOCIAL JUSTICE AND INDUSTRIALIZATION, PROVIDING THE MECHANISM FOR ITS
IMPLEMENTATION, AND FOR OTHER PURPOSES."
5 Rollo, G.R. No. 136827, pp. 126-127.

6 DARAB v. Court of Appeals, 266 SCRA 404, 419 (1997):

"The Department of Agrarian Reform's exclusive original jurisdiction is exercised through

hierarchically arranged agencies, namely, the Department of Agrarian Reform Adjudication Board
(DARAB), the Regional Agrarian Reform Adjudicator (RARAD) and the Provincial Agrarian Reform
Adjudicator (PARAD). The latter two exercise "delegated authority," while the first exercises
appellate jurisdiction over resolutions, orders, decisions and other dispositions of the RARAD and
the PARAD, and "functional supervision" over the RARAD and the PARAD".
7 Annex "16"; CA Rollo, pp. 351-353.

8 Penned by Provincial Adjudication Damian L. Aninion, Annex "D", CA Rollo, pp. 51-62.

9 Sec. 1 Rule XII provides;

Section 1. Execution Upon Final Order or Decision.

Execution shall issue upon an order, resolution or decision that finally disposes of the action or
proceeding. Such execution shall issue as a matter of course and upon the expiration of the period
to appeal therefrom if no appeal has been duly perfected.
10 Annex "A"; CA Rollo, pp. 28-43.

11 CA Rollo, p. 103.

12 Supra, note 1.

13 Motion for Reconsideration, CA Rollo, p. 442.

14 Rule 52 of the New Rules on Civil Procedure state-

SECTION 1. Period of filing. – a party may file a motion for reconsideration of a judgment or
final resolution within fifteen (15) days from notice thereof, with proof of service on the
adverse party.
15 CA Rollo, p. 423.

16 142 SCRA 208, 212 (1986).

"Beginning one month after the promulgation of this Resolution, the rule shall be strictly enforced
that no motion for extension of time to file a motion for new trial or reconsideration may be filed with
the Metropolitan or Municipal Trial Courts, the Regional Trial Courts, and the Intermediate Appellate
Court (now Court of Appeals). Such a motion may be filed only in cases pending with the Supreme
Court as the court of last resort, which may in its sound discretion either grant or deny the extension
requested."
17 Fortich v. Corona, 298 SCRA 678, 690 (1998).

18 CA Rollo, pp. 447-448.

19 193 SCRA 47, 56 (1991).

20 Azores v. Securities and Exchange Commission, 252 SCRA 387; 388 (1996).

21 96 SCRA 395 (1980).

22 Bank of America, NT & SA v. Gerochi, Jr., 230 SCRA 9,15 (1994).

23 Id.

24 83 SCRA 453 (1978).

25 Supra, note 22.

26 177 SCRA 38, 49 (1989).

27 Supra, note 22.

28 Id.

29 Supra, note 16.

30 Annex "16"; CA Rollo, pp. 351-353.

31 June 22, 1994 (Date of Effectivity).

32 CA Rollo, p. 61.

33 184 SCRA 382, 388 (1990).

34 Annex "16" ; CA Rollo, pp. 351-353.

35 59 Am Jur 2d 592.

36 Big Country Ranch Corp. v. Court of Appeals, 227 SCRA 161, 165 (1993).
 37 CA Rollo, p. 101.
38 Rollo, G.R. No. 136799, p. 196-A.
39 Rollo, G.R. No. 136799, p. 181.

40 J.M. Tuason & Co., Inc. v. Torres, 105 SCRA 653, 673 (1981); Islamic Directorate of the

Philippines, et al. v. CA, et al., 272 SCRA 454, 467 (1997).

41 59 Am Jur 2d 574, 575.

42 Supra, note 1.

43 Rabino v. Cruz, 222 SCRA 493, 501 (1993).

44 Supra, note 17 at 691.

FIRST DIVISION

G.R. No. 136831 July 30, 2002

CAROLINA LIQUETE GANZON, petitioner,

vs.
HONORABLE COURT OF APPEALS, FLORISCO BANHAW, HONORATO BANHAW, ROLANDO
BANHAW, IGMEDIO PAMA, ANGELINO ABELITA, RENATO ABELITA and AMABLE
ABELITA, respondents.

VITUG, J.:

The primary issue raised in this petition for review is whether or not an agricultural leasehold tenancy
relation exists between petitioner Carolina Liquete Ganzon and private respondents Florisco Banhaw, et al.,
such that if, indeed, the latter could so qualify as agricultural leasehold tenants, they should not be ejected
from the property in question on account of their security of tenure, or whether such relationship is merely
one of an ordinary civil law lease that would entitle petitioner, given the factual settings, to recover
possession of the property.

An action for recovery of possession with damages was filed by petitioner Carolina Ganzon in November
1985 before the Regional Trial Court ("RTC"), Branch 29, of Iloilo, (Civil Case No. 16822). The action was
anchored by petitioner on two causes of action, i.e., (a) expiration of the contract of lease and (b) violation of
the terms of said contract by respondent Florisco Banhaw. The complaint contained a number of allegations,
among them -

"x x x (1) that plaintiff is the registered owner of a parcel of land situated in Balasa, Iloilo with an area
of 17.4909 hectares, covered by TCT Nos. T-48983, and another lot with an area of 1.7655 hectares
covered by TD No. 0085; (2) that on March 11, 1974, plaintiff and defendant Florisco Banhaw
entered into a contract of lease on said lot for a term of three (3) years, commencing from the crop
year 1974-1975 up to and including the crop year 1976-1977; (3) that it is provided in the contract of
lease that defendant Banhaw cannot sub-lease the subject land; (4) that the term of the lease has
already expired without defendant returning possession thereof, and that it was later discovered that
defendant sub-leased the property to the other defendants; (5) that, despite demands, defendants
refused to vacate the property (pp. 1-3, Complaint; pp. 1-3, Records). Thus, plaintiff prayed that
judgment be rendered ordering defendants to vacate the property and for defendants to pay plaintiff
damages and attorney’s fees."1

Private respondents filed their answer, with counterclaim, admitting the allegations of petitioner with the
qualification that the latter, through her husband Buenaventura Ganzon, continued to receive rentals on the
property. Private respondents, however, denied petitioner’s allegation about the sublease and averred that it
was made with the knowledge of petitioner. Respondents submitted that the complaint did not state a cause
of action because the landholding was by then already covered by the "Operation Land Transfer Program"
of the government and thereby within the jurisdiction of the Department of Agrarian Reform ("DAR") as so
provided in Section 12(b) of Presidential Decree No. 946 to the effect that -

"x x x matters involving the administrative implementation of the transfer of the land to the tenant-
farmer under Presidential Decree No. 27 and amendatory and related decrees, orders, instructions,
rules and regulations, shall be exclusively cognizable by the Secretary of Agrarian Reform namely:
(underscoring supplied).

"1. Classification and identification of land-holdings;

"2. Identification of tenant-farmers and land-owners, and determination of their tenancy

relationship."2

The case was thereupon referred to the DAR (Civil Case No. 16822) for preliminary determination on
whether a tenancy relationship existed between plaintiff and defendants. The matter, however, remained
unacted upon until the enactment of Republic Act ("R.A.") No. 6657, prompting the DAR Secretary to issue a
Circular, dated 25 August 1988, directing that "cases that have been referred to DAR pursuant to the x x x
decrees before June 15, 1988 and are still pending for resolution are to be resolved and returned to the
courts of origin and/or Fiscal offices with the proper certification within 30 days from the receipt thereof."
Without waiting for the DAR certification on the nature of the relationship between the parties upon the
premise that the DAR’s determination was not binding on it, the RTC subsequently issued an order setting
the case for pre-trial. The pre-trial resulted in the limitation of the issues to -

"1. Whether or not this Court has still jurisdiction over the present case;

"2. Whether or not the contract entered into by plaintiff and defendant Florisco Banhaw dated July
11, 1974 was a civil lease;

"3. Whether or not plaintiff has the right to recover the possession of the property from the
defendants;

"4. Assuming that plaintiff has the right to recover the possession of the property subject of litigation
from the defendants, whether or not plaintiff is entitled to the reasonable rentals on the property from
the time of the expiration of the lease contract in 1977 up to the present;

"5. Whether or not plaintiff is entitled to recover any form of damages, expenses of litigation, and
attorney’s fees from defendants;

"6. If the plaintiff has no more right to recover the possession of the property subject of litigation,
whether defendants are entitled to damages on their counterclaim and attorney’s fees."3

After trial, the RTC, in its decision of 07 May 1991, resolved the case thusly:

"WHEREFORE, plaintiff’s complaint is hereby DISMISSED. Likewise, in the absence of cogent

evidence in support of defendant’s claim for damages, their counterclaim is likewise DISMISSED."4

Petitioner, not satisfied with the decision of the trial court, pursued the case with the Court of Appeals (CA-
G.R. CV No. 35417).

Meantime, it would appear that the DAR Secretary, acting on the referred case (Civil Case No. 16822) for
"preliminary determination," issued an order, dated 14 August 1991 or barely four months following the RTC
decision dismissing petitioner’s case, holding that:

"A perusal of the Contract of Lease entered into by and between Carolina L. Ganzon, Plaintiff,
and Florisco Banhaw, one of the defendants on July 11, 1974 shows that the same is a civil law
lease contract and not an agricultural lease, the term or period of which was for three (3) years
commencing from the crop year 1974-1975 up to and including the crop year 1976-1977. The
consideration for the said contract is an annual payment of 220 cavans of palay by the lessee to the
lessor payable within the month of February of every year. One important condition embodied in the
contract is that the lessee cannot sub-lease the subject land to any other person.

"x x x xxx xxx

"Under the facts of this case, the investigation reports revealed that the lessee instituted his two
children, namely, Nolasco and Honorato, both surnamed Banhaw, as well as his son-in-law, Amable
Abelita, as tenants on the landholding in question. In the same manner, Angelino Abelita (another
co-defendant) was instituted as tenant in the same landholding by the same Florisco Banhaw.
Renato Abelita, son of Angelino Abelita, was instituted tenant therein by his father.

"We agree with the findings of the Regional Director which we find to be supported by substantial
evidence that herein defendant Florisco Banhaw is a civil law lessee on the landholding in question
and therefore he could not institute as tenants his co-defendants Honorato Banhaw, Nolasco
Banhaw, Renato Abelita and Amable Abelita not only because they are immediate members of his
farm household but because of the fact that under the expressed terms of the contract, the lessee
cannot sublease the land to other persons. The same argument holds true in respect to the
employment of Messrs. Angelino Abelita and Igmedio Pama. The argument that tenancy relation can
be created with the consent of the lawful owner, lessee, usufructuary, or legal possessor of the
landholding is untenable. It is worthy to mention the case of Gabriel vs. De Leon where the Court
ruled that `in order to determine the real intention and purpose of the parties in entering into this
contract of lease, recourse has to be made to the clear and unequivocal provisions of the contract."5

Petitioner gave stress to these pronouncements, made by then DAR Secretary Benjamin T. Leong, before
the Court of Appeals to show that the trial court erred in its finding that respondents were agricultural
leasehold tenants entitled to security of tenure under Section 7 of Republic Act No. 1199. Petitioner
maintained that the vinculum that bound Florisco Banhaw and petitioner was an ordinary contract of lease.
The Court of Appeals was not convinced. In its decision of 03 December 1997, the appellate court affirmed
the trial court’s finding on the existence of an agricultural leasehold tenancy but took exception from the
ruling of the trial court on the application of Republic Act No. 1199 by pointing out that the applicable law,
instead, was Republic Act No. 3844, as amended by Republic Act No. 6389. The appellate court held:

"Having reviewed the records of this case and the applicable jurisprudence, the Court finds that
while the court a quo was correct in confirming the relationship between plaintiff-appellant and
defendants-appellees as that of an agricultural leasehold tenancy, the court a quo, however, erred in
applying Republic Act No. 1199 [known as the Agricultural Tenancy Act] as the governing statute. It
must be pointed out that R.A. 1199 had already been rendered inoperative by the passage of
Republic Act No. 3844, as amended by Republic Act No. 6389 [also known as the Agrarian Reform
Code]. R.A. 1199 which was approved in 1954, sought to establish a system of agricultural share
and leasehold tenancy relations between the tenant and the landholder. However, with the
enactment of R.A. 3844, as amended, in August 1963, the system of agricultural share tenancy was
abolished for being contrary to public policy. (Bernas v. Court of Appeals, 225 SCRA 119, at page
123 [1993]). Thus, for all intents and purposes, R.A. 3844, as amended by R.A. 6389, is the
governing statute in the case at bench.

"Section 5 of R.A. 3844 provides for the establishment of agricultural leasehold relations, as follows:
`The agricultural leasehold relation shall be established by operation of law in accordance with
Section four of this Code and, in other cases, either orally or in writing, expressly or impliedly.’ Based
on the foregoing, it has been ruled by the Supreme Court that from the moment the lessor, plaintiff-
appellant in this case, granted the cultivation and use of the landholding to the lessee, Florisco
Banhaw, in exchange or consideration for a sharing in the harvest, an agricultural leasehold
relationship emerged between them by `operation of law.’ (Bernas v. Court of Appeals, ibid., at
page 135)

"Moreover, Section 7 of R.A. 3844 gave agricultural lessees security of tenure by providing the
following: `The agricultural leasehold relation once established shall confer upon the agricultural
lessee the right to continue working on the landholding and cannot be ejected therefrom unless
authorized by the Court for causes provided therein.’

"From the foregoing provisions, it is clear that regardless of the existence of the contract of lease
(Exhibit `B’) executed by plaintiff-appellant as lessor, and defendant-appellee Florisco Banhaw as
lessee, and regardless of the extinction of the contractual relations between them, defendant-
appellee Banhaw cannot be ejected from plaintiff-appellant’s landholding except upon judicial
authority and for one of the causes provided by law."6

Petitioner moved for a reconsideration; the motion was denied by the appellate court in its resolution of 20
November 1998.

Hence, this quest for a review before the Supreme Court. Petitioner submits these issues; viz:

"I

"WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF

DISCRETION AND GRAVELY ERRED IN FINDING THAT THE RELATIONSHIP BETWEEN THE
PETITIONER AND THE PRIVATE RESPONDENTS IS ONE OF AGRICULTURAL TENANCY
NOTWITHSTANDING THE CONTRACT OF LEASE (EXHIBIT `B’) EXECUTED BETWEEN
PETITIONER AND RESPONDENT FLORISCO BANHAW AND OTHER EVIDENCE ON RECORD
WHICH CLEARLY ESTABLISH THE RELATIONSHIP AS ONE OF CIVIL LAW LEASE.

"II

"WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF

DISCRETION AND GRAVELY ERRED IN RULING THAT PRIVATE RESPONDENTS ARE
ENTITLED TO SECURITY OF TENURE UNDER THE LAW DESPITE ITS FINDING THAT THE
OTHER RESPONDENTS BECAME SUB-LESSEES OF THE LAND AS A RESULT OF THE
VIOLATION BY RESPONDENT BANHAW OF AN EXPRESS PROVISION IN THE LEASE
CONTRACT PROHIBITING HIM FROM SUB-LEASING THE LAND IN QUESTION.

"III

"WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF

DISCRETION AND GRAVELY ERRED IN AFFIRMING IN TOTO THE DECISION OF THE COURT
A QUO DISMISSING THE COMPLAINT AND DENYING THE CLAIM OF PETITIONER FOR
DAMAGES AND ATTORNEY’S FEES."7
The pivotal issue, it would appear, remains to be the question of whether or not private respondents should
be considered agricultural tenants of petitioner. On this score, the Court of Appeals, seconding the trial
court, said:

"Defendants and their witnesses had testified that from 1974, up to the time that the husband of
plaintiff, Buenaventura Ganzon, died in 1985, they had been personally cultivating particular areas of
the landholding with the knowledge of Buenaventura Ganzon who had been receiving the
corresponding rentals on the property from them personally. Such testimonies were not rebutted by
plaintiff. In fact, such personal cultivation by defendants is even admitted, but plaintiff claims that the
same was done without her consent. Under Section 7 of R.A. 1199 as amended, a tenancy
relationship may be established, either verbally or in writing, expressly or impliedly. Once such
relationship is established, the tenant shall be entitled to security of tenure. In this case, assuming
that Exhibit `B’ is a civil lease, and that under its terms, Florisco Banhaw is prohibited from
subleasing the property subject thereof, such cannot affect the security of tenure of the other
defendants as sublessees, who became tenants on the property by implication, because the
violation was committed by the lessee Florisco Banhaw, and not by the sublessees, who were not
parties to the contract. Moreover, such breach of contract was, in effect condoned by the
landholder’s husband, Buenaventura Ganzon, when he extended the lifetime of the lease in 1977,
with full knowledge of the fact that the sublessees, the other defendants in this case, had been and
were still holding and intended to constitute holding the land in question as tenants."8

Republic Act No. 1199 defines agricultural tenancy as being the physical possession by a person of land
devoted to agriculture belonging to, or legally possessed by, another for the purpose of production through
the labor of the former and the members of his immediate farm household, in consideration of which the
former agrees to share the harvest with the latter, or to pay a price certain or ascertainable, either in the
produce or in money, or in both. Under this law, there are two systems of agricultural tenancy established:
(1) the share tenancy, and (2) the leasehold tenancy.

Republic Act No. 3844, amending Republic Act No. 1199, abolished the share tenancy system; thus:

"Sec. 4. Abolition of Agricultural Share Tenancy. – Agricultural share tenancy, as herein defined, is
hereby declared to be contrary to public policy and shall be abolished: Provided, That existing share
tenancy contracts may continue in force and effect in any region or locality, to be governed in the
meantime by the pertinent provisions of Republic Act Numbered Eleven hundred and ninety-nine, as
amended, until the end of the agricultural year when the National Land Reform Council proclaims
that all the government machineries and agencies in that region or locality relating to leasehold
envisioned in this Code are operating, unless such contracts provide for a shorter period or the
tenant sooner exercises his option to elect the leasehold system: Provided, further, That in order not
to jeopardize international commitments, lands devoted to crops covered by marketing allotments
shall be made the subject of a separate proclamation that adequate provisions, such as the
organization of cooperatives, marketing agreements, or other similar workable arrangements, have
been made to insure efficient management on all matters requiring synchronization of the
agricultural with the processing phases of such crops: Provided, furthermore, That where the
agricultural share tenancy contract has ceased to be operative by virtue of this Code, or where such
a tenancy contract has been entered into in violation of the provisions of this Code and is, therefore,
null and void, and the tenant continues in possession of the land for cultivation, there shall be
presumed to exist a leasehold relationship under the provisions of this Code, without prejudice
to the right of the landowner and the former tenant to enter into any other lawful contract in relation
to the land formerly under tenancy contract, as long as in the interim the security of tenure of the
former tenant under Republic Act Numbered Eleven hundred and ninety-nine, as amended, and as
provided in this Code, is not impaired: Provided, finally, That if a lawful leasehold tenancy contract
was entered into prior to the effectivity of this Code, the rights and obligations arising therefrom shall
continue to subsist until modified by the parties in accordance with the provisions of this Code.

"Sec. 5. Establishment of Agricultural Leasehold Relation. - The agricultural leasehold relation shall
be established by operation of law in accordance with Section four of this Code and, in other cases,
either orally or in writing, expressly or impliedly.

"Sec. 6. Parties to Agricultural Leasehold Relation. - The agricultural leasehold relation shall be
limited to the person who furnishes the landholding, either as owner, civil law lessee, usufructuary,
or legal possessor, and the person who personally cultivates the same.

"Sec. 7. Tenure of Agricultural Leasehold Relation. – The agricultural leasehold relation once
established shall confer upon the agricultural lessee the right to continue working on the landholding
until such leasehold relation is extinguished. The agricultural lessee shall be entitled to security of
tenure on his landholding and cannot be ejected therefrom unless authorized by the Court for
causes herein provided.

"Sec. 8. Extinguishment of Agricultural Leasehold Relation. – The agricultural leasehold relation

established under this Code shall be extinguished by:
 "(1) Abandonment of the landholding without the knowledge of the agricultural lessor;

"(2) Voluntary surrender of the landholding by the agricultural lessee, written notice of which shall be
served three months in advance; or

"(3) Absence of the persons under Section nine to succeed to the lessee, in the event of death or
permanent incapacity of the lessee."

Republic Act No. 3844 was further amended by Republic Act No. 6389 by providing for the "automatic
conversion of share tenancy to agricultural leasehold"9

Petitioner would argue that the contract between her and private respondent Florisco Banhaw was a civil law
lease for a period of three years starting from the crop year 1974-1975 until the crop year 1976-1977.
Petitioner, however, filed the case for recovery of possession with damages only in November 1985, which
would indicate that private respondent Florisco Banhaw and his sublessees (the other respondents)
continued to cultivate the landholding in question "beyond" the period of the lease contract that should have
ended by the crop year 1976-1977.

The Court of Appeals held that respondents became agricultural leasehold tenants by implication when
Buenaventura Ganzon (the husband of petitioner), with full knowledge of the fact that the sublessees were
still then holding the land in question as tenants, received the rental payments from respondents and, in
effect,10 condoned the breach committed by Florisco Banhaw in subleasing the landholding to the other
private respondents as agricultural leasehold tenants on the land. The appellate court then concluded that
from the moment petitioner’s husband had granted the cultivation and use of the landholding in question to
private respondents in exchange for an alleged sharing in the harvest (220 cavans of palay every year), an
agricultural leasehold relationship emerged between them by operation of law, a relationship that could be
established either orally or in writing, expressly or impliedly.

This Court finds itself unable to agree with the appellate court.

This Court has laid down the rule that in order for a tenancy relationship to exist, these elements must be
present: (1) That the parties are the landowner and the tenant or agricultural lessee; (2) that the subject
matter of the relationship is an agricultural land; (3) that there is consent between the parties to the
relationship; (4) that the purpose of the relationship is to bring about agricultural production; (5) that there is
personal cultivation on the part of the tenant or agricultural lessee; and (6) that the harvest is shared
between the landowner and the tenant or agricultural lessee.11

Respondent Florisco Banhaw was not instituted as an agricultural lessee but, rather, as civil law lessee of
the land. Neither were the other private respondents, Rolando Banhaw, Honorato Banhaw, Igmedio Pama,
et al., so installed by the landowner as tenants. The DAR itself, in its ORDER of 14 August 1991, confirmed
that respondents could not be installed agricultural lessees by Florisco Banhaw himself since they were
"members of his (Florisco) immediate farm household." Unlike the case of Bernas vs. Court of
Appeals,12 relied on by the appellate court, respondent Florisco Banhaw was never an agricultural lessee of
the land, a fact made evident by the contract of lease executed by the parties. Nor were respondents
"impliedly" installed as tenants or agricultural lessees by reason alone of an acquiescence by Buenaventura
Ganzon to the continued possession of the property. It would appear that the lease rentals of 220 cavans of
palay payable annually within the month of February to the landowner/lessor was the then existing
consideration for the civil law lease contract paid by Florisco Banhaw to petitioner’s husband while the other
private respondents who were members of his farm household paid their share to Florisco Banhaw:

"x x x defendant-appellee Florisco Banhaw testified:

"Q. And long before Buenaventura Ganzon and you entered into a lease contract, these other
defendants had been paying rentals directly to you?

"A. Yes, your Honor.

"Q. Do I understand from you that your agreement between the other defendants with respect
to the landholding was entered with you only?

"A. The rentals were paid to me but once in a while Buenaventura Ganzon check up the
payment to me because he does not know these other people.

"Q. Bu you all knew these defendants?

"A. Yes, your Honor. (t.s.n., G. Villanueva, 5-9-90, pp. 23-24, underscoring supplied).

"Defendant-appellee Raymundo Galido himself, on cross-examination, testified that:

 "Q. Is it not a fact that you know that these people are paying rentals to Florisco Banhaw?

"A. Yes, sir. They are paying. (t.s.n., Villanueva, 5-8-90, p. 14)

"and

"Q. But you are always sure that it was Florisco Banhaw who paid Buenaventura Ganzon?

"A. Yes, sir. (t.s.n., Villanueva, 5-8-90, p. 25)."13

The DAR itself found thusly:

"It was established that the agreement entered into between Florisco Banhaw and Carolina L.
Ganzon is one of a civil law lease. As such civil law lessee, Banhaw who was in legal possession of
the questioned landholdings may institute tenants thereon. However, the record of this case is
bereft of any credible and substantial evidence to prove that the other defendants herein
allegedly instituted as tenants by Florisco Banhaw are sharing or paying rentals to him or to
the landowner. Mere allegations without the corresponding receipts would not sufficiently
establish tenancy relationship especially since there was an express prohibition in the civil
law lease contract to sub-lease the subject land to any other person."14

Petitioner and private respondents could not have been automatically placed in an agricultural leasehold
agreement under Presidential Decree No. 27. This decree took effect on 21 October 1972. The civil law
lease relationship of the parties, however, came about only during the crop year 1974-1975 that could not
have placed them within the coverage of the Operation Land Transfer Program of the government as of 21
October 1972.

The appellate court apparently predicated its finding on the existence of leasehold tenancy relations
between petitioner and private respondents on the principle of estoppel; it advanced:

"The status of the other defendants-appellees as duly-constituted sub-lessees of the subject

landholding is likewise sufficiently established. Despite plaintiff-appellee’s assertion of lack of
consent thereto, the records adequately buttress the fact that plaintiff-appellant was well aware of
the presence of the other defendants-appellees on the subject landholding thereby putting them
in estoppel."15

Estoppel in pais, or equitable estoppel arises when one, by his acts, representations or admissions or by his
silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe
certain facts to exist and such other rightfully relies and acts on such belief so that he will be prejudiced if the
former is permitted to deny the existence of such facts.16 The real office of the equitable norm of estoppel is
limited to supplying deficiency in the law, but it should not supplant positive law.17 The requisites for the
existence of a tenancy relationship are explicit in the law and these elements cannot be done away with by
conjectures.

WHEREFORE, the instant petition for review is GRANTED. The decision of the Court of Appeals in CA-G.R.
CV No. 35417 appealed from is reversed and set aside. The complaint in Civil Case No. 16822 for recovery
of possession with damages before the Regional Trial Court of Iloilo is hereby ordered reinstated and the
case remanded for further proceedings. The Regional Trial Court of Iloilo, Branch 29, is ordered to resolve
the case with immediate dispatch. No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Kapunan, Ynares-Santiago, and Austria-Martinez, JJ., concur.

Footnotes

1 Rollo, p. 24.
2 Rollo, pp. 24-25.
3 Rollo, pp. 25-26.

4 Rollo, p. 23.

5 Rollo, pp. 45-46.

6 Rollo, pp. 29-31.

7 Rollo, pp. 100-101.

8 Rollo, pp. 27-28.

9 Section 4, R.A. No. 6389; 68 Office Gazette, pp. 916-917.

10 Ponce vs. Guevarra, 10 SCRA 649; Cunanan vs. Aguilar, 85 SCRA 47.

11 Chico vs. Court of Appeals, 284 SCRA 33, p. 36.

12 225 SCRA 119.

13 Rollo, p. 40.
 14 Rollo, pp. 47-48.
15 Rollo, p. 32.
16 PNB vs. Court of Appeals, 315 SCRA 309.

17 Republic vs. Court of Appeals, 301 SCRA 366.

THIRD DIVISION

G.R. No. 157307 February 27, 2006

AGUSTIN RIVERA, substituted by GREGORIO B. RIVERA, DOMINGA B. RIVERA, ORLANDO B.

RIVERA, ROSARIO R. LOPEZ, CRISANTO B. RIVERA, EMILIANO B. RIVERA and CONCHITA B.
RIVERA, Petitioners,
vs.
NEMESIO DAVID, Respondent.

DECISION

QUISUMBING,J.:

This petition for review on certiorari seeks to reverse the Decision1 dated October 1, 2002 of the Court of
Appeals in CA-G.R. SP No. 58211, and its Resolution2 dated February 19, 2003 denying reconsideration.
The Court of Appeals had overturned for lack of jurisdiction of the DAR the Decision dated January 31, 1995
of the Provincial Agrarian Reform Adjudication Board (PARAB)° and the Decision dated March 6, 2000 of the
Department of Agrarian Reform Adjudication Board (DARAB).

The pertinent facts of the case are as follows:

Respondent Nemesio David, with the other heirs of Consolacion Suarez David, owned in common five
hectares of land covered by Transfer Certificate of Title No. 47588-R in Dau, Mabalacat, Pampanga.
Petitioner Agustin Rivera occupied 1.8 hectares of the land. Through counsel, the Davids demanded that
petitioner vacate the property. Rivera refused and instituted a complaint with an application for injunction to
maintain peaceful possession before the PARAB.3

In his Complaint, Rivera averred that he was a duly instituted tenant. To support his averment, he submitted
a certification from the Municipal Agrarian Reform Office together with the affidavits of two neighbors.

Respondent David denied that Rivera was his family’s tenant. According to respondent, Rivera had been
squatting on the property since 1965 and had put up, without the Davids’ consent, a hollow blocks business
and also a piggery in the property. David sought the dismissal of the case before the PARAB alleging that
the PARAB lacked jurisdiction, considering that the property was not an agricultural land and the case
involved the issue of ownership.4

The PARAB required the parties to file their position papers. In his position paper,5 Rivera averred that he
occupied the land, at first, as a tenant; then, as an owner in 1957. He alleged that the land became his own
as disturbance compensation. He prayed that he be declared as a qualified beneficiary of the agrarian
reform program and he be awarded three hectares as mandated by law.

For his part, respondent David reiterated his defenses and added that Rivera’s claim that the property was
transferred to the latter in 1957 was inconsistent with Rivera’s claim of disturbance compensation since the
idea of disturbance compensation was introduced only by Republic Act No. 38446 on August 8, 1963 and the
disturbance compensation awarded to an agricultural lessee is equivalent only to five years’ rental. Even so,
the 1.8 hectares claimed by the petitioner was in excess of what is allowed under said law.7

Initially, the PARAB held that David was guilty of laches or estoppel since he and his predecessors-in-
interest had allowed petitioner to retain the property. Further, the PARAB said it had more reasons to believe
that respondent’s predecessors-in-interest had given the land to the petitioner as the latter had long
occupied the property and developed it. It rendered judgment maintaining petitioner Rivera in peaceful
possession of the property without prejudice to his claim as qualified beneficiary of the agrarian reform
program.8

On appeal, the DARAB affirmed the PARAB’s finding of estoppel and added that the action to recover the
property was barred by the Statute of Limitations under Section 389 of Rep. Act No. 3844.10

Respondent David elevated the case to the Court of Appeals, raising the following issues:

(A) DID RESPONDENT [petitioner herein] FAIL TO DISCHARGE THE BURDEN OF PROVING BY
SUBSTANTIAL EVIDENCE HIS AFFIRMATIVE ALLEGATIONS OF (I) FARMING AND TILLING; (II) PALAY
PRODUCTION; (III) PERSONAL PERFORMANCE OF ALL PHASES OF PRODUCTION; (IV) PAYMENT
OF LEASEHOLD RENTALS; (V) SETTLEMENT BY PETITIONER’S FATHER OF A CONTROVERSY WITH
HIM; (VI) CONVEYANCE BY PETITIONER’S FATHER OF THE 1.8 HECTARES TO RESPONDENT?

(B) DID RESPONDENT’S EVIDENCE FAIL TO ESTABLISH THE TRADITIONAL SIX ESSENTIAL
ELEMENTS TEST FOR TENANCY RELATIONSHIPS IN CHICO V. COURT OF APPEALS, 284 SCRA 33,
36 AND BARANDA V. BAGUIO, 189 SCRA 194, 200?

(C) IS MERE ALLEGATION OF CONVEYANCE WITHOUT PROOF ENOUGH TO SUSTAIN THE DARAB’S
CONCLUSION THAT RESPONDENT IS A TENANT-FARMER ENTITLED TO SECURITY OF TENURE?

(D) IS A DARAB DECISION BASED ON SOME HEARSAY AFFIDAVITS AND CERTIFICATION – NOT
SUBJECTED TO PRIOR REAFFIRMATION IN OPEN COURT BY THE AFFIANT OR PERSON
CERTIFYING AND TO A PROCESS OF SANITIZING OR PASTURIZING AS TO THEIR SELF-SERVING
CONTENT – A DECISION BASED ON EVIDENCE THAT LACKS RATIONAL PROBATIVE FORCE?

(E) IS A DARAB DECISION BASED ON HEARSAY AFFIDAVITS AND CERTIFICATION – NOT

SUBJECTED TO PRIOR IDENTIFICATION BY THE AFFIANT OR PERSON CERTIFYING – A DECISION
BASED ON EVIDENCE THAT [LA]CKS RATIONAL PROBATIVE FORCE?

[(F) IS A DARAB DECISION BASED ON SOME HEARSAY AFFAIDAVITS AND CERTIFICATION – NOT
SUBJECTED TO CROSS-EXAMINATION – A DECISION BASED ON EVIDENCE THAT LACKS
RATIONAL PROBATIVE FORCE?] [sic]

(G) IS THE DARAB’S MARCH 6, 2000 DECISION AD[O]PTING THE FINDINGS OF ADJUDICATOR ILAO
ONE THAT IS BASED ON EVIDENCE THAT LACKS RATIONAL PROBATIVE FORCE?

(H) DOES THE PARAB/DARAB (sic) HAVE JURISDICTION TO MAKE A FINDING OF OWNERSHIP
UNDER THE GUISE OF A CHARACTERIZATION TO THE EFFECT THAT PETITIONER’S FATHER HAD
MADE A CONVEYANCE TO RESPONDENT?11

The appellate court reversed the decisions of both the PARAB and the DARAB. It reasoned that the
Department of Agrarian Reform (DAR) no longer had jurisdiction over the case because by petitioner
Rivera’s own admission, the tenancy ended in 1957. The appellate court set aside the decisions of both the
PARAB and DARAB for lack of jurisdiction and dismissed petitioner’s complaint, to wit:

WHEREFORE, the petition is GRANTED, and the challenged decisions of both the PARA[B] and the
DARAB are REVERSED and SET ASIDE, including the writs of execution issued by the PARA[B], and
another is rendered DISMISSING the respondent Agustin Rivera’s complaint. No costs.

SO ORDERED.12

Petitioner before us raises now mainly the issue concerning jurisdiction, alleging that:

THE COURT OF APPEALS ERRED IN FINDING THAT THE PARA[B] AND THE DARAB HAVE NO
JURISDICTION OVER RIVERA’S COMPLAINT.13

Simply put, the main issue now is as follows: Does the DAR have jurisdiction? Secondly, was petitioner the
owner of the land and are his substitute-petitioners entitled to its peaceful possession?

We note that because of petitioner Rivera’s death, his heirs are now substituted as petitioners. At any rate,
petitioner had insisted that the DAR had jurisdiction over the case for he had sufficiently established before
the PARAB and the DARAB that he was a tenant of respondent’s predecessor-in-interest. He asserted that
as tenant of respondent’s predecessor-in-interest, his tenancy was intimately related to the issue of
ownership and thus his case fell under the jurisdiction of the DAR. 1âwphi1

Petitioner further contended that even though the tenancy relation no longer existed at the time the
complaint was filed, the DAR had not been deprived of its jurisdiction since under Section 1(e), Rule II of the
DARAB

Rules of Procedure,14 it has jurisdiction over cases involving the alienation of agricultural lands covered by
the agrarian reform program. He added that the definition of "agrarian dispute" under Rep. Act No.
665715 included any controversy relating to compensation of land acquired under the Act and other terms
and conditions of transfer of ownership from landowners to farm workers, tenants, and other agrarian reform
beneficiaries.

For his part, respondent David reiterates before us the arguments in his earlier pleadings before the
administrative agencies and the appellate court.
First, on the matter of jurisdiction. We agree with petitioner that the DAR has jurisdiction over his case. In the
2004 case of David v. Rivera,16 a case involving the same parcel of land here, filed before the Municipal
Circuit Trial Court (MCTC) of Mabalacat by the respondent against petitioner, the issue raised was whether
the MCTC or the DAR had jurisdiction. Therein, we held that the existence of prior agricultural tenancy
relationship characterizes the controversy as an "agrarian dispute", adding that–

Even if the tenurial arrangement has been severed, the action still involves an incident arising from the
landlord and tenant relationship. Where the case involves the dispossession by a former landlord of a former
tenant of the land claimed to have been given as compensation in consideration of the renunciation of the
tenurial rights, there clearly exists an agrarian dispute. On this point the Court has already ruled:

Indeed, section 21 of Republic Act No. 1199, provides that 'all cases involving the dispossession of a tenant
by the landlord or by a third party and/or the settlement and disposition of disputes arising from the
relationship of landlord and tenant . . . shall be under the original and exclusive jurisdiction of the Court of
Agrarian Relations.' This jurisdiction does not require the continuance of the relationship of landlord and
tenant — at the time of the dispute. The same may have arisen, and often times arises, precisely from the
previous termination of such relationship. If the same existed immediately, or shortly, before the controversy
and the subject-matter thereof is whether or not said relationship has been lawfully terminated, or if the
dispute otherwise springs or originates from the relationship of landlord and tenant, the litigation is (then)
cognizable only by the Court of Agrarian Relations . . .17

Although the cause of action now may differ from that in the 2004 case of David v. Rivera, under the facts of
the cases, and by our prior judgment on the issue of jurisdiction, the parties herein are bound by the
conclusiveness of judgment in the 2004 case of David v. Rivera, in accordance with Rule 39, Sec. 4(c), of
the Rules of Court.18 Conformably then, the DAR has jurisdiction.

Now, on the issue of ownership, we find that petitioner Rivera failed to prove that he indeed owned the
property. All he submitted was an affidavit from a Feliciano Manansala stating that there was a verbal
1âwphi1

agreement between him and the respondent’s predecessor-in-interest giving him the 1.8 hectares. However,
petitioner did not present the affiant in court. Where the affiant did not appear, nor was he presented during
the administrative investigation to identify his sworn statement, his affidavit is hearsay, hence inadmissible in
evidence.19

On the other hand, respondent David presented TCT No. 47588-R, dated September 29, 1965, tax
declarations from 1941 to 1963 under the name of respondent’s predecessors-in-interest, and tax
declarations from 1965 to 1971 under the name of the respondent and his co-heirs. Compared to petitioner’s
dearth of evidence, these sufficiently show that respondent and his co-heirs still owned the land. As a
corollary, since it has been established that petitioner Rivera is not the owner of the land, he and his heirs
are not entitled to peaceful possession thereof.

In sum, we find that the Court of Appeals did not err in dismissing Agustin Rivera’s complaint, not because
the DAR had no jurisdiction over the case but because his complaint lacks merit.

WHEREFORE, the petition is DENIED. We affirm the Decision dated October 1, 2002 and the Resolution
dated February 19, 2003 in CA-G.R. SP No. 58211 dismissing Agustin Rivera’s complaint. The Decision
dated January 31, 1995 of the PARAB in DARAB Case No. 664 P’94 and the Decision dated March 6, 2000
of the DARAB in DARAB Case No. 4960, including the writs of execution issued by the PARAB are SET
ASIDE. Respondent Nemesio David and his fellow heirs of Consolacion Suarez David are hereby declared
owners of the contested land covered by TCT No. 47588-R under the Registry of Deeds of Mabalacat,
Pampanga. No pronouncement as to costs.

SO ORDERED.

LEONARDO A. QUISUMBING
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice

CONCHITA CARPIO MORALES DANTE O. TINGA

Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify
that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court’s Division.

ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes

1Rollo, pp. 8-23. Penned by Associate Justice Salvador J. Valdez, Jr., with Associate Justices
Mercedes Gozo-Dadole, and Sergio L. Pestaño concurring.

2 Id. at 24.

° PARAD in some parts of the records.

3 Rollo, p. 54.

4 Id. at 55.

5 Id. at 79-85.

6AN ACT TO ORDAIN THE AGRICULTURAL LAND REFORM CODE AND TO INSTITUTE LAND
REFORMS IN THE PHILIPPINES, INCLUDING THE ABOLITION OF TENANCY AND THE
CHANNELING OF CAPITAL INTO INDUSTRY, PROVIDE FOR THE NECESSARY
IMPLEMENTING AGENCIES, APPROPRIATE FUNDS THEREFOR AND FOR OTHER
PURPOSES.

7 Rollo, pp. 86-91.

8 Id. at 111-119.

9SEC. 38. Statute of Limitations.—An action to enforce any cause of action under this Code shall be
barred if not commenced within three years after such cause of action accrued.

10 Rollo, pp. 120-125.

11 Id. at 36-37.

12 Id. at 22-23.

13 Id. at 39.

DEPARTMENT OF AGRARIAN REFORM ADJUDICATION BOARD (DARAB) NEW RULES OF

14

PROCEDURE (1994).

RULE II–JURISDICTION OF THE ADJUDICATION BOARD.

SECTION 1. Primary and Exclusive Original and Appellate Jurisdiction. The Board shall have
primary and exclusive jurisdiction, both original and appellate, to determine and adjudicate all
agrarian disputes involving the implementation of the Comprehensive Agrarian Reform
Program (CARP) under Republic Act No. 6657, Executive Order Nos. 228, and 129-A,
Republic Act No. 3844 as amended by Republic Act No. 6389, Presidential Decree No. 27
and other agrarian laws and their implementing rules and regulations. Specifically, such
jurisdiction shall include but not be limited to cases involving the following:

xxx
 e) Those involving the sale, alienation, mortgage, foreclosure, pre-emption and redemption
of agricultural lands under the coverage of the CARP or other agrarian laws;

xxx

15AN ACT INSTITUTING A COMPREHENSIVE AGRARIAN REFORM PROGRAM TO PROMOTE

SOCIAL JUSTICE AND INDUSTRIALIZATION, PROVIDING THE MECHANISM FOR ITS
IMPLEMENTATION, AND FOR OTHER PURPOSES.

16 G.R. Nos. 139913 & 140159, 16 January 2004, 420 SCRA 90.

17 Id. at 99-100 citing Basilio v. De Guzman, 105 Phil. 1276 (1959).

18 Rules of Court, Rule 39, Sec. 47, par. (c).

SEC. 47. Effect of judgments or final orders. – The effect of a judgment or final order
rendered by a court of the Philippines, having jurisdiction to pronounce the judgment or final
order, may be as follows:

...

(c) In any other litigation between the same parties or their successors in interest, that only is
deemed to have been adjudged in a former judgment or final order which appears upon its
face to have been so adjudged, or which was actually and necessarily included therein or
necessary thereto.

19Melchor v. Gironella, G.R. No. 151138, 16 February 2005, 451 SCRA 476, 483 citing Tapiador v.
Office of the Ombudsman, G.R. No. 129124, 15 March 2002, 379 SCRA 322, 330.

FIRST DIVISION

G.R. No. 118292 April 14, 2004

HENRY L. MON, petitioner,

vs.
COURT OF APPEALS, HON. LEOPOLDO SERRANO, JR., DEPARTMENT OF AGRARIAN REFORM
ADJUDICATION BOARD and SPOUSES LARRY and JOVITA VELASCO, respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review assailing the Decision1 of the Court of Appeals in CA-G.R. SP No. 31763, which
affirmed in toto the decision of the Department of Agrarian Reform Adjudication Board Central
Office2 ("DARAB") in DARAB Case No. 0274. In its decision, the DARAB reversed the ruling of the DARAB
Regional Adjudication Office3 ("Regional Office") in favor of petitioner Henry L. Mon ("petitioner") in DARAB
Case No. LU-043-89.

The Facts

The petition stems from an affidavit-complaint for ejectment filed on 4 December 1989 by petitioner against
private respondents Jovita and Larry Velasco ("Spouses Velasco") with the Regional Office in San
Fernando, La Union. In his complaint, petitioner alleged that he is the owner-administrator of a parcel of land
("land") planted to rice and tobacco in Sitio Torite, Barangay San Cristobal, Bangar, La Union. Petitioner
further alleged that the Spouses Velasco, who cultivate the land, stole one sack of palay from the land’s
harvest and subleased the land to a certain Boy or Ansong Maala during the last tobacco season.

In their Answer with Counterclaim, the Spouses Velasco denied petitioner’s allegations as fabricated to
achieve his long desired objective to possess and cultivate the land. As affirmative and special defenses, the
Spouses Velasco countered that they do not have the slightest intention to cheat petitioner and that the
alleged hidden palay represented their lawful share of the harvest for the agricultural year 1988-1989. As
counterclaim, the Spouses Velasco pointed out that since the beginning of their tenancy, petitioner had
imposed on them a 50-50 sharing agreement, with the Spouses Velasco shouldering all expenses of
production. Hence, the Spouses Velasco sought a reliquidation of the previous palay harvests to determine
their just share.
After several hearings, the Regional Office required both parties to submit their respective position papers
and exhibits. The Spouses Velasco submitted their position paper on 9 May 1990, while petitioner submitted
his position paper on 29 June 1990. The parties submitted supporting exhibits on later dates.

On 20 February 1991, the Regional Office issued an Order disposing as follows:

WHEREFORE, judgment is issued in favor of the complainant and against the respondents:

1. ORDERING the respondents to vacate and turn-over possession and cultivation to the
complainant;

2. No pronouncement as to cost.

SO ORDERED.4

In arriving at its decision, the Regional Office found that Larry Velasco subleased the land to a certain
Francisco Maala as shown by the affidavit of one Camilo Moskito. The Regional Office ruled that Section
27(2) of Republic Act No. 3844 ("RA 3844") prohibits subleasing and violation of this provision constitutes a
ground for ejectment. On the other charge that the Spouses Velasco stole a sack of palay, the Regional
Office held that there was no convincing evidence to support this accusation.

Aggrieved, the Spouses Velasco appealed under Section 2, Rule XIII, of the DARAB Revised Rules of
Procedure. On 12 July 1993, the DARAB rendered a Decision reversing the Order of the Regional Office as
follows:

WHEREFORE, premises considered, the appealed Order dated February 20, 1991, of the Regional
Adjudication Officer at (sic) San Fernando, La Union, is hereby SET ASIDE and the instant case is
hereby remanded to the DAR Provincial Adjudicator, DAR Provincial Adjudication Office, San
Fernando, La Union, for:

1. Determination of the lease rentals to be paid by the defendants-tenants, spouses Larry

and Jovita Velasco, to the plaintiff-landowner, Henry Mon; and

2. Reliquidation of the crop harvests from 1986 up to the time the lease rentals shall have
been determined by the Provincial Adjudicator as above ordered; and ordering the plaintiff-
landowner Henry Mon to return to the defendants-tenants spouses Larry and Jovita Velasco,
the quantity of palay (or its equivalent value in cash) which may have been collected by the
said plaintiff-landowner over and above the legal lease rentals as determined by the
Provincial Adjudicator.

SO ORDERED.5

Unsatisfied with the DARAB Decision, petitioner filed an appeal with the Court of Appeals. On 9 December
1994, the Court of Appeals affirmed in toto the DARAB’s Decision thus:

WHEREFORE, premises considered, this Court AFFIRMS IN TOTO the appealed decision (dated
July 12, 1993) of the Department of Agrarian Reform Adjudication Board (Central Office) in DARAB
Case No. 0274. No pronouncement as to costs.

SO ORDERED.6

Hence, the instant petition.

The DARAB and the Court of Appeals’ Rulings

In reversing the Regional Office’s Order, the DARAB noted that both the Hearing Officer and the Regional
Adjudicator overlooked that the agrarian laws had long abolished and declared illegal share tenancy. The
Spouses Velasco had raised in their pleadings before the Regional Adjudication Office the validity of the
share tenancy relationship that petitioner imposed on them. The DARAB held that share tenancy can no
longer exist between landowner and tenant on rice lands. What the law allows is only a leasehold
relationship, under which the tenant shall pay only a fixed rental to the landowner. The DARAB further held
that petitioner has made much ado over the supposed "theft" of one sack of palay by Jovita Velasco.
However, the DARAB pointed out that petitioner’s insistence on the outlawed 50-50 division of the net
harvest deprives the tenants of an even larger amount corresponding to the portion of the harvest legally
due to them under leasehold tenancy. The DARAB held that the parties must comply with the requirements
of the law governing the leasehold system particularly on the payment of a fixed rental by the tenant-lessee
to the landowner-lessor. However, the records do not contain sufficient data covering the gross harvests and
the deductible expenses, which could serve as legal basis for the DARAB to compute the fixed rental the
Spouses Velasco should pay petitioner. For this reason, the DARAB remanded the case to the DAR
Provincial Adjudicator assigned in San Fernando, La Union. The DARAB ordered the Provincial Adjudicator
to reliquidate the crop harvests, determine the gross harvests and compute the lease rental after due notice
to the parties and reception of evidence on the matter.

In affirming in toto the DARAB’s Decision, the Court of Appeals simply held that there could be no change of
theory when a case is already on appeal. The Court of Appeals referred to petitioner’s claim that the
relationship involved in the case is not that of landlord-tenant under agrarian laws but that of lessor-lessee
under the lease provisions of the Civil Code.

The Issues

In his memorandum, petitioner raises the following issues:

THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN ADOPTING THE

POSTURE OF PUBLIC RESPONDENTS THAT PETITIONER CHANGED THE THEORY OF THE CASE
ON THE CAUSE OF ACTION AT THIS STAGE OF THE PROCEEDINGS;

II

THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION OF THE DARAB CENTRAL
OFFICE, DILIMAN, QUEZON CITY AND IN DISMISSING THE FINDINGS OF FACT AND THE ORDER OF
THE DARAB REGIONAL ADJUDICATION OFFICE OF SAN FERNANDO, LA UNION DATED FEBRUARY
20, 1991, WHICH IS SUPPORTED BY SUBSTANTIAL EVIDENCE.7

The Court’s Ruling

The petition is bereft of merit.

Changing Theory of the Case

Petitioner argues that from the beginning, the arrangement between him and the Spouses Velasco - that of
sharecropping as a means to pay the lease of the land - did not result in an agricultural leasehold contract.
Petitioner contends that the Spouses Velasco are civil law lessees, which did not give them the right to be
tenants under the agricultural leasehold system. Petitioner insists that since the Regional Office found that
the Spouses Velasco sublet the land in violation of Section 27(2) of RA 3844, he has the right under the
same RA 3844 to evict the Spouses Velasco from his land.

Petitioner’s stance before the Court of Appeals is that the lease provisions in the Civil Code apply to the
present case. On the contrary, we find that this is not an ejectment case between a civil law lessor and
lessee but a dispute between an agricultural landlord and tenant. If this were an ejectment case between a
civil law lessor and lessee, petitioner should have brought his action to the appropriate trial court instead of
the DARAB Regional Adjudication Office. Petitioner should also not have invoked subletting as a prohibited
act under RA 3844. Obviously, petitioner is clutching at straws in changing his theory of the case on appeal.

The settled rule in this jurisdiction is that a party cannot change his theory of the case or his cause of action
on appeal. We have previously held that "courts of justice have no jurisdiction or power to decide a question
not in issue."8 A judgment that goes outside the issues and purports to adjudicate something on which the
court did not hear the parties, is not only irregular but also extra-judicial and invalid.9 The rule rests on the
fundamental tenets of fair play. In the present case, the Court must stick to the issue litigated in the DARAB
and in the Court of Appeals, which is whether petitioner has the right to eject the Spouses Velasco from the
land under RA 3844.

Furthermore, petitioner’s insistence on his new theory is fatal to his cause. This is because in a lease
contract under the Civil Code,10 the rule is that the lessee can sublease the leased property, unless there is
an express prohibition against subletting in the contract itself. To bar the lessee from subletting, the contract
of lease must expressly stipulate the prohibition on subletting.11 Petitioner did not allege nor present any
contract that prohibited subletting.

Disregarding Issue of Ejectment

Petitioner contends that the Spouses Velasco tried to evade the issue of ejectment by raising the issue of
share tenancy and praying for reliquidation of the sharing agreement between them. Petitioner is puzzled
that on appeal, the DARAB altogether ignored the issue of ejectment and ruled solely on the issue of share
tenancy. Petitioner further argues that the issue of share tenancy does not preclude in any way petitioner
from exercising his right to eject his tenants for valid grounds. Petitioner insists that the Spouses Velasco
committed theft and subleased the land they were tilling in violation of RA 3844. With these illegal acts of the
Spouses Velasco, petitioner claims he could not maintain the relationship knowing that there is always a
possibility the Spouses Velasco might commit these illegal acts again. Petitioner asserts that the DARAB
justified the "theft" by stating that petitioner’s imposition of share tenancy may have deprived the Spouses
Velasco of an even larger amount corresponding to the harvest legally due them. Petitioner counters that
landowners also deserve protection from the commission of illegal acts by their tenants.

Section 3 of Republic Act No. 1199 or The Agricultural Tenancy Act of the Philippines ("RA 1199") defines
"agricultural tenancy" as the "physical possession by a person of land devoted to agriculture belonging to, or
legally possessed by, another for the purpose of production through the labor of the former and of the
members of his immediate farm household, in consideration of which the former agrees to share the harvest
with the latter, or to pay a price certain or ascertainable, either in produce or in money, or in both." Under RA
1199, there are two systems of agricultural tenancy established: (1) the share tenancy and (2) the leasehold
tenancy.12

"Share tenancy" exists whenever "two persons agree on a joint undertaking for agricultural production
wherein one party furnishes the land and the other his labor, with either or both contributing any one or
several of the items of production, the tenant cultivating the land with the aid of labor available from
members of his immediate farm household, and the produce thereof to be divided between the landholder
and the tenant in proportion to their respective contributions."13 On the other hand, "leasehold tenancy"
exists "when a person who, either personally or with the aid of labor available from members of his
immediate farm household, undertakes to cultivate a piece of agricultural land susceptible of cultivation by a
single person together with members of his immediate farm household, belonging to or legally possessed
by, another in consideration of a price certain or ascertainable to be paid by the person cultivating the land
either in percentage of the production or in a fixed amount in money, or in both."14

On 8 August 1963, RA 3844 or the Agricultural Land Reform Code abolished and outlawed share tenancy
and put in its stead the agricultural leasehold system. On 10 September 1971, Republic Act No. 6389 ("RA
6389") amending RA 3844 declared share tenancy relationships as contrary to public policy. RA 6389 did
not entirely repeal RA 1199 and RA 3844 even if RA 6389 substantially modified them.15 Thus, RA 3844 as
amended by RA 6389 ("RA 3844 as amended") is the governing statute in this case. Petitioner filed his
complaint on 8 December 1989 or long after the approval of RA 6389 but before Republic Act No. 6657 or
the Comprehensive Agrarian Reform Law of 1988 ("RA 6657"). Notably, RA 6657 only expressly repealed
Section 35 of RA 3844 as amended.

Section 4 of RA 3844 as amended provides:

SECTION. 4. Automatic Conversion to Agricultural Leasehold. — Agricultural share tenancy

throughout the country, as herein defined, is hereby declared contrary to public policy and
shall be automatically converted to agricultural leasehold upon the effectivity of this section.

The credit assistance traditionally extended by a land-owner and a local lender to a tenant under the
share tenancy systems in agriculture for production loans and loans for the purchase of work
animals, tillage equipment, seeds, fertilizers, poultry, livestock feed and other similar items, and
advances for the subsistence of a lease and his family, may be continued by said landowner and
local lender: Provided, That the total charges on these loans, including interest and service,
inspection and issuance fees, shall not exceed fourteen per cent per calendar year and the principal
thereof shall not be subject to upward adjustment even in case of extraordinary inflation and/or
devaluation: Provided, further, That on all loans or advances other than money, the interest shall be
computed on the basis of current price of the goods at the time when the loans or advances were
made.

Any work animal and tillage equipment in the possession of a share tenant but owned by a
landowner shall automatically be sold to said tenant on installment for a period not exceeding five
years and at a price agreed upon by the parties: Provided, however, That the tenant shall pay in
advance ten per cent of the price agreed upon.

Existing share tenancy contracts may continue in force and effect in any region or locality, to be
governed in the meantime by the pertinent provisions of Republic Act Numbered Eleven hundred
and ninety-nine, as amended, until the end of the agricultural year when the President of the
Philippines shall have organized by executive order the Department of Agrarian Reform in
accordance with the provisions of this amendatory Act, unless such contracts provide for a shorter
period or the tenant sooner exercises his option to elect the leasehold system: Provided, That in
order not to jeopardize international commitments, lands devoted to crops covered by marketing
allotments shall be made the subject of a separate proclamation by the President upon the
recommendation of the department head that adequate provisions, such as the organization of
cooperatives, marketing agreement, or other similar workable arrangements, have been made to
insure efficient management on all matters requiring synchronization of the agricultural with the
processing phases of such crops.
 In case some agricultural share tenants do not want to become agricultural lessees of their
respective landholding, they shall, with the assistance of the Bureau of Agrarian Legal Assistance,
notify in writing the landowners concerned. In such a case, they shall have one agricultural year from
the date of the notice to accept leasehold relationship, otherwise the landowner may proceed to their
ejectment. (Emphasis supplied)

Section 5 of RA 3844 as amended reiterated the automatic conversion of share tenancy to agricultural
leasehold thus -

SECTION 5. Establishment of Agricultural Leasehold Relation. — The agricultural leasehold

relation shall be established by operation of law in accordance with Section four of this Code
and, in other cases, either orally or in writing, expressly or impliedly. (Emphasis supplied)

An agricultural leasehold relationship exists by operation of law when there is concurrence of an agricultural
lessor (one who furnishes the land as owner, civil law lessee, usufructuary or legal possessor) and
agricultural lessee (the person who personally cultivates the land). This is clearly stated in Section 6 of RA
3844 as amended, which reads:

SECTION 6. Parties to Agricultural Leasehold Relation. — The agricultural leasehold relation shall
be limited to the person who furnishes the landholding, either as owner, civil law lessee,
usufructuary, or legal possessor, and the person who personally cultivates the same.

The essential requisites of tenancy relationship are: (1) the parties are the landholder and the tenant; (2) the
subject is agricultural land; (3) there is consent; (4) the purpose is agricultural production; and (5) there is
consideration.16 The records establish that the Spouses Velasco are agricultural tenants of petitioner under
the legal definitions. There is no dispute that petitioner is the owner-administrator of agricultural land planted
to rice and tobacco by the Spouses Velasco who petitioner himself referred to as his "tenants." There is also
no dispute that the "50-50 share cropping system between them was agreed upon by their predecessors
and was subsequently carried by consensual agreement of the parties up to the present." Taken together, all
these clearly establish the status of the Spouses Velasco as agricultural tenants. Moreover, whether a
person is an agricultural tenant or not is basically a question of fact. As a rule, this Court does not disturb the
findings of fact of the DARAB when affirmed by the Court of Appeals as in the present case.17

Section 7 of RA 3844 as amended provides that once there is a leasehold relationship, as in the present
case, the landowner cannot eject the agricultural tenant from the land unless authorized by the court for
causes provided by law. RA 3844 as amended expressly recognizes and protects an agricultural leasehold
tenant’s right to security of tenure, as follows:

SECTION 7. Tenure of Agricultural Leasehold Relation. — The agricultural leasehold relation once
established shall confer upon the agricultural lessee the right to continue working on the landholding
until such leasehold relation is extinguished. The agricultural lessee shall be entitled to security of
tenure on his landholding and cannot be ejected therefrom unless authorized by the Court for
causes herein provided. (Emphasis supplied)

RA 3844 as amended vests the Spouses Velasco, as agricultural leasehold tenants, certain specific rights.
These rights include the right to continue working the land as well as the right against ejectment from the
land except for causes provided by law as determined by the courts. This is the clear import of Section 36 of
RA 3844 as amended:

SECTION 36. Possession of Landholding; Exceptions. — Notwithstanding any agreement as to the

period or future surrender, of the land, an agricultural lessee shall continue in the enjoyment and
possession of his landholding except when his dispossession has been authorized by the Court in a
judgment that is final and executory if after due hearing it is shown that:

(1) The agricultural lessor-owner or a member of his immediate family will personally
cultivate the landholding or will convert the landholding, if suitably located, into residential,
factory, hospital or school site or other useful non-agricultural purposes: Provided; That the
agricultural lessee shall be entitled to disturbance compensation equivalent to five years
rental on his landholding in addition to his rights under Sections twenty-five and thirty-four,
except when the land owned and leased by the agricultural lessor, is not more than five
hectares, in which case instead of disturbance compensation the lessee may be entitled to
an advanced notice of at least one agricultural year before ejectment proceedings are filed
against him: Provided, further, That should the landholder not cultivate the land himself for
three years or fail to substantially carry out such conversion within one year after the
dispossession of the tenant, it shall be presumed that he acted in bad faith and the tenant
shall have the right to demand possession of the land and recover damages for any loss
incurred by him because of said dispossessions.
 (2) The agricultural lessee failed to substantially comply with any of the terms and conditions
of the contract or any of the provisions of this Code unless his failure is caused by fortuitous
event or force majeure;

(3) The agricultural lessee planted crops or used the landholding for a purpose other than
what had been previously agreed upon;

(4) The agricultural lessee failed to adopt proven farm practices as determined under
paragraph 3 of Section twenty-nine;

(5) The land or other substantial permanent improvement thereon is substantially damaged
or destroyed or has unreasonably deteriorated through the fault or negligence of the
agricultural lessee;

(6) The agricultural lessee does not pay the lease rental when it falls due: Provided, That if
the non-payment of the rental shall be due to crop failure to the extent of seventy-five per
centum as a result of a fortuitous event, the non-payment shall not be a ground for
dispossession, although the obligation to pay the rental due that particular crop is not thereby
extinguished; or

(7) The lessee employed a sub-lessee on his landholding in violation of the terms of
paragraph 2 of Section twenty-seven.

Under Section 37 of the same RA 3844, the burden of proving lawful cause for ejecting the lessee falls on
the lessor-landowner, thus -

SECTION 37. Burden of Proof . — The burden of proof to show the existence of a lawful cause for
the ejectment of an agricultural lessee shall rest upon the agricultural lessor.

The Regional Office found the allegation of theft unsupported by evidence while that of subleasing as proven
by the statement of a certain Francisco Maala and affidavit of one Camilo Moskito. Both the DARAB and the
Court of Appeals did not make a finding on this point. Not being a trier of facts, this Court cannot pass upon
these factual issues. It is futile to determine the truth or falsity of these accusations in view of the equity
principle that the DARAB applied. In reversing the Regional Office’s decision to turn over possession of the
land to petitioner, the DARAB applied the equity principle that he who comes to court must come with clean
hands.18 Otherwise, he not only taints his name, but also ridicules the very structure of established
authority.19 A court may deny a litigant relief on the ground that his conduct has been inequitable, unfair,
dishonest, fraudulent, or deceitful as to the controversy in issue.20 We agree with the DARAB that we cannot
close our eyes and remain indifferent to the perpetuation of an act that the law has long ago declared illegal
and contrary to public policy. The Court cannot allow petitioner to invoke Section 27(2) of RA 3844
prohibiting subletting when he himself violated Sections 4 and 5 of the same RA 3844 outlawing share
tenancy.

We uphold the remand of the case to the DAR Provincial Adjudicator to determine and fix the rentals in
accordance with Section 34 of RA 3844 as amended. The law mandates that not more than 25% of the
average normal harvest shall constitute the just and fair rental rate for leasehold.21 Section 34 of RA 3844 as
amended reads:

SECTION 34. Consideration for the Lease of Riceland and Lands Devoted to Other Crops. — The
consideration for the lease of riceland and lands devoted to other crops shall not be more than the
equivalent of twenty-five per centum of the average normal harvest or if there have been no normal
harvests, then the estimated normal harvest during the three agricultural years immediately
preceding the date the lease-hold was established after deducting the amount used for seeds and
the cost of harvesting, threshing, loading, hauling and processing, whichever are
applicable: Provided, That if the land has been cultivated for a period of less than three years, the
initial consideration shall be based on the average normal harvest, or if there have been no normal
harvests, then the estimated normal harvest during the preceding years when the land was actually
cultivated, or on the harvest of the first year in the case of newly cultivated lands, if that harvest is
normal harvest, the final consideration shall be based on the average normal harvest during these
three preceding agricultural years.

In the absence of any agreement between the parties as to the rental, the Court of Agrarian Relations shall
summarily determine a provisional rental in pursuance of existing laws, rules and regulations and production
records available in the different field units of the department, taking into account the extent of the
development of the land at the time of the conversion into leasehold and the participation of the lessee in the
development thereof. This provisional rental shall continue in force and effect until a fixed rental is finally
determined. The court shall determine the fixed rental within thirty days after the petition is submitted for
decision.
If capital improvements are introduced on the farm not by the lessee to increase its productivity, the rental
shall be increased proportionately to the consequent increase in production due to said improvements. In
case of disagreement, the Court shall determine the reasonable increase in rental.

WHEREFORE, we DENY the petition and AFFIRM the assailed Decision dated 9 December 1994 of the
Court of Appeals in CA-G.R. SP No. 31763. Costs against petitioner.

SO ORDERED.

Davide, Jr., Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.

Footnotes

1Penned by Associate Justice Ramon Mabutas, Jr. with Associate Justices Nathanael P. De Pano,
Jr. and Artemon D. Luna concurring.

2Composed of Ernesto D. Garilao as Chairman with Leopoldo M. Serrano, Jr., Jose C. Medina, Jr.,
Renato B. Padilla, Lorenzo R. Reyes and Hector D. Soliman as members.

3Hearing Officer Atty. Santiago T. Livara, Jr. and concurred in by Regional Adjudicator Atty.
Hermogenes S. Reña.

4 Rollo, p. 23.

5 Ibid., pp. 32-33.

6 Ibid., p. 42.

7 Rollo, p. 159.

8 Bernas v. Court of Appeals, G.R. No. 85041, 5 August 1993, 225 SCRA 119.

9 Ibid.

10ART. 1650. When in the contract of lease of things there is no express prohibition, the lessee may
sublet the thing leased, in whole or in part, without prejudice to his responsibility for the performance
of the contract toward the lessor.

11 Filoil Refinery Corporation v. Mendoza, No. L-55526, 15 June 1987, 150 SCRA 632.

12 Ganzon v. Court of Appeals, G.R. No. 136831, 30 July 2002, 385 SCRA 399.

13 Sec. 4, RA 1199.

14 Ibid.

15 Guerrero v. CA, 226 Phil. 62 (1986).

16 Spouses Cayetano, et al. v. CA, et al., 215 Phil. 430 (1984).

17 Guerrero v. CA, supra, note 15.

18 Jimenez v. Court of Appeals, G.R. No. 106136, 13 June 1994, 233 SCRA 93.

19 Marcos II v. CA, 339 Phil. 253 (1997).

20 Pilapil v. Hon. Garchitorena, 359 Phil. 674 (1998).

21Cabatan v. Court of Appeals, Nos. L-44875-76; No. L-45160; Nos. L-46211-12, 22 January 1980,
96 SCRA

Republic of the Philippines

SUPREME COURT
Manila
 FIRST DIVISION

G.R. No. 185669 February 1, 2012

JUAN GALOPE, Petitioner,

vs.
CRESENCIA BUGARIN, Represented by CELSO RABANG, Respondent.

DECISION

VILLARAMA, JR., J.:

Petitioner Juan Galope appeals the Decision1 dated September 26, 2008 and Resolution2 dated December
12, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 97143. The CA ruled that there is no tenancy
relationship between petitioner and respondent Cresencia Bugarin.

The facts and antecedent proceedings are as follows:

Respondent owns a parcel of land located in Sto. Domingo, Nueva Ecija, covered by Transfer Certificate of
Title No. NT-229582.3 Petitioner farms the land.4

In Barangay Case No. 99-6, respondent complained that she lent the land to petitioner in 1992 without an
agreement, that what she receives in return from petitioner is insignificant, and that she wants to recover the
land to farm it on her own. Petitioner countered that respondent cannot recover the land yet for he had been
farming it for a long time and that he pays rent ranging from ₱4,000 to ₱6,000 or 15 cavans of palay per
harvest. The case was not settled.5

Represented by Celso Rabang, respondent filed a petition for recovery of possession, ejectment and
payment of rentals before the Department of Agrarian Reform Adjudication Board (DARAB), docketed as
DARAB Case No. 9378. Rabang claimed that respondent lent the land to petitioner in 1991 and that the
latter gave nothing in return as a sign of gratitude or monetary consideration for the use of the land. Rabang
also claimed that petitioner mortgaged the land to Jose Allingag who allegedly possesses the land.6

After due proceedings, the Provincial Adjudicator dismissed the petition and ruled that petitioner is a tenant
entitled to security of tenure. The Adjudicator said substantial evidence prove the tenancy relationship
between petitioner and respondent. The Adjudicator noted the certification of the Department of Agrarian
Reform (DAR) that petitioner is the registered farmer of the land; that Barangay Tanods said that petitioner
is the tenant of the land; that Jose Allingag affirmed petitioner’s possession and cultivation of the land; that
Allingag also stated that petitioner hired him only as farm helper; and that respondent’s own witness, Cesar
Andres, said that petitioner is a farmer of the land.7

On appeal, the DARAB disagreed with the Adjudicator and ruled that petitioner is not a de jure tenant. The
DARAB ordered petitioner to pay rentals and vacate the land, and the Municipal Agrarian Reform Officer to
assist in computing the rentals.

The DARAB found no tenancy relationship between the parties and stressed that the elements of consent
and sharing are not present. The DARAB noted petitioner’s failure to prove his payment of rentals by
appropriate receipts, and said that the affidavits of Allingag, Rolando Alejo and Angelito dela Cruz are self-
serving and are not concrete proof to rebut the allegation of nonpayment of rentals. The DARAB added that
respondent’s intention to lend her land to petitioner cannot be taken as implied tenancy for such lending was
without consideration.8

Petitioner appealed, but the CA affirmed DARAB’s ruling that no tenancy relationship exists; that the
elements of consent and sharing are not present; that respondent’s act of lending her land without
consideration cannot be taken as implied tenancy; and that no receipts prove petitioner’s payment of
rentals.9

Aggrieved, petitioner filed the instant petition. Petitioner alleges that the CA erred

[I.]

x x x IN AFFIRMING IN TOTO THE DECISION OF THE DARAB AND IN FAILING TO CONSIDER

THE TOTALITY OF THE EVIDENCE OF THE PETITIONER THAT HE IS INDEED A TENANT[;]

[II.]
 x x x IN RELYING MAINLY ON THE ABSENCE OF RECEIPTS OF THE PAYMENTS OF LEASE
RENTALS IN DECLARING THE ABSENCE OF CONSENT AND SHARING TO ESTABLISH A
TENANCY RELATIONSHIP BETWEEN THE PETITIONER AND THE RESPONDENT[; AND]

[III.]

x x x WHEN IT FOUND THAT THE PETITIONER HAS NOT DISCHARGED THE BURDEN [OF]
PROVING BY WAY OF SUBSTANTIAL EVIDENCE HIS ALLEGATIONS OF TENANCY
RELATIONSHIP WITH THE RESPONDENT.10

The main issue to be resolved is whether there exists a tenancy relationship between the parties.

Petitioner submits that substantial evidence proves the tenancy relationship between him and respondent.
Specifically, he points out that (1) his possession of the land is undisputed; (2) the DAR certified that he is
the registered farmer of the land; and (3) receipts prove his payment of irrigation fees. On the absence of
receipts as proof of rental payments, he urges us to take judicial notice of an alleged practice in the
provinces that payments between relatives are not supported by receipts. He also calls our attention to the
affidavits of Jose Allingag, Rolando Alejo and Angelito dela Cruz attesting that he pays 15 cavans of palay to
respondent.11

In her comment, respondent says that no new issues and substantial matters are raised in the petition. She
thus prays that we deny the petition for lack of merit.12

We find the petition impressed with merit and we hold that the CA and DARAB erred in ruling that there is no
tenancy relationship between the parties.

The essential elements of an agricultural tenancy relationship are: (1) the parties are the landowner and the
tenant or agricultural lessee; (2) the subject matter of the relationship is agricultural land; (3) there is consent
between the parties to the relationship; (4) the purpose of the relationship is to bring about agricultural
production; (5) there is personal cultivation on the part of the tenant or agricultural lessee; and (6) the
harvest is shared between the landowner and the tenant or agricultural lessee.13

The CA and DARAB ruling that there is no sharing of harvest is based on the absence of receipts to show
petitioner’s payment of rentals. We are constrained to reverse them on this point. The matter of rental
receipts is not an issue given respondent’s admission that she receives rentals from petitioner. To recall,
respondent’s complaint in Barangay Case No. 99-6 was that the rental or the amount she receives from
petitioner is not much.14 This fact is evident on the record15 of said case which is signed by respondent and
was even attached as Annex "D" of her DARAB petition. Consequently, we are thus unable to agree with
DARAB’s ruling that the affidavits16 of witnesses that petitioner pays 15 cavans of palay or the equivalent
thereof in pesos as rent are not concrete proof to rebut the allegation of nonpayment of rentals. Indeed,
respondent’s admission confirms their statement that rentals are in fact being paid. Such admission belies
the claim of respondent’s representative, Celso Rabang, that petitioner paid nothing for the use of the land.

Contrary also to the CA and DARAB pronouncement, respondent’s act of allowing the petitioner to cultivate
her land and receiving rentals therefor indubitably show her consent to an unwritten tenancy agreement. An
agricultural leasehold relation is not determined by the explicit provisions of a written contract
alone.17 Section 518 of Republic Act (R.A.) No. 3844, otherwise known as the Agricultural Land Reform Code,
recognizes that an agricultural leasehold relation may exist upon an oral agreement.

Thus, all the elements of an agricultural tenancy relationship are present. Respondent is the landowner;
petitioner is her tenant. The subject matter of their relationship is agricultural land, a farm land.19 They
mutually agreed to the cultivation of the land by petitioner and share in the harvest. The purpose of their
relationship is clearly to bring about agricultural production. After the harvest, petitioner pays rental
consisting of palay or its equivalent in cash. Respondent’s motion20 to supervise harvesting and threshing,
processes in palay farming, further confirms the purpose of their agreement. Lastly, petitioner’s personal
cultivation of the land21 is conceded by respondent who likewise never denied the fact that they share in the
harvest.

Petitioner’s status as a de jure tenant having been established, we now address the issue of whether there
is a valid ground to eject petitioner from the land.

Respondent, as landowner/agricultural lessor, has the burden to prove the existence of a lawful cause for
the ejectment of petitioner, the tenant/agricultural lessee.22 This rule proceeds from the principle that a
tenancy relationship, once established, entitles the tenant to a security of tenure.23 The tenant can only be
ejected from the agricultural landholding on grounds provided by law.24

Section 36 of R.A. No. 3844 enumerates these grounds, to wit:

SEC. 36. Possession of Landholding; Exceptions.– Notwithstanding any agreement as to the period or
future surrender of the land, an agricultural lessee shall continue in the enjoyment and possession of his
landholding except when his dispossession has been authorized by the Court in a judgment that is final and
executory if after due hearing it is shown that:

(1) The agricultural lessor-owner or a member of his immediate family will personally cultivate the
landholding or will convert the landholding, if suitably located, into residential, factory, hospital or
school site or other useful non-agricultural purposes: Provided; That the agricultural lessee shall be
entitled to disturbance compensation equivalent to five years rental on his landholding in addition to
his rights under Sections [25] and [34], except when the land owned and leased by the agricultural
lessor is not more than five hectares, in which case instead of disturbance compensation the lessee
may be entitled to an advance notice of at least one agricultural year before ejectment proceedings
are filed against him: Provided, further, That should the landholder not cultivate the land himself for
three years or fail to substantially carry out such conversion within one year after the dispossession
of the tenant, it shall be presumed that he acted in bad faith and the tenant shall have the right to
demand possession of the land and recover damages for any loss incurred by him because of said
dispossession;

(2) The agricultural lessee failed to substantially comply with any of the terms and conditions of the
contract or any of the provisions of this Code unless his failure is caused by fortuitous event or force
majeure;

(3) The agricultural lessee planted crops or used the landholding for a purpose other than what had
been previously agreed upon;

(4) The agricultural lessee failed to adopt proven farm practices as determined under paragraph 3 of
Section [29];

(5) The land or other substantial permanent improvement thereon is substantially damaged or
destroyed or has unreasonably deteriorated through the fault or negligence of the agricultural lessee;

(6) The agricultural lessee does not pay the lease rental when it falls due: Provided, That if the non-
payment of the rental shall be due to crop failure to the extent of seventy-five per centum as a result
of a fortuitous event, the non-payment shall not be a ground for dispossession, although the
obligation to pay the rental due that particular crop is not thereby extinguished; or

(7) The lessee employed a sub-lessee on his landholding in violation of the terms of paragraph 2 of
Section [27].

Through Rabang, respondent alleged (1) nonpayment of any consideration, (2) lack of tenancy relationship,
(3) petitioner mortgaged the land to Allingag who allegedly possesses the land, and (4) she will
manage/cultivate the land.25 None of these grounds were proven by the respondent.

As aforesaid, respondent herself admitted petitioner’s payment of rentals. We also found that a tenancy
relationship exists between the parties.

On the supposed mortgage, Allingag himself denied it in his affidavit.26 No such a deed of mortgage was
submitted in evidence. Rabang’s claim is based on a hearsay statement of Cesar Andres that he came to
know the mortgage from residents of the place where the land is located.27

That Allingag possesses the land is also based on Andres’s hearsay statement. On the contrary, Allingag
stated in his affidavit that he is merely petitioner’s farm helper.28 We have held that the employment of farm
laborers to perform some aspects of work does not preclude the existence of an agricultural leasehold
relationship, provided that an agricultural lessee does not leave the entire process of cultivation in the hands
of hired helpers. Indeed, while the law explicitly requires the agricultural lessee and his immediate family to
work on the land, we have nevertheless declared that the hiring of farm laborers by the tenant on a
temporary, occasional, or emergency basis does not negate the existence of the element of "personal
cultivation" essential in a tenancy or agricultural leasehold relationship.29 There is no showing that petitioner
has left the entire process of cultivating the land to Allingag. In fact, respondent has admitted that petitioner
still farms the land.30

On respondent’s claim that she will cultivate the land, it is no longer a valid ground to eject petitioner. The
original provision of Section 36 (1) of R.A. No. 3844 has been removed from the statute books31 after its
amendment by Section 7 of R.A. No. 638932 on September 10, 1971, to wit:

SEC. 7. Section 36 (1) of the same Code is hereby amended to read as follows:

(1) The landholding is declared by the department head upon recommendation of the National Planning
Commission to be suited for residential, commercial, industrial or some other urban purposes: Provided,
That the agricultural lessee shall be entitled to disturbance compensation equivalent to five times the
average of the gross harvests on his landholding during the last five preceding calendar years.

Since respondent failed to prove nonpayment of rentals, petitioner may not be ejected from the
landholding. We emphasize, however, that as long as the tenancy relationship subsists, petitioner must
1âwphi1

continue paying rentals. For the law provides that nonpayment of lease rental, if proven, is a valid ground to
dispossess him of respondent’s land. Henceforth, petitioner should see to it that his rental payments are
properly covered by receipts.

Finally, the records show that Allingag, petitioner’s co-respondent in DARAB Case No. 9378, did not join
petitioner’s appeal to the CA. If Allingag did not file a separate appeal, the DARAB decision had become
final as to him. We cannot grant him any relief.

WHEREFORE, we GRANT the petition and REVERSE the Decision dated September 26, 2008 and
Resolution dated December 12, 2008 of the Court of Appeals in CA-G.R. SP No. 97143.

The petition filed by respondent Cresencia Bugarin in DARAB Case No. 9378 is hereby DISMISSED insofar
as petitioner Juan Galope is concerned.

No pronouncement as to costs.

SO ORDERED.

MARTIN S. VILLARAMA, JR.

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

TERESITA J. LEONARDO-DE CASTRO LUCAS P. BERSAMIN

Associate Justice Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the 1987 Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the opinion of the
Court’s Division.

RENATO C. CORONA
Chief Justice

Footnotes

1
Rollo, pp. 55-62. Penned by Associate Justice Sesinando E. Villon with the concurrence of
Associate Justices Andres B. Reyes, Jr. and Jose Catral Mendoza (now a Member of this Court).

2
Id. at 71.

3
Records, p. 7.

4
Id. at 9.

5
Id. at 9-11.

6
Id. at 2-5.

7
Id. at 97-98.
8
Id. at 141-143.

9
Rollo, pp. 59-62.

10
Id. at 16.

11
Id. at 17-20.

12
Id. at 79.

13
Granada v. Bormaheco, Inc., G.R. No. 154481, July 27, 2007, 528 SCRA 259, 268.

14
Records, p. 9. Respondent said, "Na siya ay tumatanggap ngunit kaunti lamang."

15
Id. at 9-11.

16
Id. at 48-49.

17
Supra note 13, at 271.

SEC. 5. Establishment of Agricultural Leasehold Relation – The agricultural leasehold relation shall
18

be established by operation of law in accordance with Section [4] of this Code and, in other cases,
either orally or in writing, expressly or impliedly.

19
Records, p. 20 (lupang sakahin).

20
Id. at 67-68.

21
Id. at 9. Respondent said, "kasalukuyan ay sinasaka ni Juan Galope."

R.A. No. 3844, SEC. 37. Burden of Proof. – The burden of proof to show the existence of a lawful
22

cause for the ejectment of an agricultural lessee shall rest upon the agricultural lessor.

23
R.A. No. 3844, SEC. 7. Tenure of Agricultural Leasehold Relation. – The agricultural leasehold
relation once established shall confer upon the agricultural lessee the right to continue working on
the landholding until such leasehold relation is extinguished. The agricultural lessee shall be entitled
to security of tenure on his landholding and cannot be ejected therefrom unless authorized by the
Court for causes herein provided.

24
Perez-Rosario v. Court of Appeals, G.R. No.140796, June 30, 2006, 494 SCRA 66, 82.

25
Records, p. 3.

26
Id. at 48.

Id. at 8. Andres said, "Na aking napagalaman na ang kanyang sinasakang ito ay kanyang naisanla
27

… kay Jose Allingag na siya ngayon ang makikita at lihitimong nagsasaka sa nasabing lupang
sakahin; Na ito ay aking napagalaman mula pa noong taong 1997, sa dahilang ako ay madalas sa
nasabing lugar at halos lahat ng nakatira doon ay pawang aking mga kaibigan at kamag-anakan;...."

Id. at 48. Allingag said, "at gumagawa ako sa nasabing saka bilang katulong lamang ni Juan
28

Galope; …."

29
Supra note 24, at 84-85.

30
Supra note 21.

31
See Balatbat v. Court of Appeals, G.R. No. 36378, January 27, 1992, 205 SCRA 419, 425.

An Act Amending Republic Act Numbered [3844], as amended, Otherwise Known as the
32

Agricultural Land Reform Code, and for Other Purposes.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION
G.R. No. 188174 June 29, 2015

DEPARTMENT OF AGRARIAN REFORM, through its PROVINCIAL AGRARIAN REFORM OFFICER OF

DAVAO CITY, and THE MUNICIPAL AGRARIAN REFORM OFFICER OF CALINAN, DAVAO
CITY, Petitioners,
vs.
WOODLAND AGRO-DEVELOPMENT, INC., Respondent.

DECISION

SERENO, CJ:

This Petition for Review under Rule 45 seeks the nullification of the Decision1 dated 2 February 2009 issued
by the Regional Trial Court of Davao City Branch 14 (RTC) and its Order2 dated 8 May 2009 in Special Civil
Case No. 30855-2005. The RTC nullified the Notice of Coverage (NOC) dated 11 December 2003 and
Notice of Acquisition (NOA) dated 5 October 2004 issued by petitioner Department of Agrarian Reform
(DAR) over a portion of a parcel of land owned by respondent Woodland Agro Development. Inc.
(Woodland). The court also denied DAR's Motion for Reconsideration.3

The issue before this Court is whether Republic Act No. 8532 (R.A. 8532) authorized the DAR to issue
Notices of Coverage and Acquisition after 15 June 1998, or beyond the 10-year implementation period
provided or in Section 5 of Republic Act No. 6657 (R.A. 6657) or the

Comprehensive Agrarian Reform Law (CARL), which states:

SECTION 5. Schedule of Implementation. - The distribution of all lands, covered by this Act shall be
implemented immediately and completed within ten (10) years from the effectivity thereof.

The Court rules that R.A. 8532 extended the term of the implementation of the Comprehensive Agrarian
Reform Program (CARP) under the CARL. Consequently, the NOC dated 11 December 2003 and NOA
dated 5 October 2004 issued over the portion of respondent's land are valid.

ANTECEDENT FACTS

Woodland is the registered owner of a parcel of agricultural land covered by Transfer Certificate of Title
(TCT) No. T-113207 with an area of 10.0680 hectares located at Subasta, Calinan, Davao City.4 On 11
December 2003, the DAR issued an NOC5 placing 5.0680 hectares under the coverage of the CARL for
having exceeded the retention limit6 provided by law. TCT No. T-113207 was canceled, and a new title
covering 5.0680 hectares was issued in the name of the Republic of the Philippines.7 Thereafter, on 14
February 2005, Certificates of Land Ownership Award (CLOAs) were issued in favor of five farmer
beneficiaries.8

On 3 March 2005, Woodland filed with the RTC a Complaint9 for "Declaratory Relief, Annulment of the
Notice of Coverage under R.A. 6657, with Prayer for the Issuance of a Temporary Restraining Order and/or
Writ of Preliminary Injunction." Woodland contended that the issuance of the NOC was illegal, because R.A.
6657 had already expired on 15 June 1998.10 It argued that pursuant to Section 5 of the law, the agency had
a period of ten (10) years to implement the CARP from the time of its effectivity on 15 June 1988. It further
argued that the CARL's amendatory law, R.A. 8532, did not extend the DAR's authority to acquire agrarian
lands for distribution. It theorized that the budget augmentations legislated in R.A. 8532 pertained only to the
funding requirements of the other facets of the CARP implementation and excluded the acquisition of private
agricultural lands.11

The DAR hinged its Answer12 on Department of Justice (DOJ) Opinion No. 009, Series of 1997 issued by
then DOJ Secretary Teofisto Guingona, Jr. He opined that Section 5 was merely directory in character; that
the 10-year period of implementation was only a time frame given to the DAR for the acquisition and
distribution of public and private agricultural lands covered by R.A. 6657.13 The schedule was meant to guide
the DAR in setting its priorities, but it was not by any means a limitation of authority in the absence of more
categorical language to that effect.14

THE RULING OF THE RTC

The RTC ruled that the DAR's act of sending Woodland an NOC was already a breach of R.A. 6657, since
the NOC was issued beyond the 10-year period prescribed by law.15 The trial court further ruled that R.A.
8532 only amended the CARL' s provision on the sourcing of funds for the implementation of the CARP, and
not the provision on the period within which the DAR may acquire lands for distribution. The court held that
R.A. 8532 did not extend the 10-year period of land acquisition.16 Neither did it overstep the DAR's
jurisdiction to try agrarian matters, but only determined Woodland's rights under the CARL.17

The dispositive portion18 of the RTC Decision reads:

Premises considered, this Court rules in favor of the plaintiff and judgment is rendered as follows:

1. Declaring that Republic Act No. [8532] did not extend the acquisition of private lands beyond June 15,
1998 and;

2. Nullifying the [Notice] of Coverage dated December 11, 2003 and the Notice of Acquisition dated October
5, 2004.

After its Motion for Reconsideration was denied, petitioner elevated the case to this Court via a Petition for
Review under Rule 45.

THE ISSUE

The sole issue raised by petitioner is whether it can still issue Notices of Coverage after 15 June 1998.

THE COURT'S RULING

Article XIII, Section 4 of the 1987 Constitution encapsulates the people's yearning for genuine agrarian
reform. The provision states:

The State shall, by law, undertake an agrarian reform program founded on the right of 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.

Sixteen months after the ratification of the Constitution, Congress enacted the CARL.19 The policy of the law
is to pursue a Comprehensive Agrarian Reform Program that shall give highest consideration to the welfare
of landless farmers and farmworkers to promote social justice; move the nation toward sound rural
development and industrialization; and establish owner cultivatorship of economic-size farms as the basis of
Philippine agriculture. To this end, a more equitable distribution and ownership of land shall be undertaken
with due regard for the rights of landowners to just compensation and to the ecological needs of the nation
to provide farmers and farmworkers with the opportunity to enhance their dignity and improve the quality of
their lives through greater productivity of agricultural lands.20

In Secretary of Agrarian Reform v. Tropical Homes, lnc.,21 we recognized the CARL as a "bastion of social
justice of poor landless farmers, the mechanism designed to redistribute to the underprivileged the natural
right to toil the earth, and to liberate them from oppressive tenancy." To those who seek the law's benefit, it
is the means towards a viable livelihood and ultimately, a decent life.22

The Court is guided by these principles in the resolution of the present Petition for Review on Certiorari.

The agrarian reform program, being one of the immutable hallmarks of the 1987 Constitution, must be
faithfully implemented to meet the ends of social justice. The Court cannot subscribe to Woodland's stance
1âwphi1

that the DAR's authority to issue notices of coverage and acquisition ceased after the 10-year
implementation period mentioned in Section 5 of the CARL. Such a view runs afoul of the constitutional
mandate firmly lodged in Article XIII, Section 4, which seeks the just distribution of all agricultural lands to
qualified farmers and farm workers to free them from oppressive tenancy agreements.

The success of the CARP depends heavily on the adept implementation by the DAR. The agency's
primordial procedural tool for realizing the law's objectives is the issuance of Notices of Coverage and
Acquisition. For us to sustain Woodland's theory that the DAR can no longer issue those notices after 15
June 1998 despite the enactment of R.A. 8532 would thwart the CARP's purpose. As the Court ruled in
Gonzales v. Court of Appeals:23

[O]ur laws on agrarian reform were enacted primarily because of the realization that there is an urgent need
to alleviate the lives of the vast number of poor farmers in our country. Yet, despite such laws, the majority
of these farmers still live on a hand-to-mouth existence. This can be attributed to the fact that these agrarian
laws have never really been effectively implemented. Woodland asserts that R.A. 8532 only amended R.A.
6657 insofar as the funding requirements for the CARP are concerned. It disputes the extension of the
DAR's authority to acquire and distribute private agricultural lands.

The first paragraph of Section 63, as originally worded and as amended, used the phrase "this Act" to refer
to CARL as a whole.

Originally, the first paragraph of Section 63 reads:

SECTION 63. Funding Source. - The initial amount needed to implement this Act for the period of ten (10)
years upon approval hereof shall be funded from the Agrarian Reform Fund created under Sections 20 and
21 of Executive Order No. 229. (Emphasis supplied)

As amended by R.A. 8532, the first paragraph of Section 63 stated:

SECTION 63. Funding Source. - The amount needed to implement this Act until the year 2008 shall be
funded from the Agrarian Reform Fund. (Emphasis supplied)

In 2009, Congress again amended certain provisions of the CARL, including Section 63.24 The latest revision
of the first paragraph recites:

SECTION 63. Funding Source. - The amount needed to further implement the CARP as provided in this Act,
until June 30, 2014, upon expiration of funding under Republic Act No. 8532 and other pertinent laws, shall
be funded from the Agrarian Reform Fund and other funding sources in the amount of at least One hundred
fifty billion pesos (₱150,000,000,000.00). (Emphasis supplied)

Clearly, Section 63 refers to the implementation of the CARL in its entirety, not just the funding source.
Indeed, R.A. 8532 specifically amended Section 63 of R.A. 6657, but it does not follow that only Section 63
had been affected by the amendment. The fact that Section 63 falls under the chapter on "Financing" only
emphasizes its general applicability. Hence, the phrase "until the year 2008" used in R.A. 8532 unmistakably
extends the DAR's authority to issue NOCs for purposes of acquiring and distributing private agricultural
lands.

Finally, R.A. 9700 extended the acquisition and distribution of all agricultural lands until 30 June 2014.25 The
title alone of R.A. 9700 - 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 - reveals
that the CARP was indeed extended from 1998 to 2008 via R.A. 8532. Had there been no prior extension
from 1998 to 2008, how else could the CARP have been extended by R.A. 9700 until 30 June 2014? There
could have been an extension only if the program sought to be extended had not expired.

WHEREFORE, the foregoing Petition is GRANTED. The Decision dated 2 February 2009 and Order dated 8
May 2009 of the Regional Trial Court of Davao City Branch 14 in Special Civil Case No. 30855-2005 are
REVERSED and SET ASIDE. The DAR's Notice of Coverage dated 11 December 2003 and Notice of
Acquisition dated 5 October 2004 are UPHELD with full effect. SO ORDERED.

MARIA LOURDES P.A. SERENO

Chief Justice, Chairperson

WE CONCUR:

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

LUCAS P. BERSAMIN JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer of the opinion of the Court's
Division.

MARIA LOURDES P.A. SERENO

Chief Justice

Footnotes

1
Rollo, pp. 14-17; Penned by Presiding Judge George E. Omelio.

2
Id. at 22.

3
Id.
 4
d. at 6.

5
Id. at 33.

6
SECTION 6. Retention Limits. - Except as otherwise provided in this Act, no person may own or
retain, directly or indirectly, any public or private agricultural land, the size of which shall vary
according to factors governing a viable family-size farm, such as commodity produced, terrain,
infrastructure, and soil fe1tility as determined by the Presidential Agrarian Reform Council (PARC)
created hereunder, but in no case shall retention by the landowner exceed five (5) hectares. Three
(3) hectares may be awarded to each child of the landowner, subject to the following qualifications:
(I) that he is at least fifteen (15) years of age; and (2) that he is actually tilling the land or directly
managing the farm: Provided, That landowners whose lands have been covered by Presidential
Decree No. 27 shall be allowed to keep the areas originally retained by them thereunder: Provided,
further, That original homestead grantees or their direct compulsory heirs who still own the original
homestead at the time of the approval of this Act shall retain the same areas as long as they
continue to cultivate said homestead.

7
Rollo, p. 6.

8
The five farmer beneficiaries are Alfredo M. Sol mayor, Rolando D. Fuentes, Silvano E. Sedentario,
Frank Lloyd S. Sedentario, and Alfredo E. Sedentario.

9
Rollo, pp. 23-30.

10
Id. at 24.

11
Id. at 27.

12
Id. at 35-40.

13
Id. at 36.

14
Id.

15
Id. at 15.

16
Id. at 16.

17
Id.

18
Id. at 17.

19
The CARL was approved on 10 June 1988 and took effect after its publication on 14 June 1988.

20
R.A. 6657, Section 2, pars. 1 & 2.

21
414 Phil. 389 (2001).

22
Id. at 396-397.

23
411 Phil. 232, 243 (2001).

24
R.A. 9700.

25
Id., sec. 5.

Republic of the Philippines

SUPREME COURT
Baguio City

SECOND DIVISION

G.R. No. 190276 April 2, 2014

EUFROCINA NIEVES, as represented by her attorney-in-fact, LAZARO VILLAROSA, JR., Petitioner,

vs.
ERNESTO DULDULAO and FELIPE PAJARILLO, Respondents.
 DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated June 4, 2009 and the
Resolution3 dated November 5, 2009 of the Court of Appeals (CA) in CA-G.R. SP No. 105438 which set
aside the Decision4 dated December 13, 2007 and the Resolution5 dated March 13, 2008 of the Department
of Agrarian Reform Adjudication Board (DARAB) in DARAB Case No. 14727, holding that the tenancy
relations between petitioner Eufrocina Nieves (petitioner) and respondents Ernesto Duldulao (Ernesto) and
Felipe Pajarillo (Felipe) remain valid and enforceable.

The Facts

Petitioner is the owner of a piece of agricultural rice land with an area of six (6) hectares, more or less,
located at Dulong Bayan, Quezon, Nueva Ecija (subject land). Ernesto and Felipe (respondents) are tenants
and cultivators of the subject land6 who are obligated to each pay leasehold rentals of 45 cavans of palay for
each cropping season,7 one in May and the other in December.8

Claiming that Ernesto and Felipe failed to pay their leasehold rentals since 1985 which had accumulated to
446.5 and 327 cavans of palay, respectively, petitioner filed a petition on March 8, 2006 before the DARAB
Office of the Provincial Adjudicator (PARAD), seeking the ejectment of respondents from the subject land for
non-payment of rentals.9

Prior to the filing of the case, a mediation was conducted before the Office of the Municipal Agrarian Reform
Officer and Legal Division in 2005 where respondents admitted being in default in the payment of leasehold
rentals equivalent to 200 and 327 cavans of palay, respectively, and promised to pay the
same.10 Subsequently, however, in his answer to the petition, Ernesto claimed that he merely inherited a
portion of the back leasehold rentals from his deceased father, Eugenio Duldulao, but proposed to pay the
arrearages in four (4) installments beginning the dayatan cropping season in May 2006.11 On the other hand,
Felipe denied incurring any back leasehold rentals, but at the same time proposed to pay whatever there
may be in six (6) installments, also beginning the dayatan cropping season in May 2006.12 Both respondents
manifested their lack of intention to renege on their obligations to pay the leasehold rentals due, explaining
that the supervening calamities, such as the flashfloods and typhoons that affected the area prevented them
from complying.13

The PARAD's Ruling

In a Decision14 dated July 6, 2006, the PARAD declared that the tenancy relations between the parties had
been severed by respondents’ failure to pay their back leasehold rentals, thereby ordering them to vacate
the subject land and fulfill their rent obligations.

With respect to Ernesto, the PARAD did not find merit in his claim that the obligation of his father for back
leasehold rentals, amounting to 446 cavans of palay, had been extinguished by his death. It held that upon
the death of the leaseholder, the leasehold relationship continues between the agricultural lessor and the
surviving spouse or next of kin of the deceased as provided by law; hence, the leasehold rent obligations
subsist and should be paid.15

As for Felipe, the PARAD found that his unpaid leasehold rentals had accumulated to 327 cavans of palay,
and that his refusal to pay was willful and deliberate, warranting his ejectment from the subject land.16

Dissatisfied, respondents elevated the case on appeal.

The DARAB Proceedings

On April 16, 2007, the DARAB issued an Order17 deputizing the DARAB Provincial Sheriff of Nueva Ecija
and the Municipal Agrarian Reform Officer of Talavera, Nueva Ecija to supervise the harvest of palay over
the subject land. However, when the Sheriff proceeded to implement the same on April 27, 2007, he found
that the harvest had been completed and the proceeds therefrom had been used to pay respondents’ other
indebtedness.18

On December 13, 2007, the DARAB issued a Decision19 affirming the findings of the PARAD that indeed,
respondents were remiss in paying their leasehold rentals and that such omission was willful and deliberate,
justifying their ejectment from the subject land.20

Unperturbed, respondents elevated the matter to the CA.

The CA Ruling
In a Decision21 dated June 4, 2009, the CA granted respondents’ petition for review, thereby reversing the
ruling of the DARAB terminating the tenancy relations of the parties. While it found respondents to have
been remiss in the payment of their leasehold rentals, it held that the omission was not deliberate or willful.
Notwithstanding the DARAB’s findings with respect to the amounts of respondents’ rental arrearages, the
CA gave full credence to their assertions and observed that Felipe failed to pay only 293 cavans of palay or
16.28% of the total leasehold rentals due from 1985 to 2005, while Ernesto failed to pay only 107.5 cavans
of palay or 6% of the total leasehold rentals.22 Relying on the Court’s ruling in the case of De Tanedo v. De
La Cruz23 (De Tanedo), the CA then concluded that respondents substantially complied with their obligation
to pay leasehold rentals, and, hence, could not be ejected from the subject land despite their failure to meet
their rent obligations as they became due.

Aggrieved, petitioner filed a motion for reconsideration which was, however, denied by the CA in a
Resolution24 dated November 5, 2009, hence this petition.

The Issue Before the Court

The sole issue for the Court’s resolution is whether or not the CA correctly reversed the DARAB’s ruling
ejecting respondents from the subject land.

The Court’s Ruling

The petition is meritorious.

Agricultural lessees, being entitled to security of tenure, may be ejected from their landholding only on the
grounds provided by law.25 These grounds – the existence of which is to be proven by the agricultural lessor
in a particular case26 – are enumerated in Section 36 of Republic Act No. (RA) 3844,27 otherwise known as
the "Agricultural Land Reform Code," which read as follows:

Section 36. Possession of Landholding; Exceptions. - Notwithstanding any agreement as to the period or
future surrender, of the land, an agricultural lessee shall continue in the enjoyment and possession of his
landholding except when his dispossession has been authorized by the Court in a judgment that is final and
executory if after due hearing it is shown that:

(1) The landholding is declared by the department head upon recommendation of the National
Planning Commission to be suited for residential, commercial, industrial or some other urban
purposes: Provided, That the agricultural lessee shall be entitled to disturbance compensation
equivalent to five times the average of the gross harvests on his landholding during the last five
preceding calendar years; (as amended by RA 6389)

(2) The agricultural lessee failed to substantially comply with any of the terms and conditions of the
contract or any of the provisions of this Code unless his failure is caused by fortuitous event or force
majeure;

(3) The agricultural lessee planted crops or used the landholding for a purpose other than what had
been previously agreed upon;

(4) The agricultural lessee failed to adopt proven farm practices as determined under paragraph 3 of
Section twenty-nine;

(5) The land or other substantial permanent improvement thereon is substantially damaged or
destroyed or has unreasonably deteriorated through the fault or negligence of the agricultural lessee;

(6) The agricultural lessee does not pay the lease rental when it falls due: Provided, That if the non-
payment of the rental shall be due to crop failure to the extent of seventy-five per centum as a result
of a fortuitous event, the non-payment shall not be a ground for dispossession, although the
obligation to pay the rental due that particular crop is not thereby extinguished; or

(7) The lessee employed a sub-lessee on his landholding in violation of the terms of paragraph 2 of
Section twenty-seven. (Emphases supplied)

To eject the agricultural lessee for failure to pay the leasehold rentals under item 6 of the above-cited
provision, jurisprudence instructs that the same must be willful and deliberate in order to warrant the
agricultural lessee’s dispossession of the land that he tills. As explained in the case of Sta. Ana v. Spouses
Carpo:28

Under Section 37 of Republic Act No. 3844, as amended, coupled with the fact that the respondents are the
complainants themselves, the burden of proof to show the existence of a lawful cause for the ejectment of
the petitioner as an agricultural lessee rests upon the respondents as ag-ricultural lessors. This proceeds
from the principle that a tenancy relation-ship, once established, entitles the tenant to security of tenure.
Petitioner can only be ejected from the agricultural landholding on grounds provided by law. Section 36 of
the same law pertinently provides:

Sec. 36. Possession of Landholding; Exceptions. – Notwithstanding any agreement as to the period or future
surrender, of the land, an agricultural lessee shall continue in the enjoyment and possession of his
landholding except when his dispossession has been authorized by the Court in a judgment that is final and
executory if after due hearing it is shown that:

xxxx

(6) The agricultural lessee does not pay the lease rental when it falls due: Provided, That if the non-payment
of the rental shall be due to crop failure to the extent of seventy-five per centum as a result of a fortuitous
event, the non-payment shall not be a ground for disposses-sion, although the obligation to pay the rental
due that particular crop is not thereby extinguished;

xxxx

Respondents failed to discharge such burden. The agricultural tenant's failure to pay the lease rentals must
be willful and deliberate in order to warrant his dispossession of the land that he tills.

Petitioner’s counsel opines that there appears to be no decision by this Court on the matter; he thus submits
that we should use the CA decision in Cabero v. Caturna. This is not correct. In an En Banc Decision by this
Court in Roxas y Cia v. Cabatuando, et al.,29 we held that under our law and jurisprudence, mere failure of a
tenant to pay the landholder's share does not necessarily give the latter the right to eject the former when
there is lack of deliberate intent on the part of the tenant to pay. This ruling has not been overturned.

x x x x30 (Emphases supplied; citations omitted)

In the present case, petitioner seeks the dispossession of respondents from the subject land on the ground
of non-payment of leasehold rentals based on item 6, Section 36 of RA 3844. While respondents indeed
admit that they failed to pay the full amount of their respective leasehold rentals as they become due, they
claim that their default was on account of the debilitating effects of calamities like flashfloods and typhoons.
This latter assertion is a defense provided under the same provision which, if successfully established,
allows the agricultural lessee to retain possession of his landholding. The records of this case are, however,
bereft of any showing that the aforestated claim was substantiated by any evidence tending to prove the
same. Keeping in mind that bare allegations, unsubstantiated by evidence, are not equivalent to proof,31 the
Court cannot therefore lend any credence to respondents’ fortuitous event defense.

Respondents’ failure to pay leasehold rentals to the landowner also appears to have been willful and
deliberate. They, in fact, do not deny – and therefore admit32 – the landowner’s assertion that their rental
arrearages have accumulated over a considerable length of time, i.e., from 1985 to 2005 but rely on the
fortuitous event defense, which as above-mentioned, cannot herein be sustained. In the case of Antonio v.
Manahan33 (Antonio), the Court, notwithstanding the tenants’ failure to prove their own fortuitous event
theory, pronounced that their failure to pay the leasehold rentals was not willful and deliberate. The records
in said case showed that the landowner actually rejected the rentals, which amounted only to 2 years-worth
of arrearages, i.e., 1993 and 2001, tendered by the tenants therein due to their supposed poor quality. This
circumstance was taken by the Court together with the fact that said tenants even exerted efforts to make up
for the rejected rentals through the payments made for the other years. In another case, i.e., Roxas v.
Cabatuando34 (Roxas), the Court similarly held that the tenants therein did not willfully and deliberately fail to
pay their leasehold rentals since they had serious doubts as to the legality of their contract with respect to
their non-sharing in the coconut produce, which thus prompted them to withhold their remittances in good
faith. In contrast to Antonio and Roxas, the landowner in this case never rejected any rental payment duly
tendered by respondents or their predecessors-in-interest. Neither was the legality of their agricultural
leasehold contract with the landowner ever put into issue so as to intimate that they merely withheld their
remittances in good faith. Thus, with the fortuitous event defense taken out of the equation, and considering
the examples in Antonio and Roxas whereby the elements of willfulness and deliberateness were not found
to have been established, the Court is impelled to agree with the DARAB that respondents herein willfully
and deliberately chose not to pay their leasehold rentals to the landowner when they fell due. The term
"willful" means "voluntary and intentional, but not necessarily malicious,"35 while the term "deliberate" means
that the act or omission is "intentional," "premeditated" or "fully considered."36 These qualities the landowner
herein had successfully established in relation to respondents’ default in this case. Accordingly, their
dispossession from the subject land is warranted under the law.

At this juncture, the Court finds it apt to clarify that respondents’ purported substantial compliance – as
erroneously considered by the CA to justify its ruling against their dispossession – is applicable only under
the parameters of item 2, Section 36 of RA 3844, which is a separate and distinct provision from item 6
thereof. Item 2, Section 36 of RA 3844 applies to cases where the agricultural lessee failed to substantially
comply with any of the terms and conditions of the contract or any of the provisions of the Agricultural Land
Reform Code, unless his failure is caused by fortuitous event or force majeure; whereas item 6 refers to
cases where the agricultural lessee does not pay the leasehold rental when it falls due, provided that the
failure to pay is not due to crop failure to the extent of seventy-five per centum as a result of a fortuitous
event.

As the present dispute involves the non-payment of leasehold rentals, it is item 6 – and not item 2 – of the
same provision which should apply. Examining the text of item 6, there is no indication that the agricultural
lessee’s substantial compliance with his rent obligations could be raised as a defense against his
dispossession. On the other hand, item 2 states that it is only the agricultural lessee’s "failure to substantially
comply" with the terms and conditions of the agricultural leasehold contract or the provisions of the
Agricultural Land Reform Code which is deemed as a ground for dispossession. Thus, it may be reasonably
deduced that the agricultural lessee’s substantial compliance negates the existence of the ground of
dispossession provided under item 2. While the failure to pay leasehold rentals may be construed to fall
under the general phraseology of item 2 – that is a form of non-compliance "with any of the terms and
conditions of the contract or any of the provisions of this Code,"37 it is a long-standing rule in statutory
construction that general legislation must give way to special legislation on the same subject, and generally
is so interpreted as to embrace only cases in which the special provisions are not applicable - lex specialis
derogat generali.38 In other words, where two statutes are of equal theoretical application to a particular
case, the one specially designed therefor should prevail.39 Thus, consistent with this principle, the Court so
holds that cases covering an agricultural lessee’s non-payment of leasehold rentals should be examined
under the parameters of item 6, Section 36 of RA 3844 and not under item 2 of the same provision which
applies to other violations of the agricultural leasehold contract or the provisions of the Agricultural Land
Reform Code, excluding the failure to pay rent. In these latter cases, substantial compliance may – as
above-explained – be raised as a defense against dispossession.

In this relation, the Court observes that the CA’s reliance in the De Tanedo ruling was altogether misplaced
for the simple reason that the substantial compliance defense in that case was actually invoked against a
violation of a peculiar term and condition of the parties’ agricultural leasehold contract, particularly requiring
the payment of advance rentals "pursuant to [the agricultural lessee’s] agreement with the
landholders,"40 and not his mere failure to pay the leasehold rentals regularly accruing within a particular
cropping season, as in this case.

In fact, the Court, in De Tanedo, applied the substantial compliance defense only in relation to Section 50(b)
of RA 1199,41 otherwise known as the "Agricultural Tenancy Act of the Philippines," which is the predecessor
provision of item 2, Section 36 of RA 3844. Section 50(b) of RA 1199 states that:

Section 50. Causes for the Dispossession of a Tenant. - Any of the following shall be a sufficient cause for
the dispossession of a tenant from his holdings:

xxxx

(b) When the current tenant violates or fails to comply with any of the terms and conditions of the contract or
any of the provisions of this Act: Provided, however, That this subsection shall not apply when the tenant
has substantially complied with the contract or with the provisions of this Act.

On other hand, the predecessor provision of item 6, Section 36 of RA 3844 is Section 50(c) of RA 1199,
which reads as follows:

Section 50. Causes for the Dispossession of a Tenant. - Any of the following shall be a sufficient cause for
the dispossession of a tenant from his holdings:

xxxx

(c) The tenant's failure to pay the agreed rental or to deliver the landholder's share: Provided, however, That
this shall not apply when the tenant's failure is caused by a fortuitous event or force majeure.

The Court’s application of the substantial compliance defense in relation to Section 50(b) of RA 1199, as
well as the agricultural lessors’ failure to actually raise in their ejectment complaint the ground of failure to
pay leasehold rentals, is evident from the following excerpt of the De Tanedo Decision:42

In the decision appealed from as well as in the resolution of the Court of Appeals forwarding this case to us,
it has been found that the rentals for the agricultural years 1958 to 1961, inclusive, had all been fully
satisfied, although not in advance as agreed upon. This is admitted by the petitioners-appellants. We agree
with the Court a quo that the delay in payment does not justify the drastic remedy of ejectment, considering
Section 50(b) of Republic Act 1199, which states that while violation by the tenant of any of the terms and
conditions of the tenancy contract shall be a ground to eject him, yet this provision shall not apply where
there has been substantial compliance. With reference to the rental for the crop-year 1962-63, failure to pay
the same was not alleged in the original or amended complaints below, and hence may not be considered
for the first time on appeal. (Emphases and underscoring supplied)
In any case, the Court never mentioned Section 50(c) of RA 1199 in De Tanedo. Thus, a reading thereof
1âwphi1

only shores up the point earlier explained that the substantial compliance defense is only available in cases
where the ground for dispossession is the agricultural lessee’s violation of the terms and conditions of the
agricultural leasehold contract or the provisions of the Agricultural Land Reform Code, and not in cases
where the ground for dispossession is the agricultural lessee's failure to pay rent. Verily, agricultural
leasehold rentals, as in rentals in ordinary lease contracts, constitute fixed payments which the lessor has
both the right and expectation to promptly receive in consideration of being deprived of the full enjoyment
and possession of his property. Unless caused by a fortuitous event, or reprieved by virtue of a finding that
the non-payment of leasehold rentals was not actually willful and deliberate, there appears to be no credible
justification, both in reason and in law, to deny the agricultural lessor the right to recover his property and
thereby eject the agricultural lessee in the event that the latter fails to comply with his rent obligations as
they fall due. Indeed, while the Constitution commands the government to tilt the balance in favor of the poor
and the underprivileged whenever doubt arises in the interpretation of the law, the jural postulates of social
justice should not sanction any false sympathy towards a certain class, nor be used to deny the landowner's
rights,43 as in this case.

In fine, the Court affirms the DARAB Decision granting the petition for dispossession with the modification,
however, on the amount of rental arrearages to be paid considering that an action to enforce any cause of
action under RA 3844 shall be barred if not commenced within three (3) years after it accrued.44 Accordingly,
respondents are held liable to pay petitioner only the pertinent rental arrearages reckoned from the last three
(3) cropping years prior to the filing of the petition before the Office of the PARAD on March 8, 200645 or from
the May 2003 cropping season, until they have vacated the subject land.

WHEREFORE, the petition is GRANTED. The Decision dated June 4, 2009 and the Resolution dated
November 5, 2009 of the Court of Appeals in CA-GR. SP No. 105438 are REVERSED and SET ASIDE. The
Decision dated December 13, 2007 of the Department of Agrarian Reform Adjudication Board in DARAB
Case No. 14727 is REINSTATED and AFFIRMED with the MODIFICATION ordering respondents Ernesto
Duldulao and Felipe Pajarillo to pay petitioner Eufrocina Nieves the pertinent rental arrearages reckoned
from the May 2003 cropping season, until they have vacated the landholding subject of this case.

SO ORDERED.

ESTELA M. PERLAS-BERNABE
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, I certify
that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court's Division.

MARIA LOURDES P.A. SERENO

Chief Justice
Footnotes

1
Rollo, pp. 3-35.

2
Id. at 39-50. Penned by Associate Justice Jose L. Sabio, Jr., with Associate Justices Vicente S.E.
Veloso and Ricardo R. Rosario, concurring.

3
Id. at 52-53.

4
Id. at 84-90. Penned by Assistant Secretary Augusto P. Quijano, with Undersecretary Renato F.
Herrera and Assistant Secretaries Delfin B. Samson and Edgar A. Igano, concurring.

5
CA rollo, pp. 34-35. Penned by Assistant Secretary Augusto P. Quijano, with Assistant Secretaries
Delfin B. Samson, Edgar A. Igano, and Patricia Rualo-Bello, concurring.

6
Rollo, pp. 79 and 85.

7
Id. at 46.

8
CA rollo, p. 140.

9
Rollo, p. 79.

10
See Mediation Report dated March 14, 2005 issued by Legal Officer III Pablo C. Canlas; DAR
records, p. 1.

11
See Answer dated March 27, 2006; id. at 32-33.

12
See Answer dated March 29, 2006; id. at 36-37.

13
Rollo, p. 42.

14
Id. at 79-83. Penned by Presiding Adjudicator Marvin V. Bernal.

15
Id. at 80-81.

16
Id. at 82.

DAR records, pp. 162-163. Issued by Assistant Secretaries Augusto P. Quijano, Edgar A. Igano,
17

and Patricia Rualo-Bello.

See Implementation Report dated April 30, 2007 issued by DARAB Provincial Sheriff Delfin Acosta
18

Gaspar; id. at 159.

19
Rollo, pp. 84-90.

20
Id. at 89.

21
Id. at 39-50.

22
Id. at 46-47.

23
143 Phil. 61 (1970).

24
Rollo, pp. 52-53.

25
Section 7 of RA 3844 provides:

Section 7. Tenure of Agricultural Leasehold Relation. - The agricultural leasehold relation

once established shall confer upon the agricultural lessee the right to continue working on
the landholding until such leasehold relation is extinguished. The agricultural lessee shall be
entitled to security of tenure on his landholding and cannot be ejected therefrom unless
authorized by the Court for causes herein provided.

26
Section 37 of RA 3844 provides:
 Section 37. Burden of Proof. - The burden of proof to show the existence of a lawful cause
for the ejectment of an agricultural lessee shall rest upon the agricultural lessor.

27
Entitled "AN ACT TO ORDAIN THE AGRICULTURAL LAND REFORM CODE AND TO
INSTITUTE LAND REFORMS IN THE PHILIPPINES, INCLUDING THE ABOLITION OF TENANCY
AND THE CHANNELING OF CAPITAL INTO INDUSTRY, PROVIDE FOR THE NECESSARY
IMPLEMENTING AGENCIES, APPROPRIATE FUNDS THEREFOR AND FOR OTHER
PURPOSES."

28
593 Phil. 108 (2008).

29
111 Phil. 737 (1961).

30
Sta. Ana v. Spouses Carpo, supra note 28, at 130-131.

31
542 Phil. 109, 122 (2007).

32
See Section 11, Rule 8 of the Rules of Court.

33
G.R. No. 176091, August 24, 2011, 656 SCRA 190.

34
Supra note 29.

35
BLACK’S LAW DICTIONARY, 7th Ed. (1999), p. 1593.

36
Id. at 438.

37
See item (2), Section 36 of RA 3844.

38
See Jalosjos v. Commission on Elections, G.R. No. 205033, June 18, 2013, 698 SCRA 742, 762.

39
Id.

40
De Tanedo, supra note 23, at 63.

Entitled "AN ACT TO GOVERN THE RELATIONS BETWEEN LANDHOLDERS AND TENANTS
41

OF AGRICULTURAL LANDS (LEASEHOLDS AND SHARE TENANCY)."

42
De Tanedo, supra note 23, at 63.

43
See Perez-Rosario v. CA, 526 Phil. 562, 586 (2006).

44
Section 38 of RA 3844 provides:

Section 38. Statute of Limitations. - An action to enforce any cause of action under this Code
shall be barred if not commenced within three years after such cause of action accrued.

45
See Petition dated October 18, 2005; CA rollo, p. 127.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 85041 August 5, 1993

GRACIANO BERNAS, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and NATIVIDAD BITO-ON DEITA, respondents.

Rodriguez Dadivas for petitioner.

Orlanda Bigcas-Lumawag for private respondent.

PADILLA, J.:

Petitioner Graciano Bernas is before this Court assailing the decision * of the respondent appellate court
dated 19 August 1988 in CA G.R. SP No. 14359 (CAR), which reversed the decision ** of the Regional Trial
Court of Roxas City, Branch 18, in Civil Case No. V-5146 entitled "Natividad Bito-on Deita, et al. vs,
Graciano Bernas." As disclosed by the records and the evidence of both parties, the facts involved in the
controversy are as follows:

Natividad Bito-on Deita is the owner of Lots Nos. 794, 801, 840 and 848 of the Cadastral Survey of Panay,
Capiz, with a total area of 5,831 square meters. Out of liberality, Natividad entrusted the lots by way of
"dugo" to her brother, Benigno Bito-on, so that he could use the fruits thereof to defray the cost of financing
his children's schooling in Manila. Prior to April 1978, these agricultural lots had been leased by one
Anselmo Billones but following the latter's death and consequent termination of the lease, petitioner
Graciano Bernas took over and worked on the land. Benigno and Bernas worked out a production-sharing
arrangement whereby the first provided for all the expenses and the second worked the land, and after
harvest, the two (2) deducted said expenses and divided the balance of the harvest between the two of
them. The owner, Natividad, played no part in this arrangement as she was not privy to the same.

In 1985, the lots were returned by Benigno to his sister Natividad, as all his children had by then finished
their schooling. When Natividad, and her husband sought to take over possession of the lots, Bernas
refused to relinquish, claiming that he was an agricultural leasehold lessee instituted on the land, by Benigno
and, as such, he is entitled to security of tenure under the law.

Faced with this opposition from Bernas, Natividad filed an action with the Regional Trial Court for Recovery
of Possession, Ownership and Injunction with Damages. After trial, the court a quo held in favor of the
defendant (Bernas) and dismissed the complaint, ruling that from the record and the evidence presented,
notably the testimony of the plaintiff's own brother Benigno, Bernas was indeed a leasehold tenant under the
provisions of Republic Act No. 1199 and an agricultural leasehold lessee under Republic Act No. 3844,
having been so instituted by the usufructuary of the land (Benigno). As such, according to the trial court, his
tenurial rights cannot be disturbed save for causes provided by law.

Aggrieved, the plaintiff (Natividad) appealed to the Court of Appeals, contending that the "dugo"
arrangement between her and her brother Benigno was not in the nature of a usufruct (as held by the
court a quo), but actually a contract of commodatum. This being the case, Benigno, the bailee in
the commodatum, could neither lend nor lease the properties loaned, to a third person, as such relationship
(of bailor-bailee) is one of personal character. This time, her contentions were sustained, with the
respondent appellate court, reversing the trial court's decision, ruling that having only derived his rights from
the usufructuary/bailee, Bernas had no better right to the property than the latter who admittedly was
entrusted with the property only for a limited period. Further, according to the appellate court, there being no
privity of contract between Natividad and Bernas, the former cannot be expected to be bound by or to honor
the relationship or tie between Benigno and the latter (Bernas).

Hence, this petition by Bernas.

The issue for resolution by the Court is concisely stated by the respondent appellate court as follows:
whether the agricultural leasehold established by Benigno Bito-on in favor of Graciano Bernas is binding
upon the owner of the land, Natividad Bito-on, who disclaims any knowledge of, or participation in the same.

In ruling for the private respondent (Natividad), the respondent appellate court held that:

Indeed, no evidence has been adduced to clarify the nature of the "dugo" transaction
between plaintiff and her brother Benigno Bito-on. What seems apparent is that Benigno
Bito-on was gratuitously allowed to utilize the land to help him in financing the schooling of
his children. Whether the transaction is one of usufruct, which right may be leased or
alienated, or one of commodatum, which is purely personal in character, the beneficiary has
the obligation to return the property upon the expiration of the period stipulated, or
accomplishment of the purpose for, which it was constituted (Art. 612, Art. 1946, Civil Code).
Accordingly, it is believed that one who derives his right from the usufructuary/bailee, cannot
refuse to return the property upon the expiration of the contract. In this case, Benigno Bito-on
returned the property lent to him on May 13, 1985 to the owners, the plaintiff herein. We do
not see how the defendant can have a better right to the property than Benigno Bito-on, who
admittedly possessed the land for a limited period. There is no privity of contract between the
owner of the land and the cultivator.1

At this point, it is appropriate to point out that, contrary to the appreciation of the respondent appellate court,
the general law on property and contracts, embodied in the Civil Code of the Philippines, finds no principal
application on the present conflict. Generalibus specialia derogant. The environmental facts of the case at
bar indicate that this is not a mere case of recovery of ownership or possession of property. Had this been
so, then the Court would have peremptorily dismissed the present petition. The fact, however, that cultivated
agricultural land is involved suffices for the Court to pause and review the legislation directly relevant and
applicable at the time this controversy arose.

In this regard, it would appear that Republic Act No. 1199, invoked by the trial court, had already been
rendered inoperative by the passage of Republic Act No. 3844, as amended, otherwise known as the
Agricultural Land Reform Code (Code, for brevity). The former, also known as the Agricultural Tenancy Act
of the Philippines and approved in August 1954 had sought to establish a system of agricultural tenancy
relations between the tenant and the landholder, defining two (2) systems of agricultural tenancy: the share
and the leasehold tenancy. At this point, however, further discussion of the foregoing would appear futile, for
the Code, enacted in August, 1963, had expressly declared agricultural share tenancy to be contrary to
public policy and abolished the same. As for leasehold tenancy relations entered into prior to the effectivity
of the Code, the rights and obligations arising therefrom were deemed to continue to exist until modified by
the parties thereto in accordance with the provisions of the Code.2 Thus, for all intents and purposes,
Republic Act No. 3844 is the governing statute in the petition at bar. The pertinent provisions therefore state
as follows:

Sec. 5. Establishment of Agricultural Leasehold

Relations. — The agricultural leasehold relation shall be established by operation of law in
accordance with Section four of this Code and, in other, cases, either orally or in writing,
expressly or impliedly.

Sec. 6. Parties to Agricultural Leasehold Relation. — The agricultural leasehold relation shall
be limited to the person who furnishes the landholding, either as owner, civil law lessee,
usufructuary, or legal possessor, and the person who personally cultivates the same.
(emphasis supplied).

Sec. 7. Tenure of Agricultural Leasehold Relation. — The Agricultural Leasehold Relation

once established shall confer upon the agricultural lessee the right to continue working on
the landholding until such leasehold relationship is extinguished. The agricultural lessee shall
be entitled to security of tenure on his landholding and cannot be ejected therefrom unless
authorized by the Court for causes herein provided. (emphasis supplied)

Sec. 8. Extinguishment of Agricultural Leasehold

Relation. — The agricultural leasehold relation established under this Code shall be
extinguished by:

(1) Abandonment of the landholding without the knowledge of the agricultural lessor;

(2) Voluntary surrender of the landholding by the agricultural lessee, written notice of which
shall be served three months in advance; or

(3) Absence of the persons under Section nine to succeed to the lessee in the event of death
of permanent incapacity of the lessee.

xxx xxx xxx

Sec. 10. Agricultural Leasehold Relation Not Extinguished by Expiration of Period, etc. —
The agricultural leasehold relation under this Code shall not be extinguished by mere
expiration of the term or period in a leasehold contract nor by the sale, alienation or transfer
of the legal possession of the landholding. In case the agricultural lessor sells, alienates or
transfers the legal possession of the landholding, the purchaser or transferee thereof shall be
subrogated to the rights and substituted to the obligations of the agricultural lessor.

xxx xxx xxx

Sec. 36. Possession of Landholding; Exceptions. — Notwithstanding any agreement as to

the period or future surrender of the land, an agricultural lessee shall continue in the
enjoyment and possession of his landholding except when his dispossession has been
authorized by the Court in a judgment that is final and executory if after due hearing it is
shown that:

(1) The agricultural lessor-owner or a member of his immediate family will personally
cultivate the landholding or will convert the landholding, if suitably located, into residential,
factory, hospital or school site or other useful non-agricultural purposes: Provided, That the
agricultural lessee shall, be entitled to disturbance compensation equivalent to five years
rental on his landholding in addition to his rights under Sections twenty-five and thirty-four,
except when the land owned and leased by the agricultural lessor is not more than five
hectares, in which case instead of disturbance compensation the lessee may be entitled to
 an advanced notice of at least one agricultural year before ejectment proceedings are filed
against him: Provided, further, That should the landholder not cultivate the land himself for
three years or fail to substantially carry out such conversion within one year after the
dispossession of the tenant, it shall be presumed that he acted in bad faith and the tenant
shall have the right to demand possession of the land and recover damages for any loss
incurred by him because of said dispossession; 3

(2) the agricultural lessee failed to substantially comply with any of the terms and conditions
of the contract or any of the provisions of this Code unless his failure is caused by fortuitous
event or force majeure:

(3) the agricultural lessee planted crops or used the landholding for a purpose other than
what had been previously agreed upon;

(4) the agricultural lessee failed to adopt proven farm practices as determined under
paragraph 3 of Section twenty-nine;

(5) the land or other substantial permanent improvement thereon is substantially damaged or
destroyed or has unreasonably deteriorated through the fault or negligence of the agricultural
lessee;

(6) the agricultural lessee does not pay the lease rental when it falls due: Provided, That if
the nonpayment of the rental shall be due to crop failure to the extent of seventy-five per
centum as a result of a fortuitous event, the non-payment shall not be a rental due that
particular crop year, is not thereby extinguished; or

(7) the lessee employed a sub-lessee on his landholding in violation of the terms of
paragraph 2 of Section twenty seven.

Sec. 37. Burden of Proof. — The burden of proof to show the existence of a lawful cause for
the ejectment of an agricultural lessee shall rest upon the agricultural lessor.

There is no dispute, as it is admitted by the parties in this case, that Benigno Bito-on was granted
possession of the property in question by reason of the liberality of his sister, Natividad (the private
respondent). In short, he (Benigno) was the LEGAL POSSESSOR of the property and, as such, he had the
authority and capacity to enter into an agricultural leasehold relation with Bernas. Consequently, there is no
need to dwell on the contentions of the private respondent that, her brother Benigno was not a usufructuary
of the property but actually a bailee in commodatum. Whatever was the true nature of his designation, he
(Benigno) was the LEGAL POSSESSOR of the property and the law expressly grants him, as legal
possessor, authority and capacity to institute an agricultural leasehold lessee on the property he legally
possessed.

In turn, having been instituted by Benigno as an agricultural leasehold lessee, Bernas is vested by law with
the rights accruing thereto, including the right to continue working the landholding until such lease is legally
extinguished, and the right to be protected in his tenure i. e., not to be ejected from the land, save for the
causes provided by law, and as appropriately determined by the courts. In this connection, there is no clear
indication in the record that the circumstances or conditions envisioned in Section 36 of Republic Act. No.
3844, as amended, for termination of the agricultural lease relation, have supervened, and therefore Bernas'
right to the possession of the property remains indisputable. This conclusion is buttressed by Sec. 37 of the
Code which provides that:

Sec. 37. Burden of Proof. — The burden of proof to show the existence of a lawful cause for
the ejectment of an agricultural lessee shall rest upon the agricultural lessor.

As to any suggestion that the agricultural lease of Bernas may have terminated because the landowner
(Natividad) has decided to cultivate the land herself, we submit that this Court is not in a position to settle
this issue in this case, not only because of insufficient evidence to determine whether or not, the grounds
provided by law for termination of the agricultural leasehold relation are present but, more importantly,
because the issue of termination of the agricultural leasehold relationship by reason of the landowner's
alleged decision to till the land herself, was not squarely raised nor adequately litigated in the trial court.4 It
will be noted that while Natividad in her complaint with the court a quo alleged, among others, that "on 20
May 1985, the plaintiffs spouses were already in the process of taking over the land by employing a tractor
operator to commence plowing the land," this allegation was denied by Bernas in his answer. But the main
thrust of Natividad's complaint was that she had no privity with Bernas and that the latter should vacate the
land because Benigno (from whom Bernas had received his right to possess) had himself ceased to have
any rights to the land. Faced with these allegations, the court a quo in its pre-trial order dated 9 September
1985 formulated the issues in this case, without objection from the parties, as follows:

ISSUES
 1. Is defendant an agricultural leasehold lessee of the parcels of land described in the
Complaint?

2. Whether the parties are entitled to damages claims by them in their respective pleadings.

In short, the parties went to trial on the merits on the basis of the foregoing issues. Private respondent did
not object to the above issues as formulated; neither can it be plausibly contended now that the first issue
(i.e. whether Bernas is an agricultural leasehold lessee) embraces the issue of whether Natividad has validly
terminated the agricultural leasehold because of a decision to cultivate the land herself, since under sec.
36(1) of the Code (before its amendment by Section 7 of Rep. Act No. 6389), the landowner's right to take
over possession of his land for personal cultivation ASSUMES that it is under a valid and subsisting
agricultural leasehold and he must obtain an order from the court to dispossess the agricultural leasehold
lessee who otherwise is entitled to continued use and possession of the landholding. In other words, if
Natividad had really intended to raise as an issue that she had validly terminated Bernas' agricultural
leasehold, she or her counsel could have expressly included among the issues for determination the
question of whether or not she had complied with the requirements of the law for dispossessing the
agricultural leasehold lessee because she, as landowner, had decided to personally cultivate the
landholding. But she did not.

The trial court in its decision dated 20 October 1987 (latter appealed to the Court of Appeals) held
(consistent with the formulated issues in the case) that —

xxx xxx xxx

As to issues, parties presented only two (2) issues and which are:

1. Whether or not defendant is an agricultural leasehold lessee of the parcels of land

described in the complaint;

2. Whether the parties are entitled to damages claimed by them in their respective pleadings.

(Pre-Trial Order dated September 9, 1985, p. 41 records)

and finally disposed as follows:

From the above discussions, this Court opines that defendant was a share tenant on the
parcels of land subject of the complaint, and an agricultural leasehold lessee under the
provisions of the Agricultural Land Reform Code as amended by Presidential Decrees on the
matter.

No damages as damages were proved or established by evidence by the defendant.

WHEREFORE, and in view of the above considerations, a decision is rendered dismissing

plaintiffs complaint, and declaring defendant as the agricultural leasehold lessee on Lot Nos.
794, 801, 840 and 848 of the Cadastral Survey of Panay, Capiz, with an area of 5,831
square meters, situated at Calitan, Panay, Capiz, with security of tenure as an Agricultural
Leasehold Lessee thereof; and plaintiffs to pay the costs of the suit.

In the Court of Appeals, the litigated issue was —

xxx xxx xxx

The legal issue that presents itself is whether the agricultural leasehold established by
Benigno Bito-on was binding upon the owner of the land, plaintiff Natividad Bito-on, who
disclaims knowledge of any arrangement with defendant Bernas. The lower court held that
the "dugo" arrangement was in the nature of usufruct, and that the act of the usufructuary as
legal possessor was sufficient to establish tenancy relations.

xxx xxx xxx 5

The long settled rule in this jurisdiction is that a party is not allowed to change his theory of the case or his
cause of action on appeal.6 We have previously held that "courts of justice have no jurisdiction or power to
decide question not in issue"7 and that a judgment going outside the issues and purporting to adjudicate
something upon which the parties were not heard is not merely irregular, but extrajudicial and invalid.8 The
rule is based on the fundamental tenets of fair play and, in the present case, the Court is properly compelled
not to go beyond the issue litigated in the court a quo and in the Court of Appeals of whether or not the
petitioner, Graciano Bernas, is an agricultural leasehold lessee by virtue of his installation as such by
Benigno Bito-on, the legal possessor of the landholding at the time Bernas was so installed and,
consequently entitled to security of tenure on the land. Should grounds for the dispossession of Bernas, as
an agricultural leasehold lessee, subsequently arise, then and only then can the private respondent (land
owner) initiate a separate action to dispossess the lessee, and in that separate action, she must allege and
prove compliance with Sec. 36(1) of the Code which consist of, among others, a one year advance notice to
the agricultural leasehold lessee (the land involved being less than 5 hectares) and readiness to pay him the
damages required also by the Code.

The issue of whether or not Bernas planted crops or used the land in a manner contrary to what was agreed
upon between Natividad and Benigno, and thereby constituting a ground for terminating the leasehold
relationship under Sec. 36, par. 3 of Rep. Act No. 3844 likewise cannot be passed upon by this Court since
the issue was never raised before the courts below. Furthermore, there is no showing that Natividad and
Benigno agreed that only certain types of crops could be planted on the land. What is clear is, that the
"dugo" arrangement was made so that Benigno could use the produce of the land to provide for the
schooling of his children. The alleged conversion by Bernas of the land to riceland was made necessary for
the land to produce more and thus meet the needs of Benigno. It was consistent with the purpose of making
the land more productive that Benigno installed an agricultural lessee. It may be recalled that when
Natividad called on Benigno to testify as a witness, he stated that the produce of the land was given to him
by Bernas to defray the expenses of his children (p. 3, trial court decision). The inevitable conclusion is
therefore not that there was use of the land different from the purpose for which it was allegedly intended by
Natividad and Benigno but rather that the installation of the agricultural lessee was made necessary so that
the land could produce more to better serve the needs of the beneficiary (Benigno).

Additionally, it can be stated that the agricultural leasehold relationship in this case was created between
Benigno as agricultural lessor-legal possessor, on the one hand, and Bernas as agricultural leasehold
lessee, on the other. The agricultural leasehold relationship was not between Natividad and Bernas. As Sec.
6 of the Code states:

Sec. 6. Parties to Agricultural Leasehold Relations. — The agricultural leasehold relations

shall be limited to the person who furnishes the landholding, either as owner, civil law lessee,
usufructuary, or legal possessor, and the person who personally cultivates the same.
(emphasis supplied)

There was, as admitted by all, no privity or tie between Natividad and Bernas. Therefore, even if Bernas had
improperly used the lots as ricelands, it was Benigno who could have objected thereto since it was his (the
legal possessor's) landholding that was being "improperly" used. But he (Benigno) did not. It is not for
Natividad (as landowner) to now complain that Bernas used the land "for a purpose other than what had
been previously agreed upon." Bernas had no agreement with her as to the purpose for which the land was
to be used. That they were converted into ricelands (also for agricultural production) can only mean that the
same (conversion) was approved by Benigno (the undisputed agricultural lessor-legal possessor). It is thus
clear that sec. 36, par 3 of the Code cannot be used to eject Bernas.

The Court, must, in our view, keep in mind the policy of the State embodied in the fundamental law and in
several special statutes, of promoting economic and social stability in the countryside by vesting the actual
tillers and cultivators of the soil, with rights to the continued use and enjoyment of their landholdings until
they are validly dispossessed in accordance with law. At this stage in the country's land reform program, the
agricultural lessee's right to security of tenure must be "firmed-up" and not negated by inferences from facts
not clearly established in the record nor litigated in the courts below. Hand in hand with diffusion
of ownership over agricultural lands, it is sound public policy to encourage and endorse a diffusion of
agricultural land use in favor of the actual tillers and cultivators of the soil. It is one effective way in the
development of a strong and independent middle-class in society.

In confirmation we believe of the foregoing views, Section 36 of Rep. Act No. 3844 (the Code) was expressly
amended by Section 7 of Rep. Act No. 6389 which replaced paragraph 1, Section 36 of the Code providing
for personal cultivation by the landowner as a ground for ejectment or dispossession of the agricultural
leasehold lessee with the following provision:

Sec. 7. Section 36 (1) of the same Code is hereby amended to read as follows:

(1) The landholding is declared by the department head upon recommendation of the
National Planning Commission to be suited for residential, commercial, industrial or some
other urban purposes: Provided, That the agricultural lessee shall be entitled to disturbance
compensation equivalent to five times the average of the gross harvest of his landholding
during the last five preceding calendar years;

While it is true that in the case of Ancheta vs. Court of Appeals, 200 SCRA 407, the Court, stated that:

It is well settled that RA 6389, which removed personal cultivation as a ground for ejectment
of tenant/lessee, cannot be given retroactive effect in the absence of statutory provision for
retroactivity or a clear implication of the law to that effect.
however, Rep. Act No. 6389 was approved on 10 September 1971.9 The complaint in this case was filed
on 21 June 1985 or long after the approval of Rep. Act No. 6389. By reason of the provision
therein eliminating personal cultivation by the landowner as a ground for ejectment or dispossession of the
agricultural leasehold lessee, any issue of whether or not the Court of Appeals decision should nonetheless
be affirmed because the landowner had shown her intention or decided to personally cultivate the land
(assuming without admitting that the issue was properly raised before the trial court), had in fact become
moot and academic (even before it was hypothetically raised). The issued had been resolved by legislation
unmistakably against the landowner.

It may of course he argued that "she (Natividad) did not authorize her brother (Benigno) to install a tenant
thereon." (TSN, 13 February 1986, p. 6).

Even if there was a lack of authorization (from Natividad) for Benigno to install a tenant, it still follows, in our
view, that Benigno as legal possessor of the landholding, could install an agricultural lessee on the
landholding. For, as defined in Section 166 (3) of the Code, an agricultural lessor is a natural or juridical
person who, either as owner, civil law lessee, usufructuary or legal possessor lets or grants to another the
cultivation and use of his land for a price certain. Nothing in said section, it will be noted, requires that the
civil law lessee, usufructuary or legal possessor should have the prior authorization of the landowner in
order to let or grant to another the cultivation or use of the landholding.

Another question comes up; did Natividad expressly prohibit Benigno from installing a tenant on the land?
Nothing in the evidence shows that Benigno was expressly prohibited by Natividad from installing a tenant
on the landholding. And even if there was an express prohibition on the part of Natividad (landowner) for
Benigno not to install an agricultural leasehold lessee, it is to be noted that any such arrangement
(prohibition) was solely between Natividad and Benigno. There is no evidence to show that Bernas was
aware or informed of any such arrangement between Natividad and Benigno. Neither was such arrangement
(prohibition), if any, recorded in the registry of deeds to serve as notice to third persons (as Bernas) and to
the whole world for that matter. Consequently, if there was indeed such a prohibition (which is not borne out
by the records) imposed by Natividad on Benigno, a violation thereof may give rise to a cause of action for
Natividad against Benigno but Bernas is no less an agricultural leasehold lessee, for the law (Section 166
(2) of the Code) defines an agricultural lessee as a person who by himself and with the help available from
within his immediate farm household cultivates the land belonging to or possessed by another (in this case
Benigno) with the latter's consent for purposes of production for a price certain in money or in produce or
both.

Ponce vs. Guevarra, L-19629 and L-19672-92, 31 March 1954 (10 SCRA 649) provides dramatic support to
the security of tenure of Bernas in the case at bar. In the Ponce case, the owner (Ponce) had leased his
agricultural land to Donato (the lessee) for a stipulated period with a provision in the lease
contract prohibiting Donato from sub-leasing the land without the written consent of the owner (Ponce).
Notwithstanding these "express prohibition", Donato sub-leased the land without the consent of Ponce (the
owner). When the lease contract expired, Donato returned the land to Ponce but the sub-lessees (tenants)
refused to vacate, claiming security of' tenure under the tenancy laws then enforced. One of the contentions
of Ponce (the owner) in seeking to dispossess the sub-lessees (tenants) was that these tenants entered into
possession of the land under a violation of the lease contract by Donato (the lessee).

Over-ruling the above contention, this Court held:

It is true that the subleasing of said land to respondents herein (tenants) without the written
consent of the petitioner (owner), constituted a violation of the original contract of lease. The
breach of contract was committed, however, by Donato (the lessee), . . . .

Of course, in the same Ponce case, the Court observed that Ponce renewed his lease contract for
another year with Donato, knowing at the time of such renewal that the land had been sub-leased to
the tenants, thereby injecting the principle of estoppel against Ponce vis-a-vis the tenants. But, as
we view it, the ratio decidendi in the Court's decision is to the effect that the sub-lessees (tenants)
were entitled to security of tenure on the land they were cultivating, notwithstanding the undisputed
fact that they became sub-lessees (tenants) of the land as a result of a violation by the lessee
(Donato) of an express provision in the lease contract prohibiting him from sub-leasing the land.

What more in the case of Bernas whose right to security of tenure as an agricultural leasehold lessee is
conferred and protected categorically, positively and clearly by the provisions of the Code (Republic Act.
3844)?

It is of course possible to construe Sec. 6 of the Code which provides:

SEC 6. Parties to Agricultural Leasehold Relations. — The agricultural leasehold relation

shall be limited to the person who furnishes the landholding, either as owner, civil law lessee,
usufructuary, or legal possessor, and the person who personally cultivates the same.
(emphasis supplied).
 in the following manner:

. . . it assumes that there is already an existing agricultural leasehold relation, i.e. a tenant or
agricultural lessee already works the land. As may be gleaned from the epigraph of Sec. 6, it
merely states who are "Parties to Agricultural Leasehold Relations," which means that there
is already a leasehold tenant on the land. But this is precisely what We are still asked to
determine in these proceedings. (dissenting opinion, p. 11.)

It would appear from the above interpretation of Sec. 6 of the Code that in the absence of a judicial
determination or declaration of an agricultural leasehold relation, such relation does not or cannot even
exist. We view this posture as incorrect for an agricultural leasehold relationship exists by operation of
law when there is a concurrence of an agricultural lessor and an agricultural lessee. As clearly stated in
Section 5 of the code.

Sec. 5. Establishment of Agricultural Leasehold Relations. — The agricultural leasehold

relation shall be established by operation of law in accordance with Section four of this Code
and, in other cases, either orally or in writing, expressly or impliedly.

In other words, in the case at bar, from the moment Benigno, as legal possessor (and, therefore, an
agricultural lessor) granted this cultivation and use of the landholding to Bernas in exchange or
consideration for a sharing in the harvest, an agricultural leasehold relationship emerged between them "by
operation of law".

The fact that the transfer from Natividad to Benigno was gratuitous, we believe, is of no consequence as far
as the nature and status of Benigno's possession of the landholding is concerned. He became the legal
possessor thereof from the viewpoint of the Code. And as legal possessor, he had the right and authority,
also under the Code, to install or institute an agricultural leasehold lessee on his landholding, which was
exactly what he did, i.e. install Bernas as an agricultural leasehold lessee.

The argument that Benigno's (and consequently, Bernas') possession was meant to last for a limited period
only, may appeal to logic, but it finds no support in the Code which has its own underlying public policy to
promote. For Section 7 of the Code provides:

Sec. 7. Tenure of Agricultural Leasehold Relation. — The Agricultural Leasehold Relation

once established shall confer upon the agricultural lessee the right to continue working on
the landholding until such leasehold relationship is extinguished. The agricultural lessee shall
be entitled to security of tenure on his landholding and cannot be ejected therefrom unless
authorized herein-provided. (emphasis supplied)

while Section 10 of the Code provides:

Sec. 10. Agricultural Leasehold Relation Not Extinguished by Expiration of Period, etc. —
The agricultural leasehold relation under this Code shall not be extinguished by mere
expiration of the term or period in a leasehold contract nor by the sale, alienation or transfer
of the legal possession of the landholding. In case the agricultural lessor. sells, alienates or
transfers the legal possession of the landholding, the purchaser or transferee thereof shall be
subrogated to the rights and substituted to the obligations of the agricultural lessor.
(emphasis supplied).

and Section 36 of the Code provides:

Possession of Landholding; Exceptions. — Notwithstanding any agreement as to the period

or future surrender of the land, an agricultural lessee shall continue in the enjoyment and
possession of his landholding
. . . . (emphasis supplied)

Clearly the return of legal possession from Benigno to Natividad cannot prejudice the rights of Bernas as an
agricultural leasehold lessee. The grounds for ejectment of an agricultural leasehold lessee are provided for
by law. The enumeration is exclusive and no other grounds can justify termination of the lease. The policy
and letter of the law are clear on this point. The relatively small area of the agricultural landholding involved
(a little over half a hectare) would appear, in our view, to be of no consequence in this case. Here, the issue
is not how much area may be retained in ownership by the land owner Natividad but the issue is whether
Bernas is a duly constituted agricultural leasehold lessee of the agricultural landholding (regardless of its
area) and entitled to security of tenure therein. And, as abundantly shown, the Code is definitely and clearly
on his side of this issue.

It should be pointed out that the report and recommendation of the investigating officer of the Ministry of
Agrarian Reform (MAR) finding that Bernas is not an agricultural leasehold should deserve little
consideration. It should be stressed, in this connection, that said report and recommendation is congenitally
defective because —

a. it was based solely on the evidence presented by Natividad, Bernas did not participate in said
investigation.

b. the findings in the report are not supported by law or jurisprudence but are merely the opinion and
conclusions of the investigator whose knowledge of the Code and the case Law appears to be sadly
inadequate.

c. whether or not an agricultural leasehold relation exists in any case is basically a question of law and
cannot be left to the determination or opinion of a MAR-investigator on the basis of one-sided evidence.

This Court has ruled in Qua v. Court of Appeals, 198 SCRA 236 that —

. . . as regards relations between litigants in land cases, the findings and conclusions of the
Secretary of Agrarian Reform, being preliminary in nature, are not in any way binding on the
trial courts which must endeavor to arrive at their own independent conclusions.

The ruling finds support in the case of Graza v. CA (163 SCRA 39) citing Section 12 of PD No. 946
expressly stating that "the preliminary determination of the relationship between the contending
parties by the Secretary of Agrarian Reform or his authorized representative, is not binding upon the
court, judge or hearing officer to whom the case is certified as a proper case for trial. Said court,
judge or hearing officer, after hearing, may confirm, reverse or modify said preliminary determination
as the evidence and substantial merits of the case may warrant." The court a quo in the case at bar
tried the case on the merits, receiving the evidence of both parties and arrived at a conclusion
different from that of the MAR investigator. It is to be noted that even the Court of Appeals (which
decided for Natividad) found no use for the MAR investigator's report and recommendation, for
obvious reasons. It is clear that the question of the existence of an agricultural leasehold relationship
is a question of law which is properly within the province of the courts.

The certification of the President of the Agrarian Reform Beneficiaries Association, Panay chapter "issued
upon the request of Mrs. Deita" (meaning Natividad) that Bernas is not in the masterlist of tenants, should
likewise be disregarded. Since when, it may be noted, was the legal question of agricultural leasehold
relationship made to depend on a certification of such an association's president?

The argument, that Bernas is not a lawful tenant of Natividad based on the doctrine in the case of Lastimoza
v. Blanco (1 SCRA 231) is also not correct. The cited case does not support the desired conclusion. In the
Lastimoza case, a certain Nestor Panada had an oral contract of tenancy with a certain Gallego who was
then in possession of the parcel of land. The latter however was ejected after the Court of First Instance
ruled in a land registration proceeding that it was Lastimoza who was the true owner of the land. The Court
in effect ruled that Gallego was an unlawful possessor and thus Panada cannot be a lawful tenant. The
factual background of the Lastimoza case and the present Bernas case are totally different; the first case
cannot be applied to the second. When Bernas was instituted by Benigno as an agricultural lessee, Benigno
was a legal possessor of the landholding in question. No one can dispute this.

The dissenting opinion states that ". . . it is not correct to say that every legal possessor, be he a
usufructuary, or a bailee, is authorized as a matter of right to employ a tenant. His possession can be limited
by agreement of the parties or by operation of law." (p. 13) Even assuming arguendo that this is a correct
legal statement, there is absolutely no showing that the possession of Benigno was limited by his agreement
with Natividad (as to prohibit him from instituting a tenant) or by operation of law; and because there is a
total failure to disprove and even dispute that Benigno was a legal possessor at the time Bernas was
installed by him as an agricultural lessee, then Bernas validly became an agricultural leasehold lessee of the
land and is protected by the law from ejectment except for causes specified therein.

Finally, in relation to the dissenting opinion, it may be wise to repeat the statement of the Court in Jose
D. Lina, Jr. vs. Isidro Cariño (G.R. No. 100127, 23 April 1993) thus —

The Court believes that petitioner's argument — cogent though it may be as a social and
economic comment — is most appropriately addressed, not to a court which must take the
law as it is actually written, but rather to the legislative authority which can, if it wishes,
change the language and content of the law. (emphasis supplied)

In the case at bar, the language, policy and intent of the law are clear; this Court cannot interpose its own
views as to alter them. That would be judicial legislation.

WHEREFORE the petition is GRANTED. The decision of the respondent appellate court, is REVERSED and
SET ASIDE and that of the Regional Trial Court. REINSTATED. Costs against the private respondent.
SO ORDERED.

Cruz, Bidin, Griño-Aquino, Regalado, Romero, Nocon and Quiason, JJ., concur.

Puno and Vitug, JJ. took no part.

Separate Opinions

BELLOSILLO, J., dissenting:

This may be a faint echo in the wilderness but it is the quaint voice of a woman yearning for justice from
this court of last resort. The majority opinion would leave her alone where she is, to wallow in her own
misery, and despite her long and winding travails — all for the love of a brother in need — there is no light at
the end of the tunnel. There is no relief in sight for her plight. Her only fault was to lend her four (4) small
parcels of land to her brother so that the latter could use the fruits thereof for the education of his children in
Manila. Now, she cannot get them back because her brother allowed his brother-in-law, who now claims
security of tenure as tenant, to work the lands.

Worse, the brother-in-law continues to cultivate the landholdings, even converting the orchards into
ricelands as though they were his own and constructing a house of a strong materials thereon, without
paying any rent!

Before seeking judicial relief, private respondent went to the Ministry of Agrarian Reform (MAR) as required
by law,1 and obtained a favorable finding that there was no tenancy relationship between her and her
brother's brother-in-law. But the courts below disregarded this important piece of evidence which speaks
eloquently of the merit of her cause. MAR certified that petitioner was not a tenant of private respondent,
hence, the case was proper for trial.

The finding of MAR was confirmed by the Agrarian Reform Beneficiaries Association (ARBA) when its
President certified after an investigation that petitioner did not appear in the Master List of tenant
beneficiaries of the barangay. Even his older brother, the barangay captain, after conducting his own
investigation, refused to certify that petitioner was a tenant of the holdings of private respondent.

Is private respondent indeed bereft of any remedy in law to recover possession of her landholdings — she
who did not employ petitioner nor authorize anyone to employ him as tenant on her land; she who is not
even paid any rent by petitioner for the use of her landholdings; she whose landholdings have been
converted by petitioner from orchards to ricelands and on which he constructed a house of strong materials,
both without first securing authority from her? Under the circumstances, we can only hope that posterity will
not condemn us for the fate of private respondent and the many others who may be similarly situated.

My conscience prompts me to dissent from the majority opinion and to vote for the affirmance of the decision
of the Court of Appeals, not necessarily on the basis of its rationale, but mainly because I do not subscribe
to the view that a usufructuary or legal possessor under Sec. 6, R.A. 3844, as amended, is automatically
authorized to employ a tenant without the consent of the landowner. For, the right to hire a tenant is
basically a personal right of a landowner, except as may be provided by law. But, certainly nowhere in Sec.
6 of R.A. 3844 does it say that a legal possessor of a landholding is automatically authorized to install a
tenant thereon.

Natividad Bito-on Deita owns Lots 794, 801, 840 and 848 of the Cadastral Survey of Panay, Capiz. Lots 794
and 801, with areas of 943 square meters (Exh. "C") and 855 square meters (Exh. "B"'), respectively, are
coconut Lands; Lot 840, with an area of 1,000 square meters (Exh. "D"), is planted to bananas, while Lot
848, with an area of 1,146 square meters (Exh. "A"), is riceland. Lot 840 was the owner's homelot on which
stood before the family home. Although the trial court found that the total area of the four (4) lots, which are
not contiguous, was 5,831 square meters, a closer examination of their tax declarations (Exhs. "A" to "D")
reveals that their total productive area is only 3,844 square meters, which can be smaller than a residential
lot in a plush village in Metro Manila.

After Natividad recovered these lots from a former tenant in April 1978, she entrusted them to her brother,
Benigno Bito-on, so that the latter may be able to support the education of his children in Manila. 2 She did
not authorize her brother to install a tenant thereon. 3 After successfully retrieving a landholding from a
tenant at that time, no landowner in his right mind would give his land in tenancy again to avoid the
operation of P.D. 27, then at its peak and dreaded by landowners as an unjust deprivation of property rights.

Thereafter, without the knowledge, much less consent, of Natividad, Benigno entered into some
arrangement with his brother-in-law, Graciano Bernas, to work the lands. But Natividad was unaware of this
arrangement as she was staying in Manila where her husband was then employed. It was not until the
latter's retirement and the return of the family to Panay, Capiz, that she learned that Graciano was already
working the lands, converting Lots 794, 801 and 840 into ricelands, and constructing on Lot 840 a house of
concrete hollow blocks.

It bears emphasizing that, the transfer of possession between Natividad and Benigno was not coupled with
any consideration; rather, it was pure magnanimity on the part of Natividad on account of her "dugo" or
blood relation with Benigno, which Atty. Herminio R. Pelobello, Trial Attorney II and MAR Investigating
Officer, explains —

A "DUGO" system is a personal grant of privilege and a privilege personally granted cannot
be delegated or extended to someone else but (is) personal (in) nature. Once the "DUGO"
grantee or trustee returns the subject matter of "DUGO", the relationship is terminated . . . .
In this instance, Exh. "E" is an expressive documentary evidence of return of "DUGO"
property by constructive mode of returning of possession, use and enjoyment of property;
same therefore deserves credence to the exclusion of any interested person in tillage
therein.

On 13 May 1985, his children having finished schooling in Manila, Benigno returned possession of the
property to Natividad, in faithful compliance with their agreement. However, Graciano refused to vacate the
premises claiming at first that he was installed thereon by Benigno, although after Benigno denied this
allegation, petitioner changed his theory by presenting Monica Bernales Bito-on, wife of Benigno, to testify
that she was the civil law lessee who installed Graciano on the lands. This, despite the crux of the evidence
spread on record that it was Benigno Bito-on who was given the physical possession of the lands by his
sister Natividad, and not Monica who is only her sister-in-law. Incidentally, Monica is the sister of the wife of
Graciano Bernas.

On 17 May 1985, fazed by the refusal of Graciano to vacate, Natividad filed a letter-petition4 with the Ministry
of Agrarian Reform (MAR) seeking clarification of the actual status of Graciano vis-a-vis her landholdings.
Accordingly, Graciano was summoned at least three (3) times but the latter refused to attend the scheduled
hearings. Consequently, Atty. Herminio R. Pelobello, who was assigned to the case, conducted his
investigation and thereafter issued a resolution5 sustaining the complaint of Natividad Bito-on Dieta and
concluding, among others that —

. . . out of petitioner's benevolence, generosity and pity of his elder brother's financial
hardship, she had the aforesaid lots entrusted to her brother in the nature of DUGO so that
(the) latter then possessed the land and enjoy(ed) the . . . fruits thereon for the above
purpose beginning the year 1978 up to the 2nd crop of 1985; that upon the surrender or
giving back in her favor of the land subject of 'DUGO' there now appears the respondent
claiming to be the tenant-tiller on the land who would not relinquish the land in her favor
alleging and contending to have been instituted by Monica Bernales who is her sister-in-law.

xxx xxx xxx

It is observed in this letter-petition (that) Filipino family adhered solidarity, sympathy and pity
by extending financial help of (to) a close relative by consanguinity. Apparently under the
circumstance, the "DUGO" trustee for the benefit of his school children in Manila is Benigno
Bito-on
. . . . Petitioner feeling morally bound . . . made the institution of "DUGO" relationship among
them in order to contributes a solution thereof. But ultimately after the 2nd cropping of 1985
and after the school children of Benigno Bito-on had graduated in college, he returned the
property to petitioner as evidenced by Exh. "E".

Now comes to the surprise of petitioner, the respondent spring(s) out and assert(s) his
alleged right to tillage so as to prevent landowner to repossess the land subject of "DUGO"
upon return which is co-terminous with the period thereof.

On such core, no law or jurisprudence recognizes the right of respondent. Be that as it may,
as now happens, with Benigno Bito-on nor his wife Natividad (Monica) Bernas was legally
authorized to institute somebody to be tenant-tiller under the circumstance of "DUGO" . . . so
as to be entitled to invoke any right or privilege under our Agrarian Laws.

xxx xxx xxx

 IN VIEW OF THE FOREGOING CONSIDERATIONS, it is now the honest opinion of the
undersigned to recommend as it is hereby recommended that the petitioner, Natividad Bito-
on Deita, be entitled to the possession, use and enjoyment of the lots subject of 'DUGO' and
further, that the respondent constructively and actually delivers to her the same lots indicated
in this resolution, upon receipt of copy hereof.

The foregoing resolution of the MAR Investigating Officer may not be well crafted, but it is expressive of his
finding that Graciano Bernas was not a tenant-tiller and, consequently, it recommend that "the petitioner,
Natividad Bito-on Deita, be entitled to the possession, use and enjoyment of the lots subject of 'DUGO', and
further, that the respondent (Graciano Bernas) constructively and actually delivers to her the same lots
indicated in this resolution . . . ." concluding that "no law or jurisprudence recognizes the right of
respondent."

While Natividad went through the normal legal procedure to obtain relief, Graciano refused to attend the
formal investigation and hearing conducted by the MAR, much less heed its recommendation. If Graciano
was a law-abiding citizen and believed that the law was on his side, he should have submitted to the fact-
finding investigation by an administrative agency pursuant to law.

On 24 May 1985, a mediation conference between Natividad and Graciano was held at the residence of
Brgy. Captain Felipe Bernas, older brother of Graciano, but it also proved fruitless as Graciano continued to
refuse to vacate subject landholdings. To top it all, Brgy. Captain Bernas sided with Graciano and refused to
issue a certification as required under P.D. 1508. If Graciano was indeed a tenant of the landholdings, his
older brother could have easily issued the required certification.

Consequently, the certification had to be issued by Sulpicio Bering, ARBA President, Panay Chapter,6 dated
27 May 1985, at Barangay Calitan, Panay, Capiz, which confirmed the factual findings of the MAR
Investigating Officer —

This is to certify that undersigned in his capacity as President of Agrarian Reform

Beneficiaries Association (ARBA), Panay Chapter, had attended last May 24, 1985 the
mediation confrontation among Mrs. Natividad Bito-on-Dieta and Mr. Graciano Bernas
accompanied by his wife Adela Bernales that took place right at the residence of Brgy.
Captain Felipe Bernas. That the outcome of the conference was fruitless as the Barangay
Captain was siding with his younger brother Graciano Bernas, and he (Brgy. Captain)
vehemently refused to issue any certification as required under P.D. 1508.

Hence undersigned as President of ARBA Panay Chapter hereby manifest and certify that
Graciano Bernas is not among those whose names are entered in our masterlist of tenants
so as to suffice as a bona fide member of Agrarian Reform Beneficiaries Association in
Panay, Capiz. It is further stated that Mr. Graciano Bernas is not a leasehold tenant of
landowner Mrs. natividad Bito-on Dieta in Barangay Calitan, Panay, Capiz (emphasis
supplied).

This certification is being issued to Mrs. Dieta in lieu of the refusal on the part(s) of Brgy.
Captain to issue such under the provision of P.D. 1508.

On 21 June 1985, after all her efforts to recover through administrative means failed, Natividad finally
instituted an action in the Regional Trial Court of Capiz. But, in deciding the case, the trial court completely
disregarded the result of the administrative investigation conducted by Atty. Herminio R. Pelobello of the
MAR (Exh. "6") and the Certification of the President of ARBA (Exh. "E") and ruled in favor of Graciano,
holding that the transaction between Natividad and Benigno was in the nature of a usufruct so that the latter
was legally capacitated to install Graciano as an agricultural lessee whose tenurial right could not be
disturbed except for causes enumerated under Sec. 36 of R.A. 3844, as amended, 7 and that Natividad
failed to establish any of the causes for his termination.

Natividad elevated her cause to the Court of Appeals contending that the transaction between her and her
brother Benigno was not in the nature of usufruct but rather one of commodatum. As such, Benigno, as
bailee in commodatum, could neither lend nor lease the property loaned to him to a third person since the
relationship between the bailor and bailee is personal in character. She also established with her evidence
that Graciano converted without her authority three (3) of her parcels of land, particularly those planted to
coconut and banana, to ricelands, which is a ground to terminate a tenant, assuming that Graciano was.

The contention of Natividad was sustained by the Court of Appeals, which ordered the ejectment of
Graciano. The Court of Appeals ruled that having merely derived his right over the property from the bailee,
Graciano could have no better right than bailee Benigno who possessed the landholdings only for a special
purpose and for a limited period of time. The spring cannot rise higher than its source

Hence, this petition for review on certiorari filed by Graciano seeking reversal of the decision8 of the Court of
Appeals on the issue of whether he is an agricultural lessee of the landholdings entitled to security of tenure.
The resolution of this issue hinges on the proper interpretation of Sec. 6 of R.A. 3844, as amended,
otherwise known as "The Agricultural Land Reform Code," which provides:

Sec. 6 Parties to Agricultural Leasehold Relations. — The agricultural leasehold relations

shall be limited to the person who furnishes the landholding, either as owner, civil law lessee,
usufructuary, or legal possessor, and the person who personally cultivates the same.
(emphasis ours).

Those who hold that Graciano is a leasehold tenant anchor their proposition on the above provision of Sec.
6 as they find Benigno a "legal possessor" of the lands and so could legally install a tenant thereon.

I strongly disagree. When Sec. 6 provides that the agricultural leasehold relations shall be limited to the
person who furnishes the landholding, either as owner, civil law lessee, usufructuary, or legal possessor,
and the person who personally cultivates the same, it assumes that there is an existing agricultural
leasehold relation, i. e., a tenant or agricultural lessee already works the land. As may be gleaned from the
epigraph of Section 6, it merely states who are "Parties to Agricultural Leasehold Relations," which means
that there is already a leasehold tenant on the land. But this is precisely what we are still asked to determine
in these proceedings.

To better understand Sec. 6, R.A. 3844, let us refer to its precursor, Sec. 8, R.A. 1199, as amended, which
provides:

Sec. 8. Limitation of Relation. — The relation of landholder and tenant shall be limited to the
person who furnishes land, either as owner, lessee, usufructuary, or legal possessor, and to
the person who actually works the land himself with the aid of labor available from within his
immediate farm household.

Again, Sec. 8 of R.A. 1199 assumes the existence of a tenancy relation. But, as its epigraph states, it is a
"Limitation of Relation," and the purpose is merely to limit the tenancy "to the person who furnishes land,
either as owner, lessee, usufructuary, or legal possessor, and to the person who actually works the land
himself with the aid of labor available from within his immediate farm household." Otherwise stated, once the
tenancy relation is established, the parties to that relation are limited to the persons therein stated. But,
obviously, inherent in their right to install a tenant is their authority to do so; otherwise, without such
authority, they cannot install a tenant on the landholding. But, definitely, neither Sec. 6 of R.A. 3844 nor Sec.
8 of R.A. 1199 automatically authorizes the persons named therein to employ a tenant on the landholding.

According to Santos and Macalino, considered authorities on the land reform, the reasons Sec. 6, R.A.
3844, and 8, R.A. 1199, in limiting the relationship to the lessee and the lessor is "to discourage
absenteeism on the part of the lessor and the custom, of co-tenancy" under which "the tenant (lessee)
employs another to do the farm work for him, although it is he with whom the landholder (lessor) deals
directly. Thus, under this custom, the one who actually works the land gets the short end of the bargain, for
the nominal or 'capitalist' lessee hugs for himself a major portion of the harvest."9 This custom has bred
exploitation, discontent and confusion . . . . The 'kasugpong,' 'kasapi,' or 'katulong' also works at the
pleasure of the nominal tenant."10 When the new law, therefore, limited tenancy relation to the landholder
and the person who actually works the land himself with the aid of labor available from within his immediate
farm household, it eliminated the nominal tenant or middle man from the picture.11

Another noted authority on land reform, Dean Jeremias U.

Montemayor, 12 explains the reason for Sec. 8, R.A. 1199, the precursor of Sec. 6, R.A. 3844:

Since the law establishes a special relationship in tenancy with important consequences, it
properly pinpoints the persons to whom said relationship shall apply. The spirit of the law is
to prevent both landholder absenteeism and tenant absenteeism. Thus, it would seem that
the discretionary powers and important duties of the landholder, like the choice of crop or
seed, cannot be left to the will or capacity of an agent or overseer, just as the cultivation of
the land cannot be entrusted by the tenant to some other people. Tenancy relationship has
been held to be of a personal character (see Secs. 37 and 44, R.A. 1199, as amended;
emphasis supplied).

To argue that simply because Benigno is considered a usufructuary or legal possessor, or a bailee
in commodatum for that matter, he is automatically authorized to employ a tenant on the landholding is to
beg the question. For, it is not correct to say that every legal possessor, be he a usufructuary or a bailee, is
authorized as a matter of right to employ a tenant. His possession can be limited by agreement of the parties
or by operation of law. In the case before Us, it is obvious that the tenure of the legal possessor was
understood to be only during the limited period when the children of Benigno were still schooling in Manila.

As already stated, Sec. 6 simply enumerates who are the parties to an existing contract of agricultural
tenancy, which presupposes that a tenancy already exists. It does not state that those who furnish the
landholding, i.e., either as owner, civil law lessee, usufructuary, or legal possessor, are authomatically
authorized to employ a tenant on the landholding. The reason is obvious. The legal possession, may be
restrictive. Even the owner himself may not be free to install a tenant, as when his ownership or possession
is encumbered or is subject to a lien or condition that he should not employ a tenant thereon. This
contemplates a situation where the property may be intended for some other specific purpose allowable by
law, such as, its conversion into a subdivision.

In the case at bar, the transfer of possession was purely gratuitous. It was not made for any consideration
except for the "dugo" or blood relationship between Natividad and Benigno. Consequently, the generation of
rights arising therefrom should be strictly construed in favor of Natividad. In fact, for lack of consideration,
she may take back the land at any time unless she allows a reasonable time for Benigno to harvest the
produce of what he may have planted thereon as a possessor in good faith. There is not even any valid
obligation on her part to keep Benigno in possession, except as herein adverted to, much less should she be
deprived of such possession just because another person was employed by her brother to work the land.

Under the doctrine laid down in Lastimoza v. Blanco, 13 Graciano cannot be a lawful tenant of Natividad for
the reason that Benigno, after failing to return the landholding to Natividad, already became a deforciant,
and a deforciant cannot install a lawful tenant who is entitled to security of tenure. Incidentally, Benigno and
Graciano being brothers-in-law, their wives being sisters, and living in a small barangay, Graciano cannot
profess ignorance of the very nature of the possession of Benigno as well as the restrictions to his
possession.

It may be relevant to consider, for a better appreciation of the facts, the actual condition of the landholdings.
As already adverted to, Lots 794 and 801 are coconut lands with an area of 943 square meters (Exh. "C")
and 855 square meters (Exh. "B"), respectively, or a total area of 1,798 square meters. With this meager
area for the two (2) coconut lands, there is indeed no reason to have them tenanted. The coconut lands
need not be cultivated when the coconut trees are already fruit-bearing. Benigno only had to ensure that the
fruits thereof were not stolen.

Lot 840 has an area of 1,000 square meters (Exh. "D") and is planted to bananas. Like the coconut lands,
no tenant is needed to cultivate it and Benigno only has to keep watch over it against stray animals and
protect his harvests. If we take away from this area of 1,000 square meters the homelot reserved for the
owner, the remaining portion for production cannot be more than 800 square meters. It can be less,
depending on the size of the homelot.

Before Graciano converted Lots 714, 801 and 840 into ricelands, the only riceland then was Lot 848, with an
area of 1,146 square meters (Exh. "A"). This is too small for an economic family-size farm to sustain
Benigno and his family even if he works it himself.

Considering the size of the landholdings, which have a total productive area of only 3,844 square meters per
their tax declarations, there may not be enough produce to pay for the educational expenses of his children
if Benigno to hire another person to cultivate the land and share the produce thereof. As a matter of fact, to
minimize expenses, the children of Benigno and Monica stayed with Natividad while schooling in Manila.

Since lots 714, 801 and 840 are planted to coconut and banana trees, they are classified as lands planted to
permanent crops. Consequently, in order for a person to be considered a tenant of these lands, he must
have planted the crops himself before they became fruit-bearing. But, in the case before us, the coconut and
banana trees were already fruit-bearing at the time Graciano commenced to work on the lands, hence, he
cannot be considered a tenant of these lands.

Consequently, the transfer of possession of the landholding from Natividad to Benigno should be strictly
viewed as one for the cultivation alone of Benigno, himself a farm worker, who was not authorized by
Natividad to employ a tenant. Benigno's possession was limited only to the enjoyment of the fruits thereof,
subject to the will of landowner Natividad. Benigno was not empowered to install a tenant. 14

Benigno therefore possessed the land as a mere possessor-cultivator. As such, he was required to
personally till or cultivate the land and use the produce thereof to defray the cost of education of his children.
Natividad, who entrusted her landholdings to Benigno, was still the agricultural owner-cultivator, who is "any
person who, providing capital and management, personally cultivates his own land with the aid of his
immediate family and household." 15 It must then be held that the cultivation of Benigno was also the
cultivation of Natividad. Indeed, the fact that the lands were free of tenants when Natividad entrusted them
to Benigno was indicative of her intention to maintain that condition of the landholdings and have them
tended personally by Benigno himself.

Accordingly, neither Benigno nor Graciano can be a lessee-tenant who enjoys security of tenure. Benigno
could only be an encargado of his sister Natividad, merely enjoying the produce thereof for the intended
beneficiaries, his children studying in Manila.

Our attention may be invited to settled jurisprudence that the existence of an agricultural leasehold
relationship is not terminated by changes of ownership in case of sale, or transfer of legal possession as in
lease. 16 But, again, this assumes that a tenancy has already been established. In the instant case, no such
relationship was ever created between Natividad and Graciano, the former having simply given her land to
Benigno without any authority to install a tenant thereon, 17 and only for a limited duration as it was
coterminous with the schooling of Benigno's children in Manila.

In a number of cases, this Court has sustained the preservation of an agricultural leasehold relationship
between landholder and tenant despite the change of ownership or transfer of legal possession from one
person to another. But in all these cases, the facts legally justified the preservation of such relationship. For
example, in Endaya v. Court of Appeals, 18 Salen v. Dinglasan, 19 Catorce v. Court of Appeals, 20 and Co. v
Court of Appeals, 21 the tenants were found to have been instituted by the previous landowners or owners in
fee simple. Consequently, the change of ownership of the land did not terminate the tenancy relationship
already existing. In Novesteras v. Court of Appeals, 22 it was the present landowner himself who instituted
the agricultural leasehold relation. In Ponce v. Guevarra, 23 although the civil law lessee was barred from
installing a tenant under the terms of the original contract of lease, the landowner nonetheless extended the
lifetime of the lease. Finally, in Joya v. Pareja, 24 the lessor-landowner negotiated for the better terms with
the tenant of the civil law lessee upon expiration of the lease.

As may be gleaned from all these seven (7) cases, the landowner himself had a hand in either installing the
tenant, or confirming the tenancy relation by extending it, or negotiating directly with the tenant for the better
terms upon expiration of the civil lease. For, indeed, the right to install a tenant is a personal right that
belongs to the landowner, 25 except perhaps in civil lease when the lessee is authorized to sublease the
leased premises unless expressly prohibited by agreement of the parties. 26

Thus, the agricultural leasehold relations were preserved in these cases because the "legal possessors:
therein were clearly clothed with legal authority or capacity to install tenants. But even assuming that they
were not so authorized as in the Ponce case where the civil law lessee was expressly barred from installing
a tenant under their contract of lease, the subsequent actions of the landowners in extending the lifetime of
the lease, or in negotiating for better terms with the tenants, placed the landowners in estoppel from
contesting the agricultural leasehold relations. Consequently, the tenants in those cases may be categorized
as tenants de jure enjoying tenurial security guaranteed by the Agricultural tenancy Law, 27 now by the
Agricultural Land Reform Code, as amended. This is not the case before us.

In an attempt to bolster his theory that he was tenant of the landholding, Graciano presented no less than
the wife of Benigno, Monica Bernales-Bito-on, who testified that she was the civil law lessee who installed
Graciano as tenant. Interestingly, Monica is the sister of Adela Bernales, wife of Graciano. But why should
Monica be the civil law lessee and not her husband Benigno who is the brother of landowner Natividad? It is
highly improbable that instead of Natividad constituting her brother Benigno as the possessor of the lands, it
was Monica who was entrusted with them. That is contrary to common practice an experience. Even The
trial court itself found the version of Graciano incredible when it held that Benigno was the legal possessor in
the concept of usufructuary. Yet, it ignored this discrepancy — which could have destroyed the credibility of
Graciano — when in fact it could have totally negated or disregarded Graciano's assertion of tenancy
derived from Monica as civil law lessee. The conclusion is not farfetched that Benigno and Monica were just
entrusted with the four (4) lots, three (3) of which were orchards until their unauthorized conversion to
ricelands by Graciano, so that the former could avail of the produce thereof for the purpose already stated.

Moreover, the claim of Graciano that he was the duly appointed tenant is belied by a certification issued by
the President of the Agrarian Reform Beneficiaries Association (ARBA), Panay Chapter, stating that, as of
27 May 1985, Graciano Bernas was neither enrolled in the Master List of tenant beneficiaries nor registered
as a leasehold tenant of Natividad in Barangay Calitan. 28 If he was truly a tenant, he should been vigilant
enough to protect his rights and thus have his name registered. After all, at that time, his older brother was
the barangay captain of Calitan where the property is situated.

When Natividad invoked Sec. 2, P.D. 316, by referring her ejectment case to the Ministry of Agrarian Reform
for preliminary determination, MAR accordingly certified that it was proper for trial, an indication that there
was no tenancy relationship between the parties. Such factual finding, unless found to be baseless, binds
the court because the law gives exclusive authority to MAR to determine preliminary the issue of tenancy
relationship between the contending parties before the court may assume jurisdiction over an agrarian
dispute or controversy. 29

Indeed, the Investigating Officer of MAR correctly found that no tenancy relation existed between Natividad
and Graciano.30 Such factual finding by an administrative agency as the MAR is entitled to the greatest
respect and is binding and conclusive upon this court, except when it is patently arbitrary or capricious, or is
not supported by substantial evidence. 31 Regrettably, these vital informations established in the trial court
were simply ignored, to the great prejudice of respondent Natividad who, under the majority opinion, will find
herself helplessly without a remedy and all because she upheld the true Filipino tradition of family solidarity
by providing succor to a blood brother who needed assistance for the educational advancement of his
children.

It may be worth to emphasize that neither the decision of the Court of Appeals nor the discussions in this
case mention the unauthorized conversion by Graciano of Lots 794, 801 and 840 into ricelands, thereby
impairing the original nature and value of the lands. If for this reason alone, assuming that he was lawfully
installed as tenant, Graciano's tenancy should be terminated under Sec. 36, par. (3), for planting crops or
using the landholdings for a purpose other than for which they were dedicated.

While this may not have been expressly raised as an issue, it is nevertheless related or incidental to the
issues presented by the parties for which evidence was adduced in the trial court by private respondent
without objection from petitioner. We should not disregard the evidence if only to arrive at a fair and just
conclusion.

Some may have apprehensions that should Sec. 6 of R.A. 3844 be construed as not to vest the legal
possessor with automatic authority to install tenants, it would in effect open the floodgates to their ejectment
on the mere pretext that the legal possessor was not so authorized by the landowner. This is a more
imagined than real. The landowner has the burden of proving that the legal possessor was not authorized to
install tenants and, more often than not, the legal possessor is so empowered. In civil law, lease, for the
instance, where there is consideration, the general rule is that the lessee can sublease the leased
holding unless there is an express prohibition against subletting in the contract itself. 32 Thus, in order for the
lessee to be barred from subletting, the contract of lease must expressly stipulate to that effect." In this case,
the transaction between brother and sister was not for any material consideration nor was it intended to
defeat any purpose of law. There is not even any insinuation that Benigno was only being used by Natividad
to oust Graciano from the lands.

In any event, should the majority still hold that Sec. 6 of R.A. 3844 authorizes the persons therein
enumerated to institute a tenant automatically, although I strongly disagree, it should at most be made to
apply only to transfers of legal possession where there is material consideration, and not where such
transfers are absolutely gratuitous or purely out of benevolence because of personal or blood relationship.
Unfortunately for Natividad, her benevolence does not seem to evoke reciprocal benevolence from this
Court.

FOR ALL THE FOREGOING CONSIDERATIONS, I have to dissent from the majority opinion and reiterate
my vote to AFFIRM the judgment under review.

Meanwhile, I can only hope that, in the end, the real meaning of justice in this case is attained.

Feliciano, Davide, Jr. and Melo, JJ., concur.

# Separate Opinions

BELLOSILLO, J., dissenting:

This may be a faint echo in the wilderness but it is the quaint voice of a woman yearning for justice from
this court of last resort. The majority opinion would leave her alone where she is, to wallow in her own
misery, and despite her long and winding travails — all for the love of a brother in need — there is no light at
the end of the tunnel. There is no relief in sight for her plight. Her only fault was to lend her four (4) small
parcels of land to her brother so that the latter could use the fruits thereof for the education of his children in
Manila. Now, she cannot get them back because her brother allowed his brother-in-law, who now claims
security of tenure as tenant, to work the lands.

Worse, the brother-in-law continues to cultivate the landholdings, even converting the orchards into
ricelands as though they were his own and constructing a house of a strong materials thereon, without
paying any rent!

Before seeking judicial relief, private respondent went to the Ministry of Agrarian Reform (MAR) as required
by law,1 and obtained a favorable finding that there was no tenancy relationship between her and her
brother's brother-in-law. But the courts below disregarded this important piece of evidence which speaks
eloquently of the merit of her cause. MAR certified that petitioner was not a tenant of private respondent,
hence, the case was proper for trial.

The finding of MAR was confirmed by the Agrarian Reform Beneficiaries Association (ARBA) when its
President certified after an investigation that petitioner did not appear in the Master List of tenant
beneficiaries of the barangay. Even his older brother, the barangay captain, after conducting his own
investigation, refused to certify that petitioner was a tenant of the holdings of private respondent.

Is private respondent indeed bereft of any remedy in law to recover possession of her landholdings — she
who did not employ petitioner nor authorize anyone to employ him as tenant on her land; she who is not
even paid any rent by petitioner for the use of her landholdings; she whose landholdings have been
converted by petitioner from orchards to ricelands and on which he constructed a house of strong materials,
both without first securing authority from her? Under the circumstances, we can only hope that posterity will
not condemn us for the fate of private respondent and the many others who may be similarly situated.

My conscience prompts me to dissent from the majority opinion and to vote for the affirmance of the decision
of the Court of Appeals, not necessarily on the basis of its rationale, but mainly because I do not subscribe
to the view that a usufructuary or legal possessor under Sec. 6, R.A. 3844, as amended, is automatically
authorized to employ a tenant without the consent of the landowner. For, the right to hire a tenant is
basically a personal right of a landowner, except as may be provided by law. But, certainly nowhere in Sec.
6 of R.A. 3844 does it say that a legal possessor of a landholding is automatically authorized to install a
tenant thereon.

Natividad Bito-on Deita owns Lots 794, 801, 840 and 848 of the Cadastral Survey of Panay, Capiz. Lots 794
and 801, with areas of 943 square meters (Exh. "C") and 855 square meters (Exh. "B"'), respectively, are
coconut Lands; Lot 840, with an area of 1,000 square meters (Exh. "D"), is planted to bananas, while Lot
848, with an area of 1,146 square meters (Exh. "A"), is riceland. Lot 840 was the owner's homelot on which
stood before the family home. Although the trial court found that the total area of the four (4) lots, which are
not contiguous, was 5,831 square meters, a closer examination of their tax declarations (Exhs. "A" to "D")
reveals that their total productive area is only 3,844 square meters, which can be smaller than a residential
lot in a plush village in Metro Manila.

After Natividad recovered these lots from a former tenant in April 1978, she entrusted them to her brother,
Benigno Bito-on, so that the latter may be able to support the education of his children in Manila. 2 She did
not authorize her brother to install a tenant thereon. 3 After successfully retrieving a landholding from a
tenant at that time, no landowner in his right mind would give his land in tenancy again to avoid the
operation of P.D. 27, then at its peak and dreaded by landowners as an unjust deprivation of property rights.

Thereafter, without the knowledge, much less consent, of Natividad, Benigno entered into some
arrangement with his brother-in-law, Graciano Bernas, to work the lands. But Natividad was unaware of this
arrangement as she was staying in Manila where her husband was then employed. It was not until the
latter's retirement and the return of the family to Panay, Capiz, that she learned that Graciano was already
working the lands, converting Lots 794, 801 and 840 into ricelands, and constructing on Lot 840 a house of
concrete hollow blocks.

It bears emphasizing that, the transfer of possession between Natividad and Benigno was not coupled with
any consideration; rather, it was pure magnanimity on the part of Natividad on account of her "dugo" or
blood relation with Benigno, which Atty. Herminio R. Pelobello, Trial Attorney II and MAR Investigating
Officer, explains —

A "DUGO" system is a personal grant of privilege and a privilege personally granted cannot
be delegated or extended to someone else but (is) personal (in) nature. Once the "DUGO"
grantee or trustee returns the subject matter of "DUGO", the relationship is terminated . . . .
In this instance, Exh. "E" is an expressive documentary evidence of return of "DUGO"
property by constructive mode of returning of possession, use and enjoyment of property;
same therefore deserves credence to the exclusion of any interested person in tillage
therein.

On 13 May 1985, his children having finished schooling in Manila, Benigno returned possession of the
property to Natividad, in faithful compliance with their agreement. However, Graciano refused to vacate the
premises claiming at first that he was installed thereon by Benigno, although after Benigno denied this
allegation, petitioner changed his theory by presenting Monica Bernales Bito-on, wife of Benigno, to testify
that she was the civil law lessee who installed Graciano on the lands. This, despite the crux of the evidence
spread on record that it was Benigno Bito-on who was given the physical possession of the lands by his
sister Natividad, and not Monica who is only her sister-in-law. Incidentally, Monica is the sister of the wife of
Graciano Bernas.

On 17 May 1985, fazed by the refusal of Graciano to vacate, Natividad filed a letter-petition4 with the Ministry
of Agrarian Reform (MAR) seeking clarification of the actual status of Graciano vis-a-vis her landholdings.
Accordingly, Graciano was summoned at least three (3) times but the latter refused to attend the scheduled
hearings. Consequently, Atty. Herminio R. Pelobello, who was assigned to the case, conducted his
investigation and thereafter issued a resolution5 sustaining the complaint of Natividad Bito-on Dieta and
concluding, among others that —

. . . out of petitioner's benevolence, generosity and pity of his elder brother's financial
hardship, she had the aforesaid lots entrusted to her brother in the nature of DUGO so that
(the) latter then possessed the land and enjoy(ed) the . . . fruits thereon for the above
purpose beginning the year 1978 up to the 2nd crop of 1985; that upon the surrender or
giving back in her favor of the land subject of 'DUGO' there now appears the respondent
claiming to be the tenant-tiller on the land who would not relinquish the land in her favor
alleging and contending to have been instituted by Monica Bernales who is her sister-in-law.
 xxx xxx xxx

It is observed in this letter-petition (that) Filipino family adhered solidarity, sympathy and pity
by extending financial help of (to) a close relative by consanguinity. Apparently under the
circumstance, the "DUGO" trustee for the benefit of his school children in Manila is Benigno
Bito-on
. . . . Petitioner feeling morally bound . . . made the institution of "DUGO" relationship among
them in order to contributes a solution thereof. But ultimately after the 2nd cropping of 1985
and after the school children of Benigno Bito-on had graduated in college, he returned the
property to petitioner as evidenced by Exh. "E".

Now comes to the surprise of petitioner, the respondent spring(s) out and assert(s) his
alleged right to tillage so as to prevent landowner to repossess the land subject of "DUGO"
upon return which is co-terminous with the period thereof.

On such core, no law or jurisprudence recognizes the right of respondent. Be that as it may,
as now happens, with Benigno Bito-on nor his wife Natividad (Monica) Bernas was legally
authorized to institute somebody to be tenant-tiller under the circumstance of "DUGO" . . . so
as to be entitled to invoke any right or privilege under our Agrarian Laws.

xxx xxx xxx

IN VIEW OF THE FOREGOING CONSIDERATIONS, it is now the honest opinion of the

undersigned to recommend as it is hereby recommended that the petitioner, Natividad Bito-
on Deita, be entitled to the possession, use and enjoyment of the lots subject of 'DUGO' and
further, that the respondent constructively and actually delivers to her the same lots indicated
in this resolution, upon receipt of copy hereof.

The foregoing resolution of the MAR Investigating Officer may not be well crafted, but it is expressive of his
finding that Graciano Bernas was not a tenant-tiller and, consequently, it recommend that "the petitioner,
Natividad Bito-on Deita, be entitled to the possession, use and enjoyment of the lots subject of 'DUGO', and
further, that the respondent (Graciano Bernas) constructively and actually delivers to her the same lots
indicated in this resolution . . . ." concluding that "no law or jurisprudence recognizes the right of
respondent."

While Natividad went through the normal legal procedure to obtain relief, Graciano refused to attend the
formal investigation and hearing conducted by the MAR, much less heed its recommendation. If Graciano
was a law-abiding citizen and believed that the law was on his side, he should have submitted to the fact-
finding investigation by an administrative agency pursuant to law.

On 24 May 1985, a mediation conference between Natividad and Graciano was held at the residence of
Brgy. Captain Felipe Bernas, older brother of Graciano, but it also proved fruitless as Graciano continued to
refuse to vacate subject landholdings. To top it all, Brgy. Captain Bernas sided with Graciano and refused to
issue a certification as required under P.D. 1508. If Graciano was indeed a tenant of the landholdings, his
older brother could have easily issued the required certification.

Consequently, the certification had to be issued by Sulpicio Bering, ARBA President, Panay Chapter,6 dated
27 May 1985, at Barangay Calitan, Panay, Capiz, which confirmed the factual findings of the MAR
Investigating Officer —

This is to certify that undersigned in his capacity as President of Agrarian Reform

Beneficiaries Association (ARBA), Panay Chapter, had attended last May 24, 1985 the
mediation confrontation among Mrs. Natividad Bito-on-Dieta and Mr. Graciano Bernas
accompanied by his wife Adela Bernales that took place right at the residence of Brgy.
Captain Felipe Bernas. That the outcome of the conference was fruitless as the Barangay
Captain was siding with his younger brother Graciano Bernas, and he (Brgy. Captain)
vehemently refused to issue any certification as required under P.D. 1508.

Hence undersigned as President of ARBA Panay Chapter hereby manifest and certify that
Graciano Bernas is not among those whose names are entered in our masterlist of tenants
so as to suffice as a bona fide member of Agrarian Reform Beneficiaries Association in
Panay, Capiz. It is further stated that Mr. Graciano Bernas is not a leasehold tenant of
landowner Mrs. natividad Bito-on Dieta in Barangay Calitan, Panay, Capiz (emphasis
supplied).

This certification is being issued to Mrs. Dieta in lieu of the refusal on the part(s) of Brgy.
Captain to issue such under the provision of P.D. 1508.
On 21 June 1985, after all her efforts to recover through administrative means failed, Natividad finally
instituted an action in the Regional Trial Court of Capiz. But, in deciding the case, the trial court completely
disregarded the result of the administrative investigation conducted by Atty. Herminio R. Pelobello of the
MAR (Exh. "6") and the Certification of the President of ARBA (Exh. "E") and ruled in favor of Graciano,
holding that the transaction between Natividad and Benigno was in the nature of a usufruct so that the latter
was legally capacitated to install Graciano as an agricultural lessee whose tenurial right could not be
disturbed except for causes enumerated under Sec. 36 of R.A. 3844, as amended, 7 and that Natividad
failed to establish any of the causes for his termination.

Natividad elevated her cause to the Court of Appeals contending that the transaction between her and her
brother Benigno was not in the nature of usufruct but rather one of commodatum. As such, Benigno, as
bailee in commodatum, could neither lend nor lease the property loaned to him to a third person since the
relationship between the bailor and bailee is personal in character. She also established with her evidence
that Graciano converted without her authority three (3) of her parcels of land, particularly those planted to
coconut and banana, to ricelands, which is a ground to terminate a tenant, assuming that Graciano was.

The contention of Natividad was sustained by the Court of Appeals, which ordered the ejectment of
Graciano. The Court of Appeals ruled that having merely derived his right over the property from the bailee,
Graciano could have no better right than bailee Benigno who possessed the landholdings only for a special
purpose and for a limited period of time. The spring cannot rise higher than its source

Hence, this petition for review on certiorari filed by Graciano seeking reversal of the decision8 of the Court of
Appeals on the issue of whether he is an agricultural lessee of the landholdings entitled to security of tenure.

The resolution of this issue hinges on the proper interpretation of Sec. 6 of R.A. 3844, as amended,
otherwise known as "The Agricultural Land Reform Code," which provides:

Sec. 6 Parties to Agricultural Leasehold Relations. — The agricultural leasehold relations

shall be limited to the person who furnishes the landholding, either as owner, civil law lessee,
usufructuary, or legal possessor, and the person who personally cultivates the same.
(emphasis ours).

Those who hold that Graciano is a leasehold tenant anchor their proposition on the above provision of Sec.
6 as they find Benigno a "legal possessor" of the lands and so could legally install a tenant thereon.

I strongly disagree. When Sec. 6 provides that the agricultural leasehold relations shall be limited to the
person who furnishes the landholding, either as owner, civil law lessee, usufructuary, or legal possessor,
and the person who personally cultivates the same, it assumes that there is an existing agricultural
leasehold relation, i. e., a tenant or agricultural lessee already works the land. As may be gleaned from the
epigraph of Section 6, it merely states who are "Parties to Agricultural Leasehold Relations," which means
that there is already a leasehold tenant on the land. But this is precisely what we are still asked to determine
in these proceedings.

To better understand Sec. 6, R.A. 3844, let us refer to its precursor, Sec. 8, R.A. 1199, as amended, which
provides:

Sec. 8. Limitation of Relation. — The relation of landholder and tenant shall be limited to the
person who furnishes land, either as owner, lessee, usufructuary, or legal possessor, and to
the person who actually works the land himself with the aid of labor available from within his
immediate farm household.

Again, Sec. 8 of R.A. 1199 assumes the existence of a tenancy relation. But, as its epigraph states, it is a
"Limitation of Relation," and the purpose is merely to limit the tenancy "to the person who furnishes land,
either as owner, lessee, usufructuary, or legal possessor, and to the person who actually works the land
himself with the aid of labor available from within his immediate farm household." Otherwise stated, once the
tenancy relation is established, the parties to that relation are limited to the persons therein stated. But,
obviously, inherent in their right to install a tenant is their authority to do so; otherwise, without such
authority, they cannot install a tenant on the landholding. But, definitely, neither Sec. 6 of R.A. 3844 nor Sec.
8 of R.A. 1199 automatically authorizes the persons named therein to employ a tenant on the landholding.

According to Santos and Macalino, considered authorities on the land reform, the reasons Sec. 6, R.A.
3844, and 8, R.A. 1199, in limiting the relationship to the lessee and the lessor is "to discourage
absenteeism on the part of the lessor and the custom, of co-tenancy" under which "the tenant (lessee)
employs another to do the farm work for him, although it is he with whom the landholder (lessor) deals
directly. Thus, under this custom, the one who actually works the land gets the short end of the bargain, for
the nominal or 'capitalist' lessee hugs for himself a major portion of the harvest."9 This custom has bred
exploitation, discontent and confusion . . . . The 'kasugpong,' 'kasapi,' or 'katulong' also works at the
pleasure of the nominal tenant." 10 When the new law, therefore, limited tenancy relation to the landholder
and the person who actually works the land himself with the aid of labor available from within his immediate
farm household, it eliminated the nominal tenant or middle man from the picture.11

Another noted authority on land reform, Dean Jeremias U.

Montemayor, 12 explains the reason for Sec. 8, R.A. 1199, the precursor of Sec. 6, R.A. 3844:

Since the law establishes a special relationship in tenancy with important consequences, it
properly pinpoints the persons to whom said relationship shall apply. The spirit of the law is
to prevent both landholder absenteeism and tenant absenteeism. Thus, it would seem that
the discretionary powers and important duties of the landholder, like the choice of crop or
seed, cannot be left to the will or capacity of an agent or overseer, just as the cultivation of
the land cannot be entrusted by the tenant to some other people. Tenancy relationship has
been held to be of a personal character (see Secs. 37 and 44, R.A. 1199, as amended;
emphasis supplied).

To argue that simply because Benigno is considered a usufructuary or legal possessor, or a bailee
in commodatum for that matter, he is automatically authorized to employ a tenant on the landholding is to
beg the question. For, it is not correct to say that every legal possessor, be he a usufructuary or a bailee, is
authorized as a matter of right to employ a tenant. His possession can be limited by agreement of the parties
or by operation of law. In the case before Us, it is obvious that the tenure of the legal possessor was
understood to be only during the limited period when the children of Benigno were still schooling in Manila.

As already stated, Sec. 6 simply enumerates who are the parties to an existing contract of agricultural
tenancy, which presupposes that a tenancy already exists. It does not state that those who furnish the
landholding, i.e., either as owner, civil law lessee, usufructuary, or legal possessor, are authomatically
authorized to employ a tenant on the landholding. The reason is obvious. The legal possession, may be
restrictive. Even the owner himself may not be free to install a tenant, as when his ownership or possession
is encumbered or is subject to a lien or condition that he should not employ a tenant thereon. This
contemplates a situation where the property may be intended for some other specific purpose allowable by
law, such as, its conversion into a subdivision.

In the case at bar, the transfer of possession was purely gratuitous. It was not made for any consideration
except for the "dugo" or blood relationship between Natividad and Benigno. Consequently, the generation of
rights arising therefrom should be strictly construed in favor of Natividad. In fact, for lack of consideration,
she may take back the land at any time unless she allows a reasonable time for Benigno to harvest the
produce of what he may have planted thereon as a possessor in good faith. There is not even any valid
obligation on her part to keep Benigno in possession, except as herein adverted to, much less should she be
deprived of such possession just because another person was employed by her brother to work the land.

Under the doctrine laid down in Lastimoza v. Blanco, 13 Graciano cannot be a lawful tenant of Natividad for
the reason that Benigno, after failing to return the landholding to Natividad, already became a deforciant,
and a deforciant cannot install a lawful tenant who is entitled to security of tenure. Incidentally, Benigno and
Graciano being brothers-in-law, their wives being sisters, and living in a small barangay, Graciano cannot
profess ignorance of the very nature of the possession of Benigno as well as the restrictions to his
possession.

It may be relevant to consider, for a better appreciation of the facts, the actual condition of the landholdings.
As already adverted to, Lots 794 and 801 are coconut lands with an area of 943 square meters (Exh. "C")
and 855 square meters (Exh. "B"), respectively, or a total area of 1,798 square meters. With this meager
area for the two (2) coconut lands, there is indeed no reason to have them tenanted. The coconut lands
need not be cultivated when the coconut trees are already fruit-bearing. Benigno only had to ensure that the
fruits thereof were not stolen.

Lot 840 has an area of 1,000 square meters (Exh. "D") and is planted to bananas. Like the coconut lands,
no tenant is needed to cultivate it and Benigno only has to keep watch over it against stray animals and
protect his harvests. If we take away from this area of 1,000 square meters the homelot reserved for the
owner, the remaining portion for production cannot be more than 800 square meters. It can be less,
depending on the size of the homelot.

Before Graciano converted Lots 714, 801 and 840 into ricelands, the only riceland then was Lot 848, with an
area of 1,146 square meters (Exh. "A"). This is too small for an economic family-size farm to sustain
Benigno and his family even if he works it himself.

Considering the size of the landholdings, which have a total productive area of only 3,844 square meters per
their tax declarations, there may not be enough produce to pay for the educational expenses of his children
if Benigno to hire another person to cultivate the land and share the produce thereof. As a matter of fact, to
minimize expenses, the children of Benigno and Monica stayed with Natividad while schooling in Manila.
Since lots 714, 801 and 840 are planted to coconut and banana trees, they are classified as lands planted to
permanent crops. Consequently, in order for a person to be considered a tenant of these lands, he must
have planted the crops himself before they became fruit-bearing. But, in the case before us, the coconut and
banana trees were already fruit-bearing at the time Graciano commenced to work on the lands, hence, he
cannot be considered a tenant of these lands.

Consequently, the transfer of possession of the landholding from Natividad to Benigno should be strictly
viewed as one for the cultivation alone of Benigno, himself a farm worker, who was not authorized by
Natividad to employ a tenant. Benigno's possession was limited only to the enjoyment of the fruits thereof,
subject to the will of landowner Natividad. Benigno was not empowered to install a tenant. 14

Benigno therefore possessed the land as a mere possessor-cultivator. As such, he was required to
personally till or cultivate the land and use the produce thereof to defray the cost of education of his children.
Natividad, who entrusted her landholdings to Benigno, was still the agricultural owner-cultivator, who is "any
person who, providing capital and management, personally cultivates his own land with the aid of his
immediate family and household." 15 It must then be held that the cultivation of Benigno was also the
cultivation of Natividad. Indeed, the fact that the lands were free of tenants when Natividad entrusted them
to Benigno was indicative of her intention to maintain that condition of the landholdings and have them
tended personally by Benigno himself.

Accordingly, neither Benigno nor Graciano can be a lessee-tenant who enjoys security of tenure. Benigno
could only be an encargado of his sister Natividad, merely enjoying the produce thereof for the intended
beneficiaries, his children studying in Manila.

Our attention may be invited to settled jurisprudence that the existence of an agricultural leasehold
relationship is not terminated by changes of ownership in case of sale, or transfer of legal possession as in
lease. 16 But, again, this assumes that a tenancy has already been established. In the instant case, no such
relationship was ever created between Natividad and Graciano, the former having simply given her land to
Benigno without any authority to install a tenant thereon, 17 and only for a limited duration as it was
coterminous with the schooling of Benigno's children in Manila.

In a number of cases, this Court has sustained the preservation of an agricultural leasehold relationship
between landholder and tenant despite the change of ownership or transfer of legal possession from one
person to another. But in all these cases, the facts legally justified the preservation of such relationship. For
example, in Endaya v. Court of Appeals, 18 Salen v. Dinglasan, 19 Catorce v. Court of Appeals, 20 and Co. v
Court of Appeals, 21 the tenants were found to have been instituted by the previous landowners or owners in
fee simple. Consequently, the change of ownership of the land did not terminate the tenancy relationship
already existing. In Novesteras v. Court of Appeals, 22 it was the present landowner himself who instituted
the agricultural leasehold relation. In Ponce v. Guevarra, 23 although the civil law lessee was barred from
installing a tenant under the terms of the original contract of lease, the landowner nonetheless extended the
lifetime of the lease. Finally, in Joya v. Pareja, 24 the lessor-landowner negotiated for the better terms with
the tenant of the civil law lessee upon expiration of the lease.

As may be gleaned from all these seven (7) cases, the landowner himself had a hand in either installing the
tenant, or confirming the tenancy relation by extending it, or negotiating directly with the tenant for the better
terms upon expiration of the civil lease. For, indeed, the right to install a tenant is a personal right that
belongs to the landowner, 25 except perhaps in civil lease when the lessee is authorized to sublease the
leased premises unless expressly prohibited by agreement of the parties. 26

Thus, the agricultural leasehold relations were preserved in these cases because the "legal possessors:
therein were clearly clothed with legal authority or capacity to install tenants. But even assuming that they
were not so authorized as in the Ponce case where the civil law lessee was expressly barred from installing
a tenant under their contract of lease, the subsequent actions of the landowners in extending the lifetime of
the lease, or in negotiating for better terms with the tenants, placed the landowners in estoppel from
contesting the agricultural leasehold relations. Consequently, the tenants in those cases may be categorized
as tenants de jure enjoying tenurial security guaranteed by the Agricultural tenancy Law, 27 now by the
Agricultural Land Reform Code, as amended. This is not the case before us.

In an attempt to bolster his theory that he was tenant of the landholding, Graciano presented no less than
the wife of Benigno, Monica Bernales-Bito-on, who testified that she was the civil law lessee who installed
Graciano as tenant. Interestingly, Monica is the sister of Adela Bernales, wife of Graciano. But why should
Monica be the civil law lessee and not her husband Benigno who is the brother of landowner Natividad? It is
highly improbable that instead of Natividad constituting her brother Benigno as the possessor of the lands, it
was Monica who was entrusted with them. That is contrary to common practice an experience. Even The
trial court itself found the version of Graciano incredible when it held that Benigno was the legal possessor in
the concept of usufructuary. Yet, it ignored this discrepancy — which could have destroyed the credibility of
Graciano — when in fact it could have totally negated or disregarded Graciano's assertion of tenancy
derived from Monica as civil law lessee. The conclusion is not farfetched that Benigno and Monica were just
entrusted with the four (4) lots, three (3) of which were orchards until their unauthorized conversion to
ricelands by Graciano, so that the former could avail of the produce thereof for the purpose already stated.
Moreover, the claim of Graciano that he was the duly appointed tenant is belied by a certification issued by
the President of the Agrarian Reform Beneficiaries Association (ARBA), Panay Chapter, stating that, as of
27 May 1985, Graciano Bernas was neither enrolled in the Master List of tenant beneficiaries nor registered
as a leasehold tenant of Natividad in Barangay Calitan. 28 If he was truly a tenant, he should been vigilant
enough to protect his rights and thus have his name registered. After all, at that time, his older brother was
the barangay captain of Calitan where the property is situated.

When Natividad invoked Sec. 2, P.D. 316, by referring her ejectment case to the Ministry of Agrarian Reform
for preliminary determination, MAR accordingly certified that it was proper for trial, an indication that there
was no tenancy relationship between the parties. Such factual finding, unless found to be baseless, binds
the court because the law gives exclusive authority to MAR to determine preliminary the issue of tenancy
relationship between the contending parties before the court may assume jurisdiction over an agrarian
dispute or controversy. 29

Indeed, the Investigating Officer of MAR correctly found that no tenancy relation existed between Natividad
and Graciano.30 Such factual finding by an administrative agency as the MAR is entitled to the greatest
respect and is binding and conclusive upon this court, except when it is patently arbitrary or capricious, or is
not supported by substantial evidence. 31 Regrettably, these vital informations established in the trial court
were simply ignored, to the great prejudice of respondent Natividad who, under the majority opinion, will find
herself helplessly without a remedy and all because she upheld the true Filipino tradition of family solidarity
by providing succor to a blood brother who needed assistance for the educational advancement of his
children.

It may be worth to emphasize that neither the decision of the Court of Appeals nor the discussions in this
case mention the unauthorized conversion by Graciano of Lots 794, 801 and 840 into ricelands, thereby
impairing the original nature and value of the lands. If for this reason alone, assuming that he was lawfully
installed as tenant, Graciano's tenancy should be terminated under Sec. 36, par. (3), for planting crops or
using the landholdings for a purpose other than for which they were dedicated.

While this may not have been expressly raised as an issue, it is nevertheless related or incidental to the
issues presented by the parties for which evidence was adduced in the trial court by private respondent
without objection from petitioner. We should not disregard the evidence if only to arrive at a fair and just
conclusion.

Some may have apprehensions that should Sec. 6 of R.A. 3844 be construed as not to vest the legal
possessor with automatic authority to install tenants, it would in effect open the floodgates to their ejectment
on the mere pretext that the legal possessor was not so authorized by the landowner. This is a more
imagined than real. The landowner has the burden of proving that the legal possessor was not authorized to
install tenants and, more often than not, the legal possessor is so empowered. In civil law, lease, for the
instance, where there is consideration, the general rule is that the lessee can sublease the leased
holding unless there is an express prohibition against subletting in the contract itself. 32 Thus, in order for the
lessee to be barred from subletting, the contract of lease must expressly stipulate to that effect." In this case,
the transaction between brother and sister was not for any material consideration nor was it intended to
defeat any purpose of law. There is not even any insinuation that Benigno was only being used by Natividad
to oust Graciano from the lands.

In any event, should the majority still hold that Sec. 6 of R.A. 3844 authorizes the persons therein
enumerated to institute a tenant automatically, although I strongly disagree, it should at most be made to
apply only to transfers of legal possession where there is material consideration, and not where such
transfers are absolutely gratuitous or purely out of benevolence because of personal or blood relationship.
Unfortunately for Natividad, her benevolence does not seem to evoke reciprocal benevolence from this
Court.

FOR ALL THE FOREGOING CONSIDERATIONS, I have to dissent from the majority opinion and reiterate
my vote to AFFIRM the judgment under review.

Meanwhile, I can only hope that, in the end, the real meaning of justice in this case is attained.

Feliciano, Davide, Jr. and Melo, JJ., concur.

# Footnotes

* Penned by Mme. Justice Minerva P. Gonzaga-Reyes and concurred in by Justices Serafin

E. Camilon and Pedro A. Ramirez.

** Penned by Judge Jonas A. Abellar.

1 Rollo, p. 22
2 Section 4, Republic Act No. 3844

3 This paragraph of Section 36, Republic Act No. 3844 has been expressly amended by
Section 7, Republic Act No. 6389, to be discussed later.

4 Pre-Trial Order, 9 September 1985, p. 2; Original Records, p. 41; Trial Court Decision, 20
October 1987, pp. 2-3.

5 Rollo, p. 22

6 Northern Motors, Inc. vs. prince Line, et al., G.R. L-13884, 29 February 1960, 107 Phil.
253.

7 Viajar vs. Court of Appeals, G.R. No. 77294, 12 December 1988, 168 SCRA 405, 411.

8 Viajar vs. Court of Appeals, supra. citing Salvante vs. Cruz, G.R. No. L-2531, 28 February
1951, 88 Phil. 236

9 Published in the Official Gazette on 31 January 1972.

BELLOSILLO, J., dissenting:

1 P.D. 316.

2 Tsn, 13 February 1986, p. 6

3 Ibid., p. 8.

4 Exh. "F", RTC Record, p. 101.

5 Exh. "G", RTC Records, pp. 102-104.

6 Exh. "E", RTC Record, p. 100.

7 Sec. 36. Possession of Landholding; Exceptions. — . . . (1) The landholding is declared by

the department head upon recommendation of the National Planning Commission to be
suited for residential, commercial, industrial or some other urban purposes . . . . (2) The
agricultural lessee failed to substantially comply with any of the terms and conditions of the
contract or any provisions of this Code unless his failure is caused by fortuitous event or
force majeure; (3) The agricultural lessee planted crops or used the landholding for a
purpose other than what has been previously agreed upon; (4) The agricultural lessee failed
to adopt proven agricultural farm practices . . . . (5) The land or other substantial
improvement thereon is substantially damaged or destroyed or has unreasonably
deteriorated through the fault or negligence of the agricultural lessee; (6) The agricultural
lessee does not pay the lease rental when it falls due
. . . . (7) The lessee employed a sub-lessee on his landholding in violation of the terms of
paragraph 2 of Section 27.

8 Penned by Justice Minerva P. Gonzaga-Reyes, concurred in by Justices Serafin N.

Camilon and Pedro A. Ramirez.

9 Santos and Macalino, The Agricultural Land Reform Code, 1963 Ed., p. 11.

10 Id., pp. 213-214.

11 Id. p. 214.

12 Montemayor, Jeremias U., Labor, Agrarian and Social Legislation, Vol. III, 1968 ed., p.
40.

13 G.R. No. L-14697, 28 January 1961, 1 SCRA 231.

14 Tsn, 13 February 1986, p. 8.

15 Sec. 166, par. (22), R.A. 3844.

16 Endaya v. Court of Appeals, G.R. No. 88113, 23 October 1992.

 17 See note 14.

18 See note 16.

19 G.R. No. 59082, 28 June 1991, 198 SCRA 623.

20 G.R. No. 59762, 11 may 1984, 129 SCRA 210.

21 G.R. No. 65298, 21 June 1988, 162 SCRA 390.

22 G.R. No. L-36654, 31 march 1967, 149 SCRA 47.

23 G.R. Nos. L-19629 and 19672-92, 31 March 1964, 10 SCRA 649.

24 106 Phil. 645 (1959).

25 Montemayor, Jeremias U., op. cit.

26 Art. 1650, New Civil Code.

27 Lastimoza v. Blanco, supra.

28 Exh. "E", RTC Record, p. 100.

29 Sec. 12, par. (b), subpar. (2), of P.D. 946.

30 Exh. "G", RTC Records, pp. 102-104.

31 Republic v. Sandiganbayan, G. R. NO. 89425, 25 February 1992, 206 SCRA 506.

32 Art. 1650, New Civil Code.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 165547 January 15, 2009

DEPARTMENT OF AGRARIAN REFORM, as represented by its Secretary RENE C. VILLA,Petitioners,

vs.
SARANGANI AGRICULTURE CO., INC., ACIL CORPORATION, NICASIO ALCANTARA and TOMAS
ALCANTARA, Respondents.

RESOLUTION

AZCUNA, J.:

Respondents filed a motion for partial reconsideration of this Court’s Decision of January 24, 2007, invoking
this Court’s ruling in Roxas & Co., Inc. v. Court of Appeals 1 and asking that they be served separate Notices
of Coverage and Notices of Acquisition vis-à-vis the subject lands, apart from and in addition to the Notice of
Deferment that this Court’s Decision deemed sufficient and amounting to said Notices. To remove any and
all doubts as to compliance with due process requirements in the projected acquisition of subject lands for
agrarian reform, the Court RESOLVES to amend the dispositive portion of its aforesaid Decision to read as
follows:

WHEREFORE, the petition is PARTLY GRANTED. Subject to the compliance with all requirements in
connection with the giving of the Notices of Coverage and Notices of Acquisition as provided by law, the
denial by the Department of Agrarian Reform (DAR) of respondents’ application for conversion with regard
to 154.622 [or 154.1622] hectares, the deferment period of which has already expired, is AFFIRMED. The
Decision and Resolution, dated July 19, 2004 and September 24, 2004, respectively, of the Court of Appeals
in CA-G.R. SP No. 79899, are hereby MODIFIED accordingly. The case is REMANDED to the Department
of Agrarian Reform for further proceedings to properly effect the acquisition of the subject lands for
distribution to the intended beneficiaries.

No costs.
SO ORDERED.

IT IS ORDERED

ADOLFO S. AZCUNA
Associate Justice

WE CONCUR:.

REYNATO S. PUNO
Chief Justice
Chairperson

ANTONIO T. CARPIO RENATO C. CORONA

Associate Justice Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above
Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the
Court’s Division.

REYNATO S. PUNO
Chief Justice

Footnotes

1 See CA Decision, Annex “B” of Petition, pp. 44-45.

G.R. No. 139083 August 30, 2001

FLORENCIA PARIS, petitioner,

vs.
DIONISIO A. ALFECHE, JUAN L. ALFECHE, MAXIMO N. PADILLA, DIONISIO Q. MATILOS, Heirs of
GREG A. ALFECHE, DIONISIO W. MATILO, SIMPLICIO L. ADAYA, TEOFILO M. DE GUZMAN,
FRANCISCO B. DINGLE and MARIFE NAVARO, respondents.

PANGANIBAN, J.:

Homesteads are not exempt from the operation of the Land Reform Law. The right to retain seven hectares
of land is subject to the condition that the landowner is actually cultivating that area or will cultivate it upon
the effectivity of the said law.

The Case

The Petition for Review before us assails the June 4, 1999 Decision of the Court of Appeals1 (CA), in CA-GR
SP No. 45738, which affirmed the ruling of the Department of Agrarian Reform Adjudication Board (DARAB).
The decretal portion of the CA Decision reads:

"WHEREFORE, [there being] no grave abuse of discretion . . . committed by DARAB, the instant
petition is hereby DENIED DUE COURSE and DISMISSED. Costs against the petitioner."2

The Decision of the DARAB, which was affirmed by the CA, had disposed as follows:

WHEREFORE, premises considered, the assailed Decision dated March 19, 1992 is hereby
REVERSED and SET ASIDE, and a new one is entered:

1. Declaring the private respondents to be full owners of the land they till pursuant to
Presidential Decree No. 27 and Executive Order No. 228;
 2. Declaring the validity of the Emancipation Patents issued to private respondents; and

3. Dismissing the case."3

The Facts

The Court of Appeals narrates the facts thus:

"Petitioner is the registered owner of a parcel of land situated at Paitan, Quezon, Bukidnon with an
area of 10.6146 hectares, more or less, covered by Transfer Certificate of Title No. T-8275 and
another property with an area of 13.2614 hectares covered by Original Certificate of Title No. P-
4985, also located at Paitan, Quezon, Bukidnon; the said parcels are fully tenanted by private
respondents herein who are recipients of Emancipation Patents in their names pursuant to
Operation Land Transfer under P.D. 27 (Annexes 'A', A-1' to A-18) notwithstanding the fact that
neither the tenants nor the Land Bank of the Philippines (LBP) [has] paid a single centavo for the
said land. Petitioner and the tenants have not signed any Land Transfer Production Agreement.
Petitioner and her children have been deprived of their property without due process of law and
without just compensation, especially so that the tenants have already stopped paying rentals as of
December 1988 to the damage and prejudice of petitioner.

"Petitioner contends that since she is entitled to a retention of seven (7) hectares under P.D. 27
and/or 5 hectares and 3 hectares each for her children under the Comprehensive Agrarian Reform
Law (CARL), the tenants are not supposed to acquire the subject land and the Emancipation Patents
precipitately issued to them are null and void for being contrary to law. Petitioner further alleged that
she owns the subject property covered by OCT No. P-4985 as original homestead grantee who still
owned the same when Republic Act No. 6657 was approved, thus she is entitled to retain the area to
the exclusion of her tenants. As regards TCT No. 8275, petitioner has applied for retention of seven
hectares per Letter of Retention attached as Annex 'B', that the lands subject of the instant petition
are covered by Homestead Patents, and as decided by the Supreme Court in the cases of Patricio
vs. Bayug (112 SCRA 41) and Alita vs. Court of Appeals (170 SCRA 706), the homesteaders and
their heirs have the right to cultivate their homesteads personally, which is a superior right over that
of tenant-farmers.

"Petitioner moved for the cancellation and recall of the Emancipation Patents issued to private
respondents-farmers and to restore to petitioner and her children the ownership and cultivation of
the subject lots plus payment of back rentals from the time they stopped paying the same until
ejected therefrom.

"Respondents filed their answer dated May 29, 1991 and admitted the generation and issuance of
Emancipation Patents to private respondents as tenant-farmers thereof and the Supreme Court
rulings on the Bayug and Alita cases relative to homestead patents, but denied the rest of the
material allegations for want of knowledge or information as to the truth relative thereto.
Respondents alleged that when the subject lands were covered under P.D. 27, the petitioner was
repeatedly informed and invited by the DAR Office at Valencia, Bukidnon to thresh out the matter;
that petitioner's right to retain seven (7) hectares is not absolute since she owns other agricultural
landholdings, thus disqualifying her to retain the area, aside from the fact that she has other
properties sufficient to support her family as shown in the Certification of the Provincial Assessor's
Office listing down the petitioner's landholdings (Annex '2'). By way of special affirmative defenses,
respondents averred that the criteria set forth under P.D. 27 were observed before the generation of
the Emancipation Patents; that under Executive Order No. 228, the tenant-farmers under P.D. 27
are deemed full owners of the lands they till and the lease rentals paid by them should be
considered as amortization payments; that under LOI 474, petitioner who owns more than seven (7)
hectares of lands are not entitled to retention. Respondents prayed for the dismissal of the case.
They likewise prayed that the Emancipation Patents issued to private respondents and their peaceful
possession of their farm lots be respected.

"The Adjudicator a quo conducted a hearing and afforded the parties their day in court and the
opportunity to present their evidence. On August 13, 1991, the Adjudicator a quo issued an Order for
the parties to submit their respective position papers with evidence to buttress their allegations. On
March 10, 1992, the Adjudicator a quo rendered the decision, thus:

"'WHEREFORE, in the light of the foregoing, this Adjudicator declares the following:

1. That all the Emancipation Patents issued to tenants-respondents shall be canceled and
recalled;

2. That the Register of Deeds of Malaybalay, Bukidnon shall cancel all Emancipation Patents
registered under the names of the herein tenants-respondents; and
 3. That back rentals due to the petitioners, which were given to the LBP as amortizations,
shall be given to the said petitioner."'4

On appeal, the DARAB reversed the adjudicator.

Ruling of the Court Appeals

The CA rejected the claim of petitioner. It ruled that she could not retain her homesteads, since she was not
the actual cultivator thereof. It also held that she and her heirs had not been deprived of their right to retain
the area mandated by law, because the records showed that they had other agricultural landholdings.
Finally, it ruled that she had not been deprived of her properties without just compensation, since "Section 2
of Executive Order 228 declared that tenant-farmers of agricultural lands under P.D. 27 are deemed owners
of the land they till and the lease rentals paid by them shall be considered as amortization payments. "5

Hence, this Petition.6

The Issues

In her Memorandum, petitioner submits the following issues for our consideration:

"I Whether or not the original homesteads issued under the public land act [are] exempted from the
operation of land reform.

"II. Granting arguendo that homesteads are not exempt, whether or not the Emancipation Patents
issued to the respondents are valid notwithstanding lack of payment of just compensation.

"III. On the assumption that homesteads are exempt from land reform and/or the emancipation
patents are illegally issued hence, void, can the respondents be ejected from the premises in
question?"7

The Court's Ruling

The Petition is partly meritorious. Respondents are entitled to the lands they till, subject to the determination
and payment of just compensation to petitioner.

First Issue:

Petitioner's Homesteads Not Exempt from Land Reform

Petitioner contends that because the subject properties are covered by homestead patents, they are exempt
from the operation of land reform. In support of her position, she cites the cases Alita v. CA8 and Patricio v.
Bayug,9 in which the Court ruled that homesteaders had a superior right to cultivate their homesteads as
against their tenants.

Petitioner's contention is without legal basis. Presidential Decree (PD) No. 27, under which the
Emancipation Patents sought to be canceled here were issued to respondents, applies to all tenanted
private agricultural lands primarily devoted to rice and corn under a system of share-crop or lease-tenancy,
whether classified as landed estate or not."10 The law makes no exceptions whatsoever in its coverage.
Nowhere therein does it appear that lots obtained by homestead patents are exempt from its operation.

The matter is made even clearer by Department Memorandum Circular No. 2, Series of 1978, which states:
"Tenanted private agricultural lands primarily devoted to rice and/or corn which have been acquired under
the provisions of Commonwealth Act 141, as amended, shall also be covered by Operation Land Transfer."
Unquestionably, petitioner's parcels of land, though obtained by homestead patents under Commonwealth
Act 141, are covered by land reform under PD 27.

Petitioner's claimed entitlement to retain seven (7) hectares is also untenable. PD 27, which provides the
retention limit, states:

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

Clearly, the right to retain an area of seven hectares is not absolute. It is premised on the condition that the
landowner is cultivating the area sought to be retained or will actually cultivate it upon effectivity of the law.

In the case at bar, neither of the conditions for retention is present. As admitted by petitioner herself, the
subject parcels are fully tenanted; thus, she is clearly not cultivating them, nor will she personally cultivate
any part thereof. Undoubtedly, therefore, she has no right to retain any portion of her landholdings.
Even under the current primary law on agrarian reform, Republic Act (RA) No. 6657, to which the application
of PD 27 is suppletory, petitioner's lands are subject to land reform. The said Act lays down the rights of
homestead grantees as follows:

"SECTION 6. Retention Limits.—Except as otherwise provided in this Act, no person may own or
retain, directly or indirectly, any public or private agricultural land, the size of which shall vary
according to factors governing a viable family-sized farm, such as commodity produced, terrain,
infrastructure, and soil fertility as determined by the Presidential Agrarian Reform Council (PARC)
created hereunder, but in no case shall retention by the landowner exceed five (5) hectares. Three
(3) hectares may be awarded to each child of the landowner, subject to the following qualifications:
(1) that he is at least fifteen (15) years of age; and (2) that he is actually tilling the land or directly
managing the farm; Provided, That landowners whose lands have been covered by PD 27 shall be
allowed to keep the area originally retained by them thereunder; Provided, further, That original
homestead grantees or their direct compulsory heirs who still own the original homestead at the time
of the approval of this Act shall retain the same areas as long as they continue to cultivate said
homestead." (italics supplied)

Indisputably, homestead grantees or their direct compulsory heirs can own and retain the original
homesteads, only for "as long as they continue to cultivate" them. That parcels of land are covered by
homestead patents will not automatically exempt them from the operation of land reform. It is the fact of
continued cultivation by the original grantees or their direct compulsory heirs that shall exempt their lands
from land reform coverage.

In the present case, as previously pointed out, neither petitioner nor her heirs are personally cultivating the
subject homesteads. The DAR and the CA found that respondents were the ones who had been cultivating
their respective portions of the disputed properties.

However, petitioner can retain five (5) hectares in accordance with Section 6 of RA 6657, which requires no
qualifying condition for the landowner to be entitled to retain such area. This ruling is in line with Association
of Small Landowners in the Philippines, Inc. v. Secretary of Agrarian Reform, from which we quote:

". . . In any event, assuming that the petitioners have not yet exercised their retention rights, if any,
under PD No. 27, the Court holds that they are entitled to the new retention rights provided for by RA
No. 6657, which in fact are on the whole more liberal than those granted by the decree."

Petitioner's heirs, however, are not entitled to awards of three (3) hectares each, since they are not actually
tilling the parcels or directly managing the farm.

Patricio v. Bayug and Alita v. CA

Not Applicable

Petitioner insists that the appellate court ignored the ruling of the Court in Patricio v. Bayug11 and Alita v.
CA.12 She relies on the following pronouncement in Patricio: "We hold that the more paramount and superior
policy consideration is to uphold the right of the homesteader and his heirs to own and cultivate personally
the land acquired from the State without being encumbered by tenancy relations."13 She also cites the
statement in Alita that the inapplicability of P.D. 27 to lands covered by homestead patents like those of the
property in question" finds support in the aforecited Section 6 of RA 6657.14 A closer look at these cases
shows that they are not applicable to the issues in the present case.

In Patricio, the owner and his heirs had previously cultivated the homestead, which was later sold but
subsequently reconveyed to the former. After the reconveyance, the owner's heirs wanted to resume their
cultivation of the homestead, but the previous buyer's tenants did not want to leave it. In Alita, the owner was
also desirous of personally cultivating the homestead; but the tenants, not wanting to relinquish it, were
asserting their own right to continue cultivating it. Thus, under these circumstances, the Court upheld the
right of the homestead owners over that of the tenants.

In the case at bar, petitioner herself has not personally cultivated the parcels of land. Neither has she or her
heirs expressed, at any time, any desire to cultivate them personally. She is invoking, yet is clearly not
intending to ever actually exercise, her alleged right as homesteader to own and personally cultivate them.

Thus, the rulings in both Patricio and Alita, which are in line with the state objective of fostering owner
cultivatorship15 and of abolishing tenancy,16 would be inapplicable to the present case. Since petitioner and
her heirs have evinced no intention of actually cultivating the lands or even directly managing the farm, they
will undoubtedly continue to be absentee landlords. Therefore, to blindly and indiscriminately apply the ruling
in the cited cases would be tantamount to encouraging feudalistic practices and going against the very
essence of agrarian reform. This we cannot sanction

Second Issue:
 Just Compensation

It is undisputed that the subject parcels were covered by Operation Land Transfer under PD 27, and that
private respondents were identified as beneficiaries. In fact, Emancipation Patents have already been issued
to them.

Petitioner, however, claims that she was not paid just compensation and, thus, prays for the cancellation of
the Emancipation Patents issued to respondents under PD 27. She contends that "it is illegal for the DAR to
take property without full payment of just compensation[;] until full payment is done the title and ownership
remain with the landholder."17

Petitioner's contention has merit. Section 2 of PD 266 states:

After the tenant-farmer shall have fully complied with the requirements for a grant of title under
Presidential Decree No. 27, an Emancipation Patent and/or Grant shall be issued by the Department
of Agrarian Reform on the basis of a duly approved survey plan."

On the other hand, paragraphs 8 and 9 of PD 27 reads as follows:

"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[.]"

Although, under the law, tenant farmers are already deemed owners of the land they till, they are still
required to pay the cost of the land, including interest, within fifteen years before the title is transferred to
them. Thus, the Court held in Association of Small Landowners in the Philippines v. Secretary of Agrarian
Reform:18

"It is true that PD 27 expressly ordered the emancipation of tenant-farmers 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 farmers' cooperative.' It was understood,
however, that full payment of the just compensation also had to be made first, conformably to the
constitutional requirement."

In the case at bar, there is no showing that respondents complied with the requirement of full payment of the
cost of the parcels of land. As they themselves admitted,19 their value had not even been determined yet. In
the absence of such determination, the Court cannot rule that just compensation has already been fully paid.

Presidential Decree 27 and subsequently Executive Order (EO) 228, which recognized the rights acquired
by tenant-farmers under PD 27, provide in detail the computation to be used in arriving at the exact total cost
of the parcels of land. Evidently, therefore, the law recognizes that their exact value, or the just
compensation to be given to the landowner, cannot just be assumed; it must be determined with certainty
before the land titles are transferred.

Although EO 228 provides that the total lease rentals paid for the lands from October 21, 1972 shall be
considered as advance payment, it does not sanction the assumption that such rentals are automatically
considered as equivalent to just compensation for the land. The provision significantly designates the lease
rentals as advance, not full, payment. The determination of the exact value of the lands cannot simply be
brushed aside, as it is fundamental to the determination of whether full payment has been made.

Necessarily, the lease rentals admittedly paid by respondents until December 1988 cannot, at this point, be
considered as full settlement of the value of the lands or as just compensation for them. The value of the
subject lands was never determined; thus, there is no amount that can be used as basis for applying the
lease rentals.

Under the circumstances, actual title to the subject lands remains with petitioner. Clearly then, under PD 27
and EO 228, the application of the process of agrarian reform to the subject lands is still incomplete.

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,20 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 —

SECTION 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 (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; . . . 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 (emphasis supplied).

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. "

In determining the amount to be paid petitioner, all lease rentals paid by respondents to her after October
21, 1972 should be deducted therefrom. This formula is intended to put into effect the provision of Section 2
of EO 228.

Third Issue:

Tenants Cannot Be Ejected

Petitioner submits that aside from canceling the Emancipation Patents issued to respondents, the ejectment
of the latter from the premises should be ordered by the Court, in accordance with the doctrine in Patricio.

Petitioner's position is unfounded. As earlier explained, Patricio finds no application to the case at bar. Thus,
there is no justification for ejecting respondents. Besides, Section 22 of RA 6657 expressly states that
"actual tenant-tillers in the landholding shall not be ejected or removed therefrom." Furthermore, there is no
reason for ejecting the tillers with respect to the area of five hectares, which petitioner may choose to retain.
Section 6 of RA 6657 further states:

"The right to choose the area to be retained, which shall be compact or contiguous, shall pertain to
the landowner; Provided, however, That in case the area selected for retention by the land owner is
tenanted, the tenant shall have the option to choose whether to remain therein or be a beneficiary in
the same or another agricultural land with similar or comparable features. In case the tenant
chooses to remain in the retained area, he shall be considered a lease holder and shall lose his right
to be a beneficiary under this Act. In case the tenant chooses to be a beneficiary in another
agricultural land, he loses his right as a lease-holder to the land retained by the landowner. The
tenant must exercise this option within a period of one (1) year from the time the landowner
manifests his choice of the area for retention "

In all cases, the security of tenure of the farmers or farm workers on the land prior to the approval of
this Act shall be respected."

The current provision on retention removes the necessity, present under PD 27, of ejecting actual tillers.
Under the current law, 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 therein.

WHEREFORE, the Petition is partially GRANTED. The assailed Decision of the Court of Appeals is hereby
SET ASIDE. The Decision of the provincial agrarian reform adjudicator is REINSTATED with the
modification that the lease rentals, which respondents have already paid to petitioner after October 21,
1972, are to be considered part of the purchase price for the subject parcels of land.

SO ORDERED.

Melo, Vitug, Gonzaga-Reyes, and Sandoval-Gutierrez, JJ., concur.

Footnotes

1
Fourteenth Division. The Decision was written by J. Demetrio G. Demetria with the concurrence
of JJ. Ramon A Barcelona (Division chairman) and Mariano M. Umali (member).

2
CA Decision, p. 6; rollo, p. 22.

3
Rollo, p. 38.

4
CA Decision, pp. 2-4; rollo, pp. 18-20.

5
CA Decision, p. 6; rollo, p. 22.

6
The case was deemed submitted for resolution on November 17, 2000, upon receipt by this Court
of the Office of Solicitor General's Memorandum/Comment signed by Sol. Gen. Ricardo P. Galvez,
Asst. Sol. Gen. Roman G. Del Rosario and Sol. Ma. Theresa Dolores C. Gomez-Estoesta.
Respondents' Memorandum, signed by Atty. Francisco R Albarracin Jr. of the Department of
Agrarian Reform Legal Services Division, was received on February 7, 2000.

7
Petitioner's Memorandum, p. 6; rollo, p. 41.

8
170 SCRA 706, February 27, 1989.

9
112 SCRA 41, February 16, 1982.

10
Ministry Memorandum Circular No. 18-81.

11
112 SCRA 41, February 16, 1982.

12
170 SCRA 706, February 27, 1989.

13
Supra, p. 45, per Aquino, J.

14
Supra p. 710; per Paras, J.

15
RA 6657.

16
PD 152.

17
Petitioner's Memorandum, p. 9; rollo, p. 44.

18
175 SCRA 343, 390, July 14, 1989; per Cruz, J.

19
Comment, p. 5; rollo, p. 31.

20
321 SCRA 629, 641, December 29, 1999; per Bellosillo, J.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-41107 February 28, 1979

AMANDA L. VDA. DE DELA CRUZ, ET AL., petitioners,

vs.
HON. COURT OF APPEALS, MARCELO ABAGA MARGARITA D. JOSE, MARGARITA D, JOSE,
QUIRINO D, JOSE, TEOFILO D. JOSE, ET AL. respondents.

Angel C Ungson Jr. for petitioner.

Juan J. de Dios and Simplicio M. Sevilleja for private respondents.

DE CASTRO, J.:

This is a petition for certiorari king to review the decision of the Court of Appeals in case CA-G.R. No.
47331-R entitled "Amanda L. Vda. de dela Cruz, et al, plaintiffs-appellees, versus Marcelo Abaga Margarita
D. Jose, et al., defendants." The questioned decision ordered the setting aside of the decision rendered by
the Court of Agrarian Relations in CAR Case No. 115-TP-59 and 116-TP-59 and proceedings subsequent
thereto insofar as it affected the deceased defendant Felix Jose or his heirs, the private respondents in this
petition.

As narrated by the Court of Appeals in its decision, it appears that plaintiffs (herein petitioners) filed an
action for ejectment and collection of unpaid rentals against Felix Jose and 114 other tenants on November
23, 1959 in the Court of Agrarian Relations, Tayug, Pangasinan. Their complaint alleged that Felix Jose is a
tenant over a 4.5 ha. landholding in plaintiffs' hacienda in Tayug Pangasinan, paying a fixed rental of 850
kilos of palay per hectare per agricultural year, that he failed to pay in full his rentals and despite plaintiffs'
repeated demands, Felix Jose to vacate the land-holding and to pay his obligation. 1 In a join answer through
their counsel Atty. Fausto G. Cabotaje, defendant Felix Jose and his 114 co-defendants denied the material
averments of the complaint, alleging payment of all the rentals of their respective landholdings. Thereafter,
trial was commenced. However, as found by the Court of Appeals, "before termination thereof, or on June 5,
1961, Felix Jose died at the Eastern Pangasinan Provincial General Hospital in Tayug, Pangasinan (Record,
Vol. 1, p. 509). It appears that Jose's demise, no substitution of defendant was effected. 2

Then on March 29, 1962, the trial court rendered judgment against Felix Jose together with the other
defendants holding him liable to plaintiffs for 6,432 kilos of palay as unpaid rentals. Some of his co-
defendants then brought the case to the Supreme Court for review on certiorari where it was docketed as G.
R. No. L-19930-19935. However, the petition was dismissed on November 30, 1962 due to the petitioners'
failure to file their brief (Appellee's Brief, pp. 2-8). Thereafter, on plaintiffs' motion, the Court of Agrarian
Relations issued an order of execution (Appendix B of Appellant's Brief, pp. 54-60). On May 3, 1963, a writ
of execution to effect ejectment was entered (Appendix C, Appellants' Brief, pp. 60-69). To satisfy the award
of damages under the decision of the Court of Agrarian Relations, the conjugal properties of the deceased
Felix Jose and his wife were sold at public auction. A certificate of sale dated July 31, 1969 was later issued
in favor of plaintiff Amanda L. Vda. de dela Cruz as highest bidder. The sheriff's final deed of sale followed
on August 17, 1970.

On October 27, 1970, the heirs of the deceased defendant, through their new counsel, Atty. Juan V.
Landingin, filed a motion to substitute the deceased and to set aside as null and void the decisions, orders,
writ of execution and sale at public auction made and entered against the latter. The trial court allowed the
substitution "for the purposes of whatever proceedings may still be allowed in this case" (p. 23, rollo) but
denied the motion to set aside the decision, orders, writ of execution and the public auction sale. The motion
for reconsideration was likewise denied. The substituted defendants then appealed to the Court of Appeals,
raising mainly the question of the validity of the lower court's decision on the ground that despite it's
awareness of the death of said defendant, no substitution was ordered before decision was rendered on
March 29, 1962.

The Court of Appeals found the appeal meritorious. Against its decision, a motion for reconsideration was
filed but was denied. Hence, this petition for review on certiorari, alleging mainly that the Court of Appeals
erred: 3

1. in entertaining an appeal from the order of the Court of Agrarian Relations, in reversing the
decision of the Court of Agrarian Relations of March 29, 1962, setting aside the same and
the auction sale of July 2, 1969, the certificate of sale dated July 31, 1969, and the final deed
of sale of August 17, 1979," with respect to Felix Jose, considering that a period of more
than eight (8) years had elapsed from the rendition of the decision of the trial court to the
filing of the motion for substitution:

2. in not considering the decision of the Supreme Court in cases G.R. Nos. L-19930-19935
as having the effect of res judicata, based not only on the general application of the Rule but
on the basis of the agreement of the parties before the Court of Agrarian Relations that the
cases be heard jointly and one decision for all the cases is sufficient;

3. in finding that the trial was still going on and not yet terminated when Felix Jose died on
June 5, 1961, and that the continuance of the trial after the death of defendant, without each
party having been substituted in accordance with the aforesaid Rule amounts to lack of
jurisdiction.

To begin with, the Court of Appeals found that the defendant Felix Jose died before the termination of the
trial, contrary to petitioner's claim that when d defendant died, the trial was already terminated (p. 11, rollo)
and hence, there was no denial of due process. Whether defendant died before or after termination of trial is
not all that important because one thing is certain; that he died before the rendition of judgment. This fact
was known to the judge of the Court of Agrarian Relations (Appellant's Brief, pp. 48-49), who in his decision
placed the word "dead" in parenthesis beside the name of Felix Jose (Appendix A, Appellants' Brief, p. 49).
The Court of Appeals took this into consideration when it held that the decision of said court was a "patent
nullity" insofar as Felix Jose was concerned. As stated by the Appellate Court, no substitution of the
deceased was ordered by the trial court, in disregard of the provisions of Rule 3, Sec. 17, Rules of Court
which reed thus:

SEC. 17. Death of a party. After a party dies and the claim is not thereby extinguished, the
court shall order, upon proper notice, the legal representative of the deceased to appear and
to be substituted for the deceased within a period of thirty (30) days, or within such time as
may be granted. If the legal representative fails to appear within said time, the court may
order the opposing party to procure the appointment of a legal representative of the
deceased within a time to be specified by the court, and the representative shall immediately
appear for and on behalf of the interest of the deceased. The court charges involved in
procuring such appointment, if defrayed by the opposing party, may be recovered as costs.
The heirs of the deceased may be allowed to be substituted for the deceased, without
requiring the appointment of an executor or a administrator and the court may be appoint
guardian ad litem for the minor heirs.

In Caseñas vs. Resales (19 SCRA 466). Caisip vs. Cabangon (109 Phil. 154) and Bonilla vs. Barcena (71
SCRA 495), this Court held that in case of the death of a party and due notice is given to the trial court, it is
the duty of the court to order the legal representative of the deceased to appear for him in the manner
outlined in the aforementioned Rule. Considering that the complaint was for ejectment of the tenants,
(defendant, being one of them) the provisions of said section and the rulings in the aforementioned cases
are indeed applicable to the present case, where the action or the claim is not extinguished on account of
Section 9, RA 1199, (now RA 6389, Code of Agrarian Reforms) which provides in effect that in case of death
or permanent incapacity of the agricultural lessee, the leasehold shall continue between the lessor and the
persons enumerated in said Section which include the descendants of the deceased. But as noted by the
Court of Appeal: 4 it appears that no legal representative was ever summoned to appear in court; that no
legal representative appeared to be substituted, and that plaintiffs did not procures the appointment of such
legal representatives." As a result the "continuance of a proceeding during the pendency of which a party
thereto dies, without such having been validly substituted in accordance with the rules, amounts to lacks of
jurisdiction."5 The same ruling was given in the earlier case of Ferreria vs. Gonzales (104 Phil 143), where
this Court set aside the decision of the Court of Agrarian Relations because "no valid substitution was
effected, consequently, the court never acquired jurisdiction over appellant for the purpose of making the
decision binding upon her either personally or as legal representative of the estate of her deceased mother."
Assuming that jurisdiction was ever acquired at the outset over defendant Felix Jose, it was:

inevitably impaired on the death of the protestee pending the proceedings below such that
unless and until a legal representative is for him duly named and within the jurisdiction of the
trial court, no adjudication in the cause could have been accorded any validity or binding
effect on any party, in representation of the deceased, without trenching upon the
fundamental right to a day in court which is the very essence of the constitutionally enshrined
guarantee of due process. 6

The need therefore for substitution is based on the right of a party to due process. Summing up then the
previous ruling of this Court in the afore-cited cases, and noting that Rule 3, Sec. 17, Revised Rules of Court
uses the word "shall", one infers that substitution is indeed a mandatory requirement in actions surviving the
deceased. It has been held that in "statutes relating to procedure ... every act which is jurisdictional or of the
essence of the proceedings or is prescribed for the protection or benefit of the party affected, is
mandatory." 7 The petitioners, however, take the contrary view, pointing to the case of Lota vs. Tolentino (90
Phil. 831) to argue that the said section involves only a procedural requirement (Petitioners' Brief, p. 16). A
reading of the said case shows that the nature of the action filed by the plaintiff was purely personal since it
was for accounting and liquidation of the partnership, and on defendant's death, the claim was extinguished.

In any case, substitution should be ordered even after judgment has been rendered since proceedings may
still be taken as was done in this case — like an execution; and the legal representative must appear to
protect the interests of the deceased and in all such proceedings. 8 In this instance, however, the Court of
Appeals found that there is "no showing that the appellant's were notified of the decision dated March 29,
1962 or of the auction sale held thereafter. 9 Petitioners take issue with the Appellate Court on this point. But
since the present petition is for review on certiorari, where "only questions of law may be raised," (R. 45,
Sec. 2, Revised Rules of Court), this Court has held in a number of cases that findings of facts by the Court
of Appeals are; in general, final and conclusive (Chan vs. Court of Appeals, 33 SCRA 737; Ramirez Te.
Corp. vs. Bank of America, 32 SCRA 191; Castro vs. Tamporong 78 Phil. 804 to name a few), except
when: 10

1 the conclusion is a finding grounded entirely on speculation,

2 the inference made is manifestly mistaken, absurd or impossible;

3 there is a grave abuse of discretion

 4 the judgment is based on a misapprehension of facts;

5 the Court of Appeals is making its findings, went beyond the issues of the case and the
same are contrary to the submission of both appellant and appellee.

None of the above exceptions however applies to the case at bar, so there is no reason to disturb the
findings of the Court of Appeals.

Petitioners also contend that since two of the private respondents were co-respondents with their father in
the complaint before the Court of Agrarian Relations, petitioners "believe that they were supposed to have
represented their father in the appeal to the Supreme Court. "Likewise, they maintain that the decision of the
Court in the said appeal operated as res judicata on all matters which might have been litigated and decided
before the judgment became final (pp. 79, rollo).

With reference to the first objection, it is worthy to note that the herein private respondents were sued in their
individual capacity for their separate and respective obligations. The dismiss of he appeal by the Supreme
Court for failure of the petitioners to file their brief or memorandum within the prescribed period could not,
therefore, bar the heirs of the deceased from questioning all the proceedings particularly if the fact is
considered that there could not have been a final judgment on the merits since in the first place, jurisdiction
over the deceased defendant was lacking in the lower court, as heretofore shown. Accordingly there can be
no res judicata as contended by petitioner. 11

IN VIEW OF THE FOREGOING, We hereby affirm the decision of the Court of Appeals, No pronouncement
as to costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Fernandez, Guerrero and Melencio Herrera, JJ., concur.

#Footnotes

1 Pp. 20-23, Rollo.

2 Appendix A, Petitioners' Brief, pp, 19-20.

3 Brief for the Petitioners, pp. 2-4.

4 P. 26, Rollo.

5 Caseñas vs. Resales, 19 SCRA 496-497.

6 Vda. de de Mesa vs. Mencias, 18 SCRA 540.

7 Ibid., p. 542, citing Gonzaga, Statutes & Their Construction, P. 98.

8 Moran, Rules of Court, 1970 Ed. Vol I, p. 208.

9 Brief for Petitioners, Appendix A, p. 24.

10 Ramos vs. Court of Appeals, 63 SCRA 331.

11 The second requisite of res judicata is that the rule that the court rendering the final
judgement or order must have jurisdiction over subject matter and over the parties. See
Dacosin vs. Court of Appeals, 80 SCRA 89; Municipality of Hagonoy vs. Secretary of
Agriculture and Natural Resources, 73 SCRA 507; Philippine Commercial and Industrial
Bank vs. Pfleider, 65 SCRA 13.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-54281 March 19, 1990

CELSO PAGTALUNAN and PAULINA P. PAGTALUNAN, petitioners,

vs.
HON. ROQUE A. TAMAYO, Presiding Judge of the CFI of Bulacan, Branch VI, REPUBLIC OF THE
PHILIPPINES and TURANDOT, TRAVIATA, MARCELITA, MARLENE PACITA, MATTHEW and
ROSARY, all surnamed ALDABA, respondents.

Emilio G. Garcia for petitioners.

CORTES, J.:

On January 17, 1978, respondent Republic of the Philippines filed a complaint with the Court of First
Instance of Bulacan for expropriation of a parcel of land located in Bo. Tikay, Malolos, Bulacan, and owned
by private respondents herein as evidenced by TCT No. 24006, issued by the Register of Deeds of the
province of Bulacan [Petition, p. 2; Rollo, p. 10]. The complaint was docketed as Civil Case No. 5257-M and
entitled "Republic of the Philippines v. Turandot Aldaba, et al."

On March 2, 1978, the Court of First Instance issued a writ of possession placing the Republic in possession
of the land, upon its deposit of the amount of Seven Thousand Two Hundred Pesos (P7,200.00) as
provisional value of the land. On June 8, 1978, petitioners herein filed a supplemental motion for leave to
intervene, with complaint in intervention attached thereto, alleging that petitioner Celso Pagtalunan has been
the bona fide agricultural tenant of a portion of the land. Petitioners asked the trial court to order payment to
Celso Pagtalunan of just compensation for his landholding or, in the alternative, to order payment of his
disturbance compensation as bona fide tenant in an amount not less than Fifteen Thousand Pesos
(P15,000.00) per hectare.

On December 8, 1978, respondent Judge Roque A. Tamayo issued an order denying the petitioners'
supplemental motion, holding that to admit petitioners' complaint in intervention would be tantamount to
allowing a person to sue the State without its consent since the claim for disturbance compensation is a
claim against the State. On January 12, 1979, petitioners filed a motion for reconsideration but this was
denied by respondent judge in an order dated February 13, 1979.

On July 23, 1980. the instant petition was filed and was docketed as G.R. No. 54281. On January 14, 1981,
this Court issued a resolution denying the instant petition for lack of merit. On March 10, 1981, petitioners
filed a motion for reconsideration, limiting the discussion on the issue of lack of jurisdiction of the trial court
over the expropriation case. On August 19, 1981, this Court issued a resolution granting the motion for
reconsideration and gave due course to the petition.

Meanwhile on December 22, 1978, the Office of the Solicitor General filed in behalf of the Republic of the
Philippines a notice of appeal, as well as a first motion for extension of thirty (30) days from January 12,
1979 within which to file record on appeal which was granted by respondent court. The Solicitor General
was appealing from that portion of the December 8, 1978 decision of the Court of First Instance which fixed
the compensation for the land expropriated at Thirty Pesos (P30.00) per square meter. Counsel for private
respondents filed an objection to the public respondent's record on appeal claiming that the same was filed
beyond the reglementary period. On August 13, 1979 the Court of First Instance dismissed the appeal
interposed by the Republic. The Office of the Solicitor General moved for reconsideration but this was
denied for lack of merit. Thereafter, public respondent filed with the Court of Appeals a petition for certiorari,
prohibition and mandamus with preliminary injunction seeking the annulment of the orders of the Court of
First Instance. On April 29, 1980, the Court of Appeals rendered a decision dismissing public respondent's
petition. On October 24, 1980, public respondent filed with this Court a petition, docketed as G.R. No.
54886, asking this Court to annul the decision of the Court of Appeals and to direct and compel the lower
court to approve the Government's record on appeal and to elevate the same to the Court of Appeals. In a
decision dated August 10, 1981, the Court granted the petition and directed the trial court to approve the
Government's record on appeal and to elevate the same to the Court of Appeals.

I.
The principal issue raised in the petition centers on the alleged right of petitioners to intervene in the
expropriation proceedings instituted by the State against private respondents as registered owner of the
subject property.

Intervention is not a matter of right but may be permitted by the courts when the applicant shows facts which
satisfy the requirements of the law authorizing intervention [Gibson v. Revilla, G.R. No. L-41432, July 30,
1979, 92 SCRA 219]. Under Section 2, Rule 12 of the Revised Rules of Court, what qualifies a person to
intervene is his possession of a legal interest in the matter in litigation, or in the success of either of the
parties, or an interest against both, or when he is so situated as to be adversely affected by a distribution or
other disposition of property in the custody of the court or an officer thereof. The Court has ruled that such
interest must be actual, direct and material, and not simply contingent and expectant [Garcia v. David, 67
Phil. 279 (1939); Batama Farmer's Cooperative Marketing Association, Inc. v. Rosal, G.R. No. L-30526,
November 29, 1971, 42 SCRA 408; Gibson v. Revilla, supra].

In the present case, petitioners claim that Celso Pagtalunan possesses legal interest in the matter in
litigation for he, not private respondents herein, is the party entitled to just compensation for the subject
property sought to be expropriated or, in the alternative, disturbance compensation as a bona fide tenant
based on Section 36 (1) of Rep. Act No. 3844, as amended by Rep. Act No. 6389.

Petitioners base their claim for just compensation on Certificate of Land Transfer No. NS-054560 issued to
them, where the tenant farmer/grantee is "deemed owner" of the agricultural land identified
therein. * Petitioners contend that the certificate is a muniment of title evidencing their legal ownership of a
portion of the subject property. Thus, they conclude that they are entitled to a portion of the proceeds from
the expropriation proceedings instituted over the subject property.

There is no merit to the above contention.

The Court is fully aware that the phrase "deemed to be the owner" is used to describe the grantee of a
certificate of land transfer. But the import of such phrase must be construed within the policy framework of
Pres. Decree No. 27, and interpreted with the other stipulations of the certificate issued pursuant to this
decree.

Pres. Decree No. 27 (otherwise known as the "Tenant Emancipation Decree") was anchored upon the
fundamental objective of addressing valid and legitimate grievances of land ownership giving rise to violent
conflict and social tension in the countryside. More importantly, it recognized the necessity to encourage a
more productive agricultural base of the country's economy. To achieve this end, the decree laid down a
system for the purchase by small farmers, long recognized as the backbone of the economy, of the lands
they were tilling. Landowners of agricultural lands which were devoted primarily to rice and corn production
and exceeded the minimum retention area were thus compelled to sell, through the intercession of the
government, their lands to qualified farmers at liberal terms and conditions. However, a careful study of the
provisions of Pres. Decree No. 27, and the certificate of land transfer issued to qualified farmers, will reveal
that the transfer of ownership over these lands is subject to particular terms and conditions the compliance
with which is necessary in order that the grantees can claim the right of absolute ownership over them.

A certificate of land transfer issued pursuant to Pres. Decree No. 27 provides:

xxx xxx xxx

I, Ferdinand E. Marcos, President of the Philippines, declare

that _________ having manifested his desire to own the land under his cultivation and
having complied with the implementing rules and regulations of the Department of Agrarian
Reform, is hereby deemed to be the owner of the agricultural land described as follows:

xxx xxx xxx

subject to the conditions that the cost of the portion herein transferred to the tenant farmer as
fixed by the authorities concerned, including the interest rate at the rate of six percentum
(6%) per annum shall be paid by the tenant farmer in fifteen (15) equal annual amortization,
that the tenant framer must be a member of a Barrio Association upon organization of such
association in his locality, and that the title to the land herein shall not be transferred except
by hereditary succession or to the Government in accordance with the provisions of
Presidential Decree Number 27, the Code of Agrarian Reform and other existing laws and
regulations.

xxx xxx xxx

[Annex "B" to the Petition; Rollo, p. 26, Emphasis supplied].

And under Pres. Decree No. 266 which specifies the procedure for the registration of title to lands acquired
under Pres. Decree No. 27, full compliance by the grantee with the abovementioned undertakings is
required for a grant of title under the Tenant Emancipation Decree and the subsequent issuance of an
emancipation patent in favor of the farmer/grantee [Section 2, Pres. Decree No. 226]. It is the emancipation
patent which constitutes conclusive authority for the issuance of an Original Certificate of Transfer, or a
Transfer Certificate of Title, in the name of the grantee.

Hence, the mere issuance of the certificate of land transfer does not vest in the farmer/grantee ownership of
the land described therein. The certificate simply evidences the government's recognition of the grantee as
the party qualified to avail of the statutory mechanisms for the acquisition of ownership of the land tilled by
him as provided under Pres. Decree No. 27. Neither is this recognition permanent nor irrevocable. Failure on
the part of the farmer/grantee to comply with his obligation to pay his lease rentals or amortization payments
when they fall due for a period of two (2) years to the landowner or agricultural lessor is a ground for
forfeiture of his certificate of land transfer [Section 2, Pres. Decree No. 816].

Clearly, it is only after compliance with the above conditions which entitle a farmer/grantee to
an emancipation patent that he acquires the vested right of absolute ownership in the landholding — a right
which has become fixed and established, and is no longer open to doubt or controversy [See definition of
vested right" or "vested interest" in Balbao v. Farrales, 51 Phil. 498 (1928); Republic of the Philippines v. de
Porkan, G.R. No. 66866, June 18, 1987, 151 SCRA 88]. At best, the farmer/grantee, prior to compliance
with these conditions, merely possesses a contingent or expectant right of ownership over the landholding.

In the present case, the State in the exercise of its sovereign power of eminent domain has decided to
expropriate the subject property for public use as a permanent site for the Bulacan Area Shop of the
Department of Public Works and Highways. On the other hand, petitioners have not been issued
an emancipation patent. Furthermore, they do not dispute private respondents' allegation that they have not
complied with the conditions enumerated in their certificate of land transfer which would entitle them to a
patent [See Private Respondents' Comment, p. 3; Rollo, p. 34. And also Memorandum of Private
Respondents, p. 6; Rollo, p. 109]. In fact, petitioners do not even claim that they had remitted to private
respondents, through the Land Bank of the Philippines, even a single amortization payment for the purchase
of the subject property.

Under these circumstances, petitioners cannot now successfully argue that Celso Pagtalunan is legally
entitled to a portion of the proceeds from the expropriation proceedings corresponding to the value of the
landholding.

Anent petitioners' claim for disturbance compensation, the Court finds that the law cited by petitioners,
Section 36 (1) of Rep. Act No. 3844, as amended by Rep. Act No. 6389, cannot be invoked to hold the State
liable for disturbance compensation [See Campos v. CA, G.R. No. 51904, October 1, 1980] where this Court
by resolution denied for lack of merit therein petitioner's claim that, as agricultural lessee or tenant, he was
entitled to disturbance compensation against the State. It refers to situations where the peaceful enjoyment
and possession by the agricultural tenants or lessees of the land is disturbed or interrupted by the
owner/lessor thereof. Paragraphs 1 to 7 of the said section enumerate the instances when the lessees may
be evicted by the owner/lessor, and paragraph 1 thereof provides that lessees shall be entitled to
disturbance compensation from the owner/lessor, if the land will be converted by the latter into a residential,
commercial or industrial land. Thus, Section 36 (1) of Rep. Act No. 3844, as amended, deals with the liability
of an owner/lessor to his agricultural tenant/lessee and cannot be invoked to make the State liable to
petitioners herein for disturbance compensation.

Nor may petitioners invoke this section as basis to hold private respondents liable for disturbance
compensation. Section 36 (1) of Rep. Act No. 3844, as amended, is applicable only when it is the
owner/lessor who voluntarily opts for the conversion of his land into non-agricultural land. In the present
case, it is the State, not the private respondents, who disturbed petitioners' possession of the subject
property. The conversion of the property into a permanent site for the Bulacan Area Shop of the Department
of Public Works and Highways was undertaken by the government independent of the will of private
respondents herein.

Parenthetically, it should be noted that the government has already paid petitioner Celso Pagtalunan
approximately FIVE THOUSAND PESOS (P5,000.00) to compensate the latter for improvements introduced
on the property, and expenses for relocating his home [Petitioners' Reply to the Opposition to their Motion
for Reconsideration, p. 2; Rollo, p. 98. And also Private Respondents' Comment, p. 3; Rollo, p. 93].

Considering, therefore, that petitioners are not entitled to just compensation for the expropriation of the
subject property, nor to disturbance compensation under Rep. Act No. 3844, as amended, the Court finds
that the trial court committed no reversible error in denying petitioners' motion for leave to intervene in the
expropriation proceedings below.

II.
On the issue of jurisdiction, petitioners contend that since their motion to intervene alleges as justification
therefor that petitioner Celso Pagtalunan is the bona fide tenant of the subject property, the case should
have been referred to the Court of Agrarian Relations which has original and exclusive jurisdiction over
expropriation proceedings for public purpose of all kinds of tenanted properties.

The Court finds no reason to dwell on this point. The issue of what court has jurisdiction over the
expropriation proceedings in this case has been rendered moot and academic by B.P. Blg. 129. Under
Paragraph 7, Section 19 of B.P. Blg. 129, all civil actions and special proceedings which were then under
the exclusive jurisdiction of the Court of Agrarian Relations were placed under the exclusive and original
jurisdiction of the Regional Trial Courts [formerly the Courts of First Instance].

WHEREFORE, the present petition is hereby DENIED for lack of merit.

SO ORDERED.

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

Footnotes

* Although the CLT was issued in the name of Paulina Pagtalunan, petitioners allege that it is
petitioner Celso Pagtalunan who is the bona fide tenant of the subject property and that the
CLT was only erroneously issued to Paulina. Paulina herself has admitted the error and
expressed her willingness to transfer the said CLT in the name of her brother Celso. At the
time the present petition was filed, petitioners have commenced proceedings in the Bulacan
District Office of the Department of Agrarian Reform for the reissuance of subject CLT in the
name of petitioner Celso Pagtalunan as the rightful grantee [See Annex "A" to Memorandum
of Private Respondents, p. 3; Rollo, p. 114].

FIRST DIVISION

March 29, 2017

G.R. No. 192345

LAND BANK OF THE PHILIPPINES, Petitioner

vs
SPOUSES ESTEBAN and CRESENCIA CHU,, Respondents

DECISION

DEL CASTILLO, J.:

Petitioner Land Bank of the Philippines (LBP) is assailing the January 18, 2010 Decision1 of the Court of
Appeals (CA) in CA G.R. SP No. 93518 over the amount of just compensation awarded to respondents
Esteban and Cresencia Chu, as well as its May 24, 2010 Resolution2 which denied LBP's Motion for
Reconsideration of the said Decision.

Factual Antecedents

Respondents were the registered owners of two parcels of agricultural land located in San Antonio, Pilar,
Sorsogon which were acquired by the government pursuant to its agrarian reform program.3 The first parcel
of land covered by Transfer Certificate of Title (TCT) Nos. T-27060 and 27062 and with an area of 14.9493
hectares (14.9493 has.) was acquired under Presidential Decree No. 274 (PD 27-acquired land) and initially
valued by the LBP at ₱l77,657.98.5 The second parcel of land covered by TCT No. T-27060 (pt.) was
acquired under Republic Act No. 66576 (RA 6657-acquired property) and has an area of 7.7118 hectares
(7.7118 has.). LBP valued the same at ₱263,928.57.7

Respondents rejected LBP's valuation; hence summary administrative proceedings were conducted before
the Provincial Agrarian Reform Adjudication Board (PARAD) to determine the just compensation. The
administrative proceedings were docketed as Land Valuation Case No. LV-30-'03 for the RA 6657-acquired
property and Land Valuation Case No. LV-48-'03 for the PD 27- acquired land.

Ruling of the Provincial Agrarian Reform Adjudicator

On April 11, 2003, the PARAD issued two separate Decisions8 recomputing the valuations arrived at by the
LBP. The PARAD recomputed the value of the RA 6657-acquired property at ₱1,542,360.00 (or
₱200,000.00/ha.) based on the comparable sales transaction of similar nearby lots as well as Municipal
Resolution No. 79, series of2002, declaring Hacienda Chu as industrial area. In addition, it considered the
subject property's good production, topography, and accessibility. As regards the PD 27-acquired land, the
PARAD valued the subject property at ₱983,663.94 using the formula: Land Value= AGP x ASP x 2.5 (or
Average Gross Production of 75.2 x Actual Support Price of ₱350.00 x 2.5).

LBP's Motion for Reconsideration was denied by the DARAB in its June 19, 2003 Order.9

Ruling of the Regional Trial Court (RTC) as Special Agrarian Court (SAC)

Dissatisfied, LBP filed a Petition for Determination of Just Compensation before the RTC of Sorsogon City,
Branch 52, docketed as Civil Case No. 2003- 7205.10

In its September 21, 2005 Decision,11 the RTC fixed the just compensation at ₱2,313,478.00 for the RA
6657-acquired property and ₱1,155,173.00 for the PD 27-acquiredland.12

In arriving at these amounts, the RTC took cognizance of the factors considered by the LBP and the
PARAD. In addition, it considered the "potentials" of the subject properties, to wit:

The Court considers the decision of the Provincial Adjudicator of Sorsogon, the testimony of the witnesses
presented by the Private Respondent namely the Secretary of the Sangguniang Bayan and the Municipal
Assessor of the Municipality of Pilar, Sorsogon who testified on the Municipal Ordinance/Resolution
specifically declaring x x x the land of the private respondents including the subject landholding x x x is the
subject [of] Municipal Expansion for Agri-Economic Cum Industrial Area. The Court also consider[ed] the
applicable law and jurisprudence on the matter in arriving [at] the just compensation of the subject property.
The Court further consider[ed] the present economic condition of the country as well as the present
assessed value of the acquired property. The suqject property is very near the industrial center that was
planned by the local government thus transforming the area adjacent to the acquired property into an
economic hub of the province of Sorsogon partly thru industrial program, eco-tourism development and
agricultural productivity into an Agri-Economic Zone to serve as the backbone of a comprehensive and
sustainable program of community[;] thus it will provide enormom: livelihood opportunities and tremendous
economic multiplier effect not only for residents of barangay San Antonio (Sapa) but also for the entire
citizenry of Pilar, Sorsogon.

According to the answer filed by the private respondents, the property is fully planted to coconut (TCT-T-
27060) and only more or less 20 meters away from the provincial road and is more or less half [a] kilometer
away from the barangay poblacion. These characteristics are likewise true [for] TCT No. T- 27062. That the
area covered under P.D. 27 yields an average of 73 sacks of clean palay per harvest while that covered
under R.A. 6657 x x x yields an average of 10 nuts per tree every 45 days at 110 fruit[-]bearing trees per
hectare. For all the foregoing potentials of the property, the Court not only took into consideration the
amount of just compensation fixed by the Provincial Adjudicator of Sorsogon but further took into account
such potentials of the acquired property which can command a price of not less than ₱l00,000.00 per
hectare. The Provincial Adjudicator valued the 7.7118 hectares acquired under TCT No. T-27060 [at]
₱l,542,360.00 under R.A. 6657 while that portion acquired inside the property titled under TCT No. T-27062
[at] ₱983,663.94 under P.D. 27 and considering the potentials of the. land in terms of the enormous
livelihood opportunities and tremendous economic multiplier effect not only for the residents of [B]arangay
San Antonio but also the entire municipality of Pilar, Sorsogon, the Court further valued the acquired
property in the amount of ₱l00,000.00 per hectare. Adding the value of the land in terms of the fair market
value as determined by the Provincial Adjudicator of Sorsogon, which includes the value of the actual
production of the coconut trees and the palay produced, to wit: ₱l,542,360.00 and ₱983,663.94 respectively
and the potentials of the property [at] ₱l00,000.00 per hectare or the value of ₱771,118.00 for the 7.7118
hectares and ₱l71,510.00 for the 1.7151 hectares, we get the total of ₱2,313,478.00 as just compensation
for the 7.7118 hectares and the just compensation in the amount of ₱1,155,173.94 for the 1.7151 hectares.13

The dispositive portion of the RTC Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered:

1) Fixing the amount of TWO MILLION THREE HUNDRED THIRTEEN THOUSAND FOUR HUNDRED
SEVENTY EIGHT (₱2,313,478.00)14 Pesos, Philippine Currency for the 7.711815 hectares and the amount of
ONE MILLION ONE HUNDRED FIFTY FIVE THOUSAND AND ONE HUNDRED SEVENTY THREE
(₱l,155,173.00) Pesos, Philippine currency for the 1.7151 hectares,16 to be the just compensation of said
acquired portions which agricultural land are situated [in] San Antonio (Sapa) Pilar, Sorsogon, covered by
TCT No. T-27060 and TCT No. T-27062 in the name of the Sps. Esteban and Cresencia Chu, which
property was taken by the government pursuant to the Agrarian Reform Program provided by R.A. 6657.

2) Ordering the Petitioner Land Bank of the Philippines to pay the Private Respondents the total amount of
just compensation in the sum of THREE MILLION FOUR HUNDRED SIXTY EIGHT THOUSAND AND SIX
HUNDRED FIFTY ONE (₱3,468,651.00) Pesos, Philippine currency, in the manner provided by R.A. No.
6657 by way of full payment of the said just compensation after deducting whatever amount previously
received by the Private Respondents from the Petitioner Land Bank as part of the just compensation.

3) Ordering the Private Respondents to pay whatever deficiency in the docket fees to the Clerk of Court
based on the valuation fixed by the Court.

4) Without pronouncement as to cost

SO ORDERED.17

LBP's motion for reconsideration18 was denied by the RTC in its Order19 dated February 13, 2006.

Ruling of the Court of Appeals

On appeal, the CA modified the RTC's ruling. The CA noted that the formula used by the PARAD (i.e., LV =
AGP x ASP x 2.5) in computing the valuation for the PD 27-acquired land is correct. However, the amount
used for the ASP, which is P350, is erroneous. According to the CA, the mandated ASP in Executive Order
No. 22820 (EO 228) is only P35, not P350, pursuant to our ruling in Gabatin v. Land Bank of the
Philippines.21 Moreover, the CA opined that this formula remains applicable to PD 27-acquired lands
notwithstanding the passage of RA 6657, citing as basis EO 229.22 In addition, interest at the rate of 12% per
annum must be imposed to compensate for the delay. Accordingly, it upheld LBP's valuation for the PD 27-
acquired land at ₱177 ,657.98 but awarded legal interest at the rate of 12% per annum.23

On the other hand, for the property acquired under RA 6657, the CA opined that Section 1 7 thereof, as well
as Department of Agrarian Reform Administrative Order No. 5,24 series of 1998 (DAR A.O. 05-98), must be
considered in fixing just determination. As such, the formula to be used is LV == (CNI x 0.6) + (CS x 0.3) +
(MV x 0.1) where LV is land value; CNI is capitalized net income; CS is comparable sales; and, MV is
market value per tax declaration. The alternative formula of LV = (CNI x 0.9) + (MV x 0.1) may be used if the
CS factor is not present. The CA found that although the LBP used this formula, it, however, failed to
consider the rising values of the lands in Pilar, Sorsogon which resulted from the economic developments
mentioned in the municipal resolution and the current assessment of industrial lands in the area - this,
despite the fact that evidence was presented to show that comparable sales (the CS in the formula) have
gone up to at least ₱200,000.00 per hectare. Thus, it affirmed the estimate that the RA 6657-acquired
property may be priced at ₱200,000.00 per hectare as fixed by the PARAD.25

The CA disposed of the case, thus:

IN VIEW OF THE FOREGOING, the RTC decision dated September 21, 2005 is modified in that:

1) Just compensation for the PD 27-acquired property of 14.9493 hectares shall be ₱l77,657.98 with interest
of 12 percent per annum from November 1994 until paid, and

2) Just compensation for the RA 6657-acquired property of 7.7118 hectares shall be computed at ₱200,000
per hectare, or ₱l,542,360.

The petitioner is ordered to pay the respondents the amounts as set forth herein. All other aspects of the
decision stand.

SO ORDERED.26

The LBP filed a Motion for Reconsideration27 which was denied by the appellate court in its Resolution dated
May 24, 2010.

Thus, the present Petition for Review on Certiorari.

Issues

THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW WHEN:

INSOFAR AS THE RA 6657-ACQUIRED LAND, IT DISREGARDED THE VALUATION FACTORS UNDER

SECTION 17 OF RA 6657 AND THE PERTINENT DAR ADMINISTRATIVE ORDERS IN FIXING ITS
VALUE AT ₱l,542,360.00.

B.
INSOFAR AS THE PD 27-ACQUIRED LAND, IT REFUSED TO REMAND THE INSTANT CASE TO THE
TRIAL COURT FOR A RECOMPUTATION OF ITS VALUE PURSUANT TO SECTION 17 OF RA 6657, AS
AMENDED.

C.

IT IMPOSED THE PAYMENT OF INTEREST AT 12% PER ANNUM ON THE VALUE OF THE PD 27-
ACQUIRED LAND.28

LBP's Argument

The LBP posits that the appellate court improperly relied on extraneous factors, such as the rising value of
the lands in Pilar, Sorsogon, potentials of the subject property considering its strategic location, livelihood
opportunities and economic multiplier effect to the community, in determining the just compensation for the
subject properties. The LBP insists on the mandatory application of RA 6657 vis-a-vis the formula provided
in DAR A.O. No. 05-98.

Likewise, the LBP avers that the computation of the just compensation forthe PD 27-acquired land must be
revised in view of the enactment of RA 9700.29

In particular, Section 5 thereof provides that all previously acquired lands, the valuation of which is subject to
challenge by the landowners, shall be completed and finally resolved pursuant to Section 17 of RA 6657, as
amended. LBP posits that the contested valuation of the PD 27-acquired land, should now be computed in
accordance with Section 17 of RA 6657, as amended; hence, the need to remand the case to the RTC for a
re-computation of its value.

Lastly, the LBP contends that the CA's award of 12% interest per annum is without basis. It posits that with
the enactment of RA 9700 vis-a-vis RA 6657, interest should no longer be imposed since the valuation of
the PD 27-acquired land would no longer be pegged at 1972 prices but would be brought to current values
pursuant to Section 5 of RA 9700 in relation to Section 17 of RA 6657, as amended, vis-a-vis DAR A.O.
Nos. 02-0930 and 01-10.31

Respondents did not file a comment to the Petition and were deemed to have waived the filing thereof.32

Our Ruling

We grant the Petition in part.

Only questions of law may be raised in

a Petition for Review Under Rule 45,
exceptions thereto

Under Rule 45 of the Rules of Court, only questions of law may be raised as this Court is not a trier of facts;
it is not our function to re-examine and weigh anew the evidence of the parties. This Court shall examine or
evaluate the evidence again only in the exercise of its discretion and for compelling reasons,33 as when the
judgment is based on a misapprehension of facts and when the findings of fact are conflicting.34 Here, we
find that the judgment arrived at by the PARAD and the RTC, which rulings were subsequently affirmed in
toto and with modifications, respectively, by the CA, as to the RA 6657-acquired property, was to some
extent based on a misapprehension or erroneous appreciation of facts. As regards the PARAD's and the
CA's ruling, on one hand, and the RTC's on the other, on the PD 27-acquired land, their findings thereon are
conflicting.

Additionally, the PARAD's and the CA's reliance on PD 27 and its implementing rules, which formed the
basis of their respective Decisions, are now inapplicable thereto.

RA 6657-acquired property

The LBP correctly argued that consideration of the valuation factors under Section 17 of RA 6657 and the
formula under DAR A.O. No. 05-9835 is mandatory in ascertaining just compensation for purposes of agrarian
reform cases. In Land Bank of the Philippines v. Gonzalez,36 we held that although the determination of just
compensation is fundamentally a judicial function vested in the RTC, the judge must still exercise his
discretion within the bounds of law. He ought to take into fall consideration the factors specifically identified
in RA 6657 and its implementing rules, as contained under the pertinent Administrative Orders of the DAR,
such as DAR A.O. No. 05-98, which contains the basic formula of the factors enumerated under said law.
He may not disregard the procedure laid down therein because unless an administrative order is declared
invalid courts have no option but to apply it. Otherwise, the judge runs the risk of violating the agrarian
reform law should he choose not to use the formula laid down by the DAR for the determination of just
compensation. The Court reaffirmed this established jurisprudential rule in Alfonso v. Land Bank of the
Philippines37 when it categorically gave "full constitutional presumptive weight and credit to Section 17 of
RA6657, DARAO No. 5 (1998) and the resulting DAR basic formulas."38

The Court then made the following pronouncement:

For clarity, we restate the body of rules as follows: The factors listed under Section 17 of RA 6657 and its
resulting formulas provide a uniform framework or structure for the computation of just compensation which
ensures that the amounts to be paid to affected landowners are not arbitrary, absurd or even contradictory to
the objectives of agrarian reform. Until and unless declared invalid in a proper case, the DAR formulas
partake of the nature of statutes, which under the 2009 amendment became law itself, and thus have in their
favor the presumption of legality, such that courts shall consider, and not disregard, these formulas in the
determination of just compensation for properties covered by the CARP. When faced with situations which
do not warrant the formula's strict application, courts may, in the exercise of their judicial discretion,
relaxformula's application to fit the factual situations before them, subject only to condition that they clearly
explain in their Decision their reasons (as borne by the evidence on record) for the deviation undertaken. It
is thus entirely allowable for a court to allow a landowner's claim for an amount higher than what would
otherwise have been offered (based on an application of the formula) for as long as there is evidence on
record sufficient to support the award.

xxxx

For the guidance of the bench, the bar, and the public, we reiterate the rule: Out of regard for the DAR's
expertise as the concerned implementing agency, courts should henceforth consider the factors stated in
Section 17 of RA 6657, as amended, as translated into the applicable DAR formulas in their determination of
just compensation for the properties covered by the said law. If, in the exercise of their judicial discretion,
courts find that a strict application of said formulas is not warranted under the specific circumstances of the
case before them, they may deviate or depart therefrom provided that this departure or deviation is
supported by a reasoned explanation grounded on the evidence on record. In other words, courts of law
possess the power to make a final determination of just compensation.39

Be that as it may, we cannot sustain LBP's valuation of ₱263,928.57 as just compensation for the RA 6657-
acquired property for failure to substantiate the same.

In Land Bank of the Philippines v. Livioco,40 we held that "in determining just compensation, LBP must
substantiate its valuation." This pronouncement is a reiteration of our ruling in Land Bank of the Philippines
v. Luciano41 that:

Clearly, Land Bank's valuation of lands covered by CARL is considered only as an initial determination,
which is not conclusive, as it is the RTC, sitting as a [SAC], that should make the final determination of just
compensation, taking into consideration the factors enumerated in Section 17 of RA 6657 and the applicable
DAR regulations. Land Bank's valuation had to be substantiated during the hearing before it could be
considered sufficient in accordance with Section 17 of RA No. 6657 and DAR AO No. x x x (Emphasis
supplied)

In this case, we hold that the LBP was not able to justify its valuation. Although the LBP maintained that it
stringently applied the pertinent law and its relevant implementing rules in arriving at its computation, it failed
to adduce sufficient evidence to prove the truthfulness or correctness of its assertions. Its Formal Offer of
Exhibits, and the reasons therefor, consisted only of the following:

1) Exhibit A-Field Investigation Report for the 7.7118 hectares

- To prove that an actual investigation of the area subject matter of the case was conducted and participated
by the personnel of the Department of Agrarian Reform, Land Bank of the Philippines and the representative
of the Agrarian Reform Committee that will show the actual condition of the property at the time of the
voluntary offer of the landowner of her property to the government;

2) Exhibit B - Market Value per Ocular Inspection for the 7.7118 hectares

- To prove where the location adjustment factor is taken which is used in the computation of valuation

xxxx

4) Exhibit D - Claims Valuation and Processing Form for the 7.7118 hectares

- To show the detailed computation/valuation made on the properties subject matter of this case under DAR
Administrative Order No. 5, series of 1998 using the formula LV = (CNI x .90) + (MV x .10)
- To show the date of receipt of LANDBANK of the claim folder from the Department of Agrarian Reform
which is used as the basis [in] determining the average price of the crops found in the property at the time of
the field investigation/ocular inspection

xxxx

7) Exhibit G - PCA Municipal Selling Price for Coconut (Sorsogon Province)

- T[o] show the average selling price of copra per kilo for the municipality of Pilar[,] Sorsogon for the period
October 2001 to September 2002 which is P9.97 per kilo.42 (Emphasis supplied)

The LBP used the formula LV = (CNI x. 90) + (MV x .10). Concededly, it was able to sufficiently establish the
Capitalized Net Income (CNI) factor43 of the formula. However, the same is not true regarding the Market
Value (MV) component thereof While the CNI factor, as computed in the Claims Valuation and Processing
Form (Claims Form), finds support from and can be adequately explained by a simple perusal of the
documents forming part of the records of this case,44 the MV component, on the other hand, does not have
any similar support and basis as a thorough search of the records failed to produce the same.

The Claims Form, which the LBP insists embodies a detailed computation using the formula earlier cited, did
not reflect how the data and figures were arrived at and if they were indeed correct. The LBP did not present
any testimonial evidence before the RTC which could explain or corroborate how it came up with the figures
and what credence ought to be accorded to them. All that the Claims Form showed is the LBP's
computation, and nothing more. As we held in Land Bank of the Philippines v. Livioco,45 "the computation in
the Form may be mathematically correct, but there is no way of knowing if the values or data used in the
computation are true." For this reason we cannot uphold the LBP's valuation. Besides, LB P's Formal Offer
of Exhibits was admitted only when respondents failed to offer any objection. In any case, even considering
the absence of objection on the part of respondents, LBP must still prove the basis and correctness of its
computation. LBP miserably failed in this regard.

We cannot agree to the valuations fixed by the PARAD and the RTC, valuations that found their way into
rulings that were affirmed in toto and with modification by the CA, respectively. These rulings were arrived at
in clear disregard of the formula set forth under DAR A.O. No. 05-98. As borne out by their respective
Decisions, these tribunals considered only the Comparable Sales (CS) factor to the exclusion of the other
factors, namely, the CNI and MY.

Aggravating the situation, the CS factor was not determined pursuant to the guidelines laid down in DAR
A.O. No. 05-98. Respondents merely submitted a notarized Deed of Absolute Sale between them and
Wilson Tarog reflecting an amount of ₱200,000.0046 per hectare. A second notarized Deed of Voluntary
Land Transfer executed between Rudy Balisalisa and Abegail Sapanza was submitted fixing the amount per
hectare at ₱241,462.00.47 Additionally, respondents proffered in evidence Municipal Resolution No. 79,
Series of2002,48 declaring the intent of Pilar, Sorsogon to develop Hacienda Chu as an agri-economic-
industrial site in accordance with its town expansion program. All of these, however, are irrelevant as DAR
A.O. No. 05-98 itself categorically enumerates the guidelines for determining the CS factor, thus:

C. 1. The following rules shall be observed in the computation of CS:

a. As a general rule, there shall be at least three (3) Sales Transactions.

- At least one comparable sales transaction must involve land whose area is at least ten percent (10%) of
the area being offered or acquired but in no case less than one hectare. The other transaction/s should
involve land whose area is/are at least one hectare each.

b. If there are more than three (3) STs available in the same barangay, all of them shall be considered.

c. If there are less than three (3) STs available, the use of STs may be allowed only if AC and/or MVM are/is
present.

xxxx

C. 2. The criteria in the selection of the comparable sales transactions (ST) shall be as follows:

a. When the required number of STs is not available at the barangay level, additional STs may be secured
from the municipality where the land being offered/covered is situated to complete the required three
comparable STs. In case there are more STs available than what is required at the municipal level, the most
recent transactions shall be considered. The same rule shall apply at the provincial level when no STs are
available at the municipal level. In all cases, the combination of STs sourced from the barangay, municipality
and province shall not exceed three transactions.
b. The land subject of acquisition as well as those subject of comparable sales transactions should be
similar in topography, land use, i.e., planted to the same crop. Furthermore, in case of permanent crops, the
subject properties should be more or less comparable in terms of their stages of productivity and plant
density.

c. The comparable sales transactions should have been executed within the period January 1, 1985 to June
15, 1988, and registered within the period January 1, 1985 to September 13, 1988.

d. STs shall be grossed up from the date of registration up to the date of receipt of CF by LBP from DAR for
processing, in accordance with Items II.A.9.

Respondents presented only two comparable sales transactions. This falls short of the requirements of
DARA.O. No. 05-98.

The PARAD erroneously considered the municipal resolution as the third comparable sales transaction
when it noted and held that:

x x x And, last is a Municipal Resolution No. 79 Series of 2002 declaring the entire Hacienda Chu [in] San
Antonio Sapa, Pilar, Sorsogon as Town Expansion and classified the same as an Industrial Area (Annex
"C"). That the subject property is very productive, with good location, very near x x x the Poblacion, and,
accessible by land and water x x x

It is a well-settled rule that in determining the valuation of the properties a comparable sale transaction of
similar nearby places is admissible in evidence x x x. Thus from the evidence submitted by the landowner,
the Board is convinced that the valuation by the Land Bank of the Philippines is in fact unreasonable,
considering that the subject property [has] good production, topography and [is] accessible on both land and
water. The Board however cannot grant the prayer for Three Hundred Fifty Thousand Pesos per hectare
considering that in comparable sales transactions the Board can only grant the lowest among those
presented as [evidence]. And, therefore the Board can only grant the amount of Two Hundred Thousand
Pesos per hectare (Annex A).49 (Emphasis supplied)

The municipal resolution could not in any manner be regarded as a comparable sales transaction precisely
because no sale transaction ever took place. At best, the said resolution merely manifested the formal
intention of the local government of Pilar to acquire certain portions of the subject properties.

Equally glaring is the fact that none of the tribunals below took into full consideration the factors laid down in
Section 17 of RA 6657 - a necessary requirement which no court of law is at liberty to disregard if sound
judicial discretion is to be exercised at all in determining just compensation. Instead, this Court notes that the
RTC, not to mention the CA, primarily took account of an extraneous factor- potentials of the land- to justify
the award of ₱200,000.00 per hectare. Discounting respondents' evidence on the comparable sales
transactions, the potentials of the landholding may then be said to have become the main factor supporting
the valuation thereof This conclusion is even borne out by the Decisions of the PARAD, the RTC, and the
CA whose discussions centered thereon. However, this Court has a]ready reiterated in Land Bank of the
Philippines v. Livioco50 that, such factor, standing alone, has already been dismissed as improper basis for
assessing the just compensation in the expropriation of agricultural lands. Thus:

x x x While the potential use of an expropriated property is sometimes considered in cases where there is a
great improvement in the general vicinity of the expropriated property, it should never control the
determination of just compensation (which appears to be what the lower courts have erroneously done). The
potential use of a property should not be the principal criterion for determining just compensation for this will
be contrary to the well-settled doctrine that the fair market value of an expropriated property is determined
by its character and its price at the time of taking, not its potential uses. If at all, the potential use of the
property or its "adaptability for conversion in the future is a factor, compensation.51 (Emphasis supplied)

Despite the foregoing, the PARAD, the RTC, and the CA, proceeded to rule in respondents' favor on the
basis of their evidence and, with meager evidence to support their pronouncements, pegged the price of the
RA 6657-acquired property at ₱200,000.00 and ₱300,000.00, respectively, per hectare. We cannot uphold
the same.

As may be gleaned from the above discussion, the respective evidence of both parties are insufficient to
enable this Court to come up with a correct computation on the just compensation to which respondents are
entitled. However, as this Court is not a trier of facts, this Court cannot receive new evidence from the
parties that would aid or assist it in the prompt resolution of this case. Thus, this Court is constrained to
remand the case to the RTC for the reception of evidence and the determination of just compensation in
accordance with our pronouncement in Alfonso v. Land Bank of the Philippines.52

PD 27-acquired land

a. Remand case to the RTC for determination of just compensation

b. Award of interest

a. Remand case to the RTC for determination of just compensation

The appellate court also incorrectly ruled that the formula under EO 228 should be followed for purposes of
computing just compensation in relation to PD 27-acquired lands. Citing Land Bank of the Philippines v.
Imperial,53 the CA held that the guidelines provided under PD 27 and EO 228 remained operative despite the
passage of RA 6657 given that EO 229 states that PD 27 shall continue to operate with respect to rice and
com lands.

In a number of cases, such as Land Bank of the Philippines v. Hon. Natividad,54 Lubrica v. Land Bank of the
Philippines,55 Land Bank of the Philippines v. Gallego, Jr.,56 Land Bank of the Philippines v. Heirs of Jvfaximo
and Gloria Puyat,57 and Land Bank of the Philippines v. Santiago, Jr.,58 we definitively ruled that when the
agrarian reform process is still incomplete as the just compensation due the landowner has yet to be settled,
just compensation should be determined, and the process concluded, under Section 17 of RA 6657, which
contains the specific factors to be considered in ascertaining just compensation, viz.:

SECTION 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, the assessment
made by government assessors shall be considered. The social and economic benefits contributed by the
fanners 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.

In Land Bank of the Philippines v. Gallego, Jr.,59 we explained that:

The Court has already ruled on the applicability of agrarian laws, namely, P.D. No. 27/E.O. No. 228 in
relation to Republic Act (RA.) No. 6657, in prior Cases concerning just compensation.

In Paris v. Alfeche, the Court held that the provisions of R.A. No. 6657 are also applicable to the agrarian
reform process of lands placed under the coverage of P.D. No. 27/E.O. No. 228, which has not been
completed upon the effectivity of R.A. No. 6657. Citing Land Bank of the Philippines v. Court of Appeals, the
Court in Paris held that P.D. No. 27 and E.O. No. 228 have suppletory effect to R.A. No. 6657, to wit:

We cannot see why Sec. 18 of RA [No.] 6657 should not apply to rice and com lands under PD [No.] 27.
Section 75 of RA [No.] 6657 clearly states that the provisions of PD [No.] 27 and EO [No.] 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 (10) years from the effectivity of this Act. Lands shall
be acquired and distributed as follows:

Phase One: Rice and Com lands under P.D. 27; all idle or abandoned lands; all private lands voluntarily
offered by the owners of agrarian reform; x x x and all other lands owned by the government devoted to or
suitable foragriculture, 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 x x x.

This eloquently demonstrates that RA [No.] 6657 includes PD [No.] 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 com
lands when it upheld the constitutionality of the payment of just compensation for PD [No.] 27 lands through
the different modes stated in Sec. 18.

Particularly, in Land Bank of the Philippines v. Natividad, where the agrarian reform process in said case "is
still incomplete as the just compensation to be paid private respondents has yet to be settled," the Court
held therein that just compensation should be determined and the process concluded under R.A. No. 6657.

The retroactive application of RA. No. 6657 is not only statutory but is also founded on equitable
considerations. In Lubrica v. Land Bank of the Philippines, the Court declared that it would be highly
inequitable on the part of the landowners therein to compute just compensation using the values at the time
of taking in 1972, and not at the time of payment, considering that the government and the fanner-
beneficiaries have already benefited from the land although ownership thereof has not yet been transferred
in their names. The same equitable consideration is applicable to the factual milieu of the instant case. The
records show that respondents' property had been placed under the agrarian reform program in 1972 and
had already been distributed to the beneficiaries but respondents have yet to receive just compensation due
them. (Emphases supplied)
It bears stressing that while this case was pending, Congress enacted RA 9700 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, Othe1wise known as The Comprehensive Agrarian Reform Law of
1988, as amended, and Appropriating Funds Therefor."

Significantly, just as RA 6657 had so provided, RA 9700 also provides that it shall apply even to PD 27-
acquired lands, albeit those that are yet to be acquired and distributed by the DAR. It likewise provided for
further amendments to RA 6657, as amended, including Section 17 thereof: by including two new factors in
the determination of just compensation, namely (a) the value of the standing crop and (b) seventy percent
(70%) of the zonal valuation of the Bureau of Internal Revenue, translated into a basic formula by the DAR,
subject to the final decision of the proper court.

Nevertheless, despite the enactment of RA 9700, we take the view that this case still falls within the ambit of
Section 17 of RA 6657, as amended. To emphasize, RA 9700 applies to landholdings that are yet to be
acquired and distributed by the DAR. In addition, RA 9700 itself contains the qualification that "previously
acquired lands wherein valuation is subject to challenge," such as the landholding subject of this case, "shall
be completed and resolved pursuant to Section 17 of RA 6657, as amended,"60 thus:

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 (PARC) shall
plan and program the final acquisition and distribution of all remaining unacquired and undistributed
agricultural lands from the effectivity of this Act until June 30, 2014. Lands shall be acquired and distributed
as follows:

Phase One: During the 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 landholdings 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: Provided, That with respect to voluntary land transfer, only those submitted by June 30,
2009 shall he allowed Provided, further, That after June 30, 2009, the modes of acquisition shall be limited
to voluntary offer to sell and compulsory acquisition: Provided, furthermore, That all previously acquired
lands whereinvaluation is subject to challenge by landowners shall be completed and finally resolved
pursuant to Section 17 of Republic Act No. 6657, as amended: x x x (Emphases supplied.)

Our ruling further finds support in DAR A.0. No. 02-09, the implementing rules of RA 9700, Chapter VI
(Transitory Provision) of which specifically provides:

VI. Transito1y 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 of2003, the acquisition and distribution of landholdings shall continue
to be processed under the provisions of R.A. No. 6657 prior to its amendrp.ent by R.A. No. 9700.

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

From the foregoing, it is evident that DAR A.O. No. 02-09 requires that landholdings, the claim folders of
which had been received by LBP prior to July 1, 2009, be valued pursuant to the old Section 17 of RA 6657,
as amended,61 or prior to its further amendment by RA 9700.

Here, the Claim Folder was received on November 27, 2002, as evidenced by the Memorandum Request to
Value the Land.62 Hence, by express mandate of RA 9700 vis-a-vis DAR A.O. No. 02-09, Section 17 of RA
6657, as amended, shall apply for purposes of ascertaining just compensation.

This pronouncement finds support in the Court's ruling in Land Bank of the Philippines v. Kho,63 viz.:

Case law dictates that when the acquisition process under PD 27 is still incomplete, such as in this case
where the just compensation due to the landowner has yet to be settled, just compensation should be
determined and the process concluded under RA 6657, as amended.

For the purposes of determining just compensation, the fair market value of an expropriated property is
determined by its chan1cter and its price at the time of taking, or the time when the landowner was deprived
of the use and benefit of his property, such as when the title is transferred in the name of the beneficiaries.
In addition, the factors enumerated under Section 17 of RA 6657, as amended, i.e., (a) the acquisition cost
of the land, (b) the current value of like properties, (c) the nature and actual use of the property, and the
income therefrom, (d) the owner's sworn valuation, (e) the tax declarations, (f) the a5sessment made by
government assessors, (g) the social and economic benefits contributed by the farmers and the
farmworkers, and by the government to the property, and (h) the nonpayment of taxes or loans secured from
any government financing institution on the said land, if any, must be equally considered.

However, it bears pointing out that while Congress passed RA 9700 cm August 7, 2009, further amending
certain provisions of RA 6657, as amended, among them, Section 17, and declaring '[t]hat all previously
acquired lands wherein valuation is subject to challenge by landowners shall be completed and finally
resolved pursuant to Section 17 of [RA 6657], as amended,' DAR AO 2, series of2009, which is the
implementing rules of RA 9700, had clarified that the said law shall not apply to claims/cases where the
claim folders were received by the LBP prior to July 1, 2009. In such situation, just compensation shall be
determined in accordance with Section 17 of RA 6657, as amended, prior to its further amendment by RA
9700.

xxxx

It is significant to stress x x x that DAR AO 1, series of2010 which was issued in line with Section 31 of RA
9700 empowering the DAR to provide the necessary rules and regulations for its implementation, became
effective only subsequent to July J, 2009. Consequently, it cannot be applied in the determination of just
compensation for the subject land where the claim folders were undisputedly received by the LBP m:Jor to
July 1, 2009, and, as such, should be valued in accordance with Section 17 of RA 665] prior to its further
amendment by RA 9700 pursuant to the cut-off date set under DAR AO 2, series of 2009 (cut-off rule).
Notably, DAR AO 1, series of 2010 did not expressly or impliedly repeal the cut-0.ff rule set under DAR AO
2, series of 2009, having made no reference to any cut-off date with respect to land valuation for previously
acquired lands under PA 27 and EO 228 wherein valuation is subject to challenge by landowners.
Consequently, the application of DAR AO 1, series of 2010 should be, thus, limited to those where the claim
folders were received on or subsequent to July 1, 2009.

In this case, x x x [s]ince the claim folders were received by the LBP prior to July 1, 2009, the RTC should
have computed just compensation using pertinent DAR regulations applying Section 17 of RA 6657 prior to
its amendment by RA 9700 instead of adopting the new DAR issuance, absent any cogent justifications
otherwise. Therefore, as it stands, the RTC and the CA were duty-bound to utilize the basic formula
prescribed and laid down in pertinent DAR regulations existing prior to the passage of RA 9700, to
determine just compensation.

Nonetheless, the RTC, acting as a SAC, is reminded that it is not strictly bound by the different [formulas]
created by the DAR if the situations before it do not warrant their application. To insist on a rigid application
of the formula goes beyond the intent and spirit of the law, bearing in mind that the valuation of property or
the determination of just compensation is essentially a judicial function which is vested with the courts, and
not with administrative agencies. Therefore, the RTC must still be able to reasonably exercise its judicial
discretion in the evaluation of the factors for just compensation, which cannot be restricted by a formula
dictated by the DAR when faced with situations that do not warrant its strict application. However, the RTC
must explain and justify in clear terms the reason for any deviation from the prescribed factors and formula.
(Emphasis in the original)

b. Award of interest

We also agree with the LBP's stance that the award of compounded interest is not proper. In Land Bank of
the Philippines v. Spouses Chico,64 we held that "when just compensation is determined under R.A. No.
6657, no incremental, compounded interest of six percent (6%) per annum shall be assessed x x x as the
same applies only to lands taken under P.D. No. 27 and E.0. No. 228, pursuant to DAR A.O. No. [13-94], x x
x and not Sec. 26 of R.A. No. 6657 x x x."

The rationale for this is explained in Land Bank of the Philippines v. Court of Appeals65 to wit: that DAR A.O.
No. 13-94 aims to compensate the landowners for unearned interests because had payment been made in
1972 when the GSP for rice was pegged at ₱35.00, and this amount was deposited in a bank, it would have
earned a compounded interest of 6% per annum:

x x x Thus, if the PARAD used the 1972 GSP, then the product of (2.5 x AGP x ₱35 x x x) could be
multiplied by (l.06)n to determine the value of the land plus the additional 6% compounded interest it would
have earned from 1972. However, since the PARAD already increased the GSP from ₱35.00 to
₱300.00/cavan of palay x x x, there is no more need to add any interest thereon, much less compound it To
the extent that it granted 6% compounded interest to private respondent Jose Pascual, the Court of Appeals
erred.66 (Emphasis supplied)

If upon remand of this case the LBP is found to be in delay in the payment of just compensation, then it is
bound to pay interest. In Land Bank of the Philippines v. Santiago, Jr.,67 we ruled that interest may be
awarded in expropriation cases, particularly where delay attended the payment of just compensation. There,
we categorically stressed that the interest imposed in case of delay in payments in agrarian cases is in the
nature of damages for delay in payment which, "in effect, makes the obligation on the part of the government
one of forbearance."68 Upon this point, nothing could be any clearer than our pronouncement in Land Bank of
the Philippines v. Santiago, Jr., thus:

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

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 just 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 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.

xxxx

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. x x x69 (Emphases supplied)

Be that as it may, the LBP is bound to pay interest at 12% per annum "from the time of taking until June 30,
2013. Thereafter, or beginning July 1, 2013, until fully paid, the just compensation due the landowners shall
earn interest at the new legal rate of 6% per annum x x x.70 In Nacar v. Galley Frames,71 citing Eastern
Shipping Lines v. Court of Appeals72 which has been modified to reflect Bangko Sentral ng Pilipinas-
Monet.ary Board Circular No. 799,73 we held that:

x x x [T]he guidelines laid down in the case of Eastern Shipping Lines are accordingly modified to embody
BSP-MB Circular No. 799, as follows:

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" of
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:

l. 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.
Furthermore, 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 6% per annum to be computed from default, i.e., from
judicial or extra judicial demand under and subject to the provisions of Article 1169 of the Civil
Code. (Emphasis supplied)
1âwphi 1

Against the foregoing backdrop, a 12% interest per annum computed from the date of the taking of the
subject property until June 30, 2013, and 6% interest per annum from July 1, 2013 until fully paid, on the just
compensation to be ascertained by the RTC, shall be imposed although not specifically prayed for by
respondents. In Prince Transport, Inc. v. Garcia,74 citing BPI Family Bank v. Buenaventura,75 we recognized
that "the general prayer is broad enough to justify [the grant] of a remedy different from or together with the
specific remedy" sought. Moreover, we stressed in Prince Transport, Inc. v. Garcia that even if a specific
remedy is not prayed for, we may confer on the party the proper relief if the facts alleged in the complaint
and the evidence presented so warrant as "[t]he prayer in the complaint for other reliefs equitable and just in
the premises justifies the grant of a relief not otherwise specifically prayed for."76 This is the situation here.

Guidelines in the remand of the case

The Court notes that the date of taking of both of respondents' property cannot be reasonably ascertained
from the records of the case as neither the pleadings filed by the parties nor the Decisions rendered by the
lower tribunals contained any allegations nor findings thereon. Thus, the Court hereby resolves to order the
RTC to determine the date of taking - it being an indispensable component of just compensation - of the
subject landholdings. Accordingly, the LBP may submit in evidence the Certificates of Land Ownership
Award (for the RA 6657-acquired property) and Emancipation Patents (for the PD 27-acquired land), which
are conclusive proof of actual taking of the properties, granted to the farmer-beneficiaries of said lands.
Alternatively, it may present the Notice of Coverage, Notice of Valuation, Letter of Invitation to A Preliminary
Conference and Notice of Acquisition issued by the DAR to confirm symbolic compulsory taking of the RA
6657-acquired property.77
It bears emphasis that despite the enactment of RA 9700, the determination of just compensation for both
landholdings shall be pursuant to Section 17 of RA 6657, as amended, in view of the qualifications imposed
by RA 9700.

It must be reiterated too that the factors laid down in Section 17 of RA 6657, as amended, and the formula
as translated by the DAR in its implementing rules, are mandatory and may not be disregarded by the RTC.
Both parties are reminded that they ought to present evidence in accordance with the requirements set forth
in the relevant DAR issuances. For this reason, this Court restates that even if the landowner fails to prove a
higher amount as just compensation, the LBP must substantiate its valuation and prove the correctness of
its claims. Naturally, it behooves the LBP to present clear and convincing documentary and, if necessary,
testimonial, evidence to justify its valuation and how this was arrived at.

Moreover, as regards the RA 6657-acquired property, the RTC must be reminded that although the potential
use of an expropriated property may be factored in, especially in instances where there is a significant
improvement in the locality of the expropriated property, that factor, however, should not be the controlling
component in the determination of just compensation. Otherwise, it will run afoul of the well-settled principle
that the fair market value of an expropriated property is determined essentially by its character and by its
price at the time of taking, not by its potential uses.
1âwphi1

Finally, the RTC may not award compounded interest on the PD 27- acquired land, considering that RA
6657, which is now applicable even to landholdings covered by PD 27, does not itself expressly grant it;
what is allowed is the grant of interest in the nature of delay in payment of just compensation. Hence, the
LBP is obliged to pay interest at 12% per annum from the date of taking until June 30, 2013, and 6% per
annum from July l, 2013 until fully paid, in the event it is found to be in delay in the payment of just
compensation.

WHEREFORE, the Petition is hereby PARTLYI GRANTED. The January 18, 2010 Decision and May 24,
2010 Resolution of the Court of Appeals in CA-G.R. SP No. 93518 are REVERSED and SET ASIDE. Land
Valuation Case Nos. LV-30-'03 and LV-48-'03 are hereby REMANDED to the Regional Trial Court of
Sorsogon City, Branch 52, for the determination of the just compensation strictly in accordance 'With the
guidelines set forth in this Decision.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

MARIA LOURDES P.A. SERENO

Associate Justice
Chairperson

On official leave
TERESITA J. LEONARDO-DE CASTRO
ESTELA M. PERLAS-BERNABE*
Associate Justice
Associate Justice

ALFREDO BENJAMIN S. CAGUIOA

Associate Justice

CERTIFICATION

Pursuant to the Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s
Division.

MARIA LOURDES P.A. SERENO

Chief Justice

Footnotes

*
On official leave.
1
Rollo, pp. 45-55; penned by Associate Justice Mario L. Guariña TTI and concurred in by Associate
Justices Sesinando E. Villon and Franchito N. Diamante.
2
Id. at 56.
3
Id. at 45.
4
Entitled "Decreeing the Emancipation of Tenants from the Bondage of the Soil, Transferring to
Them the Ownership of the Land They Till and Providing the Instruments and Mechanism Therefor,"
October 21, 1972.
5
Rollo, p. 46.
6
The Comprehensive Agrarian Reform Law of 1988, June 10, 1988.
7
Rollo, p. 46.
8
Id. at 152-154; 155-157; penned by Provincial Agrarian Reform Adjudicator Manuel M. Capellan.
9
As stated in the Decision of the Regional Trial Court, id. at 124. The records of the case, however,
do not include a copy of LBP's Motion for Reconsideration filed in, and the June 19, 2003 Order of,
the DARAB.
10
Id. at 158-160.
11
Id. at 123-127; penned by Judge Honesto A. Villamor.
12
Id. at 126.
13
Id. at 125-126.
14
Applying the formula as provided by the RTC, the correct amount should have been ₱2,3 l
3,540.00.
15
The amount of ₱l00,000.00 per hectare multiplied by 7.7118 has. was added to the PARAD's
valuation of ₱1,542,360.00 for the RA 6657-acquired property.
16
The amount of ₱l00,000.00 per hectare multiplied by l.7151 has. was added to the PARAD's
valuation of ₱983,663.94 for the PD 27-acquired land. However, this valuation is e1rnneous as it
indicates the acquired area to be 1.7151 has. when the same actually measures 14.9493 has.
17
Rollo, pp. 126-127.
18
Id. at 129-133.
19
Id. at 128.
20
Id. at 51.

Entitled "Declaring Full Land Ownership to Qualified Fanner-Beneficiaries Covered by

Presidential Decree No. 27; Determining the Value of Remaining Unvalued Rice and Com
Lands Subject to Presidential Decree No. 27; and Providing for the Manner of Payment by
the Farmer-Beneficiary and Mode of Compensation to the Landowner,'' July 17, 1987.

It bears mentioning that the CA noted that the PARAD used the symbol ASP, instead of
GSP. Per the appellate court:

"The symbol we are aware of is GSP which[,] under EO 228, is government support
price. We suppose that the figure 350 used by the Provincial Adjudicator stands for an actual
support price at the time of the fixing of just compensation. See Hernandez, Alba and
Hernandez, Landowners' Rights under the Agrarian Reform Program, 2004, at 184, citing
Galleon v. Pastoral CA-G .R. No. 23168. The ASP is not mentioned in Executive Order No.
228." Rollo, p. 46.

21
486 Phil. 366, 384 (2004).

22
Entitled "Providing the Mechanisms for the Implementation of the Comprehensive Agrarian Reform
Program," July 22, 1987.
23
Rollo, p. 51.
24
The "Revised Rules and Regulations Governing the Valuation of Lands Voluntarily Offered or
Compulsorily Acquired Pursuant to Republic Act No. 6657," April 15, 1998.
25
Rollo, pp. 53-54.
26
Id. at 54-55.
27
ld. at 57-72.
28
Id. at 22-23.
29
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, Othe1wise Known as The
Comprehensive Agrarian Reform Law of 1988, as amended, and Appropriating Funds Therefor,"
August 7, 2009.
30
The "Rules and Procedures Governing the Acquisition and Distribution of Agricultural Lands Under
Republic Act No. 6657, as amended by Republic Act No. 9700," October 15, 2009.
31
The "Rules and Regulations on Valuation and Landowners' Compensation Involving Tenanted
Rice and Com Lands Under Presidential Decree No. 27 and Executive Order No. 228," February 12,
2010.
32
See Resolution of January 16, 2013, rollo, p. 278.
33
Land Bank of the Philippines v. Spouses Chico, 600 Phil. 272, 285 (2009).
34
Special People, Inc. Foundation v. Canda, G.R. No. 160932, January 14, 2013, 688 SCRA403,
413.
35
Despite the enactment of Republic Act No. 9700, which shall be discussed in detail vis-a-vis the
valuation of the PD 27-acquired land subject of this Petition, Section 17 of Republic Act No. 6657, in
relation to DAR A.O. No. 05-98, shall apply here in view of the provision contained in Republic Act
No. 9700 itself which states that "all previously acquired lands wherein valuation is subject to
challenge by landowners shall be completed and finally resolved pursuant to Section 17 of Republic
Act No. 6657, as amended." As such, the Republic Act No. 6657-acquired property in this case,
which has already been acquired by the DAR but remains unpaid, shall be computed and finally
resolved pursuant to Section 17 of Republic Act No. 6657, as amended.
36
G.R. No. 185821, June 13, 2013, 698 SCRA400, 413-414.
37
G.R. Nos. 181912 & 183347, November26, 2016.
38
Id.
39
Id.
40
645 Phil. 337, 362 (2010).
41
620 Phil. 442, 455 (2009).
42
See LBP's Formal Offer of Exhibits, CA rollo, pp. 94-95.
43
Below is the formula provided under DAR A.O. No. 05-98 to obtain the CNI:
"CNI = (AGP x SP) - CO

0.12

Where:

CNI - Capitalized Net Income

AGP - Annual Gross Production corresponding to the latest available 12-months' gross
production immediately preceding the date of FI.

SP - The average of the latest available 12-months' selling prices prior to the date of receipt
of the CF by LBP for processing, such prices to be secured from the Department of
Agriculture (DA) and other appropriate regulatory bodies, or in their absence, from the
Bureau of Agricultural Statistics. If possible, SP data shall be gathered for the barangay or
municipality where the property is located. In the absence thereof, SP may be secured within
the province or region.

CO - Cost of Operations

Whenever the cost of operations could not be obtained or verified, an assumed net income
rate (NIR) of 20% shall be used. Landholdings planted to coconut which are productive at the
time of FI shall continue to use the assumed NIR of 70%. DAR and LBP shall continue to
conduct joint industry studies to establish the applicable NIR for each crop covered under
CARP.

0.12 - Capitalization Rate"

Here, we substitute the following figures as follows:

CNI = 611.7 kg x P9.97 x 70%

0.12

CNI = ₱35,575.45

44
The Field Investigation Report, CA rollo, p. 103, indicates that the AGP of the subject property
amounts to 611. 7 kgs. The PCA Production Data for Coconut for Pilar, Sorsogon, id. at 112, on the
other hand, reflects the amount of P9.965 (or .P9.97 when rounded oft) as SP. Lastly, the Court
presumes that the cost of operations could not be obtained or verified, thus, the use of the assumed
NIR of 70% by LBP.

45
Supra note 40 at 363.
46
See PARAD Decision, rollo, p. 153.
47
Id.
48
Id.
49
Rollo, p. 153.
50
Supra note 40.
51
Id. at 357.
52
Supra note 37.
53
544 Phil. 378, 386-387 (2007).
54
497 Phil. 738, 746-747 (2005).
55
537 Phil. 571, 581-582 (2006).
56
596 Phil. 742, 753-754 (2009).
57
689 Phil. 505, 515 (2012).
58
696 Phil. 142, 156-157 (2012).
59
Supra note 56 at 753-754.
60
Land Bank of the Philippines v. Santiago, Jr., supra note 58 at 160.

It must be pointed out that "RA 6657, as amended" refers to amendments prior to those
introduced under RA 9700. This is evidenced by referring to Section 7 of RA 9700, which
further amends Section 17 of RA 6657, as amended. It 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 the zonal valuation of the Bureau of Internal Revenue (BIR),
translated into a basic formula by the DAR shall be considered, subject to the final
decision of the proper court. The social and economic benefits contributed by the
farmers and the farmworkers and by the Government t o 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.
(Emphasized portions reflect the amendments.)

The above provisions demonstrate that the Section 17 mentioned in Section 5 of RA 9700 is
the old Section 17 under RA 6657, as amended; that is, prior to further amendment by RA
9700. A perusal of the provisions of RA 9700 will establish that the old provisions, under RA
6657, are referred to as Sections under "RA 6657, as amended," as opposed to "further
amendments" under RA 9700.
61
Id. at 161.
62
CA rollo, p. 113.
63
G.R. No. 214901, June 15, 2016. See also Heirs of Pablo Feliciano, Jr. v. Land Bank of the
Philippines, G.R. No. 215290, January 11, 20)7.
64
Supra note 33 at 290.
65
378 Phil. 1248, 1265-1266 (1999).
66
Id. at 1266.
67
Supra note 58.
68
Id. at 162.
69
Id. at 162-163.
70
Department of Agrarian Reform v. Spouses Sta. Romana, 738 Phil. 590, 603 (2014).
71
716 Phil. 267, 278-279 (2013).
72
304 Phil. 236, 252-253 (1994).
73
Took effect on July 1, 2013.
74
654 Phil. 296, 314 (2011 ).
75
508 Phil. 423, 436-437 (2005).
76
Supra note 74 at 314. .
77
See Crisologo-Jose v. land Bank of the Philippines, 525 Phil. 404, 410-411 (2006).
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 152430 March 22, 2007

SAMAHANG MAGSASAKA NG 53 HEKTARYA, represented by ELVIRA M. BALADAD, Petitioner,

vs.
WILFREDO G. MOSQUERA, ROSARIO R. ROMAN, DANILO M. RELUCIO, and EDGARDO V.
GUEVARRA, Respondents.

DECISION

VELASCO, JR., J.:

This is an appeal to the Court under Rule 45 of the December 14, 2001 Decision1 of the Court of Appeals
(CA) in CA-G.R. SP No. 62583, affirming the Resolutions of the Office of the President (OP) in OP Case No.
96-116582, and exempting respondents’ 53-hectare land from the Comprehensive Agrarian Reform
Program (CARP) coverage. Also challenged is the CA’s February 26, 2002 Resolution2 rejecting petitioner’s
plea for reconsideration of the CA Decision now under review.

The Facts

Petitioner Samahang Magsasaka ng 53 Hektarya (Samahan) is an association of farmer-beneficiaries duly

recognized by the Department of Agrarian Reform (DAR). Petitioner alleged that its members had been
cultivating the disputed land of the case for many years prior to the effectivity of Republic Act No. (R.A.)
6657, otherwise known as the "Comprehensive Agrarian Reform Law" (CARL).3 Respondents Wilfredo G.
Mosquera, Rosario R. Roman, Danilo M. Relucio, and Edgardo V. Guevarra, on the other hand, are the
registered owners of three parcels of land covered by Transfer Certificate of Title Nos. T-267409, T-267410,
and T-267411, which have an aggregate area of 53.1164 hectares located in Macabud, Rodriguez (formerly
Montalban), Rizal.4 The disputed land was previously owned by Philippine Suburban Development
Corporation which planned to develop it as a residential subdivision. In 1979, it was sold to Vinebel Realties,
Inc. through an extrajudicial foreclosure sale. Petitioner alleged that in 1994, the landholding was sold to
respondents without any DAR clearance, in violation of Section 6-D of CARL.5

On July 7, 1994, the Municipal Agrarian Reform Officer (MARO) of Rodriguez, Rizal issued a Notice of
Coverage to the disputed land. On February 21, 1995, respondents applied for exemption from the coverage
of CARL based on its provision in Sec. 10, that is, the property is above 18% slope and unfit for
cultivation.6 In support of the application, respondents presented the certification from Ruben A. Cabreira,
Deputy Land Inspector, Community Environment and Natural Resources Office, Antipolo, Rizal, certifying
that the land was partly developed, sporadically planted with mangoes, guava, and other seasonal crops,
and with over 18% slope. On March 31 and August 7, 1995,7 the Regional Director of DAR-Region IV denied
respondents’ application and Motion for Reconsideration, respectively. On August 24, 1995, respondents
appealed the two Orders of the Regional Director to the DAR Secretary. On April 19 and July 9, 1996, Sec.
Ernesto D. Garilao denied the appeal and respondents’ Motion for Reconsideration, respectively.8 In his
April 19, 1996 Order, Sec. Garilao stated:

A review of all the ocular inspection / field investigation reports submitted by DAR personnel concerned
(from the municipal to the central office) reveals that the subject properties have been consistently described
as suitable to agriculture. Except for the investigation report (dated December 20, 1995) submitted by the
Legal Officer of BALA tasked to inspect the subject properties, all the ocular inspection teams which
inspected/investigated the area recommended for the coverage under CARP of the subject properties on the
ground of the subject properties’ suitability for agriculture and present agricultural development.

xxxx

As for the apparently conflicting certifications issued by the Community Environment and Natural Resources
office (CENRO) of Antipolo, Rizal, on different dates, it is the view of this Office that there is actually no
conflict between the two certifications. This is so because the certification issued by Deputy Land Inspector
Ruben A. Cabreira on October 21, 1994 refers only to one of the three lots subject of the instant petition (the
lot which used to be covered by TCT No. N-49174 with an area of 16.2204 has.). x x x The certification
issued by Geodetic Engineer III Romulo G. Unciano on January 25, 1995 on the other hand pertains to all
the lots subject of the instant petition, which were described to be "partly rolling and agricultural in nature,"
and "…planted to fruit-bearing trees." These two certifications, instead of coming into conflict with one
another, actually complement each other, the first one being a part of the other. Even assuming arguendo
that they are in conflict, it is submitted that between the two certifications, the second one should prevail
since it is not only the latest, [but] it is also more complete as it refers to all the lots subject of the instant
petition.9

On appeal to the OP, Executive Secretary Ruben D. Torres set aside the DAR Secretary’s Orders and
exempted the property from the CARL coverage through his June 25, 1997 Resolution.10 Petitioner and the
DAR subsequently filed a Motion for Reconsideration. In the meantime, the Department of Agriculture (DA),
through the Bureau of Soil and Water Management, sent two missions to conduct fieldwork and validate the
actual development in the disputed land. The findings of these missions were allegedly contained in a report
transmitted by Secretary Salvador Escudero III (Escudero Report) to Pres. Fidel V. Ramos. In sum, the
Escudero Report recommended that the disputed land be exempted from conversion since the general area
of the land, including areas with 18% slope, was physically occupied and actively used for intensive and
diversified farming.

On August 14, 1998, the OP denied petitioner’s Motion for Reconsideration.11 On September 23, 1998,
petitioner, through Elvira M. Baladad, and the DAR jointly filed a second Motion for Reconsideration which
was denied by the OP in its December 22, 2000 Resolution.12

Petitioner appealed the Resolutions of the OP to the CA through Rule 43 of the 1997 Rules of Civil
Procedure. Petitioner identified the OP’s errors, as follows:

1) rejecting the findings of the DAR that the subject landholding was already agriculturally developed
at the time of effectivity of the CARL and suitable for agricultural purposes;

2) ignoring the findings of the DA contained in the Escudero Report on the ground that this report
was not signed by Sec. Salvador Escudero III himself;

3) holding that the disputed land has more than 18% slope on the basis of a certification issued by a
personnel from the Department of Environment and Natural Resources, who was neither authorized
nor competent to make such determination;

4) disregarding the certification of the MARO of Rodriguez, Rizal that the landholding was highly
agricultural and suitable for cultivation for permanent and seasonal crops; and

5) relying on the certifications of the Municipal Development Coordinator, Housing and Land Use
Regulatory Board, Provincial Irrigation Office, and the Municipal Assessor as bases for granting the
exemption applied for, which are irrelevant for purposes of determining agricultural development and
suitability under Sec. 10 of R.A. 6657.13

The Ruling of the Court of Appeals

The CA ruled that the petitioner was not a real party-in-interest and had no legal standing to sue. The
appellate court held, thus:

Applying the foregoing standards in the case at bar, there is no question petitioner lacks the legal standing
to raise the instant appeal. This conclusion finds support in the later case of Fortich vs. Corona, 289 SCRA
624 [1998] x x x

xxxx

Having resolved that the petitioner, not being actual grantee of the land but mere qualified beneficiary, has
no legal standing to sue and is not the real party in interest. Neither will it be directly affected by the assailed
resolutions rendered by the Office of the President. Consequently, petitioner has no personality to file the
instant appeal. Besides, petitioner is not a juridical person and apropos not equipped with legal personality
to sue or be sued. As a consequence, the authority of Elvira M. Baladad in filing this case for the petitioner
will likewise be baseless.14

The CA further held that respondents never waived their right to question petitioner’s legal standing,
because, in fact, they raised the issue in the CA; and that they could not be expected to raise the issue in
the OP since they obtained a favorable judgment. On the exemption of the land from CARL, the CA found
that the OP’s Resolution was supported by substantial evidence; hence, the CA did not substitute the OP’s
findings of fact.15

Petitioner’s January 17, 2002 Motion for Reconsideration was then denied by the CA in its February 26,
2002 Resolution.

The Issues
The parties submit the following issues for our resolution:

WHETHER OR NOT PETITIONERS ARE REAL PARTIES-IN-INTEREST IN THIS CASE

WHETHER OR NOT THE SUBJECT LANDHOLDING MAY BE EXEMPTED FROM THE COVERAGE OF
THE COMPREHENSIVE AGRARIAN REFORM

WHETHER OR NOT THE PETITION RAISES ONLY QUESTIONS OF FACT

Petitioner argues that the CA committed serious error in holding that it lacked the legal standing to file an
appeal from the OP. It contends that its members, the Macabud farmers, are entitled to the distribution of the
land based on Sec. 22 of the CARL, to wit:

Sec. 22. Qualified Beneficiaries.—The lands covered by the CARP shall be distributed as much as possible
to landless residents of the same barangay, or in the absence thereof, landless residents of the same
municipality in the following order of priority:

(a) agricultural lessees and share tenants;

(b) regular farm workers;
(c) seasonal farm workers;
(d) other farm workers;
(e) actual tillers or occupants of public lands;
(f) collective or cooperatives of the above beneficiaries; and
(g) others directly working on the land.

Petitioner further argues that Fortich v. Corona, cited by the appellate court, did not rule that qualified
beneficiaries are not real parties-in-interest. Petitioner pointed out that the Court’s pronouncement regarding
legal standing was allegedly mere dictum since the crux of the controversy was whether the OP can still
modify its own decision which had already attained finality; and that the Court found in Fortich that the
farmers were merely recommendee farmer-beneficiaries in contrast to the Macabud farmers in the present
case who are qualified and approved farmer-beneficiaries of the disputed land––the fact of which is
supported by the certification issued by the MARO. Petitioner believes that being identified as CARP
beneficiaries entitles the farmers to usufructuary rights over the land under DAR rules, to wit:

2. Upon verification and validation based on the Application for Purchase and Farmers Undertakings (FUs),
[the MARO shall] inform the qualified ARBs or the Farmers Cooperative/Association, as the case may be,
that they have been identified to receive the land to give them usufructuary right over the property (CARP
Form No. 19)16

Petitioner argues that the foregoing rule, when read in conjunction with Article 562 of the Civil Code, gives
them a right over the land which can be injured by a judgment of exemption from CARP. It claims that
Certificates of Land Ownership Award (CLOAs) were already generated in the Macabud farmers’ names by
the Provincial Agrarian Reform Officer of Rizal, but were not issued to them in view of the instant case. Also,
petitioner contends that respondents are now estopped from raising the issue of legal standing in view of
their failure to question the same issue at the earliest opportunity, that is, before the OP.17

Lastly, since petitioner relies on the findings of the DA regarding the suitability of the land for agriculture for
the purpose of the CARP, it then imputes error on the CA for holding that the DA had no authority to make
such a determination.

The Court’s Ruling

The petition should be dismissed.

The peculiar circumstances of this case should be noted. This petition originated from an application for
exemption from CARP which was filed by the respondents before the Regional Director of the DAR.
Petitioner entered the picture when the DAR’s Orders were reversed by the OP. Petitioner’s lack of capacity
to intervene in the case may not have been an issue before the OP since in administrative cases, technical
rules of procedure are not strictly applied. In fact, Sec. 50 of R.A. 6657 expressly allows farmer leaders to
"represent themselves, their fellow farmers, or their organization in any proceedings before the DAR." This
right of representation generally continues in appeals in congruence with the provisions of Rule 3 of the
Revised Rules of Court, specifically:

SECTION 1. Who may be parties; plaintiff and defendant.—Only natural or juridical persons, or entities
authorized by law may be parties in a civil action. x x x

SEC. 2. Parties in interest.—A real party in interest is the party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or
these Rules, every action must be prosecuted or defended in the name of the real party in interest.
SEC. 3. Representatives as parties.—Where the action is allowed to be prosecuted or defended by a
representative or someone acting in a fiduciary capacity, the beneficiary shall be included in the title of the
case and shall be deemed to be the real party in interest. A representative may be a trustee of an express
trust, a guardian, an executor or administrator, or a party authorized by law or these Rules. x x x

R.A. 6657 allows farmer leaders like Elvira Baladad to represent the Macabud farmers or their Samahan in
the proceedings before the DAR. The law, however, should be harmonized with the provisions of the Rules
of Court. Assuming that the Macabud farmers are real parties-in-interest as defined by Sec. 2 of Rule 3, the
appeal may be brought by their representative since such is allowed by R.A. 6657. The action may then be
brought by 1) the organization represented by its authorized representative (Sec. 1) OR 2) the
representative with the beneficiaries identified in the title of the case (Sec. 3). In the first option, the
organization should be duly registered in order to be clothed with juridical personality (Sec. 1). Admittedly,
petitioner Samahan is not registered with the Securities and Exchange Commission. Thus, it is not a juridical
person which can be a party in a case. The Rules of Court, however, does not prevent the Macabud farmers
from filing an appeal since an action may be instituted in the name of their representative with each farmer-
beneficiary identified in the title of the case in accordance with Sec. 3 of Rule 3. Unfortunately, petitioner
also failed to comply with this simple requirement. The petition was brought by the unregistered Samahan
represented by Elvira Baladad without mentioning the members of it. On this score, the petition can already
be dismissed.

More importantly, petitioner is not a real party-in-interest in this case. According to Sec. 2 of Rule 3 of the
Rules of Court, a real party-in-interest is the party who stands to be benefited or injured by the judgment in
the suit or the party entitled to the avails of the suit. We stand by the ruling in Fortich v. Corona18 that farmer-
beneficiaries, who are not approved awardees of CARP, are not real parties-in-interest. In Fortich, the
farmers who intervened in the case were mere recommendees. We stated in said case that:

The rule in this jurisdiction is that a real party in interest is a party who would be benefited or injured by the
judgment or is the party entitled to the avails of the suit. Real interest means a present substantial interest,
as distinguished from a mere expectancy or a future, contingent, subordinate or consequential interest.
Undoubtedly, movants’ interest over the land in question is a mere expectancy. Ergo, they are not real
parties in interest.19

In the case at bar, members of petitioner Samahan are mere qualified beneficiaries of CARP. The
certification that CLOAs were already generated in their names, but were not issued because of the present
dispute, does not vest any right to the farmers since the fact remains that they have not yet been approved
as awardees, actually awarded lands, or granted CLOAs. Respondents cannot be considered estopped from
questioning petitioner’s legal standing since petitioner appeared before the OP after the latter decided in
respondents’ favor. When the petitioner appealed the case to the CA, respondents duly questioned the
petitioner’s capacity to sue.

It is only unfortunate that petitioner failed to comply with basic procedural requirements. We must again
emphasize that these procedural requisites were promulgated to ensure fairness and orderly administration
of justice. While the Court sometimes disregards the rules of procedure in the interest of justice, we find that
the present case does not merit such leniency. The requirement that a party must have real interest in the
case is essential in the administration of justice. Thus, having resolved that the respondents have no legal
standing to sue and are not the real parties-in-interest, we find no more necessity to take up the other
issues.

WHEREFORE, we AFFIRM IN TOTO the December 14, 2001 Decision and the February 26, 2002
Resolution of the CA, with no costs.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

ANTONIO T. CARPIO CONCHITA CARPIO MORALES

Associate Justice Asscociate Justice

DANTE O. TINGA
Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify
that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

Foonotes

1Rollo, pp. 44-55. The Decision was penned by Associate Justice Conrado M. Vasquez, Jr. and
concurred in by Associate Justices Andres B. Reyes, Jr. and Amelita G. Tolentino.

2 Id. at 57-58.

3 Id. at 9 & 245.

4 Id. at 45.

5 Id. at 67-68; April 19, 1996 Order of Sec. Ernesto Garilao of the DAR.

6 R.A. 6657, Sec. 10. Exemptions and Exclusions.—

xxxx

c) Lands actually, directly and exclusively used and found to be necessary for 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 center, 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 (as amended by R.A.
7881; emphasis supplied).

7 Rollo, pp. 63-64 & 65-66.

8 Supra note 5, at 67-74 & id. at 75-76.

9 Id. at 70-72.

10 Id. at 77-84.

11 Id. at 161-164.

12 Id. at 186-187.

13 Id. at 47-48.

14 Id. at 50-51.

15 Id. at 51-54.

16Id. at 18; citing DAR Adm. Order No. 10 (1990), Rules and Procedures in the Distribution of
Private Agricultural Land to Agrarian Reform Beneficiaries under RA 6657.
 17 Id. at 18-19.

18G.R. No. 131457, April 24, 1998, 289 SCRA 624 (Decision) and August 19, 1999, 312 SCRA 751
(Resolution).

19 Supra at 649.

G.R. No. 112526 October 12, 2001

STA. ROSA REALTY DEVELOPMENT CORPORATION, petitioner,

vs.
COURT OF APPEALS, JUAN B. AMANTE, FRANCISCO L. ANDAL, LUCIA ANDAL, ANDREA P.
AYENDE, LETICIA P. BALAT, FILOMENA B. BATINO, ANICETO A. BURGOS, JAIME A. BURGOS,
FLORENCIA CANUBAS, LORETO A. CANUBAS, MAXIMO A. CANUBAS, REYNALDO CARINGAL,
QUIRINO C. CASALME, BENIGNO A. CRUZAT, ELINO A. CRUZAT, GREGORIO F. CRUZAT, RUFINO
C. CRUZAT, SERGIO CRUZAT, SEVERINO F. CRUZAT, VICTORIA DE SAGUN, SEVERINO DE SAGUN,
FELICISIMO A. GONZALES, FRANCISCO A. GONZALES, GREGORIO GONZALES, LEODEGARIO N.
GONZALES, PASCUAL P. GONZALES, ROLANDO A. GONZALES, FRANCISCO A. JUANGCO,
GERVACIO A. JUANGCO, LOURDES U. LUNA, ANSELMO M. MANDANAS, CRISANTO MANDANAS,
EMILIO M. MANDANAS, GREGORIO A. MANDANAS, MARIO G. MANDANAS, TEODORO MANDANAS,
CONSTANCIO B. MARQUEZ, EUGENIO B. MARQUEZ, ARMANDO P. MATIENZO, DANIEL D.
MATIENZO, MAXIMINO MATIENZO, PACENCIA P. MATIENZO, DOROTEA L. PANGANIBAN, JUANITO
T. PEREZ, MARIANITO T. PEREZ, SEVERO M. PEREZ, INOCENCIA S. PASQUIZA, BIENVENIDO F.
PETATE, IGNACIO F. PETATE, JUANITO PETATE, PABLO A. PLATON, PRECILLO V. PLATON,
AQUILINO B. SUBOL, CASIANO T. VILLA, DOMINGO VILLA, JUAN T. VILLA, MARIO C. VILLA,
NATIVIDAD A. VILLA, JACINTA S. ALVARADO, RODOLFO ANGELES, DOMINGO A. CANUBAS,
EDGARDO L. CASALME, QUIRINO DE LEON, LEONILO M. ENRIQUEZ, CLAUDIA P. GONZALES,
FELISA R. LANGUE, QUINTILLANO LANGUE, REYNALDO LANGUE, ROMEO S. LANGUE,
BONIFACIO VILLA, ROGELIO AYENDE, ANTONIO B. FERNANDEZ, ZACARIAS HERRERA, ZACARIAS
HERRERA, REYNARIO U. LAZO, AGAPITO MATIENZO, DIONISIO F. PETATE, LITO G. REYES, JOSE
M. SUBOL, CELESTINO G. TOPI NO, ROSA C. AMANTE, SOTERA CASALME, REMIGIO M. SILVERIO,
THE SECRETARY OF AGRARIAN REFORM, DEPARTMENT OF AGRARIAN REFORM ADJUDICATION
BOARD, LAND BANK OF THE PHILIPPINES, REGISTER OF DEEDS OF LAGUNA, DEPARTMENT OF
ENVIRONMENT AND NATURAL RESOURCES REGIONAL EXECUTIVE DIRECTOR FOR REGION IV,
and REGIONAL AGRARIAN REFORM OFFICER FOR REGION IV, respondents.

PARDO, J.:

The case before the Court is a petition for review on certiorari of the decision of the Court of
Appeals1 affirming the decision of the Department of Agrarian Reform Adjudication Board2 (hereafter
DARAB) ordering the compulsory acquisition of petitioner's property under the Comprehensive Agrarian
Reform Program (CARP).

Petitioner Sta. Rosa Realty Development Corporation (hereafter, SRRDC) was the registered owner of two
parcels of land, situated at Barangay Casile, Cabuyao, Laguna covered by TCT Nos. 81949 and 84891, with
a total area of 254.6 hectares. According to petitioner, the parcels of land are watersheds, which provide
clean potable water to the Canlubang community, and that ninety (90) light industries are now located in the
area.3

Petitioner alleged that respondents usurped its rights over the property, thereby destroying the ecosystem.
Sometime in December 1985, respondents filed a civil case4 with the Regional Trial Court, Laguna, seeking
an easement of a right of way to and from Barangay Casile. By way of counterclaim, however, petitioner
sought the ejectment of private respondents.

In October 1986 to August 1987, petitioner filed with the Municipal Trial Court, Cabuyao, Laguna separate
complaints for forcible entry against respondents.5

After the filing of the ejectment cases, respondents petitioned the Department of Agrarian Reform (DAR) for
the compulsory acquisition of the SRRDC property under the CARP.

On August 11, 1989, the Municipal Agrarian Reform Officer (MARO) of Cabuyao, Laguna issued a notice of
coverage to petitioner and invited its officials or representatives to a conference on August 18, 1989.6 During
the meeting, the following were present: representatives of petitioner, the Land Bank of the Philippines,
PARCCOM, PARO of Laguna, MARO of Laguna, the BARC Chairman of Barangay Casile and some
potential farmer beneficiaries, who are residents of Barangay Casile, Cabuyao, Laguna. It was the
consensus and recommendation of the assembly that the landholding of SRRDC be placed under
compulsory acquisition.
On August 17, 1989, petitioner filed with the Municipal Agrarian Reform Office (MARO), Cabuyao, Laguna a
"Protest and Objection" to the compulsory acquisition of the property on the ground that the area was not
appropriate for agricultural purposes. The area was rugged in terrain with slopes of 18% and above and that
the occupants of the land were squatters, who were not entitled to any land as beneficiaries.7

On August 29, 1989, the farmer beneficiaries together with the BARC chairman answered the protest and
objection stating that the slope of the land is not 18% but only 5-10% and that the land is suitable and
economically viable for agricultural purposes, as evidenced by the Certification of the Department of
Agriculture, municipality of Cabuyao, Laguna.8

On September 8, 1989, MARO Belen dela Torre made a summary investigation report and forwarded the
Compulsory Acquisition Folder Indorsement (CAFI) to the Provincial Agrarian Reform Officer (hereafter,
PARO).9

On September 21, 1989, PARO Durante Ubeda forwarded his endorsement of the compulsory acquisition to
the Secretary of Agrarian Reform.

On November 23, 1989, Acting Director Eduardo C. Visperas of the Bureau of Land Acquisition and
Development, DAR forwarded two (2) Compulsory Acquisition Claim Folders covering the landholding of
SRRDC, covered by TCT Nos. T-81949 and T-84891 to the President, Land Bank of the Philippines for
further review and evaluation.10

On December 12, 1989, Secretary of Agrarian Reform Miriam Defensor Santiago sent two (2) notices of
acquisition11 to petitioner, stating that petitioner's landholdings covered by TCT Nos. 81949 and 84891,
containing an area of 188.2858 and 58.5800 hectares, valued at P4,417,735.65 and P1,220,229.93,
respectively, had been placed under the Comprehensive Agrarian Reform Program.

On February 6, 1990, petitioner SRRDC in two letters12 separately addressed to Secretary Florencio B. Abad
and the Director, Bureau of Land Acquisition and Distribution, sent its formal protest, protesting not only the
amount of compensation offered by DAR for the property but also the two (2) notices of acquisition.

On March 17, 1990, Secretary Abad referred the case to the DARAB for summary proceedings to determine
just compensation under R. A. No. 6657, Section 16.

On March 23, 1990, the LBP returned the two (2) claim folders previously referred for review and evaluation
to the Director of BLAD mentioning its inability to value the SRRDC landholding due to some deficiencies.

On March 28, 1990, Executive Director Emmanuel S. Galvez wrote Land Bank President Deogracias Vistan
to forward the two (2) claim folders involving the property of SRRDC to the DARAB for it to conduct
summary proceedings to determine the just compensation for the land.

On April 6, 1990, petitioner sent a letter to the Land Bank of the Philippines stating that its property under
the aforesaid land titles were exempt from CARP coverage because they had been classified as watershed
area and were the subject of a pending petition for land conversion.

On May 10, 1990, Director Narciso Villapando of BLAD turned over the two (2) claim folders (CACF's) to the
Executive Director of the DAR Adjudication Board for proper administrative valuation. Acting on the CACF's,
on September 10, 1990, the Board promulgated a resolution asking the office of the Secretary of Agrarian
Reform (DAR) to first resolve two (2) issues before it proceeds with the summary land valuation
proceedings.13

The issues that need to be threshed out were as follows: (1) whether the subject parcels of land fall within
the coverage of the Compulsory Acquisition Program of the CARP; and (2) whether the petition for land
conversion of the parcels of land may be granted.

On December 7, 1990, the Office of the Secretary, DAR, through the Undersecretary for Operations
(Assistant Secretary for Luzon Operations) and the Regional Director of Region IV, submitted a report
answering the two issues raised. According to them, firstly, by virtue of the issuance of the notice of
coverage on August 11, 1989, and notice of acquisition on December 12, 1989, the property is covered
under compulsory acquisition. Secondly, Administrative Order No. 1, Series of 1990, Section IV D also
supports the DAR position on the coverage of the said property. During the consideration of the case by the
Board, there was no pending petition for land conversion specifically concerning the parcels of land in
question.

On February 19, 1991, the Board sent a notice of hearing to all the parties interested, setting the hearing for
the administrative valuation of the subject parcels of land on March 6, 1991. However, on February 22,
1991, Atty. Ma. Elena P. Hernandez-Cueva, counsel for SRRDC, wrote the Board requesting for its
assistance in the reconstruction of the records of the case because the records could not be found as her
co-counsel, Atty. Ricardo Blancaflor, who originally handled the case for SRRDC and had possession of all
the records of the case was on indefinite leave and could not be contacted. The Board granted counsel's
request and moved the hearing to April 4, 1991.

On March 18, 1991, SRRDC submitted a petition to the Board for the latter to resolve SRRDC's petition for
exemption from CARP coverage before any administrative valuation of their landholding could be had by the
Board.

On April 4, 1991, the initial DARAB hearing of the case was held and subsequently, different dates of
hearing were set without objection from counsel of SRRDC. During the April 15, 1991 hearing, the
subdivision plan of subject property at Casile, Cabuyao, Laguna was submitted and marked as Exhibit "5"
for SRRDC. At the hearing on April 23, 1991, the Land Bank asked for a period of one month to value the
land in dispute.

At the hearing on April 23, 1991, certification from Deputy Zoning Administrator Generoso B. Opina was
presented. The certification issued on September 8, 1989, stated that the parcels of land subject of the case
were classified as "industrial Park" per Sanguniang Bayan Resolution No. 45-89 dated March 29, 1989.14

To avert any opportunity that the DARAB might distribute the lands to the farmer beneficiaries, on April 30,
1991, petitioner filed a petition15 with DARAB to disqualify private respondents as beneficiaries. However,
DARAB refused to address the issue of beneficiaries.

In the meantime, on January 20, 1992, the Regional Trial Court, Laguna, Branch 24, rendered a
decision,16 finding that private respondents illegally entered the SRRDC property, and ordered them evicted.

On July 11, 1991, DAR Secretary Benjamin T. Leong issued a memorandum directing the Land Bank of the
Philippines to open a trust account in favor of SRRDC, for P5,637,965.55, as valuation for the SRRDC
property.

On December 19, 1991, DARAB promulgated a decision, the decretal portion of which reads:

"WHEREFORE, based on the foregoing premises, the Board hereby orders:

"1. The dismissal for lack of merit of the protest against the compulsory coverage of the landholdings
of Sta. Rosa Realty Development Corporation (Transfer Certificates of Title Nos. 81949 and 84891
with an area of 254.766 hectares) in Barangay Casile, Municipality of Cabuyao, Province of Laguna
under the Comprehensive Agrarian Reform Program is hereby affirmed;

"2. The Land Bank of the Philippines (LBP) to pay Sta. Rosa Realty Development Corporation the
amount of Seven Million Eight Hundred Forty-One Thousand, Nine Hundred Ninety Seven Pesos
and Sixty-Four centavos (P7,841,997.64) for its landholdings covered by the two (2) Transfer
Certificates of Title mentioned above. Should there be a rejection of the payment tendered, to open,
if none has yet been made, a trust account for said amount in the name of Sta. Rosa Realty
Development Corporation;

"3. The Register of Deeds of the Province of Laguna to cancel with dispatch Transfer certificate of
Title Nos. 84891 and 81949 and new one be issued in the name of the Republic of the Philippines,
free from liens and encumbrances;

"4 The Department of Environment and Natural Resources either through its Provincial Office in
Laguna or the Regional Office, Region IV, to conduct a final segregation survey on the lands
covered by Transfer certificate of Title Nos. 84891 and 81949 so the same can be transferred by the
Register of Deeds to the name of the Republic of the Philippines;

"5. The Regional Office of the Department of Agrarian Reform through its Municipal and Provincial
Agrarian Reform Office to take immediate possession on the said landholding after Title shall have
been transferred to the name of the Republic of the Philippines, and distribute the same to the
immediate issuance of Emancipation Patents to the farmer-beneficiaries as determined by the
Municipal Agrarian Reform Office of Cabuyao, Laguna."17

On January 20, 1992, the Regional Trial Court, Laguna, Branch 24, rendered a decision in Civil Case No. B-
233318 ruling that respondents were builders in bad faith.

On February 6, 1992, petitioner filed with the Court of Appeals a petition for review of the DARAB
decision.19 On November 5, 1993, the Court of Appeals promulgated a decision affirming the decision of
DARAB. The decretal portion of the Court of Appeals decision reads:

"WHEREFORE, premises considered, the DARAB decision dated September 19, 1991 is
AFFIRMED, without prejudice to petitioner Sta. Rosa Realty Development Corporation ventilating its
case with the Special Agrarian Court on the issue of just compensation."20Hence, this petition.21
On December 15, 1993, the Court issued a Resolution which reads:

"G. R. Nos. 112526 (Sta. Rosa Realty Development Corporation vs. Court of Appeals, et. al.) –
Considering the compliance, dated December 13, 1993, filed by counsel for petitioner, with the
resolution of December 8, 1993 which required petitioner to post a cash bond or surety bond in the
amount of P1,500,000.00 Pesos before issuing a temporary restraining order prayed for, manifesting
that it has posted a CASH BOND in the same amount with the Cashier of the Court as evidenced by
the attached official receipt no. 315519, the Court resolved to ISSUE the Temporary Retraining
Order prayed for.

"The Court therefore, resolved to restrain: (a) the Department of Agrarian Reform Adjudication Board
from enforcing its decision dated December 19, 1991 in DARAB Case No. JC-R-IV-LAG-0001, which
was affirmed by the Court of Appeals in a Decision dated November 5, 1993, and which ordered,
among others, the Regional Office of the Department of Agrarian Reform through its Municipal and
Provincial Reform Office to take immediate possession of the landholding in dispute after title shall
have been transferred to the name of the Republic of the Philippines and to distribute the same
through the immediate issuance of Emancipation Patents to the farmer-beneficiaries as determined
by the Municipal Agrarian Officer of Cabuyao, Laguna, (b) The Department of Agrarian Reform
and/or the Department of Agrarian Reform Adjudication Board, and all persons acting for and in their
behalf and under their authority from entering the properties involved in this case and from
introducing permanent infrastructures thereon; and (c) the private respondents from further clearing
the said properties of their green cover by the cutting or burning of trees and other vegetation,
effective today until further orders from this Court."22

The main issue raised is whether the property in question is covered by CARP despite the fact that the
entire property formed part of a watershed area prior to the enactment of R. A. No. 6657.

Under Republic Act No. 6657, there are two modes of acquisition of private land: compulsory and voluntary.
In the case at bar, the Department of Agrarian Reform sought the compulsory acquisition of subject property
under R. A. No. 6657, Section 16, to wit:

"Sec. 16. Procedure for Acquisition of Private Lands. – For purposes of acquisition of private lands,
the following procedures shall be followed:

a.) After having identified the land, the landowners and the beneficiaries, the DAR shall send
its notice to acquire the land to the owners thereof, by personal delivery or registered mail,
and post the same in a conspicuous place in the municipal building and barangay hall of the
place where the property is located. Said notice shall contain the offer of the DAR to pay
corresponding value in accordance with the valuation set forth in Sections 17, 18, and other
pertinent provisions hereof.

b.) Within thirty (30) days from the date of the receipt of written notice by personal delivery or
registered mail, the landowner, his administrator or representative shall inform the DAR of
his acceptance or rejection of the offer.

c.) If the landowner accepts the offer of the DAR, the LBP shall pay the landowner the
purchase price of the land within thirty (30) days after he executes and delivers a deed of
transfer in favor of the government and other muniments of title.

d.) In case of rejection or failure to reply, the DAR shall conduct summary administrative
proceedings to determine the compensation for the land requiring the landowner, the LBP
and other interested parties to submit fifteen (15) days from receipt of the notice. After the
expiration of the above period, the matter is deemed submitted for decision. The DAR shall
decide the case within thirty (30) days after it is submitted for decision.

e.) Upon receipt by the landowner of the corresponding payment, or, in case of rejection or
no response from the landowner, upon the deposit with an accessible bank designated by
the DAR of the compensation in cash or in LBP bonds in accordance with this act, the DAR
shall make immediate possession of the land and shall request the proper Register of Deeds
to issue Transfer Certificate of Titles (TCT) in the name of the Republic of the Philippines.
The DAR shall thereafter proceed with the redistribution of the land to the qualified
beneficiaries.

f.) Any party who disagrees with the decision may bring the matter to the court23 of proper
jurisdiction for final determination of just compensation.

In compulsory acquisition of private lands, the landholding, the landowners and farmer beneficiaries must
first be identified. After identification, the DAR shall send a notice of acquisition to the landowner, by
personal delivery or registered mail, and post it in a conspicuous place in the municipal building and
barangay hall of the place where the property is located.

Within thirty (30) days from receipt of the notice of acquisition, the landowner, his administrator or
representative shall inform the DAR of his acceptance or rejection of the offer.

If the landowner accepts, he executes and delivers a deed of transfer in favor of the government and
surrenders the certificate of title. Within thirty (30) days from the execution of the deed of transfer, the Land
Bank of the Philippines (LBP) pays the owner the purchase price. If the landowner accepts, he executes and
delivers a deed of transfer in favor of the government and surrenders the certificate of title. Within thirty days
from the execution of the deed of transfer, the Land Bank of the Philippines (LBP) pays the owner the
purchase price. If the landowner rejects the DAR's offer or fails to make a reply, the DAR conducts summary
administrative proceedings to determine just compensation for the land. The landowner, the LBP
representative and other interested parties may submit evidence on just compensation within fifteen days
from notice. Within thirty days from submission, the DAR shall decide the case and inform the owner of its
decision and the amount of just compensation.

Upon receipt by the owner of the corresponding payment, or, in case of rejection or lack of response from
the latter, the DAR shall deposit the compensation in cash or in LBP bonds with an accessible bank. The
DAR shall immediately take possession of the land and cause the issuance of a transfer certificate of title in
the name of the Republic of the Philippines. The land shall then be redistributed to the farmer beneficiaries.
Any party may question the decision of the DAR in the special agrarian courts (provisionally the Supreme
Court designated branches of the regional trial court as special agrarian courts) for final determination of just
compensation.

The DAR has made compulsory acquisition the priority mode of land acquisition to hasten the
implementation of the Comprehensive Agrarian Reform Program (CARP). Under Sec. 16 of the CARL, the
first step in compulsory acquisition is the identification of the land, the landowners and the farmer
beneficiaries. However, the law is silent on how the identification process shall be made. To fill this gap, on
July 26, 1989, the DAR issued Administrative Order No. 12, series of 1989, which set the operating
procedure in the identification of such lands. The procedure is as follows:

A. The Municipal Agrarian Reform Officer (MARO), with the assistance of the pertinent Barangay
Agrarian Reform Committee (BARC), shall:

1. Update the masterlist of all agricultural lands covered under the CARP in his area of responsibility;
the masterlist should include such information as required under the attached CARP masterlist form
which shall include the name of the landowner, landholding area, TCT/OCT number, and tax
declaration number.

2. Prepare the Compulsory Acquisition Case Folder (CACF) for each title (OCT/TCT) or landholding
covered under Phase I and II of the CARP except those for which the landowners have already filed
applications to avail of other modes of land acquisition. A case folder shall contain the following duly
accomplished forms:

a) CARP CA Form 1—MARO investigation report

b) CARP CA Form No 2 – Summary investigation report findings and evaluation

c) CARP CA Form 3—Applicant's Information sheet

d) CARP CA Form 4 – Beneficiaries undertaking

e) CARP CA Form 5 – Transmittal report to the PARO

The MARO/BARC shall certify that all information contained in the above-mentioned forms have
been examined and verified by him and that the same are true and correct.

3. Send notice of coverage and a letter of invitation to a conference/meeting to the landowner

covered by the Compulsory Case Acquisition Folder. Invitations to the said conference meeting shall
also be sent to the prospective farmer-beneficiaries, the BARC representatives, the Land Bank of
the Philippines (LBP) representative, and the other interested parties to discuss the inputs to the
valuation of the property.

He shall discuss the MARO/BARC investigation report and solicit the views, objection, agreements
or suggestions of the participants thereon. The landowner shall also ask to indicate his retention
area. The minutes of the meeting shall be signed by all participants in the conference and shall form
an integral part of the CACF.
 4. Submit all completed case folders to the Provincial Agrarian Reform Officer (PARO).

B. The PARO shall:

1. Ensure the individual case folders are forwarded to him by his MAROs.

2. Immediately upon receipt of a case folder, compute the valuation of the land in accordance with
A.O. No. 6, series of 1988. The valuation worksheet and the related CACF valuation forms shall be
duly certified correct by the PARO and all the personnel who participated in the accomplishment of
these forms.

3. In all cases, the PARO may validate the report of the MARO through ocular inspection and
verification of the property. This ocular inspection and verification shall be mandatory when the
computed value exceeds P500,000 per estate.

4. Upon determination of the valuation, forward the case folder, together with the duly accomplished
valuation forms and his recommendations, to the Central Office.

The LBP representative and the MARO concerned shall be furnished a copy each of his report.

C. DAR Central Office, specifically through the Bureau of Land Acquisition and Distribution (BLAD),
shall:

1. Within three days from receipt of the case folder from the PARO, review, evaluate and determine
the final land valuation of the property covered by the case folder. A summary review and evaluation
report shall be prepared and duly certified by the BLAD Director and the personnel directly
participating in the review and final valuation.

2. Prepare, for the signature of the Secretary or her duly authorized representative, a notice of
acquisition (CARP Form 8) for the subject property. Serve the notice to the landowner personally or
through registered mail within three days from its approval. The notice shall include among others,
the area subject of compulsory acquisition, and the amount of just compensation offered by DAR.

3. Should the landowner accept the DAR's offered value, the BLAD shall prepare and submit to the
Secretary for approval the order of acquisition. However, in case of rejection or non-reply, the DAR
Adjudication Board (DARAB) shall conduct a summary administrative hearing to determine just
compensation, in accordance with the procedures provided under Administrative Order No. 13,
series of 1989. Immediately upon receipt of the DARAB's decision on just compensation, the BLAD
shall prepare and submit to the Secretary for approval the required order of acquisition.

4. Upon the landowner's receipt of payment, in case of acceptance, or upon deposit of payment in
the designated bank, in case of rejection or non-response, the Secretary shall immediately direct the
pertinent Register of Deeds to issue the corresponding Transfer Certificate of Title (TCT) in the
name of the Republic of the Philippines. Once the property is transferred, the DAR, through the
PARO, shall take possession of the land for redistribution to qualified beneficiaries."

Administrative Order No. 12, Series of 1989 requires that the Municipal Agrarian Reform Officer (MARO)
keep an updated master list of all agricultural lands under the CARP in his area of responsibility containing
all the required information. The MARO prepares a Compulsory Acquisition Case Folder (CACF) for each
title covered by CARP. The MARO then sends the landowner a "Notice of Coverage" and a "letter of
invitation" to a "conference/ meeting" over the land covered by the CACF. He also sends invitations to the
prospective farmer-beneficiaries, the representatives of the Barangay Agrarian Reform Committee (BARC),
the Land Bank of the Philippines (LBP) and other interested parties to discuss the inputs to the valuation of
the property and solicit views, suggestions, objections or agreements of the parties. At the meeting, the
landowner is asked to indicate his retention area.

The MARO shall make a report of the case to the Provincial Agrarian Reform Officer (PARO) who shall
complete the valuation of the land. Ocular inspection and verification of the property by the PARO shall be
mandatory when the computed value of the estate exceeds P500,000.00. Upon determination of the
valuation, the PARO shall forward all papers together with his recommendation to the Central Office of the
DAR. The DAR Central Office, specifically, the Bureau of Land Acquisition and Distribution (BLAD) shall
prepare, on the signature of the Secretary or his duly authorized representative, a notice of acquisition of the
subject property. From this point, the provisions of R. A. No. 6657, Section 16 shall apply.

For a valid implementation of the CARP Program, two notices are required: (1) the notice of coverage and
letter of invitation to a preliminary conference sent to the landowner, the representative of the BARC, LBP,
farmer beneficiaries and other interested parties pursuant to DAR A. O. No. 12, series of 1989; and (2) the
notice of acquisition sent to the landowner under Section 16 of the CARL.
The importance of the first notice, that is, the notice of coverage and the letter of invitation to a conference,
and its actual conduct cannot be understated. They are steps designed to comply with the requirements of
administrative due process. The implementation of the CARL is an exercise of the State's police power and
the power of eminent domain. To the extent that the CARL prescribes retention limits to the landowners,
there is an exercise of police power for the regulation of private property in accordance with the Constitution.
But where, to carry out such regulation, the owners are deprived of lands they own in excess of the
maximum area allowed, there is also a taking under the power of eminent domain. The taking contemplated
is not mere limitation of the use of the land. What is required is the surrender of the title to and physical
possession of the excess and all beneficial rights accruing to the owner in favor of the farmer beneficiary.

In the case at bar, DAR has executed the taking of the property in question. However, payment of just
compensation was not in accordance with the procedural requirement. The law required payment in cash or
LBP bonds, not by trust account as was done by DAR.

In Association of Small Landowners in the Philippines v. Secretary of Agrarian Reform, we held that "The
CARP Law, for its part, conditions the transfer of possession and ownership of the land to the government
on receipt of the landowner of the corresponding payment or the deposit by the DAR of the compensation in
cash or LBP bonds with an accessible bank. Until then, title also remains with the landowner. No outright
change of ownership is contemplated either."24

Consequently, petitioner questioned before the Court of Appeals DARAB's decision ordering the compulsory
acquisition of petitioner's property.25 Here, petitioner pressed the question of whether the property was a
watershed, not covered by CARP.

Article 67 of the Water Code of the Philippines (P. D. No. 1067) provides:

"Art. 67. Any watershed or any area of land adjacent to any surface water or overlying any ground
water may be declared by the Department of Natural resources as a protected area. Rules and
Regulations may be promulgated by such Department to prohibit or control such activities by the
owners or occupants thereof within the protected area which may damage or cause the deterioration
of the surface water or ground water or interfere with the investigation, use, control, protection,
management or administration of such waters."

Watersheds may be defined as "an area drained by a river and its tributaries and enclosed by a boundary or
divide which separates it from adjacent watersheds." Watersheds generally are outside the commerce of
man, so why was the Casile property titled in the name of SRRDC? The answer is simple. At the time of the
titling, the Department of Agriculture and Natural Resources had not declared the property as watershed
area. The parcels of land in Barangay Casile were declared as "PARK" by a Zoning Ordinance adopted by
the municipality of Cabuyao in 1979, as certified by the Housing and Land Use Regulatory Board. On
January 5, 1994, the Sangguniang Bayan of Cabuyao, Laguna issued a Resolution26 voiding the zoning
classification of the land at Barangay Casile as Park and declaring that the land is now classified as
agricultural land.

The authority of the municipality of Cabuyao, Laguna to issue zoning classification is an exercise of its police
power, not the power of eminent domain. "A zoning ordinance is defined as a local city or municipal
legislation which logically arranges, prescribes, defines and apportions a given political subdivision into
specific land uses as present and future projection of needs."27

In Natalia Realty, Inc. v. Department of Agrarian Reform28 we held that lands classified as non-agricultural
prior to the effectivity of the CARL may not be compulsorily acquired for distribution to farmer beneficiaries.

However, more than the classification of the subject land as PARK is the fact that subsequent studies and
survey showed that the parcels of land in question form a vital part of a watershed area.29

Now, petitioner has offered to prove that the land in dispute is a "watershed or part of the protected area for
watershed purposes." Ecological balances and environmental disasters in our day and age seem to be
interconnected. Property developers and tillers of the land must be aware of this deadly combination. In the
case at bar, DAR included the disputed parcels of land for compulsory acquisition simply because the land
was allegedly devoted to agriculture and was titled to SRRDC, hence, private and alienable land that may be
subject to CARP.

However, the scenario has changed, after an in-depth study, survey and reassessment. We cannot ignore
the fact that the disputed parcels of land form a vital part of an area that need to be protected for watershed
purposes. In a report of the Ecosystems Research and Development Bureau (ERDB), a research arm of the
DENR, regarding the environmental assessment of the Casile and Kabanga-an river watersheds, they
concluded that:

"The Casile barangay covered by CLOA in question is situated in the heartland of both watersheds.
Considering the barangays proximity to the Matangtubig waterworks, the activities of the farmers
 which are in conflict with proper soil and water conservation practices jeopardize and endanger the
vital waterworks. Degradation of the land would have double edge detrimental effects. On the Casile
side this would mean direct siltation of the Mangumit river which drains to the water impounding
reservoir below. On the Kabanga-an side, this would mean destruction of forest covers which acts as
recharged areas of the Matang Tubig springs. Considering that the people have little if no direct
interest in the protection of the Matang Tubig structures they couldn't care less even if it would be
destroyed.

The Casile and Kabanga-an watersheds can be considered a most vital life support system to
thousands of inhabitants directly and indirectly affected by it. From these watersheds come the
natural God-given precious resource – water. x x x x x

Clearing and tilling of the lands are totally inconsistent with sound watershed management. More so,
the introduction of earth disturbing activities like road building and erection of permanent
infrastructures. Unless the pernicious agricultural activities of the Casile farmers are immediately
stopped, it would not be long before these watersheds would cease to be of value. The impact of
watershed degredation threatens the livelihood of thousands of people dependent upon it. Toward
this, we hope that an acceptable comprehensive watershed development policy and program be
immediately formulated and implemented before the irreversible damage finally happens.

Hence, the following are recommended:

7.2 The Casile farmers should be relocated and given financial assistance.

7.3 Declaration of the two watersheds as critical and in need of immediate rehabilitation.

7.4 A comprehensive and detailed watershed management plan and program be formulated
and implemented by the Canlubang Estate in coordination with pertinent government
agencies."30

The ERDB report was prepared by a composite team headed by Dr. Emilio Rosario, the ERDB Director, who
holds a doctorate degree in water resources from U.P. Los Banos in 1987; Dr. Medel Limsuan, who
obtained his doctorate degree in watershed management from Colorado University (US) in 1989; and Dr.
Antonio M. Dano, who obtained his doctorate degree in Soil and Water management Conservation from
U.P. Los Banos in 1993.

Also, DENR Secretary Angel Alcala submitted a Memorandum for the President dated September 7, 1993
(Subject: PFVR HWI Ref.: 933103 Presidential Instructions on the Protection of Watersheds of the
Canlubang Estates at Barrio Casile, Cabuyao, Laguna) which reads:

"It is the opinion of this office that the area in question must be maintained for watershed purposes
for ecological and environmental considerations, among others. Although the 88 families who are the
proposed CARP beneficiaries will be affected, it is important that a larger view of the situation be
taken as one should also consider the adverse effect on thousands of residents downstream if the
watershed will not be protected and maintained for watershed purposes.

"The foregoing considered, it is recommended that if possible, an alternate area be allocated for the
affected farmers, and that the Canlubang Estates be mandated to protect and maintain the area in
question as a permanent watershed reserved."31

The definition does not exactly depict the complexities of a watershed. The most important product of a
watershed is water which is one of the most important human necessity. The protection of watersheds
ensures an adequate supply of water for future generations and the control of flashfloods that not only
damage property but cause loss of lives. Protection of watersheds is an "intergenerational responsibility"
that needs to be answered now.

Another factor that needs to be mentioned is the fact that during the DARAB hearing, petitioner presented
proof that the Casile property has slopes of 18% and over, which exempted the land from the coverage of
CARL. R. A. No. 6657, Section 10, provides:

"Section 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 appurtenent 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 coverage of
this Act."
Hence, during the hearing at DARAB, there was proof showing that the disputed parcels of land may be
excluded from the compulsory acquisition coverage of CARP because of its very high slopes.

To resolve the issue as to the true nature of the parcels of land involved in the case at bar, the Court directs
the DARAB to conduct a re-evaluation of the issue.

IN VIEW WHEREOF, the Court SETS ASIDE the decision of the Court of Appeals in CA-G. R. SP No.
27234.

In lieu thereof, the Court REMANDS the case to the DARAB for re-evaluation and determination of the
nature of the parcels of land involved to resolve the issue of its coverage by the Comprehensive Land
Reform Program.

In the meantime, the effects of the CLOAs issued by the DAR to supposed farmer beneficiaries shall
continue to be stayed by the temporary restraining order issued on December 15, 1993, which shall remain
in effect until final decision on the case.

No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), and Ynares-Santiago, JJ., concur.

Puno, J., no part due to relationship.
Kapunan, J., on official leave.

Footnotes

1In CA-G. R. SP No. 27234, promulgated on November 05, 1993, Martin, Jr., J., ponente, Chua and
Guerrero, JJ., concurring, Rollo, Vol. I, pp. 228-258.

2DARAB (Case No. JC-IV-LAG-0001) entitled Juan Amante, et. al. vs. Sta. Rosa Realty
Development Corporation, promulgated on December 19, 1991, Rollo, Vol. I, pp. 133-136.

3 Petition, Rollo, Vol. I, p.10.

4 Petition, Regional Trial Court, Laguna, docketed as Civil Case No. B-2333, Rollo, Vol. I, p. 11.

5 Civil Cases Nos. 250, 258, 260, 262 and 266, p. 11.

6 Petition, Annex "A", Rollo, Vol. I, p. 55.

7 Petition, Annex "B", Rollo, Vol. I, p. 56-57.

8Original Record, Folder I, Letter of Felicito B. Buban, Department of Agriculture, dated August 29,
1989.

9 Ibid., Summary Investigation Report.

10 Original Record, Folder II.

11 Folder I, Notice of Acquisition.

12 Ibid., Letters.

13 Folder, JC-R-IV-LAG-0001-GO, Decision DARAB, pp. 23-25.

Original Records, Folder of Exhibits III, Certification from the Office of the Deputy Zoning
14

Administrator.

15 Vol. I, DARAB Folder, Manifestation and Motion.

Petition, Annex "B", Judgment, Judge Rodrigo V. Cosico, presiding, CA Rollo, pp. 98-111. In Civil
16

Case Nos. 250, 260, 258, 262, and 266.

 17Folder JC-R-IV-LAG-0001-C.O., Decision, penned by Benjamin T. Leong Chairman, concurred in
by Renato B. Padilla, Lorenzo R. Reyes, Leopoldo M. Serrano, Jr. and Josefina M. Sidiangco,
members.

18 Petition, Annex "F", Vol. I, SC Rollo, pp. 70-83.

19 Docketed as CA-G. R. SP No. 27234.

20 CA Rollo, Decision, Martin, Jr., J., ponente, Chua and Guerrero, JJ., concurring, pp. 499-529.

21Petition filed on November 24, 1993. G.R. No. 112526, Rollo, Vol. I, pp. 2-52. On September 28,
1994, the Court gave due course to the petition. G.R. No. 112526, Rollo, Vol. II, pp. 780-781.

22 Resolution, Rollo, pp. 296-300.

23 R. A. No. 6657, Sec. 57.

24 175 SCRA 343, 391 (1989).

25 In CA-G. R. SP No. 27234.

26 Comment of private respondents, Annex "1", Rollo, Vol. I, p. 331-332.

27 P. D. No. 449, Sec. 4 (b).

28 225 SCRA 278, 283 [1993].

Petition, Annex "K" (Annex "B" of), G.R. No. 112526, Rollo, Vol. I , p. 225; Reply, Annex "G", G.R.
29

No. 112526, Rollo, Vol. I, pp. 455-521.

30 Reply, Annex "A", Rollo, Vol. II, pp. 583-584.

31 Rollo, Vol. I, Memorandum, Secretary Alcala to FVR, p. 225.

FIRST DIVISION

G.R. No. 158228 March 23, 2004

DEPARTMENT OF AGRARIAN REFORM, as represented by its Secretary, ROBERTO M.

PAGDANGANAN, petitioner,
vs.
DEPARTMENT OF EDUCATION, CULTURE AND SPORTS (DECS), respondent.

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari seeks to set aside the decision1 of the Court of Appeals dated October
29, 2002 in CA-G.R. SP No. 64378, which reversed the August 30, 2000 decision of the Secretary of
Agrarian Reform, as well as the Resolution dated May 7, 2003, which denied petitioner’s motion for
reconsideration.

In controversy are Lot No. 2509 and Lot No. 817-D consisting of an aggregate area of 189.2462 hectares
located at Hacienda Fe, Escalante, Negros Occidental and Brgy. Gen. Luna, Sagay, Negros Occidental,
respectively. On October 21, 1921, these lands were donated by the late Esteban Jalandoni to respondent
DECS (formerly Bureau of Education).2 Consequently, titles thereto were transferred in the name of
respondent DECS under Transfer Certificate of Title No. 167175.3

On July 15, 1985, respondent DECS leased the lands to Anglo Agricultural Corporation for 10 agricultural
crop years, commencing from crop year 1984-1985 to crop year 1993-1994. The contract of lease was
subsequently renewed for another 10 agricultural crop years, commencing from crop year 1995-1996 to crop
year 2004-2005.4

On June 10, 1993, Eugenio Alpar and several others, claiming to be permanent and regular farm workers of
the subject lands, filed a petition for Compulsory Agrarian Reform Program (CARP) coverage with the
Municipal Agrarian Reform Office (MARO) of Escalante.5
After investigation, MARO Jacinto R. Piñosa, sent a "Notice of Coverage" to respondent DECS, stating that
the subject lands are now covered by CARP and inviting its representatives for a conference with the farmer
beneficiaries.6 Then, MARO Piñosa submitted his report to OIC-PARO Stephen M. Leonidas, who
recommended to the DAR Regional Director the approval of the coverage of the landholdings.

On August 7, 1998, DAR Regional Director Dominador B. Andres approved the recommendation, the
dispositive portion of which reads:

WHEREFORE, all the foregoing premises considered, the petition is granted. Order is hereby issued:

1. Placing under CARP coverage Lot 2509 with an area of 111.4791 hectares situated at Had. Fe,
Escalante, Negros Occidental and Lot 817-D with an area of 77.7671 hectares situated at Brgy.
Gen. Luna, Sagay, Negros Occidental;

2. Affirming the notice of coverage sent by the DAR Provincial Office, Negros Occidental dated
November 23, 1994;

3. Directing the Provincial Agrarian Reform Office of Negros Occidental and the Municipal Agrarian
Reform Officers of Sagay and Escalante to facilitate the acquisition of the subject landholdings and
the distribution of the same qualified beneficiaries.

SO ORDERED.7

Respondent DECS appealed the case to the Secretary of Agrarian Reform which affirmed the Order of the
Regional Director. 8

Aggrieved, respondent DECS filed a petition for certiorari with the Court of Appeals, which set aside the
decision of the Secretary of Agrarian Reform.9

Hence, the instant petition for review.

The pivotal issue to be resolved in this case is whether or not the subject properties are exempt from the
coverage of Republic Act No. 6657, otherwise known as the Comprehensive Agrarian Reform Law of 1998
(CARL).

The general policy under CARL is to cover as much lands suitable for agriculture as possible.10 Section 4 of
R.A. No. 6657 sets out the coverage of CARP. It states that the program 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 or 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 as 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.

Section 3(c) thereof defines "agricultural land," as "land devoted to agricultural activity as defined in this Act
and not classified as mineral, forest, residential, commercial or industrial land." The term "agriculture" or
"agricultural activity" is also defined by the same law as follows:

Agriculture, Agricultural Enterprises or Agricultural Activity means the cultivation of the soil, planting of crops,
growing of fruit trees, raising of livestock, poultry or fish, including the harvesting of such farm products, and
other farm activities, and practices performed by a farmer in conjunction with such farming operations done
by persons whether natural or juridical.11

The records of the case show that the subject properties were formerly private agricultural lands owned by
the late Esteban Jalandoni, and were donated to respondent DECS. From that time until they were leased to
Anglo Agricultural Corporation, the lands continued to be agricultural primarily planted to sugarcane, albeit
part of the public domain being owned by an agency of the government.12 Moreover, there is no legislative or
presidential act, before and after the enactment of R.A. No. 6657, classifying the said lands as mineral,
forest, residential, commercial or industrial land. Indubitably, the subject lands fall under the classification of
lands of the public domain devoted to or suitable for agriculture.

Respondent DECS sought exemption from CARP coverage on the ground that all the income derived from
its contract of lease with Anglo Agricultural Corporation were actually, directly and exclusively used for
educational purposes, such as for the repairs and renovations of schools in the nearby locality.

Petitioner DAR, on the other hand, argued that the lands subject hereof are not exempt from the CARP
coverage because the same are not actually, directly and exclusively used as school sites or campuses, as
they are in fact leased to Anglo Agricultural Corporation. Further, to be exempt from the coverage, it is the
land per se, not the income derived therefrom, that must be actually, directly and exclusively used for
educational purposes.

We agree with the petitioner.

Section 10 of R.A. No. 6657 enumerates the types of lands which are exempted from the coverage of CARP
as well as the purposes of their exemption, viz:

xxxxxxxxx

c) Lands actually, directly and exclusively used and found to be necessary for national defense, school sites
and campuses, including experimental farm stations operated by public or private schools for educational
purposes, … , shall be exempt from the coverage of this Act.13

xxxxxxxxx

Clearly, a reading of the paragraph shows that, in order to be exempt from the coverage: 1) the land must be
"actually, directly, and exclusively used and found to be necessary;" and 2) the purpose is "for school sites
and campuses, including experimental farm stations operated by public or private schools for educational
purposes."

The importance of the phrase "actually, directly, and exclusively used and found to be necessary" cannot be
understated, as what respondent DECS would want us to do by not taking the words in their literal and
technical definitions. The words of the law are clear and unambiguous. Thus, the "plain meaning rule"
or verba legis in statutory construction is applicable in this case. Where the words of a statute are clear,
plain and free from ambiguity, it must be given its literal meaning and applied without attempted
interpretation.14

We are not unaware of our ruling in the case of Central Mindanao University v. Department of Agrarian
Reform Adjudication Board,15 wherein we declared the land subject thereof exempt from CARP coverage.
However, respondent DECS’ reliance thereon is misplaced because the factual circumstances are different
in the case at bar.

Firstly, in the CMU case, the land involved was not alienable and disposable land of the public domain
because it was reserved by the late President Carlos P. Garcia under Proclamation No. 476 for the use of
Mindanao Agricultural College (now CMU).16 In this case, however, the lands fall under the category of
alienable and disposable lands of the public domain suitable for agriculture.

Secondly, in the CMU case, the land was actually, directly and exclusively used and found to be necessary
for school sites and campuses. Although a portion of it was being used by the Philippine Packing
Corporation (now Del Monte Phils., Inc.) under a "Management and Development Agreement", the
undertaking was that the land shall be used by the Philippine Packing Corporation as part of the CMU
research program, with direct participation of faculty and students. Moreover, the land was part of the land
utilization program developed by the CMU for its "Kilusang Sariling Sikap Project" (CMU-KSSP), a multi-
disciplinary applied research extension and productivity program.17 Hence, the retention of the land was
found to be necessary for the present and future educational needs of the CMU. On the other hand, the
lands in this case were not actually and exclusively utilized as school sites and campuses, as they were
leased to Anglo Agricultural Corporation, not for educational purposes but for the furtherance of its business.
Also, as conceded by respondent DECS, it was the income from the contract of lease and not the subject
lands that was directly used for the repairs and renovations of the schools in the locality.

Anent the issue of whether the farmers are qualified beneficiaries of CARP, we disagree with the Court of
Appeals’ finding that they were not.

At the outset, it should be pointed out that the identification of actual and potential beneficiaries under CARP
is vested in the Secretary of Agrarian Reform pursuant to Section 15, R.A. No. 6657, which states:
SECTION 15. Registration of Beneficiaries. — The DAR in coordination with the Barangay Agrarian Reform
Committee (BARC) as organized in this Act, shall register all agricultural lessees, tenants and farmworkers
who are qualified to be beneficiaries of the CARP. These potential beneficiaries with the assistance of the
BARC and the DAR shall provide the following data:

(a) names and members of their immediate farm household;

(b) owners or administrators of the lands they work on and the length of tenurial relationship;

(c) location and area of the land they work;

(d) crops planted; and

(e) their share in the harvest or amount of rental paid or wages received.

A copy of the registry or list of all potential CARP beneficiaries in the barangay shall be posted in the
barangay hall, school or other public buildings in the barangay where it shall be open to inspection by the
public at all reasonable hours.

In the case at bar, the BARC certified that herein farmers were potential CARP beneficiaries of the subject
properties.18 Further, on November 23, 1994, the Secretary of Agrarian Reform through the Municipal
Agrarian Reform Office (MARO) issued a Notice of Coverage placing the subject properties under CARP.
Since the identification and selection of CARP beneficiaries are matters involving strictly the administrative
implementation of the CARP,19 it behooves the courts to exercise great caution in substituting its own
determination of the issue, unless there is grave abuse of discretion committed by the administrative
agency. In this case, there was none.

The Comprehensive Agrarian Reform Program (CARP) is the bastion of social justice of poor landless
farmers, the mechanism designed to redistribute to the underprivileged the natural right to toil the earth, and
to liberate them from oppressive tenancy. To those who seek its benefit, it is the means towards a viable
livelihood and, ultimately, a decent life. The objective of the State is no less certain: "landless farmers and
farmworkers will receive the highest consideration to promote social justice and to move the nation toward
sound rural development and industrialization."20

WHEREFORE, in view of the foregoing, the petition is GRANTED. The decision of the Court of Appeals
dated October 29, 2002, in CA-G.R. SP No. 64378 is REVERSED and SET ASIDE. The decision dated
August 30, 2000 of the Secretary of Agrarian Reform placing the subject lands under CARP coverage, is
REINSTATED.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Carpio, and Azcuna, JJ., concur.

Panganiban, J., on official leave.

Footnotes

1
Penned by Justice Andres B. Reyes, Jr. and concurred in by Justice Delilah Vidallon-Magtolis and
Justice Regalado E. Maambong.

2 CA Rollo, pp. 99-100.

3 Id., pp. 335-337.

4 Id., pp. 104-107.

5 Id., pp. 39-44.

6 Id., p. 38.

7 Id., p. 53.

8 Id., pp. 82-83.

9 Rollo, p. 46.
10 DAR Adm. Order No. 13, Series of 1990.

11 Section 3(b), RA 6657.

12 Chavez v. Public Estates Authority, G.R. No. 133250, 9 July 2002, 384 SCRA 152, 239.

13 Section 10, R.A. No. 6657, as amended by R.A. No. 7881.

14 Osea v. Malaya, G.R. No. 139821, 30 January 2002, 375 SCRA 285.

15 G.R. No. 100091, 22 October 1992, 215 SCRA 86.

16 Supra, p. 89.

17 Supra, pp. 97-98.

18 Rollo, p. 87.

19 Lercana v. Jalandoni, G.R. No. 132286, 1 February 2002.

20 Secretary of Agrarian Reform v. Tropical Homes, Inc., G.R. No. 136799, 31 July 2001.