Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-10572 December 21, 1915
FRANCIS A. CHURCHILL and STEWART TAIT, plaintiffs-appellees,
vs.
JAMES J. RAFFERTY, Collector of Internal Revenue, defendant-appellant.
Attorney-General Avancea for appellant.
Aitken and DeSelms for appellees.

TRENT, J.:
The judgment appealed from in this case perpetually restrains and prohibits
the defendant and his deputies from collecting and enforcing against the
plaintiffs and their property the annual tax mentioned and described in
subsection (b) of section 100 of Act No. 2339, effective July 1, 1914, and from
destroying or removing any sign, signboard, or billboard, the property of the
plaintiffs, for the sole reason that such sign, signboard, or billboard is, or may
be, offensive to the sight; and decrees the cancellation of the bond given by
the plaintiffs to secure the issuance of the preliminary injunction granted soon
after the commencement of this action.
This case divides itself into two parts and gives rise to two main questions; (1)
that relating to the power of the court to restrain by injunction the collection
of the tax complained of, and (2) that relating to the validity of those
provisions of subsection (b) of section 100 of Act No. 2339, conferring power
upon the Collector of Internal Revenue to remove any sign, signboard, or
billboard upon the ground that the same is offensive to the sight or is
otherwise a nuisance.

The first question is one of the jurisdiction and is of vital importance to the
Government. The sections of Act No. 2339, which bear directly upon the
subject, are 139 and 140. The first expressly forbids the use of an injunction to
stay the collection of any internal revenue tax; the second provides a remedy
for any wrong in connection with such taxes, and this remedy was intended to
be exclusive, thereby precluding the remedy by injunction, which remedy is
claimed to be constitutional. The two sections, then, involve the right of a
dissatisfied taxpayers to use an exceptional remedy to test the validity of any
tax or to determine any other question connected therewith, and the
question whether the remedy by injunction is exceptional.
Preventive remedies of the courts are extraordinary and are not the usual
remedies. The origin and history of the writ of injunction show that it has
always been regarded as an extraordinary, preventive remedy, as
distinguished from the common course of the law to redress evils after they
have been consummated. No injunction issues as of course, but is granted
only upon the oath of a party and when there is no adequate remedy at law.
The Government does, by section 139 and 140, take away the preventive
remedy of injunction, if it ever existed, and leaves the taxpayer, in a contest
with it, the same ordinary remedial actions which prevail between citizen and
citizen. The Attorney-General, on behalf of the defendant, contends that
there is no provisions of the paramount law which prohibits such a course.
While, on the other hand, counsel for plaintiffs urge that the two sections are
unconstitutional because (a) they attempt to deprive aggrieved taxpayers of
all substantial remedy for the protection of their property, thereby, in effect,
depriving them of their property without due process of law, and (b) they
attempt to diminish the jurisdiction of the courts, as conferred upon them by
Acts Nos. 136 and 190, which jurisdiction was ratified and confirmed by the
Act of Congress of July 1, 1902.
In the first place, it has been suggested that section 139 does not apply to the
tax in question because the section, in speaking of a "tax," means only legal
taxes; and that an illegal tax (the one complained of) is not a tax, and,
therefore, does not fall within the inhibition of the section, and may be
restrained by injunction. There is no force in this suggestion. The inhibition

applies to all internal revenue taxes imposes, or authorized to be imposed, by

Act No. 2339. (Snyder vs. Marks, 109 U.S., 189.) And, furthermore, the mere
fact that a tax is illegal, or that the law, by virtue of which it is imposed, is
unconstitutional, does not authorize a court of equity to restrain its collection
by injunction. There must be a further showing that there are special
circumstances which bring the case under some well recognized head of
equity jurisprudence, such as that irreparable injury, multiplicity of suits, or a
cloud upon title to real estate will result, and also that there is, as we have
indicated, no adequate remedy at law. This is the settled law in the United
States, even in the absence of statutory enactments such as sections 139 and
140. (Hannewinkle vs. Mayor, etc., of Georgetown, 82 U.S., 547; Indiana Mfg.
Co. vs. Koehne, 188 U.S., 681; Ohio Tax cases, 232 U. S., 576, 587; Pittsburgh
C. C. & St. L. R. Co. vs. Board of Public Works, 172 U. S., 32; Shelton vs. Plat,
139 U.S., 591; State Railroad Tax Cases, 92 U. S., 575.) Therefore, this branch
of the case must be controlled by sections 139 and 140, unless the same be
held unconstitutional, and consequently, null and void.
The right and power of judicial tribunals to declare whether
enactments of the legislature exceed the constitutional limitations
and are invalid has always been considered a grave responsibility, as
well as a solemn duty. The courts invariably give the most careful
consideration to questions involving the interpretation and
application of the Constitution, and approach constitutional questions
with great deliberation, exercising their power in this respect with the
greatest possible caution and even reluctance; and they should never
declare a statute void, unless its invalidity is, in their judgment,
beyond reasonable doubt. To justify a court in pronouncing a
legislative act unconstitutional, or a provision of a state constitution
to be in contravention of the Constitution of the United States, the
case must be so clear to be free from doubt, and the conflict of the
statute with the constitution must be irreconcilable, because it is but
a decent respect to the wisdom, the integrity, and the patriotism of
the legislative body by which any law is passed to presume in favor of
its validity until the contrary is shown beyond reasonable doubt.
Therefore, in no doubtful case will the judiciary pronounce a

legislative act to be contrary to the constitution. To doubt the

constitutionality of a law is to resolve the doubt in favor of its validity.
(6 Ruling Case Law, secs. 71, 72, and 73, and cases cited therein.)
It is also the settled law in the United States that "due process of law" does
not always require, in respect to the Government, the same process that is
required between citizens, though it generally implies and includes regular
allegations, opportunity to answer, and a trial according to some well settled
course of judicial proceedings. The case with which we are dealing is in point.
A citizen's property, both real and personal, may be taken, and usually is
taken, by the government in payment of its taxes without any judicial
proceedings whatever. In this country, as well as in the United States, the
officer charged with the collection of taxes is authorized to seize and sell the
property of delinquent taxpayers without applying to the courts for
assistance, and the constitutionality of the law authorizing this procedure
never has been seriously questioned. (City of Philadelphia vs. [Diehl] The
Collector, 5 Wall., 720; Nicholl vs. U.S., 7 Wall., 122, and cases cited.) This
must necessarily be the course, because it is upon taxation that the
Government chiefly relies to obtain the means to carry on its operations, and
it is of the utmost importance that the modes adopted to enforce the
collection of the taxes levied should be summary and interfered with as little
as possible. No government could exist if every litigious man were permitted
to delay the collection of its taxes. This principle of public policy must be
constantly borne in mind in determining cases such as the one under
consideration.
With these principles to guide us, we will proceed to inquire whether there is
any merit in the two propositions insisted upon by counsel for the plaintiffs.
Section 5 of the Philippine Bill provides: "That no law shall be enacted in said
Islands which shall deprive any person of life, liberty, or property without due
process of law, or deny to any person therein the equal protection of the law."
The origin and history of these provisions are well-known. They are found in
substance in the Constitution of the United States and in that of ever state in
the Union.

Section 3224 of the Revised Statutes of the United States, effective since
1867, provides that: "No suit for the purpose of restraining the assessment or
collection of any tax shall be maintained in any court."
Section 139, with which we have been dealing, reads: "No court shall have
authority to grant an injunction to restrain the collection of any internalrevenue tax."
A comparison of these two sections show that they are essentially the same.
Both expressly prohibit the restraining of taxes by injunction. If the Supreme
Court of the United States has clearly and definitely held that the provisions of
section 3224 do not violate the "due process of law" and "equal protection of
the law" clauses in the Constitution, we would be going too far to hold that
section 139 violates those same provisions in the Philippine Bill. That the
Supreme Court of the United States has so held, cannot be doubted.
In Cheatham vs. United States (92 U.S., 85,89) which involved the validity of
an income tax levied by an act of Congress prior to the one in issue in the case
of Pollock vs. Farmers' Loan & Trust Co. (157 U.S., 429) the court, through Mr.
Justice Miller, said: "If there existed in the courts, state or National, any
general power of impeding or controlling the collection of taxes, or relieving
the hardship incident to taxation, the very existence of the government might
be placed in the power of a hostile judiciary. (Dows vs. The City of Chicago, 11
Wall., 108.) While a free course of remonstrance and appeal is allowed within
the departments before the money is finally exacted, the General
Government has wisely made the payment of the tax claimed, whether of
customs or of internal revenue, a condition precedent to a resort to the courts
by the party against whom the tax is assessed. In the internal revenue branch
it has further prescribed that no such suit shall be brought until the remedy by
appeal has been tried; and, if brought after this, it must be within six months
after the decision on the appeal. We regard this as a condition on which alone
the government consents to litigate the lawfulness of the original tax. It is not
a hard condition. Few governments have conceded such a right on any
condition. If the compliance with this condition requires the party aggrieved
to pay the money, he must do it."

Again, in State Railroad Tax Cases (92 U.S., 575, 613), the court said: "That
there might be no misunderstanding of the universality of this principle, it was
expressly enacted, in 1867, that "no suit for the purpose of restraining the
assessment or collection of any tax shall be maintained in any court." (Rev,
Stat., sec. 3224.) And though this was intended to apply alone to taxes levied
by the United States, it shows the sense of Congress of the evils to be feared if
courts of justice could, in any case, interfere with the process of collecting
taxes on which the government depends for its continued existence. It is a
wise policy. It is founded in the simple philosophy derived from the
experience of ages, that the payment of taxes has to be enforced by summary
and stringent means against a reluctant and often adverse sentiment; and to
do this successfully, other instrumentalities and other modes of procedure are
necessary, than those which belong to courts of justice."
And again, in Snyder vs. Marks (109 U.S., 189), the court said: "The remedy of
a suit to recover back the tax after it is paid is provided by statute, and a suit
to restrain its collection is forbidden. The remedy so given is exclusive, and no
other remedy can be substituted for it. Such has been the current of decisions
in the Circuit Courts of the United States, and we are satisfied it is a correct
view of the law."itc-a1f
In the consideration of the plaintiffs' second proposition, we will attempt to
show (1) that the Philippine courts never have had, since the American
occupation, the power to restrain by injunction the collection of any tax
imposed by the Insular Government for its own purpose and benefit, and (2)
that assuming that our courts had or have such power, this power has not
been diminished or curtailed by sections 139 and 140.
We will first review briefly the former and present systems of taxation. Upon
the American occupation of the Philippine, there was found a fairly complete
system of taxation. This system was continued in force by the military
authorities, with but few changes, until the Civil Government assumed charge
of the subject. The principal sources of revenue under the Spanish regime
were derived from customs receipts, the so-called industrial taxes, the urbana
taxes, the stamp tax, the personal cedula tax, and the sale of the public

domain. The industrial and urbana taxes constituted practically an income tax
of some 5 per cent on the net income of persons engaged in industrial and
commercial pursuits and on the income of owners of improved city property.
The sale of stamped paper and adhesive stamp tax. The cedula tax was a
graduated tax, ranging from nothing up to P37.50. The revenue derived from
the sale of the public domain was not considered a tax. The American
authorities at once abolished the cedula tax, but later restored it in a modified
form, charging for each cedula twenty centavos, an amount which was
supposed to be just sufficient to cover the cost of issuance. The urbana tax
was abolished by Act No. 223, effective September 6, 1901.
The "Municipal Code" (Act No. 82) and the Provincial Government Act (No.
83), both enacted in 1901, authorize municipal councils and provincial boards
to impose an ad valorem tax on real estate. The Municipal Code did not apply
to the city of Manila. This city was given a special charter (Act No. 183),
effective August 30, 1901; Under this charter the Municipal Board of Manila is
authorized and empowered to impose taxes upon real estate and, like
municipal councils, to license and regulate certain occupations. Customs
matters were completely reorganized by Act No. 355, effective at the port of
Manila on February 7, 1902, and at other ports in the Philippine Islands the
day after the receipt of a certified copy of the Act. The Internal Revenue Law
of 1904 (Act No. 1189), repealed all existing laws, ordinances, etc., imposing
taxes upon the persons, objects, or occupations taxed under that act, and all
industrial taxes and stamp taxes imposed under the Spanish regime were
eliminated, but the industrial tax was continued in force until January 1, 1905.
This Internal Revenue Law did not take away from municipal councils,
provincial boards, and the Municipal Board of the city of Manila the power to
impose taxes upon real estate. This Act (No. 1189), with its amendments, was
repealed by Act No. 2339, an act "revising and consolidating the laws relative
to internal revenue."
Section 84 of Act No. 82 provides that "No court shall entertain any suit
assailing the validity of a tax assessed under this act until the taxpayer shall
have paid, under protest, the taxes assessed against him, . . . ."

This inhibition was inserted in section 17 of Act No. 83 and applies to taxes
imposed by provincial boards. The inhibition was not inserted in the Manila
Charter until the passage of Act No. 1793, effective October 12, 1907. Act No.
355 expressly makes the payment of the exactions claimed a condition
precedent to a resort to the courts by dissatisfied importers. Section 52 of Act
No. 1189 provides "That no courts shall have authority to grant an injunction
restraining the collection of any taxes imposed by virtue of the provisions of
this Act, but the remedy of the taxpayer who claims that he is unjustly
assessed or taxed shall be by payment under protest of the sum claimed from
him by the Collector of Internal Revenue and by action to recover back the
sum claimed to have been illegally collected."
Sections 139 and 140 of Act No. 2339 contain, as we have indicated, the same
prohibition and remedy. The result is that the courts have been expressly
forbidden, in every act creating or imposing taxes or imposts enacted by the
legislative body of the Philippines since the American occupation, to entertain
any suit assailing the validity of any tax or impost thus imposed until the tax
shall have been paid under protest. The only taxes which have not been
brought within the express inhibition were those included in that part of the
old Spanish system which completely disappeared on or before January 1,
1905, and possibly the old customs duties which disappeared in February,
1902.
Section 56 of the Organic Act (No. 136), effective June 16, 1901, provides that
"Courts of First Instance shall have original jurisdiction:
xxx

xxx

xxx

2. In all civil actions which involve the ... legality of any tax, impost, or
assessment, . . . .
xxx

xxx

xxx

7. Said courts and their judges, or any of them, shall have power to
issue writs of injunction, mandamus, certiorari, prohibition, quo

warranto, and habeas corpus in their respective provinces and

districts, in the manner provided in the Code of Civil Procedure.
The provisions of the Code of Civil Procedure (Act No. 190), effective October
1, 1901, which deals with the subject of injunctions, are sections 162 to 172,
inclusive. Injunctions, as here defined, are of two kinds; preliminary and final.
The former may be granted at any time after the commencement of the
action and before final judgment, and the latter at the termination of the trial
as the relief or part of the relief prayed for (sec. 162). Any judge of the
Supreme Court may grant a preliminary injunction in any action pending in
that court or in any Court of First Instance. A preliminary injunction may also
be granted by a judge of the Court of First Instance in actions pending in his
district in which he has original jurisdiction (sec. 163). But such injunctions
may be granted only when the complaint shows facts entitling the plaintiff to
the relief demanded (sec. 166), and before a final or permanent injunction can
be granted, it must appear upon the trial of the action that the plaintiff is
entitled to have commission or continuance of the acts complained of
perpetually restrained (sec. 171). These provisions authorize the institution in
Courts of First Instance of what are known as "injunction suits," the sole
object of which is to obtain the issuance of a final injunction. They also
authorize the granting of injunctions as aiders in ordinary civil actions. We
have defined in Davesa vs. Arbes (13 Phil. Rep., 273), an injunction to be "A
"special remedy" adopted in that code (Act 190) from American practice, and
originally borrowed from English legal procedure, which was there issued by
the authority and under the seal of a court of equity, and limited, as in other
cases where equitable relief is sought, to those cases where there is no "plain,
adequate, and complete remedy at law,"which will not be granted while the
rights between the parties are undetermined, except in extraordinary cases
where material and irreparable injury will be done,"which cannot be
compensated in damages . . .
By paragraph 2 of section 56 of Act No. 136, supra, and the provisions of the
various subsequent Acts heretofore mentioned, the Insular Government has
consented to litigate with aggrieved persons the validity of any original tax or
impost imposed by it on condition that this be done in ordinary civil actions

after the taxes or exactions shall have been paid. But it is said that paragraph
2 confers original jurisdiction upon Courts of First Instance to hear and
determine "all civil actions" which involve the validity of any tax, impost or
assessment, and that if the all-inclusive words "all" and "any" be given their
natural and unrestricted meaning, no action wherein that question is involved
can arise over which such courts do not have jurisdiction.
(Barrameda vs. Moir, 25 Phil. Rep., 44.) This is true. But the term "civil actions"
had its well defined meaning at the time the paragraph was enacted. The
same legislative body which enacted paragraph 2 on June 16, 1901, had, just a
few months prior to that time, defined the only kind of action in which the
legality of any tax imposed by it might be assailed. (Sec. 84, Act 82, enacted
January 31, 1901, and sec. 17, Act No. 83, enacted February 6, 1901.) That
kind of action being payment of the tax under protest and an ordinary suit to
recover and no other, there can be no doubt that Courts of First Instance have
jurisdiction over all such actions. The subsequent legislation on the same
subject shows clearly that the Commission, in enacting paragraph 2, supra, did
not intend to change or modify in any way section 84 of Act No. 82 and
section 17 of Act No. 83, but, on the contrary, it was intended that "civil
actions," mentioned in said paragraph, should be understood to mean, in so
far as testing the legality of taxes were concerned, only those of the kind and
character provided for in the two sections above mentioned. It is also urged
that the power to restrain by injunction the collection of taxes or imposts is
conferred upon Courts of First Instance by paragraph 7 of section 56, supra.
This paragraph does empower those courts to grant injunctions, both
preliminary and final, in any civil action pending in their districts, provided
always, that the complaint shows facts entitling the plaintiff to the relief
demanded. Injunction suits, such as the one at bar, are "civil actions," but of a
special or extraordinary character. It cannot be said that the Commission
intended to give a broader or different meaning to the word "action," used in
Chapter 9 of the Code of Civil Procedure in connection with injunctions, than
it gave to the same word found in paragraph 2 of section 56 of the Organic
Act. The Insular Government, in exercising the power conferred upon it by the
Congress of the United States, has declared that the citizens and residents of
this country shall pay certain specified taxes and imposts. The power to tax
necessarily carries with it the power to collect the taxes. This being true, the

weight of authority supports the proposition that the Government may fix the
conditions upon which it will consent to litigate the validity of its original
taxes. (Tennessee vs. Sneed, 96 U.S., 69.)
We must, therefore, conclude that paragraph 2 and 7 of section 56 of Act No.
136, construed in the light of the prior and subsequent legislation to which we
have referred, and the legislative and judicial history of the same subject in
the United States with which the Commission was familiar, do not empower
Courts of firs Instance to interfere by injunction with the collection of the
taxes in question in this case.1awphil.net
If we are in error as to the scope of paragraph 2 and 7, supra, and the
Commission did intend to confer the power upon the courts to restrain the
collection of taxes, it does not necessarily follow that this power or
jurisdiction has been taken away by section 139 of Act No. 2339, for the
reason that all agree that an injunction will not issue in any case if there is an
adequate remedy at law. The very nature of the writ itself prevents its
issuance under such circumstances. Legislation forbidding the issuing of
injunctions in such cases is unnecessary. So the only question to be here
determined is whether the remedy provided for in section 140 of Act No. 2339
is adequate. If it is, the writs which form the basis of this appeal should not
have been issued. If this is the correct view, the authority to issue injunctions
will not have been taken away by section 139, but rendered inoperative only
by reason of an adequate remedy having been made available.
The legislative body of the Philippine Islands has declared from the beginning
(Act No. 82) that payment under protest and suit to recover is an adequate
remedy to test the legality of any tax or impost, and that this remedy is
exclusive. Can we say that the remedy is not adequate or that it is not
exclusive, or both? The plaintiffs in the case at bar are the first, in so far as we
are aware, to question either the adequacy or exclusiveness of this remedy.
We will refer to a few cases in the United States where statutes similar to
sections 139 and 140 have been construed and applied.

In May, 1874, one Bloomstein presented a petition to the circuit court sitting
in Nashville, Tennessee, stating that his real and personal property had been
assessed for state taxes in the year 1872 to the amount of $132.60; that he
tendered to the collector this amount in "funds receivable by law for such
purposes;" and that the collector refused to receive the same. He prayed for
an alternative writ of mandamus to compel the collector to receive the bills in
payment for such taxes, or to show cause to the contrary. To this petition the
collector, in his answer, set up the defense that the petitioner's suit was
expressly prohibited by the Act of the General Assembly of the State of
Tennessee, passed in 1873. The petition was dismissed and the relief prayed
for refused. An appeal to the supreme court of the State resulted in the
affirmance of the judgment of the lower court. The case was then carried to
the Supreme Court of the United States (Tennessee vs. Sneed, 96 U. S., 69),
where the judgment was again affirmed.
The two sections of the Act of [March 21,] 1873, drawn in question in that
cases, read as follows:
1. That in all cases in which an officer, charged by law with the
collection of revenue due the State, shall institute any proceeding, or
take any steps for the collection of the same, alleged or claimed to be
due by said officer from any citizen, the party against whom the
proceeding or step is taken shall, if he conceives the same to be unjust
or illegal, or against any statute or clause of the Constitution of the
State, pay the same under protest; and, upon his making said
payment, the officer or collector shall pay such revenue into the State
Treasury, giving notice at the time of payment to the Comptroller that
the same was paid under protest; and the party paying said revenue
may, at any time within thirty days after making said payment, and
not longer thereafter, sue the said officer having collected said sum,
for the recovery thereof. And the same may be tried in any court
having the jurisdiction of the amount and parties; and, if it be
determined that the same was wrongfully collected, as not being due
from said party to the State, for any reason going to the merits of the
same, then the court trying the case may certify of record that the

same was wrongfully paid and ought to be refunded; and thereupon

the Comptroller shall issue his warrant for the same, which shall be
paid in preference to other claims on the Treasury.
2. That there shall be no other remedy, in any case of the collection of
revenue, or attempt to collect revenue illegally, or attempt to collect
revenue in funds only receivable by said officer under the law, the
same being other or different funds than such as the tax payer may
tender, or claim the right to pay, than that above provided; and no
writ for the prevention of the collection of any revenue claimed, or to
hinder or delay the collection of the same, shall in anywise issue,
either injunction, supersedeas, prohibition, or any other writ or
process whatever; but in all cases in which, for any reason, any person
shall claim that the tax so collected was wrongfully or illegally
collected, the remedy for said party shall be as above provided, and in
no other manner."
In discussing the adequacy of the remedy provided by the Tennessee
Legislature, as above set forth, the Supreme Court of the United States, in the
case just cited, said: "This remedy is simple and effective. A suit at law to
recover money unlawfully exacted is as speedy, as easily tried, and less
complicated than a proceeding by mandamus. ... In revenue cases, whether
arising upon its (United States) Internal Revenue Laws or those providing for
the collection of duties upon foreign imports, it (United States) adopts the
rule prescribed by the State of Tennessee. It requires the contestant to pay
the amount as fixed by the Government, and gives him power to sue the
collector, and in such suit to test the legality of the tax. There is nothing illegal
or even harsh in this. It is a wise and reasonable precaution for the security of
the Government."
Thomas C. Platt commenced an action in the Circuit Court of the United States
for the Eastern District of Tennessee to restrain the collection of a license tax
from the company which he represented. The defense was that sections 1 and
2 of the Act of 1873, supra, prohibited the bringing of that suit. This case also
reached the Supreme Court of the United States. (Shelton vs. Platt, 139 U.

591.) In speaking of the inhibitory provisions of sections 1 and 2 of the Act of

1873, the court said: "This Act has been sanctioned and applied by the Courts
of Tennessee. (Nashville vs. Smith, 86 Tenn., 213; Louisville & N. R.
Co. vs. State, 8 Heisk., 663, 804.) It is, as counsel observe, similar to the Act of
Congress forbidding suit for the purpose of restraining the assessment or
collection of taxes under the Internal Revenue Laws, in respect to which this
court held that the remedy by suit to recover back the tax after payment,
provided for by the Statute, was exclusive. (Snyder vs. Marks, of this character
has been called for by the embarrassments resulting from the improvident
employment of the writ of injunction in arresting the collection of the public
revenue; and, even in its absence, the strong arm of the court of chancery
ought not to be interposed in that direction except where resort to that court
is grounded upon the settled principles which govern its jurisdiction."
In Louisville & N.R. Co. vs. State (8 Heisk. [64 Tenn.], 663, 804), cited by the
Supreme Court of the United States in Shelton vs. Platt, supra, the court said:
"It was urged that this statute (sections 1 and 2 of the Act of 1873, supra) is
unconstitutional and void, as it deprives the citizen of the remedy
by certiorari, guaranteed by the organic law."
By the 10th section of the sixth article of the Constitution, [Tennessee] it is
provided that: "The judges or justices of inferior courts of law and equity shall
have power in all civil cases to issue writs of certiorari, to remove any cause,
or the transcript of the record thereof, from any inferior jurisdiction into such
court of law, on sufficient cause, supported by oath or affirmation."
The court held the act valid as not being in conflict with these provisions of
the State constitution.
In Eddy vs. The Township of Lee (73 Mich., 123), the complainants sought to
enjoin the collection of certain taxes for the year 1886. The defendants, in
support of their demurrer, insisted that the remedy by injunction had been
taken away by section 107 of the Act of 1885, which section reads as follows:
"No injunction shall issue to stay proceedings for the assessment or collection
of taxes under this Act."

It was claimed by the complainants that the above quoted provisions of the
Act of 1885 were unconstitutional and void as being in conflict with article 6,
sec. 8, of the Constitution, which provides that: "The circuit courts shall have
original jurisdiction in all matters, civil and criminal, not excepted in this
Constitution, and not prohibited by law. ... They shall also have power to issue
writs of habeas corpus, mandamus, injunction, quo warranto, certiorari, and
other writs necessary to carry into effect their orders, judgments, and
decrees."
Mr. Justice Champlin, speaking for the court, said: "I have no doubt that the
Legislature has the constitutional authority, where it has provided a plain,
adequate, and complete remedy at law to recover back taxes illegally assessed
and collected, to take away the remedy by injunction to restrain their
collection."
Section 9 of the Philippine Bill reads in part as follows: "That the Supreme
Court and the Courts of First Instance of the Philippine Islands shall possess
and exercise jurisdiction as heretofore provided and such additional
jurisdiction as shall hereafter be prescribed by the Government of said Islands,
subject to the power of said Government to change the practice and method
of procedure."
It will be seen that this section has not taken away from the Philippine
Government the power to change the practice and method of procedure. If
sections 139 and 140, considered together, and this must always be done, are
nothing more than a mode of procedure, then it would seem that the
Legislature did not exceed its constitutional authority in enacting them.
Conceding for the moment that the duly authorized procedure for the
determination of the validity of any tax, impost, or assessment was by
injunction suits and that this method was available to aggrieved taxpayers
prior to the passage of Act No. 2339, may the Legislature change this method
of procedure? That the Legislature has the power to do this, there can be no
doubt, provided some other adequate remedy is substituted in lieu thereof. In
speaking of the modes of enforcing rights created by contracts, the Supreme
Court of the United States, in Tennessee vs. Sneed, supra, said: "The rule

seems to be that in modes of proceedings and of forms to enforce the

contract the Legislature has the control, and may enlarge, limit or alter them,
provided that it does not deny a remedy, or so embarrass it with conditions
and restrictions as seriously to impair the value of the right."
In that case the petitioner urged that the Acts of 1873 were laws impairing the
obligation of the contract contained in the charter of the Bank of Tennessee,
which contract was entered into with the State in 1838. It was claimed that
this was done by placing such impediments and obstructions in the way of its
enforcement, thereby so impairing the remedies as practically to render the
obligation of no value. In disposing of this contention, the court said: "If we
assume that prior to 1873 the relator had authority to prosecute his claim
against the State by mandamus, and that by the statutes of that year the
further use of that form was prohibited to him, the question remains. whether
an effectual remedy was left to him or provided for him. We think the
regulation of the statute gave him an abundant means of enforcing such right
as he possessed. It provided that he might pay his claim to the collector under
protest, giving notice thereof to the Comptroller of the Treasury; that at any
time within thirty days thereafter he might sue the officer making the
collection; that the case should be tried by any court having jurisdiction and, if
found in favor of the plaintiff on the merits, the court should certify that the
same was wrongfully paid and ought to be refunded and the Comptroller
should thereupon issue his warrant therefor, which should be paid in
preference to other claim on the Treasury."
But great stress is laid upon the fact that the plaintiffs in the case under
consideration are unable to pay the taxes assessed against them and that if
the law is enforced, they will be compelled to suspend business. This point
may be best answered by quoting from the case of Youngblood vs. Sexton (32
Mich., 406), wherein Judge Cooley, speaking for the court, said: "But if this
consideration is sufficient to justify the transfer of a controversy from a court
of law to a court of equity, then every controversy where money is demanded
may be made the subject of equitable cognizance. To enforce against a dealer
a promissory note may in some cases as effectually break up his business as to
collect from him a tax of equal amount. This is not what is known to the law as

irreparable injury. The courts have never recognized the consequences of the
mere enforcement of a money demand as falling within that category."
Certain specified sections of Act No. 2339 were amended by Act No. 2432,
enacted December 23, 1914, effective January 1, 1915, by imposing increased
and additional taxes. Act No. 2432 was amended, were ratified by the
Congress of the United States on March 4, 1915. The opposition manifested
against the taxes imposed by Acts Nos. 2339 and 2432 is a matter of local
history. A great many business men thought the taxes thus imposed were too
high. If the collection of the new taxes on signs, signboards, and billboards
may be restrained, we see no well-founded reason why injunctions cannot be
granted restraining the collection of all or at least a number of the other
increased taxes. The fact that this may be done, shows the wisdom of the
Legislature in denying the use of the writ of injunction to restrain the
collection of any tax imposed by the Acts. When this was done, an equitable
remedy was made available to all dissatisfied taxpayers.
The question now arises whether, the case being one of which the court
below had no jurisdiction, this court, on appeal, shall proceed to express an
opinion upon the validity of provisions of subsection (b) of section 100 of Act
No. 2339, imposing the taxes complained of. As a general rule, an opinion on
the merits of a controversy ought to be declined when the court is powerless
to give the relief demanded. But it is claimed that this case is, in many
particulars, exceptional. It is true that it has been argued on the merits, and
there is no reason for any suggestion or suspicion that it is not a bona fide
controversy. The legal points involved in the merits have been presented with
force, clearness, and great ability by the learned counsel of both sides. If the
law assailed were still in force, we would feel that an opinion on its validity
would be justifiable, but, as the amendment became effective on January 1,
1915, we think it advisable to proceed no further with this branch of the case.
The next question arises in connection with the supplementary complaint, the
object of which is to enjoin the Collector of Internal Revenue from removing
certain billboards, the property of the plaintiffs located upon private lands in
the Province of Rizal. The plaintiffs allege that the billboards here in question

"in no sense constitute a nuisance and are not deleterious to the health,
morals, or general welfare of the community, or of any persons." The
defendant denies these allegations in his answer and claims that after due
investigation made upon the complaints of the British and German Consuls,
he "decided that the billboard complained of was and still is offensive to the
sight, and is otherwise a nuisance." The plaintiffs proved by Mr. Churchill that
the "billboards were quite a distance from the road and that they were
strongly built, not dangerous to the safety of the people, and contained no
advertising matter which is filthy, indecent, or deleterious to the morals of the
community." The defendant presented no testimony upon this point. In the
agreed statement of facts submitted by the parties, the plaintiffs "admit that
the billboards mentioned were and still are offensive to the sight."
The pertinent provisions of subsection (b) of section 100 of Act No. 2339 read:
"If after due investigation the Collector of Internal Revenue shall decide that
any sign, signboard, or billboard displayed or exposed to public view is
offensive to the sight or is otherwise a nuisance, he may by summary order
direct the removal of such sign, signboard, or billboard, and if same is not
removed within ten days after he has issued such order he my himself cause
its removal, and the sign, signboard, or billboard shall thereupon be forfeited
to the Government, and the owner thereof charged with the expenses of the
removal so effected. When the sign, signboard, or billboard ordered to be
removed as herein provided shall not comply with the provisions of the
general regulations of the Collector of Internal Revenue, no rebate or refund
shall be allowed for any portion of a year for which the tax may have been
paid. Otherwise, the Collector of Internal Revenue may in his discretion make
a proportionate refund of the tax for the portion of the year remaining for
which the taxes were paid. An appeal may be had from the order of the
Collector of Internal Revenue to the Secretary of Finance and Justice whose
decision thereon shall be final."
The Attorney-General, on behalf of the defendant, says: "The question which
the case presents under this head for determination, resolves itself into this
inquiry: Is the suppression of advertising signs displayed or exposed to public

view, which are admittedly offensive to the sight, conducive to the public
interest?"

interference, within the scope of the legislative power, a legislature is the

exclusive judge."

And cunsel for the plaintiffs states the question thus: "We contend that that
portion of section 100 of Act No. 2339, empowering the Collector of Internal
Revenue to remove billboards as nuisances, if objectionable to the sight, is
unconstitutional, as constituting a deprivation of property without due
process of law."

This rule very fully discussed and declared in Powell vs. Pennsylvania (127
U.S., 678) "oleo-margarine" case. (See also Crowley vs. Christensen, 137
U.S., 86, 87; Camfield vs. U.S., 167 U.S., 518.) While the state may interfere
wherever the public interests demand it, and in this particular a large
discretion is necessarily vested in the legislature to determine, not only what
the interest of the public require, but what measures are necessary for the
protection of such interests; yet, its determination in these matters is not final
or conclusive, but is subject to the supervision of the courts.
(Lawton vs. Steele, 152 U.S., 133.) Can it be said judicially that signs,
signboards, and billboards, which are admittedly offensive to the sight, are
not with the category of things which interfere with the public safety, welfare,
and comfort, and therefore beyond the reach of the police power of the
Philippine Government?

From the position taken by counsel for both sides, it is clear that our inquiry is
limited to the question whether the enactment assailed by the plaintiffs was a
legitimate exercise of the police power of the Government; for all property is
held subject to that power.
As a consequence of the foregoing, all discussion and authorities cited, which
go to the power of the state to authorize administrative officers to find, as a
fact, that legitimate trades, callings, and businesses are, under certain
circumstances, statutory nuisances, and whether the procedure prescribed for
this purpose is due process of law, are foreign to the issue here presented.
There can be no doubt that the exercise of the police power of the Philippine
Government belongs to the Legislature and that this power is limited only by
the Acts of Congress and those fundamentals principles which lie at the
foundation of all republican forms of government. An Act of the Legislature
which is obviously and undoubtedly foreign to any of the purposes of the
police power and interferes with the ordinary enjoyment of property would,
without doubt, be held to be invalid. But where the Act is reasonably within a
proper consideration of and care for the public health, safety, or comfort, it
should not be disturbed by the courts. The courts cannot substitute their own
views for what is proper in the premises for those of the Legislature. In
Munn vs. Illinois (94 U.S., 113), the United States Supreme Court states the
rule thus: "If no state of circumstances could exist to justify such statute, then
we may declare this one void because in excess of the legislative power of this
state; but if it could, we must presume it did. Of the propriety of legislative

The numerous attempts which have been made to limit by definition the
scope of the police power are only interesting as illustrating its rapid
extension within comparatively recent years to points heretofore deemed
entirely within the field of private liberty and property rights. Blackstone's
definition of the police power was as follows: "The due regulation and
domestic order of the kingdom, whereby the individuals of the state, like
members of a well governed family, are bound to conform their general
behavior to the rules of propriety, good neigborhood, and good manners, to
be decent, industrious, and inoffensive in their respective stations."
(Commentaries, vol. 4, p. 162.)
Chanceller Kent considered the police power the authority of the state "to
regulate unwholesome trades, slaughter houses, operations offensive to the
senses." Chief Justice Shaw of Massachusetts defined it as follows: "The
power vested in the legislature by the constitution to make, ordain, and
establish all manner of wholesome and reasonable laws, statutes, and
ordinances, either with penalties or without, not repugnant to the
constitution, as they shall judge to be for the good and welfare of the

commonwealth, and of the subjects of the same." (Com. vs. Alger, 7 Cush.,
53.)
In the case of Butchers' Union Slaughter-house, etc. Co. vs. Crescent City Live
Stock Landing, etc. Co. (111 U.S., 746), it was suggested that the public health
and public morals are matters of legislative concern of which the legislature
cannot divest itself. (See State vs. Mountain Timber Co. [1913], 75 Wash., 581,
where these definitions are collated.)
In Champer vs. Greencastle (138 Ind., 339), it was said: "The police power of
the State, so far, has not received a full and complete definition. It may be
said, however, to be the right of the State, or state functionary, to prescribe
regulations for the good order, peace, health, protection, comfort,
convenience and morals of the community, which do not ... violate any of the
provisions of the organic law." (Quoted with approval in Hopkins vs. Richmond
[Va., 1915], 86 S.E., 139.)
In Com. vs. Plymouth Coal Co. ([1911] 232 Pa., 141), it was said: "The police
power of the state is difficult of definition, but it has been held by the courts
to be the right to prescribe regulations for the good order, peace, health,
protection, comfort, convenience and morals of the community, which does
not encroach on a like power vested in congress or state legislatures by the
federal constitution, or does not violate the provisions of the organic law; and
it has been expressly held that the fourteenth amendment to the federal
constitution was not designed to interfere with the exercise of that power by
the state."
In People vs. Brazee ([Mich., 1914], 149 N.W., 1053), it was said: "It [the police
power] has for its object the improvement of social and economic conditioned
affecting the community at large and collectively with a view to bring about
"he greatest good of the greatest number."Courts have consistently and
wisely declined to set any fixed limitations upon subjects calling for the
exercise of this power. It is elastic and is exercised from time to time as
varying social conditions demand correction."

In 8 Cyc., 863, it is said: "Police power is the name given to that inherent
sovereignty which it is the right and duty of the government or its agents to
exercise whenever public policy, in a broad sense, demands, for the benefit of
society at large, regulations to guard its morals, safety, health, order or to
insure in any respect such economic conditions as an advancing civilization of
a high complex character requires." (As quoted with approval in
Stettler vs. O'Hara [1914], 69 Ore, 519.)
Finally, the Supreme Court of the United States has said in Noble State
Bank vs. Haskell (219 U.S. [1911], 575: "It may be said in a general way that
the police power extends to all the great public needs. It may be put forth in
aid of what is sanctioned by usage, or held by the prevailing morality or strong
and preponderant opinion to be greatly and immediately necessary to the
public welfare."
This statement, recent as it is, has been quoted with approval by several
courts. (Cunningham vs. Northwestern Imp. Co. [1911], 44 Mont., 180;
State vs. Mountain Timber Co. [1913], 75 Wash., 581; McDavid vs. Bank of Bay
Minette [Ala., 1915], 69 Sou., 452; Hopkins vs. City of Richmond [Va., 1915],
86 S.E., 139; State vs. Philipps [Miss. 1915], 67 Sou., 651.)
It was said in Com. vs. Alger (7 Cush., 53, 85), per Shaw, C.J., that: "It is much
easier to perceive and realize the existence and sources of this police power
than to mark its boundaries, or to prescribe limits to its exercise." In
Stone vs. Mississippi (101 U.S., 814), it was said: "Many attempts have been
made in this court and elsewhere to define the police power, but never with
entire success. It is always easier to determine whether a particular case
comes within the general scope of the power, than to give an abstract
definition of the power itself, which will be in all respects accurate."
Other courts have held the same vow of efforts to evolve a satisfactory
definition of the police power. Manifestly, definitions which fail to anticipate
cases properly within the scope of the police power are deficient. It is
necessary, therefore, to confine our discussion to the principle involved and
determine whether the cases as they come up are within that principle. The

basic idea of civil polity in the United States is that government should
interfere with individual effort only to the extent necessary to preserve a
healthy social and economic condition of the country. State interference with
the use of private property may be exercised in three ways. First, through the
power of taxation, second, through the power of eminent domain, and third,
through the police power. Buy the first method it is assumed that the
individual receives the equivalent of the tax in the form of protection and
benefit he receives from the government as such. By the second method he
receives the market value of the property taken from him. But under the third
method the benefits he derived are only such as may arise from the
maintenance of a healthy economic standard of society and is often referred
to as damnum absque injuria. (Com. vs. Plymouth Coal Co. 232 Pa., 141;
Bemis vs. Guirl Drainage Co., 182 Ind., 36.) There was a time when state
interference with the use of private property under the guise of the police
power was practically confined to the suppression of common nuisances. At
the present day, however, industry is organized along lines which make it
possible for large combinations of capital to profit at the expense of the socioeconomic progress of the nation by controlling prices and dictating to
industrial workers wages and conditions of labor. Not only this but the
universal use of mechanical contrivances by producers and common carriers
has enormously increased the toll of human life and limb in the production
and distribution of consumption goods. To the extent that these businesses
affect not only the public health, safety, and morals, but also the general
social and economic life of the nation, it has been and will continue to be
necessary for the state to interfere by regulation. By so doing, it is true that
the enjoyment of private property is interfered with in no small degree and in
ways that would have been considered entirely unnecessary in years gone by.
The regulation of rates charged by common carriers, for instance, or the
limitation of hours of work in industrial establishments have only a very
indirect bearing upon the public health, safety, and morals, but do bear
directly upon social and economic conditions. To permit each individual unit
of society to feel that his industry will bring a fair return; to see that his work
shall be done under conditions that will not either immediately or eventually
ruin his health; to prevent the artificial inflation of prices of the things which
are necessary for his physical well being are matters which the individual is no

longer capable of attending to himself. It is within the province of the police

power to render assistance to the people to the extent that may be necessary
to safeguard these rights. Hence, laws providing for the regulation of wages
and hours of labor of coal miners (Rail & River Coal Co. vs. Taylor, 234 U.S.,
224); requiring payment of employees of railroads and other industrial
concerns in legal tender and requiring salaries to be paid semimonthly (Erie
R.R. Co. vs. Williams, 233 U.S., 685); providing a maximum number of hours of
labor for women (Miller vs. Wilson, U.S. Sup. Ct. [Feb. 23, 1915], Adv. Opns.,
p. 342); prohibiting child labor (Sturges & Burn vs. Beauchamp, 231 U.S., 320);
restricting the hours of labor in public laundries (In re Wong Wing, 167 Cal.,
109); limiting hours of labor in industrial establishment generally
(State vs. Bunting, 71 Ore., 259); Sunday Closing Laws (State vs. Nicholls [Ore.,
1915], 151 Pac., 473; People vs. C. Klinck Packing Co. [N.Y., 1915], 108 N. E.,
278; Hiller vs. State [Md., 1914], 92 Atl., 842; State vs. Penny, 42 Mont., 118;
City of Springfield vs. Richter, 257 Ill., 578, 580; State vs. Hondros [S.C., 1915],
84 S.E., 781); have all been upheld as a valid exercise of the police power.
Again, workmen's compensation laws have been quite generally upheld.
These statutes discard the common law theory that employers are not liable
for industrial accidents and make them responsible for all accidents resulting
from trade risks, it being considered that such accidents are a legitimate
charge against production and that the employer by controlling the prices of
his product may shift the burden to the community. Laws requiring state
banks to join in establishing a depositors' guarantee fund have also been
upheld by the Federal Supreme Court in Noble State Bank vs. Haskell (219 U.
S., 104), and Assaria State Bank vs. Dolley (219 U.S., 121).
Offensive noises and smells have been for a long time considered susceptible
of suppression in thickly populated districts. Barring livery stables from such
locations was approved of in Reinman vs. Little Rock (U.S. Sup. Ct. [Apr. 5,
1915], U.S. Adv. Opns., p. 511). And a municipal ordinance was recently
upheld (People vs. Ericsson, 263 Ill., 368), which prohibited the location of
garages within two hundred feet of any hospital, church, or school, or in any
block used exclusively for residential purposes, unless the consent of the
majority of the property owners be obtained. Such statutes as these are
usually upheld on the theory of safeguarding the public health. But we

apprehend that in point of fact they have little bearing upon the health of the
normal person, but a great deal to do with his physical comfort and
convenience and not a little to do with his peace of mind. Without entering
into the realm of psychology, we think it quite demonstrable that sight is as
valuable to a human being as any of his other senses, and that the proper
ministration to this sense conduces as much to his contentment as the care
bestowed upon the senses of hearing or smell, and probably as much as both
together. Objects may be offensive to the eye as well as to the nose or ear.
Man's esthetic feelings are constantly being appealed to through his sense of
sight. Large investments have been made in theaters and other forms of
amusement, in paintings and spectacular displays, the success of which
depends in great part upon the appeal made through the sense of sight.
Moving picture shows could not possible without the sense of sight.
Governments have spent millions on parks and boulevards and other forms of
civic beauty, the first aim of which is to appeal to the sense of sight. Why,
then, should the Government not interpose to protect from annoyance this
most valuable of man's senses as readily as to protect him from offensive
noises and smells?
The advertising industry is a legitimate one. It is at the same time a cause and
an effect of the great industrial age through which the world is now passing.
Millions are spent each year in this manner to guide the consumer to the
articles which he needs. The sense of sight is the primary essential to
advertising success. Billboard advertising, as it is now conducted, is a
comparatively recent form of advertising. It is conducted out of doors and
along the arteries of travel, and compels attention by the strategic locations
of the boards, which obstruct the range of vision at points where travelers are
most likely to direct their eyes. Beautiful landscapes are marred or may not be
seen at all by the traveler because of the gaudy array of posters announcing a
particular kind of breakfast food, or underwear, the coming of a circus, an
incomparable soap, nostrums or medicines for the curing of all the ills to
which the flesh is heir, etc. It is quite natural for people to protest against this
indiscriminate and wholesale use of the landscape by advertisers and the
intrusion of tradesmen upon their hours of leisure and relaxation from work.
Outdoor life must lose much of its charm and pleasure if this form of

advertising is permitted to continue unhampered until it converts the streets

and highways into veritable canyons through which the world must travel in
going to work or in search of outdoor pleasure.
The success of billboard advertising depends not so much upon the use of
private property as it does upon the use of the channels of travel used by the
general public. Suppose that the owner of private property, who so vigorously
objects to the restriction of this form of advertising, should require the
advertiser to paste his posters upon the billboards so that they would face the
interior of the property instead of the exterior. Billboard advertising would die
a natural death if this were done, and its real dependency not upon the
unrestricted use of private property but upon the unrestricted use of the
public highways is at once apparent. Ostensibly located on private property,
the real and sole value of the billboard is its proximity to the public
thoroughfares. Hence, we conceive that the regulation of billboards and their
restriction is not so much a regulation of private property as it is a regulation
of the use of the streets and other public thoroughfares.
We would not be understood as saying that billboard advertising is not a
legitimate business any more than we would say that a livery stable or an
automobile garage is not. Even a billboard is more sightly than piles of rubbish
or an open sewer. But all these businesses are offensive to the senses under
certain conditions.
It has been urged against ministering to the sense of sight that tastes are so
diversified that there is no safe standard of legislation in this direction. We
answer in the language of the Supreme Court in Noble State Bank vs. Haskell
(219 U.S., 104), and which has already been adopted by several state courts
(see supra), that "the prevailing morality or strong and preponderating
opinion" demands such legislation. The agitation against the unrestrained
development of the billboard business has produced results in nearly all the
countries of Europe. (Ency. Britannica, vol. 1, pp. 237-240.) Many drastic
ordinances and state laws have been passed in the United States seeking to
make the business amenable to regulation. But their regulation in the United
states is hampered by what we conceive an unwarranted restriction upon the

scope of the police power by the courts. If the police power may be exercised
to encourage a healthy social and economic condition in the country, and if
the comfort and convenience of the people are included within those
subjects, everything which encroaches upon such territory is amenable to the
police power. A source of annoyance and irritation to the public does not
minister to the comfort and convenience of the public. And we are of the
opinion that the prevailing sentiment is manifestly against the erection of
billboards which are offensive to the sight.
We do not consider that we are in conflict with the decision in
Eubank vs. Richmond (226 U.S., 137), where a municipal ordinance
establishing a building line to which property owners must conform was held
unconstitutional. As we have pointed out, billboard advertising is not so much
a use of private property as it is a use of the public thoroughfares. It derives
its value to the power solely because the posters are exposed to the public
gaze. It may well be that the state may not require private property owners to
conform to a building line, but may prescribe the conditions under which they
shall make use of the adjoining streets and highways. Nor is the law in
question to be held invalid as denying equal protection of the laws. In Keokee
Coke Co. vs. Taylor (234 U.S., 224), it was said: "It is more pressed that the act
discriminates unconstitutionally against certain classes. But while there are
differences of opinion as to the degree and kind of discrimination permitted
by the Fourteenth Amendment, it is established by repeated decisions that a
statute aimed at what is deemed an evil, and hitting it presumably where
experience shows it to be most felt, is not to be upset by thinking up and
enumerating other instances to which it might have been applied equally well,
so far as the court can see. That is for the legislature to judge unless the case
is very clear."
But we have not overlooked the fact that we are not in harmony with the
highest courts of a number of the states in the American Union upon this
point. Those courts being of the opinion that statutes which are prompted
and inspired by esthetic considerations merely, having for their sole purpose
the promotion and gratification of the esthetic sense, and not the promotion
or protection of the public safety, the public peace and good order of society,

must be held invalid and contrary to constitutional provisions holding

inviolate the rights of private property. Or, in other words, the police power
cannot interfere with private property rights for purely esthetic purposes. The
courts, taking this view, rest their decisions upon the proposition that the
esthetic sense is disassociated entirely from any relation to the public health,
morals, comfort, or general welfare and is, therefore, beyond the police
power of the state. But we are of the opinion, as above indicated, that
unsightly advertisements or signs, signboards, or billboards which are
offensive to the sight, are not disassociated from the general welfare of the
public. This is not establishing a new principle, but carrying a well recognized
principle to further application. (Fruend on Police Power, p. 166.)
For the foregoing reasons the judgment appealed from is hereby reversed and
the action dismissed upon the merits, with costs. So ordered.
Arellano, C.J., Torres, Carson, and Araullo, JJ., concur.
DECISION ON THE MOTION FOR A REHEARING, JANUARY 24, 1916.
TRENT, J.:
Counsel for the plaintiffs call our attention to the case of Ex parte Young (209
U.S., 123); and say that they are of the opinion that this case "is the absolutely
determinative of the question of jurisdiction in injunctions of this kind." We
did not refer to this case in our former opinion because we were satisfied that
the reasoning of the case is not applicable to section 100 (b), 139 and 140 of
Act No. 2339. The principles announced in the Young case are stated as
follows: "It may therefore be said that when the penalties for disobedience
are by fines so enormous and imprisonment so severe as to intimidate the
company and its officers from resorting to the courts to test the validity of the
legislation, the result is the same as if the law in terms prohibited the
company from seeking judicial construction of laws which deeply affect its
rights.

It is urged that there is no principle upon which to base the claim that
a person is entitled to disobey a statute at least once, for the purpose
of testing its validity without subjecting himself to the penalties for
disobedience provided by the statute in case it is valid. This is not an
accurate statement of the case. Ordinarily a law creating offenses in
the nature of misdemeanors or felonies relates to a subject over
which the jurisdiction of the legislature is complete in any event. In
these case, however, of the establishment of certain rates without
any hearing, the validity of such rates necessarily depends upon
whether they are high enough to permit at least some return upon
the investment (how much it is not now necessary to state), and an
inquiry as to that fact is a proper subject of judicial investigation. If it
turns out that the rates are too low for that purpose, then they are
illegal. Now, to impose upon a party interested the burden of
obtaining a judicial decision of such a question (no prior hearing
having ever been given) only upon the condition that, if unsuccessful,
he must suffer imprisonment and pay fines as provided in these acts,
is, in effect, to close up all approaches to the courts, and thus prevent
any hearing upon the question whether the rates as provided by the
acts are not too low, and therefore invalid. The distinction is obvious
between a case where the validity of the acts depends upon the
existence of a fact which can be determined only after investigation of
a very complicated and technical character, and the ordinary case of a
statute upon a subject requiring no such investigation and over which
the jurisdiction of the legislature is complete in any event.
An examination of the sections of our Internal Revenue Law and of the
circumstances under which and the purposes for which they were enacted,
will show that, unlike the statutes under consideration in the above cited
case, their enactment involved no attempt on the part of the Legislature to
prevent dissatisfied taxpayers "from resorting to the courts to test the validity
of the legislation;" no effort to prevent any inquiry as to their validity. While
section 139 does prevent the testing of the validity of subsection (b) of section
100 in injunction suits instituted for the purpose of restraining the collection
of internal revenue taxes, section 140 provides a complete remedy for that

purpose. And furthermore, the validity of subsection (b) does not depend
upon "the existence of a fact which can be determined only after investigation
of a very complicated and technical character," but the jurisdiction of the
Legislature over the subject with which the subsection deals "is complete in
any event." The judgment of the court in the Young case rests upon the
proposition that the aggrieved parties had no adequate remedy at law.
Neither did we overlook the case of General Oil Co. vs. Crain (209 U.S.,
211), decided the same day and citing Ex parte Young, supra. In that
case the plaintiff was a Tennessee corporation, with its principal place
of business in Memphis, Tennessee. It was engaged in the
manufacture and sale of coal oil, etc. Its wells and plant were located
in Pennsylvania and Ohio. Memphis was not only its place of business,
at which place it sold oil to the residents of Tennessee, but also a
distributing point to which oils were shipped from Pennsylvania and
Ohio and unloaded into various tanks for the purpose of being
forwarded to the Arkansas, Louisiana, and Mississippi customers.
Notwithstanding the fact that the company separated its oils, which
were designated to meet the requirements of the orders from those
States, from the oils for sale in Tennessee, the defendant insisted that
he had a right, under the Act of the Tennessee Legislature, approved
April 21, 1899, to inspect all the oils unlocated in Memphis, whether
for sale in that State or not, and charge and collect for such inspection
a regular fee of twenty-five cents per barrel. The company, being
advised that the defendant had no such right, instituted this action in
the inferior States court for the purpose of enjoining the defendant,
upon the grounds stated in the bill, from inspecting or attempting to
inspect its oils. Upon trial, the preliminary injunction which had been
granted at the commencement of the action, was continued in force.
Upon appeal, the supreme court of the State of Tennessee decided
that the suit was one against the State and reversed the judgment of
the Chancellor. In the Supreme Court of the United States, where the
case was reviewed upon a writ of error, the contentions of the parties
were stated by the court as follows: "It is contended by defendant in
error that this court is without jurisdiction because no matter sought

to be litigated by plaintiff in error was determined by the Supreme

Court of Tennessee. The court simply held, it is paid, that, under the
laws of the State, it had no jurisdiction to entertain the suit for any
purpose. And it is insisted "hat this holding involved no Federal
question, but only the powers and jurisdiction of the courts of the
State of Tennessee, in respect to which the Supreme Court of
Tennessee is the final arbiter."
Opposing these contentions, plaintiff in error urges that whether a
suit is one against a State cannot depend upon the declaration of a
statute, but depends upon the essential nature ofthe suit, and that
the Supreme Court recognized that the statute "aded nothing to the
axiomatic principle that the State, as a sovereign, is not subject to suit
save by its own consent."And it is hence insisted that the court by
dismissing the bill gave effect to the law which was attacked. It is
further insisted that the bill undoubtedly present rights under the
Constitution of the United States and conditions which entitle plaintiff
in error to an injunction for the protection of such rights, and that a
statute of the State which operates to deny such rights, or such relief,
`is itself in conflict with the Constitution of the United States."
That statute of Tennessee, which the supreme court of that State construed
and held to be prohibitory of the suit, was an act passed February 28, 1873,
which provides: "That no court in the State of Tennessee has, nor shall
hereafter have, any power, jurisdiction, or authority to entertain any suit
against the State, or any officer acting by the authority of the State, with a
view to reach the State, its treasury, funds or property; and all such suits now
pending, or hereafter brought, shall be dismissed as to the State, or such
officer, on motion, plea or demurrer of the law officer of the State, or counsel
employed by the State."
The Supreme Court of the United States, after reviewing many cases, said:
"Necessarily, to give adequate protection to constitutional rights a distinction
must be made between valid and invalid state laws, as determining the
character of the suit against state officers. And the suit at bar illustrates the

necessity. If a suit against state officer is precluded in the national courts by

the Eleventh Amendment to the Constitution, and may be forbidden by a
State to its courts, as it is contended in the case at bar that it may be, without
power of review by this court, it must be evident that an easy way is open to
prevent the enforcement of many provisions of the Constitution; and the
Fourteenth Amendment, which is directed at state action, could be nullified as
to much of its operation. ... It being then the right of a party to be protected
against a law which violates a constitutional right, whether by its terms or the
manner of its enforcement, it is manifest that a decision which denies such
protection gives effect to the law, and the decision is reviewable by this
court."
The court then proceeded to consider whether the law of 1899 would, if
administered against the oils in question, violate any constitutional right of
the plaintiff and after finding and adjudging that the oils were not in
movement through the States, that they had reached the destination of their
first shipment, and were held there, not in necessary delay at means of
transportation but for the business purposes and profit of the company, and
resting its judgment upon the taxing power of the State, affirmed the decree
of the supreme court of the State of Tennessee.
From the foregoing it will be seen that the Supreme Court of Tennessee
dismissed the case for want of jurisdiction because the suit was one against
the State, which was prohibited by the Tennessee Legislature. The Supreme
Court of the United States took jurisdiction of the controversy for the reasons
above quoted and sustained the Act of 1899 as a revenue law.
The case of Tennessee vs. Sneed (96 U.S., 69), and Shelton vs. Platt (139 U.S.,
591), relied upon in our former opinion, were not cited in General Oil
Co. vs. Crain, supra, because the questions presented and the statutes under
consideration were entirely different. The Act approved March 31, 1873,
expressly prohibits the courts from restraining the collection of any tax,
leaving the dissatisfied taxpayer to his exclusive remedy payment under
protest and suit to recover while the Act approved February 28, 1873,
prohibits suits against the State.

In upholding the statute which authorizes the removal of signboards or

billboards upon the sole ground that they are offensive to the sight, we
recognized the fact that we are not in harmony with various state courts in
the American Union. We have just examined the decision of the Supreme
Court of the State of Illinois in the recent case (October [December], 1914) of
Thomas Cusack Co. vs. City of Chicago (267 Ill., 344), wherein the court upheld
the validity of a municipal ordinances, which reads as follows: "707. Frontage
consents required. It shall be unlawful for any person, firm or corporation to
erect or construct any bill-board or sign-board in any block on any public
street in which one-half of the buildings on both sides of the street are used
exclusively for residence purposes, without first obtaining the consent, in
writing, of the owners or duly authorized agents of said owners owning a
majority of the frontage of the property, on both sides of the street, in the
block in which such bill-board or sign-board is to be erected, constructed or
located. Such written consent shall be filed with the commissioner of buildings
before a permit shall be issued for the erection, construction or location of
such bill-board or sign-board."
The evidence which the Illinois court relied upon was the danger of fires, the
fact that billboards promote the commission of various immoral and filthy acts
by disorderly persons, and the inadequate police protection furnished to
residential districts. The last objection has no virtue unless one or the other of
the other objections are valid. If the billboard industry does, in fact, promote
such municipal evils to noticeable extent, it seems a curious inconsistency that
a majority of the property owners on a given block may legalize the business.
However, the decision is undoubtedly a considerable advance over the views
taken by other high courts in the United States and distinguishes several
Illinois decisions. It is an advance because it permits the suppression of
billboards where they are undesirable. The ordinance which the court
approved will no doubt cause the virtual suppression of the business in the
residential districts. Hence, it is recognized that under certain circumstances
billboards may be suppressed as an unlawful use of private property.
Logically, it would seem that the premise of fact relied upon is not very solid.
Objections to the billboard upon police, sanitary, and moral grounds have
been, as pointed out by counsel for Churchill and Tait, duly considered by

numerous high courts in the United States, and, with one exception, have
been rejected as without foundation. The exception is the Supreme Court of
Missouri, which advances practically the same line of reasoning as has the
Illinois court in this recent case. (St. Louis Gunning Advt. Co. vs. City of St.
Louis, 137 S. W., 929.) In fact, the Illinois court, in Haller Sign
Works vs. Physical Culture Training School (249 Ill., 436), "distinguished" in the
recent case, said: "There is nothing inherently dangerous to the health or
safety of the public in structures that are properly erected for advertising
purposes."
If a billboard is so constructed as to offer no room for objections on sanitary
or moral grounds, it would seem that the ordinance above quoted would have
to be sustained upon the very grounds which we have advanced in sustaining
our own statute.
It might be well to note that billboard legislation in the United States is
attempting to eradicate a business which has already been firmly established.
This business was allowed to expand unchecked until its very extent called
attention to its objectionable features. In the Philippine Islands such
legislation has almost anticipated the business, which is not yet of such
proportions that it can be said to be fairly established. It may be that the
courts in the United States have committed themselves to a course of
decisions with respect to billboard advertising, the full consequences of which
were not perceived for the reason that the development of the business has
been so recent that the objectionable features of it did not present
themselves clearly to the courts nor to the people. We, in this country, have
the benefit of the experience of the people of the United States and may
make our legislation preventive rather than corrective. There are in this
country, moreover, on every hand in those districts where Spanish civilization
has held sway for so many centuries, examples of architecture now belonging
to a past age, and which are attractive not only to the residents of the country
but to visitors. If the billboard industry is permitted without constraint or
control to hide these historic sites from the passerby, the country will be less
attractive to the tourist and the people will suffer a district economic loss. The
motion for a rehearing is therefore denied.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 150640

March 22, 2007

BARANGAY SINDALAN, SAN FERNANDO, PAMPANGA, rep. by BARANGAY

CAPTAIN ISMAEL GUTIERREZ, Petitioner,
vs.
COURT OF APPEALS, JOSE MAGTOTO III, and PATRICIA
SINDAYAN, Respondents.

registered owners of a parcel of land covered by Transfer Certificate of Title

No. 117674-R. The Complaint was docketed as Civil Case No. 6756 and raffled
to the San Fernando, Pampanga RTC, Branch 43. Petitioner sought to convert
a portion of respondents land into Barangay Sindalans feeder road. The
alleged public purposes sought to be served by the expropriation were stated
in Barangay Resolution No. 6, as follows:
WHEREAS, said parcels of land shall be used, when acquired, as a barangay
feeder road for the agricultural and other products of the residents, and just
as inlet for their basic needs;

DECISION

WHEREAS, presently, residents have to take a long circuitous dirt road before
they can reach the concrete provincial road, entailing so much time, effort
and money, not to mention possible damage and/or spilage [sic] on the
products consigned to or coming from, the market outside the barangay; and

Expropriation, if misused or abused, would trench on the property rights of

individuals without due process of law.

WHEREAS, said lots, used as outlet or inlet road, shall contribute greatly to the
general welfare of the people residing therein social, cultural and health
among other things, beside economic.4

VELASCO, JR., J.:

The Case
For review before the Court in a petition for certiorari under Rule 45 are the
May 30, 2001 Decision1 and October 26, 2001 Resolution2 of the Court of
Appeals (CA), reversing and setting aside the August 2, 1990 Order3 of the San
Fernando, Pampanga Regional Trial Court (RTC), Branch 43. The CA Resolution
denied petitioners Motion for Reconsideration of the May 30, 2001 Decision
and in effect, the appellate court dismissed petitioners Complaint for
eminent domain.
The Facts
On April 8, 1983, pursuant to a resolution passed by the barangay council,
petitioner Barangay Sindalan, San Fernando, Pampanga, represented by
Barangay Captain Ismael Gutierrez, filed a Complaint for eminent domain
against respondents spouses Jose Magtoto III and Patricia Sindayan, the

Petitioner claimed that respondents property was the most practical and
nearest way to the municipal road. Pending the resolution of the case at the
trial court, petitioner deposited an amount equivalent to the fair market value
of the property.5
On the other hand, respondents stated that they owned the 27,000- square
meter property, a portion of which is the subject of this case. In their
Memorandum,6 they alleged that their lot is adjacent to Davsan II Subdivision
privately owned by Dr. Felix David and his wife. Prior to the filing of the
expropriation case, said subdivision was linked to MacArthur Highway through
a pathway across the land of a certain Torres family. Long before the passage
of the barangay resolution, the wives of the subdivision owner and the
barangay captain, who were known to be agents of the subdivision, had
proposed buying a right-of-way for the subdivision across a portion of

respondents property. These prospective buyers, however, never returned

after learning of the price which the respondents ascribed to their property.

Subdivision as per the testimony of Ruben Palo, plaintiffs own witness (TSN,
p. 12, December 115, 1986) [sic]. Appellants correctly stated that:

Respondents alleged that the expropriation of their property was for private
use, that is, for the benefit of the homeowners of Davsan II Subdivision. They
contended that petitioner deliberately omitted the name of Davsan II
Subdivision and, instead, stated that the expropriation was for the benefit of
the residents of Sitio Paraiso in order to conceal the fact that the access road
being proposed to be built across the respondents land was to serve a
privately owned subdivision and those who would purchase the lots of said
subdivision. They also pointed out that under Presidential Decree No. (PD)
957, it is the subdivision owner who is obliged to provide a feeder road to the
subdivision residents.7

"The act of Bo. Sindalan, San Fernando, Pampanga, in effect relieved the
owners of Davsan II Subdivision of spending their own private funds for
acquiring a right of way and constructing the required access road to the
subdivision. It spent public funds for such private purpose and deprived herein
defendants-appellants of their property for an ostensible public purpose x x
x."

After trial, the court a quo ruled, thus:

WHEREFORE, in view of all the foregoing premises duly considered, the herein
plaintiff is hereby declared as having a lawful right to take the property
hereinabove described and sought to be condemned for the public purpose or
use as aforestated, upon payment of just compensation to be determined as
of the date of the filing of the Complaint in this [sic] expropriation
proceedings.
Upon the entry of this Order of Condemnation, let three (3) competent and
disinterested persons be appointed as Commissioners to ascertain and report
to the Court the just compensation for the property condemned.8

xxxx
WHEREFORE, premises considered, the appealed Decision is hereby REVERSED
and SET ASIDE and the Complaint for Eminent Domain is DISMISSED for lack of
merit.
SO ORDERED.9
The Issues
Petitioner imputes errors to the CA for (1) allegedly violating its power of
eminent domain, (2) finding that the expropriation of the property is not for
public use but for a privately owned subdivision, (3) finding that there was no
payment of just compensation, and (4) failing to accord respect to the findings
of the trial court. Stated briefly, the main issue in this case is whether the
proposed exercise of the power of eminent domain would be for a public
purpose.1awphi1.nt

The Ruling of the Court of Appeals

The Courts Ruling
Upon respondents appeal, the CA held:
The petition lacks merit.
We are convinced that it is the duty of the subdivision owner to provide the
right of way needed by residents of Davsan II Subdivision as provided for in
Section 29 of P.D. 957. Records show that Purok Paraiso, which is supposed to
benefit from this [sic] expropriation proceedings is in reality Davsan II

In general, eminent domain is defined as "the power of the nation or a

sovereign state to take, or to authorize the taking of, private property for a
public use without the owners consent, conditioned upon payment of just
compensation."10 It is acknowledged as "an inherent political right, founded

on a common necessity and interest of appropriating the property of

individual members of the community to the great necessities of the whole
community."111vvphi1.nt
The exercise of the power of eminent domain is constrained by two
constitutional provisions: (1) that private property shall not be taken for
public use without just compensation under Article III (Bill of Rights), Section 9
and (2) that no person shall be deprived of his/her life, liberty, or property
without due process of law under Art. III, Sec. 1.
However, there is no precise meaning of "public use" and the term is
susceptible of myriad meanings depending on diverse situations. The limited
meaning attached to "public use" is "use by the public" or "public
employment," that "a duty must devolve on the person or corporation holding
property appropriated by right of eminent domain to furnish the public with
the use intended, and that there must be a right on the part of the public, or
some portion of it, or some public or quasi-public agency on behalf of the
public, to use the property after it is condemned."12 The more generally
accepted view sees "public use" as "public advantage, convenience, or
benefit, and that anything which tends to enlarge the resources, increase the
industrial energies, and promote the productive power of any considerable
number of the inhabitants of a section of the state, or which leads to the
growth of towns and the creation of new resources for the employment of
capital and labor, [which] contributes to the general welfare and the
prosperity of the whole community."13 In this jurisdiction, "public use" is
defined as "whatever is beneficially employed for the community."14
It is settled that the public nature of the prospective exercise of expropriation
cannot depend on the "numerical count of those to be served or the
smallness or largeness of the community to be benefited."15 The number of
people is not determinative of whether or not it constitutes public use,
provided the use is exercisable in common and is not limited to particular
individuals.16 Thus, the first essential requirement for a valid exercise of
eminent domain is for the expropriator to prove that the expropriation is for a
public use. In Municipality of Bian v. Garcia, this Court explicated that

expropriation ends with an order of condemnation declaring "that the plaintiff

has a lawful right to take the property sought to be condemned, for the public
use or purpose described in the complaint, upon the payment of just
compensation."17
Another vital requisite for a valid condemnation is the payment of just
compensation to the property owner. In the recent case of APO Fruits
Corporation v. The Honorable Court of Appeals,18 just compensation has been
defined as "the full and fair equivalent of the property taken from its owner
by the expropriator," and that the gauge for computation is not the takers
gain but the owners loss. In order for the payment to be "just," it must be
real, substantial, full, and ample. Not only must the payment be fair and
correctly determined, but also, the Court in Estate of Salud Jimenez v.
Philippine Export Processing Zone stressed that the payment should be made
within a "reasonable time" from the taking of the property.19 It succinctly
explained that without prompt payment, compensation cannot be considered
"just" inasmuch as the property owner is being made to suffer the
consequences of being immediately deprived of the land while being made to
wait for a decade or more before actually receiving the amount necessary to
cope with the loss. Thus, once just compensation is finally determined, the
expropriator must immediately pay the amount to the lot owner. In Reyes v.
National Housing Authority, it was ruled that 12% interest per annum shall be
imposed on the final compensation until paid.20 Thus, any further delay in the
payment will result in the imposition of 12% interest per annum. However, in
the recent case of Republic v. Lim, the Court enunciated the rule that "where
the government failed to pay just compensation within five (5) years from the
finality of the judgment in the expropriation proceedings, the owners
concerned shall have the right to recover possession of their property."21
Since the individual stands to lose the property by compulsion of the law, the
expropriation authority should not further prejudice the owners rights by
delaying payment of just compensation. To obviate any possibility of delay in
the payment, the expropriator should already make available, at the time of
the filing of the expropriation complaint, the amount equal to the BIR zonal

valuation or the fair market value of the property per tax declaration
whichever is higher.
The delayed payment of just compensation in numerous cases results from
lack of funds or the time spent in the determination of the legality of the
expropriation and/or the fair valuation of the property, and could result in
dismay, disappointment, bitterness, and even rancor on the part of the lot
owners. It is not uncommon for the expropriator to take possession of the
condemned property upon deposit of a small amount equal to the assessed
value of the land per tax declaration and then challenge the valuation fixed by
the trial court resulting in an "expropriate now, pay later" situation. In the
event the expropriating agency questions the reasonability of the
compensation fixed by the trial court before the appellate court, then the
latter may, upon motion, use its sound discretion to order the payment to the
lot owner of the amount equal to the valuation of the property, as proposed
by the condemnor during the proceedings before the commissioners under
Sec. 6, Rule 67 of the Rules of Court, subject to the final valuation of the land.
This way, the damage and prejudice to the property owner would be
considerably pared down.
On due process, it is likewise basic under the Constitution that the property
owner must be afforded a reasonable opportunity to be heard on the issues of
public use and just compensation and to present objections to and claims on
them.22 It is settled that taking of property for a private use or without just
compensation is a deprivation of property without due process of
law.23 Moreover, it has to be emphasized that taking of private property
without filing any complaint before a court of law under Rule 67 of the Rules
of Court or existing laws is patently felonious, confiscatory, and
unconstitutional. Judicial notice can be taken of some instances wherein some
government agencies or corporations peremptorily took possession of private
properties and usurped the owners real rights for their immediate use
without first instituting the required court action. Running roughshod over the
property rights of individuals is a clear and gross breach of the constitutional
guarantee of due process, which should not be countenanced in a society
where the rule of law holds sway.

In the case at bar, petitioner harps on eminent domain as an inherent power

of sovereignty similar to police power and taxation. As a basic political unit, its
Sangguniang Barangay is clothed with the authority to provide barangay roads
and other facilities for public use and welfare. Petitioner relied on the
following cases which held a liberal view of the term "public use" in
recognition of the evolving concept of the power of eminent domain: Sea v.
Manila Railroad Co.; Philippine Columbian Association v. Panis; Sumulong v.
Guerrero; Province of Camarines Sur v. Court of Appeals; and Manosca v. Court
of Appeals.24
Petitioners delegated power to expropriate is not at issue. The legal question
in this petition, however, is whether the taking of the land was for a public
purpose or use. In the exercise of the power of eminent domain, it is basic
that the taking of private property must be for a public purpose. A corollary
issue is whether private property can be taken by law from one person and
given to another in the guise of public purpose.
In this regard, the petition must fail.
Petitioner alleges that there are at least 80 houses in the place and about 400
persons will be benefited with the use of a barangay road. The trial court
believed that the expropriation "will not benefit only the residents of the
subdivision, but also the residents of Sitio or Purok Paraiso and the residents
of the entire Barangay of Sindalan x x x."25 The trial court held that the
subdivision is covered by Sitio or Purok Paraiso which is a part or parcel of
Barangay Sindalan. However, this finding was not supported by evidence. On
the contrary, it is Sitio Paraiso which is within Davsan II Subdivision based on
the testimony of petitioners own witness, Ruben Palo, as follows:
Atty. Mangiliman: Mr. Palo, you said that you have been residing at Sitio
Paraiso since 1973, is this Sitio Paraiso within the Davson [sic] Subdivision?
Witness: Yes, sir.
xxxx

Atty. Mangiliman: And before you purchased that or at the time you
purchased it in 1972, I am referring to the lot where you are now residing, the
Davson [sic] Subdivision did not provide for a road linking from the subdivision
to the barrio road, am I correct?

Atty. Mangiliman: When the road which is the subject of this case and sought
to be expropriated has not yet been opened and before a Writ of Possession
was issued by the Court to place the plaintiff in this case in possession, the
residents of Davson [sic] Subdivision have other way in going to the barrio
road?

Witness: None, sir.

Witness: None, sir.
Atty. Mangiliman: And despite [sic] of that you purchased a lot inside Davson
[sic] Subdivision?

Atty. Mangiliman: In that case Mr. Witness, how do you negotiate or go out of
the subdivision in going to the barrio?

Witness: Yes, sir.

Atty. Mangiliman: Did you not demand from the developer of Davson [sic]
Subdivision that he should provide a road linking from the subdivision to the
barrio road of Sindalan?
Witness: No, sir, because I know they will provide for the road.
Atty. Mangiliman: And when you said that they will provide for that road, you
mean to tell us that it is the developer of Davson [sic] Subdivision who will
provide a road linking from the subdivision to the barrio road of Sindalan?
Witness: Yes, sir.
Atty. Mangiliman: Now, Mr. Witness, you will agree with me that the
proposed road which will connect from Davson [sic] Subdivision to the barrio
road of Sindalan would benefit mainly the lot buyers and home owners of
Davson [sic] Subdivision?
Witness: Yes, sir.
Atty. Mangiliman: And you also agree with me that there is no portion of
Davson [sic] Subdivision which is devoted to the production of agricultural
products?
Witness: None, sir.

Witness: We passed to the lot own [sic] by Mr. Torres which is near the
subdivision in going to the barrio road, sir.
Atty. Mangiliman: Did you not complain to the owner/developer of the
subdivision that he should provide for a road linking to [sic] his subdivision to
the barrio road because there is no available exit from the said subdivision to
the barrio road?
Witness: We have been telling that and he was promising that there will be a
road, sir.26
Firstly, based on the foregoing transcript, the intended feeder road sought to
serve the residents of the subdivision only. It has not been shown that the
other residents of Barangay Sindalan, San Fernando, Pampanga will be
benefited by the contemplated road to be constructed on the lot of
respondents spouses Jose Magtoto III and Patricia Sindayan. While the
number of people who use or can use the property is not determinative of
whether or not it constitutes public use or purpose, the factual milieu of the
case reveals that the intended use of respondents lot is confined solely to the
Davsan II Subdivision residents and is not exercisable in common.27Worse, the
expropriation will actually benefit the subdivisions owner who will be able to
circumvent his commitment to provide road access to the subdivision in
conjunction with his development permit and license to sell from the Housing
and Land Use Regulatory Board, and also be relieved of spending his own

funds for a right-of-way. In this factual setting, the Davsan II Subdivision

homeowners are able to go to the barrio road by passing through the lot of a
certain Torres family. Thus, the inescapable conclusion is that the
expropriation of respondents lot is for the actual benefit of the Davsan II
Subdivision owner, with incidental benefit to the subdivision homeowners.
The intended expropriation of private property for the benefit of a private
individual is clearly proscribed by the Constitution, declaring that it should be
for public use or purpose. In Charles River Bridge v. Warren, the limitation on
expropriation was underscored, hence:
Although the sovereign power in free government may appropriate all
property, public as well as private, for public purposes, making compensation
therefore; yet it has never been understood, at least never in our republic,
that the sovereign power can take the private property of A and give it to B by
the right of eminent domain; or that it can take it at all, except for public
purposes; or that it can take it for public purposes, without the duty and
responsibility of ordering compensation for the sacrifice of the private
property of one, for the good of the whole (11 Pet. at 642) (emphasis
supplied).28
US case law also points out that a member of the public cannot acquire a
certain private easement by means of expropriation for being
unconstitutional, because "even if every member of the public should acquire
the easement, it would remain a bundle of private easements."29
Secondly, a compelling reason for the rejection of the expropriation is
expressed in Section 29, PD 957, which provides:
Sec. 29. Right of Way to Public Road.The owner or developer of a
subdivision without access to any existing public road or street must secure a
right of way to a public road or street and such right of way must be
developed and maintained according to the requirement of the government
authorities concerned.

Considering that the residents who need a feeder road are all subdivision lot
owners, it is the obligation of the Davsan II Subdivision owner to acquire a
right-of-way for them. However, the failure of the subdivision owner to
provide an access road does not shift the burden to petitioner. To deprive
respondents of their property instead of compelling the subdivision owner to
comply with his obligation under the law is an abuse of the power of eminent
domain and is patently illegal. Without doubt, expropriation cannot be
justified on the basis of an unlawful purpose.
Thirdly, public funds can be used only for a public purpose. In this proposed
condemnation, government funds would be employed for the benefit of a
private individual without any legal mooring. In criminal law, this would
constitute malversation.
Lastly, the facts tend to show that the petitioners proper remedy is to require
the Davsan II Subdivision owner to file a complaint for establishment of the
easement of right-of-way under Articles 649 to 656 of the Civil Code.
Respondents must be granted the opportunity to show that their lot is not a
servient estate. Plainly, petitioners resort to expropriation is an improper
cause of action.
One last word: the power of eminent domain can only be exercised for public
use and with just compensation. Taking an individuals private property is a
deprivation which can only be justified by a higher goodwhich is public
useand can only be counterbalanced by just compensation. Without these
safeguards, the taking of property would not only be unlawful, immoral, and
null and void, but would also constitute a gross and condemnable
transgression of an individuals basic right to property as well.
For this reason, courts should be more vigilant in protecting the rights of the
property owner and must perform a more thorough and diligent scrutiny of
the alleged public purpose behind the expropriation. Extreme caution is called
for in resolving complaints for condemnation, such that when a serious doubt
arises regarding the supposed public use of property, the doubt should be
resolved in favor of the property owner and against the State.

WHEREFORE, we AFFIRM the May 30, 2001 Decision and the October 26, 2001
Resolution of the CA, with costs against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-106528 December 21, 1993
PHILIPPINE COLUMBIAN ASSOCIATION, petitioner,
vs.
THE HONORABLE DOMINGO D. PANIS as Judge, Regional Trial Court of
Manila, Branch 41, THE HONORABLE RICARDO DIAZ, as Judge, Regional Trial
Court of Manila, Branch 27, the CITY OF MANILA, ANTONIO GONZALES, JR.,
KARLO BUTIONG, LEONARDO AQUINO, EDILBERTO LOPEZ, ANTILANO
FERRER, LEONCIA DAVILLO JAMERO, LUIS FERNANDEZ, PATRICIO DE
GUZMAN, RICARDO DE LEON, VIRGILIO TORNERO, FAUSTO FERNANDEZ,
DOMINGO MEREN, EDUARDA JACINTO, MAGDALENA VELEZ, LUSITO
ALMADRONES, MYRNA BARREDO EBREO, FULGENCIO CORSINO, PEDRO
VELASQUEZ, JUAN INOBAYA, NENITA ARCE, MAGNO ORTINEZ, ARMANDO
PARAGAS, HIPOLITO ESTABILLO, FELICIANO FAUSTINO, VIRGILIO EDIC, JOSE
TINGZON, JOSUE MARIANO, MARIA YERO, MA. DOLORES QUIZON, ISIDERO
TAGUILIG, CIRIACO MENDOZA, JUAN ROMERO, JOSE LAGATA, FRUCTUSO
PUSING, TEOFILO TERSOL, ANTONIO LACHICA, PIO RAJALES, REGINA
VIERNES, JUAN ROMERO, DOMINGO EDIC, EDUARDA GONZALES, PABLO
QUIRANTE, LEONORA SANTIA, MARIA RIVERA, ELENA ARCE, LAZARO
GOMEZ, PEDRO MENDOZA, DOMINADOR ADAO, JUAN PANTERA, FRISCA
MANDOT, SOCORRO SANTOS AND GLORIA JEBUNAN, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.

QUIASON, J.:
This is an appeal by certiorari to review: (1) the decision of the Court of
Appeals in CA-G.R. SP No. 23338, which dismissed the petition
for certiorari filed by herein petitioner, assailing the orders of (a) respondent
Judge Domingo D. Panis of the Regional Trial Court, Branch 41, Manila, in Civil
Case No. 90-53531, and (b) respondent Judge Ricardo D. Diaz, of the Regional
Trial Court, Branch 27, Manila, in Civil Case No. 90-53346; and (2) its
Resolution dated July 30, 1992, which denied the motion for reconsideration
of the decision.
Philippine Columbian Association, petitioner herein, is a non-stock, non-profit
domestic corporation and is engaged in the business of providing sports and
recreational facilities for its members. Petitioner's office and facilities are
located in the District of Paco, Manila, and adjacent thereto, is a parcel of land
consisting of 4,842.90 square meters owned by petitioner.
Private respondents are the actual occupants of the said parcel of land, while
respondents Antonio Gonzales, Jr. and Karlo Butiong were duly-elected
councilors of the City of Manila.
In 1982, petitioner instituted ejectment proceedings against herein private
respondents before the metropolitan Trial Court of Manila. Judgment was
rendered against the said occupants, ordering them to vacate the lot and pay
reasonable compensation therefor. This judgment was affirmed by the
Regional Trial Court, the Court of Appeals and subsequently by the Supreme
Court in G.R. No. 85262.
As a result of the favorable decision, petitioner filed before the Metropolitan
Trial Court of Manila, a motion for execution of judgment, which was granted
on April 9, 1990. A writ of demolition was later prayed and likewise issued by
the same court on May 30, 1990.

Dennis A. Padernal for private respondents.

City Legal Officer for respondent City of Manila.

On June 8, 1990, private respondents filed with the Regional Trial Court,
Branch 27, Manila, a petition for injunction and prohibition with preliminary
injunction and restraining order against the Metropolitan Trial Court of Manila

and petitioner herein (Civil Case No. 90-53346) to enjoin their ejectment from
and the demolition of their houses on the premises in question.

order, granting the writ of preliminary injunction prayed for by the private
respondents. A motion for reconsideration filed by petitioner was denied.

On June 28, 1990, the City of Manila filed a complaint docketed as Civil Case
No. 90-53531 against petitioner before the Regional Trial Court, Branch 41,
Manila, for the expropriation of the 4,842.90 square meter lot subject of the
ejectment proceedings in Civil Case No. 90-53346. Petitioner, in turn, filed a
motion to dismiss the complaint, alleging, inter alia, that the City of Manila
had no power to expropriate private land; that the expropriation is not for
public use and welfare; that the expropriation is politically motivated; and,
that the deposit of P2 million in the City of Manila representing the
provisional value of the land, was insufficient and was made under P.D. 1533,
a law declared unconstitutional by the Supreme Court.

Petitioner filed before the Court of Appeals a petition before the Court of
Appeals a petition assailing the orders dated September 14, 1990, and
October 5 and 8, 1990 of Branch 41 of the Regional Trial Court, and the Order
dated September 21, 1990 of Branch 27 of the same court (CA-G.R. SP No.
23338). The Court of Appeals rendered a Decision on November 31, 1992,
denying the petition, and a Resolution on July 30, 1992, denying consideration
thereof.

On September 14, 1990, the Regional Trial Court, Branch 41, Manila, denied
petitioner's motion to dismiss and entered an order of condemnation
declaring that the expropriation proceeding was properly instituted in
accordance with law. The Court also ordered the parties to submit, within five
days, the names of their respective nominees as commissioners to ascertain
just compensation for the land in question.
Petitioner filed a motion for reconsideration of the order denying its motion
to dismiss, and later a motion to defer compliance with the order directing the
submission of the names of nominees to be appointed commissioners. The
City of Manila, however, filed an ex-parte motion for the issuance of a writ of
possession over the subject lot, mentioning the P2 million deposit with the
Philippine National Bank, representing the provisional value of the land.
In separate orders dated October 5 and 8, 1990, the court issued the writ of
possession, and at the same time, denied petitioner's motion to defer
compliance and motion for reconsideration.
On September 21, 1990, as a result of the expropriation proceedings, the
Regional Trial Court, Branch 27, Manila, in Civil Case No. 90-53346 issued an

Hence, this petition.

The land subject of this case is the 4,842.90 square meter lot, which was
formerly a part of the Fabie Estate. As early as November 11, 1966, the
Municipal Board of the City of Manila passed Ordinance No. 5971, seeking to
expropriate the Fabie Estate. Through negotiated sales, the City of Manila
acquired a total of 18,017.10 square meters of the estate, and thereafter
subdivided the land into home lots and distributed the portions to the actual
occupants thereof.
The remaining area of 4,842.90 square meters, more or less, was sold in 1977
by its owner, Dolores Fabie-Posadas, to petitioner. Since the time of the sale,
the lot has been occupied by private respondents. On 23, 1989, the City
Council of Manila, with the approval of the Mayor, passed Ordinance No. 7704
for the expropriation of the 4,842.90 square meter lot.
Petitioner claims that expropriation of the lot cannot prosper because:
(1) the City of Manila has no specific power to expropriate private property
under the 1987 Constitution; and (2) assuming that it has such power, this
was exercised improperly and illegally in violation of the Public use
requirement and petitioner's right to due process.

Petitioner argues that under the 1987 Constitution, there must be a law
expressly authorizing local governments to undertake urban land reform (Art.
XIII, Sec. 9).
Petitioner forgot that the Revised Charter of the City of Manila, R.A. No. 409,
expressly authorizes the City of Manila to "condemn private property for
public use" (Sec. 3) and "to acquire private land . . . and subdivide the same
into home lots for sale on easy terms to city residents" (Sec. 100).
The Revised Charter of the City of Manila expressly grants the City of Manila
general powers over its territorial jurisdiction, including the power of eminent
domain, thus:
General powers. The city may have a common seal and
alter the same at pleasure, and may take, purchase, receive,
hold, lease, convey, and dispose of real and personal property
for the general interest of the city, condemn private property
for public use, contract and be contracted with, sue and be
sued, and prosecute and defend to final judgment and
execution, and exercise all the powers hereinafter conferred
(R.A. 409, Sec. 3; Emphasis supplied).
Section 100 of said Revised Charter authorizes the City of Manila to undertake
urban land reform, thus:
Sec. 100. The City of Manila is authorized to acquire private
lands in the city and to subdivide the same into home lots for
sale on easy terms for city residents, giving first priority to
the bona fide tenants or occupants of said lands, and second
priority to laborers and low-salaried employees. For the
purpose of this section, the city may raise the necessary funds
by appropriations of general funds, by securing loans or by
issuing bonds, and, if necessary, may acquire the lands
through expropriation proceedings in accordance with law,
with the approval of the President . . . (Emphasis supplied).

The City of Manila, acting through its legislative branch, has the express power
to acquire private lands in the city and subdivide these lands into home lots
for sale to bona fide tenants or occupants thereof, and to laborers and lowsalaried employees of the city. That only a few could actually benefit from the
expropriation of the property does not diminish its public use character. It is
simply not possible to provide all at once land and shelter for all who need
them (Sumulong v. Guerrero, 154 SCRA 461 [1987] ).
Corollary to the expanded notion of public use, expropriation is not anymore
confined to vast tracts of land and landed estates (Province of Camarines Sur
v. Court of Appeals, G.R. No. 103125, May 17, 1993; J.M. Tuason and Co., Inc.
v. Land Tenure Administration, 31 SCRA 413 [1970] ). It is therefore of no
moment that the land sought to be expropriated in this case is less than half a
hectare only (Pulido v. Court of Appeals, 122 SCRA 63 [1983]).
Through the years, the public use requirement in eminent domain has evolved
into a flexible concept, influenced by changing conditions (Sumulong v.
Guerrero, supra; Manotok v. National Housing Authority, 150 SCRA 89 [1987];
Heirs of Juancho Ardona v. Reyes, 125 SCRA 220 [1983]). Public use now
includes the broader notion of indirect public benefit or advantage, including
in particular, urban land reform and housing.
This concept is specifically recognized in the 1987 Constitution which provides
that:
xxx xxx xxx
The state shall, by law, and for the common good, undertake,
in cooperation with the private sector, a continuing program
of urban land reform and housing which will make available at
affordable cost decent housing and basic services to
underprivileged and homeless citizens in urban centers and
resettlement areas. It shall also promote adequate
employment opportunities to such citizens. In the
implementation of such program the State shall respect the

rights of small property owners (Art. XIII, Sec. 9; Emphasis

supplied).

Republic of the Philippines

SUPREME COURT
Manila

xxx xxx xxx

The due process requirement in the expropriation of subject lot has likewise
been complied with. Although the motion to dismiss filed by petitioner was
not set for hearing as the court is required to do (National Housing Authority
v. Valenzuela, 159 SCRA 396 [1988]), it never questioned the lack of hearing
before the trial and appellate courts. It is only now before us that petitioner
raises the issue of due process.
Indeed, due process was afforded petitioner when it filed its motion for
reconsideration of the trial court's order, denying its motion to dismiss.
The Court of Appeals, in determining whether grave abuse of discretion was
committed by respondent courts, passed upon the very same issues raised by
petitioner in its motion to dismiss, which findings we uphold. Petitioner
therefore cannot argue that it was denied its day in court.
The amount of P2 million representing the provisional value of the land is an
amount not only fixed by the court, but accepted by both parties. The fact
remains that petitioner, albeit reluctantly, agreed to said valuation and is
therefore estopped from assailing the same. It must be remembered that the
valuation is merely provisional. The parties still have the second stage in the
proceedings in the proper court below to determine specifically the amount of
just compensation to be paid the landowner (Revised Rules of Court, Rule 67,
Sec. 5; National Power Corporation v. Jocson, 206 SCRA 520 [1992] ).
WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.

EN BANC
G.R. No. L-59603

April 29, 1987

EXPORT PROCESSING ZONE AUTHORITY, petitioner,

vs.
HON. CEFERINO E. DULAY, in his capacity as the Presiding Judge, Court of
First Instance of Cebu, Branch XVI, Lapu-Lapu City, and SAN ANTONIO
DEVELOPMENT CORPORATION, respondents.
Elena M. Cuevas for respondents.
GUTIERREZ, JR., J.:
The question raised in this petition is whether or not Presidential Decrees
Numbered 76, 464, 794 and 1533 have repealed and superseded Sections 5 to
8 of Rule 67 of the Revised Rules of Court, such that in determining the just
compensation of property in an expropriation case, the only basis should be
its market value as declared by the owner or as determined by the assessor,
whichever is lower.
On January 15, 1979, the President of the Philippines, issued Proclamation No.
1811, reserving a certain parcel of land of the public domain situated in the
City of Lapu-Lapu, Island of Mactan, Cebu and covering a total area of
1,193,669 square meters, more or less, for the establishment of an export
processing zone by petitioner Export Processing Zone Authority (EPZA).
Not all the reserved area, however, was public land. The proclamation
included, among others, four (4) parcels of land with an aggregate area of
22,328 square meters owned and registered in the name of the private
respondent. The petitioner, therefore, offered to purchase the parcels of land
from the respondent in acccordance with the valuation set forth in Section 92,
Presidential Decree (P.D.) No. 464, as amended. The parties failed to reach an
agreement regarding the sale of the property.

The petitioner filed with the then Court of First Instance of Cebu, Branch XVI,
Lapu-Lapu City, a complaint for expropriation with a prayer for the issuance of
a writ of possession against the private respondent, to expropriate the
aforesaid parcels of land pursuant to P.D. No. 66, as amended, which
empowers the petitioner to acquire by condemnation proceedings any
property for the establishment of export processing zones, in relation to
Proclamation No. 1811, for the purpose of establishing the Mactan Export
Processing Zone.
On October 21, 1980, the respondent judge issued a writ of possession
authorizing the petitioner to take immediate possession of the premises. On
December 23, 1980, the private respondent flied its answer.
At the pre-trial conference on February 13, 1981, the respondent judge issued
an order stating that the parties have agreed that the only issue to be
resolved is the just compensation for the properties and that the pre-trial is
thereby terminated and the hearing on the merits is set on April 2, 1981.
On February 17, 1981, the respondent judge issued the order of
condemnation declaring the petitioner as having the lawful right to take the
properties sought to be condemned, upon the payment of just compensation
to be determined as of the filing of the complaint. The respondent judge also
issued a second order, subject of this petition, appointing certain persons as
commissioners to ascertain and report to the court the just compensation for
the properties sought to be expropriated.
On June 19, 1981, the three commissioners submitted their consolidated
report recommending the amount of P15.00 per square meter as the fair and
reasonable value of just compensation for the properties.
On July 29, 1981, the petitioner Med a Motion for Reconsideration of the
order of February 19, 1981 and Objection to Commissioner's Report on the
grounds that P.D. No. 1533 has superseded Sections 5 to 8 of Rule 67 of the
Rules of Court on the ascertainment of just compensation through

commissioners; and that the compensation must not exceed the maximum
amount set by P.D. No. 1533.
On November 14, 1981, the trial court denied the petitioner's motion for
reconsideration and gave the latter ten (10) days within which to file its
objection to the Commissioner's Report.
On February 9, 1982, the petitioner flied this present petition for certiorari
and mandamus with preliminary restraining order, enjoining the trial court
from enforcing the order dated February 17, 1981 and from further
proceeding with the hearing of the expropriation case.
The only issue raised in this petition is whether or not Sections 5 to 8, Rule 67
of the Revised Rules of Court had been repealed or deemed amended by P.D.
No. 1533 insofar as the appointment of commissioners to determine the just
compensation is concerned. Stated in another way, is the exclusive and
mandatory mode of determining just compensation in P.D. No. 1533 valid and
constitutional?
The petitioner maintains that the respondent judge acted in excess of his
jurisdiction and with grave abuse of discretion in denying the petitioner's
motion for reconsideration and in setting the commissioner's report for
hearing because under P.D. No. 1533, which is the applicable law herein, the
basis of just compensation shall be the fair and current market value declared
by the owner of the property sought to be expropriated or such market value
as determined by the assessor, whichever is lower. Therefore, there is no
more need to appoint commissioners as prescribed by Rule 67 of the Revised
Rules of Court and for said commissioners to consider other highly variable
factors in order to determine just compensation. The petitioner further
maintains that P.D. No. 1533 has vested on the assessors and the property
owners themselves the power or duty to fix the market value of the
properties and that said property owners are given the full opportunity to be
heard before the Local Board of Assessment Appeals and the Central Board of
Assessment Appeals. Thus, the vesting on the assessor or the property owner
of the right to determine the just compensation in expropriation proceedings,

with appropriate procedure for appeal to higher administrative boards, is

valid and constitutional.
Prior to the promulgation of P.D. Nos. 76, 464, 794 and 1533, this Court has
interpreted the eminent domain provisions of the Constitution and
established the meaning, under the fundametal law, of just compensation and
who has the power to determine it. Thus, in the following cases, wherein the
filing of the expropriation proceedings were all commenced prior to the
promulgation of the aforementioned decrees, we laid down the doctrine
onjust compensation:
Municipality of Daet v. Court of Appeals (93 SCRA 503, 516),
xxx

xxx

"According to section 8 of Rule 67, the court is not bound by the

commissioners' report. It may make such order or render such
judgment as shall secure to the plaintiff the property essential to the
exercise of his right of condemnation, and to the defendant just
compensation for the property expropriated. This Court may
substitute its own estimate of the value as gathered from the record
(Manila Railroad Company v. Velasquez, 32 Phil. 286)."
However, the promulgation of the aforementioned decrees practically set
aside the above and many other precedents hammered out in the course of
evidence-laden, well argued, fully heard, studiously deliberated, and
judiciously considered court proceedings. The decrees categorically and
peremptorily limited the definition of just compensation thus:

xxx
P.D. No. 76:

"And in the case of J.M. Tuason & Co., Inc. v. Land Tenure Administration, 31
SCRA 413, the Court, speaking thru now Chief Justice Fernando, reiterated the
'well-settled (rule) 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."

xxx

xxx

xxx

"For purposes of just compensation in cases of private property

acquired by the government for public use, the basis shall be the
current and fair market value declared by the owner or administrator,
or such market value as determined by the Assessor, whichever is
lower."

Garcia v. Court ofappeals (102 SCRA 597, 608),

P.D. No. 464:
xxx

xxx

xxx

"Hence, in estimating the market value, all the capabilities of the

property and all the uses to which it may be applied or for which it is
adapted are to be considered and not merely the condition it is in the
time and the use to which it is then applied by the owner. All the facts
as to the condition of the property and its surroundings, its
improvements and capabilities may be shown and considered in
estimating its value."
Republic v. Santos (141 SCRA 30, 35-36),

"Section 92. Basis for payment of just compensation in expropriation

proceedings. In determining just compensation which private
property is acquired by the government for public use, the basis shall
be the market value declared by the owner or administrator or
anyone having legal interest in the property, or such market value as
determined by the assessor, whichever is lower."
P.D. No. 794:

"Section 92. Basis for payment of just compensation in expropriation

proceedings. In determining just compensation when private
property is acquired by the government for public use, the same shall
not exceed the market value declared by the owner or administrator
or anyone having legal interest in the property, or such market value
as determined by the assessor, whichever is lower."

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.

P.D. No. 1533:

In the case of National Housing Authority v. Reyes (123 SCRA 245), this Court
upheld P.D. No. 464, as further amended by P.D. Nos. 794, 1224 and 1259. In
this case, the petitioner National Housing Authority contended that the
owner's declaration at P1,400.00 which happened to be lower than the
assessor's assessment, is the just compensation for the respondent's property
under section 92 of P.D. No. 464. On the other hand, the private respondent
stressed that while there may be basis for the allegation that the respondent
judge did not follow the decree, the matter is still subject to his final
disposition, he having been vested with the original and competent authority
to exercise his judicial discretion in the light of the constitutional clauses on
due process and equal protection.

"Section 1. In determining just compensation for private property

acquired through eminent domain proceedings, the compensation to
be paid shall not exceed the value declared by the owner or
administrator or anyone having legal interest in the property or
determined by the assessor, pursuant to the Real Property Tax Code,
whichever value is lower, prior to the recommendation or decision of
the appropriate Government office to acquire the property."
We are constrained to declare the provisions of the Decrees on just
compensation unconstitutional and void and accordingly dismiss the instant
petition for lack of merit.
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 the 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

To these opposing arguments, this Court ruled ihat under the conceded facts,
there should be a recognition that the law as it stands must be applied; that
the decree having spoken so clearly and unequivocably calls for obedience;
and that on a matter where the applicable law speaks in no uncertain
language, the Court has no choice except to yield to its command. We further
stated that "the courts should recognize that the rule introduced by P.D. No.
76 and reiterated in subsequent decrees does not upset the established
concepts of justice or the constitutional provision on just compensation for,
precisely, the owner is allowed to make his own valuation of his property."
While the Court yielded to executive prerogative exercised in the form of
absolute law-making power, its members, nonetheless, remained
uncomfortable with the implications of the decision and the abuse and
unfairness which might follow in its wake. For one thing, the President himself
did not seem assured or confident with his own enactment. It was not enough
to lay down the law on determination of just compensation in P.D. 76. It had

to be repeated and reiterated in P.D. 464, P.D. 794, and P.D. 1533. The
provision is also found in P.D. 1224, P.D. 1259 and P.D. 1313. Inspite of its
effectivity as general law and the wide publicity given to it, the questioned
provision or an even stricter version had to be embodied in cases of specific
expropriations by decree as in P.D. 1669 expropriating the Tambunting Estate
and P.D. 1670 expropriating the Sunog Apog area in Tondo, Manila.
In the present petition, we are once again confronted with the same question
of whether the courts under P.D. 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.
In overruling the petitioner's motion for reconsideration and objection to the
commissioner's report, the trial court said:
"Another consideration why the Court is empowered to appoint
commissioners to assess the just compensation of these properties
under eminent domain proceedings, is the well-entrenched ruling that
'the owner of property expropriated is entitled to recover from
expropriating authority the fair and full value of the lot, as of the time
when possession thereof was actually taken by the province, plus
consequential damages including attorney's fees from which the
consequential benefits, if any should be deducted, with interest at the
legal rate, on the aggregate sum due to the owner from and after the
date of actual taking.' (Capitol Subdivision, Inc. v. Province of Negros
Occidental, 7 SCRA 60). In fine, the decree only establishes a uniform
basis for determining just compensation which the Court may
consider as one of the factors in arriving at 'just compensation,' as
envisage in the Constitution. In the words of Justice Barredo,
"Respondent court's invocation of General Order No. 3 of September
21, 1972 is nothing short of an unwarranted abdication of judicial
authority, which no judge duly imbued with the implications of the

paramount principle of independence of the judiciary should ever

think of doing." (Lina v. Purisima, 82 SCRA 344, 351; Cf. Prov. of
Pangasinan v. CFI Judge of Pangasinan, Br. VIII, 80 SCRA 117) Indeed,
where this Court simply follows PD 1533, thereby limiting the
determination of just compensation on the value declared by the
owner or administrator or as determined by the Assessor, whichever
is lower, it may result in the deprivation of the landowner's right of
due process to enable it to prove its claim to just compensation, as
mandated by the Constitution. (Uy v. Genato, 57 SCRA 123). The tax
declaration under the Real Property Tax Code is, undoubtedly, for
purposes of taxation."
We are convinced and so rule that the trial court correctly stated that the
valuation in the decree may only serve as a guiding principle or one of the
factors in determining just compensation but it may not substitute the court's
own judgment as to what amount should be awarded and how to arrive at
such amount. A return to the earlier well-established doctrine, to our mind, is
more in keeping with the principle that the judiciary should live up to its
mission "by vitalizing and not denigrating constitutional rights." (See Salonga
v. Cruz Pao, 134 SCRA 438, 462; citing Mercado v. Court of First Instance of
Rizal, 116 SCRA 93.) The doctrine we enunciated in National Housing Authority
v. Reyes, supra, therefore, must necessarily be abandoned if we are to uphold
this Court's role as the guardian of the fundamental rights guaranteed by the
due process and equal protection clauses and as the final arbiter over
transgressions committed against constitutional rights.
The basic unfairness of the decrees is readily apparent.
Just compensation means the value of the property at the time of the taking.
It means a fair and full equivalent for the loss sustained. All the facts as to the
condition of the property and its surroundings, its improvements and
capabilities, should be considered.
In this particular case, the tax declarations presented by the petitioner as
basis for just compensation were made by the Lapu-Lapu municipal, later city

assessor long before martial law, when land was not only much cheaper but
when assessed values of properties were stated in figures constituting only a
fraction of their true market value. The private respondent was not even the
owner of the properties at the time. It purchased the lots for development
purposes. To peg the value of the lots on the basis of documents which are
out of date and at prices below the acquisition cost of present owners would
be arbitrary and confiscatory.
Various factors can come into play in the valuation of specific properties
singled out for expropriation. The values given by provincial assessors are
usually uniform for very wide areas covering several barrios or even an entire
town with the exception of the poblacion. Individual differences are never
taken into account. The value of land is based on such generalities as its
possible cultivation for rice, corn, coconuts, or other crops. Very often land
described as "cogonal" has been cultivated for generations. Buildings are
described in terms of only two or three classes of building materials and
estimates of areas are more often inaccurate than correct. Tax values can
serve as guides but cannot be absolute substitutes for just compensation.
To say that the owners are estopped to question the valuations made by
assessors since they had the opportunity to protest is illusory. The
overwhelming mass of land owners accept unquestioningly what is found in
the tax declarations prepared by local assessors or municipal clerks for them.
They do not even look at, much less analyze, the statements. The Idea of
expropriation simply never occurs until a demand is made or a case filed by an
agency authorized to do so.
It is violative of due process to deny to the owner the opportunity to prove
that the valuation in the tax documents is unfair or wrong. And it is repulsive
to 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.

As was held in the case of Gideon v. Wainwright (93 ALR 2d,733,742):

"In the light of these and many other prior decisions of this Court, it is not
surprising that the Betts Court, when faced with the contention that 'one
charged with crime, who is unable to obtain counsel must be furnished
counsel by the State,' conceded that '[E]xpressions in the opinions of this
court lend color to the argument. . .' 316 U.S., at 462, 463, 86 L ed. 1602, 62 S
Ct. 1252. The fact is that in deciding as it did-that "appointment of counsel is
not a fundamental right, essential to a fair trial" the Court in Betts v. Brady
made an ubrupt brake with its own well-considered precedents. In returning
to these old precedents, sounder we believe than the new, we but restore
constitutional principles established to achieve a fair system of justice. . ."
We return to older and more sound precedents. This Court has the duty to
formulate guiding and controlling constitutional principles, precepts,
doctrines, or rules. (See Salonga v. Cruz Pano, supra).
The determination of "just compensation" in eminent domain cases is a
judicial function. The executive department or the legislature may make the
initial determinations but when a party claims a violation of the guarantee in
the Bill of Rights that private property may not be taken for public use without
just compensation, no statute, decree, or executive order can mandate that
its own determination shall prevail over the court's findings. Much less can
the courts be precluded from looking into the "just-ness" of the decreed
compensation.
We, therefore, hold that P.D. No. 1533, which eliminates the court's discretion
to appoint commissioners pursuant to Rule 67 of the Rules of Court, is
unconstitutional and void. To hold otherwise would be to undermine the very
purpose why this Court exists in the first place.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED.
The temporary restraining order issued on February 16, 1982 is LIFTED and
SET ASIDE. SO ORDERED.

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 5and 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.

(3) The power of the President to legislate was terminated on

July 2, 1987; and

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.

(4) The appropriation of a P50 billion special fund from the

National Treasury did not originate from the House of
Representatives.

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:

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.

(1) Only public lands should be included in the CARP;

(2) The said executive orders are violative of the

constitutional provision that no private property shall be
taken without due process or just compensation.

(2) E.O. No. 229 embraces more than one subject which is not
expressed in the title;

(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.

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.

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

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.

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.

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 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 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

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.

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.

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 timehonored justification, as in the case of the police power, that
the welfare of the people is the supreme law.

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 Taada 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 twentyfour (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 Thirtyfive 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-ininterest 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;

the only medium of payment allowed. In support of this contention, they cite
jurisprudence holding that:

(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;

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.)

(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

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 tenantfarmer 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.

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.

V
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-

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.

RESOLUTION
FERNANDO, J.:

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.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-21064 June 30, 1970

J. M. TUASON & CO., INC., petitioner-appellee,
vs.
THE LAND TENURE ADMINISTRATION, THE SOLICITOR GENERAL and THE
AUDITOR GENERAL, respondents-appellants.
Araneta, Mendoza and Papa for petitioner-appellee.
Besa, Aguilar and Gancia, Office of the Solicitor General Felix V. Makasiar,
Assistant Solicitor General Frine' C. Zaballero, Solicitor Rosalio A. de Leon and
Special Attorney Magno B. Pablo for respondents-appellants.

From our decision of February 18, 1970, reversing the judgment of the lower
court holding that Republic Act No. 2616 as amended is unconstitutional,
printed motion for reconsideration was filed by petitioner-appellee on March
31, 1970 reiterating its arguments as to its alleged invalidity for being violative
of the due process and equal protection guarantees. On May 27, 1970, a
detailed opposition to such a motion for reconsideration was filed by the
Solicitor General, the Honorable Felix Q. Antonio, on behalf of respondentsappellants. Then came a rejoinder of petitioner, on June 15, 1970, to the
pleading of the Solicitor General. The motion for reconsideration is thus ripe
for determination. With due recognition of the vigor and earnestness with
which petitioner argued its motion, based on what it considered to be our
applicable decisions, the Court cannot grant the same. Our decision stands.
1. It was a unanimous Court that could not locate a constitutional infirmity
vitiating Republic Act No. 2616 directing the expropriation of the Tatalon
Estate in Quezon City. There are points of differences in the three written
opinions, but there is none as to the challenged legislative act being
invulnerable on the grounds therein asserted to justify its sought for
nullification. While, to repeat, petitioner apparently remains unconvinced,
standing fast on the contentions to which it would seek to impart greater
plausibility, still the intent of the framers of the Constitutional Convention, as
shown not only by the specific provisions allowing the expropriation of landed
estates, but also by the social justice provision as reflected in our decisions,
save possibly Republic vs. Baylosis, 1 preclude a favorable action on the
impassioned plea of petitioner for a reconsideration of our decision. At any
rate, petitioner-appellee can take comfort in the separate opinion of Justice
Teehankee, with which four other members of the Court, including the Chief
Justice, are in agreement, to enable it to raise questions, the answers to
which, if its view would be sustained, would certainly afford sufficient
protection to what it believes to be an unconstitutional infringement on its
property rights.

2. It may not be amiss to make more explicit and categorical what was held in
our opinion that Section 4 of Republic Act No. 2616 prohibiting a suit for
ejectment proceedings or the continuance of one already commenced even in
the absence of expropriation proceedings, is unconstitutional, as held
in Cuatico v. Court of Appeals. 2 Greater emphasis likewise should be laid on
our holding that while an inaccuracy apparent on the face of the challenged
statute as to the ownership of the Tatalon Estate does not suffice to call for its
invalidity, still to erase even a fanciful doubt on the matter, the statement
therein found in Section 1 of the Act that in addition to petitioner-appellee,
Gregorio Araneta & Co., Inc. and Florencio Deudor, et al. are included, cannot
be understood as conferring on any juridical or natural persons, clearly not
entitled thereto, dominical rights over such property in question.
3. In the aforesaid decision of Cuatico v. Court of Appeals, reference was made
to the amendatory Act, Republic Act No. 3453 to Section 4 as it originally was
worded in Republic Act No. 2616, the amendment consisting of the following:
"Upon approval of this amendatory Act, no ejectment proceedings shall be
instituted or prosecuted against the present occupants of any lot in said
Tatalon Estate, and no ejectment proceedings already commenced shall be
continued, and such lot or any portion thereof shall not be sold by the owners
of said estate to any person other than the present occupant without the
consent of the latter given in a public instrument." 3 The question before the,
Court, according, to the opinion penned by Justice Bautista Angelo, was: "Are
the provisions embodied in the amendatory Act which prescribe that upon
approval of said Act no ejectment proceedings shall be instituted or
prosecuted against any occupant of any lot in the Tatalon Estate, or that no
ejectment proceedings already commenced shall be continued, constitutional
and valid such that it may be said that the Court of Appeals abused its
discretion in denying the petitions for suspension filed by petitioners.?" 4
Then came this portion of the opinion: "This is not the first time that this
Court has been called upon to pass upon the validity of a provision which
places a landowner in the situation of losing his dominical rights over the
property without due process or compensation. We refer to the provisions of
Republic Act 2616 before they were amended by Republic Act No. 3453. Note

that, as originally provided, Republic Act No. 2616 prohibited the institution of
an ejectment proceeding against any occupant of any lot in the Tatalon Estate
or the continuance of one that has already been commenced after the
expropriation proceedings shall have been initiated and during the pendency
of the same. On the surface this provision would appear to be valid if the
same is carried out in the light of the provisions of our Constitution relative to
cases of eminent domain, for in that case the rights of the owner of the
property to be expropriated are protected. But then an attempt came to
circumvent that provision in an effort to safeguard or protect the interest of
some occupants of the land, which reached this Court for adjudication, as
when some occupants attempted to block their ejectment upon the plea that
the government would soon start expropriation proceedings even if no
sufficient funds were appropriated to provide compensation to the owner and
even if it was not in a position to take possession of the estate, and so the
owner contested the attempt invoking its rights under the Constitution. And
this Court upheld the contention of the owner by declaring the attempt
unconstitutional." 5
The conclusion that inevitably was called for is worded thus: "It is, therefore,
imperative that we declare, as we now do, that Section 4 of Republic Act No.
3453 which prohibits the filing of an ejectment proceeding, or the
continuance of one that has already been commenced, even in the absence of
expropriation proceedings offends our Constitution and, hence, is
unenforceable." 6
What we said then, we reaffirm now, as was indeed evident in our decision
sought to be reconsidered but perhaps not given the importance which, in the
opinion of petitioner-appellee, it was entitled to. Nothing in our decision can
be taken to detract in any wise from the binding force and effect of the
Cuatico ruling which declared unconstitutional Section 4 of Republic Act No.
3453.
4. We likewise ruled that the mistake imputed to Congress in apparently
recognizing the rights of ownership in entities or individuals not possessed of
the same could not invalidate the challenged statute. In the same way, it

cannot be made the basis for non-existent rights of ownership to the property
in question. It is in that sense that, as noted in our decision, no fear need be
entertained that thereby the petitioner-appellee would be adversely affected.
The government certainly would not pay to a party other than the owner the
claim for just compensation which, under the Constitution, it is required to
meet. Neither, then can any party who is not in that situation have any
standing whatsoever. This much is beyond dispute. To repeat, the
apprehension entertained by petitioner-appellee, perhaps indicative of it,
excess of caution, is without legal foundation.

CUSTUDIO M. RICO, HEIRS OF DOMINGO V. RICO, HEIRS OF ABDON T.

MANREAL, MACARIO M. VELORIA, ALICIA B. MANREAL, PABLO RICO,
SALVACION MANREAL, HEIRS OF TRANQUILIANA MANREAL, HEIRS OF
ANGELA VELORIA, HEIRS OF NECIFURO CABALUNA, HEIRS OF CLEMENTE
RICO, HEIRS OF MANTILLANO OBISO, HEIRS OF HERCULANO BALORIO, and
TITO BALER, Respondents.

WHEREFORE, the motion for the reconsideration of our decision of February

18, 1970, filed by petitioner-appellee, is denied.

The Case

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Teehankee

and Barredo, JJ., concur.

DECISION
VELASCO, JR., J.:

Before Us is a Petition for Review on Certiorari under Rule 45 seeking to

reverse and set aside the October 28, 2004 Resolution1 of the Court of
Appeals (CA) and its September 13, 2005 Resolution2 denying petitioners
motion for reconsideration.
The Facts

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 169913

June 8, 2011

HEIRS OF DR. JOSE DELESTE, namely: JOSEFA DELESTE, JOSE RAY DELESTE,
RAUL HECTOR DELESTE, and RUBEN ALEX DELESTE, Petitioners,
vs.
LAND BANK OF THE PHILIPPINES (LBP), as represented by its Manager, LAND
VALUATION OFFICE OF LBP COTABATO CITY; THE REGIONAL DIRECTOR REGION 12 OF COTABATO CITY, THE SECRETARY OF THE DEPARTMENT OF
AGRARIAN REFORM; THE REGIONAL DIRECTOR OF REGION X - CAGAYAN DE
ORO CITY, represented by MCMILLAN LUCMAN, in his capacity as Provincial
Agrarian Reform Officer (PARO) of DAR Lanao del Norte; LIZA BALBERONA,
in her capacity as DAR Municipal Agrarian Reform Officer (MARO);
REYNALDO BAGUIO, in his capacity as the Register of Deeds of Iligan City as
nominal party; the emancipation patent holders: FELIPE D. MANREAL,

The spouses Gregorio Nanaman (Gregorio) and Hilaria Tabuclin (Hilaria) were
the owners of a parcel of agricultural land located in Tambo, Iligan City,
consisting of 34.7 hectares (subject property). Said spouses were childless, but
Gregorio had a son named Virgilio Nanaman (Virgilio) by another woman.
Virgilio had been raised by the couple since he was two years old. Gregorio
also had two daughters, Esperanza and Caridad, by still another woman.3
When Gregorio died in 1945, Hilaria and Virgilio administered the subject
property.4 On February 16, 1954, Hilaria and Virgilio sold the subject property
to Dr. Jose Deleste (Deleste) for PhP 16,000.5 The deed of sale was notarized
on February 17, 1954 and registered on March 2, 1954. Also, the tax
declaration in the name of Virgilio was canceled and a new tax declaration
was issued in the name of Deleste. The arrears in the payment of taxes from
1952 had been updated by Deleste and from then on, he paid the taxes on the
property.6

On May 15, 1954, Hilaria died.7 Gregorios brother, Juan Nanaman, was
appointed as special administrator of the estate of the deceased spouses.
Subsequently, Edilberto Noel (Noel) was appointed as the regular
administrator of the joint estate.8
On April 30, 1963, Noel, as the administrator of the intestate estate of the
deceased spouses, filed before the Court of First Instance, Branch II, Lanao del
Norte an action against Deleste for the reversion of title over the subject
property, docketed as Civil Case No. 698.9 Said case went up to this Court in
Noel v. CA, where We rendered a Decision10 on January 11, 1995, affirming
the ruling of the CA that the subject property was the conjugal property of the
late spouses Gregorio and Hilaria and that the latter could only sell her onehalf (1/2) share of the subject property to Deleste. As a result, Deleste, who
died in 1992, and the intestate estate of Gregorio were held to be the coowners of the subject property, each with a one-half (1/2) interest in it.11
Notably, while Civil Case No. 698 was still pending before the CFI, particularly
on October 21, 1972, Presidential Decree No. (PD) 27 was issued. This law
mandates that tenanted rice and corn lands be brought under the Operation
Land Transfer (OLT) Program and awarded to farmer-beneficiaries. Thus, the
subject property was placed under the said program.12 However, only the
heirs of Gregorio were identified by the Department of Agrarian Reform (DAR)
as the landowners. Concomitantly, the notices and processes relative to the
coverage were sent to these heirs.13
In 1975, the City of Iligan passed City Ordinance No. 1313, known as the
"Zoning Regulation of Iligan City," reclassifying the subject property as
commercial/residential.14
Eventually, on February 12, 1984, DAR issued Certificates of Land Transfer
(CLTs) in favor of private respondents who were tenants and actual cultivators
of the subject property.15 The CLTs were registered on July 15, 1986.16
In 1991, the subject property was surveyed.17 The survey of a portion of the
land consisting of 20.2611 hectares, designated as Lot No. 1407, was

approved on January 8, 1999.18 The claim folder for Lot No. 1407 was
submitted to the LBP which issued a Memorandum of Valuation and a
Certificate of Cash Deposit on May 21, 2001 and September 12, 2001,
respectively. Thereafter, Emancipation Patents (EPs) and Original Certificates
of Title (OCTs) were issued on August 1, 2001 and October 1, 2001,
respectively, in favor of private respondents over their respective portions of
Lot No. 1407.19
Meanwhile, on November 22, 1999, the City of Iligan filed a complaint with
the Regional Trial Court (RTC), Branch 4 in Iligan City for the expropriation of a
5.4686-hectare portion of Lot No. 1407, docketed as Special Civil Action No.
4979. On December 11, 2000, the RTC issued a Decision granting the
expropriation. Considering that the real owner of the expropriated portion
could not be determined, as the subject property had not yet been
partitioned and distributed to any of the heirs of Gregorio and Deleste, the
just compensation for the expropriated portion of the subject property in the
amount of PhP 27,343,000 was deposited with the Development Bank of the
Philippines in Iligan City, in trust for the RTC in Iligan City.20
On February 28, 2002, the heirs of Deleste, petitioners herein, filed with the
Department of Agrarian Reform Adjudication Board (DARAB) a petition
seeking to nullify private respondents EPs.21 This was docketed as Reg. Case
No. X-471-LN-2002.
On July 21, 2003, the Provincial Agrarian Reform Adjudicator (PARAD)
rendered a Decision22 declaring that the EPs were null and void in view of the
pending issues of ownership, the subsequent reclassification of the subject
property into a residential/commercial land, and the violation of petitioners
constitutional right to due process of law.
Dissatisfied, private respondents immediately filed their Notice of Appeal on
July 22, 2003. Notwithstanding it, on July 24, 2003, petitioners filed a Motion
for a Writ of Execution pursuant to Section 2, Rule XII of the Revised Rules of
Procedure, which was granted in an Order dated August 4, 2003 despite
strong opposition from private respondents.23 On January 28, 2004, the

DARAB nullified the Order dated August 4, 2003 granting the writ of
execution.24
Subsequently, the DARAB, in DARAB Case No. 12486, reversed the ruling of
the PARAD in its Decision25 dated March 15, 2004. It held, among others, that
the EPs were valid as it was the heirs of Deleste who should have informed
the DAR of the pendency of Civil Case No. 698 at the time the subject property
was placed under the coverage of the OLT Program considering that DAR was
not a party to the said case. Further, it stated that the record is bereft of any
evidence that the city ordinance has been approved by the Housing and Land
Use Regulatory Board (HLURB), as mandated by DAR Administrative Order No.
01, Series of 1990, and held that whether the subject property is indeed
exempt from the OLT Program is an administrative determination, the
jurisdiction of which lies exclusively with the DAR Secretary or the latters
authorized representative. Petitioners motion for reconsideration was
likewise denied by the DARAB in its Resolution26 dated July 8, 2004.
Undaunted, petitioners filed a petition for review with the CA, docketed as
CA-G.R. SP No. 85471, challenging the Decision and Resolution in DARAB Case
No. 12486. This was denied by the CA in a Resolution dated October 28, 2004
for petitioners failure to attach the writ of execution, the order nullifying the
writ of execution, and such material portions of the record referred to in the
petition and other supporting papers, as required under Sec. 6 of Rule 43 of
the Rules of Court. Petitioners motion for reconsideration was also denied by
the appellate court in a Resolution dated September 13, 2005 for being pro
forma.
On November 18, 2005, petitioners filed a petition for review with this Court.
In Our Resolution27 dated February 4, 2008, We resolved to deny the said
petition for failure to show sufficiently any reversible error in the assailed
judgment to warrant the exercise by the Court of its discretionary appellate
jurisdiction in this case.
On March 19, 2008, petitioners filed a Motion for Reconsideration.28 On April
11, 2008, they also filed a Supplement to the Motion for Reconsideration.29

In Our Resolution30 dated August 20, 2008, this Court resolved to grant
petitioners motion for reconsideration and give due course to the petition,
requiring the parties to submit their respective memoranda.
The Issues
I. [WHETHER THE CA WAS CORRECT IN DISMISSING] OUTRIGHT THE
PETITION FOR REVIEW OF PETITIONERS X X X.
II. [WHETHER] THE OUTRIGHT DENIAL OF PETITIONERS MOTION FOR
RECONSIDERATION BASED ON A MISAPPRECIATION OF FACTS IS
JUSTIFIED; AND [WHETHER THE] OUTRIGHT DISMISSAL OF THE
PETITION IS JUST CONSIDERING THE IMPORTANCE OF THE ISSUES
RAISED THEREIN.
XXXX
III. [WHETHER PETITIONERS LAND IS] COVERED BY AGRARIAN
REFORM GIVEN THAT THE CITY OF ILIGAN PASSED [CITY] ORDINANCE
NO. 1313 RECLASSIFYING THE AREA INTO A STRICTLY RESIDENTIAL
AREA IN 1975.
IV. [WHETHER THE LAND] THAT HAS BEEN PREVIOUSLY AND
PARTIALLY EXPROPRIATED BY A CITY GOVERNMENT [MAY] STILL BE
SUBJECT[ED] TO AGRARIAN REFORM.
V. [WHETHER DAR VIOLATED] THE RIGHTS OF PETITIONERS TO
PROCEDURAL DUE PROCESS.
VI. [WHETHER] THE COMPENSATION DETERMINED BY DAR AND LBP IS
CORRECT GIVEN THAT THE FORMULA USED HAD BEEN REPEALED.
VII. [WHETHER] THE ISSUANCE OF EMANCIPATION PATENTS [IS]
LEGAL GIVEN THAT THEY WERE FRUITS OF AN ILLEGAL PROCEEDING.

VIII. [WHETHER] THE CERTIFICATES OF TITLE [ARE] VALID GIVEN THAT

THEY WERE DIRECTLY ISSUED TO THE FARMER-BENEFICIARIES IN
GROSS VIOLATION OF SECTION 16(E) OF R.A. 6657 X X X.31
Our Ruling

Sec. 7. Effect of failure to comply with requirements. The failure of the

petitioner to comply with any of the foregoing requirements regarding the
payment of the docket and other lawful fees, the deposit for costs, proof of
service of the petition, and the contents of and the documents which should
accompany the petition shall be sufficient ground for the dismissal thereof.
(Emphasis supplied.)

The petition is meritorious.

Effect of non-compliance with the requirements under Sec. 6, Rule 43 of the
Rules of Court
In filing a petition for review as an appeal from awards, judgments, final
orders, or resolutions of any quasi-judicial agency in the exercise of its quasijudicial functions, it is required under Sec. 6(c), Rule 43 of the Rules of Court
that it be accompanied by a clearly legible duplicate original or a certified true
copy of the award, judgment, final order, or resolution appealed from, with
certified true copies of such material portions of the record referred to in the
petition and other supporting papers. As stated:
Sec. 6. Contents of the petition. The petition for review shall (a) state the full
names of the parties to the case, without impleading the court or agencies
either as petitioners or respondents; (b) contain a concise statement of the
facts and issues involved and the grounds relied upon for the review; (c) be
accompanied by a clearly legible duplicate original or a certified true copy of
the award, judgment, final order or resolution appealed from, together with
certified true copies of such material portions of the record referred to
therein and other supporting papers; and (d) contain a sworn certification
against forum shopping as provided in the last paragraph of section 2, Rule 42.
The petition shall state the specific material dates showing that it was filed
within the period fixed herein. (Emphasis supplied.)
Non-compliance with any of the above-mentioned requirements concerning
the contents of the petition, as well as the documents that should accompany
the petition, shall be sufficient ground for its dismissal as stated in Sec. 7, Rule
43 of the Rules:

In the instant case, the CA dismissed the petition in CA-G.R. SP No. 85471 for
petitioners failure to attach the writ of execution, the order nullifying the writ
of execution, and such material portions of the record referred to in the
petition and other supporting papers.32
A perusal of the issues raised before the CA would, however, show that the
foregoing documents required by the appellate court are not necessary for
the proper disposition of the case. Specifically:
Is [Lot No. 1407] within the ambit of the [Comprehensive Agrarian Reform
Program]?
Can the OLT by DAR over the subject land validly proceed without notice to
the landowner?
Can the OLT be validly completed without a certification of deposit by Land
Bank?
[I]s the landowner barred from exercising his right of retention x x x
[considering that EPs were already issued on the basis of CLTs]?
Are the EPs over the subject land x x x valid x x x?33
Petitioners complied with the requirement under Sec. 6(c), Rule 43 of the
Rules of Court when they appended to the petition filed before the CA
certified true copies of the following documents: (1) the challenged resolution
dated July 8, 2004 issued by the DARAB denying petitioners motion for
reconsideration; (2) the duplicate original copy of petitioners Motion for
Reconsideration dated April 6, 2005; (3) the assailed decision dated March 15,

2004 issued by the DARAB reversing on appeal the decision of the PARAD and
nullifying with finality the order of execution pending appeal; (4) the Order
dated December 8, 2003 issued by the PARAD reinstating the writ of
execution earlier issued; and (5) the Decision dated July 21, 2003 issued by the
PARAD in the original proceedings for the cancellation of the EPs.34 The CA,
therefore, erred when it dismissed the petition based on such technical
ground.
Even assuming that the omitted documents were material to the appeal, the
appellate court, instead of dismissing outright the petition, could have just
required petitioners to submit the necessary documents. In Spouses Espejo v.
Ito,35 the Court held that "under Section 3 (d), Rule 3 of the Revised Internal
Rules of the Court of Appeals,36the Court of Appeals is with authority to
require the parties to submit additional documents as may be necessary to
promote the interests of substantial justice."
Moreover, petitioners subsequent submission of the documents required by
the CA with the motion for reconsideration constitutes substantial compliance
with Section 6(c), Rule 43 of the Rules of Court.37 In Jaro v. CA, this Court held
that subsequent and substantial compliance may call for the relaxation of the
rules of procedure. Particularly:
The amended petition no longer contained the fatal defects that the original
petition had but the Court of Appeals still saw it fit to dismiss the amended
petition. The Court of Appeals reasoned that "non-compliance in the original
petition is admittedly attributable to the petitioner and that no highly
justifiable and compelling reason has been advanced" to the court for it to
depart from the mandatory requirements of Administrative Circular No. 3-96.
The hard stance taken by the Court of Appeals in this case is unjustified under
the circumstances.
There is ample jurisprudence holding that
compliance of an appellant may call for
procedure. In Cusi-Hernandez vs. Diaz and
Relations Commission, we ruled that the

the subsequent and substantial

the relaxation of the rules of
Piglas-Kamao vs. National Labor
subsequent submission of the

missing documents with the motion for reconsideration amounts to

substantial compliance. The reasons behind the failure of the petitioners in
these two cases to comply with the required attachments were no longer
scrutinized. What we found noteworthy in each case was the fact that the
petitioners therein substantially complied with the formal requirements. We
ordered the remand of the petitions in these cases to the Court of Appeals,
stressing the ruling that by precipitately dismissing the petitions "the
appellate court clearly put a premium on technicalities at the expense of a just
resolution of the case."38 (Citations omitted; emphasis supplied.)1avvphi1
Time and again, this Court has held that a strict and rigid application of
technicalities must be avoided if it tends to frustrate rather than promote
substantial justice.39 As held in Sta. Ana v. Spouses Carpo:40
Rules of procedure are merely tools designed to facilitate the attainment of
justice. If the application of the Rules would tend to frustrate rather than to
promote justice, it is always within our power to suspend the rules or except
a particular case from their operation. Law and jurisprudence grant to courts
the prerogative to relax compliance with the procedural rules, even the
most mandatory in character, mindful of the duty to reconcile the need to
put an end to litigation speedily and the parties right to an opportunity to
be heard.
Our recent ruling in Tanenglian v. Lorenzo is instructive:
We have not been oblivious to or unmindful of the extraordinary situations
that merit liberal application of the Rules, allowing us, depending on the
circumstances, to set aside technical infirmities and give due course to the
appeal. In cases where we dispense with the technicalities, we do not mean to
undermine the force and effectivity of the periods set by law. In those rare
cases where we did not stringently apply the procedural rules, there always
existed a clear need to prevent the commission of a grave injustice. Our
judicial system and the courts have always tried to maintain a healthy balance
between the strict enforcement of procedural laws and the guarantee that

every litigant be given the full opportunity for the just and proper disposition
of his cause. (Citations omitted; emphasis supplied.)

On the coverage of the subject property by the agrarian reform program

[w]e have laid down the rule that the remand of the case to the lower court
for further reception of evidence is not necessary where the Court is in a
position to resolve the dispute based on the records before it. On many
occasions, the Court, in the public interest and for the expeditious
administration of justice, has resolved actions on the merits instead of
remanding them to the trial court for further proceedings, such as where the
ends of justice, would not be subserved by the remand of the case.

Petitioners contend that the subject property, particularly Lot No. 1407, is
outside the coverage of the agrarian reform program in view of the
enactment of City Ordinance No. 1313 by the City of Iligan reclassifying the
area into a residential/commercial land.41

Thus, we shall directly rule on the dismissal issue. And while we rule that the
CA could not validly rule on the merits of this issue, we shall not hesitate to
refer back to its dismissal ruling, where appropriate. (Citations omitted;
emphasis supplied.)

Unconvinced, the DARAB, in its Decision, noted that the record is bereft of any
evidence that the city ordinance has been approved by the HLURB, thereby
allegedly casting doubt on the validity of the reclassification over the subject
property.42 It further noted that whether the subject property is exempt from
the OLT Program is an administrative determination, the jurisdiction of which
lies exclusively with the DAR Secretary, not with the DARAB.

Pertinently, after an assiduous study of the records of the case, We agree with
petitioners that the subject property, particularly Lot No. 1407, is outside the
coverage of the agrarian reform program in view of the enactment by the City
of Iligan of its local zoning ordinance, City Ordinance No. 1313.

Clearly, the dismissal of the petition by the CA on mere technicality is

unwarranted in the instant case.

Indeed, it is the Office of the DAR Secretary which is vested with the primary
and exclusive jurisdiction over all matters involving the implementation of the
agrarian reform program.43 However, this will not prevent the Court from
assuming jurisdiction over the petition considering that the issues raised in it
may already be resolved on the basis of the records before Us. Besides, to
allow the matter to remain with the Office of the DAR Secretary would only
cause unnecessary delay and undue hardship on the parties. Applicable, by
analogy, is Our ruling in the recent Bagong Pagkakaisa ng Manggagawa ng
Triumph International v. Department of Labor and Employment
Secretary,44 where We held:
But as the CA did, we similarly recognize that undue hardship, to the point of
injustice, would result if a remand would be ordered under a situation where
we are in the position to resolve the case based on the records before us. As
we said in Roman Catholic Archbishop of Manila v. Court of Appeals:

It is undeniable that the local government has the power to reclassify

agricultural into non-agricultural lands. In Pasong Bayabas Farmers
Association, Inc. v. CA,45 this Court held that pursuant to Sec. 3 of Republic Act
No. (RA) 2264, amending the Local Government Code, municipal and/or city
councils are empowered to "adopt zoning and subdivision ordinances or
regulations in consultation with the National Planning Commission." It was
also emphasized therein that "[t]he power of the local government to convert
or reclassify lands [from agricultural to non-agricultural lands prior to the
passage of RA 6657] is not subject to the approval of the [DAR]."46
Likewise, it is not controverted that City Ordinance No. 1313, which was
enacted by the City of Iligan in 1975, reclassified the subject property into a
commercial/residential area. DARAB, however, believes that the approval of
HLURB is necessary in order for the reclassification to be valid.
We differ. As previously mentioned, City Ordinance No. 1313 was enacted by
the City of Iligan in 1975. Significantly, there was still no HLURB to speak of

during that time. It was the Task Force on Human Settlements, the earliest
predecessor of HLURB, which was already in existence at that time, having
been created on September 19, 1973 pursuant to Executive Order No. 419. It
should be noted, however, that the Task Force was not empowered to review
and approve zoning ordinances and regulations. As a matter of fact, it was
only on August 9, 1978, with the issuance of Letter of Instructions No. 729,
that local governments were required to submit their existing land use plans,
zoning ordinances, enforcement systems and procedures to the Ministry of
Human Settlements for review and ratification. The Human Settlements
Regulatory Commission (HSRC) was the regulatory arm of the Ministry of
Human Settlements.47
Significantly, accompanying the Certification48 dated October 8, 1999 issued
by Gil R. Balondo, Deputy Zoning Administrator of the City Planning and
Development Office, Iligan City, and the letter49 dated October 8, 1999 issued
by Ayunan B. Rajah, Regional Officer of the HLURB, is the Certificate of
Approval issued by Imelda Romualdez Marcos, then Minister of Human
Settlements and Chairperson of the HSRC, showing that the local zoning
ordinance was, indeed, approved on September 21, 1978. This leads to no
other conclusion than that City Ordinance No. 1313 enacted by the City of
Iligan was approved by the HSRC, the predecessor of HLURB. The validity of
said local zoning ordinance is, therefore, beyond question.

21, 1972, when said law took effect. Concomitantly, they assert that the rights
which accrued from said date must be respected. They also maintain that the
reclassification of the subject property did not alter its agricultural nature,
much less its actual use.51
Verily, vested rights which have already accrued cannot just be taken away by
the expedience of issuing a local zoning ordinance reclassifying an agricultural
land into a residential/commercial area. As this Court extensively discussed in
Remman Enterprises, Inc. v. CA:52
In the main, REMMAN hinges its application for exemption on the ground that
the subject lands had ceased to be agricultural lands by virtue of the zoning
classification by the Sangguniang Bayan of Dasmarias, Cavite, and approved
by the HSRC, specifying them as residential.
In Natalia Realty, Inc. v. Department of Agriculture, this Court resolved the
issue of whether lands already classified for residential, commercial or
industrial use, as approved by the Housing and Land Use Regulatory Board
(HLURB) and its precursor agencies, i.e., National Housing Authority and
Human Settlements Regulatory Commission, prior to 15 June 1988, are
covered by Republic Act No. 6657, otherwise known as the Comprehensive
Agrarian Reform Law of 1988. We answered in the negative, thus:

Since the subject property had been reclassified as residential/commercial

land with the enactment of City Ordinance No. 1313 in 1975, it can no longer
be considered as an "agricultural land" within the ambit of RA 6657. As this
Court held in Buklod nang Magbubukid sa Lupaing Ramos, Inc. v. E.M. Ramos
and Sons, Inc.,50 "To be exempt from CARP, all that is needed is one valid
reclassification of the land from agricultural to non-agricultural by a duly
authorized government agency before June 15, 1988, when the CARL took
effect."

We now determine whether such lands are covered by the CARL. Section 4 of
R.A. 6657 provides that the CARL shall "cover, regardless of tenurial
arrangement and commodity produced, all public and private agricultural
lands." As to what constitutes "agricultural land," it is referred to as "land
devoted to agricultural activity as defined in this Act and not classified as
mineral, forest, residential, commercial or industrial land." The deliberations
of the Constitutional Commission confirm this limitation. "Agricultural lands"
are only those lands which are "arable and suitable agricultural lands" and "do
not include commercial, industrial and residential land."

Despite the foregoing ruling, respondents allege that the subsequent

reclassification by the local zoning ordinance cannot free the land from the
legal effects of PD 27 which deems the land to be already taken as of October

xxx

xxx

xxx

Indeed, lands not devoted to agricultural activity are outside the coverage of
CARL. These include lands previously converted to non-agricultural uses prior
to the effectivity of CARL by government agencies other than respondent
DAR. In its Revised Rules and Regulations Governing Conversion of Private
Agricultural Lands to Non-Agricultural Uses, DAR itself defined "agricultural
land" thus
. . . Agricultural lands refers to those devoted to agricultural activity as defined
in R.A. 6657 and not classified as mineral or forest by the Department of
Environment and Natural Resources (DENR) and its predecessor agencies, and
not classified in town plans and zoning ordinances as approved by the Housing
and Land Use Regulatory Board (HLURB) and its preceding competent
authorities prior to 15 June 1988 for residential, commercial or industrial use.
Since the NATALIA lands were converted prior to 15 June 1988, respondent
DAR is bound by such conversion. . . . .
However, Natalia should be cautiously applied in light of Administrative Order
04, Series of 2003, which outlines the rules on the Exemption on Lands from
CARP Coverage under Section (3) of Republic Act No. 6657, and Department
of Justice (DOJ) Opinion No. 44, Series of 1990. It reads:
I. Prefatory Statement
Republic Act (RA) 6657 or the Comprehensive Agrarian Reform Law (CARL),
Section 3, Paragraph (c) defines "agricultural land" as referring to "land
devoted to agricultural activity as defined in this Act and not classified as
mineral, forest, residential, commercial or industrial land."
Department of Justice Opinion No. 44, Series of 1990, (or "DOJ Opinion 441990" for brevity) and the case of Natalia Realty versus Department of
Agrarian Reform (12 August 2993, 225 SCRA 278) opines that with respect to
the conversion of agricultural land covered by RA 6657 to non-agricultural
uses, the authority of the Department of Agrarian Reform (DAR) to approve
such conversion may be exercised from the date of its effectivity, on 15 June

1988. Thus, all lands that are already classified as commercial, industrial or
residential before 15 June 1988 no longer need any conversion clearance.
However, the reclassification of lands to non-agricultural uses shall not
operate to divest tenant[-]farmers of their rights over lands covered by
Presidential Decree (PD) No. 27, which have been vested prior to 15 June
1988.
As emphasized, the reclassification of lands to non-agricultural cannot be
applied to defeat vested rights of tenant-farmers under Presidential Decree
No. 27.
Indeed, in the recent case of Sta. Rosa Realty Development Corporation v.
Amante, where the Court was confronted with the issue of whether the
contentious property therein is agricultural in nature on the ground that the
same had been classified as "park" since 1979 under the Zoning Ordinance of
Cabuyao, as approved by the HLURB, the Court said:
The Court recognizes the power of a local government to reclassify and
convert lands through local ordinance, especially if said ordinance is approved
by the HLURB. Municipal Ordinance No. 110-54 dated November 3, 1979,
enacted by the Municipality of Cabuyao, divided the municipality into
residential, commercial, industrial, agricultural and institutional districts, and
districts and parks for open spaces. It did not convert, however, existing
agricultural lands into residential, commercial, industrial, or institutional.
While it classified Barangay Casile into a municipal park, as shown in its
permitted uses of land map, the ordinance did not provide for the
retroactivity of its classification. In Co vs. Intermediate Appellate Court, it was
held that an ordinance converting agricultural lands into residential or light
industrial should be given prospective application only, and should not
change the nature of existing agricultural lands in the area or the legal
relationships existing over such land. . . . .
A reading of Metro Manila Zoning Ordinance No. 81-01, series of 1981, does
not disclose any provision converting existing agricultural lands in the covered

area into residential or light industrial. While it declared that after the passage
of the measure, the subject area shall be used only for residential or light
industrial purposes, it is not provided therein that it shall have retroactive
effect so as to discontinue all rights previously acquired over lands located
within the zone which are neither residential nor light industrial in
nature. This simply means that, if we apply the general rule, as we must, the
ordinance should be given prospective operation only. The further
implication is that it should not change the nature of existing agricultural
lands in the area or the legal relationships existing over such lands. (Citations
omitted; emphasis supplied.)
This, however, raises the issue of whether vested rights have actually accrued
in the instant case. In this respect, We reckon that under PD 27, tenantfarmers of rice and corn lands were "deemed owners" of the land they till as
of October 21, 1972. This policy, intended to emancipate the tenant-farmers
from the bondage of the soil, is given effect by the following provision of the
law:
The tenant farmer, whether in land classified as landed estate or not, shall
be deemed owner of a portion constituting a family size farm of five (5)
hectares if not irrigated and three (3) hectares if irrigated. (Emphasis
supplied.)
It should be clarified that even if under PD 27, tenant-farmers are "deemed
owners" as of October 21, 1972, this is not to be construed as automatically
vesting upon these tenant-farmers absolute ownership over the land they
were tilling. Certain requirements must also be complied with, such as
payment of just compensation, before full ownership is vested upon the
tenant-farmers. This was elucidated by the Court in Association of Small
Landowners in the Philippines, Inc. v. Sec. of Agrarian Reform:53
It is true that P.D. No. 27 expressly ordered the emancipation of tenantfarmer 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.
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. No outright change of ownership is contemplated
either. (Citations omitted; emphasis supplied.)
Prior to compliance with the prescribed requirements, tenant-farmers have,
at most, an inchoate right over the land they were tilling. In recognition of
this, a CLT is issued to a tenant-farmer to serve as a "provisional title of
ownership over the landholding while the lot owner is awaiting full payment
of [just compensation] or for as long as the [tenant-farmer] is an amortizing
owner."54 This certificate "proves inchoate ownership of an agricultural land
primarily devoted to rice and corn production. It is issued in order for the
tenant-farmer to acquire the land"55he was tilling.

Concomitantly, with respect to the LBP and the government, tenant-farmers

cannot be considered as full owners of the land they are tilling unless they
have fully paid the amortizations due them. This is because it is only upon
such full payment of the amortizations that EPs may be issued in their favor.
In Del Castillo v. Orciga, We explained that land transfer under PD 27 is
effected in two (2) stages. The first stage is the issuance of a CLT to a farmerbeneficiary as soon as the DAR transfers the landholding to the farmerbeneficiary in recognition that said person is its "deemed owner." And the
second stage is the issuance of an EP as proof of full ownership of the
landholding upon full payment of the annual amortizations or lease rentals by
the farmer-beneficiary.56
In the case at bar, the CLTs were issued in 1984. Therefore, for all intents
and purposes, it was only in 1984 that private respondents, as farmerbeneficiaries, were recognized to have an inchoate right over the subject
property prior to compliance with the prescribed requirements. Considering
that the local zoning ordinance was enacted in 1975, and subsequently
approved by the HSRC in 1978, private respondents still had no vested rights
to speak of during this period, as it was only in 1984 that private
respondents were issued the CLTs and were "deemed owners."
The same holds true even if EPs and OCTs were issued in 2001, since
reclassification had taken place twenty-six (26) years prior to their issuance.
Undeniably, no vested rights accrued prior to reclassification and its
approval. Consequently, the subject property, particularly Lot No. 1407, is
outside the coverage of the agrarian reform program.
On the violation of petitioners right to due process of law
Petitioners contend that DAR failed to notify them that it is subjecting the
subject property under the coverage of the agrarian reform program; hence,
their right to due process of law was violated.57 Citing De Chavez v.
Zobel,58 both the DAR and the private respondents claim that the enactment
of PD 27 is a statutory notice to all owners of agricultural lands devoted to rice

and/or corn production,59 implying that there was no need for an actual
notice.
We agree with petitioners. The importance of an actual notice in subjecting a
property under the agrarian reform program cannot be underrated, as noncompliance with it trods roughshod with the essential requirements of
administrative due process of law.60 Our ruling in Heirs of Jugalbot v. CA61 is
particularly instructive:
Firstly, the taking of subject property was done in violation of constitutional
due process. The Court of Appeals was correct in pointing out that Virginia A.
Roa was denied due process because the DAR failed to send notice of the
impending land reform coverage to the proper party. The records show that
notices were erroneously addressed and sent in the name of Pedro N. Roa
who was not the owner, hence, not the proper party in the instant case. The
ownership of the property, as can be gleaned from the records, pertains to
Virginia A. Roa. Notice should have been therefore served on her, and not
Pedro N. Roa.
xxxx
In addition, the defective notice sent to Pedro N. Roa was followed by a DAR
certification signed by team leader Eduardo Maandig on January 8, 1988
stating that the subject property was tenanted as of October 21, 1972 and
primarily devoted to rice and corn despite the fact that there was no ocular
inspection or any on-site fact-finding investigation and report to verify the
truth of the allegations of Nicolas Jugalbot that he was a tenant of the
property. The absence of such ocular inspection or on-site fact-finding
investigation and report likewise deprives Virginia A. Roa of her right to
property through the denial of due process.
By analogy, Roxas & Co., Inc. v. Court of Appeals applies to the case at bar
since there was likewise a violation of due process in the implementation of
the Comprehensive Agrarian Reform Law when the petitioner was not notified
of any ocular inspection and investigation to be conducted by the DAR before

acquisition of the property was to be undertaken. Neither was there proof

that petitioner was given the opportunity to at least choose and identify its
retention area in those portions to be acquired. Both in the Comprehensive
Agrarian Reform Law and Presidential Decree No. 27, the right of retention
and how this right is exercised, is guaranteed by law.
Since land acquisition under either Presidential Decree No. 27 and the
Comprehensive Agrarian Reform Law govern the extraordinary method of
expropriating private property, the law must be strictly construed. Faithful
compliance with legal provisions, especially those which relate to the
procedure for acquisition of expropriated lands should therefore be observed.
In the instant case, no proper notice was given to Virginia A. Roa by the DAR.
Neither did the DAR conduct an ocular inspection and investigation. Hence,
any act committed by the DAR or any of its agencies that results from its
failure to comply with the proper procedure for expropriation of land is a
violation of constitutional due process and should be deemed arbitrary,
capricious, whimsical and tainted with grave abuse of discretion. (Citations
omitted; emphasis supplied.)
Markedly, a reading of De Chavez invoked by both the DAR and private
respondents does not show that this Court ever made mention that actual
notice may be dispensed with under PD 27, its enactment being a purported
"statutory notice" to all owners of agricultural lands devoted to rice and/or
corn production that their lands are subjected to the OLT program.
Quite contrarily, in Sta. Monica Industrial & Devt. Corp. v. DAR,62 this Court
underscored the significance of notice in implementing the agrarian reform
program when it stated that "notice is part of the constitutional right to due
process of law. It informs the landowner of the States intention to acquire a
private land upon payment of just compensation and gives him the
opportunity to present evidence that his landholding is not covered or is
otherwise excused from the agrarian law."

The Court, therefore, finds interest in the holding of the DARAB that
petitioners were not denied the right to due process despite the fact that only
the Nanamans were identified as the owners. Particularly:
Fourthly, the PARAD also ruled that the petitioners were denied the right to
be given the notice since only the Nanamans were identified as the owners.
The fault lies with petitioners who did not present the tax declaration in the
name of Dr. Deleste as of October 21, 1972. It was only in 1995 that Civil Case
No. 698 was finally decided by the Supreme Court dividing the 34.7 hectares
between the Delestes and the Nanamans. Note that Dr. Deleste died in 1992
after PD 27 was promulgated, hence, the subject land or his share was
considered in his name only (see Art. 777, New Civil Code). Even then, it must
be borne in mind that on September 26, 1972, PD No. 2 was issued by
President Marcos proclaiming the whole country as a land reform area, this
was followed by PD 27. This should have alarmed them more so when private
respondents are in actual possession and cultivation of the subject property.
But it was incumbent upon the DAR to notify Deleste, being the landowner of
the subject property. It should be noted that the deed of sale executed by
Hilaria in favor of Deleste was registered on March 2, 1954, and such
registration serves as a constructive notice to the whole world that the
subject property was already owned by Deleste by virtue of the said deed of
sale. In Naval v. CA, this Court held:
Applying the law, we held in Bautista v. Fule that the registration of an
instrument involving unregistered land in the Registry of Deeds creates
constructive notice and binds third person who may subsequently deal with
the same property.63 x x x (Emphasis supplied.)
It bears stressing that the principal purpose of registration is "to notify other
persons not parties to a contract that a transaction involving the property has
been entered into."64 There was, therefore, no reason for DAR to feign
ignorance of the transfer of ownership over the subject property.

Moreover, that DAR should have sent the notice to Deleste, and not to the
Nanamans, is bolstered by the fact that the tax declaration in the name of
Virgilio was already canceled and a new one issued in the name of
Deleste.65Although tax declarations or realty tax payments of property are not
conclusive evidence of ownership, they are nonetheless "good indicia of
possession in the concept of an owner, for no one in his right mind would be
paying taxes for a property that is not in his actual or, at least, constructive
possession."66
Petitioners right to due process of law was, indeed, violated when the DAR
failed to notify them that it is subjecting the subject property under the
coverage of the agrarian reform program.
On this note, We take exception to our ruling in Roxas & Co., Inc. v.
CA,67 where, despite a finding that there was a violation of due process in the
implementation of the comprehensive agrarian reform program when the
petitioner was not notified of any ocular inspection and investigation to be
conducted by the DAR before acquiring the property, thereby effectively
depriving petitioner the opportunity to at least choose and identify its
retention area in those portions to be acquired,68 this Court nonetheless ruled
that such violation does not give the Court the power to nullify the certificates
of land ownership award (CLOAs) already issued to the farmer-beneficiaries,
since the DAR must be given the chance to correct its procedural lapses in the
acquisition proceedings.
Manifesting her disagreement that this Court cannot nullify illegally issued
CLOAs and should first ask the DAR to reverse and correct itself, Justice
Ynares-Santiago, in her Concurring and Dissenting Opinion,69 stated that "[i]f
the acts of DAR are patently illegal and the rights of Roxas & Co. violated, the
wrong decisions of DAR should be reversed and set aside. It follows that the
fruits of the wrongful acts, in this case the illegally issued CLOAs, must be
declared null and void." She also noted that "[i]f CLOAs can under the DARs
own order be cancelled administratively, with more reason can the courts,
especially the Supreme Court, do so when the matter is clearly in issue."

In the same vein, if the illegality in the issuance of the CLTs is patent, the
Court must immediately take action and declare the issuance as null and void.
There being no question that the CLTs in the instant case were "improperly
issued, for which reason, their cancellation is warranted."70 The same holds
true with respect to the EPs and certificates of title issued by virtue of the void
CLTs, as there can be no valid transfer of title should the CLTs on which they
were grounded are void.71 Cancellation of the EPs and OCTs are clearly
warranted in the instant case since, aside from the violation of petitioners
right to due process of law, the subject property is outside the coverage of the
agrarian reform program.
Issue of Validity of EPs Not Barred by Res Judicata
The LBP maintains that the issue of the EPs validity has already been settled
by this Court in Heirs of Sofia Nanaman Lonoy v. Secretary of Agrarian
Reform,72 where We held that the EPs and OCTs issued in 2001 had already
become indefeasible and incontrovertible by the time the petitioners therein
instituted the case in 2005; hence, their issuance may no longer be
reviewed.73
In effect, the LBP raises the defense of res judicata in order to preclude a
"relitigation" of the issue concerning the validity of the EPs issued to private
respondents.
Notably, the doctrine of res judicata has two aspects, namely: (1) "bar by prior
judgment,"74 wherein the judgment in a prior case bars the prosecution of a
second action upon the same claim, demand, or cause of action;75 and (2)
"conclusiveness of judgment,"76 which precludes relitigation of a particular
fact or issue in another action between the same parties on a different claim
or cause of action.77
Citing Agustin v. Delos Santos,78 this Court, in Spouses Antonio v.
Sayman,79 expounded on the difference between the two aspects of res
judicata:

The principle of res judicata is applicable by way of (1) "bar by prior judgment"
and (2) "conclusiveness of judgment." This Court had occasion to explain the
difference between these two aspects of res judicata as follows:
There is "bar by prior judgment" when, as between the first case where the
judgment was rendered and the second case that is sought to be barred, there
is identity of parties, subject matter, and causes of action. In this instance, the
judgment in the first case constitutes an absolute bar to the second action.
Otherwise put, the judgment or decree of the court of competent jurisdiction
on the merits concludes the litigation between the parties, as well as their
privies, and constitutes a bar to a new action or suit involving the same cause
of action before the same or other tribunal.
But where there is identity of parties in the first and second cases, but no
identity of causes of action, the first judgment is conclusive only as to those
matters actually and directly controverted and determined and not as to
matters merely involved therein. This is the concept of res judicata known as
"conclusiveness of judgment." Stated differently, any right, fact or matter in
issue directly adjudicated or necessarily involved in the determination of an
action before a competent court in which judgment is rendered on the merits
is conclusively settled by the judgment therein and cannot again be litigated
between the parties and their privies whether or not the claim, demand,
purpose, or subject matter of the two actions is the same. (Citations omitted;
emphasis supplied.)
To be sure, conclusiveness of judgment merits application "when a fact or
question has been squarely put in issue, judicially passed upon, and adjudged
in a former suit by a court of competent jurisdiction."80 Elucidating further on
this second aspect of res judicata, the Court, in Spouses Antonio, stated:
x x x The fact or question settled by final judgment or order binds the parties
to that action (and persons in privity with them or their successors-ininterest), and continues to bind them while the judgment or order remains
standing and unreversed by proper authority on a timely motion or petition;
the conclusively-settled fact or question cannot again be litigated in any

future or other action between the same parties or their privies and
successors-in-interest, in the same or in any other court of concurrent
jurisdiction, either for the same or for a different cause of action. Thus, only
the identities of parties and issues are required for the operation of the
principle of conclusiveness of judgment.81 (Citations omitted; emphasis
supplied.)
Applying the above statement of the Court to the case at bar, We find that
LBPs contention that this Courts ruling in Heirs of Sofia Nanaman Lonoy that
the EPs and OCTs issued in 2001 had already become indefeasible and
incontrovertible precludes a "relitigation" of the issue concerning the validity
of the EPs issued to private respondents does not hold water.
In the first place, there is no identity of parties in Heirs of Sofia Nanaman
Lonoy and the instant case. Arguably, the respondents in these two cases are
similar. However, the petitioners are totally different. In Heirs of Sofia
Nanaman Lonoy, the petitioners are the more than 120 individuals who claim
to be descendants of Fulgencio Nanaman, Gregorios brother, and who
collectively assert their right to a share in Gregorios estate, arguing that they
were deprived of their inheritance by virtue of the improper issuance of the
EPs to private respondents without notice to them. On the other hand, in the
instant case, petitioners are the heirs of Deleste who seek nullification of the
EPs issued to private respondents on grounds of violation of due process of
law, disregard of landowners right of retention, improvident issuance of EPs
and OCTs, and non-coverage of the agrarian reform program, among others.
Evidently, there is even no privity among the petitioners in these two cases.
And in the second place, the issues are also dissimilar. In Heirs of Sofia
Nanaman Lonoy, the issue was whether the filing of a petition for prohibition
was the proper remedy for the petitioners therein, considering that the EPs
and OCTs had already been issued in 2001, four (4) years prior to the filing of
said petition in 2005. In the instant case, however, the issue is whether the
EPs and OCTs issued in favor of private respondents are void, thus warranting
their cancellation.

In addition, the factual circumstances in these two cases are different such
that the necessity of applying the rule on indefeasibility of title in one is
wanting in the other. In Heirs of Sofia Nanaman Lonoy, the petition for
prohibition was filed by the petitioners therein in 2005, notwithstanding the
fact that the EPs and OCTs had already been issued in 2001. For that reason,
apart from making a ruling that "[p]rohibition, as a rule, does not lie to
restrain an act that is already a fait accompli," it becomes incumbent upon
this Court to hold that:
x x x Considering that such EPs and OCTs were issued in 2001, they had
become indefeasible and incontrovertible by the time petitioners instituted
CA-G.R. SP No. 00365 in 2005, and may no longer be judicially
reviewed.82 (Emphasis supplied.)
On the contrary, in the instant case, the petition for nullification of private
respondents EPs and OCTs was filed on February 28, 2002. Taking into
account that the EPs and OCTs were issued on August 1, 2001 and October 1,
2001, respectively, the filing of the petition was well within the prescribed one
year period, thus, barring the defense of indefeasibility and incontrovertibility.
Even if the petition was filed before the DARAB, and not the Regional Trial
Court as mandated by Sec. 32 of the Property Registration Decree,83 this
should necessarily have the same effect, considering that DARABs jurisdiction
extends to cases involving the cancellation of CLOAs, EPs, and even of
certificates of title issued by virtue of a void EP. As this Court held in Gabriel v.
Jamias:84
It is well-settled that the DAR, through its adjudication arm, i.e., the DARAB
and its regional and provincial adjudication boards, exercises quasi-judicial
functions and jurisdiction on all matters pertaining to an agrarian dispute or
controversy and the implementation of agrarian reform laws. Pertinently, it is
provided in the DARAB Revised Rules of Procedure that the DARAB has
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) and related agrarian reform
laws. Such jurisdiction shall extend to cases involving the issuance, correction

and cancellation of Certificates of Land Ownership Award (CLOAs) and

Emancipation Patents which are registered with the Land Registration
Authority.
This Court has had the occasion to rule that the mere issuance of an
emancipation patent does not put the ownership of the agrarian reform
beneficiary beyond attack and scrutiny. Emancipation patents may be
cancelled for violations of agrarian laws, rules and regulations. Section 12 (g)
of P.D. No. 946 (issued on June 17, 1976) vested the then Court of Agrarian
Relations with jurisdiction over cases involving the cancellation of
emancipation patents issued under P.D. No. 266. Exclusive jurisdiction over
such cases was later lodged with the DARAB under Section 1 of Rule II of the
DARAB Rules of Procedure.
For sure, the jurisdiction of the DARAB cannot be deemed to disappear the
moment a certificate of title is issued, for, such certificates are not modes of
transfer of property but merely evidence of such transfer, and there can be no
valid transfer of title should the CLOA, on which it was grounded, be void. The
same holds true in the case of a certificate of title issued by virtue of a void
emancipation patent.
From the foregoing, it is therefore undeniable that it is the DARAB and not the
regular courts which has jurisdiction herein, this notwithstanding the issuance
of Torrens titles in the names of the petitioners. For, it is a fact that the
petitioners Torrens titles emanated from the emancipation patents
previously issued to them by virtue of being the farmer-beneficiaries
identified by the DAR under the OLT of the government. The DAR ruling that
the said emancipation patents were erroneously issued for failing to consider
the valid retention rights of respondents had already attained finality.
Considering that the action filed by respondents with the DARAB was precisely
to annul the emancipation patents issued to the petitioners, the case
squarely, therefore, falls within the jurisdiction of the DARAB. x x x (Citations
omitted; emphasis supplied.)

Inevitably, this leads to no other conclusion than that Our ruling in Heirs of
Sofia Nanaman Lonoy concerning the indefeasibility and incontrovertibility of
the EPs and OCTs issued in 2001 does not bar Us from making a finding in the
instant case that the EPs and OCTs issued to private respondents are, indeed,
void.
With the foregoing disquisition, it becomes unnecessary to dwell on the other
issues raised by the parties.
WHEREFORE, the Court GRANTS the petition and REVERSES and SETS ASIDE
the CAs October 28, 2004 and September 13, 2005 Resolutions in CA-G.R. SP
No. 85471. The Emancipation Patents and Original Certificates of Title
covering the subject property, particularly Lot No. 1407, issued in favor of
private respondents are hereby declared NULL and VOID.
The DAR is ordered to CANCEL the aforementioned Emancipation Patents and
Original Certificates of Title erroneously issued in favor of private
respondents.

Republic of the Philippines

SUPREME COURT
Baguio
EN BANC
G.R. No. 171101

April 24, 2012

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.
RESOLUTION
VELASCO, JR., J.:

No pronouncement as to costs.
SO ORDERED.

Before the Court are the Motion to Clarify and Reconsider Resolution of
November 22, 2011 dated December 16, 2011 filed by petitioner Hacienda
Luisita, Inc. (HLI) and the Motion for Reconsideration/Clarification dated
December 9, 2011 filed by private respondents Noel Mallari, Julio Suniga,
Supervisory Group of Hacienda Luisita, Inc. and Windsor Andaya (collectively
referred to as "Mallari, et al.").
In Our July 5, 2011 Decision2 in the above-captioned case, this Court denied
the petition for review filed by HLI and affirmed the assailed Presidential
Agrarian Reform Council (PARC) Resolution No. 2005-32-01 dated December
22, 2005 and PARC Resolution No. 2006-34-01 dated May 3, 2006 with the
modification that the original 6,296 qualified farmworker-beneficiaries of
Hacienda Luisita (FWBs) shall have the option to remain as stockholders of
HLI.

Upon separate motions of the parties for reconsideration, the Court, by

Resolution3 of November 22, 2011, recalled and set aside the option thus
granted to the original FWBs to remain as stockholders of HLI, while
maintaining that all the benefits and homelots received by all the FWBs shall
be respected with no obligation to refund or return them.

IN VIEW OF FAILURE OF HLI TO PERFORM CERTAIN OBLIGATIONS OF

THE SDP, OR SDOA [STOCK DISTRIBUTION OPTION AGREEMENT];
(4) INDEED, THE IMMUTABLE RULE AND THE UNBENDING
JURISPRUDENCE IS THAT "TAKING" TAKES PLACE WHEN THE OWNER
IS ACTUALLY DEPRIVED OR DISPOSSESSED OF HIS PROPERTY;

HLI invokes the following grounds in support of its instant Motion to Clarify
and Reconsider Resolution of November 22, 2011 dated December 16, 2011:

(5) TO INSIST THAT THE "TAKING" IS WHEN THE SDP WAS APPROVED
BY PARC ON NOVEMBER 21, 1989 AND THAT THE SAME BE
CONSIDERED AS THE RECKONING PERIOD TO DETERMINE THE JUST
COMPENSATION IS DEPRIVATION OF LANDOWNERS PROPERTY
WITHOUT DUE PROCESS OF LAW;

A
WITH DUE RESPECT, THE HONORABLE COURT ERRED IN RULING THAT IN
DETERMINING THE JUST COMPENSATION, THE DATE OF "TAKING" IS
NOVEMBER 21, 1989, WHEN PARC APPROVED HLIs SDP [STOCK
DISPTRIBUTION PLAN] "IN VIEW OF THE FACT THAT THIS IS THE TIME THAT
THE FWBs WERE CONSIDERED TO OWN AND POSSESS THE AGRICULTURAL
LANDS IN HACIENDA LUISITA" BECAUSE:
(1) THE SDP IS PRECISELY A MODALITY WHICH THE AGRARIAN LAW
GIVES THE LANDOWNER AS ALTERNATIVE TO COMPULSORY
COVERAGE IN WHICH CASE, THEREFORE, THE FWBs CANNOT BE
CONSIDERED AS OWNERS AND POSSESSORS OF THE AGRICULTURAL
LANDS AT THE TIME THE SDP WAS APPROVED BY PARC;

(6) HLI SHOULD BE ENTITLED TO PAYMENT OF INTEREST ON THE JUST

COMPENSATION.
B
WITH DUE RESPECT, THE HONORABLE COURT ERRED WHEN IT REVERSED ITS
DECISION GIVING THE FWBs THE OPTION TO REMAIN AS HLI STOCKHOLDERS
OR NOT, BECAUSE:
(1) IT IS AN EXERCISE OF A RIGHT OF THE FWB WHICH THE
HONORABLE COURT HAS DECLARED IN ITS DECISION AND EVEN IN ITS
RESOLUTION AND THAT HAS TO BE RESPECTED AND IMPLEMENTED;

(2) THE APPROVAL OF THE SDP CANNOT BE AKIN TO A NOTICE OF

COVERAGE IN COMPULSORY COVERAGE OR ACQUISITION BECAUSE
SDP AND COMPULSORY COVERAGE ARE TWO DIFFERENT MODALITIES
WITH INDEPENDENT AND SEPARATE RULES AND MECHANISMS;

(2) NEITHER THE CONSTITUTION NOR THE CARL [COMPREHENSIVE

AGRARIAN REFORM LAW] REQUIRES THAT THE FWBs SHOULD HAVE
CONTROL OVER THE AGRICULTURAL LANDS;

(3) THE NOTICE OF COVERAGE OF JANUARY 02, 2006 MAY, AT THE

VERY LEAST, BE CONSIDERED AS THE TIME WHEN THE FWBs CAN BE
CONSIDERED TO OWN AND POSSESS THE AGRICULTURAL LANDS OF
HACIENDA LUISITA BECAUSE THAT IS THE ONLY TIME WHEN
HACIENDA LUISITA WAS PLACED UNDER COMPULSORY ACQUISITION

(3) THE OPTION HAS NOT BEEN SHOWN TO BE DETRIMENTAL BUT

INSTEAD BENEFICIAL TO THE FWBs AS FOUND BY THE HONORABLE
COURT.
C

WITH DUE RESPECT, THE HONORABLE COURT ERRED IN RULING THAT THE
PROCEEDS FROM THE SALES OF THE 500-HECTARE CONVERTED LOT AND THE
80.51-HECTARE SCTEX CANNOT BE RETAINED BY HLI BUT RETURNED TO THE
FWBs AS BY SUCH MANNER; HLI IS USING THE CORPORATION CODE TO AVOID
ITS LIABILITY TO THE FWBs FOR THE PRICE IT RECEIVED FROM THE SALES,
BECAUSE:

ON THE CONCLUSION BY THIS HONORABLE COURT THAT THE OPERATIVE

FACT DOCTRINE IS APPLICABLE TO THE CASE AT BAR, THEN FWBs WHO
MERELY RELIED ON THE PARC APPROVAL SHOULD NOT BE PREJUDICED BY ITS
SUBSEQUENT NULLIFICATION.

(1) THE PROCEEDS OF THE SALES BELONG TO THE CORPORATION AND

NOT TO EITHER HLI/TADECO OR THE FWBs, BOTH OF WHICH ARE
STOCKHOLDERS ENTITLED TO THE EARNINGS OF THE CORPORATION
AND TO THE NET ASSETS UPON LIQUIDATION;

THOSE WHO CHOOSE LAND SHOULD RETURN WHATEVER THEY GOT FROM
THE SDOA [STOCK DISTRIBUTION OPTION AGREEMENT] AND TURN OVER THE
SAME TO HLI FOR USE IN THE OPERATIONS OF THE COMPANY, WHICH IN
TURN WILL REDOUND TO THE BENEFIT OF THOSE WHO WILL OPT TO STAY
WITH THE SDO.

(2) TO ALLOW THE RETURN OF THE PROCEEDS OF THE SALES TO FWBs

IS TO IMPOSE ALL LIABILITIES OF THE CORPORATION ON HLI/TADECO
WHICH IS UNFAIR AND VIOLATIVE OF THE CORPORATION CODE.
Mallari, et al. similarly put forth the following issues in its Motion for
Reconsideration/Clarification dated December 9, 2011:
I
REPUBLIC ACT NO. 6657 [RA 6657] OR THE COMPREHENSIVE AGRARIAN
REFORM LAW [CARL] DOES NOT PROVIDE THAT THE FWBs WHO OPT FOR
STOCK DISTRIBUTION OPTION SHOULD RETAIN MAJORITY SHAREHOLDING OF
THE COMPANY TO WHICH THE AGRICULTURAL LAND WAS GIVEN.
II
IF THE NOVEMBER 22, 2011 DECISION OF THIS HONORABLE COURT
ORDERING LAND DISTRIBUTION WOULD BE FOLLOWED, THIS WOULD CAUSE
MORE HARM THAN GOOD TO THE LIVES OF THOSE PEOPLE LIVING IN THE
HACIENDA, AND MORE PARTICULARLY TO THE WELFARE OF THE FWBs.
III

IV

V
FOR THOSE WHO CHOOSE LAND, THE TIME OF TAKING FOR PURPOSES OF
JUST COMPENSATION SHOULD BE AT THE TIME HLI WAS DISPOSSESSED OF
CONTROL OVER THE PROPERTY, AND THAT PAYMENT BY [THE GOVERNMENT]
OF THE LAND SHOULD BE TURNED OVER TO HLI FOR THE BENEFIT AND USE OF
THE COMPANYS OPERATIONS THAT WILL, IN TURN, REDOUND TO THE
BENEFIT OF FWBs WHO WILL OPT TO STAY WITH THE COMPANY.
Basically, the issues raised by HLI and Mallari, et al. boil down to the following:
(1) determination of the date of "taking"; (2) propriety of the revocation of
the option on the part of the original FWBs to remain as stockholders of HLI;
(3) propriety of distributing to the qualified FWBs the proceeds from the sale
of the converted land and of the 80.51-hectare Subic-Clark-Tarlac Expressway
(SCTEX ) land; and (4) just compensation for the homelots given to the FWBs.
Payment of just compensation
HLI contends that since the SDP is a modality which the agrarian reform law
gives the landowner as alternative to compulsory coverage, then the FWBs
cannot be considered as owners and possessors of the agricultural lands of
Hacienda Luisita at the time the SDP was approved by PARC.4 It further claims
that the approval of the SDP is not akin to a Notice of Coverage in compulsory

coverage situations because stock distribution option and compulsory

acquisition are two (2) different modalities with independent and separate
rules and mechanisms. Concomitantly, HLI maintains that the Notice of
Coverage issued on January 2, 2006 may, at the very least, be considered as
the date of "taking" as this was the only time that the agricultural lands of
Hacienda Luisita were placed under compulsory acquisition in view of its
failure to perform certain obligations under the SDP.5
Mallari, et al. are of a similar view. They contend that Tarlac Development
Corporation (Tadeco), having as it were majority control over HLI, was never
deprived of the use and benefit of the agricultural lands of Hacienda Luisita.
Upon this premise, Mallari, et al. claim the "date of taking" could not be at the
time of the approval of the SDP.6
A view has also been advanced that the date of the "taking" should be left to
the determination of the Department of Agrarian Reform (DAR) in conjunction
with its authority to preliminarily determine the just compensation for the
land made subject of CARP.
Alyansa ng mga Manggagawang Bukid sa Hacienda Luisita (AMBALA), in its
Comment/Opposition (to the Motion to Clarify and Reconsider Resolution of
November 22, 2011) dated January 30, 2012, on the other hand, alleges that
HLI should not be paid just compensation altogether.7 It argues that when the
Court of Appeals (CA) dismissed the case8 the government of then President
Ferdinand E. Marcos initially instituted and won against Tadeco, the CA
allegedly imposed as a condition for its dismissal of the action that should the
stock distribution program fail, the lands should be distributed to the FWBs,
with Tadeco receiving by way of compensation only the amount of PhP
3,988,000.9
AMBALA further contends that if HLI or Tadeco is, at all, entitled to just
compensation, the "taking" should be reckoned as of November 21, 1989, the
date when the SDP was approved, and the amount of compensation should
be PhP 40,000 per hectare as this was the same value declared in 1989 by

Tadeco to ensure that the FWBs will not control the majority stockholdings in
HLI.10
At the outset, it should be noted that Section 2, Rule 52 of the Rules of Court
states, "No second motion for reconsideration of a judgment or final
resolution by the same party shall be entertained." A second motion for
reconsideration, as a rule, is prohibited for being a mere reiteration of the
issues assigned and the arguments raised by the parties.11
In the instant case, the issue on just compensation and the grounds HLI and
Mallari, et al. rely upon in support of their respective stance on the matter
had been previously raised by them in their first motion for reconsideration
and fully passed upon by the Court in its November 22, 2011 Resolution. The
similarities in the issues then and now presented and the grounds invoked are
at once easily discernible from a perusal of the November 22, 2011
Resolution, the pertinent portions of which read:
In Our July 5, 2011 Decision,
compensation for the remaining
DAR for land distribution to the
"taking" is November 21, 1989,
Resolution No. 89-12-2.

We stated that "HLI shall be paid just

agricultural land that will be transferred to
FWBs." We also ruled that the date of the
when PARC approved HLIs SDP per PARC

In its Motion for Clarification and Partial Reconsideration, HLI disagrees with
the foregoing ruling and contends that the "taking" should be reckoned from
finality of the Decision of this Court, or at the very least, the reckoning period
may be tacked to January 2, 2006, the date when the Notice of Coverage was
issued by the DAR pursuant to PARC Resolution No. 2006-34-01
recalling/revoking the approval of the SDP.
For their part, Mallari, et al. argue that the valuation of the land cannot be
based on November 21, 1989, the date of approval of the SDP. Instead, they
aver that the date of "taking" for valuation purposes is a factual issue best left
to the determination of the trial courts.

At the other end of the spectrum, AMBALA alleges that HLI should no longer
be paid just compensation for the agricultural land that will be distributed to
the FWBs, since the Manila Regional Trial Court (RTC) already rendered a
decision ordering the Cojuangcos to transfer the control of Hacienda Luisita to
the Ministry of Agrarian Reform, which will distribute the land to small
farmers after compensating the landowners P3.988 million. In the event,
however, that this Court will rule that HLI is indeed entitled to compensation,
AMBALA contends that it should be pegged at forty thousand pesos (PhP
40,000) per hectare, since this was the same value that Tadeco declared in
1989 to make sure that the farmers will not own the majority of its stocks.
Despite the above propositions, We maintain that the date of "taking" is
November 21, 1989, the date when PARC approved HLIs SDP per PARC
Resolution No. 89-12-2, in view of the fact that 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, November 21, 1989. Thus, such approval is akin to a notice of coverage
ordinarily issued under compulsory acquisition. Further, any doubt should be
resolved in favor of the FWBs. As this Court held in Perez-Rosario v. CA:
It is an established social and economic fact that the escalation of poverty is
the driving force behind the political disturbances that have in the past
compromised the peace and security of the people as well as the continuity of
the national order. To subdue these acute disturbances, the legislature over
the course of the history of the nation passed a series of laws calculated to
accelerate agrarian reform, ultimately to raise the material standards of living
and eliminate discontent. Agrarian reform is a perceived solution to social
instability. The edicts of social justice found in the Constitution and the public
policies that underwrite them, the extraordinary national experience, and the
prevailing national consciousness, all command the great departments of
government to tilt the balance in favor of the poor and underprivileged
whenever reasonable doubt arises in the interpretation of the law. But
annexed to the great and sacred charge of protecting the weak is the
diametric function to put every effort to arrive at an equitable solution for all

parties concerned: the jural postulates of social justice cannot shield illegal
acts, nor do they sanction false sympathy towards a certain class, nor yet
should they deny justice to the landowner whenever truth and justice happen
to be on her side. In the occupation of the legal questions in all agrarian
disputes whose outcomes can significantly affect societal harmony, the
considerations of social advantage must be weighed, an inquiry into the
prevailing social interests is necessary in the adjustment of conflicting
demands and expectations of the people, and the social interdependence of
these interests, recognized. (Emphasis and citations omitted.)
Considering that the issue on just compensation has already been passed
upon and denied by the Court in its November 22, 2011 Resolution, a
subsequent motion touching on the same issue undeniably partakes of a
second motion for reconsideration, hence, a prohibited pleading, and as such,
the motion or plea must be denied. Sec. 3 of Rule 15 of the Internal Rules of
the Supreme Court is clear:
SEC. 3. Second motion for reconsideration. The Court shall not entertain a
second motion for reconsideration, and any exception to this rule can only be
granted in the higher interest of justice by the Court en banc upon a vote of at
least two-thirds of its actual membership. There is reconsideration "in the
higher interest of justice" when the assailed decision is not only legally
erroneous, but is likewise patently unjust and potentially capable of causing
unwarranted and irremediable injury or damage to the parties. A second
motion for reconsideration can only be entertained before the ruling sought
to be reconsidered becomes final by operation of law or by the Courts
declaration.
In the Division, a vote of three Members shall be required to elevate a second
motion for reconsideration to the Court En Banc.
Nonetheless, even if we entertain said motion and examine the arguments
raised by HLI and Mallari, et al. one last time, the result will be the same.

Sec. 4, Article XIII of the 1987 Constitution expressly provides that the taking
of land for use in the agrarian reform program of the government is
conditioned on the payment of just compensation. As stated:
Section 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. (Emphasis
supplied.)
Just compensation has been defined as "the full and fair equivalent of the
property taken from its owner by the expropriator."12 The measure is not the
takers gain, but the owners loss.13 In determining just compensation, the
price or value of the property at the time it was taken from the owner and
appropriated by the government shall be the basis. If the government takes
possession of the land before the institution of expropriation proceedings, the
value should be fixed as of the time of the taking of said possession, not of the
filing of the complaint.14
In Land Bank of the Philippines v. Livioco, the Court held that "the time of
taking is the time when the landowner was deprived of the use and benefit of
his property, such as when title is transferred to the Republic."15 It should be
noted, however, that "taking" does not only take place upon the issuance of
title either in the name of the Republic or the beneficiaries of the
Comprehensive Agrarian Reform Program (CARP). "Taking" also occurs when
agricultural lands are voluntarily offered by a landowner and approved by
PARC for CARP coverage through the stock distribution scheme, as in the
instant case. Thus, HLIs submitting its SDP for approval is an acknowledgment
on its part that the agricultural lands of Hacienda Luisita are covered by CARP.
However, it was the PARC approval which should be considered as the

effective date of "taking" as it was only during this time that the government
officially confirmed the CARP coverage of these lands.
Indeed, stock distribution option and compulsory land acquisition are two (2)
different modalities under the agrarian reform program. Nonetheless, both
share the same end goal, that is, to have "a more equitable distribution and
ownership of land, with due regard to the rights of landowners to just
compensation."16
The fact that Sec. 31 of Republic Act No. 6657 (RA 6657) gives corporate
landowners the option to give qualified beneficiaries the right to avail of a
stock distribution or, in the phraseology of the law, "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
companys total assets," does not detract from the avowed policy of the
agrarian reform law of equitably distributing ownership of land. The
difference lies in the fact that instead of actually distributing the agricultural
lands to the farmer-beneficiaries, these lands are held by the corporation as
part of the capital contribution of the farmer-beneficiaries, not of the
landowners, under the stock distribution scheme. The end goal of equitably
distributing ownership of land is, therefore, undeniable. And since it is only
upon the approval of the SDP that the agricultural lands actually came under
CARP coverage, such approval operates and takes the place of a notice of
coverage ordinarily issued under compulsory acquisition.
Moreover, precisely because due regard is given to the rights of landowners
to just compensation, the law on stock distribution option acknowledges that
landowners can require payment for the shares of stock corresponding to the
value of the agricultural lands in relation to the outstanding capital stock of
the corporation.
Although Tadeco did not require compensation for the shares of stock
corresponding to the value of the agricultural lands in relation to the
outstanding capital stock of HLI, its inability to receive compensation cannot
be attributed to the government. The second paragraph of Sec. 31 of RA 6657

explicitly states that "[u]pon certification by 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
companys total assets, under such terms and conditions as may be agreed
upon by them. x x x"17 On the basis of this statutory provision, Tadeco could
have exacted payment for such shares of stock corresponding to the value of
the agricultural lands of Hacienda Luisita in relation to the outstanding capital
stock of HLI, but it did not do so.
What is notable, however, is that the divestment by Tadeco of the agricultural
lands of Hacienda Luisita and the giving of the shares of stock for free is
nothing but an enticement or incentive for the FWBs to agree with the stock
distribution option scheme and not further push for land distribution. And the
stubborn fact is that the "man days" scheme of HLI impelled the FWBs to work
in the hacienda in exchange for such shares of stock.
Notwithstanding the foregoing considerations, the suggestion that there is
"taking" only when the landowner is deprived of the use and benefit of his
property is not incompatible with Our conclusion that "taking" took place on
November 21, 1989. As mentioned in Our July 5, 2011 Decision, even from the
start, the stock distribution scheme appeared to be Tadecos preferred option
in complying with the CARP when it organized HLI as its spin-off corporation in
order to facilitate stock acquisition by the FWBs. For this purpose, Tadeco
assigned and conveyed to HLI the agricultural lands of Hacienda Luisita, set at
4,915.75 hectares, among others. These agricultural lands constituted as the
capital contribution of the FWBs in HLI. In effect, Tadeco deprived itself of the
ownership over these lands when it transferred the same to HLI.
While it is true that Tadeco has majority control over HLI, the Court cannot
subscribe to the view Mallari, et al. espouse that, on the basis of such majority
stockholding, Tadeco was never deprived of the use and benefit of the
agricultural lands of Hacienda Luisita it divested itself in favor of HLI.

It bears stressing that "[o]wnership is defined as a relation in law by virtue of

which a thing pertaining to one person is completely subjected to his will in
everything not prohibited by law or the concurrence with the rights of
another."18 The attributes of ownership are: jus utendi or the right to possess
and enjoy, jus fruendi or the right to the fruits, jus abutendi or the right to
abuse or consume, jus disponendi or the right to dispose or alienate, and jus
vindicandi or the right to recover or vindicate.19
When the agricultural lands of Hacienda Luisita were transferred by Tadeco to
HLI in order to comply with CARP through the stock distribution option
scheme, sealed with the imprimatur of PARC under PARC Resolution No. 8912-2 dated November 21, 1989, Tadeco was consequently dispossessed of the
afore-mentioned attributes of ownership. Notably, Tadeco and HLI are two
different entities with separate and distinct legal personalities. Ownership by
one cannot be considered as ownership by the other.
Corollarily, it is the official act by the government, that is, the PARCs approval
of the SDP, which should be considered as the reckoning point for the "taking"
of the agricultural lands of Hacienda Luisita. Although the transfer of
ownership over the agricultural lands was made prior to the SDPs approval, it
is this Courts consistent view that these lands officially became subject of the
agrarian reform coverage through the stock distribution scheme only upon
the approval of the SDP. And as We have mentioned in Our November 22,
2011 Resolution, such approval is akin to a notice of coverage ordinarily
issued under compulsory acquisition.
Further, if We adhere to HLIs view that the Notice of Coverage issued on
January 2, 2006 should, at the very least, be considered as the date of "taking"
as this was the only time that the agricultural portion of the hacienda was
placed under compulsory acquisition in view of HLIs failure to perform certain
obligations under the SDP, this Court would, in effect, be penalizing the
qualified FWBs twice for acceding to the adoption of the stock distribution
scheme: first, by depriving the qualified FWBs of the agricultural lands that
they should have gotten early on were it not for the adoption of the stock
distribution scheme of which they only became minority stockholders; and

second, by making them pay higher amortizations for the agricultural lands
that should have been given to them decades ago at a much lower cost were
it not for the landowners initiative of adopting the stock distribution scheme
"for free."
Reiterating what We already mentioned in Our November 22, 2011
Resolution, "[e]ven if it is the government which will pay the just
compensation to HLI, this will also affect the FWBs as they will be paying
higher amortizations to the government if the taking will be considered to
have taken place only on January 2, 2006." As aptly observed by Justice
Leonardo-De Castro in her Concurring Opinion, "this will put the land beyond
the capacity of the [FWBs] to pay," which this Court should not countenance.
Considering the above findings, it cannot be gainsaid that effective "taking"
took place in the case at bar upon the approval of the SDP, that is, on
November 21, 1989.
HLI postulates that just compensation is a question of fact that should be left
to the determination by the DAR, Land Bank of the Philippines (LBP) or even
the special agrarian court (SAC).20 As a matter of fact, the Court, in its
November 22, 2011 Resolution, dispositively ordered the DAR and the LBP to
determine the compensation due to HLI. And as indicated in the body of said
Resolution:
The foregoing notwithstanding, it bears stressing that the DARs 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.
As regards the issue on when "taking" occurred with respect to the
agricultural lands in question, We, however, maintain that this Court can rule,
as it has in fact already ruled on its reckoning date, that is, November 21,
1989, the date of issuance of PARC Resolution No. 89-12-2, based on the

above-mentioned disquisitions. The investment on SACs of original and

exclusive jurisdiction over all petitions for the determination of just
compensation to landowners21 will not preclude the Court from ruling upon a
matter that may already be resolved based on the records before Us. By
analogy, Our ruling in Heirs of Dr. Jose Deleste v. LBP is applicable:
Indeed, it is the Office of the DAR Secretary which is vested with the primary
and exclusive jurisdiction over all matters involving the implementation of the
agrarian reform program. However, this will not prevent the Court from
assuming jurisdiction over the petition considering that the issues raised in it
may already be resolved on the basis of the records before Us. Besides, to
allow the matter to remain with the Office of the DAR Secretary would only
cause unnecessary delay and undue hardship on the parties. Applicable, by
analogy, is Our ruling in the recent Bagong Pagkakaisa ng Manggagawa ng
Triumph International v. Department of Labor and Employment Secretary,
where We held:
But as the CA did, we similarly recognize that undue hardship, to the point of
injustice, would result if a remand would be ordered under a situation where
we are in the position to resolve the case based on the records before us. As
we said in Roman Catholic Archbishop of Manila v. Court of Appeals:
[w]e have laid down the rule that the remand of the case to the lower court
for further reception of evidence is not necessary where the Court is in a
position to resolve the dispute based on the records before it. On many
occasions, the Court, in the public interest and for the expeditious
administration of justice, has resolved actions on the merits instead of
remanding them to the trial court for further proceedings, such as where the
ends of justice, would not be subserved by the remand of the
case.22 (Emphasis supplied; citations omitted.)
Even though the compensation due to HLI will still be preliminarily
determined by DAR and LBP, subject to review by the RTC acting as a SAC, the
fact that the reckoning point of "taking" is already fixed at a certain date

should already hasten the proceedings and not further cause undue hardship
on the parties, especially the qualified FWBs.
By a vote of 8-6, the Court affirmed its ruling that the date of "taking" in
determining just compensation is November 21, 1989 when PARC approved
HLIs stock option plan.
As regards the issue of interest on just compensation, We also leave this
matter to the DAR and the LBP, subject to review by the RTC acting as a SAC.
Option will not ensure control over agricultural lands
In Our November 22, 2011 Resolution, this Court held:
After having discussed and considered the different contentions raised by the
parties in their respective motions, We are now left to contend with one
crucial issue in the case at bar, that is, control over the agricultural lands by
the qualified FWBs.
Upon a review of the facts and circumstances, We realize that the FWBs will
never have control over these agricultural lands for as long as they remain as
stockholders of HLI. In Our July 5, 2011 Decision, this Court made the
following observations:
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 nonagricultural 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.
In line with Our finding that control over agricultural lands must always be in
the hands of the farmers, We reconsider our ruling that the qualified FWBs
should be given an option to remain as stockholders of HLI, inasmuch as these
qualified FWBs will never gain control given the present proportion of
shareholdings in HLI.
A revisit of HLIs Proposal for Stock Distribution under CARP and the Stock
Distribution Option Agreement (SDOA) upon which the proposal was based
reveals that the total assets of HLI is PhP 590,554,220, while the value of the
4,915.7466 hectares is PhP 196,630,000. Consequently, the share of the
farmer-beneficiaries in the HLI capital stock is 33.296% (196,630,000 divided
by 590,554.220); 118,391,976.85 HLI shares represent 33.296%. Thus, even if
all the holders of the 118,391,976.85 HLI shares unanimously vote to remain
as HLI stockholders, which is unlikely, control will never be placed in the hands
of the farmer-beneficiaries. Control, of course, means the majority of 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 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. Hence, control can NEVER be attained by the FWBs.
There is even no assurance that 100% of the 118,391,976.85 shares issued to
the FWBs will all be voted in favor of staying in HLI, taking into account the
previous referendum among the farmers where said shares were not voted
unanimously in favor of retaining the SDP. In light of the foregoing

consideration, the option to remain in HLI granted to the individual FWBs will
have to be recalled and revoked.

landowners. The State shall further provide incentives for voluntary landsharing. (Emphasis supplied.)

Moreover, bearing in mind that with the revocation of the approval of the
SDP, HLI will no longer be operating under SDP and will only be treated as an
ordinary private corporation; the FWBs who remain as stockholders of HLI will
be treated as ordinary stockholders and will no longer be under the protective
mantle of RA 6657. (Emphasis in the original.)

Pursuant to and as a mechanism to carry out the above-mentioned

constitutional directive, RA 6657 was enacted. In consonance with the
constitutional policy on agrarian reform, Sec. 2 of RA 6657 also states:

HLI, however, takes exception to the above-mentioned ruling and contends

that "[t]here is nothing in the Constitution nor in the agrarian laws which
require that control over the agricultural lands must always be in the hands of
the farmers."23 Moreover, both HLI and Mallari, et al. claim that the option
given to the qualified FWBs to remain as stockholders of HLI is neither
iniquitous nor prejudicial to the FWBs.24
The Court agrees that the option given to the qualified FWBs whether to
remain as stockholders of HLI or opt for land distribution is neither iniquitous
nor prejudicial to the FWBs. Nonetheless, the Court is not unmindful of the
policy on agrarian reform that control over the agricultural land must always
be in the hands of the farmers. Contrary to the stance of HLI, both the
Constitution and RA 6657 intended the farmers, individually or collectively, to
have control over the agricultural lands of HLI; otherwise, all these rhetoric
about agrarian reform will be rendered for naught. Sec. 4, Art. XIII of the 1987
Constitution provides:
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

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 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.
The State shall recognize the right of farmers, farm workers and landowners,
as well as cooperatives and other independent farmers organization, to
participate in the planning, organization, and management of the program,
and shall provide support to agriculture through appropriate technology and

research, and adequate financial, production, marketing and other support

services.
The State shall apply the principles of agrarian reform or stewardship,
whenever applicable, in accordance with law, in the disposition or utilization
of other natural resources, including lands of the public domain, under lease
or concession, suitable to agriculture, subject to prior rights, homestead rights
of small settlers and the rights of indigenous communities to their ancestral
lands.
The State may resettle landless farmers and farm workers in its own
agricultural estates, which shall be distributed to them in the manner
provided by law.
By means of appropriate incentives, the State shall encourage the formation
and maintenance of economic-sized family farms to be constituted by
individual beneficiaries and small landowners.
The State shall protect the rights of subsistence fishermen, especially of local
communities, to the preferential use of communal marine and fishing
resources, both inland and offshore. It shall provide support to such fishermen
through appropriate technology and research, adequate financial, production
and marketing assistance and other services, The State shall also protect,
develop and conserve such resources. The protection shall extend to offshore
fishing grounds of subsistence fishermen against foreign intrusion.
Fishworkers shall receive a just share from their labor in the utilization of
marine and fishing resources.
The State shall be guided by the principles that land has a social function and
land ownership has a social responsibility. Owners of agricultural land have
the obligation to cultivate directly or through labor administration the lands
they own and thereby make the land productive.
The State shall provide incentives to landowners to invest the proceeds of the
agrarian reform program to promote industrialization, employment and

privatization of public sector enterprises. Financial instruments used as

payment for lands shall contain features that shall enhance negotiability and
acceptability in the marketplace.
The State may lease undeveloped lands of the public domain to qualified
entities for the development of capital-intensive farms, traditional and
pioneering crops especially those for exports subject to the prior rights of the
beneficiaries under this Act. (Emphasis supplied.)
Based on the above-quoted provisions, the notion of farmers and regular
farmworkers having the right to own directly or collectively the lands they till
is abundantly clear. We have extensively discussed this ideal in Our July 5,
2011 Decision:
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 distributiondirect 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, while
collectively is defined as in a collective sense or manner; in a mass or body.
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 workerbeneficiaries.
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
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 companys 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
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 farmersDIRECT 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.
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. (Emphasis in the original; underscoring supplied.)
As aforequoted, there is collective ownership as long as there is a concerted
group work by the farmers on the land, regardless of whether the landowner
is a cooperative, association or corporation composed of farmers. However,
this definition of collective ownership should be read in light of the clear
policy of the law on agrarian reform, which is to emancipate the tiller from
the bondage of the soil and empower the common people. Worth noting too
is its noble goal of rectifying "the acute imbalance in the distribution of this
precious resource among our people."25 Accordingly, HLIs insistent view that
control need not be in the hands of the farmers translates to allowing it to run
roughshod against the very reason for the enactment of agrarian reform laws
and leave the farmers in their shackles with sheer lip service to look forward
to.
Notably, it has been this Courts consistent stand that control over the
agricultural land must always be in the hands of the farmers. As We wrote in
Our July 5, 2011 Decision:

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 nonagricultural 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. (Emphasis supplied.)
There is an aphorism that "what has been done can no longer be undone."
That may be true, but not in this case. The SDP was approved by PARC even if
the qualified FWBs did not and will not have majority stockholdings in HLI,
contrary to the obvious policy by the government on agrarian reform. Such an
adverse situation for the FWBs will not and should not be permitted to stand.
For this reason, We maintain Our ruling that the qualified FWBs will no longer
have the option to remain as stockholders of HLI.
FWBs
to Proceeds of Sale

Entitled

HLI reiterates its claim over the proceeds of the sales of the 500 hectares and
80.51 hectares of the land as corporate owner and argues that the return of
said proceeds to the FWBs is unfair and violative of the Corporation Code.

This claim is bereft of merit.

It cannot be denied that the adverted 500-hectare converted land and the
SCTEX lot once formed part of what would have been agrarian-distributable
lands, in fine subject to compulsory CARP coverage. And, as stated in our July
5, 2011 Decision, were it not for the approval of the SDP by PARC, these large
parcels of land would have been distributed and ownership transferred to the
FWBs, subject to payment of just compensation, given that, as of 1989, the
subject 4,915 hectares of Hacienda Luisita were already covered by CARP.
Accordingly, the proceeds realized from the sale and/or disposition thereof
should accrue for the benefit of the FWBs, less deductions of 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, as prescribed in our November 22, 2011 Resolution.
Homelots
In the present recourse, HLI also harps on the fact that since the homelots
given to the FWBs do not form part of the 4,915.75 hectares covered by the
SDP, then the value of these homelots should, with the revocation of the SDP,
be paid to Tadeco as the landowner.26
We disagree. As We have explained in Our July 5, 2011 Decision, the
distribution of homelots is required under RA 6657 only for corporations or
business associations owning or operating farms which opted for land
distribution. This is provided under Sec. 30 of RA 6657. Particularly:
SEC. 30. Homelots and Farmlots for Members of Cooperatives. The
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. (Italics supplied.)

The "preceding section" referred to in the above-quoted provision is Sec. 29

of RA 6657, which states:
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 workerbeneficiaries.
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.
Since none of the above-quoted provisions made reference to corporations
which opted for stock distribution under Sec. 31 of RA 6657, then it is
apparent that said corporations are not obliged to provide for homelots.
Nonetheless, 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." In fact, HLI was able to distribute homelots to some if not all of the
FWBs. Thus, in our November 22, 2011 Resolution, We declared that the
homelots already received by the FWBs shall be respected with no obligation
to refund or to return them.
The Court, by a unanimous vote, resolved to maintain its ruling that the FWBs
shall retain ownership of the homelots given to them with no obligation to
pay for the value of said lots. However, since the SDP was already revoked

with finality, the Court directs the government through the DAR to pay HLI the
just compensation for said homelots in consonance with Sec. 4, Article XIII of
the 1987 Constitution that the taking of land for use in the agrarian reform
program is "subject to the payment of just compensation." Just compensation
should be paid to HLI instead of Tadeco in view of the Deed of Assignment and
Conveyance dated March 22, 1989 executed between Tadeco and HLI, where
Tadeco transferred and conveyed to HLI the titles over the lots in question.
DAR is ordered to compute the just compensation of the homelots in
accordance with existing laws, rules and regulations.

WHEREFORE, the Motion to Clarify and Reconsider Resolution of November

22, 2011 dated December 16, 2011 filed by petitioner Hacienda Luisita, Inc.
and the Motion for Reconsideration/Clarification dated December 9, 2011
filed by private respondents Noel Mallari, Julio Suniga, Supervisory Group of
Hacienda Luisita, Inc. and Windsor Andaya are hereby DENIED with this
qualification: the July 5, 2011 Decision, as modified by the November 22, 2011
Resolution, is FURTHER MODIFIED in that the government, through DAR, is
ordered to pay Hacienda Luisita, Inc. the just compensation for the 240square meter homelots distributed to the FWBs.1wphi1

To recapitulate, the Court voted on the following issues in this manner:

The July 5, 2011 Decision, as modified by the November 22, 2011 Resolution
and further modified by this Resolution is declared FINAL and EXECUTORY.
The entry of judgment of said decision shall be made upon the time of the
promulgation of this Resolution.

1. In determining the date of "taking," the Court voted 8-6 to maintain

the ruling fixing November 21, 1989 as the date of "taking," the value
of the affected lands to be determined by the LBP and the DAR;

No further pleadings shall be entertained in this case.

2. On the propriety of the revocation of the option of the FWBs to
remain as HLI stockholders, the Court, by unanimous vote, agreed to
reiterate its ruling in its November 22, 2011 Resolution that the
option granted to the FWBs stays revoked;
3. On the propriety of returning to the FWBs the proceeds of the sale
of the 500-hectare converted land and of the 80.51-hectare SCTEX
land, the Court unanimously voted to maintain its ruling to order the
payment of the proceeds of the sale of the said land to the FWBs less
the 3% share, taxes and expenses specified in the fallo of the
November 22, 2011 Resolution;
4. On the payment of just compensation for the homelots to HLI, the
Court, by unanimous vote, resolved to amend its July 5, 2011 Decision
and November 22, 2011 Resolution by ordering the government,
through the DAR, to pay to HLI the just compensation for the
homelots thus distributed to the FWBS.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Baguio City
EN BANC
G.R. No. 164195

April 5, 2011

APO FRUITS CORPORATION and HIJO PLANTATION, INC., Petitioners,

vs.
LAND BANK OF THE PHILIPPINES, Respondent.
RESOLUTION
BRION, J.:
We resolve Land Bank of the Philippines (LBPs) 2nd Motion for
Reconsideration of December 14, 2010 that addresses our Resolutions of
October 12, 2010 and November 23, 2010. This motion prays as well for the
holding of oral arguments. We likewise resolve the Office of the Solicitor
Generals (OSG) Motion for Leave to Intervene and to Admit Motion for
Reconsideration-in-Intervention dated February 15, 2011 in behalf of the
Republic of the Philippines (Republic).
The Motion for Reconsideration
The LBP submits the following arguments in support of its 2nd motion for
reconsideration:
a) the test of "transcendental importance" does not apply to the
present case;
b) the standard of "transcendental importance" cannot justify the
negation of the doctrine of immutability of a final judgment and the
abrogation of a vested right in favor of the Government that
respondent LBP represents;

c) the Honorable Court ignored the deliberations of the 1986

Constitutional Commission showing that just compensation for
expropriated agricultural property must be viewed in the context of
social justice; and
d) granting arguendo that the interest payment has factual and legal
bases, only six (6%) percent interest per annum may be validly
imposed.
We have more than amply addressed argument (d) above in our October 12,
2010 Resolution, and we see no point in further discussing it. Without in any
way detracting from the overriding effect of our main and primary ruling that
the present 2nd motion for reconsideration is a prohibited motion that the
Court can no longer entertain, and if only to emphatically signal an
unequivocal finis to this case, we examine for the last and final time the LBPs
other arguments.
In the course of the Courts deliberations, Mr. Justice Roberto A. Abad
questioned the application of Section 3, Rule 15 of the Internal Rules of the
Supreme Court to the present 2nd motion for reconsideration. He posited
that instead of voting immediately on the present 2nd motion for
reconsideration, the Court should instead first consider the validity of our
October 12, 2010 Resolution; he claimed that this Resolution is null and void
because the Court violated the above-cited provision of the Internal Rules
when it did not first vote on whether the Resolutions underlying motion
(itself a 3rd motion for reconsideration) should be entertained before voting
on the motions merits. We shall lay to rest Mr. Justice Abads observation
before dwelling on the merits of the present 2nd motion for reconsideration.
Our Ruling
We find no merit in the LBPs second motion for reconsideration, and reject
as well the Mr. Justice Abads observation on how to approach the
consideration of the present motion.

Mr. Justice Abads Observations/Objections;

b. The governing rules on 2nd motions for reconsideration

The Rules on 2nd Motions for Reconsideration.

The basic rule governing 2nd motions for reconsideration is Section 2, Rule 52
(which applies to original actions in the Supreme Court pursuant to Section 2,
Rule 56) of the Rules of Court. This Rule expressly provides:

Mr. Justice Abads observation apparently stemmed from the peculiar history
of the present case.
a. A recap of the history of the case.
This case was originally handled by the Third Division of this Court. In its
original Decision of February 6, 2007, the Division affirmed the RTCs decision
setting the just compensation to be paid and fixing the interest due on the
balance of the compensation due at 12% per annum. In its Resolution of
December 19, 2007, the Third Division resolved the parties motions for
reconsideration by deleting the 12% interest due on the balance of the
awarded just compensation. The parties subsequent motions to reconsider
this Resolution were denied on April 30, 2008; on May 16, 2008, entry of
judgment followed. Despite the entry of judgment, the present petitioners
filed a second motion for reconsideration that prayed as well that the case be
referred to the Court en banc. Finding merit in these motions, the Third
Division referred the case to the En Banc for its disposition. On December 4,
2009, the Court en banc denied the petitioners second motion for
reconsideration. Maintaining their belief in their demand to be granted 12%
interest, the petitioners persisted in filing another motion for reconsideration.
In the interim, the Court promulgated its Internal Rules that regulated, among
others, 2nd motions for reconsideration. On October 12, 2010, the Court en
banc granted by a vote of 8 for and 4 against the petitioners motion and
awarded the 12% interests the petitioners prayed for, thus affirming the
interests the RTC originally awarded. The Court subsequently denied the
respondents motion for reconsideration, giving rise to the present 2nd
motion for reconsideration. It was at this point that the OSG moved for leave
to intervene.

Sec. 2. Second Motion for Reconsideration. No second motion for

reconsideration of a judgment or final resolution by the same party shall be
entertained.
The absolute terms of this Rule is tempered by Section 3, Rule 15 of the
Internal Rules of the Supreme Court that provides:
Sec. 3. Second Motion for Reconsideration. The Court shall not entertain a
second motion for reconsideration and any exception to this rule can only be
granted in the higher interest of justice by the Court en banc upon a vote of at
least two-thirds of its actual membership. There is reconsideration "in the
higher interest of justice" when the assailed decision is not only legally
erroneous, but is likewise patently unjust and potentially capable of causing
unwarranted and irremediable injury or damage to the parties. A second
motion for reconsideration can only be entertained before the ruling sought
to be reconsidered becomes final by operation of law or by the Courts
declaration. [Emphases supplied.]
Separately from these rules is Article VIII, Section 4 (2) of the 1987
Constitution which governs the decision-making by the Court en banc of any
matter before it, including a motion for the reconsideration of a previous
decision. This provision states:
Section 4.
xxxx
(2) All cases involving the constitutionality of a treaty, international or
executive agreement, or law, which shall be heard by the Supreme Court en
banc, and all other cases which under the Rules of Court are required to be

heard en banc, including those involving the constitutionality, application, or

operation of presidential decrees, proclamations, orders, instructions,
ordinances, and other regulations, shall be decided with the concurrence of a
majority of the Members who actually took part in the deliberations on the
issues in the case and voted thereon.
Thus, while the Constitution grants the Supreme Court the power to
promulgate rules concerning the practice and procedure in all courts1 (and
allows the Court to regulate the consideration of 2nd motions for
reconsideration, including the vote that the Court shall require), these
procedural rules must be consistent with the standards set by the Constitution
itself. Among these constitutional standards is the above quoted Section 4
which applies to "all other cases which under the Rules of Court are required
to be heard en banc," and does not make any distinction as to the type of
cases or rulings it applies to, i.e, whether these cases are originally filed with
the Supreme Court, or cases on appeal, or rulings on the merits of motions
before the Court. Thus, rulings on the merits by the Court en banc on 2nd
motions for reconsideration, if allowed by the Court to be entertained under
its Internal Rules, must be decided with the concurrence of a majority of the
Members who actually took part in the deliberations.
When the Court ruled on October 12, 2010 on the petitioners motion for
reconsideration by a vote of 12 Members (8 for the grant of the motion and 4
against), the Court ruled on the merits of the petitioners motion. This ruling
complied in all respects with the Constitution requirement for the votes that
should support a ruling of the Court.
Admittedly, the Court did not make any express prior ruling accepting or
disallowing the petitioners motion as required by Section 3, Rule 15 of the
Internal Rules. The Court, however, did not thereby contravene its own rule
on 2nd motions for reconsideration; since 12 Members of the Court opted to
entertain the motion by voting for and against it, the Court simply did not
register an express vote, but instead demonstrated its compliance with the
rule through the participation by no less than 12 of its 15
Members.1avvphi1 Viewed in this light, the Court cannot even be claimed to

have suspended the effectiveness of its rule on 2nd motions for

reconsideration; it simply complied with this rule in a form other than by
express and separate voting.
Based on these considerations, arrived at after a lengthy deliberation, the
Court thus rejected Mr. Justice Abads observations, and proceeded to vote
on the question of whether to entertain the respondents present 2nd motion
for reconsideration. The vote was 9 to 2, with 9 Members voting not to
entertain the LBPs 2nd motion for reconsideration. By this vote, the ruling
sought to be reconsidered for the second time was unequivocally upheld; its
finality already declared by the Court in its Resolution of November 23, 2010
was reiterated. To quote the dispositive portion of the reiterated November
23, 2010 Resolution:
On these considerations, we hereby DENY the Motion for Reconsideration
with FINALITY. No further pleadings shall be entertained. Let entry of
judgment be made in due course.
Thus, this Court mandated a clear, unequivocal, final and emphatic finis to the
present case.
Landowners right to just compensation:
a matter of public interest
In assailing our October 12, 2010 resolution, the LBP emphasizes the need to
respect the doctrine of immutability of final judgments. The LBP maintains
that we should not have granted the petitioners motion for reconsideration
in our October 12, 2010 Resolution because the ruling deleting the 12%
interest had already attained finality when an Entry of Judgment was issued.
The LBP argues, too, that the present case does not involve a matter of
transcendental importance, as it does not involve life or liberty. The LBP
further contends that the Court mistakenly used the concept of
transcendental importance to recall a final ruling; this standard should only
apply to questions on the legal standing of parties.

In his dissenting opinion, Mr. Justice Roberto Abad agrees with the LBPs
assertion, positing that this case does not fall under any of the exceptions to
the immutability doctrine since it only involves money and does not involve a
matter of overriding public interest.
We reject the basic premise of the LBP's and Mr. Justice Abads arguments for
being flawed. The present case goes beyond the private interests involved; it
involves a matter of public interest the proper application of a basic
constitutionally-guaranteed right, namely, the right of a landowner to receive
just compensation when the government exercises the power of eminent
domain in its agrarian reform program.
Section 9, Article III of the 1987 Constitution expresses the constitutional rule
on eminent domain "Private property shall not be taken for public use
without just compensation." While confirming the States inherent power and
right to take private property for public use, this provision at the same time
lays down the limitation in the exercise of this power. When it takes property
pursuant to its inherent right and power, the State has the corresponding
obligation to pay the owner just compensation for the property taken. For
compensation to be considered "just," it must not only be the full and fair
equivalent of the property taken;2 it must also be paid to the landowner
without delay.3
To fully and properly appreciate the significance of this case, we have to
consider it in its proper context. Contrary to the LBPs and Mr. Justice Abads
assertions, the outcome of this case is not confined to the fate of the two
petitioners alone. This case involves the governments agrarian reform
program whose success largely depends on the willingness of the participants,
both the farmers-beneficiaries and the landowners, to cooperate with the
government. Inevitably, if the government falters or is seen to be faltering
through lack of good faith in implementing the needed reforms, including any
hesitation in paying the landowners just compensation, this reform program
and its objectives would suffer major setbacks. That the governments
agrarian reform program and its success are matters of public interest, to our

mind, cannot be disputed as the program seeks to remedy long existing and
widespread social justice and economic problems.
In a last ditch attempt to muddle the issues, the LBP focuses on our use of the
phrase "transcendental importance," and asserts that we erred in applying
this doctrine, applicable only to legal standing questions, to negate the
doctrine of immutability of judgment. This is a very myopic reading of our
ruling as the context clearly shows that the phrase "transcendental
importance" was used only to emphasize the overriding public
interest involved in this case. Thus, we said:
That the issues posed by this case are of transcendental importance is not
hard to discern from these discussions. A constitutional limitation, guaranteed
under no less than the all-important Bill of Rights, is at stake in this case: how
can compensation in an eminent domain case be "just" when the payment for
the compensation for property already taken has been unreasonably delayed?
To claim, as the assailed Resolution does, that only private interest is involved
in this case is to forget that an expropriation involves the government as a
necessary actor. It forgets, too, that under eminent domain, the constitutional
limits or standards apply to government who carries the burden of showing
that these standards have been met. Thus, to simply dismiss the case as a
private interest matter is an extremely shortsighted view that this Court
should not leave uncorrected.
xxxx
More than the stability of our jurisprudence, the matter before us is of
transcendental importance to the nation because of the subject matter
involved agrarian reform, a societal objective of that the government has
unceasingly sought to achieve in the past half century.4
From this perspective, our Resolution of October 12, 2010 only had to
demonstrate, as it did, that the higher interests of justice are duly served. All
these, amply discussed in the Resolution of October 12, 2010, are briefly
summarized and reiterated below.

LBP at fault for twelveyear delay in payment

In his dissenting opinion, Mr. Justice Abad insists that the LBPs initial
valuation of the petitioners properties was fully in accord with Section 17 of
the CARL. He posits that when the RTC gave a significantly higher value to
these lands, the LBP acted well within its rights when it appealed the
valuation. Thus, to him, it was wrong for this Court to characterize the LBPs
appeal as malicious or in bad faith.
A simple look at the attendant facts disproves the accuracy of this claim.
First, Mr. Justice Abads allegation that the LBP correctly valued the
petitioners properties is not at all accurate. Significantly, Mr. Justice Abad
does not cite any evidence on record to support his claim that "the Land Bank
valued the lands using the compensation formula that Section 17 of Republic
Act 6657 and the DARs implementing rules provide."5
More to the point, this Court has already determined, in a final and executed
judgment, that the RTCs valuation of the petitioners properties is the correct
one. To recall, the LBP initially fixed the value of Apo Fruits Corporations
(AFC) properties at P165,484.47 per hectare or P16.00 per square meter
(sqm), while it valued Hijo Plantation Inc.s (HPI) properties at P201,929.97
per hectare, or approximately P20.00/sqm. In contrast, the Regional Trial
Court fixed the valuation of the petitioners properties at P103.33/sqm., or
more than five times the initial valuation fixed by the LBP.
After reviewing the records, this Court affirmed the RTCs valuation in its
February 6, 2007 decision, noting that it was based on the following evidence:
(a) the Commissioners reports, (b) the Cuervo appraisers report, (c) the
schedule of market values of the City of Tagum per its 1993 and 1994 Revision
of Assessment and Property Classification, (d) the value of the permanent
improvements found on the expropriated properties, and (e) the comparative
sales of adjacent lands from early 1995 to early 1997. The Court observed that
the RTC valuation also took into consideration the lands nature as irrigated

land, its location along the highway, market value, assessors value, and the
volume and value of its produce. This valuation is fully in accordance with
Section 17 of RA 6657, 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 farm workers and by 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.
On its face, the staggering difference between the LBPs initial valuation of
the petitioners properties (totaling P251,379,104.02) and the RTCs valuation
(totaling P1,383,179,000.00) a difference of P1,131,799,895.98 amounting
to 81% of the total price betrays the lack of good faith on the part of the
government in dealing with the landowners. The sheer enormity of the
difference between the two amounts cannot but lead us to conclude that the
LBPs error was grievous and amounted to nothing less than gross negligence
in the exercise of its duty in this case, to properly ascertain the just
compensation due to the petitioners.
Mr. Justice Abad further argues that interest on just compensation is due only
where there is delay in payment. In the present case, the petitioners allegedly
did not suffer any delay in payment since the LBP made partial payments prior
to the taking of their lands.
This argument completely overlooks the definition of just compensation
already established in jurisprudence. Apart from the requirement that
compensation
for
expropriated
land
must
be
fair
and
reasonable, compensation, to be "just," must also be made without
delay.6 In simpler terms, for the governments payment to be considered just
compensation, the landowner must receive it in full without delay.

In the present case, it is undisputed that the government took the petitioners
lands on December 9, 1996; the petitioners only received full payment of the
just compensation due on May 9, 2008. This circumstance, by itself, already
confirms the unconscionable delay in the payment of just compensation.
Admittedly, a grain of truth exists in Justice Abads observation that the
petitioners received partial payments from the LBP before the titles to their
landholdings were transferred to the government. The full and exact truth,
however, is that the partial payments at the time of the taking only amounted
to a trifling five percent (5%) of the actual value of the expropriated
properties, as determined with finality by this Court. Even taking into
consideration
the
subsequent
partial
payments
made
totaling P411,769,168.32 (inclusive of the amounts deposited prior to the
taking), these payments only constituted a mere one-third (1/3) of the actual
value of the petitioners properties.
It should be considered as highlighted in our October 12, 2010 Resolution
that the properties the government took were fully operating and earning
plantations at the time of the taking. Thus, the landowners lost not only their
properties, but the fruits of these properties. These were all lost in 1996,
leaving the landowners without any replacement income from their
properties, except for the possible interest for the trifling payment made at
the time of the taking that, together with the subsequent payment, only
amounted to a third of the total amount due. Thus, for twelve long years, the
amount of P971,409,831.68 was withheld from the landowners.
An added dimension to this delayed payment is the impact of the delay. One
impact as pointed out above is the loss of income the landowners
suffered. Another impact that the LBP now glosses over is the income that the
LBP earned from the sizeable sum it withheld for twelve long years. From this
perspective, the unaccounted-for LBP income is unjust enrichment in its favor
and an inequitable loss to the landowners. This situation was what the Court
essentially addressed when it awarded the petitioners 12% interest.

Mr. Justice Abad goes on to argue that the delay should not be attributed to
the LBP as it could not have foreseen that it would take twelve years for the
case to be resolved. Justice Abads stance could have been correct were it not
for the fact that the delay in this case is ultimately attributable to the
government. Two significant factors justify the attribution of the delay to the
government.
The first is the DARs gross undervaluation of the petitioners properties the
government move that started the cycle of court actions.
The second factor to consider is government inaction. Records show that after
the petitioners received the LBPs initial valuation of their lands, they filed
petitions with the DARAB, the responsible agency of the DAR, for the proper
determination of just compensation. Instead of dismissing these petitions
outright for lack of jurisdiction, the DARAB sat on these cases for three years.
It was only after the petitioners resorted to judicial intervention, filing their
petitions for the determination of just compensation with the RTC, that the
petitioners case advanced.
The RTC interpreted the DARABs inaction as reluctance of the government to
pay the petitioners just compensation, a view this Court affirmed in its
October 12, 2010 Resolution.
Expropriation for agrarian reform
requires the payment of just compensation
The LBP claims that the just compensation in this case should be determined
within the context of the article on social justice found in the 1987
Constitution. In the LBPs opinion, when we awarded the petitioners 12%
interest by way of potential income, we removed from the taking of
agricultural properties for agrarian reform its main public purpose of righting
the wrong inflicted on landless farmers.
By this argument, the LBP effectively attempts to make a distinction between
the just compensation given to landowners whose properties are taken for

the governments agrarian reform program and properties taken for other
public purposes. This perceived distinction, however, is misplaced and is more
apparent than real.
The constitutional basis for our agrarian reform program is Section 4, Article
XIII of the 1987 Constitution, which mandates:
Section 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.
This provision expressly provides that the taking of land for use in the
governments agrarian reform program is conditioned on the payment of just
compensation. Nothing in the wording of this provision even remotely
suggests that the just compensation required from the taking of land for the
agrarian reform program should be treated any differently from the just
compensation required in any other case of expropriation. As explained by
Commissioner Roberto R. Concepcion during the deliberations of the 1986
Constitutional Commission:
[T]he term "just compensation" is used in several parts of the Constitution,
and, therefore, it must have a uniform meaning. It cannot have in one part a
meaning different from that which appears in the other portion. If, after all,
the party whose property is taken will receive the real value of the property
on just compensation, that is good enough.7
In fact, while a proposal was made during the deliberations of the 1986
Constitutional Commission to give a lower market price per square meter for
larger tracts of land, the Commission never intended to give agricultural

landowners less than just compensation in the expropriation of property for

agrarian reform purposes.8
To our mind, nothing is inherently contradictory in the public purpose of land
reform and the right of landowners to receive just compensation for the
expropriation by the State of their properties. That the petitioners are
corporations that used to own large tracts of land should not be taken against
them. As Mr. Justice Isagani Cruz eloquently put it:
[S]ocial justice - or any justice for that matter - is for the deserving, whether
he be a millionaire in his mansion or a pauper in his hovel. It is true that, in
case of reasonable doubt, we are called upon to tilt the balance in favor of the
poor, to whom the Constitution fittingly extends its sympathy and
compassion. But never is it justified to prefer the poor simply because they
are poor, or to reject the rich simply because they are rich, for justice must
always be served, for poor and rich alike, according to the mandate of the
law.9
Interest payments borne by government,
not by farmers-beneficiaries
Nor do we find any merit in the LBPs assertion that the large amount of just
compensation that we awarded the petitioners, together with the amount of
interest due, would necessarily result in making the farmers- beneficiaries
endure another form of bondage the payment of an exorbitant amount for
the rest of their lives.
As the petitioners correctly pointed out, the governments liability for the
payment of interest to the landowner for any delay attributable to it in paying
just compensation for the expropriated property is entirely separate and
distinct from the farmers-beneficiaries obligations to pay regular
amortizations for the properties transferred to them.
Republic Act No. 6657 (The Comprehensive Agrarian Reform Law, or CARL)
provides for the specific source of funding to be used by the government in

implementing the agrarian reform program; this funding does not come
directly from the payments made by the farmers-beneficiaries.101avvphi1

or the regular amortization, whichever is lower, from the sixth (6th)

to the thirtieth (30th) year.

More to the point, under the CARL, the amount the farmers-beneficiaries
must pay the LBP for their land is, for the most part, subsidized by the State
and is not equivalent to the actual cost of the land that the Department of
Agrarian Reform paid to the original landowners. Section 26, Chapter VII of
the CARL provides:

Clearly, the payments made by the farmers-beneficiaries to the LBP are

primarily based on a fixed percentage of their annual gross production, or
the value of the annual yield/produce of the land awarded to them.11 The cost
of the land will only be considered as the basis for the payments made by the
farmers-beneficiaries when this amount is lower than the amount based on
the annual gross production. Thus, there is no basis for the LBP to claim that
our ruling has violated the letter and spirit of the social justice provision of the
1987 Constitution. On the contrary, our ruling is made in accordance with the
intent of the 1987 Constitution.

SEC. 26. Payment by Beneficiaries. - 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 payments for the first three (3)
years after the award may 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 productions paid as
established by the DAR. Should the scheduled annual payments after the fifth
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 may reduce
the interest rate or reduce the principal obligation to make the payment
affordable.
Interpreting this provision of the law, DAR Administrative Order No. 6, Series
of 1993 provides:
A. As a general rule, land awarded pursuant to E.O. 229 and R.A. 6657
shall be repaid by the Agrarian Reform Beneficiary (ARB) to
LANDBANK in thirty (30) annual amortizations at six (6%) percent
interest per annum. The annual amortization shall start one year from
date of Certificate of Landownership Award (CLOA) registration.
B. The payments by the ARBs for the first three (3) years shall be two
and a half percent (2.5%) of AGP [Annual Gross Production] and five
percent (5.0%) of AGP for the fourth and fifth years. To further make
the payments affordable, the ARBs shall pay ten percent (10%) of AGP

Motion for Oral Arguments

We deny as well the LBPs motion to set the case for oral arguments. The
submissions of the parties, as well as the records of the case, have already
provided this Court with enough arguments and particulars to rule on the
issues involved. Oral arguments at this point would be superfluous and would
serve no useful purpose.
The OSGs Intervention
The interest of the Republic, for whom the OSG speaks, has been amply
protected through the direct action of petitioner LBP the government
instrumentality created by law to provide timely and adequate financial
support in all phases involved in the execution of needed agrarian reform. The
OSG had every opportunity to intervene through the long years that this case
had been pending but it chose to show its hand only at this very late stage
when its presence can only serve to delay the final disposition of this case.
The arguments the OSG presents, furthermore, are issues that this Court has
considered in the course of resolving this case. Thus, every reason exists to
deny the intervention prayed for.

WHEREFORE, premises considered, the respondents second motion for

reconsideration and the motion to set the case for oral arguments are
hereby DENIED WITH ABSOLUTE FINALITY. The motion for intervention filed
by the Office of the Solicitor General is, likewise, denied. We reiterate, under
pain of contempt if our directive is disregarded or disobeyed, that no further
pleadings shall be entertained. Let judgment be entered in due course.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 202690

June 5, 2013

HENRY L. SY, Petitioner,

vs.
LOCAL GOVERNMENT OF QUEZON CITY, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the January 20, 2012
Decision2 and July 16, 2012 Resolution3 of the Court of Appeals (CA) in CA-G.R.
CV No. 91964 which affirmed with modification the August 22, 2008 Order4 of
the Regional Trial Court of Quezon City, Branch 80 (RTC) in Civil Case No. Q96-29352, ordering respondent Local Government of Quezon City (the City) to
pay petitioner Henry L. Sy (Sy) just compensation set as P5,500.00 per square
meter (sq. m.), including P200,000.00 as exemplary damages and attorneys
fees equivalent to one percent (1%) of the total amount due.

The Facts
On November 7, 1996, the City, through then Mayor Ismael Mathay, Jr., filed a
complaint for expropriation with the RTC in order to acquire a 1,000 sq. m.
parcel of land, owned and registered under the name of Sy (subject
property),5 which was intended to be used as a site for a multi-purpose
barangay hall, day-care center, playground and community activity center for
the benefit of the residents of Barangay Balingasa, Balintawak, Quezon
City.6 The requisite ordinance to undertake the aforesaid expropriation
namely, Ordinance No. Sp-181, s-94, was enacted on April 12, 1994.7

On March 18, 1997, pursuant to Section 198 of Republic Act No. 7160 (RA
7160), otherwise known as the "Local Government Code of 1991," the City
deposited the amount of P241,090.00 with the Office of the Clerk of Court,
representing 15% of the fair market value of the subject property based on its
tax declaration.9
During the preliminary conference on November 8, 2006, Sy did not question
the Citys right to expropriate the subject property. Thus, only the amount of
just compensation remained at issue.10
On July 6, 2006, the RTC appointed Edgardo Ostaco (Commissioner Ostaco),
Engr. Victor Salinas (Commissioner Salinas) and Atty. Carlo Alcantara
(Commissioner Alcantara) as commissioners to determine the proper amount
of just compensation to be paid by the City for the subject property.
Subsequently, Commissioners Ostaco and Alcantara, in a Report dated
February 11, 2008, recommended the payment of P5,500.00 per sq. m., to be
computed from the date of the filing of the expropriation complaint, or on
November 7, 1996. On the other hand, Commissioner Salinas filed a separate
Report dated March 7, 2008, recommending the higher amount of P13,500.00
per sq. m. as just compensation.11
The RTC Ruling
In the Order dated August 22, 2008,12 the RTC, citing the principle that just
compensation must be fair not only to the owner but to the expropriator as
well, adopted the findings of Commissioners Ostaco and Alcantara and thus,
held that the just compensation for the subject property should be set
at P5,500.00 per sq. m.13 Further, it found no basis for the award of damages
and back rentals in favor of Sy.14 Finally, while legal interest was not claimed,
for equity considerations, it awarded six percent (6%) legal interest, computed
from November 7, 1996 until full payment of just compensation.15
Dissatisfied, Sy filed an appeal with the CA.16
The CA Ruling

In the Decision dated January 20, 2012,17 the CA affirmed the RTCs ruling but
modified the same, ordering the City to pay Sy the amount of P200,000.00 as
exemplary damages and attorneys fees equivalent to one percent (1%) of the
total amount due.
It found the appraisal of Commissioners Ostaco and Alcantara for the subject
property to be more believable than the P13,000.00 per sq. m. valuation
made by independent appraisers Cuervo and Asian Appraisers in 1995 and
1996, respectively, considering that it was arrived at after taking into account:
(a) the fair market value of the subject property in the amount of P4,000.00
per sq. m. based on the September 4, 1996 recommendation of the City
Appraisal Committee;18 (b) the market value of the subject lot in the amount
of P2,000.00 per sq. m. based on several sworn statements made by Sy
himself;19 and (c) Sys own tax declaration for 1996,20 stating that the subject
property has a total market value of P2,272,050.00. Accordingly, it held that
the fair market value of P5,500.00 per sq. m., or P5,500,000.00 in total, for the
1,000 sq. m. subject property arrived at by Commissioners Ostaco and
Alcantara was more than fair and reasonable.21
The CA also denied Sys assertion that he should be entitled to damages on
account of the purported shelving of his housing project, finding no sufficient
evidence to support the same. Likewise, it observed that the expropriation
would not leave the rest of Sys properties useless as they would still be
accessible through a certain Lot 8 based on the Property Identification Map.22
Nonetheless, citing the case of Manila International Airport Authority v.
Rodriguez (MIAA),23 it awarded exemplary damages in the amount
of P200,000.00 and attorneys fees equivalent to one percent (1%) of the
amount due because of the Citys taking of the subject property without even
initiating expropriation proceedings.24 It, however, denied Sys claim of back
rentals considering that the RTC had already granted legal interest in his
favor.25

Aggrieved, Sy moved for reconsideration which was denied in the Resolution

dated July 16, 201226 for being filed out of time.27 The City also filed a motion
for reconsideration which was equally denied for lack of merit.28
Hence, this petition.
Issues Before The Court
The present controversy revolves around the issue of whether the CA
correctly: (a) dismissed Sys motion for reconsideration for being filed out of
time; (b) upheld the amount of just compensation as determined by the RTC
as well as its grant of six percent (6%) legal interest; and (c) awarded
exemplary damages and attorneys fees.
The Courts Ruling
The petition is partly meritorious.
A. Failure to seasonably move for reconsideration; excusable negligence;
relaxation of procedural rules
At the outset, the Court observes that Sys motion for reconsideration was
filed out of time and thus, was properly dismissed by the CA. Records show
that, as per the Postmasters Certification, the CAs January 20, 2012 Decision
was received by Sy on January 26, 2012 and as such, any motion for
reconsideration therefrom should have been filed not later than fifteen (15)
days from receipt,29 or on February 10, 2012.30 However, Sy filed his motion
for reconsideration (subject motion) a day late, or on February 13,
2012,31 which thus, renders the CA decision final and executory.32
In this regard, it is apt to mention that Sys counsel, Atty. Tranquilino F. Meris
(Atty. Meris), claims that his secretarys inadvertent placing of the date
January 27, 2012, instead of January 26, 2012, on the Notice of
Decision33 constitutes excusable negligence which should therefore, justify a
relaxation of the rules.

The assertion is untenable.

A claim of excusable negligence does not loosely warrant a relaxation of the
rules. Verily, the party invoking such should be able to show that the
procedural oversight or lapse is attended by a genuine miscalculation or
unforeseen fortuitousness which ordinary prudence could not have guarded
against so as to justify the relief sought.34 The standard of carerequired is that
which an ordinarily prudent man bestows upon his important business.35 In
this accord, the duty rests on every counsel to see to adopt and strictly
maintain a system that will efficiently take into account all court notices sent
to him.36
Applying these principles, the Court cannot excuse Atty. Meris misstep based
on his proffered reasons. Evidently, the erroneous stamping of the Notice of
Decision could have been averted if only he had instituted a credible filing
system in his office to account for oversights such as that committed by his
secretary. Indeed, ordinary prudence could have prevented such mistake.
Be that as it may, procedural rules may, nonetheless, be relaxed for the most
persuasive of reasons in order to relieve a litigant of an injustice not
commensurate with the degree of his thoughtlessness in not complying with
the procedure prescribed.37 Corollarily, the rule, which states that the
mistakes of counsel bind the client, may not be strictly followed where
observance of it would result in the outright deprivation of the clients liberty
or property, or where the interest of justice so requires.38
As applied in this case, the Court finds that the procedural consequence of the
above-discussed one-day delay in the filing of the subject motion which, as a
matter of course, should render the CAs January 20, 2012 Decision already
final and executory and hence, bar the instant petition is incommensurate
to the injustice which Sy may suffer. This is in line with the Courts observation
that the amount of just compensation, the rate of legal interest, as well as the
time of its accrual, were incorrectly adjudged by both the RTC and the CA,
contrary to existing jurisprudence. In this respect, the Court deems it proper

to relax the rules of procedure and thus, proceed to resolve these substantive
issues.

constant fluctuation and inflation of the value of the currency over time. x x x
(Emphasis and underscoring supplied)

B. Rate of legal interest and time of accrual

In similar regard, the Court, in Land Bank of the Philippines v.

Rivera,40 pronounced that:

Based on a judicious review of the records and application of jurisprudential

rulings, the Court holds that the correct rate of legal interest to be applied is
twelve percent (12%) and not six percent (6%) per annum, owing to the
nature of the Citys obligation as an effective forbearance.
In the case of Republic v. CA,39 the Court ruled that the debt incurred by the
government on account of the taking of the property subject of an
expropriation constitutes an effective forbearance which therefore, warrants
the application of the 12% legal interest rate, viz:
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, it 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 interests 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 the actual payment, legal interests accrue in order to place the owner in a
position as good as (but not better than) the position he was in before the
taking occurred.
The Bulacan trial court, in its 1979 decision, was correct in imposing interests
on the zonal value of the property to be computed from the time petitioner
instituted condemnation proceedings and "took" the property in September
1969. This allowance of interest on the amount found to be the value of the
property as of the time of the taking computed, being an effective
forbearance, at 12% per annum should help eliminate the issue of the

In many cases decided by this Court,41 it has been repeated time and again
that the award of 12% interest is imposed in the nature of damages for delay
in payment which in effect makes the obligation on the part of the
government one of forbearance. This is to ensure prompt payment of the
value of the land and limit the opportunity loss of the owner that can drag
from days to decades. (Emphasis and underscoring supplied)
As to the reckoning point on which the legal interest should accrue, the same
should be computed from the time of the taking of the subject property in
1986 and not from the filing of the complaint for expropriation on November
7, 1996.
Records show that the City itself admitted in its Appellees Brief filed before
the CA that as early as 1986, "a burden was already imposed upon the owner
of the subject property x x x, considering that the expropriated property was
already being used as Barangay day care and office."42 Thus, the property was
actually taken during that time and from thereon, legal interest should have
already accrued. In this light, the Court has held that:43
x x x [T]he final compensation must include interests 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. x x x (Emphasis
supplied)
This is based on the principle that interest "runs as a matter of law and follows
from the right of the landowner to be placed in as good position as money can
accomplish, as of the date of the taking."44
Notably, the lack of proper authorization, i.e., resolution to effect
expropriation,45 did not affect the character of the Citys taking of the subject

property in 1986 as the CA, in its January 20, 2012 Decision, suggests. Case
law dictates that there is "taking" when the owner is actually deprived or
dispossessed of his property; when there is a practical destruction or a
material impairment of the value of his property or when he is deprived of the
ordinary use thereof.46 Therefore, notwithstanding the lack of proper
authorization, the legal character of the Citys action as one of "taking" did not
change. In this relation, the CA noted that the City enacted Ordinance No. Sp181, s-94, only on April 12, 1994 and filed its expropriation complaint on
November 7, 1996. However, as it previously admitted, it already commenced
with the taking of the subject property as early as 1986. Accordingly, interest
must run from such time.

For more than twenty (20) years, the MIAA occupied the subject lot without
the benefit of expropriation proceedings and without the MIAA exerting
efforts to ascertain ownership of the lot and negotiating with any of the
owners of the property. To our mind, these are wanton and irresponsible acts
which should be suppressed and corrected. Hence, the award of exemplary
damages and attorneys fees is in order. x x x. (Emphasis and underscoring
supplied; citations omitted)

This irregularity does not, however, proceed without any

consequence.1wphi1 As correctly observed by the CA, citing as basis the
MIAA case, exemplary damages and attorneys fees should be awarded to the
landowner if the government takes possession of the property for a prolonged
period of time without properly initiating expropriation proceedings. The
MIAA ruling was applied in the more recent case of City of Iloilo v. Judge Lolita
Contreras-Besana ,47 wherein the Court said:

C. Amount of just compensation

We stress, however, that the City of Iloilo should be held liable for damages
for taking private respondents property without payment of just
compensation. In Manila International Airport Authority v. Rodriguez, the
Court held that a government agencys prolonged occupation of private
property without the benefit of expropriation proceedings undoubtedly
entitled the landowner to damages:

It is well-settled that the amount of just compensation is to be ascertained as

of the time of the taking.49 However, the above-stated documents do not
reflect the value of the subject property at the time of its taking in 1986 but
rather, its valuation in 1996. Consequently, the case must be remanded to the
RTC in order to properly determine the amount of just compensation during
such time the subject property was actually taken.

Such pecuniary loss entitles him to adequate compensation in the form of

actual or compensatory damages, which in this case should be the legal
interest (6%) on the value of the land at the time of taking, from said point up
to full payment by the MIAA. This is based on the principle that interest "runs
as a matter of law and follows from the right of the landowner to be placed in
as good position as money can accomplish, as of the date of the taking x x x.

WHEREFORE, the petition is PARTLY GRANTED. The January 20, 2012 Decision
and July 16, 2012 Resolution of the Court of Appeals in CA-G.R. CV No. 91964
are hereby SET ASIDE. Accordingly, the case is REMANDED to the trial court
for the proper determination of the amount of just compensation in
accordance with this Decision. To forestall any further delay in the resolution
of this case, the trial court is hereby ordered to fix the just compensation for
petitioner Henry L. Sy's property with dispatch and report to the Court its
compliance. Finally, respondent Local Government of Quezon City is ordered

xxxx

All told, the Court finds the grant of exemplary damages in the amount
of P200,000.00 as well as attorneys fees equivalent to 1% of the total amount
due amply justified, square as it is with existing jurisprudence.

Finally, the Court cannot sustain the amount of P5,500.00/sq. m. as just

compensation which was set by the RTC and upheld by the CA. The said
valuation was actually arrived at after considering: (a) the September 4, 1996
recommendation of the City Appraisal Committee; (b) several sworn
statements made by Sy himself; and (c) Sys own tax declaration for 1996.48

to PAY exemplary damages in the amount of P200,000.00 and attorney's fees

equivalent to one percent (1%) of the amount due, after final determination
of the amount of just compensation.
SO ORDERED.

Respondent Benecio Eusebio, Jr. was the owner of a 790.4-hectare parcel of

land situated in Corba, Cataingan, Masbate, covered by Transfer Certificate of
Title (TCT) No. T-4562 registered in the name of Ricardo Taada. Eusebio
purchased this parcel of land from Taada in 1980.
On February 5, 1988, Eusebio voluntarily offered to sell the entire 790.4hectare parcel of land to the government, through the Department of
Agrarian Reform (DAR), pursuant to R.A. No. 6657 for P19,500,000.00.5

Republic of the Philippines

SUPREME COURT
Manila

From the entire area of 790.4 hectares, the DAR chose to acquire only 783.37
hectares6 and initially offered to purchase it at P2,369,559.64. The DAR
subsequently increased its offer to P3,149,718.20, per the Notice of Land
Valuation dated April 14, 1992.Eusebio rejected both offered amounts.

SECOND DIVISION
G.R. No. 160143

The Factual Antecedents

July 2, 2014

LAND BANK OF THE PHILIPPINES, Petitioner,

vs.
BENECIO EUSEBIO, JR., Respondent.
DECISION
BRION, J.:
We resolve in this petition for review on certiorari1 the challenge to the
August 26, 2002 decision2 and the September 24, 2003 resolution3 of the
Court of Appeals (CA) in CA-G.R. CV No. 66022.
4

The challenged decision affirmed in toto the June 29, 1999 judgment of the
Regional Trial Court of Masbate, Masbate, Branch 48, sitting as a Special
Agrarian Court (RTC-SAC) in Special Civil Case No. 4325 for Determination and
Payment of Just Compensation under Republic Act (R.A.) No. 6657 or the
Comprehensive Agrarian Reform Law of 1988.

On October 1, 1993, petitioner Land Bank of the Philippines (LBP) revalued the
acquirable portion at P3,927,188.28, pursuant to DAR Administrative Order
No. 6, series of 1992 (DAR AO 6-92). Eusebio likewise rejected this valuation
through a letter dated October 26, 1993. Meanwhile, the LBP opened a trust
account in the amount of P3,149,718.20 in favor of Eusebio and Taada for
the covered portion. The DAR then took physical possession of the property,
had TCT No. T-4562 cancelled in favor of the Republic of the Philippines, and
distributed the property at cost to the recognized farmer-beneficiaries.
The parties subsequently referred the matter to the DAR Adjudication Board
(DARAB) for summary determination of just compensation. In a decision dated
January 8, 1994, the DARAB fixed the value of the property at P4,874,659.89.
Eusebio likewise found the DARABs valuation unacceptable. Hence, on July
18, 1994, Eusebio and Taada filed before the RTC-SAC an action for
determination and payment ofjust compensation against the DAR and the
LBP. In the complaint, Eusebio and Taada prayed for just compensation in
the amount of P20,000,000.00, plus damages and attorneys fees equivalent

to 20% ofthe total compensation. They later amended the complaint

increasing the prayed just compensation to P25,000,000.00.

Valuation of Engr. Caluag:9

Land Use
During trial, the RTC-SAC appointed a Board of Commissioners (Board)
consisting of the Clerk of Court V Atty. Norberto F. Mesa as the Chairman, Coconut
with the following as members: the Branch Clerk of Court, Eusebio and
Taadas nominee Engr. Hernando Caluag and the DAR and the LBPs Corn
nominee Herbert Heath. The Board conducted the ocular inspection on
September 10, 1997 and arrived at the following unanimous observation:7
Rice

Area

Value/Has.

TLV

P29.0000

P113,000.00

P3,277,000.00

P700.0000

P113,000.00

P79,000,000.00

P38.0000

P119,000.00

P4,522,000.00

Breakdown of developed areas per land use:

Coco productive

26.15 Hectares

TOTAL

P767.0000

P86,899,000.00

Coco Unproductive 3.04 Hectares

Corn (95%)

700.6345 Hectares

Rice (low land)

4.8810 Hectares

Rice (uplan[d])

31.9945 Hectares

Coco Productive

Total

766.70 Hectares

Coco Unproductive

Notwithstanding the series of conferences, the Board failed to reach a

common and consolidated valuation for the acquired portion.8 Hence, the
Board submitted the separate valuation report of the parties respective
nominees:

Valuation of Heath:10
Land Use

Area

Value/Has.

TLV

26.1500

P22,228.80

P581,283.12

3.0400

P11,190.49

P34,019.09

75.0000

P13,742.65

P1,030,698.75

4.8810

P15,715.38

P76,706.77

Cogon w/ history of
corn production

674.2990

3,498.00

P2,358,697.90

TOTAL

783.3700

Corn
Rice Unirrigated

P4,081.405.63

Engr. Caluag affirmed the contents of his report in open court. He revealed
that, in determining the propertys fair market value, he used as basis the
"records of sale and listings of similar properties offered for sale" and
compared the properties using "such factors as location, type of development,
crops planted,terrain, size and element."11 Finally, he factored in the
necessary adjustments resulting from the current real estate selling trends
and the propertys location,size and development to arrive at the total land
valuation of P86,899,000.00.
Heath, on the other hand, testified that, in arriving at the total land valuation
of P4,081,405.63,he used the guidelines enumerated under R.A. No. 6657 and
other applicable agrarian statutes and issuances instead of the current land
valuation that Engr. Caluag employed in his valuation. He pointed out that per
the records, the recognized farmer-beneficiaries took possession of their
respective portions ofthe property in 1992. Thus, the improvements that the
Board found on the property at the time it conducted the ocular inspection in
1997 wereclearly introduced by the farmerbeneficiaries.12
The RTC-SACs decision
In its judgment13 of June 29, 1999, the RTC-SAC fixed the just compensation
at P25,000,000.00 for the entire 790.4-hectare parcel of land, and ordered the
DAR and the LBP to solidarily pay attorneys fees equivalent to 10% of the
total justcompensation. The RTC-SAC brushed aside both valuations fixed by
the parties respective nominees, particularly those fixed by the DAR and the
LBP which it regarded as unconstitutional and confiscatory. Consequently, the
RTC-SAC found as considerable just compensation the sum
of P25,000,000.00that Eusebio and Taada prayed for in their complaint; it,
however, found as exorbitant and unreasonable, and thus reduced to 10%
from 20%, the claimed attorneys fees.
In a resolution dated October 21,1999, the RTC-SAC denied the parties
respective motions for reconsideration. The parties separately appealed the
RTC-SACs ruling before the CA.14

The CAs ruling

In its August 26, 2002 decision,15 the CA affirmed in toto the RTCSACs
judgment. Firstly, brushing aside Eusebio and Taadas position, the CA
pointed out that the just compensation should be fixed as of the time the
government took possession of the property and not as of the filing of the
complaint. Thus, the CA declared unfair the P86,899,000.00 valuation that
Eusebio and Taadas nominee fixed based on the data determined at the
time of the filing of the complaint insteadof at the time of the taking. The CA,
however, took note of the offer Eusebio made in 1988 to sell the entire 790.4
hectares at P19,500,000.00 that it pointed out should at least set the ceiling
price for the propertys compensation.
And secondly, likewise dismissing the DARs and the LBPs contentions, the CA
noted that as early as 1992, a considerable portion of the property had
already been cultivated and developed. The CA also pointed out that the DAR
and the LBPs nomineemerely confined his determination to the factors
enumerated under R.A. No. 6657 and the guidelines enumerated under the
pertinent DAR administrative orders, disregarding, in effect, the other factors
relevant tothe determination of what the CA considered as the full and fair
equivalent of Eusebios property. Thus, the CA considered as too low and
unreasonable the P4,081,405.63 valuation that the DAR and the LBP fixed as
just compensation.
Accordingly, the CA considered asfair and equitable the amount the RTC-SAC
fixed as just compensation,given the four-year time lapse between 1988,
when Eusebio offered to sell the property for P19,500,000.00 and 1992, when
the government actually deprived Eusebio of his property.
The LBP filed the present petition after the CA denied its motion for
Reconsideration16 in the CAs September 24, 2003 resolution.17
The Court initially denied the LBPs petition for review on certiorari in a
Resolution dated November 10, 2003.18On the LBPs motion for

reconsideration,19 the Court reinstated the petition in a Resolution dated

January 26, 2004.20
The Petition
In this petition,21 the LBP concedes that the RTC-SAC has original and exclusive
jurisdiction to determine just compensation. Nevertheless, it argues that the
RTC-SACs determination must be guided by the valuation factors enumerated
under R.A. No. 6657 and the implementing guidelines that the DAR issued for
the purpose. The LBP points out that the DAR, in the exercise of its rulemaking powergranted under R.A. No. 6657, issued DAR AO 6-92, as amended
by DAR AO 11-94 that prescribes the formulae in the computation of just
compensation for lands acquired pursuant to R.A. No. 6657. Unless otherwise
declared null and void, the LBP stresses that these DAR administrative orders
have the force and effect of law and are entitled to great respect, even by this
Court. In carrying out its functions under Executive Order No. 405,22 the LBP
points out that it, in turn, simply observed and used the DAR prescribed
formulae in arriving at the P4,081,405.63 valuation, which, it emphasizes, the
CA even noted in its decision.

Additionally, the LBP argues that R.A. No. 6657 directs the determination of
just compensation based on the covered propertys "actual use and income"
and not on its "potentialor future use" as applied by the RTC-SAC when it
relied on the marketvalue approach. The LBP also points out that the RTC-SAC
did not offer any formula in arriving at the P25,000,000.00 valuation. Finally,
the LBP contends that the award of attorneys fees was erroneous for clear
lack of basis and bad faith on its part.
In its reply,24 the LBP additionally emphasizes that the just compensation for
property taken, pursuant to the governments agrarian reform program,
should not and cannot be based on the propertys market value, more so on
the amount by which Eusebio offered it for sale. The LBP points out that the
"just compensation" in the realm of agrarian reform is vastly different from
"just compensation" in an ordinary eminent domain proceeding. The taking of
private property for purposes of agrarian reform is revolutionary, involving as
it does both the exercise of the power of eminent domain and police power.
As such, the just compensation for property taken, pursuant to the
governments agrarian reform program, cannot exceed its market value.
The Case for the Respondent

Addressing directly the CAs valuation, the LBP directs the Courts attention to
the testimony of Eusebios witness23and points out that when the government
took possession of the property in 1990, Eusebio and his family had already
discontinued investing and had stopped developing it from thereon; in
addition, over 674 hectares of the acquired propertys area was then cogonal.
Thus, the marked difference in the propertys condition from the time the
government acquired it in 1990 up to the time the Board conducted its ocular
inspection in 1997 should and must be properly accounted for as
developments introduced by the farmer-beneficiaries. Accordingly, the LBP
argues, the valuation that the RTC-SAC and the CA made clearly contravened
the Courts mandate that just compensation should be determined as of the
propertys time of taking, which in this case was, at the most, in 1992 when
TCT No. T-4562 was cancelled and Certificates of Land Transfer were issued to
the recognized farmer-beneficiaries.

Equally conceding to the RTC-SACs original and exclusive jurisdiction to

determine just compensation, Eusebio contends in his comment25 that the CA
correctly affirmed the RTC-SACs valuation for lack of reversible error. Eusebio
stresses that while the DAR, indeed, has the power to prescribe the formula
and determine just compensation, the RTCSAC is, nevertheless, not bound by
such determination as valuation of property in eminent domain cases is
essentially a judicial function. In this case, neither the DARs valuation nor the
Boards report could have bound the RTC-SAC in the exercise of this function;
more sofor, in this case, the Board failed to reach a common valuation.Finally,
Eusebio argues that the award of attorneys fees is lawful ashe was compelled
to litigate or incur expenses to protect his interest by reason of the LBPs
unjustified act.

In his memorandum,26 Eusebio adds that the various testimonial and

documentary pieces of evidence presented before the RTC-SAC, and which it
fully considered, support the P25,000,000.00 valuation for the property.
Moreover, the factual findings of the RTC-SAC that the CA affirmed deserve
great weight and finality.
The Issue
The core issue for the Courts resolution is whether the RTC-SACs
determination of just compensation for the property at P25,000,000.00, with
10% attorneys fees, is proper.
The Courts Ruling
We find the LBPs petition MERITORIOUS.
The States agrarian reform program and the constitutional guarantee of just
compensation
As one of its arguments, the LBP theorizes that the governments taking of
private property in pursuit of its agrarian reform program is not a "traditional"
exercise of the eminent domain power but one that equally involves the
exercise of the States police power. As such, the LBP insists, the just
compensation for the property cannot exceed its market value as the loss
resulting from the States exercise of police power is not compensable.
We disagree with the LBP on this point.
We debunked this verysame argument in Land Bank of the Philippines v.
Honeycomb Farms Corporation,27whose factual circumstances closely mirror
and are, in fact, related to those of the present case. In Honeycomb, we
essentially pointed out that the "just compensation" guaranteed to a
landowner under, Section 4, Article XIII ofthe Constitution is precisely the
same as the "just compensation" embodied in Section 9, Article III of the
Constitution. That is, whether for land taken pursuant to the States agrarian
reform program orfor property taken for purposes other than agrarian

reform, the just compensation due to an owner should be the "fair and full
price of the taken property."28
Citing the Courts ruling in Assn of Small Landowners in the Phils., Inc. v. Hon.
Secretary of Agrarian Reform,29 we further stressed in Honeycomb that just
compensation paid for lands taken pursuant to the States agrarian reform
program refers to the "full and fair equivalent of the property taken from its
owner by the expropriator x x x [the measure of which] is not the takers gain
but the owners loss. The word "just" is used to intensify the meaning of the
word compensation to convey the idea that the equivalent to be rendered
for the property to be taken shall be real, substantial, full and ample."
Similarly in Apo Fruits Corporation v. Land Bank of the Philippines,30 we
debunked the very same attempt of the LBP to distinguish just compensation
paid in what it calls as "traditional" exercise of eminent domain from the just
compensation paid in the context of an agrarian reform eminent domain
exercise. There, we categorically declared that "nothing is inherently
contradictory in the publicpurpose of land reform and the right of landowners
to receive just compensation for the expropriation by the State of their
properties."
In other words, therefore, the clear intent of the Constitutional guarantee of
just compensation, whether understood within the terms of Article III, Section
9 or of Article XIII, Section 4, is to secure to any owner the "full and fair
equivalent" of the property taken. Regardless of whether the taking was
pursued in the "traditional" exercise of eminent domain or in its
"revolutionary" exercise in the context of the States agrarian reform
program, just compensation has but onemeaning and the State is obligated to
pay the "fair and full price of the property" even if the property is taken for
social justice purposes.
The determination of just compensation is essentially a judicialfunction that
the Courts exercise within the parameters of the law; the RTC-SACs valuation
in this case is erroneous for having been rendered outside the contemplation
of the law

Jurisprudence settles that the determination of just compensation is

fundamentally a function of the courts.31Section 57 of R.A. No.
665732 explicitly vests in the RTC-SAC the original and exclusive jurisdiction to
determine just compensation for lands taken pursuant to the States agrarian
reform program.
To guide the RTC-SAC in the exercise of its function, Section 17 of R.A. No.
6657 enumerates the factors that the RTC-SAC must take into account in its
determination, i.e., 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 the government
assessors, among others.
On the other hand, to ensure the agrarian reform laws proper
implementation, Section 49 of R.A. No. 665733empowers the DAR to issue
such rules and regulations necessary for the purpose. Thus, corollary to the
agrarian reform laws guidelines, the DAR issued DAR AO 6-92, as amended by
DAR AO 11-94 and, recently, by DAR AO 5-98, that incorporated, into a basic
formula,Section 17s enumerated factors providing the details by which "just
compensation" is to be properly approximated.
Equally settled, however, in jurisprudence is the RTC-SACs duty to consider
the factors enumerated under Section 17 of R.A. No. 6657 and the DAR
formula that embodies these factors in determining just compensation. Our
rulings in Land Bank of the Philippines v. Sps. Banal,34 Landbank of the
Philippines v. Celada,35 Land Bank of the Philippines v. Colarina,36 and Land
Bank of the Philipines v. Lim,37 to name a few, were clear that the RTC-SAC
must consider the factors mentioned by Section 17, including the formula
prescribed by the DARs administrative orders in determining just
compensation.
Recently, the Court, in Land Bank of the Philippines v. Yatco Agricultural
Enterprises,38 had the occasion to reiterate and stress the need to apply and
consider the factors and formula prescribed under Section 17 of R.A. No. 6657
and the pertinent DAR issuances. Citing Land Bank of the Philippines v.

Honeycomb Farms Corporation,39 we pointedly declared as grave error, on the

RTC-SACs part, its complete disregard of the DAR formula. We emphasized
that the DARs issuances partake of the nature of statutes that have in their
favor a presumption of legality.40 And, unless the administrative orders are
declared invalid or the cases before them involve situations these
administrative issuances do not cover, the RTC-SAC must apply them with the
equal force of the law.
In other words, our ruling in Yatco underscored the settled rule that, in the
exercise of the essentially judicial function of determining just compensation,
the RTC-SAC is not granted unlimited discretion. It must consider and apply
the R.A. No. 6657-enumerated factors and the DAR formula (that reflects
these factors) asthey provide the uniform framework or structure by which
just compensation for property subject to agrarian reform should be
determined. This uniform system, we pointed out, is important for it will
ensure that the RTC-SACs "do not arbitrarily fix an amount that is absurd,
baseless and even contradictory to the objectives of our agrarian reform laws
as just compensation"in addition to ensuring that "the just compensation
fixed represents, at the very least, a close approximation of the full and real
value ofthe property taken that is fair and equitable for both the farmerbeneficiaries and the landowner."41 That the "just compensation" fixed should
be fair and equitable equally for both the farmer-beneficiaries and the
landowner, to our mind, is a consideration that should evenly be factored in
the computation for ultimately the farmerbeneficiaries will shoulder the
costof the distributed property.
More importantly, however, we clarified in Yatco that, when acting within the
parameters set by the law itself in the proper observance of the R.A. No.
6657 factors and the DAR formula the RTC-SAC is not strictly bound to
conform to and apply them, particularly the DAR formula, to their minute
detail as to effectively deprive it of its discretion. "When faced with situations
that do not warrant the formulas strict application, the [RTCSAC] may, in the
exercise of [its] discretion, relax the formulas application to fit the factual
situations before [it]."42 It must, however, explain and justify in clear terms
the reason for any deviation from the prescribed factors and formula.43

In the present case, we reaffirm and emphasize our ruling in Yatco - the
situation where a deviation is made in the exercise of judicial discretion must
at all times be distinguished from the situation where the RTC-SAC (and the
CA in cases where it affirms the RTC-SACs valuation) utterly and blatantly
disregards the factors spelled out by the law and the implementing rules. A
deviation made in utter and blatant disregard of the prescribed factors and
formula amounts to grave abuse of discretion for having been taken outside
the contemplation of the law.44
A determination of just compensation based merely on "conscience" a
consideration entirely outside the contemplation of the law is the precise
situation that we find in this case. We, therefore, set aside,as grave abuse of
discretion, the RTC-SACs valuation.
To be clear, other than in "conscience," the RTC-SAC did not point to any
particular consideration that impelled it to set the just compensation
at P25,000,000.00. It did not refer to any factor or data that it used as basis in
arriving at this valuation. Worse, it did not cite any particular formula that it
used in its computation. In fact, a reading of the RTC-SACs decision reveals a
marked absence of any grounds by which it anchored its determination, more
so of any explanation why it fixed the amount of P25,000,000.00. This marked
absence ofbasis, taken together with these other considerations, convinced us
that the RTC-SAC completely, even arbitrarily, relied on the amount that
Eusebio and Taada prayed for in their complaint in fixing the propertys just
compensation.1wphi1
Arguably, the fixing of just compensation that is based on the landowners
prayer falls within the exercise of the RTC-SACs discretion and, therefore,
should be upheld as a validexercise of its jurisdiction. Even within the context
of this judicial prerogative principle, however, the RTCSACs reliance, in this
case, on Eusebio and Taadas prayer was erroneous for, as we pointed out
above, the RTC-SAC did not at all consider any factor or use any formula,
whether those prescribed by the law and the DAR issuances or otherwise, in
arriving at its valuation. This blind reliance on Eusebio and Taadas prayer
and the utter disregard of the prescribed factors and formula clearly amount

to grave abuse of discretion for having been taken outside the contemplation
of the law. In acting as it did in this case, the RTC-SAC committed exactly what
the law and the regulations aimed at preventing in prescribing the factors and
the formula in the determination of just compensation an arbitrary fixing
ofan amount that is absurd, baseless and even contradictory to the objectives
of our agrarian reform laws as just compensation.
Thus, we set aside, as grave abuse of discretion, the just compensation
of P25,000,000.00 that the RTC-SAC fixed for Eusebios property. We point
out, however, that we set aside this valuation not for the reasons urged by the
LBP, i.e., the RTC-SACs use of the market value approach and the fixing of the
just compensation as of the time of the filing of the complaint, but for the
valuations clear lack of basis and for having been made in utter disregard of
the laws parameters. Accordingly, we likewise set aside, for grave error, the
CAs decision that affirmed in toto this RTC-SACs valuation.
Payment through trust account
A final point. We did not fail to notice that the LBP, in this case, opened a trust
account to provisionally pay Eusebio for the property taken. In Land Bank of
the Philippines v. Honeycomb Farms Corporation,45 we struck down as void
the DAR administrative circular46 that provided for the opening of the trust
accounts in lieu ofthe deposit in cash or in bonds contemplated in Section
16(e) of R.A. No. 6657.47 We pointedly declared that the explicit words of
Section 16(e)did not include "trust accounts," but only cash or bonds, as valid
modes ofsatisfying the governments payment of just compensation.
Accordingly, we consider the LBP in delay and impose on it as penalty an
interest on the amount deposited in the trust account at the rate of 12% per
annumfrom the time the LBP opened the trust account until June 30, 2013
and beginning July1, 2013, until the account is converted into a cash or bond
deposit account, at the rate of 6% per annum per Banko Sentral ng Pilipinas
Circular No. 799.48
Remand of the Case

Considering the manifest lack of sufficient data to guide this Court in the
proper determination of just compensation following the guidelines that we
have at length discussed above, we deem it premature to determine with
finality the matter in controversy. We are not a trier of facts and we cannot
receive any new evidence from the parties to aid the prompt resolution of this
case. Thus, we are compelled to remand the case to the RTC-SAC for the
reception of evidence and the determination of just compensation with the
cautionary reminder for the proper observance of the factors enumerated
under Section 17 of R.A. No. 6657 and of the formula prescribed under the
pertinent DAR administrative orders.
WHEREFORE, in light of these considerations, we hereby GRANT the petition.
Accordingly, we REVERSEand SET ASIDE the decision dated August 26, 2002
and the resolution dated September 24, 2003 of the Court of Appeals in CAG.R. CV No. 66022. We REMANDSpecial Civil Case No. 4325 to the Regional
Trial Court of Masbate, Masbate, Branch 48, sitting as a Special Agrarian Court
which is directed to determine with dispatch the just compensation due
torespondent Benecio Eusebio, Jr. in accordance with Republic Act No. 6657
and the pertinent issuances of the Department of Agrarian Reform,subject to
a 12% interest per annum from the time the Land Bank of the Philippines
opened the trust account in favor of Benecio Eusebio, Jr. and Ricardo Taada
up to June 30, 2013, and to a 6% interest per annum beginning July 1, 2013
until the time the account is actually converted into cash and/orLand Bank of
the Philippines bond deposit accounts.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-18208

February 14, 1922

THE UNITED STATES, plaintiff-appellee,

vs.
VICENTE DIAZ CONDE and APOLINARIA R. DE CONDE, defendants-appellants.
Araneta & Zaragoza for appellants.
Attorney-General Villareal for appellee.
JOHNSON, J.:
It appears from the record that on the 6th day of May, 1921, a complaint was
presented in the Court of First Instance of the city of Manila, charging the
defendants with a violation of the Usury Law (Act No. 2655). Upon said
complaint they were each arrested, arraigned, and pleaded not guilty. The
cause was finally brought on for trial on the 1st day of September, 1921. At
the close of the trial, and after a consideration of the evidence adduced, the
Honorable M. V. del Rosario, judge, found that the defendants were guilty of
the crime charged in the complaint and sentenced each of them to pay a fine
of P120 and, in case of insolvency, to suffer subsidiary imprisonment in
accordance with the provisions of the law. From that sentence each of the
defendants appealed to this court.
The appellants now contend: (a) That the contract upon which the alleged
usurious interest was collected was executed before Act No. 2655 was
adopted; (b) that at the time said contract was made (December 30, 1915),
there was no usury law in force in the Philippine Islands; (c) that said Act No.
2655 did not become effective until the 1st day of May, 1916, or four months
and a half after the contract in question was executed; (d) that said law could
have no retroactive effect or operation, and (e) that said law impairs the
obligation of a contract, and that for all of said reasons the judgment imposed

by the lower court should be revoked; that the complaint should be

dismissed, and that they should each be discharged from the custody of the
law.
The essential facts constituting the basis of the criminal action are not in
dispute, and may be stated as follows: (1) That on the 30th day of December,
1915, the alleged offended persons Bartolome Oliveros and Engracia Lianco
executed and delivered to the defendants a contract (Exhibit B) evidencing the
fact that the former had borrowed from the latter the sum of P300, and (2)
that, by virtue of the terms of said contract, the said Bartolome Oliveros and
Engracia Lianco obligated themselves to pay to the defendants interest at the
rate of five per cent (5%) per month, payable within the first ten days of each
and every month, the first payment to be made on the 10th day of January,
1916. There were other terms in the contract which, however, are not
important for the decision in the present case.
The lower court, in the course of its opinion, stated that at the time of the
execution and delivery of said contract (Exhibit B), there was no law in force in
the Philippine Islands punishing usury; but, inasmuch as the defendants had
collected a usurious rate of interest after the adoption of the Usury Law in the
Philippine Islands (Act No. 2655), they were guilty of a violation of that law
and should be punished in accordance with its provisions.

order. That law must govern and control the contract in every aspect in which
it is intended to bear upon it, whether it affect its validity, construction, or
discharge. Any law which enlarges, abridges, or in any manner changes the
intention of the parties, necessarily impairs the contract itself. If a law impairs
the obligation of a contract, it is prohibited by the Jones Law, and is null and
void. The laws in force in the Philippine Islands prior to any legislation by the
American sovereignty, prohibited the Legislature from giving to any penal law
a retroactive effect unless such law was favorable to the person accused.
(Articles 21 and 22, Penal Code.)
A law imposing a new penalty, or a new liability or disability, or giving a new
right of action, must not be construed as having a retroactive effect. It is an
elementary rule of contract that the laws in force at the time the contract was
made must govern its interpretation and application. Laws must be construed
prospectively and not retrospectively. If a contract is legal at its inception, it
cannot be rendered illegal by any subsequent legislation. If that were
permitted then the obligations of a contract might be impaired, which is
prohibited by the organic law of the Philippine Islands. (U.S. vs. Constantino
Tan Quingco Chua, 39 Phil., 552; Aguilar vs. Rubiato and Gonzales Vila, 40
Phil., 570.)

The law, we think, is well established that when a contract contains an

obligation to pay interest upon the principal, the interest thereby becomes
part of the principal and is included within the promise to pay. In other words,
the obligation to pay interest on money due under a contract, be it express or
implied, is a part of the obligation of the contract. Laws adopted after the
execution of a contract, changing or altering the rate of interest, cannot be
made to apply to such contract without violating the provisions of the
constitution which prohibit the adoption of a law "impairing the obligation of
contract." (8 Cyc., 996; 12 Corpus Juris, 1058-1059.)

Ex post facto laws, unless they are favorable to the defendant, are prohibited
in this jurisdiction. Every law that makes an action, done before the passage of
the law, and which was innocent when done, criminal, and punishes such
action, is an ex post facto law. In the present case Act No. 2655 made an act
which had been done before the law was adopted, a criminal act, and to make
said Act applicable to the act complained of would be to give it an ex post
facto operation. The Legislature is prohibited from adopting a law which will
make an act done before its adoption a crime. A law may be given a
retroactive effect in civil action, providing it is curative in character, but ex
post facto laws are absolutely prohibited unless its retroactive effect is
favorable to the defendant.

The obligation of the contract is the law which binds the parties to perform
their agreement if it is not contrary to the law of the land, morals or public

For the reason, therefore, that the acts complained of in the present case
were legal at the time of their occurrence, they cannot be made criminal by

any subsequent or ex post facto legislation. What the courts may say,
considering the provisions of article 1255 of the Civil Code, when a civil action
is brought upon said contract, cannot now be determined. A contract may be
annulled by the courts when it is shown that it is against morals or public
order.
For all of the foregoing reasons, we are of the opinion, and so decide, that the
acts complained of by the defendants did not constitute a crime at the time
they were committed, and therefore the sentence of the lower court should
be, and is hereby, revoked; and it is hereby ordered and decreed that the
complaint be dismissed, and that the defendants be discharged from the
custody of the law, with costs de oficio. So ordered.
Araullo, C.J., Street, Malcolm, Avancea, Ostrand, Johns and Romualdez, JJ.,
concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 79538 October 18, 1990
FELIPE YSMAEL, JR. & CO., INC., petitioner,
vs.
THE DEPUTY EXECUTIVE SECRETARY, THE SECRETARY OF ENVIRONMENT
AND NATURAL RESOURCES, THE DIRECTOR OF THE BUREAU OF FOREST
DEVELOPMENT and TWIN PEAKS DEVELOPMENT AND REALTY
CORPORATION, respondents.
Taada, Vivo & Tan for petitioner.
Antonio E. Escober and Jurado Law Office for respondent Twin Peaks
Development Corporation.

COURTS, J.:
Soon after the change of government in February 1986, petitioner sent a
letter dated March 17, 1986 to the Office of the President, and another letter
dated April 2, 1986 to Minister Ernesto Maceda of the Ministry of Natural
Resources [MNR], seeking: (1) the reinstatement of its timber license
agreement which was cancelled in August 1983 during the Marcos
administration; (2) the revocation of TLA No. 356 which was issued to Twin
Peaks Development and Realty Corporation without public bidding and in
violation of forestry laws, rules and regulations; and, (3) the issuance of an
order allowing petitioner to take possession of all logs found in the concession
area [Annexes "6" and "7" of the Petition; Rollo, pp. 54-63].
Petitioner made the following allegations:

(a) That on October 12, 1965, it entered into a timber license agreement
designated as TLA No. 87 with the Department of Agriculture and Natural
Resources, represented by then Secretary Jose Feliciano, wherein it was
issued an exclusive license to cut, collect and remove timber except
prohibited species within a specified portion of public forest land with an area
of 54,920 hectares located in the municipality of Maddela, province of Nueva
Vizcaya * from October 12, 1965 until June 30, 1990;
(b) That on August 18, 1983, the Director of the Bureau of Forest
Development [hereinafter referred to as "Bureau"], Director Edmundo Cortes,
issued a memorandum order stopping all logging operations in Nueva Vizcaya
and Quirino provinces, and cancelling the logging concession of petitioner and
nine other forest concessionaires, pursuant to presidential instructions and a
memorandum order of the Minister of Natural Resources Teodoro Pena
[Annex "5" of the Petition; Rollo, p. 49];
(c) that on August 25, 1983, petitioner received a telegram from the Bureau,
the contents of which were as follows:
PURSUANT TO THE INSTRUCTIONS OF THE PRESIDENT YOU
ARE REQUESTED TO STOP ALL LOGGING OPERATIONS TO
CONSERVE REMAINING FORESTS PLEASE CONDUCT THE
ORDERLY PULL-OUT OF LOGGING MACHINERIES AND
EQUIPMENT AND COORDINATE WITH THE RESPECTIVE
DISTRICT FORESTERS FOR THE INVENTORY OF LOGS CUT
PRIOR TO THIS ORDER THE SUBMISSION OF A COMPLIANCE
REPORT WITHIN THIRTY DAYS SHALL BE APPRECIATED
[Annex "4" of the Petition; Rollo, p. 48];
(d) That after the cancellation of its timber license agreement, it immediately
sent a letter addressed to then President Ferdinand Marcos which sought
reconsideration of the Bureau's directive, citing in support thereof its
contributions to alleging that it was not given the forest conservation and
opportunity to be heard prior to the cancellation of its logging 531, but no

operations (Annex "6" of the Petition; Rollo, pp. 50 favorable action was taken
on this letter;
(e) That barely one year thereafter, approximately one-half or 26,000 hectares
of the area formerly covered by TLA No. 87 was re-awarded to Twin Peaks
Development and Reality Corporation under TLA No. 356 which was set to
expire on July 31, 2009, while the other half was allowed to be logged by
Filipinas Loggers, Inc. without the benefit of a formal award or license; and,
(f) That the latter entities were controlled or owned by relatives or cronies of
deposed President Ferdinand Marcos. Acting on petitioner's letter, the MNR
through then Minister Ernesto Maceda issued an order dated July 22, 1986
denying petitioner's request. The Ministry ruled that a timber license was not
a contract within the due process clause of the Constitution, but only a
privilege which could be withdrawn whenever public interest or welfare so
demands, and that petitioner was not discriminated against in view of the fact
that it was among ten concessionaires whose licenses were revoked in 1983.
Moreover, emphasis was made of the total ban of logging operations in the
provinces of Nueva Ecija, Nueva Vizcaya, Quirino and Ifugao imposed on April
2, 1986, thus:
xxx xxx xxx
It should be recalled that [petitioner's] earlier request for
reinstatement has been denied in view of the total ban of all
logging operations in the provinces of Nueva Ecija, Nueva
Vizcaya, Quirino and Ifugao which was imposed for reasons of
conservation and national security.
The Ministry imposed the ban because it realizes the great
responsibility it bear [sic] in respect to forest t considers itself
the trustee thereof. This being the case, it has to ensure the
availability of forest resources not only for the present, but
also for the future generations of Filipinos.

On the other hand, the activities of the insurgents in these

parts of the country are well documented. Their financial
demands on logging concessionaires are well known. The
government, therefore, is well within its right to deprive its
enemy of sources of funds in order to preserve itself, its
established institutions and the liberty and democratic way of
life of its people.

logging operations/activities in Quirino province, among

others, where movant's former concession area is located.
Therefore, the issuance of an order disallowing any person or
entity from removing cut or uncut logs from the portion of
TLA No. 87, now under TLA No. 356, would constitute an
unnecessary or superfluous act on the part of the Ministry.
xxx xxx xxx

xxx xxx xxx

[Annex "11" of the Petition, pp. 3-4; Rollo, pp. 77-78.]
[Annex "9" of the Petition, pp. 2-4; Rollo, pp. 65-67.]
Petitioner moved for reconsideration of the aforestated order reiterating,
among others. its request that TLA No. 356 issued to private respondent be
declared null and void. The MNR however denied this motion in an order
dated September 15, 1986. stating in part:
xxx xxx xxx
Regarding [petitioner's] request that the award of a 26,000
hectare portion of TLA No. 87 to Twin Peaks Realty
Development Corporation under TLA No. 356 be declared null
and void, suffice it to say that the Ministry is now in the
process of reviewing all contracts, permits or other form of
privileges for the exploration, development, exploitation, or
utilization of natural resources entered into, granted, issued
or acquired before the issuance of Proclamation No. 3,
otherwise known as the Freedom Constitution for the
purpose of amending, modifying or revoking them when the
national interest so requires.

On November 26, 1986, petitioner's supplemental motion for reconsideration

was likewise denied. Meanwhile, per MNR Administrative Order No. 54, series
of 1986, issued on November 26, 1986, the logging ban in the province of
Quirino was lifted.
Petitioner subsequently appealed from the orders of the MNR to the Office of
the President. In a resolution dated July 6, 1987, the Office of the President,
acting through then Deputy Executive Secretary Catalino Macaraig, denied
petitioner's appeal for lack of merit. The Office of the President ruled that the
appeal of petitioner was prematurely filed, the matter not having been
terminated in the MNR. Petitioner's motion for reconsideration was denied on
August 14, 1987.
Hence, petitioner filed directly with this Court a petition for certiorari, with
prayer for the issuance of a restraining order or writ of preliminary injunction,
on August 27, 1987. On October 13, 1987, it filed a supplement to its petition
for certiorari. Thereafter, public and private respondents submitted their
respective comments, and petitioner filed its consolidated reply thereto. In a
resolution dated May 22, 1989, the Court resolved to give due course to the
petition.

xxx xxx xxx

The Ministry, through the Bureau of Forest Development, has
jurisdiction and authority over all forest lands. On the basis of
this authority, the Ministry issued the order banning all

After a careful study of the circumstances in the case at bar, the Court finds
several factors which militate against the issuance of a writ of certiorari in
favor of petitioner.

1. Firstly, the refusal of public respondents herein to reverse final and

executory administrative orders does not constitute grave abuse of discretion
amounting to lack or excess of jurisdiction.
It is an established doctrine in this jurisdiction that the decisions and orders of
administrative agencies have upon their finality, the force and binding effect
of a final judgment within the purview of the doctrine of res judicata. These
decisions and orders are as conclusive upon the rights of the affected parties
as though the same had been rendered by a court of general jurisdiction. The
rule of res judicata thus forbids the reopening of a matter once determined by
competent authority acting within their exclusive jurisdiction [See Brillantes v.
Castro, 99 Phil. 497 (1956); Ipekdjian Merchandising Co., Inc. v. Court of Tax
Appeals, G.R. No. L-15430, September 30, 1963, 9 SCRA 72; San Luis v. Court
of Appeals, G.R. No. 80160, June 26, 1989].
In the case at bar, petitioner's letters to the Office of the President and the
MNR [now the Department of Environment and Natural Resources (DENR)
dated March 17, 1986 and April 2, 1986, respectively, sought the
reconsideration of a memorandum order issued by the Bureau of Forest
Development which cancelled its timber license agreement in 1983, as well as
the revocation of TLA No. 356 subsequently issued by the Bureau to private
respondents in 1984.
But as gleaned from the record, petitioner did not avail of its remedies under
the law, i.e. Section 8 of Pres. Dec. No. 705 as amended, for attacking the
validity of these administrative actions until after 1986. By the time petitioner
sent its letter dated April 2, 1986 to the newly appointed Minister of the MNR
requesting reconsideration of the above Bureau actions, these were already
settled matters as far as petitioner was concerned [See Rueda v. Court of
Agrarian Relations, 106 Phil. 300 (1959); Danan v. Aspillera G.R. No. L-17305,
November 28, 1962, 6 SCRA 609; Ocampo v. Arboleda G.R. No. L-48190,
August 31, 1987, 153 SCRA 374].
No particular significance can be attached to petitioner's letter dated
September 19, 1983 which petitioner claimed to have sent to then President

Marcos [Annex "6" of Petition, Rollo, pp. 50-53], seeking the reconsideration
of the 1983 order issued by Director Cortes of the Bureau. It must be pointed
out that the averments in this letter are entirely different from the charges of
fraud against officials under the previous regime made by petitioner in its
letters to public respondents herein. In the letter to then President Marcos,
petitioner simply contested its inclusion in the list of concessionaires, whose
licenses were cancelled, by defending its record of selective logging and
reforestation practices in the subject concession area. Yet, no other
administrative steps appear to have been taken by petitioner until 1986,
despite the fact that the alleged fraudulent scheme became apparent in 1984
as evidenced by the awarding of the subject timber concession area to other
entities in that year.
2. Moreover, petitioner is precluded from availing of the benefits of a writ of
certiorari in the present case because he failed to file his petition within a
reasonable period.
The principal issue ostensibly presented for resolution in the instant petition is
whether or not public respondents herein acted with grave abuse of
discretion amounting to lack or excess of jurisdiction in refusing to overturn
administrative orders issued by their predecessors in the past regime. Yet,
what the petition ultimately seeks is the nullification of the Bureau orders
cancelling TLA No. 87 and granting TLA No. 356 to private respondent, which
were issued way back in 1983 and 1984, respectively.
Once again, the fact that petitioner failed to seasonably take judicial recourse
to have the earlier administrative actions reviewed by the courts through a
petition for certiorari is prejudicial to its cause. For although no specific time
frame is fixed for the institution of a special civil action for certiorari under
Rule 65 of the Revised Rules of Court, the same must nevertheless be done
within a "reasonable time". The yardstick to measure the timeliness of a
petition for certiorari is the "reasonableness of the length of time that had
expired from the commission of the acts complained of up to the institution of
the proceeding to annul the same" [Toledo v. Pardo, G.R. No. 56761,
November 19, 1982, 118 SCRA 566, 571]. And failure to file the petition for

certiorari within a reasonable period of time renders the petitioner

susceptible to the adverse legal consequences of laches [Municipality of
Carcar v. Court of First Instance of Cebu, G.R. No. L-31628, December 27,
1982, 119 SCRA 392).
Laches is defined as the failure or neglect for an unreasonable and
unexplained length of time to do that which by exercising due diligence, could
or should have been done earlier, or to assert a right within a reasonable
time, warranting a presumption that the party entitled thereto has either
abandoned it or declined to assert it [Tijam v. Sibonghanoy, G.R. No. L-21450,
April 15, 1968, 23 SCRA 29; Seno v. Mangubat, G.R. No. L-44339, December 2,
1987, 156 SCRA 113]. The rule is that unreasonable delay on the part of a
plaintiff in seeking to enforce an alleged right may, depending upon the
circumstances, be destructive of the right itself. Verily, the laws aid those who
are vigilant, not those who sleep upon their rights (Vigilantibus et non
dormientibus jura subveniunt) [See Buenaventura v. David, 37 Phil. 435
(1918)].
In the case at bar, petitioner waited for at least three years before it finally
filed a petition for certiorari with the Court attacking the validity of the
assailed Bureau actions in 1983 and 1984. Considering that petitioner,
throughout the period of its inaction, was not deprived of the opportunity to
seek relief from the courts which were normally operating at the time, its
delay constitutes unreasonable and inexcusable neglect, tantamount to
laches. Accordingly, the writ of certiorari requiring the reversal of these orders
will not lie.
3. Finally, there is a more significant factor which bars the issuance of a writ of
certiorari in favor of petitioner and against public respondents herein. It is
precisely this for which prevents the Court from departing from the general
application of the rules enunciated above.
A cursory reading of the assailed orders issued by public respondent Minister
Maceda of the MNR which were ed by the Office of the President, will disclose

public policy consideration which effectively forestall judicial interference in

the case at bar,
Public respondents herein, upon whose shoulders rests the task of
implementing the policy to develop and conserve the country's natural
resources, have indicated an ongoing department evaluation of all timber
license agreements entered into, and permits or licenses issued, under the
previous dispensation. In fact, both the executive and legislative departments
of the incumbent administration are presently taking stock of its
environmental policies with regard to the utilization of timber lands and
developing an agenda for future programs for their conservation and
rehabilitation.
The ongoing administrative reassessment is apparently in response to the
renewed and growing global concern over the despoliation of forest lands and
the utter disregard of their crucial role in sustaining a balanced ecological
system. The legitimacy of such concern can hardly be disputed, most
especially in this country. The Court takes judicial notice of the profligate
waste of the country's forest resources which has not only resulted in the
irreversible loss of flora and fauna peculiar to the region, but has produced
even more disastrous and lasting economic and social effects. The delicate
balance of nature having been upset, a vicious cycle of floods and droughts
has been triggered and the supply of food and energy resources required by
the people seriously depleted.
While there is a desire to harness natural resources to amass profit and to
meet the country's immediate financial requirements, the more essential
need to ensure future generations of Filipinos of their survival in a viable
environment demands effective and circumspect action from the government
to check further denudation of whatever remains of the forest lands. Nothing
less is expected of the government, in view of the clear constitutional
command to maintain a balanced and healthful ecology. Section 16 of Article
II of the 1987 Constitution provides:

SEC. 16. The State shall protect and promote the right of the
people to a balanced and healthful ecology in accord with the
rhythm and harmony of nature.
Thus, while the administration grapples with the complex and multifarious
problems caused by unbridled exploitation of these resources, the judiciary
will stand clear. A long line of cases establish the basic rule that the courts will
not interfere in matters which are addressed to the sound discretion of
government agencies entrusted with the regulation of activities coming under
the special technical knowledge and training of such agencies [See Espinosa v.
Makalintal, 79 Phil. 134 (1947); Coloso v. Board of Accountancy, 92 Phil. 938
(1953); Pajo v. Ago, 108 Phil. 905 (1960); Suarez v. Reyes, G.R. No. L-19828,
February 28, 1963, 7 SCRA 461; Ganitano v. Secretary of Agriculture and
Natural Resources, G. R. No. L-21167, March 31, 1966, 16 SCRA 543; Villegas v.
Auditor General, G.R. No. L-21352, November 29, 1966, 18 SCRA 877; Manuel
v. Villena, G.R. No. L-28218, February 27, 1971, 37 SCRA 745; Lacuesta v.
Herrera, G.R. No. L-33646, January 28, 1975, 62 SCRA 115; Lianga Bay Logging
Co., Inc. v. Enage, G.R. No. L-30637, July 16, 1987, 152 SCRA 80]. More so
where, as in the present case, the interests of a private logging company are
pitted against that of the public at large on the pressing public policy issue of
forest conservation. For this Court recognizes the wide latitude of discretion
possessed by the government in determining the appropriate actions to be
taken to preserve and manage natural resources, and the proper parties who
should enjoy the privilege of utilizing these resources [Director of Forestry v.
Munoz, G.R. No. L-24796, June 28, 1968, 23 SCRA 1183; Lim, Sr. v. The
Secretary of Agriculture and Natural Resources, G.R. No. L-26990, August 31,
1970, 34 SCRA 751]. Timber licenses, permits and license agreements are the
principal instruments by which the State regulates the utilization and
disposition of forest resources to the end that public welfare is promoted. And
it can hardly be gainsaid that they merely evidence a privilege granted by the
State to qualified entities, and do not vest in the latter a permanent or
irrevocable right to the particular concession area and the forest products
therein. They may be validly amended, modified, replaced or rescinded by the
Chief Executive when national interests so require. Thus, they are not deemed
contracts within the purview of the due process of law clause [See Sections 3

(ee) and 20 of Pres. Decree No. 705, as amended. Also, Tan v. Director of
Forestry, G.R. No. L-24548, October 27, 1983, 125 SCRA 302].
In fine, the legal precepts highlighted in the foregoing discussion more than
suffice to justify the Court's refusal to interfere in the DENR evaluation of
timber licenses and permits issued under the previous regime, or to pre-empt
the adoption of appropriate corrective measures by the department.
Nevertheless, the Court cannot help but express its concern regarding alleged
irregularities in the issuance of timber license agreements to a number of
logging concessionaires.
The grant of licenses or permits to exploit the country's timber resources, if
done in contravention of the procedure outlined in the law, or as a result of
fraud and undue influence exerted on department officials, is indicative of an
arbitrary and whimsical exercise of the State's power to regulate the use and
exploitation of forest resources. The alleged practice of bestowing "special
favors" to preferred individuals, regardless of merit, would be an abuse of this
power. And this Court will not be a party to a flagrant mockery of the avowed
public policy of conservation enshrined in the 1987 Constitution. Therefore,
should the appropriate case be brought showing a clear grave abuse of
discretion on the part of officials in the DENR and related bureaus with
respect to the implementation of this public policy, the Court win not hesitate
to step in and wield its authority, when invoked, in the exercise of judicial
powers under the Constitution [Section 1, Article VIII].
However, petitioner having failed to make out a case showing grave abuse of
discretion on the part of public respondents herein, the Court finds no basis to
issue a writ of certiorari and to grant any of the affirmative reliefs sought.
WHEREFORE, the present petition is DISMISSED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 111088 June 13, 1997

C & M TIMBER CORPORATION (CMTC), petitioner,
vs.
HON. ANGEL C. ALCALA, Secretary of the Department of Environment &
Natural Resources, HON. ANTONIO T. CARPIO, Chief Presidential Legal
Counsel, and HON. RENATO C. CORONA, Assistant Executive Secretary for
Legal Affairs, respondents.

MENDOZA, J.:
This is a petition for certiorari by which C & M Timber Corporation seeks the
nullification of the order dated February 26, 1993 and the resolution dated
June 7, 1993 of the Office of the President, declaring as of no force and effect
Timber License Agreement (TLA) No. 106 issued to petitioner on June 30,
1972. TLA No. 106, with the expiry date June 30, 1997, covers 67,680 hectares
of forest land in the municipalities of Dipaculao and Dinalongan in the
Province of Aurora and the Municipality of Maddela in Quirino province. 1
It appears that in a letter dated July 20, 1984 2 to President Marcos, Filipinas
Loggers Development Corporation (FLDC), through its president and general
manager, requested a timber concession over the same area covered by
petitioner's TLA No. 106, alleging that the same had been cancelled pursuant
to a presidential directive banning all forms of logging in the area. The request
was granted in a note dated August 14, 1984 by President Marcos who wrote,
as was his wont, on the margin of the letter of FLDC: "Approved." 3

Accordingly, on September 21, 1984, the Ministry of Natural Resources, as it

was then called, issued TLA No. 360, with the expiry date September 30, 1994,
to FLDC, covering the area subject of TLA No. 106. In 1985, FLDC began logging
operations.
On June 26, 1986, then Minister of Natural Resources Ernesto M. Maceda
suspended TLA No. 360 for FLDC's "gross violation of the terms and conditions
thereof, especially the reforestation and selective logging activities and in
consonance with the national policy on forest conservation." 4 On July 26,
1986, Minister Maceda issued another order cancelling the license of FLDC on
the ground that "in spite of the suspension order dated June 26, 1986, said
concessionaire has continued logging operations in violation of forestry rules
and regulations." 5
Learning of the cancellation of FLDC's TLA, petitioner, through its officer-incharge, wrote Minister Maceda a letter dated October 10, 1986, requesting
"revalidation" of its TLA No. 106. 6 As FLDC sought a reconsideration of the
order cancelling its TLA, petitioner wrote another letter dated February 13,
1987, 7 alleging that because of the log ban imposed by the previous
administration it had to stop its logging operations, but that when the ban
was lifted on September 21, 1984, its concession area was awarded to FLDC
"as a result of [FLDC's] covetous maneuvers and unlawful machinations."
(Petitioner was later to say that those behind FLDC, among them being the
former President's sister, Mrs. Fortuna Barba, were "very influential because
of their very strong connections with the previous Marcos regime." 8)
Petitioner prayed that it be allowed to resume logging operations.
In his order dated May 2, 1988, 9 Secretary Fulgencio Factoran, Jr., of the
DENR, declared petitioner's TLA No. 106 as of no more force and effect and
consequently denied the petition for its restoration, even as he denied FLDC's
motion for reconsideration of the cancellation of TLA No. 360. Secretary
Factoran, Jr. ruled that petitioner's petition was barred by reason of laches,
because petitioner did not file its opposition to the issuance of a TLA to FLDC
until February 13, 1987, after FLDC had been logging under its license for
almost two years. On the other hand, FLDC's motion for reconsideration was

denied, "since the findings on which the cancellation order had been based,
notably gross violation of the terms and conditions of its license, such as
reforestation and selective logging activities appear to be firmly grounded."

Considering that the aforementioned Annex

"A" constitutes a vital defense to C & M
Timber Corporation and could be a pivotal
factor in the resolution by this Office of the
instant appeal, may we request your good
office for a certification as to the
authenticity/veracity of said document
(Annex "A") to enable us to resolve the case
judiciously and expeditiously.

Both petitioner CMTC and FLDC appealed to the Office of the President.
Petitioner denied that it was guilty of laches. It alleged that it had sent a letter
to the then Minister of Natural Resources Rodolfo del Rosario dated
September 24, 1984 protesting the grant of a TLA to FLDC over the area
covered by its (petitioner's) TLA and, for this reason, requesting nullification of
FLDC's TLA.
10

In a decision dated March 21, 1991, the Office of the President, through
then Executive Secretary Oscar Orbos, affirmed the DENR's order of May 2,
1988. Like the DENR it found petitioner guilty of laches, the alleged filing by
petitioner of a protest on September 24, 1984 not having been duly proven.
The decision of the Office of the President stated: 11
As disclosed by the records, this Office, in a letter of June 1,
1989, had requested the DENR to issue a certification as to
the authenticity/veracity of CMTC's aforesaid Annex "A" to
enable it to resolve this case judiciously and expeditiously.
Said letter-request pertinently reads:
. . . C & M Timber Corporation has attached to
its "Supplemental Petition For Review," dated
June 1, 1988, a xerox copy of (Annex "A") of
its letter to the Minister of Natural Resources
Rodolfo del Rosario, dated September 24,
1984, prepared by its counsel, Atty. Norberto
J. Quisumbing, protesting against the award
of the contested area to Filipinas Loggers
Development Corporation and requesting
that it be annulled and voided.

In reply thereto, the DENR, thru Assistant Secretary for Legal

Affairs Romulo D. San Juan, in a letter of July 7, 1989,
informed this Office, thus:
xxx xxx xxx
Despite diligent efforts exerted to locate the
alleged aforementioned Annex "A", no such
document could be found or is on file in this
Office.
This Office, therefore, regrets that it can not
issue the desired certification as to the
authenticity/veracity of the document.
On September 10, 1990, this Office requested an updated
comment of the DENR on (a) the duplicate original copy of
Annex "A"; (b) a xerox copy of Page 164, entry No. 2233, of
the MNR's logbook tending to show that the original copy of
Annex "A" was received by the MNR; and (c) a xerox copy of
Page 201 of the logbook of the BFD indicating that the original
copy of Annex "A" was received by BFD from the MNR.
On October 26, 1990, DENR Assistant Secretary San Juan
endorsed to this Office the updated comment of Director of

Forest Management Bureau (FMB) in a 2nd endorsement of

October 25, 1990, which pertinently reads as follows:

with what they sustained below (People v. Archilla, 1 SCRA

698, 700-701)

Please be informed that this Office is not the

addressee and repository of the letter dated
September 24, 1984 of Atty. Norberto
Quisumbing. This Office was just directed by
then Minister Rodolfo del Rosario to act on
the purported letter of Atty. Quisumbing and
as directed, we prepared a memorandum to
the President which was duly complied with
as shown by the entries in the logbook. Annex
"A", which is the main document of the letterappeal of C & M Timber Corporation is
presumed appended to the records when it
was acted upon by the BFD (now FMB) and
forwarded to the Secretary (then Minister).
Therefore this Office is not in a position to
certify as to the authenticity of Annex "A".

The Office of the President also declined to set aside the DENR's order of July
31, 1986, cancelling FLDC's TLA No. 360, after finding the same to be fully
substantiated.

Clearly therefore, CMTC's reliance on its Annex "A" is

misplaced, the authenticity thereof not having been duly
proven or established. Significantly, we note that in all the
pleadings filed by CMTC in the office a quo, and during the
hearing conducted, nothing is mentioned therein about its
letter of September 24, 1984 (Annex "A"). Jurisprudence
teaches that issues neither averred in the pleadings nor raised
during the trial below cannot be raised for the first time on
appeal (City of Manila vs. Ebay, 1 SCRA 1086, 1089); that
issues of fact not adequately brought to the attention of the
trial court need not be considered by a reviewing court, as
they cannot be raised for the first time on appeal (Santos v.
Intermediate Appellate Court, 145 SCRA 592, 595); and that
parties, may not, on appeal, adopt a position inconsistent

Petitioner and FLDC moved for reconsideration. In its order dated January 25,
1993, 12 the Office of the President, through Chief Presidential Legal Counsel
Antonio T. Carpio, denied petitioner's motion for reconsideration. It held that
"even assuming that CMTC did file regularly its letter-protest of September
24, 1984 with MNR on September 25, 1984, CMTC failed to protect its rights
for more than two (2) years until it opposed reinstatement of FLDC's TLA on
February 13, 1987. Within that two (2) year period, FLDC logged the area
without any opposition from CMTC." In the same order, the Office of the
President, however, directed the reinstatement of FLDC's TLA No. 360, in view
of the favorable report of the Bureau of Forest Development dated March 23,
1987. Later, the President's office reconsidered its action after the Secretary
of Environment and Natural Resources Angel C. Alcala, on February 15, 1993,
expressed concern that reinstatement of FLDC's TLA No. 360 "might negate
efforts to enhance the conservation and protection of our forest resources."
In a new order dated February 26, 1993, 13 the Office of the President
reinstated its March 21, 1991 decision.
Petitioner again moved for a reconsideration of the decision dated March 21,
1991 and for its license to be "revived/restored.'' Petitioner's motion was,
however, denied by the Office of the President on June 7, 1993 14 in a
resolution signed by Assistant Executive Secretary for Legal Affairs Renato C.
Corona. The President's office ruled:
The above Order of February 26, 1993 was predicated, as
stated therein, on a new policy consideration on forest
conservation and protection, unmistakably implied from the
President's handwritten instruction. Accordingly, this Order
shall be taken not only as an affirmation of the March 21,

1991 decision, but also as a FINAL disposition of the case

and ALL matters incident thereto, like CMTC's motion for
reconsideration, dated April 16, 1991.
Hence, this petition. Petitioner contends that laches cannot be imputed to it
because it did not incur delay in asserting its rights and even if there was
delay, the delay did not work to the prejudice of other parties, particularly
FLDC, because the cancellation of the FLDC's TLA was attributable only to its
own actions. Petitioner also denies that its license had been suspended by
reason of mediocre performance in reforestation by order of then Minister of
Natural Resources Teodoro O. Pea. It says that it did not receive any order to
this effect. Finally, petitioner claims that the denial of its petition, because of
"a new policy consideration on forest conservation and protection,
unmistakably implied from the President's handwritten instruction," as stated
in the resolution of June 7, 1993 of the Office of the President, would deny it
the due process of law. Petitioner points out that there is no total log ban in
the country; that Congress has yet to make a pronouncement on the issue;
that any notice to this effect "must be stated in good form, not implied"; and
that in any case, any new policy consideration should be prospective in
application and cannot affect petitioner's vested rights in its TLA No. 106.
We find the petition to be without merit.
First. As already stated, the DENR order of May 2, 1988, declaring petitioner's
TLA No. 106 as no longer of any force and effect, was based on its finding that
although TLA No. 106's date of expiry was June 30, 1997 it had been
suspended on June 3, 1983 because of CMTC's "mediocre performance in
reforestation" and petitioner's laches in failing to protest the subsequent
award of the same area to FLDC. There is considerable dispute whether there
was really an order dated June 3, 1983 suspending petitioner's TLA because of
"mediocre performance" in reforestation, just as there is a dispute whether
there indeed was a letter written on September 24, 1984 on behalf of
petitioner protesting the award of the concession covered by its TLA No. 106
to FLDC, so as to show that petitioner did not sleep on its rights.

The alleged order of June 3, 1983 cannot be produced. The Office of the
Solicitor General was given until May 14, 1997 to secure a copy of the order
but on May 7, 1997 the OSG manifested that the order in question could not
be found in the records of this case in which the order might be. 15 Earlier,
petitioner requested a copy of the order but the DENR, through Regional
Executive Director Antonio G. Principe, said that "based from our records
there is no file copy of said alleged order." 16
On the other hand, the alleged letter of September 24, 1984 written by Atty.
Norberto J. Quisumbing, protesting the award of the concession in question to
FLDC cannot be found in the records of the DENR either. The Assistant
Secretary for Legal Affairs of the DENR certified that "Despite diligent efforts
exerted to locate the alleged [letter], no such document could be found or is
on file in this Office." 17 In a later certification, however, Ofelia Castro Biron of
the DENR, claimed that she was a receiving clerk at the Records and
Documents Section of the Ministry of Natural Resources and that on
September 25, 1984 she received the letter of Atty. Quisumbing and placed
on all copies thereof the stamp of the MNR. She stated that the copy in the
possession of petitioner was a "faithful copy of the letter" in question. 18
The difficulty of ascertaining the existence of the two documents is indeed a
reflection on the sorry state of record keeping in an important office of the
executive department. Yet these two documents are vital to the presentation
of the evidence of both parties in this case. Fortunately, there are extant
certain records from which it is possible to determine whether these
documents even existed.
With respect to the alleged order of June 3, 1983 suspending petitioner's TLA
No. 106 for "mediocre performance" in reforestation, the Court will presume
that there is such an order in accordance with the presumption of regularity in
the performance of official functions inasmuch as such order is cited both in
the order dated May 2, 1988 of the DENR, declaring as of no force and effect
TLA No. 106, and in the decision dated March 21, 1991 of the Office of the
President affirming the order of the DENR. It is improbable that so responsible

officials as the Secretary of the DENR and the Executive Secretary would cite
an order that did not exist.

SUBJECT : Stopping of all logging operations

in Nueva Vizcaya and Quirino

On the other hand, with respect to the letter dated September 24, 1984, there
are circumstances indicating that it existed. In addition to the aforesaid
certification of Ofelia Castro Biron that she was the person who received the
letter for the DENR, the logbook of the Ministry of Natural Resources contains
entries indicating that the letter was received by the Bureau of Forest
Development from the MNR. 19 DENR Assistant Secretary Romulo San Juan
likewise informed the Office of the President that the Bureau of Forest
Management prepared a memorandum on the aforesaid letter of September
24, 1984, 20 thereby implying that there was such a letter.

REMARKS :

On the premise that there was an order dated June 3, 1983, we find that after
suspending petitioner's TLA for "mediocre performance" in reforestation
under this order, the DENR cancelled the TLA, this time because of a
Presidential directive imposing a log ban. The records of G.R. No. 76538,
entitled "Felipe Ysmael, Jr. & Co. v. Deputy Executive Secretary," the decision
in which is reported in 190 SCRA 673 (1990), contain a copy of the
memorandum of then Director Edmundo V. Cortes of the Bureau of Forest
Development to the Regional Director of Region 2, in Tuguegarao, Cagayan,
informing the latter that pursuant to the instruction of the President and the
memorandum dated August 18, 1983 of then Minister Teodoro Q. Pea, the
log ban previously declared included the concessions of the companies
enumerated in Cortes' memorandum, in consequence of which the
concessions in question were deemed cancelled. The memorandum of
Director Cortes stated:

Following Presidential Instructions and Memorandum Order of

Minister Teodoro Q. Pea dated 18 August 1983, and in
connection with my previous radio message, please be informed
that the coverage of the logging ban in Quirino and Nueva
Vizcaya provinces include the following concessions which are
deemed cancelled as of the date of the previous notice:

Felipe
Ysmael
Co.,
Inc.

Industries
Dev.
Corp.

Luzon
Loggers,
Inc.

C
&
M
Timber
Corporation

Buzon
Industrial
Dev.
Corporation

Dominion
Forest
Resources
Corp.

FCA
Timber
Development
Corp.

Kasibu
Logging
Corp.

RCC
Timber
Company
Benjamin Cuaresma
You are hereby reminded to insure full
compliance with this order to stop logging
operations by all licensees above mentioned
and submit a report on the pullout of
equipment and inventory of logs within five
days upon receipt hereof.
ACTION DESIRED : For your immediate implementation.

MEMORANDUM ORDER
TO : The Regional Director
Region 2, Tuguegarao, Cagayan.
FROM : The Director
DATE : 24 August 1983

EDMUNDO V. CORTES

(Emphasis added)
It thus appears that petitioner's license had been cancelled way back in 1983,
a year before its concession was awarded to FLDC. It is noteworthy that
petitioner admits that at the time of the award to FLDC in 1984 petitioner was
no longer operating its concession because of a log ban although it claims that
the suspension of operations was only temporary. As a result of the log ban,
the TLA of petitioner, along with those of other loggers in the region, were
cancelled and petitioner and others were ordered to stop operations.
Petitioner also admits that it received a telegram sent on August 24, 1983 by
Director Cortes of the BFD, directing it to "stop all logging operations to
conserve our remaining forests." 21 It is then not true, as Atty. Quisumbing
stated in protesting the award of the concession to FLDC, that "the logging
ban did not cancel [petitioner's] timber license agreement."
Now petitioner did not protest the cancellation of its TLA. Consequently, even
if consideration is given to the fact that a year later, on September 24, 1984,
its counsel protested the grant of the concession to another party (FLDC), this
failure of petitioner to contest first the suspension of its license on June 3,
1983 and later its cancellation on August 24, 1983 must be deemed fatal to its
present action.
Second. Except for the letter of its counsel to the Minister of Natural
Resources, which it reiterated in its letter to the President of the Philippines,
petitioner took no legal steps to protect its interest. After receiving no
favorable response to its two letters, petitioner could have brought the
necessary action in court for the restoration of its license. It did not. Instead it
waited until FLDC's concession was cancelled in 1986 by asking for the
"revalidation" of its (petitioner's) on TLA No. 106.
Petitioner's excuse before the DENR is that it did not pursue its protest
because its president, Ricardo C. Silverio, had been told by President Marcos
that the area in question had been awarded to the President's sister, Mrs.
Fortuna Barba, and petitioner was afraid to go against the wishes of the
former President. 22 This is a poor excuse for petitioner's inaction. In Felipe

Ysmael, Jr. & Co., Inc. v. Deputy Executive Secretary, 23 a similar excuse was
given that Ysmael & Co's license had been cancelled and its concession
awarded to entities controlled or owned by relatives or cronies of then
President Marcos. For this reason, after the EDSA Revolution, Ysmael & Co.
sought in 1986 the reinstatement of its timber license agreement and the
revocation of those issued to the alleged presidential cronies. As its request
was denied by the Office of the President, Ysmael & Co. filed a petition
for certiorari with this Court. On the basis of the facts stated, this Court
denied the petition: (1) because the August 25, 1983 order of the Bureau of
Forest Development, cancelling petitioner's timber license agreement had
become final and executory. Although petitioner sent a letter dated
September 19, 1983 to President Marcos seeking reconsideration of the 1983
order of cancellation of the BFD, the grounds stated there were different from
those later relied upon by petitioner for seeking its reinstatement; (2) because
"the fact that petitioner failed to seasonably take judicial recourse to have the
earlier administrative actions [cancelling its license and granting another one
covering the same concession to respondent] reviewed by the court through a
petition for certiorari is prejudicial to its cause." Such special civil action
of certiorari should have been filed within a "reasonable time." And since
none was filed within such period, petitioner's action was barred by laches;
and (3) because executive evaluation of timber licenses and their consequent
cancellation in the process of formulating policies with regard to the
utilization of timber lands is a prerogative of the executive department and in
the absence of evidence showing save abuse of discretion courts will not
interfere with the exercise of that discretion.
This case is governed by the decision in Felipe Ysmael, Jr. & Co., Inc. v. Deputy
Executive Secretary.
Third. It is finally contended that any "policy consideration on forest
conservation and protection" justifying the decision of the executive
department not to reinstate petitioner's license must be formally enunciated
and cannot merely be implied from the President's instruction to his
subordinates and that, at all events, the new policy cannot be applied to
existing licenses such as petitioner's.

The President's order reconsidering the resolution of the Presidential Legal

Adviser (insofar as it reinstated the license of FLDC) was prompted by
concerns expressed by the then Secretary of Environment and Natural
Resources that "said reinstatement [of FLDC's license] may negate our efforts
to enhance conservation and protection of our forest resources." There was
really no new policy but, as noted in Felipe Ysmael, Jr. & Co., Inc., a mere
reiteration of a policy of conservation and protection. The policy is contained
in Art. II, 16 of the Constitution which commands the State "to protect and
promote the right of the people to a balanced and healthful ecology in accord
with the rhythm and harmony of nature." There is therefore no merit in
petitioner's contention that no new policy can be applied to existing licenses.

Thus, while the administration grapples with the complex and

multifarious problems caused by unbridled exploitation of
these resources, the judiciary will stand clear. . . . More so
where, as in the present case, the interests of a private
logging company are pitted against that of the public at large
on the pressing public policy issue of forest conservation. . . .
Timber licenses, permits and license agreements are the
principal instruments by which the State regulates the
utilization and disposition of forest resources to the end that
public welfare is promoted. And it can hardly be gainsaid that
they merely evidence a privilege granted by the State to
qualified entities, and do not vest in the latter a permanent or
irrevocable right to the particular concession area and the
forest products therein. They may be validly amended,
modified, replaced or rescinded by the Chief Executive when
national interests so require. Thus, they are not deemed
contracts within the purview of the due process of law clause
[See Sections 3(33) and 20 of Pres. Decree No. 705, as
amended. Also, Tan v. Director of Forestry, G.R. No. L-24548,
October 27, 1983, 125 SCRA 302].

As to petitioner's contention that the cancellation of its license constitutes an

impairment of the obligation of its contract, suffice it for us to quote what we
held in Felipe Ysmael, Jr. & Co. Inc. v. Deputy Executive Secretary: 24
A cursory reading of the assailed orders issued by public
respondent Minister Maceda of the MNR, which were
affirmed by the Office of the President, will disclose public
policy considerations which effectively forestall judicial
interference in the case at bar.

WHEREFORE, the petition is DISMISSED.

Public respondents herein, upon whose shoulders rests the
task of implementing the policy to develop and conserve the
country's natural resources, have indicated an ongoing
department evaluation of all timber license agreements
entered into, and permits or licenses issued, under the
previous dispensation. . . .
The ongoing administrative reassessment is apparently in
response to the renewed and growing global concern over the
despoliation of forest lands and the utter disregard of their
crucial role in sustaining a balanced ecological system. The
legitimacy of such concern can hardly be disputed, most
especially in this country. . . .

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 149927

March 30, 2004

REPUBLIC OF THE PHILIPPINES, Represented by the Department of

Environment and Natural Resources (DENR)
Under then Minister ERNESTO R. MACEDA; and Former Government
Officials CATALINO MACARAIG, FULGENCIO S. FACTORAN, ANGEL C. ALCALA,
BEN MALAYANG, ROBERTO PAGDANGANAN, MARIANO Z. VALERA and
ROMULO SAN JUAN, petitioners,
vs.
ROSEMOOR MINING AND DEVELOPMENT CORPORATION, PEDRO DEL
CONCHA, and ALEJANDRO and RUFO DE GUZMAN, respondents.
DECISION

The questioned Resolution denied petitioners Motion for Reconsideration.

On the other hand, trial courts Decision, which was affirmed by the CA, had
disposed as follows:
"WHEREFORE, judgment is hereby rendered as follows:
1. Declaring that the cancellation of License No. 33 was done without
jurisdiction and in gross violation of the Constitutional right of the
petitioners against deprivation of their property rights without due
process of law and is hereby set aside.
2. Declaring that the petitioners right to continue the exploitation of
the marble deposits in the area covered by License No. 33 is
maintained for the duration of the period of its life of twenty-five (25)
years, less three (3) years of continuous operation before License No.
33 was cancelled, unless sooner terminated for violation of any of the
conditions specified therein, with due process.

PANGANIBAN, J.:
A mining license that contravenes a mandatory provision of the law under
which it is granted is void. Being a mere privilege, a license does not vest
absolute rights in the holder. Thus, without offending the due process and the
non-impairment clauses of the Constitution, it can be revoked by the State in
the public interest.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking
to nullify the May 29, 2001 Decision2 and the September 6, 2001
Resolution3 of the Court of Appeals (CA) in CA-GR SP No. 46878. The CA
disposed as follows:
"WHEREFORE, premises considered, the appealed Decision is hereby
AFFIRMED in toto."4

3. Making the Writ of preliminary injunction and the Writ of

Preliminary Mandatory Injunction issued as permanent.
4. Ordering the cancellation of the bond filed by the Petitioners in the
sum of 1 Million.
5. Allowing the petitioners to present evidence in support of the
damages they claim to have suffered from, as a consequence of the
summary cancellation of License No. 33 pursuant to the agreement of
the parties on such dates as maybe set by the Court; and
6. Denying for lack of merit the motions for contempt, it appearing
that actuations of the respondents were not contumacious and
intended to delay the proceedings or undermine the integrity of the
Court.
No pronouncement yet as to costs."5

The Facts

xxxxxxxxx

The CA narrated the facts as follows:

"On September 27, 1996, the trial court rendered the herein questioned
decision."6

"The four (4) petitioners, namely, Dr. Lourdes S. Pascual, Dr. Pedro De la
Concha, Alejandro De La Concha, and Rufo De Guzman, after having been
granted permission to prospect for marble deposits in the mountains of Biakna-Bato, San Miguel, Bulacan, succeeded in discovering marble deposits of
high quality and in commercial quantities in Mount Mabio which forms part of
the Biak-na-Bato mountain range.
"Having succeeded in discovering said marble deposits, and as a result of their
tedious efforts and substantial expenses, the petitioners applied with the
Bureau of Mines, now Mines and Geosciences Bureau, for the issuance of the
corresponding license to exploit said marble deposits.

The trial court ruled that the privilege granted under respondents license had
already ripened into a property right, which was protected under the due
process clause of the Constitution. Such right was supposedly violated when
the license was cancelled without notice and hearing. The cancellation was
said to be unjustified, because the area that could be covered by the four
separate applications of respondents was 400 hectares. Finally, according to
the RTC, Proclamation No. 84, which confirmed the cancellation of the license,
was an ex post facto law; as such, it violated Section 3 of Article XVIII of the
1987 Constitution.

"After compliance with numerous required conditions, License No. 33 was

issued by the Bureau of Mines in favor of the herein petitioners.

On appeal to the Court of Appeals, herein petitioners asked whether PD 463

or the Mineral Resources Development Decree of 1974 had been violated by
the award of the 330.3062 hectares to respondents in accordance with
Proclamation No. 2204. They also questioned the validity of the cancellation
of respondents Quarry License/Permit (QLP) No. 33.

xxxxxxxxx

Ruling of the Court of Appeals

"Shortly after Respondent Ernesto R. Maceda was appointed Minister of the

Department of Energy and Natural Resources (DENR), petitioners License No.
33 was cancelled by him through his letter to ROSEMOOR MINING AND
DEVELOPMENT CORPORATION dated September 6, 1986 for the reasons
stated therein. Because of the aforesaid cancellation, the original petition was
filed and later substituted by the petitioners AMENDED PETITION dated
August 21, 1991 to assail the same.

Sustaining the trial court in toto, the CA held that the grant of the quarry
license covering 330.3062 hectares to respondents was authorized by law,
because the license was embraced by four (4) separate applications -- each for
an area of 81 hectares. Moreover, it held that the limitation under
Presidential Decree No. 463 -- that a quarry license should cover not more
than 100 hectares in any given province -- was supplanted by Republic Act No.
7942,7 which increased the mining areas allowed under PD 463.

"Also after due hearing, the prayer for injunctive relief was granted in the
Order of this Court dated February 28, 1992. Accordingly, the corresponding
preliminary writs were issued after the petitioners filed their injunction bond
in the amount of ONE MILLION PESOS (P1,000,000.00).

It also ruled that the cancellation of respondents license without notice and
hearing was tantamount to a deprivation of property without due process of
law. It added that under the clause in the Constitution dealing with the non-

xxxxxxxxx

impairment of obligations and contracts, respondents license must be

respected by the State.

provisions dealt with the lease of mining claims; quarry permits or licenses
covering privately owned or public lands; and other related provisions on
lease, licenses and permits.

Hence, this Petition.8

RA 7942 or the Philippine Mining Act of 1995 embodies the new constitutional
mandate. It has repealed or amended all laws, executive orders, presidential
decrees, rules and regulations -- or parts thereof -- that are inconsistent with
any of its provisions.16

Issues
Petitioners submit the following issues for the Courts consideration:
"(1) [W]hether or not QLP No. 33 was issued in blatant contravention of
Section 69, P.D. No. 463; and (2) whether or not Proclamation No. 84 issued
by then President Corazon Aquino is valid. The corollary issue is whether or
not the Constitutional prohibition against ex post facto law applies to
Proclamation No. 84"9
The Courts Ruling
The Petition has merit.
First
Validity of License

Issue:

Respondents contend that the Petition has no legal basis, because PD 463 has
already been repealed.10 In effect, they ask for the dismissal of the Petition on
the ground of mootness.
PD 463, as amended, pertained to the old system of exploration, development
and utilization of natural resources through licenses, concessions or
leases.11 While these arrangements were provided under the 193512 and the
197313 Constitutions, they have been omitted by Section 2 of Article XII of the
1987 Constitution.14
With the shift of constitutional policy toward "full control and supervision of
the State" over natural resources, the Court in Miners Association of the
Philippines v. Factoran Jr. 15 declared the provisions of PD 463 as contrary to
or violative of the express mandate of the 1987 Constitution. The said

It is relevant to state, however, that Section 2 of Article XII of the 1987

Constitution does not apply retroactively to a "license, concession or lease"
granted by the government under the 1973 Constitution or before the
effectivity of the 1987 Constitution on February 2, 1987.17 As noted in Miners
Association of the Philippines v. Factoran Jr., the deliberations of the
Constitutional Commission18 emphasized the intent to apply the said
constitutional provision prospectively.
While RA 7942 has expressly repealed provisions of mining laws that are
inconsistent with its own, it nonetheless respects previously issued valid and
existing licenses, as follows:
"SECTION 5. Mineral Reservations. When the national interest so
requires, such as when there is a need to preserve strategic raw
materials for industries critical to national development, or certain
minerals for scientific, cultural or ecological value, the President may
establish mineral reservations upon the recommendation of the
Director through the Secretary. Mining operations in existing mineral
reservations and such other reservations as may thereafter be
established, shall be undertaken by the Department or through a
contractor: Provided, That a small scale-mining cooperative covered
by Republic Act No. 7076 shall be given preferential right to apply for
a small-scale mining agreement for a maximum aggregate area of
twenty-five percent (25%) of such mineral reservation, subject to valid
existing mining/quarrying rights as provided under Section 112
Chapter XX hereof. All submerged lands within the contiguous zone

and in the exclusive economic zone of the Philippines are hereby

declared to be mineral reservations.

(c) In areas covered by valid and existing mining rights;

(d) In areas expressly prohibited by law;

"x x x x x x x x x
"SECTION 7. Periodic Review of Existing Mineral Reservations. The
Secretary shall periodically review existing mineral reservations for
the purpose of determining whether their continued existence is
consistent with the national interest, and upon his recommendation,
the President may, by proclamation, alter or modify the boundaries
thereof or revert the same to the public domain without prejudice to
prior existing rights."
"SECTION 18. Areas Open to Mining Operations. Subject to any
existing rights or reservations and prior agreements of all parties, all
mineral resources in public or private lands, including timber or
forestlands as defined in existing laws, shall be open to mineral
agreements or financial or technical assistance agreement
applications. Any conflict that may arise under this provision shall be
heard and resolved by the panel of arbitrators."
"SECTION 19. Areas Closed to Mining Applications. -- Mineral
agreement or financial or technical assistance agreement applications
shall not be allowed:
(a) In military and other government reservations, except
upon prior written clearance by the government agency
concerned;
(b) Near or under public or private buildings, cemeteries,
archeological and historic sites, bridges, highways, waterways,
railroads, reservoirs, dams or other infrastructure projects,
public or private works including plantations or valuable
crops, except upon written consent of the government agency
or private entity concerned;

(e) In areas covered by small-scale miners as defined by law

unless with prior consent of the small-scale miners, in which
case a royalty payment upon the utilization of minerals shall
be agreed upon by the parties, said royalty forming a trust
fund for the socioeconomic development of the community
concerned; and
(f) Old growth or virgin forests, proclaimed watershed forest
reserves, wilderness areas, mangrove forests, mossy forests,
national parks, provincial/municipal forests, parks, greenbelts,
game refuge and bird sanctuaries as defined by law and in
areas expressly prohibited under the National Integrated
Protected Areas System (NIPAS) under Republic Act No. 7586,
Department Administrative Order No. 25, series of 1992 and
other laws."
"SECTION 112. Non-impairment of Existing Mining/ Quarrying Rights.
All valid and existing mining lease contracts, permits/licenses,
leases pending renewal, mineral production-sharing agreements
granted under Executive Order No. 279, at the date of effectivity of
this Act, shall remain valid, shall not be impaired, and shall be
recognized by the Government: Provided, That the provisions of
Chapter XIV on government share in mineral production-sharing
agreement and of Chapter XVI on incentives of this Act shall
immediately govern and apply to a mining lessee or contractor unless
the mining lessee or contractor indicates his intention to the
secretary, in writing, not to avail of said provisions: Provided, further,
That no renewal of mining lease contracts shall be made after the
expiration of its term: Provided, finally, That such leases, productionsharing agreements, financial or technical assistance agreements shall

comply with the applicable provisions of this Act and its implementing
rules and regulations.

mineral site -- expressly cautioned that the grant was subject to "existing
policies, laws, rules and regulations."21

"SECTION 113. Recognition of Valid and Existing Mining Claims and

Lease/Quarry Application. Holders of valid and existing mining
claims, lease/quarry applications shall be given preferential rights to
enter into any mode of mineral agreement with the
government within two (2) years from the promulgation of the rules
and regulations implementing this Act." (Underscoring supplied)

The license was thus subject to Section 69 of PD 463, which reads:

Section 3(p) of RA 7942 defines an existing mining/quarrying right as "a valid

and subsisting mining claim or permit or quarry permit or any mining lease
contract or agreement covering a mineralized area granted/issued under
pertinent mining laws." Consequently, determining whether the license of
respondents falls under this definition would be relevant to fixing their
entitlement to the rights and/or preferences under RA 7942. Hence, the
present Petition has not been mooted.
Petitioners submit that the license clearly contravenes Section 69 of PD 463,
because it exceeds the maximum area that may be granted. This incipient
violation, according to them, renders the license void ab initio.

"Section 69. Maximum Area of Quarry License Notwithstanding the

provisions of Section 14 hereof, a quarry license shall cover an area of
not more than one hundred (100) hectares in any one province and
not more than one thousand (1,000) hectares in the entire
Philippines." (Italics supplied)
The language of PD 463 is clear. It states in categorical and mandatory terms
that a quarry license, like that of respondents, should cover a maximum of
100 hectares in any given province. This law neither provides any exception
nor makes any reference to the number of applications for a license. Section
69 of PD 463 must be taken to mean exactly what it says. Where the law is
clear, plain, and free from ambiguity, it must be given its literal meaning and
applied without attempted interpretation.22

Respondents, on the other hand, argue that the license was validly granted,
because it was covered by four separate applications for areas of 81 hectares
each.

Moreover, the lower courts ruling is evidently inconsistent with the fact that
QLP No. 33 was issued solely in the name of Rosemoor Mining and
Development Corporation, rather than in the names of the four individual
stockholders who are respondents herein. It likewise brushes aside a basic
postulate that a corporation has a separate personality from that of its
stockholders.23

The license in question, QLP No. 33,19 is dated August 3, 1982, and it was
issued in the name of Rosemoor Mining Development Corporation. The terms
of the license allowed the corporation to extract and dispose of marbleized
limestone from a 330.3062-hectare land in San Miguel, Bulacan. The license is,
however, subject to the terms and conditions of PD 463, the governing law at
the time it was granted; as well as to the rules and regulations promulgated
thereunder.20 By the same token, Proclamation No. 2204 -- which awarded to
Rosemoor the right of development, exploitation, and utilization of the

The interpretation adopted by the lower courts is contrary to the purpose of

Section 69 of PD 463. Such intent to limit, without qualification, the area of a
quarry license strictly to 100 hectares in any one province is shown by the
opening proviso that reads: "Notwithstanding the provisions of Section 14
hereof x x x." The mandatory nature of the provision is also underscored by
the use of the word shall. Hence, in the application of the 100-hectare-perprovince limit, no regard is given to the size or the number of mining claims
under Section 14, which we quote:

"SECTION 14. Size of Mining Claim. -- For purposes of registration of a

mining claim under this Decree, the Philippine territory and its shelf
are hereby divided into meridional blocks or quadrangles of one-half
minute (1/2) of latitude and longitude, each block or quadrangle
containing area of eighty-one (81) hectares, more or less.
"A mining claim shall cover one such block although a lesser area may
be allowed if warranted by attendant circumstances, such as
geographical and other justifiable considerations as may be
determined by the Director: Provided, That in no case shall the locator
be allowed to register twice the area allowed for lease under Section
43 hereof." (Italics supplied)
Clearly, the intent of the law would be brazenly circumvented by ruling that a
license may cover an area exceeding the maximum by the mere expediency of
filing several applications. Such ruling would indirectly permit an act that is
directly prohibited by the law.
Second
Validity of Proclamation No. 84

Issue:

Petitioners also argue that the license was validly declared a nullity and
consequently withdrawn or terminated. In a letter dated September 15, 1986,
respondents were informed by then Minister Ernesto M. Maceda that their
license had illegally been issued, because it violated Section 69 of PD 463; and
that there was no more public interest served by the continued existence or
renewal of the license. The latter reason, they added, was confirmed by the
language of Proclamation No. 84. According to this law, public interest would
be served by reverting the parcel of land that was excluded by Proclamation
No. 2204 to the former status of that land as part of the Biak-na-Bato national
park.
They also contend that Section 74 of PD 463 would not apply, because
Minister Macedas letter did not cancel or revoke QLP No. 33, but merely

declared the latters nullity. They further argue that respondents waived
notice and hearing in their application for the license.
On the other hand, respondents submit that, as provided for in Section 74 of
PD 463, their right to due process was violated when their license was
cancelled without notice and hearing. They likewise contend that
Proclamation No. 84 is not valid for the following reasons: 1) it violates the
clause on the non-impairment of contracts; 2) it is an ex post facto law and/or
a bill of attainder; and 3) it was issued by the President after the effectivity of
the 1987 Constitution.
This Court ruled on the nature of a natural resource exploration permit, which
was akin to the present respondents license, in Southeast Mindanao Gold
Mining Corporation v. Balite Portal Mining Cooperative,24which held:
"x x x. As correctly held by the Court of Appeals in its challenged
decision, EP No. 133 merely evidences a privilege granted by the
State, which may be amended, modified or rescinded when the
national interest so requires. This is necessarily so since the
exploration, development and utilization of the countrys natural
mineral resources are matters impressed with great public interest.
Like timber permits, mining exploration permits do not vest in the
grantee any permanent or irrevocable right within the purview of the
non-impairment of contract and due process clauses of the
Constitution, since the State, under its all-encompassing police power,
may alter, modify or amend the same, in accordance with the
demands of the general welfare."25
This same ruling had been made earlier in Tan v. Director of Forestry26 with
regard to a timber license, a pronouncement that was reiterated in Ysmael v.
Deputy Executive Secretary,27 the pertinent portion of which reads:
"x x x. Timber licenses, permits and license agreements are the
principal instruments by which the State regulates the utilization and
disposition of forest resources to the end that public welfare is

promoted. And it can hardly be gainsaid that they merely evidence a

privilege granted by the State to qualified entities, and do not vest in
the latter a permanent or irrevocable right to the particular
concession area and the forest products therein. They may be validly
amended, modified, replaced or rescinded by the Chief Executive
when national interests so require. Thus, they are not deemed
contracts within the purview of the due process of law clause [See
Sections 3(ee) and 20 of Pres. Decree No. 705, as amended. Also, Tan
v. Director of Forestry, G.R. No. L-24548, October 27, 1983, 125 SCRA
302]."28 (Italics supplied)
In line with the foregoing jurisprudence, respondents license may be revoked
or rescinded by executive action when the national interest so requires,
because it is not a contract, property or a property right protected by the due
process clause of the Constitution.29 Respondents themselves acknowledge
this condition of the grant under paragraph 7 of QLP No. 33, which we quote:
"7. This permit/license may be revoked or cancelled at any time by
the Director of Mines and Geo-Sciences when, in his opinion public
interests so require or, upon failure of the permittee/licensee to
comply with the provisions of Presidential Decree No. 463, as
amended, and the rules and regulations promulgated thereunder, as
well as with the terms and conditions specified herein; Provided, That
if a permit/license is cancelled, or otherwise terminated, the
permittee/licensee shall be liable for all unpaid rentals and royalties
due up to the time of the termination or cancellation of the
permit/license[.]"30 (Italics supplied)
The determination of what is in the public interest is necessarily vested in the
State as owner of all mineral resources. That determination was based on
policy considerations formally enunciated in the letter dated September 15,
1986, issued by then Minister Maceda and, subsequently, by the President
through Proclamation No. 84. As to the exercise of prerogative by Maceda,
suffice it to say that while the cancellation or revocation of the license is
vested in the director of mines and geo-sciences, the latter is subject to the

formers control as the department head. We also stress the clear prerogative
of the Executive Department in the evaluation and the consequent
cancellation of licenses in the process of its formulation of policies with regard
to their utilization. Courts will not interfere with the exercise of that discretion
without any clear showing of grave abuse of discretion.31
Moreover, granting that respondents license is valid, it can still be validly
revoked by the State in the exercise of police power.32 The exercise of such
power through Proclamation No. 84 is clearly in accord with jura regalia,
which reserves to the State ownership of all natural resources.33 This Regalian
doctrine is an exercise of its sovereign power as owner of lands of the public
domain and of the patrimony of the nation, the mineral deposits of which are
a valuable asset.34
Proclamation No. 84 cannot be stigmatized as a violation of the nonimpairment clause. As pointed out earlier, respondents license is not a
contract to which the protection accorded by the non-impairment clause may
extend.35 Even if the license were, it is settled that provisions of existing laws
and a reservation of police power are deemed read into it, because it
concerns a subject impressed with public welfare.36 As it is, the nonimpairment clause must yield to the police power of the state.37
We cannot sustain the argument that Proclamation No. 84 is a bill of
attainder; that is, a "legislative act which inflicts punishment without judicial
trial."38 Its declaration that QLP No. 33 is a patent nullity39 is certainly not a
declaration of guilt. Neither is the cancellation of the license a punishment
within the purview of the constitutional proscription against bills of attainder.
Too, there is no merit in the argument that the proclamation is an ex post
facto law. There are six recognized instances when a law is considered as
such: 1) it criminalizes and punishes an action that was done before the
passing of the law and that was innocent when it was done; 2) it aggravates a
crime or makes it greater than it was when it was committed; 3) it changes
the punishment and inflicts one that is greater than that imposed by the law
annexed to the crime when it was committed; 4) it alters the legal rules of

evidence and authorizes conviction upon a less or different testimony than

that required by the law at the time of the commission of the offense; 5) it
assumes the regulation of civil rights and remedies only, but in effect imposes
a penalty or a deprivation of a right as a consequence of something that was
considered lawful when it was done; and 6) it deprives a person accused of a
crime of some lawful protection to which he or she become entitled, such as
the protection of a former conviction or an acquittal or the proclamation of an
amnesty.40 Proclamation No. 84 does not fall under any of the enumerated
categories; hence, it is not an ex post facto law.
It is settled that an ex post facto law is limited in its scope only to matters
criminal in nature.41 Proclamation 84, which merely restored the area
excluded from the Biak-na-Bato national park by canceling respondents
license, is clearly not penal in character.
Finally, it is stressed that at the time President Aquino issued Proclamation
No. 84 on March 9, 1987, she was still validly exercising legislative powers
under the Provisional Constitution of 1986.42 Section 1 of Article II of
Proclamation No. 3, which promulgated the Provisional Constitution, granted
her legislative power "until a legislature is elected and convened under a new
Constitution." The grant of such power is also explicitly recognized and
provided for in Section 6 of Article XVII of the 1987 Constitution.43
WHEREFORE, this Petition is hereby GRANTED and the appealed Decision of
the Court of Appeals SET ASIDE. No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 168584

October 15, 2007

REPUBLIC OF THE PHILIPPINES, represented by THE HONORABLE SECRETARY

OF FINANCE, THE HONORABLE COMMISSIONER OF BUREAU OF INTERNAL
REVENUE, THE HONORABLE COMMISSIONER OF CUSTOMS, and THE
COLLECTOR OF CUSTOMS OF THE PORT OF SUBIC, petitioners,
vs.
HON. RAMON S. CAGUIOA, Presiding Judge, Branch 74, RTC, Third Judicial
Region, Olongapo City, INDIGO DISTRIBUTION CORP., herein represented by
ARIEL G. CONSOLACION, W STAR TRADING AND WAREHOUSING CORP.,
herein represented by HIERYN R. ECLARINAL, FREEDOM BRANDS PHILS.,
CORP., herein represented by ANA LISA RAMAT, BRANDED WAREHOUSE,
INC., herein represented by MARY AILEEN S. GOZUN, ALTASIA INC., herein
represented by ALAN HARROW, TAINAN TRADE (TAIWAN), INC., herein
represented by ELENA RANULLO, SUBIC PARK N SHOP, herein represented
by NORMA MANGALINO DIZON, TRADING GATEWAYS INTERNATIONAL
PHILS., herein represented by MA. CHARINA FE C. RODOLFO, DUTY FREE
SUPERSTORE (DFS), herein represented by RAJESH R. SADHWANI, CHJIMES
TRADING INC., herein represented by ANGELO MARK M. PICARDAL,
PREMIER FREEPORT, INC., herein represented by ROMMEL P. GABALDON,
FUTURE TRADE SUBIC FREEPORT, INC., herein represented by WILLIE S.
VERIDIANO, GRAND COMTRADE INTERNATIONAL CORP., herein represented
by JULIUS MOLINDA, and FIRST PLATINUM INTERNATIONAL, INC., herein
represented by ISIDRO M. MUOZ, respondents.
DECISION
CARPIO MORALES, J.:
Petitioners seek via petition for certiorari and prohibition to annul (1) the May
4, 2005 Order1 issued by public respondent Judge Ramon S. Caguioa of the
Regional Trial Court (RTC), Branch 74, Olongapo City, granting private
respondents application for the issuance of a writ of preliminary injunction

and (2) the Writ of Preliminary Injunction2 that was issued pursuant to such
Order, which stayed the implementation of Republic Act (R.A.) No. 9334, AN
ACT INCREASING THE EXCISE TAX RATES IMPOSED ON ALCOHOL AND
TOBACCO PRODUCTS, AMENDING FOR THE PURPOSE SECTIONS 131, 141, 142,
143, 144, 145 AND 288 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997,
AS AMENDED.
Petitioners likewise seek to enjoin, restrain and inhibit public respondent from
enforcing the impugned issuances and from further proceeding with the trial
of Civil Case No. 102-0-05.
The relevant facts are as follows:
In 1992, Congress enacted Republic Act (R.A) No. 72273 or the Bases
Conversion and Development Act of 1992 which, among other things, created
the Subic Special Economic and Freeport Zone (SBF4) and the Subic Bay
Metropolitan Authority (SBMA).
R.A. No. 7227 envisioned the SBF to be developed into a "self-sustaining,
industrial, commercial, financial and investment center to generate
employment opportunities in and around the zone and to attract and
promote productive foreign investments."5 In line with this vision, Section 12
of the law provided:
(b) The Subic Special Economic Zone shall be operated and managed
as a separate customs territory ensuring free flow or movement of
goods and capital within, into and exported out of the Subic Special
Economic Zone, as well as provide incentives such as tax and dutyfree importations of raw materials, capital and equipment.
However, exportation or removal of goods from the territory of the
Subic Special Economic Zone to the other parts of the Philippine
territory shall be subject to customs duties and taxes under the
Customs and Tariff Code and other relevant tax laws of the
Philippines;

(c) The provisions of existing laws, rules and regulations to the

contrary notwithstanding, no taxes, local and national, shall be
imposed within the Subic Special Economic Zone. In lieu of paying
taxes, three percent (3%) of the gross income earned by all businesses
and enterprises within the Subic Special Economic Zone shall be
remitted to the National Government, one percent (1%) each to the
local government units affected by the declaration of the zone in
proportion to their population area, and other factors. In addition,
there is hereby established a development fund of one percent (1%)
of the gross income earned by all businesses and enterprises within
the Subic Special Economic Zone to be utilized for the development of
municipalities outside the City of Olongapo and the Municipality of
Subic, and other municipalities contiguous to be base areas.
In case of conflict between national and local laws with respect to tax
exemption privileges in the Subic Special Economic Zone, the same
shall be resolved in favor of the latter;
(d) No exchange control policy shall be applied and free markets for
foreign exchange, gold, securities and future shall be allowed and
maintained in the Subic Special Economic Zone;
(e) The Central Bank, through the Monetary Board, shall supervise and
regulate the operations of banks and other financial institutions
within the Subic Special Economic Zone;
(f) Banking and finance shall be liberalized with the establishment of
foreign currency depository units of local commercial banks and
offshore banking units of foreign banks with minimum Central Bank
regulation;
(g) Any investor within the Subic Special Economic Zone whose
continuing investment shall not be less than Two hundred fifty
thousand dollars ($250,000), his/her spouse and dependent children
under twenty-one (21) years of age, shall be granted permanent

resident status within the Subic Special Economic Zone. They shall
have freedom of ingress and egress to and from the Subic Special
Economic Zone without any need of special authorization from the
Bureau of Immigration and Deportation. The Subic Bay Metropolitan
Authority referred to in Section 13 of this Act may also issue working
visas renewal every two (2) years to foreign executives and other
aliens possessing highly-technical skills which no Filipino within the
Subic Special Economic Zone possesses, as certified by the
Department of Labor and Employment. The names of aliens granted
permanent residence status and working visas by the Subic Bay
Metropolitan Authority shall be reported to the Bureau of
Immigration and Deportation within thirty (30) days after issuance
thereof;
x x x x. (Emphasis supplied)
Pursuant to the law, private respondents Indigo Distribution Corporation, W
Star Trading and Warehousing Corporation, Freedom Brands Philippines
Corporation, Branded Warehouse, Inc., Altasia, Inc., Tainan Trade (Taiwan)
Inc., Subic Park N Shop, Incorporated, Trading Gateways International
Philipines, Inc., Duty Free Superstore (DFS) Inc., Chijmes Trading, Inc., Premier
Freeport, Inc., Future Trade Subic Freeport, Inc., Grand Comtrade Intl., Corp.,
and First Platinum International, Inc., which are all domestic corporations
doing business at the SBF, applied for and were granted Certificates of
Registration and Tax Exemption6 by the SBMA.
These certificates allowed them to engage in the business either of trading,
retailing or wholesaling, import and export, warehousing, distribution and/or
transshipment of general merchandise, including alcohol and tobacco
products, and uniformly granted them tax exemptions for such importations
as contained in the following provision of their respective Certificates:
ARTICLE IV. The Company shall be entitled to tax and duty-free
importation of raw materials, capital equipment, and household and
personal items for use solely within the Subic Bay Freeport

Zone pursuant to Sections 12(b) and 12(c) of the Act and Sections 43,
45, 46 and 49 of the Implementing Rules. All importations by the
Company are exempt from inspection by the Societe Generale de
Surveillance if such importations are delivered immediately to and for
use solely within the Subic Bay Freeport Zone. (Emphasis supplied)
Congress subsequently passed R.A. No. 9334, however, effective on January 1,
2005,7 Section 6 of which provides:
Sec. 6. Section 131 of the National Internal Revenue Code of 1977, as
amended, is hereby amended to read as follows:
Sec. 131. Payment of Excise Taxes on Imported Articles.
(A) Persons Liable. Excise taxes on imported articles shall be paid by
the owner or importer to the Customs Officers, conformably with the
regulations of the Department of Finance and before the release of
such articles from the customshouse or by the person who is found in
possession of articles which are exempt from excise taxes other than
those legally entitled to exemption.
In the case of tax-free articles brought or imported into the
Philippines by persons, entities or agencies exempt from tax which are
subsequently sold, transferred or exchanged in the Philippines to nonexempt persons or entities, the purchasers or recipients shall be
considered the importers thereof, and shall be liable for the duty and
internal revenue tax due on such importation.
The provision of any special or general law to the contrary
notwithstanding, the importation of cigars and cigarettes, distilled
spirits, fermented liquors and wines into the Philippines, even if
destined for tax and duty free shops, shall be subject to all
applicable taxes, duties, charges, including excise taxes due thereon.
This shall apply to cigars and cigarettes, distilled spirits, fermented
liquors and wines brought directly into the duly chartered or

legislated freeports of the Subic Economic Freeport Zone, created

under Republic Act No. 7227; x x x and such other freeports as may
hereafter be established or created by law: Provided, further, That
importations of cigars and cigarettes, distilled spirits, fermented
liquors and wines made directly by a government-owned and
operated duty-free shop, like the Duty Free Philippines (DFP), shall be
exempted from all applicable duties only: x x x Provided, finally, That
the removal and transfer of tax and duty-free goods, products,
machinery, equipment and other similar articles other than cigars and
cigarettes, distilled spirits, fermented liquors and wines, from one
Freeport to another Freeport, shall not be deemed an introduction
into the Philippine customs territory. x x x. (Emphasis and
underscoring supplied)

corresponding duties and taxes on their importations of cigars, cigarettes,

liquors and wines before said items are cleared and released from the
freeport. However, certain SBF locators which were "exclusively engaged in
the transshipment of cigarette products for foreign destinations" were
allowed by the SBMA to process their import documents subject to their
submission of an Undertaking with the Bureau of Customs.12

On the basis of Section 6 of R.A. No. 9334, SBMA issued on January 10, 2005 a
Memorandum8 declaring that effective January 1, 2005, all importations of
cigars, cigarettes, distilled spirits, fermented liquors and wines into the SBF,
including those intended to be transshipped to other free ports in the
Philippines, shall be treated as ordinary importations subject to all applicable
taxes, duties and charges, including excise taxes.

Thus, private respondent enterprises, through their representatives, brought

before the RTC of Olongapo City a special civil action for declaratory relief14 to
have certain provisions of R.A. No. 9334 declared as unconstitutional, which
case was docketed as Civil Case No. 102-0-05.

Meanwhile, on February 3, 2005, former Bureau of Internal Revenue (BIR)

Commissioner Guillermo L. Parayno, Jr. requested then Customs
Commissioner George M. Jereos to immediately collect the excise tax due on
imported alcohol and tobacco products brought to the Duty Free Philippines
(DFP) and Freeport zones.9
Accordingly, the Collector of Customs of the port of Subic directed the SBMA
Administrator to require payment of all appropriate duties and taxes on all
importations of cigars and cigarettes, distilled spirits, fermented liquors and
wines; and for all transactions involving the said items to be covered from
then on by a consumption entry and no longer by a warehousing entry.10
On February 7, 2005, SBMA issued a Memorandum11 directing the
departments concerned to require locators/importers in the SBF to pay the

On February 15, 2005, private respondents wrote the offices of respondent

Collector of Customs and the SBMA Administrator requesting for a
reconsideration of the directives on the imposition of duties and taxes,
particularly excise taxes, on their shipments of cigars, cigarettes, wines and
liquors.13 Despite these letters, however, they were not allowed to file any
warehousing entry for their shipments.

In the main, private respondents submitted that (1) R.A. No. 9334 should not
be interpreted as altering, modifying or amending the provisions of R.A. No.
7227 because repeals by implication are not favored; (2) a general law like
R.A. No. 9334 cannot amend R.A. No. 7727, which is a special law; and (3) the
assailed law violates the one bill-one subject rule embodied in Section 26(1),
Article VI15 of the Constitution as well as the constitutional proscription
against the impairment of the obligation of contracts.16
Alleging that great and irreparable loss and injury would befall them as a
consequence of the imposition of taxes on alcohol and tobacco products
brought into the SBF, private respondents prayed for the issuance of a writ of
preliminary injunction and/or Temporary Restraining Order (TRO) and
preliminary mandatory injunction to enjoin the directives of herein
petitioners.

Petitioners duly opposed the private respondents prayer for the issuance of a
writ of preliminary injunction and/or TRO, arguing that (1) tax exemptions are
not presumed and even when granted, are strictly construed against the
grantee; (2) an increase in business expense is not the injury contemplated by
law, it being a case of damnum absque injuria; and (3) the drawback
mechanism established in the law clearly negates the possibility of the feared
injury.17
Petitioners moreover pointed out that courts are enjoined from issuing a writ
of injunction and/or TRO on the grounds of an alleged nullity of a law,
ordinance or administrative regulation or circular or in a manner that would
effectively dispose of the main case. Taxes, they stressed, are the lifeblood of
the government and their prompt and certain availability is an imperious
need. They maintained that greater injury would be inflicted on the public
should the writ be granted.
On May 4, 2005, the court a quo granted private respondents application for
the issuance of a writ of preliminary injunction, after it found that the
essential requisites for the issuance of a preliminary injunction were present.
As investors duly licensed to operate inside the SBF, the trial court declared
that private respondents were entitled to enjoy the benefits of tax incentives
under R.A. No. 7227, particularly the exemption from local and national taxes
under Section 12(c); the aforecited provision of R.A. No. 7227, coupled with
private respondents Certificates of Registration and Tax Exemption from the
SBMA, vested in them a clear and unmistakable right or right in esse that
would be violated should R.A. No. 9334 be implemented; and the invasion of
such right is substantial and material as private respondents would be
compelled to pay more than what they should by way of taxes to the national
government.
The trial court thereafter ruled that the prima facie presumption of validity of
R.A. No. 9334 had been overcome by private respondents, it holding that as a
partial amendment of the National Internal Revenue Code (NIRC) of 1997,18 as
amended, R.A. No. 9334 is a general law that could not prevail over a special

statute like R.A. No. 7227 notwithstanding the fact that the assailed law is of
later effectivity.
The trial court went on to hold that the repealing provision of Section 10 of
R.A. No. 9334 does not expressly mention the repeal of R. A. No. 7227, hence,
its repeal can only be an implied repeal, which is not favored; and since R.A.
No. 9334 imposes new tax burdens, whatever doubts arising therefrom should
be resolved against the taxing authority and in favor of the taxpayer.
The trial court furthermore held that R.A. No. 9334 violates the terms and
conditions of private respondents subsisting contracts with SBMA, which are
embodied in their Certificates of Registration and Exemptions in
contravention of the constitutional guarantee against the impairment of
contractual obligations; that greater damage would be inflicted on private
respondents if the writ of injunction is not issued as compared to the injury
that the government and the general public would suffer from its issuance;
and that the damage that private respondents are bound to suffer once the
assailed statute is implemented including the loss of confidence of their
foreign principals, loss of business opportunity and unrealized income, and
the danger of closing down their businesses due to uncertainty of continued
viability cannot be measured accurately by any standard.
With regard to the rule that injunction is improper to restrain the collection of
taxes under Section 21819 of the NIRC, the trial court held that what is sought
to be enjoined is not per se the collection of taxes, but the implementation of
a statute that has been found preliminarily to be unconstitutional.
Additionally, the trial court pointed out that private respondents taxes have
not yet been assessed, as they have not filed consumption entries on all their
imported tobacco and alcohol products, hence, their duty to pay the
corresponding excise taxes and the concomitant right of the government to
collect the same have not yet materialized.
On May 11, 2005, the trial court issued a Writ of Preliminary Injunction
directing petitioners and the SBMA Administrator as well as all persons

assisting or acting for and in their behalf "1) to allow the operations of
[private respondents] in accordance with R.A. No. 7227; 2) to allow [them] to
file warehousing entries instead of consumption entries as regards their
importation of tobacco and alcohol products; and 3) to cease and desist from
implementing the pertinent provisions of R.A. No. 9334 by not compelling
[private respondents] to immediately pay duties and taxes on said alcohol and
tobacco products as a condition to their removal from the port area for
transfer to the warehouses of [private respondents]."20
The injunction bond was approved at One Million pesos (P1,000,000).

21

Without moving for reconsideration, petitioners have come directly to this

Court to question the May 4, 2005 Order and the Writ of Preliminary
Injunction which, they submit, were issued by public respondent with grave
abuse of discretion amounting to lack or excess of jurisdiction.
In particular, petitioners contend that public respondent peremptorily and
unjustly issued the injunctive writ despite the absence of the legal requisites
for its issuance, resulting in heavy government revenue losses.22 They
emphatically argue that since the tax exemption previously enjoyed by private
respondents has clearly been withdrawn by R.A. No. 9334, private
respondents do not have any right in esse nor can they invoke legal injury to
stymie the enforcement of R.A. No. 9334.
Furthermore, petitioners maintain that in issuing the injunctive writ, public
respondent showed manifest bias and prejudice and prejudged the merits of
the case in utter disregard of the caveat issued by this Court in Searth
Commodities Corporation, et al. v. Court of Appeals23 and Vera v. Arca.24
Regarding the P1 million injunction bond fixed by public respondent,
petitioners argue that the same is grossly disproportionate to the damages
that have been and continue to be sustained by the Republic.
25

In their Reply to private respondents Comment, petitioners additionally

plead public respondents bias and partiality in allowing the motions for

intervention of a number of corporations26 without notice to them and in

disregard of their present pending petition for certiorari and prohibition
before this Court. The injunction bond filed by private respondent Indigo
Distribution Corporation, they stress, is not even sufficient to cover all the
original private respondents, much less, intervenor-corporations.
The petition is partly meritorious.
At the outset, it bears emphasis that only questions relating to the propriety
of the issuance of the May 4, 2005 Order and the Writ of Preliminary
Injunction are properly within the scope of the present petition and shall be
so addressed in order to determine if public respondent committed grave
abuse of discretion. The arguments raised by private respondents which
pertain to the constitutionality of R.A. No. 9334 subject matter of the case
pending litigation before the trial court have no bearing in resolving the
present petition.
Section 3 of Rule 58 of the Revised Rules of Court provides:
SEC. 3. Grounds for issuance of preliminary injunction. A preliminary
injunction may be granted when it is established.
(a) That the applicant is entitled to the relief demanded, and the
whole or part of such relief consists in restraining the commission or
continuance of the act or acts complained of, or in requiring the
performance of an act or acts, either for a limited period or
perpetually;
(b) That the commission, continuance or non-performance of the act
or acts complained of during the litigation would probably work
injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is
attempting to do, or is procuring or suffering to be done, some act or
acts probably in violation of the rights of the applicant respecting the

subject of the action or proceeding, and tending to render the

judgment ineffectual.
For a writ of preliminary injunction to issue, the plaintiff must be able to
establish that (1) there is a clear and unmistakable right to be protected, (2)
the invasion of the right sought to be protected is material and substantial,
and (3) there is an urgent and paramount necessity for the writ to prevent
serious damage.27
Conversely, failure to establish either the existence of a clear and positive
right which should be judicially protected through the writ of injunction, or of
the acts or attempts to commit any act which endangers or tends to endanger
the existence of said right, or of the urgent need to prevent serious damage, is
a sufficient ground for denying the preliminary injunction.28
It is beyond cavil that R.A. No. 7227 granted private respondents exemption
from local and national taxes, including excise taxes, on their importations of
general merchandise, for which reason they enjoyed tax-exempt status until
the effectivity of R.A. No. 9334.

Officers, conformably with the regulations Officers, conformably with

of the Department of Finance and before of the Department of Fina
the release of such articles from the the release of such arti
customs house or by the person who is customs house or by the
found in possession of articles which are found in possession of art
exempt from excise taxes other than those exempt from excise taxes o
legally entitled to exemption.
legally entitled to exemptio

In the case of tax-free articles brought or In the case of tax-free arti

imported into the Philippines by persons, imported into the Philippin
entities or agencies exempt from tax entities or agencies exe
which are subsequently sold, transferred which are subsequently so
or exchanged in the Philippines to non- or exchanged in the Phili
exempt persons or entities, the purchasers exempt persons or entities,
or recipients shall be considered the or recipients shall be c
importers thereof, and shall be liable for importers thereof, and sha
the duty and internal revenue tax due on the duty and internal reve
such importation.
such importation.

The provision of any special or general law The provision of any spe
to the contrary notwithstanding, the law to the contrary notwit
importation of cigars and cigarettes, importation of cigars a
distilled spirits, fermented liquors and distilled spirits, fermente
wines into the Philippines, even if destined wines into the Philipp
for tax and duty free shops, shall be destined for tax and duty f
subject to all applicable taxes, duties, be subject to all applicable
x x x x.
charges, including excise taxes due charges, including excis
thereon. Provided, however, That this thereon. This shall apply t
Sec. 131 of NIRC before R.A. No. 9334
Sec. 131, as amended by R.A. No. 9334
shall not apply to cigars and cigarettes, cigarettes, distilled spirit
Sec. 131. Payment of Excise Taxes on Sec. 131. Payment of Excise Taxes fermented
on
spirits and wines brought liquors and wines brough
Imported Articles.
Imported Articles.
directly into the duly chartered or the duly chartered or legis
legislated freeports of the Subic Economic of the Subic Economic F
(A) Persons Liable. Excise taxes on (A) Persons Liable. Excise taxes on
Freeport Zone, created under Republic created under Republic Ac
imported articles shall be paid by the imported articles shall be paid by the
Act No. 7227; the Cagayan Special Cagayan Special Econom
owner or importer to the Customs owner or importer to the Customs
Economic Zone and Freeport, created Freeport, created under Re

By subsequently enacting R.A. No. 9334, however, Congress expressed its

intention to withdraw private respondents tax exemption privilege on their
importations of cigars, cigarettes, distilled spirits, fermented liquors and
wines. Juxtaposed to show this intention are the respective provisions of
Section 131 of the NIRC before and after its amendment by R.A. No. 9334:

under Republic Act No. 7922; and the 7922; and the Zamboanga City Special
x x x x.
Zamboanga City Special Economic Zone, Economic Zone, created under Republic
(Emphasisasand underscoring supplied)
created under Republic Act No. 7903, and Act No. 7903, and such other freeports
are not transshipped to any other port in may hereafter be established or created
note, the old
Section 131 of the NIRC expressly provided that all taxes,
the Philippines: Provided, further, That by
law: Provided, To further,
That
duties,
including excise taxes shall not apply to importations of cigars,
importations of cigars and cigarettes, importations of cigars
andcharges,
cigarettes,
cigarettes,
fermented
spirits and wines brought directly into the duly
distilled spirits, fermented liquors and distilled spirits, fermented
liquors
and
or legislated freeports of the SBF.
wines made directly by a government- wines made directly chartered
by a governmentowned and operated duty-free shop, like owned and operated duty-free shop, like
On the
other
hand,
the Duty Free Philippines (DFP), shall be the Duty Free Philippines
(DFP),
shall
be Section 131, as amended by R.A. No. 9334, now provides
such taxes,
duties and charges, including excise taxes, shall apply to
exempted from all applicable duties, exempted from all that
applicable
duties
importation
cigars and cigarettes, distilled spirits, fermented liquors and
charges, including excise tax due only: Provided still further,
Thatof such
wines into the
thereon; Provided still further, That such articles
directly
imported
bySBF.a
articles
directly
imported
by
a government-owned and operated dutyWithoutPhilippines,
necessarily passing upon the validity of the withdrawal of the tax
government-owned and operated duty- free shop, like the Duty-Free
exemption
privileges
free shop, like the Duty-Free Philippines, shall be labeled "tax and
duty-free"
and of private respondents, it behooves this Court to state
certain
basic
and observations that should throw light on the
shall be labeled "tax and duty-free" and "not for resale": Provided,
finally,
Thatprinciples
the
propriety
the issuance of the writ of preliminary injunction in this case.
"not for resale": Provided, still further, removal and transfer of
tax and of
duty-free
That if such articles brought into the duly goods, products, machinery, equipment
First. Every presumption must be indulged in favor of the constitutionality of a
chartered or legislated freeports under and other similar articles other29than cigars
statute. The burden of proving the unconstitutionality of a law rests on the
Republic Acts Nos. 7227, 7922 and 7903 and cigarettes, distilled spirits, fermented
party assailing the law.30 In passing upon the validity of an act of a co-equal
are subsequently introduced into the liquors and wines, from one Freeport to
and coordinate branch of the government, courts must ever be mindful of the
Philippine customs territory, then such another Freeport, shall not be deemed an
time-honored principle that a statute is presumed to be valid.
articles shall, upon such introduction, be introduction into the Philippine customs
deemed imported into the Philippines and territory.
Second. There is no vested right in a tax exemption, more so when the latest
shall be subject to all imposts and excise
expression of legislative intent renders its continuance doubtful. Being a mere
taxes provided herein and other statutes: x x x x.
statutory privilege,31 a tax exemption may be modified or withdrawn at will by
Provided, finally, That the removal and
the granting authority.32
transfer of tax and duty-free goods,
products, machinery, equipment and
To state otherwise is to limit the taxing power of the State, which is unlimited,
other similar articles, from one freeport to
plenary, comprehensive and supreme. The power to impose taxes is one so
another freeport, shall not be deemed an
unlimited in force and so searching in extent, it is subject only to restrictions
introduction into the Philippine customs
which rest on the discretion of the authority exercising it.33
territory.

Third. As a general rule, tax exemptions are construed strictissimi juris against
the taxpayer and liberally in favor of the taxing authority.34 The burden of
proof rests upon the party claiming exemption to prove that it is in fact
covered by the exemption so claimed.35 In case of doubt, non-exemption is
favored.36
Fourth. A tax exemption cannot be grounded upon the continued existence of
a statute which precludes its change or repeal.37 Flowing from the basic
precept of constitutional law that no law is irrepealable, Congress, in the
legitimate exercise of its lawmaking powers, can enact a law withdrawing a
tax exemption just as efficaciously as it may grant the same under Section
28(4) of Article VI38 of the Constitution. There is no gainsaying therefore that
Congress can amend Section 131 of the NIRC in a manner it sees fit, as it did
when it passed R.A. No. 9334.
Fifth. The rights granted under the Certificates of Registration and Tax
Exemption of private respondents are not absolute and unconditional as to
constitute rights in esse those clearly founded on or granted by law or is
enforceable as a matter of law.39
These certificates granting private respondents a "permit to operate" their
respective businesses are in the nature of licenses, which the bulk of
jurisprudence considers as neither a property nor a property right.40 The
licensee takes his license subject to such conditions as the grantor sees fit to
impose, including its revocation at pleasure.41 A license can thus be revoked at
any time since it does not confer an absolute right.42
While the tax exemption contained in the Certificates of Registration of
private respondents may have been part of the inducement for carrying on
their businesses in the SBF, this exemption, nevertheless, is far from being
contractual in nature in the sense that the non-impairment clause of the
Constitution can rightly be invoked.43
Sixth. Whatever right may have been acquired on the basis of the Certificates
of Registration and Tax Exemption must yield to the States valid exercise of

police power.44 It is well to remember that taxes may be made the implement
of the police power.45
It is not difficult to recognize that public welfare and necessity underlie the
enactment of R.A. No. 9334. As petitioners point out, the now assailed
provision was passed to curb the pernicious practice of some unscrupulous
business enterprises inside the SBF of using their tax exemption privileges for
smuggling purposes. Smuggling in whatever form is bad enough; it is worse
when the same is allegedly perpetrated, condoned or facilitated by
enterprises hiding behind the cloak of their tax exemption privileges.
Seventh. As a rule, courts should avoid issuing a writ of preliminary injunction
which would in effect dispose of the main case without trial.46 This rule is
intended to preclude a prejudgment of the main case and a reversal of the
rule on the burden of proof since by issuing the injunctive writ, the court
would assume the proposition that petitioners are inceptively duty bound to
prove.47
Eighth. A court may issue a writ of preliminary injunction only when the
petitioner assailing a statute has made out a case of unconstitutionality or
invalidity strong enough, in the mind of the judge, to overcome the
presumption of validity, in addition to a showing of a clear legal right to the
remedy sought.48
Thus, it is not enough that petitioners make out a case of unconstitutionality
or invalidity to overcome the prima facie presumption of validity of a statute;
they must also be able to show a clear legal right that ought to be protected
by the court. The issuance of the writ is therefore not proper when the
complainants right is doubtful or disputed.49
Ninth. The feared injurious effects of the imposition of duties, charges and
taxes on imported cigars, cigarettes, distilled spirits, fermented liquors and
wines on private respondents businesses cannot possibly outweigh the dire
consequences that the non-collection of taxes, not to mention the unabated
smuggling inside the SBF, would wreak on the government. Whatever damage

would befall private respondents must perforce take a back seat to the
pressing need to curb smuggling and raise revenues for governmental
functions.
All told, while the grant or denial of an injunction generally rests on the sound
discretion of the lower court, this Court may and should intervene in a clear
case of abuse.50
One such case of grave abuse obtained in this case when public respondent
issued his Order of May 4, 2005 and the Writ of Preliminary Injunction on May
11, 200551 despite the absence of a clear and unquestioned legal right of
private respondents.
In holding that the presumption of constitutionality and validity of R.A. No.
9334 was overcome by private respondents for the reasons public respondent
cited in his May 4, 2005 Order, he disregarded the fact that as a condition sine
qua non to the issuance of a writ of preliminary injunction, private
respondents needed also to show a clear legal right that ought to be
protected. That requirement is not satisfied in this case.
To stress, the possibility of irreparable damage without proof of an actual
existing right would not justify an injunctive relief.52
Besides, private respondents are not altogether lacking an appropriate relief
under the law. As petitioners point out in their Petition53 before this Court,
private respondents may avail themselves of a tax refund or tax credit should
R.A. No. 9334 be finally declared invalid.
Indeed, Sections 20454 and 22955 of the NIRC provide for the recovery of
erroneously or illegally collected taxes which would be the nature of the
excise taxes paid by private respondents should Section 6 of R.A. No. 9334 be
declared unconstitutional or invalid.
It may not be amiss to add that private respondents can also opt not to
import, or to import less of, those items which no longer enjoy tax exemption
under R.A. No. 9334 to avoid the payment of taxes thereon.

The Court finds that public respondent had also ventured into the delicate
area which courts are cautioned from taking when deciding applications for
the issuance of the writ of preliminary injunction. Having ruled preliminarily
against the prima facie validity of R.A. No. 9334, he assumed in effect the
proposition that private respondents in their petition for declaratory relief
were duty bound to prove, thereby shifting to petitioners the burden of
proving that R.A. No. 9334 is not unconstitutional or invalid.
In the same vein, the Court finds public respondent to have overstepped his
discretion when he arbitrarily fixed the injunction bond of the SBF enterprises
at only P1million.
The alleged sparseness of the testimony of Indigo Corporations
representative56 on the injury to be suffered by private respondents may be
excused because evidence for a preliminary injunction need not be conclusive
or complete. Nonetheless, considering the number of private respondent
enterprises and the volume of their businesses, the injunction bond is
undoubtedly not sufficient to answer for the damages that the government
was bound to suffer as a consequence of the suspension of the
implementation of the assailed provisions of R.A. No. 9334.
Rule 58, Section 4(b) provides that a bond is executed in favor of the party
enjoined to answer for all damages which it may sustain by reason of the
injunction. The purpose of the injunction bond is to protect the defendant
against loss or damage by reason of the injunction in case the court finally
decides that the plaintiff was not entitled to it, and the bond is usually
conditioned accordingly.57
Recalling this Courts pronouncements in Olalia v. Hizon58 that:
x x x [T]here is no power the exercise of which is more delicate, which
requires greater caution, deliberation and sound discretion, or more
dangerous in a doubtful case, than the issuance of an injunction. It is
the strong arm of equity that should never be extended unless to

cases of great injury, where courts of law cannot afford an adequate

or commensurate remedy in damages.
Every court should remember that an injunction is a limitation upon
the freedom of action of the defendant and should not be granted
lightly or precipitately. It should be granted only when the court is
fully satisfied that the law permits it and the emergency demands it,

The assailed Order and Writ of Preliminary Injunction are hereby

declared NULL AND VOID and accordingly SET ASIDE. The writ of prohibition
prayed for is, however, DENIED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

it cannot be overemphasized that any injunction that restrains the collection

of taxes, which is the inevitable result of the suspension of the
implementation of the assailed Section 6 of R.A. No. 9334, is a limitation upon
the right of the government to its lifeline and wherewithal.

FIRST DIVISION

The power to tax emanates from necessity; without taxes, government cannot
fulfill its mandate of promoting the general welfare and well-being of the
people.59 That the enforcement of tax laws and the collection of taxes are of
paramount importance for the sustenance of government has been
repeatedly observed. Taxes being the lifeblood of the government that should
be collected without unnecessary hindrance,60 every precaution must be
taken not to unduly suppress it.

G.R. No. L-56450 July 25, 1983

Whether this Court must issue the writ of prohibition, suffice it to stress that
being possessed of the power to act on the petition for declaratory relief,
public respondent can proceed to determine the merits of the main case. To
halt the proceedings at this point may be acting too prematurely and would
not be in keeping with the policy that courts must decide controversies on the
merits.

Salvador A. Cabaluna, Jr. and Jose W. Diokno for petitioners.

Moreover, lacking the requisite proof of public respondents alleged partiality,

this Court has no ground to prohibit him from proceeding with the case for
declaratory relief. For these reasons, prohibition does not lie.

May the respondent court order that a mortgage on real property be

substituted by a surety bond and direct the Register of Deeds to cancel the
mortgage lien annotated on the Torrens Title since the surety bond already
secures the obligation earlier secured by the cancelled mortgage?

WHEREFORE, the Petition is PARTLY GRANTED. The writ of certiorari to nullify

and set aside the Order of May 4, 2005 as well as the Writ of Preliminary
Injunction issued by respondent Judge Caguioa on May 11, 2005 is GRANTED.

RODOLFO T. GANZON and GREGORIO L. LIRA, in his capacity as Ex-Oficio

Provincial Sheriff of Iloilo, petitioners,
vs.
THE HONORABLE SANCHO Y. INSERTO, Presiding Judge, Branch I of the Court
of First Instance of Iloilo, RANDOLPH C. TAJANLANGIT and ESTEBAN C.
TAJANLANGIT, respondents.

Hannibal de los Reyes for private respondent.

GUTIERREZ, JR., J.:

The petitioner comes to us stating that the lower court acted with grave
abuse of discretion and in excess of its jurisdiction in so ruling.

On August 28, 1979, petitioner Rodolfo Ganzon initiated proceedings to extrajudicially foreclose a real estate mortgage executed by the private
respondents in his favor. The Deed of Real Estate Mortgage executed on
March 19, 1979 (Annex "A", Petition) between Randolph Tajanlangit and
Esteban Tajanlangit as mortgagors on one hand and Rodolfo Ganzon as
mortgagee on the other hand was to secure the payment by the Tajanlangits
of a promissory note amounting to P40,000.00 in favor of Ganzon, to wit:
xxx xxx xxx
That whereas, the MORTGAGORS are justly indebted to the
MORTGAGEE in the amount of FORTY THOUSAND
(P40,000.00) PESOS, Philippine Currency, as evidenced by
their promissory note for said sum, in the words and figures
as follows:
P40,000.00
March 19, 1979

Iloilo

City

For value received, we promise to pay RODOLFO T. GANZON,

or order, at his residence in Molo, Iloilo City, the sum of
FORTY THOUSAND (P40,000.00) PESOS, Philippine Currency,
in two (2) installments as follows: P20,000.00 on or before 25
May 1979; and P20,000.00 on or before 25 August 1979. This
note shall not draw interest. (Annex "A", Rollo, p. 15)
The mortgage covered a parcel of residential land, Lot No. 1901-E-61-B-1- F of
the subdivision plan Psd-274802, located in the District of Molo, Iloilo City
covered by Transfer Certificate of Title No. T-50324.
Thereafter, petitioner Gregorio Lira, in his capacity as ex-oficio provincial
sheriff of Iloilo served personal notice of the foreclosure proceedings on the
private respondents. Lira also caused the publication in a newspaper of
general circulation in the City and Province of Iloilo of a Notice of Extra Judicial
Sale of Mortgaged Property, setting the sale at public auction of the

mortgaged property at 10:00 a.m. on September 28, 1979, at his office at the
Provincial Capitol, Iloilo City.
On September 27, 1979, a day before the scheduled public auction, the
private respondents filed a civil action for specific performance, damages, and
prohibition with preliminary injunction against the petitioners with the
respondent court. The action, docketed as CFI Case No. 13053, sought to
declare the extrajudicial foreclosure proceedings and all proceedings taken in
connection therewith null and void. The private respondents asked for the
issuance of a writ of preliminary injunction to enjoin the petitioners from
proceeding with the foreclosure and public auction sale. Acting on the urgent
ex-parte motion of private respondents, the trial court issued an order
enjoining the provincial sheriff from proceeding with the scheduled auction
sale on September 28, 1979.
On October 31, 1979, the private respondents filed an amended complaint.
For purposes of the instant petition, the pertinent allegations in the amended
complaint are the following: (1) On August 25, 1978, defendant, now
petitioner Rodolfo Ganzon executed a deed of absolute sale of a parcel of land
in favor of plaintiff, now respondent Esteban Tajanlangit. The parcel of land,
subject of the sale is described as Lot No. 1900 of the Cadastral Survey of Iloilo
located at Molo, Iloilo City covered by Transfer Certificate of Title No. T39579 with an area of 24,442 square meters, more or less; (2) The deed of
real estate mortgage which is the subject of the extra-judicial proceedings
initiated by defendant Rodolfo Ganzon executed by plaintiffs Esteban
Tajanlangit and Randolph Tajanlangit in his favor was for the purpose of
securing the payment of P40,000.00 which formed part of the purchase price
of Lot No. 1900; (3) Incorporated in the aforesaid deed of absolute sale was a
proviso to the effect that vendor-defendant Rodolfo Ganzon guaranteed to
have the occupants of the lot to vacate the premises within 120 days after the
execution thereof, to wit:
xxx xxx xxx

The vendor warrants to the vendee peaceful possession of the

above- mentioned parcel of land and that the said vendor
shall see to it that all occupants thereof at the execution of
this deed shall vacate the premises within a period of one
hundred twenty (120) days computed from the date of the
execution of this document.
(4) The aforestated guaranty was violated by defendant Ganzon since the
occupants of the said lot up to the present are still within the premises of the
lot; and (5) The extra-judicial foreclosure is illegal since defendant Ganzon
committed a breach in his warranty and the deed of real estate mortgage
does not contain any stipulation authorizing mortgagee Ganzon to
extrajudicially foreclose the mortgaged property.
On March 28, 1980 the petitioners filed their answer to the amended
complaint. They admitted the veracity of the deed of absolute sale covering
said Lot No. 1900 but denied that the real estate mortgage covering Lot No.
1901 subject of the extra-judicial foreclosure proceedings was executed by
Esteban Tajanlangit and Randolph Tajanlangit in favor of Rodolfo Ganzon to
secure the payment of the balance of the purchase price of Lot No. 1900. They
maintained that the real estate mortgage was an entirely different transaction
between the Tajanlangits and Ganzon from the sale of Lot No. 1900 embodied
in the absolute deed of sale of realty. They further maintained that the extrajudicial foreclosure proceedings would be in accordance with the terms and
conditions of the said mortgage.
After the issues had been joined but before actual trial, the private
respondents filed a "Motion For Release Of Real Estate And For The Clerk Of
Court To Accept Bond Or Cash In Lieu Thereof," to which the petitioners
interposed an Opposition.
In an order dated November 20, 1980, the respondent court granted the
respondents' motion. The order states:

This is a Motion for Release of Real Estate Mortgage and for

the Clerk of Court to Accept Bond or Cash in Lieu Thereof.
It appears that defendant sold to Esteban Tajanlangit, Jr. Lot
No. 1900 of the Cadastral Survey of Iloilo under Transfer
Certificate of Title No. T- 39579. The document of sale
provides that the vendee who is the defendant herein,
promised to exclude from the premises the occupants. To
secure the unpaid balance of P40,000.00, plaintiffs executed a
real estate mortgage on their Lot No. 1901-4-61-B-1-1 of the
subdivision plan Psd-274802. Because defendant failed to
clear the occupants of Lot No. 1900, as provided for in the
contract of sale, plaintiffs withheld payment of the
P40,000.00. To clear the title of Lot No. 1901-E-61-B-1-1
plaintiffs are willing to submit a bond in the sum of
P80,000.00 which is double the consideration of the
mortgage.
WHEREFORE, in the interest of justice, considering that
plaintiffs are willing and able to pay the P40,000.00 and
considering further that defendant has not yet cleared the
premises he sold to plaintiffs of tenants, the Register of Deeds
of Iloilo City is ordered to cancel the mortgage lien on
Transfer Certificate of Title No. T-50324, upon showing by the
plaintiffs that they have put up the surety bond in the sum of
P80,000.00. " (Annex "F", Rollo, p. 58)
On January 28, 1981, the respondents after receipt of the aforesaid order, put
up a surety bond in the amount of P80,000.00 with the Summa Insurance
Corporation as surety (Annex " G ") for the approval of the respondent court,
On February 14, 1981, the petitioners filed an Urgent Motion for
Reconsideration Of The Order Dated November 20, 1980, And Opposition To
The Approval of Surety Bond.

The respondent court in its order dated February 24, 1981, denied the
aforesaid motion. The order states:
Finding the motion filed by plaintiff through counsel for
approval of surety bond well taken and considering that the
opposition filed by defendants does not question the validity
of the surety bond itself but is anchored upon grounds that
had already been passed upon by this Court in the order
dated November 20, 1980, the surety bond in the amount of
P80,000.00 issued by Summa Insurance Corporation is hereby
approved.
The defendant Rodolfo T. Ganzon, through Atty. Salvador
Cabaluna, Jr., is hereby ordered to surrender to the plaintiffs,
through Atty. Hannibal de los Reyes the owner's copy of TCT
No. 50324, so that the mortgage annotated therein in favor of
defendant Rodolfo T. Ganzon could be duly cancelled. (Annex
"I", Rollo, p. 65).
Hence, the instant petition.
On March 18, 198 1, we issued a temporary restraining order enjoining the
respondents from enforcing the orders dated November 20, 1980 and
February 24, 1981 of the Court of First Instance of Iloilo, Branch I at Iloilo City.

judicial foreclosure proceedings was indeed a security for the payment of a

P40,000.00 promissory note which answered for the balance of the purchase
price of the sale between Ganzon as vendor and Esteban Tajanlangit was
vendee of Lot No. 1900. With this assumption, the trial court concluded that
Rodolfo Ganzon violated his warranty that he would clear the parcel of land of
its occupants within 120 days after the execution of the deed of absolute sale
of realty. On this premise and upon motion of the private respondents, the
court ordered the Register of Deeds to cancel the mortgage lien annotated in
the Transfer Certificate of Title covering the mortgaged parcel of land and to
substitute therein a surety bond approved by the trial court.
It must be noted that petitioner Rodolfo Ganzon vehemently denied the
allegation that the P 40,000.00, consideration of the promissory note which
resulted in the execution of the real estate mortgage to secure its payment
was a balance of the purchase price of Lot No. 1900. As earlier stated, Ganzon
maintained in his Answer that the real estate mortgage arose from a different
transaction. At the pre-trial, what the parties admitted were the existence and
due execution of the documents, including the absolute deed of sale of realty
and the subject real estate mortgage. In connection with the documents, the
issues per the pre-trial order were "... whether or not the documents express
the true intention of the parties, and whether or not they complied with the
provisions of the document. (Rollo, p. 78) Hence, at that stage of the case, the
trial court's order dated November 20, 1980 had no factual basis.

On July 8, 1981, we gave due course to the petition and required the parties
to submit their respective memoranda.

Even on the assumption that the factual bases of the trial court's questioned
orders were justified by evidence in the records the same would still not be
proper.

As stated earlier, the issue raised before us is whether or not the trial court
may order the cancellation of a mortgage lien annotated in a Torrens
Certificate of Title to secure the payment of a promissory note and substitute
such mortgage lien with a surety bond approved by the same court to secure
the payment of the promissory note.

A mortgage is but an accessory contract. "The consideration of the mortgage

is the same consideration of the principal contract without which it cannot
exist as an independent contract." (Banco de Oro v. Bayuga, 93 SCRA 443,
citing China Banking Corporation v. Lichauco, 46 Phil. 460). On the effects of a
mortgage we ruled in Philippine National Bank v. Mallorca (21 SCRA 694):

In issuing its November 20, 1980 order, the trial court before trial on the
merits of the case assumed that the real estate mortgage subject of the extra-

xxx xxx xxx

... By Article 2126 of the Civil Code, (Formerly Article 1876 of

the Civil Code of Spain of 1889.) a 'mortgage directly and
immediately subjects the property upon which it is imposed,
whoever the possessor may be, to the fulfillment of the
obligation for whose security it was constituted.' Sale or
transfer cannot affect or release the mortgage. A purchaser is
necessarily bound to acknowledge and respect the
encumbrance to which is subject the purchased thing and
which is at the disposal of the creditor 'in order that he, under
the terms of the contract, may recover the amount of his
credit therefrom.' (Bischoff vs. Pomar, 12 Phil. 690, 700) For, a
recorded real estate is a right in rem, a lien on the property
whoever its owner may be. (Altavas, The Law of Mortgages in
the Philippine Islands, 1924 ed., p. 2) Because the personality
of the owner is disregarded; the mortgage subsists
notwithstanding changes of ownership; the last transferee is
just as much of a debtor as the first one; and this,
independent of whether the transferee knows or not the
person of the mortgagee. (Id., at p. 6) So it is, that a mortgage
lien is inseparable from the property mortgaged. All
subsequent purchasers thereof must respect the mortgage,
whether the transfer to them be with or without the consent
of the mortgagee. For, the mortgage, until discharge, follows
the property. (Pea, Registration of Land Titles and Deeds,
1961 ed., p. 225; emphasis supplied. See also V. Tolentino,
Civil Code of the Philippines, 1962 ed., p. 477)
Applying the principles underlying the nature of a mortgage, the real estate
mortgage constituted on Lot No. 1901-E-61-B-lF of the subdivision plan Psd27482, located in the District of Molo, Iloilo City covered by Transfer
Certificate of Title No. T-50324 can not be substituted by a surety bond as
ordered by the trial court. The mortgage lien in favor of Petitioner Rodolfo
Ganzon is inseparable from the mortgaged property. It is a right in rem, a lien
on the property. To substitute the mortgage with a surety bond would convert
such lien from a right in rem, to a right in personam. This conversion can not

be ordered for it would abridge the rights of the mortgagee under the
mortgage contract.
Moreover, the questioned orders violate the non-impairment of contracts
clause guaranteed under the Constitution. Substitution of the mortgage with a
surety bond to secure the payment of the P40,000.00 note would in effect
change the terms and conditions of the mortgage contract. Even before trial
on the very issues affecting the contract, the respondent court has directed a
deviation from its terms, diminished its efficiency, and dispensed with a
primary condition.
WHEREFORE, the instant petition is hereby GRANTED. The Orders dated
November 20, 1980 and February 24, 1981 of the trial court are SET ASIDE.
Our March 18, 1981 Temporary Restraining Order is made PERMANENT. No
costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

HON. SALVADOR ENRIQUEZ, JR., in his capacity as Secretary of the

Department of Budget and Management, HON. CARIDAD VALDEHUESA, in
her capacity as National Treasurer, and THE COMMISSION ON
AUDIT, respondents.

EN BANC
G.R. No. 113888 August 19, 1994

G.R. No. 113105 August 19, 1994

PHILIPPINE CONSTITUTION ASSOCIATION, EXEQUIEL B. GARCIA and A.
GONZALES, petitioners,
vs.
HON. SALVADOR ENRIQUEZ, as Secretary of Budget and Management; HON.
VICENTE T. TAN, as National Treasurer and COMMISSION ON
AUDIT, respondents.

WIGBERTO E. TAADA and ALBERTO G. ROMULO, as Members of the Senate

and as taxpayers, petitioners,
vs.
HON. TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary,
HON. SALVADOR ENRIQUEZ, JR., in his capacity as Secretary of the
Department of Budget and Management, HON. CARIDAD VALDEHUESA, in
her capacity as National Treasurer, and THE COMMISSION ON
AUDIT, respondents.
Ramon R. Gonzales for petitioners in G.R. No. 113105.

G.R. No. 113174 August 19, 1994

Eddie Tamondong for petitioners in G.R. Nos. 113766 & 113888.
RAUL S. ROCO, as Member of the Philippine Senate, NEPTALI A. GONZALES,
Chairman of the Committee on Finance of the Philippine Senate, and
EDGARDO J. ANGARA, as President and Chief Executive of the Philippine
Senate, all of whom also sue as taxpayers, in their own behalf and in
representation of Senators HEHERSON ALVAREZ, AGAPITO A. AQUINO,
RODOLFO G. BIAZON, JOSE D. LINA, JR., ERNESTO F. HERRERA, BLAS F. OPLE,
JOHN H. OSMENA, GLORIA MACAPAGAL- ARROYO, VICENTE C. SOTTO III,
ARTURO M. TOLENTINO, FRANCISCO S. TATAD, WIGBERTO E. TAADA and
FREDDIE N. WEBB, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE DEPARTMENT OF BUDGET AND
MANAGEMENT, and THE NATIONAL TREASURER, THE COMMISSION ON
AUDIT, impleaded herein as an unwilling
co-petitioner, respondents.
G.R. No. 113766 August 19, 1994
WIGBERTO E. TAADA and ALBERTO G. ROMULO, as Members of the Senate
and as taxpayers, and FREEDOM FROM DEBT COALITION, petitioners,
vs.
HON. TEOFISTO T. GUINGONA, JR. in his capacity as Executive Secretary,

Roco, Buag, Kapunan, Migallos & Jardeleza for petitioners Raul S. Roco,
Neptali A. Gonzales and Edgardo Angara.
Ceferino Padua Law Office fro intervenor Lawyers Against Monopoly and
Poverty (Lamp).

QUIASON, J.:
Once again this Court is called upon to rule on the conflicting claims of
authority between the Legislative and the Executive in the clash of the powers
of the purse and the sword. Providing the focus for the contest between the
President and the Congress over control of the national budget are the four
cases at bench. Judicial intervention is being sought by a group of concerned
taxpayers on the claim that Congress and the President have impermissibly
exceeded their respective authorities, and by several Senators on the claim

that the President has committed grave abuse of discretion or acted without
jurisdiction in the exercise of his veto power.

Sports; and (b) the veto of the President of the Special Provision of
Article XLVIII of the GAA of 1994 (Rollo, pp. 88-90, 104-105)

In G.R. No. 113174, sixteen members of the Senate led by Senate President
Edgardo J. Angara, Senator Neptali A. Gonzales, the Chairman of the
Committee on Finance, and Senator Raul S. Roco, sought the issuance of the
writs of certiorari, prohibition and mandamus against the Executive Secretary,
the Secretary of the Department of Budget and Management, and the
National Treasurer.

House Bill No. 10900, the General Appropriation Bill of 1994 (GAB of 1994),
was passed and approved by both houses of Congress on December 17, 1993.
As passed, it imposed conditions and limitations on certain items of
appropriations in the proposed budget previously submitted by the President.
It also authorized members of Congress to propose and identify projects in
the "pork barrels" allotted to them and to realign their respective operating
budgets.
Pursuant to the procedure on the passage and enactment of bills as
prescribed by the Constitution, Congress presented the said bill to the
President for consideration and approval.
On December 30, 1993, the President signed the bill into law, and declared
the same to have become Republic Act No. 7663, entitled "AN ACT
APPROPRIATING FUNDS FOR THE OPERATION OF THE GOVERNMENT OF THE
PHILIPPINES FROM JANUARY ONE TO DECEMBER THIRTY ONE, NINETEEN
HUNDRED AND NINETY-FOUR, AND FOR OTHER PURPOSES" (GAA of 1994). On
the same day, the President delivered his Presidential Veto Message,
specifying the provisions of the bill he vetoed and on which he imposed
certain conditions.
No step was taken in either House of Congress to override the vetoes.
In G.R. No. 113105, the Philippine Constitution Association, Exequiel B. Garcia
and Ramon A. Gonzales as taxpayers, prayed for a writ of prohibition to
declare as unconstitutional and void: (a) Article XLI on the Countrywide
Development Fund, the special provision in Article I entitled Realignment of
Allocation for Operational Expenses, and Article XLVIII on the Appropriation
for Debt Service or the amount appropriated under said Article XLVIII in excess
of the P37.9 Billion allocated for the Department of Education, Culture and

Suing as members of the Senate and taxpayers, petitioners question: (1) the
constitutionality of the conditions imposed by the President in the items of
the GAA of 1994: (a) for the Supreme Court, (b) Commission on Audit (COA),
(c) Ombudsman, (d) Commission on Human Rights (CHR), (e) Citizen Armed
Forces Geographical Units (CAFGU'S) and (f) State Universities and Colleges
(SUC's); and (2) the constitutionality of the veto of the special provision in the
appropriation for debt service.
In G.R. No. 113766, Senators Alberto G. Romulo and Wigberto Taada (a copetitioner in G.R. No. 113174), together with the Freedom from Debt
Coalition, a non-stock domestic corporation, sought the issuance of the writs
of prohibition and mandamus against the Executive Secretary, the Secretary
of the Department of Budget and Management, the National Treasurer, and
the COA.
Petitioners Taada and Romulo sued as members of the Philippine Senate and
taxpayers, while petitioner Freedom from Debt Coalition sued as a taxpayer.
They challenge the constitutionality of the Presidential veto of the special
provision in the appropriations for debt service and the automatic
appropriation of funds therefor.
In G.R. No. 11388, Senators Taada and Romulo sought the issuance of the
writs of prohibition and mandamus against the same respondents in G.R. No.
113766. In this petition, petitioners contest the constitutionality of: (1) the
veto on four special provision added to items in the GAA of 1994 for the

Armed Forces of the Philippines (AFP) and the Department of Public Works
and Highways (DPWH); and (2) the conditions imposed by the President in the
implementation of certain appropriations for the CAFGU's, the DPWH, and the
National Housing Authority (NHA).
Petitioners also sought the issuance of temporary restraining orders to enjoin
respondents Secretary of Budget and Management, National Treasurer and
COA from enforcing the questioned provisions of the GAA of 1994, but the
Court declined to grant said provisional reliefs on the time- honored principle
of according the presumption of validity to statutes and the presumption of
regularity to official acts.
In view of the importance and novelty of most of the issues raised in the four
petitions, the Court invited former Chief Justice Enrique M. Fernando and
former Associate Justice Irene Cortes to submit their respective memoranda
as Amicus curiae, which they graciously did.
II

The legal standing of the Senate, as an institution, was recognized in Gonzales

v. Macaraig, Jr., 191 SCRA 452 (1990). In said case, 23 Senators, comprising
the entire membership of the Upper House of Congress, filed a petition to
nullify the presidential veto of Section 55 of the GAA of 1989. The filing of the
suit was authorized by Senate Resolution No. 381, adopted on February 2,
1989, and which reads as follows:
Authorizing and Directing the Committee on Finance to Bring
in the Name of the Senate of the Philippines the Proper Suit
with the Supreme Court of the Philippines contesting the
Constitutionality of the Veto by the President of Special and
General Provisions, particularly Section 55, of the General
Appropriation Bill of 1989 (H.B. No. 19186) and For Other
Purposes.
In the United States, the legal standing of a House of Congress to sue has been
recognized (United States v. American Tel. & Tel. Co., 551 F. 2d 384, 391
[1976]; Notes: Congressional Access To The Federal Courts, 90 Harvard Law
Review 1632 [1977]).

Locus Standi
When issues of constitutionality are raised, the Court can exercise its power of
judicial review only if the following requisites are compresent: (1) the
existence of an actual and appropriate case; (2) a personal and substantial
interest of the party raising the constitutional question; (3) the exercise of
judicial review is pleaded at the earliest opportunity; and (4) the
constitutional question is the lis mota of the case (Luz Farms v. Secretary of
the Department of Agrarian Reform, 192 SCRA 51 [1990]; Dumlao v.
Commission on Elections, 95 SCRA 392 [1980]; People v. Vera, 65 Phil. 56
[1937]).
While the Solicitor General did not question the locus standi of petitioners in
G.R. No. 113105, he claimed that the remedy of the Senators in the other
petitions is political (i.e., to override the vetoes) in effect saying that they do
not have the requisite legal standing to bring the suits.

While the petition in G.R. No. 113174 was filed by 16 Senators, including the
Senate President and the Chairman of the Committee on Finance, the suit was
not authorized by the Senate itself. Likewise, the petitions in
G.R. Nos. 113766 and 113888 were filed without an enabling resolution for
the purpose.
Therefore, the question of the legal standing of petitioners in the three cases
becomes a preliminary issue before this Court can inquire into the validity of
the presidential veto and the conditions for the implementation of some
items in the GAA of 1994.
We rule that a member of the Senate, and of the House of Representatives for
that matter, has the legal standing to question the validity of a presidential
veto or a condition imposed on an item in an appropriation bill.

Where the veto is claimed to have been made without or in excess of the
authority vested on the President by the Constitution, the issue of an
impermissible intrusion of the Executive into the domain of the Legislature
arises (Notes: Congressional Standing To Challenge Executive Action, 122
University of Pennsylvania Law Review 1366 [1974]).

the Court to draw the dividing line where the exercise of executive power
ends and the bounds of legislative jurisdiction begin.
III
G.R. No. 113105

To the extent the power of Congress are impaired, so is the power of each
member thereof, since his office confers a right to participate in the exercise
of the powers of that institution (Coleman v. Miller, 307 U.S. 433 [1939];
Holtzman v. Schlesinger, 484 F. 2d 1307 [1973]).
An act of the Executive which injures the institution of Congress causes a
derivative but nonetheless substantial injury, which can be questioned by a
member of Congress (Kennedy v. Jones, 412 F. Supp. 353 [1976]). In such a
case, any member of Congress can have a resort to the courts.
Former Chief Justice Enrique M. Fernando, as Amicus Curiae, noted:
This is, then, the clearest case of the Senate as a whole or
individual Senators as such having a substantial interest in the
question at issue. It could likewise be said that there was the
requisite injury to their rights as Senators. It would then be
futile to raise any locus standi issue. Any intrusion into the
domain appertaining to the Senate is to be resisted. Similarly,
if the situation were reversed, and it is the Executive Branch
that could allege a transgression, its officials could likewise file
the corresponding action. What cannot be denied is that a
Senator has standing to maintain inviolate the prerogatives,
powers and privileges vested by the Constitution in his office
(Memorandum, p. 14).
It is true that the Constitution provides a mechanism for overriding a veto
(Art. VI, Sec. 27 [1]). Said remedy, however, is available only when the
presidential veto is based on policy or political considerations but not when
the veto is claimed to be ultra vires. In the latter case, it becomes the duty of

1. Countrywide Development Fund

Article XLI of the GAA of 1994 sets up a Countrywide Development Fund of
P2,977,000,000.00 to "be used for infrastructure, purchase of ambulances and
computers and other priority projects and activities and credit facilities to
qualified beneficiaries." Said Article provides:
COUNTRYWIDE DEVELOPMENT FUND
For Fund requirements of countrywide
development projects P 2,977,000,000

New Appropriations, by Purpose

Current Operating Expenditures
A. PURPOSE
Personal Maintenance Capital Total
Services and Other Outlays
Operating
Expenses
1. For Countrywide
Developments Projects P250,000,000 P2,727,000,000
P2,977,000,000
TOTAL NEW

APPROPRIATIONS P250,000,000 P2,727,000,000

P2,977,000,000
Special Provisions
1. Use and Release of Funds. The amount herein appropriated
shall be used for infrastructure, purchase of ambulances and
computers and other priority projects and activities, and
credit facilities to qualified beneficiaries as proposed and
identified by officials concerned according to the following
allocations: Representatives, P12,500,000 each; Senators,
P18,000,000
each;
Vice-President,
P20,000,000; PROVIDED, That, the said credit facilities shall be
constituted as a revolving fund to be administered by a
government financial institution (GFI) as a trust fund for
lending operations. Prior years releases to local government
units and national government agencies for this purpose shall
be turned over to the government financial institution which
shall be the sole administrator of credit facilities released
from this fund.
The fund shall be automatically released quarterly by way of
Advice of Allotments and Notice of Cash Allocation directly to
the assigned implementing agency not later than five (5) days
after the beginning of each quarter upon submission of the
list of projects and activities by the officials concerned.
2. Submission of Quarterly Reports. The Department of
Budget and Management shall submit within thirty (30) days
after the end of each quarter a report to the Senate
Committee on Finance and the House Committee on
Appropriations on the releases made from this Fund. The
report shall include the listing of the projects, locations,
implementing agencies and the endorsing officials (GAA of
1994, p. 1245).

Petitioners claim that the power given to the members of Congress to

propose and identify the projects and activities to be funded by the
Countrywide Development Fund is an encroachment by the legislature on
executive power, since said power in an appropriation act in implementation
of a law. They argue that the proposal and identification of the projects do not
involve the making of laws or the repeal and amendment thereof, the only
function given to the Congress by the Constitution (Rollo, pp. 78- 86).
Under the Constitution, the spending power called by James Madison as "the
power of the purse," belongs to Congress, subject only to the veto power of
the President. The President may propose the budget, but still the final say on
the matter of appropriations is lodged in the Congress.
The power of appropriation carries with it the power to specify the project or
activity to be funded under the appropriation law. It can be as detailed and as
broad as Congress wants it to be.
The Countrywide Development Fund is explicit that it shall be used "for
infrastructure, purchase of ambulances and computers and other priority
projects and activities and credit facilities to qualified beneficiaries . . ." It was
Congress itself that determined the purposes for the appropriation.
Executive function under the Countrywide Development Fund involves
implementation of the priority projects specified in the law.
The authority given to the members of Congress is only to propose and
identify projects to be implemented by the President. Under Article XLI of the
GAA of 1994, the President must perforce examine whether the proposals
submitted by the members of Congress fall within the specific items of
expenditures for which the Fund was set up, and if qualified, he next
determines whether they are in line with other projects planned for the
locality. Thereafter, if the proposed projects qualify for funding under the
Funds, it is the President who shall implement them. In short, the proposals
and identifications made by the members of Congress are merely
recommendatory.

The procedure of proposing and identifying by members of Congress of

particular projects or activities under Article XLI of the GAA of 1994 is
imaginative as it is innovative.

Total Salaries and Wages 160,217

=======
Other Compensation

The Constitution is a framework of a workable government and its

interpretation must take into account the complexities, realities and politics
attendant to the operation of the political branches of government. Prior to
the GAA of 1991, there was an uneven allocation of appropriations for the
constituents of the members of Congress, with the members close to the
Congressional leadership or who hold cards for "horse-trading," getting more
than their less favored colleagues. The members of Congress also had to
reckon with an unsympathetic President, who could exercise his veto power
to cancel from the appropriation bill a pet project of a Representative or
Senator.
The Countrywide Development Fund attempts to make equal the unequal. It
is also a recognition that individual members of Congress, far more than the
President and their congressional colleagues are likely to be knowledgeable
about the needs of their respective constituents and the priority to be given
each project.
2. Realignment of Operating Expenses
Under the GAA of 1994, the appropriation for the Senate is P472,000,000.00
of which P464,447,000.00 is appropriated for current operating expenditures,
while the appropriation for the House of Representatives is P1,171,924,000.00
of which P1,165,297,000.00 is appropriated for current operating
expenditures (GAA of 1994, pp. 2, 4, 9, 12).
The 1994 operating expenditures for the Senate are as follows:
Personal Services
Salaries, Permanent 153,347
Salaries/Wage, Contractual/Emergency 6,870

Step Increments 1,073

Honoraria and Commutable Allowances 3,731
Compensation Insurance Premiums 1,579
Pag-I.B.I.G. Contributions 1,184
Medicare Premiums 888
Bonus and Cash Gift 14,791
Terminal Leave Benefits 2,000
Personnel Economic Relief Allowance 10,266
Additional Compensation of P500 under A.O. 53 11,130
Others 57,173

Total Other Compensation 103,815

01 Total Personal Services 264,032

=======
Maintenance and Other Operating Expenses
02 Traveling Expenses 32,841
03 Communication Services 7,666
04 Repair and Maintenance of Government Facilities 1,220
05 Repair and Maintenance of Government Vehicles 318
06 Transportation Services 128
07 Supplies and Materials 20,189
08 Rents 24,584
14 Water/Illumination and Power 6,561
15 Social Security Benefits and Other Claims 3,270
17 Training and Seminars Expenses 2,225

18 Extraordinary and Miscellaneous Expenses 9,360

23 Advertising and Publication
24 Fidelity Bonds and Insurance Premiums 1,325
29 Other Services 89,778

Total Maintenance and Other Operating Expenditures

200,415

Total Current Operating Expenditures 464,447

=======

Terminal Leave Benefits 29

Personnel Economic Relief
Allowance 21,150
Additional Compensation of P500 under A.O. 53
Others 106,140

Total Other Compensation 202,863

01 Total Personal Services 608,063

=======

(GAA of 1994, pp. 3-4)

Maintenance and Other Operating Expenses

The 1994 operating expenditures for the House of Representatives are as

follows:
Personal Services
Salaries, Permanent 261,557
Salaries/Wages, Contractual/Emergency 143,643

Total Salaries and Wages 405,200

=======
Other Compensation
Step Increments 4,312
Honoraria and Commutable
Allowances 4,764
Compensation Insurance
Premiums 1,159
Pag-I.B.I.G. Contributions 5,231
Medicare Premiums 2,281
Bonus and Cash Gift 35,669

02 Traveling Expenses 139,611

03 Communication Services 22,514
04 Repair and Maintenance of Government Facilities 5,116
05 Repair and Maintenance of Government Vehicles 1,863
06 Transportation Services 178
07 Supplies and Materials 55,248
10 Grants/Subsidies/Contributions 940
14 Water/Illumination and Power 14,458
15 Social Security Benefits and Other Claims 325
17 Training and Seminars Expenses 7,236
18 Extraordinary and Miscellaneous Expenses 14,474
20 Anti-Insurgency/Contingency Emergency Expenses 9,400
23 Advertising and Publication 242
24 Fidelity Bonds and Insurance Premiums 1,420
29 Other Services 284,209

Total Maintenance and Other Operating Expenditures

557,234

Total Current Operating Expenditures 1,165,297

=======

(GAA of 1994, pp. 11-12)

in other items of their appropriations, whenever there is a law authorizing

such augmentation.

The Special Provision Applicable to the Congress of the Philippines provides:

4. Realignment of Allocation for Operational Expenses. A
member of Congress may realign his allocation for operational
expenses to any other expenses category provide the total of
said allocation is not exceeded. (GAA of 1994, p. 14).
The appropriation for operating expenditures for each House is further
divided into expenditures for salaries, personal services, other compensation
benefits, maintenance expenses and other operating expenses. In turn, each
member of Congress is allotted for his own operating expenditure a
proportionate share of the appropriation for the House to which he belongs. If
he does not spend for one items of expense, the provision in question allows
him to transfer his allocation in said item to another item of expense.
Petitioners assail the special provision allowing a member of Congress to
realign his allocation for operational expenses to any other expense category
(Rollo, pp. 82-92), claiming that this practice is prohibited by Section 25(5),
Article VI of the Constitution. Said section provides:
No law shall be passed authorizing any transfer of
appropriations: however, the President, the President of the
Senate, the Speaker of the House of Representatives, the
Chief Justice of the Supreme Court, and the heads of
Constitutional Commissions may, by law, be authorized to
augment any item in the general appropriations law for their
respective offices from savings in other items of their
respective appropriations.
The proviso of said Article of the Constitution grants the President of the
Senate and the Speaker of the House of Representatives the power to
augment items in an appropriation act for their respective offices from savings

The special provision on realignment of the operating expenses of members

of Congress is authorized by Section 16 of the General Provisions of the GAA
of 1994, which provides:
Expenditure Components. Except by act of the Congress of
the Philippines, no change or modification shall be made in
the expenditure items authorized in this Act and other
appropriation laws unless in cases of augmentations from
savings in appropriations as authorized under Section 25(5) of
Article VI of the Constitution (GAA of 1994, p. 1273).
Petitioners argue that the Senate President and the Speaker of the House of
Representatives, but not the individual members of Congress are the ones
authorized to realign the savings as appropriated.
Under the Special Provisions applicable to the Congress of the Philippines, the
members of Congress only determine the necessity of the realignment of the
savings in the allotments for their operating expenses. They are in the best
position to do so because they are the ones who know whether there are
savings available in some items and whether there are deficiencies in other
items of their operating expenses that need augmentation. However, it is the
Senate President and the Speaker of the House of Representatives, as the
case may be, who shall approve the realignment. Before giving their stamp of
approval, these two officials will have to see to it that:
(1) The funds to be realigned or transferred are actually savings in the items of
expenditures from which the same are to be taken; and
(2) The transfer or realignment is for the purposes of augmenting the items of
expenditure to which said transfer or realignment is to be made.

3. Highest Priority for Debt Service

While Congress appropriated P86,323,438,000.00 for debt service (Article
XLVII of the GAA of 1994), it appropriated only P37,780,450,000.00 for the
Department of Education Culture and Sports. Petitioners urged that Congress
cannot give debt service the highest priority in the GAA of 1994 (Rollo, pp. 9394) because under the Constitution it should be education that is entitled to
the highest funding. They invoke Section 5(5), Article XIV thereof, which
provides:
(5) The State shall assign the highest budgetary priority to
education and ensure that teaching will attract and retain its
rightful share of the best available talents through adequate
remuneration and other means of job satisfaction and
fulfillment.
This issue was raised in Guingona, Jr. v. Carague, 196 SCRA 221 (1991), where
this Court held that Section 5(5), Article XIV of the Constitution, is merely
directory, thus:
While it is true that under Section 5(5), Article XIV of the
Constitution, Congress is mandated to "assign the highest
budgetary priority to education" in order to "insure that
teaching will attract and retain its rightful share of the best
available talents through adequate remuneration and other
means of job satisfaction and fulfillment," it does not thereby
follow that the hands of Congress are so hamstrung as to
deprive it the power to respond to the imperatives of the
national interest and for the attainment of other state policies
or objectives.
As aptly observed by respondents, since 1985, the budget for
education has tripled to upgrade and improve the facility of
the public school system. The compensation of teachers has
been doubled. The amount of P29,740,611,000.00 set aside

for the Department of Education, Culture and Sports under

the General Appropriations Act (R.A. No. 6381), is the highest
budgetary allocation among all department budgets. This is a
clear compliance with the aforesaid constitutional mandate
according highest priority to education.
Having faithfully complied therewith, Congress is certainly not
without any power, guided only by its good judgment, to
provide an appropriation, that can reasonably service our
enormous debt, the greater portion of which was inherited
from the previous administration. It is not only a matter of
honor and to protect the credit standing of the country. More
especially, the very survival of our economy is at stake. Thus,
if in the process Congress appropriated an amount for debt
service bigger than the share allocated to education, the
Court finds and so holds that said appropriation cannot be
thereby assailed as unconstitutional.
G.R. No. 113105
G.R. No. 113174
Veto of Provision on Debt Ceiling
The Congress added a Special Provision to Article XLVIII (Appropriations for
Debt Service) of the GAA of 1994 which provides:
Special Provisions
1. Use of the Fund. The appropriation authorized herein shall
be used for payment of principal and interest of foreign and
domestic indebtedness; PROVIDED, That any payment in
excess of the amount herein appropriated shall be subject to
the approval of the President of the Philippines with the
concurrence
of
the
Congress
of
the
Philippines; PROVIDED, FURTHER, That in no case shall this

fund be used to pay for the liabilities of the Central Bank

Board of Liquidators.

Budget and Management, et al.," G.R. No. 94571, dated April

22, 1991.

2. Reporting Requirement. The Bangko Sentral ng Pilipinas

and the Department of Finance shall submit a quarterly report
of actual foreign and domestic debt service payments to the
House Committee on Appropriations and Senate Finance
Committee within one (1) month after each quarter (GAA of
1944, pp. 1266).

I am, therefore vetoing the following special provision for the

reason that the GAA is not the appropriate legislative
measure to amend the provisions of the Foreign Borrowing
Act, P.D. No. 1177 and E.O. No. 292:

The President vetoed the first Special Provision, without vetoing the
P86,323,438,000.00 appropriation for debt service in said Article. According to
the President's Veto Message:
IV. APPROPRIATIONS FOR DEBT SERVICE
I would like to emphasize that I concur fully with the desire of
Congress to reduce the debt burden by decreasing the
appropriation for debt service as well as the inclusion of the
Special Provision quoted below. Nevertheless, I believe that
this debt reduction scheme cannot be validly done through
the 1994 GAA. This must be addressed by revising our debt
policy by way of innovative and comprehensive debt
reduction programs conceptualized within the ambit of the
Medium-Term Philippine Development Plan.
Appropriations for payment of public debt, whether foreign or
domestic, are automatically appropriated pursuant to the
Foreign Borrowing Act and Section 31 of P.D. No. 1177 as
reiterated under Section 26, Chapter 4, Book VI of E.O. No.
292, the Administrative Code of 1987. I wish to emphasize
that the constitutionality of such automatic provisions on
debt servicing has been upheld by the Supreme Court in the
case of "Teofisto T. Guingona, Jr., and Aquilino Q. Pimentel, Jr.
v. Hon. Guillermo N. Carague, in his capacity as Secretary of

Use of the Fund. The appropriation

authorized herein shall be used for payment
of principal and interest of foreign and
domestic indebtedness: PROVIDED, That any
payment in excess of the amount herein
appropriated shall be subject to the approval
of the President of the Philippines with the
concurrence of the Congress of the
Philippines: PROVIDED, FURTHER, That in no
case shall this fund be used to pay for the
liabilities of the Central Bank Board of
Liquidators (GAA of 1994, p. 1290).
Petitioners claim that the President cannot veto the Special Provision on the
appropriation for debt service without vetoing the entire amount of
P86,323,438.00 for said purpose (Rollo, G.R. No. 113105, pp. 93-98; Rollo, G.R.
No. 113174, pp. 16-18). The Solicitor General counterposed that the Special
Provision did not relate to the item of appropriation for debt service and
could therefore be the subject of an item veto (Rollo, G.R. No. 113105, pp. 5460; Rollo, G.R. No. 113174, pp. 72-82).
This issue is a mere rehash of the one put to rest in Gonzales v. Macaraig,
Jr., 191 SCRA 452 (1990). In that case, the issue was stated by the Court, thus:
The fundamental issue raised is whether or not the veto by
the President of Section 55 of the 1989 Appropriations Bill
(Section 55 FY '89), and subsequently of its counterpart

Section 16 of the 1990 Appropriations Bill (Section 16 FY '90),

is unconstitutional and without effect.
The Court re-stated the issue, just so there would not be any
misunderstanding about it, thus:
The focal issue for resolution is whether or not the President
exceeded the item-veto power accorded by the Constitution.
Or differently put, has the President the power to veto
"provisions" of an Appropriations Bill?
The bases of the petition in Gonzales, which are similar to those invoked in
the present case, are stated as follows:
In essence, petitioners' cause is anchored on the following
grounds: (1) the President's line-veto power as regards
appropriation bills is limited to item/s and does not cover
provision/s; therefore, she exceeded her authority when she
vetoed Section 55 (FY '89) and Section 16 (FY '90) which are
provisions; (2) when the President objects to a provision of an
appropriation bill, she cannot exercise the item-veto power
but should veto the entire bill; (3) the item-veto power does
not carry with it the power to strike out conditions or
restrictions for that would be legislation, in violation of the
doctrine of separation of powers; and (4) the power of
augmentation in Article VI, Section 25 [5] of the 1987
Constitution, has to be provided for by law and, therefore,
Congress is also vested with the prerogative to impose
restrictions on the exercise of that power.
The restrictive interpretation urged by petitioners that the
President may not veto a provision without vetoing the entire
bill not only disregards the basic principle that a distinct and
severable part of a bill may be the subject of a separate veto
but also overlooks the Constitutional mandate that any

provision in the general appropriations bill shall relate

specifically to some particular appropriation therein and that
any such provision shall be limited in its operation to the
appropriation to which it relates (1987 Constitution, Article VI,
Section 25 [2]). In other words, in the true sense of the term,
a provision in an Appropriations Bill is limited in its operation
to some particular appropriation to which it relates, and does
not relate to the entire bill.
The Court went one step further and ruled that even assuming arguendo that
"provisions" are beyond the executive power to veto, and Section 55
(FY '89) and Section 16 (FY '90) were not "provisions" in the budgetary sense
of the term, they are "inappropriate provisions" that should be treated as
"items" for the purpose of the President's veto power.
The Court, citing Henry v. Edwards, La., 346 So. 2d 153 (1977), said that
Congress cannot include in a general appropriations bill matters that should
be more properly enacted in separate legislation, and if it does that, the
inappropriate provisions inserted by it must be treated as "item", which can
be vetoed by the President in the exercise of his item-veto power.
It is readily apparent that the Special Provision applicable to the appropriation
for debt service insofar as it refers to funds in excess of the amount
appropriated in the bill, is an "inappropriate" provision referring to funds
other than the P86,323,438,000.00 appropriated in the General
Appropriations Act of 1991.
Likewise the vetoed provision is clearly an attempt to repeal Section 31 of P.D.
No. 1177 (Foreign Borrowing Act) and E.O. No. 292, and to reverse the debt
payment policy. As held by the Court in Gonzales, the repeal of these laws
should be done in a separate law, not in the appropriations law.
The Court will indulge every intendment in favor of the constitutionality of a
veto, the same as it will presume the constitutionality of an act of Congress
(Texas Co. v. State, 254 P. 1060; 31 Ariz, 485, 53 A.L.R. 258 [1927]).

The veto power, while exercisable by the President, is actually a part of the
legislative process (Memorandum of Justice Irene Cortes as Amicus Curiae, pp.
3-7). That is why it is found in Article VI on the Legislative Department rather
than in Article VII on the Executive Department in the Constitution. There is,
therefore, sound basis to indulge in the presumption of validity of a veto. The
burden shifts on those questioning the validity thereof to show that its use is a
violation of the Constitution.
Under his general veto power, the President has to veto the entire bill, not
merely parts thereof (1987 Constitution, Art. VI, Sec. 27[1]). The exception to
the general veto power is the power given to the President to veto any
particular item or items in a general appropriations bill (1987 Constitution,
Art.
VI,
Sec. 27[2]). In so doing, the President must veto the entire item.
A general appropriations bill is a special type of legislation, whose content is
limited to specified sums of money dedicated to a specific purpose or a
separate fiscal unit (Beckman, The Item Veto Power of the Executive,
31 Temple Law Quarterly 27 [1957]).
The item veto was first introduced by the Organic Act of the Philippines
passed by the U.S. Congress on August 29, 1916. The concept was adopted
from some State Constitutions.
Cognizant of the legislative practice of inserting provisions, including
conditions, restrictions and limitations, to items in appropriations bills, the
Constitutional Convention added the following sentence to Section 20(2),
Article VI of the 1935 Constitution:
. . . When a provision of an appropriation bill affect one or
more items of the same, the President cannot veto the
provision without at the same time vetoing the particular item
or items to which it relates . . . .

In short, under the 1935 Constitution, the President was empowered to veto
separately not only items in an appropriations bill but also "provisions".
While the 1987 Constitution did not retain the aforementioned sentence
added to Section 11(2) of Article VI of the 1935 Constitution, it included the
following provision:
No provision or enactment shall be embraced in the general
appropriations bill unless it relates specifically to some
particular appropriation therein. Any such provision or
enactment shall be limited in its operation to the
appropriation to which it relates (Art. VI, Sec. 25[2]).
In Gonzales, we made it clear that the omission of that sentence of Section
16(2) of the 1935 Constitution in the 1987 Constitution should not be
interpreted to mean the disallowance of the power of the President to veto a
"provision".
As the Constitution is explicit that the provision which Congress can include in
an appropriations bill must "relate specifically to some particular
appropriation therein" and "be limited in its operation to the appropriation to
which it relates," it follows that any provision which does not relate to any
particular item, or which extends in its operation beyond an item of
appropriation, is considered "an inappropriate provision" which can be vetoed
separately from an item. Also to be included in the category of "inappropriate
provisions" are unconstitutional provisions and provisions which are intended
to amend other laws, because clearly these kind of laws have no place in an
appropriations bill. These are matters of general legislation more
appropriately dealt with in separate enactments. Former Justice Irene Cortes,
as Amicus Curiae, commented that Congress cannot by law establish
conditions for and regulate the exercise of powers of the President given by
the Constitution for that would be an unconstitutional intrusion into executive
prerogative.

The doctrine of "inappropriate provision" was well elucidated in Henry

v. Edwards, supra., thus:
Just as the President may not use his item-veto to usurp
constitutional powers conferred on the legislature, neither
can the legislature deprive the Governor of the constitutional
powers conferred on him as chief executive officer of the
state by including in a general appropriation bill matters more
properly enacted in separate legislation. The Governor's
constitutional power to veto bills of general legislation . . .
cannot be abridged by the careful placement of such
measures in a general appropriation bill, thereby forcing the
Governor to choose between approving unacceptable
substantive legislation or vetoing "items" of expenditures
essential to the operation of government. The legislature
cannot by location of a bill give it immunity from executive
veto. Nor can it circumvent the Governor's veto power over
substantive legislation by artfully drafting general law
measures so that they appear to be true conditions or
limitations on an item of appropriation. Otherwise, the
legislature would be permitted to impair the constitutional
responsibilities and functions of a co-equal branch of
government in contravention of the separation of powers
doctrine . . . We are no more willing to allow the legislature to
use its appropriation power to infringe on the Governor's
constitutional right to veto matters of substantive legislation
than we are to allow the Governor to encroach on the
Constitutional powers of the legislature. In order to avoid this
result, we hold that, when the legislature inserts inappropriate
provisions in a general appropriation bill, such provisions must
be treated as "items" for purposes of the Governor's item veto
power over general appropriation bills.
xxx xxx xxx

. . . Legislative control cannot be exercised in such a manner

as to encumber the general appropriation bill with veto-proof
"logrolling measures", special interest provisions which could
not succeed if separately enacted, or "riders", substantive
pieces of legislation incorporated in a bill to insure passage
without veto . . . (Emphasis supplied).
Petitioners contend that granting arguendo that the veto of the Special
Provision on the ceiling for debt payment is valid, the President cannot
automatically appropriate funds for debt payment without complying with the
conditions for automatic appropriation under the provisions of R.A. No. 4860
as amended by P.D. No. 81 and the provisions of P.D. No. 1177 as amended by
the Administrative Code of 1987 and P.D. No. 1967 (Rollo, G.R. No. 113766,
pp. 9-15).
Petitioners cannot anticipate that the President will not faithfully execute the
laws. The writ of prohibition will not issue on the fear that official actions will
be done in contravention of the laws.
The President vetoed the entire paragraph one of the Special Provision of the
item on debt service, including the provisions that the appropriation
authorized in said item "shall be used for payment of the principal and
interest of foreign and domestic indebtedness" and that "in no case shall this
fund be used to pay for the liabilities of the Central Bank Board of
Liquidators." These provisions are germane to and have a direct connection
with the item on debt service. Inherent in the power of appropriation is the
power to specify how the money shall be spent (Henry v. Edwards, LA, 346
So., 2d., 153). The said provisos, being appropriate provisions, cannot be
vetoed separately. Hence the item veto of said provisions is void.
We reiterate, in order to obviate any misunderstanding, that we are
sustaining the veto of the Special Provision of the item on debt service only
with respect to the proviso therein requiring that "any payment in excess of
the amount herein, appropriated shall be subject to the approval of the

President of the Philippines with the concurrence of the Congress of the

Philippines . . ."
G.R. NO. 113174
G.R. NO. 113766
G.R. NO. 11388
1. Veto of provisions for revolving funds of SUC's.
In the appropriation for State Universities and Colleges (SUC's), the President
vetoed special provisions which authorize the use of income and the creation,
operation and maintenance of revolving funds. The Special Provisions vetoed
are the following:
(H. 7) West Visayas State University
Equal Sharing of Income. Income earned by the University
subject to Section 13 of the special provisions applicable to all
State Universities and Colleges shall be equally shared by the
University and the University Hospital (GAA of 1994, p. 395).
xxx xxx xxx
(J. 3) Leyte State College
Revolving Fund for the Operation of LSC House and Human
Resources Development Center (HRDC). The income of Leyte
State College derived from the operation of its LSC House and
HRDC shall be constituted into a Revolving Fund to be
deposited in an authorized government depository bank for
the operational expenses of these projects/services. The net
income of the Revolving Fund at the end of the year shall be
remitted to the National Treasury and shall accrue to the
General Fund. The implementing guidelines shall be issued by
the Department of Budget and Management (GAA of 1994, p.
415).

The vetoed Special Provisions applicable to all SUC's are the following:
12. Use of Income from Extension Services. State Universities
and Colleges are authorized to use their income from their
extension services. Subject to the approval of the Board of
Regents and the approval of a special budget pursuant to Sec.
35, Chapter 5, Book VI of E.O. No. 292, such income shall be
utilized solely for faculty development, instructional materials
and work study program (GAA of 1994, p. 490).
xxx xxx xxx
13. Income of State Universities and Colleges. The income of
State Universities and Colleges derived from tuition fees and
other sources as may be imposed by governing boards other
than those accruing to revolving funds created under LOI Nos.
872 and 1026 and those authorized to be recorded as trust
receipts pursuant to Section 40, Chapter 5, Book VI of E.O. No.
292 shall be deposited with the National Treasury and
recorded as a Special Account in the General Fund pursuant to
P.D. No. 1234 and P.D. No. 1437 for the use of the institution,
subject to Section 35, Chapter 5, Book VI of E.O. No.
292L PROVIDED, That disbursements from the Special Account
shall not exceed the amount actually earned and
deposited: PROVIDED, FURTHER, That a cash advance on such
income may be allowed State half of income actually realized
during the preceding year and this cash advance shall be
charged against income actually earned during the budget
year: AND PROVIDED, FINALLY, That in no case shall such
funds be used to create positions, nor for payment of salaries,
wages or allowances, except as may be specifically approved
by the Department of Budge and Management for incomeproducing activities, or to purchase equipment or books,
without the prior approval of the President of the Philippines
pursuant to Letter of Implementation No. 29.

All collections of the State Universities and Colleges for fees,

charges and receipts intended for private recipient units,
including private foundations affiliated with these institutions
shall be duly acknowledged with official receipts and
deposited as a trust receipt before said income shall be
subject to Section 35, Chapter 5, Book VI of E.O. No. 292
(GAA of 1994, p. 490).
The President gave his reason for the veto thus:
Pursuant to Section 65 of the Government Auditing Code of
the Philippines, Section 44, Chapter 5, Book VI of E.O. No. 292,
s. 1987 and Section 22, Article VII of the Constitution, all
income earned by all Government offices and agencies shall
accrue to the General Fund of the Government in line with
the One Fund Policy enunciated by Section 29 (1), Article VI
and Section 22, Article VII of the Constitution. Likewise, the
creation and establishment of revolving funds shall be
authorized by substantive law pursuant to Section 66 of the
Government Auditing Code of the Philippines and Section 45,
Chapter 5, Book VI of E.O. No. 292.
Notwithstanding the aforementioned provisions of the
Constitution and existing law, I have noted the proliferation of
special provisions authorizing the use of agency income as
well as the creation, operation and maintenance of revolving
funds.
I would like to underscore the facts that such income were
already considered as integral part of the revenue and
financing sources of the National Expenditure Program which I
previously submitted to Congress. Hence, the grant of new
special provisions authorizing the use of agency income and
the establishment of revolving funds over and above the
agency appropriations authorized in this Act shall effectively

reduce the financing sources of the 1994 GAA and, at the

same time, increase the level of expenditures of some
agencies beyond the well-coordinated, rationalized levels for
such agencies. This corresponding increases the overall deficit
of the National Government (Veto Message, p. 3).
Petitioners claim that the President acted with grave abuse of discretion when
he disallowed by his veto the "use of income" and the creation of "revolving
fund" by the Western Visayas State University and Leyte State Colleges when
he allowed other government offices, like the National Stud Farm, to use their
income for their operating expenses (Rollo, G.R. No. 113174, pp. 15-16).
There was no undue discrimination when the President vetoed said special
provisions while allowing similar provisions in other government agencies. If
some government agencies were allowed to use their income and maintain a
revolving fund for that purpose, it is because these agencies have been
enjoying such privilege before by virtue of the special laws authorizing such
practices as exceptions to the "one-fund policy" (e.g., R.A. No. 4618 for the
National Stud Farm, P.D. No. 902-A for the Securities and Exchange
Commission; E.O. No. 359 for the Department of Budget and Management's
Procurement Service).
2. Veto of provision on 70% (administrative)/30% (contract) ratio for
road maintenance.
In the appropriation for the Department of Public Works and Highways, the
President vetoed the second paragraph of Special Provision No. 2, specifying
the 30% maximum ration of works to be contracted for the maintenance of
national roads and bridges. The said paragraph reads as follows:
2. Release and Use of Road Maintenance Funds. Funds
allotted for the maintenance and repair of roads which are
provided in this Act for the Department of Public Works and
Highways shall be released to the respective Engineering
District, subject to such rules and regulations as may be

prescribed by the Department of Budget and Management.

Maintenance funds for roads and bridges shall be exempt
from budgetary reserve.
Of the amount herein appropriated for the maintenance of
national roads and bridges, a maximum of thirty percent
(30%) shall be contracted out in accordance with guidelines to
be issued by the Department of Public Works and
Highways. The balance shall be used for maintenance by force
account.
Five percent (5%) of the total road maintenance fund
appropriated herein to be applied across the board to the
allocation of each region shall be set aside for the
maintenance of roads which may be converted to or taken
over as national roads during the current year and the same
shall be released to the central office of the said department
for
eventual
sub-allotment
to
the
concerned
region
and
district: PROVIDED, That any balance of the said five percent
(5%) shall be restored to the regions on a pro-rata basis for
the maintenance of existing national roads.
No retention or deduction as reserves or overhead expenses
shall be made, except as authorized by law or upon direction
of
the
President
(GAA of 1994, pp. 785-786; Emphasis supplied).
The President gave the following reason for the veto:
While I am cognizant of the well-intended desire of Congress
to impose certain restrictions contained in some special
provisions, I am equally aware that many programs, projects
and activities of agencies would require some degree of
flexibility to ensure their successful implementation and

therefore risk their completion. Furthermore, not only could

these restrictions and limitations derail and impede program
implementation but they may also result in a breach of
contractual obligations.
D.1.a. A study conducted by the Infrastructure Agencies show
that for practical intent and purposes, maintenance by
contract could be undertaken to an optimum of seventy
percent (70%) and the remaining thirty percent (30%) by force
account. Moreover, the policy of maximizing implementation
through contract maintenance is a covenant of the Road and
Road Transport Program Loan from the Asian Development
Bank (ADB Loan No. 1047-PHI-1990) and Overseas Economic
Cooperation Fund (OECF Loan No. PH-C17-199). The same is a
covenant under the World Bank (IBRD) Loan for the Highway
Management
Project
(IBRD
Loan
No. PH-3430) obtained in 1992.
In the light of the foregoing and considering the policy of the
government to encourage and maximize private sector
participation in the regular repair and maintenance of
infrastructure facilities, I am directly vetoing the underlined
second paragraph of Special Provision No. 2 of the
Department of Public Works and Highways (Veto Message, p.
11).
The second paragraph of Special Provision No. 2 brings to fore the divergence
in policy of Congress and the President. While Congress expressly laid down
the condition that only 30% of the total appropriation for road maintenance
should be contracted out, the President, on the basis of a comprehensive
study, believed that contracting out road maintenance projects at an option of
70% would be more efficient, economical and practical.
The Special Provision in question is not an inappropriate provision which can
be the subject of a veto. It is not alien to the appropriation for road

maintenance, and on the other hand, it specified how the said item shall be
expended 70% by administrative and 30% by contract.
The 1987 Constitution allows the addition by Congress of special provisions,
conditions to items in an expenditure bill, which cannot be vetoed separately
from the items to which they relate so long as they are "appropriate" in the
budgetary sense (Art. VII, Sec. 25[2]).
The Solicitor General was hard put in justifying the veto of this special
provision. He merely argued that the provision is a complete turnabout from
an entrenched practice of the government to maximize contract maintenance
(Rollo, G.R. No. 113888, pp. 85-86). That is not a ground to veto a provision
separate from the item to which it refers.
The veto of the second paragraph of Special Provision No. 2 of the item for
the DPWH is therefore unconstitutional.
3. Veto of provision on purchase of medicines by AFP.
In the appropriation for the Armed Forces of the Philippines (AFP), the
President vetoed the special provision on the purchase by the AFP of
medicines in compliance with the Generics Drugs Law (R.A. No. 6675). The
vetoed provision reads:
12. Purchase of Medicines. The purchase of medicines by all
Armed Forces of the Philippines units, hospitals and clinics
shall strictly comply with the formulary embodied in the
National Drug Policy of the Department of Health (GAA of
1994, p. 748).
According to the President, while it is desirable to subject the purchase of
medicines to a standard formulary, "it is believed more prudent to provide for
a transition period for its adoption and smooth implementation in the Armed
Forces of the Philippines" (Veto Message, p. 12).

The Special Provision which requires that all purchases of medicines by the
AFP should strictly comply with the formulary embodied in the National Drug
Policy of the Department of Health is an "appropriate" provision. it is a mere
advertence by Congress to the fact that there is an existing law, the Generics
Act of 1988, that requires "the extensive use of drugs with generic names
through a rational system of procurement and distribution." The President
believes that it is more prudent to provide for a transition period for the
smooth implementation of the law in the case of purchases by the Armed
Forces of the Philippines, as implied by Section 11 (Education Drive) of the law
itself. This belief, however, cannot justify his veto of the provision on the
purchase of medicines by the AFP.
Being directly related to and inseparable from the appropriation item on
purchases of medicines by the AFP, the special provision cannot be vetoed by
the President without also vetoing the said item (Bolinao Electronics
Corporation v. Valencia, 11 SCRA 486 [1964]).
4. Veto of provision on prior approval of Congress for purchase of
military equipment.
In the appropriation for the modernization of the AFP, the President vetoed
the underlined proviso of Special Provision No. 2 on the "Use of Fund," which
requires the prior approval of Congress for the release of the corresponding
modernization funds, as well as the entire Special Provisions
No. 3 on the "Specific Prohibition":
2. Use of the Fund. Of the amount herein appropriated,
priority shall be given for the acquisition of AFP assets
necessary for protecting marine, mineral, forest and other
resources within Philippine territorial borders and its
economic zone, detection, prevention or deterrence of air or
surface intrusions and to support diplomatic moves aimed at
preserving
national
dignity,
sovereignty
and
patrimony: PROVIDED, That the said modernization fund shall

not be released until a Table of Organization and Equipment

for FY 1994-2000 is submitted to and approved by Congress.
3. Specific Prohibition. The said Modernization Fund shall not
be used for payment of six (6) additional S-211 Trainer planes,
18 SF-260 Trainer planes and 150 armored personnel carriers
(GAA of 1994, p. 747).
As reason for the veto, the President stated that the said condition and
prohibition violate the Constitutional mandate of non-impairment of
contractual obligations, and if allowed, "shall effectively alter the original
intent of the AFP Modernization Fund to cover all military equipment deemed
necessary to modernize the Armed Forces of the Philippines" (Veto Message,
p. 12).
Petitioners claim that Special Provision No. 2 on the "Use of Fund" and Special
Provision No. 3 are conditions or limitations related to the item on the AFP
modernization plan.
The requirement in Special Provision No. 2 on the "Use of Fund" for the AFP
modernization program that the President must submit all purchases of
military equipment to Congress for its approval, is an exercise of the
"congressional or legislative veto." By way of definition, a congressional veto
is a means whereby the legislature can block or modify administrative action
taken under a statute. It is a form of legislative control in the implementation
of particular executive actions. The form may be either negative, that is
requiring disapproval of the executive action, or affirmative, requiring
approval of the executive action. This device represents a significant attempt
by Congress to move from oversight of the executive to shared administration
(Dixon, The Congressional Veto and Separation of Powers: The Executive on a
Leash,
56 North Carolina Law Review, 423 [1978]).
A congressional veto is subject to serious questions involving the principle of
separation of powers.

However the case at bench is not the proper occasion to resolve the issues of
the validity of the legislative veto as provided in Special Provisions Nos. 2 and
3 because the issues at hand can be disposed of on other grounds. Any
provision blocking an administrative action in implementing a law or requiring
legislative approval of executive acts must be incorporated in a separate and
substantive bill. Therefore, being "inappropriate" provisions, Special
Provisions Nos. 2 and 3 were properly vetoed.
As commented by Justice Irene Cortes in her memorandum as Amicus Curiae:
"What Congress cannot do directly by law it cannot do indirectly by attaching
conditions to the exercise of that power (of the President as Commander-inChief) through provisions in the appropriation law."
Furthermore, Special Provision No. 3, prohibiting the use of the
Modernization Funds for payment of the trainer planes and armored
personnel carriers, which have been contracted for by the AFP, is violative of
the Constitutional prohibition on the passage of laws that impair the
obligation of contracts (Art. III, Sec. 10), more so, contracts entered into by
the Government itself.
The veto of said special provision is therefore valid.
5. Veto of provision on use of savings to augment AFP pension funds.
In the appropriation for the AFP Pension and Gratuity Fund, the President
vetoed the new provision authorizing the Chief of Staff to use savings in the
AFP to augment pension and gratuity funds. The vetoed provision reads:
2. Use of Savings. The Chief of Staff, AFP, is authorized,
subject to the approval of the Secretary of National Defense,
to use savings in the appropriations provided herein to
augment the pension fund being managed by the AFP
Retirement and Separation Benefits System as provided under
Sections 2(a) and 3 of P.D. No. 361 (GAA of 1994,
p. 746).

According to the President, the grant of retirement and separation benefits

should be covered by direct appropriations specifically approved for the
purpose pursuant to Section 29(1) of Article VI of the Constitution. Moreover,
he stated that the authority to use savings is lodged in the officials
enumerated in Section 25(5) of Article VI of the Constitution (Veto Message,
pp. 7-8).
Petitioners claim that the Special Provision on AFP Pension and Gratuity Fund
is a condition or limitation which is so intertwined with the item of
appropriation that it could not be separated therefrom.
The Special Provision, which allows the Chief of Staff to use savings to
augment the pension fund for the AFP being managed by the AFP Retirement
and Separation Benefits System is violative of Sections 25(5) and 29(1) of the
Article VI of the Constitution.
Under Section 25(5), no law shall be passed authorizing any transfer of
appropriations, and under Section 29(1), no money shall be paid out of
the Treasury except in pursuance of an appropriation made by law. While
Section 25(5) allows as an exception the realignment of savings to augment
items in the general appropriations law for the executive branch, such right
must and can be exercised only by the President pursuant to a specific law.
6. Condition on the deactivation of the CAFGU's.
Congress appropriated compensation for the CAFGU's, including the payment
of separation benefits but it added the following Special Provision:
1. CAFGU Compensation and Separation Benefit. The
appropriation authorized herein shall be used for the
compensation of CAFGU's including the payment of their
separation benefit not exceeding one (1) year subsistence
allowance for the 11,000 members who will be deactivated in
1994. The Chief of Staff, AFP, shall, subject to the approval of
the Secretary of National Defense, promulgate policies and

procedures for the payment of separation benefit (GAA of

1994, p. 740).
The President declared in his Veto Message that the implementation of this
Special Provision to the item on the CAFGU's shall be subject to prior
Presidential approval pursuant to P.D. No. 1597 and R.A.. No. 6758. He gave
the following reasons for imposing the condition:
I am well cognizant of the laudable intention of Congress in
proposing the amendment of Special Provision No. 1 of the
CAFGU. However, it is premature at this point in time of our
peace process to earmark and declare through special
provision the actual number of CAFGU members to be
deactivated in CY 1994. I understand that the number to be
deactivated would largely depend on the result or degree of
success of the on-going peace initiatives which are not yet
precisely determinable today. I have desisted, therefore, to
directly veto said provisions because this would mean the loss
of the entire special provision to the prejudice of its
beneficient provisions. I therefore declare that the actual
implementation of this special provision shall be subject to
prior Presidential approval pursuant to the provisions of P.D.
No.
1597
and
R.A. No. 6758 (Veto Message, p. 13).
Petitioners claim that the Congress has required the deactivation of the
CAFGU's when it appropriated the money for payment of the separation pay
of the members of thereof. The President, however, directed that the
deactivation should be done in accordance to his timetable, taking into
consideration the peace and order situation in the affected localities.
Petitioners complain that the directive of the President was tantamount to an
administrative embargo of the congressional will to implement the
Constitution's command to dissolve the CAFGU's (Rollo, G.R. No. 113174,
p. 14; G.R. No. 113888, pp. 9, 14-16). They argue that the President cannot

impair or withhold expenditures authorized and appropriated by Congress

when neither the Appropriations Act nor other legislation authorize such
impounding (Rollo, G.R. No. 113888, pp. 15-16).
The Solicitor General contends that it is the President, as Commander-in-Chief
of the Armed Forces of the Philippines, who should determine when the
services of the CAFGU's are no longer needed (Rollo, G.R. No. 113888,
pp. 92-95.).
This is the first case before this Court where the power of the President to
impound is put in issue. Impoundment refers to a refusal by the President, for
whatever reason, to spend funds made available by Congress. It is the failure
to spend or obligate budget authority of any type (Notes: Impoundment of
Funds, 86 Harvard Law Review 1505 [1973]).
Those who deny to the President the power to impound argue that once
Congress has set aside the fund for a specific purpose in an appropriations act,
it becomes mandatory on the part of the President to implement the project
and to spend the money appropriated therefor. The President has no
discretion on the matter, for the Constitution imposes on him the duty to
faithfully execute the laws.

The proponents insist that a faithful execution of the laws requires that the
President desist from implementing the law if doing so would prejudice public
interest. An example given is when through efficient and prudent
management of a project, substantial savings are made. In such a case, it is
sheer folly to expect the President to spend the entire amount budgeted in
the law (Notes: Presidential Impoundment: Constitutional Theories and
Political Realities, 61 Georgetown Law Journal 1295 [1973]; Notes; Protecting
the Fisc: Executive Impoundment and Congressional Power, 82 Yale Law
Journal 1686 [1973).
We do not find anything in the language used in the challenged Special
Provision that would imply that Congress intended to deny to the President
the right to defer or reduce the spending, much less to deactivate 11,000
CAFGU members all at once in 1994. But even if such is the intention, the
appropriation law is not the proper vehicle for such purpose. Such intention
must be embodied and manifested in another law considering that it abrades
the powers of the Commander-in-Chief and there are existing laws on the
creation of the CAFGU's to be amended. Again we state: a provision in an
appropriations act cannot be used to repeal or amend other laws, in this case,
P.D. No. 1597 and R.A. No. 6758.
7. Condition on the appropriation for the Supreme Court, etc.

In refusing or deferring the implementation of an appropriation item, the

President in effect exercises a veto power that is not expressly granted by the
Constitution. As a matter of fact, the Constitution does not say anything about
impounding. The source of the Executive authority must be found elsewhere.

(a) In the appropriations for the Supreme Court, Ombudsman, COA, and CHR,
the Congress added the following provisions:
The Judiciary

Proponents of impoundment have invoked at least three principal sources of

the authority of the President. Foremost is the authority to impound given to
him either expressly or impliedly by Congress. Second is the executive power
drawn from the President's role as Commander-in-Chief. Third is the Faithful
Execution Clause which ironically is the same provision invoked by petitioners
herein.

xxx xxx xxx

Special Provisions
1. Augmentation of any Item in the Court's Appropriations.
Any savings in the appropriations for the Supreme Court and
the Lower Courts may be utilized by the Chief Justice of the
Supreme Court to augment any item of the Court's

appropriations for (a) printing of decisions and publication of

"Philippine Reports"; (b) Commutable terminal leaves of
Justices and other personnel of the Supreme Court and
payment of adjusted pension rates to retired Justices entitled
thereto pursuant to Administrative Matter No. 91-8-225-C.A.;
(c) repair, maintenance, improvement and other operating
expenses of the courts' libraries, including purchase of books
and periodicals; (d) purchase, maintenance and improvement
of printing equipment; (e) necessary expenses for the
employment of temporary employees, contractual and casual
employees, for judicial administration; (f) maintenance and
improvement
of
the
Court's
Electronic
Data
Processing System; (g) extraordinary expenses of the Chief
Justice, attendance in international conferences and conduct
of training programs; (h) commutable transportation and
representation allowances and fringe benefits for Justices,
Clerks of Court, Court Administrator, Chiefs of Offices and
other Court personnel in accordance with the rates prescribed
by law; and (i) compensation of attorney-deofficio: PROVIDED, That as mandated by LOI No. 489 any
increase in salary and allowances shall be subject to the usual
procedures and policies as provided for under
P.D. No. 985 and other pertinent laws (GAA of 1994, p. 1128;
Emphasis supplied).

personnel of the Commission (GAA of 1994, p. 1161; Emphasis

supplied).
xxx xxx xxx
Office of the Ombudsman
xxx xxx xxx

xxx xxx xxx

6. Augmentation of Items in the appropriation of the Office of

the Ombudsman. The Ombudsman is hereby authorized,
subject to appropriate accounting and auditing rules and
regulations to augment items of appropriation in the Office of
the Ombudsman from savings in other items of appropriation
actually released, for: (a) printing and/or publication of
decisions, resolutions, training and information materials; (b)
repair, maintenance and improvement of OMB Central and
Area/Sectoral facilities; (c) purchase of books, journals,
periodicals and equipment; (d) payment of commutable
representation and transportation allowances of officials and
employees who by reason of their positions are entitled
thereto and fringe benefits as may be authorized specifically
by law for officials and personnel of OMB pursuant to Section
8 of Article IX-B of the Constitution; and (e) for other official
purposes subject to accounting and auditing rules and
regulations (GAA of 1994, p. 1174; Emphasis supplied).

Commission on Audit

xxx xxx xxx

xxx xxx xxx

Commission on Human Rights

5. Use of Savings. The Chairman of the Commission on Audit is

hereby authorized, subject to appropriate accounting and
auditing rules and regulations, to use savings for the payment
of fringe benefits as may be authorized by law for officials and

xxx xxx xxx

1. Use of Savings. The Chairman of the Commission on Human
Rights (CHR) is hereby authorized, subject to appropriate
accounting and auditing rules and regulations, to augment

any item of appropriation in the office of the CHR from

savings in other items of appropriations actually released, for:
(a) printing and/or publication of decisions, resolutions,
training materials and educational publications; (b) repair,
maintenance and improvement of Commission's central and
regional facilities; (c) purchase of books, journals, periodicals
and equipment, (d) payment of commutable representation
and transportation allowances of officials and employees who
by reason of their positions are entitled thereto and fringe
benefits, as may be authorized by law for officials and
personnel of CHR, subject to accounting and auditing rules
and regulations (GAA of 1994, p. 1178; Emphasis supplied).
In his Veto Message, the President expressed his approval of the conditions
included in the GAA of 1994. He noted that:
The said condition is consistent with the Constitutional
injunction prescribed under Section 8, Article IX-B of the
Constitution which states that "no elective or appointive
public officer or employee shall receive additional, double, or
indirect compensation unless specifically authorized by law." I
am, therefore, confident that the heads of the said offices
shall maintain fidelity to the law and faithfully adhere to the
well-established principle on compensation standardization
(Veto Message, p. 10).
Petitioners claim that the conditions imposed by the President violated the
independence and fiscal autonomy of the Supreme Court, the Ombudsman,
the COA and the CHR.
In the first place, the conditions questioned by petitioners were placed in the
GAB by Congress itself, not by the President. The Veto Message merely
highlighted the Constitutional mandate that additional or indirect
compensation can only be given pursuant to law.

In the second place, such statements are mere reminders that the
disbursements of appropriations must be made in accordance with law. Such
statements may, at worse, be treated as superfluities.
(b) In the appropriation for the COA, the President imposed the condition that
the implementation of the budget of the COA be subject to "the guidelines to
be issued by the President."
The provisions subject to said condition reads:
xxx xxx xxx
3. Revolving Fund. The income of the Commission on Audit
derived from sources authorized by the Government Auditing
Code of the Philippines (P.D. No. 1445) not exceeding Ten
Million Pesos (P10,000,000) shall be constituted into a
revolving fund which shall be used for maintenance, operating
and other incidental expenses to enhance audit services and
audit-related activities. The fund shall be deposited in an
authorized government depository ban, and withdrawals
therefrom shall be made in accordance with the procedure
prescribed by law and implementing rules and
regulations: PROVIDED, That any interests earned on such
deposit shall be remitted at the end of each quarter to the
national Treasury and shall accrue to the General
Fund: PROVIDED FURTHER, That the Commission on Audit
shall submit to the Department of Budget and Management a
quarterly report of income and expenditures of said revolving
fund (GAA of 1994, pp. 1160-1161).
The President cited the "imperative need to rationalize" the implementation,
applicability and operation of use of income and revolving funds. The Veto
Message stated:

. . . I have observed that there are old and long existing special
provisions authorizing the use of income and the creation of
revolving funds. As a rule, such authorizations should be
discouraged. However, I take it that these authorizations have
legal/statutory basis aside from being already a vested right
to the agencies concerned which should not be jeopardized
through the Veto Message. There is, however, imperative
need to rationalize their implementation, applicability and
operation. Thus, in order to substantiate the purpose and
intention of said provisions, I hereby declare that the
operationalization of the following provisions during budget
implementation shall be subject to the guidelines to be issued
by the President pursuant to Section 35, Chapter 5, Book VI of
E.O. No. 292 and Sections 65 and 66 of P.D. No. 1445 in
relation to Sections 2 and 3 of the General Provisions of this
Act (Veto Message, p. 6; Emphasis Supplied.)
(c) In the appropriation for the DPWH, the President imposed the condition
that in the implementation of DPWH projects, the administrative and
engineering overhead of 5% and 3% "shall be subject to the necessary
administrative guidelines to be formulated by the Executive pursuant to
existing laws." The condition was imposed because the provision "needs
further study" according to the President.
The following provision was made subject to said condition:
9. Engineering and Administrative Overhead. Not more than
five percent (5%) of the amount for infrastructure project
released by the Department of Budget and Management shall
be deducted by DPWH for administrative overhead, detailed
engineering and construction supervision, testing and quality
control, and the like, thus insuring that at least ninety-five
percent (95%) of the released fund is available for direct
implementation of the project. PROVIDED, HOWEVER, That
for school buildings, health centers, day-care centers and

barangay halls, the deductible amount shall not exceed three

percent (3%).
Violation of, or non-compliance with, this provision shall
subject the government official or employee concerned to
administrative, civil and/or criminal sanction under Sections
43 and 80, Book VI of E.O. No. 292 (GAA of 1994, p. 786).
(d) In the appropriation for the National Housing Authority (NHA), the
President imposed the condition that allocations for specific projects shall be
released and disbursed "in accordance with the housing program of the
government, subject to prior Executive approval."
The provision subject to the said condition reads:
3. Allocations for Specified Projects. The following allocations
for the specified projects shall be set aside for corollary works
and used exclusively for the repair, rehabilitation and
construction of buildings, roads, pathwalks, drainage,
waterworks systems, facilities and amenities in the
area: PROVIDED, That any road to be constructed or
rehabilitated shall conform with the specifications and
standards set by the Department of Public Works and
Highways for such kind of road: PROVIDED, FURTHER, That
savings that may be available in the future shall be used for
road repair, rehabilitation and construction:
(1) Maharlika Village Road
Not less than P5,000,000
(2) Tenement Housing Project
(Taguig) Not less than
P3,000,000
(3)
Bagong
Condominium

Lipunan
Project

(Taguig) Not less than

P2,000,000
4. Allocation of Funds. Out of the amount appropriated for
the implementation of various projects in resettlement areas,
Seven Million Five Hundred Thousand Pesos (P7,500,000)
shall be allocated to the Dasmarias Bagong Bayan
resettlement area, Eighteen Million Pesos (P18,000,000) to
the Carmona Relocation Center Area (Gen. Mariano Alvarez)
and Three Million Pesos (P3,000,000) to the Bulihan Sites and
Services, all of which will be for the cementing of roads in
accordance with DPWH standards.
5. Allocation for Sapang Palay. An allocation of Eight Million
Pesos (P8,000,000) shall be set aside for the asphalting of
seven (7) kilometer main road of Sapang Palay, San Jose Del
Monte,
Bulacan
(GAA of 1994, p. 1216).
The President imposed the conditions: (a) that the "operationalization" of the
special provision on revolving funds of the COA "shall be subject to guidelines
to be issued by the President pursuant to Section 35, Chapter 5,
Book VI of E.O. 292 and Sections 65 and 66 of P.D. No. 1445 in relation to
Sections 2 and 3 of the General Provisions of this Act" (Rollo, G.R.
No. 113174, pp. 5,7-8); (b) that the implementation of Special Provision No. 9
of the DPWH on the mandatory retention of 5% and 3% of the amounts
released by said Department "be subject to the necessary administrative
guidelines to be formulated by the Executive pursuant to existing law" (Rollo,
G.R. No. 113888; pp. 10, 14-16); and (c) that the appropriations authorized for
the NHA can be released only "in accordance with the housing program of the
government subject to prior Executive approval" (Rollo, G.R. No. 113888, pp.
10-11;
14-16).

The conditions objected to by petitioners are mere reminders that the

implementation of the items on which the said conditions were imposed,
should be done in accordance with existing laws, regulations or policies. They
did not add anything to what was already in place at the time of the approval
of the GAA of 1994.
There is less basis to complain when the President said that the expenditures
shall be subject to guidelines he will issue. Until the guidelines are issued, it
cannot be determined whether they are proper or inappropriate. The issuance
of administrative guidelines on the use of public funds authorized by Congress
is simply an exercise by the President of his constitutional duty to see that the
laws are faithfully executed (1987 Constitution, Art. VII, Sec. 17; Planas v. Gil
67 Phil. 62 [1939]). Under the Faithful Execution Clause, the President has the
power to take "necessary and proper steps" to carry into execution the law
(Schwartz, On Constitutional Law, p. 147 [1977]). These steps are the ones to
be embodied in the guidelines.
IV
Petitioners chose to avail of the special civil actions but those remedies can be
used only when respondents have acted "without or in excess" of jurisdiction,
or "with grave abuse of discretion," (Revised Rules of Court,
Rule 65, Section 2). How can we begrudge the President for vetoing the
Special Provision on the appropriation for debt payment when he merely
followed our decision in Gonzales? How can we say that Congress has abused
its discretion when it appropriated a bigger sum for debt payment than the
amount appropriated for education, when it merely followed our dictum
in Guingona?
Article 8 of the Civil Code of Philippines, provides:
Judicial decisions applying or interpreting the laws or the
constitution shall from a part of the legal system of the
Philippines.

The Court's interpretation of the law is part of that law as of the date of its
enactment since the court's interpretation merely establishes the
contemporary legislative intent that the construed law purports to carry into
effect (People v. Licera, 65 SCRA 270 [1975]). Decisions of the Supreme Court
assume the same authority as statutes (Floresca v. Philex Mining Corporation,
136 SCRA 141 [1985]).
Even if Guingona and Gonzales are considered hard cases that make bad laws
and should be reversed, such reversal cannot nullify prior acts done in reliance
thereof.
WHEREFORE, the petitions are DISMISSED, except with respect to
(1) G.R. Nos. 113105 and 113766 only insofar as they pray for the annulment
of the veto of the special provision on debt service specifying that the fund
therein appropriated "shall be used for payment of the principal and interest
of foreign and domestic indebtedness" prohibiting the use of the said funds
"to pay for the liabilities of the Central Bank Board of Liquidators", and (2)
G.R. No. 113888 only insofar as it prays for the annulment of the veto of: (a)
the second paragraph of Special Provision No. 2 of the item of appropriation
for the Department of Public Works and Highways (GAA of 1994, pp. 785786); and (b) Special Provision No. 12 on the purchase of medicines by the
Armed Forces of the Philippines (GAA of 1994, p. 748), which is GRANTED.
SO ORDERED.

THIRD DIVISION

[G.R. No. 109404. January 22, 1996]

FLORENCIO EUGENIO, doing business under the name E & S Delta Village,
petitioner, vs. EXECUTIVE SECRETARY FRANKLIN M. DRILON,
HOUSING AND LAND USE. REGULATORY BOARD (HLURB) AND
PROSPERO PALMIANO, respondents.
RESOLUTION
PANGANIBAN, J.:
Did the failure to develop a subdivision constitute legal justification for
the non-payment of amortizations by a buyer on installment under land
purchase agreements entered into prior to the enactment of P.D. 957, The
Subdivision and Condominium Buyers Protective Decree? This is the major
question raised in the instant Petition seeking to set aside the Decision of the
respondent Executive Secretary dated March 10, 1992 in O.P. Case No. 3761,
which affirmed the order of the respondent HLURB dated September 1, 1987.
On May 10, 1972, private respondent purchased on installment basis
from petitioner and his co-owner/ developer Fermin Salazar, two lots in the E
& S Delta Village in Quezon City.
Acting on complaints for non-development docketed as NHA Cases Nos.
2619 and 2620 filed by the Delta Village Homeowners Association, Inc., the
National Housing Authority rendered a resolution on January 17, 1979 inter
alia ordering petitioner to cease and desist from making further sales of lots in
said village or in any project owned by him.
While NHA Cases Nos. 2619 and 2620 were still pending, private
respondent filed with the Office of Appeals, Adjudication and Legal Affairs
(OAALA) of the Human Settlements Regulatory Commission (HSRC), a
complaint (Case No. 80-589) against petitioner and spouses Rodolfo and

Adelina Relevo alleging that, in view of the above NHA resolution, he

suspended payment of his amortizations, but that petitioner resold one of the
two lots to the said spouses Relevo, in whose favor title to the said property
was registered. Private respondent further alleged that he suspended his
payments because of petitioners failure to develop the village. Private
respondent prayed for the annulment of the sale to the Relevo spouses and
for reconveyance of the lot to him.
On October 11, 1983, the OAALA rendered a decision upholding the right
of petitioner to cancel the contract with private respondent and dismissed
private respondents complaint.
On appeal, the Commission Proper of the HSRC reversed the OAALA and,
applying P.D. 957, ordered petitioner to complete the subdivision
development and to reinstate private respondents purchase contract over
one lot, and as to the other, it appearing that Transfer Certificate of Title No.
269546 has been issued to x x x spouses Rodolfo and Ad(e)lina Relevo x x x,
the management of E & S Delta Village is hereby ordered to immediately
refund to the complainant-appellant (herein private respondent) all payments
made thereon, plus interests computed at legal rates from date of receipt
hereof until fully paid.
The respondent Executive Secretary, on appeal, affirmed the decision of
the HSRC and denied the subsequent Motion for Reconsideration for lack of
merit and for having been filed out of time. Petitioner has now filed this
Petition for review before the Supreme Court.
Under Revised Administrative Circular No. 1-95, appeals from judgments
or final orders of the x x x Office of the President x x x may be taken to the
Court of Appeals x x x. However, in order to hasten the resolution of this case,
which was deemed submitted for decision one and a half years ago, the Court
resolved to make an exception to the said Circular in the interest of speedy
justice.
In his Petition before this Court, petitioner avers that the Executive
Secretary erred in applying P.D. 957 and in concluding that the nondevelopment of the E & S Delta Village justified private respondents nonpayment of his amortizations. Petitioner avers that inasmuch as the land

purchase agreements were entered into in 1972, prior to the effectivity of

P.D. 957 in 1976, said law cannot govern the transaction.
We hold otherwise, and herewith rule that respondent Executive
Secretary did not abuse his discretion, and that P.D. 957 is to be given
retroactive effect so as to cover even those contracts executed prior to its
enactment in 1976.
P.D. 957 did not expressly provide for retroactivity in its entirety, but
such can be plainly inferred from the unmistakable intent of the law.
The intent of the law, as culled from its preamble and from the situation,
circumstances and conditions it sought to remedy, must be enforced. On this
point, a leading authority on statutory construction stressed:
The intent of a statute is the law x x x. The intent is the vital part, the essence
of the law, and the primary rule of construction is to ascertain and give effect
to the intent. The intention of the legislature in enacting a law is the law itself
and must be enforced when ascertained, although it may not be consistent
with the strict letter of the statute. Courts will not follow the letter of a statute
when it leads away from the true intent and purpose of the legislature and to
conclusions inconsistent with the general purpose of the act x x x. In
construing statutes the proper course is to start out and follow the true intent
of the legislature and to adopt that sense which harmonizes best with the
context and promotes in the fullest manner the apparent policy and objects of
the legislature.1 (italics supplied.)
It goes without saying that, as an instrument of social justice, the law
must favor the weak and the disadvantaged, including, in this instance, small
lot buyers and aspiring homeowners. P.D. 957 was enacted with no other end
in view than to provide a protective mantle over helpless citizens who may fall
prey to the manipulations and machinations of unscrupulous subdivision and
condominium sellers, and such intent is nowhere expressed more clearly than
in its preamble, pertinent portions of which read as follows:

WHEREAS, it is the policy of the State to afford its inhabitants the

requirements of decent human settlement and to provide them with ample
opportunities for improving their quality of life;
WHEREAS, numerous reports reveal that many real estate subdivision owners,
developers, operators, and/or sellers have reneged on their representations
and obligations to provide and maintain properly subdivision roads, drainage,
sewerage, water systems, lighting systems, and other similar basic
requirements, thus endangering the health and safety of home and lot buyers;
WHEREAS, reports of alarming magnitude also show cases of swindling and
fraudulent manipulations perpetrated by unscrupulous subdivision and
condominium sellers and operators, such as failure to deliver titles to the
buyers or titles free from liens and encumbrances, and to pay real estate
taxes, and fraudulent sales of the same subdivision lots to different innocent
purchasers for value;2 (italics supplied.)
From a dedicated reading of the preamble, it is manifest and unarguable
that the legislative intent must have been to remedy the alarming situation by
having P.D. 957 operate retrospectively even upon contracts already in
existence at the time of its enactment. Indeed, a strictly prospective
application of the statute will effectively emasculate it, for then the State will
not be able to exercise its regulatory functions and curb fraudulent schemes
and practices perpetrated under or in connection with those contracts and
transactions which happen to have been entered into prior to P.D. 957,
despite obvious prejudice to the very subdivision lot buyers sought to be
protected by said law. It is hardly conceivable that the legislative authority
intended to permit such a loophole to remain and continue to be a source of
misery for subdivision lot buyers well into the future.
Adding force to the arguments for the retroactivity of P.D. 957 as a whole
are certain of its provisions, viz., Sections 20, 21 and 23 thereof, which by
their very terms have retroactive effect and will impact upon even those
contracts and transactions entered into prior to P.D. 957s enactment:

Sec. 20. Time of Completion. - Every owner or developer shall construct and
provide the facilities, improvements, infrastructures and other forms of
development, including water supply and lighting facilities, which are offered
and indicated in the approved subdivision or condominium plans, brochures,
prospectus, printed matters, letters or in any form of advertisement, within
one year from the date of the issuance of the license for the subdivision or
condominium project or such other period of time as may be fixed by the
Authority.
Sec. 21. Sales Prior to Decree. - In cases of subdivision lots or condominium
units sold or disposed of prior to the effectivity of this Decree, it shall be
incumbent upon the owner or developer of the subdivision or condominium
project to complete compliance with his or its obligations as provided in the
preceding section within two years from the date of this Decree unless
otherwise extended by the Authority or unless an adequate performance
bond is filed in accordance with Section 6 hereof.
Failure of the owner or developer to comply with the obligations under this
and the preceding provisions shall constitute a violation punishable under
Sections 38 and 39 of this Decree.
Sec. 23. Non-Forfeiture of Payments. - No installment payment made by a
buyer in a subdivision or condominium project for the lot or unit he
contracted to buy shall be forfeited in favor of the owner or developer when
the buyer, after due notice to the owner or developer, desists from further
payment due to the failure of the owner or developer to develop the
subdivision or condominium project according to the approved plans and
within the time limit for complying with the same. Such buyer may, at his
option, be reimbursed the total amount paid including amortization interests
but excluding delinquency interests, with interest thereon at the legal rate.
(italics supplied)
On the other hand, as argued by the respondent Executive Secretary, the
application of P.D. 957 to the contracts in question will be consistent with
paragraph 4 of the contracts themselves, which expressly provides:

(4) The party of the First Part hereby binds himself to subdivide, develop and
improve the entire area covered by Transfer Certificate of Title No. 168119 of
which the parcels of lands subject of this contract is a part in accordance with
the provisions of Quezon City Ordinance No. 6561, S-66 and the Party of the
First Part further binds himself to comply with and abide by all laws, rules and
regulations respecting the subdivision and development of lots for residential
purposes as may be presently in force or may hereafter be required by laws
passed by the Congress of the Philippines or required by regulations of the
Bureau of Lands, the General Registration Office and other government
agencies. (italics supplied)
Moreover, as P.D. 957 is undeniably applicable to the contracts in
question, it follows that Section 23 thereof had been properly invoked by
private respondent when he desisted from making further payment to
petitioner due to petitioners failure to develop the subdivision project
according to the approved plans and within the time limit for complying with
the same. (Such incomplete development of the subdivision and nonperformance of specific contractual and statutory obligations on the part of
the subdivision-owner had been established in the findings of the HLURB
which in turn were confirmed by the respondent Executive Secretary in his
assailed Decision.) Furthermore, respondent Executive Secretary also gave
due weight to the following matters: although private respondent started to
default on amortization payments beginning May 1975, so that by the end of
July 1975 he had already incurred three consecutive arrearages in payments,
nevertheless, the petitioner, who had the cancellation option available to him
under the contract, did not exercise or utilize the same in timely fashion but
delayed until May 1979 when he finally made up his mind to cancel the
contracts. But by that time the land purchase agreements had already been
overtaken by the provisions of P.D. 957, promulgated on July 12, 1976. (In any
event, as pointed out by respondent HLURB and seconded by the Solicitor
General, the defaults in amortization payments incurred by private
respondent had been effectively condoned by the petitioner, by reason of the
latters tolerance of the defaults for a long period of time.)
Likewise, there is no merit in petitioners contention that respondent
Secretary exceeded his jurisdiction in ordering the refund of private

respondents payments on Lot 12 although (according to petitioner) only Lot

13 was the subject of the complaint. Respondent Secretary duly noted that
the supporting documents submitted substantiating the claim of nondevelopment justified such order inasmuch as such claim was also the basis
for non-payment of amortizations on said Lot 12.
Finally, since petitioners motion for reconsideration of the (Executive
Secretarys) Decision dated March 10, 1992 was filed only on the 21st day from
receipt thereof, said decision had become final and executory, pursuant to
Section 7 of Administrative Order No. 18 dated February 12, 1987, which
provides that (d)ecisions/ resolutions! orders of the Office of the President
shall, except as otherwise provided for by special laws, become final after the
lapse of fifteen (15) days from receipt of a copy thereof x x x , unless a motion
for reconsideration thereof is filed within such period.
WHEREFORE, there being no showing of grave abuse of discretion, the
petition is DENIED due course and is hereby DISMISSED. No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 195540

March 13, 2013

GOLDENWAY MERCHANDISING CORPORATION, Petitioner,

vs.
EQUITABLE PCI BANK, Respondent.
DECISION
VILLARAMA, JR., J.:
Before the Court is a petition for review on certiorari which seeks to reverse
and set aside the Decision1 dated November 19, 2010 and Resolution2 dated
January 31, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 91120. The CA
affirmed the Decision3 dated January 8, 2007 of the Regional Trial Court (RTC)
of- Valenzuela City, Branch 171 dismissing the complaint in Civil Case No. 295V -01.
The facts are undisputed.
On November 29, 1985, Goldenway Merchandising Corporation (petitioner)
executed a Real Estate Mortgage in favor of Equitable PCI Bank (respondent)
over its real properties situated in Valenzuela, Bulacan (now Valenzuela City)
and covered by Transfer Certificate of Title (TCT) Nos. T-152630, T-151655 and
T-214528 of the Registry of Deeds for the Province of Bulacan. The mortgage
secured the Two Million Pesos (P2,000,000.00) loan granted by respondent to
petitioner and was duly registered.4
As petitioner failed to settle its loan obligation, respondent extrajudicially
foreclosed the mortgage on December 13, 2000. During the public auction,
the mortgaged properties were sold for P3,500,000.00 to respondent.
Accordingly, a Certificate of Sale was issued to respondent on January 26,

2001. On February 16, 2001, the Certificate of Sale was registered and
inscribed on TCT Nos. T-152630, T-151655 and T-214528.5
In a letter dated March 8, 2001, petitioners counsel offered to redeem the
foreclosed properties by tendering a check in the amount of P3,500,000.00.
On March 12, 2001, petitioners counsel met with respondents counsel
reiterating
petitioners
intention
to
exercise
the
right
of
6
redemption. However, petitioner was told that such redemption is no longer
possible because the certificate of sale had already been registered. Petitioner
also verified with the Registry of Deeds that title to the foreclosed properties
had already been consolidated in favor of respondent and that new
certificates of title were issued in the name of respondent on March 9, 2001.
On December 7, 2001, petitioner filed a complaint7 for specific performance
and damages against the respondent, asserting that it is the one-year period
of redemption under Act No. 3135 which should apply and not the shorter
redemption period provided in Republic Act (R.A.) No. 8791. Petitioner argued
that applying Section 47 of R.A. 8791 to the real estate mortgage executed in
1985 would result in the impairment of obligation of contracts and violation of
the equal protection clause under the Constitution. Additionally, petitioner
faulted the respondent for allegedly failing to furnish it and the Office of the
Clerk of Court, RTC of Valenzuela City with a Statement of Account as directed
in the Certificate of Sale, due to which petitioner was not apprised of the
assessment and fees incurred by respondent, thus depriving petitioner of the
opportunity to exercise its right of redemption prior to the registration of the
certificate of sale.
In its Answer with Counterclaim,8 respondent pointed out that petitioner
cannot claim that it was unaware of the redemption price which is clearly
provided in Section 47 of R.A. No. 8791, and that petitioner had all the
opportune time to redeem the foreclosed properties from the time it received
the letter of demand and the notice of sale before the registration of the
certificate of sale. As to the check payment tendered by petitioner,
respondent said that even assuming arguendo such redemption was timely
made, it was not for the amount as required by law.

On January 8, 2007, the trial court rendered its decision dismissing the
complaint as well as the counterclaim. It noted that the issue of
constitutionality of Sec. 47 of R.A. No. 8791 was never raised by the petitioner
during the pre-trial and the trial. Aside from the fact that petitioners attempt
to redeem was already late, there was no valid redemption made because
Atty. Judy Ann Abat-Vera who talked to Atty. Joseph E. Mabilog of the Legal
Division of respondent bank, was not properly authorized by petitioners
Board of Directors to transact for and in its behalf; it was only a certain Chan
Guan Pue, the alleged President of petitioner corporation, who gave
instruction to Atty. Abat-Vera to redeem the foreclosed properties.9
Aggrieved, petitioner appealed to the CA which affirmed the trial courts
decision. According to the CA, petitioner failed to justify why Section 47 of
R.A. No. 8791 should be declared unconstitutional. Furthermore, the
appellate court concluded that a reading of Section 47 plainly reveals the
intention to shorten the period of redemption for juridical persons and that
the foreclosure of the mortgaged properties in this case when R.A. No. 8791
was already in effect clearly falls within the purview of the said provision.10
Petitioners motion for reconsideration was likewise denied by the CA.
In the present petition, it is contended that Section 47 of R.A. No. 8791 is
inapplicable considering that the contracting parties expressly and
categorically agreed that the foreclosure of the real estate mortgage shall be
in accordance with Act No. 3135. Citing Co v. Philippine National
Bank11 petitioner contended that the right of redemption is part and parcel of
the Deed of Real Estate Mortgage itself and attaches thereto upon its
execution, a vested right flowing out of and made dependent upon the law
governing the contract of mortgage and not on the mortgagees act of
extrajudicially foreclosing the mortgaged properties. This Court thus held in
said case that "Under the terms of the mortgage contract, the terms and
conditions under which redemption may be exercised are deemed part and
parcel thereof whether the same be merely conventional or imposed by law."

Petitioner then argues that applying Section 47 of R.A. No. 8791 to the
present case would be a substantial impairment of its vested right of
redemption under the real estate mortgage contract. Such impairment would
be violative of the constitutional proscription against impairment of
obligations of contract, a patent derogation of petitioners vested right and
clearly changes the intention of the contracting parties. Moreover, citing this
Courts ruling in Rural Bank of Davao City, Inc. v. Court of Appeals12 where it
was held that "Section 119 prevails over statutes which provide for a shorter
period of redemption in extrajudicial foreclosure sales", and in Sulit
v. Court of Appeals,13 petitioner stresses that it has always been the policy of
this Court to aid rather than defeat the mortgagors right to redeem his
property.
Petitioner further argues that since R.A. No. 8791 does not provide for its
retroactive application, courts therefore cannot retroactively apply its
provisions to contracts executed and consummated before its effectivity. Also,
since R.A. 8791 is a general law pertaining to the banking industry while Act
No. 3135 is a special law specifically governing real estate mortgage and
foreclosure, under the rules of statutory construction that in case of conflict a
special law prevails over a general law regardless of the dates of enactment of
both laws, Act No. 3135 clearly should prevail on the redemption period to be
applied in this case.
The constitutional issue having been squarely raised in the pleadings filed in
the trial and appellate courts, we shall proceed to resolve the same.
The law governing cases of extrajudicial foreclosure of mortgage is Act No.
3135,14 as amended by Act No. 4118. Section 6 thereof provides:
SEC. 6. In all cases in which an extrajudicial sale is made under the special
power hereinbefore referred to, the debtor, his successors-in-interest or any
judicial creditor or judgment creditor of said debtor, or any person having a
lien on the property subsequent to the mortgage or deed of

trust under which the property is sold, may redeem the same at any time
within the term of one year from and after the date of the sale; and such
redemption shall be governed by the provisions of sections four hundred and
sixty-four to four hundred and sixty-six, inclusive, of the Code of
Civil Procedure,15 in so far as these are not inconsistent with the provisions of
this Act.
The one-year period of redemption is counted from the date of the
registration of the certificate of sale. In this case, the parties provided in their
real estate mortgage contract that upon petitioners default and the latters
entire loan obligation becoming due, respondent may immediately foreclose
the mortgage judicially in accordance with the Rules of Court, or
extrajudicially in accordance with Act No. 3135, as amended.
However, Section 47 of R.A. No. 8791 otherwise known as "The General
Banking Law of 2000" which took effect on June 13, 2000, amended Act No.
3135. Said provision reads:
SECTION 47. Foreclosure of Real Estate Mortgage. In the event of
foreclosure, whether judicially or extrajudicially, of any mortgage on real
estate which is security for any loan or other credit accommodation granted,
the mortgagor or debtor whose real property has been sold for the full or
partial payment of his obligation shall have the right within one year after the
sale of the real estate, to redeem the property by paying the amount due
under the mortgage deed, with interest thereon at the rate specified in the
mortgage, and all the costs and expenses incurred by the bank or institution
from the sale and custody of said property less the income derived therefrom.
However, the purchaser at the auction sale concerned whether in a judicial or
extrajudicial foreclosure shall have the right to enter upon and take
possession of such property immediately after the date of the confirmation of
the auction sale and administer the same in accordance with law. Any petition
in court to enjoin or restrain the conduct of foreclosure proceedings instituted
pursuant to this provision shall be given due course only upon the filing by the
petitioner of a bond in an amount fixed by the court conditioned that he will

pay all the damages which the bank may suffer by the enjoining or the
restraint of the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold
pursuant to an extrajudicial foreclosure, shall have the right to redeem the
property in accordance with this provision until, but not after, the registration
of the certificate of foreclosure sale with the applicable Register of Deeds
which in no case shall be more than three (3) months after foreclosure,
whichever is earlier. Owners of property that has been sold in a foreclosure
sale prior to the effectivity of this Act shall retain their redemption rights until
their expiration. (Emphasis supplied.)
Under the new law, an exception is thus made in the case of juridical persons
which are allowed to exercise the right of redemption only "until, but not
after, the registration of the certificate of foreclosure sale" and in no case
more than three (3) months after foreclosure, whichever comes first.16
May the foregoing amendment be validly applied in this case when the real
estate mortgage contract was executed in 1985 and the mortgage foreclosed
when R.A. No. 8791 was already in effect?
We answer in the affirmative.
When confronted with a constitutional question, it is elementary that every
court must approach it with grave care and considerable caution bearing in
mind that every statute is presumed valid and every reasonable doubt should
be resolved in favor of its constitutionality.17 For a law to be nullified, it must
be shown that there is a clear and unequivocal breach of the Constitution. The
ground for nullity must be clear and beyond reasonable doubt.18Indeed, those
who petition this Court to declare a law, or parts thereof, unconstitutional
must clearly establish the basis therefor. Otherwise, the petition must fail.19
Petitioners contention that Section 47 of R.A. 8791 violates the constitutional
proscription against impairment of the obligation of contract has no basis.

The purpose of the non-impairment clause of the Constitution20 is to

safeguard the integrity of contracts against unwarranted interference by the
State. As a rule, contracts should not be tampered with by subsequent laws
that would change or modify the rights and obligations of the
parties.21 Impairment is anything that diminishes the efficacy of the contract.
There is an impairment if a subsequent law changes the terms of a contract
between the parties, imposes new conditions, dispenses with those agreed
upon or withdraws remedies for the enforcement of the rights of the
parties.22
Section 47 did not divest juridical persons of the right to redeem their
foreclosed properties but only modified the time for the exercise of such right
by reducing the one-year period originally provided in Act No. 3135. The new
redemption period commences from the date of foreclosure sale, and expires
upon registration of the certificate of sale or three months after foreclosure,
whichever is earlier. There is likewise no retroactive application of the new
redemption period because Section 47 exempts from its operation those
properties foreclosed prior to its effectivity and whose owners shall retain
their redemption rights under Act No. 3135.
Petitioners claim that Section 47 infringes the equal protection clause as it
discriminates mortgagors/property owners who are juridical persons is
equally bereft of merit.
The equal protection clause is directed principally against undue favor and
individual or class privilege.1wphi1 It is not intended to prohibit legislation
which is limited to the object to which it is directed or by the territory in
which it is to operate. It does not require absolute equality, but merely that all
persons be treated alike under like conditions both as to privileges conferred
and liabilities imposed.23 Equal protection permits of reasonable
classification.24We have ruled that one class may be treated differently from
another where the groupings are based on reasonable and real
distinctions.25 If classification is germane to the purpose of the law, concerns
all members of the class, and applies equally to present and future conditions,
the classification does not violate the equal protection guarantee.26

We agree with the CA that the legislature clearly intended to shorten the
period of redemption for juridical persons whose properties were foreclosed
and sold in accordance with the provisions of Act No. 3135.27
The difference in the treatment of juridical persons and natural persons was
based on the nature of the properties foreclosed whether these are used as
residence, for which the more liberal one-year redemption period is retained,
or used for industrial or commercial purposes, in which case a shorter term is
deemed necessary to reduce the period of uncertainty in the ownership of
property and enable mortgagee-banks to dispose sooner of these acquired
assets. It must be underscored that the General Banking Law of 2000, crafted
in the aftermath of the 1997 Southeast Asian financial crisis, sought to reform
the General Banking Act of 1949 by fashioning a legal framework for
maintaining a safe and sound banking system.28 In this context, the
amendment introduced by Section 47 embodied one of such safe and sound
practices aimed at ensuring the solvency and liquidity of our banks.1wphi1 It
cannot therefore be disputed that the said provision amending the
redemption period in Act 3135 was based on a reasonable classification and
germane to the purpose of the law.
This legitimate public interest pursued by the legislature further enfeebles
petitioners impairment of contract theory.
The right of redemption being statutory, it must be exercised in the manner
prescribed by the statute,29 and within the prescribed time limit, to make it
effective. Furthermore, as with other individual rights to contract and to
property, it has to give way to police power exercised for public welfare.30 The
concept of police power is well-established in this jurisdiction. It has been
defined as the "state authority to enact legislation that may interfere with
personal liberty or property in order to promote the general welfare." Its
scope, ever-expanding to meet the exigencies of the times, even to anticipate
the future where it could be done, provides enough room for an efficient and
flexible response to conditions and circumstances thus assuming the greatest
benefits.31

The freedom to contract is not absolute; all contracts and all rights are subject
to the police power of the State and not only may regulations which affect
them be established by the State, but all such regulations must be subject to
change from time to time, as the general well-being of the community may
require, or as the circumstances may change, or as experience may
demonstrate the necessity.32 Settled is the rule that the non-impairment
clause of the Constitution must yield to the loftier purposes targeted by the
Government. The right granted by this provision must submit to the demands
and necessities of the States power of regulation.33 Such authority to regulate
businesses extends to the banking industry which, as this Court has time and
again emphasized, is undeniably imbued with public interest.34
Having ruled that the assailed Section 47 of R.A. No. 8791 is constitutional, we
find no reversible error committed by the CA in holding that petitioner can no
longer exercise the right of redemption over its foreclosed properties after
the certificate of sale in favor of respondent had been registered.
WHEREFORE, the petition for review on certiorari is DENIED for lack of merit.
The Decision dated November 19, 2010 and Resolution dated January 31,
2011 of the Court of Appeals in CA-G.R. CV No. 91120 are hereby AFFIRMED.
With costs against the petitioner.
SO ORDERED.