Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 78742 July 14, 1989

ASSOCIATION OF SMALL LANDOWNERS IN THE PHILIPPINES, INC., JUANITO D. GOMEZ,

GERARDO B. ALARCIO, FELIPE A. GUICO, JR., BERNARDO M. ALMONTE, CANUTO RAMIR
B. CABRITO, ISIDRO T. GUICO, FELISA I. LLAMIDO, FAUSTO J. SALVA, REYNALDO G.
ESTRADA, FELISA C. BAUTISTA, ESMENIA J. CABE, TEODORO B. MADRIAGA, AUREA J.
PRESTOSA, EMERENCIANA J. ISLA, FELICISIMA C. ARRESTO, CONSUELO M. MORALES,
BENJAMIN R. SEGISMUNDO, CIRILA A. JOSE & NAPOLEON S. FERRER, petitioners,
vs.
HONORABLE SECRETARY OF AGRARIAN REFORM, respondent.

G.R. No. 79310 July 14, 1989

ARSENIO AL. ACUNA, NEWTON JISON, VICTORINO FERRARIS, DENNIS JEREZA,

HERMINIGILDO GUSTILO, PAULINO D. TOLENTINO and PLANTERS' COMMITTEE, INC.,
Victorias Mill District, Victorias, Negros Occidental, petitioners,
vs.
JOKER ARROYO, PHILIP E. JUICO and PRESIDENTIAL AGRARIAN REFORM
COUNCIL, respondents.

G.R. No. 79744 July 14, 1989

INOCENTES PABICO, petitioner,

vs.
HON. PHILIP E. JUICO, SECRETARY OF THE DEPARTMENT OF AGRARIAN REFORM, HON.
JOKER ARROYO, EXECUTIVE SECRETARY OF THE OFFICE OF THE PRESIDENT, and
Messrs. SALVADOR TALENTO, JAIME ABOGADO, CONRADO AVANCENA and ROBERTO
TAAY, respondents.

G.R. No. 79777 July 14, 1989

NICOLAS S. MANAAY and AGUSTIN HERMANO, JR., petitioners,

vs.
HON. PHILIP ELLA JUICO, as Secretary of Agrarian Reform, and LAND BANK OF THE
PHILIPPINES, respondents.

CRUZ, J.:

In ancient mythology, Antaeus was a terrible giant who blocked and challenged Hercules for his life
on his way to Mycenae after performing his eleventh labor. The two wrestled mightily and Hercules
flung his adversary to the ground thinking him dead, but Antaeus rose even stronger to resume their
struggle. This happened several times to Hercules' increasing amazement. Finally, as they continued
grappling, it dawned on Hercules that Antaeus was the son of Gaea and could never die as long as
any part of his body was touching his Mother Earth. Thus forewarned, Hercules then held Antaeus up
in the air, beyond the reach of the sustaining soil, and crushed him to death.

Mother Earth. The sustaining soil. The giver of life, without whose invigorating touch even the powerful
Antaeus weakened and died.

The cases before us are not as fanciful as the foregoing tale. But they also tell of the elemental forces
of life and death, of men and women who, like Antaeus need the sustaining strength of the precious
earth to stay alive.

"Land for the Landless" is a slogan that underscores the acute imbalance in the distribution of this
precious resource among our people. But it is more than a slogan. Through the brooding centuries, it
has become a battle-cry dramatizing the increasingly urgent demand of the dispossessed among us
for a plot of earth as their place in the sun.

Recognizing this need, the Constitution in 1935 mandated the policy of social justice to "insure the
well-being and economic security of all the people," 1 especially the less privileged. In 1973, the new
Constitution affirmed this goal adding specifically that "the State shall regulate the acquisition,
ownership, use, enjoyment and disposition of private property and equitably diffuse property
ownership and profits." 2 Significantly, there was also the specific injunction to "formulate and
implement an agrarian reform program aimed at emancipating the tenant from the bondage of the
soil." 3

The Constitution of 1987 was not to be outdone. Besides echoing these sentiments, it also adopted
one whole and separate Article XIII on Social Justice and Human Rights, containing grandiose but
undoubtedly sincere provisions for the uplift of the common people. These include a call in the
following words for the adoption by the State of an agrarian reform program:

SEC. 4. The State shall, by law, undertake an agrarian reform program founded on the
right of farmers and regular farmworkers, who are landless, to own directly or
collectively the lands they till or, in the case of other farmworkers, to receive a just
share of the fruits thereof. To this end, the State shall encourage and undertake the
just distribution of all agricultural lands, subject to such priorities and reasonable
retention limits as the Congress may prescribe, taking into account ecological,
developmental, or equity considerations and subject to the payment of just
compensation. In determining retention limits, the State shall respect the right of small
landowners. The State shall further provide incentives for voluntary land-sharing.

Earlier, in fact, R.A. No. 3844, otherwise known as the Agricultural Land Reform Code, had already
been enacted by the Congress of the Philippines on August 8, 1963, in line with the above-stated
principles. This was substantially superseded almost a decade later by P.D. No. 27, which was
promulgated on October 21, 1972, along with martial law, to provide for the compulsory acquisition of
private lands for distribution among tenant-farmers and to specify maximum retention limits for
landowners.

The people power revolution of 1986 did not change and indeed even energized the thrust for agrarian
reform. Thus, on July 17, 1987, President Corazon C. Aquino issued E.O. No. 228, declaring full land
ownership in favor of the beneficiaries of P.D. No. 27 and providing for the valuation of still unvalued
lands covered by the decree as well as the manner of their payment. This was followed on July 22,
1987 by Presidential Proclamation No. 131, instituting a comprehensive agrarian reform program
(CARP), and E.O. No. 229, providing the mechanics for its implementation.
Subsequently, with its formal organization, the revived Congress of the Philippines took over legislative
power from the President and started its own deliberations, including extensive public hearings, on the
improvement of the interests of farmers. The result, after almost a year of spirited debate, was the
enactment of R.A. No. 6657, otherwise known as the Comprehensive Agrarian Reform Law of 1988,
which President Aquino signed on June 10, 1988. This law, while considerably changing the earlier
mentioned enactments, nevertheless gives them suppletory effect insofar as they are not inconsistent
with its provisions. 4

The above-captioned cases have been consolidated because they involve common legal questions,
including serious challenges to the constitutionality of the several measures mentioned above. They
will be the subject of one common discussion and resolution, The different antecedents of each case
will require separate treatment, however, and will first be explained hereunder.

G.R. No. 79777

Squarely raised in this petition is the constitutionality of P.D. No. 27, E.O. Nos. 228 and 229, and R.A.
No. 6657.

The subjects of this petition are a 9-hectare riceland worked by four tenants and owned by petitioner
Nicolas Manaay and his wife and a 5-hectare riceland worked by four tenants and owned by petitioner
Augustin Hermano, Jr. The tenants were declared full owners of these lands by E.O. No. 228 as
qualified farmers under P.D. No. 27.

The petitioners are questioning P.D. No. 27 and E.O. Nos. 228 and 229 on grounds inter alia of
separation of powers, due process, equal protection and the constitutional limitation that no private
property shall be taken for public use without just compensation.

They contend that President Aquino usurped legislative power when she promulgated E.O. No. 228.
The said measure is invalid also for violation of Article XIII, Section 4, of the Constitution, for failure to
provide for retention limits for small landowners. Moreover, it does not conform to Article VI, Section
25(4) and the other requisites of a valid appropriation.

In connection with the determination of just compensation, the petitioners argue that the same may be
made only by a court of justice and not by the President of the Philippines. They invoke the recent
cases of EPZA v. Dulay 5 andManotok 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 ofChavez v. Zobel, 7 Gonzales v. Estrella, 8 and Association of Rice and Corn Producers of the
Philippines, Inc. v. The National Land Reform Council. 9 The determination of just compensation by
the executive authorities conformably to the formula prescribed under the questioned order is at best
initial or preliminary only. It does not foreclose judicial intervention whenever sought or warranted. At
any rate, the challenge to the order is premature because no valuation of their property has as yet
been made by the Department of Agrarian Reform. The petitioners are also not proper parties because
the lands owned by them do not exceed the maximum retention limit of 7 hectares.

Replying, the petitioners insist they are proper parties because P.D. No. 27 does not provide for
retention limits on tenanted lands and that in any event their petition is a class suit brought in behalf
of landowners with landholdings below 24 hectares. They maintain that the determination of just
compensation by the administrative authorities is a final ascertainment. As for the cases invoked by
the public respondent, the constitutionality of P.D. No. 27 was merely assumed in Chavez, while what
was decided in Gonzales was the validity of the imposition of martial law.

In the amended petition dated November 22, 1588, it is contended that P.D. No. 27, E.O. Nos. 228
and 229 (except Sections 20 and 21) have been impliedly repealed by R.A. No. 6657. Nevertheless,
this statute should itself also be declared unconstitutional because it suffers from substantially the
same infirmities as the earlier measures.

A petition for intervention was filed with leave of court on June 1, 1988 by Vicente Cruz, owner of a 1.
83- hectare land, who complained that the DAR was insisting on the implementation of P.D. No. 27
and E.O. No. 228 despite a compromise agreement he had reached with his tenant on the payment
of rentals. In a subsequent motion dated April 10, 1989, he adopted the allegations in the basic
amended petition that the above- mentioned enactments have been impliedly repealed by R.A. No.
6657.

G.R. No. 79310

The petitioners herein are landowners and sugar planters in the Victorias Mill District, Victorias, Negros
Occidental. Co-petitioner Planters' Committee, Inc. is an organization composed of 1,400 planter-
members. This petition seeks to prohibit the implementation of Proc. No. 131 and E.O. No. 229.

The petitioners claim that the power to provide for a Comprehensive Agrarian Reform Program as
decreed by the Constitution belongs to Congress and not the President. Although they agree that the
President could exercise legislative power until the Congress was convened, she could do so only to
enact emergency measures during the transition period. At that, even assuming that the interim
legislative power of the President was properly exercised, Proc. No. 131 and E.O. No. 229 would still
have to be annulled for violating the constitutional provisions on just compensation, due process, and
equal protection.

They also argue that under Section 2 of Proc. No. 131 which provides:

Agrarian Reform Fund.-There is hereby created a special fund, to be known as the Agrarian Reform
Fund, an initial amount of FIFTY BILLION PESOS (P50,000,000,000.00) to cover the estimated cost
of the Comprehensive Agrarian Reform Program from 1987 to 1992 which shall be sourced from the
receipts of the sale of the assets of the Asset Privatization Trust and Receipts of sale of ill-gotten
wealth received through the Presidential Commission on Good Government and such other sources
as government may deem appropriate. The amounts collected and accruing to this special fund shall
be considered automatically appropriated for the purpose authorized in this Proclamation the amount
appropriated is in futuro, not in esse. The money needed to cover the cost of the contemplated
expropriation has yet to be raised and cannot be appropriated at this time.

Furthermore, they contend that taking must be simultaneous with payment of just compensation as it
is traditionally understood, i.e., with money and in full, but no such payment is contemplated in Section
5 of the E.O. No. 229. On the contrary, Section 6, thereof provides that the Land Bank of the Philippines
"shall compensate the landowner in an amount to be established by the government, which shall be
based on the owner's declaration of current fair market value as provided in Section 4 hereof, but
subject to certain controls to be defined and promulgated by the Presidential Agrarian Reform
Council." This compensation may not be paid fully in money but in any of several modes that may
consist of part cash and part bond, with interest, maturing periodically, or direct payment in cash or
bond as may be mutually agreed upon by the beneficiary and the landowner or as may be prescribed
or approved by the PARC.

The petitioners also argue that in the issuance of the two measures, no effort was made to make a
careful study of the sugar planters' situation. There is no tenancy problem in the sugar areas that can
justify the application of the CARP to them. To the extent that the sugar planters have been lumped in
the same legislation with other farmers, although they are a separate group with problems exclusively
their own, their right to equal protection has been violated.

A motion for intervention was filed on August 27,1987 by the National Federation of Sugarcane
Planters (NASP) which claims a membership of at least 20,000 individual sugar planters all over the
country. On September 10, 1987, another motion for intervention was filed, this time by Manuel
Barcelona, et al., representing coconut and riceland owners. Both motions were granted by the Court.

NASP alleges that President Aquino had no authority to fund the Agrarian Reform Program and that,
in any event, the appropriation is invalid because of uncertainty in the amount appropriated. Section 2
of Proc. No. 131 and Sections 20 and 21 of E.O. No. 229 provide for an initial appropriation of fifty
billion pesos and thus specifies the minimum rather than the maximum authorized amount. This is not
allowed. Furthermore, the stated initial amount has not been certified to by the National Treasurer as
actually available.

Two additional arguments are made by Barcelona, to wit, the failure to establish by clear and
convincing evidence the necessity for the exercise of the powers of eminent domain, and the violation
of the fundamental right to own property.

The petitioners also decry the penalty for non-registration of the lands, which is the expropriation of
the said land for an amount equal to the government assessor's valuation of the land for tax purposes.
On the other hand, if the landowner declares his own valuation he is unjustly required to immediately
pay the corresponding taxes on the land, in violation of the uniformity rule.

In his consolidated Comment, the Solicitor General first invokes the presumption of constitutionality in
favor of Proc. No. 131 and E.O. No. 229. He also justifies the necessity for the expropriation as
explained in the "whereas" clauses of the Proclamation and submits that, contrary to the petitioner's
contention, a pilot project to determine the feasibility of CARP and a general survey on the people's
opinion thereon are not indispensable prerequisites to its promulgation.

On the alleged violation of the equal protection clause, the sugar planters have failed to show that they
belong to a different class and should be differently treated. The Comment also suggests the possibility
of Congress first distributing public agricultural lands and scheduling the expropriation of private
agricultural lands later. From this viewpoint, the petition for prohibition would be premature.

The public respondent also points out that the constitutional prohibition is against the payment of public
money without the corresponding appropriation. There is no rule that only money already in existence
can be the subject of an appropriation law. Finally, the earmarking of fifty billion pesos as Agrarian
Reform Fund, although denominated as an initial amount, is actually the maximum sum appropriated.
The word "initial" simply means that additional amounts may be appropriated later when necessary.
On April 11, 1988, Prudencio Serrano, a coconut planter, filed a petition on his own behalf, assailing
the constitutionality of E.O. No. 229. In addition to the arguments already raised, Serrano contends
that the measure is unconstitutional because:

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

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

(3) The power of the President to legislate was terminated on July 2, 1987; and

(4) The appropriation of a P50 billion special fund from the National Treasury did not
originate from the House of Representatives.

G.R. No. 79744

The petitioner alleges that the then Secretary of Department of Agrarian Reform, in violation of due
process and the requirement for just compensation, placed his landholding under the coverage of
Operation Land Transfer. Certificates of Land Transfer were subsequently issued to the private
respondents, who then refused payment of lease rentals to him.

On September 3, 1986, the petitioner protested the erroneous inclusion of his small landholding under
Operation Land transfer and asked for the recall and cancellation of the Certificates of Land Transfer
in the name of the private respondents. He claims that on December 24, 1986, his petition was denied
without hearing. On February 17, 1987, he filed a motion for reconsideration, which had not been
acted upon when E.O. Nos. 228 and 229 were issued. These orders rendered his motion moot and
academic because they directly effected the transfer of his land to the private respondents.

The petitioner now argues that:

(1) E.O. Nos. 228 and 229 were invalidly issued by the President of the Philippines.

(2) The said executive orders are violative of the constitutional provision that no private
property shall be taken without due process or just compensation.

(3) The petitioner is denied the right of maximum retention provided for under the 1987
Constitution.

The petitioner contends that the issuance of E.0. Nos. 228 and 229 shortly before Congress convened
is anomalous and arbitrary, besides violating the doctrine of separation of powers. The legislative
power granted to the President under the Transitory Provisions refers only to emergency measures
that may be promulgated in the proper exercise of the police power.

The petitioner also invokes his rights not to be deprived of his property without due process of law and
to the retention of his small parcels of riceholding as guaranteed under Article XIII, Section 4 of the
Constitution. He likewise argues that, besides denying him just compensation for his land, the
provisions of E.O. No. 228 declaring that:

Lease rentals paid to the landowner by the farmer-beneficiary after October 21, 1972
shall be considered as advance payment for the land.
is an unconstitutional taking of a vested property right. It is also his contention that the inclusion of
even small landowners in the program along with other landowners with lands consisting of seven
hectares or more is undemocratic.

In his Comment, the Solicitor General submits that the petition is premature because the motion for
reconsideration filed with the Minister of Agrarian Reform is still unresolved. As for the validity of the
issuance of E.O. Nos. 228 and 229, he argues that they were enacted pursuant to Section 6, Article
XVIII of the Transitory Provisions of the 1987 Constitution which reads:

The incumbent president shall continue to exercise legislative powers until the first Congress is
convened.

On the issue of just compensation, his position is that when P.D. No. 27 was promulgated on October
21. 1972, the tenant-farmer of agricultural land was deemed the owner of the land he was tilling. The
leasehold rentals paid after that date should therefore be considered amortization payments.

In his Reply to the public respondents, the petitioner maintains that the motion he filed was resolved
on December 14, 1987. An appeal to the Office of the President would be useless with the
promulgation of E.O. Nos. 228 and 229, which in effect sanctioned the validity of the public
respondent's acts.

G.R. No. 78742

The petitioners in this case invoke the right of retention granted by P.D. No. 27 to owners of rice and
corn lands not exceeding seven hectares as long as they are cultivating or intend to cultivate the same.
Their respective lands do not exceed the statutory limit but are occupied by tenants who are actually
cultivating such lands.

According to P.D. No. 316, which was promulgated in implementation of P.D. No. 27:

No tenant-farmer in agricultural lands primarily devoted to rice and corn shall be

ejected or removed from his farmholding until such time as the respective rights of the
tenant- farmers and the landowner shall have been determined in accordance with the
rules and regulations implementing P.D. No. 27.

The petitioners claim they cannot eject their tenants and so are unable to enjoy their right of retention
because the Department of Agrarian Reform has so far not issued the implementing rules required
under the above-quoted decree. They therefore ask the Court for a writ of mandamus to compel the
respondent to issue the said rules.

In his Comment, the public respondent argues that P.D. No. 27 has been amended by LOI 474
removing any right of retention from persons who own other agricultural lands of more than 7 hectares
in aggregate area or lands used for residential, commercial, industrial or other purposes from which
they derive adequate income for their family. And even assuming that the petitioners do not fall under
its terms, the regulations implementing P.D. No. 27 have already been issued, to wit, the Memorandum
dated July 10, 1975 (Interim Guidelines on Retention by Small Landowners, with an accompanying
Retention Guide Table), Memorandum Circular No. 11 dated April 21, 1978, (Implementation
Guidelines of LOI No. 474), Memorandum Circular No. 18-81 dated December 29,1981 (Clarificatory
Guidelines on Coverage of P.D. No. 27 and Retention by Small Landowners), and DAR Administrative
Order No. 1, series of 1985 (Providing for a Cut-off Date for Landowners to Apply for Retention and/or
to Protest the Coverage of their Landholdings under Operation Land Transfer pursuant to P.D. No.
27). For failure to file the corresponding applications for retention under these measures, the
petitioners are now barred from invoking this right.

The public respondent also stresses that the petitioners have prematurely initiated this case
notwithstanding the pendency of their appeal to the President of the Philippines. Moreover, the
issuance of the implementing rules, assuming this has not yet been done, involves the exercise of
discretion which cannot be controlled through the writ of mandamus. This is especially true if this
function is entrusted, as in this case, to a separate department of the government.

In their Reply, the petitioners insist that the above-cited measures are not applicable to them because
they do not own more than seven hectares of agricultural land. Moreover, assuming arguendo that the
rules were intended to cover them also, the said measures are nevertheless not in force because they
have not been published as required by law and the ruling of this Court in Tanada v. Tuvera.10 As for
LOI 474, the same is ineffective for the additional reason that a mere letter of instruction could not
have repealed the presidential decree.

Although holding neither purse nor sword and so regarded as the weakest of the three departments
of the government, the judiciary is nonetheless vested with the power to annul the acts of either the
legislative or the executive or of both when not conformable to the fundamental law. This is the reason
for what some quarters call the doctrine of judicial supremacy. Even so, this power is not lightly
assumed or readily exercised. The doctrine of separation of powers imposes upon the courts a proper
restraint, born of the nature of their functions and of their respect for the other departments, in striking
down the acts of the legislative and the executive as unconstitutional. The policy, indeed, is a blend of
courtesy and caution. To doubt is to sustain. The theory is that before the act was done or the law was
enacted, earnest studies were made by Congress or the President, or both, to insure that the
Constitution would not be breached.

In addition, the Constitution itself lays down stringent conditions for a declaration of unconstitutionality,
requiring therefor the concurrence of a majority of the members of the Supreme Court who took part
in the deliberations and voted on the issue during their session en banc.11 And as established by judge
made doctrine, the Court will assume jurisdiction over a constitutional question only if it is shown that
the essential requisites of a judicial inquiry into such a question are first satisfied. Thus, there must be
an actual case or controversy involving a conflict of legal rights susceptible of judicial determination,
the constitutional question must have been opportunely raised by the proper party, and the resolution
of the question is unavoidably necessary to the decision of the case itself. 12

With particular regard to the requirement of proper party as applied in the cases before us, we hold
that the same is satisfied by the petitioners and intervenors because each of them has sustained or is
in danger of sustaining an immediate injury as a result of the acts or measures complained of. 13 And
even if, strictly speaking, they are not covered by the definition, it is still within the wide discretion of
the Court to waive the requirement and so remove the impediment to its addressing and resolving the
serious constitutional questions raised.

In the first Emergency Powers Cases, 14 ordinary citizens and taxpayers were allowed to question the
constitutionality of several executive orders issued by President Quirino although they were invoking
only an indirect and general interest shared in common with the public. The Court dismissed the
objection that they were not proper parties and ruled that "the transcendental importance to the public
of these cases demands that they be settled promptly and definitely, brushing aside, if we must,
technicalities of procedure." We have since then applied this exception in many other cases. 15
The other above-mentioned requisites have also been met in the present petitions.

In must be stressed that despite the inhibitions pressing upon the Court when confronted with
constitutional issues like the ones now before it, it will not hesitate to declare a law or act invalid when
it is convinced that this must be done. In arriving at this conclusion, its only criterion will be the
Constitution as God and its conscience give it the light to probe its meaning and discover its purpose.
Personal motives and political considerations are irrelevancies that cannot influence its decision.
Blandishment is as ineffectual as intimidation.

For all the awesome power of the Congress and the Executive, the Court will not hesitate to "make
the hammer fall, and heavily," to use Justice Laurel's pithy language, where the acts of these
departments, or of any public official, betray the people's will as expressed in the Constitution.

It need only be added, to borrow again the words of Justice Laurel, that —

... when the judiciary mediates to allocate constitutional boundaries, it does not assert
any superiority over the other departments; it does not in reality nullify or invalidate an
act of the Legislature, but only asserts the solemn and sacred obligation assigned to it
by the Constitution to determine conflicting claims of authority under the Constitution
and to establish for the parties in an actual controversy the rights which that instrument
secures and guarantees to them. This is in truth all that is involved in what is termed
"judicial supremacy" which properly is the power of judicial review under the
Constitution. 16

The cases before us categorically raise constitutional questions that this Court must categorically
resolve. And so we shall.

II

We proceed first to the examination of the preliminary issues before resolving the more serious
challenges to the constitutionality of the several measures involved in these petitions.

The promulgation of P.D. No. 27 by President Marcos in the exercise of his powers under martial law
has already been sustained in Gonzales v. Estrella and we find no reason to modify or reverse it on
that issue. As for the power of President Aquino to promulgate Proc. No. 131 and E.O. Nos. 228 and
229, the same was authorized under Section 6 of the Transitory Provisions of the 1987 Constitution,
quoted above.

The said measures were issued by President Aquino before July 27, 1987, when the Congress of the
Philippines was formally convened and took over legislative power from her. They are not "midnight"
enactments intended to pre-empt the legislature because E.O. No. 228 was issued on July 17, 1987,
and the other measures, i.e., Proc. No. 131 and E.O. No. 229, were both issued on July 22, 1987.
Neither is it correct to say that these measures ceased to be valid when she lost her legislative power
for, like any statute, they continue to be in force unless modified or repealed by subsequent law or
declared invalid by the courts. A statute does not ipso facto become inoperative simply because of the
dissolution of the legislature that enacted it. By the same token, President Aquino's loss of legislative
power did not have the effect of invalidating all the measures enacted by her when and as long as she
possessed it.

Significantly, the Congress she is alleged to have undercut has not rejected but in fact substantially
affirmed the challenged measures and has specifically provided that they shall be suppletory to R.A.
No. 6657 whenever not inconsistent with its provisions. 17 Indeed, some portions of the said measures,
like the creation of the P50 billion fund in Section 2 of Proc. No. 131, and Sections 20 and 21 of E.O.
No. 229, have been incorporated by reference in the CARP Law. 18

That fund, as earlier noted, is itself being questioned on the ground that it does not conform to the
requirements of a valid appropriation as specified in the Constitution. Clearly, however, Proc. No. 131
is not an appropriation measure even if it does provide for the creation of said fund, for that is not its
principal purpose. An appropriation law is one the primary and specific purpose of which is to authorize
the release of public funds from the treasury. 19 The creation of the fund is only incidental to the main
objective of the proclamation, which is agrarian reform.

It should follow that the specific constitutional provisions invoked, to wit, Section 24 and Section 25(4)
of Article VI, are not applicable. With particular reference to Section 24, this obviously could not have
been complied with for the simple reason that the House of Representatives, which now has the
exclusive power to initiate appropriation measures, had not yet been convened when the proclamation
was issued. The legislative power was then solely vested in the President of the Philippines, who
embodied, as it were, both houses of Congress.

The argument of some of the petitioners that Proc. No. 131 and E.O. No. 229 should be invalidated
because they do not provide for retention limits as required by Article XIII, Section 4 of the Constitution
is no longer tenable. R.A. No. 6657 does provide for such limits now in Section 6 of the law, which in
fact is one of its most controversial provisions. This section declares:

Retention Limits. — Except as otherwise provided in this Act, no person may own or
retain, directly or indirectly, any public or private agricultural land, the size of which
shall vary according to factors governing a viable family-sized farm, such as
commodity produced, terrain, infrastructure, and soil fertility as determined by the
Presidential Agrarian Reform Council (PARC) created hereunder, but in no case shall
retention by the landowner exceed five (5) hectares. Three (3) hectares may be
awarded to each child of the landowner, subject to the following qualifications: (1) that
he is at least fifteen (15) years of age; and (2) that he is actually tilling the land or
directly managing the farm; Provided, That landowners whose lands have been
covered by Presidential Decree No. 27 shall be allowed to keep the area originally
retained by them thereunder, further, That original homestead grantees or direct
compulsory heirs who still own the original homestead at the time of the approval of
this Act shall retain the same areas as long as they continue to cultivate said
homestead.

The argument that E.O. No. 229 violates the constitutional requirement that a bill shall have only one
subject, to be expressed in its title, deserves only short attention. It is settled that the title of the bill
does not have to be a catalogue of its contents and will suffice if the matters embodied in the text are
relevant to each other and may be inferred from the title. 20

The Court wryly observes that during the past dictatorship, every presidential issuance, by whatever
name it was called, had the force and effect of law because it came from President Marcos. Such are
the ways of despots. Hence, it is futile to argue, as the petitioners do in G.R. No. 79744, that LOI 474
could not have repealed P.D. No. 27 because the former was only a letter of instruction. The important
thing is that it was issued by President Marcos, whose word was law during that time.

But for all their peremptoriness, these issuances from the President Marcos still had to comply with
the requirement for publication as this Court held in Tanada v. Tuvera. 21 Hence, unless published in
the Official Gazette in accordance with Article 2 of the Civil Code, they could not have any force and
effect if they were among those enactments successfully challenged in that case. LOI 474 was
published, though, in the Official Gazette dated November 29,1976.)

Finally, there is the contention of the public respondent in G.R. No. 78742 that the writ of mandamus
cannot issue to compel the performance of a discretionary act, especially by a specific department of
the government. That is true as a general proposition but is subject to one important qualification.
Correctly and categorically stated, the rule is that mandamus will lie to compel the discharge of the
discretionary duty itself but not to control the discretion to be exercised. In other words, mandamus
can issue to require action only but not specific action.

Whenever a duty is imposed upon a public official and an unnecessary and

unreasonable delay in the exercise of such duty occurs, if it is a clear duty imposed by
law, the courts will intervene by the extraordinary legal remedy of mandamus to compel
action. If the duty is purely ministerial, the courts will require specific action. If the duty
is purely discretionary, the courts by mandamus will require action only. For example,
if an inferior court, public official, or board should, for an unreasonable length of time,
fail to decide a particular question to the great detriment of all parties concerned, or a
court should refuse to take jurisdiction of a cause when the law clearly gave it
jurisdiction mandamus will issue, in the first case to require a decision, and in the
second to require that jurisdiction be taken of the cause. 22

And while it is true that as a rule the writ will not be proper as long as there is still a plain, speedy and
adequate remedy available from the administrative authorities, resort to the courts may still be
permitted if the issue raised is a question of law. 23

III

There are traditional distinctions between the police power and the power of eminent domain that
logically preclude the application of both powers at the same time on the same subject. In the case
of City of Baguio v. NAWASA, 24for example, where a law required the transfer of all municipal
waterworks systems to the NAWASA in exchange for its assets of equivalent value, the Court held
that the power being exercised was eminent domain because the property involved was wholesome
and intended for a public use. Property condemned under the police power is noxious or intended for
a noxious purpose, such as a building on the verge of collapse, which should be demolished for the
public safety, or obscene materials, which should be destroyed in the interest of public morals. The
confiscation of such property is not compensable, unlike the taking of property under the power of
expropriation, which requires the payment of just compensation to the owner.

In the case of Pennsylvania Coal Co. v. Mahon, 25 Justice Holmes laid down the limits of the police
power in a famous aphorism: "The general rule at least is that while property may be regulated to a
certain extent, if regulation goes too far it will be recognized as a taking." The regulation that went "too
far" was a law prohibiting mining which might cause the subsidence of structures for human habitation
constructed on the land surface. This was resisted by a coal company which had earlier granted a
deed to the land over its mine but reserved all mining rights thereunder, with the grantee assuming all
risks and waiving any damage claim. The Court held the law could not be sustained without
compensating the grantor. Justice Brandeis filed a lone dissent in which he argued that there was a
valid exercise of the police power. He said:

Every restriction upon the use of property imposed in the exercise of the police power
deprives the owner of some right theretofore enjoyed, and is, in that sense, an
abridgment by the State of rights in property without making compensation. But
restriction imposed to protect the public health, safety or morals from dangers
 threatened is not a taking. The restriction here in question is merely the prohibition of
a noxious use. The property so restricted remains in the possession of its owner. The
state does not appropriate it or make any use of it. The state merely prevents the owner
from making a use which interferes with paramount rights of the public. Whenever the
use prohibited ceases to be noxious — as it may because of further changes in local
or social conditions — the restriction will have to be removed and the owner will again
be free to enjoy his property as heretofore.

Recent trends, however, would indicate not a polarization but a mingling of the police power and the
power of eminent domain, with the latter being used as an implement of the former like the power of
taxation. The employment of the taxing power to achieve a police purpose has long been
accepted. 26 As for the power of expropriation, Prof. John J. Costonis of the University of Illinois
College of Law (referring to the earlier case of Euclid v. Ambler Realty Co., 272 US 365, which
sustained a zoning law under the police power) makes the following significant remarks:

Euclid, moreover, was decided in an era when judges located the Police and eminent
domain powers on different planets. Generally speaking, they viewed eminent domain
as encompassing public acquisition of private property for improvements that would
be available for public use," literally construed. To the police power, on the other hand,
they assigned the less intrusive task of preventing harmful externalities a point
reflected in the Euclid opinion's reliance on an analogy to nuisance law to bolster its
support of zoning. So long as suppression of a privately authored harm bore a
plausible relation to some legitimate "public purpose," the pertinent measure need
have afforded no compensation whatever. With the progressive growth of
government's involvement in land use, the distance between the two powers has
contracted considerably. Today government often employs eminent domain
interchangeably with or as a useful complement to the police power-- a trend expressly
approved in the Supreme Court's 1954 decision in Berman v. Parker, which broadened
the reach of eminent domain's "public use" test to match that of the police power's
standard of "public purpose." 27

The Berman case sustained a redevelopment project and the improvement of blighted areas in the
District of Columbia as a proper exercise of the police power. On the role of eminent domain in the
attainment of this purpose, Justice Douglas declared:

If those who govern the District of Columbia decide that the Nation's Capital should be
beautiful as well as sanitary, there is nothing in the Fifth Amendment that stands in the
way.

Once the object is within the authority of Congress, the right to realize it through the
exercise of eminent domain is clear.

For the power of eminent domain is merely the means to the end. 28

In Penn Central Transportation Co. v. New York City, 29 decided by a 6-3 vote in 1978, the U.S
Supreme Court sustained the respondent's Landmarks Preservation Law under which the owners of
the Grand Central Terminal had not been allowed to construct a multi-story office building over the
Terminal, which had been designated a historic landmark. Preservation of the landmark was held to
be a valid objective of the police power. The problem, however, was that the owners of the Terminal
would be deprived of the right to use the airspace above it although other landowners in the area could
do so over their respective properties. While insisting that there was here no taking, the Court
nonetheless recognized certain compensatory rights accruing to Grand Central Terminal which it said
would "undoubtedly mitigate" the loss caused by the regulation. This "fair compensation," as he called
it, was explained by Prof. Costonis in this wise:

In return for retaining the Terminal site in its pristine landmark status, Penn Central was authorized to
transfer to neighboring properties the authorized but unused rights accruing to the site prior to the
Terminal's designation as a landmark — the rights which would have been exhausted by the 59-story
building that the city refused to countenance atop the Terminal. Prevailing bulk restrictions on
neighboring sites were proportionately relaxed, theoretically enabling Penn Central to recoup its losses
at the Terminal site by constructing or selling to others the right to construct larger, hence more
profitable buildings on the transferee sites. 30

The cases before us present no knotty complication insofar as the question of compensable taking is
concerned. To the extent that the measures under challenge merely prescribe retention limits for
landowners, there is an exercise of the police power for the regulation of private property in accordance
with the Constitution. But where, to carry out such regulation, it becomes necessary to deprive such
owners of whatever lands they may own in excess of the maximum area allowed, there is definitely a
taking under the power of eminent domain for which payment of just compensation is imperative. The
taking contemplated is not a mere limitation of the use of the land. What is required is the surrender
of the title to and the physical possession of the said excess and all beneficial rights accruing to the
owner in favor of the farmer-beneficiary. This is definitely an exercise not of the police power but of
the power of eminent domain.

Whether as an exercise of the police power or of the power of eminent domain, the several measures
before us are challenged as violative of the due process and equal protection clauses.

The challenge to Proc. No. 131 and E.O. Nos. 228 and 299 on the ground that no retention limits are
prescribed has already been discussed and dismissed. It is noted that although they excited many
bitter exchanges during the deliberation of the CARP Law in Congress, the retention limits finally
agreed upon are, curiously enough, not being questioned in these petitions. We therefore do not
discuss them here. The Court will come to the other claimed violations of due process in connection
with our examination of the adequacy of just compensation as required under the power of
expropriation.

The argument of the small farmers that they have been denied equal protection because of the
absence of retention limits has also become academic under Section 6 of R.A. No. 6657. Significantly,
they too have not questioned the area of such limits. There is also the complaint that they should not
be made to share the burden of agrarian reform, an objection also made by the sugar planters on the
ground that they belong to a particular class with particular interests of their own. However, no
evidence has been submitted to the Court that the requisites of a valid classification have been
violated.

Classification has been defined as the grouping of persons or things similar to each other in certain
particulars and different from each other in these same particulars. 31 To be valid, it must conform to
the following requirements: (1) it must be based on substantial distinctions; (2) it must be germane to
the purposes of the law; (3) it must not be limited to existing conditions only; and (4) it must apply
equally to all the members of the class. 32 The Court finds that all these requisites have been met by
the measures here challenged as arbitrary and discriminatory.

Equal protection simply means that all persons or things similarly situated must be treated alike both
as to the rights conferred and the liabilities imposed. 33 The petitioners have not shown that they
belong to a different class and entitled to a different treatment. The argument that not only landowners
but also owners of other properties must be made to share the burden of implementing land reform
must be rejected. There is a substantial distinction between these two classes of owners that is clearly
visible except to those who will not see. There is no need to elaborate on this matter. In any event, the
Congress is allowed a wide leeway in providing for a valid classification. Its decision is accorded
recognition and respect by the courts of justice except only where its discretion is abused to the
detriment of the Bill of Rights.

It is worth remarking at this juncture that a statute may be sustained under the police power only if
there is a concurrence of the lawful subject and the lawful method. Put otherwise, the interests of the
public generally as distinguished from those of a particular class require the interference of the State
and, no less important, the means employed are reasonably necessary for the attainment of the
purpose sought to be achieved and not unduly oppressive upon individuals. 34 As the subject and
purpose of agrarian reform have been laid down by the Constitution itself, we may say that the first
requirement has been satisfied. What remains to be examined is the validity of the method employed
to achieve the constitutional goal.

One of the basic principles of the democratic system is that where the rights of the individual are
concerned, the end does not justify the means. It is not enough that there be a valid objective; it is
also necessary that the means employed to pursue it be in keeping with the Constitution. Mere
expediency will not excuse constitutional shortcuts. There is no question that not even the strongest
moral conviction or the most urgent public need, subject only to a few notable exceptions, will excuse
the bypassing of an individual's rights. It is no exaggeration to say that a, person invoking a right
guaranteed under Article III of the Constitution is a majority of one even as against the rest of the
nation who would deny him that right.

That right covers the person's life, his liberty and his property under Section 1 of Article III of the
Constitution. With regard to his property, the owner enjoys the added protection of Section 9, which
reaffirms the familiar rule that private property shall not be taken for public use without just
compensation.

This brings us now to the power of eminent domain.

IV

Eminent domain is an inherent power of the State that enables it to forcibly acquire
private lands intended for public use upon payment of just compensation to the owner.
Obviously, there is no need to expropriate where the owner is willing to sell under
terms also acceptable to the purchaser, in which case an ordinary deed of sale may
be agreed upon by the parties. 35 It is only where the owner is unwilling to sell, or
cannot accept the price or other conditions offered by the vendee, that the power of
eminent domain will come into play to assert the paramount authority of the State over
the interests of the property owner. Private rights must then yield to the irresistible
demands of the public interest on the time-honored justification, as in the case of the
police power, that the welfare of the people is the supreme law.

But for all its primacy and urgency, the power of expropriation is by no means absolute (as indeed no
power is absolute). The limitation is found in the constitutional injunction that "private property shall
not be taken for public use without just compensation" and in the abundant jurisprudence that has
evolved from the interpretation of this principle. Basically, the requirements for a proper exercise of
the power are: (1) public use and (2) just compensation.

Let us dispose first of the argument raised by the petitioners in G.R. No. 79310 that the State should
first distribute public agricultural lands in the pursuit of agrarian reform instead of immediately
disturbing property rights by forcibly acquiring private agricultural lands. Parenthetically, it is not correct
to say that only public agricultural lands may be covered by the CARP as the Constitution calls for "the
just distribution of all agricultural lands." In any event, the decision to redistribute private agricultural
lands in the manner prescribed by the CARP was made by the legislative and executive departments
in the exercise of their discretion. We are not justified in reviewing that discretion in the absence of a
clear showing that it has been abused.

A becoming courtesy admonishes us to respect the decisions of the political departments when they
decide what is known as the political question. As explained by Chief Justice Concepcion in the case
of Tañada v. Cuenco: 36

The term "political question" connotes what it means in ordinary parlance, namely, a
question of policy. It refers to "those questions which, under the Constitution, are to be
decided by the people in their sovereign capacity; or in regard to which full
discretionary authority has been delegated to the legislative or executive branch of the
government." It is concerned with issues dependent upon the wisdom, not legality, of
a particular measure.

It is true that the concept of the political question has been constricted with the enlargement of judicial
power, which now includes the authority of the courts "to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government." 37 Even so, this should not be construed as a license for us to
reverse the other departments simply because their views may not coincide with ours.

The legislature and the executive have been seen fit, in their wisdom, to include in the CARP the
redistribution of private landholdings (even as the distribution of public agricultural lands is first
provided for, while also continuing apace under the Public Land Act and other cognate laws). The
Court sees no justification to interpose its authority, which we may assert only if we believe that the
political decision is not unwise, but illegal. We do not find it to be so.

In U.S. v. Chandler-Dunbar Water Power Company,38 it was held:

Congress having determined, as it did by the Act of March 3,1909 that the entire St.
Mary's river between the American bank and the international line, as well as all of the
upland north of the present ship canal, throughout its entire length, was "necessary for
the purpose of navigation of said waters, and the waters connected therewith," that
determination is conclusive in condemnation proceedings instituted by the United
States under that Act, and there is no room for judicial review of the judgment of
Congress ... .

As earlier observed, the requirement for public use has already been settled for us by the Constitution
itself No less than the 1987 Charter calls for agrarian reform, which is the reason why private
agricultural lands are to be taken from their owners, subject to the prescribed maximum retention
limits. The purposes specified in P.D. No. 27, Proc. No. 131 and R.A. No. 6657 are only an elaboration
of the constitutional injunction that the State adopt the necessary measures "to encourage and
undertake the just distribution of all agricultural lands to enable farmers who are landless to own
directly or collectively the lands they till." That public use, as pronounced by the fundamental law itself,
must be binding on us.

The second requirement, i.e., the payment of just compensation, needs a longer and more thoughtful
examination.
Just compensation is defined as the full and fair equivalent of the property taken from its owner by the
expropriator. 39 It has been repeatedly stressed by this Court that the measure is not the taker's gain
but the owner's loss. 40 The word "just" is used to intensify the meaning of the word "compensation" to
convey the idea that the equivalent to be rendered for the property to be taken shall be real, substantial,
full, ample. 41

It bears repeating that the measures challenged in these petitions contemplate more than a mere
regulation of the use of private lands under the police power. We deal here with an actual taking of
private agricultural lands that has dispossessed the owners of their property and deprived them of all
its beneficial use and enjoyment, to entitle them to the just compensation mandated by the
Constitution.

As held in Republic of the Philippines v. Castellvi, 42 there is compensable taking when the following
conditions concur: (1) the expropriator must enter a private property; (2) the entry must be for more
than a momentary period; (3) the entry must be under warrant or color of legal authority; (4) the
property must be devoted to public use or otherwise informally appropriated or injuriously affected;
and (5) the utilization of the property for public use must be in such a way as to oust the owner and
deprive him of beneficial enjoyment of the property. All these requisites are envisioned in the measures
before us.

Where the State itself is the expropriator, it is not necessary for it to make a deposit upon its taking
possession of the condemned property, as "the compensation is a public charge, the good faith of the
public is pledged for its payment, and all the resources of taxation may be employed in raising the
amount." 43 Nevertheless, Section 16(e) of the CARP Law provides that:

Upon receipt by the landowner of the corresponding payment or, in case of rejection
or no response from the landowner, upon the deposit with an accessible bank
designated by the DAR of the compensation in cash or in LBP bonds in accordance
with this Act, the DAR shall take immediate possession of the land and shall request
the proper Register of Deeds to issue a Transfer Certificate of Title (TCT) in the name
of the Republic of the Philippines. The DAR shall thereafter proceed with the
redistribution of the land to the qualified beneficiaries.

Objection is raised, however, to the manner of fixing the just compensation, which it is claimed is
entrusted to the administrative authorities in violation of judicial prerogatives. Specific reference is
made to Section 16(d), which provides that in case of the rejection or disregard by the owner of the
offer of the government to buy his land-

... the DAR shall conduct summary administrative proceedings to determine the
compensation for the land by requiring the landowner, the LBP and other interested
parties to submit evidence as to the just compensation for the land, within fifteen (15)
days from the receipt of the notice. After the expiration of the above period, the matter
is deemed submitted for decision. The DAR shall decide the case within thirty (30)
days after it is submitted for decision.

To be sure, the determination of just compensation is a function addressed to the courts of justice and
may not be usurped by any other branch or official of the government. EPZA v. Dulay 44 resolved a
challenge to several decrees promulgated by President Marcos providing that the just compensation
for property under expropriation should be either the assessment of the property by the government
or the sworn valuation thereof by the owner, whichever was lower. In declaring these decrees
unconstitutional, the Court held through Mr. Justice Hugo E. Gutierrez, Jr.:
 The method of ascertaining just compensation under the aforecited decrees
constitutes impermissible encroachment on judicial prerogatives. It tends to render this
Court inutile in a matter which under this Constitution is reserved to it for final
determination.

Thus, although in an expropriation proceeding the court technically would still have the
power to determine the just compensation for the property, following the applicable
decrees, its task would be relegated to simply stating the lower value of the property
as declared either by the owner or the assessor. As a necessary consequence, it would
be useless for the court to appoint commissioners under Rule 67 of the Rules of Court.
Moreover, the need to satisfy the due process clause in the taking of private property
is seemingly fulfilled since it cannot be said that a judicial proceeding was not had
before the actual taking. However, the strict application of the decrees during the
proceedings would be nothing short of a mere formality or charade as the court has
only to choose between the valuation of the owner and that of the assessor, and its
choice is always limited to the lower of the two. The court cannot exercise its discretion
or independence in determining what is just or fair. Even a grade school pupil could
substitute for the judge insofar as the determination of constitutional just compensation
is concerned.

xxx

In the present petition, we are once again confronted with the same question of
whether the courts under P.D. No. 1533, which contains the same provision on just
compensation as its predecessor decrees, still have the power and authority to
determine just compensation, independent of what is stated by the decree and to this
effect, to appoint commissioners for such purpose.

This time, we answer in the affirmative.

xxx

It is violative of due process to deny the owner the opportunity to prove that the
valuation in the tax documents is unfair or wrong. And it is repulsive to the basic
concepts of justice and fairness to allow the haphazard work of a minor bureaucrat or
clerk to absolutely prevail over the judgment of a court promulgated only after expert
commissioners have actually viewed the property, after evidence and arguments pro
and con have been presented, and after all factors and considerations essential to a
fair and just determination have been judiciously evaluated.

A reading of the aforecited Section 16(d) will readily show that it does not suffer from the arbitrariness
that rendered the challenged decrees constitutionally objectionable. Although the proceedings are
described as summary, the landowner and other interested parties are nevertheless allowed an
opportunity to submit evidence on the real value of the property. But more importantly, the
determination of the just compensation by the DAR is not by any means final and conclusive upon the
landowner or any other interested party, for Section 16(f) clearly provides:

Any party who disagrees with the decision may bring the matter to the court of proper
jurisdiction for final determination of just compensation.
The determination made by the DAR is only preliminary unless accepted by all parties concerned.
Otherwise, the courts of justice will still have the right to review with finality the said determination in
the exercise of what is admittedly a judicial function.

The second and more serious objection to the provisions on just compensation is not as easily
resolved.

This refers to Section 18 of the CARP Law providing in full as follows:

SEC. 18. Valuation and Mode of Compensation. — The LBP shall compensate the
landowner in such amount as may be agreed upon by the landowner and the DAR and
the LBP, in accordance with the criteria provided for in Sections 16 and 17, and other
pertinent provisions hereof, or as may be finally determined by the court, as the just
compensation for the land.

The compensation shall be paid in one of the following modes, at the option of the
landowner:

(1) Cash payment, under the following terms and conditions:

(a) For lands above fifty (50) hectares, insofar as the

excess hectarage is concerned — Twenty-five percent
(25%) cash, the balance to be paid in government
financial instruments negotiable at any time.

(b) For lands above twenty-four (24) hectares and up

to fifty (50) hectares — Thirty percent (30%) cash, the
balance to be paid in government financial instruments
negotiable at any time.

(c) For lands twenty-four (24) hectares and below —

Thirty-five percent (35%) cash, the balance to be paid
in government financial instruments negotiable at any
time.

(2) Shares of stock in government-owned or controlled corporations, LBP preferred

shares, physical assets or other qualified investments in accordance with guidelines
set by the PARC;

(3) Tax credits which can be used against any tax liability;

(4) LBP bonds, which shall have the following features:

(a) Market interest rates aligned with 91-day treasury

bill rates. Ten percent (10%) of the face value of the
bonds shall mature every year from the date of
issuance until the tenth (10th) year: Provided, That
should the landowner choose to forego the cash
portion, whether in full or in part, he shall be paid
correspondingly in LBP bonds;
 (b) Transferability and negotiability. Such LBP bonds
may be used by the landowner, his successors-in-
interest or his assigns, up to the amount of their face
value, for any of the following:

(i) Acquisition of land or other real properties of the

government, including assets under the Asset
Privatization Program and other assets foreclosed by
government financial institutions in the same province
or region where the lands for which the bonds were
paid are situated;

(ii) Acquisition of shares of stock of government-owned

or controlled corporations or shares of stock owned by
the government in private corporations;

(iii) Substitution for surety or bail bonds for the

provisional release of accused persons, or for
performance bonds;

(iv) Security for loans with any government financial

institution, provided the proceeds of the loans shall be
invested in an economic enterprise, preferably in a
small and medium- scale industry, in the same
province or region as the land for which the bonds are
paid;

(v) Payment for various taxes and fees to government:

Provided, That the use of these bonds for these
purposes will be limited to a certain percentage of the
outstanding balance of the financial instruments;
Provided, further, That the PARC shall determine the
percentages mentioned above;

(vi) Payment for tuition fees of the immediate family of

the original bondholder in government universities,
colleges, trade schools, and other institutions;

(vii) Payment for fees of the immediate family of the

original bondholder in government hospitals; and

(viii) Such other uses as the PARC may from time to

time allow.

The contention of the petitioners in G.R. No. 79777 is that the above provision is unconstitutional
insofar as it requires the owners of the expropriated properties to accept just compensation therefor
in less than money, which is the only medium of payment allowed. In support of this contention, they
cite jurisprudence holding that:

The fundamental rule in expropriation matters is that the owner of the property
expropriated is entitled to a just compensation, which should be neither more nor less,
whenever it is possible to make the assessment, than the money equivalent of said
 property. Just compensation has always been understood to be the just and complete
equivalent of the loss which the owner of the thing expropriated has to suffer by reason
of the expropriation . 45 (Emphasis supplied.)

In J.M. Tuazon Co. v. Land Tenure Administration, 46 this Court held:

It is well-settled that just compensation means the equivalent for the value of the
property at the time of its taking. Anything beyond that is more, and anything short of
that is less, than just compensation. It means a fair and full equivalent for the loss
sustained, which is the measure of the indemnity, not whatever gain would accrue to
the expropriating entity. The market value of the land taken is the just compensation
to which the owner of condemned property is entitled, the market value being that sum
of money which a person desirous, but not compelled to buy, and an owner, willing,
but not compelled to sell, would agree on as a price to be given and received for such
property. (Emphasis supplied.)

In the United States, where much of our jurisprudence on the subject has been derived, the weight of
authority is also to the effect that just compensation for property expropriated is payable only in money
and not otherwise. Thus —

The medium of payment of compensation is ready money or cash. The condemnor

cannot compel the owner to accept anything but money, nor can the owner compel or
require the condemnor to pay him on any other basis than the value of the property in
money at the time and in the manner prescribed by the Constitution and the statutes.
When the power of eminent domain is resorted to, there must be a standard medium
of payment, binding upon both parties, and the law has fixed that standard as money
in cash. 47 (Emphasis supplied.)

Part cash and deferred payments are not and cannot, in the nature of things, be
regarded as a reliable and constant standard of compensation. 48

"Just compensation" for property taken by condemnation means a fair equivalent in

money, which must be paid at least within a reasonable time after the taking, and it is
not within the power of the Legislature to substitute for such payment future
obligations, bonds, or other valuable advantage. 49(Emphasis supplied.)

It cannot be denied from these cases that the traditional medium for the payment of just compensation
is money and no other. And so, conformably, has just compensation been paid in the past solely in
that medium. However, we do not deal here with the traditional excercise of the power of eminent
domain. This is not an ordinary expropriation where only a specific property of relatively limited area
is sought to be taken by the State from its owner for a specific and perhaps local purpose.

What we deal with here is a revolutionary kind of expropriation.

The expropriation before us affects all private agricultural lands whenever found and of whatever kind
as long as they are in excess of the maximum retention limits allowed their owners. This kind of
expropriation is intended for the benefit not only of a particular community or of a small segment of the
population but of the entire Filipino nation, from all levels of our society, from the impoverished farmer
to the land-glutted owner. Its purpose does not cover only the whole territory of this country but goes
beyond in time to the foreseeable future, which it hopes to secure and edify with the vision and the
sacrifice of the present generation of Filipinos. Generations yet to come are as involved in this program
as we are today, although hopefully only as beneficiaries of a richer and more fulfilling life we will
guarantee to them tomorrow through our thoughtfulness today. And, finally, let it not be forgotten that
it is no less than the Constitution itself that has ordained this revolution in the farms, calling for "a just
distribution" among the farmers of lands that have heretofore been the prison of their dreams but can
now become the key at least to their deliverance.

Such a program will involve not mere millions of pesos. The cost will be tremendous. Considering the
vast areas of land subject to expropriation under the laws before us, we estimate that hundreds of
billions of pesos will be needed, far more indeed than the amount of P50 billion initially appropriated,
which is already staggering as it is by our present standards. Such amount is in fact not even fully
available at this time.

We assume that the framers of the Constitution were aware of this difficulty when they called for
agrarian reform as a top priority project of the government. It is a part of this assumption that when
they envisioned the expropriation that would be needed, they also intended that the just compensation
would have to be paid not in the orthodox way but a less conventional if more practical method. There
can be no doubt that they were aware of the financial limitations of the government and had no illusions
that there would be enough money to pay in cash and in full for the lands they wanted to be distributed
among the farmers. We may therefore assume that their intention was to allow such manner of
payment as is now provided for by the CARP Law, particularly the payment of the balance (if the owner
cannot be paid fully with money), or indeed of the entire amount of the just compensation, with other
things of value. We may also suppose that what they had in mind was a similar scheme of payment
as that prescribed in P.D. No. 27, which was the law in force at the time they deliberated on the new
Charter and with which they presumably agreed in principle.

The Court has not found in the records of the Constitutional Commission any categorical agreement
among the members regarding the meaning to be given the concept of just compensation as applied
to the comprehensive agrarian reform program being contemplated. There was the suggestion to "fine
tune" the requirement to suit the demands of the project even as it was also felt that they should "leave
it to Congress" to determine how payment should be made to the landowner and reimbursement
required from the farmer-beneficiaries. Such innovations as "progressive compensation" and "State-
subsidized compensation" were also proposed. In the end, however, no special definition of the just
compensation for the lands to be expropriated was reached by the Commission. 50

On the other hand, there is nothing in the records either that militates against the assumptions we are
making of the general sentiments and intention of the members on the content and manner of the
payment to be made to the landowner in the light of the magnitude of the expenditure and the
limitations of the expropriator.

With these assumptions, the Court hereby declares that the content and manner of the just
compensation provided for in the afore-quoted Section 18 of the CARP Law is not violative of the
Constitution. We do not mind admitting that a certain degree of pragmatism has influenced our
decision on this issue, but after all this Court is not a cloistered institution removed from the realities
and demands of society or oblivious to the need for its enhancement. The Court is as acutely anxious
as the rest of our people to see the goal of agrarian reform achieved at last after the frustrations and
deprivations of our peasant masses during all these disappointing decades. We are aware that
invalidation of the said section will result in the nullification of the entire program, killing the farmer's
hopes even as they approach realization and resurrecting the spectre of discontent and dissent in the
restless countryside. That is not in our view the intention of the Constitution, and that is not what we
shall decree today.

Accepting the theory that payment of the just compensation is not always required to be made fully in
money, we find further that the proportion of cash payment to the other things of value constituting the
total payment, as determined on the basis of the areas of the lands expropriated, is not unduly
oppressive upon the landowner. It is noted that the smaller the land, the bigger the payment in money,
primarily because the small landowner will be needing it more than the big landowners, who can afford
a bigger balance in bonds and other things of value. No less importantly, the government financial
instruments making up the balance of the payment are "negotiable at any time." The other modes,
which are likewise available to the landowner at his option, are also not unreasonable because
payment is made in shares of stock, LBP bonds, other properties or assets, tax credits, and other
things of value equivalent to the amount of just compensation.

Admittedly, the compensation contemplated in the law will cause the landowners, big and small, not a
little inconvenience. As already remarked, this cannot be avoided. Nevertheless, it is devoutly hoped
that these countrymen of ours, conscious as we know they are of the need for their forbearance and
even sacrifice, will not begrudge us their indispensable share in the attainment of the ideal of agrarian
reform. Otherwise, our pursuit of this elusive goal will be like the quest for the Holy Grail.

The complaint against the effects of non-registration of the land under E.O. No. 229 does not seem to
be viable any more as it appears that Section 4 of the said Order has been superseded by Section 14
of the CARP Law. This repeats the requisites of registration as embodied in the earlier measure but
does not provide, as the latter did, that in case of failure or refusal to register the land, the valuation
thereof shall be that given by the provincial or city assessor for tax purposes. On the contrary, the
CARP Law says that the just compensation shall be ascertained on the basis of the factors mentioned
in its Section 17 and in the manner provided for in Section 16.

The last major challenge to CARP is that the landowner is divested of his property even before actual
payment to him in full of just compensation, in contravention of a well- accepted principle of eminent
domain.

The recognized rule, indeed, is that title to the property expropriated shall pass from the owner to the
expropriator only upon full payment of the just compensation. Jurisprudence on this settled principle
is consistent both here and in other democratic jurisdictions. Thus:

Title to property which is the subject of condemnation proceedings does not vest the condemnor until
the judgment fixing just compensation is entered and paid, but the condemnor's title relates back to
the date on which the petition under the Eminent Domain Act, or the commissioner's report under the
Local Improvement Act, is filed. 51

... although the right to appropriate and use land taken for a canal is complete at the time of entry, title
to the property taken remains in the owner until payment is actually made. 52 (Emphasis supplied.)

In Kennedy v. Indianapolis, 53 the US Supreme Court cited several cases holding that title to property
does not pass to the condemnor until just compensation had actually been made. In fact, the decisions
appear to be uniformly to this effect. As early as 1838, in Rubottom v. McLure, 54 it was held that
"actual payment to the owner of the condemned property was a condition precedent to the investment
of the title to the property in the State" albeit "not to the appropriation of it to public use." In Rexford v.
Knight, 55 the Court of Appeals of New York said that the construction upon the statutes was that the
fee did not vest in the State until the payment of the compensation although the authority to enter upon
and appropriate the land was complete prior to the payment. Kennedy further said that "both on
principle and authority the rule is ... that the right to enter on and use the property is complete, as soon
as the property is actually appropriated under the authority of law for a public use, but that the title
does not pass from the owner without his consent, until just compensation has been made to him."

Our own Supreme Court has held in Visayan Refining Co. v. Camus and Paredes, 56 that:
 If the laws which we have exhibited or cited in the preceding discussion are attentively
examined it will be apparent that the method of expropriation adopted in this jurisdiction
is such as to afford absolute reassurance that no piece of land can be finally and
irrevocably taken from an unwilling owner until compensation is paid ... . (Emphasis
supplied.)

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

When E.O. No. 228, categorically stated in its Section 1 that:

All qualified farmer-beneficiaries are now deemed full owners as of October 21, 1972
of the land they acquired by virtue of Presidential Decree No. 27. (Emphasis supplied.)

it was obviously referring to lands already validly acquired under the said decree, after proof of full-
fledged membership in the farmers' cooperatives and full payment of just compensation. Hence, it was
also perfectly proper for the Order to also provide in its Section 2 that the "lease rentals paid to the
landowner by the farmer- beneficiary after October 21, 1972 (pending transfer of ownership after full
payment of just compensation), shall be considered as advance payment for the land."

The CARP Law, for its part, conditions the transfer of possession and ownership of the land to the
government on receipt by the landowner of the corresponding payment or the deposit by the DAR of
the compensation in cash or LBP bonds with an accessible bank. Until then, title also remains with the
landowner. 57 No outright change of ownership is contemplated either.

Hence, the argument that the assailed measures violate due process by arbitrarily transferring title
before the land is fully paid for must also be rejected.

It is worth stressing at this point that all rights acquired by the tenant-farmer under P.D. No. 27, as
recognized under E.O. No. 228, are retained by him even now under R.A. No. 6657. This should
counter-balance the express provision in Section 6 of the said law that "the landowners whose lands
have been covered by Presidential Decree No. 27 shall be allowed to keep the area originally retained
by them thereunder, further, That original homestead grantees or direct compulsory heirs who still own
the original homestead at the time of the approval of this Act shall retain the same areas as long as
they continue to cultivate said homestead."

In connection with these retained rights, it does not appear in G.R. No. 78742 that the appeal filed by
the petitioners with the Office of the President has already been resolved. Although we have said that
the doctrine of exhaustion of administrative remedies need not preclude immediate resort to judicial
action, there are factual issues that have yet to be examined on the administrative level, especially the
claim that the petitioners are not covered by LOI 474 because they do not own other agricultural lands
than the subjects of their petition.

Obviously, the Court cannot resolve these issues. In any event, assuming that the petitioners have not
yet exercised their retention rights, if any, under P.D. No. 27, the Court holds that they are entitled to
the new retention rights provided for by R.A. No. 6657, which in fact are on the whole more liberal than
those granted by the decree.
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-
examined and rehoned, that they may be sharper instruments for the better protection of the farmer's
rights. But we have to start somewhere. In the pursuit of agrarian reform, we do not tread on familiar
ground but grope on terrain fraught with pitfalls and expected difficulties. This is inevitable. The CARP
Law is not a tried and tested project. On the contrary, to use Justice Holmes's words, "it is an
experiment, as all life is an experiment," and so we learn as we venture forward, and, if necessary, by
our own mistakes. We cannot expect perfection although we should strive for it by all means.
Meantime, we struggle as best we can in freeing the farmer from the iron shackles that have
unconscionably, and for so long, fettered his soul to the soil.

By the decision we reach today, all major legal obstacles to the comprehensive agrarian reform
program are removed, to clear the way for the true freedom of the farmer. We may now glimpse the
day he will be released not only from want but also from the exploitation and disdain of the past and
from his own feelings of inadequacy and helplessness. At last his servitude will be ended forever. At
last the farm on which he toils will be his farm. It will be his portion of the Mother Earth that will give
him not only the staff of life but also the joy of living. And where once it bred for him only deep despair,
now can he see in it the fruition of his hopes for a more fulfilling future. Now at last can he banish from
his small plot of earth his insecurities and dark resentments and "rebuild in it the music and the dream."

WHEREFORE, the Court holds as follows:

1. R.A. No. 6657, P.D. No. 27, Proc. No. 131, and E.O. Nos. 228 and 229 are
SUSTAINED against all the constitutional objections raised in the herein petitions.

2. Title to all expropriated properties shall be transferred to the State only upon full
payment of compensation to their respective owners.

3. All rights previously acquired by the tenant- farmers under P.D. No. 27 are retained
and recognized.

4. Landowners who were unable to exercise their rights of retention under P.D. No. 27
shall enjoy the retention rights granted by R.A. No. 6657 under the conditions therein
prescribed.

5. Subject to the above-mentioned rulings all the petitions are DISMISSED, without
pronouncement as to costs.

SO ORDERED.

Fernan, (C.J.), Narvasa, Melencio-Herrera, Gutierrez, Jr., Paras, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento, Cortes, Griño-Aquino, Medialdea and Regalado, JJ., concur.

EN BANC
 [G.R. No. 127876. December 17, 1999]

ROXAS & CO., INC., petitioner, vs. THE HONORABLE COURT OF APPEALS, DEPARTMENT OF
AGRARIAN REFORM, SECRETARY OF AGRARIAN REFORM, DAR REGIONAL
DIRECTOR FOR REGION IV, MUNICIPAL AGRARIAN REFORM OFFICER OF NASUGBU,
BATANGAS and DEPARTMENT OF AGRARIAN REFORM ADJUDICATION
BOARD, respondents.

DECISION
PUNO, J.:

This case involves three (3) haciendas in Nasugbu, Batangas owned by petitioner and the validity
of the acquisition of these haciendas by the government under Republic Act No. 6657, the
Comprehensive Agrarian Reform Law of 1988.
Petitioner Roxas & Co. is a domestic corporation and is the registered owner of three haciendas,
namely, Haciendas Palico, Banilad and Caylaway, all located in the Municipality of Nasugbu,
Batangas.Hacienda Palico is 1,024 hectares in area and is registered under Transfer Certificate of
Title (TCT) No. 985. This land is covered by Tax Declaration Nos. 0465, 0466, 0468, 0470, 0234 and
0354. Hacienda Banilad is 1,050 hectares in area, registered under TCT No. 924 and covered by Tax
Declaration Nos. 0236, 0237 and 0390. Hacienda Caylaway is 867.4571 hectares in area and is
registered under TCT Nos. T-44662, T-44663, T-44664 and T-44665.
The events of this case occurred during the incumbency of then President Corazon C. Aquino. In
February 1986, President Aquino issued Proclamation No. 3 promulgating a Provisional Constitution.
As head of the provisional government, the President exercised legislative power until a legislature is
elected and convened under a new Constitution.[1] In the exercise of this legislative power, the
President signed on July 22, 1987, Proclamation No. 131 instituting a Comprehensive Agrarian Reform
Program and Executive Order No. 229 providing the mechanisms necessary to initially implement the
program.
On July 27, 1987, the Congress of the Philippines formally convened and took over legislative
power from the President.[2] This Congress passed Republic Act No. 6657, the Comprehensive
Agrarian Reform Law (CARL) of 1988. The Act was signed by the President on June 10, 1988 and
took effect on June 15, 1988.
Before the laws effectivity, on May 6, 1988, petitioner filed with respondent DAR a voluntary offer
to sell Hacienda Caylaway pursuant to the provisions of E.O. No. 229. Haciendas Palico and Banilad
were later placed under compulsory acquisition by respondent DAR in accordance with the CARL.
Hacienda Palico
On September 29, 1989, respondent DAR, through respondent Municipal Agrarian Reform Officer
(MARO) of Nasugbu, Batangas, sent a notice entitled Invitation to Parties to petitioner. The Invitation
was addressed to Jaime Pimentel, Hda. Administrator, Hda. Palico.[3] Therein, the MARO invited
petitioner to a conference on October 6, 1989 at the DAR office in Nasugbu to discuss the results of
the DAR investigation of Hacienda Palico, which was scheduled for compulsory acquisition this year
under the Comprehensive Agrarian Reform Program.[4]
On October 25, 1989, the MARO completed three (3) Investigation Reports after investigation
and ocular inspection of the Hacienda. In the first Report, the MARO found that 270 hectares under
Tax Declaration Nos. 465, 466, 468 and 470 were flat to undulating (0-8% slope) and actually occupied
and cultivated by 34 tillers of sugarcane.[5] In the second Report, the MARO identified as flat to
undulating approximately 339 hectares under Tax Declaration No. 0234 which also had several actual
occupants and tillers of sugarcane;[6] while in the third Report, the MARO found approximately 75
hectares under Tax Declaration No. 0354 as flat to undulating with 33 actual occupants and tillers also
of sugarcane.[7]
On October 27, 1989, a Summary Investigation Report was submitted and signed jointly by the
MARO, representatives of the Barangay Agrarian Reform Committee (BARC) and Land Bank of the
Philippines (LBP), and by the Provincial Agrarian Reform Officer (PARO). The Report recommended
that 333.0800 hectares of Hacienda Palico be subject to compulsory acquisition at a value of
P6,807,622.20.[8] The following day, October 28, 1989, two (2) more Summary Investigation Reports
were submitted by the same officers and representatives. They recommended that 270.0876 hectares
and 75.3800 hectares be placed under compulsory acquisition at a compensation of P8,109,739.00
and P2,188,195.47, respectively.[9]
On December 12, 1989, respondent DAR through then Department Secretary Miriam D. Santiago
sent a Notice of Acquisition to petitioner. The Notice was addressed as follows:
Roxas y Cia, Limited
Soriano Bldg., Plaza Cervantes
Manila, Metro Manila.[10]
Petitioner was informed that 1,023.999 hectares of its land in Hacienda Palico were subject to
immediate acquisition and distribution by the government under the CARL; that based on the DARs
valuation criteria, the government was offering compensation of P3.4 million for 333.0800 hectares;
that whether this offer was to be accepted or rejected, petitioner was to inform the Bureau of Land
Acquisition and Distribution (BLAD) of the DAR; that in case of petitioners rejection or failure to reply
within thirty days, respondent DAR shall conduct summary administrative proceedings with notice to
petitioner to determine just compensation for the land; that if petitioner accepts respondent DARs offer,
or upon deposit of the compensation with an accessible bank if it rejects the same, the DAR shall take
immediate possession of the land.[11]
Almost two years later, on September 26, 1991, the DAR Regional Director sent to the LBP Land
Valuation Manager three (3) separate Memoranda entitled Request to Open Trust Account. Each
Memoranda requested that a trust account representing the valuation of three portions of Hacienda
Palico be opened in favor of the petitioner in view of the latters rejection of its offered value.[12]
Meanwhile in a letter dated May 4, 1993, petitioner applied with the DAR for conversion of
Haciendas Palico and Banilad from agricultural to non-agricultural lands under the provisions of the
CARL.[13] On July 14, 1993, petitioner sent a letter to the DAR Regional Director reiterating its request
for conversion of the two haciendas.[14]
Despite petitioners application for conversion, respondent DAR proceeded with the acquisition of
the two Haciendas. The LBP trust accounts as compensation for Hacienda Palico were replaced by
respondent DAR with cash and LBP bonds.[15] On October 22, 1993, from the mother title of TCT No.
985 of the Hacienda, respondent DAR registered Certificate of Land Ownership Award (CLOA) No.
6654. On October 30, 1993, CLOAs were distributed to farmer beneficiaries.[16]
Hacienda Banilad
On August 23, 1989, respondent DAR, through respondent MARO of Nasugbu, Batangas, sent a
notice to petitioner addressed as follows:
Mr. Jaime Pimentel
Hacienda Administrator
Hacienda Banilad
Nasugbu, Batangas[17]
 The MARO informed Pimentel that Hacienda Banilad was subject to compulsory acquisition under
the CARL; that should petitioner wish to avail of the other schemes such as Voluntary Offer to Sell or
Voluntary Land Transfer, respondent DAR was willing to provide assistance thereto.[18]
On September 18, 1989, the MARO sent an Invitation to Parties again to Pimentel inviting the
latter to attend a conference on September 21, 1989 at the MARO Office in Nasugbu to discuss the
results of the MAROs investigation over Hacienda Banilad.[19]
On September 21, 1989, the same day the conference was held, the MARO submitted two (2)
Reports. In his first Report, he found that approximately 709 hectares of land under Tax Declaration
Nos. 0237 and 0236 were flat to undulating (0-8% slope). On this area were discovered 162 actual
occupants and tillers of sugarcane.[20] In the second Report, it was found that approximately 235
hectares under Tax Declaration No. 0390 were flat to undulating, on which were 92 actual occupants
and tillers of sugarcane.[21]
The results of these Reports were discussed at the conference. Present in the conference were
representatives of the prospective farmer beneficiaries, the BARC, the LBP, and Jaime Pimentel on
behalf of the landowner.[22] After the meeting, on the same day, September 21, 1989, a Summary
Investigation Report was submitted jointly by the MARO, representatives of the BARC, LBP, and the
PARO. They recommended that after ocular inspection of the property, 234.6498 hectares under Tax
Declaration No. 0390 be subject to compulsory acquisition and distribution by CLOA.[23] The following
day, September 22, 1989, a second Summary Investigation was submitted by the same officers. They
recommended that 737.2590 hectares under Tax Declaration Nos. 0236 and 0237 be likewise placed
under compulsory acquisition for distribution.[24]
On December 12, 1989, respondent DAR, through the Department Secretary, sent to petitioner
two (2) separate Notices of Acquisition over Hacienda Banilad. These Notices were sent on the same
day as the Notice of Acquisition over Hacienda Palico. Unlike the Notice over Hacienda Palico,
however, the Notices over Hacienda Banilad were addressed to:
Roxas y Cia. Limited
7th Floor, Cacho-Gonzales Bldg. 101 Aguirre St., Leg.
Makati, Metro Manila.[25]
Respondent DAR offered petitioner compensation of P15,108,995.52 for 729.4190 hectares
and P4,428,496.00 for 234.6498 hectares.[26]
On September 26, 1991, the DAR Regional Director sent to the LBP Land Valuation Manager a
Request to Open Trust Account in petitioners name as compensation for 234.6493 hectares of
Hacienda Banilad.[27] A second Request to Open Trust Account was sent on November 18, 1991 over
723.4130 hectares of said Hacienda.[28]
On December 18, 1991, the LBP certified that the amounts of P4,428,496.40 and P21,234,468.78
in cash and LBP bonds had been earmarked as compensation for petitioners land in Hacienda
Banilad.[29]
On May 4, 1993, petitioner applied for conversion of both Haciendas Palico and Banilad.
Hacienda Caylaway
Hacienda Caylaway was voluntarily offered for sale to the government on May 6, 1988 before the
effectivity of the CARL. The Hacienda has a total area of 867.4571 hectares and is covered by four
(4) titlesTCT Nos. T-44662, T-44663, T-44664 and T-44665. On January 12, 1989, respondent DAR,
through the Regional Director for Region IV, sent to petitioner two (2) separate Resolutions accepting
petitioners voluntary offer to sell Hacienda Caylaway, particularly TCT Nos. T-44664 and T-
44663.[30] The Resolutions were addressed to:
Roxas & Company, Inc.
7th Flr. Cacho- Gonzales Bldg.
Aguirre, Legaspi Village
Makati, M. M.[31]
On September 4, 1990, the DAR Regional Director issued two separate Memoranda to the LBP
Regional Manager requesting for the valuation of the land under TCT Nos. T-44664 and T-
44663.[32] On the same day, respondent DAR, through the Regional Director, sent to petitioner a Notice
of Acquisition over 241.6777 hectares under TCT No. T-44664 and 533.8180 hectares under TCT No.
T-44663.[33]Like the Resolutions of Acceptance, the Notice of Acquisition was addressed to petitioner
at its office in Makati, Metro Manila.
Nevertheless, on August 6, 1992, petitioner, through its President, Eduardo J. Roxas, sent a letter
to the Secretary of respondent DAR withdrawing its VOS of Hacienda Caylaway. The Sangguniang
Bayan of Nasugbu, Batangas allegedly authorized the reclassification of Hacienda Caylaway from
agricultural to non-agricultural. As a result, petitioner informed respondent DAR that it was applying
for conversion of Hacienda Caylaway from agricultural to other uses.[34]
In a letter dated September 28, 1992, respondent DAR Secretary informed petitioner that a
reclassification of the land would not exempt it from agrarian reform. Respondent Secretary also
denied petitioners withdrawal of the VOS on the ground that withdrawal could only be based on specific
grounds such as unsuitability of the soil for agriculture, or if the slope of the land is over 18 degrees
and that the land is undeveloped.[35]
Despite the denial of the VOS withdrawal of Hacienda Caylaway, on May 11, 1993, petitioner filed
its application for conversion of both Haciendas Palico and Banilad.[36] On July 14, 1993, petitioner,
through its President, Eduardo Roxas, reiterated its request to withdraw the VOS over Hacienda
Caylaway in light of the following:

1) Certification issued by Conrado I. Gonzales, Officer-in-Charge, Department of Agriculture, Region

4, 4th Floor, ATI (BA) Bldg., Diliman, Quezon City dated March 1, 1993 stating that the lands subject
of referenced titles are not feasible and economically sound for further agricultural development.

2) Resolution No. 19 of the Sangguniang Bayan of Nasugbu, Batangas approving the Zoning
Ordinance reclassifying areas covered by the referenced titles to non-agricultural which was enacted
after extensive consultation with government agencies, including [the Department of Agrarian Reform],
and the requisite public hearings.

3) Resolution No. 106 of the Sangguniang Panlalawigan of Batangas dated March 8, 1993 approving
the Zoning Ordinance enacted by the Municipality of Nasugbu.

4) Letter dated December 15, 1992 issued by Reynaldo U. Garcia of the Municipal Planning &
Development, Coordinator and Deputized Zoning Administrator addressed to Mrs. Alicia P. Logarta
advising that the Municipality of Nasugbu, Batangas has no objection to the conversion of the lands
subject of referenced titles to non-agricultural.[37]

On August 24, 1993, petitioner instituted Case No. N-0017-96-46 (BA) with respondent DAR
Adjudication Board (DARAB) praying for the cancellation of the CLOAs issued by respondent DAR in
the name of several persons. Petitioner alleged that the Municipality of Nasugbu, where the haciendas
are located, had been declared a tourist zone, that the land is not suitable for agricultural production,
and that the Sangguniang Bayan of Nasugbu had reclassified the land to non-agricultural.
In a Resolution dated October 14, 1993, respondent DARAB held that the case involved the
prejudicial question of whether the property was subject to agrarian reform, hence, this question should
be submitted to the Office of the Secretary of Agrarian Reform for determination.[38]
 On October 29, 1993, petitioner filed with the Court of Appeals CA-G.R. SP No. 32484. It
questioned the expropriation of its properties under the CARL and the denial of due process in the
acquisition of its landholdings.
Meanwhile, the petition for conversion of the three haciendas was denied by the MARO on
November 8, 1993.
Petitioners petition was dismissed by the Court of Appeals on April 28, 1994.[39] Petitioner moved
for reconsideration but the motion was denied on January 17, 1997 by respondent court.[40]
Hence, this recourse. Petitioner assigns the following errors:

A. RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT PETITIONERS

CAUSE OF ACTION IS PREMATURE FOR FAILURE TO EXHAUST ADMINISTRATIVE
REMEDIES IN VIEW OF THE PATENT ILLEGALITY OF THE RESPONDENTS ACTS, THE
IRREPARABLE DAMAGE CAUSED BY SAID ILLEGAL ACTS, AND THE ABSENCE OF A PLAIN,
SPEEDY AND ADEQUATE REMEDY IN THE ORDINARY COURSE OF LAWALL OF WHICH ARE
EXCEPTIONS TO THE SAID DOCTRINE.

B. RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT PETITIONERS

LANDHOLDINGS ARE SUBJECT TO COVERAGE UNDER THE COMPREHENSIVE AGRARIAN
REFORM LAW, IN VIEW OF THE UNDISPUTED FACT THAT PETITIONERS LANDHOLDINGS
HAVE BEEN CONVERTED TO NON-AGRICULTURAL USES BY PRESIDENTIAL
PROCLAMATION NO. 1520 WHICH DECLARED THE MUNICIPALITY OF NASUGBU, BATANGAS
AS A TOURIST ZONE, AND THE ZONING ORDINANCE OF THE MUNICIPALITY OF NASUGBU
RE-CLASSIFYING CERTAIN PORTIONS OF PETITIONERS LANDHOLDINGS AS NON-
AGRICULTURAL, BOTH OF WHICH PLACE SAID LANDHOLDINGS OUTSIDE THE SCOPE OF
AGRARIAN REFORM, OR AT THE VERY LEAST ENTITLE PETITIONER TO APPLY FOR
CONVERSION AS CONCEDED BY RESPONDENT DAR.

C. RESPONDENT COURT OF APPEALS GRAVELY ERRED WHEN IT FAILED TO DECLARE THE

PROCEEDINGS BEFORE RESPONDENT DAR VOID FOR FAILURE TO OBSERVE DUE
PROCESS, CONSIDERING THAT RESPONDENTS BLATANTLY DISREGARDED THE
PROCEDURE FOR THE ACQUISITION OF PRIVATE LANDS UNDER R.A. 6657, MORE
PARTICULARLY, IN FAILING TO GIVE DUE NOTICE TO THE PETITIONER AND TO PROPERLY
IDENTIFY THE SPECIFIC AREAS SOUGHT TO BE ACQUIRED.

D. RESPONDENT COURT OF APPEALS GRAVELY ERRED WHEN IT FAILED TO RECOGNIZE

THAT PETITIONER WAS BRAZENLY AND ILLEGALLY DEPRIVED OF ITS PROPERTY WITHOUT
JUST COMPENSATION, CONSIDERING THAT PETITIONER WAS NOT PAID JUST
COMPENSATION BEFORE IT WAS UNCEREMONIOUSLY STRIPPED OF ITS LANDHOLDINGS
THROUGH THE ISSUANCE OF CLOAS TO ALLEGED FARMER BENEFICIARIES, IN VIOLATION
OF R.A. 6657.[41]

The assigned errors involve three (3) principal issues: (1) whether this Court can take cognizance
of this petition despite petitioners failure to exhaust administrative remedies; (2) whether the
acquisition proceedings over the three haciendas were valid and in accordance with law; and (3)
assuming the haciendas may be reclassified from agricultural to non-agricultural, whether this court
has the power to rule on this issue.

I. Exhaustion of Administrative Remedies.

 In its first assigned error, petitioner claims that respondent Court of Appeals gravely erred in
finding that petitioner failed to exhaust administrative remedies. As a general rule, before a party may
be allowed to invoke the jurisdiction of the courts of justice, he is expected to have exhausted all
means of administrative redress. This is not absolute, however. There are instances when judicial
action may be resorted to immediately. Among these exceptions are: (1) when the question raised is
purely legal; (2) when the administrative body is in estoppel; (3) when the act complained of is patently
illegal; (4) when there is urgent need for judicial intervention; (5) when the respondent acted in
disregard of due process; (6) when the respondent is a department secretary whose acts, as an alter
ego of the President, bear the implied or assumed approval of the latter; (7) when irreparable damage
will be suffered; (8) when there is no other plain, speedy and adequate remedy; (9) when strong public
interest is involved; (10) when the subject of the controversy is private land; and (11)
in quo warranto proceedings.[42]
Petitioner rightly sought immediate redress in the courts. There was a violation of its rights and to
require it to exhaust administrative remedies before the DAR itself was not a plain, speedy and
adequate remedy.
Respondent DAR issued Certificates of Land Ownership Award (CLOAs) to farmer beneficiaries
over portions of petitioners land without just compensation to petitioner. A Certificate of Land
Ownership Award (CLOA) is evidence of ownership of land by a beneficiary under R.A. 6657, the
Comprehensive Agrarian Reform Law of 1988.[43] Before this may be awarded to a farmer beneficiary,
the land must first be acquired by the State from the landowner and ownership transferred to the
former. The transfer of possession and ownership of the land to the government are conditioned upon
the receiptby the landowner of the corresponding payment or deposit by the DAR of the compensation
with an accessible bank. Until then, title remains with the landowner.[44] There was no receipt by
petitioner of any compensation for any of the lands acquired by the government.
The kind of compensation to be paid the landowner is also specific. The law provides that the
deposit must be made only in cash or LBP bonds.[45] Respondent DARs opening of trust account
deposits in petitioners name with the Land Bank of the Philippines does not constitute payment under
the law. Trust account deposits are not cash or LBP bonds. The replacement of the trust account with
cash or LBP bonds did not ipso facto cure the lack of compensation; for essentially, the determination
of this compensation was marred by lack of due process. In fact, in the entire acquisition proceedings,
respondent DAR disregarded the basic requirements of administrative due process. Under these
circumstances, the issuance of the CLOAs to farmer beneficiaries necessitated immediate judicial
action on the part of the petitioner.

II. The Validity of the Acquisition Proceedings Over the Haciendas.

Petititioners allegation of lack of due process goes into the validity of the acquisition proceedings
themselves. Before we rule on this matter, however, there is need to lay down the procedure in the
acquisition of private lands under the provisions of the law.

A. Modes of Acquisition of Land under R. A. 6657

Republic Act No. 6657, the Comprehensive Agrarian Reform Law of 1988 (CARL), provides for
two (2) modes of acquisition of private land: compulsory and voluntary. The procedure for the
compulsory acquisition of private lands is set forth in Section 16 of R.A. 6657, viz:
Sec. 16. Procedure for Acquisition of Private Lands. --. For purposes of acquisition of private lands,
the following procedures shall be followed:

a) After having identified the land, the landowners and the beneficiaries, the DAR shall send
its notice to acquire the land to the owners thereof, by personal delivery or registered mail,
and post the same in a conspicuous place in the municipal building and barangay hall of the
place where the property is located. Said notice shall contain the offer of the DAR to pay a
corresponding value in accordance with the valuation set forth in Sections 17, 18, and other
pertinent provisions hereof.

b) Within thirty (30) days from the date of receipt of written notice by personal delivery or registered
mail, the landowner, his administrator or representative shall inform the DAR of his acceptance or
rejection of the offer.

c) If the landowner accepts the offer of the DAR, the LBP shall pay the landowner the purchase price
of the land within thirty (30) days after he executes and delivers a deed of transfer in favor of the
Government and surrenders the Certificate of Title and other muniments of title.

d) In case of rejection or failure to reply, the DAR shall conduct summary administrative proceedings
to determine the compensation for the land requiring the landowner, the LBP and other interested
parties to submit evidence as to the just compensation for the land, within fifteen (15) days from
receipt of the notice. After the expiration of the above period, the matter is deemed submitted for
decision. The DAR shall decide the case within thirty (30) days after it is submitted for decision.

e) Upon receipt by the landowner of the corresponding payment, or, in case of rejection or no
response from the landowner, upon the deposit with an accessible bank designated by the DAR of
the compensation in cash or in LBP bonds in accordance with this Act, the DAR shall 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.

f) Any party who disagrees with the decision may bring the matter to the court of proper jurisdiction
for final determination of just compensation.

In the compulsory acquisition of private lands, the landholding, the landowners and the farmer
beneficiaries must first be identified. After identification, the DAR shall send a Notice of Acquisition to
the landowner, by personal delivery or registered mail, and post it in a conspicuous place in the
municipal building and barangay hall of the place where the property is located. Within thirty days from
receipt of the Notice of Acquisition, the landowner, his administrator or representative shall inform the
DAR of his acceptance or rejection of the offer. If the landowner accepts, he executes and delivers a
deed of transfer in favor of the government and surrenders the certificate of title. Within thirty days
from the execution of the deed of transfer, the Land Bank of the Philippines (LBP) pays the owner the
purchase price. If the landowner rejects the DARs offer or fails to make a reply, the DAR conducts
summary administrative proceedings to determine just compensation for the land. The landowner, the
LBP representative and other interested parties may submit evidence on just compensation within
fifteen days from notice. Within thirty days from submission, the DAR shall decide the case and inform
the owner of its decision and the amount of just compensation. Upon receipt by the owner of the
corresponding payment, or, in case of rejection or lack of response from the latter, the DAR shall
deposit the compensation in cash or in LBP bonds with an accessible bank. The DAR shall
immediately take possession of the land and cause the issuance of a transfer certificate of title in the
name of the Republic of the Philippines. The land shall then be redistributed to the farmer
beneficiaries. Any party may question the decision of the DAR in the regular courts for final
determination of just compensation.
The DAR has made compulsory acquisition the priority mode of land acquisition to hasten the
implementation of the Comprehensive Agrarian Reform Program (CARP).[46] Under Section 16 of the
CARL, the first step in compulsory acquisition is the identification of the land, the landowners and the
beneficiaries. However, the law is silent on how the identification process must be made. To fill
in this gap, the DAR issued on July 26, 1989 Administrative Order No. 12, Series of 1989, which
set the operating procedure in the identification of such lands. The procedure is as follows:

II. OPERATING PROCEDURE

A. The Municipal Agrarian Reform Officer, with the assistance of the pertinent
Barangay Agrarian Reform Committee (BARC), shall:

1. Update the masterlist of all agricultural lands covered under the CARP in his area of
responsibility. The masterlist shall include such information as required under the
attached CARP Masterlist Form which shall include the name of the landowner,
landholding area, TCT/OCT number, and tax declaration number.
2. Prepare a Compulsory Acquisition Case Folder (CACF) for each title (OCT/TCT) or
landholding covered under Phase I and II of the CARP except those for which the
landowners have already filed applications to avail of other modes of land acquisition. A
case folder shall contain the following duly accomplished forms:
a) CARP CA Form 1MARO Investigation Report
b) CARP CA Form 2-- Summary Investigation Report of Findings and Evaluation
c) CARP CA Form 3Applicants Information Sheet
d) CARP CA Form 4Beneficiaries Undertaking
e) CARP CA Form 5Transmittal Report to the PARO

The MARO/ BARC shall certify that all information contained in the above-mentioned forms have
been examined and verified by him and that the same are true and correct.

3. Send a Notice of Coverage and a letter of invitation to a conference/ meeting to the

landowner covered by the Compulsory Case Acquisition Folder. Invitations to the
said conference/ meeting shall also be sent to the prospective farmer-beneficiaries,
the BARC representative(s), the Land Bank of the Philippines (LBP) representative,
and other interested parties to discuss the inputs to the valuation of the property.
He shall discuss the MARO/ BARC investigation report and solicit the views,
objection, agreements or suggestions of the participants thereon. The landowner
shall also be asked to indicate his retention area. The minutes of the meeting shall
be signed by all participants in the conference and shall form an integral part of the
CACF.
4. Submit all completed case folders to the Provincial Agrarian Reform Officer (PARO).
B. The PARO shall:
1. Ensure that the individual case folders are forwarded to him by his MAROs.
2. Immediately upon receipt of a case folder, compute the valuation of the land in accordance
with A.O. No. 6, Series of 1988.[47] The valuation worksheet and the related CACF
 valuation forms shall be duly certified correct by the PARO and all the personnel who
participated in the accomplishment of these forms.
3. In all cases, the PARO may validate the report of the MARO through ocular inspection and
verification of the property. This ocular inspection and verification shall be mandatory
when the computed value exceeds500,000 per estate.
4. Upon determination of the valuation, forward the case folder, together with the duly
accomplished valuation forms and his recommendations, to the Central Office. The LBP
representative and the MARO concerned shall be furnished a copy each of his report.
C. DAR Central Office, specifically through the Bureau of Land Acquisition and
Distribution (BLAD), shall:
1. Within three days from receipt of the case folder from the PARO, review, evaluate and
determine the final land valuation of the property covered by the case folder. A summary
review and evaluation report shall be prepared and duly certified by the BLAD Director
and the personnel directly participating in the review and final valuation.
2. Prepare, for the signature of the Secretary or her duly authorized representative, a Notice
of Acquisition (CARP CA Form 8) for the subject property. Serve the Notice to the
landowner personally or through registered mail within three days from its approval. The
Notice shall include, among others, the area subject of compulsory acquisition, and the
amount of just compensation offered by DAR.
3. Should the landowner accept the DARs offered value, the BLAD shall prepare and submit
to the Secretary for approval the Order of Acquisition. However, in case of rejection or
non-reply, the DAR Adjudication Board (DARAB) shall conduct a summary administrative
hearing to determine just compensation, in accordance with the procedures provided
under Administrative Order No. 13, Series of 1989. Immediately upon receipt of the
DARABs decision on just compensation, the BLAD shall prepare and submit to the
Secretary for approval the required Order of Acquisition.
4. Upon the landowners receipt of payment, in case of acceptance, or upon deposit of
payment in the designated bank, in case of rejection or non-response, the Secretary shall
immediately direct the pertinent Register of Deeds to issue the corresponding Transfer
Certificate of Title (TCT) in the name of the Republic of the Philippines. Once the property
is transferred, the DAR, through the PARO, shall take possession of the land for
redistribution to qualified beneficiaries.
Administrative Order No. 12, Series of 1989 requires that the Municipal Agrarian Reform Officer
(MARO) keep an updated master list of all agricultural lands under the CARP in his area of
responsibility containing all the required information. The MARO prepares a Compulsory Acquisition
Case Folder (CACF) for each title covered by CARP. The MARO then sends the landowner a Notice
of Coverage and a letter of invitation to a conference/ meeting over the land covered by the CACF. He
also sends invitations to the prospective farmer-beneficiaries, the representatives of the Barangay
Agrarian Reform Committee (BARC), the Land Bank of the Philippines (LBP) and other interested
parties to discuss the inputs to the valuation of the property and solicit views, suggestions, objections
or agreements of the parties. At the meeting, the landowner is asked to indicate his retention area.
The MARO shall make a report of the case to the Provincial Agrarian Reform Officer (PARO) who
shall complete the valuation of the land. Ocular inspection and verification of the property by the PARO
shall be mandatory when the computed value of the estate exceeds P500,000.00. Upon determination
of the valuation, the PARO shall forward all papers together with his recommendation to the Central
Office of the DAR. The DAR Central Office, specifically, the Bureau of Land Acquisition and
Distribution (BLAD), shall review, evaluate and determine the final land valuation of the property. The
BLAD shall prepare, on the signature of the Secretary or his duly authorized representative, a Notice
of Acquisition for the subject property.[48] From this point, the provisions of Section 16 of R.A. 6657
then apply.[49]
For a valid implementation of the CAR Program, two notices are required: (1) the Notice of
Coverage and letter of invitation to a preliminary conference sent to the landowner, the
representatives of the BARC, LBP, farmer beneficiaries and other interested parties pursuant to DAR
A. O. No. 12, Series of 1989; and (2) the Notice of Acquisition sent to the landowner under Section 16
of the CARL.
The importance of the first notice, i.e., the Notice of Coverage and the letter of invitation to the
conference, and its actual conduct cannot be understated. They are steps designed to comply with
the requirements of administrative due process. The implementation of the CARL is an exercise of the
States police power and the power of eminent domain. To the extent that the CARL prescribes
retention limits to the landowners, there is an exercise of police power for the regulation of private
property in accordance with the Constitution.[50] But where, to carry out such regulation, the owners
are deprived of lands they own in excess of the maximum area allowed, there is also a taking under
the power of eminent domain. The taking contemplated is not a mere limitation of the use of the
land. What is required is the surrender of the title to and physical possession of the said excess and
all beneficial rights accruing to the owner in favor of the farmer beneficiary.[51] The Bill of Rights
provides that [n]o person shall be deprived of life, liberty or property without due process of law.[52] The
CARL was not intended to take away property without due process of law.[53] The exercise of the power
of eminent domain requires that due process be observed in the taking of private property.
DAR A. O. No. 12, Series of 1989, from whence the Notice of Coverage first sprung, was amended
in 1990 by DAR A.O. No. 9, Series of 1990 and in 1993 by DAR A.O. No. 1, Series of 1993. The
Notice of Coverage and letter of invitation to the conference meeting were expanded and
amplified in said amendments.
DAR A. O. No. 9, Series of 1990 entitled Revised Rules Governing the Acquisition of Agricultural
Lands Subject of Voluntary Offer to Sell and Compulsory Acquisition Pursuant to R. A. 6657, requires
that:

B. MARO

1. Receives the duly accomplished CARP Form Nos. 1 & 1.1 including supporting
documents.
2. Gathers basic ownership documents listed under 1.a or 1.b above and prepares
corresponding VOCF/ CACF by landowner/ landholding.
3. Notifies/ invites the landowner and representatives of the LBP, DENR, BARC and
prospective beneficiaries of the schedule of ocular inspection of the property at least one
week in advance.
4. MARO/ LAND BANK FIELD OFFICE/ BARC

a) Identify the land and landowner, and determine the suitability for agriculture and
productivity of the land and jointly prepare Field Investigation Report (CARP
Form No. 2), including the Land Use Map of the property.

b) Interview applicants and assist them in the preparation of the Application For
Potential CARP Beneficiary (CARP Form No. 3).
 c) Screen prospective farmer-beneficiaries and for those found qualified, cause the
signing of the respective Application to Purchase and Farmers Undertaking
(CARP Form No. 4).

d) Complete the Field Investigation Report based on the result of the ocular inspection/
investigation of the property and documents submitted. See to it that Field
Investigation Report is duly accomplished and signed by all concerned.

5. MARO

a) Assists the DENR Survey Party in the conduct of a boundary/ subdivision survey
delineating areas covered by OLT, retention, subject of VOS, CA (by phases,
if possible), infrastructures, etc., whichever is applicable.

b) Sends Notice of Coverage (CARP Form No. 5) to landowner concerned or his duly
authorized representative inviting him for a conference.

c) Sends Invitation Letter (CARP Form No. 6) for a conference/ public hearing to
prospective farmer-beneficiaries, landowner, representatives of BARC, LBP,
DENR, DA, NGOs, farmers organizations and other interested parties to
discuss the following matters:

Result of Field Investigation

Inputs to valuation

Issues raised

Comments/ recommendations by all parties concerned.

d) Prepares Summary of Minutes of the conference/ public hearing to be guided by

CARP Form No. 7.

e) Forwards the completed VOCF/CACF to the Provincial Agrarian Reform Office

(PARO) using CARP Form No. 8 (Transmittal Memo to PARO).

x x x.
DAR A. O. No. 9, Series of 1990 lays down the rules on both Voluntary Offer to Sell (VOS) and
Compulsory Acquisition (CA) transactions involving lands enumerated under Section 7 of the
CARL.[54]In both VOS and CA transactions, the MARO prepares the Voluntary Offer to Sell Case
Folder (VOCF) and the Compulsory Acquisition Case Folder (CACF), as the case may be, over a
particular landholding. The MARO notifies the landowner as well as representatives of the LBP, BARC
and prospective beneficiaries of the date of the ocular inspection of the property at least one week
before the scheduled date and invites them to attend the same. The MARO, LBP or BARC conducts
the ocular inspection and investigation by identifying the land and landowner, determining the
suitability of the land for agriculture and productivity, interviewing and screening prospective farmer
beneficiaries. Based on its investigation, the MARO, LBP or BARC prepares the Field Investigation
Report which shall be signed by all parties concerned. In addition to the field investigation, a boundary
or subdivision survey of the land may also be conducted by a Survey Party of the Department of
Environment and Natural Resources (DENR) to be assisted by the MARO.[55] This survey shall
delineate the areas covered by Operation Land Transfer (OLT), areas retained by the landowner,
areas with infrastructure, and the areas subject to VOS and CA. After the survey and field
investigation, the MARO sends a Notice of Coverage to the landowner or his duly authorized
representative inviting him to a conference or public hearing with the farmer beneficiaries,
representatives of the BARC, LBP, DENR, Department of Agriculture (DA), non-government
organizations, farmers organizations and other interested parties. At the public hearing, the parties
shall discuss the results of the field investigation, issues that may be raised in relation thereto, inputs
to the valuation of the subject landholding, and other comments and recommendations by all parties
concerned. The Minutes of the conference/ public hearing shall form part of the VOCF or CACF which
files shall be forwarded by the MARO to the PARO. The PARO reviews, evaluates and validates the
Field Investigation Report and other documents in the VOCF/ CACF. He then forwards the records to
the RARO for another review.
DAR A. O. No. 9, Series of 1990 was amended by DAR A. O. No. 1, Series of 1993. DAR A. O.
No. 1, Series of 1993 provided, among others, that:
IV. OPERATING PROCEDURES:
"Steps Responsible Activity Forms/
Agency/Unit Document
(Requirements)
A. Identification and
Documentation
xxx
5 DARMO Issues Notice of Coverage to LO CARP
by personal delivery with proof of Form No.2
service, or by registered mail with
return card, informing him that his
property is now under CARP cover-
age and for LO to select his retention
area, if he desires to avail of his right
of retention; and at the same time in-
vites him to join the field investigation
to be conducted on his property which
should be scheduled at least two weeks
in advance of said notice.
A copy of said Notice CARP
shall be posted for at least Form No.17
one week on the bulletin
board of the municipal and barangay
halls where the property is located.
LGU office concerned notifies DAR
about compliance with posting requirement
thru return indorsement on CARP Form
No. 17.
6 DARMO Sends notice to the LBP, CARP
BARC, DENR Form No.3
representatives and
prospective ARBs of the schedule of
the field investigation to be conducted
on the subject property.
7 DARMO With the participation of CARP
BARC the LO, representatives of Form No.4
LBP the LBP, BARC, DENR Land Use
DENR and prospective ARBs, Map
Local Office conducts the investigation
on subject property to identify the landholding,
determines its suitability and productivity;
and jointly prepares the Field Investigation
Report (FIR) and Land Use Map. However,
the field investigation shall proceed even if the
LO, the representatives of the DENR and
prospective ARBs are not available provided,
they were given due notice of the time and date
of the investigation to be conducted. Similarly,
if the LBP representative is not available or could
not come on the scheduled date, the field
investigation shall also be conducted, after which
the duly accomplished Part I of CARP Form No. 4
shall be forwarded to the LBP representative for
validation. If he agrees to the ocular inspection report
of DAR, he signs the FIR (Part I) and accomplishes
Part II thereof.
In the event that there is a difference or variance
between the findings of the DAR and the LBP as
to the propriety of covering the land under CARP,
whether in whole or in part, on the issue of suitability
to agriculture, degree of development or slope, and
on issues affecting idle lands, the conflict shall be
resolved by a composite team of DAR, LBP, DENR
and DA which shall jointly conduct further investigation
thereon. The team shall submit its report of findings
which shall be binding to both DAR and LBP, pursuant
to Joint Memorandum Circular of the DAR, LBP, DENR
and DA dated 27 January 1992.
8 DARMO Screens prospective ARBS CARP
BARC and causes the signing of Form No. 5
the Application of
Purchase and Farmers' Undertaking (APFU).
9 DARMO Furnishes a copy of the CARP
duly accomplished FIR to Form No.
the landowner by personal 4
delivery with proof of service or registered
mail with return card and posts a copy thereof
for at least one week on the bulletin board of the
municipal and barangay halls where the property
is located.
LGU office concerned CARP
Notifies DAR about Form No.
compliance with posting 17
requirement thru return endorsement on
CARP Form No. 17.
B. Land Survey
10 DARMO Conducts perimeter or Perimeter
And/or segregation survey or
DENR delineating areas covered Segregation
Local Office by OLT, "uncarpable Survey Plan
areas such as 18% slope and above,
unproductive/ unsuitable to agriculture,
retention, infrastructure. In case of
segregation or subdivision survey, the
plan shall be approved by DENR-LMS.
C. Review and Completion of Documents.
11 DARMO Forwards VOCF/CACF CARP
to DARPO. Form No.
6
x x x."
DAR A. O. No. 1, Series of 1993, modified the identification process and increased the number
of government agencies involved in the identification and delineation of the land subject to
acquisition.[56]This time, the Notice of Coverage is sent to the landowner before the conduct of the field
investigation and the sending must comply with specific requirements. Representatives of the DAR
Municipal Office (DARMO) must send the Notice of Coverage to the landowner by personal delivery
with proof of service, or by registered mail with return card, informing him that his property is under
CARP coverage and that if he desires to avail of his right of retention, he may choose which area he
shall retain. The Notice of Coverage shall also invite the landowner to attend the field investigation to
be scheduled at least two weeks from notice. The field investigation is for the purpose of identifying
the landholding and determining its suitability for agriculture and its productivity. A copy of the Notice
of Coverage shall be posted for at least one week on the bulletin board of the municipal and barangay
halls where the property is located. The date of the field investigation shall also be sent by the DAR
Municipal Office to representatives of the LBP, BARC, DENR and prospective farmer
beneficiaries. The field investigation shall be conducted on the date set with the participation of the
landowner and the various representatives. If the landowner and other representatives are absent, the
field investigation shall proceed, provided they were duly notified thereof. Should there be a variance
between the findings of the DAR and the LBP as to whether the land be placed under agrarian reform,
the lands suitability to agriculture, the degree or development of the slope, etc., the conflict shall be
resolved by a composite team of the DAR, LBP, DENR and DA which shall jointly conduct further
investigation. The teams findings shall be binding on both DAR and LBP. After the field investigation,
the DAR Municipal Office shall prepare the Field Investigation Report and Land Use Map, a copy of
which shall be furnished the landowner by personal delivery with proof of service or registered mail
with return card. Another copy of the Report and Map shall likewise be posted for at least one week in
the municipal or barangay halls where the property is located.
Clearly then, the notice requirements under the CARL are not confined to the Notice of Acquisition
set forth in Section 16 of the law. They also include the Notice of Coverage first laid down in DAR A.
O. No. 12, Series of 1989 and subsequently amended in DAR A. O. No. 9, Series of 1990 and DAR
A. O. No. 1, Series of 1993. This Notice of Coverage does not merely notify the landowner that his
property shall be placed under CARP and that he is entitled to exercise his retention right; it also
notifies him, pursuant to DAR A. O. No. 9, Series of 1990, that a public hearing shall be conducted
where he and representatives of the concerned sectors of society may attend to discuss the results of
the field investigation, the land valuation and other pertinent matters. Under DAR A. O. No. 1, Series
of 1993, the Notice of Coverage also informs the landowner that a field investigation of his landholding
shall be conducted where he and the other representatives may be present.

B. The Compulsory Acquisition of Haciendas Palico and Banilad

In the case at bar, respondent DAR claims that it, through MARO Leopoldo C. Lejano, sent a
letter of invitation entitled Invitation to Parties dated September 29, 1989 to petitioner corporation,
through Jaime Pimentel, the administrator of Hacienda Palico.[57] The invitation was received on the
same day it was sent as indicated by a signature and the date received at the bottom left corner of
said invitation.With regard to Hacienda Banilad, respondent DAR claims that Jaime Pimentel,
administrator also of Hacienda Banilad, was notified and sent an invitation to the conference. Pimentel
actually attended the conference on September 21, 1989 and signed the Minutes of the meeting on
behalf of petitioner corporation.[58] The Minutes was also signed by the representatives of the BARC,
the LBP and farmer beneficiaries.[59] No letter of invitation was sent or conference meeting held with
respect to Hacienda Caylaway because it was subject to a Voluntary Offer to Sell to respondent
DAR.[60]
When respondent DAR, through the Municipal Agrarian Reform Officer (MARO), sent to the
various parties the Notice of Coverage and invitation to the conference, DAR A. O. No. 12, Series of
1989 was already in effect more than a month earlier. The Operating Procedure in DAR Administrative
Order No. 12 does not specify how notices or letters of invitation shall be sent to the landowner, the
representatives of the BARC, the LBP, the farmer beneficiaries and other interested parties. The
procedure in the sending of these notices is important to comply with the requisites of due
process especially when the owner, as in this case, is a juridical entity. Petitioner is a domestic
corporation,[61] and therefore, has a personality separate and distinct from its shareholders, officers
and employees.
The Notice of Acquisition in Section 16 of the CARL is required to be sent to the landowner by
personal delivery or registered mail. Whether the landowner be a natural or juridical person to
whose address the Notice may be sent by personal delivery or registered mail, the law does
not distinguish. The DAR Administrative Orders also do not distinguish. In the proceedings before
the DAR, the distinction between natural and juridical persons in the sending of notices may be found
in the Revised Rules of Procedure of the DAR Adjudication Board (DARAB). Service of pleadings
before the DARAB is governed by Section 6, Rule V of the DARAB Revised Rules of
Procedure. Notices and pleadings are served on private domestic corporations or partnerships in the
following manner:

Sec. 6. Service upon Private Domestic Corporation or Partnership.-- If the defendant is a corporation
organized under the laws of the Philippines or a partnership duly registered, service may be made on
the president, manager, secretary, cashier, agent, or any of its directors or partners.

Similarly, the Revised Rules of Court of the Philippines, in Section 13, Rule 14 provides:

Sec. 13. Service upon private domestic corporation or partnership.If the defendant is a corporation
organized under the laws of the Philippines or a partnership duly registered, service may be made on
the president, manager, secretary, cashier, agent, or any of its directors.

Summonses, pleadings and notices in cases against a private domestic corporation before the
DARAB and the regular courts are served on the president, manager, secretary, cashier, agent or any
of its directors. These persons are those through whom the private domestic corporation or partnership
is capable of action.[62]
Jaime Pimentel is not the president, manager, secretary, cashier or director of petitioner
corporation. Is he, as administrator of the two Haciendas, considered an agent of the corporation?
The purpose of all rules for service of process on a corporation is to make it reasonably certain
that the corporation will receive prompt and proper notice in an action against it.[63] Service must be
made on a representative so integrated with the corporation as to make it a priori supposable that he
will realize his responsibilities and know what he should do with any legal papers served on him,[64] and
bring home to the corporation notice of the filing of the action.[65] Petitioners evidence does not show
the official duties of Jaime Pimentel as administrator of petitioners haciendas. The evidence does not
indicate whether Pimentels duties is so integrated with the corporation that he would immediately
realize his responsibilities and know what he should do with any legal papers served on him. At the
time the notices were sent and the preliminary conference conducted, petitioners principal place of
business was listed in respondent DARs records as Soriano Bldg., Plaza Cervantes, Manila,[66] and
7th Flr. Cacho-Gonzales Bldg., 101 Aguirre St., Makati, Metro Manila.[67] Pimentel did not hold office
at the principal place of business of petitioner. Neither did he exercise his functions in Plaza Cervantes,
Manila nor in Cacho-Gonzales Bldg., Makati, Metro Manila. He performed his official functions and
actually resided in the haciendas in Nasugbu, Batangas, a place over two hundred kilometers away
from Metro Manila.
Curiously, respondent DAR had information of the address of petitioners principal place of
business. The Notices of Acquisition over Haciendas Palico and Banilad were addressed to petitioner
at its offices in Manila and Makati. These Notices were sent barely three to four months after Pimentel
was notified of the preliminary conference. [68] Why respondent DAR chose to notify Pimentel instead
of the officers of the corporation was not explained by the said respondent.
Nevertheless, assuming that Pimentel was an agent of petitioner corporation, and the notices and
letters of invitation were validly served on petitioner through him, there is no showing that Pimentel
himself was duly authorized to attend the conference meeting with the MARO, BARC and LBP
representatives and farmer beneficiaries for purposes of compulsory acquisition of petitioners
landholdings.Even respondent DARs evidence does not indicate this authority. On the contrary,
petitioner claims that it had no knowledge of the letter-invitation, hence, could not have given Pimentel
the authority to bind it to whatever matters were discussed or agreed upon by the parties at the
preliminary conference or public hearing. Notably, one year after Pimentel was informed of the
preliminary conference, DAR A.O. No. 9, Series of 1990 was issued and this required that the Notice
of Coverage must be sent to the landowner concerned or his duly authorized representative.[69]
Assuming further that petitioner was duly notified of the CARP coverage of its haciendas, the
areas found actually subject to CARP were not properly identified before they were taken over by
respondent DAR. Respondents insist that the lands were identified because they are all registered
property and the technical description in their respective titles specifies their metes and
bounds. Respondents admit at the same time, however, that not all areas in the haciendas were
placed under the comprehensive agrarian reform program invariably by reason of elevation or
character or use of the land.[70] The acquisition of the landholdings did not cover the entire expanse of
the two haciendas, but only portions thereof. Hacienda Palico has an area of 1,024 hectares and only
688.7576 hectares were targetted for acquisition. Hacienda Banilad has an area of 1,050 hectares but
only 964.0688 hectares were subject to CARP. The haciendas are not entirely agricultural lands. In
fact, the various tax declarations over the haciendas describe the landholdings as sugarland, and
forest, sugarland, pasture land, horticulture and woodland.[71]
Under Section 16 of the CARL, the sending of the Notice of Acquisition specifically requires that
the land subject to land reform be first identified. The two haciendas in the instant case cover vast
tracts of land. Before Notices of Acquisition were sent to petitioner, however, the exact areas of the
landholdings were not properly segregated and delineated. Upon receipt of this notice, therefore,
petitioner corporation had no idea which portions of its estate were subject to compulsory
acquisition, which portions it could rightfully retain, whether these retained portions were
compact or contiguous, and which portions were excluded from CARP coverage. Even
respondent DARs evidence does not show that petitioner, through its duly authorized representative,
was notified of any ocular inspection and investigation that was to be conducted by respondent
DAR. Neither is there proof that petitioner was given the opportunity to at least choose and identify its
retention area in those portions to be acquired compulsorily. The right of retention and how this right
is exercised, is guaranteed in Section 6 of the CARL, viz:

Section 6. Retention Limits.x x x.

The right to choose the area to be retained, which shall be compact or contiguous, shall pertain to the
landowner; Provided, however, That in case the area selected for retention by the landowner is
tenanted, the tenant shall have the option to choose whether to remain therein or be a beneficiary in
the same or another agricultural land with similar or comparable features. In case the tenant chooses
to remain in the retained area, he shall be considered a leaseholder and shall lose his right to be a
beneficiary under this Act. In case the tenant chooses to be a beneficiary in another agricultural land,
he loses his right as a leaseholder to the land retained by the landowner. The tenant must exercise
this option within a period of one (1) year from the time the landowner manifests his choice of the area
for retention.

Under the law, a landowner may retain not more than five hectares out of the total area of his
agricultural land subject to CARP. The right to choose the area to be retained, which shall be compact
or contiguous, pertains to the landowner. If the area chosen for retention is tenanted, the tenant shall
have the option to choose whether to remain on the portion or be a beneficiary in the same or another
agricultural land with similar or comparable features.

C. The Voluntary Acquisition of Hacienda Caylaway

Petitioner was also left in the dark with respect to Hacienda Caylaway, which was the subject of
a Voluntary Offer to Sell (VOS). The VOS in the instant case was made on May 6, 1988,[72] before the
effectivity of R.A. 6657 on June 15, 1988. VOS transactions were first governed by DAR Administrative
Order No. 19, series of 1989,[73] and under this order, all VOS filed before June 15, 1988 shall be
heard and processed in accordance with the procedure provided for in Executive Order No. 229, thus:

III. All VOS transactions which are now pending before the DAR and for which no payment has been
made shall be subject to the notice and hearing requirements provided in Administrative Order No. 12,
Series of 1989, dated 26 July 1989, Section II, Subsection A, paragraph 3.

All VOS filed before 15 June 1988, the date of effectivity of the CARL, shall be heard and processed
in accordance with the procedure provided for in Executive Order No. 229.

"x x x."
Section 9 of E.O. 229 provides:

Sec. 9. Voluntary Offer to Sell. The government shall purchase all agricultural lands it deems
productive and suitable to farmer cultivation voluntarily offered for sale to it at a valuation determined
in accordance with Section 6. Such transaction shall be exempt from the payment of capital gains tax
and other taxes and fees.

Executive Order 229 does not contain the procedure for the identification of private land as set
forth in DAR A. O. No. 12, Series of 1989. Section 5 of E.O. 229 merely reiterates the procedure
of acquisition in Section 16, R.A. 6657. In other words, the E.O. is silent as to the procedure for the
identification of the land, the notice of coverage and the preliminary conference with the landowner,
representatives of the BARC, the LBP and farmer beneficiaries. Does this mean that these
requirements may be dispensed with regard to VOS filed before June 15, 1988? The answer is no.
First of all, the same E.O. 229, like Section 16 of the CARL, requires that the land, landowner and
beneficiaries of the land subject to agrarian reform be identified before the notice of acquisition should
be issued.[74] Hacienda Caylaway was voluntarily offered for sale in 1989. The Hacienda has a total
area of 867.4571 hectares and is covered by four (4) titles. In two separate Resolutions both dated
January 12, 1989, respondent DAR, through the Regional Director, formally accepted the VOS over
two of these four titles.[75] The land covered by the two titles has an area of 855.5257 hectares, but
only 648.8544 hectares thereof fell within the coverage of R.A. 6657.[76] Petitioner claims it does not
know where these portions are located.
Respondent DAR, on the other hand, avers that surveys on the land covered by the four titles
were conducted in 1989, and that petitioner, as landowner, was not denied participation therein. The
results of the survey and the land valuation summary report, however, do not indicate whether notices
to attend the same were actually sent to and received by petitioner or its duly authorized
representative.[77] To reiterate, Executive Order No. 229 does not lay down the operating procedure,
much less the notice requirements, before the VOS is accepted by respondent DAR. Notice to the
landowner, however, cannot be dispensed with. It is part of administrative due process and is an
essential requisite to enable the landowner himself to exercise, at the very least, his right of retention
guaranteed under the CARL.

III. The Conversion of the three Haciendas.

It is petitioners claim that the three haciendas are not subject to agrarian reform because they
have been declared for tourism, not agricultural purposes.[78] In 1975, then President Marcos issued
Proclamation No. 1520 declaring the municipality of Nasugbu, Batangas a tourist zone. Lands in
Nasugbu, including the subject haciendas, were allegedly reclassified as non-agricultural 13 years
before the effectivity of R. A. No. 6657.[79] In 1993, the Regional Director for Region IV of the
Department of Agriculture certified that the haciendas are not feasible and sound for agricultural
development.[80] On March 20, 1992, pursuant to Proclamation No. 1520, the Sangguniang Bayan of
Nasugbu, Batangas adopted Resolution No. 19 reclassifying certain areas of Nasugbu as non-
agricultural.[81] This Resolution approved Municipal Ordinance No. 19, Series of 1992, the Revised
Zoning Ordinance of Nasugbu[82] which zoning ordinance was based on a Land Use Plan for Planning
Areas for New Development allegedly prepared by the University of the Philippines.[83] Resolution No.
19 of the Sangguniang Bayan was approved by the Sangguniang Panlalawigan of Batangas on March
8, 1993.[84]
Petitioner claims that Proclamation No. 1520 was also upheld by respondent DAR in 1991 when
it approved conversion of 1,827 hectares in Nasugbu into a tourist area known as the Batulao Resort
Complex, and 13.52 hectares in Barangay Caylaway as within the potential tourist belt. [85] Petitioner
presents evidence before us that these areas are adjacent to the haciendas subject of this petition,
hence, the haciendas should likewise be converted. Petitioner urges this Court to take cognizance of
the conversion proceedings and rule accordingly.[86]
We do not agree. Respondent DARs failure to observe due process in the acquisition of
petitioners landholdings does not ipso facto give this Court the power to adjudicate over
petitioners application for conversion of its haciendas from agricultural to non-
agricultural. The agency charged with the mandate of approving or disapproving applications
for conversion is the DAR.
At the time petitioner filed its application for conversion, the Rules of Procedure governing the
processing and approval of applications for land use conversion was the DAR A. O. No. 2, Series of
1990.Under this A. O., the application for conversion is filed with the MARO where the property is
located. The MARO reviews the application and its supporting documents and conducts field
investigation and ocular inspection of the property. The findings of the MARO are subject to review
and evaluation by the Provincial Agrarian Reform Officer (PARO). The PARO may conduct further
field investigation and submit a supplemental report together with his recommendation to the Regional
Agrarian Reform Officer (RARO) who shall review the same. For lands less than five hectares, the
RARO shall approve or disapprove applications for conversion. For lands exceeding five hectares, the
RARO shall evaluate the PARO Report and forward the records and his report to the Undersecretary
for Legal Affairs.Applications over areas exceeding fifty hectares are approved or disapproved by the
Secretary of Agrarian Reform.
The DARs mandate over applications for conversion was first laid down in Section 4 (j) and
Section 5 (1) of Executive Order No. 129-A, Series of 1987 and reiterated in the CARL and
Memorandum Circular No. 54, Series of 1993 of the Office of the President. The DARs jurisdiction
over applications for conversion is provided as follows:
"A. The Department of Agrarian Reform (DAR) is mandated to approve or disapprove
applications for conversion, restructuring or readjustment of agricultural lands into non-
agricultural uses, pursuant to Section 4 (j) of Executive Order No. 129-A, Series of 1987.
"B. Section 5 (1) of E.O. 129-A, Series of 1987, vests in the DAR, exclusive authority to
approve or disapprove applications for conversion of agricultural lands for residential,
commercial, industrial and other land uses.
"C Section 65 of R. A. No. 6657, otherwise known as the Comprehensive Agrarian Reform
Law of 1988, likewise empowers the DAR to authorize under certain conditions, the
conversion of agricultural lands.
"D. Section 4 of Memorandum Circular No. 54, Series of 1993 of the Office of the President,
provides that action on applications for land use conversion on individual landholdings
shall remain as the responsibility of the DAR, which shall utilize as its primary reference,
documents on the comprehensive land use plans and accompanying ordinances passed
upon and approved by the local government units concerned, together with the National
Land Use Policy, pursuant to R. A. No. 6657 and E. O. No. 129-A.[87]
Applications for conversion were initially governed by DAR A. O. No. 1, Series of 1990 entitled
Revised Rules and Regulations Governing Conversion of Private Agricultural Lands and Non-
Agricultural Uses, and DAR A. O. No. 2, Series of 1990 entitled Rules of Procedure Governing the
Processing and Approval of Applications for Land Use Conversion. These A.O.s and other
implementing guidelines, including Presidential issuances and national policies related to land use
conversion have been consolidated in DAR A. O. No. 07, Series of 1997. Under this recent issuance,
the guiding principle in land use conversion is:

to preserve prime agricultural lands for food production while, at the same time, recognizing the need
of the other sectors of society (housing, industry and commerce) for land, when coinciding with the
objectives of the Comprehensive Agrarian Reform Law to promote social justice, industrialization and
the optimum use of land as a national resource for public welfare.[88]

Land Use refers to the manner of utilization of land, including its allocation, development and
management. Land Use Conversion refers to the act or process of changing the current use of a piece
of agricultural land into some other use as approved by the DAR.[89] The conversion of agricultural
land to uses other than agricultural requires field investigation and conferences with the occupants of
the land. They involve factual findings and highly technical matters within the special training and
expertise of the DAR. DAR A. O. No. 7, Series of 1997 lays down with specificity how the DAR must
go about its task. This time, the field investigation is not conducted by the MARO but by a special task
force, known as the Center for Land Use Policy Planning and Implementation (CLUPPI- DAR Central
Office). The procedure is that once an application for conversion is filed, the CLUPPI prepares the
Notice of Posting.The MARO only posts the notice and thereafter issues a certificate to the fact of
posting. The CLUPPI conducts the field investigation and dialogues with the applicants and the farmer
beneficiaries to ascertain the information necessary for the processing of the application. The
Chairman of the CLUPPI deliberates on the merits of the investigation report and recommends the
appropriate action. This recommendation is transmitted to the Regional Director, thru the
Undersecretary, or Secretary of Agrarian Reform. Applications involving more than fifty hectares are
approved or disapproved by the Secretary. The procedure does not end with the Secretary,
however. The Order provides that the decision of the Secretary may be appealed to the Office of the
President or the Court of Appeals, as the case may be, viz:

Appeal from the decision of the Undersecretary shall be made to the Secretary, and from the Secretary
to the Office of the President or the Court of Appeals as the case may be. The mode of appeal/ motion
for reconsideration, and the appeal fee, from Undersecretary to the Office of the Secretary shall be
the same as that of the Regional Director to the Office of the Secretary.[90]

Indeed, the doctrine of primary jurisdiction does not warrant a court to arrogate unto itself
authority to resolve a controversy the jurisdiction over which is initially lodged with an
administrative body of special competence.[91] Respondent DAR is in a better position to
resolve petitioners application for conversion, being primarily the agency possessing the
necessary expertise on the matter. The power to determine whether Haciendas Palico, Banilad
and Caylaway are non-agricultural, hence, exempt from the coverage of the CARL lies with the
DAR, not with this Court.
Finally, we stress that the failure of respondent DAR to comply with the requisites of due
process in the acquisition proceedings does not give this Court the power to nullify the CLOAs
already issued to the farmer beneficiaries. To assume the power is to short-circuit the
administrative process, which has yet to run its regular course. Respondent DAR must be
given the chance to correct its procedural lapses in the acquisition proceedings. In Hacienda
Palico alone, CLOA's were issued to 177 farmer beneficiaries in 1993.[92] Since then until the
present, these farmers have been cultivating their lands.[93] It goes against the basic precepts
of justice, fairness and equity to deprive these people, through no fault of their own, of the land
they till. Anyhow, the farmer beneficiaries hold the property in trust for the rightful owner of
the land.
IN VIEW WHEREOF, the petition is granted in part and the acquisition proceedings over the three
haciendas are nullified for respondent DAR's failure to observe due process therein. In accordance
with the guidelines set forth in this decision and the applicable administrative procedure, the case is
hereby remanded to respondent DAR for proper acquisition proceedings and determination of
petitioner's application for conversion.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 171101 July 5, 2011

HACIENDA LUISITA, INCORPORATED, Petitioner,

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

DECISION

VELASCO, JR., J.:

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

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

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

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

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

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

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

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

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

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

The Case

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

The Facts

At the core of the case is Hacienda Luisita de Tarlac (Hacienda Luisita), once a 6,443-hectare mixed
agricultural-industrial-residential expanse straddling several municipalities of Tarlac and owned by
Compañia General de Tabacos de Filipinas (Tabacalera). In 1957, the Spanish owners of Tabacalera
offered to sell Hacienda Luisita as well as their controlling interest in the sugar mill within the hacienda,
the Central Azucarera de Tarlac (CAT), as an indivisible transaction. The Tarlac Development
Corporation (Tadeco), then owned and/or controlled by the Jose Cojuangco, Sr. Group, was willing to
buy. As agreed upon, Tadeco undertook to pay the purchase price for Hacienda Luisita in pesos, while
that for the controlling interest in CAT, in US dollars.19
To facilitate the adverted sale-and-purchase package, the Philippine government, through the then
Central Bank of the Philippines, assisted the buyer to obtain a dollar loan from a US bank.20 Also, the
Government Service Insurance System (GSIS) Board of Trustees extended on November 27, 1957 a
PhP 5.911 million loan in favor of Tadeco to pay the peso price component of the sale. One of the
conditions contained in the approving GSIS Resolution No. 3203, as later amended by Resolution No.
356, Series of 1958, reads as follows:

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

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

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

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

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

The defendants-appellants x x x filed a motion on April 13, 1988 joining the x x x governmental
agencies concerned in moving for the dismissal of the case subject, however, to the following
conditions embodied in the letter dated April 8, 1988 (Annex 2) of the Secretary of the [DAR] quoted,
as follows:

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

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

xxxx

WHEREFORE, the present case on appeal is hereby dismissed without prejudice, and should be
revived if any of the conditions as above set forth is not duly complied with by the TADECO.25
Markedly, Section 10 of EO 22926 allows corporate landowners, as an alternative to the actual land
transfer scheme of CARP, to give qualified beneficiaries the right to purchase shares of stocks of the
corporation under a stock ownership arrangement and/or land-to-share ratio.

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

SEC. 31. Corporate Landowners.¾Corporate landowners may voluntarily transfer ownership over
their agricultural landholdings to the Republic of the Philippines pursuant to Section 20 hereof or to
qualified beneficiaries x x x.

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

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

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

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

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

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

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

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

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

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

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

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

On May 9, 1989, some 93% of the then farmworker-beneficiaries (FWBs) complement of Hacienda
Luisita signified in a referendum their acceptance of the proposed HLI’s Stock Distribution Option Plan.
On May 11, 1989, the Stock Distribution Option Agreement (SDOA), styled as a Memorandum of
Agreement (MOA),33 was entered into by Tadeco, HLI, and the 5,848 qualified FWBs34 and attested to
by then DAR Secretary Philip Juico. The SDOA embodied the basis and mechanics of the SDP, which
would eventually be submitted to the PARC for approval. In the SDOA, the parties agreed to the
following:

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

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

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

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

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

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

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

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

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

Subsequently, HLI submitted to DAR its SDP, designated as "Proposal for Stock Distribution under
C.A.R.P.,"35which was substantially based on the SDOA.

Notably, in a follow-up referendum the DAR conducted on October 14, 1989, 5,117 FWBs, out of 5,315
who participated, opted to receive shares in HLI.36 One hundred thirty-two (132) chose actual land
distribution.37

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

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

2. That a safeguard shall be provided by [Tadeco]/HLI against the dilution of the percentage
shareholdings of the [FWBs], i.e., that the 33% shareholdings of the [FWBs] will be maintained
at any given time;

3. That the mechanics for distributing the stocks be explicitly stated in the [MOA] signed
between the [Tadeco], HLI and its [FWBs] prior to the implementation of the stock plan;
 4. That the stock distribution plan provide for clear and definite terms for determining the actual
number of seats to be allocated for the [FWBs] in the HLI Board;

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

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

In a letter-reply of November 14, 1989 to Sec. Defensor-Santiago, Tadeco/HLI explained that the
proposed revisions of the SDP are already embodied in both the SDP and MOA.39 Following that
exchange, the PARC, under then Sec. Defensor-Santiago, by Resolution No. 89-12-240 dated
November 21, 1989, approved the SDP of Tadeco/HLI.41

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

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

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

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

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

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

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

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

(g) Social service benefits, such as but not limited to free hospitalization/medical/maternity
services, old age/death benefits and no interest bearing salary/educational loans and rice
sugar accounts. 42

Two separate groups subsequently contested this claim of HLI.

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

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

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

On December 13, 1996, HLI, in exchange for subscription of 12,000,000 shares of stocks of
Centennary Holdings, Inc. (Centennary), ceded 300 hectares of the converted area to the
latter.46 Consequently, HLI’s Transfer Certificate of Title (TCT) No. 28791047 was canceled and TCT
No. 29209148 was issued in the name of Centennary. HLI transferred the remaining 200 hectares
covered by TCT No. 287909 to Luisita Realty Corporation (LRC)49 in two separate transactions in 1997
and 1998, both uniformly involving 100 hectares for PhP 250 million each.50

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

Subsequently, Centennary sold51 the entire 300 hectares to Luisita Industrial Park Corporation
(LIPCO) for PhP 750 million. The latter acquired it for the purpose of developing an industrial
complex.52 As a result, Centennary’s TCT No. 292091 was canceled to be replaced by TCT No.
31098653 in the name of LIPCO.

From the area covered by TCT No. 310986 was carved out two (2) parcels, for which two (2) separate
titles were issued in the name of LIPCO, specifically: (a) TCT No. 36580054 and (b) TCT No.
365801,55 covering 180 and four hectares, respectively. TCT No. 310986 was, accordingly, partially
canceled.

Later on, in a Deed of Absolute Assignment dated November 25, 2004, LIPCO transferred the parcels
covered by its TCT Nos. 365800 and 365801 to the Rizal Commercial Banking Corporation (RCBC)
by way of dacion en pago in payment of LIPCO’s PhP 431,695,732.10 loan obligations. LIPCO’s titles
were canceled and new ones, TCT Nos. 391051 and 391052, were issued to RCBC.

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

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

Revocation and nullification of the SDOA and the distribution of the lands in the hacienda were the
call in the second petition, styled as Petisyon (Petition).59 The Petisyon was ostensibly filed on
December 4, 2003 by Alyansa ng mga Manggagawang Bukid ng Hacienda Luisita (AMBALA), where
the handwritten name of respondents Rene Galang as "Pangulo AMBALA" and Noel Mallari as "Sec-
Gen. AMBALA"60 appeared. As alleged, the petition was filed on behalf of AMBALA’s members
purportedly composing about 80% of the 5,339 FWBs of Hacienda Luisita.
HLI would eventually answer61 the petition/protest of the Supervisory Group. On the other hand, HLI’s
answer62 to the AMBALA petition was contained in its letter dated January 21, 2005 also filed with
DAR.

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

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

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

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

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

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

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

APPROVED.68

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

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

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

PARC would eventually deny HLI’s motion for reconsideration via Resolution No. 2006-34-01 dated
May 3, 2006.
By Resolution of June 14, 2006,74 the Court, acting on HLI’s motion, issued a temporary restraining
order,75enjoining the implementation of Resolution No. 2005-32-01 and the notice of coverage.

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

On December 2, 2006, Noel Mallari, impleaded by HLI as respondent in his capacity as "Sec-Gen.
AMBALA," filed his Manifestation and Motion with Comment Attached dated December 4, 2006
(Manifestation and Motion).77 In it, Mallari stated that he has broken away from AMBALA with other
AMBALA ex-members and formed Farmworkers Agrarian Reform Movement, Inc. (FARM).78 Should
this shift in alliance deny him standing, Mallari also prayed that FARM be allowed to intervene.

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

On January 10, 2007, the Supervisory Group79 and the AMBALA-Rene Galang faction submitted their
Comment/Opposition dated December 17, 2006.80

On October 30, 2007, RCBC filed a Motion for Leave to Intervene and to File and Admit Attached
Petition-In-Intervention dated October 18, 2007.81 LIPCO later followed with a similar motion.82 In both
motions, RCBC and LIPCO contended that the assailed resolution effectively nullified the TCTs under
their respective names as the properties covered in the TCTs were veritably included in the January
2, 2006 notice of coverage. In the main, they claimed that the revocation of the SDP cannot legally
affect their rights as innocent purchasers for value. Both motions for leave to intervene were granted
and the corresponding petitions-in-intervention admitted.

On August 18, 2010, the Court heard the main and intervening petitioners on oral arguments. On the
other hand, the Court, on August 24, 2010, heard public respondents as well as the respective
counsels of the AMBALA-Mallari-Supervisory Group, the AMBALA-Galang faction, and the FARM and
its 27 members83 argue their case.

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

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

The Issues

HLI raises the following issues for our consideration:

I.
WHETHER OR NOT PUBLIC RESPONDENTS PARC AND SECRETARY PANGANDAMAN
HAVE JURISDICTION, POWER AND/OR AUTHORITY TO NULLIFY, RECALL, REVOKE OR
RESCIND THE SDOA.

II.

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

III.

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

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

IV.

WHETHER THE RIGHTS, OBLIGATIONS AND REMEDIES OF THE PARTIES TO THE

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

On the other hand, RCBC submits the following issues:

I.

RESPONDENT PARC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO

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

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

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

B. AS AN INNOCENT PURCHASER FOR VALUE, PETITIONER-INTERVENOR

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

II.
 THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE NOTICE OF COVERAGE DATED
02 JANUARY 2006 WERE ISSUED WITHOUT AFFORDING PETITIONER-INTERVENOR
RCBC ITS RIGHT TO DUE PROCESS AS AN INNOCENT PURCHASER FOR VALUE.

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

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

Our Ruling

I.

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

Supervisory Group, AMBALA and their

respective leaders are real parties-in-interest

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

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

The same holds true with respect to the Supervisory Group whose members were admittedly
employed by HLI and whose names and signatures even appeared in the annex of the SDOA. Being
qualified beneficiaries of the SDP, Suniga and the other 61 supervisors are certainly parties who would
benefit or be prejudiced by the judgment recalling the SDP or replacing it with some other modality to
comply with RA 6657.
Even assuming that members of the Supervisory Group are not regular farmworkers, but are in the
category of "other farmworkers" mentioned in Sec. 4, Article XIII of the Constitution,89 thus only entitled
to a share of the fruits of the land, as indeed Fortich teaches, this does not detract from the fact that
they are still identified as being among the "SDP qualified beneficiaries." As such, they are, thus,
entitled to bring an action upon the SDP.90 At any rate, the following admission made by Atty. Gener
Asuncion, counsel of HLI, during the oral arguments should put to rest any lingering doubt as to the
status of protesters Galang, Suniga, and Andaya:

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

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

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

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

xxxx

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

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

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

PARC’s Authority to Revoke a Stock Distribution Plan

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

We disagree.

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

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

Gordon v. Veridiano II is instructive:

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

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

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

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

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

A law authorizing interference, when appropriate, in the contractual relations between or among
parties is deemed read into the contract and its implementation cannot successfully be resisted by
force of the non-impairment guarantee. There is, in that instance, no impingement of the impairment
clause, the non-impairment protection being applicable only to laws that derogate prior acts or
contracts by enlarging, abridging or in any manner changing the intention of the parties. Impairment,
in fine, obtains if a subsequent law changes the terms of a contract between the parties, imposes new
conditions, dispenses with those agreed upon or withdraws existing remedies for the enforcement of
the rights of the parties.100 Necessarily, the constitutional proscription would not apply to laws already
in effect at the time of contract execution, as in the case of RA 6657, in relation to DAO 10, vis-à-vis
HLI’s SDOA. As held in Serrano v. Gallant Maritime Services, Inc.:
The prohibition [against impairment of the obligation of contracts] is aligned with the general principle
that laws newly enacted have only a prospective operation, and cannot affect acts or contracts already
perfected; however, as to laws already in existence, their provisions are read into contracts and
deemed a part thereof. Thus, the non-impairment clause under Section 10, Article II [of the
Constitution] is limited in application to laws about to be enacted that would in any way derogate from
existing acts or contracts by enlarging, abridging or in any manner changing the intention of the parties
thereto.101 (Emphasis supplied.)

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

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

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

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

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

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

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

We are not persuaded.

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

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

Constitutional Issue

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

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

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

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

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

(1) there is an actual case or controversy;

(2) that the constitutional question is raised at the earliest possible opportunity by a proper
party or one with locus standi; and

(3) the issue of constitutionality must be the very lis mota of the case.108

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

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

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

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

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

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

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

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

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

These requisites do not obtain in the case at bar.

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

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

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

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

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

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

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

SEC. 31. Corporate Landowners.— x x x

xxxx

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

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

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

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

MR. MONSOD. Yes.

MR. NOLLEDO. And when we talk of "collectively," we mean communal ownership, stewardship or
State ownership?

MS. NIEVA. In this section, we conceive of cooperatives; that is farmers’ cooperatives owning the
land, not the State.

MR. NOLLEDO. And when we talk of "collectively," referring to farmers’ cooperatives, do the farmers
own specific areas of land where they only unite in their efforts?

MS. NIEVA. That is one way.

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

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

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

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

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

Likewise, Sec. 4, Art. XIII of the Constitution makes mention of a commitment on the part of the State
to pursue, by law, an agrarian reform program founded on the policy of land for the landless, but
subject to such priorities as Congress may prescribe, taking into account such abstract variable as
"equity considerations." The textual reference to a law and Congress necessarily implies that the
above constitutional provision is not self-executoryand that legislation is needed to implement the
urgently needed program of agrarian reform. And RA 6657 has been enacted precisely pursuant to
and as a mechanism to carry out the constitutional directives. This piece of legislation, in fact,
restates118 the agrarian reform policy established in the aforementioned provision of the Constitution
of promoting the welfare of landless farmers and farmworkers. RA 6657 thus defines "agrarian reform"
as "the redistribution of lands … to farmers and regular farmworkers who are landless … to lift the
economic status of the beneficiaries and all other arrangements alternative to the physical
redistribution of lands, such as production or profit sharing, labor administration and the distribution
of shares of stock which will allow beneficiaries to receive a just share of the fruits of the lands they
work."

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

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

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

This contention has no merit.

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

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

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

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

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

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

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

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

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

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

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

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

II.

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

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

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

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

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

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

(6) Several homelot awardees have yet to receive their individual titles.

Petitioner HLI claims having complied with, at least substantially, all its obligations under the SDP, as
approved by PARC itself, and tags the reasons given for the revocation of the SDP as unfounded.

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

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

The petition is not impressed with merit.

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

Sec. 2 of RA 6657 states:

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

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

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

Paragraph 2 of the above-quoted provision specifically mentions that "a more equitable distribution
and ownership of land x x x shall be undertaken to provide farmers and farm workers with the
opportunity to enhance their dignity and improve the quality of their lives through greater productivity
of agricultural lands." Of note is the term "opportunity" which is defined as a favorable chance or
opening offered by circumstances.127 Considering this, by no stretch of imagination can said provision
be construed as a guarantee in improving the lives of the FWBs. At best, it merely provides for a
possibility or favorable chance of uplifting the economic status of the FWBs, which may or may not be
attained.

Pertinently, improving the economic status of the FWBs is neither among the legal obligations of HLI
under the SDP nor an imperative imposition by RA 6657 and DAO 10, a violation of which would justify
discarding the stock distribution option. Nothing in that option agreement, law or department order
indicates otherwise.

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

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

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

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

The provisions of the first paragraph of the adverted Sec. 31 are without relevance to the issue on the
propriety of the assailed order revoking HLI’s SDP, for the paragraph deals with the transfer of
agricultural lands to the government, as a mode of CARP compliance, thus:

SEC. 31. Corporate Landowners.¾Corporate landowners may voluntarily transfer ownership over
their agricultural landholdings to the Republic of the Philippines pursuant to Section 20 hereof or to
qualified beneficiaries under such terms and conditions, consistent with this Act, as they may agree,
subject to confirmation by the DAR.

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

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

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

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

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

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

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

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

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

Paragraph one (1) of the SDOA, which was based on the SDP, conforms to Sec. 31 of RA 6657. The
stipulation reads:
1. The percentage of the value of the agricultural land of Hacienda Luisita (P196,630,000.00) in
relation to the total assets (P590,554,220.00) transferred and conveyed to the SECOND PARTY
is 33.296% that, under the law, is the proportion of the outstanding capital stock of the SECOND
PARTY, which is P355,531,462.00 or 355,531,462 shares with a par value of P1.00 per share, that
has to be distributed to the THIRD PARTY under the stock distribution plan, the said 33.296% thereof
being P118,391,976.85 or 118,391,976.85 shares.

The appraised value of the agricultural land is PhP 196,630,000 and of HLI’s other assets is PhP
393,924,220. The total value of HLI’s assets is, therefore, PhP 590,554,220.132 The percentage of the
value of the agricultural lands (PhP 196,630,000) in relation to the total assets (PhP 590,554,220) is
33.296%, which represents the stockholdings of the 6,296 original qualified farmworker-beneficiaries
(FWBs) in HLI. The total number of shares to be distributed to said qualified FWBs is 118,391,976.85
HLI shares. This was arrived at by getting 33.296% of the 355,531,462 shares which is the outstanding
capital stock of HLI with a value of PhP 355,531,462. Thus, if we divide the 118,391,976.85 HLI shares
by 6,296 FWBs, then each FWB is entitled to 18,804.32 HLI shares. These shares under the SDP are
to be given to FWBs for free.

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

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

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

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

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

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

SEC. 31. Corporate Landowners x x x

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

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

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

On the Conversion of Lands

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

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

The PARC is wrong.

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

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

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

On the 3% Production Share

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

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

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

xxxx

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

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

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

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

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

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

SEC. 29. Farms Owned or Operated by Corporations or Other Business Associations.¾In the case of
farms owned or operated by corporations or other business associations, the following rules shall be
observed by the PARC.

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

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

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

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

More than sixteen (16) years have elapsed from the time the SDP was approved by PARC, and yet,
it is still the contention of the FWBs that not all was given the 240-square meter homelots and, of those
who were already given, some still do not have the corresponding titles.

During the oral arguments, HLI was afforded the chance to refute the foregoing allegation by
submitting proof that the FWBs were already given the said homelots:

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

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

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

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

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

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

Section 4. Stock Distribution Plan.¾The [SDP] submitted by the corporate landowner-applicant shall
provide for the distribution of an equal number of shares of the same class and value, with the same
rights and features as all other shares, to each of the qualified beneficiaries. This distribution plan in
all cases, shall be at least the minimum ratio for purposes of compliance with Section 31 of R.A. No.
6657.

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

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

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

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

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

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

Atty. Dela Merced: Yes, Your Honor.

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

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

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

Atty. Dela Merced: Yes, Your Honor.

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

Atty. Dela Merced: Yes, Your Honor.

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

Atty. Dela Merced: Yes, Your Honor.

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

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

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

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

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

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

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

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

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

Section 11. Implementation/Monitoring of Plan.¾The approved stock distribution plan shall

be implemented within three (3) months from receipt by the corporate landowner-applicant of the
approval thereof by the PARC, and the transfer of the shares of stocks in the names of the qualified
beneficiaries shall be recorded in stock and transfer books and submitted to the Securities and
Exchange Commission (SEC) within sixty (60) days from the said implementation of the stock
distribution plan. (Emphasis supplied.)

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

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

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

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

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

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

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

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

III.

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

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

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

Under Sec. 44 of PD 1529 or the Property Registration Decree, "every registered owner receiving a
certificate of title in pursuance of a decree of registration and every subsequent purchaser of registered
land taking a certificate of title for value and in good faith shall hold the same free from all
encumbrances except those noted on the certificate and enumerated therein."145
It is settled doctrine that one who deals with property registered under the Torrens system need not
go beyond the four corners of, but can rely on what appears on, the title. He is charged with notice
only of such burdens and claims as are annotated on the title. This principle admits of certain
exceptions, such as when the party has actual knowledge of facts and circumstances that would impel
a reasonably cautious man to make such inquiry, or when the purchaser has knowledge of a defect or
the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into
the status of the title of the property in litigation.146 A higher level of care and diligence is of course
expected from banks, their business being impressed with public interest.147

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

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

In fine, there are two (2) requirements before one may be considered a purchaser in good faith,
namely: (1) that the purchaser buys the property of another without notice that some other person has
a right to or interest in such property; and (2) that the purchaser pays a full and fair price for the
property at the time of such purchase or before he or she has notice of the claim of another.

It can rightfully be said that both LIPCO and RCBC are––based on the above requirements and with
respect to the adverted transactions of the converted land in question––purchasers in good faith for
value entitled to the benefits arising from such status.

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

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

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

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

And second, both LIPCO and RCBC purchased portions of Hacienda Luisita for value. Undeniably,
LIPCO acquired 300 hectares of land from Centennary for the amount of PhP 750 million pursuant to
a Deed of Sale dated July 30, 1998.151 On the other hand, in a Deed of Absolute Assignment dated
November 25, 2004, LIPCO conveyed portions of Hacienda Luisita in favor of RCBC by way of dacion
en pago to pay for a loan of PhP 431,695,732.10.

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

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

x x x the general rule that the direct result of a previous void contract cannot be valid, is inapplicable
in this case as it will directly contravene the Torrens system of registration. Where innocent third
persons, relying on the correctness of the certificate of title thus issued, acquire rights over
the property, the court cannot disregard such rights and order the cancellation of the
certificate. The effect of such outright cancellation will be to impair public confidence in the certificate
of title. The sanctity of the Torrens system must be preserved; otherwise, everyone dealing with the
property registered under the system will have to inquire in every instance as to whether the title had
been regularly or irregularly issued, contrary to the evident purpose of the law.

Being purchasers in good faith, the Chuas already acquired valid title to the property. A
purchaser in good faith holds an indefeasible title to the property and he is entitled to the
protection of the law.152 x x x (Emphasis supplied.)

To be sure, the practicalities of the situation have to a point influenced Our disposition on the fate of
RCBC and LIPCO. After all, the Court, to borrow from Association of Small Landowners in the
Philippines, Inc.,153 is not a "cloistered institution removed" from the realities on the ground. To note,
the approval and issuances of both the national and local governments showing that certain portions
of Hacienda Luisita have effectively ceased, legally and physically, to be agricultural and, therefore,
no longer CARPable are a matter of fact which cannot just be ignored by the Court and the DAR.
Among the approving/endorsing issuances:154
 (a) Resolution No. 392 dated 11 December 1996 of the Sangguniang Bayan of Tarlac
favorably endorsing the 300-hectare industrial estate project of LIPCO;

(b) BOI Certificate of Registration No. 96-020 dated 20 December 1996 issued in accordance
with the Omnibus Investments Code of 1987;

(c) PEZA Certificate of Board Resolution No. 97-202 dated 27 June 1997, approving LIPCO’s
application for a mixed ecozone and proclaiming the three hundred (300) hectares of the
industrial land as a Special Economic Zone;

(d) Resolution No. 234 dated 08 August 1997 of the Sangguniang Bayan of Tarlac, approving
the Final Development Permit for the Luisita Industrial Park II Project;

(e) Development Permit dated 13 August 1997 for the proposed Luisita Industrial Park II
Project issued by the Office of the Sangguniang Bayan of Tarlac;155

(f) DENR Environmental Compliance Certificate dated 01 October 1997 issued for the
proposed project of building an industrial complex on three hundred (300) hectares of industrial
land;156

(g) Certificate of Registration No. 00794 dated 26 December 1997 issued by the HLURB on
the project of Luisita Industrial Park II with an area of three million (3,000,000) square
meters;157

(h) License to Sell No. 0076 dated 26 December 1997 issued by the HLURB authorizing the
sale of lots in the Luisita Industrial Park II;

(i) Proclamation No. 1207 dated 22 April 1998 entitled "Declaring Certain Parcels of Private
Land in Barangay San Miguel, Municipality of Tarlac, Province of Tarlac, as a Special
Economic Zone pursuant to Republic Act No. 7916," designating the Luisita Industrial Park II
consisting of three hundred hectares (300 has.) of industrial land as a Special Economic Zone;
and

(j) Certificate of Registration No. EZ-98-05 dated 07 May 1998 issued by the PEZA, stating
that pursuant to Presidential Proclamation No. 1207 dated 22 April 1998 and Republic Act No.
7916, LIPCO has been registered as an Ecozone Developer/Operator of Luisita Industrial Park
II located in San Miguel, Tarlac, Tarlac.

While a mere reclassification of a covered agricultural land or its inclusion in an economic zone does
not automatically allow the corporate or individual landowner to change its use,158 the reclassification
process is a prima facie indicium that the land has ceased to be economically feasible and sound for
agricultural uses. And if only to stress, DAR Conversion Order No. 030601074-764-(95) issued in 1996
by then DAR Secretary Garilao had effectively converted 500 hectares of hacienda land from
agricultural to industrial/commercial use and authorized their disposition.

In relying upon the above-mentioned approvals, proclamation and conversion order, both RCBC and
LIPCO cannot be considered at fault for believing that certain portions of Hacienda Luisita are
industrial/commercial lands and are, thus, outside the ambit of CARP. The PARC, and consequently
DAR, gravely abused its discretion when it placed LIPCO’s and RCBC’s property which once formed
part of Hacienda Luisita under the CARP compulsory acquisition scheme via the assailed Notice of
Coverage.
As regards the 80.51-hectare land transferred to the government for use as part of the SCTEX, this
should also be excluded from the compulsory agrarian reform coverage considering that the transfer
was consistent with the government’s exercise of the power of eminent domain159 and none of the
parties actually questioned the transfer.

While We affirm the revocation of the SDP on Hacienda Luisita subject of PARC Resolution Nos.
2005-32-01 and 2006-34-01, the Court cannot close its eyes to certain "operative facts" that had
occurred in the interim. Pertinently, the "operative fact" doctrine realizes that, in declaring
a law or executive action null and void, or, by extension, no longer without force and effect, undue
harshness and resulting unfairness must be avoided. This is as it should realistically be, since rights
might have accrued in favor of natural or juridical persons and obligations justly incurred in the
meantime.160 The actual existence of a statute or executive act is, prior to such a determination, an
operative fact and may have consequences which cannot justly be ignored; the past cannot always
be erased by a new judicial declaration.161

The oft-cited De Agbayani v. Philippine National Bank162 discussed the effect to be given to a
legislative or executive act subsequently declared invalid:

x x x It does not admit of doubt that prior to the declaration of nullity such challenged legislative or
executive act must have been in force and had to be complied with. This is so as until after the judiciary,
in an appropriate case, declares its invalidity, it is entitled to obedience and respect. Parties may have
acted under it and may have changed their positions. What could be more fitting than that in a
subsequent litigation regard be had to what has been done while such legislative or executive act was
in operation and presumed to be valid in all respects. It is now accepted as a doctrine that prior to its
being nullified, its existence as a fact must be reckoned with. This is merely to reflect awareness that
precisely because the judiciary is the government organ which has the final say on whether or not a
legislative or executive measure is valid, a period of time may have elapsed before it can exercise the
power of judicial review that may lead to a declaration of nullity. It would be to deprive the law of its
quality of fairness and justice then, if there be no recognition of what had transpired prior to such
adjudication.

In the language of an American Supreme Court decision: "The actual existence of a statute, prior to
such a determination of [unconstitutionality], is an operative fact and may have consequences which
cannot justly be ignored. The past cannot always be erased by a new judicial declaration. The effect
of the subsequent ruling as to invalidity may have to be considered in various aspects,––with respect
to particular relations, individual and corporate, and particular conduct, private and official." x x x

Given the above perspective and considering that more than two decades had passed since the
PARC’s approval of the HLI’s SDP, in conjunction with numerous activities performed in good faith by
HLI, and the reliance by the FWBs on the legality and validity of the PARC-approved SDP, perforce,
certain rights of the parties, more particularly the FWBs, have to be respected pursuant to the
application in a general way of the operative fact doctrine.

A view, however, has been advanced that the operative fact doctrine is of minimal or altogether without
relevance to the instant case as it applies only in considering the effects of a declaration of
unconstitutionality of a statute, and not of a declaration of nullity of a contract. This is incorrect, for this
view failed to consider is that it is NOT the SDOA dated May 11, 1989 which was revoked in the instant
case. Rather, it is PARC’s approval of the HLI’s Proposal for Stock Distribution under CARP which
embodied the SDP that was nullified.

A recall of the antecedent events would show that on May 11, 1989, Tadeco, HLI, and the qualified
FWBs executed the SDOA. This agreement provided the basis and mechanics of the SDP that was
subsequently proposed and submitted to DAR for approval. It was only after its review that the PARC,
through then Sec. Defensor-Santiago, issued the assailed Resolution No. 89-12-2 approving the SDP.
Considerably, it is not the SDOA which gave legal force and effect to the stock distribution scheme but
instead, it is the approval of the SDP under the PARC Resolution No. 89-12-2 that gave it its validity.

The above conclusion is bolstered by the fact that in Sec. Pangandaman’s recommendation to the
PARC Excom, what he proposed is the recall/revocation of PARC Resolution No. 89-12-2 approving
HLI’s SDP, and not the revocation of the SDOA. Sec. Pangandaman’s recommendation was favorably
endorsed by the PARC Validation Committee to the PARC Excom, and these recommendations were
referred to in the assailed Resolution No. 2005-32-01. Clearly, it is not the SDOA which was made the
basis for the implementation of the stock distribution scheme.

That the operative fact doctrine squarely applies to executive acts––in this case, the approval by PARC
of the HLI proposal for stock distribution––is well-settled in our jurisprudence. In Chavez v. National
Housing Authority,163 We held:

Petitioner postulates that the "operative fact" doctrine is inapplicable to the present case because it is
an equitable doctrine which could not be used to countenance an inequitable result that is contrary to
its proper office.

On the other hand, the petitioner Solicitor General argues that the existence of the various agreements
implementing the SMDRP is an operative fact that can no longer be disturbed or simply ignored, citing
Rieta v. People of the Philippines.

The argument of the Solicitor General is meritorious.

The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals, wherein it is stated that
a legislative or executive act, prior to its being declared as unconstitutional by the courts, is valid and
must be complied with, thus:

xxx xxx xxx

This doctrine was reiterated in the more recent case of City of Makati v. Civil Service Commission,
wherein we ruled that:

Moreover, we certainly cannot nullify the City Government's order of suspension, as we have no
reason to do so, much less retroactively apply such nullification to deprive private respondent of a
compelling and valid reason for not filing the leave application. For as we have held, a void act though
in law a mere scrap of paper nonetheless confers legitimacy upon past acts or omissions done in
reliance thereof. Consequently, the existence of a statute or executive order prior to its being adjudged
void is an operative fact to which legal consequences are attached. It would indeed be ghastly unfair
to prevent private respondent from relying upon the order of suspension in lieu of a formal leave
application. (Citations omitted; Emphasis supplied.)

The applicability of the operative fact doctrine to executive acts was further explicated by this Court in
Rieta v. People,164 thus:

Petitioner contends that his arrest by virtue of Arrest Search and Seizure Order (ASSO) No. 4754 was
invalid, as the law upon which it was predicated — General Order No. 60, issued by then President
Ferdinand E. Marcos — was subsequently declared by the Court, in Tañada v. Tuvera, 33 to have no
force and effect. Thus, he asserts, any evidence obtained pursuant thereto is inadmissible in evidence.
We do not agree. In Tañada, the Court addressed the possible effects of its declaration of the invalidity
of various presidential issuances. Discussing therein how such a declaration might affect acts done
on a presumption of their validity, the Court said:

". . .. In similar situations in the past this Court had taken the pragmatic and realistic course set forth
in Chicot County Drainage District vs. Baxter Bank to wit:

‘The courts below have proceeded on the theory that the Act of Congress, having been found to be
unconstitutional, was not a law; that it was inoperative, conferring no rights and imposing no duties,
and hence affording no basis for the challenged decree. . . . It is quite clear, however, that such broad
statements as to the effect of a determination of unconstitutionality must be taken with qualifications.
The actual existence of a statute, prior to [the determination of its invalidity], is an operative fact and
may have consequences which cannot justly be ignored. The past cannot always be erased by a new
judicial declaration. The effect of the subsequent ruling as to invalidity may have to be considered in
various aspects — with respect to particular conduct, private and official. Questions of rights claimed
to have become vested, of status, of prior determinations deemed to have finality and acted upon
accordingly, of public policy in the light of the nature both of the statute and of its previous application,
demand examination. These questions are among the most difficult of those which have engaged the
attention of courts, state and federal, and it is manifest from numerous decisions that an all-inclusive
statement of a principle of absolute retroactive invalidity cannot be justified.’

xxx xxx xxx

"Similarly, the implementation/enforcement of presidential decrees prior to their publication in the

Official Gazette is ‘an operative fact which may have consequences which cannot be justly ignored.
The past cannot always be erased by a new judicial declaration . . . that an all-inclusive statement of
a principle of absolute retroactive invalidity cannot be justified.’"

The Chicot doctrine cited in Tañada advocates that, prior to the nullification of a statute, there is an
imperative necessity of taking into account its actual existence as an operative fact negating the
acceptance of "a principle of absolute retroactive invalidity." Whatever was done while the legislative
or the executive act was in operation should be duly recognized and presumed to be valid in all
respects. The ASSO that was issued in 1979 under General Order No. 60 — long before our Decision
in Tañada and the arrest of petitioner — is an operative fact that can no longer be disturbed or simply
ignored. (Citations omitted; Emphasis supplied.)

To reiterate, although the assailed Resolution No. 2005-32-01 states that it revokes or recalls the SDP,
what it actually revoked or recalled was the PARC’s approval of the SDP embodied in Resolution No.
89-12-2. Consequently, what was actually declared null and void was an executive act, PARC
Resolution No. 89-12-2,165and not a contract (SDOA). It is, therefore, wrong to say that it was the
SDOA which was annulled in the instant case. Evidently, the operative fact doctrine is applicable.

IV.

While the assailed PARC resolutions effectively nullifying the Hacienda Luisita SDP are upheld, the
revocation must, by application of the operative fact principle, give way to the right of the original 6,296
qualified FWBs to choose whether they want to remain as HLI stockholders or not. The Court cannot
turn a blind eye to the fact that in 1989, 93% of the FWBs agreed to the SDOA (or the MOA), which
became the basis of the SDP approved by PARC per its Resolution No. 89-12-2 dated November 21,
1989. From 1989 to 2005, the FWBs were said to have received from HLI salaries and cash benefits,
hospital and medical benefits, 240-square meter homelots, 3% of the gross produce from agricultural
lands, and 3% of the proceeds of the sale of the 500-hectare converted land and the 80.51-hectare lot
sold to SCTEX. HLI shares totaling 118,391,976.85 were distributed as of April 22, 2005.166 On August
6, 20l0, HLI and private respondents submitted a Compromise Agreement, in which HLI gave the
FWBs the option of acquiring a piece of agricultural land or remain as HLI stockholders, and as a
matter of fact, most FWBs indicated their choice of remaining as stockholders. These facts and
circumstances tend to indicate that some, if not all, of the FWBs may actually desire to continue as
HLI shareholders. A matter best left to their own discretion.

With respect to the other FWBs who were not listed as qualified beneficiaries as of November 21,
1989 when the SDP was approved, they are not accorded the right to acquire land but shall, however,
continue as HLI stockholders. All the benefits and homelots167 received by the 10,502 FWBs (6,296
original FWBs and 4,206 non-qualified FWBs) listed as HLI stockholders as of August 2, 2010 shall
be respected with no obligation to refund or return them since the benefits (except the homelots) were
received by the FWBs as farmhands in the agricultural enterprise of HLI and other fringe benefits were
granted to them pursuant to the existing collective bargaining agreement with Tadeco. If the number
of HLI shares in the names of the original FWBs who opt to remain as HLI stockholders falls below the
guaranteed allocation of 18,804.32 HLI shares per FWB, the HLI shall assign additional shares to said
FWBs to complete said minimum number of shares at no cost to said FWBs.

With regard to the homelots already awarded or earmarked, the FWBs are not obliged to return the
same to HLI or pay for its value since this is a benefit granted under the SDP. The homelots do not
form part of the 4,915.75 hectares covered by the SDP but were taken from the 120.9234 hectare
residential lot owned by Tadeco. Those who did not receive the homelots as of the revocation of the
SDP on December 22, 2005 when PARC Resolution No. 2005-32-01 was issued, will no longer be
entitled to homelots. Thus, in the determination of the ultimate agricultural land that will be subjected
to land distribution, the aggregate area of the homelots will no longer be deducted.

There is a claim that, since the sale and transfer of the 500 hectares of land subject of the August 14,
1996 Conversion Order and the 80.51-hectare SCTEX lot came after compulsory coverage has taken
place, the FWBs should have their corresponding share of the land’s value. There is merit in the claim.
Since the SDP approved by PARC Resolution No. 89-12-2 has been nullified, then all the lands subject
of the SDP will automatically be subject of compulsory coverage under Sec. 31 of RA 6657. Since the
Court excluded the 500-hectare lot subject of the August 14, 1996 Conversion Order and the 80.51-
hectare SCTEX lot acquired by the government from the area covered by SDP, then HLI and its
subsidiary, Centennary, shall be liable to the FWBs for the price received for said lots. HLI shall be
liable for the value received for the sale of the 200-hectare land to LRC in the amount of PhP
500,000,000 and the equivalent value of the 12,000,000 shares of its subsidiary, Centennary, for the
300-hectare lot sold to LIPCO for the consideration of PhP 750,000,000. Likewise, HLI shall be liable
for PhP 80,511,500 as consideration for the sale of the 80.51-hectare SCTEX lot.

We, however, note that HLI has allegedly paid 3% of the proceeds of the sale of the 500-hectare land
and 80.51-hectare SCTEX lot to the FWBs. We also take into account the payment of taxes and
expenses relating to the transfer of the land and HLI’s statement that most, if not all, of the proceeds
were used for legitimate corporate purposes. In order to determine once and for all whether or not all
the proceeds were properly utilized by HLI and its subsidiary, Centennary, DAR will engage the
services of a reputable accounting firm to be approved by the parties to audit the books of HLI to
determine if the proceeds of the sale of the 500-hectare land and the 80.51-hectare SCTEX lot were
actually used for legitimate corporate purposes, titling expenses and in compliance with the August
14, 1996 Conversion Order. The cost of the audit will be shouldered by HLI. If after such audit, it is
determined that there remains a balance from the proceeds of the sale, then the balance shall be
distributed to the qualified FWBs.
A view has been advanced that HLI must pay the FWBs yearly rent for use of the land from 1989. We
disagree. It should not be forgotten that the FWBs are also stockholders of HLI, and the benefits
acquired by the corporation from its possession and use of the land ultimately redounded to the FWBs’
benefit based on its business operations in the form of salaries, and other fringe benefits under the
CBA. To still require HLI to pay rent to the FWBs will result in double compensation.

For sure, HLI will still exist as a corporation even after the revocation of the SDP although it will no
longer be operating under the SDP, but pursuant to the Corporation Code as a private stock
corporation. The non-agricultural assets amounting to PhP 393,924,220 shall remain with HLI, while
the agricultural lands valued at PhP 196,630,000 with an original area of 4,915.75 hectares shall be
turned over to DAR for distribution to the FWBs. To be deducted from said area are the 500-hectare
lot subject of the August 14, 1996 Conversion Order, the 80.51-hectare SCTEX lot, and the total area
of 6,886.5 square meters of individual lots that should have been distributed to FWBs by DAR had
they not opted to stay in HLI.

HLI shall be paid just compensation for the remaining agricultural land that will be transferred to DAR
for land distribution to the FWBs. We find that the date of the "taking" is November 21, 1989, when
PARC approved HLI’s SDP per PARC Resolution No. 89-12-2. DAR shall coordinate with LBP for the
determination of just compensation. We cannot use May 11, 1989 when the SDOA was executed,
since it was the SDP, not the SDOA, that was approved by PARC.

The instant petition is treated pro hac vice in view of the peculiar facts and circumstances of the case.

WHEREFORE, the instant petition is DENIED. PARC Resolution No. 2005-32-01 dated December 22,
2005 and Resolution No. 2006-34-01 dated May 3, 2006, placing the lands subject of HLI’s SDP under
compulsory coverage on mandated land acquisition scheme of the CARP, are hereby AFFIRMED with
the MODIFICATION that the original 6,296 qualified FWBs shall have the option to remain as
stockholders of HLI. DAR shall immediately schedule meetings with the said 6,296 FWBs and explain
to them the effects, consequences and legal or practical implications of their choice, after which the
FWBs will be asked to manifest, in secret voting, their choices in the ballot, signing their signatures or
placing their thumbmarks, as the case may be, over their printed names.

Of the 6,296 FWBs, he or she who wishes to continue as an HLI stockholder is entitled to 18,804.32
HLI shares, and, in case the HLI shares already given to him or her is less than 18,804.32 shares, the
HLI is ordered to issue or distribute additional shares to complete said prescribed number of shares
at no cost to the FWB within thirty (30) days from finality of this Decision. Other FWBs who do not
belong to the original 6,296 qualified beneficiaries are not entitled to land distribution and shall remain
as HLI shareholders. All salaries, benefits, 3% production share and 3% share in the proceeds of the
sale of the 500-hectare converted land and the 80.51-hectare SCTEX lot and homelots already
received by the 10,502 FWBs, composed of 6,296 original FWBs and 4,206 non-qualified FWBs, shall
be respected with no obligation to refund or return them.

Within thirty (30) days after determining who from among the original FWBs will stay as stockholders,
DAR shall segregate from the HLI agricultural land with an area of 4,915.75 hectares subject of
PARC’s SDP-approving Resolution No. 89-12-2 the following: (a) the 500-hectare lot subject of the
August 14, l996 Conversion Order; (b) the 80.51-hectare lot sold to, or acquired by, the government
as part of the SCTEX complex; and (c) the aggregate area of 6,886.5 square meters of individual lots
that each FWB is entitled to under the CARP had he or she not opted to stay in HLI as a stockholder.
After the segregation process, as indicated, is done, the remaining area shall be turned over to DAR
for immediate land distribution to the original qualified FWBs who opted not to remain as HLI
stockholders.
The aforementioned area composed of 6,886.5-square meter lots allotted to the FWBs who stayed
with the corporation shall form part of the HLI assets.

HLI is directed to pay the 6,296 FWBs the consideration of PhP 500,000,000 received by it from Luisita
Realty, Inc. for the sale to the latter of 200 hectares out of the 500 hectares covered by the August 14,
1996 Conversion Order, the consideration of PhP 750,000,000 received by its owned subsidiary,
Centennary Holdings, Inc. for the sale of the remaining 300 hectares of the aforementioned 500-
hectare lot to Luisita Industrial Park Corporation, and the price of PhP 80,511,500 paid by the
government through the Bases Conversion Development Authority for the sale of the 80.51-hectare
lot used for the construction of the SCTEX road network. From the total amount of PhP 1,330,511,500
(PhP 500,000,000 + PhP 750,000,000 + PhP 80,511,500 = PhP 1,330,511,500) shall be deducted the
3% of the total gross sales from the production of the agricultural land and the 3% of the proceeds of
said transfers that were paid to the FWBs, the taxes and expenses relating to the transfer of titles to
the transferees, and the expenditures incurred by HLI and Centennary Holdings, Inc. for legitimate
corporate purposes. For this purpose, DAR is ordered to engage the services of a reputable
accounting firm approved by the parties to audit the books of HLI and Centennary Holdings, Inc. to
determine if the PhP 1,330,511,500 proceeds of the sale of the three (3) aforementioned lots were
used or spent for legitimate corporate purposes. Any unspent or unused balance as determined by
the audit shall be distributed to the 6,296 original FWBs.

HLI is entitled to just compensation for the agricultural land that will be transferred to DAR to be
reckoned from November 21, 1989 per PARC Resolution No. 89-12-2. DAR and LBP are ordered to
determine the compensation due to HLI.

DAR shall submit a compliance report after six (6) months from finality of this judgment. It shall also
submit, after submission of the compliance report, quarterly reports on the execution of this judgment
to be submitted within the first 15 days at the end of each quarter, until fully implemented.

The temporary restraining order is lifted.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 78517 February 27, 1989

GABINO ALITA, JESUS JULIAN, JR., JESUS JULIAN, SR., PEDRO RICALDE, VICENTE
RICALDE and ROLANDO SALAMAR, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, ENRIQUE M. REYES, PAZ M. REYES and FE M.
REYES, respondents.

Bureau of Agrarian Legal Assistance for petitioners.

Leonardo N. Zulueta for Enrique Reyes, et al. Adolfo S. Azcuna for private respondents.

PARAS, J.:

Before us is a petition seeking the reversal of the decision rendered by the respondent Court of
Appeals**on March 3, 1987 affirming the judgment of the court a quo dated April 29, 1986, the
dispositive portion of the trial court's decision reading as follows;

WHEREFORE, the decision rendered by this Court on November 5, 1982 is hereby

reconsidered and a new judgment is hereby rendered:

1. Declaring that Presidential Decree No. 27 is inapplicable to lands obtained thru the
homestead law,

2. Declaring that the four registered co-owners will cultivate and operate the
farmholding themselves as owners thereof; and

3. Ejecting from the land the so-called tenants, namely; Gabino Alita, Jesus Julian, Sr.,
Jesus Julian, Jr., Pedro Ricalde, Vicente Ricalde and Rolando Salamar, as the owners
would want to cultivate the farmholding themselves.

No pronouncement as to costs.

SO ORDERED. (p. 31, Rollo)

The facts are undisputed. The subject matter of the case consists of two (2) parcels of land, acquired
by private respondents' predecessors-in-interest through homestead patent under the provisions of
Commonwealth Act No. 141. Said lands are situated at Guilinan, Tungawan, Zamboanga del Sur.

Private respondents herein are desirous of personally cultivating these lands, but petitioners refuse to
vacate, relying on the provisions of P.D. 27 and P.D. 316 and appurtenant regulations issued by the
then Ministry of Agrarian Reform (DAR for short), now Department of Agrarian Reform (MAR for short).
On June 18, 1981, private respondents (then plaintiffs), instituted a complaint against Hon. Conrado
Estrella as then Minister of Agrarian Reform, P.D. Macarambon as Regional Director of MAR Region
IX, and herein petitioners (then defendants) for the declaration of P.D. 27 and all other Decrees, Letters
of Instructions and General Orders issued in connection therewith as inapplicable to homestead lands.

Defendants filed their answer with special and affirmative defenses of July 8, 1981.

Subsequently, on July 19, 1982, plaintiffs filed an urgent motion to enjoin the defendants from
declaring the lands in litigation under Operation Land Transfer and from being issued land transfer
certificates to which the defendants filed their opposition dated August 4, 1982.

On November 5, 1982, the then Court of Agrarian Relations 16th Regional District, Branch IV,
Pagadian City (now Regional Trial Court, 9th Judicial Region, Branch XVIII) rendered its decision
dismissing the said complaint and the motion to enjoin the defendants was denied.

On January 4, 1983, plaintiffs moved to reconsider the Order of dismissal, to which defendants filed
their opposition on January 10, 1983.

Thus, on April 29, 1986, the Regional Trial Court issued the aforequoted decision prompting
defendants to move for a reconsideration but the same was denied in its Order dated June 6, 1986.

On appeal to the respondent Court of Appeals, the same was sustained in its judgment rendered on
March 3, 1987, thus:

WHEREFORE, finding no reversible error thereof, the decision appealed from is

hereby AFFIRMED.

SO ORDERED. (p. 34, Rollo)

Hence, the present petition for review on certiorari.

The pivotal issue is whether or not lands obtained through homestead patent are covered by the
Agrarian Reform under P.D. 27.

The question certainly calls for a negative answer.

We agree with the petitioners in saying that P.D. 27 decreeing the emancipation of tenants from the
bondage of the soil and transferring to them ownership of the land they till is a sweeping social
legislation, a remedial measure promulgated pursuant to the social justice precepts of the Constitution.
However, such contention cannot be invoked to defeat the very purpose of the enactment of the Public
Land Act or Commonwealth Act No. 141. Thus,

The Homestead Act has been enacted for the welfare and protection of the poor. The
law gives a needy citizen a piece of land where he may build a modest house for
himself and family and plant what is necessary for subsistence and for the satisfaction
of life's other needs. The right of the citizens to their homes and to the things necessary
for their subsistence is as vital as the right to life itself. They have a right to live with a
certain degree of comfort as become human beings, and the State which looks after
the welfare of the people's happiness is under a duty to safeguard the satisfaction of
this vital right. (Patricio v. Bayog, 112 SCRA 45)
In this regard, the Philippine Constitution likewise respects the superiority of the homesteaders' rights
over the rights of the tenants guaranteed by the Agrarian Reform statute. In point is Section 6 of Article
XIII of the 1987 Philippine Constitution which provides:

Section 6. 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 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.

Additionally, it is worthy of note that the newly promulgated Comprehensive Agrarian Reform Law of
1988 or Republic Act No. 6657 likewise contains a proviso supporting the inapplicability of P.D. 27 to
lands covered by homestead patents like those of the property in question, reading,

Section 6. Retention Limits. ...

... Provided further, That original homestead grantees or their direct compulsory heirs
who still own the original homestead at the time of the approval of this Act shall retain
the same areas as long as they continue to cultivate said homestead.'

WHEREFORE, premises considered, the decision of the respondent Court of Appeals sustaining the
decision of the Regional Trial Court is hereby AFFIRMED.

SO ORDERED.

Melencio-Herrera, (Chairperson), Padilla, Sarmiento and Regalado, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 103302 August 12, 1993

NATALIA REALTY, INC., AND ESTATE DEVELOPERS AND INVESTORS CORP., petitioners,
vs.
DEPARTMENT OF AGRARIAN REFORM, SEC. BENJAMIN T. LEONG and DIR. WILFREDO
LEANO, DAR REGION IV, respondents.

Lino M. Patajo for petitioners.

The Solicitor General for respondents.

BELLOSILLO, J.:

Are lands already classified for residential, commercial or industrial use, as approved by the Housing
and Land Use Regulatory Board and its precursor agencies1 prior to 15 June 1988,2 covered by R.A.
6657, otherwise known as the Comprehensive Agrarian Reform Law of 1988? This is the pivotal issue
in this petition for certiorari assailing the Notice of Coverage3 of the Department of Agrarian Reform
over parcels of land already reserved as townsite areas before the enactment of the law.

Petitioner Natalia Realty, Inc. (NATALIA, for brevity) is the owner of three (3) contiguous parcels of
land located in Banaba, Antipolo, Rizal, with areas of 120.9793 hectares, 1.3205 hectares and 2.7080
hectares, or a total of 125.0078 hectares, and embraced in Transfer Certificate of Title No. 31527 of
the Register of Deeds of the Province of Rizal.

On 18 April 1979, Presidential Proclamation No. 1637 set aside 20,312 hectares of land located in the
Municipalities of Antipolo, San Mateo and Montalban as townsite areas to absorb the population
overspill in the metropolis which were designated as the Lungsod Silangan Townsite. The NATALIA
properties are situated within the areas proclaimed as townsite reservation.

Since private landowners were allowed to develop their properties into low-cost housing subdivisions
within the reservation, petitioner Estate Developers and Investors Corporation (EDIC, for brevity), as
developer of NATALIA properties, applied for and was granted preliminary approval and locational
clearances by the Human Settlements Regulatory Commission. The necessary permit for Phase I of
the subdivision project, which consisted of 13.2371 hectares, was issued sometime in 1982;4 for Phase
II, with an area of 80,000 hectares, on 13 October 1983;5 and for Phase III, which consisted of the
remaining 31.7707 hectares, on 25 April 1986.6 Petitioner were likewise issued development
permits7 after complying with the requirements. Thus the NATALIA properties later became the
Antipolo Hills Subdivision.

On 15 June 1988, R.A. 6657, otherwise known as the "Comprehensive Agrarian Reform Law of 1988"
(CARL, for brevity), went into effect. Conformably therewith, respondent Department of Agrarian
Reform (DAR, for brevity), through its Municipal Agrarian Reform Officer, issued on 22 November
1990 a Notice of Coverage on the undeveloped portions of the Antipolo Hills Subdivision which
consisted of roughly 90.3307 hectares. NATALIA immediately registered its objection to the notice of
Coverage.

EDIC also protested to respondent Director Wilfredo Leano of the DAR Region IV Office and twice
wrote him requesting the cancellation of the Notice of Coverage.

On 17 January 1991, members of the Samahan ng Magsasaka sa Bundok Antipolo, Inc. (SAMBA, for
the brevity), filed a complaint against NATALIA and EDIC before the DAR Regional Adjudicator to
restrain petitioners from developing areas under cultivation by SAMBA members.8 The Regional
Adjudicator temporarily restrained petitioners from proceeding with the development of the
subdivision. Petitioners then moved to dismiss the complaint; it was denied. Instead, the Regional
Adjudicator issued on 5 March 1991 a Writ of Preliminary Injunction.

Petitioners NATALIA and EDIC elevated their cause to the DAR Adjudication Board (DARAB);
however, on 16 December 1991 the DARAB merely remanded the case to the Regional Adjudicator
for further proceedings.9

In the interim, NATALIA wrote respondent Secretary of Agrarian Reform reiterating its request to set
aside the Notice of Coverage. Neither respondent Secretary nor respondent Director took action on
the protest-letters, thus compelling petitioners to institute this proceeding more than a year thereafter.

NATALIA and EDIC both impute grave abuse of discretion to respondent DAR for including
undedeveloped portions of the Antipolo Hills Subdivision within the coverage of the CARL. They argue
that NATALIA properties already ceased to be agricultural lands when they were included in the areas
reserved by presidential fiat for the townsite reservation.

Public respondents through the Office of the Solicitor General dispute this contention. They maintain
that the permits granted petitioners were not valid and binding because they did not comply with the
implementing Standards, Rules and Regulations of P.D. 957, otherwise known as "The Subdivision
and Condominium Buyers Protective Decree," in that no application for conversion of the NATALIA
lands from agricultural residential was ever filed with the DAR. In other words, there was no valid
conversion. Moreover, public respondents allege that the instant petition was prematurely filed
because the case instituted by SAMBA against petitioners before the DAR Regional Adjudicator has
not yet terminated. Respondents conclude, as a consequence, that petitioners failed to fully exhaust
administrative remedies available to them before coming to court.

The petition is impressed with merit. A cursory reading of the Preliminary Approval and Locational
Clearances as well as the Development Permits granted petitioners for Phases I, II and III of the
Antipolo Hills Subdivision reveals that contrary to the claim of public respondents, petitioners NATALIA
and EDIC did in fact comply with all the requirements of law.

Petitioners first secured favorable recommendations from the Lungsod Silangan Development
Corporation, the agency tasked to oversee the implementation of the development of the townsite
reservation, before applying for the necessary permits from the Human Settlements Regulatory
Commission. 10 And, in all permits granted to petitioners, the Commission
stated invariably therein that the applications were in "conformance" 11 or "conformity" 12 or
"conforming" 13 with the implementing Standards, Rules and Regulations of P.D. 957. Hence, the
argument of public respondents that not all of the requirements were complied with cannot be
sustained.

As a matter of fact, there was even no need for petitioners to secure a clearance or prior approval from
DAR. The NATALIA properties were within the areas set aside for the Lungsod Silangan Reservation.
Since Presidential Proclamation No. 1637 created the townsite reservation for the purpose of providing
additional housing to the burgeoning population of Metro Manila, it in effect converted for residential
use what were erstwhile agricultural lands provided all requisites were met. And, in the case at bar,
there was compliance with all relevant rules and requirements. Even in their applications for the
development of the Antipolo Hills Subdivision, the predecessor agency of HLURB noted that
petitioners NATALIA and EDIC complied with all the requirements prescribed by P.D. 957.

The implementing Standards, Rules and Regulations of P.D. 957 applied to all subdivisions and
condominiums in general. On the other hand, Presidential Proclamation No. 1637 referred only to the
Lungsod Silangan Reservation, which makes it a special law. It is a basic tenet in statutory construction
that between a general law and a special law, the latter prevails. 14

Interestingly, the Office of the Solicitor General does not contest the conversion of portions of the
Antipolo Hills Subdivision which have already been developed. 15 Of course, this is contrary to its earlier
position that there was no valid conversion. The applications for the developed and undeveloped
portions of subject subdivision were similarly situated. Consequently, both did not need prior DAR
approval.

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." 16 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 lands." 17

Based on the foregoing, it is clear that the undeveloped portions of the Antipolo Hills Subdivision
cannot in any language be considered as "agricultural lands." These lots were intended for residential
use. They ceased to be agricultural lands upon approval of their inclusion in the Lungsod Silangan
Reservation. Even today, the areas in question continued to be developed as a low-cost housing
subdivision, albeit at a snail's pace. This can readily be gleaned from the fact that SAMBA members
even instituted an action to restrain petitioners from continuing with such development. The enormity
of the resources needed for developing a subdivision may have delayed its completion but this does
not detract from the fact that these lands are still residential lands and outside the ambit of the CARL.

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, 18 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. It was therefore error to include the undeveloped portions of the Antipolo Hills Subdivision
within the coverage of CARL.
Be that as it may, the Secretary of Justice, responding to a query by the Secretary of Agrarian Reform,
noted in an Opinion 19 that lands covered by Presidential Proclamation No. 1637, inter alia, of which
the NATALIA lands are part, having been reserved for townsite purposes "to be developed as human
settlements by the proper land and housing agency," are "not deemed 'agricultural lands' within the
meaning and intent of Section 3 (c) of R.A. No. 6657. " Not being deemed "agricultural lands," they
are outside the coverage of CARL.

Anent the argument that there was failure to exhaust administrative remedies in the instant petition,
suffice it to say that the issues raised in the case filed by SAMBA members differ from those of
petitioners. The former involve possession; the latter, the propriety of including under the operation of
CARL lands already converted for residential use prior to its effectivity.

Besides, petitioners were not supposed to wait until public respondents acted on their letter-protests,
this after sitting it out for almost a year. Given the official indifference, which under the circumstances
could have continued forever, petitioners had to act to assert and protect their interests. 20

In fine, we rule for petitioners and hold that public respondents gravely abused their discretion in
issuing the assailed Notice of Coverage of 22 November 1990 by of lands over which they no longer
have jurisdiction.

WHEREFORE, the petition for Certiorari is GRANTED. The Notice of Coverage of 22 November 1990
by virtue of which undeveloped portions of the Antipolo Hills Subdivision were placed under CARL
coverage is hereby SET ASIDE.

SO ORDERED.

Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Griño-Aquino, Regalado, Davide, Jr., Romero, Nocon,
Melo, Quiason, Puno and Vitug, JJ., concur.
 EN BANC

[ G.R. No. 86889, December 04, 1990 ]

LUZ FARMS, PETITIONER, VS. THE HONORABLE SECRETARY OF THE DEPARTMENT OF

AGRARIAN REFORM, RESPONDENT.

DECISION

PARAS, J.:
This is a petition for prohibition with prayer for restraining order and/or preliminary and permanent
injunction against the Honorable Secretary of the Department of Agrarian Reform for acting without
jurisdiction in enforcing the assailed provisions of R.A. No. 6657, otherwise known as the
Comprehensive Agrarian Reform Law of 1988 and in promulgating the Guidelines and Procedure
Implementing Production and Profit Sharing under R.A. No. 6657, insofar as the same apply to herein
petitioner, and further from performing an act in violation of the constitutional rights of the petitioner.
As gathered from the records, the factual background of this case, is as follows:
On June 10, 1988, the President of the Philippines approved R.A. No. 6657, which includes the raising
of livestock, poultry and swine in its coverage (Rollo, p. 80).
On January 2, 1989, the Secretary of Agrarian Reform promulgated the Guidelines and Procedures
Implementing Production and Profit Sharing as embodied in Sections 13 and 32 of R.A. No. 6657
(Rollo, p. 80).
On January 9, 1989, the Secretary of Agrarian Reform promulgated its Rules and Regulations
implementing Section 11 of R.A. No. 6657 (Commercial Farms). (Rollo, p. 81).
Luz Farms, petitioner in this case, is a corporation engaged in the livestock and poultry business and
together with others in the same business allegedly stands to be adversely affected by the
enforcement of Section 3(b), Section 11, Section 13, Section 16(d) and 17 and Section 32 of R.A. No.
6657 otherwise known as Comprehensive Agrarian Reform Law and of the Guidelines and Procedures
Implementing Production and Profit Sharing under R.A. No. 6657 promulgated on January 2, 1989
and the Rules and Regulations Implementing Section 11 thereof as promulgated by the DAR on
January 9, 1989 (Rollo, pp. 2-36).
Hence, this petition praying that aforesaid laws, guidelines and rules be declared
unconstitutional. Meanwhile, it is also prayed that a writ of preliminary injunction or restraining order
be issued enjoining public respondents from enforcing the same, insofar as they are made to apply to
Luz Farms and other livestock and poultry raisers.
This Court in its Resolution dated July 4, 1989 resolved to deny, among others, Luz Farms' prayer the
issuance of a preliminary injunction in its Manifestation dated May 26 and 31, 1989. (Rollo, p. 98).
Later, however, this Court in its Resolution dated August 24, 1989 resolved to grant said Motion for
Reconsideration regarding the injunctive relief, after the filing and approval by this Court of an
injunction bond in the amount of P100,000.00. This Court also gave due course to the petition and
required the parties to file their respective memoranda (Rollo, p. 119).
The petitioner filed its Memorandum on September 6, 1989 (Rollo, pp. 131-168).
On December 22, 1989, the Solicitor General adopted his Comment to the petition as his
Memorandum (Rollo, pp. 186-187).
Luz Farms questions the following provisions of R.A. 6657, insofar as they are made to apply to it:
(a) Section 3(b) which includes the "raising of livestock (and poultry)" in the definition of "Agricultural,
Agricultural Enterprise or Agricultural Activity."
(b) Section 11 which defines "commercial farms" as "private agricultural lands devoted to
commercial, livestock, poultry and swine raising x x x."
(c) Section 13 which calls upon petitioner to execute a production-sharing plan.
(d) Section 16(d) and 17 which vest on the Department of Agrarian Reform the authority to summarily
determine the just compensation to be paid for lands covered by the Comprehensive Agrarian Reform
Law.
(e) Section 32 which spells out the production-snaring plan mentioned in Section 13 -?
"x x x (W)hereby three percent (3%) of the gross sales from the production of such lands are
distributed within sixty (60) days of the end of the fiscal year as compensation to regular and
other farmworkers in such lands over and above the compensation they currently receive: Provided,
That these individuals or entities realize gross sales in excess of five million pesos per annum unless
the DAR, upon proper application, determine a lower ceiling.
In the event that the individual or entity realizes a profit, an additional ten (10%) of the net profit after
tax shall be distributed to said regular and other farmworkers within ninety (90) days of the end of the
fiscal year. x x x."
The main issue in this petition is the constitutionality of Sections 3(b), 11, 13 and 32 of R.A. No. 6657
(the Comprehensive Agrarian Reform Law of 1988), insofar as the said law includes the raising of
livestock, poultry and swine in its coverage as well as the Implementing Rules and Guidelines
promulgated in accordance therewith.
The Constitutional provision under consideration reads as follows:
ARTICLE XIII
xxx xxx xxx
AGRARIAN AND NATURAL RESOURCES REFORM
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 rights of small landowners. The State shall
further provide incentives for voluntary land-sharing.
xxx xxx xxx."
Luz Farms contended that it does not seek the nullification of R.A. 6657 in its entirety. In fact, it
acknowledges the correctness of the decision of this Court in the case of the Association of Small
Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform (G.R. 78742, 14 July 1989)
affirming the constitutionality of the Comprehensive Agrarian Reform Law. It, however, argued that
Congress in enacting the said law has transcended the mandate of the Constitution, in including land
devoted to the raising of livestock, poultry and swine in its coverage (Rollo, p. 131). Livestock or
poultry raising is not similar to crop or tree farming. Land is not the primary resource in this
undertaking and represents no more than five percent (5%) of the total investment of commercial
livestock and poultry raisers. Indeed, there are many owners of residential lands all over the country
who use available space in their residences for commercial livestock and raising purposes, under
"contract-growing arrangements," whereby they supplement the requirements of meat processing
corporations and other commercial livestock and poultry raisers (Rollo, p. 10). Lands support the
buildings and other amenities attendant to the raising of animals and birds. The use of land is
incidental to but not the principal factor or consideration in productivity in this industry. Excluding
backyard raisers, about 80% of those in commercial livestock and poultry production occupy five
hectares or less. The remaining 20% are mostly corporate farms (Rollo, p. 11).
On the other hand, the public respondent argued that livestock and poultry raising is embraced in the
term "agriculture" and the inclusion of such enterprise under Section 3(b) of R.A. 6657 is proper. He
cited that Webster's International Dictionary, Second Edition (1954), defines the following words:
"Agriculture - the art or science of cultivating the ground and raising and harvesting crops, often,
including also, feeding, breeding and management of livestock, tillage, husbandry, farming.
It includes farming, horticulture, forestry, dairying, sugarmaking x x x.
Livestock - domestic animals used or raised on a farm, especially for profit.
Farm - a plot or tract of land devoted to the raising of domestic or other animals." (Rollo, pp. 82-83).
The petition is impressed with merit.
The question raised is one of constitutional construction. The primary task in
constitutional construction is to ascertain and thereafter assure the realization of the purpose of the
framers in the adoption of the Constitution (J.M. Tuazon & Co. vs. Land Tenure Administration, 31
SCRA 413 [1970]).
Ascertainment of the meaning of the provision of Constitution begins with the language
of the document itself. The words used in the Constitution are to be given their ordinary meaning
except where technical terms are employed in which case the significance thus attached to them
prevails (J.M. Tuazon & Co. vs. Land Tenure Administration, 31 SCRA 413 [1970]).
It is generally held that, in construing constitutional provisions which are ambiguous or of doubtful
meaning, the courts may consider the debates in the constitutional convention as throwing light on the
intent of the framers of the Constitution. It is true that the intent of the convention is not controlling by
itself, but as its proceeding was preliminary to the adoption by the people of the Constitution the
understanding of the convention as to what was meant by the terms of the constitutional
provision which was the subject of the deliberation, goes a long way toward explaining the
understanding of the people when they ratified it (Aquino, Jr. v. Enrile, 59 SCRA 183 [1974]).
The transcripts of the deliberations of the Constitutional Commission of 1986 on the meaning of the
word "agricultural," clearly show that it was never the intention of the framers of the Constitution to
include livestock and poultry industry in the coverage of the constitutionally-mandated agrarian reform
program of the Government.
The Committee adopted the definition of "agricultural land" as defined under Section 186 of R.A. 3844,
as land devoted to any growth. Including but not limited to crop lands, saltbeds, fishponds, idle and
abandoned land (Record, CONCOM, August 7, 1986, Vol. III, p. 11).
The intention of the Committee is to limit the application of the word "agriculture."
Commissioner Jamir proposed to insert the word "ARABLE" to distinguish this kind of agricultural land
from such lands as commercial and industrial lands and residential properties because all of them fall
under the general classification of the word "agricultural". This proposal, however, was not considered
because the Committee contemplated that agricultural lands are limited to arable and suitable
agricultural lands and therefore, do not include commercial, industrial and residential lands (Record,
CONCOM, August 7, 1986, Vol. III, p. 30).
In the interpellation, then Commissioner Regalado (now a Supreme Court Justice), posed several
questions, among others, quoted as follows:
xxx xxx xxx
"Line 19 refers to genuine reform program founded on the primary right of farmers and farmworkers. I
wonder if it means that leasehold tenancy is thereby proscribed under this provision because it speaks
of the primary right of farmers and farmworkers to own directly or collectively the lands they till. As
also mentioned by Commissioner Tadeo, farmworkers include those who work in piggeries and poultry
projects.
I was wondering whether I am wrong in my appreciation that if somebody puts up a piggery or a poultry
project and for that purpose hires farmworkers therein, these farmworkers will automatically have the
right to own eventually, directly or ultimately or collectively, the land on which the piggeries and poultry
projects were constructed. (Record, CONCOM, August 2, 1986, p. 618).
xxx xxx xxx."
The questions were answered and explained in the statement of then Commissioner Tadeo, quoted
as follows:
xxx xxx xxx
"Sa pangalawang katanungan ng Ginoo ay medyo hindi kami nagkaunawaan. Ipinaaalam ko kay Co
mmissioner Regalado na hindinamin inilagay ang agricultural
worker sa kadahilanang kasama rito ang piggery, poultry at livestock
workers. Ang inilagay namindito ay farm worker kaya hindi kasama ang piggery, poultry at livestock
workers (Record, CONCOM, August 2, 1986, Vol. II, p. 621).
It is evident from the foregoing discussion that Section II of R.A. 6657 which includes "private
agricultural lands devoted to commercial livestock, poultry and swine raising" in the definition of
"commercial farms" is invalid, to the extent that the aforecited agro-industrial activities are made to be
covered by the agrarian reform program of the State. There is simply no reason to include livestock
and poultry lands in the coverage of agrarian reform (Rollo, p. 21).
Hence, there is merit in Luz Farms' argument that the requirement in Sections 13 and 32 of R.A. 6657
directing "corporate farms" which include livestock and poultry raisers to execute and implement
"production-sharing plans" (pending final redistribution of their landholdings) whereby they are called
upon to distribute from three percent (3%) of their gross sales and ten percent (10%) of their net profits
to their workers as additional compensation is unreasonable for being
confiscatory, and therefore violative of due process (Rollo, p. 21).
It has been established that this 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 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 (Association of Small Landowners of the Philippines, Inc. v. Secretary of Agrarian Reform,
G.R. 78742; Acuna v. Arroyo, G.R. 79310; Pabico v. Juico, G.R. 79744; Manaay v. Juico, G.R.
79777, 14 July 1989, 175 SCRA 343).
However, despite the inhibitions pressing upon the Court when confronted with constitutional issues,
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 and God as its conscience gives it in the
light to probe its meaning and discover its purpose. Personal motives and political considerations are
irrelevancies that cannot influence its decisions. Blandishment is as ineffectual as intimidation, for all
the awesome power of the Congress and Executive, the Court will not hesitate "to make the hammer
fall heavily," where the acts of these departments, or of any official, betray the people's will as
expressed in the Constitution (Association of Small Landowners of Philippines, Inc. v. Secretary of
Agrarian Reform, G.R. 78742; Acuna v. Arroyo, G.R. 79310; Pabico v. Juico, G.R.
79744; Manaay v. Juico, G.R. 79777, 14 July 1989).
Thus, where the legislature or the executive acts beyond the scope of its constitutional powers, it
becomes the duty of the judiciary to declare what the other branches of the government had assumed
to do as void. This is the essence of judicial power conferred by the Constitution "(I)n one Supreme
Court and in such lower courts as may be established by law" (Art. VIII, Section 1 of the 1935
Constitution; Article X, Section I of the 1973 Constitution and which was adopted as part of the
Freedom Constitution, and Article VIII, Section 1 of the 1987 Constitution) and which power this
Court has exercised in many instances (Demetria v. Alba, 148 SCRA 208 [1987]).
PREMISES CONSIDERED, the instant petition is hereby GRANTED. Sections 3(b), 11, 13 and 32 of
R.A. No. 6657 insofar as the inclusion of the raising of livestock, poultry and swine in its coverage as
well as the Implementing Rules and Guidelines promulgated in accordance therewith, are hereby
DECLARED null and void for being unconstitutional and the writ of preliminary injunction issued is
hereby MADE permanent.
SO ORDERED.

Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Gancayco, Padilla, Bidin, Griño-
Aquino, Medialdea, and Regalado, JJ.,concur.
Feliciano, J., on leave.
Sarmiento, J., see separate opinion.
 EN BANC

DEPARTMENT OF AGRARIAN G.R. No. 162070

REFORM, represented by SECRETARY
JOSE MARI B. PONCE (OIC),
Present:
Petitioner, Davide, C.J.,
Puno,
Panganiban,
Quisumbing,
Ynares-Santiago,
Sandoval-Gutierrez,
Carpio,

- versus - Austria-Martinez,
Corona,
Carpio Morales,
Callejo, Sr.,
Azcuna,
Tinga,
Chico-Nazario and
Garcia, JJ.
DELIA T. SUTTON, ELLA T.
SUTTON-SOLIMAN and Promulgated:
HARRY T. SUTTON,
Respondents. October 19, 2005
x-----------------------------------x

DECISION

PUNO, J.:

This is a petition for review filed by the Department of Agrarian Reform (DAR) of the Decision and
Resolution of the Court of Appeals, dated September 19, 2003 and February 4, 2004, respectively,
which declared DAR Administrative Order (A.O.) No. 9, series of 1993, null and void for being violative
of the Constitution.

The case at bar involves a land in Aroroy, Masbate, inherited by respondents which has been devoted
exclusively to cow and calf breeding. On October 26, 1987, pursuant to the then existing agrarian
reform program of the government, respondents made a voluntary offer to sell (VOS)[1] their
landholdings to petitioner DAR to avail of certain incentives under the law.

On June 10, 1988, a new agrarian law, Republic Act (R.A.) No. 6657, also known as the
Comprehensive Agrarian Reform Law (CARL) of 1988, took effect. It included in its coverage farms
used for raising livestock, poultry and swine.

On December 4, 1990, in an en banc decision in the case of Luz Farms v. Secretary of

DAR,[2] this Court ruled that lands devoted to livestock and poultry-raising are not included in the
definition of agricultural land. Hence, we declared as unconstitutional certain provisions of the CARL
insofar as they included livestock farms in the coverage of agrarian reform.
In view of the Luz Farms ruling, respondents filed with petitioner DAR a formal request to
withdraw their VOS as their landholding was devoted exclusively to cattle-raising and thus exempted
from the coverage of the CARL.[3]

On December 21, 1992, the Municipal Agrarian Reform Officer of Aroroy, Masbate, inspected
respondents land and found that it was devoted solely to cattle-raising and breeding. He recommended
to the DAR Secretary that it be exempted from the coverage of the CARL.

On April 27, 1993, respondents reiterated to petitioner DAR the withdrawal of their VOS and
requested the return of the supporting papers they submitted in connection therewith.[4] Petitioner
ignored their request.

On December 27, 1993, DAR issued A.O. No. 9, series of 1993,[5] which provided that only
portions of private agricultural lands used for the raising of livestock, poultry and swine as of June 15,
1988 shall be excluded from the coverage of the CARL. In determining the area of land to be excluded,
the A.O. fixed the following retention limits, viz: 1:1 animal-land ratio (i.e., 1 hectare of land per 1 head
of animal shall be retained by the landowner), and a ratio of 1.7815 hectares for livestock infrastructure
for every 21 heads of cattle shall likewise be excluded from the operations of the CARL.

On February 4, 1994, respondents wrote the DAR Secretary and advised him to consider as final and
irrevocable the withdrawal of their VOS as, under the Luz Farms doctrine, their entire landholding is
exempted from the CARL.[6]

On September 14, 1995, then DAR Secretary Ernesto D. Garilao issued an Order[7] partially granting
the application of respondents for exemption from the coverage of CARL. Applying the retention limits
outlined in the DAR A.O. No. 9, petitioner exempted 1,209 hectares of respondents land for grazing
purposes, and a maximum of 102.5635 hectares for infrastructure. Petitioner ordered the rest of
respondents landholding to be segregated and placed under Compulsory Acquisition.

Respondents moved for reconsideration. They contend that their entire landholding should be
exempted as it is devoted exclusively to cattle-raising. Their motion was denied.[8] They filed a notice
of appeal[9] with the Office of the President assailing: (1) the reasonableness and validity of DAR A.O.
No. 9, s. 1993, which provided for a ratio between land and livestock in determining the land area
qualified for exclusion from the CARL, and (2) the constitutionality of DAR A.O. No. 9, s. 1993, in view
of the Luz Farms case which declared cattle-raising lands excluded from the coverage of agrarian
reform.

On October 9, 2001, the Office of the President affirmed the impugned Order of petitioner DAR. [10] It
ruled that DAR A.O. No. 9, s. 1993, does not run counter to the Luz Farms case as the A.O. provided
the guidelines to determine whether a certain parcel of land is being used for cattle-raising.
However, the issue on the constitutionality of the assailed A.O. was left for the determination
of the courts as the sole arbiters of such issue.

On appeal, the Court of Appeals ruled in favor of the respondents. It declared DAR A.O. No. 9, s.
1993, void for being contrary to the intent of the 1987 Constitutional Commission to exclude livestock
farms from the land reform program of the government. The dispositive portion reads:
WHEREFORE, premises considered, DAR Administrative Order No. 09, Series of
1993 is hereby DECLARED null and void. The assailed order of the Office of the
President dated 09 October 2001 in so far as it affirmed the Department of Agrarian
Reforms ruling that petitioners landholding is covered by the agrarian reform program
of the government is REVERSED and SET ASIDE.
 SO ORDERED.[11]
Hence, this petition.
The main issue in the case at bar is the constitutionality of DAR A.O. No. 9, series of 1993, which
prescribes a maximum retention limit for owners of lands devoted to livestock raising.
Invoking its rule-making power under Section 49 of the CARL, petitioner submits that it issued DAR
A.O. No. 9 to limit the area of livestock farm that may be retained by a landowner pursuant to its
mandate to place all public and private agricultural lands under the coverage of agrarian reform.
Petitioner also contends that the A.O. seeks to remedy reports that some unscrupulous landowners
have converted their agricultural farms to livestock farms in order to evade their coverage in the
agrarian reform program.

Petitioners arguments fail to impress.

Administrative agencies are endowed with powers legislative in nature, i.e., the power to make
rules and regulations. They have been granted by Congress with the authority to issue rules to regulate
the implementation of a law entrusted to them. Delegated rule-making has become a practical
necessity in modern governance due to the increasing complexity and variety of public functions.
However, while administrative rules and regulations have the force and effect of law, they are not
immune from judicial review.[12]They may be properly challenged before the courts to ensure that they
do not violate the Constitution and no grave abuse of administrative discretion is committed by the
administrative body concerned.

The fundamental rule in administrative law is that, to be valid, administrative rules and
regulations must be issued by authority of a law and must not contravene the provisions of the
Constitution.[13] The rule-making power of an administrative agency may not be used to abridge the
authority given to it by Congress or by the Constitution. Nor can it be used to enlarge the power of
the administrative agency beyond the scope intended. Constitutional and statutory provisions
control with respect to what rules and regulations may be promulgated by administrative
agencies and the scope of their regulations.[14]

In the case at bar, we find that the impugned A.O. is invalid as it contravenes the Constitution.
The A.O. sought to regulate livestock farms by including them in the coverage of agrarian reform and
prescribing a maximum retention limit for their ownership. However, the deliberations of the 1987
Constitutional Commission show a clear intent to exclude, inter alia, all lands exclusively
devoted to livestock, swine and poultry- raising. The Court clarified in the Luz Farms case that
livestock, swine and poultry-raising are industrial activities and do not fall within the definition of
agriculture or agricultural activity. The raising of livestock, swine and poultry is different from crop or
tree farming. It is an industrial, not an agricultural, activity. A great portion of the investment in this
enterprise is in the form of industrial fixed assets, such as: animal housing structures and facilities,
drainage, waterers and blowers, feedmill with grinders, mixers, conveyors, exhausts and generators,
extensive warehousing facilities for feeds and other supplies, anti-pollution equipment like bio-gas and
digester plants augmented by lagoons and concrete ponds, deepwells, elevated water tanks,
pumphouses, sprayers, and other technological appurtenances.[15]

Clearly, petitioner DAR has no power to regulate livestock farms which have been
exempted by the Constitution from the coverage of agrarian reform. It has exceeded its power in
issuing the assailed A.O.

The subsequent case of Natalia Realty, Inc. v. DAR[16] reiterated our ruling in the Luz
Farms case. In Natalia Realty, the Court held that industrial, commercial and residential lands are
not covered by the CARL.[17] We stressed anew that while Section 4 of R.A. No. 6657 provides that
the CARL shall cover all public and private agricultural lands, the term agricultural land does
not include lands classified as mineral, forest, residential, commercial or industrial. Thus,
in Natalia Realty, even portions of the Antipolo Hills Subdivision, which are arable yet still
undeveloped, could not be considered as agricultural lands subject to agrarian reform as these lots
were already classified as residential lands.

A similar logical deduction should be followed in the case at bar. Lands devoted to raising of livestock,
poultry and swine have been classified as industrial, not agricultural, lands and thus exempt from
agrarian reform. Petitioner DAR argues that, in issuing the impugned A.O., it was seeking to address
the reports it has received that some unscrupulous landowners have been converting their agricultural
lands to livestock farms to avoid their coverage by the agrarian reform. Again, we find neither merit
nor logic in this contention. The undesirable scenario which petitioner seeks to prevent with the
issuance of the A.O. clearly does not apply in this case. Respondents family acquired their
landholdings as early as 1948. They have long been in the business of breeding cattle in Masbate
which is popularly known as the cattle-breeding capital of the Philippines.[18]Petitioner DAR does not
dispute this fact. Indeed, there is no evidence on record that respondents have just recently engaged
in or converted to the business of breeding cattle after the enactment of the CARL that may lead one
to suspect that respondents intended to evade its coverage. It must be stressed that what the CARL
prohibits is the conversion of agricultural lands for non-agricultural purposes after the effectivity
of the CARL. There has been no change of business interest in the case of respondents.

Moreover, it is a fundamental rule of statutory construction that the reenactment of a statute

by Congress without substantial change is an implied legislative approval and adoption of the previous
law. On the other hand, by making a new law, Congress seeks to supersede an earlier one.[19] In the
case at bar, after the passage of the 1988 CARL, Congress enacted R.A. No. 7881[20] which amended
certain provisions of the CARL. Specifically, the new law changed the definition of the terms
agricultural activity and commercial farming by dropping from its coverage lands that are
devoted to commercial livestock, poultry and swine-raising.[21] With this significant
modification, Congress clearly sought to align the provisions of our agrarian laws with the
intent of the 1987 Constitutional Commission to exclude livestock farms from the coverage of
agrarian reform.

In sum, it is doctrinal that rules of administrative bodies must be in harmony with the provisions
of the Constitution. They cannot amend or extend the Constitution. To be valid, they must conform to
and be consistent with the Constitution. In case of conflict between an administrative order and the
provisions of the Constitution, the latter prevails.[22] The assailed A.O. of petitioner DAR was properly
stricken down as unconstitutional as it enlarges the coverage of agrarian reform beyond the scope
intended by the 1987 Constitution.

IN VIEW WHEREOF, the petition is DISMISSED. The assailed Decision and Resolution of the
Court of Appeals, dated September 19, 2003 and February 4, 2004, respectively, are AFFIRMED. No
pronouncement as to costs.

SO ORDERED.