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 title 14 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.

SHARP INTERNATIONAL MARKETING, petitioner,

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

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

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

CRUZ, J.:

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

The subject-matter of the proposed sale is a vast estate consisting of eight parcels of land situated in the
municipality of Garchitorena in Camarines Norte and with an area of 1,887.819 hectares. The record
shows that on April 27, 1988, United Coconut Planters Bank (UCPB) entered into a Contract to Sell the
property to Sharp International Marketing, the agreement to be converted into a Deed of Absolute Sale
upon payment by the latter of the full purchase price of P3,183,333.33. On May 14, 1988, even before it
had acquired the land, the petitioner, through its President Alex Lina, offered to sell it to the
Government for P56,000,000.00, (later increased to P65,000,000.00). Although the land was still
registered in the name of UCPB, the offer was processed by various government agencies during the
months of June to November, 1988, resulting in the recommendation by the Bureau of Land Acquisition
and Distribution in the Department of Agrarian Reform for the acquisition of the property at a price of
P35,532.70 per hectare, or roughly P67,000,000.00. On December 1, 1988, a Deed of Absolute Sale was
executed between UCPB and Sharp by virtue of which the former sold the estate to the latter for the
stipulated consideration of P3,183,333.33. The property was registered in the name of the petitioner on
December 6, 1988. On December 27, 1988, DAR and the Land Bank of the Philippines created a
Compensation Clearing Committee (CCC) to expedite processing of the papers relating to the acquisition
of the land and the preparation of the necessary deed of transfer for signature by the DAR Secretary and
the LBP President. The following day, the CCC held its first meeting and decided to recommend the
acquisition of the property for P62,725,077.29. The next day, December 29, 1988, DAR Secretary Philip
Ella Juico issued an order directing the acquisition of the estate for the recommended amount and
requiring LBP to pay the same to Sharp, 30% in cash and the balance in government financial
instruments negotiable within 30 days from issuance by Sharp of the corresponding muniments of title.
On January 9, 1989, Secretary Juico and petitioner Lina signed the Deed of Absolute Sale. On that same
day, the LBP received a copy of the order issued by Secretary Juico on December 29, 1988. On January
17, 1989, LBP Executive Vice President Jesus Diaz signed the CCC evaluation worksheet but with
indicated reservations. For his part, LBP President Deogracias Vistan, taking into account these
reservations and the discovery that Sharp had acquired the property from UCPB for only P3.1 million,
requested Secretary Juico to reconsider his December 29, 1988 order. Secretary Juico then sought the
opinion of the Secretary of Justice as to whether the LBP could refuse to pay the seller the
compensation fixed by the DAR Secretary. Meantime, on February 3, 1989, Vistan informed Juico that
LBP would not pay the stipulated purchase price. The reply of the Justice Department on March 12,
1989, was that the decision of the DAR Secretary fixing the compensation was not final if seasonably
questioned in court by any interested party (including the LBP); otherwise, it would become final after
15 days from notice and binding on all parties concerned, including the LBP, which then could not refuse
to pay the compensation fixed. Reacting to Sharp's repeated demands for payment, Juico informed Lina
on April 7,1989, that DAR and LBP had dispatched a team to inspect the land for reassessment. Sharp
then filed on April 18, 1989, a petition for mandamus with this court to compel the DAR and LBP to
comply with the contract, prompting Juico to issue the following order:

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

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

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

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

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

On April 26, 1989, this Court referred the petition to the Court of Appeals, which dismissed it on October
31, 1989. In an exhaustive and well-reasoned decision penned by Justice Josue M. Bellosillo,1 it held that
mandamus did not he because the LBP was not a mere rubber stamp of the DAR and its signing of the
Deed of Absolute Sale was not a merely ministerial act. It especially noted the failure of the DAR to take
into account the prescribed guidelines in ascertaining the just compensation that resulted in the
assessment of the land for the unconscionable amount of P62 million notwithstanding its original
acquisition cost of only P3 million. The decision also held that the opinion of the Secretary of Justice
applied only to compulsory acquisition of lands, not to voluntary agreements as in the case before it.
Moreover, the sale was null and void ab initio because it violated Section 6 of RA 6657, which was in
force at the time the transaction was entered into.

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

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

The Court of Appeals erred in holding that the valuation made on the Garchitorena estate has
not yet become final.
 The Court of Appeals erred in holding that the opinion of the Secretary of Justice is not
applicable to the case at bar.

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

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

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

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

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

Section 18 of RA 6657 reads as follows:

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

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

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

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

means that if LBP agrees on the amount stated in the DAS, after its review and evaluation, it
becomes its duty to sign the deed. But not until then. For, it is only in that event that the
amount to be compensated shall have been "established' according to law. Inversely, if the LBP,
after review and evaluation, refuses to sign, it is because as a party to the contract it does not
give its consent thereto. This necessarily implies the exercise of judgment on the part of LBP,
which is not supposed to be a mere rubber stamp in the exercise. Obviously, were it not so, LBP
could not have been made a distinct member of PARC, the super body responsible for the
successful implementation of the CARP. Neither would it have been given the power to review
and evaluate the DAS already signed by the DAR Secretary. If the function of the LBP in this
regard is merely to sign the DAS without the concomitant power of review and evaluation, its
duty to "review/evaluate' mandated in Adm. Order No. 5 would have been a mere surplusage,
meaningless, and a useless ceremony.
 Thus, in the exercise of such power of review and evaluation, it results that the amount of
P62,725,077.29 being claimed by petitioner is not the "amount to be established by the
government." Consequently, it cannot be the amount that LBP is by law bound to compensate
petitioner.

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

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

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

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

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

In National Marketing Corporation v. Cloribel,3 this Court held:

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

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

It is no argument either that the Government is bound by the official decisions of Secretary Juico and
cannot now renege on his commitment. The Government is never estopped from questioning the acts of
its officials, more so if they are erroneous, let alone irregular.4
Given the circumstances attending the transaction which plainly show that it is not merely questionable
but downright dishonest, the Court can only wonder at the temerity of the petitioner in insisting on its
alleged right to be paid the questioned purchase price. The fact that criminal charges have been flied by
the Ombudsman against the principal protagonists of the sale has, inexplicably, not deterred or
discomfited it. It does not appear that the petitioner is affected by the revelation that it offered the
property to the Government even if it was not yet the owner at the time; acquired it for P3 million after
it had been assured that the sale would materialize; and sold it a month later for the bloated sum of P62
million, to earn a gross profit of P59 million in confabulation with some suspect officials in the DAR. How
the property appreciated that much during that brief period has not been explained. What is clear is the
public condemnation of the transaction as articulated in the mass media and affirmed in the results of
the investigations conducted by the Feria Fact-Finding Committee, the Senate House Joint Committee
on Agrarian Matters, and the Office of the Ombudsman.

It would seem to the Court that the decent tiling for the petitioner to do, if only in deference to a
revolted public opinion, was to voluntarily withdraw from the agreement. Instead, it is unabashedly
demanding the exorbitant profit it would derive from an illegal and unenforceable transaction that ranks
as one of the most cynical attempts to plunder the public treasury.

The above rulings render unnecessary discussion of the other points raised by the petitioner. The Court
has given this petition more attention than it deserves. We shall waste no more time in listening to the
petitioner's impertinent demands. LBP President Deogracias Vistan cannot be faulted for refusing to be
a party to the shameful scheme to defraud the Government and undermine the Comprehensive
Agrarian Reform Program for the petitioner's private profit. We see no reason at all to disturb his
discretion. It merits in fact the nation's commendation.

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

J.M. TUASON and CO., INC., petitioner-appellee,

vs.
THE LAND TENURE ADMINISTRATION, THE SOLICITOR GENERAL and THE AUDITOR
GENERAL, respondents-appellants.

Araneta, Mendoza and Papa for petitioner-appellee.

Office of the Solicitor General and M. B. Pablo for respondents appellants.

FERNANDO, J.:

In this special civil action for prohibition to nullify a legislative act directing the expropriation of the
Tatalon Estate, Quezon City,1 this Court is called upon to inquire further into how far the power of
Congress under the constitution to authorize upon payment of just compensation the expropriation of
lands to be subdivided into small lots and conveyed at cost to individuals2 may extend, the more so as
this is the first time the judiciary is confronted with such a challenge addressed to the validity of a
statute specifically made applicable to a particular piece of land, owned by petitioner J. M. Tuason & Co.
In the leading case of Guido v. Rural Progress,3 decided in 1949. this Court in passing upon the scope of
the power of the President conferred by statute "to acquire private lands or any interest therein,
through purchase or expropriation, and to subdivide the same into home lots or small farms for resale at
reasonable prices and under such conditions as he may fix to their bona fide tenants or occupants"4 had
occasion to delineate the contours of the above constitutional provision, reconciling the undoubtedly
broad grant of constitutional authority to Congress with the right of property that might be adversely
affected by its exercise.

The prevailing opinion in the later case Republic v. Baylosis5 tilted the balance in favor of property. In
deciding this suit, filed with the Court of First Instance of Quezon City, the lower court, as was
understandable, bowed to what it considered the compulsion such an opinion carries and being unable
to perceive any relevant ground for distinction, declared the challenged statute invalid. The
respondents, the Land Tenure Administration, the Solicitor General and the Auditor General in this
prohibition proceeding, appealed. We are possessed undoubtedly of greater discretion on the matter.
Nor is it to be lost sight of, as abovementioned, that this is the first controversy where the expropriation
of a particular property authorized by Congress under the above constitutional provision is assailed as
beyond its power. The opportunity is thus here present of making more definite the boundaries of such
congressional competence.

As will hereafter be explained with some measure of fullness, we cannot affix the stamp of approval to
the judgment of the lower court; we reach a different conclusion. There is to our mind no sufficient
showing of the unconstitutionality of the challenged act. We reverse.

On August 3, 1959, Republic Act No. 2616 took effect without executive approval. It is therein provided:
"The expropriation of the Tatalon Estate in Quezon City jointly owned by the J. M. Tuason and Company,
Inc., Gregorio Araneta and Company, Inc., and Florencio Deudor, et al., is hereby authorized."6 As noted
in the appealed decision:

The lands involved in this action, to which Republic Act No. 2616 refer and which
constitute a certain portion of the Sta. Mesa Heights Subdivision, have a total area of
about 109 hectares and are covered by Transfer Certificates of Title Nos. 42774 and
49235 of the Registry of Deeds of Rizal (Quezon City) registered in the name of
petitioner.7

Thereafter, on November 15, 1960, respondent Land Tenure Administration was directed by the then
Executive Secretary to institute the proceeding for the expropriation of the Tatalon Estate. Not losing
any time, petitioner J.M. Tuason & Co., Inc. filed before the lower court on November 17, 1960 a special
action for prohibition with preliminary injunction against respondents praying that the above act be
declared unconstitutional, seeking in the meanwhile a preliminary injunction to restrain respondents
from instituting such expropriation proceeding, thereafter to be made permanent after trial. The next
day, on November 18, 1960, the lower court granted the prayer for the preliminary injunction upon the
filing of a P20,000.00 bond. After trial, the lower court promulgated its decision on January 10, 1963
holding that Republic Act No. 2616 as amended is unconstitutional and granting the writ of prohibition
prayed for.

Hence this appeal by respondents, one we find meritorious. With the problem thus laid bare and with an
exposition of the constitutional principles that compel a result different from that arrived at by the
lower court, we cannot accept its holding that the statute thus assailed should be annulled.

1. Respondents would interpose two procedural bars sufficient in their opinion to preclude the lower
court from passing on the question of validity.8 The first is the allegation that in effect this special
proceeding for prohibition is "actually a suit against the State, which is not allowed without its
consent."9 The second would require, on the assumption that the suit could proceed, that the Executive
Secretary, as the real party in interest, ought to have been impleaded. Neither objection suffices to
preclude the lower court from passing upon the question of validity of the statute in question.

As was held by this Court in the leading case of Angara v. Electoral

10
Commission, speaking through Justice Laurel, the power of judicial review is granted, if not expressly,
at least by clear implication from the relevant provisions of the
Constitution. 11 This power may be exercised when the party adversely affected by either a legislative or
executive act, or a municipal ordinance for that matter, files the appropriate suit to test its validity. The
special civil action of prohibition has been relied upon precisely to restrain the enforcement of what is
alleged to be an unconstitutional statute. 12 As it is a fundamental postulate that the Constitution as the
supreme law is binding on all governmental agencies, failure to observe the limitations found therein
furnishes a sufficient ground for a declaration of the nullity of the governmental measure challenged.
The argument then that the government is the adverse party and that therefore must consent to its
being sued certainly is far from persuasive. Moreover, it is equally well-settled that for the purpose of
thus obtaining a judicial declaration of nullity, it is enough if the respondents or defendants named be
the government officials who would give operation and effect to official action allegedly tainted with
unconstitutionality. As it cannot be denied that in 1959 the then Land Tenure Administration as well as
the Solicitor General were called upon to enforce the statute now assailed, it would appear clear that
the existence on the Executive Secretary being made a party lacks support in law.

It would be then to set aside and disregard doctrines of unimpeachable authority if the plea of
respondents on these procedural points raised were to meet an affirmative response. That we are not
disposed to do.

2. Thus we reach the merits. It would appear, as noted at the outset, that for the purpose of deciding
the question of validity squarely raised, a further inquiry into the scope of the constitutional power of
Congress to authorize the expropriation of lands to be subdivided into small lots and conveyed at cost to
individuals 13 is indicated, if for no other purpose than to attain a greater degree of clarity. The question
is one then of constitutional construction. It is well to recall fundamentals. The primary task is one of
ascertaining and thereafter assuring the realization of the purpose of the framers and of the people in
the adoption of the Constitution. 14

We look to the language of the document itself in our search for its meaning. We do not of course stop
there, but that is where we begin. It is to be assumed that the words in which constitutional provisions
are couched express the objective sought to be attained. They are to be given their ordinary meaning
except where technical terms are employed in which case the significance thus attached to them
prevails. As the Constitution is not primarily a lawyer's document, it being essential for the rule of law to
obtain that it should ever be present in the people's consciousness, its language as much as possible
should be understood in the sense they have in common use. What it says according to the text of the
provision to be construed compels acceptance and negates the power of the courts to alter it, based on
the postulate that the framers and the people mean what they say. Thus there are cases where the need
for construction is reduced to a minimum.

This is one of them. It does not admit of doubt that the congressional power thus conferred is far from
limited. It is left to the legislative will to determine what lands may be expropriated so that they could
be subdivided for resale to those in need of them. Nor can it be doubted either that as to when such
authority may be exercised is purely for Congress to decide. Its discretion on the matter is not to be
interfered with. The language employed is not swathed in obscurity. The recognition of the broad
congressional competence is undeniable. The judiciary in the discharge of its task to enforce
constitutional commands and prohibitions is denied the prerogative of curtailing its well-nigh all-
embracing sweep.

Reference to the historical basis of this provision as reflected in the proceedings of the Constitutional
Convention, two of the extrinsic aids to construction along with the contemporaneous understanding
and the consideration of the consequences that flow from the interpretation under consideration, yields
additional light on the matter. The opinion of Justice Tuason, in the Guido case did precisely that. It cited
the speech of delegate Miguel Cuaderno, who, in speaking of large estates and trusts in perpetuity,
stated: "There has been an impairment of public tranquility, and to be sure a continuous impairment of
it, because of the existence of these conflicts. In our folklore the oppression and exploitation of the
tenants are vividly referred to; their sufferings at the hand of the landlords are emotionally pictured in
our drama; and even in the native movies and talkies of today, this theme of economic slavery has been
touched upon. In official documents these same conflicts are narrated and exhaustively explained as a
threat to social order and
15
stability." He invoked likewise what happened to the family of our national hero Jose Rizal: "But we
should go to Rizal for inspiration and illumination in this problem of the conflicts between landlords and
tenants. The national hero and his family were persecuted because of these same conflicts in Calamba,
and Rizal himself met a martyr's death because of his exposal of the cause of the tenant class, because
he would not close his eyes to oppression and persecution with his own people as victims." 16 Delegate
Cuaderno closed with this appeal: "If we are to be true to our trust, if it is our purpose in drafting our
constitution to insure domestic tranquility and to provide for the well-being of our people, we cannot,
we must not fail to prohibit the ownership of large estates, to make it the duty of the government to
break up existing large estates, and to provide for their acquisition by purchase or through expropriation
and sale to their occupants, as has been provided in the Constitutions of Mexico and Jugoslavia." 17
The above address was delivered during the early days of the convention on August 21,
1934. 18 Subsequently, the day before the above constitutional provision was voted on January 29, 1935
he reiterated what was said by him in the above address. Thus: "Mr. President, this will be my last
speech in the Convention. And I just want to remind the Convention of the first speech that I delivered
— the first speech I delivered before this Assembly. I believe, Mr. President, that one of the best
provisions that this draft of the Constitution contains is this provision that will prevent the repetition of
the history of misery, of trials and tribulations of the poor tenants throughout the length and breadth of
the Philippine Islands." 19

This is not to say that such an appeal to history as disclosed by what could be accepted as the
pronouncement that did influence the delegates to vote for such a grant of power could be utilized to
restrict the scope thereof, considering the language employed. For what could be expropriated are
"lands," not "landed estates." It is well to recall what Justice Laurel would impress on us, "historical
discussion while valuable is not necessarily decisive." 20It is easy to understand why.

The social and economic conditions are not static. They change with the times. To identify the text of a
written constitution with the circumstances that inspired its inclusion may render it incapable of being
responsive to future needs. Precisely, it is assumed to be one of the virtues of a written constitution that
it suffices to govern the life of the people not only at the time of its framing but far into the indefinite
future. It is not to be considered as so lacking in flexibility and suppleness that it may be a bar to
measures, novel and unorthodox, as they may appear to some, but nonetheless imperatively called for.
Otherwise it might expose itself to the risk of inability to survive in the face of complexities that time
may bring in its wake.

It would thus be devoid of the character of permanency, which is the distinguishing mark of a
constitution. Such was the conclusion deliberately arrived at after extensive discussion in the
Constitutional Convention that the Constitution as adopted in 1935 would be good not only for the
Commonwealth but for the Republic, with all the vicissitudes that time and circumstance would bring.
Our people in signifying their adherence to the Constitution at the plebiscite thereafter held were of a
similar persuasion.

The continuing life of a constitution was stressed by one of the chief architects of the Constitution,
Manuel A. Roxas, later to be the first President of the Republic. For him it is "the essence of such an
instrument." 21 It was his view that the constitution to be adopted by the Constitutional Convention of
1934 would "have an indefinite life, will be permanent, subject of course, to revisions, amendments and
other changes that may be adopted constitutionally." 22 That would be an assurance that constitutional
guarantees "will be maintained, property rights will be safeguarded and individual rights maintained
immaculate and sanctified. ..." 23 Another prominent delegate, Gregorio Perfecto, later a member of this
Tribunal, aptly noted that the transitory character is essentially incompatible with the nature of laws,
and necessarily so of a constitution, which is the supreme law of a people and therefore must be
impressed with such attribute of permanency, much more than ordinary statutes passed under its
authority. 24

It could thus be said of our Constitution as of the United States Constitution, to borrow from Chief
Justice Marshall's pronouncement in M'Culloch v. Maryland 25 that it is "intended to endure for ages to
come and consequently, to be adapted to the various crisis of human affairs." It cannot be looked upon
as other than, in the language of another American jurist, Chief Justice Stone, "a continuing instrument
of government." 26 Its framers were not visionaries, toying with speculations or theories, but men of
affairs, at home in statecraft, laying down the foundations of a government which can make effective
and operative all the powers conferred or assumed, with the corresponding restrictions to secure
individual rights and, anticipating, subject to the limitations of human foresight, the problems that
events to come in the distant days ahead will bring. Thus a constitution, to quote from Justice Cardozo,
"state or ought to state not rules for the passing hour, but principles for an expanding future." 27

To that primordial intent, all else is subordinated. Our Constitution, any constitution, is not to be
construed narrowly or pedantically, for the prescriptions therein contained, to paraphrase Justice
Holmes, are not mathematical formulas having their essence in their form, but are organic living
institutions, the significance of which is vital nor formal. There must be an awareness, as with Justice
Brandeis, not only of what has been, but of what may be. The words employed by it are not to be
construed to yield fixed and rigid answers but as impressed with the necessary attributes of flexibility
and accommodation to enable them to meet adequately whatever problems the future has in store. It is
not, in brief, a printed finality but a dynamic process.

3. The conclusion is difficult to resist that the text of the constitutional provision in question, its
historical background as noted in pronouncements in the Constitutional Convention and the
inexonerable need for the Constitution to have the capacity for growth and ever be adaptable to
changing social and economic conditions all argue against its restrictive construction. Such an approach
was reflected succinctly in the dissenting opinion of Justice J.B.L. Reyes, concurred in by the present
Chief Justice, in the Baylosis case. We find it persuasive.

His dissenting opinion opens thus: "I am constrained to dissent from the opinion of the majority. The
reasons set forth by it against the validity of the proposed expropriation strike me as arguments against
the expropriation policies adopted by the government rather than reasons against the existence and
application of the condemnation power in the present case." 28 Then he stated: "The propriety of
exercising the power of eminent domain under Article XIII, section 4 of our Constitution can not be
determined on a purely quantitative or area basis. Not only does the constitutional provision speak of
lands instead of landed estates, but I see no cogent reason why the government, in its quest for social
justice and peace, should exclusively devote attention to conflicts of large proportions, involving a
considerable number of individuals, and eschew small controversies and wait until they grow into a
major problem before taking remedial action." 29

As to the role of the courts in the appraisal of the congressional implementation of such a power, he had
this to say: "The Constitution considered the small individual land tenure to be so important to the
maintenance of peace and order and to the promotion of progress and the general welfare that it not
only provided for the expropriation and subdivision of lands but also opened the way for the limitation
of private landholdings (Art. XIII, section 3). It is not for this Court to judge the worth of these and other
social and economic policies expressed by the Constitution; our duty is to conform to such policies and
not to block their realization." 30

The above dissent, as well as that penned by the then Chief Justice Paras with whom the then Justice
Pablo was in agreement, with Justice Alex Reyes writing a concurring opinion, resulted in that the main
opinion of Justice Montemayor, while prevailing, failed to elicit the necessary majority vote of six. If for
that reason alone re-examination would not appear to be inappropriate. Moreover, it could not be
considered as controlling the present suit, in view of the fact that the exercise of the congressional
authority to expropriate land was not direct as in this case but carried out in pursuance of the statutory
authority conferred on the President under Commonwealth Act No. 539.

The absence of any controlling force of such prevailing opinion can likewise be predicated on facts which
would differentiate the present situation from that found in the Baylosis case. Thus Justice Montemayor
noted: "The evidence shows that both Sinclair and Cirilo P. Baylosis at one time were willing to sell to
some of the tenants and occupants herein involved under certain conditions and provided that they buy
in groups, presumably to avoid subdivisions and the problem of dealing with many individual buyers, but
the tenants failed to buy. Naturally, they may not now compel Sinclair and Cirilo P. Baylosis to sell to
them through the Government by means of expropriation. Besides, the bulk of the lands that Sinclair
and Cirilo P. Baylosis had formerly offered to them for sale which offer they failed to take advantage of,
has now been sold to others, the other co-defendants herein, in small lots." 31 Likewise, it was noted by
him: "There is another point that merits consideration. The defendants claim and correctly that many of
the tenants and occupants now insisting on expropriation have lands of their own." 32

The more fundamental reason though why we find ourselves unable to yield deference to such opinion
of Justice Montemayor, well-written and tightly-reasoned as it is, is its undue stress on property rights. It
thus appears then that it failed to take into account the greater awareness exhibited by the framers of
our Constitution of the social forces at work when they drafted the fundamental law. To be more
specific, they were seriously concerned with the grave problems of inequality of wealth, with its highly
divisive tendency, resulting in the generous scope accorded the police power and eminent domain
prerogatives of the state, even if the exercise thereof would cover terrain previously thought of as
beyond state control, to promote social justice and the general welfare.

This is not to say of course that property rights are disregarded. This is merely to emphasize that the
philosophy of our Constitution embodying as it does what Justice Laurel referred to as its "nationalistic
and socialist traits discoverable upon even a sudden dip into a variety of [its] provisions" although not
extending as far as the "destruction or annihilation" of the rights to property, 33 negates the postulate
which at one time reigned supreme in American constitutional law as to their well-nigh inviolable
character. This is not so under our Constitution, which rejects the doctrine of laissez faire with its
abhorrence for the least interference with the autonomy supposed to be enjoyed by the property
owner. Laissez faire, as Justice Malcolm pointed out as far back as 1919, did not take too firm a foothold
in our jurisprudence. 34 Our Constitution is much more explicit. There is no room for it for Laissez faire.
So Justice Laurel affirmed not only in the above opinion but in another concurring opinion quoted with
approval in at least two of our subsequent decisions. 35 We had occasion to reiterate such a view in the
ACCFA case, decided barely two months ago. 36

This particular grant of authority to Congress authorizing the expropriation of land is a clear
manifestation of such a policy that finds expression in our fundamental law. So is the social justice
principle enshrined in the Constitution of which it is an expression, as so clearly pointed out in the
respective dissenting opinions of Justice J.B.L. Reyes and Chief Justice Paras in the Baylosis case. Why it
should be thus is so plausibly set forth in the ACCFA decision, the opinion being penned by Justice
Makalintal. We quote: "The growing complexities of modern society, however, have rendered this
traditional classification of the functions of government quite unrealistic, not to say absolute. The areas
which used to be left to private enterprise and initiative and which the government was called upon to
enter optionally, and only "because it was better equipped to administer for the public welfare than is
any private individual or group of individuals," continue to lose their well-defined boundaries and to be
absorbed within activities that the government must undertake in its sovereign capacity if it is to meet
the increasing social challenges of the times. Here as almost everywhere else the tendency is
undoubtedly towards a greater socialization of economic forces. Here of course this development was
envisioned, indeed adopted as a national policy, by the Constitution itself in its declaration of principle
concerning the promotion of social justice."

It would thus appear that the prevailing opinion in the Baylosis case is far from compelling. To the extent
that the conclusion reached by us in this suit proceeds from a different reading of the constitutional
provision in question, it must be deemed as being possessed of less than decisive weight.

4. There need be no fear that such constitutional grant of power to expropriate lands is without limit. As
in the case of the more general provision on eminent domain, there is the explicit requirement of the
payment of just compensation. It is well-settled that just compensation means the equivalent for the
value of the property at the time of its taking. Anything beyond that is more, and anything short of that
is less, than just compensation. It means a fair and full equivalent for the loss sustained, which is the
measure of the indemnity, not whatever gain would accrue to the expropriating entity. The market
value of the land taken is the just compensation to which the owner of condemned property is entitled,
the market value being that sum of money which a person desirous, but not compelled to buy, and an
owner, willing, but not compelled to sell, would agree on as a price to be given and received for such
property. There must be a consideration then of all the facts which make it commercially valuable. The
question is what would be obtained for it on the market from parties who want to buy and would give
full value. Testimonies as to real estate transactions in the vicinity are admissible. It must be shown
though that the property as to use must be of similar character to the one sought to be condemned. The
transaction must likewise be coeval as to time. To the market value must be added the consequential
damages, if any, minus the consequential benefits. The assessed value of real property while
constituting prima facie evidence of its value in case of condemnation proceedings is not conclusive. 37

Then, too, it is a prerequisite for the valid exercise of such a congressional power that the taking be for
the public use. To quote from the Guido decision: "It has been truly said that the assertion of the right
on the part of the legislature to take the property of one citizen and transfer it to another, even for a full
compensation, when the public interest is not promoted thereby, is claiming a despotic power, and one
inconsistent with every just principle and fundamental maxim of a free government." 38 It is on that
account that we granted prohibition to restrain respondent Rural Progress Administration from
proceeding with the expropriation of petitioner's land, two adjoining lots, part commercial with a
combined area of slightly more than two hectares. As was stressed by Justice Tuason in his opinion: "No
fixed line of demarcation between what taking is for public use and what is not can be made; each case
has to be judged according to its peculiar circumstances. It suffices to say for the purpose of this
decision that the case under consideration is far wanting in those elements which make for public
convenience or public use." 39 Such is not the situation before us now. Nor are we disposed to dispute
the legislative appraisal of the matter.

5. The failure to meet the exacting standard of due process would likewise constitute a valid objection to
the exercise of this congressional power. That was so intimated in the above leading Guido case. There
was an earlier pronouncement to that effect in a decision rendered long before the adoption of the
Constitution under the previous organic law then in force, while the Philippines was still an
unincorporated territory of the United States. 40

It is obvious then that a landowner is covered by the mantle of protection due process affords. It is a
mandate of reason. It frowns on arbitrariness, it is the anti-thesis of any governmental act that smacks
of whim or caprice. It negates state power to act in an oppressive manner. It is, as had been stressed so
often, the embody of the sporting idea of fair play. In that sense, it stands as a guaranty of justice. That
is the standard that must be met by any governmental agency in the exercise of whatever competence
is entrusted to
it.41 As was so emphatically stressed by the present Chief Justice, "acts of Congress, as well as those of
the Executive, can deny due process only under pain of nullity, . ... ." 42

It is easily understandable then why the expropriation of lots less than one hectare in City of Manila v.
Arellano Law College, 43 Lee Tay v. Choco 44 and Republic vs.
45 46 47
Samia and of lots less than two hectares in Commonwealth v. De Borja and Republic v. Prieto was
not given the sanction of approval by this Court, the failure to meet the due process requirement being
quite evident.

6. It is primarily the equal protection guaranty though that petitioner's case is made to rest. The
Constitution requires that no person be denied "the equal protection of the laws." 48 A juridical being is
included within its terms.

The assumption underlying such a guaranty is that a legal norm, whether embodied in a rule, principle,
or standard, constitutes a defense against anarchy at one extreme and tyranny at the other. Thereby,
people living together in a community with its myriad and complex problems can minimize the friction
and reduce the conflicts, to assure, at the very least, a peaceful ordering of existence. The ideal situation
is for the law's benefits to be available to all, that none be placed outside the sphere of its coverage.
Only thus could chance and favor be excluded and the affairs of men governed by that serene and
impartial uniformity, which is of the very essence of the idea of law.

The actual, given things as they are and likely to continue to be, cannot approximate the ideal. Nor is the
law susceptible to the reproach that it does not take into account the realities of the situation. The
constitutional guaranty then is not to be given a meaning that disregards what is, what does in fact
exist. 49 To assure that the general welfare be promoted, which is the end of law, a regulatory measure
may cut into the rights to liberty and property. Those adversely affected may under such circumstances
invoke the equal protection clause only if they can show that the governmental act assailed, far from
being inspired by the attainment of the common weal was prompted by the spirit of hostility, or at the
very least, discrimination that finds no support in reason. .

It suffices then that the laws operate equally and uniformly on all persons under similar circumstances
or that all persons must be treated in the same manner, the conditions not being different, both in the
privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For
the principle is that equal protection and security shall be given to every person under circumstances,
which if not identical are analogous. If law be looked upon in terms of burden or charges, those that fall
within a class should be treated in the same fashion, whatever restrictions cast on some in the group
equally binding on the rest.
It is precisely because the challenged statute applies only to petitioner that he could assert a denial of
equal protection. As set forth in its brief: "Republic Act No. 2616 is directed solely against appellee and
for this reason violates the equal protection clause of the Constitution. Unlike other laws which confer
authority to expropriate landed estates in general, it singles out the Tatalon Estate. It cannot be said,
therefore, that it deals equally with other lands in Quezon City or elsewhere." 50 With due recognition
then of the Power of Congress to designate the particular property to be taken and how much thereof
may be condemned in the exercise of the power of expropriation, it is still a judicial question whether in
the exercise of such competence, the party adversely affected is the victim of partiality and prejudice.
That the equal protection clause will not allow.

The judiciary can look into the facts then, no conclusiveness being attached to a determination of such
character when reliance is had either to the due process clause which is a barrier against arbitrariness
and oppressiveness and the equal protection guaranty which is an obstacle to invidious discrimination.

We start of course with the presumption of validity, the doubts being resolved in favor of the challenged
enactment. 51 As this is the first statute of its kind assailed, we should not stop our inquiry there. The
occasion that called for such legislation, if known, goes far in meeting any serious constitutional
objection raised. We turn to the Explanatory Note of the bill, 52 which was enacted into the challenged
statute. It started with the declaration that it provides for the "expropriation of the Tatalon Estate,
Quezon City, and for the sale at cost of the lots therein to their present bona fide occupants, authorizing
therefor the appropriation of ten million pesos." Then it continued: "The Tatalon Estate has an area of
more than ninety six hectares and the lots therein are at present occupied by no less than one thousand
five hundred heads of families, most of whom are veterans of World War II. It is the earnest desire of
this group of patriotic and loyal citizens to purchase the lots at a minimum cost." Why there was such a
need for expropriation was next taken up: "The population of Quezon City has considerably increased.
This increase in population is posing a serious housing problem to city residents. This bill will not only
solve the problem but will also implement the land-for-the-landless program of the present
Administration."

What other facts are there which would remove the alleged infirmity of the statute on equal protection
grounds? The brief for respondents invited our attention to the social problem which this legislation was
intended to remedy. Thus: "There is a vital point which should have great weight in the decision of this
case. The petitioner led the occupants of Tatalon Estate to believe that they were dealing with the
representatives of the real owners, the Veterans Subdivision, in the purchase of their lots. The
occupants believed in good faith that they were dealing with the representatives of the owners of the
lots. This belief was bolstered by the fact that the petitioners herein even entered into a compromise
agreement on March 16, 1953 with the Deudors, agreeing to give the latter millions of pesos in
settlement of their claim over the Tatalon Estate. The occupants, therefore, purchased their respective
portions from the Veterans Subdivision in good faith. The petitioner allowed the Veterans Subdivision to
construct roads in the Tatalon Estate; it allowed said firm to establish an office in the Tatalon Estate and
to advertise the sale of the lots inside the Tatalon Estate. Petitioner admits having full knowledge of the
activities of the Veterans Subdivision and yet did not lift a finger to stop said acts. The occupants paid
good money for their lots and spent fortunes to build their homes. It was after the place has been
improved with the building of the roads and the erection of substantial residential homes that petitioner
stepped into the picture, claiming for the first time that it is the owner of the Tatalon Estate. Some of
the occupants had erected their houses as early as 1947 and 1948. ..." 53

The cutting edge of the above assertions could have been blunted by the brief for petitioner. This is all it
did say on the matter though: "Appellants alleged that appellee 'led the occupants of Tatalon Estate to
believe that they were dealing with the representatives of the real owners, the Veterans Subdivision, in
the purchase of their lots' ... . There is absolutely no evidence on record to establish this ludicrous
allegation." 54 Only the alleged duplicity of petitioner was denied, leaving unanswered the rather
persuasive recital of conditions that could rightly motivate Congress to act as it did. Clearly, there is no
sufficient refutation of the seriousness of the problem thus underscored by respondents, the solution of
which is the aim of the statute now under attack.

This is not to deny that whenever Congress points to a particular piece of property to be expropriated, it
is faced with a more serious scrutiny as to its power to act in the premises. It would require though a
clear and palpable showing of its having singled out a party to bear the brunt of governmental authority
that may be legitimately exerted, induced, it would appear by a feeling of disapproval or ill-will to make
out a case of this guaranty having been disregarded. If such were the case, then in the language of
Justice Laurel, it "will be the time to make the [judicial] hammer fall and heavily. But not until
then." 55 The most careful study of the matter before us however yields the conclusion that petitioner
was unable to sustain the burden of demonstrating a denial of equal protection.

Moreover, there is nothing to prevent Congress in view of the public funds at its disposal to follow a
system of priorities. It could thus determine what lands would first be the subject of expropriation. This
it did under the challenged legislative act. As already noted, Congress was moved to act in view of what
it considered a serious social and economic problem. The solution which for it was the most acceptable
was the authorization of the expropriation of the Tatalon Estate. So it provided under the statute in
question. It was confronted with a situation that called for correction, and the legislation that was the
result of its deliberation sought to apply the necessary palliative. That it stopped short of possibly
attaining the cure of other analogous ills certainly does not stigmatize its effort as a denial of equal
protection. We have given our sanction to the principle underlying the exercise of police power and
taxation, but certainly not excluding eminent domain, that "the legislature is not required by the
Constitution to adhere to the policy of "all or none". 56 Thus, to reiterate, the invocation by petitioner of
equal protection clause is not attended with success.

7. The other points raised may be briefly disposed of. Much is made of what the lower court considered
to be the inaccuracy apparent on the face of the challenged statute as to the ownership of the Tatalon
Estate. It could very well be that Congress ought to have taken greater pains to avoid such imprecision.
At any rate, the lower court, unduly alarmed, would consider it a deprivation of property without due
process of law. 57 Such a fear is unwarranted. In the course of the expropriation proceedings, there
undoubtedly would be a judicial determination as to the party entitled to the just compensation. As of
now then, such a question would appear at the very least to be premature. Reference is likewise made
as to the effect of the authorized expropriation on those purchasers of lots located in the Tatalon Estate.
Again, on the occasion of the expropriation, whatever contractual rights might he possessed by vendors
and vendees could be asserted and accorded the appropriate constitutional protection.

8. What appears undeniable is that in the light of the broad grant of congressional power so apparent
from the text of the constitutional provision, the historical background as made clear during the
deliberation for the Constitutional Convention, and the cardinal postulate underlying constitutional
construction that its provisions are not to be interpreted to preclude their being responsive to future
needs, the fundamental law being intended to govern the life of a nation as it unfolds through the ages,
the challenged statute can survive the test of validity. If it were otherwise, then the judiciary may lend
itself susceptible to the charge that in its appraisal of governmental measures with social and economic
implications, its decisions are characterized by the narrow, unyielding insistence on the primacy of
property rights, contrary to what the Constitution ordains. In no other sphere of judicial activity are
judges called upon to transcend personal predilections and private notions of policy, lest legislation
intended to bring to fruition the hope of a better life for the great masses of our people, as embodied in
the social justice principle of which this constitutional provision under scrutiny is a manifestation, be
unjustifiably stricken down. The appealed decision cannot stand.

WHEREFORE, the decision of the lower court of January 10, 1963 holding that Republic Act No. 2616 as
amended by Republic Act No. 3453 is unconstitutional is reversed. The writ of prohibition suit is denied,
and the preliminary injunction issued by the lower court set aside. With costs against petitioner.

G.R. No. 183688 August 18, 2010

LAND BANK OF THE PHILIPPINES, Petitioner,

vs.
RIZALINA GUSTILO BARRIDO and HEIRS OF ROMEO BARRIDO, Respondents.

RESOLUTION

NACHURA, J.:
For review is the Court of Appeals (CA) Decision1 dated February 20, 2008 and its Resolution2 dated July
8, 2008 in CA-G.R. CEB-SP No. 01641. The assailed decision affirmed the Decision3 of the Regional Trial
Court (RTC), Branch 34, Iloilo City in Civil Case No. 04-28093; while the assailed resolution denied
petitioner Land Bank of the Philippines’ motion for reconsideration.

The undisputed facts are as follows:

Respondents Rizalina Gustilo Barrido and the Heirs of Romeo Barrido are the registered owners of a
parcel of land with an area of 89,204 square meters covered by Original Certificate of Title No. 0-6318,
situated in Barangay Apologista, Sara, Iloilo. On April 30, 2003, the government expropriated a portion
of the property consisting of 43,4614 sq m for distribution to the farmer-beneficiaries under the Land
Reform Program. Petitioner offered respondents a total amount of ₱60,385.49 as just compensation,
but respondents rejected the offer. Respondents instituted an original action before the RTC for the
judicial determination of just compensation. The case was docketed as Civil Case No. 04-28093.5

In their separate Answers, petitioner and the Department of Agrarian Reform (DAR) insisted that the
valuation made is correct, it being based on the formula laid down in Presidential Decree (P.D.) No. 27 as
supplemented by Executive Order (E.O.) No. 228.6 Under these issuances, the prescribed formula is as
follows:

Land Value = Average Gross Production (AGP) x 2.5 x Government Support Price (GSP)

On December 8, 2005, the RTC rendered a Decision7 fixing the just compensation at ₱94, 797.09 per
hectare, the dispositive portion of which reads:

WHEREFORE, based on the foregoing premises, judgment is hereby rendered fixing the just
compensation of land at ₱94,797.09 per hectare and ordering the LBP to pay plaintiffs Rizalina Gustilo
Barrido and Heirs of Romeo Barrido the total sum of ₱411,997.63 as just compensation for the 4.3461
hectares taken by the government pursuant to P.D. No. 27 and E.O. No. 228 plus 12% interest per
annum from March 21, 2003 until full payment.

SO ORDERED.8

The RTC arrived at the valuation by taking the average between the amount found by the DAR using the
formula prescribed by E.O. No. 228 and the market value of the property which is ₱175,700.00 per
hectare. In addition, the court also awarded 12% interest in the form of damages in view of the delay in
the payment of just compensation.9Petitioner’s motion for reconsideration was denied on March 1,
2006.10

On appeal, the CA affirmed the RTC decision in its entirety. Hence, the instant petition for review which
assigns the following errors:

I.

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERRORS OF LAW WHEN IT AFFIRMED THE
DECISION DATED DECEMBER 8, 2005 AND ORDER DATED MARCH 1, 2006 OF THE REGIONAL TRIAL
COURT OF ILOILO CITY, BRANCH 34 IN CIVIL CASE NO. 04-28093, FINDING THAT THE APPLICABLE LAW IN
THE INSTANT CASE IS R.A. NO. 6657 AND NOT P.D. NO. 27 AND E.O. NO. 228.

II.

ASSUMING ARGUENDO THAT R.A. NO. 6657 IS THE APPLICABLE LAW, STILL THE HONORABLE COURT OF
APPEALS COMMITTED SERIOUS ERRORS OF LAW WHEN IT AFFIRMED THE SAID DECISION AND ORDER
OF THE TRIAL COURT THAT FIXED THE JUST COMPENSATION WHICH IS NOT IN ACCORDANCE WITH THE
PROVISIONS OF R.A. NO. 6657 AS TRANSLATED INTO A BASIC FORMULA UNDER DAR ADMINISTRATIVE
ORDER NO. 5, SERIES OF 1998.

III.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERRORS OF LAW WHEN IT AFFIRMED THE
SUBJECT DECISION AND ORDER OF THE TRIAL COURT THAT AWARDED IN FAVOR OF THE RESPONDENT
TWELVE PERCENT (12%) INTEREST PER ANNUM FOR ALLEGED DELAY IN PAYMENT.11

The issues raised in the instant case are not novel. We have ruled in a number of cases that if just
compensation is not settled prior to the passage of Republic Act (R.A.) No. 6657, it should be computed
in accordance with said law even if the property was acquired under P.D. No. 27.12 The fixing of just
compensation should, therefore, be based on the parameters prescribed in R.A. No. 6657, with P.D. No.
27 and E.O. No. 228 having only suppletory effect.13Specifically, Section 1714 of R.A. 6657 is the principal
basis of the computation for just compensation.15 The factors set forth in this section have been
translated into a basic formula outlined in DAR Administrative Order No. 5, series of 1998,16 thus: 17

A. There shall be one basic formula for the valuation of lands covered by VOS or CA:

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

Where: LV = Land Value

CNI = Capitalized Net Income

CS = Comparable Sales

MV= Market Value per Tax Declaration

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

A1. When the CS factor is not present and CNI and MV are applicable, the formula shall be:

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

A2. When the CNI factor is not present, and CS and MV are applicable, the formula shall be:

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

A3. When both the CS and CNI are not present and only MV is applicable, the formula shall be:

LV = MV x 2

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

While the determination of just compensation is essentially a judicial function vested in the RTC acting
as a Special Agrarian Court, the judge cannot abuse his discretion by not taking into full consideration
the factors specifically identified by law and implementing rules.18 Special Agrarian Courts are not at
liberty to disregard the formula laid down in DAR A.O. No. 5, series of 1998, because unless an
administrative order is declared invalid, courts have no option but to apply it.19 The courts cannot
ignore, without violating the agrarian law, the formula provided by the DAR for the determination of just
compensation.20

In this case, the RTC adopted a different formula in determining land valuation by considering the
average between the findings of the DAR using the formula laid down in E.O. 228 and the market value
of the property as stated in the tax declaration. This is obviously a departure from the mandate of the
law and the DAR administrative order.1avvphi1

As the RTC based its valuation on a different formula and without taking into consideration the factors
set forth in Section 17 of R.A. 6657, we are constrained to remand the case to the RTC for the
determination of just compensation in accordance with this formula and applicable DAR regulations.
WHEREFORE, the February 20, 2008 Decision and July 8, 2008 Resolution of the Court of Appeals in CA-
G.R. CEB-SP No. 01641 are REVERSED and SET ASIDE.

Civil Case No. 04-28093 is REMANDED to the court of origin, Branch 34 of the Regional Trial Court of
Iloilo City, which is directed to determine with dispatch the just compensation due respondents Rizalina
Gustilo Barrido and the Heirs of Romeo Barrido strictly in accordance with the formula laid down in DAR
Administrative Order No. 5, series of 1998.

SO ORDERED.

LAND BANK OF THE PHILIPPINES, Petitioner,

vs.
CONRADO O. COLARINA, Respondent.

DECISION

NACHURA, J.:

Before us is a petition for review on certiorari assailing the Decision of the Court of Appeals (CA) in CA-
G.R. CV No. 68476,1 which affirmed the decision of the Regional Trial Court (RTC), Branch 3, Legazpi City,
Albay, sitting as a Special Agrarian Court (SAC) in Agrarian Case No. 95-01.2

The facts are simple.

Respondent Conrado O. Colarina is the registered owner of three (3) parcels of agricultural land which
he acquired from their former owner, Damiana Arcega. The parcels of land have a total area of 972,047
square meters with the following description:

TRANSFER CERTIFICATE OF TITLE (TCT) No. AREA (hectares) LOCATION

T-86402 12.5718 Herrera, Ligao, Albay
T-86448 48.3062 Herrera, Ligao, Albay
T-86449 36.3267 Amtic, Ligao, Albay

Upon acquisition thereof, respondent manifested his voluntary offer to sell the properties to the
Department of Agrarian Reform (DAR) for coverage under Republic Act (R.A.) No. 6657, the
Comprehensive Agrarian Reform Law (CARL). Respondent’s assessment value of the properties was
₱45,000.00 per hectare.

The DAR, through petitioner Land Bank of the Philippines (LBP), assessed the properties and offered to
purchase only 57.2047 hectares out of the 97.2047 hectares voluntarily offered for sale by respondent.
The excluded area (40 hectares) fell under the exemptions and exclusions provided in Section 10 3 of the
CARL, i.e., all lands with eighteen percent (18%) slope and over. In addition, the LBP assigned the
following values to the properties:

TCT No. Covered Area Excluded Area Value

T-86402 6.5718 6 ₱ 46,045.60
T-86448 28.3062 20 ₱ 208,144.33
T-86449 22.3267 14 ₱ 154,394.22

As the LBP’s assessment and valuation of the properties was unacceptable to, and rejected by,
respondent, he elevated the determination of just compensation of the properties to the Provincial
Agrarian Reform Adjudicator (PARAD). Unfortunately for respondent, the PARAD affirmed the valuation
set forth by the LBP.
Disappointed with the low valuation by petitioner and the DAR, respondent filed a Complaint4 before
the RTC, Branch 3, Legazpi, Albay, for the judicial determination of just compensation.

In refutation, petitioner filed its Answer,5 denied the material allegations in the Complaint, and alleged
that it had correctly assessed and valuated the subject properties consistent with R.A. No. 6657 and DAR
Administrative Order (AO) No. 6, Series of 1992.

During pre-trial, LBP manifested that the subject properties may be reassessed and revaluated based on
the new guidelines set forth in DAR A.O. No. 11, Series of 1994. Intent on finding a common ground
between petitioner and respondent and to amicably settle the case, the SAC ordered the revaluation.
The new valuations of the LBP were:

TCT No. Old Valuation New Valuation

T-86402 ₱ 46,045.60 ₱51,762.90 at
₱7,876.5178/ha.
T-86448 ₱208,144.33 ₱259,525.41 at
₱9,168.50/ha.
T-86449 ₱154,394.22 ₱217,223.60 at
₱9,729.3196/ha.6

The foregoing valuation was still rejected by respondent. Hence, trial ensued. To support his Complaint
and valuation of the subject properties, respondent presented in evidence his own testimony and that
of Carlito M. Oliva (Oliva), then Assistant Provincial Assessor of Camarines Sur and President of the
Camarines Chapter of the National Real Estate Association.

As for petitioner, it presented the testimonies of Armel Alcantara (Alcantara), Chief of the Landowners
Assistance Division of the LBP, and Melchor Balmaceda, officer of LBP, Sipocot Branch.

The SAC summarized the testimonies of the witnesses as follows:

Second witness Carlito M. Oliva, x x x testified that in several instances, he was deputized by the
Honorable Court under RTC BR. 26 to chair the commission in the determination of the fair market value
of properties subject for payment by the government. That the properties involved in this case is
composed of three parcels. [T-86402] is situated at Barangay Herrera, Ligao, Albay which contains an
area of 12.5718 has.; [T-86449] is also situated in the same Barangay with an area of 36.3267 has.; [a]nd
[T-86448] is situated at Barangay Amtic, Ligao, Albay with an area of 48.3062 has or a total of 97.2047
has. Upon Mr. Colarina’s request, he conducted an investigation and ocular inspection on the subject
properties and made a narrative report relative thereto. That his recommendation as the reasonable
market value of the properties is at ₱49,201.148/ha or a total of ₱4,788,415.20 using the productivity
approach since the subject property is mostly agricultural. That the actual area planted to coconuts is
about 43.84%; banana plants is 7.79%; corn land is 1.14%; homelots is 0.50% and 4.97% cogonal, while
5% is non-arable.

xxxx

Armel Alcantara testified that x x x before, he was the Division Chief of the Claim, Processing and
Payment Division (CPPD) [of the LBP]. As such, he conducts review of claim folders covered by P.D. No.
27, E.O. No. 228 and R.A. No. 6657, most specifically the claim folders under voluntary offer to sell and
compulsory acquisition claim folders. That he valued the subject lands owned by [respondent] based on
AO No. 11 S. of 1996. Pursuant to the Hon. Court’s order dated November 14, 1996. For TCT No. 86448,
the area covered is 28.3062 has. [o]ut of 48.3062 has. Because some portion of the property is hilly and
mountainous and underdeveloped which exceeded the 18% limit set forth under Sec. 10 of RA 6657.
This lot is planted to corn, peanut and cogonal. The corn land is 13 has., peanut land is .25 has., cogonal
is 15.0562 has.; the excluded portion which is mountainous and about 25% slope totals 20 has. The
factor considered by Land Bank is under Formula No. 2 which is the Capitalized Net Income (CNI) x 90%
and the market value per Tax declaration wherein they get the remaining 10%. The CNI was taken from
the average gross production based on the field investigation report multiplied by the selling price from
the Department of Agriculture municipal data, arriving at a total CNI of ₱10,291.67 per ha. The market
value per Tax declaration was based on the third classification as furnished to Land Bank by the
Municipal Assessor’s office. The total MVPT as computed by Land Bank is ₱14,193.22, so, 10% of which
is ₱1,419.32. After computing the CNI and the MVPT, he applied the applicable formula which is CNI x
90% and the MVPT x 10%. The CNI total is ₱9,262.5 and the MV is ₱1,419.32. Summing up the total
amount of the two factors, the value per ha. Arrived at for corn land is ₱10,681.82 per ha. Multiply it by
13 has. For corn land, the total amount is ₱3,535.66. For peanut land, the total amount is ₱3,535.66 and
for cogonal where they used the market value per tax declaration multiplied by 2. the total is
₱117,126.09. Therefore, the total valuation of this 28.3062 has. portion of the property acquired by the
government is ₱259,525.41.

For Title No. 86449, 22.3267 has. out of 36.3267 has. [i]s carpable. The 14 has. [w]as excluded because
this falls under the hilly and mountainous portion which is about 18% slope. Applying the same rules and
regulations, the total valuation for this property is ₱217,223.60.

For Title No. 86402, the area covered is 6.5718 has. [o]ut of 12.5718 has. The area of 6 has. is excluded
for it falls above 18% slope. Applying again the same rules and regulations, the total valuation for the
6.5718 has. [a]cquired by the government is ₱51,762.90.

That there are several valuations/formulas provided for under RA 6657 and the Land Bank follows the
applicable formula as reflected in the field investigation report. Therefore, their basis in determining
which factors will be applied are the result of the field investigation report. After determining the
existence of the property, the DAR, Land Bank and the other agencies concerned conducted an ocular
inspection of the property being offered for sale under CARP or covered by the CARP. The data in-put
were gathered in the field including the number of fruit bearing trees also determined. The production
data was also taken and a survey was being conducted in the field on adjacent properties. Said data
were compared with the record of the Municipal agriculturist and other officers. That the valuation of
the property was based under AO No. 11 existing at the time of the valuation of the property as of
November 19, 1996.

Melchor Balmaceda testified that at present he is an officer of Land Bank of the Philippines, Sipocot
Branch but before, he was connected with Land Bank VO, Legazpi City Branch as Agrarian Affairs
Specialist. As such, he conducts ocular inspection on the properties covered by the CARP, and gathers
information relative to land valuation. That sometime in 1991, he together with DAR personnel and
BARC Chairman and caretakers of the property conducted an ocular inspection in question in the name
of Damian Arcega, the former owner of the property, which property consisted of 3 parcels. That in
connection thereto, they made a written report that the property is generally mountainous and majority
is planted to coconut. A portion is planted to corn and minimal portion is planted to peanut and there is
also a portion which is cogonal where there is no product. That all the areas are carpable. That they
gather data information from government agencies and they compute the net income of the properties
based on the produce.7

Thereafter, the SAC rendered a decision reconciling the conflicting evidence of the parties. The SAC
followed the formula of the LBP and its land use classification of the subject properties; the appraisal
report on the valuation thereof. It disposed of the case, to wit:

To reconcile the conflicting figures both prayed for by [respondent] and [petitioner] Land Bank as the
computation of the value of the properties to be paid to the [respondent], taking into account all the
factors in determining just compensation and considering that the taking of private agricultural
properties under Agrarian Reform Law is a special kind of eminent domain which is revolutionary in
character, the primary goal of which is to grant land to the landless and the need for high production,
the just compensation for the lots subject matter of this case, using the value in the [respondent’s]
appraisal report and the land use of the properties as classified by the Land Bank, are as follows:

1) TCT No. T-86448 – carpable area – 28.3062 has.

Land Use:
 A) Corn land

Area = 13.0000 has.

Value/Ha = ₱52,700/has (Per Appraisal Report)

Computation:

₱52,700/ha x 13.0000 has = ₱685,100.00

B) Peanut

Area = .2500

Value/Ha = ₱60,000/has (Per Appraisal Report)

Computation:

₱60,000.00/has x .2500 has = ₱15,000.00

C) Cogonal

Area = 15.0562 has.

Value/Ha = ₱5,270 (Per Appraisal Report)

Computation:

₱5,270.00/has x 15.0562 has = ₱79,346.17

Total:

Corn land - ₱685,100.00

Peanut - 15,000.00

Cogonal - 79,346.17

₱779,446.17

2) TCT No. T-86449 – carpable area – 22.3267 has.

Land Use:

A) Corn land

Value/Ha = ₱52,700.00/ha (Per Appraisal Report)

Area = 15.000 has

Computation:

₱52,700.00/has. x 15.0000 has = ₱790,500.00

B) Cogon:

Value/ha = ₱5,270/ha (Per Appraisal Report)

 Area = 7.3267 has

Computation:

₱5,270/ha x 7.3267 has = ₱38,611.7

Total:

Corn land - ₱790,500.00

Cogon - 38,611.70

₱829,111.70

3) TCT No. T-86402 – carpable area – 6.5718 has

Land Use:

A) Corn land

Value/ha = ₱52,700/ha (Per Appraisal Report)

Area = 3.0000 has

Computation:

₱52,700/has x 3.0000 has = ₱158,100

B) Cogonal

Value/ha = ₱5,270/ha (Per Appraisal Report)

Area = 3.5718 has

Computation:

₱5,270/ha x 3.5718 has = ₱18,823.28

Total:

Corn land = ₱158,100.00

Cogonal = 18,823.38

Total = ₱176,923.38

Based on the foregoing computation, the just compensation for 1) TCT No. T-86448 with a carpable area
of 28.3062 has. is fixed at ₱779,446.17; 2) TCT No. T-86449 with a carpable area of 22.3267 has. is fixed
at ₱829,111.70; and for 3) TCT No. T-86402 with a carpable area of 6.5718 has. is fixed at ₱18,823.38.

Thus, the overall valuation of the property is as follows:

TCT No. T-86648 ₱ 779,446.17

TCT No. T-86649 829,111.70

 TCT No. T-86402 176,923.38

TOTAL ₱1,785,481.25
===========

WHEREFORE, [petitioner LBP] is ordered to pay [respondent] Conrado Colarina the total sum of ONE
MILLION SEVEN HUNDRED EIGHTY FIVE THOUSAND FOUR HUNDRED EIGHTY ONE PESOS AND TWENTY
FIVE CENTAVOS (₱1,785,481.25) in case or in bond or in any other mode of payment under Section 18 of
RA 6657 otherwise known as the Comprehensive Agrarian Reform Law, at the option of the landowner.

SO ORDERED.8

Still dissatisfied with the valuation of just compensation for the subject properties, both parties
appealed to the CA. The appellate court affirmed the ruling of the SAC, to wit:

WHEREFORE, premises considered, the August 7, 2000 Decision of the Regional Trial Court of Lega[z]pi
City, Albay, Branch 3, in Agrarian Case No. 95-01, is hereby AFFIRMED.

SO ORDERED.9

Adamant on the accuracy of its computation, petitioner appeals to this Court, positing the following
issues:

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERRORS OF LAW IN THE FOLLOWING
INSTANCES:

I.

WHEN IT AFFIRMED THE REGIONAL TRIAL COURT OF LEGA[Z]PI CITY, BRANCH 3 DECISION DATED
AUGUST 7, 2000 WHICH AWARDED ₱1,785,481.25 AS JUST COMPENSATION FOR THE FIFTY-SEVEN-
HECTARE PROPERTY, AS THE SAID DECISION FAILED TO CONFORM TO THIS HONORABLE COURT’S
RULING IN "LAND BANK OF THE PHILIPPINES V. SPOUSES VICENTE BANAL AND LEONIDES ARENAS-
BANAL" (G.R. NO. 143276).

II.

WHEN IT TREATED THE TAKING OF AGRICULTURAL LANDS FOR AGRARIAN REFORM PURPOSES AS AN
ORDINARY EXPROPRIATION OF PRIVATE PROPERTY FOR PUBLIC USE.10

We impale the foregoing into the singular issue of whether the lower courts’ computation of just
compensation for the subject properties is correct.

We answer in the negative and find the petition impressed with merit.

As pointed out by petitioner, our ruling in Land Bank of the Philippines v. Sps. Banal11 is definitive on the
factors to be considered, and the formula utilized, for the determination of just compensation:

To begin with, under Section 1 of Executive Order No. 405 (1990), the Landbank is charged "primarily"
with "the determination of the land valuation and compensation for all private lands suitable for
agriculture under the Voluntary Offer to Sell or Compulsory Acquisition arrangement…" For its part, the
DAR relies on the determination of the land valuation and compensation by the Landbank.

xxxx

A party who disagrees with the decision of the DAR adjudicator may bring the matter to the RTC
designated as a Special Agrarian Court "for final determination of just compensation."
In the proceedings before the RTC, it is mandated to apply the Rules of Court and, on its own initiative or
at the instance of any of the parties, "appoint one or more commissioners to examine, investigate and
ascertain facts relevant to the dispute, including the valuation of properties, and to file a written report
thereof x x x." In determining just compensation, the RTC is required to consider several factors
enumerated in Section 17 of R.A. 6657, as amended, thus:

"Sec. 17. Determination of Just Compensation. – In determining just compensation, the cost of
acquisition of the land, the current value of like properties, its nature, actual use and income, the sworn
valuation by the owner, the tax declarations, and the assessment made by government assessors shall
be considered. The social and economic benefits contributed by the farmers and the farmworkers and
by the Government to the property, as well as the non-payment of taxes or loans secured from any
government financing institution on the said land, shall be considered as additional factors to determine
its valuation."

These factors have been translated into a basic formula in DAR Administrative Order No. 6, Series of
1992, as amended by DAR Administrative Order No. 11, Series of 1994, issued pursuant to the DAR’s
rule-making power to carry out the object and purposes of R.A. 6657, as amended.

Subsequent rulings of the Court uniformly parleyed that Section 17 of R.A. No. 6657 has been translated
into a formula by the DAR through A.O. No. 6, Series of 1992, as amended by A.O. No. 11, Series of
1994:12

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

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

Where: LV = Land Value

CNI = Capitalized Net Income

CS = Comparable Sales

MV = Market Value per Tax Declaration

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

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

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

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

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

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

LV = MV x 2

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

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

Grossed-up Valuation Input = Valuation input x Regional

Consumer Price Index (RCPI)
Adjustment Factor

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

for the Month as of the Date of

Receipt of Claimfolder by LBP
from DAR or the Most recent
RCPI for the Month Issued Prior
to the Date of RCPI Receipt of
RCPI Adjustment Factor = CF

RCPI for the Month Issued as of

the
Date/Effectivity/Registration of
the Valuation Input

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

Expressed in equation form:

CNI = (AGP x SP) - CO

.12

Where: CNI Capitalized Net Income

=

AGP Latest available 12-month's gross production immediately preceding the

= date of offer in case of VOS or date of notice of coverage in case of CA.

SP = The average of the latest available 12-month’s selling prices prior to the
date of receipt of the claimfolder by LBP for processing, such prices to
be secured from the Department of Agriculture (DA) and other
appropriate regulatory bodies or, in their absence, from the Bureau of
Agricultural Statistics. If possible, SP data shall be gathered from the
barangay or municipality where the property is located. In the absence
thereof, SP may be secured within the province or region.

CO Cost of Operations
=
Whenever the cost of operations could not be obtained or verified, an
assumed net income rate (NIR) of 20% shall be used. Landholdings
planted to coconut which are productive at the time of offer/coverage
shall continue to use the 70% NIR. DAR and LBP shall continue to
 conduct joint industry studies to establish the applicable NIR for each
crop covered under CARP.

.12 Capitalization Rate

=

xxxx

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

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

AC = Acquisition Cost as defined under Item C.3

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

xxxx

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

In Land Bank of the Philippines v. Celada,13 we declared:

While SAC is required to consider the acquisition cost of the land, the current value of like properties, its
nature, actual use and income, the sworn valuation by the owner, the tax declaration and the
assessments made by the government assessors to determine just compensation, it is equally true that
these factors have been translated into a basic formula by the DAR pursuant to its rule-making power
under Section 49 of RA No. 6657. As the government agency principally tasked to implement the
agrarian reform program, it is the DAR’s duty to issue rules and regulations to carry out the object of the
law. DAR AO No. 5, s. of 1998 precisely "filled in the details" of Section 17, RA No. 6657 by providing a
basic formula by which the factors mentioned therein may be taken into account. The SAC was at no
liberty to disregard the formula which was devised to implement the said provision.

It is elementary that rules and regulations issued by administrative bodies to interpret the law which
they are entrusted to enforce, have the force of law, and are entitled to great respect. Administrative
issuances partake of the nature of a statute and have in their favor a presumption of legality. As such,
courts cannot ignore administrative issuances especially when, as in this case, its validity was not put in
issue. Unless an administrative order is declared invalid, courts have no option but to apply the same.

In the same vein, Land Bank of the Philippines v. Lim14 did not depart from the previous rulings and
explicitly affirmed the mandatory nature of Section 17 of RA No. 6657 and DAR A.O. No. 6092, as
amended by DAR A.O. No. 11-94:

In Land Bank of the Philippines v. Spouses Banal, this Court underscored the mandatory nature of
Section 17 of RA 6657 and DAR AO 6-92, as amended by DAR AO 11-94, viz.:

"In determining just compensation, the RTC is required to consider several factors enumerated in
Section 17 of R.A. 6657, as amended, thus:

"Sec. 17. Determination of Just Compensation. – In determining just compensation, the cost of
acquisition of the land, the current value of like properties, its nature, actual use and income, the sworn
valuation by the owner, the tax declarations, and the assessment made by government assessors shall
be considered. The social and economic benefits contributed by the farmers and the farmworkers and
by the Government to the property, as well as the non-payment of taxes or loans secured from any
government financing institution on the said land, shall be considered as additional factors to determine
its valuation."

These factors have been translated into a basic formula in [DAR AO 6-92], as amended by [DAR AO 11-
94], issued pursuant to the DAR’s rule-making power to carry out the object and purposes of R.A. 6657,
as amended.

The formula stated in [DAR AO 6-92], as amended, is as follows:

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

LV = Land Value

CNI = Capitalized Net Income

CS = Comparable Sales

MV = Market Value per Tax Declaration

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

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

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

xxxx

While the determination of just compensation involves the exercise of judicial discretion,
however, such discretion must be discharged within the bounds of the law. Here, the RTC
wantonly disregarded R.A. 6657, as amended, and its implementing rules and regulations. ([DAR
AO 6-92], as amended by [DAR AO 11-94]).

xxxx

WHEREFORE, x x x. Civil Case No. 6806 is REMANDED to the RTC x x x. The trial judge is directed
to observe strictly the procedures specified above in determining the proper valuation of the
subject property.

The recent case of Heirs of Lorenzo and Carmen Vidad and Agvid Construction Co., Inc. v. Land Bank of
the Philippines15 is most propinquity on the same point:

LBP’s valuation of lands covered by the CARP Law is considered only as an initial determination, which is
not conclusive, as it is the RTC, sitting as a SAC, that could make the final determination of just
compensation, taking into consideration the factors enumerated in Section 17 of RA 6657 and the
applicable DAR regulations. LBP’s valuation has to be substantiated during an appropriate hearing
before it could be considered sufficient in accordance with Section 17 of RA 6657 and the DAR
regulations.

In Land Bank of the Philippines v. Celada, the Court ruled that the factors enumerated under Section 17
of RA 6657 had already been translated into a basic formula by the DAR pursuant to its rule-making
power under Section 49 of RA 6657. Thus, the Court held that the formula outlined in DAR AO No. 5,
series of 1998, should be applied in computing just compensation. DAR AO No. 5, series of 1998,
provides:

A. There shall be one basic formula for the valuation of lands covered by VOS or CA:

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

 Where:

LV = Land Value

CNI = Capitalized Net Income

CS = Comparable Sales

MV = Market Value per Tax Declaration

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

A1. When the CS factor is not present and CNI and MV are applicable, the
formula shall be:

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

A2. When the CNI factor is not present, and CS and MV are applicable, the
formula shall be:

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

A3. When both the CS and CNI are not present and only MV is applicable, the
formula shall be:

LV = MV x 2

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

In Land Bank of the Philippines v. Spouses Banal, we remanded the case to the SAC for further
reception of evidence because the trial court based its valuation upon a different formula and
did not conduct any hearing for the reception of evidence.

The mandatory application of the aforementioned guidelines in determining just compensation

has been reiterated recently in Land Bank of the Philippines v. Lim and Land Bank of the
Philippines v. Heirs of Eleuterio Cruz, where we also ordered the remand of the cases to the SAC
for the determination of just compensation strictly in accordance with the applicable DAR
regulations.16

The factors for the determination of just compensation in Section 17 of R.A. No. 6657, and consequently
converted into a formula in A.O. No. 6, Series of 1992, as amended by A.O. No. 11, Series of 1994, is
mandatory. Land Bank of the Philippines v. Sps. Banal,17 as affirmed by our subsequent rulings, did not
equivocate.

We note that A.O. No. 6, Series of 1992 (as amended by A.O. No. 11, Series of 1994) has been
superseded by A.O. No. 5, Series of 1998. However, A.O. No. 5, Series of 1998, is not applicable to the
present case as the subject properties were assessed and valued prior to its effectivity.

A perusal of the records of this case readily reveals the Claims Valuation and Processing
Form18 accomplished by petitioner when it reassessed and revaluated the subject properties. The
document follows the required formula for valuation of properties under A.O. No. 6, Series of 1992, as
amended by A.O. No. 11, Series of 1994. In fact, even the RTC used the formula of petitioner to compute
just compensation based on petitioner’s findings on land use of the subject properties. However, the
RTC, as well as the CA, was gravely mistaken in using respondent’s valuation of the properties contained
in Oliva’s appraisal report, i.e., ₱52,700.00/ha.1avvphi1
We note that Oliva’s appraisal report did not attach pertinent documents thereto, considering that, as
he had testified, he used the productivity approach:

Q Mr. Witness [Oliva] you said that you gave the valuation of the coconut land in that property
of Mr. Colarina. What is your valuation to the coconut land per hectare?

WITNESS:

A For the coconut land, the valuation I arrived at for the coconut land is the amount of
₱45,300.00 per hectare. That is the market value of the 4th class coconut land and the
improvements already, sir.

Q What about the banana lands?

A The valuation is ₱70,800.00 per hectare, that is the valuation of the land, 4th class banana
land including already the improvements.

Q Why did you conclude this high valuation of banana lands?

A Considering that I have compressed all these banana in every hectare, I have a reason to
believe that it is a 4th class banana land. And in a 4th class banana land, the price per kilo is only
₱15.00 to ₱30.00 per kilo. The effective number of bananas per hectare is only 600 clusters
considering that this is the productivity for a 4th class banana land. The produce annually of
4,000 kilos is very minimal. So at ₱15.00 per kilo, I arrived at a valuation of ₱60,000.00 per
hectare. The appraisal, on the other hand, for taxation purposes, we just state there the area
actually being planted to bananas not considering the clusters of bananas in one hectare.
Banana plantation with this kind of clusters will cost more than this if it will be properly fertilized
by the owner. So this banana land is only a 4th class banana land and is about 7.5764 hectares
of the subject property with only 4,000 to 8,000 kilos of banana fruits annually.

[Counsel of defendant DAR]

Q What about the corn land area?

A I valued it at ₱52,700.00 per hectare, sir.

Q What is your basis?

A I have also here on page 5 of my report. I have classified the subject portion as a second class
corn land. With a production of 101 to 150 cavans per hectare per year and the price of corn
which is ₱420.00 per cavan, I arrived at a valuation of ₱52,700 per hectare, sir.

xxxx

Q But that is not the data established by the [DAR]?

A That is why I made a separate actual investigation. I made personal interviews with the
farmers and so we arrived at this production.

Q So your basis is the information which you gathered from the farmers?

A Considering the kind of soil of the property planted by the farmers to corn, we will have to
arrive at this productivity, sir.

Q Did you inquire about the government support price of corn per kilo?

A The government support price is at ₱7.00 or ₱8.00 per kilo, sir.

Q Did you get that from the National Food Authority?

A I got this from the [C]hinese traders because I want to arrive at the open market valuation. I
am not prone to adopt the government price as I was deputized by Mr. Colarina [respondent] to
appraise his property independently, not as an assessor but as a private appraiser from the open
market. And I know that this is still subject for review by the honorable court.

xxxx

Q So do you have the data where you based the valuation?

A That was the result of my actual interview with the farmers and traders.

xxxx

Q How much is the valuation you gave to this rootcrops area?

A The subject portion was classified by me as a 3rd class rootcrop land and so I valued it at
₱60,000.00 per hectare, sir.

Q Do you mean to tell this honorable court that this rootcrops land, the banana land and corn
land are distinct areas separate from each other?

A I apprised this honorable court that I appraised this property not exactly on what is being
produced in the area. I considered the land itself, the classification of the land, the boundaries
there but some are "ogacon" (lazy) to cultivate this property. Because I am also an agriculturist
and I also have a lot which is planted to this kind of plants and I know what will be the actual
produce of the CROPS [inserted in the TSN] with a certain kind of land. If we consider the actual
produce, it is very low. Because we are "ogacon" (lazy). What I am very much concerned is the
kind of the land and then I asked them if we will have to cultivate the property properly, how
much are we going to expect.

Q Do you mean to impress to us that while you conducted the ocular inspection, there were
area which were not cultivated?

A When I conducted the ocular inspection, I was able to classify an area of around 4.8 hectares
which has no value at all, sir.

xxxx

Q So you had the ocular inspection without anybody from the government or from the barangay
going with you?

A Nobody but I told the barangay captain of the place that we will be going there for an ocular
inspection and from the barangay captain, we have learned that that there is a subdivision for
sale which is adjoining the subject properties for that much amount also.

xxxx

[On questioning by the SAC]

A (Perusing the report submitted by the Land Bank of the Philippines). This is a very low
valuation, your honor.

Q Why?

A Considering that I did not take into consideration the valuation that was done by the
Assessor’s Office to the schedule of value because as an assessor, in gathering data, we have to
 base the valuation of every kind of property. It takes us a hard time to consolidate all these
things because, first of all, one, the comparative sales approach, for example, your honor, we
seldom find the consideration in a certain sale that is the true and actual selling price perhaps
because of the implementation of the capital gains tax of the Bureau of Internal Revenue. Most
of them are under valued. Now, that is why I based my valuation from the actual procedure.
First of all I considered the kind of land thereon and thereby considered also the different kinds
of perennial trees or plants and based on the actual interviews I conducted with the farmers, I
arrived at the actual produce where I based my computation not really considering the
assessor’s value because it is only for taxation purposes. Nowhere in the Philippines that the
government assessments are reliable.19

In stark contrast is the valuation made by witness Alcantara:

Q Mr. Witness, what rule is followed by Land Bank in arriving at the valuation as contained in
this exhibit?

A The guidelines followed by Land Bank: properties valued under Administrative Order No. 11
Series of 1996 based on the Honorable Court’s Order dated November 14, 1996.

Q In Exh. "1," how many hectares were valued for the contemplated acquisition of the property?

A The area for acquisition under Title No. 86448 is 28.3062 hectares.

Q x x x Will you please explain why only a total of 28.3062 [hectares] was computed in the
valuation of the property?

A Some portion of the property is hilly and mountainous which exceeded the 18% limit set forth
under Section 10 of R.A. 6657. Said portions of land were mountainous and undeveloped and
therefore excluded from acquisition under existing guidelines.

Q What is the basis of said exclusion from coverage?

A Section 10 of R.A. 6657.

Q Will you please explain to us the character, land use and condition of this particular land as
described in Exh. "1"?

A The property which contains an area of 48.3062 hectares per title is planted to corn, peanut
and a large portion is cogonal. The corn land is 13 hectares, peanut land is .25 hectares and the
cogonal is 15.0562 hectares. A hilly portion which is about 18% slope and a mountainous portion
which is about 25% slope totals 20 hectares. This portion is the excluded one.

Q Will you please tell this Honorable Court what factors were considered by Land Bank in
arriving at the valuation of the property?

A The factor considered by Land Bank is under Formula No. 2 which is the capitalized net income
(CNI) x 90% and the market value per tax declaration wherein we get the remaining 10%.

Q There appears a computation for the CNI. Will you please explain how the total value was
arrived at?

A CNI for corn was taken from the average gross production based on the field investigation
report multiplied by the selling price from the Department of Agriculture municipal data,
arriving at a total CNI of ₱10,291.67 per hectare.

Q What about the computation for the market value per tax declaration (MVPT)? Will you
explain how the total valuation for the MVPT was arrived at?
A The market value per tax declaration was based on the third classification as furnished to Land
Bank by the Municipal Assessor’s Office. The total MVPT as computed by Land Bank is
₱14,193.22, so, 10% of which is ₱1,419.32.

Q Now, after computing the CNI and the MVPT, what steps did you undertake to arrive at the
total valuation of the property?

A We applied the applicable formula which is the CNI x 90% and the MVPT x 10%. The CNI total
is ₱9,262.5 and the market value is ₱1,419.32. Summing up the total amount of the two factors,
the value per hectare arrived at for corn land is ₱10,681.82 per hectare. So, if we will apply the
amount arrived at for the value per hectare of corn, ₱10,681.82 x 13 has. for corn land, the total
is ₱138,863.66. The for peanut land, the total amount is ₱3,535.66 and for the cogonal land
where we used the market value per tax declaration multiplied by 2, the total is ₱117,126.09.
Therefore, the total valuation of this 28.3062 portion of the property acquired by the
government is ₱259,525.41.

xxxx

A The total area acquired for Title No. 86449 is 22.3267 hectares out of 36.267 hectares per
title.

Q What is the basis of your exclusion of the 14 hectares?

A This 14 hectares fall also under the hilly and mountainous portion which is about 18% slope.

Q x x x [D]id you apply the same rules and regulations covered by such valuation? Did you apply
the same factors?

A Yes.

Q What is the total?

A The total valuation for this property [TCT No. 86449] is ₱217,223.60.

xxxx

Q Lastly, in Exh. "3", will you please tell us what is the area acquired for coverage under CARP?

A The area acquired is 6.5718 hectares out of 12.5718 has.

Q What is the area excluded for valuation?

A The area excluded for valuation falling above 18% slope is 6 hectares.

Q x x x [D]id you still adopt the same rules and regulations in computing the valuation?

A The same.

Q What is the total valuation [for TCT No. 86402]?

A The total valuation for Title No. 86402 for the 6.5718 hectares acquired by the government is
₱51,762.90.

xxxx

Q Are there any guidelines under the law which limits or defines what can be used in the
valuation of the property under the CARP?
 A There are several valuations/formulas provided for under R.A. 6657 and Land Bank follows the
applicable formula as reflected in the field investigation report. Therefore, our basis in
determining which factors will be applied are the result of the field investigation report.

Q Will you please tell this Honorable Court what particular activities are to be taken for the
purpose of being able to value the property?

A After determining the existence of the property, the DAR, Land Bank and other agencies
concerned conduct an ocular inspection of the property being offered for sale under CARP or
covered by the CARP. The data in-put were gathered in the field including the number of fruit
bearing trees, they were also determined. The production data is also taken and a survey is
being conducted in the field on adjacent properties. Said data were being compared with the
record of the Municipal agriculturist and other officers.

Q Last question Mr. Witness, the total valuation of the subject property is as of what point of
time?

A The valuation of the property was based under Administrative Order No. 11 existing at the
time of the valuation of the property.

xxxx

COURT:

When was that?

WINTNESS:

November 19, 1996.20

Clearly from the foregoing, the valuation of the subject properties by petitioner was based on data
gathered by DAR and contained in its Field Investigation Report.21 The data correctly reflected actual use
and produce of the subject properties and did not factor in potential use as what respondent’s appraiser
did. In fact, we note that the data obtained by Oliva was based on his unofficial surveys of farmers and
Chinese traders. Oliva readily dismisses government valuation as unreliable without proffering evidence
to support his statement. This explains the big discrepancy in Oliva’s Appraisal Report and petitioner’s
valuation.

While we commend respondent in readily participating in the government’s agrarian reform program,
our previous rulings preclude us from validating the valuation of the subject properties proffered to, and
affirmed by, the SAC. The government cannot be forced to purchase land which it finds no need for,
regardless of Oliva’s unschooled opinion. Considering respondent’s belief that the properties are worth
more than the

valuation made by the DAR, he can proceed to develop the land excluded by the DAR from expropriation
into its potential use as assessed by Oliva.

Thus, replacing the valuation of the subject properties pursuant to the determination of petitioner
where the LV was pegged using the formula {CNI x 90%} + {MV x 2}, we arrive at a different amount:

1) TCT No. T-86448 – carpable area – 28.3062 has.

Land Use:

A) Corn land

Area = 13.0000 has.

 Value/Ha = ₱10,681.82/ha

Computation:

₱10,681.82/ha x 13.0000 has = ₱138,863.66

B) Peanut

Area = .2500

Value/Ha = ₱14,142.65/ha

Computation:

₱14,142.65/ha x .2500 has = ₱3,535.66

C) Cogonal

Area = 15.0562 has.

Value/Ha = ₱7,779.26/ha

Computation:

₱7,779.26/ha x 15.0562 has = ₱117,126.09

Total:

Corn land - ₱138,863.66

Peanut - 3,535.66

Cogonal - 117,126.09

₱259,525.41

2) TCT No. T-86449 – carpable area – 22.3267 has.

Land Use:

A) Corn land

Value/Ha = ₱10,681.82/ha

Area = 15.00 has

Computation:

₱10,681.82/ha x 15.0000 has = ₱160,227.30

B) Cogon:

Value/ha = ₱7,779.26/ha

Area = 7.3267 has

Computation:
 ₱7,779.26/ha x 7.3267 has = ₱56,996.30

Total:

Corn land - ₱160,227.30

Cogon - 56,996.30

₱217,223.60

3) TCT No. T-86402 – carpable area – 6.5718 has

Land Use:

A) Corn land

Value/ha = ₱7,992.31/ha

Area = 3.0000 has

Computation

₱7,992.31/ha x 3.0000 has = ₱23,976.94

B) Cogonal

Value/ha = ₱7,779.26/ha

Area = 3.5718 has

Computation:

₱7,779.26/ha x 3.5718 has = ₱27,785.96

Total:

Corn land - ₱ 23,976.94

Cogonal = 27,785.96

Total =
₱ 51,762.90

TCT No. T-86448 - ₱259,525.41

TCT No. T-86449 217,223.60

TCT No. T-86402 51,762.90

TOTAL ₱528,511.91
===========

WHEREFORE, the petition is hereby GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No.
68476 and the decision of the Regional Trial Court, Branch 3, Legazpi City, Albay, in Agrarian Case No.
95-01 are REVERSED and SET ASIDE. Petitioner Land Bank of the Philippines is hereby ordered to pay
respondent Conrado O. Colarina the following amounts:
 1. ₱259,525.41 for 28.3062 hectares of TCT No. 86448;

2. ₱217,223.60 for 22.3267 hectares of TCT No. 86449; and

3. ₱51,762.90 for 6.5718 hectares of TCT No. 86402.

Petitioner shall pay twelve percent (12%) interest per annum from finality of this judgment until
complete satisfaction thereof.

SO ORDERED.

LAND BANK OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS and JOSE PASCUAL, respondents.

BELLOSILLO, J.:

The lofty effort of the Government to implement an effective agrarian reform program has resulted in
the massive distribution of huge tracks of land to tenant farmers. But it divested many landowners of
their property, and although the Constitution assures them of just compensation its determination may
involve a tedious litigation in the end. More often, land appraisal becomes a prolonged legal battle
among the contending parties — landowner, the tenant and the Government. At times the
confrontation is confounded by the numerous laws on agrarian reform which although intended to
ensure the effective implementation of the program have only given rise to needless confusion which
we are called upon to resolve, as the case before us.

Private respondent Jose Pascual owned three (3) parcels of land located in Guttaran, Cagayan. Parcel 1
covered by TCT No. 16655 contains an area of 149,852 square meters as surveyed by the DAR but the
actual land area transferred is estimated at 102,229 square meters and classified as unirrigated lowland
rice; Parcel 2 covered by TCT No. 16654 contains an area of 123,043 square meters as surveyed by the
DAR but the actual land area transferred is estimated at 85,381 square meters and classified as
cornland; and, Parcel 3 covered by TCT No. 16653 contains an area of 192,590 square meters but the
actual land area transferred is estimated at 161,338 square meters and classified as irrigated lowland
rice. 1 Pursuant to the Land Reform Program of the Government under PD 27 2 and EO 228, 3 the
Department of Agrarian Reform (DAR) placed these lands under its Operation Land Transfer (OLT). 4

Under EO 228 the value of rice and corn lands is determined thus —

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

Hence, the formula for computing the Land Value (LV) or Price Per Hectare (PPH) of rice and corn lands
is 2.5 x AGP x GSP = LV or PPH.

In compliance with EO 228, the Provincial Agrarian Reform Officer (PARO) of the DAR in an
"Accomplished OLT Valuation Form No. 1" dated 2 December 1989 recommended that the "Average
Gross Productivity" (AGP) based on "[3] Normal Crop Year" for Parcels 1 and 2 should be 25 cavans per
hectare for unirrigated lowland rice and 10 cavans per hectare for corn land. 5

Meanwhile, the Office of the Secretary of Agrarian Reform (SAR) also conducted its own valuation
proceedings apart from the PARO. On 10 October 1990 Secretary Benjamin T. Leong of the DAR using
the AGP of 25.66 cavans for unirrigated rice lands 6 issued an order valuing Parcel 1 at P22,952.97 7 and
requiring herein petitioner Land Bank of the Philippines (LBP) to pay the amount. On 1 February 1991
petitioner LBP approved the valuation.

In 1991 private respondent Jose Pascual, opposing the recommended AGP of the PARO, filed a petition
for the annulment of the recommendation on the productivity and valuation of the land covered by OLT,
subject matter hereof, with the Department of Agrarian Reform Adjudication Board (DARAB). Oscar
Dimacali, Provincial Agrarian Reform Adjudicator (PARAD) of Cagayan heard the case. Despite due notice
however Francisco Baculi, the PARO who issued the assailed recommendation, failed to appear at the
trial. Only private respondent Jose Pascual and Atty. Eduard Javier of petitioner LBP were
present. 8 Thereafter private respondent was allowed to present evidence ex-parte.

At the hearings conducted by the PARAD private respondent presented as evidence another
"Accomplished OLT Valuation Form No. 1," for Parcel 3 dated 22 June 1976 to support his claim that the
"OLT Valuation Form" issued by PARO Francisco Baculi extremely undervalued the AGP of his lands. In
the "1976 OLT Valuation Form" the AGP based on "(3) Normal Crop Year" was 80 cavans per hectare for
lowland rice unirrigated, 28 cavans per hectare for corn lands and 100 cavans per hectare for lowland
rice irrigated. 9

Private respondent also presented Tax Declarations for Parcels 1 and 2 stating that the AGP was 80
cavans for unirrigated rice lands and 28 cavans for corn lands.

On 11 June 1992 the PARAD ruled in favor of private respondent nullifying the 2 December 1989 AGP
recommended by the PARO. 10 Instead, the PARAD applied the 22 June 1976 AGP and the AGP stated in
private respondent's Tax Declarations to determine the correct compensation. The PARAD also used the
"Government Support Price" (GSP) of P300 for each cavan of palay and P250 for each cavan of
corn. 11 He then ordered petitioner LBP to pay private respondent P613,200.00 for Parcel 1, P148,750.00
for Parcel 2, and P1,200,000.00 for Parcel 3, or a total amount of P1,961,950.00. 12

After receiving notice of the decision of the PARAD, private respondent accepted the valuation.
However, when the judgment became final and executory, petitioner LBP as the financing arm in the
operation of PD 27 and EO 228 refused to pay thus forcing private respondent to apply for a Writ of
Execution with the PARAD which the latter issued on 24 December 1992. 13 Still, petitioner LBP declined
to comply with the order.

On 29 June 1994 Secretary Ernesto Garilao Jr. of the DAR wrote a letter to petitioner LBP requiring the
latter to pay the amount stated in the judgment of the PARAD. 14 Again, petitioner LBP rejected the
directive of Secretary Garilao. Petitioner's Executive Vice President, Jesus Diaz, then sent a letter to
Secretary Garilao arguing that (a) the valuation of just compensation should be determined by the
courts; (b) PARAD could not reverse a previous order of the Secretary of the DAR; 15 and, (c) the
valuation of lands under EO 228 falls within the exclusive jurisdiction of the Secretary of the DAR and
not of the DARAB. 16

On 23 January 1995 the Secretary of Agrarian Reform replied to petitioner —

We agree with your contention that the matter of valuation of lands covered by P.D. 27
is a matter within the administrative implementation of agrarian reform, hence,
cognizable exclusively by the Secretary.

However, in this particular case, there is another operative principle which is the finality
of decisions of the Adjudication Board. Since the matter has been properly threshed out
in the quasi-judicial proceeding and the decision has already become final and
 executory, we cannot make an exception in this case and allow the non-payment of the
valuation unless we are enjoined by a higher authority like the courts.

Therefore at the risk of occasional error, we maintain that payment should be made in
this case. However we believe situations like this would be lessened tremendously
through the issuance of the attached memorandum circular 17 to the Field Offices. 18

Despite the letter of Secretary G. Garilao, petitioner LBP remained adamant in its refusal to pay private
respondent. It reiterated its stand that the PARAD had no jurisdiction to value lands covered by PD 27. 19

On 17 June 1995 counsel for private respondent also wrote petitioner LBP demanding payment. On 20
June 1995 petitioner replied —

. . . . Although we disagree with the foregoing view that the PARAD decision on the land
valuation of a PD 27 landholding has become final for numerous legal reasons, in
deference to the DAR Secretary,we informed him that we will pay the amount decided by
the PARAD of Cagayan provided the tenant beneficiaries of Mr. Pascual be consulted first
and the land transfer claim be redocumented to the effect that said beneficiaries re-
execute the Landowner Tenant Production Agreement-Farmers Undertaking to show
willingness to the PARAD valuation and to amortize the same to this bank. This is in
consonance with the legal mandate of this bank as the financing arm of PD 27/EO 228
landholdings. In other words, the beneficiaries must agree to the amount being
financed, otherwise, financing may not be possible pursuant to this bank's legal
mandate (emphasis supplied). 20

Petitioner LBP having consistently refused to comply with its obligation despite the directive of the
Secretary of the DAR and the various demand letters of private respondent Jose Pascual, the latter
finally filed an action for Mandamus in the Court of Appeals to compel petitioner to pay the valuation
determined by the PARAD. On 15 July 1996 the appellate court granted the Writ now being assailed. The
appellate court also required petitioner LBP to pay a compounded interest of 6% per annum in
compliance with DAR Administrative Order No. 13, series of 1994. 21 On 11 March 1997 petitioner's
Motion for Reconsideration was denied; 22 hence, this petition.

Petitioner LBP avers that the Court of Appeals erred in issuing the Writ of Mandamus in favor of private
respondent and argues that the appellate court cannot impose a 6% compounded interest on the value
of Jose Pascual's land since Administrative Order No. 13 does not apply to his case. Three (3) reasons are
given by petitioner why the Court of Appeals cannot issue the writ:

First, it cannot enforce PARAD's valuation since it cannot make such determination for want of
jurisdiction hence void. Section 12, par. (b), of PD
946 23 provides that the valuation of lands covered by PD 27 is under the exclusive jurisdiction of the
Secretary of Agrarian Reform. Petitioner asserts that Sec. 17 of EO 229 24 and Sec. 50 of RA No.
6657, 25 which granted DAR the exclusive jurisdiction over all agrarian reform matters thereby divesting
the Court of Agrarian Relations of such power, did not repeal Sec. 12, par (b), of PD 946. Petitioner now
attempts to reconcile the pertinent laws by saying that only the Secretary of Agrarian Reform can
determine the value of rice and corn lands under Operation Land Transfer of PD 27, while on the other
hand, all other lands covered by RA 6657 (CARL) shall be valued by the DARAB, hence, the DARAB of the
DAR has no jurisdiction to determine the value of the lands covered by OLT under PD 27.

To bolster its contention that Sec. 12, par. (b), of PD 946 was not repealed, petitioner LBP cites Sec. 76
of RA 6657. 26 It argues that since Sec. 76 of RA 6657 only repealed the last two (2) paragraphs of Sec. 12
of PD 946, it is obvious that Congress had no intention of repealing par. (b). Thus, it remains valid and
effective. As a matter of fact, even the Secretary of Agrarian Reform agreed that Sec. 12, par. (b), of PD
946 still holds. Based on this assumption, the Secretary of the DAR has opined that the valuation of rice
and corn lands is under his exclusive jurisdiction and has directed all DARAB officials to refrain from
valuing lands covered by PD 27. 27 Petitioner maintains that the Secretary of the DAR should conduct his
own proceedings to determine the value of Parcels 2 and 3 and that his valuation of Parcel 1 28 should be
upheld.
We do not agree. In Machete v. Court of Appeals 29 this Court discussed the effects on PD 946 of Sec. 17
of EO 229 and Sec. 50 of RA 6657 when it held —

The above quoted provision (sec. 17) should be deemed to have repealed Sec. 12 (a) and
(b) of Presidential Decree No. 946 which invested the then courts of agrarian relations
with original exclusive jurisdiction over cases and questions involving rights granted and
obligations imposed by presidential issuances promulgated in relation to the agrarian
reform program (emphasis supplied).

Thus, petitioner's contention that Sec. 12, par. (b), of PD 946 is still in effect cannot be sustained. It
seems that the Secretary of Agrarian Reform erred in issuing Memorandum Circular No. I, Series of
1995, directing the DARAB to refrain from hearing valuation cases involving PD 27 lands. For on the
contrary, it is the DARAB which has the authority to determine the initial valuation of lands involving
agrarian reform 30 although such valuation may only be considered preliminary as the final
determination of just compensation is vested in the courts. 31

Second, petitioner LBP contends that the Court of Appeals cannot issue the Writ of Mandamus because
it cannot be compelled to perform an act which is beyond its legal duty. 32 Petitioner cites Sec. 2 of PD
251, 33 which amended Sec. 75 of RA 3844, 34 which provides that it is the duty of petitioner bank "(t)o
finance and/or guarantee the acquisition, under Presidential Decree No. 85 dated December 25, 1972,
of farm lands transferred to the tenant farmers pursuant to Presidential Decree No. 27 (P.D. 27) dated
October 21, 1972." Section 7 of PD 251 also provides that "(w)henever the Bank pays the whole or a
portion of the total costs of farm lots, the Bank shall be subrogated by reason thereof, to the right of the
landowner to collect and receive the yearly amortizations on farm lots or the amount paid including
interest thereon, from tenant-farmers in whose favor said farm lot has been transferred pursuant to
Presidential Decree No. 27, dated October 21, 1972" (emphasis supplied).

Petitioner further argues that for a financing or guarantee agreement to exist there must be at least
three (3) parties: the creditor, the debtor and the financier or the guarantor. Since petitioner merely
guarantees or finances the payment of the value of the land, the farmer-beneficiary's consent, being the
principal debtor, is indispensable and that the only time petitioner becomes legally bound to finance the
transaction is when the farmer-beneficiary approves the appraised land value. Petitioner fears that if it
is forced to pay the value determined by the DARAB, the government will suffer losses as the farmer-
beneficiary, who does not agree to the appraised land value, will surely refuse to reimburse the
amounts that petitioner had disbursed. Thus, it asserts, that the landowner, the DAR, the Land Bank and
the farmer-beneficiary must all agree to the value of the land as determined by them.

A perusal of the law however shows that the consent of the farmer-beneficiary is not required in
establishing the vinculum juris for the proper compensation of the landowner. Section 18 of RA 6657
states —

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 (emphasis supplied).

As may be gleaned from the aforementioned section, the landowner, the DAR and the Land Bank are the
only parties involved. The law does not mention the participation of the farmer-beneficiary. However,
petitioner insists that Sec. 18 of RA 6657 35 does not apply in this case as it involves lands covered by PD
27. It argues that in appraising PD 27 lands the consent of the farmer-beneficiary is necessary to arrive
at a final valuation. Without such concurrence, the financing scheme under PD 251 cannot be
satisfied. 36

We cannot see why Sec. 18 of RA 6657 should not apply to rice and corn lands under PD 27. Section 75
of RA 6657 37 clearly states that the provisions of PD 27 and EO 228 shall only have a suppletory effect.
Section 7 of the Act also provides —
 Sec. 7. Priorities. — The DAR, in coordination with the PARC shall plan and program the
acquisition and distribution of all agricultural lands through a period of (10) years from
the effectivity of this Act. Lands shall be acquired and distributed as follows:

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

This eloquently demonstrates that RA 6657 includes PD 27 lands among the properties which the DAR
shall acquire and distribute to the landless. And to facilitate the acquisition and distribution thereof,
Secs. 16, 17 and 18 of the Act should be adhered to. In Association of Small Landowners of the
Philippines v. Secretary of Agrarian Reform 38 this Court applied the provisions RA 6657 to rice and corn
lands when it upheld the constitutionality of the payment of just compensation for PD 27 lands through
the different modes stated in Sec. 18.

Having established that under Sec. 18 of RA 6657 the consent of the farmer-beneficiary is unnecessary
in the appraisal of land value, it must now be determined if petitioner had agreed to the amount of
compensation declared by the PARAD. If it did, then we can now apply the doctrine in Sharp
International Marketing v. Court of Appeals. 39In that case, the Land Bank refused to comply with the
Writ of Mandamus issued by the Court of Appeals on the ground that it was not obliged to follow the
order of Secretary of Agrarian Reform to pay the landowner. This Court concurred with the Land Bank
saying that the latter could not be compelled to obey the Secretary of Agrarian Reform since the bank
did not merely exercise a ministerial function. Instead, it had an independent discretionary role in land
valuation and that the only time a writ of mandamus could be issued against the Land Bank was when it
agreed to the amount of compensation determined by the DAR —

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

simply means that if LBP agrees on the amount stated in the DAS, 40 after its review and
evaluation, it becomes its duty to sign the deed. But not until then. For, it is only in that
event that the amount to be compensated shall have been "established" according to
law.

Although the case at bar pertains to an involuntary sale of land, the same principle should apply. Once
the Land Bank agrees with the appraisal of the DAR, which bears the approval of the landowner, it
becomes its legal duty to finance the transaction. In the instant case, petitioner participated in the
valuation proceedings held in the office of the PARAD through its counsel, Atty. Eduard Javier. 41 It did
not appeal the decision of PARAD which became final and executory. 42 As a matter of fact, petitioner
even stated in its Petition that "it is willing to pay the value determined by the PARAD PROVIDED that
the farmer beneficiaries concur thereto." 43 These facts sufficiently prove that petitioner LBP agreed
with the valuation of the land. The only thing that hindered it from paying the amount was the non-
concurrence of the farmer-beneficiary. But as we have already stated, there is no need for such
concurrence. Without such obstacle, petitioner can now be compelled to perform its legal duty through
the issuance of a writ of mandamus.

Anent petitioner's argument that the government will lose money should the farmer-beneficiary be
unwilling to pay, we believe such apprehension is baseless. In the event that the farmer-beneficiary
refuses to pay the amount disbursed by petitioner, the latter can foreclose on the land as provided for in
Secs. 8 to 11 of EO 228. Petitioner LBP would then be reimbursed of the amount it paid to the
landowner.

Third, petitioner LBP asserts that a writ of mandamus cannot be issued where there is another plain,
adequate and complete remedy in the ordinary course of law. Petitioner claims that private respondent
had three (3) remedies. The first remedy was to ask the sheriff of the DARAB to execute the ruling of
PARAD by levying against the Agrarian Reform Fund for so much of the amount as would satisfy the
judgment. Another remedy was to file a motion with the DAR asking for a final resolution with regard to
the financing of the land valuation. Lastly, private respondent could have filed a case in the Special
Agrarian Court for the final determination of just compensation. 44

We hold that as to private respondent the suggested remedies are far from plain, adequate and
complete. After the judgment of PARAD became final and executory, private respondent applied for a
writ of execution which was eventually granted. However, the sheriff was unable to implement it since
petitioner LBP was unwilling to pay. The PARAD even issued an order requiring petitioner's manager to
explain why he should not be held in
contempt. 45 Two (2) years elapsed from the time of the PARAD ruling but private respondent's claim has
remained unsatisfied. This shows that petitioner has no intention to comply with the judgment of
PARAD. How then can petitioner still expect private respondent to ask the DARAB's sheriff to levy on the
Agrarian Reform Fund when petitioner bank which had control of the fund 46 firmly reiterated its stand
that the DARAB had no jurisdiction?

Petitioner's contention that private respondent should have asked for a final resolution from the DAR as
an alternative remedy does not impress us either. When private respondent sensed that petitioner
would not satisfy the writ of execution issued by the PARAD, he sought the assistance of the Secretary of
Agrarian Reform who then wrote to petitioner to pay the amount in accordance with the decision of
PARAD. 47 Still, petitioner refused. The Secretary then sent another letter to petitioner telling the latter
to pay private respondent. 48 Obviously, the stand of the Secretary was that petitioner should pay
private respondent in accordance with the PARAD valuation which had already become final. It would
have been redundant for private respondent to still ask for a final resolution from the DAR.

The allegation of petitioner that private respondent should have filed a case with the Special Agrarian
Court is also without merit. Although it is true that Sec. 57 of RA 6657 provides that the Special Agrarian
Courts shall have jurisdiction over the final determination of just compensation cases, it must be noted
that petitioner never contested the valuation of the PARAD. 49 Thus, the land valuation stated in its
decision became final and executory. 50 There was therefore no need for private respondent Pascual to
file a case in the Special Agrarian Court.

With regard to the decision of the Court of Appeals imposing an interest based on Administrative Order
No. 13, Series of 1994, the Order should be examined to ascertain if private respondent can avail of the
6% compounded interest prescribed for unpaid landowners. As to its coverage, the Order states: These
rules and regulations shall apply to landowners: (1) whose lands are actually tenanted as of 21 October
1972 or thereafter and covered by OLT; (2) who opted for government financing through Land Bank of
the Philippines as mode of compensation; and, (3) who have not yet been paid for the value of their
land.

At first glance it would seem that private respondent's lands are indeed covered by AO No. 13. However,
Part IV shows that AO No. 13 provides a fixed formula for determining the Land Value (LV) and the
additional interests it would have earned. The formula utilizes the Government Support Price (GSP) of
1972, which is P35.00/cavan of palay and P31.00/cavan of corn. For its Increment Formula AO No. 13
states: The following formula shall apply —

For palay: LV = (2.5 x AGP x P35) x (1.06)n

For corn: LV = (2.5 x AGP x P31) x (1.06)n. 51

In the decision of PARAD, however, the Land Value (LV) of private respondent's property was computed
by using the GSP for 1992, which is P300.00 per cavan of palay and P250.00 per cavan of corn. 52 PARAD
Dimacali used the following equations:

For palay: LV = (2.5 x AGP x 300)

For corn: LV = (2.5 x AGP x 250)

Hence, the formula in AO No. 13 could no longer be applied since the PARAD already used a
higher GSP.
The purpose of AO No. 13 is to compensate the landowners for unearned interests. 53 Had they been
paid in 1972 when the GSP for rice and corn was valued at P35.00 and P31.00, respectively, and such
amounts were deposited in a bank, they would have earned a compounded interest of 6% per annum.
Thus, if the PARAD used the 1972 GSP, then the product of (2.5 x AGP x P35 or P31) could be multiplied
by (1.06)n to determine the value of the land plus the additional 6% compounded interest it would have
earned from 1972. However, since the PARAD already increased the GSP from P35.00 to P300.00/cavan
of palay and from P31.00 to P250.00/cavan of corn, there is no more need to add any interest thereon,
muchless compound it. To the extent that it granted 6% compounded interest to private respondent
Jose Pascual, the Court of Appeals erred.

WHEREFORE, the assailed Decision of the Court of Appeals granting the Writ of Mandamus directing
petitioner Land Bank of the Philippines to pay private respondent Jose Pascual the total amount of
P1,961,950.00 stated in the Decision dated 11 June 1992 of the Provincial Agrarian Reform Adjudicator
(PARAD) of Cagayan is AFFIRMED, with the modification that the 6% compounded interest per
annum provided under DAR Administrative Order No. 13, Series of 1994 is DELETED, the same being no
longer applicable.

SO ORDERED.

ALLIED BANKING CORPORATION, Petitioner, v. THE LAND BANK OF THE PHILIPPINES and the secretary
of the DEPARTMENT OF AGRARIAN REFORM, Respondents.

DECISION

CHICO-NAZARIO, J.:

This Petition for Review under Rule 45 of the Rules of Court seeks to reverse and set aside the 29 June
2006 Decision1 and the 07 November 2006 Resolution2 of the Court of Appeals in CA-G.R. CV No. 74738
which annulled the Decision of the Regional Trial Court (RTC) of Balanga City, Bataan, Branch 1. The
Court of Appeals likewise remanded the case to the RTC, ordering the latter to determine the just
compensation of the subject parcels of land acquired by the Department of Agrarian Reform (DAR) from
Allied Banking Corporation (Allied) pursuant to Republic Act No. 6657, as amended, otherwise known as
the Comprehensive Agrarian Reform Law of 1988.

Allied owned two abutting parcels of land located at Mabiga, Hermosa, Bataan, which were covered by
Transfer Certificates of Title (TCT) No. 97975 and No. 97976, with respective land areas of 20.4840
hectares (204,840 square meters) and 21.3835 hectares (214,860 square meters). The two parcels of
land were compulsorily acquired by the DAR pursuant to Republic Act No. 6657.

In its Notices of Valuation dated 30 July 1997 and 23 October 1997, and by using the formula under DAR
Administrative Order (DAO) No. 17, Series of 1989, as amended by DAO No. 06, Series of 1992, and
further amended by DAO No. 11, Series of 1994, the Land Bank of the Philippines (Landbank) pegged the
value of the 20.4840-hectare land covered by TCT No. 97975 at P1,170,683.70 or P57,151.123 per
hectare, while the second land with the area of 21.38353 hectares covered under TCT No. 97976 was
valued at P1,427,030.73 or at P66,735.13 per hectare. On 30 October 1997, Landbank informed Allied
that it had increased the valuation of the 20.48404 hectares under TCT No. 97975 to P1,171,714.29
or P57,201.44 per hectare.

After allegedly having conducted a survey on the prevailing market value of the lots within the vicinity,
Allied rejected the valuation and insisted that the two parcels of land in question be valued
at P180,000.00 per hectare, hence, the 20.4840 hectares should be valued at P3,687,120, and the
21.3835 hectares at P3,867,489.

Allied presented its arguments before the Provincial Agrarian Reform Adjudicator. The Provincial
Agrarian Reform Adjudicator upheld the valuation of the Landbank.
On 19 January 1999, Allied filed a Petition for Just Compensation with the RTC of Dinalupihan, Bataan,
Branch 5. Later the case was re-raffled to the RTC of Balanga City, Bataan, Branch 1, acting as Special
Agrarian Court (SAC) pursuant to Administrative Circular No. 80 dated 18 July 1989.

On 23 March 2000, upon the agreement of the parties, commissioners were appointed, namely: 1)
Gilbert S. Argonza, the chairman and commissioner of the RTC; 2) Hilario M. Pariña, nominated by
Allied; 3) Engr. Moises L. Petero, nominated by Landbank; and 4) Crispin O. Dominguez, nominated by
the DAR.

On 2 March 2001, the commissioners were ordered by the RTC to submit their report on their respective
recommendations as to the just compensation for the subject lands.

For unknown reasons, only Hilario M. Pariña, the commissioner nominated by Allied, submitted his
report. The report, which adopted the findings of the Asian Appraisal Company that was earlier
commissioned by Allied, made use of the Market Data Approach, which is explained and illustrated in
the said report:

The value of the land was arrived at by the Market Data Approach. In this approach the value of the land
is based on sales and listings of comparable property registered within the vicinity. The technique of this
approach requires the establishing of comparable property by reducing reasonable comparative sales
and listings to a common denominator. This is done by adjusting the differences between the subject
property and those actual sales and listings regarded as comparable. The property used as basis of
comparison was premised on the factors of location, size and shape of the lot, and time element.

In valuing the land, records of recent sales and offerings of similar land are analyzed and comparison
made for such factors as size, characteristics of the lot, location, quality, and prospective use. Although
no sales of truly comparable land have occurred, the following are believed to provide reasonable bases
for comparison:

Listings:

1. Currently, an 18-hectare (180,000 sq. m.) property located along Barangay Road, within Barangay
Mabiga, Hermosa, Bataan is being offered for sale thru a certain Mr. Paolo Hermoso, a local resident, at
an asking price of P80 per sq.m.

2. Currently, a 4-hectare (40,000 sq. m.) property located along Barangay Road, beside Mabiga
Elementary School, within Mabiga, Hermosa, Bataan is being offered for sale thru a certain Ms. Liway,
Grumal, Barangay Chairman and resident of Mabiga, at an asking price of P40 per sq. m.

The abovementioned listings are located along Barangay Road and within a more desirable
neighborhood, and are free of tenants/squatters. They are, therefore, considered superior to the
subject property.

Due to the scarcity of market data that may be used for direct comparison purposes, we have sought the
opinion of some local residents, the municipal assessor, bank appraisers and other knowledgeable
individuals who, in our opinion, may be considered as generally conversant with land values in the area
and gathered that fairly large tracts of land along Barangay Road command a selling price of P30 to as
much as P80 per sq. m., while interior parcels of agricultural land in the vicinity of the subject property
are ranging from P10 to P20 per sq. m., depending on size, shape, terrain, proximity to roadways and
other physical attributes of the land.5

Based on the Market Data Approach, the report valued the subject properties at P15.00 per square
meter (P150,000.00 per hectare), thus:

After an analysis of the market data, considering such factors as location, desirability, neighborhood,
utility, size and time element, the market value of the land, x x x is estimated as at P15 per sq.m. or a
total value of P6,296,000 for a total land area of 419,700 sq.m.6
In a Decision dated 14 January 2002, the RTC adopted the valuation submitted by Commissioner Hilario
M. Pariña, who fixed the value of the lands in question at P15.00 per square meter or at P150,000.00
per hectare. The decretal portion reads:

WHEREFORE, in view of the foregoing, the two (2) lots belonging to the petitioner located at Mabiga,
Hermosa, Bataan, containing a total area of 419,700 square meters be valued at Six Million Two
Hundred Ninety Six Thousand Pesos (P6,296,000.00), Philippine Currency.7

Landbank and DAR appealed the RTC decision.

In a Decision dated 29 June 2006, the Court of Appeals nullified the RTC Decision and remanded the case
to the RTC for determination of just compensation. In setting aside the RTC Decision, the Court of
Appeals stated that the RTC failed to observe the basic rules of procedure and the fundamental
requirements in determining just compensation, namely: (1) that the RTC relied solely upon the report
of Allied's nominated commissioner when there were four commissioners; (2) that there was no
showing that Landbank and DAR were notified of the filing of the report of Allied's commissioner,
thereby depriving the other parties of the opportunity to object to the said report; (3) that the report of
Allied's commissioner was not substantiated by competent evidence; and (4) that the RTC erred in
adopting the Market Data Approach, which method was not sanctioned by the pertinent administrative
orders of DAR in relation to the determination of just compensation. The dispositive portion of the Court
of Appeals' Decision provides:

WHEREFORE, in view of the foregoing, the Decision dated January 14, 2002 of the RTC of Balanga City,
Branch 1, is hereby ANNULLED and SET ASIDE. Civil Case No. 6885 is REMANDED to the RTC for
determination of just compensation for the subject parcels of land in strict compliance with the
provisions of R.A. 6657, as amended, the DAR Administrative Orders, and the Rules of Court.8

Allied filed a motion for reconsideration, which was denied by the Court of Appeals in its Order dated 7
November 2006.

Hence, the instant case.

Allied maintains that Landbank and DAR are barred from questioning the determination made by its
commissioner since they agreed to such appointment and conceded to be bound by the findings of such
commissioners. Although only the findings of Allied's commissioner was considered, owing to the fact
that the other commissioners failed to submit their reports, said findings are binding on the parties.

Allied likewise insists that Landbank and DAR need not be separately notified of the submission of the
report of the former's commissioner as the latter are given ample opportunity to meet with said
commissioner during the several hearings set by the RTC and to question his report. According to Allied,
this opportunity to meet and to question its commissioner, which Landbank and DAR squandered, is
considered sufficient notice.

Allied takes exception to the Court of Appeals' statement that the RTC findings were uncorroborated by
evidence. Allied argues that the RTC's decision is supported by evidence through the report of Allied's
commissioner.9

Allied also contends that the Court of Appeals erred in ruling that the basic formula in DAO No. 6, Series
of 1992, as amended by DAO No. 11, Series of 1994, should have been invoked instead of the Market
Data Approach. It stresses that when an agrarian case for the determination of just compensation is
elevated to the RTC, the court, acting as a special agrarian court, is not bound by Sections 17 10 of the
Comprehensive Agrarian Law and its implementing rules, DAO No. 6, Series of 1992. As the RTC made its
own evaluation in arriving at the just compensation of the subject lands, said evaluation should be
followed, even if it disregarded Section 17 of the Comprehensive Agrarian Law and the pertinent rules
and regulations of DAR.

Allied's arguments fail to persuade.

The procedure for the determination of compensation cases under Republic Act No. 6657, as
synthesized by this Court,11 commences with the Landbank determining the value of the lands under the
land reform program. Making use of the Landbank valuation, the DAR makes an offer to the landowner
by way of a notice sent to the latter, pursuant to Section 16(a) of Republic Act No. 6657. In case the
landowner rejects the offer, a summary administrative proceeding is held and afterward the Provincial
Agrarian Reform Adjudicator (PARAD), the Regional Agrarian Reform Adjudicator (RARAD) or the
Department of Agrarian Reform Adjudication Board (DARAB) adjudicator as the case may be, depending
on the value of the land, fixes the price to be paid for the land. If the landowner does not agree to the
price fixed, he may bring the matter to the RTC acting as Special Agrarian Court.

In the process of determining the just compensation due to landowners, it is a necessity that the RTC
must take into account several factors enumerated in Section 17 of Republic Act No. 6657, as amended,
thus:

Sec. 17. Determination of Just Compensation. - In determining just compensation, the cost of acquisition
of the land, the current value of like properties, its nature, actual use and income, the sworn valuation
by the owner, the tax declarations, and the assessment made by government assessors shall be
considered. The social and economic benefits contributed by the farmers and the farmworkers and by
the Government to the property, as well as the non-payment of taxes or loans secured from any
government financing institution on the said land shall be considered as additional factors to determine
its valuation.

Being the government agency primarily charged with the implementation of the agrarian reform
program, DAR issued DAO No. 6 to fill out the details necessary for the implementation of Section 17 of
Republic Act No. 6657. DAR converted these factors specified in Section 17 into a basic formula in DAO
No. 6, as amended, in this wise:

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

LV = Land Value

CNI = Capitalized Net Income

CS = Comparable Sales

MV = Market Value per Tax Declaration

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

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

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

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

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

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

LV = MV x 2

The pivotal issue at hand is whether the RTC, acting as a special agrarian court, can disregard the factors
mentioned under Section 17 of the agrarian law, detailed by DAO No. 6, and adopt the market data
approach submitted by a court-appointed commissioner.

While the determination of just compensation is essentially a judicial function which is vested in the RTC
acting as Special Agrarian Court,12 nevertheless, this Court disregarded the determination of just
compensation made by the RTC in Land Bank of the Philippines v. Spouses Banal,13 Land Bank of the
Philippines v. Celada,14 and in Land Bank of the Philippines v. Lim,15 when, as in this case, the judge
gravely abused his discretion by not taking into full consideration the factors enumerated in the agrarian
law and further detailed by the DAR administrative order implementing the same.

Jurisprudence has not been wanting in reminding special agrarian courts to resolve just determination
cases judiciously and with utmost observance of Section 17 of the agrarian law and the administrative
orders issued by the DAR implementing the said provision.

In Land Bank of the Philippines v. Spouses Banal16 this Court pointed out that factors spelled out in
Section 17 of Republic Act No. 6657 and the formula stated in DAO No. 6 must be adhered to by the RTC
in fixing the valuation of lands subjected to agrarian reform, thus:

In determining just compensation, the RTC is required to consider several factors enumerated in Section
17 of R.A. 6657, as amended, thus:

"Sec. 17. Determination of Just Compensation. - In determining just compensation, the cost of
acquisition of the land, the current value of like properties, its nature, actual use and income, the sworn
valuation by the owner, the tax declarations, and the assessment made by government assessors shall
be considered. The social and economic benefits contributed by the farmers and the farmworkers and
by the Government to the property, as well as the non-payment of taxes or loans secured from any
government financing institution on the said land, shall be considered as additional factors to determine
its valuation."

These factors have been translated into a basic formula in [DAR AO 6-92], as amended by [DAR AO 11-
94], issued pursuant to the DAR's rule-making power to carry out the object and purposes of R.A. 6657,
as amended.

The formula stated in [DAR AO 6-92], as amended, is as follows:

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

LV = Land Value

CNI = Capitalized Net Income

CS = Comparable Sales

MV = Market Value per Tax Declaration

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

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

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

xxx

While the determination of just compensation involves the exercise of judicial discretion, however, such
discretion must be discharged within the bounds of the law. Here, the RTC wantonly disregarded R.A.
6657, as amended, and its implementing rules and regulations. ([DAR AO 6-92], as amended by [DAR AO
11-94]).

xxx

WHEREFORE, x x x. The trial judge is directed to observe strictly the procedures specified above in
determining the proper valuation of the subject property. (Emphasis supplied.)
Again, in Land Bank of the Philippines v. Celada,17 this Court stressed that the special agrarian court
cannot ignore, without violating the agrarian law, the formula provided by the DAR for the
determination of just compensation. This Court rejected the valuation fixed by the RTC because it failed
to follow the DAR formula:

While SAC is required to consider the acquisition cost of the land, the current value of like properties, its
nature, actual use and income, the sworn valuation by the owner, the tax declaration and the
assessments made by the government assessors to determine just compensation, it is equally true that
these factors have been translated into a basic formula by the DAR pursuant to its rule-making power
under Section 49 of RA No. 6657. As the government agency principally tasked to implement the
agrarian reform program, it is the DAR's duty to issue rules and regulations to carry out the object of the
law. DAR AO No. 5, s. of 1998 precisely "filled in the details" of Section 17, RA No. 6657 by providing a
basic formula by which the factors mentioned therein may be taken into account. The SAC was at no
liberty to disregard the formula which was devised to implement the said provision.

It is elementary that rules and regulations issued by administrative bodies to interpret the law which
they are entrusted to enforce, have the force of law, and are entitled to great respect. Administrative
issuances partake of the nature of a statute and have in their favor a presumption of legality. As such,
courts cannot ignore administrative issuances especially when, as in this case, its validity was not put in
issue. Unless an administrative order is declared invalid, courts have no option but to apply the same.

Instead, it upheld the valuation made by Landbank which was patterned after the applicable
administrative order issued by the DAR, viz:

[Landbank] arrived at its valuation by using available factors culled from the Department of Agriculture
and Philippine Coconut Authority, and by computing the same in accordance with the formula provided,
thus '

COMPUTATION (Applicable Formula): LV = 0.90 CNI + 0.10 MV

Comparable Land Transactions (P x x x x ____ ) = P x-x-x

Capitalized Net Income: Cassava 16,666.67 x 0.90 = 15,000.00

Corn/Coco 26,571.70 = 23,914.53

Market Value Cassava 8,963.78 x 0.10 = 896.38

per Tax Declaration: Corn/Coco 10,053.93 = 1,005.39

Computed Value per

Hectare: Cassava 15,896.38; Corn/Coco - 24,919.92

xxx

Value per hectare used: Cassava 15,896.38 x 6.0000 has. = 95,378.28

Corn/Coco 24,919.92 x 8.1939 has.= 204,191.33

Payment due to LO : P299, 569.61

The above computation was explained by Antero M. Gablines, Chief of the Claims, Processing, Valuation
and Payment Division of the Agrarian Operations Center of the Land Bank, to wit:

ATTY. CABANGBANG: (On direct):

xxx
Q. What are the items needed for the Land Bank to compute?cralawred

A. In accordance with Administrative Order No. 5, series of 1998, the value of the land should be
computed using the capitalized net income plus the market value. We need the gross production of the
land and its output and the net income of the property.

Q. You said "gross production." How would you fix the gross production of the property?cralawred

A. In that Administrative Order No. 5, if the owner of the land is cooperative, he is required to submit
the net income. Without submitting all his sworn statements, we will get the data from the DA
(Agriculture) or from the coconut authorities.

xxx

Q. In this recommended amount which you approved, how did you arrive at this figure?cralawred

A. We used the data from the Philippine (Coconut) Authority and the Agriculture and the data stated
that Cassava production was only 10,000 kilos per hectare; corn, 2,000 kilos; and coconuts, 15.38 kilos
per hectare. The data stated that in the first cropping of 1986, the price of cassava was P1.00 per kilo;
corn was sold at P7.75 per kilo; and the Philippine Coconut Authority stated that during that time, the
selling price of coconuts was P8.23 per kilo.

Q. After these Production data and selling price, there is here a "cost of operation," what is
this?cralawred

A. It is the expenses of the land owner or farmer. From day one of the cultivation until production.
Without the land owner's submission of the sworn statement of the income, production and the cost, x
x x Administrative Order No. 5 states that x x x we will use 20% as the net income, meaning 80% of the
production in peso. This is the cost of valuation.

Q. 80 % for what crops?cralawred

A. All crops except for coconuts where the cost of expenses is only 20%.

Q. Summing all these data, what is the value per hectare of the cassava?cralawred

A. The cassava is P15,896.38.

Q. How about the corn x x x intercropped with coconuts?cralawred

A. P24,919.92.

Under the circumstances, we find the explanation and computation of [Landbank] to be sufficient and in
accordance with applicable laws. [Landbank's] valuation must thus be upheld.18

Apo Fruits Corporation v. Court of Appeals19 yet again accentuated the necessity of giving paramount
importance to the criteria found in Section 17 of the agrarian law and the pertinent DAR administrative
order. In affirming therein the special agrarian court's valuation, it reasoned in this fashion:

[T]he Court affirmed the due consideration given by the RTC of the factors specified in Section 17,
Republic Act No. 6657. Again, the proper valuation of the subject premises was reached with clear
regard for the acquisition cost of the land, current market value of the properties, its nature, actual use
and income, inter alia - factors that are material and relevant in determining just compensation. These
are the very same factors laid down in a formula by DAR A.O. No. 5. Due regard was thus given by the
RTC to Republic Act No. 6657, DAR A.O. No. 5 and prevailing jurisprudence when it arrived at the value
of just compensation due to AFC and HPI in this case.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
The Court En Banc in Land Bank of the Philippines v. Lim20 was confronted with the question whether
the RTC can resort to any other means of determining just compensation apart from Section 17 of
Republic Act No. 6657 and DAO No. 6. The Court resolved the issue in the negative and pronounced
therein that Section 17 of Republic Act No. 6657 and DAO No. 6 are mandatory and are not mere guides
that the RTC may disregard. Basing its ruling on the pronouncements of Land Bank of the Philippines v.
Spouses Banal and Land Bank of the Philippines v. Celada, the Court enunciated:

In Land Bank of the Philippines v. Spouses Banal, this Court underscored the mandatory nature of
Section 17 of RA 6657 and DAR AO 6-92, as amended by DAR AO 11-94, viz:

In determining just compensation, the RTC is required to consider several factors enumerated in Section
17 of R.A. 6657, as amended, thus:

"Sec. 17. Determination of Just Compensation. - In determining just compensation, the cost of
acquisition of the land, the current value of like properties, its nature, actual use and income, the sworn
valuation by the owner, the tax declarations, and the assessment made by government assessors shall
be considered. The social and economic benefits contributed by the farmers and the farmworkers and
by the Government to the property, as well as the non-payment of taxes or loans secured from any
government financing institution on the said land, shall be considered as additional factors to determine
its valuation."

These factors have been translated into a basic formula in [DAR AO 6-92], as amended by [DAR AO 11-
94], issued pursuant to the DAR's rule-making power to carry out the object and purposes of R.A. 6657,
as amended.

xxx

While the determination of just compensation involves the exercise of judicial discretion, however, such
discretion must be discharged within the bounds of the law. Here, the RTC wantonly disregarded R.A.
6657, as amended, and its implementing rules and regulations. ([DAR AO 6-92], as amended by [DAR AO
11-94]).

xxx

WHEREFORE, x x x Civil Case No. 6806 is REMANDED to the RTC x x x. The trial judge is directed to
observe strictly the procedures specified above in determining the proper valuation of the subject
property. x x x.

And in LBP v. Celada, this Court set aside the valuation fixed by the RTC of Tagbilaran, which was based
solely on the valuation of neighboring properties, because it did not apply the DAR valuation formula.
The Court explained:

While [the RTC] is required to consider the acquisition cost of the land, the current value of like
properties, its nature, actual use and income, the sworn valuation by the owner, the tax declaration and
the assessments made by the government assessors to determine just compensation, it is equally true
that these factors have been translated into a basic formula by the DAR pursuant to its rule-making
power under Section 49 of R.A. No. 6657. As the government agency principally tasked to implement the
agrarian reform program, it is the DAR's duty to issue rules and regulations to carry out the object of the
law.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

The DAR [Administrative Order] precisely "filled in the details" of Section 17, R.A. No. 6657 by providing
a basic formula by which the factors mentioned therein may be taken into account. The [RTC] was at no
liberty to disregard the formula which was devised to implement the said provision.

xxx
Consequently, as the amount of P2,232,868 adopted by the RTC in its December 21, 2001 Order was not
based on any of the mandatory formulas prescribed in DAR AO 6-92, as amended by DAR AO 11-94, the
Court of Appeals erred when it affirmed the valuation adopted by the RTC. (Emphases supplied.)

In the instant case, the RTC did not consider Section 17 of Republic Act No. 6657 as well as DAO No. 6
and instead adopted, hook line and sinker, the market data approach introduced by the commissioner
nominated by Allied. This undoubtedly constitutes a glaring departure from the established tenet
discussed above on the mandatory nature of Section 17 of Republic Act No. 6657 and DAO No. 6, as
amended. It is worthy to note that Allied did not provide any evidence that the market data approach,
which based the value of the land in question on sales and listings of similar properties situated within
the area, conformed to the subject administrative order, and it is not also clear if same approach took
into consideration the said administrative order. Such being the case, the market data approach
espoused by Allied cannot be a valuation that complies with the requirements under the agrarian law.
Besides, this Court has once refused to accept the market data approach as a method of valuation
compliant with the agrarian law and enforced by the DAR:

We find that the factors required by the law and enforced by the DAR Administrative Order were not
observed by the SAC when it adopted wholeheartedly the valuation arrived at in the appraisal report.
According to the appraisal company, it "personally inspected the property, investigated local market
conditions, and have given consideration to the extent, character and utility of the property; sales and
holding prices of similar land; and highest and best use of the property." The value of the land was
arrived at using the market data approach, which bases the value of the land on sales and listings of
comparable property registered within the vicinity. In fact, as noted by the Court of Appeals, a
representative of the company admitted that it did not consider the CARP valuation to be
applicable.21(Emphases supplied.)

In fine, this Court defers to the findings of the Court of Appeals, there being no cogent reason to veer
away from such findings.

Lastly, since Landbank and the DAR failed to submit their respective reports and have them
substantiated during the hearings, and since the valuation of Landbank remains unsubstantiated, the
Court is left with no recourse but to remand the case to the RTC.

WHEREFORE, premises considered, the instant petition is hereby DENIED. The Decision of the Court of
Appeals dated 29 June 2006 and its Resolution dated 7 November 2006 annulling the 14 January 2002
Decision of the Regional Trial Court of Balanga City, Bataan, Branch 1, and remanding the case to the
same trial court are hereby AFFIRMED. Costs against petitioner.

SO ORDERED.

LAND BANK OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS, PEDRO L. YAP, HEIRS OF EMILIANO F. SANTIAGO, AGRICULTURAL MANAGEMENT
& DEVELOPMENT CORP., respondents.

G.R. No. 118745 October 6, 1995

DEPARTMENT OF AGRARIAN REFORM, represented by the Secretary of Agrarian Reform, petitioner,

vs.
COURT OF APPEALS, PEDRO L. YAP, HEIRS OF EMILIANO F. SANTIAGO, AGRICULTURAL MANAGEMENT
& DEVELOPMENT CORP., ET AL., respondents.

FRANCISCO, R., J.:

It has been declared that the duty of the court to protect the weak and the underprivileged should not
be carried out to such an extent as deny justice to the landowner whenever truth and justice happen to
be on his side.1 As eloquently stated by Justice Isagani Cruz:

. . . social justice — or any justice for that matter — is for the deserving, whether he be a
millionaire in his mansion or a pauper in his hovel. It is true that, in case of reasonable
doubt, we are called upon to tilt the balance in favor of the poor, to whom the
Constitution fittingly extends its sympathy and compassion. But never is it justified to
prefer the poor simply because they are poor, or to reject the rich simply because they
are rich, for justice must always be served, for poor and rich alike, according to the
mandate of the law.2

In this agrarian dispute, it is once more imperative that the aforestated principles be applied in its
resolution.

Separate petitions for review were filed by petitioners Department of Agrarian Reform (DAR) (G.R. No.
118745) and Land Bank of the Philippines (G.R. No. 118712) following the adverse ruling by the Court of
Appeals in CA-G.R. SP No. 33465. However, upon motion filed by private respondents, the petitions
were ordered consolidated.3

Petitioners assail the decision of the Court of Appeals promulgated on October 20, 1994, which granted
private respondents' Petition for Certiorari and Mandamus and ruled as follows:

WHEREFORE, premises considered, the Petition for Certiorari and Mandamus is hereby
GRANTED:

a) DAR Administrative Order No. 9, Series of 1990 is

declared null and void insofar as it provides for the opening of trust
accounts in lieu of deposits in cash or bonds;

b) Respondent Landbank is ordered to immediately deposit — not

merely "earmark", "reserve" or "deposit in trust" — with an accessible
bank designated by respondent DAR in the names of the following
petitioners the following amounts in cash and in government financial
instruments — within the parameters of Sec. 18 (1) of RA 6657:

P 1,455,207.31 Pedro L. Yap

P 135,482.12 Heirs of Emiliano Santiago

P 15,914,127.77 AMADCOR;

c) The DAR-designated bank is ordered to allow the petitioners to

withdraw the above-deposited amounts without prejudice to the final
determination of just compensation by the proper authorities; and

d) Respondent DAR is ordered to

1) immediately conduct summary administrative proceedings to
determine the just compensation for the lands of the petitioners giving
the petitioners 15 days from notice within which to submit evidence and
to 2) decide the cases within 30 days after they are submitted for
decision.4

Likewise, petitioners seek the reversal of the Resolution dated January 18, 1995, 5 denying their
motion for reconsideration.
Private respondents are landowners whose landholdings were acquired by the DAR and subjected to
transfer schemes to qualified beneficiaries under the Comprehensive Agrarian Reform Law (CARL,
Republic Act No. 6657).

Aggrieved by the alleged lapses of the DAR and the Landbank with respect to the valuation and
payment of compensation for their land pursuant to the provisions of RA 6657, private
respondents filed with this Court a Petition for Certiorari and Mandamus with prayer for
preliminary mandatory injunction. Private respondents questioned the validity of DAR
Administrative Order No. 6, Series of 19926 and DAR Administrative Order No. 9, Series of
1990,7 and sought to compel the DAR to expedite the pending summary administrative
proceedings to finally determine the just compensation of their properties, and the Landbank to
deposit in cash and bonds the amounts respectively "earmarked", "reserved" and "deposited in
trust accounts" for private respondents, and to allow them to withdraw the same.

Through a Resolution of the Second Division dated February 9, 1994, this Court referred the petition to
respondent Court of Appeals for proper determination and disposition.

As found by respondent court , the following are undisputed:

Petitioner Pedro Yap alleges that "(o)n 4 September 1992 the transfer certificates of title
(TCTs) of petitioner Yap were totally cancelled by the Registrar of Deeds of Leyte and
were transferred in the names of farmer beneficiaries collectively, based on the request
of the DAR together with a certification of the Landbank that the sum of P735,337.77
and P719,869.54 have been earmarked for Landowner Pedro L. Yap for the parcels of
lands covered by TCT Nos. 6282 and 6283, respectively, and issued in lieu thereof TC-
563 and TC-562, respectively, in the names of listed beneficiaries (ANNEXES "C" & "D")
without notice to petitioner Yap and without complying with the requirement of Section
16 (e) of RA 6657 to deposit the compensation in cash and Landbank bonds in an
accessible bank. (Rollo, p. 6).

The above allegations are not disputed by any of the respondents.

Petitioner Heirs of Emiliano Santiago allege that the heirs of Emiliano F. Santiago are the
owners of a parcel of land located at Laur, NUEVA ECIJA with an area of 18.5615
hectares covered by TCT No. NT-60359 of the registry of Deeds of Nueva Ecija,
registered in the name of the late Emiliano F. Santiago; that in November and December
1990, without notice to the petitioners, the Landbank required and the beneficiaries
executed Actual tillers Deed of Undertaking (ANNEX "B") to pay rentals to the LandBank
for the use of their farmlots equivalent to at least 25% of the net harvest; that on 24
October 1991 the DAR Regional Director issued an order directing the Landbank to pay
the landowner directly or through the establishment of a trust fund in the amount of
P135,482.12, that on 24 February 1992, the Landbank reserved in trust P135,482.12 in
the name of Emiliano F. Santiago. (ANNEX "E"; Rollo,
p. 7); that the beneficiaries stopped paying rentals to the landowners after they signed
the Actual Tiller's Deed of Undertaking committing themselves to pay rentals to the
LandBank (Rollo, p. 133).

The above allegations are not disputed by the respondents except that respondent
Landbank claims 1) that it was respondent DAR, not Landbank which required the
execution of Actual Tillers Deed of Undertaking (ATDU, for brevity); and 2) that
respondent Landbank, although armed with the ATDU, did not collect any amount as
rental from the substituting beneficiaries (Rollo, p. 99).

Petitioner Agricultural Management and Development Corporation (AMADCOR, for

brevity) alleges — with respect to its properties located in San Francisco, Quezon — that
the properties of AMADCOR in San Francisco, Quezon consist of a parcel of land covered
by TCT No. 34314 with an area of 209.9215 hectares and another parcel covered by TCT
No. 10832 with an area of 163.6189 hectares; that a summary administrative
 proceeding to determine compensation of the property covered by TCT No. 34314 was
conducted by the DARAB in Quezon City without notice to the landowner; that a
decision was rendered on 24 November 1992 (ANNEX "F") fixing the compensation for
the parcel of land covered by TCT No. 34314 with an area of 209.9215 hectares at
P2,768,326.34 and ordering the Landbank to pay or establish a trust account for said
amount in the name of AMADCOR; and that the trust account in the amount of
P2,768,326.34 fixed in the decision was established by adding P1,986,489.73 to the first
trust account established on 19 December 1991 (ANNEX "G"). With respect to petitioner
AMADCOR's property in Tabaco, Albay, it is alleged that the property of AMADCOR in
Tabaco, Albay is covered by TCT No. T-2466 of the Register of Deeds of Albay with an
area of 1,629.4578 hectares'; that emancipation patents were issued covering an area of
701.8999 hectares which were registered on 15 February 1988 but no action was taken
thereafter by the DAR to fix the compensation for said land; that on 21 April 1993, a
trust account in the name of AMADCOR was established in the amount of
P12,247,217.83', three notices of acquisition having been previously rejected by
AMADCOR. (Rollo, pp. 8-9)

The above allegations are not disputed by the respondents except that respondent
Landbank claims that petitioner failed to participate in the DARAB proceedings (land
valuation case) despite due notice to it (Rollo, p. 100).8

Private respondents argued that Administrative Order No. 9, Series of 1990 was issued without
jurisdiction and with grave abuse of discretion because it permits the opening of trust accounts by the
Landbank, in lieu of depositing in cash or bonds in an accessible bank designated by the DAR, the
compensation for the land before it is taken and the titles are cancelled as provided under Section 16(e)
of RA 6657.9 Private respondents also assail the fact that the DAR and the Landbank merely
"earmarked", "deposited in trust" or "reserved" the compensation in their names as landowners despite
the clear mandate that before taking possession of the property, the compensation must be deposited
in cash or in bonds. 10

Petitioner DAR, however, maintained that Administrative Order No. 9 is a valid exercise of its rule-
making power pursuant to Section 49 of RA 6657.11 Moreover, the DAR maintained that the issuance of
the "Certificate of Deposit" by the Landbank was a substantial compliance with Section 16(e) of RA 6657
and the ruling in the case of Association of Small Landowners in the Philippines, Inc., et
al. vs. Hon. Secretary of Agrarian Reform, G.R. No. 78742, July 14, 1989 (175 SCRA 343).12

For its part, petitioner Landbank declared that the issuance of the Certificates of Deposits was in
consonance with Circular Nos. 29, 29-A and 54 of the Land Registration Authority where the words
"reserved/deposited" were also used.13

On October 20, 1994, the respondent court rendered the assailed decision in favor of private
respondents.14Petitioners filed a motion for reconsideration but respondent court denied the same.15

Hence, the instant petitions.

On March 20, 1995, private respondents filed a motion to dismiss the petition in G.R. No. 118745
alleging that the appeal has no merit and is merely intended to delay the finality of the appealed
decision.16 The Court, however, denied the motion and instead required the respondents to file their
comments.17

Petitioners submit that respondent court erred in (1) declaring as null and void DAR Administrative
Order No. 9, Series of 1990, insofar as it provides for the opening of trust accounts in lieu of deposit in
cash or in bonds, and (2) in holding that private respondents are entitled as a matter of right to the
immediate and provisional release of the amounts deposited in trust pending the final resolution of the
cases it has filed for just compensation.

Anent the first assignment of error, petitioners maintain that the word "deposit" as used in Section
16(e) of RA 6657 referred merely to the act of depositing and in no way excluded the opening of a trust
account as a form of deposit. Thus, in opting for the opening of a trust account as the acceptable form of
deposit through Administrative Circular No. 9, petitioner DAR did not commit any grave abuse of
discretion since it merely exercised its power to promulgate rules and regulations in implementing the
declared policies of RA 6657.

The contention is untenable. Section 16(e) of RA 6657 provides as follows:

Sec. 16. Procedure for Acquisition of Private Lands —

xxx xxx xxx

(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. . . . (emphasis supplied)

It is very explicit therefrom that the deposit must be made only in "cash" or in "LBP bonds". Nowhere
does it appear nor can it be inferred that the deposit can be made in any other form. If it were the
intention to include a "trust account" among the valid modes of deposit, that should have been made
express, or at least, qualifying words ought to have appeared from which it can be fairly deduced that a
"trust account" is allowed. In sum, there is no ambiguity in Section 16(e) of RA 6657 to warrant an
expanded construction of the term "deposit".

The conclusive effect of administrative construction is not absolute. Action of an administrative agency
may be disturbed or set aside by the judicial department if there is an error of law, a grave abuse of
power or lack of jurisdiction or grave abuse of discretion clearly conflicting with either the letter or the
spirit of a legislative enactment.18 In this regard, it must be stressed that the function of promulgating
rules and regulations may be legitimately exercised only for the purpose of carrying the provisions of the
law into effect. The power of administrative agencies is thus confined to implementing the law or
putting it into effect. Corollary to this is that administrative regulations cannot extend
the law and amend a legislative enactment,19 for settled is the rule that administrative regulations must
be in harmony with the provisions of the law. And in case there is a discrepancy between the basic law
and an implementing rule or regulation, it is the former that prevails.20

In the present suit, the DAR clearly overstepped the limits of its power to enact rules and regulations
when it issued Administrative Circular No. 9. There is no basis in allowing the opening of a trust account
in behalf of the landowner as compensation for his property because, as heretofore discussed, Section
16(e) of RA 6657 is very specific that the deposit must be made only in "cash" or in "LBP bonds". In the
same vein, petitioners cannot invoke LRA Circular Nos. 29, 29-A and 54 because these implementing
regulations cannot outweigh the clear provision of the law. Respondent court therefore did not commit
any error in striking down Administrative Circular No. 9 for being null and void.

Proceeding to the crucial issue of whether or not private respondents are entitled to withdraw the
amounts deposited in trust in their behalf pending the final resolution of the cases involving the final
valuation of their properties, petitioners assert the negative.

The contention is premised on the alleged distinction between the deposit of compensation under
Section 16(e) of RA 6657 and payment of final compensation as provided under Section 18 21 of the same
law. According to petitioners, the right of the landowner to withdraw the amount deposited in his behalf
pertains only to the final valuation as agreed upon by the landowner, the DAR and the LBP or that
adjudged by the court. It has no reference to amount deposited in the trust account pursuant to Section
16(e) in case of rejection by the landowner because the latter amount is only provisional and intended
merely to secure possession of the property pending final valuation. To further bolster the contention
petitioners cite the following pronouncements in the case of "Association of Small Landowners in the
Phil. Inc. vs. Secretary of Agrarian Reform".22
 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.

xxx xxx xxx

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

xxx xxx xxx

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.

Notably, however, the aforecited case was used by respondent court in discarding petitioners' assertion
as it found that:

. . . despite the "revolutionary" character of the expropriation envisioned under RA 6657

which led the Supreme Court, in the case of Association of Small Landowners in the Phil.
Inc. vs. Secretary of Agrarian Reform (175 SCRA 343), to conclude that "payments of the
just compensation is not always required to be made fully in money" — even as the
Supreme Court admits in the same case "that the traditional medium for the payment of
just compensation is money and no other" — the Supreme Court in said case did not
abandon the "recognized rule . . . that title to the property expropriated shall pass from
the owner to the expropriator only upon full payment of the just
compensation." 23 (Emphasis supplied)

We agree with the observations of respondent court. The ruling in the "Association" case merely
recognized the extraordinary nature of the expropriation to be undertaken under RA 6657 thereby
allowing a deviation from the traditional mode of payment of compensation and recognized payment
other than in cash. It did not, however, dispense with the settled rule that there must be full payment of
just compensation before the title to the expropriated property is transferred.

The attempt to make a distinction between the deposit of compensation under Section 16(e) of RA 6657
and determination of just compensation under Section 18 is unacceptable. To withhold the right of the
landowners to appropriate the amounts already deposited in their behalf as compensation for their
properties simply because they rejected the DAR's valuation, and notwithstanding that they have
already been deprived of the possession and use of such properties, is an oppressive exercise of
eminent domain. The irresistible expropriation of private respondents' properties was painful enough
for them. But petitioner DAR rubbed it in all the more by withholding that which rightfully belongs to
private respondents in exchange for the taking, under an authority (the "Association" case) that is,
however, misplaced. This is misery twice bestowed on private respondents, which the Court must
rectify.

Hence, we find it unnecessary to distinguish between provisional compensation under Section 16(e) and
final compensation under Section 18 for purposes of exercising the landowners' right to appropriate the
same. The immediate effect in both situations is the same, the landowner is deprived of the use and
possession of his property for which he should be fairly and immediately compensated. Fittingly, we
reiterate the cardinal rule that:

. . . within the context of the State's inherent power of eminent domain, just
compensation means not only the correct determination of the amount to be paid to the
owner of the land but also the payment of the land within a reasonable time from its
taking. Without prompt payment, compensation cannot be considered "just" for the
property owner is made to suffer the consequence of being immediately deprived of his
 land while being made to wait for a decade or more before actually receiving the
amount necessary to cope with his loss. 24 (Emphasis supplied)

The promulgation of the "Association" decision endeavored to remove all legal obstacles in the
implementation of the Comprehensive Agrarian Reform Program and clear the way for the true freedom
of the farmer.25 But despite this, cases involving its implementation continue to multiply and clog the
courts' dockets. Nevertheless, we are still optimistic that the goal of totally emancipating the farmers
from their bondage will be attained in due time. It must be stressed, however, that in the pursuit of this
objective, vigilance over the rights of the landowners is equally important because social justice cannot
be invoked to trample on the rights of property owners, who under our Constitution and laws are also
entitled to protection.26

WHEREFORE, the foregoing premises considered, the petition is hereby DENIED for lack of merit and the
appealed decision is AFFIRMED in toto.

SO ORDERED.

LAND BANK OF THE PHILIPPINES, Petitioner,

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

DECISION

LEONARDO-DE CASTRO, J.:

This is a Petition for Review on Certiorari1 seeking to annul and set aside the September 28, 2007
Decision2 and March 14, 2008 Resolution3 of the Court of Appeals in CA-G.R. SP No. 82467, which
affirmed the January 21, 2000 Decision4 of the Regional Trial Court of Cabanatuan City, Branch 23, sitting
as a Special Agrarian Court (SAC Branch 23 ), as modified by the January 28, 2004 Resolution5 of the
Regional Trial Court of Cabanatuan City, Branch 29 (SAC Branch 29) in Agrarian Case No. 125-AF.

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

Petitioner Land Bank of the Philippines (LBP) is a government financial institution6 designated under
Section 64 of Republic Act No. 66577 as the financial intermed iary of the agrarian reform program of the
government.8

Respondent Emiliano R. Santiago, Jr. (respondent) is one of the heirs of Emiliano F. Santiago (Santiago),
the registered owner of an 18.5615-hectare parcel of land (subject property) in Laur, Nueva Ecija,
covered by Transfer Certificate of Title (TCT) No. NT-60359.9

Pursuant to the government’s Operation Land Transfer (OLT) Program under Presidential Decree No.
27,10 the Department of Agrarian Reform (DAR) acquired 17.4613 hectares of the subject property.11

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

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

and Executive Order No. 228, which reads:

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

The above formula in equation form is :

(Average Gross Production [AGP] x 2.5 Hectares x Government

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

Using the foregoing formula, the land value of the subject property was pegged at 3,915 cavans of palay,
using 90 cavans of palay per year for the irrigated portion and 44.33 cavans of palay per year for the
unirrigated portio n, as the AGP per hectare in San Joseph, Laur, Nueva Ecija, as established by the
Barangay Committee on Land Production (BCLP), based on three normal crop years immediately
preceding the promulgation of Presidential Decree No. 27.12

As Santiago had died earlier on November 1, 1987,13 the LBP , in 1992, reserved in trust for his heirs the
amount of One Hundred Thirty-Five Thousand Four Hundred Eighty-Two Pesos and 12/100 (₱
135,482.12), as just compensation computed by LBP and DAR using the above formula with ₱ 35.00 as
the GSP per cavan of palay for the year 1972 under Executive Order No. 228.14

The land valuation of the subject property is broken down as follows15 :

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

90 2.5 16.954416 3,814.74 ₱ 35.00 ₱ 133,515.92

44.33 2.5 506917 56.18 ₱ 35.00 1,966.20

17.4613 3,870.92 ₱ 35,482.12

This amount was released to Santiago’s heirs on April 28, 1998,18 pursuant to this Court’s decision in
Land Bank of the Philippines v. Court of Appeals.19 LBP, on May 21, 1998 and June 1, 1998, also paid the
heirs the sum of ₱ 353,122.62, representing the incremental interest of 6% on the preliminary
compensation, compounded annually for 22 years,20 pursuant to Provincial Agrarian Reform Council
(PARC) Resolution No. 94-24-121 and DAR Administrative Order (AO) No. 13, series of 1994.22

However, on November 20, 1998, respondent, as a co-owner and administrator of the subject property,
filed a petition before the RTC of Cabanatuan City, Branch 23, acting as a Special Agrarian Court (SAC
Branch 23), for the "approval and appraisal of just compensation" due on the subject property. This was
docketed as SAC Case No. 125-AF.23

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

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

WHEREFORE, the defendant Land Bank of the Philippines is hereby ordered to pay the plaintiff in the
sum of ₱ 1,039,017.88 representing the balance of the land valuation of the plaintiff with legal interest
at 12 % from the yea r 1998 until the same is fully paid subject to the modes of compensation under R.A.
No. 6657.25

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

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

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

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

xxxx

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

Discontented with the ruling, respondent filed a Motion for Reconsideration27 of the SAC’s decision on
February 16, 2000, arguing that the GSP per cavan of palay should be computed at ₱ 400.00 instead of ₱
300.00 because payment of the preliminary compensation was made by LBP in 1998 and not in 1992.
Respondent likewise ins isted that in addition to the 12% legal interest ordered by the SAC, a
compounded annual interest of 6% of the principal amount should be awarded to them pursuant to the
PARC Resolution and DAR AO No. 13. Furthermore, respondent asked that the DAR be ordered to return
to him the unacquired portion of the subject property.28

On February 10, 2000, Judge Andres R. Amante, Jr., the presiding judge of SAC Branch 23, inhibited
himself from resolving the motion for reconsideration,29 thus, the case was re-raffled to the RTC of
Cabanatuan City, Branch 29, acting as Special Agrarian Court (SAC Branch 29).30

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

WHEREFORE, the decision is reconsidered as follows:

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

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

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

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

Respondent filed a Petit io n for Review before this Court, questioning the SAC Branch 29’s ruling on his
non-entitlement to the incremental interest of 6%. The case, entitled Heirs of Emiliano F. Santiago,
represented by Emiliano R. Santiago, Jr. as administrator of the land covered by TCT No. NT 60354 v.
Republic of the Philippines, represented by the Department of Agrarian Reform, and Land Bank of the
Philippines, and docketed as G.R. No. 162055, was, however, denied by this Court on March 31, 2004,
for lack of merit.34
Meanwhile, LBP filed a Petition for Review35 before the Court of Appeals, questioning the just
compensation fixed and the legal interest granted by the SAC Branch 23 in its January 21, 2000 Decision
and by the SAC Branch 29 in its January 28, 2004 Resolution.

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

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

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

The LBP38 moved to reconsider the foregoing decis ion on October 25, 2007. However, the Court of
Appeals, find ing no new argument worthy of its reconsideration, denied such motion in a Resolution
dated March 14, 2008.

The LBP is now before us, claiming that its petition should be allowed for the following reason:

THE COURT OF APPEALS COMMI TTED A S ERIOUS ERROR OF LAW IN AFFIRMING THE JANUARY 21, 2000
DECISION OF THE REGIONAL TRIAL COURT (RTC) OF CABANATUAN CITY, BR. 23, SITTING AS SPECIAL
AGRARIAN COURT (AS M ODIFI ED BY THE RESOLUTION DATED JANUARY 28, 2004 OF THE RTC OF
CABAN ATUAN CITY, BRANCH 29) WHICH FIXED THE JUST COMPENSATION OF SUBJECT PROPERTIES
ACQUIRED UNDER P.D. 27 WITHOUT OBS ERVING THE PRESCRI BED FORM ULA UNDER P.D. 27 AND E.O.
228.39

Issues

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

1. WHETHER OR NOT THE COURT OF APPEALS CAN DISREGARD THE FORMULA PRESCRIBED UNDER P.D.
27 AND E.O. 228 IN FIXING THE JUST COMPENSATION OF SUBJECT P.D. 27-ACQUIRED LAN D.

2. WHETHER OR NOT THE COURT OF APPEALS ERRED IN AFFIRMING THE GRAN T BY THE COURT A QUO
O F 6% INTERES T TO THE RESPONDENT. 40

1st Issue
Computation of Just Compensation

LBP has been consistent in its position that the formula prescribed in Presidential Decree No. 27 and
Executive Order No. 228 is the only formula that should be applied in the computation of the valuation
of lands acquired under Presidential Decree No. 27. In support of its position, LBP cites this Court’s ruling
in Gabatin v. Land Bank of the Philippines,41 wherein we held that the GSP should be pegged at the time
of the taking of the properties, which in this case was deemed effected on October 21, 1972, the
effectivity date of Presidential Decree No. 27.

This Court notes that even before respondent filed a petition for the judicial determination of the just
compensation due him for the subject property before the SAC Branch 23 on November 20, 1998,
Republic Act No. 6657, otherwise known as the Comprehensive Agrarian Reform Law of 1988, already
took effect on June 15, 1988.
The determination of the just compensation therefore in this case depends on the valuation formula to
be applied: the formula under Presidential Decree No. 27 and Executive Order No. 228 or the formula
under Republic Act No. 6657? This Court finds the case of Meneses v. Secretary of Agrarian
Reform42 applicable insofar as it has determined what formula should be used in computing the just
compensation for property expropriated under Presidential Decree No. 27 under the factual milieu of
this case, viz:

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

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

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

Sec. 17. Determination of Just Compensation. - In determining just compensation, the cost of acquisition
of the land, the current value of like properties , its nature, actual use and income, the sworn valuation
by the owner, the tax de clarations , and the assessment made by government assessors shall be
considered. The social and economic benefits contributed by the farmers and the farm-workers and by
the Government to the property as well as the non-payment of taxes or loans secured from any
government financing institution on the said land shall be considered as additional factors to determine
its valuation.

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

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

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

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

xxxx

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

The ruling in Land Bank of the Philippines v. Natividad44 was likewise applied in Land Bank of the
Philippines v. Heirs of Angel T. Domingo,45 when the landowner Domingo filed a Petition for the
Determination and Payment of Just Compensation despite his receipt of LBP’s partial payment. This
Court held that since the amount of just compensation to be paid Domingo had yet to be settled, then
the agrarian reform process was still incomplete; thus, it should be completed under Republic Ac t No.
6657.

Based on the foregoing, when the agrarian reform process is still incomplete as the just compensation
due the landowner has yet to be settled, such just compensation should be determined and the process
concluded under Republic Act No. 6657.46

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

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

Similarly, in the case before us, the emancipation patents were issued to the farmer-beneficiaries from
1992 to 1994. While the preliminary compensation of ₱ 135,482.12 was reserved in trust at LBP for the
heirs of Santiago in 1992, this amount was not received by the heirs until 1998, as its release, pending
the final determination of the land valuation, became the subject of a petition in this Court in Land Bank
of the Philippines v. Court of Appeals.48 Like in the case cited above, both the taking and the valuation of
the subject property occurred after Republic Ac t No. 6657 had already become effective. Until now, the
issue of just compensation for the subject property has not been settled and the process has yet to be
completed; thus, the provisions of Republic Act No. 6657 shall apply.

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

SEC. 17. Determination of Just compensation. - In determining just compensation, the cost of acquisition
of the land, the current value of like properties, its nature, actual use and income, the sworn valuation
by the owner, the tax declarations, and the assessment made by government assessors shall be
considered. The social and economic benefits contributed by the farmers and the farm workers and by
the Government to the property as well as the non-payment of taxes or loans secured from any
government financing institution on the said land shall be considered as additional factors to determine
its valuation.

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

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

Section 5. Section 7 of Republic Act No. 6657, as amended, is hereby further amended to read as
follows:

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

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

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

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

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

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

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

DAR AO No. 02-09, the Implementing Rules of Republic Act No. 9700, which DAR formulated pursuant to
Section 3150 of Republic Act No. 9700, makes the above distinction even clearer, to wit:

VI. Transitory Provision

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

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

Thus, DAR AO No. 02-09 authorizes the valuation of lands in accordance with the old Section 17 of
Republic Act No. 6657, as amended (prior to further amendment by Republic Act No. 9700), so long as
the claim folders for such lands have been received by LBP before its amendment by Republic Act No.
9700 in 2009.51

2nd Issue
Imposition of 6% Legal Interest
All the courts a quo imposed a legal interest on the just compensation due respondent, albeit the SAC
Branch 29 lowered it from 12% to 6% per annum.

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

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

This Court notes that the award of 6% legal interest was not given under DAR AO No. 13, as the courts a
quo explicitly stated that DARAO No. 13 was not applicable, albeit citing a n incorrect reason, i.e., that
this was because a higher GSP was already used. As we have discussed above, "the law and
jurisprudence on the determination of just compensation of agrarian lands are settled,"54 and the courts
below deviated from them when they simply used a higher GSP in the computation of respondent’s just
compensation.1âwphi1

The Court has allowed the grant of interest in expropriation cases where there is delay in the payment
of just compensation.55 In fact, the interest imposed in case of delay in payments in agrarian cases is 12%
per annum and not 6%56 as "the imposition x x x is in the nature of damages for delay in payment which
in effect makes the obligation on the part of the government one of forbearance."57

Quoting Republic v. Court of Appeals58 this Court, in Land Bank of the Philippines v. Rivera,59 held :

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

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

The Court, in Republic, recognized that "the just compensation due to the landowners for their
expropriated property amounted to an effective forbearance on the part of the State."61 In fixing the
interest rate at 12%, it followed the guidelines on the award of interest that we enumerated in Eastern
Shipping Lines, In c. v. Court of Appeals,62 to wit:

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

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

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

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

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

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

Rem and of the Case

Given that the only factor considered by the SAC in the determination of just compensation was the
changing government support price for a cavan of palay, this Court is constrained to remand the case to
the SAC Branch 29 for the reception of evidence and determination of just compensation in accordance
with Section 17 of Republic Act No. 665764 and DAR AO No. 02-09 dated October 15, 2009, the latest
DAR issuance on fixing just compensation.65

Guidelines in the Remand of the Case

In Land Bank of the Philippines v. Heirs of Salvador Encinas and Jacoba Delgado,66 we said that "the
taking of private lands under the agrarian reform program partakes of the nature of an expropriation
proceeding." Thus, the SAC is "reminded to adhere strictly to the doctrine that just compensation must
be valued at the time of taking"67 and not at the time of the rendition of judgment.68

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

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

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

While the de termination o f just compensation is essentially a judicial function vested in the RTC acting
as a SAC, the judge cannot abuse his discretion by not taking into full consideration the factors
specifically identified by law and implementing rules. SACs are not at liberty to disregard the formula
laid down by the DAR, because unless an administrative order is declared invalid, courts have no option
but to apply it. The SAC cannot ignore, without violating the agrarian law, the formula provided by the
DAR for the determination of just compensation.71 (Emphasis in the original, citation omitted.)
WHEREFORE, premises considered, the petition is DENIED insofar as it seeks to have the Land Bank of
the Philippines’ valuation of the subject property sustained. The assailed September 28, 2007 Decision
and March 14, 2008 Resolution of the Court of Appeals in CA-G.R. SP No. 82467 are REVERSED and SET
ASIDE for lack of factual and legal basis. Agrarian Case No. 125-AF is REMANDED back to the Regional
Trial Court of Cabanatuan City, Branch 29, to determine the just compensation due Emiliano R. Santiago,
Jr., less whatever payments he and his co-owners had received, strictly in accordance with the
guidelines in this Decision; Section 17 of Republic Act No. 6657, as amended; and Department of
Agrarian Reform Administrative Order No. 02-09 dated October 15, 2009.

SO ORDERED.

LAND BANK OF THE PHILIPPINES, Petitioner,

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

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

G.R. No. 214021

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

vs.
LAND BANK OF THE PHILIPPINES, Respondent.

DECISION

PERLAS-BERNABE, J.:

Before the Court: are consolidated petitions for review on certiorari1 assailing the Decision2 1 dated
December 4, 2013 and the Resolution3 dated August 11, 2014 of the Court of Appeals (CA) in CA-G.R. SP
Nos. 110779 and 121813, which affirmed the Orders dated July 9, 20094 and August 24, 20095 of the
Regional Trial Court of Naga City (RTC), Branch 23, acting as a Special Agrarian Court (SAC), in Civil Case
Nos. 2001-0229 and 2001-0315, and the Order6 dated October 10, 2011 in Civil Case No. 2001-0315,
directing the Land Bank of the Philippines (LBP) to: (a) release to Edgardo L. Santos (Santos) the initial
valuation of Lands 1 and 2 upon submission of two (2) valid identification (ID) cards, two (2) latest ID
pictures, current community tax certificate (CTC), and execution of a Deed of Assignment, Warranties
and Undertaking in favor of the LBP; and (b) pay I twelve percent (12%) interest on the unpaid just
compensation for Land 3, reckoned from January 1, 2010 until full payment.

The Facts

Santos owned three (3) parcels of agricultural land devoted to corn situated in the Municipality of
Sagnay, Camarines Sur, covered by Tax Declaration (TD) Nos. 197-018-0579 (Land 1) and 97-010-076
(Land 2),7 and Transfer Certificate of Title (TCT) No. 57178 (Land 3; collectively, subject lands).

In 1984, the subject lands were placed under the government's Operation Land Transfer
Program9 pursuant to Presidential Decree (PD) No. 27,10 and distributed to the farmer-beneficiaries who
were issued the corresponding Emancipation Patents.11 The Department of Agrarian Reform (DAR) fixed
the just compensation at P164,532.50 for Land 1, P39,841.93 for Land 2,12 and P66,2l4.03 for Land
3,13 using the formula provided under Executive Order No. (EO) 228,14 Series of 1987.

On May 25, 2000, the LBP received the claim folder covering the subject lands 15 and allowed Santos to
collect the initial valuation for Land 3. It withheld the release of the valuation for Lands 1 and 2 until the
submission of the certificates of title thereto,16 since it was discovered that they were covered by
Decree Nos. N-8237817 and 622575,18 respectively.

Thus, on August 30, 2000 and December 17, 2003, respectively, Santos was issued Agrarian Reform (AR)
Bond No. 0079665 in the amount of P11,674.59 representing the initial valuation of Land 3 and AR Bond
No. 0079666 in the amount of P30,428.83 representing the six percent (6%) increment pursuant to PD
27 and EO 228, and paid cash in the total amount of P4,678.16.19

Finding the valuation unreasonable, Santos filed three (3) petitions20 for summary administrative
proceedings for the determination of just compensation of the subject lands before the Office of the
Provincial Adjudicator (PARAD) of Camarines Sur, docketed as DARAB Case Nos. V-RC-051-CS-00, V-RC-
074-CS-00, and V-RC-075-CS-00.

On March 27, 2001, the PARAD rendered separate decisions21 fixing the just compensation as
follows: (a) P510,034.2922 for Land 1; (b) P2,532,060.3123 for' Land 2; and (c) Pl,147,466.7324 for Land 3,
using the formula,25LV = AGP x 2.5 x GSP. However, in arriving at such values, I the PARAD used the
recent government support price (GSP) for com of P300.00/cavan (P6.00/kilo) as certified by the
National Food Authority Provincial Manager of Camarines Sur, instead of the P31.00/cavan provided
under Section 226 of EO 228. Hence, it no longer applied the six percent (6%) annual incremental interest
granted under DAR Administrative Order (DAR AO) No. 13,27 Series of 1994. In a letter28 dated
September 5, 2001, Santos unconditionally 'accepted and called for the immediate payment of the
valuations for Lands 2 and 3.

Dissatisfied with the PARAD's valuation, the LBP instituted two (2) separate complaints29 (or the
determination of just compensation before the RTC, averring that the computations were erroneous
when they disregarded the formula provided under EO 228. The cases were raffled to its Branch 21, and
docketed as Civil Case Nos. 2001-029930 for Land 1, and 2001-031531 for Lands 2 and 3.

Santos moved to dismiss32 the complaints on the ground that the LBP has no legal personality to
institute such action, and that the complaints were barred by the finality of the PARAD's Decision.

In a consolidated Order33 dated November 9, 2001, the RTC dismissed both complaints. Meanwhile,
Branch 23 of the same RTC was designated as the new SAC that gave due course to the LBP's notices of
appeal.34 The appeals, however, were set aside by the CA's Fifth and Third Divisions, which remanded
the cases to the RTC for appropriate proceedings, and computation of just compensation, respectively.35

On May 5, 2009, Santos filed before the RTC a motion to release the initial valuation for Lands 1 and 2 as
fixed by the DAR, which was granted on June 2, 2009, conditioned on the submission of several
documentary requirements.36 Santos moved for reconsideration, pointing out that what was sought was
the initial valuation only and not its full payment, but nonetheless, committed (a) to submit two (2) valid
ID cards, two (2) latest ID pictures and his CTC for the current year, and (b) to execute a Deed of
Assignment, Warranties and Undertaking in favor of the LBP.37

In opposition, the LBP insisted that Santos must: (a) first establish his ownership over the said
properties, it appearing that a Decree covering Land 1 was issued in favor of a certain Mariano
Garchitorena, hence, the owner's duplicate of the said title must be surrendered to the Registry of
Deeds for cancellation; and (b) submit a real estate tax clearance to prove that there were no
encumbrances burdening the property and that the taxes thereon had been fully paid until 1972.38

In an Order39 dated July 9, 2009, the RTC ruled in favor of Santos, holding that since Land 1 was
processed as an untitled property and the LBP had admitted in its petitions for just compensation that
Santos was the owner of the untitled lands covered by PD 27 as reflected in the tax declarations, the LBP
cannot maintain an inconsistent position by requiring Santos to prove his ownership thereto. It added
that the submission of the required documents may still be directed upon full payment of the just
compensation.

The LBP's motion for reconsideration40 was denied in an Order41 dated August 24, 2009.

The LBP elevated the matter to the CA via a petition for certiorari and Prohibition42 with prayer for the
issuance of a writ of preliminary injunction and/or temporary restraining order (TRO), docketed as CA-
GR. SP No. 110779, asserting that the RTC abused its discretion considering that: (a) it was not at liberty
to disregard43 DAR AO No. 2, Series of 2005,44 which prescribes the requirements for the release of the
initial valuation to a landowner; and (b) no 1 further proceedings were necessary to arrive at the just
compensation for Lands 2 and 3 in view of the final and executory decision in CA-G.R. CV No. 75010 that
directed the remand of the case to the RTC for computation purposes only, hence, res judicata had set
in.45

The LBP's application for the issuance of a TRO having been denied,46 it was constrained to deposit the
initial valuation for Lands 1 and 2 as directed by the RTC47 after Santos' assignee,48 Romeo Santos, signed
the required Deed of Assignment, Warranties and Undertaking49 in favor of the LBP.

In an Order50 dated March 17, 2010, the RTC directed the LBP to submit a revaluation for Lands 1, 2, and
3 in accordance with the factors set forth under Republic Act (RA) No. 6657,51 otherwise known as the
"Comprehensive Agrarian Reform Law of 1988," as implemented by DAR AO No. 1, Series of 2010.52

In compliance therewith, the LBP recomputed the valuation of the subject lands as follows:
P514,936.4453 for Land 1, P2,506,873.4354 for Land 2, and Pl,155,223.4155 for Land 3, which Santos
accepted. Considering, however, the pendency of CA-G.R. SP No. 110779 involving Lands 1 and 2,
Santos moved for a separate judgment relative to Land 3.56

The RTC Ruling

On June 22, 2011, the RTC issued a Judgment57 in Civil Case No. 2001-0315, adopting and approving the
LBP's uncontested revaluation for Land 3 in the amount of Pl,155,223.41, and ordering its payment to
Santos in accordance with Section 18 of RA 6657, minus the initial valuation that had already been paid
to him.

Santos moved for reconsideration, contending that the RTC failed to order the payment of twelve
percent (12%) interest reckoned from the time the property was taken 1from him by the government in
1972 and distributed to the farmer beneficiaries until full payment of the just compensation.58 In an
Order59 dated August 31, 2011, the RTC granted the motion and awarded twelve percent (12%) interest
computed from June 26, 2000 when the LBP approved the payment of the initial valuation for the
property up to the date the decision was rendered, or a total amount of Pl,437,669.75.

Both parties moved for reconsideration.60

In an Order61 dated October 10, 2011, the RTC modified its August 31, 2011 Order, holding that the
twelve percent (12%) interest should be reckoned from January 1, 2010 until full payment since the
revaluation of Land 3 already included the required six percent (6%) annual incremental interest under
DAR AO No. 13, Series of 1994,62 DAR AO No. 2, Series of 2004,63 and DAR AO No. 6, Series of
2008,64 from the time of taking until December 31, 2009.

Dissatisfied, Santos filed a petition for review65 before the CA, docketed as CA-G.R. SP No.
121813, which was subsequently consolidated with the LBP's petition in CA-GR. SP No. 110779.66

On October 12, 2011, the LBP fully paid Santos the amount of Pl,155,223.41 representing the just
compensation for Land 3.67

The CA Ruling

In a Decision68 dated December 4, 2013, the CA dismissed the petitions, and affirmed the RTC's Orders
dated July 9, 2009 and August 24, 2009 subject of CA-G.R. SP No. 110779, and the Order dated October
11, 2011 subject of CA-G.R. SP No. 121813.

In CA-G.R. SP No. 110779, the CA ruled that no grave abuse of discretion was committed by the RTC
when it proceeded with the determination of just compensation, thereby rejecting the LBP's contention
that the RTC was barred by res judicata from conducting further proceedings to determine just
compensation with the finality69 of its earlier decisions in CA-G.R. CV Nos. 7491970 and 75010.71 It
pointed out that the said decisions merely resolved the LBP's personality to institute an action for
determination of just compensation, and reinstated the LBP's complaints for just compensation which
were well within the RTC's original and exclusive jurisdiction under RA 6657. It likewise sustained the
release of the initial valuation for Lands 1 and 2 conditioned on the submission of only the documents
mentioned in the RTC's July 9, 2009 Order, finding that the failure to produce the titles thereto were
beyond Santos' control and that his claim of ownership had been sufficiently established. It added that
the RTC's June 22, 2011 Judgment conditioned the release of the final just compensation upon
compliance with the requirements of the law.72

In CA-G.R. SP No. 121813, the CA upheld the RTC's ruling that Santos was entitled to a twelve percent
(12%) interest reckoned from January 1, 2010 until its full payment since the revaluation by the LBP of
Land 3 already included six percent (6%) annual incremental interest until December 31, 2009.73

Aggrieved, both parties moved for reconsideration which were denied in a Resolution74 dated August 11,
2014; hence, these consolidated petitions.

The Issues Before the Court

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

On the other hand, Santos raised in his petition in G.R. No. 214021 the sole question of whether or not
the CA erred in reckoning the award of twelve percent (12%) interest from January 1, 2010 until full
payment of the just compensation.

The Court's Ruling

The Court has repeatedly held that the seizure of landholdings or properties covered by PD 27 did not
take place on October 21, 1972, but upon the payment of just compensation.75 Thus, if the agrarian
reform process is still incomplete, as in this case where the just compensation due the landowner has
yet to be settled, just compensation should be determined and the process concluded under RA 6657.76

As summarized in LBP v. Sps. Banal,77 the procedure for the determination of just compensation under
RA 6657 commences with the LBP determining the initial valuation of the lands under the land reform
program.78 Using the LBP's valuation, the DAR makes an offer to the landowner.79 In case the landowner
rejects the offer, the DAR adjudicator conducts a summary administrative proceeding to determine the
compensation for the land by requiring the landowner, the LBP, and other interested parties to submit
evidence on the just compensation of the land. A party who disagrees with the decision of the DAR
adjudicator may bring the matter to the RTC, designated as a Special Agrarian Court for final
determination of just compensation.80

Note that in case of rejection, RA 6657 entitles the landowner to withdraw the initial valuation of the
landholding pending the determination of just compensation.81 In this case, however, the LBP, citing
DAR AO No. 2, Series of 2005, posited that the release of such amount is conditioned on the submission
of all the documentary requirements listed therein, and that the RTC's failure to require Santos to
comply therewith constitutes grave abuse of discretion.82

The Court is not persuaded.

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

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

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

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

Thus, the leniency accorded by the RTC cannot be construed as a capricious exercise of power as it
merely expedited the procedure for payment which is inherently fairer under the circumstances
considering that: (a) Santos has been "deprived of his right to enjoy his properties as early as 1983, and
has not yet received any compensation therefor since then;"86 (b) the existence of the certificates of title
over Lands 1 and 2 which the LBP insists to be submitted had not been sufficiently established; 87 (c) the
LBP had judicially admitted, that Santos is the owner of Lands 1 and 2 which were identified as covered
by tax declarations;88 and (d) compliance with the required documents may still be directed before the
full payment of the correct just compensation89 which, up to this time, has not yet been finally
determined. Moreover, as aptly pointed out by the CA, Santos' failure to produce the titles to Lands 1
and 2 was not motivated by any obstinate refusal to abide by the requirements but due to impediments
beyond his control.90

Perforce, no reversible error or grave abuse of discretion can be imputed on the CA in sustaining the RTC
Orders dated July 9, 2009 and August 24, 2009 which allowed the withdrawal of the initial valuation
upon Santos' (a) submission of two (2) valid ID cards, two (2) latest ID pictures, I and his current CTC,
and (b) execution of a Deed of Assignment, Warranties and Undertaking in favor of the LBP.

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

Res judicata means a matter adjudged, a thing judicially acted upon or decided; a thing or matter settled
by judgment.1âwphi1 The doctrine of res judicata provides that a final judgment, on the merits
rendered by a court of competent jurisdiction is conclusive as to the rights of the parties and their
privies and constitutes an absolute bar to subsequent actions involving the same claim, demand, or
cause of action. The elements of res judicata are (a) identity of parties or at least such as representing
the same interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being
founded on the same facts; and (c) the identity in the two (2) particulars is such that any judgment
which may be rendered in the other action will, regardless of which party is successful, amount to res
judicata in the action under consideration.91

As correctly observed by the CA, the decision in CA-G.R. CV No. 75010 did not preclude the RTC from
proceeding with the determination of just compensation of the subject lands since the issue raised in
the said case merely pertained to the LBP's legal standing to institute the complaints for just
compensation and not the valuation of the subject lands.92 The pronouncement in the said decision on
the matter of computation of just compensation was a mere obiter dictum, an opinion expressed upon
some question of law that was not necessary in the determination of the case before it.93 As succinctly
pointed out in the case of LBP v. Suntay,94 "it is a remark made, or opinion expressed, by a judge, in his
decision upon a cause by the way, that is, incidentally or collaterally, and not directly upon the question
before him, or upon a point not necessarily involved in the determination of the cause, or introduced by
way of illustration, or analogy or argument. It does not embody the resolution or determination of the
court, and is made without argument, or full consideration of the point. It lacks the force of an
adjudication, being a mere expression of an opinion with no binding force for purposes
of res judicata."95

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

With respect to the award of twelve percent (12%) interest on the unpaid just compensation for Land 3
subject of GR. No. 214021, the Court finds untenable the LBP's contention that the same was bereft of
factual and legal bases, grounded on its having promptly paid Santos the initial valuation therefor barely
two months after it approved the DAR's valuation on June 26, 2000.97

Notably, while the LBP released the initial valuation in the amount of P46,781.58 in favor of Santos in
the year 2000, the said amount is way below, or only four (4% )98 of the just compensation finally
adjudged by the RTC. To be considered as just, the compensation must be fair and equitable, and the
landowners must have received it without any delay.

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

In LBP v. Orilla,100 the Court elucidated that "prompt payment" of just compensation is not satisfied by
the mere deposit with any accessible bank of the provisional compensation determined by it or by the
DAR, and its subsequent release to the landowner after compliance with the legal requirements set by
RA 6657, to wit:

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

The concept of just compensation embraces not only the correct determination of the amount to be
paid to the owners of the land, but also payment within a reasonable time from its taking. Without
prompt payment, compensation cannot be considered "just" inasmuch as the property owner is made
to suffer the consequences of being immediately deprived of his land while being made to wait for a
decade or more before actually receiving the amount necessary to cope with his loss.

Put differently, while prompt payment of just compensation requires the immediate deposit and
release to the landowner of the provisional compensation as determined by the DAR, it does not end
there. Verily, it also encompasses the payment in full of the just compensation to the landholders as
finally determined by the courts. Thus, it cannot be said that there is already prompt payment of just
compensation when there is only a partial payment thereof, as in this case.101 (Emphasis supplied)

Thus, in expropriation cases, interest is imposed if there is delay in the payment of just compensation
to the landowner since the obligation is deemed to be an effective forbearance on the part of the
State. Such interest shall be pegged at the rate of twelve percent (12%) per annum on the unpaid
balance of the just compensation, reckoned from the time of taking,102 or the time when the landowner
was deprived of the use and benefit of his property103 such as when title is transferred to the
Republic,104 or emancipation patents are issued by the government, until full payment.105 To clarify,
unlike the six percent (6%) annual incremental interest allowed under DAR AO No. 13, Series of 1994,
DAR AO No. 2, Series of 2004 and DAR AO No. 6, Series of 2008, this twelve percent (12%) annual
interest is not granted on the computed just compensation; rather, it is a penalty imposed for damages
incurred by the landowner due to the delay in its payment.106

Accordingly, the award of twelve percent (12%) annual interest on the unpaid balance of the just
compensation for Land 3 should be computed from the time of taking and not from January 1, 2010 as
ruled by the RTC and the CA, until full payment on October 12, 2011.107 However, copies of the
emancipation patents issued to the farmer-beneficiaries have not been attached to the records of the
case. Hence, the Court is constrained to remand the case to the RTC of Naga City for receipt of evidence
as to the date of the grant of the emancipation patents, which shall serve as the reckoning point for the
computation of the interests due Santos.

WHEREFORE, the petitions are DENIED. The Decision dated December 4, 2013 and the Resolution dated
August 11, 2014 of the Court of Appeals in CA-G.R. SP Nos. 110779 and 121813 are
hereby AFFIRMED with the MODIFICATION that the awarded twelve percent (12%) interest shall be
computed from the date of taking until full payment of the just compensation on October 12, 2011 for
the property covered by TCT No. 5717 (Land 3). The records of the case are REMANDED to the Regional
Trial Court of Naga City, Branch 23 for further reception of evidence as to the date of the grant of the
emancipation patents in favor of the farmer-beneficiaries of Land 3, which shall serve as the reckoning
point for the computation of the said award.

SO ORDERED.