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G.R. No. L-7995             May 31, 1957

LAO H. ICHONG, in his own behalf and in behalf of other alien residents, corporations and partnerships
adversely affected. by Republic Act No. 1180, petitioner,
vs.
JAIME HERNANDEZ, Secretary of Finance, and MARCELINO SARMIENTO, City Treasurer of
Manila, respondents.

I. The case and issue, in general

This Court has before it the delicate task of passing upon the validity and constitutionality of a legislative enactment,
fundamental and far-reaching in significance. The enactment poses questions of due process, police power and
equal protection of the laws. It also poses an important issue of fact, that is whether the conditions which the
disputed law purports to remedy really or actually exist. Admittedly springing from a deep, militant, and positive
nationalistic impulse, the law purports to protect citizen and country from the alien retailer. Through it, and within the
field of economy it regulates, Congress attempts to translate national aspirations for economic independence and
national security, rooted in the drive and urge for national survival and welfare, into a concrete and tangible
measures designed to free the national retailer from the competing dominance of the alien, so that the country and
the nation may be free from a supposed economic dependence and bondage. Do the facts and circumstances
justify the enactment?

II. Pertinent provisions of Republic Act No. 1180

Republic Act No. 1180 is entitled "An Act to Regulate the Retail Business." In effect it nationalizes the retail trade
business. The main provisions of the Act are: (1) a prohibition against persons, not citizens of the Philippines, and
against associations, partnerships, or corporations the capital of which are not wholly owned by citizens of the
Philippines, from engaging directly or indirectly in the retail trade; (2) an exception from the above prohibition in
favor of aliens actually engaged in said business on May 15, 1954, who are allowed to continue to engaged therein,
unless their licenses are forfeited in accordance with the law, until their death or voluntary retirement in case of
natural persons, and for ten years after the approval of the Act or until the expiration of term in case of juridical
persons; (3) an exception therefrom in favor of citizens and juridical entities of the United States; (4) a provision for
the forfeiture of licenses (to engage in the retail business) for violation of the laws on nationalization, control weights
and measures and labor and other laws relating to trade, commerce and industry; (5) a prohibition against the
establishment or opening by aliens actually engaged in the retail business of additional stores or branches of retail
business, (6) a provision requiring aliens actually engaged in the retail business to present for registration with the
proper authorities a verified statement concerning their businesses, giving, among other matters, the nature of the
business, their assets and liabilities and their offices and principal offices of judicial entities; and (7) a provision
allowing the heirs of aliens now engaged in the retail business who die, to continue such business for a period of six
months for purposes of liquidation.

III. Grounds upon which petition is based-Answer thereto

Petitioner, for and in his own behalf and on behalf of other alien residents corporations and partnerships adversely
affected by the provisions of Republic Act. No. 1180, brought this action to obtain a judicial declaration that said Act
is unconstitutional, and to enjoin the Secretary of Finance and all other persons acting under him, particularly city
and municipal treasurers, from enforcing its provisions. Petitioner attacks the constitutionality of the Act, contending
that: (1) it denies to alien residents the equal protection of the laws and deprives of their liberty and property without
due process of law ; (2) the subject of the Act is not expressed or comprehended in the title thereof; (3) the Act
violates international and treaty obligations of the Republic of the Philippines; (4) the provisions of the Act against
the transmission by aliens of their retail business thru hereditary succession, and those requiring 100% Filipino
capitalization for a corporation or entity to entitle it to engage in the retail business, violate the spirit of Sections 1
and 5, Article XIII and Section 8 of Article XIV of the Constitution.

In answer, the Solicitor-General and the Fiscal of the City of Manila contend that: (1) the Act was passed in the valid
exercise of the police power of the State, which exercise is authorized in the Constitution in the interest of national
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economic survival; (2) the Act has only one subject embraced in the title; (3) no treaty or international obligations are
infringed; (4) as regards hereditary succession, only the form is affected but the value of the property is not
impaired, and the institution of inheritance is only of statutory origin.

IV. Preliminary consideration of legal principles involved

a. The police power. —

There is no question that the Act was approved in the exercise of the police power, but petitioner claims that its
exercise in this instance is attended by a violation of the constitutional requirements of due process and equal
protection of the laws. But before proceeding to the consideration and resolution of the ultimate issue involved, it
would be well to bear in mind certain basic and fundamental, albeit preliminary, considerations in the determination
of the ever recurrent conflict between police power and the guarantees of due process and equal protection of the
laws. What is the scope of police power, and how are the due process and equal protection clauses related to it?
What is the province and power of the legislature, and what is the function and duty of the courts? These
consideration must be clearly and correctly understood that their application to the facts of the case may be brought
forth with clarity and the issue accordingly resolved.

It has been said the police power is so far - reaching in scope, that it has become almost impossible to limit its
sweep. As it derives its existence from the very existence of the State itself, it does not need to be expressed or
defined in its scope; it is said to be co-extensive with self-protection and survival, and as such it is the most positive
and active of all governmental processes, the most essential, insistent and illimitable. Especially is it so under a
modern democratic framework where the demands of society and of nations have multiplied to almost unimaginable
proportions; the field and scope of police power has become almost boundless, just as the fields of public interest
and public welfare have become almost all-embracing and have transcended human foresight. Otherwise stated, as
we cannot foresee the needs and demands of public interest and welfare in this constantly changing and
progressive world, so we cannot delimit beforehand the extent or scope of police power by which and through which
the State seeks to attain or achieve interest or welfare. So it is that Constitutions do not define the scope or extent of
the police power of the State; what they do is to set forth the limitations thereof. The most important of these are the
due process clause and the equal protection clause.

b. Limitations on police power. —

The basic limitations of due process and equal protection are found in the following provisions of our Constitution:

SECTION 1.(1) No person shall be deprived of life, liberty or property without due process of law, nor any
person be denied the equal protection of the laws. (Article III, Phil. Constitution)

These constitutional guarantees which embody the essence of individual liberty and freedom in democracies, are
not limited to citizens alone but are admittedly universal in their application, without regard to any differences of
race, of color, or of nationality. (Yick Wo vs. Hopkins, 30, L. ed. 220, 226.)

c. The, equal protection clause. —

The equal protection of the law clause is against undue favor and individual or class privilege, as well as hostile
discrimination or the oppression of inequality. It is not intended to prohibit legislation, which is limited either in the
object to which it is directed or by territory within which is to operate. It does not demand absolute equality among
residents; it merely requires that all persons shall be treated alike, under like circumstances and conditions both as
to privileges conferred and liabilities enforced. The equal protection clause is not infringed by legislation which
applies only to those persons falling within a specified class, if it applies alike to all persons within such class, and
reasonable grounds exists for making a distinction between those who fall within such class and those who do not.
(2 Cooley, Constitutional Limitations, 824-825.)

d. The due process clause. —

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The due process clause has to do with the reasonableness of legislation enacted in pursuance of the police power.
Is there public interest, a public purpose; is public welfare involved? Is the Act reasonably necessary for the
accomplishment of the legislature's purpose; is it not unreasonable, arbitrary or oppressive? Is there sufficient
foundation or reason in connection with the matter involved; or has there not been a capricious use of the legislative
power? Can the aims conceived be achieved by the means used, or is it not merely an unjustified interference with
private interest? These are the questions that we ask when the due process test is applied.

The conflict, therefore, between police power and the guarantees of due process and equal protection of the laws is
more apparent than real. Properly related, the power and the guarantees are supposed to coexist. The balancing is
the essence or, shall it be said, the indispensable means for the attainment of legitimate aspirations of any
democratic society. There can be no absolute power, whoever exercise it, for that would be tyranny. Yet there can
neither be absolute liberty, for that would mean license and anarchy. So the State can deprive persons of life, liberty
and property, provided there is due process of law; and persons may be classified into classes and groups, provided
everyone is given the equal protection of the law. The test or standard, as always, is reason. The police power
legislation must be firmly grounded on public interest and welfare, and a reasonable relation must exist between
purposes and means. And if distinction and classification has been made, there must be a reasonable basis for said
distinction.

e. Legislative discretion not subject to judicial review. —

Now, in this matter of equitable balancing, what is the proper place and role of the courts? It must not be
overlooked, in the first place, that the legislature, which is the constitutional repository of police power and exercises
the prerogative of determining the policy of the State, is by force of circumstances primarily the judge of necessity,
adequacy or reasonableness and wisdom, of any law promulgated in the exercise of the police power, or of the
measures adopted to implement the public policy or to achieve public interest. On the other hand, courts, although
zealous guardians of individual liberty and right, have nevertheless evinced a reluctance to interfere with the
exercise of the legislative prerogative. They have done so early where there has been a clear, patent or palpable
arbitrary and unreasonable abuse of the legislative prerogative. Moreover, courts are not supposed to override
legitimate policy, and courts never inquire into the wisdom of the law.

V. Economic problems sought to be remedied

With the above considerations in mind, we will now proceed to delve directly into the issue involved. If the disputed
legislation were merely a regulation, as its title indicates, there would be no question that it falls within the legitimate
scope of legislative power. But it goes further and prohibits a group of residents, the aliens, from engaging therein.
The problem becomes more complex because its subject is a common, trade or occupation, as old as society itself,
which from the immemorial has always been open to residents, irrespective of race, color or citizenship.

a. Importance of retail trade in the economy of the nation. —

In a primitive economy where families produce all that they consume and consume all that they produce, the dealer,
of course, is unknown. But as group life develops and families begin to live in communities producing more than
what they consume and needing an infinite number of things they do not produce, the dealer comes into existence.
As villages develop into big communities and specialization in production begins, the dealer's importance is
enhanced. Under modern conditions and standards of living, in which man's needs have multiplied and diversified to
unlimited extents and proportions, the retailer comes as essential as the producer, because thru him the infinite
variety of articles, goods and needed for daily life are placed within the easy reach of consumers. Retail dealers
perform the functions of capillaries in the human body, thru which all the needed food and supplies are ministered to
members of the communities comprising the nation.

There cannot be any question about the importance of the retailer in the life of the community. He ministers to the
resident's daily needs, food in all its increasing forms, and the various little gadgets and things needed for home and
daily life. He provides his customers around his store with the rice or corn, the fish, the salt, the vinegar, the spices
needed for the daily cooking. He has cloths to sell, even the needle and the thread to sew them or darn the clothes
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that wear out. The retailer, therefore, from the lowly peddler, the owner of a small sari-sari store, to the operator of a
department store or, a supermarket is so much a part of day-to-day existence.

b. The alien retailer's trait. —

The alien retailer must have started plying his trades in this country in the bigger centers of population (Time there
was when he was unknown in provincial towns and villages). Slowly but gradually be invaded towns and villages;
now he predominates in the cities and big centers of population. He even pioneers, in far away nooks where the
beginnings of community life appear, ministering to the daily needs of the residents and purchasing their agricultural
produce for sale in the towns. It is an undeniable fact that in many communities the alien has replaced the native
retailer. He has shown in this trade, industry without limit, and the patience and forbearance of a slave.

Derogatory epithets are hurled at him, but he laughs these off without murmur; insults of ill-bred and insolent
neighbors and customers are made in his face, but he heeds them not, and he forgets and forgives. The community
takes note of him, as he appears to be harmless and extremely useful.

c. Alleged alien control and dominance. —

There is a general feeling on the part of the public, which appears to be true to fact, about the controlling and
dominant position that the alien retailer holds in the nation's economy. Food and other essentials, clothing, almost
all articles of daily life reach the residents mostly through him. In big cities and centers of population he has acquired
not only predominance, but apparent control over distribution of almost all kinds of goods, such as lumber,
hardware, textiles, groceries, drugs, sugar, flour, garlic, and scores of other goods and articles. And were it not for
some national corporations like the Naric, the Namarco, the Facomas and the Acefa, his control over principal foods
and products would easily become full and complete.

Petitioner denies that there is alien predominance and control in the retail trade. In one breath it is said that the fear
is unfounded and the threat is imagined; in another, it is charged that the law is merely the result of radicalism and
pure and unabashed nationalism. Alienage, it is said, is not an element of control; also so many unmanageable
factors in the retail business make control virtually impossible. The first argument which brings up an issue of fact
merits serious consideration. The others are matters of opinion within the exclusive competence of the legislature
and beyond our prerogative to pass upon and decide.

The best evidence are the statistics on the retail trade, which put down the figures in black and white. Between the
constitutional convention year (1935), when the fear of alien domination and control of the retail trade already filled
the minds of our leaders with fears and misgivings, and the year of the enactment of the nationalization of the retail
trade act (1954), official statistics unmistakably point out to the ever-increasing dominance and control by the alien
of the retail trade, as witness the following tables:

Assets Gross Sales

Year and Retailers Per cent Per cent
No.-Establishments Pesos Pesos
Nationality Distribution Distribution
1941:
Filipino .......... 106,671 200,323,138 55.82 174,181,924 51.74
Chinese ......... 15,356 118,348,692 32.98 148,813,239 44.21
..
Others ............ 1,646 40,187,090 11.20 13,630,239 4.05
1947:
Filipino .......... 111,107 208,658,946 65.05 279,583,333 57.03
Chinese ......... 13,774 106,156,218 33.56 205,701,134 41.96
..
Others ........... 354 8,761,260 .49 4,927,168 1.01
1948: (Census)
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Filipino .......... 113,631 213,342,264 67.30 467,161,667 60.51

Chinese ......... 12,087 93,155,459 29.38 294,894,227 38.20
.
Others .......... 422 10,514,675 3.32 9,995,402 1.29
1949:
Filipino .......... 113,659 213,451,602 60.89 462,532,901 53.47
Chinese ......... 16,248 125,223,336 35.72 392,414,875 45.36
.
Others .......... 486 12,056,365 3.39 10,078,364 1.17
1951:
Filipino ......... 119,352 224,053,620 61.09 466,058,052 53.07
Chinese ......... 17,429 134,325,303 36.60 404,481,384 46.06
.
Others .......... 347 8,614,025 2.31 7,645,327 87

AVERAGE
ASSETS AND GROSS SALES PER ESTABLISHMENT
Item
Year and Retailer's Gross Sales
Assets
Nationality (Pesos)
(Pesos)
1941:
Filipino ............................................. 1,878 1,633
Chinese .............................................. 7,707 9,691
Others ............................................... 24,415 8,281
1947:
Filipino ............................................. 1,878 2,516
Chinese ........................................... 7,707 14,934
Others .............................................. 24,749 13,919
1948: (Census)
Filipino ............................................. 1,878 4,111
Chinese ............................................. 7,707 24,398
Others .............................................. 24,916 23,686
1949:
Filipino ............................................. 1,878 4,069
Chinese .............................................. 7,707 24,152
Others .............................................. 24,807 20,737
1951:
Filipino ............................................. 1,877 3,905
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Chinese ............................................. 7,707 33,207

Others ............................................... 24,824 22,033

(Estimated Assets and Gross Sales of Retail Establishments, By Year and Nationality of Owners,
Benchmark: 1948 Census, issued by the Bureau of Census and Statistics, Department of Commerce and
Industry; pp. 18-19 of Answer.)

The above statistics do not include corporations and partnerships, while the figures on Filipino establishments
already include mere market vendors, whose capital is necessarily small..

The above figures reveal that in percentage distribution of assests and gross sales, alien participation has steadily
increased during the years. It is true, of course, that Filipinos have the edge in the number of retailers, but aliens
more than make up for the numerical gap through their assests and gross sales which average between six and
seven times those of the very many Filipino retailers. Numbers in retailers, here, do not imply superiority; the alien
invests more capital, buys and sells six to seven times more, and gains much more. The same official report,
pointing out to the known predominance of foreign elements in the retail trade, remarks that the Filipino retailers
were largely engaged in minor retailer enterprises. As observed by respondents, the native investment is thinly
spread, and the Filipino retailer is practically helpless in matters of capital, credit, price and supply.

d. Alien control and threat, subject of apprehension in Constitutional convention. —

It is this domination and control, which we believe has been sufficiently shown to exist, that is the legislature's target
in the enactment of the disputed nationalization would never have been adopted. The framers of our Constitution
also believed in the existence of this alien dominance and control when they approved a resolution categorically
declaring among other things, that "it is the sense of the Convention that the public interest requires the
nationalization of the retail trade; . . . ." (II Aruego, The Framing of the Philippine Constitution, 662-663, quoted on
page 67 of Petitioner.) That was twenty-two years ago; and the events since then have not been either pleasant or
comforting. Dean Sinco of the University of the Philippines College of Law, commenting on the patrimony clause of
the Preamble opines that the fathers of our Constitution were merely translating the general preoccupation of
Filipinos "of the dangers from alien interests that had already brought under their control the commercial and other
economic activities of the country" (Sinco, Phil. Political Law, 10th ed., p. 114); and analyzing the concern of the
members of the constitutional convention for the economic life of the citizens, in connection with the nationalistic
provisions of the Constitution, he says:

But there has been a general feeling that alien dominance over the economic life of the country is not
desirable and that if such a situation should remain, political independence alone is no guarantee to national
stability and strength. Filipino private capital is not big enough to wrest from alien hands the control of the
national economy. Moreover, it is but of recent formation and hence, largely inexperienced, timid and
hesitant. Under such conditions, the government as the instrumentality of the national will, has to step in and
assume the initiative, if not the leadership, in the struggle for the economic freedom of the nation in
somewhat the same way that it did in the crusade for political freedom. Thus . . . it (the Constitution)
envisages an organized movement for the protection of the nation not only against the possibilities of armed
invasion but also against its economic subjugation by alien interests in the economic field. (Phil. Political
Law by Sinco, 10th ed., p. 476.)

Belief in the existence of alien control and predominance is felt in other quarters. Filipino businessmen,
manufacturers and producers believe so; they fear the dangers coming from alien control, and they express
sentiments of economic independence. Witness thereto is Resolution No. 1, approved on July 18, 1953, of the Fifth
National convention of Filipino Businessmen, and a similar resolution, approved on March 20, 1954, of the Second
National Convention of Manufacturers and Producers. The man in the street also believes, and fears, alien
predominance and control; so our newspapers, which have editorially pointed out not only to control but to alien
stranglehold. We, therefore, find alien domination and control to be a fact, a reality proved by official statistics, and
felt by all the sections and groups that compose the Filipino community.
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e. Dangers of alien control and dominance in retail. —

But the dangers arising from alien participation in the retail trade does not seem to lie in the predominance alone;
there is a prevailing feeling that such predominance may truly endanger the national interest. With ample capital,
unity of purpose and action and thorough organization, alien retailers and merchants can act in such complete
unison and concert on such vital matters as the fixing of prices, the determination of the amount of goods or articles
to be made available in the market, and even the choice of the goods or articles they would or would not patronize
or distribute, that fears of dislocation of the national economy and of the complete subservience of national
economy and of the consuming public are not entirely unfounded. Nationals, producers and consumers alike can be
placed completely at their mercy. This is easily illustrated. Suppose an article of daily use is desired to be prescribed
by the aliens, because the producer or importer does not offer them sufficient profits, or because a new competing
article offers bigger profits for its introduction. All that aliens would do is to agree to refuse to sell the first article,
eliminating it from their stocks, offering the new one as a substitute. Hence, the producers or importers of the
prescribed article, or its consumers, find the article suddenly out of the prescribed article, or its consumers, find the
article suddenly out of circulation. Freedom of trade is thus curtailed and free enterprise correspondingly
suppressed.

We can even go farther than theoretical illustrations to show the pernicious influences of alien domination. Grave
abuses have characterized the exercise of the retail trade by aliens. It is a fact within judicial notice, which courts of
justice may not properly overlook or ignore in the interests of truth and justice, that there exists a general feeling on
the part of the public that alien participation in the retail trade has been attended by a pernicious and intolerable
practices, the mention of a few of which would suffice for our purposes; that at some time or other they have
cornered the market of essential commodities, like corn and rice, creating artificial scarcities to justify and enhance
profits to unreasonable proportions; that they have hoarded essential foods to the inconvenience and prejudice of
the consuming public, so much so that the Government has had to establish the National Rice and Corn
Corporation to save the public from their continuous hoarding practices and tendencies; that they have violated
price control laws, especially on foods and essential commodities, such that the legislature had to enact a law (Sec.
9, Republic Act No. 1168), authorizing their immediate and automatic deportation for price control convictions; that
they have secret combinations among themselves to control prices, cheating the operation of the law of supply and
demand; that they have connived to boycott honest merchants and traders who would not cater or yield to their
demands, in unlawful restraint of freedom of trade and enterprise. They are believed by the public to have evaded
tax laws, smuggled goods and money into and out of the land, violated import and export prohibitions, control laws
and the like, in derision and contempt of lawful authority. It is also believed that they have engaged in corrupting
public officials with fabulous bribes, indirectly causing the prevalence of graft and corruption in the Government. As
a matter of fact appeals to unscrupulous aliens have been made both by the Government and by their own lawful
diplomatic representatives, action which impliedly admits a prevailing feeling about the existence of many of the
above practices.

The circumstances above set forth create well founded fears that worse things may come in the future. The present
dominance of the alien retailer, especially in the big centers of population, therefore, becomes a potential source of
danger on occasions of war or other calamity. We do not have here in this country isolated groups of harmless
aliens retailing goods among nationals; what we have are well organized and powerful groups that dominate the
distribution of goods and commodities in the communities and big centers of population. They owe no allegiance or
loyalty to the State, and the State cannot rely upon them in times of crisis or emergency. While the national holds his
life, his person and his property subject to the needs of his country, the alien may even become the potential enemy
of the State.

f. Law enacted in interest of national economic survival and security. —

We are fully satisfied upon a consideration of all the facts and circumstances that the disputed law is not the product
of racial hostility, prejudice or discrimination, but the expression of the legitimate desire and determination of the
people, thru their authorized representatives, to free the nation from the economic situation that has unfortunately
been saddled upon it rightly or wrongly, to its disadvantage. The law is clearly in the interest of the public, nay of the
national security itself, and indisputably falls within the scope of police power, thru which and by which the State
insures its existence and security and the supreme welfare of its citizens.
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VI. The Equal Protection Limitation

a. Objections to alien participation in retail trade. — The next question that now poses solution is, Does the law deny
the equal protection of the laws? As pointed out above, the mere fact of alienage is the root and cause of the
distinction between the alien and the national as a trader. The alien resident owes allegiance to the country of his
birth or his adopted country; his stay here is for personal convenience; he is attracted by the lure of gain and profit.
His aim or purpose of stay, we admit, is neither illegitimate nor immoral, but he is naturally lacking in that spirit of
loyalty and enthusiasm for this country where he temporarily stays and makes his living, or of that spirit of regard,
sympathy and consideration for his Filipino customers as would prevent him from taking advantage of their
weakness and exploiting them. The faster he makes his pile, the earlier can the alien go back to his beloved country
and his beloved kin and countrymen. The experience of the country is that the alien retailer has shown such utter
disregard for his customers and the people on whom he makes his profit, that it has been found necessary to adopt
the legislation, radical as it may seem.

Another objection to the alien retailer in this country is that he never really makes a genuine contribution to national
income and wealth. He undoubtedly contributes to general distribution, but the gains and profits he makes are not
invested in industries that would help the country's economy and increase national wealth. The alien's interest in this
country being merely transient and temporary, it would indeed be ill-advised to continue entrusting the very
important function of retail distribution to his hands.

The practices resorted to by aliens in the control of distribution, as already pointed out above, their secret
manipulations of stocks of commodities and prices, their utter disregard of the welfare of their customers and of the
ultimate happiness of the people of the nation of which they are mere guests, which practices, manipulations and
disregard do not attend the exercise of the trade by the nationals, show the existence of real and actual, positive
and fundamental differences between an alien and a national which fully justify the legislative classification adopted
in the retail trade measure. These differences are certainly a valid reason for the State to prefer the national over
the alien in the retail trade. We would be doing violence to fact and reality were we to hold that no reason or ground
for a legitimate distinction can be found between one and the other.

b. Difference in alien aims and purposes sufficient basis for distinction. —

The above objectionable characteristics of the exercise of the retail trade by the aliens, which are actual and real,
furnish sufficient grounds for legislative classification of retail traders into nationals and aliens. Some may disagree
with the wisdom of the legislature's classification. To this we answer, that this is the prerogative of the law-making
power. Since the Court finds that the classification is actual, real and reasonable, and all persons of one class are
treated alike, and as it cannot be said that the classification is patently unreasonable and unfounded, it is in duty
bound to declare that the legislature acted within its legitimate prerogative and it can not declare that the act
transcends the limit of equal protection established by the Constitution.

Broadly speaking, the power of the legislature to make distinctions and classifications among persons is not
curtailed or denied by the equal protection of the laws clause. The legislative power admits of a wide scope of
discretion, and a law can be violative of the constitutional limitation only when the classification is without
reasonable basis. In addition to the authorities we have earlier cited, we can also refer to the case of Linsey vs.
Natural Carbonic Fas Co. (1911), 55 L. ed., 369, which clearly and succinctly defined the application of equal
protection clause to a law sought to be voided as contrary thereto:

. . . . "1. The equal protection clause of the Fourteenth Amendment does not take from the state the power
to classify in the adoption of police laws, but admits of the exercise of the wide scope of discretion in that
regard, and avoids what is done only when it is without any reasonable basis, and therefore is purely
arbitrary. 2. A classification having some reasonable basis does not offend against that clause merely
because it is not made with mathematical nicety, or because in practice it results in some inequality. 3.
When the classification in such a law is called in question, if any state of facts reasonably can be conceived
that would sustain it, the existence of that state of facts at the time the law was enacted must be assumed.
4. One who assails the classification in such a law must carry the burden of showing that it does not rest
upon any reasonable basis but is essentially arbitrary."
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c. Authorities recognizing citizenship as basis for classification. —

The question as to whether or not citizenship is a legal and valid ground for classification has already been
affirmatively decided in this jurisdiction as well as in various courts in the United States. In the case of Smith Bell &
Co. vs. Natividad, 40 Phil. 136, where the validity of Act No. 2761 of the Philippine Legislature was in issue,
because of a condition therein limiting the ownership of vessels engaged in coastwise trade to corporations formed
by citizens of the Philippine Islands or the United States, thus denying the right to aliens, it was held that the
Philippine Legislature did not violate the equal protection clause of the Philippine Bill of Rights. The legislature in
enacting the law had as ultimate purpose the encouragement of Philippine shipbuilding and the safety for these
Islands from foreign interlopers. We held that this was a valid exercise of the police power, and all presumptions are
in favor of its constitutionality. In substance, we held that the limitation of domestic ownership of vessels engaged in
coastwise trade to citizens of the Philippines does not violate the equal protection of the law and due process or law
clauses of the Philippine Bill of Rights. In rendering said decision we quoted with approval the concurring opinion of
Justice Johnson in the case of Gibbons vs. Ogden, 9 Wheat., I, as follows:

"Licensing acts, in fact, in legislation, are universally restraining acts; as, for example, acts licensing gaming
houses, retailers of spirituous liquors, etc. The act, in this instance, is distinctly of that character, and forms
part of an extensive system, the object of which is to encourage American shipping, and place them on an
equal footing with the shipping of other nations. Almost every commercial nation reserves to its own subjects
a monopoly of its coasting trade; and a countervailing privilege in favor of American shipping is
contemplated, in the whole legislation of the United States on this subject. It is not to give the vessel an
American character, that the license is granted; that effect has been correctly attributed to the act of her
enrollment. But it is to confer on her American privileges, as contra distinguished from foreign; and to
preserve the Government from fraud by foreigners; in surreptitiously intruding themselves into the American
commercial marine, as well as frauds upon the revenue in the trade coastwise, that this whole system is
projected."

The rule in general is as follows:

Aliens are under no special constitutional protection which forbids a classification otherwise justified simply
because the limitation of the class falls along the lines of nationality. That would be requiring a higher degree
of protection for aliens as a class than for similar classes than for similar classes of American citizens.
Broadly speaking, the difference in status between citizens and aliens constitutes a basis for reasonable
classification in the exercise of police power. (2 Am., Jur. 468-469.)

In Commonwealth vs. Hana, 81 N. E. 149 (Massachusetts, 1907), a statute on the licensing of hawkers and
peddlers, which provided that no one can obtain a license unless he is, or has declared his intention, to become a
citizen of the United States, was held valid, for the following reason: It may seem wise to the legislature to limit the
business of those who are supposed to have regard for the welfare, good order and happiness of the community,
and the court cannot question this judgment and conclusion. In Bloomfield vs. State, 99 N. E. 309 (Ohio, 1912), a
statute which prevented certain persons, among them aliens, from engaging in the traffic of liquors, was found not to
be the result of race hatred, or in hospitality, or a deliberate purpose to discriminate, but was based on the belief
that an alien cannot be sufficiently acquainted with "our institutions and our life as to enable him to appreciate the
relation of this particular business to our entire social fabric", and was not, therefore, invalid. In Ohio ex rel. Clarke
vs. Deckebach, 274 U. S. 392, 71 L. ed. 115 (1926), the U.S. Supreme Court had under consideration an ordinance
of the city of Cincinnati prohibiting the issuance of licenses (pools and billiard rooms) to aliens. It held that plainly
irrational discrimination against aliens is prohibited, but it does not follow that alien race and allegiance may not bear
in some instances such a relation to a legitimate object of legislation as to be made the basis of permitted
classification, and that it could not state that the legislation is clearly wrong; and that latitude must be allowed for the
legislative appraisement of local conditions and for the legislative choice of methods for controlling an apprehended
evil. The case of State vs. Carrol, 124 N. E. 129 (Ohio, 1919) is a parallel case to the one at bar. In Asakura vs. City
of Seattle, 210 P. 30 (Washington, 1922), the business of pawn brooking was considered as having tendencies
injuring public interest, and limiting it to citizens is within the scope of police power. A similar statute denying aliens
the right to engage in auctioneering was also sustained in Wright vs. May, L.R.A., 1915 P. 151 (Minnesota, 1914).
So also in Anton vs. Van Winkle, 297 F. 340 (Oregon, 1924), the court said that aliens are judicially known to have
different interests, knowledge, attitude, psychology and loyalty, hence the prohibitions of issuance of licenses to
 Page 10 of 162

them for the business of pawnbroker, pool, billiard, card room, dance hall, is not an infringement of constitutional
rights. In Templar vs. Michigan State Board of Examiners, 90 N.W. 1058 (Michigan, 1902), a law prohibiting the
licensing of aliens as barbers was held void, but the reason for the decision was the court's findings that the
exercise of the business by the aliens does not in any way affect the morals, the health, or even the convenience of
the community. In Takahashi vs. Fish and Game Commission, 92 L. ed. 1479 (1947), a California statute banning
the issuance of commercial fishing licenses to person ineligible to citizenship was held void, because the law
conflicts with Federal power over immigration, and because there is no public interest in the mere claim of
ownership of the waters and the fish in them, so there was no adequate justification for the discrimination. It further
added that the law was the outgrowth of antagonism toward the persons of Japanese ancestry. However, two
Justices dissented on the theory that fishing rights have been treated traditionally as natural resources. In Fraser vs.
McConway & Tarley Co., 82 Fed. 257 (Pennsylvania, 1897), a state law which imposed a tax on every employer of
foreign-born unnaturalized male persons over 21 years of age, was declared void because the court found that
there was no reason for the classification and the tax was an arbitrary deduction from the daily wage of an
employee.

d. Authorities contra explained. —

It is true that some decisions of the Federal court and of the State courts in the United States hold that the
distinction between aliens and citizens is not a valid ground for classification. But in this decision the laws declared
invalid were found to be either arbitrary, unreasonable or capricious, or were the result or product of racial
antagonism and hostility, and there was no question of public interest involved or pursued. In Yu Cong Eng vs.
Trinidad, 70 L. ed. 1059 (1925), the United States Supreme Court declared invalid a Philippine law making unlawful
the keeping of books of account in any language other than English, Spanish or any other local dialect, but the main
reasons for the decisions are: (1) that if Chinese were driven out of business there would be no other system of
distribution, and (2) that the Chinese would fall prey to all kinds of fraud, because they would be deprived of their
right to be advised of their business and to direct its conduct. The real reason for the decision, therefore, is the
court's belief that no public benefit would be derived from the operations of the law and on the other hand it would
deprive Chinese of something indispensable for carrying on their business. In Yick Wo vs. Hopkins, 30 L. ed 220
(1885) an ordinance conferring powers on officials to withhold consent in the operation of laundries both as to
persons and place, was declared invalid, but the court said that the power granted was arbitrary, that there was no
reason for the discrimination which attended the administration and implementation of the law, and that the motive
thereof was mere racial hostility. In State vs. Montgomery, 47 A. 165 (Maine, 1900), a law prohibiting aliens to
engage as hawkers and peddlers was declared void, because the discrimination bore no reasonable and just
relation to the act in respect to which the classification was proposed.

The case at bar is radically different, and the facts make them so. As we already have said, aliens do not naturally
possess the sympathetic consideration and regard for the customers with whom they come in daily contact, nor the
patriotic desire to help bolster the nation's economy, except in so far as it enhances their profit, nor the loyalty and
allegiance which the national owes to the land. These limitations on the qualifications of the aliens have been shown
on many occasions and instances, especially in times of crisis and emergency. We can do no better than borrow the
language of Anton vs. Van Winkle, 297 F. 340, 342, to drive home the reality and significance of the distinction
between the alien and the national, thus:

. . . . It may be judicially known, however, that alien coming into this country are without the intimate
knowledge of our laws, customs, and usages that our own people have. So it is likewise known that certain
classes of aliens are of different psychology from our fellow countrymen. Furthermore, it is natural and
reasonable to suppose that the foreign born, whose allegiance is first to their own country, and whose ideals
of governmental environment and control have been engendered and formed under entirely different
regimes and political systems, have not the same inspiration for the public weal, nor are they as well
disposed toward the United States, as those who by citizenship, are a part of the government itself. Further
enlargement, is unnecessary. I have said enough so that obviously it cannot be affirmed with absolute
confidence that the Legislature was without plausible reason for making the classification, and therefore
appropriate discriminations against aliens as it relates to the subject of legislation. . . . .

VII. The Due Process of Law Limitation.

 Page 11 of 162

a. Reasonability, the test of the limitation; determination by legislature decisive. —

We now come to due process as a limitation on the exercise of the police power. It has been stated by the highest
authority in the United States that:

. . . . And the guaranty of due process, as has often been held, demands only that the law shall not be
unreasonable, arbitrary or capricious, and that the means selected shall have a real and substantial relation
to the subject sought to be attained. . . . .

xxx     xxx     xxx

So far as the requirement of due process is concerned and in the absence of other constitutional restriction
a state is free to adopt whatever economic policy may reasonably be deemed to promote public welfare, and
to enforce that policy by legislation adapted to its purpose. The courts are without authority either to declare
such policy, or, when it is declared by the legislature, to override it. If the laws passed are seen to have a
reasonable relation to a proper legislative purpose, and are neither arbitrary nor discriminatory, the
requirements of due process are satisfied, and judicial determination to that effect renders a court functus
officio. . . . (Nebbia vs. New York, 78 L. ed. 940, 950, 957.)

Another authority states the principle thus:

. . . . Too much significance cannot be given to the word "reasonable" in considering the scope of the police
power in a constitutional sense, for the test used to determine the constitutionality of the means employed
by the legislature is to inquire whether the restriction it imposes on rights secured to individuals by the Bill of
Rights are unreasonable, and not whether it imposes any restrictions on such rights. . . .

xxx     xxx     xxx

. . . . A statute to be within this power must also be reasonable in its operation upon the persons whom it
affects, must not be for the annoyance of a particular class, and must not be unduly oppressive. (11 Am. Jur.
Sec. 302., 1:1)- 1074-1075.)

In the case of Lawton vs. Steele, 38 L. ed. 385, 388. it was also held:

. . . . To justify the state in thus interposing its authority in behalf of the public, it must appear, first, that the
interests of the public generally, as distinguished from those of a particular class, require such interference;
and second, that the means are reasonably necessary for the accomplishment of the purpose, and not
unduly oppressive upon individuals. . . .

Prata Undertaking Co. vs. State Board of Embalming, 104 ALR, 389, 395, fixes this test of constitutionality:

In determining whether a given act of the Legislature, passed in the exercise of the police power to regulate
the operation of a business, is or is not constitutional, one of the first questions to be considered by the court
is whether the power as exercised has a sufficient foundation in reason in connection with the matter
involved, or is an arbitrary, oppressive, and capricious use of that power, without substantial relation to the
health, safety, morals, comfort, and general welfare of the public.

b. Petitioner's argument considered. —

Petitioner's main argument is that retail is a common, ordinary occupation, one of those privileges long ago
recognized as essential to the orderly pursuant of happiness by free men; that it is a gainful and honest occupation
and therefore beyond the power of the legislature to prohibit and penalized. This arguments overlooks fact and
reality and rests on an incorrect assumption and premise, i.e., that in this country where the occupation is engaged
in by petitioner, it has been so engaged by him, by the alien in an honest creditable and unimpeachable manner,
 Page 12 of 162

without harm or injury to the citizens and without ultimate danger to their economic peace, tranquility and welfare.
But the Legislature has found, as we have also found and indicated, that the privilege has been so grossly abused
by the alien, thru the illegitimate use of pernicious designs and practices, that he now enjoys a monopolistic control
of the occupation and threatens a deadly stranglehold on the nation's economy endangering the national security in
times of crisis and emergency.

The real question at issue, therefore, is not that posed by petitioner, which overlooks and ignores the facts and
circumstances, but this, Is the exclusion in the future of aliens from the retail trade unreasonable. Arbitrary
capricious, taking into account the illegitimate and pernicious form and manner in which the aliens have heretofore
engaged therein? As thus correctly stated the answer is clear. The law in question is deemed absolutely necessary
to bring about the desired legislative objective, i.e., to free national economy from alien control and dominance. It is
not necessarily unreasonable because it affects private rights and privileges (11 Am. Jur. pp. 1080-1081.) The test
of reasonableness of a law is the appropriateness or adequacy under all circumstances of the means adopted to
carry out its purpose into effect (Id.) Judged by this test, disputed legislation, which is not merely reasonable but
actually necessary, must be considered not to have infringed the constitutional limitation of reasonableness.

The necessity of the law in question is explained in the explanatory note that accompanied the bill, which later was
enacted into law:

This bill proposes to regulate the retail business. Its purpose is to prevent persons who are not citizens of
the Philippines from having a strangle hold upon our economic life. If the persons who control this vital artery
of our economic life are the ones who owe no allegiance to this Republic, who have no profound devotion to
our free institutions, and who have no permanent stake in our people's welfare, we are not really the
masters of our destiny. All aspects of our life, even our national security, will be at the mercy of other people.

In seeking to accomplish the foregoing purpose, we do not propose to deprive persons who are not citizens
of the Philippines of their means of livelihood. While this bill seeks to take away from the hands of persons
who are not citizens of the Philippines a power that can be wielded to paralyze all aspects of our national life
and endanger our national security it respects existing rights.

The approval of this bill is necessary for our national survival.

If political independence is a legitimate aspiration of a people, then economic independence is none the less
legitimate. Freedom and liberty are not real and positive if the people are subject to the economic control and
domination of others, especially if not of their own race or country. The removal and eradication of the shackles of
foreign economic control and domination, is one of the noblest motives that a national legislature may pursue. It is
impossible to conceive that legislation that seeks to bring it about can infringe the constitutional limitation of due
process. The attainment of a legitimate aspiration of a people can never be beyond the limits of legislative authority.

c. Law expressly held by Constitutional Convention to be within the sphere of legislative action. —

The framers of the Constitution could not have intended to impose the constitutional restrictions of due process on
the attainment of such a noble motive as freedom from economic control and domination, thru the exercise of the
police power. The fathers of the Constitution must have given to the legislature full authority and power to enact
legislation that would promote the supreme happiness of the people, their freedom and liberty. On the precise issue
now before us, they expressly made their voice clear; they adopted a resolution expressing their belief that the
legislation in question is within the scope of the legislative power. Thus they declared the their Resolution:

That it is the sense of the Convention that the public interest requires the nationalization of retail trade; but it
abstain from approving the amendment introduced by the Delegate for Manila, Mr. Araneta, and others on
this matter because it is convinced that the National Assembly is authorized to promulgate a law which limits
to Filipino and American citizens the privilege to engage in the retail trade. (11 Aruego, The Framing of the
Philippine Constitution, quoted on pages 66 and 67 of the Memorandum for the Petitioner.)
 Page 13 of 162

It would do well to refer to the nationalistic tendency manifested in various provisions of the Constitution. Thus in the
preamble, a principle objective is the conservation of the patrimony of the nation and as corollary the provision
limiting to citizens of the Philippines the exploitation, development and utilization of its natural resources. And in
Section 8 of Article XIV, it is provided that "no franchise, certificate, or any other form of authorization for the
operation of the public utility shall be granted except to citizens of the Philippines." The nationalization of the retail
trade is only a continuance of the nationalistic protective policy laid down as a primary objective of the Constitution.
Can it be said that a law imbued with the same purpose and spirit underlying many of the provisions of the
Constitution is unreasonable, invalid and unconstitutional?

The seriousness of the Legislature's concern for the plight of the nationals as manifested in the approval of the
radical measures is, therefore, fully justified. It would have been recreant to its duties towards the country and its
people would it view the sorry plight of the nationals with the complacency and refuse or neglect to adopt a remedy
commensurate with the demands of public interest and national survival. As the repository of the sovereign power of
legislation, the Legislature was in duty bound to face the problem and meet, through adequate measures, the
danger and threat that alien domination of retail trade poses to national economy.

d. Provisions of law not unreasonable. —

A cursory study of the provisions of the law immediately reveals how tolerant, how reasonable the Legislature has
been. The law is made prospective and recognizes the right and privilege of those already engaged in the
occupation to continue therein during the rest of their lives; and similar recognition of the right to continue is
accorded associations of aliens. The right or privilege is denied to those only upon conviction of certain offenses. In
the deliberations of the Court on this case, attention was called to the fact that the privilege should not have been
denied to children and heirs of aliens now engaged in the retail trade. Such provision would defeat the law itself, its
aims and purposes. Beside, the exercise of legislative discretion is not subject to judicial review. It is well settled that
the Court will not inquire into the motives of the Legislature, nor pass upon general matters of legislative judgment.
The Legislature is primarily the judge of the necessity of an enactment or of any of its provisions, and every
presumption is in favor of its validity, and though the Court may hold views inconsistent with the wisdom of the law, it
may not annul the legislation if not palpably in excess of the legislative power. Furthermore, the test of the validity of
a law attacked as a violation of due process, is not its reasonableness, but its unreasonableness, and we find the
provisions are not unreasonable. These principles also answer various other arguments raised against the law,
some of which are: that the law does not promote general welfare; that thousands of aliens would be thrown out of
employment; that prices will increase because of the elimination of competition; that there is no need for the
legislation; that adequate replacement is problematical; that there may be general breakdown; that there would be
repercussions from foreigners; etc. Many of these arguments are directed against the supposed wisdom of the law
which lies solely within the legislative prerogative; they do not import invalidity.

VIII. Alleged defect in the title of the law

A subordinate ground or reason for the alleged invalidity of the law is the claim that the title thereof is misleading or
deceptive, as it conceals the real purpose of the bill which is to nationalize the retail business and prohibit aliens
from engaging therein. The constitutional provision which is claimed to be violated in Section 21 (1) of Article VI,
which reads:

No bill which may be enacted in the law shall embrace more than one subject which shall be expressed in
the title of the bill.

What the above provision prohibits is duplicity, that is, if its title completely fails to appraise the legislators or the
public of the nature, scope and consequences of the law or its operation (I Sutherland, Statutory Construction, Sec.
1707, p. 297.) A cursory consideration of the title and the provisions of the bill fails to show the presence of duplicity.
It is true that the term "regulate" does not and may not readily and at first glance convey the idea of "nationalization"
and "prohibition", which terms express the two main purposes and objectives of the law. But "regulate" is a broader
term than either prohibition or nationalization. Both of these have always been included within the term regulation.
 Page 14 of 162

Under the title of an act to "regulate", the sale of intoxicating liquors, the Legislature may prohibit the sale of
intoxicating liquors. (Sweet vs. City of Wabash, 41 Ind., 7; quoted in page 41 of Answer.)

Within the meaning of the Constitution requiring that the subject of every act of the Legislature shall be
stated in the tale, the title to regulate the sale of intoxicating liquors, etc." sufficiently expresses the subject
of an act prohibiting the sale of such liquors to minors and to persons in the habit of getting intoxicated; such
matters being properly included within the subject of regulating the sale. (Williams vs. State, 48 Ind. 306,
308, quoted in p. 42 of Answer.)

The word "regulate" is of broad import, and necessarily implies some degree of restraint and prohibition of
acts usually done in connection with the thing to be regulated. While word regulate does not ordinarily
convey meaning of prohibit, there is no absolute reason why it should not have such meaning when used in
delegating police power in connection with a thing the best or only efficacious regulation of which involves
suppression. (State vs. Morton, 162 So. 718, 182 La. 887, quoted in p. 42 of Answer.)

The general rule is for the use of general terms in the title of a bill; it has also been said that the title need not be an
index to the entire contents of the law (I Sutherland, Statutory Construction, See. 4803, p. 345.) The above rule was
followed the title of the Act in question adopted the more general term "regulate" instead of "nationalize" or
"prohibit". Furthermore, the law also contains other rules for the regulation of the retail trade which may not be
included in the terms "nationalization" or "prohibition"; so were the title changed from "regulate" to "nationalize" or
"prohibit", there would have been many provisions not falling within the scope of the title which would have made the
Act invalid. The use of the term "regulate", therefore, is in accord with the principle governing the drafting of statutes,
under which a simple or general term should be adopted in the title, which would include all other provisions found
in the body of the Act.

One purpose of the constitutional directive that the subject of a bill should be embraced in its title is to apprise the
legislators of the purposes, the nature and scope of its provisions, and prevent the enactment into law of matters
which have received the notice, action and study of the legislators or of the public. In the case at bar it cannot be
claimed that the legislators have been appraised of the nature of the law, especially the nationalization and the
prohibition provisions. The legislators took active interest in the discussion of the law, and a great many of the
persons affected by the prohibitions in the law conducted a campaign against its approval. It cannot be claimed,
therefore, that the reasons for declaring the law invalid ever existed. The objection must therefore, be overruled.

IX. Alleged violation of international treaties and obligations

Another subordinate argument against the validity of the law is the supposed violation thereby of the Charter of the
United Nations and of the Declaration of the Human Rights adopted by the United Nations General Assembly. We
find no merit in the Nations Charter imposes no strict or legal obligations regarding the rights and freedom of their
subjects (Hans Kelsen, The Law of the United Nations, 1951 ed. pp. 29-32), and the Declaration of Human Rights
contains nothing more than a mere recommendation or a common standard of achievement for all peoples and all
nations (Id. p. 39.) That such is the import of the United Nations Charter aid of the Declaration of Human Rights can
be inferred the fact that members of the United Nations Organizations, such as Norway and Denmark, prohibit
foreigners from engaging in retail trade, and in most nations of the world laws against foreigners engaged in
domestic trade are adopted.

The Treaty of Amity between the Republic of the Philippines and the Republic of China of April 18, 1947 is also
claimed to be violated by the law in question. All that the treaty guarantees is equality of treatment to the Chinese
nationals "upon the same terms as the nationals of any other country." But the nationals of China are not
discriminating against because nationals of all other countries, except those of the United States, who are granted
special rights by the Constitution, are all prohibited from engaging in the retail trade. But even supposing that the
law infringes upon the said treaty, the treaty is always subject to qualification or amendment by a subsequent law
(U. S. vs. Thompson, 258, Fed. 257, 260), and the same may never curtail or restrict the scope of the police power
of the State (plaston vs. Pennsylvania, 58 L. ed. 539.)

X. Conclusion
 Page 15 of 162

Resuming what we have set forth above we hold that the disputed law was enacted to remedy a real actual threat
and danger to national economy posed by alien dominance and control of the retail business and free citizens and
country from dominance and control; that the enactment clearly falls within the scope of the police power of the
State, thru which and by which it protects its own personality and insures its security and future; that the law does
not violate the equal protection clause of the Constitution because sufficient grounds exist for the distinction
between alien and citizen in the exercise of the occupation regulated, nor the due process of law clause, because
the law is prospective in operation and recognizes the privilege of aliens already engaged in the occupation and
reasonably protects their privilege; that the wisdom and efficacy of the law to carry out its objectives appear to us to
be plainly evident — as a matter of fact it seems not only appropriate but actually necessary — and that in any case
such matter falls within the prerogative of the Legislature, with whose power and discretion the Judicial department
of the Government may not interfere; that the provisions of the law are clearly embraced in the title, and this suffers
from no duplicity and has not misled the legislators or the segment of the population affected; and that it cannot be
said to be void for supposed conflict with treaty obligations because no treaty has actually been entered into on the
subject and the police power may not be curtailed or surrendered by any treaty or any other conventional
agreement.

Some members of the Court are of the opinion that the radical effects of the law could have been made less harsh
in its impact on the aliens. Thus it is stated that the more time should have been given in the law for the liquidation
of existing businesses when the time comes for them to close. Our legal duty, however, is merely to determine if the
law falls within the scope of legislative authority and does not transcend the limitations of due process and equal
protection guaranteed in the Constitution. Remedies against the harshness of the law should be addressed to the
Legislature; they are beyond our power and jurisdiction.

The petition is hereby denied, with costs against petitioner.

 Page 16 of 162

G.R. No. L-59234 September 30, 1982

TAXICAB OPERATORS OF METRO MANILA, INC., FELICISIMO CABIGAO and ACE TRANSPORTATION
CORPORATION, petitioners,
vs.
THE BOARD OF TRANSPORTATION and THE DIRECTOR OF THE BUREAU OF LAND
TRANSPORTATION, respondents.

This Petition for "Certiorari, Prohibition and mandamus with Preliminary Injunction and Temporary Restraining
Order" filed by the Taxicab Operators of Metro Manila, Inc., Felicisimo Cabigao and Ace Transportation, seeks to
declare the nullity of Memorandum Circular No. 77-42, dated October 10, 1977, of the Board of Transportation, and
Memorandum Circular No. 52, dated August 15, 1980, of the Bureau of Land Transportation.

Petitioner Taxicab Operators of Metro Manila, Inc. (TOMMI) is a domestic corporation composed of taxicab
operators, who are grantees of Certificates of Public Convenience to operate taxicabs within the City of Manila and
to any other place in Luzon accessible to vehicular traffic. Petitioners Ace Transportation Corporation and Felicisimo
Cabigao are two of the members of TOMMI, each being an operator and grantee of such certificate of public
convenience.

On October 10, 1977, respondent Board of Transportation (BOT) issued Memorandum Circular No. 77-42 which
reads:

SUBJECT: Phasing out and Replacement of

Old and Dilapidated Taxis

WHEREAS, it is the policy of the government to insure that only safe and comfortable units are used
as public conveyances;

WHEREAS, the riding public, particularly in Metro-Manila, has, time and again, complained against,
and condemned, the continued operation of old and dilapidated taxis;

WHEREAS, in order that the commuting public may be assured of comfort, convenience, and safety,
a program of phasing out of old and dilapidated taxis should be adopted;

WHEREAS, after studies and inquiries made by the Board of Transportation, the latter believes that
in six years of operation, a taxi operator has not only covered the cost of his taxis, but has made
reasonable profit for his investments;

NOW, THEREFORE, pursuant to this policy, the Board hereby declares that no car beyond six years
shall be operated as taxi, and in implementation of the same hereby promulgates the following rules
and regulations:

1. As of December 31, 1977, all taxis of Model 1971 and earlier are ordered withdrawn from public
service and thereafter may no longer be registered and operated as taxis. In the registration of cards
for 1978, only taxis of Model 1972 and later shall be accepted for registration and allowed for
operation;

2. As of December 31, 1978, all taxis of Model 1972 are ordered withdrawn from public service and
thereafter may no longer be registered and operated as taxis. In the registration of cars for 1979,
 Page 17 of 162

only taxis of Model 1973 and later shall be accepted for registration and allowed for operation; and
every year thereafter, there shall be a six-year lifetime of taxi, to wit:

1980 — Model 1974

1981 — Model 1975, etc.

All taxis of earlier models than those provided above are hereby ordered withdrawn from public
service as of the last day of registration of each particular year and their respective plates shall be
surrendered directly to the Board of Transportation for subsequent turnover to the Land
Transportation Commission.

For an orderly implementation of this Memorandum Circular, the rules herein shall immediately be
effective in Metro-Manila. Its implementation outside Metro- Manila shall be carried out only after the
project has been implemented in Metro-Manila and only after the date has been determined by the
Board. 1

Pursuant to the above BOT circular, respondent Director of the Bureau of Land Transportation (BLT) issued Implementing
Circular No. 52, dated August 15, 1980, instructing the Regional Director, the MV Registrars and other personnel of BLT,
all within the National Capitol Region, to implement said Circular, and formulating a schedule of phase-out of vehicles to
be allowed and accepted for registration as public conveyances. To quote said Circular:

Pursuant to BOT Memo-Circular No. 77-42, taxi units with year models over six (6) years old are
now banned from operating as public utilities in Metro Manila. As such the units involved should be
considered as automatically dropped as public utilities and, therefore, do not require any further
dropping order from the BOT.

Henceforth, taxi units within the National Capitol Region having year models over 6 years old shall
be refused registration. The following schedule of phase-out is herewith prescribed for the guidance
of all concerned:

Year Automatic
Model
Phase-
Out Year
  1980
1974 1981
1975 1982
1976 1983
1977  
etc. etc.

Strict compliance here is desired. 2

In accordance therewith, cabs of model 1971 were phase-out in registration year 1978; those of model 1972, in 1979;
those of model 1973, in 1980; and those of model 1974, in 1981.

On January 27, 1981, petitioners filed a Petition with the BOT, docketed as Case No. 80-7553, seeking to nullify MC
No. 77-42 or to stop its implementation; to allow the registration and operation in 1981 and subsequent years of
taxicabs of model 1974, as well as those of earlier models which were phased-out, provided that, at the time of
registration, they are roadworthy and fit for operation.
 Page 18 of 162

On February 16, 1981, petitioners filed before the BOT a "Manifestation and Urgent Motion", praying for an early
hearing of their petition. The case was heard on February 20, 1981. Petitioners presented testimonial and
documentary evidence, offered the same, and manifested that they would submit additional documentary proofs.
Said proofs were submitted on March 27, 1981 attached to petitioners' pleading entitled, "Manifestation,
Presentation of Additional Evidence and Submission of the Case for Resolution." 3

On November 28, 1981, petitioners filed before the same Board a "Manifestation and Urgent Motion to Resolve or Decide
Main Petition" praying that the case be resolved or decided not later than December 10, 1981 to enable them, in case of
denial, to avail of whatever remedy they may have under the law for the protection of their interests before their 1975
model cabs are phased-out on January 1, 1982.

Petitioners, through its President, allegedly made personal follow-ups of the case, but was later informed that the
records of the case could not be located.

On December 29, 1981, the present Petition was instituted wherein the following queries were posed for
consideration by this Court:

A. Did BOT and BLT promulgate the questioned memorandum circulars in accord with the manner
required by Presidential Decree No. 101, thereby safeguarding the petitioners' constitutional right to
procedural due process?

B. Granting, arguendo, that respondents did comply with the procedural requirements imposed by
Presidential Decree No. 101, would the implementation and enforcement of the assailed
memorandum circulars violate the petitioners' constitutional rights to.

(1) Equal protection of the law;

(2) Substantive due process; and

(3) Protection against arbitrary and unreasonable classification and

standard?

On Procedural and Substantive Due Process:

Presidential Decree No. 101 grants to the Board of Transportation the power

4. To fix just and reasonable standards, classification, regulations, practices, measurements, or

service to be furnished, imposed, observed, and followed by operators of public utility motor
vehicles.

Section 2 of said Decree provides procedural guidelines for said agency to follow in the exercise of its powers:

Sec. 2. Exercise of powers. — In the exercise of the powers granted in the preceding section, the
Board shag proceed promptly along the method of legislative inquiry.

Apart from its own investigation and studies, the Board, in its discretion, may require the cooperation
and assistance of the Bureau of Transportation, the Philippine Constabulary, particularly the
Highway Patrol Group, the support agencies within the Department of Public Works, Transportation
and Communications, or any other government office or agency that may be able to furnish useful
information or data in the formulation of the Board of any policy, plan or program in the
implementation of this Decree.
 Page 19 of 162

The Board may also can conferences, require the submission of position papers or other documents,
information, or data by operators or other persons that may be affected by the implementation of this
Decree, or employ any other suitable means of inquiry.

In support of their submission that they were denied procedural due process, petitioners contend that they were not
caged upon to submit their position papers, nor were they ever summoned to attend any conference prior to the
issuance of the questioned BOT Circular.

It is clear from the provision aforequoted, however, that the leeway accorded the Board gives it a wide range of
choice in gathering necessary information or data in the formulation of any policy, plan or program. It is not
mandatory that it should first call a conference or require the submission of position papers or other documents from
operators or persons who may be affected, this being only one of the options open to the Board, which is given wide
discretionary authority. Petitioners cannot justifiably claim, therefore, that they were deprived of procedural due
process. Neither can they state with certainty that public respondents had not availed of other sources of inquiry
prior to issuing the challenged Circulars. operators of public conveyances are not the only primary sources of the
data and information that may be desired by the BOT.

Dispensing with a public hearing prior to the issuance of the Circulars is neither violative of procedural due process.
As held in Central Bank vs. Hon. Cloribel and Banco Filipino, 44 SCRA 307 (1972):

Pevious notice and hearing as elements of due process, are constitutionally required for the
protection of life or vested property rights, as well as of liberty, when its limitation or loss takes place
in consequence of a judicial or quasi-judicial proceeding, generally dependent upon a past act or
event which has to be established or ascertained. It is not essential to the validity of general rules or
regulations promulgated to govern future conduct of a class or persons or enterprises, unless the
law provides otherwise. (Emphasis supplied)

Petitioners further take the position that fixing the ceiling at six (6) years is arbitrary and oppressive because the
roadworthiness of taxicabs depends upon their kind of maintenance and the use to which they are subjected, and,
therefore, their actual physical condition should be taken into consideration at the time of registration. As public
contend, however, it is impractical to subject every taxicab to constant and recurring evaluation, not to speak of the
fact that it can open the door to the adoption of multiple standards, possible collusion, and even graft and corruption.
A reasonable standard must be adopted to apply to an vehicles affected uniformly, fairly, and justly. The span of six
years supplies that reasonable standard. The product of experience shows that by that time taxis have fully
depreciated, their cost recovered, and a fair return on investment obtained. They are also generally dilapidated and
no longer fit for safe and comfortable service to the public specially considering that they are in continuous operation
practically 24 hours everyday in three shifts of eight hours per shift. With that standard of reasonableness and
absence of arbitrariness, the requirement of due process has been met.

On Equal Protection of the Law:

Petitioners alleged that the Circular in question violates their right to equal protection of the law because the same is
being enforced in Metro Manila only and is directed solely towards the taxi industry. At the outset it should be
pointed out that implementation outside Metro Manila is also envisioned in Memorandum Circular No. 77-42. To
repeat the pertinent portion:

For an orderly implementation of this Memorandum Circular, the rules herein shall immediately be
effective in Metro Manila. Its implementation outside Metro Manila shall be carried out only after the
project has been implemented in Metro Manila and only after the date has been determined by the
Board. 4

In fact, it is the understanding of the Court that implementation of the Circulars in Cebu City is already being effected, with
the BOT in the process of conducting studies regarding the operation of taxicabs in other cities.
 Page 20 of 162

The Board's reason for enforcing the Circular initially in Metro Manila is that taxicabs in this city, compared to those
of other places, are subjected to heavier traffic pressure and more constant use. This is of common knowledge.
Considering that traffic conditions are not the same in every city, a substantial distinction exists so that infringement
of the equal protection clause can hardly be successfully claimed.

As enunciated in the preambular clauses of the challenged BOT Circular, the overriding consideration is the safety
and comfort of the riding public from the dangers posed by old and dilapidated taxis. The State, in the exercise, of
its police power, can prescribe regulations to promote the health, morals, peace, good order, safety and general
welfare of the people. It can prohibit all things hurtful to comfort, safety and welfare of society. 5 It may also regulate
property rights. 6 In the language of Chief Justice Enrique M. Fernando "the necessities imposed by public welfare may
justify the exercise of governmental authority to regulate even if thereby certain groups may plausibly assert that their
interests are disregarded". 7

In so far as the non-application of the assailed Circulars to other transportation services is concerned, it need only be
recalled that the equal protection clause does not imply that the same treatment be accorded all and sundry. It applies to
things or persons Identically or similarly situated. It permits of classification of the object or subject of the law provided
classification is reasonable or based on substantial distinction, which make for real differences, and that it must apply
equally to each member of the class. 8 What is required under the equal protection clause is the uniform operation by legal
means so that all persons under Identical or similar circumstance would be accorded the same treatment both in privilege
conferred and the liabilities imposed. 9 The challenged Circulars satisfy the foregoing criteria.

Evident then is the conclusion that the questioned Circulars do not suffer from any constitutional infirmity. To declare
a law unconstitutional, the infringement of constitutional right must be clear, categorical and undeniable. 10

WHEREFORE, the Writs prayed for are denied and this Petition is hereby dismissed. No costs.

SO ORDERED.
 Page 21 of 162

G.R. No. 89572 December 21, 1989

DEPARTMENT OF EDUCATION, CULTURE AND SPORTS (DECS) and DIRECTOR OF CENTER FOR
EDUCATIONAL MEASUREMENT, petitioners,
vs.
ROBERTO REY C. SAN DIEGO and JUDGE TERESITA DIZON-CAPULONG, in her capacity as Presiding
Judge of the Regional Trial Court of Valenzuela, Metro Manila, Branch 172, respondents.

The issue before us is mediocrity. The question is whether a person who has thrice failed the National Medical
Admission Test (NMAT) is entitled to take it again.

The petitioner contends he may not, under its rule that-

h) A student shall be allowed only three (3) chances to take the NMAT. After three (3) successive
failures, a student shall not be allowed to take the NMAT for the fourth time.

The private respondent insists he can, on constitutional grounds.

But first the facts.

The private respondent is a graduate of the University of the East with a degree of Bachelor of Science in Zoology.
The petitioner claims that he took the NMAT three times and flunked it as many times.  When he applied to take it
1

again, the petitioner rejected his application on the basis of the aforesaid rule. He then went to the Regional Trial
Court of Valenzuela, Metro Manila, to compel his admission to the test.

In his original petition for mandamus, he first invoked his constitutional rights to academic freedom and quality
education. By agreement of the parties, the private respondent was allowed to take the NMAT scheduled on April
16, 1989, subject to the outcome of his petition.   In an amended petition filed with leave of court, he squarely
2

challenged the constitutionality of MECS Order No. 12, Series of 1972, containing the above-cited rule. The
additional grounds raised were due process and equal protection.

After hearing, the respondent judge rendered a decision on July 4, 1989, declaring the challenged order invalid and
granting the petition. Judge Teresita Dizon-Capulong held that the petitioner had been deprived of his right to
pursue a medical education through an arbitrary exercise of the police power. 3

We cannot sustain the respondent judge. Her decision must be reversed.

In Tablarin v. Gutierrez,   this Court upheld the constitutionality of the NMAT as a measure intended to limit the
4

admission to medical schools only to those who have initially proved their competence and preparation for a medical
education. Justice Florentino P. Feliciano declared for a unanimous Court:

Perhaps the only issue that needs some consideration is whether there is some reasonable relation
between the prescribing of passing the NMAT as a condition for admission to medical school on the
one hand, and the securing of the health and safety of the general community, on the other hand.
 Page 22 of 162

This question is perhaps most usefully approached by recalling that the regulation of the pratice of
medicine in all its branches has long been recognized as a reasonable method of protecting the
health and safety of the public. That the power to regulate and control the practice of medicine
includes the power to regulate admission to the ranks of those authorized to practice medicine, is
also well recognized. Thus, legislation and administrative regulations requiring those who wish to
practice medicine first to take and pass medical board examinations have long ago been recognized
as valid exercises of governmental power. Similarly, the establishment of minimum medical
educational requirements-i.e., the completion of prescribed courses in a recognized medical school-
for admission to the medical profession, has also been sustained as a legitimate exercise of the
regulatory authority of the state. What we have before us in the instant case is closely related: the
regulation of access to medical schools. MECS Order No. 52, s. 1985, as noted earlier, articulates
the rationale of regulation of this type: the improvement of the professional and technical quality of
the graduates of medical schools, by upgrading the quality of those admitted to the student body of
the medical schools. That upgrading is sought by selectivity in the process of admission, selectivity
consisting, among other things, of limiting admission to those who exhibit in the required degree the
aptitude for medical studies and eventually for medical practice. The need to maintain, and the
difficulties of maintaining, high standards in our professional schools in general, and medical schools
in particular, in the current state of our social and economic development, are widely known.

We believe that the government is entitled to prescribe an admission test like the NMAT as a means
of achieving its stated objective of "upgrading the selection of applicants into [our] medical schools"
and of "improv[ing] the quality of medical education in the country." Given the widespread use today
of such admission tests in, for instance, medical schools in the United States of America (the
Medical College Admission Test [MCAT] and quite probably, in other countries with far more
developed educational resources than our own, and taking into account the failure or inability of the
petitioners to even attempt to prove otherwise, we are entitled to hold that the NMAT is reasonably
related to the securing of the ultimate end of legislation and regulation in this area. That end, it is
useful to recall, is the protection of the public from the potentially deadly effects of incompetence and
ignorance in those who would undertake to treat our bodies and minds for disease or trauma.

However, the respondent judge agreed with the petitioner that the said case was not applicable. Her reason was
that it upheld only the requirement for the admission test and said nothing about the so-called "three-flunk rule."

We see no reason why the rationale in the Tablarin case cannot apply to the case at bar. The issue raised in both
cases is the academic preparation of the applicant. This may be gauged at least initially by the admission test and,
indeed with more reliability, by the three-flunk rule. The latter cannot be regarded any less valid than the former in
the regulation of the medical profession.

There is no need to redefine here the police power of the State. Suffice it to repeat that the power is validly
exercised if (a) the interests of the public generally, as distinguished from those of a particular class, require the
interference of the State, and (b) the means employed are reasonably necessary to the attainment of the object
sought to be accomplished and not unduly oppressive upon individuals. 5

In other words, the proper exercise of the police power requires the concurrence of a lawful subject and a lawful
method.

The subject of the challenged regulation is certainly within the ambit of the police power. It is the right and indeed
the responsibility of the State to insure that the medical profession is not infiltrated by incompetents to whom
patients may unwarily entrust their lives and health.

The method employed by the challenged regulation is not irrelevant to the purpose of the law nor is it arbitrary or
oppressive. The three-flunk rule is intended to insulate the medical schools and ultimately the medical profession
from the intrusion of those not qualified to be doctors.
 Page 23 of 162

While every person is entitled to aspire to be a doctor, he does not have a constitutional right to be a doctor. This is
true of any other calling in which the public interest is involved; and the closer the link, the longer the bridge to one's
ambition. The State has the responsibility to harness its human resources and to see to it that they are not
dissipated or, no less worse, not used at all. These resources must be applied in a manner that will best promote the
common good while also giving the individual a sense of satisfaction.

A person cannot insist on being a physician if he will be a menace to his patients. If one who wants to be a lawyer
may prove better as a plumber, he should be so advised and adviced. Of course, he may not be forced to be a
plumber, but on the other hand he may not force his entry into the bar. By the same token, a student who has
demonstrated promise as a pianist cannot be shunted aside to take a course in nursing, however appropriate this
career may be for others.

The right to quality education invoked by the private respondent is not absolute. The Constitution also provides that
"every citizen has the right to choose a profession or course of study, subject to fair, reasonable and equitable
admission and academic requirements. 6

The private respondent must yield to the challenged rule and give way to those better prepared. Where even those
who have qualified may still not be accommodated in our already crowded medical schools, there is all the more
reason to bar those who, like him, have been tested and found wanting.

The contention that the challenged rule violates the equal protection clause is not well-taken. A law does not have to
operate with equal force on all persons or things to be conformable to Article III, Section 1 of the Constitution.

There can be no question that a substantial distinction exists between medical students and other students who are
not subjected to the NMAT and the three-flunk rule. The medical profession directly affects the very lives of the
people, unlike other careers which, for this reason, do not require more vigilant regulation. The accountant, for
example, while belonging to an equally respectable profession, does not hold the same delicate responsibility as
that of the physician and so need not be similarly treated.

There would be unequal protection if some applicants who have passed the tests are admitted and others who have
also qualified are denied entrance. In other words, what the equal protection requires is equality among equals.

The Court feels that it is not enough to simply invoke the right to quality education as a guarantee of the
Constitution: one must show that he is entitled to it because of his preparation and promise. The private respondent
has failed the NMAT five times.   While his persistence is noteworthy, to say the least, it is certainly misplaced, like a
7

hopeless love.

No depreciation is intended or made against the private respondent. It is stressed that a person who does not
qualify in the NMAT is not an absolute incompetent unfit for any work or occupation. The only inference is that he is
a probably better, not for the medical profession, but for another calling that has not excited his interest.

In the former, he may be a bungler or at least lackluster; in the latter, he is more likely to succeed and may even be
outstanding. It is for the appropriate calling that he is entitled to quality education for the full harnessing of his
potentials and the sharpening of his latent talents toward what may even be a brilliant future.

We cannot have a society of square pegs in round holes, of dentists who should never have left the farm and
engineers who should have studied banking and teachers who could be better as merchants.

It is time indeed that the State took decisive steps to regulate and enrich our system of education by directing the
student to the course for which he is best suited as determined by initial tests and evaluations. Otherwise, we may
be "swamped with mediocrity," in the words of Justice Holmes, not because we are lacking in intelligence but
because we are a nation of misfits.

WHEREFORE, the petition is GRANTED. The decision of the respondent court dated January 13, 1989, is
REVERSED, with costs against the private respondent. It is so ordered.
 Page 24 of 162

G.R. No. L-5060             January 26, 1910

THE UNITED STATES, plaintiff-appellee,

vs.
LUIS TORIBIO, defendant-appellant.

The evidence of record fully sustains the findings of the trial court that the appellant slaughtered or caused to be
slaughtered for human consumption, the carabao described in the information, without a permit from the municipal
treasure of the municipality wherein it was slaughtered, in violation of the provisions of sections 30 and 33 of Act No.
1147, an Act regulating the registration, branding, and slaughter of large cattle.

It appears that in the town of Carmen, in the Province of Bohol, wherein the animal was slaughtered there is no
municipal slaughterhouse, and counsel for appellant contends that under such circumstances the provisions of Act
No. 1147 do not prohibit nor penalize the slaughter of large cattle without a permit of the municipal treasure.
Sections 30, 31, 32, and 33 of the Act are as follows:

SEC. 30. No large cattle shall be slaughtered or killed for food at the municipal slaughterhouse except upon
permit secured from the municipal treasure. Before issuing the permit for the slaughter of large cattle for
human consumption, the municipal treasurer shall require for branded cattle the production of the original
certificate of ownership and certificates of transfer showing title in the person applying for the permit, and for
unbranded cattle such evidence as may satisfy said treasurer as to the ownership of the animals for which
permit to slaughter has been requested.

SEC. 31. No permit to slaughter has been carabaos shall be granted by the municipal treasurer unless such
animals are unfit for agricultural work or for draft purposes, and in no event shall a permit be given to
slaughter for food any animal of any kind which is not fit for human consumption.

SEC. 32. The municipal treasurer shall keep a record of all permits for slaughter issued by him, and such
record shall show the name and residence of the owner, and the class, sex, age, brands, knots of radiated
hair commonly know as remolinos or cowlicks, and other marks of identification of the animal for the
slaughter of which permit is issued and the date on which such permit is issued. Names of owners shall be
alphabetically arranged in the record, together with date of permit.

A copy of the record of permits granted for slaughter shall be forwarded monthly to the provincial treasurer,
who shall file and properly index the same under the name of the owner, together with date of permit.

SEC. 33. Any person slaughtering or causing to be slaughtered for human consumption or killing for food at
the municipal slaughterhouse any large cattle except upon permit duly secured from the municipal treasurer,
shall be punished by a fine of not less than ten nor more than five hundred pesos, Philippine currency, or by
imprisonment for not less than one month nor more than six months, or by both such fine and imprisonment,
in the discretion of the court.
 Page 25 of 162

It is contended that the proper construction of the language of these provisions limits the prohibition contained in
section 30 and the penalty imposed in section 33 to cases (1) of slaughter of large cattle for human consumption in
a municipal slaughter without a permit duly secured from the municipal treasurer, and (2) cases of killing of large
cattle for food in a municipal slaughterhouse without a permit duly secured from the municipal treasurer; and it is
urged that the municipality of Carmen not being provided with a municipal slaughterhouse, neither the prohibition
nor the penalty is applicable to cases of slaughter of large cattle without a permit in that municipality.

We are of opinion, however, that the prohibition contained in section 30 refers (1) to the slaughter of large cattle for
human consumption, anywhere, without a permit duly secured from the municipal treasurer, and (2) expressly and
specifically to the killing for food of large cattle at a municipal slaughterhouse without such permit; and that the
penalty provided in section 33 applies generally to the slaughter of large cattle for human consumption, anywhere,
without a permit duly secured from the municipal treasurer, and specifically to the killing for food of large cattle at a
municipal slaughterhouse without such permit.

It may be admitted at once, that the pertinent language of those sections taken by itself and examined apart from
the context fairly admits of two constructions: one whereby the phrase "at the municipal slaughterhouse" may be
taken as limiting and restricting both the word "slaughtered" and the words "killed for food" in section 30, and the
words "slaughtering or causing to be slaughtered for human consumption" and the words "killing for food" in section
33; and the other whereby the phrase "at the municipal slaughterhouse" may be taken as limiting and restricting
merely the words "killed for food" and "killing for food" as used in those sections. But upon a reading of the whole
Act, and keeping in mind the manifest and expressed purpose and object of its enactment, it is very clear that the
latter construction is that which should be adopted.

The Act primarily seeks to protect the "large cattle" of the Philippine Islands against theft and to make easy the
recovery and return of such cattle to their proper owners when lost, strayed, or stolen. To this end it provides an
elaborate and compulsory system for the separate branding and registry of ownership of all such cattle throughout
the Islands, whereby owners are enabled readily and easily to establish their title; it prohibits and invalidates all
transfers of large cattle unaccompanied by certificates of transfer issued by the proper officer in the municipality
where the contract of sale is made; and it provides also for the disposition of thieves or persons unlawfully in
possession, so as to protect the rights of the true owners. All this, manifestly, in order to make it difficult for any one
but the rightful owner of such cattle to retain them in his possession or to dispose of them to others. But the
usefulness of this elaborate and compulsory system of identification, resting as it does on the official registry of the
brands and marks on each separate animal throughout the Islands, would be largely impaired, if not totally
destroyed, if such animals were requiring proof of ownership and the production of certificates of registry by the
person slaughtering or causing them to be slaughtered, and this especially if the animals were slaughtered privately
or in a clandestine manner outside of a municipal slaughterhouse. Hence, as it would appear, sections 30 and 33
prohibit and penalize the slaughter for human consumption or killing for food at a municipal slaughterhouse of such
animals without a permit issued by the municipal treasurer, and section 32 provides for the keeping of detailed
records of all such permits in the office of the municipal and also of the provincial treasurer.

If, however, the construction be placed on these sections which is contended for by the appellant, it will readily be
seen that all these carefully worked out provisions for the registry and record of the brands and marks of
identification of all large cattle in the Islands would prove in large part abortion, since thieves and persons unlawfully
in possession of such cattle, and naturally would, evade the provisions of the law by slaughtering them outside of
municipal slaughterhouses, and thus enjoy the fruits of their wrongdoing without exposing themselves to the danger
of detection incident to the bringing of the animals to the public slaughterhouse, where the brands and other
identification marks might be scrutinized and proof of ownership required.

Where the language of a statute is fairly susceptible of two or more constructions, that construction should be
adopted which will most tend to give effect to the manifest intent of the lawmaker and promote the object for which
the statute was enacted, and a construction should be rejected which would tend to render abortive other provisions
of the statute and to defeat the object which the legislator sought to attain by its enactment. We are of opinion,
therefore, that sections 30 and 33 of the Act prohibit and penalize the slaughtering or causing to be slaughtered for
human consumption of large cattle at any place without the permit provided for in section 30.
 Page 26 of 162

It is not essential that an explanation be found for the express prohibition in these sections of the "killing for food at a
municipal slaughterhouse" of such animals, despite the fact that this prohibition is clearly included in the general
prohibition of the slaughter of such animals for human consumption anywhere; but it is not improbable that the
requirement for the issue of a permit in such cases was expressly and specifically mentioned out of
superabundance of precaution, and to avoid all possibility of misunderstanding in the event that some of the
municipalities should be disposed to modify or vary the general provisions of the law by the passage of local
ordinances or regulations for the control of municipal slaughterhouse.

Similar reasoning applied to the specific provisions of section 31 of the Act leads to the same conclusion. One of the
secondary purposes of the law, as set out in that section, is to prevent the slaughter for food of carabaos fit for
agricultural and draft purposes, and of all animals unfit for human consumption. A construction which would limit the
prohibitions and penalties prescribed in the statute to the killing of such animals in municipal slaughterhouses,
leaving unprohibited and unpenalized their slaughter outside of such establishments, so manifestly tends to defeat
the purpose and object of the legislator, that unless imperatively demanded by the language of the statute it should
be rejected; and, as we have already indicated, the language of the statute is clearly susceptible of the construction
which we have placed upon it, which tends to make effective the provisions of this as well as all the other sections of
the Act.

It appears that the defendant did in fact apply for a permit to slaughter his carabao, and that it was denied him on
the ground that the animal was not unfit "for agricultural work or for draft purposes." Counsel for appellant contends
that the statute, in so far as it undertakes to penalize the slaughter of carabaos for human consumption as food,
without first obtaining a permit which can not be procured in the event that the animal is not unfit "for agricultural
work or draft purposes," is unconstitutional and in violation of the terms of section 5 of the Philippine Bill (Act of
Congress, July 1, 1902), which provides that "no law shall be enacted which shall deprive any person of life, liberty,
or property without due process of law."

It is not quite clear from the argument of counsel whether his contention is that this provision of the statute
constitutes a taking of property for public use in the exercise of the right of eminent domain without providing for the
compensation of the owners, or that it is an undue and unauthorized exercise of the police power of the State. But
whatever may be the basis of his contention, we are of opinion, appropriating, with necessary modifications
understood, the language of that great jurist, Chief Justice Shaw (in the case of Com. vs. Tewksbury, 11 Met., 55,
where the question involved was the constitutionality of a statute prohibiting and penalizing the taking or carrying
away by any person, including the owner, of any stones, gravel, or sand, from any of the beaches in the town of
Chesea,) that the law in question "is not a taking of the property for public use, within the meaning of the
constitution, but is a just and legitimate exercise of the power of the legislature to regulate and restrain such
particular use of the property as would be inconsistent with or injurious to the rights of the public. All property is
acquired and held under the tacit condition that it shall not be so used as to injure the equal rights of others or
greatly impair the public rights and interest of the community."

It may be conceded that the benificial use and exclusive enjoyment of the property of all carabao owners in these
Islands is to a greater or less degree interfered with by the provisions of the statute; and that, without inquiring what
quantum of interest thus passes from the owners of such cattle, it is an interest the deprivation of which detracts
from their right and authority, and in some degree interferes with their exclusive possession and control of their
property, so that if the regulations in question were enacted for purely private purpose, the statute, in so far as these
regulations are concerned, would be a violation of the provisions of the Philippine Bill relied on be appellant; but we
are satisfied that it is not such a taking, such an interference with the right and title of the owners, as is involved in
the exercise by the State of the right of eminent domain, so as to entitle these owners to compensation, and that it is
no more than "a just restrain of an injurious private use of the property, which the legislature had authority to
impose."

In the case of Com. vs. Alger (7 Cush., 53, 84), wherein the doctrine laid down in Com. vs. Tewksbury (supra) was
reviewed and affirmed, the same eminent jurist who wrote the former opinion, in distinguishing the exercise of the
right of eminent domain from the exercise of the sovereign police powers of the State, said:
 Page 27 of 162

We think it is settled principle, growing out of the nature of well-ordered civil society, that every holder of
property, however absolute and unqualified may be his title, holds it under the implied liability that his use of
it may be so regulated that is shall not be injurious to the equal enjoyment of others having an equal right to
the enjoyment of their property, nor injurious to the rights of the community. . . . Rights of property, like all
other social and conventional rights, are subject to such reasonable limitations in their enjoyment as shall
prevent them from being injurious, and to such reasonable restrain and regulations establish by law, as the
legislature, under the governing and controlling power vested in them by the constitution, may think
necessary and expedient.

This is very different from the right of eminent domain, the right of a government to take and appropriate
private property to public use, whenever the public exigency requires it; which can be done only on condition
of providing a reasonable compensation therefor. The power we allude to is rather the police power, the
power vested in the legislature by the constitution, to make, ordain, and establish all manner of wholesome
and reasonable laws, statutes, and ordinances, either with penalties or without, not repugnant to the
constitution, as they shall judge to be for the good and welfare of the commonwealth, and of the subjects of
the same.

It is much easier to perceive and realize the existence and sources of this power than to mark its boundaries
or prescribe limits to its exercise.

Applying these principles, we are opinion that the restrain placed by the law on the slaughter for human
consumption of carabaos fit for agricultural work and draft purpose is not an appropriation of property interests to a
"public use," and is not, therefore, within the principle of the exercise by the State of the right of eminent domain. It
is fact a mere restriction or limitation upon a private use, which the legislature deemed to be determental to the
public welfare. And we think that an examination of the general provisions of the statute in relation to the public
interest which it seeks to safeguard and the public necessities for which it provides, leaves no room for doubt that
the limitations and restraints imposed upon the exercise of rights of ownership by the particular provisions of the
statute under consideration were imposed not for private purposes but, strictly, in the promotion of the "general
welfare" and "the public interest" in the exercise of the sovereign police power which every State possesses for the
general public welfare and which "reaches to every species of property within the commonwealth."

For several years prior to the enactment of the statute a virulent contagious or infectious disease had threatened the
total extinction of carabaos in these Islands, in many sections sweeping away seventy, eighty, and in some cases as
much as ninety and even one hundred per cent of these animals. Agriculture being the principal occupation of the
people, and the carabao being the work animal almost exclusively in use in the fields as well as for draft purposes,
the ravages of the disease with which they were infected struck an almost vital blow at the material welfare of the
country. large areas of productive land lay waste for years, and the production of rice, the staple food of the
inhabitants of the Islands, fell off to such an extent that the impoverished people were compelled to spend many
millions of pesos in its importation, notwithstanding the fact that with sufficient work animals to cultivate the fields the
arable rice lands of the country could easily be made to produce a supply more that sufficient for its own needs. The
drain upon the resources of the Islands was such that famine soon began to make itself felt, hope sank in the breast
of the people, and in many provinces the energies of the breadwinners seemed to be paralyzed by the apparently
hopeless struggle for existence with which they were confronted.

To meet these conditions, large sums of money were expended by the Government in relieving the immediate
needs of the starving people, three millions of dollars were voted by the Congress of the United States as a relief or
famine fund, public works were undertaken to furnish employment in the provinces where the need was most
pressing, and every effort made to alleviate the suffering incident to the widespread failure of the crops throughout
the Islands, due in large measure to the lack of animals fit for agricultural work and draft purposes.

Such measures, however, could only temporarily relieve the situation, because in an agricultural community material
progress and permanent prosperity could hardly be hoped for in the absence of the work animals upon which such a
community must necessarily rely for the cultivation of the fields and the transportation of the products of the fields to
market. Accordingly efforts were made by the Government to increase the supply of these animals by importation,
but, as appears from the official reports on this subject, hope for the future depended largely on the conservation of
 Page 28 of 162

those animals which had been spared from the ravages of the diseased, and their redistribution throughout the
Islands where the need for them was greatest.

At large expense, the services of experts were employed, with a view to the discovery and applications of preventive
and curative remedies, and it is hoped that these measures have proved in some degree successful in protecting
the present inadequate supply of large cattle, and that the gradual increase and redistribution of these animals
throughout the Archipelago, in response to the operation of the laws of supply and demand, will ultimately results in
practically relieving those sections which suffered most by the loss of their work animals.

As was to be expected under such conditions, the price of carabaos rapidly increase from the three to five fold or
more, and it may fairly be presumed that even if the conservative measures now adopted prove entirely successful,
the scant supply will keep the price of these animals at a high figure until the natural increase shall have more
nearly equalized the supply to the demand.

Coincident with and probably intimately connected with this sudden rise in the price of cattle, the crime of cattle
stealing became extremely prevalent throughout the Islands, necessitating the enactment of a special law penalizing
with the severest penalties the theft of carabaos and other personal property by roving bands; and it must be
assumed from the legislative authority found that the general welfare of the Islands necessitated the enactment of
special and somewhat burdensome provisions for the branding and registration of large cattle, and supervision and
restriction of their slaughter for food. It will hardly be questioned that the provisions of the statute touching the
branding and registration of such cattle, and prohibiting and penalizing the slaughter of diseased cattle for food were
enacted in the due and proper exercise of the police power of the State; and we are of opinion that, under all the
circumstances, the provision of the statute prohibiting and penalizing the slaughter for human consumption of
carabaos fit for work were in like manner enacted in the due and proper exercise of that power, justified by the
exigent necessities of existing conditions, and the right of the State to protect itself against the overwhelming
disaster incident to the further reduction of the supply of animals fit for agricultural work or draft purposes.

It is, we think, a fact of common knowledge in these Islands, and disclosed by the official reports and records of the
administrative and legislative departments of the Government, that not merely the material welfare and future
prosperity of this agricultural community were threatened by the ravages of the disease which swept away the work
animals during the years prior to the enactment of the law under consideration, but that the very life and existence of
the inhabitants of these Islands as a civilized people would be more or less imperiled by the continued destruction of
large cattle by disease or otherwise. Confronted by such conditions, there can be no doubt of the right of the
Legislature to adopt reasonable measures for the preservation of work animals, even to the extent of prohibiting and
penalizing what would, under ordinary conditions, be a perfectly legitimate and proper exercise of rights of
ownership and control of the private property of the citizen. The police power rests upon necessity and the right of
self-protection and if ever the invasion of private property by police regulation can be justified, we think that the
reasonable restriction placed upon the use of carabaos by the provision of the law under discussion must be held to
be authorized as a reasonable and proper exercise of that power.

As stated by Mr. Justice Brown in his opinion in the case of Lawton vs. Steele (152 U.S., 133, 136):

The extent and limits of what is known as the police power have been a fruitful subject of discussion in the
appellate courts of nearly every State in the Union. It is universally conceded to include everything essential
to the public safely, health, and morals, and to justify the destruction or abatement, by summary
proceedings, of whatever may be regarded as a public nuisance. Under this power it has been held that the
State may order the destruction of a house falling to decay or otherwise endangering the lives of passers-by;
the demolition of such as are in the path of a conflagration; the slaughter of diseased cattle; the destruction
of decayed or unwholesome food; the prohibition of wooden buildings in cities; the regulation of railways and
other means of public conveyance, and of interments in burial grounds; the restriction of objectionable
trades to certain localities; the compulsary vaccination of children; the confinement of the insane or those
afficted with contagious deceases; the restraint of vagrants, beggars, and habitual drunkards; the
suppression of obscene publications and houses of ill fame; and the prohibition of gambling houses and
places where intoxicating liquors are sold. Beyond this, however, the State may interfere wherever the
public interests demand it, and in this particular a large discretion is necessarily vested in the legislature to
 Page 29 of 162

determine, not only what the interests of the public require, but what measures are necessary for the
protection of such interests. (Barbier vs. Connolly, 113 U. S., 27; Kidd vs. Pearson, 128 U. S., 1.) To justify
the State in thus interposing its authority in behalf of the public, it must appear, first, that the interests of the
public generally, as distinguished from those of a particular class, require such interference; and, second,
that the means are reasonably necessary for the accomplishment of the purpose, and not unduly oppressive
upon individuals. The legislature may not, under the guise of protecting the public interests, arbitrarily
interfere with private business, or impose unusual and unnecessary restrictions upon lawful occupations. In
other words, its determination as to what is a proper exercise of its police powers is not final or conclusive,
but is subject to the supervision of the court.

From what has been said, we think it is clear that the enactment of the provisions of the statute under consideration
was required by "the interests of the public generally, as distinguished from those of a particular class;" and that the
prohibition of the slaughter of carabaos for human consumption, so long as these animals are fit for agricultural work
or draft purposes was a "reasonably necessary" limitation on private ownership, to protect the community from the
loss of the services of such animals by their slaughter by improvident owners, tempted either by greed of
momentary gain, or by a desire to enjoy the luxury of animal food, even when by so doing the productive power of
the community may be measurably and dangerously affected.

Chief Justice Redfield, in Thorpe vs. Rutland & Burlington R. R. Co. (27 Vt., 140), said (p. 149) that by this "general
police power of the State, persons and property are subjected to all kinds of restraints and burdens, in order to
secure the general comfort, health, and prosperity of the State; of the perfect right in the legislature to do which no
question ever was, or, upon acknowledge and general principles, ever can be made, so far as natural persons are
concerned."

And Cooley in his "Constitutional Limitations" (6th ed., p. 738) says:

It would be quite impossible to enumerate all the instances in which the police power is or may be exercised,
because the various cases in which the exercise by one individual of his rights may conflict with a similar
exercise by others, or may be detrimental to the public order or safety, are infinite in number and in variety.
And there are other cases where it becomes necessary for the public authorities to interfere with the control
by individuals of their property, and even to destroy it, where the owners themselves have fully observed all
their duties to their fellows and to the State, but where, nevertheless, some controlling public necessity
demands the interference or destruction. A strong instance of this description is where it becomes necessary
to take, use, or destroy the private property of individuals to prevent the spreading of a fire, the ravages of a
pestilence, the advance of a hostile army, or any other great public calamity. Here the individual is in no
degree in fault, but his interest must yield to that "necessity" which "knows no law." The establishment of
limits within the denser portions of cities and villages within which buildings constructed of inflammable
materials shall not be erected or repaired may also, in some cases, be equivalent to a destruction of private
property; but regulations for this purpose have been sustained notwithstanding this result. Wharf lines may
also be established for the general good, even though they prevent the owners of water-fronts from building
out on soil which constitutes private property. And, whenever the legislature deem it necessary to the
protection of a harbor to forbid the removal of stones, gravel, or sand from the beach, they may establish
regulations to that effect under penalties, and make them applicable to the owners of the soil equally with
other persons. Such regulations are only "a just restraint of an injurious use of property, which the legislature
have authority" to impose.

So a particular use of property may sometimes be forbidden, where, by a change of circumstances, and
without the fault of the power, that which was once lawful, proper, and unobjectionable has now become a
public nuisance, endangering the public health or the public safety. Milldams are sometimes destroyed upon
this grounds; and churchyards which prove, in the advance of urban population, to be detrimental to the
public health, or in danger of becoming so, are liable to be closed against further use for cemetery purposes.

These citations from some of the highest judicial and text-book authorities in the United States clearly indicate the
wide scope and extent which has there been given to the doctrine us in our opinion that the provision of the statute
in question being a proper exercise of that power is not in violation of the terms of section 5 of the Philippine Bill,
 Page 30 of 162

which provide that "no law shall be enacted which shall deprive any person of life, liberty, or property without due
process of law," a provision which itself is adopted from the Constitution of the United States, and is found in
substance in the constitution of most if not all of the States of the Union.

The judgment of conviction and the sentence imposed by the trial court should be affirmed with the costs of this
instance against the appellant. So ordered.

G.R. No. 135962             March 27, 2000

METROPOLITAN MANILA DEVELOPMENT AUTHORITY, petitioner,

vs.
BEL-AIR VILLAGE ASSOCIATION, INC., respondent.

Not infrequently, the government is tempted to take legal shortcuts solve urgent problems of the people. But even
when government is armed with the best of intention, we cannot allow it to run roughshod over the rule of law.
Again, we let the hammer fall and fall hard on the illegal attempt of the MMDA to open for public use a private road
in a private subdivision. While we hold that the general welfare should be promoted, we stress that it should not be
achieved at the expense of the rule of law.

Petitioner MMDA is a government agency tasked with the delivery of basic services in Metro Manila. Respondent
Bel-Air Village Association, Inc. (BAVA) is a non-stock, non-profit corporation whose members are homeowners in
Bel-Air Village, a private subdivision in Makati City. Respondent BAVA is the registered owner of Neptune Street, a
road inside Bel-Air Village.

On December 30, 1995, respondent received from petitioner, through its Chairman, a notice dated December 22,
1995 requesting respondent to open Neptune Street to public vehicular traffic starting January 2, 1996. The notice
reads:

SUBJECT: NOTICE of the Opening of Neptune Street to Traffic.

Dear President Lindo,

Please be informed that pursuant to the mandate of the MMDA law or Republic Act No. 7924 which requires
the Authority to rationalize the use of roads and/or thoroughfares for the safe and convenient movement of
persons, Neptune Street shall be opened to vehicular traffic effective January 2, 1996.

In view whereof, the undersigned requests you to voluntarily open the points of entry and exit on said street.
 Page 31 of 162

Thank you for your cooperation and whatever assistance that may be extended by your association to the
MMDA personnel who will be directing traffic in the area.

Finally, we are furnishing you with a copy of the handwritten instruction of the President on the matter.

Very truly yours,

PROSPERO I. ORETA

Chairman  1

On the same day, respondent was apprised that the perimeter wall separating the subdivision from the
adjacent Kalayaan Avenue would be demolished.

On January 2, 1996, respondent instituted against petitioner before the Regional Trial Court, Branch 136, Makati
City, Civil Case No. 96-001 for injunction. Respondent prayed for the issuance of a temporary restraining order and
preliminary injunction enjoining the opening of Neptune Street and prohibiting the demolition of the perimeter wall.
The trial court issued a temporary restraining order the following day.

On January 23, 1996, after due hearing, the trial court denied issuance of a preliminary injunction.  Respondent
2 

questioned the denial before the Court of Appeals in CA-G.R. SP No. 39549. The appellate court conducted an
ocular inspection of Neptune Street  and on February 13, 1996, it issued a writ of preliminary injunction enjoining the
3 

implementation of the MMDA's proposed action.  4

On January 28, 1997, the appellate court rendered a Decision on the merits of the case finding that the MMDA has
no authority to order the opening of Neptune Street, a private subdivision road and cause the demolition of its
perimeter walls. It held that the authority is lodged in the City Council of Makati by ordinance. The decision disposed
of as follows:

WHEREFORE, the Petition is GRANTED; the challenged Order dated January 23, 1995, in Civil Case No.
96-001, is SET ASIDE and the Writ of Preliminary Injunction issued on February 13, 1996 is hereby made
permanent.

For want of sustainable substantiation, the Motion to Cite Roberto L. del Rosario in contempt is denied.  5

No pronouncement as to costs.

SO ORDERED.  6

The Motion for Reconsideration of the decision was denied on September 28, 1998. Hence, this recourse.

Petitioner MMDA raises the following questions:

HAS THE METROPOLITAN MANILA DEVELOPMENT AUTHORITY (MMDA) THE MANDATE TO OPEN
NEPTUNE STREET TO PUBLIC TRAFFIC PURSUANT TO ITS REGULATORY AND POLICE POWERS?

II

IS THE PASSAGE OF AN ORDINANCE A CONDITION PRECEDENT BEFORE THE MMDA MAY ORDER
THE OPENING OF SUBDIVISION ROADS TO PUBLIC TRAFFIC?
 Page 32 of 162

III

IS RESPONDENT BEL-AIR VILLAGE ASSOCIATION, INC. ESTOPPED FROM DENYING OR ASSAILING

THE AUTHORITY OF THE MMDA TO OPEN THE SUBJECT STREET?

IV

WAS RESPONDENT DEPRIVED OF DUE PROCESS DESPITE THE SEVERAL MEETINGS HELD
BETWEEN MMDA AND THE AFFECTED EEL-AIR RESIDENTS AND BAVA OFFICERS?

HAS RESPONDENT COME TO COURT WITH UNCLEAN HANDS? 7

Neptune Street is owned by respondent BAVA. It is a private road inside Bel-Air Village, a private residential
subdivision in the heart of the financial and commercial district of Makati City. It runs parallel to Kalayaan Avenue, a
national road open to the general public. Dividing the two (2) streets is a concrete perimeter wall approximately
fifteen (15) feet high. The western end of Neptune Street intersects Nicanor Garcia, formerly Reposo Street, a
subdivision road open to public vehicular traffic, while its eastern end intersects Makati Avenue, a national road.
Both ends of Neptune Street are guarded by iron gates.

Petitioner MMDA claims that it has the authority to open Neptune Street to public traffic because it is an agent of the
state endowed with police power in the delivery of basic services in Metro Manila. One of these basic services is
traffic management which involves the regulation of the use of thoroughfares to insure the safety, convenience and
welfare of the general public. It is alleged that the police power of MMDA was affirmed by this Court in the
consolidated cases of Sangalang v. Intermediate Appellate Court.  From the premise that it has police power, it is
8 

now urged that there is no need for the City of Makati to enact an ordinance opening Neptune street to the public.  9

Police power is an inherent attribute of sovereignty. It has been defined as the power vested by the Constitution in
the legislature to make, ordain, and establish all manner of wholesome and reasonable laws, statutes and
ordinances, either with penalties or without, not repugnant to the Constitution, as they shall judge to be for the good
and welfare of the commonwealth, and for the subjects of the same.  The power is plenary and its scope is vast and
10 

pervasive, reaching and justifying measures for public health, public safety, public morals, and the general welfare.  11

It bears stressing that police power is lodged primarily in the National Legislature.  It cannot be exercised by any
12 

group or body of individuals not possessing legislative power.  The National Legislature, however, may
13 

delegate this power to the President and administrative boards as well as the lawmaking bodies of municipal
corporations or local government units.  Once delegated, the agents can exercise only such legislative powers as
14 

are conferred on them by the national lawmaking body.  15

A local government is a "political subdivision of a nation or state which is constituted by law and has substantial
control of local affairs."  The Local Government Code of 1991 defines a local government unit as a "body politic and
16 

corporate."  — one endowed with powers as a political subdivision of the National Government and as a corporate
17 

entity representing the inhabitants of its territory.  Local government units are the provinces, cities, municipalities
18 

and barangays.  They are also the territorial and political subdivisions of the state. 
19  20

Our Congress delegated police power to the local government units in the Local Government Code of 1991 . This
delegation is found in Section 16 of the same Code, known as the general welfare clause, viz:

Sec. 16. General Welfare. — Every local government unit shall exercise the powers expressly granted,
those necessarily implied therefrom, as well as powers necessary, appropriate, or incidental for its efficient
and effective governance, and those which are essential to the promotion of the general welfare. Within their
respective territorial jurisdictions, local government units shall ensure and support, among other things, the
preservation and enrichment of culture, promote health and safety, enhance the right of the people to a
balanced ecology, encourage and support the development of appropriate and self-reliant scientific and
 Page 33 of 162

technological capabilities, improve public morals, enhance economic prosperity and social justice, promote
full employment among their residents, maintain peace and order, and preserve the comfort and
convenience of their inhabitants. 21

Local government units exercise police power through their respective legislative bodies. The legislative body of the
provincial government is the sangguniang panlalawigan, that of the city government is the sangguniang panlungsod,
that of the municipal government is the sangguniang bayan, and that of the barangay is the sangguniang barangay.
The Local Government Code of 1991 empowers the sangguniang panlalawigan, sangguniang panlungsod and
sangguniang bayan to "enact ordinances, approve resolutions and appropriate funds for the general welfare of the
[province, city or municipality, as the case may be], and its inhabitants pursuant to Section 16 of the Code and in the
proper exercise of the corporate powers of the [province, city municipality] provided under the Code . . . "  The 22 

same Code gives the sangguniang barangay the power to "enact ordinances as may be necessary to discharge the
responsibilities conferred upon it by law or ordinance and to promote the general welfare of the inhabitants
thereon." 23

Metropolitan or Metro Manila is a body composed of several local government units — i.e., twelve (12) cities and
five (5) municipalities, namely, the cities of Caloocan, Manila, Mandaluyong, Makati, Pasay, Pasig, Quezon,
Muntinlupa, Las Pinas, Marikina, Paranaque and Valenzuela, and the municipalities of Malabon, Navotas, Pateros,
San Juan and Taguig. With the passage of Republic Act (R. A.) No. 7924  in 1995, Metropolitan Manila was
24 

declared as a "special development and administrative region" and the Administration of "metro-wide" basic

services affecting the region placed under "a development authority" referred to as the MMDA.  25

"Metro-wide services" are those "services which have metro-wide impact and transcend local political boundaries or
entail huge expenditures such that it would not be viable for said services to be provided by the individual local
government units comprising Metro Manila."  There are seven (7) basic metro-wide services and the scope of these
26 

services cover the following: (1) development planning; (2) transport and traffic management; (3) solid waste
disposal and management; (4) flood control and sewerage management; (5) urban renewal, zoning and land use
planning, and shelter services; (6) health and sanitation, urban protection and pollution control; and (7) public safety.
The basic service of transport and traffic management includes the following:

(b) Transport and traffic management which include the formulation, coordination, and monitoring of
policies, standards, programs and projects to rationalize the existing transport operations, infrastructure
requirements, the use of thoroughfares, and promotion of safe and convenient movement of persons and
goods; provision for the mass transport system and the institution of a system to regulate road
users; administration and implementation of all traffic enforcement operations, traffic engineering services
and traffic education programs, including the institution of a single ticketing system in Metropolitan Manila;"  27

In the delivery of the seven (7) basic services, the MMDA has the following powers and functions:

Sec. 5. Functions and powers of the Metro Manila Development Authority. — The MMDA shall:

(a) Formulate, coordinate and regulate the implementation of medium and long-term plans and programs for
the delivery of metro-wide services, land use and physical development within Metropolitan Manila,
consistent with national development objectives and priorities;

(b) Prepare, coordinate and regulate the implementation of medium-term investment programs for metro-
wide services which shall indicate sources and uses of funds for priority programs and projects, and which
shall include the packaging of projects and presentation to funding institutions;

(c) Undertake and manage on its own metro-wide programs and projects for the delivery of specific services
under its jurisdiction, subject to the approval of the Council. For this purpose, MMDA can create appropriate
project management offices;

(d) Coordinate and monitor the implementation of such plans, programs and projects in Metro Manila;
identify bottlenecks and adopt solutions to problems of implementation;
 Page 34 of 162

(e) The MMDA shall set the policies concerning traffic in Metro Manila, and shall coordinate and regulate the
implementation of all programs and projects concerning traffic management, specifically pertaining to
enforcement, engineering and education. Upon request, it shall be extended assistance and
cooperation, including but not limited to, assignment of personnel, by all other government agencies and
offices concerned;

(f) Install and administer a single ticketing system, fix, impose and collect fines and penalties for all kinds of
violations of traffic rules and regulations, whether moving or non-moving in nature, and confiscate and
suspend or revoke drivers' licenses in the enforcement of such traffic laws and regulations, the provisions of
RA 4136 and PD 1605 to the contrary notwithstanding. For this purpose, the Authority shall impose all traffic
laws and regulations in Metro Manila, through its traffic operation center, and may deputize members of the
PNP, traffic enforcers of local government units, duly licensed security guards, or members of non-
governmental organizations to whom may be delegated certain authority, subject to such conditions and
requirements as the Authority may impose; and

(g) Perform other related functions required to achieve the objectives of the MMDA, including the
undertaking of delivery of basic services to the local government units, when deemed necessary subject to
prior coordination with and consent of the local government unit concerned.

The implementation of the MMDA's plans, programs and projects is undertaken by the local government units,
national government agencies, accredited people's organizations, non-governmental organizations, and the private
sector as well as by the MMDA itself. For this purpose, the MMDA has the power to enter into contracts,
memoranda of agreement and other arrangements with these bodies for the delivery of the required services Metro
Manila. 28

The governing board of the MMDA is the Metro Manila Council. The Council is composed of the mayors of the
component 12 cities and 5 municipalities, the president of the Metro Manila Vice-Mayors' League and the president
of the Metro Manila Councilors' League.  The Council is headed by Chairman who is appointed by the President
29 

and vested with the rank of cabinet member. As the policy-making body of the MMDA, the Metro Manila Council
approves metro-wide plans, programs and projects, and issues the necessary rules and regulations for the
implementation of said plans; it approves the annual budget of the MMDA and promulgate the rules and regulations
for the delivery of basic services, collection of service and regulatory fees, fines and penalties. These functions are
particularly enumerated as follows:

Sec. 6. Functions of the Metro Manila Council. —

(a) The Council shall be the policy-making body of the MMDA;

(b) It shall approve metro-wide plans, programs and projects and issue rules and regulations deemed
necessary by the MMDA to carry out the purposes of this Act;

(c) It may increase the rate of allowances and per diems of the members of the Council to be effective
during the term of the succeeding Council. It shall fix the compensation of the officers and personnel of the
MMDA, and approve the annual budget thereof for submission to the Department of Budget and
Management (DBM);

(d) It shall promulgate rules and regulations and set policies and standards for metro-wide application
governing the delivery of basic services, prescribe and collect service and regulatory fees, and impose and
collect fines and penalties.

Clearly, the scope of the MMDA's function is limited to the delivery of the seven (7) basic services. One of these is
transport and traffic management which includes the formulation and monitoring of policies, standards and projects
to rationalize the existing transport operations, infrastructure requirements, the use of thoroughfares and promotion
of the safe movement of persons and goods. It also covers the mass transport system and the institution of a
system of road regulation, the administration of all traffic enforcement operations, traffic engineering services and
 Page 35 of 162

traffic education programs, including the institution of a single ticketing system in Metro Manila for traffic violations.
Under the service, the MMDA is expressly authorized "to set the policies concerning traffic" and "coordinate and
regulate the implementation of all traffic management programs." In addition, the MMDA may "install and administer
a single ticketing system," fix, impose and collect fines and penalties for all traffic violations.

It will be noted that the powers of the MMDA are limited to the following acts: formulation, coordination, regulation,
implementation, preparation, management, monitoring, setting of policies, installation of a system and
administration. There is no syllable in R.A. No. 7924 that grants the MMDA police power, let alone legislative
power. Even the Metro Manila Council has not been delegated any legislative power. Unlike the legislative bodies of
the local government units, there is no provision in R.A. No. 7924 that empowers the MMDA or its Council to "enact
ordinances, approve resolutions appropriate funds for the general welfare" of the inhabitants of Metro Manila. The
MMDA is, as termed in the charter itself, "development authority."  It is an agency created for the purpose of laying
30 

down policies and coordinating with the various national government agencies, people's organizations, non-
governmental organizations and the private sector for the efficient and expeditious delivery of basic services in the
vast metropolitan area. All its functions are administrative in nature and these are actually summed up in the charter
itself, viz:

Sec. 2. Creation of the Metropolitan Manila Development Authority. — . . . .

The MMDA shall perform planning, monitoring and coordinative functions, and in the process
exercise regulatory and supervisory authority over the delivery of metro-wide services within Metro Manila,
without diminution of the autonomy of the local government units concerning purely local matters.  31

Petitioner cannot seek refuge in the cases of Sangalang v. Intermediate Appellate Court  where we upheld a zoning
32 

ordinance issued by the Metro Manila Commission (MMC), the predecessor of the MMDA, as an exercise of police
power. The first Sangalang decision was on the merits of the petition,  while the second decision denied
33 

reconsideration of the first case and in addition discussed the case of Yabut v. Court of Appeals.  34

Sangalang v. IAC involved five (5) consolidated petitions filed by respondent BAVA and three residents of Bel-Air
Village against other residents of the Village and the Ayala Corporation, formerly the Makati Development
Corporation, as the developer of the subdivision. The petitioners sought to enforce certain restrictive easements in
the deeds of sale over their respective lots in the subdivision. These were the prohibition on the setting up of
commercial and advertising signs on the lots, and the condition that the lots be used only for residential purposes.
Petitioners alleged that respondents, who were residents along Jupiter Street of the subdivision, converted their
residences into commercial establishments in violation of the "deed restrictions," and that respondent Ayala
Corporation ushered in the full commercialization" of Jupiter Street by tearing down the perimeter wall that
separated the commercial from the residential section of the village.  35

The petitions were dismissed based on Ordinance No. 81 of the Municipal Council of Makati and Ordinance No. 81-
01 of the Metro Manila Commission (MMC). Municipal Ordinance No. 81 classified Bel-Air Village as a Class A
Residential Zone, with its boundary in the south extending to the center line of Jupiter Street. The Municipal
Ordinance was adopted by the MMC under the Comprehensive Zoning Ordinance for the National Capital Region
and promulgated as MMC Ordinance No. 81-01. Bel-Air Village was indicated therein as bounded by Jupiter Street
and the block adjacent thereto was classified as a High Intensity Commercial Zone.  36

We ruled that since both Ordinances recognized Jupiter Street as the boundary between Bel-Air Village and the
commercial district, Jupiter Street was not for the exclusive benefit of Bel-Air residents. We also held that the
perimeter wall on said street was constructed not to separate the residential from the commercial blocks but simply
for security reasons, hence, in tearing down said wall, Ayala Corporation did not violate the "deed restrictions" in the
deeds of sale.

We upheld the ordinances, specifically MMC Ordinance No. 81-01, as a legitimate exercise of police power.  The 37 

power of the MMC and the Makati Municipal Council to enact zoning ordinances for the general welfare prevailed
over the "deed restrictions".
 Page 36 of 162

In the second Sangalang/Yabut decision, we held that the opening of Jupiter Street was warranted by the demands
of the common good in terms of "traffic decongestion and public convenience." Jupiter was opened by the Municipal
Mayor to alleviate traffic congestion along the public streets adjacent to the Village.  The same reason was given for
38 

the opening to public vehicular traffic of Orbit Street, a road inside the same village. The destruction of the gate in
Orbit Street was also made under the police power of the municipal government. The gate, like the perimeter wall
along Jupiter, was a public nuisance because it hindered and impaired the use of property, hence, its summary
abatement by the mayor was proper and legal.  39

Contrary to petitioner's claim, the two Sangalang cases do not apply to the case at bar. Firstly, both involved zoning
ordinances passed by the municipal council of Makati and the MMC. In the instant case, the basis for the proposed
opening of Neptune Street is contained in the notice of December 22, 1995 sent by petitioner to respondent BAVA,
through its president. The notice does not cite any ordinance or law, either by the Sangguniang Panlungsod of
Makati City or by the MMDA, as the legal basis for the proposed opening of Neptune Street. Petitioner MMDA
simply relied on its authority under its charter "to rationalize the use of roads and/or thoroughfares for the safe and
convenient movement of persons." Rationalizing the use of roads and thoroughfares is one of the acts that fall within
the scope of transport and traffic management. By no stretch of the imagination, however, can this be interpreted as
an express or implied grant of ordinance-making power, much less police power.

Secondly, the MMDA is not the same entity as the MMC in Sangalang. Although the MMC is the forerunner of the
present MMDA, an examination of Presidential Decree (P. D.) No. 824, the charter of the MMC, shows that the latter
possessed greater powers which were not bestowed on the present MMDA.

Metropolitan Manila was first created in 1975 by Presidential Decree (P.D.) No. 824. It comprised the Greater Manila
Area composed of the contiguous four (4) cities of Manila, Quezon, Pasay and Caloocan, and the thirteen (13)
municipalities of Makati, Mandaluyong, San Juan, Las Pinas, Malabon, Navotas, Pasig, Pateros, Paranaque,
Marikina, Muntinlupa and Taguig in the province of Rizal, and Valenzuela in the province of Bulacan.  Metropolitan
40 

Manila was created as a response to the finding that the rapid growth of population and the increase of social and
economic requirements in these areas demand a call for simultaneous and unified development; that the public
services rendered by the respective local governments could be administered more efficiently and economically if
integrated under a system of central planning; and this coordination, "especially in the maintenance of peace and
order and the eradication of social and economic ills that fanned the flames of rebellion and discontent [were] part of
reform measures under Martial Law essential to the safety and security of the State."  41

Metropolitan Manila was established as a "public corporation" with the following powers:

Sec. 1. Creation of the Metropolitan Manila. — There is hereby created a public corporation, to be known as
the Metropolitan Manila, vested with powers and attributes of a corporation including the power to make
contracts, sue and be sued, acquire, purchase, expropriate, hold, transfer and dispose of property and such
other powers as are necessary to carry out its purposes. The Corporation shall be administered by a
Commission created under this Decree.  42

The administration of Metropolitan Manila was placed under the Metro Manila Commission (MMC) vested with the
following powers:

Sec. 4. Powers and Functions of the Commission. — The Commission shall have the following powers and
functions:

1. To act as a central government to establish and administer programs and provide services common to the
area;

2. To levy and collect taxes and special assessments, borrow and expend money and issue bonds, revenue
certificates, and other obligations of indebtedness. Existing tax measures should, however, continue to be
operative until otherwise modified or repealed by the Commission;

3. To charge and collect fees for the use of public service facilities;
 Page 37 of 162

4. To appropriate money for the operation of the metropolitan government and review appropriations for the
city and municipal units within its jurisdiction with authority to disapprove the same if found to be not in
accordance with the established policies of the Commission, without prejudice to any contractual obligation
of the local government units involved existing at the time of approval of this Decree;

5. To review, amend, revise or repeal all ordinances, resolutions and acts of cities and municipalities within
Metropolitan Manila;

6. To enact or approve ordinances, resolutions and to fix penalties for any violation thereof which shall not
exceed a fine of P10,000.00 or imprisonment of six years or both such fine and imprisonment for a single
offense;

7. To perform general administrative, executive and policy-making functions;

8. To establish a fire control operation center, which shall direct the fire services of the city and municipal
governments in the metropolitan area;

9. To establish a garbage disposal operation center, which shall direct garbage collection and disposal in the
metropolitan area;

10. To establish and operate a transport and traffic center, which shall direct traffic activities;

11. To coordinate and monitor governmental and private activities pertaining to essential services such as
transportation, flood control and drainage, water supply and sewerage, social, health and environmental
services, housing, park development, and others;

12. To insure and monitor the undertaking of a comprehensive social, economic and physical planning and
development of the area;

13. To study the feasibility of increasing barangay participation in the affairs of their respective local
governments and to propose to the President of the Philippines definite programs and policies for
implementation;

14. To submit within thirty (30) days after the close of each fiscal year an annual report to the President of
the Philippines and to submit a periodic report whenever deemed necessary; and

15. To perform such other tasks as may be assigned or directed by the President of the Philippines.

The MMC was the "central government" of Metro Manila for the purpose of establishing and administering programs
providing services common to the area. As a "central government" it had the power to levy and collect taxes and
special assessments, the power to charge and collect fees; the power to appropriate money for its operation, and at
the same time, review appropriations for the city and municipal units within its jurisdiction. It was bestowed the
power to enact or approve ordinances, resolutions and fix penalties for violation of such ordinances and resolutions.
It also had the power to review, amend, revise or repeal all ordinances, resolutions and acts of any of the four (4)
cities and thirteen (13) municipalities comprising Metro Manila.

P.D. No. 824 further provided:

Sec. 9. Until otherwise provided, the governments of the four cities and thirteen municipalities in the
Metropolitan Manila shall continue to exist in their present form except as may be inconsistent with this
Decree. The members of the existing city and municipal councils in Metropolitan Manila shall, upon
promulgation of this Decree, and until December 31, 1975, become members of the Sangguniang Bayan
which is hereby created for every city and municipality of Metropolitan Manila.
 Page 38 of 162

In addition, the Sangguniang Bayan shall be composed of as many barangay captains as may be
determined and chosen by the Commission, and such number of representatives from other sectors of the
society as may be appointed by the President upon recommendation of the Commission.

x x x           x x x          x x x

The Sangguniang Bayan may recommend to the Commission ordinances, resolutions or such measures as
it may adopt; Provided, that no such ordinance, resolution or measure shall become effective, until after its
approval by the Commission; and Provided further, that the power to impose taxes and other levies, the
power to appropriate money and the power to pass ordinances or resolutions with penal sanctions shall be
vested exclusively in the Commission.

The creation of the MMC also carried with it the creation of the Sangguniang Bayan. This was composed of the
members of the component city and municipal councils, barangay captains chosen by the MMC and sectoral
representatives appointed by the President. The Sangguniang Bayan had the power to recommend to the MMC the
adoption of ordinances, resolutions or measures. It was the MMC itself, however, that possessed legislative powers.
All ordinances, resolutions and measures recommended by the Sangguniang Bayan were subject to the MMC's
approval. Moreover, the power to impose taxes and other levies, the power to appropriate money, and the power to
pass ordinances or resolutions with penal sanctions were vested exclusively in the MMC.

Thus, Metropolitan Manila had a "central government," i.e., the MMC which fully possessed legislative police
powers. Whatever legislative powers the component cities and municipalities had were all subject to review and
approval by the MMC.

After President Corazon Aquino assumed power, there was a clamor to restore the autonomy of the local
government units in Metro Manila. Hence, Sections 1 and 2 of Article X of the 1987 Constitution provided:

Sec. 1. The territorial and political subdivisions of the Republic of the Philippines are the provinces, cities,
municipalities and barangays. There shall be autonomous regions in Muslim Mindanao and the Cordilleras
as herein provided.

Sec. 2. The territorial and political subdivisions shall enjoy local autonomy.

The Constitution, however, recognized the necessity of creating metropolitan regions not only in the existing
National Capital Region but also in potential equivalents in the Visayas and Mindanao.  Section 11 of the same
43 

Article X thus provided:

Sec. 11. The Congress may, by law, create special metropolitan political subdivisions, subject to a plebiscite
as set forth in Section 10 hereof. The component cities and municipalities shall retain their basic autonomy
and shall be entitled to their own local executives and legislative assemblies. The jurisdiction of the
metropolitan authority that will thereby be created shall be limited to basic services requiring coordination.

Constitution itself expressly provides that Congress may, by law, create "special metropolitan political subdivisions"
which shall be subject to approval by a majority of the votes cast in a plebiscite in the political units directly affected;
the jurisdiction of this subdivision shall be limited to basic services requiring coordination; and the cities and
municipalities comprising this subdivision shall retain their basic services requiring coordination; and the cities and
municipalities comprising this subdivision shall retain their basic autonomy and their own local executive and
legislative assemblies.  Pending enactment of this law, the Transitory Provisions of the Constitution gave the
44 

President of the Philippines the power to constitute the Metropolitan Authority, viz:

Sec. 8. Until otherwise provided by Congress, the President may constitute the Metropolitan Authority to be
composed of the heads of all local government units comprising the Metropolitan Manila area.  45

In 1990, President Aquino issued Executive Order (E. O.) No. 392 and constituted the Metropolitan Manila Authority
(MMA). The powers and functions of the MMC were devolved to the MMA.  It ought to be stressed, however, that
46 
 Page 39 of 162

not all powers and functions of the MMC were passed to the MMA. The MMA's power was limited to the "delivery of
basic urban services requiring coordination in Metropolitan Manila."  The MMA's governing body, the Metropolitan
47 

Manila Council, although composed of the mayors of the component cities and municipalities, was merely given
power of: (1) formulation of policies on the delivery of basic services requiring coordination and consolidation; and
(2) promulgation resolutions and other issuances, approval of a code of basic services and the exercise of its rule-
making power.  48

Under the 1987 Constitution, the local government units became primarily responsible for the governance of their
respective political subdivisions. The MMA's jurisdiction was limited to addressing common problems involving basic
services that transcended local boundaries. It did not have legislative power. Its power was merely to provide the
local government units technical assistance in the preparation of local development plans. Any semblance of
legislative power it had was confined to a "review [of] legislation proposed by the local legislative assemblies to
ensure consistency among local governments and with the comprehensive development plan of Metro Manila," and
to "advise the local governments accordingly."  49

When R.A. No. 7924 took effect, Metropolitan Manila became a "special development and administrative region"
and the MMDA a "special development authority" whose functions were "without prejudice to the autonomy of the
affected local government units." The character of the MMDA was clearly defined in the legislative debates enacting
its charter.

R.A. No. 7924 originated as House Bill No. 14170/11116 and was introduced by several legislators led by Dante
Tinga, Roilo Golez and Feliciano Belmonte. It was presented to the House of Representatives by the Committee on
Local Governments chaired by Congressman Ciriaco R. Alfelor. The bill was a product of Committee consultations
with the local government units in the National Capital Region (NCR), with former Chairmen of the MMC and
MMA,  and career officials of said agencies. When the bill was first taken up by the Committee on Local
50 

Governments, the following debate took place:

THE CHAIRMAN [Hon. Ciriaco Alfelor]: Okay, Let me explain. This has been debated a long time ago, you
know. It's a special . . . we can create a special metropolitan political subdivision.

Actually, there are only six (6) political subdivisions provided for in the Constitution: barangay, municipality,
city, province, and we have the Autonomous Region of Mindanao and we have the Cordillera. So we have 6.
Now. . . . .

HON. [Elias] LOPEZ: May I interrupt, Mr. Chairman. In the case of the Autonomous Region, that is also
specifically mandated by the Constitution.

THE CHAIRMAN: That's correct. But it is considered to be a political subdivision. What is the meaning of a
political subdivision? Meaning to say, that it has its own government, it has its own political personality, it
has the power to tax, and all governmental powers: police power and everything. All right. Authority is
different; because it does not have its own government. It is only a council, it is an organization of political
subdivision, powers, "no, which is not imbued with any political power.

If you go over Section 6, where the powers and functions of the Metro Manila Development Authority, it is
purely coordinative. And it provides here that the council is policy-making. All right.

Under the Constitution is a Metropolitan Authority with coordinative power. Meaning to say, it coordinates all
of the different basic services which have to be delivered to the constituency. All right.

There is now a problem. Each local government unit is given its respective . . . as a political subdivision.
Kalookan has its powers, as provided for and protected and guaranteed by the Constitution. All right, the
exercise. However, in the exercise of that power, it might be deleterious and disadvantageous to other local
government units. So, we are forming an authority where all of these will be members and then set up a
policy in order that the basic services can be effectively coordinated. All right.
 Page 40 of 162

Of course, we cannot deny that the MMDA has to survive. We have to provide some funds, resources. But it
does not possess any political power. We do not elect the Governor. We do not have the power to tax. As a
matter of fact, I was trying to intimate to the author that it must have the power to sue and be sued because
it coordinates. All right. It coordinates practically all these basic services so that the flow and the distribution
of the basic services will be continuous. Like traffic, we cannot deny that. It's before our eyes. Sewerage,
flood control, water system, peace and order, we cannot deny these. It's right on our face. We have to look
for a solution. What would be the right solution? All right, we envision that there should be a coordinating
agency and it is called an authority. All right, if you do not want to call it an authority, it's alright. We may call
it a council or maybe a management agency.

x x x           x x x          x x x 
51

Clearly, the MMDA is not a political unit of government. The power delegated to the MMDA is that given to the Metro
Manila Council to promulgate administrative rules and regulations in the implementation of the MMDA's functions.
There is no grant of authority to enact ordinances and regulations for the general welfare of the inhabitants of the
metropolis. This was explicitly stated in the last Committee deliberations prior to the bill's presentation to Congress.
Thus:

THE CHAIRMAN: Yeah, but we have to go over the suggested revision. I think this was already approved
before, but it was reconsidered in view of the proposals, set-up, to make the MMDA stronger. Okay, so if
there is no objection to paragraph "f". . . And then next is paragraph "b," under Section 6. "It shall approve
metro-wide plans, programs and projects and issue ordinances or resolutions deemed necessary by the
MMDA to carry out the purposes of this Act." Do you have the powers? Does the MMDA... because that
takes the form of a local government unit, a political subdivision.

HON. [Feliciano] BELMONTE: Yes, I believe so, your Honor. When we say that it has the policies, it's very
clear that those policies must be followed. Otherwise, what's the use of empowering it to come out with
policies. Now, the policies may be in the form of a resolution or it may be in the form of a ordinance. The
term "ordinance" in this case really gives it more teeth, your honor. Otherwise, we are going to see a
situation where you have the power to adopt the policy but you cannot really make it stick as in the case
now, and I think here is Chairman Bunye. I think he will agree that that is the case now. You've got the
power to set a policy, the body wants to follow your policy, then we say let's call it an ordinance and see if
they will not follow it.

THE CHAIRMAN: That's very nice. I like that. However, there is a constitutional impediment.  You are 1âwphi1

making this MMDA a political subdivision. The creation of the MMDA would be subject to a plebiscite. That is
what I'm trying to avoid. I've been trying to avoid this kind of predicament. Under the Constitution it states: if
it is a political subdivision, once it is created it has to be subject to a plebiscite. I'm trying to make this as
administrative. That's why we place the Chairman as a cabinet rank.

HON. BELMONTE: All right, Mr. Chairman, okay, what you are saying there is . . . . .

THE CHAIRMAN: In setting up ordinances, it is a political exercise, Believe me.

HON. [Elias] LOPEZ: Mr. Chairman, it can be changed into issuances of rules and regulations. That would
be . . . it shall also be enforced.

HON. BELMONTE: Okay, I will . . . .

HON. LOPEZ: And you can also say that violation of such rule, you impose a sanction. But you know,
ordinance has a different legal connotation.

HON. BELMONTE: All right, I defer to that opinion, your Honor.

THE CHAIRMAN: So instead of ordinances, say rules and regulations.

 Page 41 of 162

HON. BELMONTE: Or resolutions. Actually, they are actually considering resolutions now.

THE CHAIRMAN: Rules and resolutions.

HON. BELMONTE: Rules, regulations and resolutions.  52

The draft of H. B. No. 14170/11116 was presented by the Committee to the House of Representatives. The
explanatory note to the bill stated that the proposed MMDA is a "development authority" which is a "national agency,
not a political government unit."  The explanatory note was adopted as the sponsorship speech of the Committee
53 

on Local Governments. No interpellations or debates were made on the floor and no amendments introduced. The
bill was approved on second reading on the same day it was presented.  54

When the bill was forwarded to the Senate, several amendments were made.  These amendments, however, did
1âwphi1

not affect the nature of the MMDA as originally conceived in the House of Representatives.  55

It is thus beyond doubt that the MMDA is not a local government unit or a public corporation endowed with
legislative power. It is not even a "special metropolitan political subdivision" as contemplated in Section 11, Article X
of the Constitution. The creation of a "special metropolitan political subdivision" requires the approval by a majority
of the votes cast in a plebiscite in the political units directly affected."  R. A. No. 7924 was not submitted to the
56 

inhabitants of Metro Manila in a plebiscite. The Chairman of the MMDA is not an official elected by the people, but
appointed by the President with the rank and privileges of a cabinet member. In fact, part of his function is to
perform such other duties as may be assigned to him by the President,  whereas in local government units, the
57 

President merely exercises supervisory authority. This emphasizes the administrative character of the MMDA.

Clearly then, the MMC under P.D. No. 824 is not the same entity as the MMDA under R.A. No. 7924. Unlike the
MMC, the MMDA has no power to enact ordinances for the welfare of the community. It is the local government
units, acting through their respective legislative councils, that possess legislative power and police power. In the
case at bar, the Sangguniang Panlungsod of Makati City did not pass any ordinance or resolution ordering the
opening of Neptune Street, hence, its proposed opening by petitioner MMDA is illegal and the respondent Court of
Appeals did not err in so ruling. We desist from ruling on the other issues as they are unnecessary.

We stress that this decision does not make light of the MMDA's noble efforts to solve the chaotic traffic condition in
Metro Manila. Everyday, traffic jams and traffic bottlenecks plague the metropolis. Even our once sprawling
boulevards and avenues are now crammed with cars while city streets are clogged with motorists and pedestrians.
Traffic has become a social malaise affecting our people's productivity and the efficient delivery of goods and
services in the country. The MMDA was created to put some order in the metropolitan transportation system but
unfortunately the powers granted by its charter are limited. Its good intentions cannot justify the opening for public
use of a private street in a private subdivision without any legal warrant. The promotion of the general welfare is not
antithetical to the preservation of the rule of law.
1âwphi1.nêt

IN VIEW WHEREOF, the petition is denied. The Decision and Resolution of the Court of Appeals in CA-G.R. SP No.
39549 are affirmed.

SO ORDERED.
 Page 42 of 162

G.R. No. 130230             April 15, 2005

METROPOLITAN MANILA DEVELOPMENT AUTHORITY, Petitioner,

vs.
DANTE O. GARIN, respondent.

At issue in this case is the validity of Section 5(f) of Republic Act No. 7924 creating the Metropolitan Manila
Development Authority (MMDA), which authorizes it to confiscate and suspend or revoke driver's licenses in the
enforcement of traffic laws and regulations.

The issue arose from an incident involving the respondent Dante O. Garin, a lawyer, who was issued a traffic
violation receipt (TVR) and his driver's license confiscated for parking illegally along Gandara Street, Binondo,
Manila, on 05 August 1995.  The following statements were printed on the TVR:

You are hereby directed to report to the MMDA Traffic Operations Center Port Area Manila after 48 hours from date
of apprehension for disposition/appropriate action thereon.  Criminal case shall be filed for failure to redeem license
after 30 days.

Valid as temporary DRIVER'S license for seven days from date of apprehension. 1

Shortly before the expiration of the TVR's validity, the respondent addressed a letter to then MMDA Chairman
2 

Prospero Oreta requesting the return of his driver's license, and expressing his preference for his case to be filed in
court.

Receiving no immediate reply, Garin filed the original complaint with application for preliminary injunction in Branch
3 

260 of the Regional Trial Court (RTC) of Parañaque, on 12 September 1995, contending that, in the absence of any
implementing rules and regulations, Sec. 5(f) of Rep. Act No. 7924 grants the MMDA unbridled discretion to deprive
erring motorists of their licenses, pre-empting a judicial determination of the validity of the deprivation, thereby
violating the due process clause of the Constitution.  The respondent further contended that the provision violates
 Page 43 of 162

the constitutional prohibition against undue delegation of legislative authority, allowing as it does the MMDA to fix
and impose unspecified – and therefore unlimited - fines and other penalties on erring motorists.

In support of his application for a writ of preliminary injunction, Garin alleged that he suffered and continues to suffer
great and irreparable damage because of the deprivation of his license and that, absent any implementing rules
from the Metro Manila Council, the TVR and the confiscation of his license have no legal basis.

For its part, the MMDA, represented by the Office of the Solicitor General, pointed out that the powers granted to it
by Sec. 5(f) of Rep. Act No. 7924 are limited to the fixing, collection and imposition of fines and penalties for traffic
violations, which powers are legislative and executive in nature; the judiciary retains the right to determine the
validity of the penalty imposed.  It further argued that the doctrine of separation of powers does not preclude
"admixture" of the three powers of government in administrative agencies. 4

The MMDA also refuted Garin's allegation that the Metro Manila Council, the governing board and policy making
body of the petitioner, has as yet to formulate the implementing rules for Sec. 5(f) of Rep. Act No. 7924 and directed
the court's attention to MMDA Memorandum Circular No. TT-95-001 dated 15 April 1995.  Respondent Garin,
however, questioned the validity of MMDA Memorandum Circular No. TT-95-001, as he claims that it was passed by
the Metro Manila Council in the absence of a quorum.

Judge Helen Bautista-Ricafort issued a temporary restraining order on 26 September 1995, extending the validity of
the TVR as a temporary driver's license for twenty more days.  A preliminary mandatory injunction was granted on
23 October 1995, and the MMDA was directed to return the respondent's driver's license.

On 14 August 1997, the trial court rendered the assailed decision in favor of the herein respondent and held that:
5 

a.         There was indeed no quorum in that First Regular Meeting of the MMDA Council held on March 23, 1995,
hence MMDA Memorandum Circular No. TT-95-001, authorizing confiscation of driver's licenses upon issuance of a
TVR, is void ab initio.

b.         The summary confiscation of a driver's license without first giving the driver an opportunity to be heard;
depriving him of a property right (driver's license) without DUE PROCESS; not filling (sic) in Court the complaint of
supposed traffic infraction, cannot be justified by any legislation (and is) hence unconstitutional.

WHEREFORE, the temporary writ of preliminary injunction is hereby made permanent; th(e) MMDA is directed to
return to plaintiff his driver's license; th(e) MMDA is likewise ordered to desist from confiscating driver's license
without first giving the driver the opportunity to be heard in an appropriate proceeding.

In filing this petition, the MMDA reiterates and reinforces its argument in the court below and contends that a license
6 

to operate a motor vehicle is neither a contract nor a property right, but is a privilege subject to reasonable
regulation under the police power in the interest of the public safety and welfare.  The petitioner further argues that
revocation or suspension of this privilege does not constitute a taking without due process as long as the licensee is
given the right to appeal the revocation.

To buttress its argument that a licensee may indeed appeal the taking and the judiciary retains the power to
determine the validity of the confiscation, suspension or revocation of the license, the petitioner points out that under
the terms of the confiscation, the licensee has three options:

1.  To voluntarily pay the imposable fine,

2.  To protest the apprehension by filing a protest with the MMDA Adjudication Committee, or

3.  To request the referral of the TVR to the Public Prosecutor's Office.
 Page 44 of 162

The MMDA likewise argues that Memorandum Circular No. TT-95-001 was validly passed in the presence of a
quorum, and that the lower court's finding that it had not was based on a "misapprehension of facts," which the
petitioner would have us review.  Moreover, it asserts that though the circular is the basis for the issuance of TVRs,
the basis for the summary confiscation of licenses is Sec. 5(f) of Rep. Act No. 7924 itself, and that such power is
self-executory and does not require the issuance of any implementing regulation or circular.

Meanwhile, on 12 August 2004, the MMDA, through its Chairman Bayani Fernando, implemented Memorandum
Circular No. 04, Series of 2004, outlining the procedures for the use of the Metropolitan Traffic Ticket (MTT)
scheme.  Under the circular, erring motorists are issued an MTT, which can be paid at any Metrobank branch. 
Traffic enforcers may no longer confiscate drivers' licenses as a matter of course in cases of traffic violations.  All
motorists with unredeemed TVRs were given seven days from the date of implementation of the new system to pay
their fines and redeem their license or vehicle plates.7

It would seem, therefore, that insofar as the absence of a prima facie case to enjoin the petitioner from confiscating
drivers' licenses is concerned, recent events have overtaken the Court's need to decide this case, which has been
rendered moot and academic by the implementation of Memorandum Circular No. 04, Series of 2004.

The petitioner, however, is not precluded from re-implementing Memorandum Circular No. TT-95-001, or any other
scheme, for that matter, that would entail confiscating drivers' licenses.  For the proper implementation, therefore, of
the petitioner's future programs, this Court deems it appropriate to make the following observations:

1.      A license to operate a motor vehicle is a privilege that the state may withhold in the exercise of its
police power.

The petitioner correctly points out that a license to operate a motor vehicle is not a property right, but a privilege
granted by the state, which may be suspended or revoked by the state in the exercise of its police power, in the
interest of the public safety and welfare, subject to the procedural due process requirements.  This is consistent with
our rulings in Pedro v. Provincial Board of Rizal on the license to operate a cockpit, Tan v. Director of
8 

Forestry and Oposa v. Factoran on timber licensing agreements, and Surigao Electric Co., Inc. v. Municipality of
9  10 

Surigao on a legislative franchise to operate an electric plant.

11 

Petitioner cites a long list of American cases to prove this point, such as State ex. Rel. Sullivan, which states in part
12 

that, "the legislative power to regulate travel over the highways and thoroughfares of the state for the general
welfare is extensive.  It may be exercised in any reasonable manner to conserve the safety of travelers and
pedestrians.  Since motor vehicles are instruments of potential danger, their registration and the licensing of their
operators have been required almost from their first appearance.  The right to operate them in public places is not a
natural and unrestrained right, but a privilege subject to reasonable regulation, under the police power, in the
interest of the public safety and welfare. The power to license imports further power to withhold or to revoke such
license upon noncompliance with prescribed conditions."

Likewise, the petitioner quotes the Pennsylvania Supreme Court in Commonwealth v. Funk, to the effect that:
13 

"Automobiles are vehicles of great speed and power.  The use of them constitutes an element of danger to persons
and property upon the highways.  Carefully operated, an automobile is still a dangerous instrumentality, but, when
operated by careless or incompetent persons, it becomes an engine of destruction.  The Legislature, in the exercise
of the police power of the commonwealth, not only may, but must, prescribe how and by whom motor vehicles shall
be operated on the highways.  One of the primary purposes of a system of general regulation of the subject matter,
as here by the Vehicle Code, is to insure the competency of the operator of motor vehicles.  Such a general law is
manifestly directed to the promotion of public safety and is well within the police power."

The common thread running through the cited cases is that it is the legislature, in the exercise of police power,
which has the power and responsibility to regulate how and by whom motor vehicles may be operated on the state
highways.

2.         The MMDA is not vested with police power.

 Page 45 of 162

In Metro Manila Development Authority v. Bel-Air Village Association, Inc., we categorically stated that Rep. Act No.
14 

7924 does not grant the MMDA with police power, let alone legislative power, and that all its functions are
administrative in nature.

The said case also involved the herein petitioner MMDA which claimed that it had the authority to open a subdivision
street owned by the Bel-Air Village Association, Inc. to public traffic because it is an agent of the state endowed with
police power in the delivery of basic services in Metro Manila.  From this premise, the MMDA argued that there was
no need for the City of Makati to enact an ordinance opening Neptune Street to the public.

Tracing the legislative history of Rep. Act No. 7924 creating the MMDA, we concluded that the MMDA is not a local
government unit or a public corporation endowed with legislative power, and, unlike its predecessor, the Metro
Manila Commission, it has no power to enact ordinances for the welfare of the community.  Thus, in the absence of
an ordinance from the City of Makati, its own order to open the street was invalid.

We restate here the doctrine in the said decision as it applies to the case at bar: police power, as an inherent
attribute of sovereignty, is the power vested by the Constitution in the legislature to make, ordain, and establish all
manner of wholesome and reasonable laws, statutes and ordinances, either with penalties or without, not repugnant
to the Constitution, as they shall judge to be for the good and welfare of the commonwealth, and for the subjects of
the same.

Having been lodged primarily in the National Legislature, it cannot be exercised by any group or body of individuals
not possessing legislative power. The National Legislature, however, may delegate this power to the president and
administrative boards as well as the lawmaking bodies of municipal corporations or local government units (LGUs).
Once delegated, the agents can exercise only such legislative powers as are conferred on them by the national
lawmaking body.

Our Congress delegated police power to the LGUs in the Local Government Code of 1991. A local government is a
15 

"political subdivision of a nation or state which is constituted by law and has substantial control of local
affairs." Local government units are the provinces, cities, municipalities and barangays, which exercise police
16 

power through their respective legislative bodies.

Metropolitan or Metro Manila is a body composed of several local government units.  With the passage of Rep. Act
No. 7924 in 1995, Metropolitan Manila was declared as a "special development and administrative region" and the
administration of "metro-wide" basic services affecting the region placed under "a development authority" referred to
as the MMDA.  Thus:

. . . [T]he powers of the MMDA are limited to the following acts: formulation, coordination, regulation,
implementation, preparation, management, monitoring, setting of policies, installation of a system and
administration. There is no syllable in R. A. No. 7924 that grants the MMDA police power, let alone legislative
power. Even the Metro Manila Council has not been delegated any legislative power. Unlike the legislative
bodies of the local government units, there is no provision in R. A. No. 7924 that empowers the MMDA or its
Council to "enact ordinances, approve resolutions and appropriate funds for the general welfare" of the
inhabitants of Metro Manila. The MMDA is, as termed in the charter itself, a "development authority." It is an
agency created for the purpose of laying down policies and coordinating with the various national
government agencies, people's organizations, non-governmental organizations and the private sector for
the efficient and expeditious delivery of basic services in the vast metropolitan area .  All its functions are
administrative in nature and these are actually summed up in the charter itself, viz:

"Sec. 2. Creation of the Metropolitan Manila Development Authority. -- -x x x.

The MMDA shall perform planning, monitoring and coordinative functions, and in the process
exercise regulatory and supervisory authority over the delivery of metro-wide services within Metro
Manila, without diminution of the autonomy of the local government units concerning purely local
matters."
 Page 46 of 162

….

Clearly, the MMDA is not a political unit of government.  The power delegated to the MMDA is that given to the
Metro Manila Council to promulgate administrative rules and regulations in the implementation of the MMDA's
functions.  There is no grant of authority to enact ordinances and regulations for the general welfare of the
inhabitants of the metropolis. 17 (footnotes omitted, emphasis supplied)

Therefore, insofar as Sec. 5(f) of Rep. Act No. 7924 is understood by the lower court and by the petitioner to grant
the MMDA the power to confiscate and suspend or revoke drivers' licenses without need of any other legislative
enactment, such is an unauthorized exercise of police power.

3.      Sec. 5(f) grants the MMDA with the duty to enforce existing traffic rules and regulations.

Section 5 of Rep. Act No. 7924 enumerates the "Functions and Powers of the Metro Manila Development Authority."
The contested clause in Sec. 5(f) states that the petitioner shall "install and administer a single ticketing system, fix,
impose and collect fines and penalties for all kinds of violations of traffic rules and regulations, whether moving or
nonmoving in nature, and confiscate and suspend or revoke drivers' licenses in the enforcement of such traffic laws
and regulations, the provisions of Rep. Act No. 4136 and P.D. No. 1605 to the contrary notwithstanding," and that
18  19 

"(f)or this purpose, the Authority shall enforce all traffic laws and regulations in Metro Manila, through its traffic
operation center, and may deputize members of the PNP, traffic enforcers of local government units, duly licensed
security guards, or members of non-governmental organizations to whom may be delegated certain authority,
subject to such conditions and requirements as the Authority may impose."

Thus, where there is a traffic law or regulation validly enacted by the legislature or those agencies to whom
legislative powers have been delegated (the City of Manila in this case), the petitioner is not precluded – and in fact
is duty-bound – to confiscate and suspend or revoke drivers' licenses in the exercise of its mandate of transport and
traffic management, as well as the administration and implementation of all traffic enforcement operations, traffic
engineering services and traffic education programs. 20

This is consistent with our ruling in Bel-Air that the MMDA is a development authority created for the purpose of
laying down policies and coordinating with the various national government agencies, people's organizations, non-
governmental organizations and the private sector, which may enforce, but not enact, ordinances.

This is also consistent with the fundamental rule of statutory construction that a statute is to be read in a manner
that would breathe life into it, rather than defeat it, and is supported by the criteria in cases of this nature that all
21 

reasonable doubts should be resolved in favor of the constitutionality of a statute. 22

A last word.  The MMDA was intended to coordinate services with metro-wide impact that transcend local political
boundaries or would entail huge expenditures if provided by the individual LGUs, especially with regard to transport
and traffic management, and we are aware of the valiant efforts of the petitioner to untangle the increasingly traffic-
23 

snarled roads of Metro Manila.  But these laudable intentions are limited by the MMDA's enabling law, which we can
but interpret, and petitioner must be reminded that its efforts in this respect must be authorized by a valid law, or
ordinance, or regulation arising from a legitimate source.

WHEREFORE, the petition is dismissed.

SO ORDERED.
 Page 47 of 162

G.R. No. L-18841             January 27, 1969

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,

vs.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, defendant-appellant.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio A. Torres and Solicitor Camilo D.
Quiason for plaintiff-appellant.
Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendant-appellant.

REYES, J.B.L., J.:

  Direct appeals, upon a joint record on appeal, by both the plaintiff and the defendant from the dismissal, after
hearing, by the Court of First Instance of Manila, in its Civil Case No. 35805, of their respective complaint and
counterclaims, but making permanent a preliminary mandatory injunction theretofore issued against the defendant
on the interconnection of telephone facilities owned and operated by said parties.

  The plaintiff, Republic of the Philippines, is a political entity exercising governmental powers through its branches
and instrumentalities, one of which is the Bureau of Telecommunications. That office was created on 1 July 1947,
under Executive Order No. 94, with the following powers and duties, in addition to certain powers and duties
formerly vested in the Director of Posts: 1awphil.ñêt

  SEC. 79. The Bureau of Telecommunications shall exercise the following powers and duties:

(a) To operate and maintain existing wire-telegraph and radio-telegraph offices, stations, and facilities, and
those to be established to restore the pre-war telecommunication service under the Bureau of Posts, as well
 Page 48 of 162

as such additional offices or stations as may hereafter be established to provide telecommunication service
in places requiring such service;

(b) To investigate, consolidate, negotiate for, operate and maintain wire-telephone or radio telephone
communication service throughout the Philippines by utilizing such existing facilities in cities, towns, and
provinces as may be found feasible and under such terms and conditions or arrangements with the present
owners or operators thereof as may be agreed upon to the satisfaction of all concerned;

(c) To prescribe, subject to approval by the Department Head, equitable rates of charges for messages
handled by the system and/or for time calls and other services that may be rendered by said system;

(d) To establish and maintain coastal stations to serve ships at sea or aircrafts and, when public interest so
requires, to engage in the international telecommunication service in agreement with other countries desiring
to establish such service with the Republic of the Philippines; and

(e) To abide by all existing rules and regulations prescribed by the International Telecommunication
Convention relative to the accounting, disposition and exchange of messages handled in the international
service, and those that may hereafter be promulgated by said convention and adhered to by the
Government of the Republic of the Philippines. 1

  The defendant, Philippine Long Distance Telephone Company (PLDT for short), is a public service corporation
holding a legislative franchise, Act 3426, as amended by Commonwealth Act 407, to install, operate and maintain a
telephone system throughout the Philippines and to carry on the business of electrical transmission of messages
within the Philippines and between the Philippines and the telephone systems of other countries. 2 The RCA
Communications, Inc., (which is not a party to the present case but has contractual relations with the parties) is an
American corporation authorized to transact business in the Philippines and is the grantee, by assignment, of a
legislative franchise to operate a domestic station for the reception and transmission of long distance wireless
messages (Act 2178) and to operate broadcasting and radio-telephone and radio-telegraphic communications
services (Act 3180). 3

  Sometime in 1933, the defendant, PLDT, and the RCA Communications, Inc., entered into an agreement whereby
telephone messages, coming from the United States and received by RCA's domestic station, could automatically
be transferred to the lines of PLDT; and vice-versa, for calls collected by the PLDT for transmission from the
Philippines to the United States. The contracting parties agreed to divide the tolls, as follows: 25% to PLDT and 75%
to RCA. The sharing was amended in 1941 to 30% for PLDT and 70% for RCA, and again amended in 1947 to a
50-50 basis. The arrangement was later extended to radio-telephone messages to and from European and Asiatic
countries. Their contract contained a stipulation that either party could terminate it on a 24-month notice to the
other. 4 On 2 February 1956, PLDT gave notice to RCA to terminate their contract on 2 February 1958. 5

  Soon after its creation in 1947, the Bureau of Telecommunications set up its own Government Telephone System
by utilizing its own appropriation and equipment and by renting trunk lines of the PLDT to enable government offices
to call private parties. 6 Its application for the use of these trunk lines was in the usual form of applications for
telephone service, containing a statement, above the signature of the applicant, that the latter will abide by the rules
and regulations of the PLDT which are on file with the Public Service Commission.  7 One of the many rules prohibits
the public use of the service furnished the telephone subscriber for his private use.  8 The Bureau has extended its
services to the general public since 1948, 9 using the same trunk lines owned by, and rented from, the PLDT, and
prescribing its (the Bureau's) own schedule of rates. 10 Through these trunk lines, a Government Telephone System
(GTS) subscriber could make a call to a PLDT subscriber in the same way that the latter could make a call to the
former.

  On 5 March 1958, the plaintiff, through the Director of Telecommunications, entered into an agreement with RCA
Communications, Inc., for a joint overseas telephone service whereby the Bureau would convey radio-telephone
overseas calls received by RCA's station to and from local residents. 11 Actually, they inaugurated this joint operation
on 2 February 1958, under a "provisional" agreement. 12
 Page 49 of 162

  On 7 April 1958, the defendant Philippine Long Distance Telephone Company, complained to the Bureau of
Telecommunications that said bureau was violating the conditions under which their Private Branch Exchange
(PBX) is inter-connected with the PLDT's facilities, referring to the rented trunk lines, for the Bureau had used the
trunk lines not only for the use of government offices but even to serve private persons or the general public, in
competition with the business of the PLDT; and gave notice that if said violations were not stopped by midnight of 12
April 1958, the PLDT would sever the telephone connections. 13 When the PLDT received no reply, it disconnected
the trunk lines being rented by the Bureau at midnight on 12 April 1958. 14 The result was the isolation of the
Philippines, on telephone services, from the rest of the world, except the United States. 15

  At that time, the Bureau was maintaining 5,000 telephones and had 5,000 pending applications for telephone
connection. 16 The PLDT was also maintaining 60,000 telephones and had also 20,000 pending
applications. 17 Through the years, neither of them has been able to fill up the demand for telephone service.

  The Bureau of Telecommunications had proposed to the PLDT on 8 January 1958 that both enter into an
interconnecting agreement, with the government paying (on a call basis) for all calls passing through the
interconnecting facilities from the Government Telephone System to the PLDT. 18 The PLDT replied that it was
willing to enter into an agreement on overseas telephone service to Europe and Asian countries provided that the
Bureau would submit to the jurisdiction and regulations of the Public Service Commission and in consideration of 37
1/2% of the gross revenues. 19 In its memorandum in lieu of oral argument in this Court dated 9 February 1964, on
page 8, the defendant reduced its offer to 33 1/3 % (1/3) as its share in the overseas telephone service. The
proposals were not accepted by either party.

  On 12 April 1958, plaintiff Republic commenced suit against the defendant, Philippine Long Distance Telephone
Company, in the Court of First Instance of Manila (Civil Case No. 35805), praying in its complaint for judgment
commanding the PLDT to execute a contract with plaintiff, through the Bureau, for the use of the facilities of
defendant's telephone system throughout the Philippines under such terms and conditions as the court might
consider reasonable, and for a writ of preliminary injunction against the defendant company to restrain the
severance of the existing telephone connections and/or restore those severed.

  Acting on the application of the plaintiff, and on the ground that the severance of telephone connections by the
defendant company would isolate the Philippines from other countries, the court a quo, on 14 April 1958, issued an
order for the defendant:

(1) to forthwith reconnect and restore the seventy-eight (78) trunk lines that it has disconnected between the
facilities of the Government Telephone System, including its overseas telephone services, and the facilities
of defendant; (2) to refrain from carrying into effect its threat to sever the existing telephone communication
between the Bureau of Telecommunications and defendant, and not to make connection over its telephone
system of telephone calls coming to the Philippines from foreign countries through the said Bureau's
telephone facilities and the radio facilities of RCA Communications, Inc.; and (3) to accept and connect
through its telephone system all such telephone calls coming to the Philippines from foreign countries —
until further order of this Court.

  On 28 April 1958, the defendant company filed its answer, with counterclaims.

  It denied any obligation on its part to execute a contrary of services with the Bureau of Telecommunications;
contested the jurisdiction of the Court of First Instance to compel it to enter into interconnecting agreements, and
averred that it was justified to disconnect the trunk lines heretofore leased to the Bureau of Telecommunications
under the existing agreement because its facilities were being used in fraud of its rights. PLDT further claimed that
the Bureau was engaging in commercial telephone operations in excess of authority, in competition with, and to the
prejudice of, the PLDT, using defendants own telephone poles, without proper accounting of revenues.

  After trial, the lower court rendered judgment that it could not compel the PLDT to enter into an agreement with the
Bureau because the parties were not in agreement; that under Executive Order 94, establishing the Bureau of
Telecommunications, said Bureau was not limited to servicing government offices alone, nor was there any in the
contract of lease of the trunk lines, since the PLDT knew, or ought to have known, at the time that their use by the
 Page 50 of 162

Bureau was to be public throughout the Islands, hence the Bureau was neither guilty of fraud, abuse, or misuse of
the poles of the PLDT; and, in view of serious public prejudice that would result from the disconnection of the trunk
lines, declared the preliminary injunction permanent, although it dismissed both the complaint and the
counterclaims.

  Both parties appealed.

  Taking up first the appeal of the Republic, the latter complains of the action of the trial court in dismissing the part
of its complaint seeking to compel the defendant to enter into an interconnecting contract with it, because the parties
could not agree on the terms and conditions of the interconnection, and of its refusal to fix the terms and conditions
therefor.

  We agree with the court below that parties can not be coerced to enter into a contract where no agreement is had
between them as to the principal terms and conditions of the contract. Freedom to stipulate such terms and
conditions is of the essence of our contractual system, and by express provision of the statute, a contract may be
annulled if tainted by violence, intimidation, or undue influence (Articles 1306, 1336, 1337, Civil Code of the
Philippines). But the court a quo has apparently overlooked that while the Republic may not compel the PLDT to
celebrate a contract with it, the Republic may, in the exercise of the sovereign power of eminent domain, require the
telephone company to permit interconnection of the government telephone system and that of the PLDT, as the
needs of the government service may require, subject to the payment of just compensation to be determined by the
court. Nominally, of course, the power of eminent domain results in the taking or appropriation of title to, and
possession of, the expropriated property; but no cogent reason appears why the said power may not be availed of
to impose only a burden upon the owner of condemned property, without loss of title and possession. It is
unquestionable that real property may, through expropriation, be subjected to an easement of right of way. The use
of the PLDT's lines and services to allow inter-service connection between both telephone systems is not much
different. In either case private property is subjected to a burden for public use and benefit. If, under section 6,
Article XIII, of the Constitution, the State may, in the interest of national welfare, transfer utilities to public ownership
upon payment of just compensation, there is no reason why the State may not require a public utility to render
services in the general interest, provided just compensation is paid therefor. Ultimately, the beneficiary of the
interconnecting service would be the users of both telephone systems, so that the condemnation would be for public
use.

  The Bureau of Telecommunications, under section 78 (b) of Executive Order No. 94, may operate and maintain
wire telephone or radio telephone communications throughout the Philippines by utilizing existing facilities in cities,
towns, and provinces under such terms and conditions or arrangement with present owners or operators as may be
agreed upon to the satisfaction of all concerned; but there is nothing in this section that would exclude resort to
condemnation proceedings where unreasonable or unjust terms and conditions are exacted, to the extent of
crippling or seriously hampering the operations of said Bureau.

  A perusal of the complaint shows that the Republic's cause of action is predicated upon the radio telephonic
isolation of the Bureau's facilities from the outside world if the severance of interconnection were to be carried out by
the PLDT, thereby preventing the Bureau of Telecommunications from properly discharging its functions, to the
prejudice of the general public. Save for the prayer to compel the PLDT to enter into a contract (and the prayer is no
essential part of the pleading), the averments make out a case for compulsory rendering of inter-connecting services
by the telephone company upon such terms and conditions as the court may determine to be just. And since the
lower court found that both parties "are practically at one that defendant (PLDT) is entitled to reasonable
compensation from plaintiff for the reasonable use of the former's telephone facilities" (Decision, Record on Appeal,
page 224), the lower court should have proceeded to treat the case as one of condemnation of such services
independently of contract and proceeded to determine the just and reasonable compensation for the same, instead
of dismissing the petition.

  This view we have taken of the true nature of the Republic's petition necessarily results in overruling the plea of
defendant-appellant PLDT that the court of first instance had no jurisdiction to entertain the petition and that the
proper forum for the action was the Public Service Commission. That body, under the law, has no authority to pass
upon actions for the taking of private property under the sovereign right of eminent domain. Furthermore, while the
 Page 51 of 162

defendant telephone company is a public utility corporation whose franchise, equipment and other properties are
under the jurisdiction, supervision and control of the Public Service Commission (Sec. 13, Public Service Act), yet
the plaintiff's telecommunications network is a public service owned by the Republic and operated by an
instrumentality of the National Government, hence exempt, under Section 14 of the Public Service Act, from such
jurisdiction, supervision and control. The Bureau of Telecommunications was created in pursuance of a state policy
reorganizing the government offices —

  to meet the exigencies attendant upon the establishment of the free and independent Government of the
Republic of the Philippines, and for the purpose of promoting simplicity, economy and efficiency in its
operation (Section 1, Republic Act No. 51) —

  and the determination of state policy is not vested in the Commission (Utilities Com. vs. Bartonville Bus Line, 290
Ill. 574; 124 N.E. 373).

  Defendant PLDT, as appellant, contends that the court below was in error in not holding that the Bureau of
Telecommunications was not empowered to engage in commercial telephone business, and in ruling that said
defendant was not justified in disconnecting the telephone trunk lines it had previously leased to the Bureau. We
find that the court a quo ruled correctly in rejecting both assertions.

  Executive Order No. 94, Series of 1947, reorganizing the Bureau of Telecommunications, expressly empowered
the latter in its Section 79, subsection (b), to "negotiate for, operate and maintain wire telephone or radio telephone
communication service throughout the Philippines", and, in subsection (c), "to prescribe, subject to approval by the
Department Head, equitable rates of charges for messages handled by the system and/or for time calls and other
services that may be rendered by the system". Nothing in these provisions limits the Bureau to non-commercial
activities or prevents it from serving the general public. It may be that in its original prospectuses the Bureau officials
had stated that the service would be limited to government offices: but such limitations could not block future
expansion of the system, as authorized by the terms of the Executive Order, nor could the officials of the Bureau
bind the Government not to engage in services that are authorized by law. It is a well-known rule that erroneous
application and enforcement of the law by public officers do not block subsequent correct application of the statute
(PLDT vs. Collector of Internal Revenue, 90 Phil. 676), and that the Government is never estopped by mistake or
error on the part of its agents (Pineda vs. Court of First Instance of Tayabas, 52 Phil. 803, 807; Benguet
Consolidated Mining Co. vs. Pineda, 98 Phil. 711, 724).

  The theses that the Bureau's commercial services constituted unfair competition, and that the Bureau was guilty of
fraud and abuse under its contract, are, likewise, untenable.

  First, the competition is merely hypothetical, the demand for telephone service being very much more than the
supposed competitors can supply. As previously noted, the PLDT had 20,000 pending applications at the time, and
the Bureau had another 5,000. The telephone company's inability to meet the demands for service are notorious
even now. Second, the charter of the defendant expressly provides:

  SEC. 14. The rights herein granted shall not be exclusive, and the rights and power to grant to any
corporation, association or person other than the grantee franchise for the telephone or electrical
transmission of message or signals shall not be impaired or affected by the granting of this franchise: — (Act
3436)

  And third, as the trial court correctly stated, "when the Bureau of Telecommunications subscribed to the trunk lines,
defendant knew or should have known that their use by the subscriber was more or less public and all embracing in
nature, that is, throughout the Philippines, if not abroad" (Decision, Record on Appeal, page 216).

  The acceptance by the defendant of the payment of rentals, despite its knowledge that the plaintiff had extended
the use of the trunk lines to commercial purposes, continuously since 1948, implies assent by the defendant to such
extended use. Since this relationship has been maintained for a long time and the public has patronized both
telephone systems, and their interconnection is to the public convenience, it is too late for the defendant to claim
misuse of its facilities, and it is not now at liberty to unilaterally sever the physical connection of the trunk lines.
 Page 52 of 162

  ..., but there is high authority for the position that, when such physical connection has been voluntarily
made, under a fair and workable arrangement and guaranteed by contract and the continuous line has come
to be patronized and established as a great public convenience, such connection shall not in breach of the
agreement be severed by one of the parties. In that case, the public is held to have such an interest in the
arrangement that its rights must receive due consideration. This position finds approval in State ex rel. vs.
Cadwaller, 172 Ind. 619, 636, 87 N.E. 650, and is stated in the elaborate and learned opinion of Chief
Justice Myers as follows: "Such physical connection cannot be required as of right, but if such connection is
voluntarily made by contract, as is here alleged to be the case, so that the public acquires an interest in its
continuance, the act of the parties in making such connection is equivalent to a declaration of a purpose to
waive the primary right of independence, and it imposes upon the property such a public status that it may
not be disregarded" — citing Mahan v. Mich. Tel. Co., 132 Mich. 242, 93 N.W. 629, and the reasons upon
which it is in part made to rest are referred to in the same opinion, as follows: "Where private property is by
the consent of the owner invested with a public interest or privilege for the benefit of the public, the owner
can no longer deal with it as private property only, but must hold it subject to the right of the public in the
exercise of that public interest or privilege conferred for their benefit." Allnut v. Inglis (1810) 12 East, 527.
The doctrine of this early case is the acknowledged law. (Clinton-Dunn Tel. Co. v. Carolina Tel. & Tel. Co.,
74 S.E. 636, 638).

  It is clear that the main reason for the objection of the PLDT lies in the fact that said appellant did not expect that
the Bureau's telephone system would expand with such rapidity as it has done; but this expansion is no ground for
the discontinuance of the service agreed upon.

  The last issue urged by the PLDT as appellant is its right to compensation for the use of its poles for bearing
telephone wires of the Bureau of Telecommunications. Admitting that section 19 of the PLDT charter reserves to the
Government —

  the privilege without compensation of using the poles of the grantee to attach one ten-pin cross-arm, and to
install, maintain and operate wires of its telegraph system thereon; Provided, however, That the Bureau of
Posts shall have the right to place additional cross-arms and wires on the poles of the grantee by paying a
compensation, the rate of which is to be agreed upon by the Director of Posts and the grantee; —

  the defendant counterclaimed for P8,772.00 for the use of its poles by the plaintiff, contending that what was
allowed free use, under the aforequoted provision, was one ten-pin cross-arm attachment and only for plaintiff's
telegraph system, not for its telephone system; that said section could not refer to the plaintiff's telephone system,
because it did not have such telephone system when defendant acquired its franchise. The implication of the
argument is that plaintiff has to pay for the use of defendant's poles if such use is for plaintiff's telephone system and
has to pay also if it attaches more than one (1) ten-pin cross-arm for telegraphic purposes.

  As there is no proof that the telephone wires strain the poles of the PLDT more than the telegraph wires, nor that
they cause more damage than the wires of the telegraph system, or that the Government has attached to the poles
more than one ten-pin cross-arm as permitted by the PLDT charter, we see no point in this assignment of error. So
long as the burden to be borne by the PLDT poles is not increased, we see no reason why the reservation in favor
of the telegraph wires of the government should not be extended to its telephone lines, any time that the
government decided to engage also in this kind of communication.

  In the ultimate analysis, the true objection of the PLDT to continue the link between its network and that of the
Government is that the latter competes "parasitically" (sic) with its own telephone services. Considering, however,
that the PLDT franchise is non-exclusive; that it is well-known that defendant PLDT is unable to adequately cope
with the current demands for telephone service, as shown by the number of pending applications therefor; and that
the PLDT's right to just compensation for the services rendered to the Government telephone system and its users
is herein recognized and preserved, the objections of defendant-appellant are without merit. To uphold the PLDT's
contention is to subordinate the needs of the general public to the right of the PLDT to derive profit from the future
expansion of its services under its non-exclusive franchise.
 Page 53 of 162

  WHEREFORE, the decision of the Court of First Instance, now under appeal, is affirmed, except in so far as it
dismisses the petition of the Republic of the Philippines to compel the Philippine Long Distance Telephone
Company to continue servicing the Government telephone system upon such terms, and for a compensation, that
the trial court may determine to be just, including the period elapsed from the filing of the original complaint or
petition. And for this purpose, the records are ordered returned to the court of origin for further hearings and other
proceedings not inconsistent with this opinion. No costs.

G.R. No. L-20620 August 15, 1974

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,

vs.
CARMEN M. VDA. DE CASTELLVI, ET AL., defendants-appellees.

Appeal from the decision of the Court of First Instance of Pampanga in its Civil Case No. 1623, an expropriation proceeding.

Plaintiff-appellant, the Republic of the Philippines, (hereinafter referred to as the Republic) filed, on June 26, 1959, a
complaint for eminent domain against defendant-appellee, Carmen M. Vda. de Castellvi, judicial administratrix of the
estate of the late Alfonso de Castellvi (hereinafter referred to as Castellvi), over a parcel of land situated in the barrio
of San Jose, Floridablanca, Pampanga, described as follows:

A parcel of land, Lot No. 199-B Bureau of Lands Plan Swo 23666. Bounded on the NE by Maria
Nieves Toledo-Gozun; on the SE by national road; on the SW by AFP reservation, and on the NW
by AFP reservation. Containing an area of 759,299 square meters, more or less, and registered in
the name of Alfonso Castellvi under TCT No. 13631 of the Register of Pampanga ...;
 Page 54 of 162

and against defendant-appellee Maria Nieves Toledo Gozun (hereinafter referred to as Toledo-Gozun over two
parcels of land described as follows:

A parcel of land (Portion Lot Blk-1, Bureau of Lands Plan Psd, 26254. Bounded on the NE by Lot 3,
on the SE by Lot 3; on the SW by Lot 1-B, Blk. 2 (equivalent to Lot 199-B Swo 23666; on the NW by
AFP military reservation. Containing an area of 450,273 square meters, more or less and registered
in the name of Maria Nieves Toledo-Gozun under TCT No. 8708 of the Register of Deeds of
Pampanga. ..., and

A parcel of land (Portion of lot 3, Blk-1, Bureau of Lands Plan Psd 26254. Bounded on the NE by Lot
No. 3, on the SE by school lot and national road, on the SW by Lot 1-B Blk 2 (equivalent to Lot 199-
B Swo 23666), on the NW by Lot 1-B, Blk-1. Containing an area of 88,772 square meters, more or
less, and registered in the name of Maria Nieves Toledo Gozun under TCT No. 8708 of the Register
of Deeds of Pampanga, ....

In its complaint, the Republic alleged, among other things, that the fair market value of the above-mentioned lands,
according to the Committee on Appraisal for the Province of Pampanga, was not more than P2,000 per hectare, or a
total market value of P259,669.10; and prayed, that the provisional value of the lands be fixed at P259.669.10, that
the court authorizes plaintiff to take immediate possession of the lands upon deposit of that amount with the
Provincial Treasurer of Pampanga; that the court appoints three commissioners to ascertain and report to the court
the just compensation for the property sought to be expropriated, and that the court issues thereafter a final order of
condemnation.

On June 29, 1959 the trial court issued an order fixing the provisional value of the lands at P259,669.10.

In her "motion to dismiss" filed on July 14, 1959, Castellvi alleged, among other things, that the land under her
administration, being a residential land, had a fair market value of P15.00 per square meter, so it had a total market
value of P11,389,485.00; that the Republic, through the Armed Forces of the Philippines, particularly the Philippine
Air Force, had been, despite repeated demands, illegally occupying her property since July 1, 1956, thereby
preventing her from using and disposing of it, thus causing her damages by way of unrealized profits. This
defendant prayed that the complaint be dismissed, or that the Republic be ordered to pay her P15.00 per square
meter, or a total of P11,389,485.00, plus interest thereon at 6% per annum from July 1, 1956; that the Republic be
ordered to pay her P5,000,000.00 as unrealized profits, and the costs of the suit.

By order of the trial court, dated August, 1959, Amparo C. Diaz, Dolores G. viuda de Gil, Paloma Castellvi, Carmen
Castellvi, Rafael Castellvi, Luis Castellvi, Natividad Castellvi de Raquiza, Jose Castellvi and Consuelo Castellvi
were allowed to intervene as parties defendants. Subsequently, Joaquin V. Gozun, Jr., husband of defendant
Nieves Toledo Gozun, was also allowed by the court to intervene as a party defendant.

After the Republic had deposited with the Provincial Treasurer of Pampanga the amount of P259,669.10, the trial
court ordered that the Republic be placed in possession of the lands. The Republic was actually placed in
possession of the lands on August 10,
1959.1

In her "motion to dismiss", dated October 22, 1959, Toledo-Gozun alleged, among other things, that her two parcels
of land were residential lands, in fact a portion with an area of 343,303 square meters had already been subdivided
into different lots for sale to the general public, and the remaining portion had already been set aside for expansion
sites of the already completed subdivisions; that the fair market value of said lands was P15.00 per square meter,
so they had a total market value of P8,085,675.00; and she prayed that the complaint be dismissed, or that she be
paid the amount of P8,085,675.00, plus interest thereon at the rate of 6% per annum from October 13, 1959, and
attorney's fees in the amount of P50,000.00.

Intervenors Jose Castellvi and Consuelo Castellvi in their answer, filed on February 11, 1960, and also intervenor
Joaquin Gozun, Jr., husband of defendant Maria Nieves Toledo-Gozun, in his motion to dismiss, dated May 27,
1960, all alleged that the value of the lands sought to be expropriated was at the rate of P15.00 per square meter.
 Page 55 of 162

On November 4, 1959, the trial court authorized the Provincial Treasurer of Pampanga to pay defendant Toledo-
Gozun the sum of P107,609.00 as provisional value of her lands.  On May 16, 1960 the trial Court authorized the
2

Provincial Treasurer of Pampanga to pay defendant Castellvi the amount of P151,859.80 as provisional value of the
land under her administration, and ordered said defendant to deposit the amount with the Philippine National Bank
under the supervision of the Deputy Clerk of Court. In another order of May 16, 1960 the trial Court entered an order
of condemnation. 3

The trial Court appointed three commissioners: Atty. Amadeo Yuzon, Clerk of Court, as commissioner for the court;
Atty. Felicisimo G. Pamandanan, counsel of the Philippine National Bank Branch at Floridablanca, for the plaintiff;
and Atty. Leonardo F. Lansangan, Filipino legal counsel at Clark Air Base, for the defendants. The Commissioners,
after having qualified themselves, proceeded to the performance of their duties.

On March 15,1961 the Commissioners submitted their report and recommendation, wherein, after having
determined that the lands sought to be expropriated were residential lands, they recommended unanimously that
the lowest price that should be paid was P10.00 per square meter, for both the lands of Castellvi and Toledo-Gozun;
that an additional P5,000.00 be paid to Toledo-Gozun for improvements found on her land; that legal interest on the
compensation, computed from August 10, 1959, be paid after deducting the amounts already paid to the owners,
and that no consequential damages be awarded.  The Commissioners' report was objected to by all the parties in
4

the case — by defendants Castellvi and Toledo-Gozun, who insisted that the fair market value of their lands should
be fixed at P15.00 per square meter; and by the Republic, which insisted that the price to be paid for the lands
should be fixed at P0.20 per square meter. 5

After the parties-defendants and intervenors had filed their respective memoranda, and the Republic, after several
extensions of time, had adopted as its memorandum its objections to the report of the Commissioners, the trial
court, on May 26, 1961, rendered its decision  the dispositive portion of which reads as follows:
6

WHEREFORE, taking into account all the foregoing circumstances, and that the lands are titled, ...
the rising trend of land values ..., and the lowered purchasing power of the Philippine peso, the court
finds that the unanimous recommendation of the commissioners of ten (P10.00) pesos per square
meter for the three lots of the defendants subject of this action is fair and just.

xxx xxx xxx

The plaintiff will pay 6% interest per annum on the total value of the lands of defendant Toledo-
Gozun since (sic) the amount deposited as provisional value from August 10, 1959 until full payment
is made to said defendant or deposit therefor is made in court.

In respect to the defendant Castellvi, interest at 6% per annum will also be paid by the plaintiff to
defendant Castellvi from July 1, 1956 when plaintiff commenced its illegal possession of the Castellvi
land when the instant action had not yet been commenced to July 10, 1959 when the provisional
value thereof was actually deposited in court, on the total value of the said (Castellvi) land as herein
adjudged. The same rate of interest shall be paid from July 11, 1959 on the total value of the land
herein adjudged minus the amount deposited as provisional value, or P151,859.80, such interest to
run until full payment is made to said defendant or deposit therefor is made in court. All the
intervenors having failed to produce evidence in support of their respective interventions, said
interventions are ordered dismissed.

The costs shall be charged to the plaintiff.

On June 21, 1961 the Republic filed a motion for a new trial and/or reconsideration, upon the grounds of newly-
discovered evidence, that the decision was not supported by the evidence, and that the decision was against the
law, against which motion defendants Castellvi and Toledo-Gozun filed their respective oppositions. On July 8, 1961
when the motion of the Republic for new trial and/or reconsideration was called for hearing, the Republic filed a
supplemental motion for new trial upon the ground of additional newly-discovered evidence. This motion for new trial
and/or reconsideration was denied by the court on July 12, 1961.
 Page 56 of 162

On July 17, 1961 the Republic gave notice of its intention to appeal from the decision of May 26, 1961 and the order
of July 12, 1961. Defendant Castellvi also filed, on July 17, 1961, her notice of appeal from the decision of the trial
court.

The Republic filed various ex-parte motions for extension of time within which to file its record on appeal. The
Republic's record on appeal was finally submitted on December 6, 1961.

Defendants Castellvi and Toledo-Gozun filed not only a joint opposition to the approval of the Republic's record on
appeal, but also a joint memorandum in support of their opposition. The Republic also filed a memorandum in
support of its prayer for the approval of its record on appeal. On December 27, 1961 the trial court issued an order
declaring both the record on appeal filed by the Republic, and the record on appeal filed by defendant Castellvi as
having been filed out of time, thereby dismissing both appeals.

On January 11, 1962 the Republic filed a "motion to strike out the order of December 27, 1961 and for
reconsideration", and subsequently an amended record on appeal, against which motion the defendants Castellvi
and Toledo-Gozun filed their opposition. On July 26, 1962 the trial court issued an order, stating that "in the interest
of expediency, the questions raised may be properly and finally determined by the Supreme Court," and at the same
time it ordered the Solicitor General to submit a record on appeal containing copies of orders and pleadings
specified therein. In an order dated November 19, 1962, the trial court approved the Republic's record on appeal as
amended.

Defendant Castellvi did not insist on her appeal. Defendant Toledo-Gozun did not appeal.

The motion to dismiss the Republic's appeal was reiterated by appellees Castellvi and Toledo-Gozun before this
Court, but this Court denied the motion.

In her motion of August 11, 1964, appellee Castellvi sought to increase the provisional value of her land. The
Republic, in its comment on Castellvi's motion, opposed the same. This Court denied Castellvi's motion in a
resolution dated October 2,1964.

The motion of appellees, Castellvi and Toledo-Gozun, dated October 6, 1969, praying that they be authorized to
mortgage the lands subject of expropriation, was denied by this Court or October 14, 1969.

On February 14, 1972, Attys. Alberto Cacnio, and Associates, counsel for the estate of the late Don Alfonso de
Castellvi in the expropriation proceedings, filed a notice of attorney's lien, stating that as per agreement with the
administrator of the estate of Don Alfonso de Castellvi they shall receive by way of attorney's fees, "the sum
equivalent to ten per centum of whatever the court may finally decide as the expropriated price of the property
subject matter of the case."

---------

Before this Court, the Republic contends that the lower court erred:

1. In finding the price of P10 per square meter of the lands subject of the instant proceedings as just
compensation;

2. In holding that the "taking" of the properties under expropriation commenced with the filing of this
action;

3. In ordering plaintiff-appellant to pay 6% interest on the adjudged value of the Castellvi property to
start from July of 1956;

4. In denying plaintiff-appellant's motion for new trial based on newly discovered evidence.
 Page 57 of 162

In its brief, the Republic discusses the second error assigned as the first issue to be considered. We shall follow the
sequence of the Republic's discussion.

1. In support of the assigned error that the lower court erred in holding that the "taking" of the properties under
expropriation commenced with the filing of the complaint in this case, the Republic argues that the "taking" should
be reckoned from the year 1947 when by virtue of a special lease agreement between the Republic and appellee
Castellvi, the former was granted the "right and privilege" to buy the property should the lessor wish to terminate the
lease, and that in the event of such sale, it was stipulated that the fair market value should be as of the time of
occupancy; and that the permanent improvements amounting to more that half a million pesos constructed during a
period of twelve years on the land, subject of expropriation, were indicative of an agreed pattern of permanency and
stability of occupancy by the Philippine Air Force in the interest of national Security.
7

Appellee Castellvi, on the other hand, maintains that the "taking" of property under the power of eminent domain
requires two essential elements, to wit: (1) entrance and occupation by condemn or upon the private property for
more than a momentary or limited period, and (2) devoting it to a public use in such a way as to oust the owner and
deprive him of all beneficial enjoyment of the property. This appellee argues that in the instant case the first element
is wanting, for the contract of lease relied upon provides for a lease from year to year; that the second element is
also wanting, because the Republic was paying the lessor Castellvi a monthly rental of P445.58; and that the
contract of lease does not grant the Republic the "right and privilege" to buy the premises "at the value at the time of
occupancy." 8

Appellee Toledo-Gozun did not comment on the Republic's argument in support of the second error assigned,
because as far as she was concerned the Republic had not taken possession of her lands prior to August 10, 1959. 9

In order to better comprehend the issues raised in the appeal, in so far as the Castellvi property is concerned, it
should be noted that the Castellvi property had been occupied by the Philippine Air Force since 1947 under a
contract of lease, typified by the contract marked Exh. 4-Castellvi, the pertinent portions of which read:

CONTRACT OF LEASE

This AGREEMENT OF LEASE MADE AND ENTERED into by and between INTESTATE ESTATE
OF ALFONSO DE CASTELLVI, represented by CARMEN M. DE CASTELLVI, Judicial Administratrix
... hereinafter called the LESSOR and THE REPUBLIC OF THE PHILIPPINES represented by MAJ.
GEN. CALIXTO DUQUE, Chief of Staff of the ARMED FORCES OF THE PHILIPPINES, hereinafter
called the LESSEE,

WITNESSETH:

1. For and in consideration of the rentals hereinafter reserved and the mutual terms, covenants and
conditions of the parties, the LESSOR has, and by these presents does, lease and let unto the
LESSEE the following described land together with the improvements thereon and appurtenances
thereof, viz:

Un Terreno, Lote No. 27 del Plano de subdivision Psu 34752, parte de la hacienda de Campauit,
situado en el Barrio de San Jose, Municipio de Floridablanca Pampanga. ... midiendo una extension
superficial de cuatro milliones once mil cuatro cientos trienta y cinco (4,001,435) [sic] metros
cuadrados, mas o menos.

Out of the above described property, 75.93 hectares thereof are actually occupied and covered by
this contract. .

Above lot is more particularly described in TCT No. 1016, province of

Pampanga ...
 Page 58 of 162

of which premises, the LESSOR warrants that he/she/they/is/are the registered owner(s) and with full authority to
execute a contract of this nature.

2. The term of this lease shall be for the period beginning July 1, 1952 the date the premises were
occupied by the PHILIPPINE AIR FORCE, AFP until June 30, 1953, subject to renewal for another
year at the option of the LESSEE or unless sooner terminated by the LESSEE as hereinafter
provided.

3. The LESSOR hereby warrants that the LESSEE shall have quiet, peaceful and undisturbed
possession of the demised premises throughout the full term or period of this lease and the LESSOR
undertakes without cost to the LESSEE to eject all trespassers, but should the LESSOR fail to do so,
the LESSEE at its option may proceed to do so at the expense of the LESSOR. The LESSOR
further agrees that should he/she/they sell or encumber all or any part of the herein described
premises during the period of this lease, any conveyance will be conditioned on the right of the
LESSEE hereunder.

4. The LESSEE shall pay to the LESSOR as monthly rentals under this lease the sum of FOUR
HUNDRED FIFTY-FIVE PESOS & 58/100 (P455.58) ...

5. The LESSEE may, at any time prior to the termination of this lease, use the property for any
purpose or purposes and, at its own costs and expense make alteration, install facilities and fixtures
and errect additions ... which facilities or fixtures ... so placed in, upon or attached to the said
premises shall be and remain property of the LESSEE and may be removed therefrom by the
LESSEE prior to the termination of this lease. The LESSEE shall surrender possession of the
premises upon the expiration or termination of this lease and if so required by the LESSOR, shall
return the premises in substantially the same condition as that existing at the time same were first
occupied by the AFP, reasonable and ordinary wear and tear and damages by the elements or by
circumstances over which the LESSEE has no control excepted: PROVIDED, that if the LESSOR so
requires the return of the premises in such condition, the LESSOR shall give written notice thereof to
the LESSEE at least twenty (20) days before the termination of the lease and provided, further, that
should the LESSOR give notice within the time specified above, the LESSEE shall have the right
and privilege to compensate the LESSOR at the fair value or the equivalent, in lieu of performance
of its obligation, if any, to restore the premises. Fair value is to be determined as the value at the
time of occupancy less fair wear and tear and depreciation during the period of this lease.

6. The LESSEE may terminate this lease at any time during the term hereof by giving written notice
to the LESSOR at least thirty (30) days in advance ...

7. The LESSEE should not be responsible, except under special legislation for any damages to the
premises by reason of combat operations, acts of GOD, the elements or other acts and deeds not
due to the negligence on the part of the LESSEE.

8. This LEASE AGREEMENT supersedes and voids any and all agreements and undertakings, oral
or written, previously entered into between the parties covering the property herein leased, the same
having been merged herein. This AGREEMENT may not be modified or altered except by instrument
in writing only duly signed by the parties. 
10

It was stipulated by the parties, that "the foregoing contract of lease (Exh. 4, Castellvi) is 'similar in terms and
conditions, including the date', with the annual contracts entered into from year to year between defendant Castellvi
and the Republic of the Philippines (p. 17, t.s.n., Vol. III)".   It is undisputed, therefore, that the Republic occupied
11

Castellvi's land from July 1, 1947, by virtue of the above-mentioned contract, on a year to year basis (from July 1 of
each year to June 30 of the succeeding year) under the terms and conditions therein stated.

Before the expiration of the contract of lease on June 30, 1956 the Republic sought to renew the same but Castellvi
refused. When the AFP refused to vacate the leased premises after the termination of the contract, on July 11,
 Page 59 of 162

1956, Castellvi wrote to the Chief of Staff, AFP, informing the latter that the heirs of the property had decided not to
continue leasing the property in question because they had decided to subdivide the land for sale to the general
public, demanding that the property be vacated within 30 days from receipt of the letter, and that the premises be
returned in substantially the same condition as before occupancy (Exh. 5 — Castellvi). A follow-up letter was sent
on January 12, 1957, demanding the delivery and return of the property within one month from said date (Exh. 6
Castellvi). On January 30, 1957, Lieutenant General Alfonso Arellano, Chief of Staff, answered the letter of
Castellvi, saying that it was difficult for the army to vacate the premises in view of the permanent installations and
other facilities worth almost P500,000.00 that were erected and already established on the property, and that, there
being no other recourse, the acquisition of the property by means of expropriation proceedings would be
recommended to the President (Exhibit "7" — Castellvi).

Defendant Castellvi then brought suit in the Court of First Instance of Pampanga, in Civil Case No. 1458, to eject the
Philippine Air Force from the land. While this ejectment case was pending, the Republic instituted these
expropriation proceedings, and, as stated earlier in this opinion, the Republic was placed in possession of the lands
on August 10, 1959, On November 21, 1959, the Court of First Instance of Pampanga, dismissed Civil Case No.
1458, upon petition of the parties, in an order which, in part, reads as follows:

1. Plaintiff has agreed, as a matter of fact has already signed an agreement with defendants,
whereby she has agreed to receive the rent of the lands, subject matter of the instant case from
June 30, 1966 up to 1959 when the Philippine Air Force was placed in possession by virtue of an
order of the Court upon depositing the provisional amount as fixed by the Provincial Appraisal
Committee with the Provincial Treasurer of Pampanga;

2. That because of the above-cited agreement wherein the administratrix decided to get the rent
corresponding to the rent from 1956 up to 1959 and considering that this action is one of illegal
detainer and/or to recover the possession of said land by virtue of non-payment of rents, the instant
case now has become moot and academic and/or by virtue of the agreement signed by plaintiff, she
has waived her cause of action in the above-entitled case.  12

The Republic urges that the "taking " of Castellvi's property should be deemed as of the year 1947 by virtue of
afore-quoted lease agreement. In American Jurisprudence, Vol. 26, 2nd edition, Section 157, on the subject of
"Eminent Domain, we read the definition of "taking" (in eminent domain) as follows:

Taking' under the power of eminent domain may be defined generally as entering upon private
property for more than a momentary period, and, under the warrant or color of legal authority,
devoting it to a public use, or otherwise informally appropriating or injuriously affecting it in such a
way as substantially to oust the owner and deprive him of all beneficial enjoyment thereof.  13

Pursuant to the aforecited authority, a number of circumstances must be present in the "taking" of property for
purposes of eminent domain.

First, the expropriator must enter a private property. This circumstance is present in the instant case, when by virtue
of the lease agreement the Republic, through the AFP, took possession of the property of Castellvi.

Second, the entrance into private property must be for more than a momentary period. "Momentary" means, "lasting
but a moment; of but a moment's duration" (The Oxford English Dictionary, Volume VI, page 596); "lasting a very
short time; transitory; having a very brief life; operative or recurring at every moment" (Webster's Third International
Dictionary, 1963 edition.) The word "momentary" when applied to possession or occupancy of (real) property should
be construed to mean "a limited period" — not indefinite or permanent. The aforecited lease contract was for a
period of one year, renewable from year to year. The entry on the property, under the lease, is temporary, and
considered transitory. The fact that the Republic, through the AFP, constructed some installations of a permanent
nature does not alter the fact that the entry into the land was transitory, or intended to last a year, although
renewable from year to year by consent of 'The owner of the land. By express provision of the lease agreement the
Republic, as lessee, undertook to return the premises in substantially the same condition as at the time the property
was first occupied by the AFP. It is claimed that the intention of the lessee was to occupy the land permanently, as
 Page 60 of 162

may be inferred from the construction of permanent improvements. But this "intention" cannot prevail over the clear
and express terms of the lease contract. Intent is to be deduced from the language employed by the parties, and the
terms 'of the contract, when unambiguous, as in the instant case, are conclusive in the absence of averment and
proof of mistake or fraud — the question being not what the intention was, but what is expressed in the language
used. (City of Manila v. Rizal Park Co., Inc., 53 Phil. 515, 525); Magdalena Estate, Inc. v. Myrick, 71 Phil. 344, 348).
Moreover, in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts
shall be principally considered (Art. 1371, Civil Code). If the intention of the lessee (Republic) in 1947 was really to
occupy permanently Castellvi's property, why was the contract of lease entered into on year to year basis? Why was
the lease agreement renewed from year to year? Why did not the Republic expropriate this land of Castellvi in 1949
when, according to the Republic itself, it expropriated the other parcels of land that it occupied at the same time as
the Castellvi land, for the purpose of converting them into a jet air base?   It might really have been the intention of
14

the Republic to expropriate the lands in question at some future time, but certainly mere notice - much less an
implied notice — of such intention on the part of the Republic to expropriate the lands in the future did not, and
could not, bind the landowner, nor bind the land itself. The expropriation must be actually commenced in court
(Republic vs. Baylosis, et al., 96 Phil. 461, 484).

Third, the entry into the property should be under warrant or color of legal authority. This circumstance in the
"taking" may be considered as present in the instant case, because the Republic entered the Castellvi property as
lessee.

Fourth, the property must be devoted to a public use or otherwise informally appropriated or injuriously affected. It
may be conceded that the circumstance of the property being devoted to public use is present because the property
was used by the air force of the AFP.

Fifth, the utilization of the property for public use must be in such a way as to oust the owner and deprive him of all
beneficial enjoyment of the property. In the instant case, the entry of the Republic into the property and its utilization
of the same for public use did not oust Castellvi and deprive her of all beneficial enjoyment of the property. Castellvi
remained as owner, and was continuously recognized as owner by the Republic, as shown by the renewal of the
lease contract from year to year, and by the provision in the lease contract whereby the Republic undertook to
return the property to Castellvi when the lease was terminated. Neither was Castellvi deprived of all the beneficial
enjoyment of the property, because the Republic was bound to pay, and had been paying, Castellvi the agreed
monthly rentals until the time when it filed the complaint for eminent domain on June 26, 1959.

It is clear, therefore, that the "taking" of Catellvi's property for purposes of eminent domain cannot be considered to
have taken place in 1947 when the Republic commenced to occupy the property as lessee thereof. We find merit in
the contention of Castellvi that two essential elements in the "taking" of property under the power of eminent
domain, namely: (1) that the entrance and occupation by the condemnor must be for a permanent, or indefinite
period, and (2) that in devoting the property to public use the owner was ousted from the property and deprived of
its beneficial use, were not present when the Republic entered and occupied the Castellvi property in 1947.

Untenable also is the Republic's contention that although the contract between the parties was one of lease on a
year to year basis, it was "in reality a more or less permanent right to occupy the premises under the guise of lease
with the 'right and privilege' to buy the property should the lessor wish to terminate the lease," and "the right to buy
the property is merged as an integral part of the lease relationship ... so much so that the fair market value has been
agreed upon, not, as of the time of purchase, but as of the time of occupancy"   We cannot accept the Republic's
15

contention that a lease on a year to year basis can give rise to a permanent right to occupy, since by express legal
provision a lease made for a determinate time, as was the lease of Castellvi's land in the instant case, ceases upon
the day fixed, without need of a demand (Article 1669, Civil Code). Neither can it be said that the right of eminent
domain may be exercised by simply leasing the premises to be expropriated (Rule 67, Section 1, Rules of Court).
Nor can it be accepted that the Republic would enter into a contract of lease where its real intention was to buy, or
why the Republic should enter into a simulated contract of lease ("under the guise of lease", as expressed by
counsel for the Republic) when all the time the Republic had the right of eminent domain, and could expropriate
Castellvi's land if it wanted to without resorting to any guise whatsoever. Neither can we see how a right to buy
could be merged in a contract of lease in the absence of any agreement between the parties to that effect. To
sustain the contention of the Republic is to sanction a practice whereby in order to secure a low price for a land
which the government intends to expropriate (or would eventually expropriate) it would first negotiate with the owner
 Page 61 of 162

of the land to lease the land (for say ten or twenty years) then expropriate the same when the lease is about to
terminate, then claim that the "taking" of the property for the purposes of the expropriation be reckoned as of the
date when the Government started to occupy the property under the lease, and then assert that the value of the
property being expropriated be reckoned as of the start of the lease, in spite of the fact that the value of the
property, for many good reasons, had in the meantime increased during the period of the lease. This would be
sanctioning what obviously is a deceptive scheme, which would have the effect of depriving the owner of the
property of its true and fair market value at the time when the expropriation proceedings were actually instituted in
court. The Republic's claim that it had the "right and privilege" to buy the property at the value that it had at the time
when it first occupied the property as lessee nowhere appears in the lease contract . What was agreed expressly in
paragraph No. 5 of the lease agreement was that, should the lessor require the lessee to return the premises in the
same condition as at the time the same was first occupied by the AFP, the lessee would have the "right and
privilege" (or option) of paying the lessor what it would fairly cost to put the premises in the same condition as it was
at the commencement of the lease, in lieu of the lessee's performance of the undertaking to put the land in said
condition. The "fair value" at the time of occupancy, mentioned in the lease agreement, does not refer to the value of
the property if bought by the lessee, but refers to the cost of restoring the property in the same condition as of the
time when the lessee took possession of the property. Such fair value cannot refer to the purchase price, for
purchase was never intended by the parties to the lease contract. It is a rule in the interpretation of contracts that
"However general the terms of a contract may be, they shall not be understood to comprehend things that are
distinct and cases that are different from those upon which the parties intended to agree" (Art. 1372, Civil Code).

We hold, therefore, that the "taking" of the Castellvi property should not be reckoned as of the year 1947 when the
Republic first occupied the same pursuant to the contract of lease, and that the just compensation to be paid for the
Castellvi property should not be determined on the basis of the value of the property as of that year. The lower court
did not commit an error when it held that the "taking" of the property under expropriation commenced with the filing
of the complaint in this case.

Under Section 4 of Rule 67 of the Rules of Court,   the "just compensation" is to be determined as of the date of the
16

filing of the complaint. This Court has ruled that when the taking of the property sought to be expropriated coincides
with the commencement of the expropriation proceedings, or takes place subsequent to the filing of the complaint
for eminent domain, the just compensation should be determined as of the date of the filing of the complaint.
(Republic vs. Philippine National Bank, L-14158, April 12, 1961, 1 SCRA 957, 961-962). In the instant case, it is
undisputed that the Republic was placed in possession of the Castellvi property, by authority of the court, on August
10, 1959. The "taking" of the Castellvi property for the purposes of determining the just compensation to be paid
must, therefore, be reckoned as of June 26, 1959 when the complaint for eminent domain was filed.

Regarding the two parcels of land of Toledo-Gozun, also sought to be expropriated, which had never been under
lease to the Republic, the Republic was placed in possession of said lands, also by authority of the court, on August
10, 1959, The taking of those lands, therefore, must also be reckoned as of June 26, 1959, the date of the filing of
the complaint for eminent domain.

2. Regarding the first assigned error — discussed as the second issue — the Republic maintains that, even
assuming that the value of the expropriated lands is to be determined as of June 26, 1959, the price of P10.00 per
square meter fixed by the lower court "is not only exhorbitant but also unconscionable, and almost fantastic". On the
other hand, both Castellvi and Toledo-Gozun maintain that their lands are residential lands with a fair market value
of not less than P15.00 per square meter.

The lower court found, and declared, that the lands of Castellvi and Toledo-Gozun are residential lands. The finding
of the lower court is in consonance with the unanimous opinion of the three commissioners who, in their report to the
court, declared that the lands are residential lands.

The Republic assails the finding that the lands are residential, contending that the plans of the appellees to convert
the lands into subdivision for residential purposes were only on paper, there being no overt acts on the part of the
appellees which indicated that the subdivision project had been commenced, so that any compensation to be
awarded on the basis of the plans would be speculative. The Republic's contention is not well taken. We find
evidence showing that the lands in question had ceased to be devoted to the production of agricultural crops, that
 Page 62 of 162

they had become adaptable for residential purposes, and that the appellees had actually taken steps to convert their
lands into residential subdivisions even before the Republic filed the complaint for eminent domain. In the case of
City of Manila vs. Corrales (32 Phil. 82, 98) this Court laid down basic guidelines in determining the value of the
property expropriated for public purposes. This Court said:

In determining the value of land appropriated for public purposes, the same consideration are to be
regarded as in a sale of property between private parties. The inquiry, in such cases, must be what
is the property worth in the market, viewed not merely with reference to the uses to which it is at the
time applied, but with reference to the uses to which it is plainly adapted, that is to say, What is it
worth from its availability for valuable uses?

So many and varied are the circumstances to be taken into account in determining the value of
property condemned for public purposes, that it is practically impossible to formulate a rule to govern
its appraisement in all cases. Exceptional circumstances will modify the most carefully guarded rule,
but, as a general thing, we should say that the compensation of the owner is to be estimated by
reference to the use for which the property is suitable, having regard to the existing business or
wants of the community, or such as may be reasonably expected in the immediate future. (Miss. and
Rum River Boom Co. vs. Patterson, 98 U.S., 403).

In expropriation proceedings, therefore, the owner of the land has the right to its value for the use for which it would
bring the most in the market.   The owner may thus show every advantage that his property possesses, present and
17

prospective, in order that the price it could be sold for in the market may be satisfactorily determined.   The owner
18

may also show that the property is suitable for division into village or town lots. 19

The trial court, therefore, correctly considered, among other circumstances, the proposed subdivision plans of the
lands sought to be expropriated in finding that those lands are residential lots. This finding of the lower court is
supported not only by the unanimous opinion of the commissioners, as embodied in their report, but also by the
Provincial Appraisal Committee of the province of Pampanga composed of the Provincial Treasurer, the Provincial
Auditor and the District Engineer. In the minutes of the meeting of the Provincial Appraisal Committee, held on May
14, 1959 (Exh. 13-Castellvi) We read in its Resolution No. 10 the following:

3. Since 1957 the land has been classified as residential in view of its proximity to the air base and
due to the fact that it was not being devoted to agriculture. In fact, there is a plan to convert it into a
subdivision for residential purposes. The taxes due on the property have been paid based on its
classification as residential land;

The evidence shows that Castellvi broached the idea of subdividing her land into residential lots as early as July 11,
1956 in her letter to the Chief of Staff of the Armed Forces of the Philippines. (Exh. 5-Castellvi) As a matter of fact,
the layout of the subdivision plan was tentatively approved by the National Planning Commission on September 7,
1956. (Exh. 8-Castellvi). The land of Castellvi had not been devoted to agriculture since 1947 when it was leased to
the Philippine Army. In 1957 said land was classified as residential, and taxes based on its classification as
residential had been paid since then (Exh. 13-Castellvi). The location of the Castellvi land justifies its suitability for a
residential subdivision. As found by the trial court, "It is at the left side of the entrance of the Basa Air Base and
bounded on two sides by roads (Exh. 13-Castellvi), paragraphs 1 and 2, Exh. 12-Castellvi), the poblacion, (of
Floridablanca) the municipal building, and the Pampanga Sugar Mills are closed by. The barrio schoolhouse and
chapel are also near (T.S.N. November 23,1960, p. 68)."  20

The lands of Toledo-Gozun (Lot 1-B and Lot 3) are practically of the same condition as the land of Castellvi. The
lands of Toledo-Gozun adjoin the land of Castellvi. They are also contiguous to the Basa Air Base, and are along
the road. These lands are near the barrio schoolhouse, the barrio chapel, the Pampanga Sugar Mills, and the
poblacion of Floridablanca (Exhs. 1, 3 and 4-Toledo-Gozun). As a matter of fact, regarding lot 1-B it had already
been surveyed and subdivided, and its conversion into a residential subdivision was tentatively approved by the
National Planning Commission on July 8, 1959 (Exhs. 5 and 6 Toledo-Gozun). As early as June, 1958, no less than
32 man connected with the Philippine Air Force among them commissioned officers, non-commission officers, and
 Page 63 of 162

enlisted men had requested Mr. and Mrs. Joaquin D. Gozun to open a subdivision on their lands in question (Exhs.
8, 8-A to 8-ZZ-Toledo-Gozun).  21

We agree with the findings, and the conclusions, of the lower court that the lands that are the subject of
expropriation in the present case, as of August 10, 1959 when the same were taken possession of by the Republic,
were residential lands and were adaptable for use as residential subdivisions. Indeed, the owners of these lands
have the right to their value for the use for which they would bring the most in the market at the time the same were
taken from them. The most important issue to be resolved in the present case relates to the question of what is the
just compensation that should be paid to the appellees.

The Republic asserts that the fair market value of the lands of the appellees is P.20 per square meter. The Republic
cites the case of Republic vs. Narciso, et al., L-6594, which this Court decided on May 18, 1956. The Narciso case
involved lands that belonged to Castellvi and Toledo-Gozun, and to one Donata Montemayor, which were
expropriated by the Republic in 1949 and which are now the site of the Basa Air Base. In the Narciso case this
Court fixed the fair market value at P.20 per square meter. The lands that are sought to be expropriated in the
present case being contiguous to the lands involved in the Narciso case, it is the stand of the Republic that the price
that should be fixed for the lands now in question should also be at P.20 per square meter.

We can not sustain the stand of the Republic. We find that the price of P.20 per square meter, as fixed by this Court
in the Narciso case, was based on the allegation of the defendants (owners) in their answer to the complaint for
eminent domain in that case that the price of their lands was P2,000.00 per hectare and that was the price that they
asked the court to pay them. This Court said, then, that the owners of the land could not be given more than what
they had asked, notwithstanding the recommendation of the majority of the Commission on Appraisal — which was
adopted by the trial court — that the fair market value of the lands was P3,000.00 per hectare. We also find that the
price of P.20 per square meter in the Narciso case was considered the fair market value of the lands as of the year
1949 when the expropriation proceedings were instituted, and at that time the lands were classified as sugar lands,
and assessed for taxation purposes at around P400.00 per hectare, or P.04 per square meter. 22 While the lands
involved in the present case, like the lands involved in the Narciso case, might have a fair market value of P.20 per
square meter in 1949, it can not be denied that ten years later, in 1959, when the present proceedings were
instituted, the value of those lands had increased considerably. The evidence shows that since 1949 those lands
were no longer cultivated as sugar lands, and in 1959 those lands were already classified, and assessed for
taxation purposes, as residential lands. In 1959 the land of Castellvi was assessed at P1.00 per square meter.  23

The Republic also points out that the Provincial Appraisal Committee of Pampanga, in its resolution No. 5 of
February 15, 1957 (Exhibit D), recommended the sum of P.20 per square meter as the fair valuation of the Castellvi
property. We find that this resolution was made by the Republic the basis in asking the court to fix the provisional
value of the lands sought to be expropriated at P259,669.10, which was approved by the court.   It must be24

considered, however, that the amount fixed as the provisional value of the lands that are being expropriated does
not necessarily represent the true and correct value of the land. The value is only "provisional" or "tentative", to
serve as the basis for the immediate occupancy of the property being expropriated by the condemnor. The records
show that this resolution No. 5 was repealed by the same Provincial Committee on Appraisal in its resolution No. 10
of May 14, 1959 (Exhibit 13-Castellvi). In that resolution No. 10, the appraisal committee stated that "The Committee
has observed that the value of the land in this locality has increased since 1957 ...", and recommended the price of
P1.50 per square meter. It follows, therefore, that, contrary to the stand of the Republic, that resolution No. 5 of the
Provincial Appraisal Committee can not be made the basis for fixing the fair market value of the lands of Castellvi
and Toledo-Gozun.

The Republic further relied on the certification of the Acting Assistant Provincial Assessor of Pampanga, dated
February 8, 1961 (Exhibit K), to the effect that in 1950 the lands of Toledo-Gozun were classified partly as sugar
land and partly as urban land, and that the sugar land was assessed at P.40 per square meter, while part of the
urban land was assessed at P.40 per square meter and part at P.20 per square meter; and that in 1956 the Castellvi
land was classified as sugar land and was assessed at P450.00 per hectare, or P.045 per square meter. We can not
also consider this certification of the Acting Assistant Provincial Assessor as a basis for fixing the fair market value
of the lands of Castellvi and Toledo-Gozun because, as the evidence shows, the lands in question, in 1957, were
already classified and assessed for taxation purposes as residential lands. The certification of the assessor refers to
the year 1950 as far as the lands of Toledo-Gozun are concerned, and to the year 1956 as far as the land of
 Page 64 of 162

Castellvi is concerned. Moreover, this Court has held that the valuation fixed for the purposes of the assessment of
the land for taxation purposes can not bind the landowner where the latter did not intervene in fixing it.  25

On the other hand, the Commissioners, appointed by the court to appraise the lands that were being expropriated,
recommended to the court that the price of P10.00 per square meter would be the fair market value of the lands.
The commissioners made their recommendation on the basis of their observation after several ocular inspections of
the lands, of their own personal knowledge of land values in the province of Pampanga, of the testimonies of the
owners of the land, and other witnesses, and of documentary evidence presented by the appellees. Both Castellvi
and Toledo-Gozun testified that the fair market value of their respective land was at P15.00 per square meter. The
documentary evidence considered by the commissioners consisted of deeds of sale of residential lands in the town
of San Fernando and in Angeles City, in the province of Pampanga, which were sold at prices ranging from P8.00 to
P20.00 per square meter (Exhibits 15, 16, 17, 18, 19, 20, 21, 22, 23-Castellvi). The commissioners also considered
the decision in Civil Case No. 1531 of the Court of First Instance of Pampanga, entitled Republic vs. Sabina
Tablante, which was expropriation case filed on January 13, 1959, involving a parcel of land adjacent to the Clark
Air Base in Angeles City, where the court fixed the price at P18.00 per square meter (Exhibit 14-Castellvi). In their
report, the commissioners, among other things, said:

... This expropriation case is specially pointed out, because the circumstances and factors involved
therein are similar in many respects to the defendants' lands in this case. The land in Civil Case No.
1531 of this Court and the lands in the present case (Civil Case No. 1623) are both near the air
bases, the Clark Air Base and the Basa Air Base respectively. There is a national road fronting them
and are situated in a first-class municipality. As added advantage it may be said that the Basa Air
Base land is very near the sugar mill at Del Carmen, Floridablanca, Pampanga, owned by the
Pampanga Sugar Mills. Also just stone's throw away from the same lands is a beautiful vacation spot
at Palacol, a sitio of the town of Floridablanca, which counts with a natural swimming pool for
vacationists on weekends. These advantages are not found in the case of the Clark Air Base. The
defendants' lands are nearer to the poblacion of Floridablanca then Clark Air Base is nearer (sic) to
the poblacion of Angeles, Pampanga.

The deeds of absolute sale, according to the undersigned commissioners, as well as the land in Civil
Case No. 1531 are competent evidence, because they were executed during the year 1959 and
before August 10 of the same year. More specifically so the land at Clark Air Base which
coincidentally is the subject matter in the complaint in said Civil Case No. 1531, it having been filed
on January 13, 1959 and the taking of the land involved therein was ordered by the Court of First
Instance of Pampanga on January 15, 1959, several months before the lands in this case were
taken by the plaintiffs ....

From the above and considering further that the lowest as well as the highest price per square meter
obtainable in the market of Pampanga relative to subdivision lots within its jurisdiction in the year
1959 is very well known by the Commissioners, the Commission finds that the lowest price that can
be awarded to the lands in question is P10.00 per square meter.  26

The lower court did not altogether accept the findings of the Commissioners based on the documentary evidence,
but it considered the documentary evidence as basis for comparison in determining land values. The lower court
arrived at the conclusion that "the unanimous recommendation of the commissioners of ten (P10.00) pesos per
square meter for the three lots of the defendants subject of this action is fair and just".   In arriving at its conclusion,
27

the lower court took into consideration, among other circumstances, that the lands are titled, that there is a rising
trend of land values, and the lowered purchasing power of the Philippine peso.

In the case of Manila Railroad Co. vs. Caligsihan, 40 Phil. 326, 328, this Court said:

A court of first instance or, on appeal, the Supreme Court, may change or modify the report of the
commissioners by increasing or reducing the amount of the award if the facts of the case so justify.
While great weight is attached to the report of the commissioners, yet a court may substitute therefor
its estimate of the value of the property as gathered from the record in certain cases, as, where the
 Page 65 of 162

commissioners have applied illegal principles to the evidence submitted to them, or where they have
disregarded a clear preponderance of evidence, or where the amount allowed is either palpably
inadequate or excessive.  28

The report of the commissioners of appraisal in condemnation proceedings are not binding, but merely advisory in
character, as far as the court is concerned.   In our analysis of the report of the commissioners, We find points that
29

merit serious consideration in the determination of the just compensation that should be paid to Castellvi and
Toledo-Gozun for their lands. It should be noted that the commissioners had made ocular inspections of the lands
and had considered the nature and similarities of said lands in relation to the lands in other places in the province of
Pampanga, like San Fernando and Angeles City. We cannot disregard the observations of the commissioners
regarding the circumstances that make the lands in question suited for residential purposes — their location near
the Basa Air Base, just like the lands in Angeles City that are near the Clark Air Base, and the facilities that obtain
because of their nearness to the big sugar central of the Pampanga Sugar mills, and to the flourishing first class
town of Floridablanca. It is true that the lands in question are not in the territory of San Fernando and Angeles City,
but, considering the facilities of modern communications, the town of Floridablanca may be considered practically
adjacent to San Fernando and Angeles City. It is not out of place, therefore, to compare the land values in
Floridablanca to the land values in San Fernando and Angeles City, and form an idea of the value of the lands in
Floridablanca with reference to the land values in those two other communities.

The important factor in expropriation proceeding is that the owner is awarded the just compensation for his property.
We have carefully studied the record, and the evidence, in this case, and after considering the circumstances
attending the lands in question We have arrived at the conclusion that the price of P10.00 per square meter, as
recommended by the commissioners and adopted by the lower court, is quite high. It is Our considered view that the
price of P5.00 per square meter would be a fair valuation of the lands in question and would constitute a just
compensation to the owners thereof. In arriving at this conclusion We have particularly taken into consideration the
resolution of the Provincial Committee on Appraisal of the province of Pampanga informing, among others, that in
the year 1959 the land of Castellvi could be sold for from P3.00 to P4.00 per square meter, while the land of Toledo-
Gozun could be sold for from P2.50 to P3.00 per square meter. The Court has weighed all the circumstances
relating to this expropriations proceedings, and in fixing the price of the lands that are being expropriated the Court
arrived at a happy medium between the price as recommended by the commissioners and approved by the court,
and the price advocated by the Republic. This Court has also taken judicial notice of the fact that the value of the
Philippine peso has considerably gone down since the year 1959.   Considering that the lands of Castellvi and
30

Toledo-Gozun are adjoining each other, and are of the same nature, the Court has deemed it proper to fix the same
price for all these lands.

3. The third issue raised by the Republic relates to the payment of interest. The Republic maintains
that the lower court erred when it ordered the Republic to pay Castellvi interest at the rate of 6% per
annum on the total amount adjudged as the value of the land of Castellvi, from July 1, 1956 to July
10, 1959. We find merit in this assignment of error.

In ordering the Republic to pay 6% interest on the total value of the land of Castellvi from July 1, 1956 to July 10,
1959, the lower court held that the Republic had illegally possessed the land of Castellvi from July 1, 1956, after its
lease of the land had expired on June 30, 1956, until August 10, 1959 when the Republic was placed in possession
of the land pursuant to the writ of possession issued by the court. What really happened was that the Republic
continued to occupy the land of Castellvi after the expiration of its lease on June 30, 1956, so much so that Castellvi
filed an ejectment case against the Republic in the Court of First Instance of Pampanga.   However, while that
31

ejectment case was pending, the Republic filed the complaint for eminent domain in the present case and was
placed in possession of the land on August 10, 1959, and because of the institution of the expropriation proceedings
the ejectment case was later dismissed. In the order dismissing the ejectment case, the Court of First Instance of
Pampanga said:

Plaintiff has agreed, as a matter of fact has already signed an agreement with defendants, whereby
she had agreed to receive the rent of the lands, subject matter of the instant case from June 30,
1956 up to 1959 when the Philippine Air Force was placed in possession by virtue of an order of the
Court upon depositing the provisional amount as fixed by the Provincial Appraisal Committee with
 Page 66 of 162

the Provincial Treasurer of

Pampanga; ...

If Castellvi had agreed to receive the rentals from June 30, 1956 to August 10, 1959, she should be considered as
having allowed her land to be leased to the Republic until August 10, 1959, and she could not at the same time be
entitled to the payment of interest during the same period on the amount awarded her as the just compensation of
her land. The Republic, therefore, should pay Castellvi interest at the rate of 6% per annum on the value of her land,
minus the provisional value that was deposited, only from July 10, 1959 when it deposited in court the provisional
value of the land.

4. The fourth error assigned by the Republic relates to the denial by the lower court of its motion for a new trial
based on nearly discovered evidence. We do not find merit in this assignment of error.

After the lower court had decided this case on May 26, 1961, the Republic filed a motion for a new trial,
supplemented by another motion, both based upon the ground of newly discovered evidence. The alleged newly
discovered evidence in the motion filed on June 21, 1961 was a deed of absolute sale-executed on January 25,
1961, showing that a certain Serafin Francisco had sold to Pablo L. Narciso a parcel of sugar land having an area of
100,000 square meters with a sugar quota of 100 piculs, covered by P.A. No. 1701, situated in Barrio Fortuna,
Floridablanca, for P14,000, or P.14 per square meter.

In the supplemental motion, the alleged newly discovered evidence were: (1) a deed of sale of some 35,000 square
meters of land situated at Floridablanca for P7,500.00 (or about P.21 per square meter) executed in July, 1959, by
the spouses Evelyn D. Laird and Cornelio G. Laird in favor of spouses Bienvenido S. Aguas and Josefina Q. Aguas;
and (2) a deed of absolute sale of a parcel of land having an area of 4,120,101 square meters, including the sugar
quota covered by Plantation Audit No. 161 1345, situated at Floridablanca, Pampanga, for P860.00 per hectare (a
little less than P.09 per square meter) executed on October 22, 1957 by Jesus Toledo y Mendoza in favor of the
Land Tenure Administration.

We find that the lower court acted correctly when it denied the motions for a new trial.

To warrant the granting of a new trial based on the ground of newly discovered evidence, it must appear that the
evidence was discovered after the trial; that even with the exercise of due diligence, the evidence could not have
been discovered and produced at the trial; and that the evidence is of such a nature as to alter the result of the case
if admitted.   The lower court correctly ruled that these requisites were not complied with.
32

The lower court, in a well-reasoned order, found that the sales made by Serafin Francisco to Pablo Narciso and that
made by Jesus Toledo to the Land Tenure Administration were immaterial and irrelevant, because those sales
covered sugarlands with sugar quotas, while the lands sought to be expropriated in the instant case are residential
lands. The lower court also concluded that the land sold by the spouses Laird to the spouses Aguas was a sugar
land.

We agree with the trial court. In eminent domain proceedings, in order that evidence as to the sale price of other
lands may be admitted in evidence to prove the fair market value of the land sought to be expropriated, the lands
must, among other things, be shown to be similar.

But even assuming, gratia argumenti, that the lands mentioned in those deeds of sale were residential, the evidence
would still not warrant the grant of a new trial, for said evidence could have been discovered and produced at the
trial, and they cannot be considered newly discovered evidence as contemplated in Section 1(b) of Rule 37 of the
Rules of Court. Regarding this point, the trial court said:

The Court will now show that there was no reasonable diligence employed.

The land described in the deed of sale executed by Serafin Francisco, copy of which is attached to
the original motion, is covered by a Certificate of Title issued by the Office of the Register of Deeds
of Pampanga. There is no question in the mind of the court but this document passed through the
 Page 67 of 162

Office of the Register of Deeds for the purpose of transferring the title or annotating the sale on the
certificate of title. It is true that Fiscal Lagman went to the Office of the Register of Deeds to check
conveyances which may be presented in the evidence in this case as it is now sought to be done by
virtue of the motions at bar, Fiscal Lagman, one of the lawyers of the plaintiff, did not exercise
reasonable diligence as required by the rules. The assertion that he only went to the office of the
Register of Deeds 'now and then' to check the records in that office only shows the half-hazard [sic]
manner by which the plaintiff looked for evidence to be presented during the hearing before the
Commissioners, if it is at all true that Fiscal Lagman did what he is supposed to have done according
to Solicitor Padua. It would have been the easiest matter for plaintiff to move for the issuance of a
subpoena duces tecum directing the Register of Deeds of Pampanga to come to testify and to bring
with him all documents found in his office pertaining to sales of land in Floridablanca adjacent to or
near the lands in question executed or recorded from 1958 to the present. Even this elementary
precaution was not done by plaintiff's numerous attorneys.

The same can be said of the deeds of sale attached to the supplementary motion. They refer to
lands covered by certificate of title issued by the Register of Deeds of Pampanga. For the same
reason they could have been easily discovered if reasonable diligence has been exerted by the
numerous lawyers of the plaintiff in this case. It is noteworthy that all these deeds of sale could be
found in several government offices, namely, in the Office of the Register of Deeds of Pampanga,
the Office of the Provincial Assessor of Pampanga, the Office of the Clerk of Court as a part of
notarial reports of notaries public that acknowledged these documents, or in the archives of the
National Library. In respect to Annex 'B' of the supplementary motion copy of the document could
also be found in the Office of the Land Tenure Administration, another government entity. Any
lawyer with a modicum of ability handling this expropriation case would have right away though [sic]
of digging up documents diligently showing conveyances of lands near or around the parcels of land
sought to be expropriated in this case in the offices that would have naturally come to his mind such
as the offices mentioned above, and had counsel for the movant really exercised the reasonable
diligence required by the Rule' undoubtedly they would have been able to find these documents
and/or caused the issuance of subpoena duces tecum. ...

It is also recalled that during the hearing before the Court of the Report and Recommendation of the
Commissioners and objection thereto, Solicitor Padua made the observation:

I understand, Your Honor, that there was a sale that took place in this place of land recently where
the land was sold for P0.20 which is contiguous to this land.

The Court gave him permission to submit said document subject to the approval of the Court. ... This
was before the decision was rendered, and later promulgated on May 26, 1961 or more than one
month after Solicitor Padua made the above observation. He could have, therefore, checked up the
alleged sale and moved for a reopening to adduce further evidence. He did not do so. He forgot to
present the evidence at a more propitious time. Now, he seeks to introduce said evidence under the
guise of newly-discovered evidence. Unfortunately the Court cannot classify it as newly-discovered
evidence, because tinder the circumstances, the correct qualification that can be given is 'forgotten
evidence'. Forgotten however, is not newly-discovered
evidence. 33

The granting or denial of a motion for new trial is, as a general rule, discretionary with the trial court, whose
judgment should not be disturbed unless there is a clear showing of abuse of discretion.   We do not see any abuse
34

of discretion on the part of the lower court when it denied the motions for a new trial.

WHEREFORE, the decision appealed from is modified, as follows:

(a) the lands of appellees Carmen Vda. de Castellvi and Maria Nieves Toledo-Gozun, as described
in the complaint, are declared expropriated for public use;
 Page 68 of 162

(b) the fair market value of the lands of the appellees is fixed at P5.00 per square meter;

(c) the Republic must pay appellee Castellvi the sum of P3,796,495.00 as just compensation for her
one parcel of land that has an area of 759,299 square meters, minus the sum of P151,859.80 that
she withdrew out of the amount that was deposited in court as the provisional value of the land, with
interest at the rate of 6% per annum from July 10, 1959 until the day full payment is made or
deposited in court;

(d) the Republic must pay appellee Toledo-Gozun the sum of P2,695,225.00 as the just
compensation for her two parcels of land that have a total area of 539,045 square meters, minus the
sum of P107,809.00 that she withdrew out of the amount that was deposited in court as the
provisional value of her lands, with interest at the rate of 6%, per annum from July 10, 1959 until the
day full payment is made or deposited in court; (e) the attorney's lien of Atty. Alberto Cacnio is
enforced; and

(f) the costs should be paid by appellant Republic of the Philippines, as provided in Section 12, Rule
67, and in Section 13, Rule 141, of the Rules of Court.

IT IS SO ORDERED.

G.R. No. L-14355             October 31, 1919

THE CITY OF MANILA, plaintiff-appellant,

vs.
CHINESE COMMUNITY OF MANILA, ET AL., defendants-appellees.

The important question presented by this appeal is: In expropriation proceedings by the city of Manila, may the
courts inquire into, and hear proof upon, the necessity of the expropriation?

That question arose in the following manner:

 Page 69 of 162

On the 11th day of December, 1916, the city of Manila presented a petition in the Court of First Instance of said city,
praying that certain lands, therein particularly described, be expropriated for the purpose of constructing a public
improvement. The petitioner, in the second paragraph of the petition, alleged:

That for the purpose of constructing a public improvement, namely, the extension of Rizal Avenue, Manila, it
is necessary for the plaintiff to acquire ownership in fee simple of certain parcels of land situated in the
district of Binondo of said city within Block 83 of said district, and within the jurisdiction of this court.

The defendant, the Comunidad de Chinos de Manila [Chinese Community of Manila], answering the petition of the
plaintiff, alleged that it was a corporation organized and existing under and by virtue of the laws of the Philippine
Islands, having for its purpose the benefit and general welfare of the Chinese Community of the City of Manila; that
it was the owner of parcels one and two of the land described in paragraph 2 of the complaint; that it denied that it
was either necessary or expedient that the said parcels be expropriated for street purposes; that existing street and
roads furnished ample means of communication for the public in the district covered by such proposed
expropriation; that if the construction of the street or road should be considered a public necessity, other routes
were available, which would fully satisfy the plaintiff's purposes, at much less expense and without disturbing the
resting places of the dead; that it had a Torrens title for the lands in question; that the lands in question had been
used by the defendant for cemetery purposes; that a great number of Chinese were buried in said cemetery; that if
said expropriation be carried into effect, it would disturb the resting places of the dead, would require the
expenditure of a large sum of money in the transfer or removal of the bodies to some other place or site and in the
purchase of such new sites, would involve the destruction of existing monuments and the erection of new
monuments in their stead, and would create irreparable loss and injury to the defendant and to all those persons
owning and interested in the graves and monuments which would have to be destroyed; that the plaintiff was
without right or authority to expropriate said cemetery or any part or portion thereof for street purposes; and that the
expropriation, in fact, was not necessary as a public improvement.

The defendant Ildefonso Tambunting, answering the petition, denied each and every allegation of the complaint,
and alleged that said expropriation was not a public improvement; that it was not necessary for the plaintiff to
acquire the parcels of land in question; that a portion of the lands in question was used as a cemetery in which were
the graves of his ancestors; that monuments and tombstones of great value were found thereon; that the land had
become quasi-public property of a benevolent association, dedicated and used for the burial of the dead and that
many dead were buried there; that if the plaintiff deemed it necessary to extend Rizal Avenue, he had offered and
still offers to grant a right of way for the said extension over other land, without cost to the plaintiff, in order that the
sepulchers, chapels and graves of his ancestors may not be disturbed; that the land so offered, free of charge,
would answer every public necessity on the part of the plaintiff.

The defendant Feliza Concepcion de Delgado, with her husband, Jose Maria Delgado, and each of the other
defendants, answering separately, presented substantially the same defense as that presented by the Comunidad
de Chinos de Manila and Ildefonso Tambunting above referred to.

The foregoing parts of the defense presented by the defendants have been inserted in order to show the general
character of the defenses presented by each of the defendants. The plaintiff alleged that the expropriation was
necessary. The defendants each alleged (a) that no necessity existed for said expropriation and (b) that the land in
question was a cemetery, which had been used as such for many years, and was covered with sepulchres and
monuments, and that the same should not be converted into a street for public purposes.

Upon the issue thus presented by the petition and the various answers, the Honorable Simplicio del Rosario, judge,
in a very elucidated opinion, with very clear and explicit reasons, supported by ambulance of authorities, decided
that there was no necessity for the expropriation of the particular strip of land in question, and absolved each and all
of the defendants from all liability under the complaint, without any finding as to costs.

From that judgment the plaintiff appealed and presented the above question as its principal ground of appeal.

The theory of the plaintiff is, that once it has established the fact, under the law, that it has authority to expropriate
land, it may expropriate any land it may desire; that the only function of the court in such proceedings is to ascertain
 Page 70 of 162

the value of the land in question; that neither the court nor the owners of the land can inquire into the advisible
purpose of purpose of the expropriation or ask any questions concerning the necessities therefor; that
the courts are mere appraisers of the land involved in expropriation proceedings, and, when the value of the land is
fixed by the method adopted by the law, to render a judgment in favor of the defendant for its value.

That the city of Manila has authority to expropriate private lands for public purposes, is not denied. Section 2429 of
Act No. 2711 (Charter of the city of Manila) provides that "the city (Manila) . . . may condemn private property
for public use."

The Charter of the city of Manila contains no procedure by which the said authority may be carried into effect. We
are driven, therefore, to the procedure marked out by Act No. 190 to ascertain how the said authority may be
exercised. From an examination of Act No. 190, in its section 241, we find how the right of eminent domain may be
exercised. Said section 241 provides that, "The Government of the Philippine Islands, or of any province or
department thereof, or of any municipality, and any person, or public or private corporation having, by law, the
right to condemn private property for public use, shall exercise that right in the manner hereinafter prescribed."

Section 242 provides that a complaint in expropriation proceeding shall be presented; that the complaint shall state
with certainty the right of condemnation, with a description of the property sought to be condemned together with
the interest of each defendant separately.

Section 243 provides that if the court shall find upon trial that the right to expropriate the land in question exists, it
shall then appoint commissioners.

Sections 244, 245 and 246 provide the method of procedure and duty of the commissioners. Section 248 provides
for an appeal from the judgment of the Court of First Instance to the Supreme Court. Said section 248 gives the
Supreme Court authority to inquire into the right of expropriation on the part of the plaintiff. If the Supreme Court on
appeal shall determine that no right of expropriation existed, it shall remand the cause to the Court of First Instance
with a mandate that the defendant be replaced in the possession of the property and that he recover whatever
damages he may have sustained by reason of the possession of the plaintiff.

It is contended on the part of the plaintiff that the phrase in said section, "and if the court shall find the right to
expropriate exists," means simply that, if the court finds that there is some law authorizing the plaintiff to
expropriate, then the courts have no other function than to authorize the expropriation and to proceed to ascertain
the value of the land involved; that the necessity for the expropriation is a legislative and not a judicial question.

Upon the question whether expropriation is a legislative function exclusively, and that the courts cannot intervene
except for the purpose of determining the value of the land in question, there is much legal legislature. Much has
been written upon both sides of that question. A careful examination of the discussions pro and con will disclose the
fact that the decisions depend largely upon particular constitutional or statutory provisions. It cannot be denied, if the
legislature under proper authority should grant the expropriation of a certain or particular parcel of land for some
specified public purpose, that the courts would be without jurisdiction to inquire into the purpose of that legislation.

If, upon the other hand, however, the Legislature should grant general authority to a municipal corporation to
expropriate private land for public purposes, we think the courts have ample authority in this jurisdiction, under the
provisions above quoted, to make inquiry and to hear proof, upon an issue properly presented, concerning whether
or not the lands were private and whether the purpose was, in fact, public. In other words, have no the courts in this
jurisdiction the right, inasmuch as the questions relating to expropriation must be referred to them (sec. 241, Act No.
190) for final decision, to ask whether or not the law has been complied with? Suppose in a particular case, it should
be denied that the property is not private property but public, may not the courts hear proof upon that question? Or,
suppose the defense is, that the purpose of the expropriation is not public but private, or that there exists no public
purpose at all, may not the courts make inquiry and hear proof upon that question?

The city of Manila is given authority to expropriate private lands for public purposes. Can it be possible that said
authority confers the right to determine for itself that the land is private and that the purpose is public, and that the
people of the city of Manila who pay the taxes for its support, especially those who are directly affected, may not
 Page 71 of 162

question one or the other, or both, of these questions? Can it be successfully contended that the phrase used in Act
No. 190, "and if the court upon trial shall find that such right exists," means simply that the court shall examine
the statutes simply for the purpose of ascertaining whether a law exists authorizing the petitioner to exercise the
right of eminent domain? Or, when the case arrives in the Supreme Court, can it be possible that the phrase, "if the
Supreme Court shall determine that no right of expropriation exists," that that simply means that the Supreme Court
shall also examine the enactments of the legislature for the purpose of determining whether or not a law exists
permitting the plaintiff to expropriate?

We are of the opinion that the power of the court is not limited to that question. The right of expropriation is not an
inherent power in a municipal corporation, and before it can exercise the right some law must exist conferring the
power upon it. When the courts come to determine the question, they must only find (a) that a law or authority exists
for the exercise of the right of eminent domain, but (b) also that the right or authority is being exercised in
accordance with the law. In the present case there are two conditions imposed upon the authority conceded to the
City of Manila: First, the land must be private; and, second, the purpose must be public. If the court, upon trial, finds
that neither of these conditions exists or that either one of them fails, certainly it cannot be contended that the right
is being exercised in accordance with law.

Whether the purpose for the exercise of the right of eminent domain is public, is a question of fact. Whether the land
is public, is a question of fact; and, in our opinion, when the legislature conferred upon the courts of the Philippine
Islands the right to ascertain upon trial whether the right exists for the exercise of eminent domain, it intended that
the courts should inquire into, and hear proof upon, those questions. Is it possible that the owner of valuable land in
this jurisdiction is compelled to stand mute while his land is being expropriated for a use not public, with the right
simply to beg the city of Manila to pay him the value of his land? Does the law in this jurisdiction permit
municipalities to expropriate lands, without question, simply for the purpose of satisfying the aesthetic sense of
those who happen for the time being to be in authority? Expropriation of lands usually calls for public expense. The
taxpayers are called upon to pay the costs. Cannot the owners of land question the public use or the public
necessity?

As was said above, there is a wide divergence of opinion upon the authority of the court to question the necessity or
advisability of the exercise of the right of eminent domain. The divergence is usually found to depend upon
particular statutory or constitutional provisions.

It has been contended — and many cases are cited in support of that contention, and section 158 of volume 10 of
Ruling Case Law is cited as conclusive — that the necessity for taking property under the right of eminent domain is
not a judicial question. But those who cited said section evidently overlooked the section immediately following (sec.
159), which adds: "But it is obvious that if the property is taken in the ostensible behalf of a public
improvement which it can never by any possibility serve, it is being taken for a use not public, and the owner's
constitutional rights call for protection by the courts. While many courts have used sweeping expression in the
decisions in which they have disclaimed the power of supervising the power of supervising the selection of the sites
of public improvements, it may be safely said that the courts of the various states would feel bound to interfere to
prevent an abuse of the discretion delegated by the legislature, by an attempted appropriation of land in utter
disregard of the possible necessity of its use, or when the alleged purpose was a cloak to some sinister scheme."
(Norwich City vs. Johnson, 86 Conn., 151; Bell vs. Mattoon Waterworks, etc. Co., 245 Ill., 544; Wheeling, etc. R. R.
Co. vs. Toledo Ry. etc. Co., 72 Ohio St., 368; State vs. Stewart, 74 Wis., 620.)

Said section 158 (10 R. C. L., 183) which is cited as conclusive authority in support of the contention of the
appellant, says:

The legislature, in providing for the exercise of the power of eminent domain, may directly determine the
necessity for appropriating private property for a particular improvement for public use, and it may select the
exact location of the improvement. In such a case, it is well settled that the utility of the proposed
improvement, the extent of the public necessity for its construction, the expediency of constructing it, the
suitableness of the location selected and the consequent necessity of taking the land selected for its site,
are all questions exclusively for the legislature to determine, and the courts have no power to interfere, or to
substitute their own views for those of the representatives of the people.
 Page 72 of 162

Practically every case cited in support of the above doctrine has been examined, and we are justified in making the
statement that in each case the legislature directly determined the necessity for the exercise of the right of eminent
domain in the particular case. It is not denied that if the necessity for the exercise of the right of eminent domain is
presented to the legislative department of the government and that department decides that there exists a necessity
for the exercise of the right in a particular case, that then and in that case, the courts will not go behind the action of
the legislature and make inquiry concerning the necessity. But, in the case of Wheeling, etc. R. R. Co. vs. Toledo,
Ry, etc., Co. (72 Ohio St., 368 [106 Am. St. rep., 622, 628]), which was cited in support of the doctrine laid down in
section 158 above quoted, the court said:

But when the statute does not designate the property to be taken nor how may be taken, then the necessity
of taking particular property is a question for the courts. Where the application to condemn or appropriate is
made directly to the court, the question (of necessity) should be raised and decided in limene.

The legislative department of the government was rarely undertakes to designate the precise property which should
be taken for public use. It has generally, like in the present case, merely conferred general authority to take land for
public use when a necessity exists therefor. We believe that it can be confidently asserted that, under such statute,
the allegation of the necessity for the appropriation is an issuable allegation which it is competent for the courts to
decide. (Lynch vs. Forbes, 161 Mass., 302 [42 Am. St. Rep., 402, 407].)

There is a wide distinction between a legislative declaration that a municipality is given authority to exercise the right
of eminent domain, and a decision by the municipality that there exist a necessity for the exercise of that right in a
particular case. The first is a declaration simply that there exist reasons why the right should be conferred upon
municipal corporation, while the second is the application of the right to a particular case. Certainly, the legislative
declaration relating to the advisability of granting the power cannot be converted into a declaration that a necessity
exists for its exercise in a particular case, and especially so when, perhaps, the land in question was not within the
territorial authority was granted.

Whether it was wise, advisable, or necessary to confer upon a municipality the power to exercise the right of
eminent domain, is a question with which the courts are not concerned. But when that right or authority is exercised
for the purpose of depriving citizens of their property, the courts are authorized, in this jurisdiction, to make inquiry
and to hear proof upon the necessity in the particular case, and not the general authority.

Volume 15 of the Cyclopedia of Law and Procedure (Cyc.), page 629, is cited as a further conclusive authority upon
the question that the necessity for the exercise of the right of eminent domain is a legislative and not a judicial
question. Cyclopedia, at the page stated, says:

In the absence of some constitutional or statutory provision to the contrary, the necessity and expediency of

exercising the right of eminent domain are questions essentially political and not judicial in their character.
The determination of those questions (the necessity and the expediency) belongs to the sovereign power;
the legislative department is final and conclusive, and the courts have no power to review it (the necessity
and the expediency) . . . . It (the legislature) may designate the particular property to be condemned, and its
determination in this respect cannot be reviewed by the courts.

The volume of Cyclopedia, above referred to, cites many cases in support of the doctrine quoted. While time has not
permitted an examination of all of said citations, many of them have been examined, and it can be confidently
asserted that said cases which are cited in support of the assertion that, "the necessity and expediency of exercising
the right of eminent domain are questions essentially political and not judicial," show clearly and invariably that in
each case the legislature itself usually, by a special law, designated the particular case in which the right of eminent
domain might be exercised by the particular municipal corporation or entity within the state. (Eastern R.
Co. vs. Boston, etc., R. Co., 11 Mass., 125 [15 Am. Rep., 13]; Brooklyn Park Com'rs vs. Armstrong, 45 N.Y., 234 [6
Am. Rep., 70]; Hairston vs. Danville, etc. Ry. Co., 208 U. S. 598; Cincinnati vs. Louisville, etc. Ry. Co., 223 U. S.,
390; U.S. vs. Chandler-Dunbar Water Power Co., 229 U. S., 53; U.S. vs. Gettysburg, etc. Co., 160 U. S., 668;
Traction Co. vs. Mining Co., 196 U.S., 239; Sears vs. City of Akron, 246 U.S., 351 [erroneously cited as 242 U.S.].)
 Page 73 of 162

In the case of Traction Co. vs. Mining Co. (196 U.S., 239), the Supreme Court of the United States said: "It is
erroneous to suppose that the legislature is beyond the control of the courts in exercising the power of eminent
domain, either as to the nature of the use or the necessity to the use of any particular property. For if the use be not
public or no necessity for the taking exists, the legislature cannot authorize the taking of private property against the
will of the owner, notwithstanding compensation may be required."

In the case of School Board of Carolina vs. Saldaña (14 Porto Rico, 339, 356), we find the Supreme Court of Porto
Rico, speaking through Justice MacLeary, quoting approvingly the following, upon the question which we are
discussing: "It is well settled that although the legislature must necessarily determine in the first instance whether
the use for which they (municipalities, etc.) attempt to exercise the power is a public one or not, their (municipalities,
etc.) determination is not final, but is subject to correction by the courts, who may undoubtedly declare the statute
unconstitutional, if it shall clearly appear that the use for which it is proposed to authorize the taking of private
property is in reality not public but private." Many cases are cited in support of that doctrine.

Later, in the same decision, we find the Supreme Court of Porto Rico says: "At any rate, the rule is quite well settled
that in the cases under consideration the determination of the necessity of taking a particular piece or a certain
amount of land rests ultimately with the courts." (Spring Valley etc. Co. vs. San Mateo, etc. Co., 64 Cal., 123.) .

In the case of Board of Water Com'rs., etc. vs. Johnson (86 Conn., 571 [41 L. R. A., N. S., 1024]), the Supreme
Court of Connecticut approvingly quoted the following doctrine from Lewis on Eminent Domain (3d ed.), section 599:
"In all such cases the necessity of public utility of the proposed work or improvement is a judicial question. In all
such cases, where the authority is to take property necessary for the purpose, the necessity of taking particular
property for a particular purpose is a judicial one, upon which the owner is entitled to be heard."
(Riley vs. Charleston, etc. Co., 71 S. C., 457, 489 [110 Am. St. Rep., 579]; Henderson vs. Lexington 132 Ky., 390,
403.)

The taking of private property for any use which is not required by the necessities or convenience of the inhabitants
of the state, is an unreasonable exercise of the right of eminent domain, and beyond the power of the legislature to
delegate. (Bennett vs. Marion, 106 Iowa, 628, 633; Wilson vs. Pittsburg, etc. Co., 222 Pa. St., 541, 545; Greasy, etc.
Co. vs. Ely, etc. Co., 132 Ky., 692, 697.)

In the case of New Central Coal Co. vs. George's etc. Co. (37 Md., 537, 564), the Supreme Court of the State of
Maryland, discussing the question before us, said: "To justify the exercise of this extreme power (eminent domain)
where the legislature has left it to depend upon the necessity that may be found to exist, in order to accomplish the
purpose of the incorporation, as in this case, the party claiming the right to the exercise of the power should be
required to show at least a reasonable degree of necessity for its exercise. Any rule less strict than this, with the
large and almost indiscriminate delegation of the right to corporations, would likely lead to oppression and the
sacrifice of private right to corporate power."

In the case of Dewey vs. Chicago, etc. Co. (184 Ill., 426, 433), the court said: "Its right to condemn property is not a
general power of condemnation, but is limited to cases where a necessity for resort to private property is shown to
exist. Such necessity must appear upon the face of the petition to condemn. If the necessary is denied the burden is
upon the company (municipality) to establish it." (Highland, etc. Co. vs. Strickley, 116 Fed., 852, 856;
Kiney vs. Citizens' Water & Light Co., 173 Ind., 252, 257 ; Bell vs. Mattoon Waterworks, etc. Co., 245 Ill., 544 [137
Am. St. Rep. 338].)

It is true that naby decisions may be found asserting that what is a public use is a legislative question, and many
other decisions declaring with equal emphasis that it is a judicial question. But, as long as there is a constitutional or
statutory provision denying the right to take land for any use other than a public use, it occurs to us that the question
whether any particular use is a public one or not is ultimately, at least, a judicial question. The legislative may, it is
true, in effect declare certain uses to be public, and, under the operation of the well-known rule that a statute will not
be declared to be unconstitutional except in a case free, or comparatively free, from doubt, the courts will certainly
sustain the action of the legislature unless it appears that the particular use is clearly not of a public nature. The
decisions must be understood with this limitation; for, certainly, no court of last resort will be willing to declare that
any and every purpose which the legislative might happen to designate as a public use shall be conclusively held to
 Page 74 of 162

be so, irrespective of the purpose in question and of its manifestly private character Blackstone in his Commentaries
on the English Law remarks that, so great is the regard of the law for private property that it will not authorize the
least violation of it, even for the public good, unless there exists a very great necessity therefor.

In the case of Wilkinson vs. Leland (2 Pet. [U.S.], 657), the Supreme Court of the United States said: "That
government can scarcely be deemed free where the rights of property are left solely defendant on the legislative
body, without restraint. The fundamental maxims of free government seem to require that the rights of personal
liberty and private property should be held sacred. At least no court of justice in this country would be warranted in
assuming that the power to violate and disregard them — a power so repugnant to the common principles of justice
and civil liberty — lurked in any general grant of legislature authority, or ought to be implied from any general
expression of the people. The people ought no to be presumed to part with rights so vital to their security and well-
being without very strong and direct expression of such intention." (Lewis on Eminent Domain, sec. 603;
Lecoul vs. Police Jury 20 La. Ann., 308; Jefferson vs. Jazem, 7 La. Ann., 182.)

Blackstone, in his Commentaries on the English Law said that the right to own and possess land — a place to live
separate and apart from others — to retain it as a home for the family in a way not to be molested by others — is
one of the most sacred rights that men are heirs to. That right has been written into the organic law of every civilized
nation. The Acts of Congress of July 1, 1902, and of August 29, 1916, which provide that "no law shall be enacted in
the Philippine Islands which shall deprive any person of his property without due process of law," are but a
restatement of the time-honored protection of the absolute right of the individual to his property. Neither did said
Acts of Congress add anything to the law already existing in the Philippine Islands. The Spaniard fully recognized
the principle and adequately protected the inhabitants of the Philippine Islands against the encroachment upon the
private property of the individual. Article 349 of the Civil Code provides that: "No one may be deprived of his
property unless it be by competent authority, for some purpose of proven public utility, and after payment of the
proper compensation Unless this requisite (proven public utility and payment) has been complied with, it shall be
the duty of the courts to protect the owner of such property in its possession or to restore its possession to him , as
the case may be."

The exercise of the right of eminent domain, whether directly by the State, or by its authorized agents, is necessarily
in derogation of private rights, and the rule in that case is that the authority must be strictly construed. No species of
property is held by individuals with greater tenacity, and none is guarded by the constitution and laws more
sedulously, than the right to the freehold of inhabitants. When the legislature interferes with that right, and, for
greater public purposes, appropriates the land of an individual without his consent, the plain meaning of the law
should not be enlarged by doubtly interpretation. (Bensely vs. Mountainlake Water Co., 13 Cal., 306 and cases cited
[73 Am. Dec., 576].)

The statutory power of taking property from the owner without his consent is one of the most delicate exercise of
government authority. It is to be watched with jealous scrutiny. Important as the power may be to the government,
the inviolable sanctity which all free constitutions attach to the right of property of the citizens, constrains the strict
observance of the substantial provisions of the law which are prescribed as modes of the exercise of the power,
and to protect it from abuse. Not only must the authority of municipal corporations to take property be expressly
conferred and the use for which it is taken specified, but the power, with all constitutional limitation and directions
for its exercise, must be strictly pursued. (Dillon on Municipal Corporations [5th Ed.], sec. 1040, and cases cited;
Tenorio vs. Manila Railroad Co., 22 Phil., 411.)

It can scarcely be contended that a municipality would be permitted to take property for some public use unless
some public necessity existed therefor. The right to take private property for public use originates in the necessity,
and the taking must be limited by such necessity. The appellant contends that inasmuch as the legislature has given
it general authority to take private property for public use, that the legislature has, therefore, settled the question of
the necessity in every case and that the courts are closed to the owners of the property upon that question. Can it
be imagined, when the legislature adopted section 2429 of Act No. 2711, that it thereby declared that it was
necessary to appropriate the property of Juan de la Cruz, whose property, perhaps, was not within the city limits at
the time the law was adopted? The legislature, then, not having declared the necessity, can it be contemplated that
it intended that a municipality should be the sole judge of the necessity in every case, and that the courts, in the
face of the provision that "if upon trial they shall find that a right exists," cannot in that trial inquire into and hear proof
upon the necessity for the appropriation in a particular case?
 Page 75 of 162

The Charter of the city of Manila authorizes the taking of private property for public use. Suppose the owner of the
property denies and successfully proves that the taking of his property serves no public use: Would the courts not
be justified in inquiring into that question and in finally denying the petition if no public purpose was proved? Can it
be denied that the courts have a right to inquire into that question? If the courts can ask questions and decide, upon
an issue properly presented, whether the use is public or not, is not that tantamount to permitting the courts to
inquire into the necessity of the appropriation? If there is no public use, then there is no necessity, and if there is no
necessity, it is difficult to understand how a public use can necessarily exist. If the courts can inquire into the
question whether a public use exists or not, then it seems that it must follow that they can examine into the question
of the necessity.

The very foundation of the right to exercise eminent domain is a genuine necessity, and that necessity must be of a
public character. The ascertainment of the necessity must precede or accompany, and not follow, the taking of the
land. (Morrison vs. Indianapolis, etc. Ry. Co., 166 Ind., 511; Stearns vs. Barre, 73 Vt., 281; Wheeling, etc. R. R.
Co. vs. Toledo, Ry. etc. Co., 72 Ohio St., 368.)

The general power to exercise the right of eminent domain must not be confused with the right to exercise it in
a particular case. The power of the legislature to confer, upon municipal corporations and other entities within the
State, general authority to exercise the right of eminent domain cannot be questioned by the courts, but that general
authority of municipalities or entities must not be confused with the right to exercise it in particular instances. The
moment the municipal corporation or entity attempts to exercise the authority conferred, it must comply with the
conditions accompanying the authority. The necessity for conferring the authority upon a municipal corporation to
exercise the right of eminent domain is admittedly within the power of the legislature. But whether or not the
municipal corporation or entity is exercising the right in a particular case under the conditions imposed by the
general authority, is a question which the courts have the right to inquire into.

The conflict in the authorities upon the question whether the necessity for the exercise of the right of eminent
domain is purely legislative and not judicial, arises generally in the wisdom and propriety of the legislature in
authorizing the exercise of the right of eminent domain instead of in the question of the right to exercise it in a
particular case. (Creston Waterworks Co. vs. McGrath, 89 Iowa, 502.)

By the weight of authorities, the courts have the power of restricting the exercise of eminent domain to the actual
reasonable necessities of the case and for the purposes designated by the law. (Fairchild vs. City of St. Paul. 48
Minn., 540.)

And, moreover, the record does not show conclusively that the plaintiff has definitely decided that their exists a
necessity for the appropriation of the particular land described in the complaint. Exhibits 4, 5, 7, and E clearly
indicate that the municipal board believed at one time that other land might be used for the proposed improvement,
thereby avoiding the necessity of distributing the quiet resting place of the dead.

Aside from insisting that there exists no necessity for the alleged improvements, the defendants further contend that
the street in question should not be opened through the cemetery. One of the defendants alleges that said cemetery
is public property. If that allegations is true, then, of course, the city of Manila cannot appropriate it for public use.
The city of Manila can only expropriate private property.

It is a well known fact that cemeteries may be public or private. The former is a cemetery used by the general
community, or neighborhood, or church, while the latter is used only by a family, or a small portion of the community
or neighborhood. (11 C. J., 50.)

Where a cemetery is open to public, it is a public use and no part of the ground can be taken for other public uses
under a general authority. And this immunity extends to the unimproved and unoccupied parts which are held in
good faith for future use. (Lewis on Eminent Domain, sec. 434, and cases cited.)

The cemetery in question seems to have been established under governmental authority. The Spanish Governor-
General, in an order creating the same, used the following language:
 Page 76 of 162

The cemetery and general hospital for indigent Chinese having been founded and maintained by the
spontaneous and fraternal contribution of their protector, merchants and industrials, benefactors of mankind,
in consideration of their services to the Government of the Islands its internal administration, government
and regime must necessarily be adjusted to the taste and traditional practices of those born and educated in
China in order that the sentiments which animated the founders may be perpetually effectuated.

It is alleged, and not denied, that the cemetery in question may be used by the general community of Chinese,
which fact, in the general acceptation of the definition of a public cemetery, would make the cemetery in question
public property. If that is true, then, of course, the petition of the plaintiff must be denied, for the reason that the city
of Manila has no authority or right under the law to expropriate public property.

But, whether or not the cemetery is public or private property, its appropriation for the uses of a public street,
especially during the lifetime of those specially interested in its maintenance as a cemetery, should be a question of
great concern, and its appropriation should not be made for such purposes until it is fully established that the
greatest necessity exists therefor.

While we do not contend that the dead must not give place to the living, and while it is a matter of public knowledge
that in the process of time sepulchres may become the seat of cities and cemeteries traversed by streets and daily
trod by the feet of millions of men, yet, nevertheless such sacrifices and such uses of the places of the dead should
not be made unless and until it is fully established that there exists an eminent necessity therefor. While cemeteries
and sepulchres and the places of the burial of the dead are still within
the memory and command of the active care of the living; while they are still devoted to pious uses and sacred
regard, it is difficult to believe that even the legislature would adopt a law expressly providing that such places,
under such circumstances, should be violated.

In such an appropriation, what, we may ask, would be the measure of damages at law, for the wounded sensibilities
of the living, in having the graves of kindred and loved ones blotted out and desecrated by a common highway or
street for public travel? The impossibility of measuring the damage and inadequacy of a remedy at law is too
apparent to admit of argument. To disturb the mortal remains of those endeared to us in life sometimes becomes
the sad duty of the living; but, except in cases of necessity, or for laudable purposes, the sanctity of the grave, the
last resting place of our friends, should be maintained, and the preventative aid of the courts should be invoked for
that object. (Railroad Company vs. Cemetery Co., 116 Tenn., 400; Evergreen Cemetery Association vs. The City of
New Haven, 43 Conn., 234; Anderson vs. Acheson, 132 Iowa, 744; Beatty vs. Kurtz, 2 Peters, 566.)

In the present case, even granting that a necessity exists for the opening of the street in question, the record
contains no proof of the necessity of opening the same through the cemetery. The record shows that adjoining and
adjacent lands have been offered to the city free of charge, which will answer every purpose of the plaintiff.

For all of the foregoing, we are fully persuaded that the judgment of the lower court should be and is hereby
affirmed, with costs against the appellant. So ordered.

G.R. No. 106440             January 29, 1996

ALEJANDRO MANOSCA, ASUNCION MANOSCA and LEONICA MANOSCA, petitioners,

vs.
HON. COURT OF APPEALS, HON. BENJAMIN V. PELAYO, Presiding Judge, RTC-Pasig, Metro Manila,
 Page 77 of 162

Branch 168, HON. GRADUACION A. REYES CLARAVAL, Presiding Judge, RTC-Pasig, Metro Manila, Branch
71, and REPUBLIC OF THE PHILIPPINES, respondents.

In this appeal, via a petition for review on certiorari, from the decision of the Court of Appeals, dated 15 January
1 

1992, in CA-G.R. SP No. 24969 (entitled "Alejandro Manosca, et al. v. Hon. Benjamin V. Pelayo, et al."), this Court
is asked to resolve whether or not the "public use" requirement of Eminent Domain is extant in the attempted
expropriation by the Republic of a 492-square-meter parcel of land so declared by the National Historical Institute
("NHI") as a national historical landmark.

The facts of the case are not in dispute.

Petitioners inherited a piece of land located at P. Burgos Street, Calzada, Taguig. Metro Manila, with an area of
about four hundred ninety-two (492) square meters. When the parcel was ascertained by the NHI to have been the
birthsite of Felix Y. Manalo, the founder of Iglesia Ni Cristo, it passed Resolution No. 1, Series of 1986, pursuant to
Section 4 of Presidential Decree No. 260, declaring the land to be a national historical landmark. The resolution
2 

was, on 06 January 1986, approved by the Minister of Education, Culture and Sports. Later, the opinion of the
Secretary of Justice was asked on the legality of the measure. In his Opinion No. 133, Series of 1987, the Secretary
of Justice replied in the affirmative; he explained:

According to your guidelines, national landmarks are places or objects that are associated with an event,
achievement, characteristic, or modification that makes a turning point or stage in Philippine history. Thus,
the birthsite of the founder of the Iglesia ni Cristo, the late Felix Y. Manalo, who, admittedly, had made
contributions to Philippine history and culture has been declared as a national landmark. It has been held
that places invested with unusual historical interest is a public use for which the power of eminent domain
may be authorized . . . .

In view thereof, it is believed that the National Historical Institute as an agency of the Government charged
with the maintenance and care of national shrines, monuments and landmarks and the development of
historical sites that may be declared as national shrines, monuments and/or landmarks, may initiate the
institution of condemnation proceedings for the purpose of acquiring the lot in question in accordance with
the procedure provided for in Rule 67 of the Revised Rules of Court. The proceedings should be instituted
by the Office of the Solicitor General in behalf of the Republic.

Accordingly, on 29 May 1989, the Republic, through the Office of the Solicitor-General, instituted a complaint for
expropriation before the Regional Trial Court of Pasig for and in behalf of the NHI alleging, inter alia, that:
3 

Pursuant to Section 4 of Presidential Decree No. 260, the National Historical Institute issued Resolution No.
1, Series of 1986, which was approved on January, 1986 by the then Minister of Education, Culture and
Sports, declaring the above described parcel of land which is the birthsite of Felix Y. Manalo, founder of the
"Iglesia ni Cristo," as a National Historical Landrnark. The plaintiff perforce needs the land as such national
historical landmark which is a public purpose.

At the same time, respondent Republic filed an urgent motion for the issuance of an order to permit it to take
immediate possession of the property. The motion was opposed by petitioners. After a hearing, the trial court
issued, on 03 August 1989, an order fixing the provisional market (P54,120.00) and assessed (P16,236.00) values
4 

of the property and authorizing the Republic to take over the property once the required sum would have been
deposited with the Municipal Treasurer of Taguig, Metro Manila.

Petitioners moved to dismiss the complaint on the main thesis that the intended expropriation was not for a public
purpose and, incidentally, that the act would constitute an application of public funds, directly or indirectly, for the
use, benefit, or support of Iglesia ni Cristo, a religious entity, contrary to the provision of Section 29(2), Article VI, of
the 1987 Constitution. Petitioners sought, in the meanwhile, a suspension in the implementation of the 03rd August
5 

1989 order of the trial court.

 Page 78 of 162

On 15 February 1990, following the filing by respondent Republic of its reply to petitioners' motion seeking the
dismissal of the case, the trial court issued its denial of said motion to dismiss. Five (5) days later, or on 20 February
6 

1990, another order was issued by the trial court, declaring moot and academic the motion for reconsideration
7 

and/or suspension of the order of 03 August 1989 with the rejection of petitioners' motion to dismiss. Petitioners'
motion for the reconsideration of the 20th February 1990 order was likewise denied by the trial court in its 16th April
1991 order. 8

Petitioners then lodged a petition for certiorari and prohibition with the Court of Appeals. In its now disputed 15th
January 1992 decision, the appellate court dismissed the petition on the ground that the remedy of appeal in the
ordinary course of law was an adequate remedy and that the petition itself, in any case, had failed to show any
grave abuse of discretion or lack of jurisdictional competence on the part of the trial court. A motion for the
reconsideration of the decision was denied in the 23rd July 1992 resolution of the appellate court.

We begin, in this present recourse of petitioners, with a few known postulates.

Eminent domain, also often referred to as expropriation and, with less frequency, as condemnation, is, like police
power and taxation, an inherent power of sovereignty. It need not be clothed with any constitutional gear to exist;
instead, provisions in our Constitution on the subject are meant more to regulate, rather than to grant, the exercise
of the power. Eminent domain is generally so described as "the highest and most exact idea of property remaining
in the government" that may be acquired for some public purpose through a method in the nature of a forced
purchase by the State. It is a right to take or reassert dominion over property within the state for public use or to
9 

meet a public exigency. It is said to be an essential part of governance even in its most primitive form and thus
inseparable from sovereignty.  The only direct constitutional qualification is that "private property shall not be taken
10 

for public use without just compensation."  This proscription is intended to provide a safeguard against possible
11 

abuse and so to protect as well the individual against whose property the power is sought to be enforced.

Petitioners assert that the expropriation has failed to meet the guidelines set by this Court in the case of Guido
v. Rural Progress Administration,  to wit: (a) the size of the land expropriated; (b) the large number of people
12 

benefited; and, (c) the extent of social and economic reform. Petitioners suggest that we confine the concept of
13 

expropriation only to the following public uses,  i.e., the —

14 

. . . taking of property for military posts, roads, streets, sidewalks, bridges, ferries, levees, wharves, piers,
public buildings including schoolhouses, parks, playgrounds, plazas, market places, artesian wells, water
supply and sewerage systems, cemeteries, crematories, and railroads.

This view of petitioners is much too limitative and restrictive.

The court, in Guido, merely passed upon the issue of the extent of the President's power under Commonwealth Act
No. 539 to, specifically, acquire private lands for subdivision into smaller home lots or farms for resale to bona
fide tenants or occupants. It was in this particular context of the statute that the Court had made the
pronouncement. The guidelines in Guido were not meant to be preclusive in nature and, most certainly, the power of
eminent domain should not now be understood as being confined only to the expropriation of vast tracts of land and
landed estates.  15

The term "public use," not having been otherwise defined by the constitution, must be considered in its general
concept of meeting a public need or a public exigency.  Black summarizes the characterization given by various
16 

courts to the term; thus:

Public Use. Eminent domain. The constitutional and statutory basis for taking property by eminent domain.
For condemnation purposes, "public use" is one which confers same benefit or advantage to the public; it is
not confined to actual use by public. It is measured in terms of right of public to use proposed facilities for
which condemnation is sought and, as long as public has right of use, whether exercised by one or many
members of public, a "public advantage" or "public benefit" accrues sufficient to constitute a public use.
Montana Power Co. vs. Bokma, Mont. 457 P. 2d 769, 772, 773.
 Page 79 of 162

Public use, in constitutional provisions restricting the exercise of the right to take private property in virtue of
eminent domain, means a use concerning the whole community as distinguished from particular individuals.
But each and every member of society need not be equally interested in such use, or be personally and
directly affected by it; if the object is to satisfy a great public want or exigency, that is sufficient. Rindge Co.
vs. Los Angeles County, 262 U.S. 700, 43 S.Ct. 689, 692, 67 L.Ed. 1186. The term may be said to mean
public usefulness, utility, or advantage, or what is productive of general benefit. It may be limited to the
inhabitants of a small or restricted locality, but must be in common, and not for a particular individual. The
use must be a needful one for the public, which cannot be surrendered without obvious general loss and
inconvenience. A "public use" for which land may be taken defies absolute definition for it changes with
varying conditions of society, new appliances in the sciences, changing conceptions of scope and functions
of government, and other differing circumstances brought about by an increase in population and new
modes of communication and transportation. Katz v. Brandon, 156 Conn., 521, 245 A.2d 579,586.  17

The validity of the exercise of the power of eminent domain for traditional purposes is beyond question; it is not at all
to be said, however, that public use should thereby be restricted to such traditional uses. The idea that "public use"
is strictly limited to clear cases of "use by the public" has long been discarded. This Court in Heirs of Juancho
Ardona v. Reyes, quoting from Berman v. Parker (348 U.S. 25; 99 L. ed. 27), held:
18 

We do not sit to determine whether a particular housing project is or is not desirable. The concept of the
public welfare is broad and inclusive. See DayBrite Lighting, Inc. v. Missouri, 342 US 421, 424, 96 L. Ed.
469, 472, 72 S Ct 405. The values it represents are spiritual as well as physical, aesthetic as well as
monetary. It is within the power of the legislature to determine that the community should be beautiful as well
as healthy, spacious as well as clean, well-balanced as well as carefully patrolled. In the present case, the
Congress and its authorized agencies have made determinations that take into account a wide variety of
values. It is no for us to reappraise them. If those who govern the District of Columbia decide that the
Nation's Capital should be beautiful as well as sanitary, there is nothing in the Fifth Amendment that stands
in the way.

Once the object is within the authority of Congress, the right to realize it through the exercise of eminent
domain is clear. For the power of eminent domain is merely the means to the end. See Luxton v. North River
Bridge Co. 153 US 525, 529, 530, 38 L. ed. 808, 810, 14 S Ct 891; United States v. Gettysburg Electric R.
Co. 160 US 668, 679, 40 L. ed. 576, 580, 16 S Ct 427.

It has been explained as early as Seña v. Manila Railroad Co.,  that:

19 

. . . A historical research discloses the meaning of the term "public use" to be one of constant growth. As
society advances, its demands upon the individual increase and each demand is a new use to which the
resources of the individual may be devoted. . . . for "whatever is beneficially employed for the community is a
public use.

Chief Justice Enrique M. Fernando states:

The taking to be valid must be for public use. There was a time when it was felt that a literal meaning should
be attached to such a requirement. Whatever project is undertaken must be for the public to enjoy, as in the
case of streets or parks. Otherwise, expropriation is not allowable. It is not so any more. As long as the
purpose of the taking is public, then the power of eminent domain comes into play. As just noted, the
constitution in at least two cases, to remove any doubt, determines what is public use. One is the
expropriation of lands to be subdivided into small lots for resale at cost to individuals. The other is the
transfer, through the exercise of this power, of utilities and other private enterprise to the government. It is
accurate to state then that at present whatever may be beneficially employed for the general welfare
satisfies the requirement of public use. 20

Chief Justice Fernando, writing the ponencia in J.M. Tuason & Co. vs. Land Tenure Administration,  has viewed 21 

the Constitution a dynamic instrument and one that "is not to be construed narrowly or pedantically" so as to enable
it "to meet adequately whatever problems the future has in store." Fr. Joaquin Bernas, a noted constitutionalist
 Page 80 of 162

himself, has aptly observed that what, in fact, has ultimately emerged is a concept of public use which is just as
broad as "public welfare." 22

Petitioners ask: But "(w)hat is the so-called unusual interest that the expropriation of (Felix Manalo's) birthplace
become so vital as to be a public use appropriate for the exercise of the power of eminent domain" when only
members of the Iglesia ni Cristo would benefit? This attempt to give some religious perspective to the case deserves
little consideration, for what should be significant is the principal objective of, not the casual consequences that
might follow from, the exercise of the power. The purpose in setting up the marker is essentially to recognize the
distinctive contribution of the late Felix Manalo to the culture of the Philippines, rather than to commemorate his
founding and leadership of the Iglesia ni Cristo.

The practical reality that greater benefit may be derived by members of the Iglesia ni Cristo than by most
others could well be true but such a peculiar advantage still remains to be merely incidental and secondary
in nature. Indeed, that only a few would actually benefit from the expropriation of property does not
necessarily diminish the essence and character of public use.  23

Petitioners contend that they have been denied due process in the fixing of the provisional value of their property.
Petitioners need merely to be reminded that what the law prohibits is the lack of opportunity to be heard; contrary to
24 

petitioners' argument, the records of this case are replete with pleadings  that could have dealt, directly or indirectly,
25 

with the provisional value of the property.

Petitioners, finally, would fault respondent appellate court in sustaining the trial court's order which considered
inapplicable the case of Noble v. City of Manila.  Both courts held correctly. The Republic was not a party to the
26 

alleged contract of exchange between the Iglesia ni Cristo and petitioners which (the contracting parties) alone, not
the Republic, could properly be bound.

All considered, the Court finds the assailed decision to be in accord with law and jurisprudence.

WHEREFORE, the petition is DENIED. No costs.

SO ORDERED.
 Page 81 of 162

G.R. No. 78742 July 14, 1989

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

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

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

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

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

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

Recognizing this need, the Constitution in 1935 mandated the policy of social justice to "insure the well-being and
economic security of all the people,"   especially the less privileged. In 1973, the new Constitution affirmed this goal
1

adding specifically that "the State shall regulate the acquisition, ownership, use, enjoyment and disposition of private
property and equitably diffuse property ownership and profits."   Significantly, there was also the specific injunction
2

to "formulate and implement an agrarian reform program aimed at emancipating the tenant from the bondage of the
soil." 
3

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

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

Earlier, in fact, R.A. No. 3844, otherwise known as the Agricultural Land Reform Code, had already been enacted by
the Congress of the Philippines on August 8, 1963, in line with the above-stated principles. This was substantially
superseded almost a decade later by P.D. No. 27, which was promulgated on October 21, 1972, along with martial
law, to provide for the compulsory acquisition of private lands for distribution among tenant-farmers and to specify
maximum retention limits for landowners.
 Page 82 of 162

The people power revolution of 1986 did not change and indeed even energized the thrust for agrarian reform.
Thus, on July 17, 1987, President Corazon C. Aquino issued E.O. No. 228, declaring full land ownership in favor of
the beneficiaries of P.D. No. 27 and providing for the valuation of still unvalued lands covered by the decree as well
as the manner of their payment. This was followed on July 22, 1987 by Presidential Proclamation No. 131, instituting
a comprehensive agrarian reform program (CARP), and E.O. No. 229, providing the mechanics for its
implementation.

Subsequently, with its formal organization, the revived Congress of the Philippines took over legislative power from
the President and started its own deliberations, including extensive public hearings, on the improvement of the
interests of farmers. The result, after almost a year of spirited debate, was the enactment of R.A. No. 6657,
otherwise known as the Comprehensive Agrarian Reform Law of 1988, which President Aquino signed on June 10,
1988. This law, while considerably changing the earlier mentioned enactments, nevertheless gives them suppletory
effect insofar as they are not inconsistent with its provisions. 
4

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

G.R. No. 79777

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

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

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

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

In connection with the determination of just compensation, the petitioners argue that the same may be made only by
a court of justice and not by the President of the Philippines. They invoke the recent cases of EPZA v.
Dulay   and Manotok v. National Food Authority.   Moreover, the just compensation contemplated by the Bill of
5 6

Rights is payable in money or in cash and not in the form of bonds or other things of value.

In considering the rentals as advance payment on the land, the executive order also deprives the petitioners of their
property rights as protected by due process. The equal protection clause is also violated because the order places
the burden of solving the agrarian problems on the owners only of agricultural lands. No similar obligation is
imposed on the owners of other properties.

The petitioners also maintain that in declaring the beneficiaries under P.D. No. 27 to be the owners of the lands
occupied by them, E.O. No. 228 ignored judicial prerogatives and so violated due process. Worse, the measure
would not solve the agrarian problem because even the small farmers are deprived of their lands and the retention
rights guaranteed by the Constitution.

In his Comment, the Solicitor General stresses that P.D. No. 27 has already been upheld in the earlier cases
of Chavez v. Zobel,   Gonzales v. Estrella,   and Association of Rice and Corn Producers of the Philippines, Inc. v.
7 8

The National Land Reform Council.   The determination of just compensation by the executive authorities
9

conformably to the formula prescribed under the questioned order is at best initial or preliminary only. It does not
 Page 83 of 162

foreclose judicial intervention whenever sought or warranted. At any rate, the challenge to the order is premature
because no valuation of their property has as yet been made by the Department of Agrarian Reform. The petitioners
are also not proper parties because the lands owned by them do not exceed the maximum retention limit of 7
hectares.

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

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

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

G.R. No. 79310

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

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

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

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

Furthermore, they contend that taking must be simultaneous with payment of just compensation as it is traditionally
understood, i.e., with money and in full, but no such payment is contemplated in Section 5 of the E.O. No. 229. On
the contrary, Section 6, thereof provides that the Land Bank of the Philippines "shall compensate the landowner in
an amount to be established by the government, which shall be based on the owner's declaration of current fair
market value as provided in Section 4 hereof, but subject to certain controls to be defined and promulgated by the
Presidential Agrarian Reform Council." This compensation may not be paid fully in money but in any of several
modes that may consist of part cash and part bond, with interest, maturing periodically, or direct payment in cash or
bond as may be mutually agreed upon by the beneficiary and the landowner or as may be prescribed or approved
by the PARC.
 Page 84 of 162

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

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

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

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

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

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

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

The public respondent also points out that the constitutional prohibition is against the payment of public money
without the corresponding appropriation. There is no rule that only money already in existence can be the subject of
an appropriation law. Finally, the earmarking of fifty billion pesos as Agrarian Reform Fund, although denominated
as an initial amount, is actually the maximum sum appropriated. The word "initial" simply means that additional
amounts may be appropriated later when necessary.

On April 11, 1988, Prudencio Serrano, a coconut planter, filed a petition on his own behalf, assailing the
constitutionality of E.O. No. 229. In addition to the arguments already raised, Serrano contends that the measure is
unconstitutional because:

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

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

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

(4) The appropriation of a P50 billion special fund from the National Treasury did not originate from
the House of Representatives.
 Page 85 of 162

G.R. No. 79744

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

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

The petitioner now argues that:

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

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

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

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

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

Lease rentals paid to the landowner by the farmer-beneficiary after October 21, 1972 shall be
considered as advance payment for the land.

is an unconstitutional taking of a vested property right. It is also his contention that the inclusion of even small
landowners in the program along with other landowners with lands consisting of seven hectares or more is
undemocratic.

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

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

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

In his Reply to the public respondents, the petitioner maintains that the motion he filed was resolved on December
14, 1987. An appeal to the Office of the President would be useless with the promulgation of E.O. Nos. 228 and
229, which in effect sanctioned the validity of the public respondent's acts.
 Page 86 of 162

G.R. No. 78742

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

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

No tenant-farmer in agricultural lands primarily devoted to rice and corn shall be ejected or removed
from his farmholding until such time as the respective rights of the tenant- farmers and the
landowner shall have been determined in accordance with the rules and regulations implementing
P.D. No. 27.

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

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

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

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

reason that a mere letter of instruction could not have repealed the presidential decree.

Although holding neither purse nor sword and so regarded as the weakest of the three departments of the
government, the judiciary is nonetheless vested with the power to annul the acts of either the legislative or the
executive or of both when not conformable to the fundamental law. This is the reason for what some quarters call
the doctrine of judicial supremacy. Even so, this power is not lightly assumed or readily exercised. The doctrine of
separation of powers imposes upon the courts a proper restraint, born of the nature of their functions and of their
respect for the other departments, in striking down the acts of the legislative and the executive as unconstitutional.
The policy, indeed, is a blend of courtesy and caution. To doubt is to sustain. The theory is that before the act was
done or the law was enacted, earnest studies were made by Congress or the President, or both, to insure that the
Constitution would not be breached.
 Page 87 of 162

In addition, the Constitution itself lays down stringent conditions for a declaration of unconstitutionality, requiring
therefor the concurrence of a majority of the members of the Supreme Court who took part in the deliberations and
voted on the issue during their session en banc.  And as established by judge made doctrine, the Court will assume
11

jurisdiction over a constitutional question only if it is shown that the essential requisites of a judicial inquiry into such
a question are first satisfied. Thus, there must be an actual case or controversy involving a conflict of legal rights
susceptible of judicial determination, the constitutional question must have been opportunely raised by the proper
party, and the resolution of the question is unavoidably necessary to the decision of the case itself.  12

With particular regard to the requirement of proper party as applied in the cases before us, we hold that the same is
satisfied by the petitioners and intervenors because each of them has sustained or is in danger of sustaining an
immediate injury as a result of the acts or measures complained of.   And even if, strictly speaking, they are not
13

covered by the definition, it is still within the wide discretion of the Court to waive the requirement and so remove the
impediment to its addressing and resolving the serious constitutional questions raised.

In the first Emergency Powers Cases,   ordinary citizens and taxpayers were allowed to question the
14

constitutionality of several executive orders issued by President Quirino although they were invoking only an indirect
and general interest shared in common with the public. The Court dismissed the objection that they were not proper
parties and ruled that "the transcendental importance to the public of these cases demands that they be settled
promptly and definitely, brushing aside, if we must, technicalities of procedure." We have since then applied this
exception in many other cases.  15

The other above-mentioned requisites have also been met in the present petitions.

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

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

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

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

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

II

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

The promulgation of P.D. No. 27 by President Marcos in the exercise of his powers under martial law has already
been sustained in Gonzales v. Estrella and we find no reason to modify or reverse it on that issue. As for the power
of President Aquino to promulgate Proc. No. 131 and E.O. Nos. 228 and 229, the same was authorized under
Section 6 of the Transitory Provisions of the 1987 Constitution, quoted above.
 Page 88 of 162

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

Significantly, the Congress she is alleged to have undercut has not rejected but in fact substantially affirmed the
challenged measures and has specifically provided that they shall be suppletory to R.A. No. 6657 whenever not
inconsistent with its provisions.   Indeed, some portions of the said measures, like the creation of the P50 billion
17

fund in Section 2 of Proc. No. 131, and Sections 20 and 21 of E.O. No. 229, have been incorporated by reference in
the CARP Law.  18

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

creation of the fund is only incidental to the main objective of the proclamation, which is agrarian reform.

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

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

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

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

The Court wryly observes that during the past dictatorship, every presidential issuance, by whatever name it was
called, had the force and effect of law because it came from President Marcos. Such are the ways of despots.
Hence, it is futile to argue, as the petitioners do in G.R. No. 79744, that LOI 474 could not have repealed P.D. No.
27 because the former was only a letter of instruction. The important thing is that it was issued by President Marcos,
whose word was law during that time.
 Page 89 of 162

But for all their peremptoriness, these issuances from the President Marcos still had to comply with the requirement
for publication as this Court held in Tanada v. Tuvera.   Hence, unless published in the Official Gazette in
21

accordance with Article 2 of the Civil Code, they could not have any force and effect if they were among those
enactments successfully challenged in that case. LOI 474 was published, though, in the Official Gazette dated
November 29,1976.)

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

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

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

III

There are traditional distinctions between the police power and the power of eminent domain that logically preclude
the application of both powers at the same time on the same subject. In the case of City of Baguio v. NAWASA,   for 24

example, where a law required the transfer of all municipal waterworks systems to the NAWASA in exchange for its
assets of equivalent value, the Court held that the power being exercised was eminent domain because the property
involved was wholesome and intended for a public use. Property condemned under the police power is noxious or
intended for a noxious purpose, such as a building on the verge of collapse, which should be demolished for the
public safety, or obscene materials, which should be destroyed in the interest of public morals. The confiscation of
such property is not compensable, unlike the taking of property under the power of expropriation, which requires the
payment of just compensation to the owner.

In the case of Pennsylvania Coal Co. v. Mahon,   Justice Holmes laid down the limits of the police power in a
25

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

Every restriction upon the use of property imposed in the exercise of the police power deprives the
owner of some right theretofore enjoyed, and is, in that sense, an abridgment by the State of rights
in property without making compensation. But restriction imposed to protect the public health, safety
or morals from dangers threatened is not a taking. The restriction here in question is merely the
prohibition of a noxious use. The property so restricted remains in the possession of its owner. The
state does not appropriate it or make any use of it. The state merely prevents the owner from making
a use which interferes with paramount rights of the public. Whenever the use prohibited ceases to be
 Page 90 of 162

noxious — as it may because of further changes in local or social conditions — the restriction will
have to be removed and the owner will again be free to enjoy his property as heretofore.

Recent trends, however, would indicate not a polarization but a mingling of the police power and the power of
eminent domain, with the latter being used as an implement of the former like the power of taxation. The
employment of the taxing power to achieve a police purpose has long been accepted.   As for the power of
26

expropriation, Prof. John J. Costonis of the University of Illinois College of Law (referring to the earlier case of Euclid
v. Ambler Realty Co., 272 US 365, which sustained a zoning law under the police power) makes the following
significant remarks:

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

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

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

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

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

In Penn Central Transportation Co. v. New York City,   decided by a 6-3 vote in 1978, the U.S Supreme Court
29

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

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

The cases before us present no knotty complication insofar as the question of compensable taking is concerned. To
the extent that the measures under challenge merely prescribe retention limits for landowners, there is an exercise
 Page 91 of 162

of the police power for the regulation of private property in accordance with the Constitution. But where, to carry out
such regulation, it becomes necessary to deprive such owners of whatever lands they may own in excess of the
maximum area allowed, there is definitely a taking under the power of eminent domain for which payment of just
compensation is imperative. The taking contemplated is not a mere limitation of the use of the land. What is required
is the surrender of the title to and the physical possession of the said excess and all beneficial rights accruing to the
owner in favor of the farmer-beneficiary. This is definitely an exercise not of the police power but of the power of
eminent domain.

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

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

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

Classification has been defined as the grouping of persons or things similar to each other in certain particulars and
different from each other in these same particulars.   To be valid, it must conform to the following requirements: (1)
31

it must be based on substantial distinctions; (2) it must be germane to the purposes of the law; (3) it must not be
limited to existing conditions only; and (4) it must apply equally to all the members of the class.   The Court finds
32

that all these requisites have been met by the measures here challenged as arbitrary and discriminatory.

Equal protection simply means that all persons or things similarly situated must be treated alike both as to the rights
conferred and the liabilities imposed.   The petitioners have not shown that they belong to a different class and
33

entitled to a different treatment. The argument that not only landowners but also owners of other properties must be
made to share the burden of implementing land reform must be rejected. There is a substantial distinction between
these two classes of owners that is clearly visible except to those who will not see. There is no need to elaborate on
this matter. In any event, the Congress is allowed a wide leeway in providing for a valid classification. Its decision is
accorded recognition and respect by the courts of justice except only where its discretion is abused to the detriment
of the Bill of Rights.

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

Constitution itself, we may say that the first requirement has been satisfied. What remains to be examined is the
validity of the method employed to achieve the constitutional goal.

One of the basic principles of the democratic system is that where the rights of the individual are concerned, the end
does not justify the means. It is not enough that there be a valid objective; it is also necessary that the means
employed to pursue it be in keeping with the Constitution. Mere expediency will not excuse constitutional shortcuts.
There is no question that not even the strongest moral conviction or the most urgent public need, subject only to a
few notable exceptions, will excuse the bypassing of an individual's rights. It is no exaggeration to say that a, person
invoking a right guaranteed under Article III of the Constitution is a majority of one even as against the rest of the
nation who would deny him that right.
 Page 92 of 162

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

This brings us now to the power of eminent domain.

IV

Eminent domain is an inherent power of the State that enables it to forcibly acquire private lands
intended for public use upon payment of just compensation to the owner. Obviously, there is no
need to expropriate where the owner is willing to sell under terms also acceptable to the purchaser,
in which case an ordinary deed of sale may be agreed upon by the parties.   It is only where the
35

owner is unwilling to sell, or cannot accept the price or other conditions offered by the vendee, that
the power of eminent domain will come into play to assert the paramount authority of the State over
the interests of the property owner. Private rights must then yield to the irresistible demands of the
public interest on the time-honored justification, as in the case of the police power, that the welfare of
the people is the supreme law.

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

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

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

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

It is true that the concept of the political question has been constricted with the enlargement of judicial power, which
now includes the authority of the courts "to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government."   Even 37

so, this should not be construed as a license for us to reverse the other departments simply because their views
may not coincide with ours.

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

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

38
 Page 93 of 162

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

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

The second requirement, i.e., the payment of just compensation, needs a longer and more thoughtful examination.

Just compensation is defined as the full and fair equivalent of the property taken from its owner by the
expropriator.   It has been repeatedly stressed by this Court that the measure is not the taker's gain but the owner's
39

loss.   The word "just" is used to intensify the meaning of the word "compensation" to convey the idea that the
40

equivalent to be rendered for the property to be taken shall be real, substantial, full, ample. 
41

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

As held in Republic of the Philippines v. Castellvi,   there is compensable taking when the following conditions
42

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

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

the CARP Law provides that:

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

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

... the DAR shall conduct summary administrative proceedings to determine the compensation for
the land by requiring the landowner, the LBP and other interested parties to submit evidence as to
the just compensation for the land, within fifteen (15) days from the receipt of the notice. After the
expiration of the above period, the matter is deemed submitted for decision. The DAR shall decide
the case within thirty (30) days after it is submitted for decision.
 Page 94 of 162

To be sure, the determination of just compensation is a function addressed to the courts of justice and may not be
usurped by any other branch or official of the government. EPZA v. Dulay   resolved a challenge to several decrees
44

promulgated by President Marcos providing that the just compensation for property under expropriation should be
either the assessment of the property by the government or the sworn valuation thereof by the owner, whichever
was lower. In declaring these decrees unconstitutional, the Court held through Mr. Justice Hugo E. Gutierrez, Jr.:

The method of ascertaining just compensation under the aforecited decrees constitutes
impermissible encroachment on judicial prerogatives. It tends to render this Court inutile in a matter
which under this Constitution is reserved to it for final determination.

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

xxx

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

This time, we answer in the affirmative.

xxx

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

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

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

The determination made by the DAR is only preliminary unless accepted by all parties concerned. Otherwise, the
courts of justice will still have the right to review with finality the said determination in the exercise of what is
admittedly a judicial function.

The second and more serious objection to the provisions on just compensation is not as easily resolved.
 Page 95 of 162

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

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

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

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

(a) For lands above fifty (50) hectares, insofar as the excess
hectarage is concerned — Twenty-five percent (25%) cash, the
balance to be paid in government financial instruments negotiable at
any time.

(b) For lands above twenty-four (24) hectares and up to fifty (50)
hectares — Thirty percent (30%) cash, the balance to be paid in
government financial instruments negotiable at any time.

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

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

(2) Shares of stock in government-owned or controlled corporations, LBP preferred shares, physical
assets or other qualified investments in accordance with guidelines set by the PARC;

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

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

(a) Market interest rates aligned with 91-day treasury bill rates. Ten
percent (10%) of the face value of the bonds shall mature every year
from the date of issuance until the tenth (10th) year: Provided, That
should the landowner choose to forego the cash portion, whether in
full or in part, he shall be paid correspondingly in LBP bonds;

(b) Transferability and negotiability. Such LBP bonds may be used by

the landowner, his successors-in- interest or his assigns, up to the
amount of their face value, for any of the following:

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

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

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

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

(iii) Substitution for surety or bail bonds for the provisional release of
accused persons, or for performance bonds;
 Page 96 of 162

(iv) Security for loans with any government financial institution,

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

(v) Payment for various taxes and fees to government: Provided, That
the use of these bonds for these purposes will be limited to a certain
percentage of the outstanding balance of the financial instruments;
Provided, further, That the PARC shall determine the percentages
mentioned above;

(vi) Payment for tuition fees of the immediate family of the original
bondholder in government universities, colleges, trade schools, and
other institutions;

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

bondholder in government hospitals; and

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

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

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

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

46

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

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

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

Part cash and deferred payments are not and cannot, in the nature of things, be regarded as a
reliable and constant standard of compensation.  48
 Page 97 of 162

"Just compensation" for property taken by condemnation means a fair equivalent in money, which
must be paid at least within a reasonable time after the taking, and it is not within the power of the
Legislature to substitute for such payment future obligations, bonds, or other valuable
advantage.   (Emphasis supplied.)
49

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

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

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

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

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

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

On the other hand, there is nothing in the records either that militates against the assumptions we are making of the
general sentiments and intention of the members on the content and manner of the payment to be made to the
landowner in the light of the magnitude of the expenditure and the limitations of the expropriator.
 Page 98 of 162

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

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

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

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

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

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

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

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

In Kennedy v. Indianapolis,   the US Supreme Court cited several cases holding that title to property does not pass
53

to the condemnor until just compensation had actually been made. In fact, the decisions appear to be uniformly to
this effect. As early as 1838, in Rubottom v. McLure,   it was held that "actual payment to the owner of the
54

condemned property was a condition precedent to the investment of the title to the property in the State" albeit "not
to the appropriation of it to public use." In Rexford v. Knight,   the Court of Appeals of New York said that the
55

construction upon the statutes was that the fee did not vest in the State until the payment of the compensation
although the authority to enter upon and appropriate the land was complete prior to the payment. Kennedy further
said that "both on principle and authority the rule is ... that the right to enter on and use the property is complete, as
 Page 99 of 162

soon as the property is actually appropriated under the authority of law for a public use, but that the title does not
pass from the owner without his consent, until just compensation has been made to him."

Our own Supreme Court has held in Visayan Refining Co. v. Camus and Paredes,   that: 56

If the laws which we have exhibited or cited in the preceding discussion are attentively examined it
will be apparent that the method of expropriation adopted in this jurisdiction is such as to afford
absolute reassurance that no piece of land can be finally and irrevocably taken from an unwilling
owner until compensation is paid ... . (Emphasis supplied.)

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

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

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

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

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

ownership is contemplated either.

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

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

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

Obviously, the Court cannot resolve these issues. In any event, assuming that the petitioners have not yet exercised
their retention rights, if any, under P.D. No. 27, the Court holds that they are entitled to the new retention rights
provided for by R.A. No. 6657, which in fact are on the whole more liberal than those granted by the decree.

V
 Page 100 of 162

The CARP Law and the other enactments also involved in these cases have been the subject of bitter attack from
those who point to the shortcomings of these measures and ask that they be scrapped entirely. To be sure, these
enactments are less than perfect; indeed, they should be continuously re-examined and rehoned, that they may be
sharper instruments for the better protection of the farmer's rights. But we have to start somewhere. In the pursuit of
agrarian reform, we do not tread on familiar ground but grope on terrain fraught with pitfalls and expected difficulties.
This is inevitable. The CARP Law is not a tried and tested project. On the contrary, to use Justice Holmes's words,
"it is an experiment, as all life is an experiment," and so we learn as we venture forward, and, if necessary, by our
own mistakes. We cannot expect perfection although we should strive for it by all means. Meantime, we struggle as
best we can in freeing the farmer from the iron shackles that have unconscionably, and for so long, fettered his soul
to the soil.

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

WHEREFORE, the Court holds as follows:

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

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

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

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

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

SO ORDERED.
 Page 101 of 162

G.R. No. 128583               November 22, 2000

PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
JOSEPHINE FAJARDO, accused-appellant.

Appellant Josephine Fajardo, together with her sister Virgie Lanchita, was charged with illegal recruitment before
the Regional Trial Court of Pasay City, Branch 114 based on an Information which reads:

"That on or about and sometime during the period from March 1993 to July 1993 in Pasay, Metro Manila, Philippines
and within the jurisdiction of this Honorable Court, the above-named accused JOSEPHINE FAJARDO and VIRGIE
LANCHITA, conspiring and confederating together and mutually helping one another, by falsely representing
themselves to have the capacity to contract, enlist and employ and recruit workers for employment abroad, did then
and there wilfully, unlawfully and feloniously for fee, recruit RANDY BALSOMO, LAMBERTO BALASA, RUBEN
PORRAS, EDUARDO AMISCUA, DOMINGO LEQUILLO, BENEDICTO DARIA and ARTHUR APOSAGA, without
first securing the required license or authority from the Philippine Overseas Employment Administration."
1

Appellant was likewise charged with seven (7) counts of estafa for inducing Randy Balsomo, Lamberto Balasa,
Ruben Porras, Eduardo Amiscua, Domingo Lequillo, Benedicto Daria and Arthur Aposaga, herein private
complainants, to pay sums of money of varying amount to her, on account of her fraudulent representations that she
can facilitate their employment abroad. Except for the name of the offended party, date and amount, the seven
information for estafa were couched in similar language in this wise –

"That on or about and sometime during the period from March 1993 to July 1993, in Pasay, Metro Manila,
Philippines and within the jurisdiction of this Honorable Court, the above-named accused, JOSEPHINE FAJARDO
and VIRGIE LANCHITA, conspiring and confederating together and mutually helping one another, did then and
there wilfully, unlawfully and feloniously defraud ARTHUR APOSAGA y ARIOLA, in the following manner, to wit: that
said accused, pretending to have authority, power and capacity to employ complainant abroad, facilitate his travel
documents and send abroad as soon thereafter as he gives the accused the amount of P56,000.00, said accused,
did by means of such and other deceits, induced and succeeded in inducing said complainant into delivering the
said sum of P56,000.00, the said accused well knowing that the aforesaid representations are false and fraudulent
as they were made to obtain thru fraud the above-stated sum of money from the complainant who, without
knowledge of such falsity, did give and deliver unto the accused the said money, and once in possession of the
same the said accused with intent to gain, did then and there wilfully, unlawfully and feloniously misapply,
misappropriate and convert to her own personal use and benefit and advantage the aforestated amount to the
damage and prejudice of the said complainant in the said amount of P56,000.00."2
 Page 102 of 162

Upon arraignment, appellant Fajardo pleaded not guilty to all the charges. Her sister Virgie Lanchita remains at
large. Thereafter, trial proceeded with respect to appellant Fajardo.

The prosecution’s case as summarized by the Solicitor General reveal the following facts: 3

"Between February and March 1993, private complainants Lamberto Balasa, Arthur Aposaga, Ruben Porras,
Benedicto Daria and Eduardo Amiscua separately went on different occasions to L.A. Worldwide Manpower and
Management Services, a recruitment agency at 2814 Violeta Court, F. B. Harrison, Pasay City, to apply for work
abroad. They came upon appellant Josephine Fajardo and her sister Virgie Lanchita who recruited workers for
Japan. The sisters told them the requirements for applying for work abroad, among them, the P5,000.00 processing
fee and P60,000.00 placement fee.

"Thus, on different dates, all five men paid the P5,000.00 processing fee. Thereafter, each of them paid varying
amounts to complete the P60,000.00 placement fee, either directly to appellant or to Virgie Lanchita in the presence
of appellant. Balasa paid P20,000.00 on March 14, 1993 and P15,000.00 on March 29, 1993. Aposaga paid
P22,000.00 on March 14; P14,000.00 on March 29; NS P15,000.00 on May 10, 1993. Porras paid P25,000.00 on
March 15 and P15,000.00 on April 5, 1993. Daria paid P25,000.00 on March 2, 1993. Amiscua paid P25,000.00 on
the first week of March 1993 and P30,000.00 on the third week.

"Appellant and her sister told the men to wait for their papers to be processed so that they could leave for abroad.
But months passed and the men were never deployed. Each man then demanded from the sisters the refund of the
money paid but they never did.

"A verification of the record with the Licensing Division of the Philippine Overseas Employment Administration
(POEA) revealed that neither Josephine Fajardo nor Virgie Lanchita was ever licensed to recruit workers. Their
names were not even included in the list of personnel submitted to the POEA by L.A. Worldwide Manpower and
Management Services, a duly authorized agency."

Appellant on the other hand professed her innocence, claiming that in dealing with the private complainants, she
was merely acting under the authority of her employer, Mr. Ishwar Pamani, the Overseas Marketing Director of L.A.
Worldwide Manpower and Manager Services – a duly licensed overseas recruitment agency – and owner of the
Satellite Travel Agency, where she was employed. She allegedly received the processing and placement fees from
private complainants in behalf of Mr. Pamani.

On January 22, 1997, the trial court found appellant guilty beyond reasonable doubt of the crime charged and
sentenced her as follows:

"WHEREFORE, the Court finds accused JOSEPHINE FAJARDO y LANCHITA GUILTY beyond reasonable doubt
as principal, in Criminal Case No. 94-5202 for Illegal Recruitment, and Estafa in five (5) counts under Criminal
Cases Nos. 94-5203, 94-5206, 94-5207 and 94-5209 and sentences her as follows:

‘For Crim. Case No. 94-5202:

To suffer the penalty of Life Imprisonment and to pay a fine of P100,000.00;

‘For Crim. Case No. 94-5203:

To suffer the penalty of imprisonment of Fifteen (15) years of prision mayor and to indemnify the complainant, Arthur
Aposaga the amount of P56,000.00 pesos.

‘For Crim. Case No. 94-5204:

To suffer the penalty of Imprisonment of Twelve (12) years of prision mayor and to indemnify the complainant
Benedicto Daria the amount of P30,000.00 pesos.
 Page 103 of 162

‘For Crim. Case No. 94-5206:

To suffer the penalty of imprisonment of Fifteen (15) years of prision mayor and to indemnify the complainant
Eduardo Amiscua the amount of P60,000.00 pesos.

‘For Crim. Case No. 94-5207:

To suffer the penalty of imprisonment of Fourteen (14) years of prision mayor and to indemnify the complainant
Ruben Porras the amount of P45,000.00 pesos.

‘For Crim. Case No. 94-5209:

To suffer the penalty of imprisonment of Fourteen (14) years of prision mayor and to indemnify the complainant
Lamberto Balasa the amount of P45,000.00 pesos (should be P40,000.00),

and to pay Attorney’s fees in the amount of Seventy Five Thousand (P75,000.00) pesos.

"She is ACQUITTED in Criminal Cases Nos. 94-5205 and 94-5208 for lack of evidence.

"SO ORDERED." 4

Appellant now comes to this Court, pleading us to set aside her conviction and arguing that the trial court erred:

I. ….IN CONVICTING ACCUSED-APPELLANT FOR ILLEGAL RECRUITMENT WHEN FROM THE

EVIDENCE, SHE WAS MERELY PERFORMING HER DUTIES AS AN EMPLOYEE OF ISHWAR PAMANI
WHO WAS THEN THE AUTHORIZED OVERSEAS MARKETING DIRECTOR OF L.A. WORLDWIDE
MANPOWER AND MANAGEMENT SERVICES, A DULY LICENSED AND AUTHORIZED ENTITY TO
RECRUIT.

II. …IN FAILING TO CONSIDER THAT APPELLANT ACTED IN GOOD FAITH IN DOING AND
PERFORMING ACTS UPON INSTRUCTIONS OF HER EMPLOYER WITHOUT KNOWING THAT SHE
HAS TO BE REGISTERED WITH THE POEA AS EMPLOYEE OF THE RECRUITMENT AGENCY
BEFORE SHE COULD WORK FOR HER EMPLOYER, MR. ISHWAR PAMANI.

III. …IN CONVICTING ACCUSED-APPELLANT IN THE FIVE (5) CASES OF ESTAFA WHEN FROM THE
EVIDENCE, THE AMOUNT PAID BY THE COMPLAINING WITNESSES WERE RECEIVED BY ISHWAR
PAMANI AS OVERSEAS MARKETING DIRECTOR OF L.A. WORLDWIDE MANPOWER AND
MANAGEMENT SERVICES, A DULY LICENSED RECRUITMENT AGENCY.

IV. …IN FAILING TO APPLY TO ACCUSED-APPELLANT THE PRESUMPTION OF INNOCENCE

GUARANTEED BY THE CONSTITUTION.

We affirm the conviction.

The crime of illegal recruitment in large scale is committed when the following elements concur, namely: (1) that the
accused is engaged in acts of recruitment and placement of workers as defined under Article 13(b), or in any
prohibited activities under Article 34 (Prohibited Practices) of the Labor Code; (2) that the accused had not complied
with the guidelines issued by the Secretary of Labor and Employment, particularly with respect to the requirement to
secure a license or an authority to recruit and deploy workers, either locally or overseas; and (3) that the accused
committed the unlawful acts against three or more persons, individually or as a group. 5

The foregoing elements were duly established in the case at bar. Appellant committed acts of recruitment defined
under Article 13(b) of the Labor Code which states that:
 Page 104 of 162

"Recruitment and placement refers to any act of canvassing, enlisting, contracting, transporting, utilizing, hiring or
procuring workers, and includes referrals, contract services, promising or advertising for employment, locally or
abroad, whether for profit or not: Provided, That any person or entity which, in any manner, offers or promises for a
fee employment to two or more persons shall be deemed engaged in recruitment and placement"

The testimonies of the complaining witnesses, Lamberto Balasa, Arthur Aposaga, Ruben Porras, Benedicto Daria
and Eduardo Amiscua, who corroborated each other’s account, showed that appellant entertained applicants for
overseas employment who came to L.A. Worldwide Manpower and Management Services, promised them jobs
abroad, and received placement and processing fees.

Thus, complaining witness Lamberto Balasa testified:
"Q Now, how did you come to know this Josephine Fajardo y
Lanchita?
"A When we proceed to the office at L.A. Lewman’s Worldwide
Manpower and Management Services, sir.
"Q Where is this office located?
"A At Violeta Court, F.B. Harrison, St., Pasay City, sir.
"x x x x x x x x x
"COURT:
Wait, when did you go there?
"A Month of March 1993, sir.
"ATTY. DIAZ:
"Q Did you go there on your own?
"A With my friends, sir.
"Q What was the purpose in going to that office of Josephine
Fajardo?
"A Because, we were looking for a job abroad, sir.
"x x x x x x x x x
"COURT:
What happened when you went to Lewman’s Worldwide
Manpower Services on March 1993?
"A They said, they are recruiting men for job abroad, sir.
"Q Who are these ‘they’, that you’re referring to?
"A Virgie Lanchita and Josephine Fajardo, sir.
"Q What particular country did these two (2), Josephine Fajardo
and Virgie Lanchita did they offer you?
"A Japan, sir.
"x x x x x x x x x
"ATTY. DIAZ:
"Q While inside the office of Josephine and Virgie, what did you
do, or what did these two (2) person (sic) really told (sic) you?
"A They said, the placement fee is P60,000.00, sir.
"Q Who, in particular told you that?
"A Josephine, sir.
"x x x x x x x x x
"ATTY. DIAZ:
Upon mentioning the amount of P60,000.00 for placement fee,
what happened next?
"A I gave the amount of P5,000.00 as processing fee, that was
during the first week of March 1993, sir.
"x x x x x x x x x
"Q After giving the amount, what were you told, if any?
"A After giving the amount of P5,000.00 I was told that we could
leave after 15 days, after we have paid the amount of
P60,000.00.
"Q Were you able to give additional amount to cover the
P60,000.00 placement fee?
"A Yes, sir, on March 14."6
For his part, private complainant Eduardo Amiscua narrated:
"Q When for the first time did you see the sisters, Josephine
Fajardo and Virgie Lanchita?
"A On the second week of February 1993.
"Q Where did you see them?
"A They were in the office of LAMWWS.
"Q After knowing them on the second week of February, what
did you do, if any?
"A I went to their office to verify whether there are really
positions/jobs in Japan.
"Q Who, in particular did you approach?
"A I first approached Virgie Lanchita who informed me that they
are authorized to recruit job seekers to Japan and then she
introduced me to Josephine Fajardo who was also in the office.
"Q What was the reply of the sisters when you asked them
whether they have really job openings in Japan.
"A They confirm that they really have opening for overseas
employment particularly in Japan as factory workers.
"Q Were you told how much a factory worker in Japan will
receive?
"A 1,500 dollars a month.
"Q What dollars?
"A U.S. dollars.
"Q Were you told of anything else as to the requirements in
applying for overseas job in Japan?
"A Yes, sir.
"x x x x x x x x x
"Q What are the requirements you were told?
"A Certification of previous service.
"COURT:
"Q Who told you?
"A Josephine Fajardo told me to submit a document like
certification of service, seaman’s passport, ID pictures, birth
certificate, diploma.
"Q What other requirements were you asked, if any, aside from
the documents required?
"A They told me that there is also a placement fee and
processing fee.
"Q How much were you told?
"A P5,000.00 for processing fee and P60,000.00 for placement
fee.
"Q All these things transpired on the first day that you met the
accused Josephine Fajardo and Virgie Lanchita, which you said
on the second week of February?
"A Yes, sir.
"Q After you were told of the document requirements, as well as
the monetary requirements, what did you do next?
"A I bade them goodbye, I was told that I should be able to
submit the processing fee at the earliest possible time exclusive
of March.

"Q What do you mean by exclusive?
"A I was told by Josephine Fajardo that if I could come up with
P25,000.00 I can be included in the batch that will be leaving in
the middle of March."7
Private complainant Arthur Aposaga likewise testified:
"Q Do you know persons by the names of JOSEPHINE
FAJARDO Y LANCHITA and VIRGIE LANCHITA Y DIASCE?
"A Yes, sir.
"x x x x x x x x x
"Q How did you come to know these two (2) accused Virgie
Lanchita and Josephine Fajardo?
"A They were introduced to me by Lamberto Balasa, sir.
"Q Who is this Lamberto Balasa?
"A He is a friend of mine.
"x x x x x x x x x
"Q When was that, when you were introduced by Lamberto
Balasa to both of the accused?
"A During the first week of March, 1993.
"Q Where were you introduced by Lamberto Balasa to the two
accused?
"A I was introduced by Balasa to the two (2) accused at LA
Worldwide Manpower Management Services located at Violeta
Court, Harrison St., Pasay City.
"x x x x x x x x x
"Q After you were introduced to the two what happened next?
"A They asked me to submit papers.
"Q What papers exactly did they request you to submit?
"A My bio-data, passport, birth certificate and diploma.
"COURT:
You mean to say, you were just asked to submit those papers
without telling them what you want?
"x x x x x x x x x
"A I told them that I was interested in job abroad."8
On the other hand, private complainant Ruben Porras
recounted meeting appellant in this wise:
"Q How did you come to know the accused Josephine Fajardo
and Virgie Lanchita?
"A During the last week of February 1993, I met a province
mate of mine who was also applying for a job. And, then, we
were told that there’s a job opening abroad at L. A. Worldwide
Management Services located at Violeta Court, sir.
"Q When did you come to know the accused in this case?
"A The day after I met my province mate, sir.
"Q When?
"A When we went to that office, it was there when we met
Josephine Fajardo inside the office of L.A. Worldwide
Management Services.
"x x x x x x x x x
"Q When you went to L.A. Worldwide Management Services,
and you said you met the accused Josephine Fajardo and
Virgie Lanchita, can you recall what happened?
"A What date?
"Q On the day that you went to the office?
"A We were able to talked (sic) to the sister and, it was there
when we confirmed that there was a job opening for abroad, sir.
"Q What did you do after knowing that there really a job opening
for abroad, as stated by the accused’ Josephine Fajardo and
Virgie Lanchita?
Page 105 of 162
"A We were told about the requirements if we were really
interested in applying for a job, sir.
"Q May we know the requirements that you were told?
"A Certificate of employment, Birth Certificate and passport, sir.
"Q Any other documents other than the documents?
"A The placement fee, sir.
"Q How much?
"A Sixty Thousand (P60,000.00), sir.
"x x x x x x x x x
"Q Were you able to submit the said documentary
requirements?
"A Yes, sir.
"x x x x x x x x x
"Q In submitting the documentary requirements, you personally
go (sic) to Josephine Fajardo and Virgie Lanchita’s office?
"A Yes, sir.
"x x x x x x x x x
"Q Who, in particular received this (sic) documentary
requirements?
"A Josephine Fajardo and Virgie Lanchita, sir.
"Q What about the monetary requirement, were you able to
produce the same?
"A Yes, sir. Five Thousand (P5,000.00) for processing fee.
"x x x x x x x x x
"Q To whom, in particular did you give the amount of
P5,000.00?
"A To Josephine Fajardo, sir."9
Private complainant Benedicto Daria also narrated:
"Q Do you know a person by the names of Josephine Fajardo
and Virgie Lanchita?
"A Yes, sir, I know them.
"x x x x x x x x x
"Q How did you come to know these two persons?
"A Sometime in February 1993, I was then looking for a job
when I met my close friend named Domingo Nikilio. This close
friend of mine mentioned to me that sisters Virgie Lanchita and
Josephine Fajardo were accepting applicants for Japan.
"Q Did this friend of yours Domingo Nikilio give you any address
of accused Josephine Fajardo and Virgie Lanchita?
"A Yes, sir.
"Q And what did you do upon knowing that these two sisters
were accepting applicants for work in Japan and also knowing
their address?
"A I immediately referred to the given address.
"x x x x x x x x x
"Q Upon reaching the said office which you said is L.A.
Manpower Management Services which is located along F.B.
Harrison St. Pasay City, whom did you meet at said office?
"A I asked for the sisters Virgie Lanchita and Josephine Fajardo
and introduced myself to them that I was the one referred to
them by Domingo Nikilio, who is also one of the applicant (sic)
and informed them that I am interested in applying for a job in
Japan.
"Q What was the reply of the accused Josephine Fajardo and
Virgie Lanchita when informed about what you want?
"A I was assured by the sisters that I could leave for abroad if I
meet the requirements such as paying the amount of P5,000.00
as processing fee and P60,000.00 placement fee and if I could
 Page 106 of 162

submit the following document: (sic) birth certificate, pictures for "Q Was there anything specific that you need aside from being
the passport and certification from previous employment. informed of the monetary and documentary requirements?
"A Yes, sir, they asked me to fill up an application form."10

From the said testimonies, it is clear that appellant gave the impression that she had the authority to send them
abroad for work which convinced the latter to part with their hard earned money. Appellant has no license or
11 

authority to engage in the recruitment and placement of workers abroad, as evidenced by the Certification issued 12 

by the Philippine Overseas Employment Administration (POEA).

Appellant, however, argues
employer, Ishwar Pamani,
Management Services. She
Pamani and that she was
recruitment activities.
that in recruiting private complainants, she merely acted under the authority of her
who was the Overseas Marketing Director of L.A. Worldwide Manpower and
asserts that she was employed as a secretary of Satellite Travel Agency owned by
only instructed by Pamani to report every morning to L.A. Worldwide to conduct

We find the above contention unmeritorious.

In dealing with the private complainants, appellant presented herself as the person who had the power to deploy
workers abroad. If it were true that she was not recruiting in her personal capacity but was merely acting as the
secretary of Mr. Pamani, appellant should have referred the complainants to the employees of L.A. Worldwide
Manpower and Management Services, a duly licensed recruitment agency, where Mr. Pamani was the Overseas
Marketing Director. She did not refer complainants to Pamani, or any other person who exercised supervision over
her undertaking in her dealings with the private complainants, giving us the impression that she was acting on her
own. Worse, appellant did not present Pamani, the person who was allegedly responsible for the recruitment, as a
witness to back up her claim. With the failure of appellant to present Pamani, she risked the adverse inference and
legal presumption that evidence suppressed would be adverse if produced. 13

Moreover, appellant did not use the receipts issued by L.A. Worldwide but her own deskpad with Satellite Travel
Agency, an entity which is prohibited to recruit workers under Article 26 of the Labor Code.
14  15 

Appellant’s claim that she acted in good faith and without any criminal intent is inconsequential. Illegal recruitment in
large scale is malum prohibitum, not malum in se. The fact that a person violated the law warrants her
conviction. Appellant cannot escape liability by claiming that she was not aware that before working for her
16 

employer in the recruitment agency, she should first be registered with the POEA.

In addition, there is no showing that any of the private complainants had ill-motives to accuse and impute to
appellant such a serious charge. It is an established rule that it is against human nature and experience for
strangers to conspire and accuse another stranger of a most serious crime just to mollify their hurt feelings. 17

In fine, there is no doubt that appellant is guilty of illegal recruitment. Since three or more persons had been
recruited, the appellant is guilty of illegal recruitment in large scale, punishable with life imprisonment and a fine of
P100,000.00.

Appellant also assails her conviction for estafa arguing that the monies paid by private complainants were all given
to Ishwar Pamani and that she has not benefited from the proceeds thereof.

We find the contention untenable.

Estafa is a crime committed by a person who defrauds another, causing him to suffer damages by means of
unfaithfulness or abuse of confidence, or of false pretenses or of fraudulent acts. A person may be convicted of the
18 

crime of estafa if the following elements are present, to wit: (1) that the accused defrauded another by abuse of
confidence or by means of deceit; (2) that damage or prejudice capable of pecuniary estimation is caused to the
offended party or third person. 19
 Page 107 of 162

Both elements have been proven in this case. Appellant, through her representations, misled private complainants
that she can provide work abroad, and by reason of such assurance, private complainants parted with their hard-
earned money. As all these representations proved false, appellant is guilty of estafa under Article 315 of the
Revised Penal Code. The fact that appellant allegedly did not benefit from the money collected from the private
20 

complainants will not relieve him of criminal responsibility.

21

We do not, however, agree with the penalties imposed by the trial court. In sentencing the appellant, the trial court
merely imposed the penalty in its maximum period which is 6 years, 8 months, and 21 days, to 8 years of prision
mayor, and added one year for every P10,000.00 defrauded in excess of P22,000.00. 1âwphi1

Article 315 of the Revised Penal Code provides:

"ART. 315. Swindling (estafa).- Any person who shall defraud another by any of the means mentioned hereinbelow
shall be punished by:

‘1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if the amount
of the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if such amount exceeds the latter sum,
the penalty provided in this paragraph shall be imposed in its maximum period, adding one year for each additional
10,000 pesos; but the total penalty which may be imposed shall not exceed twenty years. In such case, and in
connection with the accessory penalties which may be imposed and for the purpose of the other provisions of this
Code, the penalty shall be termed prision mayor or reclusion temporal, as the case may be;

‘2nd. The penalty of prision correccional in its minimum and medium periods, if the amount of the fraud is over 6,000
pesos but does not exceed 12,000 pesos;

‘3rd. The penalty of arresto mayor in its maximum period to prision correccional in its minimum period, if such
amount is over 200 pesos but does not exceed 6,000 pesos; and

‘4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed 200 pesos, provided
that in the four cases mentioned, the fraud be committed by any of the following means.’"

The penalty prescribed by law for the estafa charge against appellant is prision correccional maximum to prision
mayor minimum, the penalty next lower would then be prision correccional minimum to medium. Applying the
Indeterminate Sentence Law, the minimum term of the indeterminate sentence should be anywhere within six (6)
22 

months and one (1) day, to four (4) years and two (2) months; while the maximum term of the indeterminate
sentence should at least be six (6) years and one (1) day and because the amounts involved exceeded P22,000.00,
an additional one (1) year imprisonment should be imposed for each additional P10,000.00. 23

Thus, the penalty imposed by the trial court should be modified as follows:

In Criminal Case No. 94-5203, the amount involved is P56,000.00. The minimum penalty should be four (4) years
and two (2) months of prision correccional to nine (9) years, eight (8) months and twenty (20) days of prision
mayor, as maximum.

In Criminal Case No. 94-5204, the amount involved is P30,000.00. The minimum penalty should be four (4) years
and two (2) months of prision correccional, to six (6) years, eight (8) months and twenty (20) days of prision
mayor, as maximum. There is no additional imprisonment imposed because the excess is only P8,000.00.

In Criminal Case No. 94-5206, the amount involved is P60,000.00. The minimum penalty should be four (4) years
and two (2) months of prision correccional, to nine (9) years, eight (8) months and twenty (20) days of prision
mayor, as maximum.
 Page 108 of 162

In Criminal Case No. 94-5207, the amount involved is P45,000.00. The minimum penalty should be four (4) years
and two (2) months of prision correccional, to eight (8) years, eight (8) months and twenty (20) days of prision
mayor, as maximum.

In Criminal Case No. 94-5209, the amount involved is P40,000.00. The minimum penalty is four (4) years and two
(2) months of prision correccional to seven (7) years, eight (8) months and twenty (20) days of prision mayor, as
maximum.

WHEREFORE, the decision of the Regional Trial Court, finding appellant Josephine Fajardo guilty beyond
reasonable doubt of the crimes of illegal recruitment in large scale, is AFFIRMED and the penalties imposed in the
estafa cases are hereby MODIFIED, as follows:

1. Criminal Case No. 94-5203:

To serve an indeterminate sentence of 4 years and 2 months of prision correccional, as MINIMUM, to 9

years, 8 months and 20 days of prision mayor, as MAXIMUM, and to indemnify the complainant Arthur
Aposaga the amount of P56,000.00 pesos.

2. Criminal Case No. 94-5204:

To serve an indeterminate sentence of 4 years and 2 months of prision correccional, as MINIMUM, to 6

years, 8 months and 22 days of prision mayor, as MAXIMUM, and to indemnify the complainant Benedicto
Daria the amount of P30,000.00 pesos.

3. Criminal Case No. 94-5206:

To serve an indeterminate sentence of 4 years and 2 months of prision correccional, as MINIMUM, to 9

years, 8 months and 20 days of prision mayor, as MAXIMUM, and to indemnify complainant Eduardo
Amiscua the amount of P60,000.00 pesos.

4. Criminal Case No. 94-5207:

To serve an indeterminate sentence of 4 years and 2 months of prision correccional, as MINIMUM, to 8

years, 8 months and 20 days of prision mayor, as MAXIMUM, and to indemnify complainant Ruben Porras
the amount of P45,000.00 pesos.

5. Criminal Case No. 94-5209:

To serve an indeterminate sentence of 4 years and 2 months of prision correccional, as MINIMUM, to 7

years, 8 months and 20 days of prision mayor, as MAXIMUM, and to indemnify complainant Lamberto
Balasa the amount of P45,000.00 pesos.

SO ORDERED.
 Page 109 of 162

G.R. No. 127820 July 20, 1998

MUNICIPALITY OF PARAÑAQUE, petitioner,

vs.V.M. REALTY CORPORATION, respondent.

A local government unit (LGU), like the Municipality of Parañaque, cannot authorize an expropriation of private
property through a mere resolution of its lawmaking body. The Local Government Code expressly and clearly
requires an ordinance or a local law for the purpose. A resolution that merely expresses the sentiment or opinion of
the Municipal Council will not suffice. On the other hand, the principle of res judicata does not bar subsequent
proceedings for the expropriation of the same property when all the legal requirements for its valid exercise are
complied with.

Statement of the Case

These principles are applied by this Court in resolving this petition for review on certiorari of the July 22, 1996
Decision   of the Court of Appeals   in CA GR CV No. 48048, which affirmed in toto   the Regional Trial Court's
1 2 3

August 9, 1994 Resolution.   The trial court dismissed the expropriation suit as follows:
4

The right of the plaintiff to exercise the power of eminent domain is not disputed. However, such
right may be exercised only pursuant to an Ordinance (Sec. 19, R.A No. 7160). In the instant case,
there is no such ordinance passed by the Municipal Council of Parañaque enabling the Municipality,
thru its Chief Executive, to exercise the power of eminent domain. The complaint, therefore, states
no cause of action.

Assuming that plaintiff has a cause of action, the same is barred by a prior judgment. On September
29, 1987, the plaintiff filed a complaint for expropriation involving the same parcels of land which was
docketed as Civil Case No. 17939 of this Court (page 26, record). Said case was dismissed with
prejudice on May 18, 1988 (page 39, record). The order of dismissal was not appealed, hence, the
 Page 110 of 162

same became final. The plaintiff can not be allowed to pursue the present action without violating the
principle of [r]es [j]udicata. While defendant in Civil Case No. 17939 was Limpan Investment
Corporation, the doctrine of res judicata still applies because the judgment in said case (C.C. No.
17939) is conclusive between the parties and their successors-in-interest (Vda. de Buncio vs. Estate
of the late Anita de Leon). The herein defendant is the successor-in-interest of Limpan Investment
Corporation as shown by the "Deed of Assignment Exchange" executed on June 13, 1990.

WHEREFORE, defendant's motion for reconsideration is hereby granted. The order dated February
4, 1994 is vacated and set aside.

This case is hereby dismissed. No pronouncement as to costs.

SO ORDERED.  5

Factual Antecedents

Pursuant to Sangguniang Bayan Resolution No. 93-95, Series of 1993,   the Municipality of Parañaque filed on
6

September 20, 1993, a Complaint for expropriation   against Private Respondent V.M. Realty Corporation over two
7

parcels of land (Lots 2-A-2 and 2-B-1 of Subdivision Plan Psd-17917), with a combined area of about 10,000 square
meters, located at Wakas, San Dionisio, Parañaque, Metro Manila, and covered by Torrens Certificate of Title No.
48700. Allegedly, the complaint was filed "for the purpose of alleviating the living conditions of the underprivileged
by providing homes for the homeless through a socialized housing project."   Parenthetically, it was also for this
8

stated purpose that petitioner, pursuant to its Sangguniang Bayan Resolution No. 577, Series of 1991,   previously
9

made an offer to enter into a negotiated sale of the property with private respondent, which the latter did not
accept. 10

Finding the Complaint sufficient in form and substance, the Regional Trial Court of Makati, Branch 134, issued an
Order dated January 10, 1994,   giving it due course. Acting on petitioner's motion, said court issued an Order dated
11

February 4, 1994,   authorizing petitioner to take possession of the subject property upon deposit with its clerk of
12

court of an amount equivalent to 15 percent of its fair market value based on its current tax declaration.

On February 21, 1994, private respondent filed its Answer containing affirmative defenses and a
counterclaim,   alleging in the main that (a) the complaint failed to state a cause of action because it was filed
13

pursuant to a resolution and not to an ordinance as required by RA 7160 (the Local Government Code); and (b) the
cause of action, if any, was barred by a prior judgment or res judicata. On private respondent's motion, its Answer
was treated as a motion to dismiss.   On March 24, 1991,   petitioner filed its opposition, stressing that the trial
14 15

court's Order dated February 4, 1994 was in accord with Section 19 of RA 7160, and that the principle of res
judicata was not applicable.

Thereafter, the trial court issued its August 9, 1994 Resolution   nullifying its February 4, 1994 Order and dismissing
16

the case. Petitioner's motions for reconsideration and transfer of venue were denied by the trial court in a Resolution
dated December 2, 1994.   Petitioner then appealed to Respondent Court, raising the following issues:
17

1. Whether or not the Resolution of the Parañaque Municipal Council No. 93-95,
Series of 1993 is a substantial compliance of the statutory requirement of Section 19,
R.A. 7180 [sic] in the exercise of the power of eminent domain by the plaintiff-
appellant.

2. Whether or not the complaint in this case states no cause of action.

3. Whether or not the strict adherence to the literal observance to the rule of
procedure resulted in technicality standing in the way of substantial justice.

4. Whether or not the principle of res judicata is applicable to the present case. 
18
 Page 111 of 162

As previously mentioned, the Court of Appeals affirmed in toto the trial court's Decision. Respondent Court, in its
assailed Resolution promulgated on January 8, 1997,   denied petitioner's Motion for Reconsideration for lack of
19

merit.

Hence, this appeal.  20

The Issues

Before this Court, petitioner posits two issues, viz.:

1. A resolution duly approved by the municipal council has the same force and effect of an ordinance
and will not deprive an expropriation case of a valid cause of action.

2. The principle of res judicata as a ground for dismissal of case is not applicable when public
interest is primarily involved. 
21

The Court's Ruling

The petition is not meritorious.

First Issue:

Resolution Different from an Ordinance

Petitioner contends that a resolution approved by the municipal council for the purpose of initiating an expropriation
case "substantially complies with the requirements of the law"   because the terms "ordinance" and "resolution" are
22

synonymous for "the purpose of bestowing authority [on] the local government unit through its chief executive to
initiate the expropriation proceedings in court in the exercise of the power of eminent domain."   Petitioner seeks to
23

bolster this contention by citing Article 36, Rule VI of the Rules and Regulations Implementing the Local
Government Code, which provides. "If the LGU fails to acquire a private property for public use, purpose, or welfare
through purchase, the LGU may expropriate said property through a resolution of the Sanggunian authorizing its
chief executive to initiate expropriation proceedings."   (Emphasis supplied.)
24

The Court disagrees. The power of eminent domain is lodged in the legislative branch of government, which may
delegate the exercise thereof to LGUs, other public entities and public utilities.   An LGU may therefore exercise the
25

power to expropriate private property only when authorized by Congress and subject to the latter's control and
restraints, imposed "through the law conferring the power or in other legislations."   In this case, Section 19 of RA
26

7160, which delegates to LGUs the power of eminent domain, also lays down the parameters for its exercise. It
provides as follows:

Sec. 19. Eminent Domain. A local government unit may, through its chief executive and acting
pursuant to an ordinance, exercise the power of eminent domain for public use, or purpose, or
welfare for the benefit of the poor and the landless, upon payment of just compensation, pursuant to
the provisions of the Constitution and pertinent laws: Provided, however, That the power of eminent
domain may not be exercised unless a valid and definite offer has been previously made to the
owner, and such offer was not accepted: Provided, further, That the local government unit may
immediately take possession of the property upon the filing of the expropriation proceedings and
upon making a deposit with the proper court of at least fifteen percent (15%) of the fair market value
of the property based on the current tax declaration of the property to be
expropriated: Provided, finally, That, the amount to be paid for the expropriated property shall be
determined by the proper court, based on the fair market value at the time of the taking of the
property. (Emphasis supplied)

Thus, the following essential requisites must concur before an LGU can exercise the power of eminent domain:
 Page 112 of 162

1. An ordinance is enacted by the local legislative council authorizing the local chief executive, in
behalf of the LGU, to exercise the power of eminent domain or pursue expropriation proceedings
over a particular private property.

2. The power of eminent domain is exercised for public use, purpose or welfare, or for the benefit of
the poor and the landless.

3. There is payment of just compensation, as required under Section 9, Article III of the Constitution,
and other pertinent laws.

4. A valid and definite offer has been previously made to the owner of the property sought to be
expropriated, but said offer was not accepted.  27

In the case at bar, the local chief executive sought to exercise the power of eminent domain pursuant to a resolution
of the municipal council. Thus, there was no compliance with the first requisite that the mayor be authorized through
an ordinance. Petitioner cites Camarines Sur vs. Court of Appeals   to show that a resolution may suffice to support
28

the exercise of eminent domain by an LGU.   This case, however, is not in point because the applicable law at that
29

time was BP 337,   the previous Local Government Code, which had provided that a mere resolution would enable
30

an LGU to exercise eminent domain. In contrast, RA 7160,   the present Local Government Code which was
31

already in force when the Complaint for expropriation was filed, explicitly required an ordinance for this purpose.

We are not convinced by petitioner's insistence that the terms "resolution" and "ordinance" are synonymous. A
municipal ordinance is different from a resolution. An ordinance is a law, but a resolution is merely a declaration of
the sentiment or opinion of a lawmaking body on a specific matter.   An ordinance possesses a general and
32

permanent character, but a resolution is temporary in nature. Additionally, the two are enacted differently — a third
reading is necessary for an ordinance, but not for a resolution, unless decided otherwise by a majority of all
the Sanggunian members.  33

If Congress intended to allow LGUs to exercise eminent domain through a mere resolution, it would have simply
adopted the language of the previous Local Government Code. But Congress did not. In a clear divergence from the
previous Local Government Code, Section 19 of RA 7160 categorically requires that the local chief executive act
pursuant to an ordinance. Indeed, "[l]egislative intent is determined principally from the language of a statute. Where
the language of a statute is clear and unambiguous, the law is applied according to its express terms, and
interpretation would be resorted to only where a literal interpretation would be resorted to only where a literal
interpretation would be either impossible or absurd or would lead to an injustice."   In the instant case, there is no
34

reason to depart from this rule, since the law requiring an ordinance is not at all impossible, absurd, or unjust.

Moreover, the power of eminent domain necessarily involves a derogation of a fundamental or private right of the
people.   Accordingly, the manifest change in the legislative language — from "resolution" under BP 337 to
35

"ordinance" under RA 7160 — demands a strict construction. "No species of property is held by individuals with
greater tenacity, and is guarded by the Constitution and laws more sedulously, than the right to the freehold of
inhabitants. When the legislature interferes with that right and, for greater public purposes, appropriates the land of
an individual without his consent, the plain meaning of the law should not be enlarged by doubtful interpretation." 36

Petitioner relies on Article 36, Rule VI of the Implementing Rules, which requires only a resolution to authorize an
LGU to exercise eminent domain. This is clearly misplaced, because Section 19 of RA 7160, the law itself, surely
prevails over said rule which merely seeks to implement it.   It is axiomatic that the clear letter of the law is
37

controlling and cannot be amended by a mere administrative rule issued for its implementation. Besides, what the
discrepancy seems to indicate is a mere oversight in the wording of the implementing rules, since Article 32, Rule VI
thereof, also requires that, in exercising the power of eminent domain, the chief executive of the LGU act pursuant
to an ordinance.

In this ruling, the Court does not diminish the policy embodied in Section 2, Article X of the Constitution, which
provides that "territorial and political subdivisions shall enjoy local autonomy." It merely upholds the law as worded
in RA 7160. We stress that an LGU is created by law and all its powers and rights are sourced therefrom. It has
 Page 113 of 162

therefore no power to amend or act beyond the authority given and the limitations imposed on it by law. Strictly
speaking, the power of eminent domain delegated to an LGU is in reality not eminent but "inferior" domain, since it
must conform to the limits imposed by the delegation, and thus partakes only of a share in eminent
domain.   Indeed, "the national legislature is still the principal of the local government units, which cannot defy its
38

will or modify or violate it." 

39

Complaint Does Not

State a Cause of Action

In its Brief filed before Respondent Court, petitioner argues that its Sangguniang Bayan passed an ordinance on
October 11, 1994 which reiterated its Resolution No. 93-35, Series of 1993, and ratified all the acts of its mayor
regarding the subject expropriation.  40

This argument is bereft of merit. In the first place, petitioner merely alleged the existence of such an ordinance, but it
did not present any certified true copy thereof. In the second place, petitioner did not raise this point before this
Court. In fact, it was mentioned by private respondent, and only in passing.   In any event, this allegation does not
41

cure the inherent defect of petitioner's Complaint for expropriation filed on September 23, 1993. It is hornbook
doctrine that

. . . in a motion to dismiss based on the ground that the complaint fails to state a cause of action, the
question submitted before the court for determination is the sufficiency of the allegations in the
complaint itself. Whether those allegations are true or not is beside the point, for their truth is
hypothetically admitted by the motion. The issue rather is: admitting them to be true, may the court
render a valid judgment in accordance with the prayer of the complaint?  42

The fact that there is no cause of action is evident from the face of the Complaint for expropriation which was based
on a mere resolution. The absence of an ordinance authorizing the same is equivalent to lack of cause of action.
Consequently, the Court of Appeals committed no reversible error in affirming the trial court's Decision which
dismissed the expropriation suit.

Second Issue:

Eminent Domain Not Barred by Res Judicata

As correctly found by the Court of Appeals   and the trial court,   all the requisites for the application of res
43 44

judicata are present in this case. There is a previous final judgment on the merits in a prior expropriation case
involving identical interests, subject matter and cause of action, which has been rendered by a court having
jurisdiction over it.

Be that as it may, the Court holds that the principle of res judicata, which finds application in generally all cases and
proceedings,   cannot bar the right of the State or its agent to expropriate private property. The very nature of
45

eminent domain, as an inherent power of the State, dictates that the right to exercise the power be absolute and
unfettered even by a prior judgment or res judicata. The scope of eminent domain is plenary and, like police power,
can "reach every form of property which the State might need for public use."   "All separate interests of individuals
46

in property are held of the government under this tacit agreement or implied reservation. Notwithstanding the grant
to individuals, the eminent domain, the highest and most exact idea of property, remains in the government, or in
the aggregate body of the people in their sovereign capacity; and they have the right to resume the possession of
the property whenever the public interest requires it."   Thus, the State or its authorized agent cannot be forever
47

barred from exercising said right by reason alone of previous non-compliance with any legal requirement.

While the principle of res judicata does not denigrate the right of the State to exercise eminent domain, it does apply
to specific issues decided in a previous case. For example, a final judgment dismissing an expropriation suit on the
ground that there was no prior offer precludes another suit raising the same issue; it cannot, however, bar the State
or its agent from thereafter complying with this requirement, as prescribed by law, and subsequently exercising its
 Page 114 of 162

power of eminent domain over the same property.   By the same token, our ruling that petitioner cannot exercise its
48

delegated power of eminent domain through a mere resolution will not bar it from reinstituting similar proceedings,
once the said legal requirement and, for that matter, all others are properly complied with. Parenthetically and by
parity of reasoning, the same is also true of the principle of "law of the case." In Republic vs. De Knecht,   the Court
49

ruled that the power of the State or its agent to exercise eminent domain is not diminished by the mere fact that a
prior final judgment over the property to be expropriated has become the law of the case as to the parties. The State
or its authorized agent may still subsequently exercise its right to expropriate the same property, once all legal
requirements are complied with. To rule otherwise will not only improperly diminish the power of eminent domain,
but also clearly defeat social justice.

WHEREFORE, the petition is hereby DENIED without prejudice to petitioner's proper exercise of its power of
eminent domain over subject property. Costs against petitioner.

SO ORDERED.

G.R. No. 171101               November 22, 2011

HACIENDA LUISITA, INCORPORATED, Petitioner,

LUISITA INDUSTRIAL PARK CORPORATION and RIZAL COMMERCIAL BANKING
CORPORATION, Petitioners-in-Intervention,
vs.
PRESIDENTIAL AGRARIAN REFORM COUNCIL; SECRETARY NASSER PANGANDAMAN OF THE
DEPARTMENT OF AGRARIAN REFORM; ALYANSA NG MGA MANGGAGAWANG BUKID NG HACIENDA
LUISITA, RENE GALANG, NOEL MALLARI, and JULIO SUNIGA 1 and his SUPERVISORY GROUP OF THE
HACIENDA LUISITA, INC. and WINDSOR ANDAYA, Respondents.

For resolution are the (1) Motion for Clarification and Partial Reconsideration dated July 21, 2011 filed by petitioner
Hacienda Luisita, Inc. (HLI); (2) Motion for Partial Reconsideration dated July 20, 2011 filed by public respondents
Presidential Agrarian Reform Council (PARC) and Department of Agrarian Reform (DAR); (3) Motion for
Reconsideration dated July 19, 2011 filed by private respondent Alyansa ng mga Manggagawang Bukid sa
Hacienda Luisita (AMBALA); (4) Motion for Reconsideration dated July 21, 2011 filed by respondent-intervenor
Farmworkers Agrarian Reform Movement, Inc. (FARM); (5) Motion for Reconsideration dated July 21, 2011 filed by
private respondents Noel Mallari, Julio Suniga, Supervisory Group of Hacienda Luisita, Inc. (Supervisory Group) and
Windsor Andaya (collectively referred to as "Mallari, et al."); and (6) Motion for Reconsideration dated July 22, 2011
filed by private respondents Rene Galang and AMBALA.2

On July 5, 2011, this Court promulgated a Decision3 in the above-captioned case, denying the petition filed by HLI
and affirming Presidential Agrarian Reform Council (PARC) Resolution No. 2005-32-01 dated December 22, 2005
 Page 115 of 162

and PARC Resolution No. 2006-34-01 dated May 3, 2006 with the modification that the original 6,296 qualified
farmworker-beneficiaries of Hacienda Luisita (FWBs) shall have the option to remain as stockholders of HLI.

In its Motion for Clarification and Partial Reconsideration dated July 21, 2011, HLI raises the following issues for Our
consideration:

IT IS NOT PROPER, EITHER IN LAW OR IN EQUITY, TO DISTRIBUTE TO THE ORIGINAL FWBs OF 6,296 THE
UNSPENT OR UNUSED BALANCE OF THE PROCEEDS OF THE SALE OF THE 500 HECTARES AND 80.51
HECTARES OF THE HLI LAND, BECAUSE:

(1) THE PROCEEDS OF THE SALE BELONG TO THE CORPORATION, HLI, AS CORPORATE CAPITAL
AND ASSETS IN SUBSTITUTION FOR THE PORTIONS OF ITS LAND ASSET WHICH WERE SOLD TO
THIRD PARTY;

(2) TO DISTRIBUTE THE CASH SALES PROCEEDS OF THE PORTIONS OF THE LAND ASSET TO THE
FWBs, WHO ARE STOCKHOLDERS OF HLI, IS TO DISSOLVE THE CORPORATION AND DISTRIBUTE
THE PROCEEDS AS LIQUIDATING DIVIDENDS WITHOUT EVEN PAYING THE CREDITORS OF THE
CORPORATION;

(3) THE DOING OF SAID ACTS WOULD VIOLATE THE STRINGENT PROVISIONS OF THE
CORPORATION CODE AND CORPORATE PRACTICE.

IT IS NOT PROPER, EITHER IN LAW OR IN EQUITY, TO RECKON THE PAYMENT OF JUST COMPENSATION
FROM NOVEMBER 21, 1989 WHEN THE PARC, THEN UNDER THE CHAIRMANSHIP OF DAR SECRETARY
MIRIAM DEFENSOR-SANTIAGO, APPROVED THE STOCK DISTRIBUTION PLAN (SDP) PROPOSED BY
TADECO/HLI, BECAUSE:

(1) THAT PARC RESOLUTION NO. 89-12-2 DATED NOVEMBER 21, 1989 WAS NOT THE "ACTUAL
TAKING" OF THE TADECO’s/HLI’s AGRICULTURAL LAND;

(2) THE RECALL OR REVOCATION UNDER RESOLUTION NO. 2005-32-01 OF THAT SDP BY THE NEW
PARC UNDER THE CHAIRMANSHIP OF DAR SECRETARY NASSER PANGANDAMAN ON DECEMBER
22, 2005 OR 16 YEARS EARLIER WHEN THE SDP WAS APPROVED DID NOT RESULT IN "ACTUAL
TAKING" ON NOVEMBER 21, 1989;

(3) TO PAY THE JUST COMPENSATION AS OF NOVEMBER 21, 1989 OR 22 YEARS BACK WOULD BE
ARBITRARY, UNJUST, AND OPPRESSIVE, CONSIDERING THE IMPROVEMENTS, EXPENSES IN THE
MAINTENANCE AND PRESERVATION OF THE LAND, AND RISE IN LAND PRICES OR VALUE OF THE
PROPERTY.

On the other hand, PARC and DAR, through the Office of the Solicitor General (OSG), raise the following issues in
their Motion for Partial Reconsideration dated July 20, 2011:

THE DOCTRINE OF OPERATIVE FACT DOES NOT APPLY TO THIS CASE FOR THE FOLLOWING REASONS:

THERE IS NO LAW OR RULE WHICH HAS BEEN INVALIDATED ON THE GROUND OF

UNCONSTITUTIONALITY; AND
 Page 116 of 162

II

THIS DOCTRINE IS A RULE OF EQUITY WHICH MAY BE APPLIED ONLY IN THE ABSENCE OF A LAW. IN
THIS CASE, THERE IS A POSITIVE LAW WHICH MANDATES THE DISTRIBUTION OF THE LAND AS A
RESULT OF THE REVOCATION OF THE STOCK DISTRIBUTION PLAN (SDP).

For its part, AMBALA poses the following issues in its Motion for Reconsideration dated July 19, 2011:

THE MAJORITY OF THE MEMBERS OF THE HONORABLE COURT, WITH DUE RESPECT, ERRED IN
HOLDING THAT SECTION 31 OF REPUBLIC ACT 6657 (RA 6657) IS CONSTITUTIONAL.

II

THE MAJORITY OF THE MEMBERS OF THE HONORABLE COURT, WITH DUE RESPECT, ERRED IN
HOLDING THAT ONLY THE [PARC’S] APPROVAL OF HLI’s PROPOSAL FOR STOCK DISTRIBUTION UNDER
CARP AND THE [SDP] WERE REVOKED AND NOT THE STOCK DISTRIBUTION OPTION AGREEMENT
(SDOA).

III

THE MAJORITY OF THE MEMBERS OF THE HONORABLE COURT, WITH DUE RESPECT, ERRED IN
APPLYING THE DOCTRINE OF OPERATIVE FACTS AND IN MAKING THE [FWBs] CHOOSE TO OPT FOR
ACTUAL LAND DISTRIBUTION OR TO REMAIN AS STOCKHOLDERS OF [HLI].

IV

THE MAJORITY OF THE MEMBERS OF THE HONORABLE COURT, WITH DUE RESPECT, ERRED IN
HOLDING THAT IMPROVING THE ECONOMIC STATUS OF FWBs IS NOT AMONG THE LEGAL OBLIGATIONS
OF HLI UNDER THE SDP AND AN IMPERATIVE IMPOSITION BY [RA 6657] AND DEPARTMENT OF AGRARIAN
REFORM ADMINISTRATIVE ORDER NO. 10 (DAO 10).

THE HONORABLE COURT, WITH DUE RESPECT, ERRED IN HOLDING THAT THE CONVERSION OF THE
AGRICULTURAL LANDS DID NOT VIOLATE THE CONDITIONS OF RA 6657 AND DAO 10.

VI

THE HONORABLE COURT, WITH DUE RESPECT, ERRED IN HOLDING THAT PETITIONER IS ENTITLED TO
PAYMENT OF JUST COMPENSATION. SHOULD THE HONORABLE COURT AFFIRM THE ENTITLEMENT OF
THE PETITIONER TO JUST COMPENSATION, THE SAME SHOULD BE PEGGED TO FORTY THOUSAND
PESOS (PhP 40,000.00) PER HECTARE.

VII

THE HONORABLE COURT, WITH DUE RESPECT, ERRED IN HOLDING THAT LUISITA INDUSTRIAL PARK
CORP. (LIPCO) AND RIZAL COMMERCIAL BANKING CORPORATION (RCBC) ARE INNOCENT PURCHASERS
FOR VALUE.

In its Motion for Reconsideration dated July 21, 2011, FARM similarly puts forth the following issues:

I
 Page 117 of 162

THE HONORABLE SUPREME COURT SHOULD HAVE STRUCK DOWN SECTION 31 OF [RA 6657] FOR BEING
UNCONSTITUTIONAL. THE CONSTITUTIONALITY ISSUE THAT WAS RAISED BY THE RESPONDENTS-
INTERVENORS IS THE LIS MOTA OF THE CASE.

II

THE HONORABLE SUPREME COURT SHOULD NOT HAVE APPLIED THE DOCTRINE OF "OPERATIVE FACT"
TO THE CASE. THE OPTION GIVEN TO THE FARMERS TO REMAIN AS STOCKHOLDERS OF HACIENDA
LUISITA IS EQUIVALENT TO AN OPTION FOR HACIENDA LUISITA TO RETAIN LAND IN DIRECT VIOLATION
OF THE COMPREHENSIVE AGRARIAN REFORM LAW. THE DECEPTIVE STOCK DISTRIBUTION OPTION /
STOCK DISTRIBUTION PLAN CANNOT JUSTIFY SUCH RESULT, ESPECIALLY AFTER THE SUPREME COURT
HAS AFFIRMED ITS REVOCATION.

III

THE HONORABLE SUPREME COURT SHOULD NOT HAVE CONSIDERED [LIPCO] AND [RCBC] AS INNOCENT
PURCHASERS FOR VALUE IN THE INSTANT CASE.

Mallari, et al., on the other hand, advance the following grounds in support of their Motion for Reconsideration dated
July 21, 2011:

(1) THE HOMELOTS REQUIRED TO BE DISTRIBUTED HAVE ALL BEEN DISTRIBUTED PURSUANT TO
THE MEMORANDUM OF AGREEMENT. WHAT REMAINS MERELY IS THE RELEASE OF TITLE FROM
THE REGISTER OF DEEDS.

(2) THERE HAS BEEN NO DILUTION OF SHARES. CORPORATE RECORDS WOULD SHOW THAT IF
EVER NOT ALL OF THE 18,804.32 SHARES WERE GIVEN TO THE ACTUAL ORIGINAL FARMWORKER
BENEFICIARY, THE RECIPIENT OF THE DIFFERENCE IS THE NEXT OF KIN OR CHILDREN OF SAID
ORIGINAL [FWBs]. HENCE, WE RESPECTFULLY SUBMIT THAT SINCE THE SHARES WERE GIVEN TO
THE SAME "FAMILY BENEFICIARY", THIS SHOULD BE DEEMED AS SUBSTANTIAL COMPLIANCE
WITH THE PROVISIONS OF SECTION 4 OF DAO 10.

(3) THERE HAS BEEN NO VIOLATION OF THE 3-MONTH PERIOD TO IMPLEMENT THE [SDP] AS
PROVIDED FOR BY SECTION 11 OF DAO 10 AS THIS PROVISION MUST BE READ IN LIGHT OF
SECTION 10 OF EXECUTIVE ORDER NO. 229, THE PERTINENT PORTION OF WHICH READS, "THE
APPROVAL BY THE PARC OF A PLAN FOR SUCH STOCK DISTRIBUTION, AND ITS INITIAL
IMPLEMENTATION, SHALL BE DEEMED COMPLIANCE WITH THE LAND DISTRIBUTION
REQUIREMENT OF THE CARP."

(4) THE VALUATION OF THE LAND CANNOT BE BASED AS OF NOVEMBER 21, 1989, THE DATE OF
APPROVAL OF THE STOCK DISTRIBUTION OPTION. INSTEAD, WE RESPECTFULLY SUBMIT THAT
THE "TIME OF TAKING" FOR VALUATION PURPOSES IS A FACTUAL ISSUE BEST LEFT FOR THE
TRIAL COURTS TO DECIDE.

(5) TO THOSE WHO WILL CHOOSE LAND, THEY MUST RETURN WHAT WAS GIVEN TO THEM
UNDER THE SDP. IT WOULD BE UNFAIR IF THEY ARE ALLOWED TO GET THE LAND AND AT THE
SAME TIME HOLD ON TO THE BENEFITS THEY RECEIVED PURSUANT TO THE SDP IN THE SAME
WAY AS THOSE WHO WILL CHOOSE TO STAY WITH THE SDO.

Lastly, Rene Galang and AMBALA, through the Public Interest Law Center (PILC), submit the following grounds in
support of their Motion for Reconsideration dated July 22, 2011:

I
 Page 118 of 162

THE HONORABLE COURT, WITH DUE RESPECT, GRAVELY ERRED IN ORDERING THE HOLDING OF A
VOTING OPTION INSTEAD OF TOTALLY REDISTRIBUTING THE SUBJECT LANDS TO [FWBs] in [HLI].

A. THE HOLDING OF A VOTING OPTION HAS NO LEGAL BASIS. THE REVOCATION OF THE [SDP]
CARRIES WITH IT THE REVOCATION OF THE [SDOA].

B. GIVING THE [FWBs] THE OPTION TO REMAIN AS STOCKHOLDERS OF HLI WITHOUT MAKING THE
NECESSARY CHANGES IN THE CORPORATE STRUCTURE WOULD ONLY SUBJECT THEM TO
FURTHER MANIPULATION AND HARDSHIP.

C. OTHER VIOLATIONS COMMITTED BY HLI UNDER THE [SDOA] AND PERTINENT LAWS JUSTIFY
TOTAL LAND REDISTRIBUTION OF HACIENDA LUISITA.

II

THE HONORABLE COURT, WITH DUE RESPECT, GRAVELY ERRED IN HOLDING THAT THE [RCBC] AND
[LIPCO] ARE INNOCENT PURCHASERS FOR VALUE OF THE 300-HECTARE PROPERTY IN HACIENDA
LUISITA THAT WAS SOLD TO THEM PRIOR TO THE INCEPTION OF THE PRESENT CONTROVERSY.

Ultimately, the issues for Our consideration are the following: (1) applicability of the operative fact doctrine; (2)
constitutionality of Sec. 31 of RA 6657 or the Comprehensive Agrarian Reform Law of 1988; (3) coverage of
compulsory acquisition; (4) just compensation; (5) sale to third parties; (6) the violations of HLI; and (7) control over
agricultural lands.

We shall discuss these issues accordingly.

I. Applicability of the Operative Fact Doctrine

In their motion for partial reconsideration, DAR and PARC argue that the doctrine of operative fact does not apply to
the instant case since: (1) there is no law or rule which has been invalidated on the ground of unconstitutionality; 4 (2)
the doctrine of operative fact is a rule of equity which may be applied only in the absence of a law, and in this case,
they maintain that there is a positive law which mandates the distribution of the land as a result of the revocation of
the stock distribution plan (SDP).5

Echoing the stance of DAR and PARC, AMBALA submits that the operative fact doctrine should only be made to
apply in the extreme case in which equity demands it, which allegedly is not in the instant case. 6 It further argues
that there would be no undue harshness or injury to HLI in case lands are actually distributed to the farmworkers,
and that the decision which orders the farmworkers to choose whether to remain as stockholders of HLI or to opt for
land distribution would result in inequity and prejudice to the farmworkers. 7 The foregoing views are also similarly
shared by Rene Galang and AMBALA, through the PILC.8 In addition, FARM posits that the option given to the
FWBs is equivalent to an option for HLI to retain land in direct violation of RA 6657.9

(a) Operative Fact Doctrine Not Limited to

Invalid or Unconstitutional Laws

Contrary to the stance of respondents, the operative fact doctrine does not only apply to laws subsequently declared
unconstitutional or unlawful, as it also applies to executive acts subsequently declared as invalid. As We have
discussed in Our July 5, 2011 Decision:

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, We
held:
 Page 119 of 162

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

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

The argument of the Solicitor General is meritorious.

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

x x x           x x x          x x x

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

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

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

Petitioner contends that his arrest by virtue of Arrest Search and Seizure Order (ASSO) No. 4754 was invalid, as the
law upon which it was predicated — General Order No. 60, issued by then President Ferdinand E. Marcos — was
subsequently declared by the Court, in Tañada v. Tuvera, 33 to have no force and effect. Thus, he asserts, any
evidence obtained pursuant thereto is inadmissible in evidence.

We do not agree. In Tañada, the Court addressed the possible effects of its declaration of the invalidity of various
presidential issuances. Discussing therein how such a declaration might affect acts done on a presumption of their
validity, the Court said:

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

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

x x x           x x x          x x x
 Page 120 of 162

"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 in the original.)

Bearing in mind that PARC Resolution No. 89-12-210––an executive act––was declared invalid in the instant case,
the operative fact doctrine is clearly applicable.

Nonetheless, the minority is of the persistent view that the applicability of the operative fact doctrine should be
limited to statutes and rules and regulations issued by the executive department that are accorded the same status
as that of a statute or those which are quasi-legislative in nature. Thus, the minority concludes that the phrase
"executive act" used in the case of De Agbayani v. Philippine National Bank 11 refers only to acts, orders, and rules
and regulations that have the force and effect of law. The minority also made mention of the Concurring Opinion of
Justice Enrique Fernando in Municipality of Malabang v. Benito,12 where it was supposedly made explicit that the
operative fact doctrine applies to executive acts, which are ultimately quasi-legislative in nature.

We disagree. For one, neither the De Agbayani case nor the Municipality of Malabang case elaborates what
"executive act" mean. Moreover, while orders, rules and regulations issued by the President or the executive branch
have fixed definitions and meaning in the Administrative Code and jurisprudence, the phrase "executive act" does
not have such specific definition under existing laws. It should be noted that in the cases cited by the minority,
nowhere can it be found that the term "executive act" is confined to the foregoing. Contrarily, the term "executive
act" is broad enough to encompass decisions of administrative bodies and agencies under the executive
department which are subsequently revoked by the agency in question or nullified by the Court.

A case in point is the concurrent appointment of Magdangal B. Elma (Elma) as Chairman of the Presidential
Commission on Good Government (PCGG) and as Chief Presidential Legal Counsel (CPLC) which was declared
unconstitutional by this Court in Public Interest Center, Inc. v. Elma.13 In said case, this Court ruled that the
concurrent appointment of Elma to these offices is in violation of Section 7, par. 2, Article IX-B of the 1987
Constitution, since these are incompatible offices. Notably, the appointment of Elma as Chairman of the PCGG and
as CPLC is, without a question, an executive act. Prior to the declaration of unconstitutionality of the said executive
act, certain acts or transactions were made in good faith and in reliance of the appointment of Elma which cannot
just be set aside or invalidated by its subsequent invalidation.

In Tan v. Barrios,14 this Court, in applying the operative fact doctrine, held that despite the invalidity of the jurisdiction
of the military courts over civilians, certain operative facts must be acknowledged to have existed so as not to
trample upon the rights of the accused therein. Relevant thereto, in Olaguer v. Military Commission No. 34, 15 it was
ruled that "military tribunals pertain to the Executive Department of the Government and are simply instrumentalities
of the executive power, provided by the legislature for the President as Commander-in-Chief to aid him in properly
commanding the army and navy and enforcing discipline therein, and utilized under his orders or those of his
authorized military representatives."16

Evidently, the operative fact doctrine is not confined to statutes and rules and regulations issued by the executive
department that are accorded the same status as that of a statute or those which are quasi-legislative in nature.

Even assuming that De Agbayani initially applied the operative fact doctrine only to executive issuances like orders
and rules and regulations, said principle can nonetheless be applied, by analogy, to decisions made by the
President or the agencies under the executive department. This doctrine, in the interest of justice and equity, can be
applied liberally and in a broad sense to encompass said decisions of the executive branch. In keeping with the
 Page 121 of 162

demands of equity, the Court can apply the operative fact doctrine to acts and consequences that resulted from the
reliance not only on a law or executive act which is quasi-legislative in nature but also on decisions or orders of the
executive branch which were later nullified. This Court is not unmindful that such acts and consequences must be
recognized in the higher interest of justice, equity and fairness.

Significantly, a decision made by the President or the administrative agencies has to be complied with because it
has the force and effect of law, springing from the powers of the President under the Constitution and existing laws.
Prior to the nullification or recall of said decision, it may have produced acts and consequences in conformity to and
in reliance of said decision, which must be respected. It is on this score that the operative fact doctrine should be
applied to acts and consequences that resulted from the implementation of the PARC Resolution approving the SDP
of HLI.

More importantly, respondents, and even the minority, failed to clearly explain how the option to remain in HLI
granted to individual farmers would result in inequity and prejudice. We can only surmise that respondents
misinterpreted the option as a referendum where all the FWBs will be bound by a majority vote favoring the retention
of all the 6,296 FWBs as HLI stockholders. Respondents are definitely mistaken. The fallo of Our July 5, 2011
Decision is unequivocal that only those FWBs who signified their desire to remain as HLI stockholders are entitled to
18,804.32 shares each, while those who opted not to remain as HLI stockholders will be given land by DAR. Thus,
referendum was not required but only individual options were granted to each FWB whether or not they will remain
in HLI.

The application of the operative fact doctrine to the FWBs is not iniquitous and prejudicial to their interests but is
actually beneficial and fair to them. First, they are granted the right to remain in HLI as stockholders and they
acquired said shares without paying their value to the corporation. On the other hand, the qualified FWBs are
required to pay the value of the land to the Land Bank of the Philippines (LBP) if land is awarded to them by DAR
pursuant to RA 6657. If the qualified FWBs really want agricultural land, then they can simply say no to the option.
And second, if the operative fact doctrine is not applied to them, then the FWBs will be required to return to HLI the
3% production share, the 3% share in the proceeds of the sale of the 500-hectare converted land, and the 80.51-
hectare Subic-Clark-Tarlac Expressway (SCTEX) lot, the homelots and other benefits received by the FWBs from
HLI. With the application of the operative fact doctrine, said benefits, homelots and the 3% production share and 3%
share from the sale of the 500-hectare and SCTEX lots shall be respected with no obligation to refund or return
them. The receipt of these things is an operative fact "that can no longer be disturbed or simply ignored."

(b) The Operative Fact Doctrine as Recourse in Equity

As mentioned above, respondents contend that the operative fact doctrine is a rule of equity which may be applied
only in the absence of a law, and that in the instant case, there is a positive law which mandates the distribution of
the land as a result of the revocation of the SDP.

Undeniably, the operative fact doctrine is a rule of equity. 17 As a complement of legal jurisdiction, equity "seeks to
reach and complete justice where courts of law, through the inflexibility of their rules and want of power to adapt
their judgments to the special circumstances of cases, are incompetent to do so. Equity regards the spirit and not
the letter, the intent and not the form, the substance rather than the circumstance, as it is variously expressed by
different courts."18 Remarkably, it is applied only in the absence of statutory law and never in contravention of said
law.19

In the instant case, respondents argue that the operative fact doctrine should not be applied since there is a positive
law, particularly, Sec. 31 of RA 6657, which directs the distribution of the land as a result of the revocation of the
SDP. Pertinently, the last paragraph of Sec. 31 of RA 6657 states:

If within two (2) years from the approval of this Act, the land or stock transfer envisioned above is not made or
realized or the plan for such stock distribution approved by the PARC within the same period, the agricultural land of
the corporate owners or corporation shall be subject to the compulsory coverage of this Act. (Emphasis supplied.)
 Page 122 of 162

Markedly, the use of the word "or" under the last paragraph of Sec. 31 of RA 6657 connotes that the law gives the
corporate landowner an "option" to avail of the stock distribution option or to have the SDP approved within two (2)
years from the approval of RA 6657. This interpretation is consistent with the well-established principle in statutory
construction that "[t]he word or is a disjunctive term signifying disassociation and independence of one thing from
the other things enumerated; it should, as a rule, be construed in the sense in which it ordinarily implies, as a
disjunctive word."20 In PCI Leasing and Finance, Inc. v. Giraffe-X Creative Imaging, Inc.,21 this Court held:

Evidently, the letter did not make a demand for the payment of the P8,248,657.47 AND the return of the equipment;
only either one of the two was required. The demand letter was prepared and signed by Atty. Florecita R. Gonzales,
presumably petitioner’s counsel. As such, the use of "or" instead of "and" in the letter could hardly be treated as a
simple typographical error, bearing in mind the nature of the demand, the amount involved, and the fact that it was
made by a lawyer. Certainly Atty. Gonzales would have known that a world of difference exists between "and" and
"or" in the manner that the word was employed in the letter.

A rule in statutory construction is that the word "or" is a disjunctive term signifying dissociation and independence of
one thing from other things enumerated unless the context requires a different interpretation.22

In its elementary sense, "or", as used in a statute, is a disjunctive article indicating an alternative. It often
connects a series of words or propositions indicating a choice of either. When "or" is used, the various
members of the enumeration are to be taken separately.23

The word "or" is a disjunctive term signifying disassociation and independence of one thing from each of the other
things enumerated.24 (Emphasis in the original.)

Given that HLI secured approval of its SDP in November 1989, well within the two-year period reckoned from June
1988 when RA 6657 took effect, then HLI did not violate the last paragraph of Sec. 31 of RA 6657. Pertinently, said
provision does not bar Us from applying the operative fact doctrine.

Besides, it should be recognized that this Court, in its July 5, 2011 Decision, affirmed the revocation of Resolution
No. 89-12-2 and ruled for the compulsory coverage of the agricultural lands of Hacienda Luisita in view of HLI’s
violation of the SDP and DAO 10. By applying the operative fact doctrine, this Court merely gave the qualified FWBs
the option to remain as stockholders of HLI and ruled that they will retain the homelots and other benefits which they
received from HLI by virtue of the SDP.

It bears stressing that the application of the operative fact doctrine by the Court in its July 5, 2011 Decision is
favorable to the FWBs because not only were the FWBs allowed to retain the benefits and homelots they received
under the stock distribution scheme, they were also given the option to choose for themselves whether they want to
remain as stockholders of HLI or not. This is in recognition of the fact that despite the claims of certain farmer
groups that they represent the qualified FWBs in Hacienda Luisita, none of them can show that they are duly
authorized to speak on their behalf. As We have mentioned, "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."

II. Constitutionality of Sec. 31, RA 6657

FARM insists that the issue of constitutionality of Sec. 31 of RA 6657 is the lis mota of the case, raised at the
earliest opportunity, and not to be considered as moot and academic.25

This contention is unmeritorious. As We have succinctly discussed in Our July 5, 2011 Decision:

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
 Page 123 of 162

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. 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. If some other grounds exist by which judgment can be made
without touching the constitutionality of a law, such recourse is favored. 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.

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, 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. (Citations omitted; emphasis in the original.)

Based on the foregoing disquisitions, We maintain that this Court is NOT compelled to rule on the constitutionality of
Sec. 31 of RA 6657. In this regard, We clarify that this Court, in its July 5, 2011 Decision, made no ruling in favor of
the constitutionality of Sec. 31 of RA 6657. There was, however, a determination of the existence of an apparent
grave violation of the Constitution that may justify the resolution of the issue of constitutionality, to which this Court
ruled in the negative. Having clarified this matter, all other points raised by both FARM and AMBALA concerning the
constitutionality of RA 6657 deserve scant consideration.

III. Coverage of Compulsory Acquisition

 Page 124 of 162

FARM argues that this Court ignored certain material facts when it limited the maximum area to be covered to
4,915.75 hectares, whereas the area that should, at the least, be covered is 6,443 hectares, 26 which is the
agricultural land allegedly covered by RA 6657 and previously held by Tarlac Development Corporation (Tadeco).27

We cannot subscribe to this view. Since what is put in issue before the Court is the propriety of the revocation of the
SDP, which only involves 4,915.75 has. of agricultural land and not 6,443 has., then We are constrained to rule only
as regards the 4,915.75 has. of agricultural land.

Moreover, as admitted by FARM itself, this issue was raised for the first time by FARM in its Memorandum dated
September 24, 2010 filed before this Court.28 In this regard, it should be noted that "[a]s a legal recourse, the special
civil action of certiorari is a limited form of review." 29 The certiorari jurisdiction of this Court is narrow in scope as it is
restricted to resolving errors of jurisdiction and grave abuse of discretion, and not errors of judgment. 30 To allow
additional issues at this stage of the proceedings is violative of fair play, justice and due process.31

Nonetheless, it should be taken into account that this should not prevent the DAR, under its mandate under the
agrarian reform law, from subsequently subjecting to agrarian reform other agricultural lands originally held by
Tadeco that were allegedly not transferred to HLI but were supposedly covered by RA 6657.

DAR, however, contends that the declaration of the area32 to be awarded to each FWB is too restrictive. It stresses
that in agricultural landholdings like Hacienda Luisita, there are roads, irrigation canals, and other portions of the
land that are considered commonly-owned by farmworkers, and this may necessarily result in the decrease of the
area size that may be awarded per FWB.33 DAR also argues that the July 5, 2011 Decision of this Court does not
give it any leeway in adjusting the area that may be awarded per FWB in case the number of actual qualified FWBs
decreases.34

The argument is meritorious. In order to ensure the proper distribution of the agricultural lands of Hacienda Luisita
per qualified FWB, and considering that matters involving strictly the administrative implementation and enforcement
of agrarian reform laws are within the jurisdiction of the DAR,35 it is the latter which shall determine the area with
which each qualified FWB will be awarded.

(a) Conversion of Agricultural Lands

AMBALA insists that the conversion of the agricultural lands violated the conditions of RA 6657 and DAO 10, stating
that "keeping the land intact and unfragmented is one of the essential conditions of [the] SD[P], RA 6657 and DAO
10."36 It asserts that "this provision or conditionality is not mere decoration and is intended to ensure that the farmers
can continue with the tillage of the soil especially since it is the only occupation that majority of them knows."37

We disagree. As We amply discussed in Our July 5, 2011 Decision:

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
 Page 125 of 162

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."38

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

Moreover, it is worth noting that the application for conversion had the backing of 5,000 or so FWBs, including
respondents Rene Galang, and Jose Julio Suniga, then leaders of the AMBALA and the Supervisory Group,
respectively, as evidenced by the Manifesto of Support they signed and which was submitted to the DAR. 39 If at all,
this means that AMBALA should be estopped from questioning the conversion of a portion of Hacienda Luisita,
which its leader has fully supported.

(b) LIPCO and RCBC as Innocent Purchasers for Value

The AMBALA, Rene Galang and the FARM are in accord that Rizal Commercial Banking Corporation (RCBC) and
Luisita Industrial Park Corporation (LIPCO) are not innocent purchasers for value. The AMBALA, in particular,
argues that LIPCO, being a wholly-owned subsidiary of HLI, is conclusively presumed to have knowledge of the
agrarian dispute on the subject land and could not feign ignorance of this fact, especially since they have the same
directors and stockholders.40 This is seconded by Rene Galang and AMBALA, through the PILC, which intimate that
a look at the General Information Sheets of the companies involved in the transfers of the 300-hectare portion of
Hacienda Luisita, specifically, Centennary Holdings, Inc. (Centennary), LIPCO and RCBC, would readily reveal that
their directors are interlocked and connected to Tadeco and HLI.41 Rene Galang and AMBALA, through the PILC,
also allege that "with the clear-cut involvement of the leadership of all the corporations concerned, LIPCO and
RCBC cannot feign ignorance that the parcels of land they bought are under the coverage of the comprehensive
agrarian reform program [CARP] and that the conditions of the respective sales are imbued with public interest
where normal property relations in the Civil Law sense do not apply."42

Avowing that the land subject of conversion still remains undeveloped, Rene Galang and AMBALA, through the
PILC, further insist that the condition that "[t]he development of the land should be completed within the period of
five [5] years from the issuance of this Order" was not complied with. AMBALA also argues that since RCBC and
LIPCO merely stepped into the shoes of HLI, then they must comply with the conditions imposed in the conversion
order.43

In addition, FARM avers that among the conditions attached to the conversion order, which RCBC and LIPCO
necessarily have knowledge of, are (a) that its approval shall in no way amend, diminish, or alter the undertaking
and obligations of HLI as contained in the [SDP] approved on November 21, 1989; and (b) that the benefits, wages
and the like, received by the FWBs shall not in any way be reduced or adversely affected, among others.44

The contentions of respondents are wanting. In the first place, there is no denying that RCBC and LIPCO knew that
the converted lands they bought were under the coverage of CARP. Nevertheless, as We have mentioned in Our
July 5, 2011 Decision, this does not necessarily mean that both LIPCO and RCBC already acted in bad faith in
purchasing the converted lands. As this Court explained:

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
 Page 126 of 162

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." 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. (Emphasis supplied.)

In the second place, the allegation that the converted lands remain undeveloped is contradicted by the evidence on
record, particularly, Annex "X" of LIPCO’s Memorandum dated September 23, 2010, 45 which has photographs
showing that the land has been partly developed.46 Certainly, it is a general rule that the factual findings of
administrative agencies are conclusive and binding on the Court when supported by substantial
evidence.47 However, this rule admits of certain exceptions, one of which is when the findings of fact are premised
on the supposed absence of evidence and contradicted by the evidence on record.48

In the third place, by arguing that the companies involved in the transfers of the 300-hectare portion of Hacienda
Luisita have interlocking directors and, thus, knowledge of one may already be imputed upon all the other
companies, AMBALA and Rene Galang, in effect, want this Court to pierce the veil of corporate fiction. However,
piercing the veil of corporate fiction is warranted "only in cases when the separate legal entity is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, such that in the case of two corporations, the law
will regard the corporations as merged into one."49 As succinctly discussed by the Court in Velarde v. Lopez, Inc.:50

Petitioner argues nevertheless that jurisdiction over the subsidiary is justified by piercing the veil of corporate fiction.
Piercing the veil of corporate fiction is warranted, however, only in cases when the separate legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime, such that in the case of two corporations,
the law will regard the corporations as merged into one. The rationale behind piercing a corporation’s identity is to
remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal
schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities.

In applying the doctrine of piercing the veil of corporate fiction, the following requisites must be established: (1)
control, not merely majority or complete stock control; (2) such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest acts in
contravention of plaintiff’s legal rights; and (3) the aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of. (Citations omitted.)

Nowhere, however, in the pleadings and other records of the case can it be gathered that respondent has complete
control over Sky Vision, not only of finances but of policy and business practice in respect to the transaction
attacked, so that Sky Vision had at the time of the transaction no separate mind, will or existence of its own. The
existence of interlocking directors, corporate officers and shareholders is not enough justification to pierce the veil of
corporate fiction in the absence of fraud or other public policy considerations.
 Page 127 of 162

Absent any allegation or proof of fraud or other public policy considerations, the existence of interlocking directors,
officers and stockholders is not enough justification to pierce the veil of corporate fiction as in the instant case.

And in the fourth place, the fact that this Court, in its July 5, 2011 Decision, ordered the payment of the proceeds of
the sale of the converted land, and even of the 80.51-hectare land sold to the government, through the Bases
Conversion Development Authority, to the qualified FWBs, effectively fulfils the conditions in the conversion order, to
wit: (1) that its approval shall in no way amend, diminish, or alter the undertaking and obligations of HLI as
contained in the SDP approved on November 21, 1989; and (2) that the benefits, wages and the like, received by
the FWBs shall not in any way be reduced or adversely affected, among others.

A view has also been advanced that the 200-hectare lot transferred to Luisita Realty Corporation (LRC) should be
included in the compulsory coverage because the corporation did not intervene.

We disagree. Since the 200-hectare lot formed part of the SDP that was nullified by PARC Resolution 2005-32-01,
this Court is constrained to make a ruling on the rights of LRC over the said lot. Moreover, the 500-hectare portion of
Hacienda Luisita, of which the 200-hectare portion sold to LRC and the 300-hectare portion subsequently acquired
by LIPCO and RCBC were part of, was already the subject of the August 14, 1996 DAR Conversion Order. By virtue
of the said conversion order, the land was already reclassified as industrial/commercial land not subject to
compulsory coverage. Thus, if We place the 200-hectare lot sold to LRC under compulsory coverage, this Court
would, in effect, be disregarding the DAR Conversion Order, which has long attained its finality. And as this Court
held in Berboso v. CA,51 "Once final and executory, the Conversion Order can no longer be questioned." Besides, to
disregard the Conversion Order through the revocation of the approval of the SDP would create undue prejudice to
LRC, which is not even a party to the proceedings below, and would be tantamount to deprivation of property
without due process of law.

Nonethess, the minority is of the adamant view that since LRC failed to intervene in the instant case and was,
therefore, unable to present evidence supporting its good faith purchase of the 200-hectare converted land, then
LRC should be given full opportunity to present its case before the DAR. This minority view is a contradiction in
itself. Given that LRC did not intervene and is, therefore, not a party to the instant case, then it would be
incongruous to order them to present evidence before the DAR. Such an order, if issued by this Court, would not be
binding upon the LRC.

Moreover, LRC may be considered to have waived its right to participate in the instant petition since it did not
intervene in the DAR proceedings for the nullification of the PARC Resolution No. 89-12-2 which approved the SDP.

(c) Proceeds of the sale of the 500-hectare converted land

and of the 80.51-hectare land used for the SCTEX

As previously mentioned, We ruled in Our July 5, 2011 Decision that 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 compulsory coverage, then HLI and its subsidiary, Centennary, should be liable to the FWBs for the price
received for said lots. Thus:

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.
 Page 128 of 162

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.

HLI, however, takes exception to the above-mentioned ruling and contends that it is not proper to distribute the
unspent or unused balance of the proceeds of the sale of the 500-hectare converted land and 80.51-hectare SCTEX
lot to the qualified FWBs for the following reasons: (1) the proceeds of the sale belong to the corporation, HLI, as
corporate capital and assets in substitution for the portions of its land asset which were sold to third parties; (2) to
distribute the cash sales proceeds of the portions of the land asset to the FWBs, who are stockholders of HLI, is to
dissolve the corporation and distribute the proceeds as liquidating dividends without even paying the creditors of the
corporation; and (3) the doing of said acts would violate the stringent provisions of the Corporation Code and
corporate practice.52

Apparently, HLI seeks recourse to the Corporation Code in order to avoid its liability to the FWBs for the price
received for the 500-hectare converted lot and the 80.51-hectare SCTEX lot. However, as We have established in
Our July 5, 2011 Decision, the rights, obligations and remedies of the parties in the instant case are primarily
governed by RA 6657 and HLI cannot shield itself from the CARP coverage merely under the convenience of being
a corporate entity. In this regard, it should be underscored that the agricultural lands held by HLI by virtue of the
SDP are no ordinary assets. These are special assets, because, originally, these should have been distributed to
the FWBs were it not for the approval of the SDP by PARC. Thus, the government cannot renege on its
responsibility over these assets. Likewise, HLI is no ordinary corporation as it was formed and organized precisely
to make use of these agricultural lands actually intended for distribution to the FWBs. Thus, it cannot shield itself
from the coverage of CARP by invoking the Corporation Code. As explained by the Court:

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.53 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.54 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. (Emphasis
supplied.)

Considering that the 500-hectare converted land, as well as the 80.51-hectare SCTEX lot, should have been
included in the compulsory coverage were it not for their conversion and valid transfers, then it is only but proper
 Page 129 of 162

that the price received for the sale of these lots should be given to the qualified FWBs. In effect, the proceeds from
the sale shall take the place of the lots.

The Court, in its July 5, 2011 Decision, however, takes into account, inter alia, the payment of taxes and expenses
relating to the transfer of the land, as well as HLI’s statement that most, if not all, of the proceeds were used for
legitimate corporate purposes. Accordingly, We ordered the deduction of the taxes and expenses relating to the
transfer of titles to the transferees, and the expenditures incurred by HLI and Centennary for legitimate corporate
purposes, among others.

On this note, DAR claims that the "[l]egitimate corporate expenses should not be deducted as there is no basis for it,
especially since only the auditing to be conducted on the financial records of HLI will reveal the amounts to be offset
between HLI and the FWBs."55

The contention is unmeritorious. The possibility of an offsetting should not prevent Us from deducting the legitimate
corporate expenses incurred by HLI and Centennary. After all, the Court has ordered for a proper auditing "[i]n order
to determine once and for all whether or not all the proceeds were properly utilized by HLI and its subsidiary,
Centennary." In this regard, DAR is tasked to "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." Also, it should be noted that it is HLI which shall shoulder the cost of audit to
reduce the burden on the part of the FWBs. Concomitantly, the legitimate corporate expenses incurred by HLI and
Centennary, as will be determined by a reputable accounting firm to be engaged by DAR, shall be among the
allowable deductions from the proceeds of the sale of the 500-hectare land and the 80.51-hectare SCTEX lot.

We, however, find that the 3% production share should not be deducted from the proceeds of the sale of the 500-
hectare converted land and the 80.51-hectare SCTEX lot. The 3% production share, like the homelots, was among
the benefits received by the FWBs as farmhands in the agricultural enterprise of HLI and, thus, should not be taken
away from the FWBs.

Contrarily, the minority is of the view that as a consequence of the revocation of the SDP, the parties should be
restored to their respective conditions prior to its execution and approval, subject to the application of the principle of
set-off or compensation. Such view is patently misplaced.

The law on contracts, i.e. mutual restitution, does not apply to the case at bar. To reiterate, what was actually
revoked by this Court, in its July 5, 2011 Decision, is PARC Resolution No. 89-12-2 approving the SDP. To
elucidate, it was the SDP, not the SDOA, which was presented for approval by Tadeco to DAR. 56 The SDP
explained the mechanics of the stock distribution but did not make any reference nor correlation to the SDOA. The
pertinent portions of the proposal read:

MECHANICS OF STOCK DISTRIBUTION PLAN

Under Section 31 of Republic Act No. 6657, a corporation owning agricultural land may distribute among the
qualified beneficiaries such proportion or percentage of its capital stock that the value of the agricultural land
actually devoted to agricultural activities, bears in relation to the corporation’s total assets. Conformably with this
legal provision, Tarlac Development Corporation hereby submits for approval a stock distribution plan that envisions
the following:57 (Terms and conditions omitted; emphasis supplied)

xxxx

The above stock distribution plan is hereby submitted on the basis of all these benefits that the farmworker-
beneficiaries of Hacienda Luisita will receive under its provisions in addition to their regular compensation as
farmhands in the agricultural enterprise and the fringe benefits granted to them by their collective bargaining
agreement with management.58

Also, PARC Resolution No. 89-12-2 reads as follows:

 Page 130 of 162

RESOLUTION APPROVING THE STOCK DISTRIBUTION PLAN OF TARLAC DEVELOPMENT

COMPANY/HACIENDA LUISITA INCORPORATED (TDC/HLI)

NOW THEREFORE, on motion duly seconded,

RESOLVED, as it is hereby resolved, to approve the stock distribution plan of TDC/HLI.

UNANIMOUSLY APPROVED.59 (Emphasis supplied)

Clearly, what was approved by PARC is the SDP and not the SDOA. There is, therefore, no basis for this Court to
apply the law on contracts to the revocation of the said PARC Resolution.

IV. Just Compensation

In Our July 5, 2011 Decision, We stated that "HLI shall be paid just compensation for the remaining agricultural land
that will be transferred to DAR for land distribution to the FWBs." We also ruled that the date of the "taking" is
November 21, 1989, when PARC approved HLI’s SDP per PARC Resolution No. 89-12-2.

In its Motion for Clarification and Partial Reconsideration, HLI disagrees with the foregoing ruling and contends that
the "taking" should be reckoned from finality of the Decision of this Court, or at the very least, the reckoning period
may be tacked to January 2, 2006, the date when the Notice of Coverage was issued by the DAR pursuant to PARC
Resolution No. 2006-34-01 recalling/revoking the approval of the SDP.60

For their part, Mallari, et al. argue that the valuation of the land cannot be based on November 21, 1989, the date of
approval of the SDP. Instead, they aver that the date of "taking" for valuation purposes is a factual issue best left to
the determination of the trial courts.61

At the other end of the spectrum, AMBALA alleges that HLI should no longer be paid just compensation for the
agricultural land that will be distributed to the FWBs, since the Manila Regional Trial Court (RTC) already rendered a
decision ordering "the Cojuangcos to transfer the control of Hacienda Luisita to the Ministry of Agrarian Reform,
which will distribute the land to small farmers after compensating the landowners P3.988 million." 62 In the event,
however, that this Court will rule that HLI is indeed entitled to compensation, AMBALA contends that it should be
pegged at forty thousand pesos (PhP 40,000) per hectare, since this was the same value that Tadeco declared in
1989 to make sure that the farmers will not own the majority of its stocks.63

Despite the above propositions, We maintain that the date of "taking" is November 21, 1989, the date when PARC
approved HLI’s SDP per PARC Resolution No. 89-12-2, in view of the fact that this is the time that the FWBs were
considered to own and possess the agricultural lands in Hacienda Luisita. To be precise, these lands became
subject of the agrarian reform coverage through the stock distribution scheme only upon the approval of the SDP,
that is, November 21, 1989. Thus, such approval is akin to a notice of coverage ordinarily issued under compulsory
acquisition. Further, any doubt should be resolved in favor of the FWBs. As this Court held in Perez-Rosario v. CA:64

It is an established social and economic fact that the escalation of poverty is the driving force behind the political
disturbances that have in the past compromised the peace and security of the people as well as the continuity of the
national order. To subdue these acute disturbances, the legislature over the course of the history of the nation
passed a series of laws calculated to accelerate agrarian reform, ultimately to raise the material standards of living
and eliminate discontent. Agrarian reform is a perceived solution to social instability. The edicts of social justice
found in the Constitution and the public policies that underwrite them, the extraordinary national experience, and the
prevailing national consciousness, all command the great departments of government to tilt the balance in favor of
the poor and underprivileged whenever reasonable doubt arises in the interpretation of the law. But annexed to the
great and sacred charge of protecting the weak is the diametric function to put every effort to arrive at an equitable
solution for all parties concerned: the jural postulates of social justice cannot shield illegal acts, nor do they sanction
false sympathy towards a certain class, nor yet should they deny justice to the landowner whenever truth and justice
happen to be on her side. In the occupation of the legal questions in all agrarian disputes whose outcomes can
significantly affect societal harmony, the considerations of social advantage must be weighed, an inquiry into the
 Page 131 of 162

prevailing social interests is necessary in the adjustment of conflicting demands and expectations of the people, and
the social interdependence of these interests, recognized. (Emphasis supplied.)

The minority contends that it is the date of the notice of coverage, that is, January 2, 2006, which is determinative of
the just compensation HLI is entitled to for its expropriated lands. To support its contention, it cited numerous cases
where the time of the taking was reckoned on the date of the issuance of the notice of coverage.

However, a perusal of the cases cited by the minority would reveal that none of them involved the stock distribution
scheme. Thus, said cases do not squarely apply to the instant case. Moreover, it should be noted that it is precisely
because the stock distribution option is a distinctive mechanism under RA 6657 that it cannot be treated similarly
with that of compulsory land acquisition as these are two (2) different modalities under the agrarian reform program.
As We have stated in Our July 5, 2011 Decision, RA 6657 "provides two (2) alternative modalities, i.e., land or stock
transfer, pursuant to either of which the corporate landowner can comply with CARP."

In this regard, it should be noted that when HLI submitted the SDP to DAR for approval, it cannot be gainsaid that
the stock distribution scheme is clearly HLI’s preferred modality in order to comply with CARP. And when the SDP
was approved, stocks were given to the FWBs in lieu of land distribution. As aptly observed by the minority itself,
"[i]nstead of expropriating lands, what the government took and distributed to the FWBs were shares of stock of
petitioner HLI in proportion to the value of the agricultural lands that should have been expropriated and turned over
to the FWBs." It cannot, therefore, be denied that upon the approval of the SDP submitted by HLI, the agricultural
lands of Hacienda Luisita became subject of CARP coverage. Evidently, the approval of the SDP took the place of a
notice of coverage issued under compulsory acquisition.

Also, it is surprising that while the minority opines that under the stock distribution option, "title to the property
remains with the corporate landowner, which should presumably be dominated by farmers with majority
stockholdings in the corporation," it still insists that the just compensation that should be given to HLI is to be
reckoned on January 2, 2006, the date of the issuance of the notice of coverage, even after it found that the FWBs
did not have the majority stockholdings in HLI contrary to the supposed avowed policy of the law. In effect, what the
minority wants is to prejudice the FWBs twice. Given that the FWBs should have had majority stockholdings in HLI
but did not, the minority still wants the government to pay higher just compensation to HLI. Even if it is the
government which will pay the just compensation to HLI, this will also affect the FWBs as they will be paying higher
amortizations to the government if the "taking" will be considered to have taken place only on January 2, 2006.

The foregoing notwithstanding, it bears stressing that the DAR's land valuation is only preliminary and is not, by any
means, final and conclusive upon the landowner. The landowner can file an original action with the RTC acting as a
special agrarian court to determine just compensation. The court has the right to review with finality the
determination in the exercise of what is admittedly a judicial function.65

A view has also been advanced that HLI should pay the qualified FWBs rental for the use and possession of the
land up to the time it surrenders possession and control over these lands. What this view fails to consider is the fact
that the FWBs are also stockholders of HLI prior to the revocation of PARC Resolution No. 89-12-2. Also, the
income earned by the corporation from its possession and use of the land ultimately redounded to the benefit of the
FWBs based on its business operations in the form of salaries, benefits voluntarily granted by HLI and other fringe
benefits under their Collective Bargaining Agreement. That being so, there would be unjust enrichment on the part
of the FWBs if HLI will still be required to pay rent for the use of the land in question.

V. Sale to Third Parties

There is a view that since the agricultural lands in Hacienda Luisita were placed under CARP coverage through the
SDOA scheme on May 11, 1989, then the 10-year period prohibition on the transfer of awarded lands under RA
6657 lapsed on May 10, 1999, and, consequently, the qualified FWBs should already be allowed to sell these lands
with respect to their land interests to third parties, including HLI, regardless of whether they have fully paid for the
lands or not.

The proposition is erroneous. Sec. 27 of RA 6657 states:

 Page 132 of 162

SEC. 27. Transferability of Awarded Lands. - Lands acquired by beneficiaries under this Act may not be sold,
transferred or conveyed except through hereditary succession, or to the government, or to the LBP, or to other
qualified beneficiaries for a period of ten (10) years: Provided, however, That the children or the spouse of the
transferor shall have a right to repurchase the land from the government or LBP within a period of two (2) years.
Due notice of the availability of the land shall be given by the LBP to the Barangay Agrarian Reform Committee
(BARC) of the barangay where the land is situated. The Provincial Agrarian Coordinating Committee (PARCCOM),
as herein provided, shall, in turn, be given due notice thereof by the BARC.

If the land has not yet been fully paid by the beneficiary, the right to the land may be transferred or conveyed, with
prior approval of the DAR, to any heir of the beneficiary or to any other beneficiary who, as a condition for such
transfer or conveyance, shall cultivate the land himself. Failing compliance herewith, the land shall be transferred to
the LBP which shall give due notice of the availability of the land in the manner specified in the immediately
preceding paragraph.

In the event of such transfer to the LBP, the latter shall compensate the beneficiary in one lump sum for the
amounts the latter has already paid, together with the value of improvements he has made on the land. (Emphasis
supplied.)

To implement the above-quoted provision, inter alia, DAR issued Administrative Order No. 1, Series of 1989 (DAO
1) entitled Rules and Procedures Governing Land Transactions. Said Rules set forth the rules on validity of land
transactions, to wit:

II. RULES ON VALIDITY OF LAND TRANSACTIONS

A. The following transactions are valid:

1. Those executed by the original landowner in favor of the qualified beneficiary from among those certified
by DAR.

2. Those in favor of the government, DAR or the Land Bank of the Philippines.

3. Those covering lands retained by the landowner under Section 6 of R.A. 6657 duly certified by the
designated DAR Provincial Agrarian Reform Officer (PARO) as a retention area, executed in favor of
transferees whose total landholdings inclusive of the land to be acquired do not exceed five (5) hectares;
subject, however, to the right of pre-emption and/or redemption of tenant/lessee under Section 11 and 12 of
R.A. 3844, as amended.

xxxx

4. Those executed by beneficiaries covering lands acquired under any agrarian reform law in favor of the
government, DAR, LBP or other qualified beneficiaries certified by DAR.

5. Those executed after ten (10) years from the issuance and registration of the Emancipation Patent or
Certificate of Land Ownership Award.

B. The following transactions are not valid:

1. Sale, disposition, lease management contract or transfer of possession of private lands executed by the
original landowner prior to June 15, 1988, which are registered on or before September 13, 1988, or those
executed after June 15, 1988, covering an area in excess of the five-hectare retention limit in violation of
R.A. 6657.

2. Those covering lands acquired by the beneficiary under R.A. 6657 and executed within ten (10) years
from the issuance and registration of an Emancipation Patent or Certificate of Land Ownership Award.
 Page 133 of 162

3. Those executed in favor of a person or persons not qualified to acquire land under R.A. 6657.

4. Sale, transfer, conveyance or change of nature of the land outside of urban centers and city limits either in
whole or in part as of June 15, 1988, when R.A. 6657 took effect, except as provided for under DAR
Administrative Order No. 15, series of 1988.

5. Sale, transfer or conveyance by beneficiary of the right to use or any other usufructuary right over the land
he acquired by virtue of being a beneficiary, in order to circumvent the law.

x x x x (Emphasis supplied.)

Without a doubt, under RA 6657 and DAO 1, the awarded lands may only be transferred or conveyed after ten (10)
years from the issuance and registration of the emancipation patent (EP) or certificate of land ownership award
(CLOA). Considering that the EPs or CLOAs have not yet been issued to the qualified FWBs in the instant case, the
10-year prohibitive period has not even started. Significantly, the reckoning point is the issuance of the EP or CLOA,
and not the placing of the agricultural lands under CARP coverage.

Moreover, if We maintain the position that the qualified FWBs should be immediately allowed the option to sell or
convey the agricultural lands in Hacienda Luisita, then all efforts at agrarian reform would be rendered nugatory by
this Court, since, at the end of the day, these lands will just be transferred to persons not entitled to land distribution
under CARP. As aptly noted by the late Senator Neptali Gonzales during the Joint Congressional Conference
Committee on the Comprehensive Agrarian Reform Program Bills:

SEN. GONZALES. My point is, as much as possible let the said lands be distributed under CARP remain with the
beneficiaries and their heirs because that is the lesson that we have to learn from PD No. 27. If you will talk with the
Congressmen representing Nueva Ecija, Pampanga and Central Luzon provinces, law or no law, you will find out
that more than one-third of the original, of the lands distributed under PD 27 are no longer owned, possessed or
being worked by the grantees or the awardees of the same, something which we ought to avoid under the CARP bill
that we are going to enact.66 (Emphasis supplied.)

Worse, by raising that the qualified beneficiaries may sell their interest back to HLI, this smacks of outright
indifference to the provision on retention limits67 under RA 6657, as this Court, in effect, would be allowing HLI, the
previous landowner, to own more than five (5) hectares of agricultural land, which We cannot countenance. There is
a big difference between the ownership of agricultural lands by HLI under the stock distribution scheme and its
eventual acquisition of the agricultural lands from the qualified FWBs under the proposed buy-back scheme. The
rule on retention limits does not apply to the former but only to the latter in view of the fact that the stock distribution
scheme is sanctioned by Sec. 31 of RA 6657, which specifically allows corporations to divest a proportion of their
capital stock that "the agricultural land, actually devoted to agricultural activities, bears in relation to the company’s
total assets." On the other hand, no special rules exist under RA 6657 concerning the proposed buy-back scheme;
hence, the general rules on retention limits should apply.

Further, the position that the qualified FWBs are now free to transact with third parties concerning their land
interests, regardless of whether they have fully paid for the lands or not, also transgresses the second paragraph of
Sec. 27 of RA 6657, which plainly states that "[i]f the land has not yet been fully paid by the beneficiary, the right to
the land may be transferred or conveyed, with prior approval of the DAR, to any heir of the beneficiary or to any
other beneficiary who, as a condition for such transfer or conveyance, shall cultivate the land himself. Failing
compliance herewith, the land shall be transferred to the LBP x x x." When the words and phrases in the statute are
clear and unequivocal, the law is applied according to its express terms.68 Verba legis non est recedendum, or from
the words of a statute there should be no departure.69

The minority, however, posits that "[t]o insist that the FWBs’ rights sleep for a period of ten years is unrealistic, and
may seriously deprive them of real opportunities to capitalize and maximize the victory of direct land distribution." By
insisting that We disregard the ten-year restriction under the law in the case at bar, the minority, in effect, wants this
Court to engage in judicial legislation, which is violative of the principle of separation of powers. 70 The discourse by
Ruben E. Agpalo, in his book on statutory construction, is enlightening:
 Page 134 of 162

Where the law is clear and unambiguous, it must be taken to mean exactly what it says and the court has no choice
but to see to it that its mandate is obeyed. Where the law is clear and free from doubt or ambiguity, there is no room
for construction or interpretation. Thus, where what is not clearly provided in the law is read into the law by
construction because it is more logical and wise, it would be to encroach upon legislative prerogative to define the
wisdom of the law, which is judicial legislation. For whether a statute is wise or expedient is not for the courts to
determine. Courts must administer the law, not as they think it ought to be but as they find it and without regard to
consequences.71 (Emphasis supplied.)

And as aptly stated by Chief Justice Renato Corona in his Dissenting Opinion in Ang Ladlad LGBT Party v.
COMELEC:72

Regardless of the personal beliefs and biases of its individual members, this Court can only apply and interpret the
Constitution and the laws. Its power is not to create policy but to recognize, review or reverse the policy crafted by
the political departments if and when a proper case is brought before it. Otherwise, it will tread on the dangerous
grounds of judicial legislation.

Considerably, this Court is left with no other recourse but to respect and apply the law.

VI. Grounds for Revocation of the SDP

AMBALA and FARM reiterate that improving the economic status of the FWBs is among the legal obligations of HLI
under the SDP and is an imperative imposition by RA 6657 and DAO 10. 73 FARM further asserts that "[i]f that
minimum threshold is not met, why allow [stock distribution option] at all, unless the purpose is not social justice but
a political accommodation to the powerful."74

Contrary to the assertions of AMBALA and FARM, nowhere in the SDP, RA 6657 and DAO 10 can it be inferred that
improving the economic status of the FWBs is among the legal obligations of HLI under the SDP or is an imperative
imposition by RA 6657 and DAO 10, a violation of which would justify discarding the stock distribution option. As We
have painstakingly explained in Our July 5, 2011 Decision:

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.
 Page 135 of 162

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. 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. 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.

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." 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.75 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. (Citations omitted;
emphasis in the original.)

This Court, despite the above holding, still affirmed the revocation by PARC of its approval of the SDP based on the
following grounds: (1) failure of HLI to fully comply with its undertaking to distribute homelots to the FWBs under the
SDP; (2) distribution of shares of stock to the FWBs based on the number of "man days" or "number of days
worked" by the FWB in a year’s time; and (3) 30-year timeframe for the implementation or distribution of the shares
of stock to the FWBs.

Just the same, Mallari, et al. posit that the homelots required to be distributed have all been distributed pursuant to
the SDOA, and that what merely remains to be done is the release of title from the Register of Deeds. 76 They further
assert that there has been no dilution of shares as the corporate records would show that if ever not all of the
18,804.32 shares were given to the actual original FWB, the recipient of the difference is the next of kin or children
 Page 136 of 162

of said original FWB.77 Thus, they submit that since the shares were given to the same "family beneficiary," this
should be deemed as substantial compliance with the provisions of Sec. 4 of DAO 10.78 Also, they argue that there
has been no violation of the three-month period to implement the SDP as mandated by Sec. 11 of DAO, since this
provision must be read in light of Sec. 10 of Executive Order No. 229, the pertinent portion of which reads, "The
approval by the PARC of a plan for such stock distribution, and its initial implementation, shall be deemed
compliance with the land distribution requirement of the CARP."79

Again, the matters raised by Mallari, et al. have been extensively discussed by the Court in its July 5, 2011 Decision.
As stated:

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.

 Page 137 of 162

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.

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." 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.

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

Now then, by providing that the number of shares of the original 1989 FWBs shall depend on the number of "man
days," HLI violated the afore-quoted rule on stock distribution and effectively deprived the FWBs of equal shares of
stock in the corporation, for, in net effect, these 6,296 qualified FWBs, who theoretically had given up their rights to
the land that could have been distributed to them, suffered a dilution of their due share entitlement. As has been
observed during the oral arguments, HLI has chosen to use the shares earmarked for farmworkers as reward
system chips to water down the shares of the original 6,296 FWBs. Particularly:
 Page 138 of 162

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?

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
 Page 139 of 162

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.

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. The PARC is, therefore, correct in revoking the SDP. Consequently, the
 Page 140 of 162

PARC Resolution No. 89-12-2 dated November 21, l989 approving the HLI’s SDP is nullified and voided. (Citations
omitted; emphasis in the original.)

Based on the foregoing ruling, the contentions of Mallari, et al. are either not supported by the evidence on record or
are utterly misplaced. There is, therefore, no basis for the Court to reverse its ruling affirming PARC Resolution No.
2005-32-01 and PARC Resolution No. 2006-34-01, revoking the previous approval of the SDP by PARC.

VII. Control over Agricultural Lands

After having discussed and considered the different contentions raised by the parties in their respective motions, We
are now left to contend with one crucial issue in the case at bar, that is, control over the agricultural lands by the
qualified FWBs.

Upon a review of the facts and circumstances, We realize that the FWBs will never have control over these
agricultural lands for as long as they remain as stockholders of HLI. In Our July 5, 2011 Decision, this Court made
the following observations:

There is, thus, nothing unconstitutional in the formula prescribed by RA 6657. The policy on agrarian reform is that
control over the agricultural land must always be in the hands of the farmers. Then it falls on the shoulders of DAR
and PARC to see to it the farmers should always own majority of the common shares entitled to elect the members
of the board of directors to ensure that the farmers will have a clear majority in the board. Before the SDP is
approved, strict scrutiny of the proposed SDP must always be undertaken by the DAR and PARC, such that the
value of the agricultural land contributed to the corporation must always be more than 50% of the total assets of the
corporation to ensure that the majority of the members of the board of directors are composed of the farmers. The
PARC composed of the President of the Philippines and cabinet secretaries must see to it that control over the
board of directors rests with the farmers by rejecting the inclusion of 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. (Emphasis supplied.)

In line with Our finding that control over agricultural lands must always be in the hands of the farmers, We
reconsider our ruling that the qualified FWBs should be given an option to remain as stockholders of HLI, inasmuch
as these qualified FWBs will never gain control given the present proportion of shareholdings in HLI.

A revisit of HLI’s Proposal for Stock Distribution under CARP and the Stock Distribution Option Agreement (SDOA)
upon which the proposal was based reveals that the total assets of HLI is PhP 590,554,220, while the value of the
4,915.7466 hectares is PhP 196,630,000. Consequently, the share of the farmer-beneficiaries in the HLI capital
stock is 33.296% (196,630,000 divided by 590,554.220); 118,391,976.85 HLI shares represent 33.296%. Thus,
even if all the holders of the 118,391,976.85 HLI shares unanimously vote to remain as HLI stockholders, which is
unlikely, control will never be placed in the hands of the farmer-beneficiaries.  Control, of course, means the
1awp++i1

majority of 50% plus at least one share of the common shares and other voting shares. Applying the formula to the
HLI stockholdings, the number of shares that will constitute the majority is 295,112,101 shares (590,554,220 divided
by 2 plus one [1] HLI share). The 118,391,976.85 shares subject to the SDP approved by PARC substantially fall
short of the 295,112,101 shares needed by the FWBs to acquire control over HLI. Hence, control can NEVER be
attained by the FWBs. There is even no assurance that 100% of the 118,391,976.85 shares issued to the FWBs will
all be voted in favor of staying in HLI, taking into account the previous referendum among the farmers where said
shares were not voted unanimously in favor of retaining the SDP. In light of the foregoing consideration, the option
to remain in HLI granted to the individual FWBs will have to be recalled and revoked.

Moreover, bearing in mind that with the revocation of the approval of the SDP, HLI will no longer be operating under
SDP and will only be treated as an ordinary private corporation; the FWBs who remain as stockholders of HLI will be
treated as ordinary stockholders and will no longer be under the protective mantle of RA 6657.
 Page 141 of 162

In addition to the foregoing, in view of the operative fact doctrine, all the benefits and homelots 80 received by all the
FWBs shall be respected with no obligation to refund or return them, since, as We have mentioned in our July 5,
2011 Decision, "the benefits x x x 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."

One last point, the HLI land shall be distributed only to the 6,296 original FWBs. The remaining 4,206 FWBs are not
entitled to any portion of the HLI land, because the rights to said land were vested only in the 6,296 original FWBs
pursuant to Sec. 22 of RA 6657.

In this regard, DAR shall verify the identities of the 6,296 original FWBs, consistent with its administrative
prerogative to identify and select the agrarian reform beneficiaries under RA 6657.81

WHEREFORE, the Motion for Partial Reconsideration dated July 20, 2011 filed by public respondents Presidential
Agrarian Reform Council and Department of Agrarian Reform, the Motion for Reconsideration dated July 19, 2011
filed by private respondent Alyansa ng mga Manggagawang Bukid sa Hacienda Luisita, the Motion for
Reconsideration dated July 21, 2011 filed by respondent-intervenor Farmworkers Agrarian Reform Movement, Inc.,
and the Motion for Reconsideration dated July 22, 2011 filed by private respondents Rene Galang and AMBALA are
PARTIALLY GRANTED with respect to the option granted to the original farmworker-beneficiaries of Hacienda
Luisita to remain with Hacienda Luisita, Inc., which is hereby RECALLED and SET ASIDE. The Motion for
Clarification and Partial Reconsideration dated July 21, 2011 filed by petitioner HLI and the Motion for
Reconsideration dated July 21, 2011 filed by private respondents Noel Mallari, Julio Suniga, Supervisory Group of
Hacienda Luisita, Inc. and Windsor Andaya are DENIED.

The fallo of the Court’s July 5, 2011 Decision is hereby amended and shall read:

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 following modifications:

All salaries, benefits, the 3% of the gross sales of the production of the agricultural lands, the 3% share in the
proceeds of the sale of the 500-hectare converted land and the 80.51-hectare SCTEX lot and the homelots already
received by the 10,502 FWBs composed of 6,296 original FWBs and the 4,206 non-qualified FWBs shall be
respected with no obligation to refund or return them. The 6,296 original FWBs shall forfeit and relinquish their rights
over the HLI shares of stock issued to them in favor of HLI. The HLI Corporate Secretary shall cancel the shares
issued to the said FWBs and transfer them to HLI in the stocks and transfer book, which transfers shall be exempt
from taxes, fees and charges. The 4,206 non-qualified FWBs shall remain as stockholders of HLI.

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 500-hectare lot subject of the August 14, l996 Conversion Order and the
80.51-hectare lot sold to, or acquired by, the government as part of the SCTEX complex. After the segregation
process, as indicated, is done, the remaining area shall be turned over to DAR for immediate land distribution to the
original 6,296 FWBs or their successors-in-interest which will be identified by the DAR. The 4,206 non-qualified
FWBs are not entitled to any share in the land to be distributed by DAR. 1âwphi1

HLI is directed to pay the original 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 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
 Page 142 of 162

1,330,511,500 proceeds of the sale of the three (3) aforementioned lots were actually used or spent for legitimate
corporate purposes. Any unspent or unused balance and any disallowed expenditures 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 which is the date of issuance of 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 within the first 15 days after
the end of each quarter, until fully implemented.

The temporary restraining order is lifted.

SO ORDERED.

G.R. No. L-4817             May 26, 1954

SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants,

vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL., defendants-appellants.
 Page 143 of 162

This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical practitioner, a public
accountant, a dental surgeon and a pharmacist, purportedly "in their own behalf and in behalf of other professionals
practising in the City of Manila who may desire to join it." Object of the suit is the annulment of Ordinance No. 3398
of the City of Manila together with the provision of the Manila charter authorizing it and the refund of taxes collected
under the ordinance but paid under protest.

The ordinance in question, which was approved by the municipal board of the City of Manila on July 25, 1950,
imposes a municipal occupation tax on persons exercising various professions in the city and penalizes non-
payment of the tax "by a fine of not more than two hundred pesos or by imprisonment of not more than six months,
or by both such fine and imprisonment in the discretion of the court." Among the professions taxed were those to
which plaintiffs belong. The ordinance was enacted pursuant to paragraph (1) of section 18 of the Revised Charter
of the City of Manila (as amended by Republic Act No. 409), which empowers the Municipal Board of said city to
impose a municipal occupation tax, not to exceed P50 per annum, on persons engaged in the various professions
above referred to.

Having already paid their occupation tax under section 201 of the National Internal Revenue Code, plaintiffs, upon
being required to pay the additional tax prescribed in the ordinance, paid the same under protest and then brought
the present suit for the purpose already stated. The lower court upheld the validity of the provision of law authorizing
the enactment of the ordinance but declared the ordinance itself illegal and void on the ground that the penalty there
in provided for non-payment of the tax was not legally authorized. From this decision both parties appealed to this
Court, and the only question they have presented for our determination is whether this ruling is correct or not, for
though the decision is silent on the refund of taxes paid plaintiffs make no assignment of error on this point.

To begin with defendants' appeal, we find that the lower court was in error in saying that the imposition of the
penalty provided for in the ordinance was without the authority of law. The last paragraph (kk) of the very section
that authorizes the enactment of this tax ordinance (section 18 of the Manila Charter) in express terms also
empowers the Municipal Board "to fix penalties for the violation of ordinances which shall not exceed to(sic) two
hundred pesos fine or six months" imprisonment, or both such fine and imprisonment, for a single offense." Hence,
the pronouncement below that the ordinance in question is illegal and void because it imposes a penalty not
authorized by law is clearly without basis.

As to plaintiffs' appeal, the contention in substance is that this ordinance and the law authorizing it constitute class
legislation, are unjust and oppressive, and authorize what amounts to double taxation.

In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not that the professions to which
they respectively belong have been singled out for the imposition of this municipal occupation tax; and in any event,
the Legislature may, in its discretion, select what occupations shall be taxed, and in the exercise of that discretion it
may tax all, or it may select for taxation certain classes and leave the others untaxed. (Cooley on Taxation, Vol. 4,
4th ed., pp. 3393-3395.) Plaintiffs' complaint is that while the law has authorized the City of Manila to impose the
said tax, it has withheld that authority from other chartered cities, not to mention municipalities. We do not think it is
for the courts to judge what particular cities or municipalities should be empowered to impose occupation taxes in
addition to those imposed by the National Government. That matter is peculiarly within the domain of the political
departments and the courts would do well not to encroach upon it. Moreover, as the seat of the National
Government and with a population and volume of trade many times that of any other Philippine city or municipality,
Manila, no doubt, offers a more lucrative field for the practice of the professions, so that it is but fair that the
professionals in Manila be made to pay a higher occupation tax than their brethren in the provinces.

Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination within a class in
that while professionals with offices in Manila have to pay the tax, outsiders who have no offices in the city but
practice their profession therein are not subject to the tax. Plaintiffs make a distinction that is not found in the
ordinance. The ordinance imposes the tax upon every person "exercising" or "pursuing" — in the City of Manila
naturally — any one of the occupations named, but does not say that such person must have his office in Manila.
What constitutes exercise or pursuit of a profession in the city is a matter of judicial determination. The argument
against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the
city (1 Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing inherently obnoxious in
 Page 144 of 162

the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both
the state and the political subdivisions thereof. (51 Am. Jur., 341.)

In view of the foregoing, the judgment appealed from is reversed in so far as it declares Ordinance No. 3398 of the
City of Manila illegal and void and affirmed in so far as it holds the validity of the provision of the Manila charter
authorizing it. With costs against plaintiffs-appellants.

G.R. No. L-19201             June 16, 1965

 Page 145 of 162

REV. FR. CASIMIRO LLADOC, petitioner,

vs.
The COMMISSIONER OF INTERNAL REVENUE and The COURT of TAX APPEALS, respondents.

Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then
parish priest of Victorias, Negros Occidental, and predecessor of herein petitioner, for the construction of a new
Catholic Church in the locality. The total amount was actually spent for the purpose intended.

On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under date of April 29, 1960, the
respondent Commissioner of Internal Revenue issued an assessment for donee's gift tax against the Catholic
Parish of Victorias, Negros Occidental, of which petitioner was the priest. The tax amounted to P1,370.00 including
surcharges, interests of 1% monthly from May 15, 1958 to June 15, 1960, and the compromise for the late filing of
the return.

Petitioner lodged a protest to the assessment and requested the withdrawal thereof. The protest and the motion for
reconsideration presented to the Commissioner of Internal Revenue were denied. The petitioner appealed to the
Court of Tax Appeals on November 2, 1960. In the petition for review, the Rev. Fr. Casimiro Lladoc claimed, among
others, that at the time of the donation, he was not the parish priest in Victorias; that there is no legal entity or
juridical person known as the "Catholic Parish Priest of Victorias," and, therefore, he should not be liable for the
donee's gift tax. It was also asserted that the assessment of the gift tax, even against the Roman Catholic Church,
would not be valid, for such would be a clear violation of the provisions of the Constitution.

After hearing, the CTA rendered judgment, the pertinent portions of which are quoted below:

... . Parish priests of the Roman Catholic Church under canon laws are similarly situated as its Archbishops
and Bishops with respect to the properties of the church within their parish. They are the guardians,
superintendents or administrators of these properties, with the right of succession and may sue and be
sued.

xxx     xxx     xxx

The petitioner impugns the, fairness of the assessment with the argument that he should not be held liable
for gift taxes on donation which he did not receive personally since he was not yet the parish priest of
Victorias in the year 1957 when said donation was given. It is intimated that if someone has to pay at all, it
should be petitioner's predecessor, the Rev. Fr. Crispin Ruiz, who received the donation in behalf of the
Catholic parish of Victorias or the Roman Catholic Church. Following petitioner's line of thinking, we should
be equally unfair to hold that the assessment now in question should have been addressed to, and collected
from, the Rev. Fr. Crispin Ruiz to be paid from income derived from his present parish where ever it may be.
It does not seem right to indirectly burden the present parishioners of Rev. Fr. Ruiz for donee's gift tax on a
donation to which they were not benefited.

xxx     xxx     xxx

We saw no legal basis then as we see none now, to include within the Constitutional exemption, taxes which
partake of the nature of an excise upon the use made of the properties or upon the exercise of the privilege
of receiving the properties. (Phipps vs. Commissioner of Internal Revenue, 91 F [2d] 627; 1938, 302 U.S.
742.)

It is a cardinal rule in taxation that exemptions from payment thereof are highly disfavored by law, and the
party claiming exemption must justify his claim by a clear, positive, or express grant of such privilege by law.
(Collector vs. Manila Jockey Club, G.R. No. L-8755, March 23, 1956; 53 O.G. 3762.)

The phrase "exempt from taxation" as employed in Section 22(3), Article VI of the Constitution of the
Philippines, should not be interpreted to mean exemption from all kinds of taxes. Statutes exempting
 Page 146 of 162

charitable and religious property from taxation should be construed fairly though strictly and in such manner
as to give effect to the main intent of the lawmakers. (Roman Catholic Church vs. Hastrings 5 Phil. 701.)

x x x           x x x           x x xWHEREFORE, in view of the foregoing considerations, the decision of the

respondent Commissioner of Internal Revenue appealed from, is hereby affirmed except with regard to the
imposition of the compromise penalty in the amount of P20.00 (Collector of Internal Revenue v. U.S.T., G.R.
No. L-11274, Nov. 28, 1958); ..., and the petitioner, the Rev. Fr. Casimiro Lladoc is hereby ordered to pay to
the respondent the amount of P900.00 as donee's gift tax, plus the surcharge of five per centum (5%) as ad
valorem penalty under Section 119 (c) of the Tax Code, and one per centum (1%) monthly interest from
May 15, 1958 to the date of actual payment. The surcharge of 25% provided in Section 120 for failure to file
a return may not be imposed as the failure to file a return was not due to willful neglect.( ... ) No costs.

The above judgment is now before us on appeal, petitioner assigning two (2) errors allegedly committed by the Tax
Court, all of which converge on the singular issue of whether or not petitioner should be liable for the assessed
donee's gift tax on the P10,000.00 donated for the construction of the Victorias Parish Church.

Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation cemeteries, churches and
parsonages or convents, appurtenant thereto, and all lands, buildings, and improvements used exclusively for
religious purposes. The exemption is only from the payment of taxes assessed on such properties enumerated, as
property taxes, as contra distinguished from excise taxes. In the present case, what the Collector assessed was a
donee's gift tax; the assessment was not on the properties themselves. It did not rest upon general ownership; it
was an excise upon the use made of the properties, upon the exercise of the privilege of receiving the properties
(Phipps vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift tax is not within the exempting provisions of the section
just mentioned. A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of
gift inter vivos, the imposition of which on property used exclusively for religious purposes, does not constitute an
impairment of the Constitution. As well observed by the learned respondent Court, the phrase "exempt from
taxation," as employed in the Constitution (supra) should not be interpreted to mean exemption from all kinds of
taxes. And there being no clear, positive or express grant of such privilege by law, in favor of petitioner, the
exemption herein must be denied.

The next issue which readily presents itself, in view of petitioner's thesis, and Our finding that a tax liability exists, is,
who should be called upon to pay the gift tax? Petitioner postulates that he should not be liable, because at the time
of the donation he was not the priest of Victorias. We note the merit of the above claim, and in order to put things in
their proper light, this Court, in its Resolution of March 15, 1965, ordered the parties to show cause why the Head of
the Diocese to which the parish of Victorias pertains, should not be substituted in lieu of petitioner Rev. Fr. Casimiro
Lladoc it appearing that the Head of such Diocese is the real party in interest. The Solicitor General, in
representation of the Commissioner of Internal Revenue, interposed no objection to such a substitution. Counsel for
the petitioner did not also offer objection thereto.

On April 30, 1965, in a resolution, We ordered the Head of the Diocese to present whatever legal issues and/or
defenses he might wish to raise, to which resolution counsel for petitioner, who also appeared as counsel for the
Head of the Diocese, the Roman Catholic Bishop of Bacolod, manifested that it was submitting itself to the
jurisdiction and orders of this Court and that it was presenting, by reference, the brief of petitioner Rev. Fr. Casimiro
Lladoc as its own and for all purposes.

In view here of and considering that as heretofore stated, the assessment at bar had been properly made and the
imposition of the tax is not a violation of the constitutional provision exempting churches, parsonages or convents,
etc. (Art VI, sec. 22 [3], Constitution), the Head of the Diocese, to which the parish Victorias Pertains, is liable for the
payment thereof.

The decision appealed from should be, as it is hereby affirmed insofar as tax liability is concerned; it is modified, in
the sense that petitioner herein is not personally liable for the said gift tax, and that the Head of the Diocese, herein
substitute petitioner, should pay, as he is presently ordered to pay, the said gift tax, without special, pronouncement
as to costs.
 Page 147 of 162

G.R. No. 120082 September 11, 1996

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs.
HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the Regional Trial Court, Branch
20, Cebu City, THE CITY OF CEBU, represented by its Mayor HON. TOMAS R. OSMEÑA, and EUSTAQUIO B.
CESA, respondents.

For review under Rule 45 of the Rules of Court on a pure question of law are the decision of 22 March
1995  of the Regional Trial Court (RTC) of Cebu City, Branch 20, dismissing the petition for declaratory relief
1

in Civil Case No. CEB-16900 entitled "Mactan Cebu International Airport Authority vs. City of Cebu", and its
order of 4, May 1995  denying the motion to reconsider the decision.
2

We resolved to give due course to this petition for its raises issues dwelling on the scope of the taxing power
of local government-owned and controlled corporations.

The uncontradicted factual antecedents are summarized in the instant petition as follows:

Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act
No. 6958, mandated to "principally undertake the economical, efficient and effective control,
management and supervision of the Mactan International Airport in the Province of Cebu and the
Lahug Airport in Cebu City, . . . and such other Airports as may be established in the Province of
Cebu . . . (Sec. 3, RA 6958). It is also mandated to:

a) encourage, promote and develop international and domestic air

traffic in the Central Visayas and Mindanao regions as a means of
making the regions centers of international trade and tourism, and
accelerating the development of the means of transportation and
communication in the country; and

b) upgrade the services and facilities of the airports and to formulate

internationally acceptable standards of airport accommodation and
service.

Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of
realty taxes in accordance with Section 14 of its Charter.

Sec. 14. Tax Exemptions. — The authority shall be exempt from realty taxes
imposed by the National Government or any of its political subdivisions, agencies
and instrumentalities . . .

On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer of
the City of Cebu, demanded payment for realty taxes on several parcels of land belonging to the
petitioner (Lot Nos. 913-G, 743, 88 SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F, 941,
942, 947, 77 Psd., 746 and 991-A), located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu
City, in the total amount of P2,229,078.79.

Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor the
aforecited Section 14 of RA 6958 which exempt it from payment of realty taxes. It was also asserted
that it is an instrumentality of the government performing governmental functions, citing section 133
of the Local Government Code of 1991 which puts limitations on the taxing powers of local
government units:
 Page 148 of 162

Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. —

Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangay shall not extend to the levy of the following:

a) . . .

x x x           x x x          x x x

o) Taxes, fees or charges of any kind on the National

Government, its agencies and instrumentalities, and local
government units. (Emphasis supplied)

Respondent City refused to cancel and set aside petitioner's realty tax account, insisting that the
MCIAA is a government-controlled corporation whose tax exemption privilege has been withdrawn
by virtue of Sections 193 and 234 of the Local Governmental Code that took effect on January 1,
1992:

Sec. 193. Withdrawal of Tax Exemption Privilege. — Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons whether natural or
juridical, including government-owned or controlled corporations, except local water districts,
cooperatives duly registered under RA No. 6938, non-stock, and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code. (Emphasis supplied)

xxx xxx xxx

Sec. 234. Exemptions from Real Property taxes. — . . .

(a) . . .

x x x           x x x          x x x

(c) . . .

Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.

As the City of Cebu was about to issue a warrant of levy against the properties of petitioner, the
latter was compelled to pay its tax account "under protest" and thereafter filed a Petition for
Declaratory Relief with the Regional Trial Court of Cebu, Branch 20, on December 29, 1994. MCIAA
basically contended that the taxing powers of local government units do not extend to the levy of
taxes or fees of any kind on an instrumentality of the national government. Petitioner insisted that
while it is indeed a government-owned corporation, it nonetheless stands on the same footing as an
agency or instrumentality of the national government. Petitioner insisted that while it is indeed a
government-owned corporation, it nonetheless stands on the same footing as an agency or
instrumentality of the national government by the very nature of its powers and functions.

Respondent City, however, asserted that MACIAA is not an instrumentality of the government but
merely a government-owned corporation performing proprietary functions As such, all exemptions
previously granted to it were deemed withdrawn by operation of law, as provided under Sections 193
and 234 of the Local Government Code when it took effect on January 1, 1992. 3

The petition for declaratory relief was docketed as Civil Case No. CEB-16900.
 Page 149 of 162

In its decision of 22 March 1995,  the trial court dismissed the petition in light of its findings, to wit:
4

A close reading of the New Local Government Code of 1991 or RA 7160 provides the express
cancellation and withdrawal of exemption of taxes by government owned and controlled corporation
per Sections after the effectivity of said Code on January 1, 1992, to wit: [proceeds to quote Sections
193 and 234]

Petitioners claimed that its real properties assessed by respondent City Government of Cebu are
exempted from paying realty taxes in view of the exemption granted under RA 6958 to pay the same
(citing Section 14 of RA 6958).

However, RA 7160 expressly provides that "All general and special laws, acts, city charters, decress
[sic], executive orders, proclamations and administrative regulations, or part or parts thereof which
are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly."
([f], Section 534, RA 7160).

With that repealing clause in RA 7160, it is safe to infer and state that the tax exemption provided for
in RA 6958 creating petitioner had been expressly repealed by the provisions of the New Local
Government Code of 1991.

So that petitioner in this case has to pay the assessed realty tax of its properties effective after
January 1, 1992 until the present.

This Court's ruling finds expression to give impetus and meaning to the overall objectives of the New
Local Government Code of 1991, RA 7160. "It is hereby declared the policy of the State that the
territorial and political subdivisions of the State shall enjoy genuine and meaningful local autonomy
to enable them to attain their fullest development as self-reliant communities and make them more
effective partners in the attainment of national goals. Towards this end, the State shall provide for a
more responsive and accountable local government structure instituted through a system of
decentralization whereby local government units shall be given more powers, authority,
responsibilities, and resources. The process of decentralization shall proceed from the national
government to the local government units. . . . 5

Its motion for reconsideration having been denied by the trial court in its 4 May 1995 order, the petitioner
filed the instant petition based on the following assignment of errors:

I RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE PETITIONER IS

VESTED WITH GOVERNMENT POWERS AND FUNCTIONS WHICH PLACE IT IN
THE SAME CATEGORY AS AN INSTRUMENTALITY OR AGENCY OF THE
GOVERNMENT.

II RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS LIABLE TO

PAY REAL PROPERTY TAXES TO THE CITY OF CEBU.

Anent the first assigned error, the petitioner asserts that although it is a government-owned or controlled
corporation it is mandated to perform functions in the same category as an instrumentality of Government.
An instrumentality of Government is one created to perform governmental functions primarily to promote
certain aspects of the economic life of the people.  Considering its task "not merely to efficiently operate and
6

manage the Mactan-Cebu International Airport, but more importantly, to carry out the Government policies of
promoting and developing the Central Visayas and Mindanao regions as centers of international trade and
tourism, and accelerating the development of the means of transportation and communication in the
country,"  and that it is an attached agency of the Department of Transportation and Communication
7

(DOTC),  the petitioner "may stand in [sic] the same footing as an agency or instrumentality of the national
8

government." Hence, its tax exemption privilege under Section 14 of its Charter "cannot be considered
withdrawn with the passage of the Local Government Code of 1991 (hereinafter LGC) because Section 133
 Page 150 of 162

thereof specifically states that the taxing powers of local government units shall not extend to the levy of
taxes of fees or charges of any kind on the national government its agencies and instrumentalities."

As to the second assigned error, the petitioner contends that being an instrumentality of the National
Government, respondent City of Cebu has no power nor authority to impose realty taxes upon it in
accordance with the aforesaid Section 133 of the LGC, as explained in Basco vs. Philippine Amusement
and Gaming Corporation; 9

Local governments have no power to tax instrumentalities of the National Government. PAGCOR is
a government owned or controlled corporation with an original character, PD 1869. All its shares of
stock are owned by the National Government. . . .

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter joke is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and actually is
exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to
control by a mere Local government.

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner
control the operation of constitutional laws enacted by Congress to carry into execution the powers
vested in the federal government. (McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579).

This doctrine emanates from the "supremacy" of the National Government over local government.

Justice Holmes, speaking for the Supreme Court, make references to the entire absence of power
on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United
States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision
can regulate a federal instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of them. (Antieau Modern
Constitutional Law, Vol. 2, p. 140)

Otherwise mere creature of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activities or enterprise using the power to tax as "a toll for
regulation" (U.S. v. Sanchez, 340 US 42). The power to tax which was called by Justice Marshall as
the "power to destroy" (McCulloch v. Maryland, supra) cannot be allowed to defeat an instrumentality
or creation of the very entity which has the inherent power to wield it. (Emphasis supplied)

It then concludes that the respondent Judge "cannot therefore correctly say that the questioned provisions of
the Code do not contain any distinction between a governmental function as against one performing merely
proprietary ones such that the exemption privilege withdrawn under the said Code would apply
to all government corporations." For it is clear from Section 133, in relation to Section 234, of the LGC that
the legislature meant to exclude instrumentalities of the national government from the taxing power of the
local government units.

In its comment respondent City of Cebu alleges that as local a government unit and a political subdivision, it
has the power to impose, levy, assess, and collect taxes within its jurisdiction. Such power is guaranteed by
the Constitution  and enhanced further by the LGC. While it may be true that under its Charter the petitioner
10

was exempt from the payment of realty taxes,  this exemption was withdrawn by Section 234 of the LGC. In
11

response to the petitioner's claim that such exemption was not repealed because being an instrumentality of
the National Government, Section 133 of the LGC prohibits local government units from imposing taxes,
fees, or charges of any kind on it, respondent City of Cebu points out that the petitioner is likewise a
government-owned corporation, and Section 234 thereof does not distinguish between government-owned
corporation, and Section 234 thereof does not distinguish between government-owned corporation, and
Section 234 thereof does not distinguish between government-owned or controlled corporations performing
governmental and purely proprietary functions. Respondent city of Cebu urges this the Manila International
 Page 151 of 162

Airport Authority is a governmental-owned corporation,   and to reject the application of Basco because it
12

was "promulgated . . . before the enactment and the singing into law of R.A. No. 7160," and was not,
therefore, decided "in the light of the spirit and intention of the framers of the said law.

As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging
in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency who are to pay it. Nevertheless, effective limitations
thereon may be imposed by the people through their Constitutions.  Our Constitution, for instance, provides
13

that the rule of taxation shall be uniform and equitable and Congress shall evolve a progressive system of
taxation.  So potent indeed is the power that it was once opined that "the power to tax involves the power to
14

destroy."  Verily, taxation is a destructive power which interferes with the personal and property for the
15

support of the government. Accordingly, tax statutes must be construed strictly against the government and
liberally in favor of the taxpayer.  But since taxes are what we pay for civilized society,  or are the lifeblood
16 17

of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus
construed strictissimi juris against the taxpayers and liberally in favor of the taxing authority.  A claim of
18

exemption from tax payment must be clearly shown and based on language in the law too plain to be
mistaken.  Elsewise stated, taxation is the rule, exemption therefrom is the exception.  However, if the
19 20

grantee of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not
apply because the practical effect of the exemption is merely to reduce the amount of money that has to be
handled by the government in the course of its operations. 21

The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised by
local legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to direct
authority conferred by Section 5, Article X of the Constitution.  Under the latter, the exercise of the power
22

may be subject to such guidelines and limitations as the Congress may provide which, however, must be
consistent with the basic policy of local autonomy.

There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the payment
of realty taxes imposed by the National Government or any of its political subdivisions, agencies, and
instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the exception, the
exemption may thus be withdrawn at the pleasure of the taxing authority. The only exception to this rule is
where the exemption was granted to private parties based on material consideration of a mutual nature,
which then becomes contractual and is thus covered by the non-impairment clause of the Constitution. 23

The LGC, enacted pursuant to Section 3, Article X of the constitution provides for the exercise by local
government units of their power to tax, the scope thereof or its limitations, and the exemption from taxation.

Section 133 of the LGC prescribes the common limitations on the taxing powers of local government units
as follows:

Sec. 133. Common Limitations on the Taxing Power of Local Government Units. — Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:

(a) Income tax, except when levied on banks and other financial institutions;

(b) Documentary stamp tax;

(c) Taxes on estates, "inheritance, gifts, legacies and other acquisitions mortis

causa, except as otherwise provided herein

(d) Customs duties, registration fees of vessels and wharfage on wharves, tonnage
dues, and all other kinds of customs fees charges and dues except wharfage on
wharves constructed and maintained by the local government unit concerned:
 Page 152 of 162

(e) Taxes, fees and charges and other imposition upon goods carried into or out of,
or passing through, the territorial jurisdictions of local government units in the guise
or charges for wharfages, tolls for bridges or otherwise, or other taxes, fees or
charges in any form whatsoever upon such goods or merchandise;

(f) Taxes fees or charges on agricultural and aquatic products when sold by marginal
farmers or fishermen;

(g) Taxes on business enterprise certified to be the Board of Investment as pioneer

or non-pioneer for a period of six (6) and four (4) years, respectively from the date of
registration;

(h) Excise taxes on articles enumerated under the National Internal Revenue Code,
as amended, and taxes, fees or charges on petroleum products;

(i) Percentage or value added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided herein;

(j) Taxes on the gross receipts of transportation contractor and person engage in the
transportation of passengers of freight by hire and common carriers by air, land, or
water, except as provided in this code;

(k) Taxes on premiums paid by ways reinsurance or retrocession;

(l) Taxes, fees, or charges for the registration of motor vehicles and for the issuance
of all kinds of licenses or permits for the driving of thereof, except, tricycles;

(m) Taxes, fees, or other charges on Philippine product actually exported, except as
otherwise provided herein;

(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprise and
Cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty
nine hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperative Code
of the Philippines; and

(o) TAXES, FEES, OR CHARGES OF ANY KIND ON THE NATIONAL

GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES, AND LOCAL
GOVERNMENT UNITS. (emphasis supplied)

Needless to say the last item (item o) is pertinent in this case. The "taxes, fees or charges" referred to are
"of any kind", hence they include all of these, unless otherwise provided by the LGC. The term "taxes" is well
understood so as to need no further elaboration, especially in the light of the above enumeration. The term
"fees" means charges fixed by law or Ordinance for the regulation or inspection of business activity,  while
24

"charges" are pecuniary liabilities such as rents or fees against person or property.
25

Among the "taxes" enumerated in the LGC is real property tax, which is governed by Section 232. It reads
as follows:

Sec. 232. Power to Levy Real Property Tax. — A province or city or a municipality within the
Metropolitan Manila Area may levy on an annual ad valorem tax on real property such as land,
building, machinery and other improvements not hereafter specifically exempted.
 Page 153 of 162

Section 234 of LGC provides for the exemptions from payment of real property taxes and withdraws
previous exemptions therefrom granted to natural and juridical persons, including government owned and
controlled corporations, except as provided therein. It provides:

Sec. 234. Exemptions from Real Property Tax. — The following are exempted from payment of the
real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof had been granted, for
reconsideration or otherwise, to a taxable person;

(b) Charitable institutions, churches, parsonages or convents appurtenants thereto,

mosques nonprofits or religious cemeteries and all lands, building and improvements
actually, directly, and exclusively used for religious charitable or educational
purposes;

(c) All machineries and equipment that are actually, directly and exclusively used by
local water districts and government-owned or controlled corporations engaged in the
supply and distribution of water and/or generation and transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided for under
R.A. No. 6938; and;

(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemptions from payment of real property tax
previously granted to or presently enjoyed by, all persons whether natural or juridical,
including all government owned or controlled corporations are hereby withdrawn
upon the effectivity of his Code.

These exemptions are based on the ownership, character, and use of the property. Thus;

(a) Ownership Exemptions. Exemptions from real property taxes on the basis of

ownership are real properties owned by: (i) the Republic, (ii) a province, (iii) a city,
(iv) a municipality, (v) a barangay, and (vi) registered cooperatives.

(b) Character Exemptions. Exempted from real property taxes on the basis of their
character are: (i) charitable institutions, (ii) houses and temples of prayer like
churches, parsonages or convents appurtenant thereto, mosques, and (iii) non profit
or religious cemeteries.

(c) Usage exemptions. Exempted from real property taxes on the basis of the actual,
direct and exclusive use to which they are devoted are: (i) all lands buildings and
improvements which are actually, directed and exclusively used for religious,
charitable or educational purpose; (ii) all machineries and equipment actually, directly
and exclusively used or by local water districts or by government-owned or controlled
corporations engaged in the supply and distribution of water and/or generation and
transmission of electric power; and (iii) all machinery and equipment used for
pollution control and environmental protection.

To help provide a healthy environment in the midst of the modernization of the country, all machinery
and equipment for pollution control and environmental protection may not be taxed by local
governments.
 Page 154 of 162

2. Other Exemptions Withdrawn. All other exemptions previously granted to natural

or juridical persons including government-owned or controlled corporations are
withdrawn upon the effectivity of the Code. 26

Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. It provides:

Sec. 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise provided in this code, tax
exemptions or incentives granted to or presently enjoyed by all persons, whether natural or juridical,
including government-owned, or controlled corporations, except local water districts, cooperatives
duly registered under R.A. 6938, non stock and non profit hospitals and educational constitutions,
are hereby withdrawn upon the effectivity of this Code.

On the other hand, the LGC authorizes local government units to grant tax exemption privileges. Thus,
Section 192 thereof provides:

Sec. 192. Authority to Grant Tax Exemption Privileges. — Local government units may, through
ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and
conditions as they may deem necessary.

The foregoing sections of the LGC speaks of: (a) the limitations on the taxing powers of local government
units and the exceptions to such limitations; and (b) the rule on tax exemptions and the exceptions thereto.
The use of exceptions of provisos in these section, as shown by the following clauses:

(1) "unless otherwise provided herein" in the opening paragraph of Section 133;

(2) "Unless otherwise provided in this Code" in section 193;

(3) "not hereafter specifically exempted" in Section 232; and

(4) "Except as provided herein" in the last paragraph of Section 234

initially hampers a ready understanding of the sections. Note, too, that the aforementioned clause in section
133 seems to be inaccurately worded. Instead of the clause "unless otherwise provided herein," with the
"herein" to mean, of course, the section, it should have used the clause "unless otherwise provided in this
Code." The former results in absurdity since the section itself enumerates what are beyond the taxing
powers of local government units and, where exceptions were intended, the exceptions were explicitly
indicated in the text. For instance, in item (a) which excepts the income taxes "when livied on banks and
other financial institutions", item (d) which excepts "wharfage on wharves constructed and maintained by the
local government until concerned"; and item (1) which excepts taxes, fees, and charges for the registration
and issuance of license or permits for the driving of "tricycles". It may also be observed that within the body
itself of the section, there are exceptions which can be found only in other parts of the LGC, but the section
interchangeably uses therein the clause "except as otherwise provided herein" as in items (c) and (i), or the
clause "except as otherwise provided herein" as in items (c) and (i), or the clause "excepts as provided in
this Code" in item (j). These clauses would be obviously unnecessary or mere surplus-ages if the opening
clause of the section were" "Unless otherwise provided in this Code" instead of "Unless otherwise provided
herein". In any event, even if the latter is used, since under Section 232 local government units have the
power to levy real property tax, except those exempted therefrom under Section 234, then Section 232 must
be deemed to qualify Section 133.

Thus, reading together Section 133, 232 and 234 of the LGC, we conclude that as a general rule, as laid
down in Section 133 the taxing powers of local government units cannot extend to the levy of inter alia,
"taxes, fees, and charges of any kind of the National Government, its agencies and instrumentalties, and
local government units"; however, pursuant to Section 232, provinces, cities, municipalities in the
Metropolitan Manila Area may impose the real property tax except on, inter alia, "real property owned by the
Republic of the Philippines or any of its political subdivisions except when the beneficial used thereof has
 Page 155 of 162

been granted, for consideration or otherwise, to a taxable person", as provided in item (a) of the first
paragraph of Section 234.

As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including
government-owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz.,
they are withdrawn upon the effectivity of the LGC, except upon the effectivity of the LGC, except those
granted to local water districts, cooperatives duly registered under R.A. No. 6938, non stock and non-profit
hospitals and educational institutions, and unless otherwise provided in the LGC. The latter proviso could
refer to Section 234, which enumerates the properties exempt from real property tax. But the last paragraph
of Section 234 further qualifies the retention of the exemption in so far as the real property taxes are
concerned by limiting the retention only to those enumerated there-in; all others not included in the
enumeration lost the privilege upon the effectivity of the LGC. Moreover, even as the real property is owned
by the Republic of the Philippines, or any of its political subdivisions covered by item (a) of the first
paragraph of Section 234, the exemption is withdrawn if the beneficial use of such property has been
granted to taxable person for consideration or otherwise.

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions
from real property taxes granted to natural or juridical persons, including government-owned or controlled
corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned
corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its charter, R.A.
No. 6958, has been withdrawn. Any claim to the contrary can only be justified if the petitioner can seek
refuge under any of the exceptions provided in Section 234, but not under Section 133, as it now asserts,
since, as shown above, the said section is qualified by Section 232 and 234.

In short, the petitioner can no longer invoke the general rule in Section 133 that the taxing powers of the
local government units cannot extend to the levy of:

(o) taxes, fees, or charges of any kind on the National Government, its agencies, or
instrumentalities, and local government units.

I must show that the parcels of land in question, which are real property, are any one of those enumerated in
Section 234, either by virtue of ownership, character, or use of the property. Most likely, it could only be the
first, but not under any explicit provision of the said section, for one exists. In light of the petitioner's theory
that it is an "instrumentality of the Government", it could only be within be first item of the first paragraph of
the section by expanding the scope of the terms Republic of the Philippines" to
embrace . . . . . . "instrumentalities" and "agencies" or expediency we quote:

(a) real property owned by the Republic of the Philippines, or any of the Philippines,
or any of its political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person.

This view does not persuade us. In the first place, the petitioner's claim that it is an instrumentality of the
Government is based on Section 133(o), which expressly mentions the word "instrumentalities"; and in the
second place it fails to consider the fact that the legislature used the phrase "National Government, its
agencies and instrumentalities" "in Section 133(o),but only the phrase "Republic of the Philippines or any of
its political subdivision "in Section 234(a).

The terms "Republic of the Philippines" and "National Government" are not interchangeable. The former is
boarder and synonymous with "Government of the Republic of the Philippines" which the Administrative
Code of the 1987 defines as the "corporate governmental entity though which the functions of the
government are exercised through at the Philippines, including, saves as the contrary appears from the
context, the various arms through which political authority is made effective in the Philippines, whether
pertaining to the autonomous reason, the provincial, city, municipal or barangay subdivision or other forms
of local government."  These autonomous regions, provincial, city, municipal or barangay subdivisions" are
27

the political subdivision. 28

 Page 156 of 162

On the other hand, "National Government" refers "to the entire machinery of the central government, as
distinguished from the different forms of local Governments."  The National Government then is composed
29

of the three great departments the executive, the legislative and the judicial.
30

An "agency" of the Government refers to "any of the various units of the Government, including a
department, bureau, office instrumentality, or government-owned or controlled corporation, or a local
government or a distinct unit therein;"  while an "instrumentality" refers to "any agency of the National
31

Government, not integrated within the department framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers, administering special funds, and enjoying operational
autonomy; usually through a charter. This term includes regulatory agencies, chartered institutions and
government-owned and controlled corporations". 32

If Section 234(a) intended to extend the exception therein to the withdrawal of the exemption from payment
of real property taxes under the last sentence of the said section to the agencies and instrumentalities of the
National Government mentioned in Section 133(o), then it should have restated the wording of the latter.
Yet, it did not Moreover, that Congress did not wish to expand the scope of the exemption in Section 234(a)
to include real property owned by other instrumentalities or agencies of the government including
government-owned and controlled corporations is further borne out by the fact that the source of this
exemption is Section 40(a) of P.D. No. 646, otherwise known as the Real Property Tax Code, which reads:

Sec 40. Exemption from Real Property Tax. — The exemption shall be as follows:

(a) Real property owned by the Republic of the Philippines or any of

its political subdivisions and any government-owned or controlled
corporations so exempt by is charter: Provided, however, that this
exemption shall not apply to real property of the above mentioned
entities the beneficial use of which has been granted, for
consideration or otherwise, to a taxable person.

Note that as a reproduced in Section 234(a), the phrase "and any government-owned or controlled
corporation so exempt by its charter" was excluded. The justification for this restricted exemption in Section
234(a) seems obvious: to limit further tax exemption privileges, specially in light of the general provision on
withdrawal of exemption from payment of real property taxes in the last paragraph of property taxes in the
last paragraph of Section 234. These policy considerations are consistent with the State policy to ensure
autonomy to local governments  and the objective of the LGC that they enjoy genuine and meaningful local
33

autonomy to enable them to attain their fullest development as self-reliant communities and make them
effective partners in the attainment of national goals.  The power to tax is the most effective instrument to
34

raise needed revenues to finance and support myriad activities of local government units for the delivery of
basic services essential to the promotion of the general welfare and the enhancement of peace, progress,
and prosperity of the people. It may also be relevant to recall that the original reasons for the withdrawal of
tax exemption privileges granted to government-owned and controlled corporations and all other units of
government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment
of similarly situated enterprises, and there was a need for this entities to share in the requirements of the
development, fiscal or otherwise, by paying the taxes and other charges due from them. 35

The crucial issues then to be addressed are: (a) whether the parcels of land in question belong to the
Republic of the Philippines whose beneficial use has been granted to the petitioner, and (b) whether the
petitioner is a "taxable person".

Section 15 of the petitioner's Charter provides:

Sec. 15. Transfer of Existing Facilities and Intangible Assets. — All existing public airport facilities,
runways, lands, buildings and other properties, movable or immovable, belonging to or presently
administered by the airports, and all assets, powers, rights, interests and privileges relating on
airport works, or air operations, including all equipment which are necessary for the operations of air
 Page 157 of 162

navigation, acrodrome control towers, crash, fire, and rescue facilities are hereby transferred to the
Authority: Provided however, that the operations control of all equipment necessary for the operation
of radio aids to air navigation, airways communication, the approach control office, and the area
control center shall be retained by the Air Transportation Office. No equipment, however, shall be
removed by the Air Transportation Office from Mactan without the concurrence of the authority. The
authority may assist in the maintenance of the Air Transportation Office equipment.

The "airports" referred to are the "Lahug Air Port" in Cebu City and the "Mactan International AirPort in the
Province of Cebu",  which belonged to the Republic of the Philippines, then under the Air Transportation
36

Office (ATO). 37

It may be reasonable to assume that the term "lands" refer to "lands" in Cebu City then administered by the
Lahug Air Port and includes the parcels of land the respondent City of Cebu seeks to levy on for real
property taxes. This section involves a "transfer" of the "lands" among other things, to the petitioner and not
just the transfer of the beneficial use thereof, with the ownership being retained by the Republic of the
Philippines.

This "transfer" is actually an absolute conveyance of the ownership thereof because the petitioner's
authorized capital stock consists of, inter alia "the value of such real estate owned and/or administered by
the airports."  Hence, the petitioner is now the owner of the land in question and the exception in Section
38

234(c) of the LGC is inapplicable.

Moreover, the petitioner cannot claim that it was never a "taxable person" under its Charter. It was only
exempted from the payment of real property taxes. The grant of the privilege only in respect of this tax is
conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real property
tax.

Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in light of
the forgoing disquisitions, it had already become even if it be conceded to be an "agency" or
"instrumentality" of the Government, a taxable person for such purpose in view of the withdrawal in the last
paragraph of Section 234 of exemptions from the payment of real property taxes, which, as earlier adverted
to, applies to the petitioner.

Accordingly, the position taken by the petitioner is untenable. Reliance on Basco vs. Philippine Amusement
and Gaming Corporation  is unavailing since it was decided before the effectivity of the LGC. Besides,
39

nothing can prevent Congress from decreeing that even instrumentalities or agencies of the government
performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional
mandate and national policy, no one can doubt its wisdom.

WHEREFORE, the instant petition is DENIED. The challenged decision and order of the Regional Trial
Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are AFFIRMED.

No pronouncement as to costs.

SO ORDERED.
 Page 158 of 162

G.R. No. 3473            March 22, 1907

J. CASANOVAS, plaintiff-appellant,
vs.
JNO. S. HORD, defendant-appellee.

The plaintiff brought this action against the defendant, the Collector of Internal Revenue, to recover the sum of
P9,600, paid by him under protest as taxes on certain mining claims owned by him in the Province of Ambos
Camarines. Judgment was rendered in the court below in favor of the defendant, and from that judgment the plaintiff
appealed.

There is no dispute about the facts.

In January, 1897, the Spanish Government, in accordance with the provisions of the royal decree of the 14th of
May, 1867, granted to the plaintiff certain mines in the said Province of Ambos Camarines, of which mines the
plaintiff is now the owner.

That there were valid perfected mining concessions granted prior to the 11th of April, 1899, is conceded. They were
so considered by the Collector of Internal Revenue and were by him said to fall within the provisions of section 134
of Act No. 1189, known as the Internal Revenue Act. That section is as follows:

SEC. 134. On all valid perfected mining concessions granted prior to April eleventh, eighteen hundred and
ninety-nine, there shall be levied and collected on the after January first, nineteen hundred and five, the
following taxes:

2. (a) On each claim containing an area of sixty thousand square meters, an annual tax of one hundred
pesos; (b) and at the same rate proportionately on each claim containing an area in excess of, or less than,
sixty thousand square meters.

3. On the gross output of each an ad valorem tax equal to three per centum of the actual market value of
such output.

The defendant accordingly imposed upon these properties the tax mentioned in section 134, which tax, as has
before been stated, plaintiff paid under protest.

The only question in the case is whether this section 134 is void or valid.

I. It is claimed by the plaintiff that it is void because it comes within the provision of section 5 of the act of Congress
of July 1, 19021 (32 U.S. Stat. L., 691), which provides "that no law impairing the obligation of contracts shall be
enacted." The royal decree of the 14th of May, 1867, provided, among other things, as follows:

ART. 76. On each pertenencia minera (mining claim) of the area prescribed in the first paragraph of article
13 (sixty thousand square meters) there shall be paid annually a fixed tax of forty escudos (about P20.00).
The pertenencia referred to in the second paragraph of the same article, though of greater area than the
others (one hundred and fifty thousand square meters), shall pay only twenty escudos (about P10.00).

ART. 78. Pertenencia of iron mines and mines of combustible minerals shall be exempt from the annual tax
for a period of thirty years from the date of publication of this decree.

ART. 80. A further tax of three per centum on the gross earnings shall be paid without deduction of costs of
any kind whatsoever. All substances enumerated in section one shall be exempt from said tax of three per
centum for a period of thirty years.
 Page 159 of 162

ART. 81. No other taxes than those herein mentioned shall be imposed upon mining and metallurgical
industries.

The royal decree and regulation for its enforcement provided that the deeds granted by the Government should be
in a particular form, which form was inserted in the regulations. It must be presumed that the deeds granted to the
plaintiff were made as provided by law, and, in fact, one of such concessions was exhibited during the argument in
this court, and was found to be in exact conformity with the form prescribed by law. The deed is as follows:

Don Camilo Garcia de Polavieja, Marquez de Polavieja, Teniente General de los Ejercitos Nacionales,
Caballero Gran Cruz de la Real y Militar Orden de San Hermenegildo, de la Real y distinguida de Isabel la
Catolica, de la del Merito Militar Roja, de la de la Corona de Italia, Comendador de Carlos Tercero,
Bennemerito de la Patria en grado eminente, condecorado con varias cruses de distincion por meritos de
guerra, Capitan General y Gobernador General de Filipinas.

Whereas I have granted to Don Joaquin Casanovas y Llovet and to Don Martin Buck the concession of a
gold mine entitled "Nueva California Segunda" in the jurisdiction of Paracale, Province of Ambos Camarines:
Now, therefore, in the name of His Majesty the King (whom God preserve), and pursuant to the provisions of
article 37 of the royal decree of May 14, 1867, regulating mining in these Islands, I issue, this fifth day of
November, eighteen hundred and ninety-six, this title deed to four pertenencias, comprising an area of two
hundred and forty thousand square meters, as shown in the attached sketch map drafted by the engineer
Don Enrique Abella y Casariego, and dated at Manila December sixteenth of the said year, subject to the
following general terms and conditions:

1. That the mine shall be worked in conformity with the rules in mining, the grantee and his laborers to be
governed by the police rules established by existing regulations.

2. That the grantee shall be liable for all damages to third parties that may be caused by his operations.

3. That the grantee shall likewise indemnify his neighbors for any damage they may suffer by reason of
water accumulated on his works, if, upon being requested, he fail to drain the same within the time indicated.

4. That he shall contribute for the drainage of the adjacent mines and for the general galleries for drainage
or haulage in proportion to the benefit he derives therefrom, whenever, by authority of the Governor-
General, such works shall be opened for a group of pertenencias or for the entire mining locality in which the
mine is situated.

5. That he shall commence work on the mine immediately upon receipt of this concession unless prevented
by force majeure.

6. That he shall keep the mine in active operation by employing at the rate of at least four laborers for
each pertenencia for at least six months of each year.

7. That he shall strengthen the walls of the mine within the time indicated whenever, by reason of
mismanagement of the work, it threatens to cave in, unless he be prevented by force majeure.

8. That he shall not render further profitable development of the mine difficult or impossible by avaricious
operation.

9. That he shall not suspend the operation of the mine with the intention of abandoning the same without
first informing the Governor of his intention, in which case he must leave the mine in a good state of
timbering.

10. That he shall pay taxes on the mine and its output as prescribed in the royal decree.
 Page 160 of 162

11. Finally, that he shall comply with all the requirements contained in the royal decree and in the
regulations for concessions of the same nature as the present.

Without special conditions.

Now, therefore, by virtue of this title deed, I grant to Don Joaquin Casanovas y Llovet and to Don Martin
Buck the ownership of the said mine for an unlimited period of time so long as they shall comply with the
foregoing terms and conditions, to the end that they may develop the same and make free use and
disposition of the output thereof, with the right to alienate the said mine subject to the provisions of existing
laws, and to enjoy all the rights and benefits conceded to such grantees by the royal decree and by the
mining regulations. And for the prompt fulfillment and observance of the said conditions, both on the part of
the said grantees and by all authorities, courts, corporations, and private persons whom it may concern, I
have ordered this title deed to be issued — given under my hand and the proper seal and countersigned by
the undersigned Director-General of Civil Administration.

It seems very clear to us that this deed constituted a contract between the Spanish Government and the plaintiff, the
obligation of which contract was impaired by the enactment of section 134 of the Internal Revenue Law above cited,
thereby infringing the provisions above quoted from section 5 of the act of Congress of July 1, 1902. This conclusion
seems necessarily to result from the decisions of the Supreme Court of the United States in similar cases. In the
case of McGee vs. Mathis (4 Wallace, 143), it appeared that the State of Arkansas, by an act of the legislature of
1851, provided for the sale of certain swamp lands granted to it by the United States; for the issue of transferable
scrip receivable for any lands not already taken up at the time of selection by the holder; for contracts for the making
of levees and drains, and for the payment of contractors in scrip and otherwise. In the fourteenth section of this act it
was provided that —

To encourage by all just means the progress and completion of the reclaiming of such lands by offering
inducements to purchasers and contractors to take up said lands, all said swamp and overflowed lands shall
be exempt from taxation for the term of ten years or until they shall be reclaimed.

In 1855 this section was repealed and provision was made by law for the taxation of swamp and overflowed lands,
sold or to be sold, precisely as other lands. McGee, before this appeal, had become the owner by transfer from
contractors of a large amount of scrip issued under the Act of 1851, and with this scrip, after the repeal, took up and
paid for many sections and parts of sections of the granted lands. Taxes were levied by the State on the lands so
taken up by McGee. The Supreme Court held that these taxes could not be collected. The Court said at page 156:

It seems quite clear that the Act of 1851 authorizing the issue of land scrip constituted a contract between
the State and the holders of the land scrip issued under the act.

In the case of the Home of the Friendless vs. Rouse (8 Wallace, 430), it appeared that on the 3d day of February,
1853, the legislature of Missouri passed on act to incorporate the Home of the Friendless in the city of St. Louis.
Section 1 of the act provided that —

All property of said corporation shall be exempt from taxation.

The court held that the State had no power afterwards to pass laws providing for the levying of taxes upon this
institution. The Court said among other things at page 438:

The validity of this contract is questioned at the bar on the ground that the legislature had no authority to
grant away the power of taxation. The answer to this position is, that the question is no longer open for
argument here, for it is settled by the repeated adjudications of this court, that a State may be contract
based on a consideration exempt the property of an individual or corporation from taxation, either for a
specified period or permanently. And it is equally well settled that the exemption is presumed to be on
sufficient consideration, and binds the State if the charter containing it is accepted.
 Page 161 of 162

In the case of The Asylum vs. The City of New Orleans (105 U.S., 362), it appears that St. Ariva's Asylum was
incorporated by an act of the legislature of Louisiana, approved April 29, 1853. The law incorporating it provided that
it should enjoy the same exemption from taxation which was enjoyed by the Orphan Boys' Asylum of New Orleans.
The law relating to the last named institution provided (page 364):

That, from and after the passage of this act, all the property, real and personal, belonging to the Orphan
Boys' Asylum of New Orleans be, and the same is hereby exempted from all taxation, either by the State,
parish, or city in which it is situated, any law to the contrary notwithstanding.

It was held that the State had no power by subsequent legislation to impose taxes upon the property of this
institution.

That the doctrine announced in these cases is still maintained in that court is apparent from the case of
Powers vs. The Detroit, Grand Haven and Milwaukee Railway which was decided on the 16th of April, 1906, and
reported in 201 U. S., 543. Section 9 of the act of the legislature of Michigan, incorporating the railway company,
provided:

Said company shall, on or before the 1st day of July, pay to the State treasurer, an annual tax of one per
cent on the capital stock of said company, pain in, which tax shall be in lieu of all other taxation.

The court said at page 556:

It has often been decided by this court, so often that a citation on authorities in unnecessary, that the
legislature of a State may, in the absence of special restrictions in its constitution, make a valid contract with
a corporation in respect to taxation, and that such contract can be enforced against the State at the instance
of the corporation.

The case at bar falls within the cases hereinbefore cited. It is to be distinguished from the case of the Metropolitan
Street Railway Company vs. The New York State Board of Tax Commissioners (199 U.S., 1). In that case it was
provided by various acts of the legislature, that the companies therein referred to, should pay annually to the city of
New York, a fixed amount or percentage, varying from 2 to 8 per cent of their gross earnings additional taxes was
sustained by the court. It was sustained on the ground that the prior legislation did not expressly say that the taxes
thus provided for should be in lieu of all other taxes. The court said at page 37:

Applying these well-established rules to the several contracts, it will be perceived that there was no express
relinquishment of the right of taxation. The plaintiff in error must rely upon some implication, and not upon
any direct stipulation. In each contract there was a grant of privileges, but the grant was specifically or
privileges in respect to the construction, operation and maintenance of the street railroad. These were all
that in terms were granted. As consideration for this grant, the grantees were to pay something, and such
payment is nowhere said to be in lieu of, or as an equivalent or substitute of taxes. All that can be extracted
from the language used, was a grant of privileges and a payment therefor. Other words must be written into
the contract before there can be found any relinquishment of the power of taxation.

But in the case at bar, there is found not only the provisions for the payment of certain taxes annually, but there is
also found the provision contained in article 81, above quoted, which expressly declares that no other taxes shall be
imposed upon these mines.

The present case is to be distinguished also from that class of cases of which Grands Lodge vs. The City of New
Orleans (166 U.S., 143) is a type, and which includes Salt Company vs. East Saginaw (13 Wall., 373) and
Welch vs. Cook (97 U.S., 541). In these cases the exemption was a mere bounty and did not form a part of any
contract.

The fact that this concession was made by the Government of Spain, and not by the Government of the United
States, is not important. (Trustees of Dartmouth College vs. Woodward, 4 Wheaton, 518.)
 Page 162 of 162

Our conclusion is that the concessions granted by the Government of Spain to the plaintiff, constitute contracts
between the parties; that section 134 of the Internal Revenue Law impairs the obligation of these contracts, and is
therefore void as to them.

II. We think that this section is also void because in conflict with section 60 of the act of Congress of July 1, 1902.
This section is as follows:

That nothing in this Act shall be construed to effect the rights of any person, partnership, or corporation,
having a valid, perfected mining concession granted prior to April eleventh, eighteen hundred and ninety-
nine, but all such concessions shall be conducted under the provisions of the law in force at the time they
were granted, subject at all times to cancellation by reason of illegality in the procedure by which they were
obtained, or for failure to comply with the conditions prescribed as requisite to their retention in the laws
under which they were granted: Provided, That the owner or owners of every such concession shall cause
the corners made by its boundaries to be distinctly marked with permanent monuments within six months
after this act has been promulgated in the Philippine Islands, and that any concessions, the boundaries of
which are not so marked within this period shall be free and open to explorations and purchase under the
provisions of this act.2

This section seems to indicate that concessions, like those in question, can be canceled only by reason of illegality
in the procedure by which they were obtained, or for failure to comply with the conditions prescribed as requisite for
their retention in the laws under which they were granted. There is nothing in the section which indicates that they
can be canceled for failure to comply with the conditions prescribed by subsequent legislation. In fact, the real
intention of the act seems to be that such concession should be subject to the former legislation and not to any
subsequent legislation. There is no claim in this case that there was any illegality in the procedure by which these
concessions were obtained, nor is there any claim that the plaintiff has not complied with the conditions prescribed
in the said royal decree of 1867.

III. In view of the result at which we have arrived, it is not necessary to consider the further claim made by the
plaintiff that the taxes imposed by article 134 above quoted, are in violation of the part of section 5 of the act of July
1, 1902, which declares "that the rule of taxation in said Islands shall be uniform."

The judgment of the court below is reversed, and judgment is ordered in favor of the plaintiff and against the
defendant for P9,600, with interest thereon, at 6 per cent, from the 21st day of February, 1906, and the costs of the
Court of First Instance. No costs will be allowed to either party in this court.

After the expiration of twenty days let judgment be entered in accordance herewith and ten days thereafter let the
case be remanded to the court from whence it came for proper action. So ordered.