Republic of the Philippines On August 24, 1988, the Republic of the Philippines (Republic), through the Office
Supreme Court of the Solicitor General (OSG), opposed the application for registration on the following
Manila grounds, among others: that neither the applicants nor their predecessors-in-interest had
  been in open, continuous, exclusive and notorious possession and occupation of the land in
THIRD DIVISION question since June 12, 1945 or prior thereto; that the muniment/s of title and/or the tax
  declaration/s and tax payments/receipts of applicants, if any, attached to or alleged in the
PACIFICO M. VALIAO, for himself and in G.R. No. 170757 application, do/es not constitute competent and sufficient evidence of a bona fide acquisition
behalf of his co-heirs LODOVICO,   of the land applied for or of their open, continuous, exclusive and notorious possession and
RICARDO, BIENVENIDO, all Surnamed Present: occupation in the concept of owner, since June 12, 1945 or prior thereto; that the parcel of
VALIAO and NEMESIO M. GRANDEA,   land applied for is a portion of public domain belonging to the Republic, which is not subject
Petitioners,   to private appropriation; and that the present action is barred by a previous final judgment in
  VELASCO, JR., J., Chairperson, a cadastral case prosecuted between the same parties and involving the same parcel of land.
- versus- PERALTA,  
  ABAD, On July 3, 1989, the RTC denied private oppositors' Motion to Dismiss. Trial
  MENDOZA, and thereafter ensued.
REPUBLIC OF THE PHILIPPINES, PERLAS-BERNABE, JJ.  
MACARIO ZAFRA, and MANUEL YUSAY,   In support of their application for registration, petitioners alleged that they
Respondents,   acquired the subject property in 1947, upon the death of their uncle Basilio Millarez (Basilio),
Promulgated: who purchased the land from a certain Fermin Payogao, pursuant to a Deed of Sale[5] dated
  May 19, 1916 entirely handwritten in Spanish language. Basilio possessed the land in
November 28, 2011 question from May 19, 1916 until his death in 1947. Basilio's possession was open,
continuous, peaceful, adverse, notorious, uninterrupted and in the concept of an owner.
Upon Basilio's death, the applicants as co-heirs possessed the said land until 1966, when
oppositor Zafra unlawfully and violently dispossessed them of their property, which
compelled them to file complaints of Grave Coercion and Qualified Theft against Zafra. In
x------------------------------------------------------------------------------------------x support of their claim of possession over the subject property, petitioners submitted in
  evidence Tax Declaration No. 9562[6] dated September 29, 1976 under the names of the
DECISION heirs of Basilio Millarez.
 
PERALTA, J.: The RTC, in its Decision dated December 15, 1995, granted petitioners' application
Before this Court is a petition for review on certiorari under Rule 45 of the Rules of for registration of the subject property, the dispositive portion of which states:
Court seeking to set aside the Decision[1] and Resolution[2] of the Court of Appeals (CA) in  
CA-G.R. CV No. 54811, which reversed the Decision[3] of the Regional Trial Court (RTC) of WHEREFORE, in view of the foregoing, this Court hereby orders
Kabankalan, Negros Occidental, Branch 61, in Land Registration Case No. 03, granting and decrees registration of Lot No. 2372 subject of the present
petitioners' application for registration of title over a parcel of land located in Ilog, Negros proceedings and the registration of title thereto, in favor of the
Occidental. applicants, who are declared the true and lawful owners of said Lot No.
The factual milieu of this case is as follows: 2372, except applicant Lodovico Valiao, who sold his right to Macario
  Zafra.
On August 11, 1987, petitioners[4] Pacifico, Lodovico, Ricardo, Bienvenido, all  
surnamed Valiao, and Nemesio Grandea filed with the RTC of Kabankalan, Negros Occidental Upon the finality of this decision, let the corresponding decree
an application for registration of a parcel of land with an area of 504,535 square meters, of registration and Certificate of Title be issued in the name of the
more or less, situated in Barrio Galicia, Municipality of Ilog, Negros Occidental. applicants, Heirs of Basilio Millarez, namely: Pacifico Valiao, Ricardo
  Valiao, Bienvenido Valiao and Nemesio Grandea, subject to the rights of
On June 20, 1988, private oppositors Macario Zafra and Manuel Yusay filed their private oppositors, Macario Zafra and Manuel Yusay over said lot whose
Motion to Dismiss the application on the following grounds: (1) the land applied for has not fishpond permits are declared VALID and will expire on December 31,
been declared alienable and disposable; (2) res judicata has set in to bar the application for 2003.
registration; and (3) the application has no factual or legal basis.  
 No costs.
 
SO ORDERED.[7]
Aggrieved by the Decision, the private oppositors and the Republic, through
Assistant Prosecutor Josue A. Gatin, filed an appeal with the CA, which reversed the trial
court's findings in its Decision dated June 23, 2005. The CA ruled that the classification of
lands of the public domain is an exclusive prerogative of the executive department of the
government and in the absence of such classification, the lands remain as unclassified until it
is released therefrom and rendered open to disposition. Further, there exists a prior
cadastral case involving the same parties herein and the same Lot No. 2372, which ruled that
Lot No. 2372 belongs to the Republic. The CA held that such judgment constitutes res
judicata that bars a subsequent action for land registration. It also ruled that the subject
property is part of the inalienable land of the public domain and petitioners failed to prove
that they and their predecessors-in-interest had been in open, continuous, exclusive and
notorious possession of the land in question since June 12, 1945 or earlier. The dispositive
portion of the decision reads:
 
WHEREFORE, premises considered, the instant appeal is
GRANTED. Accordingly, We REVERSE the Decision dated December 15,
1995 of the Regional Trial Court, DENY the application for registration of
title filed by petitioners-appellees, DECLARE as moot and academic any
and all claims of private oppositors-appellants over Lot No. 2372, and
DECLARE the subject parcel of land to be inalienable and indisposable
land belonging to the public domain.
 
SO ORDERED.[8]
 
Petitioners filed a motion for reconsideration, which was denied by the CA in a
Resolution dated November 17, 2005. Hence, the present petition with the following issues:
 
 
 
I
WHETHER OR NOT LOT NO. 2372 OF THE ILOG CADASTRE IS ALIENABLE
AND DISPOSABLE LAND OF THE PUBLIC DOMAIN.
II
WHETHER OR NOT THE CLAIM OF PRESCRIPTION BY THE APPLICANT WILL
LIE ON LOT NO. 2372.
 
III
WHETHER OR NOT THE DECISION OF THE COURT OF APPEALS IN CAD.
CASE NO. 23, ENTITLED LODOVICO VALIAO, ET, AL., VS. MACARIO ZAFRA,
ET, AL., AC G.R. NO. CV-68873, CONSTITUTES RES JUDICATA AS FAR AS
THIS APPLICATION FOR REGISTRATION IS CONCERNED.
 
IV
WHETHER OR NOT THE ALLEGED POSSESSION OF THE APPLICANTS
THROUGH THEIR PREDECESSORS-IN-INTEREST IS SUFFICIENT TO SUSTAIN
THEIR CLAIM FOR PRESCRIPTION.[9]
Petitioners claim that Lot No. 2372 is an alienable and disposable portion of the
public domain. The possession of applicants' predecessors-in interest since 1916 until 1966
had been open, continuous and uninterrupted; thus, converting the said land into a private
land. The subject lot had already become private in character in view of the length of time
the applicants and their predecessors-in-interest had possessed the subject lot, which
entitles them to the confirmation of their title. Petitioners further claim that prior dismissal in
a cadastral proceeding does not constitute res judicata in a subsequent application for
registration of a parcel of land.
 
In its Comment, the OSG submits that the issues to be resolved in the present
petition, i.e., whether Lot No. 2372 is alienable and disposable land of the public domain and
whether petitioners have the right to have the said property registered in their name through
prescription of time are questions of fact, which were already passed upon by the CA and no
longer reviewable by the Court, since findings of fact of the CA, when supported by sufficient
evidence, are conclusive and binding on the parties. The OSG further claims that petitioners
failed to prove that the subject lot is part of the alienable and disposable portion of the
public domain and that petitioners' application for land registration is already barred by a
prior decision in a cadastral case. Lastly, the OSG asserts that petitioners did not present
sufficient evidence to prove that their possession over the subject lot applied for had been
open, peaceful, exclusive, continuous and adverse.
 
Anent the propriety of filing a petition for review under Rule 45 of the Rules of
Court, the principle is well-established that this Court is not a trier of facts and that only
questions of law may be raised.  The resolution of factual issues is the function of the lower
courts whose findings on these matters are received with respect and are, as a rule, binding
on this Court. This rule, however, is subject to certain exceptions. One of these is when the
findings of the appellate court are contrary to those of the trial court.[10] Due to the
divergence of the findings of the CA and the RTC, the Court will now re-examine the facts and
evidence adduced before the lower courts.
 
Section 14 (1) of Presidential Decree No. (PD) 1529, otherwise known as the
Property Registration Decree provides:
SEC. 14. Who may apply. - The following persons may file in the
proper Court of First Instance an application for registration of title to
land, whether personally or through their duly-authorized
representatives:
(1) Those who by themselves or through their
predecessors-in-interest have been in open,
continuous, exclusive and notorious possession and
occupation of alienable and disposable lands of the
public domain under a bona fide claim of ownership
since June 12, 1945, or earlier.
  
 
From the foregoing, petitioners need to prove that: (1) the land forms part of the
alienable and disposable land of the public domain; and (2) they, by themselves or through
their predecessors-in-interest, have been in open, continuous, exclusive, and notorious
possession and occupation of the subject land under a bona fide claim of ownership from
June 12, 1945 or earlier.[11] These the petitioners must prove by no less than clear, positive
and convincing evidence.[12]
 
Under the Regalian doctrine, which is embodied in our Constitution, all lands of the
public domain belong to the State, which is the source of any asserted right to any ownership
of land. All lands not appearing to be clearly within private ownership are presumed to
belong to the State. Accordingly, public lands not shown to have been reclassified or released
as alienable agricultural land or alienated to a private person by the State remain part of the
inalienable public domain.[13] Unless public land is shown to have been reclassified as
alienable or disposable to a private person by the State, it remains part of the inalienable
public domain. Property of the public domain is beyond the commerce of man and not
susceptible of private appropriation and acquisitive prescription. Occupation thereof in the
concept of owner no matter how long cannot ripen into ownership and be registered as a
title.[14] The burden of proof in overcoming the presumption of State ownership of the lands
of the public domain is on the person applying for registration (or claiming ownership), who
must prove that the land subject of the application is alienable or disposable.  To overcome
this presumption, incontrovertible evidence must be established that the land subject of the
application (or claim) is alienable or disposable.[15]
 
There must be a positive act declaring land of the public domain as alienable and
disposable. To prove that the land subject of an application for registration is alienable, the
applicant must establish the existence of a positive act of the government, such as a
presidential proclamation or an executive order; an administrative action; investigation
reports of Bureau of Lands investigators; and a legislative act or a statute. The applicant may
also secure a certification from the government that the land claimed to have been
possessed for the required number of years is alienable and disposable.[16]
 
No such evidence was offered by the petitioners to show that the land in question
has been classified as alienable and disposable land of the public domain. In the absence of
incontrovertible evidence to prove that the subject property is already classified as alienable
and disposable, we must consider the same as still inalienable public domain.[17] Verily, the
rules on the confirmation of imperfect title do not apply unless and until the land subject
thereof is released in an official proclamation to that effect so that it may form part of the
disposable agricultural lands of the public domain.
 
With respect to the existence of a prior cadastral case, it appears that on July 11,
1966, the petitioners filed in Cadastral Case No. 23 of the then CFI of Negros Occidental a
petition to reopen the proceedings relative to three lots, one of which is Lot No. 2372. The
lower court, in its Order[18] dated October 20, 1980, held that Lot No. 2372 belongs to the
Republic. It found that after the subject lot was declared public land, it was found to be inside
the communal forest. On appeal, the CA, in its Decision[19] dated August 7, 1984, found no
reversible error and affirmed the decision of the cadastral court. Thereafter, a petition
elevating the case to this Court was dismissed for lack of merit.[20] In the present case, the
CA, in its Decision dated June 23, 2005, ruled that such judgment constitutes res judicata that
will bar a subsequent action for land registration on the same land.
 
In Director of Lands v. Court of Appeals,[21] the Court held that a judicial
declaration that a parcel of land is public, does not preclude even the same applicant from
subsequently seeking a judicial confirmation of his title to the same land, provided he
thereafter complies with the provisions of Section 48[22] of Commonwealth Act No. 141, as
amended, and as long as said public lands remain alienable and disposable. In the case at bar,
not only did the petitioners fail to prove that the subject land is part of the alienable and
disposable portion of the public domain, they failed to demonstrate that they by themselves
or through their predecessors-in-interest have possessed and occupied the subject land since
June 12, 1945 or earlier as mandated by the law.
 
It is settled that the applicant must present proof of specific acts of ownership to
substantiate the claim and cannot just offer general statements which are mere conclusions
of law than factual evidence of possession.[23] Actual possession consists in the
manifestation of acts of dominion over it of such a nature as a party would actually exercise
over his own property.[24]
 
The testimonies of Nemesio and Pacifico as to their own and their predecessors-in-
interest's possession and ownership over the subject lot fail to convince Us. Petitioners claim
that Basilio was in possession of the land way back in 1916. Yet no tax declaration covering
the subject property, during the period Basilio allegedly occupied the subject property, i.e.,
1916 to 1947, was presented in evidence. Other than the bare allegations of Nemesio and
Pacifico that Basilio allegedly introduced improvements on the subject property, there is
nothing in the records which would substantiate petitioners' claim that Basilio was in
possession of Lot No. 2372 since June 12, 1945 or earlier, the period of possession required
by law. Hence, petitioners' assertion that Basilio possessed the property in question from
1916 to 1947 is, at best, conjectural and self-serving.
 
As regards petitioners' possession of the land in question from 1947 to 1966,
petitioners could only support the same with a tax declaration dated September 29, 1976. At
best, petitioners can only prove possession since said date. What is required is open,
exclusive, continuous and notorious possession by petitioners and their predecessors-in-
interest, under a bona fide claim of ownership, since June 12, 1945 or earlier.[25] Petitioners
failed to explain why, despite their claim that their predecessors-in-interest have possessed
the subject properties in the concept of an owner even before June 12, 1945, it was only in
1976 that they started to declare the same for purposes of taxation. Moreover, tax
declarations and receipts are not conclusive evidence of ownership or of the right to possess
land when not supported by any other evidence. The disputed property may have been
declared for taxation purposes in the names of the applicants for registration, or of their
predecessors-in-interest, but it does not necessarily prove ownership.  They are merely
indicia of a claim of ownership.[26]
 
Evidently, since the petitioners failed to prove that (1) the subject property was
classified as part of the disposable and alienable land of the public domain; and (2) they and
their predecessors-in-interest had been in open, continuous, exclusive, and notorious
possession and occupation thereof under a bona fide claim of ownership since June 12, 1945
or earlier, their application for confirmation and registration of the subject property under It is well settled that a certificate of title is void when it covers property of public
PD 1529 should be denied. domain classified as forest, timber or mineral lands. Any title issued covering non-disposable
  lots even in the hands of an alleged innocent purchaser for value shall be cancelled.[2] The
WHEREFORE, the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. rule must stand no matter how harsh it may seem. Dura lex sed lex.[3] Ang batas ay
54811, which reversed the Decision of the Regional Trial Court of Kabankalan, Negros maaaring mahigpit subalit ito ang mananaig.
Occidental, Branch 61, in Land Registration Case No. 03, is AFFIRMED. The application for  
registration of title filed by the petitioners Pacifico Valiao, Lodovico Valiao, Ricardo Valiao, Before Us is a petition for review on certiorari under Rule 45 filed by petitioner
Bienvenido Valiao, and Nemesio Grandea, over Lot No. 2372, with a total area of 504,535 Land Bank of the Philippines (LBP) appealing the: (1) Decision[4] of the Court of Appeals (CA),
square meters, more or less, situated in Barrio Galicia, Municipality of Ilog, Negros Occidental, dated August 23, 2001, in CA-G.R. CV No. 64121 entitled Republic of the Philippines,
is DENIED. represented by the Director of Lands v. Angelito Bugayong, et al.; and (2) Resolution[5] of the
  same Court, dated November 12, 2001, denying LBPs motion for reconsideration.
SO ORDERED.  
The CA affirmed the Decision[6] of the Regional Trial Court (RTC), dated July 9,
epublic of the Philippines 1996, declaring null and void Original Certificate of Title (OCT) No. P-2823, as well as other
Supreme Court titles originating from it, on the ground that at the time it was issued, the land covered was
Manila still within the forest zone.[7]
   
THIRD DIVISION The Facts
   
  OCT No. P-2823 was issued on September 26, 1969 in favor of one Angelito C.
LAND BANK OF THE G.R. No. 150824 Bugayong. Said mother title emanated from Sales Patent No. 4576 issued in Bugayongs name
PHILIPPINES, on September 22, 1969.[8] It covered a parcel of land located in Bocana, Kabacan, Davao
Petitioner, Present: City, with an area of 41,276 square meters. It was originally identified and surveyed as Lot
No. 4159 under Plan SI-(VIII-1), 328-D. Marshy and under water during high tide, it used to be
YNARES-SANTIAGO, J., a portion of a dry river bed near the mouth of Davao River.[9]
Chairperson,  
- versus - AUSTRIA-MARTINEZ,  
CORONA,*  
NACHURA, and The land was initially subdivided into four lots, viz.: Lot Nos. 4159-A, 4159-B, 4159-
REYES, JJ. C and 4159-D under Subdivision Plan (LRC) Psd-139511 approved by the Commissioner of
REPUBLIC OF THE Land Registration on April 23, 1971.[10] Consequently, OCT No. P-2823 was cancelled and
PHILIPPINES, represented Promulgated: new Transfer Certificates of Title (TCTs) replaced it, all in the name of Bugayong.
by the Director of Lands,  
Respondent. February 4, 2008 Bugayong sold all of the four lots to different persons. Lot No. 4159-A, which was
  then under TCT No. T-32769, was sold to spouses Lourdes and Candido Du. Accordingly, said
x--------------------------------------------------x TCT was cancelled and replaced by TCT No. T-42166 in the name of spouses Du.[11]
   
DECISION Afterwards, the spouses Du further caused the subdivision of the land covered by
  their TCT No. T-42166 into two (2) lots. They sold one of said lots to spouses Felix and
  Guadalupe Dayola, who were issued TCT No. T-45586. The other remaining lot, registered
REYES, R.T., J.: under TCT No. T-45587, was retained by and registered in the names of spouses Du.[12]
   
  Subsequently, Du spouses TCT No. T-45587 was cancelled and was replaced by TCT
FOREST lands are outside the commerce of man and unsusceptible of private No. T-57348 registered in the name of Lourdes Farms, Inc. subject of this case.[13] Lourdes
appropriation in any form.[1] Farms, Inc. mortgaged this property to petitioner LBP on April 14, 1980.[14]
   
The validity of OCT No. P-2823, as well as its derivative TCTs, remained undisturbed
until some residents of the land it covered, particularly those along Bolton Diversion Road,
* filed a formal petition before the Bureau of Lands on July 15, 1981.[15]
  The RTC explained that titles issued to private parties by the Bureau of Lands are
  void ab initio if the land covered by it is a forest land.[25] It went further by stating that if the
  mother title is void, all titles arising from the mother title are also void.[26] It thus ruled in
Investigation and ocular inspection were conducted by the Bureau of Lands to favor of the Republic with a fallo reading:
check the legitimacy of OCT No. P-2823. They found out that: (1) at the time Sales Patent No.  
4576 was issued to Bugayong, the land it covered was still within the forest zone, classified IN VIEW WHEREOF, judgment is hereby rendered declaring
under Project No. 1, LC-47 dated August 6, 1923; it was released as alienable and disposable Original Certificate of Title No. P-2823 issued in the name of defendant
land only on March 25, 1981, pursuant to BFD Administrative Order No. 4-1585 and to the Angelito Bugayong null and void. The following Transfer Certificate of
provisions of Section 13, Presidential Decree (P.D.) No. 705;[16] (2) the land was marshy and Titles which were originally part of the lot covered by O.C.T. No. P-2823
covered by sea water during high tide; and (3) Bugayong was never in actual possession of are likewise declared void:
the land.[17]  
  1.A. TCT No. 57348 in the name of defendant
In view of the foregoing findings, the Bureau of Lands resolved that the sales Lourdes Farms mortgaged to defendant Land
patent in favor of Bugayong was improperly and illegally issued and that the Director of Bank.
Lands had no jurisdiction to dispose of the subject land.[18]  
  B. TCT No. 84749 in the name of defendants
Upon recommendation of the Bureau of Lands, the Republic of the Philippines Johnny and Catherine Du mortgaged to
represented by the Director of Lands, through the Office of the Solicitor General (OSG), defendant Development Bank of the
instituted a complaint[19] before the RTC in Davao, Branch 15, for the cancellation of Philippines.
title/patent and reversion of the land covered by OCT No. P-2823 into the mass of public  
domain. The complaint, as amended,[20] was filed against Bugayong and other present C. TCT No. 37386 in the name of defendants
owners and mortgagees of the land, such as Lourdes Farms, Inc. and the latters mortgagee, spouses Pahamotang mortgaged to
petitioner LBP. defendant Lourdes Du mortgaged with
  defendant Allied Bank.
In its answer with cross-claim,[21] LBP claimed that it is a mortgagee in good faith  
and for value. It prayed that should TCT No. T-57348 of Lourdes Farms, Inc. be annulled by E. TCT Nos. 68154 and 32768 in the names of
the court, Lourdes Farms, Inc. should be ordered to pay its outstanding obligations to LBP or defendants/spouses Maglana Santamaria.
to provide a new collateral security.[22]  
  2. All private defendants shall give to the Davao
RTC Judgment City Register of Deeds their titles, who shall
  cancel the Transfer Certificate of Titles
Eventually, the RTC rendered its judgment[23] on July 9, 1996 determining that: mentioned in paragraph number one.
   
x x x The mistakes and the flaws in the granting of the title were 3. Lot No. 4159, Plan SI (VIII-1) 328-D covered by
made by the Bureau of Lands personnel more particularly the Director of O.C.T. P-2823 is hereby REVERTED to the
Lands who is the Officer charged with the following the provisions of the mass of public domain.
Public Land Law. x x x.  
  SO ORDERED.[27] (Underscoring supplied)
It is clear that the mother Title, OCTP-2823 in the name of  
defendant Bugayong was issued at a time when the area was not yet Disagreeing with the RTC judgment, LBP appealed to the CA on October 31, 1996. It
released by the Bureau of Forestry to the Bureau of Lands. asserted in its appellants brief[28] that it validly acquired mortgage interest or lien over the
  subject property because it was an innocent mortgagee for value and in good faith.[29] It
The area covered by OCT No. P. 2823 was not yet declared by also emphasized that it is a government financial institution.
the Bureau of Lands alienable and disposable when the said OCT was  
issued. The subdivision of the lot covered by OCT P-2823 into 4 lots CA Disposition
covered by TCT Nos. T-32768, 32769, 32756 and 32771 did not cure the  
defect. x x x.[24] In a Decision[30] dated August 23, 2001, the CA ruled against the appellants,[31]
  disposing thus:
 
 WHEREFORE, premises considered, the present appeals are
hereby DISMISSED and the Decision of the trial court in Civil Case No.
17516 is hereby AFFIRMED.[32]
 
The CA confirmed that the evidence for the plaintiff clearly established that the
land covered by OCT No. P-2823 issued pursuant to a sales patent granted to defendant
Angelito C. Bugayong was still within the forestal zone at the time of the grant of the said
patent.[33] It explained:
Forest lands or forest reserves, are incapable of private
appropriation and possession thereof, however long, cannot convert
them into private properties. This is premised on the Regalian Doctrine
enshrined not only in the 1935 and 1973 Constitutions but also in the
1987 Constitution. Our Supreme Court has upheld this rule consistently
even in earlier cases. It has also been held that whatever possession of
the land prior to the date of release of forested land as alienable and
disposable cannot be credited to the 30-year requirement (now, since
June 12, 1945) under Section 48(b) of the Public Land Act. It is only from
that date that the period of occupancy for purposes of confirmation of
imperfect or incomplete title may be counted. Since the subject land was
declared as alienable and disposable only on March 25, 1981, appellants
and their predecessors-in-interest could not claim any vested right
thereon prior to its release from public forest zone.
The inclusion of forest land in a title, whether title be issued
during the Spanish regime or under the Torrens system, nullifies the title.
It is, of course, a well-recognized principle that the Director of Lands (now
Land Management Bureau) is bereft of any jurisdiction over public forest
or any lands not capable of registration. It is the Bureau of Forestry that
has jurisdiction and authority over the demarcation, protection,
management, reproduction, occupancy and use of all public forests and
forest reservations and over the granting of licenses for the taking of
products therefrom. And where the land applied for is part of the public
forest, the land registration court acquires no jurisdiction over the land,
which is not yet alienable and disposable.
 
Thus, notwithstanding the issuance of a sales patent over the
subject parcel of land, the State may still take action to have the same
land reverted to the mass of public domain and the certificate of title
covering said forest land declared null and void for having been
improperly and illegally issued. Titles issued over non-alienable public
lands have been held as void ab initio. The defense of indefeasibility of
title issued pursuant to such patent does not lie against the State. Public
land fraudulently included in patents or certificates of title may be
recovered or reverted to the State in accordance with Section 101 of the
Public Land Act. In such cases, prescription does not lie against the State.
Likewise, the government is not estopped by such fraudulent or wrongful
issuance of a patent over public forest land inasmuch as the principle of
estoppel does not operate against the Government for the acts of its
agents. x x x.[34] (Citations omitted)
 
With respect to LBPs contention[35] that it was a mortgagee in good faith and for
value, the CA declared, citing Republic v. Reyes[36] that: mortgagees of non-disposable lands
where titles thereto were erroneously issued acquire no protection under the land
registration law. Appellants-mortgagees proper recourse therefore is to pursue their claims
against their respective mortgagors and debtors.[37]
When LBPs motion for reconsideration was denied, it resorted to the petition at
bar.
 
Issues
 
LBP seeks the reversal of the CA disposition on the following grounds
 
A.
THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE
PETITIONER LAND BANK OF THE PHILIPPINES MORTGAGE RIGHT AND
INTEREST AS AN INNOCENT PURCHASER (MORTGAGEE) FOR VALUE AND
IN GOOD FAITH OVER THE SUBJECT LAND COVERED BY TCT NO. T-57348
IS VALID AND SUBSISTING IN ACCORDANCE WITH THE LAW AND EXISTING
JURISPRUDENCE IN OUR COUNTRY.
B.
THE COURT OF APPEALS ERRED IN NOT FINDING PETITIONER
LAND BANK OF THE PHILIPPINES MORTGAGE RIGHT AND INTEREST OVER
THE SUBJECT LAND AS VALID AND SUBSISTING UNDER THE
CONSTITUTIONAL GUARANTEE OF NON-IMPAIRMENT OF OBLIGATION OF
CONTRACTS.
 
C.
THE COURT OF APPEALS ERRED IN NOT AWARDING TO
PETITIONER LAND BANK OF THE PHILIPPINES THE RELIEF PRAYED FOR
UNDER ITS CROSS-CLAIM AGAINST CO-DEFENDANT LOURDES FARMS,
INC., THAT IS, ORDERING SAID CO-DEFENDANT LOURDES FARMS, INC. TO
PAY ITS OUTSTANDING OBLIGATION TO THE LAND BANK COVERED BY
THE SUPPOSED NULL AND VOID TCT NO. T-57348, OR TO PROVIDE A
SUBSTITUTE COLLATERAL IN LIEU OF SAID TCT NO. T-57348.[38]
(Underscoring supplied)
 
 
 
 
Our Ruling
 
LBP has no valid and
subsisting mortgagees
interest over the land
covered by TCT No. T-
57348.
It has been established and admitted by LBP that: (1) the subject land mortgaged to
it by Lourdes Farms, Inc. is covered by TCT No. T-57348; and (2) the said TCT is derived from
OCT No. P-2823 issued to Bugayong.[39]
It was further ascertained by the courts below that at the time OCT No. P-2823 was
issued to Bugayong on September 26, 1969, the land it covered was still within the forest
zone. It was declared as alienable and disposable only on March 25, 1981.[40]
 
Despite these established facts, LBP argues that its alleged interest as mortgagee of
the subject land covered by TCT No. T-57348 must be respected. It avers that TCT No. T-
57348 is a Torrens title which has no written indications of defect or vice affecting the
ownership of Lourdes Farms, Inc. Hence, it posits that it was not and could not have been
required to explore or go beyond what the title indicates or to search for defects not
indicated in it.
 
LBP cites cases where the Court ruled that a party is not required to explore further
than what the Torrens title upon its face indicates in quest of any hidden defect of an
inchoate right that may subsequently defeat his right to it; and that a bank is not required
before accepting a mortgage to make an investigation of the title of the property being given
as security. LBP submits that its right as a mortgagee is binding against the whole world and
may not be disregarded. [41]
 
 
It further argues that review or reopening of registration is proscribed, as the title
has become incontrovertible pursuant to Section 32 of P.D. No. 1529; and that its mortgage
rights and interest over the subject land is protected by the constitutional guarantee of non-
impairment of contracts.[42]
 
The contention that LBP has an interest over the subject land as a mortgagee has
no merit. The mortgagor, Lourdes Farms, Inc. from which LBP supposedly obtained its alleged
interest has never been the owner of the mortgaged land. Acquisition of the subject land by
Lourdes Farms, Inc. is legally impossible as the land was released as alienable and disposable
only on March 25, 1981. Even at present, no one could have possessed the same under a
claim of ownership for the period of thirty (30) years required under Section 48(b) of
Commonwealth Act No. 141, as amended.[43] Hence, LBP acquired no rights over the land.
 
Under Article 2085 of the Civil Code, it is essential that the mortgagor be the
absolute owner of the thing mortgaged, to wit:
ARTICLE 2085. The following requisites are essential to the
contracts of pledge and mortgage:
 
(1) That they be constituted to secure the fulfillment of a
principal obligation;
 
(2) That the pledgor or mortgagor be the absolute owner
of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage
have the free disposal of their property, and in the absence thereof, that
they be legally authorized for the purpose. (Emphasis ours)
Since Lourdes Farms, Inc. is not the owner of the land, it does not have the capacity
to mortgage it to LBP. In De la Cruz v. Court of Appeals,[44] the Court declared:
 
While it is true that the mortgagees, having entered into a
contract with petitioner as mortgagor, are estopped from questioning the
latters ownership of the mortgaged property and his concomitant
capacity to alienate or encumber the same, it must be considered that, in
the first place, petitioner did not possess such capacity to encumber the
land at the time for the stark reason that it had been classified as a forest
land and remained a part of the patrimonial property of the State.
Assuming, without admitting, that the mortgagees cannot subsequently
question the fact of ownership of petitioner after having dealt with him in
that capacity, still, petitioner was never vested with the proprietary
power to encumber the property. In fact, even if the mortgagees
continued to acknowledge petitioner as the owner of the disputed land,
in the eyes of the law, the latter can never be presumed to be owner.
 
As correctly pointed out by the OSG, mortgagees of non-disposable lands, titles to
which were erroneously issued, acquire no protection under the Land Registration Law.[45]
 
Even assuming that LBP was able to obtain its own TCT over the property by means
of its mortgage contract with Lourdes Farms, Inc., the title must also be cancelled as it was
derived from OCT No. P-2823 which was not validly issued to Bugayong. Forest lands cannot
be owned by private persons. It is not registerable whether the title is a Spanish title or a
Torrens title.[46] It is well settled that a certificate of title is void when it covers property of
public domain classified as forest or timber or mineral land. Any title issued covering non-
disposable lots even in the hands of an alleged innocent purchaser for value shall be
cancelled.[47]
 
Moreover, the Court has already addressed the same issue in its Resolution of
November 14, 2001 on the petition filed by the Philippine National Bank (PNB) in G. R. No.
149568 entitled Philippine National Bank v. Republic of the Philippines represented by the
Director of Lands, which also appealed the subject CA decision. PNB, like LBP, is also a
mortgagee of another derivative TCT of the same OCT No. 2823. Said resolution reads:
On September 22, 1969, Angelito C. Bugayong was issued a
sales patent covering a 41,276 square meter parcel of land in Bocana,
Barrio Kabacan, Davao City by the Bureau of Lands. On the basis of the
sales patent, the Register of Deeds of Davao City issued OCT No. P-2823
to Bugayong. Bugayong later subdivided the land into four lots, one of
which (Lot No. 4159-B covered by TCT No. T-32770) was sold by him to
the spouses Reynaldo Rogacion and Corazon Pahamotang. After
obtaining TCT No. T-37786 in their names, the spouses mortgaged the lot which is part of the public forest or of a forest reservation registered in
to the Philippine National Bank (PNB). As they defaulted in the payment favor of any party. Public land registered under the Land Registration Act
of their loan, the PNB foreclosed the property and purchased it at the may be recovered by the State at any time (Republic v. Court of Appeals,
foreclosure sale as the highest bidder. Eventually, the PNB consolidated 258 SCRA 223 (1996)).[48]
its title.  
  Contrary to the argument of LBP, since the title is void, it could not have become
Sometime in 1981, upon the petition of the residents of the incontrovertible. Even prescription may not be used as a defense against the Republic. On
land, the Bureau of Lands conducted an investigation into the sales this aspect, the Court in Reyes v. Court of Appeals,[49] citing Republic v. Court of Appeals,[50]
patent issued in favor of Angelito C. Bugayong and found the sales patent held:
to have been illegally issued because (1) the land was released as  
alienable and disposable only on March 25, 1981; previous to that, the Petitioners contention that the government is now estopped
land was within the forest zone; (2) the land is covered by sea water from questioning the validity of OCT No. 727 issued to them, considering
during high tide; and (3) the patentee, Angelito C. Bugayong, had never that it took the government 45 years to assail the same, is erroneous. We
been in actual possession of the land. have ruled in a host of cases that prescription does not run against the
  government. In point is the case of Republic v. Court of Appeals, wherein
Based on this investigation, the government instituted the we declared:
present suit in 1987 for cancellation of title/patent and reversion of the  
parcel of land against Angelito C. Bugayong, the Rogacion spouses, and And in so far as the timeliness of the action
the PNB, among others. of the Government is concerned, it is basic that
  prescription does not run against the State x x x. The
On July 6, 1996, the trial court rendered a decision declaring case law has also been:
OCT No. P-2823 and all titles derived therefrom null and void and  
ordering reversion of the subject property to the mass of the public When the government
domain. On appeal, the Court of Appeals affirmed the trial courts is the real party in interest, and is
decision. Hence, this petition. proceeding mainly to assert its
  own rights and recover its own
First. Petitioner contends that it had a right to rely on TCT No. property, there can be no defense
T-37786 showing the mortgagors Reynaldo Rogacion and Corazon on the ground of laches or
Pahamotangs ownership of the property. limitation x x x.
   
The contention is without merit. It is well settled that a Public land fraudulently
certificate of title is void when it covers property of public domain included in patents or certificates
classified as forest or timber or mineral lands. Any title issued covering of title may be recovered or
non-disposable lots even in the hands of an alleged innocent purchaser reverted to the State in
for value shall be cancelled (Republic v. Reyes, 155 SCRA 313 (1987)). accordance with Section 101 of
  the Public Land Act. Prescription
(Republic v. Court of Appeals, 148 SCRA 480 (1987)). In this does not lie against the State in
case, petitioner does not dispute that its predecessor-in-interest, such cases for the Statute of
Angelito C. Bugayong, had the subject property registered in his name Limitations does not run against
when it was forest land. Indeed, even if the subject property had been the State. The right of reversion or
eventually segregated from the forest zone, neither petitioner nor its reconveyance to the State is not
predecessors-in-interest could have possessed the same under claim of barred by prescription. (Emphasis
ownership for the requisite period of thirty (30) years because it was ours)
released as alienable and disposable only on March 25, 1981.  
  There is no impairment
Second. Petitioners contention that respondents action for of contract but a valid
reversion is barred by prescription for having been filed nearly two exercise of police power
decades after the issuance of Bugayongs sales patent is likewise without of the State.
merit. Prescription does not lie against the State for reversion of property  
 The constitutional guarantee of non-impairment of contracts may not likewise be
used by LBP to validate its interest over the land as mortgagee. The States restraint upon the
right to have an interest or ownership over forest lands does not violate the constitutional
guarantee of non-impairment of contracts. Said restraint is a valid exercise of the police
power of the State. As explained by the Court in Director of Forestry v. Muoz:[51]
 
The view this Court takes of the cases at bar is but in adherence
to public policy that should be followed with respect to forest lands.
Many have written much, and many more have spoken, and quite often,
about the pressing need for forest preservation, conservation, protection,
development and reforestation. Not without justification. For, forests
constitute a vital segment of any country's natural resources. It is of
common knowledge by now that absence of the necessary green cover
on our lands produces a number of adverse or ill effects of serious
proportions. Without the trees, watersheds dry up; rivers and lakes which
they supply are emptied of their contents. The fish disappear. Denuded
areas become dust bowls. As waterfalls cease to function, so will
hydroelectric plants. With the rains, the fertile topsoil is washed away;
geological erosion results. With erosion come the dreaded floods that
wreak havoc and destruction to property crops, livestock, houses and
highways not to mention precious human lives. Indeed, the foregoing
observations should be written down in a lumbermans decalogue.
 
Because of the importance of forests to the nation, the States
police power has been wielded to regulate the use and occupancy of
forest and forest reserves.
 
To be sure, the validity of the exercise of police power in the
name of the general welfare cannot be seriously attacked. Our
government had definite instructions from the Constitutions preamble to
promote the general welfare. Jurisprudence has time and again upheld
the police power over individual rights, because of the general welfare.
Five decades ago, Mr. Justice Malcolm made it clear that the right of the
individual is necessarily subject to reasonable restraint by general law for
the common good and that the liberty of the citizen may be restrained in
the interest of public health, or of the public order and safety, or
otherwise within the proper scope of the police power. Mr. Justice
Laurel, about twenty years later, affirmed the precept when he declared
that the state in order to promote the general welfare may interfere with
personal liberty, with property, and with business and occupations and
that [p]ersons and property may be subjected to all kinds of restraints
and burdens, in order to secure the general comfort, health, and
prosperity of the state. Recently, we quoted from leading American case,
which pronounced that neither property rights nor contract rights are
absolute; for government cannot exist if the citizen may at will use his
property to the detriment of his fellows, or exercise his freedom of
contract to work them harm, and that, therefore, [e]qually fundamental
with the private right is that of the public to regulate it in the common
interest. (Emphasis ours and citations omitted)
 
In Edu v. Ericta,[52] the Court defined police power as the authority of the state to
enact legislation that may interfere with personal liberty or property in order to promote the
general welfare. It is the power to prescribe regulations to promote the health, morals,
peace, education, good order or safety, and general welfare of the people. It is that inherent
and plenary power of the State which enables it to prohibit all things hurtful to the comfort,
safety and welfare of society.[53] It extends to all the great public needs and is described as
the most pervasive, the least limitable and the most demanding of the three inherent powers
of the State, far outpacing taxation and eminent domain.[54] It is a ubiquitous and often
unwelcome intrusion. Even so, as long as the activity or the property has some relevance to
the public welfare, its regulation under the police power is not only proper but necessary.
[55]
 
Preservation of our forest lands could entail intrusion upon contractual rights as in
this case but it is justified by the Latin maxims Salus populi est suprema lex and Sic utere tuo
ut alienum non laedas, which call for the subordination of individual interests to the benefit
of the greater number.[56]
 
While We sympathize with petitioner, We nonetheless cannot, in this instance,
yield to compassion and equity. The rule must stand no matter how harsh it may seem.[57]
 
 
We cannot resolve the
cross-claim for lack of
factual basis. The cross-
claim must be remanded
to the RTC for further
proceedings.
 
LBP filed a cross-claim against Lourdes Farms, Inc. before the RTC.[58] The cross-
claim is for the payment of cross-defendant Lourdes Farms, Inc.s alleged obligation to LBP or
its submission of a substitute collateral security in lieu of the property covered by TCT No. T-
57348.
 
However, the records do not show that Lourdes Farms, Inc. was required by the
RTC to file an answer to the cross-claim. Likewise, Lourdes Farms, Inc. was not notified of the
proceedings before the CA. It was not also made a party to this petition.
 
LPB now contends that the CA erred in not granting its cross-claim against Lourdes
Farms, Inc. We are thus confronted with the question: Should We now order Lourdes Farms,
Inc. to comply with the demand of LBP?
 
We rule in the negative. It may be true that Lourdes Farms, Inc. still has an
obligation to LBP but We cannot make a ruling regarding the same for lack of factual basis.
There is no evidence-taking on the cross-claim. No evidence was adduced before the RTC or
the CA regarding it. No factual finding or ruling was made by the RTC or the CA about it.
 
 It bears stressing that in a petition for review on certiorari, the scope of this Court's
judicial review of decisions of the CA is generally confined only to errors of law. Questions of
fact are not entertained.[59]
 
Moreover, the failure to make a ruling on the cross-claim by the RTC was not
assigned as an error in LBPs appellants brief[60] before the CA. Hence, the CA cannot be
faulted for not making a ruling on it.
As held in De Liano v. Court of Appeals,[61] appellant has to specify in what aspect
of the law or the facts the trial court erred. The conclusion, therefore, is that appellant must
carefully formulate his assignment of errors. Its importance cannot be underestimated, as
Section 8, Rule 51 of the Rules of Court will attest:
 
Questions that may be decided. No error which does not affect
the jurisdiction over the subject matter or the validity of the judgment
appealed from or the proceedings therein will be considered unless
stated in the assignment of errors, or closely related to or dependent on
an assigned error and properly argued in the brief, save as the court may
pass upon plain errors and clerical errors.
Apparently, the cross-claim was taken for granted not only by the RTC but also by
LBP. The cross-claim was not included as a subject or issue in the pre-trial order and instead
of asking that the same be heard, LBP filed a motion[62] to submit the main case for
resolution. The main case was thus resolved by the RTC without touching on the merits of
the cross-claim.
 
On the other hand, while the CA did not make a categorical ruling on LBPs cross-
claim, it pointed out that: (1) as found by the RTC, there is a mortgage contract between LBP
and Lourdes Farms, Inc., with LBP as mortgagee and Lourdes Farms, Inc. as mortgagor; and
(2) LBPs proper recourse is to pursue its claim against Lourdes Farms, Inc.[63]
The CA thus impliedly ruled that LBPs cross-claim should not be included in this
case. Instead of making a ruling on the same, it recommended that LBP pursue its claim
against Lourdes Farms, Inc.
All told, although the relationship between LBP and Lourdes Farms, Inc. as
mortgagee and mortgagor was established, the cross-claim of LBP against Lourdes Farms, Inc.
was left unresolved.
The Court is not in a position to resolve the cross-claim based on the records. In
order for the cross-claim to be equitably decided, the Court, not being a trier of facts, is
constrained to remand the case to the RTC for further proceedings. Remand of the case for
further proceedings is proper due to absence of a definitive factual determination regarding
the cross-claim.[64]
WHEREFORE, the appealed Decision of the Court of Appeals is hereby AFFIRMED
with the MODIFICATION that the cross-claim of petitioner Land Bank of the Philippines
against Lourdes Farms, Inc. is REMANDED to the Regional Trial Court, Branch 15, Davao City,
for further proceedings.
 
SO ORDERED.
G.R. No. 156022
AURELLANO AGNES, EDUARDO AGNES, ESPIRITU AGNES, ESTELLA AGNES, PANTALEON
AGNES, FILOTEO APUEN, IMELDA APUEN, MOISES APUEN, ROGELIO APUEN, GONZALO
AUSTRIA, JAVIER AUSTRIA, BONIFACIO EGUIA, LYDIA EGUIA, MANUEL GABARDA, SR.,
MELECIO GARCIA, CRISTOBAL LOQUIB, MARIA LOQUIB, MATERNO LOQUIB, GEORGE
MACANAS, MODESTO MANLEBTEN, JUANITO AUSTRIA, CONCHITA BERNAL, AURELIO
BERNAL, PABLITO BOGANTE, FELICIANO CANTON, ALFREDO CANETE, CECILIA CANETE,
CHERRY DE MESA, ROBERTO NOVERO, PERLITO PABIA, RODRIGO SABROSO, JUAN
T,ALORDA, and RAFAELA TRADIO, Petitioners,
vs.
REPUBLIC OF THE PHILIPPINES, Respondent.
RESOLUTION
LEONARDO-DE CASTRO, J.:
Before Us is a Petition for Review on Certiorari1 essentially seeking the reversal of the April
24, 2002 Decision2 of the Court of Appeals in CA G.R. CV No. 46222, entitled "Republic of the
Philippines v. Agnes, et al.," which affirmed the February 23, 1994 Decision3 of the Regional
Trial Court (RTC) of Palawan, Branch 49, Fourth Judicial Region, Puerto Princesa City in Civil
Case No. 2262, entitled "Republic of the Philippines v. Aurellano Agnes, et al."
The facts, as culled from the records, are as follows:
Calauit Island (Calauit) is a 3,600-hectare island that forms part of the Calamianes Island
group in the Province of Palawan.
The petitioners claim to be among the more than 250 families ("settlers") who lived in
Calauit4 as successors of the early settlers therein. They are members of the "Balik Calauit
Movement," which was organized for the purpose of reclaiming the lands they used to
occupy. The settlers lay claim on the lands of Calauit either (1) through a predecessor, who
had become a titled owner by virtue of Act No. 926;5 or (2) by means of an imperfect title,
which they, by themselves or their ancestors, had acquired by way of "unbroken, continuous,
exclusive and notorious possession and cultivation"6 of the lands therein until their
relocation in 1977.
In 1973, the Bureau of Lands started to survey Calauit. After some time, the surveyors met
some resistance to the continued survey, but the settlers were told that it was being done for
purposes of titling the latter’s landholdings, as well as to determine how much land may be
apportioned for people coming from Busuanga who were to be relocated in the area in view
of the establishment of the Yulo King Ranch. In 1975, however, the settlers were told that the
supposed titling of their landholdings was not going to push through as the island was going
to be set up as a zoo for rare and exotic animals from other countries.7 Further, they were
told that instead, they would be resettled in Halsey and Burabod in Culion, where the lands
were claimed to be more fertile and where full government services and facilities such as
irrigation, electricity, waterworks, public markets, roads, housing, school, and health care,
would be provided by the government.8
Calamianes Group, Province of Palawan, Island of Busuanga; containing an area of THREE
THOUSAND FOUR HUNDRED (3,400) HECTARES, more or less."
NOTE: These data are approximate and subject to future survey.
The hunting, wounding, taking or killing within said territory of any wild animals or birds
and/or the destruction of any vegetation or any act causing disturbance to the habitat of the
wildlife herein protected are hereby prohibited.

The petitioners alleged that, along with the other settlers, they could not refuse the offer IN WITNESS WHEREOF, I hereunto set my hand and caused the seal of the Republic of the
because they were harassed and intimidated by members of the Philippine Constabulary Philippines to be affixed.
(PC). In their petition and answers to written interrogatories, they mentioned instances of
violence and harassment by PC soldiers.9 They were also told that they had no choice but to Done in the City of Manila, this 31st day of August in the year of Our Lord, nineteen hundred
leave Calauit, as the island was government property and that, as illegal settlers, they could and seventy-six.
be sued.10
(SGD.) FERDINAND E. MARCOS
The terms of the proposed relocation was later embodied in individual Resettlement President of the Philippines
Agreements11 wherein the government, through the Secretary of Natural Resources, among
other things, undertook to provide the signatory settler the following: (1) an agricultural lot By the President:
in exchange for the area he would be vacating; and (2) payment for the improvements on the
properties to be vacated, as ascertained in individualized appraisal sheets.12 In exchange,
(SGD.) JUAN C. TUVERA
the signatory settler agreed to (1) be resettled to any selected resettlement area in
Presidential Assistant
Busuanga; (2) relinquish "totally his rights and claim (sic) over the land thereon in favor of the
Government;" and (3) vacate the premises upon receipt of fifty percent (50%) of the total
Thereafter, the Department of Natural Resources14 (DNR) established the Calauit Special
amount of the appraised value of the improvements, with the other half to be paid upon
Project (CSP) to manage and operate the Calauit Sanctuary.
proof of actual evacuation from the property.13

On March 11, 1977, President Marcos issued Proclamation No. 1626, declaring certain
On August 31, 1976, then President Ferdinand E. Marcos (Pres. Marcos) signed Presidential
portions of the Culion Leper Colony Reservation excluded from the Reservation and opening
Proclamation No. 1578, which declared the Island of Calauit as a Game Preserve and Wildlife
them to disposition under the provisions of the Public Land Act. These portions, known as
Sanctuary, viz.:
Halsey and Burabod, became the resettlement areas for the settlers of Calauit.
PROCLAMATION NO. 1578
In 1981, the Presidential Committee for the Conservation of the Tamaraw (PCCT) absorbed
the CSP; and in 1985, it entered into a contract with the Conservation and Resource
DECLARING AS A GAME PRESERVE AND WILDLIFE SANCTUARY A CERTAIN PARCEL OF LAND
Management Foundation, Inc. (CRMF) to carry out the functions of the CSP.
OF THE PUBLIC DOMAIN EMBRACED AND SITUATED IN THE ISLAND OF CALAUIT,
MUNICIPALITY OF NEW BUSUANGA, ISLAND OF BUSUANGA, PROVINCE OF PALAWAN.
According to petitioners, life in the resettlement areas was unbearable. They claimed that the
lands in Halsey and Burabod were unsuitable for habitation and agriculture; and that the
Upon recommendation of the Secretary of Natural Resources and pursuant to the authority
government failed to comply with the promised services and facilities.15
vested in me by law, I, FERDINAND E. MARCOS, President of the Philippines, do hereby
withdraw from sale, settlement, exploration or exploitation and set aside and declare,
After the EDSA People Power and the ouster of Pres. Marcos, the settlers formed the "Balik
subject to private rights, if any there be, as a Game Preserve and Wildlife sanctuary a certain
Calauit Movement," and aired their collective grievances to the new administration of then
parcel of land of the public domain embraced and situated in the island of Calauit,
President Corazon C. Aquino (Pres. Aquino).16
Municipality of New Busuanga, island of Busuanga, province of Palawan, which tract of land
is more particularly described as follows:
Some of the settlers tried to return to the Island but were driven away by the CRMF; thus,
they went to the Philippine Commission on Human Rights (PCHR) to file a complaint against
"A parcel of land (Calauit Island) bounded on the North by Mindoro Strait; on the East by
the government and CRMF. A fact-finding commission was established by the PCHR and
Mindoro Strait; on the South by the Municipality of New Busuanga, Palawan and Illultuk Bay;
dialogues were held among the parties. On February 17 and 23, 1987, the fact-finding
and on the West by the South China Sea; situated in the Municipality of New Busuanga,
commission submitted two memoranda17 recommending (1) the repeal of Proclamation No.
1578 for being violative of the settlers’ Bill of Rights; and (2) the immediate return of the
settlers to Calauit.
In June 1987, the petitioners, with the other settlers, once again tried to return to Calauit,
with success this time around.
Meantime, the PCHR referred the aforementioned complaint to then DNR Secretary
Fulgencio Factoran, who, on July 14, 1987 issued an Order18 directing the settlers who
returned to Calauit to "immediately vacate the sanctuary and return to their resettlement
areas of Halsey [and] Burabod."
In response to the above Order, the concerned settlers filed a Petition for Certiorari with this
Court, docketed as G.R. No. 80034, entitled "Reynaldo Rufino, et al. v. Hon. Secretary
Fulgencio Factoran, et al." In a Resolution19 dated February 16, 1988, this Court dismissed
the petition for being factual in nature, to wit:
G.R. No. 80034 (Reynaldo Rufino, et al. vs. Hon. Secretary Fulgencio Factoran, et al.). It
appearing from the allegations and arguments of the parties in their respective pleadings
that the issues presented to the Court for determination are mainly factual in nature, among
them the manner of the petitioners’ transfer from Calawit to Halsey and Burabod, the
conditions obtaining in the places to which they have been relocated, the terms and
conditions of their resettlement, including the benefits, if any, extended to them by the
government, the number of persons involved in the Back-to-Calawit Movement, and whether
or not there have really been violations of human rights against the petitioners, the Court,
not being a trier of facts, Resolved to DISMISS the petition, without prejudice to the filing by
the petitioners of the appropriate action before the regional trial court for trial and
determination of the said factual issues.20
On March 10, 1988, the petitioners filed a petition with the RTC, Branch 134, Makati, Metro
Manila, docketed as Civil Case No. 88-298, entitled "Reynaldo Rufino, et al. v. Hon. Fulgencio
Factoran, et al.," for the issuance of a preliminary injunction against the Department of
Environment and Natural Resources (DENR), to enjoin the latter from implementing
Secretary Factoran’s July 14, 1987 Order, and for the declaration of nullity of Proclamation
No. 1578 for being unconstitutional.21
In an Order dated April 6, 1988, the RTC of Makati, denied the motion for the issuance of a
writ of preliminary injunction, and upheld the constitutionality of Proclamation No. 1578.22
On April 17, 1989, the RTC of Makati issued another Order23 dismissing the case without
prejudice, to wit:
On motion of counsel for defendants and there being no objection on the part of counsel for
the plaintiffs, the instant case is hereby ordered dismissed without prejudice.
The foregoing Order was prompted by petitioners’ manifestation that they had a pending
appeal before the Office of the President relative to the July 14, 1987 Order of DENR
Secretary Factoran directing the petitioners and the other settlers to leave Calauit and return
to their resettlement areas in Halsey and Burabod.24 The Office of the President ultimately
denied said appeal.
Some of the settlers failed to comply with Secretary Factoran’s July 14, 1987 Order to vacate
Calauit; thus, the Republic of the Philippines (herein respondent), represented by the DENR
Secretary, filed a Complaint for Specific Performance and Recovery of Possession with Prayer
for Preliminary Injunction against herein petitioners before the RTC, Branch 49, Puerto
Princesa City.25 The complaint was docketed as Civil Case No. 2262, entitled "Republic of the
Philippines v. Aurellano Agnes, et al."
In said Complaint, herein respondent alleged that the petitioners’ repossession and
reoccupation of portions of Calauit are patently unlawful and grossly reproachable as they
had already waived and relinquished whatever rights they had on the island when they
signed and executed their respective Resettlement Agreements. The respondent claimed that
by returning to Calauit, the petitioners breached their contracts, the Resettlement
Agreements, which they voluntarily and freely executed. Moreover, by virtue of Proclamation
No. 1578, which closed Calauit to exploitation and settlement, the respondent contended
that the petitioners are staying on the island as "squatters" on public land. The respondent
also complained of the great damage and disturbance the petitioners were doing to the
natural resources and the protected animals in Calauit.26
In their "Answer with Counterclaims,"27 herein petitioners alleged that the Resettlement
Agreements were executed with deceit, intimidation, misrepresentation, and fraud; hence
they are illegal and void. They also contested their admissibility on the ground that they are
private documents, which have not been authenticated. They also claim that it was actually
the respondent who breached its contract by providing poor resettlement areas, which
resulted in their subhuman and marginal existence. The petitioners denied causing damage
to the island and the animals in Calauit, as they only occupied the coastal areas, away from
the animals’ roaming grounds and habitat. The petitioners then prayed for the nullification of
the Resettlement Agreements for having been procured through violence, intimidation,
deceit, misrepresentation, and fraud. In the alternative, they called for the rescission of the
contracts for respondent’s material breach of its obligations. Lastly, they asked for Twenty-
Five Thousand (P25,000.00) Pesos each as temperate, exemplary, and moral damages.
Ruling of the RTC
On February 23, 1994, the RTC of Puerto Princesa City rendered a Decision, the dispositive
portion of which reads:
WHEREFORE, the Court hereby orders the defendants (with the exception of Alfredo Aunang,
Juana Apuen, Eufricinia Bello, Bartolome Darol, Eduardo de Mesa, Aurora Eco, Eleuterio
Fresnillo, Jovita Gabarda, Fausto Lledo, Pampilo Sabroso, Ismael, Rafaela and Regalado
Tradio)28 and anyone claiming under them to vacate the respective areas where they have
resettled at Calauit Island, Busuanga, Palawan.
Plaintiff-Republic through the Secretary of the Department of Natural Resources, is ordered
to procure another suitable Relocation Sites for defendants within six months from receipt of
this Decision.29
The RTC held that the Resettlement Agreements, being duplicates of the originals and
records of the Republic of the Philippines, are public documents notwithstanding their lack of
notarization. As such, they are admissible in evidence even if the parties’ signatures were not
authenticated. The RTC also held that the vices of consent allegedly attached to the
Resettlement Agreements would have served to render the agreements merely voidable and
not void. However, the four-year period within which the petitioners could bring an action
for annulment had long prescribed. On the issue of rescission, the RTC held that even
assuming that the petitioners had grounds for rescission, they "could not unilaterally rescind
the agreements, since the right to rescind must be invoked judicially."30
The RTC, in deciding against the petitioners’ return to Calauit, proclaimed:
National Interest in the preservation of Calauit as Game Preserve and Sanctuary is the
overriding factor which argues against the right of [petitioners] to return to Calauit. Assuming
that the Resettlement Areas provided by [Respondent]-Republic did not measure up to the
expectations of [petitioners], the recourse was not to renege on their Agreements by
returning to Calauit and contributing to the disturbance or destruction of the Preserve, but to
demand that [Respondent] deliver the fair value of the properties they vacated.
[Respondent]-Republic is not entirely free from blame for what appears to have been an
unwise choice of Relocation Sites and should be given an opportunity to rectify the
mistake.31
The petitioners sought the Court of Appeals’ reversal of the RTC’s decision in their Appeal
docketed as CA-G.R. CV No. 46222, entitled "Republic of the Philippines v. Aurellano Agnes, et
al."
Ruling of the Court of Appeals
In a Decision promulgated on April 24, 2002, the Court of Appeals affirmed the assailed ruling
of the RTC, viz.:
WHEREFORE, premises considered, the appealed Decision dated February 23, 1994, of the
Regional Trial Court of Palawan and Puerto Princesa City, Branch 49, Fourth Judicial Regional,
Palawan docketed as Civil Case No. 2262, is hereby AFFIRMED. No pronouncement as to
costs.32
The Court of Appeals concurred in the findings and conclusions of the RTC. In addition, it
disputed the petitioners’ claim of ownership on the lands of Calauit; and held that absent any
proof to the contrary, the presumption that Calauit is of public domain and thus belongs to
the State stands. The Court of Appeals explained its pronouncement in this wise:
Pursuant to [Article XII, Section 2 of the 1987 Constitution], all lands of the public domain
belong to the State, and that the State is the source of any asserted right to ownership in
land and charged with the conservation of such patrimony. Corollarily, all lands not
otherwise appearing to be within private ownership are presumed to belong to the State.
Ergo, a positive act of the government is needed to declassify a forest land into alienable or
disposable land for agricultural or other purposes. x x x. Therefore, to acquire ownership of
public land, the same must first be released from its original classification and reclassified as
alienable or disposable land. In the absence of such classification, the land remains
unclassified public land until released therefrom and rendered open to disposition. Thus, the
burden of proof in overcoming the presumption of state ownership of land lies upon the
claimant. x x x.
xxxx
x x x [T]he law itself stated that only alienable and disposable lands, particularly agricultural
lands, can be acquired through possession and occupation for at least 30 years. Since the
subject property is still unclassified when [the petitioners] and their ancestors occupied the
same, whatever possession they or their predecessors may have had and however long,
cannot ripen into private ownership. Moreover, the fact that the disputed property may have
been declared for taxation purposes in the names of [petitioners] or their predecessors-in-
interest does not necessarily prove ownership. This is due to the fact that tax declarations
and receipts are not conclusive evidence of ownership or of the right to possess land when
not supported by evidence or other persuasive proof to substantiate their claim. They are
merely indicia of a claim of ownership.
Considering that the [petitioners] failed to present convincing evidence and persuasive proof
to substantiate their claim, the presumption of State ownership stands. It is also well to note
that the bases of [respondent]’s superior right of possession and ownership was sufficiently
supported both by law and jurisprudence.33 (Citations omitted.)
The petitioners moved for the reconsideration34 of the aforequoted Decision, which was
subsequently denied in a Resolution35 dated November 18, 2002.
Hence, this Petition for Review on Certiorari premised on the following assignments of error:
Issues
I. THE COURT A QUO’S RULING REJECTING PETITIONERS’ CLAIMS OF OWNERSHIP OF THE
LANDHOLDINGS IN DISPUTE, ABSENT "POSITIVE" PROOF OF ALIENABILITY THEREOF, IS
CONTRARY NOT ONLY TO THE APPLICABLE LAW AND THE CONTROLLING DECISIONS OF THIS
HONORABLE COURT BUT TO THE UNCONTROVERTED DOCUMENTARY EVIDENCE ON RECORD
AND THE RESPONDENT’S ADMISSIONS AS WELL.
II. IN REJECTING THE PETITIONERS’ CLAIMS OF OWNERSHIP OF THE LANDHOLDINGS IN
DISPUTE, THE COURT A QUO HAS GONE BEYOND THE ISSUES RAISED BY RESPONDENT AND
HAS IN EFFECT COLLATERALLY ATTACKED AND NULLIFIED THE CERTIFICATES OF TITLE IN THE
NAMES OF PETITIONERS’ ANCESTORS, CONTRARY TO ESTABLISHED JURISPRUDENCE.36
III. THE COURT A QUO’S IMPOSITION OF THE REQUIREMENT OF THE PRESENTATION OF AN
EXECUTIVE DECLARATION OF ALIENABILITY AS A CONDITION TO THE RECOGNITION OF
PETITIONERS’ ALREADY PERFECTED CLAIM OF OWNERSHIP IS NOT IN ACCORD WITH LAW
AND APPLICABLE DECISIONS OF THIS HONORABLE COURT.37
IV. THE COURT A QUO’S RULING WITHHOLDING RECOGNITION OF PETITIONERS’ PERFECTED
CLAIMS TO THEIR CALAUIT LANDHOLDINGS RUNS COUNTER TO THE CONTROLLING CASE OF
Sta. Monica Industrial and Development Corp. v. Court of Appeals INVOLVING CLOSELY
SIMILAR FACTS.38
V. THE COURT A QUO VIOLATED THE BASIC RULES OF EVIDENCE AND CONTRAVENED
SETTLED JURISPRUDENCE IN ADMITTING THE UNNOTARIZED RESETTLEMENT AGREEMENTS
IN DISPUTE DESPITE THE FACT THAT NOT A SINGLE WITNESS WAS PRESENTED TO DISCLOSE
THEIR SOURCE AND TO ATTEST TO THEIR DUE EXECUTION AND DESPITE THE ABSENCE OF
THE OFFICIAL APPROVALS REQUIRED FOR THEIR COMPLETENESS AS OFFICIAL
DOCUMENTS.39
VI. THE DECISION HAS IGNORED THE UNREBUTTED TESTIMONIAL EVIDENCE AND THE
DOCUMENTED ADMISSIONS OF RESPONDENT ESTABLISHING THE VIOLENCE, THREATS,
FRAUD AND DECEIT EMPLOYED TO COMPEL PETITIONERS TO SUBMIT TO THEIR RELOCATION,
AND WARRANTING A DECLARATION OF THE NULLITY OF THE RESETTLEMENT AGREEMENTS,
ASSUMING THEIR EXECUTION BY PETITIONERS.
VII. THE COURT A QUO FURTHER IGNORED THE UNCONTROVERTED TESTIMONIAL EVIDENCE
AND THE DOCUMENTED ADMISSIONS OF RESPONDENT, ESTABLISHING THE NON-ARABLE
CHARACTER OF THE LANDS ALLOTTED TO PETITIONERS IN THE RESETTLEMENT SITES AND
THE SUBHUMAN CONDITIONS PREVAILING THEREIN WHICH JUSTIFIED THE UNILATERAL
RESCISSION OF THE RESETTLEMENT AGREEMENTS, ASSUMING ARGUENDO THEIR EXECUTION
BY PETITIONERS.40
VIII. THE TRIAL COURT AND [THE] COURT OF APPEALS HA[VE] ABUSED THEIR DISCRETION IN
GRANTING RESPONDENT THE RIGHT TO EVICT PETITIONERS AGAIN AND TO HAVE THEM
RELOCATED IN "A MORE SUITABLE" RESETTLEMENT SITE.41
IX. IN DENYING PETITIONERS’ CLAIM FOR DAMAGES THE COURT A QUO HAS OVERLOOKED
AND IGNORED THE UNCONTRADICTED FACTS OF THE PRESENT CASE.42
Initially, this petition was denied in a Resolution43 dated February 3, 2003 for noncompliance
with the Rules of Court, to wit:
ACCORDINGLY, the Court Resolved to DENY the petition for review on certiorari of the
decision dated April 24, 2002 of the Court of Appeals in CA-G.R. CV No. 46222 for failure to
comply with requirement no. three (3), as the copy of the assailed decision submitted is not
duly certified as a true copy thereof. Also, it lacks a written explanation why the service or
filing thereof was not done personally [Section 11, Rule 13, Rules of Civil Procedure].
In any event, even if the petition complied with the aforesaid requirements, it would still be
denied, as petitioners failed to show that a reversible error had been committed by the
appellate court.
The petitioners filed a Motion for Reconsideration44 on March 19, 2003, which this Court
denied with finality on April 7, 2003.45
On June 2, 2003, the petitioners filed a Motion to Admit Second Motion for Reconsideration
with their Second Motion for Reconsideration, wherein their "pro bono" counsels pleaded for
leniency for "their shortcomings."46 From June 2 to 20, 2003, the Court received several
pleadings47 from various lawyers who were entering their appearances as collaborating pro
bono counsels for the petitioners and who manifested that they were adopting the Second
Motion for Reconsideration filed on June 2, 2003.
On June 9, 2003, the Bishop of the Apostolic Vicariate of Taytay, Palawan, also wrote then
Chief Justice Hilario Davide to plead for the admission of the Second Motion for
Reconsideration filed by the petitioners, whom he claimed were under his pastoral
jurisdiction as he was their parish priest in 1977-1978 and 1985-1989.48
In consideration of all the above pleadings, in a Resolution dated June 25, 2003, this Court
resolved to: (1) grant the petitioners’ motion to admit their Second Motion for
Reconsideration; (2) set aside its February 3, 2003 Resolution; (3) reinstate the present
petition; (4) require the respondent to comment to the petition; and (5) note the other
pleadings and letters filed before it.49
In the meantime, on March 25, 2008, pursuant to Republic Act No. 8371, entitled "The
Indigenous Peoples’ Rights Act of 1997," the Office of the President, through the National
Commission on Indigenous Peoples (NCIP),50 issued a Certificate of Ancestral Domain Title
(CADT) No. R04-BUS-0308-06251 over 3,683.2324 hectares of land in the Municipality of
Busuanga, Province of Palawan, in favor of the Tagbanua Indigenous Cultural Community,
which comprised the communities of Barangays Calauit and Quezon, Calauit Island, and
Municipality of Busuanga. The pertinent portions of the CADT read as follows:
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, pursuant to the mandates of the 1987 Philippine Constitution to protect the rights
of Indigenous Cultural Communities to their ancestral lands and domains, respect and
preserve their culture and ensure their economic, social and cultural well-being, and in
accordance with the provisions of R.A. 8371, ‘AN ACT TO RECOGNIZE AND PROMOTE THE
RIGHTS OF INDIGENOUS CULTURAL COMMUNITIES/ INDIGENOUS PEOPLES, CREATING THE
NATIONAL COMMISSION ON INDIGENOUS PEOPLES, ESTABLISHING IMPLEMENTING
MECHANISMS, APPROPRIATING FUNDS THEREFOR AND FOR OTHER PURPOSES,’ the
members of the indigenous Cultural Community/ies belonging to the TAGBANUA ***
indigenous peoples, located at Municipality of Busuanga, Province of Palawan and
comprising the communities of Barangays Calauit and Quezon, Calauit Island, Municipality
of Busuanga, Province of Palawan, having continuously occupied, possessed and utilized,
since time immemorial, under a claim of ownership certain ancestral domain situated in
Municipality of Busuanga, Province of Palawan, Island of Luzon, Philippines containing an
area of Three Thousand Six Hundred Eighty-Three and 2324/10000 (3,683.2324) hectares
more or less, more particularly bounded and described on Page 2 hereof are hereby
recognized of their rights thereto.
NOW THEREFORE, said Indigenous Cultural Community of TAGBANUA*** Indigenous
Peoples, whose members at the time of this issuance appear hereunder as Annex A, is hereby
issued this Certificate of Ancestral Domain Title:
TO HAVE AND TO HOLD IN OWNERSHIP, the above described ancestral domain as their
private but community property, which belongs to all generations of the said Indigenous
Cultural Community/Indigenous Peoples.
TO DEVELOP, CONTROL, MANAGE and UTILIZE COLLECTIVELY the said ANCESTRAL DOMAIN
with all the rights, privileges and responsibilities appurtenant thereto, subject to the
condition that the said ancestral domain shall NOT be SOLD, DISPOSED, nor DESTROYED.
IN TESTIMONY WHEREOF, and by authority of R.A. 8371, the National Commission on
Indigenous Peoples, hereby causes these letters to be made patent and the seal of the
National Commission on Indigenous Peoples to be hereunto affixed.
Issued in Quezon City, Philippines on this 25th day of March, 2008.52
In view of the foregoing development on October 19, 2011, this Court issued a Resolution53
requiring the parties "to move in the premises by informing the Court, within ten (10) days
from notice, of supervening events and/or subsequent developments pertinent to the case
which may be of help to the Court in its immediate disposition x x x."
The petitioners, in a Manifestation,54 emphasized at the outset that no event has transpired,
which may have rendered the case herein moot and academic. The petitioners reiterated
that the relief they are after is their individual titles to the areas they are currently occupying
in the Calauit Island.
And, in their Compliance55 the petitioners averred further that the issuance of the CADT "in
favor of the Tagbanua Indigenous Cultural Community amounts to an affirmation and
recognition of the property rights of their ancestors from whom [they] traced their present
individual claims." Thus, the petitioners claim that there is factual and legal bases for this
Court to proceed and confirm their right of ownership over the subject properties in the
Calauit Island.
On the other hand, the Office of the Solicitor General (OSG) for the respondent Republic of
the Philippines manifested that per Memorandum dated March 5, 2012 by the Regional
Executive Director, DENR-IVMIMAROPA, the following are the updates on the ground:
3. Verification made by this office on the status of occupation of the Balik Calauit
Movement (BCM) as stated in Civil Case No. 2262 particularly the forty-seven (47)
defendants (Aurellano Agnes, et al.) and as confirmed by Bgy. Chairman Gabarda of
Bgy. Buluang Busuanga, Palawan wherein Calauit Island is a Sitio of said Barangay,
disclosed that forty (40) are at present in the Calauit Island and seven (7) are
outside Calauit Island. The latter are Eufricina Bello, Cherry Demesa, Eduardo
Demesa, Jovita Gabarda, Manuel Gabarda, Sr., Ismael Tradio and Rafaella Tradio
who settled to adjacent and other Barangay[s] of Busuanga, Palawan. Further, of
the forty-seven (47) BCM members, nine (9) of them were already dead (Juana
Apuen, Javier Austria, Conchita Barcebal, Aurora Eco, Lydia Equia, Fausto Lledo,
Materno Loquib, George Macanas and Juan Talorda) and one (1) was put in jail
(Bonifacio Equia) at the Provincial Jail in Puerto Princesa City x x x.
4. During the resettlement of BCM, Barangay[s] Halsey and Burabod in Culion,
Palawan are the barangay[s] which were identified as resettlement sites.1âwphi1
With this, some BCM members have applied and awarded with titles. They are
Eduardo Agnes, Espiritu Agnes, Pantaleon Agnes, Filatea Apuen, Juana Apuen,
Moises Apuen, Alfredo Aunang, Javier Austria, Aurelio Bernal, Pablito Bogante,
Alfredo Canete, Bartolome Darol, Melecia Garcia, Modesto Manlebten, Roberto
Novero, Perlita Pabia, Pampilo Sabroso, Rodrigo Sabroso, Ismael Tradio, Regalado
Tradio, and Tirso Ustares, Jr. aside from other land areas they have acquired in
Busuanga, Palawan x x x.
5. Recent documents acquired from National Commission on Indigenous Peoples
(NCIP)-Provincial Office, Puerto Princesa City particularly the photocopied technical
descriptions of the awarded Ancestral Domain showed that the Island of Calauit as
plotted by this Office was covered by Certificate of Ancestral Domain Title (CADT)
R04-BUS-0308-062 bearing CADT-Lot No. 1-Ade-0403-005-Gni covering 3,572.9731
hectares, more or less aside from other islets included known as Lot No. 2-
Maltanobong Island-Ade-0403-005, Lot. No. 3-Dimipac Island-Ade-0403-005-Gni,
Lot No. 4-Ade-0403-005-Gni, and Lot No. 5-Ade-0403-005-Gni with corresponding
areas which are adjacent to Calauit Island x x x.
6. At present, [a] certain Roy Dabuit is the Acting Chairman of the Tagbanua
Indigenous Cultural Community who is the recipient of the said CADT in Calauit
Island and other islets.
7. Furthermore, the undersigned was able to take pictures on the portions of
Calauit Island which were occupied by the BCM and Indigenous People belonging to
the Tagbanua Tribe. They have built houses made of light materials, school
(elementary and day care), small causeway and tribal hall.
8. Moreover, the Calauit Preserve and Wildlife Sanctuary still exist in the Island of
Calauit and placed under the management of the Provincial Government of
Palawan thru an Executive Order. The issuance of CADT over Calauit Island
including the Calauit Preserve and Wildlife Sanctuary under Presidential
Proclamation 1578 is another current problem.56
Thus, the OSG submitted that "the instant petition must be decided on the merits
considering that the area in dispute remains to be a Game and Wildlife Preserve and
petitioners persist on their illegal occupation thereof."57
Notwithstanding the matters raised by the petitioners in this case, a review of the Complaint,
Answer with Counterclaims, and the rest of the record of the instant petition readily reveals
that the fundamental issue of the controversy between the parties may be summed up into
these: whether or not the Resettlement Agreements are valid; and, more importantly,
whether or not the petitioners may be compelled to vacate Calauit by virtue of their
obligations enumerated in the Resettlement Agreements.
Ruling of this Court
With the issuance by the Office of the President of the CADT, an ostensive successor to the
Resettlement Agreements, to the Tagbanua Indigenous Cultural Community (ICC), the
resolution of the question on the propriety or impropriety of the latter contract and their
effects on the continued stay of the settlers on Calauit appears to have been rendered moot
and academic.
Under the CADT, the Tagbanua ICC is given authority "TO HAVE AND HOLD IN OWNERSHIP,
the x x x described ancestral domain as their private but community property, which belongs
to all generations of the said Indigenous Cultural Community/Indigenous Peoples"; and "TO
DEVELOP, CONTROL, MANAGE and UTILIZE COLLECTIVELY the said ANCESTRAL DOMAIN with
all the rights, privileges and responsibilities appurtenant thereto, subject to the condition that
the said ancestral domain shall NOT be SOLD, DISPOSED, nor DESTROYED."
To be precise, Section 7 of Republic Act No. 8371 recognizes that the rights to ancestral
domains carry with it the rights of ownership and possession of ICCs/IPs to their ancestral
domains, which shall include the following:
Section 7. Rights to Ancestral Domains. - The rights of ownership and possession of ICCs/IPs
to their ancestral domains shall be recognized and protected. Such rights shall include:
a. Rights of Ownership.- The right to claim ownership over lands, bodies of water
traditionally and actually occupied by ICCs/IPs, sacred places, traditional hunting
and fishing grounds, and all improvements made by them at any time within the
domains;
b. Right to Develop Lands and Natural Resources. – Subject to Section 56 hereof,
right to develop, control and use lands and territories traditionally occupied,
owned, or used; to manage and conserve natural resources within the territories
and uphold the responsibilities for future generations; to benefit and share the
profits from allocation and utilization of the natural resources found therein; the
right to negotiate the terms and conditions for the exploration of natural resources
in the areas for the purpose of ensuring ecological, environmental protection and
the conservation measures, pursuant to national and customary laws; the right to
an informed and intelligent participation in the formulation and implementation of
any project, government or private, that will affect or impact upon the ancestral
domains and to receive just and fair compensation for any damages which they
may sustain as a result of the project; and the right to effective measures by the
government to prevent any interference with, alienation and encroachment upon
these rights;
c. Right to Stay in the Territories - The right to stay in the territory and not to be
removed therefrom. No ICCs/IPs will be relocated without their free and prior
informed consent, nor through any means other than eminent domain. Where
relocation is considered necessary as an exceptional measure, such relocation
shall take place only with the free and prior informed consent of the ICCs/IPs
concerned and whenever possible, they shall be guaranteed the right to return to
their ancestral domains, as soon as the grounds for relocation cease to exist.
When such return is not possible, as determined by agreement or through
appropriate procedures, ICCs/IPs shall be provided in all possible cases with lands
of quality and legal status at least equal to that of the land previously occupied
by them, suitable to provide for their present needs and future development.
Persons thus relocated shall likewise be fully compensated for any resulting loss
or injury;
d. Right in Case of Displacement. - In case displacement occurs as a result of natural
catastrophes, the State shall endeavor to resettle the displaced ICCs/IPs in suitable
areas where they can have temporary life support systems: Provided, That the
displaced ICCs/IPs shall have the right to return to their abandoned lands until such
time that the normalcy and safety of such lands shall be determined: Provided,
further, That should their ancestral domain cease to exist and normalcy and safety
of the previous settlements are not possible, displaced ICCs/IPs shall enjoy security
of tenure over lands to which they have been resettled: Provided, furthermore,
That basic services and livelihood shall be provided to them to ensure that their
needs are adequately addressed;
e. Right to Regulate Entry of Migrants. - Right to regulate the entry of migrant
settlers and organizations into the domains;
f. Right to Safe and Clean Air and Water. - For this purpose, the ICCs/IPs shall have
access to integrated systems for the management of their inland waters and air
space;
g. Right to Claim Parts of Reservations. - The right to claim parts of the ancestral
domains which have been reserved for various purposes, except those reserved
and intended for common and public welfare and service; and
h. Right to Resolve Conflict. - Right to resolve land conflicts in accordance with
customary laws of the area where the land is located, and only in default thereof
shall the complaints be submitted to amicable settlement and to the Courts of
Justice whenever necessary. (Emphasis supplied.)
More significantly, the aforequoted provision provides that the right to ancestral domain
carries with it the right to "stay in the territory and not to be removed therefrom." And the
CADT was issued notwithstanding the existence of Presidential Proclamation No. 1578, which
recognized the existence of private rights already extant at the time. Thus, although the
issuance of the CADT in favor of the Tagbanua ICC to develop, control, manage, and utilize
Calauit does not affect the propriety or impropriety of the execution of the Resettlement
Agreements per se, the same, however, gainsays the avowed consequence of said contracts,
that is, to remove and transfer the settlers from Calauit to the resettlement areas in Halsey
and Burabod.
Verily, in Gancho-on v. Secretary of Labor and Employment,58 this Court emphasized that:
It is a rule of universal application, almost, that courts of justice constituted to pass upon
substantial rights will not consider questions in which no actual interests are involved; they
decline jurisdiction of moot cases. And where the issue has become moot and academic,
there is no justiciable controversy, so that a declaration thereon would be of no practical use
or value. There is no actual substantial relief to which petitioners would be entitled and
which would be negated by the dismissal of the petition. (Citations omitted.)
From the above pronouncement, there is no justiciable controversy anymore in the instant
petition in view of the issuance of CADT. There is no longer any purpose in determining
whether the Court of Appeals erred in affirming the Decision of the RTC since any declaration
thereon would be of no practical use or value.
Clearly, any decision of this Court on the present petition, whether it be an affirmance or a
reversal of the assailed Decision of the Court of Appeals, would be equivalent in effect to an
affirmance or an invalidation of the challenged Decision of the RTC. But the Office of the
President’s issuance of a 2008 Certificate of Ancestral Domain Title in favor of the settlers,
including the petitioners, negates the need to resolve the issues raised in the Complaint and
Answer with Counterclaims – whether or not the petitioners may be compelled to vacate
Calauit by virtue of their obligations enumerated in the Resettlement Agreements.
The issuance by the respondent of CADT No. R04-BUS-0308-062 over 3,683.2324 (the entire
area subject of the Resettlement Agreements) in favor of the settlers, including the
petitioners, provide their occupation and/or settlement on the subject land an apparent
color of authority at the very least by virtue of Republic Act No. 8371. Precisely, under the
law, a Certificate of Ancestral Domain Title "refers to a title formally recognizing the rights of
possession and ownership of ICCs/[Indigenous Peoples (IPs)] over their ancestral domains59
identified and delineated in accordance with [the] law."60 Therefore, the settlers continued
stay in Calauit has become a non-issue. As such, any discussion on the matter of the propriety
of the Resettlement Agreements and their effects would be mere surplusage.
Although the moot and academic principle admits of certain exceptions,61 none are
applicable in this case.
But emphasis must be made that the disposition of the instant petition does not at all touch
on the propriety or impropriety of the issuance of the CADT.1awp++i1 Such a question is not
for this Court to take on at this time as, in fact, it is not raised herein.
Relative to the recent prayer of the petitioners that they be awarded individual titles of
ownership over portions of Calauit as the issuance of CADT in favor of the Tagbanua ICC
amounts to an affirmation and recognition of the property rights of their ancestors from
whom they trace their present individual claims,62 this Court points out that under Section
12 of Republic Act No. 8371, individual members of cultural communities, with respect to
individually owned ancestral lands, the option to secure title to the same must be done in
accordance with the provisions of Commonwealth Act No. 141, as amended, or the Land
Registration Act 496.
In light of the foregoing, the issues invoked by the parties no longer need to be discussed.
WHEREFORE, the April 24, 2002 Decision of the Court of Appeals in CA-G.R. CV No. 46222 is
SET ASIDE, and Civil Case No. 2262 is DISMISSED, for being moot and academic. No costs.
SO ORDERED.
EN BANC
G.R. No. 181284, October 20, 2015
LOLOY UNDURAN, BARANGAY CAPTAIN ROMEO PACANA, NESTOR MACAPAYAG, RUPERTO
DOGIA, JIMMY TALINO, ERMELITO ANGEL, PETOY BESTO, VICTORINO ANGEL, RUEL BOLING,
JERMY ANGEL, BERTING SULOD, RIO BESTO, BENDIJO SIMBALAN, AND MARK BRAZIL,
Petitioners, v. RAMON ABERASTURI, CRISTINA C. LOPEZ, CESAR LOPEZ JR., DIONISIO A.
LOPEZ, MERCEDES L. GASTON, AGNES H. LOPEZ, EUSEBIO S. LOPEZ, JOSE MARIA S. LOPEZ,
ANTON B. ABERASTURI, MA. RAISSA A. VELEZ, ZOILO ANTONIO A. VELEZ, CRISTINA
ABERASTURI, EDUARDO LOPEZ JR., ROSARIO S. LOPEZ, JUAN S. LOPEZ, CESAR ANTHONY R.
LOPEZ, VENANCIO L. GASTON, ROSEMARIE S. LOPEZ, JAY A. ASUNCION, NICOLO
ABERASTURI, LISA A. ASUNCION, INEZ A. VERAY, HERNAN A. ASUNCION, ASUNCION LOPEZ,
THOMAS A. VELEZ, LUIS ENRIQUE VELEZ, ANTONIO H. LOPEZ, CHARLES H. LOPEZ, ANA L.
ZAYCO, PILAR L. QUIROS, CRISTINA L. PICAZO, RENATO SANTOS, GERALDINE AGUIRRE,
MARIA CARMENCITA T. LOPEZ, and as represented by attorney-in-fact RAMON
ABERASTURI, Respondents.
DECISION
PERALTA, J.:
This is a petition for review on certiorari1 assailing the Decision2 dated August 17, 2006 of the
Court of Appeals (CA) in CA-G.R. SP No. 00204-MIN, and the Resolution3 dated July 4, 2007,
which denied petitioners' motion for reconsideration.
Petitioners, except for Mark Brazil and Nestor Macapayag, are members of the Miarayon,
Lapok, Lirongan, Talaandig Tribal Association (MILALITTRA), or Talaandig tribe, who claimed
to have been living since birth on the land located at Barangay Miarayon, Talakag, Bukidnon,
Mindanao, which they inherited from their forefathers.
On the other hand, respondents, represented by attorney-in-fact Ramon Aberasturi, claimed
to be the lawful owners and possessor of an unregistered parcel of agricultural land (Lot No.
7367 Cad 630-D), with an area of 105.7361 hectares, which appears to be located within the
ancestral domain of the Talaandig tribe.
On March 3, 2004, respondents filed a Petition for Accion Reivindicatoria, with Prayer for the
Issuance of a Temporary Restraining Order or Preliminary Prohibitory Injunction with
Damages4 (original complaint for accion reivindicatoria) against petitioners before the
Regional Trial Court of Manolo Fortich, Bukidnon (RTC). Docketed as Civil Case No. 04-03-01,
the petition was raffled off to Branch 11.
On March 20, 2004, petitioners Macapayag and Brazil filed their Answer, alleging that
respondents have no cause of action against them.
On March 23, 2004, the rest of the petitioners filed their Motion to Dismiss, alleging that the
RTC had no jurisdiction over the case. Petitioners alleged that with the advent of Republic Act
No. (RA) 8371, otherwise known as the Indigenous Peoples' Rights Act (IPRA), they, together
with the rest of the tribe members, assisted the National Commission on Indigenous Peoples
(NCIP) in the processing, validation, and delineation of their Ancestral Domain claim in May
2003. On July 25, 2003, Certificate of Ancestral Domain Title (CADT) No. R-10-TAL-0703-0010
was issued by virtue of NCIP En Banc Resolution No. 08-02003 to the Talaandig tribe over its
ancestral domain in Talakag, Bukidnon, containing an area of 11,105.5657 hectares. On
October 30, 2003, President Gloria Macapagal Arroyo awarded the said CADT to the
Talaandig tribe. As awardees of a CADT, petitioners argued that NCIP has exclusive and
original jurisdiction over the case, as the subject matter concerns a dispute and controversy
over an ancestral land/domain of Indigenous Cultural Communities (ICCs)/Indigenous
Peoples (IPs).
On July 1, 2004, the NCIP through Atty. Melanie Pimentel, filed a Motion to Refer the Case to
the Regional Hearing Office-National Commission on Indigenous Peoples (RHO-NCIP), alleging
that the RTC had no jurisdiction over the subject matter.
On July 5, 2004, respondents filed a Motion to Amend and Supplement Complaint from
Accion Reivindicatoria to one for "Injunction, Damages, and Other Relief," with the attached
Amended and Supplemental Complaint5 (amended complaint for injunction). On July 30,
2004, petitioners filed an Opposition thereto.
On August 1, 2004, petitioners filed a Motion to Dismiss the Amended and Supplemental
Complaint, alleging that the RTC had no jurisdiction over the subject matter of the case and
to issue a writ of injunction therein.
On August 10, 2004, the RTC issued an Order granting the Motion to Amend and Supplement
Complaint, and declared petitioners' Motion to Refer the Case to the RHO-NCIP and Motion
to Dismiss moot and academic as a consequence of the grant of the said motion to amend
and supplement complaint.
On August 17, 2004, petitioners filed a Manifestation praying for an ocular inspection of the
disputed land to determine the last, actual, peaceable, uncontested status of the area.
On August 25, 2004, petitioners filed another Motion to Refer the Case to the RHO-NCIP and
Motion to Dismiss the Amended Complaint.
On September 14, 2004, respondents filed their Opposition and Motion for Judgment by
Default.
On February 14, 2005, the RTC issued an Order6 resolving all pending incidents before it, the
dispositive portion of which reads:
WHEREFORE, premises considered, defendant's [herein petitioners'] motion to refer the case
to the RHO-NCIP and its manifestation for an ocular inspection are hereby denied for being
bereft of merit. Further, defendants [petitioners], except Macapayag and Brazil, are hereby
declared in default for their failure to file their Answer to the Amended Complaint.
Accordingly, let this case, as against defendants Macapayag and Brazil, be called for pre-trial
and ex-parte presentation of evidence as against the rest of defendants [petitioners] on May
2, 2005 at 9:00 o'clock in the morning. Furthermore, the injunctive writ prayed for by the
plaintiffs is hereby GRANTED for being meritorious. Accordingly, defendants [petitioners],
their agents and privies, or any other or all persons acting for and in their behalves, are
hereby ordered to observe, maintain and preserve the status quo subject of the action
and/or the relation between the parties in order to protect the rights of the plaintiffs while
the case is pending in court and to cease and desist from performing any acts that in one way
or another contravene the tenor of this order, while awaiting final determination of the
instant suit or until further orders of this court. Furthermore, to answer for whatever damage
that defendants [petitioners] may sustain by reason of this injunction order if the court
should finally decide that plaintiffs [respondents] are not entitled to the relief it prayed for,
plaintiffs [respondents] are hereby directed to put up a bond in the amount of ONE
HUNDRED THOUSAND PESOS (P100,000.00) executed in favor of the party enjoined.
SO ORDERED.7
On April 12, 2005, petitioners filed before the Court of Appeals a Petition for Certiorari and
Prohibition with Prayer for Preliminary Injunction and Issuance of a Temporary Restraining
Order.
On August 17, 2006, the CA rendered a Decision affirming the RTC's February 14, 2005 Order,
which in turn denied the referral of the case to the NCIP, the dispositive portion of which
states:
WHEREFORE, in view of the foregoing, the petition is hereby partly GRANTED. The assailed
Order dated February 14, 2005 is hereby AFFIRMED with MODIFICATION that the order of
default against petitioners, except Macapayag and Brazil, is hereby LIFTED.
SO ORDERED.8ChanRoblesVirtualawlibrary
The CA ruled that the RTC correctly granted the amendment of the complaint and properly
refused to refer the case to the RHO-NCIP. Based on the allegations of both original
complaint [accion reivindicatoria] and amended complaint [injunction], the CA found that the
subject matter of both complaints is well within the jurisdiction of the RTC. The CA noted that
the only substantial amendment made was with regard to the nature of the action which
originally was one of accion reivindicatoria and then changed to one for damages. And except
for some amendments as to petitioners' alleged violent acts and the prayer for declaration of
their title to the subject property, the rest of the amended complaint was basically the same
as the original one, including the reliefs prayed for by respondents. Anent the writ of
preliminary injunction, the CA held that the RTC's assailed February 14, 2005 Order is self-
explanatory as to why the issuance of the same was proper considering the circumstances of
the case.
On July 4, 2007, the CA denied petitioners' motion for reconsideration of its August 17, 2006
Decision.
Hence, this appeal on certiorari raising the following issues:
I. THE COURT OF APPEALS ERRED IN AFFIRMING THE JURISDICTION OF THE COURT A QUO
OVER A COMPLAINT FOR INJUNCTION INVOLVING AN ANCESTRAL DOMAIN OF THE
TALAANDIGS.
II. THE COURT OF APPEALS ERRED IN AFFIRMING THE RESOLUTION OF THE COURT A QUO
ALLOWING THE AMENDMENT OF THE COMPLAINT, THE SOLE PURPOSE OF WHICH IS TO
CONFER JURISDICTION ON THE LOWER COURT.
III. THE COURT OF APPEALS ERRED IN RESOLVING THAT EVIDENCE MUST BE PRESENTED
BEFORE THE REGIONAL TRIAL COURT WHEN IN THE ORIGINAL ACTION FOR SPECIAL CIVIL
ACTION FOR CERTIORARI BEFORE IT, THE COURT A QUO HAS ADMITTED THAT A CADT WAS
ISSUED IN FAVOR OF PETITIONERS.9
On the first issue, petitioners contend that the RTC has no jurisdiction over Civil Case No. 04-
03-0 for Injunction, Damages and other Relief, because the 105.7361-hectare land claimed by
respondents is undisputedly within the ancestral domain of the Talaandig tribe over which a
CADT has already been issued. Petitioners insist that, even granting that the case is purely a
personal action, the NCIP has exclusive and original jurisdiction over it as it concerns a claim
and dispute involving rights of ICCs/IPs over their ancestral domain.
On the second issue, petitioners argue that the amendment of the complaint from accion
reivindicatoria to injunction with damages was clearly meant to oust the NCIP of its
jurisdiction over the case and confer it on the RTC by concealing the real issue in the case,
which is the parties' conflicting claims over the 105.7361-hectare land in Miarayon, Talakag
Bukidnon. According to petitioners, the cause of action in the complaint for accion
reivindicatoria is the claim of ownership and recovery of possession of the said land which is
undisputedly found within the Talaandig tribe's ancestral domain covered by CADT No. R10-
TAL-0703-0010; hence, a claim within the exclusive and original jurisdiction of the NCIP.
Petitioners contend that respondents amended the complaint to one for injunction to
downplay the real issue which is the dispute over a land that is within the Talaandig tribe's
ancestral domain, and mainly capitalized on the acts complained of, such as harassment,
threats, acts of terrorism, among others, supposedly committed against respondents.
On the third issue, petitioners fault the CA in ruling that whether the complaint is one for
Injunction or Accion Reivindicatoria, the RTC has jurisdiction because nowhere in
respondents' original and amended complaints is it stated that petitioners were members of
the ICCs or IPs and that the disputed property was part of their ancestral domain. Petitioners
take exception to the rule that jurisdiction over the subject matter is determined by the
allegations of the complaint, as strict adherence thereto would open the floodgates to the
unscrupulous practice of litigants divesting the NCIP of jurisdiction by crafting their
complaints in such a way as would confer jurisdiction on their court of choice. Petitioners
contend that the literal averments of the complaint are not determinative of the jurisdiction
over the subject matter where the actual issues are evidenced by subsequent pleadings; in
certain cases, the real nature and character of the pleadings and issues are not merely found
in the complaint, but also in the subsequent pleadings submitted by both parties. Petitioners
stress that although the complaint banners the subject matter as one for injunction, the
pleadings of respondents show that the subject matter is the conflicting ownership claims
over the land. In fact, petitioners point out that the records of the case show that various
pieces of evidence have been presented to prove that the dispute involves conflicting claims
over a land covered by a CADT.
For their part, respondents contend that petitioners do not have legal capacity or standing
and locus standi to file this petition, since they failed to make prima facie showing that they
are members of IPs/ICCs, or that they were authorized to represent the Talaandig tribe.
Respondents insist that based on the allegations in their amended complaint for injunction
and damages, the RTC has jurisdiction over the subject matter which is a purely personal
action and incapable of pecuniary estimation. Respondents assert that the real issue is
whether or not petitioners are guilty of wrongful acts of violence, terrorism, destruction,
intimidation, harassment, etc., to justify a permanent injunction and hold the latter liable for
damages. Respondents also point out that petitioners cannot invoke protection under the
IPRA 8731, because the conflict does not involve an ancestral domain and they (respondents)
are not IPs so the condition precedent before bringing a dispute before the NCIP cannot be
satisfied, i.e., exhaustion of remedies under customary laws by the parties.
The petition has no merit.
On the procedural issue raised by respondents, the Court disagrees with their contention
that petitioners do not have legal capacity or standing and locus standi to file the petition, for
failure to show that they are members of IPs/ICCs, or that they are authorized to represent
the Talaandig tribe.
Locus standi is defined as a right of appearance in a court of justice on a given question. In
private suits, standing is governed by the "real parties in interest" rule found in Section 2,10
Rule 3 of the Rules of Court. Such concept of real party-in-interest is adapted in Section 2,11
Rule VI of the 2014 Revised Rules of Procedure before the NCIP. That petitioners are the real
parties in interest can be gleaned from the Entry of Appearance with Motion to Refer the
Case to the Regional Hearing Office of the NCIP12 filed by the NCIP Special Transition Team-
Quick Response Unit (STRAT-QRU). The STRAT-QRU counsels alleged therein that the
respondents' complaint for recovery of ownership (accion reinvidicatoria) sought to recover
an unregistered real property situated in Miarayon, Bukidnon, from petitioners, all of whom
are, with the exception of Nestor Macapayag and Mark Brazil, member-beneficiaries of CADT
No. R10-TAL-0703-0010 issued by the NCIP in the name of the Talaandig Indigenous Peoples,
located at Talakag, Province of Bukidnon. In support of their allegation, petitioners presented
a certification13 that the disputed land is within the area covered by the same CADT, and the
NCIP List of Beneficiaries of Talaandig Ancestral Domain of Miarayon, Lirongan, Lapok, San
Miguel, Talakag, Bukidnon.14 In contrast, respondents failed to submit any evidence to
dispute petitioners' claim that they are members of the Talaandig Tribe. Hence, respondents'
contention that petitioners have no legal standing to file the petition, is without merit.
In resolving the pivotal issue of which between the RTC and the NCIP has jurisdiction over the
respondents' amended complaint, foremost in the Court's mind is the principle in "that
jurisdiction over the subject matter of a case is conferred by law and determined by the
allegations in the complaint which comprise a concise statement of the ultimate facts
constituting the plaintiffs cause of action. The nature of an action, as well as which court or
body has jurisdiction over it, is determined based on the allegations contained in the
complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to recover
upon all or some of the claims asserted therein. The averments in the complaint and the
character of the relief sought are the ones to be consulted. Once vested by the allegations in
the complaint, jurisdiction also remains vested irrespective of whether or not the plaintiff is
entitled to recover upon all or some of the claims asserted therein."15
Under Section 19 of B.P. 129, as amended (Judiciary Reorganization Act of 1980), the RTC
shall exercise exclusive original jurisdiction in all civil actions in which the subject of the
litigation is incapable of pecuniary estimation, and in all civil actions which involve title to,
possession of, real property or any interest therein where the assessed value of the property
or interest therein exceeds Twenty Thousand Pesos (P20,000.00) or, in civil actions in Metro
Manila, where such assessed value exceeds Fifty Thousand Pesos (P50,000.00).

On the other hand, the NCIP's jurisdiction is defined under Section 66 of the IPRA as follows:
Sec. 66. Jurisdiction of the NCIP. - The NCIP, through its regional offices, shall have jurisdiction
over all claims and disputes involving rights of ICCs/IPs; Provided, however, That no such
dispute shall be brought to the NCIP unless the parties have exhausted all remedies provided
under their customary laws. For this purpose, a certification shall be issued by the Council of
Elders/Leaders who participated in the attempt to settle the dispute that the same has not
been resolved, which certification shall be a condition precedent to the filing of a petition
with the NCIP.16
On the matter of NCIP's jurisdiction and of procedures for enforcement of rights, NCIP
Administrative Order No. 1, 1998, the Implementing Rules and Regulations (NCIP-IRR) of the
IPRA, Rule IX, Section 1 states:
Section 1. Primacy of Customary Law. - All conflicts related to the ancestral domain and
lands, involving ICCs/IPs, such as but not limited to the conflicting claims and boundary
disputes, shall be resolved by the concerned parties through the application of customary
laws in the area where the disputed ancestral domain or land is located.
All conflicts related to the ancestral domain or lands where one of the parties is non-ICC/IP
or where the dispute could not be resolved through customary law shall be heard and
adjudicated in accordance with the Rules on Pleadings, Practice and Procedure before the
NCIP to be adopted hereafter.
All decisions of the NCIP may be brought on Appeal by Petition for Review to the Court of
Appeals within fifteen (15) days from receipt of the Order or Decision.17
In line with Section 69 of the IPRA on the NCIP's quasi-judicial power to promulgate rules and
regulations governing the hearing and disposition of cases filed before it, the NCIP issued
Administrative Circular No. 1-03 dated April 9, 2003, known as the Rules on Pleadings,
Practice and Procedure (NCIP Rules), which reiterates its jurisdiction over claims and disputes
involving rights of ICCs/IPs and enumerates the actions that may be brought before it.
Section 5, Rule III, of the NCIP Rules provides for the jurisdiction of the NCIP-RHO:
Sec. 5. Jurisdiction of the NCIP. - The NCIP through its Regional Hearing Offices shall exercise
jurisdiction over all claims and disputes involving rights of ICCs/IPs and all cases pertaining to
the implementation, enforcement, and interpretation of the IPRA 8371, including but not
limited to the following:
(1) Original and Exclusive Jurisdiction of the Regional Hearing Officer
(RHO):chanRoblesvirtualLawlibrary
a. Cases involving disputes, controversies over ancestral lands/domains of ICCs/IPs;
b. Cases involving violations of the requirement of free and prior and informed consent of
ICC/IPs;cralawlawlibrary
c. Actions for enforcement of decisions of ICCs/IPs involving violations of customary laws or
desecration of ceremonial sites, sacred places, or rituals;cralawlawlibrary
d. Actions for redemption/reconveyance under Section 8(b) ofR.A. 8371; and
e. Such other cases analogous to the foregoing.
(2) Original jurisdiction of the Regional Hearing Officer:chanRoblesvirtualLawlibrary
a. Cases affecting property rights, claims of ownership, hereditary succession, and
settlement of land disputes, between and among ICCs/IPs that have not been settled under
customary laws; and
b. Actions for damages arising out of any violation of Republic Act No.
8371;ChanRoblesVirtualawlibrary
(3) Exclusive and Original Jurisdiction of the Commission:chanRoblesvirtualLawlibrary
a. Petition for cancellation of Certificate of Ancestral Domain Titles/Certificate of Ancestral
Land Titles (CADTs/CALTs) alleged to have been fraudulently acquired by, and issued to,
any person or community as provided for under Section 54 of R.A. 8371. Provided that such
action is filed within one (1) year from the date of registration.
Anent the condition precedent to the filing of a petition with the NCIP under Section 66 of
the IPRA, Sections 13 and 14, Rule IV of the NCIP Rules pertinently provide:
Section 13. Certification to File Action. - Upon the request of the proper party, members of
the indigenous dispute settlement group or council of elders shall likewise issue a
certification to file action before the NCIP. In giving due regard to customary laws, the
certification may be in any form so long as it states in substance the failure of settlement
notwithstanding the efforts made under customary law or traditional practices.
Section 14. Exceptions. - The certification shall not be required in the following cases:
a. Where one of the parties is a public or private corporation, partnership, association or
juridical person or a public officer or employee and the dispute is in connection with the
performance of his official functions;cralawlawlibrary
b. Where one of the parties is non-IP/ICC or does not belong to the same IP/IC Community,
except when he voluntarily submits to the jurisdiction of the Council of Elders/Leaders;
c. Where the relief sought for in the complaint or petition seeks to prevent any grave,
imminent and irreparable damage or injury that may result if not acted upon immediately;
and
d. Where the Council of Elders/Leaders refuse to issue the necessary certification without
justifiable reasons.18
Having spelled out the jurisdictions conferred by law to the RTC and the NCIP over the
subject matters of their respective cases, the Court now examines the allegations in the
original and amended complaints to find out which tribunal may properly exercise
jurisdiction over this case.
In their original complaint for accion reivindicatoria, respondents traced the provenance of
their title over said land to one Mamerto Decano, a Chieftain of Talaandig tribe, by virtue of a
Deed of Sale executed on July 27, 1957. They averred that, together with their predecessor-
in-interest, they have religiously paid the real estate taxes thereon since 1957 and that they
have been in physical, actual, open, prior, notorious, continuous, public and adverse
possession of said land in the concept of owners for more than 50 years, even prior to June
12, 1945. They alleged that said land was declared alienable and disposable since August 3,
1927 per certification of the Department of Environment and Natural Resources. They
claimed that by means of fraud, stealth and surreptitious means, petitioners entered the said
land, without permission and against the consent of the landowners, caused damages
therein and harassed respondents by indiscriminately firing upon their farm workers. They
added that petitioners continue such harassment by means of armed men frequenting the
campsite and firing M-16 rifles at them during nighttime, causing great fear and threat.
Respondents prayed before the RTC for the following reliefs, among others: (1) to cause the
preliminary injunction to be made permanent for the respondents to enjoy possession of
their property, free from threats of physical harm, harassment and undue obstruction caused
by petitioners; (2) to order petitioners to respect and not to harass, intimidate and cause
trouble to the prior possession of respondents as the owners by virtue of right of title; (3) to
order petitioners to pay moral and exemplary damages, attorney's fees, appearance fees and
costs of suit; and (4) to declare respondents' title as having become a vested right, and as
such entitled to all right and incident of an absolute owner.
In their amended complaint for injunction and damages, on the other hand, respondents
further alleged that sometime in November 2003, petitioners harassed, intimidated,
threatened, and fired high-powered rifles upon respondents' farm workers to drive them
away from the land, without legal or justifiable reason. They added that, despite having hired
private security guards to secure and protect their property, these violent incidents were
followed by more acts of violence, lawlessness, harassment, terrorism to drive away
respondents from the land which they claim to lawfully own and possess.
Respondents prayed before the RTC for the following reliefs: (1) to order petitioners and
their representatives, to stop and refrain from committing acts of violence, destruction,
assault and other forms of lawlessness and terrorism against respondents, and to maintain
the peaceful possession and enjoyment of the 105-hectare land by respondents as an
attribute of ownership; (2) to declare petitioners to have committed acts of violence,
harassment, intimidation, destruction, assault and other forms of lawlessness against
respondents, and to permanently order petitioners to stop and refrain from committing
similar acts; and (3) to hold petitioners jointly and severally liable to pay respondents actual
damages, moral damages, exemplary damages, attorney's fees, litigation expenses and treble
costs.
After a perusal of the allegations and prayers in both original and amended complaints, the
Court notes that respondents neither alleged therein that the parties are members of
ICCs/IPs nor that the case involves a dispute or controversy over ancestral lands/domains of
ICC/IPs. Rather, the allegations in respondents' original complaint make up for an accion
reivindicatoria, a civil action which involves an interest in a real property with an assessed
value of P683,760.00, while the allegations in their amended complaint make out a case for
injunction, a civil action which is incapable of pecuniary estimation. The Court therefore finds
that the CA correctly ruled that the subject matter of the amended complaint based on
allegations therein was within the jurisdiction of the RTC.
Meanwhile, contrary to petitioners' contention, the mere fact that this case involves
members of ICCs/IPs and their ancestral land is not enough to for it to fall under the
jurisdiction of the NCIP under Section 66 of the IPRA, to wit:
Sec. 66. Jurisdiction of the NCIP. ~ The NCIP, through its regional offices, shall have
jurisdiction over all claims and disputes involving rights of ICCs/IPs; Provided, however, That
no such dispute shall be brought to the NCIP unless the parties have exhausted all remedies
provided under their customary laws. For this purpose, a certification shall be issued by the
Council of Elders/Leaders who participated in the attempt to settle the dispute that the same
has not been resolved, which certification shall be a condition precedent to the filing of a
petition with the NCIP.
A careful review of Section 66 shows that the NCIP shall have jurisdiction over claims and
disputes involving rights of ICCs/IPs only when they arise between or among parties
belonging to the same ICC/IP. This can be gathered from the qualifying provision that "no
such dispute shall be brought to the NCIP unless the parties have exhausted all remedies
provided under their customary laws. For this purpose, a certification shall be issued by the
Council of Elders/Leaders who participated in the attempt to settle the dispute that the same
has not been resolved, which certification shall be a condition precedent to the filing of a
petition with the NCIP."
The qualifying provision requires two conditions before such disputes may be brought before
the NCIP, namely: (1) exhaustion of remedies under customary laws of the parties, and (2)
compliance with condition precedent through the said certification by the Council of
Elders/Leaders. This is in recognition of the rights of ICCs/IPs to use their own commonly
accepted justice systems, conflict resolution institutions, peace building processes or
mechanisms and other customary laws and practices within their respective communities, as
may be compatible with the national legal system and with internationally recognized human
rights.19
Section 3 (f) of the IPRA defines customary laws as a body of written and/or unwritten rules,
usages, customs and practices traditionally and continually recognized, accepted and
observed by respective ICCs/IPs. From this restrictive definition, it can be gleaned that it is
only when both parties to a case belong to the same ICC/IP that the abovesaid two
conditions can be complied with. If the parties to a case belong to different ICCs/IPs which
are recognized to have their own separate and distinct customary laws and Council of
Elders/Leaders, they will fail to meet the abovesaid two conditions. The same holds true if
one of such parties was a non-ICC/IP member who is neither bound by customary laws as
contemplated by the IPRA nor governed by such council. Indeed, it would be violative of the
principles of fair play and due process for those parties who do not belong to the same ICC/IP
to be subjected to its customary laws and Council of Elders/Leaders.
Therefore, pursuant to Section 66 of the IPRA, the NCIP shall have jurisdiction over claims
and disputes involving rights of ICCs/IPs only when they arise between or among parties
belonging to the same ICC/IP. When such claims and disputes arise between or among
parties who do not belong to the same ICC/IP, i.e., parties belonging to different ICC/IPs or
where one of the parties is a non-ICC/IP, the case shall fall under the jurisdiction of the
proper Courts of Justice, instead of the NCIP. In this case, while most of the petitioners
belong to Talaandig Tribe, respondents do not belong to the same ICC/IP. Thus, even if the
real issue involves a dispute over land which appear to be located within the ancestral
domain of the Talaandig Tribe, it is not the NCIP but the RTC which shall have the power to
hear, try and decide this case.
There are, however, exceptional cases where the NCIP shall still have jurisdiction over such
claims and disputes even if the parties involved do not belong to the same ICC/IP, viz.:
1. Cases under Sections 52 and 62 of the IPRA which contemplate a situation where a dispute
over an ancestral domain involving parties who do not belong to the same, but to different
ICCs/IPs, to wit:
SECTION 52. Delineation Process. � The identification and delineation of ancestral domains
shall be done in accordance with the following procedures:
xxxx
h) Endorsement to NCIP. � Within fifteen (15) days from publication, and of the inspection
process, the Ancestral Domains Office shall prepare a report to the NCIP endorsing a
favorable action upon a claim that is deemed to have sufficient proof. However, if the proof
is deemed insufficient, the Ancestral Domains Office shall require the submission of
additional evidence: Provided, That the Ancestral Domains Office shall reject any claim that is
deemed patently false or fraudulent after inspection and verification: Provided, further, That
in case of rejection, the Ancestral Domains Office shall give the applicant due notice, copy
furnished all concerned, containing the grounds for denial. The denial shall be appealable to
the NCIP: Provided, furthermore, That in cases where there are conflicting claims among
ICCs/IPs on the boundaries of ancestral domain claims, the Ancestral Domains Office shall
cause the contending parties to meet and assist them in coming up with a preliminary
resolution of the conflict, without prejudice to its full adjudication according to the section
below.
xxxx
of the NCIP under Section 66 of the IPRA to include such disputes where the parties do not
belong to the same ICC/IP. As the Court held in Paduran v. DARAB,26 "[J]urisdiction over a
subject matter is conferred by the Constitution or the law and rules of procedure yield to
substantive law. Otherwise stated, jurisdiction must exist as a matter of law.27 Only a statute
can confer jurisdiction on courts and administrative agencies; rules of procedure cannot.28 In
the abovesaid exceptional cases where one of the parties is a non-ICC/IP or does not belong
to the same ICC/IP, however, Rule IV, Section 14 of the NCIP Rules validly dispenses with the
requirement of certification issued by the Council of Elders/Leaders who participated in the
failed attempt to settle the dispute according to the customary laws of the concerned ICC/IP.
WHEREFORE, the petition is DENIED and the Court of Appeals Decision dated August 17,
2006, and its Resolution dated July 4, 2007, in CA-G.R. SP No. 00204-MIN, are AFFIRMED.
SO ORDERED.chanroblesvirtuallawlibrary
Sereno, C.J., Leonardo-De Castro, Bersamin, Villarama, Jr., Perez, Mendoza, Reyes, Perlas-
Bernabe, and Jardeleza, JJ., concur.
Carpio, and Del Castillo, JJ., on official leave.
Velasco, Jr., J., pls. see concurring opinion.
Brion, J., see separate concurring opinion.
Leonen, J., see separate concurring opinion.

SECTION 62. Resolution of Conflicts. � In cases of conflicting interest, where there are ILSON P. GAMBOA, G.R. No. 176579
adverse claims within the ancestral domains as delineated in the survey plan, and which canPetitioner,
not be resolved, the NCIP shall hear and decide, after notice to the proper parties, the
disputes arising from the delineation of such ancestral domains: Provided, That if the Present:
dispute is between and/or among ICCs/IPs regarding the traditional boundaries of their - versus -  
respective ancestral domains, customary process shall be followed. The NCIP shall CORONA, C.J.,
promulgate the necessary rules and regulations to carry out its adjudicatory functions: FINANCE SECRETARY MARGARITO B. TEVES, FINANCE CARPIO,
Provided, further, That any decision, order, award or ruling of the NCIP on any ancestral UNDERSECRETARY JOHN P. SEVILLA, AND VELASCO, JR.,
domain dispute or on any matter pertaining to the application, implementation, enforcement COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL LEONARDO-DE CASTRO,
and interpretation of this Act may be brought for Petition for Review to the Court of AppealsCOMMISSION ON GOOD GOVERNMENT (PCGG) IN THEIR BRION,
within fifteen (15) days from receipt of a copy thereof.20 CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF PERALTA,
THE PRIVATIZATION COUNCIL, BERSAMIN,
2. Cases under Section 54 of the IPRA over fraudulent claims by parties who are not members
CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. DEL CASTILLO,
of the same ICC/IP, to wit: IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET ABAD,
SECTION 54. Fraudulent Claims. � The Ancestral Domains Office may, upon written request HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF VILLARAMA, JR.,
from the ICCs/IPs, review existing claims which have been fraudulently acquired by any PHILIPPINE LONG DISTANCE TELEPHONE COMPANY PEREZ,
person or community. Any claim found to be fraudulently acquired by, and issued to, any (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF MENDOZA, and
person or community may be cancelled by the NCIP after due notice and hearing of all FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. SERENO, JJ.
parties concerned.21 NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE  
COMPANY, CHAIR FE BARIN OF THE SECURITIES  
Considering the general rule that the jurisdiction of the NCIP under Section 66 of the IPRA EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM  
covers only disputes and claims between and among members of the same ICCs/IPs involvingOF THE PHILIPPINE STOCK EXCHANGE,  
their rights under the IPRA, as well as the basic administrative law principle that an Respondents.  
administrative rule or regulation must conform, not contradict the provisions of the enabling  
law,22 the Court declares Rule IX, Section 1 of the IPRA-IRR,23 Rule III, Section 524 and Rule IV,  
Sections 13 and 14 of the NCIP Rules25 as null and void insofar as they expand the jurisdiction
  
 
 
 
 
 
 
 
 
ABLITO V. SANIDAD and Promulgated:
RNO V. SANIDAD,  
etitioners-in-Intervention. June 28, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
 
DECISION
 
 
CARPIO, J.:
 
 
The Case
This is an original petition for prohibition, injunction, declaratory relief and declaration of
nullity of the sale of shares of stock of Philippine Telecommunications Investment
Corporation (PTIC) by the government of the Republic of the Philippines to Metro Pacific
Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific).
 
The Antecedents
 
The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long
Distance Telephone Company (PLDT), are as follows:1
 
On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a
franchise and the right to engage in telecommunications business. In 1969, General
Telephone and Electronics Corporation (GTE), an American company and a major PLDT
stockholder, sold 26 percent of the outstanding common shares of PLDT to PTIC. In 1977,
Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and
Jose Campos, Jr. Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by
virtue of three Deeds of Assignment executed by PTIC stockholders Ramon Cojuangco and
Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC held by PHI were sequestered
by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares,
which represent about 46.125 percent of the outstanding capital stock of PTIC, were later
declared by this Court to be owned by the Republic of the Philippines.2
 
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the
remaining 54 percent of the outstanding capital stock of PTIC. On 20 November 2006, the
Inter-Agency Privatization Council (IPC) of the Philippine Government announced that it
would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of
PTIC, through a public bidding to be conducted on 4 December 2006. Subsequently, the
public bidding was reset to 8 December 2006, and only two bidders, Parallax Venture Fund
XXVII (Parallax) and Pan-Asia Presidio Capital, submitted their bids. Parallax won with a bid of
P25.6 billion or US$510 million.
Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC
stockholder and buy the 111,415 PTIC shares by matching the bid price of Parallax. However,
First Pacific failed to do so by the 1 February 2007 deadline set by IPC and instead, yielded its
right to PTIC itself which was then given by IPC until 2 March 2007 to buy the PTIC shares. On
14 February 2007, First Pacific, through its subsidiary, MPAH, entered into a Conditional Sale
and Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding
capital stock of PTIC, with the Philippine Government for the price of P25,217,556,000 or
US$510,580,189. The sale was completed on 28 February 2007.
Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent
of PTIC shares is actually an indirect sale of 12 million shares or about 6.3 percent of the
outstanding common shares of PLDT. With the sale, First Pacifics common shareholdings in
PLDT increased from 30.7 percent to 37 percent, thereby increasing the common
shareholdings of foreigners in PLDT to about 81.47 percent. This violates Section 11, Article
XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a
public utility to not more than 40 percent.3
On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary
John P. Sevilla, and PCGG Commissioner Ricardo Abcede allege the following relevant facts:
 
On 9 November 1967, PTIC was incorporated and had since engaged in the business of
investment holdings. PTIC held 26,034,263 PLDT common shares, or 13.847 percent of the
total PLDT outstanding common shares. PHI, on the other hand, was incorporated in 1977,
and became the owner of 111,415 PTIC shares or 46.125 percent of the outstanding capital
stock of PTIC by virtue of three Deeds of Assignment executed by Ramon Cojuangco and Luis
Tirso Rivilla. In 1986, the 111,415 PTIC shares held by PHI were sequestered by the PCGG,
and subsequently declared by this Court as part of the ill-gotten wealth of former President
Ferdinand Marcos. The sequestered PTIC shares were reconveyed to the Republic of the
Philippines in accordance with this Courts decision4 which became final and executory on 8
August 2006.
The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4
percent of the outstanding common shares of stock of PLDT, and designated the Inter-
Agency Privatization Council (IPC), composed of the Department of Finance and the PCGG, as
the disposing entity. An invitation to bid was published in seven different newspapers from
13 to 24 November 2006. On 20 November 2006, a pre-bid conference was held, and the
original deadline for bidding scheduled on 4 December 2006 was reset to 8 December 2006.
The extension was published in nine different newspapers.
 
During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the
highest bidder with a bid of P25,217,556,000. The government notified First Pacific, the
majority owner of PTIC shares, of the bidding results and gave First Pacific until 1 February
2007 to exercise its right of first refusal in accordance with PTICs Articles of Incorporation.
First Pacific announced its intention to match Parallaxs bid.
 
On 31 January 2007, the House of Representatives (HR) Committee on Good Government
conducted a public hearing on the particulars of the then impending sale of the 111,415 PTIC
shares. Respondents Teves and Sevilla were among those who attended the public hearing.
The HR Committee Report No. 2270 concluded that: (a) the auction of the governments
111,415 PTIC shares bore due diligence, transparency and conformity with existing legal
procedures; and (b) First Pacifics intended acquisition of the governments 111,415 PTIC
shares resulting in First Pacifics 100% ownership of PTIC will not violate the 40 percent
constitutional limit on foreign ownership of a public utility since PTIC holds only 13.847
percent of the total outstanding common shares of PLDT.5 On 28 February 2007, First Pacific
completed the acquisition of the 111,415 shares of stock of PTIC.
 
Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public
bidding for the sale of 111,415 PTIC shares or 46 percent of the outstanding capital stock of
PTIC (the remaining 54 percent of PTIC shares was already owned by First Pacific and its
affiliates); (b) Parallax offered the highest bid amounting to P25,217,556,000; (c) pursuant to
the right of first refusal in favor of PTIC and its shareholders granted in PTICs Articles of
Incorporation, MPAH, a First Pacific affiliate, exercised its right of first refusal by matching the
highest bid offered for PTIC shares on 13 February 2007; and (d) on 28 February 2007, the
sale was consummated when MPAH paid IPC P25,217,556,000 and the government delivered
the certificates for the 111,415 PTIC shares. Respondent Pangilinan denies the other
allegations of facts of petitioner.
 
On 28 February 2007, petitioner filed the instant petition for prohibition, injunction,
declaratory relief, and declaration of nullity of sale of the 111,415 PTIC shares. Petitioner
claims, among others, that the sale of the 111,415 PTIC shares would result in an increase in
First Pacifics common shareholdings in PLDT from 30.7 percent to 37 percent, and this,
combined with Japanese NTT DoCoMos common shareholdings in PLDT, would result to a
total foreign common shareholdings in PLDT of 51.56 percent which is over the 40 percent
constitutional limit.6 Petitioner asserts:
 
If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7
percent to 37.0 percent of its common or voting- stockholdings, x x x. Hence, the
consummation of the sale will put the two largest foreign investors in PLDT First
Pacific and Japans NTT DoCoMo, which is the worlds largest wireless
telecommunications firm, owning 51.56 percent of PLDT common equity. x x x With
the completion of the sale, data culled from the official website of the New York
Stock Exchange (www.nyse.com) showed that those foreign entities, which own at
least five percent of common equity, will collectively own 81.47 percent of PLDTs
common equity. x x x
x x x as the annual disclosure reports, also referred to as Form
20-K reports x x x which PLDT submitted to the New York Stock
Exchange for the period 2003-2005, revealed that First Pacific
and several other foreign entities breached the constitutional
limit of 40 percent ownership as early as 2003. x x x7
Petitioner raises the following issues: (1) whether the consummation of the then impending
sale of 111,415 PTIC shares to First Pacific violates the constitutional limit on foreign
ownership of a public utility; (2) whether public respondents committed grave abuse of
discretion in allowing the sale of the 111,415 PTIC shares to First Pacific; and (3) whether the
sale of common shares to foreigners in excess of 40 percent of the entire subscribed
common capital stock violates the constitutional limit on foreign ownership of a public
utility.8
 
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to
Intervene and Admit Attached Petition-in-Intervention. In the Resolution of 28 August 2007,
the Court granted the motion and noted the Petition-in-Intervention.
 
Petitioners-in-intervention join petitioner Wilson Gamboa x x x in seeking, among others, to
enjoin and/or nullify the sale by respondents of the 111,415 PTIC shares to First Pacific or
assignee. Petitioners-in-intervention claim that, as PLDT subscribers, they have a stake in the
outcome of the controversy x x x where the Philippine Government is completing the sale of
government owned assets in [PLDT], unquestionably a public utility, in violation of the
nationality restrictions of the Philippine Constitution.
 
 
The Issue
 
 
This Court is not a trier of facts. Factual questions such as those raised by petitioner,9 which
indisputably demand a thorough examination of the evidence of the parties, are generally
beyond this Courts jurisdiction. Adhering to this well-settled principle, the Court shall confine
the resolution of the instant controversy solely on the threshold and purely legal issue of
whether the term capital in Section 11, Article XII of the Constitution refers to the total
common shares only or to the total outstanding capital stock (combined total of common
and non-voting preferred shares) of PLDT, a public utility.
 
The Ruling of the Court
 
The petition is partly meritorious.
 
Petition for declaratory relief treated as petition for mandamus
 
At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner
seeks, only the petition for prohibition is within the original jurisdiction of this court, which
however is not exclusive but is concurrent with the Regional Trial Court and the Court of
Appeals. The actions for declaratory relief,10 injunction, and annulment of sale are not
embraced within the original jurisdiction of the Supreme Court. On this ground alone, the
petition could have been dismissed outright.
 
While direct resort to this Court may be justified in a petition for prohibition,11 the Court shall
nevertheless refrain from discussing the grounds in support of the petition for prohibition
since on 28 February 2007, the questioned sale was consummated when MPAH paid IPC
P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.
However, since the threshold and purely legal issue on the definition of the term capital in
Section 11, Article XII of the Constitution has far-reaching implications to the national
economy, the Court treats the petition for declaratory relief as one for mandamus.12
 
In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory
relief as one for mandamus considering the grave injustice that would result in the
interpretation of a banking law. In that case, which involved the crime of rape committed by
a foreign tourist against a Filipino minor and the execution of the final judgment in the civil
case for damages on the tourists dollar deposit with a local bank, the Court declared Section
113 of Central Bank Circular No. 960, exempting foreign currency deposits from attachment,
garnishment or any other order or process of any court, inapplicable due to the peculiar
circumstances of the case. The Court held that injustice would result especially to a citizen
aggrieved by a foreign guest like accused x x x that would negate Article 10 of the Civil Code
which provides that in case of doubt in the interpretation or application of laws, it is
presumed that the lawmaking body intended right and justice to prevail. The Court therefore
required respondents Central Bank of the Philippines, the local bank, and the accused to
comply with the writ of execution issued in the civil case for damages and to release the
dollar deposit of the accused to satisfy the judgment.
 
In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside
the procedural infirmity of the petition for declaratory relief and treated the same as one for
mandamus. In Alliance, the issue was whether the government unlawfully excluded
petitioners, who were government employees, from the enjoyment of rights to which they
were entitled under the law. Specifically, the question was: Are the branches, agencies,
subdivisions, and instrumentalities of the Government, including government owned or
controlled corporations included among the four employers under Presidential Decree No.
851 which are required to pay their employees x x x a thirteenth (13th) month pay x x x ? The
Constitutional principle involved therein affected all government employees, clearly justifying
a relaxation of the technical rules of procedure, and certainly requiring the interpretation of
the assailed presidential decree.
 
In short, it is well-settled that this Court may treat a petition for declaratory relief as one for
mandamus if the issue involved has far-reaching implications. As this Court held in Salvacion:
 
The Court has no original and exclusive jurisdiction over a petition for declaratory
relief. However, exceptions to this rule have been recognized. Thus, where the
petition has far-reaching implications and raises questions that should be
resolved, it may be treated as one for mandamus.15 (Emphasis supplied)
 
 
In the present case, petitioner seeks primarily the interpretation of the term capital in
Section 11, Article XII of the Constitution. He prays that this Court declare that the term
capital refers to common shares only, and that such shares constitute the sole basis in
determining foreign equity in a public utility. Petitioner further asks this Court to declare any
ruling inconsistent with such interpretation unconstitutional.
 
The interpretation of the term capital in Section 11, Article XII of the Constitution has far-
reaching implications to the national economy. In fact, a resolution of this issue will
determine whether Filipinos are masters, or second class citizens, in their own country. What
is at stake here is whether Filipinos or foreigners will have effective control of the national
economy. Indeed, if ever there is a legal issue that has far-reaching implications to the entire
nation, and to future generations of Filipinos, it is the threshhold legal issue presented in this
case.
 
The Court first encountered the issue on the definition of the term capital in Section 11,
Article XII of the Constitution in the case of Fernandez v. Cojuangco, docketed as G.R. No.
157360.16 That case involved the same public utility (PLDT) and substantially the same private
respondents. Despite the importance and novelty of the constitutional issue raised therein
and despite the fact that the petition involved a purely legal question, the Court declined to
resolve the case on the merits, and instead denied the same for disregarding the hierarchy of
courts.17 There, petitioner Fernandez assailed on a pure question of law the Regional Trial
Courts Decision of 21 February 2003 via a petition for review under Rule 45. The Courts
Resolution, denying the petition, became final on 21 December 2004.
The instant petition therefore presents the Court with another opportunity to finally settle
this purely legal issue which is of transcendental importance to the national economy and a
fundamental requirement to a faithful adherence to our Constitution. The Court must
forthwith seize such opportunity, not only for the benefit of the litigants, but more
significantly for the benefit of the entire Filipino people, to ensure, in the words of the
Constitution, a self-reliant and independent national economy effectively controlled by
Filipinos.18 Besides, in the light of vague and confusing positions taken by government
agencies on this purely legal issue, present and future foreign investors in this country
deserve, as a matter of basic fairness, a categorical ruling from this Court on the extent of
their participation in the capital of public utilities and other nationalized businesses.
 
Despite its far-reaching implications to the national economy, this purely legal issue has
remained unresolved for over 75 years since the 1935 Constitution. There is no reason for
this Court to evade this ever recurring fundamental issue and delay again defining the term
capital, which appears not only in Section 11, Article XII of the Constitution, but also in
Section 2, Article XII on co-production and joint venture agreements for the development of
our natural resources,19 in Section 7, Article XII on ownership of private lands,20 in Section 10,
Article XII on the reservation of certain investments to Filipino citizens,21 in Section 4(2),
Article XIV on the ownership of educational institutions,22 and in Section 11(2), Article XVI on
the ownership of advertising companies.23
 
 
Petitioner has locus standi
 
There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to
question the subject sale, which he claims to violate the nationality requirement prescribed
in Section 11, Article XII of the Constitution. If the sale indeed violates the Constitution, then
there is a possibility that PLDTs franchise could be revoked, a dire consequence directly
affecting petitioners interest as a stockholder.
 
More importantly, there is no question that the instant petition raises matters of
transcendental importance to the public. The fundamental and threshold legal issue in this
case, involving the national economy and the economic welfare of the Filipino people, far
outweighs any perceived impediment in the legal personality of the petitioner to bring this
action.
 
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of
transcendental importance to the public, thus:
In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and the
object of mandamus is to obtain the enforcement of a public duty, the people are regarded
as the real parties in interest; and because it is sufficient that petitioner is a citizen and as
such is interested in the execution of the laws, he need not show that he has any legal or
special interest in the result of the action. In the aforesaid case, the petitioners sought to
enforce their right to be informed on matters of public concern, a right then recognized in
Section 6, Article IV of the 1973 Constitution, in connection with the rule that laws in order to
be valid and enforceable must be published in the Official Gazette or otherwise effectively
promulgated. In ruling for the petitioners legal standing, the Court declared that the right
they sought to be enforced is a public right recognized by no less than the fundamental law
of the land.
Legaspi v. Civil Service Commission, while reiterating Taada, further declared that when a
mandamus proceeding involves the assertion of a public right, the requirement of personal
interest is satisfied by the mere fact that petitioner is a citizen and, therefore, part of the
general public which possesses the right.
Further, in Albano v. Reyes, we said that while expenditure of public funds may not have
been involved under the questioned contract for the development, management and
operation of the Manila International Container Terminal, public interest [was] definitely
involved considering the important role [of the subject contract] . . . in the economic
development of the country and the magnitude of the financial consideration involved. We
concluded that, as a consequence, the disclosure provision in the Constitution would
constitute sufficient authority for upholding the petitioners standing. (Emphasis supplied)
 
Clearly, since the instant petition, brought by a citizen, involves matters of transcendental
public importance, the petitioner has the requisite locus standi.
 
Definition of the Term Capital in
Section 11, Article XII of the 1987 Constitution
 
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates
the Filipinization of public utilities, to wit:
 
Section 11. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines
or to corporations or associations organized under the laws of the Philippines, at
least sixty per centum of whose capital is owned by such citizens; nor shall such
franchise, certificate, or authorization be exclusive in character or for a longer
period than fifty years. Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment, alteration, or repeal by
the Congress when the common good so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of foreign
investors in the governing body of any public utility enterprise shall be limited to
their proportionate share in its capital, and all the executive and managing officers
of such corporation or association must be citizens of the Philippines. (Emphasis
supplied)
 
The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution,
thus:
 
Section 5. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines
or to corporations or associations organized under the laws of the Philippines at
least sixty per centum of the capital of which is owned by such citizens, nor shall
such franchise, certificate, or authorization be exclusive in character or for a longer
period than fifty years. Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment, alteration, or repeal by
the National Assembly when the public interest so requires. The State shall
encourage equity participation in public utilities by the general public. The
participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in the capital thereof.
(Emphasis supplied)
 
 
 
The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the
1935 Constitution, viz:
 
Section 8. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines
or to corporations or other entities organized under the laws of the Philippines
sixty per centum of the capital of which is owned by citizens of the Philippines,
nor shall such franchise, certificate, or authorization be exclusive in character or for
a longer period than fifty years. No franchise or right shall be granted to any
individual, firm, or corporation, except under the condition that it shall be subject
to amendment, alteration, or repeal by the Congress when the public interest so
requires. (Emphasis supplied)
 
Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission,
reminds us that the Filipinization provision in the 1987 Constitution is one of the products of
the spirit of nationalism which gripped the 1935 Constitutional Convention.25 The 1987
Constitution provides for the Filipinization of public utilities by requiring that any form of
authorization for the operation of public utilities should be granted only to citizens of the
Philippines or to corporations or associations organized under the laws of the Philippines at
least sixty per centum of whose capital is owned by such citizens. The provision is [an
express] recognition of the sensitive and vital position of public utilities both in the
national economy and for national security.26 The evident purpose of the citizenship
requirement is to prevent aliens from assuming control of public utilities, which may be
inimical to the national interest.27 This specific provision explicitly reserves to Filipino citizens
control of public utilities, pursuant to an overriding economic goal of the 1987 Constitution:
to conserve and develop our patrimony28 and ensure a self-reliant and independent national
economy effectively controlled by Filipinos.29
 
Any citizen or juridical entity desiring to operate a public utility must therefore meet the
minimum nationality requirement prescribed in Section 11, Article XII of the Constitution.
Hence, for a corporation to be granted authority to operate a public utility, at least 60
percent of its capital must be owned by Filipino citizens.
 
The crux of the controversy is the definition of the term capital. Does the term capital in
Section 11, Article XII of the Constitution refer to common shares or to the total outstanding
capital stock (combined total of common and non-voting preferred shares)?
 
Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities
refers only to common shares because such shares are entitled to vote and it is through
voting that control over a corporation is exercised. Petitioner posits that the term capital in
Section 11, Article XII of the Constitution refers to the ownership of common capital stock
subscribed and outstanding, which class of shares alone, under the corporate set-up of PLDT,
can vote and elect members of the board of directors. It is undisputed that PLDTs non-voting
preferred shares are held mostly by Filipino citizens.30 This arose from Presidential Decree
No. 217,31 issued on 16 June 1973 by then President Ferdinand Marcos, requiring every
applicant of a PLDT telephone line to subscribe to non-voting preferred shares to pay for the
investment cost of installing the telephone line.32
 
Petitioners-in-intervention basically reiterate petitioners arguments and adopt petitioners
definition of the term capital.33 Petitioners-in-intervention allege that the approximate
foreign ownership of common capital stock of PLDT x x x already amounts to at least 63.54%
of the total outstanding common stock, which means that foreigners exercise significant
control over PLDT, patently violating the 40 percent foreign equity limitation in public utilities
prescribed by the Constitution.
 
Respondents, on the other hand, do not offer any definition of the term capital in Section 11,
Article XII of the Constitution. More importantly, private respondents Nazareno and
Pangilinan of PLDT do not dispute that more than 40 percent of the common shares of PLDT
are held by foreigners.
 
In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on
the procedural infirmities of the petition and the supposed violation of the due process rights
of the affected foreign common shareholders. Respondent Nazareno does not deny
petitioners allegation of foreigners dominating the common shareholdings of PLDT. Nazareno
stressed mainly that the petition seeks to divest foreign common shareholders purportedly
exceeding 40% of the total common shareholdings in PLDT of their ownership over their
shares. Thus, the foreign natural and juridical PLDT shareholders must be impleaded in this
suit so that they can be heard.34 Essentially, Nazareno invokes denial of due process on behalf
of the foreign common shareholders.
While Nazareno does not introduce any definition of the term capital, he states that among
the factual assertions that need to be established to counter petitioners allegations is the
uniform interpretation by government agencies (such as the SEC), institutions and
corporations (such as the Philippine National Oil Company-Energy Development
Corporation or PNOC-EDC) of including both preferred shares and common shares in
controlling interest in view of testing compliance with the 40% constitutional limitation on
foreign ownership in public utilities.35
 
Similarly, respondent Manuel V. Pangilinan does not define the term capital in Section 11,
Article XII of the Constitution. Neither does he refute petitioners claim of foreigners holding
more than 40 percent of PLDTs common shares. Instead, respondent Pangilinan focuses on
the procedural flaws of the petition and the alleged violation of the due process rights of
foreigners. Respondent Pangilinan emphasizes in his Memorandum (1) the absence of this
Courts jurisdiction over the petition; (2) petitioners lack of standing; (3) mootness of the
petition; (4) non-availability of declaratory relief; and (5) the denial of due process rights.
Moreover, respondent Pangilinan alleges that the issue should be whether owners of shares
in PLDT as well as owners of shares in companies holding shares in PLDT may be required to
relinquish their shares in PLDT and in those companies without any law requiring them to
surrender their shares and also without notice and trial.
 
Respondent Pangilinan further asserts that Section 11, [Article XII of the Constitution]
imposes no nationality requirement on the shareholders of the utility company as a
condition for keeping their shares in the utility company. According to him, Section 11 does
not authorize taking one persons property (the shareholders stock in the utility company) on
the basis of another partys alleged failure to satisfy a requirement that is a condition only for
that other partys retention of another piece of property (the utility company being at least
60% Filipino-owned to keep its franchise).36
 
The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P.
Sevilla, Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the
definition of the term capital. In its Memorandum37 dated 24 September 2007, the OSG also
limits its discussion on the supposed procedural defects of the petition, i.e. lack of standing,
lack of jurisdiction, non-inclusion of interested parties, and lack of basis for injunction. The
OSG does not present any definition or interpretation of the term capital in Section 11,
Article XII of the Constitution. The OSG contends that the petition actually partakes of a
collateral attack on PLDTs franchise as a public utility, which in effect requires a full-blown
trial where all the parties in interest are given their day in court.38
 
Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the
Philippine Stock Exchange (PSE), does not also define the term capital and seeks the dismissal
of the petition on the following grounds: (1) failure to state a cause of action against Lim; (2)
the PSE allegedly implemented its rules and required all listed companies, including PLDT, to
make proper and timely disclosures; and (3) the reliefs prayed for in the petition would
adversely impact the stock market.
 
In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a
stockholder of record of PLDT, contended that the term capital in the 1987 Constitution
refers to shares entitled to vote or the common shares. Fernandez explained thus:
The forty percent (40%) foreign equity limitation in public utilities prescribed by the
Constitution refers to ownership of shares of stock entitled to vote, i.e., common
shares, considering that it is through voting that control is being exercised. x x x
 
 Obviously, the intent of the framers of the Constitution in imposing limitations and
restrictions on fully nationalized and partially nationalized activities is for Filipino
nationals to be always in control of the corporation undertaking said activities.
Otherwise, if the Trial Courts ruling upholding respondents arguments were to be
given credence, it would be possible for the ownership structure of a public utility
corporation to be divided into one percent (1%) common stocks and ninety-nine
percent (99%) preferred stocks. Following the Trial Courts ruling adopting
respondents arguments, the common shares can be owned entirely by foreigners
thus creating an absurd situation wherein foreigners, who are supposed to be
minority shareholders, control the public utility corporation.
 
xxxx
 
Thus, the 40% foreign ownership limitation should be interpreted to apply to both
the beneficial ownership and the controlling interest.
 
xxxx
 
Clearly, therefore, the forty percent (40%) foreign equity limitation in public
utilities prescribed by the Constitution refers to ownership of shares of stock
entitled to vote, i.e., common shares. Furthermore, ownership of record of shares
will not suffice but it must be shown that the legal and beneficial ownership rests in
the hands of Filipino citizens. Consequently, in the case of petitioner PLDT, since it
is already admitted that the voting interests of foreigners which would gain entry
to petitioner PLDT by the acquisition of SMART shares through the Questioned
Transactions is equivalent to 82.99%, and the nominee arrangements between the
foreign principals and the Filipino owners is likewise admitted, there is, therefore, a
violation of Section 11, Article XII of the Constitution.
Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by
the Trial Court to support the proposition that the meaning of the word capital as
used in Section 11, Article XII of the Constitution allegedly refers to the sum total of
the shares subscribed and paid-in by the shareholder and it allegedly is immaterial
how the stock is classified, whether as common or preferred, cannot stand in the
face of a clear legislative policy as stated in the FIA which took effect in 1991 or way
after said opinions were rendered, and as clarified by the above-quoted
Amendments. In this regard, suffice it to state that as between the law and an
opinion rendered by an administrative agency, the law indubitably prevails.
Moreover, said Opinions are merely advisory and cannot prevail over the clear
intent of the framers of the Constitution.
 
In the same vein, the SECs construction of Section 11, Article XII of the Constitution
is at best merely advisory for it is the courts that finally determine what a law
means.39
 
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos
A. Arellano, Helen Y. Dee, Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F.
Nebres, Ray C. Espinosa, Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea,
argued that the term capital in Section 11, Article XII of the Constitution includes preferred
shares since the Constitution does not distinguish among classes of stock, thus:
 
16.  The Constitution applies its foreign ownership limitation on the corporations capital,
without distinction as to classes of shares. x x x
 
In this connection, the Corporation Code which was already in force at the time the
present (1987) Constitution was drafted defined outstanding capital stock as
follows:
 
Section 137. Outstanding capital stock defined. The term outstanding capital stock,
as used in this Code, means the total shares of stock issued under binding
subscription agreements to subscribers or stockholders, whether or not fully or
partially paid, except treasury shares.
 
Section 137 of the Corporation Code also does not distinguish between common
and preferred shares, nor exclude either class of shares, in determining the
outstanding capital stock (the capital) of a corporation. Consequently, petitioners
suggestion to reckon PLDTs foreign equity only on the basis of PLDTs outstanding
common shares is without legal basis. The language of the Constitution should be
understood in the sense it has in common use.
xxxx
 
17.  But even assuming that resort to the proceedings of the Constitutional Commission
is necessary, there is nothing in the Record of the Constitutional Commission (Vol.
III) which petitioner misleadingly cited in the Petition x x x which supports
petitioners view that only common shares should form the basis for computing a
public utilitys foreign equity.
xxxx
 
18.  In addition, the SEC the government agency primarily responsible for implementing
the Corporation Code, and which also has the responsibility of ensuring compliance
with the Constitutions foreign equity restrictions as regards nationalized activities x
x x has categorically ruled that both common and preferred shares are properly
considered in determining outstanding capital stock and the nationality
composition thereof.40
 
 
We agree with petitioner and petitioners-in-intervention. The term capital in Section 11,
Article XII of the Constitution refers only to shares of stock entitled to vote in the election of
directors, and thus in the present case only to common shares,41 and not to the total
outstanding capital stock comprising both common and non-voting preferred shares.
The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:
Sec. 6. Classification of shares. - The shares of stock of stock corporations may be
divided into classes or series of shares, or both, any of which classes or series of
shares may have such rights, privileges or restrictions as may be stated in the
articles of incorporation: Provided, That no share may be deprived of voting rights
except those classified and issued as preferred or redeemable shares, unless
 otherwise provided in this Code: Provided, further, That there shall always be a
class or series of shares which have complete voting rights. Any or all of the shares
or series of shares may have a par value or have no par value as may be provided
for in the articles of incorporation: Provided, however, That banks, trust
companies, insurance companies, public utilities, and building and loan associations
shall not be permitted to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the
distribution of the assets of the corporation in case of liquidation and in the
distribution of dividends, or such other preferences as may be stated in the articles
of incorporation which are not violative of the provisions of this Code: Provided,
That preferred shares of stock may be issued only with a stated par value. The
Board of Directors, where authorized in the articles of incorporation, may fix the
terms and conditions of preferred shares of stock or any series thereof: Provided,
That such terms and conditions shall be effective upon the filing of a certificate
thereof with the Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-
assessable and the holder of such shares shall not be liable to the corporation or to
its creditors in respect thereto: Provided; That shares without par value may not be
issued for a consideration less than the value of five (P5.00) pesos per share:
Provided, further, That the entire consideration received by the corporation for its
no-par value shares shall be treated as capital and shall not be available for
distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring
compliance with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the
certificate of stock, each share shall be equal in all respects to every other share.
Where the articles of incorporation provide for non-voting shares in the cases
allowed by this Code, the holders of such shares shall nevertheless be entitled to
vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or
substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation
or other corporations;
7. Investment of corporate funds in another corporation or business in
accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote necessary to
approve a particular corporate act as provided in this Code shall be deemed to
refer only to stocks with voting rights.
 
Indisputably, one of the rights of a stockholder is the right to participate in the control or
management of the corporation.43 This is exercised through his vote in the election of
directors because it is the board of directors that controls or manages the corporation.44 In
the absence of provisions in the articles of incorporation denying voting rights to preferred
shares, preferred shares have the same voting rights as common shares. However, preferred
shareholders are often excluded from any control, that is, deprived of the right to vote in the
election of directors and on other matters, on the theory that the preferred shareholders are
merely investors in the corporation for income in the same manner as bondholders.45 In fact,
under the Corporation Code only preferred or redeemable shares can be deprived of the
right to vote.46 Common shares cannot be deprived of the right to vote in any corporate
meeting, and any provision in the articles of incorporation restricting the right of common
shareholders to vote is invalid.47
 
Considering that common shares have voting rights which translate to control, as opposed to
preferred shares which usually have no voting rights, the term capital in Section 11, Article XII
of the Constitution refers only to common shares. However, if the preferred shares also have
the right to vote in the election of directors, then the term capital shall include such
preferred shares because the right to participate in the control or management of the
corporation is exercised through the right to vote in the election of directors. In short, the
term capital in Section 11, Article XII of the Constitution refers only to shares of stock that
can vote in the election of directors.
 
This interpretation is consistent with the intent of the framers of the Constitution to place in
the hands of Filipino citizens the control and management of public utilities. As revealed in
the deliberations of the Constitutional Commission, capital refers to the voting stock or
controlling interest of a corporation, to wit:
 
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity
and foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in
Section 15.
 
MR. VILLEGAS. That is right.
 
MR. NOLLEDO. In teaching law, we are always faced with this question: Where do
we base the equity requirement, is it on the authorized capital stock, on the
subscribed capital stock, or on the paid-up capital stock of a corporation? Will the
Committee please enlighten me on this?
 
MR. VILLEGAS. We have just had a long discussion with the members of the team
from the UP Law Center who provided us a draft. The phrase that is contained
here which we adopted from the UP draft is 60 percent of voting stock.
 
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless
declared delinquent, unpaid capital stock shall be entitled to vote.
 
MR. VILLEGAS. That is right.
 
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation in another corporation, say, a
corporation with 60-40 percent equity invests in another corporation which is
permitted by the Corporation Code, does the Committee adopt the grandfather
rule?
  
MR. VILLEGAS. Yes, that is the understanding of the Committee.
 
MR. NOLLEDO. Therefore, we need additional Filipino capital?
 
MR. VILLEGAS. Yes.48
 
xxxx
MR. AZCUNA. May I be clarified as to that portion that was accepted by the
Committee.
 
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the
phrase voting stock or controlling interest.
 
MR. AZCUNA. Hence, without the Davide amendment, the committee report would
read: corporations or associations at least sixty percent of whose CAPITAL is owned
by such citizens.
MR. VILLEGAS. Yes.
 
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of
the capital to be owned by citizens.
 
MR. VILLEGAS. That is right.
 
MR. AZCUNA. But the control can be with the foreigners even if they are the
minority. Let us say 40 percent of the capital is owned by them, but it is the
voting capital, whereas, the Filipinos own the nonvoting shares. So we can have a
situation where the corporation is controlled by foreigners despite being the
minority because they have the voting capital. That is the anomaly that would
result here.
 
MR. BENGZON. No, the reason we eliminated the word stock as stated in the
1973 and 1935 Constitutions is that according to Commissioner Rodrigo, there are
associations that do not have stocks. That is why we say CAPITAL.
 
MR. AZCUNA. We should not eliminate the phrase controlling interest.
 
MR. BENGZON. In the case of stock corporations, it is assumed.49 (Emphasis
supplied)
 
Thus, 60 percent of the capital assumes, or should result in, controlling interest in the
corporation. Reinforcing this interpretation of the term capital, as referring to controlling
interest or shares entitled to vote, is the definition of a Philippine national in the Foreign
Investments Act of 1991,50 to wit:
 
SEC. 3. Definitions. - As used in this Act:
a.  The term Philippine national shall mean a citizen of the Philippines; or a
domestic partnership or association wholly owned by citizens of the Philippines; or
a corporation organized under the laws of the Philippines of which at least sixty
percent (60%) of the capital stock outstanding and entitled to vote is owned and
held by citizens of the Philippines; or a corporation organized abroad and
registered as doing business in the Philippines under the Corporation Code of
which one hundred percent (100%) of the capital stock outstanding and entitled to
vote is wholly owned by Filipinos or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent (60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That where a corporation and its non-Filipino
stockholders own stocks in a Securities and Exchange Commission (SEC) registered
enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled
to vote of each of both corporations must be owned and held by citizens of the
Philippines and at least sixty percent (60%) of the members of the Board of
Directors of each of both corporations must be citizens of the Philippines, in order
that the corporation, shall be considered a Philippine national. (Emphasis supplied)
In explaining the definition of a Philippine national, the Implementing Rules and Regulations
of the Foreign Investments Act of 1991 provide:
 
b. Philippine national shall mean a citizen of the Philippines or a domestic
partnership or association wholly owned by the citizens of the Philippines; or a
corporation organized under the laws of the Philippines of which at least sixty
percent [60%] of the capital stock outstanding and entitled to vote is owned and
held by citizens of the Philippines; or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent [60%] of the fund will accrue to the benefit of
the Philippine nationals; Provided, that where a corporation its non-Filipino
stockholders own stocks in a Securities and Exchange Commission [SEC] registered
enterprise, at least sixty percent [60%] of the capital stock outstanding and entitled
to vote of both corporations must be owned and held by citizens of the Philippines
and at least sixty percent [60%] of the members of the Board of Directors of each
of both corporation must be citizens of the Philippines, in order that the
corporation shall be considered a Philippine national. The control test shall be
applied for this purpose.
 
Compliance with the required Filipino ownership of a corporation shall be
determined on the basis of outstanding capital stock whether fully paid or not,
but only such stocks which are generally entitled to vote are considered.
For stocks to be deemed owned and held by Philippine citizens or Philippine
nationals, mere legal title is not enough to meet the required Filipino equity. Full
beneficial ownership of the stocks, coupled with appropriate voting rights is
essential. Thus, stocks, the voting rights of which have been assigned or
transferred to aliens cannot be considered held by Philippine citizens or
Philippine nationals.
 
 Individuals or juridical entities not meeting the aforementioned qualifications are
considered as non-Philippine nationals. (Emphasis supplied)
 
 
 
 
Mere legal title is insufficient to meet the 60 percent Filipino-owned capital required in the
Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock,
coupled with 60 percent of the voting rights, is required. The legal and beneficial ownership
of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals in
accordance with the constitutional mandate. Otherwise, the corporation is considered as
non-Philippine national[s].
 
Under Section 10, Article XII of the Constitution, Congress may reserve to citizens of the
Philippines or to corporations or associations at least sixty per centum of whose capital is
owned by such citizens, or such higher percentage as Congress may prescribe, certain areas
of investments. Thus, in numerous laws Congress has reserved certain areas of investments
to Filipino citizens or to corporations at least sixty percent of the capital of which is owned by
Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contracts or
R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for
Micro, Small and Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping
Development Act or R.A. No. 7471; (5) Domestic Shipping Development Act of 2004 or R.A.
No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and (7) Ship
Mortgage Decree or P.D. No. 1521. Hence, the term capital in Section 11, Article XII of the
Constitution is also used in the same context in numerous laws reserving certain areas of
investments to Filipino citizens.
 
To construe broadly the term capital as the total outstanding capital stock, including both
common and non-voting preferred shares, grossly contravenes the intent and letter of the
Constitution that the State shall develop a self-reliant and independent national economy
effectively controlled by Filipinos. A broad definition unjustifiably disregards who owns the
all-important voting stock, which necessarily equates to control of the public utility.
 
We shall illustrate the glaring anomaly in giving a broad definition to the term capital. Let us
assume that a corporation has 100 common shares owned by foreigners and 1,000,000 non-
voting preferred shares owned by Filipinos, with both classes of share having a par value of
one peso (P1.00) per share. Under the broad definition of the term capital, such corporation
would be considered compliant with the 40 percent constitutional limit on foreign equity of
public utilities since the overwhelming majority, or more than 99.999 percent, of the total
outstanding capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have voting rights in
the election of directors, even if they hold only 100 shares. The foreigners, with a minuscule
equity of less than 0.001 percent, exercise control over the public utility. On the other hand,
the Filipinos, holding more than 99.999 percent of the equity, cannot vote in the election of
directors and hence, have no control over the public utility. This starkly circumvents the
intent of the framers of the Constitution, as well as the clear language of the Constitution, to
place the control of public utilities in the hands of Filipinos. It also renders illusory the State
policy of an independent national economy effectively controlled by Filipinos.
The example given is not theoretical but can be found in the real world, and in fact exists in
the present case.
Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of
directors. PLDTs Articles of Incorporation expressly state that the holders of Serial Preferred
Stock shall not be entitled to vote at any meeting of the stockholders for the election of
directors or for any other purpose or otherwise participate in any action taken by the
corporation or its stockholders, or to receive notice of any meeting of stockholders.51
 
On the other hand, holders of common shares are granted the exclusive right to vote in the
election of directors. PLDTs Articles of Incorporation52 state that each holder of Common
Capital Stock shall have one vote in respect of each share of such stock held by him on all
matters voted upon by the stockholders, and the holders of Common Capital Stock shall
have the exclusive right to vote for the election of directors and for all other purposes.53
 
In short, only holders of common shares can vote in the election of directors, meaning only
common shareholders exercise control over PLDT. Conversely, holders of preferred shares,
who have no voting rights in the election of directors, do not have any control over PLDT. In
fact, under PLDTs Articles of Incorporation, holders of common shares have voting rights for
all purposes, while holders of preferred shares have no voting right for any purpose
whatsoever.
 
It must be stressed, and respondents do not dispute, that foreigners hold a majority of the
common shares of PLDT. In fact, based on PLDTs 2010 General Information Sheet (GIS),54
which is a document required to be submitted annually to the Securities and Exchange
Commission,55 foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold
only 66,750,622 common shares.56 In other words, foreigners hold 64.27% of the total
number of PLDTs common shares, while Filipinos hold only 35.73%. Since holding a majority
of the common shares equates to control, it is clear that foreigners exercise control over
PLDT. Such amount of control unmistakably exceeds the allowable 40 percent limit on
foreign ownership of public utilities expressly mandated in Section 11, Article XII of the
Constitution.
 
Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to the SEC, shows that
per share the SIP58 preferred shares earn a pittance in dividends compared to the common
shares. PLDT declared dividends for the common shares at P70.00 per share, while the
declared dividends for the preferred shares amounted to a measly P1.00 per share.59 So the
preferred shares not only cannot vote in the election of directors, they also have very little
and obviously negligible dividend earning capacity compared to common shares.
As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares
is P5.00 per share, whereas the par value of preferred shares is P10.00 per share. In other
words, preferred shares have twice the par value of common shares but cannot elect
directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the
preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the
preferred shares.61 Worse, preferred shares constitute 77.85% of the authorized capital stock
of PLDT while common shares constitute only 22.15%.62 This undeniably shows that beneficial
interest in PLDT is not with the non-voting preferred shares but with the common shares,
blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino
beneficial ownership in a public utility.
 
The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in
the hands of Filipinos in accordance with the constitutional mandate. Full beneficial
ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the
voting rights, is constitutionally required for the States grant of authority to operate a public
utility. The undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are
non-voting and earn only 1/70 of the dividends that PLDT common shares earn, grossly
violates the constitutional requirement of 60 percent Filipino control and Filipino beneficial
ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60
percent of the dividends, of PLDT. This directly contravenes the express command in Section
11, Article XII of the Constitution that [n]o franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to x x x corporations
x x x organized under the laws of the Philippines, at least sixty per centum of whose capital
is owned by such citizens x x x.
 
To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares
exercises the sole right to vote in the election of directors, and thus exercise control over
PLDT; (2) Filipinos own only 35.73% of PLDTs common shares, constituting a minority of the
voting stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned
by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that
common shares earn;63 (5) preferred shares have twice the par value of common shares; and
(6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common
shares only 22.15%. This kind of ownership and control of a public utility is a mockery of the
Constitution.
 
Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock
market value of P2,328.00 per share,64 while PLDT preferred shares with a par value of
P10.00 per share have a current stock market value ranging from only P10.92 to P11.06 per
share,65 is a glaring confirmation by the market that control and beneficial ownership of PLDT
rest with the common shares, not with the preferred shares.
 
Indisputably, construing the term capital in Section 11, Article XII of the Constitution to
include both voting and non-voting shares will result in the abject surrender of our
telecommunications industry to foreigners, amounting to a clear abdication of the States
constitutional duty to limit control of public utilities to Filipino citizens. Such an
interpretation certainly runs counter to the constitutional provision reserving certain areas of
investment to Filipino citizens, such as the exploitation of natural resources as well as the
ownership of land, educational institutions and advertising businesses. The Court should
never open to foreign control what the Constitution has expressly reserved to Filipinos for
that would be a betrayal of the Constitution and of the national interest. The Court must
perform its solemn duty to defend and uphold the intent and letter of the Constitution to
ensure, in the words of the Constitution, a self-reliant and independent national economy
effectively controlled by Filipinos.
Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly
reserving to Filipinos specific areas of investment, such as the development of natural
resources and ownership of land, educational institutions and advertising business, is self-
executing. There is no need for legislation to implement these self-executing provisions of
the Constitution. The rationale why these constitutional provisions are self-executing was
explained in Manila Prince Hotel v. GSIS,66 thus:
x x x Hence, unless it is expressly provided that a legislative act is necessary to
enforce a constitutional mandate, the presumption now is that all provisions of the
constitution are self-executing. If the constitutional provisions are treated as
requiring legislation instead of self-executing, the legislature would have the power
to ignore and practically nullify the mandate of the fundamental law. This can be
cataclysmic. That is why the prevailing view is, as it has always been, that
 
. . . in case of doubt, the Constitution should be considered self-executing rather
than non-self-executing. . . . Unless the contrary is clearly intended, the provisions
of the Constitution should be considered self-executing, as a contrary rule would
give the legislature discretion to determine when, or whether, they shall be
effective. These provisions would be subordinated to the will of the lawmaking
body, which could make them entirely meaningless by simply refusing to pass the
needed implementing statute. (Emphasis supplied)
 
 
 
 
 
In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S.
Puno, later Chief Justice, agreed that constitutional provisions are presumed to be self-
executing. Justice Puno stated:
 
Courts as a rule consider the provisions of the Constitution as self-executing, rather
than as requiring future legislation for their enforcement. The reason is not difficult
to discern. For if they are not treated as self-executing, the mandate of the
fundamental law ratified by the sovereign people can be easily ignored and
nullified by Congress. Suffused with wisdom of the ages is the unyielding rule that
legislative actions may give breath to constitutional rights but congressional
inaction should not suffocate them.
 
 
Thus, we have treated as self-executing the provisions in the Bill of Rights on
arrests, searches and seizures, the rights of a person under custodial investigation,
the rights of an accused, and the privilege against self-incrimination. It is
recognized that legislation is unnecessary to enable courts to effectuate
constitutional provisions guaranteeing the fundamental rights of life, liberty and
the protection of property. The same treatment is accorded to constitutional
provisions forbidding the taking or damaging of property for public use without just
compensation. (Emphasis supplied)
 
 
Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, provided by law. The SEC is mandated under Section 5(d) of the same Code with the power
applied directly the provisions of the 1935, 1973 and 1987 Constitutions limiting land and function to investigate x x x the activities of persons to ensure compliance with the laws
ownership to Filipinos. In Soriano v. Ong Hoo,68 this Court ruled: and regulations that SEC administers or enforces. The GIS that all corporations are required
  to submit to SEC annually should put the SEC on guard against violations of the nationality
x x x As the Constitution is silent as to the effects or consequences of a sale by a requirement prescribed in the Constitution and existing laws. This Court can compel the SEC,
citizen of his land to an alien, and as both the citizen and the alien have violated in a petition for declaratory relief that is treated as a petition for mandamus as in the present
the law, none of them should have a recourse against the other, and it should only case, to hear and decide a possible violation of Section 11, Article XII of the Constitution in
be the State that should be allowed to intervene and determine what is to be done view of the ownership structure of PLDTs voting shares, as admitted by respondents and as
with the property subject of the violation. We have said that what the State should stated in PLDTs 2010 GIS that PLDT submitted to SEC.
do or could do in such matters is a matter of public policy, entirely beyond the  
scope of judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G. R. No. L- WHEREFORE, we PARTLY GRANT the petition and rule that the term capital in Section 11,
5996, June 27, 1956.) While the legislature has not definitely decided what policy Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the
should be followed in cases of violations against the constitutional prohibition, election of directors, and thus in the present case only to common shares, and not to the
courts of justice cannot go beyond by declaring the disposition to be null and void total outstanding capital stock (common and non-voting preferred shares). Respondent
as violative of the Constitution. x x x (Emphasis supplied) Chairperson of the Securities and Exchange Commission is DIRECTED to apply this definition
  of the term capital in determining the extent of allowable foreign ownership in respondent
  Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article
To treat Section 11, Article XII of the Constitution as not self-executing would mean that since XII of the Constitution, to impose the appropriate sanctions under the law.
the 1935 Constitution, or over the last 75 years, not one of the constitutional provisions  
expressly reserving specific areas of investments to corporations, at least 60 percent of the SO ORDERED.
capital of which is owned by Filipinos, was enforceable. In short, the framers of the 1935,
1973 and 1987 Constitutions miserably failed to effectively reserve to Filipinos specific areas
of investment, like the operation by corporations of public utilities, the exploitation by
corporations of mineral resources, the ownership by corporations of real estate, and the
ownership of educational institutions. All the legislatures that convened since 1935 also
miserably failed to enact legislations to implement these vital constitutional provisions that
determine who will effectively control the national economy, Filipinos or foreigners. This
Court cannot allow such an absurd interpretation of the Constitution.
 
This Court has held that the SEC has both regulatory and adjudicative functions.69 Under its
regulatory functions, the SEC can be compelled by mandamus to perform its statutory duty
when it unlawfully neglects to perform the same. Under its adjudicative or quasi-judicial
functions, the SEC can be also be compelled by mandamus to hear and decide a possible
violation of any law it administers or enforces when it is mandated by law to investigate such
violation.
 
Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject
or disapprove the Articles of Incorporation of any corporation where the required
percentage of ownership of the capital stock to be owned by citizens of the Philippines has
not been complied with as required by existing laws or the Constitution. Thus, the SEC is
the government agency tasked with the statutory duty to enforce the nationality
requirement prescribed in Section 11, Article XII of the Constitution on the ownership of
public utilities. This Court, in a petition for declaratory relief that is treated as a petition for
mandamus as in the present case, can direct the SEC to perform its statutory duty under the
law, a duty that the SEC has apparently unlawfully neglected to do based on the 2010 GIS
that respondent PLDT submitted to the SEC.
Under Section 5(m) of the Securities Regulation Code,71 the SEC is vested with the power and
function to suspend or revoke, after proper notice and hearing, the franchise or certificate
of registration of corporations, partnerships or associations, upon any of the grounds
HACIENDA LUISITA, INCORPORATED,   G.R. No. 171101 Council (PARC) and Department of Agrarian Reform (DAR); (3) Motion for Reconsideration
Petitioner,   dated July 19, 2011 filed by private respondent Alyansa ng mga Manggagawang Bukid sa
  Present: Hacienda Luisita (AMBALA); (4) Motion for Reconsideration dated July 21, 2011 filed by
LUISITA INDUSTRIAL PARK CORPORATION and RIZAL   respondent-intervenor Farmworkers Agrarian Reform Movement, Inc. (FARM); (5) Motion for
COMMERCIAL BANKING CORPORATION, CORONA, C.J., Reconsideration dated July 21, 2011 filed by private respondents Noel Mallari, Julio Suniga,
Petitioners-in-Intervention, CARPIO, Supervisory Group of Hacienda Luisita, Inc. (Supervisory Group) and Windsor Andaya
  VELASCO, JR., (collectively referred to as Mallari, et al.); and (6) Motion for Reconsideration dated July 22,
- versus - LEONARDO-DE CASTRO, 2011 filed by private respondents Rene Galang and AMBALA.[2]
  BRION, On July 5, 2011, this Court promulgated a Decision[3] in the above-captioned case,
PRESIDENTIAL AGRARIAN REFORM COUNCIL; SECRETARY PERALTA, denying the petition filed by HLI and affirming Presidential Agrarian Reform Council (PARC)
NASSER PANGANDAMAN OF THE DEPARTMENT OF AGRARIAN BERSAMIN, Resolution No. 2005-32-01 dated December 22, 2005 and PARC Resolution No. 2006-34-01
REFORM; ALYANSA NG MGA MANGGAGAWANG BUKID NG DEL CASTILLO, dated May 3, 2006 with the modification that the original 6,296 qualified farmworker-
HACIENDA LUISITA, RENE GALANG, NOEL MALLARI, and JULIO ABAD, beneficiaries of Hacienda Luisita (FWBs) shall have the option to remain as stockholders of
SUNIGA[1] and his SUPERVISORY GROUP OF THE HACIENDA VILLARAMA, JR., HLI.
LUISITA, INC. and WINDSOR ANDAYA, PEREZ, In its Motion for Clarification and Partial Reconsideration dated July 21, 2011, HLI
Respondents. MENDOZA, and raises the following issues for Our consideration:
SERENO, A
REYES, IT IS NOT PROPER, EITHER IN LAW OR IN EQUITY, TO DISTRIBUTE TO THE
PERLAS-BERNABE, JJ. 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
Promulgated: OF ITS LAND ASSET WHICH WERE SOLD TO THIRD PARTY;
November 22, 2011 (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.
B
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
x-----------------------------------------------------------------------------------------x WAS NOT THE ACTUAL TAKING OF THE TADECOs/HLIs AGRICULTURAL
  LAND;
RESOLUTION (2) THE RECALL OR REVOCATION UNDER RESOLUTION NO. 2005-32-01 OF
  THAT SDP BY THE NEW PARC UNDER THE CHAIRMANSHIP OF DAR
VELASCO, JR., J.: 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;
For resolution are the (1) Motion for Clarification and Partial Reconsideration dated (3) TO PAY THE JUST COMPENSATION AS OF NOVEMBER 21, 1989 OR 22
July 21, 2011 filed by petitioner Hacienda Luisita, Inc. (HLI); (2) Motion for Partial YEARS BACK WOULD BE ARBITRARY, UNJUST, AND OPPRESSIVE,
Reconsideration dated July 20, 2011 filed by public respondents Presidential Agrarian Reform 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:
I THE HONORABLE SUPREME COURT SHOULD HAVE STRUCK DOWN
THERE IS NO LAW OR RULE WHICH HAS BEEN INVALIDATED ON THE
GROUND OF UNCONSTITUTIONALITY; AND
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:
I THE DECEPTIVE STOCK DISTRIBUTION OPTION / STOCK DISTRIBUTION
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 [PARCS] APPROVAL OF HLIs
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).
V (3) THERE HAS BEEN NO VIOLATION OF THE 3-MONTH PERIOD TO
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
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.
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.
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 That the operative fact doctrine squarely applies to executive
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:
actsin this case, the approval by PARC of the HLI proposal for stock
distributionis well-settled in our jurisprudence. In Chavez v. National
Housing Authority, We held:
 
Petitioner postulates that the operative fact
doctrine is inapplicable to the present case because it
is an equitable doctrine which could not be used to
countenance an inequitable result that is contrary to
its proper office.
 
On the other hand, the petitioner Solicitor
General argues that the existence of the various
agreements implementing the SMDRP is an operative
fact that can no longer be disturbed or simply
ignored, citing Rieta v. People of the Philippines.
 
The argument of the Solicitor General is
meritorious.
 
The operative fact doctrine is embodied in
De Agbayani v. Court of Appeals, wherein it is stated
that a legislative or executive act, prior to its being
declared as unconstitutional by the courts, is valid
and must be complied with, thus:
 
xxx xxx xxx
 
This doctrine was reiterated in the more
recent case of City of Makati v. Civil Service
Commission, wherein we ruled that:
 
Moreover, we certainly cannot nullify the
City Government's order of suspension, as we have
no reason to do so, much less retroactively apply such
nullification to deprive private respondent of a
compelling and valid reason for not filing the leave
application. For as we have held, a void act though in
law a mere scrap of paper nonetheless confers
 legitimacy upon past acts or omissions done in
reliance thereof. Consequently, the existence of a
statute or executive order prior to its being adjudged
void is an operative fact to which legal consequences
are attached. It would indeed be ghastly unfair to
prevent private respondent from relying upon the
order of suspension in lieu of a formal leave
application.
 
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 Taada 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 Taada, the Court
addressed the possible effects of its declaration of the
invalidity of various presidential issuances. Discussing
therein how such a declaration might affect acts done
on a presumption of their validity, the Court said:
 
. . .. In similar situations
in the past this Court had taken
the pragmatic and realistic course
set forth in Chicot County
Drainage District vs. Baxter Bank
to wit:
 
The courts below have
proceeded on the theory that the
Act of Congress, having been
found to be unconstitutional, was
not a law; that it was inoperative,
conferring no rights and imposing
no duties, and hence affording no
basis for the challenged decree. . .
. It is quite clear, however, that
such broad statements as to the
effect of a determination of
unconstitutionality must be taken
with qualifications. The actual
existence of a statute, prior to
[the determination of its
invalidity], is an operative fact and
may have consequences which
cannot justly be ignored. The past
cannot always be erased by a new
judicial declaration. The effect of
the subsequent ruling as to
invalidity may have to be
considered in various aspects with
respect to particular conduct,
private and official. Questions of
rights claimed to have become
vested, of status, of prior
determinations deemed to have
finality and acted upon
accordingly, of public policy in the
light of the nature both of the
statute and of its previous
application, demand examination.
These questions are among the
most difficult of those which have
engaged the attention of courts,
state and federal, and it is
manifest from numerous
decisions that an all-inclusive
statement of a principle of
absolute retroactive invalidity
cannot be justified.
 
xxx xxx xxx
 
Similarly, the
implementation/ enforcement of
presidential decrees prior to their
publication in the Official Gazette
is an operative fact which may
have consequences which cannot
be justly ignored. The past cannot
always be erased by a new judicial
declaration . . . that an all-
inclusive statement of a principle
of absolute retroactive invalidity
cannot be justified.
 
The Chicot doctrine cited in Taada
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 Taada 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. 89-12-2[10]an executive actwas 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
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.)
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 petitioners 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 HLIs 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 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--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
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 area[32] 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
beneficiariesis but one of the stated criteria to guide PARC in deciding on
whether or not to accept an SDP. Said Sec. 5(a) does not exact from the
corporate landowner-applicant the undertaking to keep the farm intact
and unfragmented ad infinitum. And there is logic to HLIs 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 Luisitas 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.After 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 possessors belief that the person from whom he received
it was the owner of the same and could convey his title. Good faith
requires a well-founded belief that the person from whom title was
received was himself the owner of the land, with the right to convey it.
There is good faith where there is an honest intention to abstain from
taking any unconscientious advantage from another. 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 LIPCOs 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 corporations 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 plaintiffs 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.
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 lands value. There
is merit in the claim. Since the SDP approved by PARC Resolution No. 89-
12-2 has been nullified, then all the lands subject of the SDP will
automatically be subject of compulsory coverage under Sec. 31 of RA
6657. Since the Court excluded the 500-hectare lot subject of the August
14, 1996 Conversion Order and the 80.51-hectare SCTEX lot acquired by
the government from the area covered by SDP, then HLI and its
subsidiary, Centennary, shall be liable to the FWBs for the price received
for said lots. HLI shall be liable for the value received for the sale of the
200-hectare land to LRC in the amount of PhP 500,000,000 and the
equivalent value of the 12,000,000 shares of its subsidiary, Centennary,
for the 300-hectare lot sold to LIPCO for the consideration of PhP
750,000,000. Likewise, HLI shall be liable for PhP 80,511,500 as
consideration for the sale of the 80.51-hectare SCTEX lot.
We, however, note that HLI has allegedly paid 3% of the
proceeds of the sale of the 500-hectare land and 80.51-hectare SCTEX lot
to the FWBs. We also take into account the payment of taxes and
expenses relating to the transfer of the land and HLIs 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
prevailgeneralia 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 HLIs 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 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 HLIs 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 corporations 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:
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
HLIs 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 HLIs SDP per PARC Resolution No. 89-12-2, in view
of the fact that this is the time that the FWBs were considered to own and possess the
agricultural lands in Hacienda Luisita. To be precise, these lands became subject of the
agrarian reform coverage through the stock distribution scheme only upon the approval of
the SDP, that is, November 21, 1989. Thus, such approval is akin to a notice of coverage
ordinarily issued under compulsory acquisition. Further, any doubt should be resolved in
favor of the FWBs. As this Court held in Perez-Rosario v. CA:[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 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 HLIs 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:
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.
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 limits[67] 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
companys 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:
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.It is the policy of the State to pursue a
Comprehensive Agrarian Reform Program (CARP). The
welfare of the landless farmers and farm workers will
receive the highest consideration to promote social
justice and to move the nation towards sound rural
development and industrialization, and the
establishment of owner cultivatorship of economic-
sized farms as the basis of Philippine agriculture.
 
 
 
 
To this end, a more equitable distribution
and ownership of land, with due regard to the rights
of landowners to just compensation and to the
ecological needs of the nation, shall be undertaken to
provide farmers and farm workers with the
opportunity to enhance their dignity and improve
the quality of their lives through greater productivity
of agricultural lands.
The agrarian reform program is founded on
the right of farmers and regular farm workers, who
are landless, to own directly or collectively the lands
they till or, in the case of other farm workers, to
receive a share of the fruits thereof. To this end, the
State shall encourage the just distribution of all
agricultural lands, subject to the priorities and
retention limits set forth in this Act, having taken into
account ecological, developmental, and equity
considerations, and subject to the payment of just
compensation. The State shall respect the right of
small landowners and shall provide incentives for
voluntary land-sharing.
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
HLIs 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 plans 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 years 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 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.The individual members of
the cooperatives or corporations mentioned in the
preceding section shall be provided with homelots
and small farmlots for their family use, to be taken
from the land owned by the cooperative or
corporation.
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.In the
case of farms owned or operated by corporations or
other business associations, the following rules shall
be observed by the PARC.
In general, lands shall be distributed directly
to the individual worker-beneficiaries.
In case it is not economically feasible and
sound to divide the land, then it shall be owned
collectively by the worker-beneficiaries who shall
form a workers cooperative or association which will
deal with the corporation or business association.
Until a new agreement is entered into by and
between the workers cooperative or association and
the corporation or business association, any
agreement existing at the time this Act takes effect
between the former and the previous landowner shall
 be respected by both the workers cooperative or
association and the corporation or business
association.
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.
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.The [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 companys 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 HLIs 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:
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: Thats 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 years time. As
explained by HLI, a beneficiary needs to work for at least 37 days in a
fiscal year before he or she becomes entitled to HLI shares. If it falls
below 37 days, the FWB, unfortunately, does not get any share at year
end. The number of HLI shares distributed varies depending on the
number of days the FWBs were allowed to work in one year. Worse, HLI
hired farmworkers in addition to the original 6,296 FWBs, such that, as
indicated in the Compliance dated August 2, 2010 submitted by HLI to the
Court, the total number of farmworkers of HLI as of said date stood at
10,502. All these farmworkers, which include the original 6,296 FWBs,
were given shares out of the 118,931,976.85 HLI shares representing the
33.296% of the total outstanding capital stock of HLI. Clearly, the
minimum individual allocation of each original FWB of 18,804.32 shares
was diluted as a result of the use of man days and the hiring of additional
farmworkers.
Going into another but related matter, par. 3 of the SDOA
expressly providing for a 30-year timeframe for HLI-to-FWBs stock
transfer is an arrangement contrary to what Sec. 11 of DAO 10
prescribes. Said Sec. 11 provides for the implementation of the approved
stock distribution plan within three (3) months from receipt by the
corporate landowner of the approval of the plan by PARC. In fact, based
on the said provision, the transfer of the shares of stock in the names of
the qualified FWBs should be recorded in the stock and transfer books
and must be submitted to the SEC within sixty (60) days from
implementation. As stated:
Section 11. Implementation/Monitoring of
Plan.The approved stock distribution plan shall be
 implemented within three (3) months from receipt
by the corporate landowner-applicant of the
approval thereof by the PARC, and the transfer of the
shares of stocks in the names of the qualified
beneficiaries shall be recorded in 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.
HLIs 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.Lands
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 PARC Resolution No. 89-12-2 dated November
21, l989 approving the HLIs 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 HLIs Proposal for Stock Distribution under CARP and the Stock
Distribution Option Agreement (SDOA) upon which the proposal was based reveals that the
total assets of HLI is PhP 590,554,220, while the value of the 4,915.7466 hectares is PhP
196,630,000. Consequently, the share of the farmer-beneficiaries in the HLI capital stock is
33.296% (196,630,000 divided by 590,554.220); 118,391,976.85 HLI shares represent
33.296%. Thus, even if all the holders of the 118,391,976.85 HLI shares unanimously vote to
remain as HLI stockholders, which is unlikely, control will never be placed in the hands of the
farmer-beneficiaries. Control, of course, means the majority of 50% plus at least one share of
the common shares and other voting shares. Applying the formula to the HLI stockholdings,
the number of shares that will constitute the majority is 295,112,101 shares (590,554,220
divided by 2 plus one [1] HLI share). The 118,391,976.85 shares subject to the SDP approved
by PARC substantially fall short of the 295,112,101 shares needed by the FWBs to acquire
control over HLI. Hence, control can NEVER be attained by the FWBs. There is even no
assurance that 100% of the 118,391,976.85 shares issued to the FWBs will all be voted in
favor of staying in HLI, taking into account the previous referendum among the farmers
where said shares were not voted unanimously in favor of retaining the SDP. In light of the
foregoing consideration, the option to remain in HLI granted to the individual FWBs will have
to be recalled and revoked.
 
 
 
 
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.
 
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 Courts 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 HLIs 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 PARCs 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.
 
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 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.
EN BANC
[G.R. No. 110249. August 21, 1997]
ALFREDO TANO, BALDOMERO TANO, DANILO TANO, ROMUALDO TANO, TEOCENES
MIDELLO, ANGEL DE MESA, EULOGIO TREMOCHA, FELIPE ONGONION, JR., ANDRES LINIJAN,
ROBERT LIM, VIRGINIA LIM, FELIMON DE MESA, GENEROSO ARAGON, TEODORICO ANDRE,
ROMULO DEL ROSARIO, CHOLITO ANDRE, ERICK MONTANO, ANDRES OLIVA, VITTORIO
SALVADOR, LEOPOLDO ARAGON, RAFAEL RIBA, ALEJANDRO LEONILA, JOSE DAMACINTO,
RAMIRO MANAEG, RUBEN MARGATE, ROBERTO REYES, DANILO PANGARUTAN, NOE
GOLPAN,ESTANISLAO ROMERO, NICANOR DOMINGO, ROLDAN TABANG, PANGANIBAN,
ADRIANO TABANG, FREDDIE SACAMAY, MIGUEL TRIMOCHA, PACENCIO LABABIT, PABLO H.
OMPAD, CELESTINO A. ABANO, ALLAN ALMODAL, BILLY D. BARTOLAY, ALBINO D. LIQUE,
MELCHOR J. LAYSON, MELANI AMANTE, CLARO E. YATOC, MERGELDO B. BALDEO, EDGAR M.
ALMASET A., JOSELITO MANAEG, LIBERATO ANDRADA, JR., ROBERTO BERRY, RONALD
VILLANUEVA, EDUARDO VALMORIA, WILDREDO MENDOZA, NAPOLEON BABANGA, ROBERTO
TADEPA, RUBEN ASINGUA, SILVERIO GABO, JERRY ROMERO, DAVID PANGAGARUTAN,
DANIEL PANGGARUTAN, ROMEO AGAWIN, FERNANDO EQUIZ, DITO LEQUIZ, RONILO
ODERABLE, BENEDICTO TORRES, ROSITO A. VALDEZ, CRESENCIO A. SAYANG, NICOMEDES S.
ACOSTA, ERENEO A. SEGARINO, JR., WILDREDO A. RAUTO, DIOSDADO A. ACOSTA, BONIFACIO
G. SISMO, TACIO ALUBA, DANIEL B. BATERZAL, ELISEO YBAEZ, DIOSDADO E. HANCHIC, EDDIE
ESCALICAS, ELEAZAR B. BATERZAL, DOMINADOR HALICHIC, ROOSEVELT RISMO-AN, ROBERT
C. MERCADER, TIRSO ARESGADO, DANIEL CHAVEZ, DANILO CHAVEZ, VICTOR VILLAROEL,
ERNESTO C. YABANEZ, ARMANDO T. SANTILLAN, RUDY S. SANTILLAN, JODJEN ILUSTRISIMO,
NESTOR SALANGRON, ALBERTO SALANGRON, ROGER L. ROXAS, FRANCISCO T. ANTICANO,
PASTOR SALANGRON, BIENVENIDO SANTILLAN, GILBUENA LADDY, FIDEL BENJAMIN JOVELITO
BELGANO, HONEY PARIOL, ANTONIO SALANGRON, NICASIO SALANGRON, & AIRLINE
SHIPPERS ASSOCIATION OF PALAWAN, petitioners, vs. GOV. SALVADOR P. SOCRATES,
MEMBERS OF SANGGUNIAN PANLALAWIGAN OF PALAWAN, namely, VICE-GOVERNOR JOEL
T. REYES, JOSE D. ZABALA, ROSALINO R. ACOSTA, JOSELITO A. CADLAON, ANDRES R. BAACO,
NELSON P. PENEYRA, CIPRIANO C. BARROMA, CLARO E. ORDINARIO, ERNESTO A. LLACUN,
RODOLFO C. FLORDELIZA, GILBERT S. BAACO, WINSTON G. ARZAGA, NAPOLEON F. ORDONEZ
and GIL P. ACOSTA, CITY MAYOR EDWARD HAGEDORN, MEMBERS OF SANGGUNIANG
PANLUNGSOD NG PUERTO PRINCESA, ALL MEMBERS OF BANTAY DAGAT, MEMBERS OF
PHILIPPINE NATIONAL POLICE OF PALAWAN, PROVINCIAL AND CITY PROSECUTORS OF
PALAWAN and PUERTO PRINCESA CITY, and ALL JUDGES OF PALAWAN, REGIONAL,
MUNICIPAL AND METROPOLITAN, respondents.
DECISION
DAVIDE, JR., J.:
Petitioners caption their petition as one for Certiorari, Injunction With Preliminary
Mandatory Injunction,with Prayer for Temporary Restraining Order and pray that this Court:
(1) declare as unconstitutional: (a) Ordinance No. 15-92, dated 15 December 1992, of the
Sangguniang Panlungsod of Puerto Princesa; (b) Office Order No. 23, Series of 1993, dated 22
January 1993, issued by Acting City Mayor Amado L. Lucero of Puerto Princesa City; and (c)
Resolution No. 33, Ordinance No. 2, Series of 1993, dated 19 February 1993, of the
Sangguniang Panlalawigan of Palawan; (2) enjoin the enforcement thereof; and (3) restrain
respondents Provincial and City Prosecutors of Palawan and Puerto Princesa City and Judges
of Regional Trial Courts, Metropolitan Trial Courts[1] and Municipal Circuit Trial Courts in
Palawan from assuming jurisdiction over and hearing cases concerning the violation of the
Ordinances and of the Office Order.
More appropriately, the petition is, and shall be treated as, a special civil action for certiorari
and prohibition.
The following is petitioners summary of the factual antecedents giving rise to the petition:
1. On December 15, 1992, the Sangguniang Panlungsod ng Puerto Princesa City
enacted Ordinance No. 15-92 which took effect on January 1, 1993 entitled: AN ORDINANCE
BANNING THE SHIPMENT OF ALL LIVE FISH AND LOBSTER OUTSIDE PUERTO PRINCESA CITY
FROM JANUARY 1, 1993 TO JANUARY 1, 1998 AND PROVIDING EXEMPTIONS, PENALTIES AND
FOR OTHER PURPOSES THEREOF, the full text of which reads as follows:
Section 1. Title of the Ordinance. - This Ordinance is entitled: AN ORDINANCE BANNING THE
SHIPMENT OF ALL LIVE FISH AND LOBSTER OUTSIDE PUERTO PRINCESA CITY FROM JANUARY
1, 1993 TO JANUARY 1, 1998 AND PROVIDING EXEMPTIONS, PENALTIES AND FOR OTHER
PURPOSES THEREOF.
Section 2. Purpose, Scope and Coverage. - To effectively free our City Sea Waters from
Cyanide and other Obnoxious substance, and shall cover all persons and/or entities operating
within and outside the City of Puerto Princesa who is are [sic] directly or indirectly in the
business or shipment of live fish and lobster outside the City.
Section 3. Definition of terms. - For purpose of this Ordinance the following are hereby
defined:
A. SEA BASS - A kind of fish under the family of Centropomidae, better known as APAHAP;
B. CATFISH - A kind of fish under the family of Plotosidae, better known as HITO-HITO;
C. MUDFISH - A kind of fish under the family of Orphicaphalisae better known as DALAG
D. ALL LIVE FISH - All alive, breathing not necessarily moving of all specie[s] use for food and
for aquarium purposes.
E. LIVE LOBSTER - Several relatively, large marine crustaceans of the genus Homarus that are
alive and breathing not necessarily moving.
Section 4. It shall be unlawful [for] any person or any business enterprise or company to ship
out from Puerto Princesa City to any point of destination either via aircraft or seacraft of any
live fish and lobster except SEA BASS, CATFISH, MUDFISH, AND MILKFISH FRIES.
Section 5. Penalty Clause. - Any person/s and or business entity violating this Ordinance shall
be penalized with a fine of not more than P5,000.00 or imprisonment of not more than
twelve (12) months, cancellation of their permit to do business in the City of Puerto Princesa
or all of the herein stated penalties, upon the discretion of the court.
Section 6. If the owner and/or operator of the establishment found vilating the provisions of
this ordinance is a corporation or a partnership, the penalty prescribed in Section 5 hereof
shall be imposed upon its president and/or General Manager or Managing Partner and/or
Manager, as the case maybe [sic].
Section 7. Any existing ordinance or any provision of any ordinance inconsistent to [sic] this
ordinance is deemed repealed.
Section 8. This Ordinance shall take effect on January 1, 1993.
SO ORDAINED.
xxx
2. To implement said city ordinance, then Acting City Mayor Amado L. Lucero issued
Office Order No. 23, Series of 1993 dated January 22, 1993 which reads as follows:
In the interest of public service and for purposes of City Ordinance No. PD426-14-74,
otherwise known as AN ORDINANCE REQUIRING ANY PERSON ENGAGED OR INTENDING TO
ENGAGE IN ANY BUSINESS, TRADE, OCCUPATION, CALLING OR PROFESSION OR HAVING IN
HIS POSSESSION ANY OF THE ARTICLES FOR WHICH A PERMIT IS REQUIRED TO BE HAD, TO
OBTAIN FIRST A MAYORS PERMIT and City Ordinance No. 15-92, AN ORDINANCE BANNING
THE SHIPMENT OF ALL LIVE FISH AND LOBSTER OUTSIDE PUERTO PRINCESA CITY FROM
JANUARY 1, 1993 TO JANUARY 1, 1998, you are hereby authorized and directed to check or
conduct necessary inspections on cargoes containing live fish and lobster being shipped out
from the Puerto Princesa Airport, Puerto Princesa Wharf or at any port within the jurisdiction
of the City to any point of destinations [sic] either via aircraft or seacraft.
The purpose of the inspection is to ascertain whether the shipper possessed the required
Mayors Permit issued by this Office and the shipment is covered by invoice or clearance
issued by the local office of the Bureau of Fisheries and Aquatic Resources and as to
compliance with all other existing rules and regulations on the matter.
Any cargo containing live fish and lobster without the required documents as stated herein
must be held for proper disposition.
In the pursuit of this Order, you are hereby authorized to coordinate with the PAL Manager,
the PPA Manager, the local PNP Station and other offices concerned for the needed support
and cooperation. Further, that the usual courtesy and diplomacy must be observed at all
times in the conduct of the inspection.
Please be guided accordingly.
xxx
3. On February 19, 1993, the Sangguniang Panlalawigan, Provincial Government of
Palawan enacted Resolution No. 33 entitled: A RESOLUTION PROHIBITING THE CATCHING,
GATHERING, POSSESSING, BUYING, SELLING AND SHIPMENT OF LIVE MARINE CORAL
DWELLING AQUATIC ORGANISMS, TO WIT: FAMILY: SCARIDAE (MAMENG), EPINE PHELUS
FASCIATUS (SUNO). CROMILEPTES ALTIVELIS (PANTHER OR SENORITA), LOBSTER BELOW 200
GRAMS AND SPAWNING, TRADACNA GIGAS (TAKLOBO), PINCTADA MARGARITEFERA
(MOTHER PEARL, OYSTERS, GIANT CLAMS AND OTHER SPECIES), PENAEUS MONODON (TIGER
PRAWN-BREEDER SIZE OR MOTHER), EPINEPHELUS SUILLUS (LOBA OR GREEN GROUPER)
AND FAMILY: BALISTIDAE (TROPICAL AQUARIUM FISHES) FOR A PERIOD FIVE (5) YEARS IN
AND COMING FROM PALAWAN WATERS, the full text of which reads as follows:
WHEREAS, scientific and factual researches [sic] and studies disclose that only five (5) percent
of the corals of our province remain to be in excellent condition as [a] habitat of marine coral
dwelling aquatic organisms;
WHEREAS, it cannot be gainsaid that the destruction and devastation of the corals of our
province were principally due to illegal fishing activities like dynamite fishing, sodium cyanide
fishing, use of other obnoxious substances and other related activities;
WHEREAS, there is an imperative and urgent need to protect and preserve the existence of
the remaining excellent corals and allow the devastated ones to reinvigorate and regenerate
themselves into vitality within the span of five (5) years;
WHEREAS, Sec. 468, Par. 1, Sub-Par. VI of the [sic] R.A. 7160 otherwise known as the Local
Government Code of 1991 empowers the Sangguniang Panlalawigan to protect the
environment and impose appropriate penalties [upon] acts which endanger the environment
such as dynamite fishing and other forms of destructive fishing, among others.
NOW, THEREFORE, on motion by Kagawad Nelson P. Peneyra and upon unanimous decision
of all the members present;
Be it resolved as it is hereby resolved, to approve Resolution No. 33, Series of 1993 of the
Sangguniang Panlalawigan and to enact Ordinance No. 2 for the purpose, to wit:
ORDINANCE NO. 2
Series of 1993
BE IT ORDAINED BY THE SANGGUNIANG PANLALAWIGAN IN SESSION ASSEMBLED:
Section 1. TITLE - This Ordinance shall be known as an Ordinance Prohibiting the catching,
gathering, possessing, buying, selling and shipment of live marine coral dwelling aquatic
organisms, to wit: 1. Family: Scaridae (Mameng), 2. Epinephelus Fasciatus (Suno), 3.
Cromileptes altivelis (Panther or Senorita), lobster below 200 grams and spawning), 4.
Tridacna Gigas (Taklobo), 5. Pinctada Margaretefera (Mother Pearl, Oysters, Giant Clams and
other species), 6. Penaeus Monodon (Tiger Prawn-breeder size or mother), 7. Epinephelus
Suillus (Loba or Green Grouper) and 8. Family: Balistidae (Topical Aquarium Fishes) for a
period of five (5) years in and coming from Palawan Waters.
Section II. PRELIMINARY CONSIDERATIONS
1. Sec. 2-A (Rep. Act 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. Toward 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.
2. Sec. 5-A (R.A. 7160). Any provision on a power of [a] local Government Unit shall be
liberaly interpreted in its favor, and in case of doubt, any question thereon shall be resolved
in favor of devolution of powers and of the lower government units. Any fair and reasonable
doubts as to the existence of the power shall be interpreted in favor of the Local Government
Unit concerned.
3. Sec. 5-C (R.A. 7160). The general welfare provisions in this Code shall be liberally
interpreted to give more powers to local government units in accelerating economic
development and upgrading the quality of life for the people in the community.
4. Sec. 16 (R.A. 7160). 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.
Section III. DECLARATION OF POLICY. - It is hereby declared to be the policy of the Province of
Palawan to protect and conserve the marine resources of Palawan not only for the greatest
good of the majority of the present generation but with [the] proper perspective and
consideration of [sic] their prosperity, and to attain this end, the Sangguniang Panlalawigan
henceforth declares that is [sic] shall be unlawful for any person or any business entity to
engage in catching, gathering, possessing, buying, selling and shipment of live marine coral
dwelling aquatic organisms as enumerated in Section 1 hereof in and coming out of Palawan
Waters for a period of five (5) years;
Section IV. PENALTY CLAUSE. - Any person and/or business entity violating this Ordinance
shall be penalized with a fine of not more than Five Thousand Pesos (P5,000.00), Philippine
Currency, and/or imprisonment of six (6) months to twelve (12) months and confiscation and
forfeiture of paraphernalias [sic] and equipment in favor of the government at the discretion
of the Court;
Section V. SEPARABILITY CLAUSE. - If for any reason, a Section or provision of this Ordinance
shall be held as unconditional [sic] or invalid, it shall not affect the other provisions hereof.
Section VI. REPEALING CLAUSE. - Any existing Ordinance or a provision of any ordinance
inconsistent herewith is deemed modified, amended or repealed.
Section VII. EFFECTIVITY. - This Ordinance shall take effect ten (10) days after its publication.
SO ORDAINED.
xxx
4. The respondents implemented the said ordinances, Annexes A and C hereof
thereby depriving all the fishermen of the whole province of Palawan and the City of Puerto
Princesa of their only means of livelihood and the petitioners Airline Shippers Association of
Palawan and other marine merchants from performing their lawful occupation and trade;
5. Petitioners Alfredo Tano, Baldomero Tano, Teocenes Midello, Angel de Mesa,
Eulogio Tremocha, and Felipe Ongonion, Jr. were even charged criminally under criminal case
no. 93-05-C in the 1st Municipal Circuit Trial Court of Cuyo-Agutaya-Magsaysay, an original
carbon copy of the criminal complaint dated April 12, 1993 is hereto attached as Annex D;
while xerox copies are attached as Annex D to the copies of the petition;
6. Petitioners Robert Lim and Virginia Lim, on the other hand, were charged by the
respondent PNP with the respondent City Prosecutor of Puerto Princesa City, a xerox copy of
the complaint is hereto attached as Annex E;
Without seeking redress from the concerned local government units, prosecutors office and
courts, petitioners directly invoked our original jurisdiction by filing this petition on 4 June
1993. In sum, petitioners contend that:
First, the Ordinances deprived them of due process of law, their livelihood, and unduly
restricted them from the practice of their trade, in violation of Section 2, Article XII and
Sections 2 and 7 of Article XIII of the 1987 Constitution.
Second, Office Order No. 23 contained no regulation nor condition under which the Mayors
permit could be granted or denied; in other words, the Mayor had the absolute authority to
determine whether or not to issue permit.
Third, as Ordinance No. 2 of the Province of Palawan altogether prohibited the catching,
gathering, possession, buying, selling and shipping of live marine coral dwelling organisms,
without any distinction whether it was caught or gathered through lawful fishing method, the
Ordinance took away the right of petitioners-fishermen to earn their livelihood in lawful
ways; and insofar as petitioners-members of Airline Shippers Association are concerned, they
were unduly prevented from pursuing their vocation and entering into contracts which are
proper, necessary, and essential to carry out their business endeavors to a successful
conclusion.
Finally, as Ordinance No. 2 of the Sangguniang Panlalawigan is null and void, the criminal
cases based thereon against petitioners Tano and the others have to be dismissed.
In the Resolution of 15 June 1993 we required respondents to comment on the petition, and
furnished the Office of the Solicitor General with a copy thereof.
In their comment filed on 13 August 1993, public respondents Governor Socrates and
Members of the Sangguniang Panlalawigan of Palawan defended the validity of Ordinance
No.2, Series of 1993, as a valid exercise of the Provincial Governments power under the
general welfare clause (Section 16 of the Local Government Code of 1991 [hereafter, LGC]),
and its specific power to protect the environment and impose appropriate penalties for acts
which endanger the environment, such as dynamite fishing and other forms of destructive
fishing under Section 447 (a) (1) (vi), Section 458 (a) (1) (vi), and Section 468 (a) (1) (vi), of the
LGC. They claimed that in the exercise of such powers, the Province of Palawan had the right
and responsibilty to insure that the remaining coral reefs, where fish dwells [sic], within its
territory remain healthy for the future generation. The Ordinance, they further asserted,
covered only live marine coral dwelling aquatic organisms which were enumerated in the
ordinance and excluded other kinds of live marine aquatic organisms not dwelling in coral
reefs; besides the prohibition was for only five (5) years to protect and preserve the pristine
coral and allow those damaged to regenerate.
Aforementioned respondents likewise maintained that there was no violation of due process
and equal protection clauses of the Constitution. As to the former, public hearings were
conducted before the enactment of the Ordinance which, undoubtedly, had a lawful purpose
and employed reasonable means; while as to the latter, a substantial distinction existed
between a fisherman who catches live fish with the intention of selling it live, and a
fisherman who catches live fish with no intention at all of selling it live, i.e., the former uses
sodium cyanide while the latter does not. Further, the Ordinance applied equally to all those
belonging to one class.
On 25 October 1993 petitioners filed an Urgent Plea for the Immediate Issuance of a
Temporary Restraining Order claiming that despite the pendency of this case, Branch 50 of
the Regional Trial Court of Palawan was bent on proceeding with Criminal Case No. 11223
against petitioners Danilo Tano, Alfredo Tano, Eulogio Tremocha, Romualdo Tano, Baldomero
Tano, Andres Lemihan and Angel de Mesa for violation of Ordinance No. 2 of the
Sangguniang Panlalawigan of Palawan. Acting on said plea, we issued on 11 November 1993
a temporary restraining order directing Judge Angel Miclat of said court to cease and desist
from proceeding with the arraignment and pre-trial of Criminal Case No. 11223.
On 12 July 1994, we excused the Office of the Solicitor General from filing a comment,
considering that as claimed by said office in its Manifestation of 28 June 1994, respondents
were already represented by counsel.
The rest of the respondents did not file any comment on the petition.
In the resolution of 15 September 1994, we resolved to consider the comment on the
petition as the Answer, gave due course to the petition and required the parties to submit
their respective memoranda.[2]
On 22 April 1997 we ordered impleaded as party respondents the Department of Agriculture
and the Bureau of Fisheries and Aquatic Resources and required the Office of the Solicitor
General to comment on their behalf. But in light of the latters motion of 9 July 1997 for an
extension of time to file the comment which would only result in further delay, we dispensed
with said comment.
After due deliberation on the pleadings filed, we resolved to dismiss this petition for want of
merit, on 22 July 1997, and assigned it to the ponente for the writing of the opinion of the
Court.
I
There are actually two sets of petitioners in this case. The first is composed of Alfredo Tano,
Baldomero Tano, Danilo Tano, Romualdo Tano, Teocenes Midello, Angel de Mesa, Eulogio
Tremocha, Felipe Ongonion, Jr., Andres Linijan, and Felimon de Mesa, who were criminally
charged with violating Sangguniang Panlalawigan Resolution No. 33 and Ordinance No. 2,
Series of 1993, of the Province of Palawan, in Criminal Case No. 93-05-C of the 1st Municipal
Circuit Trial Court (MCTC) of Palawan;[3] and Robert Lim and Virginia Lim who were charged
with violating City Ordinance No. 15-92 of Puerto Princesa City and Ordinance No. 2, Series of
1993, of the Province of Palawan before the Office of the City Prosecutor of Puerto Princesa.
[4] All of them, with the exception of Teocenes Midello, Felipe Ongonion, Jr., Felimon de
Mesa, Robert Lim and Virginia Lim, are likewise the accused in Criminal Case No. 11223 for
the violation of Ordinance No. 2 of the Sangguniang Panlalawigan of Palawan, pending
before Branch 50 of the Regional Trial Court of Palawan.[5]
The second set of petitioners is composed of the rest of the petitioners numbering seventy-
seven (77), all of whom, except the Airline Shippers Association of Palawan -- an alleged
private association of several marine merchants -- are natural persons who claim to be
fishermen.
The primary interest of the first set of petitioners is, of course, to prevent the prosecution,
trial and determination of the criminal cases until the constitutionality or legality of the
Ordinances they allegedly violated shall have been resolved. The second set of petitioners
merely claim that they being fishermen or marine merchants, they would be adversely
affected by the ordinances.
As to the first set of petitioners, this special civil for certiorari must fail on the ground of
prematurity amounting to a lack of cause of action. There is no showing that the said
petitioners, as the accused in the criminal cases, have filed motions to quash the
informations therein and that the same were denied. The ground available for such motions
is that the facts charged therein do not constitute an offense because the ordinances in
question are unconstitutional.[6] It cannot then be said that the lower courts acted without
or in excess of jurisdiction or with grave abuse of discretion to justify recourse to the
extraordinary remedy of certiorari or prohibition. It must further be stressed that even if the
petitioners did file motions to quash, the denial thereof would not forthwith give rise to a
cause of action under Rule 65 of the Rules of Court. The general rule is that where a motion
to quash is denied, the remedy therefrom is not certiorari, but for the party aggrieved
thereby to go to trial without prejudice to reiterating special defenses involved in said
motion, and if, after trial on the merits of adverse decision is rendered, to appeal therefrom
in the manner authorized by law.[7] And , even where in an exceptional circumstance such
denial may be the subject of a special civil action for certiorari, a motion for reconsideration
must have to be filed to allow the court concerned an opportunity to correct its errors, unless
such motion may be dispensed with because of existing exceptional circumstances.[8] Finally,
even if a motion for reconsideration has been filed and denied, the remedy under Rule 65 is
still unavailable absent any showing of the grounds provided for in Section 1 thereof.[9] For
obvious reasons, the petition at bar does not, and could not have , alleged any of such
grounds.
As to the second set of petitioners, the instant petition is obviously one for DECLARATORY
RELIEF, i.e., for a declaration that the Ordinances in question are a nullity ... for being
unconstitutional.[10] As such, their petition must likewise fail, as this Court is not possessed
of original jurisdiction over petitions for declaratory relief even if only questions of law are
involved,[11] it being settled that the Court merely exercises appellate jurisdiction over such
petitions.[12]
II
Even granting arguendo that the first set of petitioners have a cause of action ripe for the
extraordinary writ of certiorari, there is here a clear disregard of the hierarchy of courts, and
no special and important reason or exceptional or compelling circumstance has been
adduced why direct recourse to us should be allowed. While we have concurrent jurisdiction
with Regional Trial courts and with the Court of Appeals to issue writs of certiorari,
prohibition, mandamus, quo warranto, habeas corpus and injunction, such concurrence gives
petitioners no unrestricted freedom of choice of court forum, so we held in People v.
Cuaresma:[13]
This concurrence of jurisdiction is not to be taken as according to parties seeking any of the
writs an absolute unrestrained freedom of choice of the court to which application therefor
will be directed. There is after all hierarchy of courts. That hierarchy is determinative of the
venue of appeals, and should also serve as a general determinant of the appropriate forum
for petitions for the extraordinary writs. A becoming regard for that judicial hierarchy most
certainly indicates that petitions for the issuance of extraordinary writs against first level
(inferior) courts should be filed with the Regional Trial Court, and those against the latter,
with the Court of Appeals. A direct invocation of the Supreme Courts original jurisdiction to
issue these writs should be allowed only when there are special and important reasons
therefor, clearly and specifically set out in the petition. This is established policy. It is a policy
necessary to prevent inordinate demands upon the Courts time and attention which are
better devoted to those matters within its exclusive jurisdiction, and to prevent further over-
crowding of the Courts docket.
The Court feels the need to reaffirm that policy at this time, and to enjoin strict adherence
thereto in the light of what it perceives to be a growing tendency on the part of litigants and
lawyers to have their applications for the so-called extraordinary writs, and sometimes even
their appeals, passed upon and adjudicated directly and immediately by the highest tribunal
of the land.
In Santiago v. Vasquez,[14] this Court forcefully expressed that the propensity of litigants and
lawyers to disregard the hierarchy of courts must be put to a halt, not only because of the
imposition upon the precious time of this Court, but also because of the inevitable and
resultant delay, intended or otherwise, in the adjudication of the case which often has to be
remanded or referred to the lower court, the proper forum under the rules of procedure, or
as better equipped to resolve the issues since this Court is not a trier of facts. We reiterated
the judicial policy that this Court will not entertain direct resort to it unless the redress
desired cannot be obtained in the appropriate courts or where exceptional and compelling
circumstances justify availment of a remedy within and calling for the exercise of [its] primary
jurisdiction.
III
Notwithstanding the foregoing procedural obstacles against the first set of petitioners, we
opt to resolve this case on its merits considering that the lifetime of the challenged
Ordinances is about to end. Ordinance No. 15-92 of the City of Puerto Princesa is effective
only up to 1 January 1998, while Ordinance No. 2 of the Province of Palawan, enacted on 19
February 1993, is effective for only five (5) years. Besides, these Ordinances were
undoubtedly enacted in the exercise of powers under the new LGC relative to the protection
and preservation of the environment and are thus novel and of paramount importance. No
further delay then may be allowed in the resolution of the issues raised.
It is of course settled that laws (including ordinances enacted by local government units)
enjoy the presumption of constitutionality.[15] To overthrow this presumption, there must
be a clear and unequivocal breach of the Constitution, not merely a doubtful or
argumentative contradiction. In short, the conflict with the Constitution must be shown
beyond reasonable doubt.[16] Where doubt exists, even if well founded, there can be no
finding of unconstitutionality. To doubt is to sustain.[17]
After a scrunity of the challenged Ordinances and the provisions of the Constitution
petitioners claim to have been violated, we find petitioners contentions baseless and so hold
that the former do not suffer from any infirmity, both under the Constitution and applicable
laws.
Petitioners specifically point to Section 2, Article XII and Sections 2 and 7, Article XIII of the
Constitution as having been transgressed by the Ordinances.
The pertinent portion of Section 2 of Article XII reads:
SEC. 2. xxx
The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea,
and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino
citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino
citizens, as well as cooperative fish farming, with priority to subsistence fishermen and
fishworkers in rivers, lakes, bays, and lagoons.
Sections 2 and 7 of Article XIII provide:
Sec. 2. The promotion of social justice shall include the commitment to create economic
opportunities based on freedom of initiative and self-reliance.
xxx
SEC. 7. The State shall protect the rights of subsistence fishermen, especially of local
communities, to the preferential use of the communal marine and fishing resources, both
inland and offshore. It shall provide support to such fishermen through appropriate
technology and research, adequate financial, production, and marketing assistance, and
other services. The State shall also protect, develop, and conserve such resources. The
protection shall extend to offshore fishing grounds of subsistence fishermen against foreign
intrusion. Fishworkers shall receive a just share from their labor in the utilization of marine
and fishing resources.
There is absolutely no showing that any of the petitioners qualifies as a subsistence or
marginal fisherman. In their petition, petitioner Airline Shippers Association of Palawan is
described as a private association composed of Marine Merchants; petitioners Robert Lim
and Virginia Lim, as merchants; while the rest of the petitioners claim to be fishermen,
without any qualification, however, as to their status.
Since the Constitution does not specifically provide a definition of the terms subsistence or
marginal fishermen,[18] they should be construed in their general and ordinary sense. A
marginal fisherman is an individual engaged in fishing whose margin of return or reward in
his harvest of fish as measured by existing price levels is barely sufficient to yield a profit or
cover the cost of gathering the fish,[19] while a subsistence fisherman is one whose catch
yields but the irreducible minimum for his livelihood.[20] Section 131(p) of the LGC (R.A. No.
7160) defines a marginal farmer or fisherman as an individual engaged in subsistence farming
or fishing which shall be limited to the sale, barter or exchange of agricultural or marine
products produced by himself and his immediate family. It bears repeating that nothing in
the record supports a finding that any petitioner falls within these definitions.
Besides, Section 2 of Article XII aims primarily not to bestow any right to subsistence
fishermen, but to lay stress on the duty of the State to protect the nations marine wealth.
What the provision merely recognizes is that the State may allow, by law, cooperative fish
farming, with priority to subsistence fishermen and fishworkers in rivers, lakes, bays, and
lagoons. Our survey of the statute books reveals that the only provision of law which speaks
of the preferential right of marginal fishermen is Section 149 of the LGC of 1991 which
pertinently provides:
SEC. 149. Fishery Rentals, Fees and Charges. -- x x x
(b) The sangguniang bayan may:
(1) Grant fishery privileges to erect fish corrals, oyster, mussels or other aquatic beds or
bangus fry areas, within a definite zone of the municipal waters, as determined by it:
Provided, however, That duly registered organizations and cooperatives of marginal
fishermen shall have preferential right to such fishery privileges ....
In a Joint Administrative Order No. 3, dated 25 April 1996, the Secretary of the Department
of Agriculture and the Secretary of the Department of Interior and Local Government
prescribed the guidelines on the preferential treatment of small fisherfolk relative to the
fishery right mentioned in Section 149. This case, however, does not involve such fishery
right.
Anent Section 7 of Article XIII, it speaks not only of the use of communal marine and fishing
resources, but of their protection, development, and conservation. As hereafter shown, the
ordinances in question are meant precisely to protect and conserve our marine resources to
the end that their enjoyment by the people may be guaranteed not only for the present
generation, but also for the generations to come.
The so-called preferential right of subsistence or marginal fishermen to the use of marine
resources is not at all absolute. In accordance with the Regalian Doctrine, marine resources
belong to the State, and, pursuant to the first paragraph of Section 2, Article XII of the
Constitution, their exploration, development and utilization ... shall be under the full control
and supervision of the State. Moreover, their mandated protection, development, and
conservation as necessarily recognized by the framers of the Constitution, imply certain
restrictions on whatever right of enjoyment there may be in favor of anyone. Thus, as to the
curtailment of the preferential treatment of marginal fisherman, the following exchange
between Commissioner Francisco Rodrigo and Commissioner Jose F.S. Bengzon, Jr., took
place at the plenary session of the Constitutional Commission:
MR. RODRIGO:
Let us discuss the implementation of this because I would not raise the hopes of
our people, and afterwards fail in the implementation. How will this be
implemented? Will there be a licensing or giving of permits so that government
officials will know that one is really a marginal fisherman? Or if policeman say
that a person is not a marginal fisherman, he can show his permit, to prove that
indeed he is one.
MR. BENGZON:
Certainly, there will be some mode of licensing insofar as this is concerned and
this particular question could be tackled when we discuss the Article on Local
Governments -- whether we will leave to the local governments or to Congress
on how these things will be implemented. But certainly, I think our Congressmen
and our local officials will not be bereft of ideas on how to implement this
mandate.
xxx
MR. RODRIGO:
So, once one is licensed as a marginal fisherman, he can go anywhere in the
Philippines and fish in any fishing grounds.
MR. BENGZON:
Subject to whatever rules and regulations and local laws that may be passed, may
be existing or will be passed.[21] (underscoring supplied for emphasis).
What must likewise be borne in mind is the state policy enshrined in the Constitution
regarding the duty of the State to protect and advance the right of the people to a balanced
and healthful ecology in accord with the rhythm and harmony of nature.[22] On this score, in
Oposa v. Factoran,[23] this Court declared:
While the right to balanced and healthful ecology is to be found under the Declaration of
Principles the State Policies and not under the Bill of Rights, it does not follow that it is less
important than any of the civil and political rights enumerated in the latter. Such a right
belongs to a different category of rights altogether for it concerns nothing less than self-
preservation and self-perpetuation - aptly and fittingly stressed by the petitioners - the
advancement of which may even be said to predate all governments and constitutions. As a
matter of fact, these basic rights need not even be written in the Constitution for they are
assumed to exist from the inception of humankind. If they are now explicitly mentioned in
the fundamental charter, it is because of the well-founded fear of its framers that unless the
rights to a balanced and healthful ecology and to health are mandated as state policies by
the Constitution itself, thereby highlighting their continuing importance and imposing upon
the state a solemn obligation to preserve the first and protect and advance the second , the
day would not be too far when all else would be lost not only for the present generation, but
also for those to come - generations which stand to inherit nothing but parched earth
incapable of sustaining life.
The right to a balanced and healthful ecology carries with it a correlative duty to refrain from
impairing the environment ...
The LGC provisions invoked by private respondents merely seek to give flesh and blood to the
right of the people to a balanced and healthful ecology. In fact, the General Welfare Clause,
expressly mentions this right:
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 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. (underscoring
supplied).
Moreover, Section 5(c) of the LGC explicitly mandates that the general welfare provisions of
the LGC shall be liberally interpreted to give more powers to the local government units in
accelerating economic development and upgrading the quality of life for the people of the
community.
The LGC vests municipalities with the power to grant fishery privileges in municipal waters
and to impose rentals, fees or charges therefor; to penalize, by appropriate ordinances, the
use of explosives, noxious or poisonous substances, electricity, muro-ami, and other
deleterious methods of fishing; and to prosecute any violation of the provisions of applicable
fishery laws.[24] Further, the sangguniang bayan, the sangguniang panlungsod and the
sangguniang panlalawigan are directed to enact ordinances for the general welfare of the
municipality and its inhabitants, which shall include, inter alia, ordinances that [p]rotect the
environment and impose appropriate penalties for acts which endanger the environment
such as dynamite fishing and other forms of destructive fishing ... and such other activities
which result in pollution, acceleration of eutrophication of rivers and lakes or of ecological
imbalance.[25]
Finally, the centerpiece of LGC is the system of decentralization[26] as expressly mandated
by the Constitution.[27] Indispensable thereto is devolution and the LGC expressly provides
that [a]ny provision on a power of a local government unit shall be liberally interpreted in its
favor, and in case of doubt, any question thereon shall be resolved in favor of devolution of
powers and of the lower local government unit. Any fair and reasonable doubt as to the
existence of the power shall be interpreted in favor of the local government unit concerned,
[28] Devolution refers to the act by which the National Government confers power and
authority upon the various local government units to perform specific functions and
responsibilities.[29]
One of the devolved powers enumerated in the section of the LGC on devolution is the
enforcement of fishery laws in municipal waters including the conservation of mangroves.
[30] This necessarily includes enactment of ordinances to effectively carry out such fishery
laws within the municipal waters.
The term municipal waters, in turn, include not only streams, lakes, and tidal waters within
the municipality, not being the subject of private ownership and not comprised within the
national parks, public forest, timber lands, forest reserves, or fishery reserves, but also
marine waters included between two lines drawn perpendicularly to the general coastline
from points where the boundary lines of the municipality or city touch the sea at low tide
and a third line parallel with the general coastline and fifteen kilometers from it.[31] Under
P.D. No. 704, the marine waters included in municipal waters is limited to three nautical
miles from the general coastline using the above perpendicular lines and a third parallel line.
These fishery laws which local government units may enforce under Section 17(b), (2), (i) in
municipal waters include: (1) P.D. No. 704; (2) P.D. No. 1015 which, inter alia, authorizes the
establishment of a closed season in any Philippine water if necessary for conservation or
ecological purposes; (3) P.D. No. 1219 which provides for the exploration, exploitation,
utilization, and conservation of coral resources; (4) R.A. No. 5474, as amended by B.P. Blg. 58,
which makes it unlawful for any person, association, or corporation to catch or cause to be
caught, sell, offer to sell, purchase, or have in possession any of the fish specie called
gobiidae or ipon during closed season; and (5) R.A. No. 6451 which prohibits and punishes
electrofishing, as well as various issuances of the BFAR.
To those specifically devolved insofar as the control and regulation of fishing in municipal
waters and the protection of its marine environment are concerned, must be added the
following:
1. Issuance of permits to construct fish cages within municipal waters;
2. Issuance of permits to gather aquarium fishes within municipal
waters;
3. Issuance of permits to gather kapis shells within municipal waters;
4. Issuance of permits to gather/culture shelled mollusks within
municipal waters;
5. Issuance of licenses to establish seaweed farms within municipal
waters;
6. Issuance of licenses to establish culture pearls within municipal
waters;
7. Issuance of auxiliary invoice to transport fish and fishery products;
and
8. Establishment of closed season in municipal waters.
These functions are covered in the Memorandum of Agreement of 5 April 1994 between the
Department of Agriculture and the Department of Interior and Local Government.
In light then of the principles of decentralization and devolution enshrined in the LGC and the
powers granted to local government units under Section 16 (the General Welfare Clause),
and under Sections 149, 447 (a) (1) (vi), 458 (a) (1) (vi) and 468 (a) (1) (vi), which
unquestionably involve the exercise of police power, the validity of the questioned
Ordinances cannot be doubted.
Parenthetically, we wish to add that these Ordinances find full support under R.A. No. 7611,
otherwise known as the Strategic Environmental Plan (SEP) for Palawan Act, approved on 19
July 1992. This statute adopts a comprehensive framework for the sustainable development
of Palawan compatible with protecting and enhancing the natural resources and endangered
environment of the province, which shall serve to guide the local government of Palawan and
the government agencies concerned in the formulation and implementation of plans,
programs and projects affecting said province.[32]
At this time then, it would be appropriate to determine the relation between the assailed
Ordinances and the aforesaid powers of the Sangguniang Panlungsod of the City of Puerto
Princesa and the Sangguniang Panlalawigan of the Province of Palawan to protect the
environment. To begin, we ascertain the purpose of the Ordinances as set forth in the
statement of purposes or declaration of policies quoted earlier.
It is clear to the Court that both Ordinances have two principal objectives or purposes: (1) to
establish a closed season for the species of fish or aquatic animals covered therein for a
period of five years, and (2) to protect the corals of the marine waters of the City of Puerto
Princesa and the Province of Palawan from further destruction due to illegal fishing activities.
The accomplishment of the first objective is well within the devolved power to enforce
fishery laws in municipal waters, such as P.D. No. 1015, which allows the establishment of
closed seasons. The devolution of such power has been expressly confirmed in the
Memorandum of Agreement of 5 April 1994 between the Department of Agriculture and the
Department of Interior and Local Government.
The realization of the second objective falls within both the general welfare clause of the LGC
and the express mandate thereunder to cities and provinces to protect the environment and
impose appropriate penalties for acts which endanger the environment.[33]
The destruction of the coral reefs results in serious, if not irreparable, ecological imbalance,
for coral reefs are among the natures life-support systems.[34] They collect, retain, and
recycle nutrients for adjacent nearshore areas such as mangroves, seagrass beds, and reef
flats; provide food for marine plants and animals; and serve as a protective shelter for
aquatic organisms.[35] It is said that [e]cologically, the reefs are to the oceans what forests
are to continents: they are shelter and breeding grounds for fish and plant species that will
disappear without them.[36]
The prohibition against catching live fish stems, in part, from the modern phenomenon of
live-fish trade which entails the catching of so-called exotic tropical species of fish not only
for aquarium use in the West, but also for the market for live banquet fish [which] is virtually
insatiable in ever more affluent Asia.[37] These exotic species are coral-dwellers, and
fishermen catch them by diving in shallow water with corraline habitats and squirting sodium
cyanide poison at passing fish directly or onto coral crevices; once affected the fish are
immobilized [merely stunned] and then scooped by hand.[38] The diver then surfaces and
dumps his catch into a submerged net attached to the skiff . Twenty minutes later, the fish
can swim normally. Back on shore, they are placed in holding pens, and within a few weeks,
they expel the cyanide from their system and are ready to be hauled. Then they are placed in
saltwater tanks or packaged in plastic bags filled with seawater for shipment by air freight to
major markets for live food fish.[39] While the fish are meant to survive, the opposite holds
true for their former home as [a]fter the fisherman squirts the cyanide, the first thing to
perish is the reef algae, on which fish feed. Days later, the living coral starts to expire. Soon
the reef loses its function as habitat for the fish, which eat both the algae and invertebrates
that cling to the coral. The reef becomes an underwater graveyard, its skeletal remains
brittle, bleached of all color and vulnerable to erosion from the pounding of the waves.[40] It
has been found that cyanide fishing kills most hard and soft corals within three months of
repeated application.[41]
The nexus then between the activities barred by Ordinance No. 15-92 of the City of Puerto
Princesa and the prohibited acts provided in Ordinance No. 2, Series of 1993 of the Province
of Palawan, on one hand, and the use of sodium cyanide, on the other, is painfully obvious. In
sum, the public purpose and reasonableness of the Ordinances may not then be
controverted.
As to Office Order No. 23, Series of 1993, issued by Acting City Mayor Amado L. Lucero of the
City of Puerto Princesa, we find nothing therein violative of any constitutional or statutory
provision. The Order refers to the implementation of the challenged ordinance and is not the
Mayors Permit.
The dissenting opinion of Mr. Justice Josue N. Bellosillo relies upon the lack of authority on
the part of the Sangguniang Panlungsod of Puerto Princesa to enact Ordinance No. 15, Series
of 1992, on the theory that the subject thereof is within the jurisdiction and responsibility of
the Bureau of Fisheries and Aquatic Resources (BFAR) under P.D. No. 704, otherwise known
as the Fisheries Decree of 1975; and that, in any event, the Ordinance is unenforceable for
lack of approval by the Secretary of the Department of Natural Resources (DNR), likewise in
accordance with P.D. No. 704.
The majority is unable to accommodate this view. The jurisdiction and responsibility of the
BFAR under P. D. no. 704, over the management, conservation, development, protection,
utilization and disposition of all fishery and aquatic resources of the country is not all-
encompassing. First, Section 4 thereof excludes from such jurisdiction and responsibility
municipal waters, which shall be under the municipal or city government concerned, except
insofar as fishpens and seaweed culture in municipal in municipal centers are concerned. This
section provides, however, that all municipal or city ordinances and resolutions affecting
fishing and fisheries and any disposition thereunder shall be submitted to the Secretary of
the Department of Natural Resources for appropriate action and shall have full force and
effect only upon his approval.[42]
Second, it must at once be pointed out that the BFAR is no longer under the Department of
Natural Resources (now Department of Environment and Natural Resources). Executive
Order No. 967 of 30 June 1984 transferred the BFAR from the control and supervision of the
Minister (formerly Secretary) of Natural Resources to the Ministry of Agriculture and Food
(MAF) and converted it into a mere staff agency thereof, integrating its functions with the
regional offices of the MAF.
In Executive Order No. 116 of 30 January 1987, which reorganized the MAF, the BFAR was
retained as an attached agency of the MAF. And under the Administrative Code of 1987,[43]
the BFAR is placed under the Title concerning the Department of Agriculture.[44]
Therefore, it is incorrect to say that the challenged Ordinance of the City of Puerto Princesa is
invalid or unenforceable because it was not approved by the Secretary of the DENR. If at all,
the approval that should be sought would be that of the Secretary of the Department of
Agriculture (not DENR) of municipal ordinances affecting fishing and fisheries in municipal
waters has been dispensed with in view of the following reasons:
(1) Section 534 (Repealing Clause) of the LGC expressly repeals or amends Section 16
and 29 of P.D. No. 704[45] insofar that they are inconsistent with the provisions of the LGC.
(2) As discussed earlier, under the general welfare clause of the LGC, local government
units have the power, inter alia, to enact ordinances to enhance the right of the people to a
balanced ecology. It likewise specifically vests municipalities with the power to grant fishery
privileges in municipal waters, and impose rentals, fees or charges therefor; to penalize, by
appropriate ordinances, the use of explosives, noxious or poisonous substances, electricity,
muro-ami, and other deleterious methods of fishing; and to prosecute other methods of
fishing; and to prosecute any violation of the provisions of applicable fishing laws.[46] Finally,
it imposes upon the sangguniang bayan, the sangguniang panlungsod, and the sangguniang
panlalawigan the duty to enact ordinances to [p]rotect the environment and impose
appropriate penalties for acts which endanger the environment such as dynamite fishing and
other forms of destructive fishing and such other activities which result in pollution,
acceleration of eutrophication of rivers and lakes or of ecological imbalance.[47]
In closing, we commend the Sangguniang Panlungsod of the City of Puerto Princesa and
Sangguniang Panlalawigan of the Province of Palawan for exercising the requisite political
will to enact urgently needed legislation to protect and enhance the marine environment,
thereby sharing in the herculean task of arresting the tide of ecological destruction. We hope
that other local government units shall now be roused from their lethargy and adopt a more
vigilant stand in the battle against the decimation of our legacy to future generations. At this
time, the repercussions of any further delay in their response may prove disastrous, if not, SECRETARY OF BUDGET AND MANAGEMENT  
irreversible. EMILIA T. BONCODIN,  
Respondents.  
WHEREFORE, the instant petition is DISMISSED for lack of merit and the temporary  
restraining order issued on 11 November 1993 is LIFTED.  
 
No pronouncement as to costs.  
 
SO ORDERED.  
 
 
   
   
EN BANC Promulgated:
   
   
TONDO MEDICAL CENTER EMPLOYEES   G.R. No. 167324 July 17, 2007
ASSOCIATION, RESEARCH INSTITUTE FOR   x--------------------------------------------------x
TROPICAL MEDICINE EMPLOYEES    
ASSOCIATION, NATIONAL ORTHOPEDIC Present:  
WORKERS UNION, DR. JOSE R. REYES   DECISION
MEMORIAL HOSPITAL EMPLOYEES UNION, PUNO, C.J.,  
SAN LAZARO HOSPITAL EMPLOYEES QUISUMBING,  
ASSOCIATION, ALLIANCE OF HEALTH YNARES-SANTIAGO, CHICO-NAZARIO, J.:
WORKERS, INC., HEALTH ALLIANCE FOR SANDOVAL-GUTIERREZ,  
DEMOCRACY, COUNCIL FOR HEALTH CARPIO,  
DEVELOPMENT, NETWORK OPPOSED TO AUSTRIA-MARTINEZ, This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court,
PRIVATIZATION, COMMUNITY MEDICINE CORONA, assailing the Decision,[1] promulgated by the Court of Appeals on 26 November 2004,
DEVELOPMENT FOUNDATION INC., CARPIO MORALES, denying a petition for the nullification of the Health Sector Reform Agenda (HSRA) Philippines
PHILIPPINE SOCIETY OF SANITARY AZCUNA, 1999-2004 of the Department of Health (DOH); and Executive Order No. 102, Redirecting the
ENGINEERS INC., KILUSANG MAYO UNO, TINGA, Functions and Operations of the Department of Health, which was issued by then President
GABRIELA, KILUSANG MAGBUBUKID NG CHICO-NAZARIO, Joseph Ejercito Estrada on 24 May 1999.
PILIPINAS, KALIPUNAN NG DAMAYAN NG GARCIA, Prior hereto, petitioners originally filed a Petition for Certiorari, Prohibition and
MGA MARALITA, ELSA O. GUEVARRA, VELASCO, JR., and Mandamus under Rule 65 of the 1997 Revised Rules of Civil Procedure before the Supreme
ARCADIO B. GONZALES, JOSE G. GALANG, NACHURA, JJ. Court on 15 August 2001. However, the Supreme Court, in a Resolution dated 29 August
DOMINGO P. MANAY, TITO P. ESTEVES,   2001, referred the petition to the Court of Appeals for appropriate action.
EDUARDO P. GALOPE, REMEDIOS M.    
YSMAEL, ALFREDO BACUATA, EDGARDO J.   HEALTH SECTOR REFORM AGENDA (HSRA)
DAMICOG, REMEDIOS M. MALTU AND    
REMEGIO S. MERCADO,   In 1999, the DOH launched the HSRA, a reform agenda developed by the HSRA
Petitioners,   Technical Working Group after a series of workshops and analyses with inputs from several
    consultants, program managers and technical staff possessing the adequate expertise and
- versus -   experience in the health sector. It provided for five general areas of reform: (1) to provide
    fiscal autonomy to government hospitals; (2) secure funding for priority public health
    programs; (3) promote the development of local health systems and ensure its effective
THE COURT OF APPEALS, EXECUTIVE   performance; (4) strengthen the capacities of health regulatory agencies; and (5) expand the
SECRETARY ALBERTO G. ROMULO,   coverage of the National Health Insurance Program (NHIP).[2]
SECRETARY OF HEALTH MANUEL M. DAYRIT,    
 Petitioners questioned the first reform agenda involving the fiscal autonomy of
government hospitals, particularly the collection of socialized user fees and the corporate
restructuring of government hospitals. The said provision under the HSRA reads:
Provide fiscal autonomy to government hospitals. Government hospitals
must be allowed to collect socialized user fees so they can reduce the
dependence on direct subsidies from the government. Their critical
capacities like diagnostic equipment, laboratory facilities and medical
staff capability must be upgraded to effectively exercise fiscal autonomy.
Such investment must be cognizant of complimentary capacity provided
by public-private networks. Moreover such capacities will allow
government hospitals to supplement priority public health programs.
Appropriate institutional arrangement must be introduced such as
allowing them autonomy towards converting them into government
corporations without compromising their social responsibilities. As a
result, government hospitals are expected to be more competitive and
responsive to health needs.
 
Petitioners also assailed the issuance of a draft administrative order issued by the DOH,
dated 5 January 2001, entitled Guidelines and Procedure in the Implementation of the
Corporate Restructuring of Selected DOH Hospitals to Achieve Fiscal Autonomy, and
Managerial Flexibility to Start by January 2001;[3] and Administrative Order No. 172 of the
DOH, entitled Policies and Guidelines on the Private Practice of Medical and Paramedical
Professionals in Government Health Facilities,[4] dated 9 January 2001, for imposing an
added burden to indigent Filipinos, who cannot afford to pay for medicine and medical
services.[5]
 
Petitioners alleged that the implementation of the aforementioned reforms had
resulted in making free medicine and free medical services inaccessible to economically
disadvantaged Filipinos. Thus, they alleged that the HSRA is void for being in violation of the
following constitutional provisions:[6]
 
ART. III, SEC. 1. No person shall be deprived of life, liberty or property
without due process of law, nor shall any person be denied the equal
protection of the law.
 
ART II, SEC. 5. The maintenance of peace and order, the protection of life,
liberty, and property, and the promotion of the general welfare are
essential for the enjoyment of all the people of the blessings of
democracy.
ART II, SEC. 9. The State shall promote a just and dynamic social order
that will ensure the prosperity and independence of the nation and free
the people from poverty through policies that provide adequate social
services, promote full employment, a rising standard of living and an
improved quality of life for all.
 
ART II, SEC. 10. The State shall promote social justice in all phases of
national development.
 
ART II, SEC. 11. The State values the dignity of every human person and
guarantees full respect for human rights.
ART II, SEC. 13. The State recognizes the vital role of the youth in nation-
building and shall promote and protect their physical, moral, spiritual,
intellectual and social well-being x x x.
 
ART II, SEC. 18. The State affirms labor as a primary social economic force.
It shall protect the rights of workers and promote their welfare.
 
ART XV, SEC. 1. The State recognizes the Filipino family as the foundation
of the nation. Accordingly, it shall strengthen its solidarity and actively
promote its total development.
 
ART XV, SEC. 3. The State shall defend:
 
xxxx
(2) the right of children to assistance, including proper care and nutrition,
and special protection from all forms of neglect, abuse, cruelty,
exploitation and other conditions prejudicial to their development.
 
xxxx
 
ART XIII, SEC. 14. The State shall protect working women by providing
safe and healthful working conditions, taking into account their maternal
functions, and such facilities and opportunities that will enhance their
welfare and enable them to realize their full potential in the service of
the nation.
 
ART II, SEC. 15. The State shall protect and promote the right to health of
the people and instill health consciousness among them.
 
ART XIII, SEC. 11. The State shall adopt an integrated and comprehensive
approach to health development which shall endeavor to make essential
goods, health and other social services available to all people at
affordable cost. There shall be priority for the needs of the
underprivileged sick, elderly, disabled, women, and children. The State
shall endeavor to provide free medical care to paupers.
 
 
EXECUTIVE ORDER NO. 102
 
On 24 May 1999, then President Joseph Ejercito Estrada issued Executive Order No.
102, entitled Redirecting the Functions and Operations of the Department of Health, which
provided for the changes in the roles, functions, and organizational processes of the DOH.
Under the assailed executive order, the DOH refocused its mandate from being the sole
provider of health services to being a provider of specific health services and technical
assistance, as a result of the devolution of basic services to local government units. The
provisions for the streamlining of the DOH and the deployment of DOH personnel to regional
offices and hospitals read:
 
Sec. 4. Preparation of a Rationalization and Streamlining Plan. In view of
the functional and operational redirection in the DOH, and to effect
efficiency and effectiveness in its activities, the Department shall prepare
a Rationalization and Streamlining Plan (RSP) which shall be the basis of
the intended changes. The RSP shall contain the following:
 
a)                  the specific shift in policy directions, functions, programs and
activities/strategies;
b)                  the structural and organizational shift, stating the specific
functions and activities by organizational unit and the
relationship of each units;
c)                  the staffing shift, highlighting and itemizing the existing filled
and unfilled positions; and
d)                  the resource allocation shift, specifying the effects of the
streamline set-up on the agency budgetary allocation and
indicating where possible, savings have been generated.
 
The RSP shall [be] submitted to the Department of Budget and
Management for approval before the corresponding shifts shall be
affected (sic) by the DOH Secretary.
 
Sec. 5. Redeployment of Personnel. The redeployment of officials and
other personnel on the basis of the approved RSP shall not result in
diminution in rank and compensation of existing personnel. It shall take
into account all pertinent Civil Service laws and rules.
Section 6. Funding. The financial resources needed to implement the
Rationalization and Streamlining Plan shall be taken from funds available
in the DOH, provided that the total requirements for the implementation
of the revised staffing pattern shall not exceed available funds for
Personnel Services.
Section 7. Separation Benefits. Personnel who opt to be separated from
the service as a consequence of the implementation of this Executive
Order shall be entitled to the benefits under existing laws. In the case of
those who are not covered by existing laws, they shall be entitled to
separation benefits equivalent to one month basic salary for every year
of service or proportionate share thereof in addition to the terminal fee
benefits to which he/she is entitled under existing laws.
Executive Order No. 102 was enacted pursuant to Section 17 of the Local
Government Code (Republic Act No. 7160), which provided for the devolution to the local
government units of basic services and facilities, as well as specific health-related functions
and responsibilities.[7]
 
Petitioners contended that a law, such as Executive Order No. 102, which effects
the reorganization of the DOH, should be enacted by Congress in the exercise of its legislative
function. They argued that Executive Order No. 102 is void, having been issued in excess of
the Presidents authority.[8]
Moreover, petitioners averred that the implementation of the Rationalization and
Streamlining Plan (RSP) was not in accordance with law. The RSP was allegedly implemented
even before the Department of Budget and Management (DBM) approved it. They also
maintained that the Office of the President should have issued an administrative order to
carry out the streamlining, but that it failed to do so.[9]
 
Furthermore, petitioners Elsa O. Guevarra, Arcadio B. Gonzales, Jose G. Galang,
Domingo P. Manay, Eduardo P. Galope, Remedios M. Ysmael, Alfredo U. Bacuata and
Edgardo J. Damicog, all DOH employees, assailed the validity of Executive Order No. 102 on
the ground that they were likely to lose their jobs, and that some of them were suffering
from the inconvenience of having to travel a longer distance to get to their new place of
work, while other DOH employees had to relocate to far-flung areas.[10]
 
Petitioners also pointed out several errors in the implementation of the RSP.
Certain employees allegedly suffered diminution of compensation,[11] while others were
supposedly assigned to positions for which they were neither qualified nor suited.[12] In
addition, new employees were purportedly hired by the DOH and appointed to positions for
which they were not qualified, despite the fact that the objective of the ongoing streamlining
was to cut back on costs.[13] It was also averred that DOH employees were deployed or
transferred even during the three-month period before the national and local elections in
May 2001,[14] in violation of Section 2 of the Republic Act No. 7305, also known as Magna
Carta for Public Health Workers.[15] Petitioners, however, failed to identify the DOH
employees referred to above, much less include them as parties to the petition.
The Court of Appeals denied the petition due to a number of procedural defects,
which proved fatal: 1) Petitioners failed to show capacity or authority to sign the certification
of non-forum shopping and the verification; 2) Petitioners failed to show any particularized
interest for bringing the suit, nor any direct or personal injury sustained or were in the
immediate danger of sustaining; 3) the Petition, brought before the Supreme Court on 15
August 1999, was filed out of time, or beyond 60 days from the time the reorganization
methods were implemented in 2000; and 4) certiorari, Prohibition and Mandamus will not lie
where the President, in issuing the assailed Executive Order, was not acting as a tribunal,
board or officer exercising judicial or quasi-judicial functions.
In resolving the substantial issues of the case, the Court of Appeals ruled that the
HSRA cannot be declared void for violating Sections 5, 9, 10, 11, 13, 15, 18 of Article II;
Section 1 of Article III; Sections 11 and 14 of Article XIII; and Sections 1 and 3(2) of Article XV,
all of the 1987 Constitution, which directly or indirectly pertain to the duty of the State to
protect and promote the peoples right to health and well-being. It reasoned that the
aforementioned provisions of the Constitution are not self-executing; they are not judicially
enforceable constitutional rights and can only provide guidelines for legislation.
 Moreover, the Court of Appeals held that the petitioners assertion that Executive
Order No. 102 is detrimental to the health of the people cannot be made a justiciable issue.
The question of whether the HSRA will bring about the development or disintegration of the
health sector is within the realm of the political department.
 
Furthermore, the Court of Appeals decreed that the President was empowered to
issue Executive Order No. 102, in accordance with Section 17 Article VII of the 1987
Constitution. It also declared that the DOH did not implement Executive Order No. 102 in bad
faith or with grave abuse of discretion, as alleged by the petitioners, as the DOH issued
Department Circular No. 275-C, Series of 2000, which created the different committees
tasked with the implementation of the RSP, only after both the DBM and Presidential
Committee on Effective Governance (PCEG) approved the RSP on 8 July 2000 and 17 July
2000, respectively.
Petitioners filed with the Court of Appeals a Motion for Reconsideration of the
Decision rendered on 26 November 2004, but the same was denied in a Resolution dated 7
March 2005.
 
Hence, the present petition, where the following issues are raised:
 
I.
THE HONORABLE COURT OF APPEALS COMMITTED MANIFEST ERROR IN
RULING THAT ANY QUESTION ON THE WISDOM AND EFFICACY OF THE
HEALTH SECTOR REFORM AGENDA IS NOT A JUSTICIABLE CONTROVERSY
AND THAT THE CONSTITUTIONAL PROVISIONS PROTECTING THE HEALTH
OF THE FILIPINO PEOPLE ARE NOT JUDICIALLY ENFORCEABLE;
 
II.
 
THE HONORABLE COURT OF APPEALS COMMITTED MANIFEST ERROR IN
RULING THAT PETITIONERS COMPLAINT THAT EXECUTIVE ORDER NO. 102
IS DETRIMENTAL TO THE FILIPINO IS LIKEWISE NOT A JUSTICIABLE
CONTROVERSY AND THAT THE PRESIDENT HAS THE AUTHORITY TO ISSUE
SAID ORDER; AND
III.
THE HONORABLE COURT OF APPEALS COMMITTED MANIFEST ERROR IN
UPHOLDING TECHNICALITIES OVER AND ABOVE THE ISSUES OF
TRANSCENDENTAL IMPORTANCE RAISED IN THE PETITION BELOW. [16]
 
 
The Court finds the present petition to be without merit.
 
 
Petitioners allege that the HSRA should be declared void, since it runs counter to
the aspiration and ideals of the Filipino people as embodied in the Constitution.[17] They
claim that the HSRAs policies of fiscal autonomy, income generation, and revenue
enhancement violate Sections 5, 9, 10, 11, 13, 15 and 18 of Article II, Section 1 of Article III;
Sections 11 and 14 of Article XIII; and Sections 1 and 3 of Article XV of the 1987 Constitution.
Such policies allegedly resulted in making inaccessible free medicine and free medical
services. This contention is unfounded.
 
As a general rule, the provisions of the Constitution are considered self-executing,
and do not require future legislation for their enforcement. For if they are not treated as self-
executing, the mandate of the fundamental law can be easily nullified by the inaction of
Congress.[18] However, some provisions have already been categorically declared by this
Court as non self-executing.
 
In Tanada v. Angara,[19] the Court specifically set apart the sections found under
Article II of the 1987 Constitution as non self-executing and ruled that such broad principles
need legislative enactments before they can be implemented:
By its very title, Article II of the Constitution is a declaration of
principles and state policies. x x x. These principles in Article II are not
intended to be self-executing principles ready for enforcement through
the courts. They are used by the judiciary as aids or as guides in the
exercise of its power of judicial review, and by the legislature in its
enactment of laws.
 
In Basco v. Philippine Amusement and Gaming Corporation,[20] this Court declared
that Sections 11, 12, and 13 of Article II; Section 13 of Article XIII; and Section 2 of Article XIV
of the 1987 Constitution are not self-executing provisions. In Tolentino v. Secretary of
Finance,[21] the Court referred to Section 1 of Article XIII and Section 2 of Article XIV of the
Constitution as moral incentives to legislation, not as judicially enforceable rights. These
provisions, which merely lay down a general principle, are distinguished from other
constitutional provisions as non self-executing and, therefore, cannot give rise to a cause of
action in the courts; they do not embody judicially enforceable constitutional rights.[22]
 
Some of the constitutional provisions invoked in the present case were taken from
Article II of the Constitution -- specifically, Sections 5, 9, 10, 11, 13, 15 and 18 -- the
provisions of which the Court categorically ruled to be non self-executing in the aforecited
case of Taada v. Angara.[23]
Moreover, the records are devoid of any explanation of how the HSRA supposedly
violated the equal protection and due process clauses that are embodied in Section 1 of
Article III of the Constitution. There were no allegations of discrimination or of the lack of due
process in connection with the HSRA. Since they failed to substantiate how these
constitutional guarantees were breached, petitioners are unsuccessful in establishing the
relevance of this provision to the petition, and consequently, in annulling the HSRA.
 
In the remaining provisions, Sections 11 and 14 of Article XIII and Sections 1 and 3
of Article XV, the State accords recognition to the protection of working women and the
provision for safe and healthful working conditions; to the adoption of an integrated and
comprehensive approach to health; to the Filipino family; and to the right of children to
assistance and special protection, including proper care and nutrition. Like the provisions
that were declared as non self-executory in the cases of Basco v. Philippine Amusement and
Gaming Corporation[24] and Tolentino v. Secretary of Finance,[25] they are mere statements
of principles and policies. As such, they are mere directives addressed to the executive and
the legislative departments. If unheeded, the remedy will not lie with the courts; but rather,
the electorates displeasure may be manifested in their votes.
 
The rationale for this is given by Justice Dante Tinga in his Separate Opinion in the
case of Agabon v. National Labor Relations Commission[26]:
 
x x x However, to declare that the constitutional provisions are enough to
guarantee the full exercise of the rights embodied therein, and the
realization of the ideals therein expressed, would be impractical, if not
unrealistic. The espousal of such view presents the dangerous tendency
of being overbroad and exaggerated. x x x Subsequent legislation is still
needed to define the parameters of these guaranteed rights. x x x
Without specific and pertinent legislation, judicial bodies will be at a loss,
formulating their own conclusion to approximate at least the aims of the
Constitution.
 
 
The HSRA cannot be nullified based solely on petitioners bare allegations that it
violates the general principles expressed in the non self-executing provisions they cite herein.
There are two reasons for denying a cause of action to an alleged infringement of broad
constitutional principles: basic considerations of due process and the limitations of judicial
power.[27]
 
Petitioners also claim that Executive Order No. 102 is void on the ground that it was
issued by the President in excess of his authority. They maintain that the structural and
functional reorganization of the DOH is an exercise of legislative functions, which the
President usurped when he issued Executive Order No. 102.[28] This line of argument is
without basis.
 
This Court has already ruled in a number of cases that the President may, by
executive or administrative order, direct the reorganization of government entities under the
Executive Department.[29] This is also sanctioned under the Constitution, as well as other
statutes.
Section 17, Article VII of the 1987 Constitution, clearly states: [T]he president shall
have control of all executive departments, bureaus and offices. Section 31, Book III, Chapter
10 of Executive Order No. 292, also known as the Administrative Code of 1987 reads:
 
SEC. 31. Continuing Authority of the President to Reorganize his
Office - The President, subject to the policy in the Executive Office and in
order to achieve simplicity, economy and efficiency, shall have continuing
authority to reorganize the administrative structure of the Office of the
President. For this purpose, he may take any of the following actions:
 
(1)               Restructure the internal organization of the Office of the
President Proper, including the immediate offices, the Presidential
Special Assistants/Advisers System and the Common Staff Support
System, by abolishing consolidating or merging units thereof or
transferring functions from one unit to another;
 
(2)               Transfer any function under the Office of the President to any
other Department or Agency as well as transfer functions to the Office of
the President from other Departments or Agencies; and
 
(3)               Transfer any agency under the Office of the President to any
other department or agency as well as transfer agencies to the Office of
the President from other Departments or agencies.
 
 
In Domingo v. Zamora,[30] this Court explained the rationale behind the Presidents
continuing authority under the Administrative Code to reorganize the administrative
structure of the Office of the President. The law grants the President the power to reorganize
the Office of the President in recognition of the recurring need of every President to
reorganize his or her office to achieve simplicity, economy and efficiency. To remain effective
and efficient, it must be capable of being shaped and reshaped by the President in the
manner the Chief Executive deems fit to carry out presidential directives and policies.
 
The Administrative Code provides that the Office of the President consists of the
Office of the President Proper and the agencies under it.[31] The agencies under the Office of
the President are identified in Section 23, Chapter 8, Title II of the Administrative Code:
 
Sec. 23. The Agencies under the Office of the President.The
agencies under the Office of the President refer to those offices placed
under the chairmanship of the President, those under the supervision
and control of the President, those under the administrative supervision
of the Office of the President, those attached to it for policy and program
coordination, and those that are not placed by law or order creating
them under any specific department. (Emphasis provided.)
 
 
Section 2(4) of the Introductory Provisions of the Administrative Code defines the term
agency of the government as follows:
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.
 
 
Furthermore, the DOH is among the cabinet-level departments enumerated under Book IV of
the Administrative Code, mainly tasked with the functional distribution of the work of the
President.[32] Indubitably, the DOH is an agency which is under the supervision and control
of the President and, thus, part of the Office of the President. Consequently, Section 31, Book
III, Chapter 10 of the Administrative Code, granting the President the continued authority to
reorganize the Office of the President, extends to the DOH.
 
 The power of the President to reorganize the executive department is likewise
recognized in general appropriations laws. As early as 1993, Sections 48 and 62 of Republic
Act No. 7645, the General Appropriations Act for Fiscal Year 1993, already contained a
provision stating that:
 
Sec. 48. Scaling Down and Phase Out of Activities Within the
Executive Branch.The heads of departments, bureaus and offices and
agencies are hereby directed to identify their respective activities which
are no longer essential in the delivery of public services and which may
be scaled down, phased out, or abolished, subject to civil service rules
and regulations. x x x. Actual scaling down, phasing out, or abolition of
activities shall be effected pursuant to Circulars or Orders issued for the
purpose by the Office of the President. (Emphasis provided.)
Sec. 62. Unauthorized Organizational Changes. Unless
otherwise created by law or directed by the President of the Philippines,
no organizational unit or changes in key positions in any department or
agency shall be authorized in their respective organizational structures
and be funded form appropriations by this Act.
 
Again, in the year when Executive Order No. 102 was issued, The General Appropriations Act
of Fiscal Year 1999 (Republic Act No. 8745) conceded to the President the power to make any
changes in any of the key positions and organizational units in the executive department
thus:
 
Sec. 77. Organized Changes. Unless otherwise provided by law
or directed by the President of the Philippines, no changes in key
positions or organizational units in any department or agency shall be
authorized in their respective organizational structures and funded from
appropriations provided by this Act.
 
 
Clearly, Executive Order No. 102 is well within the constitutional power of the
President to issue. The President did not usurp any legislative prerogative in issuing Executive
Order No. 102. It is an exercise of the Presidents constitutional power of control over the
executive department, supported by the provisions of the Administrative Code, recognized
by other statutes, and consistently affirmed by this Court.
 
Petitioners also pointed out several flaws in the implementation of Executive Order
No. 102, particularly the RSP. However, these contentions are without merit and are
insufficient to invalidate the executive order.
 
The RSP was allegedly implemented even before the DBM approved it. The facts
show otherwise. It was only after the DBM approved the Notice of Organization, Staffing and
Compensation Action on 8 July 2000,[33] and after the Presidential Committee on Effective
Governance (PCEG) issued on 17 July 2000 Memorandum Circular No. 62,[34] approving the
RSP, that then DOH Secretary Alberto G. Romualdez issued on 28 July 2000 Department
Circular No. 275-C, Series of 2000,[35] creating the different committees to implement the
RSP.
 
Petitioners also maintain that the Office of the President should have issued an
administrative order to carry out the streamlining, but that it failed to do so. Such objection
cannot be given any weight considering that the acts of the DOH Secretary, as an alter ego of
the President, are presumed to be the acts of the President. The members of the Cabinet are
subject at all times to the disposition of the President since they are merely his alter egos.
[36] Thus, their acts, performed and promulgated in the regular course of business, are,
unless disapproved by the President, presumptively acts of the President.[37] Significantly,
the acts of the DOH Secretary were clearly authorized by the President, who, thru the PCEG,
issued the aforementioned Memorandum Circular No. 62, sanctioning the implementation of
the RSP.
Petitioners Elsa Odonzo Guevarra, Arcadio B. Gonzales, Jose G. Galang, Domingo P.
Manay, Eduardo P. Galope, Remedios M. Ysmael, Alfredo U. Bacuata, and Edgardo Damicog,
all DOH employees, assailed the validity of Executive Order No. 102 on the ground that they
were likely to lose their jobs, and that some of them were suffering from the inconvenience
of having to travel a longer distance to get to their new place of work, while other DOH
employees had to relocate to far-flung areas.
In several cases, this Court regarded reorganizations of government units or
departments as valid, for so long as they are pursued in good faiththat is, for the purpose of
economy or to make bureaucracy more efficient.[38] On the other hand, if the reorganization
is done for the purpose of defeating security of tenure or for ill-motivated political purposes,
any abolition of position would be invalid. None of these circumstances are applicable since
none of the petitioners were removed from public service, nor did they identify any action
taken by the DOH that would unquestionably result in their dismissal. The reorganization that
was pursued in the present case was made in good faith. The RSP was clearly designed to
improve the efficiency of the department and to implement the provisions of the Local
Government Code on the devolution of health services to local governments. While this
Court recognizes the inconvenience suffered by public servants in their deployment to
distant areas, the executive departments finding of a need to make health services available
to these areas and to make delivery of health services more efficient and more compelling is
far from being unreasonable or arbitrary, a determination which is well within its authority.
In all, this Court finds petitioners contentions to be insufficient to invalidate Executive Order
No. 102.
 
Without identifying the DOH employees concerned, much less including them as
parties to the petition, petitioners went on identifying several errors in the implementation
of Executive Order No. 102. First, they alleged that unidentified DOH employees suffered
from a diminution of compensation by virtue of the provision on Salaries and Benefits found
in Department Circular No. 312, Series of 2000, issued on 23 October 2000, which reads:
 
2. Any employee who was matched to a position with lower salary grade
(SG) shall not suffer a reduction in salary except where his/her current
salary is higher than the maximum step of the SG of the new position, in
which case he/she shall be paid the salary corresponding to the
 maximum step of the SG of the new position. RATA shall no longer be traceable to the challenged action; and the injury is likely to be redressed by a favorable
received, if employee was matched to a Non-Division Chief Position. action. This case likewise stressed that the rule on constitutional questions which are of
  transcendental importance cannot be invoked where a partys substantive claim is without
  merit. Thus, a partys standing is determined by the substantive merit of his case or a
Incidentally, the petition shows that none of the petitioners, who are working in the DOH, preliminary estimate thereof. After a careful scrutiny of the petitioners substantive claims,
were entitled to receive RATA at the time the petition was filed. Nor was it alleged that they this Court finds that the petitioners miserably failed to show any merit to their claims.
suffered any diminution of compensation. Secondly, it was claimed that certain unnamed  
DOH employees were matched with unidentified positions for which they were supposedly IN VIEW OF THE FOREGOING, the instant Petition is DENIED. This Court AFFIRMS
neither qualified nor suited. New employees, again unnamed and not included as parties, the assailed Decision of the Court of Appeals, promulgated on 26 November 2004, declaring
were hired by the DOH and appointed to unidentified positions for which they were both the HSRA and Executive Order No. 102 as valid. No costs.
purportedly not qualified, despite the fact that the objective of the ongoing streamlining was  
to cut back on costs. Lastly, unspecified DOH employees were deployed or transferred during SO ORDERED.
the three-month period before the national and local elections in May 2001, in violation of  
Section 2 of the Republic Act No. 7305, also known as Magna Carta for Public Health SPECIAL FIRST DIVISION
Workers.  
   
Petitioners allegations are too general and unsubstantiated by the records for the PHILIPPINE HEALTH CARE G.R. No. 167330
Court to pass upon. The persons involved are not identified, details of their appointments PROVIDERS, INC.,
and transfers such as position, salary grade, and the date they were appointed - are not Petitioner, Present:
given; and the circumstances which attended the alleged violations are not specified.  
  PUNO, C.J., Chairperson,
Even granting that these alleged errors were adequately proven by the petitioners, CORONA,
they would still not invalidate Executive Order No. 102. Any serious legal errors in laying -versus- CHICO-NAZARIO,*
down the compensation of the DOH employees concerned can only invalidate the pertinent LEONARDO-DE CASTRO and
provisions of Department Circular No. 312, Series of 2000. Likewise, any questionable BERSAMIN, JJ.
appointments or transfers are properly addressed by an appeal process provided under  
Administrative Order No. 94, series of 2000;[39] and if the appeal is meritorious, such COMMISSIONER OF
appointment or transfer may be invalidated. The validity of Executive Order No. 102 would, INTERNAL REVENUE,
nevertheless, remain unaffected. Settled is the rule that courts are not at liberty to declare Respondent. Promulgated:
statutes invalid, although they may be abused or misabused, and may afford an opportunity
for abuse in the manner of application. The validity of a statute or ordinance is to be September 18, 2009
determined from its general purpose and its efficiency to accomplish the end desired, not  
from its effects in a particular case.[40] x - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
   
In a number of cases,[41] the Court upheld the standing of citizens who filed suits, RESOLUTION
wherein the transcendental importance of the constitutional question justified the granting CORONA, J.:
of relief. In spite of these rulings, the Court, in Domingo v. Carague,[42] dismissed the  
petition when petitioners therein failed to show any present substantial interest. It  
demonstrated how even in the cases in which the Court declared that the matter of the case ARTICLE II
was of transcendental importance, the petitioners must be able to assert substantial interest. Declaration of Principles and State Policies
Present substantial interest, which will enable a party to question the validity of the law,  
requires that a party sustained or will sustain direct injury as a result of its enforcement.[43] Section 15. The State shall protect and promote the
It is distinguished from a mere expectancy or future, contingent, subordinate, or right to health of the people and instill health consciousness among
inconsequential interest.[44] them.
   
In the same way, the Court, in Telecommunications & Broadcast Attorneys of the
Philippines, Inc. v. Comelec,[45] ruled that a citizen is allowed to raise a constitutional *
question only when he can show that he has personally suffered some actual or threatened
injury as a result of the allegedly illegal conduct of the government; the injury is fairly 
 ARTICLE XIII
Social Justice and Human Rights
 
Section 11. The State shall adopt an integrated and
comprehensive approach to health development which shall endeavor to
make essential goods, health and other social services available to all the
people at affordable cost. There shall be priority for the needs of the
underprivileged sick, elderly, disabled, women, and children. The State
shall endeavor to provide free medical care to paupers.[1]
For resolution are a motion for reconsideration and supplemental motion for
reconsideration dated July 10, 2008 and July 14, 2008, respectively, filed by petitioner
Philippine Health Care Providers, Inc.[2]
 
We recall the facts of this case, as follows:
 
Petitioner is a domestic corporation whose primary purpose is
[t]o establish, maintain, conduct and operate a prepaid group practice
health care delivery system or a health maintenance organization to take
care of the sick and disabled persons enrolled in the health care plan and
to provide for the administrative, legal, and financial responsibilities of
the organization. Individuals enrolled in its health care programs pay an
annual membership fee and are entitled to various preventive, diagnostic
and curative medical services provided by its duly licensed physicians,
specialists and other professional technical staff participating in the group
practice health delivery system at a hospital or clinic owned, operated or
accredited by it.
 
xxx xxx
xxx
On January 27, 2000, respondent Commissioner of Internal
Revenue [CIR] sent petitioner a formal demand letter and the
corresponding assessment notices demanding the payment of deficiency
taxes, including surcharges and interest, for the taxable years 1996 and
1997 in the total amount of P224,702,641.18. xxxx
 
The deficiency [documentary stamp tax (DST)] assessment was
imposed on petitioners health care agreement with the members of its
health care program pursuant to Section 185 of the 1997 Tax Code xxxx
 
xxx xxx
xxx
 
Petitioner protested the assessment in a letter dated February
23, 2000. As respondent did not act on the protest, petitioner filed a
petition for review in the Court of Tax Appeals (CTA) seeking the
cancellation of the deficiency VAT and DST assessments.
 
 
 
On April 5, 2002, the CTA rendered a decision, the dispositive
portion of which read:
 
WHEREFORE, in view of the foregoing, the
instant Petition for Review is PARTIALLY GRANTED.
Petitioner is hereby ORDERED to PAY the deficiency
VAT amounting to P22,054,831.75 inclusive of 25%
surcharge plus 20% interest from January 20, 1997
until fully paid for the 1996 VAT deficiency and
P31,094,163.87 inclusive of 25% surcharge plus 20%
interest from January 20, 1998 until fully paid for the
1997 VAT deficiency. Accordingly, VAT Ruling No.
[231]-88 is declared void and without force and
effect. The 1996 and 1997 deficiency DST assessment
against petitioner is hereby CANCELLED AND SET
ASIDE. Respondent is ORDERED to DESIST from
collecting the said DST deficiency tax.
 
SO ORDERED.
 
Respondent appealed the CTA decision to the [Court of
Appeals (CA)] insofar as it cancelled the DST assessment. He claimed that
petitioners health care agreement was a contract of insurance subject to
DST under Section 185 of the 1997 Tax Code.
 
On August 16, 2004, the CA rendered its decision. It held that
petitioners health care agreement was in the nature of a non-life
insurance contract subject to DST.
WHEREFORE, the petition for review is
GRANTED. The Decision of the Court of Tax Appeals,
insofar as it cancelled and set aside the 1996 and
1997 deficiency documentary stamp tax assessment
and ordered petitioner to desist from collecting the
same is REVERSED and SET ASIDE.
 
Respondent is ordered to pay the amounts
of P55,746,352.19 and P68,450,258.73 as deficiency
Documentary Stamp Tax for 1996 and 1997,
respectively, plus 25% surcharge for late payment and
20% interest per annum from January 27, 2000,
pursuant to Sections 248 and 249 of the Tax Code,
until the same shall have been fully paid.
 
SO ORDERED.
 
Petitioner moved for reconsideration but the CA denied it.
Hence, petitioner filed this case.
  
xxx xxx
xxx
 
In a decision dated June 12, 2008, the Court denied the petition and affirmed the
CAs decision. We held that petitioners health care agreement during the pertinent period
was in the nature of non-life insurance which is a contract of indemnity, citing Blue Cross
Healthcare, Inc. v. Olivares[3] and Philamcare Health Systems, Inc. v. CA.[4] We also ruled
that petitioners contention that it is a health maintenance organization (HMO) and not an
insurance company is irrelevant because contracts between companies like petitioner and
the beneficiaries under their plans are treated as insurance contracts. Moreover, DST is not a
tax on the business transacted but an excise on the privilege, opportunity or facility offered
at exchanges for the transaction of the business.
Unable to accept our verdict, petitioner filed the present motion for
reconsideration and supplemental motion for reconsideration, asserting the following
arguments:
(a) The DST under Section 185 of the National Internal Revenue of
1997 is imposed only on a company engaged in the business of
fidelity bonds and other insurance policies. Petitioner, as an
HMO, is a service provider, not an insurance company.
 
(b) The Court, in dismissing the appeal in CIR v. Philippine National
Bank, affirmed in effect the CAs disposition that health care
services are not in the nature of an insurance business.
 
(c) Section 185 should be strictly construed.
 
(d) Legislative intent to exclude health care agreements from items
subject to DST is clear, especially in the light of the
amendments made in the DST law in 2002.
 
(e) Assuming arguendo that petitioners agreements are contracts
of indemnity, they are not those contemplated under Section
185.
 
(f) Assuming arguendo that petitioners agreements are akin to
health insurance, health insurance is not covered by Section
185.
 
(g) The agreements do not fall under the phrase other branch of
insurance mentioned in Section 185.
 
(h) The June 12, 2008 decision should only apply prospectively.
 
(i) Petitioner availed of the tax amnesty benefits under RA[5] 9480
for the taxable year 2005 and all prior years. Therefore, the
questioned assessments on the DST are now rendered moot
and academic.[6]
Oral arguments were held in Baguio City on April 22, 2009. The parties submitted
their memoranda on June 8, 2009.
 
In its motion for reconsideration, petitioner reveals for the first time that it availed
of a tax amnesty under RA 9480[7] (also known as the Tax Amnesty Act of 2007) by fully
paying the amount of P5,127,149.08 representing 5% of its net worth as of the year ending
December 31, 2005.[8]
 
We find merit in petitioners motion for reconsideration.
Petitioner was formally registered and incorporated with the Securities and
Exchange Commission on June 30, 1987.[9] It is engaged in the dispensation of the following
medical services to individuals who enter into health care agreements with it:
Preventive medical services such as periodic monitoring of
health problems, family planning counseling, consultation and advices on
diet, exercise and other healthy habits, and immunization;
 
Diagnostic medical services such as routine physical
examinations, x-rays, urinalysis, fecalysis, complete blood count, and the
like and
 
Curative medical services which pertain to the performing of
other remedial and therapeutic processes in the event of an injury or
sickness on the part of the enrolled member.[10]
Individuals enrolled in its health care program pay an annual membership fee.
Membership is on a year-to-year basis. The medical services are dispensed to enrolled
members in a hospital or clinic owned, operated or accredited by petitioner, through
physicians, medical and dental practitioners under contract with it. It negotiates with such
health care practitioners regarding payment schemes, financing and other procedures for the
delivery of health services. Except in cases of emergency, the professional services are to be
provided only by petitioner's physicians, i.e. those directly employed by it[11] or whose
services are contracted by it.[12] Petitioner also provides hospital services such as room and
board accommodation, laboratory services, operating rooms, x-ray facilities and general
nursing care.[13] If and when a member avails of the benefits under the agreement,
petitioner pays the participating physicians and other health care providers for the services
rendered, at pre-agreed rates.[14]
 
To avail of petitioners health care programs, the individual members are required
to sign and execute a standard health care agreement embodying the terms and conditions
for the provision of the health care services. The same agreement contains the various health
care services that can be engaged by the enrolled member, i.e., preventive, diagnostic and
curative medical services. Except for the curative aspect of the medical service offered, the
enrolled member may actually make use of the health care services being offered by
petitioner at any time.
 
 
HEALTH MAINTENANCE
ORGANIZATIONS ARE NOT
ENGAGED IN THE INSURANCE
BUSINESS
 
We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO
and not an insurer because its agreements are treated as insurance contracts and the DST is
not a tax on the business but an excise on the privilege, opportunity or facility used in the
transaction of the business.[15]
 
Petitioner, however, submits that it is of critical importance to characterize the
business it is engaged in, that is, to determine whether it is an HMO or an insurance
company, as this distinction is indispensable in turn to the issue of whether or not it is liable
for DST on its health care agreements.[16]
 
A second hard look at the relevant law and jurisprudence convinces the Court that
the arguments of petitioner are meritorious.
 
Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:
 
Section 185. Stamp tax on fidelity bonds and other insurance
policies. On all policies of insurance or bonds or obligations of the nature
of indemnity for loss, damage, or liability made or renewed by any
person, association or company or corporation transacting the business
of accident, fidelity, employers liability, plate, glass, steam boiler, burglar,
elevator, automatic sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance), and all bonds, undertakings, or
recognizances, conditioned for the performance of the duties of any
office or position, for the doing or not doing of anything therein specified,
and on all obligations guaranteeing the validity or legality of any bond or
other obligations issued by any province, city, municipality, or other
public body or organization, and on all obligations guaranteeing the title
to any real estate, or guaranteeing any mercantile credits, which may be
made or renewed by any such person, company or corporation, there
shall be collected a documentary stamp tax of fifty centavos (P0.50) on
each four pesos (P4.00), or fractional part thereof, of the premium
charged. (Emphasis supplied)
 
It is a cardinal rule in statutory construction that no word, clause, sentence,
provision or part of a statute shall be considered surplusage or superfluous, meaningless,
void and insignificant. To this end, a construction which renders every word operative is
preferred over that which makes some words idle and nugatory.[17] This principle is
expressed in the maxim Ut magis valeat quam pereat, that is, we choose the interpretation
which gives effect to the whole of the statute its every word.[18]
From the language of Section 185, it is evident that two requisites must concur
before the DST can apply, namely: (1) the document must be a policy of insurance or an
obligation in the nature of indemnity and (2) the maker should be transacting the business
of accident, fidelity, employers liability, plate, glass, steam boiler, burglar, elevator,
automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire
insurance).
 
Petitioner is admittedly an HMO. Under RA 7875 (or The National Health Insurance
Act of 1995), an HMO is an entity that provides, offers or arranges for coverage of designated
health services needed by plan members for a fixed prepaid premium.[19] The payments do
not vary with the extent, frequency or type of services provided.
 
The question is: was petitioner, as an HMO, engaged in the business of insurance
during the pertinent taxable years? We rule that it was not.
 
Section 2 (2) of PD[20] 1460 (otherwise known as the Insurance Code) enumerates
what constitutes doing an insurance business or transacting an insurance business:
 
a)                   making or proposing to make, as insurer, any insurance
contract;
 
b)            making or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to any
other legitimate business or activity of the surety;
 
c)             doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance
business within the meaning of this Code;
 
d)            doing or proposing to do any business in substance equivalent to
any of the foregoing in a manner designed to evade the
provisions of this Code.
 
In the application of the provisions of this Code, the fact that no
profit is derived from the making of insurance contracts, agreements or
transactions or that no separate or direct consideration is received
therefore, shall not be deemed conclusive to show that the making
thereof does not constitute the doing or transacting of an insurance
business.
 
 
Various courts in the United States, whose jurisprudence has a persuasive effect on
our decisions,[21] have determined that HMOs are not in the insurance business. One test
that they have applied is whether the assumption of risk and indemnification of loss (which
are elements of an insurance business) are the principal object and purpose of the
organization or whether they are merely incidental to its business. If these are the principal
objectives, the business is that of insurance. But if they are merely incidental and service is
the principal purpose, then the business is not insurance.
 Applying the principal object and purpose test,[22] there is significant American
case law supporting the argument that a corporation (such as an HMO, whether or not
organized for profit), whose main object is to provide the members of a group with health
services, is not engaged in the insurance business.
 
The rule was enunciated in Jordan v. Group Health Association[23] wherein the
Court of Appeals of the District of Columbia Circuit held that Group Health Association should
not be considered as engaged in insurance activities since it was created primarily for the
distribution of health care services rather than the assumption of insurance risk.
xxx Although Group Healths activities may be considered in one aspect as
creating security against loss from illness or accident more truly they
constitute the quantity purchase of well-rounded, continuous medical
service by its members. xxx The functions of such an organization are
not identical with those of insurance or indemnity companies. The latter
are concerned primarily, if not exclusively, with risk and the
consequences of its descent, not with service, or its extension in kind,
quantity or distribution; with the unusual occurrence, not the daily
routine of living. Hazard is predominant. On the other hand, the
cooperative is concerned principally with getting service rendered to its
members and doing so at lower prices made possible by quantity
purchasing and economies in operation. Its primary purpose is to
reduce the cost rather than the risk of medical care; to broaden the
service to the individual in kind and quantity; to enlarge the number
receiving it; to regularize it as an everyday incident of living, like
purchasing food and clothing or oil and gas, rather than merely
protecting against the financial loss caused by extraordinary and
unusual occurrences, such as death, disaster at sea, fire and tornado. It
is, in this instance, to take care of colds, ordinary aches and pains, minor
ills and all the temporary bodily discomforts as well as the more serious
and unusual illness. To summarize, the distinctive features of the
cooperative are the rendering of service, its extension, the bringing of
physician and patient together, the preventive features, the
regularization of service as well as payment, the substantial reduction
in cost by quantity purchasing in short, getting the medical job done
and paid for; not, except incidentally to these features, the
indemnification for cost after the services is rendered. Except the last,
these are not distinctive or generally characteristic of the insurance
arrangement. There is, therefore, a substantial difference between
contracting in this way for the rendering of service, even on the
contingency that it be needed, and contracting merely to stand its cost
when or after it is rendered.
 
That an incidental element of risk distribution or assumption
may be present should not outweigh all other factors. If attention is
focused only on that feature, the line between insurance or indemnity
and other types of legal arrangement and economic function becomes
faint, if not extinct. This is especially true when the contract is for the sale
of goods or services on contingency. But obviously it was not the purpose
of the insurance statutes to regulate all arrangements for assumption or
distribution of risk. That view would cause them to engulf practically all
contracts, particularly conditional sales and contingent service
agreements. The fallacy is in looking only at the risk element, to the
exclusion of all others present or their subordination to it. The question
turns, not on whether risk is involved or assumed, but on whether that
or something else to which it is related in the particular plan is its
principal object purpose.[24] (Emphasis supplied)
 
 
In California Physicians Service v. Garrison,[25] the California court felt that, after
scrutinizing the plan of operation as a whole of the corporation, it was service rather than
indemnity which stood as its principal purpose.
 
There is another and more compelling reason for holding that
the service is not engaged in the insurance business. Absence or
presence of assumption of risk or peril is not the sole test to be applied
in determining its status. The question, more broadly, is whether,
looking at the plan of operation as a whole, service rather than
indemnity is its principal object and purpose. Certainly the objects and
purposes of the corporation organized and maintained by the California
physicians have a wide scope in the field of social service. Probably there
is no more impelling need than that of adequate medical care on a
voluntary, low-cost basis for persons of small income. The medical
profession unitedly is endeavoring to meet that need. Unquestionably
this is service of a high order and not indemnity.[26] (Emphasis supplied)
 
 
American courts have pointed out that the main difference between an HMO and
an insurance company is that HMOs undertake to provide or arrange for the provision of
medical services through participating physicians while insurance companies simply
undertake to indemnify the insured for medical expenses incurred up to a pre-agreed limit.
Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue Shield of New Jersey[27]
is clear on this point:
 
The basic distinction between medical service corporations and
ordinary health and accident insurers is that the former undertake to
provide prepaid medical services through participating physicians, thus
relieving subscribers of any further financial burden, while the latter only
undertake to indemnify an insured for medical expenses up to, but not
beyond, the schedule of rates contained in the policy.
 
xxx xxx
xxx
The primary purpose of a medical service corporation,
however, is an undertaking to provide physicians who will render services
to subscribers on a prepaid basis. Hence, if there are no physicians
participating in the medical service corporations plan, not only will the
subscribers be deprived of the protection which they might reasonably
have expected would be provided, but the corporation will, in effect, be
 doing business solely as a health and accident indemnity insurer
without having qualified as such and rendering itself subject to the more
stringent financial requirements of the General Insurance Laws.
 
A participating provider of health care services is one who
agrees in writing to render health care services to or for persons covered
by a contract issued by health service corporation in return for which the
health service corporation agrees to make payment directly to the
participating provider.[28] (Emphasis supplied)
 
Consequently, the mere presence of risk would be insufficient to override the
primary purpose of the business to provide medical services as needed, with payment made
directly to the provider of these services.[29] In short, even if petitioner assumes the risk of
paying the cost of these services even if significantly more than what the member has
prepaid, it nevertheless cannot be considered as being engaged in the insurance business.
 
By the same token, any indemnification resulting from the payment for services
rendered in case of emergency by non-participating health providers would still be incidental
to petitioners purpose of providing and arranging for health care services and does not
transform it into an insurer. To fulfill its obligations to its members under the agreements,
petitioner is required to set up a system and the facilities for the delivery of such medical
services. This indubitably shows that indemnification is not its sole object.
 
In fact, a substantial portion of petitioners services covers preventive and
diagnostic medical services intended to keep members from developing medical conditions
or diseases.[30] As an HMO, it is its obligation to maintain the good health of its members.
Accordingly, its health care programs are designed to prevent or to minimize the possibility
of any assumption of risk on its part. Thus, its undertaking under its agreements is not to
indemnify its members against any loss or damage arising from a medical condition but, on
the contrary, to provide the health and medical services needed to prevent such loss or
damage.[31]
Overall, petitioner appears to provide insurance-type benefits to its members (with
respect to its curative medical services), but these are incidental to the principal activity of
providing them medical care. The insurance-like aspect of petitioners business is miniscule
compared to its noninsurance activities. Therefore, since it substantially provides health care
services rather than insurance services, it cannot be considered as being in the insurance
business.
 
It is important to emphasize that, in adopting the principal purpose test used in the
above-quoted U.S. cases, we are not saying that petitioners operations are identical in every
respect to those of the HMOs or health providers which were parties to those cases. What
we are stating is that, for the purpose of determining what doing an insurance business
means, we have to scrutinize the operations of the business as a whole and not its mere
components. This is of course only prudent and appropriate, taking into account the
burdensome and strict laws, rules and regulations applicable to insurers and other entities
engaged in the insurance business. Moreover, we are also not unmindful that there are other
American authorities who have found particular HMOs to be actually engaged in insurance
activities.[32]
 
Lastly, it is significant that petitioner, as an HMO, is not part of the insurance
industry. This is evident from the fact that it is not supervised by the Insurance Commission
but by the Department of Health.[33] In fact, in a letter dated September 3, 2000, the
Insurance Commissioner confirmed that petitioner is not engaged in the insurance business.
This determination of the commissioner must be accorded great weight. It is well-settled that
the interpretation of an administrative agency which is tasked to implement a statute is
accorded great respect and ordinarily controls the interpretation of laws by the courts. The
reason behind this rule was explained in Nestle Philippines, Inc. v. Court of Appeals:[34]
 
The rationale for this rule relates not only to the emergence of
the multifarious needs of a modern or modernizing society and the
establishment of diverse administrative agencies for addressing and
satisfying those needs; it also relates to the accumulation of experience
and growth of specialized capabilities by the administrative agency
charged with implementing a particular statute. In Asturias Sugar Central,
Inc. vs. Commissioner of Customs,[35] the Court stressed that executive
officials are presumed to have familiarized themselves with all the
considerations pertinent to the meaning and purpose of the law, and to
have formed an independent, conscientious and competent expert
opinion thereon. The courts give much weight to the government agency
officials charged with the implementation of the law, their competence,
expertness, experience and informed judgment, and the fact that they
frequently are the drafters of the law they interpret.[36]
 
 
 
A HEALTH CARE AGREEMENT IS
NOT AN INSURANCE CONTRACT
CONTEMPLATED UNDER SECTION
185 OF THE NIRC OF 1997
 
 
Section 185 states that DST is imposed on all policies of insurance or obligations of
the nature of indemnity for loss, damage, or liability. In our decision dated June 12, 2008, we
ruled that petitioners health care agreements are contracts of indemnity and are therefore
insurance contracts:
 
It is incorrect to say that the health care agreement is not
based on loss or damage because, under the said agreement, petitioner
assumes the liability and indemnifies its member for hospital, medical
and related expenses (such as professional fees of physicians). The term
"loss or damage" is broad enough to cover the monetary expense or
liability a member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital,
medical and professional services to the member in case of sickness,
injury or emergency or his availment of so-called "out-patient services"
(including physical examination, x-ray and laboratory tests, medical
consultations, vaccine administration and family planning counseling) is
the contingent event which gives rise to liability on the part of the
 member. In case of exposure of the member to liability, he would be
entitled to indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member
from liability by paying for expenses arising from the stipulated
contingencies belies its claim that its services are prepaid. The expenses
to be incurred by each member cannot be predicted beforehand, if they
can be predicted at all. Petitioner assumes the risk of paying for the costs
of the services even if they are significantly and substantially more than
what the member has "prepaid." Petitioner does not bear the costs alone
but distributes or spreads them out among a large group of persons
bearing a similar risk, that is, among all the other members of the health
care program. This is insurance.[37]
 
We reconsider. We shall quote once again the pertinent portion of Section 185:
 
Section 185. Stamp tax on fidelity bonds and other insurance
policies. On all policies of insurance or bonds or obligations of the
nature of indemnity for loss, damage, or liability made or renewed by
any person, association or company or corporation transacting the
business of accident, fidelity, employers liability, plate, glass, steam
boiler, burglar, elevator, automatic sprinkler, or other branch of
insurance (except life, marine, inland, and fire insurance), xxxx (Emphasis
supplied)
 
In construing this provision, we should be guided by the principle that tax statutes
are strictly construed against the taxing authority.[38] This is because taxation is a
destructive power which interferes with the personal and property rights of the people and
takes from them a portion of their property for the support of the government.[39] Hence,
tax laws may not be extended by implication beyond the clear import of their language, nor
their operation enlarged so as to embrace matters not specifically provided.[40]
 
We are aware that, in Blue Cross and Philamcare, the Court pronounced that a
health care agreement is in the nature of non-life insurance, which is primarily a contract of
indemnity. However, those cases did not involve the interpretation of a tax provision.
Instead, they dealt with the liability of a health service provider to a member under the terms
of their health care agreement. Such contracts, as contracts of adhesion, are liberally
interpreted in favor of the member and strictly against the HMO. For this reason, we
reconsider our ruling that Blue Cross and Philamcare are applicable here.
 
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. An insurance contract exists where the
following elements concur:
 
1.         The insured has an insurable interest;
2.         The insured is subject to a risk of loss by the happening of the
designed peril;
3.         The insurer assumes the risk;
 
4.         Such assumption of risk is part of a general scheme to distribute
actual losses among a large group of persons bearing a similar risk
and
 
5.         In consideration of the insurers promise, the insured pays a
premium.[41]
 
Do the agreements between petitioner and its members possess all these
elements? They do not.
First. In our jurisdiction, a commentator of our insurance laws has pointed out that,
even if a contract contains all the elements of an insurance contract, if its primary purpose is
the rendering of service, it is not a contract of insurance:
 
It does not necessarily follow however, that a contract
containing all the four elements mentioned above would be an insurance
contract. The primary purpose of the parties in making the contract may
negate the existence of an insurance contract. For example, a law firm
which enters into contracts with clients whereby in consideration of
periodical payments, it promises to represent such clients in all suits for
or against them, is not engaged in the insurance business. Its contracts
are simply for the purpose of rendering personal services. On the other
hand, a contract by which a corporation, in consideration of a stipulated
amount, agrees at its own expense to defend a physician against all suits
for damages for malpractice is one of insurance, and the corporation will
be deemed as engaged in the business of insurance. Unlike the lawyers
retainer contract, the essential purpose of such a contract is not to
render personal services, but to indemnify against loss and damage
resulting from the defense of actions for malpractice.[42] (Emphasis
supplied)
 
 
Second. Not all the necessary elements of a contract of insurance are present in
petitioners agreements. To begin with, there is no loss, damage or liability on the part of the
member that should be indemnified by petitioner as an HMO. Under the agreement, the
member pays petitioner a predetermined consideration in exchange for the hospital, medical
and professional services rendered by the petitioners physician or affiliated physician to him.
In case of availment by a member of the benefits under the agreement, petitioner does not
reimburse or indemnify the member as the latter does not pay any third party. Instead, it is
the petitioner who pays the participating physicians and other health care providers for the
services rendered at pre-agreed rates. The member does not make any such payment.
 
 In other words, there is nothing in petitioner's agreements that gives rise to a
monetary liability on the part of the member to any third party-provider of medical services
which might in turn necessitate indemnification from petitioner. The terms indemnify or
indemnity presuppose that a liability or claim has already been incurred. There is no
indemnity precisely because the member merely avails of medical services to be paid or
already paid in advance at a pre-agreed price under the agreements.
 
Third. According to the agreement, a member can take advantage of the bulk of the
benefits anytime, e.g. laboratory services, x-ray, routine annual physical examination and
consultations, vaccine administration as well as family planning counseling, even in the
absence of any peril, loss or damage on his or her part.
 
Fourth. In case of emergency, petitioner is obliged to reimburse the member who
receives care from a non-participating physician or hospital. However, this is only a very
minor part of the list of services available. The assumption of the expense by petitioner is not
confined to the happening of a contingency but includes incidents even in the absence of
illness or injury.
 
In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,[43]
although the health care contracts called for the defendant to partially reimburse a
subscriber for treatment received from a non-designated doctor, this did not make
defendant an insurer. Citing Jordan, the Court determined that the primary activity of the
defendant (was) the provision of podiatric services to subscribers in consideration of
prepayment for such services.[44] Since indemnity of the insured was not the focal point of
the agreement but the extension of medical services to the member at an affordable cost, it
did not partake of the nature of a contract of insurance.
 
Fifth. Although risk is a primary element of an insurance contract, it is not
necessarily true that risk alone is sufficient to establish it. Almost anyone who undertakes a
contractual obligation always bears a certain degree of financial risk. Consequently, there is a
need to distinguish prepaid service contracts (like those of petitioner) from the usual
insurance contracts.
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide
health services: the risk that it might fail to earn a reasonable return on its investment. But it
is not the risk of the type peculiar only to insurance companies. Insurance risk, also known as
actuarial risk, is the risk that the cost of insurance claims might be higher than the premiums
paid. The amount of premium is calculated on the basis of assumptions made relative to the
insured.[45]
 
However, assuming that petitioners commitment to provide medical services to its
members can be construed as an acceptance of the risk that it will shell out more than the
prepaid fees, it still will not qualify as an insurance contract because petitioners objective is
to provide medical services at reduced cost, not to distribute risk like an insurer.
 
In sum, an examination of petitioners agreements with its members leads us to
conclude that it is not an insurance contract within the context of our Insurance Code.
 
 
THERE WAS NO LEGISLATIVE
INTENT TO IMPOSE DST ON
HEALTH CARE AGREEMENTS OF
HMOS
 
Furthermore, militating in convincing fashion against the imposition of DST on
petitioners health care agreements under Section 185 of the NIRC of 1997 is the provisions
legislative history. The text of Section 185 came into U.S. law as early as 1904 when HMOs
and health care agreements were not even in existence in this jurisdiction. It was imposed
under Section 116, Article XI of Act No. 1189 (otherwise known as the Internal Revenue Law
of 1904)[46] enacted on July 2, 1904 and became effective on August 1, 1904. Except for the
rate of tax, Section 185 of the NIRC of 1997 is a verbatim reproduction of the pertinent
portion of Section 116, to wit:
 
 
 
 
ARTICLE XI
Stamp Taxes on Specified Objects
 
Section 116. There shall be levied, collected, and paid for
and in respect to the several bonds, debentures, or certificates of stock
and indebtedness, and other documents, instruments, matters, and
things mentioned and described in this section, or for or in respect to the
vellum, parchment, or paper upon which such instrument, matters, or
things or any of them shall be written or printed by any person or persons
who shall make, sign, or issue the same, on and after January first,
nineteen hundred and five, the several taxes following:
 
xxx xxx
xxx
 
Third xxx (c) on all policies of insurance or bond or obligation of the
nature of indemnity for loss, damage, or liability made or renewed by
any person, association, company, or corporation transacting the
business of accident, fidelity, employers liability, plate glass, steam
boiler, burglar, elevator, automatic sprinkle, or other branch of
insurance (except life, marine, inland, and fire insurance) xxxx (Emphasis
supplied)
 
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was
enacted revising and consolidating the laws relating to internal revenue. The aforecited
pertinent portion of Section 116, Article XI of Act No. 1189 was completely reproduced as
Section 30 (l), Article III of Act No. 2339. The very detailed and exclusive enumeration of
items subject to DST was thus retained.
 
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again
reproduced as Section 1604 (l), Article IV of Act No. 2657 (Administrative Code). Upon its
amendment on March 10, 1917, the pertinent DST provision became Section 1449 (l) of Act
No. 2711, otherwise known as the Administrative Code of 1917.
Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the
NIRC of 1939), which codified all the internal revenue laws of the Philippines. In an
amendment introduced by RA 40 on October 1, 1946, the DST rate was increased but the
provision remained substantially the same.
 
Thereafter, on June 3, 1977, the same provision with the same DST rate was
reproduced in PD 1158 (NIRC of 1977) as Section 234. Under PDs 1457 and 1959, enacted on
June 11, 1978 and October 10, 1984 respectively, the DST rate was again increased.
 
Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the
NIRC of 1977 was renumbered as Section 198. And under Section 23 of EO[47] 273 dated July
25, 1987, it was again renumbered and became Section 185.
 
On December 23, 1993, under RA 7660, Section 185 was amended but, again, only
with respect to the rate of tax.
Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424
(or the NIRC of 1997), the subject legal provision was retained as the present Section 185. In
2004, amendments to the DST provisions were introduced by RA 9243[48] but Section 185
was untouched.
On the other hand, the concept of an HMO was introduced in the Philippines with
the formation of Bancom Health Care Corporation in 1974. The same pioneer HMO was later
reorganized and renamed Integrated Health Care Services, Inc. (or Intercare). However, there
are those who claim that Health Maintenance, Inc. is the HMO industry pioneer, having set
foot in the Philippines as early as 1965 and having been formally incorporated in 1991.
Afterwards, HMOs proliferated quickly and currently, there are 36 registered HMOs with a
total enrollment of more than 2 million.[49]
 
We can clearly see from these two histories (of the DST on the one hand and HMOs
on the other) that when the law imposing the DST was first passed, HMOs were yet unknown
in the Philippines. However, when the various amendments to the DST law were enacted,
they were already in existence in the Philippines and the term had in fact already been
defined by RA 7875. If it had been the intent of the legislature to impose DST on health care
agreements, it could have done so in clear and categorical terms. It had many opportunities
to do so. But it did not. The fact that the NIRC contained no specific provision on the DST
liability of health care agreements of HMOs at a time they were already known as such,
belies any legislative intent to impose it on them. As a matter of fact, petitioner was
assessed its DST liability only on January 27, 2000, after more than a decade in the business
as an HMO.[50]
Considering that Section 185 did not change since 1904 (except for the rate of tax),
it would be safe to say that health care agreements were never, at any time, recognized as
insurance contracts or deemed engaged in the business of insurance within the context of
the provision.
 
 
THE POWER TO TAX IS NOT
THE POWER TO DESTROY
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 is to pay it.[51] So potent indeed is the power that it was once opined that the power to
tax involves the power to destroy.[52]
 
Petitioner claims that the assessed DST to date which amounts to P376 million[53]
is way beyond its net worth of P259 million.[54] Respondent never disputed these assertions.
Given the realities on the ground, imposing the DST on petitioner would be highly oppressive.
It is not the purpose of the government to throttle private business. On the contrary, the
government ought to encourage private enterprise.[55] Petitioner, just like any concern
organized for a lawful economic activity, has a right to maintain a legitimate business.[56] As
aptly held in Roxas, et al. v. CTA, et al.:[57]
 
The power of taxation is sometimes called also the power to
destroy. Therefore it should be exercised with caution to minimize injury
to the proprietary rights of a taxpayer. It must be exercised fairly, equally
and uniformly, lest the tax collector kill the hen that lays the golden egg.
[58]
Legitimate enterprises enjoy the constitutional protection not to be taxed out of
existence. Incurring losses because of a tax imposition may be an acceptable consequence
but killing the business of an entity is another matter and should not be allowed. It is
counter-productive and ultimately subversive of the nations thrust towards a better
economy which will ultimately benefit the majority of our people.[59]
 
 
PETITIONERS TAX LIABILITY
WAS EXTINGUISHED UNDER
THE PROVISIONS OF RA 9840
 
Petitioner asserts that, regardless of the arguments, the DST assessment for
taxable years 1996 and 1997 became moot and academic[60] when it availed of the tax
amnesty under RA 9480 on December 10, 2007. It paid P5,127,149.08 representing 5% of its
net worth as of the year ended December 31, 2005 and complied with all requirements of
the tax amnesty. Under Section 6(a) of RA 9480, it is entitled to immunity from payment of
taxes as well as additions thereto, and the appurtenant civil, criminal or administrative
penalties under the 1997 NIRC, as amended, arising from the failure to pay any and all
internal revenue taxes for taxable year 2005 and prior years.[61]
Far from disagreeing with petitioner, respondent manifested in its memorandum:
 
Section 6 of [RA 9840] provides that availment of tax amnesty
entitles a taxpayer to immunity from payment of the tax involved,
including the civil, criminal, or administrative penalties provided under
the 1997 [NIRC], for tax liabilities arising in 2005 and the preceding years.
 In view of petitioners availment of the benefits of [RA 9840],
and without conceding the merits of this case as discussed above,
respondent concedes that such tax amnesty extinguishes the tax
liabilities of petitioner. This admission, however, is not meant to
preclude a revocation of the amnesty granted in case it is found to have
been granted under circumstances amounting to tax fraud under Section
10 of said amnesty law.[62] (Emphasis supplied)
 
Furthermore, we held in a recent case that DST is one of the taxes covered by the
tax amnesty program under RA 9480.[63] There is no other conclusion to draw than that
petitioners liability for DST for the taxable years 1996 and 1997 was totally extinguished by
its availment of the tax amnesty under RA 9480.
 
 
IS THE COURT BOUND BY A
MINUTE RESOLUTION IN
ANOTHER CASE?
Petitioner raises another interesting issue in its motion for reconsideration:
whether this Court is bound by the ruling of the CA[64] in CIR v. Philippine National Bank[65]
that a health care agreement of Philamcare Health Systems is not an insurance contract for
purposes of the DST.
 
In support of its argument, petitioner cites the August 29, 2001 minute resolution
of this Court dismissing the appeal in Philippine National Bank (G.R. No. 148680).[66]
Petitioner argues that the dismissal of G.R. No. 148680 by minute resolution was a judgment
on the merits; hence, the Court should apply the CA ruling there that a health care
agreement is not an insurance contract.
 
It is true that, although contained in a minute resolution, our dismissal of the
petition was a disposition of the merits of the case. When we dismissed the petition, we
effectively affirmed the CA ruling being questioned. As a result, our ruling in that case has
already become final.[67] When a minute resolution denies or dismisses a petition for failure
to comply with formal and substantive requirements, the challenged decision, together with
its findings of fact and legal conclusions, are deemed sustained.[68] But what is its effect on
other cases?
 
With respect to the same subject matter and the same issues concerning the same
parties, it constitutes res judicata.[69] However, if other parties or another subject matter
(even with the same parties and issues) is involved, the minute resolution is not binding
precedent. Thus, in CIR v. Baier-Nickel,[70] the Court noted that a previous case, CIR v. Baier-
Nickel[71] involving the same parties and the same issues, was previously disposed of by the
Court thru a minute resolution dated February 17, 2003 sustaining the ruling of the CA.
Nonetheless, the Court ruled that the previous case ha(d) no bearing on the latter case
because the two cases involved different subject matters as they were concerned with the
taxable income of different taxable years.[72]
Besides, there are substantial, not simply formal, distinctions between a minute
resolution and a decision. The constitutional requirement under the first paragraph of
Section 14, Article VIII of the Constitution that the facts and the law on which the judgment is
based must be expressed clearly and distinctly applies only to decisions, not to minute
resolutions. A minute resolution is signed only by the clerk of court by authority of the
justices, unlike a decision. It does not require the certification of the Chief Justice. Moreover,
unlike decisions, minute resolutions are not published in the Philippine Reports. Finally, the
proviso of Section 4(3) of Article VIII speaks of a decision.[73] Indeed, as a rule, this Court lays
down doctrines or principles of law which constitute binding precedent in a decision duly
signed by the members of the Court and certified by the Chief Justice.
 
Accordingly, since petitioner was not a party in G.R. No. 148680 and since
petitioners liability for DST on its health care agreement was not the subject matter of G.R.
No. 148680, petitioner cannot successfully invoke the minute resolution in that case (which is
not even binding precedent) in its favor. Nonetheless, in view of the reasons already
discussed, this does not detract in any way from the fact that petitioners health care
agreements are not subject to DST.
A FINAL NOTE
 
Taking into account that health care agreements are clearly not within the ambit of
Section 185 of the NIRC and there was never any legislative intent to impose the same on
HMOs like petitioner, the same should not be arbitrarily and unjustly included in its coverage.
 
It is a matter of common knowledge that there is a great social need for adequate
medical services at a cost which the average wage earner can afford. HMOs arrange, organize
and manage health care treatment in the furtherance of the goal of providing a more
efficient and inexpensive health care system made possible by quantity purchasing of
services and economies of scale. They offer advantages over the pay-for-service system
(wherein individuals are charged a fee each time they receive medical services), including the
ability to control costs. They protect their members from exposure to the high cost of
hospitalization and other medical expenses brought about by a fluctuating economy.
Accordingly, they play an important role in society as partners of the State in achieving its
constitutional mandate of providing its citizens with affordable health services.
 
The rate of DST under Section 185 is equivalent to 12.5% of the premium charged.
[74] Its imposition will elevate the cost of health care services. This will in turn necessitate an
increase in the membership fees, resulting in either placing health services beyond the reach
of the ordinary wage earner or driving the industry to the ground. At the end of the day,
neither side wins, considering the indispensability of the services offered by HMOs.
 
WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004
decision of the Court of Appeals in CA-G.R. SP No. 70479 is REVERSED and SET ASIDE. The
1996 and 1997 deficiency DST assessment against petitioner is hereby CANCELLED and SET
ASIDE. Respondent is ordered to desist from collecting the said tax.
No costs.
 
SO ORDERED.

SUPREME COURT
Manila
THIRD DIVISION
G.R. NO. 153477             March 6, 2007
DEL MONTE PHILIPPINES, INC., Petitioner,
vs.
LOLITA VELASCO, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before this Court is a Petition for Certiorari under Rule 45 seeking to reverse and set aside
the Decision1 dated July 23, 2001 of the Court of Appeals (CA) in CA-G.R. SP No. 56571 which
affirmed the Decision dated May 27, 1999 of the National Labor Relations Commission
(NLRC); and the CA Resolution2 dated May 7, 2002 which denied the petitioner's Motion for
Reconsideration.
The facts of the case, as stated by the CA, are as follows:
Lolita M. Velasco (respondent) started working with Del Monte Philippines (petitioner) on
October 21, 1976 as a seasonal employee and was regularized on May 1, 1977. Her latest
assignment was as Field Laborer.
On June 16, 1987, respondent was warned in writing due to her absences. On May 4, 1991,
respondent, thru a letter, was again warned in writing by petitioner about her absences
without permission and a forfeiture of her vacation leave entitlement for the year 1990-1991
was imposed against her.
On September 14, 1992, another warning letter was sent to respondent regarding her
absences without permission during the year 1991-1992. Her vacation entitlement for the
said employment year affected was consequently forfeited.
In view of the said alleged absences without permission, on September 17, 1994, a notice of
hearing was sent to respondent notifying her of the charges filed against her for violating the
Absence Without Official Leave rule: that is for excessive absence without permission on
August 15-18, 29-31 and September 1-10, 1994. The hearing was set on September 23, 1994.
Respondent having failed to appear on September 23, 1994 hearing, another notice of
hearing was sent to her resetting the investigation on September 30, 1994. It was again reset
to October 5, 1994.
On January 10, 1995, after hearing, the petitioner terminated the services of respondent
effective January 16, 1994 due to excessive absences without permission.
Feeling aggrieved, respondent filed a case for illegal dismissal against petitioner asserting
that her dismissal was illegal because she was on the family way suffering from urinary tract
infection, a pregnancy-borne, at the time she committed the alleged absences. She explained
that for her absence from work on August 15, 16, 17 & 18, 1994 she had sent an application
for leave to her supervisor, Prima Ybañez. Thereafter, she went to the company hospital for
check-up and was advised accordingly to rest in quarters for four (4) days or on August 27 to
30, 1994. Still not feeling well, she failed to work on September 1, 1994 and was again
advised two days of rest in quarters on September 2-3, 1994. Unable to recover, she went to
see an outside doctor, Dr. Marilyn Casino, and the latter ordered her to rest for another five
(5) consecutive days, or from September 5 to 9, 1994. She declared she did not file the
adequate leave of absence because a medical certificate was already sufficient per company
policy. On September 10, 1994 she failed to report to work but sent an application for leave
of absence to her supervisor, Prima Ybañez, which was not anymore accepted.3
On April 13, 1998, the Labor Arbiter dismissed the Complaint for lack of merit. The Labor
Arbiter held that the respondent was an incorrigible absentee; that she failed to file leaves of
absence; that her absences in 1986 and 1987 were without permission; that the petitioner
gave the respondent several chances to reform herself; and that the respondent did not
justify her failure to appear during the scheduled hearings and failed to explain her absences.
Respondent appealed to the NLRC. On May 29, 1999, the NLRC issued its Resolution, the
dispositive portion of which reads:
WHEREFORE, foregoing considered, the instant decision is hereby VACATED and a new one
entered declaring the dismissal of complainant as ILLEGAL. In consonance with Art. 279 of
the Labor [Code], her reinstatement with full backwages from the date of her termination
from employment to her actual reinstatement is necessarily decreed.4
The NLRC held that, under the company rules, the employee may make a subsequent
justification of her absenteeism, which she was able to do in the instant case; that while it is
not disputed that the respondent incurred absences exceeding six (6) days within one
employment year – a ground for dismissal under the company rules – the petitioner actually
admitted the fact that the respondent had been pregnant, hence, negating petitioner’s
assertion that the respondent failed to give any explanation of her absences; that the records
bear the admission of petitioner’s officer of the receipt of the hospital record showing the
cause of her absences ("RIQ advice" or "rest-in-quarters") for August 19-20, 1994 which, in
turn, could already serve as reference in resolving the absences on August 15 to 18; that the
petitioner further admitted that the respondent was under "RIQ advice" on September 2-3,
1994 and yet insisted in including these dates among respondent’s 16 purported unexplained
absences; that it is sufficient notice for the petitioner, "a plain laborer" with "unsophisticated
judgment," to send word to her employer through a co-worker on August 15 to 16, 1994 that
she was frequently vomiting; that the sheer distance between respondent’s home and her
workplace made it difficult to send formal notice; that respondent even sent her child of
tender age to inform her supervisor about her absence on September 5, 1994 due to
stomach ache, but her child failed to approach the officer because her child felt ashamed, if
not mortified; that respondent’s narration that she had to bear pains during her absences on
September 21 to 27, 1994 is credible; that she dared not venture through the roads for fear
of forest creatures or predators; that the petitioner is guilty of unlawfully discharging
respondent on account of her pregnancy under Article 137(2) of the Labor Code; and, that
petitioner’s reference to the previous absenteeism of respondent is misplaced because the
latter had already been penalized therefor.
Petitioner’s Motion for Reconsideration was denied on September 30, 1999.
The petitioner then appealed to the CA. On July 23, 2001, the CA promulgated its Decision
the dispositive portion of which states:
VIEWED IN THE LIGHT OF ALL THE FOREGOING, the instant petition is DISMISSED, the
Resolutions, dated May 27, 1999 and September 30, 1999 of the National Labor Relations
Commission in NLRC CA No. M-003926-98, are hereby AFFIRMED in toto.
SO ORDERED.5
In affirming the NLRC, the CA held that absences due to a justified cause cannot be a ground
for dismissal; that it is undisputed that the respondent was pregnant at the time she incurred
the absences in question; that the certification issued by a private doctor duly established
this fact; that it was no less than petitioner’s company doctor who advised the respondent to
have rest-in-quarters for four days on account of a pregnancy- related sickness; that it had
been duly established that respondent filed leaves of absence though the last had been
refused by the company supervisor; that the dismissal of an employee due to prolonged
absence with leave by reason of illness duly established by the presentation of a medical
certificate is not justified; that it is undisputed that respondent’s sickness was pregnancy-
related; that under Article 137(2) of the Labor Code, the petitioner committed a prohibited
act in discharging a woman on account of her pregnancy.
On May 7, 2002, the CA denied petitioner’s Motion for Reconsideration.
Hence, the instant Petition raising the following issues:
I.
The court of appeals seriously erred In considering respondent’s Excessive aWOPs as justified
Simply on account of her pregnancy.
II.
THE COURT OF APPEALS SERIOUSLY ERRED IN NOT CONSIDERING THAT RESPONDENT’S
LATEST STRING OF ABSENCES INCURRED WITHOUT ANY PRIOR PERMISSION, AND AS ABOVE
SHOWN, WITHOUT ANY VALID JUSTIFICATION, TAKEN TOGETHER WITH HER DAMAGING
awop history, established her gross and habitual neGlect of duties, a just and valid ground for
dismissal.
III.
The court of appeals seriously erred in holding that respondent’s dismissal was in violation of
article 137 (prohibiting an employer to discharge an employee on account of her pregnancy).
IV.
The court of appeals seriously erred in awarding full backwages in favor of respondent
notwithstanding petitioner’s evident good faith.6
The essential question is whether the employment of respondent had been validly
terminated on the ground of excessive absences without permission. Corollary to this is the
question of whether the petitioner discharged the respondent on account of pregnancy, a
prohibited act.
The petitioner posits the following arguments: (a) The evidence proffered by the respondent,
to wit: (1) the Discharge Summary indicating that she had been admitted to the Phillips
Memorial Hospital on August 23, 1994 and discharged on August 26, 1994, and that she had
been advised to "rest in quarters" for four days from August 27, 1994 to August 30, 1994,
and (2) the Medical Certificate issued by Dr. Marilyn M. Casino stating that respondent had
sought consultation on September 4, 2002 because of spasm in the left iliac region, and was
advised to rest for five days (from September 4, 1994 up to September 8, 1994), due to
urinary tract infection, all in all establish respondent’s sickness only from August 23, 1994 up
to August 30, 1994 and from September 4, 1994 up to September 8, 1994. In other words,
respondent was absent without permission on several other days which were not supported
by any other proof of illness, specifically, on August 15, 16, 17, 18, 31, 1994 and September 1,
2, 3, 9, and 10, 1994, and, hence, she is guilty of ten unjustified absences; (b) Per Filflex
Industrial and Manufacturing Co. v. National Labor Relations Commission (Filflex),7 if the
medical certificate fails to refer to the specific period of the employee’s absence, then such
absences, attributable to chronic asthmatic bronchitis, are not supported by competent
proof and, hence, they are unjustified. By parity of reasoning, in the absence of evidence
indicating any pregnancy-borne illness outside the period stated in respondent’s medical
certificate, such illness ought not to be considered as an acceptable excuse for respondent’s
excessive absences without leave; (c) Respondent’s latest string of absences, taken together
with her long history of absenteeism without permission, established her gross and habitual
neglect of duties, as established by jurisprudence; (d) The respondent was dismissed not by
reason of her pregnancy but on account of her gross and habitual neglect of duties. In other
words, her pregnancy had no bearing on the decision to terminate her employment; and, (e)
Her state of pregnancy per se could not excuse her from filing prior notice for her absence.
Petitioner’s arguments are without merit.
First. The Filflex Industrial and Manufacturing Co. case is not applicable, principally because
the nature and gravity of the illness involved in that case – chronic asthmatic bronchitis – are
different from the conditions that are present in the instant case, which is pregnancy and its
related illnesses.
The Court takes judicial notice of the fact that the condition of asthmatic bronchitis may be
intermittent, in contrast to pregnancy which is a continuing condition accompanied by
various symptoms and related illnesses. Hence, as to the former, if the medical certificate or
other proof proffered by the worker fails to correspond with the dates of absence, then it can
be reasonably concluded that, absent any other proof, such absences are unjustified. This is
the ruling in Filflex which cannot be applied in a straight-hand fashion in cases of pregnancy
which is a long-term condition accompanied by an assortment of related illnesses.
In this case, by the measure of substantial evidence, what is controlling is the finding of the
NLRC and the CA that respondent was pregnant and suffered from related ailments. It would
be unreasonable to isolate such condition strictly to the dates stated in the Medical
Certificate or the Discharge Summary. It can be safely assumed that the absences that are
not covered by, but which nonetheless approximate, the dates stated in the Discharge
Summary and Medical Certificate, are due to the continuing condition of pregnancy and
related illnesses, and, hence, are justified absences.
As the CA and the NLRC correctly noted, it is not disputed that respondent was pregnant and
that she was suffering from urinary tract infection, and that her absences were due to such
facts. The petitioner admits these facts in its Petition for Review.8 And, as the CA aptly held, it
was no less than the company doctor who advised the respondent to have "rest-in-quarters"
for four days on account of a pregnancy-related sickness.9
On this note, this Court upholds and adopts the finding of the NLRC, thus:
In this jurisdiction tardiness and absenteeism, like abandonment, are recognized forms of
neglect of duties, the existence of which justify the dismissal of the erring employee.
Respondent’s rule penalizing with discharge any employee who has incurred six (6) or more
absences without permission or subsequent justification is admittedly within the purview of
the foregoing standard.
However, while it is not disputed that complainant incurred absences exceeding six (6) days
as she actually failed to report for work from August 15-18, 23-26, 29-31, September 1-3, 5-
10, 12-17, 21-24, 26-30, and October 1-3, 1994, her being pregnant at the time these
absences were incurred is not questioned and is even admitted by respondent. It thus
puzzles us why respondent asserts complainant failed to explain satisfactorily her absences
on August 15-18, 29-31, September 1-3 and 5-10, 1994, yet reconsidered the rest of her
absences for being covered with "rest-in-quarters" (RIQ) advice from its hospital personnel
when this advice was unquestionably issued in consideration of the physiological and
emotional changes complainant, a conceiving mother, naturally developed. Medical and
health reports abundantly disclose that during the first trimester of pregnancy, expectant
mothers are plagued with morning sickness, frequent urination, vomiting and fatigue all of
which complainant was similarly plagued with. Union official IBB Lesna’s observation on
complainant being [sic] apparently not feeling well during the investigation conducted by
respondent on October 5, 1994 even remains in the records of said proceedings. For
respondent to isolate the absences of complainant in August and mid-September, 1994
from the absences she incurred later in said month without submitting any evidence that
these were due to causes not in manner associated with her [ ] condition renders its
justification of complainant’s dismissal clearly not convincing under the circumstances.
Despite contrary declaration, the records bear the admission of respondent’s P/A North
Supervisor, PB Ybanez, of her receipt of the hospital record showing complainant’s RIQ
advice for August 19-20, 1994 which could already serve as respondent’s reference in
resolving the latter’s absences on August 15 to 18, 1994. Respondent further admitted
complainant was under RIQ advice on September 2-3, 1994, yet, insisted in including these
dates among her 16 purported unexplained absences justifying termination of her
employment.10 (emphasis supplied)
Petitioner’s contention that the cause for the dismissal was gross and habitual neglect
unrelated to her state of pregnancy is unpersuasive.
The Court agrees with the CA in concluding that respondent’s sickness was pregnancy-related
and, therefore, the petitioner cannot terminate respondent’s services because in doing so,
petitioner will, in effect, be violating the Labor Code which prohibits an employer to
discharge an employee on account of the latter’s pregnancy.11
Article 137 of the Labor Code provides:
Art. 137. Prohibited acts. – It shall be unlawful for any employer:
(1) To deny any woman employee the benefits provided for in this Chapter or to
discharge any woman employed by him for the purpose of preventing her from
enjoying any of the benefits provided under this Code;
(2) To discharge such woman on account of her pregnancy, while on leave or in
confinement due to her pregnancy; or
(3) To discharge or refuse the admission of such woman upon returning to her
work for fear that she may again be pregnant. (Emphasis supplied)
Second. The petitioner stresses that many women go through pregnancy and yet manage to
submit prior notices to their employer, especially if "there is no evidence on record indicating
a condition of such gravity as to preclude efforts at notifying petitioner of her absence from
work in series."12 But it must be emphasized that under petitioner’s company rules, absences
may be subsequently justified.13 The Court finds no cogent reason to disturb the findings of
the NLRC and the CA that the respondent was able to subsequently justify her absences in
accordance with company rules and policy; that the respondent was pregnant at the time she
incurred the absences; that this fact of pregnancy and its related illnesses had been duly
proven through substantial evidence; that the respondent attempted to file leaves of
absence but the petitioner’s supervisor refused to receive them; that she could not have filed
prior leaves due to her continuing condition; and that the petitioner, in the last analysis,
dismissed the respondent on account of her pregnancy, a prohibited act.
Third. Petitioner’s reliance on the jurisprudential rule that the totality of the infractions of an
employee may be taken into account to justify the dismissal, is tenuous considering the
particular circumstances obtaining in the present case. Petitioner puts much emphasis on
respondent’s "long history" of unauthorized absences committed several years beforehand.
However, petitioner cannot use these previous infractions to lay down a pattern of
absenteeism or habitual disregard of company rules to justify the dismissal of respondent.
The undeniable fact is that during her complained absences in 1994, respondent was
pregnant and suffered related illnesses. Again, it must be stressed that respondent’s
discharge by reason of absences caused by her pregnancy is covered by the prohibition under
the Labor Code. Since her last string of absences is justifiable and had been subsequently
explained, the petitioner had no legal basis in considering these absences together with her
prior infractions as gross and habitual neglect.
The Court is convinced that the petitioner terminated the services of respondent on account Petitioners Anak Mindanao Party-List Group (AMIN) and Mamalo Descendants
of her pregnancy which justified her absences and, thus, committed a prohibited act Organization, Inc. (MDOI) assail the constitutionality of Executive Order (E.O.) Nos. 364 and
rendering the dismissal illegal. 379, both issued in 2004, via the present Petition for Certiorari and Prohibition with prayer
for injunctive relief.
In fine, the Court finds no cogent reason to disturb the findings of the CA and the NLRC.  
E.O. No. 364, which President Gloria Macapagal-Arroyo issued on September 27,
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated July 23, 2001 and 2004, reads:
the Resolution dated May 7, 2002 of the Court of Appeals are AFFIRMED.  
EXECUTIVE ORDER NO. 364
No pronouncement as to costs.  
TRANSFORMING THE DEPARTMENT OF AGRARIAN REFORM INTO THE
SO ORDERED. DEPARTMENT OF LAND REFORM
 
   WHEREAS, one of the five reform packages of the Arroyo administration is
  Social Justice and Basic [N]eeds;
   
EN BANC WHEREAS, one of the five anti-poverty measures for social justice is asset
  reform;
ANAK MINDANAO PARTY-LIST GROUP, as G.R. No. 166052  
represented by Rep. Mujiv S. Hataman, and Present: WHEREAS, asset reforms covers [sic] agrarian reform, urban land reform,
MAMALO DESCENDANTS ORGANIZATION,   and ancestral domain reform;
INC., as represented by its Chairman Romy PUNO, C.J.,  
Pardi, QUISUMBING, WHEREAS, urban land reform is a concern of the Presidential Commission
Petitioners, YNARES-SANTIAGO, [for] the Urban Poor (PCUP) and ancestral domain reform is a concern of
  SANDOVAL-GUTIERREZ, the National Commission on Indigenous Peoples (NCIP);
  CARPIO,  
  AUSTRIA-MARTINEZ, WHEREAS, another of the five reform packages of the Arroyo
- versus - CORONA, administration is Anti-Corruption and Good Government;
  CARPIO MORALES,  
  AZCUNA, WHEREAS, one of the Good Government reforms of the Arroyo
  TINGA, administration is rationalizing the bureaucracy by consolidating related
  CHICO-NAZARIO, functions into one department;
THE EXECUTIVE GARCIA,  
SECRETARY, THE HON. EDUARDO R. VELASCO, JR., WHEREAS, under law and jurisprudence, the President of the Philippines
ERMITA, and THE SECRETARY OF NACHURA, and has broad powers to reorganize the offices under her supervision and
AGRARIAN/LAND REFORM, THE HON. RENE REYES, JJ. control;
C. VILLA, Promulgated:  
Respondents.   NOW[,] THEREFORE[,] I, Gloria Macapagal-Arroyo, by the powers vested
August 29, 2007 in me as President of the Republic of the Philippines, do hereby order:
x----------------------------------------------------------------------------------------x  
  SECTION 1. The Department of Agrarian Reform is hereby transformed
  into the Department of Land Reform. It shall be responsible for all land
DECISION reform in the country, including agrarian reform, urban land reform, and
  ancestral domain reform.
   
CARPIO MORALES, J.: SECTION 2. The PCUP is hereby placed under the supervision and control
  of the Department of Land Reform . The Chairman of the PCUP shall be
ex-officio Undersecretary of the Department of Land Reform for Urban
Land Reform.
  
SECTION 3. The NCIP is hereby placed under the supervision and control
of the Department of Land Reform. The Chairman of the NCIP shall be ex-
officio Undersecretary of the Department of Land Reform for Ancestral
Domain Reform.
 
SECTION 4. The PCUP and the NCIP shall have access to the services
provided by the Departments Finance, Management and Administrative
Office; Policy, Planning and Legal Affairs Office, Field Operations and
Support Services Office, and all other offices of the Department of Land
Reform.
 
SECTION 5. All previous issuances that conflict with this Executive Order
are hereby repealed or modified accordingly.
 
SECTION 6. This Executive Order takes effect immediately. (Emphasis and
underscoring supplied)
 
E.O. No. 379, which amended E.O. No. 364 a month later or on October 26, 2004,
reads:
EXECUTIVE ORDER NO. 379
 
AMENDING EXECUTIVE ORDER NO. 364 ENTITLED TRANSFORMING THE
DEPARTMENT OF AGRARIAN REFORM INTO THE DEPARTMENT OF LAND
REFORM
 
WHEREAS, Republic Act No. 8371 created the National
Commission on Indigenous Peoples;
 
WHEREAS, pursuant to the Administrative Code of 1987, the
President has the continuing authority to reorganize the administrative
structure of the National Government.
 
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President
of the Republic of the Philippines, by virtue of the powers vested in me by
the Constitution and existing laws, do hereby order:
Section 1. Amending Section 3 of Executive Order No. 364.
Section 3 of Executive Order No. 364, dated September 27, 2004 shall
now read as follows:
 
Section 3. The National Commission on Indigenous
Peoples (NCIP) shall be an attached agency of the
Department of Land Reform.
 
Section 2. Compensation. The Chairperson shall suffer no
diminution in rank and salary.
Section 3. Repealing Clause. All executive issuances, rules and
regulations or parts thereof which are inconsistent with this Executive
Order are hereby revoked, amended or modified accordingly.
 
Section 4. Effectivity. This Executive Order shall take effect
immediately. (Emphasis and underscoring in the original)
 
 
Petitioners contend that the two presidential issuances are unconstitutional for
violating:
 
-         THE CONSTITUTIONAL PRINCIPLES OF SEPARATION OF POWERS
AND OF THE RULE OF LAW[;]
-         THE CONSTITUTIONAL SCHEME AND POLICIES FOR AGRARIAN
REFORM, URBAN LAND REFORM, INDIGENOUS PEOPLES RIGHTS AND
ANCESTRAL DOMAIN[; AND]
-         THE CONSTITUTIONAL RIGHT OF THE PEOPLE AND THEIR
ORGANIZATIONS TO EFFECTIVE AND REASONABLE PARTICIPATION IN
DECISION-MAKING, INCLUDING THROUGH ADEQUATE
CONSULTATION[.][1]
 
By Resolution of December 6, 2005, this Court gave due course to the Petition and
required the submission of memoranda, with which petitioners and respondents complied
on March 24, 2006 and April 11, 2006, respectively.
 
The issue on the transformation of the Department of Agrarian Reform (DAR) into
the Department of Land Reform (DLR) became moot and academic, however, the
department having reverted to its former name by virtue of E.O. No. 456[2] which was issued
on August 23, 2005.
 
The Court is thus left with the sole issue of the legality of placing the Presidential
Commission[3] for the Urban Poor (PCUP) under the supervision and control of the DAR, and
the National Commission on Indigenous Peoples (NCIP) under the DAR as an attached agency.
 
Before inquiring into the validity of the reorganization, petitioners locus standi or
legal standing, inter alia,[4] becomes a preliminary question.
The Office of the Solicitor General (OSG), on behalf of respondents, concedes that
AMIN[5] has the requisite legal standing to file this suit as member[6] of Congress.
 
Petitioners find it impermissible for the Executive to intrude into the domain of the
Legislature. They posit that an act of the Executive which injures the institution of Congress
causes a derivative but nonetheless substantial injury, which can be questioned by a member
of Congress.[7] They add that to the extent that the powers of Congress are impaired, so is
the power of each member thereof, since his office confers a right to participate in the
exercise of the powers of that institution.[8]
 
 Indeed, a member of the House of Representatives has standing to maintain
inviolate the prerogatives, powers and privileges vested by the Constitution in his office.[9]
The OSG questions, however, the standing of MDOI, a registered peoples
organization of Teduray and Lambangian tribesfolk of (North) Upi and South Upi in the
province of Maguindanao.
As co-petitioner, MDOI alleges that it is concerned with the negative impact of
NCIPs becoming an attached agency of the DAR on the processing of ancestral domain
claims. It fears that transferring the NCIP to the DAR would affect the processing of ancestral
domain claims filed by its members.
Locus standi or legal standing has been defined as a personal and substantial
interest in a case such that the party has sustained or will sustain direct injury as a result of
the governmental act that is being challenged. The gist of the question of standing is whether
a party alleges such personal stake in the outcome of the controversy as to assure that
concrete adverseness which sharpens the presentation of issues upon which the court
depends for illumination of difficult constitutional questions.[10]
 
It has been held that a party who assails the constitutionality of a statute must
have a direct and personal interest. It must show not only that the law or any governmental
act is invalid, but also that it sustained or is in immediate danger of sustaining some direct
injury as a result of its enforcement, and not merely that it suffers thereby in some indefinite
way. It must show that it has been or is about to be denied some right or privilege to which it
is lawfully entitled or that it is about to be subjected to some burdens or penalties by reason
of the statute or act complained of.[11]
 
For a concerned party to be allowed to raise a constitutional question, it must show
that (1) it has personally suffered some actual or threatened injury as a result of the allegedly
illegal conduct of the government, (2) the injury is fairly traceable to the challenged action,
and (3) the injury is likely to be redressed by a favorable action.[12]
 
An examination of MDOIs nebulous claims of negative impact and probable
setbacks[13] shows that they are too abstract to be considered judicially cognizable. And the
line of causation it proffers between the challenged action and alleged injury is too
attenuated.
 
Vague propositions that the implementation of the assailed orders will work
injustice and violate the rights of its members cannot clothe MDOI with the requisite
standing. Neither would its status as a peoples organization vest it with the legal standing to
assail the validity of the executive orders.[14]
 
La Bugal-Blaan Tribal Association, Inc. v. Ramos,[15] which MDOI cites in support of
its claim to legal standing, is inapplicable as it is not similarly situated with the therein
petitioners who alleged personal and substantial injury resulting from the mining activities
permitted by the assailed statute. And so is Cruz v. Secretary of Environment and Natural
Resources,[16] for the indigenous peoples leaders and organizations were not the petitioners
therein, who necessarily had to satisfy the locus standi requirement, but were intervenors
who sought and were allowed to be impleaded, not to assail but to defend the
constitutionality of the statute.
Moreover, MDOI raises no issue of transcendental importance to justify a
relaxation of the rule on legal standing. To be accorded standing on the ground of
transcendental importance, Senate of the Philippines v. Ermita[17] requires that the following
elements must be established: (1) the public character of the funds or other assets involved
in the case, (2) the presence of a clear case of disregard of a constitutional or statutory
prohibition by the public respondent agency or instrumentality of government, and (3) the
lack of any other party with a more direct and specific interest in raising the questions being
raised. The presence of these elements MDOI failed to establish, much less allege.
Francisco, Jr. v. Fernando[18] more specifically declares that the transcendental
importance of the issues raised must relate to the merits of the petition.
 
This Court, not being a venue for the ventilation of generalized grievances, must
thus deny adjudication of the matters raised by MDOI.
 
Now, on AMINs position. AMIN charges the Executive Department with
transgression of the principle of separation of powers.
 
Under the principle of separation of powers, Congress, the President, and the
Judiciary may not encroach on fields allocated to each of them. The legislature is generally
limited to the enactment of laws, the executive to the enforcement of laws, and the judiciary
to their interpretation and application to cases and controversies. The principle presupposes
mutual respect by and between the executive, legislative and judicial departments of the
government and calls for them to be left alone to discharge their duties as they see fit.[19]
 
AMIN contends that since the DAR, PCUP and NCIP were created by statutes,[20]
they can only be transformed, merged or attached by statutes, not by mere executive orders.
 
While AMIN concedes that the executive power is vested in the President[21] who,
as Chief Executive, holds the power of control of all the executive departments, bureaus, and
offices,[22] it posits that this broad power of control including the power to reorganize is
qualified and limited, for it cannot be exercised in a manner contrary to law, citing the
constitutional duty[23] of the President to ensure that the laws, including those creating the
agencies, be faithfully executed.
 
AMIN cites the naming of the PCUP as a presidential commission to be clearly an
extension of the President, and the creation of the NCIP as an independent agency under the
Office of the President.[24] It thus argues that since the legislature had seen fit to create
these agencies at separate times and with distinct mandates, the President should respect
that legislative disposition.
 
In fine, AMIN contends that any reorganization of these administrative agencies
should be the subject of a statute.
 
AMINs position fails to impress.
 The Constitution confers, by express provision, the power of control over executive
departments, bureaus and offices in the President alone. And it lays down a limitation on the
legislative power.
 
The line that delineates the Legislative and Executive power is
not indistinct. Legislative power is the authority, under the Constitution,
to make laws, and to alter and repeal them. The Constitution, as the will
of the people in their original, sovereign and unlimited capacity, has
vested this power in the Congress of the Philippines. The grant of
legislative power to Congress is broad, general and comprehensive. The
legislative body possesses plenary power for all purposes of civil
government. Any power, deemed to be legislative by usage and tradition,
is necessarily possessed by Congress, unless the Constitution has lodged
it elsewhere. In fine, except as limited by the Constitution, either
expressly or impliedly, legislative power embraces all subjects and
extends to matters of general concern or common interest.
While Congress is vested with the power to enact laws, the
President executes the laws. The executive power is vested in the
President. It is generally defined as the power to enforce and administer
the laws. It is the power of carrying the laws into practical operation and
enforcing their due observance.
As head of the Executive Department, the President is the Chief
Executive. He represents the government as a whole and sees to it that
all laws are enforced by the officials and employees of his department.
He has control over the executive department, bureaus and offices. This
means that he has the authority to assume directly the functions of the
executive department, bureau and office, or interfere with the discretion
of its officials. Corollary to the power of control, the President also has
the duty of supervising and enforcement of laws for the maintenance of
general peace and public order. Thus, he is granted administrative power
over bureaus and offices under his control to enable him to discharge his
duties effectively.[25] (Italics omitted, underscoring supplied)
The Constitutions express grant of the power of control in the President justifies an
executive action to carry out reorganization measures under a broad authority of law.[26]
In enacting a statute, the legislature is presumed to have deliberated with full
knowledge of all existing laws and jurisprudence on the subject.[27] It is thus reasonable to
conclude that in passing a statute which places an agency under the Office of the President, it
was in accordance with existing laws and jurisprudence on the Presidents power to
reorganize.
In establishing an executive department, bureau or office, the legislature
necessarily ordains an executive agencys position in the scheme of administrative structure.
Such determination is primary,[28] but subject to the Presidents continuing authority to
reorganize the administrative structure. As far as bureaus, agencies or offices in the executive
department are concerned, the power of control may justify the President to deactivate the
functions of a particular office. Or a law may expressly grant the President the broad
authority to carry out reorganization measures.[29] The Administrative Code of 1987 is one
such law:[30]
 
SEC. 30. Functions of Agencies under the Office of the President.
Agencies under the Office of the President shall continue to operate and
function in accordance with their respective charters or laws creating
them, except as otherwise provided in this Code or by law.
SEC. 31. Continuing Authority of the President to Reorganize his
Office. The President, subject to the policy in the Executive Office and in
order to achieve simplicity, economy and efficiency, shall have
continuing authority to reorganize the administrative structure of the
Office of the President. For this purpose, he may take any of the following
actions:
(1) Restructure the internal organization of the Office of the
President Proper, including the immediate Offices, the Presidential Special
Assistants/Advisers System and the Common Staff Support System, by
abolishing, consolidating, or merging units thereof or transferring
functions from one unit to another;
(2) Transfer any function under the Office of the President to
any other Department or Agency as well as transfer functions to the
Office of the President from other Departments and Agencies; and
(3) Transfer any agency under the Office of the President to any
other department or agency as well as transfer agencies to the Office of
the President from other departments or agencies.[31] (Italics in the
original; emphasis and underscoring supplied)
In carrying out the laws into practical operation, the President is best equipped to
assess whether an executive agency ought to continue operating in accordance with its
charter or the law creating it. This is not to say that the legislature is incapable of making a
similar assessment and appropriate action within its plenary power. The Administrative Code
of 1987 merely underscores the need to provide the President with suitable solutions to
situations on hand to meet the exigencies of the service that may call for the exercise of the
power of control.
x x x The law grants the President this power in recognition of
the recurring need of every President to reorganize his office to achieve
simplicity, economy and efficiency. The Office of the President is the
nerve center of the Executive Branch. To remain effective and efficient,
the Office of the President must be capable of being shaped and
reshaped by the President in the manner he deems fit to carry out his
directives and policies. After all, the Office of the President is the
 command post of the President. This is the rationale behind the
Presidents continuing authority to reorganize the administrative
structure of the Office of the President.[32]
 
 
The Office of the President consists of the Office of the President proper and the
agencies under it.[33] It is not disputed that PCUP and NCIP were formed as agencies under
the Office of the President.[34] The Agencies under the Office of the President refer to those
offices placed under the chairmanship of the President, those under the supervision and
control of the President, those under the administrative supervision of the Office of the
President, those attached to the Office for policy and program coordination, and those that
are not placed by law or order creating them under any special department.[35]
 
As thus provided by law, the President may transfer any agency under the Office of
the President to any other department or agency, subject to the policy in the Executive Office
and in order to achieve simplicity, economy and efficiency. Gauged against these guidelines,
[36] the challenged executive orders may not be said to have been issued with grave abuse
of discretion or in violation of the rule of law.
 
The references in E.O. 364 to asset reform as an anti-poverty measure for social
justice and to rationalization of the bureaucracy in furtherance of good government[37]
encapsulate a portion of the existing policy in the Executive Office. As averred by the OSG,
the President saw it fit to streamline the agencies so as not to hinder the delivery of crucial
social reforms.[38]
 
The consolidation of functions in E.O. 364 aims to attain the objectives of simplicity,
economy and efficiency as gathered from the provision granting PCUP and NCIP access to the
range of services provided by the DARs technical offices and support systems.[39]
 
The characterization of the NCIP as an independent agency under the Office of the
President does not remove said body from the Presidents control and supervision with
respect to its performance of administrative functions. So it has been opined:
 
That Congress did not intend to place the NCIP under the
control of the President in all instances is evident in the IPRA itself,
which provides that the decisions of the NCIP in the exercise of its quasi-
judicial functions shall be appealable to the Court of Appeals, like those
of the National Labor Relations Commission (NLRC) and the Securities
and Exchange Commission (SEC). Nevertheless, the NCIP, although
independent to a certain degree, was placed by Congress under the
office of the President and, as such, is still subject to the Presidents
power of control and supervision granted under Section 17, Article VII of
the Constitution with respect to its performance of administrative
functions[.][40] (Underscoring supplied)
 
 
In transferring the NCIP to the DAR as an attached agency, the President effectively
tempered the exercise of presidential authority and considerably recognized that degree of
independence.
 
The Administrative Code of 1987 categorizes administrative relationships into (1)
supervision and control, (2) administrative supervision, and (3) attachment.[41] With respect
to the third category, it has been held that an attached agency has a larger measure of
independence from the Department to which it is attached than one which is under
departmental supervision and control or administrative supervision. This is borne out by the
lateral relationship between the Department and the attached agency. The attachment is
merely for policy and program coordination.[42] Indeed, the essential autonomous character
of a board is not negated by its attachment to a commission.[43]
 
AMIN argues, however, that there is an anachronism of sorts because there can be
no policy and program coordination between conceptually different areas of reform. It claims
that the new framework subsuming agrarian reform, urban land reform and ancestral
domain reform is fundamentally incoherent in view of the widely different contexts.[44] And
it posits that it is a substantive transformation or reorientation that runs contrary to the
constitutional scheme and policies.
 
AMIN goes on to proffer the concept of ordering the law[45] which, so it alleges,
can be said of the Constitutions distinct treatment of these three areas, as reflected in
separate provisions in different parts of the Constitution.[46] It argues that the Constitution
did not intend an over-arching concept of agrarian reform to encompass the two other areas,
and that how the law is ordered in a certain way should not be undermined by mere
executive orders in the guise of administrative efficiency.
 
The Court is not persuaded.
 
 
 
The interplay of various areas of reform in the promotion of social justice is not
something implausible or unlikely.[47] Their interlocking nature cuts across labels and works
against a rigid pigeonholing of executive tasks among the members of the Presidents official
family. Notably, the Constitution inhibited from identifying and compartmentalizing the
composition of the Cabinet. In vesting executive power in one person rather than in a plural
executive, the evident intention was to invest the power holder with energy.[48]
 
AMIN takes premium on the severed treatment of these reform areas in marked
provisions of the Constitution. It is a precept, however, that inferences drawn from title,
chapter or section headings are entitled to very little weight.[49] And so must reliance on
sub-headings,[50] or the lack thereof, to support a strained deduction be given the weight of
helium.
 
Secondary aids may be consulted to remove, not to create doubt.[51] AMINs thesis
unsettles, more than settles the order of things in construing the Constitution. Its
interpretation fails to clearly establish that the so-called ordering or arrangement of
provisions in the Constitution was consciously adopted to imply a signification in terms of
government hierarchy from where a constitutional mandate can per se be derived or
asserted. It fails to demonstrate that the ordering or layout was not simply a matter of style
in constitutional drafting but one of intention in government structuring. With its inherent
ambiguity, the proposed interpretation cannot be made a basis for declaring a law or
governmental act unconstitutional.
A law has in its favor the presumption of constitutionality. For it to be nullified, it
must be shown that there is a clear and unequivocal breach of the Constitution. The ground
for nullity must be clear and beyond reasonable doubt.[52] Any reasonable doubt should,
following the universal rule of legal hermeneutics, be resolved in favor of the
constitutionality of a law.[53]
Ople v. Torres[54] on which AMIN relies is unavailing. In that case, an
administrative order involved a system of identification that required a delicate adjustment
of various contending state policies properly lodged in the legislative arena. It was declared
unconstitutional for dealing with a subject that should be covered by law and for violating
the right to privacy.
 
In the present case, AMIN glaringly failed to show how the reorganization by
executive fiat would hamper the exercise of citizens rights and privileges. It rested on the
ambiguous conclusion that the reorganization jeopardizes economic, social and cultural
rights. It intimated, without expounding, that the agendum behind the issuances is to
weaken the indigenous peoples rights in favor of the mining industry. And it raised concerns
about the possible retrogression in DARs performance as the added workload may impede
the implementation of the comprehensive agrarian reform program.
AMIN has not shown, however, that by placing the NCIP as an attached agency of
the DAR, the President altered the nature and dynamics of the jurisdiction and adjudicatory
functions of the NCIP concerning all claims and disputes involving rights of indigenous
cultural communities and indigenous peoples. Nor has it been shown, nay alleged, that the
reorganization was made in bad faith.[55]
 
As for the other arguments raised by AMIN which pertain to the wisdom or
soundness of the executive decision, the Court finds it unnecessary to pass upon them. The
raging debate on the most fitting framework in the delivery of social services is endless in the
political arena. It is not the business of this Court to join in the fray. Courts have no judicial
power to review cases involving political questions and, as a rule, will desist from taking
cognizance of speculative or hypothetical cases, advisory opinions and cases that have
become moot.[56]
 
Finally, a word on the last ground proffered for declaring the unconstitutionality of
the assailed issuances ─ that they violate Section 16, Article XIII of the Constitution[57] on the
peoples right to participate in decision-making through adequate consultation mechanisms.
 
The framers of the Constitution recognized that the consultation mechanisms were
already operating without the States action by law, such that the role of the State would be
mere facilitation, not necessarily creation of these consultation mechanisms. The State
provides the support, but eventually it is the people, properly organized in their associations,
who can assert the right and pursue the objective. Penalty for failure on the part of the
government to consult could only be reflected in the ballot box and would not nullify
government action.[58]
 
 
WHEREFORE, the petition is DISMISSED. Executive Order Nos. 364 and 379 issued
on September 27, 2004 and October 26, 2004, respectively, are declared not
unconstitutional.
 
SO ORDERED.
EN BANC
 
G.R. No. 120295 June 28, 1996
JUAN G. FRIVALDO, petitioner,
vs.
COMMISSION ON ELECTIONS, and RAUL R. LEE, respondents.
G.R. No. 123755 June 28, 1996
RAUL R. LEE, petitioner,
vs.
COMMISSION ON ELECTIONS and JUAN G. FRIVALDO, respondents.
 
PANGANIBAN, J.:p
The ultimate question posed before this Court in these twin cases is: Who should be declared
the rightful governor of Sorsogon -
(i) Juan G. Frivaldo, who unquestionably obtained the highest number of votes in three
successive elections but who was twice declared by this Court to be disqualified to hold such
office due to his alien citizenship, and who now claims to have re-assumed his lost Philippine
citizenship thru repatriation;
(ii) Raul R. Lee, who was the second placer in the canvass, but who claims that the votes cast
in favor of Frivaldo should be considered void; that the electorate should be deemed to have
intentionally thrown away their ballots; and that legally, he secured the most number of
valid votes; or
(iii) The incumbent Vice-Governor, Oscar G. Deri, who obviously was not voted directly to the
position of governor, but who according to prevailing jurisprudence should take over the said
post inasmuch as, by the ineligibility of Frivaldo, a "permanent vacancy in the contested
office has occurred"?
In ruling for Frivaldo, the Court lays down new doctrines on repatriation,
clarifies/reiterates/amplifies existing jurisprudence on citizenship and elections, and upholds
the superiority of substantial justice over pure legalisms.
G.R. No. 123755
This is a special civil action under Rules 65 and 58 of the Rules of Court for certiorari and
preliminary injunction to review and annul a Resolution of the respondent Commission on
Elections (Comelec), First Division,1 promulgated on December 19, 19952 and another
Resolution of the Comelec en banc promulgated February 23, 19963 denying petitioner's
motion for reconsideration.
The Facts
On March 20, 1995, private respondent Juan G. Frivaldo filed his Certificate of Candidacy for
the office of Governor of Sorsogon in the May 8, 1995 elections. On March 23, 1995,
petitioner Raul R. Lee, another candidate, filed a petition4 with the Comelec docketed as SPA
No. 95-028 praying that Frivaldo "be disqualified from seeking or holding any public office or
position by reason of not yet being a citizen of the Philippines", and that his Certificate of
Candidacy be canceled. On May 1, 1995, the Second Division of the Comelec promulgated a
Resolution5 granting the petition with the following disposition6:
WHEREFORE, this Division resolves to GRANT the petition and declares
that respondent is DISQUALIFIED to run for the Office of Governor of
Sorsogon on the ground that he is NOT a citizen of the Philippines.
Accordingly, respondent's certificate of candidacy is canceled.
The Motion for Reconsideration filed by Frivaldo remained unacted upon until after the May
8, 1995 elections. So, his candidacy continued and he was voted for during the elections held
on said date. On May 11, 1995, the Comelec en banc7 affirmed the aforementioned
Resolution of the Second Division.
The Provincial Board of Canvassers completed the canvass of the election returns and a
Certificate of Votes8 dated May 27, 1995 was issued showing the following votes obtained by
the candidates for the position of Governor of Sorsogon:
Antonio H. Escudero, Jr. 51,060
Juan G. Frivaldo 73,440
Raul R. Lee 53,304
Isagani P. Ocampo 1,925
On June 9, 1995, Lee filed in said SPA No. 95-028, a (supplemental) petition9 praying for his
proclamation as the duly-elected Governor of Sorsogon.
In an order10 dated June 21, 1995, but promulgated according to the petition "only on June
29, 1995," the Comelec en banc directed "the Provincial Board of Canvassers of Sorsogon to
reconvene for the purpose of proclaiming candidate Raul Lee as the winning gubernatorial
candidate in the province of Sorsogon on June 29, 1995 . . ." Accordingly, at 8:30 in the
evening of June 30, 1995, Lee was proclaimed governor of Sorsogon.
On July 6, 1995, Frivaldo filed with the Comelec a new petition,11 docketed as SPC No. 95-
317, praying for the annulment of the June 30, 1995 proclamation of Lee and for his own
proclamation. He alleged that on June 30, 1995, at 2:00 in the afternoon, he took his oath of
allegiance as a citizen of the Philippines after "his petition for repatriation under P.D. 725
which he filed with the Special Committee on Naturalization in September 1994 had been
granted". As such, when "the said order (dated June 21, 1995) (of the Comelec) . . . was
released and received by Frivaldo on June 30, 1995 at 5:30 o'clock in the evening, there was
no more legal impediment to the proclamation (of Frivaldo) as governor . . ." In the
alternative, he averred that pursuant to the two cases of Labo vs. Comelec,12 the Vice-
Governor - not Lee - should occupy said position of governor.
On December 19, 1995, the Comelec First Division promulgated the herein assailed
Resolution13 holding that Lee, "not having garnered the highest number of votes," was not
legally entitled to be proclaimed as duly-elected governor; and that Frivaldo, "having
garnered the highest number of votes,
and . . . having reacquired his Filipino citizenship by repatriation on June 30, 1995 under the
provisions of Presidential Decree No. 725 . . . (is) qualified to hold the office of governor of
Sorsogon"; thus:
PREMISES CONSIDERED, the Commission (First Division), therefore
RESOLVES to GRANT the Petition.
Consistent with the decisions of the Supreme Court, the proclamation of
Raul R. Lee as Governor of Sorsogon is hereby ordered annulled, being
contrary to law, he not having garnered the highest number of votes to
warrant his proclamation.
Upon the finality of the annulment of the proclamation of Raul R. Lee, the
Provincial Board of Canvassers is directed to immediately reconvene and,
on the basis of the completed canvass, proclaim petitioner Juan G.
Frivaldo as the duly elected Governor of Sorsogon having garnered the
highest number of votes, and he having reacquired his Filipino citizenship
by repatriation on June 30, 1995 under the provisions of Presidential
Decree No. 725 and, thus, qualified to hold the office of Governor of
Sorsogon.
Conformably with Section 260 of the Omnibus Election Code (B.P. Blg.
881), the Clerk of the Commission is directed to notify His Excellency the
President of the Philippines, and the Secretary of the Sangguniang
Panlalawigan of the Province of Sorsogon of this resolution immediately
upon the due implementation thereof.
On December 26, 1995, Lee filed a motion for reconsideration which was denied by the
Comelec en banc in its Resolution 14 promulgated on February 23, 1996. On February 26,
1996, the present petition was filed. Acting on the prayer for a temporary restraining order,
this Court issued on February 27, 1996 a Resolution which inter alia directed the parties "to
maintain the status quo prevailing prior to the filing of this petition."
The Issues in G.R. No. 123755
Petitioner Lee's "position on the matter at hand may briefly be capsulized in the following
propositions"15:
First -- The initiatory petition below was so far insufficient in form and
substance to warrant the exercise by the COMELEC of its jurisdiction with
the result that, in effect, the COMELEC acted without jurisdiction in taking
cognizance of and deciding said petition;
Second -- The judicially declared disqualification of respondent was a
continuing condition and rendered him ineligible to run for, to be elected
to and to hold the Office of Governor;
Third -- The alleged repatriation of respondent was neither valid nor is
the effect thereof retroactive as to cure his ineligibility and qualify him to
hold the Office of Governor; and
Fourth -- Correctly read and applied, the Labo Doctrine fully supports the
validity of petitioner's proclamation as duly elected Governor of
Sorsogon.
G.R. No. 120295
This is a petition to annul three Resolutions of the respondent Comelec, the first two of
which are also at issue in G.R. No. 123755, as follows:
1. Resolution16 of the Second Division, promulgated on May 1, 1995,
disqualifying Frivaldo from running for governor of Sorsogon in the May
8, 1995 elections "on the ground that he is not a citizen of the
Philippines";
2. Resolution17 of the Comelec en banc, promulgated on May 11, 1995;
and
3. Resolution18 of the Comelec en banc, promulgated also on May 11,
1995 suspending the proclamation of, among others, Frivaldo.
The Facts and the Issue
The facts of this case are essentially the same as those in G.R. No. 123755. However, Frivaldo
assails the above-mentioned resolutions on a different ground: that under Section 78 of the
Omnibus Election Code, which is reproduced hereinunder:
Sec. 78. Petition to deny due course or to cancel a certificate of candidacy.
-- A verified petition seeking to deny due course or to cancel a certificate
of candidacy may be filed by any person exclusively on the ground that
any material representation contained therein as required under Section
74 hereof is false. The petition may be filed at any time not later than
twenty-five days from the time of the filing of the certificate of candidacy
and shall be decided, after notice and hearing, not later than fifteen days
before the election. (Emphasis supplied.)
the Comelec had no jurisdiction to issue said Resolutions because they were not
rendered "within the period allowed by law" i.e., "not later than fifteen days before
the election."
Otherwise stated, Frivaldo contends that the failure of the Comelec to act on the petition for
disqualification within the period of fifteen days prior to the election as provided by law is a
jurisdictional defect which renders the said Resolutions null and void.
By Resolution on March 12, 1996, the Court consolidated G.R. Nos. 120295 and 123755 since
they are intimately related in their factual environment and are identical in the ultimate
question raised, viz., who should occupy the position of governor of the province of
Sorsogon.
On March 19, 1995, the Court heard oral argument from the parties and required them
thereafter to file simultaneously their respective memoranda.
The Consolidated Issues
From the foregoing submissions, the consolidated issues may be restated as follows:
1. Was the repatriation of Frivaldo valid and legal? If so, did it seasonably cure his lack of
citizenship as to qualify him to be proclaimed and to hold the Office of Governor? If not, may
it be given retroactive effect? If so, from when?
2. Is Frivaldo's "judicially declared" disqualification for lack of Filipino citizenship a continuing
bar to his eligibility to run for, be elected to or hold the governorship of Sorsogon?
3. Did the respondent Comelec have jurisdiction over the initiatory petition in SPC No. 95-317
considering that said petition is not "a pre-proclamation case, an election protest or a quo
warranto case"?
4. Was the proclamation of Lee, a runner-up in the election, valid and legal in light of existing
jurisprudence?
5. Did the respondent Commission on Elections exceed its jurisdiction in promulgating the
assailed Resolutions, all of which prevented Frivaldo from assuming the governorship of
Sorsogon, considering that they were not rendered within the period referred to in Section
78 of the Omnibus Election Code, viz., "not later than fifteen days before the elections"?
The First Issue: Frivaldo's Repatriation
The validity and effectivity of Frivaldo's repatriation is the lis mota, the threshold legal issue
in this case. All the other matters raised are secondary to this.
The Local Government Code of 199119 expressly requires Philippine citizenship as a
qualification for elective local officials, including that of provincial governor, thus:
Sec. 39. Qualifications. -- (a) An elective local official must be a citizen of
the Philippines; a registered voter in the barangay, municipality, city, or
province or, in the case of a member of the sangguniang panlalawigan,
sangguniang panlungsod, or sangguniang bayan, the district where he
intends to be elected; a resident therein for at least one (1) year
immediately preceding the day of the election; and able to read and write
Filipino or any other local language or dialect.
(b) Candidates for the position of governor, vice
governor or member of the sangguniang
panlalawigan, or mayor, vice mayor or member of the
sangguniang panlungsod of highly urbanized cities
must be at least twenty-three (23) years of age on
election day.
x x x           x x x          x x x
Inasmuch as Frivaldo had been declared by this Court20 as a non-citizen, it is therefore
incumbent upon him to show that he has reacquired citizenship; in fine, that he possesses
the qualifications prescribed under the said statute (R.A. 7160).
Under Philippine law,21 citizenship may be reacquired by direct act of Congress, by
naturalization or by repatriation. Frivaldo told this Court in G.R. No. 10465422 and during the
oral argument in this case that he tried to resume his citizenship by direct act of Congress,
but that the bill allowing him to do so "failed to materialize, notwithstanding the
endorsement of several members of the House of Representatives" due, according to him, to
the "maneuvers of his political rivals." In the same case, his attempt at naturalization was
rejected by this Court because of jurisdictional, substantial and procedural defects.
Despite his lack of Philippine citizenship, Frivaldo was overwhelmingly elected governor by
the electorate of Sorsogon, with a margin of 27,000 votes in the 1988 elections, 57,000 in
1992, and 20,000 in 1995 over the same opponent Raul Lee. Twice, he was judicially declared
a non-Filipino and thus twice disqualified from holding and discharging his popular mandate.
Now, he comes to us a third time, with a fresh vote from the people of Sorsogon and a
favorable decision from the Commission on Elections to boot. Moreover, he now boasts of
having successfully passed through the third and last mode of reacquiring citizenship: by
repatriation under P.D. No. 725, with no less than the Solicitor General himself, who was the
prime opposing counsel in the previous cases he lost, this time, as counsel for co-respondent
Comelec, arguing the validity of his cause (in addition to his able private counsel Sixto S.
Brillantes, Jr.). That he took his oath of allegiance under the provisions of said Decree at 2:00
p.m. on June 30, 1995 is not disputed. Hence, he insists that he -- not Lee -- should have been
proclaimed as the duly-elected governor of Sorsogon when the Provincial Board of
Canvassers met at 8:30 p.m. on the said date since, clearly and unquestionably, he garnered
the highest number of votes in the elections and since at that time, he already reacquired his
citizenship.
En contrario, Lee argues that Frivaldo's repatriation is tainted with serious defects, which we
shall now discuss in seriatim.
First, Lee tells us that P.D. No. 725 had "been effectively repealed", asserting that "then
President Corazon Aquino exercising legislative powers under the Transitory Provisions of the
1987 Constitution, forbade the grant of citizenship by Presidential Decree or Executive
Issuances as the same poses a serious and contentious issue of policy which the present
government, in the exercise of prudence and sound discretion, should best leave to the
judgment of the first Congress under the 1987 Constitution", adding that in her
memorandum dated March 27, 1987 to the members of the Special Committee on
Naturalization constituted for purposes of Presidential Decree No. 725, President Aquino
directed them "to cease and desist from undertaking any and all proceedings within your
functional area of responsibility as defined under Letter of Instructions (LOI) No. 270 dated
April 11, 1975, as amended."23
This memorandum dated March 27, 198724 cannot by any stretch of legal hermeneutics be
construed as a law sanctioning or authorizing a repeal of P.D. No. 725. Laws are repealed only
by subsequent ones 25 and a repeal may be express or implied. It is obvious that no express
repeal was made because then President Aquino in her memorandum -- based on the copy
furnished us by Lee -- did not categorically and/or impliedly state that P.D. 725 was being
repealed or was being rendered without any legal effect. In fact, she did not even mention it
specifically by its number or text. On the other hand, it is a basic rule of statutory
construction that repeals by implication are not favored. An implied repeal will not be
allowed "unless it is convincingly and unambiguously demonstrated that the two laws are
clearly repugnant and patently inconsistent that they cannot co-exist".26
The memorandum of then President Aquino cannot even be regarded as a legislative
enactment, for not every pronouncement of the Chief Executive even under the Transitory
Provisions of the 1987 Constitution can nor should be regarded as an exercise of her law-
making powers. At best, it could be treated as an executive policy addressed to the Special
Committee to halt the acceptance and processing of applications for repatriation pending
whatever "judgment the first Congress under the 1987 Constitution" might make. In other
words, the former President did not repeal P.D. 725 but left it to the first Congress -- once
created -- to deal with the matter. If she had intended to repeal such law, she should have
unequivocally said so instead of referring the matter to Congress. The fact is she carefully
couched her presidential issuance in terms that clearly indicated the intention of "the
present government, in the exercise of prudence and sound discretion" to leave the matter
of repeal to the new Congress. Any other interpretation of the said Presidential
Memorandum, such as is now being proffered to the Court by Lee, would visit unmitigated
violence not only upon statutory construction but on common sense as well.
Second, Lee also argues that "serious congenital irregularities flawed the repatriation
proceedings," asserting that Frivaldo's application therefor was "filed on June 29, 1995 . . .
(and) was approved in just one day or on June 30, 1995 . . .", which "prevented a judicious
review and evaluation of the merits thereof." Frivaldo counters that he filed his application
for repatriation with the Office of the President in Malacañang Palace on August 17, 1994.
This is confirmed by the Solicitor General. However, the Special Committee was reactivated
only on June 8, 1995, when presumably the said Committee started processing his
application. On June 29, 1995, he filled up and re-submitted the FORM that the Committee
required. Under these circumstances, it could not be said that there was "indecent haste" in
the processing of his application.
Anent Lee's charge that the "sudden reconstitution of the Special Committee on
Naturalization was intended solely for the personal interest of respondent,"27 the Solicitor
General explained during the oral argument on March 19, 1996 that such allegation is simply
baseless as there were many others who applied and were considered for repatriation, a list
of whom was submitted by him to this Court, through a Manifestation28 filed on April 3,
1996.
On the basis of the parties' submissions, we are convinced that the presumption of regularity
in the performance of official duty and the presumption of legality in the repatriation of
Frivaldo have not been successfully rebutted by Lee. The mere fact that the proceedings
were speeded up is by itself not a ground to conclude that such proceedings were necessarily
tainted. After all, the requirements of repatriation under P.D. No. 725 are not difficult to
comply with, nor are they tedious and cumbersome. In fact, P.D.
72529 itself requires very little of an applicant, and even the rules and regulations to
implement the said decree were left to the Special Committee to promulgate. This is not
unusual since, unlike in naturalization where an alien covets a first-time entry into Philippine
political life, in repatriation the applicant is a former natural-born Filipino who is merely
seeking to reacquire his previous citizenship. In the case of Frivaldo, he was undoubtedly a
natural-born citizen who openly and faithfully served his country and his province prior to his
naturalization in the United States -- a naturalization he insists was made necessary only to
escape the iron clutches of a dictatorship he abhorred and could not in conscience embrace
-- and who, after the fall of the dictator and the re-establishment of democratic space,
wasted no time in returning to his country of birth to offer once more his talent and services
to his people.
So too, the fact that ten other persons, as certified to by the Solicitor General, were granted
repatriation argues convincingly and conclusively against the existence of favoritism
vehemently posited by Raul Lee. At any rate, any contest on the legality of Frivaldo's
repatriation should have been pursued before the Committee itself, and, failing there, in the
Office of the President, pursuant to the doctrine of exhaustion of administrative remedies.
Third, Lee further contends that assuming the assailed repatriation to be valid, nevertheless
it could only be effective as at 2:00 p.m. of June 30, 1995 whereas the citizenship
qualification prescribed by the Local Government Code "must exist on the date of his
election, if not when the certificate of candidacy is filed," citing our decision in G.R. 10465430
which held that "both the Local Government Code and the Constitution require that only
Philippine citizens can run and be elected to public office." Obviously, however, this was a
mere obiter as the only issue in said case was whether Frivaldo's naturalization was valid or
not -- and NOT the effective date thereof. Since the Court held his naturalization to be
invalid, then the issue of when an aspirant for public office should be a citizen was NOT
resolved at all by the Court. Which question we shall now directly rule on.
Under Sec. 39 of the Local Government Code, "(a)n elective local official must be:
* a citizen of the Philippines;
* a registered voter in the barangay, municipality, city, or province . . .
where he intends to be elected;
* a resident therein for at least one (1) year immediately preceding the
day of the election;
* able to read and write Filipino or any other local language or dialect.
* In addition, "candidates for the position of governor . . . must be at
least twenty-three (23) years of age on election day.
From the above, it will be noted that the law does not specify any particular date or time
when the candidate must possess citizenship, unlike that for residence (which must consist of
at least one year's residency immediately preceding the day of election) and age (at least
twenty three years of age on election day).
Philippine citizenship is an indispensable requirement for holding an elective public office,31
and the purpose of the citizenship qualification is none other than to ensure that no alien,
i.e., no person owing allegiance to another nation, shall govern our people and our country
or a unit of territory thereof. Now, an official begins to govern or to discharge his functions
only upon his proclamation and on the day the law mandates his term of office to begin.
Since Frivaldo re-assumed his citizenship on June 30, 1995 -- the very day32 the term of
office of governor (and other elective officials) began -- he was therefore already qualified to
be proclaimed, to hold such office and to discharge the functions and responsibilities thereof
as of said date. In short, at that time, he was already qualified to govern his native Sorsogon.
This is the liberal interpretation that should give spirit, life and meaning to our law on
qualifications consistent with the purpose for which such law was enacted. So too, even from
a literal (as distinguished from liberal) construction, it should be noted that Section 39 of the
Local Government Code speaks of "Qualifications" of "ELECTIVE OFFICIALS", not of
candidates. Why then should such qualification be required at the time of election or at the
time of the filing of the certificates of candidacies, as Lee insists? Literally, such qualifications
-- unless otherwise expressly conditioned, as in the case of age and residence -- should thus
be possessed when the "elective [or elected] official" begins to govern, i.e., at the time he is
proclaimed and at the start of his term -- in this case, on June 30, 1995. Paraphrasing this
Court's ruling in Vasquez vs. Giap and Li Seng Giap & Sons, 33 if the purpose of the citizenship
requirement is to ensure that our people and country do not end up being governed by
aliens, i.e., persons owing allegiance to another nation, that aim or purpose would not be
thwarted but instead achieved by construing the citizenship qualification as applying to the
time of proclamation of the elected official and at the start of his term.
But perhaps the more difficult objection was the one raised during the oral argument34 to
the effect that the citizenship qualification should be possessed at the time the candidate (or
for that matter the elected official) registered as a voter. After all, Section 39, apart from
requiring the official to be a citizen, also specifies as another item of qualification, that he be
a "registered voter". And, under the law35 a "voter" must be a citizen of the Philippines. So
therefore, Frivaldo could not have been a voter -- much less a validly registered one -- if he
was not a citizen at the time of such registration.
The answer to this problem again lies in discerning the purpose of the requirement. If the law
intended the citizenship qualification to be possessed prior to election consistent with the
requirement of being a registered voter, then it would not have made citizenship a SEPARATE
qualification. The law abhors a redundancy. It therefore stands to reason that the law
intended CITIZENSHIP to be a qualification distinct from being a VOTER, even if being a voter
presumes being a citizen first. It also stands to reason that the voter requirement was
included as another qualification (aside from "citizenship"), not to reiterate the need for
nationality but to require that the official be registered as a voter IN THE AREA OR TERRITORY
he seeks to govern, i.e., the law states: "a registered voter in the barangay, municipality, city,
or province . . . where he intends to be elected." It should be emphasized that the Local
Government Code requires an elective official to be a registered voter. It does not require
him to vote actually. Hence, registration -- not the actual voting -- is the core of this
"qualification". In other words, the law's purpose in this second requirement is to ensure that
the prospective official is actually registered in the area he seeks to govern -- and not
anywhere else.
Before this Court, Frivaldo has repeatedly emphasized -- and Lee has not disputed -- that he
"was and is a registered voter of Sorsogon, and his registration as a voter has been sustained
as valid by judicial declaration . . . In fact, he cast his vote in his precinct on May 8, 1995."36
So too, during the oral argument, his counsel steadfastly maintained that "Mr. Frivaldo has
always been a registered voter of Sorsogon. He has voted in 1987, 1988, 1992, then he voted
again in 1995. In fact, his eligibility as a voter was questioned, but the court dismissed (sic)
his eligibility as a voter and he was allowed to vote as in fact, he voted in all the previous
elections including on May 8, 1995."3 7
It is thus clear that Frivaldo is a registered voter in the province where he intended to be
elected.
There is yet another reason why the prime issue of citizenship should be reckoned from the
date of proclamation, not necessarily the date of election or date of filing of the certificate of
candidacy. Section 253 of the Omnibus Election Code 38 gives any voter, presumably
including the defeated candidate, the opportunity to question the ELIGIBILITY (or the
disloyalty) of a candidate. This is the only provision of the Code that authorizes a remedy on
how to contest before the Comelec an incumbent's ineligibility arising from failure to meet
the qualifications enumerated under Sec. 39 of the Local Government Code. Such remedy of
Quo Warranto can be availed of "within ten days after proclamation" of the winning
candidate. Hence, it is only at such time that the issue of ineligibility may be taken cognizance
of by the Commission. And since, at the very moment of Lee's proclamation (8:30 p.m., June
30, 1995), Juan G. Frivaldo was already and indubitably a citizen, having taken his oath of
allegiance earlier in the afternoon of the same day, then he should have been the candidate
proclaimed as he unquestionably garnered the highest number of votes in the immediately
preceding elections and such oath had already cured his previous "judicially-declared"
alienage. Hence, at such time, he was no longer ineligible.
But to remove all doubts on this important issue, we also hold that the repatriation of
Frivaldo RETROACTED to the date of the filing of his application on August 17, 1994.
It is true that under the Civil Code of the Philippines, 39 "(l)aws shall have no retroactive
effect, unless the contrary is provided." But there are settled exceptions40 to this general
rule, such as when the statute is CURATIVE or REMEDIAL in nature or when it CREATES NEW
RIGHTS.
According to Tolentino,41 curative statutes are those which undertake to cure errors and
irregularities, thereby validating judicial or administrative proceedings, acts of public officers,
or private deeds and contracts which otherwise would not produce their intended
consequences by reason of some statutory disability or failure to comply with some technical
requirement. They operate on conditions already existing, and are necessarily retroactive in
operation. Agpalo,42 on the other hand, says that curative statutes are
"healing acts . . . curing defects and adding to the means of enforcing existing obligations . . .
(and) are intended to supply defects, abridge superfluities in existing laws, and curb certain
evils. . . . By their very nature, curative statutes are retroactive . . . (and) reach back to past
events to correct errors or irregularities and to render valid and effective attempted acts
which would be otherwise ineffective for the purpose the parties intended."
On the other hand, remedial or procedural laws, i.e., those statutes relating to remedies or
modes of procedure, which do not create new or take away vested rights, but only operate in
furtherance of the remedy or confirmation of such rights, ordinarily do not come within the
legal meaning of a retrospective law, nor within the general rule against the retrospective
operation of statutes.43
A reading of P.D. 725 immediately shows that it creates a new right, and also provides for a
new remedy, thereby filling certain voids in our laws. Thus, in its preamble, P.D. 725
expressly recognizes the plight of "many Filipino women (who) had lost their Philippine
citizenship by marriage to aliens" and who could not, under the existing law (C.A. No. 63, as
amended) avail of repatriation until "after the death of their husbands or the termination of
their marital status" and who could neither be benefitted by the 1973 Constitution's new
provision allowing "a Filipino woman who marries an alien to retain her Philippine citizenship
. . ." because "such provision of the new Constitution does not apply to Filipino women who
had married aliens before said constitution took effect." Thus, P.D. 725 granted a new right
to these women -- the right to re-acquire Filipino citizenship even during their marital
coverture, which right did not exist prior to P.D. 725. On the other hand, said statute also
provided a new remedy and a new right in favor of other "natural born Filipinos who (had)
lost their Philippine citizenship but now desire to re-acquire Philippine citizenship", because
prior to the promulgation of P.D. 725 such former Filipinos would have had to undergo the
tedious and cumbersome process of naturalization, but with the advent of P.D. 725 they
could now re-acquire their Philippine citizenship under the simplified procedure of
repatriation.
The Solicitor General44 argues:
By their very nature, curative statutes are retroactive, (DBP vs. CA, 96
SCRA 342), since they are intended to supply defects, abridge
 superfluities in existing laws (Del Castillo vs. Securities and Exchange
Commission, 96 Phil. 119) and curb certain evils (Santos vs. Duata, 14
SCRA 1041).
In this case, P.D. No. 725 was enacted to cure the defect in the existing
naturalization law, specifically C.A. No. 63 wherein married Filipino
women are allowed to repatriate only upon the death of their husbands,
and natural-born Filipinos who lost their citizenship by naturalization and
other causes faced the difficulty of undergoing the rigid procedures of
C.A. 63 for reacquisition of Filipino citizenship by naturalization.
Presidential Decree No. 725 provided a remedy for the aforementioned
legal aberrations and thus its provisions are considered essentially
remedial and curative.
In light of the foregoing, and prescinding from the wording of the preamble, it is unarguable
that the legislative intent was precisely to give the statute retroactive operation. "(A)
retrospective operation is given to a statute or amendment where the intent that it should so
operate clearly appears from a consideration of the act as a whole, or from the terms
thereof."45 It is obvious to the Court that the statute was meant to "reach back" to those
persons, events and transactions not otherwise covered by prevailing law and jurisprudence.
And inasmuch as it has been held that citizenship is a political and civil right equally as
important as the freedom of speech, liberty of abode, the right against unreasonable
searches and seizures and other guarantees enshrined in the Bill of Rights, therefore the
legislative intent to give retrospective operation to P.D. 725 must be given the fullest effect
possible. "(I)t has been said that a remedial statute must be so construed as to make it effect
the evident purpose for which it was enacted, so that if the reason of the statute extends to
past transactions, as well as to those in the future, then it will be so applied although the
statute does not in terms so direct, unless to do so would impair some vested right or violate
some constitutional guaranty."46 This is all the more true of P.D. 725, which did not specify
any restrictions on or delimit or qualify the right of repatriation granted therein.
At this point, a valid question may be raised: How can the retroactivity of P.D. 725 benefit
Frivaldo considering that said law was enacted on June 5, 1975, while Frivaldo lost his Filipino
citizenship much later, on January 20, 1983, and applied for repatriation even later, on
August 17, 1994?
While it is true that the law was already in effect at the time that Frivaldo became an
American citizen, nevertheless, it is not only the law itself (P.D. 725) which is to be given
retroactive effect, but even the repatriation granted under said law to Frivaldo on June 30,
1995 is to be deemed to have retroacted to the date of his application therefor, August 17,
1994. The reason for this is simply that if, as in this case, it was the intent of the legislative
authority that the law should apply to past events -- i.e., situations and transactions existing
even before the law came into being -- in order to benefit the greatest number of former
Filipinos possible thereby enabling them to enjoy and exercise the constitutionally
guaranteed right of citizenship, and such legislative intention is to be given the fullest effect
and expression, then there is all the more reason to have the law apply in a retroactive or
retrospective manner to situations, events and transactions subsequent to the passage of
such law. That is, the repatriation granted to Frivaldo on June 30, 1995 can and should be
made to take effect as of date of his application. As earlier mentioned, there is nothing in the
law that would bar this or would show a contrary intention on the part of the legislative
authority; and there is no showing that damage or prejudice to anyone, or anything unjust or
injurious would result from giving retroactivity to his repatriation. Neither has Lee shown
that there will result the impairment of any contractual obligation, disturbance of any vested
right or breach of some constitutional guaranty.
Being a former Filipino who has served the people repeatedly, Frivaldo deserves a liberal
interpretation of Philippine laws and whatever defects there were in his nationality should
now be deemed mooted by his repatriation.
Another argument for retroactivity to the date of filing is that it would prevent prejudice to
applicants. If P.D. 725 were not to be given retroactive effect, and the Special Committee
decides not to act, i.e., to delay the processing of applications for any substantial length of
time, then the former Filipinos who may be stateless, as Frivaldo -- having already renounced
his American citizenship -- was, may be prejudiced for causes outside their control. This
should not be. In case of doubt in the interpretation or application of laws, it is to be
presumed that the law-making body intended right and justice to prevail.4 7
And as experience will show, the Special Committee was able to process, act upon and grant
applications for repatriation within relatively short spans of time after the same were filed.48
The fact that such interregna were relatively insignificant minimizes the likelihood of
prejudice to the government as a result of giving retroactivity to repatriation. Besides, to the
mind of the Court, direct prejudice to the government is possible only where a person's
repatriation has the effect of wiping out a liability of his to the government arising in
connection with or as a result of his being an alien, and accruing only during the interregnum
between application and approval, a situation that is not present in the instant case.
And it is but right and just that the mandate of the people, already twice frustrated, should
now prevail. Under the circumstances, there is nothing unjust or iniquitous in treating
Frivaldo's repatriation as having become effective as of the date of his application, i.e., on
August 17, 1994. This being so, all questions about his possession of the nationality
qualification -- whether at the date of proclamation (June 30, 1995) or the date of election
(May 8, 1995) or date of filing his certificate of candidacy (March 20, 1995) would become
moot.
Based on the foregoing, any question regarding Frivaldo's status as a registered voter would
also be deemed settled. Inasmuch as he is considered as having been repatriated -- i.e., his
Filipino citizenship restored -- as of August 17, 1994, his previous registration as a voter is
likewise deemed validated as of said date.
It is not disputed that on January 20, 1983 Frivaldo became an American. Would the
retroactivity of his repatriation not effectively give him dual citizenship, which under Sec. 40
of the Local Government Code would disqualify him "from running for any elective local
position?"49 We answer this question in the negative, as there is cogent reason to hold that
Frivaldo was really STATELESS at the time he took said oath of allegiance and even before
that, when he ran for governor in 1988. In his Comment, Frivaldo wrote that he "had long
renounced and had long abandoned his American citizenship -- long before May 8, 1995. At
best, Frivaldo was stateless in the interim -- when he abandoned and renounced his US
citizenship but before he was repatriated to his Filipino citizenship."50
On this point, we quote from the assailed Resolution dated December 19, 1995:51
By the laws of the United States, petitioner Frivaldo lost his American
citizenship when he took his oath of allegiance to the Philippine
Government when he ran for Governor in 1988, in 1992, and in 1995.
Every certificate of candidacy contains an oath of allegiance to the
Philippine Government."
These factual findings that Frivaldo has lost his foreign nationality long before the elections
of 1995 have not been effectively rebutted by Lee. Furthermore, it is basic that such findings
of the Commission are conclusive upon this Court, absent any showing of capriciousness or
arbitrariness or
abuse.52
The Second Issue: Is Lack of Citizenship
a Continuing Disqualification?
Lee contends that the May 1, 1995 Resolution 53 of the Comelec Second Division in SPA No.
95-028 as affirmed in toto by Comelec En Banc in its Resolution of May 11, 1995 "became
final and executory after five (5) days or on May 17, 1995, no restraining order having been
issued by this Honorable Court.54 Hence, before Lee "was proclaimed as the elected
governor on June 30, 1995, there was already a final and executory judgment disqualifying"
Frivaldo. Lee adds that this Court's two rulings (which Frivaldo now concedes were legally
"correct") declaring Frivaldo an alien have also become final and executory way before the
1995 elections, and these "judicial pronouncements of his political status as an American
citizen absolutely and for all time disqualified (him) from running for, and holding any public
office in the Philippines."
We do not agree.
It should be noted that our first ruling in G.R. No. 87193 disqualifying Frivaldo was rendered
in connection with the 1988 elections while that in G.R. No. 104654 was in connection with
the 1992 elections. That he was disqualified for such elections is final and can no longer be
changed. In the words of the respondent Commission (Second Division) in its assailed
Resolution:55
The records show that the Honorable Supreme Court had decided that
Frivaldo was not a Filipino citizen and thus disqualified for the purpose of
the 1988 and 1992 elections. However, there is no record of any "final
judgment" of the disqualification of Frivaldo as a candidate for the May 8,
1995 elections. What the Commission said in its Order of June 21, 1995
(implemented on June 30, 1995), directing the proclamation of Raul R.
Lee, was that Frivaldo was not a Filipino citizen "having been declared by
the Supreme Court in its Order dated March 25, 1995, not a citizen of the
Philippines." This declaration of the Supreme Court, however, was in
connection with the 1992 elections.
Indeed, decisions declaring the acquisition or denial of citizenship cannot govern a person's
future status with finality. This is because a person may subsequently reacquire, or for that
matter lose, his citizenship under any of the modes recognized by law for the purpose.
Hence, in Lee vs. Commissioner of Immigration,56 we held:
Everytime the citizenship of a person is material or indispensable in a
judicial or administrative case, whatever the corresponding court or
administrative authority decides therein as to such citizenship is generally
not considered res judicata, hence it has to be threshed out again and
again, as the occasion demands.
The Third Issue: Comelec's Jurisdiction
Over The Petition in SPC No. 95-317
Lee also avers that respondent Comelec had no jurisdiction to entertain the petition in SPC
No. 95-317 because the only "possible types of proceedings that may be entertained by the
Comelec are a pre-proclamation case, an election protest or a quo warranto case". Again, Lee
reminds us that he was proclaimed on June 30, 1995 but that Frivaldo filed SPC No. 95-317
questioning his (Lee's) proclamation only on July 6, 1995 -- "beyond the 5-day reglementary
period." Hence, according to him, Frivaldo's "recourse was to file either an election protest or
a quo warranto action."
This argument is not meritorious. The Constitution57 has given the Comelec ample power to
"exercise exclusive original jurisdiction over all contests relating to the elections, returns and
qualifications of all elective . . . provincial . . . officials." Instead of dwelling at length on the
various petitions that Comelec, in the exercise of its constitutional prerogatives, may
entertain, suffice it to say that this Court has invariably recognized the Commission's
authority to hear and decide petitions for annulment of proclamations -- of which SPC No.
95-317 obviously is one.58 Thus, in Mentang vs. COMELEC,59 we ruled:
The petitioner argues that after proclamation and assumption of office, a
pre-proclamation controversy is no longer viable. Indeed, we are aware
of cases holding that pre-proclamation controversies may no longer be
entertained by the COMELEC after the winning candidate has been
proclaimed. (citing Gallardo vs. Rimando, 187 SCRA 463; Salvacion vs.
COMELEC, 170 SCRA 513; Casimiro vs. COMELEC, 171 SCRA 468.) This
rule, however, is premised on an assumption that the proclamation is no
proclamation at all and the proclaimed candidate's assumption of office
cannot deprive the COMELEC of the power to make such declaration of
nullity. (citing Aguam vs. COMELEC, 23 SCRA 883; Agbayani vs. COMELEC,
186 SCRA 484.)
The Court however cautioned that such power to annul a proclamation must "be done within
ten (10) days following the proclamation." Inasmuch as Frivaldo's petition was filed only six
(6) days after Lee's proclamation, there is no question that the Comelec correctly acquired
jurisdiction over the same.
The Fourth Issue: Was Lee's Proclamation Valid?
Frivaldo assails the validity of the Lee proclamation. We uphold him for the following
reasons:
First. To paraphrase this Court in Labo vs. COMELEC,60 "the fact remains that he (Lee) was
not the choice of the sovereign will," and in Aquino vs. COMELEC,61 Lee is "a second
placer, . . . just that, a second placer."
In spite of this, Lee anchors his claim to the governorship on the pronouncement of this
Court in the aforesaid Labo62 case, as follows:
The rule would have been different if the electorate fully aware in fact
and in law of a candidate's disqualification so as to bring such awareness
within the realm of notoriety, would nonetheless cast their votes in favor
of the ineligible candidate. In such case, the electorate may be said to
have waived the validity and efficacy of their votes by notoriously
misapplying their franchise or throwing away their votes, in which case,
the eligible candidate obtaining the next higher number of votes may be
deemed elected.
But such holding is qualified by the next paragraph, thus:
But this is not the situation obtaining in the instant dispute. It has not
been shown, and none was alleged, that petitioner Labo was notoriously
known as an ineligible candidate, much less the electorate as having
known of such fact. On the contrary, petitioner Labo was even allowed by
no less than the Comelec itself in its resolution dated May 10, 1992 to be
voted for the office of the city Payor as its resolution dated May 9, 1992
denying due course to petitioner Labo's certificate of candidacy had not
yet become final and subject to the final outcome of this case.
The last-quoted paragraph in Labo, unfortunately for Lee, is the ruling appropriate in this
case because Frivaldo was in 1995 in an identical situation as Labo was in 1992 when the
Comelec's cancellation of his certificate of candidacy was not yet final on election day as
there was in both cases a pending motion for reconsideration, for which reason Comelec
issued an (omnibus) resolution declaring that Frivaldo (like Labo in 1992) and several others
can still be voted for in the May 8, 1995 election, as in fact, he was.
Furthermore, there has been no sufficient evidence presented to show that the electorate of
Sorsogon was "fully aware in fact and in law" of Frivaldo's alleged disqualification as to "bring
such awareness within the realm of notoriety;" in other words, that the voters intentionally
wasted their ballots knowing that, in spite of their voting for him, he was ineligible. If Labo
has any relevance at all, it is that the vice-governor -- and not Lee -- should be pro- claimed,
since in losing the election, Lee was, to paraphrase Labo again, "obviously not the choice of
the people" of Sorsogon. This is the emphatic teaching of Labo:
The rule, therefore, is: the ineligibility of a candidate receiving majority
votes does not entitle the eligible candidate receiving the next highest
number of votes to be declared elected. A minority or defeated candidate
cannot be deemed elected to the office.
Second. As we have earlier declared Frivaldo to have seasonably reacquired his citizenship
and inasmuch as he obtained the highest number of votes in the 1995 elections, he -- not Lee
-- should be proclaimed. Hence, Lee's proclamation was patently erroneous and should now
be corrected.
The Fifth Issue: Is Section 78 of the
Election Code Mandatory?
In G.R. No. 120295, Frivaldo claims that the assailed Resolution of the Comelec (Second
Division) dated May 1, 1995 and the confirmatory en banc Resolution of May 11, 1995
disqualifying him for want of citizenship should be annulled because they were rendered
beyond the fifteen (15) day period prescribed by Section 78, of the Omnibus Election Code
which reads as follows:
Sec. 78. Petition to deny due course or to cancel a certificate of candidacy.
-- A verified petition seeking to deny due course or to cancel a certificate
of candidacy may be filed by any person exclusively on the ground that
any material representation contained therein as required under Section
74 hereof is false. The petition may be filed at any time not later than
twenty-five days from the time of the filing of the certificate of candidacy
and shall be decided after notice and hearing, not later than fifteen days
before the election. (Emphasis supplied.)
This claim is now moot and academic inasmuch as these resolutions are deemed superseded
by the subsequent ones issued by the Commission (First Division) on December 19, 1995,
affirmed en banc63 on February 23, 1996; which both upheld his election. At any rate, it is
obvious that Section 78 is merely directory as Section 6 of R.A. No. 6646 authorizes the
Commission to try and decide petitions for disqualifications even after the elections, thus:
Sec. 6. Effect of Disqualification Case. -- Any candidate who has been
declared by final judgment to be disqualified shall not be voted for, and
the votes cast for him shall not be counted. If for any reason a candidate
is not declared by final judgment before an election to be disqualified and
he is voted for and receives the winning number of votes in such election,
the Court or Commission shall continue with the trial and hearing of the
action, inquiry or protest and upon motion of the complainant or any
intervenor, may during the pendency thereof order the suspension of the
proclamation of such candidate whenever the evidence of his guilt is
strong. (emphasis supplied)
 Refutation of
Mr. Justice Davide's Dissent
In his dissenting opinion, the esteemed Mr. Justice Hilario G. Davide, Jr. argues that President
Aquino's memorandum dated March 27, 1987 should be viewed as a suspension (not a
repeal, as urged by Lee) of P.D. 725. But whether it decrees a suspension or a repeal is a
purely academic distinction because the said issuance is not a statute that can amend or
abrogate an existing law.
The existence and subsistence of P.D. 725 were recognized in the first Frivaldo case;64 viz.,
"(u)nder CA No. 63 as amended by CA No. 473 and P.D. No. 725, Philippine citizenship maybe
reacquired by . . . repatriation". He also contends that by allowing Frivaldo to register and to
remain as a registered voter, the Comelec and in effect this Court abetted a "mockery" of our
two previous judgments declaring him a non-citizen. We do not see such abetting or
mockery. The retroactivity of his repatriation, as discussed earlier, legally cured whatever
defects there may have been in his registration as a voter for the purpose of the 1995
elections. Such retroactivity did not change his disqualifications in 1988 and 1992, which
were the subjects of such previous rulings.
Mr. Justice Davide also believes that Quo Warranto is not the sole remedy to question the
ineligibility of a candidate, citing the Comelec's authority under Section 78 of the Omnibus
Election Code allowing the denial of a certificate of candidacy on the ground of a false
material representation therein as required by Section 74. Citing Loong, he then states his
disagreement with our holding that Section 78 is merely directory. We really have no quarrel.
Our point is that Frivaldo was in error in his claim in G.R. No. 120295 that the Comelec
Resolutions promulgated on May 1, 1995 and May 11, 1995 were invalid because they were
issued "not later than fifteen days before the election" as prescribed by Section 78. In
dismissing the petition in G.R. No. 120295, we hold that the Comelec did not commit grave
abuse of discretion because "Section 6 of R.A. 6646 authorizes the Comelec to try and decide
disqualifications even after the elections." In spite of his disagreement with us on this point,
i.e., that Section 78 "is merely directory", we note that just like us, Mr. Justice Davide
nonetheless votes to "DISMISS G.R. No. 120295". One other point. Loong, as quoted in the
dissent, teaches that a petition to deny due course under Section 78 must be filed within the
25-day period prescribed therein. The present case however deals with the period during
which the Comelec may decide such petition. And we hold that it may be decided even after
the fifteen day period mentioned in Section 78. Here, we rule that a decision promulgated by
the Comelec even after the elections is valid but Loong held that a petition filed beyond the
25-day period is out of time. There is no inconsistency nor conflict.
Mr. Justice Davide also disagrees with the Court's holding that, given the unique factual
circumstances of Frivaldo, repatriation may be given retroactive effect. He argues that such
retroactivity "dilutes" our holding in the first Frivaldo case. But the first (and even the second
Frivaldo) decision did not directly involve repatriation as a mode of acquiring citizenship. If
we may repeat, there is no question that Frivaldo was not a Filipino for purposes of
determining his qualifications in the 1988 and 1992 elections. That is settled. But his
supervening repatriation has changed his political status -- not in 1988 or 1992, but only in
the 1995 elections.
Our learned colleague also disputes our holding that Frivaldo was stateless prior to his
repatriation, saying that "informal renunciation or abandonment is not a ground to lose
American citizenship". Since our courts are charged only with the duty of determining who
are Philippine nationals, we cannot rule on the legal question of who are or who are not
Americans. It is basic in international law that a State determines ONLY those who are its
own citizens -- not who are the citizens of other countries.65 The issue here is: the Comelec
made a finding of fact that Frivaldo was stateless and such finding has not been shown by Lee
to be arbitrary or whimsical. Thus, following settled case law, such finding is binding and
final.
The dissenting opinion also submits that Lee who lost by chasmic margins to Frivaldo in all
three previous elections, should be declared winner because "Frivaldo's ineligibility for being
an American was publicly known". First, there is absolutely no empirical evidence for such
"public" knowledge. Second, even if there is, such knowledge can be true post facto only of
the last two previous elections. Third, even the Comelec and now this Court were/are still
deliberating on his nationality before, during and after the 1995 elections. How then can
there be such "public" knowledge?
Mr. Justice Davide submits that Section 39 of the Local Government Code refers to the
qualifications of elective local officials, i.e., candidates, and not elected officials, and that the
citizenship qualification [under par. (a) of that section] must be possessed by candidates, not
merely at the commencement of the term, but by election day at the latest. We see it
differently. Section 39, par. (a) thereof speaks of "elective local official" while par. (b) to (f)
refer to "candidates". If the qualifications under par. (a) were intended to apply to
"candidates" and not elected officials, the legislature would have said so, instead of
differentiating par. (a) from the rest of the paragraphs. Secondly, if Congress had meant that
the citizenship qualification should be possessed at election day or prior thereto, it would
have specifically stated such detail, the same way it did in pars. (b) to (f) far other
qualifications of candidates for governor, mayor, etc.
Mr. Justice Davide also questions the giving of retroactive effect to Frivaldo's repatriation on
the ground, among others, that the law specifically provides that it is only after taking the
oath of allegiance that applicants shall be deemed to have reacquired Philippine citizenship.
We do not question what the provision states. We hold however that the provision should be
understood thus: that after taking the oath of allegiance the applicant is deemed to have
reacquired Philippine citizenship, which reacquisition (or repatriation) is deemed for all
purposes and intents to have retroacted to the date of his application therefor.
In any event, our "so too" argument regarding the literal meaning of the word "elective" in
reference to Section 39 of the Local Authority Code, as well as regarding Mr. Justice Davide's
thesis that the very wordings of P.D. 725 suggest non-retroactivity, were already taken up
rather extensively earlier in this Decision.
Mr. Justice Davide caps his paper with a clarion call: "This Court must be the first to uphold
the Rule of Law." We agree -- we must all follow the rule of law. But that is NOT the issue
here. The issue is how should the law be interpreted and applied in this case so it can be
followed, so it can rule!
At balance, the question really boils down to a choice of philosophy and perception of how to
interpret and apply laws relating to elections: literal or liberal; the letter or the spirit, the
naked provision or its ultimate purpose; legal syllogism or substantial justice; in isolation or in
the context of social conditions; harshly against or gently in favor of the voters' obvious
choice. In applying election laws, it would be far better to err in favor of popular sovereignty
than to be right in complex but little understood legalisms. Indeed, to inflict a thrice rejected
candidate upon the electorate of Sorsogon would constitute unmitigated judicial tyranny and
an unacceptable assault upon this Court's conscience.
EPILOGUE
In sum, we rule that the citizenship requirement in the Local Government Code is to be
possessed by an elective official at the latest as of the time he is proclaimed and at the start
of the term of office to which he has been elected. We further hold P.D. No. 725 to be in full
force and effect up to the present, not having been suspended or repealed expressly nor
impliedly at any time, and Frivaldo's repatriation by virtue thereof to have been properly
granted and thus valid and effective. Moreover, by reason of the remedial or curative nature
of the law granting him a new right to resume his political status and the legislative intent
behind it, as well as his unique situation of having been forced to give up his citizenship and
political aspiration as his means of escaping a regime he abhorred, his repatriation is to be
given retroactive effect as of the date of his application therefor, during the pendency of
which he was stateless, he having given up his U.S. nationality. Thus, in contemplation of law,
he possessed the vital requirement of Filipino citizenship as of the start of the term of office
of governor, and should have been proclaimed instead of Lee. Furthermore, since his
reacquisition of citizenship retroacted to August 17, 1994, his registration as a voter of
Sorsogon is deemed to have been validated as of said date as well. The foregoing, of course,
are precisely consistent with our holding that lack of the citizenship requirement is not a
continuing disability or disqualification to run for and hold public office. And once again, we
emphasize herein our previous rulings recognizing the Comelec's authority and jurisdiction to
hear and decide petitions for annulment of proclamations.
This Court has time and again liberally and equitably construed the electoral laws of our
country to give fullest effect to the manifest will of our people,66 for in case of doubt,
political laws must be interpreted to give life and spirit to the popular mandate freely
expressed through the ballot. Otherwise stated, legal niceties and technicalities cannot stand
in the way of the sovereign will. Consistently, we have held:
. . . (L)aws governing election contests must be liberally construed to the
end that the will of the people in the choice of public officials may not be
defeated by mere technical objections (citations omitted).67
The law and the courts must accord Frivaldo every possible protection, defense and refuge,
in deference to the popular will. Indeed, this Court has repeatedly stressed the importance of
giving effect to the sovereign will in order to ensure the survival of our democracy. In any
action involving the possibility of a reversal of the popular electoral choice, this Court must
exert utmost effort to resolve the issues in a manner that would give effect to the will of the
majority, for it is merely sound public policy to cause elective offices to be filled by those who
are the choice of the majority. To successfully challenge a winning candidate's qualifications,
the petitioner must clearly demonstrate that the ineligibility is so patently antagonistic68 to
constitutional and legal principles that overriding such ineligibility and thereby giving effect
to the apparent will of the people, would ultimately create greater prejudice to the very
democratic institutions and juristic traditions that our Constitution and laws so zealously
protect and promote. In this undertaking, Lee has miserably failed.
In Frivaldo's case. it would have been technically easy to find fault with his cause. The Court
could have refused to grant retroactivity to the effects of his repatriation and hold him still
ineligible due to his failure to show his citizenship at the time he registered as a voter before
the 1995 elections. Or, it could have disputed the factual findings of the Comelec that he was
stateless at the time of repatriation and thus hold his consequent dual citizenship as a
disqualification "from running for any elective local position." But the real essence of justice
does not emanate from quibblings over patchwork legal technicality. It proceeds from the
spirit's gut consciousness of the dynamic role of law as a brick in the ultimate development of
the social edifice. Thus, the Court struggled against and eschewed the easy, legalistic,
technical and sometimes harsh anachronisms of the law in order to evoke substantial justice
in the larger social context consistent with Frivaldo's unique situation approximating
venerability in Philippine political life. Concededly, he sought American citizenship only to
escape the clutches of the dictatorship. At this stage, we cannot seriously entertain any
doubt about his loyalty and dedication to this country. At the first opportunity, he returned
to this land, and sought to serve his people once more. The people of Sorsogon
overwhelmingly voted for him three times. He took an oath of allegiance to this Republic
every time he filed his certificate of candidacy and during his failed naturalization bid. And let
it not be overlooked, his demonstrated tenacity and sheer determination to re-assume his
nationality of birth despite several legal set-backs speak more loudly, in spirit, in fact and in
truth than any legal technicality, of his consuming intention and burning desire to re-
embrace his native Philippines even now at the ripe old age of 81 years. Such loyalty to and
love of country as well as nobility of purpose cannot be lost on this Court of justice and
equity. Mortals of lesser mettle would have given up. After all, Frivaldo was assured of a life
of ease and plenty as a citizen of the most powerful country in the world. But he opted, nay,
single-mindedly insisted on returning to and serving once more his struggling but beloved
land of birth. He therefore deserves every liberal interpretation of the law which can be
applied in his favor. And in the final analysis, over and above Frivaldo himself, the
indomitable people of Sorsogon most certainly deserve to be governed by a leader of their
overwhelming choice.
WHEREFORE, in consideration of the foregoing:
(1) The petition in G.R. No. 123755 is hereby DISMISSED. The assailed Resolutions of the
respondent Commission are AFFIRMED.
(2) The petition in G.R. No. 120295 is also DISMISSED for being moot and academic. In any
event, it has no merit.
No costs.
SO ORDERED.
Padilla, Regalado, Romero, Bellosillo, Francisco, Hermosisima, Jr. and Torres, Jr., JJ., concur. the provincial governor of Bulacan, national president of the League of Provinces of the
Philippines and chairman of the League of Leagues of Local Governments. In a Resolution
Melo, Vitug and Kapunan, JJ., concurs in the result. dated December 15, 1998, the Court noted said Motion and Petition.

The Facts and the Arguments

Narvasa, C.J. and Mendoza, J., took no part.

  On December 27, 1997, the President of the Philippines issued AO 372. Its full text, with
emphasis on the assailed provisions, is as follows:

"ADMINISTRATIVE ORDER NO. 372

ADOPTION OF ECONOMY MEASURES IN GOVERNMENT FOR FY 1998

EN BANC
[G.R. No. 132988. July 19, 2000]
AQUILINO Q. PIMENTEL JR., petitioner, vs. Hon. ALEXANDER AGUIRRE in his capacity as
Executive Secretary, Hon. EMILIA BONCODIN in her capacity as Secretary of the Department
of Budget and Management, respondents.
ROBERTO PAGDANGANAN, intervenor.
DECISION
PANGANIBAN, J.:
The Constitution vests the President with the power of supervision, not control, over local
government units (LGUs). Such power enables him to see to it that LGUs and their officials
execute their tasks in accordance with law. While he may issue advisories and seek their
cooperation in solving economic difficulties, he cannot prevent them from performing their
tasks and using available resources to achieve their goals. He may not withhold or alter any
authority or power given them by the law. Thus, the withholding of a portion of internal
revenue allotments legally due them cannot be directed by administrative fiat.
WHEREAS, the current economic difficulties brought about by the peso depreciation requires
continued prudence in government fiscal management to maintain economic stability and
sustain the country's growth momentum;
WHEREAS, it is imperative that all government agencies adopt cash management measures
to match expenditures with available resources;
NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the Philippines, by virtue
of the powers vested in me by the Constitution, do hereby order and direct:
SECTION 1. All government departments and agencies, including state universities and
colleges, government-owned and controlled corporations and local governments units will
identify and implement measures in FY 1998 that will reduce total expenditures for the
year by at least 25% of authorized regular appropriations for non-personal services items,
along the following suggested areas:
1. Continued implementation of the streamlining policy on organization and staffing
by deferring action on the following:
a. Operationalization of new agencies;
b. Expansion of organizational units and/or creation of positions;

The Case c. Filling of positions; and

Before us is an original Petition for Certiorari and Prohibition seeking (1) to annul Section 1 of d. Hiring of additional/new consultants, contractual and casual personnel, regardless
Administrative Order (AO) No. 372, insofar as it requires local government units to reduce of funding source.
their expenditures by 25 percent of their authorized regular appropriations for non-personal
services; and (2) to enjoin respondents from implementing Section 4 of the Order, which 2. Suspension of the following activities:
withholds a portion of their internal revenue allotments.
a. Implementation of new capital/infrastructure projects, except those
On November 17, 1998, Roberto Pagdanganan, through Counsel Alberto C. Agra, filed a which have already been contracted out;
Motion for Intervention/Motion to Admit Petition for Intervention,[1] attaching thereto his
Petition in Intervention[2] joining petitioner in the reliefs sought. At the time, intervenor was b. Acquisition of new equipment and motor vehicles;
 c. All foreign travels of government personnel, except those associated with
scholarships and trainings funded by grants;
d. Attendance in conferences abroad where the cost is charged to the
government except those clearly essential to Philippine commitments in
the international field as may be determined by the Cabinet;
e. Conduct of trainings/workshops/seminars, except those conducted by
government training institutions and agencies in the performance of their
regular functions and those that are funded by grants;
f. Conduct of cultural and social celebrations and sports activities, except
those associated with the Philippine Centennial celebration and those
involving regular competitions/events;
g. Grant of honoraria, except in cases where it constitutes the only source
of compensation from government received by the person concerned;
h. Publications, media advertisements and related items, except those
required by law or those already being undertaken on a regular basis;
i. Grant of new/additional benefits to employees, except those expressly
and specifically authorized by law; and
j. Donations, contributions, grants and gifts, except those given by
institutions to victims of calamities.
3. Suspension of all tax expenditure subsidies to all GOCCs and LGUs
4. Reduction in the volume of consumption of fuel, water, office supplies, electricity
and other utilities
5. Deferment of projects that are encountering significant implementation problems
6. Suspension of all realignment of funds and the use of savings and reserves
SECTION 2. Agencies are given the flexibility to identify the specific sources of cost-savings,
provided the 25% minimum savings under Section 1 is complied with.
SECTION 3. A report on the estimated savings generated from these measures shall be
submitted to the Office of the President, through the Department of Budget and
Management, on a quarterly basis using the attached format.
SECTION 4. Pending the assessment and evaluation by the Development Budget
Coordinating Committee of the emerging fiscal situation, the amount equivalent to 10% of
the internal revenue allotment to local government units shall be withheld.
SECTION 5. The Development Budget Coordination Committee shall conduct a monthly
review of the fiscal position of the National Government and if necessary, shall recommend
to the President the imposition of additional reserves or the lifting of previously imposed
reserves.
SECTION 6. This Administrative Order shall take effect January 1, 1998 and shall remain valid
for the entire year unless otherwise lifted.
DONE in the City of Manila, this 27th day of December, in the year of our Lord, nineteen
hundred and ninety-seven."
Subsequently, on December 10, 1998, President Joseph E. Estrada issued AO 43, amending
Section 4 of AO 372, by reducing to five percent (5%) the amount of internal revenue
allotment (IRA) to be withheld from the LGUs.
Petitioner contends that the President, in issuing AO 372, was in effect exercising the power
of control over LGUs. The Constitution vests in the President, however, only the power of
general supervision over LGUs, consistent with the principle of local autonomy. Petitioner
further argues that the directive to withhold ten percent (10%) of their IRA is in
contravention of Section 286 of the Local Government Code and of Section 6, Article X of the
Constitution, providing for the automatic release to each of these units its share in the
national internal revenue.
The solicitor general, on behalf of the respondents, claims on the other hand that AO 372
was issued to alleviate the "economic difficulties brought about by the peso devaluation" and
constituted merely an exercise of the President's power of supervision over LGUs. It allegedly
does not violate local fiscal autonomy, because it merely directs local governments to
identify measures that will reduce their total expenditures for non-personal services by at
least 25 percent. Likewise, the withholding of 10 percent of the LGUs IRA does not violate the
statutory prohibition on the imposition of any lien or holdback on their revenue shares,
because such withholding is "temporary in nature pending the assessment and evaluation by
the Development Coordination Committee of the emerging fiscal situation."
The Issues
The Petition[3] submits the following issues for the Court's resolution:
"A. Whether or not the president committed grave abuse of discretion [in] ordering all
LGUS to adopt a 25% cost reduction program in violation of the LGU[']S fiscal autonomy
"B. Whether or not the president committed grave abuse of discretion in ordering the
withholding of 10% of the LGU[']S IRA"
In sum, the main issue is whether (a) Section 1 of AO 372, insofar as it "directs" LGUs to
reduce their expenditures by 25 percent; and (b) Section 4 of the same issuance, which
withholds 10 percent of their internal revenue allotments, are valid exercises of the
President's power of general supervision over local governments.
Additionally, the Court deliberated on the question whether petitioner had the locus standi
to bring this suit, despite respondents' failure to raise the issue.[4] However, the intervention
of Roberto Pagdanganan has rendered academic any further discussion on this matter.
The Court's Ruling
The Petition is partly meritorious.
Main Issue:
Validity of AO 372
Insofar as LGUs Are Concerned
Before resolving the main issue, we deem it important and appropriate to define certain
crucial concepts: (1) the scope of the President's power of general supervision over local
governments and (2) the extent of the local governments' autonomy.
Scope of President's Power of Supervision Over LGUs
Section 4 of Article X of the Constitution confines the President's power over local
governments to one of general supervision. It reads as follows:
"Sec. 4. The President of the Philippines shall exercise general supervision over local
governments. x x x"
This provision has been interpreted to exclude the power of control. In Mondano v. Silvosa,
[5] the Court contrasted the President's power of supervision over local government officials
with that of his power of control over executive officials of the national government. It was
emphasized that the two terms -- supervision and control -- differed in meaning and extent.
The Court distinguished them as follows:
"x x x In administrative law, supervision means overseeing or the power or authority of an
officer to see that subordinate officers perform their duties. If the latter fail or neglect to
fulfill them, the former may take such action or step as prescribed by law to make them
perform their duties. Control, on the other hand, means the power of an officer to alter or
modify or nullify or set aside what a subordinate officer ha[s] done in the performance of his
duties and to substitute the judgment of the former for that of the latter."[6]
In Taule v. Santos,[7] we further stated that the Chief Executive wielded no more authority
than that of checking whether local governments or their officials were performing their
duties as provided by the fundamental law and by statutes. He cannot interfere with local
governments, so long as they act within the scope of their authority. "Supervisory power,
when contrasted with control, is the power of mere oversight over an inferior body; it does
not include any restraining authority over such body,"[8] we said.
In a more recent case, Drilon v. Lim,[9] the difference between control and supervision was
further delineated. Officers in control lay down the rules in the performance or
accomplishment of an act. If these rules are not followed, they may, in their discretion, order
the act undone or redone by their subordinates or even decide to do it themselves. On the
other hand, supervision does not cover such authority. Supervising officials merely see to it
that the rules are followed, but they themselves do not lay down such rules, nor do they
have the discretion to modify or replace them. If the rules are not observed, they may order
the work done or redone, but only to conform to such rules. They may not prescribe their
own manner of execution of the act. They have no discretion on this matter except to see to
it that the rules are followed.
Under our present system of government, executive power is vested in the President.[10]
The members of the Cabinet and other executive officials are merely alter egos. As such, they
are subject to the power of control of the President, at whose will and behest they can be
removed from office; or their actions and decisions changed, suspended or reversed.[11] In
contrast, the heads of political subdivisions are elected by the people. Their sovereign
powers emanate from the electorate, to whom they are directly accountable. By
constitutional fiat, they are subject to the Presidents supervision only, not control, so long as
their acts are exercised within the sphere of their legitimate powers. By the same token, the
President may not withhold or alter any authority or power given them by the Constitution
and the law.
Extent of Local Autonomy
Hand in hand with the constitutional restraint on the President's power over local
governments is the state policy of ensuring local autonomy.[12]
In Ganzon v. Court of Appeals,[13] we said that local autonomy signified "a more responsive
and accountable local government structure instituted through a system of decentralization."
The grant of autonomy is intended to "break up the monopoly of the national government
over the affairs of local governments, x x x not x x x to end the relation of partnership and
interdependence between the central administration and local government units x x x."
Paradoxically, local governments are still subject to regulation, however limited, for the
purpose of enhancing self-government.[14]
Decentralization simply means the devolution of national administration, not power, to local
governments. Local officials remain accountable to the central government as the law may
provide.[15] The difference between decentralization of administration and that of power
was explained in detail in Limbona v. Mangelin[16] as follows:
"Now, autonomy is either decentralization of administration or decentralization of power.
There is decentralization of administration when the central government delegates
administrative powers to political subdivisions in order to broaden the base of government
power and in the process to make local governments 'more responsive and accountable,'[17]
and 'ensure their fullest development as self-reliant communities and make them more
effective partners in the pursuit of national development and social progress.'[18] At the
same time, it relieves the central government of the burden of managing local affairs and
enables it to concentrate on national concerns. The President exercises 'general
supervision'[19] over them, but only to 'ensure that local affairs are administered according
to law.'[20] He has no control over their acts in the sense that he can substitute their
judgments with his own.[21]
Decentralization of power, on the other hand, involves an abdication of political power in the
favor of local government units declared to be autonomous. In that case, the autonomous
government is free to chart its own destiny and shape its future with minimum intervention
from central authorities. According to a constitutional author, decentralization of power
amounts to 'self-immolation,' since in that event, the autonomous government becomes
accountable not to the central authorities but to its constituency."[22]
Under the Philippine concept of local autonomy, the national government has not completely
relinquished all its powers over local governments, including autonomous regions. Only
administrative powers over local affairs are delegated to political subdivisions. The purpose
of the delegation is to make governance more directly responsive and effective at the local
levels. In turn, economic, political and social development at the smaller political units are
expected to propel social and economic growth and development. But to enable the country
to develop as a whole, the programs and policies effected locally must be integrated and
coordinated towards a common national goal. Thus, policy-setting for the entire country still
lies in the President and Congress. As we stated in Magtajas v. Pryce Properties Corp., Inc.,
municipal governments are still agents of the national government.[23]
The Nature of AO 372
Consistent with the foregoing jurisprudential precepts, let us now look into the nature of AO
372. As its preambular clauses declare, the Order was a "cash management measure"
adopted by the government "to match expenditures with available resources," which were
presumably depleted at the time due to "economic difficulties brought about by the peso
depreciation." Because of a looming financial crisis, the President deemed it necessary to
"direct all government agencies, state universities and colleges, government-owned and
controlled corporations as well as local governments to reduce their total expenditures by at
least 25 percent along suggested areas mentioned in AO 372.
Under existing law, local government units, in addition to having administrative autonomy in
the exercise of their functions, enjoy fiscal autonomy as well. Fiscal autonomy means that
local governments have the power to create their own sources of revenue in addition to their
equitable share in the national taxes released by the national government, as well as the
power to allocate their resources in accordance with their own priorities. It extends to the
preparation of their budgets, and local officials in turn have to work within the constraints
thereof. They are not formulated at the national level and imposed on local governments,
whether they are relevant to local needs and resources or not. Hence, the necessity of a
balancing of viewpoints and the harmonization of proposals from both local and national
officials,[24] who in any case are partners in the attainment of national goals.
Local fiscal autonomy does not however rule out any manner of national government
intervention by way of supervision, in order to ensure that local programs, fiscal and
otherwise, are consistent with national goals. Significantly, the President, by constitutional
fiat, is the head of the economic and planning agency of the government,[25] primarily
responsible for formulating and implementing continuing, coordinated and integrated social
and economic policies, plans and programs[26] for the entire country. However, under the
Constitution, the formulation and the implementation of such policies and programs are
subject to "consultations with the appropriate public agencies, various private sectors, and
local government units." The President cannot do so unilaterally.
Consequently, the Local Government Code provides:[27]
"x x x [I]n the event the national government incurs an unmanaged public sector deficit, the
President of the Philippines is hereby authorized, upon the recommendation of [the]
Secretary of Finance, Secretary of the Interior and Local Government and Secretary of Budget
and Management, and subject to consultation with the presiding officers of both Houses of
Congress and the presidents of the liga, to make the necessary adjustments in the internal
revenue allotment of local government units but in no case shall the allotment be less than
thirty percent (30%) of the collection of national internal revenue taxes of the third fiscal
year preceding the current fiscal year x x x."
There are therefore several requisites before the President may interfere in local fiscal
matters: (1) an unmanaged public sector deficit of the national government; (2) consultations
with the presiding officers of the Senate and the House of Representatives and the
presidents of the various local leagues; and (3) the corresponding recommendation of the
secretaries of the Department of Finance, Interior and Local Government, and Budget and
Management. Furthermore, any adjustment in the allotment shall in no case be less than
thirty percent (30%) of the collection of national internal revenue taxes of the third fiscal
year preceding the current one.
Petitioner points out that respondents failed to comply with these requisites before the
issuance and the implementation of AO 372. At the very least, they did not even try to show
that the national government was suffering from an unmanageable public sector deficit.
Neither did they claim having conducted consultations with the different leagues of local
governments. Without these requisites, the President has no authority to adjust, much less
to reduce, unilaterally the LGU's internal revenue allotment.
The solicitor general insists, however, that AO 372 is merely directory and has been issued by
the President consistent with his power of supervision over local governments. It is intended
only to advise all government agencies and instrumentalities to undertake cost-reduction
measures that will help maintain economic stability in the country, which is facing economic
difficulties. Besides, it does not contain any sanction in case of noncompliance. Being merely
an advisory, therefore, Section 1 of AO 372 is well within the powers of the President. Since it
is not a mandatory imposition, the directive cannot be characterized as an exercise of the
power of control.
While the wordings of Section 1 of AO 372 have a rather commanding tone, and while we
agree with petitioner that the requirements of Section 284 of the Local Government Code
have not been satisfied, we are prepared to accept the solicitor general's assurance that the
directive to "identify and implement measures x x x that will reduce total expenditures x x x
by at least 25% of authorized regular appropriation" is merely advisory in character, and does
not constitute a mandatory or binding order that interferes with local autonomy. The
language used, while authoritative, does not amount to a command that emanates from a
boss to a subaltern.
Rather, the provision is merely an advisory to prevail upon local executives to recognize the
need for fiscal restraint in a period of economic difficulty. Indeed, all concerned would do
well to heed the President's call to unity, solidarity and teamwork to help alleviate the crisis.
It is understood, however, that no legal sanction may be imposed upon LGUs and their
officials who do not follow such advice. It is in this light that we sustain the solicitor general's
contention in regard to Section 1.
Withholding a Part of LGUs' IRA
Section 4 of AO 372 cannot, however, be upheld. A basic feature of local fiscal autonomy is
the automatic release of the shares of LGUs in the national internal revenue. This is
mandated by no less than the Constitution.[28] The Local Government Code[29] specifies
further that the release shall be made directly to the LGU concerned within five (5) days after
every quarter of the year and "shall not be subject to any lien or holdback that may be
imposed by the national government for whatever purpose."[30] As a rule, the term "shall" is
a word of command that must be given a compulsory meaning.[31] The provision is,
therefore, imperative.
Section 4 of AO 372, however, orders the withholding, effective January 1, 1998, of 10
percent of the LGUs' IRA "pending the assessment and evaluation by the Development
Budget Coordinating Committee of the emerging fiscal situation" in the country. Such
withholding clearly contravenes the Constitution and the law. Although temporary, it is
equivalent to a holdback, which means "something held back or withheld, often
temporarily."[32] Hence, the "temporary" nature of the retention by the national
government does not matter. Any retention is prohibited.
In sum, while Section 1 of AO 372 may be upheld as an advisory effected in times of national
crisis, Section 4 thereof has no color of validity at all. The latter provision effectively
encroaches on the fiscal autonomy of local governments. Concededly, the President was
well-intentioned in issuing his Order to withhold the LGUs IRA, but the rule of law requires
that even the best intentions must be carried out within the parameters of the Constitution
and the law. Verily, laudable purposes must be carried out by legal methods.
Refutation of Justice Kapunan's Dissent
Mr. Justice Santiago M. Kapunan dissents from our Decision on the grounds that, allegedly,
(1) the Petition is premature; (2) AO 372 falls within the powers of the President as chief
fiscal officer; and (3) the withholding of the LGUs IRA is implied in the President's authority to
adjust it in case of an unmanageable public sector deficit.
First, on prematurity. According to the Dissent, when "the conduct has not yet occurred and
the challenged construction has not yet been adopted by the agency charged with
administering the administrative order, the determination of the scope and constitutionality
of the executive action in advance of its immediate adverse effect involves too remote and
abstract an inquiry for the proper exercise of judicial function."
This is a rather novel theory -- that people should await the implementing evil to befall on
them before they can question acts that are illegal or unconstitutional. Be it remembered
that the real issue here is whether the Constitution and the law are contravened by Section 4
of AO 372, not whether they are violated by the acts implementing it. In the unanimous en
banc case Taada v. Angara,[33] this Court held that when an act of the legislative department
is seriously alleged to have infringed the Constitution, settling the controversy becomes the
duty of this Court. By the mere enactment of the questioned law or the approval of the
challenged action, the dispute is said to have ripened into a judicial controversy even without
any other overt act. Indeed, even a singular violation of the Constitution and/or the law is
enough to awaken judicial duty. Said the Court:
"In seeking to nullify an act of the Philippine Senate on the ground that it contravenes the
Constitution, the petition no doubt raises a justiciable controversy. Where an action of the
legislative branch is seriously alleged to have infringed the Constitution, it becomes not only
the right but in fact the duty of the judiciary to settle the dispute. 'The question thus posed is
judicial rather than political. The duty (to adjudicate) remains to assure that the supremacy
of the Constitution is upheld.'[34] Once a 'controversy as to the application or interpretation
of a constitutional provision is raised before this Court x x x , it becomes a legal issue which
the Court is bound by constitutional mandate to decide.'[35]
xxx xxx xxx
"As this Court has repeatedly and firmly emphasized in many cases,[36] it will not shirk,
digress from or abandon its sacred duty and authority to uphold the Constitution in matters
that involve grave abuse of discretion brought before it in appropriate cases, committed by
any officer, agency, instrumentality or department of the government."
In the same vein, the Court also held in Tatad v. Secretary of the Department of Energy:[37]
"x x x Judicial power includes not only the duty of the courts to settle actual controversies
involving rights which are legally demandable and enforceable, but also the duty to
determine whether or not there has been grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of government. The courts,
as guardians of the Constitution, have the inherent authority to determine whether a statute
enacted by the legislature transcends the limit imposed by the fundamental law. Where the
statute violates the Constitution, it is not only the right but the duty of the judiciary to
declare such act unconstitutional and void."
By the same token, when an act of the President, who in our constitutional scheme is a
coequal of Congress, is seriously alleged to have infringed the Constitution and the laws, as in
the present case, settling the dispute becomes the duty and the responsibility of the courts.
Besides, the issue that the Petition is premature has not been raised by the parties; hence it
is deemed waived. Considerations of due process really prevents its use against a party that
has not been given sufficient notice of its presentation, and thus has not been given the
opportunity to refute it.[38]
Second, on the President's power as chief fiscal officer of the country. Justice Kapunan posits
that Section 4 of AO 372 conforms with the President's role as chief fiscal officer, who
allegedly "is clothed by law with certain powers to ensure the observance of safeguards and
auditing requirements, as well as the legal prerequisites in the release and use of IRAs, taking
into account the constitutional and statutory mandates."[39] He cites instances when the
President may lawfully intervene in the fiscal affairs of LGUs.
Davide, Jr., C.J., Bellosillo, Melo, Puno, Vitug, Mendoza, Quisumbing, Pardo, Buena, Gonzaga-
Reyes, and De Leon, Jr., JJ., concur.
Kapunan, J., see dissenting opinion.
Purisima, and Ynares-Santiago, JJ., join J. Kapunan in his dissenting opinion.

Precisely, such powers referred to in the Dissent have specifically been authorized by law and
have not been challenged as violative of the Constitution. On the other hand, Section 4 of AO
372, as explained earlier, contravenes explicit provisions of the Local Government Code (LGC)
and the Constitution. In other words, the acts alluded to in the Dissent are indeed authorized
by law; but, quite the opposite, Section 4 of AO 372 is bereft of any legal or constitutional
basis.

Third, on the President's authority to adjust the IRA of LGUs in case of an unmanageable
public sector deficit. It must be emphasized that in striking down Section 4 of AO 372, this
Court is not ruling out any form of reduction in the IRAs of LGUs. Indeed, as the President
may make necessary adjustments in case of an unmanageable public sector deficit, as stated
in the main part of this Decision, and in line with Section 284 of the LGC, which Justice
Kapunan cites. He, however, merely glances over a specific requirement in the same
provision -- that such reduction is subject to consultation with the presiding officers of both
Houses of Congress and, more importantly, with the presidents of the leagues of local
governments.

Notably, Justice Kapunan recognizes the need for "interaction between the national
government and the LGUs at the planning level," in order to ensure that "local development
plans x x x hew to national policies and standards." The problem is that no such interaction or
consultation was ever held prior to the issuance of AO 372. This is why the petitioner and the
intervenor (who was a provincial governor and at the same time president of the League of
Provinces of the Philippines and chairman of the League of Leagues of Local Governments)
have protested and instituted this action. Significantly, respondents do not deny the lack of
consultation.

In addition, Justice Kapunan cites Section 287[40] of the LGC as impliedly authorizing the
President to withhold the IRA of an LGU, pending its compliance with certain requirements.
Even a cursory reading of the provision reveals that it is totally inapplicable to the issue at
bar. It directs LGUs to appropriate in their annual budgets 20 percent of their respective IRAs
for development projects. It speaks of no positive power granted the President to priorly
withhold any amount. Not at all.

WHEREFORE, the Petition is GRANTED. Respondents and their successors are hereby
permanently PROHIBITED from implementing Administrative Order Nos. 372 and 43,
respectively dated December 27, 1997 and December 10, 1998, insofar as local government
units are concerned.

SO ORDERED.